[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION


                       SEPTEMBER 20 AND 21, 2000


                           Serial No. 106-251


       Printed for the use of the Committee on Government Reform

  Available via the World Wide Web: http://www.gpo.gov/congress/house

74-099                     WASHINGTON : 2001

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                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
HELEN CHENOWETH-HAGE, Idaho              (Independent)

                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                        Robert A. Briggs, Clerk
                 Phil Schiliro, Minority Staff Director

                            C O N T E N T S

Hearing held on:
    September 20, 2000...........................................     1
    September 21, 2000...........................................   199
Statement of:
    Browner, Carol, Administrator, Environmental Protection 
      Agency.....................................................   226
    Hoecker, James J., chairman, Federal Energy Regulatory 
      Commission.................................................   239
    Richardson, Bill, Secretary, Department of Energy............   212
    Santa, John, chief operations officer, Santa Fuel, 
      Bridgeport, CT; Ray Tilman, former president, Montana 
      Resources, Butte, MT; David Pursell, vice president of 
      Upstream Research, Simmons & Co. International, Houston, 
      TX; Steve J. Lane, senior facilities engineer, SDL, Inc., 
      San Jose, CA; and David Hamilton, policy director, Alliance 
      to Save Energy.............................................    31
    Simon, Steve, president, Worldwide Refining and Supply, 
      ExxonMobile Corp., Dallas, TX; Bob Slaughter, general 
      counsel and director of public policy, National 
      Petrochemical and Refinery Association; Curt Hildebrand, 
      vice president, project development, Calpine Corp., 
      Pleasanton, GA; David Hawkins, director, air and energy 
      program, Natural Resources Defense Council.................   102
Letters, statements, etc., submitted for the record by:
    Browner, Carol, Administrator, Environmental Protection 
      Agency, prepared statement of..............................   230
    Burton, Hon. Dan, a Representative in Congress from the State 
      of Indiana, prepared statements of........................ 6, 205
    Chenoweth-Hage, Hon. Helen, a Representative in Congress from 
      the State of Idaho, prepared statement of..................     2
    Hamilton, David, policy director, Alliance to Save Energy, 
      prepared statement of......................................    73
    Hawkins, David, director, air and energy program, Natural 
      Resources Defense Council, prepared statement of...........   153
    Hildebrand, Curt, vice president, project development, 
      Calpine Corp., Pleasanton, GA, prepared statement of.......   134
    Hoecker, James J., chairman, Federal Energy Regulatory 
      Commission, prepared statement of..........................   241
    Kanjorski, Hon. Paul E., a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........    21
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio, prepared statement of...................    25
    Lane, Steve J., senior facilities engineer, SDL, Inc., San 
      Jose, CA, prepared statement of............................    68
    Pursell, David, vice president of Upstream Research, Simmons 
      & Co. International, Houston, TX, prepared statement of....    55
    Richardson, Bill, Secretary, Department of Energy, prepared 
      statement of...............................................   216
    Santa, John, chief operations officer, Santa Fuel, 
      Bridgeport, CT, prepared statement of......................    33
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............    19
    Simon, Steve, president, Worldwide Refining and Supply, 
      ExxonMobile Corp., Dallas, TX, prepared statement of.......   104
    Slaughter, Bob, general counsel and director of public 
      policy, National Petrochemical and Refinery Association, 
      prepared statement of......................................   115
    Tilman, Ray, former president, Montana Resources, Butte, MT, 
      prepared statement of......................................    45
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................    13



                     WEDNESDAY, SEPTEMBER 20, 2000

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 1:07 p.m., in 
room 2154, Rayburn House Office Building, Hon. Dan Burton 
(chairman of the committee) presiding.
    Present: Representatives Burton, Gilman, Morella, Shays, 
McHugh, Souder, LaTourette, Biggert, Ose, Waxman, Kanjorski, 
Maloney, Norton, Kucinich, Tierney, Allen, Ford, and 
    Staff present: Kevin Binger, staff director; James C. 
Wilson, chief counsel; David A. Kass, deputy counsel and 
parliamentarian, Sean Spicer, director of communications; Josie 
Duckett, deputy communications director; Nat Weinecke, 
professional staff member; Robert Briggs, clerk; Robin Butler, 
office manager; Michael Canty, legislative assistant; Leneal 
Scott, computer systems manager; John Sare, staff assistant; 
Maria Tamburri, assistant to chief counsel; Corinne Zaccagnini, 
systems administrator; Phil Schiliro, minority staff director; 
Phil Barnett, minority chief counsel; Kristin Amerling, 
minority deputy chief counsel; Ellen Rayner, minority chief 
clerk; and Jean Gosa and Earley Green, minority assistant 
    Mr. Burton. Good afternoon. The Committee on Government 
Reform will come to order.
    A quorum being present, we are ready to conduct our 
business. I ask unanimous consent that all Members' or 
witnesses' written opening statements will be included in the 
record. And without objection, so ordered.
    [The prepared statement of Hon. Helen Chenoweth-Hage 


    Mr. Burton. I ask unanimous consent that all articles, 
exhibits and extraneous or tabular material referred to be 
included in the record. And without objection, so ordered.
    I ask unanimous consent that questioning in this matter 
proceed under clause 2(j)(2) of House rule 11 and committee 
rule 14 in which the chairman and ranking minority member 
allocate time to the members of committee as they deem 
appropriate for extended questioning, not to exceed 60 minutes, 
equally divided between the majority and minority.
    Mr. Waxman. Reserving the right to object, and I only do 
this to ask the chairman, we have as one of our colleagues who 
is the full committee chairman of the International Relations 
Committee, and I understand he has a scheduling conflict. Could 
I ask unanimous consent that he be permitted to give the first 
opening statement, and then you and I will proceed with our 
opening statements?
    Mr. Burton. That will be fine with me. He is very 
appreciative, but he wants to wait just a few minutes.
    I will proceed, and then we will get back to you just as 
quickly as we can. And I thank the ranking minority member for 
his kindness. We have all this new technology, and we are 
having all sorts of glitches.
    Today we are holding our second day of hearings on problems 
in our energy markets. Tomorrow we will hold our third. Last 
June we focused on a very narrow problem. Prices that were 
spiking for gasoline in the Midwest. This week we are going to 
step back and take a look at the bigger picture.
    The big picture doesn't look very good right now. We 
continue to have problems in our gasoline markets. We have 
problems in our natural gas markets. We have problems in our 
home heating oil and electricity markets. I'm not aware of any 
segment of our energy markets where we are not having problems.
    The fact of the matter is that energy prices are soaring, 
and every American family is going to feel the impact in the 
very near future. We have to have a strong energy policy if 
we're going to deal with these problems, and right now we 
simply don't have one. The signs of a looming energy crisis are 
all around us. Look at what happened to gasoline prices this 
summer, and now the price of oil is creeping up to close to $40 
a barrel. And if you go back to 18 months, it was closer to $10 
a barrel. That is a huge quantum leap in just a short period of 
    Take a look at electricity. In San Diego, electricity rates 
have doubled. In some cases they have even tripled. This year 
the State of California has had 17 stage 2 alerts. That means 
that the level of electricity in the wires was so low that some 
customers had to have their power turned off 17 times around 
the State of California. In all of 1999, there was only one 
stage 2 alert in that State. On June 14th, in San Jose, CA, the 
power went out. There wasn't any electricity. They had a 
blackout for 4 hours. We are going to hear today from a 
businessman who will tell you what happened to his company.
    In Montana, electricity rates have gone up 500 percent for 
industrial users. We are going to hear from a witness today who 
had to shut down his business and lay off 300 people because 
they couldn't pay their electricity bills.
    Take a look at natural gas. The cost of natural gas has 
tripled--tripled since March of last year. Prices are going to 
go up more this winter. What impact is that going to have on 
senior citizens on fixed incomes? Take a look at home heating 
    Prices of home heating oil in New England spiked to more 
than double their normal last winter. Going into this fall, 
inventories are at a 5-year low. Home heating oil is so 
expensive that distributors are going into winter with empty 
storage tanks. That spells real trouble if we have a real cold 
winter. We're going to hear from one of those distributors 
    All of these things are like cracks in the dike. They are 
telling us loud and clear that we have a system that is in 
serious trouble. It looks to me like we're headed to an energy 
crisis this winter and another one next summer. We need to have 
a strong energy policy to deal with these problems. Right now 
we simply don't have one.
    Praying for a mild winter won't cut it. Pleading with OPEC 
to lower prices won't cut it. The first step is to try to 
figure out what's causing these problems. All of these areas 
there are local factors you can point to. A breakdown in the 
Explorer pipeline this summer set off the gasoline price spike 
in Chicago. In California and Montana, deregulation of electric 
utilities played a role. Some people think there is price 
gouging going on. We're going to look into that as well.
    However, I think that if you look at each of these areas, 
electricity, natural gas, home heating oil, there is a deeper 
underlying problem. Demand for energy has been growing with our 
growing economy, and the supply of energy simply is not keeping 
up. When demand starts bumping up against supply, that's when 
the cracks in the dike start forming.
    Let's take a look. There has not been a single new oil 
refinery built in this country in 25 years. 25 years. If you 
could build a new refinery, it would be almost impossible to 
build a new pipeline to get your product to market because of 
environmental regulations and other regulations. Look at the 
electricity situation in San Francisco. The population of the 
Bay area has grown 50 percent in the last 20 years, yet not one 
new power plant has been built to serve the area since 1982. We 
are going to talk today to a California executive who builds 
power plants about all of the problems they are having in that 
    Secretary Richardson testified here before us in June. He 
summed up the situation pretty well. He said, ``We have 
dramatically increased demand; however, domestic oil production 
and domestic refinery capacity has not kept up with that 
    Why not? State and local laws play a part, but a big part 
of the problem is Federal regulation. Take a look at the oil 
business. Under all of the requirements of the Clean Air Act, 
it simply is not economical to build a new refinery in this 
country. You can't do it. In 1982, there were 231 refineries in 
the United States. Today, that's dropped to 155, and yet demand 
keeps rising.
    Yet at the same time, under the reformulated gasoline 
provisions of the Clean Air Act, refineries have to make as 
many as 15 different blends of gasoline in the summertime, so 
we have fewer refineries with much more demand by the 
government and by the population as far as the need is 
concerned. The result is that you have a system that is 
straining at its limits to meet demand. Under those conditions, 
all it takes is one small disruption to set off a crisis. And 
at the end of the summer, after struggling to meet the demand 
for gasoline all summer, they're not prepared for the home 
heating oil season.
    This isn't a problem that is going to go away by itself. It 
is going to get worse each year as demand keeps growing and 
supply doesn't or can't keep pace. At the same time, the EPA 
has a whole series of new rules in the pipeline. Now, I'm not 
saying that we shouldn't have good environmental laws. We 
certainly should. We all want to breathe clean air. But we also 
want to keep warm in the winter. What I'm saying is that 
there's got to be some balance. We have to weigh the costs 
against the benefits, because if we keep going like we are, we 
are headed for a meltdown somewhere along the way.
    We have a number of witnesses before us today who know a 
lot more about the energy business than we do. We have Mr. 
Simon from Exxon Oil. We have Mr. Slaughter from the Refiners 
Association. We have Mr. Hildebrand from Calpine. We have an 
expert energy analyst on the very first panel.
    I'd like to ask all of our witnesses today to do two 
things: First, tell us what we in Congress can do to tackle 
some of these problems. And second, tell us what the 
administration can do.
    We have 44 Members of the Congress on this committee. All 
won't be here today, but many of us will, and we're listening. 
Secretary Richardson will be testifying tomorrow. Administrator 
Browner of the EPA will be testifying tomorrow. Tell us what 
you need from us and the administration to avoid disruptions, 
and we'll take up those issues with the people who have 
something to do with it in the administration tomorrow 
morning--tomorrow afternoon.
    The bottom line is this: we can't bury our heads in the 
sand anymore. We have to have a strong energy policy. We have 
become more self-sufficient and less reliant on foreign oil. We 
have been talking about this since the gasoline crisis 25 years 
ago or 20 years ago. Under this administration we have not had 
a strong energy policy. When Secretary Richardson was here in 
June, he said we needed more tax credits for fuel efficiency. 
He said we needed more funding for alternative energy sources. 
Well, I think we all support those things, but windmills and 
solar power aren't going to solve the problem.
    We need a policy that would help us become more self-
sufficient. We have enormous deposits of oil and gas that are 
currently off limits. We need to take another look at that. We 
need to review some of these new EPA rules coming down the pike 
to see if some additional flexibility isn't in order. If we 
don't step up to the plate, we are just going to keep lugging 
from one crisis to another like we have been doing for the last 
year and even before that.
    So to our witnesses, thank you for being with us today, and 
we'll look forward to your testimony. And with that, I will 
yield to my colleague, if it is all right with you, Mr. Waxman, 
the chairman of the International Operations Committee, for his 
opening statement.
    [The prepared statement of Hon. Dan Burton follows:]

    [GRAPHIC] [TIFF OMITTED] T4099.002
    [GRAPHIC] [TIFF OMITTED] T4099.003
    [GRAPHIC] [TIFF OMITTED] T4099.004
    Mr. Gilman. Thank you, Chairman Burton, for today's 
hearing, and I want to thank our ranking minority member, Mr. 
Waxman, for yielding some time to me and allowing me to go out 
of order. I also want to thank the witnesses for their 
willingness to appear before our committee to discuss how the 
turmoil in energy markets throughout the country, the impending 
home heating crisis in the Northeast, and the constraints and 
limitations by State and Federal regulations have been placed 
on the market sectors of the energy market.
    Administration officials have given many reasons why the 
high costs of energy have taken place, but what it comes down 
to is that people throughout our Nation are suffering from 
exorbitant energy prices. With oil at record prices, our 
constituents and our businesses are hurting, they're 
frustrated, especially those who are on fixed incomes.
    How is the independent heating oil business in my district 
doing? Well, let's take a look at one of my suppliers, Mr. 
Crawford. He is the proprietor of E&A Crawford Heating Oil in 
my district, was paying 45 cents for heating oil in September 
1999. He is now forced to purchase the same at $1.06 a gallon, 
and on August 1st, the supplying Newburg rack price was 78.8 
cents a gallon and now has surpassed $1.10 a gallon, with a 
cost of more than $1.40 to his customers, and all of that 
before we are faced with a high demand of the winter months.
    Mr. Crawford has been in the heating oil business for more 
than 30 years. He's losing customers to the larger companies 
that can provide heating oil cheaper by buying it in bulk, and 
he's been writing to me that the price of the Newburg rack--as 
he was writing to me, the price of the Newburg rack heating oil 
rose 6 cents on that day for the same oil in the same tank as 
the day before.
    Mr. Crawford places a lot of the blame on the mercantile 
exchange traders who wouldn't know a barrel of oil if they fell 
on one, yet they continue to drive the price up as gamblers and 
speculators. His pain and frustration is being felt throughout 
our district, our State, and our Nation. He asked the same 
questions that many people from all over that are inundating 
our offices are asking: How can we let this happen? Why has the 
President not done more to lower the prices of oil? And since 
oil and its derivatives are so vital, how did it ever get on 
the exchange where it is subject to blatant manipulation?
    Mr. Crawford is not alone with his frustration and his 
worries about the rising price of energy. The prices of 
electricity have also increased as a result of the high cost of 
crude oil and natural gas which power the massive generators 
that produce the energy products. Couple the oil crisis with 
deregulation and, once again, my constituents and the American 
people face a great deal of suffering in the months ahead.
    We are all being inundated with calls regarding the drastic 
increases that our constituents find on their utility bills, 
which are up 30 to 40 percent from last year. The New York 
Times in late August reported that people all over the New York 
region have denounced energy deregulation as either, ``a 
failure or a fraud.''
    Edward Smeloff, a former utility official, director of a 
research group on electricity in Pace University, stated, ``In 
the past we trusted that State regulators who were appointed by 
our elected officials were watching out for us, which may or 
may not have been true. The new model is figure it out for 
    Only a few of energy competitors have entered the New York 
market, which does not leave consumers with much choice in a 
provider. Senior executives in a major energy concern in my 
district state that the deregulated market is not the reason 
for the high cost of electricity. They attribute the high cost 
of energy to the excessive costs of crude oil and natural gas 
which are keeping the prices of electricity excessively high.
    The executives also point to supply and demand, where the 
demand has increased more than 30 percent, with a supply at 6 
percent, as contributing factors to the higher prices.
    Natural gas at more than $5.35 per mmbtu is also 
excessively high. A recent article in our local newspaper, 
Times Herald Record, states that supplies of U.S. natural gas 
has been declining since the 1990's, with energy firms finding 
it cost-prohibitive to produce natural gas. What makes it 
worse, reported that newspaper, is that production is up a 
scant 1 percent, while demand for the product is off the 
charts, as it is needed to generate electricity as utilities 
switched from coal and nuclear power plants.
    Analysts are painting a bleak picture, ``If we have a 
normal winter, we are going to see potentially astronomical 
natural gas prices, much higher than we see today, reported 
David Chang, a senior energy trader for the Bank of America in 
New York.'' The Energy Information Agency paints a similar 
picture stating, ``The high price of natural gas reflects the 
intense competition between current and future uses of gas 
supplies and has been a disincentive to increasing storage 
injections.'' The agency further reports that the total amount 
of natural gas in storage is 65 percent full, which implies 
that stocks are lower 18 percent from last year.
    What all of this tells our constituents, the people of my 
State and around our Nation is that the administration has 
failed to create and implement a coherent strategic short- and 
long-term energy policy and is not working with the private 
sector to craft an energy policy that helps the hard-working 
people of our Nation.
    This is how the current energy crisis is affecting the 
people and businesses in my district, Mr. Chairman, and we look 
forward to discussing these issues and potential solutions with 
our expert witnesses who are here today. And I thank you, 
again, for arranging this hearing.
    Mr. Burton. I thank Mr. Waxman once again for allowing you 
to go ahead since you have another meeting.
    Mr. Gilman. And I appreciate that, Mr. Waxman.
    Mr. Burton. Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. And I was pleased to 
accommodate Congressman Gilman.
    Today's hearing is about a topic that has been neglected by 
the Congress too long, energy policy. There is bipartisan 
agreement that our Nation faces serious energy problems. The 
price of crude oil has risen dramatically over the past year. 
Last winter in the Northeast, the cost of heating a home with 
oil soared, and prices could even be higher this year.
    And this summer in California, consumers in San Diego have 
faced electricity bills that are two to three times higher than 
normal, and other areas of the State have experienced 
    Unfortunately, there is no bipartisan agreement about the 
cause of these problems and how we should address them. 
Republican leaders blame the Clinton administration. Some have 
even claimed that the Clean Air Act, and other essential 
environmental laws, are the cause of high energy prices. These 
theories make good politics, but they are basically nonsense. 
The fundamental problem that our Nation faces is that we are 
too dependent on fossil fuels in general and oil in particular. 
This leaves us vulnerable to manipulation by OPEC and threatens 
our economic and national security. And we are entering the 
21st century with an antiquated electric utility 
    These are not new problems. Gas lines in the 1970's showed 
us the dangers of excessive reliance on oil. But a combination 
of factors, lower energy prices, antiregulation sentiment in 
the administrations in the 1980's and in Congress in the 
1990's, and a growing economy have conspired to halt our 
progress toward alternative fuels, renewable energy, and energy 
    In fact, today we consume more oil, more gasoline, and more 
diesel fuel than we did 20 years ago. The Clinton 
administration has proposed modest steps to reduce our 
dependence on oil and other fossil fuels. The administration 
has proposed tax credits to spur energy efficiency and research 
and development partnerships with the auto industry to develop 
a new generation of clean vehicles. And the administration has 
sent Congress electricity restructuring legislation. But even 
these needed measures have met resistance in the Congress. As a 
result, we have not formulated or implemented the kind of 
comprehensive energy policy our Nation needs.
    The last time Congress enacted a comprehensive energy 
legislation was 1992. In recent years, the Republican 
leadership in Congress has even gone so far as to call for the 
abolition of the Department of Energy and the sale of the 
Strategic Petroleum Reserve.
    The States, too, have made mistakes. With hindsight, the 
deregulation efforts in California may have serious flaws, 
allowing energy suppliers to manipulate the market and raise 
prices through the roof. But while we face serious problems 
today, the future could be much brighter. Our energy policy may 
have stagnated, but technology has not. New energy technologies 
are on the horizon that can strengthen our economy, protect our 
environment, and lessen our dependence on oil and other fossil 
    Fuel cells, for instance, have made enormous strides in 
recent years. This technology combines hydrogen with oxygen via 
an electrochemical process to generate electricity without 
emitting any air pollution or greenhouse gases. The costs of 
these technologies are dropping, and prototypes have been 
developed that can run automobiles or light buildings. And 
since fuel cells do not have to run off gasoline, fuel cells 
can reduce our dependence on foreign oil.
    It won't be easy to shift course. The big oil and gas 
companies are making billions off of today's high prices, and 
they hire countless lobbyists and give millions in campaign 
contributions to preserve the status quo. But if we have the 
political will, we can craft a sound energy policy for our 
children, one that relies on new technologies, energy 
efficiency, and renewable energy to create new industries and 
jobs, provide greater energy independence and protect the 
global environment.
    The energy crisis of the 1970's showed us the importance of 
developing forward-looking energy policies, but unfortunately 
we squandered that opportunity to reduce our dependence on oil 
and implement needed changes in U.S. energy policies. I hope we 
won't repeat that mistake once again.
    I look forward to hearing the witnesses--the testimony of 
the witnesses and working with my colleagues, Democrat and 
Republican alike, to address what is a national issue and calls 
on us to put partisanship aside, to use our best judgment and 
to try to be constructive, not just point fingers at each 
other. Thank you.
    [The prepared statement of Hon. Henry A. Waxman follows:]

    [GRAPHIC] [TIFF OMITTED] T4099.005
    [GRAPHIC] [TIFF OMITTED] T4099.006
    Mr. Burton. Do any other Members have opening statements, 
or should we go ahead? If you have an opening statement, that's 
    Mrs. Biggert. Thank you, Mr. Chairman. I represent a 
suburban Chicago district, and as many of you know, the Chicago 
area was hit with the highest gasoline prices in the Nation 
earlier this summer. Unfortunately for Illinoisans and 
consumers across the Nation, gasoline prices will not be the 
only energy cost putting a strain on our pocketbooks this year.
    We're told now in the press reports and by utility 
companies to get ready for the next hit: higher home heating 
bills. And who is going to be hit? Nationwide, 55 percent of 
all homes have natural gas service, but in my district in 
Illinois, approximately 95 percent of all homes are able to get 
natural gas service. It is extremely disconcerting that this 
country is experiencing a natural gas price increase during the 
summer months, long before the traditional winter increase in 
demand and price. And for those of us living in the Midwest 
where the winters are usually long and harsh, rising energy 
costs are a cause for serious concerns.
    The problems that we are likely to face this winter are a 
symptom of the administration's piecemeal, some might say 
failed, others might say nonexistent energy policy. It is no 
secret that the administration has ignored and shunned coal and 
nuclear power. They threatened to tear down hydroelectric dams, 
which are one of the cleanest sources of electricity today.
    What is to compensate for increased electricity demand and 
the gradual loss of generating capacity from nuclear and 
hydropower? The reality of the situation is that renewable 
sources of energy have a long way to go before they even come 
close to compensating for nuclear and hydropower. What is the 
only clean source of energy that can meet the administration's 
high standards and the increased demand for electricity while 
at the same time ensuring the reliability of the electricity 
grid? Well, it's natural gas.
    In short, the administration's narrowly focused energy 
policy contains so few options that it has created a monster. 
That explains why 96 percent of the power plants currently 
being built are natural-gas-fired power plants. We know this 
all too well in Illinois, where 400 to 800-megawatt natural-
gas-fired peaker plants are sprouting like mushrooms across the 
suburbs only to be used for a few months during peak periods of 
demand. As a result, the natural gas typically purchased in the 
summer for storage and later used for the winter is instead 
being used for electricity generation.
    As one energy expert put it, electric utilities are the new 
800-pound gorilla of the natural gas market. And what does this 
mean for the consumer? Well, NICOR Gas, the largest natural gas 
distribution company in Illinois servicing my constituents and 
1.9 million residents in the northern third of the Illinois, 
estimates that the heating bills could be as much as 50 percent 
higher than last year. In real dollars this means that a normal 
winter could push the cost of natural gas for average 
residential customers in Illinois up to $610 or more for the 
months of October through March. Last year the cost was $410, a 
difference of at least $200.
    Local papers have been publicizing NICOR's warnings. Even 
the Chicago Tribune picked up on the rising public concern 
about natural gas prices this winter. An editorial in its 
August 14th edition was entitled: Start Practicing Your 
    One of the last paragraphs of this editorial summed it up. 
It reads: ``It will cost more to heat your home this winter. 
This will be a burden, but it will not be the work of sinister 
forces. It will be supply and demand at work.''
    It appears that the administration has ignored the 
consequences of its supply limiting actions. They have taken 
away all the options save one: natural gas. Small wonder then 
that we were left with but one option: sky-high prices in 
energy markets.
    Thank you very much, Mr. Chairman.
    Mr. Burton. Thank you Mrs. Biggert.
    Ms. Schakowsky.
    Mrs. Maloney, go ahead.
    Mrs. Maloney. Thank you. Thank you, Mr. Chairman.
    After a summer of high gas prices for consumers, the 
outlook for winter energy prices looks even more grim. As oil 
prices soar, and heating oil inventories remain dangerously 
low, Americans are facing a catastrophic situation. A further 
alarming part of this is that even as families continue to bear 
the burden of high oil prices, the oil industry is enjoying 
record profits.
    As Americans suffer, the industry has seen its profits 
soar. While enjoying these record profits, I have been alarmed 
to see industry lobbyists hard at work here in Congress to 
further improve their bottom lines. Two recent examples 
currently, right now, before Congress best illustrate this 
    First, I want to take this opportunity to bring to the 
attention of the committee members an issue that I believe will 
have a major impact on future energy prices. The full House may 
soon consider legislation that has passed the Banking, Commerce 
and Agricultural Committees dealing with financial and energy 
derivatives products. The Commodities Futures Modernization Act 
of 2000 would have the effect of allowing trading in energy 
futures to move off of public exchanges and onto private 
electronic exchanges, out of sight, where the public will have 
no ability to monitor changes in energy prices.
    Now is not the time to give big oil the gift of relieving 
the industry from the public scrutiny of public exchanges.
    I offered an amendment in the Banking Committee that would 
have deleted this provision and moved the House bill closer to 
the approach that Senator Lugar has taken in the Senate. 
Unfortunately, despite bipartisan support, the amendment 
failed. Without my amendment, trading in energy contracts for 
future delivery of crude oil, heating oil, natural gas and 
electricity, which my California colleagues should take special 
note, will move off of public exchanges where the public, the 
regulators, and Members of Congress can follow the changes in 
energy prices.
    For example, currently market participants with more than 
200 contracts, the equivalent of 200,000 barrels of oil, must 
report their positions to the CFTC and the exchange. And the 
CFTC makes the information available to the public. Trades off 
an exchange will not have the audit trail available to 
reconstruct fraud.
    A situation could occur where consumer energy prices spike 
based on trades in energy derivative products conducted on 
private exchanges that the energy companies themselves may even 
own. The potential for fraud and manipulation is too large to 
allow these trades to take place outside of public view, 
especially as the government is currently investigating 
possible energy price gouging.
    The Commodity Futures Trading Commission, which oversees 
the exchanges, agrees with me. Just yesterday I received a 
letter from CFTC Chairman William Rainer, Chairman Rainer 
writes: ``Charging the Commission with the responsibility to 
police for fraud and manipulation, however without conferring 
the authority to promulgate regulations where necessary, leaves 
the CFTC inadequately equipped to fulfill these 
responsibilities,'' and I'd like to place his letter into the 
    I urge my fellow committee members to lobby our colleagues 
from the Banking, Commerce and Agriculture Committees who are 
currently negotiating a version of the bill for the floor to 
remove this provision. If this provision is not removed, I look 
forward to a healthy floor debate on energy prices and the oil 
    Let me note that the commodity modernization bill is 
otherwise a very important piece of legislation for the conduct 
of our Nation's financial services, and I totally support it.
    I also want to point out to the committee another issue 
which was recently brought to my attention and is currently 
being considered in the Senate. In 1996, Mr. Horn and I held 
together a hearing before the Government Management, 
Information, and Technology Subcommittee to look into the 
industry's effort to cheat taxpayers out of millions of dollars 
owed in royalties for oil taken from Federal land. These 
hearings, and subsequent investigations by the GAO, led us to 
conclude that numerous major oil companies were paying 
royalties based on prices that were far lower than the true 
market value of the oil that they were buying and selling.
    To date, lawsuits against the oil industry on this 
particular issue have resulted in more than $300 million being 
returned to the taxpayers. Overall, the oil industry has been 
forced to pay over $5 billion to the Federal Government, 
States, and Indian tribes. The revised oil valuation regulation 
that would base the price of oil from Federal lands on market 
value has emerged from these lawsuits, and according to MMS 
would add an additional $66 million each year to the Federal 
Treasury, to the taxpayers.
    Now, the Senate Energy and Natural Resources Committee 
plans to attach a provision designed to thwart the new 
evaluation rule to the Energy Policy and Conservation Act, 
legislation to reauthorize the Strategic Petroleum Reserve and 
to finally authorize the desperately needed Northeast Home 
Heating Oil Reserve.
    I am astonished that we would consider attaching a giveaway 
to the oil industry in the midst of a bill designed to help 
consumers deal with the rising oil prices, and I have written 
to Secretary Babbitt urging him to strongly oppose this 
provision, and I am hopeful that the Senate will pass the 
Energy Policy and Conservation Act without the royalty-in-kind 
rider attached.
    Spikes in energy prices may represent the single greatest 
threat to our record economic growth. This Congress should be 
working to provide a stable energy supply to the country, not 
rewarding the industry, particularly at this point in time.
    Thank you, and I yield back the balance of my time.
    Mr. Burton. Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman.
    Mr. Chairman, my statement is really to welcome our 
witnesses here today, every one of them in both panels, to 
pledge to them that I'm going to try to have a very open mind. 
I am one who believes that we need to conserve much more and 
make a greater effort there, but have an open mind at all 
aspects of this issue.
    And finally, just to welcome a witness, our first witness 
John Santa this morning. As the chief operating officer of the 
Santa Fuel Co. in Bridgeport, CT, my hometown, Mr. Santa is an 
important member of our business community and an 
extraordinarily knowledgeable spokesperson on energy issues in 
the Northeast. The Santa family has been providing energy 
products to Connecticut consumers since 1940. They know what it 
takes to build and sustain an efficient, reliable supply and 
distribution system, and I know his insights and experience 
will be of benefit to the committee this morning. I am grateful 
that he has joined us and grateful for the other witnesses.
    Mr. Burton. Thank you Mr. Shays.
    [The prepared statement of Hon. Christopher Shays follows:]

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    Mr. Burton. Before I go to the next Member, let me say we 
are going to have a vote in probably 10 minutes, and it is the 
intent of the Chair to continue the hearing, so we can go on. 
Mr. Shays will come back and take the chair after he votes, and 
then I will run and vote so we can continue on with the 
    Mr. Shays. There are evidently two votes.
    Mr. Burton. There is going to be two votes, OK. Well, then, 
that will mess that up. I would like to get to the witnesses as 
quickly as possible, but I guess, Mr. Kucinich or Mr. 
Kanjorski, you want to go next? We will try to enforce the 5-
minute rule because we have so many Members who want to speak, 
and we want to get to the witnesses.
    Mr. Kanjorski. Mr. Chairman, I have extended opening 
remarks, and I would ask unanimous consent that they appear in 
the record in their entirety. If I may just take 1 or 2 
    Mr. Burton. Without objection. Yes, sir, that is fine.
    Mr. Kanjorski. One, I want to thank you for holding the 
hearing today. I look forward to the testimony over the next 2 
days. But rather than just hearing testimony anymore or talking 
about the issue, it is time for the Congress to act. I think we 
are facing a potential that could create tremendous financial 
burden on working families, the elderly, small business and 
farmers with energy costs this winter.
    In June of this last year, our committee met to discuss 
rising fuel prices and determine what we could do about it. We 
were given a lot of information as to where the volume and 
where the inventory was, and we are significantly lower in 
inventory this year than is wise.
    We have, however, a policy and bill that the House passed 
in April of this year which extended authority to the President 
to utilize the Strategic Petroleum Reserve. To my best 
information, this legislation has remained dormant in the 
Senate, has not been addressed, and as a result it is highly 
questionable whether the President has the authority to release 
reserves from the Strategic Petroleum Reserve, and the 
potential may be either to knock the spiking prices down or to 
provide the necessary inventory to meet crisis conditions that 
could occur in a cold winter situation.
    I think it is absolutely essential that we do our best on 
both sides of the aisle to urge our counterparts in the Senate 
to move this reauthorization of the President's authority 
through as quickly as possible.
    Above and beyond that, I look forward to the testimony that 
these witnesses will give, and, again, I congratulate Mr. 
Chairman for holding these hearings.
    Mr. Burton. Thank you, Mr. Kanjorski.
    [The prepared statement of Hon. Paul E. Kanjorski follows:]

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    Mr. Burton. Any statements on our side?
    Mr. Kucinich.
    Mr. Kucinich. I would also like unanimous consent to have 
my entire statement in the record, but I would like a couple of 
minutes here just to review.
    Mr. Burton. We will put your whole statement in the record.
    Mr. Kucinich. Thank you.
    I would like a few minutes here to review what I think is 
the most important point to consider at this point. And the 
area I'd like to touch on is the U.S. oil company response to 
OPEC oil production cutbacks.
    Mr. Burton and Mr. Waxman and members of the committee, I'd 
like to quote a commentary found in Business Week. It is the 
edition that is just coming out September 25, 2000. The 
article, Big Oil's Priority: Pump Up the Stock Price. Here is 
the article:

    It has been the problem that won't go away. The 
skyrocketing price of oil. Already three times this year, OPEC 
has increased its oil production quotas in an effort to 
alleviate the pressure. So what about the major non-OPEC oil 
companies who, along with a number of non-OPEC nations, 
collectively produce more than half the world's crude? 
Surprisingly, while OPEC is pumping harder than it has in 
decades, some of the world's largest oil companies are actually 
producing less. BP slashed its production by 4 percent, and 
midsized producers such as Texaco and Occidental Petroleum have 
been even less active. Both saw their worldwide oil output 
slide 7 percent in the first half of this year. Together, 10 of 
the largest reduced their output by 0.4 percent in the first 
half of this year, according to a recent report from Merrill 
Lynch and Co. ``The lack of a production increase from non-OPEC 
sources is a big reason why prices remain high,'' says Merrill 
Lynch analyst Steven A. Pfeiffer.

    This Business Week article suggests, Mr. Chairman, that 
while Congress and the administration have directed attention 
and effort to compelling greater oil production by OPEC, 
American-based oil companies have escaped notice and are 
lowering production. The commentary further explains that oil 
companies want higher profits to make Wall Street happy and 
protect themselves against future losses from low oil prices.
    I look forward to the oil industry's explanation of 
lowering oil production during an oil shortage.
    I yield back.
    Mr. Burton. Thank you Mr. Kucinich.
    [The prepared statement of Hon. Dennis J. Kucinich 




    Mr. Burton. Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. I will be very brief.
    There are four of us from California on this committee, Mr. 
Waxman, Mr. Lantos, Mr. Horn, and myself, and we have had the 
dubious pleasure of enduring some rather significant variation 
in the electricity pricing over the past 3 or 4 months. One of 
the interesting things that has come to my attention which I 
hope to explore in the context of this committee hearing is the 
source of the electricity that goes into the California market 
and whether or not that source has increased or that source of 
supply has increased, decreased, remained stable and the like.
    In the context of the hearing, I will be sharing with the 
committee exactly what I found, which took me about 8 minutes 
on the Internet. But the reality is that we have had a 
reduction in the amount of electrical energy supplied to 
California, not from the private side, but from the Federal 
side. From the Federal side. A conscious decision by the 
Federal Government to reduce the amount of electricity being 
generated to service any number of markets, but the primary 
market being California, and the primary market within 
California being San Diego.
    So I just look forward to the time during questions where 
we can go through that. I have the legislative background and 
everything, and it is going to be quite interesting.
    Mr. Chairman, with that I really do want to compliment you 
and Mr. Waxman for putting this hearing together, and I look 
forward to the questions.
    Mr. Burton. I thank the gentleman.
    Let me just ask you if you would yield to me briefly.
    Mr. Ose. Certainly, I will yield to you.
    Mr. Burton. You are saying there was a deliberate attempt 
by some regulatory agency in the Federal Government to reduce 
the amount of electricity to various parts of the country, and 
in particular southern California?
    Mr. Ose. I'm saying that there has been a reduction for one 
purpose, the consequence of which has been a significant price 
spike in the cost of electricity, even though the agency that 
implemented the reduction has the authority to waive it. In 
other words, they have the authority to not cause the 
reduction. Believe me, it will be fun.
    Mr. Burton. I will be interested in hearing what you have 
to say.
    Ms. Schakowsky, did you have a statement?
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Mr. Chairman, I represent also the Chicago area, as does 
Congresswoman Biggert, and some of the suburbs, and we have 
been plagued with energy problems. The summer before last, we 
had--we were notorious for unreliable electric service, and 
Commonwealth Edison is still struggling to be able to make sure 
that we can have reliable service that we pay the highest 
prices in the Midwest.
    And this past summer we faced the highest gasoline prices 
in the Nation. At that time the oil industry made an attempt to 
justify those prices mostly by blaming ethanol and the EPA. But 
it does seem that as soon as Congress on both sides of the 
aisle asked for an FTC investigation that those differential 
prices evaporated. The administration was prompt to respond, 
but many people and business owners and farmers were made to 
suffer greatly.
    And as we approach this heating season, as Mrs. Biggert 
pointed out, we are facing more bad news. Natural gas prices, 
the fuel which heats virtually every home in my district and 
over half of all the Nation's families, are soaring. The 
November and December future prices have more than doubled in 
the last year, and this definitely spells trouble, worse 
trouble even than Congresswoman Biggert pointed out. Although 
we all received in the mail, those of us who have NICOR, the 
notice that said that if you paid $410 last year, that you will 
pay $610--I just got off of a conference call. The August 
projection was $410 last year. Then they said $670. Well, their 
October estimate is that we will be paying $750 this winter for 
the same amount of gas that we paid $410 for last year. So we 
are getting close to a doubling of the cost for ordinary 
    And it seems to me that, once again, we're getting excuses 
that it is inconceivable to anyone in the energy industry that 
they could not know that natural gas prices would go up. Even 
if the winter is mild, increased demand from the electric 
utilities sector is evident. Over the past years energy 
consumption has been steadily on the rise. Who did the industry 
think would supply these plants? And given this demand, how did 
the industry think it would be able to meet its long-term 
contract obligations and serve its core customers?
    It seems to me, just like earlier this summer, pinning the 
blame on environmental protection won't wash either. Nothing 
has changed in terms of environmental protection over the last 
year. But now the prices are so high, exploration is up 44 
percent, and, by their own admission, the industry purposely 
kept supplies low because prices did not meet their profit 
    We know that taxpayers already provide the oil and gas 
industry with massive tax breaks for exploration and 
development; $18 billion is the projected total for 
corporations for the 1996-2002 period, and $1 billion alone in 
percent depletion and expensing provisions this year. How can 
we tell our constituents that they are getting their money's 
worth when these companies make decisions to reduce supplies 
and charge cartel-level prices?
    Mr. Chairman, I look--I very much look forward to these 
hearings. I was not here when Congress decided to deregulate 
natural gas and crude oil, but many of us outside the Beltway 
at the time had serious concerns about those decisions. Many of 
us questioned the wisdom of turning energy supply and price 
decisionmaking, decisions that affect every inch of our economy 
and every person in our country, over to an industry whose 
bottom line is their bottom line and not our economic interest. 
I am glad that we have recognized that there is a Federal 
responsibility to ensure that energy is available and 
reasonably priced, and I look forward to being informed by our 
witnesses. Thank you.
    Mr. Burton. Thank you, Ms. Schakowsky.
    Any further statements?
    Mr. Allen.
    Mr. Allen. Thank you, Mr. Chairman for scheduling these 
hearings. I will be brief.
    Last winter the Northeast, including my State of Maine, 
suffered through a heating oil shortage that made many seniors 
and low-income families choose between heating their homes and 
putting food on the table. Today we are again facing a crisis 
with oil prices at a 20-year high.
    Rising diesel fuel cost are putting some truckers out of 
business since they cannot survive when half their income goes 
into the gas tank. We have to do everything we can to 
understand what is driving the rise in prices and use available 
mechanisms to protect the American people.
    First, I urged President Clinton to swap oil from the 
Strategic Petroleum Reserve with the oil industry. Investment 
experts in the petroleum market believe that just a small 
release of oil from the Reserve could immediately stabilize 
    Second, the U.S. must continue to pressure OPEC to increase 
oil supplies.
    Third, Congress needs to provide appropriate funding for 
the Low-Income Home Energy Assistance Program, and the 
President should immediately release $400 million and make it 
available to consumers to lock in prices for the winter.
    Fourth, we should increase funding for the Weatherization 
Assistance Program, which could reduce the energy costs of the 
poor, elderly and disabled by over 23 percent.
    Mr. Chairman, we also should not lose sight of our long-
term need to address our growing energy demand and reduce 
America's vulnerability to future price spikes. Unfortunately, 
the United States will remain vulnerable as long as Congress 
fails to pass the long-term energy efficiency policies that 
will reduce our dependence on fossil fuels. The technology is 
available today for car companies to meet higher standards 
without any loss in vehicle weight or power. Companies like 
Ford are pledging to increase fuel economy and reduce emissions 
on SUVs. We should be encouraging these policies and programs.
    Mr. Chairman, while we must investigate short-term causes 
and find temporary solutions, we must also develop a long-term 
energy policy that reduces our dependence on foreign oil, 
increases investments in renewable energy, and prevents 
consumers from being gouged when supplies are low.
    Mr. Chairman, I thank you for this opportunity and for 
holding this important hearing.
    Mr. Burton. Thank you.
    Do any other Members have comments they would like to make? 
If not, I want to welcome our witnesses. Would you please stand 
and raise your right hands.
    [Witnesses sworn.]
    Mr. Burton. I think you have all been asked to try to 
restrict your comments to 5 minutes so we can get to questions. 
If you have to take a little bit longer than that, we will try 
to be lenient, but we will try to stay to that if we can. We 
will start with Mr. Santa.


    Mr. Santa. Thank you, Chairman Burton, and Mr. Waxman and 
fellow committee members. My name is John Santa. I am CEO of 
Santa Energy of Bridgeport, CT. We are a regional marketer and 
distributor of petroleum, natural gas, and energy-related 
products in southern New England. We employ 170 people, operate 
a truck fleet of 140 units, and market approximately 4 million 
barrels of all products of residential, commercial, industrial 
and wholesale sectors.
    We own or throughput in five terminals in three States. We 
maintain approximately 700,000 barrels of storage to supply 
some or all of the needs of approximately 130 dealers in 
southern New England. Started by our parents in 1940, grown by 
my brothers and me for the past 40 years, we are now ushering 
in a new generation of family and owners and managers who will 
rise to the 21st century energy challenges.
    You have asked me here today to discuss the petroleum 
supply and pricing situation with you and your committee 
colleagues. More specifically you want to know what the 
government may have done to exacerbate this issue, or, 
alternatively, what can they do to help abate it. For this 
opportunity, and on behalf of my family and other dealers like 
me whom I represent, I thank you.
    My approach to this will be to present you with what we 
perceive to be the symptoms of the current situation, the real 
issues of the current situation, and we have some suggested 
solutions to you for the situation facing us today.
    As to the symptoms, currently there is what we refer to as 
a market inversion, which is to say the product now costs more 
than it will sell for in January. Unless you are out of your 
mind, you are not going to buy any product or put it in 
storage. That is why we're not buying. It's not that we don't 
want to; we can't.
    Second, rapid price movement. When the supply gets low, the 
price moves around a lot.
    And finally, hysteria. A lot of it is media-fed, and I urge 
you very passionately not to buy into that. Take a cool, 
dispassionate look at this. This is serious business and 
deserves that kind of a look.
    As to underlying issues and real ones that exist, we have, 
first of all, the market and its players. It's different, it's 
new, it's very efficient. If I bring you no other message 
today, then let's talk about that one. It is a brave new world. 
It's not your grandfather's Oldsmobile that we're dealing with 
here today. More about that later.
    Infrastructure. Infrastructure has changed rapidly. In my 
city of Bridgeport, 20 years ago there were 12 oil storage 
terminals. Today there are three. Other cities nearby have had 
similar changes in the amount of infrastructure there. That has 
also changed. It's not bad; it's just different, and it's way 
efficient, and you can't play with it the way you played with 
it before.
    Third, we have had this problem tremendously exacerbated by 
noncontracted interruptible gas users. I use those words very 
carefully chosen. We supply interruptibles like nobody's 
business. The ones that are the problems are the ones that do 
not contract for or utilize interruptible service of product.
    We have for you some suggested solutions. Right now on the 
Senate side there is a bill, the Energy Policy Conservation 
Act. I urge you to look at this very carefully. Among other 
things, this will bring to our consumers consumer information 
that they need. They are fearful right now, and as you all well 
know, fear is based on ignorance more than anything else, and 
the people are generally ignorant of how the new energy world 
works. I urge you to help them get there. You could do them a 
real service by doing that.
    Second, tax incentives. We had the opportunity last month 
to meet with Secretary Richardson. We suggested to him that 
when there is no carry in the market such as you find right now 
where the price is inverted, if the Federal Government were to 
offer us a tax incentive to have that carry, we'd fill the 
storage. And if the carry came back, you can have your tax 
incentive back. We don't want to collect twice, just once. But 
we have to collect once or we can't fill the tanks. It is as 
simple as that.
    Fourth, commitment. Commitment is very important. Last 
year, I committed to my suppliers, and my customers committed 
to me. I saved our homeowners over $4 million. To them the 
price spike, to them supply dislocations did not happen. Very 
simply, we used the mercantile exchange, the commodity market 
to do this. It can do this for you. We did this also for our 
governmental customers and as well as for institutional and 
industrial customers.
    Finally, we would urge you to take a good solid look at and 
do what you can to help conservation. I would point out to you 
that in 1970, the average home in New England burned 1,600 
gallons of heating fuel per year. Today that number is 900 
gallons per year. That is a dramatic difference, and we played 
a big part in it, and so did you. And let's get together and do 
some more of that because that is a win-win deal for everybody.
    Concluding, I would like to say to you that it is a whole 
new ballgame. I want very much to talk to you and tell you that 
because the impact, not just the heating oil, but what all of 
my friends are here to talk to you about today, it is affecting 
all of them, too, electricity, natural gas and petroleum 
products. It is a whole new ballgame, and it is not a bad 
ballgame, it's just a new ballgame, and let's talk about this. 
Thank you.
    Mr. Burton. Thank you, Mr. Santa. We will have some 
questions for you just a minute.
    [The prepared statement of Mr. Santa follows:]

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    Mr. Burton. We send somebody over there to vote and come 
back? We will go ahead. Those who want to go ahead and vote can 
come back.
    Mr. Tilman, you want to go ahead, and we will hear your 
testimony, and then we will recess for the vote.
    Mr. Tilman. OK. My name is Ray Tilman. I'm representing 
Montana Resources, a copper and molybednum mining company. I've 
been associated with the company for the last 16 years, and I 
have been directly involved in electric power issues for the 
last 35 years.
    Montana Resources is located in Butte, MT. We mine and mill 
raw ore to produce copper and molybednum concentrates that are 
shipped to smelters and roasters throughout the world. Our ore 
deposit is very low-grade deposit, but through the last 14 
years we have been successful in operating. Our success has 
been as a result of our unique employee programs, including 
profit-sharing. The company has paid--I want to make a quick 
correction for you here. In the testimony I gave you, it said 
$5 million. It is $7.2 million a year in State and local taxes. 
These are dollars that are directly needed for the local school 
district and the government to operate.
    Montana Resources has survived the ups and downs of the 
copper and moly market, as well as the changes in the price of 
crude oil. Unfortunately, we have not been able to survive the 
unforeseen, unrealistic ramp-up of electricity prices in the 
Western United States early this summer.
    I've given you a handout. If you care to look at it, it's 
page 7, and it shows what's happened to the Mid C price that 
affects the Western power, and you can see that it has gone 
from somewhere in the $30 range up to at high as $650 per 
megawatt hour. On June 30, unfortunately, we were forced to 
temporarily shut our operations down and lay off 320 employees, 
which is 15 percent of the work force, the industrial work 
force, in Butte, MT.
    Power prices, as I mentioned, escalated from $35 to $650 
per megawatt hour on a spot basis. Our contract expired June 
30th. Prior to the expiration of our contract and since then, 
we have not been able to secure a short-term or long-term 
contract at reasonable prices that would allow us to operate in 
the black.
    Montana Resources uses about 32 million kilowatt hours of 
power more month. We also use about 3.6 million gallons of 
diesel fuel per year and 200,000 MCFs of natural gas per year. 
With power prices at $35 per megawatt, our average cost is 
about $1.1 million a month or $13 million a year.
    We produce about 85 to 90 million pounds of copper per 
year, and approximately 9 million pounds of molybednum per 
    Electric power is approximately 25 percent of our overall 
cost of producing power. When that cost goes up even a little 
bit, it has a huge effect on our ability to stay in business. 
The unforeseen and, in my opinion, frankly unexplainable spike 
in the Western power prices not only has forced many Western 
basic industry plants to shut down, including ours, it has also 
artificially inflated the near-term and long-term prices in the 
    We now have a whole raft of experts who are rationalizing 
why this happened and justifying why they believe the prices 
should stay high for the foreseeable future. The price of power 
in the West over the past 3 months has been well above $120 per 
megawatt, which, when you look at that jump from $35 to $120 
per megawatt, is about the same as the price of gas going from 
$1.60 to $8.50. I have a very hard time explaining to the 320 
people that I personally had to lay off why our power costs are 
so high in the West. When you look on the east coast--and by 
that, those of in us West mean east of the Mississippi--is 
today selling in the 20's during the day and sometimes in the 
midteens in the offpeak, and you can see that on the last page 
that I included.
    I can only equate our situation to the canary in the coal 
mine that was used to sense carbon monoxide before it killed 
the miners. We're sensing a problem and sending out warning 
signals. Montana Resources believes in the free enterprise 
system, and we understand the ups and downs of commodity 
markets. However, I would suggest that there has never been a 
commodity swing so far and so fast from $35 to $650 in 6 weeks. 
I would suggest that we may need to fine-tune this whole idea 
of restructuring of our electrical industry.
    Electricity is a very unique commodity. In many instances 
it has no substitute, and it cannot be stored like wheat, 
copper, natural gas or crude oil. In our business we have to 
have reasonably priced electricity to run our industrial 
electric motors. There is no substitute. If I offer to sell you 
copper at $10 a pound, you can say, no, I'm going to replace it 
with PVC or aluminum. When the homeowner turns on her air 
conditioner, she expects to be able to do that for a reasonable 
price. What happened in San Diego this past year? Electric 
bills tripled.
    The price in the West over the past 4 months are giving 
some companies huge windfall profits. You may want to check 
some quarterly and year-end stockholder statements of certain 
power producers and power brokers. When you have losers, who in 
this case are always the consumers, you will also have winners. 
If it costs $15 to $30 per megawatt to produce power, and it is 
being sold for $100 to $200, there needs to be some fine-tuning 
in the system.
    Although I have spent the last 30 years buying power and 
negotiating contracts, presently I am unable to find a way in 
the current market out of this dilemma, but I trust that there 
are people with sufficient knowledge with power to address the 
situation and find solutions. I do know that if we don't come 
up with a solution soon, the basic industries in the West are 
in for additional shutdowns, some of them permanent. 
Additionally, I would suggest that the next victims of these 
unrealistically high power prices will be the homeowners.
    I would offer the following suggestions for your 
consideration: I think we need to limit the Federal agencies 
like BPA, WAPA or TVA's ability to go into the open market and 
buy or sell their power above cost.
    I think we need to regulate open access to the transmission 
systems to prevent gaming in that area.
    I think that we need to insist that all power transactions 
are totally transparent and listed similar to other commodity 
    Look more seriously at energy efficiency and energy sources 
for the Federal Government uses. You may not know it, but the 
Federal Government is one of the largest users of power in the 
United States.
    We need to encourage BPA to more seriously look at 
maximizing power production from the Columbia River system 
while using technology to assist the fish migration. I don't 
have anything against the fish; in fact, I take pictures of 
them and like to catch them. But we have one of the most 
wonderful hydro systems in the world that is not operating up 
to its capability. If we can put a man on the moon, we can 
certainly get fish from Astoria, WA, up to their breeding 
    We need to look at the process in building new generation. 
Certainly most experts believe California in particular needs 
more generation. And we need to look at expediting that process 
so that plants can be built as expeditiously as possible.
    The present prices for energy, natural gas and electricity, 
in my judgment, will start having a huge negative impact on the 
U.S. economy and the economy of the world if we don't 
aggressively address it.
    Thank you, and I appreciate, Mr. Chairman, the opportunity 
to discuss these issues before this committee. Thank you.
    Mr. Burton. Thank you, Mr. Tilman.
    [The prepared statement of Mr. Tilman follows:]

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    Mr. Burton. Mr. Pursell. We will proceed, because there is 
one vote, and the Members will be coming back from the floor. 
And because of the importance of getting through the hearing, I 
decided to stay here and miss this one vote, so I want you to 
know how important I think it is, because I don't miss many 
    Mr. Pursell. I am David Pursell. I'm a market analyst, both 
global crude oil and North American natural gas, for Simmons & 
Co. in Houston, TX.
    I appreciate the opportunity to come talk to you today 
about some very serious issues facing the country. In our 
opinion, we are facing the very real possibly of shortages of 
natural gas and heating oil, the two key winter heating fuels. 
Current low inventory levels and record prices for both natural 
gas and heating oil portend a continued market this winter 
that, depending on a number of factors including the weather, 
could result in shortages of one or both key products.
    It is important to point out that the single biggest factor 
driving high heating oil prices is the cost of crude oil. My 
opinion and the opinion of Simmons & Co. is that high prices 
will persist through the winter, and as a result there will 
likely be little or no relief to the consumer in the short 
    More alarming is the possibility for supply disruptions in 
the event of a cold or sequential winter due to low inventory 
levels, as you can see exhibit K. The key lines to look at are 
the inventory. The bold white lines at the bottom show that we, 
both on the east coast and nationally, have record low 
inventories of high sulfur distillate.
    If you look at exhibit A, I also forecast record low 
natural gas inventories as we enter the winter season. These 
low inventories are again a result of a tight market which 
could result in even higher prices and the potential for 
interruptions during the winter.
    The key graph to look at there is the green line. That's 
the current inventory fill this summer. What is a bit troubling 
is the fact that it is approaching the record low levels, and 
also the slope of that line shows that inventory gains during 
the summer have significantly underperformed past trends. This 
portends a tight market.
    We can characterize the natural gas market by low current 
inventory levels, difficulty in meaningfully increasing 
domestic production, and ongoing demand growth driven by the 
electrical generation sector.
    If you look at Exhibit E, this is a graph that will take a 
second to discuss, but it is production history of a 
significant amount of wells in the Gulf of Mexico, a key 
producing basin. You can see in the 1980's, or the left side of 
this graph, the production seemed to peak in the winter and 
through in the summer. This phenomenon was because there was 
excess well capacity. In other words, producers were curtailed, 
or they had to restrict production or actually shut in wells 
during the summer because the pipelines were full, and there 
wasn't enough end use demand.
    You can see--and this is a key point to understanding the 
natural gas market. This term was called the gas bubble, 
meaning we had too much well production capacity. If you look 
around 1992, that excess capacity went away, and you can see it 
on the production graph by the seasonal oscillations it went 
away. If you make this graph with almost any region of the 
country, you would see the same phenomenon, that around 1992 or 
1993 the gas bubble burst, the seasonal oscillations went away, 
which means that wells are being produced at or near capacity 
year round. That is a key point to take out of this.
    Contrary to the EIA's contention that in a December 1997 
report that there is nearly 20 billion cubic feet a day of 
lower 48 surplus wellhead productive capacity, actual 
production and market data suggests that most gas wells are 
producing at or near capacity year round. In fact, the EIA 
stated that the lion's share of excess capacity existed in the 
Gulf of Mexico, which actual production data suggests that just 
maintaining production is extremely difficult.
    Exhibit B shows the decline rate treadmill of the Gulf of 
Mexico Shelf, one of the most prolific and important natural 
gas basins in the United States. The aggregate decline rate of 
the most recent wells for which data are available suggests an 
annual decline rate of 50 percent, compared to 20 percent 
during the 1970's. Most simply stated, that says your average 
well in the Gulf of Mexico declined; its production rate is cut 
in half within 12 months.
    If you look at exhibit F, this--the top line is the line to 
focus on. That is U.S. natural gas production over the last, I 
believe, 8 years on a quarterly average basis. U.S. natural gas 
production has been essentially flat over the last 5 years, 
even though natural gas directed drilling, which is the line 
below the green line, has steadily increased. And we can 
measure--we count the number of rigs drilling for natural gas 
on a weekly basis. That is a number that is very, very 
    The lack of substantive production growth is consistent 
with accelerating underlying decline rates of the base 
production. I can't reiterate any more strongly that there is 
simply no surplus wellhead capacity in the lower 48.
    This is important because the difficulty in growing supply 
is extremely important when looking at the forecast domestic 
demand growth. If you look at exhibit G, the National Petroleum 
Council suggests that natural gas demand will grow 2 to 2\1/2\ 
percent per year, driven by the electrical generation sector. 
We believe in the next 3 to 5 years those estimates could prove 
to be conservative.
    The National Petroleum Council also forecasts that nearly 
50 percent of the production volume growth to meet this demand 
over the next 10 years originates from increasing domestic oil 
production and increased development of unconventional natural 
gas resource base, which includes low permeability, shale and 
coalbed methane reservoirs. We're simply moving down the food 
chain of reservoir quality as we bet on the come that that is 
where we are going to achieve the volume growth.
    Given the current challenges facing domestic natural gas 
supply growth, we believe it is unlikely that the NPC's 
ambitious supply side can be met without opening areas that are 
currently off limits or available with restrictions. The NPC 
suggests that nearly 213 cubic feet of natural gas resource 
domestically is currently off limits, as shown in exhibit I.
    Not often mentioned in the debate surrounding high natural 
gas prices is the negative impact on the manufacturing sector, 
which we estimate accounts for nearly 30 percent of total 
domestic natural gas consumption. Several large companies have 
recently issued profit warnings for the third quarter due to 
high energy prices, and in extreme cases output has been 
restricted, as we have just heard.
    We are concerned that large-scale curtailments could occur 
this winter if the weather is colder than last year's record 
warm winter, further impacting the manufacturing sector. In 
short, we're concerned that the near-term natural gas market 
will consist of high prices with significant upside volatility 
with a potential for curtailments this winter. Longer term we 
believe that the supply side will continue to struggle to keep 
up with ongoing domestic demand growth, resulting in a new 
sustained high price level.
    Thank you very much for the opportunity.
    [The prepared statement of Mr. Pursell follows:]

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    Mr. Burton. Keep those graphs handy, because we are going 
to have some questions in a little bit about those.
    Mr. Lane.
    Mr. Lane. My name is Steve Lane. I'm a senior facilities 
engineer with SDL, Inc., in San Jose, CA. And we have heard 
several times including Mr. Burton said that there were some 
brownouts in the San Jose area on June 14th, and I was one of 
the ones hit by those. So what I am going to share a little bit 
is some of the things, first, what happened to us, and what 
we've had to do to hope to allay those problems in the future, 
but also maybe some suggestions that we see could be 
implemented from a Federal level as well as our State level.
    Anyway, our company is only about 15 years old. We were 
started by Spectrophysics, and I forgot the other name of the 
company before. But anyway, we were started just recently and 
haven't been in the market long enough to see any of the 
previous energy crises that have hit in our area or anywhere 
    Anyway, basically back on June 14th, the temperature in San 
Jose reached 109 degrees, which is the highest temperature ever 
recorded in the San Jose area, and as a result of that, of 
course, everybody was air-conditioning more and more, and the 
load on the system continued to rise beyond the level of our 
local transmission capability. We have almost no local 
generation at all in the South Bay and San Francisco area. And 
so what happened is as the load continued to increase, the 
voltage started to dip, and the California ISO orders a 
brownout based on the voltage support. They were not able to 
maintain the voltage of the system, and that's why the brownout 
or the blackout occurred in our area. It's the first one we 
have ever had in our area, so nobody was expecting it, nobody 
was prepared for it, and we were probably one of the hardest 
hit companies in the whole area, mainly because as the voltage 
dropped, motors are going to pull more current to make up for 
dip in voltage. So our PG&E transformer exceeded its capacity 
and burned up about 15 minutes before PG&E shut our power down.
    We were responding to an emergency situation--not physical 
life safety emergency, but company emergency situation, and did 
not even realize that our grid was shut down, because they left 
us a voice mail message 15 minutes before they shut off the 
power, and we were out responding to the urgent situation which 
happened about 15 minutes before our power went down.
    So anyway, what happened was we have very critical 
semiconductor equipment. It's backed up by hydrogen gas 
purifiers, and those purifiers must remain powered at all 
times. If the power fails, those purifiers go down, and they 
have to be replaced. They can't just be regenerated like a 
cryopump or something. If our power had failed to those 
things--we have emergency power backup, but we have a limited 
amount of backup because we have never had to worry about 
backup in the past. We've never had a power failure, other than 
a couple of times in the winter of heavy rains and storms, 
whatever, have cut our power.
    So what happened was we called immediately for refueling 
because we found out as our transformer melted down, we found 
out that we were going to be down for 12 to 24 hours before 
PG&E could bring in and replace our transformer. And they had 
100 transformers burned up that day in the Bay area that they 
had to replace because of the low voltage and high current. So 
they were busy replacing transformers.
    Well, when we found on that our fuel provider for the 
diesel fuel could not make a fill for about 24 hours at our 
plant site because they had gotten so many calls from every 
other plant site in the area, so we were looking at our 
generator going down, which takes down our power to our 
purifiers. So we actually sent people out to buy 5-gallon 
buckets, barrels, whatever, gas cans and go to diesel stations 
and pump diesel fuel. And we actually hand-loaded our diesel 
tank all night long. Our VP of technology was on top of the 
diesel tank, filling it himself, along with me.
    So, you know, it was one of those situations where you 
don't expect it, and we handled it, but it was dangerous. It 
was dangerously close.
    Now, in my prepared statement I wrote that what had 
happened financially was if those purifiers go down, there is 
about a 6-month lead time. We have 10 of them. They are $60,000 
apiece. Nobody carries those on their shelves because they are 
custom-designed items, and they are expensive, and they 
normally don't go down. We could have been out of business for 
at least 6 months if those things had all failed. You know, 
obviously that is catastrophic. That could be devastating. Who 
knows what would have happened financially to our company.
    But anyway, what we did do, we have a very small emergency 
power generator because in the past we have only needed it for 
life safety equipment, lighting and communications equipment, 
and these gas purifiers. We are in the process of expanding, 
just because we're growing so fast. We are trying to increase 
production about five times this year alone, and we are in the 
fiberoptic industry, which has grown like crazy. So anyway, we 
are looking at increasing our generator capacity for backup 
anyway. Now we are looking at instead of just increasing the 
generator to handle life safety and a few key items, we are 
looking at the potential to put a diesel generator--that should 
scare a lot of people--big enough to provide our whole 
production capacity during these projected brownouts or 
blackouts, I should say, over the next 2 to 4 years in our 
    So, you know, nobody wants to run diesel. We are looking at 
natural gas, but there are challenges with natural gas, too. 
The pipeline in our area may not be able to handle a generator 
big enough to handle all of our power. So kind of just to net 
it out, we have gone back and increased the capacity of our 
infrastructure in our plant site to, you know, handle, you 
know, shutdowns and other things. But also we would like to see 
from the Federal level any--what are they called, lobbying, or 
whatever it takes to promote the swift permitting and 
installation of power plants in our area and in the whole West 
Coast, California in particular.
    We are severely undergenerated in our area, and we're also 
low on transmission. If you generated the power outside of the 
Bay area, and you tried to run it in on the lines, they can't 
even handle it on the power lines in our area currently because 
it takes so long to permit and install power lines that the 
power companies are fighting that battle as well. It takes up 
to 7 years to install a new high-voltage power transmission 
line into our--into any area, and we are low on both. So we 
need help speeding up power plant installations and 
transmission project installation.
    In particular, there is one right now that is kind of a hot 
button in our area. Calpine and Bechtel are trying to put in a 
plant in South San Jose, the Metcalf Energy Center, 600-
megawatt natural-gas-fired power plant. Some of the 
constituents in their area, one company and one neighborhood 
group, are going at it with a NIMBY idea that they don't want 
it in their backyard. And nobody does, but we all need power. 
So we would like to see, you know, the streamlining of that 
permitting and installation process.
    Also, I sit on the Silicon Valley Manufacturing Group 
Energy Task Force, which is a conglomeration of not only high-
tech companies, but other companies, as well as Hanson concrete 
plant up in the Saratoga foothills. And we're--as a group, we 
are trying to reduce power demand on hot days. Our problem is 
not the winter; our problem is the summer with electricity 
demand. We're working to reduce and curtail power demand on 
those hot days. And we have even seen some companies like 
Hewlett-Packard just recently was able to reduce voluntarily 20 
percent of their power demand on the grid just by taking 
measures of turning off lights, raising temperature, turning on 
generators and whatnot. And even the Electric Power Research 
Institute which has a local office was able to reduce power 
over 20 percent.
    So we are doing a lot locally to reduce power, but we need 
help with increasing the power supply into our area as well. 
Thank you.
    Mr. Burton. Thank you, Mr. Lane.
    [The prepared statement of Mr. Lane follows:]

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    Mr. Burton. Mr. Hamilton.
    Mr. Hamilton. Thank you very much. Thank you. My name is 
Dave Hamilton. I'm the policy director with the Alliance to 
Save Energy, a nonprofit, bipartisan coalition of government, 
business, environmental and consumer leaders dedicated to 
improving the energy efficiency of our economy, and I am here 
to be the good news guy. I'm here to talk about the things that 
can be achieved on the demand side.
    In the spirit of your asking for recommendations about what 
the Federal Government can do, what I would say first and 
foremost is not to ignore the demand side. The administration 
has put forward many recommendations that have been based on 
that, but our urging to you is to not dismiss it out of hand.
    People are paying more attention to energy right now than 
they have in 20 years, but if you are a homeowner and have to 
drive to work over a long distance or heat with fuel oil or 
natural gas, you know you are paying substantially more for 
subsistence expenses than you were last year. If you live in 
areas, as we just heard, vulnerable to electric supply 
disruption, you could be paying three times what you were 
paying last year.
    I read an article a couple of days ago that said we are not 
in an energy crisis, we are simply seeing a normalization of 
prices that were abnormally low for most of the decade, the 
1990's. Frankly, if you're a homeowner or a person on a fixed 
income, this is a crisis, and I don't think we should downplay 
that at all.
    I'm going to address each of the spheres and, because of 
the time, just try to make a couple of points on each. But I 
want to talk about energy efficiency as an economic driver and 
something that's produced really substantial economic results 
that have not been widely disseminated. EIA rates the amount of 
energy that was saved through existing energy efficiency 
measures as 26 quadrillion BTUs in 1999. If you look at that 
size recycled or displaced energy, that is more than we 
generate with coal, more than we generate with natural gas, 
more than we generate with nuclear power. Energy efficiency has 
taken hold and has made a substantial difference to the 
American economy.
    Second thing, energy efficiency, because it exists in every 
different way that you use energy in the economy, it is hard to 
quantify. You have to take each measure and look at it and see 
what it produced. But the RAND Corp. did a study for the 
California Energy Commission this year which was released in 
March which looked at California energy efficiency measures 
over the last 20 years and concluded that those measures had 
produced 1,000 percent per capita return on that investment. 
And the gross State product in 1995 would have been 3 percent 
less without the inclusion of energy efficiency measures which 
had been put in over time.
    There is--also, these measures avoided a massive increase 
in point source pollution from not having to build power 
plants. And the study also talks about how lowered energy 
intensity, which is fewer dollars per unit of economic output, 
is fertilizer for economic growth because $1 for keeping the 
lights on is not as productive as $1 invested or $1 spent on 
innovation. And freeing up dollars to reinvest in the economy 
is a highly productive use of capital.
    And frankly, Mr. Chairman, demand management kept the 
lights on in California this summer. Interruptible service 
contracts, energy efficiency, basically hand-to-mouth attempts 
to keep the lights on were facilitated completely by demand 
management. And when we look back at the summer of 2000, it was 
the demand side which kept us away from a crisis in California.
    When we talk about crude oil supply, Mr. Chairman, there is 
an inexorable equation going on. Domestic supply is going to 
fall over the long term; domestic demand is going to increase 
over the long term. We are going to have to import more oil, or 
we are going to have to change the way we do transportation and 
some of our heating things. It is not--it is not, you know, a 
huge thing to understand. We have to either figure out 
different fuels to power motor vehicles on, or we have to make 
sure that each motor vehicle uses less than they would 
    You know, it is a long-term decision, and you can make 
decisions about domestic supply, to pump it up in the near 
term, but over time it is going to fall.
    You know, and now we have a revitalized OPEC that appears 
to have actually gotten organized and appears to be having some 
success at keeping prices up. So I'm not sure that we can rely 
on a, you know, disorganized OPEC in the way we were in the 
early 1980's.
    We talked a lot about heating fuels and why prices are the 
way they are. As a homeowner, all you can do at this point is 
try to make sure that your home is as energy-efficient as 
possible. Make sure that your home is as well-insulated as 
possible, that you have a set-back thermostat that can control 
when you need heat and when you don't. Make sure your furnace 
and boiler is cleaned and tuned. There is not much that 
consumers can do now except to try to batten down the hatches 
and do the best they can.
    A lot has been said about natural gas today, but we made a 
huge national wager on natural gas. The vast majority of 
projected new generation is in natural gas not because of an 
administration mandate, but because combined cycle gas turbines 
have become the cleanest, cheapest way to generate electricity, 
and utilities have opted for that as a business decision.
    You know, we are now out on a limb with natural gas supply, 
and Mr. Pursell's results are disturbing over time. This 
volatility was not restricted by EIA, and it changes almost all 
of their long-term forecasts. And you can't separate natural 
gas from electricity reliability. Brave new world predictions 
about electric competition predicted a kind of vast 
superhighway of electricity where buyers and sellers from 
distant regions of the country could trade and lower prices for 
everybody. We don't have a superhighway. We are trying to put 
rush hour traffic through local two-way roads, and it is not 
    California got hit hard this summer, but the Midwest and 
the East dodged a bullet because of mild summer temperatures. 
New transmission and generation are needed, but lead times 
leave us vulnerable--in a vulnerable state for many years. I 
listened to Virginia Power executives talk about 15 years in 
the friendly era of monopoly that it took them to get a 
transmission upgrade from planning to juice in the wires. We've 
got to figure out something to do between now and then.
    Demandside management saved this Nation 30,000 megawatts of 
power in the 1990's. Half of that was done by energy 
efficiency. Two-thirds of it was done between 2 and 3 cents a 
kilowatt hour, and that is at the spending rate at the high 
point of $3 billion a year by utilities. That spending rate 
with utility energy efficiency programs has dropped by 70 
percent. Demandside management expenditures have dropped by 40 
    The new basically--as States have deregulated, it is no 
longer in the interest of the utility, because they are not 
vertically integrated, to save energy to avoid having to build 
new power plants. If you are a distributor now----
    Mr. Burton. Mr. Hamilton, let us get to some questions. We 
will probably have some questions based upon the statements 
that you made.
    Mr. Hamilton. OK.
    [The prepared statement of Mr. Hamilton follows:]

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    Mr. Burton. Let me start with Mr. Shays.
    Let me then start. I have a few questions here. I was 
looking at your map, Mr. Pursell, when you put that on the 
screen. We can put that up on the screen again if you have that 
close by.
    Mr. Pursell. That's exhibit I.
    Mr. Burton. Exhibit I, yes. And when I looked at that, it 
looks like there are huge, huge gas reserves in the continental 
United States. And this doesn't show Alaska. I imagine there 
are some up in Alaska as well, aren't there?
    Mr. Pursell. Yes, sir.
    Mr. Burton. How many years of natural gas supplies do we 
have, do you think?
    Mr. Pursell. The estimates vary.
    Mr. Burton. Give me a rough idea.
    Mr. Pursell. Probably 40 or 50 years.
    Mr. Burton. Minimum?
    Mr. Pursell. Minimum.
    Mr. Burton. So we have a 40 or 50-years' supply of natural 
gas that we could tap into right now. Why aren't we tapping 
into it?
    Mr. Pursell. Currently the United States is running at 
record natural-gas-directed drilling. We have well over 800 
drilling rigs today drilling for natural gas. The prior high 
was back in 1997, around 640 rigs. The industry has responded 
to the pricing. The issue is trying to meaningfully grow 
production in the near term. It has to do with the decline rate 
of the underlying base, which we estimate the current base 
production declines at about 23 percent per year. But in 
perspective, on a 50-BCF-a-day productive base, the industry 
has to replace about 12 BCF a day just to stay flat. Now we are 
trying to achieve 2 to 3 percent volume growth.
    Mr. Burton. No, I understand. But it seems to me if we have 
this large reservoir of gas, we could put more wells, more 
well-drilling apparatuses into service and drill to get the 
production up. I mean, is that a problem, producing the 
additional gas?
    Mr. Pursell. It is in existing basins. If you look at the 
decline rate trend graph in the Gulf of Mexico, what happens in 
a maturing basin as you apply new technology, 3D seismic 
technology, more efficient horizontal completions, the target 
size for new reservoirs becomes smaller and smaller, but yet we 
more efficiently produce those, and that combination creates 
these accelerating decline rates.
    So it is difficult in a mature basin like the Gulf of 
Mexico to meaningfully achieve production growth. So even 
though you have some economic projects, they are not the kind 
of projects you need to achieve the kind of growth we project 
over the next 10 years, which says you probably have to access 
some of these areas that are--historically been off limits 
because that is where you can presumably find these larger 
    Mr. Burton. I guess that is what I am trying to get at. 
Some of these reservoirs that are off limits would be more 
    Mr. Pursell. Yes, sir.
    Mr. Burton. Why are we not drilling in those areas?
    Mr. Pursell. There are not Federal lease sales in the areas 
that are shaded offshore due to environmental restrictions.
    Mr. Burton. So the environmental restrictions are keeping 
you from drilling in areas where you have large reservoirs of 
    Mr. Pursell. Large potential reservoirs, yes. You don't 
know until you go drill it, but the geoscience folks will tell 
you that there are some real opportunities there.
    Mr. Burton. It's there. So the problem with increasing our 
natural gas production right now in large part rests with 
environmental restrictions?
    Mr. Pursell. Yes, sir.
    Mr. Burton. Why are those environmental restrictions there? 
I don't understand that, because natural gas is supposed to be 
such a clean-burning and efficient energy source. Why are they 
restricting the drilling? I mean, what's the environmental 
    Mr. Pursell. That's a question for somebody else. I don't 
know what the significant issues are, other than they are 
restricted. I mean, and ultimately anywhere you find natural 
gas, you do have the potential to find oil. That may indeed be 
the concern.
    Mr. Burton. Uh-huh.
    In California, Mr. Lane, you said your plant was all but 
shut down. You had a transmission that was burned up.
    Mr. Lane. Our main transformer from the power company 
burned up.
    Mr. Burton. Your transformer was burned up, and you were 
hand-carrying diesel fuel to keep the operation going so that 
vital components of your business weren't destroyed. And it was 
going to cost you something like around $6 million if they were 
    Mr. Lane. They were about $60,000 each, times 10. But the 
bigger hit is the production loss, 6 months at our second 
quarter rate would be about $220 million.
    Mr. Burton. You said something about the problem with the 
power plant that was being debated right now out there being 
built which would help eliminate part of the energy shortage 
that you have, and also transmission lines being built quickly 
to bring in more through the grid system.
    Mr. Lane. Exactly. There are two projects currently in the 
permit process, and one of them has already gone through some 
of the hearings.
    Mr. Burton. What is the problem with the permit process out 
    Mr. Lane. Well, I don't know exactly, but I know that it 
takes a lot of time to go through, and there is a lot of public 
hearings and a lot of opposition.
    Mr. Burton. How long has it taken so far?
    Mr. Lane. I know that power lines take about 7 years to go 
though the process from the start of conception or, you know, 
the permit application phase through the actual installation 
and power phase. Power plants themselves take between 3 and 4 
years to put in.
    Mr. Burton. Just talking about red tape it has to go 
through at Federal and State level to get the thing done.
    Mr. Lane. A lot of it is State. I know a lot of it is State 
level, but there is Federal as well.
    Mr. Burton. Mr. Hamilton, you said something that kind of 
troubled me a little bit. You said that the consumer this year 
should batten down the hatches. I guess what you are projecting 
is that there is going to be some real energy shortages this 
winter, and we are going to have some people that are going to 
be really suffering if they don't do some of the things that 
you talked about, like making their homes more energy-
efficient, because there is going to be shortages around the 
country. So that is your conclusion?
    Mr. Hamilton. Yes, absolutely. I mean, EIA expects a 
minimum of 27 percent price increases for natural gas. I mean, 
I heat my home with natural gas.
    Mr. Burton. Twenty-seven percent increase in natural gas.
    Mr. Hamilton. Over last year. This is retail price.
    Mr. Burton. And this is nationwide?
    Mr. Hamilton. I believe it was an average, yes.
    Mr. Burton. Do you have any figures like that for oil price 
projections this winter?
    Mr. Hamilton. I've got them in there, but I can't quote 
them from memory.
    Mr. Burton. Well, can you give me a rough idea?
    Mr. Hamilton. Because inventories for fuel oil are so low, 
you know, I think they basically said that it could be worse.
    Mr. Burton. Than last year?
    Mr. Hamilton. Definitely worse than last year. Could be 
worse than 30 percent.
    Mr. Burton. Well, if somebody can give me--is there anyone 
who can give me a more accurate figure than that? I see some 
people in the audience shaking their heads.
    Mr. Santa. Chairman Burton, I would point out to you that 
according to the figures that we have from the U.S. Census 
Bureau, based on average rates of consumption and pricing, this 
year it should cost about $1,000 to heat an average home. I 
would--and that is in 1984 adjusted dollars. I would point out 
to you that in 1984, it was about $1,300 to heat with oil.
    So it's even with the price being at the height that it is 
right now----
    Mr. Burton. Give me a comparison with last year.
    Mr. Santa. Last year it was about $500.
    Mr. Burton. So it is going to be double last year.
    Mr. Santa. That's right, but not yet back to the price of 
the early and mid-1980's----
    Mr. Burton. I understand, but people who are living in 
these homes today are not concerned about 15 or 20 years ago. 
They are concerned about last year as opposed to this year and 
their income level.
    Mr. Santa. Sure they're not. Their income levels, however, 
have moved up from $31,000 average to $56,000 average. So 
things have changed for them, too, haven't they?
    Mr. Hamilton. I found a passage, which is that residential 
heating oil prices are projected to average $1.31 per gallon, 
or about 30 cents more per gallon compared to the same period 
last year.
    Mr. Burton. So you are looking at at least 35 percent 
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    Our country experienced the energy crisis in the 1970's, 
and here we are as a Nation heavily reliant on oil as a major 
source of energy. Americans have seen a spike in the prices of 
natural gas and electricity. Mr. Hamilton, what in your view is 
the main reason why our country is vulnerable to these energy 
price hikes?
    Mr. Hamilton. As the chairman and others said in their 
opening statements, we basically had an energy policy of 
wishful thinking for a number of years, and the wishful 
thinking was that prices would stay low, and we did not 
prepare, and it's deja vu all over again. If we take short-
term, stopgap measures to deal with it, we are going to be in 
the same spot in 10, 15, 20 years.
    Mr. Waxman. What in your view should we be doing to lessen 
our dependence on oil?
    Mr. Hamilton. On oil specifically I believe we should raise 
CAFE standards. We should make our motor vehicles more 
efficient. We should have automobile standards of 45 miles a 
gallon and light truck standards of 34 miles per gallon. We 
spent a decade building better technology to implement this. 
Ford and GM have made announcements that they will voluntarily 
raise the fuel economy of SUVs. It is not going to be enough. 
We need--you know, the price of crude is a combination of 
heating and transportation and everything, but the bite of 
transportation has to be lessened if we're going to be able to 
lessen our dependence on foreign sources.
    It is the equation I talked about earlier. Domestic demand 
goes up, domestic supply goes up, imports have to go up unless 
we reduce demand.
    Mr. Waxman. Mr. Pursell, I don't really have a question--
let me just ask you this. As I understand from your company 
documents, your clients include USX, Capital Corp., Brown & 
Root, Sungroup Energy Services, Andrews Petroleum, Gulf Canada 
Resources, Union Pacific Resources, Petroleum Geosciences, and 
dozens of other companies with interests in oil and gas prices; 
is that right?
    Mr. Pursell. That's correct.
    Mr. Waxman. And as I understand your testimony, you think 
that one of the ways to deal with this problem is to allow 
drilling in the outer continental shelf. Now, there has been 
bipartisan support in the Congress to not allow drilling off 
our shores. It seems to me that there has been little evidence 
that if we gave up our shores to drilling, that we are going to 
solve this crisis. A lot of people, consumers particularly, say 
that what we need to do is to look at consolidation of the 
industry and mergers of gas producers. Do you think that that's 
a factor?
    Mr. Pursell. I mean, ultimately with natural gas--and I 
hope to answer the question. With natural gas you don't have 
the specter of OPEC out there to add production by simply 
turning a valve----
    Mr. Waxman. The problem is that I have only a limited time. 
But my question to you specifically is one solution you think 
would be to allow our beaches, shorelines, and outer 
continental shelf to be a source of new drilling. But some 
people say what is going on is the industry is changing. They 
are merging, they are consolidating. Do you dismiss that 
consolidation and merger trend as any reason for us to look at 
this crisis as maybe being attributable to that?
    Mr. Pursell. Yes. I think the lack of ability to grow 
supply is a function of key maturing basins. It is a function 
of reduced activity level in response to $1.60 natural gas and 
$10 oil. And there is a--although the industry has indeed 
picked up activity, there is a lag effect, and I would propose 
that supply and demand will meet, and they will meet violently 
if supply growth doesn't occur.
    Mr. Waxman. It just strikes me that if we are looking at 
supply and demand, that this country should have been looking 
for energy conservation, renewable energy and related matters. 
But the Congress has consistently appropriated less for energy 
conservation and renewable energy than was requested by the 
President. For energy conservation, Congress appropriated $870 
million less than was requested. For renewable energy, Congress 
appropriated $425 million less than was requested. That's a 
total appropriation of $1.29 billion less than requested by the 
    Mr. Hamilton, what difference would an additional $1.29 
billion have made in these accounts? And could that money have 
made a difference in the lives of people who are now fighting 
these high energy costs?
    Mr. Hamilton. Yes, it could have made a difference. The 
first thing that happened in the fiscal year 1996 budget was 
that low-income weatherization was cut by 50 percent. That was 
a chop in half of a program to make the houses of low-income 
Americans more energy-efficient and thus less subject to price 
    On the technology side, the Department of Energy EPA 
programs such as Energy Star and other programs--I can point to 
six technologies that have resulted in GAO-audited studies of 
over $40 billion returns to the U.S. economy. The entire 
investment in energy efficiency and renewable energy has been 
less than $20 billion over 20 years. So that is just six 
technologies of the hundreds that have emerged from Department 
of Energy and the EPA and the national laboratories.
    Federal expenditures on energy efficiency R&D have yielded 
tremendous results. I would have to think that a greater 
expenditure on them would have yielded more results.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Burton. Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman.
    Mr. Santa, I'd like you to first mention--discuss the issue 
of carry.
    Mr. Santa. Yes, Mr. Shays. The concept of carry works like 
this. In a wholesale market, you need to have a certain amount 
payment from the market to both store your product and to 
inventory or finance your product. Generally speaking, in round 
figures those each cost about a half a cent a month. So, 
therefore, a normal carry market will have, let's say, over a 
5-month period of time, a 5-cent differential. Let's say from 
August to January that would be about a 5-cent differential. 
That's a carry market in that market or something like that.
    A rational, reasonable wholesaler can put product and is 
encouraged to put product in the market into his storage. If 
it's not there, he can't. It's not that he doesn't want to; he 
can't put it in there. It's crazy. It's insane. Right now we 
are in that place where product now is about 3 cents a gallon 
higher than product in January.
    Mr. Shays. Isn't it likely that the product in January will 
even be higher than it is today?
    Mr. Santa. Not necessarily so, because the market that we 
work with right now, the New York Mercantile Exchange, is an 
infinitely efficient, albeit merciless, price discovery 
mechanism. It is giving us a message. The message is the price 
of oil right now is too high, and it is going to come down in 
the fullness of time. It may not be tomorrow. It may not be 
next week.
    Mr. Shays. So we will agree that it is too high now, and 
the expectation is it may be a little less in January.
    Mr. Santa. That's right.
    Mr. Shays. But if you are not buying now, who is buying now 
to inflate that price?
    Mr. Santa. Actually the only individual--group buying right 
now is you, Mr. Congressman. The Federal Government is out 
buying 2 billion barrels for the Regional Petroleum Reserve, 
and quite honestly is it is having the effect of keeping the 
market up right now. That will pass. You will get your oil. And 
some of it is in New Haven already, and some of it in New York 
already. When you get your oil, I think the market will start 
to back off.
    Mr. Shays. Now, when I and others had suggested that we 
have a reserve and that we tap the reserve--one that we have, a 
home heating reserve here up in the Northeast, and that we tap 
the petroleum reserve in Louisiana, you and others came to us 
and said that's not a great idea. Explain why.
    Mr. Santa. Well, I can't speak to the strategic one in 
Louisiana because it's a little bit removed from our function, 
but I can speak to the regional one.
    Mr. Shays. OK. Let's do the regional one, and then maybe 
someone could speak to it.
    Mr. Santa. As regards the regional one, there are two 
issues that are concerning to us about that. First is what is 
happening right now. Just buying it is propping up the market. 
Then we wonder when and how this product will reenter the 
market. It hangs like the sword of Damocles over all of us 
people in the wholesale business who are wondering when and how 
it will come out. It is very disconcerting if today you buy a 
product at $1.05 a gallon, and tomorrow that gets released, and 
all the sudden the market falls to 95 cents, that could hurt a 
fellow if you bought 20 or 30 or 40 million gallons of product. 
It could hurt very badly.
    So I'm not saying the government will be indiscreet about 
that, but I don't know how they are going to do it. And that is 
why I suggested to Secretary Richardson, why don't you guys 
stay in the tax business, we'll stay in the oil business. You 
give us a tax incentive when we do not have a carry, and we'll 
take care of the oil. And then if things work out nicely, then 
you get your tax incentive back.
    Mr. Shays. Before I get to the Louisiana, if someone else 
would answer that, the concept of basically you're buying 
futures--you are trying to protect--you're trying to guarantee 
your customer a price. They guarantee you demand. You're 
basically just hedging your bet. You're just basically 
committing to a price, and then your consumers have to pay for 
that price. They benefit clearly if price goes up, but then 
they probably logically think, my gosh, why am I paying more? 
Just walk me through that concept.
    Mr. Santa. First of all, let me state that this concept can 
apply to my colleagues to the left here if they are buying 
natural gas or diesel fuel or electricity, because all of those 
commodities are now traded on the Mercantile Exchange. Let's go 
to the question of that customer, the end user, and that is the 
person, as I mentioned earlier, we need to help out a lot. They 
just don't know.
    They do not realize that in today's market they can buy 
supply, and they can sell risk if they wish to. What we do when 
we give them a capped price, and we sell them risk, we go to 
the commodity market. We buy a financial derivative. It costs 
us a couple, 3 cents a gallon, whatever the price happens to 
be. We buy that derivative, build it into the price. Now, what 
John Q. Homeowner gets is a beautiful thing. He gets a thing 
called a capped price, and a capped price is very simply one 
that will go no higher than some certain amount, and if the 
market backs off, it will go lower.
    Mr. Shays. They will get the lower benefit?
    Mr. Santa. Yes. It is a win-win deal. They can't go wrong. 
But they have to commit. They can't play around. And that is 
the big lesson of our market today. Hop shopping for energy is 
a very, very dangerous thing to do. Our new energy price 
discovery and distribution markets are intensely efficient. It 
has changed this way, Chris, since 20 years ago----
    Mr. Shays. We are going to have to close up because of the 
red light. Just finish your point.
    Mr. Santa. Twenty years ago we were driving around a Buick 
sedan, and that is what it was to buy energy. Today we're 
driving an Indy 500 car. It is a way different thing. It is 
built by different people, run by difficult people and used by 
different people for different things. We still get the energy 
out the end, but it is a way different vehicle. And right now 
people are trying to use that Indy 500 car to drive down to the 
supermarket and buy some paper towels. It doesn't work that 
way. It doesn't work that way. It works well, but it doesn't 
work that way.
    Mr. Shays. Thank you.
    Thank you, Mr. Chairman.
    Mr. Burton. Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman. I just have to say 
that I am always fascinated that all the free-marketers have 
sort of come around that want to get government out of their 
lives are now wondering what happened to government when this 
crisis started. In fact, I think with this Republican majority, 
government has been out of your lives, and here you are.
    Mr. Santa, you indicate that you think what's needed is the 
government to write you a check in order to cover the carry so 
that it will help the supply situation. Is that pretty much 
your situation?
    Mr. Santa. I'm suggesting this is an alternative to having 
a regional petroleum supply. We have done it before. Back in 
the energy crises of the 1970's, we came up with a----
    Mr. Tierney. We may have done it before, but tell me--I 
assume that you are a big free market person, right? You love 
the beauty of the market and how it works efficiently and all 
    Mr. Santa. That's how we live.
    Mr. Tierney. How would writing you a check or giving you a 
tax incentive or whatever be part of the free market?
    Mr. Santa. Well, if there is an inordinate concern on the 
part of government about the supply of product----
    Mr. Tierney. I'm not talking about the inordinate concern 
of the government. I'm asking you--it is your recommendation--
or how our writing you a check or giving you a tax incentive 
comports with the beauty of the free market being able to take 
care of itself.
    Mr. Santa. I think that the market will take care of 
itself. And you know why? I've been at it 60 years, and I have 
never, ever, ever shut off one of my customers, unlike 
electricity or natural gas.
    Mr. Tierney. So you are not advocating that there be a tax 
    Mr. Santa. Not really. I offer it as an alternative. I 
offer it as an alternative.
    Mr. Tierney. Mr. Hamilton, this Republican majority has 
been trying for a number of years to get rid of the Department 
of Energy. That was part of their big thing in the beginning 
when Newt Gingrich came in and he wanted to get rid of the 
Department of Energy. In fact, they filed a bill, I think, 
every year since they have been in the majority to get rid of 
the Department of Energy. Is that your idea of good energy 
policy particularly in light of what is going on now?
    Mr. Hamilton. We oppose the abolition of the Department of 
Energy, mostly because of the positive programs in the Office 
of Energy Efficiency and Renewable Energy. Without passing 
judgment on--and believe me, the oil guys believe that the 
Office of Fossil Fuels is just as important as do--you know, as 
do kind of other areas concerned with the Department of Energy.
    Somebody has got to work--the Federal role of working with 
the private sector to make sure that they are aware and 
incorporating plans for new technology that would better their 
bottom line, reduce their emissions, and, you know, improve 
their competitive status has been an extremely important role 
to play. If you look at the Office of Industrial Technologies, 
they have sat down with their seven more energy-intensive 
industries and said, what are your R&D plans; how do you see 
the Federal Government playing a role; how do we help; and 
ultimately work on the goal of waste reduction and energy 
    In buildings, in industrial, in helping the Federal 
Government use less energy, that office of the Department of 
Energy has been indispensable.
    You know, I'm not going to pass judgment on the 
environmental management section of DOE, but there are other 
areas that have more opposition.
    Mr. Tierney. Thank you.
    Mr. Santa, I could go back to you for a second and that 
idea, one of the things that you threw out about doing 
something to cover the carry cost. Would it be just as 
reasonable to talk about giving a loan with lower interest to 
cover that period of time? I think you mentioned you would like 
to have some incentives to cover that period of time at least 
just once, and afterwards it would revert back. Would it make 
any sense to talk in terms of a loan program with low or no 
interest to people to cover that period of time and then have 
it payable back and get over the hump?
    Mr. Santa. Congressman, quite honestly I had not pondered 
that. It might work. All I am saying is that this is a 
financial transaction. There is a couple different ways we can 
do it. The way that you suggested doing it is certainly one 
    But if I may point out, I think there is somewhat of a long 
history of subsidizing agricultural product prices, I'm really 
not that familiar with it, and quite honestly, I didn't agree 
it very much whatever. But that is what you guys do. Maybe 
there is a way we could do that instead of the Regional 
Petroleum Reserve.
    Mr. Tierney. If we do nothing--if we go back to the free 
market deal here, if we do nothing, how long does the pain 
last, and how severe does the pain get before the market rights 
    Mr. Santa. I think that is an excellent question. If you 
would just go back to 1996, we had a situation almost exactly 
the same as this when there was almost no storage at this time 
of year, and the prices were bumping up some. Believe it or 
not, that market went into the tank in January 1997, dropped 
like a rock. It could happen again.
    My sincere suggestion would be I don't think we need those 
things. I don't think the market needs those things. I think 
when there is demand, supply will come and fill it. Yes, there 
will be a price differential you have to pay, but quite 
honestly, as you probably know, we were paying prices for 
energy 18 months ago that were roughly equivalent to what we 
paid in 1939. That's OK. That was the year of cheap energy. 
This is the year of expensive energy. I'm sorry it will go 
down. There are only two things we know about the price of oil. 
It goes up and it goes down. And we don't know when or in what 
    And with all due respect, even all these wonderful people 
here, we just don't know. We try to predict as best we can. We 
do the best we can. We work hard to get that product here, but 
we really don't know.
    Mr. Tierney. Thank you.
    Mr. Burton. Mr. Souder--oh, excuse me, Mr. McHugh.
    Mr. McHugh. Thank you, Mr. Chairman.
    To my recollection, nobody has seriously proposed 
eliminating the Department of Energy for about 5 years now, but 
given the activities of the Chinese at the atomic labs, given 
the fact that our national energy policy seems to be comprised 
of begging the Saudis to do better, I'm not sure that we 
shouldn't revisit it.
    But in any event, Mr. Hamilton, you made some comments with 
respect to your recommended levels of CAFE and fuel efficiency 
standards for autos and for trucks. Autos was 40----
    Mr. Hamilton. Forty-five.
    Mr. McHugh. Forty-five. And trucks was 34. If those 
standards were imposed and we could in some miraculous way have 
them in effect fully tomorrow, what would that do to the price 
of oil here in the United States?
    Mr. Hamilton. If we could do it miraculously tomorrow, I 
think it would reduce it significantly. I think it is roughly 
an equivalent increase in efficiency that we undertook with the 
1975 CAFE law, which, in fact, has lowered our oil use 3 
million barrels a day.
    Mr. McHugh. I understand that, but what does dramatically 
mean? Give me how much per barrel.
    Mr. Hamilton. I can't----
    Mr. McHugh. So you have not examined that to that detail?
    Mr. Hamilton. No, not to that level.
    Mr. McHugh. I don't want to pose an unfair question. Thank 
    Mr. Pursell, your map--and there is no need to take the 
time to put it back up. I'm sure we have all looked at it very 
carefully. I don't think any of us--certainly I don't want to 
see us take an environmentally reckless policy toward some very 
sensitive lands in offshore locations, but in your technical 
opinion, is there a way to access these kinds of reserves that 
have to this point been off limits to you for environmental 
reasons in a way that is environmentally responsible?
    Mr. Pursell. Yes, sir. There is no question that it can be 
done. I may be a bit biased. I started my career in Alaska. I 
think it is done right there. I think it can be done right down 
    Mr. McHugh. You feel absolutely confident of that?
    Mr. Pursell. Yes.
    Mr. McHugh. Thank you very much.
    Mr. Lane, you mentioned from the point of beginning of the 
regulatory process to the end of the construction and operation 
of a transmission line, it takes 7 years?
    Mr. Lane. That was according to Don Hall of PG&E.
    Mr. McHugh. You have no reason to doubt that figure?
    Mr. Lane. No, because I have seen it in our area when they 
started the Los Esteros transmission project, which--to feed 
230 KV power from Newark substation, which is in Fremont just 
north of San Jose, down to northeast San Jose. That project in 
entirety is going to take 7 years from the time they applied 
for a permit to the time it actually becomes live, hopefully in 
the summer of 2002.
    Mr. McHugh. And in your opinion, beyond the construction 
time and such, the majority of that period is devoted to 
environmental and regulatory review, correct?
    Mr. Lane. By far the biggest piece of it is. It is probably 
a 1-year project, 1\1/2\ years. They expect to start it 
hopefully spring of 2001, actual installation, and be done 
summer of 2002.
    Mr. McHugh. So 5\1/2\ to 6-year period for environmental 
regulation only.
    Mr. Lane. Exactly.
    Mr. McHugh. Do you feel that the environmental concerns--
and I would be the first to admit are legitimate--that that can 
be done in a compressed time?
    Mr. Lane. Yeah, definitely. I think it can be done in less 
than half that time.
    Mr. McHugh. Mr. Hamilton, do you agree with that, or do you 
think it takes 6 years to do this?
    Mr. Hamilton. As I mentioned in my testimony, I was at a 
reliability forum in which a Virginia Power executive talked 
about a 15-year project that it took from planning to getting 
juice in the wires. So I think 5 to 6 to 7 years might be 
    Mr. McHugh. I'm sorry, sir, and I apologize, I was out of 
the room when you presented most of your testimony, and I did 
not hear it on that point. I don't know the reference you're 
making. My question is on an environmental review of a project 
of a transmission line, is 6 years absolutely what we have to 
have, or you don't think it could be done any----
    Mr. Hamilton. I'm not an expert--I'm not an environmental 
expert on siting. I am not--or offshore drilling or anything 
else. I work on energy efficiency. So I can't say what is 
necessary or what's justified in any particular situation.
    Mr. McHugh. Let me suggest I don't think 6 years is very 
efficient to do anything in terms of review and regulation. And 
I think we have come far out of balance in that regard. And I 
see my time is up.
    Let me just, if I may, Mr. Chairman, make a final 
observation. There is a lot of talk here about averages, and I 
understand that you have to have a common language to 
understand a problem. But my dad used to say, you know, if you 
put one foot in a bucket of boiling water and one foot in a 
bucket of ice water, on average you're comfortable.
    It has been said that the price of oil today has gone up, 
but so have incomes. Well, I would just say all I know is my 
district. My district, the largest industry is the dairy 
farmer. The dairy farmer today is receiving the exact same 
price for his or her milk that he did 20 years ago. Not 
averages. Not adjusted. The same price. So when we talk about 
100 percent increase, a doubling in the cost of energy not just 
to heat their homes, but to run their tractors, to run their 
equipment, to keep the barns ventilated, it is devastating, and 
it is this Congress's moral responsibility to do something 
about it now. And that's why I'm very proud of you, Mr. 
Chairman, for convening this hearing.
    Thank you. I yield back.
    Mr. Burton. Thank you, Mr. McHugh.
    Mr. Souder.
    Mr. Souder. Thank you, Mr. Chairman. I wanted to ask Mr. 
Tilman a couple of questions.
    I missed your testimony, but I read through it. Had you 
been on long-term energy contracts before? Because it said, I 
believe, that you had decided to go to long term, and then you 
weren't able to get a long-term contract.
    Mr. Tilman. Well, what happened was, of course, like 
California, Montana deregulated its electrical utility 
industry. Prior to that time we were on a long-term contract 
with Montana Power Co. And the way it worked in Montana, you 
had an opportunity to go out and get into the market, and at 
that time the market was not interested in long-term contracts. 
Everybody was more or less kind of feeling their way along to 
see how this was going to work out. And for about the first 18 
month it worked out pretty well. We got some good energy 
prices. We had one contract that was for 6 months; one contract 
that was for 9 months. And during that process, we were trying 
to get long-term contracts, and then all of a sudden the price 
just ramped up. And what that did, which make its real 
difficult, is that spot price ramped up that, started affecting 
the long-term price.
    Now, today I can go get a 5-year contract which will 
guarantee--we are kind of like the milk farmer, we can't 
control the price of copper; will guarantee that we will be out 
of business because we cannot afford that price as it is today, 
because I can't go sell copper for $10 a pound. It's fixed by 
the world market, just like milk prices is fixed in different 
areas. So I can get a contract, but the price has ramped up and 
now is continuing to stay high for the long term. It wouldn't 
do us any good to get a long-term contract right now because we 
would ensure ourselves of being out of business.
    Mr. Souder. Mr. Santa, I'm interested in your response to 
that, because I've seen this in the steel industry in my 
district as well as we use a lot of copper because we are the 
magnet wire capital of the country in northeast Indiana with 
Phelps Dodge and Ring Magnet Wire and Essex and a lot of others 
who need the copper and whose response would be to go overseas 
if necessary if we don't have domestic production. We had a 
similar with Steel Dynamics where they had a huge spike in 
their energy cost. They had been buying in the spot market, and 
by the time they wanted to go to a long-term contract, it 
wasn't feasible to do business.
    What seemed to me--because our problem is we are not really 
in free markets, we are in modified free markets. We restrict 
the production of energy, the offshore drilling ban, coal ban, 
so we are in a modified free market. And part of the dilemma 
here is that it almost sounds like you are saying that while 
distributors, oil companies ought to be allowed to have the 
prices move up and down with the market, but what happens when 
your users don't have the flexibility to move up and down with 
the market?
    Mr. Santa. Well, that's precisely why we have a program 
like a capped price, and we offer it to our consumers, who have 
ultimate choice. Do they want to take the risk with the price? 
Fine, do that, I'll sell you a noncapped price. Would you 
rather have the price capped? We will do that for you. We have 
got that offer for you, too. So it just depends upon the end 
user's risk tolerance. And because we sell industrials and 
municipals and governments----
    Mr. Souder. Let me ask another twist to that, because I 
understand the concept of risk tolerance. I have an MBA, and 
what they taught me first and foremost in business school, that 
a company can't handle high levels of risk. You can try to plan 
different things, but risk tolerance is a premium. But I can 
tell from talking to people in my district, and as the case 
that Mr. Tilman talked about, was there any precedent to 
suggest that you were going to have a 600 percent jump? In 
other words, did the energy companies come to any of their 
suppliers and say--you know, because historically weren't these 
prices varying 10, 15 percent? So your risk management, any 
kind of accountant or planning person is looking at a realistic 
range, and all of a sudden there is 600. Was there any warning 
of what risk tolerance was likely to be in this situation?
    Mr. Santa. Well, I think perhaps there should have been. 
Prudent people might have recognized that it was coming. 
Eighteen months ago is when there should have been a hearing 
somewhere, someplace in the world about the crazy price of 
energy; $10 a barrel was absolutely nuts, way too cheap.
    Consider the Persian Gulf countries. Unlike America they 
don't have the steel and computers. All they sell is oil. 
That's it. The rough equivalent for us is if all we sold in 
America was Ford Tauruses, and people expected us on the world 
scale to sell them for $638. That is what it would be like. 
That is what we were expecting Saudi Arabia to do, and others.
    I am not here to promote crocodile tears for them in the 
Potomac. I'm just telling you what was crazy was that price. 
So, therefore, prudent people like ourselves, we try to be 
prudent, we recognized that as a crazy price. We bought a lot 
of stuff then because the price, it was too low. It was not 
realistic. Buying a commodity at the same price as you could 
buy it in 1939, that's crazy, Congressman. You shouldn't do 
that. So it had to adjust back up.
    I agree, I understand, we are compassionate. No one--I 
respectfully submit that very, very few people in the retail 
business are as compassionate and close to our customers as the 
10,000 heating oil dealers coast to coast. We love them. We are 
crazy about them. And we'll crawl on our belly for them, and we 
will viciously try to keep them.
    The prices right now are higher than they were last year. 
Yes, I agree. You are absolutely right. But relatively 
speaking, what was crazy was last year's price crazy low. This 
year's price is not crazy high. And there are options for our 
end users to cap those prices if they wish to do so.
    Mr. Souder. What I'd like to suggest, Mr. Chairman, and I 
am sure this will come up continuing through the hearings, is 
that while I'm sympathetic and understand the argument that is 
being made, the fact is that we have many industrial users in 
the United States and Indiana who cannot adjust. They simply 
don't have the flexibility to adjust to this much market, and 
that is why some of us believe that additional energy resources 
need to be developed, because we cannot exist with this type of 
thing. Copper prices won't go up. Ag prices won't go up. Steel 
prices won't go up.
    My district produces pickups, RVs, boats. Are we going to 
deprive consumers the choices because some people decided we 
are going to restrict some energy development?
    Mr. Burton. The gentleman's time has expired. We will go to 
one more round at the request of the gentleman from 
    Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman. Mr. Chairman, thank you 
for having this hearing today and the hearing tomorrow. I look 
forward to the other panel. I apologize to some of the other 
members there. We rarely get someone from the Northeast in New 
England to respond to some questions, and I would like to ask 
Mr. Santa some more questions.
    First acknowledging this, that what I'm hearing you saying 
is that the private heating oil companies may be cautious about 
maintaining large stocks of heating oil, especially if 
purchased at higher prices, when the government could later 
enter the marketplace to sell its reserves, potentially driving 
costs down.
    The irony to what you are saying to me is that while we 
want there to be a stockpiling, we think we are going to have a 
stockpile in reserve, and you're telling me--and I want you to 
verify it--that there is likelihood that you will not stockpile 
as much, and so they kind of cancel each other out.
    Mr. Santa. That's right. Right now that's the case, Mr. 
Shays. It will--it will settle out.
    Mr. Shays. And I don't hear you--just to respond to my 
colleague, you're saying if the government is going to 
intervene, better do it from the tax side rather than the 
purchase side?
    Mr. Santa. I only submit and suggest that to you because 
that is what we look for you to do is to tax.
    Mr. Shays. I understand. But the bottom line is I think I 
hear you saying if you are going to be intervening and 
distorting the marketplace, better to allow--your argument 
would be to allow it through tax incentives, which we do in a 
whole host of ways.
    Mr. Santa. Certainly.
    Mr. Shays. Let me just run through a few questions. One of 
them that it is hard for me to frankly understand--not hard to 
understand, but I did not realize it was to this extent--you're 
saying in Stanford 20 years ago, where I basically spent 24--30 
years of my life, we had 7 storage terminals. Today there is 
just one.
    Mr. Santa. Right.
    Mr. Shays. When I see more than one terminal, that is a 
different type of terminal?
    Mr. Santa. It could be, but there is only one functional 
one down there.
    Mr. Shays. Norwalk has gone from 7 20 years ago to 1 today; 
and Bridgeport, 12 terminals, now 3.
    Mr. Santa. Right.
    Mr. Shays. What I am seeing there? I am getting confused. I 
see some at your facility. I go down the road a little further, 
and I see some at other end of the throughway.
    Mr. Santa. Right.
    Mr. Shays. Are those not all----
    Mr. Santa. There is mine on the west side and two on the 
east side. That is basically it.
    Mr. Shays. And you are all smart people. If you knew 
today--if you knew a few years ago what you knew today, would 
some of those terminals still be there?
    Mr. Santa. Well, their not being there has a lot to do with 
one of your next witnesses, the ExxonMobil folks. I don't mean 
to single them out particularly, but the world has changed. In 
1980, in order to find out the price of product, all you had to 
do was go to the Wall Street Journal look up Exxon Cargo, New 
York Harbor, and that was the price discovery. Today it is a 
whole different deal. You go to that merciless Merc, and that 
is where you find the prices, and it is a very egalitarian 
    Mr. Shays. I just want to understand. So you are saying you 
are not going to take a risk of having it in the terminal 
because it is going to fluctuate almost on an hourly basis, Or 
more on a minute-by-minute basis. I'm just trying to understand 
why there are less terminals today than there were just a few 
years ago. And are you suggesting that the price is too 
    Mr. Santa. The market is much more efficient. It is not 
that there is less terminals because the price is volatile. The 
price is volatile because there is less terminals. And back 
before 1980, an important time, the beginning of the Merc, the 
Mercantile Exchange, before 1980 there was a tremendous amount 
of storage maintained by these wonderful seven sisters and big 
major oil companies. And because there was so much of that, the 
oil price did not move up much, it didn't move down much. It 
was very predictable. Summertime down a little bit; wintertime 
up a little bit. That was it.
    Mr. Shays. Would anyone else like to respond to the 
questions I asked? Anyone else?
    OK. So to your knowledge, distributors across New England 
are holding off buying home heating fuel because at this moment 
they consider it too expensive?
    Mr. Santa. It's not too expensive, Mr. Shays. It's the 
configuration of the market. If product today was $1.05, and 
the Merc had----
    Mr. Shays. Relatively more expensive than it will be?
    Mr. Santa. Well, again, it has to do with the curve. If the 
market--if the Merc had a price 4 or 5 cents a gallon higher in 
January than today, fill them up. Everything you can get, buy 
it with both hands. When it's the other way around, you got to 
get your head examined if you are going to buy any product 
because you are going to lose.
    Mr. Shays. Thank you.
    Mr. Santa. You're welcome.
    Mr. Burton. Which one of my colleagues would like to go 
next. Mr. McHugh, do you have more comments or questions? Or do 
you want to wait for the next panel?
    Mr. Souder, do you have comments or questions at the 
    Mr. Souder. I appreciate your patience with us, because 
even though I spent a lot of time with distributors in my 
district and others, this is a very complicated subject to 
learn. But there was one additional comment by Mr. Santa I 
wanted to followup on.
    Are you saying that the reasons we partly did not have the 
fluctuations is that the large oil companies were cushioning 
that by purchasing over a long period of time and storing it?
    Mr. Santa. Mr. Souder, it was a whole different world. The 
basic supply of product came from large, integrated companies 
that took it from all the exploration, right down to delivery 
to the home. We started--we bought our franchise from Mobil Oil 
Corp. in 1940, delivering kerosene to homes. Before my dad 
bought it, Mobil delivered it to somebody's home. So they did 
the whole thing, and they were huge and wide and broad.
    It's another world. It is a very diffuse market. There is a 
lot of players in it. There are very good players, but they 
play in a very efficient market. They cannot allow any more 
than absolutely the just-in-time amount of inventory, with the 
just right amount of storage, with the just right amount of 
movement vehicles.
    Mr. Souder. As you well know, I'm sure, Republicans love to 
ask regulatory questions. How much--in other words, what you 
are saying, because it is more complicated, because of just-in-
time inventories, because we subdivide into different sectors, 
there is much more market responsiveness to the ups and downs 
of the market. How much of that has been impacted by regulatory 
reforms that hit at some parts of the market that have 
distorted the flow of things?
    In other words, have the storage facilities had more 
regulation on them than other parts? Because there has been--
certainly part of the disintegration is that some of the large 
oil companies have gotten rid of some of the things that don't 
give 10 to 20 percent returns on investment, because some of 
these things have a narrow hard investment. Have some of our 
regulatory decisions, in fact, because of this general 
flexibility in changes in market had a disproportionate impact 
on certain parts of the distribution system?
    Mr. Santa. That's an excellent question, Mr. Souder. Let me 
just point something out to you.
    This is a very simple example here. We sell heating oil.
    Mr. Shays. If he had not asked that question, this would 
have been a waste of time.
    Mr. Santa. That is OK. This is a good, useful petroleum 
product. We would have brought it home and used it again.
    Once upon a time, we could just have kerosene and heating 
oil in our facilities. Now we have heating oil dyed red, diesel 
fuel not dyed red, diesel fuel .05 percent sulfur, heating oil 
that is no more than 3 tenths of a percent of sulfur, in 
Connecticut. In Massachusetts it is different and in New York 
it is different. And then we have kerosene. We have clear 
kerosene if we are going to use it for a motor fuel, but if we 
are going to burn it in the heater in our home, we are going to 
have it colored red.
    This is nothing. Wait until the Mobil guys get up here and 
tell you about RFG and winter blend and summer blend. It drives 
them nuts. You keep chopping up the amount of storage that you 
have got into smaller and smaller bits and it becomes a little 
less efficient.
    You have to understand, Congressman, we are breaking our 
backs to deliver energy to the American public. We have no 
animus with them. We are not aggrandizing them. They are 
friends. That is who we live off of. They bought this suit. We 
want to help these people. So that is an example. I could give 
you a few more, but that I think is one.
    Look, your tax guys have a job to do, too. This is about 
taxes, this is not about supply. The other stuff about the RFG 
in the gas, that is about the EPA and about the environment. We 
understand that, and we have been very compliant with you. We 
have done everything you want and are trying to help you as 
best we can.
    But understand, there is a price we pay for that. The price 
we pay is that it is not the old days. It is not the old days 
where Mobil-Exxon has a billion, zillion, million gallons in 
storage and the price will not go up or down. Now it is 
    Mr. Souder. How do we tell our constituents which parts of 
the rise in the cost are the price that we pay for doing these 
things? Because we are not able as a Nation or as individuals 
to actually make these decisions. In other words, if you get an 
RV or SUV, then this is what it may do to your fuel prices in 
the winter in another part of the sector. We are not being 
presented with those choices, even in Congress.
    Mr. Santa. Congressman, the best thing you can do is 
consumer information, letting them know what their choices or 
tradeoffs are, helping them understand they can buy product or 
risk. There is a great opportunity to buy product here.
    Think about this: I mentioned this to you a while ago. The 
majority of my customers neither knew there was any dislocation 
of supply nor any rise in price last year. They had nothing to 
do with it, it was all set. Holy cow, that is pretty terrific. 
Don't you wish your steel mill could say that same thing? We 
can. We can do it, but it takes a little bit of commitment.
    One of the things that just drove us nuts last year is the 
typical thing the gas industry does. They have these 
interruptibles. They do not contract with us, so when the gas 
company gets to the point where they cannot supply anymore, 
they can do something we can't do, they can cutoff demand. That 
is very nice. Then they expect us to come up with all the 
product to fulfill the demand that is still there.
    Believe me, we try, but I am respectfully submitting to you 
that it is unrealistic, because this is 2000 and not 1970. It 
is unrealistic to think that we have that kind of product or 
storage or people or infrastructure to move into those kinds of 
    Mr. Burton. The gentleman's time has expired.
    Mr. Tierney.
    Mr. Tierney. Mr. Santa, I had to step out for a second. I 
apologize for that. In my absence, some people understood that 
you made an inference, that but for the strategic reserve in 
New England, you would be full up in your storage.
    Mr. Santa. You skipped a couple of dots in the middle 
there, Congressman.
    Mr. Tierney. Could you fill me in?
    Mr. Santa. What I was saying is that right now one of the 
few active buyers in the Northeast market is the Federal 
Government. With an active buyer and demand, that helps keep 
price up.
    Mr. Tierney. Before there was any type of storage, there 
was still going to be a shortage of inventory, is that right? 
There was a shortage of inventory that led to consideration of 
that, right?
    Mr. Santa. With an evaporated market, that is what you have 
got. That is how it works.
    Mr. Tierney. It is not the fact that because somebody is 
considering having a reserve, that creates a shortage.
    Mr. Santa. Oh, no. You have got that right.
    Mr. Tierney. Who would you suggest is responsible for the 
interruptible contract situation?
    Mr. Santa. I think it is an unrealistic posture, both on 
the part of the end users as well as on the part of the natural 
gas utilities. Neither of these are malevolent individuals, but 
they generally are not realistic about what--the way the world 
really works.
    An interruptible customer that actually interrupts and 
contracts with his product--and by the way, I supply millions 
and millions and millions of gallons to just those kinds of 
people, they have no problem. Their prices do not spike. Their 
supply is fine. Everything is great.
    Where it is unrealistic is if an end user maybe just 
doesn't want to switch from oil to gas, doesn't want to go to 
the trouble, bid the oil thing, ``I will just run the natural 
gas.'' They are playing a dangerous game because they are 
interruptible. They can be interrupted. They ought, as a 
prudent person, just contract for it.
    Mr. Tierney. Assuming that they are not acting as prudent 
people, do you have a remedy that you could recommend with 
respect to them?
    Mr. Santa. Well, I would say that there are two things that 
could be done, Congressman. No. 1, you might suggest or 
mandate, whatever, that they have sufficient storage, 
alternative fuel----
    Mr. Tierney. Government regulation?
    Mr. Santa. Well, perhaps; maybe a tax incentive to do it.
    Mr. Tierney. That is government, too, right?
    Mr. Santa. Already, by the way, natural gas is government-
    Mr. Tierney. But you are asking for more----
    Mr. Santa. I am suggesting, why do we not just enforce the 
regulations that exist?
    Mr. Tierney. Is there an existing regulation that would 
disallow interruptibles?
    Mr. Santa. No.
    Mr. Tierney. Is there a regulation that would require them 
to have an inventory on hand for it?
    Mr. Santa. That would be a good idea. In New York State----
    Mr. Tierney. There is not one existing.
    Mr. Santa. No. New York State is working on one now.
    Mr. Tierney. Your remedies are regulation, or write them a 
check and give them an incentive?
    Mr. Santa. I guess so. I guess you could say that.
    Mr. Tierney. What else do you recommend? Anything else?
    Mr. Santa. That they contract for interruptible service.
    Mr. Tierney. To cause them to contract for that? What do 
you use as leverage to get them to do that?
    Mr. Santa. There are very extensive tariffs written for the 
marketing of natural gas. I don't know why this could not be a 
clause that is put into there. It would make a lot of sense I 
think for all parties involved. I think it would be helpful to 
    Mr. Tierney. When you made the comment earlier that this 
was about taxes and not supply, you were holding up your vials 
there. Could you expand on that, what you were referring to?
    Mr. Santa. Oh, sure. It is very important for the Federal 
Government to collect, I think, about 18 cents of tax on a 
gallon of kerosene from users of motor fuel.
    Mr. Tierney. Is that a useful tax for the government to 
    Mr. Santa. It is appropriate. It is the Federal Government 
planning for the highways. This is for highway use, by the way. 
Believe it or not, there are people in this world that cheat, 
that sometimes do not pay their taxes as they should. So 
therefore, to make it very clear, literally, figuratively, who 
is and is not paying the tax, they have--we dye the stuff that 
is off road.
    So therefore, woe betide that unfortunate individual who 
finds this in his motor fuel tank when the Federal tax guy 
stops into the truck stop and does a sample at the tank. So 
that is what that is all about.
    Please understand me, I am not criticizing the Treasury or 
IRS or anyone else, they have to figure out how to get their 
stuff. All I am saying is that this just adds another--it just 
divides the storage capacity again and again, because we cannot 
store this with this. It takes three drops of red to change 
1,000 gallons to that color.
    Mr. Tierney. Would you recommend some sort of a tax that 
blended over them so you didn't have to have different dye and 
different storage?
    Mr. Santa. I think that might be one good idea, 
Congressman. Another thing that we are advocating quite a bit, 
I mentioned that there is a difference in the sulfur content. 
This one in my right hand has 0.05 percent sulfur, this one has 
0.2 percent sulfur. We prefer to use this one for heating oil. 
This is diesel fuel, this is heating oil. We prefer to use this 
one for heating oil with the low sulfur because we think it is 
better for our customers, better for the environment, it is a 
better product. Why not? Let's get together on that. Let us 
make a single fuel that has a single sulfur requirement. It 
might help. It would not hurt.
    Then would we then get by the tax thing? I am not sure. I 
am not in that business, I am in this business. Sorry.
    Mr. Burton. The gentleman's time has expired. We are just 
about to wrap up with this panel. I want to thank you.
    Mr. Shays. I would like to point out to Mr. Tierney that he 
is just a typical constituent in my district. Now you know why 
I am the way I am.
    Mr. Tierney. Your constituents at least acknowledge that 
there is some need for some regulation some of the time.
    Mr. Santa. My terminal is right up the creek from Chris's 
    Mr. Burton. Let me end the discussion with this panel. 
There were 231 refineries in 1982. Now it is down to 155, and 
now they have to diddle around with different types of 
gasoline, different components in the gasoline and oil.
    It has to be a problem because of government regulation. 
There has not been a new oil refinery built in 25 years. That 
seems to me like it has to create a problem.
    We talked about electricity rates in Montana going up 500 
percent for industrial users, driving at least one industry out 
of business, temporarily, anyhow. We have 17 times in 
California, near San Jose, where there have been stage 2 
alerts, and it has cost a lot of money to one company out 
    Government regulation and environmental concerns have, 
according to Mr. Pursell, taken a lot of the natural products 
that can be, according to you, Mr. Pursell, produced 
environmentally safely off the market. It seems to me that we 
ought to revisit those regulations that are taking things that 
can be environmentally produced--produced in an environmentally 
clean way back in the market so we can increase the supply, and 
because of the law of supply and demand, reduce the price.
    Government regulation, Mr. Tierney is right, there needs to 
be some. We can't let somebody rip off the public and run 
prices up just because they want to make an extra dollar, so 
there needs to be some regulation. But most of us on this side 
of the aisle, at least, and many on the other side of the aisle 
believe we are overregulated when we are facing an energy 
crisis like we are facing this winter. And most people agree, 
we are going to have a tough winter, especially if it is very 
cold up North, in the Northeast, out in the Northwest, and that 
we need to revisit some of these regulations so we can get more 
production for the fuels that are going to be needed by the 
American consumer: oil, gas, electricity, and everything.
    I want to thank you very much for being here. If you have 
any suggestions that you think we can look at that you have not 
talked to us about today, would you please put those in writing 
and get them to me and my chief of staff, and we will present 
those to the officials at the Energy Department and the EPA, 
Environmental Protection Agency, to see if maybe we cannot get 
some review of some of the things that are causing you 
heartburn and hurting the American public.
    With that, thank you very much. We will relieve this panel.
    We will welcome our next panel. If you can just give us 
about 5 minutes, we will be back with the next panel.
    Mr. Burton. Back on the record. We will reconvene.
    Our next panel consists of Mr. Bob Slaughter, who is the 
general counsel and director of public policy for the National 
Petrochemical and Refinery Association; Mr. Curt Hildebrand, 
vice president of project development for Calpine Corp. of 
Pleasanton, GA; Mr. Steve Simon, president of Worldwide 
Refining and Supply for ExxonMobil Corp. in Dallas, TX; and Mr. 
David Hawkins, director of air and energy program for the 
Natural Resources Defense Council.
    Would you all please stand up and raise your right hands?
    [Witnesses sworn.]
    Mr. Ose. Mr. Chairman, I just want to make one correction 
to your introduction. It is very eloquent, but those of us from 
California like to claim California, Pleasanton, south of San 
Francisco, not in Georgia. Georgia is a great State, but we 
prefer California.
    Mr. Burton. It is California?
    Mr. Ose. It is California.
    Mr. Burton. You don't like Georgia?
    Mr. Ose. I love Georgia, but I love California more.
    Mr. Burton. It is a good thing you said that. You would be 
in big trouble.
    I apologize to Mr. Hildebrand. You have a nice tan and 
glow, so I figured you probably came from one of those sunny 
    Mr. Hildebrand. I thought I might be getting transferred or 
    Mr. Burton. I apologize. I will fire whoever put that on 
    We try to keep our opening statements to 5 minutes. If you 
go a little bit longer, that is fine. I appreciate very much 
all of you being here.
    We will start with you, Mr. Simon.

                        DEFENSE COUNCIL

    Mr. Simon. Chairman Burton, members of the committee, I am 
Steve Simon, president of ExxonMobile Refining and Supply Co. 
The divisions and affiliated companies of ExxonMobile Corp. 
operate or market their products in the United States and about 
200 other countries.
    In the interests of your time, I will summarize my remarks 
and ask that my written testimony be submitted for the record.
    Since my area of expertise is in the refining and supply of 
petroleum products, I will focus on that segment of the 
business. But in addition, in response to your request, 
although not in my area of direct expertise, I will also 
provide some remarks on natural gas.
    Due to antitrust and competitive concerns, I hope you will 
understand that I cannot discuss company specifics regarding 
inventory, supplies, and pricing.
    ExxonMobile certainly understands the importance of heating 
oil to homeowners, business, and government. Subject to all the 
factors that impact supply and demand in the world oil market, 
we remain committed to continuing to meet all our contractual 
commitments to supply heating oil to our distributors.
    Barring any unforeseen or extraordinary circumstances, we 
expect that heating oil supplies will be sufficient this year 
to meet our wholesale distributor needs if the market is 
allowed to work.
    A lot has been reported recently regarding heating oil 
inventory levels. On average, however, 85 to 90 percent of 
heating oil supplies over a normal winter come directly from 
refineries. Only 10 to 15 percent of the seasonal demand is 
typically met by drawing down inventory.
    Low inventory levels at this time are not necessarily 
predictive of inventories in December or January, when the 
winter heating season will peak. With the end of the summer 
driving season, ExxonMobile is currently increasing production 
of distillates, and, in fact, are now producing 10 to 15 
percent more than we were at this same time last year. We have 
also taken steps this year to improve our ability to move 
heating oil from our Gulf Coast refineries to the Northeast.
    Congress has taken a major step to try to avoid a repeat of 
last winter's temporary supply disruption by establishing and 
beginning to fill a Northeast heating oil reserve.
    We have significant concerns about government intervention 
in the marketplace. A sudden, severe weather pattern was the 
primary cause of the situation last winter. A regional reserve 
would not necessarily help when unusual weather conditions 
prevent home heating oil from being moved into individual 
northeast markets.
    We strongly encourage members of the committee and other 
Members of Congress to carefully consider what impacts 
establishing a northeast heating oil reserve will have on 
industry's ability to react to all the market forces of supply 
and demand.
    Like heating oil, natural gas prices are driven by the 
principles of supply and demand, as well. Rising demand for 
natural gas is being experienced across all demand segments of 
the market, particularly with regard to new electric power 
generation plants. This comes in the wake of the dramatic fall 
in commodity prices in the 1998-1999 timeframe, and the 
resulting lack of investment capital.
    It takes time to recover from a significant decline in 
investment, but individual producers have reacted aggressively 
to bring more supply to the market.
    ExxonMobile, for example, has a majority interest in two 
major projects that have started up this year. Sable Offshore 
in eastern Canada and Diana Hoover in deepwater Gulf of Mexico 
are bringing over 600 million cubic feet per day of additional 
supply into North America.
    Recent fluctuations in natural gas prices are the market's 
way of balancing supply and demand. In all energy sectors, the 
market must be allowed to work.
    In a broader sense, while we recognize regulations are 
necessary, they should attempt to strike the right balance 
between what at times can be competing goals: reliable 
affordable energy versus a cleaner environment. The National 
Petroleum Council said it best in their report entitled ``U.S. 
Petroleum Refining: Assuring the Adequacy and Affordability of 
Cleaner Fuel.''
    The assessment is blunt. These changes will be very 
expensive. They are probably impossible to complete in the 
proposed timeframe. They will lead to worsened supply rigidity, 
and there is a real risk of increased price volatility and more 
serious local shortages.
    Proceeding so quickly on so many fronts with so many 
special cases is a recipe for recurring supply and price 
crises. The Federal Government needs to employ sound science 
coupled with rigorous cost-benefit analysis, and proceed at a 
pace that allows investments to be made in an orderly fashion 
that does not further threaten the supply of fuels to U.S. 
    In conclusion, the energy industry needs a consistent set 
of rules and a level playing field in order to continue to 
provide quality products to consumers in a timely fashion and 
at competitive prices. Consumer interests are best served by 
industry and State and Federal Government working together and 
considering the full range of impacts on consumers when 
proposing regulatory requirements.
    I will be happy to answer any questions the committee may 
    Mr. Burton. Thank you, Mr. Simon.
    [The prepared statement of Mr. Simon follows:]

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    Mr. Burton. Mr. Slaughter.
    Mr. Slaughter. Thank you, Mr. Chairman. My name is Bob 
Slaughter. I am here on behalf of the National Petrochemical 
and Refiners Association. We represent virtually all U.S. 
refiners, as well as petrochemical administration companies 
that have processes similar to refineries.
    While the NPRA is working extremely hard right now, all of 
our membership is working hard to make petroleum products 
readily available at affordable prices to consumers--as a 
matter of fact, the refining industry, according to the latest 
API statistics, is still working at 95 percent of capacity, and 
has been varying between 95 and 96 percent of capacity, which 
is essentially full out--for some time, in order to produce as 
much product as possible, first for the gasoline season, but 
now increasingly for the home heating oil season.
    We do believe that given that situation, supplies will be 
tight this winter. It looks as if they will be tight across 
several different types of energy, as has been discussed here 
this morning. But we do believe that given moderate weather, 
that we will get through all right.
    We know, of course, from last winter's experience that the 
combination of a very sudden and sharp cold spell caused some 
particularly logistical problems, which created some 
difficulties for a period of time. But we want you to know that 
the industry, all our refiners are working full out to try to 
make products that consumers will need during this period.
    Over the long-term, though, we have to say that we don't 
want to be alarmist, but we think that the midwestern 
experience this summer and the intervene experience last winter 
could be omens for the future. Today's refineries have little 
excess capacity and the number of few fuel types that must be 
delivered to different locations increases the potential for 
temporary supply disruptions and increased volatility.
    The overall U.S. refinery utilization rate is almost 95 
percent, very close to the operational maximum, but there is no 
longer a surplus in U.S. refining capacity overall. As the 
chairman has pointed out several times today, no new refineries 
have been built in roughly the last 20 years. Most of the 
refineries were built more than 25 years ago. The number of 
U.S. refineries has been decreasing.
    Refiners have tried to meet demand, continue to meet demand 
by adding capacity at existing sites, but EPA is taking steps 
to make that increasingly difficult to do, and, in fact, is 
retroactively questioning the actions that were taken to meet 
some of this capacity in the past.
    One problem, refining is far from the most profitable 
aspect of the energy business. Generally, over the last 10 
years the average return on investment in refining is 5 
percent, which is not much better than you can do in a passbook 
savings account.
    More than $7 billion has been spent on the last decade 
alone to comply with environmental regulations, and a National 
Petroleum Council study done in the 1990's indicated that the 
environmental expenditures that the industry was facing at that 
time essentially exceeded the book value of the entire 
industry, so they are significant.
    This is not going to stop. There are a host of new fuel 
requirements that we face in the next 5 to 7 years. We have a 
chart here that we call our regulatory blizzard chart. It shows 
basically all the different regulatory initiatives that the 
industry faces over the next 10 years.
    The blizzard actually is becoming an avalanche, and some of 
our people are saying that it may end up being a perfect storm, 
because we are looking at at least three major initiatives that 
we know we are going to face: one to reduce gasoline sulfur, 
one to reduce diesel sulfur, and another very probable 
initiative that will do something to account for reduction or 
elimination of MTBEs in gasoline.
    The total expenditures of all three programs will approach 
$20 billion across the industry, and, incredibly, they are all 
having to be done in the same timeframe. So you can see that 
the situation that we have been dealing with over the last 10 
to 15 years is only going to be continued and in effect, 
magnified over the next 10.
    We have another chart we want to point out to you. One of 
our member companies, CITGO, prepared the second chart. It 
shows you the different types of summer gasoline that company 
has to produce right now. They have to produce nine types of 
gasoline to address varying State and Federal programs. That 
translates into 27 different grades of gasoline that have to be 
sold in isolated fuel islands.
    We know that having such islands is a problem because if 
additional supplies are available nearby but cannot be sent 
where they are most needed due to differing fuel 
specifications, we have supply problems with resulting price 
hikes. We saw some of that happen in the Midwest this summer, 
and it is the problem that results from the so-called 
balkanization of the fuel market.
    To really sum up a lot of our message today, we just 
believe there is a disturbing lack of coordination between our 
energy and environmental policy objectives. The pursuit of a 
number of increasingly stringent environmental programs in a 
piecemeal and uncoordinated fashion has stretched the refining 
and distribution system to its limit, resulting in greater 
potential for tighter supplies and increased market volatility.
    Just to specifically mention some things that are going on 
now--and this is not improving, it is getting worse--EPA is 
moving forward with a regulation to reduce sulfur in diesel 
fuel, which is extremely expensive.
    We do not believe, as a matter of fact, that the level they 
have chosen for us is technologically feasible. We have 
advocated a 90 percent reduction which we think the industry 
can do without any adverse impact on supply. They are insisting 
on a 97 percent reduction, and studies indicate that results in 
a 12 percent shortfall in diesel supply when that is 
    Obviously, there are significant implications from a 
shortfall in highway diesel supply, but that is exactly where 
that EPA regulation takes you.
    Another part of it basically regulates emissions from heavy 
trucks. We were amazed to read the comments of Cummins Engines, 
the largest manufacturer of engines. Cummins basically says 
EPA--it has no idea how it will technically be able to do what 
the EPA is asking of it on the engine side.
    They also believe EPA has underestimated the cost of the 
program for engines by a factor of six, and that people will 
simply not be able to afford those engines if they find that 
they are able to do it. Therefore, all of the benefits that are 
alleged for that rulemaking are illusory.
    The agriculture community has come into EPA with concerns 
about that rule, and the fuel industry has as well, but EPA has 
told us they will finalize that rule by the end of the year, 
and they will not be changing the timeframe or the number. So 
obviously, we are not learning from some of the problems in the 
    We also have some difficulties on the Hill. We are going to 
have to do something on that MTBE issue. Unfortunately, there 
are some people who want to combine that issue with an 
environmental agenda which will make gasoline more expensive, 
and at the same time, another agenda, which would actually 
mandate fuel components for us.
    That is something that would make gasoline more expensive 
and would have an impact on supply at just the time we think 
that would be worse for Federal policies and for consumers, so 
we are working that issue hard. We are trying to keep away from 
mandates. We would like to go to sensible performance 
    It is not that we are not absolutely committed to making 
environmental progress. Emissions from refineries have been 
reduced 74 percent, and more has to be done, but we do think 
there needs to be coordination and we need to have more 
reasonable environmental policies.
    Thank you, Mr. Chairman.
    Mr. Burton. Were all the comments you made in your opening 
statement--do we have those?
    Mr. Simon. Yes, sir.
    [The prepared statement of Mr. Slaughter follows:]

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    Mr. Burton. We are going to have the head of the EPA here 
as well as the head of the Energy Department, and I want to 
make sure we ask them those questions.
    Mr. Hildebrand.
    Mr. Hildebrand. Thank you, Mr. Chairman, members of the 
committee. I appreciate the opportunity to provide testimony 
today on this matter of national importance.
    My name is Curt Hildebrand. I am vice president of project 
development with Calpine Corp. Calpine is a leading independent 
U.S. power company. We are headquartered in San Jose, CA. 
Calpine is the Nation's largest producer of green power or 
renewable power. Our future development objectives are the most 
ambitious in the Nation.
    Our company is targeting to build and operate a modern 
40,000 megawatt portfolio throughout the country by the end of 
year 2004. This development program will be sufficient to 
supply the electrical needs for 40 million Americans, and 
require a capital investment on the order of $20 billion.
    First, I would like to make a few opening remarks about the 
changing nature of the electric industry. Second, I will review 
the key benefits of achieving a healthy and competitive 
marketplace for electricity. Last, I would like to recommend 
important modifications to present to U.S. EPA in terms of 
their permitting process based on our experiences.
    The generation, transmission, and distribution of 
electricity is the third largest industry in the United States. 
There are presently 750,000 megawatts of generating capacity in 
the United States, and demand for electricity is currently 
increasing at an annual rate of a robust 3 percent per year.
    The electric industry has been restructured at the 
wholesale level, the wholesale level nationwide, and retail 
restructuring is proceeding in most States.
    Industry uncertainty regarding past and future regulations 
has led to a virtual standstill in power infrastructure 
investment. During the 1990's, as we heard earlier, demand for 
electricity surged 30 percent while supply grew by only 6 
percent. Power shortages are becoming commonplace throughout 
the Nation.
    Calpine believes that building new plants is vital to the 
well-being of our country, and the Congress should promote this 
transition from outdated, inefficient, and highly polluting 
plants to vastly cleaner and more efficient plants that Calpine 
and others are building around the Nation.
    Moving on to my second point, I would like to highlight the 
four major benefits that a modern competitive power industry 
can provide.
    First, reduce costs to consumers. We are now capable of 
generating power with 40 percent less fuel, given technological 
advances. Fuel is the largest component of variable operating 
costs for power plants, so that translates into dramatically 
reduced costs to consumers.
    Second, conservation of resources by burning 40 percent 
less fuel. We are conserving that for future generations. We 
heard earlier about how important that will be.
    Three, enhanced system reliability. We heard about the 
power shortages that struck my home region of the Bay area, and 
these are indeed dramatic. The 1-day worth of outages in 
Silicon Valley is estimated to have cost local businesses $75 
to $100 million. So without new plants, we are really incapable 
of providing the level of reliability that high-tech and modern 
industry demands.
    Last, fourth, improved environmental quality. Technological 
innovations have led to dramatic environmental improvements and 
the generation of power as well. Plant emissions that leave 
smog, acid rain, and global warming can now be reduced by 50 to 
over the 9 percent. I have detailed in my statement a closer 
examination of these environmental benefits.
    Finally, I would like to make recommendations regarding 
improvements about the Federal review and permitting of new 
power plants. It is widely feared by energy experts that our 
Nation will face increased power shortages in the future. While 
our facilities show great promise in helping to solve this 
looming crisis, we are subject to a burdensome regulatory 
permitting process which has hindered our ability to build 
modern, environmentally friendly facilities in a timely manner.
    Unfortunately, we are frustrated in attempting to build 
these plants because current permitting procedures allow for 
the imposition of automatic stays on construction on power 
plants, even when these stays are based on inaccurate, 
frivolous, or unsubstantiated claims.
    To solve the problem and to encourage the building of new 
and better power plants, Calpine believes that U.S. EPA 
regulatory programs should be streamlined to allow 
environmental permit appeals to be considered on an efficient 
and effective basis. Furthermore, any appeal of the Federal 
Prevention of Significant Deterioration program required under 
the Clean Air Act should not result in an automatic stay of 
    I want to clearly emphasize, our company is fully committed 
to satisfying all appropriate regulatory review procedures, 
including the PSD review. However, the current permitting 
process imposes unreasonable delays on the construction of new 
power plants at critical points in the process.
    I go on in my testimony and depict an elaborate, detailed 
summary of a project that Calpine permitted in Sutter County, 
in Congressman Ose's district. We first proposed this project 
in 1997. In the interests of brevity, I will summarize the 
testimony very briefly.
    As part of the local, State, and Federal review of that 
project, Calpine submitted an application for a PSD permit to 
EPA in January 1998. Over the course of the next 18 months that 
permit was reviewed by EPA, along with various State and local 
    The EPA received only one negative comment from a single 
individual with regard to that permit. That individual lived 
over 100 miles away from the project site. It was all 
information that was considered during the normal course of the 
hearings and proceedings on the project.
    The individual then filed an appeal once the final PSD 
permit was issued. Calpine had begun construction. This was the 
first new project to be licensed in the State of California. It 
was a milestone project to establish new best available control 
technology thresholds. It was the cleanest plant ever. Yet, 
this 1\1/2\ page appeal was sent to Washington and the project 
was forced to cease all construction activities.
    We went through a great effort to try and have that appeal 
heard as rapidly as possible. It took about 3\1/2\, almost 4 
months before that appeal was denied and was found to have no 
merit whatsoever. That put us back into construction in 
December. That is our rainy season. We lost roughly 6 months of 
construction activity.
    We have since been requested by numerous entities, 
including Sacramento, to try and get that project online for 
next summer, as early as possible next summer. We have gone to 
double shifts. We are working at night to bring that project 
online, but again, we feel that this frivolous appeal cost us, 
Calpine, and the citizens of California dearly. We ask that 
that be reconsidered.
    In conclusion, if our Nation is to meet increased demand 
for electricity at affordable rates while still meeting our 
ambitious environmental goals, we must foster the construction 
of new clean power plants.
    Companies such as Calpine understand that in order to 
construct a new plant, the company must be prepared to 
implement some of the most stringent pollution control 
technologies in the world. We are prepared to meet these 
    However, we are at a loss trying to cope with the 
permitting process that tries to work against new plant 
construction, and allows individuals to stall construction even 
after their concerns have been fairly considered.
    Clearly defined, standardized, and set deadlines must be 
established for EPA to complete their review of PSD permit 
applications. Thank you.
    Mr. Burton. Thank you, Mr. Hildebrand.
    [The prepared statement of Mr. Hildebrand follows:]

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    Mr. Burton. Mr. Hawkins.
    Mr. Hawkins. Thank you, Mr. Chairman. Mr. Chairman, we are 
in a period of tight energy supplies and high energy prices. It 
is not the first time we have been here. Today we are hearing 
claims that environmental regulations are to blame for some of 
these problems, and if we roll back or waive certain 
requirements, that somehow we will produce new supplies and 
solve our problems. That is not the first time those claims 
have been made, either.
    I was around in 1973 when the President and others at the 
time of the first oil embargo stood up and basically said the 
environmental regulations, the Clean Air Act, were to blame, 
and that they should be modified. Congress fortunately did not 
take the President's advice, and had they done so, we would 
have increased pollution but we would not have solved our 
    In 1979, at the time of the Iranian revolution, we had 
another episode of the same supply constraints and another 
episode of accusations against environmental regulations, calls 
to the Energy Regulation Board, all aimed at focusing on a 
rapid expansion of supply in order to solve our problems.
    Mr. Chairman, I would suggest that a more robust, more 
durable, certainly less politically contentious and more 
supportive of the public health and environmental aspirations 
of the American public--a path that will work better on all 
those regards is one to drill our most reliable source of 
energy, which is the energy we waste.
    We waste a tremendous amount of energy still today. We have 
opportunities to improve our supplies of energy by reducing the 
amount we waste. Just a statement of the obvious, no consumer 
values a kilowatt of electricity or a gallon of gasoline or 
heating oil for itself. We pay money for these things because 
of the services they provide us: mobility, comfort, lighting, 
communications, and other qualities of life.
    If we can find ways to constantly improve our ability to 
provide these services and use less energy, we win. We win 
environmentally, we win economically, we win from a standpoint 
of national security.
    Or we can try the recommendation for short-term crash 
efforts to produce a burst of new supplies. We don't think that 
that will solve our problem. The compound interest rate is 
inexorable, and if we keep on growing, we will always outgrow 
our ability to produce new supplies.
    If we manage the rate at which we increase our dependence 
on energy, or better yet, improve our economy's ability to 
produce dollars without consuming kilowatts or Btus, we win. We 
manage our own future and our own destiny because we have more 
leverage on managing demand than we do on supply.
    For example, the United States is about 12 percent of the 
world's oil production, but we are 25 percent of the demand. 
That means we have more leverage by changing our demand than we 
do by production. Every percentage change in our demand has 
twice the leverage as a percentage than it does if we tried to 
supply our way out of this problem.
    Mr. Chairman, you asked the witnesses two questions: What 
can Congress do? And what can the administration do? Here are 
some answers that I would give.
    First, Congress can enact a comprehensive electric 
restructuring bill that has elements that will help solve these 
problems: first, programs to rebuild support for efficiency, 
programs which have suffered at the hands of deregulation. The 
second program is to promote supplies of renewable energy as 
part of the portfolio of electric generators. Third would be 
strong anti-pollution requirements, which will create real 
economic incentives both to use less energy, to use it more 
efficiently, and to build the kind of new, efficient power 
plants that Mr. Hildebrand has been talking about.
    Second, Congress can enact tax incentives for efficient 
buildings, efficient vehicles, and co-generation investments.
    In the other body, Senator Smith has introduced Senate bill 
2718. In this body, Congressman Matsui has introduced 2380. 
These bills would save enormous amounts of energy and then 
enormous amounts of money for American consumers by creating 
tax incentives to upgrade existing facilities and to build new, 
efficient facilities.
    Next, something that both Congress and the administration 
can address is to upgrade the vehicle efficiency standards for 
fuel efficiency. These standards are dramatically out of date, 
and unfortunately, since 1995, Congress has enacted riders that 
have prevented the administration from upgrading the vehicle's 
CAFE standards.
    We think it is logical to move ahead now. We have the 
technology. We are seeing manufacturers get out in front of the 
government, but what they are offering, as the previous witness 
indicated, will not solve their problem. But we could save 
another 3 million barrels a day of oil by updating and 
modernizing our CAFE standards.
    One thing Congress could do is simply not enact the rider 
this year, let the administration explore what the options are 
for modernizing those standards.
    Another important administration program are the efficiency 
standards for appliances and equipment. A number of those 
standards have been issued. Many of them have been issued in a 
negotiated fashion with the manufacturers, so that everybody 
    These programs deserve even higher priority. They deserve 
more support from Congress, and they deserve even higher 
priority from the administration.
    These and other actions will make our economy less 
dependent on large volumes of energy and less vulnerable to 
supply disruptions and price spikes. They are durable 
solutions, and I would urge you to consider them.
    Mr. Burton. Thank you, Mr. Hawkins.
    [The prepared statement of Mr. Hawkins follows:]

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    Mr. Burton. We will now go to the extended questioning.
    Mr. McHugh, the gentleman from New York.
    Mr. McHugh. Thank you, Mr. Chairman.
    Mr. Hawkins, let me start with you. You reference 3 million 
barrels of petroleum a day saved by higher CAFE standards. Did 
I hear you correctly?
    Mr. Hawkins. Yes, sir.
    Mr. McHugh. Could you source that for me?
    Mr. Hawkins. There are several different sources. The 
Presidential Commission on Energy's report has that value. The 
American Council for an Energy Efficient Economy also has that. 
I can give you citations.
    Mr. McHugh. I would appreciate that. I would like the 
    If you have the opportunity--I know there are opposing 
views to that. If you have any sources that suggest that is an 
unreasonable one--I know that is not your objective, but I 
would appreciate those, as well.
    How many barrels of oil a day do Americans consume 
    Mr. Hawkins. About 19 million.
    Mr. McHugh. 19 million? Does the rest of the table agree 
with that?
    Mr. Hildebrand. Yes.
    Mr. McHugh. I don't see any objection. Thank you very much.
    Let me start with Mr. Simon, now.
    Mr. Simon, you mentioned that your company is beginning to 
build stockpiles now that we are through the summer driving 
    Mr. Simon. That's correct. We are producing all the 
distillate that we can in our refineries today. We are carrying 
inventories sufficient to meet our customer requirements, and 
then we are also selling stock.
    Mr. McHugh. The API reported yesterday that distillate fuel 
inventories, which include heating oil, are, in the recent 
calculation, about 116\1/4\ million barrels. That is 20 percent 
less than last year's level. Do you think that is an accurate 
    Mr. Simon. Yes. I do think it is important, though, too, 
when we compare against last year, to remember that last year 
was an extraordinarily low inventory year. If we look at the 
last 5 years, I think it might be a more accurate way of 
looking at it. It is still on the low side.
    Mr. McHugh. That was going to be my next question. Do you 
expect to hit--if you are telling me that last year was low, 
and you are 20 percent below last year----
    Mr. Simon. I'm sorry, the other way around.
    Mr. McHugh. You used the word ``low.'' Do you mean high?
    Mr. Simon. I stand corrected. If we look at the last 5 
years and make that comparison, it does not look as low, 
relatively speaking, as it does.
    Mr. McHugh. Are you going to hit the last 5 years average 
in stockpiles?
    Mr. Simon. If we look at the current rate of inventory 
billed and project that into the November timeframe, it will 
end up in that band but toward the low end of that band.
    Mr. McHugh. Compared to last year, you expect to be 20 
percent below?
    Mr. Simon. I think it would be difficult to predict exactly 
where we are going to be, but I would come back to a comment 
that Mr. Santa made. I think it is an important one.
    When we look back at the 1996-1997 winter and we look at 
the inventory levels that we have today, which are essentially 
where we were then, we got through that winter really with no 
problems. So it is difficult to predict, obviously, what 
weather is going to do. That could have a major impact.
    But given a normal kind of winter, which 1996 and 1997 was, 
which was actually colder than what we have seen over the last 
few years, we were able to accommodate that with inventory 
levels about where they are today.
    Mr. McHugh. You said during your testimony that supplies 
will be sufficient. I understand there are vagaries that you 
cannot predict. None of us here are God, in spite of what we 
say during election years.
    But what concerns me is what is the nexus between 
sufficient supply and consumer cost. You said in 1996 and 
1997--I don't believe you are telling me that the price of a 
gallon of home heating fuel is going to be the same this year 
as it was in 1996 and 1997?
    Mr. Simon. No. No one can really, I don't think, predict 
what it is going to be at that particular point in time.
    What I was trying to address is the supply side of this. I 
am not smart enough to figure out what the price is going to 
be, but I do think from a supply standpoint, we are planning 
for normal winter conditions, and I think we will meet the 
supply requirements, given that circumstance.
    Mr. McHugh. The best you can say to consumers is you are 
optimistic that they are not going to see a missed delivery of 
home heating fuel, but you are not going to suggest what the 
price will be?
    Mr. Simon. No, I am not going to try to predict that.
    Mr. McHugh. Do you have a disagreement with those on the 
first panel, as has been reported by virtually every oil 
analyst that I have had the opportunity to read, that the price 
of home heating fuel is going to be 20 percent or higher next 
year--I think 20 percent is probably at the low end of that 
spectrum--than last year.
    Mr. Simon. I have been in this business long enough to know 
that I am not in a position to predict what oil prices are 
going to do or what the price might be 2 or 3 years into the 
    Mr. McHugh. Is there anybody in your company who is?
    Mr. Simon. No. We do not take a position on prices.
    Mr. McHugh. You just take them, you don't take a position? 
I am confused.
    Mr. Simon. In other words, we do not take steps in 
anticipation of price moves one way or the other. What we look 
at is what is the most economic way of filling supply 
requirements, to do that at the lowest cost and a competitive 
    Mr. McHugh. It is hard to believe your stock is doing so 
    Let me ask you, the Saudis and the other OPEC nations have 
suggested their target is $28 a barrel of oil. Obviously, if we 
look at the North Sea crude yesterday, it was $33.63 a barrel. 
We are not there.
    Do any of your gentlemen, and I am not picking on you, Mr. 
Simon, but you are in the oil end of this, do you think there 
is anything the Saudis can possibly do and the OPEC nations can 
possibly do to hit a $28 a barrel target that is going to, in 
any way, positively affect the heating season this year, given 
where we are, almost at the end of September? That was No. 1.
    No. 2, they just did an increase in production. As you well 
know, that did not move the market at all. In fact, after that 
the market actually went up. How much production increase would 
they have to put on the world market to bring it to $28 a 
    Mr. Simon. I am certainly not in a position, Congressman--I 
know you would like for me to be, but I am not in a position to 
say what impact a certain volume of oil is going to have and 
what price might be established.
    Mr. McHugh. Do any of you gentlemen have an opinion on 
    Mr. Hildebrand. No.
    Mr. McHugh. Do any of you gentlemen have an opinion on what 
the price of product will be this winter for the average 
consumer in the Northeast for a gallon of home heating fuel?
    Mr. Slaughter. Mr. McHugh, all I can offer you is 
essentially what the Energy Information Administration is 
saying currently on that. You know, it is difficult for the 
industry to make price projections or supply projections, but 
the current EIA estimate is that heating oil on the East Coast 
will average about $1.32 and diesel about $1.51 per gallon, and 
that is an increase of 12 to 15 cents per gallon over last 
year's figure.
    Those are the EIA's figures.
    Mr. McHugh. OK we talked a bit about environmental 
regulation, Mr. Hawkins, you seemed to disagree with those who 
suggest that maybe the environmental--regulatory environment 
has gone too far.
    You may have heard on the last panel where it was stated 
that the average time for the permitting construction of a 
transmission line in this country today is 7 years. Do you 
think that's a reasonable amount of time?
    Mr. Hawkins. Actually----
    Mr. McHugh. Pardon me, I don't mean to interrupt you, but I 
want to get the second phase of that. Remembering that 5\1/2\ 
to 6 years of that was totally from regulatory requirements.
    Mr. Hawkins. Yeah, I did hear the--I heard the testimony. I 
did not hear a source for it. And I actually would be skeptical 
if that, in fact, was an accurate figure. I'd be interested in 
seeing what the statistics are. I doubt that it's 6 years of 
regulatory permitting. But I don't have a contrary figure to 
    Mr. McHugh. I gave you the benefit of the doubt on your 
sourcing. Let's give the gentleman the benefit of the doubt. 
And I just want to finish up with Mr. Hawkins and then come to 
you. Let's say it is accurate, do you think that is reasonable? 
That's all I'm asking. I'm not asking you to verify it, just 
asking your opinion.
    Mr. Hawkins. I don't think it should take that long to get 
government review of any project.
    Mr. McHugh. We are in agreement, thank you. Yes, sir, Mr. 
    Mr. Hildebrand. Speaking from experience, from experience 
in California, a major new transmission project will require 
typically 7 years, and I hate to use the phrase ``fast track.'' 
You can see 10 to 15 years as I think was mentioned earlier, if 
at all. There's no guarantee anymore of getting it done, 
    Mr. McHugh. Mr. Hawkins, do you think that's excessive? 
Assuming that Mr. Hildebrand is accurate?
    Mr. Hawkins. I don't think there is--there's no argument 
about the value of speeding up decisionmaking processes. That's 
not--that's not the issue. The question is what--in which ways 
do you try to speed up the decisionmaking process. If it's 
restricting public participation, I have a problem with that. I 
think that public participation is important. It implies a 
responsibility on the part of the public.
    The story Mr. Hildebrand told is one that is disturbing. 
But one story shouldn't be the basis of policy. We should look 
more rigorously at the overall pattern of these proceedings and 
see analytically what can be done to speed up the 
decisionmaking process.
    Mr. Burton. The gentleman's time has expired.
    Mr. McHugh. Thank you, Mr. Chairman.
    Mr. Burton. Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman. Mr. Chairman, today's 
high energy prices are obviously causing a lot of economic 
hardship, and I think we heard a lot of that on the first panel 
that testified. But there's one sector I suspect the gentleman 
may be able to talk about is one sector of the economy that is 
profiting quite a deal from the high prices, and that seems to 
be the oil and the gas industries.
    My understanding is that for the first half of this year, 
the 10 largest oil companies made over $20 billion in profits. 
And profits in the second quarter were nearly three times 
higher than last year. So while American consumers around the 
country seem to be suffering from these increases in the price 
of petroleum products, Mr. Simon, for instance, Exxon appears 
to be making record profits. Can you tell me how much Exxon 
made in profits just in the second quarter of this year?
    Mr. Simon. Yes, I can. A little over $4 billion, which is 
up about 138 percent from where we were last year.
    Mr. Tierney. And how much does Exxon expect to make this 
    Mr. Simon. We don't have a projection for the full year, 
but I would like to put that in perspective, if I might, 
Congressman. When we compare against last year, I think it is 
important to remember that last year was a low year in terms of 
profitability, and so I think a year-to-year comparison can be 
somewhat misleading in that regard.
    Mr. Tierney. Nonetheless, you are 138 percent above last 
year in profits?
    Mr. Simon. That's correct. But again, put in the overall 
perspective, I think it is important to look at overall 
timeframe and look at investment over that timeframe, and we 
are below the Standard & Poors as an industry.
    Mr. Tierney. A recent Business Week article reported that 
although the price of oil has been climbing, some of the 
largest oil companies have actually been producing less oil. 
The article quotes a Merrill Lynch analyst as saying the lack 
of production increase from non-OPEC sources is a big reason 
why prices remain high. The Business Week article notes that 
Exxon and Royal Dutch slashed their oil exploration and 
production budgets by more than 30 percent in the first half of 
this year.
    Is that accurate that in the first half of this year, Exxon 
cut its oil exploration and production budgets?
    Mr. Simon. We cut our exploration and projection budgets. 
But at same time, I think you have got to look at the merger 
that we incurred at that point in time. And when you look at 
where we were as a single company, that would not be the case.
    Mr. Tierney. No, but it's the case that once you were 
together, you actually did less than you had done individually.
    Mr. Simon. That is correct, and that is one of the 
advantages of combining the two organizations.
    Mr. Tierney. The Business Week article further states that 
money managers have pressured oil company executives, and I 
quote, not to not overspend in the pursuit of production 
increases. The article quotes one of these managers as saying, 
we give them money, they produce a lot more, and the price goes 
    Was one of the reasons that Exxon cut its oil exploration 
and budgets to keep supplies low and prices high?
    Mr. Simon. No, certainly not, Congressman. We are pursuing 
all the opportunities that we have available to us, and I think 
we are pursuing those very aggressively. I think we've had a 
fair amount of success in that regard, and we are proud of 
that, in fact, you do not see, I don't think, ExxonMobil quoted 
in terms of production increase. And when you look at who we 
have been able to produce relative to what we have produced, 
and certainly what we would hope to do in the future, we would 
expect to be growing production. And I think our track record 
speaks well in that regard. We're actually looking----
    Mr. Tierney. It has not been increasing, but you cut your 
production; is that right?
    Mr. Simon. The expenditure. But I think you have to look at 
the efficiency of those expenditures and what we're producing 
as a result of that. What we are doing, it isn't a question of 
cutting the amount, but it is pursuing every opportunity that 
we have and how effectively we are able to do that, and the 
result that we get from $1 of expenditure. And when you look at 
that, I think our track record speaks very well. And you are 
actually looking at expanding our opportunities to do that 
right here in the United States.
    Mr. Tierney. Well, if you had not cut your exploration 
production budgets, would it be fair to say that you might have 
produced more?
    Mr. Simon. Again, Congressman, we are pursuing all the 
opportunities we feel are economic and available to us. We are 
not holding back.
    Mr. Tierney. So you are not exploring all of them, you are 
just exploring all the ones that you feel are economically----
    Mr. Simon. Those that we feel have a viability, those are 
the ones that we're pursuing, and we're not leaving any one of 
those behind.
    Mr. Tierney. The Business Week article also says that BP 
cut its production by 4 percent and Texaco and Occidental 
Petroleum cut their production by 7 percent. Do you have an 
idea why these companies are doing that in the face of the 
supply shortages that we see?
    Mr. Simon. I really can't speak for those other companies, 
    Mr. Tierney. Well, one of the root causes for today's 
energy prices is too much reliance on fossil fuels, I would 
presume, particularly oil. And that seems to leave us 
vulnerable to market manipulations by OPEC and perhaps to 
underproduction by some of our domestic firms. Different people 
have made statements, energy leaders, that seem to be willing 
to embrace new technologies. For example, Michael Bowlin, who 
is the CEO of Arco, told us in February 1999, at a talk at an 
energy conference in Houston, TX: We have embarked on the last 
days of the age of oil. He went on to discuss the need to 
convert our carbon-based energy economy to a hydrogen-based 
energy economy.
    And in 1999, Ford Motor Co. chairman, William C. Ford, Jr., 
went on record saying: I expect to preside over the demise of 
the internal combustion engine. Ford has announced that they 
will have a fuel cell powered vehicle for sale and on the road 
in 3 years.
    Earlier this month Saudi Arabia's foreign oil minister, 
Sheik Ahmed Zaki Yamani said in an interview: The stone age 
came to an end not for lack of stones, and the oil age will 
end, but not for a lack of oil.
    So all of those quotes seem to indicate that some industry 
leaders believe that a future doesn't depend so heavily on oil, 
but that might be expected. Does ExxonMobil share the view?
    Mr. Simon. We believe that oil and gas is going to be a 
very major source of energy for the foreseeable future. And 
certainly we've got to do all we can to develop those sources. 
This does not mean that we're not looking at other aspects.
    Mr. Tierney. What are you doing, in fact, for the future 
    Mr. Simon. We are working with automobile manufacturers and 
look at hybrid engines and other technology there and working 
hand in glove with those and looking at how they might develop 
and what part we would play in that.
    Mr. Tierney. Can you define for me ``looking at.'' When you 
say looking at those things----
    Mr. Simon. In other words, studying the options and how it 
might be done, how it might be done most efficiently and 
effectively and how we would work together in that regard. But 
I think it would be a mistake to feel that that is going to be 
a short-term solution. I think we've got to continue to take 
advantage and explore all the opportunities for oil and gas 
that we've got in front of us as well.
    Mr. Tierney. Mr. Hawkins, do you think that ExxonMobil is 
doing enough to develop fuels in the new technology area?
    Mr. Hawkins. ExxonMobil is in business to make money, and 
if the market isn't sending them a signal that they can make 
money off of more environmentally friendly technologies, then 
they're not going to do it. And they're not going to do it no 
matter how much we try to embarrass them. And that's a shame. 
But there are ways to get the market to send those signals. We 
can price energy according to all of the environmental harm 
that it produces. We can invest in efficiency so that we make 
ourselves less vulnerable to the supply side the equation.
    I think that the major fossil fuel producers are going to 
wake up to the fact that in the foreseeable future, and that is 
in the next couple of decades, we are going to be looking 
seriously at a carbon constrained global economy because of 
climate change. It is a real problem, and the smart companies 
are starting to think about diversifying their supply. They 
aren't going to turn around and produce huge supplies tomorrow, 
but the smart companies are thinking about diversifying their 
supply. And they will start to put themselves in a position to 
produce alternative supplies, more environmentally friendly 
    The question is whether they'll do it in time to avoid a 
lot of disruption. That is where Congress can help, by helping 
to send policy signals that say to these companies, these 
multinational companies that the United States is serious about 
these issues and it wants to join the world community in being 
serious about these issues.
    Mr. Tierney. Thank you. Mr. Chairman, you mentioned earlier 
that the environmental regulation were causing high energy 
prices. And to support your position you thought that the 
complaints from oil companies and others that were being raised 
by the cost of complying with environmental regulation. I think 
we have had a little experience, though, that the industry has 
been known to overstate the cost of complying with 
environmental regulations in the past.
    One example of that is when we were considering the Clean 
Air Act of 1990, industry after industry came before Congress 
and said that the cost that the law would virtually bankrupt 
the economy. Of course, nothing like that happened. As another 
example, Mr. Simon, you represent ExxonMobil. When the Congress 
was considering the reformulated gasoline provisions of the 
Clean Air Act, Mobil wrote to the Congress that the 
requirements shouldn't be adopted because, and I quote: The 
technology to meet these standards simply does not exist today. 
That proved to be completely wrong.
    The reformulated gasoline provisions went into effect in 
1995, and have brought some pretty good benefits for clean air.
    There are other examples. The utility industry grossly 
exaggerated the cost of acid rain provisions. The chemical 
industry said that phasing out CFCs would cause massive 
disruptions. The auto industry said that they couldn't meet the 
new tailpipe standards, yet each of those statements was proven 
    The industry sometimes can remind us of the person that 
cries wolf. Why should we give any credence to the complaints 
about the Clean Air Act that have been made today? Any of you 
gentlemen want to address that?
    Mr. Slaughter. Mr. Tierney, I would like to say one thing. 
It is very difficult to estimate the cost of some of these 
programs, particularly across an entire industry and important 
products such as we are talking about. Just this summer in the 
midwestern gasoline crisis, the industry was criticized for 
underestimating the costs of the reformulated gasoline program. 
The fact is that it's difficult to see, but there are a number 
of situations that came together that we had indicated might 
come together, and it took a long time for them to happen, but 
with the introduction of the new product this summer, they did, 
and at that time. We were criticized basically that our numbers 
were too low.
    So it is difficult to get them right, but we do our best. 
And sometimes the situations that we feel may occur don't 
occur, sometimes it takes them awhile. But, you know, this 
summer at least we had some serious repercussions from the 
Clean Air Act and the reformulated gasoline program, and at 
that particular point, it seems that our numbers were too low.
    Mr. Burton. The gentleman's 10 minutes have expired. Let me 
yield to Mr. Souder and ask if he will give me 30 seconds.
    Mr. Souder. I had been happy to yield to the chairman.
    Mr. Burton. Let me just say, Mr. Tierney has the impression 
that I'm not concerned about the environment. I think the 
reason, one of the main reasons that I wanted to hold these 
hearings was to point out that we don't have a really long-term 
energy policy that's been well thought out. Obviously, you 
know, I think you're going to see some changes. You already 
see, I think, Honda making a hybrid engine, a part electric and 
part internal combustion engine, and I think you are going to 
see other industries, other car companies, and so you are going 
to see us heading in the direction that you want to.
    But in order to do that in a way that's constant and 
reasonable, it seems to me that we have to have a long-term 
energy policy. We don't have that. The administration, I 
believe, should have led in this direction, and they have not. 
And that's one of the reasons we are having--this is to not 
point fingers at the administration or at Congress, but to say 
that we've got to have a policy. But that begs the question of 
do we have a short-term energy policy to deal with the crisis 
we are going to have this winter? I mean this winter, we are 
going to have spikes in energy prices in the northeast, in the 
west, all over this country. And so we have to look at not only 
the long-term program and come up with an energy policy, but we 
also have to deal with what is real today, and that is, a lot 
of people are going to be suffering this winter because we did 
not take a hard look at this earlier.
    Mr. Tierney. Well, just if I might, Mr. Chairman, I hope 
that this is an indication that the majority party is going to 
start funding the projects that the administration has had for 
its long-term policy that you have been cutting each one of the 
last 5 years, and you are going to get off the concept of 
cutting the Department of Energy, because that will go a long 
way helping us on the long-range policies. Thank you.
    Mr. Burton. Yes, sir, Mr. Tierney. I won't get into a big 
debate about that. We will get into that some other time.
    Mr. Souder. I have a series of questions, but I want to ask 
Mr. Simon a followup on this exploratory budget question.
    If I understood what you were saying correctly, you said 
that one of the benefits of the consolidation was you were able 
to reduce your exploratory budget. And I guess a fundamental 
question is you pointed out that your market price and your 
profitability as a company is a lot based on your return on 
    If you saw that additional drilling and production would be 
profitable but would reduce the return on investment, would you 
not produce? In other words, it is a lower level of profit than 
you already had.
    Mr. Simon. Well, we've got profit targets that we have in 
making our investment decisions. And if that met an investment 
target that we had, we would go ahead with it. Certainly.
    Mr. Souder. Because, well that's a logical business 
decision. You can see why many Americans, including me, are 
very concerned about consolidations. Because what we are in 
effect saying as we move to an oligopolistic situation where 
fewer and fewer people control production, that when we then 
have price run-ups because production is short, that people 
aren't willing to drill, even though they can make money, but 
they don't hit their target of how much money they wanted to 
make, we have put ourselves in a very awkward situation.
    And as someone who is very pro capitalist and very pro not 
having government overregulate, we are going to have to look at 
this question of return investment and acceptable levels of 
profitability, or you are going to wind up getting the same 
thing that happened to Standard Oil the first time around 
because we cannot tolerate not developing energy resources that 
potentially can be developed at a profit.
    Mr. Simon. And if I gave that impression, that is not the 
case. Those energy opportunities that we have that meet our 
hurdle rate, we are pursuing those. But one of the advantages, 
I think that our chairman pointed out at the time of the 
merger, is that we're able to look at our portfolio, to high 
grade that, to end up with opportunities where you can do 
things more efficiently, more effectively, can combine 
technologies now that we did not have before. And really, get 
more bang for the buck. So to do the same thing that we would 
have done before, we should be able to do more efficiently, 
more effectively, pursuing the same opportunities that we would 
have pursued before but at lower costs. And I think that 
ultimately ends up benefiting the consumer.
    Mr. Souder. It is important for the record to show that 
you, once again, said your hurdle or your mark. And earlier 
when you compared yourself to the Standard & Poors index on 
your rate of return over 5 years, you said it was slightly 
    Mr. Simon. Over a 10-year period, that's correct.
    Mr. Souder. So you do have a rate of return goal and a 
profit goal. That is not just that you made profit, which is 
understandable, but becomes more of an obligation when you are 
in a highly regulated industry where, in fact, not developing 
every opportunity, regardless of where the rate of return, if 
there is a profit, becomes more of a public policy question. I 
don't want--if you want to make another----
    Mr. Simon. Yeah, I'm not in a position, obviously, nor 
would I want to share what our DCF----
    Mr. Souder. Compared to the Standard & Poors.
    Mr. Simon [continuing]. In terms of our investment position 
what our DCF return criteria would be.
    Mr. Souder. The company wouldn't want to fall below the 
Standard & Poors. You used that as a marker.
    Mr. Simon. That is a return on investment. And you can have 
different DCF return criteria, you know, versus what you would 
have on an ongoing return on investment. However, I guess what 
I'm saying is if you take the same criteria that we had before 
and apply it now, but with the combined technologies and our 
ability to get more bang for the buck than what we were capable 
of doing before, pursuing the same opportunities with the same 
hurdle rate, we are able to do that for less.
    Mr. Souder. Mr. Slaughter, one of the things that it looks 
to me like, one of the choke points is in the refining area. 
Have you seen refiners go out of business? Their profits are 
down. Are they showing a different profit rate than other areas 
of the industry?
    Mr. Slaughter. As I mentioned, Mr. Souder, the average rate 
of return for the refiners for the last 10 years is about 5 
percent. The fact of the matter that the aggregate profit 
numbers that are used for the quote, unquote, oil industry for 
this year, of course, include other sectors. Refiners are 
making--are profitable, generally this year. That's somewhat of 
a rarity. There are a number of our members, for instance, our 
smaller members, who have not been profitable over the last 
several years. So this year has been one opportunity to make 
some money for them to stay in business.
    On the average, over the last several years, roughly two 
refineries a year have gone out of business. They tend to be of 
different sizes. And as I pointed out earlier, there has been 
some ability to increase capacity at existing sites so that we 
can keep even with the refining capacity. But the problem is, 
as you know, the demand for petroleum products is increasing. 
So just by keeping even, in effect we fall behind. So, yes, it 
is a relatively good year for refiners. Not astronomical. There 
are no astronomical years for refiners.
    Mr. Souder. Mr. Simon, if you take Exxon and Mobil 
together, is your domestic refining capacity greater or less 
than a year ago, and how many have you closed?
    Mr. Simon. I will have to get back to you, Congressman, 
exactly in terms of the two companies and where we were 2 years 
ago. I don't have that information. But I would speculate that 
our refining capacity is at least equal to or perhaps more. And 
what we have been able to do over a period of time is to, with 
new technologies, and application thereof, is to expand the 
ability to refine products with existing equipment. And I think 
that's been a very important aspect, and what Mr. Slaughter is 
saying here in terms of how we can meet increased demand with 
existing refineries.
    Mr. Souder. You feel you have the continuing ability to do 
that or you're suggesting, in other words, you have maxed out 
in your ability to redo existing refineries? I think Mr. 
Slaughter also suggested that some of those were being 
revisited as to whether or not those were going to be allowed 
to stand.
    Mr. Simon. And that latter point is a very important one. I 
do think that there is going to be additional, what we call 
creep in industry, as you discover and apply new technologies. 
We are continuing to find ways to get more and more out of 
existing equipment. But some of that grandfather equipment, as 
it has been called, we were operating under one set of rules 
and regulations to go back down, and retroactively apply new 
source review requirements to those can certainly impede that 
process, and it is something we in industry are very much 
concerned about.
    Mr. Souder. Do you expect to build any new ones, or at this 
point, are you--let's say that the demands are still there, you 
have to revisit, in fact, you may have to actually reduce some 
of the capacity gains that you had. Do you have any plans to 
build any new refineries?
    Mr. Simon. No, we do not. What we are focussing on again is 
how do you get more out of existing equipment? And we are very 
concerned about anything that would impede that process.
    Mr. Souder. Why wouldn't you look at any new refineries?
    Mr. Simon. Well, one factor is, I think we are able to meet 
demand requirements by getting more and more out of our 
existing equipment, and by adding new equipment from time to 
time to existing facilities as opposed to going into a new one.
    Now, certainly the permitting process and all the problems 
associated with that, I would think would make any company 
think two or three times before even thinking about putting in 
a new refinery.
    Mr. Souder. Are your refinery operations similar to the 
national average at 5 percent compared to your other, that 
would be substantially under other ExxonMobil operations, and 
would that be a factor in whether or not you build additional 
    Mr. Simon. Certainly the return levels in refining--and I'm 
not going to say what ours is, but in terms of the return 
levels in refining certainly limits what you're able to do in 
terms of investment, not only certainly in new ones or thinking 
about that, but even in existing refineries.
    Mr. Souder. Thank you.
    Mr. Burton. The gentleman's time has expired. Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman. One of the biggest 
environmental and energy problems we face is global warming. 
According to the National Academy of Sciences, worldwide 
temperature increases are, quote, undoubtedly real, and the 
intergovernmental panel on climate change indicates that there 
is now reason to believe it is human induced.
    I have been very pleased to see that many major U.S. 
corporations are beginning to recognize the threat posed by 
global warming. For example, over two dozen companies, many 
Fortune 500 companies, have joined the Pew Center's business 
environmental leadership council in order to help find 
solutions to climate change.
    Unfortunately, ExxonMobil isn't one of these companies. 
Contrary to the world's scientists, ExxonMobil has taken the 
point of view that there is insufficient scientific evidence to 
believe that climate change is real.
    Mr. Simon, why is ExxonMobil taking this head-in-the-sand 
approach to global warming? Why isn't your company joining with 
British Petroleum, Sunoco and Shell to help find solutions to 
global climate change?
    Mr. Simon. Congressman, although there are a number of 
scientists that have that opinion, there are an equal number of 
scientists who have a different opinion as well. We are not 
saying it is not a problem. We are saying let's take the time 
to study it, to understand whether it is or not before we take 
dramatic steps. And in the meantime, we are saying let's take 
those kind of steps which make sense, but are ``no regrets'' 
kind of steps, so where we do something, it doesn't end up 
being in the wrong direction, it is consistent with where we 
ought to be going anyway. And energy conservation is one of 
    Mr. Waxman. Mr. Hawkins, do you have any thoughts on this 
    Mr. Hawkins. I would only comment that given what Mr. Simon 
said before, because of the dynamics of the business, energy 
efficiency may be a ``no regrets'' step, but for ExxonMobil to 
put money into it it has got to meet their hurdle rate, which 
is what Congressman Souder was pointing out. That is a problem. 
We have encountered that with other companies where something 
that they can actually make money on and reduce pollution 
doesn't get done, not because they're bad people, but because 
that investment can earn more money somewhere else. And that's 
the dynamic of the system.
    So that's what we need policy for. We need to have targets 
and incentives that change behavior that otherwise would flow 
from the hurdle rate decisionmaking that Mr. Simon described.
    Mr. Simon. Congressman, may I add to that, too? I would 
like to point out, because I think this is where we are 
consistent with one another, that we are pursuing very 
aggressively energy reduction steps within our own facilities. 
And, yes, we don't do that unless it's attractive and makes 
money to do it. That's true. We don't do it just for the sake 
of doing it. But we have a hurdle rate for those kind of 
projects that, as low as anything else, that we are doing in 
our company. So that's an area where I do think we're taking an 
aggressive approach, and there is a ``no regrets'' approach and 
consistent with addressing the issue that you are talking 
about, if indeed it ends up after further study being 
substantiated, that it is, indeed, the problem that we think.
    Mr. Waxman. I guess British Petroleum, Sunoco and Shell 
think there is a reason to do more than ExxonMobil. And while 
you continue to want to have it studied, they feel they have 
enough information to move forward. Is that a fair statement?
    Mr. Simon. Yes, and that wouldn't be the only area where we 
might disagree as competitors, Congressman. There is a number 
of them where we don't agree on.
    Mr. Waxman. The only problem with environmental legislation 
is that unless we require everybody to do something, it's not 
profitable to spend that extra money to reduce pollution or 
reduce emissions of any sort. So you put yourself in a 
competitive disadvantage if you are the one trying to reduce 
pollution. That's why Mr. Hawkins would say you need policy 
decided by government and applied in an equal way on everyone.
    Let me go on to another subject, and that is reformulated 
gasoline. Earlier this year the price of clean burning 
gasoline, known as reformulated gasoline [RFG], rose in the 
Midwest at a rate significantly higher than the rate of 
gasoline price increases in the other areas of the country. RFG 
prices in Milwaukee and Chicago were, at times, 50 cents higher 
than the price of RFG gas in other parts of the country. At the 
same time, some were suggesting that the Clean Air Act 
regulations played a major role in these increases.
    Mr. Simon do you believe that the Clean Air Act regulations 
played a major role in the RFG price increases that Chicago and 
Milwaukee experienced a few months ago.
    Mr. Simon. I think it certainly did have a factor in that, 
Congressman. When you look--and Mr. Slaughter mentioned it a 
while ago. Certainly we did go into a new production of 
reformulated gasoline phase 2 during that period. That was more 
difficult to produce. You're able to produce less out of a 
barrel of crude. It required new equipment, new investment that 
took time to start it up. That investment had a higher cost as 
    Now in the two particular areas that you're talking about, 
reformulated gasoline in those two areas are made with ethanol. 
Now, because of the supply shortages which occurred, because we 
went into a period where we had low inventories, as I mentioned 
before, we had to put in new equipment. It took time to start 
that up and learn how to operate it. We came out of an 
extraordinarily cold snap at the end of the winter. So again we 
hadn't converted over to gasoline production to a major extent. 
There were also pipeline problems in the area which 
contributed. Also, there was the uncertainty around Unical 
patents which affected this. But all of those affected 
reformulated gasoline in general.
    Mr. Waxman. Exclusively in those two areas or everywhere?
    Mr. Simon. In the Midwest. Now what happened in those two 
areas, however, was that there the reformulated gasoline is 
made with ethanol. The problem we had was how do you get 
products or supplies from other parts to go in to make up for 
this shortage of supplies in that area?
    Mr. Waxman. Well, let me ask you this question, because 
there's evidence that indicates that it wasn't environmental 
regulations at all that caused the Midwest gasoline price 
spikes. At a June 29th committee hearing, EPA Administrator 
Carol Browner testified that the cost of producing RFG could 
not account for the high price differentials in the Midwest. 
She stated that independent analysts had found that the cost of 
producing RFG costs only between 4 to 8 cents per gallon more 
than conventional gasoline.
    She also testified that after June 12th and 13th meeting 
between EPA, DOE and oil suppliers in Chicago and Milwaukee 
region, and then the June 15th announcement that EPA and DOE 
were going to ask the Federal Trade Commission to investigate 
the price of RFG in that region, suddenly the wholesale price 
for RFG in that region dropped over 38 cents per gallon.
    ExxonMobil is involved with supplying gasoline to the 
Chicago and Milwaukee area, I presume, isn't it? And why did 
the wholesale prices for RFG drop so dramatically in Chicago 
and Milwaukee in the days following the announcement that the 
Federal Trade Commission was going to investigate whether price 
gouging was occurring in that region?
    Mr. Simon. Let's first of all discuss why they went up. And 
those were the factors that I just mentioned and ticked off. It 
is not a cost-based system. That's not what established the 
price. It was a market established price that cleared demand 
and supply. So it was the market forces that drove the price.
    What changed the price was getting additional supplies into 
that area. We took steps before any mention was made of any 
kind of FTC investigation, and let me mention what those were. 
In our Baton Rouge refinery in the Gulf Coast, what we were 
able to do is to produce the same kind of components that are 
required to blend with ethanol in the Midwest. That's a very 
difficult thing to do, because we are not tooled up in our 
other refineries to do this. We were not tooled up to produce 
those same components in other refineries in the circuit.
    But after taking extraordinary steps in Baton Rouge, we 
were able to get more supplies into the Midwest to address the 
supply problem.
    That decision was made well in advance of any kind of 
investigation or any mention thereof. It takes about 20 days 
round trip to make that. The supplies got in there about the 
time that that was mentioned. We also worked to improve the 
production or producibility of that grade in our Joliet 
refinery. We put all of our technical expertise in there.
    Mr. Waxman. If I could interrupt you, it sounds to me like 
what you are saying is that it wasn't the cost of producing the 
reformulated gasoline; it was the cost of trying to get in the 
position of doing it and getting that supply there. That is 
contrary to me to the argument that it was the environmental 
requirement of producing RFG that caused that price spike. And 
it's just curious to have that timing right at the same time 
the Federal Trade Commission was going to investigate.
    Now the Federal Trade Commission is going to investigate 
and we'll find out from their analysis what caused the Midwest 
gasoline price volatility. I hope the FTC is able to shed light 
on that situation. I think a lot of people would be really 
concerned if the price was artificially high, and just because 
there was suddenly going to be scrutiny on why it was high, it 
suddenly dropped. But, given your explanation, it wasn't the 
cost of the RFG, it was the transportation and the 
infrastructure to get that supply to the people in the Midwest 
that you ironed out to get that lower reduction.
    Mr. Simon. No, what happened, Congressman, was that when we 
had to produce this new grade, we had to put in new equipment 
at our Joliet refinery, specifically designed to produce the 
kind of components you could then blend ethanol into to make 
the reformulated gasoline. One of the issues we had, and others 
in industry as well, is when you tried to startup that new 
equipment, we had problems, technical problems on how you get 
lined out, it took time to do that. That was a contributing 
    So I'm saying the regulations from that standpoint was a 
contributing factor to the supply problem issue that we had. 
There were others, I admit. The pipeline problems that we had. 
The fact that we were at low inventory levels coming out of 
winter. All of those were factors as well. But the reformulated 
gasoline was a factor in that. We were not tooled up to do that 
in the Gulf Coast.
    Mr. Waxman. I appreciate what you're saying, I just want to 
ask Mr. Hawkins if he has anything to say on this.
    Mr. Hawkins. Just one comment on this. To hear the 
testimony, you would think that this requirement was a 
surprise. But it wasn't. I mean, this rule was adopted half a 
dozen years before the June 2000 date. It was the product of a 
negotiated rulemaking. It provided lots of flexibility. The 
program was on the books. The ethanol use in the Midwest was on 
the books.
    The most charitable thing you can say is they screwed up. 
They were running this thing too tight. They did not prepare 
far enough in advance. This is not a policy failure. This was a 
market failure. It was a glitch, and when--and as Mr. Simon has 
testified, essentially it was a supply demand thing. It wasn't 
a cost-driven thing. The market would bear a higher price, it 
did not bear it for very long, and when people got upset, they 
figured out a way to react and get the price back down.
    But the price was not a function of cost. It was a function 
of what the market would bear until it wouldn't bear it 
anymore. But the more interesting point is this requirement was 
not a surprise. This was one of the better regulatory programs 
because it was worked out through a regulatory negotiation. It 
has lots of flexibility. The trading of obligations, all the 
market-based principles. So, you know, that, I think, is the 
unfortunate observation about this glitch.
    Mr. Simon. But again, I would go back to what came out of 
the NPC study, and one of the facts pointed out there was that 
when you have these different kind of fuel requirements, and 
you have sort of a boutique approach or a Balkanized approach 
so that different parts of the country have different 
requirements, what happens when you get into a supply shortage 
or disruption like we got there, you cannot just move supplies 
in from another part of the country to meet that. It takes 
longer to make those adjustments.
    Yes, we did have problems in starting up some of this 
equipment, and that is another thing that came out of the NPC 
study is when you put more and more stringent requirements upon 
us, requiring more and more capabilities out of the equipment 
in our refineries, we are going to have more difficulties in 
doing that. We are going to have problems. And the more 
stringent those are and the more difficult they are to produce, 
the more these kinds of issues and problems we can expect to 
have in the future. That's why we've said that it's very, very 
important that when we look at these regulations, that we look 
at the cost-benefit of those and be sure that we take into 
account when you do that, it can result in some of these kind 
of situations.
    Mr. Burton. The gentleman's time has expired.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. Are we going to have 
another round of questions?
    Mr. Burton. What's that, sir?
    Mr. Ose. Are we going to have another round of questions?
    Mr. Burton. If you desire.
    Mr. Ose. Well I'm just not quite sure where to start, I 
have so many here.
    Mr. Burton. Mr. Ose, being the fellow that you are and the 
friend of mine, I'm going to give you all the time you want.
    Mr. Ose. Mr. Simon, as I understand it, ExxonMobil operates 
in an investment climate regulated by the SEC. Is that not 
correct? In effect, your shareholders would go to the SEC if 
ExxonMobil did something inappropriate in terms of shareholder 
    Mr. Simon. I would presume so.
    Mr. Ose. Is the allocation of capital in pursuit of 
profitable investment by ExxonMobil one of those areas that the 
SEC would look at in terms of a shareholder suit?
    Mr. Simon. I wouldn't think so, Congressman.
    Mr. Ose. So if I owned stock in ExxonMobil and you took 
ExxonMobil capital, and you invested in production where you 
did not make a profit and I sued you, the SEC wouldn't be 
interested in that?
    Mr. Simon. I really couldn't respond to that. But I think 
if we did those kinds of situations, the shareholders would 
vote with their feet and we wouldn't end up with those 
shareholders. They would sell out and go somewhere else.
    Mr. Ose. So all the various pension fund investments and 
IRAs and 401(k)'s that have a little pieces of ExxonMobil in 
their portfolio might very well suffer a loss if you did not 
allocate your capital efficiently?
    Mr. Simon. I think if we did not allocate our capital 
efficiently and perform well within our industry as we have 
done, that we wouldn't end up with the shareholders that we 
have and it would certainly impact our stock price.
    Mr. Ose. Now I've heard a lot of talk today that ExxonMobil 
has earned a whole bunch of money. Now, if I understand 
correctly, you earned $4 billion.
    Mr. Simon. $4.53 to be exact.
    Mr. Ose. What is your total amount of assets?
    Mr. Simon. Well, that----
    Mr. Ose. Well, is it $1billion.
    Mr. Simon. About a 13 percent return on investment.
    Mr. Ose. Say around $35 billion in assets?
    Mr. Simon. I'd have to get back to you on the exact number, 
    Mr. Ose. My point is that 13 percent on equity is less than 
say State Street Bank, based in Mr. Tierney's district and--or 
Wells Fargo Bank, now based in Minnesota, but used to be based 
in L.A. on their equity, just seems kind of silly to me to look 
at the absolute number rather than the return on equity. 
Because, I mean, you can really twist the spin, so to speak.
    And I just wanted to make that point, Mr. Chairman, is that 
when you talk about absolute numbers, you need to understand 
what it is that is generating those numbers. You can't just 
say, well, Exxon because it is making 4-point-whatever billion, 
is making too much. You have to look at--I mean, it may be they 
are making too little. If they are $100 billion of assets and 
they are only making 4.4 percent, I'm going to take money out 
of their stock and put it in the bank because I can get 6 
percent there.
    I just want to make that clear, because oftentimes those of 
us who have the privilege of serving here, and I have to be 
clear, I mean I'm not very far removed from having to allocate 
capital for profitable purpose, a year and a half. Those of us 
who have the privilege of serving here kind of lose touch with 
what the reality is, and the reality is that ExxonMobil has not 
only fiduciary, but statutory requirements for how you use your 
capital, otherwise, you are going to be subjected to 
shareholder suits if you misuse or abuse that responsibility. 
And I just wanted to make that clear.
    Mr. Simon. And that's a very good point, Congressman. I 
guess we are more concerned frankly than shareholder suits in 
that regard, is being sure that we perform well relative to our 
competition in our industry, because, as you point out, if you 
look at our industry and you compare it with Standard & Poors 
over the last 10 years, it is actually a little bit below.
    Mr. Ose. You are below. Let me ask another question. A lot 
of times one of the things that large corporate America has to 
deal with is the amount of capital tied up in inventory. That 
is a drag on return. Much of corporate America has kind of 
reversed the traditional supply demand analysis for delivering 
product to the market and now actually look at it in terms of 
demand-supply dynamics. So supply demand dynamic versus demand-
supply. In other words, figure out your demand, and rather than 
tie up a huge amount capital in inventory, you funnel your 
supply accordingly, so you don't have a bunch of gas sticking 
in some tank somewhere.
    Mr. Simon. I understand. Right.
    Mr. Ose. It's something that's relatively recent in the 
financial markets, and maybe some of the people here don't 
understand how it works. But it has a direct bearing on the 
ability of millions of Americans to enjoy a successful 
portfolio, because it increases the rate of return that those 
people get on their investments, increases the value of their 
portfolios and allows them ultimately, when they retire, to 
have a higher level of retirement security.
    Mr. Burton. If the gentleman would yield, I hope you are 
not talking to me. I hope I understand what you are talking 
    Mr. Ose. I'm talking to Dennis.
    Mr. Burton. I understand. I understand.
    Mr. Ose. You made me lose my train of thought, Mr. 
    Mr. Simon I've got a couple more questions. Refinery 
capacity in the United States--domestic refinery capacity in 
the United States in 1983 I'm told is 16.46 million barrels a 
day. I think that is Mr. Slaughter's testimony, written 
testimony. And domestic refining capacity in--domestic U.S. 
refinery capacity in the year 2000 is 16.3 million barrels a 
day; is that correct? So we have had no increase in refining 
capacity in 17 years. In fact, we have had a decrease; is that 
    Mr. Slaughter. That's right.
    Mr. Ose. Now, as a businessperson, if we have a decrease in 
supply, what happens to price?
    Mr. Simon. If you have a decrease in supply, the price goes 
    Mr. Ose. Thank you. I've returned from Alice in Wonderland. 
Thank you. Now, the energy business, particularly as it relates 
to gasoline, serves product into different markets. For 
instance, in my area, Sacramento, the Central Valley, we have a 
nonattainment zone. We have certain specifications. Mr. 
Slaughter, I'm coming at you. We have certain fuel 
specifications that we have to meet, and those are different 
specifications than exist in, say, Las Vegas, NV, or name a 
city in Idaho or whatever. So we--Boise, thank you. I want to 
go back to the points that you made about how did you respond 
to the Chicago dislocation in the market. If I understand you 
correctly, and you aren't communicating this very well, but I 
want to make sure I understood you correctly--the refinery that 
you relied on in Louisiana to bring the additional supply up 
the Mississippi River, if you will, to Chicago, was originally 
outfitted to produce fuel for a different market?
    Mr. Simon. That's correct.
    Mr. Ose. And it took X number of days to change the 
manufacturing process, the cracking the petroleum.
    Mr. Simon. You're absolutely right.
    Mr. Ose. So that you could then produce fuel that met the 
attainment, the ozone attainment requirement for Chicago.
    Mr. Simon. That's correct.
    Mr. Ose. That is an environmental requirement, is it not?
    Mr. Simon. It is indeed.
    Mr. Ose. So it is directly related to the environmental 
requirements that you referenced in your testimony?
    Mr. Simon. That's correct.
    Mr. Ose. All right. The issue of whether or not Carol 
Browner or some other Federal agency was direct cause of a 
reduction in the retail price of fuel, I have to tell you, I 
find that a stretch. Especially given your testimony that 
ExxonMobil, in particular, had actually moved to change the 
manufacturing process in Louisiana to provide the supply that 
would allow the Chicago retail market to come down.
    Mr. Simon. That's absolutely right, and I would add to 
that, Congressman, we also, in our Joliet refinery, we put 
every bit of technical expertise that we had in there to try to 
increase the supply of that product. That was well before any 
mention of any investigation was made, in addition to the steps 
that we initiated in Baton Rouge refinery as well.
    Mr. Ose. Mr. Simon, I'm from California, so I don't know 
the Midwest market very well, but I will tell you for debate's 
sake I don't believe you. How do you prove that? Do you have 
documentation that you can share with this committee, either 
notification to Louisiana to get on with the work or 
inspections of the work that was ongoing in Louisiana, or 
something to put to rest this idea that Carol Browner saying 
that she was going to ask for an investigation was the cause of 
the decline in the price of fuel in the retail market in 
    Mr. Simon. Well, certainly we could go back and show the 
FTC, for example, the steps that we had initiated in Baton 
Rouge and the timing of those. And I would also add that we 
worked very closely with the FTC on their investigation. We 
welcomed that investigation. We provided them with all the 
documents that they've requested, and we want to work with them 
in any way we can because we've got nothing to hide on this. We 
are very anxious to have the investigation. We are very anxious 
to have that completed. And we would hope it gets the same kind 
of publicity when it is completed that it got when it was 
    Mr. Ose. You know, I'm not ordinarily given to strong 
terms, but I am a year and a half removed from having to run a 
business. And business owners respond to market dynamics. And 
in this case, it is clear to me on the basis of your testimony 
here that Exxon responded to a market dynamic, notwithstanding 
Secretary Browner's pronunciations later on.
    Mr. Simon. Absolutely. You heard Mr. Santa, and I tell you 
we feel the same way about it. Our end consumers and customers 
are the most important thing to us that we've got. That's the 
best asset that our corporation has. In contrast to trying to 
hold back or restrict supplies, we were doing everything we 
possibly could to increase supplies into that area.
    Mr. Ose. Mr. Chairman, I'm going to--give back to you and 
let you go----
    Mr. Burton. We will give you more time in a second round. 
We will now yield to the gentleman from Cleveland.
    Mr. Kucinich. Thank you very much, Mr. Chairman. Question 
for Mr. Slaughter. I want to speak about the reformulated 
gasoline and the Unical patents, and I'm wondering your 
thoughts as to whether or not Unical, those patents for 
reformulated gasoline are partly to blame for rising gasoline 
    Mr. Slaughter. We'd have to say that we do, Congressman.
    Mr. Kucinich. That you do what?
    Mr. Slaughter. They do have something to do with price 
increases with cost increases. It's difficult to quantify. As 
you know, I know you have legislation on the subject of the 
patent. They essentially have patents which are being contested 
in the courts now. There are a series of patents. If they are 
upheld, they can have the impact of causing a substantial--
substantial for gasoline profit margins--increase in the price 
of gasoline. They're essentially the product of a public policy 
process in California and elsewhere, but Unical, as you know, 
has gone forward to patent this. I should add that NPRA has 
filed an amicus brief against the patents and I should tell you 
    Mr. Kucinich. I am aware of that, actually. Are you aware 
that the Attorney General can now order licensing of certain 
technologies for the attainment of clean air standards?
    Mr. Slaughter. Yes.
    Mr. Kucinich. And so how do you feel about a bill which--I 
introduced a bill which is called the Lower Gasoline Prices 
Through Technology Access Act of 2000. And the bill would allow 
the Attorney General to require a mandatory license for 
reformulated gas patents and still permit a reasonable profit. 
Several refiners have expressed interest in this solution that 
provides them with fair access to clean air technologies.
    What's your position on taking that particular direction?
    Mr. Slaughter. Well, you know, preferentially, we believe 
that the patent was wrongly granted and we would like to see 
the patent struck down by the courts. As for the legislation, 
we are looking at that. And we haven't got an opinion on it at 
this time. I understand that there have been some discussions. 
Your staff's had discussions with some companies, but we have 
not taken a position on it. And I think that those of us who 
are involved in the litigation would like to see the outcome of 
the litigation.
    Mr. Kucinich. So when patents are not reasonably available, 
or no alternative exists and substantial competition is 
reduced, you know the Attorney General can determine that in 
order to bring about cleaner air, can ask the district court to 
order the licensing the patent. What we are trying to do is set 
the stage so she has the legal authority to do it, specifically 
with respect to reformulated gas because the current 
technologies included in the law are stationary sources, 
hazardous pollutants, things like that.
    Mr. Slaughter. I wanted to commend you for introducing that 
legislation, because I think it has increased the attention to 
what is going on, and what the question is in the case of the 
patent. And we'd like to continue to talk with you and your 
staffer about it. But I don't believe that at least our 
association is ready as yet to endorse.
    Mr. Kucinich. I would like to go to Mr. Simon right now.
    I represent a district in Ohio, Cleveland, and a few months 
ago when the price was going toward $2 a gallon, meeting 
friends, neighbors, constituents at the gas pump, people were 
very concerned, because as the price of gasoline starts to go 
up, for a lot of people it really does affect their quality of 
life, because America is so dependent on gasoline.
    We say to those families--I worry that if the gas prices 
keep going up, it is going to cause them to change their whole 
standard of living.
    What do you say to people?
    Mr. Simon. Again, a very large component of the price 
increase is the underlying crude cost required to produce the 
motor gasoline. We have talked already in this hearing about 
steps that we can take to try to address that; for example, 
making more acreage available to drill, and more access, to the 
point where we can reduce our dependence on foreign oil and 
become more self-sufficient, and have the ability to perhaps 
impact to a greater degree the price, the underlying cost of 
the product, the crude.
    The other thing I would say, Congressman, is that it is a 
very, very competitive market. We and our competition must take 
every step we can to try to lower the cost of product to our 
end consumer just in order to be able to stay in the business.
    Mr. Kucinich. Why do you have to charge so much for 
gasoline? I think a lot of people would like to know that. Why 
do you have to charge so much?
    Mr. Simon. In the case that you are talking about, the 
market establishes what the price is. The price is what is 
required to balance the supply and demand.
    In the particular aspect that you are referring to, demand 
for supplies were short. They were short for the reasons that I 
pointed out earlier. It took a longer period of time to get 
more supplies in there to where the price became impacted then 
and we could lower it when we got more supplies, and it took 
the price down to a lower level that was then required to 
equate supply and demand.
    Mr. Kucinich. I am just wondering if there are any other 
instances in business where you do not keep your supply up so 
that you can make a profit because the demand is exceeding the 
    Mr. Simon. As I commented before, there is nothing more 
important to us--your constituents are our constituents. They 
are our consumers. There is nothing more important to us than 
that. That is the greatest asset I think our corporation has.
    We feel a very strong obligation to supply our customers 
with supplies on a dependable, competitively priced basis.
    Mr. Kucinich. Did you ever sit around in our meetings and 
say, you know, I just think we are charging too much for this 
gasoline, because people can't afford it?
    Mr. Simon. Again, we don't establish independently what 
that price is, Congressman. We are in a free market 
environment. The free market establishes that price. What we 
feel an obligation to do is to provide our customers with 
reliable supplies on a competitively priced basis. We do 
everything we can to do that.
    Mr. Kucinich. It is possible that a free market could take 
the price over $2 a gallon, to $3 a gallon?
    Mr. Simon. When you see what happened in the Midwest this 
summer, that is exactly what happened.
    Mr. Kucinich. That being the case, is it possible that 
price controls are the only way that the average American 
family could be relieved from this----
    Mr. Simon. I think in the long term----
    Mr. Kucinich. This threat of a high price for gasoline?
    Mr. Simon. When you interfere with the free market system, 
it creates distortions, and in the long term it is to the 
detriment of the end consumer.
    Just look at what happened here. I think the free market 
worked. Prices were high because supplies were short. We 
already talked about the steps that we took, the higher-cost 
steps, the more difficult steps we took to try to get more 
supplies into that region.
    I think in a relatively short period of time, and I am not 
trying to minimize the pain the end consumer went through 
during that timeframe, but in a relatively short period of time 
when you look at what we did, we got additional supplies in 
there. The free market worked. It was allowed to work, it 
responded, and prices went down.
    Mr. Kucinich. Would it be said that a business that was 
anticipating what the market would be--because we are talking 
about summer here. People were getting ready to take their 
summer vacations. Everyone knows that during the summer there 
is a greater demand. We all know that. That is not a surprise, 
particularly in the Midwest. That is when people go on 
    So all of a sudden during the summer you are telling people 
there is not enough gasoline to go around, folks. Well, back 
home they are saying, wait a minute. You know we are going on 
vacation during the summer. How come you are hitting us now, 
telling us you don't have the gas and you are going to charge 
me more? People have trouble believing that, Mr. Simon.
    Can you see from our point of view how people would say, 
hey, these guys are gouging us?
    Mr. Simon. I understand that. What happened in this 
particular case, again, we had some pipeline outages. Nobody 
could have predicted those. We again started up some new 
equipment in refineries required to meet this new grade of 
gasoline. It took time to get that lined out. We had not 
anticipated that.
    But it is not surprising you are going to have those kinds 
of issues and problems. We had some refinery outages of 
industry that nobody had anticipated, so there are going to be 
situations and times when unforeseen circumstances occurred. If 
those had not occurred, the supplies would have been in much 
better shape, but they occurred.
    Mr. Kucinich. But your production, as has been said in the 
Business Week article I mentioned in my opening remarks, and 
Mr. Tierney mentioned in the questioning, if the domestic 
production starts to go down, to cut down a little bit----
    Mr. Simon. Domestic production of crude oil?
    Mr. Kucinich. We are talking about the domestic production 
of your product here.
    Say if it went down a bit, and what I am asking, we are 
targeting OPEC now as saying that it is holding on and not 
producing what they should, but in fact, OPEC apparently has 
stepped up production to the response of the administration, 
yet domestically, we are not seeing the same response.
    Do you see any kind of responsibility to the American 
people that when there is a market problem, that you should 
kind of accelerate production so that the prices will not be so 
    Mr. Simon. Let's just talk about one of the main topics of 
this committee, and that is the price of heating oil. What we 
have already covered today is that our refineries in the United 
States are operating at all-out capacity. We are maximizing our 
production of heating oil, so we are responding to that 
situation. I think our track record as an industry is pretty 
good in that regard. We are proud of our record in that regard. 
I think we do respond, and I think we respond well.
    Do we have problems with gasoline----
    Mr. Kucinich. What about gasoline?
    Mr. Simon. In gasoline, again, we were in a situation where 
had we not had these disruptions, which were unforeseen, of 
pipelines, if our equipment had come up and operated perfectly, 
which was new equipment and you can foresee from time to time 
having those kinds of problems with new technology and new 
equipment that you startup--these are the kinds of things the 
NPC study and we have pointed out could occur, and you should 
expect to occur when you put in new regulations, and it takes 
time to be able to get there.
    Mr. Kucinich. One final question. I will make this very 
    Can American consumers now expect to see the price of 
gasoline come down?
    Mr. Simon. I am not going to anticipate or project what the 
price of gasoline is going to do because that is a function of 
a number of factors, very importantly of which being crude oil. 
I have no idea. I cannot predict what the price of crude oil is 
going to do.
    Mr. Kucinich. Thank you.
    Mr. Burton. The gentleman's time has expired.
    Mr. LaTourette.
    Mr. LaTourette. Thank you, Mr. Chairman. I want to pick up 
where Mr. Waxman was a little while ago, if I could.
    Mr. Hawkins, I know that the RFG 2 requirements are nothing 
new. I had them back at 5 years, you put them at 6. One of the 
reasons that I think this hearing is so important, and the 
chairman's call for a national energy policy is so important, 
is that maybe the oil companies engaged in bad judgment. Maybe 
there are some circumstances Mr. Simon has talked about.
    But I think we get into a difficult time when you have St. 
Louis, MO, for instance, asking for a waiver of the RFG II 
requirements. They get it. Certainly the oil companies are 
aware that similar requests for waivers have been made by the 
legislature and Governor of Illinois, and the same thing in 
Wisconsin. Maybe they took a gamble that the EPA would issue a 
waiver and they lost.
    Not to shortsheet the other difficulties they have 
described today, but perhaps we need to be consistent and not 
have a map like the Citgo map that looks like that old game of 
Risk that I used to play, where you have all the different 
colors of pieces.
    Back in the days when I started to drive, you had high-test 
and regular. Now you have 26, 27 different blends of gasoline 
that a refiner may be responsible for, depending on where he or 
she is shipping throughout the country. So maybe the 
distribution problem is somewhat hampered by our regulatory 
    Mr. Simon, I want to get to you for a second, because I was 
disappointed in your responses to Mr. Ose, not that your 
responses were not good. But when Mr. Waxman was talking, you 
know, we had Ms. Browner here in June and she made that 
    She specifically said, ``I certainly think it is fair to 
note that on the date that the FTC . . .'' which I think was 
the day after the administration's letter, which followed after 
our investigation into other letters, ``prices did drop. That 
is a fact.''
    I noted at that hearing in June that Mr. Kucinich and I 
sent a letter 3 days before Ms. Browner's, and I was hoping, 
and he and I had caused the price of gasoline to fall in the 
Midwest, and we could take credit. People say, not to pussy-
foot around it, ExxonMobil dropped its wholesale prices in June 
because you were scared of an FTC investigation.
    Mr. Simon. No, we did not. The price was established by 
market factors. It had nothing to do with the announcement of 
any investigation.
    Mr. LaTourette. The FTC has issued its interim report, and 
I will read you a couple quotes, one from a member of this 
committee who is sadly not here at the moment, either.
    The report says, ``Staff is examining supply and inventory 
to determine if supply was manipulated by an agreement or 
understanding, such as that insufficient product was available 
to meet increased summer demands in the Midwest, and prices 
spiked as a result.''
    Mr. Tierney, who asked you some questions earlier, said at 
that June hearing, ``If there is enough oil out there and they 
choose to keep their inventories down and then create more of a 
demand so they can jack up their prices, why should we, the 
government, share the blame with them?''
    I guess rather directly, again, did ExxonMobil collude with 
other oil companies in June of this year, in the days leading 
up to the June 8 deadline for RFG II, to restrict supply to the 
Midwest to jack up your prices?
    Mr. Simon. Absolutely not. In fact, Congressman, as I said 
before, I think we took extraordinary steps to try to increase 
supplies, certainly not restrict them.
    Mr. LaTourette. Those were sort of the softballs or 
beachball. Now I have something that is really making the blood 
boil of the folks in Cleveland, OH.
    That is that on Labor Day, right before Labor Day, the 
crisis has come and gone, we weathered the storm, we heard 
about the pipeline, we heard about RFG 2. But there is a gas 
station on the corner by my district office, and on the 
Wednesday before Labor Day, gas was $1.42. You have to 
remember, Ohio is not an RFG State. We did not have any new 
    On the Thursday before the people that Mr. Kucinich 
referred to, gas up the buggy to go away for Labor Day, it goes 
to $1.69; the same gas, the same gas station, no deliveries.
    When you talk to the gas station owners, here is what we 
are told, not only for what happened in June but also what 
happened on Labor Day: As supplies get short, the big companies 
such as yours, such as BP Amoco, have an obligation to keep 
faith with their company stations, that is, the ones that you 
operate. And so in the spot market you see a fluctuation 
between the price that you sell to your direct distributors, 
and the spot market has a discrepancy.
    The Energy Information Administration indicated in June it 
was the highest they had seen in a while, about 21 cents-per-
gallon difference between what a jobber could buy gas for as 
opposed to what you were supplying your company-owned station.
    As a result, the guy that owns Joe's Gas Station buys gas 
at 21 cents a gallon higher, and he or she then has to pass 
that on. I understand that, because that is the cost to them of 
putting the gas in the hole to sell to me when I gas up the 
    Why, then, do the big boys, you included, have to take your 
price of gasoline to that exact same price, when that does not 
reflect what you were paying for gas or the cost that it would 
require you to sell for gas to maintain the profit margin that 
you have described with Mr. Ose and everybody else?
    Aren't you making a business decision that if you can get 
away with an extra 20 cents a gallon because there is a 
discrepancy in the spot market, you are going to take the dough 
and run?
    Mr. Simon. Congressman, I would suggest that the price is 
established, again, by market mechanisms, market factors. The 
supply and demand is what drives that price. If we charged 
higher prices than our competition or higher prices than what 
the market would bear, we would lose customers. We would lose 
business. So we price competitively. That is what we do. That 
is what we strive to do. It is not a cost-plus business, it is 
a business that is driven by supply and demand, and there are 
market forces that establish that price.
    Mr. LaTourette. Are you telling me that your company does 
not make a greater profit when there is a difference in the 
spot market between what you can supply gasoline to your 
ExxonMobil gas stations as opposed to the independents and 
jobbers who sell to the independents?
    Mr. Simon. We look at every segment of our business 
separately. The retail end of the business buys product from us 
in refining and supply, and that product goes either into a 
dealer operator or distributors or their own outlets, so they 
are the ones who then make those decisions. They are the ones 
who want to be sure that we keep our customers supplied and 
supplied with prices competitively priced, so that they can, in 
turn, compete against other dealers and people in the same 
business segment.
    Mr. LaTourette. Let me ask you this: Didn't the price 
spikes that we saw in the Midwest in June of this year amount 
to really millions of dollars more in profit for the oil 
    Mr. Simon. It added to profitability, it certainly did.
    Mr. LaTourette. About 80 percent profits are up?
    Mr. Simon. I don't have a specific number in terms of what 
that would have been.
    Mr. LaTourette. Again, I have heard the questions asked 
about Chicago and Milwaukee. I understand about the 
difficulties that occurred there.
    Again, back in Ohio, we didn't have any new gasoline 
requirements, and the question that people asked is why did our 
gas go from $1.50 to $2.30 when there was no RFG 2 problem, you 
didn't have a Joliet problem, you didn't have a Louisiana 
    Here is what people suspect. Tell me if I am wrong and 
dispute me of the notion. They suspect that you could take that 
gas up in pipeline or truck, however you wanted to get it out 
of Ohio, up to Chicago and sell it for $2.30, as opposed to 
selling it for $1.60 in Ohio.
    Mr. Simon. There is no question about the fact that as 
prices are high in one area versus another, and you can move 
supply from one area to another, that that is going to attract. 
That is how the free market works. That is how things get back 
into equilibrium.
    Mr. LaTourette. Again, are you aware of any practice that 
is prevalent on your industry where on the Thursday before a 
summer weekend you just take the price up?
    Mr. Simon. No, I am not aware of any--I would have to look 
into the specific situation to which you are referring, but 
again, we price based upon what market pricing is, and that is 
the way we establish the prices in any given market.
    Mr. LaTourette. What about in one of these four corner 
arrangements where you have a gas station on all four corners, 
and the guy across the street, say he is a BP station, he goes 
to $1.80 and you are at $1.60. What do you do? What does the 
ExxonMobil do on your southeast corner? Do you have a policy 
that covers that?
    Mr. Simon. No, we don't have a policy. We look at all the 
competitors in a given area. We look at what we feel to be the 
result if we raise or lower our prices in terms of volume that 
might be attracted or lost. We try to make independent profit 
decisions in each one of those cases.
    It is done on a case-by-case basis. There is no general 
rule or general application of any kind of policy. It is trying 
to look at each situation and decide what is the right price in 
that particular market, and what would maximize the volume and 
the profitability. That is the kind of factors that go into 
that decision.
    Mr. LaTourette. During our June hearing, some of our 
friends on the minority side of the aisle indicated that 
perhaps the oil companies' profits had increased 200 percent or 
500 percent. That is not true. I think you said about 136 
    Mr. Simon. 132 percent second quarter this year versus----
    Mr. LaTourette. I had seen the published report that it was 
117 percent. A little over 100 percent.
    Mr. Simon. That may have been the year to date, because we 
were up 108 percent in the first quarter and 132 percent in the 
second quarter, so it might have been half year this year 
versus half year last year you are referring to.
    Mr. LaTourette. So it is not 200 or 500 percent as some 
people have claimed, but again, when people in Cleveland, OH 
that Congressman Kucinich and I represent, are paying $1.90, 
$2, nothing funny, nothing fancy is happening in Cleveland, OH, 
why should they not have been upset that you have been able to 
increase your profitability from last year over 100 percent?
    Mr. Simon. Again, when you look at the segment of the 
business we are talking about here, and that is the refining 
and marketing segment of the business, we are comparing against 
a very, very depressed period last year, so I think it could be 
very misleading comparing period to period. I think it is more 
appropriate to look at it over a longer term.
    Mr. LaTourette. Your return on investment in this segment 
of your business is about 3\1/2\ percent this year, and it was 
about 7 last year, and about 7 this year, so you would like us 
to average those years and say that over the last 2 years, you 
have done about 4\1/2\, 5.
    Mr. Simon. What I am saying is that when you look at return 
levels, I think it is appropriate in our business, where it is 
very cyclical in nature, to average those over a longer period 
of time than to just look at quarter to quarter.
    When you look at the percentage increase, and again, when 
we are talking about the percentage increase here, this is the 
company total profits, and you have to remember that last year 
was a depressed period relative to profitability for our 
company and the industry.
    Mr. LaTourette. Last, with the chairman's indulgence, there 
are some people--and I understand the Explorer and the 
Wolverine pipeline, and I not only understand, I accept, unlike 
some of my colleagues.
    But there is a sneaking suspicion that you all took 
advantage of a bad situation to make a ton of cash in June out 
of the pockets of people in the Midwest of this country. What 
do you say to them?
    Mr. Simon. Again, when you look at the downstream piece of 
our business and you look at the increase in crude costs that 
are underlying the products, we do have higher margins this 
year, but we have not fully recovered the amount that crude has 
gone up. So the profitability of the downstream segment of our 
business, again, when you look at the total part of our 
business, and it is below the Standard & Poor over a 10-year 
time period, and you look at the downstream business, it is 
even lower than that.
    So when you look at the profitability, the return levels, 
and then you factor into that as well the tremendous amount of 
investment that we are going to have to be making over the next 
several years to meet these higher requirements from an 
environmental standpoint, I would suggest that the profits are 
certainly not exorbitant, by any means.
    Mr. Burton. The gentleman's time has expired.
    Does the gentleman have one more question?
    Mr. LaTourette. Just an observation. I guess the lesson is 
when something goofy happens in Chicago or Milwaukee next time, 
we should just plug up the pipelines, keep all the gas in Ohio, 
and sell it for $1.60. Thank you very much.
    Mr. Burton. I yield to Mr. Ose, and maybe Mr. LaTourette 
has a few more. But I would ask, the Saudis increased 
production by 800,000 barrels a day just recently. You would 
think with that increase in production, there would be a 
corresponding decrease in the price of oil, at least in a 
relatively short period of time. Yet, shortly after that 
increase took place the price of oil went up.
    Can you explain that?
    Mr. Simon. I cannot explain that, but I can say that there 
are other factors operating on price other than the physical 
availability of barrels. There is a lot of speculation going on 
in the market at the same time, and I think that is certainly 
having an impact on prices, as well.
    Mr. Burton. The thing is, it is very disconcerting to 
people who know they are going to get hit with higher fuel 
costs this winter when they see production increased, and at 
the same time, instead of a decrease, they see an increase in 
the cost of oil. It makes no sense to them, and quite frankly, 
I don't understand it, as well. Maybe Mr. Ose can explain that 
to me.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. I was listening to the 
other side and I looked at the agenda, and the title of today's 
hearing is ``Potential Energy Crisis in the Winter of 2000.'' 
It jogged in my mind some of Mr. Slaughter's testimony on page 
5 that I want to explore a little bit with you, if you would, 
    On page 5 of your testimony, you are talking about the new 
emission requirements that EPA is putting forward, particularly 
as it relates to on-road diesel fuel.
    The question I have--I mean, in your testimony or your 
written testimony, your written statement, you say--I am 
synthesizing here--``this may very well compound the shortage 
of fuel in the near term and cause even greater price spikes.''
    Is that accurate?
    Mr. Slaughter. Yes, it is. You know, we have three major 
initiatives, basically, that the industry is working with at 
the same time. One is a mandated reduction in gasoline sulfur, 
which is a time rule that has to be implemented roughly by 
2006. The proposed diesel rule, which was final, according to 
EPA, this December, will have to be implemented by March 2006. 
Plus, there will be whatever has to be done on a State or 
Federal level or MTBE--the MTBE issue.
    Those have impacts on refining plans, and basically you 
have a 4-year planning period in which refiners will have to do 
things in order to have the fuel at those times. So they will 
have an immediate impact, of course not only on the psychology 
of refiners and the perception for refiners as to whether there 
is any chance that we are actually going to be reasonable about 
environmental policies any time in the future, but also on the 
requirement that refiners actually spend money to make plans to 
change the factories, to make these new fuels.
    Given the permitting process that we are facing at EPA, it 
will have an immediate impact on the companies.
    Mr. Ose. The interesting part of this, Mr. Chairman, is 
even under--you can pick your time line, but Mr. Slaughter, 
your testimony here says that ``engine manufacturers,'' the 
actual people who make the engines that will use the fuel, 
``have pointed out that the technology to achieve those 
emission reductions is not yet available and may well prove 
    Are they saying they cannot make an engine that will use 
this fuel?
    Mr. Slaughter. Yes.
    Mr. Ose. I want to be clear. Are the engine manufacturers, 
the experts in the field, the guys whose livelihood--the men 
and women who work on the line whose livelihood is at stake, 
they are saying they cannot make an engine that will work on 
the fuel that EPA is requiring?
    Mr. Slaughter. Actually, the engine is driving the fuel, 
Congressman. What has happened is that EPA has chosen 
particularly difficult and unique requirements for engines in 
the 2007 timeframe, and then is saying this fuel is necessary 
to make these technologies work.
    If you look at the comments of Cummins Engine, the largest 
manufacturer of engines, they say ``we have no idea what 
technology it is going to take to come up with this kind of 
engine performance in 2007. It requires several different 
technologies which work together in ways they have never been 
known to do, and it has never been tried.''
    Then, however, EPA is telling us that they know what the 
answer is, and that they know that those engines can be done 
and they know what fuel is necessary for those engines.
    Mr. Burton. If the gentleman will yield briefly, let me say 
that Cummins Engine Co. is in Indiana, and they are experts. 
They really know.
    Mr. Ose. Mr. Chairman, obviously they don't know what they 
are doing because EPA says----
    Mr. Burton. That is the point I wanted to make. If they 
have people over at EPA that know more about diesel engines 
than they do at Cummins, they had better get them down there, 
because they could sure use those engineers.
    Mr. Slaughter. Cummins make the point that they have been 
in business 80 years and don't know how to do this, and they 
don't quite understand how EPA does.
    The same thing happens on the fuel side. If people could 
actually make the diesel sulfur that they are asking people to 
make, you frankly will end up with a 12 percent shortage. That 
is a national average. The study that was done indicates that 
the shortage in the Rocky Mountains is 37 percent of supply, 
and because it is a unique standard, the lowest in the world, 
there will be no availability of imports to make up for it.
    Mr. Ose. Given the price--what is the phrase--the price 
flexibility, the relationship between supply and demand----
    Mr. Simon. Elasticity.
    Mr. Ose. The price inelasticity or the price elasticity, 
whichever way you want to go, of fuel, if you have a 12 percent 
shortage, what sort of a price increase do you have?
    Mr. Slaughter. Well, judging from some of the questions we 
had, we instead would be asked how much it would cost us to 
make that, assuming that we could.
    But as you know, if you haven't got enough of something, 
then essentially the price rises to whatever level it has to to 
try to allocate supply and demand. I can tell you that the 
particular study which has been done by Charles River 
Associates indicates that the marginal cost of diesel under 
that scenario they believe is in the area of at least 15 cents 
    Mr. Ose. So the truckers who drive our freeways and who 
deliver goods to our houses and our factories and our schools 
and our stores would be basically asked to finance EPA's desire 
here to the tune of 15 cents a gallon more for fuel than they 
are paying at present?
    Mr. Slaughter. That is true. And since most of our goods 
and services are delivered using diesel, which is our prime 
commercial fuel, actually all of us would be paying for it.
    Mr. Ose. What is the science behind this, behind EPA's----
    Mr. Slaughter. Just briefly, the difficulty is--first of 
all, the industry is 100 percent in agreement that sulfur needs 
to be reduced in fuels. It interferes with catalytic 
    Basically, the idea on diesel is to provide after-burners, 
which is a catalytic-related technology which scrubs the 
emissions. But the question, the EPA is basically pushing a 
type of after-burner technology which has never been known to 
work, and is the one particular technology which, to the extent 
that anyone has experience with it in the laboratory, is 
extremely sulfur sensitive.
    So they have used that fact to drive sulfur levels--their 
level is 15 parts per million that they are proposing as a cap. 
The current standard is 500. The industry has recommended 50, 
which is a 90 percent reduction. EPA is insisting on taking us 
to 15. The distribution system cannot even deliver 15 ppm 
sulfur diesel because it has to go through the same pipes that 
carry other products with far higher sulfur levels.
    So we don't know how we are going to do this, but this EPA 
is going to mandate that it happen by making this rule final by 
the end of the year, rather than looking into these problems.
    Mr. Ose. So this is actual rulemaking that is underway and 
published in the Federal Register for comment?
    Mr. Slaughter. The comment period has gone final, and they 
wouldn't even give us extra time to supply comments. Several of 
the industry stakeholders have asked for additional time to 
comment, and we were not even given that. The only thing EPA 
has had to say is that they will not change the number, they 
will not change their timeframe, and it will be made final by 
the end of the year.
    Mr. Ose. Mr. Chairman, I have two other items, if I may.
    Mr. Hawkins, I am not adverse to your position about 
efficiency and conservation, but the empirical data is that we 
are doing far more today with the same amount of refined oil 
than we did in 1983, and we are still short. That is the 
empirical data today. We had 16.4, something or another, 
million barrels a day of refinery capacity in 1983, and we have 
16.3 million refinery capacity now, and we are short.
    It just seems to me that while we focus on efficiency and 
conservation, we also have to find some way of increasing 
supply. I don't know how to reconcile the empirical data that 
says we are doing far more with the same amount with your 
observation earlier, and I think your exact words is that we 
cannot produce our way out of this problem. We obviously have 
to have more production.
    Mr. Hawkins. First, I think it is--on this refinery 
capacity point, I think it is important to say that the 
witnesses from the oil industry--I did not hear them say that 
prices would be lower if we had more domestic refining capacity 
than we currently have. I think they would have a tough time 
making that argument.
    One of the largest factors in the price of gasoline or 
refined products is the price of crude oil. Crude oil is a 
global commodity. Having more refineries on shore in the United 
States is not going to affect the price of crude.
    Mr. Ose. Would you argue that our economy is going to 
demand a certain level of fuel delivered to this country, 
whatever it is? Whatever the economy demands is going to be 
delivered here?
    Mr. Hawkins. The economy will demand an amount of fuel that 
is needed to meet the needs. How much fuel, that is, is going 
to be a function of technology and the way we use fuel and how 
efficiently we use fuel.
    I said in my testimony, nobody goes out and hugs a barrel 
of oil because they like the feel of hugging a barrel of oil. 
They like what the--the services that the oil provides. If we 
can find a way of delivering those services with fewer barrels 
of oil, that is what we are saying should be our primary 
    We have proven that it can work, but we haven't tapped the 
potential. We have much more tapping of the potential of supply 
than we have tapped the potential of demand reduction.
    If you will indulge me just to comment on your questions on 
the diesel issue, the problem that Members of Congress have in 
evaluating the industry assertions about what the effects of 
some impending regulation is, it is a problem because the 
industry does not have a very good track record at predicting 
what the effects would be.
    It is not because they are liars, it is part of the dynamic 
of the system. If you are out there evaluating an impending 
regulation, there is a tendency to be conservative. If you are 
working for a company and you are working and trying to cost 
out for your boss, well, what could be the possible outcome, 
there is a tendency to do a worst-case analysis. It tends to be 
a worst-case analysis because until the policy objective has 
been set down as a real world objective, you don't have the 
experience of having tried to mobilize the resources to figure 
out how to do it.
    The reason that we have this litany of examples where the 
industry has predicted a price of x and the actual price from 
the rule has been much less than x, it is, again, not because 
they are liars, but because once the rule was adopted, all of a 
sudden people say, this is real. We have to figure out how to 
make it happen, and we have to figure out how to make it happen 
at a much lower cost than we originally forecast because that 
is too expensive, and speaking out and doing it.
    Mr. Ose. I think I can accept some of that.
    Mr. Burton. If the gentleman will yield, I would just like 
to make one comment. I cannot, for the life of me, foresee why 
Cummins Diesel would say they can reduce it by 90 percent and 
they cannot reduce it by 97 percent. Because if they say they 
can reduce it by 90 percent, then they can go ahead and do it 
the other 7 percent, if it is feasible. Why would they say 90 
percent and not 97 percent unless they really believe that?
    Mr. Hawkins. Actually, Mr. Chairman, the 90 versus 97 is 
the refiners' argument. It has to do with the amount of sulfur 
taken out of the fuel. The engine----
    Mr. Burton. I think the engine company is saying they 
cannot make an engine that will function properly if you go to 
97 percent.
    Mr. Hawkins. Actually, it is the opposite, Mr. Chairman.
    Mr. Burton. I don't think that is what I heard.
    Mr. Hawkins. The engine manufacturers are saying that the 
less sulfur in fuel, the better.
    Mr. Slaughter. The engine manufacturers, Mr. Chairman, 
basically are saying that they believe that new technologies, 
these new technologies, will require lower sulfur diesel fuel. 
However, they are saying the number that has been picked by EPA 
is driven by the technology that EPA is requiring in the 
engines. Cummins is saying that they do not know how to make 
the engines that EPA is saying are going to be needed--are 
going to require this ultra-low diesel sulfur gasoline.
    Mr. Burton. Correct me if I'm wrong, didn't Cummins say 
that they could meet the requirements by building an engine 
that would be 90 percent----
    Mr. Slaughter. No, sir. It is the oil industry, the 
refining industry--they have offered a 90 percent reduction in 
the current sulfur level.
    Mr. Burton. So the engine company has not said they cannot 
make an engine that would be 97 percent efficient, fuel 
    Mr. Slaughter. They have not really put it in those terms. 
What Cummins has said is that the engine that will--basically 
what EPA has done is it has set an emission rate for certain 
engines. Cummins has said, we haven't the slightest idea how to 
do that, and in our history, in Cummins' history of entering 
into rulemakings, they have never gotten to this point in a 
rulemaking before where they simply did not know if they could 
do what EPA has asked them to do. They didn't know if it is 
technically feasible.
    As a separate question, EPA has told people, not only do we 
know that these emission limits are right and that engines will 
be developed that can meet them, we also know those engines 
will require ultra-low sulfur diesel.
    The parallel there is the insensitivity of the agency to 
the experts on both the fuel side and the engine side as to 
whether what they are requiring is feasible. It is not the 
numbers themselves.
    Mr. Burton. We will talk to Ms. Browner about that 
    Mr. Ose.
    Mr. Ose. In the interest of full disclosure, I know where 
Mr. Simon works and I understand Mr. Slaughter, and I certainly 
am familiar with where Mr. Hildebrand works. I just want to 
make, in the interest of full disclosure, public the disclosure 
statement from Mr. Hawkins, because I could almost surmise that 
there was some impugning of the motives behind the testimony.
    I just want to make sure that we are all clear on who--
where people get their livelihood. I specifically would like to 
enter into the record the witness's Truth in Testimony 
Disclosure as it relates to Mr. Hawkins, as the others have.
    Mr. Hawkins, I don't quibble over where you come from, but 
I do know that you have a somewhat different perspective. I 
just want to make it clear that that exists.
    Mr. Burton. We will put that in the record.
    Mr. Ose. I want to come to my friend, Mr. Hildebrand, 
    Mr. Burton. Are we about finished?
    Mr. Ose. We are almost done.
    Mr. Burton. Very good.
    Mr. Ose. Mr. Hildebrand works for Calpine, Mr. Chairman, 
and Calpine is a private entity using private capital to try 
and produce product delivered into a number of different 
electric markets, one of which is California, with a facility 
under construction in my district.
    It is a large facility. It went through a long public 
review process, at the end of which we got a last-minute 
challenge from someone in San Francisco. So we had an 
environmental document, we had the board of supervisor, we had 
community testimony, experts on all sides, and then we had a 4-
month delay, the result of which was that one person from 100 
miles away came in and challenged the problem.
    Mr. Hildebrand was far more gentle in his description of 
what happened, but that is the basic fact. To suggest that it 
was not subjected to public review out in the open is 
inaccurate. It was subject to public review, a lengthy series 
of hearings, and in fact, it is now under construction.
    The point I want to discuss with Mr. Hildebrand is implicit 
in all of these arguments, as it relates to electricity, is 
that if we make more plants, then we have higher pollution, 
because the plants generate pollution. But in fact, and--I will 
ask you the question, Mr. Hildebrand--the plant that you are 
building in Sutter County, if you use x generation of megawatts 
in Sutter County versus x on existing plants somewhere else, 
what is the efficiency ratio, if you will, in terms of 
pollution output from the respective plants?
    Mr. Hildebrand. As I alluded to earlier, the technological 
advances are dramatic. We are now capable of reducing nitrogen 
oxygen emissions, compared with the average fossil-fueled plant 
in operation today, nationwide by 97 percent. We can reduce 
sulfur dioxides by over 99 percent, CO2 by over 50 percent. 
That is global warming.
    The biggest issue we face when we try to site a power plant 
is just that, Congressman. The common thought in the public's 
eye is ``power plant equals pollution.'' With these new, modern 
power plants, just the opposite is true. We actually have a 
cleaning effect on the overall region's air.
    For the Sutter power plant, as part of the overall record 
for that case upon which the decision was based by the 
California Energy Commission, formal evidentiary hearings, a 
very litigious process, we entered into evidence a study that 
was conducted for the Sutter power plant. It looked at the 
whole region, what power plants were in operation, what their 
heat rates were, their efficiencies, what their permit 
emissions rates were; with that plant in operation and with it 
out, what the net impact was of having a new single 600-
megawatt power plant in Sutter County on the overall California 
regional economy and air pollution shed.
    We were permitted 206 tons a year of nitrogen oxide 
emissions, but by being so efficient, we were turning off 
plants for much of the year in areas around us. The net benefit 
was a reduction in the region of over 2,400 tons of NOx 
emissions annually.
    Mr. Ose. Mr. Hildebrand, was this all disclosed in the 
process through Sutter County? For instance, the environmental 
document, did it have it in it or not?
    Mr. Hildebrand. That was entered as evidence in the final 
record. That was expert testimony.
    I just want to touch real briefly, Congressman, on the 
economic benefits. By reducing the cost of power statewide, by 
having this lower cost project in the grid, the net impact in 
the first year of operation of the Sutter power plant was 
forecast to reduce the cost to California ratepayers by $400 
million in its first year of operation.
    Mr. Ose. The reason I brought this up is that we had in the 
record what the positive, beneficial aspects to air quality 
were for the nitrous oxide and the like. Now, Calpine is 
required to get a PSD permit, prevention of significant 
    Mr. Hildebrand. Correct.
    Mr. Ose. That permit would allow them to construct the 
plant in the first place.
    One of the challenges we ought to explore tomorrow, and I 
am hoping we do, is that EPA has spent the last 6 or 8 years 
trying to issue the rule under which PSDs can be put forward. 
They are updating the rule. They said in 1991 or 1992--they 
said in 1992 that they were going to issue a new rule. The new 
rule has not been issued yet.
    The net result is that Calpine cannot build plants, or 
anybody else cannot build plants because they cannot get this 
permit. So in effect, EPA stands like Horatio at the bridge 
saying no, no, no, the net impact of which is we cannot reduce 
nitrous oxide in our air quality.
    Is that a----
    Mr. Hildebrand. That is an accurate assessment.
    Mr. Ose. Mr. Hawkins disagrees with you.
    Mr. Hawkins. The PSD rules have been on the books since 
1980. They are in effect. The agency in 1992 began a process to 
look at ways to both streamline the existing rules and improve 
the environmental performance of those rules. That has been a 
stakeholder process that has been going on.
    There have been a number of occasions when the agency was 
prepared to go forward with a change to the rule and the 
industry objected to it. That is not preventing the permitting 
of facilities under the existing rules. Those rules are going 
forward, and in fact, it is the rare facility that actually has 
to get a Federal PSD permit. Most facilities are able to either 
net out a review or avoid a Federal new source review and 
instead go through a State permitting process. Certain large 
facilities do, of course, have to get a PSD permit.
    But the environmental community has supported and urged the 
prompt issuance of these rules. The problem is that, in my 
view, there are many in the business community that do not like 
the outcome of an improved environmental performance.
    Mr. Ose. The business community does not like the outcome 
of an improved environmental performance?
    Mr. Hawkins. Because it places more obligations on them. 
That is their fear.
    Mr. Ose. That is a broad brush, Mr. Hawkins.
    Mr. Hawkins. I am reacting to the reactions that the 
business community participants in this process have provided. 
They have opposed the issuance of the draft regulations that 
the agency had publicized for release and for publication. They 
objected to the fact that one of the changes in the rules was 
that Federal land managers who were charged with protecting air 
quality in national parks and wilderness areas would be given 
an opportunity to participate in the permitting process more 
effectively than they currently can, because obviously you 
don't build a power plant in a national park, but you do build 
them near national parks, and the problem is that those 
national park air quality readings have been degraded as a 
result of the inability of the Federal land manager to get the 
State permitting agency to pay attention.
    So the agency proposed rules that would allow the Federal 
land manager to be notified of these projects and to have an 
opportunity to submit comments on the record that would not 
bind the State agency, but the State agency would have to 
consider them.
    The industry did not like those, and that has been one of 
the reasons that they have been opposing this. There are other 
reasons, as well. But this is not the agency just sitting on 
its hands deciding that it won't issue a rule. It has been 
trying to come up with a rule that will both improve 
environmental performance and streamline the process. The 
difficulty is that people have not felt enough of a need to 
come together and agree on a set of rules that everybody will 
say, yes, that works for me.
    Mr. Burton. Mr. Ose, we can probably ask Ms. Browner some 
of these questions tomorrow.
    Mr. Ose. I think so. I do want to share with you one tiny 
piece of information.
    Mr. Hawkins mentioned the national parks. This actually 
deals with national forests. I am aware, because of the 
relationship with people in my district, that Calpine has been 
attempting to develop a geothermal project on Federal leases in 
the Klamath National Forest in northern California since 1996.
    The NEPA review for the project by the Bureau of Land 
Management, the U.S. Forest Service, took over 2 years to 
complete. The final environmental impact statement found that 
the project had no unmitigatable impacts on the environment. 
That means they could all be resolved. However, it would have a 
negative impact on spiritual uses of the area by Native 
Americans. Upon issuance of the EIS in October 1998, the 
agencies--and that would be the Bureau of Land Management and 
the Forest Service--then took 20 months to issue their decision 
to approve the project.
    The agency's decision was then appealed by project 
opponents to both the U.S. Forest Service and the Interior 
Board of Land Appeals, which rules on appeals involving BLM 
decisions. The U.S. Forest Service issued its decision to deny 
appeals in September 2000, but the Interior Board of Land 
Appeals decided to issue a stay, so that no development 
activity can proceed until it rules on its appeal.
    Now, this Interior Board of Land Appeals normally takes 18 
to 24 months to make its decision. This is a project that has 
no unmitigatable environmental impacts within the EIS, other 
than the spiritual uses of the area by Native Americans. We are 
looking at a 6-year permitting process at a cost to the 
proponent of $3 million for a relatively small renewable energy 
project that utilizes natural energy production.
    Mr. Burton. I think Ms. Browner ought to be asked that 
question tomorrow.
    Mr. Ose. I do want to say, Mr. Chairman, you have been 
very, very generous with time today, and thank you for that.
    Mr. Burton. It is only because of your intellect.
    Mr. Ose. I yield back.
    Mr. Burton. I would just like to ask Mr. Hawkins one last 
question. I see that you are getting--or Market-Based Energy 
Transformation gave you--I guess it was an EPA grant they 
received of $1.13 million from 1996 to 1999, and Promoting 
Energy--Economies in Transition was another EPA grant for 
almost half a million dollars, from the 1995 to 1999 time 
    Did you get new grants since that time from them, from the 
    Mr. Hawkins. We have grants from all the government 
agencies that typically run about 2 to 3 percent of our annual 
budget in total. I asked actually before coming up here this 
morning whether we had the summary for the fiscal year that 
just ended, and I was told we don't have that information, but 
I will be happy to provide it to you when we have it.
    Mr. Burton. Would you?
    Mr. Hawkins. I do know that our funding level is--for the 
last year is not significantly different than it was in prior 
years. And frankly, Mr. Chairman, as a matter of policy, 
organizational policy, we have deliberately kept these funding 
grants and contracts from the Federal Government at a very low 
level, precisely because we did not want to be in a position 
where our policies--our policy advocacy could somehow be 
inferred to be a result or dependent upon the existence of 
Federal grants or contracts. That is why we have kept it at a 
very low level, only a couple of percent of our total revenue.
    Mr. Burton. That is interesting. Your total revenue must be 
an awful lot, because this is $1\3/4\ million.
    Mr. Hawkins. Over 3 years. Our annual budget is about $30 
million a year.
    Mr. Burton. Is that right?
    Mr. Hawkins. Yes.
    Mr. Burton. Where do most of your funds come from?
    Mr. Hawkins. They come from foundations and membership.
    Mr. Burton. What is the organization? Is it the National 
Resources Defense Council?
    Mr. Hawkins. That's right.
    Mr. Burton. Is that the organization that has this large 
membership that provides this revenue?
    Mr. Hawkins. Yes. We have about 400,000 members. We have 
about 175 people on staff, four offices. We started 30 years 
ago, in 1970.
    Mr. Burton. That is a big organization. That is very 
interesting. But you do get 1\3/4\ million, and you say it is 
about the same levels as it has been?
    Mr. Hawkins. That is my expectation. I don't have the 
numbers, but as soon as our New York office provides them to 
me, I will provide them to you.
    Mr. Burton. We would like to have that.
    I want to thank all of you for being so patient. I really 
appreciate your candor. Some of the things that you have talked 
about, Mr. Slaughter and Mr. Simon and Mr. Hildebrand, we are 
going to address before the head of the EPA and the Energy 
Department tomorrow, and hopefully maybe we can streamline some 
of the problems that you have to face so you don't have to face 
them quite as severely in the future.
    With that, we stand adjourned.
    [Whereupon, at 6:21 p.m., the committee was adjourned.]



                      THURSDAY, SEPTEMBER 21, 2000

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 12:35 p.m., in 
room 2154, Rayburn House Office Building, Hon. Dan Burton 
(chairman of the committee) presiding.
    Present: Representatives Burton, Gilman, Morella, Shays, 
McHugh, LaTourette, Sanford, Hutchinson, Terry, Ose, Ryan, 
Waxman, Sanders, Kucinich, Tierney, Allen, and Schakowsky.
    Staff present: Kevin Binger, staff director; Daniel R. 
Moll, deputy staff director; James C. Wilson, chief counsel; 
David A. Kass, deputy counsel and parliamentarian; Sean Spicer, 
director of communications; Josie Duckett, deputy director of 
communications; S. Elizabeth Clay, Nicole Petrosino, Nat 
Weinecke, and Carolyn Katzen, professional staff members; 
Robert Briggs, clerk; Robin Butler, office manager; Michael 
Canty, legislative assistant; Leneal Scott, computer systems 
manager; John Sare, staff assistant; Maria Tamburri, assistant 
to chief counsel; Corinne Zaccagnini, systems administrator; 
Phil Schiliro, minority staff director; Phil Barnett, minority 
chief counsel; Kristin Amerling, minority deputy chief counsel; 
Ellen Rayner, minority chief clerk; Jean Gosa and Earley Green, 
minority assistant clerks; and Greg Dotson, minority counsel.
    Mr. Burton. The hearing will come to order.
    We are expecting other Members here shortly but, because of 
the time constraints that Secretary Richardson and Ms. Browner 
have today as well as Mr. Hoecker, we will go ahead and get 
    I will start off by letting my distinguished senior 
colleague from the International Relations Committee, Mr. 
Gilman, make an opening statement.
    Mr. Gilman. I want to thank you, Chairman Burton, for this 
series of hearings on this oil crisis that is affecting all of 
our regions, but particularly the Northeast region. I want to 
thank our witnesses, Secretary Richardson of our Department of 
Energy, our Administrator Carol Browner of the Environmental 
Protection Agency, and James Hoecker, chairman of the Federal 
Energy Regulatory Commission. It is so good you are willing to 
come and share with us some of your thoughts on how we can best 
resolve this crisis.
    I just mentioned to Secretary Richardson that I just left a 
meeting with the Vice Minister of Energy in Venezuela who has 
offered to be of help. I know that our Secretary of Energy has 
been meeting with some of the other OPEC nations. We, too, in 
our International Relations Committee are having bilateral 
meetings with our OPEC nations, trying to convince them that 
this is not the way to keep good will between our Nation and 
their oil-producing activities. Their manipulation of the 
market certainly does not help our economy, nor our consumers, 
nor industry. We hope we can finally convince them to open the 
spigot so that we are not going to be confronted with all of 
these problems.
    Energy Secretary Bill Richardson testified before our 
committee and told us about his diplomatic efforts, and we hope 
that they will produce results, and we look forward to hearing. 
Last winter, we were told that the increase in the cost of fuel 
was a result of the heavy winter. And over the past few months, 
the administration told us that the prices of fuel went up due 
to increased travel this summer and a host of other reasons. I 
think what we need most for the American people right now is a 
strategic, forward looking energy policy that takes into 
account that our seasons are not natural disasters, but 
something that occurs every year and is something that we 
should be planning for.
    In the Short Term Energy Outlook for September, the Energy 
Information Agency reported that ``Unless the winter in the 
Northeast is unusually mild and/or world crude oil prices 
collapse, substantial price strength gains for heating oil and 
diesel fuel are highly likely.'' Once again, it appears that 
mother nature has been dictating the energy policy for the 
administration, rather than our administration being proactive 
and creating and implementing both a short and long term energy 
policy that takes winter weather into consideration and plans 
for it rather than hoping for a mild winter.
    So, we welcome having our Secretaries here and our 
Administrator here. Mr. Chairman, I again want to thank you and 
Ranking Minority Member Waxman for conducting this series of 
    Mr. Burton. Thank you, Chairman Gilman.
    Let me start with the official business, besides your 
opening statement, and say that a quorum being present, the 
Committee on Government Reform will come to order.
    I ask unanimous consent that all Members' and witnesses' 
opening statements be included in the record. And without 
objection, so ordered.
    I ask unanimous consent that all articles, exhibits, and 
extraneous or tabular material referred to be included in the 
record. Without objection, so ordered.
    And I ask unanimous consent that questioning in this matter 
proceed under clause 2(j)(2) of House rule 11 and committee 
rule 14, in which the chairman and ranking minority member 
allocate time to members of the committee as they deem 
appropriate for extended questioning, not to exceed 60 minutes 
equally divided between the majority and the minority. Without 
objection, so ordered.
    Today, we return for our third day of hearings on problems 
in our energy markets. Before I get into my statement too much, 
Ms. Browner told me that her father, Michael Browner, is here 
today and I wanted to acknowledge him. He is from Limerick, 
Ireland, and now lives in Florida. Where are you, sir? Just 
wanted to recognize you and let you know we love Ireland.
    Mr. Burton. We welcome you to the good ole' USA. I guess 
you have been here for a while though.
    Anyway, we are happy to have before us the Secretary of 
Energy, Mr. Richardson, and Ms. Browner, the head of the EPA. 
We welcome you both back. You have been here before. We also 
have the chairman of the Federal Energy Regulatory Commission, 
Mr. Hoecker. This is the first time you have been before us, 
and we welcome you.
    Energy prices are soaring all around us--gasoline, home 
heating oil, natural gas, electricity. We are seeing 
disruptions in supply. And it seems like fires are erupting 
faster than we can put them out. If this situation continues, 
every American family across the country is going to feel the 
impact this winter and next summer. No one is going to be 
    Yesterday I spent some time talking about some of the early 
warning signs we are seeing. But it is worth taking another 
    This summer, the price of reformulated gasoline shot up to 
over $2 a barrel in the Midwest.
    Last winter, the price of home heating oil more than 
doubled in New England and the Northeast. This fall, 
inventories are at a 5-year low. Prices are so high that 
distributors are going into the winter with empty storage 
    The price of crude oil is now closing in on $40 a barrel. 
At the beginning of last year it was $10 a barrel. Almost a 400 
percent increase.
    The price of natural gas has tripled since last spring.
    In Montana, electricity rates have gone up 500 percent for 
industrial users. We heard yesterday from a businessman who had 
to shut down his business and lay off 300 people simply because 
they could not pay their electric bills.
    In San Diego, CA, electricity rates have tripled. Week 
after week, the State of California has to turn off the power 
to many of its large customers to keep the whole grid from 
    These problems are mounting one on top of another, and we 
have seen no energy policy long term from this administration. 
What is the administration going to do to help bring natural 
gas prices down? What is the administration going to do to stop 
gasoline and home heating oil price spikes? What is the 
administration going to do to help restore stability to our 
electricity grid?
    We need to deal with these problems. We have to have an 
energy policy, and we have to have it right now. The 
administration simply does not have one.
    Senior citizens living on fixed incomes cannot afford to 
see their electric bills double or triple now or this winter. 
Low-income families cannot afford to pay twice as much to heat 
their homes. They simply cannot do it.
    We have some fundamental problems with our energy markets. 
They are supply and demand problems. Demand keeps growing, but 
supply is simply not keeping up. Oil refineries and electricity 
generators, our transmission systems are practically bursting 
at the seams. All it takes is one small disruption to put the 
entire system into a tailspin and send prices soaring. We saw 
that this past summer in Chicago.
    Yesterday, we heard from professionals in the energy 
business. We asked them about the obstacles they face, why they 
are having trouble keeping up with demand. In almost every 
instance, the story was the same--government over-regulation. 
In some cases, it is State and local laws that create the 
problem. In many cases, it is the Federal Government and 
Federal regulations.
    We talked to a home heating oil distributor from New 
England. He told us, first of all, that prices are so high that 
distributors cannot fill their storage tanks to get ready for 
the winter. They are going into the winter with empty tanks. 
But he also told us one of the strangest stories of red tape 
run amuck that I have ever heard, and I have heard quite a few.
    He brought with him four little bottles--and I want to show 
you these bottles here, they are different colors, as you can 
see--four little bottles of diesel fuel. They are all different 
colors. I asked him to leave the bottles with me so I could put 
them on display and ask you about them. The Federal Government 
makes the dealer dye these fuels different colors and store 
them in different tanks, thus necessitating more expenditures 
for tanks. The two red ones are compliments of the Treasury 
Department. They are apparently for off-road use. The Treasury 
Department makes the dealers dye them different shades of red 
to make sure that no one cheats on their excise taxes. The two 
clear ones are compliments of the EPA. The EPA makes the 
dealers store them in separate tanks because they have slight 
differences in their sulfur levels.
    Dealers have a dwindling number of storage tanks because it 
is not economical to build them anymore. At the same time, they 
have to subdivide the tanks that they do have to hold these 
four different colored fuels. They have to have different 
trucks to haul the different colors. And the kicker is this--
they are all practically the same fuel, the differences are 
very small.
    I probably did not explain all of that very well. I have 
had it explained to me three or four times yesterday, but I am 
still not sure that I get it. I do know this much, it is one of 
the more bizarre stories of government run amuck that I have 
heard. At a time that they are facing a market that has been 
turned on its head, these dealers should not have to deal with 
this kind of nonsense.
    Now that is a fairly small problem. The problems that the 
gasoline industry is facing are much more serious. Under the 
Clean Air Act and other Federal regulations, it is impossible 
to build a new refinery in America. It has not been done in 25 
years. In 1982, there were 231 refineries in the United States. 
Today, that has been reduced from 231 to 155.
    Yet at the same time, refiners have to make as many as 15 
different blends of gasoline to comply with the reformulated 
gas rules during the summertime. So on the one hand, they 
cannot expand their capacity to keep up with demand, and on the 
other hand, the Federal Government is placing all of these 
additional demands for specialty fuels on them.
    We have a chart here of all the different fuels Citgo has 
to make in one region. Can we put that up on the monitors? Do 
we have that for the monitors? Oh, that is the only one we have 
is the big poster. So I will draw your attention to the poster 
over there. You can see the different colors. Their refineries 
are being stretched to the limit. Under those circumstances, 
all it takes is one little disruption to bring the whole system 
down. That is what happened in Chicago and Milwaukee this 
summer and is going to happen again unless we make some 
    But that is not all. We were told yesterday that the EPA 
has a raft of new regulations for gasoline and diesel fuels in 
the works. They are going to take effect in the next few years. 
Industry is telling them that if they are hit with these new 
restrictions in such a short time period, it is going to 
overload the system. It is going to disrupt fuel supplies. 
Consumers are going to be hurt. But apparently not many people 
are paying any attention.
    When I say that we don't have a serious energy policy in 
this country, that is exactly what we are talking about. 
Industry has offered solutions that would bring about dramatic 
reductions in sulfur and other pollutants, but that wouldn't 
disrupt supply. The EPA apparently is not interested. That is 
something that I and other Members want to talk to both Ms. 
Browner and Mr. Richardson about today.
    Yesterday, we heard from an executive who builds electric 
power plants. His company is building a state-of-the-art 
facility in California. It sailed through the permit process. 
But under EPA rules, all it takes is one person to file an 
appeal and the whole process is brought to a screeching halt. 
One person who lived over 100 miles away from this particular 
site filed an appeal and the project was shut down for more 
than 4 months. And I want to tell you, the Sierra Club and 
everybody else was for the project, and evidently you were. But 
the regulation that was in place allowed this one person to 
shut it down for 4 months.
    That has put an extremely large strain on California. The 
people in California are now asking them to work double shifts 
to get that generating capacity on line and they are trying to 
do it, obviously, to avoid more blackouts now and in the 
future. Ironically, the EPA has been working on new rules to 
streamline the appeals process and weed out frivolous appeals 
since 1992. The new rules still have not taken effect.
    Now these are just a few examples of areas where the 
government can exercise a little common sense to help solve 
some of these problems. But it is not happening. Nobody is 
saying we should repeal the Clean Air Act. Nobody is saying we 
should roll back the clock. But how about just a little more 
flexibility for some of these industries as we move forward?
    These problems are not going to go away by themselves. The 
Energy Information Administration projects that natural gas 
prices will go up another 23 percent this winter over current 
prices. They estimate that home heating oil will go up another 
31 percent this winter. When families are seeing their 
electricity bills tripling, and when businesses are laying 
people off because they cannot pay their energy bills, 
something has to be done. If we do not develop a tough energy 
policy and stick to it, we are just going to keep lurching from 
one crisis to another.
    The bottom line is this--we cannot bury our heads in the 
sand anymore. We have to have a strong energy policy. Under 
this administration, we have not, unfortunately, had a strong 
energy policy. We have suffered for the past 8 years.
    We need a policy that will help us become more self-
sufficient. We have enormous deposits of oil and gas that are 
off-limits, and I am going to ask questions about that in a few 
minutes. We have sites in the United States that we have been 
told by experts, yesterday and before, that have tremendous 
deposits of natural gas and oil that could be drilled in an 
environmentally safe way and they are off-limits, we cannot get 
to them. And with all those reserves, some of them 50, 60, 70 
years of reserves, it seems to me that we ought to take another 
look at that.
    We need to review some of these new EPA rules coming down 
the pike to see if there is some flexibility that could be put 
in order.
    I want to say once again to Secretary Richardson, Ms. 
Browner, and Mr. Hoecker that we really appreciate your being 
here. We have a lot of questions and I look forward to hearing 
your answers.
    I understand that Secretary Richardson is under time 
constraints. We will try to meet his time constraints so that 
he can get to other business that he has to do. But I do want 
to afford my colleagues as much time as possible for questions. 
So we will start with you, Mr. Richardson, and ask you for your 
opening remarks.
    [The prepared statement of Hon. Dan Burton follows:]

    [GRAPHIC] [TIFF OMITTED] T4099.101
    [GRAPHIC] [TIFF OMITTED] T4099.102
    [GRAPHIC] [TIFF OMITTED] T4099.103
    Mr. Gilman. Mr. Chairman, may I ask permission to insert my 
full opening statement in the record.
    Mr. Burton. Yes, that is fine.
    Do other Members have opening statements real quickly? Oh, 
I'm sorry, Mr. Waxman, of course you have one. And then I will 
ask other Members if they don't have an urgent need for opening 
statements, if they would put those statements in the record. 
But if they do have opening statements they want to make, we 
will accede to their wishes.
    Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman. We had a 
hearing yesterday and at that hearing I said that we are 
looking at a topic that has been neglected by the Congress for 
too long, and that is the topic of an energy policy. I learned 
yesterday that there is a bipartisan agreement that our Nation 
faces serious energy problems. Members on both sides are 
worried about the impacts of high energy prices on our 
constituents. And there are certainly grounds for concern.
    The price of crude oil has risen dramatically over the past 
year. Last winter in the Northeast, the cost of heating a home 
with oil soared. And prices could be even higher this year. And 
this summer in California, consumers in San Diego have faced 
electricity bills that are two to three times higher than 
normal, and other areas of the State have experienced 
    Unfortunately, I also learned yesterday that there is no 
bipartisan agreement about the causes of these problems and how 
we should address them. Chairman Burton and other Republican 
leaders blame the policies of the Clinton administration. Some 
even claim that the Clean Air Act, one of our Nation's most 
successful environmental laws, is the cause of soaring energy 
prices. We had one executive from an oil company tell us 
yesterday that we ought to just let them drill off the coast of 
our Nation and set up oil wells, that that would solve our 
    These theories may make for good politics but they are 
basically nonsense. The fundamental problem that our Nation 
faces is that we are too dependent on fossil fuels in general, 
and oil in particular. This leaves us vulnerable to 
manipulation by OPEC and threatens our economic and national 
security. And as we enter the 21st century, we are also 
burdened with an antiquated electric utility infrastructure.
    Now these are not new problems. Gas lines in the 1970's 
showed us the dangers of excessive reliance on oil. But a 
combination of factors--lower energy prices, anti-regulatory 
sentiment in the administration in the 1980's and in the 
Congress in the 1990's, and a growing economy--have conspired 
to halt our progress toward alternative fuels, renewable 
energy, and energy independence. In fact, we consume more oil, 
more gasoline, and more diesel fuel today than we did 20 years 
    The Clinton administration has proposed modest steps to 
reduce our dependence on oil and other fossil fuels. The 
administration has proposed tax credits to spur energy 
efficiency and research and development partnerships with the 
auto industry to develop a new generation of clean vehicles. 
And the administration has sent Congress electricity 
restructuring legislation. But even these needed measures have 
met resistance in the Congress.
    As a result, we have not formulated or implemented the kind 
of comprehensive energy policy our Nation needs. The last time 
Congress enacted a comprehensive piece of energy legislation 
was 1992. In recent years, the Republican leadership in 
Congress has even gone so far as to call for the abolition of 
the Department of Energy and the sale of the strategic 
petroleum reserve.
    The States too have made mistakes. With hindsight, the 
deregulation efforts in California may have serious flaws, 
allowing energy suppliers to manipulate the market and raise 
prices through the roof.
    But while we face serious problems today, the future could 
be much brighter. Our energy policy may have stagnated, but 
technology has not. New energy technologies are on the horizon 
that can strengthen our economy, protect our environment, and 
lessen our dependence on oil and other fossil fuels.
    Fuel cells, for instance, have made enormous strides in 
recent years. This technology combines hydrogen with oxygen via 
an electrical chemical process to generate electricity without 
emitting any air pollution or greenhouse gasses. The costs of 
this technology are dropping and prototypes have been developed 
that can run automobiles or light buildings. And since fuel 
cells do not have to run off of gasoline, they can reduce our 
dependence on foreign oil. I would also like to point out that 
the distributor generation with fuel cells avoids the need to 
construct high voltage transmission lines that are often 
difficult to site and costly to build.
    It will not be easy to shift course. We learned yesterday 
that big oil and gas companies are making billions off of 
today's high prices. They hire countless lobbyist and give 
millions in campaign contributions to preserve the status quo. 
But if we have the political will, we can craft a sound energy 
policy for our children, one that relies on new technologies, 
energy efficiency, and renewable energy to create new 
industries and jobs, provide greater energy independence, and 
protect the global environment.
    The energy crisis of the 1970's showed us the importance of 
developing forward-looking energy policies. But unfortunately, 
we squandered that opportunity to reduce our dependence on oil 
and implement needed changes in U.S. energy policy. I hope we 
will not repeat that mistake again.
    I yield back the balance of my time.
    Mr. Burton. Do other Members have opening statements that 
they feel they want to make?
    Mr. Ose. Mr. Chairman, I would be happy to enter mine into 
the record, if it is agreeable to the other side to do all such 
statements, so we can get to the witnesses.
    Mr. Burton. I always like to allow Members to make opening 
statements if they choose to do so. The only problem is that 
Mr. Richardson and Ms. Browner I think are under some time 
constraints and I would like to get to questioning as soon as 
possible. But if you have an opening statement that you want to 
    Mr. Ose. I would be happy to submit mine to the record in 
the interest of time.
    Mr. Burton. Without objection, so ordered.
    Anyone else have an opening statement?
    Mr. Kucinich.
    Mr. Kucinich. I have an opening statement and I will submit 
it for the record. I would just like to say that I represent 
Cleveland and one of the things that is happening in our area 
is the price of natural gas has gone up three times in a year.
    When we look at the supply of natural gas, there seems to 
be some real questions. I think all of us remember that the 
Federal Energy Regulatory Commission presided over the 
deregulation of natural gas wholesale rates, and we are now 
experiencing a steep rise in natural gas prices, even before 
families are turning on the heat.
    We are also seeing the use of certain market mechanisms by 
natural gas companies where they are now offering long term 
contracts at reduced rates and variable rates to their 
customers while they are asserting questions of whether they 
have an adequate supply. The demand remains constant, the price 
goes up. In some cases, demand has even exceeded that.
    The question I hope to see answered in this hearing is what 
are people supposed to do when it looks like Government is not 
adequately responding. The prices keep going up and up. I am 
hopeful that we are going to see addressed in this hearing the 
question of whether or not this free market approach that has 
been taken has its limits. There are programs in place for low-
income people, but what about middle-income people and working 
people who are going to see their whole way of living under 
attack with these sharp price increases. Can Government just 
afford to stand on the sidelines and let the natural gas 
companies and the oil companies charge whatever they want. I 
hope not.
    Mr. Burton. Thank you, Mr. Kucinich.
    Mr. Terry. I'll pass. I would like to give the witnesses a 
    Mr. Burton. Thank you. Ms. Schakowsky.
    Mrs. Schakowsky. Thank you, Mr. Chairman. I will be very 
    I want to take this opportunity to publicly thank 
Administrator Browner for her responsiveness to us during the 
time that the Midwest was suffering from differentially high 
gasoline prices this summer, and her effectiveness in helping 
initiate an FTC investigation. Some may argue otherwise, but I 
do believe that the initiation of that investigation itself 
helped to bring prices in line at least with the rest of the 
Nation, as high as they may be.
    And to Secretary Richardson, thank you for your 
responsiveness, too. We had a meeting of our Energy Task Force 
with you and you indicated your willingness to say that 
everything is on the table. And to thank the Vice President for 
the initiation yesterday of the concrete proposals that he 
    In Illinois, we are seeing natural gas prices at 
unprecedented levels. In July, they told us that last year's 
bill of $410 would be $610 this year. They have revised that 
upward to $750 this year for the same amount of gas that last 
year cost $410.
    Finally, just a couple of sentences. If we want to point 
fingers, I was not here when we deregulated natural gas but I 
was organizing around this issue with lots of consumers who 
were very concerned about it. It seems to me now that we are 
reaping the rewards of some of that. If we want to point 
fingers, we should look at big oil and big gas and say how 
come, at a time when anyone could predict shortages, that we 
were seeing a decrease in production and, remarkably, a 
dramatic increase in profits.
    I think that we need to take steps as the Government, but 
it has not been for lack of trying. I think now that we move 
more aggressively forward, that is important, but I think we 
need to question big oil and big gas about their role. Thank 
    Mr. Burton. It is the intent of the chairman to go ahead 
with the hearing and have Mr. Shays take over the Chair when he 
comes back. So if people want to go vote and come back to 
expedite the hearing, that would be fine.
    Mr. Sanders. I will be very brief. No. 1, I want to thank 
our guests for being here, and thank both of them for the 
excellent work they are doing. Thank Mr. Richardson for meeting 
with the New England delegation yesterday, and Ms. Browner for 
the outstanding work she has done for so many years.
    I just want to inform both of them, they may or may not 
know, that well over 100 Members of Congress from both parties 
sent a letter to the President and congressional leaders 
outlining six basic points that we would like to see action on, 
and action on immediately.
    No. 1, Mr. Richardson, thank you for your efforts in moving 
the Northeast Home Heating Oil Reserve forward. That is a 
request that we made to you last year and the administration 
has moved actively on that. I know that you need now 
authorization from the Senate so there can be a trigger 
mechanism so that President can release that oil. We have got 
to give that to the President.
    No. 2, we must release oil from the Strategic Petroleum 
Reserve. We have discussed that at great length. We have close 
to 600 million barrels sitting out there. There is an 
emergency. Middle-class working families, elderly people cannot 
afford to see prices go higher and higher. Let us release some 
of that oil. That is why it is there.
    No. 3, I believe the administration has got to be more 
vigorous in negotiating with OPEC. Americans lost lives 
bringing the Kuwait ruling family back into power, defending 
Saudi Arabia. They cannot turn their back on us at a time of 
need and cut back production.
    No. 4, with soaring prices, there must be a significant 
increase in LIHEAP funding and the President must release as 
soon as possible a substantial amount of emergency LIHEAP money 
so the people have the opportunity of buying oil before prices 
really hit the roof.
    Fifth, we all agree that we need much more vigorous long 
term energy conservation. We are more dependent on the Mideast 
now than we were 25 years ago. Ms. Browner, you and I discussed 
this a couple of months ago. Vermont is beginning to try to do 
something. We can significantly lower the amount of energy that 
we are utilizing in this country. It is an outrage that we are 
    Let's go forward in those areas. We should give you the 
tools, you should be vigorous in expounding that.
    Mr. Chairman, thank you very much.
    Mr. Burton. Thank you, Mr. Sanders.
    We have a custom here of swearing in our witnesses. Would 
you please rise and raise your right hands.
    [Witnesses sworn.]
    Mr. Burton. Secretary Richardson, do you have an opening 


    Secretary Richardson. Chairman Burton, I want to thank you 
for the responsiveness and graciousness that you have 
undertaken with my schedule today. I appreciate it.
    Mr. Chairman, our energy policy is based on: market forces, 
not market making; diversity of supply, and robust diplomatic 
relations with energy producing countries; on improving 
production and use of traditional fuels through new technology; 
it is based on diversity of energy sources, with broad 
investment in alternative energy sources; it is based on 
increasing energy efficiency; and, last, in preserving and 
fortifying our insurance policy against supply interruption, 
and that is our Strategic Petroleum Reserve.
    Mr. Chairman, we have published two statements of our 
national energy policy in the past few years. These documents 
serve as blueprints for our energy policies that we have put 
forward by the administration. What we need now is a bipartisan 
energy policy to deal with the energy problems that many of you 
so ably outlined.
    The main problem we have is volatility. Mr. Chairman, we 
need such over-arching policies, especially today. In the past 
year, we have seen substantial volatility in our energy 
markets. We have endured supply and price problems in heating 
oil, in gasoline, and in electricity. The year has not seen a 
season go by without an energy challenge. Every region of the 
country has shared in the increase in crude oil prices, and 
many regions have experienced specific problems on energy 
    It is essential that we recognize the importance of 
integrated, diverse energy supply and demand policies. Let me 
also state, Mr. Chairman, in this robust economy, in the last 7 
years, energy demand in this country, partially because of the 
robust economy, has increased 14 percent. This has been an 
important factor.
    With oil and gas markets, as you know, part of the 
administration's efforts to address market imbalances, I have 
talked extensively with oil producing nations. OPEC and other 
producers have heard our concerns and have boosted their output 
three times, with the most recent increases to come on line in 
    Our latest data shows that there are about 3.5 million 
barrels per day more oil on the market than at this time last 
year. That is a significant addition to the world market. And 
according to the Energy Department's Energy Information 
Administration, the latest addition of 800,000 barrels per day, 
along with boosted production from non-OPEC producers, should 
enable the oil industry to finally begin rebuilding global 
stocks, which has also been a problem.
    I say ``finally'' because, while more oil has come into the 
markets over the past year, demand has grown much faster than 
anticipated, as I said, increasing by 14 percent in recent 
years. And as demand has absorbed additional supply from the 
market, the oil industry has been unable to refurbish stocks, 
even with, for example, U.S. refiners working at 96 percent of 
    These factors have combined to result in a number of price 
increases across the range of petroleum products. We see this 
in the crude market, which closed yesterday at $37.20, one of 
the highest prices in a decade. We are seeing this at the gas 
pump, where drivers are paying an average of $1.56 per gallon, 
up over 30 cents from last year, but down 12 cents from this 
past June when you held your hearing.
    And with distillate reserves already at levels far lower 
than usual for this time of year, about 20 percent below last 
year, we are facing the potential for another heating oil 
    The administration is taking steps to meet these energy 
challenges. Most notably, the administration took the step of 
creating a 2 million barrel Northeast Heating Oil Reserve, to 
be used to augment supplies if they are needed. Sites have 
already been chosen and contracts for the oil were let last 
month, and oil is coming into the reserve.
    Mr. Chairman, let me be clear that we need the Congress to 
approve a reasonable trigger for releasing the heating oil in 
the reserve, as well as the funding to continue the reserve 
beyond this winter. That has not happened yet.
    We also continue to examine the option of swapping oil from 
the Strategic Petroleum Reserve if the oil supply and supply 
conditions warrant it. We have renegotiated oil delivery 
schedules for the SPR's royalty fill program so that millions 
of barrels of oil go into the market instead.
    Mr. Chairman, again let me remind you that Congress has 
delayed action to extend the Energy Policy and Conservation 
Act, which authorizes the Strategic Petroleum Reserve and 
America's participation in the International Energy Agency. We 
need to get that work done.
    The administration has taken other aggressive measures. You 
will recall that to help American families heat their homes 
last winter, the President released all emergency Low Income 
Housing Energy Assistance funds available for the year. He also 
asked Congress for $600 million more to replenish the reserve, 
funds which were just approved in July.
    Still, the House and Senate have underfunded our fiscal 
year 2001 request for weatherization assistance. Mr. Chairman, 
we have found this to be an effective way for families to 
lessen their demand for heating oil and electricity and, in 
turn, lessen their winter energy bills. We need to have this 
critical relief increased in conference.
    We also reestablished an Office of Energy Emergencies at 
our Department to coordinate with the States and other Federal 
agencies regarding energy-related crises. This helped us during 
the summer when electricity demand was high. We addressed the 
issue of supply through increased support for tankers; Small 
Business loans for distributors and other small businesses 
impacted by high prices; and encouraged refiners to increase 
    We have some budget needs. Mr. Chairman, we have these 
needs and they are a priority.
    As I mentioned to you before, we have worked hard to 
escalate domestic production of oil, to cultivate alternative 
sources of energy, and amplify energy efficiency, especially in 
transportation. In fact, thanks to our vigorous research and 
development efforts, we have taken recent strides on this 
latter point, strides that will help reduce our dependence on 
foreign oil, continue to lessen pollution, and keep our 
economic engine humming at home and in the world marketplace.
    For example, a major milestone is the Partnership for a New 
Generation of Vehicles, where recently we have auto makers 
unveiling three concept cars which may reach 80 miles per 
gallon in 3 or 4 years.
    At the Department, we just announced the third and final 
part of our heavy vehicle truck research program. High 
efficiency, clean diesel engines for 18-wheelers, whose drivers 
have been hit hard by high oil prices. And a research project 
was recently launched with the heavy-duty vehicle industry to 
develop more energy-efficient trucks over the next 5 years, 
from pickups and SUVs to 18-wheelers.
    As you know, Mr. Chairman, we are accelerating work in 
natural gas, which has emerged as a competitive and critical 
fossil energy resource. Our Energy Information Administration 
forecasts that demand for natural gas will grow by more than 4 
percent in just 1 year.
    So this is what we are doing: Working with the Interior 
Department and other agencies on simplifying access to public 
lands; we have an interagency working group meeting at the 
White House to pursue proposals on access to natural gas; and 
the administration is working to streamline environmental 
review processes, develop regional assessments of oil and gas 
resources, and advance technologies to produce on Federal 
    In March, the President proposed tax incentives for oil and 
gas production, delayed expense of what is called GNG expensing 
which is more drilling for natural gas.
    We need your support so we can do even more to get this 
relief to consumers.
    Earlier this year, the President sent a letter to the 
Majority Leader of the Senate urging the Congress to work with 
the administration to enact the President's pending energy 
proposals as soon as possible. One chief component of the 
President's energy initiative is a $4 billion tax package of 
tax incentives to encourage domestic oil and gas production, 
and for consumers to purchase more efficient cars, homes, and 
consumer products. While this package contains a number of 
viable solutions to our current challenges, solutions to be 
found right here in the United States, Mr. Chairman, the 
proposal has been idled in the Congress for more than 2 years.
    The President has also repeatedly asked for increased 
investments to meet our energy needs. In fiscal year 2001, the 
President advanced a $1.4 billion investment in Energy 
Department programs, in energy efficiency, renewable energy, 
natural gas, and distributed power systems. But still the 
Congress has not backed these investments, approving just 12 
percent of the increase over the last 7 years. Mr. Chairman, 
this simply is not acceptable.
    Right now, the President is requesting an additional $19 
million from Congress for low income home weatherization, funds 
which were not included in the Supplemental Appropriations Act.
    On electricity restructuring, I would like to finish by 
expressing to you how disappointed I am that it appears 
Congress will adjourn without acting on electricity 
legislation, which Mr. Waxman mentioned.
    The President submitted comprehensive electricity 
restructuring legislation to Congress 2 years ago. 
Unfortunately, the 106th Congress has failed to act on this or 
any other piece of electricity legislation. And you yourself 
mentioned the problems we are having with our electricity grid.
    Mr. Chairman, the Congress' inability to adopt 
restructuring legislation has helped produce some of the 
difficulties seen in electricity markets in some parts of the 
country. Over the last several summers, some utilities 
struggled to meet demand. They were forced to cutoff 
interruptible customers and plead consumers and businesses to 
conserve energy. In some instances, they were forced to 
implement rolling blackouts to avoid complete collapse.
    Mr. Chairman, as in our oil markets, unparalleled economic 
growth has spawned burgeoning demand that outstrips supply. And 
I know Chairman Hoecker is an expert on this issue and I am 
sure he can tell you more.
    We have seen the price spikes in California, the Pacific 
Northwest, and parts of New York. Enactment of Federal 
electricity restructuring legislation, as proposed by the 
administration, along with several bipartisan proposals, would 
go a long way toward resolving this problem. It would help do 
so by establishing a Federal ``rules of the road,'' where 
generating companies have the certainty they need on whether to 
invest in new power plans and transmission facilities. 
Moreover, our bill would help produce a more efficient 
interstate transmission system to enable the free flow of power 
to where it is needed the most. The legislation would also 
provide a funding source to make up for utility cutbacks in 
energy efficiency programs.
    In light of the problems we face, I would urge the Congress 
to reconsider its inaction on electricity restructuring.
    Mr. Chairman, again, thank you for listening, and thank you 
for accommodating our schedules.
    [The prepared statement of Mr. Richardson follows:]

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    Mr. Burton. Let me just say before we go to Ms. Browner, we 
asked all of our witnesses to submit their statements to us 
ahead of time. Unfortunately, I guess you could not do that. 
You wanted to leave, Mr. Secretary, by 2 p.m. today because you 
have an appointment. Because the statements were not given to 
us, and because they take so long, it may necessitate us having 
another hearing next week, because we do have a lot of 
questions and we really need to get those answered for the 
American people. And because of the time constraints that you 
are under today, we may not be able to get that done. So I 
wanted to apologize to you in advance, because we are going to 
get the questions answered, and I am sorry that it has taken 
this long.
    Mr. Waxman. Mr. Chairman, maybe Mr. Richardson can stay 
longer, because this is an important hearing. Or, if we need 
to, we will have another one. But we did have a very, very long 
opening statement by the Chair, and I followed him and made an 
equally long one, not quite as long. But it is not fair for the 
witnesses to have to sit through all of our openings. But Mr. 
Richardson was in the House, he knows the way it works. So 
maybe he can stay a little longer, because we ought to get 
those questions asked and answered at this hearing.
    Mr. Burton. Absolutely.
    Mr. Waxman. If he cannot, maybe we can get him back.
    Mr. Burton. That is absolutely correct.
    So, Ms. Browner, you are recognized.

                       PROTECTION AGENCY

    Ms. Browner. Thank you, Mr. Chairman, members of the 
committee. It is a pleasure to be back before this committee. I 
welcome this opportunity to discuss the administration's belief 
that protecting the health of the American people is an 
essential part of good energy policy.
    This administration's policy is to protect public health 
and to promote a healthy economy. We believe that this is 
clearly achievable. We believe that we have demonstrated it 
over the last 7\1/2\ years. We have achieved some of the 
greatest environmental progress in the history of this country 
and, at the same time, we have grown our economy in 
unprecedented ways.
    I think a powerful example of this hand-in-hand 
relationship between a healthy economy and a healthy 
environment is provided by the results of the work that this 
Nation has done under the Clean Air Act Amendments of 1990. We 
are aggressively, and sensibly, implementing this landmark 
public health protection statute, which was enacted by Congress 
with bipartisan support and signed into law by then President 
Bush. The result of this unprecedented legislation is that we 
are achieving real public health benefits in ways that are 
consistent with a healthy economy and take into account the 
need for reliable energy supplies.
    Over the past decade, we have made great strides in 
cleaning the air we breath while our economy is growing. Mr. 
Chairman and members of the committee, if I might refer you to 
this chart. This tells an incredible story. Between 1990 and 
1999, the Nation's gross domestic product increased 32 percent. 
Fossil fuel consumption increased 13 percent. Vehicles miles 
travelled, the distance, the miles we are driving our cars, 
increased 30 percent. At the same time, the aggregate emissions 
of the six predominant air pollutants decreased by 9 percent. 
Now that is a real success story. We are growing our economy, 
we are using more fuel, we are driving further, and yet our air 
is getting cleaner.
    In addition, an unprecedented number of cities have met 
public health based national ambient air quality standards 
since 1991; 39 of the original 42 carbon monoxide areas are now 
in compliance, 59 of the original 98 ozone areas, 68 of the 85 
original fine particle areas, all designated non-attainment, 
meeting standards today. Important public health standards.
    The human health benefits of these emissions reductions 
required by Congress in the 1990 amendments are dramatic. The 
annual benefits in the year 2010, when the law is fully 
implemented, will include 23,000 fewer incidences of premature 
death, 20,000 fewer cases of chronic bronchitis, 47,000 fewer 
cases of acute bronchitis, 22,000 fewer respiratory-related 
hospital admissions, 42,000 fewer cardiovascular hospital 
admissions, 4,800 fewer emergency room visits for asthma. The 
list goes on and on. The public health benefits of cleaning our 
air are dramatic. They are real.
    Now the Clean Air Act recognizes that we cannot meet the 
public health goals set by that important piece of legislation 
without reducing air pollution from sources such as coal fired 
power plants, gasoline, and diesel fuels. I think it is 
important to note that there are many in industry that have 
done their part, that have risen to these challenges.
    The utility industry dramatically cut acid rain-causing 
emissions from powerplants while net electricity generation 
increased 28 percent. Oil refiners were successful in producing 
cleaner gasoline required by the Clean Air Act while the amount 
of gasoline supply during the 1990's continued a steady 
increase. Companies such as BP Amoco have even gone beyond the 
legal requirements, committing to produce the new EPA required 
low-sulfur clean burning gasoline 3 and 4 years earlier at 
current prices. Likewise, a number of our automobile 
manufacturers agreeing to lower their tailpipe emissions 
    Why are they doing this? Not just because it is good for 
the public's health, it is good for the bottom line. It is good 
for their business.
    In pursing the Nation's public health goals, EPA takes the 
issue of adequate energy supplies very seriously. Mr. Chairman, 
my written testimony contains a number of specific examples in 
which EPA has provided regulatory flexibility in energy supply 
emergencies and has pursued specific actions to reduce peak 
energy use. In addition, we work with industry and other 
stakeholders to craft flexible rules that allow for common-
sense, for cost-effective compliance strategies. Let me just 
share with you one or two examples.
    Last year, the President announced our new tier II tailpipe 
emissions standards and low-sulfur gasoline requirements. These 
are reasonable, they are flexible, they are cost-effective. The 
rule gives refiners substantial lead time, on the order of 4 to 
5 years. For most refiners the phase-in begins in 2004 and 
continues through 2006. Small refiners get until 2008, and can 
apply for some additional time if they can demonstrate a need. 
Flexibility is also provided through annual averaging and 
trading of credits among refiners, and credits for early 
reductions. There is a phase-in program for gasoline sold in 
certain western States. Again, demonstrating that you can both 
set and meet tough public health standards and provide 
flexibility to industry in order to meet those standards in a 
cost-effective manner.
    We are also promoting a flexible approach for achieving 
required NOx reductions in the eastern part of the country. 
These are the NOx that travels, that contributes to the 
regional ozone pollution problems. To further assure 
reliability, EPA is allowing States to use a credit trading 
program. We are encouraging them. We would ask Congress to give 
us some more authority so we can do that more expeditiously. 
But in the meantime, we are working with States to use what we 
have learned from the very successful, very cost-effective acid 
rain emissions credit trading program and bring that to bear on 
NOx and other air pollutants.
    Mr. Chairman, members of this committee, no one is saying 
that public health protections, pollution reductions are 
without cost. But reducing pollution is an invaluable 
investment in the health of our citizens and our environment. 
Time and time again, our air regulations we have been able to 
show the benefits far outweigh the cost.
    For example, the new tailpipe emission cleaner fuel 
requirements, it is as if we are taking 164 million cars off 
the road. But they are going to be there, each and every one of 
them. They are just going to be cleaner, they are going to be 
polluting less. When we look at the cost of meeting those 
standards, we estimate that for every $5 invested, we will get 
$25 back in environmental and health benefits for our families. 
We estimate that the acid rain program in the 2010 will have 
$48 billion in health benefits from reduced particle matters. 
We are talking about the particles that become embedded in the 
lungs, particularly of our senior citizens, they can't spit 
them out, they can't cough them up, it can result in premature 
    In 1999, EPA completed an extensive congressionally 
mandated analysis of the cost and benefits of the Clean Air Act 
of 1990. Although, obviously, any such analysis involves all of 
the normal economic uncertainties, the central finding is that 
the benefits of that act, as we have worked to implement that 
important piece of legislation, have exceeded the cost of 
meeting environmental standards by a ratio of 4 to 1.
    Mr. Chairman, if I might just in my time remaining 
highlight some of the opportunities that I believe are 
available to this Congress to help address energy supply 
    Energy efficiency. Since 1992, EPA and DOE's Energy Star 
programs have been helping businesses and families select 
energy-efficient products that save money on energy bills while 
also helping to conserve energy supplies and reduce air 
pollution at peak periods. Our Energy Star program has 
eliminated the need for almost 10,000 megawatts of peak summer 
generating capacity--10,000 megawatts--through energy 
efficiency. We have also through this program saved businesses 
and consumers more than $4 billion on their energy bills, and 
we have reduced air pollution.
    Now Congress has the opportunity to fund this program. 
Unfortunately, neither the House nor the Senate in the EPA 
appropriations bill has thus far provided the dollars to EPA 
which the President has requested--a $124 million increase for 
technologies, for programs like Energy Star. And both the House 
and the Senate thus far have failed to fund this incredibly 
cost-effective, sensible, reasonable program.
    If Congress had fully funded past requests for EPA's Energy 
Star programs, electricity demand this summer could have been 
up to 3,000 megawatts lower than it is currently, equivalent to 
the power output of more than 10 average sized powerplants.
    Congress also has the opportunity to promote energy 
efficiency by supporting the President's request for $85 
million for a new Clean Air Partnership Fund. This has not been 
included in our appropriations bill thus far. This is an 
initiative that would provide much needed dollars to State and 
local governments to work with their businesses to develop 
innovative energy efficiency strategies such as investments in 
clean distributed power sources that do not harm the air their 
citizens breath, but do increase power supply.
    In addition, Mr. Chairman, I would like to renew the 
administration's call for Congress to expeditiously send to the 
President comprehensive legislation to phaseout the fuel 
additive MTBE from our cleaner burning gasoline. In June 1999, 
Mr. Chairman, EPA's Blue Ribbon Panel concluded that MTBE poses 
risks to our drinking water. EPA believes that Americans 
deserve both clean air and clean water and never one at the 
expense of the other.
    We are encouraged, the administration, EPA is encouraged 
that the Senate Environment and Public Works Committee has 
taken action on a bill that is consistent with the legislative 
principles that we put forward earlier this year. The current 
oxygenate requirements in the Clean Air Act should be replaced 
by a flexible renewable fuel standards. This would allow all of 
us to work together to promote the use of ethanol, to do what 
we can to drive the market for biofuels, for biomass. We have 
tremendous opportunity--rice straw, wood waste, other biomass. 
That can become an important part of our energy supply in this 
country. This legislation would not only protect water quality, 
it is good environmental policy, it is good energy policy, it 
is good foreign policy.
    In closing, Mr. Chairman, we recognize that fuels, electric 
power, clean air are important to economic well-being and the 
health of the American people. We look forward to working with 
all Members to move forward, as we have done in the past, to 
continue to set the strong public health environmental 
standards that the citizens of this country demand, to do it in 
common-sense, flexible manners.
    Mr. Chairman, if I might, several points have been raised 
by you, several points were raised yesterday. I look forward to 
sharing with this committee the rest of the story. I am sure it 
is important to all of us that we have a full record of exactly 
what has happened so that as we move forward we do so with a 
base of knowledge. Thank you again for the opportunity to be 
    [The prepared statement of Ms. Browner follows:]

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    Mr. Burton. Mr. Hoecker.

                     REGULATORY COMMISSION

    Mr. Hoecker. Thank you, Mr. Chairman, Congressman Waxman, 
and members of the committee. I want to express my thanks for 
inviting an energy regulatory perspective to this hearing 
today. And I commend you for holding it. It is timely and there 
is a clear need to publicly examine the current price to 
consumers, the various forms of energy, and how we ought to 
respond to those prices through markets, technology, and public 
    I have spent much of the past several weeks testifying at 
or conducting hearings on the challenges we as a Nation face in 
this area. We have heard stories of genuine hardship coming 
from high electricity prices in California, and the expectation 
that the price of natural gas will stretch the budgets of many 
households and businesses this winter.
    Yesterday I was in Ohio with Governor Taft and Alaska 
Governor Knowles discussing the causes and probable results of 
the gas deliverability squeeze. In that case, many of the 
experts present, me included, stated their belief that natural 
gas reserves were adequate and that gas markets were capable of 
responding to stabilize natural gas prices at lower levels over 
the next year. I should note for the committee that gas markets 
have produced almost $200 billion in savings for the American 
consumer since 1985, and I expect this to continue.
    Electricity markets pose a different set of issues for 
regulators and other public policymakers. That industry is 
undergoing a fundamental transition at the moment. It was clear 
in our hearings in California that the electricity market there 
was dramatically out of synch with the needs of the digital 
economy, the expectations of public policymakers, and, most 
importantly, the economic well-being of average electricity 
customers in that State, and in San Diego, in particular.
    The causes and proposed solutions are complex and they 
include the dramatic surge in demand growth in California. But 
it has become clear that the California electricity markets are 
not competitive during periods of peak demand, and that the 
efforts of State and Federal Governments and even private 
corporations to anticipate and avoid this crisis have simply 
proven inadequate. There is plenty of responsibility for this 
market and its prices to go around.
    The FERC, which oversees the wholesale portion of all 
domestic markets including California's, has been aggressively 
investigating the problem and looking for appropriate 
solutions. If that means devising new ways to thwart market 
power, we will try to do that. If that means changing market 
rules and wholesale market structures, then we will do that. If 
it means imposing stricter controls on the ability of utilities 
or generators to collect market rates, then we will do that. 
And if it means making rates subject to refund until we can be 
reasonably confident Californians will get price signals 
instead of price shocks, then the Commission is likely to move 
in that direction.
    In the meantime, we have in effect capped wholesale markets 
in that State. The State of California has fortunately also 
lifted its restrictions on the ability of utilities to hedge in 
the market when they buy power, and has adopted legislation to 
get retail rates back to normal levels and to expedite the 
siting of new generation facilities.
    I want to assure the committee that the FERC is, indeed, 
pursuing a consistent energy policy. It is, in fact, spelled 
out in our strategic plan, within the limits of our 
jurisdiction and within the limits of our role as an 
independent regulatory agency. The Commission has for many 
years promoted competitive energy markets. Some call this 
deregulation. I don't happen to be one of them. I agree with 
Congressman Kucinich that there are indeed limits to what free 
market approaches can obtain. But having said that, lighter-
handed regulation of energy markets is part of our approach. 
Monitoring markets to ensure they are competitive, efficient, 
and fair is another element. A third component is to ensure 
adequate energy infrastructure, such as natural gas pipelines, 
consistent with sound environmental practices and environmental 
    We believe that this is a recipe for stable prices and 
energy security in the long-run. Today, Mr. Chairman, I believe 
that the FERC is doing all it can.
    However, we need Congress' help. I have long advocated 
restructuring legislation that would untie our hands in 
promoting sound electricity markets. My recommendations would 
provide: First, that FERC have jurisdiction over all electric 
transmission in the country. We do not currently.
    Second, that FERC have oversight of electric reliability. 
We right now have no such authority.
    Third, that we have expressed authority to promote regional 
transmission organizations to govern the operation of the bulk 
power market.
    Fourth, we want broader FERC authority to remedy market 
power abuses in energy markets. Currently, that authority is 
    To that list I might now add additional FERC authority to 
retroactively correct extraordinary wealth transfers that can 
happen when prices unexpectedly skyrocket and consumers cannot 
get out of the way. We right now do not have that authority 
    Mr. Chairman, I want to thank you again for inviting me 
here today. I will be happy to try and field your questions.
    [The prepared statement of Mr. Hoecker follows:]

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    Mr. Burton. Thank you, Mr. Hoecker.
    We will now go to our questioning. Let me start off by 
    Mr. Waxman. Mr. Chairman, may I make a request. We were 
going to have a half-hour each side of the panel. Why don't we 
do 15 minutes each side of just Mr. Richardson, see if we can 
accommodate his schedule, and then go back to the other 
    Mr. Burton. Well, even if we did 15 minutes on each side, 
we would not be able to get through all of our questions that 
we have today. I think, because of the time constraints Mr. 
Richardson is under, we have no option but to have another 
hearing and to bring him back.
    Mr. Waxman. Perhaps so. But he is trying to deal with an 
energy crisis. I think the country would be better off if he 
were dealing with that than sitting in the hearing answering 
questions that might be asked now and answered now so he can 
get on with his job.
    Mr. Burton. Mr. Waxman, there is an election coming up. If 
you become chairman next year, you can run this committee. But 
right now, you are not chairman.
    Mr. Waxman. I gather what is happening is politics to be 
sure you are chairman.
    Mr. Burton. Mr. Chairman, Mr. Waxman--[laughter]--we would 
like to get on with the business at hand. Do you have any more 
comments to slow us down?
    Mr. Waxman. Mr. Chairman, may I inquire how we are 
    Mr. Burton. We are proceeding under the regular order.
    Mr. Waxman. Is that a half-hour each side?
    Mr. Burton. That is absolutely correct.
    Mr. Waxman. So before Democrats can ask a question, you 
will go for a half-hour, but then we will have a half-hour.
    Mr. Burton. Mr. Richardson will then depart after their 
    Mr. Waxman. Well is it your hope that he will depart after 
your questions so we cannot question him?
    Mr. Burton. Regular order.
    Mr. Waxman. It appears so.
    Mr. Burton. Mr. Richardson, we had 231 oil refineries and 
it has declined down to 155 oil refineries. You said in your 
opening statement that we are letting market forces dictate the 
price of oil. When the oil industry people were here yesterday, 
they said one of the problems that they have, they are 
operating at I think 96 percent of capacity right now, and one 
of the big problems that they have is because they have not 
been able to build a new oil refinery in the past 25 years. As 
a result, they are limited in supply they can produce. And they 
tell me that they can build oil refineries and gas production 
facilities that will comply with environmental standards and 
keep the ecology clean, if the restrictions by EPA and the 
Department of Energy are not so restrictive.
    So I would like to ask you and Ms. Browner what we can do 
to get more refineries in place to make sure that the demand is 
    Secretary Richardson. Mr. Chairman, let me say that our 
policy is to have a viable refining industry in this country. 
That's No. 1. A number of small refineries have closed in the 
past decade--poor economics and other investment problems. We 
have asked the National Petroleum Council, which is a group of 
energy executives, to advise the Department of Energy, me on 
what we need to do to have a viable refining industry in the 
country. They are expected to complete a report for us this 
    Now, it is our view, Mr. Chairman, that our refining 
capacity right now is at 96 percent. It has gone up. We were 
concerned because it was in the low 90's, it is now 96, some 
say a little bit more. Total U.S. refining capacity has been 
expanding and becoming more economically competitive. So what 
has happened also is new refining capacity is likely to be at 
existing refineries along mainly the Gulf Coast. So what we are 
seeing is refining capacity has been added to existing 
refineries right now. That is how they have kept pace with 
demand without building new refineries. Nonetheless, we still 
are watching this very closely and we are looking forward to 
the industry's recommendations.
    Mr. Burton. Well, the industry was here yesterday. The 
indications from the industry was they would like to build new 
refineries, they would like to increase capacity, and they 
cannot do it because of environmental regulations. And they are 
very concerned about that.
    The other thing is, and I wish you would put up that 
    Do you have a comment, incidentally, Ms. Browner, about 
    Ms. Browner. I do. I would like to respond, if the 
allegation is for some reason public health air pollution 
standards stand in the way of new refineries, I would like to 
    Mr. Burton. No, that is not what they said. They said they 
could build refineries that were environmentally safe----
    Ms. Browner. But that our rules were a problem.
    Mr. Burton. Yes.
    Ms. Browner. I would like to respond to that allegation. 
May I?
    Mr. Burton. All right.
    Ms. Browner. Thank you. I would like to make three points. 
One is the same point that Mr. Richardson made, but we would 
like to actually use a chart. In the last 5 years, while the 
number of individual refineries, facilities has gone down, the 
refining capacity of the remaining 155-160 facilities has 
actually gone up. Part of the reason it is going up is because 
we work with them to expand their those existing facilities and 
we do it in an expedited manner, we do it in conjunction with 
the States.
    I will give you an example. There are currently pending 12 
permit applications to expand existing refineries, that is over 
the last 2 year period. Most of those permits, and they are 
issued by the States with our concurrence, most of those 
permits have been issued in 12 months. Of the 12 that have been 
received in the last 2 years, only 5 are currently pending, the 
others have been granted.
    I will give you an example. We received one down in Texas 
in March 2000. It will be done within the next 2 to 6 weeks. We 
received another one in July, we have asked for more technical 
information, we will then be moving forward. So we are moving 
through the permitting process the expansion that the companies 
are deciding are best for them.
    The final point I would like to make, Mr. Chairman, is we 
are always open to receive any permit application. We do not 
decide what the applications should be, that is up to the 
companies. They do it for a variety of reasons. In the last 25 
years, not because of the new Clean Air Act, not because of the 
old Clean Air Act, but because of their business realities, 
they have chosen not to apply for any new facility ground up 
but are rather expanding existing facilities, and we are 
permitting those with all of the public health protections.
    Mr. Burton. I know. But the argument that they made, Ms. 
Browner, was that the environmental regulations, that they 
believe are extraordinary, are such that they cannot do it in a 
profitable way, and as a result, they have not been able to 
build those new refineries.
    But nevertheless, let me get on to another subject. Would 
you put up that chart on the gas reserves. The gas companies, 
the natural gas producers said that their existing wells are 
producing at lower and lower levels and they cannot meet the 
demand because those wells are producing at lower levels.
    Now we have, as you can see on that map, several very large 
gas reserves in the continental United States. This is just in 
the lower 48, this is not showing what we have up in Alaska. 
But they told us that if they could, and they can in an 
environmentally clean way, drill these wells and get the oil, 
they said there is no question that they can do it in an 
environmentally clean way and meet the demand.
    So my question is, why is it we are not drilling wells in 
those areas which are off limits now because of the EPA?
    Ms. Browner. I think three of the----
    Mr. Burton. Because of the Interior Department.
    Ms. Browner. I do not want to answer for Interior. But I do 
think it would be important to note--and natural gas 
exploration, not home use of natural gas, residential use of 
gas, that does not require any EPA permit. We are not involved 
in that process whatsoever. But exploration of natural gas in 
some instances may require a water pollution or air pollution 
permit from EPA.
    Mr. Chairman, with all respect, I think three of the areas 
that you are noting up there, I am having a hard time seeing 
this, but I think three are actually offshore areas, and those 
obviously bring with them particular issues of particular 
concerns, particularly to the citizens of those areas, to the 
protection of their beaches.
    Mr. Burton. Let me get to Mr. Richardson because I am 
running out of time, since he is in charge of energy policy.
    The large reserve in the middle of the United States, if 
you excluded the ones that are offshore, according to the 
people who were here yesterday, would provide a substantial 
amount of gas over a long period of time, 10-15 years, if we 
were to drill that. And it can be done in a very safe and 
environmentally safe way. Why are we not exploring in that 
    Secretary Richardson. Mr. Chairman, a lot of that is public 
lands, that central area. Let me also mention to you, Mr. 
Chairman, that statistics for natural gas, we have had 
increased domestic natural gas drilling. We have I think a 
total now of domestic drilling rigs are almost 800, the highest 
level in the last 15 years. And we have seen a nearly 60 
percent increase in the production of natural gas on Federal 
onshore land since 1992. I don't know if the map reflects that. 
We did open the natural petroleum reserve in Alaska to gas 
development where we have 10 trillion cubic feet. No, it is not 
on the map.
    Oil production on Indian lands accounted for 25 percent of 
domestic production in 1999. But on natural gas, Mr. Chairman, 
what happens is supply and demand dictate production levels.
    Mr. Burton. Let me just interrupt, because the gas 
producers yesterday said that, and Mr. Hoecker may want to 
answer this too, they said that they have their pipelines full 
at the present time, I think 96 percent. They are concerned 
about additional pipelines, No. 1; and No. 2, also getting more 
productive gas wells.
    They say that the source is there. There is definitely a 
source of gas. They could do it more efficiently. They said 
that more wells could be drilled; 800 rigs out there right now 
simply isn't going to meet the demand. There are more wells 
that can be drilled. They want to know why, and I do too, if 
this can be done environmentally safely, we are not doing it. 
So if you and Mr. Hoecker could answer that, I think I am just 
about out of time.
    Secretary Richardson. Mr. Chairman, let me just add on 
natural gas, we have also proposed in the President's package a 
tax credit for natural gas drilling, it is called ``geologic 
expensing,'' which allows for better ability for the natural 
gas people to drill. We think this is very important.
    Mr. Burton. Mr. Hoecker.
    Mr. Hoecker. Mr. Chairman, that is a very accurate 
portrayal of the amount of reserves we have, and in Alaska 
there is another at least 35 trillion cubic feet of gas but no 
way to get it to the lower 48 except through some limited LNG 
facilities. Currently, we have a deliverability problem, 
however. When prices collapsed a couple of years ago a lot of 
people left the oil and gas production business, a lot of wells 
were shut in, and production declined. It was a response to a 
variety of things that you can trace back to the collapse of 
the Asian economy. But what that has meant is that we have been 
using up that supply of cheap gas and have had very little to 
replace it.
    Now with gas prices escalating above $3, as the Secretary 
mentioned, there has been a dramatic increase in exploration, 
development. But there is a lag time of about 12 to 18 months. 
I do not think that most interstate natural gas transmission 
systems are full now, unless it means in the wintertime when 
they are taking a lot of supplies out of storage. I think the 
situation is going to normalize itself, but the situation we 
are in today is the direct result of the price collapse a 
couple of years ago and it is taking the gas industry some time 
to recover.
    Mr. Burton. Mr. Shays.
    Mr. Shays. Thank you. Welcome, all of you. I am somewhat 
reluctant getting into this issue because, if we are honest 
with each other, it is Republicans and Democrats who are in 
this together and both share blame. The administration shares 
blame, and Congress obviously has things it can do.
    But as we do our specific issues, I am just interested to 
know, the Energy Department, which does not have other 
distractions, I am just interested why it was not giving the 
clarion call that we were going to be having this problem. Why, 
as you admit, Mr. Richardson, why was the administration caught 
flat-footed on this?
    Secretary Richardson. Well, first of all, I never admitted 
that. Second, we are not flat-footed. In your region, the 
domestic heating oil crisis is the biggest problem. We have 
been pushing and we have been saying that we needed a Northeast 
Heating Oil Reserve, we have been saying that stocks are low, 
we have been working with the home heating oil people and 
transportation, we have asked for authority from the Congress 
to deal with this reserve which is in your State, and we need 
it passed.
    Mr. Shays. Let me just remind you though, you did have a 
meeting with New England Members, Mr. Sanders was leading the 
charge and he was asking both that we utilize the Strategic 
Petroleum Reserve and he put forward the home heating reserve 
bill, and to which we signed on. It was not an initiative of 
the administration. It was initiated by Mr. Sanders and which 
we all readily agreed. It surprised me that it kind of came out 
from a rank and file member and not from the administration.
    But let me ask you this, why are you blaming Congress, and 
specifically Republicans, for the fact that the Energy Policy 
Conservation Act has not moved forward when it is Ms. Boxer 
that is holding up the bill? The last time I checked she was a 
    Secretary Richardson. Mr. Chairman, first of all, I did not 
blame any Republican. I said the Congress has not passed this. 
There have been a number of holds. You mentioned a Democratic 
member, I was not aware of that. The other holds have not been 
by Democratic Members. But I do not think we need to dwell on 
that. We need this legislation passed. I need full authority 
for the trigger on the Northeast Home Heating Oil Reserve, for 
the Strategic Petroleum Reserve. We need to pass it. I do not 
care what is holding it up, we just need to get it done. This 
is for the national interest. I am not trying to point fingers, 
I am just stating a fact. It is not authorized.
    Mr. Sanders. Mr. Shays, would you yield?
    Mr. Shays. No. If I could just continue my questions, 
    Yesterday we heard testimony about changes in the domestic 
oil marketplace since the 1980's resulting in a far less 
vertically integrated supply and distribution system. In your 
view, just who or what is ``big oil'' and what is their role in 
today's domestic energy market?
    Secretary Richardson. The FTC conducted an investigation 
about why the price differentials were so high in some parts of 
the country. I think what the FTC in their preliminary 
investigation concluded, and that is not a complete report 
because they still are working on it, is that environmental 
factors, the reformulated gasoline 3 to 6 cents, were not the 
cause for this increase, for this spike. The causes were 
several--transportation problems, pipeline problems, market 
problems. I think that was perhaps what your question refers 
    Mr. Shays, I am not here to blame any industry or any 
Members or any causes. I just think that we need to work 
together to have a comprehensive policy that deals with supply 
and that deals with demand. We have 3 weeks to go in the 
Congress and there are a number of necessary steps that need to 
take place. In the same vein, the executive branch also has 
authority to take several steps, some of which the President is 
considering, that deal with the present crisis.
    Mr. Shays. The President and the Vice President, which you 
refer to as the Clinton-Gore administration, has been making 
strong attacks against ``big oil.'' I just want to know what 
big oil is and then we go from there.
    Secretary Richardson. Mr. Shays, this is a political 
campaign. I am the Secretary of Energy for the Clinton-Gore 
administration. I am not interested in blaming anybody. I want 
to fix the problem and I want to fix it with you. I think it 
has been referred that large oil companies have been doing 
quite well lately. Their profits are up. The American people, I 
think rightfully so, had questions in the Midwest about why the 
price spikes increased dramatically. The price of oil is $38 a 
barrel. That is unacceptable.
    Mr. Shays. Is big oil responsible for the $35-plus a 
    Secretary Richardson. No. It is a variety of factors. It is 
the market, it is many other reasons.
    Mr. Shays. Well wouldn't OPEC be the No. 1 reason?
    Secretary Richardson. No. I think that OPEC has been 
working with us quietly. In the last three instances, they have 
raised production levels, not enough. We operate on the free 
market. OPEC is a cartel. We opposed their production cuts in 
the past. But the fact is that we have a demand problem.
    Mr. Shays. Isn't it true though that the administration 
earlier on was concerned with $10 a barrel and was encouraging 
OPEC to limit supply to get that price up a bit?
    Secretary Richardson. No, that is flatly wrong.
    Mr. Shays. You were not concerned about domestic production 
that started to go down because we could not produce at $10 a 
    Secretary Richardson. Well, yes, of course. And I warned 
this and I am publicly on record as saying that $10 a barrel 
per oil is not good. That is not good for the market, it is 
volatility, it hurts a lot of States in our country that 
produce domestic oil and gas. The stable price that I think is 
ideal is between $20 and $25. But we think that the market 
should dictate those forces.
    Mr. Shays. Two last questions. The Strategic Petroleum 
Reserve which, admittedly, many Members of Congress encouraged 
you to release, so I am not suggesting that I was not part of 
that and also a part of the home heating reserve, there are 
others who respond to our effort to do that with some concern, 
that it is a distortion in the marketplace, as you just made 
reference to.
    There is a concern that, for instance with the home heating 
reserve, the suppliers are not going to buildup a reserve and 
inventory it if they are concerned that all of a sudden the 
administration, whichever administration, decides to release it 
and significantly reduce price. So there is a sense that maybe 
we are actually going to have less supply rather than more 
because of this reserve.
    Secretary Richardson. The home heating oil reserve is just 
2 million barrels. That we do not anticipate would affect the 
market. It is only there, as many of you constructively 
suggested, for supply emergency. The language, the trigger 
authorizing me to use it, Mr. Shays, is based not on the price 
but on the supply emergency. I welcome that. I do not want to 
base it on price. I think it should be on supply emergency.
    What the home heating oil operators lack is an incentive, 
as you said, to stock product reserve. We have to give them 
incentives to do that. We have been working with them, 
transportation, a number of other measures, their interruptible 
contracts, and we have a good dialog with them. Some have 
suggested, and I would welcome your thoughts, a tax credit for 
them to store home heating oil, a small tax credit to give them 
an incentive to store it. Because, as you said, they are not 
storing right now because prices are so high.
    Mr. Shays. Thank you. And what would be the trigger for 
releasing the Strategic Petroleum Reserve? What should be the 
trigger so we know it is not a political decision?
    Secretary Richardson. Well, that is already in statute. The 
trigger is a national supply emergency. You are talking about 
the Strategic Petroleum Reserve? Because we have the Northeast 
    Mr. Shays. Right.
    Secretary Richardson. There the language is supply 
    Mr. Shays. So it is a little nebulous though? In other 
words, the President can do it and say there is an emergency.
    Secretary Richardson. Yes.
    Mr. Shays. Let me just end with this question. In a recent 
appearance before the House Committee on International 
Relations, you were asked if Governor Bush was responsible for 
today's high oil prices. Your answer was ``No.'' Is that still 
your position?
    Secretary Richardson. Governor Bush?
    Mr. Shays. Yes.
    Secretary Richardson. No, it is not his fault.
    Mr. Shays. Thank you.
    Mr. Burton. Mr. McHugh.
    Mr. McHugh. Thank you, Mr. Chairman. Just to kind of fill 
out the record on what Mr. Shays and you, Mr. Secretary, were 
talking about on RFG. I am not familiar with the Federal Trade 
Commission study, but I am familiar with a study done by the 
Congressional Research Service that found that 25 percent of 
that--Secretary Browner is shaking her head, but I can read the 
English language----
    Ms. Browner. We would be happy to supply for the record, I 
may actually have that with me----
    Mr. McHugh. I would be delighted to have you supply all 
that information. But still, the Congressional Research Service 
found that 25 percent of that increase, which is not even a 
majority of the increase but a substantial part, was due to 
that. And the Energy Information part of Secretary Richardson's 
own Department of Energy found, if I can read the English 
language correctly, ``The new product required a substantial 
change in the blend recipe and in the characteristics of some 
of the components to make the new product.'' It went on to talk 
about the significant difficulties in that reformulation on the 
price. You may want to forward that information to Secretary 
Richardson as well because apparently his DIA is not aware of 
it either.
    Mr. Secretary, I agree, we have to work together. I go home 
to a part of the United States that encompasses the Adirondack 
Mountains, hundreds of miles of Canadian border where it will 
be snowing very soon. I do not think my people are concerned 
who is right and who is wrong, and I am sure not going to check 
their voter registration card before I see if we should help 
them. I know you well enough to believe very strongly you share 
that sentiment as well.
    So I would like to talk a little bit less about the longer 
term approaches, not that they are unimportant, but rather what 
we can do now to avert or at least ameliorate what will be a 
crisis of life and death proportions in areas that are served 
by people such as Congressman Sanders, myself, and many others.
    I made the comment yesterday that it is hard to think about 
politics when it is snowing in your district 7 months out of 
the year. It is hard to rationalize the current price of a 
gallon of oil based on statistics that average it out over two 
decades when your main industry, as is true in both Bernie 
Sanders' and my district, is the dairy industry and you are 
receiving the same price for your product today that you were 
20 years ago. I would suggest that 100 percent increase in the 
cost of home heating fuel, 100 percent, approximately, cost 
increase in the price of diesel fuel that runs your tractors, 
that allows you to make a living, as meager as it is, is truly 
an emergency.
    OPEC has talked about a target of $28 a barrel for oil. 
Where do we stand, and by ``we'' I mean this country, on that 
target? Is that a reasonable cost? We heard a lot yesterday 
from people in the oil industry who said that the great anomaly 
was the $10 a barrel of oil. Fine. Let's accept that. Is $28 
reasonable, or is that an objective we should accept now? How 
do we react to $28 a barrel?
    Secretary Richardson. Congressman, what we have said is 
that $10 is too low, $30, now $30-plus, is much too high. What 
we have said ideally is between $20 and $25. Naturally, $28 is 
better than what exists today. Nonetheless, OPEC has 
established what is called the price ban. Anytime it exceeds 
$28, and you mentioned that $28, they would automatically 
increase production if it is I think 20 days by 500,000 
barrels. That has not always happened.
    Our view is that the market should dictate these forces. 
But we think that for producer and consumer countries $20 and 
$25 is good for economic growth, to quell recessions, and to 
deal with the basic supply and demand laws.
    What has happened, Congressman, is a dramatic increase in 
demand throughout the world, it is not just our country. Europe 
and Asia. And I share your concerns very much about your 
region. This is why we think the Northeast Home Heating Oil 
Reserve is important. There is a real acute home heating oil 
shortage in the Northeast. We are very worried about it.
    Mr. McHugh. And I was an early supporter of Congressman 
Sanders' bill, an original cosponsor, and I was proud to do so, 
and I commend the President for creating it by Executive order. 
I think it will help. I hope it will help. But I am not sure it 
is going to be enough.
    You talk about market forces. I am a Republican and 
generally a market oriented kind of guy. But the market is not 
working sufficiently right now. It seems to me when OPEC 
increases, as it did about 2 weeks ago, their pledge of an 
additional 500,000 barrels, and your North crude oil goes up to 
over $33 a barrel within hours, we have got to do something 
    I am very concerned that the President, the administration 
has not taken the steps nor seen fit to release the Strategic 
Petroleum Reserve supplies. If we do not do that, thinking only 
in the short term, what can we do to ensure that this winter 
will not be a catastrophe for many people in the colder climes 
of this country? What other remedies are there short of hoping 
that OPEC will sufficiently increase production?
    Secretary Richardson. Congressman, we will continue to urge 
OPEC to consider increasing production, because it is obvious 
that the world needs more oil. Second, on the Strategic 
Petroleum Reserve, whether it is a sale or a swap or other 
proposals, the President is actively considering that right 
now. At this very moment a decision is eminent. He may decide 
not to tap it. We have been very reluctant to tap it in the 
past because of the language in the legislation that it should 
be a national supply emergency. We used it during the Gulf. We 
have used it very sparingly.
    What else can we do, Congressman? I think we can work 
together on additional low-income energy assistance funds. I 
know in your district you have a lot of moderate income and 
poor people that could use this. And I am glad you mentioned 
the Northeast Oil Reserve. We need to get that passed. Even 
with Executive order, the trigger for its use is important. We 
also believe that heating oil deliveries are very important 
that they take place without any transportation or pipeline 
problems. We work with the Coast Guard to ensure their ready 
access into the harbors that reach you.
    We have had a number of emergency efforts in the event of a 
home heating oil shortage. Exercises with regions and States to 
deal with the problem, including I believe your State.
    Mr. McHugh. I appreciate that. Shortages are one thing. 
Fuel disruption is another. Affordability is the most 
important, and that is what disturbs me. I think that is the 
key question here that is being avoided. In fact, as one of the 
strongest supporters of LIHEAP, there is an economic reality 
that the more you take out of the market to LIHEAP, the higher 
price pressures you place on people who are at the lower income 
levels who do not qualify, many of whom live in my district. So 
that is not the answer either.
    The final comment on this is that there has to be release 
of SPR. There is no other way that I see, and it is not that I 
am unwilling to entertain it for any reason, political or 
otherwise, but the only way a crisis of price is going to be 
avoided--not supply interruptions, but affordability--is 
through SPR. So I hope you will continue to press that with the 
President, because that, it seems to me, is the sole relief.
    Secretary Browner, I am concerned about this proposed 
sulfur reduction in diesel. You talked about this issue and I 
wonder if you could comment further on the issue of diesel.
    Ms. Browner. Yes. In my written testimony I did speak about 
the diesel. I would be happy to speak about it now.
    Mr. McHugh. You did not in your oral testimony?
    Ms. Browner. No. I was talking about last year's rule to 
remove sulfur from conventional gasoline, not from diesel.
    Mr. McHugh. I misunderstood. I was reading while you were 
speaking and I did not bring the proper nexus. I apologize. 
Well let's talk about the proposed reduction. That is a 98 
percent reduction in the sulfur level of on-road diesel. I know 
I heard you speak about the flexibilities and the opportunities 
that you are trying to access and working with industry and 
such. It can come as no secret to you that the industry is very 
concerned, not just the diesel producing industry but also the 
manufacturing industry that will use these diesel supplies to 
power their machinery, is concerned that, No. 1, the technology 
today simply does not exist to accommodate this kind of 
    In my chairman's own State of Indiana, Cummins 
Manufacturing has stated, ``Cummins has been in this business 
for 80 years and we don't know if these standards can be met 
and what the total cost is. How possibly can EPA? With no 
explanation or justification, EPA has chosen to propose a 
regulatory scheme without the meaningful exchange of technical 
information and ideas that preceded prior proposals. For such 
far-reaching standards, extraordinary and as yet undeveloped 
technology will be needed and huge investments in time and in 
resources will be committed . . .'' They go on to say this is 
what they feel is an unachievable and unworkable approach.
    The other thing that troubles me is that the Department of 
Agriculture asked that EPA should provide more information to 
demonstrate that fuel supplies to farmers in rural areas not be 
interrupted as the industry converts to the ultra sulfur diesel 
    The industry offered 90 percent. Apparently the EPA is 
insistent on 98 percent and has refused to extend the public 
comment period, even when the administration's own Department 
of Agriculture says this is ill-considered. I am curious how 
you would respond to those kinds of objections.
    Ms. Browner. First of all, this effort to reduce pollution 
from on-road vehicles--cars, SUVs, diesel trucks and buses--has 
been the work of the EPA and the administration for 7 to 8 
years now. This is not a new idea, this is not something we 
have come to lately.
    Specifically with respect to diesel. Diesel fuel today has 
approximately 500 parts per million sulfur. It is a very, very 
high sulfur content. With that high sulfur content comes a 
whole host of public health, particularly respiratory, issues. 
We have made a proposal to reduce the pollution that comes out 
of the tailpipes of large trucks and buses. The way you change 
the pollution out of the tailpipe is you make adjustments in 
the fuel, you make adjustments in the engine, you add things 
like catalytic converters.
    You note that there are companies who have raised 
questions, and we are in dialog with those companies, as we did 
when we set the car and SUV standards last year. I would also 
like to note for the record there are companies that are 
supporting our proposal. For example, BP Amoco has written in 
support of the 15 parts per million diesel fuel standard that 
we have proposed. There are manufacturers, the companies that 
will make the catalytic converters, the companies that will 
make the technologies to meet the tailpipe standards, they are 
supporting our proposals. There are even engine manufacturers 
that are supporting our proposals.
    Having said all of that, this is a complicated undertaking. 
We have been at it for many years. We are listening to all of 
the parties concerned. We are trying to honor requests from 
many, many Governors. I do not think we have heard from a 
single Governor who is opposing these proposals to help them 
clean up the air their people breath. One of the most important 
things we can do at the national level is to look at the on-
road diesel fuel--and this is important because you are going 
to hear people talk about all diesel fuel. We are talking right 
now about the diesel fuel that is used on the road, not off the 
road, not in farming equipment, but in the 18 wheelers and the 
    Mr. McHugh. So we go back to the division of fuel that the 
chairman pointed out even further in his comments, and 
apparently 90 percent reduction voluntarily has been rejected, 
and you refuse to extend the comment period. How can you talk 
    Ms. Browner. And let me note that is some companies' 
position, it is not all companies' position. When you look at 
what comes out of the tailpipe, if you want to clean up that 
goop, that stuff that we all hate sitting behind, that fog, if 
you will, that comes out of the large trucks, the diesel buses, 
you have to do two things. You have to clean up the fuels. When 
you clean up the fuels, that allows you to put on the first 
ever catalytic converters. How many of you knew that? Catalytic 
converters do not exist on the large diesel trucks and buses. 
The clean fuel is necessary. I might just point out while BP 
Amoco says 15 is fine, others in the industry have said 
something higher, you should know where Detroit is, you should 
know where the engine manufactures are. They want 5 ppm of 
sulfur content, not the 15 which we have proposed.
    So that is by way of saying this is a complicated issue. We 
are engaged in a thoughtful process. We are committed to 
finishing this because, and I think this is important, if there 
is one thing I have heard over the last 7\1/2\ years from CEOs 
in this country, it is give them as much time as possible to 
meet environmental standards. The sooner we finish, the sooner 
they know, the sooner they can start looking at how to most 
cost effectively meet these standards.
    Second, we are working, for example, I had a lengthy 
meeting with the CEO of Cummins yesterday. They have their 
position, but we did take the time, despite their position of 
opposition, to hear what they had to say about how we might be 
able to structure the flexibilities. They may ultimately never 
agree with us, but we are open to anyone who wants to bring us 
a proposal.
    Mr. McHugh. So I assume that is a no, you will not extend 
the comment period. That was my question.
    Ms. Browner. We have not made any final decisions. We are 
reviewing everything that we have received. We are committed to 
getting the public health benefits that will come from cleaner 
diesel engines an fuels.
    Mr. McHugh. So you may extend then?
    Ms. Morella [presiding]. The gentleman's time has expired.
    In deference to the fact that we did give more time to this 
side, we will extend to the minority side an extra 5 minutes. 
So I will recognize Mr. Waxman for 35 minutes. And maybe 
another answer yes or no could be part of a response to Mr. 
Waxman's questions.
    Mr. Waxman. Thank you very much for giving us the extra 
    We appreciate the witnesses being here. And I appreciate 
the time under which Mr. McHugh addressed this issue, because 
what he pointed out in his time was that we have got a problem 
in this country and we need to work together on this problem. 
It is not a Democratic or Republican problem. We are facing an 
energy crisis in some parts of our country with heating oil 
prices and maybe even availability being very, very high. We 
see electricity rates in California, maybe other places, 
soaring. The gas prices are rising. So we need to address these 
problems. It is our responsibility, both the Congress and the 
    We are seeing that we are greatly dependent on foreign oil 
and we are able to be manipulated by OPEC. The way that 
Government works is the President, and all of you represent the 
President and his administration, proposes ideas, but then the 
Congress is supposed to dispose of these ideas. And the 
administration has proposed a number of initiatives that would 
help resolve our country's short and long term energy needs.
    Secretary Richardson, I would like to begin by asking you 
about some of these administration proposals. One of our basic 
safeguards against oil price manipulation by OPEC is the 
Strategic Petroleum Reserve. My understanding is that the 
President has urged Congress to reauthorize the Presidential 
authority to utilize the Strategic Petroleum Reserve in times 
of energy crisis. But Congress has not done so. Could you 
describe why the administration believes reauthorization of SPR 
is important?
    Secretary Richardson. Mr. Chairman, the reauthorization of 
Strategic Petroleum Reserve is essential because the ability of 
the Secretary of Energy to advise the President when it is a 
case of national emergency shortages, you also have to manage 
the Strategic Petroleum Reserve. We have 570-plus million 
barrels that has been a very wise investment and you have to 
manage it, you have to replenish it, and you have to maintain 
it. So that full authority to use it, the authority for the 
trigger in a national supply emergency is needed. Plus, there 
have been a number of I think add-ons relating to the 
authorities relating to some energy initiatives here that are 
part of that bill. And we need it passed. It is not passed.
    Mr. Waxman. What are the consequences if Congress continues 
to block this reauthorization of the Strategic Petroleum 
    Secretary Richardson. I think a questioning of the 
executive branch's, my authority to use the Strategic Petroleum 
Reserve in time of emergency. We think that it is needed as a 
very urgent priority, along with the Northeast Home Heating Oil 
Reserve, the trigger to use in case of an emergency. Let's say 
sometime this winter in New England there is a home heating oil 
crisis and we have not resolved this and I do not have the 
authority to use it.
    Mr. Waxman. One of the other areas we can deal with the 
energy crisis is to reduce our dependence on foreign oil by 
increasing energy efficiency, if we used our energy resources 
more efficiently and effectively. Over the past several years, 
the administration has proposed tax breaks to encourage 
Americans to purchase energy efficient cars as well as homes. 
What has happened to these initiatives, Secretary Richardson?
    Secretary Richardson. They have languished, $4 billion 
worth of tax credits on energy efficiency for homes, for fuel 
efficient vehicles, for buildings. Chairman Waxman, we think 
that we can dramatically improve our energy resources in this 
country by having increased energy efficiency, but you have to 
have incentives for that to happen. The Partnership for a New 
Generation of Vehicles with the auto companies to have more 
efficient engines, to have SUVs that are 40 miles per gallon, a 
lot of the issues that Administrator Browner has championed in 
fuel efficiency, they are lagging and we need that to pass to 
have an energy policy that deals with the supply needs of the 
country but also with demand.
    Mr. Waxman. So the administration proposed these ideas of 
some tax incentives to become more efficient. The Congress has 
not acted on them. It seems to me that what we see is we are 
not making the progress toward energy independence that we 
could if Congress would act to work with the administration to 
pass this legislation.
    Secretary Richardson. And you made an excellent point about 
renewable energy. We have to reduce our dependence on foreign 
oil; it is 57 or 58 percent now. If we invest in new 
technologies, as you said, and we invest in wind, in solar, in 
biomass, in bioenergy, in fuel cells, these are worthy 
investments. And only 7 percent of the administration's budget 
in that area in the past 7 years has been funded.
    Mr. Waxman. Let me draw your attention to the question of 
electricity restructuring. At yesterday's hearing, we heard 
from witnesses who had recently experienced sharp rises in 
electricity rates and brownouts. Two years ago, the 
administration proposed legislation that would have provided 
for restructuring of our Nation's electric utilities. Could you 
describe the key provisions of this proposal and how this 
proposal could help address some of the problems we currently 
face with our electricity system. Tell us, has Congress acted 
on the administration's proposal to modernize our electric 
    Secretary Richardson. Regrettably, one of the House 
chairmen dealing with this issue said the electricity 
restructuring bill was dead in the Commerce Committee, which is 
the main vehicle for passage. We regret that.
    What our bill does, Chairman Waxman, is increase 
competition, it will improve the environment, it will save the 
customer money. What we want to do is several things. One, deal 
with the fundamental problems that exist of inadequate 
transmission, generation facilities, improve energy efficiency 
efforts in our electricity grid, push for independent power 
operators so that utilities and other power sources can invest 
in electricity grid that is badly in shape, that needs 
modernizing. What you have is a dramatic increase in demand and 
an electricity grid that has not had strong authority and 
strong investments to keep it refurbished.
    The bill gives Chairman Hoecker and FERC the authority to 
take several steps to make our grid more reliable and 
efficient. That has languished, too. And after the brownouts 
and blackouts around the country, after the fact that over 26 
States have already had restructuring legislation in their 
State legislatures, including California, the Federal bill 
would have had rules of the road that enabled a lot of Federal 
statutes that are harmful to be removed. And, regrettably, this 
bill is not moving.
    Mr. Waxman. Well what we have had is administration 
proposals to reauthorize the Strategic Petroleum Reserve, to 
give tax breaks for energy efficiencies, to have a partnership 
with the automobile industry to produce cleaner and more 
efficient automobiles, we have had proposals for electricity 
restructuring, we have had specific ideas from the 
administration and proposals for funding for conservation and 
renewable energy. And none of that has been moved in the 
Congress of the United States.
    Now let's look at what some of the things are that we have 
seen in the Congress, initiatives here. Congress has not been 
receptive to your energy proposals and I suppose it is because 
the leadership in the Congress thinks it has some better ideas. 
I would like to get your comments about some of these other 
ideas that they have.
    Every year, since 1995, the Republican leadership has 
introduced a measure known as Department of Energy Abolishment 
Act, which would abolish the Department of Energy. What is your 
view on whether this proposal would help advance energy policy. 
I know it would cost you your job, but is this a constructive 
way for us to deal with our energy policy, just abolish the 
Department of Energy?
    Secretary Richardson. Mr. Chairman, I am not going to be 
humorous. But sometimes I wonder whether that didn't make sense 
in light of my recent--[laughter]--but, no, course not. The 
Department of Energy has very valuable functions. It deals with 
our nuclear weapons, electricity, renewable energy. It deals a 
lot of very important national security programs, with Russia, 
and nonproliferation programs. It is the ultimate science 
agency in the Government. It is a very important department. 
That is not the way to deal with the problem.
    Mr. Waxman. Absolutely not. And we could laugh about it 
because it really is a laughable idea that the response of the 
leadership of the Congress of the United States, and sponsored 
by many members of this committee, including one member who 
said the administration has failed, that their answer was to 
abolish the Department of Energy. And another answer they have 
had is let's allow drilling in the Arctic National Wildlife 
Refuge. Does that make sense?
    Secretary Richardson. We are opposed to that, Congressman 
Waxman, because we think that it is a very ecologically 
sensitive area, the caribou and other wildlife we believe would 
be harmed. We think there is sufficient other area in Alaska 
that could be drilled that is already available that can 
properly deal with our energy needs. We think that there are 
some very, very sensitive parts in the country. And by the way, 
the offshore drilling in California and Florida was 
congressionally mandated. So it is not something that came out 
just from one branch of the Government, it came from both of 
    Mr. Waxman. Not only was it congressionally mandated, but 
it was congressionally mandated on a very strong bipartisan 
vote. Most Members of Congress, whether Democrat or Republican, 
do not want to go out and have oil rigs off our coast. We do 
not want it in California, I do not think people on the East 
Coast want it, and their representatives all across the country 
said no to that idea.
    Another way we can deal with this energy problem is to set 
up standards for automobiles, they are known as CAFE standards, 
Corporate Average Fuel Economy. That is to make sure that the 
average fuel efficiency standards that we require for cars are 
going to mean that we have less reliance on fuel. In fact, 
Honda has brought a car to the market using a hybrid electric 
technology that gets 70 miles to the gallon. Toyota will soon 
be selling a four passenger car that achieves over 60 miles to 
the gallon.
    The Congress has blocked the Department of Transportation 
for the last 5 years from even studying whether the greater 
fuel efficiency is feasible. As a result, fuel economy levels 
have stagnated. And since the 1980's, CAFE standards have only 
required that new cars average 27.5 miles per gallon. Honda is 
getting 70. Congress has said we are going to allow 27.5 miles 
per gallon, and light trucks average 20.6 miles per gallon.
    It just seems to me we need to be addressing our 
fundamental energy problems, we need to address our dependence 
on imported oil, and our reliance on an antiquated electric 
system. But Congress has not acted on these issues. Instead, we 
do nothing and when something inevitably goes wrong, and we are 
now seeing our system going wrong, we search frantically for 
someone else to blame. And this is the political season. So 
what we have are hearings where one of the Members asked, the 
first question, why has the administration failed to deal with 
the energy crisis. Well, that is not taking responsibility that 
we all have, you have and we have in the Congress of the United 
    Administrator Browner, I want to ask you some questions. 
Yesterday we heard a number of different claims from majority 
Members that suggested environmental regulations in general, 
and the Clean Air Act in particular, are causing our energy 
problems. I want to talk about some of these issues.
    We heard there is simply too much red tape and 
environmental regulation. We had a lot of colorful analogies. 
For example, the National Petrochemical and Refiners 
Association testified that EPA has created a regulatory 
blizzard for the Nation's refiners. Now you addressed this 
issue earlier about this claim that you are not allowing 
permits for new refinery construction. Chairman Burton made a 
big point of stating that no new refineries have been built 
since the early 1980's, and he alleged it was due to permit 
requirements under the Clean Air Act. And he went on to blame 
the failure of EPA to approve new refineries as one of the 
major causes of today's high gasoline prices.
    Ms. Browner, do you know how many applications EPA has 
received since the early 1980's to build new refineries?
    Ms. Browner. For brand new ground-up?
    Mr. Waxman. Brand new refineries.
    Ms. Browner. We may have gotten one in 25 years. One.
    Mr. Waxman. Is it possible for EPA to issue a permit for 
new oil refineries if no one has applied for it?
    Ms. Browner. No. It requires a company to come forward and 
make an application. Many come forward to expand their existing 
facilities, and those get granted. But a new one would require 
a company to come forward and make the application.
    Mr. Waxman. I raise this question because I think it is 
highly misleading to say that you are not giving permits for 
new refineries and that is the reason for the problem.
    Ms. Browner. It is completely misleading. They are not 
coming to us. And I spend a lot of time with the petroleum 
refiners of this country. We work closely with them on a lot of 
fuel issues. They do not come in and meet with us on building 
new refineries. We are there, we are available if that is what 
they want to talk about.
    Mr. Waxman. But what they are talking to you about, and 
they are getting permits from you, is to build not new 
refineries but to consolidate and expand their existing 
    Ms. Browner. Yes.
    Mr. Waxman. And that is the trend that I understand is 
continuing. Oil companies are not asking to build new 
facilities, they want to modify and expand the existing ones. 
Can you tell us whether that is happening and whether you are 
giving out permits. What is happening with their efforts to 
expand and modify their facilities?
    Ms. Browner. Absolutely, they are expanding their 
facilities. We and the States do grant these permits. I think I 
mentioned earlier that in the last 2 years we have had 12 
applications for expansion of existing facilities; 7 of those 
have already been issued, 5 are currently pending and we 
presume will be wrapped up in a timely manner.
    What is happening is you cannot just look at is it 200 
facilities and then 155. Uh, oh. You have to look at what are 
the 155 capable of doing. And that is what that chart shows, 
their capacity is actually going up and we are granting the 
permits to allow that to happen. We would welcome a permit for 
a new refinery if someone wants to bring it. We will give it 
the full review.
    Mr. Waxman. And how long does it take?
    Ms. Browner. For the expansions, most of them are managed 
within 12 months, about half of them are managed within 5 
    Mr. Waxman. I just want to cite for the record Citgo 
applied in March and is expected to be approved within 2 to 6 
weeks, Valaro applied in July and is expected to be approved by 
the end of the year, Exxon Mobil applied in June and is 
expected to be approved by the end of this year.
    Ms. Browner. Correct.
    Mr. Waxman. And as I understand, there have also been two 
applications in Minnesota, one has been approved and one is 
    Ms. Browner. Correct.
    Mr. Waxman. Now let's turn to the issue of electricity 
generation. At yesterday's hearing, we spent considerable time 
discussing California's energy situation and new power plants 
that are currently expected to come on-line. In that 
discussion, the Clean Air Act was repeatedly blamed for the 
length of time it takes to site energy projects. For instance, 
allegations were made that implied that it takes 6 to 7 years 
to get a permit under the Clean Air Act to site high voltage 
transmission lines. Another witness mentioned an anecdote of 15 
years being required to site a high voltage transmission line.
    Ms. Browner, we have investigated these allegations. They 
do not appear to have any basis in fact. My understanding is 
that the Clean Air Act permits are not required for siting of 
transmission lines. Could you clarify for the committee whether 
there are any requirements for transmission lines to be 
permitted under the Clean Air Act.
    Ms. Browner. There are no Clean Air Act requirements. There 
are no Clean Air Act permits required to site a transmission 
line. Those decisions are made by States under any number of 
laws that they are responsible for. But we do not engage in the 
siting of transmission lines.
    Mr. Waxman. In the case of power plants, as distinguished 
from transmission lines, there are Clean Air Act requirements.
    Ms. Browner. Yes.
    Mr. Waxman. The Clean Air Act does require that new power 
plants be permitted under the Clean Air Act. Why is that the 
    Ms. Browner. The Clean Air Act looks at the emissions from 
power plants and, based on those emissions, Congress required 
us to set up a permitting program. But there, too, Mr. Waxman, 
it is important to understand what the real facts are. We have, 
and the States have received in the last 2 years, including 
some very, very recently, 300 applications for electric 
turbines. Over 60 percent of those have already been issued. 
They move through the process very rapidly, again on the order 
of approximately 12 months, on average. The States take the 
first step in this. We frequently do not become involved except 
to concur in what the State is requiring in terms of pollution 
reductions. We all work together and it moves very quickly.
    Mr. Waxman. My understanding is that the Commission's 
process rarely takes longer than 18 months. You say an average 
of 12 months.
    Ms. Browner. Correct.
    Mr. Waxman. I also understand that over the last few years 
hundreds of applications under the Clean Air Act have been 
filed for new gas turbine electric generation. These 
applications have been filed under the Prevention of 
Significant Deterioration part of the Clean Air Act. How long 
does it typically take for a PSD permit to be approved?
    Ms. Browner. Again, those are moving on an average of 12 to 
18 months.
    Mr. Waxman. So what you are saying in essence is that, once 
again, the facts just do not support the rhetoric we have been 
    Ms. Browner. If there is a 7-year permitting process, we 
are happy to look at it. Our numbers do not show that. I do 
want to remind all of the committee members that, because of 
the Clean Air Act, you all made the decision that the States 
would have the first bite at the apple. We see it only after 
they have come through an initial process. We generally concur 
in what the States are doing.
    Mr. Waxman. Ms. Browner, we have gone through some of the 
allegations with you right here on the record about the costs 
of the Clean Air Act. What your answers indicate is that the 
allegations of delays and high cost do not have much basis in 
fact. My experience is that this frequently happens when 
industry complaints are closely scrutinized.
    I have been in the Congress for 25 years. I sat on the 
committee that dealt with the energy policies and the Clean Air 
Act, not this committee, it is the Commerce Committee. And the 
fact is that industry regularly overstated the cost of 
complying with environmental regulations. When we were 
considering the Clean Air Act of 1990, which passed almost 
unanimously, signed by President Bush, we had industries come 
in and tell us that the costs to comply with that law were 
virtually going to bankrupt the economy. Of course, nothing 
like that has happened.
    And I want to give examples, because people forget what the 
record is. Every time we have a hearing somebody comes and 
makes the wild charges. Yesterday at this hearing we heard from 
Steven Simon, a senior executive at Exxon Mobil, who raised 
concerns about the cost of EPA fuel regulations. But his 
company has a history of exaggerating compliance costs. When we 
were considering the reformulated gasoline provisions of the 
Clan Air Act, Mobil wrote to Members of Congress that the 
requirements should not be adopted because, they wrote to us 
that ``technology to meet these standards simply does not exist 
today.'' And then it turned out to be completely wrong, untrue. 
The reformulated gasoline provisions went into effect in 1995 
and have brought about tremendous clean air benefits. Just so 
people understand that.
    In addition to trying to make new cars cleaner by emitting 
fewer pollutants, we try to make the gasoline burn in a cleaner 
fashion as well. That is the reformulated gasoline issue. Has 
that been a success and have petroleum companies been able to 
    Ms. Browner. It has been a tremendous success in terms of 
cleaning the air and in a very cost effective manner. And we 
believe, and we have every reason to believe, that the low 
sulfur gasoline requirements which are now in place and will 
start to take effect in 2004 will similarly be very cost 
effective. And just as an example, let me point again to the 
fact that BP Amoco is already selling the low sulfur gasoline, 
and not with a price differential. They are already selling 
today what we are going to require all companies to sell 
beginning in 2004 in a number of cities, and they will be 
adding more cities to that list in the coming weeks and months. 
That is I think a real testament to the fact that when we set 
these standards, not only do we achieve a level of public 
health and environmental protections, but we are doing it in a 
sensible way that works for the businesses of our country.
    Mr. Waxman. I just want to give another example of the kind 
of statements we hear at hearings that turn out to be 
absolutely wrong. The utility industry, when we were looking at 
trying to adopt legislation to stop acid rain, they exaggerated 
the costs, the chemical industry said that if we phased out 
chlorofluorocarbons it would cause massive disruptions, the 
auto industry said they could not meet new tailpipe standards. 
Yet each one of these statements turned out to be wrong. Once 
we adopted that law, President Bush signed that law, all these 
industry groups went ahead and not only complied, but even did 
better than the law required under many circumstances. So I 
think it is important when we hear these exaggerations by 
industry groups to keep that in mind, especially when their 
answer is to drill on our coastlines and go up and drill in 
Alaska. That is their answer to the energy crisis.
    Secretary Richardson, I am going to yield my time to some 
other Members, but you made a statement I just wanted to ask 
you about. And I know you do not want to blame anybody, you 
want to be a statesman, you have been at the U.N. so you know 
what being a statesman is all about, but I was sort of taken 
aback when you said you don't think OPEC should be held 
responsible for the crisis that is happening in this country. I 
know we are to blame ourselves when Congress does not act, we 
do not do anything to reduce our reliance on fuels. But OPEC is 
a cartel. They have a monopoly. They can turn on and off the 
spigot. They know that we are dependent on their oil. Why don't 
we just admit that they are playing games with us?
    Secretary Richardson. Mr. Waxman, let me be very careful 
because I have to deal with these energy ministers all the 
time. I do want to be clear. I believe that OPEC, the last 
three meetings they had in which they were considering 
increasing production, they did so. A lot of it was for their 
own reasons, but our quiet diplomacy I believe worked. I think 
that they have acted responsibly in terms of the increases, 3.5 
million barrels more than existed at the time. Obviously, the 
markets have not responded. The world needs more oil.
    So, I do not want to blame OPEC for the misfortunes of a 
world that has dramatically increased demand and a number of 
intersected energy problems that we have. I believe our policy 
toward OPEC, which is one of quiet diplomacy, constructive 
engagement with them, pushing for increases in production--2.5 
million in their March meeting, 700,000 in their meeting in 
June, and 800,000 in their last meeting, and possibly more 
soon--has worked. I think Saudi Arabia has showed dramatically 
positive leadership.
    Mr. Waxman. Mr. Secretary, I understand what you are 
saying. But the answer to OPEC is for this country and the West 
to become less dependent on them. I hope the high prices that 
they are forcing on us and the games they are playing will be a 
signal to all of us that we have got to wake up and become more 
energy efficient and less dependent on foreign oil for our own 
economic well-being and our national security. I do not like 
the idea of OPEC having that much control. We saw what happened 
in the 1970's and we are seeing the exact same thing again. The 
best way to stop this is for us to take the actions that we 
need to take.
    Secretary Richardson. There is no question that markets and 
not cartels should set prices, you are absolutely right. And we 
do need to dramatically reduce our reliance on imported oil, 
there is no question about that.
    Mr. Waxman. I want to yield to Mr. Kucinich.
    Mr. Sanders. Could I ask how much time there is remaining 
on this side?
    Mr. Waxman. We are going to yield in a moment.
    Mr. Sanders. But there is a limited amount of time.
    Mr. Waxman. But then we will go under the 5-minute rule.
    I am yielding to Mr. Kucinich a few minutes, and then we 
will see if we can get to you, Mr. Sanders.
    Mr. Kucinich. I understand there is about 12 minutes left. 
I am willing to go for 3 minutes.
    First of all, I want to thank Secretary Richardson and also 
Carol Browner, who I have had an opportunity to work closely 
with over the last few years, for your work for this country. 
You have both done an outstanding job and I really want to 
thank you for that. I have not had the chance to work with Mr. 
Hoecker, so I want to direct my questions to you. [Laughter.]
    Mr. Hoecker. Thank you.
    Mr. Kucinich. We are told that natural gas now sells at a 
record high of $5.22 per million British thermal units, more 
than three times the $1.60 futures price in March 1999. Back 
home in Cleveland, this hearing gets kind of global at time, 
back home in Cleveland, OH, people are experiencing sharp 
increases for the price of natural gas. And we know the 
difference between September and January in Cleveland, trust 
me. Why are we seeing such a steep rise in natural gas prices 
even before families are turning on the heat?
    Mr. Hoecker. Well, I think the explanation is the one I 
gave earlier, that we have a deliverability squeeze. There is I 
think one----
    Mr. Kucinich. What is a deliverability squeeze?
    Mr. Hoecker. What it means is that the production from 
domestic wells has declined seriously as a result of a price 
collapse a couple of years ago, that the industry production 
area has not recovered from that yet, and that there will be a 
lag time till adequate supplies reach the market to drive the 
price back down to more reasonable levels.
    Mr. Kucinich. Our time is limited here, so excuse me for 
interrupting. But I want to ask you this question. In the 
meeting you had yesterday in Ohio, the reporting that came out 
of that meeting, that is cited in the Cleveland Plain Dealer 
here, says that there is adequate supplies. So, on one hand, we 
have some people in the natural gas industry saying we do not 
have adequate supplies, others are saying we do have adequate 
supplies. But we are seeing already anticipation of even higher 
    My question to you is, I heard your remarks, how do you 
thwart market power? Are you ready to exert pressures on the 
market to keep the rates down? And are the rates subject to 
discipline by you? And if you are monitoring them, what do you 
intend to do for my constituents and for people in the Midwest 
who right now are faced with some horrible choices in their 
households when these rates start to go up? What is the Federal 
Energy Regulatory Commission going to do for the American 
    Mr. Hoecker. That is an interesting question. Our concerns 
about the impact on retail customers is going to have to be 
addressed largely at the retail regulatory level in the States. 
You will recall, Congressman, that Congress decontrolled the 
price of natural gas in the 1970's and 1980's. It is an 
unregulated commodity and we have a real market out there. This 
market is reflecting a supply demand imbalance right now.
    The problem perhaps is somewhat definitional in the sense 
that I think everyone would agree this country has adequate 
natural gas reserves, enough for decades and decades. What we 
do not have is ample gas in the pipeline, in storage. And a lot 
of natural gas now is traded in the forward markets on the 
NYMEX and the market is saying that its value is greater in the 
interstate market. We do not control that.
    Mr. Kucinich. Thank you. I know there are other Members who 
have questions. I thank you.
    Mr. Waxman. We have practically run out of our time. But I 
want to yield to Mr. Sanders 2\1/2\ minutes, if we could, and 
then we will see if we can get more time.
    Mr. Sanders. Thank you, Mr. Chairman. Two points. I want to 
thank you for all of the work that both of you have done in so 
many areas. But there is something that I want to raise to you 
    I am going to read from a publication, and this is what it 
says: ``Venezuelan proposal detailed at Washington meeting. The 
U.S., September 20th, rejected a proposal by Venezuela's PDVSA 
in which the state company would stock its crude storage 
terminal in the Bahamas with heating oil and sell the 
additional distillate directly to the U.S. Government. `We 
appreciate the offer of storage, but there is currently no need 
for storage of crude or product in the U.S.' a DOE spokeswoman 
told Platts.'' Platts is the publication. ``The spokeswoman 
said that while the U.S. welcomed PDVSA's offer to boost 
distillate production, the DOE urged Venezuela to put the 
additional product on the market `as soon as possible' rather 
than attempting to make a direct sale to the U.S. Government. 
`There is no need for U.S. Government involvement in the 
purchase of this distillate,' this spokeswoman said.''
    As far as I know, we have a crisis in the Northeast 
regarding home heating oil. If Venezuela is prepared to sell us 
this product at a reasonable price, why don't we buy it?
    Secretary Richardson. Congressman, we think they should put 
it on the market. Venezuela has had proposals like this before. 
What we like to see is distillate on the market. Venezuela has 
been a constructive partner in a lot of these OPEC discussions, 
but it is our view that while it is an interesting proposal, it 
would be better accomplished by them putting this distillate on 
the market.
    The second point I want to make, there will be a lot of 
reports that India, Saudi Arabia, other parts of the world have 
sufficient distillate that they want to sell us, that all we 
have to do is go out and get it. Those reports have not been 
confirmed. So with this proposal that the Venezuelans, our 
friends, have been making, our view is this is great, you have 
the distillate, put it out on the market.
    Mr. Sanders. I am not sure that I agree. Let me raise just 
two other brief questions. I have very little time. Mr. Waxman 
raised the question of OPEC being a cartel. Now I am not a 
great fan of the WTO. But as I understand WTO rules, cartels 
are in violation of free trade. I do not understand why the 
U.S. Trade Representative is running all over the world 
expounding--we had an agreement with China the other day about 
free trade. Why doesn't somebody in the U.S. Government say 
this cartel is in violation of free trade agreements. Why don't 
we take them to the WTO? Are they in violation of free trade? I 
think the evidence is overwhelming that they are. Anyone 
disagree with me?
    [No response.]
    Mr. Sanders. I am listening. If they are in violation--we 
just passed the Free Trade Agreement with China yesterday. I 
voted against it. Why aren't we standing up to these guys?
    I think there is something, I will pick up on something Mr. 
Waxman said before, there is something very, very strange about 
our relation for OPEC. And let me be honest about it. I voted 
against the war in 1991. But people shed blood there, we have 
thousands of people who are suffering from Gulf War Illness 
today, I think the Vermont Air National Guard is over there now 
protecting the airspace. And I think that being treated in this 
way by our OPEC ``allies,'' who we supplied military equipment 
to, we prop up billionaire rulers, I do not know if they have 
allowed in Kuwait women to drive yet or something, if they are 
making progress in freedom in that respect, I think there is 
something funny going on and we are not hearing the whole truth 
about it.
    Let me just ask Ms. Browner a question. I want to applaud 
you for stressing what I think is the $64 issue, and that is 
energy efficiency. Can you very briefly, in the very little 
time that I have left, just tell the American people what it 
would mean in terms of the saving of energy in this country if 
we move forward boldly in terms of energy efficiency.
    Ms. Browner. I think the best thing to do is look at our 
track record to date. For example, our Green Lights program is 
saving during peak reduction in 2000 6,100 milliwatts. When we 
look at programs from Green Lights to computers to other types 
of equipment we use in our homes, we believe that energy 
efficiency could save the average American family on the order 
of $400 in annual electric, home heating, etc.
    Mr. Sanders. If we became much more energy efficient, isn't 
it clear that we could break our dependency on Mideast oil to a 
significant degree?
    Ms. Browner. We could certainly reduce it to a significant 
degree. I think there is this sense out there that somehow or 
another we did this energy efficiency thing back in the 1970's 
and we are done. The technology has advanced, industry has 
advanced. There are a number of things we can do and they are 
incredibly cost effective to do them, and yet we cannot get 
Congress to support our funding requests so we can go out there 
and do it.
    Mr. Sanders. Thank you.
    Mr. Burton. The gentleman's time has expired.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Burton. We will now go to the 5-minute rule.
    Mr. Ose. 5 minutes. Thank you, Mr. Chairman. First of all, 
I want to diverge a moment and thank Secretary Richardson. I 
dropped him a note earlier because I did not know if I would 
get time. But I want to thank you for the assistance in 
Sacramento on the McClelland reactor. That project is a success 
and will continue to be so, and your participation has been 
noted and is appreciated.
    Secretary Richardson. Thank you.
    Mr. Ose. I want to look briefly at electricity into the 
California market. Who among you is probably the most 
knowledgeable about Bureau of Reclamation electricity--
    Secretary Richardson. Chairman Hoecker.
    Mr. Hoecker. I am, sir.
    Mr. Ose. All right. Mr. Hoecker, if I understand correctly, 
the Federal Government has two agencies that are significant 
generators of electricity. One is the Corps of Engineers, the 
other is the Bureau of Reclamation.
    Mr. Hoecker. That is correct. Mostly in the Northwest.
    Mr. Ose. You have got Bonneville, you have got Western Area 
Power Administration, all the others. But they use facilities 
that are controlled by the Corps or the Bureau.
    Mr. Hoecker. Correct.
    Mr. Ose. OK. The question I have as it relates to 
California is there is the Sierra Nevada region and then there 
is the Desert Southwest region, both of which contain Bureau 
and Corps projects that generate electricity into the grid for 
use in California and Western States. Is that accurate?
    Mr. Hoecker. That is correct.
    Mr. Ose. About 10 percent of their total generation is 
routed to investor-owned utilities, 10 to 15 percent, the rest 
going to municipalities, water districts, and things of that 
nature. Is that accurate, 10 to 15 percent?
    Mr. Hoecker. I do not know the exact numbers, sir, but 
certain public power entities in the West have preference 
power. They have first dibs on that production.
    Mr. Ose. I have look at this recently, and suffice it to 
say that after you follow the preferential allocation of the 
power, about 10 to 15 percent comes to the public market, it is 
sold through market-based rating, and distributed accordingly.
    In June of this year we had a severe shortage of 
electricity in California, the consequence of which was that 
San Diego's consumers, those who rely on San Diego Gas and 
Electric, just got hammered in terms of cost of electricity. 
Are you familiar with that situation?
    Mr. Hoecker. Yes. It has actually been worse in August and 
a little bit in September. But June really hit San Francisco as 
    Mr. Ose. OK. I was going to get to August and September, 
and I want to come back to that.
    I have, Mr. Chairman, a limited amount of information about 
Bureau projects and their power generation over the last 5 
years, starting in 1996. And what I want to get to is that if 
these facilities are generating power into the marketplace, the 
benefit of which to some degree accrues to the consumer in San 
Diego, then we ought to in a period of significant price spikes 
run those facilities flat out and we ought to be providing as 
much electricity into those markets as possible to keep the 
price down. Would that be a reasonable assumption?
    Mr. Hoecker. Yes, within respectable reserve margins, that 
is probably appropriate.
    Mr. Ose. A respectable reserve margin would be what, 5 
percent, 10 percent?
    Mr. Hoecker. Well, it has changed over time. We used to 
think reserve margins of 15 or 20 percent were appropriate. And 
in this market, it is well below 10 percent.
    Mr. Ose. OK. And that ties into stage I, stage II, stage 
III alerts and how you figure out where the blackouts and 
burnouts go and all that sort of stuff.
    Well the point that I want to bring up is that we have the 
Hoover Dam in the desert Southwest region which is running I 
would say over the past 5 years pretty much close to capacity. 
We have the Davis power plant, same thing. We have the Parker 
power plant, same thing. The Deer Creek power plant--these are 
all in the desert Southwest region and the Bureau's 
operations--same thing. The Elephant Butte plant, same thing. 
The Navajo plant, same thing. We are talking about hundreds of 
thousands of megawatts of aggregate electric generation.
    What I am curious about is why, when we have such severe 
electric shortages, we are not running Glen Canyon flat out. We 
are running Glen Canyon at roughly 50 percent of capacity in 
the June, July, and probably August timeframe. I do not 
understand that. Who made that decision, and why?
    Mr. Hoecker. That is information I do not have, sir. The 
Bureau of Reclamation or the Corps may have it, but I don't.
    Mr. Ose. I would like to enter this into the record, Mr. 
    Mr. Burton. Without objection.
    Mr. Ose. And perhaps copies can be distributed.
    Mr. Hoecker. I do know that in the West generally this year 
it has been a bad water year and a lot of major hydro 
facilities have not run near their historic capacity.
    Mr. Ose. I would probably concur with you and that is why I 
checked the others. Navajo, granted, is largely coal fired. But 
these others are in fact hydro plants and there is no 
significant variance in their production levels. So I checked 
that hypothesis because I was particularly concerned about 
    Mr. Burton. The gentleman's time has expired. We will get 
back to you.
    Mr. Ose. Thank you, Mr. Chairman.
    Mr. Waxman. Mr. Chairman, I will yield my 5 minutes to Mr. 
    Mr. Burton. Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Waxman, Mr. Chairman.
    Mr. Richardson, I yesterday had an opportunity to question 
a gentleman from Exxon Mobil about whether or not his company 
had reduced production over the course of last year by some 30 
percent, because that is what had been reported. And he, in 
fact, acknowledged that they had. And it has been reported that 
not only that company but a number of other of our own domestic 
producers, so-called big oil, have been cutting our production. 
So I would assume that it is not just OPEC and non-OPEC foreign 
oil producing entities that are not producing as much as we 
would like, we have a problem here at home.
    I then asked him whether or not they had made great 
profits. And I think it is interesting to note that in fact the 
oil industry has experienced significant benefits from 
increases in oil and gasoline prices. The 10 largest oil 
companies reported tremendous increases in profits in the 
second quarter of 2000.
    Overall, those 10 companies reported second quarter profits 
of $11.1 billion, a 182 percent increase compared to the second 
quarter of 1999. In the first and second quarters of 2000, 
total profits for these 10 companies were $20.8 billion, 
exceeding the total annual profits for all of 1999. Second 
quarter 2000 profits for Exxon Mobil was $4.5 billion, a 276 
percent increase from second quarter profits in 1999; for 
Chevron, their profits were increased 219 percent; for Conoco, 
it was 300 percent; Phillips Petroleum, 550 percent; Sunoco, 
727 percent. Exxon, Chevron, and Conoco all reported record 
profits in the second quarter of 2000.
    Stock prices for these oil companies have obviously 
increased significantly. The average stock price for the 10 
largest oil companies has increased 14 percent. Companies with 
the largest increases in stock prices were: Phillips Petroleum, 
43 percent; Tosco, 23 percent; Ultramar Diamond Shamrock, 20 
percent. And in addition to oil companies, other companies have 
benefit from the increase in oil prices as well. For example, 
Halliburton, the world's leading provider of oil field 
services, saw their stock price increase by 34 percent from 
January 1 to September 15, 2000. All this, Mr. Secretary, while 
they are reducing production.
    My question to you, sir, is the administration dealing with 
these domestic oil producers as well as with OPEC and non-OPEC 
foreign suppliers to make sure they are producing at the rates 
they should be to keep our prices down and our fuel stocks 
    Secretary Richardson. Congressman, I have had numerous 
meetings with oil companies, big and small, urging them to 
increase production, urging them to get more product into the 
market, asking them what specifically we can do to help with 
their transportation and access and regulations to just get 
more reserve into the market, home heating oil, every possible 
product. Without trying to defend the actions of anybody, I do 
want to point out that a lot of these decisions they make on 
production are basically business decisions.
    Mr. Tierney. I think their profits show that.
    Secretary Richardson. Yes. [Laughter.]
    Their profit, you cannot compel them to increase 
production. You can urge them, you can jawbone them, and we 
have done that.
    Mr. Tierney. I appreciate your answer, Mr. Secretary. My 
point is, and I think you have been very diplomatic, as is your 
bent, but the fact of the matter is that while we hammer away 
at OPEC and others, we have a problem right here at home from 
the big free marketers who do not want any government 
involvement. But they are not exactly doing things that would 
help this country at a time of crises. I think that is 
important to note.
    Ms. Browner, we talked about refineries, an there has not 
been a refinery built in the Northeast area for that 25 year 
period because the companies have not applied. Does EPA have 
any regulations dealing with storage facilities?
    Ms. Browner. For the bulk storage facilities and the 
underground storage tanks?
    Mr. Tierney. Exactly.
    Ms. Browner. Yes, absolutely.
    Mr. Tierney. Can you tell me whether or not there have been 
any applications to increase the storage capacity in the 
Northeastern area in the last recent period of time?
    Ms. Browner. We should answer that for the record. We think 
there probably has been. We are not aware of how much. So we 
will answer that for the record.
    Mr. Tierney. Mr. Secretary, the Northeast Reserve is being 
planned and I know that there are two sites in New Haven, CT, 
and one in Woodbridge, NJ. The common concern, and I know the 
answer to this but I would like to hear you put it on the 
record, the common concern from people is will that reserve, 
because it is located in Connecticut and New Jersey, actually 
be beneficial to Massachusetts and points North if it becomes 
necessary to use it, and how will it get there, and so forth.
    Secretary Richardson. Congressman, it is for the Northeast. 
Your area will be protected. We are working out all those 
contingencies right now. The progress on setting up the reserve 
is going well.
    Mr. Tierney. And last, the storage or suppliers, people 
involved with that have been saying they have a problem with 
what they call carry. In other words, if the price is higher in 
January than it is right now, again, these are free market 
people who want the Government to stay out of it, but they are 
saying now they have a problem and what they really need is an 
incentive. So they would like the Government to write them a 
check or give them a tax break to help them on that carry.
    While I can understand and appreciate that, and I am really 
amused by their change in tone as to what they think the role 
of Government is here, would it not be somewhat more reasonable 
or fairer to the taxpayer if we gave them a low interest loan 
of some sort or a revolving loan process. Do you think that is 
worth doing? Do you think that is part of the solution to help 
them through this carry period, and is that a reasonable way to 
approach it?
    Secretary Richardson. I think loans, and we have tried to 
put them in touch with the Small Business Administration. A lot 
of these home heating oil operators, as you know, Congressman, 
because I attended a meeting in your district----
    Mr. Tierney. You did and Mr. Major did, who is here, and I 
want to acknowledge him and Mrs. Shayjus for the great help 
that they were.
    Secretary Richardson. They do OK. [Laughter.]
    Mr. Tierney. They do great.
    Secretary Richardson. I think ways to incentivize them are 
not harmful. We have not accepted the concept of a tax credit. 
It is being considered, a small tax credit to get them, for 
instance, to store more, to keep more in their stocks. They 
have not done so and I think at that meeting they explained 
why. They said prices are so high, if we stock, all of a sudden 
there will be price volatility and we are out of business, so 
we do not want to do that.
    So I think a tax credit, modest, triggered, may be 
something that we are considering. Loans, certainly, government 
loans through the SBA are something that we partially have but 
perhaps could expand. I just do not think, Congressman, that 
these small home heating oil operators have been the villains 
in this whole process.
    Mr. Tierney. No, and I am talking about the people that 
store it, the suppliers, and they are not so small in a lot of 
cases and they are looking to have their carry covered. I do 
not mind trying to resolve that problem, but I just want to 
make the point these are the people that want Government off 
their back. We are happy to get involved in the right amount of 
Government intervention, but perhaps a loan program might be 
better for the taxpayer than a give-away.
    Mr. Burton. The gentleman's time has expired.
    Mr. LaTourette.
    Mr. LaTourette. Thank you, Mr. Chairman.
    Yesterday, Mr. Secretary, we had the oil companies here. 
And a chart, I am going to ask the staff to put up in just a 
minute, I think the representative was from Citgo, was who not 
at the hearing yesterday. But I made the observation that when 
I learned to drive we had high test and regular gasoline, those 
were your choices. Now this chart from Citgo was designed to 
illustrate all of the different blends of fuel that may be 
required to be stored in different parts of the country to 
comply with various regulations.
    You talked about jawboning and working with the oil 
companies on issues of transportation. One problem that they 
talk about is the fact that when we get to the winter driving 
season you need this many blends of gasoline, in the summer 
driving season this many blends of gasoline. I just had a 
company in my district called Lubrizal come in and they want to 
pitch Mr. Perciasepe in a couple of weeks on a new product that 
they are making called Purinox. They claim that it reduces NOx 
emissions by 30 percent and particulate from diesel. I said 
this is great, means jobs, a lot of money for where I am from. 
And they were going to go out to Mr. Waxman's State. They said 
they were going to go pitch it to California, too, because they 
have some air quality regulations that some of the rest of us 
do not have.
    Mr. Ose. That is my State, not Mr. Waxman's.
    Mr. LaTourette. It is Mr. Ose's and Mr. Waxman's State, and 
many other people as well live in California.
    Maybe this is for both Administrator Browner and you, Mr. 
Secretary. Can we maybe solve some of our infrastructure 
problems if we go back to the notion that whatever gasoline you 
decide, Ms. Browner, or your successor decides is the best for 
the environment during the winter and summer, that we go to 
that rather than having these I think 29 different blends of 
gasoline, if I understand it right. And whichever one of you 
wants to jump in.
    Ms. Browner. I think the Secretary is telling me it is my 
area. We do not disagree with you. I think that part of the 
challenge is you need to separate out on this map those that 
are local that EPA has absolutely nothing to do with. And as 
you well know, a lot of cities, for a variety of reasons, have 
decided to kind of set their own gasoline recipe, Detroit being 
one of the older ones but there is a number of those up there. 
And when you talk about the 26 different blends, a large number 
of those actually are in fact local city decisions.
    I will make a suggestion, I do not suppose it will be 
popular with all, but you could go to one clean gasoline 
standard for the entire country. Part of the issue occurs 
because for reformulated gasoline, which is about a third of 
the country versus conventional gasoline, you do have issues in 
reformulated gasoline, depending on where it is sold in the 
country, in terms of weather and volatility. You could fix that 
by going to one clean gasoline recipe for the country. What 
that would mean though is that you would have places who do not 
necessarily need it to clean their air buying it, and that 
would be objectionable I don't doubt to some.
    Mr. LaTourette. But my air does not stop at border of Ohio 
and Pennsylvania.
    Ms. Browner. That is right.
    Mr. LaTourette. It goes all over the country, and those of 
us in Ohio are blamed by those in the Northeast for polluting 
their air, and we blame the folks in Wisconsin.
    But the argument that was made by the oil companies that 
part of the problems with spikes and delivery is we have all 
these boutique gasolines and they have got to swap out the 
pipelines and the tanks and everything else, it seems to me 
that could be minimized if we went to one blend.
    Ms. Browner. Mr. LaTourette, I think it is important to 
understand it is Congress that named the cities that would get 
the cleaner gasoline. It was not the Environmental Protection 
Agency, it was Congress. So we would require a change in the 
Clean Air Act.
    Mr. LaTourette. That brings me to my next point. I want to 
talk about the cities of Chicago, St. Louis, and Milwaukee. 
Again, when we had the oil companies here yesterday. I suspect, 
and they would not agree with me, but I suspect that they got 
caught taking a gamble in June. They saw that you had granted 
an enforcement discretion for St. Louis, and I think that they 
gambled that you would follow suit in Chicago and Milwaukee and 
they lost.
    Ms. Browner. There was no basis for them taking that 
gamble. They do not use the same pipeline and the issues were 
    Mr. LaTourette. Maybe not. But since that time, and the 
question I have of you, have you had a chance to look at what 
the Congressional Research Service concluded relative to the 
statutory legality that was used to grant an enforcement for 
St. Louis and not in the other cites? Have you had a chance to 
look at that or have your folks looked at that?
    Ms. Browner. Maybe there are two different Congressional 
Research Service memos. The one I have seen, and it may be the 
same one that you are referring to, looked at Midwest gas 
prices. I do not know that it looked at the legality of the 
situation in St. Louis versus the other cities. I am not 
familiar with that. But I will tell you why we did it for St. 
Louis. St. Louis had a pipeline go down and----
    Mr. LaTourette. I know they did. The Explorer Pipeline and 
St. Louis got 70 percent of their gas from it. I just want, if 
you would, I am looking at the memorandum of June 28, 2000. If 
you have not seen that----
    Ms. Browner. No, I have not. I have seen the June 16th one.
    Mr. LaTourette. OK. If I could ask you and/or your staff to 
review it and respond to the Committee in writing as to their 
conclusion that the enforcement discretion exercised for St. 
Louis, MO, was in violation of CFR 80.73, and that not granting 
it for Chicago and Milwaukee when requested was also suspect. 
So any thoughts that you have on that.
    Ms. Browner. We would be happy to take a look at that.
    Mr. LaTourette. Thank you. Mr. Chairman, my time has 
    Mr. Burton. Yes. Mrs. Schakowsky.
    Mrs. Schakowsky. Thank you, Mr. Chairman. I wanted to 
focus, as did Mr. Kucinich, who I appreciate has allowed me to 
go first, and you, Mr. Chairman, as well, on natural gas. We 
face a real crisis of cost in Illinois. I showed this bill 
insert yesterday that I got in July in my bill from Nycor that 
showed we should expect that what we paid for $410 worth of gas 
last winter we could expect to pay $610 this winter. That was 
in July. We understand that the October prediction is going to 
be $750, from $410 to $750. This is going to pose an enormous 
problem to not just poor families, but to ordinary working 
families in my district and in the service area of this utility 
    I have some basic questions about natural gas pricing. 
Considering we are talking about a 100 percent domestic market, 
why have the spot well-head prices doubled? I do not understand 
that. Let me just ask my questions. Why did production drop 
when the demand increase was predictable and predicted? Does 
the cost of natural gas track oil prices regardless of supply 
and demand? Is there any relationship at all between the cost 
of production and the cost to consumers?
    I have to tell you, Mr. Hoecker, when I read your testimony 
I was concerned about a rather complacent attitude that I felt 
was expressed in that. You said that consumers are still saving 
money on natural gas compared to pre-competitive prices. You 
say that the Commission will be monitoring the gas supply and 
price situation very closely this winter to assure that 
competitive pipeline transportation markets continue to work in 
the public interest. I do not think we can explain to my 
constituents and consumers in our area that any of this is 
operating in the public interest. They are going to be 
wondering how the heck they are going to pay their gas bills, 
particularly when they look at the profits of the gas 
companies, the fact that it is entirely domestic.
    I thought that maybe you could clarify this and hopefully 
reflect some of the urgency that I feel and I think many of my 
constituents feel.
    Mr. Hoecker. Your question is a great question and it is 
one that sort of tracks the sentiment that we heard in 
California 2 weeks ago when we were there on electricity 
prices. We are very aware that this country runs on electric 
and natural gas, that we need reasonably priced and stably 
priced supplies of energy, no question about that. What I am 
hopefully getting across is that the commodity itself, natural 
gas, has been decontrolled. And there are lots of explanations 
as to why the price has varied this year compared to previous 
years. I know that is not very satisfactory to American energy 
    What the FERC can do about that is to encourage our 
colleagues at the State level--who are in charge of rate 
stabilization, and LIHEAP, and in terms of ensuring that their 
utilities make prudent natural gas purchases--to exercise their 
authority with respect to retail rates. And when I say the 
interstate natural gas pipeline market, I mean exactly that. 
The piece of the pie that we regulate is the interstate 
pipeline system that takes the gas from the producer or the 
processor and delivers it to the city gate, to the Washington 
gaslights of the world that distribute it.
    Mrs. Schakowsky. Maybe Secretary Richardson then can deal 
with the larger question of natural gas prices if you are only 
dealing with the pipeline.
    Secretary Richardson. Congresswoman, I am sorry. I was 
trying to have a conversation with----
    Mrs. Schakowsky. I think it is a similar question, why was 
production so low when we knew that we were going to have a 
problem and now prices are so high that we have a crisis?
    Secretary Richardson. Demand is high, No. 1. No. 2, U.S. 
gas production has been relatively flat. Gas storage levels 
have been below normal. And, basically, alternative fuel 
markets have been very tight. So I think you have those four 
problems and the price issue and the capacity issue.
    Now the President will sometime very soon announce some 
initiatives from his Interagency Task Force on Natural Gas. We, 
as I said, Congresswoman, have a proposal before the Congress 
on what is called delayed geological expensing which will 
enable the natural gas producers to drill more and have an 
incentive to drill more. We also have up here infrastructure 
improvements for pipelines. As you know, there have been 
several pipelines that have burst. We need to find ways to 
repair them, to get them functional, to get them operational. 
That is an initiative that we need to deal with, too. But those 
are basically the four reasons why we have this spike in 
    Mrs. Schakowsky. We look forward to an announcement by the 
administration. Thank you.
    Mr. Kucinich. Mr. Chairman.
    Mr. Burton. Yes?
    Mr. Kucinich. Mr. Richardson has stayed about 1 hour and 15 
minutes over what he originally was supposed to stay. I just 
wondered how will the Chair proceed here?
    Mr. Burton. After just talking to you, there are two more 
people that have questions for him. I think Mr. Sanford and 
myself and maybe one other. So that will be about 10 minutes. 
So if you could stay 10 minutes, we should have you out of 
here, Mr. Secretary.
    Ms. Browner. Do I get to go too?
    Mr. Burton. Well, we have a few more questions for you. If 
you don't mind staying for maybe another 25 or 30 minutes, we 
should have everybody out of here. But I know he has to leave. 
So if we can get you through in 10 minutes, then we will try to 
get you out of here right away.
    Mr. Sanford.
    Mr. Sanford. I thank the chairman. I apologize for the 
delay. I guess I have just a couple of questions for both of 
you. It was interesting, the gentleman from Vermont I think 
raised a very interesting point, and that is we have an 
administration that has said it advocates a rules-based system 
that comes with WTO, we have a Trade Representative who is 
constantly arguing that very point, and yet we have not seen a 
lot of activity from the standpoint of doing something about 
OPEC members and the cartel that they hold.
    So I would simply ask you, as Secretary of Energy, have you 
lodged a formal complaint with the WTO based on the cartel that 
is held by OPEC?
    Secretary Richardson. No, and I would not do so, 
Congressman. That would not be helpful. I do not think it 
constitutes WTO violation.
    Mr. Sanford. So a cartel held by OPEC colluding on prices 
does not constitute a breach of the rules-based system as 
outlined by WTO?
    Secretary Richardson. Our view is what is desirable is the 
free flow of oil based on market forces. That is our position.
    Mr. Sanford. That is a wish list. That obviously does not 
exist given what OPEC is doing.
    Secretary Richardson. Well, as I said before, OPEC, the 
last three meetings they have held, they have taken decisions 
that are positive for the international community--more 
production. We encourage them to do more because those are the 
signals that are coming from this country and from the world. I 
prefer to maintain a dialog with them rather than fighting them 
in courts.
    Mr. Sanford. OK. So no action taken on WTO. How about 
encouraging our administration to eliminate the no fly zone 
over Iraq?
    Secretary Richardson. Why would we want to do that?
    Mr. Sanford. OK, no. How about elimination of military 
sales to those OPEC members based on the fact that they are 
colluding on prices of fuels coming back to the United States?
    Secretary Richardson. We, the United States, have a lot of 
strategic interests in the Gulf, including the containment of 
Iraq. We have strong security relationships with Saudi Arabia, 
with Kuwait. That would not be in our interest.
    Mr. Sanford. So that would be an action that you would not 
be willing to take?
    Secretary Richardson. No.
    Mr. Sanford. And similarly, if not a case in the courts 
through WTO, how about some kind of revoking of the normalized 
trade relations that they now enjoy with our country? Does that 
fall under the same category?
    Secretary Richardson. Same category.
    Mr. Sanford. OK. I do not mean to be harsh on this, but my 
point is that we are unwilling as an administration to ask 
these things of a foreign country, in this case a group of 
foreign countries, colluding on oil prices to America's 
detriment, while at the same time, the remedy that you are 
offering in part suggests invading the Strategic Petroleum 
Reserve. To me, that does not make sense. In other words, we 
will put our own military at risk by bleeding down the 
Strategic Petroleum Reserve but we will not ask this of a 
foreign country.
    Secretary Richardson. The President will decide in the next 
few days what to do on the Strategic Petroleum Reserve. This 
use of the reserve has been, as you know, extremely limited. It 
is a very important decision but it is a few days away. It is 
based on whether the President believes in the home heating oil 
crisis the American consumer would be harmed. And he will not 
hestitate to take the steps that are needed.
    So, Congressman, we have been very, very judicious in the 
use of the Strategic Petroleum Reserve. There was enormous 
pressure to use it all year and we haven't.
    Mr. Sanford. I understand that and I respect that. But my 
concern is we have been even more judicious in asking allies in 
the Middle East to do certain things than to use our own 
Strategic Petroleum Reserve, which is I thought there for a 
very specific reason, and that is to be there in the place of 
military contingency.
    Secretary Richardson. Congressman, we asked Saudi Arabia to 
increase production. They did. We asked OPEC countries to 
increase production. They did. That is good not just for the 
United States, but for world markets. Now that does not mean we 
should rely on their imported oil or their activities. But they 
are a reality. They control a large supply of the world's oil. 
Many of those countries we have strong relationships with--
Saudi Arabia, Kuwait, Indonesia, Nigeria, United Arab Emirates, 
Qatar. We have strong relationships with them.
    Mr. Sanford. I understand.
    Secretary Richardson. There are some that we do not, we do 
not talk to them--Iran, Iraq, Libya.
    Mr. Sanford. Right.
    Mr. Burton. The gentleman's time has expired.
    Mr. Sanford. I had some more zinger questions though. Thank 
you, Mr. Chairman.
    Mr. Burton. Let me just take my 5 minutes and let you get 
on your way, Mr. Secretary. You just alluded to the Strategic 
Petroleum Reserve. Lawrence Summers and Mr. Greenspan oppose 
using that. And of course the Vice President today called for 
releasing fuel from the Strategic Petroleum Reserve. You said 
the President would be making a decision on that. Do you have 
any opinion you are going to express to him?
    Secretary Richardson. Mr. Chairman, any advice I give the 
President is confidential. You know that. I would like to say 
that Secretary Summers and I share the same view, that the use 
of the Strategic Petroleum Reserve is very selective, that it 
has to be under the right circumstances. I think our views are 
fairly similar, and they have been. I saw that article. The 
President has a wide range of options, including some of those 
that the Vice President proposed, and a decision on whether to 
use the Reserve will be made shortly, in a few days. That is 
all I can say.
    My advice to the President is based on the fact of whether 
we believe the American people would be harmed by, for 
instance, home heating oil shortage, by high energy prices. I 
just had consumers and truckers and a lot of people talk to me. 
There are serious problems.
    Mr. Burton. I think you have answered our question. I 
understand the concern that you have for the American people 
and the heating oil problems. But I guess after 2 days of 
hearings and listening to the people who testified yesterday, 
there is a divergence of opinion on where the problem lies. The 
energy producers say there is environmental regulations that 
are strangling them, there is not enough pipeline capacity. 
There is a whole host of things that they said which has been 
refuted or disagreed with today.
    But here is how it appears to me, I do not know if it 
appears so to my colleagues, but it appears to me that there 
really is no strategy for dealing with the natural gas 
problems. We have got in our forests out West a lot of 
government-owned land where there is great natural gas reserves 
which could be very efficiently pumped out of the ground at 
higher levels than what they are getting in the pipeline now. 
But we are not exploring them. So there does not appear to be a 
strategy for natural gas. There does not appear to be a 
strategy for the problems that the reformulated gasoline and 
the many variety of fuels that are having to be made are 
causing. There appears to be no strategy for increasing our 
domestic production of oil. We keep talking about dependency on 
foreign oil, we have oil that could be pumped out of the ground 
in various parts of the country environmentally safely that we 
are not going after. And we continue----
    Secretary Richardson. On that, Congressman----
    Mr. Burton. Well, let's just go through all these things 
and then you can respond.
    Secretary Richardson. OK.
    Mr. Burton. So we are not reducing our dependence on 
foreign oil. There is no strategy for speeding up the process 
of getting permits for electric power plants, according to the 
people yesterday. The comments were that, with respect to the 
transmission lines, it is taking up to 7 years. I will not go 
into all that again, but you can respond to that. And there 
seems to be only a patchwork strategy for dealing with our home 
heating oil problems, such as the Strategic Oil Reserve or the 
new storage facilities you are talking about.
    So it is frustrating to me when we have a hearing to hear 
one thing from the industries and another thing from the 
Government. And then when we, as Congressmen and Senators, try 
to put all this together and try to decide what we can do to 
help, we get some suggestions from you that are limited to 
legislation that is pending before the Congress, some of which 
is being held up by people in the other party, and we say what 
can we do to help the American people. So I would like for you 
just to respond to that, if you would.
    Secretary Richardson. Congressman, I was not at your 
hearing, but I have heard these complaints before. I think what 
we need is we need action. You need to pass a number of 
initiatives that some of these industries even advocate.
    Let me start out with one. The industry has wanted oil and 
gas credits for marginal wells. The President has proposed 
that. We are for that. The Congress has not passed that. We 
have proposed tax credits for energy efficiency, more funding 
for alternative sources of energy, as I said, boosting our own 
people. We have proposed electricity deregulation which most 
utilities in the country want. For there to be whining and 
blaming the Government I think is just wrong.
    I think what you as the Congress needs to do, and I say it 
respectfully as somebody who was with you for 14 years, is sort 
out the different points of view but look at the facts, and the 
fact is that the President's initiatives on a wide variety of 
supply and demand energy policies have not been passed. You 
cannot blame us for not having a policy when a lot of it, like 
elemental, the reauthorization of the Strategic Petroleum 
Reserve, this Northeast Home Heating Oil Reserve, is not 
passed, is not approved.
    Mr. Burton. Well let me just conclude by saying that we 
have got a problem. This winter there is going to be a spike in 
gas and oil prices. Diesel fuel is up. The truckers around the 
country are screaming to high Heaven and it is evidently going 
to get worse with the new EPA requirements, at least this is 
what we are being told. And so all I can say is that I hope we 
    Mr. Tierney. Would the gentleman yield?
    Mr. Burton. No, I will not.
    Mr. Tierney. Are you going to just continue to misstate 
what we have been listening to all afternoon, or at least give 
Ms. Browner an opportunity to once again set the record 
    Mr. Burton. You had 7 minutes. Your time has expired.
    Mr. Tierney. Sir, you have had more than ample time also. 
But you are using it to create a misstatement of the facts.
    Mr. Burton. You are out of order. I am the chairman of the 
    Mr. Tierney. That does not give you license to go out there 
and misstate the facts or to go on and on beyond your time. 
Either please give her the time to answer you to set the facts 
straight or stop.
    Mr. Burton. We are going to give Ms. Browner the time to 
answer. Secretary Richardson is under time constraints and I 
was making my comments within the allotted 7 minutes which you 
had, which is more than the 5, and you interrupted me.
    Now, as I was saying, Mr. Secretary, I hope that we can 
reach some kind of agreement so that those spikes in oil and 
gas prices this winter will not make a life unbearable for a 
large segment of our population.
    I want to thank you very much for staying beyond the time 
that you said you could. We really appreciate your being with 
    I will now yield to Mr. Kucinich.
    Mr. Kucinich. Thank you, Mr. Chairman. Secretary 
Richardson, thank you. And I want to thank again the other 
members of the panel.
    In listening to this exchange today, a few things have 
become obvious. With Secretary Richardson's leadership, we 
asked OPEC to increase production, and they did. The United 
States asked non-OPEC nations to increase production, they did. 
The United States asked domestic producers to increase 
production, and they have decreased production. And as some of 
them have added, while they are decreasing producing, they are 
saying the problem is the Clean Air regulations. Domestic 
producers have decreased production and their profits are going 
through the roof. Which means, when they come back to the 
market with that oil they are going to make even more money. 
Here is one Member of Congress who objects to that.
    I would hope that the administration knows that they have 
another tool at their disposal if these domestic oil companies 
do not respond, and that tool is price controls. Now I know 
that is heresy in a free market economy. But as Mr. Hoecker 
said earlier, there are limits to what a free market can do. 
Free market is wonderful, but if people cannot afford to get to 
work in their cars, or they cannot afford to heat their homes, 
then we have to ask some questions about the free market. We do 
not just keep going back to the people and telling them to pay 
more. That is not fair.
    Mr. Hoecker stated that natural gas supplies for immediate 
consumption are short. How many months has FERC known about 
this shortage, Mr. Hoecker?
    Mr. Hoecker. Well the shortage, as you put it, is a 
shortfall in winter storage. We have been watching it and it is 
largely within historic tolerances. Right now, the gas storage 
for the Nation generally is around 70 percent full, which is 
down about 10 percent from last year. The experts that I have 
consulted tell me that it is going to pick up dramatically in 
the next few weeks.
    Mr. Kucinich. Well, Mr. Secretary had stated that 
production is flat. I am asking you if FERC has investigated 
the possibility that natural gas companies are under-producing 
natural gas to drive up corporate profits, because that is what 
it seems the oil companies are doing.
    Mr. Hoecker. I can tell you that, based on our 
understanding of the market, gas producers shut in their wells 
and basically went home. A lot of people left the business at a 
time when natural gas at the well-head was being priced at 
$1.60. The market was not there for them, they quit producing. 
And now we are living with the consequences of that.
    Are they continuing to under-produce? At least on the gas 
side, and a lot of these folks are the same folks that produce 
oil domestically, the rig count has doubled just in the last 
few months. So they are back out there again. The difficulty is 
that the supply response is going to lag 12 or 14 months until 
it hits the market. When it does that, prices will come back 
down. I would also say that the----
    Mr. Kucinich. Excuse me.
    Mr. Hoecker. Sure.
    Mr. Kucinich. You assume prices are going to come back 
    Mr. Hoecker. I assume. I assume. I have to mention again 
that we do not regulate the commodity. But this is what I have 
found out because I am as concerned as you are, sir, about the 
price of natural gas.
    Mr. Kucinich. What can you do when these gas companies are 
pricing three times what they have priced before? And why is 
the supply response so slow? What can you do?
    Mr. Hoecker. What can we do? We can make sure that the 
interstate pipeline market is equipped to deliver those 
supplies as soon as they come back on-line. We have a very 
good, very efficient, very adaptable interstate pipeline system 
that is very competitive. Right now, the gas purchasers in your 
hometown can buy from different suppliers, from different 
basins. It is a very workable system. They can hedge, they can 
engage in financial instruments to protect themselves against 
    Mr. Kucinich. You regulate interstate rates, right?
    Mr. Hoecker. Interstate transportation rates.
    Mr. Kucinich. Right. You regulate those.
    Mr. Hoecker. Yes.
    Mr. Kucinich. OK. Can you do anything about the price of 
the interstate rates? You monitor them.
    Mr. Hoecker. We think the price of interstate 
transportation is regulated and we have rate cases all the 
time. Could we, for instance, cap those rates or drive them 
down arbitrarily? Our statutes require us to do investigations 
and make those decisions based on costs and the----
    Mr. Kucinich. Final question. Will you investigate?
    Mr. Hoecker. We will look at them, yes, sir.
    Mr. Kucinich. Thank you.
    Mr. Burton. We are just about near the end here. We will 
yield to the people who are remaining and then let our guests 
go home.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman. I want to go back to the 
electrical markets with Mr. Hoecker, if I could.
    This is a map, and it is difficult to read, but this is a 
map of the Southwest United States. As you can see there, you 
have the Desert Southwest region, you have the Sierra Nevada 
region, you have the Rocky Mountain region, and you have the 
Upper Plains region. If you look in the Desert Southwest 
region, you will see a number of plants which I highlighted 
earlier, those being Elephant Butte, Deer Creek, Parker, Davis, 
Hoover, and Navajo. And with the exception of Navajo, those are 
primarily hydro facilities.
    I want to go back to my central point here, and that is 
that these are facilities that are under the control of the 
Bureau of Reclamation, which is one of the largest electric 
generators in the country just by virtue of having all these 
facilities. The thing I specifically want to reference is that 
in June and July of this year, compared to June and July of 
last year, you will note a significant reduction in the 
generation from Glen Canyon has occurred. And that corresponds 
almost exactly with the electric price spiking in southwestern 
California around San Diego.
    So the issue is why did the Bureau of Reclamation, which is 
an agency of the Interior Department, reduce by over half the 
electric generation out of Glen Canyon in the face of severe 
price dislocations in San Diego?
    Mr. Hoecker. Again, it is information I do not know. I 
suspect it is because of the supply of water. But in all my 
hearings in California and investigations about California, the 
deliberate withholding of generation capacity from out of State 
is something that, frankly, no one else has brought up.
    Mr. Ose. I want to put to rest the supply of water issue, 
because I checked that. Along the Colorado River, which is 
where Glen Canyon is, where Hoover is, all along that Colorado 
River Basin, there was no reduction at Hoover, there was no 
reduction at these other plants up and down the Colorado, I 
mean, 2 or 3 percent but not 50 percent.
    So my question comes back, why did the administration allow 
a 50 percent reduction in the generating capacity at Glen 
Canyon in the face of severe price dislocations in San Diego?
    Mr. Hoecker. Well, with all due respect, that is something 
you will have to ask the administration.
    Mr. Ose. OK. I know the answer. I just wondered if anybody 
else did. There was a law passed in 1991, Public Law 102-575, 
which the gentleman from New Mexico actually voted for, which 
directed the Department of Interior to engage in some work 
along the Glen Canyon stretch, the purpose of which would be to 
analyze the impact on the environment of low flow releases from 
Glen Canyon. And it is very interesting because it is actually 
a very, very appropriate use of Government authority to 
investigate this. And in the interest of protecting the 
consumer, the legislation gives the Secretary, in conditions 
of--let me find the exact words. ``The Secretary may deviate 
upon a finding that deviation is necessary and in the public 
interest to respond to hydrologic extremes or power system 
operation emergencies.'' Now I suspect that what happened in 
San Diego qualifies under a power system operation emergency. 
There was no hydrologic extreme.
    So what we had was legislation passed by this Congress, 
supported by Mr. Richardson, by Mr. Waxman, and others that 
said analyze this, but keep in mind that if we have price 
dislocations in our markets that we serve, you have the ability 
to waive the requirement and jack up the generating capacity. 
Those circumstances came to pass and this administration 
ignored them. In fact, for the first time on Monday of this 
week they actually did grant a waiver, and the generation at 
Glen Canyon did in fact go up in response to significant 
increases in demand in California.
    I want to know why in June, July, and August--we do not 
have the August number here, but I can guarantee you it is 
going to be similar to the 200-odd thousand there--why in June, 
July, and August this administration sacrificed the interests 
of electric ratepayers in San Diego when they had the freedom 
to answer the call for electric generation demand.
    Mr. Hoecker. Well, you have me at a loss. I do not know the 
answer to that.
    Mr. Ose. Mr. Chairman, my time has expired.
    Mr. Burton. If you could get that information for us, it 
would be very helpful.
    Mr. Hoecker. I will ask the Department of Interior to help 
provide it.
    Mr. Burton. Mr. Tierney.
    Mr. Tierney. Mr. Chairman, first, I would like to submit 
for the record three documents. The first is a statement from 
the auto makers calling for a clean diesel rule, the second is 
a press release from the Engine Manufacturers Association, and 
the third is comments from the State and Local Air Pollution 
Administrators. Each of these groups support the EPA low-sulfur 
diesel rule.
    Mr. Burton. Without objection.
    Mr. Tierney. Ms. Browner, I was listening to what I thought 
was a mischaracterization of the testimony we have heard today 
in terms of EPA's role in this situation. I would like to give 
you just a moment or two to sort of recap for us and set the 
record straight for the third or fourth time so that maybe we 
don't have to hear it again.
    Ms. Browner. Thank you very, very much. First of all, with 
respect to permitting delays. You heard testimony apparently 
yesterday about all sorts of delays up to 7 years. That is not 
because of any action by the Environmental Protection Agency. 
We do not site transmission lines. We do not permit 
transmission lines. If you actually look at the numbers, and we 
will provide all of the details to you, and you are free to 
come and look at all of our records, we are moving electric 
generating permits through the system, in cooperation with the 
States, on a 12 to 18 month basis. Whatever delays there are, 
they are not because of the Environmental Protection Agency.
    Second, I think it is important, and I thank the 
Congressman for noting the support we do have on our proposal, 
but we have not adopted a diesel standard yet. And for people 
to be talking about what this will do before we have made any 
final decisions strikes me as somewhat premature.
    Our proposal would require these clean diesel fuels in 
2006--not tomorrow, not next year, but almost 5\1/2\ years from 
today. We are working with those in the industry who will work 
with us, as we did on low-sulfur conventional gasoline, to 
incorporate a whole host of flexibilities. I would note that on 
our low-sulfur gasoline rule, this affects almost every 
refinery in the country. We get sued regularly at EPA, by 
environmental groups, by businesses, for the decisions we make. 
We were sued by one small refinery on that rule. Not all of 
them, one. And we are looking to resolve that issue. I think 
that is an indication of how well we worked with the industry 
to both meet the public health standards and provide the 
    There are other issues, Mr. Chairman, that you have 
mentioned that I still would like the opportunity to clarify. I 
know you want to have an accurate record. For example, you made 
reference early on to the dyes and some other issues. I do not 
want to use the kind gentleman's time, but hopefully I will be 
able to share that with you before the hearing ends.
    Mr. Tierney. Thank you. I think somebody referred to it as 
corporate whining. I probably would not be that strong in the 
wording, except to say that I think a lot of times businesses, 
because that is their job to make a profit, they do these 
preemptive strikes in trying to do something that they do not 
want to do.
    Mr. Hoecker, you mentioned in the course of your testimony 
that you could no longer effect the amount of gas that was in 
the supply because it had been decontrolled. Was there a time 
when there was some control or Government regulation on the 
supply of gas?
    Mr. Hoecker. There was. Between 1954 and the late 1970's 
when the Natural Gas Policy Act was passed and for some period 
after that because price controls were phased out.
    Mr. Tierney. And if we had that law still in effect today, 
would there have been some remedial action that could have been 
taken to avoid what we have just gone through, a period of 
really depletion of supplies and a lag period waiting for it to 
build back up?
    Mr. Hoecker. Ironically, when that law was in effect, the 
consequence of it was to create a chronic short supply in the 
country. We had price controls at a point when production was 
continuing to decline. Our reserve picture was very bleak in 
the late 1970's. We did not allow natural gas to be used for 
boiler fuel uses, that is, for electric generation or 
industrial purposes. We did not allow natural gas to be used 
for a variety of things. And we were curtailing supplies 
because we thought it was a very, very limited resource.
    When the price of natural gas was decontrolled, what we 
found is that we had an ample supply. People went out looking 
for it. And I think I can say with confidence that the industry 
expects natural gas supplies to be durable for the next half 
century, if not a whole century.
    Mr. Tierney. Yet we still find ourselves in a situation 
though we have plenty of it, we cannot seem to get it when we 
need it.
    Mr. Hoecker. Well, what happens is that when you create a 
market you live with some of the vicissitudes of that market. 
To use the words of the CEO of Anadarko yesterday when I was at 
the conference in Ohio, he said the real energy crisis was when 
natural gas was at $1.60 and oil was at $10 a barrel. For them, 
that is true, because they just got out of the business. A lot 
of small producers especially quit producing. That is an 
unfortunate situation because cheap energy does two things: 
one, it diminishes production, and it also disincents American 
consumers from being efficient and conserving their energy 
    Mr. Burton. The gentleman's time has expired.
    Mr. Tierney. Thank you both.
    Mr. Burton. Let me just say, before I yield to my 
colleague, that is one of the reasons why you need a long term 
energy policy. Because if you have these wide fluctuations in 
the spot price of oil or gas, you have to have a long term 
policy that sets some kind of consistency. And we do not have 
    I yield to my colleague, Mr. LaTourette.
    Mr. LaTourette. Thank you, Mr. Chairman.
    Chairman Hoecker, Congressman Kucinich was here earlier, I 
come from the same part of the country and the banner headline 
of today's Cleveland Plain Dealer was that people in greater 
Cleveland are going to pay $70 a month more this winter for 
their natural gas bills as we heat our homes going into the 
winter. I listened very carefully to your responses to 
everybody that has asked you questions, but I want to talk 
about pipelines, which I think are within the purview of your 
    If the producers were finding it economically feasible to 
produce, do we have sufficient pipeline capacity today to meet 
the needs particularly in the Northeast part of the country?
    Mr. Hoecker. I believe we do. I think we are moving in the 
right direction. The Commission has certificated 800,000 miles 
of interstate natural gas pipeline since 1995. That represents 
a delivery capacity of about 7 billion cubic feet a day. And as 
the demand for natural gas increases, we expect to get requests 
for more interstate pipeline capacity. But we have certificated 
some major facilities in an environment where landowner 
objections and environmental problems are very important and 
those folks are very vocal, and we have to take that into 
    Even pipelines that we have certificated for the Northeast 
are not being built at their original design capacity because 
the project owners have not been able to find a market for some 
of that original proposal. What that tells me is that we are 
doing it just about right. That means that we are going to 
continue to consider applications for more capacity but that we 
are not going to do it at such a rate that we are going to 
create a capacity glut which is going to cost consumers a lot 
of money.
    Mr. LaTourette. You talked a little bit earlier about the 
natural gas folks having the ability to hedge. Are you familiar 
with the term interruptible contract?
    Mr. Hoecker. I am.
    Mr. LaTourette. Could you explain just for the committee's 
record what that is and how those work.
    Mr. Hoecker. Well, an interruptible contract for pipeline 
transportation simply means that you buy at a lower rate and 
you take the risk of being curtailed at some point if supplies 
are short or if capacity is short.
    Mr. LaTourette. In all markets that are volatile, folks use 
things like hedging and futures to stabilize prices. Are those 
tools available to the natural gas industry?
    Mr. Hoecker. They are very available in the natural gas 
industry, yes.
    Mr. LaTourette. Are there any disincentives that you are 
aware of--governmental, tax, or otherwise--that prevent or 
inhibit the natural gas folks from becoming involved in hedging 
or futures to stabilize the price of natural gas?
    Mr. Hoecker. The natural gas folks, by that you mean?
    Mr. LaTourette. The producers.
    Mr. Hoecker. The producers. No, I am not aware of any.
    Mr. LaTourette. Thank you, Mr. Hoecker.
    Mr. Chairman, I do not have any more questions. I would 
just ask unanimous consent that the CRS report of June 28, 
2000, that I was chatting with Administrator Browner about be 
included for the record.
    Ms. Browner, I have made a copy for you, too, so that you 
can take that with you.
    Ms. Browner. Thank you.
    Mr. LaTourette. And if somebody wants the balance of my 
time, I am happy to yield it to them, or I will shut up and 
yield back the balance of my time. Mr. Ose from California, who 
shares California with Mr. Waxman, as we all recall--
[laughter]--I would be happy to yield the balance of my time to 
    Mr. Ose. Thank you, Mr. LaTourette. The folks from Ohio 
have always been generous, and I appreciate it.
    Ms. Browner, do you think we need more electrical 
generating facilities in California?
    Ms. Browner. I would not want to pretend to be an expert on 
this issue.
    Mr. Ose. But based on our summary's experience.
    Ms. Browner. Based on what I have read and what I have 
heard, I certainly think that is a question that is worthy of 
very serious consideration. But I in no way would want to--I am 
not an expert on issues like that. I can certainly talk to you 
about, if you want to have more generation, what might be some 
of the cleaner types of generating facilities. But I am not an 
expert on the demand side.
    Mr. Ose. Mr. Chairman, I see Mr. LaTourette's yellow light 
has come on. We will come back to the cleaner generating 
facilities on my next round. Thank you.
    Mr. Sanford. Yes, ma'am. First, let me just check off the 
list, I have got a bizarre question I have always wanted to ask 
you. That is, Al Gore's book ``Earth in the Balance,'' and all 
that sort of thing, there has been so much talk about a 
basically minor portion of that book that dealt with if you 
increase the tax on fossil fuels, you could basically do more 
to clean up the environment than anything else you could do out 
there. Agree? Disagree? Where are you on that?
    Ms. Browner. I think the work of, and I am sure the Vice 
President would agree with this, of cleaning up the environment 
requires a wide array of activities and tools, and that this 
administration has been doing its level best within the 
authorities granted us to do just that.
    Mr. Sanford. But you would agree it would be one of the 
    Ms. Browner. I did not say I agreed or disagreed.
    Mr. Sanford. Well, I am asking you to pick one.
    Ms. Browner. I do not want to. [Laughter.]
    Mr. Sanford. Fair enough. Touche. That is what these 
exchanges are all about though is trying to get to the bottom 
line of where folks----
    Ms. Browner. I am not in charge of those policies. Again, I 
am really happy to talk to you about clean air.
    Mr. Sanford. Well that is what we are talking about. The 
argument was that if you increase the tax on fossil fuels, you 
could do more to clean air than anything else you could do out 
there. I am asking your opinion on that.
    Ms. Browner. I will tell you everything we are doing to 
clean the air your citizens and all the citizens of this 
    Mr. Sanford. I am sure you are doing many different things. 
But I am asking your specific opinion on that one thing.
    Ms. Browner. I am doing everything I can within the 
authorities Congress has granted me.
    Mr. Sanford. So you just do not want to answer the 
    Ms. Browner. I am answering it within the area of my 
expertise and----
    Mr. Sanford. I understand you are choosing not to answer 
it. But I was just asking for your opinion.
    Ms. Browner. Sir, I have an area of expertise and I am more 
than happy to speak to my area of expertise. I have the utmost 
respect for our Vice President. He has been at the forefront of 
virtually every public health environmental issue in this 
    Mr. Sanford. And I was not downing him. I was simply asking 
your opinion on that part of the book. And you are saying you 
choose not to answer. Fair enough.
    Second question, supply and demand. Economics 101 would say 
supply is in part controlled by regulations around that supply. 
In other words, that is the funnel through which supply reaches 
end product. There are all kinds of unintended consequences 
that go with any piece of regulation. Since that piece of 
regulation is out of bounds in terms of your willingness to 
answer it, I would ask----
    Ms. Browner. There is no regulation of that sort at the 
    Mr. Sanford. We're going there right now. That is, if you 
think about the different pieces of regulations that have been 
promulgated by the EPA, some have had good consequences in 
terms of raising or lowering fuel prices, some have had bad 
consequences. And I am asking you to do the David Letterman 
routine, which is give me the top two that you think have 
raised fuel prices the most, and the bottom two that have 
lowered fuel prices the most.
    Ms. Browner. Can I suggest that these are complex issues. 
They do not lend themselves, with all due respect, to a David 
Letterman routine. I am happy to talk about the cost and the 
benefits of----
    Mr. Sanford. OK. We can take the David Letterman reference 
out. But I would just ask if you would pick one or two that had 
some very positive consequences.
    Ms. Browner. Cleaner gasoline. Without a doubt, cleaning up 
the Nation's gasoline. Removing things like toxics, benzene, 
sulfur are some of the most cost-effective things we can do to 
improve air quality and to protect the public's health, to 
reduce respiratory illness, to reduce premature death, to 
reduce asthma attacks in our children. They are without a doubt 
some of the most cost-effective things that we can do.
    Now I said in my opening statement, and I am happy to say 
again, I am the first to recognize that when we move forward to 
protect the public's health, to protect our environment, there 
are costs. But they are pennies compared to the benefits that 
clean air is bringing the people of this country. And there is 
study after study, and I am not just talking about EPA's study, 
there are studies after studies that----
    Mr. Sanford. Sure. And I would not dispute those at all.
    Ms. Browner. And as one member noted earlier, the most 
    Mr. Sanford. If I might, in that I only have 5 minutes and 
we are down to about 1 minute left. If you were to pick out one 
thing wherein there was an unintended consequence of EPA that 
resulted in higher costs to the consumer, what would that one 
thing be from the standpoint of fuel price?
    Ms. Browner. I will give you an example actually outside of 
the Clean Air program. I will give you the example of 
brownfields. Without a doubt, when this Congress adopted the 
Superfund legislation almost 16 years ago, an unintended 
consequence of that legislation were the brownfield sites, the 
lightly contaminated sites that the developers, the bankers, 
the lenders, the cities would not come to address. Now, 
fortunately, we have had a program to try and solve that. We 
need Congress to give us some legislation. And I do not dispute 
your premise that there can be both positive and unintended 
consequences. I think that is a clear example of it.
    One of the things we did--and Mr. Chairman, if I might have 
a little bit of extra time here because I think this is an 
important issue and I am sure the committee does, too--when we 
were setting the new tailpipe emission standards for cars and 
SUVs and the fuel standards--that is what actually comes out of 
the tailpipe, it is the catalytic converter, it is the engine, 
it is the gas you put in that gets you the actual air quality 
benefits that you breath--we spent a lot of time, I personally 
spent a lot of time with both industries that would be affected 
asking them how we could avoid unintended consequences. And I 
will give you an example of an unintended consequence that I 
believe has, in fact, been avoided.
    Detroit told us over and over again that they are about to 
have a clean diesel engine for cars. They have got it in 
Europe, they can bring it here, it could be two to three times 
more fuel efficient. But we had to structure our standards to 
allow for that clean diesel engine. And we did that, and they 
have said that repeatedly.
    We set up the program to meet the public health benefits. 
We did not change anything we asked for on public health, but 
we avoided a consequence of keeping those engines out. Now if 
we are going to bring those engines in, we had to do that last 
year, this year we have to get them the clean diesel gasoline, 
and that is the second piece of it.
    But we do look at both the intended consequences and the 
unintended consequences.
    Mr. Burton. The gentleman's time has expired.
    Before I yield my time to Mr. Ose, let me just say that we 
are going to give you whatever time you need to respond to 
anything that we have talked about earlier.
    Ms. Browner. Great. Thank you.
    Mr. Burton. But you made the point that they have only 
received one application for a new refinery at the EPA in the 
last 25 years, suggesting that the lack of refinery capacity is 
industry's fault. It is so unprofitable to build a refinery in 
this country that there really is not much point in submitting 
an application because of the requirements. You can respond to 
this after Mr. Ose finishes. This was I believe a misleading 
statement. And there is no strategy for dealing with the fact 
that the refineries are strained to the breaking point and they 
would like to expand and/or build new ones.
    Ms. Browner. If I could----
    Mr. Burton. Well, I am going to yield my time and then you 
can respond as you wish.
    Mr. Ose.
    Mr. Ose. Thank you, Mr. Chairman.
    Ms. Browner, we started to discuss just briefly the air 
quality issue and what the particulate matter discharge would 
be from any given facility. In my district in California, we 
are under construction on a gas-fired turbine. I think the 
projected generating capacity being somewhere around 400 or 500 
    Ms. Browner. That is pretty common.
    Mr. Ose. The issue there is that the nitrous oxide 
emissions on that plant will be about one-twelfth of the 
emissions from a plant of similar capacity elsewhere. Now the 
challenge that I see, and I really want to talk about the 
Prevention of Significant Deterioration program, because the 
challenge I see is that if we are going to encourage industry 
to create these plants that are so much more positive on a 
relative scale for the environment and that can provide peak or 
swing power for our economy, one of the things it seems to me 
we need to do is bring some certainty to that process on the 
    Now in this particular plant's case, it went through local 
jurisdictional review, the board of supervisors there passed on 
it, there was an environmental document, everything was real 
clean, simple, done. And then the current PSD process allowed a 
window after that local review for someone to file an appeal. 
And the result of that was an individual who lived roughly 100 
miles away came and filed an appeal over the, if I recall 
correctly, the air quality impacts. And that cost 4 months 
immediately; in other words, there was an immediate shutdown of 
construction. The appeal was eventually denied on the basis of 
lack of factual basis----
    Ms. Browner. I think on the basis of standing. The 
complaint was found to have no standing.
    Mr. Ose. All right. The issue that I have is, is it 
possible for us to take the PSD appeal process and correlate it 
to the appeal process in California law under SEQUA so you do 
not have that extension, if you will. Like, you have the SEQUA 
appeal process right now, then you have the PSD appeal process. 
Is it possible for us to take the PSD process and correlate it 
to the SEQUA process?
    Ms. Browner. About half the States have done that, and we 
are fully supportive of that. California has not chosen to do 
    Let me back up for a second because I think this is where 
some of the confusion may exist between what people said 
yesterday. All but one State now handles air permitting for all 
facilities. It is not EPA, in the first instance. They use the 
Federal authority, but they handle the day-to-day permitting 
process--application, review, and granting. For the one State 
we do it, we also do it for Puerto Rico.
    About half of the States have chosen to handle any appeals 
that may come as a result of a permitting decision, half have 
not. If they choose not to, then we are required to handle the 
appeals process.
    Mr. Ose. Can I ask your indulgence. My time is about to 
expire and I want to go to one other question. And then the 
chairman is going to allow you to respond----
    Ms. Browner. The chairman said I could have whatever time I 
    Mr. Ose. The other issue I----
    Ms. Browner. Excuse me. With all due respect, you have made 
some statements that I think would benefit from an explanation.
    Mr. Ose. And I am very interested in your response.
    Ms. Browner. I would like to do it on the record in public, 
because this is a statement about an agency that I run and I 
feel like we do not have the full story.
    Mr. Ose. I am just looking for what can we do legislatively 
to try and correlate those.
    Ms. Browner. One possibility, as I have already pointed 
out, is that half of the States handle the appeals process. 
California has chosen not to. We are happy to work with them on 
doing it.
    Mr. Chairman, I really feel strongly about setting 
something straight here.
    Mr. Ose. My only other question was----
    Ms. Browner. The chairman said I could.
    Mr. Burton. We are not going to stop the clock on you.
    Ms. Browner. I am going to be sitting here alone. I can see 
what is coming.
    Mr. Ose. No, you are not. I am going to be here.
    Ms. Browner. Mr. Tierney is going to stay with me.
    Mr. Ose. I will commit to staying because I am interested 
in your answer.
    Mr. Burton. Well finish so she can answer.
    Mr. Ose. OK. My other question was that we have a choice of 
whether to import oil from foreign trading partners or increase 
production somewhere, somehow here domestically. The question 
that I have is that on a relative scale in terms of 
environmental consequence, are we better off importing oil 
where we do not have the various air quality protections from 
foreign sources, or are we better off from an environmental 
standpoint producing more oil here domestically subject to all 
of our regulations? It is obviously a hypothetical.
    Ms. Browner. I think that is a legitimate question.
    Mr. Burton. The gentleman's time has expired. We will allow 
her to answer all of these questions.
    Ms. Browner. I think that is a complicated question and I 
think it is complicated by many factors. For example, the whole 
issue of greenhouse gases is a global problem. It does not 
really matter where the greenhouse gas comes from. We all will 
experience the consequences of the warming or the changing of 
the Earth's climate. So if you analyze it from that 
perspective, my attitude would be you need environmental 
protections in all places to ensure that you are not 
contributing to an increase in greenhouse gases.
    I think it is hard to answer that absolutely. I do believe 
that all of the work that we can do, that we do with other 
agencies to, if you will, upgrade upward harmonization of 
environmental standards globally are of a benefit to all of us. 
I think we need, my sense, when you look at our oil supply, we 
need a mix of domestic and foreign. My sense is that there is a 
lot more we can do from a domestic perspective in terms of 
energy efficiency, in terms of renewables. We have got a bill 
up here in terms of renewables in the gasoline which would help 
our farmers, which would help our cities who pick up all those 
yard clippings, they can turn it into biomass and it can become 
part of a renewable fuels programs. So I think it is a 
combination of activities.
    If I might just return to the specific permit that you 
brought up. Start to finish, it was 13 months from the time the 
final application was submitted. A couple of points to note. 
First of all, twice the company changed their application. They 
themselves changed what they were looking for. And that does 
result, obviously, in additional review. They made the changes. 
We were not even involved at that point, the State was. EPA 
very quickly looked at what the State had done and concurred. 
An appeal was filed. California does not handle those so it 
came to us. Our entire time for the appeal through our 
Environmental Appeals Board was 11 weeks. I am happy to give 
you the dates that things were received.
    But I would like to point out something. In the appeals 
board, we appear as a party. We do not appear as the party 
filing the appeal. In this case, we appeared in support of the 
company against the party filing the appeal. I think these are 
important facts that have not been stated, as far as I can see 
from yesterday's record. It was simply the EPA stood in the 
way. We did not stand in the way. We came in on the side of the 
company. We think these facilities are good facilities. We have 
been supportive of them. And I hardly think a 13 month 
permitting process, where the company themselves made 
adjustments, is an unreasonable permitting process.
    Now, I cannot speak to what local government requirements 
may be. I cannot speak to what PSC requirements, or whatever 
you call your State regulatory--what is it, a PSC out there?
    Mr. Ose. That is Mr. Waxman's PUC, not mine. [Laughter.]
    Ms. Browner. I cannot speak to any of that. But I can speak 
to what we do. And I would like the record to reflect that in 
the case of the Clean Air Act requirements it was a 13 month 
process. I can name a lot of facilities in your State. We have 
another one that was a 14 month process, we have one that was a 
16 month, we have another one that was a 14 month. This one was 
13 months.
    I would also like to point out there are not many appeals 
to the Environmental Appeals Board. Right now, I think we have 
three pending for electric turbines. One was resolved I think 
in 10 days, one was resolved in 3\1/2\ months, and one is about 
to be resolved. People do have rights. They should be able to 
raise questions if they believe a mistake was made. We move 
expeditiously. And where we have an opinion, we come in on the 
side of the company.
    Mr. Ose. My question was is it possible to correlate the 
appeal period under EPA with the appeal period under SEQUA?
    Ms. Browner. If the State would take over the appeals 
process--it is their appeals process. They could incorporate 
whatever the Federal appeals process would require I would 
think, they could put it into theirs. They have chosen not to. 
I do not know why California made that decision, but that is 
the decision they made. And we would be happy to talk to them 
about it.
    Mr. Burton. Excuse me. Let me just say the gentleman's time 
has expired. If we have more questions, any of us, for Ms. 
Browner or Mr. Hoecker, all we have to do is write them and we 
will ask them to respond for the record, and I am sure they 
will respond.
    And as I said, Ms. Browner, if you have further things you 
would like to clarify, we will be happy to listen.
    Ms. Browner. I would. I would like to spend a moment 
clarifying one other point. You have been most kind to allow me 
the time.
    You put up some bottles earlier with some dyes in them and 
suggested this was silly requirements on the part of IRS, I 
don't know, somebody, probably us. Let me explain why these dye 
requirements exist.
    These are not interchangeable fuels. One of these fuels has 
only 500 parts per million sulfur. The other is in excess of 
300,000, maybe higher. America's truckers do not want that 
300,000 parts per million sulfur fuel, home heating, off road 
fuel in their trucks. That is what the dye is for. It is also 
for the IRS to make sure they are collecting the right tax. And 
I know we all agree that collecting the right tax is not over-
charging, not under-charging. But surely we also agree in 
protecting the trucker and the public's health. That is what 
the dyes are for, so that when someone is moving the product 
around they know are they dealing with a high sulfur content or 
a low sulfur content.
    Now I also understand that there were some complaints about 
this means that you have to drain a tank. Obviously, people 
have residuals in their tanks when they bring in a new fuel. 
Surely, that is not the problem. Mr. Chairman, with all due 
respect, I cannot for the life of me understand why anyone who 
is involved in this business would think that dyeing two 
radically different fuels, they are not slightly different, 
they are radically different fuels, is a problem. Thank you.
    Mr. Burton. Thank you, Ms. Browner, Mr. Hoecker. We really 
appreciate it. You have been very helpful and I appreciate your 
being kind with your time.
    Ms. Browner. Thank you.
    Mr. Burton. We stand adjourned.
    [Whereupon, at 4:15 p.m., the committee was adjourned, to 
reconvene at the call of the Chair.]
    [Additional information submitted for the hearing record