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



                         REAUTHORIZATION OF THE
                     DEFENSE PRODUCTION ACT OF 1950

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                 DOMESTIC MONETARY POLICY, TECHNOLOGY,
                          AND ECONOMIC GROWTH

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 13, 2001

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-24


                   U.S. GOVERNMENT PRINTING OFFICE
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
             Terry Haines, Chief Counsel and Staff Director

         Subcommittee on Domestic Monetary Policy, Technology, 
                          and Economic Growth

                   PETER T. KING, New York, Chairman

JAMES A. LEACH, Iowa, Vice Chairman  CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          BARNEY FRANK, Massachusetts
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
RON PAUL, Texas                      BERNARD SANDERS, Vermont
STEPHEN C. LaTOURETTE, Ohio          JAMES H. MALONEY, Connecticut
DOUG OSE, California                 DARLENE HOOLEY, Oregon
MARK GREEN, Wisconsin                MAX SANDLIN, Texas
CHRISTOPHER SHAYS, Connecticut       CHARLES A. GONZALEZ, Texas
JOHN B. SHADEGG, Arizona             MICHAEL E. CAPUANO, Massachusetts
VITO FOSSELLA, New York              RUBEN HINOJOSA, Texas
FELIX J. GRUCCI, Jr., New York       WILLIAM LACY CLAY, Missouri
MELISSA A. HART, Pennsylvania        MIKE ROSS, Arizona
SHELLEY MOORE CAPITO, West Virginia


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 13, 2001................................................     1
Appendix
    June 13, 2001................................................    11

                               WITNESSES
                        Wednesday, June 13, 2001

Brown, Michael D., General Counsel, Federal Emergency Management 
  Agency.........................................................     5
Fygi, Eric J., Deputy General Counsel, Department of Energy......     4
Juster, Kenneth I., Under Secretary for Export Administration, 
  Department of Commerce.........................................     3
Oliver, David R. Jr., Principal Deputy Under Secretary for 
  Acquisition, 
  Technology and Logistics, Department of Defense................     2

                                APPENDIX

Prepared statements:
    Brown, Michael D.............................................    38
    Fygi, Eric J.................................................    26
    Juster, Kenneth I............................................    21
    Oliver, David R. Jr..........................................    12

 
         REAUTHORIZATION OF THE DEFENSE PRODUCTION ACT OF 1950

                              ----------                              


                       WEDNESDAY, JUNE 13, 2001,

             U.S. House of Representatives,
         Subcommittee on Domestic Monetary Policy, 
                   Technology, and Economic Growth,
                           Committee on Financial Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 3:00 p.m., in 
room 2220, Rayburn House Office Building, Hon. Peter T. King, 
[chairman of the subcommittee], presiding.
    Present: Chairman King; Representatives Grucci, Capito, C. 
Maloney of New York, J. Maloney of Connecticut, and Capuano.
    Chairman King. The hearing will come to order.
    I've been advised that Mrs. Maloney will be arriving in a 
few minutes. She has no objection to starting this meeting.
    The subcommittee is meeting to consider reauthorization of 
the Defense Production Act of 1950. I will make a brief 
statement and then I will ask each of the witnesses to testify. 
Hopefully there will be no major incidents at the subcommittee 
hearing and we can move forward.
    The Defense Production Act is a little-known bill of great 
national significance. It has provided vital support to the 
United States military in every conflict since it was enacted 
in 1950 during the Korean War. It also holds the promise of 
helping to mitigate civil emergencies during peacetime.
    DPA gives the President a vital set of tools to insure the 
constant readiness of those portions of our industrial base 
that support national security. The tools include production 
priorities and financial incentives, but also extend to 
monitoring the increasing effects of globalization on the 
defense base. It falls under the jurisdiction of this 
subcommittee, and I should say that to date the subcommittee is 
unaware of any significant adverse impact on the economy caused 
by DPA. All Administrations since President Truman have used it 
carefully and prudently.
    It's important to note that in the reauthorizing of DPA and 
monitoring, this subcommittee makes no judgments about 
particular defense programs. Those decisions are left to the 
President, who has delegated the job to the appropriate 
departments: chiefly the Defense Department, of course, but 
where appropriate the Departments of Commerce, Energy, 
Transportation, Agriculture and so forth, under the 
administration of the National Security Council and FEMA.
    At this stage I believe the DPA should be reauthorized 
virtually unchanged from its current form. Through a mishap of 
timing, the legislation did lapse briefly in 1990 during the 
buildup to Desert Storm. That was quickly corrected, however, 
as the Defense Department used the production priorities 
extensively to acquire items as diverse as computers and 
communications equipment, satellite-based mapping systems and 
materials to help protect our troops against chemical weapons.
    Fortunately, we do not appear to be in that situation now, 
but geopolitical situations can change quickly. Also, civil 
emergencies are particularly hard to predict. For those 
reasons, I expect a speedy and non-controversial 
reauthorization process for this year, and that can be almost 
guaranteed if we finish this hearing before anybody else 
arrives.
    [Laughter.]
    Chairman King. It is my hope the subcommittee will see a 
legislative proposal from the Administration soon. Given the 
short number of legislative days left in the fiscal year, I 
would start moving the bill before midsummer.
    I thank all the witnesses for appearing. I will now 
recognize Mrs. Maloney, who is not here, as soon as she comes 
to make a statement or insert a statement in the record.
    I will now ask the witnesses to testify. We have copies of 
all your statements, so I would strongly suggest that you keep 
your statements under 5 minutes. There is a vote on the House 
floor probably in about 45 minutes. It will be in everyone's 
interest, primarily the interest of making sure that ultimately 
this legislation is reauthorized, to keep your statements under 
5 minutes. Your statements will be inserted in the record and 
considered as read.
    With that, I would call the first witness, the Honorable 
David R. Oliver, Jr., the Principal Deputy Undersecretary of 
Defense for Acquisition, Technology and Logistics. Mr. Oliver.

STATEMENT OF HON. DAVID R. OLIVER, JR., PRINCIPAL DEPUTY UNDER 
SECRETARY FOR ACQUISITION, TECHNOLOGY AND LOGISTICS, DEPARTMENT 
                           OF DEFENSE

    Mr. Oliver. Mr. Chairman, I appreciate the opportunity.
    We'd like to see it reauthorized for 3 years, if possible. 
The key issue has to do with, under no other legislation are we 
able to maintain an assured supply for our allies when they buy 
our equipment and we want them to operate with us. And there 
are other problems that exist.
    But what I would like to share with you is the Kosovo 
incident. When we needed to reprioritize some suppliers for 
various precision weapons, and it was really important to do 
so, the Act enabled me to get the contractors' attention. 
Without that authority, we might have been able to work it out, 
but it was much more effective to have their attention right 
from the beginning.
    There are other issues that I've looked at in the last 3 
years that are directly affected by the Act, but this is a 
significant facilitator, and we ask that it be reauthorized.
    Chairman King. How about Bosnia?
    Mr. Oliver. The same thing, sir. In both cases, within a 
few days after we started hostilities, we were finding areas 
that we needed the Act's legislation in order to take immediate 
action. We even went with flat panel displays--I'm not sure the 
Chairman is aware of that problem over the last few years.
    But essentially, small key businesses and key technologies 
I don't think about 2 years in advance. And then something 
comes up in terms of a problem, and it is a very small area, 
but it's terribly important to the military, and the Act 
permits us to take action.
    Thank you, sir.
    [The prepared statement of Hon. David R. Oliver can be 
found on page 12 in the appendix.]
    Chairman King. The Under Secretary for Export 
Administration in the Department of Commerce and a fellow New 
Yorker, Ken Juster.

STATEMENT OF HON. KENNETH I. JUSTER, UNDER SECRETARY FOR EXPORT 
             ADMINISTRATION, DEPARTMENT OF COMMERCE

    Mr. Juster. Mr. Chairman, I appreciate the opportunity to 
be here today to testify on reauthorization of the Defense 
Production Act. As with Mr. Oliver, we too would like to see 
the DPA reauthorized for at least a 3-year period.
    Let me briefly discuss the aspects of the DPA that are 
relevant to the Department of Commerce. We really have four 
areas that are relevant to us.
    First, under Title I of the DPA, we administer the defense 
priorities and allocation system. Second, under Title III, the 
Department reports on defense trade offsets. Third, under Title 
VII, the Department analyzes the health of U.S. industrial base 
sectors. Also under Title VII, the Department plays a 
significant role in analyzing the impact of foreign investments 
on the national security of the United States. I cover these 
areas in my written statement.
    Briefly touching on each of these points for a minute or 
two, the Defense Priorities and Allocation System, which is 
known as DPAS, has two primary purposes. First, it ensures the 
timely availability of products, materials and services that 
are needed to meet current national defense and emergency 
preparedness requirements with minimal interference to the 
conduct of normal business activity. Second, it provides an 
operating structure to support a timely and comprehensive 
response by U.S. industry in a national emergency situation.
    The Commerce Department administers the system in 
accordance with the priorities and allocations provisions of 
the DPA. Those provisions provide authority for requiring U.S. 
companies to accept and perform contracts or orders necessary 
to meet national defense and civil emergency needs. They also 
provide authority for managing the distribution of scarce and 
critical materials in time of emergency.
    The second area is the defense trade offsets. The 
Department provides Congress with an annual report on the 
impact of offsets in defense trade. The defense trade offsets 
are industrial compensation practices required as a condition 
of purchase in either government-to-government or commercial 
sales of defense articles or services.
    We believe that offsets generally are not efficient 
economically, because the foreign customer bases the purchase 
decision on something other than the quality of the product or 
service being provided.
    The third area applies to the Department of Commerce's 
defense industrial base studies under Section 705 of the DPA. 
The Department of Commerce conducts analyses and prepares 
reports on individual sectors of the defense industry. These 
studies provide a comprehensive review of specific sectors 
within the U.S. defense industrial base, and they analyze the 
current capabilities of these sectors to provide defense items 
for the U.S. military services.
    The final area that's relevant to the Commerce Department 
is the Committee on Foreign Investment in the United States, 
known as CFIUS, which was originally established by executive 
order in 1975. The Department of Commerce is a member of the 
CFIUS process chaired by the Department of the Treasury.
    The provision that provides for CFIUS relates to a national 
security review of foreign mergers or acquisitions of U.S. 
companies. The intent of the provision is to provide a 
mechanism to review and, if the President finds it necessary, 
to suspend or prohibit a foreign direct investment that 
threatens the national security, but not to otherwise 
discourage foreign direct investment. The Department of 
Commerce's contribution to the CFIUS process includes providing 
a defense industrial base perspective as well as export control 
perspective.
    In sum, we believe all of these are very important 
authorities to the Department in terms of the programs we carry 
out. And as I mentioned at the outset, we fully support 
reauthorization of the Defense Production Act for at least a 
period of 3 years.
    Thank you.
    [The prepared statement of Hon. Kennith I. Juster can be 
found on page 21 in the appendix.]
    Chairman King. Thank you, Mr. Secretary.
    We've been joined by Ranking Member, Mrs. Maloney. Do you 
want to make an opening statement at this time?
    Mrs. Maloney. In the interest of time--and I want to hear 
from the panelists--I request permission to put my opening 
statement in the record.
    Chairman King. Without objection.
    Chairman King. I call on the Honorable Eric Fygi, Deputy 
General Counsel for the Department of Energy.

    STATEMENT OF HON. ERIC J. FYGI, DEPUTY GENERAL COUNSEL, 
                      DEPARTMENT OF ENERGY

    Mr. Fygi. Thank you, Mr. Chairman, and Congresswoman 
Maloney.
    As you suggested, I will summarize very briefly the 
prepared statement which responded to particular elements of 
the subcommittee's invitation to address the Energy-related 
experiences of the Defense Production Act. Most prominent of 
these recent events, of course, was our use--that is to say, 
the President's use--of the Defense Production Act in January 
of this year to avoid a very serious breakdown in the northern 
California natural gas distribution system that was prompted by 
the insolvency of the combined gas and electricity utility that 
services that part of the state. Those particulars are 
described thoroughly in the prepared statement, and I will not 
now repeat them here.
    But, I think it's fair to note that there were two 
particularly controversial aspects of our use of the Defense 
Production Act authority in that setting. The common thread of 
them was that the authority is being used to compensate for 
financial breakdown rather than a shortage, and because the 
authority was used in a novel way that placed at risk the 
economic circumstances of the natural gas providers who were 
ordered to continue making their deliveries to Pacific Gas & 
Electric.
    In the event, however, I am pleased to report that the 
apprehensions about the gas producers--and even more 
significantly on a volumetric basis, the natural gas resellers, 
which included some major financial institutions-- proved ill-
founded. The overall approach that was hammered out to deal 
with that emergency resulted in each natural gas supplier being 
paid in full within the normal business cycle that hitherto had 
obtained for all of PG&E's natural gas purchases.
    In terms of other prior instances in which the Energy 
Department has employed this scheme set forth in Sections 
101(a) and (c) of the Defense Production Act, this has been 
sporadic with respect to our organization, in contrast to for 
example the Defense Department. These authorities were used 
from time to time during the nuclear weapons buildup and 
production acceleration period in the early 1980's, and 
likewise were used in the early 1980's to accelerate 
development of Alaska North Slope energy reserves, particularly 
natural gas reserves.
    In conclusion, as the chair observed a moment ago, we 
regard the Defense Production Act as an extremely important 
element of the toolbox that's available for utilization by the 
President, in addition to being the foundation for the 
priorities and allocation systems that were described a moment 
ago. And therefore we wholeheartedly join in the recommendation 
that the statute be extended for a period of 3 years.
    Thank you very much.
    [The prepared statement of Hon. Eric J. Fygi can be found 
on page 26 in the appendix.]
    Chairman King. Thank you very much, Mr. Fygi.
    Mr. Michael Brown, General Counsel to FEMA.

    STATEMENT OF MICHAEL D. BROWN, GENERAL COUNSEL, FEDERAL 
                  EMERGENCY MANAGEMENT AGENCY

    Mr. Brown. Thank you, Mr. Chairman, Congresswoman Maloney.
    I'm honored to be here today and appreciate the opportunity 
to testify today on behalf of Director Allbaugh, the new 
director of the Federal Emergency Management Agency, and to 
tell you I'm a little intimidated and overwhelmed by the 
expertise in this room regarding DPA.
    I've learned all that I can in the past 120 days in coming 
on with Director Allbaugh, and find out that I have much, much 
more to learn. They've tasked me well and they've advised me 
well.
    Rather than go through my prepared statement, I'd like to 
just make a few comments that I think reflect the views of the 
Administration and Director Allbaugh.
    We also request a 3-year extension of the Act, 
reauthorization of the Act. We believe it is important to carry 
out the duties and obligations of FEMA as the lead coordinating 
agency for consequence management in the United States. We are 
prepared to carry out our responsibilities under Executive 
Order 12919, which indeed involve such things as coordinations.
    We are a coordinating agency. We think we do that job very 
well. The expiration of the Act would hinder us in our full 
capacity to do that type of activity.
    The DPA itself gives us the additional tools we need in the 
event of a catastrophic event that goes beyond the Stafford Act 
and goes beyond the capability of FEMA to react properly. 
Therefore, we believe that its expiration will have dire 
consequences for us.
    In addition, you may recall that the President has tasked 
the Office of National Preparedness, and we believe the 
reauthorization of the DPA is important to the continued 
function of that particular office. We may be looking to 
authorities under the DPA to respond to the consequences of 
weapons of mass destruction or other terrorist attacks on the 
United States, and believe that these authorities are vital to 
our coordinating function in that consequence management role.
    On behalf of the Administration, we would ask for 
reauthorization for 3 years. Thank you, Mr. Chairman.
    [The prepared statement of Michael L. Brown can be found on 
page 38 in the appendix.]
    Chairman King. We're joined by Mr. Maloney from 
Connecticut. Do you have any opening statement?
    Mr. Maloney. No, sir.
    Chairman King. I have a series of questions, but in the 
interest of speed, I will submit these questions to you in 
writing.
    I have one question I would ask each of the four of you. 
Just turn this around and ask you, what would be the situation 
if this Act were not reauthorized?
    Mr. Oliver.
    Mr. Oliver. We have certain authorities that we don't have 
in any other way, Mr. Chairman. We do not have something that 
applies to service contracts. We don't have something that 
applies to maintaining continuity or surety of supply. Or, 
let's say I've sold England U.S. helicopters, which gives us a 
significant interoperability. It gives us significant military 
capability in addition to maintaining the defense industrial 
base. I have to be able to then make sure they have the parts, 
particularly if I'm going to ask them to do something.
    Take, for example, the Australians in East Timor, where 
it's in the United States' best interest for them to go do 
something essentially all by themselves, although they used 
equipment they had bought from the United States, which was 
essential. If they have a problem with supply, it's in our best 
interest to be able to divert support for that, and I don't 
have that capability without this Act.
    In addition, there's a legal problem if they're not 
provided complete liability coverage to the contractors if I 
ask them to divert from one source to another.
    The other thing that's terribly important to me is that, 
when we have issues come up, for example--flat panel displays 
or radiation-hardened chips for these satellites coming in--
when a problem comes up, I don't have authority without this 
Act to take the necessary quick action to get industry's 
attention and keep them alive until such time as I can consult.
    Mr. Juster. Let me just reiterate what Mr. Oliver has said.
    The loss of the Defense Production Act would significantly 
weaken our ability to support national defense programs and 
civil emergency preparedness, and our overall industrial base 
capability. I think as you had mentioned earlier, without the 
DPA, we'd still have some authority under the Selective Service 
Act of 1948, but it is very limited. And in addition to what 
Mr. Oliver mentioned, we would have no allocation authority for 
possible use in a national security emergency without the 
Defense Production Act.
    Also, there would be no civil emergency preparedness 
programs that we could draw upon, or defense-related programs 
for agencies such as the FBI or the National Security Agency.
     In addition, from the perspective of the Department of 
Commerce, we would not have the authority that we need to 
collect the necessary data for our analyses of industrial base 
sectors or defense offsets. So again, we regard the DPA as a 
very critical authority that's essential to our programs.
    Chairman King. Mr. Fygi.
    Mr. Fygi. Well, I don't expect us to confront in the near 
future an event, a set of circumstances as peculiar as the 
earlier emergency in California. But there are other instances 
that our experience indicates are very plausible, in which 
these authorities would be of crucial importance.
    Let us suppose, for example, that world circumstances were 
such that we had to draw down the Strategic Petroleum Reserve, 
and coincident with that realization, directions from the 
President to take that action. Then there's a significant 
equipment breakdown in the facility on that installation.
    That would be the type of circumstance, if it were urgent 
to replace scarce and backlogged specialized pumps and other 
apparatus, where we rely upon the Defense Production Act to 
bring the facility back on line in an operational sense as 
promptly as we could. And absent the Defense Production Act, it 
would be exceedingly difficult, as has been pointed out by the 
prior witnesses, to persuade vendors to let our order come to 
the head of the line for fear of the third-party contract 
liability that they might otherwise expose themselves to, even 
if they were willing to cooperate with us in the interests of 
the country.
    So that's one example that occurs to me.
    Chairman King. Mr. Brown.
    Mr. Brown. Mr. Chairman, Members of the subcommittee, from 
FEMA's point of view, if we were to experience a truly 
catastrophic event, something beyond the magnitude of the 
Northridge Earthquake or Hurricane Hugo--a Northridge expanded 
all the way from San Diego to Seattle and truly devastated the 
West Coast--a terrorist attack, a truly frightening situation 
like the WMD situation, it would limit our ability to really 
coordinate and provide the kinds of coordinating responses that 
we could in terms of consequence management. It is a piece of 
legislation that allows us to do what we need to do to respond 
appropriately.
    I can't imagine an event--I don't want to imagine an 
event--of that size. But if an event of that size were to 
occur, the DPA is necessary for us to make that type of 
coordinating effort beyond the Stafford Act to do what we need 
to do to respond appropriately.
    Chairman King. Thank you, Mr. Brown.
    I have no further questions today. As I say, I will be 
submitting questions to you, and I'd appreciate your response 
to them.
    Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman. Here's my opening 
statement.
    I would just like to state that I am supporting this bill, 
and I support the 3-year reauthorization. But there are some 
Members of Congress who don't support it, most notably Senator 
Gramm. He objected publicly.
    I understand he's held public hearings on it, and he 
expressed concern apart from the crisis about, and I quote, 
``expansive reach of the statute.'' And he announced that he is 
going to continue to look at it.
    I would like to know your responses to his concern. He's a 
serious leader in our legislature.
    Mr. Fygi. Perhaps I can begin, because I spent several 
hours with Senator Gramm having an interesting conversation on 
this point on the 9th of February.
    His concerns were directed to the use of the Defense 
Production Act to deal with the California emergency that I 
have described extensively in our prepared statement. His 
concerns seemed directed primarily to the prospect that some of 
the gas vendors assumed a risk of uncompensated losses of 
property by reason of the orders.
    As I indicated earlier in a summary of my statement, those 
risks proved unfounded in that all vendors were, in fact, paid 
by Pacific Gas & Electric.
    I think it fair to say that his descriptions during that 
hearing indicated a philosophical view that was broader than 
just those sorts of adverse consequences, in which he felt it 
an inappropriate power for the Government to retain--to direct 
individual participants in the private marketplace to contract 
with others in the private marketplace.
    Mrs. Maloney. I guess another part of it is, it's very 
clear that he thought it was an inappropriate time to use the 
DPA. But why did the situation in California warrant the use of 
the DPA by the Clinton and Bush Administrations?
    Mr. Fygi. Those circumstances were described, as I said, 
extensively in our prepared statement.
    Briefly summarized, they included the unique coincidence of 
a major investor-owned utility on the brink of insolvency, 
which investor-owned utility was a combined gas and electric 
utility; and that even though, unlike its electricity sales, it 
was guaranteed reimbursement for its natural gas acquisition 
costs. Noneless, its otherwise parlous financial situation 
resulted in its natural gas vendors threatening and beginning 
to curtail service to PG&E, which culminated on the 19th of 
January.
    The prospect of curtailments of all deliveries to PG&E 
presented the real likelihood that the electricity crisis in 
California would further be exacerbated, because under 
California law, if PG&E experienced a significant shortfall in 
its natural gas supplies, it--PG&E--would have to seize natural 
gas supplies not owned by PG&E, but owned by others, but being 
delivered to industrial facilities through PG&E's system. That 
in turn would have provoked a cutoff of those continued 
industrial supplies, which in turn would have provoked the 
cessation of substantial amounts of electricity generation in 
the entire northern California area.
    Never before had we in this country confronted such a 
circumstance, which also had dire immediate prospects for 
public health and safety throughout the entirety of northern 
California.
    Mrs. Maloney. I'd like to ask Mr. Brown, and then Mr. 
Oliver--unfortunately, the State that I live in and the city 
that I live in, New York City, has been a target repeatedly of 
major terrorist attacks in recent years. Could you provide an 
example of how the DPA could be used in the event of such an 
attack, or a major natural disaster?
    Mr. Brown. The primary example I can think of is, if it was 
devastating to Manhattan--just destroys all of Manhattan--and 
we need to make sure, in terms of consequence management, we're 
going to get food, water, electricity, everything we need to 
get in to a population of that size and magnitude, where we 
cannot draw upon ordinary suppliers, ordinary contractual 
agreements, ordinary arrangements of the staff, DPA would allow 
us to do that.
    That's the kind of event that we think, in terms of a 
catastrophic event, the DPA may come into play. To take it down 
to a slightly lower level, I've heard examples of where 
Hurricane Hugo has been utilized to that purpose. We just could 
not get enough tarps to prevent further damage, which would 
further exacerbate the problem. DPA could be utilized in that 
type of situation.
    We would want to be prudent and very conservative in our 
approach and use. That's why I keep throughout this hearing 
using the term, a truly catastrophic event, which is the type 
of situation we would utilize it.
    Mr. Oliver. I have nothing to add to Mr. Brown.
    Mrs. Maloney. Just finally, very briefly, Mr. Brown: In 
1997, FEMA produced a report recommending modernization of DPA. 
One of the report's recommendations was to change the Act to 
reflect economic globalization and not to leave the term 
``domestic'' as the sole focus of defense industrial 
capabilities.
    Would you like to comment on that? Do you think we should 
expand the definition?
    Mr. Brown. I would like to comment to this extent. I will 
go back and ask the staff to give me this report, and I will 
look at it and see what it says.
    Mrs. Maloney. Get back to us in writing.
    I have other questions, but I'll place them in writing. 
Thank you, Mr. Chairman.
    Chairman King. Thank you, Mrs. Maloney.
    Mr. Grucci.
    Mr. Grucci. I have no questions at this time, Mr. Chairman.
    Chairman King. Mrs. Capito.
    Mrs. Capito. I have no questions at this time.
    Chairman King. The distinguished gentleman from 
Massachusetts, Mr. Capuano.
    Mr. Capuano. I never have any questions, Mr. Chairman.
    [Laughter.]
    Chairman King. Again, I want to thank the panel for your 
testimony today. I believe there is consensus for 
reauthorization. As Mrs. Maloney mentioned, there have been 
questions raised by some Members and some Senators, but mostly 
there is strong bipartisan consensus for reauthorization.
    With that, I would thank you for your testimony today. 
Members may have additional questions for the panel, which they 
may wish to submit in writing. Without objection, the hearing 
record will remain open for 30 days for those Members to submit 
written questions to the witnesses and place their responses in 
the record.
    The hearing is adjourned.
    [Whereupon, at 3:30 p.m., the hearing adjourned.]

                            A P P E N D I X


                             June 13, 2001

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