[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



CONGRESSIONAL PERSPECTIVES ON ELECTRICITY MARKETS IN CALIFORNIA AND THE 
                    WEST AND NATIONAL ENERGY POLICY

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON ENERGY AND AIR QUALITY

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 6, 2001

                               __________

                            Serial No. 107-8

                               __________

       Printed for the use of the Committee on Energy and Commerce


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

                               __________

                   U.S. GOVERNMENT PRINTING OFFICE
71-502                     WASHINGTON : 2001

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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                 Subcommittee on Energy and Air Quality

                      JOE BARTON, Texas, Chairman

CHRISTOPHER COX, California          RICK BOUCHER, Virginia
STEVE LARGENT, Oklahoma              RALPH M. HALL, Texas
  Vice Chairman                      TOM SAWYER, Ohio
RICHARD BURR, North Carolina         ALBERT R. WYNN, Maryland
ED WHITFIELD, Kentucky               MICHAEL F. DOYLE, Pennsylvania
GREG GANSKE, Iowa                    CHRISTOPHER JOHN, Louisiana
CHARLIE NORWOOD, Georgia             HENRY A. WAXMAN, California
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
HEATHER WILSON, New Mexico           BART GORDON, Tennessee
JOHN SHADEGG, Arizona                BOBBY L. RUSH, Illinois
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              THOMAS M. BARRETT, Wisconsin
ROY BLUNT, Missouri                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 JOHN D. DINGELL, Michigan
GEORGE RADANOVICH, California          (Ex Officio)
MARY BONO, California
GREG WALDEN, Oregon
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)
                    ------------------------------  



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Aderholt, Hon. Robert B., a Representative in Congress from 
      the State of Alabama.......................................    86
    Bartlett, Hon. Roscoe G., a Representative in Congress from 
      the State of Maryland......................................    77
    Bereuter, Hon. Doug, a Representative in Congress from the 
      State of Nebraska..........................................    73
    Bono, Hon. Mary, a Representative in Congress from the State 
      of California..............................................    11
    Calvert, Hon. Ken, a Representative in Congress from the 
      State of California........................................    78
    Capito, Hon. Shelley Moore, a Representative in Congress from 
      the State of West Virginia.................................    83
    Davis, Hon. Susan A., a Representative in Congress from the 
      State of California........................................    33
    DeLay, Hon. Tom, a Representative in Congress from the State 
      of Texas...................................................    70
    Filner, Hon. Bob, a Representative in Congress from the State 
      of California..............................................     8
    Ganske, Hon. Greg, a Representative in Congress from the 
      State of Iowa..............................................    48
    Honda, Hon. Michael M., a Representative in Congress from the 
      State of California........................................    35
    Inslee, Hon. Jay, a Representative in Congress from the State 
      of Washington..............................................    23
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California........................................    25
    Radanovich, Hon. George, a Representative in Congress from 
      the State of California....................................    14
    Sherman, Hon. Brad, a Representative in Congress from the 
      State of California........................................    19
    Stenholm, Hon. Charles W., a Representative in Congress from 
      the State of Texas.........................................    52
    Thompson, Hon. Mike, a Representative in Congress from the 
      State of California........................................    28
    Watts, Hon. J.C., Jr., a Representative in Congress from the 
      State of Oklahoma..........................................    45
    Woolsey, Hon. Lynn C., a Representative in Congress from the 
      State of California........................................    81
Material submitted for the record by:
    Baca, Hon. Joe, a Representative in Congress from the State 
      of California, prepared statement of.......................    94
    Cunningham, Hon. Randy ``Duke,'' a Representative in Congress 
      from the State of California:
        Prepared statement of....................................    95
        Prepared statement of....................................    96
    DeFazio, Hon. Peter A., a Representative in Congress from the 
      State of Oregon, prepared statement of.....................    98
    Gephardt, Hon. Richard A., Democratic Leader, and Hon. Martin 
      Frost, Chairman, Democratic Caucus, prepared statement of..   105
    Hunter, Hon. Duncan, a Representative in Congress from the 
      State of California, prepared statement of.................   106
    Larson, Hon. John B., a Representative in Congress from the 
      State of Connecticut, prepared statement of................   107
    Luther, Hon. Bill, a Representative in Congress from the 
      State of Minnesota, prepared statement of..................   109
    Otter, Hon. Butch, a Representative in Congress from the 
      State of Indiana, prepared statement of....................   110
    Ryun, Hon. Jim, a Representative in Congress from the State 
      of Kansas, prepared statement of...........................   111
    Sandlin, Hon. Max, a Representative in Congress from the 
      State of Texas, prepared statement of......................   111

                                 (iii)

  

 
CONGRESSIONAL PERSPECTIVES ON ELECTRICITY MARKETS IN CALIFORNIA AND THE 
                    WEST AND NATIONAL ENERGY POLICY

                              ----------                              


                         TUESDAY, MARCH 6, 2001

                  House of Representatives,
                  Committee on Energy and Commerce,
                    Subcommittee on Energy and Air Quality,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1 p.m., in 
room 2123, Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Largent, 
Whitfield, Ganske, Shimkus, Shadegg, Radanovich, Bono, Walden, 
Tauzin (ex officio), Boucher, John, Waxman, Markey, Strickland, 
Barrett, and Luther.
    Staff present: Jason Bentley, majority counsel; Miriam 
Erickson, majority counsel; Hollyn Kidd, legislative clerk; 
Karine Almian, professional staff; Rick Kessler, minority 
counsel; and Sue Sheridan, minority counsel.
    Mr. Barton. If the subcommittee could please come to order, 
if the audience would take your seats, we have approximately 30 
Members who want to testify.
    Today we are going to receive testimony from Members of 
Congress, both sides of the aisle, perhaps several Senators 
from the other body, on the situation in California and the 
West and the general energy policy. I am looking forward to 
this. It is obvious there is a lot of interest, given the 
number of Members that asked to come before the subcommittee 
and testify.
    This subcommittee will continue to review what has happened 
and is happening in California and the surrounding Western 
States. We want to learn from the lessons of California's 
retail restructuring attempt, its efforts in the wholesale 
market and its responsibility in attempting to manage supply 
and demand for the State and the reactions at various times to 
the problems that began last summer and continue to this day.
    The lessons that we can learn from what has happened out 
West will help other States as they decide whether or not to 
open their retail electricity markets.
    We also want to conduct oversight over the general 
interstate situation in the West, both in the wholesale 
market--and consider what legislation, if any, might be needed 
at the Federal level in that area. I hope that the members of 
the subcommittee will think not just short term and State 
specific, but longer term and more generally what is going on.
    The development of additional generation capacity in this 
country should not be discouraged. In fact, it needs to be 
encouraged, in my opinion. The people that produce power should 
be kept interested in selling in the markets that need that 
power and encouraged to do so. We should also look at 
transmission capacity and what, if anything, we need to do at 
the Federal level to expedite additional transmission capacity 
for our country.
    Finally, some thought needs to be given to the consumers, 
the high prices that they have to shoulder and sometimes the 
inability of the market to send the appropriate price signal at 
the appropriate time.
    On our second, panel, we are going to look at the broader 
issue of national energy policy. We have approximately 15 
Members to testify on that issue, including the Republican Whip 
and the Republican Conference Chairman. We are going to hear 
testimony from Members representing all parts of the country. 
This is a good thing, because we do have regional energy 
markets, and if you have regional markets, there are going to 
be regional differences of opinion and regional differences in 
emphasis in the areas of our country.
    The subcommittee is going to conduct a number of hearings 
this spring as we attempt to put together a comprehensive 
energy policy for this country. The ability of the Members of 
Congress who are not on our committee to come forward and give 
their perspective before we put together a proposal, I think is 
very important and is very beneficial to the subcommittee. So I 
appreciate all the Members who have asked to testify.
    With that, I would see if the full committee chairman would 
like to give an opening statement.
    Chairman Tauzin. Go to the other side first.
    Mr. Barton. We will be honored to go to Mr. Markey. Usually 
I yield to the full committee chairman, but if he wants to 
defer to the distinguished member from Massachusetts, that is 
fine by me.
    Mr. Markey. I thank the chairmen very much, both of you. 
Thank you so much for having this great hearing today, hearing 
from our congressional colleagues.
    President Bush has suggested that the solution to the 
California energy crisis is to drill for oil in the pristine 
Arctic National Wildlife Refuge. He makes this recommendation 
despite the fact that only 1 percent of California's 
electricity comes from oil-fired power plants. In fact, 67 
percent of all the oil we consume in America, 13 million 
barrels a day out of the 20 million barrels we consume, just 
goes into gasoline tanks. So I think if you are looking for the 
problem, it is right there in every vehicle we are driving 
every day, not trying to pretend it is an electricity crisis, 
because it is not.
    The Republican leadership has introduced a bill to reduce 
foreign oil dependence, and they want to reduce it from 56 
percent today to 50 percent 10 years from now. That is their 
goal, only down to 50 percent in terms of our foreign 
dependence, which ultimately undermines quite simply the 
futility of taking that approach, if all we do is reduce the 
dependence on foreign oil down to 50 percent, Because we 
consume 25 percent of the oil today, but we have only 3 percent 
of the world's reserves.
    Seventy-six percent of those reserves are in OPEC, and 
there is not a lot we can do about that, unless we look at fuel 
economy standards. Sending in the oil rigs to scatter the 
caribou and shatter the Arctic wilderness is what I call the 
Unimog energy policy. You might have heard about the Unimog. It 
is a proposed new SUV that will be 9 feet tall, 7.5 feet long, 
3.5 inches wider than a Humvee, weighs 6 tons and gets 10 miles 
per gallon. Or is that 10 gallons per mile? I don't know. But 
it is heading in the wrong direction. That is not the big 
announcement that should have been made by the auto industry 
last week--A new breakthrough: They are even bigger; they are 
even more efficient at guzzling gas.
    It perpetuates a head-in-the-haze attitude toward polluting 
our atmosphere with greenhouse gasses and continuing our 
reliance upon OPEC oil for the foreseeable future. That is the 
bad news about that announcement. It is saying we are going to 
become more dependent.
    Now that our energy roles have forced us to think about the 
interaction of energy and environmental policy, it is a good 
time to say ``no'' to the Unimog energy policy and ``yes'' to a 
policy which moves us away from gas-guzzling SUVs and 
automobiles to clean-burning fuels, hybrid engines and much 
higher efficiency in our energy consumption. And we can do it. 
If we just improve our fuel economy standards by 3 miles per 
gallon, we will be able to save all the oil that we would 
produce out of the Arctic refuge.
    As a matter of fact, in 1987, 13 years ago, the average 
fuel economy in the United States was 26 miles per gallon. 
Today, 13 years later, it is 24 miles per gallon. In other 
words, in this technology-based economy, in this country that 
prides itself on its mastery of technology, we have gone 
backwards by 2 miles per gallon in the last 13 years, which is 
the height of technology innovation in our country's history. 
So just using existing technology on the shelf already, we 
would be able to save 3 miles per gallon, and more, if we made 
the commitment to do so.
    There is 26 to 38 trillion cubic feet of natural gas at 
Prudhoe Bay. I support going for it. Let's get that 26 to 38 
trillion feet.
    Mr. Barton. The gentleman's time has expired.
    Mr. Markey. The same thing is true across the board. We 
just need a common-sense policy.
    I thank the chairman.
    Mr. Barton. I thank the gentleman from Massachusetts.
    The gentleman from Louisiana, Mr. Tauzin, for a brief 
opening statement.
    Chairman Tauzin. Thank you, Mr. Chairman.
    Mr. Chairman, I want to commend you for holding this 
important hearing on the power situation in the Western third 
of our Country as you and the committee explore a new national 
energy policy for the entire country.
    There was a gentleman in the Carter administration, named 
Bob Freeman, who once postulated a truth profundity. He said 
that energy would last us forever if we just didn't use it, and 
it was upon that basis that much of the energy policy of the 
Carter years was formulated. And I hear that again echoed today 
in this room, that if we simply stop using it, everything will 
be okay.
    In California, electric generating capacity dropped 2 
percent in the last 10 years. Demand went up 14 percent. Now, 
we can stick our heads in the sand and believe that demand 
won't go up in this country, that the high-tech economy we are 
building doesn't require more energy; or we can face the real 
truth, and that is that when consumers need energy in this 
economy, this Nation needs to respond by making it available.
    Of course we ought to have conservation and conservation 
ought to be part of our plans. But recognizing growing demand, 
Mr. Chairman, requires us to recognize that supplies are 
critical and that keeping this country secure in its supplies 
is as important as keeping California secure in the supply of 
energy.
    We have had a previous hearing of this subcommittee--and I 
want to thank you for that--on the California regulatory 
experience. I think we understand a lot of those issues better 
today. You and I went to California. We had a chance to talk 
firsthand with the generators and the utilities and the 
regulators in California; and I think we also have a much 
better idea about what has to be done to make that market work.
    Frankly, I must say that having been there with you, I am 
very skeptical about the road that California itself is taking 
in trying to solve the problem for Californians, but I am also 
very pleased that you going to hear from other Members of 
Congress today, and that you are giving them a forum to voice 
their concerns and their opinions, because I think each will 
bring a new perspective to our understanding of the California 
situation.
    California, as we said earlier, is a huge part of this 
country, 12 percent of our GDP, and you can't have a crisis in 
that big a part of our country without it being a crisis for 
America. And we need to collectively find the answers. We are 
realizing more and more that electricity problems of one State 
are never confined to that State's boundaries. They are 
regional problems, and that is why this Western hearing is so 
important, because the whole Western region has been affected.
    We should be cautious about quick fixes in one State that 
can have unintended consequences for its neighbors, but I am 
confident that given the chance, mark-based approaches with an 
emphasis on supply are the long-term solution. The experience 
of States like Pennsylvania, Texas and Ohio, with the 
electricity markets that are working, should demonstrate to us 
that these markets can and will work.
    I want to urge all of our colleagues, those who are coming 
to testify and those who serve you on this great subcommittee, 
to look at the experience of the States where it is working, 
just as you look at the State of California where it has 
failed, and learn the differences and to help instruct the 
Nation on making good policy that can make good energy markets 
work again for the country.
    Joe, thank you for this hearing. I wish you well again.
    Mr. Barton. Thank you, Chairman Tauzin. We appreciate your 
attendance.
    I am told the gentleman from Louisiana does not wish to 
make an opening statement since he was here before. The 
gentleman from California, Mr. Waxman, is recognized for 3 
minutes for an opening statement.
    Mr. Waxman. Thank you very much, Mr. Chairman. I am going 
to be very brief because we have a very long and distinguished 
list of Members of the House and, I understand, maybe even from 
the Senate that will come and talk to us today about this 
energy issue.
    The energy problems in California, as Chairman Tauzin 
noted, are not going to be just a California problem; it is a 
problem for the West and it is going to be a problem all around 
this country if we have the expression, ``we want market forces 
to work''; that is what we were told in California, market 
forces were going to work in California and consumers would 
benefit. Instead, we have seen that California has clearly a 
dysfunctional market.
    We in the delegation met with Federal Energy Regulatory 
Commission Chairman Curt Hebert. During that meeting Mr. Hebert 
discussed how dysfunctional this California energy market is, 
and he said it was broken with regional and national 
ramifications. Well, what we are waiting for is if, as he said, 
California cannot put things right on its own, we want to know 
what the policy is going to be from this administration and 
from the FERC.
    I am interested in hearing what our colleagues have to say. 
I look forward to working with all of them and this new 
administration in dealing with this problem, but let no one 
think that what has happened in California will happen only in 
California. It is happening elsewhere, and it will continue to 
happen elsewhere if we have a blind faith in what is called 
market forces and deregulation without making sure that the 
market is really functioning and that there is in fact a market 
to function.
    I yield back the balance of my time.
    Mr. Barton. I thank the gentleman from California. We 
appreciate his interest in this issue. It is very important to 
his constituents. We really are pleased you are going to be 
involved in the debate.
    The gentleman from Illinois, Mr. Shimkus, for a brief 
opening statement.
    Mr. Shimkus. Mr. Chairman, I too will be brief.
    I think one of the big lessons we have learned so far is 
you can deregulate the industry if you are inherently an energy 
exporter. It is very tough to deregulate if you are an energy 
importer. Then you constrain yourself to other forces which--
then the consumer or the market has no control.
    When we talk about energy, we are talking about a broad 
portfolio of fuels, not really petroleum based, mostly natural 
gas, coal, nuclear. Those make up the energy portfolio that 
creates electricity for our use. Really one of the answers on 
the national scale is to have a wide range of choices, and 
where I beg to differ with my friend from California, the 
market will determine the most efficient use of these fuels. 
Make no mistake about it, if government intervenes and tries to 
have the fuel of choice, which is what we have seen with 
natural gas, then the market will be distorted. Then you will 
have government intervention through legislation that distorts 
the market.
    So I think we need to keep our clean air regulations, but 
we need to explore a broad base of fuels and let the market 
make the most efficient use for our consumption.
    The transmission grid is another thing we are going to be 
highly involved in. Even in Illinois, it should be a regional 
approach, because even though the Illinois utilities were in a 
transco, many of them are leaving. We in essence may have three 
RTOs or transcos in the Midwest area where, for more efficient 
operation, you will probably need to get that down to one. We 
will be working with FERC to do that.
    An interesting issue, very emotional. I look forward to it.
    Thank you, Mr. Chairman.
    Mr. Barton. I thank the gentleman from Illinois.
    Does the gentleman from Kentucky wish to make an opening 
statement?
    Mr. Whitfield. Mr. Chairman, thank you very much.
    For those of us that have listened to the testimony and 
have read the articles about what is going on in California, I 
think many of us would conclude that if California had set out 
to determine a way to make energy more expensive, they probably 
could not have done a better job than what they did.
    I was reading an article just recently that said neither 
Governor Davis nor the State legislature seemed ready to do the 
one thing that would solve the energy problem, and that is free 
retail rates. In fact, Governor Davis admitted as much a few 
weeks ago saying, ``Believe me, if I wanted to raise rates, I 
could solve this problem.'' So I look forward to the testimony 
of the Representatives from California and recognize that what 
is happening in California does have the potential to affect 
our entire country on this important issue.
    Mr. Barton. Thank you.
    Does the gentleman from Oregon wish to make a brief opening 
statement?
    Mr. Walden. Mr. Chairman, the current energy crisis is not 
just a California problem, it is a regional problem. The 
Northwest is already feeling the drastic consequences of high 
electricity markets. We are now at the epicenter of the perfect 
storm of electricity, high energy prices and low water levels 
behind our dams.
    As you know, Mr. Chairman, over 70 percent of the Pacific 
Northwest is powered by hydropower. That means in a bad water 
year, like we are in right now, the Northwest has got to go to 
market to supplement its energy needs. As anyone can see, given 
the crisis facing California, this is the worst time to 
purchase energy from this spot market. These high energy costs 
are now being passed down to our farmers, small business 
people, schools, seniors, anybody purchasing power.
    Some businesses have already begun to close. Farmers are 
now being bought out of their energy contracts for pumping. 
While it might help some of these farmers this year when they 
have low commodity prices and high energy costs, it sure raises 
havoc with the community in which they farm. The implement and 
seed and fertilizer dealers will not be able to continue 
without the farmers farming. If something doesn't happen soon 
to calm that storm, more trouble will follow.
    I know that Oregon is not the only State to experience 
these types of problems.
    Mr. Chairman, I remain concerned about the impact of some 
of the California utilities' inability to pay the bills for the 
power they have purchased from utilities in my region and the 
impact that may have on our ratepayers; and I look forward to 
hearing the comments of all the witnesses.
    Mr. Barton. Does the gentleman from Oklahoma, the vice 
chairman, wish to make a brief statement?
    Mr. Largent. Just a brief one, Mr. Chairman. I would like 
to enter my full opening statement for the record and also 
commend to the panel an article that appeared in the Los 
Angeles Times October 10, 2000, on ``Transmission Grid Funding 
Tangled Up by Power Crisis in California.'' I would like to 
enter that into the record as well.
    [The information referred to is retained in subcommittee 
files.]
    Mr. Barton. Without objection, so ordered.
    Mr. Largent. I would just say I look forward to the 
testimony of our panels before us. This is an important part of 
the process as we move forward to doing what we can at the 
Federal level to untangle the grid as it exists today.
    [The prepared statement of Hon. Steve Largent follows:]

Prepared Statement of Hon. Steve Largent, a Representative in Congress 
                       from the State of Oklahoma

    Mr. Chairman, thank you for holding this afternoon's hearing. I'm 
looking forward to listening and learning our House colleagues' 
perspective on the energy crunch that has hit California and the 
ancillary impact it has had on the surrounding states.
    I've said previously and I'll repeat it today, California took a 
bold and forward looking step when it decided five years ago to 
restructure the state's electric utility industry. Unfortunately, the 
implementation of its deregulation plan was based on the presumption 
that wholesale rates would remain low. It was a very faulty 
presumption.
    Wholesale rates did not remain low--in fact, wholesale prices 
reached historic highs. Consequently, PG&E and southern California 
Edison were unable to recoup their costs for the purchase of power on 
the spot market because consumer's retail rates remain capped.
    The result--a dysfunctional market, two very large investor-owned 
utilities on the verge of bankruptcy, the state of California floating 
a $10 billion bond issue to ensure that PG&E and So. Cal Edison can 
continue to purchase power, and the very real possibility of a state-
wide owned transmission system.
    Mr. Chairman, since December I've heard several people use the 
``perfect storm'' analogy to describe California's electricity crisis. 
At this point, I would ask for unanimous consent to insert into the 
record a ``Dear Colleague'' I sent on October 13, 2000. The title of 
the ``Dear Colleague''--`Forecast: Storms Ahead! The perfect storm'.
    The text of the ``Dear Colleague'' is only a few sentences:
    ``Dear Colleague:
    Increased demand, stagnant supply, and a congress stuck in neutral. 
Are these three elements combining to create ``the perfect storm''?
    California is only the first ``weather pattern'' showing up on 
doppler radar pointing to the growing crisis in our national electric 
delivery system.''
    On the reverse side of the ``Dear Colleague'' was an October 11, 
2000 article from the Los Angeles Times chronicling the lack of 
investment of the transmission grid.
    I take no pleasure in predicting California's electricity problems. 
I wish I had been wrong. But Mr. Chairman, with your leadership, I'm 
confident that this subcommittee will help lay the foundation to 
alleviate some of California's energy problems. I look forward to 
working with you and all interested parties on this worthy endeavor.

    Mr. Barton. Seeing no other members present, the Chair 
would ask unanimous consent that all members not present be 
given the requisite number of days to submit a formal opening 
statement in the record.
    Hearing no objection, so ordered.
    We want to welcome our first panel.
    If everyone testifies who signed up, we are going to have 
about 30 people today. I will start out with some of the best 
and brightest. By seniority, Mr. Filner of California, you are 
recognized for 5 minutes. Your statement is in the record in 
its entirety.
    Welcome to the subcommittee.

   STATEMENT OF HON. BOB FILNER, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Filner. Thank you, Mr. Chairman, for giving all of us 
the opportunity to testify before this distinguished committee. 
I particularly thank you for coming to San Diego last summer. 
You recognized the crisis could spread and you brought your 
subcommittee there, and we appreciate that very much.
    I represent San Diego, California, which was ground zero in 
this whole tragic episode. We were the first part of California 
to fully deregulate. That is, our retail prices and our 
wholesale prices were deregulated and within the space of 1 
month, retail prices doubled; within the space of 2 months, 
they tripled. Panic literally ensued in San Diego, and I think 
you witnessed part of it, Mr. Chairman. Scores of small 
businesses closed, almost right away. There was a sense that 
people could not keep up with these prices either as 
individuals, families or as businesses.
    I want to tell the committee that in San Diego, this was 
not fundamentally a crisis of supply and demand. There were 
tight supplies, but the summer was less warm than the previous 
one, the demand had actually gone down from the previous 
summer, and the costs doubled, tripled, and were heading even 
higher. There was no cost relationship to these higher prices. 
The natural gas price, the higher gas price, had not yet 
entered the picture. In fact, at the request of our San Diego 
delegation, FERC investigated the situation and found these 
prices to be unjust and unreasonable, and, therefore, illegal.
    Mr. Chairman the prices that we are paying in California 
are illegal. And yet FERC took no sanctions against the 
perpetrators of those illegal rates, and by not taking action, 
basically said, ``Go in and rob the State blind, then rob the 
region blind, and then rob the country blind.''
    The utilities in the northern and central parts of our 
State are facing bankruptcy, bankruptcy coming about because of 
the illegal prices that they have to pay. Mr. Chairman--at this 
moment, the State of California is paying for the cost of 
electricity $2 million an hour, $45 million a day, $1.2 billion 
a month. The energy cartel which is responsible for this has 
taken $20 billion out of our State in the last 6 or 7 months, 
and we are being bled dry.
    As we heard from the Representative from Oregon, this has 
become a regional problem. Washington, Oregon, Idaho and New 
Mexico are now paying these higher prices. It will be a 
national problem shortly.
    The President has announced he is going to take a hands-off 
policy and let the markets work, as we have heard from several 
members today. I will tell this committee, there ain't no 
market in California, there ain't no market in the Western 
region. There is a small energy cartel which controls the 
prices, and in fact they manipulated the market to their 
benefit.
    I do have legislation, Mr. Chairman, H.R. 268, which not 
only orders the FERC to set cost-based rates for electricity in 
our region, but says that the excessive costs over what is 
found to be just and reasonable shall be refunded to the 
consumers of California. I am joined in this bill by 
Congressman Hunter of California, who unfortunately could not 
be with us today. It is in his district that the tragic 
shooting took place. I know that we all mourn for those 
families.
    This is the only way, Mr. Chairman, that California will be 
made whole, to refund the money to the utilities of California 
and the consumers of San Diego. I think the administration has 
to act to do that.
    I agree with the chairman of the full committee, we do need 
more generating capacity and the Governor is working on that 
very diligently. And, yes, we need more conservation; and, yes, 
we need to work on renewable resources. But the market is not 
there. The market has been manipulated. There is evidence of 
illegal withholding of power. There is evidence of falsifying 
transmission documents to raise prices. There is evidence of 
laundering electrons through other States when there was a cap 
in California.
    Just a couple days ago, Mr. Chairman, a television station 
in San Diego ran a story which they showed that Duke Energy, a 
member of the energy cartel that I speak about, removed its 
largest turbine from production in its San Diego plant 50 
percent of the time during the recent Stage 3 alert in 
California. During 32 days of our Stage 3 alert, the plant 
removed from service its largest turbine, taking out 222 
megawatts of power.
    We had the power, Mr. Chairman, there was no shortage. They 
removed it illegally.
    I believe that the FERC must take action to restore price 
stability for the 3 year transition period during which we are 
building new capacity, and they must take sanctions. Just 
yesterday, Mr. Chairman, I filed charges against this energy 
cartel for grand larceny, theft, fraud, attempted murder, and 
violation of antitrust rules. This cartel is stealing our 
economic future, they are robbing our bank accounts, they are 
killing off our businesses; and I think this committee ought to 
concentrate on bringing this energy cartel to justice.
    [The prepared statement of Hon. Bob Filner follows:]

  Prepared Statement of Hon. Bob Filner, a Representative in Congress 
                      from the State of California

    Mr. Chairman and Colleagues, thank you for this opportunity to 
testify about the ongoing electricity crisis in the western United 
States. I would like to thank you, Mr. Chairman, for following this 
issue since last summer when you convened a special hearing of this 
subcommittee in San Diego, California. At that point, only San Diego 
was affected and I testified that this was a harbinger of things to 
come.
    San Diego was the first region to be affected by this so-called 
deregulation crisis because retail electricity rates were uncontrolled 
and in the space of one month, rates doubled. Another month passed and 
rates were triple what they had been just two months earlier.
    This situation became a California crisis when two utility 
companies became over-burdened with debt due the difference in the 
wholesale price they paid for power and the retail rates they were 
allowed to charge their customers.
    This situation became a regional problem when the supply of 
electricity to the states of Oregon and Washington was reduced and 
rates were increased. Now, Oregon and Washington were forced to join 
California in paying more for less electricity. It appears that other 
states, such as Idaho and New Mexico have been or soon will be 
affected.
    This situation has now become a national problem and it is 
imperative that this Congress, this Presidential Administration, its 
Justice Department and its Federal Energy Regulatory Commission (FERC) 
must act immediately to stop the abuse, the exploitation that is being 
perpetrated upon the American people.
    This Congress must act now, by immediately approving my legislation 
H.R. 268, the Electricity Consumers Relief Act of 2000. This 
legislation would require that the Federal Energy Regulatory Commission 
set cost-based rates for electricity if it makes the legal finding that 
wholesale rates are ``unjust and unreasonable.'' The FERC made that 
finding in a report issued last November. In addition, my legislation 
would require that the energy producers and marketers that profiteered 
from these illegal rates be required to provide restitution for their 
ill-gotten gains to western region consumers.
    This Administration must act immediately by ordering its two 
agencies, the Justice Department and the FERC, to comply with their 
mandates to protect the American public. The FERC is mandated to ensure 
that rates are ``just and reasonable,'' and the Justice Department is 
mandated to ensure that the electricity cartel is operating in 
compliance with our laws.
    The FERC has already found that rates are ``unjust and 
unreasonabl''--therefore illegal, but it has refused to act.
    Just last week, the California Independent System Operator (ISO) 
released a report in which they found that California ratepayers were 
overcharged by the electricity cartel $562 million over a two-month 
period. That is half a billion dollars in just two months! In addition, 
the ISO found that two-thirds of the costs charged by the electricity 
cartel in January 2001 were ``excessive.''
    We have been told that the problems in the western region were 
simply a matter of ``lack of supply to meet an increasing demand.'' If 
this were true, then why are rates higher in the winter when demand was 
one-third less than last summer? The electricity cartel blamed the lack 
of supply on plant closures for ``routine maintenance.'' I find it hard 
to believe that it was necessary to shut down 25-33% of our electrical 
generating capacity for ``routine maintenance.''
    Well now, there is evidence that shutting down electrical 
production was to create a ``shortage'' of electricity was simply 
another example of unethical and criminal behavior on the part of the 
electricity cartel. And I believe it is imperative that the Justice 
Department uses all of its powers to investigate what is criminal fraud 
and negligence by the electricity cartel.
    A couple of days ago, the San Diego ABC-affiliate, KGTV Channel 10, 
ran a story in which the plant manager of the Duke Energy plant in my 
district admitted that its largest turbine, Generator #4, was removed 
from service 50% of the time during the recent Stage III alert in 
California. Let me repeat, during our 32 days of Stage III alert in 
California, this plant removed from service its largest turbine 50% of 
the time! This meant that 222 Mw of power was shut down for no good 
reason!
    In addition, the Duke Energy plant completely shut down its second 
largest generator during the entire 32 days of Stage III alert. To make 
maters worse, as soon as the Stage III alert was declared, the output 
of a generator that was in operation was reduced by 12 Mw.
    The Stage III alert caused severe disruptions to businesses and 
families in San Diego. Workers at the Kyocera plant, the National Steel 
& Shipbuilding Company (NASSCO) were sent home--without pay--and their 
family life was thrown into turmoil because we had a ``power 
shortage.'' It turns out that we had no such power shortage--in fact, 
we had power to spare. Yet prices continue to skyrocket, causing small 
businesses to fail, forcing senior citizens to choose between heating 
their homes and purchasing food, and gouging all consumers with the 
artificially inflated cost of electricity.
    Mr. Chairman, it is imperative that all of us--Congress, the 
Administration, Justice Department and FERC--comply with our mandate to 
protect the public! FERC must immediately set cost-based wholesale 
rates and launch an investigation into this apparent price-fixing and 
market manipulation. The Justice Department must investigate and bring 
charges against the electricity cartel for criminal fraud and anti-
trust violations. And our Congress must act to hold the cartel 
accountable and to provide the relief that Americans so desperately 
need and deserve.
    Thank you for allowing me the opportunity t address you today and I 
look forward to working with this panel to protect and serve the 
American public.

    Mr. Barton. We thank you, Congressman Filner. We will put 
you down as undecided on the cause of the problem in 
California.
    Mr. Filner. Was that a question? Do I have another 5 
minutes, sir?
    Mr. Barton. I am going to go to the gentlelady from 
California, a member of the subcommittee, Congresswoman Bono. 
Your statement is in the record in its entirety. We recognize 
you for 5 minutes to summarize it.

 STATEMENT OF HON. MARY BONO, A REPRESENTATIVE IN CONGRESS FROM 
                    THE STATE OF CALIFORNIA

    Ms. Bono. Mr. Chairman, thank you for agreeing to hold this 
important hearing on California's continuing energy crisis. It 
is comforting to know you are ready and willing to assist our 
State in this time of need.
    As you well know, over the past decade this committee and 
our government have been focused on the new economy. The high-
tech revolution has dominated our agenda while the old economy, 
like electricity and other energy concerns, have been put on 
the back burner. It is becoming abundantly clear that you need 
the old economy to run the new economy.
    Despite numerous warnings from those in the industry, our 
country refused to develop a sound policy that addressed both 
the generation and transmission of energy. Even after the 
energy crisis of the 1970's, our country was focused on short-
term solutions rather than long-term planning. The State of 
California embarked on a deregulation plan which, as we have 
heard often, had several shortcomings. Combined with 
uncooperative weather and increased use in neighboring States, 
California was faced with the worst possible scenario.
    Further complicating this problem was the fact that even 
the basic economic laws of supply and demand were left 
unconsidered. Our State did not build any substantial new power 
plants the last decade, and just as importantly, since 1975, 
studies indicated that annual utility investments in the U.S. 
power transmission system have fallen by more than half.
    Now, due to this lack of a dependable supply, we in 
California are faced with the nearly inevitable situation of 
rolling blackouts. In the month of July, temperatures in the 
city of Coachella average 106 degrees; during the summer we 
even top off at 120 to 126 degrees. Make no mistake, with 
temperatures this high, blackouts are not a question of quality 
of life; rather, they can be a matter of life or death.
    Therefore, we must confront two critical issues, the price 
of energy and the availability of energy. According to the 1990 
census, the median household income for California's 44th 
Congressional District was $29,000. A family of four who earns 
about $2,500 a month before taxes cannot afford an electricity 
bill of $500 to $600 a month during the summer.
    While we choose to live in this climate and realize the 
cost of cooling our homes will be higher than in other parts of 
the State, there comes a point when these costs become 
unrealistic. As we attempt to understand what brought about 
these increases on the wholesale market, we must again turn 
toward California's flawed effort at deregulation.
    With the California Power Exchange offering suppliers the 
highest market clearing price and not the actual bid, we 
saddled ourselves with unnecessary cost, and despite FERC's 
December 15th order to change its methodology, the PX continued 
with its practice. Undoubtedly, the loss system set up by the 
State of California fed this vulture culture we have witnessed 
on the wholesale markets.
    But even more critical this summer will be the availability 
of power. While I applaud the Governor's efforts to bring on 
generating facilities as soon as possible, I wonder whether or 
not these facilities indeed will be ready by this summer and 
whether or not the State will have the capacity to transmit 
this new power. If not, I am deeply concerned as to our state 
of readiness to handle an emergency such as the one we might be 
faced with.
    The transmission of power is also of major importance. In 
fact, two of California's recent rolling blackouts were blamed 
on the bottleneck at Pad 15, a 90-mile transmission corridor 
linking the northern and southern sections of the State's power 
grid.
    The inability to shift power within our own State is very 
disconcerting. We should work on finding a means to encourage 
capital spending on the grid. If utilities are allowed to 
receive a higher rate of return on transmission investments, we 
can make great strides in shoring up this foundation.
    But while we work to rebuild our ability to generate and 
transmit energy, part of the short-term solution lies in our 
ability to conserve energy. I commend the Governor for 
embarking on an aggressive conservation effort. California is 
second only to Rhode Island in per capita electricity use. 
Still, I think we have the ingenuity and determination to 
improve further on this effort.
    However, the full bounty of any conservation effort will 
not materialize unless consumers are sent nominal price 
signals. We cannot continue to live in a world of smoke and 
mirrors while shifting costs along in another manner. Sooner or 
later, the bills will catch up with us.
    While the merits of price control State ownership of 
transmission lines are being debated, the truth remains that 
neither adds a single megawatt of power to the grid. Only by 
encouraging an increase in supply, can the affordability of 
price and the consistency of service improve.
    Mr. Chairman, while this hearing is focused on the 
electricity crisis in California, I would also like to commend 
you for having the foresight to conduct a hearing last week on 
the national shortage of natural gas. Since most new generating 
facilities in California are gas powered, the gas shortage is 
inevitably tied with our ability to power our State. It is my 
hope that we do not ignore the difficult choices our country 
must make to provide a dependable source of natural gas.
    It would seem then that we have many angles to address--
price, availability of electricity and natural gas, and the 
transmission of both these sources of energy. As we move 
forward to face this challenge, I am heartened by the fact that 
our country and our State have consistently risen to the task. 
If we have the courage to make the difficult choices today, we 
can pave the way for a successful and prosperous future.
    Now, I am going to take a breath. Thank you, Mr. Chairman.
    [The prepared statement of Hon. Mary Bono follows:]

Prepared Statement of Hon. Mary Bono, a Representative in Congress from 
                        the State of California

    Mr. Chairman. Thank you for agreeing to hold this important hearing 
on California's continuing energy crisis. It is comforting to know that 
you are ready and willing to assist our state in this time of need.
    As you well know, over the past decade, this committee and our 
government have been focused on the new economy. The high tech 
revolution has dominated our agenda while the old economy, like 
electricity and other energy concerns, has been put on the back burner. 
It is becoming abundantly clear that you need the old economy to run 
the new economy.
    Despite numerous warnings from those in the industry, our country 
refused to develop a sound policy that addressed both the generation 
and transmission of energy. Even after the energy crisis of the 1970's, 
our country was focused on short-term solutions rather than long term 
planning.
    The State of California embarked on a deregulation plan which, as 
we have heard often, had several shortcomings. Combined with 
uncooperative weather and increased use in neighboring states, 
California was faced with the worst possible scenario.
    Further complicating this problem was the fact that even the basic 
economic laws of supply and demand were left unconsidered.
    Our state did not build any new substantial power plants the last 
decade. And just as importantly, since 1975, studies indicated that 
annual utility investments in the U.S. power-transmission system have 
fallen by more than half.
    Now, due to this lack of a dependable supply, we in California are 
faced with the nearly inevitable situation of rolling blackouts.
    In the month of July, temperatures in the City of Coachella average 
106 degrees. During the summer, we even top off at 120 to 126 degrees.
    Make no mistake, with temperatures this high, blackouts are not a 
question of quality of life, rather they can be a matter of life or 
death.
    Therefore, we must confront two critical issues: the price of 
energy and availability of energy.
    According to the 1990 Census, the median household income for 
California's 44th Congressional District was $29,049.
    A family of four who earns around $2,500 a month before taxes 
cannot afford an electricity bill of over $500 to $600 a month during 
the summer. While we choose to live in this climate and realize the 
cost of cooling our homes will be higher than in other parts of the 
state, there comes a point when these costs become unrealistic.
    As we attempt to understand what brought about these increases on 
the wholesale market, we must again turn towards California's flawed 
effort at deregulation. With the California Power Exchange offering 
suppliers the highest market clearing price, and not the actual bid, we 
saddled ourselves with unnecessary costs. And despite FERC's December 
15 order to change this methodology, the PX continued with this 
practice. Undoubtedly, the lawful system set up by the State of 
California fed this ``vulture culture'' we have witnessed on the 
wholesale market.
    But even more critical this summer will be the availability of 
power.
    While I applaud the Governor's efforts to bring on generating 
facilities as soon as possible, I wonder whether or not these 
facilities will indeed be ready by this summer and whether or not the 
state will have the capacity to transmit this new power. And if not, I 
am deeply concerned as to our state of readiness to handle an emergency 
such as the one we might be faced with.
    The transmission of power is also of major importance. In fact, two 
of California's recent rolling blackouts were blamed on the bottleneck 
at Path 15, a 90-mile transmission corridor linking the northern and 
southern sections of the state's power grid. The inability to shift 
power within our own state is very disconcerting.
    We should work on finding a means to encourage capital spending on 
the grid. If utilities are allowed to receive a higher rate of return 
on transmission investments, we can make great strides in shoring up 
this foundation.
    But while we work to re-build our ability to generate and transmit 
energy, part of the short term solution lies in our ability to conserve 
energy. I commend the Governor for embarking on an aggressive 
conservation effort. California is second only to Rhode Island in per 
capita electricity use. Still, I think we have the ingenuity and 
determination to improve further on this effort.
    However, the full bounty of any conservation effort will not 
materialize unless consumers are sent nominal price signals. We cannot 
continue to live in a world of smoke and mirrors while shifting costs 
along in another manner. Sooner or later, the bills will catch up with 
us.
    While the merits of price controls and state ownership of 
transmission lines are being debated, the truth remains that neither 
adds a single megawatt of power to the grid. Only by encouraging an 
increase in supply come the affordability of price and the consistency 
of service.
    Mr. Chairman, while this hearing is focused on the electricity 
crisis in California, I would also like to commend you for having the 
foresight to conduct a hearing last week on the national shortage of 
natural gas. Since most new generating facilities in California are gas 
powered, the gas shortage is inevitably tied with our ability to power 
our state. It is my hope that we do not ignore the difficult choices 
our country must make to provide a dependable source of natural gas.
    It would seem then, that we have many angles to address: price, 
availability of electricity and natural gas and the transmission of 
both these sources of energy.
    As we move forward to face this challenge, I am heartened by the 
fact that our country and our state have consistently risen to the 
task. If we have the courage to make the difficult choices today, we 
can pave the way for a successful and prosperous future.

    Mr. Barton. Thank you, Congresswoman.
    Congressman Inslee, we had a spot for you at the dais, and 
since you weren't here, we let Mr. Issa take it. If you will 
squeeze in, we will give you a chance on this panel.
    We are trying to go by seniority and by members of the 
committee. It is going to be confusing. I think Mr. Radanovich 
would be the next and then Mr. Sherman, Mr. Inslee, and then 
Mr. Istook.
    Mr. Radanovich, your statement is in the record in its 
entirety. You are recognized for 5 minutes.

    STATEMENT OF HON. GEORGE RADANOVICH, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Radanovich. Thank you, Mr. Chairman, and again, thank 
you for holding this hearing today and for also coming out to 
California a couple of weeks ago to get apprised of our 
situation.
    The California Central Valley district that I represent has 
experienced both rolling blackouts and the beginnings of rate 
increases which will affect us for years to come. The 
California electricity disaster is not behind us; the worst is 
yet to come. The State of California continues to hemorrhage 
while we are transfusing blood into the victim, but we have not 
yet done what is necessary to stop the bleeding at its source.
    To describe this crisis simply as a rare one-time event or 
a perfect storm is also to fail to recognize that California 
and the rest of the Nation have serious and fundamental 
problems in our energy policy. For government officials to say 
that they did not or could not see the storm coming is to deny 
their responsibility in this disaster.
    There are many warning flags in the record to show that 
responsible officials should have been aware of the forces of 
increasing demand for energy and restrictions on the supply of 
energy were to clash at a price point that was unsupportable. 
Past low natural gas prices may have postponed the day of 
reckoning and recent low-water years may have accelerated that 
day, but the day was inevitable.
    The California electricity disaster was preventable under a 
different public policy. A more rational energy policy of 
encouraging supplies to meet demand at low prices instead of a 
policy of restricted supplies at high prices to limit demand 
the answer. The root cause of the failure was the unwillingness 
of government officials to admit and explain that policies have 
price consequences. For example, encouraging conservation 
requires higher and higher energy prices to encourage more and 
more savings.
    California is already the second lowest energy per capita 
consuming State in the Nation, and no doubt will be the lowest 
once more industry leaves the State because of high energy 
prices. Clean air is an important goal, but it requires the 
investment in technologies that add to the cost of producing 
energy. Economics dictate if we do not allow the construction 
of new facilities, the increasing competition for the existing 
resources makes them more valuable.
    California regulators have for decades taken advantage of 
strategies to delay the unacceptable cost impacted on consumers 
of these policies. These strategies have included eating into 
the generation reserves to satisfy demand for new capacity, 
gambling on the hope of low spot market prices, depending on 
out-of-State resources that have competing demands, and 
delaying rate impacts through the use of artificial consumer 
rates.
    The most recent failed strategy was to hope that 
deregulation would provide lower prices forever. Deregulation 
is an essential tool for the eliminating and avoiding of 
unjustified costs, but does not control the price point. Under 
deregulation, pricing will settle high or low depending on the 
policy that affects the availability of supply.
    So where do we go from here? I was happy to hear the States 
of Pennsylvania and Ohio understand that successful 
deregulation requires extensive citizen involvement and 
effective government deregulators that constantly monitor the 
markets so that appropriate mid-course corrections are taken in 
a fairly timely manner. I was also happy to hear that they 
understand that sustainable low energy prices are a result of 
abundant supplies and not of deregulation itself.
    In California, I hope we have also learned the very 
important lesson about price volatility in both the gas and 
electricity markets and that consumer protection from that 
volatility is essential. It is unacceptable to pass on all the 
market risk to consumers, who are in no position to mitigate 
much of that risk.
    Unfortunately, the California PUC put energy consumers in 
the same position as those who choose to live without health 
insurance. As long as you don't get sick, it is the lowest cost 
approach. But when you do get sick, you face enormous bills. 
Adequate consumer protection could have been provided in the 
deregulated model by requiring that consumers be required 
contracts with terms of either a fixed price for some period of 
time, or at a variable price with escalation caps, as much as 
mortgages are purchased at fixed rates or adjustable rate 
mortgages, and prior notification of price changes. If these 
consumer protections had been required in California, I believe 
the utilities, energy marketers and the new producers would not 
have accepted the flawed restructuring scheme that was put in 
place.
    These market participants also would have then been 
motivated to reduce their risk so as to gain market 
competitiveness by building new power plants, encouraging 
demand management and diversifying the energy mix.
    Unfortunately, California seems to have fallen back on the 
regulated model, which previously failed to protect consumers 
as the only way to provide consumer protection. The serious 
flaws of the regulated model, where an inefficient bureaucratic 
planning agency determines the marketplace, have been 
temporarily forgotten, until we are forced to relearn them.
    I would ask for additional minute, if I may.
    Mr. Barton. If you can make it a quick minute.
    Mr. Radanovich. Sure.
    I am encouraged by the actions of Governor Davis and 
President Bush to expedite the permitting of new power 
generation and transmission facilities in California. This 
indicates that the Governor also understands the true answer to 
the consumer's need for energy at reasonable cost lies 
primarily with an increasing supply. However, expedited 
permitting must produce results and not become a faster process 
for regulators to simply say no.
    It is also important to understand that building a large 
number of gas-fired power plants will not bring down the cost 
of energy unless there is an ample supply of inexpensive gas to 
fire the plants. The United States must aggressively and 
responsibly develop its own gas resources to assure a low-cost 
supply. There is an arrogance in the view that it is acceptable 
to develop the gas resources off the coast of Sable Island in 
Canada to meet the needs of New England, but it is not 
acceptable to develop the same resources off our own coast. If 
ANWR were located in Canada, would it be equally 
environmentally concerned? We must develop our own resources in 
an environmentally responsible way and not take undue advantage 
of other countries to meet our domestic needs.
    Thank you, Mr. Chairman, for your interest in the issue. I 
look forward to this hearing.
    [The prepared statement of Hon. George Radanovich follows:]


   Prepared Statement of Hon. George Radanovich, a Representative in 
                 Congress from the State of California

    Thank you, Mr. Chairman, for holding this hearing today on the 
electricity disaster in California. The California Central Valley 
district I represent has experienced both the rolling blackouts and the 
beginnings of rate increases, which will affect us for years to come.
    I speak today on behalf of the consumers in my district who 
recognize that they are the ones who will carry the burden of more 
blackouts and much higher electricity prices because of the actions, 
sometimes lack of actions, and decisions of government officials that 
led to, or at best failed to prevent, the disaster. Higher electricity 
prices and blackouts have a devastating impact on low and fixed income 
citizens. Because energy is a part of everything we do, the impact is 
seen not only in higher energy bills, but also in loss of jobs, higher 
rents, higher food bills, and higher bills generally. These bills will 
only grow larger either by rate increases or tax increases. We haven't 
seen the largest portion of this problem yet.
    The Central Valley district I represent comprises the two largest 
agricultural producing counties in the nation. As a result, it 
continues to be affected by the stagnation of agricultural commodity 
prices over the past years. Higher bills cannot be readily passed on or 
absorbed.
    The California electricity disaster is not behind us, the worst is 
yet to come. The State of California continues to hemorrhage. We are 
transfusing blood into the victim, but that we have not yet done what 
is necessary to stop the bleeding at its source.
    To describe this crisis simply as a rare, one-time event, a 
``Perfect Storm,'' is also to fail to recognize that California, and 
the rest of the nation, have serious and fundamental problems in our 
energy policy. For government officials to say they did not or could 
not see this storm coming is to deny their responsibility in this 
disaster. There are many warning flags in the record to show that 
responsible officials should have been aware that the forces of 
increasing demand for energy, and restrictions on the supply of energy, 
were about to clash at a price point that is unsupportable. Past low 
natural gas prices may have postponed the day of the reckoning, and 
recent low water years may have accelerated that day, but the day was 
inevitable.
    The California electricity disaster was preventable under a 
different public policy. A more rational energy policy of encouraging 
supplies to meet demand at low prices, instead of a policy of 
restricted supplies at high prices to limit demand, was the answer. The 
root cause of the failure was the unwillingness of government officials 
to admit and explain that policies have price consequences. For 
example, encouraging conservation requires higher and higher energy 
prices to encourage more and more savings. California is already the 
second lowest energy-per-capita consuming state in the nation and no 
doubt will be the lowest once more industry leaves the state because of 
high energy prices. Clean air is an important goal, but it requires the 
investment in technologies that add to the cost of producing energy. 
Economics dictate that if we do not allow the construction of new 
facilities, the increasing competition for the existing resources makes 
them more valuable.
    California regulators have for decades taken advantage of 
strategies to delay the unacceptable cost impact on consumers of these 
policies. These strategies have included:

 eating into generation reserves to satisfy the demand for new 
        capacity,
 gambling on the hope of low spot market prices,
 depending on out-of-state resources which have competing 
        demands,
 and delaying rate impacts through the use of artificial 
        consumer rates.
    The most recent failed strategy was to hope that deregulation would 
provide low prices forever. Deregulation is an essential tool for 
eliminating and avoiding unjustified costs, but it does not control the 
price point. Under deregulation, prices will settle high or low 
depending on the policy which affects the availability of supply.
    So where do we go from here? I was happy to hear from the States of 
Pennsylvania and Ohio that they understand that successful deregulation 
requires extensive citizen involvement; and effective government 
``deregulators'' that constantly monitor the markets so that 
appropriate mid-course corrections are taken in a timely manner. I was 
also happy to hear that they understand that sustainable low energy 
prices are a result of abundant supplies and not of deregulation 
itself.
    In California, I hope, we have also learned a very important lesson 
about price volatility in both the gas and electricity markets, and 
that consumer protection from that volatility is essential. It is 
unacceptable to pass on all the market risks to consumers who are in no 
position to mitigate much of that risk. Unfortunately, the California 
PUC put energy consumers in the same position as those who choose to 
live without health insurance. As long as you don't get sick, it is the 
lowest cost approach. But when you do get sick, you face enormous 
bills.
    Adequate consumer protection could have been provided in the 
deregulated model by requiring that consumers be provided with 
contracts at terms of either a fixed price for some period of time, or 
at a variable price with escalation caps, much as mortgages are 
purchased as fixed rate or as ARMs; and prior notification of price 
changes. If these consumer protections had been required in California, 
I believe the utilities, energy marketers and new producers would not 
have accepted the flawed restructuring scheme that was put in place. 
These market participants also would have then been motivated to reduce 
their risk so as to gain market competitiveness by building new power 
plants, encouraging demand management, and diversifying the energy mix.
    Unfortunately, California seems to have fallen back on the 
regulated model, which previously failed to protect consumers, as the 
only way to provide consumer protection. The serious flaws of the 
regulated model, where an inefficient bureaucratic planning agency 
determines the market place, have been temporarily forgotten until we 
are forced to relearn them.
    I am encouraged by the actions of Governor Davis and President Bush 
to expedite the permitting of new power generation and transmission 
facilities in California. This indicates that the Governor understands 
that the true answer to the consumers need for energy at a reasonable 
cost lies primarily with increasing supply. However, expedited 
permitting must produce results, and not become a faster process for 
regulators to simply say ``No.''
    It is also important to understand that building a large number of 
gas fired power plants will not bring down the cost of electricity 
unless there is an ample supply of inexpensive gas to fire the plants. 
The United States must aggressively and responsively develop its own 
gas resources to assure a low cost supply. There is arrogance in the 
view that it is acceptable to develop the gas resources off the coast 
of Sable Island, Canada to meet the needs of New England, but that it 
is not acceptable to develop the same resources off our own coasts. If 
ANWR where located in Canada, would we be equally environmentally 
concerned? We must develop our own resources in an environmentally 
responsible way and not take undue advantage of other countries to meet 
our domestic needs.
    In summary, a lesson of the California electricity disaster is that 
our energy policy must focus on meeting the energy needs of America's 
consumers at a reasonable cost. We must provide the consumer adequate 
protection from higher and higher prices by developing all of our 
energy resources in a responsible manner.
    Mr. Chairman, there are things the Federal government can do now to 
help California start immediately on the path to correct the 
fundamental problems instead of compounding the problem. I have 
developed and propose for your consideration the attached letter to the 
Governor offering to assist wherever it is feasible to resolve the 
California crisis. However, we must be asked to provide the assistance, 
as clearly this crisis requires a largely State initiated solution.
    Thank you again Mr. Chairman for interest in this issue and holding 
this hearing. I look forward to working with you in developing a 
national energy policy for the benefit of our Nation.

    Mr. Radanovich. I also have a letter to Gray Davis on 
possible ways that the Federal Government might be able to help 
in this if he is so inclined to ask. I would like to submit 
that for the record.
    Mr. Barton. Without objection.
    [The letter follows:]
                      U.S. House of Representatives
                                           Washington, D.C.
                                                      March 3, 2001
The Honorable Gray Davis
Governor, State of California
Sacramento, CA 95814
    Dear Governor Davis: I am writing to discuss the California energy 
situation. The fundamental problems that led to the California 
electricity disaster cannot be corrected with simple, quick, crisis 
driven actions which avoid or postpone the more difficult decisions 
that are also necessary. Addressing the fundamental problems will 
require constant hard work, attention, openness, and reporting for 
several years to come. An extraordinary, expedited process must be 
implemented now to bring together all the parties, especially 
consumers, to a common table to establish a comprehensive plan of 
action and make sure it is implemented successfully. I encourage you to 
involve consumers especially so they understand and agree with the 
future vision for meeting electricity needs in California, what it will 
cost, and how it will benefit them. As you know, time is of the 
essence.
    The federal government can participate beneficially, in a 
collaborative and expedited manner, in such an extraordinary process. 
For the near-, mid- and longer-terms, until the situation is fully 
corrected, it can assist by providing:

--enhanced market monitoring to prevent abuses;
--a third party view of the reasonableness of proposed bilateral 
        contracts to spur negotiations;
--coordination of federal reviews of power generation facilities to 
        expedite permitting and construction;
--expertise to identify and correct the flaws in the current 
        restructuring scheme to help California establish an effective 
        path to the future;
--accelerated input on its designs for a Regional Transmission 
        Organization (RTO) in the West, including California, to 
        establish a more effective wholesale market;
--expedited analysis of Path 15 and other transmission ``bottlenecks'' 
        to maximize the flow of lowest cost power;
--anticipatory FEMA assistance, until adequate electricity supplies are 
        brought online, to reduce the impact of brownouts and 
        blackouts.
    I will work with you to help obtain this federal participation and 
assistance in setting California on an effective path to a future of 
low-cost and abundant electricity for its citizens. Thank you for your 
attention to this pertinent matter.
            Sincerely,
                                          George Radavovich
                                                 Member of Congress

    Mr. Barton. The gentleman from California, Mr. Sherman. 
Your statement is in the record. You are recognized for 5 
minutes.

  STATEMENT OF HON. BRAD SHERMAN, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Sherman. Thank you, Mr. Chairman, for holding these 
hearings. I want to commend my colleagues from California. They 
have presented much useful information that I will try to avoid 
repeating. I agree with most of what they have said on both 
sides of the aisle.
    I would point out that this was a crisis that the smartest 
people in the country did not see. The smartest people on Wall 
Street were not selling PG&E or SoCal short, and the executives 
for these two large utilities were not objecting to the 
structure of the situation as recently as a year ago. This 
caught a lot of us by surprise.
    This problem is perhaps greater----
    Mr. Barton. Congressman Inslee, you might want to go down 
there where that microphone is.
    Mr. Sherman. I will miss you.
    Mr. Barton. I am sorry.
    Mr. Sherman. The problem is perhaps greater than we 
realize. It could push California into a recession. That could 
pull the Nation into a recession.
    Beyond the economics, people will die in California and the 
West this summer. Some will die because of crime caused by 
rotating blackouts. Some will die in overheated apartments 
without air conditioning.
    This problem is not only one of electrical generation, it 
may also be one of natural gas supply in California. I do not 
think that we will have a supply crisis nationwide, but in 
California, we use natural gas to generate electricity, and we 
may not have enough of it to even fire up the limited number of 
plants that we have.
    I am here to support one small step toward conservation 
which will be the least controversial thing Congress could do 
to help this crisis, and the quickest thing that Congress can 
do, and that is to allow California and other Pacific time zone 
States to adjust daylight saving time in order to conserve 
energy. I ask this committee as quickly as possible to have a 
markup on H.R. 704, a bill I proposed to this Congress roughly 
a month ago--actually less than that--and which has 
cosponsorship from such diverse members as Mr. Filner and Mr. 
Doolittle.
    What this bill would do is simply allow California to alter 
its daylight savings time and allow other Pacific States to do 
the same. This is in response to a resolution passed by the 
California legislature last year asking for this freedom. I 
think people on both sides of the aisle will believe that we 
ought to let the Federal Government allow California to respond 
to this crisis.
    My own suggestion to the State government is, if this power 
is available, we should go to double daylight saving time from 
May 1st until Labor Day. This is a period of time when even if 
we were on double daylight savings time, it would be light at 7 
a.m. in the morning. It is also a period of time when children 
are not going to school except during May, when, as I say, it 
would be lighten well before 7 a.m., and it is the period of 
time when we are going to face the greatest energy crisis since 
the electrical availability crisis will be greatest when the 
days are warmest.
    The other States in the Pacific time zone are given the 
same freedom, first because they also have an energy crisis 
that they share with us, and second, because many of these 
States want to remain in sync with California, and that is 
perhaps why the bill is cosponsored by Shelley Berkley of 
Nevada.
    Now, daylight saving time will save between 1 and 2 percent 
of our energy. This is as a result of a recent study done by 
the California Department--California Energy Commission and is 
consistent with quite a number of studies done by the U.S. 
Department of Transportation. As a matter of fact, daylight 
savings time was initiated for the purpose of saving energy 
during World War I and has been reemployed several times during 
other energy crises such as World War II and the 1970's.
    In addition to the reduction in energy usage, that energy 
usage reduction will take place just at the right time; that is 
to say, roughly between 5 and 7 in the evening or 5 and 8 in 
the evening when energy demand is at one of its peaks during 
the day. This is because when people go home, they will not 
have to turn on all the lights in their home in order to make 
it light; they need simply raise the curtain. It is when people 
first begin arriving home when homes are operating and using 
electricity and businesses are still open using electricity as 
well. It is one of the times we need to reduce energy usage.
    In addition, studies show, including a 1975 study from the 
Department of Transportation, that daylight saving time of this 
type would reduce crime and that it would reduce traffic 
accidents as well.
    I would hope that this committee would move forward as 
quickly as possible on what, as I mentioned before, would be 
the one thing I think we could do that is noncontroversial and 
we can do quickly. Thank you.
    [The prepared statement of Hon. Brad Sherman follows:]

 Prepared Statement of Hon. Brad Sherman, a Representative in Congress 
                      from the State of California

    Mr. Chairman, thank you for giving me the opportunity to testify 
before the subcommittee this afternoon.
    We all recognize that the crisis facing California is a complex 
problem that no single action will resolve. I would like to discuss one 
step Congress can take to give California an additional tool with which 
to combat this crisis: authorizing California to adjust it's time to 
conserve energy.

       H.R. 704--THE EMERGENCY TIME ADJUSTMENT AUTHORIZATION ACT

    Last year, the California State Legislature passed Assembly Joint 
Resolution (AJR) 56 asking Congress to permit California to move 
immediately to daylight saving time (DST) in order to help solve the 
energy crisis. Congress has yet to act. California State Senator Betty 
Karnette has reintroduced the resolution during the current legislative 
session and she asked me to introduce legislation at the federal level 
to allow California to lengthen daylight saving time.
    H.R. 704, the Emergency Time Adjustment Authorization Act (ETAAA), 
which I introduced on February 14, 2001, would authorize California and 
the other Pacific Time Zone states to adjust their time if the State 
Legislature of a State finds that an adjustment would lead to energy 
reduction. If one State makes a finding that an adjustment would lead 
to energy reduction and adjusts its time, the other States in the time 
zone could make an adjustment without making a similar finding. The 
bill extends this authority to the Pacific Time Zone states until 
December 31, 2003.
    Mr. Chairman, as Congress considers H.R. 704, there are a number of 
important points to remember about the bill: (1) H.R. 704 does not 
require California or the other States to make adjustments to their 
time; (2) it does not mandate what adjustment the States must make; (3) 
the bill is temporary in nature, to allow California to deal with the 
crisis at hand; (4) historical and contemporary analyses of the effects 
of daylight saving time indicate that extended daylight saving time 
does indeed save significant energy, in addition to other ancillary 
benefits. In short, it gives a temporary authorization to the 
California and the other western states to adjust their time to deal 
with a very specific problem.

H.R. 704 Gives the Authority and the Responsibility to the State 
        Legislatures
    The President has indicated that the energy crisis is a State issue 
which demands a State response. H.R. 704 does not require California or 
the other States to make adjustments to their time. Rather, the bill 
authorizes the States to adjust their time if they make a finding that 
such an adjustment would ``help alleviate the energy crisis.''
    H.R. 704 gives the State legislature a tool it needs to address the 
energy crisis, specifically, the authority to adjust the time in a 
manner which benefits the state the most. The State legislature is the 
appropriate body to consult with the transportation authorities, 
broadcast corporations, school districts and other interested parties 
in the State regarding the adjustment of time.

There is No Congressional Mandate for Action
    The Emergency Time Adjustment Authorization Act authorizes action; 
it does not require it. The Legislature has asked for this authority, 
so it is likely that they would use this authorization. By granting the 
authority without giving the State a mandate, the bill provides 
California with the tools to ease the burden. The bill opens the doors 
for action; it does not tell California which door to walk through.
    My suggestion to California is double daylight saving time--
standard time plus two hours--from May 1 to Labor Day. Under this plan, 
it will be light by 6:52am during the school year and well before 
7:30am in the August and pre-Labor Day period. Also, the warm Summer 
months are when we will have the greatest electrical shortage.

The Authority to Adjust the Time is Temporary and Specific in its 
        Rationale
    The authority that the bill grants to the States is temporary and 
its purpose is limited in nature. The bill gives the States the 
authority to adjust their time until December 31, 2003.

Other Pacific Time Zone States
    H.R. 704 gives other Pacific Time Zone States the same authority as 
California. These states face many of the same electrical shortages as 
California. Even if they did not, some Pacific Time Zone States may 
feel the need to keep time with California. I am pleased that 
Representative Shelley Berkley of Nevada is a co-sponsor of my bill.

          BRIEF HISTORY OF THE EFFECTS OF DAYLIGHT SAVING TIME

    Mr. Chairman, throughout the history of daylight saving time, 
Congress has adjusted daylight saving time to conserve energy in times 
of crisis. The energy crisis that grips California calls for this 
unusual, but not unprecedented, step to ease the burden on the 
California power grid.
    When daylight saving time (DST) was first enacted by Congress in 
1918, its purpose was to conserve resources for the war effort. During 
World War II, the United States observed daylight savings time year-
round from 1942 to 1945 for the same reason. And, in the 1970's, 
Congress extended daylight saving time in response to various energy 
crises.
    Following the extension of daylight saving time in 1974, Congress 
directed the Department of Transportation (DOT) to conduct a study on 
the effects of the extended daylight saving time. The DOT study 
released in 1975 made a number of conclusions. The following list is 
not inclusive of the entirety of the report's conclusions.

 DST saves energy. DOT estimates that observing DST in March 
        and April saved the equivalent in energy of 10,000 barrels of 
        oil each day--totaling 600,000 barrels each year in 1974 and 
        1975.
 DST saves lives and prevents traffic injuries. DST allows more 
        people to travel home from work and school in the daylight, 
        which is much safer than darkness. And, according to the DOT 
        report, except for the months of November and December, DST 
        does not increase the morning hazard for those going to school 
        and work.
 DST prevents crime. Because people get home from work and 
        school and complete more errands and chose in daylight, DST 
        seems to reduce people's exposure to various crimes, which are 
        more common in darkness than in light.

DST Saves Energy
    DST saves energy because it alters the time at which demand for 
electricity is at its peak. One of the peak demand periods for 
electricity occurs between 5pm-8pm, when the sun sets and people come 
home from work. As people come home from work, their first inclination 
is to turn on a light. If people come home and it is light outside, 
there is less of an inclination to turn a light on. But pushing the 
sunset back one hour does not save the energy alone. Energy savings is 
realized because even with the time adjustment, people tend to go to 
sleep at the same time under daylight saving time as standard time. 
And, in the morning, whether it is light out or not, lights are turned 
on. People get ready for work and school. And, it takes the same amount 
of time to get ready to go to work or school under daylight saving time 
as it does under standard time.
    Data analyzed by the DOT and the California Energy Commission (CEC) 
support the claim. The 1975 DOT report estimated that year-round DST 
resulted in approximately 1% reduction in energy consumption.
    In response to the resolution passed by the California Legislature 
and the introduction of H.R. 704, the California Energy Commission 
(CEC) is reviewing data on the conservation benefits of daylight saving 
time. The following information is preliminary and the final review 
should be completed in the very near future.

 According to CEC econometric analysis, DST would save 
        California about 500 MWh in the Spring months.
 Results of the CEC study on DST's ancillary benefits during 
        the Spring months are consistent with the 1975 DOT report.

DST Saves Lives and Prevents Traffic Injuries
    DST saves lives and prevents traffic injuries. DST allows more 
people to travel home from work and school in the daylight, which is 
much safer than darkness. And, according to the DOT report, except for 
the months of November and December, DST does not increase the morning 
hazard for those going to school and work.
    The 1975 DOT report states that ``after the nation goes on DST 
there is one hour more of darkness in the morning and one hour less in 
the evening.'' The DOT hypothesized that there should be an increase in 
morning fatal accidents and a decrease in evening fatal accidents. 
Since there are more fatal events in the evening, DST should produce a 
net decrease in the total number of fatal accidents.
    According to the report, as a result of DST, there was a net 
reduction of .7% in fatal motor vehicle accidents during the DST 
period, March and April 1974, compared to the non-DST period March and 
April 1973. It is estimated that 50 lives were saved and 2,000 injuries 
avoided during this two month period as a result of DST.
    The report found DST negatively effected the rate of school 
children fatalities in November and December only. In fact, the report 
demonstrated that DST reduced the number of school children fatalities 
by between 18%-40% in March, April and October 1974.

DST Prevents Crime
    The 1975 DOT study included the results of a study that was 
conducted on Los Angeles and Washington, DC by the Law Enforcement 
Assistance Administration (LEAA). While the data on Los Angeles were 
inconclusive, the Washington DC data show consistently less violent 
crimes (-10%---20% difference) for DST periods when compared with 
similar periods of standard time. Statistics on other crimes were less 
significant and less reliable.

                    AVERAGE SUNRISE AND SUNSET TIMES

    The following chart describes the average sun rise and sun set 
times in Los Angeles for year-round Standard Time (ST), year-round 
Daylight Saving Time (DST) and year-round double Daylight Saving Time 
(DDST). Bold indicates the average sun rise and sun set under current 
law. The average time does not take into effect the effect of partial 
DST in April and October. The table treats April and October as being 
on DST the entire month.

    Average Sunrise and Sunset Times for Standard Time, Daylight Saving Time and Double Daylight Saving Time
----------------------------------------------------------------------------------------------------------------
                                                 Sun Rise   Sun Set    Sun Rise   Sun Set    Sun Rise   Sun Set
                     Month                         (ST)       (ST)      (DST)      (DST)      (DDST)     (DDST)
----------------------------------------------------------------------------------------------------------------
January.......................................     6:57am     5:08pm     7:57am     6:08pm     8:57am     7:08pm
February......................................     6:38am     5:36pm     7:38am     6:36pm     8:38am     7:38pm
March.........................................     6:02am     6:01pm     7:02am     7:01pm     8:02am     8:02pm
April.........................................     5:22am     6:24pm     6:22am     6:24pm     7:16am     7:24pm
May...........................................     4:52am     6:48pm     5:52am     7:48pm     6:52am     8:48pm
June..........................................     4:42am     7:05pm     5:42am     8:05pm     6:42am     9:05pm
July..........................................     4:53am     7:04pm     5:53am     8:04pm     6:53am     9:04pm
August........................................     5:15am     6:38pm     6:15am     7:38pm     7:16am     8:38pm
September.....................................     5:37am     5:59pm     6:37am     6:59pm     7:37am     7:59pm
October.......................................     5:59am     5:19pm     6:59am     6:19pm     7:59am     7:19pm
November......................................     6:26am     4:50pm     7:26am     5:50pm     8:26am     6:50pm
December......................................     6:51am     4:46pm     7:51am     5:46pm     8:51am     6:46pm
----------------------------------------------------------------------------------------------------------------

                               CONCLUSION

    Mr. Chairman, giving California the option to adjust the time in 
California will not by itself solve the energy crisis, but it will 
help. I hope you will act soon on H.R. 704 which already has 14 
bipartisan co-sponsors from California and Nevada. I thank you for the 
opportunity to testify on this important issue.

    Mr. Barton. We thank you. We will look into that. When 
Congressman Boucher, the ranking Democrat gets here, we will 
check with him. It looks like an idea whose time may have come. 
We will work on that.
    We now recognize the gentleman from Washington State, 
Congressman Inslee. Your statement is in the record. You are 
recognized for 5 minutes.

   STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF WASHINGTON

    Mr. Inslee. Mr. Chairman, Members, thank you for letting me 
join you.
    I am here to report two disasters out in the Seattle neck 
of the woods where I hail from. First, as of you have heard 
about, the 6.8 earthquake in Seattle last week. I want to 
report to you the Federal Government has done a good job 
responding to that natural disaster. FEMA is there on the job 
trying to deal with people's problems. Things are okay with the 
earthquake when it comes to the Federal Government.
    But in the energy price disaster, these obscene price hikes 
we have seen which are driving people to food banks, which are 
taking people's jobs, which have the potential to ripple 
through the whole U.S. economy and drive us over the brink--the 
cliff potentially of recession--the Federal Government has been 
a pathetic disaster in itself in refusing to come to the aid of 
the West. It has done so despite the fact it has got a tool at 
its disposal. Short-term wholesale, cost-based electrical 
Western energy caps that we ought to adopt in short order in 
this country to prevent that disaster from occurring.
    To me, it is remarkable, the difference in the Federal 
Government that has helped so well in our earthquake and so 
poorly in the larger-scale disaster of these electrical rates; 
and it boggles my mind why that has been taken off the table, 
Mr. Chairman, and I will tell you why.
    The rate hikes that we have seen that people are 
experiencing are unprecedented in the U.S. economy. People are 
experiencing residential rate increases of 50 percent already, 
and they could go to 80 to 100 percent this year. I will give 
you a sample of three conversations I had last week.
    I went to the food bank and talked to people who were 
working two jobs. They have never been in a food bank before, 
but by gum, they are there now because of these energy prices 
have spiked so high.
    I talked to a fellow on a ferry boat whose uncle was losing 
a job as a longshoreman because the aluminum industry is going 
to heck in a handbasket because of these enormous price hikes.
    The third and perhaps most disturbing to all of us are the 
words of Alan Greenspan when he testified last week at 
Financial Services, who pinpointed these energy prices as one 
of the greatest danger signals to the U.S. economy. This is a 
national problem, not just a Western United States problem, and 
the Federal Government has failed to act.
    Now, what can they do? FERC at this time has a 
congressionally established plan already. The tool is already 
in the Federal toolbox. The tool says that if you have got 
unreasonable prices, FERC can establish some meaningful short-
term wholesale price tariff so you have a cost-plus profit 
system in this country on a short-term basis. This is already 
law, and the administration, to date, failed to even consider 
it.
    How should you do it? Let me tell you why the 
administration has been loath to even consider this to date. 
They have been concerned that it would end up being a long-term 
rather than a short-term price cap. I think that is a 
legitimate concern, and we can establish a price cap that is 
limited either as to a specific time, No. 1, or to a trigger 
mechanism which will have the cap expire when certain 
conditions exist. For instance, it has been suggested that we 
have the cap expire when utility reserves get to a certain 
level. We can deal with this to make sure it is short term.
    The second criticism of this proposal has been it will be a 
disincentive for the creation of new generating capacity. That 
also is a legitimate issue, but we deal with that very simply 
by this: We exempt new generating capacity from the price cap. 
We exempt it, or we exempt long-term contracts. There are many 
ways to deal with this price cap.
    But I will tell you what we believe we need right now. The 
whole U.S. Economy and the people I represent are going to food 
banks because of their energy prices. We need the 
administration to sit down in a bipartisan fashion to fashion a 
wholesale short-term price cap which will not be a disincentive 
for the creation of new generating capacity, which will have 
some means to make sure it is short term, to act as a circuit 
breaker for what is going on in the U.S. economy. We just need 
a circuit breaker.
    I am also here to tell you this is not the panacea to our 
energy problems. But to relieve these small businesses 
suffering on a short-term basis, it is necessary, if you don't 
want to see this economy continue to go downhill.
    I encourage you all to join us. I have sent a letter today 
with 25 Members asking the administration to discuss this with 
us. It does not take legislative action. It simply needs the 
administration to take a look at how severe this problem in the 
West is and get a little bit creative on how to deal with the 
problem.
    Thank you, Mr. Chairman.
    Mr. Barton. We appreciate your input.
    We would like to hear from Congressman Issa. I apologize 
for saying Issa; I am told it is Issa. Your statement is in the 
record. You are recognized for 5 minutes.

     STATEMENT OF HON. DARRELL E. ISSA, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Issa. Thank you, Mr. Chairman. For the record, Rush 
Limbaugh is getting it wrong too. It is the nature of a name 
like mine. Since you have been so kind as to put my entire 
statement into the record, I will not read from it nor repeat 
it.
    I would like to urge this body to think federally, to think 
long-term. First of all, deregulation has not been proven to be 
a failure because California has not had deregulation. Second 
of all, for deregulation or any other free market system to 
work, you must tear down barriers to entry. California did not 
do this.
    It takes so long to get a permit and, in fact, self-help 
permits, what is normally called ``distributed power'' has been 
all but prohibited in California. So between the long times 
necessary and a grid which was closed to many of the potential 
10 or less, sometimes even more, 15 or 20 megawatt producers, 
by closing that, they in fact closed a huge amount of supply. I 
believe that this body can easily get caught up in what is both 
the administration's job and, in fact, the State of California 
Governor's and legislature's job.
    One of those problems is in fact to deal with the 
production of energy and in fact to look at its own internal 
regulations that have been barriers to entry. California today 
imports electricity. Much of that electricity directly or 
indirectly comes from non-natural gas, fossil fuel production. 
It comes from hydroelectric, something which California has 
been in fact reducing by determining that in hydroelectric 
versus fish, the fish win. That is not wrong--not that 
preserving the environment is wrong, but buying power from 
other States, so that in fact you shift that which you are not 
willing to do in your own State to other States, is a mistake.
    States which produce clean coal in fact are supplying 
electricity directly or indirectly to California, a State that 
essentially, other than the limited amount of nuclear and a 
limited amount of hydroelectric, allows only natural gas.
    Today, with the shortage of natural gas as we bring on 
power, we are faced with an absence of sufficient natural gas. 
There is sufficient natural gas around the world if we had the 
willingness to bring in liquefied natural gas. California has 
not been willing to, and I do not expect them to.
    The present natural gas generators without scrubbers 
typically put out about 15 parts per million of the prohibited 
pollution, while diesel and other liquid distillates put out 
about 25. In many parts of the country, those generators, which 
are not allowed to be operated here, are operating. Around the 
world, those that are not allowed to operate here are 
operating. California has taken an attitude that its air must 
be clean while in fact it is polluting other parts of the 
country.
    This is not to disparage my own State. I live in a 
wonderful State and one that shows a lot of promise for the 
future in leading the country. However, if you in fact were to 
encourage price caps to be on for a long length of time, in all 
fairness to my colleague, it is one thing to limit the price of 
water right after an earthquake, but a year later, if no one 
has dug a well, it is not fair to keep that price artificially 
low.
    California has had artificially low prices for a long time. 
In fact, I would propose, in addition to legislation which my 
office is working on, to free up the ability to have 
distributed power, thus alleviating some of the demands on the 
grid. It will be easier in California.
    I would suggest certain other ideas which our office has 
been working on. Energy self-sufficiency could include Federal 
buildings within California providing their own distributed 
power, something that circumvents the State's willingness to do 
that, and military installations which have been barred from 
producing their own power.
    I have spoken with several of the base commanders. They are 
certainly willing to reduce their costs and increase their 
likelihood of a steady supply if this body will in fact empower 
them to produce their own rather than buying off the economy, 
which has been the tradition.
    Additionally, tribes such as the Pechanga Native Americans 
in my district are now putting in their own power generation 
because, in fact, they can do it, and they can do it without 
the limitations the State has placed.
    These and other solutions are possible, but energy self-
sufficiency has to be a two-way street. I encourage this body 
to press the State of California to participate in these 
solutions.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Hon. Darrell E. Issa follows:]

 Prepared Statement of Hon. Darrell Issa, a Representative in Congress 
                      from the State of California

    Thank you, Mr. Chairman for giving Members the opportunity to 
testify before your Subcommittee on a subject that is so crucial to our 
districts. I respectfully ask to revise and extend my remarks and that 
my full testimony be entered into the record.
    Let me start out by expressing my appreciation for your leadership 
and hard work that you've shown, Mr. Chairman, on the California energy 
crisis. I know you have traveled to California twice in the past six 
months and continue to meet with all parties involved, so you already 
have an understanding of the complexity and the urgency of the 
situation.
    I would like to point out some simple truths and lessons that can 
be learned from this experience, and then share with the Subcommittee 
several initiatives that I'm working on that are a small but important 
part of the solution to the energy problems facing California.
    We find ourselves facing a crisis today because of an historical 
lack of leadership and the absence of a comprehensive energy policy. 
From the Governor's office to the state Public Utilities Commission to 
the state Energy Commission, and even the state legislature, these 
public officials over the last two decades failed the California energy 
consumer. They failed to plan for the increased demand for electricity; 
they failed to diversify the state's energy portfolio; they failed to 
invest in transmission and generation capacity; they failed to provide 
electricity consumers with real choice; they failed when they only 
restructured the wholesale market while shielding ratepayers from price 
signals that would trigger necessary conservation; and finally, they 
failed to take responsibility for problems the state created this past 
summer. And now, nearly a year into the crisis, the state response is 
sluggish at best--with state officials scrambling to pursue missed 
opportunities and avoiding responsibility.
    Rather than allowing energy consumers to see the true cost of 
electricity and send the appropriate price signals to conserve, state 
politicians continue to shift the cost to state taxpayers--spending 
billions of dollars to shield themselves from the political fallout. 
Only yesterday, Mr. Chairman, a state Senate Committee voted to extend 
retail rate caps through 2003, further undermining a struggling utility 
that is prohibited from passing the true cost of energy to its user.
    Much of the state activity in resolving this issue has centered on 
price caps and rate freezes, and many of the Members testifying today 
are advocating a temporary ``time out.'' This is not the right answer. 
Before considering a rate freeze or price cap, several objectives must 
be met.
    First, it must be linked with a long term plan demonstrating that 
the supply of electricity will keep pace with demand and that the state 
will ensure for the proper infrastructure to achieve this plan. Second, 
the state must make tough choices in diversifying our energy portfolio. 
I applaud efforts to increase the use of renewable energy, but 
renewable energy is only a partial solution. Reliance on natural gas 
has a cost. We must take another look at nuclear energy, hydropower, 
and other resources. Third, California needs to do a better job of 
working with and coordinating with the other western states. What 
happens in one state dramatically affects another; in fact, ratepayers 
in surrounding states have seen their electricity bills increase 
considerably more than those in California. The West must have a single 
energy strategy. Finally, a deadline must be included with any freeze 
or cap. It must not continue indefinitely, otherwise we lose the 
incentive to make the tough choices we face to work through the crisis.
    We all have a responsibility to roll up our sleeves and begin the 
hard work necessary to ensure that California and the West move towards 
an energy solution. It will take state, local and federal officials to 
work together through the regulatory, permitting and siting processes 
to expedite the building of new generation and transmission capacity 
and significant investment in improving existing infrastructure. It 
will take individual initiative to conserve energy and act responsibly.
    While California has the bulk of responsibility and the greatest 
ability to respond resides with the state, there are several positive 
steps that the Federal government can do to help California. I have 
been working with Representative Heather Wilson from New Mexico in 
developing a legislative package to promote energy self- sufficiency. 
That's the message I bring to you today--energy self sufficiency. Let's 
empower people in California to help themselves out of this crisis. The 
technology exists today to allow businesses, municipalities, even 
individuals, to generate their own energy--to become self-sufficient--
and in many cases to produce excess power, which can be put on the grid 
for other users. This micro-turbine and small natural gas turbine 
technology is clean, quiet, and efficient. It provides a solution for 
high tech companies that might otherwise leave the state because of 
concerns about the reliability of California's energy supply, and 
increases generating capacity while reducing the strain on the grid.
    There are several artificial barriers to the proliferation of this 
technology. The utilities have historically resisted the move to energy 
self-sufficiency with high fees for connecting to the grid and 
technical roadblocks. The bill that I intend to introduce with Rep. 
Wilson will establish the right of distributed generation users to 
interconnect to the grid, establish national technical standards for 
interconnection, determine fair and reasonable costs to interconnect, 
include a tax incentive to purchase distributed generation units, and 
authorize the Department of Energy's R&D program on alternative 
technology. I look forward to working with this Subcommittee in moving 
this bill through the legislative process.
    Other positive initiatives that can be worked on at the federal 
level include enhancing energy self-reliance in federal buildings and 
installations. There are several military bases that have the proper 
pipelines and grid infrastructure to have independent generators, but a 
provision in law that requires them to purchase energy from the private 
sector prevents a move to self-sufficiency. Minor language included in 
the upcoming Defense Department authorization bill could make this 
happen. Distributed generation demonstration projects at federal 
buildings would also alleviate some of the burden on the grid. The 
Pechanga Indian tribe in my district is also taking proactive steps. 
Local tribal leaders met with FERC to see what would be necessary to 
build a 50-megawatt power plant on their reservation. It turns out that 
tribes don't need permission from the federal government to become 
energy self-sufficient. I encourage Members and officials to work with 
their tribes to find ways to become more self-reliant and energy 
efficient at the local level. These are all modest initiatives, but 
they send a message. If we're going to make consumers and businesses 
make tough decisions to conserve and reduce consumption, the federal 
government must do its part as a user of the grid and a major consumer 
of electricity.
    In meetings with local communities and city councils over the 
February District Work Period, many came to me with local 
infrastructure projects, several of which were energy dependent. I told 
them that they had to include plans to either reduce their energy needs 
or create new energy sources--again, emphasizing that we're all in this 
together. One city has a methane source from a landfill that they are 
simply venting into the atmosphere. A small generation facility could 
produce energy from that waste gas and have an added clean air benefit.
    Mr. Chairman, there are no easy answers. It takes strong leadership 
to make these tough decisions. Absence of leadership will only 
exacerbate and continue the energy crisis. It is time for the Governor, 
state regulators, and the state legislature to get their heads out of 
the sand and lead. It is time for those of us in Washington to roll up 
our sleeves and do what we can to encourage this effort.
    The American people have a history of solving problems where 
government has failed to do so. We have a responsibility and an 
obligation to let them help us out of this crisis. As you move forward 
in addressing this crisis, please make energy self-sufficiency and 
distributed generation a part of the solution.
    Again, Mr. Chairman, thank you for allowing me the opportunity to 
share my thoughts with you. I look forward to working with you and my 
colleagues on these critical issues.

    Mr. Barton. Thank you, Congressman Issa.
    We would now like to hear from another Californian, 
Congressman Mike Thompson. Your statement is in the record and 
you are recognized for 5 minutes.

 STATEMENT OF HON. MIKE THOMPSON, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Thompson. Thank you, Mr. Chairman and members. I want 
to thank you for allowing me to testify. I think the fact that 
we are having this hearing today is emblematic of the 
importance that we all see in solving this energy crisis that 
not only affects California but will affect the entire Nation. 
I have a statement that I would like to submit.
    Mr. Barton. Without objection.
    Mr. Thompson. Thank you. And I would like to just make some 
brief remarks today.
    It is important to note that this California energy crisis 
is not just a California crisis. It is a crisis that could 
affect the whole country, and failure to adequately ensure 
reliability of supply at affordable rates in California could 
have an economic ripple that goes across the entire United 
States and hurts, where California in the past has really been 
the engine that has driven this economic boom that we have all 
benefited from.
    In my district, we have had tremendous impact from the 
energy problems, both on individuals and on businesses. I have 
had timber operations that have been disrupted. I have had a 
pulp plant that has been shut down and a particle board plant 
that has been shut down. One dairy in my district had to throw 
away thousands of gallons of milk because the rolling blackout 
stopped them from being able to process this milk. I have a 
senior center that may have to close its doors permanently 
because it can't afford to pay its energy bill and the ongoing 
energy costs of keeping those doors open.
    I have small electrical generators who have been selling 
power to PG&E for a number of years, and I have two in one 
small county in my district that together are owed $26 million 
from PG&E for electricity that they have generated, sold, and 
not been paid for. Not only has this hurt this individual 
business but any of you can imagine the economic impact of 
taking $26 million out of a county in your district. And 
individuals have experienced such trouble and such costly bills 
that they are just too numerous to mention.
    I think it is important to note that everybody has focused 
on trying to solve this problem. State level, Federal level, 
everybody has some idea as to how it can be dealt with. 
Everything from energy conservation to seeking out long-term 
contracts, to the State of California buying transmission 
lines, to the expediting of building permittings for 
generators. But the fact remains, there is only the Federal 
Government can take action that will provide immediate relief, 
and that action would be in the area of temporary cost-based 
price caps. Anything else is a long-term solution, and 
individuals and businesses in California cannot wait for long-
term solutions. We need to step up to the plate and help solve 
this issue.
    I would encourage this committee to take swift action on 
the Eshoo-Hunter bill and to encourage, to demand that FERC 
take swift action. They have already found that generators have 
been charging unjust and unreasonable prices. They have a 
responsibility to all consumers, businesses or individuals, to 
take action immediately, to intercede in this effort and to 
provide some relief.
    I would like to thank the committee. I have my testimony 
here that I would like to submit and appreciate your convening 
this hearing.
    [The prepared statement of Hon. Mike Thompson follows:]

Prepared Statement of Hon. Mike Thompson, a Representative in Congress 
                      from the State of California

    Mr. Chairman and Members of the Subcommittee, thank you very much 
for the opportunity to testify today. The fact that you are holding 
this hearing shows how important the resolution of the current energy 
crisis is for California and the United States.
    The current situation in California will have far reaching 
consequences for the country as a whole, as Federal Reserve Chairman 
Alan Greenspan recently noted. Failure to adequately ensure reliability 
of supply at affordable rates in California could have a huge ripple 
effect on the economy of our entire nation.
    In my Congressional District, the crisis has disrupted timber and 
lumber operations in Humboldt County including lay-offs at the 
Louisiana-Pacific's Samoa pulp plant and costly interruptions at 
Louisiana-Pacific's particle board plant. Blue Lake Forest products had 
to move its one daytime shift of 92 employees to the graveyard shift. 
Electrical producers in my district also are feeling the crunch. One 
small generator is owed $19 million by PG&E.
    The crux of California's current problem lies with the wholesale 
market, where costs have been allowed to skyrocket to unprecedented 
levels. Last week, former Federal Energy Regulatory Commission (FERC) 
Chair Elizabeth Moler--who was initially appointed to the Commission by 
President Reagan--said that the FERC should intervene more strongly in 
California's energy crisis, including imposing temporary price caps on 
wholesalers. I, along with many of my California colleagues from both 
sides of the aisle, share this view.
    Unfortunately, FERC has failed to take timely and necessary action 
to stabilize the market despite its findings on November 1, 2000 that 
wholesale rates being charged to California utilities were ``unjust and 
unreasonable.'' FERC's failure to fulfill its most basic mission--
ensuring reasonable rates for consumers--has allowed the crisis to 
fester. In my view, the commission acted in an unjust and unreasonable 
manner when it refused to impose temporary, cost-of-service based caps 
on wholesale prices.
    I am a cosponsor of the legislation (H.R. 238) introduced by Reps. 
Anna Eshoo and Duncan Hunter that would expand the authority of the 
Secretary of Energy to stabilize wholesale electric prices during 
periods of unjust and unreasonable rate increases. This new parallel 
authority with FERC, will help ensure that the Federal government has 
to authority to act in times of an energy crisis if FERC fails to do 
so. FERC's recent action--or should I say inaction--demonstrates that 
this legislation is clearly needed. I hope you, Mr. Chairman, and the 
other Members of the Committee will support the bill's swift passage 
and enactment.
    I recently requested the General Accounting Office (GAO) to 
investigate the causes of the energy crisis and to present and evaluate 
what can be done to increase electrical supplies in the West. As a part 
of this investigation, the GAO is to conduct a feasibility study on 
building or reconstructing power plants on military bases for civilian 
use. Twenty-three of our colleagues joined me in making this request 
and we look forward to sharing the report's findings with the Members 
of the Energy and Commerce Committee.
    Both long-term and short-term solutions must be developed and 
implemented. On the state level, California has been purchasing its own 
power in an effort to stabilize prices and ensure supply. It has 
stepped up conservation efforts, leading to an impressive eight percent 
drop in energy consumption in February. Further, the state is working 
quickly to bring new generating facilities on line and has proposed to 
purchase transmission grids owned by the debt-ridden utilities in order 
to stabilize the market. Still, despite these initiatives, California 
remains in danger of power outages when demand for electricity climbs 
this summer.
    We should remember that this is a regional energy crisis. It is 
true that California has not built enough new generation and 
transmission to keep up with the demand. But California is not alone. 
New generating facilities and transmission lines have not kept pace 
with demand throughout the West. Further, the Pacific Northwest is also 
facing a possible shortage of electricity this summer because low 
rainfall this winter will require dam operators to dip into reservoirs 
for water to turn turbines. Regional problems demand regional 
solutions, which can only be accomplished by the Federal government.
    Congress and the Administration, with the support and leadership of 
President Bush, have the authority to forge solutions across state 
boundaries. As the President noted in his February 27th address to 
Congress, he has formed a task force headed by Vice President Cheney to 
address the crisis as part of a national energy strategy and is working 
with the State of California to streamline permitting procedures for 
new power plants. These two actions, while helpful in crafting long 
term solutions to the crisis, do not go far enough or fast enough. To 
avert severe blackouts and price spikes this summer, the Federal 
government needs to act quickly and more forcefully, including the 
imposition of interim cost-of-service-based rate caps across the 
Western region. These temporary caps will stabilize the market until 
sufficient power and transmission sources are developed.
    As the committee is well aware, this crisis isn't just about 
electricity. There is an emerging natural gas crisis in California and 
across the United States. Over the past year, natural gas prices have 
skyrocketed 59% nationwide and have tripled in California. Natural gas 
storage is at record lows and experts agree that one of the major 
causes of this crisis is an increase in demand and a lack of supply. 
The dramatic price increases are especially alarming since all the new 
generation coming on line in California is natural gas powered.
    The price increases are passed directly on to consumers and are 
hitting my constituents hard. I recently received a letter from Mr. and 
Mrs. Frank Kelly of Napa. They sent me a list of their gas bills 
starting in September 1999 when they were paying $20 a month. In 
December 2000, their bill was $475. Ms. Karen O'Rourke of Orleans owns 
a RV park. She is faced with a mostly vacant park and a gas bill of 
$685. Mr. and Mrs. Shields of Fairfield, Mr. Bolling of Eureka, Mr. 
Carrell of Mendocino and Mr. Blankenship of Ukiah are seniors living on 
fixed incomes. They have to make the choice between buying food to eat, 
medication to live or heat for their homes. These letters are just a 
few examples of the people who are suffering through this energy 
crisis. Again, this energy crisis is not unique to California--I'm sure 
many of you have also heard about the difficult choices facing your 
constituents.
    To help determine why supplies are so low and, in turn, why prices 
are so high, I have introduced H.R. 712. This bill commissions the 
National Academy of Sciences to investigate and determine the cause of 
recent price spikes in natural gas. First, the study will examine 
whether the drastic increase in natural gas prices is from the usual 
market fluctuations or whether it can be attributed to other causes. 
Second, the study will determine if federal or state policies that 
might have contributed to the shortage of supply. And, third, the study 
will examine the scientific feasibility of a federal natural gas 
reserve system. This system would be modeled after the Strategic 
Petroleum Reserve to be used in times of decreased supply and price 
emergencies.
    On February 28, 2001, Pacific Gas and Electric (PG&E) announced 
that market prices for natural gas will decline an average of 16% on 
consumer bills over the next month. While this looks promising, we must 
remember that the newly approved power generation plants coming on line 
in the next few years in California are all powered by natural gas. In 
addition, California's population has increased 13.5% over the last 10 
years and continues to grow.
    We also must continue to do what we can to ease the burden on those 
less fortunate. That is why I support Representative Ed Markey's 
Emergency Energy Response Act of 2001. I also have signed onto letters 
to the Appropriations Committee and to President Bush. The legislation 
and the letters ask for an increase in funding of the Low-Income Home 
Energy Assistance Program (LIHEAP) and Weatherization funds.
    I invite you to join with me in cosponsoring H.R. 712. By 
determining the dimensions and causes of the high price of natural gas, 
we can work towards a solution that will ensure an adequate, reliable 
and affordable supply of natural gas.
    Again, I thank you for the opportunity to testify before the 
Subcommittee. I ask that my testimony be submitted for the record and 
am pleased to answer any questions.

    Mr. Barton. Thank you Congressman.
    The Chair would recognize himself for 5 minutes. We are 
going to have one round of 5-minute questions and then we will 
go to the next panel.
    Which of you gentlemen could give me an indication what the 
baseload generation capacity is in California and what is the 
baseload demand? Congressman Inslee.
    Mr. Inslee. These are off the top of my head, but it is 
about 45,000 megawatts available in the California market, and 
there is a real interesting fact, because while there are 
45,000 megawatts available, there has only been 30,000 
essentially on line at any given time. So there has been about 
15,000 megawatts capacity of the California generators on any 
given day that has not been on line, and we can only account 
for about half of that being down due to maintenance or 
potentially emission standard issues.
    So there is about anywhere in a given today from about 6- 
to 8,000 megawatts of capacity that has not been on line that 
are sort of AWOL and no one has come before us to----
    Mr. Barton. Do you know what the baseload demand is? Over 
that?
    Mr. Inslee. It is around 32,000 or--no, wait a minute. You 
can check me on that.
    Mr. Barton. I am told the demand is about 20 percent higher 
than the supply.
    Mr. Inslee. The demand is infinite, regardless of price.
    Mr. Barton. Average prices. I am not talking about peak 
demand, I am talking the baseload intrastate generation 
capacity is--let's forget--is less than the baseload demand.
    Mr. Issa. Mr. Chairman, it is about 45 as a normal demand. 
If California threw everything out the window we can produce 
about 52 peak. Peak. The Congressman has a point, which is at 
any given time there is quite a bit down for both maintenance, 
which is expected, remembering that some of this 52 potential 
includes peakers and it includes a lot of systems which don't 
run efficiently if you tell them that you are going to produce 
at a certain amount.
    Mr. Barton. My point is if we are going to look at 
solutions, and I agree that we should, that the chronic problem 
is more demand than supply intrastate, and it is exacerbated 
because the California law didn't have a planning mechanism for 
additional supply. It was--they just forgot about it, or what. 
So the price cap solution, obviously there would be some short-
term benefit or should be some short-term benefit to wholesale 
price cap, but I don't see that that helps the long-term 
solution.
    Mr. Thompson. If I may, everything that we have been 
talking about now has been long term. There is an attempt to 
expedite the permits, to bring on new generators. There are new 
generators on line, and anywhere from within the next 2 to 4 
years to come on line. So the needed supply numbers are 
projected on being there within the next 2 to 4 years.
    Mr. Barton. I understand that.
    Mr. Thompson. The price cap point they alluded to was in 
the immediate. The only way to deal with the exorbitant price 
that is being charged is to apply on a temporary basis to 
correspond with the new generators coming on line these cost-
based caps.
    Mr. Barton. But if we go down that trail and don't 
restructure the retail price, if you maintain for lack of a 
better definition, a below-market retail price and you put in 
wholesale price caps on top of that, don't you just extend the 
problem around the region, around the country, because a rate, 
a cost-based wholesale price cap, if somebody has power 
generating capacity outside the region, and they can make more 
by selling it somewhere else, i.e. Somewhere else other than 
California, you have not done anything. I mean, California has 
adopted wholesale price caps at the State level several times 
in the last 12 months and it doesn't appear to have done 
anything. So I just--I don't--I kind of understand the general 
theory, but I don't understand the application and practice 
because it just simply hasn't worked.
    Mr. Inslee. Mr. Chairman, could I address that?
    Mr. Barton. Sure.
    Mr. Inslee. I think It is analogous. It is a very important 
point you make that wholesale price caps are not the long-term 
solution either to a price or supply issue. I think that is an 
important point. What we are suggesting is we adopt a short-
term, well-defined system of wholesale price cost-based caps 
that have this very important feature, and I hope it is not 
lost in this. You exempt from the cap new generating capacity, 
so that there is no disincentive for the creation of additional 
generating capacity which we clearly need in addition to 
conservation. It is akin to the situation where you have the 
India earthquake. We want people to drill new wells, but you 
don't want people to charge $500 a quart for water.
    What we are suggesting is, we tell existing generators on a 
short-term basis you can't charge $500 a quart for water during 
the emergency part of this economic and natural disaster, 
because it is a combination of California's deregulation 
debacle and our water-short years in the Northwest, but we are 
going to allow you to go out and encourage you to go out and 
build new wells, and we're going to exempt that from the price 
cap. And this is why, frankly, the administration has failed to 
even consider price caps, because they haven't thought about 
the fact that we cannot create a disincentive if we exempt them 
from the cap. That is what we need this administration to 
consider and I hope the committee can in some way urge them to 
do so.
    Mr. Issa. I think, Mr. Chairman, you made a very valid 
point and you hit it right on. California already, with what it 
produces internally, it can decide what it is going to allow 
those prices to be. When we talk about power that could come 
into California or go to some other State, we already have the 
western States paying a premium for the sins of California. If 
in fact the Federal Government just automatically says without 
a long-term strategy that is signed onto that is amenable to 
the other States and the rest of the country, if we simply say, 
sure, we will protect you from your past errors for a period of 
1, 2, or 3 years, those years could go well beyond that. And in 
the meantime, any sensible commodity seller is going to move 
their commodity to a place where they can get a better price, 
and right now California is trying to get a below-market price.
    Mr. Barton. My time has expired. We have been joined by the 
two other members who wanted to give testimony. Normally once 
we start questions we continue it, but this is an unusual 
hearing in that it is a members' hearing. So we are going to go 
to Congresswoman Davis for her statement and then Congressman 
Honda and then we will go to Mr. Strickland for questions.
    Your statement is in the record in its entirety and you are 
recognized for 5 minutes, Congresswoman Davis.

 STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mrs. Davis of California. I appreciate the opportunity to 
comment on the electricity prices in California and I 
appreciate I just came in during the last questioning and would 
be happy to engage in that afterwards.
    As you have heard from previous speakers, deregulation on 
electricity prices was intended to create competition in a free 
marketplace and to result in reducing the price of electricity. 
However, in the dysfunctional market, prices were manipulated 
by a handful of producers and this resulted in soaring prices 
unrelated to the cost of production.
    Despite repeated requests and suits, the Federal Energy 
Regulatory Commission has refused to exercise its mandated 
authority to assure that power rates are just and reasonable, 
either by making cost-basis temporary caps we have just been 
discussing on existing generators, or by fining those companies 
which have egregiously manipulated the market.
    The ironic consequence, I think, of this manipulation may 
well be an increase in municipal ownership of utilities. As 
Members of Congress, we need to look at some actions we can 
take to foster environmentally and economically sound 
municipally owned generators. And there are four areas which I 
would like to cite for you.
    The first would be to increase the tax credit incentives 
for renewable source generators; and, second, to assure 
adequate safe natural gas pipeline capacity; third, to support 
refinery-level cleansing of diesel fuel; and finally, in 
addition, to meet the personal impacts of the crisis, to 
provide some temporary cost-of-living housing increases for our 
military families to cope with the escalating energy costs.
    The city of San Diego and the county of San Diego, the San 
Diego County Water Authority, and some other municipalities are 
now setting options to build new facilities. In January I 
initiated a meeting among city and county leaders and State and 
Federal legislators to discuss some options. Our staffs 
continue to meet to share information. Either individually or 
through joint powers agreements, local governments can benefit 
from tax-free bonds to capitalize plants and potentially could 
receive preference for Federal hydropower projects.
    I am pleased to report that the projects that have been put 
forward include some exciting additions to the renewable 
resources market, and these include a project approved by the 
county of San Diego to construct a biomass generator at a 
closed county landfill site. San Diego sewage treatment 
facilities already are using waste gas for generation in excess 
of their needs. They have plans for fuel cell and photovoltaic 
pilot projects to capture other sources of renewable energy.
    Although the effect of each project is small, together they 
add to total generation and carry out our responsibility to 
invest in new nonpetroleum-based power generation.
    In addition, the San Diego County Water Authority had 
already received authority to build power plants and 
transmission lines. We will be able to operate hydroelectric 
generators using water stored behind the new Olivenhain Dam 
which is under construction. Because we generally think of San 
Diego County as being water poor, it is exciting to realize 
that even here some hydroelectric power can be produced.
    Because the regulations limit where the Water Authority can 
sell power, it is important that all new sources of power be 
enabled to sell power to the distributing agency, which in that 
case would be San Diego Gas and Electric Company.
    Renewable energy sources for generation of power such as 
these deserve our support, with expanded tax credits for 
development, and several traditional projects are being 
considered. My colleague, Duncan Hunter, who unfortunately has 
not had a chance to address you yet today, would have told you 
about the Marine Corps Air Station Miramar proposal which he 
has been pursuing. Another project has been proposed by a local 
energy company for a 750-megawatt natural gas power generating 
plant to be sited near a city landfill. The city of San Diego 
was exploring this option along with other government entities 
to create some publicly owned utilities to serve the entire 
county.
    In addition to these proposals, small cogeneration plants 
are being built to serve the 35,000 population of our State 
universities. Because these projects use petroleum resources, 
they require a supply of natural gas or clean diesel fuel of 
sufficient quantity at nationally comparable prices. Congress 
must be certain that natural gas pipelines are safe and that 
they are sufficient.
    It would also serve us well to give incentives to promote 
cleaning diesel fuel to the lowest sulfur levels at the 
refinery stage, thus reducing the need for adding scrubbers to 
newly constructed turbines. It would enable diesel refined in 
California to be used as available to meet responsible air 
quality. This goes both for power plants and for use in diesel 
trucks. And while these proposals clearly address near- and 
long-term goals, it is critical that we address the immediate 
needs----
    Mr. Barton. Could you summarize, Congresswoman?
    Mrs. Davis of California. Sure--of some of our most 
vulnerable citizens. And that is why I wanted to cite the 
effects of the cost of gas and electric utilities on our 
military families in San Diego and suggest to you perhaps that 
we respond to this issue by increasing housing allowances for a 
limited period of time for military living in the area where 
basic utility costs have more than doubled as a first step to 
meeting the challenge to adequately support our military 
personnel there in the San Diego region.
    Thank you very much for the time and appreciate your 
questions.
    Mr. Barton. Thank you for your testimony. We now go to 
Congressman Honda. Your statement is in the record. We would 
recognize you for 5 minutes.

    STATEMENT OF HON. MICHAEL M. HONDA, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Honda. Thank you, Mr. Chairman, members of the 
committee. Thank you for inviting me to testify today and for 
your decision to hold this hearing on California's electricity 
crisis.
    I can assure you that my constituents in California's 15th 
Congressional District welcome this discussion and look forward 
to the committee's consideration of important legislation that 
might provide short-term relief and long-term incentives to 
bolster California's electricity supply.
    Like all Members from California, I receive letters and 
phone calls from almost every segment of my constituency 
expressing concern over rising electricity prices and rolling 
blackouts. Almost 2 weeks ago, I invited a number of 
individuals representing various organizations, companies, and 
communities to my office to discuss the devastating effects 
that California's energy crisis is having on Silicon Valley 
residences and businesses. The attendees included 
representatives from nonprofits, chambers of commerce, high-
tech companies, health care organizations and schools. Each 
offered a unique perspective and eloquent case for stronger 
Federal action. I would love to detail all their stories, but 
for brevity's sake I will just concentrate on two areas: high-
tech and education.
    You know that Silicon Valley is comprised, in part, by 
high-tech companies that operate machinery and computers that 
are incredibly sensitive to fluctuations in electrical 
currents. This is especially true for semiconductor companies 
and co-location facilities. When a blackout interrupts work at 
a high-tech company, millions of dollars in unfinished products 
can be lost and it can often take huge financial investments to 
return operations to normal working order.
    When rolling blackouts swept through the San Francisco Bay 
Area in mid-January, the Silicon Valley Manufacturing Group 
reported that approximately 60 of its members had been directly 
impacted. The manufacturing group estimated that 100,000 
Silicon Valley employees were unable to work and tens of 
millions of dollars were lost.
    The Bay Area is accustomed to addressing quality-of-life 
concerns, and the issue of energy is no exception. Governor 
Davis announced just 2 days ago that California businesses and 
consumers cut their energy consumption by 8 percent in 
February. This is a dramatic cut and I compliment Californians 
for the great sacrifices that they are making. But I must say I 
am impressed with the resolve of high-tech companies to be part 
of the solution. I am especially pleased to see the significant 
efforts made by high-tech companies aimed at reducing 
electricity demands.
    But the high-tech sector recognizes it cannot be a 
substitute for the role of government. The State of California 
and the Federal Government must also stand firmly on the side 
of sound energy policy.
    While the media has given a great deal of attention to the 
private sector and the crisis, the media has paid considerably 
less attention to the detrimental effects that higher 
electricity prices have had on our schools. One school district 
in our valley estimates they will pay $136,000 more for 
electricity this fiscal year. And this next year the numbers 
are even more startling. The school district will increase its 
budget for electricity by $500,000. These dollars come out of 
the district's general funds, meaning that schools in this 
district will have fewer funds to hire teachers, pay for school 
books and upgrade education technology.
    These numbers are even more striking when you consider that 
the school district has already implemented strong conservation 
measures. In fact, the average energy cost per square foot is 
almost 25 percent less than the cost per square foot at an 
average K-12 California school district. To save money, some 
schools have even considered limiting operating hours from 8 
a.m. to 3 p.m. Such a decision would preclude a school from 
offering after-school activities, as well as a suitable 
environment for teachers to prepare for the next day's lessons.
    As a former educator, I am disheartened that schools are 
forced to adopt such measures, especially when many of our 
schools have little money to invest in energy-efficient 
devices. I know that Congressman Mark Udall has shown exemplary 
leadership on this issue, and I hope that the committee will 
follow his lead and look more closely at how the Federal 
Government can further encourage school districts to deploy 
these technologies in their schools.
    My goal today in testifying is not just to communicate to 
you the challenges that are faced by my constituents. Rather, I 
offer their stories to you as further evidence that the Federal 
Government must act to bring down skyrocketing electricity 
prices and help prevent further blackouts. We have a role, and 
I join my colleagues in expressing my great dismay that the 
Federal Energy Regulatory Commission has been so reluctant to 
act.
    I urge this committee to consider carefully and 
expeditiously legislation introduced by Congresswoman Anna 
Eshoo and legislation offered by Congressman Filner. The chief 
aim of each bill is to establish cost-of-service-based rates or 
regional caps for wholesale electricity based on the 
determination that current prices are ``unjust and 
unreasonable.''
    Mr. Barton. Congressman, could you summarize?
    Mr. Honda. Certainly. Just to close, what we are really 
looking at is trying to make sure that there is a short-term 
cost mechanism and then a long-term strategy to solve the 
problem California is facing.
    And finally, I want to voice my support for increased 
funding and emergency supplemental appropriations for LIHEAP, 
as well as the energy and weatherization programs.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Mike Honda follows:]

  Prepared Statement of Hon. Mike Honda, a Representative in Congress 
                      from the State of California

    Mr. Chairman, Congressman Boucher and Members of the Committee, 
thank you for inviting me to testify today and for your decision to 
hold this hearing on California's electricity crisis.
    I can assure you that my constituents in California's 15th 
Congressional District welcome this discussion and look forward to the 
Committee's consideration of important legislation that might provide 
short-term relief and long-term incentives to bolster California's 
electricity supply.
    Like all members from California, I've received letters and phone 
calls from almost every segment of my constituency expressing concern 
over rising electricity prices and rolling blackouts.
    Almost two weeks ago, I invited a number of individuals--
representing various organizations, companies and communities--to my 
office to discuss the devastating effects that California's energy 
crisis is having on Silicon Valley residents and businesses.
    Attendees included representatives from non-profits, chambers of 
commerce, high tech companies, health care organizations, and schools. 
Each offered a unique perspective and an eloquent case for stronger 
federal action.
    I would love to detail all of their stories, but for brevity's sake 
and more importantly--because of the Committee's strict time limit, I 
will only share with the committee the effects that this crisis is 
having on two important sectors in my district: high tech and 
education.
    As many of you know, Silicon Valley is comprised, in part, of high 
tech companies that operate machinery and computers that are incredibly 
sensitive to fluctuations in electrical currents. This is especially 
true for semiconductor companies and co-location facilities. When a 
blackout interrupts work at a high tech company, millions of dollars in 
unfinished products can be lost and it can often take huge financial 
investments to return operations to normal working order.
    When rolling blackouts swept through the San Francisco Bay Area in 
mid-January, the Silicon Valley Manufacturing Group reported that 
approximately sixty of its members had been ``directly impacted.'' The 
Manufacturing Group estimated that 100,000 Silicon Valley employees 
were unable to work and tens of millions of dollars were lost.
    The Bay Area is accustomed to addressing quality of life concerns 
and the issue of energy is no exception. Governor Davis announced just 
two days ago that California businesses and consumers cut their energy 
consumption by 8% in February. This is a dramatic cut and I compliment 
the Californians for the great sacrifices they are making.
    But I must say I am impressed with the resolve of high tech 
companies to be part of the solution. I'm especially pleased to see the 
significant efforts made by high tech companies aimed at reducing 
electricity demand.
    Companies that have already reduced energy consumption through 
implementing energy reduction plans have pledged to further reduce 
consumption during peak times. In addition, many of these companies are 
educating their employees on electricity reducing steps that can be 
implemented at work and at home.
    But the high tech sector recognizes it cannot be a substitute for 
the role of government. The State of California and the federal 
government must also stand firmly on the side of sound energy policy.
    While the media has given a great deal of attention to the private 
sector and the crisis, the media has paid considerably less attention 
to the detrimental effects that higher electricity prices have had on 
our schools.
    One school district in Silicon Valley estimates that it will pay 
$136,000 more for electricity this fiscal year. Next fiscal year, the 
numbers are even more startling. The school district will increase its 
electricity budget by $500,000. These dollars come out of the 
district's general funds--meaning that the schools in this district 
will have fewer funds to hire teachers, pay for school books and 
upgrade education technology.
    And these numbers are even more striking when you consider that 
this school district has already implemented strong conservation 
measures. In fact, the average energy cost per square feet is almost 
25% less than the cost per square feet at an average K-12 California 
school district.
    To save money, some schools have even considered limiting operating 
hours to 8am to 3pm. Such a decision would preclude the school from 
offering after school activities, as well as a suitable environment for 
teachers to prepare for the next day's lessons.
    As a former educator, I'm disheartened that schools are forced to 
adopt such measures, especially when many of our schools have little 
money to invest in energy efficient devices. I know that Congressman 
Mark Udall has shown exemplary leadership on this issue and I hope the 
Committee will follow his lead and look more closely at how the federal 
government can further encourage school districts to deploy these 
technologies in their schools.
    My goal in testifying today is not merely to communicate to you the 
challenges facing my constituents. Rather, I offer their stories to you 
as further evidence that the federal government must act to bring down 
skyrocketing electricity prices and help prevent further blackouts.
    I join a number of my colleagues in expressing great dismay that 
the Federal Energy Regulatory Commission has been so reluctant to act. 
I, therefore, urge this committee to consider carefully and 
expeditiously legislation introduced by Congresswoman Anna Eshoo and 
legislation offered by Congressman Filner. The chief aim of each bill 
is to establish cost-of-service based rates or regional caps for 
wholesale electricity based on the determination that current prices 
are ``unjust and unreasonable.''
    Clearly, instituting price caps is an unusual measure and one that 
should not be implemented carelessly. But I contend that in the case of 
California's electricity market, regional price caps or cost-of-service 
rates are appropriate and warranted.
    I hope and expect that the Committee will further explore the 
importance in further diversifying electricity supply with affordable 
renewable energy sources. I also believe that the federal government 
can play a stronger role in offering incentives to companies and 
homeowners that install devices that promote energy efficiency.
    On a related note, I urge the Committee to retain strong federal 
environmental laws governing the process for electrical generating 
plant construction, while at the same time exploring ways in which the 
process can be streamlined. The California energy crisis must not be an 
excuse to rollback hard fought environmental laws.
    Finally, I want to voice my support for increased funding--
including emergency supplemental appropriations--for LIHEAP, as well as 
the Energy and the Weatherization Programs.
    But I fear that federal action may be stalled by the mistaken 
perception that California's energy crisis is California's problem. I 
hope this is not the case because the consequences of California's 
electricity crisis are already rippling through the West and the 
detrimental effects this crisis has on California--the sixth largest 
economy in the world--will ultimately hurt our national prosperity.
    Thank you.

    Mr. Barton. We are now going to resume our questions. The 
gentleman from Ohio, Mr. Strickland, is recognized for 5 
minutes.
    Mr. Strickland. Thank you, Mr. Chairman. As I listened to 
my colleagues from the West, I could say to them that many of 
my constituents in southern Ohio are facing high costs of 
energy, electricity--not so much electricity currently but 
certainly natural gas. I think we have a looming disaster 
facing our economy, a disaster that could drag us down into a 
deep recession.
    What this does, I think, or it should do is impress upon 
this Congress that we need a national energy policy that is 
comprehensive and inclusive and includes all forms of energy. 
And I see my friend from California shaking his head. We 
believe in the use of coal. We believe in the use of nuclear 
energy. We believe in more ethanol use. We need to get on with 
that. But the fact is that would be a longer-term solution, and 
what we face is in an immediate crisis.
    Now, Mr. Inslee, your comments indicated, I believe you 
said that some of the generating capacity in California was 
AWOL. What are some of the plausible explanations for that?
    Mr. Inslee. Well, there are many. And basically there is 
45,000 megawatts available. There has only been 30,000 on any 
given day on line.
    Mr. Strickland. Why?
    Mr. Inslee. That is a really great question and we have 
written a letter to the General Accounting Office, Peter 
DeFazio and I, to get a report on that. There is an explanation 
for about half of that missing 15,000. There are long-term or 
short-term maintenance requirements. They are down for a 
legitimate reason, and these generators are required to report 
the reasons when they are down. But that leaves about 6- to 
8,000 megawatts that are AWOL, that are missing. There is no 
explanation they are not on except this--the ability to jigger 
and gain the market, to increase prices by withholding 
generating capacity. And there is a significant reason to 
believe that that has gone on.
    In fact, I am certainly not the wisest head on that. There 
was a study done, which I will provide to the members of the 
committee, by a professor of MIT who studied the market just 
last year and concluded that there was a likelihood that, in 
fact, gaming had gone on, that generating capacity was withheld 
from the market to drive up these prices, and that is obviously 
very disturbing.
    Now, one way to deal with that is a short-term wholesale 
price cap, to deal with this. And I should repeat, these are--
there is nothing wrong with profits in America, healthy, great, 
we all aspire to them. But these were extraordinary profits not 
taken because they have developed a new technology or that they 
have taken a great investment risk which is now paying off, it 
is simply that they were there in the midst of a natural 
disaster, water-short year in the Pacific Northwest and the 
collapse of the California market, due to some political 
mistakes that were made.
    So I have to tell you this is disturbing. We asked the 
General Accounting Office to have an investigation of this. It 
should be investigated. Appropriate sanctions should be taken 
if there is a finding there is inappropriate conduct, but even 
if there is not, even if somehow some mysterious explanation 
arises, the one thing we do know, abundantly clear, there are 
profits being taken in this industry that are beyond any 
imaginable returns in this industry ever for any reason, and I 
have got people going to food banks because of it.
    Mr. Barton. Would the gentleman yield on that point?
    Mr. Strickland. I would.
    Mr. Barton. Is it not true that 30 percent of the plants in 
California are at least 30 years old and over 20 percent are at 
least 40 years old? So the older plants might tend to have a 
little bit higher-than-normal maintenance.
    Mr. Inslee. Yes. In fact, in typical years, only about 
2,000 megawatts are down at any one time. This year there is a 
legitimate explanation of about 7- to 8,000 being down for 
exactly the reasons that you point out, but there are still 
another 6- to 8,000 megawatts where there is no explanation.
    Mr. Barton. My understanding is that California has been in 
a Stage 1 reserve, or 3, for about the last 6 months. So that 
as it begins to ease, some of these plants that were being 
given routine maintenance, they might legitimately be out of 
service simply to catch up on deferred maintenance. I don't 
know that, but that is at least a plausible explanation to 
the----
    Mr. Strickland. Sure. And if I could reclaim my time, the 
reason I asked the question is that your comment implied some 
possible guilt on the part of the companies to increase 
profits, and it seems as if the size of this crisis facing the 
country should encourage us to try to find an answer to that, 
without any opinion going into the research. You know, I just 
think we need to know that.
    Now, one other question and I ask this question because 
many of us in the Midwest are fearful that what is happening in 
California--you know, California is a trend setter, proudly so, 
cultural, arts and so on and so forth. But we are afraid that 
California may be a trend setter in terms of blackouts and high 
prices, and I think there has to be a national response.
    Now, I know that you had a chance to speak briefly with the 
President at the Democratic retreat. Have you spoken with other 
members of the administration and, if so, what has been the 
response?
    Mr. Inslee. Well, unfortunately, it has been disappointing. 
And let me tell you, I have been very--before expressing 
disappointment in this administration, I want to express some 
praise. They have done a good job for the one disaster in 
Seattle, which is the earthquake last year. We have got a good 
response from the administration in that, but after that it is 
very disappointing. I spoke to the President. He came to our 
bipartisan retreat, or our retreat in Pennsylvania. I spoke to 
him about this issue. I proposed this price cap to him. He 
expressed a disinclination, to put it mildly, to do so. But I 
said there is a way to do this, Mr. President, which will not 
be a disincentive for new generating capacity; and he said, if 
that is true, you and your group go talk to the Vice President.
    So for the last 3 weeks I have been attempting to get a 
meeting with the Vice President's task force to discuss this, 
and we have been told they won't meet with us, and that is very 
disappointing to me in today's air of bipartisanship. So we 
have written a letter today, signed by 25 members up and down 
the West Coast, including at least one good Republican, asking 
for a meeting to discuss this issue. And I hope that they will 
avail us that opportunity, because I think it is very important 
not to allow ideology to stand in the way of good solutions.
    Mr. Strickland. Mr. Chairman, my time is up. I want to 
thank you, and I want to thank you, and I really believe that 
this is not an issue that we can deal with in a partisan way. 
This is----
    Mr. Barton. I agree.
    Mr. Strickland. This is an issue that has got to have all 
of us working together because it affects all of us, and I 
think the answer is going to take, you know, the best minds 
among us to figure out the best approach. Thank you.
    Mr. Issa. Mr. Chairman, could I respond quickly to that?
    Mr. Barton. Actually, you can respond in writing. But we 
have got a whole other panel of Congressmen and Congresswomen 
already here. So we are going to try to expedite the questions 
on this panel, but if you want to put it in writing, 
Congressman Issa, we would love to have it.
    Congressman Shimkus would be recognized. And I want to let 
Congressman Bono and Congressman Radanovich know, since they 
testified, we can't let the witnesses ask themselves questions, 
you know, that it was the greatest testimony you ever heard, 
so.
    Mr. Honda. Mr. Chairman, I just want to thank you for this 
opportunity and I feel very comfortable with the mindset that 
Congressman Strickland had laid out. So I thank you for the 
opportunity.
    Mr. Barton. Mr. Shimkus for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. A couple questions, 
and I was going to ask Mike but he has left. Congressman Davis, 
you were a member of the California General Assembly; is that 
correct?
    Mrs. Davis of California. Yes, I was.
    Mr. Shimkus. Part of the hearings that we have had already 
and part of the news article that I have quoted a couple of 
times, part of the problem dealt with long-term--that 
California did not go into long-term contracts.
    Mrs. Davis of California. Right.
    Mr. Shimkus. Some of the debate as to why California did 
not deal with long-term contracts that the State went into 
under the PURPA, under the renewable--the clean producing 
technologies which created exorbitant prices for the producers 
because they were forced to purchase these long-term contracts.
    Could you--I have heard that, you know, through articles 
and it has been raised in hearings. In your discussions, was 
that part of the reason why California in their deregulation 
bill did not go into for the retail long-term contracts.
    Mrs. Davis of California. The experience was that in the 
long term, that it would not be helpful to consumers. But 
clearly I think there were so many parts to that plan that 
misfired or really didn't materialize in the way that people 
anticipated, and of course one of those is they didn't expect 
all the generation to be out of State.
    Mr. Shimkus. But to go back to the issue then, the PURPA 
requirement to purchase renewable clean energy producing over a 
long-term contract was not advantageous to the consumers based 
on the electricity prices, is that correct to say, and that is 
why there was a fear of going into any long-term contracts?
    Mrs. Davis of California. Well, at the time, they really 
felt that it would be not necessarily better purchasing on the 
spot market per se, but that there were problems in the long 
term with doing that.
    Mr. Shimkus. Was there anything else that you personally as 
a legislator thought that was good about the plan? You 
supported it; is that correct?
    Mrs. Davis of California. Right at that time, as you know, 
it was unanimous and everybody was really at the table at that 
time, and I think that they believed that this would lower 
electricity rates, but again there were so many things that 
changed in the interim that weren't really anticipated.
    Mr. Shimkus. Congressman Issa.
    Mr. Issa. Yes, there was some dissension; it just wasn't in 
the legislature. The PUC had a 3-to-2 vote with Commissioner 
Jessie Knight and one other pushing very hard not to bar the 
energy companies from buying long term, and so basically that 
is what created more of this problem than anything else.
    One of the problems in California is the legislature and 
the three members who voted to require buying on a daily 
market. They made the assumption that, well, you can buy 
cheaper and, just like anything else, if you want to get a 
hotel room in Las Vegas after 2 in the morning, if there is one 
available you can get it for and amazingly low price. On the 
other hand, if there is a convention in town, guess what? Even 
the penthouse at the best hotel may not be available, and if it 
is, it may be $10,000 a night because it is available and 
nothing else is.
    This is exactly the problem California got into is they 
thought they were smart when they bought short. Now that, in 
fact, short is more expensive, they have a reluctance to buy 
long, and even the Governor's proposal to spend billions, 10 
billion plus dollars in ensuring buying, he is buying the 
baseload. Rather than saying let the companies buy their own 
baseload long term, we are going to guarantee the additional 
purchase. If the Governor were to buy $5 billion worth of 
future excess capacity in addition to the 52,000 megawatts that 
are available, in fact he would be driving down the price, and 
this is exactly the opposite of what the Governor is doing.
    Mr. Shimkus. And let me ask each of you--and if you can 
answer it briefly because my time's going to run up. This is 
going to be my last question. If we cap--there are two parts of 
the equation. There is the supply and then there is the demand. 
If we cap wholesale rates, like California capped the retail 
rates for individual consumers, how do you encourage 
conservation with a capping of rates? How do you affect the 
other side of the equation, not just the supply but the 
demands?
    Mr. Inslee. I tell you one thing you can do is you can 
adopt variable pricing. Variable pricing has a higher cost 
during peak hour is one way, and we are going to have the first 
utility in the country doing that this year up in the Puget 
Sound area, and I hope this committee will look at that issue 
carefully.
    Mr. Shimkus. We had energy deregulation debate. We think 
there is going to be metering and people are going to buy based 
upon peak hours so you would say that there should be some rate 
changes for the consumer.
    Mr. Inslee. Yes.
    Mr. Shimkus. To help conservation.
    Mr. Inslee. Yes, and I believe there ought to be and need 
to be some price increases at the retail level in certain 
circumstances, but if the ones we have experienced of 50 to 100 
percent in a 12-month period are so shocking to the economy, 
they can't deal with it.
    Mrs. Davis of California. I think one of things we didn't 
deal with was deal with the demand side, and this is where we 
can do that both on the commercial and residential end. After 
this experience, people have an understanding now of how they 
can utilize their own utilities at home in a different way. So 
it is not my opinion that this is going to, if we do wholesale 
caps, that people would start using more electricity than they 
need or not conserving.
    The real difficulty, and I think perhaps there was a little 
confusion about the wholesale versus the retail caps, we do 
think that had the FERC capped the wholesale rates plus a 
profit, a reasonable and just profit early on, we would not 
have had to even step in on the retail prices, but that was the 
only thing we could really control in California. And San 
Diego, of course, experienced this before everybody else did 
and it was difficult for us to get a across the sense of panic 
really among residents over this.
    Mr. Shimkus. But your deregulation----
    Mr. Barton. The gentleman's time has expired. We need to go 
to our next and last questioner in this round, the Congressman 
from Kentucky, Mr. Whitfield, for 5 minutes.
    Mr. Whitfield. Thank you, Mr. Chairman. I think all the 
evidence indicates that most of the price spikes occurred 
within the area of natural gas. It hasn't really happened that 
much in coal or nuclear that I know of.
    Now, some of you have made some rather serious allegations 
in my view. I know Mr. Filner has gone, but the words have been 
mentioned that prices were manipulated, there was illegal 
withholding of power, falsification and so forth. And Chairman 
Hecker, who happened to be a Democrat over at FERC, had asked 
for a report and analysis of the western markets on the 
wholesale rates. And as some of you have indicated, FERC has 
the legal authority to put caps on interstate rates if they are 
found to be unreasonable. And in that report which was issued 
in November of 2000, they said they found no evidence of market 
power abuse.
    So that is the agency. The Federal Government has the 
authority to do this. So assuming that what they say is true 
and they are not going to act, are you all, particularly Ms. 
Davis and Mr. Inslee, despite the fact that maybe there is no 
proof of anything, are you still advocating that there be a cap 
on wholesale rates?
    Mr. Inslee. Mr. Whitfield, yes, I am advocating that, 
whether or not there was withholding generated or not, and I 
don't know that for sure. I want to make sure you understand we 
have asked the GAO to investigate this. I can't tell for sure 
there was or not. I think there was enough to cast some 
suspicion in that regard, but I am advocating that for this 
reason. The FERC also, in that very same report I think you are 
referring to, found ``the Commission has found in this 
proceeding that the existing market structure and market rules, 
in conjunction with an imbalance of supply and demand in 
California, has caused and until remedied will continue to have 
the potential to cause unjust and unreasonable rates for short-
term energy during certain time periods.''
    Now, to me, it is absolutely stunning that the Federal 
organization charged with the responsibility of assuring 
reasonable rates makes that finding and then does nothing, 
zippo, nada, to solve this particular problem, you know, 
whether there was withholding generating, but I do know people 
are being gouged for their electrical prices today with 
unreasonable prices that are not required for the cost of 
producing that power.
    Mr. Issa. Mr. Whitfield, just to maybe shed a little light 
on this, the FERC Commissioner, or Chairman, met with the 
California delegation, bipartisan Republican and Democrat, and 
I think he explained this very very well. And the words the 
Congressman is saying are absolutely correct, but the finding 
is not that there was wrongdoing on behalf of the industry. The 
finding is there was wrongdoing on behalf of the California 
legislature and the people of California, and they created an 
environment in which they bought badly. And the change that 
needs to happen for the most part needs to happen in 
California, and they are beginning to change the rules so they 
buy smarter. And for the Federal Government to say you bought 
badly and you paid less for a time, but now when you are paying 
more we are going to prohibit that and claim there was some 
wrongdoing, would be folly.
    Mr. Whitfield. Well, I mean I personally agree with you 
that what California did is almost unbelievable when you look 
through the process, but, Mr. Inslee, you made the comment, 
which makes a lot of sense, that if you institute short-term 
caps on wholesale rates and exempt new generators, that that 
could help solve the problem; except it is my understanding 
that in the State of California, if you are a new generator, 
then you are going to have to bear part of the cost of the 
stranded cost of the existing utilities to come in, plus you 
are going to have to reduce your rates to meet their initial 10 
percent reduction of their retail rates.
    Mr. Inslee. Could I address this? This has to come down to, 
I think, the role of the Federal Government. I don't pretend 
with all my friends in California to say that every decision 
made there in retrospect was the right decision. What we are 
here to say, though, that the Federal Government is the only 
government right now who can care for my constituents, and 
simply sort of throwing rocks at California constantly is not 
going to solve this problem. We need a western statewide grid 
solution only this body, and the administration has the 
capability in my view of providing that and I urge you to do 
so.
    Mr. Whitfield. So you would be in favor of overriding that 
aspect of California law.
    Mr. Inslee. I will leave that to you and California in that 
regard, but in one shape or another we need a wholesale price 
cap that is grid systemwide in the western United States short 
term.
    Mr. Barton. Time of the gentleman has expired. Congressman 
Walden, I am told, does not want to ask questions, is that 
correct?
    We are going to excuse this panel. We thank you for your 
testimony. There may be some written questions but we obviously 
appreciate the input into this problem. We will have a specific 
hearing on California when we have experts come, hopefully 
later this month.
    We would now like to welcome our second panel of 
Congressmen. We are going to recognize you basically in 
seniority, with some exceptions for committee members. And 
Congressman J.C. Watts, who has a leadership meeting, will be 
allowed to go first. So, J.C., if you will come forward. If it 
was up to me I would recognize Texans first, since we have Mr. 
Stenholm, but we are going to do this. So we are going to 
recognize Congressman Watts, and then we will go to Congressman 
Ganske who is a member of the committee, and then we will start 
by seniority, and I think it would be Mr. Bereuter and Mr. 
Stenholm, and then after that I am lost, but I am sure that you 
all will help me.
    So, gentlemen and lady, welcome to the subcommittee. 
Congressman Watts, your statement is in the record. You are 
recognized for 5 minutes to elaborate on it.

     STATEMENT OF HON. J.C. WATTS, JR., A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF OKLAHOMA

    Mr. Watts. Thank you, Mr. Chairman, and thank you for 
accommodating my schedule, and I want to thank my colleagues 
for allowing me to go first.
    Chairman Burton and members of the committee, thank you for 
the invitation to testify before you here today on an issue 
that is critical to the national security and continued 
prosperity of our Nation. This issue I speak of is the need for 
a comprehensive national energy policy that will ensure that 
the standard of living we enjoy today in America will continue 
in the future for our children and for our grandchildren. The 
last 8 years have seen a lack of such a policy and it is now 
time for that to change.
    The energy issue is a critical national security issue. 
Currently we are importing about 57 percent of the oil used in 
this country, with 23 percent of that coming from the Persian 
Gulf region. Unless we take action, that number is forecast to 
increase to 64 percent in the year 2020. By contrast, our total 
imports were only 35 percent in 1973 when the Arab oil embargo 
created gas lines here at home. As recently as 1991 we went to 
war with Iraq not only to liberate Kuwait, but also to assure 
Saudi Arabia and the Persian Gulf States and our European 
allies that the United States was committed to the security of 
that region. Unfortunately, the last 8 years have seen such a 
weak-handed foreign policy toward Iraq that a nervous Saudi 
Arabia is now reaching out toward Iran. America cannot be so 
vulnerable to the leaders of OPEC.
    Our reliance on imported oil weakens our national security, 
and it must be reduced through the implementation of a 
comprehensive national energy policy.
    The energy issue also is an economic issue. As the former 
chairman of the Oklahoma Corporation Commission, the governing 
body in Oklahoma that regulates oil and gas, I am well aware of 
the essential role that energy plays in our economy. Without 
affordable, abundant, and reliable energy available, the wheels 
of our economic machine will slow and eventually halt. We must 
not allow that to happen.
    Some people think that our new Information Age economy is 
less reliant upon energy than our old economy based on 
manufacturing. Nothing can be further from the truth. All of 
these Internet computer systems, e-businesses, and software 
firms require electricity to keep them running. The Internet 
and the systems associated with it consumes approximately 8 
percent of the electricity used in the United States. In 
addition, all of those wonderful things ordered on the Internet 
still require transportation to reach the consumer, 
transportation that is 97 percent fueled by petroleum products. 
And, yes, America still does make products in factories that 
rely on energy to light the lights, run the conveyor belts, and 
heat the buildings.
    Energy is essential to the production side of our economy. 
Energy is also essential to the consumption side of our 
economy. There is no greater detriment to consumer confidence 
than not knowing what your utility bill will be at the end of 
the month. No working family in America is going to buy a new 
car, a washing machine or computer when they are uncertain of 
the cost of their monthly utility bill.
    Every person that has ever had an economics class knows the 
theory of supply and demand. Our energy supply is dwindling 
while our energy demand is growing. The Department of Energy 
predicts a growth in total energy consumption of 32 percent by 
2020; 390 megawatts in new electrical generation capability 
will be required to meet that increased demand. This is the 
equivalent of constructing 40 new 500-megawatt power plants per 
year for the next 20 years.
    Our oil refinery infrastructure is in no better shape. 
Currently our domestic refineries are running at 95 percent 
capacity and there has not been a new refinery built in the 
United States for the last 20 years. The nuclear industry that 
provides 20 percent of our electrical generation capability has 
been stagnant for years but offers the potential for large 
amounts of emission-free electrical power. The siting and 
permitting process required of the nuclear industry should be 
streamlined. The hydroelectric plants operating today must be 
maintained for the future.
    Clearly the energy infrastructure in our country is in 
decline. The transmission lines used to transport electricity 
around the country are now operating at their maximum and 
building new ones is next to impossible to do due to a myriad 
of Federal, State and local regulations. Pipeline construction 
is similarly difficult in the regulatory environment we see 
today. Without an investment in infrastructure, improvement, it 
will not matter how much our supply is increased because it 
will not be able to reach the users.
    Beyond our infrastructure needs, we must increase the 
supply of energy in this country. When I say energy, I mean all 
types of energy: oil, natural gas, coal, nuclear, 
hydroelectric, geothermal and renewables. No one source has the 
single answer. The domestic oil and natural gas industry must 
be kept alive and thriving.
    Mr. Barton. Can you summarize?
    Mr. Watts. Environmentally responsible access to Federal 
lands should be pursued. And let me say in conclusion, we have 
an energy crisis bearing down on us, and it is our duty to do 
something about it, and I hope we can look at the Energy 
Department, all of us can look at a comprehensive national 
energy policy that will chart a sensible course that can be 
followed by many for many years to come.
    And with that, Mr. Chairman, I thank you.
    [The prepared statement of Hon. J.C. Watts, Jr. follows:]

    Prepared Statement of Hon. J.C. Watts, Jr., a Representative in 
                  Congress from the State of Oklahoma

    Good afternoon . . . Chairman Barton and members of the 
subcommittee, thank you for the invitation to testify before you today 
on an issue that is critical to the national security and continued 
prosperity of this great nation. The issue I speak of is the need for a 
comprehensive National Energy Policy that will ensure that the standard 
of living we enjoy today in America will continue in the future for our 
children and our grandchildren. The last 8 years has seen a lack of 
such a policy and it is now time for that to change. It is our duty as 
Members of Congress and it is our duty as mothers and fathers to step 
forward and provide the necessary leadership on this critical issue.
    The energy issue is a National Security issue. Currently, we are 
importing about 57 percent of the oil used in this country, with 23 
percent of that coming from the Persian Gulf region. Unless we take 
action, that number is forecast to increase to 64 percent by 2020. By 
contrast, our total imports were only 35 percent in 1973 when the Arab 
oil embargo created gas lines here at home. As recently as 1991, we 
went to war with Iraq not only to liberate Kuwait, but also to ensure 
Saudi Arabia, the Persian Gulf states, and our European allies that the 
United States was committed to the security of that region. 
Unfortunately, the last eight years has seen such a weak-handed foreign 
policy toward Iraq that a nervous Saudi Arabia is now reaching out 
towards Iran. Friends, our great country cannot afford to be so 
vulnerable to the whims of the leaders of OPEC. Our reliance on 
imported oil weakens our national security and it must be reduced 
through the implementation of a comprehensive National Energy Policy.
    The energy issue is also an economic issue. As the former Chairman 
of the Oklahoma Corporation Commission--the governing body in Oklahoma 
that regulates oil and gas, public utilities, and trucking--I am well 
aware of the importance that energy plays in our economy. Energy is the 
grease that keeps the large wheels of our economic machine in motion. 
Without affordable, abundant, and reliable energy available, that 
machine will slow and eventually halt. We must not allow that to 
happen. Some people think that our new Information-age economy is less 
reliant upon energy than our old economy based on manufacturing. 
Nothing could be further from the truth. All of these Internet computer 
systems, e-businesses, and software firms require electricity to keep 
them running. The Internet, and the systems associated with it, 
consumes approximately 8 percent of the electricity used in the United 
States. In addition, all of those wonderful things ordered on the 
Internet still require transportation to reach the consumer. 
Transportation that is 97 percent fueled by petroleum products. And 
yes, America does still make products in factories that rely upon 
energy to light the lights, run the conveyor belts, and heat the 
building. Energy is essential to the production side of our economy.
    Energy is also essential to the consumption side of our economy. 
There is no greater detriment to consumer confidence than not knowing 
what your utility bill will be at the end of the month. No working 
family in America is going to by a new car, washing machine, or 
computer when they are uncertain of the cost of their monthly utility 
bill. Opening your electricity bill should not be like playing Russian 
roulette!
    Our current energy problems are no more complex than a lesson of 
Economics 101. Every person that has ever had an economics class knows 
the theory of supply and demand. That is our problem. Our supply is 
dwindling while our demand grows. The Department of Energy predicts a 
growth in total energy consumption of 32 percent by 2020. 393,000 
Megawatts of new electrical generation capability will be required to 
meet that increased demand. This is the equivalent of constructing 40 
new 500-megawatt power plants per year, for the next 20 years. Our oil 
refinery infrastructure is in no better shape. Currently, our domestic 
refineries are running at a 93 to 95 percent utilization rate, and 
there has not been a new refinery built in the United States for the 
last 20 years. Even if we had the oil, it would be difficult to refine 
it into usable fuels to run our cars and heat our homes. Clearly we 
have a problem that we must get to work on before rolling blackouts 
become a norm in the most powerful and technologically advanced country 
in the world.
    The systematic approach to any problem requires that the problem be 
fully understood prior to trying to solve the problem. I applaud 
President Bush for appointing an Energy Task Force headed by Vice 
President Cheney and I applaud Senator Murkowski and my friends in the 
Senate for their leadership on this issue. I especially applaud your 
leadership and Chairman Tauzin's leadership on this issue. Now is the 
time for us to assume the mantle of leadership and move forward on this 
critical issue.
    We must increase the supply of energy in this country. When I say 
energy, I mean all types of energy: oil, natural gas, coal, nuclear, 
hydroelectric, geothermal, and renewables. No one source has the single 
answer. The domestic oil and natural gas industry must be kept alive 
and thriving. Measures such as the Independent Energy Production Act, 
H.R. 805, which I co-sponsored and was recently introduced, helps those 
independent and marginal well producers weather the ups and downs of 
the market. A look at environmentally responsible access to Federal 
lands should be pursued. Coal is abundant in the United States and 
currently serves as the fuel for 51 percent of our electrical 
generation. Clean coal technology needs to be supported. The nuclear 
industry that provides 20 percent of our electrical generation 
capability has been stagnant for years, but offers the potential for 
large amounts of emission-free electrical power. The siting and 
permitting process required of the nuclear industry should be 
streamlined. The hydroelectric plants operating today must be 
maintained for the future. Renewable sources such as geothermal, solar, 
wind, and others offer great promise for the future. Continued support 
of these developing energy sources will secure our future.
    The American demand for energy is large and growing. While 
conservation will never solve our problems, it will certainly go a long 
way to help. We can probably all remember the cars of the 1970s that 
achieved 5 miles per gallon. Today, the family mini-van gets 25 miles 
per gallon. When I was in high school, I remember every light switch 
had a sticker on it reminding us to turn out the light when we left the 
room. Today, I see office buildings here in Washington D.C. ablaze with 
lights at 10:00 at night. There is either some very dedicated public 
servants working late, or they simply forgot to turn out the lights on 
their way out. We have become a nation of ``super-consumers'' who 
believe that energy will always be available if we are willing to pay a 
fair price for it. The people in California have learned a different 
lesson. We have not yet reached the maximum efficiencies that can be 
reached. Vehicles, appliances, electronic devices, homes, buildings, 
and heating systems can all be made for efficient. Programs to assist 
low-income people to weatherize their homes should be supported. We as 
the government need to lead the way by establishing rigid energy 
conservation programs in government office buildings and in the fleets 
of vehicles that governments at all levels operate. Industry should be 
encouraged to replace old inefficient systems with new, more efficient 
systems. Great gains can be made in energy conservation when it becomes 
economically viable. We should take measures to make this happen.
    Finally, the energy infrastructure in our country is in decline. I 
have alre1ady mentioned that no new refineries have been built in the 
United States in the last 20 years. Additionally, no construction 
permits for nuclear plants have been granted since 1979. The 
transmission lines used to transport electricity around the country are 
now operating at their maximum and building new ones is next to 
impossible due to a myriad of Federal, state, and local regulations. 
Pipeline construction is similarly difficult in the regulatory 
environment we see today. Without an investment in infrastructure 
improvement, it will not matter how much our supplies increase, because 
it will not be able to reach the users.
    In conclusion, we have an energy crisis bearing down on us and it 
is our duty to do something about it. While the free and competitive 
market can solve many of our problems, there is also a role for 
government. The government helped create the problems we now face, so 
we in the government must now work with the industry to solve these 
problems. The solution will not happen overnight. There will be bumps 
in the road. However, the development of a comprehensive National 
Energy Policy will chart a sensible course that can be followed for 
many years to come. The American people are counting on us.
    Thank you.

    Mr. Barton. Thank you. And your experience at the State 
level on the Oil and Gas Commission in Oklahoma will be 
invaluable as we put this policy together. I understand you 
have to go to a meeting at 3. So anytime you need to leave, 
feel free to do so.
    Now, welcome to a member of the subcommittee and the full 
committee, Congressman Ganske. Your statement is in the record. 
You are recognized for 5 minutes to elaborate.

  STATEMENT OF HON. GREG GANSKE, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF IOWA

    Mr. Ganske. Thank you, Mr. Chairman. Well, as we look at a 
national energy policy and as we are looking as a committee at 
the bill, an energy bill, it is clear that we need to get 
adequate supplies of natural gas and oil and to reduce our 
dependence on imports, as my colleague J.C. Watts has just 
talked about. I think we also need to focus on renewable 
sources of energy, and that is mainly what I want to talk about 
and provide the committee with an example of how regulations 
can run amok and can prevent us from using some of our cleanest 
sources.
    It is no surprise that I have been strongly in favor of 
renewable energy sources like ethanol, along with colleagues 
such as Mr. Shimkus on the committee. But I want to focus on a 
situation that really has to deal with one of the main problems 
the committee will be facing, and that is the NIMBY situation, 
the ``not in my backyard'' syndrome that is, I think, 
preventing us from developing new sources, but also the sources 
for transportation of both natural gas and the location of new 
sources. And so I am going to provide the members of this panel 
with an example from California, and I know my California 
colleagues may be interested in this.
    There is a recent example, as an example of the obstacles 
to new generation, it is the failure to build a geothermal 
plant on U.S. Forest Service land at Telephone Flats in 
northern California near Medicine Lake.
    With the written consent and support of the Forest Service, 
the Bureau of Land Management leased these lands to private 
companies in 1981 pursuant to the Geothermal Steam Act of 1970 
which was passed by Congress to ensure and encourage the BLM to 
lease federally owned geothermal resources for commercial 
production and use.
    The proposed geothermal plant, while on Federal land, is 
hardly in an area that hasn't seen other uses. In the immediate 
area are paved grounds, developed campground and picnic areas, 
numerous privately owned cabins, a boat ramp and an active 
pumice mine. Motor boats are used regularly in the summer. 
Snowmobiling is a major activity in the winter, and substantial 
logging has occurred and continues to occur in that area.
    The Forest Service and the BLM compiled numerous documents 
for this project, covering the range of environmental acronyms. 
In its first environmental assessment of 1981 the Forest 
Service concluded that, ``geothermal exploration will not 
create any environmental impacts which cannot be avoided.'' As 
a result, developers constructed numerous roads and well pads 
at the site and drilled several dozen test wells to assess the 
commercial viability of the geothermal resource.
    The two Federal agencies completed a supplemental 
environmental assessment in 1984 and approved additional 
leasing, noting contrary to, quote, coal, oil and gas-fired 
electric generating plants, geothermal power is one of the few 
alternatives remaining capable of contributing to energy 
demands without creating serious environmental impacts, 
unquote.
    When a geothermal developer proposed further exploratory 
drilling in 1995, the BLM and Forest Service prepared another 
environmental analysis and issued a finding of no significant 
impact to the environment, approving the project.
    The company then submitted its plan of operation in 1997 to 
construct and operate its geothermal plant. So the agencies 
prepared an environmental impact statement. The draft and final 
EIS adopted by the agencies approved proceeding with the 
project, with certain mitigation measures. But both reports 
concluded that denying the project would conflict with the 
company's leasing rights.
    While everything seemed on track to approve this 
environmentally friendly geothermal plant, then the problems 
began. The preferred route for the transmission line and access 
road were found to be unacceptable because forestland would be 
disturbed. The second alternative, a much longer transmission 
line, was also found to be unacceptable because of its possible 
impact on a nesting area, although mitigation measures were 
readily available. And one of the three native American tribes 
in the area complained that the entire project would interfere 
with what they described as a sacred area of vision quests, 
although the other two tribes did not oppose the project.
    After nearly 4 years of study, the record of decision which 
was finally issued last year, turned down the project, citing, 
``the need to protect the visual and cultural values associated 
with the uniquely and highly significant historic properties of 
Medicine Lake.'' In a prime example of bureaucratic statement 
of the obvious, quote, selection of the no action alternative 
was the most effective measure to eliminate the impacts on the 
cultural and social environments----
    Mr. Barton. Could the gentleman summarize, please?
    Mr. Ganske. To summarize, Mr. Chairman, after 20 years, no 
geothermal plant, and a clear lack of a national energy policy, 
leaving California facing an electricity crisis. This was an 
opportunity to bring 50 megawatts of clean renewable 
electricity to 50,000 homes in power-starved California. It 
didn't happen. The developer followed every rule and 
regulation. The judge has already told the government not to 
bother trying to dismiss this case, and we are left without a 
very clean source of energy, and it all relates to ``not in my 
backyard.'' we need to do something to fix this.
    [The prepared statement of Hon. Greg Ganske follows:]

 Prepared Statement of Hon. Greg Ganske, a Representative in Congress 
                         from the State of Iowa

    America needs a comprehensive energy policy. You don't need to look 
far from home to realize the challenges we face. My constituents face 
energy bills this winter two or three times the rate of a year ago. A 
national energy policy might not prevent such price surges, but I feel 
it would go along way toward tempering them.
    We need legislation to provide adequate supplies of natural gas and 
oil and to reduce our dependence on foreign imports. But we must also 
focus on renewable sources of energy.
    One of my first initiatives this year was to author bipartisan 
legislation to promote the use of ethanol. Twenty-six Members, from 
both parties, joined me in introducing the ``Clean Air and Water 
Preservation Act of 2001'' to call for an end to the use of MTBE. MTBE 
is a chemical used to decrease automobile pollution and to improve air 
quality. Unfortunately, it is also a ground water contaminant. The 
Environmental Protection Agency warns it may even cause cancer. My 
legislation phases out the use of MTBE and replaces it with ethanol 
which burns cleaner, without harming our water away as Pennsylvania and 
Florida have joined me in cosponsoring the legislation. Even though, 
they don't grow supply. The bill is good public policy, which is why 
members from as far very much corn in those states, they recognize 
ethanol is a cleaner fuel alternative. Americans should not have to 
face a false choice between clean air and clean water. With corn based 
ethanol, we can have both.
    In addition to ethanol, we must also include hydroelectric power, 
solar power, wind generation, biomass, geothermal power and measures to 
promote conservation and innovation. I feel very strongly about 
renewable sources, but they alone are not the solution. We also need to 
look at developments in ``clean-coal'' technology, and as I mentioned 
previously, we must ensure our domestic supplies of natural gas and oil 
are sufficient.
    It is not enough just to talk about renewable resources, we have to 
create an environment that fosters their development. We must remove 
obstacles and champion them to make them an important player in a 
diversified energy mix.
    One recent example of the obstacles to new generation is the 
failure to build a geothermal power plant on U.S. Forest Service land 
at Telephone Flat in northern California, near Medicine Lake. With the 
written consent and support of the Forest Service, the Bureau of Land 
Management (BLM) leased these lands to private companies in 1981 
pursuant to the Geothermal Steam Act of 1970, which was passed by 
Congress to encourage the BLM to lease federally owned geothermal 
resources for commercial production and use.
    The proposed geothermal plant, while on federal land, is hardly in 
a pristine area. In the immediate area are paved roads, developed 
campground and picnic areas, numerous privately owned cabins, a boat 
ramp, and an active pumice mine. Motor boats are used regularly in the 
summer, snowmobiling is a major activity in the winter, and substantial 
logging has occurred and continues in the area.
    The Forest Service and BLM compiled numerous documents for this 
project, covering the range of environmental acronyms. In its first 
Environmental Assessment in 1981, the Forest Service concluded that 
``geothermal exploration will not . . . create any environmental 
impacts which cannot be avoided.'' As a result, developers constructed 
numerous roads and well pads on the site and drilled several dozen test 
wells to assess the commercial viability of the geothermal resource.
    The two federal agencies completed a Supplemental Environmental 
Assessment in 1984 and approved additional leasing, noting that, 
contrary to ``coal, oil and gas fired electric generating plants . . . 
geothermal power is one of the few alternatives remaining capable of 
contributing to . . . energy demands without creating serious 
environmental impacts.''
    When a geothermal developer proposed further exploratory drilling 
in 1995, the BLM and Forest Service prepared another environmental 
analysis and issued a Finding of No Significant Impact to the 
Environment (``FONSI'') approving the project. The company then 
submitted its Plan of Operation in 1997 to construct and operate its 
geothermal plant, so the agencies prepared an Environmental Impact 
Statement (``EIS''). The draft and final EIS adopted by the agencies 
approved proceeding with the project, with certain mitigation measures, 
but both reports concluded that denying the project would conflict with 
the company's lease rights.
    Everything seemed on track to approve this environmentally friendly 
geothermal plant. Then the problems began. The preferred route for the 
transmission line and access road were found to be unacceptable because 
forest land would be disturbed. The second alternative, a much longer 
transmission line, was also found to be unacceptable, because of its 
possible impact on a nesting area, although mitigation measures were 
readily available. And one of the three native American tribes in the 
area complained that the entire project would interfere with what they 
described as a sacred area of ``vision quests.'' Although the other two 
tribes did not oppose the project.
    After nearly four years of study, the Record of Decision, which was 
finally issued last year, turned down the project, citing ``the need to 
protect the visual and cultural values associated with the uniquely and 
highly significant historic properties in the Medicine Lake'' area. In 
a prime example of a bureaucratic statement of the obvious, ``the 
selection of the No Action Alternative was the most effective measure 
to eliminate the impacts on the cultural and social environments in the 
. . . area.''
    The result after 20 years? No geothermal plant and a clear lack of 
a national energy policy, leaving California facing an electricity 
crisis. Here was a golden opportunity to bring 50 megawatts of clean, 
renewable electricity to 50,000 homes in power-starved northern 
California. It didn't happen. California will continue to experience 
blackouts. The developer followed every rule and regulation. It paid 
dearly for the geothermal lease rights, and it's now in court seeking 
damages from the U.S. Government of at least $50 million--and the judge 
has already told the Government not to bother trying to dismiss the 
case.
    California's experience in trying to build a geothermal plant is 
only one example of the obstacles new energy sources face, but I hope 
it is an instructive one as we work to build a national energy policy 
that is comprehensive, inclusive and designed to build a bridge to an 
America which is secure in its energy needs. Thank you Mr. Chairman.

    Mr. Barton. We thank the gentleman. If we could let the 
whip come forward, Mr. DeLay, and let him go and then we will, 
I don't know--Doug, are you senior to Mr. Stenholm? Which of 
you all are the senior man?
    Mr. Bereuter. We came in together.
    Mr. Barton. So we go by alphabetical order or Texas order. 
Which do we do here?
    Mr. Stenholm. Mr. Chairman, if I might, I will just submit 
my statement for the record and save you 5 minutes because I 
have to be someplace at 3 o'clock.
    Mr. Barton. Well, I was actually looking forward to 
listening to you. We will go with Mr. DeLay and if Charlie 
wants to stay for 5 more minutes, We will be glad to go with 
Mr. Stenholm.
    Mr. DeLay. I will be glad to defer to him if he has to go.
    Mr. Barton. Well, then let's let Congressman Stenholm go 
right now, then DeLay and Bereuter.
    So, Congressman Stenholm, you are recognized for 5 minutes, 
if you wish it.

  STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Stenholm. This will cost me big time, Mr. Chairman.
    Mr. Barton. Just a vote on the tax bill or something.
    Mr. Stenholm. Thank you, Mr. Chairman. I will indeed 
summarize my comments and I thank you for holding this hearing. 
I thank this committee for making an effort once again for 
developing a national energy policy, something that I have been 
interested in for 22 years. And I believe this year, and this 
Congress with this administration, we are going to get it done.
    You know, I represent not only the cotton patch but also 
the oil patch. And, you know, there is an old saying in 
agriculture as well as the oil patch, and that is low prices 
always bring high prices. And in my district when prices were 
at $10 dollars a barrel and $2 per thousand cubic feet of 
natural gas, no one, including my own constituency, was 
concerned about the low prices. But my constituency is no 
different than California or any other State today. The high 
prices that we have now have become rather disruptive to home 
owners and agriculture, et cetera, and it is important that we 
begin to focus on the solution. We know what the problem is--
Mr. Watts outlined the problem very very well. Now what we 
need, we need improved access.
    Mr. Ganske stated a moment ago, when most of the remaining 
natural gas to be found in the United States lies on land owned 
by the United States taxpayers, it is time for us to begin 
having access. We know with modern technology that we can in 
fact develop safely, environmentally sound oil and gas 
production, coal production, all other sources of energy. It 
can be done and it is time for the ``not in my backyard'' 
syndrome to end.
    Improved technology requires research and I hope that in 
our budget deliberation this year we will provide for continued 
research and development of finding even newer and better ways 
to develop found energy. Consumer needs must be taken into 
consideration and programs like LIHEAP do need to be fully 
funded in order to take care of the short-term problem.
    We, as part of a national energy policy, need to be looking 
at alternative energy sources, and I come to you today as 
ranking member of the House Agriculture Committee. I want to 
share with you the impact it is having on agriculture. You know 
this, everyone should know this: High prices for natural gas 
electricity are causing many farmers to go to dry land farming 
because you cannot afford to produce food and fiber with these 
costs and sell it for what we are having to sell our 
agriculture products.
    I have been working for the last several years on 
developing a partnership between the oil and gas industry and 
agriculture, because you cannot produce food and fiber without 
oil and gas. You cannot produce oil and gas without food and 
fiber, and therefore it needs to be a natural partnership.
    We all have our environmental concerns, we all have those 
who believe that somehow, some way, we can produce in abundance 
without drilling, without building power plants, or without 
doing any of the things that promote new sources. However, I am 
happy to say to you today that we are on the verge of building 
meaningful kinds of coalitions.
    I believe that it is going to be very possible this year to 
get the kind of bipartisan support that we do need to do all of 
the things necessary in developing alternative energy sources. 
Ethanol, I support. I didn't used to support it. I have done a 
180 degree turnaround because it was very difficult for me to 
convince my independent oil and gas producers that having the 
government subsidize their competition when they were going 
broke. I couldn't do that. But now we are finding a realization 
we need to develop all of the energy sources we have in this 
country and therefore, working together, we can do so.
    I also encourage one thing additional and that is to take 
another look, which so far the Ways and Means Committee has not 
done, at using the Tax Code to provide incentives for domestic 
oil and gas producers, as well as developing alternative energy 
sources. That is not in the President's proposal. That is not 
in anybody's proposal that I am hearing talked about that will 
fit within the number we are talking about. That is why some of 
us are having a little difficulty with the manner in which we 
are going about our budget business, and that is something we 
will talk about another day.
    But I thank you. Again, I appreciate the majority whip for 
his indulgence with me today. I know it will, in fact, cost me 
dearly, but it will be a price I will be more than willing to 
pay if he and I are working together on that, which, Mr. 
Chairman, you and he and a lot of other folks in this room 
would like to see done. I thank you very much.
    [The prepared statement of Hon. Charles W. Stenholm 
follows:]

  Prepared Statement of Hon. Charles W. Stenholm, a Representative in 
                    Congress from the State of Texas

    Thank you Mr. Chairman, and I thank the members of the committee 
for allowing me to come and be here today. I commend you for holding 
this hearing today on the development of a national energy policy. I 
have become increasingly concerned about this Country's lack of a 
national energy policy and what impact that failure has on both 
producers and consumers. The state of our energy industry has far 
reaching economic, geographic and political ramifications and we ignore 
it at our own peril. My hope is that this hearing can begin a process 
of developing a comprehensive national policy for this vital industry.
                           current conditions
    Cold weather and ever-hotter gas prices have meant an expensive 
winter in Texas. The pinch, which consumers have felt in both electric 
and gas bills is, in part, due to supply and demand as well as to the 
weather. Gas prices remained static for several years, hovering in the 
$2 per thousand cubic feet range. That, along with oil prices that 
remained low as well, discouraged drilling.
Oil Production
    Oil prices, on a long slide, dipped to $10 and under in late 1998 
and early 1999. The average dip in oil prices lasts about six months, 
and this recent one lasted three times as long. The price collapse 
forced many oil and gas companies to sell equipment, layoff employees, 
and shelve exploration and production plans. A number of energy 
companies went out of business as a result.
    In my District, the 17th District of Texas, which also is known as 
the ``oil patch,'' claims for unemployment from the oil and gas 
industry quadrupled from 1,171 to 4,730 between December 1997 and 1998. 
During this time, the lost oil wellhead value dropped $5.79 million and 
the value of oil to the Texas economy dropped almost $1 billion.
    The number of producing wells declined by 2,855 during this time as 
well. In my home county of Jones, oil production in December 1997 was 
83,706 barrels, in December 1998 it was 69,966 barrels, and in December 
1999 it had declined to 58,534 barrels. That's a decline of 25,172 
barrels per month from December 1997 to December 1999, or a decline of 
30%.
    Oil production in the United States is on the decline as we are 
operating from a mature resource base that makes the cost of production 
high as evident in Chart 1 from the Energy Information Administration. 
Total domestic crude oil production has declined from 8.7 million 
barrels per day in 1986--the first oil price collapse--to 5.9 million 
barrels per day in 1999. We must recognize that a healthy domestic oil 
production industry is also essential for a healthy domestic natural 
gas industry, because they are inherently intertwined.

Gas Production
    Much of the nation's natural gas comes from oil wells. Many of the 
nation's independent producers, particularly hard hit by the industry 
down turn, focused on finding natural gas. When prices are below the 
cost of exploring and producing crude, these small independent 
producers cannot stay in business, causing a ripple effect throughout 
local communities as schools and hospitals in Texas rely on a strong 
oil and gas industry for revenues. Over the past several years, we 
warned that critically low prices have the potential to turn into a 
price shock. Unfortunately, this is a lesson that we should have 
learned many times over in the last two decades. Production of both oil 
and gas declined in 1999 and, despite high prices paid to producers 
now, has not climbed to pre-collapse levels.
    As indicated in Chart 2, oil and natural gas producers are 
responding. In April of 1999, only 126 rigs were drilling for oil and 
362 rigs were drilling for natural gas, nationwide. By January 2001, 
rigs drilling for natural gas more than doubled with 878 rigs in 
production and the rig count for crude oil double as well (240 rigs in 
production). However, wells generally take three months to a year to 
come on line, so, with temperatures lower than normal nationwide, 
prices likely will not go down significantly for several months.
    Despite a doubling of rigs in production, demand for natural gas is 
far out-weighing supply. According to a study conducted by the National 
Petroleum Council, the natural gas demand will increase by slightly 
more than 30% over the next decade (see Chart 3 submitted with this 
testimony). The U.S natural gas demand has grown from 19 Thousand Cubic 
Feet (TCF) in 1990 to approximately 22 TCF in 1998, or about 2% per 
year, and has continued to represent about one quarter of the nation's 
fuel needs.
    Some may see it as a blessing that we are moving out of a season of 
high winter heating costs but, unfortunately, this will not alleviate 
the price pinch as we are moving into the spring and summer months with 
an average increase in transportation and cooling costs.

                            LOOKING FORWARD

    If ever there was a time of dramatic demonstration, the compacted 
experience of the last three years with its highs and lows illustrates 
the need for our Nation to take responsibility of its energy future. We 
do need a free market for the production of energy, but it cannot be a 
``free'' market dominated by foreign producing countries that do not 
necessarily have our best interests at heart. Former Senator Lloyd 
Bentsen of Texas once said that when America imported more than half of 
its crude and petroleum products, it would have reached a peril point. 
We are now there!
    In formulating a national energy policy, it must be in the context 
of a continuously improved understanding of how energy demands of the 
21st Century challenge the energy infrastructures of the 20th Century, 
of how the new economy is affecting the competition for the capital 
needed to improve and upgrade our energy infrastructures, and of how 
the government's incentive structure and statutory frameworks should 
evolve to meet emerging energy needs. As policymakers, we can focus on 
the role of oil and gas in power production, producer incentives--
including making more federal lands available and access to capital 
using tax incentives (an issue that the Ways and Means Committee should 
consider)--and conservation measures. And the impact of price on demand 
has not come to its full effect. The combination of increased 
production and price-induced conservation might balance supply and 
demand at a more comfortable price level.

Improving Access
    At the same time we promote protection of our treasured 
environments as a high priority, it is imperative that we also consider 
enhancing our recovery and wildcat exploration by examining our federal 
lands, both onshore and offshore, for possible responsible exploration. 
From 1997 to 1999, oil well completions for drilling for new reserve 
declined by 54%, but by providing financial incentives and access to 
capital to increase domestic oil production and exploration, we can 
encourage the discovery of new domestic oil and gas reserves. The 
Bureau of Land Management oversees 264 million acres of Federal land 
and 300 million acres of subsurface mineral resources. (Refer to Chart 
4) These lands contain subsurface resources amounting to eight percent 
of the natural gas and five percent of the crude oil produced annually, 
in addition to resources like coal, forest products, grazing forage, 
and rights-of-way for pipelines and transmission lines. Of the total 
$1.4 billion in annual revenues these lands bring, nearly $835 million 
(60%) is generated by royalties, rents, bonuses, sales, and fees from 
oil and gas operations. The total direct and indirect economic output 
of oil and gas production is estimated at nearly $12 billion annually.
    Chart 5, which I have submitted with this testimony, depicts 
resource estimates in restricted areas in the lower 48 states of the 
United States where enhanced, environmentally sound production could 
occur if these areas were to be opened up to drilling. Access to the 
resource base and to rights of way for infrastructure is critical for 
sustainable supply. Chart 5 estimates that slightly over 200 TCF, or 
15% of the Lower 48 unproved resource base, is either off limits or is 
available with significant restrictions.
    Of the almost 1,500 TCF of the Lower 48 resource base cited in 
Chart 5, approximately 47% is owned by the Federal Government. Offshore 
drilling moratoria have virtually closed activity in the Eastern Gulf, 
Atlantic and Pacific coast waters, all under Federal jurisdiction. 
Policy makers need to understand the importance of this resource base 
in meeting the nation's growing gas demand.
    Chart 6 shows the decline profile for gas wells for their given 
year of completion--where the younger the vintage, the sharper the rate 
of decline. There are two key reasons for this increasing rate of 
decline:

1) The new field discoveries tend to be smaller in size; and
2) Drilling and completion technological advances have enabled higher 
        flow rates, resulting in shorter reserve lives versus older 
        vintages.
    This further indicates that drilling rates and better access to 
lands will have to increase to meet projected demand.

Skilled Workers
    With increased drilling comes an increase in the need for skilled 
workers to build and run rigs used in production. The oil and gas 
industry has been experiencing a skilled worker shortage for some time. 
This shortage is a direct philosophical product of the volatility found 
in the oil and gas industry. By stabilizing the market, skilled workers 
are more likely to stay in the business instead of seeking jobs where 
the pay is steadier and the risks are much less. Additionally, we 
should consider utilizing our colleges and universities to establish 
federally qualified training centers to ensure workers have the best 
training and skills to safely operate drilling equipment.

Improved Technology
    It is important to note that technology has advanced to a point 
that we can assess and develop resources in these areas more 
efficiently, and with less environmental impact, than ever before.
    In recent decades, new technologies have been key to finding and 
extracting recoverable oil and gas resources--located in deeper and 
more remote locations, in more challenging geologic formations, in more 
difficult terrain, in smaller pockets, under sensitive wetlands, and 
far out at sea.
    By maintaining federal funding in research and development for 
technological improvements either at high-end research labs or as a 
supplement to kick-start industry venture capitalism, we could really 
help bring new initiatives along like we have seen in the past with 
horizontal drilling, new methods to plug wellheads, and improved drill 
bits. Our nation has come to expect the benefits of fossil-based fuels 
and products, but also a cleaner environment. Ongoing research and 
development will be the lead force in continuing to protect the 
environment during exploration and production. Great strides have been 
made, but more opportunities remain.

Consumer Needs
    We need to consider measures to help restore market stability with 
domestic crude oil and natural gas prices maintaining a level where 
domestic producers can compete in a global market. However, our 
national energy policy must recognize both producer and consumer 
issues. We need to consider the use of incentives to encourage 
consumers to make energy efficient improvements to their homes and 
purchase energy efficient automobiles as well as further promote and 
fund the Low-Income Home Energy Assistance Program (LIHEAP).

Alternative and Renewable Energy Sources
    As part of a national energy policy, we also need to further 
improve and expand other avenues of energy, including wind, solar, 
hydroelectric, and other renewable energy resources as well as 
alternative sources such as nuclear energy. If we are to achieve energy 
independence, we must research and develop all sources of energy.
    Wind Energy--The U.S. wind industry has successfully financed and 
built wind plants capable of generating 1700 Mega Watts of power. These 
plants now produce more than 3.1 billion kilowatts per hour per year. 
Based on this performance, the industry is developing a corporate 
structure that has increasing access to some of the same capital 
markets as electric utilities. Many rural communities, including some 
in the 17th District of Texas, are taking advantage of the wind's clean 
energy to provide their electrical needs or for pumping water when they 
are unable to be tied to a utility grid, lack conventional resources, 
or simply want to be independent of utility bills. This demand for wind 
energy is helping expand the industry as well as helping provide a 
cleaner environment while operating in harmony with farming, ranching, 
forestry, and other open space operations. Research and development 
play a key role in advancing wind technology. These organizations 
include national laboratories and facilities for testing new hardware.
    Since the 1980's, wind energy production has increased its 
efficiency by a remarkable 80%--from 25 cent per kilowatt-hour to 4.5 
cents per kilowatt-hour. Through expected equipment and manufacturing 
efficiencies, the industry anticipates the cost of wind energy will 
fall to 3 cents per kilowatt-hour or less in the next few years. It is 
important that we continue to support the wind energy production tax 
credit (PTC) for this environmentally friendly form of renewable energy 
that produces no greenhouse emissions.
    Solar--Solar resources will remain infinitely available for as long 
as the solar energy system continues to exits--in other words, for the 
rest of Earth's history, a period of approximately five billion years. 
In order to use solar resources, we need continued research and 
development for improved technologies that can be applied locally. The 
use of solar resources leads to the operation of countless small-scale 
installations, involving a shift away from a few large-scale 
investments towards countless small investments and away from remote 
delivery of energy towards regional and individual energy subsistence. 
Solar energy is an important component contributing clean power to the 
nation's energy mix.
    Nuclear--The recent rolling blackouts in California may change 
forever how the public and policymakers think about U.S. energy policy. 
Many are comparing the recent energy crisis to that of the 1973 oil 
embargo--a time when soaring fossil fuel prices revealed the pitfalls 
of foreign oil dependence. One of the most compelling reasons for the 
recent focus on energy security is that supply has not kept up with 
demand. And, as a reliable, low-cost producer of large quantities of 
base-load power, nuclear energy promises to figure prominently in this 
important component of the nation's energy security providing emission-
free electricity sources.
    In terms of public health consequences, the safety record of the 
U.S. nuclear power industry has been excellent. However, we need to 
address two major issues if the nuclear power industry is going to grow 
at a rate comparable to demand. First, we need to address the issue of 
what to do with the byproducts of nuclear power. There are solutions to 
this problem that could be responsibly put in place, and it is up to 
Congress to act on legislative proposals such as Yucca Mountain. 
Second, we need to continue to streamline the licensing process so that 
safety and site-related issues are resolved before capital is invested.

                       AGRICULTURE'S ENERGY NEEDS

    I also come before you today as the Ranking Democrat on the House 
Agriculture Committee. I want to share with you not only the impact 
that energy price and availability have on agriculture, but also how 
America's farmers and ranchers can play a role in meeting our energy 
needs.
    As you can see from Chart 7 that is attached to my testimony, 
agriculture utilized 1.7 quadrillion BTUs in 1998, which equals about 2 
percent of the total energy consumed in the United States that year. 
This chart includes the direct energy consumed in various forms as well 
as the energy utilized by farmers and ranchers in the indirect forms of 
fertilizer and pesticides.
    Keith Collins, USDA's Chief Economist, recently testified before 
the Agriculture Committee regarding the state of the U.S. agricultural 
economy. In his testimony, Dr. Collins indicated farmers' production 
expenses increased by 4 percent or $7.6 billion in 2000, and that 
higher fuel and oil prices accounted for over \1/3\ of that increase. 
To put that increase in perspective, he recounted that farm production 
expenses had risen only one percent from 1997 to 1999.
    Particularly hard hit were farmers who utilize irrigation to 
produce their crops, since not only were natural gas and electrical 
prices two to three times higher than the previous year, but drought in 
many parts of the country forced producers to water more times at that 
increased cost. This may mean in a few cases that producers who 
actually had a crop to harvest in some regions of the country may have 
been worse off than their neighbors who didn't irrigate and had no crop 
to harvest.
    For 2001, cash production expenses are forecast to increase $1.5 
billion to a record level of $179.5 billion for the sector. Fuel prices 
are expected to remain close to last year's level, however, the recent 
spikes in natural gas prices have led to much higher fertilizer prices, 
which will have a major impact on producers' bottom lines and even what 
they plant this year.
    The recent spikes in natural gas prices have wreaked havoc in the 
domestic fertilizer industry. While natural gas prices appear to have 
moderated, albeit at a higher price, and the availability of fertilizer 
for spring pre-planting application is less in question, there is no 
doubt that farmers will be paying much higher prices for nitrogen 
fertilizers this spring. As an example, anhydrous ammonia prices went 
from an average price of $200 per ton in 2000 to $334 per ton at the 
beginning of January.
    As Chart 8 shows, nitrogen fertilizer is utilized on a range of 
agricultural commodities. Although application rates are lower for 
rice, soybeans, wheat, cotton and corn, the nitrogen that is applied 
accounts for 20-30 percent of the cost of production for those crops, 
as opposed to 5-10 percent of the cost of production for the listed 
fruits and vegetables.
    The increase in natural gas and electrical prices is also impacting 
the floral and horticulture industries as well as poultry producers who 
utilize natural gas to heat and circulate air in their greenhouses and 
chicken houses.
    Agricultural producers cannot pass along higher costs. An increase 
in energy and energy-related input costs not only increases farmers' 
direct out of pocket expenses, but also results in lower prices from 
the market as the purchasers of their commodities try to recoup the 
higher costs they are paying for transportation, processing and 
marketing.
    As Congress has had to pump billions of dollars into the farm 
economy to prevent disaster, there is no doubt that the picture is not 
improving in the short term, especially with agriculture's reliance on 
energy in various forms and the impact that higher energy prices will 
continue to have on agriculture's bottom line.

                        HOW AGRICULTURE CAN HELP

    American agriculture can provide a ready source of raw materials to 
help meet our domestic energy needs. I was pleased that ``The Biomass 
Research and Development Act of 2000'' was enacted into law during the 
last session of congress. I hope that this legislation will continue 
the close working relationship that developed between the Energy and 
Agriculture Departments over the last several years to continue the 
research and development of all types of agricultural and forestry 
products and waste materials into energy sources.
    Now the Congress must do its share and continue to fund the ongoing 
work and new research that needs to be done in the areas ranging from 
cellulosic feedstock enhancement that would allow the expansion of 
ethanol production into areas where corn is not as readily available, 
to finding ways to utilize animal manure for energy production on and 
off the farm as well as continuing to address the remaining questions 
in corn ethanol production, such as the transportability issue.
    Any national energy strategy must include incentives for additional 
renewable fuel utilization. Over the last 20 years, we have made great 
progress in promoting the use of ethanol at both the state and federal 
level. I believe the time is right to also promote the use of 
biodiesel. It is a fuel that can be made from vegetable oils (which we 
currently have a surplus of) as well as recycled oils and animal fats. 
The fuel has passed vigorous environmental, health and engine testing. 
Soybean growers have spent over $25 million of their own money, with 
little government assistance, to successfully commercialize this fuel.
    Biodiesel blends are being used to meet the requirements of the 
Energy Policy Act (EPACT) due to the efforts of your colleagues here on 
the Energy and Commerce Committee, Karen McCarthy and John Shimkus. I 
am told the changes their legislation made in the EPACT program have 
resulted in biodiesel being used as a flexible, safe way to help meet 
the requirements of the program. I am also reminded the legislation 
passed in 1998 resulted from a compromise with the natural gas industry 
and was supported by most members of the Committee.
    This proves to me that our energy policies should be comprehensive 
and framed to encourage the development and use of many viable fuels. 
The answers to our energy dependence and power generation problems can 
best be met by broadening our base of energy resources. I personally 
feel strongly that fuels like biodiesel and ethanol can be and should 
be a part of a national energy program.
    Additionally, there is a tax situation with ethanol that needs to 
be addressed by our colleagues on the Ways and Means Committee. 
Currently those states, mainly in the Midwest, which utilize ethanol 
the most are penalized in the amounts they receive for highway 
improvements and construction from the Transportation Efficiency Act 
for the 21st Century or TEA-21 bill passed by Congress in 1998. I do 
not believe that we should be penalizing these states for using a 
homegrown product, corn, to meet their energy needs.
    I hope the Committee will be innovative and creative as you shape 
our country's next energy program. We can no longer rely on the same 
old policies and program. We must look for additional sources and 
resources to complement our traditional sources of energy. I look 
forward to working with the leaders of the Committee to make certain 
that renewable fuels made from our abundant agriculture and forestry 
resources are a part of the answer to our energy challenges.

                           CONCLUDING REMARKS

    America needs a balanced-forward-looking energy policy based on the 
proposals that have been put before this Congress. We need a 
responsible approach that will infuse our energy sector with both 
efficiency and competition, seeking to protect America against 
emergencies in the energy market.
                                Appendix

                             LIST OF CHARTS

Chart 1 Crude Oil Production by Source 1970-2020--Courtesy of DOE/EIA 
        and DOI
Chart 2 Natural Gas Rig Counts--Courtesy of National Petroleum Council
Chart 3 U.S. Natural Gas Demand--Courtesy of National Petroleum Council
Chart 4 Government Lands--Courtesy of National Petroleum Council
Chart 5 Resource Estimates for Restricted Areas--Courtesy of National 
        Petroleum Council
Chart 6 U.S. Production History--Courtesy of National Petroleum Council
Chart 7 Estimated farm energy use, 1998--Office of Chief Economist/
        Office of Energy Policy & New Uses, USDA
Chart 8 U.S. Ammonia Price--CF Industries
Chart 9 Midwest Anhydrous Ammonia FOB Prices--Office of Chief 
        Economist/Office of Energy Policy & New Uses, USDA
Chart 10 Nitrogen Application Rates--Office of Chief Economist/Office 
        of Energy Policy & New Uses, USDA
Chart 11 Direct energy expenditures as percent of total production 
        expense, 1998--Office of Chief Economist/Office of Energy 
        Policy & New Uses, USDA (Recent increases in fuel prices would 
        revise these estimates upwards by nearly double since 1998)

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    Mr. Barton. Thank you. We now go to the distinguished 
majority whip, who is coordinating the various jurisdictional 
issues between the committees on energy policy. It is a job 
that is going to be difficult, but I know that he is up to it.
    Your statement is in the record. You are recognized for 5 
minutes.

 STATEMENT OF HON. TOM DeLAY, A REPRESENTATIVE IN CONGRESS FROM 
                       THE STATE OF TEXAS

    Mr. DeLay. Thank you, Mr. Chairman. I am here representing 
the leadership, and we are here to help you.
    Over the course of the campaign, Mr. Chairman, President 
Bush insisted that the country needed to make fundamental 
changes in our energy sector. He pointed out and pointed to 
warning signs and inefficiencies that threatened the safe and 
dependable energy supply that our economy and national security 
demand. Subsequent events have now vindicated the President's 
perseverance. That is why we are here today.
    As we all know, we have serious problems within the 
American energy sector, and it is past time that we took stock 
of our position. We have seen things recently that offer a 
clear position. We have seen things that give us a clear 
lesson. There are artificial barriers in place that are 
preventing us from producing the steady, dependable energy 
supply that the American consumers expect, and this problem has 
brought consequences, because we must remember that our 
economic strength depends on our energy security. So it is our 
job as Congress to remove those barriers.
    A great source of pride among the men and women that work 
for the companies that make up our various energy sectors is 
the satisfaction that they take in providing a secure 
dependable energy supply to American families and businesses. 
Unfortunately, their ability to supply consumers with steady 
energy at a fair price has been compromised by burdensome 
regulation and inefficient government policy.
    Of course, everyone also wants clean air and water, and 
fortunately this is not an ``either/or'' proposition. I am 
certain that by applying common-sense standards to the 
restrictions hampering energy development and exploration, we 
can create both deep and reliable sources of energy and the 
infrastructure to deliver that energy to our consumers.
    Taken together, these improvements will once again provide 
the energy security Americans want and expect, but first we 
must face the challenges that lie ahead. The upheaval in 
California clearly demonstrates that energy issues are not 
simply a State-by-State problem. California's troubles lay the 
predicate for a Federal role in enhancing energy security. A 
comprehensive solution cannot ignore the shortcomings of either 
energy generation or transmission.
    California's supply shortcomings are harming other States, 
and California is damaging neighboring States in two ways: 
First, consumers in surrounding States are paying higher rates 
to subsidize the increased demand caused by California's 
inability to meet its own needs. Second, California's neighbors 
are compromising their own energy security by drawing down 
resources that historically provide the energy needs during 
periods of peak demand.
    For example, States like Idaho traditionally allow their 
lakes and dammed rivers to rise during the winter and spring to 
ensure a steady supply of hydroelectric power for periods of 
peak demand over the summer. This year the mountain States are 
being forced to squander those water resources to produce power 
for California instead of storing up water for the dog days of 
summer. Because when the hot weather hits, California may very 
well have succeeded in exporting the rolling blackouts and 
brownouts it brought upon itself to its neighbors.
    We now have the technology and the experience to provide 
energy security for the American people without trading 
environmental degradation for efficiency, but this will not 
happen unless we first adopt a comprehensive plan to create a 
dependable energy supply. What we need is a national energy 
strategy that considers all of our potential sources of supply 
and all the challenges that are constraining the market for 
energy in America today.
    I have listed in my testimony, Mr. Chairman, many issues 
that we have to resolve, and I will just leave that for the 
record. Many of them have already been talked about, such as 
expanding our supply by encouraging a variety of sources, 
increasing our refinery capacity.
    I want to say, Mr. Chairman, I represent a lot of the 
refining capacity, in fact, most of the refining capacity in 
this country. We have not built a new refinery in 30 years. In 
1981, we had 315 refineries. Today, we have only 155, and that 
has to change.
    I also listed many other issues that we have to talk about, 
including what Mr. Stenholm was talking about. We have to 
reform our Tax Code.
    So on the Speaker's direction as the leadership's energy 
point man, Mr. Chairman, I am looking forward to working with 
you, with the chairman of the full committee, Mr. Tauzin----
    Mr. Barton. Who was here.
    Mr. DeLay. He is right behind you.
    --and the President and Vice President Cheney, my good 
friend, J.C. Watts, and the committees of jurisdiction, as we 
work together to develop a comprehensive energy strategy that 
balances regulation with the imperative for energy security.
    I thank you.
    [The prepared statement of Hon. Tom DeLay follows:]

       Prepared Statement of Hon. Tom DeLay, House Majority Whip

    Over the course of the campaign, President Bush insisted that the 
country needed to make fundamental changes in our energy sector. He 
pointed to warning signs and inefficiencies that threaten the safe and 
dependable energy supply our economy and national security demand. 
Well, subsequent events have now vindicated the President's 
perseverance. That's why we're here today.
    We have serious problems within the American energy sector. And 
it's past time that we took stock of our position. We've seen things 
recently that offer a clear lesson: There are artificial barriers in 
place that are preventing us from producing the steady, dependable 
energy supply that American consumers expect. And this problem has 
broader consequences. Because we must remember that our economic 
strength depends on our energy security. So, it's our job as a Congress 
to remove those barriers.
    A great source of pride, among the men and women that work for the 
companies that make up our varied energy sector, is the satisfaction 
that they take in providing a secure, dependable energy supply to 
American families and businesses.
    Unfortunately, their ability to supply consumers with steady energy 
at a fair price has been compromised by burdensome regulation and 
inefficient government policies.
    Of course, everyone also wants clean air and water. Fortunately, 
this is not an ``either or'' proposition. I'm certain that, by applying 
common sense standards to the restrictions hampering energy development 
and exploration, we can create both deep and reliable sources of energy 
and the infrastructure to deliver that energy to consumers. Taken 
together, these improvements will, once again, provide the energy 
security Americans want and expect. But first, we must face the 
challenges that lie ahead.
    The upheaval in California clearly demonstrates that energy issues 
aren't simply a state-by-state problem. California's troubles lay the 
predicate for a federal role in enhancing energy security. A 
comprehensive solution can't ignore shortcomings in either energy 
generation or transmission.
    California's supply shortcomings are harming other states. 
California is damaging neighboring states in two ways. First, consumers 
in surrounding states are paying higher rates to subsidize the 
increased demand caused by California's inability to meet its own 
needs. And second, California's neighbors are compromising their own 
energy security by drawing down resources that historically provide 
their energy needs during periods of peak demand.
    For example, states like Idaho traditionally allow their lakes and 
damned rivers to rise during the winter and spring to ensure a steady 
supply of hydroelectric power for periods of peak demand over the 
summer.
    This year, the mountain states are being forced to squander their 
water resources to produce power for California instead of storing-up 
water for the dog days of summer. Because when the hot weather hits, 
California may very well have succeeded in exporting the rolling 
blackouts and brownouts it brought upon itself to its neighbors.
    We now have the technology and the experience to provide energy 
security for the American people without trading environmental 
degradation for efficiency. But this won't happen unless we first adopt 
a comprehensive plan to create a dependable energy supply. What we need 
is a national energy strategy that considers all of our potential 
sources of supply and all of the challenges that are constraining the 
market for energy in America.
    Among the issues we must resolve are:

 Expanding supply by encouraging a variety of sources to 
        produce the energy necessary to meet our growing needs, 
        including oil, nuclear, clean coal, natural gas, and 
        renewables.
 Increasing our refining capacity. We haven't built a new 
        refinery in 30 years. In 1981 we had 315 refineries. Today we 
        only have 155. That must change.
 Providing access to our domestic resources at home to reduce 
        our dependence on foreign supplies. And yes, that includes 
        opening up Alaskan reserves and approving Lease Sale 181 in the 
        Gulf of Mexico. Today the energy industry can extract oil and 
        gas while treading lightly on the environment.
 Developing an adequate system of electricity transmission. We 
        need to not only increase electricity generation by building 
        new plants in underserved states like California, we need to 
        also build the transmission facilities that will create a 
        reliable electrical grid. If we can do that, electricity will 
        become a true commodity and consumers will benefit through 
        enhanced reliability and more competitive prices.
 Reforming our tax code to promote capital investment in energy 
        technologies and infrastructure.
 Streamlining the regulatory process to promote a free and 
        competitive marketplace in pricing, technology, energy 
        efficiency and selection of fuels and energy suppliers.
 Promoting energy technology development and long-range 
        research and development initiatives.
    On the Speaker's direction as the Leadership's energy point man, 
I'm looking forward to working with the President, Vice President 
Cheney, my friend J.C. Watts, and the committees of jurisdiction as we 
work together to develop a comprehensive energy strategy that balances 
regulation with the imperative for energy security.

    Mr. Barton. I thank the distinguished whip. I knew we had 
good staff, but I didn't know they were that good. The 
committee chairman is staff now.
    We are going to go to Congressman Bereuter of Nebraska. His 
statement is in the record in its entirety.
    We recognize you for 5 minutes.

 STATEMENT OF HON. DOUG BEREUTER, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF NEBRASKA

    Mr. Bereuter. Chairman Barton, Congressman Boucher, members 
of the subcommittee, thank you for holding the hearing on the 
concept of national energy policy. I think you are trying to 
make that concept a reality. Of course, I think almost all of 
us are totally supportive of that.
    I want to bring to your attention just one or two of the 
particular problems affecting my constituents and State, and 
then try to move to a couple of solutions that perhaps may not 
be offered or given much support necessarily by other Members.
    I am sure you aware of many of the challenges facing the 
country. The most immediate energy concern for most of my 
constituents is a dramatic increase in natural gas prices. 
Individuals, small businesses, nonprofits are paying hundreds 
of dollars more per month on natural gas than they did last 
year. Some of our businesses are on interruptible contracts, 
which means they may soon have to stop their production lines 
and other kinds of business activities.
    The CRS report that just came out lately, quoting a 
reputable source, suggests that we have 58 years' worth of 
technically recoverable natural gas in this country. While the 
number of wells being drilled has gone up dramatically in the 
last half of 2000 versus the first half of 1999, we obviously 
have some big problems.
    I have written to Chairman of the Federal Trade Commission, 
Robert Pitofsky, twice on this subject, in fact early last 
July, and received what I considered to be only pro forma 
responses. So I would like to see some attention to this issue. 
Mr. Stenholm has already mentioned a particular problem in the 
farm sector, but it goes beyond that, since most of the 
fertilizer used today is natural gas-based and some of the 
firms producing it similarly have not produced what is 
necessary for this spring. So it is one more particular problem 
faced by the agricultural sector.
    Now I would like to make a couple of comments about 
solutions. I think, of course, that a strong national energy 
policy has to include an emphasis on renewable sources, such as 
wind. I don't say this is a huge part of it, but it is an 
important part of it. I want to make sure that we do not ignore 
some of those areas as you move ahead. One of them I want you 
to focus on, if you will, is wind as an energy source. I think 
it is important as a potential source.
    It is important to the rural communities. The source of 
energy is especially important to the Great Plains region from 
the Dakotas to Texas, as well as parts of the American West 
like Wyoming and parts of California. According to the American 
Wind Energy Association, my State ranks sixth in potential, 
maybe much higher, according to other sources.
    Mr. Chairman, Texas ranks No. 2 in potential source for 
wind for energy.
    Mr. Barton. A lot of hot air down there in Texas.
    Mr. Bereuter. Yes. Well, Oklahoma has a lot too, but it is 
mostly in tornadoes.
    Quite simply, much more needs to be done to promote the use 
of wind energy, which I believe is vastly underutilized in this 
Nation; but at the same time, it is much more likely to soon be 
cost-effective.
    One of the current incentives to promote wind energy is the 
use of investment in production tax credits. While I agree this 
is a useful tool, I would emphasize here that these credits, 
unfortunately, do not provide any benefit for publicly owned 
electrical utilities. That is certainly an important 
deficiency, one particularly important to my State since we are 
the only all public power State in the Nation.
    There are several options which could provide public power 
with incentive to pursue renewable sources such as wind, but 
others as well. I understand that Congresswoman McCarthy, a 
member of the subcommittee, is also interested in pursuing 
legislative options to provide incentives for public power 
entities to produce more renewable sources of energy, and I 
would be pleased to work with her and other members of the 
subcommittee.
    Also there are at least several options that could be 
considered that would provide renewable energy incentives for 
public power beyond that. One possibility would be to establish 
a tradable investment and production tax credit program in the 
Internal Revenue Code for publicly owned electrical utilities 
that produce electricity from eligible renewable energy 
projects. Participants in this program could receive credits 
for electricity generated from wind, solar, geothermal, hydro 
and biomass, including the conversion of landfill methane gas 
to energy.
    As I approach the last 30 seconds of my time, I want to 
emphasize that I continue, of course, to be in support of 
energy-producing from biomass, especially in the ethanol area. 
It is, I think, one more important way that we can supplement 
our energy and make us a little less dependent upon foreign 
sources. Increasing the use of ethanol creates a win-win-win 
situation for consumers, farmers and the environment. Analysis 
released last month by renowned economist John M. Urbanchuk, 
executive vice president of AUS Consultants, found that greater 
ethanol use also has positive implications for our Nation's 
economy.
    I close by saying, I endorse Congressman Ganske's 
legislation, which would address the MTBE problem now causing 
major problems in our groundwater resources.
    Thank you very much for listening to my testimony.
    [The prepared statement of Hon. Doug Bereuter follows:]

Prepared Statement of Hon. Doug Bereuter, a Representative in Congress 
                       from the State of Nebraska

    Chairman Barton, Congressman Boucher and Members of the 
Subcommittee: I would like to begin by thanking you for the opportunity 
to present testimony regarding the concept of a comprehensive national 
energy policy. I commend you for holding this hearing on an issue of 
such critical importance to the nation. During my testimony, I would 
like to mention briefly one or two of the particular energy problems 
affecting my constituents and also offer some specific areas of 
solutions designed to reduce our dependency on foreign energy sources.
    It is obvious that the U.S. is facing problems throughout the 
energy sector. Each month seems to bring the focus on a new crisis. 
It's unfortunate that the previous administration displayed such an 
appalling lack of leadership on developing a comprehensive energy 
policy which would have led to greater energy self-sufficiency for the 
U.S. As a result, higher energy costs threaten to slow the economy and 
cause hardships for farmers, motorists, businesses and homeowners. 
Although we have clearly lost much time, it's now important that we 
examine the causes for the current problems, but more importantly 
search for both short-term and long-term solutions.
    I understand that the previous panel addressed the energy problems 
which have been afflicting California and other states throughout the 
West. I would like to emphasize that energy problems do not respect 
state borders. For instance, the ripple effect has begun to affect 
communities in Nebraska which use power from the Western Area Power 
Administration. I encourage the Subcommittee to work to resolve these 
problems. I would also like to stress that Nebraska is unique in that 
it is an all public power state and I believe that any energy 
legislation must take its situation into account.
    I'm sure that the Subcommittee is well aware of the many energy 
challenges facing the country. The most immediate energy concern for 
most of my constituents is the dramatic increase in natural gas prices. 
Individuals, small businesses and non-profits are paying hundreds of 
dollars per month more for natural gas than they did last year. While I 
believe it would be helpful to review the effectiveness of the Low-
Income Home Energy Assistance Program (LIHEAP), it also important for 
Congress to determine whether other options can be made available for 
those who do not qualify for this program. More must also be done to 
encourage the development of a more stable and affordable natural gas 
supply. Because of these concerns, I have contacted the Chairman of the 
Federal Trade Commission, Mr. Robert Pitofsky, to request an 
investigation of the dramatic increase in prices. This is my second 
such request for an investigation by the FTC. I originally contacted 
Mr. Pitofsky already in July 2000 and again early this year about this 
subject, but I was unsatisfied by what appeared to be a pro forma 
response.
    I would also like to mention a component of the natural gas problem 
that has not received as much attention. Farmers are facing a shortage 
of nitrogen fertilizer along with expected and attendant price 
increases with spring planting fast approaching. This shortage is due 
to much higher natural gas prices, the major cost component of 
producing all basic fertilizer products. As a result of the rising 
natural gas costs, some fertilizer companies have reduced or halted 
production at their facilities. For those agricultural producers able 
to locate fertilizer supplies, the prices will be drastically higher 
than in previous years. With farmers already facing low prices for 
their crops, such an increase in fertilizer expenses is likely to cause 
even further problems in rural America. In addition to rising 
fertilizer costs, farmers also face the prospect of increased energy 
expenses related to agricultural activities such as irrigation and 
field work.
    I would like to begin my comments on energy solutions by focusing 
on an issue which I believe has received inadequate attention. A strong 
national energy policy must include the promotion of renewable sources 
such as wind. The cost of producing energy from wind turbines has 
decreased substantially in recent years, but more should be done so 
that this form of clean power can reach its potential. Increasing the 
use of power from wind would not only reduce our nation's reliance on 
foreign sources of energy, it would also benefit our rural communities 
which are now confronting extremely difficult times. Wind turbines 
don't use much space, but farmers would still be able to derive much-
needed income by leasing a small portion of their land to electric 
utilities.
    This source of energy is especially important for the Great Plains 
region from the Dakotas to Texas, as well as other parts of the 
American West--Wyoming and parts of California. According to the 
American Wind Energy Association, Nebraska has the sixth greatest wind 
energy potential among all fifty states. Other research reports place 
it even higher--near the top. Chairman Barton may be interested to know 
that Texas ranks number two.
    Quite simply, much more must be done to promote the use of wind 
energy, which I believe is vastly under-utilized in this nation but, at 
the same time, much more likely soon to be more cost-effective. One of 
the current incentives to promote wind energy is the use of investment 
and production tax credits. While I agree that this is a useful tool, I 
would emphasize here that these credits unfortunately do not provide 
any benefit for publicly-owned electric utilities. That is certainly an 
important deficiency--especially to Nebraska since we are currently the 
only state that is served exclusively by public power systems. There 
are several options which could provide public power with the incentive 
to pursue renewable sources such as wind. I understand that 
Congresswoman McCarthy, a member of this subcommittee, is also 
interested in exploring legislative options to provide incentives for 
public power entities to produce more renewable sources of energy and I 
would be pleased to work with her and other members of the Subcommittee 
on this important issue.
    Also, there are at least several options which could be considered 
that would provide renewable energy incentives for public power. One 
possibility would be to establish a tradable investment and production 
tax credits program in the Internal Revenue Code for publicly owned 
electric utilities that produce electricity from eligible renewable 
energy projects. Participants in this program would receive credits for 
electricity generated from wind, solar, geothermal, hydro and biomass, 
including the conversion of landfill methane gas to energy.
    Another legislative option would be to provide targeted tax-free 
bonds for use by public power utilities to pursue renewable and 
environmental projects. The subcommittee may also want to consider 
legislation to create a program of credits or incentives that provide 
benefits for public power utilities equivalent to existing and new 
renewable energy tax production and investment credits available to 
private electric utilities.
    There is currently only one incentive program available for public 
power interested in promoting the use of renewable energy. The 
Renewable Energy Production Incentive program permits direct payments 
to publicly and cooperatively owned utilities for electricity generated 
by certain renewable means. Unfortunately, this program has not been 
adequately funded. In addition, not all eligible projects receive 
equitable funding. However, since it is the only program of its kind 
currently available, I support its reauthorization as well as its 
reform to provide greater funding and fairness.
    Clearly, one of the keys to developing a sound national energy 
policy is to focus on efforts to reduce our dependence on foreign 
sources. I want to state emphatically that ethanol must be an integral 
part of any energy policy which Congress considers.
    Increasing the use of ethanol creates a win-win-win situation for 
consumers, farmers and the environment. An analysis released last month 
by renowned economist John M. Urbanchuk, Executive Vice President of 
AUS Consultants, found that greater ethanol use also has positive 
implications for our nation's economy. The study found that quadrupling 
the use of ethanol over the next fifteen years would save American 
consumers $57.5 million (1996 dollars). This is the equivalent of 
nearly $540 for each household in the U.S. In the process, more than 
156,000 new jobs would be created throughout the economy by 2015.
    Greater use of ethanol is clearly needed to reduce our increasing 
reliance on foreign oil. Last year, the U.S. imported nearly 60 percent 
of its crude oil. The U.S. Department of Energy's Energy Information 
Agency now projects that figure to grow to nearly 70 percent by 2010. 
This is clearly unacceptable. Fortunately, part of the answer is 
growing in our own backyard in the form of corn, sorghum and other 
renewable feedstocks.
    Another factor pushing the need for greater ethanol production is 
the realization that the use of MTBE must be phased-out quickly because 
of the threat this petroleum-based fuel additive poses to our nation's 
groundwater and drinking water supplies. I am cosponsoring legislation 
introduced by Representative Greg Ganske which would ban MTBE within 
three years and encourage refiners to replace it with ethanol. I 
understand that there are other legislative approaches which may be 
helpful in promoting the use of ethanol. Now is the time for action.
    It's clear that ethanol producers are up to the challenge if given 
the appropriate opportunities and incentives. A study prepared for the 
Governors' Ethanol Coalition last year found that the ethanol industry 
has the capability of doubling in size by 2004 and tripling by 2010 
without disruption in supply or increasing consumer costs. I am pleased 
that the current chairman of the Governors' Ethanol Coalition is 
Governor Mike Johanns of Nebraska. He has been an effective advocate on 
behalf of ethanol and its importance to our nation.
    A related issue is the general promotion of plant biomass as an 
energy source. I believe it holds great potential for replacing natural 
gas as a source of electricity and steam and as well as the production 
of fuels such as ethanol. There is exciting work going on which is 
leading to more efficient collection and conversion of biomass into a 
sustainable matter. There are tremendous environmental and economic 
reasons to promote biomass energy resources. I encourage Congress and 
the Department of Energy to aid in these research efforts.
    Again, Chairman Barton, Congressman Boucher, and Members of the 
Subcommittee, thank you for this opportunity to present my views. You 
have a daunting challenge ahead as you work to develop legislation to 
ease the nation's energy problems. However, it is obviously a necessary 
task and I look forward to working with you as we seek solutions.

    Mr. Barton. We appreciate it.
    Now, the Chair has tried to figure out who is senior. We 
think it is Mr. Bartlett, senior, and then Congressman Calvert 
and Congressman Woolsey are coequally senior. If we are wrong 
about that, we apologize.
    Mr. Bartlett. We are all the same class.
    Mr. Barton. You are all the same class?
    Ms. Woolsey. I just look younger than the rest of them.
    Mr. Barton. I was about to say that.
    Given you are all in the same class, we are going to go 
with Mr. Bartlett, Mr. Calvert and Congresswoman Woolsey.
    Mr. Bartlett, you are recognized for 5 minutes.

   STATEMENT OF HON. ROSCOE G. BARTLETT, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MARYLAND

    Mr. Bartlett. Thank you very much.
    I would like to spend a few moments adding my voice to 
those who have urged the need for a national energy policy. I 
would like to call your attention to the world energy 
assessment by the United Nations. Although you may not agree 
with the conclusions they draw, I think we can use the data 
that they compile.
    They have used a number of sources of estimates of the 
amount of recoverable oil which we know of. That amounts to 
about 1,000 billion barrels of oil. You can make assumptions as 
to what is out there that we haven't found, and you can make 
assumptions with a 95 percent level, a 50 percent level, and a 
5 percent level of assurance. Even the most wildly optimistic 
levels do less than double that.
    Now, if you take that 1,000 billion barrels of oil and say 
we are today using about 80 million a day, and that is roughly 
what we use----
    Mr. Barton. Eighty million. We don't use 80 billion a day.
    Mr. Bartlett. Eighty million. We, the world.
    Mr. Barton. Just a few zeros. It does count.
    Mr. Bartlett. We, the world, use about 80 million barrels a 
day in the world. A year is roughly 400 days long, and to keep 
the arithmetic simple, if you multiply 80 million times 400, 
you get 32 billion. The 32 billion divides roughly 30 times 
into 1,000 billion. So according to these data, we have about 
30 years at present-use rates of known reserves of oil in the 
world.
    I now would like to put a couple of graphs up here that 
come from this same document. These are very illustrative. 
About half of this is history, and the other half of it is a 
projection for the future.
    What you can see here is that we started out in----
    Mr. Barton. Why don't you turn that, Congressman, so the 
cameras can see it.
    Mr. Bartlett. We started out in 1800 essentially using 
wood. We went to 1900, and in 1900 we were using essentially 
coal. There were some other things used, but that was the major 
source of our energy. Now in 2000, it is mostly oil. The 
question mark is what we will be using a century from now.
    As you can see from these graphs, they make two different 
assumptions. One is that nuclear will play a meaningful role, 
and the other is, we won't use nuclear. That is the fundamental 
difference between these two graphs. But as you see, in the 
year 2100 we are going to be getting more than three-fourths of 
our energy from nuclear, solar, others, which includes hydro 
and so forth, and biomass.
    This speaks to an urgent need for research on renewables 
and alternatives. This is all that remains. There is not an 
infinite amount. God in his wisdom knew--I am sure he knew how 
profligate we would be in the use of fossil fuels, but he 
didn't put a limitless amount there and our only challenge is 
to go find it. There is a limited amount of fossil fuels in the 
world, so we desperately need a program which focuses on 
research on renewables and alternatives.
    Several of those relate to agriculture, an industry in big 
trouble. Biomass, biodiesel, ethanol from corn and the exciting 
possibility of getting it from cellulose with a new 
bioengineered organism, these all will really help our farmers 
who are in trouble.
    We need to exploit geothermal in those few places where we 
can in this country. Hydro, wind and solar, all of these 
provide opportunities to produce electricity at a local level 
to avoid the enormous line losses that we have when you move 
electricity. If you move liquid through a pipe, what comes out 
at the other end will be what you put in. When you put 
electricity into a line, if you move it long enough, nothing 
will come out the other end of the line; there are enormous 
losses. If we have a better distributive system, we can avoid 
many of those losses.
    We need to focus on efficiency, we need to focus on 
conservation. I am not talking about shivering in the dark. 
There are things we can do in conservation which are really 
meaningful, which will not depreciate our lifestyle. We have 2 
percent of the known reserves of oil in the world, 2 percent. 
We use 25 percent of the world's oil. We now import 56-or-so 
percent of all the oil we need.
    I submit when we have only 2 percent of the known reserves 
of oil in the world and use 25 percent, it doesn't make any 
sense to immediately go out and find that 2 percent that we 
have and pump it. I know this is a rainy day, but I suspect in 
the future there will be an even rainier day, and this says 
nothing about the enormous petrochemical industry we have. As 
Charlie Stenholm mentioned, all of nitrogen fertilizer comes 
from gas today.
    I really encourage the development of a long-term energy 
policy which focuses on getting energy from sources other than 
fossil fuels to the extent that we can.
    Thank you.
    Mr. Barton. Thank you, Congressman Bartlett. We appreciate 
that input and that scientific evaluation. Very helpful.
    Congressman Calvert, who I believe is a subcommittee 
chairman on the Resources Committee this year.
    Mr. Calvert. Yes.
    Mr. Barton. You are recognized for 5 minutes.

  STATEMENT OF HON. KEN CALVERT, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Calvert. Chairman Barton, Ranking Member Boucher, thank 
you for holding today's hearing. I would like to submit my full 
written statement for the record.
    Mr. Barton. Without jokes.
    Mr. Calvert. America's unprecedented economic growth and 
prosperity, of course, rests on affordable energy, and gasoline 
in my State of California is still about $2 a gallon, and in 
some parts even higher, so our energy crisis continues to 
plague our State and certainly is well-publicized throughout 
this country. This Congress and this administration finally are 
working together and must develop a comprehensive energy plan 
that securely meets our growing demand, based upon a sound 
portfolio of energy sources.
    For the foreseeable future, we will need to rely on our own 
domestic fuels that provide the bulk of the base-load 
electricity, and that is coming basically from fossil and 
nuclear fuels. Nuclear, which Mr. Bartlett mentioned just now, 
is quite frankly our most reliable and cleanest form of energy. 
Since nuclear energy does not burn fuel, it does not produce 
greenhouse gasses. Also, efficiency improvements in 1998 
alone--this is interesting--adds the equivalent of six to seven 
nuclear plants to the Nation's electricity grid. To put this in 
a perspective, the 1 percent increase in nuclear efficiency 
called for in Senator Murkowski's energy bill would be 22 times 
the total generation of solar and twice the total wind 
generation in 1999--just a 1 percent increase in efficiency on 
nuclear.
    We need to reconsider the numerous fossil fuel plants also 
in the short term that have been shut down in California. Such 
plants are immediate sources of sorely needed electricity and 
may be our quickest way to provide relief to our citizens in 
California in the short run. I understand the environmental 
problems, but we need those plants back on line as quickly as 
possible until alternatives are found.
    America's unprecedented economic growth and prosperity rest 
also on an affordable supply of energy and water. As chairman 
of the Resources Subcommittee on Water and Power, I intend to 
hold hearings to examine contradictory Federal regulations that 
prevent hydroelectric production on Federal lands, not to 
mention gas and oil. I will also investigate Federal-State 
cooperation regarding water quality and quantity. Today the 
water crisis in California is real, and I predict may be more 
severe than the electricity crisis. That crisis will spread 
also to the rest of the country.
    The challenge we face in formulating a comprehensive energy 
policy is how to balance costs and benefits in order to 
minimize the environmental effects and yet provide the energy 
we need to prosper by growing the economy, creating jobs and 
creating wealth.
    I know that in California we have some significant 
problems, and it was talked about by various of the panelists. 
I would like to point out these problems are really systemic 
throughout the United States. There are 35 million people in 
California, and we produce a tremendous amount of electricity; 
but by far, we are the largest economic generator in the 
country, about 15 percent of the GNP comes from the State of 
California. The computer industry, the entertainment industry, 
agriculture, all No. 1 in the country in California, utilize a 
tremendous amount of electricity. So I hope we think about 
that.
    As far as ethanol, I would also point out, which is very 
important, and I am somewhat supportive of ethanol production 
here in the United States; but the requirement to utilize 
ethanol as a replacement for MTBE in California scientifically 
is not necessary. We should, even though we may use it and 
utilize it, it should not be required within California to use 
that as oxygenate when it is technically not necessary in order 
for us to meet our clean air objectives without it. Because it 
gives us flexibility potentially to find other alternatives to 
ethanol, at the same time, I think there would not be enough 
ethanol to replace MTBE in California, which is an equivalent 
of adding about 10 percent of California's fuel supply.
    With that, I want to thank the chairman and the ranking 
member, and I look forward to working with all of you on these 
issues. And certainly renewables are important and all of the 
alternative energies are important, but also we need to look at 
nuclear as an alternative to really meet the energy demands of 
the future.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Ken Calvert follows:]

 Prepared Statement of Hon. Ken Calvert, a Representative in Congress 
                      from the State of California

    Mr. Chairman, thank you for holding today's hearing on 
``Congressional Perspectives on Electricity Markets in California and 
the West and National Energy Policy''.
    America's unprecedented economic growth and prosperity rests on an 
affordable supply of energy. While gasoline prices continue to hover 
around 2 dollars per gallon in some parts of California the energy 
crisis continues to plague my state. The time has arrived for this 
Congress and this Administration--working together--to develop a 
comprehensive energy plan that securely meets growing demand based on a 
sound portfolio of energy resources.
    We can all agree that reducing emissions is a good idea--and there 
are several ways to do it; through energy efficiency and with renewable 
and nuclear energy. I continue to advocate the pursuit of greater 
efficiencies and reduced energy consumption in our industrial 
processes, in our transportation sector and in our communities and 
homes. The University of California, Riverside, CE-CERT has a number of 
innovative programs to reduce energy demand and improve the 
environment. For example, they have a hydrogen-vehicle fleet 
demonstration at the campus. These advances not only save energy, but 
also prevent greater dependence on oil imports while improving the 
environment.
    Deploying renewable energy is part of the ``cleaner, greener'' 
future. Renewable energy should be integrated where the economics make 
sense. For example, in my district, both the county and the city of 
Riverside collect methane gas from a municipal landfill and the sewage 
treatment plant to produce nearly 5 megawatts of electricity--enough to 
power facilities at the landfill and the treatment plant with some left 
to sell to the grid.
    However, renewable energy sources and energy efficiency measures 
are not going to be enough to meet growing energy demand in our 
nation--necessary for economic growth and wealth creation. The DOE's 
own Energy Information Administration predicts that even if we triple 
renewable energy supplies over the next twenty years, renewable energy 
will only maintain its current share of supply. For the foreseeable 
future, we will need to rely on domestic resources that provide the 
bulk of base-load electricity--fossil and nuclear energy.
    Today, nuclear energy is our most reliable and cleanest form of 
domestic energy. Since nuclear energy does not burn fuel, it does not 
produce greenhouse gases or other emissions, such as sulfur dioxide, 
that pollute our air. I mentioned earlier the importance of achieving 
greater efficiencies in energy production. An outstanding example of 
this is our nation's nuclear plants. Though no nuclear power plants 
have been built in the U.S. over the last 20 years, efficiency 
improvements in 1998 alone added the equivalent of six to seven nuclear 
plants to the nation's electricity grid. To put this in perspective, 
the 1 percent increase in nuclear generation efficiency called for in 
Senator Murkowski's energy bill would be 22 times the total generation 
by solar and twice the total wind energy generation in 1999.
    We also need to reconsider the numerous fossil fueled plants that 
have been shut down in California because they did not meet emission 
standards. These plants represent immediate sources of sorely needed 
electricity and may--in the short term--be our quickest supply. And in 
North America as a whole, where an enormous amount of natural gas 
resides, fossil fuel exploration on millions of acres, mostly in the 
western states, has all but halted. In fact, several million acres in 
California and the Rockies were taken out of production on the last day 
of the Clinton Administration. Fortunately, President Bush has delayed 
the implementation of these last minute designations until May 12th in 
order to allow his Administration time for review.
    As a senior member of the House Resources Committee, I plan to 
examine contradictory federal regulations which prevent 
environmentally-friendly fossil fuel exploration and production on 
federal lands.
    As I began today, I stated that America's unprecedented economic 
growth and prosperity rests on an affordable supply of energy. But, in 
the West, it also rests on WATER. The House Resources' Subcommittee on 
Water and Power, which I chair, recognizes the interconnection of these 
two valuable resources. As Chairman, I intend to hold hearings on the 
role of not only federally-produced energy in the West, but also on the 
importance of federal-state cooperation when it comes to water--both 
quantity and quality. Today the water crisis in California is real, 
though not widely know, and it will likely be a crisis for much of the 
nation in the not so distant future.
    Every energy source has risks, costs and benefits yielding a unique 
set of problems and opportunities. The challenge we face in formulating 
a comprehensive energy policy is how to balance the costs and benefits 
in order to minimize environmental effects and yet provide the energy 
we need to prosper by growing the economy, creating jobs and creating 
wealth.
    Thank you Chairman Barton and Ranking Member Boucher. I look 
forward to working with you on all these issues as this Congress forges 
a National Energy Strategy.

    Mr. Barton. I want to thank you, and your leadership is 
going to be very important in this issue.
    The Chair would now recognize the gentlelady, Congresswoman 
Woolsey. The Chair wants you to know that I knew what your name 
was. My staff didn't know, but I knew. So I apologize for its 
being misspelled.
    Ms. Woolsey. You are not the only one that misspells it 
like that.
    Mr. Barton. It wasn't me.
    Your statement is in the record. You are recognized for 5 
minutes to elaborate.

     STATEMENT OF HON. LYNN C. WOOLSEY, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Woolsey. Thank you, Mr. Chairman. Thank you for the 
opportunity to testify today.
    As a Californian, I am echoing my colleagues who testified 
earlier about our State's energy crisis. It is a very serious 
problem. But I am here today wearing a new hat for me as the 
Science Committee's ranking member on the Energy Subcommittee 
where Roscoe Bartlett is the Chair. I look forward to working 
with him on energy in the future.
    But I want to emphasize the need for a national energy 
policy to include renewable energy sources, energy efficiency, 
and conservation.
    Since passing the National Energy Policy Act in 1992, 
Congress has generally ignored energy issues. But the power 
problems in California, as well as the increased price of 
natural gas and oil throughout the United States, have brought 
energy back to the top of our Nation's agenda.
    The energy shortage we are experiencing in California is 
proof enough, however, that Congress must raise the stakes in 
search of alternative energy sources. Obviously, what we are 
doing is not good enough. We can no longer ignore wind, we can 
no longer ignore solar, fuel cell and geothermal energy 
sources.
    At last week's Science Committee hearing on the role of 
renewable energy sources and energy efficiency, our witnesses, 
each one of them an economic and policy analyst, spoke about 
the increased role renewables and energy efficiency must play 
in meeting our Nation's long-term growing energy demand.
    As Congress forges a long-term energy policy, it is 
absolutely imperative that we make a true commitment to 
alternative energy sources, to efficiency and to conservation. 
Otherwise, we will not prevent future energy crises.
    Measures of this kind can and do work. For example, in my 
district, which is just north of the Golden Gate Bridge, north 
of San Francisco, several Marin County communities, including 
Mill Valley, San Raphael and Novato, are currently installing 
new energy-efficient traffic lights that only use 10 to 20 
percent of electricity that current lights do.
    In Sonoma County, the city of Santa Rosa is working on a 
project to send 11 million gallons of reclaimed waste water to 
The Geyser's geothermal plant each day. When this project is 
completed, The Geyser's steam fields will continuously displace 
85 megawatts of fossil energy. That is just by using reclaimed 
waste water.
    The Sonoma County Transit Department is building a landfill 
gas conversion facility that allows excess landfill gas to be 
used as an alternative fuel for their buses.
    Encouraging measures like these all across our country will 
make a huge difference in meeting our energy demands in the 
future.
    Like my constituents and like many of my colleagues, I 
strongly believe there is an important role for the Federal 
Government to encourage clean, efficient and renewable 
technologies as part of our national energy portfolio.
    As this Congress embarks on developing a national energy 
policy, this committee, your committee, Mr. Chairman, along 
with the Science Committee and the Ways and Means Committee, 
can broaden our horizons by getting out of the box, by 
encouraging policies for the future.
    I look forward to working with this subcommittee to develop 
and move a comprehensive legislative agenda that prominently 
features renewable energy sources and energy efficiency and 
conservation measures as an integral part of our national 
energy policy.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Lynn Woolsey follows:]

 Prepared Statement of Hon. Lynn Woolsey, a Representative in Congress 
                      from the State of California

    Mr. Chairman, thank you for the opportunity to testify today. As a 
Californian, I'm echoing my colleagues who testified earlier about our 
state's energy crisis . . . it's a serious problem.
    I'm pleased to be here wearing a new hat as the Science Committee's 
Ranking Member on the Energy Subcommittee. Specifically, I want to 
emphasize the need for a national energy policy to include renewable 
energy sources, energy efficiency and conservation.
    Since passing the National Energy Policy Act in 1992, Congress has 
generally ignored energy issues. But the power problems in California, 
as well as the increased price of natural gas and oil throughout the 
country, have brought energy back to the top of our nation's agenda. 
The energy shortage we're experiencing in California is proof enough 
that Congress must raise the stakes in search of alternative energy 
sources. Obviously, what we're doing isn't good enough. We can no 
longer ignore wind, solar, fuel cell and geothermal energy sources.
    At last week's Science Committee hearing on the role of renewable 
energy sources and energy efficiency, our witnesses--all economic and 
policy analysts--spoke about the increased role renewables and energy 
efficiency must play in meeting our nation's long-term, growing energy 
demand. As Congress forges a long-term energy policy, it's imperative 
we make a true commitment to alternative energy sources, efficiency and 
conservation to prevent future energy crisis.
    Measures of this kind can work. For example, in my district, 
several Marin County communities--including Mill Valley, San Rafael and 
Novato--are currently installing new energy-efficient traffic lights 
that use only 10-20 percent of the electricity used by current bulbs. 
In Sonoma County, the City of Santa Rosa is working on a project to 
send 11 million gallons of its reclaimed wastewater to the Geysers 
geothermal plant each day. When completed, the Geysers steam fields 
will continuously displace 85 megawatts of fossil energy. The Sonoma 
County Transit Department is also building a landfill gas conversion 
facility that allows excess landfill gas to be used as an alternative 
fuel for their buses. Encouraging measures like these all across our 
country will make a difference in meeting our energy demands.
    Like my constituents and many of my colleagues, I strongly believe 
there's an important role for the federal government to encourage 
clean, efficient and renewable technologies as part of our national 
energy portfolio. As this Congress embarks on developing a national 
energy policy this Committee with the Science Committee and the Ways & 
Means Committee, can broaden our horizons by getting ``out of the box'' 
and encouraging policies for the future. I would look forward to 
working with this Subcommittee to develop and move a comprehensive 
legislative agenda that prominently features renewable energy sources, 
energy efficiency and conservation measures as part of a national 
energy policy.
    Thank you.

    Mr. Barton. Thank you, Congresswoman.
    We now want to hear from one of our newer members, 
Congresswoman Capito from the great State of West Virginia.
    Your statement is in the record. You are recognized for 5 
minutes.

  STATEMENT OF HON. SHELLEY MOORE CAPITO, A REPRESENTATIVE IN 
            CONGRESS FROM THE STATE OF WEST VIRGINIA

    Ms. Capito. Thank you, Mr. Chairman.
    Mr. Barton. Make sure that microphone is on.
    Ms. Capito. I am new, remember.
    Thank you, Mr. Chairman, Ranking Member Boucher and members 
of the subcommittee. I appreciate your holding this day of 
hearings, and I am grateful for the invitation to speak.
    Mr. Chairman, the signs of an impending energy crisis are 
no longer just on the horizon. In 1999, an OPEC-imposed 
reduction in oil supply forced United States consumers across 
the country to pay record prices at the pump. In the year 2000, 
restricted supplies, combined with the poor distribution 
system, resulted in staggering price increases for home heating 
oil in the Northeast. During the summer of 2000 and continuing 
into the fall, California's electricity emergency is forcing 
many utilities into potential bankruptcy.
    Regrettably, we do not have a workable energy policy in 
place to help us address our current energy crisis and, perhaps 
more importantly, to help us prevent future problems. However, 
I do believe that help is on the way.
    As you know, President Bush has asked Vice President Cheney 
to lead the development of a national energy policy designed to 
help the Federal, State and local governments, as well as the 
private sector, promote dependable, affordable and 
environmentally sound production and distribution of energy for 
our future.
    Mr. Chairman, as you and the members of the subcommittee 
work with the President's task force, I would strongly 
encourage you to consider our 275-billion-ton reserve of 
recoverable coal. To put this number into perspective, the 
reserve is one-quarter of the world's coal. It is equal to more 
than half of the combined energy of the world's proven reserves 
of oil and gas. It is 36 times as large as America's domestic 
reserve of natural gas and 46 times the domestic reserve of 
oil.
    As you know, estimates of energy reserves are counted in 
British thermal units, also known as BTUs. For further context, 
approximately 1 BTU of every 6 BTUs available to do the work of 
the world is in the U.S. coal reserve. If all of America's coal 
were converted to electric power at the current efficiencies of 
generating plants, it would develop 495 trillion kilowatt hours 
of the energy, which is the lifeblood of our modern economy.
    In 1999, the U.S. generated 1.9 trillion kilowatt hours 
with coal, which equates to approximately 51 percent of all 
power. In terms of domestic energy, coal represents 40 percent 
of all fossil fuel energy production, and 90 to 95 percent of 
all fossil fuel reserves.
    My State of West Virginia is one of America's leading coal 
States and the estimate of our recoverable coal is 20 billion 
tons. Further estimates reveal that West Virginia coal alone is 
the rough equivalent of more than twice the energy in America's 
recoverable gas reserves and three times the proven oil 
reserves.
    Coal is America's low-cost fossil fuel and is a secure 
energy source that can and does provide economic and energy 
security to all Americans, especially West Virginians. Advanced 
technologies for generating electrical power through coal are 
more efficient than the current processes. Higher efficiencies 
mean that more power can be generated with less coal.
    The 495 trillion kilowatt hour potential of the reserve 
will expand as new technologies are put into place. Advanced 
pulverized coal generation and the generation technologies in 
the U.S. coal demonstration program all perform significantly 
better than required by the most stringent clean air standards.
    Therefore, with the advancement of clean coal technology 
and a working partnership with all parties involved, I am 
certain we will be able to create a national energy policy that 
will benefit every American.
    It is essential that we include coal in any policy that 
will determine the way we proceed down this path. I am here 
today to show my support to the working men and women in the 
Nation's coal industry.
    Again, thank you, Mr. Chairman. I look forward to working 
with you and the subcommittee members on this issue. As we all 
know, energy will continue to drive our lives and coal is an 
essential part of that driving force. Thank you for giving me 
this opportunity.
    [The prepared statement of Hon. Shelley Moore Capito 
follows:]
 Prepared Statement of Hon. Shelley Moore Capito, a Representative in 
                Congress from the State of West Virginia
    Thank you Mr. Chairman, Ranking Member Boucher, and members of the 
Subcommittee. I appreciate your holding this day of hearings, and am 
grateful for the invitation to speak.
    Mr. Chairman, the signs of an impending energy crisis are no longer 
just on the horizon. In 1999, an OPEC imposed reduction in oil supply 
forced U.S. consumers across the country to pay record prices at the 
pump. In 2000, restricted supplies combined with a poor distribution 
system resulted in staggering price increases for home heating oil in 
the Northeast. And during the summer of 2000 and continuing into the 
fall, California's electricity emergency is forcing many utilities into 
potential bankruptcy.
    Regrettably, we do not have a workable energy policy in place to 
help us address our current energy crisis's and, perhaps more 
importantly, to help us prevent future problems. However, I do believe 
that help is on the way. As you know, President Bush has asked Vice-
President Cheney to lead the development of a national energy policy 
designed to help the federal, state and local governments as well as 
the private sector promote dependable, affordable, and environmentally 
sound production and distribution of energy for the future.
    Mr. Chairman as you and the members of this subcommittee work with 
the President's task force, I would strongly encourage you to consider 
our 275-billion ton reserve of recoverable coal.
    To put this number into perspective, the reserve is one quarter of 
the world's coal, it is equal to more than half of the combined energy 
of the world's proven reserves of oil and gas, it is 36 times as large 
as America's domestic reserve of natural gas and 46 times the domestic 
reserve of oil.
    As you know, estimates of energy reserves are counted up in British 
thermal units, also known as Btus. For further context, approximately 
one Btu of every six Btus available to do the work of the world is in 
the US coal reserve.
    If all of America's coal were converted to electric power at the 
current efficiencies of generating plants, it would deliver 495-
trillion kilowatt-hours of the energy, which is the life-blood of our 
modern economy.
    In 1999, the US generated 1.9 trillion kilowatt-hours with coal, 
which equates to 51% of all power. In terms of domestic energy, coal 
represents 40% of all fossil fuel energy production and 90 to 95 % of 
all fossil fuel reserves.
    My state of West Virginia is one of America's leading coal states 
and the estimate of our recoverable coal is 20 billion tons. Further 
estimates reveal that West Virginia coal alone is the rough equivalent 
of more than twice the energy in America's recoverable gas reserves and 
three times the proven oil reserves.
    Coal is America's low-cost fossil fuel and is a secure energy 
resource that can and does provide economic and energy security to all 
Americans.
    Advanced technologies for generating electric power through coal 
are more efficient than the current processes. Higher efficiencies mean 
that more power can be generated with less coal. The 495-trillion 
kilowatt-hour potential of the reserve will expand as the new 
technologies are put in place.
    Advanced pulverized-coal generation and the generating technologies 
in the US Clean Coal demonstration program all perform significantly 
better than the most stringent clean air standards--the New Performance 
Standards of the United States.
    Therefore, with the advancement of clean-coal technology and a 
working partnership with all parties involved, I am certain that we 
will be able to create a National Energy Policy that will benefit every 
American.
    It is essential that we include coal into any policy that will 
determine the way we proceed down this very tricky path. I am here 
today to show my support to the working men and women in the nation's 
coal industry.
    Again, thank you Mr. Chairman, I look forward to working with you 
and the Subcommittee members on this issue. As we all know, energy will 
continue to drive our lives, and coal is an essential part of that 
driving force.
    Thank you. I will be happy to take any questions.

    Mr. Barton. Thank you, Congresswoman.
    It looks as though Congressman Markey has brought help with 
him. Is this the help we keep talking about that is on the way? 
You brought some of your constituents from the great State of 
Massachusetts?
    Mr. Markey. These represent the superior seniors from my 
alma mater, Malden Catholic High School.
    Mr. Barton. Welcome to the subcommittee. You have got a 
distinguished alumnus in Congressman Markey. He will be on his 
best behavior because you are here. We appreciate your being 
here.
    We now want to go to Congressman Aderholt. Your statement 
is in the record. You are recognized for 5 minutes to elaborate 
on it.
    Congressman Inslee, if you want to take Congresswoman 
Woolsey's place, you will be our cleanup hitter.

   STATEMENT OF HON. ROBERT B. ADERHOLT, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF ALABAMA

    Mr. Aderholt. Thank you for allowing me to testify today on 
behalf of my constituents, and particularly thank you for 
allowing me to speak on behalf of my constituents in Alabama. 
Many of the constituents I represent have been particularly hit 
hard by high natural gas prices this winter.
    Mr. Barton. With the disappearance of this panel, if you 
want to come around to the main part of the table--we let one 
of them go, and they all just bailed out on us.
    Mr. Aderholt. This testimony, I hope will help to 
illustrate some of the impact that high natural gas prices have 
had recently on consumers in Alabama and throughout the Nation, 
and outline some possible solutions. I have been concerned 
about the dramatic increase in the price of natural gas that 
has burdened Alabama consumers over the past few months.
    In my own hometown of Haleyville, my most recent winter gas 
bill was over $400 for 1 month. That was well over twice the 
amount for the same period last year.
    A $200 or more monthly increase is particularly a major 
burden for those across our Nation who live on fixed incomes. 
This increase in prices has hit them especially hard. This 
price increase causes the amount of income available for other 
necessities such as food, medicine and other utilities to be 
greatly reduced. Without these life necessities, these people 
and their families are at risk of co-related illnesses, hunger, 
homelessness, just to name a few of the potential problems.
    This situation also affects businesses and their bottom 
line. When their costs are passed along to consumers, this, in 
turn, increases prices for everyone.
    As an example of these dramatic price increases, one 
poultry grower informed me that in November and December 1999, 
propane costs represented 17 percent of his gross receipts. 
During the same period in 2000, this same grower used 61 
percent of his gross receipts for propane needs. While it is 
true this has been an unusually cold winter, the costs appear 
to have been due not only to increased consumer demand; there 
has in fact been a shortage which has made prices higher.
    Evidence of this shortage in the propane market is 
evidenced by the fact that from January 1999 to January of 
2000, U.S. propane exports to Mexico increased from 50,000 
barrels per day to 85,000 barrels per day. It seems very likely 
that these increased propane exports have driven up propane 
prices at the same time that increased demand for propane is 
occurring.
    As has been brought to my attention, the U.S. Department of 
Energy has estimated that residential customers will pay 40 to 
50 percent more for their gas service this winter. This 
situation is made worse by the fact that the cost of delivering 
propane to consumers in rural areas is higher than in urban 
areas.
    In Alabama, I have discussed with the State public service 
commission the importance of natural gas suppliers and propane 
dealers not cutting off any resident or business who needs 
extra time to pay their bills. I am especially concerned about 
seniors who are on fixed incomes, that they do not get cutoff.
    Second, I want to applaud the efforts of our colleague from 
Mississippi, Congressman Chip Pickering, who serves on this 
subcommittee, for his bill, H.R. 396, which would allow the 
Secretary of Agriculture to provide assistance to poultry and 
livestock producers and greenhouse operators who have incurred 
economic losses due to the increased energy prices in 2000 and 
2001. While Representative Pickering's bill is under the 
jurisdiction of the Agriculture Committee, I certainly urge all 
of my House colleagues to join as cosponsors of this important 
legislation.
    I believe that there are several very important questions 
to be answered, all of which will fall under the jurisdiction 
of this subcommittee. With the increasing reliance on natural 
gas by electric utilities for power generation, I urge this 
subcommittee to examine whether or not recent price spikes for 
electricity in California may have impacted the market price of 
natural gas supplies nationwide. Also, I urge this subcommittee 
to investigate the possibility of price gouging by refiners and 
also the impact on prices of our exports of propane to Mexico 
in recent years.
    As you know, Mr. Chairman, I have written to you and the 
other members of the committee in more detail regarding these 
questions, and I respectfully ask you to insist that the 
Department of Energy and others involved in this process answer 
these questions.
    Finally, in addition to these short-term solutions, I 
believe that there is also a long-term problem that reveals the 
need for a sound energy policy. Of course, it goes without 
saying that this subcommittee is urged to work with the 
administration to make sure that we put a comprehensive 
national energy policy together so we can avoid problems like 
this in the future.
    Thank you for allowing me to come share these thoughts with 
the subcommittee today. I look forward to working with you.
    Mr. Barton. Thank you, Congressman. When you came into the 
room earlier, I should have asked you to come to the dais at 
that time. I apologize.
    Mr. Aderholt. That is fine. Thank you.
    [The prepared statement of Hon. Robert B. Aderholt 
follows:]

  Prepared Statement of Hon. Robert B. Aderholt, a Representative in 
                   Congress from the State of Alabama

    I want to thank Chairman Barton and the Members of the Subcommittee 
for allowing me to testify today on behalf of constituents in the North 
Alabama district that I represent. Many of these constituents have been 
particularly hard hit by high natural gas prices this winter. This 
testimony will help to illustrate some of the impact that high natural 
gas prices have recently had on consumers in North Alabama and 
throughout the Nation, and outline some possible solutions.
    I have been concerned about the dramatic increase in the price of 
natural gas that has burdened Alabama consumers over the past few 
months. In my own hometown of Haleyville, my most recent winter gas 
bill was well over $400 for one month, over twice the amount over the 
same period last year.
    A $200 dollar monthly increase is particularly a major burden for 
those across our nation who live on a fixed income--this increase in 
prices has hit them especially hard. These price increases cause the 
amount of income available for other necessities such as food, 
medication, and other utilities to be greatly reduced. Without these 
life necessities, these people and their families are at risk of cold-
related illnesses, hunger, or homelessness, to name just a few 
potential problems. This situation also affects businesses, and their 
bottom line. When their costs are passed along to consumers, this in 
turn increases prices for everybody.
    As an example of these dramatic price increases, one poultry grower 
informed me that in November and December of 1999, propane costs 
represented 17 percent of his gross receipts. During the same period in 
2000, the same grower used 61 percent of his gross receipts for propane 
needs.
    While it is true this has been an unusually cold winter, the costs 
appear to have not been only due to increased consumer demand. There 
has in fact been a shortage which has made prices higher. Evidence of 
this shortage in the propane market is evidenced by the fact that from 
January 1999 to January 2000, U.S. propane exports to Mexico increased 
from 50,000 barrels per day to 85,000 barrels per day. It seems very 
likely that these increased propane exports have driven up propane 
prices at the same time that increased demand for propane is occurring.
    It has been brought to my attention that the U.S. Department of 
Energy (DOE) has estimated that residential customers will pay 40 to 50 
percent more for their gas service this winter. The situation is made 
worse by the fact that the cost of delivering propane (often referred 
to as the fuel of rural America) to consumers in rural areas is higher 
than in urban areas.
    In Alabama, I have discussed with the State Public Service 
Commission the importance of natural gas suppliers and propane dealers 
not cutting off any residents or businesses who need extra time to pay 
their bills. I am especially concerned that seniors on fixed incomes do 
not get cut off.
    Secondly, I want to applaud the efforts of our colleague from 
Mississippi, Rep. Chip Pickering, who serves on this Subcommittee, for 
his bill, H.R. 396, which would allow the Secretary of Agriculture to 
provide assistance to poultry and livestock producers and greenhouse 
operators who have incurred economic losses due to increased energy 
prices in 2000 or 2001. While Rep. Pickering's bill is under the 
jurisdiction of the Agriculture Committee, I urge all of my House 
colleagues to join me as cosponsors of this important legislation.
    I believe there are several very important questions to be 
answered, all of which fall under the jurisdiction of this 
Subcommittee. With increasing reliance on natural gas by electric 
utilities for power generation, I urge this Subcommittee to examine 
whether or not recent price spikes for electricity in California may 
have impacted the market price of natural gas supplies nationwide. 
Additionally, I urge the Subcommittee to investigate the possibility of 
price gouging by refiners, and also the impact on prices of our exports 
of propane to Mexico in recent years. As you know Mr. Chairman, I have 
written to you in more detail regarding these questions, and I 
respectfully request you insist on that DOE and others involved in this 
process answer these questions.
    Finally, in addition to these short term solutions, I believe that 
this is also a long-term problem and reveals the need for a sound 
energy policy. I urge Members of this Subcommittee to work with 
President Bush and his Administration to make sure that we put together 
a comprehensive national energy policy, so we can avoid problems like 
this in the future. Thank you for this opportunity to offer my 
concerns. I look forward to continuing to work with you to address the 
impact of high natural gas prices on rural America.

    Mr. Barton. I think we have seen this witness before once 
today. I don't think we have ever had a witness testify on two 
separate panels in the same day, so this is an historic event.
    Congressman, your statement is in the record in its 
entirety, and you are recognized for 5 minutes to testify on 
it.
    Mr. Inslee. Thank you, Mr. Chairman. My mother will note 
that I have created history here. It will surprise my father 
and please my mother.
    The reason I came back is I was really talking about short-
term issues before, and I would like to make three points on a 
long-term energy policy for the country. I am cleanup hitter, 
so I think it is incumbent on me to deliver some good news. I 
have two pieces of good news.
    Before I get to that, I want to tell you the bad news. I 
just urge the committee to acquaint itself with one chart when 
you draft our energy future, if I can just share this chart 
with you. It is basically showing the carbon dioxide 
concentrations in the atmosphere beginning with the dawn of the 
Industrial Age to the present, and then you can see where that 
line is going in the future.
    I really believe, in drafting a national energy policy, 
this chart has got to play a major role in our decisionmaking. 
The reason is that this chart is unambiguous, certain and 
indisputable. All scientific folks agree with this chart, that 
CO2 levels in the atmosphere are going up 
dramatically, and probably unless this committee and this 
Congress and we act internationally, it is going to double in 
the next century.
    The result of that is a profound increase in the global 
tendency to trap energy in the atmosphere because of the 
presence of what are called global climate change gasses, and 
CO2 is the predominant one. Energy comes in, like a 
greenhouse, in ultraviolet rays, but infrared light--excuse me, 
I have them reversed--does not go out through the 
CO2. It is a blanket and it is doubling and it is 
getting thicker and it is indisputable.
    I just think whatever we do and whatever discussions we 
have in this committee, I just hope you will discuss this 
phenomenon about what we are going to do about it, because it 
means, indisputably, we are going to have some changes in our 
climate. As you know, an international panel of scientists 
about a month ago came back with very disturbing news that this 
process is accelerating faster than most people anticipated 
even 2 or 3 years ago. So I just urge the committee to think 
about this in our deliberations.
    That is the bad news.
    The good news is there are some great things happening on 
the horizon. Solar power prices have come down 50 percent since 
1995. Wind power prices have come down 45 percent in the last 
decade. Interestingly enough, wind power for every doubling of 
amount of wind in the field, the price comes down 15 percent. 
There is very positive technology coming on-line if we can spur 
it through Federal action to help us out.
    The third piece of good news, I hope, Mr. Chairman, you can 
help me pass the Home Energy Generation Act, a little act that 
will have a national net metering policy that I have introduced 
with many others, which would simply require the utilities to 
accept home generation of electricity to feed back onto the 
grid so your meter will run backwards essentially while you are 
contributing energy to the grid. It is one small thing we can 
do to boost renewable energy sources at the home level.
    Thank you very much for this historic opportunity, Mr. 
Chairman.
    Mr. Barton. You gave us back almost 2 minutes, Congressman.
    The Chair has no questions. The Chair would recognize Mr. 
Boucher.
    Mr. Boucher. No questions.
    Mr. Barton. Mr. Largent?
    Mr. Largent. No questions.
    Mr. Barton. Mr. Barrett?
    Mr. Barrett. No questions.
    Mr. Barton. Mr. Shadegg? Welcome back to the subcommittee. 
We appreciate your being here.
    Mr. Shadegg. Thank you, Mr. Chairman. I will be brief. I 
want to begin, I could not be here earlier, but I want to 
commend you for holding this hearing. As you know, I went to 
Pasadena, California, with you some 2 weeks ago to look at the 
California energy crisis. I think it is indeed an energy 
crisis, but it is an energy crisis which is largely of our own 
creation.
    I listened to my friend, Mr. Calvert--I notice virtually 
all of the witnesses except Mr. Inslee have decided to depart, 
so there is almost no one to question, but we will make 
comments about some of the testimony nonetheless.
    Mr. Calvert noted that many of the California problems are 
systemic throughout the country, but I think that is not 
completely correct. In part, when you look at the California 
energy crisis that we examined, Mr. Chairman, when we were 
there, it is clear that some of the contributing factors to 
that crisis are man-made and were conscientious efforts to 
ignore, quite frankly, reality.
    The failure of California to build additional production is 
quite obvious. As a matter of fact, for example, in the last 
decade, the amount of electricity generated in California 
actually decreased from 208,350 gigawatts in 1990 to 205,246 
gigawatts in 1998. That shows that that State over a 10-year 
period actually lost production capacity. That should not come 
as any surprise in light of the fact that at least since the 
imposition of their retail price caps, we had an artificial 
market where we had retail price caps, but no wholesale price 
caps. That kind of policy sends exactly the wrong message.
    I commend you, Mr. Chairman, for the meetings we conducted 
in California, in Pasadena, for what I was able to learn there, 
and for the hearing today. I have to say I felt the testimony 
there was much more informed than some of the testimony we 
heard here today.
    Mr. Ganske, I was going to comment upon the fact that he is 
right about the ``not in my backyard'' syndrome, and I wanted 
to bring a couple of facts to the attention of the subcommittee 
with regard to that syndrome, the ``not in my backyard'' 
syndrome, impending directly on the California energy crisis. 
These are the facts I wanted to bring forward.
    The Los Angeles Times poll taken in Southern California in 
the L.A. Area and released on February 18 showed that--this is 
February 18, less than a month ago, a full 57 percent of 
Californians do not believe that there is a shortage of 
electricity. They are, pretty clearly, Mr. Chairman, living in 
La-la Land.
    Now, perhaps we can't blame them, because we imposed 
artificial price caps holding down the retail price as a 
seriously low level. Indeed, electricity prices in most of the 
Western United States have gone up by 20 percent over the last 
few years. In California, they have gone up by zero percent. So 
perhaps we should not be surprised that 57 percent of 
Californians in this poll don't believe there is a shortage of 
electricity. But I think we have a crisis of knowledge when we 
have that kind of ignorance.
    I would like to illustrate that that then has public policy 
implications.
    Mr. Barton. Is there a question in here somewhere?
    Mr. Shadegg. There is no question, Mr. Chairman. I need to 
just get a few things in the record.
    I commend Mr. Inslee for coming forward. I would be happy 
to ask Mr. Inslee from his earlier testimony, he advocated 
price caps and we might talk about that in just a moment.
    But the consequence of the ignorance of this electricity 
shortage can be shown in one more symptom, and that is the L.A. 
Times in an editorial yesterday--the day before yesterday, on 
Sunday, excuse me--said a sense of public urgency is lacking. 
That might be a monumental understatement, Mr. Chairman.
    They go on to say, one indicator is a municipal vote on 
Tuesday--that is, today--on whether a new power plant should be 
built in Southgate. Polls show currently that that vote is 
currently at about a 50-50 level. It may or may not pass. This 
is in a State which is literally thousands of megawatts short 
of electricity at peak times of being able to meet their 
demand. Fifty-seven percent don't believe there is a crisis, 
and only roughly half may vote to build this new power plant in 
Southgate.
    There are a number of issues I think we need to address. I 
wanted to commend Mr. Calvert for his commentary on ethanol. 
While I think ethanol is a technology we need to pursue, we 
should have learned from our policy last time around.
    Last time around we mandated oxygenates and essentially 
mandated MTBE. We now know it is causing a serious problem to 
our water table. I hope this committee and this Congress does 
not make the same mistake by mandating ethanol. As Mr. Calvert 
pointed out in his testimony, you can in fact creatively 
produce very clean gasoline and improve air quality without 
mandating a particular solution. I would urge this committee 
not to do that.
    I will conclude by asking indeed one question of Mr. 
Inslee.
    Mr. Barton. In your last 4 seconds.
    Mr. Shadegg. To please you, Mr. Chairman, my concern is, 
and two questions:
    One, when----
    Mr. Barton. One question.
    Mr. Shadegg. One question. Two questions in one.
    When has any temporary rate cap imposed by the Federal 
Government in fact ever been allowed to expire; and what is it 
about a rate cap that you think would cause either the 
encouragement of additional production in the Western United 
States to meet the demand that we have, or the encouragement of 
reduced consumption and greater conservation by the people in 
the State of California?
    Mr. Inslee. Well, the first question, there have been many 
times where various public entities in this country have 
imposed some control over prices--many, many times, going back 
to President Nixon's time. Some were successful, some were not. 
But there have been many times where price caps have been 
imposed and then removed. I think this should be one of these. 
I want to reiterate, it can and should be short-term. We can 
fashion a way to do that.
    The second part, as far as the creation of new generation, 
again I would suggest that we exempt new generation capacity, 
thereby sending price signals to new generators who make 
investments to indeed have higher prices for new generating 
capacity-produced electricity.
    But I will tell you, it is going to be a disincentive for 
creation of that new electricity if the economy goes to heck in 
a handbasket, and I am really afraid that is what is going to 
happen if we don't act.
    Mr. Barton. Thank you, Congressman.
    For the last word, Congressman Markey for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    Mr. Inslee, it is reported there is going to be a 4 percent 
cut in the Department of Energy's budget. Since it is quite 
clear the areas that they are going to protect, it is projected 
there will be a 30 to 35 percent cut in energy efficiency 
grants and a 40 to 45 percent cut in renewables on research and 
development and a 20 percent cut in fossil fuels R&D.
    Do you think that would be a good idea?
    Mr. Inslee. I am a specialist in rhetorical questions, so I 
can handle this one.
    Mr. Markey. Thank you. I am always glad when someone can 
recognize a rhetorical question.
    Mr. Inslee. You know, I really am disturbed and 
disappointed by that. I will tell you why, Congressman.
    Last week I actually heard some--what I thought, very 
encouraging signs from the administration. Some of the comments 
from our new EPA Administrator, Governor Whitman, I thought 
were very encouraging where she recognized the necessity of 
dealing with global climate change issues, where she recognized 
the necessity of working on new technologies. That was very, 
very encouraging to me as a voice from the administration.
    But this proposed actual slashing of budgets for renewable 
energy to me incredibly manifests ignoring clear science. Where 
we have got a chart like this we are looking at, which is going 
to demand that we reduce our amount of carbon dioxide loading 
of the atmosphere, we are not going to have a choice. Whether 
you are a Democrat or Republican, 10 years from now you are not 
going to have a choice, but to reduce our carbon dioxide 
loading the environment. It is very disturbing.
    As you know, just maybe to answer the next question----
    Mr. Markey. No, let me ask the next question. There is a 
certain ``Carnack'' quality to your answering my next question, 
I realize that, but just so that we do square up before you 
answer it, it would be on the remarkable fact that there was 
actually a 60 percent increase in natural gas production on 
Federal lands from 1992 when Bill Clinton took over until 
today, and in fact there was a 62 percent increase in offshore 
drilling from 1992 to 1999, and natural gas production in deep 
waters increased 80 percent over just the last 2 years.
    Is it surprising to you to learn that, notwithstanding all 
the criticism of the environmental movement in the Clinton 
administration, there has been such a dramatic increase in the 
production of energy on public lands in just the last 8 years?
    Mr. Inslee. I must actually admit to my ignorance. I have 
not heard those numbers. I have learned something today, and it 
proves it pays to come to this committee.
    Mr. Markey. Thank you. Let me see if I can continue to 
broaden your education.
    Mr. Barton. Your constituents may be so young they may not 
know who Carnack was.
    Mr. Markey. How many of you know who Carnack was?
    Mr. Barton. That is what I thought.
    Mr. Markey. Wow. Let me ask you, where is Jay Leno from? 
Andover. See, they know that. He is from the Andover High 
School. So they know what happened when they got rid of this 
guy from Nebraska, we got a good guy from Andover in there.
    You know, another very interesting fact that people are 
unaware of is Jeb Bush's opposition to drilling 100 miles out 
at sea off of the Florida coast, even though there is a 
consensus we should drill, and there is loads of energy out 
there. What do you think about Jeb Bush opposing drilling in 
areas where there is a consensus reached by Democrats and 
Republicans that we should go out there?
    Mr. Inslee. I think it is most enlightened and very 
encouraging, and we hope there is a familial line of 
communication which will extend that far to the Northwest part 
of our States up to the Arctic refuge. We hope that that policy 
will be forthcoming. I have to tell you----
    Mr. Markey. Do you consider him an environmentalist? Is he 
an extremist for taking that position?
    Environmentalists actually support drilling in this water. 
In other words, this is not being opposed by environmentalists, 
but actually supported. Do you consider him to be an 
environmental extremist for taking that position?
    Mr. Inslee. Hardly, and I think it is consistent with what 
Americans think. I got to tell you, since last week's 
discussion of the Arctic refuge, I have had more and more 
people come up to me in the street--truck drivers, teachers--
just come up to me unprovoked and say, don't let them get into 
the Arctic refuge. It has been actually interesting to me. I 
have heard more about that from my constituents than perhaps 
any issue in the last 2 months. I hope that America's sentiment 
is listened to in this regard.
    It is not going to be a solution. As you know, CAFE 
standards are going to solve a lot more problems. Mark.
    Mr. Barton. This will have to be the last illuminating 
question.
    Mr. Markey. To some of these kids, CAFE is on Highland 
Avenue, so we will have to explain what CAFE is as well.
    The final question would be on Prudhoe Bay, the fact that 
there is 32 to 38 trillion cubic feet of natural gas ready for 
development--with, by the way, the support of the most liberal 
Democratic environmental members of the United States 
Congress--and yet there has been no progress as of yet by the 
oil and gas industry in drilling and bringing it down.
    Before we go to the Arctic refuge, which is a sacred, 
untrammeled, wild, wild wilderness preserve, what do you think 
about that? What recommendations could you make to the oil and 
gas industry about first going to the Prudhoe Bay area?
    Mr. Inslee. I am going to give you a very honest answer, 
not a cheeky one.
    I really do believe that this country is not going to open 
up the Arctic refuge. I believe that is very much the public 
sentiment. I believe that the public will come to agree with us 
that it is not a solution to this problem, long- or short-term. 
Honestly, if John, a friend of mine in the industry, asked me, 
I would say, that is not a place we are going to go. That would 
be my honest, candid, frank and right answer.
    Mr. Markey. Thank you.
    Mr. Barton. We appreciate your honesty, candor and 
frankness.
    This subcommittee hearing on this particular issue for the 
Members' testimony is over. We will have future hearings in the 
very near future.
    [Whereupon, at 3:54 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

Prepared Statement of Hon. Joe Baca, a Representative in Congress from 
                        the State of California

    Chairman Barton and Ranking Member Boucher:
    I appreciate the opportunity to testify before this subcommittee, 
concerning California's energy situation.
    The energy crisis is upon us. Deregulation is broken, and 
California must dig itself out of this hole. We need a stable supply of 
electricity at a reasonable rate if we are to keep the gold in the 
Golden State.
    Without a consistent supply of power that we control, we will 
always be at the mercy of out-of-state interests who seek to turn a 
profit on the backs of consumers. Without control, our whole economy 
will suffer. It is essential that we maintain our standard of living 
and our competitive edge. We need to ensure that new industries wish to 
locate in California.
    That is why I met recently with President Fox of Mexico and 
obtained an agreement from him to supply California with an additional 
50 megawatts of power, doubling the amount of power supplied by Mexico 
to California. This will be enough to serve another 50,000 homes.
    Mexico will give us the additional megawatts, but we need the 
infrastructure and additional power lines. The problem is the United 
States lacks the required infrastructure. We really need to work on our 
side. We need to secure additional appropriations for infrastructure.
    We need to get in the ball game. That is why I supported Governor 
Davis's direction to state and local agenices to expedite the review 
and licensing of new power generation facilities, and I supported his 
request that federal agencies do the same. I appreciate that in 
response to the Governor's request, the President will be accellerating 
federal permit reviews, consistent with federal law and continued 
protection of public health and the environment.
    It is time to enact a national energy policy. That is why I joined 
my colleagues in signing a letter to President Bush recently, urging 
him to meet with us. Together we will roll up our shirt sleeves and 
figure out how to solve these problems.
    The national energy policy should include new ways to map how power 
flows through our nation, to help us identify, in real time, where we 
need new facilities and transmission lines. The technology exists to do 
this having been applied by Los Alamos labs to other areas, such as our 
highway transportation system.
    I am co-sponsoring legislation to prohibit out-of-state electricity 
producers from charging excessive rates (H.R. 238, Hunter, and H.R. 
268, Filner). We must protect consumers and businesses in our state. 
This is about fairness. This is about ensuring that people can make 
ends meet.
    I have also worked on the following measures to address the crisis:

 Letter from California Democratic Congressional Delegation, 
        requesting that the Federal Energy Regulatory Commission (FERC) 
        take immediate action to address the energy crisis on the 
        western region of the country.
 Letter to the United States General Accounting Office 
        requesting a presentation and evaluation of what can be done to 
        increase the electricity supplies in the west as an action to 
        address the energy crisis in the western region of the country.
 Letter and phone call to President Pro Tem John Burton's 
        office supporting the letter from George Miller to Senator 
        Burton in support of SB 33X, to assist the state of California 
        with the energy crisis by purchasing transmission lines.
 Letter to President Bush requesting increased funding for the 
        Low Income Home Energy Assistance Program (LIHEAP), the 
        weatherization assistance program, and the state energy 
        program.
    While a solution is being formulated, as energy consumers, we must 
be as efficient as possible with this commodity. We must encourage 
family and friends to turn out the lights when not in use, reduce the 
use of outside and decorative lighting, turn our thermostats down at 
night, make full use of the sun to light and heat our home during the 
day, close the drapes at night and chimney vent when not in use.
    We should not be interested in assigning blame, only in finding 
ways to resolve the crisis. While state lawmakers are working on a 
resolution, I am concerned about the human impact of the crisis: how 
are these stage three alerts affecting the elderly, infirm, low income 
residents in particular?
    Our focus should be on information dissemination. For instance, 
many low-income families are not aware of the care program which 
provides a 15% discount off their electric bills if they meet the 
qualifications and income guidelines. We are also sharing conservation 
tips for all consumers, but targeting seniors in particular.
    I am concerned with how this energy crisis will affect our 
economy--both in the growth and development of small business, as well 
as the increase in rates to all consumers.
    We need to provide for America's long-term needs, whether through 
conservation or new production. The continued health of businesses 
depends upon reducing price swings for energy.
    I am concerned that proposed budget cuts may harm our long-term 
national interests, taking funds away from renewable energy research. 
We need to explore all energy alternatives.
    The time to act is now. We will work hard, we will succeed.
                                 ______
                                 
Prepared Statement of Hon. Randy ``Duke'' Cunningham, a Representative 
                in Congress from the State of California

    Subcommittee Chairman Barton, Ranking Member Boucher, and Members 
of the Subcommittee, I rise today to speak in support of federal 
efforts to assist California in addressing our ongoing energy crisis.
    Mr. Chairman, California needs relief. In Congress, you will find 
no greater proponent of capitalism and free markets than myself. 
However, due to the current crisis I support temporary price caps on 
wholesale electricity in the Western United States. We need relief.
    I would urge you to listen to FERC commissioner, William Massey, 
who said, ``Runaway prices, like we have out West in electricity 
markets, are both unlawful and politically unacceptable. Consumers see 
these prices as a blatant rip-off, and I fear that we are on the verge 
of a political backlash . . . I believe we need a temporary timeout in 
western electric markets. I would cap bids into the spot markets . . . 
Without some price mitigation, not only the utilities but the state of 
California may go broke.''
    My constituents are suffering. Consumers, businesses, schools, and 
local governments are the victims of actions and powers beyond their 
control Furthermore, if we are not afforded relief, we will likely see 
a consumer outrage that will harm any future effort to bring 
competitive markets to electricity producers and utilities.
    Last week, the California delegation met with FERC Chairman Hebert 
who expressed his continued opposition to price caps. This outright 
opposition to temporary price caps, which could provide us the 
opportunity to get back on our feet, is harmful to the people of 
California and America.
    Mr. Chairman over the last year, we in California we have been 
overcharged by power companies. The California Independent System 
Operator (ISO) has issued a report showing that we were overcharged 
$555 million in December and January alone. This has been accomplished 
by power generators taking advantage of energy shortages to increase 
prices. This report by ISO, which runs the electricity grid, said that 
when it needed to buy last-minute power to avoid blackouts in December 
and January, energy producers raised rates to outrageous levels, and 
the ISO had no choice but to pay them.
    Those energy shortages came amid an unusually high number of 
shutdowns of power plants, which are owned by energy companies. Many 
people are asking about the timing of these shutdowns and their 
potential connection to the extraordinary price hikes. Currently, the 
ISO has filed a motion with the FERC for refunds of those overcharges. 
The FERC has 60 days to respond.
    I would urge all my colleagues to examine this report of gross 
overcharges. And should FERC not act, we must.
    I know this isn't a popular position for us to take; and it is 
certainly a deviation from my free-market beliefs. However, we need 
relief in California. While this is a state created problem, the people 
of California are looking to the federal government for relief.
    Mr. Chairman, I support the legislation sponsored by my colleague, 
Mr. Hunter, for temporary price caps. I urge the committee to consider 
solutions that will provide relief to the people of California while we 
try to solve this problem.
    Mr. Chairman thanks for holding this hearing today. I appreciate 
the opportunity to share my concerns with you.
                                 ______
                                 
Prepared Statement of Hon. Randy ``Duke'' Cunningham, a Representative 
                in Congress from the State of California

    Subcommittee Chairman Barton, Ranking Member Boucher, and Members 
of the Subcommittee, I rise today to speak in support of an important 
component of a National Energy Strategy, specifically the Energy 
Efficient Buildings Incentives Act (H.R. 778).
    California, specifically San Diego's North County has become the 
poster child for energy problems in America. Last winter and summer we 
were hit hard by a failed regulation proposal combined with a lack of 
instate generation. This combination created shortages and extreme 
price fluctuations.
    As many of you know, this problem is ongoing. This winter has been 
tragic and included rolling blackouts. Earlier today, you heard from 
many members about this ongoing problem. Many regions across the 
country face severe challenges to their electric grid, with California 
being the extreme example. In addition, all across America the 
situation is likely to get a whole lot worse before it gets better.
    New York may have serious disruptions in electricity distribution 
this summer and the Central U.S. may again experience similar problems 
to those of last year. More troubling, this summer California may have 
more than a price problem. We may actually be unable to get power at 
any price.
    The problem is an imbalance between supply and demand, which has 
driven up the price of electricity several-fold compared to last year. 
This has resulted in increased prices for consumers, and compromised 
the financial stability of utilities and businesses.
    The nation is in desperate need of a comprehensive energy policy. 
We must have a policy that looks at the supply side, new avenues of 
production and generation, as well as the demand side, innovative 
conservation alternatives. These policies should consider the costs and 
risks to consumers and businesses. They should also provide incentives 
for economic growth and environmental protection.
     I have no illusions that developing a national consensus on a 
comprehensive energy policy will be easy. But, I am fairly confident 
that we will pass bi-partisan legislation, which will meet our growing 
need for energy.
    I believe one major piece of the comprehensive energy policy will 
be an expanded effort to increase energy efficiency by end users. 
Energy efficiency was an important part of President Bush's energy 
strategy of 1991 and has been the cornerstone of a number of state 
efforts.
    To this end, Mr. Markey of Massachusetts and I have introduced the 
Energy Efficient Buildings Incentives Act (H.R. 778). This is a 
companion to Sen. Bob Smith's S. 207 in the Senate. This legislation is 
designed to give new impetus to energy efficiency in buildings. This 
avenue shows the greatest short-term as well as long-term promise.
     Increasing energy efficiency is one of the few policy tools that 
can make an immediate difference. Within a matter of months after 
passage of this legislation, manufacturers and building designers will 
be able to provide significantly increased energy efficient technology 
to families and to businesses.
    These new technologies will help in two ways: first, the consumers 
who utilize them will immediately see lower energy bills. Second, as 
homes and businesses become more efficient, we will see reduced price 
pressure on fuels, and prices will come down.
    The sooner we can introduce energy efficiency into the marketplace, 
the sooner consumers and businesses will start to see solutions to 
their energy problems.
    Congress has passed several important pieces of bipartisan energy 
legislation over the past 15 years. These laws provide for more 
competitive energy markets.
     They also provide for federal standards on the efficiency of 
appliances and equipment, and for federal assistance to states 
considering building efficiency standards. They also provide tax 
incentives on the production side of the energy equation.
    Utilities have also learned over the past 20 years how to develop 
incentives that can encourage energy efficiency. Utilities have been 
very successful in promoting improvements in energy efficiency.
    However, there are two powerful difficulties when it comes to 
encouraging state-of-the-art improvements in energy efficiency, and 
that is why we need to work through the tax code.
    The first problem is that energy-consuming devices are produced for 
national markets, but utilities only serve a single region.
     Even if a utility offers attractive incentives for, say, an 
advanced new air conditioner, manufacturers will not be inclined to 
produce the product because their production has to be geared to 
national or even global demands, not those of a single region. National 
incentives will solve this problem.
    The second difficulty is timing. A major commercial building often 
takes over 2 years to construct. If the architect learns that the 
utility is offering an incentive for energy efficiency, the first 
question he or she will ask is: will the incentive still be available 
in 30 months when my building is finished?
    Most utilities will have to answer that they cannot ensure that 
this is the case. Therefore, the architect will refrain from making the 
commitment to energy efficiency.
    The efficiency investments that will be made are for minor changes 
in the design at the last minute that can be implemented during a 
period when the incentive is known to be available.
    H.R. 778 addresses both of these problems and sets the stage for 
unleashing a wave of new technology that can provide major advances in 
energy efficiency in the easiest manner.
    HR 778 provides incentives for enhanced energy efficiency in 
buildings, because buildings account for over $300 billion a year in 
energy costs and account for over a third of pollution emissions in the 
United States.
    There are opportunities for new technology to save from 30% to 50%, 
and maybe even more of energy costs, while enhancing the productivity 
of workers in the buildings and increasing the comfort of families at 
home.
    HR 778 targets the entire set of building-related energy systems, 
including: Non-residential buildings, commercial buildings such as 
offices, stores, warehouses, etc., as well as public buildings such as 
schools, and rental housing.
     Homes, including single-family, multi-family, and manufactured 
homes. Heating, cooling, and water heating equipment; and solar 
photovoltaic and water heating equipment. It provides incentives based 
on energy performance, not on cost.
    This structure is different from the energy efficiency tax 
incentives of the 1970's, which were based on cost and are perceived by 
many to have failed. These targets are ambitious but realistic.
    If they were less ambitious, there would be a risk of paying for 
energy efficiency investments that would have happened anyway. If they 
are too ambitious, no one would claim the tax incentive, which would 
fail to accomplish the purpose of the energy policy.
    The bill provides tax incentives for a fixed time period and are 
intended to be temporary through the end of taxable year 2007. Six 
years should be sufficient to provide financial reasons for 
manufacturers to invest in plants producing efficient equipment.
    This should also be enough time for designers and contractors to 
get additional education and training in energy efficient design, 
construction practices, and to establish competitive markets for more 
efficient buildings and equipment.
    At the end of 6 years, I anticipate that the markets for energy 
efficiency will be strong enough that these tax incentives will no 
longer be needed. I believe that these incentives can transform the 
markets for energy efficient buildings over these 6 years, as several 
utility-sponsored programs have done in the past.
    This is because they rely on market forces, and establish a level 
playing field for competition between different industries and 
different companies.
    HR 778 will reduce energy demand and bring quick relief to the 
power grid, which will help alleviate electric supply problems. That is 
why HR 778 is so broadly endorsed by utilities, including all of 
California's major electric utilities and many national power 
generators as well.
    But the legislation also has significant environmental benefits to 
the nation. It will reduce America's greenhouse gas pollution 
emissions, as well as air pollution emissions, by 3% by the year 2010.
    That is why this bill is endorsed by the nation's major 
environmental organizations. We have worked hard to deliver a bill that 
has both bipartisan support in the congress and support from the 
business and environmental community.
    Although the primary motivations for this bill are to help solve 
America's energy policy problems and reduce emissions, there are also 
large economic benefits of the bill.
     By reducing energy costs for businesses, which are tax-deductible, 
it will actually increase revenues to the Treasury over a 5-year 
period.Energy efficiency can be an excellent investment, with returns 
of 25% per year and better. By stimulating such investment, this bill 
will save businesses and families over $40 billion on net by 2010.
    The benefits of this bill grow over time, as more and more energy-
efficient buildings are constructed and the technologies for efficiency 
get cheaper and better due to competition.I want to close by saying 
that the solution to California and America's energy problems is not 
found on the supply side alone. We must address demand, and our bill 
will do that.I want to thank you for the opportunity to come before the 
Committee today. After swift enactment, we can all enjoy lower energy 
bills and a better environment.
                                 ______
                                 
   Prepared Statement of Hon. Peter A. DeFazio, a Representative in 
                   Congress from the State of Oregon

                              INTRODUCTION

    Chairman Barton, Ranking Member Boucher, and Members of this 
Committee, I appreciate the opportunity to testify here today on an 
issue that is of critical importance to the economy, the environment, 
and the quality of life in the Western United States--the errant 
electricity ``market.''
    Let me be clear at the outset, the energy debacle in the West is 
not just a regional problem requiring regional or state-specific 
solutions. Rather, the misguided energy deregulation wave set in motion 
by the U.S. Congress in 1992 is a threat to the well-being of the 
entire nation and will require leadership from the highest positions of 
power in our national government to solve.
    Unfortunately, the White House, the Department of Energy (DOE), and 
the Federal Energy Regulatory Commission (FERC) seem content to let the 
bloodletting and obscene profiteering continue unimpeded. I guess we 
shouldn't be surprised since the chief beneficiaries of this massive 
transfer of wealth from taxpayers to energy companies just happened to 
contribute huge financial sums toward the election of the current 
Administration.
    There is no excuse for the Administration and Congress to continue 
abdicating their responsibility to help solve the energy crisis.
    By way of background, I have been deeply involved in energy issues 
for more than two decades. In the late 1970s-early 1980s, I helped lead 
a group of residential ratepayer activists in halting the Washington 
Public Power Supply System's (WPPSS, pronounced ``Whoops'') nuclear 
power plant investments. These investments were such a colossal 
misjudgment that ratepayers in the Northwest are still paying for it. I 
fought President Reagan's attempt to push energy deregulation on 
unwilling consumers in 1987. I was also one of only two Conference 
Committee members and one of only 60 members of the House to vote 
against the 1992 Energy Policy Act. This law is responsible for 
allowing California and other states to get us into the mess we're 
discussing today.
    I will address the specific problems facing California and the 
Northwest shortly. But first, I want to provide some brief historical 
context for the current debate and describe the fundamental shortfalls 
of a deregulated energy market, which will continue to wreck havoc 
across the United States until policymakers come to their senses.

         HISTORICAL CONTEXT FOR ELECTRICITY DEREGULATION DEBATE

    The last time the United States had a deregulated electricity 
market was in 1932. Astute students of history will recognize this was 
during the Great Depression. Is that a coincidence? Perhaps, but it 
certainly did not help restore stability to the economy. Deregulation 
ended with the collapse of the ``Insull Empire'' (a huge multi-state 
conglomerate similar to today's Enron). The collapse threatened to 
blackout the entire industrial heartland of the Midwest.
    Franklin Delano Roosevelt described the situation in his 1933 book, 
Looking Forward. Since his words sound eerily relevant to today, it is 
worth quoting him at length:
          ``Through lack of vigilance in state capitals and in the 
        national government, we have allowed many utility companies to 
        get around the common law, to capitalize themselves without 
        regard to actual investment made in property, to pyramid 
        capital through holding companies and without restraint of law.
          The investing public did not realize then, as it does now, 
        that the methods used in building up these holding companies 
        were wholly contrary to every sound public policy . . . They 
        did not realize that some subsidiaries had been milked and 
        milked to keep alive the weaker sisters in the great chain. 
        They did not realize that there had been borrowings and 
        lendings, an interchange of assets, of liabilities, and of 
        capital between the component parts of the whole. They did not 
        realize that all these conditions necessitated terrific 
        overcharges for service by these corporations.'' 1
    Similarly, in a letter to Congress, President Roosevelt wrote:
          ``[The holding company] is a corporate invention which can 
        give a few corporate insiders unwarranted and intolerable 
        powers over other people's money. In its destruction of local 
        control and its substitution of absentee management, it has 
        built up in the public-utility field what has justly been 
        called a system of private socialism which is inimical to the 
        welfare of a free people.'' 2
    The same could be said of today's runaway holding companies like 
Enron, Dynergy, and others who have transferred billions in wealth from 
subsidiaries operating in California to the parent corporation while 
the subsidiaries then plead poverty to government officials and demand 
a taxpayer bailout. Seven out-of-state power producers operating in 
California had after-tax profits totaling $4.7 billion from April to 
December of 2000. For example, Duke Energy made $1.3 billion. Dynergy, 
$373 million. Enron, $928 million. And Reliant, $613 million. 
0
    Fortunately, in the 1930s, Congress quickly came to the rescue 
after the collapse of the Insull Empire in the 1930s through the 
creation of the New York State Power Authority in 1931, the Federal 
Public Works Administration in 1933, the Bonneville Power 
Administration in 1937, as well as enactment of the Tennessee Valley 
Act of 1933, the Public Utility Holding Company Act of 1935, the 
Federal Power Act of 1935, and the Rural Electrification Act of 1936. 
These laws set up the mixed federal and state regulatory structure that 
provided affordable, reliable electricity for the next 60 years, thus 
setting the stage for the economic boom years that soon followed.I fear 
this Congress and this Administration will not have similar foresight.
         fundamental miscalculations of deregulation proponents
    In discussions of energy policy, I often read or hear the line ``no 
one could have foreseen the current problems.'' I beg to differ. I and 
a small number of energy deregulation critics predicted just this sort 
of disaster.
    Actually, it is not widely known, but even the U.S. Department of 
Agriculture (USDA) predicted problems for rural America due to energy 
deregulation in a January 1999 report. This report was leaked to the 
press and subsequently buried in the bureaucracy under pressure by the 
DOE. The full report has still never been released. But, the 
conclusions in the leaked portion are as startling as they are 
instructive. The USDA projected electric rates would increase for 
residents of 19 states, including my home state of Oregon. The report 
also noted, ``Economic growth will slow under competitive pricing by up 
to one-half percentage point in those states that experience increases 
in electric utility rates under competitive pricing.'' 4
    Let me take a step back for a minute, beginning in the mid-1930s 
and for more than 60 years, utilities were regulated monopolies with a 
statutory and regulatory duty to serve customers. In return, utilities 
were allowed to charge rates to recover their investments in 
infrastructure and operational costs while also being allowed a 
reasonable profit (so-called ``cost-based-plus rates'').
    I agree there are a lot of things markets do very well. Reasonable 
price competition tends to allocate social and economic resources more 
efficiently than a command and control economy. Innovation is rewarded. 
Consumers are offered a broad array of choices.
    But, we know--or ought to know--that unregulated and under-
regulated markets have significant shortcomings. These markets lead 
directly to monopolies, price fixing and other uncompetitive practices. 
Markets also aren't very good at accounting for environmental costs.
    And, in the world of electricity, universal service was not a 
natural goal of the market, but rather had to be achieved through 
regulation. The same could be said of energy conservation today.
    As I've repeatedly stated, the fact that free markets are good 
doesn't mean that freer markets are always better. That is certainly 
true for the generation, transmission and distribution of electricity.
    In 1992, with little scrutiny or public attention, Congress adopted 
and President George H.W. Bush signed the 1992 Energy Policy Act. This 
legislation delegated tremendous power to FERC to mandate transmission 
and wholesale competition and opened the door for states to deregulate 
retail electricity. In 1996, FERC adopted sweeping rules mandating 
transmission deregulation and ushered in a new market in which 
independent energy generators could sell power to the highest bidder--
with no responsibility to serve residential consumers.
    Deregulation was based on two principal arguments. First, 
proponents argued consumers were demanding to ``choose'' their energy 
provider the same way they choose their long-distance phone provider. 
Second, they argued deregulation would create a more efficient and 
innovative marketplace that would not only bring huge savings to big 
business, which was pushing the scheme, but to all consumers.
    The first point was sheer fabrication. In hundreds of town halls, I 
was never once asked by a constituent that they be given the right to 
shop around for an electricity provider. And, why should they? When 
they flipped the switch, the lights came on. When they turned on the 
hot water, it flowed. When they received their electricity bill, it was 
reasonably priced. This lack of consumer interest has been borne out in 
states that have deregulated. In California, less than one percent of 
residential and small-business customers have opted to switch 
providers. Other states have experienced similar results.
    On the second point, not surprisingly, what sounds logical in an 
economics textbook doesn't work when put into practice.
    Of course, when we talk about deregulating the electric utility 
industry, we aren't talking about creating a truly unregulated free 
market. Electricity will still remain essentially a natural monopoly, 
with barriers to market entry extremely high. Besides the obvious 
downside of three or four competing sets of wires running down every 
residential street, there are equally obvious inefficiencies from this 
kind of competition.
    Rather, ``deregulation'' essentially replaces one rule book that 
was designed to promote social, environmental, and reasonable profit 
goals with another set of rules designed to create winners and losers 
while padding the bottom line of a few large corporations.

                WHAT'S WRONG AND NOT WRONG IN THE WEST?

    The media, energy experts, and many of my colleagues in Congress 
point to a host of causes of the California energy crisis, which has 
spread north to my home of Oregon and elsewhere in the Northwest and 
West.
    As is probably clear from what I've said so far, I place much of 
the blame on the 1992 Energy Policy Act and the state-level 
deregulations that followed.
    Let me address some of the most common sources of blame as 
described by deregulation proponents, which may contain a small nugget 
of truth, but are largely based in myth perpetuated by rigid ideology.
Consumer Price Caps:
    No one disputes the California State Legislature passed a 
deregulation law (AB 1890) in 1996 that included a retail rate freeze 
over the transition period, set to expire before March 31, 2002. Under 
the deregulation law, small consumers were guaranteed immediate rate 
reductions and promised future decreases. The quid pro quo was that the 
utilities could collect from consumers the ``stranded costs'' of 
unprofitable investments made under the regulated regime. At the time 
the rates were frozen, they were substantially higher than market 
rates. Thus, for several years the price caps people are pointing to 
now as destroying competition were actually artificially high price 
floors. The frozen rates, that many argue need upward revision, were 
50% higher than the average energy costs and have produced $17.6 
billion in excess revenue for two of the major energy companies. 
5
    The only area to truly deregulate both wholesale and retail prices 
was San Diego. For those who preach we can solve the ills of energy 
deregulation with still more deregulation apparently learned nothing 
from the unmitigated disaster in San Diego. As required by the original 
California deregulation legislation, price caps in the San Diego area 
were lifted after San Diego Gas and Electric's stranded costs were 
recovered from consumers. Thus, consumers in the San Diego did feel the 
full impact of the volatile energy market the past summer. The sudden 
and staggering increased energy expense caused consumers and businesses 
in that conservative part of the State to angrily demand immediate 
relief. In September, the California State Legislature capped San Diego 
rates once again in response to the ratepayer revolt.
    One argument against price caps is that they impair the free market 
to send price signals to consumers to conserve. The run-up in prices in 
San Diego, which at times reached 150 percent, should have caused a 
drastic reduction in energy use. In reality, the runaway prices 
resulted in only a 9 percent curtailment of energy consumption. 
6 Given the essential nature of energy for homes and 
businesses, a certain static level of demand exists regardless of the 
price. Economists refer to this as price inelasticity. An essential 
good which is price inelastic does not dramatically respond to 
increases in price. Another way of putting this is if we have a 50 
percent increase or 350 percent increase in residential utility bills, 
consumers can only conserve so much in the short-term and invest in 
energy efficiency for the long-term. One study found that--if all costs 
were passed on to consumers, the average residential monthly consumer, 
who paid approximately $55 a month before deregulation, would have paid 
approximately $600 a month when prices spiked in California this 
winter.'' 7
    I don't know about your district, but there aren't too many people 
in the 4th District of Oregon who could afford a $600 monthly ``price 
signal.''
    I would urge those who merely blame California for not ``fully'' 
deregulating because residential rate caps were maintained to go tell 
their own constituents in a town hall meeting that a $600 monthly bill 
is actually good for them because the price signal will cause them to 
conserve energy and help bring demand and supply into line. If anyone 
on the Committee is willing to do this, I'd be interested in a report 
back on what happens.
    The free market model which should send price signals is further 
complicated by a concentration of power in the hands of a limited 
number of energy producers and marketers. Without any type of 
protection, the incentives lie with profit-oriented utilities who can 
withhold energy generation, see market-prices increase, and then 
deliver huge returns to shareholders.
    In short, I think it is irrational and uninformed to argue that 
rate freezes, intended to protect consumers, are wholly or partially 
responsible for the California energy crisis. Further, I disagree with 
those who advocate for dramatically increased rates for Pacific Gas and 
Electric (PG&E) or Southern California Edison (SCE) customers.
California's Utilities are Bankrupt:
    California's investor-owned utilities claim they need approximately 
$12 million from either ratepayers or taxpayers to cover the expenses 
they incurred in the high wholesale energy market. An investor-owned 
utility in Oregon recently received a $2 million billing from the 
California Power Exchange (PX) to cover SCEs debt. SCEs assets have not 
been frozen nor has there been an effort to collect from the parent 
corporation. While no one can dispute a huge difference in the price 
California utilities paid for energy and the price they charged for 
energy, the need for a bailout deserves some serious scrutiny.
    First and foremost, it is important to note that PG&E and SCE did 
not completely divest themselves of all their generation capacity. Of 
the generation assets they sold, they received approximately three 
times book value. 8 The generation the investor-owned 
utilities retained was sold according to the rules of the California 
Power Exchange. During the first eight months of 2000, PG&E and SCE 
generated approximately $3 billion in revenues from generation they 
owned and sold through the California PX. The California restructuring 
plan allows the utilities to add those excess revenues to their 
stranded cost recovery fund. 9
    In addition to the fuzzy math dealing with stranded costs and 
revenues from retained generation, PG&E and SCE are wholly-owned 
subsidiaries of PG&E Corporation and Edison International. According to 
an audit commissioned by the California Public Utility Commission, PG&E 
transferred $4 billion to its parent corporation between 1997 and 1999. 
In addition, for the first nine months of 2000, PG&E transferred an 
additional $632 million to corporate headquarters. We see similar 
trends with SCE. The parent companies are refusing to use their vast 
resources to assist their subsidiaries. In the case of PG&E, the parent 
corporation created a ring fence in late December to shelter itself 
from the debts of its subsidiaries. 10
    PG&E and SCE supported the California deregulation law. One would 
assume that they also understood and assumed the risk inherent with the 
structure of the deregulated market, such as continually operating in 
the spot market. The audits of their financial situation revealed that 
both utilities made a series of business decisions which accelerated 
their current financial difficulties.
    While the investor-owned utilities are crying poor, independent 
energy generators are raking in huge revenues from the inflated market. 
Financial Times Energy Insight evaluated the revenue flow from four 
out-of-state generators and found a fivefold increase in revenues. 
11
    The take home message here is that we need to look closer at the 
real accounting behind the claims of PG&E and SCE. It is quite possible 
that the culmination of stranded cost recovery and record revenues from 
independent generators negate the need to raise consumer rates or 
impose an undue burden on taxpayers for a utility bailout.
Market Manipulation:
    Proponents of deregulation claim increased demand is the cause of 
power shortages. However, the facts disputes. For example, Data from 
the California ISO shows power demand during the last six months of 
2000 was actually lower in four of those months--July, August, October 
and December--than in the same period in 1999. Demand was only slightly 
above 1998 levels. 12 In addition, ``there have been 
blackouts when demand was less than 30,000 megawatts, approximately 
15,600 megawatts less demand than the peak amount of electricity needed 
in California in the summer.'' 13
    In addition to need for more scrutiny for utility bankruptcy 
claims, I also think Congress needs to exercise oversight on claims of 
market manipulation. Many critics of California's energy suppliers 
argue that suppliers are deliberately withholding generation to 
manipulate market prices. While the Federal Energy Regulatory 
Commission (FERC) recently released a study which failed to document 
collusion, other independent investigations are coming to opposite 
conclusions. Personally, I am skeptical whether the methodology used by 
FERC, which included phone calls, only three visits to plants in 
California, and visits to company headquarters in Texas, was rigorous 
enough to reach a final conclusion about market manipulation.
    An independent analysis of the potential market manipulation 
coauthored by an MIT Economics Professor concluded that there is 
considerable empirical evidence to support a presumption that high 
prices experienced in the summer of 2000 reflect a withholding of 
supplies from the market by suppliers. 14 The Wall Street 
Journal also reported that a Stanford economics professor who is a 
member of the Independent System Operators market-monitoring committee 
suspects market manipulation. 15
    Last month, the California Independent Systems Operator (ISO) 
reported 30 unplanned shutdowns. I recognize that all plants have to 
perform maintenance, and that a substantial amount of maintenance was 
deferred. However, in other deregulated wholesale markets, including 
New England, there is a documented increase in unscheduled maintenance. 
Based on New England ISO data, Synapse Energy Economics found that 
following deregulation, the average amount of generating capacity out 
of service each weekday increased by 47%. The same study indicates that 
forced steam plant outages, which account for a substantial amount of 
New England's power supply, doubled following deregulation. It 
shouldn't then be surprising that wholesale spot market rates reached 
all time highs following deregulation. 16
    Whether energy providers are deliberately manipulating the market 
or not, no one can dispute that in a deregulated market, generators 
have no duty to serve consumers. They also have no mandate to keep 
adequate resources in reserve. According to the California Energy 
Commission, the California Energy Grid typically had between 15 to 20% 
of excess capacity. Commission analysts project that a deregulated 
market will only result in a reserve margin of 7%. 17
    I support a wholesale energy market which prices power at cost, 
with a reasonable return margin, and requires energy producers to keep 
excess generation in reserve. Economics 101 will tell you that 
deregulation will not accomplish these goals. Under a deregulated 
system, what incentive exists to build excess generation to hold in 
reserve? When supplies are tight, prices go up as do profits. No 
rational executive would then build reserve generation to drive prices 
and profits down. That's heresy to free market ideologues.
Environmental Restrictions:
    Several weeks ago as I was traveling through my district I listened 
into a local talk radio program. The host kept asserting that 
environmental extremists were responsible for a power shortage in 
California by opposing new construction of power plants and imposing 
air quality standards on existing plants. I can only assume the talk 
show host was referencing plant siting processes and clean air 
requirements. While this makes for sensational talk show banter, it 
does not reflect reality.
    Take for instance the comments of major energy producers in 
California. In a January 25th Los Angeles Times article, the spokesman 
for a California energy marketer, Reliant Energy, stated that claims 
air quality restrictions were holding back output were ``absolutely 
false.'' In reality, only 100 megawatts of generation from a city-owned 
utility in Glendale, California was curtailed due to air quality 
concerns. The city utility still had plenty of power available to serve 
its customers and transmission constraints limited their ability to 
ship extra megawatts to Northern California. 18
    Critics of government regulation also point to long citing 
processes and opposition by environmental and community organizations 
to new plants as inhibitors to new energy generation. In the Coyote 
Valley, south of San Jose, the Sierra Club, American Lung Association, 
the NAACP, and Chamber of Commerce all supported the construction of a 
600 megawatt Metcalf Energy Center. It was not environmentalists who 
opposed this site, it was Cisco Systems and the San Jose City Council. 
19 California has 6,278 MW of new generation approved and 
ready for distribution by 2001, with an additional 6,734 MW currently 
under consideration. The price signals have already been sent. What's 
the use in further gouging consumers?
    The bottom line is that there are a lot of problems with the 
California deregulation framework. Environmental opposition is not one 
of them.
California Is An Anomaly:
    To date twenty-three state legislatures have approved some form of 
wholesale and/or retail deregulation. 20 Pennsylvania and 
Massachusetts are often pointed to as success stories for deregulation. 
The Pennsylvania plan is geared more towards retail deregulation than 
wholesale deregulation. The plan does not require generators to sell 
assets, allows long-term contracting, and freezes consumer rates. The 
highly acclaimed consumer choice program has only resulted in 11 
percent of Pennsylvania consumers choosing a different energy provider. 
21 The Pennsylvania plan also required consumers to pay 
utilities around $10 billion in stranded costs and capped residential 
retail rates for at least 10 years. That's not deregulation. Like San 
Diego, it is likely prices will spike when the caps are withdrawn.
    Massachusetts has also deregulated its electricity system, but high 
prices promoted FERC to impose rate caps for the New York and New 
England grid last year. 22 Interestingly, Massachusetts 
consumers are moving towards municipal aggregation in an effort to have 
more control over their energy supply and price. 23
    We all agree there are better models for deregulation than 
California. However, if every deregulated state imposes rate freezes 
for consumers and other regulations to make the ``market'' work, I 
wonder, why deregulate in the first place?
    This fundamental question might explain why several states, 
including Idaho and Utah have put their deregulation plans on hold. The 
promise of lower and more reliable energy from deregulation has yet to 
be realized. Instead, consumers and energy companies outside of 
deregulated states are beginning to feel the impact of volatile energy 
markets though higher energy costs and difficulty attracting capital 
for new investments.
Future:
    Last month I attended the Western Governors Association meeting on 
the West Coast energy crisis. Eight of eleven Western Governors 
advocated for a short-term return to cost plus energy rates until the 
West Coast energy markets returned to normal. Many of the panelists, 
including FERC Chairman Curt Hebert and executives from Enron, Dynergy, 
and Edison Electric adamantly opposed these rate caps seeing them as 
the cause instead of the cure to these prices. Let's be honest here for 
a minute. Everyone in this room knows that the exorbitant increases in 
energy will negatively impact consumers, small business, and big 
industry. Politicians will make accommodations to protect those 
interests. So in California, the state is bailing out utilities by 
entering into long-term contracts with marketers. In the Northwest, 
local utilities and federal power marketing agencies are paying 
industry to not use power. While folks are saying let the free market 
work what I see is a privatization of the profits and a socialization 
of the risks. Energy generators continue to profit from the volatility 
and uncertainty of the wholesale market while taxpayers and ratepayers 
bail out business interests. Is this really the free market working?
    For years the Northwest and California have had a symbiotic 
relationship which has minimized the need to overbuild the energy 
infrastructure. In cold winter months, the Pacific Northwest has 
imported California power while returning the favor as California's 
temperature rises in the summer. When California's markets went 
berserk, the Pacific Northwest had to purchase power in that inflated 
market. Utilities in Washington and Oregon have already raised rates 
between 15 and 50%. Given a drought and federally imposed salmon 
recovery constraints, the Bonneville Power Administration is proposing 
between and 60 and 160% rate increase. This is in addition to what has 
already been approved. While I recognize that Northwest energy rates 
are some of the lowest in the county, a doubling of rates in a two year 
time frame is crippling.
    The California crisis is clearly affecting Washington, Oregon, 
Montana, Idaho, Arizona, and New Mexico. Policymakers in Congress and 
the Administration can not continue to sit idle while businesses are 
losing millions of dollars in revenues and consumers are experiencing 
financial distress caused by increased energy costs.

                         WHAT IS THE SOLUTION?

    Let me briefly touch on what will not solve the energy crisis in 
the West. I find it totally disingenuous and incredibly insulting that 
Secretary Norton and others are using the West Coast energy crisis as 
an excuse to develop oil in the Arctic National Wildlife Refuge. There 
is absolutely no correlation.
    Drilling in general will not solve the crisis, which is not 
fundamentally about demand.
    So what is the solution?
    I have introduced legislation, HR 264, to repeal FERC orders 888 
and 889. This would return the U.S. to the pre-1992 system of regulated 
utility monopolies and cost-based-plus pricing. Support is building for 
re-regulation, which is the best long-term solution. To those who say 
we're already too far down the deregulation road, I would offer the 
analogy provide by Jude Noland in a recent column in the newsletter 
Clearing Up, ``That's like saying you can't turn around when you come 
to a `road-closed--bridge out' sign on the highway.''
    I would urge my colleagues to support HR 264.
    If Congress is not ready to admit energy deregulation was a 
mistake, there other short-term and long-term steps that can be taken 
to mitigate the unfolding disaster.
    First, temporary price caps must be imposed in the West. Despite 
President Bush's rhetoric about the need for California to solve its 
own problems, temporary price caps can only be imposed by his 
Administration through FERC. FERC Commissioner William Massey supports 
price caps and has reminded his colleagues, so far without success, 
that FERC has a statutory obligation to ensure prices are ``just and 
reasonable.'' Prices should be based on the cost of generation, plus a 
reasonable profit. Profits made through unreasonable pricing should be 
refunded to ratepayers.
    Second, we must dramatically expand federal investment in 
alternative and renewable energy. My region is already contributing to 
this effort. The Bonneville Power Administration just announced a five-
year, $200 million investment in conservation and renewable energy 
efforts. Solar and wind generation, fuel cell technology, and biomass 
all have the potential to produce vast amounts of clean, reliable, 
affordable electricity. Congress should mandate a certain percentage of 
electricity generation come from renewable sources.
    Third, conservation efforts must be expanded. Oregonians have 
already gotten price signals and are trying to do our share. 
Consumption in Oregon and Washington declined by 2-4 percent in 
December and January. Even Californians cut energy usage by 8 percent 
last month. The conservation effort should also include increasing CAFE 
standards.
    Fourth, Congress must reinstate the ban on Alaskan oil exports. I 
have introduced legislation, H.R. 660, with Representative Hooley to do 
just that.
    Fifth, Congress must expand assistance for those who have been 
hardest hit by volatility in energy markets. This should include 
increased funding for LIHEAP, the Weatherization Assistance Program, 
and the State Energy Program.
    Sixth, Congress should impose a Windfall Profits Tax on energy 
companies whose rates are found not to be ``just and reasonable.'' This 
would remove the incentive for market manipulation.
    Finally, Congress should create incentives and/or remove barriers 
to promote public and municipal power. When much of California was 
suffering through rolling blackouts, the 30 percent of Californians 
with municipal power were not hurt. In fact, the public power agency in 
Los Angeles had a surplus of power to sell. While rates in San Diego 
soared to $138.50, prices in L.A. were around $50 a month. Government 
is often demonized, but energy generation and distribution is one 
activity public agencies in California have done with more reliability 
and at a lower cost than the private market.
    Again, I appreciate the opportunity to share my views with you. I 
would be happy to answer any questions you might have.

                                Endnotes

    1 Roosevelt, Franklin. Looking Forward. The John Day 
Company. New York. 1933. Pages 148-149.
    2 Higley, Charlie. ``Disastrous Deregulation.'' Public 
Citizen. December 2000. www.citizen.org
    3 Public Citizen. ``Billion-Dollar Bailout Would Still 
Allow Profiteering Power Producers to Call the Shots.'' January 24, 
2001. www.citizen.org
    4 U.S. Department of Agriculture, Office of the Chief 
Economist. Electric Utility Deregulation: Rural Effects. January 1999.
    5 The Utility Reform Network. ``Cooking the Books.'' 
October 18, 2000. www.turn.org
    6 ``Why San Diego, Where Rates Rose First, No Longer 
Conserves Energy.'' The New York Times. January 31, 2001. 
www.nytimes.com
    7 Hauter, Wenonah and Tyson Slocum. ``It's the Greed 
Stupid! Debunking Ten Myths of Utility Deregulation.'' Public Citizen. 
January 2001. www.citizen.org
    8 California Energy Commission. ``Electric Divestiture 
in California.'' December 29, 1999. www.energy.ca.gov
    9 ``Review of PG&E Company Financial Condition for the 
California Public Utilities Commission.'' Barrington-Wellesley Group. 
January 30, 2001. ``Report to California Public Utilities Commission.'' 
KPMG. January 29, 2001.
    10 Ibid.
    11 www.latimes.com/business/reports/power/
lat__profits001209.htm
    12 Public Citizen. ``The Facts Are In: Electricity 
Demand in California Was Lower Four of Past Six Months Than in 1999.'' 
January 19, 2001. www.citizen.org
    13 Hauter, Wenonah and Tyson Slocum. ``It's the Greed 
Stupid! Debunking Ten Myths of Utility Deregulation.'' Public Citizen. 
January 2001. www.citizen.org
    14 Joskow, Paul and Edward Kahn. ``A Quantitative 
Analysis of Pricing Behavior in California's Wholesale Electricity 
Market During the Summer 2000.'' Http://web.mit.edu/pjoskow
    15 ``For Power Suppliers, the California Market Loses 
Its Golden Glow.'' The Wall Street Journal. January 25, 2001.
    16 Synapse Energy Economics for the Union of Concerned 
Scientists. ``Generator Outage Increases.'' January 7, 2001.
    17  California Energy Commission. ``Summer of 2001 
Forecasted Electricity Demand and Supplies.'' November 20, 2000.
    18  ``Bush's Idea of Easing Smog Rules Won't Help, 
Experts Say.'' The Los Angeles Times. January 25, 2001.
    19  ``Turning on the Juices.'' The San Francisco 
Chronicle, web edition. January 30, 2001.
    20  www.eia.doe.gov/cneaf/electricity/chg__str/
regmap.html
    21  http://puc.paonline.com
    22  www.state.ma.us/dpu/restruct/competition/
index.htm#BACKGROUND
    23  www.appa.org
                                 ______
                                 
 Prepared Statement of Hon. Richard A. Gephardt, Democratic Leader and 
             Hon. Martin Frost, Chairman, Democratic Caucus

    We want to thank the Committee on Energy and Commerce and the 
Subcommittee on Energy and Power for calling this hearing today. Since 
early 2000, we have been reminded that unstable energy prices and 
supplies pose a tremendous threat to even a strong economy. The 
situation in California and the sharp rise in home heating costs this 
winter, underscore that energy is one of the most important issues 
facing the Congress this year. High prices and unreliable supplies have 
an immediate affect on the quality of life of every family and the 
success of every business. Our goal should be to attack this problem on 
all fronts, and to do so in a manner that provides the most help to 
consumers today. The energy proposals put forward by the Bush 
Administration fail on both points.
    We cannot endorse an energy policy that relies solely on drilling 
in the Artic National Wildlife Refuge as the answer to all that ails 
us. We cannot endorse an energy policy that ignores conservation, 
shortchanges research and development, and limits the funds for 
weatherization and low-income energy assistance. We hope we can work 
together, Democrats and Republicans, North and South, East and West, to 
forge a policy that will reflect national realities in the 21st 
Century.
    The Democratic Caucus Energy Task Force will work in tandem with 
and in cooperation with our Democratic colleagues on this Committee and 
the other committees with jurisdiction over the various components of 
energy policy. It is also our hope to work with Vice President Cheney 
and other Republican leaders to find common ground on energy policy to 
benefit American families.
    We recognize that our current energy situation is the result of a 
myriad of interconnecting factors that cannot be resolved with a quick 
fix. However, we do believe there are short-term solutions that can 
help consumers in the months ahead.
    It is for that reason we must seriously question the priorities of 
the new Administration when their budget affectively cuts the 
Department of Energy's (DOE) non-defense programs over ten percent. 
During the Fall campaign, President Bush called for a doubling of funds 
for the low income weatherization program. His budget unfortunately 
falls $40 million short of that goal in 2002 alone--and $450 million 
short over ten years. In fact, the Bush plan simply restores the 
program to the level it was at under the Clinton Administration, before 
it was severely cut when Republicans took control of Congress in 1995. 
Absent these shortsighted cuts, DOE has estimated that an additional 
250,000 homes would be weatherized today. These 250,000 families--who 
get nothing under the Bush tax plan--would be saving hundreds of 
dollars per family per year.
    Despite his campaign statements in support of the LIHEAP program, 
that helps the low-income families pay their heating and cooling bills, 
the Bush Budget is silent on LIHEAP funding. The only reference to 
LIHEAP in the budget notes how LIHEAP funds can be diverted to the 
weatherization program. It raises the question whether the 
Administration plans to pay for its increase in weatherization at the 
expense of LIHEAP. Today, despite record high prices and recent winter 
storms, fewer than one in three eligible families get LIHEAP assistance 
because the program is not fully funded.
    In this regard, we encourage this Subcommittee to take up and pass 
H.R. 683, the Emergency Energy Response Act of 2001, which was 
introduced by Congressman Markey and and Congressman Frost and which is 
supported by a wide range of Members of the Democratic Caucus. This 
legislation substantially increases funding for LIHEAP and 
weatherization, increases funding for state energy programs, requires 
federal facility managers to immediately evaluate opportunities to 
increase energy efficiency and installation of renewable energy 
projects, and which strengthens the Federal Energy Management Program, 
which promotes greater energy efficiency in the federal government's 
use of energy. This is a constructive first step and we urge to act on 
it soon.
    We believe the Congress must address infrastructure deficiencies, 
the new relationships between the states and the federal government, 
tax policies that can encourage production and construction of new 
facilities to produce energy, policies that can reduce the demand for 
oil, as well as how we can ensure an adequate supply of fuels to 
produce the energy this country needs.
     For example, natural gas is the fuel of choice for most new 
electricity generation plants coming on line or in the planning stages. 
Reserves of this fuel are all but depleted, but at the same time there 
is an abundant supply waiting to be tapped. In the vicinity of Prudhoe 
Bay on the Alaskan North Slope there is an estimated 32 to 38 trillion 
cubic feet of natural gas ready for development--all in an area that 
does not compromise the environment. While the infrastructure to bring 
this fuel south has yet to be put into place, this is an area well 
worth exploring considering that the U.S Geological Survey has 
estimated that with additional exploration, the potential could be 
double the current estimate.
    The Bush budget is silent on improving the integrity of our 
pipeline systems, other than to propose to continue to charge pipeline 
owners tens of millions per year to cover the cost of an inadequate 
federal safety inspection system. Pipeline accidents killed 17 people 
last year. These mishaps contributed to major energy supply disruptions 
in multiple regions of the country. This failed safety system costs 
money and costs lives.
    President Bush campaigned as a supporter of conservation and 
renewable energy, but his energy budget will compel major cuts in these 
programs. In fact, the Bush budget states that any increase in solar 
and renewable programs will only come if drilling is allowed the Arctic 
Wilderness. Even if this controversial drilling proposal became law, 
solar and renewable programs would have to wait another three years 
before getting even a dime even by the Administration's own estimate.
    According to the Rocky Mountain Institute, since the 1970's, 
America has saved more than twice as much energy through conservation 
and improved efficiency than was produced from new sources. Despite 
that fact, the Bush Administration's ``comprehensive energy policy'' 
described in their budget does not even use the words ``conservation'' 
or ``efficiency.'' This is a particularly glaring omission when many 
meaningful conservation and efficiency measures can be put in place as 
quickly as it takes to change a light bulb. We do not need to tell the 
consumers in California--or in other parts of the Country facing tight 
energy supplies and rolling blackouts this Summer--there is nothing we 
can do to help when we could be taking the lead on making our economy 
more energy efficient today.
    This is just the beginning of a vigorous debate on energy policy. 
Democrats intend to join in a constructive dialogue to find real 
solutions to our energy problems. Solutions that help working families 
and truly contribute to making us energy independent. In the months 
ahead, we look forward to working with this Subcommittee and the other 
Committees of the House to formulate a policy that will benefit all 
Americans.
                                 ______
                                 
Prepared Statement of Hon. Duncan Hunter, a Representative in Congress 
                      from the State of California

    Chairman Barton, members of the Subcommittee, I would like to 
extend my appreciation for the opportunity to be here today to provide 
testimony on the electricity crisis currently impacting my home state 
of California. Further, I thank you for your continued willingness to 
examine this matter and I know that you share the view that this crisis 
must be given every priority if we are expected to help reestablish a 
properly functioning power market in California.
    Mr. Chairman, I believe that one of the prevailing themes that the 
Subcommittee will receive today is that the electricity problem in 
California is an emergency, and it is a crisis that is bigger in 
proportion than any natural disaster our State has ever experienced. 
The startling element associated with this problem is the staggering 
amount of life savings and business capital that is gone forever. This 
is money that could go to mortgage payments, to educate children, and 
in the case of small businesses, money that has already left our local 
economies that may have otherwise served to further stimulate our 
State's financial growth.As you know, one of the central issues to this 
dilemma is the inability to establish enough power generation in 
California to meet our ever-increasing electricity needs. To help 
remedy this situation, I am introducing separate pieces of legislation 
that would provide the authority to expedite and expand the siting and 
operations of electricity producing facilities of all sizes. More 
precisely, my legislation would provide the following:

1) the statutory authority necessary for the President to suspend all 
        applicable siting and emissions compliance requirements for the 
        purpose of establishing new electricity generation capacity in 
        any State experiencing a power crisis; and
2) the ability for any individual or business, during designated times 
        of emergency, to operate any independent source of generation, 
        with any sort of fuel available, until the emergency has 
        subsided.
    Mr. Chairman, I recognize the profound and ambitious nature of 
these proposals, but I believe that this level of action is more than 
warranted. In the absence of a properly functioning market, which has 
allowed for the major power generators selling into California to 
establish a monopoly that is every bit as effective as anything John D. 
Rockefeller could have conceived, our cities, businesses and private 
citizens must have the ability to develop electricity independence.
    In closing, I would implore this Subcommittee to consider all 
proposals designed to establish and expand all possible sources of 
electricity generation. Our consumers cannot, under any circumstances, 
be expected to be held hostage by an electricity market that has 
witnessed price increases which have exceeded 9,000 percent in a matter 
of hours.
    Thank you, Mr. Chairman, and members of this Subcommittee, for the 
opportunity to provide this testimony. I am confident that if we pursue 
this matter in an aggressive and expedited manner, we can provide 
California with the resources necessary to help stabilize its 
electricity industry before the existing crisis deteriorates any 
further.
                                 ______
                                 
Prepared Statement of Hon. John B. Larson, a Representative in Congress 
                     from the State of Connecticut

    Mr. Chairman, I would like to thank you for calling this hearing to 
allow members to discuss the current California energy crisis and other 
issues generally related to energy efficiency. I am sure that 
throughout the day you will be hearing testimony from many Members 
about the problems in California at this time and the desperate 
situation individuals and business have been subjected to. However, I 
hope to bring before the Committee and my colleagues from the western 
United States a potential solution to many of the current energy 
problems facing California and its neighboring states.
    The problems in California did not develop in a vacuum. Ever since 
the people of the First District of Connecticut first sent me to 
Congress I have been fighting with the help of many of my colleagues to 
begin a serious debate about energy policy reform in this country. 
Since I was sent here in 1998, energy prices in New England have risen 
over 200 percent for home heating oil, and natural gas, diesel, and 
gasoline have also all seen significant increases. That is why we have 
been fighting so hard for programs like the Strategic Home Heating Oil 
Reserve now established in New England to head off emergency in the 
heating oil market, and increased LIHEAP assistance for eligible 
individuals.
    Fortunately for Connecticut's consumers and businesses and unlike 
California, electricity prices have remained stable during this time 
because Connecticut allows for long-term contract purchasing of power 
under its deregulated electricity market, and provides incentives that 
make generating electricity more attractive than attempting to purchase 
it on the open spot market. However, it is only a matter of time before 
the overall inflation of energy costs, particularly those related to 
electricity generation, will catch up with the northeast as well. As 
the California situation is reminding us, there are no real short-term 
solutions for long-term problems.
    That is why I introduced HR 5585, the Energy Independence Act, 
toward the end of the 106th Congress, to begin to address these issues 
and the fundamental weaknesses beginning to show in America's energy 
infrastructure. I am working to reintroduce the legislation targeting 
development of fuel cell technology again soon, and I believe that this 
technology and my legislation could provide immediate and beneficial 
effects improving the energy and environmental outlook of California 
and the United States as a whole.
    Specifically, my legislation would invest approximately \1/60\ of 
the nation's total yearly expenditures in 1999 and \1/120\th of 2000's 
expenditures on foreign oil to develop and demonstrate fuel cell 
technology that can power our homes, businesses, and vehicles over the 
next five years. My bill calls for a $1 billion 5-year investment that 
should eliminate our reliance on foreign energy sources by 2010 and 
improve world environmental conditions by reducing overall consumption 
of fossil fuels and the harmful chemical emissions they produce. It 
authorizes a federal purchase programs for commercially available 
stationary fuel cell power systems and demonstrations of new Proton 
Exchange Membrane (PEM) technology for residential, commercial and 
transportation applications including transit vehicles. In addition, it 
would establish a grant program for states and local municipalities to 
help local communities incorporate this new technology into their 
overall energy portfolios.
    I believe that government action is necessary at the state and 
federal level to help defray the high introductory costs of fuel cell 
technology at this time and accelerate their commercialization. A 
federal tax credit, such as the one proposed by my colleague Nancy 
Johnson, as well as grant programs for federal facilities and 
municipalities will increase volume and thereby reduce overall costs, 
making the technology more available so its many benefits can be 
enjoyed by the general public. State and federal government purchases 
of fuel cells represent another means to deploy the technology while 
enhancing public safety and ensuring critical energy loads are served 
with reliable, clean energy sources. The government can also help to 
eliminate barriers to distributed generation so fuel cell technology 
can compete with existing power generating sources.
    The government must play a role in this transition for several 
reasons. First and foremost, it will provide for the security of the 
country in both economic and military terms by eliminating our reliance 
on foreign energy sources. Second, we have a responsibility to our 
seniors and to other people living on fixed incomes to see that they 
have opportunity to live within their means without being forced to 
choose between putting food on their tables, gas in their cars, buying 
oil to heat their homes, or buying electricity to power their homes. 
Third, there is the opportunity within the government's infrastructure 
to most easily begin a widespread integration of this technology. 
Fourth, the spread and use of this technology has the opportunity to 
create a contribution in economic growth and in job creation every bit 
as significant as the development of the high tech industry during the 
last decade. Further, as government regulations increasingly call for 
stricter clean air and other pollutions limits, fuel cells can provide 
an effective way for states and communities to meet these new 
environmental challenges.
    Many people would argue that the problems in California stem from 
underestimating projected energy demands and a deregulation program 
that failed because it capped retail sales to consumers and prevented 
long term contacting. Regardless of the cause, California must increase 
its power generating capability by thousands of megawatts, an increase 
it is expected to take 1-3 years to deploy, select, and become 
operational.
    There are clear benefits in using fuel cell technology to address 
the California energy situation that can also be applied in other areas 
throughout the country. First, as a distributed generation technology, 
fuel cells address the immediate need for secure and adequate energy 
supplies, while reducing grid demand and increasing grid flexibility. 
Fuel cells can be used by electric utilities to fill load pockets when 
and where new large-scale power plants are impractical or cannot be 
sited. Fuel cell systems also avoid the costly and environmentally 
problematic installation of transmission and distribution systems. 
Commercially manufactured fuel cell power plants can be sited in a few 
months period of time and can provide continuous, reliable power 
without the need to roll back existing environmental requirements.
    Second, Fuel cell power plants provide a constant source of power 
that can be used for base load applications. Unlike other 
environmentally favorable solutions, fuel cells can be used as a 
continuous source of base power--independent of time-of-day or 
weather--for critical facilities, thereby offloading current strains on 
existing demand.
    Third, fuel cells represent an environmentally favorable solution, 
with near-zero emissions--positively impacting the State's air quality 
objectives, particularly as compared to less efficient, polluting 
alternatives. When operating at its rated power, a single 200 kW PC25 
fuel cell power plant, manufactured by International Fuel Cells (IFC) 
and currently the only commercially available unit, eliminates an 
average of more than 40,000 pounds of air pollutants including 
NOX and SOX and two million pounds of 
CO2 emissions per year otherwise emitted by typical US 
combustion-based generators.
    Fourth, fuel cells are a highly efficient technology that uses an 
electro-chemical reaction to generate electricity and are inherently 
more efficient than combustion-based systems. In the electricity-only 
mode of operation, the IFC PC25 unit achieves approximately 40 percent 
efficiency. When the waste heat from the fuel cell is utilized, the 
system's efficiency reaches 87 percent. In addition, fuel cells can be 
installed at the point of use thus eliminating transmission line losses 
and enhancing their overall efficiency, providing power at the point-
of-use, thereby alleviating the load on the existing transmission and 
distribution infrastructure, and eliminating or minimizing the need for 
additional investment in the existing transmission and distribution 
network.
    Fifth, the use of fuel cells helps to diversify California's and 
the country's energy market. Fuel cells can operate with a variety of 
fuel sources, but most commonly use natural gas. For example, fuel cell 
systems have been developed that use anaerobic digester gases from 
wastewater treatment facilities as their source of energy. These 
applications are particularly significant since they avoid the flaring 
of methane--a potent greenhouse gas that contributes to global 
warming--and the need to use a fossil fuel energy source. This 
employment of fuel cell technology is currently in use at the Rancho 
Las Virgenes Composting facility in Calabasas, California outside of 
Los Angeles, the first installation of its kind in California and the 
fourth in the United States. Similar systems also manufactured by 
International Fuel Cells in South Windsor, Connecticut, are also 
operating in Germany and Japan. A total of Eight PC25 units are 
currently operating in California, including power plants at a hospital 
in Riverside, a hotel in Irvine, a jail in Santa Barbara, and the South 
Coast Air Quality Management District Headquarters outside Los Angeles 
in addition to the one in Calabasas.
    Finally, the compact size, low noise and near zero emissions allows 
a fuel cell system to be readily absorbed into communities and 
neighborhoods. Unlike many other forms of power generation, fuel cell 
power plants are good neighbors to concerned citizens. For example, a 
PC25 installation in New York City is located inside the Conde Nast 
skyscraper at 4 Times Square, where it provides 5 percent of the 
building's electrical needs and the waste heat is used to run the air 
conditioning. The fuel cell system also provides critical backup power 
in case the grid fails.
    While fuel cells cannot supply enough power in the short term to 
solve the entire power supply needs of California, they can be deployed 
strategically to ensure that critical services and operations have a 
secure, reliable, efficient and clean source of energy. High priority 
should be given to the installation of fuel cells in assured power 
applications involving emergency services, public safety, health care, 
communications and data processing operations. Leading industry 
officials have assured me that 20 to 40 megawatts of new fuel cell 
power supply could be available to California for such applications in 
the next 18-24 months.
    In conclusion, I believe that implementation of fuel cell 
technology could significantly improve California's immediate energy 
needs and their extraordinary efficiency would improve the overall 
national energy portfolio. This technology has been with us since it 
was first used to power the Gemini and Apollo spacecraft, and is still 
powering NASA's fleet of space shuttles. It has finally matured to a 
point where stationary power plants are providing reliable commercial 
power today and is prepared to demonstrate its advantages to the 
general public in clean, quiet, and efficient residential, bus, and car 
applications.
    Fuel cell technology presents us with an extraordinary opportunity, 
at a critical time in this country's development. I believe we stand 
now on a fundamental crossroad in this country where we have the 
ability to provide for the economic and national security of the nation 
by integrating this new technology into our economy. As you move 
forward with potentially compatible programs under your jurisdiction, I 
urge you to consider integrating fuel cell technology to meet your 
energy and energy efficiency requirements. Your leadership at this 
critical juncture in our nation's history can profoundly improve the 
security and independence of every American, and provide a safer, more 
secure, more productive, and cleaner environment for generations to 
come. We must not allow this opportunity to be lost.
    Thank you again Mr. Chairman and members of the Subcommittee for 
you efforts in this important area.
                                 ______
                                 
 Prepared Statement of Hon. Bill Luther, a Representative in Congress 
                      from the State of Minnesota

    Thank you Mr. Chairman for holding this hearing today so we can all 
better understand and learn from the events in California over the past 
few months. I am pleased that there are so many members from the West 
Coast testifying today and offering their unique perspectives on the 
issue. I come from Minnesota, a state that has not moved toward 
restructuring legislation at the state level. This committee would be 
well served to continue these types of hearings in an attempt to 
analyze what some states did better than others as they moved toward a 
restructured market. This type of analysis should prove helpful as this 
committee attempts to produce a comprehensive national energy policy. 
Thank you Mr. Chairman, I look forward to the testimony.
                                 ______
                                 
 Prepared Statement of Hon. Butch Otter, a Representative in Congress 
                       from the State of Indiana

    Thank you, Chairman Barton and Ranking Member Boucher, for inviting 
me to testify today before the Energy and Commerce subcommittee about 
the growing energy crisis we now face in the West. Let me say it 
again--this is an energy crisis in the West--not just in California. 
While almost all of the media and legislative attention has focused on 
California citizens' inability to meet their growing demand for 
electricity, I am here representing 600,000 people in an area of Idaho 
that is on the forefront of this growing crisis. And, it's time for 
straight talk.
    I read recently that California's three major electric utilities 
have accumulated debts totaling $1 billion. This debt includes millions 
of dollars owed by California's utilities to Idaho Power Company, and 
other major power producers in the Pacific Northwest. That is money 
that will undoubtedly be made up through huge rate increases to 
families, rural towns, farmers, and industries that provide jobs to 
thousands of Idaho citizens. At this point, Idaho power users could 
face rate increases from 24 to 55 percent in the next few months. 
Farmers, already suffering from record low agricultural prices for 
their products, will also face additional costs to pump irrigation 
water this spring and summer. Mills and factories have already been 
forced to shut down or lay off workers because of they high electricity 
costs.
    Meanwhile, water and snowpack levels in Pacific Northwest 
reservoirs--the same water that is necessary to irrigate crops, improve 
endangered fish runs, provide for recreation, and which generates 
electricity--is at a dangerously low level. Federal dams are now 
spilling water that should be available for the region's needs later.
    Mr. Chairman, the current drought and power crisis have 
demonstrated the importance of hydropower to the energy needs of the 
west. Hydropower is cheap, clean and renewable, all elements we need in 
our 21st century needs. California receives 24 percent of its energy 
capacity from dams. In the entire West more than 25,000 Megawatts (MW) 
of capacity are supplied by non-federal facilities. These hydropower 
supplies, however, are threatened by the Federal Energy Regulatory 
Committee's (FERC) stringent re-licensing process.
    In 1986 Congress mandated that FERC give ``equal consideration'' to 
environmental and economic factors during relicensing. Unfortunately, 
equal consideration has been interpreted to consider economic factors 
last during relicensing. Since 1987 the average FERC relicensing has 
caused 10 percent of peak generating capacity to disappear.
    I believe that steps must be taken to ease the FERC relicensing 
project in order to protect our energy supplies. Mr. Chairman, you and 
Mr. Towns deserve to be congratulated for your efforts last Congress to 
bring regulatory reform. I look forward to working with you and my 
fellow Idahoan Senator Craig to make FERC reform a reality.
    FERC reform is good for the environment. Right now every watt of 
power lost from hydro projects is replaced by the burning of fossil 
fuels. FERC relicensing will enable power producers to make more 
extensive use of mitigation banking, enhancing the environment while 
protecting energy supplies.
    In addition to regulatory streamlining, we must take steps to 
expand our hydroelectric capacity. The United States Department of 
Energy estimates there are more than 10,000 MW of generating capacity 
that can be added at existing dams. Tax credits for producing renewable 
electricity and adding generating capacity to dams that lack it will 
enable us to meet more of our energy needs in a safe and 
environmentally friendly way. Currently Bonneville Power Administration 
(BPA) is paying farmers $75 per megawatt hour not to use their electric 
pumps. Surely that money would be better spent on generating the extra 
power to keep our farms and businesses in operation. Renewable energy 
credits could be extended to wind, solar and nuclear plants as well. 
All of these additional sources of power will help alleviate the 
current crisis, and help build a long-term and stable national energy 
policy.
    Thank you again Chairman Barton for asking me to testify.
                                 ______
                                 
Prepared Statement of Hon. Jim Ryun, a Representative in Congress from 
                          the State of Kansas
    I want to thank the Chairman and subcommittee members for holding 
this important hearing on current energy issues and for providing 
members the opportunity to testify on our nation's energy policy. I am 
grateful for the opportunity to speak on behalf of my constituents in 
the Second District of Kansas and to offer my perspective on our need 
for a comprehensive energy policy.
    As we all know, this winter season has been especially difficult 
for natural gas customers. Senior citizens and others on fixed incomes 
simply can not keep up with the cost of rising natural gas bills. For 
example, at a January hearing before Kansas lawmakers a seventy-seven 
year-old man from my district who suffers from cerebral palsy testified 
that he simply could not afford to pay his $636.72 gas bill. Another 
constituent gave lawmakers a copy of her January electric and gas bill 
totaling $1,785.09. Mr. Chairman, I know these stories are not uncommon 
to the rest of the country. They also underscore the vital importance 
of the Low-Income Home Energy Assistance Program.
    In addition, our nation's farmers are also affected by the impact 
of skyrocketing natural gas prices. Farmers will especially feel the 
impact this spring when they will have to pay up to one-third more to 
fertilize spring crops. The high cost of natural gas has forced several 
fertilizer plants to curb production or shut down temporarily. 
Fertilizer companies use natural gas to produce ammonia, which is 
converted into nitrogen fertilizer. America's farmers are already faced 
with low commodity prices. They can not afford to endure high natural 
gas prices.
    Clearly, a combination of factors has contributed to high natural 
gas prices. Increase in demand caused by a hot summer and cold winter 
combined with a decrease in drilling as a result of low commodity 
prices two years ago contributed substantially to high natural gas 
prices.
    However, while supply and demand will always control prices, we can 
support and promote a national energy policy intended to curtail high 
energy costs in the future by increasing supply.
    This winter has proven the danger of our heavy reliance on natural 
gas. Prices for natural gas have soared faster than any other energy 
source. It is vital that we take advantage of additional sources to 
supply our energy needs. Clean coal, for example, is certainly a viable 
alternative to natural gas for electric generation. A comprehensive 
energy policy should include support for clean coal technologies.
    In addition, we need an energy plan that promotes domestic oil and 
gas production and decreases our dependence on foreign suppliers. 
Unfortunately, the energy policy we inherited from the previous 
administration failed to reduce our dependence on foreign oil as we 
remain 56 percent dependent on foreign sources for our oil supplies. 
Clearly, we cannot continue to bow to the demands of the OPEC cartel 
and remain subject to oil supply interruptions. That is precisely why 
we need to increase exploration of our own domestic resources.
    Alaska's Arctic National Wildlife Refuge alone contains at least 16 
billion barrels of recoverable oil. Opening this area to oil 
exploration, development and production that is done in an 
environmentally sensitive manner would greatly increase our domestic 
supply and help meet growing demand. In addition, we could increase 
domestic production of natural gas by easing restrictions on national 
forests and other Federal lands that contain natural gas reserves.
    Moreover, we can encourage energy conservation by extending the 
wind tax credit to include electricity produced from biomass, 
agricultural and animal waste, incremental hydropower, geothermal, 
landfill gas and steel cogeneration. We can also explore more 
opportunities for nuclear power production as it serves as a one of the 
cleanest sources of energy.
    I am pleased by efforts made in my state of Kansas to provide 
immediate relief to natural gas consumers faced with exorbitant energy 
bills. However, we in Congress must provide the leadership in 
implementing a long-term energy policy that meets the growing energy 
needs of our nation while reducing our dependence on foreign supplies.
    I want to thank you, Mr. Chairman, and the Committee for the 
opportunity to testify on this very pressing issue and for hearing my 
views. I look forward to working with you in the future to promote a 
sound energy policy for our nation.
                                 ______
                                 
 Prepared Statement of Hon. Max Sandlin, a Representative in Congress 
                        from the State of Texas

    First, I would like to start by thanking Chairman Tauzin and 
Subcommittee Chairman Barton and Ranking Member Boucher for calling a 
hearing to receive testimony from Members of Congress on current energy 
issues. There are few topics of greater importance to my constituent's 
than soaring energy prices and the instability of domestic energy 
supplies. Although Texas has not experienced the type of energy crisis 
now occurring in California, high natural gas prices, combined with a 
colder than normal winter, produced steep increases in residential 
heating bills--increases that eat up a large share of East Texan's 
incomes. I know that several members from the California delegation can 
testify with greater certainty as to the true impact of what is now 
occurring in their state. Rather than speak to the situation in 
California directly, I would like to pull-back, and talk briefly about 
what I feel are a few key things Congress can do to promote domestic 
energy sources and thus strengthen our economic and energy security.
    My district is home to some of the oldest oil and gas production 
wells in Texas. In fact, I doubt that there is any part of my nineteen 
county district that has not been surveyed, drilled, or plugged for oil 
and gas over the last century. As a member of Congress representing an 
energy producing part of the country, I look at the problems in 
California and throughout the United States as an opportunity to have a 
serious discussion on energy issues. It was because of the last energy 
shock, a quarter century ago, that Americans were forced to think about 
energy as anything but an uninterrupted resource, immune from 
political, economic, and natural events. That crisis produced actions 
from policymakers, consumers, and energy producers that significantly 
altered our nation's energy strategy. This year, as the issue of energy 
is once again front and center in America's consciousness, Congress has 
an opportunity to realign an energy policy that is adrift and does not 
meet our needs.
    The United States is a country dependent on fossil fuels and will 
be for the foreseeable future. Petroleum and natural gas currently 
account for approximately 65 percent of the nation's energy supply and, 
in fact, natural gas demand is expected to increase by more than 30 
percent over the next decade. Although many want to wish this fact 
away, doing so will not improve our current situation, and will 
actually cause greater long-term damage.
    Another reality is that our dependence on foreign oil imports is 
greater than at any time in our history. Foreign oil imports have grown 
to 56 percent of crude oil needs, and the Department of Energy projects 
our energy dependence will grow in the years to come--reaching 65 
percent by 2020. In 1973, foreign oil only accounted for 35 percent of 
our needs. We are going in the wrong direction.
    As demand for oil and natural gas increases our ability to control 
these critical resources is eroded by a failure to strengthen the 
domestic energy sector. Although the United States remains the second 
or third largest producer of petroleum, it is operating from a mature 
resource base that makes the cost of production higher than in 
competitor nations. The United States has approximately 600,000 oil 
wells in operation today. Nearly 500,000 of those wells produce less 
than 3 barrels of oil per day--making our oil the most cost sensitive 
and price sensitive oil in the world. (Compare this to Saudi Arabia 
where the average oil well produces more than 5,000 barrels of oil per 
day!)

What can be done to encourage and strengthen our domestic oil and gas 
        industry?
    We must begin working on ways to draw people back into the domestic 
energy sector. Domestic independent oil producers--the producers who 
account for 60 percent of oil production in the lower 48 states 
onshore, produce two-thirds of our natural gas, and drill 80 percent of 
the natural gas wells--are essential to limiting U.S. reliance on 
foreign oil and developing domestic natural gas. Unfortunately, foreign 
countries that export oil to the U.S. have used crude oil price 
volatility to remove ``high costs'' U.S. marginal oil production and 
gain a bigger piece of the market share in the U.S. We have the 
opportunity to reverse this trend.
    Reforming our tax code to provide incentives for domestic 
production and exploration will promote our national interests by 
removing the barriers to capital access that are causing the mass 
exodus of independent producers from the domestic oil and gas industry. 
These reforms include:
    Marginal Well Production Tax Credit: This credit will allow a $3 
barrel tax credit for the first 3 barrels of daily production from an 
existing marginal oil well and a $.50 per Mcf tax credit for the first 
18Mcf of daily natural gas production from a marginal well. Without 
such safety nets, thousands of U.S. well and tens of thousands of U.S. 
jobs they support will be lost when prices fall.
    Inactive Well Recovery: We should consider providing producers with 
a federal income tax exemption for bringing back into production 
abandoned, idled, and plugged wells.
    Geological and Geophysical Costs: By allowing current expensing of 
geological and geophysical costs incurred domestically, domestic 
producers can benefit from the same tax incentives for research and 
development that we provide to other industries.
    Eliminate the Net Income Limitation on Percentage Depletion: Once 
wells are plugged and abandoned, access to the remaining resource is 
often lost forever. Eliminating the net income limitation on percentage 
depletion would encourage producers to keep marginally economic wells 
in production and enhance optimum oil and natural gas resource 
recovery.
    Enhanced Oil Recovery: By expanding the definition of methods 
qualifying for the EOR tax credit, we can encourage conservation 
measures to expand recovery of existing crude oil reservoirs and 
promote new drilling activity.
    Tax Treatment of Delay Rentals: We should consider clarifying that 
delay rental payments are deductible, at the election of the taxpayer, 
as ordinary and necessary business expenses. Given the disagreement 
over the legislative history and the likelihood of costly and 
unnecessary litigation to resolve the issue, clarification would 
eliminate administrative and compliance burdens on taxpayers and the 
IRS.
    These bipartisan proposals to modify the tax code can augment the 
inflow of capital and reinvestment of cash flow crucial to the 
expansion of this industry. Independent producers are still recovering 
from the low oil prices of 1998-99 that resulted in the loss of 65,000 
jobs and a 10 percent decline of domestic oil production. Now is the 
time to replace counterproductive tax actions with policies that will 
encourage production and shield the industry when prices again decline.
    Mr. Chairman, I am hopeful that Congress will take up these pro-
growth tax reform proposals in the 107th Congress. In past 
Administrations, Democratic and Republican, various public officials 
have taken an ad hoc pledge to pursue energy independence for the 
nation, but this commitment quickly fades into complacency once the 
crisis-of-the-moment begins to subside. We must not allow this to 
happen again. We have an opportunity to implement policies that would 
encourage, rather than discourage, U.S. oil and gas production and make 
our domestic energy industry more efficient. I sincerely hope that 
individuals of good faith can work together in implementing significant 
parts of this agenda.
    Mr. Chairman, thank you for the opportunity to comment today on 
these important matters and I look forward to working with you and 
other Members' on these issues.

                                
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