[Senate Hearing 107-144]
[From the U.S. Government Publishing Office]


                                                S. Hrg. 107-144 (Pt. 1)

                         NATIONAL ENERGY ISSUES

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

                                HEARINGS

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

  TO RECEIVE TESTIMONY ON THE ADMINISTRATION'S NATIONAL ENERGY POLICY 
 REPORT, AND TO RECEIVE TESTIMONY ON THE PRICE-ANDERSON ACT PROVISIONS 
 OF PENDING ENERGY LEGISLATION, INCLUDING S. 388, THE NATIONAL ENERGY 
    SECURITY ACT OF 2001; S. 472, NUCLEAR ENERGY ELECTRICITY SUPPLY 
   ASSURANCE ACT OF 2001; AND S. 597, THE COMPREHENSIVE AND BALANCED 
                       ENERGY POLICY ACT OF 2001

 TO RECEIVE TESTIMONY ON PROPOSED AMENDMENTS TO THE PRICE-ANDERSON ACT 
  (SUBTITLE A OF TITLE IV OF S. 388; SUBTITLE A OF TITLE I OF S. 472; 
 TITLE IX OF S. 597) AND NUCLEAR PRODUCTION AND EFFICIENCY INCENTIVES 
     (SUBTITLE C OF TITLE IV OF S. 388; AND SECTION 124 OF S. 472)

       NATIONAL ENERGY SECURITY ACT AND OTHER PENDING LEGISLATION

                               __________

                              MAY 24, 2001

                             JUNE 26, 2001

                             JULY 12, 2001

                               __________

                                 PART 1


                       Printed for the use of the
               Committee on Energy and Natural Resources


                                 ______

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  FRANK H. MURKOWSKI, Alaska, Chairman
PETE V. DOMENICI, New Mexico         JEFF BINGAMAN, New Mexico
DON NICKLES, Oklahoma                DANIEL K. AKAKA, Hawaii
LARRY E. CRAIG, Idaho                BYRON L. DORGAN, North Dakota
BEN NIGHTHORSE CAMPBELL, Colorado    BOB GRAHAM, Florida
CRAIG THOMAS, Wyoming                RON WYDEN, Oregon
RICHARD C. SHELBY, Alabama           TIM JOHNSON, South Dakota
CONRAD BURNS, Montana                MARY L. LANDRIEU, Louisiana
JON KYL, Arizona                     EVAN BAYH, Indiana
CHUCK HAGEL, Nebraska                DIANNE FEINSTEIN, California
GORDON SMITH, Oregon                 CHARLES E. SCHUMER, New York
                                     MARIA CANTWELL, Washington

                    Brian P. Malnak, Staff Director
                      David G. Dye, Chief Counsel
                 James P. Beirne, Deputy Chief Counsel
               Robert M. Simon, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
                    Bryan Hannegan, Staff Scientist
                                 ------                                

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii              FRANK H. MURKOWSKI, Alaska
BYRON L. DORGAN, North Dakota        PETE V. DOMENICI, New Mexico
BOB GRAHAM, Florida                  DON NICKLES, Oklahoma
RON WYDEN, Oregon                    LARRY E. CRAIG, Idaho
TIM JOHNSON, South Dakota            BEN NIGHTHORSE CAMPBELL, Colorado
MARY L. LANDRIEU, Louisiana          CRAIG THOMAS, Wyoming
EVAN BAYH, Indiana                   GORDON SMITH, Oregon
BLANCHE L. LINCOLN, Arkansas         JIM BUNNING, Kentucky
                                     PETER G. FITZGERALD, Illinois
                                     CONRAD BURNS, Montana

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               Brian P. Malnak, Republican Staff Director
               James P. Beirne, Republican Chief Counsel

Note: Senator Bingaman assumed the Chairmanship on June 6, 2001.




               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii              FRANK H. MURKOWSKI, Alaska
BYRON L. DORGAN, North Dakota        PETE V. DOMENICI, New Mexico
BOB GRAHAM, Florida                  DON NICKLES, Oklahoma
RON WYDEN, Oregon                    LARRY E. CRAIG, Idaho
TIM JOHNSON, South Dakota            BEN NIGHTHORSE CAMPBELL, Colorado
MARY L. LANDRIEU, Louisiana          CRAIG THOMAS, Wyoming
EVAN BAYH, Indiana                   RICHARD C. SHELBY, Alabama
DIANNE FEINSTEIN, California         CONRAD BURNS, Montana
CHARLES E. SCHUMER, New York         JON KYL, Arizona
MARIA CANTWELL, Washington           CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           GORDON SMITH, Oregon

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               Brian P. Malnak, Republican Staff Director
               James P. Beirne, Republican Chief Counsel




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearings:
    May 24, 2001.................................................     1
    June 26, 2001................................................    33
    July 12, 2001................................................    77

                               STATEMENTS
                              May 24, 2001

Abraham, Hon. Spencer, Secretary, Department of Energy...........     7
Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................     5
Bayh, Hon. Evan, U.S. Senator from Indiana.......................    19
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     7
Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado........     3
Cantwell, Hon. Maria, U.S. Senator from Washington...............    30
Feinstein, Hon. Dianne, U.S. Senator from California.............    23
Graham, Hon. Bob, U.S. Senator from Florida......................    26
Johnson, Hon. Tim, U.S. Senator from South Dakota................     4
Landrieu, Hon. Mary L., U.S. Senator from Louisiana..............    28
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............     1
Smith, Hon. Gordon, U.S. Senator from Oregon.....................     6
Wyden, Hon. Ron, U.S. Senator from Oregon........................    17

                             June 26, 2001

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    33
Bradburne, John, President and Chief Executive Officer, Fluor 
  Fernald, Inc., Cincinnati, OH, on behalf of Energy Contractors 
  Price-Anderson Group...........................................    45
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............    34
Fertel, Marvin S., Senior Vice President, Business Operations, 
  Nuclear Energy Institute.......................................    49
Fygi, Eric J., Deputy General Counsel, Department of Energy......    34
Gray, Joseph R., Associate General Counsel for Licensing and 
  Regulation, U.S. Nuclear Regulatory Commission.................    38
Landrieu, Hon. Mary L., U.S. Senator from Louisiana..............    70
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............    43
Pica, Erich, Economic Policy Analyst, Friends of the Earth.......    60
Quattrocchi, John L., Senior Vice President, Underwriting, 
  American Nuclear Insurers, West Hartford, CT...................    53

                             July 12, 2001

Aurilio, Anna, Legislative Director, U.S. Public Interest 
  Research Group.................................................   159
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    77
Blake, Francis, Deputy Secretary, Department of Energy...........    90
Burton, Bill, Partner, Jones, Day, Reavis & Pogue, Houston, TX...   116
Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado........    77
Clusen, Charles M., Senior Policy Analyst, Natural Resources 
  Defense Council................................................   122
Durbin, Hon. Richard J., U.S. Senator from Illinois..............   109
Fertel, Marvin S., Senior Vice President, Business Operations, 
  Nuclear Energy Institute.......................................   150
Hood, Jerry, Special Assistant to the General President for 
  Energy; Principal Officer of Local 959 in Alaska, International 
  Brotherhood of Teamsters, Anchorage, AK........................   131
Johnson, Hon. Tim, U.S. Senator from South Dakota................    78
Johnston, Hon. J. Bennett, Chairman, Johnston & Associates, LLC, 
  Washington, D.C................................................   110
Murkowski, Hon. Frank H., U.S. Senator from Alaska...............    79
Norton, Hon. Gale, Secretary, Department of the Interior.........    81
Thadani, Ashok C., Director, Office of Nuclear Regulatory 
  Research, Nuclear Regulatory Commission, Rockville, MD.........   156
Young, Tom, Vice President of Business Development, Mariner 
  Energy, Inc., Houston, TX, on behalf of the Independent 
  Petroleum Association of America...............................   134

                               APPENDIXES
                               Appendix I

Responses to additional questions................................   165

                              Appendix II

Additional material submitted for the record.....................   171

 
                         NATIONAL ENERGY ISSUES

                              ----------                              


                         THURSDAY, MAY 24, 2001

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m. in room 
SD-106, Dirksen Senate Office Building, Hon. Frank H. 
Murkowski, chairman, presiding.

         OPENING STATEMENT OF HON. FRANK H. MURKOWSKI, 
                    U.S. SENATOR FROM ALASKA

    The Chairman. Good morning ladies and gentlemen. Are the 
microphones on? Well, that is nice to know. Must be part of the 
energy crisis. I want to welcome the Honorable Secretary of 
Energy Spencer Abraham. I think what we will do today in view 
of the fact that both the Democrats and Republicans have 
conferences--and then there is a conference on a tax bill where 
I am a conferee on that--is do the best we can. Senator 
Bingaman and I will make opening statements and then we will 
hear from the Secretary.
    Today, I am pleased to tell you that we begin the process 
of ensuring America's energy security. This is the first in a 
series of hearings Senator Bingaman and I and our staffs have 
jointly put together. It will consist of briefings later, and 
hopefully mark-ups, to set us on a course for legislation on 
the Senate floor, hopefully by July 4.
    We begin today with a review of the administration's 
recently released National Energy Policy, and again I want to 
welcome the Secretary. We will also hear from a second panel on 
the need to renew the Price-Anderson Act. Now I am not sure if 
we will be able to get to that panel, so I want to alert you 
ahead of time.
    First let me applaud the President and his task force 
members for their leadership because a few days ago we did not 
have a plan, and now we have an energy plan, something in black 
and white that we can debate, review and analyze. It is a blunt 
admission that we face an energy crisis in this country. The 
reality is that supplies are not keeping up with demand and I 
think it is fair to say that this work product is the first 
national energy strategy in some 10 years. It is comprehensive. 
It is balanced. It is long-term.
    Now, some have said, well, it is not balanced. But let us 
look at it in some detail. There are 42 recommendations to 
improve energy efficiency and conservation and to protect 
consumers from price spikes. There are 35 specific 
recommendations on increasing the energy supply and 25 
recommendations to enhance our national security.
    Now it is kind of interesting because I have been on this 
committee for about 21 years and looking over our shoulder 10 
years ago, this committee passed a comprehensive energy bill. 
It was called the Energy Policy Act of 1992. A lot of people 
have forgotten that. The bill had 16 titles when it left this 
committee. It increased CAFE, fuel economy standards. It opened 
ANWR, the coastal plain, to oil and gas development. And the 
bill also had provisions on alternative fuels, on mass transit, 
renewables, energy efficiency and research and development.
    But after Congress finished with it, ANWR was out. CAFE was 
out. What we have remaining is the low-flush toilets. That is 
not much to be said for supply-side. We do not want to make 
that same mistake again. We left the tough decisions for 
another day. That day is now. Ten years later, today, we face 
an energy crisis. We are importing more foreign oil than ever, 
56 percent. Our energy infrastructure is falling apart. We find 
that we do not have refining capacity. We open up SPRO and find 
that we do not have the capability to refine it. We simply 
offset what we import. We find our national gas prices have 
gone from $2.16 to $5, $6, $7, $8. Supply is insufficient to 
meet the demand. No new nuclear plants. No new coal plants 
since 1995.
    I can go on and on, but it is said by many that those who 
do not learn from the past are doomed to repeat it. We had good 
intentions 10 years ago, ladies and gentlemen. But our 
inability to make the tough choices really helped us get to 
where we are today. I do not think the American people will 
accept failure again.
    Now there is no short-term fix to this energy crisis. Some 
have suggested that instead of comprehensive policy we should 
seek a quick fix for higher gasoline prices and California 
blackouts. We have looked at several options and none of them 
are very good. You take away the gas tax. You repeal the 
reformulated gasoline restrictions. You put back-up generators 
on barges and nuclear ships. They all have a down side. So let 
us make it clear. There is no magic bullet. There is no quick 
fix that will make this energy crisis go away.
    It took us several years of neglect to get us here. It will 
take a long-term approach to get us out. In my view, the best 
thing we can do for consumers is act quickly and decisively now 
to enact comprehensive energy legislation to increase the 
supply of conventional renewable fuels, to improve energy 
efficiency and encourage conservation, to invest in necessary 
infrastructure to move energy from where it is produced to 
where it is needed the most. America is waiting for us to 
provide relief.
    I think the President's National Energy Policy contains 102 
specific proposals. It is a plan of action and not words. It 
uses America's technology and ingenuity to meet our energy 
needs without damaging our environment. It reduces our 
dangerous dependence on foreign oil. It ensures clean, 
affordable, renewable energy supplies, a requirement for 
continued American prosperity.
    My commitment is to work with Senator Bingaman and the 
administration to assist the President in implementing those 
suggestions that may require legislation. It is time for 
leadership, vision and bold action, not quick fixes, posturing 
or short-term political gains. The President has acted 
decisively, so let us follow his lead and make the tough 
choices that we avoided 10 years ago. Thank you.
    Senator Bingaman.
    [A prepared statement from Senators Campbell, Johnson, 
Akaka, and Gordon Smith follow:]
          Prepared Statement of Hon. Ben Nighthorse Campbell, 
                       U.S. Senator From Colorado
    Thank you, Mr. Chairman. I would like to thank you for holding this 
hearing and I would like to thank and congratulate my friend, Secretary 
Abraham for testifying before us and for his part on the President's 
National Energy Policy.
    The reality is that to end this energy crisis we must develop a 
comprehensive national energy strategy that increases production, 
expands the use of alternative and renewable energies, and improves 
energy efficiency and conservation. I've said this many times--we need 
a balanced comprehensive approach to meeting our energy needs. And, now 
we finally have it. The President's National Energy Policy is intended 
to provide the blueprint for the nation's energy policy over the next 
decade. It is a comprehensive and balanced long-term plan designed to 
address the imbalance we currently face between energy supply and 
demand.
    I know that the extreme environmental community are up in arms 
against this policy. But, it has come to my attention that the Sierra 
Club recently put out a set of energy proposals for how to deal with 
the energy problem in this country, and that a majority of those 
proposals, 11 of those 12 proposals, are incorporated in this policy. I 
guess they just need something to protest, even if it has 11 of their 
12 proposals in it.
    Another issue we must address is our dependence on foreign oil. In 
1973, the year of the Arab oil embargo, the U.S. bought 35 percent of 
its oil from foreign sources. Today, we buy 56 percent, by some reports 
62 percent, and Iraq is the fastest growing source of U.S. foreign oil. 
This is too much. Americans fought a war in the Persian Gulf where 147 
American lives were lost out in the sand because of this very issue. We 
need to reassess our situation and the President's policy will help us 
become less dependent on foreign oil.
    This policy will also increase our supply of conventional fuels 
like oil, gas and coal. In the past, public lands were locked up, and 
oil and gas exploration and extraction was prohibited, often without 
legislative oversight. Known resources are sitting idly by when our 
nation could be tapping into these new sources of energy. And, this 
energy crisis is only going to get worse this summer.
    We are a nation that could use our resources to supply a majority 
of our power needs, which would also help us to decrease our dependence 
on foreign oil. No one wants to see strip mines or polluted waterways, 
but we can and should responsibly develop our natural resources. The 
President's plan I will help increase our supply and will help this 
nation in the long run.
    Coal has historically been America's number one source for 
providing affordable electricity; it currently powers half of America's 
electricity generators, and provides the vast majority of power in my 
home state of Colorado. At today's recovery rates, our nation has 
enough coal to keep those plants running for the next 250 years.
    The President's policy also expand the use of renewable energy and 
alternative fuels. Many on this committee will probably ask you about 
this because the DOE budget does not fully reflect this statement. But, 
I know that you are already working on this issue and I know you are 
committed to restoring funds to these programs. I am proud to say that 
the National Renewable Energy Laboratory (NREL) is in my home state.
    Also, our energy infrastructure--the network of the generators, 
transmission lines, refineries and pipelines that convert raw resources 
into usable fuel--is woefully antiquated and inadequate to meet our 
future needs. This plan will give investments to repair and expand 
energy infrastructure--generators, transmission lines, pipelines, and 
refineries. We must not allow the current situation in California to 
become the blueprint for the rest of our nation.
    I am an enthusiastic supporter of the President's national energy 
policy, but I am troubled by a potential proposal to give the Federal 
Energy Regulatory Commission (FERC) eminent domain power to speed 
expansion of power lines. As you all know, the agency now has 
condemnation power only for natural gas pipelines. I believe that 
eminent domain is primarily a state issue and private property rights 
have to take precedence. I can not support expanding the power of 
eminent domain to the FERC.
    Lastly, the National Energy Plan will enhance energy security to 
protect consumers from price spikes and supply disruptions. Higher gas 
prices affect us all: 98 percent of all the things you buy and use are 
shipped by truck. If the rigs stop rolling, this nation stops rolling. 
This problem also extends to our American farmers and ranchers. The 
increased cost to our farmers and ranchers, coupled with declining 
commodity prices, makes it very difficult to run a farm or ranch. We 
certainly do not want to become as dependent on foreign produced food 
as we are now on foreign oil.
    I believe that the President and his Energy Task Force have made 
bold strides to help fix our energy problems and should be commended. 
The National Energy Policy has some things that we will have to work 
out, but I still wholeheartedly endorse this policy and will work with 
this committee to implement this blueprint for our future.
    I have some questions for the Secretary that I would like him to 
address so that we can further explore these issue during the time for 
questions.
    Thank you Mr. Chairman.
                                 ______
                                 
 Prepared Statement of Hon. Tim Johnson, U.S. Senator From South Dakota
    Mr. Chairman, I am pleased that we are holding this hearing today 
on this critical issue. The nation's energy policy is currently the 
subject of heated debate and discussion. Rising gas prices, higher 
electricity bills and rolling blackouts in California have heightened 
the public's awareness of the difficulties and the strains on the 
country's energy system. Demand for energy is growing at an 
unprecedented rate and we need to find ways to keep up with the demand 
in a responsible way. Our economic future and well-being is largely 
dependent on a sound energy policy, and the decisions that Congress and 
the Administration make will have ramifications for years to come. It 
is important that we approach these issues in a thoughtful and thorough 
manner so that the right choices are made.
    Along those lines, it is important for all sides to work together 
so that we can come up with bipartisan solutions. We may have policy 
disagreements but we need to discuss these openly. There has been a 
great deal of finger pointing as to whose fault it is that we are in 
the present situation. This talk is unproductive and does not help us 
to reach consensus on these issues as we move forward. The fact remains 
that neither Democrats nor Republicans had proposed anything 
comprehensive in the form of energy policy in the recent past. We must 
not dwell on the past and instead look to the future to see what we can 
accomplish.
    I am pleased that the Administration has made energy policy a 
priority and has released its report. I am also pleased that both the 
Chairman and Ranking Members of the Committee have drafted and 
introduced substantive legislative energy policy proposals. These are 
all good starting points and give us much to think about as we consider 
these issues.
    I am a cosponsor of Sen. Bingaman's bill because I believe it has 
the most balanced and comprehensive approach to the problems we face. 
In my view, energy legislation must look at all sides of the equation--
increase traditional sources of supply, increase energy conservation, 
increase the use of renewable and alternative fuels, and encourage the 
development of new technologies that can supply power in the future.
    My concerns with the Administration's proposal lie chiefly with its 
lack of balance. The report has a number of directives on increasing 
domestic supply, particularly in oil and gas. It does not have nearly 
as many directives that address conservation, energy efficiency, 
renewable fuels and new technologies, although it does have many non-
binding recommendations in these areas. I am not ignorant to the fact 
that additional supplies of traditional fossil fuels are needed and 
finding ways to increase domestic supplies would reduce our dependence 
on foreign oil. But there is evidence that additional drilling is 
occurring in the marketplace already. We should spend more time 
learning how to increase our energy efficiency.
    Judging from comments that we have been hearing from some in the 
Administration, the words ``energy efficiency'' have taken on a 
negative connotation. This is unfortunate. There are ways to promote 
and support efficiency programs that minimize sacrifices to the 
consumer. This could go a long way towards reducing the strain on our 
system.
    In addition, while the Administration has a number of 
recommendations for renewable and alternative fuels, very few of them 
are substantive legislative solutions. While there is some support in 
the report for tax credits for wind and biomass, some of these already 
exist, and much of the additional research funding for renewables would 
come from ANWR lease sales, which may not ever occur. The report also 
has a number of studies and non-binding recommendations on renewables. 
These are fine in and of itself but much of the impact of renewable 
fuels has been studied already and has shown that they can have a 
positive affect on our energy supply and reduce our dependence on 
foreign oil.
    Sen. Hagel and I recently wrote a letter to the Vice President that 
was signed by 16 other Senators, 8 Democrats and 8 Republicans, 
requesting that the Administration work with us to increase the role 
for renewable fuels such as ethanol and biodiesel. We are also 
considering legislative proposals that would increase the use of these 
fuels. They would help to reduce our dependence of foreign oil. 
Moreover, utilizing renewable and alternatives fuels such as ethanol 
can have a beneficial effect on our agricultural economy as the sources 
of these fuels come from agricultural products. For rural communities, 
this can have a great benefit beyond just the additional source of 
fuel.
    In addition, there are other alternative sources that need to be 
developed further. Wind power is still a largely untapped source that 
has great potential in states with a great deal of wind. South Dakota 
is fourth in the nation in wind potential energy (behind the 
President's home state of Texas, which is second in the nation) and 
finding ways to harness and use it could greatly help reduce the strain 
on the energy system.
    Moreover, we need to find more incentives to create new 
technologies such as fuel calls and other innovative ideas. While the 
Administration's plans touches on this there should be a greater 
emphasis. We may need more power plants but we also need to 
aggressively search for technologies that could move us away from old, 
less efficient technologies. A boost from the Administration and 
Congress could go a long way towards moving us ahead in these fields.
    In short, Mr. Chairman, a balanced, innovative approach is needed. 
The Administration's report has some good ideas but its emphasis and 
incentives are tilted too much towards traditional sources of supply. 
Since much of that is already occurring in the marketplace, I would 
prefer that the Administration and Congress place some additional 
emphasis on long-term innovative ideas and conservation so that we can 
tackle these problems in a balanced manner. I look forward to the 
Secretary's testimony.
                                 ______
                                 
  Prepared Statement of Hon. Daniel K. Akaka, U.S. Senator From Hawaii
    Mr. Chairman, thank you for holding this hearing in such a timely 
fashion. Speedy action is necessary if we are to ensure that Americans 
do not continue to suffer from our ongoing energy problems.
    I would like to welcome Secretary Abraham. It is always a pleasure 
to welcome our former colleague to the Committee.
    President Bush's energy plan is a starting point for a national 
debate on how to craft a practical blueprint for meeting the nation's 
current and long-term energy needs. But it is only a start. It is 
incumbent upon Congress to debate this plan expeditiously and develop 
legislative approaches that will provide what American consumers want 
and need--reliable and affordable energy.
    We have had record-breaking increases in the price of gasoline and 
natural gas. The gasoline price increases that we have already seen 
this spring indicate that the pocketbooks of Americans will be severely 
affected this summer and beyond. The President's plan fails to address 
our short-term energy problem and relies heavily on increasing 
production of fossil fuels to solve long-term problems. It offers no 
solutions to alleviate the chronic problems of high energy prices in 
Hawaii and also falls short of addressing concerns of citizens in 
California and the Pacific Northwest. The Bush strategy lacks a vision 
for addressing short-term solutions across the nation.
    I am concerned that the President's plan relies on the domestic 
production of oil and gas at the expense of wise environmental 
protections. Current clean air, clean water, and conservation policies 
were developed after a great deal of research and debate, and they 
reflect priorities shared by most Americans. While I welcome proposals 
aimed at increasing our energy supplies, we must continue to safeguard 
the environment.
    Our nation has made great progress in improving our energy 
efficiency and conservation since the oil embargo of 1973, and we need 
to accelerate that commitment. Over the last three decades, the gas 
mileage of American cars has more than doubled. Twenty-five years ago, 
American vehicles were averaging only 12 miles per gallon. Today's new 
cars average more than twice this gas mileage in spite of our failure 
to maintain efficiency standards. Our home appliances require about a 
third of the electricity they did 30 years ago. This progress is the 
result of a long-term commitment to improve the efficiency of 
technologies that we depend upon. We must remain steadfastly committed 
to making energy efficiency a central component of our energy policy.
    America needs to invest more in the development of renewable energy 
resources such as wind and solar energy and alternative energy 
resources like hydrogen. Making the investment in the development of 
these resources contingent upon royalties from the production of oil 
from controversial Arctic drilling is risky. The nation cannot afford 
to jeopardize the future of renewable energy by gambling on prospective 
royalties. Proper investment combined with American ingenuity will 
provide the advances we need in ensuring that Americans enjoy clean and 
reasonably priced energy.
    Mr. Chairman, I am committed to the development of policies that 
encourage energy efficiency and conservation, and policies that 
encourage renewable and alternative energy resources. More 
fundamentally, I am committed to policies that ensure all Americans, 
regardless of where they live, whether on the neighbor islands of 
Hawaii, native communities of Alaska, or the far corners of New 
England, have adequate supplies of reasonably priced energy. To achieve 
this goal, we need policies that renew and expand our energy 
infrastructure and facilitate the development of new, efficient 
technologies. We must invest in research and development to ensure that 
a full range of fuels and technologies are available in the future. New 
technologies will save Americans money and stimulate economic growth.
    As we work to address our nation's energy needs, we should not 
overlook the buildup of carbon dioxide and other greenhouse gases 
forcing climate change. Global climate change is one of the paramount 
challenges we face in the 21st Century. We cannot afford to ignore this 
global problem and its dire long-term consequences.
    I am interested in hearing what the Secretary has to say.
                                 ______
                                 
   Prepared Statement of Hon. Gordon Smith, U.S. Senator From Oregon
    Mr. Chairman, I appreciate your leadership on the issues of energy 
policy, and want to thank you for convening this hearing in an 
expeditious manner to discuss the Administration's national energy 
plan. I would also like to extend a warm welcome to Secretary Abraham 
as he appears before the Committee today.
    For the past several months, and for many months to come, we on the 
west coast are feeling the tangible effects of the lack of a national 
energy policy for almost a decade. Electricity prices have skyrocketed, 
natural gas prices have doubled or tripled, and gasoline prices are at 
all time highs. Seniors, low-income families and small businesses will 
continue to be hurt by these prices on such basic necessities.
    California will continue to experience rolling blackouts throughout 
the summer, and power customers in neighboring states that must compete 
with California for spot power will be hurt by prices that seemed 
inconceivable a year ago.
    The President's plan is a realistic assessment of our current 
energy supply situation and our needs through the year 2020, based on 
current demand. It serves as a starting point for the debate as to how 
this nation will address its long-term energy supply needs in an 
environmentally responsible manner. It contains a number of 
recommendations on issues which I support, and for which I have 
advocated in the past, including: increased funding for the LIHEAP and 
low-income weatherization programs; tax credits for hybrid vehicles, 
wind and bio-mass; the need for enhanced reliability of the 
transmission system; and conservation at federal facilities.
    I remain very concerned, however, that while the plan discusses the 
impacts on families, seniors, and businesses of recent price increases 
in the energy sector, it fails to propose any near-term actions to 
address these impacts, particularly in the western energy market. As 
legislation moves forward in the coming weeks, I will continue to press 
for electricity price mitigation in the west, as well as other actions 
designed to provide near-term relief.
    I am also concerned that the plan fails to recognize the 
significant contribution made by consumer-owned utilities--the 
municipal utilities, cooperatives and peoples' or public utility 
districts--to meeting the electricity needs of our country. The plan 
fails to recognize the issues related to these utilities, such as the 
``private use'' issue or the ``85/15 rule'' that must be addressed in 
order for electricity restructuring to work effectively, even in the 
states where it has already been enacted.
    The issue of greenhouse gases is also not addressed in this plan. 
We must continue to control and reduce carbon dioxide emissions as we 
work toward our future energy security.
    I look forward to hearing from the Secretary today, and to working 
with my colleagues in the coming weeks as we attempt to craft 
legislation to meet the nation's energy supply needs.

         STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Bingaman. Thank you very much, Mr. Chairman. 
Welcome Secretary Abraham. The National Energy Policy Group's 
report, I believe, does make a useful contribution to the 
debate that needs to take place here in Washington and here in 
the Congress. I'd point out a couple of obvious conclusions 
from looking at the report. First, the majority--the 
substantial majority of the recommendations in the report are 
recommendations by the National Energy Policy Development Group 
to the President. They are not recommendations to Congress.
    There are some significant recommendations to the Congress. 
I think 23 of the 105 recommendations do involve action by 
Congress. As we read them, we are anxious to get down to some 
specific questions that will obviously have to be answered as 
we put forward and move ahead with legislation in these 
regards. There is not a focus, as Senator Murkowski said, in 
this energy report. There is not a focus on the short-term. And 
I firmly believe there are actions Congress can take and should 
take in the short-term to deal with energy issues, as well as 
many of the actions that are recommended that need to be taken 
in the long-term.
    I hope we'll get a chance to discuss those as well. I'd 
also, of course, want to focus to some extent in this hearing 
if we can, and in future hearings, on the issue of overlap. 
Senator Murkowski has a fairly comprehensive bill, setting out 
a variety of proposals to deal with some of these energy 
issues. I have introduced a similar bill that also is 
comprehensive in that it tries to deal with a great many 
issues. Of course, the administration's report does the same. 
There are many areas of common agreement between those three. 
We need to identify what those are and determine whether it 
makes sense to go ahead with the areas we agree upon in the 
short-term. And I'll be interested in getting the Secretary's 
views on that. But again, thank you for coming.
    The Chairman. Thank you.
    Mr. Secretary, please proceed.

         STATEMENT OF HON. SPENCER ABRAHAM, SECRETARY, 
                      DEPARTMENT OF ENERGY

    Secretary Abraham. Mr. Chairman, Senator Bingaman, Senator 
Burns, Senator Wyden. Good to be with you again. I appreciate 
the chance to come by today to discuss at this hearing the 
President's National Energy Policy which, as you know, was 
developed by our National Energy Policy Development Group, 
which was under the direction of the Vice President.
    The analysis which we engaged in, in developing this 
report, began first with an attempt to project America's energy 
demands. Where they are today. How they are being met. And then 
where we anticipated the future would take us.
    Let me just begin with a brief comment on that. Today, 
America consumes 98 quadrillion Btu's, or quads as they are 
called, a year in terms of all energy forms. Our domestic 
energy production is 72 quads. The imbalance between energy 
demand and domestic energy production is made up with imports. 
Between now and the year 2020, our energy demand is projected 
to rise significantly. In fact, if the energy intensity of the 
United States--that is the amount of energy needed to generate 
a dollar of GDP--remains constant, our energy demand in the 
year 2020 would go from 98 to 175 quads.
    However, the current policies which we have in place, the 
policies which we recommend in this plan, and things that 
happen without government playing a direct role, that is 
structural changes in the economy and so on, will in our 
judgment improve energy efficiency to the point that demand in 
2020 will not hit the 175 quad level, but rather we would 
project, at least according to the Energy Information 
Administration at the Department, that demand level would be 
about 127 quads, which means that improved energy efficiency 
can help close a great deal of the gap between projected energy 
demand and domestic energy production.
    However, it cannot do the whole job and for that reason we 
believe the United States needs to embark upon a very 
comprehensive long-term plan, to both make sure we gain the 
energy efficiency objectives outlined a moment ago, and 
increase supply--domestic supply in particular--so that we do 
not end up in a deficit position. The question is where do we 
get the increased supply when over the past decade domestic 
supply production has remained relatively flat.
    To address these challenges our National Energy Plan has 
adopted an approach which is, in my judgment, balanced and 
comprehensive. As the President said, we are looking for a new 
harmony among our priorities.
    So let me just briefly outline the philosophy of balance 
that is incorporated in the plan. First, our policy balances 
the need for increased supplies of energy with the need to 
modernize our conservation efforts by employing cutting-edge 
technology. For example, as we call for recommendations to 
enhance oil and gas recovery from existing and new sources 
through new technology, we also call for recommendations for 
changes in corporate average fuel economy standards.
    Second, our plan calls for a balance in terms of our supply 
sources. With electricity demand forecast to rise 45 percent by 
the year 2020, we estimate the need for an additional 1,300 to 
1,900 new powerplants in the country. Current policy 
anticipates that over 90 percent of those new plants will be 
fired by natural gas. We believe energy security dictates a 
more balanced approach to new power generation. In addition to 
natural gas, the National Energy Plan looks to such sources as 
clean coal generation, nuclear power and hydropower, among 
others to give us a broad mix of energy to meet our future 
needs.
    Third, our plan seeks to balance our need for traditional 
sources of energy such as oil and natural gas with the need for 
renewable and alternative sources such as biomass, solar, wind, 
hydrogen and others. Consequently, our plan recommends more 
focused research on new sources such as hydrogen infusion and 
proposes tax incentives for the use of certain renewables. The 
plan also seeks to increase exploration of domestic sources of 
oil and gas.
    Fourth, our plan attempts to harmonize growth in domestic 
energy production with environmental protection. Our commitment 
to conservation and environmental protection is not an 
afterthought. It is a commitment that is woven throughout our 
energy plan. Energy production without regard to the 
environment is simply not an option. For example, in addition 
to recommendations seeking to streamline the permitting process 
for plant siting as well as building new infrastructure, the 
National Energy Policy also proposes mandatory reduction 
targets for emissions of three major pollutants: sulfur 
dioxide, nitrogen oxides, and mercury.
    We believe this balanced approach makes sense. And it 
yields recommendations that fall basically into six categories. 
First, we need to encourage industry to repair and update the 
nation's antiquated energy infrastructure. From our ability to 
turn raw materials into useful energy to the pipelines that 
carry natural gas and oil to our electricity grid, America's 
ability to deliver energy to those who need it is definitely 
ready for the year 1960. It is not, however, up to the demands 
of our 21st century economy.
    Second, the plan contains a variety of recommendations on 
how we might better employ modern technology to achieve gains 
in conservation as well as in domestic supply. A good example 
of this is the plan's emphasis on innovative technologies such 
as fuel cell vehicles for which we propose certain tax credits.
    Third, streamlining the regulatory process is a key 
priority. We have found areas where the permitting process for 
energy projects in infrastructure improvement moves too slowly. 
One recent hydropower relicensing case took 23 years. We must 
improve these processes without sacrificing our commitment to 
the health, the safety and the environment the people of this 
country deserve and demand.
    Fourth, the report contains recommendations recognizing the 
global nature of today's energy markets. As we pay attention to 
the need to enhance our domestic supply, we also need to 
diversify and increase our sources of energy around the world. 
For example, our plan highlights opportunities for supply in 
the resource rich Caspian Sea area.
    Fifth, the plan addresses the critical problems faced by 
low-income families as they confront rising energy costs. It 
calls for, among other things, a significant increase in the 
Weatherization Assistance Program, which was already reflected 
in our budget this year. Finally, our plan recognizes the 
impact energy price spikes can have on working families and we 
are committed to taking action to lightening that burden.
    Lastly, our National Energy Plan seeks to enhance 
competition across the board. Helping to create a level playing 
field where a free market in energy can flourish will be one of 
the best ways to secure our energy future with an affordable 
and reliable access to a diverse supply of resources.
    In terms of how we proceeded, Mr. Chairman, where possible 
the President moved immediately to implement key parts of the 
plan. Hence, last Friday, he issued two executive orders 
directing Federal agencies to expedite approval of energy-
related projects, and directing Federal agencies to consider 
the effects of proposed regulations on energy supply 
distribution or use. Moreover, where appropriate, the President 
is directing Federal agencies, including ours, to take a 
variety of actions to improve the way they use energy and to 
carry forward critical aspects of the policy--and I will be 
keeping the committee apprised of the actions which we take at 
the Department of Energy in accordance with recommendations in 
the plan.
    But as Senator Bingaman noted, key portions of the energy 
policy demand legislation. I am looking forward to working with 
this committee and with other House and Senate committees to 
move such legislation through the process. In my opinion we 
start from a wide base of agreement. We all recognize energy as 
a critical challenge. As noted, both the chairman and the 
ranking member of this committee have sponsored robust energy 
bills, and I am struck by how much common ground there is 
between those bills and our proposals.
    In fact, I have asked my staff to do a quick comparison of 
the energy bills that have been introduced by Chairman 
Murkowski and Senator Bingaman with our National Energy Plan, 
and was pleased to discover that there is considerable 
agreement. In fact, over 30 of the recommendations included in 
the National Energy Plan are also included in the comprehensive 
energy bills that have been introduced by the chairman and 
ranking member. They include increasing support for the LIHEAP 
Program; increasing funding for Weatherization Assistance; 
promoting greater energy efficiency programs; conserving energy 
in Federal facilities; promoting the use of technological 
advances to better protect our environment; exploring 
opportunities for royalty reductions as economic incentives for 
environmentally sound off-shore oil and gas development; 
repealing the Public Utility Holding Company Act; reforming the 
Public Utility Regulatory Policies Act; continuing to develop 
advanced clean coal technology; extending the Price-Anderson 
Act; and a variety of others.
    Naturally, there will not be complete agreement and the 
President is strongly committed to the adoption of his 
recommendations. But I truly believe that we have the basis for 
working together to meet America's energy crisis and the 
administration looks forward to working with the committee. I 
particularly look forward to working with all of you to advance 
the legislative components of this agenda, and to work together 
on a broader basis to address our energy challenges.
    Mr. Chairman, thank you for the opportunity to make these 
remarks. I look forward to any questions.
    [The prepared statement of Secretary Abraham follows:]
        Prepared Statement of Hon. Spencer Abraham, Secretary, 
                          Department of Energy

                              INTRODUCTION
    Thank you Mr. Chairman.
    I appreciate the opportunity to discuss the President's National 
Energy Policy, which was developed by the National Energy Policy 
Development Group under the direction of Vice President Cheney.
    If I might, I would like to make a brief opening statement.

                  AMERICA'S ENERGY CHALLENGE 2001-2020
    Today, America consumes 98 quadrillion British thermal units (or 
quads) a year in all forms of energy. Our domestic energy production is 
72 quads. The imbalance between energy demand and domestic energy 
production is made up with imports.
    Between now and 2020, our energy demand is projected to rise 
significantly. If the energy intensity of the U.S. economy--the amount 
of energy needed to generate a dollar of Gross Domestic Product--
remained constant, our energy demand in 2020 would be 175 quads. 
However, our Plan and current policies will improve energy efficiency 
to the point that energy demand in 2020 can be lowered from 175 quads 
to 127 quads.
    That means improved energy efficiency can help close much of the 
gap between projected energy demand and projected domestic energy 
production.
    However, improved energy efficiency cannot do the whole job. For 
that reason, the United States will need more energy supply. The 
question is: where do we get that increased supply when over the past 
decade domestic supply production has remained relatively flat?

                         OUR BALANCED APPROACH
    To address these challenges, the national energy plan is shaped by 
the need for a balanced and comprehensive approach. As the President 
said, we are looking for a new harmony among our priorities.
    Let me briefly outline this approach for the Committee.
    First, our policy balances the need for increased supplies of 
energy with the need to modernize our conservation efforts by employing 
cutting edge technology. And so, for example, as we call for 
recommendations to enhance oil and gas recovery from existing and new 
sources through new technology, we also call for recommendations for 
changes in Corporate Average Fuel Economy standards.
    Second, our Plan calls for a balance in terms of our supply 
sources.
    With electricity demand forecast to rise 45 percent by 2020, we 
estimate the need for an additional 1,300 to 1,900 new power plants in 
the country. Current policy anticipates that over 90 percent of those 
new plants will be fired by natural gas. We believe energy security 
dictates a more balanced approach to new power generation. In addition 
to natural gas, the National Energy Plan looks to such sources as clean 
coal generation, nuclear power, and hydropower to give us a broad mix 
of energy to meet our future needs.
    Third, our plan balances our need for traditional sources of 
energy, such as oil and natural gas, with the need for renewable and 
alternative sources such as geothermal, solar, wind, and hydrogen. 
Consequently, our Plan recommends more focused research on new sources 
such as hydrogen, and fusion, and proposes tax incentives for the use 
of certain renewables. The Plan also seeks to increase exploration of 
domestic sources of oil and natural gas.
    Fourth, our energy plan harmonizes growth in domestic energy 
production with environmental protection. Our commitment to 
conservation and environmental protection is not an afterthought; it is 
a commitment woven throughout our energy policy. Energy production 
without regard to the environment is simply not an option. For example, 
in addition to recommendations seeking to streamline the permitting 
process for plant sitings as well as building new infrastructure, the 
National Energy Policy also proposes mandatory reduction targets for 
emission of three major pollutants sulfur dioxide, nitrogen oxides, and 
mercury.

                       OUR OVERARCHING PRIORITIES
    This balanced approach yields recommendations that fall for the 
most part into six basic categories.
    First, we need to encourage industry to repair and update the 
nation's antiquated energy infrastructure. From our ability to turn raw 
materials into useful energy, to the pipelines that carry natural gas 
and oil, to our electricity grid, America's ability to deliver energy 
to those who need it is definitely ready for the year 1960; it is not, 
however, up to the demands of our 21st Century economy.
    Second, the plan contains a host of recommendations on how we might 
better employ modern technology to achieve gains in conservation as 
well as domestic supply. A good example of this is the Plan's emphasis 
on innovative technology, such as fuel cell vehicles, for which we 
propose certain tax credits.
    Third, streamlining the regulatory process is a key priority. We 
have found areas where the permitting process for energy projects and 
infrastructure improvement moves too slowly. One recent hydropower 
relicensing case took 23 years. We must improve this process.
    Fourth, the report contains recommendations recognizing the global 
nature of today's energy market. As we pay attention to the need to 
enhance our domestic supply, we also need to diversify and increase our 
sources of energy around the world. For example, our National Energy 
Plan highlights opportunities for supply in the resource rich Caspian 
Sea area.
    Fifth, our energy Plan addresses the critical problem faced by low-
income families as they confront rising energy costs. We therefore 
support a strong Low Income Home Energy Assistance Program, and propose 
increases in our weatherization assistance program funding in the 
amount of $1.2 billion over the next ten years. Our Plan recognizes the 
impact energy price spikes can have on working families and we are 
committed to taking actions to lighten the burden.
    And finally, our National Energy Plan seeks to enhance competition 
across the board. Helping to create a level playing field where a free 
market in energy can flourish will be one of the best ways to secure 
our energy future with a affordable and reliable access to a diverse 
supply of resources.

                   CONCLUSION: A COOPERATIVE APPROACH
    Where possible, the President moved immediately to implement key 
parts of his plan. Hence, last Friday he issued two executive orders 
directing Federal agencies to expedite approval of energy-related 
projects and directing Federal agencies to consider the effects of 
proposed regulations on energy supply, distribution, or use. These are 
important actions.
    What's more, where appropriate, the President is directing Federal 
agencies, including my own, to take a variety of actions to improve 
they way they use energy and to carry forward critical aspects of his 
policy.
    But, key portions of the energy policy will demand legislation. I 
am looking forward to working with this Committee and with other House 
and Senate committees to move this legislation though the process.
    In my opinion, we start from wide base of agreement. We all 
recognize energy as a critical challenge. Both the Chairman and Ranking 
Member of this Committee have sponsored robust energy bills and I am 
struck by how much common ground there is between these bills and our 
proposals.
    In fact, I asked my staff to compare the comprehensive energy bills 
that have been introduced by Chairman Murkowski and Senator Bingaman, 
with our National Energy Plan and was pleased to discover that there is 
considerable agreement. Indeed, over 30 of the recommendations included 
in the National Energy Policy are also included in the comprehensive 
energy bills that have been introduced by the Chairman and Ranking 
Member. Just a few examples include, supporting the LIHEAP program; 
increasing funding for the Weatherization Assistance Program; promoting 
greater energy efficiency programs; conserving energy on federal 
facilities; promoting the use of technological advances to better 
protect our environment; exploring opportunities for royalty reductions 
as an economic incentive for environmentally sound offshore oil and gas 
development; repealing the Public Utility Holding Company Act; 
reforming the Public Utility Regulatory Policies Act; continuing to 
develop advanced clean coal technology; extending the Price-Anderson 
Act; improving the hydropower licensing process; increasing support for 
research and development of renewable energy resources and improving 
the reliability of the interstate transmission system.
    Naturally, there will not be complete agreement and the President 
is strongly committed to the adoption of his recommendations. But I 
truly believe we have the basis for working together to meet America's 
serious energy crisis.
    Thank you, Mr. Chairman.

    The Chairman. Thank you very much, Mr. Secretary. You are 
to be complemented for, I think, getting a running start when 
you are kind of all by yourself. Senator Bingaman and I are 
actively engaged in the process in trying to clear some of your 
nominees.
    Secretary Abraham. We would be grateful.
    The Chairman. You are doing pretty well writing your own 
material. Let me just focus for a moment on, I think, a 
prevailing attitude among many Americans and many members of 
Congress that somehow there ought to be an immediate relief, a 
short-term fix to get us over this hump. And we generalize a 
good deal and say we want to work toward a short-term solution 
so we can get the relief we need until we can resolve a long-
term fix. But we have not seen an awful lot of identification 
outside of generalizations on just how to achieve a short-term 
fix.
    We talked about suspending the Federal gasoline tax of 18.4 
cents a gallon. Of course, the down side to that are the 
consequences to the Federal Highway Trust Fund. Then what does 
that do for conservation? If there is no pinch, why, there is 
no incentive to conserve.
    We talked about increasing refined products from Canada, 
Mexico, Venezuela without reformulated gasoline requirements. 
There is a trade-off there on air quality. We talked about 
reducing EPA boutique fuels. I think we've got 15 different 
kinds of reformulated gasoline, but some of that would require 
legislation. There is a question of what the ethanol mix might 
be and the significant change; waving oxygenates; increasing 
per mile deduction for gasoline for businesses and charitable 
purposes. We talked even about toll road waivers during 
concentrated driving times. Somebody did some figuring here and 
estimated that conservation could be aided by reducing the 6.7 
billion gallons of gasoline wasted annually while idling in 
congestion.
    So what we have seen here, at least to my attention, is an 
effort to identify some short-term fixes, but not really coming 
up with anything significantly achievable. The last point is 
that there is an allegation out there that big oil is gouging--
or big utilities, or whatever and yet the FTC had just 
completed a 3-year study of gasoline prices on the West Coast 
and the result is no evidence of price fixing or collusion. I 
mean, they say no evidence. Instead, they determined the 
boutique fuels and the inadequacy of refineries were part of 
the problem.
    A similar study was done last summer in the Midwest as 
prices sky-rocketed. The study found again that infrastructure, 
refineries and pipelines were to blame. So it is a lot easier 
to kick big oil and blame them then going down to the root of 
the problem. I would like to hear your comments on those two 
areas. Is there a quick fix in the sense of relief? And what 
about this price gouging issue?
    Secretary Abraham. Well, Mr. Chairman, the experience we 
are going through right now on gasoline prices is, of course, 
very similar to what we encountered last summer. I remember as 
a member of the Senate offering an amendment to some 
legislation--I can't remember the bill now--to try to suspend 
the Federal gas tax. I didn't fare very well in the votes. But 
the kind of repetitious nature of these problems suggests that 
there is an underlying cause that goes beyond simply 
accusations of inappropriate conduct.
    And to that end, I just want to make it clear, the 
President has made it very apparent to all of us in the 
administration that he expects the FTC and other relevant 
agencies to maintain a strong vigilance against any 
inappropriate behavior, and we will.
    I have, in fact, asked the Energy Department to look into 
some of the rumors which we encountered a couple of weeks ago 
where suddenly we were being told there was going to be $3 
gasoline. At least we were being told that in the newspapers. 
The local dealers were being told that by their suppliers. We 
immediately set in motion a process to track down the rumors. 
Sometimes these rumors can become self-fulfilling prophecies 
when people say they have now an excuse to begin increasing 
charges. We have tried to track that down.
    And I have noticed that, in fact, the USA Today has this 
week the very same publication that had said we would have $3 
gas now says gas price may level off until next summer. So 
these things tend to change.
    Certainly, we have not seen any evidence in the inventory 
analysis done by the Department that $3-a-gallon gas is coming. 
But nonetheless we are trying to monitor that. At the same 
time, what we have tried to do in this plan is address some of 
the underlying issues that we feel are going to cause these 
problems to repeat on a consistent basis. I mean, if we do not 
have adequate refining capacity, if every time there is sort of 
a peak period, whether it's as we move into the wintertime and 
there is a need to transition to heating fuel or as we move 
into the summer driving season and there is a need to 
transition into more gasoline production, especially on the 
gasoline side because of the variety of different fuel types, 
the inadequacy of refining capacity immediately causes supply 
problems.
    The Chairman. I do not want to let you off without any 
mention of short-term solutions because my light is on here. 
Any short-term solutions?
    Secretary Abraham. Well, there are some and on problems 
that we regarded as immediate problems I reported to this 
committee actions we have taken in respect to California on the 
electricity issue. We did not wait until the plan came out to 
begin trying to take action. But there are limits as to what we 
can do in the short-term to address problems that have 
developed over long periods of time. I think that is the 
fundamental point.
    At the same time, I would say to members that we need to 
get the plan moved forward because the problems that repeat 
themselves every year do not have to repeat themselves well 
into the future if we can address the underlying reasons behind 
them.
    The Chairman. Thank you. My time is up.
    Senator Bingaman.
    Senator Bingaman. Thank you very much. Let me ask first on 
this low-income home energy assistance program. You have said 
and I believe your report says that you are requesting 
increased funds for that. There are 2 fiscal years that are 
relevant to that discussion, it seems to me. The one we are in 
today and will be until the first of October and then the next 
fiscal year. The one we are in today there is clearly a 
shortfall of funds for low-income home energy assistance.
    We have passed an increase in the authorizing levels 
through the Senate. The House has not acted on it. We have 
urged that the administration request additional, supplemental 
appropriation so that we can actually get funds to the States 
to continue with that program during the rest of this fiscal 
year. Do you know if the administration supports doing that? 
Some type of supplemental appropriation to get us through until 
October 1?
    Secretary Abraham. I do not know. I know that, as I 
remember when we put the budget together when I was still a 
member, that we'd had $300 million in emergency money, but we 
spent that, as I remember before the end of last year--that is 
by December 31. Because this is not in my Department, I do not 
know--and it is traditionally in OMB and the relevant 
Department--I am not sure what the status of that is. What I 
can comment on is the nature of the recommendation. It was our 
decision, or as we put the plan together, that we needed to 
find a more effective way to run this program.
    So what we have proposed is not only an increase in the 
base funding over this year's appropriation level, but also to 
try to work with the Secretaries of the Interior and Health and 
Human Services to find a way to perhaps trigger increased 
supplies of money to LIHEAP based on triggers that would be set 
when prices would exceed a trigger price. So that we would 
begin supplementing the LIHEAP program in the future with 
monies that would be moved over from Federal oil and gas 
royalties. That's the future. I can't tell you what the status 
of the supplemental is.
    Senator Bingaman. Well, let me ask about next year. As I 
understand it, during this current year we have appropriated 
and spent $2.25 billion so far. Your plan proposes that next 
year we spend $1.7 billion. I don't see how that's an increase.
    Secretary Abraham. I think it is an increase over the 
regular 2001 appropriation.
    Senator Bingaman. But not over what was actually 
appropriated.
    Secretary Abraham. I do not think it contemplated what was 
included in emergency additions. And I think what is meant 
here, if you would look at the recommendation. The 
recommendation is to increase the base to start with, but then 
also direct the Secretaries of the Interior and HHS to propose 
legislation to bolster LIHEAP funding by using a portion of oil 
and gas royalty payments, redirecting royalties above a set 
trigger price to LIHEAP whenever crude oil and natural gas 
prices exceed the trigger price.
    I think what we have envisioned here is working with 
Congress to see if we cannot change from a situation where we 
lurch in the face of emergencies to try to come up with a 
supplemental, which may or may not happen, to a situation where 
the pool of monies available for LIHEAP would grow as there is 
evidence in the markets that the price of heating oil is going 
to go up. That was--the idea was to try to get away from 
estimating and emergency kind of responses into a situation 
where the available funds would be larger----
    Senator Bingaman. So we can expect some legislation along 
those lines?
    Secretary Abraham. That's the goal. And again, I think that 
certainly we would anticipate that in putting together such 
legislation--our goal is to try to find a way around the sort 
of crisis approach to something where we are expanding that 
pool of money without the need to get to supplementals at some 
point, and hopefully we can find one.
    Senator Bingaman. Let me move on to another one of your 
recommendations. It says that the Cheney task force 
recommends--and this is a quote from it--recommends ``that the 
President direct the Secretary of Energy to propose 
comprehensive electricity legislation.''
    The previous administration did propose comprehensive 
electricity legislation. It was agreed to by some and disagreed 
with by others, but it was a fairly comprehensive proposal. 
When could we expect to see a proposal from your Department in 
the nature of a comprehensive electricity----
    Secretary Abraham. This week, now that the plan has been 
finalized, I've asked our staff to begin the process of looking 
at components that might be included in a comprehensive bill. 
Some of it will depend, I guess, on definitions too because 
obviously one of the issues that we want to address is 
reliability. And there is a separate recommendation with regard 
to reliability that is in this--in our plan. And some bills I 
know would merge reliability legislation into comprehensive 
legislation. Some wouldn't.
    But the question you ask is the timetable--we have just 
begun at the Department to begin examining possible inclusions 
in such legislation. I'm hopeful we will be able to move ahead 
fairly quickly. But we also do want to have a discussion with 
members of Congress to get a sense of priorities here.
    The one area that I would highlight, as I mentioned in my 
statement, that already I can assure you would be part of any 
legislation we might offer, unless the Congress acts prior to 
that, would be the repeal of PUHCA. Because that's a position 
the President outlined already in his campaign.
    Senator Bingaman. You also, in your statement to us today, 
said that the administration proposes mandatory reduction 
targets for emissions of three major pollutants: sulfur 
dioxide, nitrogen oxides and mercury. My impression is that a 
number of utilities, and other companies, oil companies and 
others would like to know where the administration is going to 
be on greenhouse gas emissions before they make major 
investments.
    The constant drum beat is that we are going to need 1,300 
new powerplants over the next 20 years. What can you tell us 
about your intentions? Are you going to set CO2 
criteria? Are you going to give any direction as to where you 
believe we should be on that issue?
    Secretary Abraham. Senator, on a separate track from the 
National Energy Policy Development Task Force track, the 
President has launched a multi-department review of climate 
policy. In fact this afternoon I will be participating in yet 
another of these task force meetings, which is a principals 
level task force.
    Senator Bingaman. Who is in charge of that?
    Secretary Abraham. It is being run by the White House, 
coordinated by--I believe by the offices of National Security 
and National Economic Policy of the White House. But it 
includes the Administrator of the EPA, the Secretaries of the 
Treasury, the Interior, myself and others at a principals 
level. My understanding is that this summer that review and set 
of recommendations will be completed. And that would presumably 
address these issues.
    But it started later than the Energy Task Force started, 
and so it is a little bit later in terms of when it will 
finish. But that'll be, I think, the administration's statement 
on policy in this area will emanate from those recommendations.
    Senator Bingaman. Do you agree with my basic point that in 
order to give companies the certainty that they need to be 
going forward with these major investments and new plan, we 
really do need to come up with a policy on CO2 
emissions?
    Secretary Abraham. I think that clear guidance and 
certainty of any sort, whether it is on CO2, it's on 
the other pollutants that are mentioned here--the pollutants 
that are mentioned here, the emissions levels and so on of 
these different greenhouse gases, I should say, is very 
important. We have certainly heard from the same industries you 
have asking for some clarity as soon as possible. That is, I 
think, one of the reasons we wanted to move forward with the 
multi-pollutant bill at the same time we complete this other 
study, so that we really would be able to establish some 
guidelines people would be comfortable following.
    Senator Bingaman. I guess my time is up. There are only two 
lights in this room, is that right? You are either go or stop. 
No slow down. Thank you very much, Mr. Chairman.
    The Chairman. That is a good question, Senator Bingaman. So 
if the yellow light is on, it is just a warning, nothing more. 
We need one that gives you a little jolt.
    Senator Wyden.

           STATEMENT OF HON. RON WYDEN, U.S. SENATOR 
                          FROM OREGON

    Senator Wyden. Thank you Mr. Chairman and Mr. Secretary. 
Welcome. It is good to have a chance to work with you.
    Mr. Secretary, there is a veil of secrecy that envelops 
today's energy markets. Energy is now being traded as a 
commodity all across the country on trading floors, but the 
information that is needed in order to really protect the 
public interest is not available. I am talking about systems 
information, information about transmission capability, outages 
and this sort of thing. Not proprietary information; 
information about systems.
    I intend to introduce legislation shortly to change that, 
to bring about some transparency. I would like to know at the 
beginning conceptually--you cannot comment on a bill you have 
not seen--but conceptually whether you would support 
legislation to lift this veil of secrecy that surrounds energy 
markets. So at a time when energy is being traded like a 
commodity, the public can get the information about systems 
that is needed to make markets work.
    Secretary Abraham. Obviously, I would not at all rule out 
supporting such legislation in a conceptual sense. One of the 
issues that I have asked our Energy Information Administration 
to look at is the question of going beyond the kind of things 
that we currently examine with regard to gasoline to try to 
give consumers an understanding of what the prices are at each 
of the stages in the process, because when people are upset, 
they deserve to know where the fluctuations are taking place.
    Senator Wyden. This is not about prices. I am going to talk 
about that in a second. This is about information on the 
trading floors where energy is being bought and sold. You lift 
this veil of secrecy so that people can find out how to make 
markets work.
    Secretary Abraham. Again, I cannot state any objection to 
that notion at the onset.
    Senator Wyden. The administration recommends fast tracking 
the siting process for powerplants. And it just seems to me 
there is an opportunity to be more creative here. I want to ask 
you about a specific approach. Instead of just saying you are 
going to fast track the siting process for everybody, why not 
say that for a developer for a company who fast tracks the 
environmental compliance side, that those are the people who go 
to the head of queue when it comes to siting. That way you've 
got a chance to ensure that there is environmental protection 
and sensitivity to economics, rather than just say, well, okay, 
let's push everybody to the front of the line. Wouldn't that be 
a more creative way to approach it?
    Secretary Abraham. I do not think there is any desire on 
the part of the administration to diminish the focus on the 
environmental components of these permitting processes, which 
is why I know that the Council on Environmental Quality at the 
White House has been proposed as the entity that would make 
sure that any permitting process expediting would be consistent 
with the rules.
    One of things which we have tried to recommend is to start 
focusing on the kinds of permits that affect processes such as 
combined heat and power systems, where sometimes the permit 
process, as I understand it at least, the lack of flexibility 
in the permitting has really slowed up what could be the 
introduction of much, in our judgment at least, preferable ways 
of energy production. But I can assure you that there is every 
interest in our part in trying to simply eliminate what seemed 
to be unnecessary delays.
    I found this, in a separate area in my Department, with 
respect to transmission systems. We were holding up our 
responsibility with respect to international transmission 
siting between the United States and Mexico. It turned out, for 
reasons that had nothing to do with issues related to 
environment, health or safety, but just had to do with 
bureaucratic log jams. And that's, I think, what the principal 
goal we have here is and to make sure through the Council on 
Environmental Quality that we do not in any sense diminish the 
rigorous nature of those reviews.
    Senator Wyden. When we come to that part of the legislative 
debate, I want assure you I am going to try to change the 
siting initiative because I think it one thing to say that you 
are going to put everyone on a fast track. There are delays. 
There is no question about it. But what we ought to be doing is 
in effect saying we want to fast track it for those address the 
other issues that are important to communities such as 
environmental compliance.
    Secretary Abraham. And we should--like I said, one of the 
key recommendations is the recommendation that the EPA 
Administrator promote combined heat and power systems through 
flexible permitting process. We might want to try to identify 
preferable areas in which we would want to be generating, and 
that is a good example.
    Senator Wyden. On the question of gas pricing and energy 
pricing, I am very troubled by the administration's 
unwillingness to tackle practices that are clearly anti-
consumer and anti-competitive, but do not seem to technically 
be illegal under current law. And let me be specific. The 
Federal Trade Commission found in their study on the west coast 
that our gasoline markets are being redlined.
    We have communities where the companies actually draw a 
line and say distributors cannot go here. Juries in my State 
are handing out multimillion dollar awards because of 
redlining. So the government has found that west coast gasoline 
markets are being redlined. It is about as an anti-competitive 
practice as you can find, but it is not technically illegal 
under current law.
    I would like to see the administration go after those kinds 
of practices and I do not see them mentioned anywhere in the 
proposal. And yet that is taking a toll right now in my State 
where we have lost 600 gasoline stations. In much of the west 
coast a handful of companies control 60-70 percent of the gas 
market. And I would like to see the administration go after 
some of those practices.
    Secretary Abraham. I would be glad to talk further with 
you, Senator, on what appropriate action there might be. I 
would not hesitate to examine that, if there is a suggestion 
you might have as to an activity we might----
    Senator Wyden. The suggestion I have is just because it is 
not illegal under current law does not mean that everybody 
should say, well, let's just ignore it. It is almost as if now 
unless a handful of these oil companies are huddled up in a 
hotel somewhere, nobody is going to say that we ought to be 
looking at these issues.
    The Federal Trade Commission found evidence of redlining. 
West coast gas markets are being redlined and I would hope, and 
I have always enjoyed working with you, that we would say that 
practices that are anti-consumer, anti-competitive, and anti-
market are areas that we would also try to change even if they 
are not strictly illegal under current law.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator. Senator Bayh is next. I 
have been advised that this is not really a yellow light, it's 
a red light. So if anyone is color blind, I will remind them 
after 6 minutes.
    Thank you. Please proceed.

           STATEMENT OF HON. EVAN BAYH, U.S. SENATOR 
                          FROM INDIANA

    Senator Bayh. It is not the only example around here, Mr. 
Chairman, of things not appearing quite the way they are in 
fact.
    The Chairman. That's very true.
    Senator Bayh. Thank you, Mr. Chairman. Mr. Secretary, 
welcome again. It was good being with you last night for 
President Ford's wonderful address to the members of the 
Senate. And it is good to have you back before this committee.
    Secretary Abraham. Thank you. Good to be with you.
    Senator Bayh. I have two brief points, Mr. Secretary. 
First, it seems to me that this is a difficult issue and we all 
understand that. But sometimes out of difficulty comes the 
opportunity to make a great advance or to break out of old ways 
of thinking. In all candor, I am concerned that the 
administration may not be making the most of this opportunity.
    Let me deal with it in general strategic terms and then 
give you some specific examples. In general philosophical 
terms, the old debate, the sterile debate, of the last 20 to 30 
years has been some people have argued that more production 
alone is the answer to all of our energy problems. I think all 
of us up here recognize that more production is a part, an 
important part, of the answer to our problems but alone it is 
not going to be enough to solve America's energy crisis.
    On the other side, there are those that say, well, we can 
just conserve our way out of this problem, and implicit in that 
is too often a lower standard of living for the American 
people. Conservation is a critically important part of the 
overall answer but by itself is not enough.
    The American people are hungry for a third way, a new 
approach to this, which would aggressively invest in new 
technologies to promote clean, renewable, alternative energy 
sources that are domestically-based.
    And I must say that when we look at specifics, and I am 
going to get down to specifics here, there is a disconnect 
between some of the language in the energy proposal put forward 
by the administration and the specifics in the budget. We need 
a way of resolving this issue.
    Let me just list some of the specifics. The proposal put 
forward instructs you and the Secretary of the Interior to 
promote enhanced oil recovery with new technologies. But the 
gas exploration and production programs are cut by 34 percent. 
Petroleum and oil technology is cut by 54 percent. The Natural 
Gas Technologies Program is cut by 53 percent. The Efficient 
and Renewable Energy budget is cut by 27 percent. Gas hydrates 
research, a very promising long-term initiative, is cut by 52 
percent.
    The proposal recommends that agencies be directed to reduce 
energy use, but the Federal Energy Management program is cut by 
48 percent. Transportation research and development is cut by 
21 percent. The Industries of the Future program is cut by 35 
percent. The Office of Nuclear Energy, Science and Technology 
is cut by 9.3 percent.
    My question, Mr. Secretary, is how do we square the 
rhetoric and the language of the energy proposal with some of 
these reductions in research programs that represent our 
national commitment to new research, new energy and that really 
promise to break us out of this sterile debate of the last 20 
to 30 years.
    Secretary Abraham. Well, if I can, it may take a little 
longer and I don't want to cheat you out of your second 
question, but it would take a little time to answer that. I 
would like to answer it comprehensively.
    First of all, I totally agree with your analysis that we 
must--and I mentioned in my statement and have in public 
speeches--understand that the solution cannot lie on either end 
of the traditional debate here. We cannot possibly conserve our 
way to energy security by the year 2020. There is no doubt in 
my mind that we can't simply produce our way to security. The 
differential between where we would be in the absence of a 
balanced approach and where we are is too great. So, we 
absolutely must do that.
    Now the question you raised is what about this year's 
budget and how does it square with the recommendations. Let me 
just begin by talking about the process that brought about the 
budget. When I took office, within a matter of a week we were 
expected to begin the process of providing recommendations for 
our budget. We then went back and forth with the White House. I 
found myself in a slightly different position than some of my 
colleagues in the cabinet because in the very first week we 
were in office, the President launched the Energy Policy Task 
Force and indicated very clearly that it would incorporate all 
these various areas of energy policy that our Department funds.
    We were, therefore, without much guidance as to where as of 
June we would find ourselves versus where we were in February. 
And it was--we were somewhat reluctant to begin suggesting 
changes in budgets, or increases or even the maintenance of 
some programs.
    Senator Bayh. Are you suggesting that we may see some 
changes in these recommended allocations?
    Secretary Abraham. You absolutely will because there are 
two very clear directives in here, which I am very enthusiastic 
about, to my Department and me to launch reviews. One of which, 
for example, in the area of energy efficiency I launched 
yesterday, which gives clear direction for us to review and 
make recommendations with respect to funding levels in the 
areas that you have mentioned that have in fact in this budget 
been either held in place or reduced.
    So I think that process is beginning and it will also be 
applied to the areas of renewable energy and alternative energy 
sources, as well as to some of the programs you mentioned in 
the area of fossil energy.
    I do want to though make a couple of qualifying comments. 
We did find after some analysis--we had two guiding principles 
where we did make reductions that are reflected here. And they 
are going to continue to be guiding principles even though we 
may significantly change the budget. One is in the area of 
energy efficiency the President already had established, this 
is an area where we had some guidance, his desire to increase 
the Weatherization program very substantially by $120 million 
over the previous level. We have done that in the budget 
submission.
    In order to fund that within the budget number that we were 
passed back from the Office of Management and Budget, we had to 
make some choices. And I did make some decisions which may be 
affected by this review. But I did make some decisions to shift 
monies from programs like the Industries of the Future and from 
the buildings programs and others to the Weatherization program 
because we felt that the notion of--at least at the level of 
partnership from the private sector in the areas that have been 
beneficiaries----
    Senator Bayh. My yellow/red light is already on, Mr. 
Secretary, so I do not want to interrupt you. Just two final 
statements and then I will turn it over to the chairman.
    Secretary Abraham. Maybe I could in writing flesh out the 
rest of this answer because----
    Senator Bayh. That would be great if you could include in a 
written response. I know that the Defense Department is 
undergoing a significant--a similar, broad review of its 
mission and how to meet its mission in the future. And yet they 
held back the Defense Department budget submission out of 
respect for that review process. There seems to have been a 
different approach with regard to the energy issue. I would be 
interested in why the two different approaches were taken.
    Secretary Abraham. Well, actually part of what the Defense 
review is undertaking affects my Department with respect to the 
National Nuclear Security Administration and indeed those 
issues which tend to maybe come up a little bit more often in 
our Armed Services hearings than here. But the areas that deal 
with defense programs and non-proliferation programs are also 
under review and may well be affected by the defense posture 
review. In fact, we have been working very closely with them 
and they will perhaps be included in what he might submit here 
soon. So, in part our Department was affected that way but the 
decision was to do that in that area but not in this.
    Senator Bayh. Thank you, Mr. Secretary. My final point 
simply is, we understand the budget was submitted under 
difficult circumstances where there was a search on for dollars 
to help make the tax cut, which now is on the verge of becoming 
a reality, possible. My broader concern is that tax cuts are 
appropriate and I support significant tax cuts as part of a 
broader economic strategy. But there has to be a broader 
economic strategy. Long-term energy independence, and 
investment in technologies and renewable and alternative energy 
sources have to be a part of that strategy. We cannot let the 
tax agenda crowd out the important investments in energy 
research for the future.
    Secretary Abraham. I appreciate that, and if I could just 
make one comment back, if time permits, Mr. Chairman. That is 
certainly not what we were involved in. What we were involved 
in was trying to gauge where this Energy Task Force set of 
recommendations would go. Our total budget for some of these 
programs was reduced though based on some analysis which we 
did. I don't want to leave this point unstated.
    You mentioned, for example, the area of transportation 
efficiency. We did what we considered to be due diligence on 
the programs in place. This is an area where I have a lot of 
personal interest because it's obviously one that affects 
Michigan. It is also a program, when I was a member, that I was 
ardently pushing every year in the budget process.
    But we had a very serious analysis of the program and I 
guess it demonstrates that there are no sacred cows in our 
budget because we did scale back a component of the program 
that went towards the development of a vehicle--it started in 
all the best faith back in the early 1990's but which we 
concluded was not going to translate into the production of a 
real vehicle for the marketplace. We decided that in that area 
to continue to spend the taxpayer's money was not wise.
    Now in the process of the analysis that we will initiate, 
we might find other transportation priorities. We funded the 
rest--the truck program and the fuel cell program--very 
strongly. But we want to be very sure we are spending dollars 
in the Department on these technologies in areas which will 
actually find real world applications. And we look forward to 
working with Congress to hopefully come to agreement on what 
the priorities in these areas should be.
    Senator Bayh. Thank you, Mr. Secretary. Thank you, Mr. 
Chairman.
    The Chairman. Thank you very much.
    Senator Feinstein, good morning.

       STATEMENT OF HON. DIANNE FEINSTEIN, U.S. SENATOR 
                        FROM CALIFORNIA

    Senator Feinstein. Good Morning. Thank you very much, Mr. 
Chairman. Welcome Mr. Secretary. I just wanted to say about the 
report, you know, I think there are some good things in it. 
There is much that I profoundly disagree with, but I wanted to 
think aloud with you for just a moment.
    You and I have talked about the California energy situation 
a number of times. I just want you to know where this Senator 
is. I am really coming to question the concept of deregulation 
in the energy area. I want to tell you why. As a consumer when 
you deregulate airlines, the consumer has a choice of airlines. 
If you do not like one airline--the time, the price, whatever 
it is--you can go to another. If you deregulate telephone 
service, the consumer has a choice. If I do not like one 
telephone company, I can go to another. If I do not like one 
service provider, I can go to another. I have full transparency 
on my bill.
    You do not have that with energy. The consumer has no 
choice. When my natural gas bill goes up two-thirds, I have no 
choice and I have no way of knowing why. When my electricity 
bill goes up, I have no way of making a choice.
    It is pretty well established that in 1999 the total cost 
of energy for California was $7 billion. To date this year, the 
total cost varied between $25 billion and $30 billion, and is 
going to go up, and by the end of the year it is projected to 
be as much as $65 billion.
    Now there are those that say there is no evidence of price 
gouging. Everything is fine. Let the market work its will. The 
market cannot function as a market should right now. In your 
report, and I am quoting, you say ``unfortunately there are no 
short-term solutions to long-term neglect.''
    See, I profoundly differ with this. Today, California per 
capita is the most energy efficient State in the Union. We are 
building new power. It is going to take a period of time. And 
if the Federal Power Act is not being followed, and it isn't, 
the Federal Energy Regulatory Commission has a mandate under 
that act that if rates are unjust and unreasonable to regulate. 
And they refuse to do it. They say it is within their 
discretion to refuse to help.
    If that is the way deregulation of energy is going to be 
carried out, it is a supplier's marketplace dramatically. There 
is no choice for the consumer. There is no transparency of why 
natural gas prices are three to four times higher than anywhere 
else in the United States. We know that in overall costs the 
escalation is from $7 billion in 2 years to $25 to $30 billion. 
I really question whether energy should be deregulated. And I 
would like your response to that.
    Secretary Abraham. Well, let me make a couple of comments. 
I think how you deregulate is as important as whether or not 
you deregulate. What constitutes real deregulation to me is the 
principal issue, at least with respect to California. You and I 
have talked about this. Obviously, people will draw conclusions 
from the California experience. They will draw conclusions from 
the Pennsylvania experience. They may draw very different 
conclusions because of the different approaches taken.
    But I think if you try to, and I am not trying to go back 5 
years or whatever, but if you tried to create a regulatory 
approach that--emphasized deregulation, you would not, in my 
judgment, go the route that has been pursued in California. You 
would not only deregulate on the wholesale price side and not 
the retail side. By capping the amount of charges that could be 
assessed by the utility companies, you put the companies in a 
situation where they were totally at the mercy of wholesale 
spot market price fluctuations.
    Then when you further prevented, and I do not mean you, if 
any State did this--if they prevented the companies, the 
utility companies, from entering into--hedging their bets with 
long-term contracts and exclusively relying on a single type of 
contractual market system, the spot market, I think you 
exacerbate the problem much further.
    And therefore I'm not--I guess certainly today nobody can 
say deregulation, if you want to call it that, in California 
worked. I do not think California did deregulate. I think they 
didn't. They regulated the kind of contracts utilities could 
engage in and regulated how much their utilities could charge.
    Senator Feinstein. Stop for just a minute because I agree 
with everything you have said but it is not the point. The 
point is that you have what you have. And I agree with you. 
H.R. 1890 in California was a bad bill. I happen to agree. I 
was the first one that said that the prices have to be passed 
on. The result of not passing them on is you bankrupt whomever 
has to buy the power.
    But the problem becomes that when you do have a problem you 
have no way of adjudicating it. You have no way of regulating 
it because the Federal Commission will not do the job it is 
supposed to do. And so you have these enormous price spikes.
    Secretary Abraham. Well, the other point I was going to 
make has to do with whether or not--I mean, in terms of market 
competition obviously you also have a problem, and we have 
talked about this. If you don't have--you know, if we have not 
added supply, which has been unfortunately the case for a 
number of years, while demand continues to go up--and 
California I would echo completely and the President did the 
other day that California deserves a lot of credit for its 
conservation leadership in terms of its actual accomplishments.
    But the demand still has gone up in spite of conservation. 
Part of the problem, and I think we addressed this in our 
recommendations, is that we have significant constraints in 
terms of who you can buy from because of the bottlenecks and 
the limits within the electricity grids. I think one of the 
underlying principles of this set of recommendations of our 
report is that we need to address that issue as well.
    Right now, there is a finite amount of electricity that can 
get into California and into the Western grid. I mean, the 
Western grid has a finite amount and it is unconnected to the 
other grids. So we have this unusual and unfortunate situation 
in America of having surpluses in some parts of the country, 
deficits in others and no capacity for us to move electricity 
to help people where there are in fact shortages.
    Senator Feinstein. You are circumnavigating my point.
    Secretary Abraham. I am not trying to.
    The Chairman. Senator----
    Senator Feinstein. Just quickly let me just do this one. 
Just this one. My point is that you have an improper 
deregulation system. Granted. And you have people taking 
advantage of it. And you have a Federal law that says when that 
happens there should be regulation. And the Federal body 
empowered to do that regulation refuses to do it. That is the 
flaw I am trying to get at in the short-term.
    Secretary Abraham. Well, let me just kind of--I mean, I'm 
not trying to--I mean, I thought your point was that 
deregulation might not be a good idea. I think it depends how 
it is done. But what I would say is that--you know, and I have 
raised this issue at a previous hearing here.
    The Federal Energy Regulatory Commission has the ability to 
regulate, as you note, within the Federal Power Act certain 
enumerated entities that sell electricity in the wholesale 
market in California, not all of them. Roughly half I think. 
The others, which are among others are the municipals and 
cooperatives in the State, are not regulated. The price that 
they charge is--they can do whatever they want. They're not 
under the--a FERC price cap would not apply to them.
    The State of California, I believe, could impose price caps 
on those entities. We cannot at the Federal level. Yet, no 
action has been taken to put a cap on those entities. And yet, 
because of the structure of the purchases, the purchase 
arrangement, the power exchange, they were charging and, in 
fact, have clearly charged the same kinds of rates as the other 
entities who were selling.
    So it is not simply a situation where Washington or the 
FERC has this authority, the State has it and has not acted on 
that either. I'm sort of--I am not sure why, I really have not 
queried anybody, but I am not sure why they have not done it.
    Senator Feinstein. I want to respond but my time is up. 
Thank you, Mr. Chairman.
    Thank you, Secretary.
    The Chairman. Senator Bingaman and I want to apologize. A 
number of things are happening. The Secretary has to leave at 
11 o'clock. I want to make sure everybody has an opportunity to 
question him. We have another panel on Price-Anderson and we 
have agreed to first apologize to our witnesses, Mr. Eric Fygi, 
the Acting General Counsel for the Department of Energy; Mr. 
Bill Kane, Deputy Executive Director, Reactor Programs, U.S. 
Nuclear Regulatory Commission of Rockville, Maryland; Mr. John 
Bradburne, president and CEO of Fluor Fernald of Hamilton, 
Ohio; Mr. John Quattrocchi, senior vice president for 
Underwriting of American Nuclear Insurers of West Hartford, 
Connecticut; Mr. Marvin Fertel, senior vice president of the 
Nuclear Energy Institute of Washington, D.C.; and Ms. Anna 
Aurilio, legislative director of the National Association of 
State Public Interest Research Groups.
    With our apologies, we, as a consequence of the conflicts, 
are going to prevent us being able to question the witness on 
the second panel. We have a balanced panel. We are most 
appreciative. We will take the prepared statements of the 
witnesses for the record. So if you will submit your written 
statements, we will have questions for the witnesses for the 
record from the members. I would ask all members to submit 
those questions by the close of business today.
    We will also accept additional statements on comments for 
the record. Now this is covering Price-Anderson. Price-Anderson 
is generally supported, to my knowledge, by the members of the 
committee but I wanted to extend my apologies and let you 
gentlemen and ladies who were going to testify know the 
circumstances. Our next questions or statement will come from 
Senator Graham, followed by Senator Cantwell, followed by 
Senator Landrieu, followed by Senator Johnson.
    Senator Cantwell. Mr. Chairman, I think Senator Landrieu 
arrived before I did.
    The Chairman. Okay. I am sorry. I am keeping track of this. 
The staff does a better job than I do.
    Senator Graham.

          STATEMENT OF HON. BOB GRAHAM, U.S. SENATOR 
                          FROM FLORIDA

    Senator Graham. Thank you, Mr. Chairman. I want to welcome 
our good friend and Secretary, Spencer Abraham. I am going to 
submit some questions for subsequent response because they are 
relatively detailed, but let me just ask one which will sort of 
open up an area of my interest.
    It is has been my experience in dealing with complicated 
subjects such as National Energy Policy that it is helpful at 
the beginning to set some goals that are quantifiable and 
placed in a time sequence, so that you know what you are going 
to be graded by at the end of the process. I will be submitting 
some questions which will be probing what this policy intends 
to do.
    But just let me ask you as an example, in the area of 
electric generation. Could you give us what this policy's goals 
would be in terms of the distribution of sources of energy for 
electric generation, let us say by the year 2020 as among 
natural gas, coal, nuclear or other sources of electric 
generation?
    Secretary Abraham. We have not set a specific percentage 
for each of those sources. But let me just talk about what the 
current set of policies projects into the future. When we did 
the assessment of our future demand levels, we assessed that 
electricity generation would increase by about 45 percent over 
the next 20 years. This is done by the Energy Information 
Administration in the Department, which is an independent 
assessment office.
    They further concluded that approximately 90 percent of 
that increase would be in the area of natural gas driven 
generation. That is assuming current policies, practices and so 
on were maintained. They further estimated that there would 
probably be a decline in the role of hydropower and nuclear, a 
slight decline in terms of their generation. Coal would, as a 
total, decline although levels would probably remain the same 
as today but because of the larger pie it would probably be a 
smaller percentage. They actually saw a net reduction in terms 
of hydropower and nuclear, and a very slight increase in terms 
of renewable and alternative energy as means for producing 
electricity.
    Our conclusion was that the ultimate number was probably 
correct, in terms of the 45 percent increase. If anything that 
might be a conservative estimate because in recent years the 
percentage increase has exceeded that which EIA is projecting 
forward because of new technologies, particularly computer-
driven technologies that seem to be moving at a faster pace.
    Our general conclusion, Senator, to have all of the 
increase essentially a natural gas-driven increase was a risky 
course in the sense that it could place us very dependent on a 
specific source, not all of which could be generated 
domestically. And therefore the goal of the plan was to try to 
not just propose policies that would allow for natural gas 
production and distribution, but also to try to give the other 
components of renewable, coal, nuclear and hydropower a chance 
to remain active at levels hopefully that would not decline. 
And that is essentially what, I think, is our projection. How 
that translates directly into percentages, I would have to get 
back to you to see if I can do that. But we did not try to set 
a number. We tried to balance the sources.
    Senator Graham. Well, I would urge you, as a matter of 
policy, to establish some goals. I recognize that those goals 
are not mandatory, but they give you some general direction. I 
strongly agree with what you have said relative to the 
increasing reliance on natural gas not being in the nation's 
interest. But I am afraid there is such a momentum towards that 
that unless there is a clear goal as to the alternatives to 
natural gas that we will not end up with the policy changes 
that will be required to avoid the kind of 90 percent of our 
new generating capacity being in natural gas.
    Let me move to a second issue and that is budget. Has there 
been a budget developed for the total number of recommendations 
that are in this report?
    Secretary Abraham. No, not yet.
    Senator Graham. When can we anticipate that?
    Secretary Abraham. Obviously, some of these are in areas 
outside of my department. What I have been charged with is to 
examine our budgets relative to energy efficiency, renewable 
energy and some of the fossil oil and gas technology areas. I 
have already launched the review that will result in the energy 
efficiency recommendations. I hope we can get those--we have 
set an initial period between now and July 1 and then a second 
phase through September 1. But I honestly cannot tell you where 
the other departments might be in that assessment. I would be 
happy to keep the committee apprised as I learn of information 
or even try to solicit from the other departments their 
timeframes. But we are trying to move quickly to determine what 
budget adjustments are relevant to me, as a department head.
    Senator Graham. Do you think we might get some initial 
numbers by the first of July, and more refined numbers by the 
first of September?
    Secretary Abraham. The first area that I launched is the 
review in the area of energy efficiency. I expect to make 
further announcements very soon in regards to other areas where 
I was asked to do budget related assessments. Our goal is to 
move quickly on that. But we also want to engage a lot of 
participation in that set of reviews.
    Senator Graham. One area that concerned me is on page 57. I 
recognize this is outside of your Department. But in the----
    The Chairman. Senator, could I--he's got to leave. Please 
wind up. Your time is up and I have three more Senators.
    Senator Graham. I will submit this in writing but it has to 
do with encouragement for outer continental shelf drilling 
through waivers or diminutions in current royalty levels. I 
will submit maybe to you or Ms. Norton some request for some 
specifics of what is being suggested there.
    Secretary Abraham. My understanding, and just to be brief 
in response and I am happy to stay extra minutes so I may give 
you this response, is that the goal here was to identify 
whether or not there were areas where because they were on the 
frontiers, because of the high level of financial risk that 
might be involved in considering even exploration operations in 
these areas would warrant some adjustment in the royalties. The 
notion of trying to identify high-risk, financial-risk areas is 
I think at the heart of that recommendation, but I would want 
the Department of the Interior to participate in helping shape 
any answer.
    Senator Graham. This is a comment rather than a question 
and will take just a second, Mr. Chairman. Yesterday, the 
Senate voted to utilize the full tax reduction authority that 
has been granted under the budget resolution from now until the 
year 2011. So any additional tax-oriented changes, which would 
have the effect of reducing revenue, are going to require 
offsets. I would, as part of this review, I would like your 
recommendation as to where we should be looking to offset any 
of the additional diminution of tax revenue as a result of 
implementing this energy policy.
    Secretary Abraham. Well, I would just say two things. My 
impression would be that the principal focus here would be in 
areas where there was no anticipated revenue to the Treasury 
because the risk level would basically discourage investments 
at all and so any royalty receipts even if they were lower 
would, in fact, be additions.
    Senator Graham. I was not speaking to that specific example 
but to the totality----
    The Chairman. I have three more Senators. I am going to 
reduce your time to 5 minutes each, if that is fair, because we 
have got to leave, and he has got to leave.
    Senator Landrieu.

       STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR 
                         FROM LOUISIANA

    Senator Landrieu. Thank you. And I'll try to help, I may 
stick to 4 minutes and giving some extra time to my colleagues. 
Mr. Secretary, it is going to be a pleasure working with you on 
this particular subject and I look forward to working with you 
closely and think there is some promise in the the plan that 
has been laid out. But there is obviously a lot of work that 
needs to be done and there are some areas that are of great 
concern to me and the people of Louisiana.
    Let me just begin by associating myself, Mr. Chairman, with 
the remarks from the Senator from Indiana who I think raises an 
excellent point that all the great plans, and rhetoric, and 
promises in the world do not mean very much if there is not 
budget authority and real money to back them up, whether we 
need tax cuts or tax credits or new investments in alternative 
energies.
    So as we move forward to develop a plan, I think we have 
got to be very honest and responsible to make sure that the 
initiatives that we propose, and hopefully can work together in 
a bipartisan way, there are actually, Mr. Secretary, dollars 
that can carry those out and help create a supply of energy 
that this Nation can depend on and grow with.
    My second point is that I think in the plan I agree with 
the focus that must be made to increase production in our 
Nation. And this is sensitive in many areas. I believe we can 
increase production and still maintain our commitment to the 
environment. We are doing a very good job of that in Louisiana, 
and the technology has improved substantially. I want to 
commend the industry. The industry gets beat up on this 
committee from both sides and I want to say that the industry 
over the last 20 years has made remarkable investments and 
changes to be able to drill in areas that we were not able to 
drill before and do it in an environmentally sensitive way.
    So I want to commend you for your emphasis on production 
both onshore and offshore. I am hoping that in the Gulf of 
Mexico, including Lease 181, we can look at in reasonable ways 
and try to increase the supply which is very important for our 
Nation. My colleague from California is not here, but she made 
a statement, and I just want to respond, ``California is the 
most energy efficient State in the Union.'' And with all due 
respect to that, and I most certainly think it is true and have 
appreciated her leadership, it brings me to my point exactly, 
that energy efficiency does not guarantee adequate supply. Yes, 
being energy efficient is important, but it is also very 
important to have a supply and reliable sources of energy.
    The second thing that I want to say on a positive note is 
that I think the focus on nuclear, and the role that nuclear 
power can play in our Nation now that we have become more 
sophisticated about controlling the liabilities, more 
sophisticated about approaches for the waste, and more sure of 
our science to make sure that the public is protected and is 
safe. Nuclear power as has been used in France can be a very 
good mix for the Nation of a clean and efficient fuel. So I 
want to commend you on that.
    But let me say that one of the negatives from the 
perspective of Louisiana particularly. There is a point in the 
plan that says that we might want to take royalties from 
offshore/onshore revenues and fund weatherization plans for the 
Nation. But then it goes a step further to say also to help 
with low-income energy assistance. But as you know, Southern 
States are not really treated as fairly in that formula and 
there is no help for cooling.
    So I want you to know that I think it is ironic, and I am 
certain that we will make this change, that if you are 
expecting some of the gulf coast States to actually produce the 
revenues necessary to fund programs that we ourselves are not 
able to participate in, that is a great weakness in this plan. 
So I wanted to call that to your attention, to say I look 
forward to working with you, as we hopefully develop this 
royalty conservation fund program which is, I think, of good 
merit, maybe not exactly the way it has been proposed but 
something along those lines. But to urge you as we do help 
consumers in my State in Louisiana, around the nation, with 
their energy bills that you recognize that what you are 
proposing the money is coming from basically off the shores of 
Louisiana. We produce 85 percent of the offshore oil and gas 
yet the formula does not accommodate Louisiana. Obviously, I 
cannot support that and look forward to working with you to 
correct it. Mr. Chairman, thank you for the time, but I look 
forward to working with you.
    The Chairman. Thank you very much, Senator Landrieu. I 
appreciate you staying within your time allotment. The last 
member of the panel, Senator Cantwell, please proceed.

        STATEMENT OF HON. MARIA CANTWELL, U.S. SENATOR 
                        FROM WASHINGTON

    Senator Cantwell. Thank you, Mr. Chairman. Mr. Secretary, 
good to see you here. Obviously, my colleagues have run through 
some the issues and I do want to associate myself with the 
comments from the Senator from California about the lack of, 
what I believe, is a short-term solution in this plan. And I 
think that we have had a couple of exchanges on that, and will 
not focus my comments on that at this moment. But I continue to 
be extremely concerned about the next 10 to 24 months in the 
Northwest and the larger Western economy as we struggle through 
this. I am hopeful as we go through this process here that any 
energy plan that comes out of the committee will provide some 
short-term relief for the Northwest and the West.
    I wanted to ask you a couple of things in general about the 
report and specifically about the recommendations in the report 
as it relates to a couple of issues. I know the President 
basically during his campaign had a pledge to keep the existing 
moratoria on outer continental shelf leases. And I know that 
Secretary Norton, when she came before the committee, was asked 
about this and said the same thing. Yet the report calls for a 
reexamination of off-shore leasing. So basically it is saying 
we need to determine if changes are needed regarding energy 
related activities and siting of energy facilities in the 
coastal zone and on the outer continental shelf. Currently we 
in Washington State have a moratoria. Is the administration 
suggesting that should change?
    Secretary Abraham. No, I think my understanding of that 
area, and I am happy to do my best here to represent all the 
different departments who participated, so I want to be as 
effective as I can be in representing an area that the 
Department of the Interior had the lead on in the compilation 
of this set of recommendations, but my understanding was that 
there were some concerns. There are no implications here and 
none should be drawn with respect to existing moratoria. I 
think the concern was about the implementation of the Coastal 
Zone Management Act in areas where, in fact, exploration is 
permissible beyond the area in which the States have direct 
authority. As you know in the way the law works, after so many 
miles, 3 miles, or whatever, the States still have a role but 
it is not the same kind of control that exists closer to the 
shore.
    And my understanding is that there has been, in some areas, 
the goal of trying to get the Federal Government's decision 
making process and the State's process operating together in a 
consensus and harmonious way has not always worked out. The way 
the process--I think there are multiple sorts of steps which 
begin with decisions by the Interior which can then be 
challenged by the States which are then adjudicated by the 
Department of Commerce and then can be taken to court. And I 
think the goal was to try to look at these regulations to see 
if there was a way to better harmonize the relationships 
between the State and the Federal Government in these 
decisions. That is my understanding of the thrust of that 
recommendation.
    Senator Cantwell. So you believe the administration still 
supports the moratoria on offshore drilling?
    Secretary Abraham. That's my understanding, yes.
    Senator Cantwell. Thank you. That is very helpful. The 
issue of natural gas supply in Canada is something that has 
come up in conversations with you before this committee and in 
some of the recommendations in looking at a closer energy 
integration plan with Canada. Can you update us on what has 
been happening?
    Secretary Abraham. Sure. One of the things the President 
had recommended in the campaign was the need for us to look at 
energy policy on a North American basis, and had recommended 
that we forge a North American energy framework or strategy 
with our partners in Mexico and in Canada. I had the 
opportunity to have the first trilateral meeting with my 
counterparts from those two countries in March at the 
Hemispheric Energy Initiative Conference in Mexico City. We 
agreed at that time that there were areas of common interest 
that had to do with a variety of cross-border matters and so on 
that we wanted first to identify and then perhaps assign to 
working groups.
    And it is my understanding we are on track to have the 
first working group meetings in June, probably here in 
Washington. At which point we will principally try to identify 
areas of interest that each of the countries would like to work 
together on. If there are suggestions for topics that we might 
include as a list of proposed areas of joint effort, I would be 
very receptive to getting those from the committee, and would 
welcome them.
    Senator Cantwell. We will certainly supply that, given the 
large natural gas supply just over the border from us and the 
energy crisis that continues to prevail in the Northwest. I 
think it becomes a very important discussion point that I would 
like to see accelerated with the Canadian government. It brings 
up a related issue of regarding the need for strong pipeline 
safety legislation. Does the administration support Senator 
McCain's pipeline safety bill?
    Secretary Abraham. That is the Department of 
Transportation's ultimate responsibility, but I do know that a 
set of recommendations in this report call for the President to 
direct the agencies to continue their inter-agency efforts to 
improve pipeline safety and expedite pipeline permitting in an 
environmentally-sound manner, as well as recommend that the 
President support legislation to improve the safety of natural 
gas pipelines. Those are two separate recommendations on the 
topic. I honestly cannot tell you but I would be glad to get an 
answer for you as to whether that translates into the McCain 
bill.
    Senator Cantwell. That would be great. I know my time has 
expired here. But I think it is an important question because I 
think we will go through a mark-up process and I think that 
particular legislation, which seems to be stalled and seemed to 
be stalled in the past, is very important. And yet we want this 
larger integration effort with our partners. We have to assure 
the communities' security in how that supply is delivered.
    Secretary Abraham. That was one of the recommendations, and 
I would be glad to determine if that suggests a separate 
legislation initiative by the administration. I'll look into 
that for you.
    Senator Cantwell. I'm specifically inquiring as to their 
support or nonsupport of Senator McCain's bill. Thank you very 
much, Mr. Chairman.
    The Chairman. Thank you, Senator. For your information, I 
advise you that I attended a U.S.-Canadian interparliamentary 
meeting and there was a proposal as a consequence of the new 
government of British Columbia under Premier Campbell, to, I 
guess, reconsider the OCS activity off the west coast of 
British Colombia, which you might be interested in.
    Secretary Abraham. Mr. Chairman, could I just make two 
quick comments. One, I was just informed by my staff that 
apparently that there is a statement of the administration's 
position in support of Senator McCain's bill. And second, I 
would just want to make sure that the record does not leave in 
doubt that in addition to our trilateral efforts with both 
Canada and Mexico, we also have a very robust and continuing 
on-going effort on a bilateral basis with Canada that is 
independent of anything we might do as part of a North American 
strategy. And I do not want to leave any implication that the 
only activities between the United States and Canada now will 
take place within the context of the North American initiative.
    The Chairman. Thank you very much. I want to thank the 
Secretary and the members for their effort to try to live 
within the time sequence. And again, I want to apologize to 
those witnesses that came here to testify on Price-Anderson. 
Their statements will be taken by the staff and entered in the 
record.* Again, I want to thank the Secretary. I gather your 
short-term solution would be to challenge us to repeal the laws 
of supply and demand as one solution. With that profound 
observation, again let me thank you, Mr. Secretary. The hearing 
is concluded.
---------------------------------------------------------------------------
    * The statements can be found in the proceedings of day 2 or the 
appendix.
---------------------------------------------------------------------------
    [Whereupon, at 11:05 a.m., the hearing was recessed, to be 
reconvened on June 26, 2001.]


                         NATIONAL ENERGY ISSUES

                              ----------                              


                         TUESDAY, JUNE 26, 2001

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:34 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

           OPENING STATEMENT OF HON. JEFF BINGAMAN, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. Why don't we go ahead and start. I am told 
Senator Murkowski is coming, but has been delayed. This 
morning's hearing is on three bills to reauthorize the Price-
Anderson Act, and also on three separate provisions to increase 
power production at existing nuclear powerplants. The Price-
Anderson Act has served the Nation well for over 40 years.
    The act has made it possible for electric utilities to 
build and operate nuclear powerplants, for private companies 
and universities to perform nuclear research, and national 
security work for the Government without the threat of 
unlimited liability. At the same time, the act has ensured that 
adequate funds would be available to compensate the public in 
the event there were an accident. Although not everyone agrees, 
I believe there is reasonably strong bipartisan support for 
renewing the act. Senator Murkowski, Senator Dominici, and I 
each have introduced bills to reauthorize the act. All three 
bills are essentially identical. In addition, the President's 
energy policy group recommended renewal of the act, as did the 
Clinton administration before that.
    In view of this consensus, I would hope that we might be 
able to resolve any remaining issues quickly, and we might 
reauthorize the act before it expires next year. We will also 
look at three other nuclear provisions in Senator Murkowski's 
and Senator Dominici's energy bills this morning. These three 
provisions would provide various financial incentives to 
utilities to increase the production of existing nuclear 
powerplants. The need for these provisions is not as clear as 
it is for the Price-Anderson Act, but I thought it would be 
useful to ask our witnesses for their comments on these 
provisions. We have six excellent witnesses this morning. Let 
me introduce them all, and ask them each to make a statement.
    Mr. Eric Fygi, is that correct?
    Mr. Fygi. That's correct, Mr. Chairman.
    The Chairman. Who is the Deputy General Counsel for the 
Department of Energy. Mr. Joseph Gray, who is the Associate 
General Counsel for Licensing And Regulation in the Nuclear 
Regulatory Commission. Mr. John Bradburne, who is the president 
and chief executive officer for Fluor Fernald in Ohio. Mr. 
Marvin Fertel, who is senior vice president for business 
operations at the Nuclear Energy Institute. Mr. John 
Quattrocchi.
    Mr. Quattrocchi. Very good.
    The Chairman. Who is the senior vice president for 
underwriting with the American Nuclear Insurers in West 
Hartford, Connecticut. And Mr. Erich Pica, who is the economic 
policy analyst with Friends of the Earth. Thank you all very 
much for being here. Mr. Fygi, why don't we start with you.
    [A prepared statement from Senator Domenici follows:]
       Prepared Statement of Hon. Pete V. Domenici, U.S. Senator 
                            From New Mexico
    Mr. Chairman, thank you for calling this hearing to discuss Price-
Anderson legislation as well as efficiency improvements in nuclear 
plants. I'm pleased that both these subjects address areas of emphasis 
in the President's National Energy Policy. That Policy calls for 
extension of the Price-Anderson Act and encourages the NRC to 
facilitate efforts by utilities to expand nuclear power generation by 
``uprating'' existing plants.
    Each of the bills under discussion today has similar language on 
Price-Anderson extension. Renewal of this legislation is clearly part 
of the equation to keep nuclear energy as a viable component of our 
nation's energy portfolio.
    The current electricity shortfalls around the country are urgently 
calling for increased production. The Nuclear Energy Electricity Supply 
Assurance Act of 2001, which I introduced, directly addresses one 
approach to increasing our capacity by encouraging operating nuclear 
plants to undertake capital improvements to increase their electrical 
output.
    A total of 18 Senators are now supporting this Act's new approach 
to encourage increased capacity from nuclear plants. Our approach would 
authorize funds to cover NRC fees incurred by plants as they ``uprate'' 
their plants. Preference would be given to uprating actions that 
benefit multiple plants. We also propose to cover up to 10 percent of 
the capital costs for such uprates as long as it achieves at least a 5 
percent boost in capacity and is operational by the end of 2004.
    Mr. Chairman, I concur with most of the draft legislation under 
review today and look forward to development of legislation that 
implements these and all other provisions of the President's National 
Energy Policy as rapidly as possible.

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

    Mr. Fygi. Thank you, Mr. Chairman, and with your 
permission, I would propose briefly to summarize.
    The Chairman. We would wish that each of you just summarize 
your statements. We will include the full statements in the 
record.
    Mr. Fygi. The Department of Energy recommends without 
reservation reauthorization of the Price-Anderson Act. The 
Department's outlook primarily is directed to the provisions of 
that statute that require indemnification of the Department's 
contractors that conduct nuclear activities, many of which as 
you are aware are extremely sensitive and of critical import to 
the interest of the Nation and its defense posture.
    The Price-Anderson Act regime, as you observed, affords 
certainty to compensation of individuals should a nuclear 
occurrence happen. And in that sense, we view it as a public 
protection measure that is of critical importance to be 
continued and affords clear rules of understanding how certain 
sorts of liabilities potentially affecting our contractors' 
activities in the nuclear area would be resolved.
    Although the Price-Anderson Act will not expire until next 
year, we think it prudent that the hearing process is turning 
the Congress' attention to this matter before, well before, the 
expiration date. We once went through a hiatus in Price-
Anderson coverage in the 1980's, and that required certain 
adjustments that were something of a makeshift, character that 
we would recommend that the Government not have to go through 
again, because for many of these sensitive activities, there is 
no substitute for continuity of contractor operations, 
including the weapons laboratories.
    In one respect, the position stated by the Department in 
its 1999 report, which recommended a straight-line extension of 
the statute as it was then structured, has come to be altered 
slightly. That involves the question of fines and penalties for 
alleged violations of safety regulations, a component of the 
Price-Anderson Act that was added in 1988. As originally 
enacted, that component contained a categorical exemption from 
this regime for several identified contractors, an approach 
that all have come to agree is outdated.
    The legislation that you are considering now in essence 
reflects the approach currently employed in other regimes or 
one other regime, involving regulation of classified 
information held by contractors. There are, however, some 
technical distinctions in the formulation for dealing with the 
nonprofit contractor segment, as between the enacted provision 
that was included in the 2000 Defense Authorization Act, and 
the language in the bill. Therefore we would recommend that 
there be some technical scrutiny given to the actual 
phraseology of the provisions in the pending legislation with a 
view to harmonizing that phraseology with that which is 
contained in the currently existing law on that subject. Thank 
you very much, Mr. Chairman. I'll be pleased to respond to any 
question you may have.
    [The prepared statement of Mr. Fygi follows:]
      Prepared Statement of Eric J. Fygi, Deputy General Counsel, 
                          Department of Energy
    Thank you, Mr. Chairman and members of the Committee, for the 
opportunity to discuss renewal of the Price-Anderson Act (Act) to 
provide liability coverage for Department of Energy nuclear activities. 
This is an opportune time to discuss renewal of this important 
indemnification scheme in light of the recommendation in the Report of 
the National Energy Policy Development Group that the Price-Anderson 
Act be extended. The Administration welcomes your attention to this 
important issue for the future of nuclear energy in the United States 
and looks forward to working with you to finish work on it this year.
    In response to a question from the Chairman of this Committee 
during confirmation hearings, Secretary Spencer Abraham stated that he 
agreed with the recommendations in the Department of Energy Report to 
Congress on the Price-Anderson Act (DOE Price-Anderson Report) (1999) 
that supported continued coverage of DOE nuclear activities under the 
Price-Anderson Act without any substantial changes. Secretary Abraham 
stated that indemnification of DOE contractors under the Price-Anderson 
Act was essential to the achievement of DOE's statutory missions in the 
areas of national security, energy policy, science and technology, and 
environmental management. Further, he indicated that he looked forward 
to working closely with members of both parties and with individuals 
from inside and outside government to secure the early renewal of the 
Price-Anderson Act.
    Based upon over 40 years of experience, DOE believes that renewal 
of the Price-Anderson Act is in the best interests of the government, 
its covered contractors, subcontractors and suppliers, and the public. 
In 1957, Congress enacted the Price-Anderson Act as an amendment to the 
Atomic Energy Act of 1954 to encourage the development of the nuclear 
industry and to ensure prompt and equitable compensation in the event 
of a nuclear incident. Specifically, the Price-Anderson Act established 
a system of financial protection for persons who may be injured by a 
nuclear incident by cutting through tort defenses of the intermediary 
licensees and contractors. With respect to activities conducted for 
DOE, the Price-Anderson Act achieves these objectives by requiring DOE 
to include an indemnification in each contract that involves the risk 
of a nuclear incident. This DOE indemnification: (1) provides omnibus 
coverage of all persons who might be legally liable; (2) indemnifies 
fully all legal liability up to the statutory limit on such liability 
(currently $9.43 billion for a nuclear incident in the United States); 
(3) covers all DOE contractual activity that might result in a nuclear 
incident in the United States; (4) is not subject to the usual 
threshold limitation on the availability of appropriated funds; and (5) 
is mandatory and exclusive. Through these means the public is afforded 
a streamlined means of compensation for any injury from a nuclear 
incident.
    DOE is convinced that the indemnification provisions applicable to 
its activities should be continued without any substantial change 
because it is essential to DOE's ability to fulfill its statutory 
missions involving defense, national security and other nuclear 
activities; it provides proper protection for members of the public 
that might be affected by DOE's nuclear activities; it is cost-
effective; and there are no satisfactory alternatives.
    Elimination of the DOE indemnification would have a serious effect 
on the ability of DOE to perform its missions. Without indemnification, 
DOE believes that it would be difficult to obtain responsible, 
competent contractors, subcontractors, suppliers and other entities to 
carry out work involving nuclear materials. Other means of 
indemnification have practical and legal limitations, do not provide 
automatic protection and depend on cumbersome contractual arrangements.
    Private insurance generally would not be available for many DOE 
activities. Even when available, it would be extremely expensive, 
limited, and restricted. Because the DOE indemnification operates as a 
form of self-insurance for claims resulting from nuclear incidents, DOE 
incurs no out-of-pocket costs for insurance. Moreover, thus far, it has 
not paid out significant amounts for claims pursuant to its 
indemnification authority.
    With respect to the three bills pending before the Senate to renew 
the Price-Anderson Act, their provisions are very similar--they would 
continue to provide indemnification for DOE nuclear activities without 
substantial change. We have reviewed the following bills in light of 
the five recommendations in the 1999 DOE Price-Anderson Report:

   S. 388, National Energy Security Act of 2001, introduced by 
        Chairman Murkowski
   S. 597, Comprehensive and Balanced Energy Policy Act of 
        2001, introduced by Senator Bingaman; and
   S. 472, Nuclear Energy Electricity Assurance Act of 2001, 
        introduced by Senator Domenici.
DOE Price-Anderson Report Recommendation 1. The DOE indemnification 
        should be continued without any substantial change.
    The bills are consistent with DOE's primary recommendation that the 
Act be renewed without substantial change. They extend DOE's 
responsibility to indemnify its contractors as well as extend the NRC's 
authority to indemnify its licensees. Under the current Act, the 
authority of DOE and the NRC to indemnify is scheduled to expire on 
August 1, 2002.
DOE Price-Anderson Report Recommendation 2. The amount of the DOE 
        indemnification should not be decreased.
    The bills establish a flat amount of $10 billion for DOE 
indemnification and requires DOE to adjust this amount for inflation 
every five years. These provisions are consistent with the 
recommendation of the report not to decrease the DOE amount of 
indemnification below the current amount of $9.43 billion. In the 
current Act, DOE's indemnity amount is pegged to the NRC aggregate 
amount and to the NRC inflation adjustment of that amount. DOE believes 
the continuation of an amount at least this high is essential to assure 
the public that prompt and equitable compensation will be available in 
the event of a nuclear incident and its consequences, as well as a 
precautionary evacuation. Further, the bills increase the amount of 
indemnification for nuclear incidents outside of the United States from 
$100 million to $500 million.
DOE Price-Anderson Report Recommendation 3. The DOE indemnification 
        should continue to provide broad and mandatory coverage of 
        activities conducted under contract for DOE.
    These bills continue to provide broad and mandatory coverage of 
contractual activities conducted for DOE. The protection afforded by 
the DOE indemnification should not be dependent on factors, some of 
them predictive, such as whether an activity (1) involves the risk of a 
substantial nuclear incident, (2) takes place under a procurement 
contract (as opposed to some other contractual relationship that might 
not be so denominated), or (3) is undertaken by a DOE contractor 
pursuant to a license from the Nuclear Regulatory Commission (NRC). 
Limitations based on such factors would likely render uncertainty as to 
public protection and be cumbersome to administer without achieving any 
significant cost savings.
DOE Price-Anderson Report Recommendation 4. DOE should continue to have 
        authority to impose civil penalties for violations of nuclear 
        safety requirements by for-profit contractors, subcontractors 
        and suppliers.
    These bills continue DOE's authority to impose civil penalties for 
violations of nuclear safety requirements. They modify, however, DOE's 
conclusion that nonprofit entities should remain exempt from civil 
penalties. Instead, the bills make DOE nonprofit contractors subject to 
civil penalties capped by the amount of fee paid under each contract.
    Concerning the exemption of nonprofit entities from civil penalties 
in these bills, we recently testified on similar provisions found in 
H.R. 723. On March 22, 2001, we testified before the Subcommittee on 
Energy, Committee on Science, U.S. House of Representatives. In this 
testimony, we stated that the Department could generally support in 
concept the limitation of the nonprofit exemption up to the amount of 
the contractor's or subcontractor's fee paid. I pointed out several 
concerns raised by the provisions of H.R. 723, including the definition 
of a contractor's fee, the time period over which the fee is paid, the 
effective date of application to contracts entered into after the date 
of enactment, and the repeal of the automatic remission. Should this 
concept be pursued these concerns should be addressed carefully in 
crafting a legislative implementation of them.
    I also noted in my testimony that in the information security area, 
Congress decided, following issuance of the DOE Price-Anderson Report, 
to impose potential liability for civil penalties on nonprofit 
organizations in a manner similar to that proposed by H.R. 723. For 
violations of regulations relating to the safeguarding and security of 
Restricted Data, the National Defense Authorization Act for Fiscal Year 
2000 made nonprofit contractors, subcontractors, and suppliers subject 
to civil penalties not to exceed the total amount of fees paid by the 
DOE to each such entity in a fiscal year. I stated that a similar 
limitation of the exemption, up to the amount of the contractor's or 
subcontractor's fee paid, also would be a feasible approach for 
violations of DOE's nuclear safety regulations. The limitations in this 
legislation, however, should be structured to yield uniform standards 
for decision.
    While the Senate bills differ in certain ways from each other on 
the nonprofit exemption issue, the concerns I raised in my testimony 
before the House may also be relevant to their companion provisions in 
the Senate bills.
Recommendation 5. The Convention on Supplementary Compensation for 
        Nuclear Damage should be ratified and conforming amendments to 
        the Price-Anderson Act should be adopted.
    DOE has examined the potential effects on the Price-Anderson Act of 
the Convention on Supplementary Compensation for Nuclear Damage and has 
concluded ratification of the convention would not necessitate any 
substantive changes in the Price-Anderson Act. Nonetheless were this 
convention to be submitted and ratified by the Senate, it is 
conceivable that some technical and conforming changes to the Price-
Anderson Act might be desirable, such as provisions to make clear the 
geographic jurisdictional bounds of each legal regime.
    This concludes my prepared statement. I will be pleased to respond 
to any questions the Committee may have.

    The Chairman. Thank you very much.
    Mr. Gray.

  STATEMENT OF JOSEPH R. GRAY, ASSOCIATE GENERAL COUNSEL FOR 
  LICENSING AND REGULATION, U.S. NUCLEAR REGULATORY COMMISSION

    Mr. Gray. Mr. Chairman, I am pleased to appear before you 
today to present the views of the Nuclear Regulatory Commission 
on extending and amending the Price-Anderson Act, and on 
nuclear energy production and efficiency incentives. We hope 
that these views will assist the committee in its consideration 
of these provisions in the energy bill, policy bills, S. 388, 
S. 472, and S. 597 that are pending before you. Our testimony, 
of course, addresses the application of these provisions to 
nuclear powerplants regulated by the NRC.
    As to Price-Anderson, I am here to deliver a strong 
unanimous recommendation from the Commission that the Price-
Anderson Act be renewed with only minor modifications, but I 
would like to preface that statement of position with a 
reminder that the Commission's primary concern is public health 
and safety. Our mission is to ensure the safe use of nuclear 
power. We can look back on a successful history of safe 
operation and intend to exercise vigilance to maintain or 
improve on this record of safety.
    Nonetheless, it remains important to assure that if an 
improbable accident should occur, the means are provided to 
care for the affected members of the public. It is also 
important that, if the Congress intends that nuclear power 
remain a part of the nation's energy mix, this option is not 
precluded by the inability of nuclear plant licensees to 
purchase adequate sums of insurance commercially.
    In 1998, as mandated by Congress, the Nuclear Regulatory 
Commission submitted to the Congress its report on the Price-
Anderson system. The report included a concise history and 
overview of the Price-Anderson Act, and its amendments, as well 
as an update on legal developments and events pertaining to 
nuclear insurance and indemnity in the last decade. Congress 
had also required the NRC to address various topics that relate 
to and reflect on the need for continuation or modification of 
the act. The condition of the nuclear industry, the state of 
knowledge of nuclear safety, and the availability of private 
insurance.
    After evaluating pertinent information, the Commission 
considered what its recommendations should be. It concluded 
then that it should recommend that Congress renew the Price-
Anderson Act because it provides a valuable public benefit by 
establishing a system for the prompt and equitable settlement 
of public liability claims resulting from a nuclear accident. 
As I said earlier, that remains today the strongly held 
position of the Commission.
    The NRC did suggest that consideration be given to doubling 
the ceiling on the annual installment from the current sum of 
$10 million to $20 million per year per accident. The total 
allowable retrospective premium per reactor per accident was to 
remain unchanged at the statutory $63 million level adjusted 
for inflation. But the Commission recommended consideration of 
an increase to $20 million for the annual retrospective premium 
because it then appeared likely that in the coming decade, a 
number of reactors would permanently shut down. The effect of 
these shutdowns would have been to reduce the number of 
contributors to the reactor retrospective pool.
    Fewer contributors would in turn reduce the funds that in 
the event of a nuclear accident would become available each 
year to compensate members of the public for personal or 
property damage caused by an accident. Increasing the maximum 
annual contribution available from each reactor licensee would 
provide continuing assurance of up-front money to assist the 
public with prompt compensation until Congress could consider 
whether to enact additional legislation providing further 
relief, should it be needed.
    Recent events have led the Commission to review its 1998 
recommendation, and to re-evaluate its recommendation that 
Congress consider increasing the annual installment to $20 
million. There is now a heightened interest in extending the 
operating life for most, if not all, of the current operating 
power reactors, and some power companies are now examining 
whether they wish to submit applications for new reactors, or 
complete construction of reactors that had been deferred. As a 
result, the Commission does not believe that there is now 
justification for raising the maximum annual retroactive 
premium above the current $10 million level.
    Moving to, briefly to the matter of nuclear energy 
production and efficiency incentives contained in certain of 
the pending bills, we would first note by way of background 
that the Nation's nuclear electricity generators have worked 
over the past 10 years to improve nuclear power performance, 
reliability, and efficiency. According to the Nuclear Energy 
Institute, the improved performance of the U.S. nuclear 
powerplants since 1990 is equivalent to placing 23 new 1,000 
megawatt electric powerplants on line. The average capacity 
factor for U.S. light-water reactors was 88 percent in the year 
2000, up from 63 percent in 1989. And I am going to stress that 
the Commission has always focused on ensuring that safety is 
not compromised as a result of these industry efforts to 
improve efficiency and increase production.
    With regard to the production incentive provision in S. 
388, the Commission would advise some caution. The Commission 
has previously elaborated upon the potential impacts of 
performance incentives in a 1991 policy statement, Possible 
Safety Impacts of Economic Performance Incentives, which was 
published in the Federal Register on July 24, 1991. The 
Commission stated the concern with incentive plans, such as the 
one proposed here, that in the interest of real or perceived 
short-term economic benefit, the utility might hurry its work, 
take shortcuts, or delay a shutdown for maintenance in order to 
meet a deadline, a cost limitation, or other incentive plan 
factor.
    Such an incentive program could directly or indirectly 
encourage a utility to maximize measured performance in the 
short term, at the expense of plant safety and public health 
and safety by keeping a reactor on line when it should be taken 
down for preventive or corrective maintenance, and by using 
shortcuts or compressed work schedules to minimize down time, 
the licensee could decrease the margins of safety. The primary 
problem with the proposed production incentive is the short-
term interval for measuring performance. Performance 
measurements for short-term intervals would encourage the 
licensee to focus on short-term targets potentially diverting 
attention from long-term goals of reliability and operational 
safety.
    In contrast, performance measures for long-term intervals 
would prompt the utility to follow sound maintenance and 
operational practices to improve operating performance. For 
example, an incentive program could include evaluation of a 3- 
or 4-year capacity factor with account taken for other factors 
such as refueling outages, inclement weather, and other 
periodic events. Short-term measurements tend to make safety 
and economic goals conflict with each other, while long-term 
measurements tend to make the two goals complimentary.
    If a production incentive provision is enacted, the NRC 
would, of course, continue to maintain its safety oversight to 
ensure that reactor licensees operations are adequate to 
protect public health and safety. However, the Commission would 
not like to see the introduction of any production incentive 
with the potential to distract licensees from safe operation.
    On the matter of incentives for reactor power uprates, we 
would note that in recent years the Commission has approved 
numerous license amendments that permit licensees to make 
relatively small power increases or uprates. Typically, these 
increases have been approximately 2 percent to 7 percent. These 
uprates in the aggregate resulted in adding approximately 2,000 
megawatts electric or the equivalent of two new 1,000 megawatt 
electric powerplants to the grids.
    The NRC is now reviewing six license amendment requests for 
larger power uprates. These requests are for boiling water 
reactors and for uprates of 15 percent to 20 percent. Based on 
a recent survey, the NRC staff estimates that as many as 46 
plants may request uprates over the next 5 years. These 
uprates, if allowed, could add substantial additional capacity 
to the grid. The incentive provisions in the pending bills 
could result in even more additions or an acceleration of 
requests for uprates.
    Approvals for uprates are granted only after a thorough 
evaluation by the NRC staff to ensure safe operation of the 
plants at the higher power level. Plant changes and 
modifications are necessary to support a larger power uprate, 
and thus requires significant financial investment for the 
licensee. While the NRC does not know the number of uprate 
requests that will be received, the staff is evaluating ways to 
streamline the review and approval process. We would note that 
power uprates of 5 percent or more are considered by the NRC 
staff to be substantial and to require significant technical 
review and analysis. Should the power uprate incentive 
provisions of the pending bills be enacted, the NRC will need 
to evaluate the agency resource and budget implications, and 
possibly make adjustments to ensure that it can maintain 
thorough and timely reviews.
    Mr. Chairman, members of the committee, the NRC appreciates 
this opportunity to present its views, and we stand ready to 
accept your comments and questions.
    [The prepared statement of Mr. Gray follows:]
  Prepared Statement of Joseph R. Gray, Associate General Counsel for 
      Licensing and Regulation, U.S. Nuclear Regulatory Commission
    Mr. Chairman, Members of the Committee, I am pleased to appear 
before you today to present the views of the Nuclear Regulatory 
Commission (NRC) on extending and amending the Price-Anderson Act and 
on nuclear energy production and efficiency incentives. We hope that 
these views will assist the Committee in its consideration of these 
provisions in the energy policy bills pending before you (S. 388, S. 
472, and S. 597). Our testimony, of course, addresses the application 
of these provisions to nuclear power plants regulated by the NRC.

                       PRICE-ANDERSON ACT RENEWAL
    As to Price-Anderson, I am here to deliver the strong and unanimous 
recommendation of the Commission that the Price-Anderson Act be renewed 
with only minor modifications. But I would like to preface my statement 
of that position with the reminder that the Commission's primary 
concern is public health and safety. Our mission is to ensure the safe 
use of nuclear power. We can look back on a successful history of safe 
operation and intend to exercise vigilance to maintain or improve on 
this record of safety. Nonetheless, it remains important to assure that 
if an improbable accident should occur, the means are provided to care 
for the affected members of the public. It is also important, if the 
Congress intends that nuclear power remain a part of the nation's 
energy mix, that this option is not precluded by the inability of 
nuclear plant licensees to purchase adequate sums of insurance 
commercially.
    As you know, Congress first enacted the Price-Anderson Act in 1957, 
nearly a half century ago. Its twin goals were then, as now:
    1. To ensure that adequate funds would be available to the public 
to satisfy liability claims in a catastrophic nuclear accident; and
    2. To permit private sector participation in nuclear energy by 
removing the threat of potentially enormous liability in the event of 
such an accident.
    On original passage the Congress provided a term during which the 
Commission could extend Price-Anderson coverage to new licensees and 
facilities. When that term expired, the Congress then, and repeatedly 
since, has decided that the nation would be served by extending the 
Price-Anderson Act so that new coverage would be available for newly 
licensed reactors. This action preserved the option of private sector 
nuclear power and assured protection of the public. At this point, in 
order to avoid confusion, I should note that Price-Anderson coverage 
for NRC licensees is granted for the lifetime activities of the covered 
facility and does not ``expire'' in 2002. Thus, in any event, Price-
Anderson coverage with respect to already licensed nuclear power 
reactors will continue and will afford prompt and reasonable 
compensation for any liability claims resulting from an accident at 
those facilities.
    While Congress has amended the Price-Anderson Act from time to 
time, it has done so cautiously so as to avoid upsetting the delicate 
balance of obligations between operators of nuclear facilities and the 
United States government as representative of the people.
    Perhaps the most significant amendments to date were those that 
effectively removed the United States government from its obligation to 
indemnify any reactor up to a half billion dollars and that placed the 
burden on the nuclear power industry. Congress achieved this by 
mandating in 1975 that each reactor greater than 100 MWe, essentially 
each reactor providing power commercially, contribute $5 million to a 
retrospective premium pool if and only if there were damages from a 
nuclear incident that exceeded the maximum commercial insurance 
available. The limit of liability was then $560 million. Government 
indemnification was phased out in 1982 when the potential pool and 
available insurance reached that sum.
    In 1988, Congress increased the potential obligation of each 
reactor in the event of a single accident at any reactor to $63 million 
(to be adjusted for inflation). The maximum liability insurance 
available is now $200 million. When that insurance is exhausted each 
reactor must pay into the pool up to $83.9 million, as currently 
adjusted for inflation, if needed to cover damages in excess of the sum 
covered by insurance. The $83.9 million is payable in annual 
installments not to exceed $10 million. Today, the commercial insurance 
and the reactor pool together would make available over $9 billion to 
cover any personal or property harm to the public caused by an 
accident.
    In 1982, when the federal government ceased to be the backup 
insurer in the event of a power plant accident, the retrospective 
premium pool was still counted in hundreds of millions of dollars. 
Today the funds available to assist the public, counted in billions of 
dollars, are more than 15-times as great as they were in 1982. No other 
country in the world today matches this level of protection available 
for people injured and property damaged by a nuclear power plant 
accident.
    In 1998, as mandated by Congress, the Nuclear Regulatory Commission 
submitted to the Congress its report on the Price-Anderson system. The 
report included a concise history and overview of the Price-Anderson 
Act and its amendments as well as an update on legal developments and 
events pertaining to nuclear insurance and indemnity in the last 
decade. Congress had also required the NRC to address various topics 
that relate to and reflect on the need for continuation or modification 
of the Act: the condition of the nuclear industry, the state of 
knowledge of nuclear safety, and the availability of private insurance.
    After considering pertinent information, the Commission considered 
what its recommendations should be. It concluded then that it should 
recommend that Congress renew the Price-Anderson Act because it 
provides a valuable public benefit by establishing a system for the 
prompt and equitable settlement of public liability claims resulting 
from a nuclear accident. That, as I said at the outset, remains today 
the strongly held position of the Commission.
    Having noted that substantial changes in the nuclear power industry 
had begun and could continue, the Commission believed it would be 
prudent to recommend renewal for only ten years rather than the 15-year 
period that had been adopted in the last reauthorization so that any 
significant evolution of the industry could be considered when the 
effects of ongoing changes would be clearer. Notwithstanding that view, 
the Commission, recommended that the Congress consider amending the Act 
to increase the maximum annual retrospective premium installment that 
could be assessed each holder of a commercial power reactor license in 
the event of a nuclear accident.
    The NRC suggested that consideration be given to doubling the 
ceiling on the annual installment from the current sum of $10 million 
to $20 million per year per accident. The total allowable retrospective 
premium per reactor per accident was to remain unchanged at the 
statutory ``$63 million'' adjusted for inflation. (It is now $83.9 
million as so adjusted). The Commission recommended consideration of an 
increase to $20 million because it then appeared likely that in the 
coming decade a number of reactors would permanently shut down. The 
effect of these shutdowns would have been to reduce the number of 
contributors to the reactor retrospective pool. Fewer contributors 
would, in turn, reduce the funds that, in the event of a nuclear 
accident, would become available each year to compensate members of the 
public for personal or property damage caused by an accident. 
Increasing the maximum annual contribution available from each reactor 
licensee would provide continuing assurance of ``up front'' money to 
assist the public with prompt compensation until Congress could 
consider whether to enact additional legislation providing further 
relief, should it be needed.
    Recent events have led the Commission to review its 1998 
recommendations and to reevaluate its recommendation that Congress 
consider increasing the annual installment to $20 million. There is now 
a heightened interest in extending the operating life for most, if not 
all, of the currently operating power reactors, and some power 
companies are now examining whether they wish to submit applications 
for new reactors or complete construction of reactors that had been 
deferred. As a result, the Commission does not believe that there is 
now justification for raising the maximum annual retroactive premium 
above the current $10 million level.

          NUCLEAR ENERGY PRODUCTION AND EFFICIENCY INCENTIVES
    Moving briefly to the matter of nuclear energy production and 
efficiency incentives contained in certain of the pending bills, we 
would first note, by way of background, that the nation's nuclear 
electricity generators have worked over the past 10 years to improve 
nuclear power plant performance, reliability, and efficiency. According 
to the Nuclear Energy Institute, the improved performance of the U.S. 
nuclear power plants since 1990 is equivalent to placing 23 new 1,000 
MWe power plants on line. The average capacity factor for U.S. light 
water reactors was 88 percent in 2000, up from 63 percent in 1989. I 
must stress that the Commission has always focused on ensuring that 
safety is not compromised as a result of these industry efforts to 
improve efficiency and increase production.
    With regard to the production incentive provision in S. 388, the 
Commission would advise caution. The Commission has previously 
elaborated upon the potential impacts of performance incentives in a 
1991 policy statement ``Possible Safety Impacts of Economic Performance 
Incentives: Final Policy Statement,'' published in the Federal Register 
on July 24, 1991 (56 FR 33945). The Commission stated a concern with 
incentive plans such as the one proposed here, that, in the interest of 
real or perceived short-term economic benefit, the utility might hurry 
work, take short cuts, or delay a shutdown for maintenance in order to 
meet a deadline, a cost limitation, or other incentive plan factor. 
Therefore, such an incentive program could directly or indirectly 
encourage the utility to maximize measured performance in the short 
term at the expense of plant safety and public health and safety. By 
keeping a reactor on line when it should be taken down for preventive 
or corrective maintenance and by using shortcuts or compressed work 
schedules to minimize down time, the licensee could decrease the margin 
of safety.
    A primary problem with the proposed production incentive is the 
short-term interval for measuring performance. Performance measurements 
for short-term intervals would encourage the licensee to focus on a 
short-term target, potentially diverting attention from long-term goals 
of reliability and operational safety. In contrast, performance 
measurements for long-term intervals would prompt the utility to follow 
sound maintenance and operational practices to improve operating 
performance. For example, an incentive program could include evaluation 
of a three or four-year capacity factor, with account taken for other 
factors such as refueling outages, inclement weather and other periodic 
events. Short-term measurements tend to make safety and economic goals 
conflict with each other, while long-term measurements tend to make the 
two goals complementary.
    If a production incentive provision is enacted, the NRC would of 
course continue to maintain its safety oversight to ensure that reactor 
licensees' operations are adequate to protect public health and safety. 
However, the Commission would not like to see the introduction of any 
production incentive with the potential to distract licensees from safe 
operation.
    On the matter of incentives for reactor power uprates, we would 
also note that in recent years, the Commission has approved numerous 
license amendments that permit licensees to make relatively small power 
increases or uprates. Typically, these increases have been 
approximately 2 percent to 7 percent. These uprates, in the aggregate, 
resulted in adding approximately 2,000 MWe or the equivalent of two new 
1,000 MWe power plants.
    The NRC is now reviewing six license amendment requests for larger 
power uprates. These requests are for Boiling Water Reactors (BWRs) and 
are for uprates of 15 percent to 20 percent. Based on a recent survey, 
the NRC staff estimates that as many as 46 plants may request uprates 
over the next 5 years. These uprates, if allowed, could add substantial 
additional capacity to the grid. The incentive provisions in the 
pending bills could result in even more additions or an acceleration of 
requests for uprates.
    Approvals for uprates are granted only after a thorough evaluation 
by the NRC staff to ensure safe operation of the plants at the higher 
power level. Plant changes and modifications are necessary to support a 
large power uprate, and thus require significant financial investment 
by the licensee. While the NRC does not know the number of uprate 
requests that will be received, the staff is evaluating ways to 
streamline the review and approval process. We would note that power 
uprates of 5 percent or more are considered by the NRC staff to be 
substantial and to require significant technical review and analysis. 
Should the power uprate incentive provisions of the pending bills be 
enacted, the NRC will need to evaluate the agency resource and budget 
implications and possibly make adjustments to ensure that it can 
maintain its thorough and timely reviews.
    The NRC appreciates the opportunity to present its views, and will 
elaborate further on any of them at your request. Mr. Chairman and 
Members of the Committee, I welcome your comments and questions.

    The Chairman. Thank you very much. Before we go on with the 
other witnesses, Senator Murkowski, did you have any opening 
statement that you wanted to make at this point?

      STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. I'll be very brief, Mr. Chairman. I 
apologize for being late, but we had the U.S.-Canadian 
parliamentary group down here from Ottawa talking about energy. 
As you and I both know, this is the second hearing we have had 
on Price-Anderson. We had one back in May, and I am pleased to 
see four of the six witnesses that were there are back today 
because at that time, we had a little schism or whatever you 
want to call it occurring here in the Senate and as a 
consequence, we adjourned to see what was ultimately going to 
happen, and you can see the results. I am on the left, and 
Senator Bingaman is on the right.
    But in any event, we agreed in the last Congress to renew 
Price-Anderson. Both of our comprehensive energy bills, Senator 
Bingaman's and mine, contain the same language based on the 
recommendations of the Department of Energy and the NRC. And 
renewal of the act, as you know, is in the President's 102 
recommendations in the National Energy Policy. The act has 
worked well for 40 years. Renewal of the act is really 
necessary if we are to build new nuclear plants and ensure 
relicensing.
    It is important to recognize that nuclear is about 20 
percent of the energy mix in this country, and there are no 
greenhouse gases associated with nuclear generation. Its record 
is extraordinary, and plants are efficient and safe. U.S. 
plants are operating at record efficiencies. Total efficiency 
increases have been dramatic during the 1990's at existing 
plants. Increases were the equivalent of adding approximately 
23 1,000 megawatt plants and Price-Anderson was enacted to 
facilitate the development of nuclear power. It worked well. It 
definitely should be extended. I don't have to comment on the 
role of nuclear power, and given the importance, both Senator 
Dominici and I included incentives in our energy bills to 
encourage increased and more efficient production. Provisions 
would help increase nuclear generation and improve generating 
efficiencies.
    I think if you recognize reality our economy depends on 
nuclear energy. Our national security depends on nuclear 
energy. Our environment depends on nuclear energy and our 
future depends on nuclear energy. But as you can see by this 
ad, gentlemen, there is a very strong lobby that is very much 
opposed to the development of nuclear energy and is very 
critical of the President's plan. It says ``the Bush energy 
plan, what a waste.'' ``Bush energy plan proposed building more 
nuclear powerplants, even though nuclear power wastes billions 
in taxpayers' dollars and produces dangerous radioactive 
waste.''
    This is the mentality that we are up against relative to 
the nuclear industry and the role that it should be playing in 
our future energy plans, and I am not going to comment on the 
drivel that is associated with the text of this, and other than 
it is the traditional scare tactics used by environmental 
groups that don't accept the responsibility of coming up with 
any alternatives.
    As you know, we do have an energy crisis in this country, 
and those that want to blame it on the President for his 
association with the oil and gas industry, or big oil or 
whatever are not facing realities. It is different this time. 
We all know it is different. We have not built a new coal 
powered plant since 1995. We haven't built a new nuclear plant 
in 25 years. Have not built a new refinery in 25 years. The 
price of gas has gone from $2.16 to $4 to $5 to $6. Fifty-seven 
percent dependent on imported oil. Our transmission grids are 
inadequate, both gas and electricity. So it is different this 
time.
    But it galls me to see that the Sierra Club, the National 
Resources Defense Council, the Physicians for Responsible 
Environmental Defense, Nuclear Information Resource Service, 
Public Citizen, Safe Energy Communication, Friends of the 
Earth, Center for International Environmental Law, National 
Environmental Trust, Greenpeace adamantly oppose nuclear 
development. They adamantly oppose Price-Anderson. So I would 
hope that you folks in your various capacities can speak out 
and continue to speak out on the necessity of maintaining a 
balance in our energy mix and the important role that nuclear 
energy is going to play. But clearly, we are up against fear 
tactics, and you should recognize that as well as the political 
world that Senator Bingaman and I live in with regard to the 
future role in this industry. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Mr. Bradburne, why don't you go right ahead.

  STATEMENT OF JOHN BRADBURNE, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, FLUOR FERNALD, INC., CINCINNATI, OH, ON BEHALF OF 
            ENERGY CONTRACTORS PRICE-ANDERSON GROUP

    Mr. Bradburne. Thank you, Mr. Chairman. And members of the 
committee. I am here this morning representing fellow 
Department of Energy contractors on behalf of the Energy 
Contractors' Price-Anderson Group. This group is an ad hoc 
organization made up of the following companies. Fluora 
Corporation, Mattel Memorial Institute, BNFL, Incorporated, BWX 
Technologies, Incorporated, Johnson Controls Worldwide Services 
Corporation, Nuclear Fuel Services, Incorporated, Washington 
Group, International, Incorporated, and USAC, Incorporated. 
This represents a significant cross-section of DOE contractors, 
current DOE contractors. Each of these entities is covered by 
one or more nuclear hazard indemnity agreements with the U.S. 
Department of Energy under Section 170d of the Price-Anderson 
Act.
    Collectively, we are here today to advocate an extension of 
the Price-Anderson Act. We support another extension sooner, 
rather than later to ensure there is not a break in this vital 
authority next year. Protection of the public has been the 
principal purpose of Price-Anderson since its adoption. Failure 
to extend the act would result in substantially less protection 
for the public in the event of a nuclear insurance departments 
at a DOE site or in transporting materials from a DOE site. 
Absent Price-Anderson Act coverage, the Department of Energy 
would be greatly inhibited in attracting and hiring the kinds 
of contractors needed to tackle some of the tough work that 
lies before them.
    Without Price-Anderson protection, most private contractors 
and suppliers could not prudently take the financial risk 
associated with assisting DOE to perform its vital cleanup, 
national defense, and other missions. Price-Anderson 
indemnification is simply the only viable substitute for the 
commercial insurance that prudent contractors doing work for 
the Federal Government would purchase if they could to protect 
themselves. In 1999, the Department of Energy submitted a 
report to Congress calling for renewal of Price-Anderson.
    We support that recommendation. Attached to their 1999 
report was a letter from American Nuclear Insurers indicating 
that commercial insurers are not in a position to guarantee 
that any nuclear liability insurance would be written for DOE 
facilities. Further stated that even if it were, it could not 
replace the 9.4 billion of indemnity granted under Price-
Anderson since ANI has been limited in their ability to write 
coverage beyond $200 million.
    There would be strong reluctance on the part of existing 
and potential contractors to do nuclear business with the 
Department if authority to enter into Price-Anderson indemnity 
agreements were discontinued. The strong reluctance, if not 
inability to do business, would apply especially to contractors 
as nuclear activities are only a small percentage of their 
overall business. This would lessen competition, and otherwise 
increase costs to the Government.
    A strong resistance also would extend to subcontractors and 
equipment suppliers, including many small businesses throughout 
the country who might be held liable for an accident, but not 
have the financial resources to cover that liability, or the 
legal defense costs associated with such litigation. With 
regard to safety, Price-Anderson indemnification provides an 
incentive for safety, not only are there existing criminal laws 
to punish egregious behavior, in the 1988 amendments to Price-
Anderson, Congress added enhanced criminal and civil provisions 
to further encourage DOE contractor accountability.
    These provisions are now rigorously enforced. In addition, 
DOE can and does hold contractors accountable by other actions 
such as performance fee reductions, stop work orders, contract 
modification, and even contract revocation.
    Reducing the number of potential contractors and suppliers 
to DOE would obviously have an adverse impact on Department's 
costs and schedules. Of even greater concern would be the 
potential adverse impact upon the overall quality and safety 
levels of DOE contract work since the most qualified and most 
safety conscious contractors and suppliers would most probably 
be the first to abandon DOE work because of inadequate 
liability protection.
    In conclusion, the Price-Anderson indemnity system should 
be continued in substantially its present form. After nearly 45 
years of Price-Anderson indemnification, private industry has 
assumed, as Congress intended, a larger role in assisting the 
Federal Government in carrying out its own nuclear activities 
safely and efficiently. In other words, Price-Anderson 
contractor indemnification is a system that has worked well in 
encouraging this private industry participation. It should be 
promptly extended again.
    Thank you for the opportunity to testify before your 
committee. I'd be happy to answer any questions that you might 
have. I have with me Omar Brown, who is counsel to our group, 
in the event that there are any technical questions that you 
might have that I would be unable to answer.
    [The prepared statement of Mr. Bradburne follows:]
  Prepared Statement of John Bradburne, President and Chief Executive 
              Officer, Fluor Fernald, Inc., Cincinnati, OH
    Mr. Chairman and Members of the Committee, my name is John 
Bradburne and I am President and CEO of Fluor Fernald, Inc. I am here 
this morning representing fellow Department of Energy contractors 
through the Energy Contractors Price-Anderson Group.\1\ We appreciate 
this opportunity to testify before your Committee and for the fact that 
you have scheduled this hearing about extension of the Price-Anderson 
Act (``Price-Anderson'').
---------------------------------------------------------------------------
    \1\ The Energy Contractors Price-Anderson Group is an ad hoc group 
composed of Battelle Memorial Institute; BNFL, Inc.; BWX Technologies, 
Inc.; Fluor Corporation; Johnson Controls World Services Corporation; 
Nuclear Fuel Services, Inc.; Washington Group International Inc.; and 
USEC Inc. Each of these entities now is covered by one or more nuclear 
hazards indemnity agreements with the U.S. Department of Energy (DOE) 
under Section 170d of the Price-Anderson Act.
---------------------------------------------------------------------------
    Price-Anderson Act authority of the Department of Energy (DOE) 
provides indemnity protection for nuclear risks associated with DOE 
contracts and is to expire on August 1, 2002. We are here today to ask 
for its renewal. We support extension, sooner rather than later, to 
ensure there is not a break in this vital authority next year.
    Protection of the public has been the principal purpose of Price-
Anderson. Failure to extend Price-Anderson would result in 
substantially less protection for the public in the event of a nuclear 
incident at a DOE site or in transportation. Moreover it would greatly 
inhibit the Department of Energy in attracting and hiring the kinds of 
contractors needed to tackle some of the tough work that lies before 
them.
    For almost 45 years, through Price-Anderson, the Congress has been 
able to ensure the availability of adequate funds to the public (now 
about $9.4 billion) in the unlikely event of a catastrophic nuclear 
accident. In addition, other benefits to the public include such 
provisions as emergency assistance payments, consolidation and 
prioritization of claims in one court, channeling of liability 
permitting a more unified and efficient approach to processing and 
settlement of claims, and waivers of certain legal defenses in the 
event of a large accident (``extraordinary nuclear occurrence'').
    The 1988 Price-Anderson Amendments Act required DOE and the Nuclear 
Regulatory Commission (NRC) to submit to Congress reports containing 
their recommendations for continuation, repeal or modification of the 
Price-Anderson Act. The DOE Report was submitted to Congress in March 
1999 recommending an extension. NRC's Report, which also strongly 
recommended an extension (with relatively minor changes), was filed in 
October 1998.
    The 1999 DOE Price-Anderson Report makes five basic 
recommendations, which we support:
    (1) DOE indemnification of its contractors for nuclear risks should 
be continued without substantial change, because it is ``essential to 
DOE's ability to fulfill its statutory mission.'' The Report further 
makes the point that DOE indemnification guarantees the availability of 
funds to ensure prompt and equitable compensation for the public, 
provides for consolidating claims in one federal court, and minimizes 
protracted litigation. DOE goes on to state that Price-Anderson 
indemnification is cost-effective, pointing out that DOE payments to 
date ``have not been significant.''
    (2) The amount of DOE indemnification (about $9.4 billion) should 
not be decreased.
    (3) DOE indemnification should continue to provide broad and 
mandatory coverage of activities conducted under contract for DOE.
    (4) DOE should continue to have authority to impose civil penalties 
on for-profit contractors, subcontractors and suppliers for nuclear-
safety violations.
    (5) The 1997 International Atomic Energy Agency Convention on 
Supplementary Compensation for Nuclear Damage (CSC) should be ratified, 
and conforming amendments to the Price-Anderson Act should be adopted. 
(Technically, U.S. ratification of the CSC would have little impact on 
the portions of the Price-Anderson Act applicable to indemnification of 
DOE contractors. The CSC is of more relevance to commercial nuclear 
activities, which would enjoy substantial benefits from its 
ratification by the United States and other countries. For example, the 
CSC would provide a portion of the funds for a power plant accident in 
the United States through international contributions.)
    This year, we have seen several comprehensive energy bills 
containing nearly identical Price-Anderson extension provisions 
introduced: S. 388, S. 472, and S. 597. These are based on last year's 
bipartisan bill, S. 2162 (106th Congress), introduced by Senator Frank 
Murkowski (R-Alaska) and Senator Jeff Bingaman (D-New Mexico). We 
support extension of the DOE contractor provisions of these bills whose 
simplicity, similarity and bipartisan nature reflect a consensus on a 
simple extension of Price-Anderson. We further note that the 
President's National Energy Policy Report also supports extension of 
the Price Anderson Act.
    Without Price-Anderson protection, most private contractors and 
suppliers could not prudently take the financial risks associated with 
assisting DOE to perform its vital cleanup, national defense, and other 
missions. Price-Anderson indemnification is not a ``subsidy'' to DOE 
contractors and suppliers. It simply is the only viable substitute for 
the commercial insurance that prudent contractors doing work for the 
Federal Government would purchase, if they could, to protect 
themselves, and the public.
    Attached to the 1999 DOE Report to Congress is a letter from 
American Nuclear Insurers (ANI) indicating that commercial insurers are 
not in a position to guarantee that any nuclear liability insurance 
would be written for DOE facilities. It further states that even if it 
were, it could not replace the $9.4 billion of indemnity granted under 
the Price-Anderson Act, since ANI has been limited to nuclear liability 
limits of only $200 million.
    In any case, ANI observed that it would be much easier for it to 
write nuclear liability insurance for new DOE facilities than for 
existing ones. The insurers said, for facilities which have, in some 
cases, operated for decades, ANI ``would have obvious concerns about 
picking up liability for old exposures, which may well preclude 
insurability.'' Even if some limited private insurance were available 
for some DOE nuclear activities, it would not protect against all 
nuclear hazards, and would increase Government costs substantially, as 
the DOE Report to Congress observes. Few nuclear claims have ever been 
paid by the Government, so DOE has concluded it is cost-effective for 
the Government to continue to self-insure the nuclear risks associated 
with its own activities.
    With regard to safety, Price-Anderson indemnification does not 
provide a disincentive to safety any more than the purchase of 
liability insurance by an individual or a corporation provides a 
disincentive to safety. There are existing criminal laws to punish 
egregious behavior. Furthermore, in the 1988 Amendments, Congress added 
enhanced criminal and civil penalty provisions to further encourage DOE 
``contractor accountability.'' These provisions, which now are being 
rigorously enforced, were added to enable DOE to impose civil fines of 
up to $110,000 per day and increased criminal penalties for violations 
of DOE nuclear safety rules. DOE also can hold contractors accountable 
by other actions, such as award-fee reductions, stop-work orders, 
contract modification, and contract revocation.
    There would be strong reluctance on the part of existing and 
potential contractors to do nuclear business with the Department if 
authority to enter into Price-Anderson indemnity agreements were 
discontinued. The strong reluctance, if not refusal to do business, 
would apply especially to contractors whose nuclear activities are only 
a small percent age of their overall businesses. This would lessen 
competition and otherwise increase costs to the Government. The strong 
resistance also would extend to subcontractors and equipment suppliers, 
including many small businesses through out the country, who might be 
held liable for an accident but not have the financial resources to 
cover that liability or the legal defense costs associated with such 
litigation.
    Reducing the number of potential contractors and suppliers to DOE 
would obviously have an adverse impact on their costs. Of even greater 
concern would be the potential adverse impact upon the overall quality 
and safety levels of DOE contract work since the most qualified and 
most safety conscious contractors and sup pliers would most probably be 
the first to abandon DOE work because of inadequate liability 
protection.
    Contractor coverage prior to Price-Anderson often was inconsistent, 
subject to individual contract idiosyncrasies, inapplicable to 
subcontractors, and subject to the availability of appropriated funds. 
Subsection 170d was carefully designed to correct many of these 
deficiencies and to provide a uniform system of public protection. 
Without Price-Anderson, DOE would be faced with performing its missions 
with small, lightly capitalized contractors or Federal employees. In 
those situations, the public would not be as well protected. 
Contractors without assets could not pay claims. Use of Federal 
employees would mean that the Federal Tort Claims Act would apply, 
which would eliminate jury trials and the possibility of class actions, 
and require the submission of individual administrative claims.
    The Price-Anderson system specifically was developed to provide 
assurance that significant sums of money would be available over an 
extended period of years to make prompt payment to victims in the 
remote case of a nuclear accident. The only fundamental change since 
the original adoption of Price-Anderson in 1957, has been the 
revolutionary change in the American tort system, most of which has 
occurred over the last twenty-year period. This change has increased 
greatly the unpredictability of the probable dollar damages resulting 
from any major accident, whether it is nuclear or non-nuclear in 
nature. This makes a system such as Price-Anderson only more essential 
for the period beyond 2002.
    Unlike NRC-licensed nuclear power plants that are ``grandfathered'' 
under Price-Anderson (i.e., their coverage lasts for the duration of 
their license), DOE sites and facilities are not. Most DOE contracts 
expire in five years or less. Indemnity in DOE contracts signed or 
extended prior to the Act's expiration will remain in effect for the 
duration of the contract, but contracts entered into or extended after 
that date will have no indemnity. There are major DOE contracts that 
will be coming up for renewal as early as September 2002. Therefore, it 
is critical to the public to have Congress renew the Act before its 
2002 expiration.
    In conclusion, the Price-Anderson indemnity system should be 
continued in substantially its present form. It should also be 
clarified that the Act does apply to the new National Nuclear Security 
Administration. After nearly forty-five years of Price-Anderson Act 
indemnification, private industry has assumed, as Congress intended, a 
larger role in assisting the Federal Government in carrying out its own 
nuclear activities without any significant damage or injury to the 
public. In other words, Price-Anderson contractor indemnification is a 
system that has worked well. It should promptly be extended again.
    Thank you again for this opportunity to testify before your 
Committee.

    The Chairman. Thank you very much.
    Mr. Fertel, why don't you go right ahead.

STATEMENT OF MARVIN S. FERTEL, SENIOR VICE PRESIDENT, BUSINESS 
              OPERATIONS, NUCLEAR ENERGY INSTITUTE

    Mr. Fertel. Thank you, Mr. Chairman. First, let me thank 
you and Senator Murkowski for your leadership on pursuing the 
prompt renewal of Price-Anderson. We certainly appreciate that, 
and look forward to supporting you. The Price-Anderson Act is 
the most comprehensive effective liability protection law in 
the world. It has been proven effective for nearly 45 years, 
and over that period of time, it is been renewed three times by 
Congress. The industry fully supports renewal of Price-
Anderson. It is a proven law that works.
    The industry also recommends that the law be renewed 
permanently. Obviously even with permanent renewal, the 
Congress could review it at any point in time, and request 
status reports from the NRC on any proposed changes to the law. 
The Price-Anderson Act supports our nation's program to build 
new nuclear powerplants which are essential to meet our energy 
and environmental protection goals. The law provides effective 
no fault insurance. It ensures the availability of money for 
claims immediately in the event of a reactor accident, and it 
provides congressional authority to provide additional funding 
for claims if the more than $9.5 billion immediately available 
from the industry is not sufficient.
    Over the more than 45 years that the law has been in 
effect, no taxpayer dollars have been paid related to the 
commercial coverage for nuclear powerplants. In fact, the 
Government has received $21 million in payment from the 
industry as part of the collecting of Price-Anderson premiums 
during the early years. And over the entire history of the Act, 
the total payments made by the industry insurance program, 
including those related to the Three Mile Island accident, is 
less than $190 million. This is compared to the $9.5 billion of 
industry funding required to be available for coverage 
immediately.
    In conclusion, renewal of the Price-Anderson Act is not 
only required to ensure the protection of the public for 
existing and new nuclear powerplants. As you have just heard, 
it is absolutely essential for ensuring that the Government 
will be able to effectively retain contractors to work at 
Department of Energy facilities. Again, I thank you for the 
opportunity to testify today. I would be pleased to answer any 
questions you may have, and I will take any questions you have 
on the incentive program during the question period.
    [The prepared statement of Mr. Fertel follows:]
Prepared Statement of Marvin S. Fertel, Senior Vice President, Business 
                  Operations, Nuclear Energy Institute
    Chairman Murkowski and distinguished members of the Senate Energy 
and Natural Resources Committee, I am Marvin Fertel, Senior Vice 
President of the Nuclear Energy Institute. The Institute is the 
Washington, D.C.-based policy organization for the nuclear industry. I 
am pleased to have this opportunity to testify regarding the renewal of 
the Price-Anderson Act, nuclear energy research and development funding 
and industry workforce issues.
    The Nuclear Energy Institute (NEI) establishes public policy on 
various issues affecting the nuclear energy industry, including federal 
regulations that help ensure the safety of the 103 commercial nuclear 
power plants operating in 31 states. NEI represents nearly 275 
companies, including every U.S. utility licensed to operate a 
commercial nuclear reactor, their suppliers, fuel fabrication 
facilities, architectural and engineering firms, labor and law firms, 
radiopharmaceutical companies, research laboratories, universities and 
international nuclear organizations.
    Congress should renew the Price-Anderson Act, and it should do so 
with an indefinite renewal. This is a proven framework that has worked 
for nearly 50 years. Given this proven record, Congress should renew it 
indefinitely. Congress can reopen the law if modifications are needed. 
In addition, Congress can request updates on the status of Price-
Anderson Act implementation from the NRC.
    The Price-Anderson Act is necessary to assure the public that the 
industry is prepared for contingencies. The law assures the 
availability of billions of dollars to compensate members of the public 
who suffer a loss as the result of a nuclear incident. It establishes a 
simplified claims process for the public to expedite recovery for 
losses and provides immediate reimbursement for costs associated with 
any evacuation that may be ordered near nuclear power plants.

              OVERVIEW OF NUCLEAR POWER PLANT PERFORMANCE
    Nuclear power produces 20 percent of the nations' electricity 
supplying power to one of every five U.S. homes and powering our high-
tech economy. The commercial nuclear industry is a dynamic, growing 
sector that has played a key role in the economic growth and 
environmental protection of our nation for decades.
    After many years of steady improvements, U.S. nuclear power plants 
achieved record safety and reliability levels in 2000. The industry set 
another production record last year, generating 754 billion kilowatt-
hours in 2000, or 3.5 percent more than in 1999.
    The increased electricity generation from nuclear power plants in 
the past 10 years was the equivalent of adding 22 new, 1,000-megawatt 
plants, or enough to meet 23 percent of our nation's demand during the 
past decade.
    The industry's performance has been outstanding over the past 20 
years, and we believe it will continue to improve. The Nuclear Energy 
Institute announced earlier this week Vision 2020 a strategic plan to 
build 50,000 megawatts of new nuclear power generation during the next 
20 years. This new nuclear power generation is essential to meet both 
our increasing electricity demand and to maintain the 30 percent share 
of all emission-free electricity generation today.
    Many Americans are just beginning to focus on our increasing energy 
needs, and many are just learning that for decades, nuclear energy has 
played a vital role in protecting our air quality. Between 1973 and 
1999, nuclear plants avoided emission of 32 million tons of nitrogen 
oxide, 62 million tons of sulfur dioxide and 2,620 million tons of 
carbon.
    Nuclear energy is the only expandable large-scale source of 
emission-free electricity and is the largest source of voluntary 
reduction as part of DOE'S climate challenge program. Reports last year 
from the Energy Department's Energy Information Administration made a 
direct connection between increased production from nuclear plants and 
the fact that greenhouse gases and other emissions increased less than 
they otherwise would have.

         CONGRESS SHOULD RENEW PRICE-ANDERSON ACT INDEFINITELY
    The Price-Anderson Act of 1957, signed into law as an amendment to 
the Atomic Energy Act, provides for payment of public liability claims 
related to any nuclear incident. In its 1998 report to Congress, the 
Nuclear Regulatory Commission said that the Price-Anderson Act has 
``proven to be a remarkably successful piece of legislation'' that has 
grown in depth of coverage and that proved its viability in the 
aftermath of the Three Mile Island accident.
    Since the inception of the Price-Anderson Act, the law has been 
extended three times for successive 10-year periods, and in 1988 it was 
extended for 15 years. Unless Congress renews the Price-Anderson Act, 
it will expire on August 1, 2002.
    The Price-Anderson Act is a proven law that works in these 
important ways:

   Assures the availability of billions of dollars to 
        compensate affected individuals who suffer a loss as a result 
        of a nuclear incident.
   Establishes a simplified claim process for the public to 
        expedite recovery of losses.
   Provides for immediate emergency reimbursement for costs 
        associated with any evacuation of residents near a nuclear 
        power plant.
   Establishes two tiers of liability for each nuclear incident 
        involving commercial nuclear energy and provides a guarantee 
        that the federal government will review the need for 
        compensation beyond that explicitly required by law. The Price-
        Anderson framework provides $9.5 billion of coverage in the two 
        levels of protection.

    For the primary level, the law requires nuclear power plant 
operators to buy nuclear liability insurance available or provide for 
an equal amount of financial protection. That amount of insurance is 
$200 million.
    For the second level, power plant operators are assessed up to $88 
million for each accident that exceeds the primary level at a rate not 
to exceed $10 million per year, per reactor for a total of $9.3 
billion. The NRC increases the level for inflation every five years. An 
important feature of the law is that it spreads the liability for a 
major accident across the entire industry. In addition, Congress may 
establish more assessments if the first two levels of coverage are not 
adequate to cover claims. The Price-Anderson Act framework provides the 
same level of liability for DOE facilities as for the commercial 
sector.
    Research or small power reactors are required to self-insure at 
least the first $250,000 of any nuclear incident. The federal 
government also provides up to $500 million of indemnity. At present, 
there are no small power reactors in operation that qualify for this 
coverage. But the groundwork is being laid to design power reactors 
that would be smaller, safer and more cost effective to build. That 
very extensive research and development would be jeopardized if the 
Price-Anderson Act is not renewed expeditiously.
    The costs of Price-Anderson coverage are included in the cost of 
electricity, they are not a taxpayer expense or federal subsidy. That 
means the nuclear industry bears the cost of insurance, unlike the 
corresponding costs of some major power alternatives. For example, 
risks from hydropower (dam failure and flooding) are borne directly by 
the public. The 1977 failure of the Teton Dam in Idaho caused $500 
million in property damage. The only compensation for this event was 
about $200 million in low-cost government loans.
    In addition to the approximately $180 million paid in claims by the 
insurance pools since the Price-Anderson Act went into effect, the law 
has resulted in payment of $21 million back to the government in 
indemnity fees.
    The NRC and DOE has recommended renewal of the Price-Anderson Act 
to Congress. The NRC, in its 1998 report, describes the benefits the 
law provides to the public. The agency says that ``the structured 
payment system created to meet the two objectives stated in the Price-
Anderson Act has been successful.'' The Commission believes that in 
view of the strong public policy benefits in ensuring the prompt 
availability and equitable distribution of funds to pay public 
liability claims, the Price-Anderson Act should be extended to cover 
future as well as existing nuclear power plants.
    The Department of Energy in 1999 has also recommended renewal of 
the law. The Energy Department said that its indemnification ``should 
be continued without any substantial change because it is essential to 
DOE's ability to fulfill its statutory missions involving defense, 
national security and other nuclear activities.''
    The Price-Anderson Act has withstood court challenges dating back 
to 1973 when the Carolina Environmental Study Group, the Catawba 
Central Labor Union and 40 individuals brought suit against Duke Power 
Co., which was building nuclear power plants in North and South 
Carolina.
    In June 1978, the U.S. Supreme Court upheld the constitutionality 
of the law. In an opinion written by Chief Justice Warren Burger, the 
court held that because the liability limit was created to encourage 
private sector construction of nuclear power plants it was neither 
arbitrary nor irrational.
    The industry recommends an indefinite renewal of the Price-Anderson 
Act. Like any other legislation, if Congress wants to reconsider and 
amend the law it can do so at anytime. We would encourage Congress to 
hold periodic oversight hearings and, if required, modify the law 
accordingly.
    The industry believes that the retrospective premium should remain 
at $10 million per nuclear plant. The NRC initially recommended it be 
increased to $20 million, based in part on the assumption that 25 
nuclear plants would be closed without relicensing, and that total 
insurance coverage would decrease as a result. However, most nuclear 
plants will be relicensed. NRC Chairman Richard Meserve, in a May 11, 
2001 letter to members of Congress, retracted this recommendation based 
on the number of plants seeking license renewal. The NRC no longer 
believes that the increase in the retrospective premium to $20 million 
is necessary.

            NUCLEAR ENERGY RESEARCH AND DEVELOPMENT FUNDING
    For the United States to remain the world leader in nuclear safety 
and technology, it is crucial that industry and government continue to 
invest in nuclear technology research and development.
    U.S. electricity demand grew by 2.2 percent a year on average 
during the 1990s, and by 2.6 percent in 2000. Even if demand grows by a 
modest 1.8 percent annually over the next two decades, the nation will 
need nearly 400,000 megawatts of new electric generating capacity, 
including replacement of retired capacity, according to the U.S. Energy 
Information Administration. This capacity is the equivalent of building 
about 40 new mid-size (500-megawatt) power plants 20,000 megawatts 
every year for the next 20 years.
    NEI urges the committee to approve $433 million in FY-2002 for 
DOE's Office of Nuclear Energy, Science and Technology twice the 
current budget. This level of funding is consistent with 
recommendations in legislation recently introduced authorizing 
increases in nuclear energy programs. Funding increases also have been 
suggested in recent years by the President's Committee of Advisors on 
Science and Technology (PCAST), the Secretary of Energy's Nuclear 
Energy Research Advisory Committee and DOE's Near-Term Deployment 
Group.
    The Nuclear Energy Research Initiative (NERI) which seeks to expand 
America's nuclear energy program in the 21st century fills a vital need 
identified in a 1997 report by PCAST. The report recommended an R&D 
program to address potential barriers to the long-term use of nuclear 
energy and to maintain America's nuclear science and technology 
leadership. The PCAST report also recommended another R&D initiative 
the Nuclear Energy Plant Optimization (NEPO) program aimed at getting 
more low-cost energy from America's nuclear power plants.
    A blue ribbon panel of seven experts appointed by the Nuclear 
Energy Research Advisory Committee has offered recommendations on how 
DOE can support university nuclear engineering programs, help to 
maintain university research and training reactors and promote 
collaboration between universities and DOE laboratories. DOE's Near-
Term Deployment Group is developing recommendations on agency actions 
needed in FY-2002 and 2003 to facilitate the NRC review of early site 
permitting applications for new nuclear power plants.
    Also, authorizing legislation introduced this year in the Senate 
and House of Representatives would expand funding in these areas as 
well as provide incentives to increase electricity generation from 
nuclear power plants.
    The nuclear energy industry urges the committee to approve $60 
million in FY-2002 for the NERI program, which is paving the way for 
the expanded use of nuclear energy and maintaining U.S. leadership in 
nuclear plant technology and safety. In FY-2001, NERI received $22.5 
million less than one-half of the $50 million annual appropriation 
recommended by PCAST in its 1997 report. Beginning in FY-2002, PCAST 
recommended NERI funding be increased to $100 million a year. Although 
current funding has been sufficient to continue projects initiated in 
previous fiscal years, it leaves little money to launch new R&D 
projects.
    The nuclear energy industry also encourages the committee to 
allocate $15 million for the NEPO program, which improves efficiency 
and, reliability while maintaining outstanding safety at U.S. nuclear 
power plants. This public-private partnership is helping to facilitate 
America's economic growth and prosperity and improving our nation's air 
quality. NEPO received $5 million in FY-2000 and 2001 half the annual 
funding recommended by PCAST.
    DOE has launched a project to prepare a technology roadmap for 
developing and deploying next generation nuclear plants, called 
Generation IV. As a part of its roadmap effort, DOE is preparing a 
report on near-term deployment activities that will need to be 
implemented, in order to have new nuclear plants in operation by 2010 
or sooner, while longer term technologies are being developed. DOE is 
coordinating its efforts with NEI's Executive Task Force on New Nuclear 
Plants. In the interim, recommendations on activities requiring 
immediate attention are being prepared by DOE and will be released 
imminently. To support completion of the DOE technology roadmapping 
effort and to begin implementation of these near term recommendations, 
NEI urges the Committee to approve $42 million in FY-2002 for the 
Nuclear Energy Technology Development program.
    The industry also requests $34.2 million for DOE's University 
Support Program, which enhances vital research and educational programs 
in nuclear science at the nation's colleges and universities. The 
number of college programs in nuclear engineering and science is 
dwindling. To maintain our nation's position as the international 
leader in the nuclear field, it is vital that this trend is reversed 
and that our nation's best and brightest technical minds be attracted 
to the nuclear technologies fields. We urge Congress to sufficiently 
fund student recruitment, teaching facilities, fuel and other reactor 
equipment, and instructors to educate a new generation of American 
nuclear specialists.
    The industry asks the committee to support the new initiatives 
included in authorization legislation introduced this year. One such 
initiative is the Production Incentive Programs, which the industry 
believes should be funded at $15 million.
    Building a skilled workforce is essential for future success:
    Attracting and maintaining a skilled workforce is essential to the 
future success of the nuclear industry. Consequently, NEI is working 
with the industry to implement a plan to address workforce demands 
through a newly created task force. A major concern is recruitment of 
new workforce, as well as retention of staff.
    Additionally, the industry has an on-going young generation 
initiative to increase the number of students that can be sponsored by 
the DOE Nuclear Engineering Fellowship program. Similarly, the industry 
is working to sponsor students in other engineering disciplines 
interested in careers in nuclear technology. The Administration's 
national energy policy, along with growing widespread support in the 
public sector, is sending a strong message to students and educators 
that nuclear technology, and nuclear generation in particular, has a 
bright future.

                               CONCLUSION
    Nuclear energy is the second-largest source of electricity in the 
United States, and the only large source that is both emission free and 
readily expandable. The industry's safety record, reliability, 
efficiency and price stability make nuclear energy a vital fuel for the 
future.
    One need only look at the current energy situation in the United 
States, marked by thinning capacity margins and volatile prices for 
fossil fuels, to see why nuclear energy is so important to our nation's 
energy mix.
    In the future, as electricity demand continues to rise, nuclear 
energy will be even more important to American consumers, and to our 
nation's economy as a whole. Our nation's nuclear power industry has 
proven over the past two decades that nuclear energy is a reliable, 
efficient and safe source of electricity for our nation's economic 
growth. I urge the members of this committee to continue to support the 
role of nuclear energy as part of the United States' diverse energy 
policy.
    This support should include indefinite renewal of the Price-
Anderson Act, increased funding for nuclear energy research and 
development and congressional support for new programs that ensure a 
growing talent bank to design and operate advanced nuclear 
technologies.
    Thank you for giving me this opportunity to share the industry's 
perspective on oversight of nuclear facilities and related matters.

    The Chairman. Thank you very much.
    Mr. Quattrocchi, go right ahead.

   STATEMENT OF JOHN L. QUATTROCCHI, SENIOR VICE PRESIDENT, 
   UNDERWRITING, AMERICAN NUCLEAR INSURERS, WEST HARTFORD, CT

    Mr. Quattrocchi. Thank you, Mr. Chairman, and Senator 
Murkowski. I am John Quattrocchi, chief underwriting officer at 
the American Nuclear Insurers, which I'll abbreviate as ANI. I 
am here today representing the member companies of ANI, which 
are some of the largest insurance companies in the Nation. ANI 
is a joint underwriting association or a pool of insurance 
companies that were formed for the special purpose of insuring 
the nuclear risk.
    We were created in 1956 in response to Congress' desire 
that the insurance industry find a way to insure what was then 
a new technology. We worked very closely with Congress in those 
early days to develop the Price-Anderson law, which essentially 
is an insurance program. The law had several purposes in mind. 
The first was to encourage private development. The second was 
to establish a framework for handling potential liability 
claims, and the third was to provide a ready source of funds to 
compensate potential accident victims.
    My purpose today is to let you know that from our 
perspective as insurers, the Act has served the American public 
well and should be renewed with little, if any, change. Let me 
just quickly mention a couple of key provisions of the Act that 
have allowed us to provide this market for more than four 
decades without interruption. First, the law requires reactor 
operators to maintain primary financial protection equal to the 
maximum amount of liability insurance available from private 
sources. That requirement is satisfied under the nuclear 
liability policies that we write.
    Over the years, the primary insurance limit has increased 
from $60 million in 1957 to $200 million today. The primary 
limit was last increased in 1988, coincident with the last 
renewal. Second point. In the event of loss that exceeds the 
primary layer of insurance, the law requires reactor licensees 
to participate in what's called the secondary financial 
protection program which we at ANI administer. Under that 
program, each licensee is retrospectively accessible for any 
loss in excess of the primary limit up until maximum assessment 
of $88.1 million per reactor per accident.
    So the second layer of protection is actually drawn from 
reactor operators' own funds and with 106 reactors currently in 
this program, the total level of financial protection available 
to the public is just over $9.5 billion. Now, there are a 
number of other key provisions in the law that are critical to 
the interests of insurers and to the general public. Those are 
outlined in my testimony, and I won't go through them now.
    Just some other quick points, though. I mentioned earlier 
that our primary insurance limit has not increased since 1988, 
and obviously inflation has taken a toll, so assuming the act 
is renewed essentially intact, we will canvas our members to 
see if we can increase the limit from $200 million to something 
in the range of $300 million. Now, we have also begun talking 
about their interest in a possible new coverage that would pay 
the retrospective assessment in the second layer for the 
reactor that has the accident.
    We think that in the unlikely event of an accident that 
requires assessment, the utility that suffers the loss will be 
under the most severe financial pressure. And this new coverage 
would shift that pressure to insurers at least for one full 
retrospective assessment. And I'll just sum up by saying that 
the financial protection that this law provides the public far 
surpasses any other system that we know of. The Act is clearly 
in the public interest.
    In its first true test in 1979, after the Three Mile Island 
accident, it served the public well. We as insurers responded 
under the act within 24 hours of the evacuation advisory. We 
made emergency assistance payments to some 3,100 families 
without requiring a liability waiver of any kind. I was 
actually part of that effort, and I am proud of what we were 
able to do to help those affected by the accident. There is a 
little amusing, and I should say short story that I would like 
to share with you about that difficult time.
    The insurance team that I was with was staying in a motel 
that was about 10 miles from the accident scene. And at 
breakfast one morning, I spotted a young couple with two 
children, mom and dad were clearly distraught, they were 
worried about the potential negative impact on their children. 
A waitress walked over to their table and tried to console 
them. She said to the couple, do you see those people over 
there? They are with the insurance company. And there is no way 
they would be here if we were in any real danger. And then she 
added, but watch them very closely, because when they leave, we 
leave. Now, I don't expect that to happen again, but if it 
does, the public needs the protection that this Act provides. 
We, therefore, urge the committee to support renewal of the Act 
in its existing form. And I thank you for your time and for the 
opportunity to express the views of insurers on this important 
topic.
    [The prepared statement of Mr. Quattrocchi follows:]
   Prepared Statement of John L. Quattrocchi, Senior Vice President, 
       Underwriting, American Nuclear Insurers, West Hartford, CT
    Mr. Chairman and distinguished members of the Committee, I am John 
Quattrocchi, Senior Vice President, Underwriting at the American 
Nuclear Insurers--or ANI. Joining me today is Mr. Tim Peckinpaugh, 
Washington, D.C. Counsel to ANI. We appear today on behalf of the 
member insurance companies of ANI. The National Association of 
Independent Insurers also joins in our statement. We appreciate your 
invitation to present our views on the nuclear risk with a special 
focus on the financial protection requirements of the Price-Anderson 
Act.
    ANI is a joint underwriting association that acts as managing agent 
for its member insurance companies. We are, in effect, a ``pool'' of 
insurance companies formed for the purpose of insuring a unique risk. 
Together with our reinsurance partners from around the world, we 
represent the worldwide insurance community.
    We will not dwell on the advantages of nuclear power. We are not 
advocates for any particular energy source. However, as professional 
insurers and long-term observers of the energy scene, we believe 
nuclear power represents a safe, reliable and environmentally friendly 
part of our nation's energy mix. The nuclear industry has achieved an 
impressive safety record and, as insurers, we are proud of the role 
we've played in supporting their efforts.
    ANI and its predecessor organizations were created in 1956 in 
response to Congress' urging that insurers find a way to insure what 
was then a fledgling technology. We worked closely with Congress and 
with the industry to develop the Price-Anderson law. The law is 
essentially an insurance program that had several purposes in mind.

   The first was to encourage the private development of 
        nuclear power.
   The second was to establish a legal framework for handling 
        potential liability claims.
   And the third was to provide a ready source of funds to 
        compensate injured victims of a nuclear accident.

    The Act represents a careful balancing of the interests of the 
public as private citizens and as participants in and beneficiaries of 
private business enterprise. We also believe the Act has been critical 
in enabling us to provide stable, high quality insurance capacity for 
nuclear risks in the face of normally overwhelming obstacles for 
insurers those obstacles being catastrophic loss potential, the absence 
of credible predictability, a very small spread of risk and limited 
premium volume. This has been accomplished for more than four decades 
without interruption and without the ``ups and downs'' (or market 
cycles) that have affected nearly all other lines of insurance.

                KEY PROVISIONS OF THE PRICE-ANDERSON ACT
Financial Protection \1\ . . . In Two Layers
    To assure a source of funding to compensate accident victims, the 
law requires reactor operators to maintain primary financial protection 
equal to the maximum amount of liability insurance available from 
private insurance sources at reasonable terms.\2\ This provision has 
enabled insurers to develop and sustain secure, high quality insurance 
capacity from worldwide sources. Evidence of this lies in the stability 
of limits, price and coverage that insurers have provided in what is a 
very special line of business. Indeed, primary insurance limits 
actually increased after the Three Mile Island (TMI) accident in 1979 
from $140 million to $160 million, and prices rose only modestly. The 
primary limit was last increased to $200 million in 1988 coincident 
with the last renewal of the Act. This limit is written by ANI at each 
operating power reactor site in the U.S., which satisfies the 
requirement for primary financial protection.
---------------------------------------------------------------------------
    \1\ Defined in Section 11.k. of the Atomic Energy Act of 1954, as 
amended.
    \2\ The Atomic Energy Act of 1954, as amended, Section 170.b.(1).
---------------------------------------------------------------------------
    The Act also requires reactor operators to participate in an 
industry-wide retrospective rating program for loss that exceeds the 
primary insurance limit.\3\ ANI writes a Secondary Financial Protection 
(SFP) Master Policy through which we administer the SFP program. Under 
this policy, each insured is retrospectively assessable for loss that 
exceeds the primary insurance limit up to a maximum retrospective 
assessment currently set at $88.095 million (adjusted every five years 
for inflation) per reactor, per incident. In other words, the second 
layer of protection is drawn from reactor operators' own funds. 
Insurers have a contingent liability to cover potential defaults of up 
to $30 million for one incident or up to $60 million for more than one 
incident. Under the terms of the contract, however, ANI would expect to 
be reimbursed with interest for any funds it advances under this 
program. With 106 reactors in the program, the total level of primary 
and secondary financial protection is just over $9.5 billion ($200 
million in the primary layer + $88.095 million in the secondary layer X 
106 reactor units participating).
---------------------------------------------------------------------------
    \3\ Ibid.
---------------------------------------------------------------------------
Limitation on Aggregate Public Liability \4\
    The Act limits the liability of reactor operators or others who 
might be liable for a nuclear accident to the combined total of primary 
and secondary financial protection, though Congress is committed to 
providing additional funds if financial protection is insufficient.\5\ 
Knowing the extent of one's liability provides economic stability and 
incentives that would not exist without a limit.
---------------------------------------------------------------------------
    \4\ The Atomic Energy Act of 1954, as amended, Section 170.e.(1)(A) 
and Section 170.o.(1)(E).
    \5\ The Atomic Energy Act of 1954, as amended, Section 170.e.(2).
---------------------------------------------------------------------------
Legal Costs Within the Limit \6\
    The expenses of investigating and defending claims or suits are 
part of and not in addition to the limit of liability. The inclusion of 
these costs within the limit enables insurers to offer their maximum 
capacity commitments without fear of exceeding those commitments. This 
provision is absolutely essential if insurers are to maintain and 
hopefully increase the assets they place at risk.
---------------------------------------------------------------------------
    \6\ The Atomic Energy Act of 1954, as amended, Section 
170.e.(1)(A).
---------------------------------------------------------------------------
Economic Channeling of Liability \7\
    The Act channels the financial responsibility and insurance 
obligation for public liability claims to the nuclear plant operator. 
This helps assure that injured parties will be able to establish with 
certainty liability for a nuclear accident that will be backed by solid 
financial resources to respond to those liabilities.
---------------------------------------------------------------------------
    \7\ The Atomic Energy Act of 1954, as amended, Section 11.t. and 
170.c.
---------------------------------------------------------------------------
Waiver of Defenses \8\
    In the event of what is called an Extraordinary Nuclear Occurrence 
(ENO),\9\ insurers and insureds waive most standard legal defenses 
available to them under state law.\10\ The effect of this provision is 
to create strict liability for a severe nuclear accident. Claimants in 
these circumstances need only show that the injury or damage sustained 
was caused by the release of nuclear material from the insured 
facility. Fault on the part of a particular defendant does not have to 
be established.
---------------------------------------------------------------------------
    \8\ The Atomic Energy Act of 1954, as amended, Section 170.n.(1).
    \9\ Defined in Section 11.j. of the Atomic Energy Act of 1954, as 
amended. Without citing all the specifics, the term refers to a 
significant nuclear incident that results in severe offsite 
consequences.
    \10\ The legal defenses waived in the policy include (i) any issue 
or defense as to the conduct of the claimant or the fault of the 
insured, (ii) any issue or defense as to charitable or governmental 
immunity, and (iii) any issue or defense based on any statute of 
limitations if suit is instituted within three years from the date on 
which the claimant first knew, or reasonably could have known, of his 
bodily injury or property damage and the cause thereof.
---------------------------------------------------------------------------
Federal Court Jurisdiction in Public Liability Actions \11\
    Historically, state tort law principles have governed nuclear 
liability determinations. The Price-Anderson Act provides for a federal 
overlay to the application of state law. The Act confers jurisdiction 
over public liability actions on the Federal District Court in which 
the accident occurs. This removes the confusion and uncertainties of 
applicable law that would otherwise result when multiple claims and 
lawsuits are filed in multiple courts. The provision also reduces legal 
costs and speeds the compensation process.
---------------------------------------------------------------------------
    \11\ The Atomic Energy Act of 1954, as amended, Section 170.n.(2).
---------------------------------------------------------------------------
Precautionary Evacuations \12\
    The system anticipates that insurers will provide immediate 
financial assistance to people who are forced to evacuate their homes 
because of a nuclear accident or because of imminent danger of such an 
event.
---------------------------------------------------------------------------
    \12\ Defined in Section 11.gg. of the Atomic Energy Act of 1954, as 
amended.
---------------------------------------------------------------------------
    The Act, and these provisions in particular, have stood the test of 
time and served the public well as demonstrated by the response at 
Three Mile Island.

                   THE ACCIDENT AT THREE MILE ISLAND
    The accident at Three Mile Island occurred on March 28, 1979. 
Within twenty-four hours of the Pennsylvania Governor's advisory for 
pregnant women and pre-school age children to evacuate a five-mile area 
around the site, we had people in the area making emergency assistance 
payments. Two days later, a fully functioning claims office staffed 
with some 30 people was open to the public. The claims staff grew to 
over 50 people within the next two weeks. All of the claims staff came 
from member insurance companies from around the country. I spent about 
10 days at the claims office shortly after it opened to lend whatever 
support I could.
    As the office was being set up, we placed ads on the radio, 
television and in the press informing the public of our operations and 
the location of the claims office. Those people affected by the 
evacuation advisory were advanced funds for their immediate out-of 
pocket living expenses, that is to say, expenses for food, clothing, 
shelter, transportation and emergency medical care. Approximately $1.3 
million in emergency assistance payments were made to some 3,100 
families without requiring a liability waiver of any kind.
    We responded as quickly as we did because we had prepared for 
emergencies in advance. Emergency drills were conducted periodically, 
and an emergency claim response manual helped guide our response. 
Checks and other claim forms that had been pre-printed and stored for 
emergencies were immediately available to us. The insurance industry 
received high praise for its quick response at TMI. In responding as we 
did, we helped to alleviate some of the fear and dislocation of those 
affected by the accident.

                 POLICY COVERAGE AND CLAIMS EXPERIENCE
    The nuclear liability policy written for nuclear site operators is 
designed to respond to an insured's liability for damages because of 
bodily injury or offsite property damage caused by a large, sudden 
catastrophic accident. However, it can also respond to allegations of 
injury from very small amounts of nuclear material. That bears 
repeating. In addition to providing coverage for catastrophic events, 
we are providing coverage for alleged offsite damages from normal plant 
operations.
    All of our insured facilities release very small amounts of 
material within acceptable regulatory limits. But the public perception 
of what is ``acceptable'' and what constitutes ``damage'' is a moving 
target. Indeed, almost all of our claims allege injury or damage (or 
fear of future injury or damage) from little or no documented radiation 
exposure. And, with the exception of the accident at Three Mile Island, 
few of the claims from members of the offsite public are the result of 
a clearly identifiable event. Instead, our claims experience is more 
related to routine releases and the latent injury phenomenon now 
popular--at least in the U.S.--in the toxic torts arena. The alleged 
damages usually involve somatic, psychosomatic or genetic effects from 
exposure to radiation at de minimis levels.
    From inception, ANI has handled some 205 reported claims or 
incident notifications. We've paid just under $187 million for 
indemnity and legal defense and have incurred losses of $463 million, 
all through March 1 of this year. The difference between the paid and 
incurred loss figures represents what is reserved for indemnity and 
defense on outstanding claims.
    Radiation claims are costly to defend and there is often no 
relationship between the amount of radiation alleged and the expense 
necessary to defend the claim. While the judicial process is expensive, 
it does expose claims that have no basis in scientific fact. Given the 
finite resources available to compensate truly injured victims, it 
serves no one's interest for insurers to compensate claims without 
merit. The importance of the legal framework established in the Act, 
including the cost of defense within the system, cannot therefore be 
overstated.

        NRC'S REPORT TO CONGRESS . . . PRIMARY LIABILITY LIMITS
    In its 1998 Report to Congress on the status of the Act, the NRC 
strongly supported reauthorization of the Price-Anderson Act and 
offered eight recommendations. In the interest of time, and because the 
Committee is, I'm sure, familiar with the report, I will focus 
particular attention on just one of the recommendations--specifically, 
that Congress discuss with insurers the potential for increasing the 
primary liability insurance limit. The NRC indicated in its report that 
an increase to roughly $350 million would at least keep pace with 
inflation since 1957.
    As was noted earlier in my testimony, the Act requires power 
reactor licensees to maintain primary financial protection equal to the 
maximum amount of liability insurance available from private sources at 
reasonable terms. But for this provision, it is doubtful that limits at 
the levels written could have been sustained without interruption or 
fluctuation for more than forty years. To illustrate the point, when, 
in the mid-1980's, liability insurance became unavailable at almost any 
price for conventional lines of business, nuclear liability insurers 
continued to provide a stable market for their limited customer base--
thanks, in part, to this provision.
    Liability limits have been increased periodically from $60 million 
in 1957 to $200 million presently. The limit was last increased to its 
present level in 1988 coincident with the last renewal of the Act. The 
attached Table of Limits outlines the history of primary liability 
limits from 1957.
    We believe an increase in the level of primary insurance coverage 
would benefit the system and enhance public protection for a number of 
reasons:
    (1) The existing limit has not changed since 1988 and its value 
has, in fact, been eroded by inflation. When measured against the rate 
of inflation from 1988 to June 1998, the limit would have grown to 
roughly $275 million. When measured against inflation from 1957 to June 
1998, the limit would have increased to about $350 million.
    (2) An increase in the primary limit to reflect the impact of 
inflation is consistent with inflationary increases mandated by the 
Price-Anderson law in the second layer. Section 170.t. of the Act 
requires that the maximum retrospective premium in the second layer be 
adjusted at five-year intervals. The maximum retrospective premium in 
the second layer has, in fact, been increased twice since 1988 to 
reflect the impact of inflation.
    (3) A higher primary limit would provide an added buffer between 
loss in the primary layer and retrospective assessments on utility 
operators in the second layer. Sound funding for the remote but 
nevertheless possible nuclear catastrophe calls for pre-funding a 
substantial portion of the costs of that accident. The higher the 
potential retrospective liabilities on the nuclear industry in the 
second layer, the more desirable reasonable increases in the primary 
insurance layer become.
    (4) The number of reactor licensees can be expected to decrease in 
the coming years as reactor units are sold to a relatively smaller 
number of buyers. The effect of this would be to substantially increase 
the maximum potential retrospective assessment on those remaining 
operators at a time of severe economic stress for nuclear utilities 
generally--that is to say, following a large-scale nuclear accident. In 
these circumstances, a higher primary liability limit would provide a 
better balance between pre- and post-funded layers of accident 
protection, in effect enhancing the protection to the public.
    (5) Deregulation of the electric utility industry may hamper a 
utility's ability to pass on to ratepayers the cost of a retrospective 
assessment. A higher primary limit would reduce the chances of, or at 
least delay, an assessment in the second layer.
    Consistent with the long-standing objective of Congress to provide 
the most financial protection possible to compensate the public, we 
will work with our members and reinsurers to develop higher primary 
insurance limits coincident with the renewal of the Act. This assumes 
the Act is renewed in essentially its existing form. Any effort on our 
part to increase the primary limit would also have to be balanced 
against the needs and desires of our customer base. If these needs can 
be balanced, our goal would be to develop only capacity that is 
financially secure and committed for the long term. While I cannot 
provide any commitments at this time, a reasonable goal might be a 
primary limit in the range of $300 million, again assuming a 
satisfactory renewal of the Act.

              POSSIBLE NEW PROTECTION IN THE SECOND LAYER
    As my testimony has indicated, in the unlikely event that 
retrospective premiums in the second layer need to be assessed because 
of a severe nuclear accident, those assessments will be levied at a 
time of great political and financial stress. The pressures on the 
utility that suffers the accident will, in all likelihood, be the most 
severe. For that reason, we have begun to discuss with the industry a 
potential new coverage under the existing Secondary Financial 
Protection (SFP) program that would pay up to one full retrospective 
premium (currently up to $88.095 million) on behalf of the utility at 
whose site the accident occurs. Payment of this retrospective premium 
would be made on a guaranteed cost basis--that is to say, we would not 
expect to be reimbursed. Since coverage would apply on a guaranteed 
cost basis, we would have to secure additional capacity over and above 
whatever additional capacity might be developed for the primary layer.
    We envision that coverage would be added by endorsement to the 
existing SFP program for an additional per reactor premium. We would 
prefer that coverage be purchased on a voluntary basis and not made 
part of the financial protection requirements. For the coverage to be 
viable, at least half the number of reactor units in the SFP program 
would have to participate.
    This coverage would shift to the insurance industry some of the 
strain that would undoubtedly be felt within the utility industry after 
a severe nuclear accident. If the potential new coverage is something 
the industry desires, we will try to implement it coincident with the 
renewal of the Act, or as soon thereafter as reasonably possible.

                      PRICE-ANDERSON AS A SUBSIDY?
    Some have argued that Price-Anderson is a subsidy for the nuclear 
industry. For what it's worth from our perspective as independent 
insurers, that view is clearly inaccurate. We are not aware of any 
payments made by the Federal Government to private licensees under 
Price-Anderson. Indeed, the industry not only pays the cost of the 
insurance required by the Act, it has paid millions of dollars in 
indemnity fees and has assumed more than $9 billion in potential 
retrospective assessments to compensate injured accident victims--all 
of this at no cost to the government.
    Some argue that the Act's limitation on liability is a subsidy for 
the industry in that it limits potential recoveries of accident 
victims. The fact is, however, that, in exchange for the limit on 
liability, the Act provides for a large, ready source of funds for 
accident victims that would not otherwise exist.
    Insurers have a great deal of experience handling litigation that 
is ``unfettered'' by limitations on liability. No case stands out in my 
mind more than the Bhopal accident in India in 1984. As many as 4,000 
people died and another 500,000 were injured. After years of 
litigation, Union Carbide settled with the Indian Government for $470 
million--or roughly $1,000 in compensation for each of those killed or 
injured.
    The simple fact is that there is always a limit on liability--that 
limit equal to the assets of the company at fault. Those who helped 
shape the Price-Anderson Act understood that fact. It was their belief 
that those who share in the benefits of nuclear energy should also 
share in the risks through a system of solid financial protection 
provided by industry and by government.
    Beyond serving the public interest, the limitation on liability 
enables insurers to quantify their potential liabilities. Without the 
limitation, suppliers and others who might incur potential nuclear 
liabilities would be forced to seek separate insurance protection for 
their own accounts, in turn, exposing insurers to unacceptable 
accumulations. In these circumstances, the level of available liability 
insurance might well diminish.

                               CONCLUSION
    To the best of our knowledge, the financial protection that the Act 
provides the public far surpasses the performance of any other system 
in place in the United States. The essential fact is that the public is 
far better off with this system of financial protection than without 
it. For us as insurers, its provisions make an otherwise difficult risk 
insurable. We therefore urge the members of this Committee to support 
expeditious renewal of the Act with little if any change as recommended 
by the NRC report to Congress and the Administration's National Energy 
Policy released last month. In terms of the legislation pending before 
this Committee, we support in general the Price-Anderson 
reauthorization provisions of S. 388, the National Energy Security Act 
of 2001 (Subtitle A of Title IV); S. 472, the Nuclear Energy 
Electricity Supply Assurance Act of 2001 (Subtitle A of Title I); and 
S. 597, the Comprehensive and Balanced Energy Policy Act of 2001 (Title 
IX).
    We are grateful to the Committee for the opportunity to express the 
views of insurers on this important issue.

                             TABLE OF LIMITS
  History of Maximum Nuclear Liability Insurance Available From 1957 to
                                 Present
------------------------------------------------------------------------
                                                   Liability
                      Year                       limits ($ in      %
                                                   million)     Increase
------------------------------------------------------------------------
1957...........................................     $ 60            ----
1966 *.........................................       74           23.3%
1969...........................................       82           10.8%
1972...........................................       95           15.8%
1974...........................................      110           15.8%
1975 *.........................................      125           13.6%
1977...........................................      140           12.0%
1979...........................................      160           14.3%
1988 *.........................................      200           25.0%
------------------------------------------------------------------------
* Coincident with the renewal of the Price-Anderson Act.


    The Chairman. Thank you very much. Mr. Pica, why don't you 
go right ahead.

       STATEMENT OF ERICH PICA, ECONOMIC POLICY ANALYST, 
                      FRIENDS OF THE EARTH

    Mr. Pica. Thank you, Mr. Chairman. Friends of the Earth is 
a national nonprofit environmental organization, and has an 
international affiliates in 69 countries around the world. 
Thank you for allowing me to testify.
    Friends of the Earth has a long history of working for 
clean, affordable energy future. Our goal is to shift from 
polluting and dangerous sources such as nuclear and fossil to 
energy efficiency and clean renewable energy sources. As part 
of this goal, Friends of the Earth, along with Taxpayers for 
Common Sense and U.S. Public Interest Research Group have 
published the annual Green Scissors report, which highlights 
environmentally harmful, fiscally wasteful government programs. 
The Price-Anderson Act, as well as other Department of Energy 
research and development programs, including the Nuclear Energy 
Research Initiative, or NERI, and the Nuclear Energy Plan 
Optimization program, or NEPO, are highlighted under the Green 
Scissors report.
    Nuclear power is unsafe, unreliable, uneconomic and 
generates long lived radioactive waste for which there is no 
safe solution. We believe it should be phased out as soon as 
possible, and it should not be encouraged as a future energy 
source. The Price-Anderson Act represents just one of the 
unwarranted subsidies enjoyed by the industry. Others include 
the lion's share or 60 percent which equates to about $66 
billion of Federal research and development dollars since 1948.
    The Federal nuclear waste disposal program and more than 
$100 billion repair bailouts from utility deregulation plans. 
During the reauthorization of the Price-Anderson Act in the 
1980's, the Environmental Policy Institute, the predecessor to 
Friends of the Earth, the PIRGs, and other environmental 
consumer and taxpayer groups advocated for reforms of the 
Price-Anderson Act. Our policy then, as it is now, is that the 
American public deserves a sound and responsible nuclear 
accident policy. Such a policy would accomplish three 
fundamental goals. One, assure full compensation of any nuclear 
accident victim. Two, protect taxpayers from subsidizing 
nuclear industry negligence, and three, increase safety 
incentives and require high standards of nuclear 
accountability.
    Unfortunately, the Price-Anderson Act as amended in 1988 
does not accomplish these goals. Instead, this act does not 
guarantee full compensation for victims of nuclear accidents, 
perpetuates a long history of Federal subsidies and policies 
which reward the nuclear industry at public expense, and 
exempts contractors from liability for public damages, even if 
they were reckless or woefully negligent.
    We are also extremely concerned about the push to create 
new production incentives for the nuclear power industry. New 
production incentives proposed in the 107th Congress would 
continue the nuclear power industry alliance on taxpayer 
dollars. Furthermore, we should not be considering increasing 
production while a solution for the high level of nuclear waste 
currently generated by this industry.
    In conclusion, the Price-Anderson Act was supposed to be a 
temporary measure for a fledgling industry. Today, that 
industry has grown enormously and has reaped substantial 
benefits from this and other taxpayer policies. Meanwhile, 
victims of a major nuclear accident would be left to plead 
their case to Congress. This is not good government, nor is it 
good policy. The Price-Anderson Act should not be renewed and 
should be either radically reformed or replaced by legislation 
that truly protects the public. Thank you, and I'll answer any 
other questions.
    [The prepared statement of Mr. Pica follows:]
      Prepared Statement of Erich Pica, Economic Policy Analyst, 
                          Friends of the Earth
    Chairman Bingaman, Ranking Member Murkowski and distinguished 
members of the Energy and Natural Resources Committee, my name is Erich 
Pica and I am an Economic Policy Analyst at Friends of the Earth. 
Friends of the Earth is a national non-profit environmental advocacy 
organization and is part of the Friends of the Earth International 
network which has affiliates in 69 countries around the world. Thank 
you for the opportunity to speak today.
    Friends of the Earth has a long history of working for a clean 
affordable energy future. Our goal is to shift from polluting and 
dangerous sources of energy such as nuclear and fossil energy to 
increased energy efficiency and clean renewable energy sources. As part 
of this goal, Friends of the Earth along with Taxpayers for Common 
Sense and the U.S. Public Interest Research Group publish the annual 
Green Scissors Report (www.greenscissors.org), which highlights 
environmentally harmful and fiscally wasteful government programs. The 
Price-Anderson Act, as well as other Department of Energy research and 
development programs are highlighted in the Green Scissors report.
    Nuclear power is unsafe, unreliable, uneconomic and generates long-
lived radioactive wastes for which there is no safe solution. We 
believe it should be phased out as soon as possible and should not be 
encouraged as a future energy source.
    Nuclear power would not exist today if it weren't for massive 
government subsidies and other unfair policies. Jerry Taylor of the 
Cato Institute agrees.

          In the final analysis, the nuclear industry is purely a 
        creature of government. The administration needs to practice 
        the free-market rhetoric that it preaches and put away its 
        nuclear pompoms.\1\
---------------------------------------------------------------------------
    \1\ Taylor, J., ``Nuclear Power Play'', Washington Post, 5/18/01.

    The Price-Anderson Act represents just one of the unwarranted 
subsidies enjoyed by the industry. Others include: the lion's share, 
60% or $66 billion, of federal research and development dollars since 
1948; \2\ a federal nuclear waste disposal program,\3\ and more than 
$100 billion in ratepayer bailouts from state utility deregulation 
plans.\4\ Current programs include the Nuclear Energy Research 
Initiative and the Nuclear Energy Plant Optimization program.
---------------------------------------------------------------------------
    \2\ Congressional Research Service
    \3\ http://www.greenscissors.org/energy/nuclearwastefundfee.htm
    \4\ http://www.safeenergy.org/ratepayer.htm
---------------------------------------------------------------------------
    During reauthorization of the Price-Anderson Act in the 1980's, 
Environmental Policy Institute (the predecessor to Friends of the 
Earth), the PIRGs, and other environmental, consumer and taxpayer 
groups advocated for reforms of the Price-Anderson Act. Our policy 
then, as it is now, is that the American public deserves a sound and 
responsible nuclear accident policy. Such a policy would accomplish 
three fundamental goals:

   Assure full compensation of any nuclear accident victims,
   Protect taxpayers from subsidizing nuclear industry 
        negligence, and
   Increase safety incentives and require high standards of 
        industry accountability.

    Unfortunately, the Price-Anderson Act as (amended in 1988) does not 
accomplish these goals. Instead, this Act does not guarantee full 
compensation for victims of a nuclear accident, perpetuates a long 
history of federal subsidies and policies which reward the nuclear 
industry at public expense, and exempts contractors from liability for 
public damages even if they were reckless or willfully negligent.
    We also are extremely concerned about the push to create new 
production incentives for the nuclear power industry. New production 
incentives proposed in the 107th Congress would continue the nuclear 
power industry reliance on federal taxpayers. Furthermore, we should 
not be considering increasing production without a solution for the 
high-level nuclear waste currently generated by this industry.

                               BACKGROUND
    Enacted in 1957, the Price-Anderson Act was intended to be a 
temporary solution to a temporary problem--the refusal of insurers to 
underwrite nuclear risks. According to a 1957 Senate report, it was 
expected that after the Act expired in ten years, ``. . . the problem 
of reactor safety will be to a great extent solved and the insurance 
people will have had an experience on which to base a sound program of 
their own.'' \5\
---------------------------------------------------------------------------
    \5\ Berkovitz, Dan. Price-Anderson Act: Model Compensation 
Legislation?--The Sixty-Three Million Dollar Question, Harvard 
Environmental Law Review, 1989.
---------------------------------------------------------------------------
    Forty-four years later, few of these expectations have been 
realized. Many of the problems of reactor safety continue to be 
unsolved. In addition certain reactor components such as reactor 
pressure vessels and steam generator tubes have exhibited unanticipated 
aging-related problems. The nuclear industry continues to be unwilling 
to assume the risks of its activities.
    In its current form, the Price-Anderson limits liability for 
damages to the public in the case of a nuclear accident. The Act 
expires on August 1, 2002. Existing reactors will continue to operate 
under the current system if it is not extended.
    Price-Anderson currently requires owners of licensed commercial 
reactors to carry $200 million of liability insurance. If claims 
following an accident exceed that amount, all commercial reactor 
operators must contribute up to $83.9 million per reactor. With 106 
reactors currently covered by Price-Anderson, the total pool of funds 
is approximately $9.09 billion for public compensation.\6\ The public 
has no legal right to compensation for damages exceeding the limit. 
Price-Anderson leaves this question to Congress.\7\
---------------------------------------------------------------------------
     \6\ Holt, M. and Behrens, C. ``Nuclear Energy Policy'', 
Congressional Research Service IB88090, 3/22/01, p. 14.
     \7\ 42 U.S.C. 2210(e).
---------------------------------------------------------------------------
    Companies that build, design, and supply parts for nuclear power 
plants are completely exempt from public liability.\8\
---------------------------------------------------------------------------
    \8\ Berkovitz, Dan. ``Price-Anderson Act: Model Compensation 
Legislation?--The Sixty-Three Million Dollar Question, Harvard 
Environmental Law Review, 1989.
---------------------------------------------------------------------------
    DOE contractors are indemnified up to a total of $9.43 billion. 
This means taxpayers could pay $9.43 billion in case of an accident 
cause by a DOE contractor regardless of the contractor's conduct. While 
the 1988 amendments allow DOE to assess civil fines and penalties 
against its contractors, it specifically exempts seven non-profit 
institutions. These institutions plus their for-profit subcontractors 
are exempt from civil penalties.
    The seven institutions listed in the Price-Anderson Act are: The 
University of Chicago for activities at Argonne National Laboratory; 
The University of California for activities at Los Alamos; Lawrence 
Livermore, and Lawrence Berkeley National Laboratories; American 
Telephone and Telegraph and its subsidiaries for activities at Sandia 
National Laboratory (now operated by Lockheed Martin which is subject 
to civil penalties); Universities Research Association for activities 
at FERMI National Laboratory; Princeton University for activities at 
the Princeton Plasma Physics Laboratory; the Associated Universities 
Inc for activities at Brookhaven National Laboratory (now operated by 
Brookhaven Science Associates which is subject to civil penalties) and 
Battelle Memorial Institute for activities associated with the Pacific 
Northwest Laboratory.\9\
---------------------------------------------------------------------------
    \9\ U.S. DOE, ``Report to Congress on the Price-Anderson Act,'' 
March 1999, p. 23.
---------------------------------------------------------------------------
    THE PRICE-ANDERSON ACT IS AN UNWARRANTED SUBSIDY TO THE NUCLEAR 
                                INDUSTRY
    Because reactor operator liability is limited, the Price-Anderson 
Act denies accident victims full compensation and will inevitably 
result in either taxpayers or victims footing the bill for catastrophic 
nuclear accidents. Because DOE contractors are not held responsible for 
any public damages in nuclear accidents they cause, the taxpayer will 
foot the bill for commercial nuclear waste transport accidents, 
accidents at research reactors and weapons site cleanups. Taxpayers 
will foot the bill for DOE contractor accidents even if they resulted 
from recklessness, gross negligence, or intentional disregard for 
public health and safety. The companies that design, build and supply 
parts for nuclear power plants are totally exempt from any liability 
for damages to the public. These commercial nuclear contractors are not 
responsible for damages to the public even if they were reckless, 
grossly negligent, or intentionally disregarded public health and 
safety.
    Estimates of the value of this subsidy to nuclear power plant 
owners range from $3.45 million \10\ to $33 million \11\ (2001 dollars) 
per reactor per year. With 106 reactors covered, is a total annual 
subsidy to the nuclear industry of $366 million to $3.5 billion.
---------------------------------------------------------------------------
    \10\ Heyes, A., and Liston-Heyes, C. ``Liability Capping and 
Financial Subsidy in North American Nuclear Power; Some Financial 
Results based on Insurance Data,'' Department of Economics, University 
of London, England.
    \11\ Dubin, J.A. and Rothwell, G.S. ``Subsidy to Nuclear Power 
Through Price-Anderson Liability Limit,'' Contemporary Policy Issues, 
Vol. III, July, 1990.
---------------------------------------------------------------------------
    The nuclear industry and its cheerleaders keep touting the safety 
of nuclear power and its cost-effectiveness. Yet, they are here today, 
asking that they not be held fully responsible for the public 
consequences of designing, building and operating these ``safe'' 
reactors and transporting the lethal waste generated from these 
activities.
    Even the Vice President admits that the industry needs continued 
subsidies. If the Price-Anderson Act is not renewed, Vice President 
Cheney said, ``Nobody's going to invest in nuclear power plants.'' \12\
---------------------------------------------------------------------------
    \12\ ``Cheney Says Push Needed to Boost Nuclear Power,'' Reuters 
News Service, 5/15/01.
---------------------------------------------------------------------------
    The industry cannot have it both ways. If nuclear power is cost-
effective and safe, then the nuclear industry should bear full 
liability for the costs of a nuclear accident. Insurance for these 
risks should be internalized as a cost of doing business, just as it is 
for every other industry. The Act should not be re-authorized in its 
current form. Either Congress should radically reform the Price-
Anderson Act or it should enact separate legislation, which will 
provide fair and full compensation to the public in the event of a 
nuclear accident.
the price-anderson act protects the nuclear industry but not the public
    Under Price-Anderson, nuclear reactor operators get a guarantee of 
limited liability for public damages in the event of a nuclear 
accident. The designers, builders and suppliers of the reactors are 
exempt from all liability for damage to the public. DOE contractors are 
fully indemnified by the government. In contrast, the public gets no 
guarantee of full compensation.
    All players in the last Price-Anderson debates, including the 
Nuclear Regulatory Commission (NRC), the Department of Energy, and the 
nuclear utilities testified in favor of full compensation for victims. 
Because liability is limited to a little more than $9 billion, no one 
is legally obligated to pay damages over the limit and no one has a 
right to recover for those damages. The current system puts much of the 
risk of a catastrophic nuclear accident on the shoulders of its 
victims. Victims would have to plead their case before Congress.\13\
---------------------------------------------------------------------------
    \13\ Magavern, W. Testimony to the Presidential Commission on 
Catastrophic Nuclear Accidents, 10/25/89.
---------------------------------------------------------------------------
    The question of who should pay when damages exceed the limit has 
never been fully resolved. If there is an accident, the money will have 
to come from somewhere, and we see only three choices. It will come 
from the victim's pockets, from the taxpayers' pockets, or the 
industry's pockets. We believe it should come from the industry. 
However, under the current law, it seems inevitable that taxpayers 
would foot the bill or victims would go uncompensated.
    The Price-Anderson Act calls for Congressional action to ``provide 
full and prompt compensation to the public for all public liability 
claims resulting from a disaster of such magnitude.'' \14\ On July 29, 
1987, during the floor debate on amendments to the house bill (H.R. 
1414) that was ultimately enacted into law, Representative Morris Udall 
described compensation for damages above the limit as the ``third 
level.''
---------------------------------------------------------------------------
    \14\ 42 U.S.C. 2210(e).

          The third layer is the disaster layer. Let us say the Indian 
        Point Nuclear Plant in New York has a meltdown or some very 
        serious matter affecting whole cities and regions. We could not 
        decide whether that ought to be $20 billion or $50 billion or 
        $100 billion or what, so we decided that the third layer will 
        be determined by a commission appointed by the President and 
        given two years to come up and say how we should handle claims 
        above the $7 billion or $8 billion. Obviously, you would have 
        to have a large amount of money, and it should not be the 
        ratepayers of the nuclear utilities who paid for the first two 
        levels. We believe, and so wrote the bill that the third level 
        will come from ratepayers everywhere and taxpayers everywhere 
        and the commission will tell us in advance how we ought to 
        finance this and set it up and distribute the available 
        money.\15\
---------------------------------------------------------------------------
    \15\ Report to the Congress on Catastrophic Nuclear Accidents, 
August, 1990, p.15.

    In 1990, as authorized by the Act, the Presidential Commission on 
Catastrophic Nuclear Accidents issued a report on ``the means of fully 
compensating victims of catastrophic nuclear accident that exceeds the 
amount of aggregate public liability.'' \16\ While the report affirmed 
that victims be fully compensated, it ducked the question of who should 
pay.\17\ It should be no surprise that the Presidential Commission 
refused to lay the ultimate responsibility for public damages from a 
catastrophic nuclear accident on the shoulders of the responsible 
industry. For from being ``representative of a broad range of 
interests'' as required by the Price-Anderson Act, it consisted 
entirely of men with ties to the nuclear industry.\18\
---------------------------------------------------------------------------
    \16\ U.S.C. 42 Section 2210 (i).
    \17\ Washington Post, ``Nuclear Claims Envisioned: Panel's Calls 
for Catastrophic Compensation Omits Source of Funds,'' 9/21/90.
    \18\ Testimony of Bill Magavern, Staff Attorney, U.S. PIRG to the 
Energy and Environmental Subcommittee of the House Interior Committee, 
9/26/90.
---------------------------------------------------------------------------
    We support a mechanism similar to that recommended in a report 
authored by the NRC in 1983.\19\ This would provide a legal guarantee 
of full compensation for victims. I would also retain the industry's 
protections against the full liability that it would have if there were 
no Price-Anderson scheme at all.
---------------------------------------------------------------------------
    \19\ NUREG-0957
---------------------------------------------------------------------------
    Basically, in order to shield both victims and taxpayers from 
unwarranted risk, the NRC unanimously recommended a system that would 
subject reactor licensees to annual assessments. Unlike current law 
which caps total retrospective premiums at $83.9 million, the 1983 NRC 
reported recommend these premiums be paid until all public liability 
has been satisfied. The NRC concluded that this approach represents the 
best alternative for minimizing the potential for both uncompensated 
losses by the victims of an accident and additional contributions by 
the taxpayers to meet public liability claims.
    According to the NRC report, the key to any fair and effective 
compensation scheme is the assurance that all valid claims will be 
paid. The current cap on total liability completely undermines that 
principle. Victims should not have to plead their case before Congress 
or go uncompensated. Federal taxpayers should not foot the bill, 
either.
    The nuclear industry that profited from the activities creating the 
risk of an accident should be obligated to pay all damages through 
these retrospective premiums. If that became overly burdensome, the 
industry could always go to Congress to get relief. That way, the 
burden is on the industry, not the victims or taxpayers.
    Currently, if there is an accident above $200 million, each nuclear 
operator contributes up to $10 million per reactor per year in 
``retrospective premiums'' until the current cap of $83.9 million is 
reached.\20\ In contrast, the 1983 NRC report recommended annual 
payments of $10 million per plant for as many years as necessary to 
compensate all public damages. Unfortunately, under pressure from the 
nuclear industry, all but one of the commissioners reversed their 
stance by the time Representative Markey chaired a hearing on the issue 
in July 1986. Commissioner James Asseltstine continued to support the 
original recommendation of no cap on total liability to protect 
taxpayers.
---------------------------------------------------------------------------
    \20\ Holt, M. and Behrens, C., ``Nuclear Energy Policy'', 
Congressional Research Service IB88090, 3/22/01,

          Having provided by law that the industry's liability would be 
        fixed at a specific dollar level and with new indemnity 
        contracts in effect which reflect this limited liability, I 
        think it will be difficult for the Congress to obtain 
        additional funding from the industry after an accident has 
        occurred. Thus, it is likely that additional funding to pay 
        liability claims, funding which could run into the billions of 
        dollars, would have to come from the federal Treasury.\21\
---------------------------------------------------------------------------
    \21\ Testimony of James K. Asselstine, before the House Committee 
on Energy and Commerce, 7/17/86.

    Friends of the Earth and others supported lifting the total 
liability cap and replacing it with an annual cap during the debate 
over the 1988 amendments. We believe that this would be a fair way to 
ensure that victims were compensated and the industry would have an 
affordable and predictable way to assure this.
    NRC recently recommended raising the retrospective premium to $20 
million per reactor per year (still capped at $83.9 million). NRC 
justified this increase that would ``. . . substantially increase the 
amount of funds available shortly after a nuclear accident to pay 
public liability claims but should not jeopardize the financial 
viability of the participating utilities.'' \22\ Provisions to increase 
this premium are also contained in several bills introduced by members 
of this committee. Strangely, the NRC has now reversed its earlier 
recommendation.\23\
---------------------------------------------------------------------------
    \22\ NUREG/CR-6617 p. 131.
    \23\ ``NRC Drops Recommendation to Double Some Coverage in Price-
Anderson,'' Platt's Inside NRC, Vol. 23, No. 11, 5/21/01.
---------------------------------------------------------------------------
    As part of a more equitable nuclear accident compensation package, 
Congress should consider mechanisms to fully compensate victims of a 
catastrophic accident. One way would be to lift the total liability cap 
and implement the original 1983 NRC concept of an annual retrospective 
premium for as many years as necessary to compensate all public 
damages. Since NRC has more recently stated that the industry could 
afford a $20 million annual premium and that a higher premium would 
help victims get compensated faster, Congress should ensure that annual 
premiums be no lower than $20 million per reactor per year.
      the industry can afford to pay the full costs of an accident
    The nuclear industry opposes paying its own way. Yet this industry 
has benefited greatly from unjustified federal and state subsidies. 
With deregulation of many state's electricity industry came billions in 
bailouts for the industry (and blackouts for hapless Californians!). 
These bailouts (also known as ``stranded costs'') have increased the 
profitability of nuclear power plants according to Lehman Brothers 
Managing Director and former NRC Commissioner James Asselstine.\24\
---------------------------------------------------------------------------
    \24\ Testimony of James K. Asselstine, Managing Director, Lehmann 
Brother, Inc. Before the Senate Energy and Natural Resources Committee, 
5/3/01.
---------------------------------------------------------------------------
    According to a report released in 1998 with the Safe Energy 
Communication Council entitled ``Ratepayer Robbery'' we estimated these 
bailouts could total more than $132 billion for just eleven states. 
Surely an industry that is receiving billions of dollars in public 
bailouts could afford $20 million per year per reactor to compensate 
the public in case of an accident. Along with unjustified bailouts, 
state deregulation bills have left consumers at the mercy of large, 
unregulated power generators. Several large nuclear operators are 
enjoying the high prices for electricity generated.
    For example, Southern Company, which operates six reactors reported 
net income for 2000 of $1.313 billion--a record profit for that 
company. In case of an accident, the $20 million retrospective premium 
represents less than 9% of their profits.
    Entergy, which touts itself as ``the fastest growing nuclear 
operator in the nation.'' \25\ is proposing to build new reactors and 
currently operates eight reactors, reported $160.9 million in net 
income for the first quarter of 2001, a nearly 50% increase from the 
same time last year. A $20 million retrospective premium for all its 
reactors is less than the profits for one quarter. This is a company 
that should be embarrassed to ask for a penny of taxpayer assistance.
---------------------------------------------------------------------------
    \25\ Testimony of C. Randy Hutchinson, Senior Vice President, 
Entergy, before the Energy and Air Quality Subcommittee of the House 
Energy and Commerce Committee, 3/27/01.
---------------------------------------------------------------------------
    Exelon Corporation touts itself as the ``largest nuclear generation 
operator in the country with approximately 20% of the nation's nuclear 
generation capacity.'' \26\ which is proposing to build a risky new 
reactor that would cut costs by not including conventional containment, 
reported $586 million in net income last year. This company has 
testified that the public should fund the work of the government 
agencies responsible for certifying the safety of these new designs.
---------------------------------------------------------------------------
    \26\ Testimony of Edward F. Sproat III, Vice President, Exelon 
Generation Company, before the Energy and Air Quality Subcommittee of 
the House Energy and Commerce Committee, 3/27/01.
---------------------------------------------------------------------------
    Duke Energy reported $1.776 billion in net income last year. Duke 
Power operates 7 reactors. A $20 million retrospective premium 
represents less than 8% of their profits.

                               CONCLUSION
    The Price-Anderson Act was supposed to be a temporary measure for a 
fledgling industry. Today that industry has grown enormously and has 
reaped substantial benefit from this and other taxpayer subsidies. 
Meanwhile, victims of a major nuclear accident would be left to plead 
their case before Congress. This is not good government. The Price-
Anderson Act should not be renewed and should be either radically 
reformed or replaced by legislation that truly protects the public.

    The Chairman. Thank you very much. Let me start with a 
question about just basic numbers here. There seems to be some 
disagreement in the testimony. Everyone seems to agree that the 
maximum amount of insurance is $200 million. I think everyone 
has said that. But there seems to be a dispute over whether 
there are 103 or 106 licensed plants. As I understand it, the 
Nuclear Regulatory Commission, NEI cited 103. Mr. Quattrocchi, 
you said 106. Also, there seems to be disagreement on whether 
the maximum deferred premium is 83.9 million, which the Nuclear 
Regulatory Commission indicates, or 88 million, as you 
indicated, Mr. Quattrocchi. Do any of you have some insight as 
to why these figures are different?
    Mr. Quattrocchi. Yes, Senator Bingaman. I'll take a shot at 
that. The number 83.9, is it?
    The Chairman. 83.9.
    Mr. Quattrocchi. 83.9 does not include a factor of 5 
percent which is included in the Price-Anderson Act. It was 
added at the last renewal in 1988 to essentially say that if 
the total amount of financial protection is insufficient, then 
an additional 5 percent would be levied on top of that, so if 
you take that number of 83.9 and multiply it by 1.05, the 
number is in fact 88.1. The concept or the idea back in the 
1980's or 1988 was to take into account defense costs. The cost 
of litigation. It was meant to compensate for those costs, so 
that is where the 88, the difference comes. It is simply a 5 
percent surcharge on top of the 83.9.
    The Chairman. What about this dispute over the number of 
plants that are licensed? Is there--you say 106, and NRC says 
103.
    Mr. Gray. I think NRC would agree with 106 that are 
participating in the retrospective premium pool. There are 106 
reactors licensed to operate. There are 103 that are currently 
operating.
    The Chairman. I see. Okay. Well that is good. That clears 
that up. Thank you very much.
    One of the other issues that seems to be in dispute amongst 
some of the witnesses here is the question of whether we should 
do a reauthorization for 10 years or for a longer period, 
indefinitely I guess, Mr. Fertel, you recommended a permanent 
reauthorization. Does anybody have any other comments on which 
of those two courses of action is best? Mr. Gray, did you have 
a point of view that you wanted to express there?
    Mr. Gray. The NRC recommended a 10-year extension, taking 
into account the fact that the electric utility industry, 
including the nuclear electric utility industry, is in the 
process of substantial deregulation, reregulation, transfers of 
ownership, things of this nature, which may hold out the 
possibility that there will be a need for adjustments to the 
legislation over the next 10 years, and rather than 
recommending an indefinite extension, the NRC recommended a 10-
year extension so that the matter could be revisited in 10 
years.
    The Chairman. Okay. Mr. Fertel, did you want to make 
another comment?
    Mr. Fertel. Just from our perspective, Mr. Chairman, we 
don't necessarily disagree with Joe that there may be reasons 
you would want to revisit Price-Anderson over the next 10 or 20 
years. We just feel you can always revisit it, and what you 
might have in law is a report from the NRC every 5 years on the 
status of what's happening. We just didn't see, we have renewed 
it for 10 years, and we went to 15 years, and now we are going 
to go back to 10, and our feeling was Congress can always 
modify the law if it needs to be modified, and why not deal 
with reports to Congress and modification as required rather 
than sort of set up the sudden death play that we seem to come 
to every time it comes up for renewal.
    The Chairman. Mr. Bradburne, did you have a point of view?
    Mr. Bradburne. Mr. Chairman, we agree that a permanent 
extension would be appropriate for many of the same reasons 
that Mr. Fertel just articulated. It does take out that 
uncertainty. And one never knows when the bid cycles are going 
to occur in the Department of Energy's business area, and so 
having an uncertainty as to whether Price-Anderson coverage 
would be available or not has, could have a chilling effect if 
there was that uncertainty on the kind of competition that the 
Department could get.
    The Chairman. Okay. Did you wish, Mr. Fygi?
    Mr. Fygi. Yes. If I could add an overlay. The circumstances 
that bear upon the NRC's structure governing licensees are not 
the same as the circumstances that bear on the Department of 
Energy's operational relationships with its major nuclear 
contractors. And therefore, it is not necessarily the soundest 
approach to analyze the question of duration as though we were 
dealing with a monolithic circumstance.
    So that from the Energy Department's perspective, we do not 
anticipate the sort of changed environment that was alluded to 
by the NRC a moment ago, and therefore for the Energy 
Department's side of the equation, we would recommend an 
indefinite extension.
    The Chairman. Okay.
    Mr. Quattrocchi.
    Mr. Quattrocchi. Mr. Chairman, from the insurance 
industry's perspective, I would just say that we could support 
a 10-year extension, a 15-year extension, or an open-ended 
extension. The important thing from our standpoint is that 
Price-Anderson is such an important piece of legislation, has 
been so beneficial in terms of protecting the American public 
that it really needs to be extended. I guess at the end of the 
day, because of what I just said, I would opt for an open-ended 
extension, but we could certainly live with 10, 15.
    The Chairman. Mr. Quattrocchi, let me ask you about the act 
currently requiring plants to maintain the maximum amount of 
insurance that is available on reasonable terms from private 
sources, and you folks have essentially set that at $200 
million, as I understand it, and are thinking about going to 
$300 million. Is that right?
    Mr. Quattrocchi. Yes. That's right, Mr. Chairman. We--
although I would just say, we have not set the limit at $200 
million. The limit is determined by economic or market forces 
within the insurance industry. As capacity becomes available, 
we try to make it available, so it is not, it is not a question 
of setting a limit. It is a question of developing capacity 
that becomes available within the insurance market based on 
conditions in the market. As I mentioned in my testimony, the 
limit has not been increased since 1988. And that was 
coincident with the last renewal.
    So obviously inflation has taken a toll. We think that for 
a number of reasons, it would be beneficial to increase the 
primary limit, and as I said, assuming the Act is extended 
essentially intact, we would seek to increase the primary limit 
to something in the range of $300 million. We think that is a 
reasonable goal.
    The Chairman. Do you see any reason Congress should be 
involved in that decision from $200 to $300 million, or is that 
something that should better be left to the insurance market, 
as it has been in the past?
    Mr. Quattrocchi. I would say that is really, as I mentioned 
earlier, the limit issue is a function of economics and market 
realities within the, within the insurance market. So it really 
is something that should be left to the market. Now, the 
Congress has always expressed the view that we collectively 
should make as much insurance capacity as is available to 
protect the public, but I think it would be better left to 
market forces.
    The Chairman. Finally, let me ask about these provisions 
that are in both Senator Murkowski and Senator Dominici's bills 
to provide financial incentives for increased production and 
increased efficiency. Mr. Gray, you testified on that. We had a 
hearing this last month that was referred to that, where Corbin 
McNeil, chairman of Exelon Corporation, testified ``production 
costs for nuclear power are lower than that for coal.''
    And Mr. Asselstine, who is a Wall Street analyst, testified 
that a well-run nuclear plant can produce power as cheaply as 
coal and at half the cost of the gas-fired plant. It is hard, 
given that testimony, to, for me to understand how we could 
justify providing additional incentives for nuclear power 
production when the incentives, the economic incentives seem to 
be so obvious. Mr. Fertel, do you have a point of view on that?
    Mr. Fertel. Thank you, Mr. Chairman. Obviously, we are very 
proud of the performance of the nuclear plants, and I think 
what both Corbin McNeil and Jim Asselstine testified to, is 
certainly true, the plants are performing extremely well and 
extremely efficiently. And just as something that Joe Gray 
raised from an NRC perspective, the industry is never going to 
take any shortcuts to save a million dollars or make a million 
dollars that jeopardizes safe, reliable operation.
    You have got a lot more at risk than making a million 
dollars, so I think that conservative decision making will 
continue to be the staple of the way we want to do things. 
Going to your specific question, we certainly appreciate the 
intent of both Senator Dominici and Senator Murkowski to 
provide incentives for us to maybe move faster on making up 
rates and getting more efficient, and any incentives always can 
provide some help.
    I think that what you will see is the industry will move 
down that road on its own to produce as much safe, reliable 
electricity as we can in this country, so I think that while we 
appreciate the incentives, I think that they may expedite 
things, but they are probably not going to cause a radical 
change in behavior on what the industry will do to be as 
efficient as it can be for at least our existing plants right 
now.
    The Chairman. Anybody else have a point of view on this 
question of incentives. Mr. Gray, you did testify as I 
understand it that you do not favor the incentives for 
increased production. But you have concerns about the 
incentives that would be directed toward increasing production. 
You didn't seem to say the same thing about incentives to 
improve efficiency.
    Mr. Gray. No. Actually, we have no real view on the 
incentives to undertake up rates. My only point was that to the 
extent that those sort of incentives accelerate the industry's 
efforts to ask for up rates, that will put, would impact--put a 
burden on NRC and we will have to look at the budget.
    The Chairman. This is a little far afield from this, the 
subject of this hearing. But let me ask at any rate since you 
are here, Mr. Fertel. A good share of our national debate here 
on energy has involved this prediction about the extent of the 
demand we would have for increased powerplants, increased 
number of powerplants in the next 20 years.
    My impression on that is the Energy Information Agency put 
out their report called Energy 2001. And indicated that they 
estimated that something like 1,300 new plants, 300 megawatt 
plants would be required over the next 20 years, and part of 
the reason for that increased number of plants was the fact 
that the 16 percent of current production that they attributed 
to nuclear plants, they saw going out of existence because they 
assumed that all the nuclear plants would not seek relicensing 
and will essentially shut down.
    From what I have heard both in our previous hearing and 
today, there is no evidence that that is happening. In fact, 
the amount of production from nuclear plants is increasing, 
rather than decreasing, even if no new nuclear plants are 
built, so I am just wondering if you could clarify your 
understanding of that, and you know, what do you anticipate 
over the next several years as far as the amount of nuclear 
power generated for electricity in this country.
    Mr. Fertel. Certainly, Mr. Chairman. First of all, we have 
spoken with EIA on a number of occasions trying to help them 
understand what's happening in the real energy market and 
certainly the nuclear part of it. We disagree with their basic 
assumptions and actually a lot of their basic data that they 
use so we don't agree that you are going to lose the nuclear 
plants that they lose in the 2001 to 2020 period, so from that 
perspective, they are showing a need for greater capacity.
    However, given what I would think are errors in their model 
in general, I am not sure what it tells you about what you may 
really need. You may need more, for all you know. When you look 
at the model, it is not a market-based model. What it does is 
it makes a quick comparison of what they think is the 
competitive price of say a nuclear plant to a new gas plant and 
instantaneously takes that nuclear plant out if it is over the 
price they think, and instantaneously puts the gas plant in. 
And as this committee is well aware when you look at what 
happens in the real world, when a plant even goes off line, 
prices go up. Let alone, I take it out of service completely.
    So their model isn't particularly a very good model, and 
one thing the Energy Committee may look it, is I hate to say 
you want to give them more resources, but you may want to look 
at helping them figure out how to get better models so that 
they can actually give you good information. What we expect for 
nuclear, Mr. Chairman, as was mentioned by Senator Murkowski, 
before we have increased since 1990 energy output by about the 
equivalent of 22 or 23,000 megawatts of capacity. Our estimate 
now is we can get another 8 to 10,000 megawatts out of both the 
up rates that you are hearing about and efficiency 
improvements, and we think that will be over the next 5 years. 
Then you basically tap about all you can get from our existing 
plants and you have to look at new plants.
    The Chairman. All right. Thank you all very much. Let me 
now defer to Senator Landrieu for her questions or opening 
statement or whatever she would like to do.

       STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR 
                         FROM LOUISIANA

    Senator Landrieu. Thank you, Mr. Chairman. First of all, 
let me commend you for calling this hearing. I think it is very 
important as our committee pursues the issues regarding 
nuclear, and it is been really a bipartisan effort to try to 
reinvigorate and to move us forward, so I have just got a brief 
statement really for the record and just a question that hasn't 
come up, and I know it is not exactly the topic of our 
discussion, what we are talking about liability, and 
relicensing and insurance and incentives which the Chairman is 
rightly focusing on.
    [The prepared statement of Senator Landrieu follows:]
       Prepared Statement of Hon. Mary L. Landrieu, U.S. Senator 
                             From Louisiana
    I thank the Chairman for calling this hearing today to discuss the 
importance of the Price-Anderson Act to the nuclear power industry and 
to express my support for its re-authorization. Also, I look forward to 
hearing from our witnesses about some specific provisions pertaining to 
nuclear energy production and efficiency incentives that are included 
in Senator Murkowski's bill, the National Energy Security Act of 2001 
and Senator Domenici's bill, the Nuclear Energy Electricity Supply 
Assurance Act of 2001, of which I am an original co-sponsor.
    As we continue to debate an energy policy for our country, it is 
important to point out that one of the great strengths of the electric 
supply system in this country is the contribution that comes from a 
variety of fuels. The diversity of fuels we have at our disposal should 
enable us to balance cost, availability and environmental impacts to 
the best advantage. One source of energy which I believe we must 
emphasize is nuclear power.
    In order for nuclear power to play an appropriate role in the 
energy policy debate taking place in our country, the Price-Anderson 
Act must be re-authorized. Not only does the act ensure that adequate 
and timely funds will be available to compensate victims of a nuclear 
accident but it also removes the threat of unlimited liability which 
discourages private companies from engaging in nuclear activities. 
Finally, I am interested in learning more about how we can further 
increase the energy production and efficiency of an already highly 
competitive industry.

    Senator Landrieu. But I wanted to get on the record maybe a 
brief comment from each of you about the waste issue. And what 
either you are hearing in your respective responsibilities 
about the resolution, and you don't have to go into any 
specifics about the specific site, but just any new 
technologies you are hearing. I know that these are generators 
and regulators, but the waste issue is something, Mr. Chairman, 
as you know, we are going to have to solve one way or the other 
eventually, I think, as a key component of what we want to do, 
and as a Senator who is a co-sponsor of Senator Domenici's 
bill, I am a strong advocate of nuclear, keeping it as a strong 
part of our fuel mix, thinking it is a very important component 
for our Nation and frankly, the world.
    So maybe just briefly if each one of you that wanted to 
could make some sort of for the record statement about the 
progress being made in a variety of different areas on that 
issue.
    Eric.
    Mr. Fygi. Well, of course, I have the deficiency in 
answering or addressing your question from the perspective of 
being a lawyer, and the legal reality, however, is that 
Congress legislated a very, very intricate regime in 1982 that 
currently governs the Government's activities in this very 
realm. And as the courts have interpreted that regime, the 
Government has a contract obligation to the utility contract 
holders for waste disposal activities, even though that 
capability has not matured. Nonetheless, the scientific work 
necessary to determine whether to proceed to seek licensing of 
a repository at Yucca Mountain is still ongoing.
    So it is not as though from that perspective that we 
approach this issue as though it were an entirely clean slate. 
There is an enormous amount of scientific evaluation that has 
occurred on the back end of the nuclear fuel cycle, both under 
the 1982 Act program and even in prior studies done through the 
National Academy of Sciences in the years before that 
legislative solution was adopted. So that is the best answer I 
can think of on the spur of the moment to your question.
    Senator Landrieu. And I'd like you each to continue 
briefly. I appreciate that. I am going to ask a follow up to be 
thinking of what the current situation in your mind has a 
minimal or great effect on the financing capabilities of the 
market based on the fact that this issue isn't resolved, but 
you can think about that.
    Joe.
    Mr. Gray. Senator, following on to Mr. Fygi, from the NRC 
standpoint, we would--we think that some progress is being 
made. The Environmental Protection Agency issued its standard 
for Yucca Mountain. The Commission is proceeding to work on its 
rulemaking to incorporate that standard and to prepare itself 
for a potential application from DOE. The Commission is 
focusing and concentrating its resources in that vein, and 
again, preparing for, to review the site recommendation that 
DOE may make within this year, and to proceed from there. We 
are----
    Senator Landrieu. Working on it.
    Mr. Gray. Working on it, but getting ourselves in a 
position to be able to deal with any licensing application that 
may be made.
    Senator Landrieu. John.
    Mr. Bradburne. Senator, thank you. Of course, the two 
responses that you have just heard deal with high-level waste. 
And there is an additional general category that we have to 
work with, and that is low-level waste. The contractor group 
that I represent is involved in both areas of, of waste 
disposal and waste stabilization, waste management. I am 
personally more familiar over the last 6, 7 years with the low-
level waste efforts that are going on, especially in the 
Department of Energy complex.
    And I can tell you I have seen a dramatic positive change 
in how these waste streams are characterized, managed, 
stabilized, and then disposed of. It is a very positive story. 
We have gotten safer and we have gotten far more efficient in 
this process. We are encouraged to do this. It is the right 
thing to do. And I think it is only going to continue to 
improve.
    And some of the high-level waste left over from 
reprocessing during the Cold War era, I have seen similar 
developments in those areas also, so I have a very positive 
feeling about it. I have personal experience on the low-level 
waste side, and what I have seen as an advisor or a member of a 
board of directors of a company involved in high-level waste, I 
have a good feel about that, too.
    Senator Landrieu. Excellent.
    Marvin.
    Mr. Fertel. Thank you for the question, Senator. Let me 
just touch on low-level waste for a second from the commercial 
powerplant standpoint. When the Low-Level Waste Policy Act was 
passed in 1980, since then, which is 20 years, we have doubled 
the number of nuclear powerplants that operate in our country, 
and we have cut the amount of low-level waste to a third of 
what it was in 1980, so you have doubled the number of units, 
and you have actually cut waste to a third of what existed. 
That is nice on our side because of waste minimization.
    What it is done is it is made the Low-Level Waste Policy 
Act almost impossible to implement from an economic standpoint, 
because you are not generating enough waste to make it 
economical for some of the compact sites to go forward, let 
alone the political resistance to it, so while that is probably 
something that is almost untouchable to go back and revisit, it 
is probably a law that is almost impossible to implement 
economically these days and what the powerplants are doing is 
waste minimization, onsite storage, and then sending most of it 
to either Barnwell or Envirocare.
    On high-level waste, I think the first thing I would say is 
that one of our problems on a commercial side is we manage the 
waste so well. If it was truly a threat at any of the sites, 
Congress would have acted a long time ago to make sure it 
wasn't at the sites, but since the waste is managed very safely 
at the sites, the threat and the impetus for the Department to 
move faster hasn't really been there so it is sort of a mixed 
blessing. We'll never do anything to handle the waste in an 
unsafe way, but the safer we handle, it the less there is an 
impetus to do something.
    On the other hand, all the science that is come out from 
the Department of Energy on Yucca Mountain over the last 3 
years seems to indicate that the site looks like it ought to be 
suitable and everything that we are hearing from the 
administration is that they are planning on moving ahead to try 
and make a decision. If their decision is it is not suitable, 
then it can come back to Congress and you all can decide what 
to do, but we need a decision.
    No decision just as unfortunate delay and the liability to 
the Government will continue to escalate as people sue, so our 
hope right now is that we will get a Presidential decision one 
way or the other, and we think it ought to be that the site is 
suitable, which would then allow you to move into licensing. It 
doesn't move any waste, it just allows you to move into the 
licensing process, and I think that would all be positive.
    And going to your second question on the financial 
community perspective and one of the responsibilities I have at 
NEI is to interface with the financial community and I make 
frequent trips up to meet with rating agencies and analysts, 
and I would say over the last couple, 3 years, their impression 
on the waste issue has modified a bit to it's an unsolvable 
problem to know there really is progress being made even though 
it is much slower than we think, and I think from their 
perspective, continued responsible progress is required.
    They have no illusions that waste will move next year or 2 
years, and I am not even sure they believe 2010, but as long as 
they see continued responsible progress, I think that they are 
willing to support not only the current plants but new plants 
in our country.
    Senator Landrieu. Thank you.
    John.
    Mr. Quattrocchi. Well, thank you, Senator, for the 
question. I will preface my remarks by saying that the views 
that I would offer are my personal views and not necessarily 
those of ANI. The issue of waste breaks down into two areas, 
obviously low-level and high-level. We at ANI have been 
insuring the low level waste sites for decades, the two 
operating sites now are Barnwell and Richland and I guess 
Envirocare.
    We have insured these low-level waste sites without any 
real issue, without any real problem. That is not to say that 
there may not have been claims from time to time, but there 
have certainly been know incidents emanating from these sites, 
so we have a great deal of experience insuring them and we know 
that they have been safely operated.
    With regard to high-level, Mr. Fertel has pointed out that 
spent fuel has been stored at reactor sites now for years 
without any issue, without any safety problem. We insure every 
operating power reactor in the United States, and therefore we 
do insure spent fuel in storage at these reactor sites, again 
with no problem.
    With regard to Yucca Mountain, all of the scientific 
information that I have seen indicates that this is an area 
that is been geologically stable for a million years, and will 
likely remain geologically stable for another million years or 
so, so I think from a technical standpoint, again, based on the 
information that I have seen, spent fuel can be safely stored 
in this case at Yucca Mountain. I don't believe we are dealing 
with a scientific or a technical problem. I think those issues 
have really been resolved. What we are dealing with, I think, 
is a political issue. The not in my backyard syndrome, I think 
exists here, so I think at some point if we can manage to get 
beyond that, I think we have a way to address the waste issue 
in this country.
    Senator Landrieu. Erich.
    Mr. Pica. Thank you, Senator. Friends of the Earth remains 
concerned about high-level nuclear waste repository at Yucca 
Mountain. We fear that the science isn't quite there yet. We 
are talking about probably the most lethal waste man has ever 
created. We are talking a quarter of a million years worth of 
deterioration that needs to be stored somewhere safely. Given 
the confidence that Marvin and John both stated with the 
current onsite storage capacity, I think it is right for 
Congress to be concerned and take their time in evaluating the 
various, the various sites that are currently being considered.
    Senator Landrieu. Thank you. And this is just my last, just 
a follow up. I didn't get to read your statement ahead of time, 
I am sorry, but are you all supportive of nuclear generally or 
against it completely?
    Mr. Pica. Friends of the Earth and U.S. PIRG, who I both 
gave testimony for it, we're opposed to nuclear----
    Senator Landrieu. For it?
    Mr. Pica. Opposed.
    Senator Landrieu. Oh, you are opposed.
    Mr. Pica. Opposed to nuclear power generators.
    Senator Landrieu. Thank you, Mr. Chairman. I have just got 
a brief statement for the record, and unfortunately, I have got 
another hearing so I am going to just stay for a minute.
    The Chairman. Well, thank you for coming, and I appreciate 
your statement and your questions.
    Let me ask one final question here. I guess this would be 
directed to you, Mr. Gray. Price-Anderson Act ties a 
requirement to maintain financial protection not to each 
nuclear reactor, but to each license.
    How does the Commission intend to license modular reactors? 
Will each module be licensed separately, in which case each 
module would be subjected to a separate $83.9 million or $88.1 
million deferred premium, or will the entire multimodule system 
be licensed under one license, in which case the entire system 
would only be subject to a single $83.9 or $88.1 million 
deferred premium?
    Mr. Gray. That is a question that the Commission is 
struggling with as we speak. It is Senator Murkowski's question 
that was submitted to the NRC earlier this month, and the 
Commission is in fact examining that at this time, and I don't 
have an answer for you, but we will provide an answer as the 
Commission works through this very question, and it is an 
important question.
    The Chairman. I think we would appreciate that. Obviously, 
if we need to clarify the statute to make it clearer what 
Congress thinks makes sense here, we would be glad to try to do 
that if we are able to go ahead with this reauthorization. All 
right. Well thank you all very much. I think it is been a 
useful hearing. I appreciate the testimony. That concludes the 
hearing.
    [Whereupon, at 10:46 a.m., the hearing was recessed, to be 
reconvened on July 12, 2001.]


                         NATIONAL ENERGY ISSUES

                              ----------                              


                        THURSDAY, JULY 12, 2001

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met at 9:40 a.m., in room SD-366, Dirksen 
Senate Office Building, Hon. Jeff Bingaman, chairman, 
presiding.

           OPENING STATEMENT OF HON. JEFF BINGAMAN, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. Let me ask Secretary Norton if she could come 
forward, please, and also the Deputy Secretary of the 
Department of Energy, Francis Blake.
    The purpose of this legislative hearing is to complete our 
record prior to starting a markup of a comprehensive energy 
bill later this month, in a couple of weeks. I know the 
committee has already held hearings on many of the components 
of the bills that are pending in the committee, particularly 
Senator Murkowski's bill. It is my intention to try to fill in 
some of the niches that were not covered. I know that all 
members are anxious to move ahead with a comprehensive energy 
bill, and I think this hearing will help us to do that.
    We start this morning with conventional fuels. We will look 
at various oil and gas provisions, both from Senator 
Murkowski's bill, S. 388, and from the bill that I introduced, 
S. 597. We will also look at bills by Senators Graham and Boxer 
and Corzine, dealing with leasing moratoria on the Outer 
Continental Shelf; and Senator Durbin's bill to set up a 
consumer energy commission. We will turn to a number of nuclear 
energy initiatives that Senator Domenici has in a bill he has 
introduced; and two separate nuclear energy bills introduced by 
Senators Thurmond and Nickles.
    Senator Murkowski, did you have an opening statement before 
we call on the witnesses?
    [A prepared statement from Senator Campbell and Johnson 
follow:]
   Prepared Statement of Hon. Ben Nighthorse Campbell, U.S. Senator 
                             From Colorado
    Thank you, Mr. Chairman. I would like to thank all of the witnesses 
for appearing before the committee today, especially my friend and 
fellow Coloradan, Secretary Gale Norton, and Teamster's President James 
Hoffa. I am looking forward to the testimony that you will be providing 
us shortly.
    I would like to first make a few comments on the nominees that were 
just voted out of this committee. I believe that Bennett Raley's 
experience will help accelerate and improve work at the Department of 
Interior. In my home state of Colorado, where water literally equates 
with life, Bennett already has worked for many years in the water field 
and has an extensive knowledge of these issues.
    Also, Ms. Mainella's background and experience in parks and 
recreation will be invaluable in helping to restore our national parks 
and alleviate the backlog of maintenance in our parks which has loomed 
for some time now. And, Mr. Key's experience will help enhance the work 
by the Bureau of Reclamation and across the nation as well. These three 
individuals are important to my home state of Colorado.
    I have discussed many issues important to me and all Coloradans 
with all three of these nominees, and I look forward to working with 
them in the future to implement our proposals like boundary expansion 
for the Little Bighorn Battlefield, Old Spanish Trail legislation and 
addressing the Black Canyon of the Gunnison water rights dispute so 
that the state of Colorado has a greater role and the affected parties' 
voices can be heard.
    In the past, public lands were locked up often without legislative 
oversight, and oil and gas exploration and extraction were prohibited. 
Known resources in our nation are sifting idly by. We need to be able 
to do studies to see what is out there and we need to know what 
infrastructure needs we require so that we can help our consumers.
    Granted, some of the lands which are protected are worthy of the 
protection, but others were locked up for the sole purpose of 
prohibiting exploration and extraction of oil and gas. These are the 
lands and regulations that need to be revisited. Since 1992, U.S. crude 
oil production is down while our consumption has substantially climbed. 
We can help ourselves get out of this mess, but we have to be allowed 
to do so, even if that means opening up more lands.
    Don't get me wrong, we must have environmental safeguards so that 
we do not do more harm than good. The technology is there to accomplish 
this goal. We must be able to use these new technologies, not ignore 
them.
    Some are going to say that any development of our natural resources 
is unacceptable. But, we have to be realistic. Many want the cheapest 
and cleanest form of energy, but they do not have any ``real'' 
solutions to replace our traditional types of power. Sure they claim 
that renewables are up-and-coming, but they are not in full swing yet. 
Trucks do not run on solar or wind power. We have to deal with the 
situation facing us, while working to develop new, alternative energy 
forms.
    We are a nation that could use our resources to supply a majority 
of our power needs, which would also help us decrease our dependence on 
foreign oil. Our locked public lands have discouraged many from trying 
to do what is right and now our nation is reaping the bitter fruits of 
this practice.
    We simply cannot let this nation and our economy grind to a halt 
while we have accessible energy resources at our disposal. I am 
confident these nominees are all qualified to help implement the 
development of our domestic energy sources in a responsible manner 
which recognizes that our public lands deserve the appropriate 
development and protections that will preserve them for generations of 
future Americans to come.
    Thank you Mr. Chairman.
                                 ______
                                 
 Prepared Statement of Hon. Tim Johnson, U.S. Senator From South Dakota
    Mr. Chairman, I am please that we are holding the first in a series 
of several hearings on long-term energy needs. We have a unique 
opportunity in this committee to consider and hopefully enact 
legislation that will address the problems in the nation's energy 
system and infrastructure. The American is more focused and more 
concerned about the problems we are facing than ever before. Rising gas 
and heating prices, rolling blackouts and strain on the electricity 
system have demonstrated the need for a strategy that will address our 
rising energy demand. Enacting a balanced package that addresses all 
parts of the energy equation is the best way to bring greater energy 
security to our nation.
    It is clear that we need to find ways to increase our energy 
supply. Oil and gas production is and will continue to be the largest 
source of energy for the near future for this nation. Changing 
technologies and long-term supply and demand issues indicate that we 
need to find more diverse sources of supply. But fossil fuels will 
still be the biggest source of supply in the years to come.
    Given this reality, it is important that we explore ways to 
maintain and increase our oil and gas supply. Our dependence on foreign 
oil has grown significantly over the last several years to over 50%. 
The goal of many is to bring this down to at least 50%. While I don't 
think there is magic number that will eliminate our energy security 
issues, it is certainly should be a goal of this committee and Congress 
to reduce foreign dependency.
    This is clearly not an easy goal to reach. Disputes have arisen 
over which lands and whether certain offshore areas should be open to 
drilling and how such activities should be administered. While are 
differing opinions are on these matters, the purpose of this committee 
is to work through these disputes to find where we have common ground, 
rather than begin finger pointing. Solutions have been found on the 
past on these matters and it is imperative that we find them now. The 
nation is looking to us for answers and we must set an example to 
address the nation's needs.
    In my view, any fossil fuels strategy must be supplemented with 
other proposals to increase our energy security. As many of you know, 
Sen. Hagel and I have introduced legislation that would require that a 
percentage of all transportation fuels would be comprised of renewable 
fuels. This would go a long way toward reducing our dependency on 
foreign oil. But the goal of my legislation is that it would be enacted 
in concert with a larger energy strategy that would increase overall 
production while promoting conservation. Only with this sort of 
balanced strategy will our energy situation improve.
    Thank you, Mr. Chairman, and I look forward to the testimony.

      STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Well, Senator Bingaman, we certainly 
look forward to working with you to move a comprehensive bill, 
and we would hope that we could perhaps be well on our way 
prior to the August recess, with the recognition that in both 
the bills that are before the committee and the amendments and 
the administration's recommendations and the number of hearings 
that we have had in the last year, I think we are pretty well 
on our way towards proceeding with a markup, as you have 
indicated.
    I think it is fair to say that some people are of the 
opinion that the energy issue is kind of off the table, and I 
think that is contrary to the administration. I understand the 
Vice President is going to be out in Pennsylvania on Monday. A 
number of Cabinet members are going to be at various places 
around the country--talking about the reality that we do have a 
crisis in this country--that America has become dependent on an 
affordable, uninterruptable supply of energy for the prosperity 
that we all somewhat take for granted. Clearly that is in 
jeopardy.
    I think the point that needs to be communicated a little 
bit more is why things are different this time, and if one can 
reflect on the reality that we have had an increasing demand 
over the last decade and we have not kept up with that demand, 
either by providing an alternative, renewable or increased 
supply of energy, and as a consequence, we've found ourselves 
in a situation where we haven't built a new nuclear plant in 
this country in 25 years and haven't had a new coal-fired plant 
come on line since 1995.
    We have seen our increased dependence on imported oil go 
from 37 percent to 56, 57 percent, and now forecasts from the 
Department of Energy suggest we will be in the low 60s in a few 
years. What does that do to the national security of this 
country? We have seen natural gas prices go up as high as $10 
per mcf. They have relaxed somewhat now, but the reality is we 
are using our natural gas reserves faster than we are finding 
new ones. We have not built a new refinery in this country in 
almost 20 years.
    The recognition that the last administration's experiment 
in pulling crude oil reserves out of SPR are quickly forgotten 
by some, but the reality is that the Secretary of Energy 
proposed to take out 30 million barrels to relieve the heating 
oil crisis on the Northeast corridor. We found that when we 
took that oil out of the Strategic Petroleum Reserve, we didn't 
have the refining capacity, and as a consequence, all we did 
was replace imported oil, and I think out of that 30 million 
barrels, we got about a one-day supply of heating oil.
    Compounded with the reality of those facts, we find 
ourselves in a position where we don't have the transmission 
capability for our natural gas, for our electric power 
transmission, so things are different now. There is a crisis, 
and it is up to the Congress and, I think, particularly this 
committee to address it along with the administration in a 
manner that uses new technology, that has a real sensitivity on 
the environment and the ecology, recognizes that new technology 
is available, but faces the harsh recognition that we have to 
separate energy into two areas: one, clearly the electric 
energy and the sources of power, whether it be hydro or nuclear 
or coal or natural gas, and we have alternatives there. And, 
two: we don't move America on any other source of energy other 
than oil, move the world for that matter, and the foreseeable 
future indicates that we are going to be continually dependent 
on oil for the foreseeable future.
    So the question is: To what extent do we want to become 
more dependent on imported oil? I think one of the realizations 
that I had a short time ago was associated with the action by 
Iraq when they pulled 2\1/2\ million barrels a day of 
production off the world market. They did that, objecting to 
the policies within the United Nations.
    Now, many people expected OPEC to simply increase its 
output by 2\1/2\ million barrels. OPEC decided not to do that. 
Now, I am not going to debate the merits of why they made that 
decision, but I think one can see that they recognized the 
effectiveness of the cartel and the realization that by holding 
tough, why, they could, in effect, hold the United States 
hostage to some extent, to a price scale that we have seen 
pretty well established by the discipline of OPEC, $22 floor, 
$28 ceiling. It has gone beyond that.
    And the question I think we have to pose before the 
American people and responsibly to ourselves is: To what extent 
do we want to extend that dependence on imported oil, or do we 
want to try and relieve it by developing more resources here at 
home? And I think the Department of the Interior and the 
Secretary, who I am pleased is here before us today, can 
address the realities of whether or not we can do this safely, 
whether we have the technology.
    What is the impact on the environment and the ecology? I 
think these are the things that we have to recognize, and also 
recognize the influence of America's extreme radical 
environmental community that in many cases is opposed to any 
new development and does not recognize the technology, the 
advancement, the lowering of the footprint, and so forth, and I 
think we have to weigh these things. Now, these are powerful 
lobbies, and they have an objective. Their objective obviously 
is their cause.
    If one has an occasion--I think every member of this 
committee should read the series that was run recently in the 
Sacramento Bee about the power and the influence of America's 
environmental lobby and how they work and what their objectives 
are, to a large degree. The fear tactics associated with the 
process would curl your hair. I don't have that much left, but 
in any event, it makes some very interesting and rewarding 
reading, and it puts another sidelight on the issue of how and 
when and if America is going to responsibly use its technology 
to develop its resources.
    So there's no question in my mind that we have an energy 
crisis in this country. The question is: What is this committee 
going to do about working with the administration to ask 
whether we're going to seek relief on our own public lands in 
this country, and ask can we do it safely, recognizing that in 
many cases, the environmental community is looking for a cause, 
a cause far away, looking for membership, looking for dollars, 
and the harsh reality of sound science associated with the 
development hardly enters into the picture.
    I can't help but comment--and anybody that would like to 
review it--a letter put out by Robert Redford relative to the 
issue of ANWR, and it is totally full of falsehoods, and I am 
not going to take the time now, Senator Bingaman, to go into 
that, but I would be happy to spend the time if anybody would 
care to want to spend that kind of time, to go over the 
inaccuracies and the blatant lies that are put forth on the 
issue to appeal to the American public. And I would hope that 
people would recognize reality and the motivation behind some 
of these efforts.
    So I look forward to working with you to get on with the 
responsibility at hand. Thank you, Mr. Chairman.
    The Chairman. Thank you. In the interest of going ahead and 
getting our hearing completed, let me just start with the 
witnesses. Secretary Norton, why don't you begin. Thank you for 
coming.

           STATEMENT OF HON. GALE NORTON, SECRETARY, 
                   DEPARTMENT OF THE INTERIOR

    Secretary Norton. Thank you very much. I would like to 
thank you, Mr. Chairman, and the committee today, not just for 
the opportunity to discuss with you the President's energy 
proposals, but for the fact that you have moved forward the 
nominees for my Department. I greatly appreciate that, and I am 
sure that you found they are a good bunch of people, and I am 
anxious to have them get started and get to work.
    I have submitted written remarks, and so I will take my 
oral time today to discuss with you a few things. We are 
working through a process with the staffs on the various pieces 
of legislation to provide to you detailed comments on the 
particular legislative language.
    Of the 105 recommendations in the President's plan, over 
half will modernize and increase conservation, protect the 
environment, and help diversify our supply of clean, affordable 
energy. Our comprehensive plan expands conservation by 
increasing funding for energy efficiency programs, encouraging 
development of fuel-efficient vehicles, creating tax credits to 
encourage conservation, and increasing the use of renewable 
energy, such as wind, solar, biomass, and geothermal.
    The plan provides stability to what might otherwise be an 
uncertain energy future. It diversifies our energy supplies in 
the long run. In the nearer term, it provides assurance that 
domestic traditional energy sources will be available.
    I would like to do a little show-and-tell here with a few 
charts. Let's start with the other one. Our concern is one 
that, I think, you all have seen in the past, that our 
production is declining for the simple fact that as you draw 
the oil from a reservoir, that reservoir eventually runs out of 
oil, and it is something that has to be replenished by having 
new places to look for supply. This is a projection on what we 
would see in the future if we just go forward with everything 
that is currently on the table, compared to the consumption of 
oil that we see for the long-term future.
    The figures for natural gas are even more dramatic, because 
we have put ourselves on a path of wanting to use natural gas 
for the air quality benefits. There are some very good reasons 
for wanting to do that, so our projected need for natural gas 
is going to be increasing while our projected supply does not 
come anywhere close to meeting that demand.
    The next chart shows something that really affects the work 
of this committee, and that is the increasing reliance on 
Federal and Indian lands for energy supply. This chart goes 
back from beginning in 1970 to the year 2000. The chart shows 
the percentage of our domestic sources of various types of 
energy that come from Federal lands. The lower level is oil; 
the mid-level is gas; the coal is the dark brown area; and then 
hydro-electric has stayed fairly constant over time.
    We have seen a movement toward our public lands as the 
places where we rely for energy sources, and this is a trend 
that has been going on in the past. Today we find that 
approximately a third of our coal, oil, and natural gas that 
are domestically produced come from Federal lands and Federal 
resources. The Federal areas are projected to contain 68 
percent of undiscovered U.S. oil resources and 74 percent of 
undiscovered natural gas resources.
    We appreciate the opportunity to move forward with the 
legislative aspects of the President's energy plan and the 
attempts to address energy concerns in this country. There are 
other aspects of the plan that do not require legislative 
action, and we are moving forward with those.
    As one example, the Department of the Interior will be 
bringing together State and local officials with industry 
leaders and other citizens for a renewable energy summit this 
fall. The summit will focus on ways to maximize wind, solar, 
and geothermal energy production on public lands to help 
stabilize our Nation's energy needs.
    Currently, 48 percent of geothermal energy production is 
from Federal lands, and it produces enough to provide the 
energy for 570,000 homes. Wind energy from public lands is 
sufficient for 87,000 homes. And while we don't see this taking 
the place anywhere in the near term of coal and oil and natural 
gas, we think that we can do more in these areas, and we are 
moving ahead with the process to do that.
    Americans have a core belief in American ingenuity. 
American ingenuity is a major factor in everything from our 
military victories and status as the only remaining super power 
to our development of cures for once deadly diseases, and our 
ability to vastly improve our air and water quality. American 
ingenuity is directly tied to our technological advancements. 
Nothing puts our Nation's skills to the test like a challenge, 
a challenge like the one we face today to ensure a 
comprehensive energy strategy.
    The President has also directed Interior to work with 
Congress in developing legislation to authorize environmentally 
safe leasing of oil and gas in the Arctic National Wildlife 
Refuge. Our plan emphasizes that Congress should require the 
use of best-available technology and ensure that energy-
production activities protect the ANWR environment.
    We live in the 21st century. Our technology has advanced 
since Prudhoe Bay was opened. Ice roads, 3-D seismic to target 
exploration activities, horizontal drilling that allows a 
surface pad to reach for miles underground to find oil deposits 
allow us to proceed in an environmentally safe way. Any 
legislation to open ANWR must contain stringent environmental 
standards.
    Our country faces a national energy problem, but I believe 
it can and will be managed. Working with Congress, the Bush 
administration is committed to finding workable solutions that 
improve our national energy problem. American ingenuity has 
never let us down in the past, and by acting wisely today, it 
will help us provide for future generations.
    Thank you.
    [The prepared statement of Secretary Norton follows:]
          Prepared Statement of Hon. Gale Norton, Secretary, 
                       Department of the Interior
    Mr. Chairman, members of the Committee, it is a pleasure to be here 
to testify on the energy issues before this Committee that would affect 
the Department of the Interior.
    The need for a national energy policy becomes clear when you look 
at the numbers. Take clean-burning natural gas, for example. Over the 
next 20 years, U.S. natural gas consumption has been projected to grow 
by more than 50 percent while production will grow by only 14 percent 
if it grows at the rate of the last 10 years. U.S. energy production is 
not keeping up with our growing consumption, creating a rapidly 
increasing gap between domestic supply and demand.
    Energy reserves contained in the lands and offshore areas managed 
by the Department of the Interior are an important source of potential 
energy production. The Department of the Interior manages energy 
production on all Federal lands, both onshore and the Outer Continental 
Shelf (OCS). These Federal lands provide nearly 30 percent of annual 
national energy production. In the year 2000, 32 percent of oil and 35 
percent of natural gas were produced from Federal lands. In addition, 
Federal lands produced 37 percent of domestic coal production and 48 
percent of geothermal energy production in 2000. Federal lands are also 
estimated to contain significant undiscovered domestic energy 
resources. Estimates suggest that these lands contain approximately 68 
percent of all undiscovered U.S. oil resources and 74 percent of 
undiscovered natural gas resources.
    The Department also owns and operates hydro power facilities in the 
17 western states. These facilities produce about 16 percent of all the 
hydro power in the United States.
    President Bush has developed a balanced plan to produce more 
reliable, affordable and environmentally clean energy that is built on 
three principles:
    It is comprehensive and forward-looking.
    It utilizes 21st Century technology to promote conservation and 
diversify supply.
    And the plan will increase the quality of life for Americans by 
providing reliable energy and protecting our environment.
    The President's policy calls for increasing domestic energy 
production, seeks to improve the aging energy infrastructure network by 
creating a new high tech energy delivery network and promotes energy 
conservation. It is important to point out that more than 50 percent of 
the President's plan focuses on energy efficiency, encouraging the 
development of fuel efficient vehicles and encouraging consumer 
conservation. The President's policy proposes new tax incentives to 
help increase the contribution that alternative and renewable energy 
can make to our nation's energy supply. The President's policy includes 
recommendations to invest $2 billion over 10 years to fund more clean 
coal technology research and development and to support a permanent 
extension of the existing research and development tax credit.
    President Bush has directed his Administration to work with the 
Congress to develop comprehensive legislation that would help those 
with low-incomes pay their energy bills, stabilize our current 
situation, while seeking those new resources and technologies to 
support our energy needs for the future.
    The President directed The Department of the Interior to seek 
authority to redirect a portion of oil and gas royalties to the Low 
Income Home Energy Assistance Program whenever oil and natural gas 
prices exceed pre-set trigger prices.
    The President also directed us to work with Congress on 
legislation. authorizing the leasing of oil and gas in that portion of 
the Arctic National Wildlife Refuge (ANWR) defined as the Coastal Plain 
in section 1002 of the Alaska National Interests Lands Conservation 
Act. The President's Policy emphasizes that Congress should require the 
use of the best available technology and require that energy production 
activities have no significant adverse impact to the environment in the 
ANWR 1002 area.
    There are a number of elements in the National Energy Policy that 
do not require legislation. Yesterday I announced that the Department 
of the Interior will host a summit aimed at expanding renewable energy 
production on public lands. To further the priorities of Congress and 
the President, we will bring state and local officials together with 
industry leaders and other citizens for a renewable energy summit this 
fall. The summit will focus on maximizing wind, solar and geothermal 
energy production on public lands. Enhancing production of renewable 
energy is important for energy stability and a healthy environment. For 
example, with low emission levels and availability in public lands in 
the West, geothermal energy provides an excellent opportunity to reduce 
our dependency on foreign oil. Thanks to American ingenuity and 
cutting--edge technology, 47 percent of geothermal energy is produced 
on public lands. With cooperation and partnerships, our geothermal 
production can increase.
    All of these steps are needed to solve the energy problems facing 
our country, and to secure our energy supply while protecting the 
environment.
    If U.S. oil production follows the same historical pattern of the 
last 10 years, it will decline by 1.5 million barrels per day. Since a 
vital portion of our energy development occurs on Federal lands, I am 
going to tailor my remarks today to Interior's energy policy 
implementation plans on Federal lands.

          IMPROVING AND ACCELERATING ENVIRONMENTAL PROTECTION
    More than half of the domestic recommendations in the National 
Energy Policy report are targeted to conservation, environmental 
protection, renewable and alternative energy, and measures aimed at 
helping consumers deal with rising energy costs. The National Energy 
Policy promotes the use of new, 21st century technologies to increase 
energy efficiency and conservation.
    In the implementation of this energy policy, our Department will 
strive to focus efforts among the Interior agencies on priority 
setting, resource allocation, and jointly focusing on the recovery and 
restoration of particular species or habitat types to improve the 
environmental baseline.
    There are also a number of existing federal programs that can 
assist in restoring habitat on private lands, such as the Fish and 
Wildlife Service Partners for Fish and Wildlife and Coastal Programs 
and various Department of Agriculture programs. These and other private 
landowner incentive programs could be used to contribute to the 
conservation of important environmental resource values. Actions on 
Federal lands could also be coordinated with activities undertaken on 
non-federal lands to increase their effectiveness. Another possibility 
is a federal/state coordinated effort using grants to stabilize the 
status of a listed species through the conservation of important 
habitat by acquisition or regulatory control.
    Our Department has worked to develop new and innovative ways to 
manage our national treasures in our parks and on other Federal lands. 
To bolster funding for land conservation efforts, the National Energy 
Policy Development Group has recommended that the President direct 
Interior to work with Congress to create a ``Royalties Conservation 
Fund.'' This fund would earmark potentially billions of dollars in 
royalties from new oil and gas production in ANWR to fund land 
conservation efforts. This fund would also be used to help eliminate 
the maintenance and improvements backlog on federal lands.
    The Department of the Interior has reduced its energy consumption 
in buildings and facilities by about 10% since 1985. However, we need 
to do better. I am going to continue to push the Department to strive 
to become a more efficient energy consumer. The commitment extends to 
all of our facilities. For example, the Green Energy Parks Program, a 
successful partnership between the National Park Service and the 
Department of Energy, has fostered over 200 energy and water 
conservation projects saving the American taxpayers millions of 
dollars. We hope to use this effort as a model for establishing 
additional partnership efforts within Interior.
Regulatory and Legislative Tools
            Improving the Implementation of the National Environmental 
                    Policy Act
    The NEPA process is often perceived as lengthy and arduous. The 
fundamental premise of ensuring that public decision makers have good 
information that is scrutinized by the public before decisions are made 
must always be maintained. However, we can seek to improve the process 
in a variety of ways. For example, the process could be streamlined 
through better use of joint agency documents for environmental reviews 
for proposed energy developments. This may be especially applicable 
when projects, such as transmission lines and pipelines, cross 
jurisdictional boundaries and require approvals from more than one 
Federal agency, State, or Tribe.
Expedited Permitting
    Permitting for energy-related projects is often a lengthy multi-
agency process. The President has issued an Executive Order directing 
Federal agencies to expedite the review of permits and other federal 
actions necessary to accelerate the completion of energy-related 
project approvals on a national basis. The Administration will work to 
establish a task force to ensure that Federal agencies set up 
appropriate mechanisms to coordinate Federal, State, tribal, and local 
permitting activity in particular regions where increased activity is 
expected.
Improving the Endangered Species Act Consultation Process
    The Endangered Species Act (ESA) Section 7 consultation process is 
an important component of reviewing projects for their potential 
adverse effects on threatened and endangered species and their habitat. 
The FWS has recently implemented several initiatives to increase the 
efficiency and effectiveness of the Section 7 consultation process. 
Interior is also considering a number of other actions to improve the 
Section 7 consultation process.

               ENSURING DIVERSE DOMESTIC ENERGY SUPPLIES
    At the core of any long-term national energy policy are strategies 
to increase the Nation's energy supplies. The President's plan lays out 
a roadmap for meeting our future energy demands from diverse fuel 
sources through the use of 21st century technologies. The United States 
has significant domestic energy resources, and remains a major energy 
producer. Between 1986 and 2000, production of coal, natural gas, 
nuclear energy, and renewable energy increased. However, these 
increases have been largely offset by declines in oil production. If we 
wish to maintain a large measure of energy independence, our Nation 
must rise to meet this challenge.
Federal Onshore Lands
    The Congress, in the Energy Policy and Conservation Act, directed 
the Department to study the impediments to Federal onshore oil and gas 
exploration and development and then review the results with full 
public consultation. The Department will expedite completion of this 
study. As appropriate, Interior will consider making changes to land 
use plans based on the findings of the study.
The Outer Continental Shelf
    The Outer Continental Shelf (OCS) encompasses 1.76 billion acres. 
As you know, Congress has designated about 610 million acres off-limits 
to leasing on the OCS, which has been extended by Presidential action 
through 2012. For available OCS areas, it is imperative that the 
variety of Federal and State statutes, regulations, and executive 
orders are clear to ensure effective and efficient environmentally 
sound development. For this reason, the President has directed the 
Departments of the Interior and Commerce to re-examine the current 
federal, legal and policy regime surrounding energy-related activities 
in the coastal zone and on the OCS to determine if any changes are 
needed.
    Although significant technological breakthroughs have allowed for 
more deepwater production, substantial economic risks remain. The Deep 
Water Royalty Relief Act of 1995, which granted variable royalty 
reductions for new leases in deep water, contributed to much of the 
increase in deepwater leasing in the central and western Gulf of Mexico 
over the last five years. Similar incentives could help spur 
development in other technological frontiers, such as deep natural gas, 
or make possible continued production from both offshore and onshore 
fields near the end of their economic life. The President has directed 
us to continue to explore opportunities for royalty reductions, 
consistent with a fair return to the public, in areas where production 
might not otherwise occur.
    I know that the Committee has before it a number of bills related 
to limiting the development of our offshore resources. The President 
supports the existing Congressional moratoria and the 1998 Presidential 
directive that withdrew until 2012 many areas of the OCS from future 
leasing consideration. Therefore I do not believe legislation limiting 
OCS development is necessary.
    During your consideration of these measures, it is important to 
keep in mind that the OCS provides more than 26 percent of the natural 
gas and 25 percent of the oil produced in the United States. The MMS 
administers about 7,500 active leases on 40 million acres of the OCS. 
In addition, the OCS contains about 19 percent of the Nation's proven 
natural gas reserves, 18 percent of its proven oil reserves, and is 
estimated to contain more than 50 percent of the Nation's remaining 
undiscovered oil and natural gas resources.
    This Administration has made it clear that we want to work closely 
with affected States when it comes to developing these resources. A 
good example of this commitment is evidenced with respect to Sale 181. 
Mr. Chairman, I understand that Title X of S. 597, your comprehensive 
energy bill, addresses Sale 181 (Eastern Gulf of Mexico) by requiring 
that 120 blocks in a narrow strip beginning 15 miles from the coast of 
Alabama be excluded from the sale. On July 2, 2001, I announced that I 
was excluding those 120 blocks and more from the offering. The sale 
area was first proposed by Interior Secretary Babbitt and President 
Clinton after negotiations with Florida Governor Lawton Chiles and 
other coastal Governors in 1997.
    As part of determining the area to be offered in Sale 181, we 
listened and worked carefully with officials and affected citizens 
around the 181 lease area. I believe the outcome is a balanced and 
common sense proposal consistent with the President's National Energy 
Policy. Our modified Sale 181 area has been adjusted from 5.9 million 
acres to 1.4 million. The adjusted area is at least 100 miles from any 
portion of the Florida coast. For example, it's northern border is more 
than 100 miles from Pensacola, Florida and the eastern edge is 285 
miles from the shores of Tampa Bay.
    The modified 181 Area will help expand our domestic sources of oil, 
and reduce our dependence on foreign oil. The proposal also works to 
meet the President's commitment to develop our nation's energy needs in 
an environmentally safe way. The Department projects the adjusted area 
contains 1.25 trillion cubic feet of natural gas--enough to serve one 
million U.S. families for 15 years. The area also contains 185 million 
barrels of oil--enough to fuel the automobiles of a million families 
for nearly six years.
The Alaskan North Slope
    I had the opportunity to go to Alaska in March and again in June to 
visit the North Slope, talk to the local citizens and learn about 
current and potential future energy and environmental issues in the 
region. I would like to take a few minutes to discuss four Department 
of the Interior initiatives specific to the Alaskan North Slope.
            NPR-A
    Let me turn first to the National Petroleum Reserve-Alaska, or NPR-
A. Leasing was reinitiated in NPR-A a few years ago. The President's 
National Energy Policy calls for the Department of the Interior to 
consider additional oil and gas development, based on the best 
available environmentally protective technology, through further lease 
sales in the NPR-A, including areas not currently leased in the 
Northeast sector of the Reserve. In support of the President's policy, 
Interior will take a number of steps, including: conducting additional 
leasing in the northeast sector of NPR-A on a biennial basis; preparing 
to hold lease sales in other NPR-A sectors; initiating environmental 
analysis for a full field development; completing and publishing 
updated estimates of the undiscovered oil and gas resources of the NPR-
A; completing unitization, suspension, and extension regulations for 
NPR-A; and, if necessary, promulgating regulations to issue rights-of-
way in NPR-A to cover potential NPR-A and OCS oil and gas development.

            ANWR
    Next, let me discuss the Administration's position on energy 
activities in the Arctic National Wildlife Refuge (ANWR). The President 
is proposing to open a small fraction of the 19 million acres in ANWR 
for oil exploration using the most high-tech, environmentally 
responsible methods. The President and I both believe that oil and gas 
development can successfully coexist with wildlife in Alaska's arctic 
region.
    ANWR is located in the northeast corner of Alaska. The Refuge is 
about the size of South Carolina; however, the portion of the Refuge 
known as the 1002 Area is only about 6 percent of the total Refuge. We 
expect that no more than 2000 acres will be disturbed if the 1002 Area 
is developed. The 1002 Area was excluded from wilderness designation 
and Congress specified that it be studied further through a 
comprehensive inventory of its fish and wildlife resources, and the 
potential for oil and gas production. Estimates of substantial 
resources in the 1002 Area based on nearby drilling results and seismic 
data have made it one of the most promising prospects for oil and 
natural gas in the United States.
    In 1998, a USGS assessment of petroleum resources of the entire 
1002 Area estimated the expected volume of technically recoverable oil 
beneath the 1002 area to be 10.4 billion barrels, with a 95 percent 
chance of 5.7 billion barrels and a 5 percent chance of 16.0 billion 
barrels. For comparison, the U.S. currently consumes about 7 billion 
barrels per year. Of this, the U.S. imports about 4 billion barrels and 
produces about 3 billion barrels. Congressional action would also open 
up Native-owned lands.
    The Refuge provides a variety of arctic habitats supporting fish 
and wildlife species. The wildlife most associated with the 1002 Area 
is the Porcupine caribou herd, named after its wintering grounds along 
the Porcupine River of northwest Canada. Currently numbering nearly 
130,000 caribou, the herd migrates each year across the Brooks Range to 
arrive in early summer on the North Slope's coastal plain in the 1002 
Area and eastward into Canada.
    Contrasting with the migratory nature of the Porcupine caribou 
herd, muskoxen are year-round residents on the 1002 Area. According to 
the Fish and Wildlife Service, to survive the long winter, 
approximately 250 animals in scattered groups carefully conserve their 
energy reserves by minimizing their activities until summer.
    In the fall, polar bears from the Beaufort Sea region visit the 
area along the coast and barrier islands to forage, rest, and wait for 
the sea ice to form. Later toward winter, pregnant females enter dens 
either on the sea ice or on land and give birth to their young.
    One hundred forty-six bird species are known to visit the 1002 
Area. Approximately one-third of these nest and raise broods during the 
brief summer while the remainder use the refuge as a resting stopover 
during spring and fall migrations. The 1002 Area, including its 
lagoons, support 8 species of marine mammals, 62 species of coastal 
fish, and 7 species of freshwater fish of which the Arctic grayling and 
Arctic char are common. Several of these species are important as 
subsistence food resources.
    The Inupiat Eskimo Village of Kaktovik is located on the northern 
border of the Arctic Refuge coastal plain. Their subsistence resources 
include marine mammals, fish, caribou and muskoxen. The Kaktovik 
Inupiat Corporation (KIC) owns 92,000 acres of private land within the 
Refuge boundary. This land cannot be developed for oil and gas unless 
Congress authorizes leasing of the 1002 Area. On the whole, Kaktovik 
residents support oil and gas development in the 1002 Area.
    South of the 1002 Area and on the other side of the Brooks Range, 
the Gwich'in Athabascan people live in villages in Alaska and Canada. 
Gwich'in rely heavily on the Porcupine caribou herd for subsistence, 
and caribou figure prominently in their cultural heritage. Because of 
their concern over the potential impacts to the herd, the Gwich'in 
villages of this region oppose oil development in the 1002 Area.
    Our support for enactment of authority to lease oil and gas 
resources in ANWR is a prime example of the Department's dual 
commitment to energy development and environmental conservation. We 
recognize that the ecological resources of the Refuge are unique and 
precious. We must respect and conserve this wealth for future 
generations of Americans. However, because of advances in technology 
and in our enhanced understanding of the ecology, we are now able to 
proceed with exploratory work with very little long-term effect.
    If this exploration discovers as much oil and gas as we hope, we 
will proceed cautiously with development and production. To achieve 
this goal under our proposal, lessees will be required to use 
directional drilling and ice road technologies to reduce the extent of 
surface alteration. We will require lessees to operate in a no 
discharge, no litter mode. All materials and fluids brought into the 
Refuge will be taken out or injected into deep wells. We will require 
monitoring of wildlife populations and habitat conditions so that 
unexpected degradation is identified early and actions are taken to 
prevent and restore. We will require restoration, both as activities 
proceed and when production is shut down at the end. Our goal must be 
to have no significant alterations in wildlife populations or the 
environment after oil and gas production are finished.
    The President and I know that there is a long history of debate 
surrounding opening ANWR to energy development. However, we believe 
that new technologies enable us to conduct environmentally safe oil and 
gas exploration and production. Any legislation must contain adequate 
safeguards to protect wildlife and other environmental values.
            Arctic Outer Continental Shelf
    The third part of a comprehensive North Slope package involves the 
Arctic Outer Continental Shelf. The Beaufort Sea Planning Area 
encompasses approximately 65 million acres. Active leases in this area 
represent only 0.4 percent of the total acreage, and only 5 percent of 
the leased acreage is being actively pursued for development and 
production. The Northstar project, scheduled to come on-line later this 
year, will yield the first federal OCS production from offshore Alaska. 
The Chukchi Sea Planning Area encompasses approximately 63.7 million 
acres, none of which is currently leased. Both of these areas are under 
active consideration for the next 5-Year Plan for 2002-2007.
            Infrastructure
    The fourth component of the North Slope strategy concerns 
infrastructure. The right-of-way permit for the Trans-Alaska Pipeline 
System (TAPS) must be renewed by January of 2004. The President has 
directed our Department to work with Alaska to ensure an expeditious 
process for the renewal of the lease and right-of-way for TAPS.
    One of the largest known reserves of natural gas in the United 
States has been found in the Arctic. The existing production areas of 
the North Slope contain large amounts of gas that have been reinjected 
rather than marketed. The President has asked Departments of Energy and 
State, along with the Department of the Interior, to work with Canada, 
the State of Alaska, and other interested parties to expedite the 
permitting process for construction of a pipeline to deliver natural 
gas to the lower 48 states once an application is filed. In addition, 
the Department will continue participating in interagency efforts to 
improve pipeline safety and expedite permitting in an environmentally 
sound manner.
Enhanced Oil and Gas Recovery from Existing Wells
    From 30 to 70 percent of oil and 10 to 20 percent of natural gas, 
is not recovered in normal field development. It is estimated that 
enhanced oil recovery techniques, through new technologies, could add 
about 60 billion barrels of oil nationwide through increased use of 
existing, not new, oil fields. This translates into more energy supply 
with fewer environmental effects because enhanced recovery does not 
require drilling in new areas. For this reason, the President has 
directed both the Departments of Energy and the Interior to promote 
enhanced oil and gas recovery from existing wells through new 
technology.
Coal
    Coal is one of our country's most abundant resources. The United 
States possesses one-fourth of the world's coal resources. Part of the 
National Energy Policy is to maintain and improve the Department's coal 
leasing activities to assure that coal supplies are adequate for 
electricity generation.
Renewable and Alternative Energy Supply
    At the heart of any national energy policy are strategies to 
augment the Nation's energy supplies. Renewable and alternative energy 
sources such as wind, hydropower, biomass, solar, and geothermal are 
critical components of this plan. Renewable and alternative energy 
supplies not only help diversify our energy portfolio, but they are 
sources of clean energy for current and future generations. While the 
current contribution of renewable and alternative energy resources to 
America's total electricity supply is small, the renewables and 
alternative energy sectors are integral to U.S. energy security.
    The President has directed the Departments of the Interior and 
Energy to reevaluate access limitations to Federal lands in order to 
increase renewable energy production, such as biomass, wind, 
geothermal, and solar. The identification of potential locations for 
renewable energy production on Federal lands will assist in the 
planning and development of alternative energy resources. A review of 
administrative impediments and access limitations will aid in the 
development of these resources.
    The Department will look for ways to reduce delays in geothermal 
lease processing to encourage more geothermal energy production. Most 
geothermal plants are located in the West, in California, Nevada, Utah, 
and Oregon. An expeditious leasing process could be an important source 
to help meet the energy needs of California and the West.
    Finally, per the President's request, Interior will seek to work 
with Congress on legislation to use an estimated $1.2 billion of ANWR 
bonuses for funding research into alternative and renewable energy 
resources, including wind, solar, geothermal, and biomass.
Hydropower
    Although the majority of the Nation's electricity is generated 
using fossil fuels, hydropower also plays an important role. Western 
states, such as Idaho, Washington, Oregon, Montana and California, rely 
on hydropower for a significant portion of their electricity supply. 
Other states, such as South Dakota and New York, also depend to some 
substantial extent on hydropower for their electricity. Hydropower is a 
clean, domestic, and renewable source of electricity. The 
Administration seeks to increase electricity generation from hydropower 
plants. The Department is committed to accomplishing these gains in an 
environmentally sound manner.
            Bureau of Reclamation Efficiency Improvements
    The Bureau of Reclamation has undertaken an aggressive uprating and 
efficiency improvement program, which has significantly expanded the 
capacity of our hydropower system. For example, Bureau of Reclamation 
has ongoing turbine runner work at Grand Coulee Dam in eastern 
Washington, which is ultimately expected to result in 45-50 MW of 
additional capacity. Replacements are also underway at Yellowtail Dam 
in Montana, and turbine runner replacements at the Shasta Powerplant in 
California are planned. These three programs will result in an 
equivalent of 250 new megawatts of capacity over the next nine years.
    With an average age of 43 years, Interior's generation capacity is 
old. While two-thirds of the facilities have been uprated and/or 
rewound, one-third have not been modified. The efficiency of the 
existing generators could be increased by replacing aging windings 
inside the generator. In fact, there often can be substantial increases 
in capacity by installing windings using modern insulation technology. 
Reclamation presently has rewinding projects ongoing on units at Alcova 
and Davis Powerplants which could result in the equivalent of an 
additional 10 megawatts.
            Using Market-Oriented Incentives
    Another potential source of additional power is leasing water that 
could then be used to generate power. Such leasing arrangements would 
be between willing non-federal buyers and sellers. Reclamation will 
work to facilitate such arrangements and will shortly initiate an 
internal effort to identify potential opportunities in this area.
    Reclamation continues to work on flexible power generation 
schedules to support the needs of the western power grid. In many 
cases, Reclamation has asked its project pumping customers to shift the 
timing of their deliveries to off-peak times to make more peaking power 
available to the market. At Grand Coulee Dam in eastern Washington, we 
have been able to shift more than 300 megawatts of pumping load to off-
peak times making it available to the Bonneville Power Administration 
for peaking purposes. There are likely to be additional opportunities 
in this area, especially if power marketers are willing to provide 
financial incentives to project water users to shift the timing of 
their use.
Infrastructure
    Our energy infrastructure includes many components, such as the 
physical network of pipelines for oil and natural gas, electricity 
transmission lines and other means for transporting energy to 
consumers. Unfortunately, the Nation's energy infrastructure has not 
kept up with the changing requirements of our energy system. The demand 
for additional energy and electricity is expected to increase the need 
for rights-of-way across federal lands. To help with this process, we 
have identified a number of opportunities to expedite the processing of 
energy rights-of-way applications by streamlining the application 
process.

                               CONCLUSION
    Mr. Chairman, while the challenge facing us is significant, it is 
not insurmountable. By building on new 21st century technologies, this 
country can produce ample domestic resources while enhancing and 
protecting the environment. I look forward to working with this 
Committee and others in Congress to implement Interior's pieces of the 
President's National Energy Policy.
    Mr. Chairman, this concludes my statement. I would be pleased to 
answer any questions that you or members of your Committee might have.

    The Chairman. Thank you very much. Our next witness is the 
Deputy Secretary of Energy, Francis Blake. Why don't you go 
right ahead.

         STATEMENT OF FRANCIS BLAKE, DEPUTY SECRETARY, 
                      DEPARTMENT OF ENERGY

    Secretary Blake. Mr. Chairman, members of the committee, 
thank you very much for the invitation to appear before you 
today. I would like to echo Secretary Norton's thanks for 
moving on the nominees for the Department of Energy.
    I would also like to thank you for the leadership you have 
shown in taking action on our Nation's energy issues. The 
comprehensive, long-term energy legislation that you are now 
considering is an important step forward, and I think that as 
we go through this, we will find a great deal of common ground 
and a basis for moving forward.
    The basic facts are fairly straightforward. As a nation, we 
consume about 99 quadrillion Btu's of energy; that is 99 quads. 
We produce about 72 quads. If the energy intensity of the 
United States remained flat through the year 2020, that number 
would increase to 175 quads. We anticipate that through 
conservation efforts and the changing nature of our economy, 
that that number will go down to about 127, but there is still 
an enormous gap to make up.
    As Secretary Norton stated, 50 percent of the President's 
energy policy addresses conservation and the role technology 
can play in improving the conservation efforts of our country, 
but even as you do that and even with best efforts, I think we 
still have to be candid in acknowledging that there will remain 
a gap, and the policy attempts to put programs in place that 
address that gap:
    First, on conservation, by looking at new technologies and 
the role new technologies can play in improving our 
conservation efforts. Second, in balancing our power 
generation; over 90 percent of new power generation now is 
natural gas for some of the environmental reasons and economic 
reasons that Secretary Norton mentioned. We have an installed 
base of nearly 800 gigawatts of capacity that runs at about 33 
percent efficiency, and we need to improve that.
    On renewables, I think there is a great deal of common 
ground on the need for additional research. There are 
interesting new technologies in addition to wind and solar. 
Hydrogen is going to be an interesting area for future research 
and development, and I think there are additional areas as 
well.
    On exploration and production, we are opening up an effort 
to identify new technologies that will improve our drilling in 
an environmentally sound way, and I think throughout the energy 
policy that the President has put forward, environmental 
stewardship is one of the hallmarks of the policy.
    As I said, I think we have a great deal of agreement. We 
look--we see over 30 items in your legislation that you're 
considering that are consistent with the policy. We aren't 
going to find unanimity on all points, but we believe that this 
is a very good basis for going forward.
    Thank you very much for the opportunity to appear before 
you, and I would submit my full statement for the record. Thank 
you.
    [The prepared statement of Secretary Blake follows:]
       Prepared Statement of Francis S. Blake, Deputy Secretary, 
                          Department of Energy
    Mr. Chairman and Members of the Committee, I welcome the 
opportunity to testify before you today on various legislative 
proposals currently pending before the Committee: S. 388, S. 597, S. 
472, S. 771, S. 900, S. 901, S. 919, S. 1086 and S. 1147.
    First, I would like to thank the Chairman and Members of the 
Committee for your leadership and commitment in addressing the nation's 
energy issues. I applaud the Committee's efforts in moving ahead to 
shape comprehensive long-term energy legislation and look forward to 
working with you to find areas of common ground between the Congress 
and President Bush's policy proposals outlined in the National Energy 
Policy. Mr. Chairman, I am confident that our best efforts will move us 
toward a consensus and commitment to action.
    Today, America consumes 99 quadrillion British thermal units (or 
quads) a year in all forms of energy. Our domestic energy production is 
72 quads. The imbalance between energy demand and domestic energy 
production is made up with imports. Our nation's demand for energy is 
estimated to increase 33 percent by the year 2020. If energy efficiency 
continues to improve, projected energy demand in 2020 can be lowered 
from 175 quads to 127 quads. We recognize that we need to do more. 
People who say that the President's Energy Policy does not focus 
sufficient attention on conservation simply haven't reviewed the basics 
of the Policy. It is important to note that more than 50 percent of the 
National Energy Policy focuses on energy efficiency, encouraging the 
development of fuel efficient vehicles and encouraging consumer 
conservation. However, conservation alone will not be sufficient. You 
either have to accept an ever-widening gap between demand and domestic 
supply, with all the negative consequences that entails, or you have to 
begin thinking about how we increase our own energy supply. The 
question is: where do we get that increased supply when, over the past 
decade, domestic supply production has remained relatively flat?
    To address these challenges, The President's National Energy Policy 
has adopted an approach that is balanced and comprehensive. As the 
President has stated, we are looking for a new harmony among our 
priorities.
    First, our policy balances the need for increased supplies of 
energy with the need to modernize our conservation efforts by utilizing 
cutting edge technology. For example, increased utilization of net 
metering, time-of-day rates, and other techniques can give individuals 
greater control over their own conservation efforts.
    Second, we believe energy security dictates a more balanced 
approach to new power generation. In addition to natural gas, the 
National Energy Policy looks to clean coal generation and nuclear power 
to give us the broad mix of energy needed to meet growing demand and 
support energy security. We have an installed generating capacity of 
nearly 800 GWs, with an overall efficiency of about 33 percent. We need 
to spend more attention to improving and increasing that installed 
capacity, and we need to redress the governmental policies that inhibit 
that.
    Third, our policy balances our essential requirements for 
traditional sources of energy with the need for renewable and 
alternative energy sources such as hydropower, biomass, solar, wind and 
geothermal. It also recommends tax incentives for the use of certain 
renewables and more focused research on next-generation sources like 
hydrogen.
    The policy seeks to increase exploration and production of domestic 
sources of oil and natural gas. Through improved access to resources, 
reduced regulatory burdens, and the use of advanced technologies that 
allow us to produce oil and natural gas deeper, faster, cheaper and 
cleaner, we will be able to succeed in an environmentally responsible 
fashion.
    The President's energy policy also harmonizes growth in domestic 
energy production with environmental protection. This commitment to 
conservation and environmental protection is not an afterthought; it is 
a commitment woven throughout. Energy production without regard to the 
environment is simply not an option.
    We support this balanced approach with over 100 recommended 
actions. These cover the full range of energy challenges confronting 
this nation--from how best to enhance renewable sources, to oil and 
natural gas development in the Caspian Sea. The Administration can 
carry out many of these recommendations on its own, either through 
executive orders or agency-directed actions. We are moving ahead to 
implement proposals as quickly as possible. One day after the release 
of our National Energy Policy, the President issued two executive 
orders directing Federal agencies to accelerate approval of energy-
related projects and directing Federal agencies to consider the effects 
of proposed regulations on energy supply, distribution or use.
    Moreover, where appropriate, the President is directing Federal 
agencies, including the Department of Energy, to take a variety of 
actions to improve energy use and to carry forward critical aspects of 
his policy.
    Twenty of the recommendations contained in the National Energy 
Report require legislative action and we can find more areas for 
concurrence than disagreement. We all recognize energy as a critical 
challenge. We all recognize that parts of our energy supply and 
delivery system need enhancement or modernization. And we all recognize 
that conservation and stewardship must go hand in hand with increasing 
domestic supply.
    Recently, staff at the Department of Energy initiated a comparison 
of comprehensive energy bills S. 597 by Chairman Bingaman and S. 388 
and S. 389 by Senator Murkowski with the National Energy Policy. We 
were pleased to find considerable agreement with several of the 
measures. Over 30 of the recommendations included in the National 
Energy Policy are also included in the comprehensive bills you are 
discussing today. A few examples include: increasing funding for the 
Weatherization Assistance Program and LIHEAP program; advancing 
effective energy efficiency programs; conserving energy at federal 
facilities; promoting the use of technological advances to further 
protect our environment; reforming the Public Utility Regulatory 
Policies Act; extending the Price-Anderson Act; increasing funding for 
advanced nuclear energy systems; improving the hydropower licensing 
process; increasing support for research and development of renewable 
energy resources; enhancing the reliability of the interstate 
transmission system and exploring opportunities for royalty reductions 
as an economic incentive for environmentally sound offshore oil and gas 
development.
    It is encouraging that there are so many areas of agreement. This 
Committee has a long and proud tradition of developing bipartisan 
energy legislation. The Administration recognizes that all major energy 
bills have been bipartisan in nature and looks forward to working 
closely together with you to develop bipartisan energy legislation.
    The legislation introduced and discussed today also represents the 
first major nuclear energy legislation since enactment of the Energy 
Policy Act of 1992. Principally, S. 388, S. 597, S. 472, and S. 919 all 
promote the expanded use of nuclear energy systems through increased 
research, improved regulation, increased output of the nation's 
existing nuclear power plants and through the development of advanced 
nuclear energy systems. In general, there is good agreement among these 
bills on the legislative actions required and with the President's 
National Energy Policy. For example, the National Energy Policy 
specifically recommends legislation for renewal of the Price Anderson 
Act. Finally I would like to express our general support for 
legislation such as S. 919 that seeks to evaluate the feasibility of 
developing commercial nuclear energy systems at our sites.
    We believe that the objectives of this bill are consistent with the 
President's comprehensive energy policy and that this is an issue that 
requires further consideration.
    Naturally, there will not be complete unanimity and the President 
is strongly committed to the adoption of his recommendations. But I 
truly believe we have the basis for working together to enhance 
America's energy security.
    In closing, let me say, Mr. Chairman, that I believe the Department 
of Energy is particularly well suited to make a serious contribution to 
finding solutions to the energy supply challenges we will face over the 
next twenty years. The Department is the single largest funder of basic 
research in the physical sciences and manages major programs in basic 
energy science, high energy and nuclear physics, fusion energy 
sciences, environmental research, and advanced scientific computing 
research. In different ways, each of these areas will play a role in 
providing greater energy security for the American people. As our 
report notes, ``The President's goal of reliable, affordable and 
environmentally sound energy supplies will not be reached overnight. It 
will call forth innovations in science, research and engineering. It 
will require time and the best efforts of leaders in both political 
parties.''
    Mr. Chairman, that ends my testimony and I would be happy to answer 
any questions the Committee may have at this time.
    Thank you.

    The Chairman. Thank you very much.
    Let me start with questions. Secretary Norton, you made a 
decision this last week to substantially scale back the size of 
the sale of 181 from 5.9 million acres to 1.5 million acres. 
Can you explain what changed in your thinking or in the 
Department's thinking from the time that that decision--as I 
understand it, the initial proposal for the sale of 181 was one 
that had been developed or agreed to when former Governor 
Chiles, former Senator Chiles, and the Clinton administration 
talked about this issue. And obviously factors have intervened 
that's caused you to reverse course. What's your thinking on 
that?
    Secretary Norton. Mr. Chairman, you are correct that the 
original approximately 6 million acre lease sale 181 was 
proposed and was adopted, including an action by Congress to 
release the area from moratoria in the late 1990's, and that 
was done with the boundaries drawn to address some requests 
from former Governor Chiles.
    The current round that we went through in terms of the 
process for considering an actual sale in the area involved 
obtaining comment from the Governors of the four affected 
States, which are Florida, Alabama, Mississippi, and Louisiana. 
And we obtained their comments. We also had the process going 
on of hearing the House consideration of it, the Senate 
discussions of it. We heard feedback from members of Congress 
about it.
    After discussing with my staff various options that might 
have tried to balance the concerns and after working with those 
in the administration and throughout my Department, we came to 
the conclusion that reducing it so that every area is at least 
100 miles off of the coast and everything is on the Alabama 
side of the Florida-Alabama border would best reconcile that. 
It still allows us to obtain access to about 44 percent of the 
resources from the entire sale area as we estimated it, and 
that would provide enough oil to heat or to power a million 
families' cars for 6 years and to provide enough natural gas to 
power a million homes for 15 years.
    The Chairman. Let me ask you also about the emphasis that 
the administration is putting on the opening of ANWR for 
exploration and drilling. When you and Senator Murkowski and I 
visited the North Slope, I got the distinct impression that 
there was substantial enthusiasm by people in the oil industry 
there for increasing development in the National Petroleum 
Reserve Alaska on the North Slope, that there were very 
promising prospects there, that they had brought in some wells 
that they felt were very large, and that they looked forward to 
doing more there.
    Why is that not given emphasis in what the President's 
energy plan is or in any of your statements? It always seems to 
be, when you talk about North Slope oil and gas production, 
it's always ANWR and not NPRA, which NPRA strikes me as 
something which holds great promise.
    Secretary Norton. The NPRA process is already in the works. 
Leasing up there took place in the prior administration. We are 
continuing with future lease sales in that area and are moving 
forward. We have some additional environmental planning there 
that's underway. The simple fact is that that does not require 
congressional action. The rest of it, working on ANWR, does 
require that. ANWR is predicted to have large amounts of 
potential supply, and so as we go about discussion of our 
comprehensive approach to energy, that has seemed to be one of 
the areas that we certainly need to look to.
    The Chairman. On Monday, the Wall Street Journal had a 
report of a 10,000-gallon spill of crude oil and salt water 
from operations on the North Slope. Can you give us any 
information about that? Have you looked into that?
    Secretary Norton. I do not have details on that. I have 
seen some press reports on it. We are concerned about that kind 
of thing when it does happen, and we will be trying to learn 
what we can about that. We want to ensure that when Federal 
production goes forward, that Federal regulators will have very 
high standards for enforcement. These are currently State-
operated areas that are currently under production.
    The Chairman. Let me ask Secretary Blake just a minute 
about--in early June, the ExxonMobil announced that Saudi 
Arabia had selected it as a project leader for two Saudi 
natural gas ventures. This will involve an investment of about 
$20 billion, as I understand the news reports. Royal Dutch 
Shell was chosen to lead a Saudi project with a value of $7 to 
$10 billion. There are other examples we could cite. BP 
announced a $1.3 billion gas project offshore from Vietnam. 
Chevron is participating in a $1.6 billion investment in 
Western Australia.
    What are the most important things that we can do to 
attract and keep some energy investment here in this country as 
you see it? Are there some actions we ought to be taking? It 
seems as though all of our--all of the major players are 
investing enormous amounts in these foreign activities which 
may inure to our benefit, but clearly having some domestic 
investment would also benefit us. What are your thoughts on 
that?
    Secretary Blake. Senator, the President's energy policy 
outlines a number of potential steps that would encourage 
additional development in the United States. I think first a 
regulatory structure that is reasonable, protective of the 
environment, but also enabling responsible development. We are 
looking at technologies where you can get additional recovery 
from wells in an environmentally sound way. I think there are 
polices as well as technologies where we can help in improving 
domestic oil production.
    The Chairman. Senator Murkowski.
    Senator Murkowski. Thank you very much, Senator Bingaman.
    I wonder if we should clarify the spill that Senator 
Bingaman referred to. I believe that was a spill that occurred 
sometime in April on State land. The temperature, I think, was 
around zero, and it was cleaned up. And obviously I am not 
making any excuse for a spill. Spills shouldn't occur. But I 
think the record should indicate that as the circumstance 
surrounding that particular incident.
    Can you tell me what the State and Federal regulations are 
with regard to reporting spills of any kind?
    Secretary Norton. I know it is a very small threshold and 
that any spill that is over that threshold needs to be 
reported. I think it depends on the substance, but I have been 
told it is as small as a coffee cup. I think that is an 
exaggeration, but it is a small amount that triggers that 
reporting.
    Senator Murkowski. It is my understanding the terminology 
is notice of quantity, which in effect means a teaspoon, and it 
is not just of oil; it is of any substance. And as you and I 
recall, I think it is noteworthy to recognize that the vehicles 
that are up there carry a diaper under the oil pan. I don't 
know of anyplace else that I have ever been where that kind of 
environmental oversight was carried to that degree. And I am, 
again, commending them for the manner in which--if you look in 
garage, your car leaks a little oil. Up there, you have got a 
diaper under your car. Anyway, for whatever that is worth.
    Let me identify a little bit more of the circumstances 
surrounding the ANWR issue. ANWR is a refuge. It is my 
understanding that we currently have oil and gas activities in 
about 30 refuges in this country, and about 118 refuges have 
some kind of activity in it. Yet we seem to have an assumption 
that refuges are kind of like wildernesses or national parks, 
where no exploration, drilling production is allowed. Then we 
have the issue of national monuments, which are kind of 
nebulous. We addressed those on the floor yesterday.
    Why is--what is the presumption on refuges, and why is ANWR 
any different than any other refuge?
    Secretary Norton. On refuges overall where we do have 
substantial amounts of economic activity taking place. The 
question is whether that activity is compatible with the 
purposes of the refuge. That is what is usually applied. ANWR 
is somewhat unique, because the 1002 area has, since the 
creation of the area, has been designated as something that 
might become an oil and gas production area. And so it has a 
somewhat different legal status than other refuges.
    Senator Murkowski. It is basically made up of three 
classifications. Out of the 19 million acres, 8\1/2\ million 
acres are in a wilderness in perpetuity; another 9 million are 
in a refuge in general; and then the 1002 area was 
distinguished by Congress to be somewhat separate in any 
attention given for oil and gas leasing. Is that correct?
    Secretary Norton. Yes.
    Senator Murkowski. Let me ask you again relative to the 
issue of the Porcupine Caribou Herd and the historic range. It 
is my understanding that this year, the Porcupine Caribou did 
not calve in the 1002 area.
    Secretary Norton. I was there slightly after the calving 
season, and they had not yet arrived at ANWR. They calved in 
Canada, and that has occurred several years in the past.
    Senator Murkowski. But there is no fence. They are free to 
come and go as they wish.
    Secretary Norton. No passport problems.
    Senator Murkowski. And I gather that in 11 of the last 18 
years, there was little, if any, concentrated calving. Is that 
what your chart shows over there?
    Secretary Norton. Actually this chart is one that shows the 
concentrated calving area of the herds. This is on our 
Department web sites at doi.gov, and basically this is an 
historical, year-by-year tracking of where the caribou calved 
and where the most concentrated areas were.
    Senator Murkowski. There is some comparison in caribou 
observation in Alaska in the sense of Prudhoe Bay which carries 
the Western Arctic herd, I gather, and the significant amount 
of activity occurred in the last 27 years in Prudhoe Bay. Can 
you give us a comment relative to what happened to the caribou 
there and the size of the herd.
    Secretary Norton. The Central Arctic caribou herd has 
increased in size since the production began at Prudhoe Bay. 
The figures that I have heard is that it went from about 3,000 
animals to about 27,000 now.
    Senator Murkowski. We are going to give you a picture and 
identify it as soon as we get it, but in any event, let me move 
on here very briefly.
    Secretary Norton. The one thing that you may, on the 
concentrated calving areas----
    Senator Murkowski. That happens to be Prudhoe Bay, and 
those are not stuffed caribou there. It is my understanding 
that herd had about 3-4,000 animals in 1976 or 1977. It is 
about 24-25,000 animals now. You can't take a gun in there; you 
can't shut them. You can't run them down in a snow machine. 
They seem to be--they made the transition quite well.
    Let me ask you a little bit about the time element 
associated with a lease sale. When would you anticipate, if 
Congress authorized the opening of ANWR, that you could get a 
lease sale?
    Secretary Norton. We would be trying to move very quickly. 
Approximately 2004.
    Senator Murkowski. So in about 3 years.
    Secretary Norton. Yes.
    Senator Murkowski. And you would have to go through the 
process of advertising and environmental impact statements, 
various other details of----
    Secretary Norton. Right.
    Senator Murkowski. Let me ask you the last question, 
because my time is up. We are continually asked, What is there 
in terms of resources? And it is very difficult to give a 
reasonable explanation when most people assume you just go in, 
send your geologists and make a determination of what your best 
guess is. Why is this different historically? Why are we--why 
do we have so many estimates that vary so significantly?
    Secretary Norton. There has not been seismic work done 
there recently, and----
    Senator Murkowski. Why?
    Secretary Norton. Because the area has been closed to that. 
There was seismic work done in the mid-1980's, and what has 
taken place since then is reanalysis of that seismic work. This 
reflects the current thinking in terms of what the resources 
are and what the structures are. This is based on a better 
ability now to analyze the data that came from earlier. These 
are figures that were done within the last 2 years by my 
Department.
    Senator Murkowski. Well, would you conclude by giving us 
your best estimate of the range of what might be there and how 
significant is it, because some people say it is a 60-day 
supply or something.
    Secretary Norton. Well, as you can see here, it depends on 
which area we are looking at. The oil tends to be on the 
western edge of the 1002 area. The area on the eastern side is 
more the gas area. But putting those together----
    Senator Murkowski. That is the area where the caribou 
traditionally don't go, where the oil----
    Secretary Norton. The western area is not generally within 
the core calving area. The estimate currently is about 7.7 
billion barrels of oil for the 1002 area overall, and that is 
our average estimate, and that is based just on the Federal 
lands areas. You sometimes hear a 10-billion-barrel estimate, 
and that includes the native lands that cannot be accessed 
without congressional action, as well as some State lands.
    Senator Murkowski. Is that significant?
    Secretary Norton. That is definitely one of our largest 
areas potentially in the entire United States. I don't know 
exactly what the equivalent is in terms of how many vehicles 
that powers for how long, but it is about the equivalent of 
what we are getting today from Saddam Hussein, and the 
projection is that it would be enough to have that kind of an 
impact on our imports.
    The Chairman. Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you very much.
    First, thank you for your testimony. I wanted to just 
comment at the opening of the hearing, and we didn't have an 
opening comments. I wanted to make the point that I think if we 
spend so much time on the issue of ANWR, we are going to spend 
too little time on the broader questions of energy policy.
    I have mentioned to my colleagues before that my first car 
was a 1924 Model T Ford that I restored, and when I restored it 
and began to drive it in a parade or two when I was young boy, 
you put gas in that car exactly the same way you put gas in a 
2001 car. You stick a hose in the pump and pump gas. I mean, 
nothing has changed. Things have changed in virtually area of 
our lives except that, and it seems to me that the question of 
independence is an important one. We should aspire to not just 
be independent of the OPEC countries but also of the oil 
industry, if we can.
    Now, I happen to think we should produce more oil, use more 
oil and natural gas, produce more. We are going to need to use 
more coal. I understand all that. But a good energy policy is 
not just dig and drill, which I think predominantly the 
President's policy is. A good energy policy is not just 
yesterday forever. A good energy policy is to look out 50 years 
and to try to think: how can we have a different mix of energy 
use?
    And so what I would like to ask--and we talk about energy 
with respect to, quote, the future, unquote. We never talk 
about what kind of a future, how long. When we talk about 
Social Security, we talk about 30 or 50 years. Let me ask you. 
Fifty years from now, if we were to embrace the major 
components of the energy policy proposed by the administration 
or the components of what we have discussed, what kind of 
energy picture will we have 50 years from now? What will be our 
major uses of energy? Will we have made significant progress in 
renewables or limitless energy sources, or will we, when 
someone 50 years from now buys an antique car from the year 
2001 and restores it, will we still be sticking a hose in that 
tank and pumping gasoline?
    Secretary Norton. I will probably defer to the Department 
of Energy on some aspects of that, but it is very clear that we 
are trying to move in both the short term and long term to have 
a good mix of different approaches and to use high tech to move 
us beyond where we are today.
    Senator Dorgan. Yes. But I am really asking: Where do you 
want us to be 50 years from now with respect to energy use? 
What kind of energy?
    Secretary Blake. Senator, just a couple of comments on 
that. First, on your Model T Ford, in our time frame, certainly 
the planning horizon of the policy, you can anticipate--well, 
you already have--hybrid vehicles and potentially fuel cell 
vehicles that run on hydrogen. I think if you take two steps 
back, which is--or many steps back, which is what your question 
was asking, and you think about the basic process of converting 
thermal to power, it is all a conversion process.
    You can think about thermal to motive, which is automobile; 
that is your hybrid vehicle. Fuel cell vehicles tremendously 
change the landscape over the next 20 years. You can think 
about thermal to power, which is your power generation. 
Distributed generation, I think, could dramatically change the 
landscape.
    Open up new technologies, again fuel cell technologies, 
micro-turbines, a lot of other things that will allow more 
individual energy independence, and finally just the electric 
to electric conversion process, we are seeing phenomenal gains 
in efficiency, clean-burning power as you replace valves, 
actuators, gears with silicon chips. I mean, that is what is 
happening now in our economy, and I think with the kinds of R&D 
efforts that the Department and elsewhere that we are doing, we 
will see that accelerate.
    Senator Dorgan. But I am asking the question: What goals do 
we have with respect to that? Do we aspire to certain goals 50 
years out, and if so, what are they?
    Secretary Blake. To exactly that question, there is one of 
the recommendations in the policy is for us to set what our 
energy intensity goals should be. We don't have an answer to 
that yet, but I think that is exactly the right way to look at 
it.
    Senator Dorgan. When will that goal-setting be complete?
    Secretary Blake. We are looking at that as a study process, 
and in the fall, I hope we will be able to come back and say, 
here is where we are now; here is a reasonable goal for the 
country.
    Senator Dorgan. Secretary Norton, let me ask about 
refining. I just toured a refinery some days ago, and you 
indicated there have essentially been no new refineries built. 
Has refinery capacity increased in this country, and if so, by 
how much in recent years?
    Secretary Norton. I think perhaps again I need to defer to 
the Energy Department on that.
    Secretary Blake. What we have seen is, as you know, a lot 
of refining capacity that has been lost over the last several 
years. Where----
    Senator Dorgan. That is not my question. My question is: 
Has refinery capacity increased, because Secretary Norton made 
a comment that most people make. They say, there have been no 
new refineries built. Well, I understand that. The question is: 
Have we increased refinery capacity in this country?
    Secretary Blake. And I think the answer is, yes, we have, 
but what the percentage increase is, I need to get that for you 
for the record.
    Senator Dorgan. Would you do that and submit it.
    Secretary Blake. Yes.
    Senator Dorgan. The chief economist for British Petroleum 
was here and gave a briefing, I believe it was, this week and 
said the reason we haven't built a refinery is because we 
didn't need to. And I use that quote only to say that every 
time we have someone testify, they say, as the Secretary did, 
no new refineries have been built. And as I said, I just toured 
a refinery, talked about the costs of building refineries, so 
on and so forth.
    My understanding is that refinery capacity has increased in 
this country. Existing refineries have been made more 
efficient. They are producing more. And I am not suggesting we 
don't need additional capacity still, but it ought not be left 
with people--the impression ought not be left that somehow no 
refineries have been built, and therefore, there has been a 
static capacity in refinery output. That is not the case. Am I 
not right about that?
    Secretary Blake. I think you are right. The capacity has 
increased, and then the question is, looking forward, can you 
reasonably anticipate that we will have adequate refining 
capacity. And also there are some issues, again, as this 
committee knows with boutique fuels that has--that the way we 
impose our requirements for the production of fuel has an 
impact on how existing capacity is utilized.
    Senator Dorgan. I understand that. I wish we had the 
numbers here, because I think they should be part of the 
hearing. But we have had, in fact, an increase in refinery 
capacity in this country because of substantial efficiencies.
    Well, my time is up. Let me again say that I think there 
are a fair number of things that have been recommended by the 
administration that should be part of a significant energy 
policy, and those are items in the Murkowski bill. There are 
many items in the Bingaman proposal that ought to be part of an 
energy program. I mean, it seems to me that we ought to be able 
to fashion an energy policy that is sensible and thoughtful, 
using the best of what each have to offer rather than the worst 
of both.
    And I hope we don't get hung up dancing on the head of this 
needle called ANWR. Frankly, ANWR is not going to happen in 
this Congress, and there is so much more to talk about, so much 
more to do, and so much more we can be productive about in 
terms of creating an energy policy, I hope we don't spend all 
of our time on that subject.
    Mr. Chairman, thank you very much.
    The Chairman. Thank you very much.
    Senator Graham.
    Senator Graham. Thank you, Mr. Chairman.
    I would like to start by setting the record a little 
straighter relative to our former colleague and now deceased 
Governor of Florida, Lawton Chiles, and his feeling relative to 
site 181. He did on October 28, 1996 write a letter to the then 
Director of the Minerals Management Service, relative to site 
181.
    But what is frequently omitted from that discussion is the 
third paragraph of his letter, in which he states, after having 
discussed some of the specifics of the proposed lease site, ``A 
remaining concern, however, is the potential for development of 
the existing leases in the eastern gulf. I am still quite 
concerned about the dangers the State's pristine coastline 
faces from production activities on these leases offshore of 
Northwest Florida.''
    So his support for lease site 181 as it was being proposed 
in 1996 was linked to a policy of the elimination of those 
leases which were already in existence close to the coastline 
in northwest Florida. I wanted to enter that to give a textured 
statement as to what Governor Chiles' position was. And I might 
say that in the 5 years since this letter was written, there 
has been no progress towards eliminating those leases.
    But I want to return to the questions that Senator Dorgan 
was just asking. I am a strong believer that if you have a 
plan, the absolute first step is to set your goals. It is like 
the old story that if you don't know where you want to go, you 
can take any path, because you will get there. Assumedly, if we 
are launching what will be one of the major national 
initiatives of the beginning of the 21st Century to have a 
national energy policy, a first step is a thoughtful judgment 
of where we do want to go, and that judgment should also have 
some numbers and quantification assigned to it.
    Without that, you have no means of accountability. You 
don't know--you can't answer the question five or ten years 
from now, Have we made progress, unless you know where you are 
trying to go and have some numbers to describe your method of 
getting to the destination. So let me ask a few questions of 
either of the witnesses, and I would like numbers.
    Is it correct that today the United States is using 
approximately 17 million barrels of petroleum per day?
    Secretary Norton. That's approximately correct.
    Senator Graham. What is the national energy policy as to 
how many barrels of petroleum we should be using in the year 
2015? Or if that is not a year for which you have a number, 
what is the year that you have a number for?
    Secretary Blake. In terms of the numeric targets, the 
policy recognized exactly your point, Senator, that you need 
some understanding of what your target is in terms of the 
energy intensity of the economy. There were some shorter-term 
issues that we have such as we are putting substantial 
investments in generating capacity----
    Senator Graham. No. I----
    Secretary Blake. I was just--in terms of the sequencing of 
the policy----
    Senator Graham. If you don't know where you--how can you 
develop shorter-term goals--if your goal is to move from 
Washington, D.C., to Chicago, and suddenly you find yourself in 
Phoenix, you probably aren't on the right road. How do we 
know--unless we know what our destination is on something as 
basic as what should be our daily national consumption of 
petroleum at the target date for which we are planning, how can 
you evaluate whether any of your interim steps are contributing 
to getting to a desirable ultimate location?
    Secretary Blake. I think you can know directionally what 
you need to do in terms of the need for increased energy 
security, transmission capacity, additional supply, additional 
conservation.
    Senator Graham. So is the answer we don't know--does the 
national energy policy have a quantifiable statement of what 
our national goal is in terms of daily consumption of 
petroleum?
    Secretary Blake.
    [Shaking head.]
    Senator Graham. No. The witness shook his head in a 
negative direction.
    Secretary Blake. No.
    Senator Graham. Then let me ask the second question which I 
assume we also don't have an answer to, and that is, as I 
understand it today, a majority of that 17 billion barrels of 
daily consumption is produced outside the United States. Do we 
have a goal at the target date of what the relative proportion 
of domestic and international production should be of our daily 
consumption of petroleum?
    Secretary Norton. I think what we are talking about is 
trying to change the direction of the trend line. We know what 
the trend lines are, and the trend line is toward increasing 
dependence on foreign sources. While we don't think we are ever 
and we don't have as a plan to get to zero dependence on 
foreign sources, obviously that increase, we think, needs to be 
moved around to give us more ability for us to have our own 
control over that.
    And so on a number of things, in the short time that was 
available to us in putting together this plan, we identified 
what the trends were, the ones that seem to be out of kilter, 
and that we needed to change the direction of the trends. I 
think we still need more work in terms of filling in the 
additional information on exactly what the target points are in 
changing those trend directions.
    Senator Graham. Well, Mr. Chairman, I will just say, as my 
time has expired, that it is not very confidence-building to 
have a plan that is presented as being the national energy plan 
where there are not the most fundamental statements of what our 
destination for that plan is, and therefore, no means of 
holding the plan accountable for any accomplishments or 
shortfalls. To me, that ought to be the first thing that was 
done, not an afterthought.
    The Chairman. Senator Landrieu.
    Senator Landrieu. Thank you. I am happy to get back from 
the Armed Services meeting just to be brief in my questions, 
but to follow up--and the staff briefed me that Senator 
Murkowski spoke about ANWR, and I think Senator Graham from 
Florida has been good at all of these hearings to try to focus 
on some more specifics so we can, in fact, have some guideposts 
to, as we try to develop an energy policy that is clearly 
needed for the nation.
    And I want to agree with Senator Murkowski earlier that 
this crisis is far away from being over, and if the situation 
of unstable and very high energy prices are not dealt with in a 
responsible and reasonable way in this Nation, not only is 
California going to continue to suffer and other States in the 
West, but many States, Madam Secretary, are having great 
difficulty.
    I said on the floor yesterday that our farming community is 
hurting. Our chemical industries, our petrochemical industries, 
are hurting. Any industry that requires large amount of natural 
gas to operate or large amounts of energy--let me talk about 
hospitals, schools. There are millions and millions of dollars 
of energy bills, and so trying to get those prices not only 
down but stable over a long period of time is critically 
important to this nation.
    I don't think there is anyone on our committee that 
disagrees with that really. We have different views of how to 
accomplish it, but I have to tell you that I am perplexed and 
never thought I would say on this committee that I found the 
former administration of Democrats led by President Clinton, 
more moderate or more effective than this administration on 
opening up access to public lands.
    And I know that sounds--that is a strong statement to make, 
but based on the reversal of the 181 compromise that was 
reached and based on the lack of a commitment to alternative 
technologies in terms of research and investment, based on not 
the rhetoric but the actions don't support what I hear from 
this administration, and the actions of the former 
administration, despite that they were criticized sometimes 
even by myself and others on the Republican side, I find this 
quite perplexing, and particularly in dealing with lease sale 
181.
    You talked initially before I left about the great demand 
for natural gas, but yet the administration has taken not one 
but several positions to minimize the opportunity to increase 
natural gas production. You have talked about the need for 
alternative energy, but you have slashed the budgets for 
research into alternative energy. So I just ask you if you 
could maybe comment particularly because for Louisiana, this is 
a very important issue, but it is important to our whole 
nation, to focus maybe on lease sale 181, since that is up 
today.
    Is the administration taking a position that we are just 
not going to move forward with the compromise that was reached 
to drill hundreds of miles off of the shore, to tap into the 
huge reserves of natural gas that could supply the energy for 
the powerplants that we need in California, in Florida, in 
Louisiana? Is that the position of this administration? And if 
so, why, and could you try to explain it again.
    Secretary Norton. Well, essentially the situation we found 
is probably the disagreement that would exist between you and 
the gentleman sitting next to you. Florida and Louisiana have 
very different views, and the issue was one on which we tried 
to reach a reasonable compromise, and on that, I talked with 
officials in the various States and tried to balance the 
different views from the different States.
    The essential outcome is that we are looking to coordinate 
with the States in whose waters the proposals are located to 
talk about new drilling.
    Senator Landrieu. I'd like to just correct, if I could--and 
I don't mean to interrupt, but just for the record, in my last 
minute, I just want to refer to that chart there. And with all 
due respect to the Senators from Florida and California, 
outside of the States--we have 3-mile limits in Louisiana--they 
are 10-mile limits. First of all, these are not State waters. 
They are Federal waters. They don't belong to the State of 
Florida necessarily or necessarily the State of Louisiana. 
These are not waters within 3 miles or 6 miles or 10 miles. 
These are Federal waters.
    And as you can see, they are actually closer in some ways 
to Louisiana than they are to Florida, and the agreement of the 
original lease sale 181 would not have any drilling within 100 
miles of the Florida coast, which I think was a quite 
reasonable arrangement. As this Senator knows, I was talking 
with him about 25 or 50 miles; 100 miles, I thought we were 
giving a lot. But we have given more than that.
    We have now cut off a huge section of opportunities for 
drilling at the time when Florida needs as much as natural gas 
as they can, in addition to hopefully opening up some nuclear 
opportunities for Florida, which I hope these Senators will be 
supportive of if they are not supportive of the gas production.
    But I just want you to know I find it not very encouraging 
to be building a policy based on agreements that I don't think 
really make a lot of sense, not just for Louisiana but for the 
nation, and I will look forward to discussing this further with 
you. But, again, these are not Florida waters, and this is 
about an industry in Louisiana and the Gulf Coast that is 
important to our country for the economy and for our national 
security. Thank you.
    Secretary Norton. Thank you.
    The Chairman. Senator Feinstein.
    Senator Feinstein. Thank you very much, Mr. Chairman. Madam 
Secretary, welcome. It is good to see you again.
    I wanted to ask you on the Endangered Species Act subject. 
You mentioned the consultative process on page 7 of your 
written remarks. I know that relates to energy, but I have been 
giving a lot of thought to the need for improvement in our 
endangered species laws, particularly since the Klamath 
situation has arisen. I am very grateful to the administration 
for putting in $20 million for relief for those 1,500 families. 
I have found that once the bill--I did this once before for the 
Fallbrook [phonetic] community, for ag disaster relief. It is 
very hard to get the money to the families.
    I would like to ask you to take a good look at that and how 
the money can get there, because these people are losing their 
land and their homes now. There are 1,500 families on both 
sides of the California-Oregon border, so my first request is: 
Would you take a look at getting that money to those who need 
it as fast as possible? It is in the emergency supplemental, 
and I would appreciate that.
    Secretary Norton. Thank you. That was truly an awful 
situation for the farm families in the Klamath Valley. We have 
been working with the Department of Agriculture from the time 
this first came to our attention, and we will certainly 
continue to work with them to do everything we can to try to 
help those families.
    Senator Feinstein. See, I think the rules don't enable it 
to get to where it is needed, and these are not agri-
businesses. These are small farm families. That is the first 
thing.
    The second thing is as part of your consultative process, 
the endangered species, in a sense, has become an unfunded 
mandate. These people couldn't plant. They got no water. The 
tribes got no water, because of biological opinion in 1993 that 
said, in this circumstance, the sucker fish and the salmon need 
X amount of water, and everybody else, forget it; go away; 
you're not going to get it. That is unacceptable to me. I am 
deeply concerned, because I think as we go through these 
weather fluctuations, we are going to have increasing number of 
these situations, and I think we have to deal with it.
    The second part of my question is: The Farmers Guild 
informs us that there is more water in Klamath Lake and that 
that water can be released, so my second issue: Would you take 
a look at that; see if it is true. Now, it is too late for 
these families, but there is no reason to hold the water if it 
might enable some of them to be able to plant.
    Secretary Norton. I agree with you that the situation is 
one that we likewise find unacceptable, and for the future, we 
are trying to see what can be done to better manage the water 
in that area, to better understand the needs of the endangered 
species. That is the goal to which we would like to move 
towards.
    I have heard something about the water that you are talking 
about. We looked into that and found that it was not as 
available as we had hoped. I will be happy to follow up on that 
further.
    Senator Feinstein. If you would, I would like to know why.
    Secretary Norton. But that was my understanding.
    Senator Feinstein. I would like to know why. And the third 
thing is in these situations where there is access to 
groundwater but families obviously don't have the money to be 
able to do the drilling, if the stopping of water is the 
product of a Federal law, it seems to me built into that, there 
ought to be some incentives, such as drilling for groundwater, 
to be able to support the farms in that area. And I would like 
to just throw that out to you for your consideration.
    Secretary Norton. We do want to look at long-term sorts of 
solutions and even solutions to try to get into place before 
next year. And so we have been trying to work with people in 
the area. We have worked very hard with people from all the 
different disciplines within my Department, trying to see what 
we can do to resolve the issue as much as possible for next 
year and for future years. I look forward to working with you 
on that.
    Senator Feinstein. Thank you. Now, Senator Dorgan talked 
about the automobile, and a lot has changed. One of the things 
we do know that if we achieve mileage standards, CAFE standards 
of 80 miles to the gallon, which many think is possible, we 
become energy self-sufficient. We don't need to import oil. 
That is a big deal in my book.
    The House subcommittee today, I understand, is marking up a 
change in the CAFE standards. I have a bill to take the SUV and 
light truck standards of 20 miles and over the next 6 years, 
increase them every 2 years by a third, to meet sedans, 27\1/2\ 
miles. That saves 10 percent of oil imports. It saves a million 
barrels of oil a day, and it prevents 240 million tons of 
carbon dioxide from entering the atmosphere a year.
    My question to you is: What is your position on increasing 
CAFE standards?
    Secretary Norton. The plan includes a tax credit for 
consumers who purchase high efficiency vehicles, and I will 
defer to Energy to fill in the details. But we are looking 
forward to scientific information from a National Academy of 
Science's study that addresses CAFE standards.
    Senator Feinstein. Are you supportive of increasing fuel-
efficiency standards?
    Secretary Blake. I think the issue is that there are trade-
offs, and that is why the decision was to wait, see what the 
report from the NAS says, because with changes in the standard, 
there is some risk of loss of life as you change the 
composition of the vehicles. And I think that is exactly why 
the administration is saying, let's see what the NAS study 
tells us and then go from there.
    Senator Feinstein. So are you saying there is no position 
at the present time?
    Secretary Blake. I think the position is--let's wait and 
see what the study says and then move from there.
    Senator Feinstein. Because this is the same thing that took 
place in 1970; this is the same answer, the safety, and yet we 
went ahead with sedan standards, and there were not the safety 
repercussions. But I thank you for that.
    Thanks, Mr. Chairman.
    The Chairman. Thank you.
    We have two additional panels with a total of eight 
additional witnesses, and so I would urge--I think I will defer 
any additional questions to these two witnesses and urge other 
Senators to do so as well, to the extent they can. But if they 
need to ask something, they can certainly do that.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. I will be very 
brief, and I know what your objective is, obviously to 
accommodate everybody here.
    You know, I think it is fair to try and set targets and 
goals, and I would remind my friend from Florida that in our 
legislation, we have some objectives and goals. One is to 
reduce the rate of our dependence on foreign imports to 50 
percent or less by the year 2010 as a specific objective, which 
we think is appropriate for national security.
    We also have reductions in emissions from coal-fired plants 
specifically. We have higher efficiency mandates for nuclear 
plants in this country which still produce about 22 percent of 
the power. On the other hand, there are so many intangibles 
like, you know, are we going to allow more exploration from 
public lands for oil and gas?
    As you and I both know--and I respect your opinion relative 
to what is good for your State, as well as the Senator from 
California. People who are opposed and States who are opposed 
to offshore drilling, that is their own business, but by the 
same token, when we lay a target before the Department of the 
Interior or the Secretary of Energy, they don't know, you know, 
necessarily are we going to have to build in this country LNG 
facilities and import LNG from overseas. You can set all the 
targets you want, but if you don't have a clear, definitive 
position from Congress as to what is going to be available, it 
is pretty hard to be realistic.
    A couple of questions relative to my last conversation, and 
Senator Dorgan isn't here and I wish he were, because he made a 
statement that, in effect, from his point of view ANWR is dead. 
You know, ANWR is certainly one of the lightning rods that is 
in this bill, because ANWR potentially offers a solution to 
reducing our dependence on imported oil. The frustration, of 
course, relative to the issue--I am glad you are with us; we 
need one more on our side.
    You can stay here. We will sign you up. Give him a pen.
    [Laughter.]
    Senator Murkowski. But, you know, the farmers out in the 
Midwest are not going to run their tractors or plant their 
plants on hot air. They are going to have to have petroleum 
products, and as a consequence, the focus on ANWR is potential 
relief from a domestic supply. That is why it is targeted. But 
you indicated that the potential there was significant or words 
to that effect. Can it be opened safely?
    Secretary Norton. I believe that it can be. I have seen, 
for example, the Alpine facility that is using the very new 
technology, and I think there are dramatic steps that can be 
taken to try to protect the environment at the same time we try 
to meet our energy needs.
    Senator Murkowski. Now, the last thing I am going to leave 
you, this is, in my opinion, a tremendous injustice, and I 
would like you to hold it up, Joe, because it highlights a 
reality that here we have native private land, 95,000 acres 
that are owned by the residents of Kaktovik, and you and I have 
been to this village. There is a couple hundred people, and I 
would like the picture of Kaktovik to be brought up.
    But the reality is these people live in a conclave of 
Federal land associated with the 1002 area. They have no 
access. They cannot develop their own land. They are precluded. 
They can't develop within the 1002 area the oil and gas that is 
there. Bring it up here, please. They cannot even heat their 
own homes with the gas that is believed to be in this area of 
their own land, which is part of the 1002 area.
    Now, this is a terrible injustice on the American people. 
This is the village of Kaktovik. It has got a pristine airport, 
a pristine schoolhouse, you know, pristine radar station. The 
Secretary has been there. Real people live there with real 
hopes and aspirations for a future. They go to school every 
morning. There is a picture of the kids. Nobody shovels the 
sidewalks, but they are real.
    And here they are, and the Federal Government says, Okay--
we're not going to open this area, and furthermore, we are not 
even going to let you have access to your private lands nor 
develop your private lands. And that is the position these 
people are in, and I think that is wrong. And I think we need 
to have a little better understanding of the fact that while 
this may be a lightning rod for America's environmental 
community, there is also a couple hundred native people that 
live in this area that are precluded from developing their own 
land, and that is simply not right.
    So I would encourage those who still have an open mind on 
the issue to recognize the injustice that is being done to 
these people and the reality that this is private land, that 
obviously they should be treated like any other American 
citizen, allowed the ownership of private land, and be allowed 
access to their land for the development as they see fit, to 
whatever opportunity might exist.
    And they have oil and gas under that land. The 800-mile 
pipeline is over here. And this is a terrible injustice, and I 
intend to work very hard to try and right a wrong. Thank you, 
Mr. Chairman.
    The Chairman. Thank you.
    Senator Wyden, all of us have had a chance to ask the two 
witnesses questions. If you had questions, this would be the 
right time.
    Senator Wyden. Secretary Norton, you say in your testimony 
that the core of a long-term energy policy is increasing 
supply, and you stress the goal of energy independence, 
something we would all be in favor of. My question to you is: 
To further the goals of increasing domestic supply and energy 
independence, are you prepared now to support restrictions on 
the export of U.S. oil from Federal public lands to ensure that 
the oil actually gets to Americans who need that energy?
    Secretary Norton. I would like to study that issue a little 
further. My initial reaction is that trying to restrict markets 
for American producers of any commodity is not an approach that 
usually is economically justified. We will be happy to look 
into this, though.
    Senator Wyden. Well, I am glad you will take another look 
at it, because let me tell you what we heard just a couple of 
weeks ago. BP came to Senate Commerce Committee, and they said 
that whenever they felt it was in their economic interest, they 
were going to export Alaskan oil again, as they have in the 
past, to Asia and to the Americas. And I am of the view that 
that directly contributes to the problem that West Coast 
consumers are having, Oregon, Washington, and California.
    In fact, on the front page of our newspapers recently there 
was e-mail from BP saying, Hey, this is a no-brainer. You can 
export oil to Asia at a discount and make up for it by sticking 
it to folks in Oregon, Washington, and California. So let me 
tell you, I am very pleased at your response, that at least you 
will take another look at it.
    Suffice it to say our friends from Alaska have very 
different views on this than those of us on the west coast, but 
at least your willingness to say that you will take another 
look at it is absolutely key, because it seems to me if we are 
going to work together in a bipartisan fashion for energy 
independence in this country, we have got to have oil from our 
lands come to us rather than to go overseas.
    So, Mr. Chairman, I am going to quit while I am ahead. The 
Secretary has said she will take another look at it, and 
suffice it to say our friend from Alaska and I have had a 
number of spirited discussions on this issue in the past, and I 
am sure we will have more.
    Senator Murkowski. In response--and I will be very brief--I 
don't think we have a difference of opinion.
    Senator Wyden. She said she would take another look at a 
law that is on the books that is hurting consumers in Oregon 
and Washington and California.
    Senator Murkowski. I think the Senator from Oregon is well 
aware that there has not been any oil exported from Alaska 
since a year ago last April, and the only oil that is exported 
from Alaska was what was excess to the west coast, and with the 
restructuring of the industry, with the acquisition by BP of 
Arco, there is very little likelihood that the economics will 
favor the export of any oil.
    I do not favor the export of Alaska oil in the marketplace 
today, but if there is a surplus on the west coast, why, then 
obviously the economics of where that goes are going to dictate 
it. But the facts are there hasn't been any surplus of oil for 
a year, since last April. I don't see any assurance that there 
is likely to be.
    Senator Wyden. Reclaiming my time just briefly, Mr. 
Chairman, I want the record to be clear that BP told the U.S. 
Senate just several months ago that they were prepared to start 
exporting oil overseas whenever and at any point they felt it 
was in their economic interest, and that was the testimony of 
several months ago before the Senate Commerce Committee.
    Senator Murkowski. Well, the record will note that there 
isn't any going over now.
    The Chairman. Senator Graham, did you have any other 
question?
    Senator Graham. Yes. I have a question, and it probably has 
a similar conclusion, the one that Senator Wyden just asked. I 
hope that we will look into it.
    It seems to me and a principal provision in the legislation 
that I have introduced with several others is to reexamine our 
Outer Continental Shelf law, that we have seen from recent 
experience a couple of fundamental problems. One is it does not 
have an adequate balance of considerations that go into the 
decision as to whether and what Federal Continental Shelf areas 
to make available for leasing.
    One of the reasons that we had this big controversy on 181 
was whether we should have the single issue of maximizing 
energy production or whether there were multiple interests 
involved, including other economic considerations, and 
protection of environmental resources. I think the current law 
does not provide for an adequate opportunity for those range of 
issues to be considered prior to the leasing decision. And one 
of the cardinal examples of that is the fact that there is no 
full environmental impact statement or consideration of the 
Coastal Zone Management Plan prior to leasing.
    The second problem is the issue of the very long and 
convoluted process after the lease is granted, of which the 
Destin Dome drilling permit is a good example. Most of the 
questions that are being debated in that case should have been 
resolved before the lease was granted, not after the lease was 
granted.
    So with that preface statement, I would like to ask if you 
would be willing, Secretary Norton, to look at our Outer 
Continental Shelf laws as they relate to what, when, and under 
what conditions properties will be made available for leasing, 
and see if the system would not be better served if more 
interests were included and included earlier in the process, as 
opposed to the system under which we are currently working.
    Secretary Norton. As a matter of fact, a reexamination of 
that process and of the CZMA regulations and perhaps statute is 
a part of the President's energy plan. That was one of the 
recommendations that is in there, so I would be very happy to 
talk with you further about some of the aspects of that.
    Senator Graham. And is the Department of the Interior the 
point agency for that reexamination?
    Secretary Norton. It is--the Department of Commerce is very 
centrally involved in that, and so it would be our two agencies 
that would be looking closely at that.
    Senator Graham. Good. Thank you.
    The Chairman. Thank you very much. Thank both of the 
witnesses again for your testimony. We appreciate it very much, 
and why don't we go ahead with panel two. If the people on 
panel two could come forward, please.
    [Pause.]
    The Chairman. Senator Durbin has prepared some written 
testimony with regard to his Consumer Energy Commission that he 
wanted to have included in the record, so we will include that 
in the record of the committee hearing.
    [The prepared statement of Senator Durbin follows:]
    Prepared Statement of Hon. Richard J. Durbin, U.S. Senator From 
                                Illinois
    Chairman Bingaman, members of the committee, I thank you for the 
opportunity to testify today in regard to my legislation to establish a 
Consumer Energy Commission.
    Energy issues have stolen center stage in the minds and pocketbooks 
of many Americans. In my home state of Illinois, my constituents 
struggled with record-breaking heating bills last winter because of the 
rise in natural gas prices. Then this summer, they had to struggle with 
soaring gasoline prices.
    Unfortunately, paying more for gasoline is not new to Illinoisans. 
The price spikes in the Chicago/Milwaukee area in the summer of 2000 
were so severe that the Federal Trade Commission (FTC) agreed to 
investigate the situation. Although the FTC found no evidence of 
illegal activity, they did find evidence that some companies were 
withholding gasoline supplies to maximize their profits.
    The FTC report also noted that various factors, including a 
pipeline breakdown, contributed to the rise in gasoline prices last 
summer. However, at the beginning of this summer's driving season, 
gasoline prices in the Chicagoland area were already 32 cents higher 
than at the same time last year--without the supply disruptions and 
despite predictions from the U.S. Department of Energy that the Midwest 
would have adequate supplies of gasoline this summer.
    I am all for profitable businesses but not for record profits made 
on the backs of consumers--many of who have written and called my 
office. This is why I have introduced S. 900, legislation to create a 
Consumer Energy Commission (CEC) that will analyze energy price spikes 
from the consumer's perspective and provide recommendations for how to 
protect consumers from future energy price spikes.
    The commission would focus on a variety of causes including 
insufficient inventories, supply disruptions, refinery capacity limits, 
insufficient infrastructure, possible over- and underregulation, flawed 
deregulation, excessive consumption, over-reliance on foreign supplies, 
insufficient R&D into alternative sources, opportunistic behavior by 
energy companies, and abuse of market power.
    One of the keys to the Consumer Energy Commission is its balanced 
membership. Bipartisan consensus is critical to moving this issue 
forward. There would be 11 Commission members on this commission of 
which the Republican Congressional leadership would nominate four, 
Democratic Congressional leadership would likewise nominate four, and 
the Administration will appoint one member from each of the Department 
of Energy, the Federal Energy Regulatory Commission, and the Federal 
Trade Commission.
    There are many policies being considered to improve our nation's 
energy system from streamlining fuels to building more refineries or 
pipelines. In fact, this committee has offered many good options. 
However, whether you want to call them short-term or long-term 
solutions, we must look at the factors that are causing energy roller 
coasters from the perspective of the consumers who are sick of the 
ride.
    Let us be honest, it is hard to find anybody selling at a low price 
in order to entice consumers. Sadly, despite these high energy prices 
and the fact that some say it is just a market situation, these energy 
companies are having the highest profitability that they have had in 
many years. It is one of the few industries where they can guess wrong 
about consumer demand and still make higher profits.
    Although various reasons have been offered for the sharp increases 
in gasoline, homeheating oil, propane, natural gas and electricity 
costs, a comprehensive analysis and response to our energy problems is 
needed to promote stable energy markets that would also benefit the 
health of our economy.
    For too long, the only voices we have heard in the energy debate 
have been the federal government and energy giants. Consumers, whether 
they are small business owners with a fleet of delivery trucks, 
farmers, or parents shuttling kids to soccer practice, are left out. It 
is time to include in this debate the families and businesses that pay 
the heating, electric, and gasoline bills but suffer when energy prices 
spike.
    The CEC is one step towards a balanced national energy policy. I 
understand that we must also find new sources of energy that are 
environmentally sound and make certain they are delivered to the people 
who need them. And we need to promote conservation, a responsibility 
that we have as individuals and that governments have as well. We must 
do our part as consumers to buy more fuel-efficient vehicles, and the 
government has to do its part to encourage U.S. auto manufacturers to 
produce those vehicles.
    I would also like to include for the record a statement of support 
for the CEC from Citizen Action of Illinois. I am also pleased that 
some Chicago officials also support this legislation.
    Mr. Chairman, there needs to be an honest look into our energy 
markets and why they are not functioning properly to benefit consumers. 
On behalf of Illinois' families, businesses and farmers, I again thank 
you for the opportunity to discuss the value of establishing a Consumer 
Energy Commission.

    The Chairman. Let me welcome all of the witnesses on our 
second panel. We have our former chairman, Senator Bennett 
Johnston. We are very glad to have him here. We have Mr. Bill 
Burton, who is a partner with Jones Day in Houston, Texas. We 
are glad to have him here. Chuck Clusen who is a senior policy 
analyst with the Natural Resources Defense Council; thank you 
for being here. Mr. Jerry Hood, who is a special assistant to 
the general president for energy, and the principal officer of 
Local 959 in Alaska of the Teamsters Association--the 
Teamsters--excuse me--in Anchorage; and Tom Young, who is the 
vice president of business development with Mariner Energy.
    Thank you all very much for being here, and your complete 
statements will be included in the record, and if you could 
summarize your comments, we would appreciate that. Why don't we 
start with Senator Johnston. Go right ahead.

  STATEMENT OF HON. J. BENNETT JOHNSTON, CHAIRMAN, JOHNSTON & 
               ASSOCIATES, LLC, WASHINGTON, D.C.

    Senator Johnston. Thank you, Mr. Chairman. I am delighted 
to be back.
    Mr. Chairman, in my written statement, I talk about ANWR, 
and you have heard me before on that subject. I know it is an 
uphill fight, because I remember one group of Senators that I 
took there. I think we took four trips to ANWR, and one Senator 
looked around and said, in effect, is this all there is? If I 
told the people in my barrooms back in my State that they were 
going to have to wait in gas lines because we couldn't drill 
here, they would throw me out of the Senate. Well, guess what. 
That Senator voted some weeks later against ANWR, so I know 
what the politics of it is, and there is probably nothing new I 
can say about----
    Senator Murkowski. Is that person still in the Senate?
    Senator Johnston. Yes. And I could talk about caribou and 
all that, but I think the committee knows about that.
    I also mention, Mr. Chairman, one of the most successful 
programs we passed out of here is royalty relief, and I submit 
that it has been proven to be very successful, that it has 
brought forth more drilling in the Gulf than anybody projected, 
and they greatly criticized our figures as being too Pollyanna-
ish. So you want to know how you can get the companies to drill 
here in this country instead of West Africa and Kazakhstan and 
all that? As one who is involved in those decisions as a member 
of the board of Chevron, I can tell you, that has worked.
    Now, if I may, Mr. Chairman, I would like to mention four 
or five things very briefly that I think the committee ought to 
do on the short term, that really need doing and that are real 
problems. First is Price Anderson. Everybody is for it. The 
problem is it is going to expire in August 2002, and there is a 
real, real problem of not being able to get that passed, as I 
see it, by August 2002.
    Why is that? Because if you don't have it as a separate 
bill, it will get mixed up with all the other legislation which 
will take forever. I understand there is a commitment to go 
from here to Environment and Public Works. That is going to 
delay it. If you don't have that bill teed up, in my view, by 
early next year, I think it is--I mean, if you could pass it 
this year, great, but I don't think that is possible. If you 
don't have it teed up, ready to go by February or March, I 
think you get mixed up in election-year politics, and we know 
what happens when it expires.
    I mean, it is not your utilities. Your utilities are 
grandfathered. They keep operating. It is all these cleanup 
sites, all those vendors, all those suppliers, all the 
contractors at not only the cleanup sites, but the national 
labs. I mean, it will be chaos, and DOE will be in a very 
difficult position. So, Mr. Chairman, I would urge that it be 
set aside as a separate piece of legislation, passed out 
quickly, and I don't think it ought to go to EPW. We have got 
jurisdiction over that. I say, we. It is no longer ``we'' 
unfortunately.
    The Chairman. We are glad to still consider you part of 
this group.
    Senator Johnston. But I think really that ought to be done. 
Secondly, I would go with transmission eminent domain. I 
understand Senator Landrieu is going to put in a bill or 
others. I am very strong, as you know, for electricity 
restructuring, PUHCA repeal, PURPA repeal, access, all of those 
problems, jurisdiction, that need to be resolved, and I would 
certainly urge the committee to have those hearings this year 
if possible.
    But I would extract from that transmission eminent domain. 
Mr. Chairman, one of the companies I represent is Bechtel, and 
we sit around and look, for example, at California, at a table 
with 12 of their top people, very smart, experts in their 
field, and talk about, how would you deal with this problem of 
electricity in California. It is very simple. I mean, you can 
have coal by wire, but if you do that, you have got to have 
transmission. You have got to solve that problem of Path 15, 
and, it is access. And this is something that needs to be done.
    And the basic formula is pretty clear. You just--if the RTO 
has a plan which has been adopted with the due process, then 
let them have eminent domain, and as I see it, you got the 
votes that could do that.
    We have talked about sale 181, and I won't say anything 
more about that. I mean, that is so clear. That is so clear, 
Mr. Chairman. We have thousands and thousands of rigs out there 
off Louisiana, where we catch 2 billion pounds of commercial 
seafood. That is okay, but you can't get within 100 miles of 
Florida. That is so absurd, and everybody knows that is absurd.
    Mr. Chairman, in this committee, you just can't make policy 
with respect to friendship and personalities, because if you 
do, you can't have nuclear because of popular people. You can't 
drill off the coast; you can't do anything. So you have got to 
make policy--well, I won't preach on that any more.
    Third, something not to do, and that is not to deal--not to 
repeal or change the Alaskan natural gas transmission system, 
the transportation system. We passed legislation that called 
for a study, called for a presidential determination, called 
for then a congressional picking of the best environmental and 
economic route, which they did way back in the 1970's, and the 
route comes down through Alaska and along the Alaskan Highway.
    There is something like 35 trillion cubic feet of natural 
gas right now, discovered and ready to go in Alaska. If you 
want to get that down quickest, in my judgment, use the 
legislation now in place. If you go up to the northern--if they 
try to go the northern route, which by the way goes under the 
ice off ANWR, which is covered by ice like 10 or 11 months of 
the year, where it scours the bottom, you talk about 
environmental insult, that is it. So I don't know that there is 
anything that needs to be done positively, but certainly 
negatively, you don't need to deal with that.
    I think I would throw in as one of the things that needs to 
be done probably CAFE. I know all the politics of that very 
well, but I think it is probably time to deal with light trucks 
and SUVs. I call them urban assault vehicles, but--I mean, I 
think that is politically doable.
    Finally, let me just say, Mr. Chairman. I am strong for 
renewables and alternative energy up to a point, but the fact 
of the matter is I think there is a national delusion, national 
really, that that is some kind of solution, and as one who 
chaired and was ranking minority member for 20 years on Energy 
and Water where we funded every one of those--oh, gosh, we had 
photovoltaics, wind, ocean thermal, fusion; you name it, we 
funded it. I know all about them.
    And, Mr. Chairman, they--well, they work, sure. I mean, you 
can build a windmill; look, we have had windmills for 50 years 
in this country, 100 years, longer than that, I guess. But it 
is not going to work economically unless you just subsidize it 
massively. Then you can't store it. The same thing for 
photovoltaic, and, look, fuel cells have a real place, but they 
are not going to solve this problem. You have got to deal with 
what you have got and make it work.
    Mr. Chairman, I would urge you to do those things and keep 
up the good work.
    [The prepared statement of Senator Johnston follows:]
       Prepared Statement of Hon. J. Bennett Johnston, Chairman, 
                       Johnston & Associates, LLC
    Mr. Chairman and members of the committee, I appreciate the 
opportunity to offer my assessment on the domestic production component 
of a comprehensive national energy strategy, and to discuss the 
opportunities we might have to limit our dependence on foreign sources 
of energy.
    In 1995 we were working on a program to help solve the same problem 
we face today: the diminishing supply of domestic oil and gas. At that 
time, the Committee will recall, we were working on the Deepwater 
Royalty Relief Act which was, of course, successfully passed into law.
    At that time foreign imports stood at about 50%. Today foreign 
imports are 57% and the Energy Information Administration projects that 
by 2020 imports will reach 70%. We are presently witnessing some of the 
results of that dependency; OPEC can successfully manipulate the price 
of oil (and the gasoline at the pump) at will. The American public and 
members of Congress on both sides of the aisle have declared this to be 
``outrageous.'' Add to this OPEC threat even more sinister 
possibilities. When one considers the difficult neighborhoods in which 
so much of today's oil is produced: West Africa, the Caspian Sea, 
Kazakhstan area, Venezuela, the Middle East, Indonesia, etc., areas 
that have been and continue to be subject to revolution, civil war, 
religious strife, and other indications of instability, all of which 
threaten the security of these sources of supply. If gasoline prices 
are ``outrageous'' and if our National security is, in fact, threatened 
then the question before this Committee is, ``Can the Congress do 
anything about increasing domestic supply?''
    Mr. Chairman, I would suggest three immediate and practical actions 
which the Congress could take which would necessarily enhance our 
domestic petroleum supply. These are: 1) to allow drilling in ANWR, 2) 
to allow exploration and production from the Eastern Gulf of Mexico and 
3) to extend the Deepwater Royalty Relief Act.

                                  ANWR
    According to the USGS, the Alaskan Coastal Plain has great 
potential for helping this country become less reliant on imported oil. 
The entire area is estimated to contain oil in place of 11.6 to 31.5 
billion barrels. Of this, about 6 to 16 billion barrels, or about half, 
is estimated to be technically recoverable, which would be equivalent 
to more than 30 years of imports from Saudi Arabia today. This is based 
on today's technology, of course. With new technology, the share should 
be higher. And there should be significant amounts of natural gas as 
well. Simply stated, ANWR production alone would reverse the decline in 
U.S. production.
    Drilling pads, roads, airstrips and other facilities are 
constructed from ice that will melt when the warmer months arrive, 
leaving little evidence of man's presence. Special care is taken to 
prevent leaks in gathering and flow lines through the use of plastic 
pipe liners and even specially trained dogs to detect leaks early. To 
carry equipment across the tundra, operators use all-terrain vehicles 
with large, low-pressure tires that leave no tracks.
    New technology reduces the time needed to drill a well, the number 
of rigs needed to extract oil from a field and the surface area 
affected by each well, radically decreasing the chances of any harm to 
the environment. The equipment used is much smaller and lighter, 
allowing operators to accomplish as much while leaving a smaller 
footprint.
    New technology also allows companies to use fewer wells to achieve 
the same production capacity as 15 years ago, when the last 
environmental impact statement on drilling in ANWR was finalized. 
Companies can thus reduce the number of wells drilled per field and cut 
back on potential for environmental harm. In addition, new modular 
drilling technologies allow operators to use rigs that are a quarter of 
the size and weight of a standard rig and cut the time needed to drill 
a well, reducing the impact on surface environments.
    Directional drilling allows companies to extract oil and gas from 
environmentally fragile areas. Horizontal drilling also means fewer 
wells and lower waste volumes. Oil rigs are manufactured from lighter, 
stronger material. They require less fuel for transporting and 
operation and have less surface impacts than conventional rigs.
    Mr. Chairman, there are no commercial fisheries and virtually no 
sport fishing in the Alaskan Coastal Plain. For those who compare this 
area to Serengeti, I would only urge that they make a trip there to see 
for themselves. For those who are concerned about the Porcupine Caribou 
herd, I would urge that they look next door to Prudhoe Bay where the 
Caribou herd has increased many times over, since explorations 
production commenced.
    Over a billion pounds of commercial seafood is produced off 
Louisiana's Coast where over 50 years of drilling and hundreds of 
production platforms have produced no harm to the marine environment. I 
submit that Americans energy supply could be greatly enhanced by the 
recovery of ANWR oil and without any danger to the environment.

                     DESTIN DOME AND LEASE SALE 181
    According to the Department of Energy, the Destin Dome formation 
contains at least 2.6 trillion cubic feet of natural gas, one of the 
largest gas fields in the Gulf of Mexico. This gas is ``dry'' and is 
not produced in association with oil. In other words, the threat of an 
oil spill is virtually zero. In February of 1998, Florida rejected 
Chevron's drilling plan for this Federal area under the ``consistency 
provisions'' of the Coastal Zone Management Act (CZMA). Briefs were 
filed with the Department of Commerce that year, and in many subsequent 
rounds of briefing and scientific data. collection, yet that appeal 
languishes at the Department of Commerce with no end in sight, while 
well over a hundred million dollars of capital remains unproductive.
    The Destin Dome dispute also might preview additional drilling 
disputes. Lease Sale 181 was planned by Secretary Bruce Babbitt in 
direct consultation with the late Florida Governor Lawton Chiles, and 
was explicitly mandated in the last four Interior Appropriations bills 
signed into law by President Clinton. It was also excluded from the 
Clinton presidential OCS moratorium that extended other Eastern Gulf 
drilling bans to 2012. Now, the House has inserted an appropriations 
rider to delay Lease Sale 181.
    The Secretary of Commerce has the power to override Florida if he 
finds Chevron's development is consistent with the Federal Coastal Zone 
Management Act, or if he finds that Chevron's drilling plans 
necessarily lessen the Nation's reliance on foreign energy supplies.
    However, Secretaries Daley, Mineta, and now Evans have not ruled on 
the Destin Dome case, and a new round of information was just 
requested.
    The activities that would take place for Destin Dome, and in Lease 
Sale 181 are in federal waters. Production from these areas would yield 
significant oil and gas resources, and billions of dollars in royalty 
revenues for the benefit of all Americans. The natural gas would be 
piped to Mobile and the support activities would be based in Alabama.
    Natural gas is said to be one of the principal solutions to 
America's air pollution problem. Virtually all of the new electricity 
generation in this country comes from combined cycle natural gas 
turbine. The Department of Energy projects that consumption of natural 
gas in this country will increase from about 22 T.C.F. to 28 T.C.F. by 
2010 and 35 T.C.F. by 2020, even considering implementation of 
aggressive conservation and energy efficiency technologies.
    I submit that Florida's fear of this drilling is based upon 
imaginary dangers. But the need to have access to these supplies of 
natural gas in order to deal with America's air pollution problem and 
electric generation needs in the near and long term is not an imaginary 
challenge.

                        DEEPWATER ROYALTY RELIEF
    Mr. Chairman, the Deep Water Royalty Relief bill passed before this 
Committee and Congress in 1995, was one of the most successful bills 
ever passed for developing domestic energy resources. This bill's 
passage set off a sharp increase in oil and gas production. I well 
recall the debates before this Committee about whether the Minerals 
Management Service estimates of increased production attributable to 
passage of the Act would actually materialize. As the Committee knows, 
those estimates were far exceeded.
    The deepwater royalty relief program was passed in order to 
stimulate exploration and development of oil and gas in the deeper 
waters of the Gulf of Mexico. It affected all acreage offered between 
November 1995 and November 2000 in water depths 200 meters or greater 
in the Western and Central Planning Areas of the Gulf of Mexico, and a 
small section of the Eastern Gulf of Mexico.
    Deepwater leases were granted certain limited royalty suspensions. 
Royalties are not payable until a specified number of equivalent 
barrels of oil are produced. The royalty suspension increases with 
water depth.
    The deepwater royalty relief program has been an unequivocal 
success. After only two years, the MMS Director stated ''. [d]eepwater 
royalty relief for new leases has contributed to the record-breaking 
lease sales in the Central and Western Gulf of Mexico over the past two 
years, a clear signal that the Gulf of Mexico is now one of the world's 
leading oil and natural gas plays.''
    The deepwater relief program stimulated additional exploratory 
activity. It increased and accelerated oil and gas production and 
royalty payments--while substantially increasing bonus payments. The 
MMS has collected billions of dollars in deepwater lease bonuses for 
the U.S. Treasury.
    Some argued that Deep Water Royalty Relief Act would be a windfall 
to industry (by denying the Government of some future royalty 
payments). The program has, in fact, resulted in more, and relatively 
larger bonus payments. The substantial bonus payments made since the 
adoption of the Program generated an immediate financial benefit to the 
U.S. Treasury.
    The deepwater royalty relief program has also stimulated billions 
of investment dollars in the search for oil and gas in the U.S. 
offshore. $9.5 billion will be spent in drilling alone in the deepwater 
Gulf of Mexico between 1998 and 2005. With this activity has come the 
preservation and creation of employment in an industry that is rapidly 
consolidating, and is increasingly focused on projects outside the U.S.
    Moreover, maintaining and attracting the best and the brightest to 
the petroleum industry needs to become part of the energy policy 
debate. It is important to maintain oil and gas expertise in the U.S.
    The royalty relief program has also contributed to energy security 
of the U.S. in the face of rising dependence on imported oil. Imports 
now represent nearly 57% of U.S. oil consumption. The Energy 
Information Administration has predicted that by 2020 the United States 
will import 70% of its oil. This is not the time to remove the 
financial incentive that has contributed to the only significant recent 
regional increase in oil and gas production within the U.S. Without oil 
production from the deepwater Gulf of Mexico, the U.S. would be even 
more dependent on foreign oil. MMS predicts that by the end of 2004, 
production from the deepwaters may account for as much as 65% of the 
daily oil production and as much as 32% of the daily gas production 
offshore.
    While the price of oil increased in 1996 and 1997 and then fell in 
1998, there appears to be no direct correlation between oil prices and 
deepwater leasing activity. Activity increased even as the price of 
crude sagged in 1998. If the Congress fails to renew or replace the 
deepwater royalty relief program, it may bring a premature end to one 
of the great U.S. oil and gas plays.
    Participation in a play where exploration wells routinely cost $25 
million, and where production facilities can easily exceed $500 
million, requires deep pockets and sufficiently extensive exploration 
programs to offer companies the statistical chance of finding enough 
oil and gas to support program economics.
    Statistically, one out of every three or four deepwater Gulf of 
Mexico exploration wells will be a technical success. The oil and gas 
found must shoulder the costs of extensive seismic and lease bonuses--
and expensive wells and production facilities. The discoveries in the 
deepwater obviously must be quite large to cover such program 
economics.
    The oil and gas industry has historically seen clear benefits to 
having smaller companies follow the majors. The smaller companies focus 
on the smaller projects. This dynamic has allowed infrastructures to be 
built followed by the more complete exploitation of a basin or region. 
Policy interests associated with the elimination of the royalty relief 
incentive may well jeopardize this dynamic.
    With the exception of the deepwater Gulf of Mexico and areas that 
have been declared offlimits, the United States is an extremely mature 
oil and gas province. This situation is exacerbated when one considers 
the global movement away from exploration and into development of 
proven oil and gas reserves.

                       CONCLUSIONS FOR DEEP WATER
    The expiration of the deepwater royalty relief program has come at 
a time when the oil and gas industry is managing its affairs 
conservatively, and the Nation's need for increased reserves has never 
been greater.
    It appears that without the benefit of renewal of the deepwater 
royalty relief program, the economics of the deepwater Gulf of Mexico 
might not warrant substantial industry attention. Should the Congress 
fail to renew the deepwater royalty relief program, the U.S. risks 
compromising its most promising oil and gas province.

    The Chairman. Well, we appreciate your good counsel on all 
those items.
    Before we go to Mr. Burton, let me just acknowledge Senator 
Carper who is our new member and is welcome on this committee. 
We already assigned you subcommittees while you were absent, 
and we hope they are the ones you wanted.
    Senator Carper. I am sure they were. Thanks for the big 
name tag, too. I didn't know whether I should be a member or a 
witness out there. I feel right at home. Thank you.
    The Chairman. We are very glad you are here, and Senator 
Murkowski also indicated a statement that he welcomed you.
    Did you want to say anything, Senator Murkowski, before we 
move on to the next witness?
    Senator Carper. I would like to hear this.
    Senator Murkowski. No. I heard everything I wanted to hear.
    Senator Carper. All right. Thanks.
    The Chairman. All right. We are very pleased you are here.
    Mr. Burton, go ahead.

        STATEMENT OF BILL BURTON, PARTNER, JONES, DAY, 
                  REAVIS & POGUE, HOUSTON, TX

    Mr. Burton. Thank you, Mr. Chairman. And I want to thank 
the committee for the opportunity to testify today. It is the 
first time I have been before the committee since, I think, you 
confirmed me to a second term on the U.S. Enrichment 
Corporation board of directors. Fortunately, my first job in 
Washington, which was policy and staff director to then Chief 
of Staff Mac McLarty in the White House, where we got to focus 
on a lot of energy issues, didn't require Senate confirmation.
    I am here on my own behalf today, not on that of my law 
firm, Jones, Day, or their clients, but I did want to mention 
that I represent largely international oil and gas companies 
that are in a variety of administrative litigation and 
transactionals. Like myself, like everybody on this committee, 
they are very interested in national energy policy.
    And importantly--and I want to commend this committee for 
having this hearing. Importantly, they are not just interested 
in energy policy when it is on the front page of the newspapers 
and on the evening news. Like the chairman and the ranking 
member particularly, they are interested in energy policy all 
the time, and are aware that there is a great need in the 
country for a comprehensive energy bill like the chairman has 
introduced and, of course, like the ranking member has 
introduced. I think they are both really good bills. I 
particularly like the chairman's bill's expanded focus on 
conservation and renewables. We will talk about a couple of the 
specifics.
    From a general perspective on energy policy, I think you 
can look at it from both a substance and procedure perspective 
for people that focus on it. I think from a substance 
perspective, a good three basis points, if you will, would be, 
one: increased domestic natural gas production. I think that 
has been an important part of the energy policy in this country 
over the last few years.
    While I think diversity of supply is important and I know 
the President in his plan talked a lot about diversity of 
supply--and I agree, that is important--I will tell you, it 
should not be at a cost of less emphasis, less interest in 
clean-burning, domestically abundant natural gas. We are going 
to have a great natural gas demand increase in this country, as 
my service on the National Petroleum Council has shown me. We 
are looking at increase from 22 TCF market currently to perhaps 
30 TCF inside a decade. Gas is the environmental fossil fuel of 
choice. There is just not a close call on that.
    I think a second important substantive basis for a national 
energy policy is increased domestic oil production. One of the 
things I am particularly interested in the chairman's tax bill, 
which I realize isn't before us today, but also the ranking 
member's provision in his bill, is some counter-cyclical 
provisions that help when prices drop too low. You know, it is 
pretty easy to pack a hearing room when prices are really high, 
but let me tell you. From the domestic industry's perspective, 
there is a serious problem when prices drop too low.
    Perhaps most importantly, people leave the industry. You 
get stripper wells that are shut in prematurely. Companies go 
out of business. It creates a real problem, and then when 
supplies shorten, you don't have the domestic industry that can 
fill in, and I think that has been part of our problem right 
now, so I think those counter-cyclical provisions in the bills 
are really strong.
    And then a third, I think, substantive component that you 
cannot forget about is increased funding, increased promotion 
of renewables and energy efficiency, and I think the chairman's 
bill particularly has a lot of good provisions on that.
    My testimony, I think, looks at and has comment on each of 
the oil and gas provisions in the two comprehensive bills. I 
would like to point out just a couple. I think section 1001 of 
the chairman's bill, which deals with lease sale 181, is of 
critical importance. We have talked about it, but if you are 
going to have natural gas growth like we are going to have in 
this country, you cannot cut out this most promising area in a 
developed region.
    The Gulf of Mexico is where we currently drill for oil and 
gas, and 181 is in the Gulf of Mexico, and I just don't see how 
you can cut it out, particularly after 10 years of consultation 
by the Department of the Interior with all the affected coastal 
States, including the coastal State closest to the area, as 
proposed by the--in the chairman's bill which is kind of 
cutting off the panhandle of lease sale 181, that being 
Louisiana is the closest area to lease sale 181.
    The other provision I would like to point to probably won't 
get nearly as much attention, but it is section 1002 of the 
chairman's bill which would provide increased funding for 
positions in the land management agencies such as BLM and 
Department of Agriculture. We have a really serious problem 
there.
    Fortunately, Jones, Day just hired Kim Harb who worked on 
my testimony and is here today, and she came to us from the 
Department of the Interior. One of the most serious problems we 
have are these needed environmental studies on lands to be 
leased in the West, and until we can get the proper staffing in 
the land management agencies, those environmental studies don't 
get done, and the leases are delayed, and if they do go 
forward, they run the risk of being challenged successfully in 
court, because of the inadequate environmental studies.
    I will be happy to answer any questions regarding this or 
my written testimony.
    [The prepared statement of Mr. Burton follows:]
        Prepared Statement of Bill Burton, Partner, Jones, Day, 
                      Reavis & Pogue, Houston, TX
    Good morning, Mr. Chairman and Members of the Committee. Thank you 
for conducting this hearing and allowing me the opportunity to testify 
today on provisions of various bills you are considering to protect 
energy supply and security in the United States. My law firm, Jones, 
Day, Reavis & Pogue, and I represent many energy companies, and we all 
have a great deal of interest and concern in our national energy 
policy. I commend this Committee, particularly the Chairman and the 
Ranking Member, for your leadership in focusing on energy issues, and 
not just in these days when energy news is on the front page and on the 
evening news. My testimony, which is on behalf of myself and neither my 
law firm nor any of my clients, today will focus on select provisions 
of the two comprehensive energy bills, Senate Bills 597 and 388.
    A national energy policy must promote the concept of supply meeting 
demand, always mindful of environmental protection, and ideally with a 
diversity of energy sources in order to assure energy security at 
reasonable prices without environmental degradation. A cornerstone of 
any energy policy should be the promotion of domestic supply, for the 
obvious benefits of American jobs and increased national security. 
Critical to all government action regarding energy policy is (1) 
consistency in the application of core principles and (2) appropriate 
expedition in decision-making. We compete in a world economy; what 
makes the United States an attractive place to invest is the stability 
of our democracy now in its third century. Anything we can do to foster 
consistency and appropriate expedition in government action in the 
energy area, whether it is through tax policy, rule-making, or 
adjudication, will help attract investment dollars.
    Government involvement, which is essential in the energy business, 
should reflect that an efficient and competitive market is the best 
mechanism to generate supply and determine price. The governmental 
role, while necessary, should be limited; the government should help 
ensure a truly efficient market, regulating any natural monopoly 
elements in the system, correcting for market externalities, and 
generally helping to provide a level playing field. Energy policy must 
be aligned with general economic policy, environmental policy, tax 
policy and other policy spheres, so that conflict and contradiction 
among different branches of the government - or the same branch 
implementing various policies - is minimized. The regulatory 
environment must be efficient and predictable, and uncertainty 
introduced by the use of administrative decision-making minimized.
    In order to promote domestic production, energy companies must have 
reasonable access to energy reserves with consistent rules for 
exploration and development. Equally important is the need for energy 
companies to have access to rights of way and permits for pipelines, 
transmission facilities, and other necessary infrastructure. 
Exploration and production must be undertaken with a minimum of 
negative environmental impact.
    Increased domestic oil and gas production is essential to the 
country's economic well-being. As I have learned from serving on the 
National Petroleum Council over the past several years, the nation's 
natural gas demand, in particular, should grow substantially as a 
result of new gas-fired electric power generation. This forecast is 
good for the nation's economic and environmental health because natural 
gas, in addition to being primarily a domestically produced fuel, is 
efficient and clean-burning and will largely replace the burning of 
fuels that will do greater environmental damage. In order to meet the 
expected growth in natural gas demand, the country must have a more 
proactive strategy to enhance the efficiency and scale of the domestic 
supply chain.
    I support the government's continued assistance in the development 
of renewable energy sources, such as solar, geothermal, wind, and 
ethanol. While serving as an energy advisor to then presidential 
candidate Bill Clinton, and later as a White House aide focused on 
energy issues, I had the opportunity to work on ethanol issues with 
many members of Congress, including the new Majority Leader, whose 
passion for the issue was boundless. While renewables are a very small 
part of the U.S. energy supply, they are an important part of a diverse 
supply, and very likely the future of energy supply. Finally, as 
recognized so emphatically in the Chairman's bill, conservation is a 
critical part of any national energy policy, and I encourage expansion 
of the government's role in encouraging, researching, and practicing 
energy conservation.

                            SENATE BILL 597
    I strongly support Senate Bill 597, the Comprehensive and Balanced 
Energy Policy Act of 2001. The bill would increase supplies of energy 
in an environmentally sound manner and help check demand growth. It 
would also provide for a commitment and investment in the country's 
energy future by providing a diverse portfolio of fuel and technology 
options. The provisions I address today specifically provide for needed 
studies and reports so that the Congress and the Administration may 
base statutory, policy, and program changes on sound science and 
factual information, and also provide for increased oil and gas 
production both onshore and offshore in environmentally appropriate 
places and in an environmentally sound manner.
    Section 303 of the bill would require an interagency study 
evaluating U.S. and state tax and royalty policies and how those 
policies might be adjusted to promote more stable and efficient 
development of domestic natural gas and oil. The study would be 
conducted by the Department of Energy, in close coordination with the 
Departments of Interior, Commerce, and Treasury, and with the 
Interstate Oil and Gas Compact Commission. This report is an important 
first step if we are to revise our tax and royalty policies in this 
country in a manner that will appropriately encourage oil and gas 
development. The tax system should encourage efficient spending and 
cost-control, while providing stability in a fashion that gives 
confidence to investors. We live and work in a global economy; in order 
to attract investment to the United States energy sector, the 
government needs to help ensure the stability of reasonable premises 
underlying investments.
    Section 305 would require the Federal Energy Regulatory Commission 
to conduct an interagency review of policies, procedures and 
regulations to improve the process for approving new natural gas 
pipeline capacity. In addition, the President's Council on 
Environmental Quality would establish a memorandum of understanding 
among the various agencies with environmental review responsibilities 
for new natural gas pipelines. This review would be beneficial to 
industry, the agencies, and the American people. Currently, companies 
are required to conduct extensive work and prepare up to a dozen 
reports for the Commission before the Commission will begin the 
processing of an application. This can take a great deal of time, and 
be cost prohibitive. A review of the policies, procedures, and 
regulations may lead to a better process. The Task Force would include 
representative from other agencies, such as the Bureau of Land 
Management, Fish and Wildlife Service and Forest Service. This 
representation will help ensure that the other statutory mandates and 
issues that need to be considered, such as habitat and environmental 
concerns, will be included in the process. In order to assure that the 
technical and business knowledge of industry is included in the review 
as well, we recommend that the section be amended to include two 
industry representatives on the task force, which currently numbers at 
least nine members.
    Section 308 would require the Department of Energy to report on 
whether the Energy Policy and Conservation Act should be amended to 
give the Secretary of Energy greater flexibility to draw down and 
distribute the Strategic Petroleum Reserve to mitigate price volatility 
or regional supply shortages. In preparing the report, the Department 
of Energy would assess how extreme market conditions in the past may 
have been mitigated by more timely use of the reserve, and would make 
specific recommendations for any statutory changes. The use of the 
reserve has been the subject of much debate; a study and report on the 
issue will allow for informed decisions and actions in the future.
    Section 1001 would require the Department of the Interior to 
proceed with Lease Sale 181 in the Eastern Gulf of Mexico planning 
region no later than December 2001, adjusting the lease acreage by 
excluding 120 blocks of land, so that the lease acreage would include 
913 blocks, all of which would be greater than 100 miles from the coast 
of Florida. The Secretary of the Interior recently announced that the 
Department would only lease a small fraction--about a quarter--of the 
original tract. This action by the Secretary disregards nearly a decade 
of exhaustive consultation with all affected coastal states, including 
the then-Governor of Florida. Relying on this extensive work by the 
federal government in offering the original 5.9 million acres for 
lease, oil and gas companies have spent millions of dollars in 
preparation for bidding on the sale acreage.
    The National Petroleum Council study estimates that gas demand 
could increase by nearly a third, to 29 trillion cubic feet, by 2010 
and by 41 percent, to 31 trillion cubic feet, by 2015. Current annual 
demand is about 22 trillion cubic feet. The same study estimates that 
the original 5.9 million acres in the Lease Sale 181 area held 1.9 
billion barrels of oil and 7.8 trillion cubic feet of natural gas. 
These oil and gas reserves are a vital part of the country's energy 
supply. The National Ocean Industries Association, to which my law firm 
belongs, represents the offshore industry. The Association has stated 
that denying access to the sale region's valuable stores of natural 
gas--the cleanest viable source of energy available to the American 
people--will do damage to our environmental goals and fly in the face 
of a sound energy policy for the nation.
    Lease Sale 181, one of the most promising tracts offered by the 
government in recent years, should go forward, and not in the greatly 
reduced form suggested by the Administration. Section 1001, while not 
ensuring as much production as the original lease sale proposed by the 
Clinton Administration, is nonetheless a dramatic improvement over the 
draconian cuts in potential production proffered by the current 
Administration.
    Section 1002 authorizes additional funding to ensure adequate 
resources and personnel at the Departments of the Interior and 
Agriculture, so that required environmental reviews related to oil and 
gas production on public lands can be completed expeditiously. This is 
an extremely important authorization because it is clearly understood 
by industry and everyone else that if you do not do adequate National 
Environmental Policy Act review on the front end, it will ultimately 
delay the process. The federal land managing agencies are in the 
process of attempting to amend and replace numerous outdated land 
management plans. At the same time, the agencies need to process 
applications to explore for and develop energy resources and for other 
multiple use activities on the lands, while conducting processes under 
the National Environmental Policy Act and ensuring compliance with 
planning documents. These processes are also important in the 
development of stipulations. Stipulations should recognize advances in 
technology and not be unduly restrictive while protecting sensitive 
surrounding environments. Providing the agencies with the staffing and 
funding to carry out these statutory responsibilities is vital to the 
timely processing of applications.
    Section 1003 would require the Department of Energy, in conjunction 
with the Interstate Oil and Gas Compact Commission, to evaluate 
opportunities for increasing production of oil and gas on state and 
private lands. The study would take into account trends in land use and 
development that may affect oil and gas development, the various 
leasing practices and rules for development among the States, and 
differences in contract terms from State to State and among private 
landowners. Further, it would include an assessment of whether optimal 
recovery practices, including in-fill drilling, work-overs, and 
enhanced recovery operations, are being employed consistently to ensure 
the full development and conservation of the resources. Consistent 
policies are an important part of a national energy policy. Domestic 
exploration and production must not be depressed by the application of 
inconsistent and changeable restrictions, and the government should 
assist in preventing the premature step down in production in mature 
areas in order to prolong the life of existing reserves. The study 
required by section 1003 should provide the data and recommendations to 
address these issues.

                            SENATE BILL 388
    The National Energy Security Act of 2001 has several of the same 
provisions that I support in Senate Bill 597. Senate Bill 388 provides 
a portfolio of energy options for a sound national energy policy, 
focused on supply-side answers. It provides programs to help find, 
develop, deliver, and, to a lesser extent, conserve our domestic energy 
resources. The bill also provides an approach with a goal to reduce our 
reliance on foreign sources of oil to less than 50 percent by 2010. I 
support this committee's efforts to deal with these energy issues, and 
I support many of the provisions of this bill.
    Title I would provide provisions to protect energy supply and 
security. Section 101 would require that any agency proposing or 
participating in an action that could significantly adversely effect 
domestic energy resources, or the capability to distribute or transport 
such resources, consult and report to the Secretary of Energy in 
writing on the nature and scope of the action, the need for the action, 
the potential effect of the action on energy resource supplies, price, 
distribution, and transportation, and any alternatives to the action or 
options to mitigate the effects. The Secretary of Energy would then 
have time to review the proposed action and make recommendations, which 
would be considered by the agency.
    These are issues that must be considered before actions are taken 
by federal agencies. This energy analysis should be included in any 
analysis conducted under the National Environmental Policy Act. 
Application of the section, however, raises questions. How will 
agencies determine if an action could have significant adverse effects 
on the availability or supply of domestic energy resources or on the 
domestic capability to distribute or transport such resources? For 
instance, if an agency is planning to hold a lease sale on 10,000 acres 
of land, but some people feel that it should be 20,000 acres, this 
provision could be applied, and the process of writing a report and 
getting a response and considering the response could hold up the lease 
sale. Holding up a lease sale would, of course, be the opposite result 
from what is intended by this requirement. A review of the section to 
ensure that its implementation would not be adverse to the bill's 
intent is important.
    Section 102 would require an annual report on the nation's energy 
dependence. The report to be prepared by the Department of Energy would 
specify what specific legislative or administrative actions must be 
implemented to meet a goal of not more than 50 percent dependence on 
foreign oil sources by 2010, and set forth a range of options and 
alternatives with a cost/benefit analysis for each option. The report 
would be comprehensive, including options and alternatives to increase 
the use of renewable domestic energy sources, conserve energy 
resources, increase domestic production and use of oil, natural gas, 
nuclear, and coal, and access and transportation of those resources. It 
would also report on the condition of the nation's refinery industry. 
Such a report will allow Congress and the Administration to base 
statutory, policy, and program changes on sound science and factual 
information, and eliminate any issue about whether the government 
supports increased domestic oil production.
    Sections 105, 106, and 108 would require reports on the use of all 
dams, impoundments and other facilities, on the status of the domestic 
refining industry and product distribution system, and on the state of 
nuclear power generation and production in the United States. These 
reports will allow policymakers to make informed decisions.
    Sections 103 and 109 would authorize reports on the Strategic 
Petroleum Reserve and the Federal Energy Regulatory Commission natural 
gas certification procedures, respectively, and are very similar to the 
provisions in Senate Bill 597. Section 113 would require an agreement 
among agencies responsible for the environmental review of interstate 
natural gas pipeline projects. This is similar to the provisions in 
Senate Bill 597; I support the intent of both bills regarding these 
provisions.
    Subtitle A of Title III would amend the Outer Continental Shelf 
Deep Water and Frontier Royalty Relief Act. It would provide royalty 
incentives for operators in the Gulf of Mexico in order to promote 
development or increased production on producing or non-producing 
leases or to encourage production of marginal resources on producing or 
non-producing leases. It would provide for deep water royalty relief in 
cases where production would not be economic in the absence of the 
relief, would set cash bonus bids with royalty at no less than 12.5 
percent, and would suspend royalties for volumes of less than 17.5 
million barrels of oil equivalent (BOE) equivalent for leases in water 
depths of 200 to 400 meters, 52.5 million BOE for leases in 400 to 800 
meters of water, and 87.5 million BOE for leases in water depths 
greater than 800 meters. The title requires the Secretary of the 
Interior to promulgate regulations to implement the title within 180 
days after enactment. The title would not affect offshore moratoria. 
Because of limitations imposed on offshore drilling by moratoria and 
the just-announced scaled-back Lease Sale 181, and the incredible 
potential for increased production offshore, these sorts of relief for 
the Gulf of Mexico may be needed to encourage continued exploration and 
production, thus benefiting both the government and taxpayers.
    Subtitle B of Title III would establish a program for oil and gas 
royalties in kind, and Subtitle C would provide for the use of royalty-
in-kind oil to fill the Strategic Petroleum Reserve. The Department of 
the Interior has operated two different pilot projects using royalty-
in-kind oil, and they have both appear successful. Royalty-in-kind oil 
provides an innovative opportunity to enhance the revenue stream to the 
American people while reducing royalty conflicts. I support analyzing 
the two pilots and expanding their scope.
    Provisions to improve federal oil and gas lease management are 
contained in Subtitle D of Title III. The title would mandate the 
transfer of the regulation of oil and gas operations to states if the 
states chose. The policy goal underlying the provision is to ensure 
efficiencies in managing the regulation. For instance, the Bureau of 
Land Management needs to streamline the processing of applications to 
drill and update its planning base so that the planning documents will 
not inhibit development. The BLM has the ability to do this, and the 
new Administration should be given the opportunity to do so. Subtitle D 
would also set very tight time frames on the processing of planning 
documents and analyses. The time frames will not usually be possible 
unless the mandatory time frames and processes required by the National 
Environmental Policy Act were revoked or amended. The Title does not 
appear to intend to create NEPA sufficiency language, and therefore, 
the time frames are impractical. The new Administration should be given 
the opportunity to streamline and update their processes to respond to 
the energy needs of the country in an environmentally sound manner.
    Subtitle E of title III would require the Secretary of the Interior 
to allow a credit of 20 percent against the payment of royalties on 
federal oil and gas production whenever the cash price of crude oil is 
less than $18 per barrel for 90 consecutive days or when natural gas 
prices are less than $2.30 per million British thermal units for 90 
consecutive days. Such countercyclical provisions are a positive way to 
encourage exploration and development, while ensuring efficiency and a 
return to the taxpayer. If the nation is to truly focus on domestic 
energy production and work toward goals that promote more energy 
independence, the concern over energy prices needs to be no less at 
times of extremely low energy prices than it is at times of high energy 
prices. When energy prices are low, domestic production falls, drilling 
rigs go unused and are dismantled, stripper wells are shut in, 
companies go out of business, and sadly, people leave the industry. 
Countercyclical provisions, whether royalty based or tax based, can 
help check this trend.
    Title V of Senate Bill 388 is the Arctic Coastal Plain Domestic 
Energy Security Act of 2001. It would direct the Secretary of the 
Interior to establish and implement a competitive leasing program for 
oil and gas on the Coastal Plain of the Arctic National Wildlife Refuge 
(ANWR). Exploration and production can be undertaken sensitively and 
with very little lasting environmental consequence, including in the 
harsh Arctic climate of northern Alaska. Deciding whether an area 
previously off limits to drilling ought to be opened to drilling is 
generally controversial and always must be undertaken carefully. Among 
the factors which must be examined are:

   Exploration and production should cause no lasting damage to 
        the environment;
   In the event of a spill, clean up must be accomplished 
        without permanent adverse environmental impact;
   Consideration of appropriate wilderness issues or other 
        intangibles impacted by a specific project;
   The concerns of the people who will be directly impacted by 
        the development.

    Based on these factors and others, significant opposition to 
developing ANWR has developed, such that virtually all of the analysts 
and commentators believe there is little chance for passage of a 
provision to open ANWR for potential exploration in this Congress. It 
is important not to let an issue like ANWR derail passage of an 
otherwise critical comprehensive energy bill.
    Fortunately for those who advocate drilling in ANWR in order to 
increase energy production out of Alaska, there are other alternatives. 
Alaska contains an enormous untapped source of domestic oil and gas, 
found within existing production areas and without any material impact 
on the wildlife refuge. The known oil reserves at Prudhoe Bay and 
elsewhere in the area between ANWR and the 23-million-acre National 
Petroleum Reserve-Alaska (NPRA) are far greater than were ever imagined 
at the time oil first began flowing from Prudhoe nearly three decades 
ago. The Clinton Administration reopened the NPRA for exploration and 
production, and projected reserves there will be vital to fulfilling 
the nation's energy needs. The gas produced on the Alaska North Slope 
is effectively stranded, albeit extensive amounts are reinjected and 
used for enhanced oil recovery operations. Any U.S. energy policy 
should actively encourage the environmentally sound development of 
these resources and should support the massive undertaking that will be 
involved in bringing the gas on the North Slope to market by 
facilitating the construction of the infrastructure necessary to 
deliver gas into the Lower 48 states.
    This concludes my prepared statement. I again thank you for the 
opportunity to testify today, and will be happy to answer any 
questions.

    The Chairman. Thank you very much.
    Mr. Chuck Clusen, why don't you go right ahead.

         STATEMENT OF CHARLES M. CLUSEN, SENIOR POLICY 
           ANALYST, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Clusen. Mr. Chairman, my name is Charles Clusen. I am a 
senior policy analyst with the Natural Resources Defense 
Council. I am delighted to be here today and to participate in 
your dialogue about development of energy legislation. I also 
wanted to say, I am so delighted to be finally sitting in this 
room at the same table with Chairman Johnston after many years.
    I have a couple of remarks about energy in general, and 
then I will talk about the Arctic refuge, and then I would be 
happy to answer questions about any part of my statement which 
goes into many different things.
    NRDC's vision of a balanced energy plan calls for 
encouraging innovation and new technology to meet our energy 
needs in an environmentally responsible manner. This vision 
emphasizes efficient use of energy and places priority on using 
energy resources that are least damaging. It promotes economic 
growth and American industrial competitiveness. This energy 
path would not force consumers to make sacrifices. Instead, it 
relies on approved technologies that will eliminate waste while 
increasing productivity and comfort. This vision is laid out in 
NRDC's recently published report, ``A Responsible Energy Policy 
for the 21st Century.'' * I request that it be included in the 
record.
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    * The report has been retained in committee files.
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    Oil and gas development is simply incompatible with the 
purposes of the Arctic refuge. Development of the Coastal Plain 
of the Arctic refuge will destroy America's premier wilderness. 
NRDC consequently strongly opposes development of the Coastal 
Plain.
    The biological heart of the refuge is the 1.5 million acre 
Coastal Plain. It is home for nearly 200 species of wildlife. 
Each year the tundra wetlands of the plain provide the most 
important birthing and nursing ground for arctic wildlife. The 
area provides vital habitat for polar bears, grizzly bears, 
musk oxen, Dall sheep, wolverines, and millions of water fowl 
and other migratory birds. The Coastal Plain is best known for 
130,000-animal caribou herd that migrates there every spring to 
calve from the Porcupine River watershed 400 miles to the south 
where they spend the winter.
    The Coastal Plain has been called American Serengeti. The 
Coastal Plain is so important to the whole refuge that one can 
say that to develop the Coastal Plain is not only to degrade 
and disrupt ecological functions of the Coastal Plain but of 
the entire refuge.
    USGS recently determined that the refuge may contain 
roughly 3.2 billion barrels of oil that could be economically 
recovered and brought to market, assuming a price of $20 per 
barrel, but it would take 50 years to extract all of it, and 
the oil would satisfy only 1 percent of projected U.S. demand. 
The oil that could flow from the Coastal Plain over the next 50 
years will never meet more than 2 percent of the national 
demand and will not alleviate America's consumers facing high 
gasoline prices.
    Proponents of drilling have claimed that up to 16 billion 
barrels of oil could be recovered from the refuge's Coastal 
Plain, but the USGS says that first this is a calculation of a 
much larger area, including State lands and private lands and 
offshore areas, but also that it is only the 1 in 20 chance, 
and that furthermore, it is technically recoverable and not 
economically recoverable, which would be much less.
    3.2 billion barrels is less than a 6-month supply for the 
United States. What is more, oil from the refuge would take 
roughly 10 years to begin reaching the market. Since oil prices 
are set on the world market and other nations have vastly 
larger reserves and lower production costs, whatever oil is 
recovered from the refuge would not lower prices at the pump 
nor will it contribute to our energy security. Oil development, 
no matter how carefully it is done, with the best available 
technology will harm large portions of the refuge and destroy 
the wilderness character.
    And, Mr. Chairman, I would like to submit for the record 
three articles that have appeared in the Wall Street Journal 
over the last couple of months, the most recent this week, that 
address the whole questions of how maintenance has 
deteriorated, how manpower has deteriorated, and how the State 
of Alaska is doing an inadequate job of monitoring the oil 
development on the North Slope.*
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     * The article has been retained in committee files.
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    The Chairman. We will be glad to include those.
    Mr. Clusen. Exploration and production would not be 
confined to a limited area. It would range across as many as 35 
separate fields, affecting wildlife habitat on hundreds of 
thousands of acres, interspersed between sprawling oil 
facilities and pipelines. Habitat would be further disrupted by 
industrial activity associated with airports, production and 
support facilities, housing, and gravel roads would be needed 
to connect the drilling sites. All this industrial activity 
would fragment the Coastal Plain, harm dozens of rivers, and 
disrupt critical birthing, denning, and breeding habitats.
    And with that, Mr. Chairman, I would like to submit for the 
record a letter signed by over 130 scientists, outlining all of 
these problems that development would bring to the wildlife.**
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    ** The letter can be found in the appendix.
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    The Chairman. We will be glad to have that included.
    Mr. Clusen. Proponents of drilling of the Arctic refuge 
refuse to acknowledge the reality that the United States can 
drill its way out of the energy problem. America has 5 percent 
of the world's population, but consumes nearly 25 percent of 
the world's supply. It has already extracted most of its 
available oil. The conclusion is obvious. The United States can 
better meet its energy needs and do more to help American 
consumers by cutting its demand.
    For example, simply upgrading the quality of replacement 
tires to match that of tires that come as standard equipment in 
new cars would save 5.4 billion barrels of oil over the next 50 
years, 70 percent more than what is projected for the Arctic 
refuge. Updating fuel efficiency standards to reflect the 
capabilities of modern technology would produce even greater 
savings.
    Increasing fuel efficiency standards for new passenger 
vehicles to an average of 39 miles per gallon, easily done with 
the hybrid vehicles, over the next decade would save 51 billion 
barrels of oil over the next 50 years. This, Mr. Chairman, by 
the way, is 15 times what is projected to be the yield of the 
Arctic refuge.
    In summary, drilling in the Arctic National Wildlife Refuge 
is a distraction, not a solution to America's energy needs. 
Thank you.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Clusen follows:]
    Prepared Statement of Charles M. Clusen, Senior Policy Analyst, 
                   Natural Resources Defense Council
    My name is Charles M. Clusen, a Senior Policy Analyst and 
representative for the Natural Resources Defense Council. I appreciate 
the opportunity to appear before you today to discuss conventional 
fuels as part of the series of hearings that the Senate Energy and 
Natural Resources is holding in developing energy legislation.
    The Natural Resources Defense Council is a national, non-profit 
organization of scientists, lawyers, and environmental specialists, 
dedicated to protecting public health and the environment. Founded in 
1970, NRDC serves more than 500,000 members from offices in New York, 
Washington, Los Angeles, and San Francisco.
    First, I would like to explain briefly NRDC's vision of a balanced 
energy plan and next I will address several of the specific issues 
raised by the Committee.

                           NRDC'S ENERGY PLAN
    At the dawn of a new century, America finds itself once again 
wrestling with a problem that has, off and on, been at the forefront of 
U.S. politics for several decades: energy. The United States has 5 
percent of the world's population, but consumes nearly a quarter of the 
world's energy supply. We use energy to heat our homes and our 
businesses, power our computers and telephone systems, run our 
automobiles and aircraft, and drive our manufacturing plants and 
hospitals. In short, we have constructed an economy and a way of life 
that depends on the ready availability of energy.
    Two distinct visions of an energy policy for the United States have 
emerged to meet these demands. One vision focuses chiefly on extracting 
as much energy as possible, mostly in fossil fuel form (oil, coal and 
natural gas), in hopes that supply can catch up with demand. The 
alternative vision, however, calls for encouraging innovation and new 
technology to meet our energy needs in an environmentally responsible 
manner. This vision emphasizes efficient use of energy, and places 
priority on using energy resources that are least damaging to our 
environment. It promotes economic growth and American industrial 
competitiveness. This energy path would not force consumers to make 
sacrifices. Instead it relies on improved technologies that will 
eliminate waste while increasing productivity and comfort.
    Therefore, NRDC believes that U.S. energy policy must rely on the 
application of technological advances already in place and readily 
available as a way to reduce consumption. Such an approach will 
decrease America's reliance on foreign sources of energy in the near- 
and long-term, protect the environment, provide for America's energy 
needs, and buffer the economy against short-term swings in the market. 
NRDC's recently published report; A Responsible Energy Policy for the 
21st Century examines these issues in detail. I ask that the report be 
included in the record.

                           SPECIFIC CONCERNS:
I. Oil and Gas Development is Incompatible with the Purpose of the 
        Arctic National Wildlife Refuge
    Oil and gas development of the coastal plain of the Arctic refuge 
will destroy America's premiere wilderness. Occupying the northeastern 
corner of Alaska, bordered on the north by the Arctic Ocean and on the 
east by Canada's Yukon Territory, the Arctic National Wildlife Refuge 
was expanded by the Alaska National Interest Lands Conservation Act 
(ANILCA) to its present size of 19,351,300 acres making it the second 
largest wildlife refuge in the United States. It is home for nearly 200 
species of wildlife. The ``biological heart'' of the refuge is the 1.5 
million acre coastal plain, a roughly 25 mile-wide strip of land 
extending for over 125 miles, framed by the ocean and the spectacular 
Brooks Range. Each year, these tundra wetlands provide the most 
important birthing and nursing ground for Arctic wildlife. The area 
provides vital habitat for polar bears, grizzly bears, muskoxen, Dall 
sheep, wolverines, and millions of waterfowl and other migratory birds. 
The coastal plain is best known for the 130,000 animal caribou herd 
that migrates there every spring to calve from the Porcupine River 
watershed 400 miles to the south where they spend the winter. The 
coastal plain makes up of the most critical 8% of the refuge and has 
been called ``America's Serengeti'', a reference to Africa's wildlife 
rich plain.
    The coastal plain is also precisely where Big Oil has set its 
sights to drill. Oil and gas development in the refuge will permanently 
doom this unparalleled global treasure for the benefit of a select few 
oil and gas companies. The U.S. Geological Survey (USGS) recently 
determined that the refuge may contain roughly 3.2 billion barrels of 
oil that could be economically recovered and brought to market, 
assuming a price of $ 20 per barrel. But, it would take 50 years to 
extract it all and the oil would satisfy only 1 percent of projected 
U.S. demand. The oil that could flow from the coastal plain over the 
next fifty years will never meet more than 2% of the national demand 
and will not alleviate American consumers facing high gasoline prices. 
Proponents of drilling have claimed that 16 billion barrel of oil could 
be recovered from the refuge's coastal plain. But USGS says there is 
less than 1 chance in 20 that the coastal plain contains that much 
oil--and only a portion of it could be recovered economically.
    More than 3 billion barrels of oil--the amount that might be 
extracted from the refuge--sounds like a lot. But the United States 
uses 7.1 billion barrels of oil per year, so those 3.2 billion barrel 
are less than a six month's supply. What's more, oil from the refuge 
would take roughly 10 years to begin reaching the market. Since oil 
prices are set on the world market and other nations have vastly larger 
reserves and lower production costs, whatever oil is recovered from the 
refuge will not lower prices at the pump, nor will it contribute to our 
energy security.
    Oil development--no matter how carefully it is done even with the 
best available technology--would harm large portions of the refuge. 
Exploration and production would not be confined to a limited area; it 
would range across as many as 35 separate fields, affecting wildlife 
habitat on hundreds of thousands of acres interspersed between 
sprawling oil facilities and pipelines. Habitat would be further 
disrupted by industrial activity associated with airports, permanent 
production and support facilities, housing, and the gravel roads needed 
to connect the drilling sites. All this industrial activity would 
fragment the coastal plain, harm dozens of rivers, and disrupt critical 
birthing, denning and breeding habitats.
    Proponents of drilling often claim that new sources of oil will be 
needed for the Trans-Alaska Pipeline. Yet there are still significant 
oil reserves in existing developed areas. The state of Alaska projects 
that from 1999 to 2020, another 5.7 billion barrels of oil could be 
produced from the Prudhoe Bay production area, seven adjacent fields, 
and nearly 50 satellite fields near the existing oil fields. In 
addition, the West Sak oil field, which overlays the existing 
production area, contains 15 to 20 billion barrels of oil. While yields 
at the Prudhoe Bay production area are declining, even conservative 
projections predict another 40 years of production from the North 
Slope, without even considering the Arctic Refuge.
    The United States currently consumes approximately 19.6 million 
barrels of oil a day. Coastal-plain oil production from the Arctic 
Refuge would likely peak in 2027 at 150 million barrels per year--not 
even 2 percent of projected U.S. consumption for that year. Proponents 
of drilling in the Arctic Refuge refuse to acknowledge the reality that 
the United States cannot drill its way out of its energy problem. 
America has 5 percent of the world's population, but consumes nearly a 
quarter of the world's oil supply. It has already extracted most of its 
available oil. The conclusion is obvious: the United States can better 
meet its energy needs--and do more to help American consumers--by 
cutting its demand. For example, simply upgrading the quality of 
replacement tires to match that of tires that come as standard 
equipment on new cars would save 5.4 billion barrels of oil over the 
next 50 years--70 percent more than the total amount of oil likely to 
be recovered from the Arctic Refuge over the same period. Updating fuel 
efficiency standards to reflect the capabilities of modern technology 
would produce even greater savings. Increasing fuel efficiency 
standards for new passenger vehicles to a average of 39 miles per 
gallon over the next decade would save 51 billion barrels of oil over 
the next 50 years--more than 15 times the likely yield from the Arctic 
Refuge.
    In summary, Drilling in the Arctic National Wildlife Refuge is a 
distraction, not a solution to America's energy needs.
II. State Regulation of Oil and Gas Operations on Federal Lands Will 
        Undermine Environmental Protections
    State regulation of oil and gas will effectively hand over 
decisions about development on federal lands to the oil and gas 
industry. In most western states, ``regulation'' of oil and gas 
resources is the responsibility of an oil and gas commission, made up 
predominantly of industry representatives. In Colorado, for example, 
four of the six commissioners represent industry. Conflict of interest 
laws governing industry participation in these commissions are weak or 
non-existent.
    It is unlikely that states will guard our federal resources as 
vigilantly as the federal government. Handing management over to state 
oil and gas commissions would give them responsibility for deciding 
issues that are critical for wildlife and other federal land resources. 
For example, some current federal oil and gas leases limit production 
activities in certain seasons to accommodate specific wildlife needs, 
such as pronghorn antelope migration routes and antelope calving areas. 
In other cases, to protect fragile federal wildlands, leases require 
energy resources to be accessed via ``slant of directional drilling'' 
from already disturbed areas. Federal laws authorize protections such 
as these stipulations and restrictions. If states control permitting 
and enforcement on federal lands, they would be free to ignore these 
laws and the protections they afford to federal resources. Thus, for 
example, while BLM has standard stipulations to protect wildlife or 
other resources in a leased area, the Wyoming Oil and Gas Conservation 
Commission rarely, if ever, imposes stipulations at the lease stage, 
and does not have any standard ones developed for wildlife, historic or 
cultural resources.
    Allowing states to manage oil and gas development will effectively 
reduce regulatory controls and make existing environmental problems 
worse. Current federal law requires that public land resources be 
protected from unnecessary harm. Despite these protections, oil and gas 
development on federal public lands has resulted in significant damage 
to habitats of native wildlife and fish, air quality, water resources, 
vegetation, and visibility. The industrial activity destroys the area's 
value as wilderness as well. If the states get to manage the nation's 
public lands, more natural treasures will be at risk. Almost all of the 
lands administered by the Bureau of Land Management (BLM) are already 
open to oil and gas leasing, exploration, and development. The BLM is 
required to manage these public lands in the national interest and in a 
manner that will ``prevent unnecessary and undue degradation.''
    The federal government could lose millions of dollars in revenue 
under S. 388. Today oil and gas production on federal lands generates 
$835 million for the federal treasury, some of which is returned to the 
states. Under this bill, the federal government will have to reimburse 
the states for the cost of managing oil and gas development. As a 
result, taxpayers will receive less return from the exploitation of 
their resources.

             CONSEQUENCES OF DEVELOPMENT IN SPECIAL PLACES
    The states of the Rocky Mountain West--Colorado, Montana, New 
Mexico, Utah, and Wyoming--contain significant oil and gas resources. 
It is important to keep in mind that most public lands in the Rocky 
Mountain region are open for oil and gas drilling. According to a 1999 
report on natural gas published by National Petroleum Council, the 
industry admits that only about 9% of ``resource-bearing'' federal 
lands in the Rockies are closed to development. In the same states a 
BLM study found that 95% of their lands--some 112 million acres are 
open. The remaining 91% or 95% respectively are open subject to lease 
conditions imposed by federal managers. These include measures designed 
to protect other resources, including wildlife, the water supplies of 
western communities, and air quality.
    When widespread oil and gas leasing occurs in the region, however, 
the resulting industrialization is extremely pervasive. Well fields, 
which can cover extensive acreage, consist of a dense web of power 
lines, pipelines, waste pits, and new or upgraded roads, in addition to 
processing plants and other facilities. These roads, well sites, and 
related human activities have displaced deer, antelope, and other 
wildlife species from their native ranges and have eliminated the 
wilderness value of millions of acres of land. In addition, every year 
visibility is significantly impaired by emissions from these industrial 
operations; the same emissions also contribute to acidification of 
sensitive water bodes.
    Special Places at Risk: Only a fraction of the public lands in the 
Rockies have been put off limits to oil and gas leasing, exploration, 
and development. Some of the special lands most at risk from oil and 
gas development include:

   Wyoming's Red Desert: Hidden away in the southwestern part 
        of the state is one of the most unique and spectacular 
        landscapes in North America. The area has stunning rainbow-
        colored rock formations, towering buttes, and prehistoric rock 
        art as well as outstanding wild lands. It is home to the 
        largest pronghorn antelope herd in the lower 48 states as well 
        as a rare desert elk herd. For centuries the Red Desert has 
        been a sacred place of worship for the Shoshone and Ute tribes, 
        and it contains remnants of the Oregon and Mormon Pioneer 
        trails. Oil wells, pipelines, excessive roads, and other 
        industrial facilities already mar the landscapes on some of the 
        surrounding desert land. In response to industry applications 
        to lease, the Interior Department recently committed the Bureau 
        of Land Management to develop a proposal focusing on protection 
        of the area's outstanding natural, cultural, and aesthetic 
        wonders.
   Little Missouri National Grassland: Situated in the western 
        North Dakota badlands, this area contains some of the most 
        important wildlife habitat, wilderness, and recreational areas 
        in the state. It is home to bighorn sheep and serves as a 
        potential reintroduction site for the endangered black-footed 
        ferret, the rarest mammal in North America. The area's 
        topography ranges from deeply incised, dramatically hued 
        canyons to verdant ridges and two hundred year-old ponderosa 
        pines. An exceptional river, the Little Missouri, runs through 
        the badlands. Extensive oil development has already claimed 
        much of the badlands, and efforts to increase the level of 
        drilling continue.
   Utah's fabled redrock country: These lands make up some of 
        the last unspoiled wilderness outside of Alaska. Their red-hued 
        massive cliffs, arches, towers, and other rock formations 
        support bighorn sheep, mountain lion, pronghorn antelope, 
        peregrine falcons, golden eagles, and other wildlife species as 
        well as ancient Native American ruins. This past year the 
        Bureau of Land Management attempted to lease more than 30,000 
        acres of these irreplaceable wildlands, bringing them closer to 
        industrialization and the certain destruction of their value as 
        wilderness.
   Vermillion Basin in Northwest Colorado: This area is one of 
        the state's most stunningly beautiful and isolated regions. Its 
        wild landscape is dotted with banded cliffs, desert mountains, 
        and rugged badlands along with a host of significant historic 
        and scientific resources. Despite the passage of time, these 
        lands look much like they did when the Ute Indians'' ancestors 
        first came there. However, oil and gas development currently 
        surrounds the area and threatens to further encroach into the 
        basin. If these developments are permitted to intrude, this 
        amazing landscape could be lost forever.
III. Oil and Gas Development on the Outer Continental Shelf
    We do not need to drill in sensitive offshore areas to meet 
America's energy needs. For example, industry is pressing to drill in 
OCS moratoria areas, the Eastern Gulf of Mexico, and off the coast of 
Alaska. But such drilling is unnecessary, because seventy per cent of 
the nation's undiscovered, economically recoverable OCS oil and gas, 
and 80% of the nation's undiscovered, economically recoverable OCS gas, 
is located in the Central and Western Gulf of Mexico.\1\ There is 
simply no need or justification for removing the moratoria areas for 
offshore submerged federal public lands, off Alaska and the Eastern 
Gulf of Mexico. The vast majority of the nation's oil and natural gas 
deposits in offshore continental shelf remains available to industry.
---------------------------------------------------------------------------
    \1\ U.S. Department of the Interior, Minerals Management Service 
(MMS), 2000. Outer Continental Shelf Petroleum Assessment, 2000, page 5 
and Gulf of Mexico Assessment Update.
---------------------------------------------------------------------------
            Environmental Consequences of Oil and Gas Development
    While the oil industry has made significant progress in reducing 
the environmental impacts of its operations, oil production remains an 
inherently damaging and risky activity that is simply incompatible with 
protecting fragile natural resources, such as remaining coastal 
wetlands and wildlife refuges. For example, offshore oil and gas 
development continues to result in oil spills, the release of drilling 
waste, dumping of contaminated ``produced water'' and on shore impacts 
from terminals, pipelines and other facilities:
    Oil spills. This is the most obvious impact of offshore 
development. While platform blowouts resulting in large spills are 
rare, pipeline spills are not. According to DOI statistics, from 1986 
through 1997, some 2 million gallons of oil was spilled from OCS oil 
and gas operations. In January of this year, an oil pipeline in the 
Gulf of Mexico ruptured after becoming fouled with an anchor from a 
drilling rig and spilled some 94,000 gallons of crude oil into the Gulf 
about 120 miles south of New Orleans.
    Drilling waste. Drilling operations generate more than a thousand 
tons of drilling waste per well. Toxic pollutants in drilling waste 
include lead, naphthalene, arsenic, copper and selenium. Suspended 
solids in drilling waste can smother bottom dwelling organisms and 
alter critical benthic habitats. Disposal of OCS drilling wastes 
typically involves dumping it over the side untreated.
    Produced water. ``Produced water'' (brine in the formation that is 
brought up along with oil from a well), is generated in massive 
quantities by production operations. Produced water contains a variety 
of toxic pollutants, including benzene, toluene, and the radioactive 
pollutants Ra 226 and Ra 228 (produced water generated off Louisiana 
has been found to contain levels of radioactivity higher than that 
permitted to be discharged by nuclear power plants and higher than the 
level that distinguishes hazardous from non-hazardous waste under 
RCRA).
    Onshore impacts. Offshore oil and gas extraction typically requires 
extensive onshore industrial development to process and transship oil 
or gas. Pipelines, storage facilities, processing facilities and other 
industrial infrastructure built to support offshore oil and gas has 
resulted in substantial environmental damage to coastal resources. For 
example, a study done for NOAA in the 1980's conservatively estimated 
that offshore pipelines crossing coastal wetlands in the Gulf of Mexico 
had destroyed more coastal salt marsh than exists in New Jersey through 
Maine. Particularly in areas where little infrastructure presently 
exists, onshore impacts can be expected to be substantial.
    Renewed calls for opening the Arctic National Wildlife Refuge to 
oil exploration are generally accompanied by claims that the 
environmental impact would be minimal, yet a review of the impact of 
existing oil development in Alaska tells a different story. Once part 
of the largest intact wilderness area in the United States, Alaska's 
North Slope now hosts one of the world's largest industrial complexes. 
More than 1,500 miles of roads and pipelines and thousands of acres of 
industrial facilities sprawl over hundreds of square miles of once 
pristine arctic tundra. Impacts include air pollution, spills and 
waste:
    Air pollution. Oil operations on Alaska's North Slope emit tens of 
thousands of tons of oxides of nitrogen annually, which contribute to 
smog and acid rain. In addition, North Slope oil facilities release 
tens of thousands of tons of methane, a potent greenhouse gas that 
contributes to global warming.
    Spills. Each year, hundreds of spills involving tens of thousands 
of gallons of crude oil and other petroleum products and hazardous 
materials occur on the North Slope. In 1995, approximately 500 spills 
occurred involving more than 80,000 gallons of oil, diesel fuel, acid, 
biocide, ethylene glycol, drilling fluid, produced water, and other 
materials.
    Waste. Oilfield activities generate tens of thousands of cubic 
yards of sewage sludge, scrap metal, garbage, and waste every year.
            Protecting Sensitive Coastal Areas
    Beginning in 1981 and every year since then, Congress has imposed 
restrictions on OCS leasing in sensitive areas off the nation's coasts. 
These moratoria now protect the east and west coasts of the U.S., 
Bristol Bay, Alaska, and most of the Eastern Gulf of Mexico. The 
moratoria reflect a clearly established consensus on the 
appropriateness of OCS activities in most areas of the country, and 
have been endorsed by an array of elected officials from all levels of 
government and diverse political persuasions, from former President 
George H.W. Bush to Governor Jeb Bush of Florida, and from Governor 
Tony Knowles of Alaska to Governor Gray Davis of California.
    NRDC has long supported the OCS moratoria and therefore support the 
legislation introduced by Sen. Corzine (S. 1086); Sen. Graham (S. 771); 
and Sen. Boxer (S. 901) to permanently protect moratoria areas from oil 
and gas development. We strongly oppose any attempt to lift the 
moratorium, or to promote gas development in other sensitive OCS areas, 
including the Sale 181 area off the west coast of Florida and areas off 
Alaska. We have called on the Interior Department to remove these areas 
from the new Five Year OCS Program currently under development.

        Drilling in the moratoria areas, the Sale 181 area and the 
        Alaskan OCS is not necessary to meet our nation's energy needs.

    Despite assertions from industry and their supporters on Capitol 
Hill, we do not need to drill in sensitive areas to meet America's 
energy needs. For example, industry is pressing to drill in the 
moratorium areas, the Eastern Gulf of Mexico, and off Alaska. But such 
drilling is unnecessary because seventy per cent of the nation's 
undiscovered, economically recoverable OCS oil and gas, and 80% of the 
nation's undiscovered, economically recoverable OCS gas, is located in 
the Central and Western Gulf of Mexico.\2\ Thus, removing the 
moratorium areas, the OCS off Alaska, and the Eastern Gulf of Mexico 
from the 5 Year Program will leave the vast majority of the nation's 
OCS oil and gas available to the industry.
---------------------------------------------------------------------------
    \2\ U.S. Department of the Interior, Minerals Management Service 
(MMS), 2000. Outer Continental Shelf Petroleum Assessment, 2000, page 5 
and Gulf of Mexico Assessment Update.
---------------------------------------------------------------------------
    In addition, large untapped energy efficiency resources exist that 
can provide more gas and oil at far less cost. For example, providing 
tax incentives for the construction of energy efficient buildings, 
manufacturing energy-efficient heating and water heating equipment 
could save 300 Tcf of natural gas over 50 years.\3\ This is more than 
twelve times the Interior Department's mean estimates of economically 
recoverable gas located outside the Central and Western Gulf of 
Mexico.\4\ These strategies will do far more to increase our nation's 
energy security than a ``drain America first'' policy of exploiting 
sensitive offshore and onshore federal lands.
---------------------------------------------------------------------------
    \3\ NRDC, 2001. A Responsible Energy Policy for the 21st Century, 
p. 32.
    \4\ U.S. Department of the Interior, Minerals Management Service 
(MMS), 2000. OCS Petroleum Assessment, 2000, p. 5 and Gulf of Mexico 
Assessment Update.
---------------------------------------------------------------------------
IV. Deepwater Royalty Relief
        NRDC opposes any royalty relief for offshore oil and gas wells. 
        President Bush and Interior Secretary Norton have even rejected 
        this unnecessary subsidy for major oil and gas companies 
        seeking new leases on the Outer Continental Shelf in the Gulf 
        of Mexico.

    It makes no sense to provide multibillion-dollar subsidies to oil 
and gas companies when they are making record-breaking profits. This 
subsidy serves only to encourage drilling in areas that currently are 
not developed and which may not be economical to develop on their own. 
Moreover, 60% of the economically recoverable oil and 80% of the 
economically recoverable gas available in the Gulf of Mexico is in 
areas that are already leased for energy development; there is no need 
to open new areas up for more oil and gas production, much less provide 
additional financial incentives to drill in new areas.
            Improvements Needed in Environmental Reviews of Oil and Gas 
                    Activities
    If Congress is going to legislate reforms to the process by which 
oil and gas resources on our federal lands are leased and developed, 
the legislation must address problems with that process and NEPA--the 
National Environmental Policy Act. In brief, adequate environmental 
analyses are not being performed at key stages in the process--land use 
planning, leasing, approval of specific projects and approval of 
individual wells. As the result, many publicly owned resources are 
suffering otherwise avoidable harms. Of particular concern to 
environmentalists is the failure of federal agencies to comply with 
NEPA before issuing leases to extract oil and/or gas from the public's 
lands.
    An oil and gas lease gives the holder certain rights to develop the 
affected lands, rights that the agency cannot easily withdraw once the 
lease has been issued. Some leases provide for ``no surface occupancy'' 
(NSO), meaning that the holder cannot expect to occupy or disturb the 
surface of the affected lands. Others are non-NSO leases, meaning that 
the holder has some right to occupy the surface. Because non-NSO leases 
amount to an irreversible commitment of federal resources, it is 
essential that the environmental impacts of development be fully 
considered before such leases are issued--and courts have so held. See, 
e.g., Conner v. Burford, 848 F.2d 1441 (9th Cir. 1988)).
    Too often, however, the agencies do not consider these impacts 
before issuing non-NSO leases. More specifically, they do not prepare 
an environmental impact statement (EIS) before issuing leases--or the 
analyses they do prepare do not fully disclose and/or analyze the 
potential impacts of development. Failure to prepare adequate NEPA 
documents at the pre-leasing stage shortchanges the resources of the 
public lands and the public--the owners of these lands.
    Thus, for example, in Wyoming, the Bureau of Land Management 
offered and issued numerous leases for coalbed methane development 
without ever performing any NEPA analysis. See, e.g., Wyoming Outdoor 
Council, 153 IBLA 379 (2000); Darin, Thomas F. and Amy W. Beatie, 
``Debunking the Natural Gas `Clean Energy' Myth: Coalbed Methane in 
Wyoming's Powder River Basin,'' 31 ELR 10566, 10586-87.\5\ In other 
areas, the Bureau has prepared generic reviews of the impacts of 
hypothetical development scenarios. In neither case has it taken the 
required `hard look' at pre-leasing issues such as which areas should 
be closed to development, which areas should be leased with 
stipulations and what stipulations, including NSO stipulations, should 
be imposed. See, e.g., Wyoming Outdoor Council, 153 IBLA at 389. And, 
equally importantly, in neither case has it afforded the public the 
opportunity to participate effectively in pre-leasing decisions as 
required by both NEPA and the Federal Onshore Oil and Gas Leasing 
Reform Act, 30 U.S.C. Sec. Sec. 187, 226(f).
---------------------------------------------------------------------------
    \5\ This article also details problems with NEPA at other stages of 
the development process.
---------------------------------------------------------------------------
    Rather than avoiding compliance with federal environmental laws 
such as NEPA, Congress should insist that the agencies comply fully 
with NEPA before leasing as well as at other stages in the development 
process. In particular, it should insist that pre-leasing NEPA 
documents analyze the impacts of oil and gas development on the 
resources of real places--unless only NSO leases are issued. Complying 
fully with NEPA would not mean an end to oil and gas development on 
public lands. It would, however, help ensure that the environmental 
price paid for development is not too high.
            Reducing Dependence on Petroleum, Using Resources More 
                    Efficiently
    Almost thirty years after the first OPEC oil embargo the United 
States is still dependent on petroleum for 97% of its transportation 
energy needs. As a result, two-thirds of our petroleum consumption goes 
to fuel transportation. With average efficiencies declining for new 
vehicles, and a 21 percent increase in miles driven between 1990 and 
1998; the petroleum dependence of transportation is continuing to rise.
    Recent analysis shows that CAFE standards could be raised to over 
40 miles per gallon for new cars and light trucks by 2010. This would 
result in oil savings of about 3 million barrels per day below 
business-as-usual projections, with a net economic gain for consumers 
of $69 billion over the life of the vehicles. It would give Americans 
fifteen times more oil than drilling the Arctic Refuge.
    In addition, large untapped energy efficiency resources exist that 
can provide more gas and oil at far less cost. For example, providing 
tax incentives for the construction of energy efficient buildings, 
manufacturing energy-efficient heating and water heating equipment 
could save 300 Tcf of natural gas over 50 years.\6\ This is more than 
twelve times the Interior Department's mean estimates of economically 
recoverable gas located outside the Central and Western Gulf of 
Mexico.\7\ These strategies will do far more to increase our nation's 
energy security than a ``drain America first'' policy of exploiting 
sensitive offshore and onshore federal lands.
---------------------------------------------------------------------------
    \6\ NRDC, 2001. A Responsible Energy Policy for the 21st Century, 
p. 32.
    \7\ U.S. Department of the Interior, Minerals Management Service 
(MMS), 2000. OCS Petroleum Assessment, 2000, p. 5 and Gulf of Mexico 
Assessment Update.
---------------------------------------------------------------------------
    Thank you for your attention. I look forward to answering any 
questions you may have.

    The Chairman. The next witness is Mr. Jerry Hood. We are 
pleased to have you here.

   STATEMENT OF JERRY HOOD, SPECIAL ASSISTANT TO THE GENERAL 
PRESIDENT FOR ENERGY; PRINCIPAL OFFICER OF LOCAL 959 IN ALASKA, 
     INTERNATIONAL BROTHERHOOD OF TEAMSTERS, ANCHORAGE, AK

    Mr. Hood. Thank you, Mr. Chairman. It is a pleasure to be 
here this morning to talk about the Nation's energy problems 
and potential solutions to those problems.
    I am really tempted to scrap my oral comments and written 
testimony and respond to the previous witness, but I will not 
do that, because I think there are some facts that need to be 
clarified with regard to Alaska's Arctic National Wildlife 
Refuge, but there are other important points with regard to the 
nation's energy problem that I think need to be addressed, and 
I think it is important for this committee to hear what the 
feeling is of the Teamsters' Union and our 1.4 million members 
and also our general president, as I am here representing him 
today as well.
    The past Sunday's Baltimore Sun reported that 12,000 low 
income Maryland families are still struggling to pay their 
winter heating bills and face this summer the real chance of 
having their utilities cut off. In addition to that, there are 
4.3 million American homes facing the same problem. So this 
Nation really is in a crisis, and we think that Congress should 
act and act now to enact a comprehensive energy problem that 
can solve the problems that face our citizens.
    Any component of an energy policy has to include in an 
expanded infrastructure. We do need more powerplants, 
pipelines, transmission lines, and refineries. You know, 
California is experiencing blackouts, and President Bush is 
presently responding to Governor Davis's request for building 
these new powerplants on an expedited basis.
    We also realize in the Teamsters--and I think the 
administration does, and I think the Senate does--that 
conservation has got to be a part of the solution to these 
problems; also the development of alternate sources of fuel. We 
do need to lower our dependence on foreign sources of energy, 
primarily oil. We concur with the goal that was set here 
earlier this morning, and I testified at the House yesterday 
before, and that we should have no more than a 50 percent 
dependency on foreign oil, and it should be less than that if 
we can possibly achieve it.
    Well, our best opportunity to achieve a 50 percent 
dependency on foreign oil and increase our domestic supply is, 
in fact, the Arctic National Wildlife Refuge. We think--and we 
think technology is there--that that will be the largest find 
of domestic oil in the world in the last 30 years. Contrary to 
the previous witness, the USGS said that there was a 95 percent 
chance that we would find 5.7 billion barrels of oil. There is 
a 5 percent chance that we would find 16 billion barrels of 
oil, and I believe the Secretary of the Interior testified 
earlier that their mean average on that would be about 7 
billion barrels of oil. That is from a USGS study. In that 
study nowhere does it say anything about 3.2 billion barrels.
    In fact, the technology used when that study was conducted, 
when we found a field of oil, we were able to extract about 34 
percent. With today's technology that we are using in the 
Alpine field, we can extract 65 percent, so the numbers that I 
have just quoted you actually legitimately could be increased 
by a huge amount. So we do think that the Arctic National 
Wildlife Refuge is an answer to reduce our foreign dependence 
on oil. We think that we can do it safely, and we think we can 
do it in an environmentally sound manner.
    Regardless of the machinations in the Wall Street Journal 
on Monday, we have a 30-year history of producing oil in the 
State of Alaska in an environmentally responsible manner. It 
has not impacted the wildlife. It has not impacted the caribou 
in the Central Arctic Herd, and in fact, the previous witness 
talked about Dall sheep on the Coastal Plain. I am an Alaskan. 
A Dall sheep, for those who don't know, is a mountain goat. 
There are no mountains on the Coastal Plain of ANWR. It is 
those kinds of distortions that Alaskans are having to overcome 
to educate the American public and the members of Congress with 
regard to the reality of oil production in our State of Alaska.
    In conclusion, I just want to talk about one of the reasons 
that organized labor and the Teamsters in particular are 
supporting the comprehensive energy policy, primarily as 
outlined in Senator Murkowski's bill. Since the first of the 
year, this country has lot about 400,000 jobs, and those are 
good-paying jobs. Those are not the minimum wage service sector 
jobs that were created over the last eight years. We are 
talking about 400,000 high-paying, high-tech, high-skilled 
jobs.
    In the petroleum industry over the last decade, we have 
lost 500,000 jobs. A lot of those are our members. We represent 
200,000 people in the petroleum industry. We represent 600,000 
truckers who depend on a reliable and affordable source of 
fuel, many of whom have had to leave that industry because they 
are unable to compete due to the high price of fuel, so it is a 
jobs issue with regard to organized labor, and it is important, 
I think, when we can create 735,000 jobs in this country to 
help replace some of those that were lost, that we look at our 
options with regard to our energy policy in trying to create 
more jobs for the American economy. Thank you.
    [The prepared statement of Mr. Hood follows:]
  Prepared Statement of Jerry Hood, Special Assistant to the General 
    President for Energy; Principle Officer of Local 959 in Alaska, 
         International Brotherhood of Teamsters, Anchorage, AK
    Mr. Chairman and Members of the Committee, my name is Jerry Hood, 
and I am Special Assistant to the General President for Energy at the 
International Brotherhood of Teamsters and Principal Officer of Local 
959 in Alaska. I am here on behalf the 1.4 million members of the 
Teamsters Union, as well as our General President, James P. Hoffa.
    We no longer have the luxury of putting off the hard choices 
regarding energy supply and security. This summer the rolling blackouts 
are rolling eastward, most recently hitting Utah and Nevada. In the 
Midwest, roller-coaster gas prices are putting the pinch on Teamsters 
and other working Americans, who can only brace themselves for things 
to get worse.
    And just this past Sunday, the Baltimore Sun ran an article 
reporting that 12,000 low-income Maryland families who are still 
struggling to pay their winter heating bills now face the very real 
possibility of having their utilities cut off. According to the 
article, 4.3 million low-income households face the same fate across 
the nation. In the words of Pat Harkins, executive director of the 
Harford County, Maryland, Community Action Agency: ``We're in a crisis 
right now.''
    Mr. Harkins is right--we are in a crisis, and Congress must act now 
to pass a comprehensive national energy policy.
    A major component of any energy plan must be expanded 
infrastructure. We need more power plants, pipelines, transmission 
lines, and refineries. California Governor Gray Davis has recognized 
that fact; one of his first requests to President Bush was an expedited 
process for building new power plants. Similar steps need to be taken 
nationwide.
    Everyone knows that conservation, too, must be part of the 
solution. Vice President Cheney included new energy efficiency measures 
in his task force's report, and the President has said that he would 
like to see conservation included in any energy package passed by 
Congress and signed into law.
    However, conservation alone will not save us from the energy 
crisis. We also must increase our domestic energy supply while 
decreasing our dependence on foreign resources. In working toward those 
goals, our best opportunity for increasing production lies in the North 
Slope of Alaska. By opening up a small part of the Arctic National 
Wildlife Refuge (ANWR) to exploration, we could access the largest 
single oil discovery in the world in the last 30 years. According to 
the U. S. Geological Survey, ANWR could hold between 5.7 and 16 billion 
barrels of oil--and possibly more.
    Thanks to cleaner, more efficient technology developed in existing 
Alaskan fields, we can get to that oil with minimal impact on the 
surrounding area. Horizontal drilling, for example, can access oil 
deposits underground as far as four miles from a single surface 
location. To put that into perspective, a single well located in the 
center of Washington, DC, would be able to drill under most of the 
city, reaching as far as Maryland and Virginia.
    At the same time, opening up a small part of ANWR for oil 
exploration will create an estimated 735,000 jobs all across the 
nation. At least 25,000 of them will go to Teamsters in direct oil 
production related jobs alone. Many people have lauded the job growth 
that has occurred over the last eight years, but that praise ignores 
one important fact: most of that new employment consisted of low paying 
service sector jobs with few benefits, no pensions, and scarce job 
security. On the other hand, the employment created by ANWR will offer 
something to working Americans that they need--good pay, good benefits, 
and good pensions.
    Unfortunately, the debate over energy policy has been clouded by 
the hyperbolic rhetoric of the anti-ANWR forces. Their multi-million 
dollar ad campaign--based primarily on misinformation--has succeeded in 
focusing many members on politics, rather than progress. For weeks, 
these groups have been highlighting their opposition to opening up a 
small part of ANWR.
    What they haven't emphasized is their opposition to almost every 
other key component in solving our energy crisis, including new clean 
coal technology, natural gas, nuclear power, additional refinery 
capacity, and modernizing our pipeline infrastructure. In short, they 
oppose any part of an energy plan that would actually help get us out 
of this mess.
    Teamsters and other working Americans will continue to feel the 
crunch of the energy crisis through the summer, irrespective of any 
action by Congress. However, in order for us to keep the situation from 
getting worse in the long term, we must take action--real action--now.

    The Chairman. Thank you very much.
    Mr. Young, you are the final witness on this panel.

STATEMENT OF TOM YOUNG, VICE PRESIDENT OF BUSINESS DEVELOPMENT, 
MARINER ENERGY, INC., HOUSTON, TX, ON BEHALF OF THE INDEPENDENT 
                PETROLEUM ASSOCIATION OF AMERICA

    Mr. Young. Mr. Chairman, members of the committee, I am 
also honored to testify. I am particularly honored to testify 
next to Senator Johnston, as we are proud graduates of the same 
high school.
    I am Tom Young, vice president of business development of 
Mariner Energy, a Houston-based independent oil and gas 
exploration company with principal operations in the Gulf of 
Mexico. Today I am representing Mariner Energy and testifying 
on behalf of the Independent Petroleum Association of America.
    Who are America's natural oil and gas producers? We vary in 
size from family-owned enterprises operating in a single State 
to large publicly-traded companies with international 
operations. We provide the energy to build this country into 
what it is today, and we continue to explore for energy to fuel 
our Nation's future. Our environmental record is outstanding. 
What concerns independents is that there seems to be a movement 
in Congress to lock up the most promising potential sources of 
natural gas and oil supplies: ANWR, most of the offshore, and 
many areas in the Rockies.
    Even with bold conservation efforts, this Nation will 
compromise its way of life if we can only drill on lands 
currently accessible. This country is faced with choices. We 
must achieve balance while sustaining our economy and 
protecting our environment.
    The first step: Implement the Executive Order requiring 
energy accountability. The second step: Complete a public land 
inventory to determine what lands potentially contain energy 
and are truly accessible. Is it 95 percent? Is it 40 percent? I 
can report that on the ground, the answer is much less than 95 
percent. This inventory will put an end to this debate.
    Some have objected to expanding access to Federal lands as 
a policy of draining America first. I respectfully disagree. 
Blocking access to Federal lands is a policy of draining 
American wallets first. A vote against land access is a vote 
for higher energy prices.
    The onshore permanent and planning processes must also be 
improved and properly funded. IPAA supports the provisions 
included in S. 388 which expands State involvement and 
establishes approval time frames for reviewing permits, the S. 
597 requirement to fund the accelerated completion of 
environmental documents and the Executive Order accelerating 
energy-related approvals in an environmentally sound manner.
    We can't discuss offshore without discussing sale 181. What 
can I tell you about sale 181 that you didn't hear yesterday on 
the Senate floor? What I can give you is an example of the 
impact of shrinking the sale 181 area has on a small 
independent. All changes and delays in sale 181 have been 
driven by politics. Yes. The much smaller sale area proposed by 
the administration may eventually increase energy supply. 
However, due to the extremely deep water depths and distance 
from infrastructure, the area now remaining is off limits to 
most independents.
    I refer you to a map of the central and eastern Gulf of 
Mexico planning areas. The reduced sale area, which is outlined 
in red, sacrifices an estimated 1 to 2 TCF of natural gas in 
the northern excluded portions alone. The revised sale area 
excluded all tracts in less than 6,500 feet of water. At these 
water depths, this is a playing ground of extremely large 
companies. The impact of this reduction was particularly harsh 
on my company which spent millions of dollars acquiring data in 
areas that cannot be developed.
    By taking 2 TCF of natural gas potential out of this sale, 
the Nation also eliminates an environmentally safe energy 
supply. When making political decisions, we need to have an 
energy plan like the administration's energy plan that is 
agreed to by Congress, a more robust sale 181 and MMS's next 5-
year OCS leasing plan for 2002 through 2007, including a 
broader area containing shallow waters in the eastern Gulf of 
Mexico or central Gulf.
    The Federal Government and governments of affected States 
must attempt to find a more rational balance. Otherwise, 
investment dollars will flow overseas. If most independents in 
the offshore are confined to the western and central Gulf, then 
we must be given incentives to develop the areas that have 
already been developed, a renewal of the deep water royalty as 
advocated by Senator Johnston and expansion of royalty and 
lease-term incentives for different types of targets in 
different shallow waters. We agree with the administration's 
plan to review incentive proposals and ask that this be 
expanded to the onshore.
    While on the topic of royalties, we could not ignore the 
importance of royalty in kind. It provides certainty to both 
the producer and the Government, and gives the Government 
opportunities for helping low-income families.
    In conclusion, independents are beginning to wonder whether 
opponents to drilling will ever say yes to exploration in new 
areas. It is time for more reasoned decisions. When did it 
become acceptable to place our Nation's security and future in 
the control of those who control foreign energy supplies? 
Instead, shouldn't we be asking, what can we do to reduce our 
dependence and secure our nation's economy and safety?
    American independents have the answer to these questions, 
but need support of Federal and State governments to allow us 
to safely and efficiently explore and develop our nation's 
energy reserves. Thank you again for allowing me to testify 
today. I will be glad to answer any questions you may have.
    [The prepared statement of Mr. Young follows:]
      Prepared Statement of Tom Young, Vice President of Business 
   Development, Mariner Energy, Inc., Houston, TX, on Behalf of the 
              Independent Petroleum Association of America
    Mr. Chairman, members of the committee, my name is Tom Young, Vice 
President of Business Development, Mariner Energy, Inc. Mariner Energy 
is a Houston-based oil and natural gas exploration and production 
company with principal operations in the Gulf of Mexico and along the 
U.S. Gulf Coast. Mariner has been an active explorer in the Gulf Coast 
area since the mid-1980s and has successfully grown its production and 
reserve base through the drill bit. Mariner is one of the most 
experienced independent operators in the Deepwater Gulf of Mexico, 
having operated nine field developments in the Deepwater Gulf since 
1995.
    Today, I'm testifying on behalf of the Independent Petroleum 
Association of America (IPAA). IPAA represents thousands of independent 
petroleum and natural gas producers that drill 85 percent of the wells 
drilled in the United States. Independent producers of both oil and 
natural gas have grown in their importance, and are a key component of 
our nation's energy supply. Independents produce 40 percent of our 
nation's oil output--60 percent of the lower 48 states onshore 
production--and 65 percent of our natural gas production in the United 
States.
    The presence of independents in the offshore is rapidly increasing. 
Not only do independents now hold 80 percent of all acreage under lease 
on the OCS, but as a group, independents have amassed as much acreage 
in the deepwater as have the majors. And, they participated in half the 
wells drilled in the deepwater Gulf of Mexico in 2000. In total, it is 
estimated that independents hold more than 40 percent of the active 
leases in the deepwater Gulf.
    The March 2001 Central Gulf of Mexico Lease Sale 178 further 
demonstrated the substantial presence of independents in the offshore. 
With high bids from 90 companies totaling over $505 million--up from 
around $300 million a year ago--industry has clearly stepped up its 
activity level in response to today's marketplace. At sale 178, of the 
90 companies bidding, 77 were independents (86 percent).
    Today's hearing focuses on legislative actions the Senate may take 
to increase the supply of energy resources from federal land (including 
the OCS). This testimony will focus on recommendations for both onshore 
and offshore federal lands. Oil and natural gas reserves lying beneath 
federal onshore and offshore lands will play a critical role in meeting 
the nation's energy needs. The Administration's National Energy Policy 
highlights the need to examine the potential for regulated increase in 
the oil and natural gas development on federal lands as part of 
increasing energy supplies. We agree with President Bush that we can 
increase energy supply and protect the environment. We can accomplish 
both goals to ensure this country has access to its oil and natural gas 
resources lying beneath government controlled lands.
    Today, I will discuss the steps Congress can and should take now to 
increase production tomorrow. Indeed, if some of these steps had been 
taken yesterday, our nation's energy situation would be far less 
uncertain today.

                         THE CONGRESSIONAL ROLE
    The predominant areas where Congress and the Administration play a 
major role in promoting or inhibiting domestic oil and natural gas 
production are: providing access to the natural resource base and 
providing access to essential capital.
I. Access and Permitting Constraints
    A national energy policy must recognize the importance of accessing 
the natural resource base. In 1999, the National Petroleum Council (NPQ 
in transmitting its natural gas study, ``Meeting the Challenges of the 
Nation's Growing Natural Gas Demand'', concluded:

          The estimated natural gas resource base is adequate to meet 
        this increasing demand for many decades. . . . However, 
        realizing the full potential for natural gas use in the United 
        States will require focus and action on certain critical 
        factors.

    Much of the nation's untapped natural gas underlies government-
controlled land both offshore and onshore. These resources can be 
developed in an environmentally sound and sensitive manner. The 
Department of Energy recently released a comprehensive report, 
Environmental Benefits of Advanced Oil and Gas Exploration and 
Production Technology, demonstrating that environmentally sound 
technology is available. And, it is being employed, when exploration is 
allowed.
    Without policy changes, many of which can be initiated by Congress, 
the nation may not be able to meet its needs. The NPC study projects 
demand increasing by over 30 percent over the next decade. This will 
require not only finding and developing resources to meet this higher 
demand, but also replacing the current depleting resources. While many 
analysts are focusing on how much more natural gas demand will grow, it 
is equally important to recognize what is happening to existing supply. 
All natural gas wells begin to deplete as soon as they start producing. 
However, as our technology has improved, we now are able to identify 
probable reservoirs more effectively. This allows us to find and more 
efficiently produce smaller fields. The decline rate is increasing due 
to the limited extend of many or these new reservoirs.
    Unlike petroleum, natural gas supply is dependent on North American 
resources with 80 to 85 percent coming from the United States. However, 
much of this domestic supply is most cost effectively accessible from 
government controlled lands. The current restrictions affecting access 
to these lands differ depending on the area, but all must be altered to 
meet future demand.
            Offshore--Western and Central Gulf of Mexico
    These portions of the Gulf of Mexico have proven to be a world-
class area for natural gas as well as petroleum production, accounting 
for over 25 percent of domestic natural gas production. Production 
comes from the continental shelf, the deepwater, and the emerging 
ultra-deepwater. The NPC study projects that future production 
increases in these areas are essential to meet projected demand.
    A Minerals Management Service (MMS) report on Future Natural Gas 
Supply from the OCS estimates the future natural gas production from 
the shelf and slope of the Gulf of Mexico in a high case peaking at 6.7 
trillion cubic feet (TCF) in 2010 followed by a decline. However, 
recently published MMS data indicates much lower expected natural gas 
from the Gulf of Mexico. Using new data, the high case estimation could 
peak in 2002 at about 5.22 TCF.
    The Subcommittee on Natural Gas on the U.S. Outer Continental Shelf 
of the OCS Policy Committee recently reported, ``Based on this 
projection, it can be concluded that unless exploration and development 
scenarios in the Gulf of Mexico changes dramatically, the production 
from the Gulf of Mexico may not be able to meet its share of expected 
future natural gas demand of the U.S.'' Later in this testimony, I will 
discuss what IPAA believes needs to occur to reach the expected 8.0 TCF 
of natural gas annual production from the Gulf of Mexico (National 
Petroleum Council's estimate for 2010) and, as well, to increase oil 
production.
            Offshore--Eastern Gulf of Mexico, Atlantic Ocean, and 
                    California
    The substantial domestic natural gas reserves in these three areas 
are unavailable because of Congressional or Administrative moratoria. 
President Clinton extended this moratorium until 2012 saying, ``First, 
it is clear we must save these shores from oil drilling.'' This is a 
flawed argument ignoring the state of current technology; it results in 
this moratorium preventing natural gas development as well as oil. In 
fact, both the Eastern Gulf and the Atlantic reserves are viewed 
primarily as gas reserve areas, not oil. Too often, these policies seem 
to be predicated on the events that occurred 30 years ago. Federal 
moratoria policy needs to be reviewed and revised to reflect advances 
in the industry's technology. Based on the MMS' 2000 resource 
assessment, the MMS determined that offshore moratoria forgo 
conventionally recoverable 16 billion barrels of oil and 62 trillion 
cubic feet of natural gas. Of course these estimates are based on 
little or no exploration and could be much more significant if 
exploration is allowed. In the western and central Gulf of Mexico, 
estimates have proven to be much greater after exploration.
            Onshore--Rockies
    Onshore, the NPC Natural Gas study estimates that development of 
over 137 TCF of natural gas under government-controlled land in the 
Rocky Mountains is restricted or prohibited. A recent study by the 
Energy Information Administration concludes that about 108 TCF are 
under restriction. Significantly, these estimates largely based on 
assumptions that about 40 percent of the resource base were off limits 
or severely restricted. However, a recent Department of Energy analysis 
of a key area in the Green River basin puts this number closer to 68 
percent. Regardless of the exact number, the amount is significant. A 
Congressionally mandated inventory of these resources is underway. 
While an important first step, it is equally important to recognize 
that access to these resources is limited by constraints other than 
explicit moratoria. These constraints that often result in `de facto' 
moratoria vary widely. Examples include monument designations, Forest 
Service ``roadless'' policy, and prohibitions in the Lewis and Clark 
National Forest.
    If these areas contain natural gas or oil, they can be developed in 
an environmentally and balanced manner. IPAA was disappointed with 
recent votes in the House of Representatives that will prohibit pre-
leasing activities in monuments designated as of January 20, 2001. This 
type of limitation, not based on science and technology, will 
negatively impact domestic oil and gas supplies and ignores the need 
for balanced domestic energy policy.
    At the same time the permitting process to explore and develop 
resources often works to effectively prohibit access. These constraints 
range from: federal agencies delaying permits while revising 
environmental impact statements; to habitat management plans overlaying 
one another thereby prohibiting activity; and, to unreasonable permit 
requirements that prevent production. There is no single solution to 
these constraints. What is required is a commitment to assure that 
government actions are developed with a full recognition of the 
consequences to natural gas and other energy supplies. IPAA believes 
that all federal decisions--new regulations, regulatory guidance, 
Environmental Impact Statements, federal land management plans--should 
identify, at the outset, the implications of the action on energy 
supply and these implications should be clear to the decision maker. 
Such an approach does not alter the mandates of the underlying law that 
is compelling the federal action, but it would likely result in 
developing options that would minimize the adverse energy consequences.

   IPAA'S PRIORITY NEAR-TERM RECOMMENDATION FOR INCREASING ACCESS TO 
           PRODUCTION FROM THE OCS AND ONSHORE FEDERAL LANDS
    Energy Accountability. If there is one immediate action the 
Congress and/or the Administration can take that will have a dramatic 
affect on increasing oil and gas production in the near-term, it is the 
successful implementation and funding of an energy accountability 
mandate. If all federal agencies associated with decisions affecting 
oil and gas development are held accountable for how their decisions 
impact national energy supply, production will increase.

          Such a requirement is contained in the Administration's 
        National Energy Policy:
          ``Issue an Executive Order directing all federal agencies to 
        include in any regulatory action that could significantly and 
        adversely affect energy supplies a detailed statement on the 
        energy impact of the proposed action.''

    A similar provision is contained in S. 388, the National Energy 
Security Act of 2001. Independents all agree that this type of 
requirement should be implemented immediately to bring balance in the 
land use decision-making.

 IPAA'S NEAR-TERM RECOMMENDATIONS FOR INCREASING ACCESS TO PRODUCTION 
                              FROM THE OCS
1. Sale 181
    IPAA and its member companies have long considered Sale 181 to be a 
high-priority issue. It represents an important component of our future 
in the offshore. Scheduled for December 2001, it would be the first 
eastern Gulf of Mexico Lease Sale since 1988, and for some of our 
members that confine their activities to the Gulf of Mexico, the first 
opportunity to bid outside the central and western Gulf of Mexico ever.
    The Original Sale 181 area was estimated to hold about 7.8 TCF of 
natural gas and perhaps 1.9 billion barrels of oil. The natural gas 
resources could be used to meet the nation's growing natural gas 
demand--estimated to increase by 30 percent from today's level to 
nearly 30 TCF/yr by the year 2010. It is noteworthy that the NPC 
natural gas study cited earlier, assumes Sale 181 occurs on time, with 
all tracts offered, and that development proceeds without delay. The 
NPC study projects that Sale 181 could result in adding 356 billion 
cubic feet (BCF) per year in new gas production by the year 2010--
production that would be lost if the Sale were not held or restrictions 
inhibited exploration and production.
    Back in the early to mid-1990's the MMS engaged in a comprehensive 
consultation with Alabama and Florida as well as other coastal states, 
about leasing in the eastern Gulf of Mexico. Both States expressed 
concerns about leasing and both requested that leasing not occur within 
certain distances to their states--15 miles in the case of Alabama and 
100 miles in the case of Florida. Sale 181 was crafted to meet both of 
these criteria and was placed on the current 5-year schedule by the 
MMS. Congress subsequently ratified this decision through the 
appropriations process. Based on this buy-in from coastal states, 
industry began to prepare--accumulating seismic, data, reviewing 
geologic trends, conducting preliminary engineering studies--in 
anticipation of Sale 181. Independents have spent millions of dollars 
and expended thousands of personnel hours with the expectation that the 
Sale would occur as scheduled.
    It now appears the Sale my take place in December as originally 
scheduled, but as a compromise, the Administration has agreed to reduce 
the Sale Area by approximately 75 percent of the original area. The 
decision to significantly reduce the Sale Area comes at a time when the 
country needs more energy of all kinds, and dramatically reduces the 
availability of acreage needed to satisfy the nations ``near-term'' 
energy needs. The original Sale Area contained acreage near 
infrastructure and in moderate water depths, both of which made the 
area a prime candidate for short cycle time (1-2 year) natural gas 
projects. Because the revised Sale Area is further from existing 
infrastructure and in ultra-deep water depths, the projects in the 
revised Sale Area will be much longer cycle time (4-10 years). Also, 
less data is available in the revised Sale Area, resulting in less 
certainty concerning the type of hydrocarbons expected. Not revising 
the Sale Area would have made a tremendous difference in the immediate 
opportunities available as well as in the bonuses received by the 
government.
    By removing acreage available for leasing in shallow to moderately 
deep-water depths, (50' to 6,500') most independents have been removed 
from the Sale Process. The deepest announced development in the Gulf of 
Mexico is the planned Canyon Express development, in water depths 
slightly exceeding 7,000', expected on-line in mid 2002. The deepest 
producing field in the Gulf of Mexico is in approximately 5,500' of 
water. The revised Sale Area eliminates all acreage available in less 
than 6,500' water depths, with the majority of the acreage available 
for leasing in greater than 7,000' water depths. This compromise has 
made the Sale an ultra-deepwater Sale, and essentially of no interest 
to Mariner, or other independents. Developments in these water depths 
exceed the currently available development tools and will be on the 
cutting edge of technology. This is not an area suited for most 
independents.
    The revised Sale Area was derived to find balance among some very 
difficult political forces. Most of the Florida delegation opposed the 
entire Sale 181 area. In fact, the House of Representatives passed by 
83 votes a provision that would have delayed leasing in the entire sale 
181 area. Unfortunately, the views of many members of the Florida 
delegation, some 247 members of the House do not embrace the need to 
have the resources of the original Sale 181 area as part of the 
balanced and common sense approach to a sound energy policy. Yes, the 
Administration is proposing that a quarter of the Sale Area proceed 
which will contribute significant quantities of oil and gas to our 
supply. However, the new area as a result of this three-quarter 
reduction, is off limits to most independents and greatly restricts 
easily Accessible and environmentally safe energy supply. We hope in 
the future the Administration and the Congress can agree to a more 
reasoned national energy policy.
    IPAA would like to thank members of this Committee for recognizing 
the importance of a more robust sale 181 as part of sound national 
energy policy. Senator Bingaman has a provision contained in the 
Comprehensive Balanced Energy Policy Act of 2001 that mandates a sale 
181 that would be reduced by a significantly smaller amount of area. As 
well, Senator Murkowski and others have been strong proponents of 
proceeding with sale 181 as proposed for the last five years. We 
applaud this Committee's recognition that offshore development is the 
very type of development that can occur in an environmentally safe 
manner and contribute significant volumes of natural gas to this 
country.
    This sudden change of direction by the government after years of 
compromise and planning is something that is common in international 
ventures, but not expected domestically. Many independents choose not 
to explore internationally, due to the political risks involved. This 
compromise not only eliminates an area ripe for independents, but also 
causes us to re-think our decisions to explore solely domestically.
    In the oil industry, sophisticated technologies now make it 
possible to locate and remove oil and natural gas with virtually no 
risk to the environment. In fact, the industry has been safely 
producing oil and natural gas from the Gulf of Mexico for decades. 
Unfortunately, opponents to offshore development ignore this fact. 
Although we understand the MMS is making plans to issue the Preliminary 
Notice of Sale 181 with the revised Sale Area, we are confident that 
our industry could develop all of Lease Sale 181 in a safe and 
environmentally responsible way and we hope that the decision will be 
revisited sometime in the near future.
2. The Five-year OCS Lease Sale Schedule
    Every five years, the MMS takes on a very thorough process to draft 
a new five-year OCS Leasing Schedule. That process is now underway to 
establish a leasing program for the period 2002-2007. Industry, and 
other interested parties, provided comments to the MMS during the 
earlier stages of the process. A draft schedule should be ready for 
review very soon.
    IPAA vows to work with the MMS to establish a schedule that helps 
meet the nation's growing appetite for energy. For many of our members, 
those that confine their activities to the Gulf of Mexico, it has meant 
annual sales in the central and western Gulf of Mexico. It is essential 
that these annual sales continue. IPAA is encouraged by the 
recommendation contained in the Administration's National Energy Policy 
that OCS oil and gas leasing and approval of exploration and 
development plans on predictable schedules should continue.
    As this Country drafts a national energy policy, now is no time to 
be timid. Yet, we know that resistance in some regions to offshore 
exploration and production remains a major impediment despite the 
obvious energy needs. We have our work cut out for us if we are to be 
successful at making enough offshore lands available to meet the 
nation's energy needs. As noted above, the offshore is a prime 
contributor of natural gas--an environmentally preferable fuel. The 
next five-year plan must provide for leasing in unexplored areas, 
especially those containing natural gas.
    Independents play a significant role in the development of offshore 
shallower water production. The next five-year plan needs to provide 
new leasing opportunities in shallower waters as well, otherwise 
investment dollars will flow oversees. IPAA is greatly concerned about 
the next five-year plan not offering any leasing in water depths in the 
Eastern Gulf of Mexico less than 1600 meters. This will greatly reduce 
opportunities for independents to deliver much needed natural gas and 
oil reserves to meet this country's demand.
    One possible approach interested parties should consider during 
development of the next five year plan, in consultation with industry 
and affected states, is the identification of a small number of prime 
natural gas plays in moratoria areas to determine if limited pilots 
could demonstrate how oil and gas operations could be safely conducted 
in new areas. Such an approach would require congressional funding for 
scientific, environmental, and social/human impact studies. Any 
piloting would require site-specific stakeholder consultations.
3. Coastal Zone Management Issues
    Coastal zone management (CZM) matters are increasingly important to 
independents operating in the Offshore. These matters play a direct 
role in offshore lease access. CZM issues have not historically been 
seen as a priority issue for independents operating in the western and 
central Gulf of Mexico, as states have not attempted to obstruct 
offshore activities under the Coastal Zone Management Act (CZMA). With 
an increased interest in the eastern Gulf of Mexico, independents' 
interest in CZM is heightened. It is one thing to have a lease sale; it 
is quite another to be allowed to explore, develop and produce from 
that lease once it is purchased.
    A coastal state with a federally-approved coastal zone management 
plan is empowered to block offshore exploration and production plans, 
if the state can allege that the federal lessee's activity will have 
some affect on resources in the coastal zone. If the lessee's activity 
will have an effect, the activity must be consistent with the state's 
coastal zone management plan.
    The coastal zone itself generally extends only 3 miles offshore, 
but extends 9 miles in the Gulf of Mexico off Texas and Florida. The 
effects test, however, can be used to extend the state's reach great 
distances from shore. The Interior Department itself determines before 
issuing leases that the projects it expects lessees to undertake will 
be consistent with the plans of any affected states. But states can 
change their minds after the leases are issued.
    A Federal lessee offshore must certify that both its exploration 
plan and production plan are fully consistent with the coastal zone 
plans of affected states. If a state disagrees, the lessee faces 
considerable delay in an appeal before the Secretary of Commerce.
    Chief risks to lessees in current CZMA implementation are:

   Escalating compliance costs caused by unexpected 
        interpretations of vague policies in state CZM plans,
   Delay costs caused by lengthy appeals process before 
        Department of Commerce,
   Risk of losing lease rights without compensation when a 
        state changes its mind on what its plan requires.

    Congress should encourage a review of the CZMA and its consistency 
provisions. The Administration's National Energy Policy recommends that 
the President direct the Secretaries of Commerce and Interior to re-
examine the current federal legal and policy regime (statutes, 
regulations, and Executive Orders) to determine if changes are needed 
regarding energy-related activities and the siting of energy facilities 
in the coastal zone and on the OCS. The review should include:

   A review of the Coastal Zone Management Act, particularly as 
        amended in 1990,
   Implementing regulations, especially those finalized late in 
        2000 by the National Oceanic and Atmospheric Administration on 
        consistency,
   State implementation programs, and
   Process issues, particularly as the process is used to delay 
        projects.
4. Congressional Funding
    IPAA recommends that the Congress adequately fund the MMS to ensure 
that its mission is not compromised during this critical period in 
which the Nation aggressively seeks new energy resources to meet 
growing demand. Specifically, IPAA recommends:

   Support the Administration's FY 2002 budget request 
        increasing the MMS budget by $14.7 million to meet increased 
        workload brought about by offshore program services and to 
        implement royalty in-kind.
   Fully fund the MMS and other related agencies in future 
        years to ensure they have the resources available to increase 
        gas and oil supplies from the OCS.
   Require that appropriated funds be directed to education and 
        outreach regarding the benefits the OCS program provides the 
        Nation.

    Funding is always difficult during budget reductions and tax cuts. 
However, investing in the offshore program provides taxpayers a great 
return on their investment. In FY 2000 alone, the MMS collected and 
distributed about $7.8 billion in mineral leasing revenues from federal 
and American Indian lands. IPAA would like to bring to your attention a 
proposal of Congresswoman Barbara Cubin (R-WY) whereby part of the 
onshore oil and gas royalty streams to fund those BLM offices 
responsible for generating production on which royalty payments are 
based. The vast majority of royalty payments come from offshore 
production and, similar to your proposal for the onshore, we recommend 
that a part of the offshore royalty stream should be directed to 
offshore programs that will promote increased production, especially 
natural gas.
    For example, IPAA supports a collaborative effort for research, 
development, and transfer of technologies used in the production of 
natural gas, so long as there are not additional charges or costs such 
as increased royalties, taxes or surcharges. Other uses of the onshore 
and offshore royalty stream, including taking the stream in-kind, could 
include low-income programs and environmental projects.

 IPAA'S NEAR-TERM RECOMMENDATIONS FOR INCREASING ACCESS TO PRODUCTION 
                      FROM ONSHORE FEDERAL LANDS:
1. Congressional Funding
    Like President Bush's FY 2002 budget request for the offshore 
program, IPAA supports the President's proposed increases for the 
onshore federal oil and gas program. Specific items include:

   A $7.1 million increase to support improvements in the land 
        use planning and accelerate the multi-year process of updating 
        management plans. This is a good first step. The entire 
        planning process needs to be reviewed, including the funding 
        process.
   An $11.8 million increase for oil and gas programs, 
        including energy resources surveys, Alaska North Slope oil and 
        gas exploration, coal-bed methane permits, and oil and gas 
        inspections.
   A $3.0 million dollar increase for Bureau of Land Management 
        (BLM) to work with U. S. Geological Service (USGS), the U.S. 
        Forest Service (USFS), and the Department of Energy to conduct 
        an inventory of public lands and describe the impediments and 
        restrictions to access and development. Chairwoman Cubin, along 
        with Chairman Skeen, led the effort in the House for getting 
        this included in the Energy Policy and Conservation Act (EPCA), 
        which was signed into law late last year. We agree with the 
        Administration's National Energy Policy that this inventory 
        required under EPCA should be accelerated.
   A $2.0 million dollar increase to accelerate leasing by 15 
        percent and to process an additional 1,000 to 2,000 drilling 
        permits in the most promising areas.

    IPAA strongly supports a provision contained in S. 597, the 
Comprehensive Balanced Energy Policy Act of 2001, entitled Federal 
onshore leasing programs for oil and gas. This provision requires the 
appropriation of such sums as may be necessary to ensure expeditious 
compliance with National Environmental Policy Act requirements 
applicable to oil and gas. Outdated planning documents not based on 
science and current technologies are causing significant delays in 
developing onshore federal lands and increasing costs. However, we need 
to ensure that all future planning processes are accountable to their 
impacts on energy supply.
    Similar to the proposal of using the royalty stream to fund BLM 
offices managing the production generating this royalty streams, IPAA 
also supports a provision contained in the Administration's National 
Energy Policy to direct royalties from ANWR to conservation efforts and 
eliminating the maintenance and improvements backlog on federal lands. 
If proceeds from ANWR do not become available in the foreseeable 
future, IPAA would advocate that Congress fund other sources of funding 
to eliminate this backlog.
2. Permitting Process
    There are costly delays with every aspect on the onshore federal 
permitting process. In fact, there are a number of examples of 
approvals that are never granted resulting in reserves never being 
developed. The National Energy Security Act of 2001, S. 388 reforms the 
permitting process in a subsection entitled Improvements to Federal Oil 
and Gas Lease Management.
    This section contains a number of very important reforms. It allows 
a state, if willing, to conduct a number of non-environmental oil and 
gas approvals on behalf of the federal government. Our experience has 
been that states can perform oil and gas activities at a much lower 
cost and in much more timely fashion than the federal government. For 
decisions remaining with the federal government, the bill establishes 
reasonable timeframes for processing different documents related to oil 
and gas development. Additionally, it provides adequate funding for 
environmental documents. Timing is capital and if there are never-
ending delays, this capital will be directed overseas or to private 
lands.
    If Congress cannot pass such reform in the short-term, it should 
encourage the Administration to determine which of these reforms can be 
implemented administratively. In fact, if approval processes are 
improved, production will occur sooner resulting in more revenues to 
the treasury. The following are two examples of this:

   Approve Pending Drilling Permits. It is our understanding 
        that hundreds of drilling permits are pending before the 
        government. If these were approved, production would increase.
   Approve Balanced Planning Documents. If pending planning 
        documents, like the one in Otero County, New Mexico, were 
        approved, production will increase. The Otero County document 
        should allow for development and, if it did, up to 1 trillion 
        cubic feet of gas could be delivered to market from one 
        planning area.

    IPAA agrees with two-related recommendations contained in the 
Administration's National Energy Policy:
   An executive order to rationalize permitting for energy 
        production in an environmentally sound manner by directing 
        federal agencies to expedite permits and other federal actions 
        necessary for energy-related projects.
   Review public land withdrawals and lease stipulations, with 
        full public consultation, especially with the people in the 
        region, to consider modification where appropriate.
3. Other Administrative Actions
    The government should not implement cost recovery regulations that 
would place unnecessary costs on every facet of the oil and gas 
program. These costs will further discourage small independent 
producers from developing onshore federal lands and are inappropriate 
given the billions of dollars the oil and gas industry pays each year 
to the federal government in the form of royalties.
    Additionally, all regulation rewrite efforts that were mandated 
under Vice President Gore's ``Plain English'' Initiative should be 
terminated. The proposals issued for onshore oil and gas regulations 
under this Initiative proposed significant policy changes and would 
result in more uncertainty. Specifically, smaller independent producers 
are concerned about the proposed increase of bonding amounts. Bonds are 
rarely called for the purpose of reclamation. The vast majority of good 
operators on federal land should not be punished for the bad behavior 
of the few. Enforcement is the key.
            Royalty In-Kind
    IPAA has been a long-time supporter of RIK programs. By giving more 
tools to the federal government to maximize return to the American 
taxpayer when taking in kind, the program can be expanded. When royalty 
in-kind is expanded, more certainty is provided to the government and 
the oil and gas lessees; thereby making offshore and onshore federal 
lands more attractive for development. IPAA supports the RIK provisions 
contained in S. 388. As well, we support funding and providing MMS 
needed RIK authorities in their FY 2002 appropriations.
    Congress should promote and fully fund creative approaches for the 
use of royalty in-kind programs. For example, the House Subcommittee on 
Energy and Mineral Resources recently held a hearing examining how 
royalty in-kind could be used to help bolster the Low Income Home 
Energy Assistance Program during crisis periods. Utilities testified 
that there were a number of cost benefits that could accrue to the 
government and energy user under a royalty in-kind program.
II. Providing Access to Essential Capital
    Because oil and natural gas exploration and production are capital 
intensive and high-risk operations that must compete for capital 
against more lucrative investment choices, much of its capital comes 
from its cash flow. The federal tax code and royalty policies play a 
critical role in determining how much capital will be retained. The 
Administration and Congress need to enact provisions designed to (1) 
encourage new production, (2) maintain existing production, and (3) put 
a ``safety net'' under the most vulnerable domestic production--
marginal wells.
    However, given that this Committee has jurisdiction over royalty 
policies, not the tax code, I will not discuss IPAA's tax proposals. 
Rather, I will address the area of royalty policies.
  ipaa's recommendations for increasing access to capital for the ocs
1. Deepwater Royalty Relief
    The Deep Water Royalty Relief Act of 1995 (Act) provided for 
automatic royalty relief for all new oil and gas leases issued from 
1995 through 2000 in waters deeper than 200 meters in order to 
stimulate exploration and production of natural gas and oil in the 
deeper waters of the central and western Gulf of Mexico. The portion of 
the Act that provided this automatic relief for new leases expired in 
November 2000.
    The MMS has now put in place regulations that would leave to its 
discretion the use of any upfront royalty relief for future Gulf of 
Mexico lease sales. IPAA is concerned that, although the new MMS 
royalty incentives put into place for water depths greater than 800 
meters, subsalt, and deep gas drilling are a good first step, they fall 
short of truly accelerating the rate of development and production of 
natural gas and oil in the Gulf of Mexico. Additionally, the MMS is not 
offering My relief for water depths between 200 and 800 meters.
    To this end, IPAA supports the reauthorization of the original 
automatic royalty suspension volumes as contained in the expired 
provision of the 1995 Act. Such a provision is contained in S. 388, the 
National Security Act of 2001. These terms led to a boom in natural gas 
and oil activities in the deep waters of the Gulf of Mexico in the five 
short years they were in place. At the most recent central Gulf of 
Mexico Lease Sale 178, where no royalty relief was offered for water 
depths of 200 to 800 meters, bidding activity fell sharply compared to 
that previously experienced with royalty relief incentives. We believe 
if the Act would have been reauthorized, there would have been 
substantially more interest in these water depths and in ultra-
deepwaters.
    Would such a reauthorization of the Act cost the American taxpayer 
revenues? Simply put--no. Third party modeling demonstrates that a 
reauthorization of the act would have provided additional, not less, 
revenues to the American taxpayer. Increased production would occur, 
far outweighing the temporary loss of royalty. We should remember that 
prices will not always be this high and we need to encourage aggressive 
leasing now, to meet our production needs for the future.
    We agree with Senator Murkowski's recommendation that under the 
auspices of a National Energy Policy Taskforce that the Secretaries of 
the Interior and Energy form a Gulf of Mexico Leasing Incentives Review 
Team to determine what level of incentives for all water depths are 
appropriate in order to ensure that we optimize the domestic supply of 
natural gas and oil from offshore areas that are not subject to current 
leasing moratoria. In particular, the team should further examine the 
field size distribution of the Gulf of Mexico resource base and the 
international competitiveness of the Gulf. Recommendations, as a result 
of this review, should be made in the context of the importance of the 
development of the natural gas and oil resources of the Gulf of Mexico 
to the Nation's future energy and economic needs. These recommendations 
should be implemented prior to the August 2001 western Gulf of Mexico 
lease sale.
2. Deepwater Leases Issued prior to November 2000
    During Sale 178, the MMS adopted an important approach to stimulate 
activity in the 800 meter plus water depths--royalty incentives were 
offered on a lease-basis. For deepwater leases issued prior to sale 
178, the MMS only offered royalty incentives on a field-basis. If the 
MMS would retroactively offer such relief on a lease-basis, this would 
greatly stimulate production from the deepwaters. Too many leases 
issued during the term of the Deepwater Royalty Relief act were found 
to be ineligible for royalty relief because of the existing policy of 
relief to be offered on a field-basis (vs. lease-basis) or the MMS' 
interpretation of the rules implementing this policy.
3. High Risk Exploration on the Shelf
    In addition to the deepwaters, independents are quite interested in 
the significant natural gas and oil reserves that could be developed by 
deep drilling, drilling into subsalt structures, and drilling highly 
deviated wells. IPAA recommends royalty incentives be offered for (1) 
wells below 15,000 where there is no current production AND (2) extend 
royalty relief as embodied in Central GOM Sale 178 for new and existing 
leases for drilling of sub-salt prospects or prospect located in 
abnormal pressure conditions AND (3) for drilling highly deviated wells 
off existing platforms which might not otherwise have been attempted. 
In other words, these incentives would apply to expensive, high risk 
plays on new and existing leases. Such relief would, of course, be 
phased out at higher prices.
    During Sale 178, the MMS took some important first steps. It 
offered a royalty incentive for new leases whereby natural gas is 
discovered for drilling in excess of 15,000 feet for water depths of 0 
to 199 meters. Similar relief is needed for existing leases where 
production has not yet been established.
    With regard to subsalt, the MMS recognized the high risk nature of 
exploring such a play in the OCS by offering for new leases a 2 year 
extension of the 5 year term should a well be drilled. But often more 
time is needed for geophysical imaging to refine subsalt drilling 
targets. What are truly needed are more incentives to encourage 
drilling.
4. Marginal Production on the Shelf
    Independent producers report that there are significant resources 
still remaining on the Shelf that would be developed if royalty 
incentives were available. Marginal properties and/or fields are being 
left behind. IPAA understands that DOE had initiated modeling of 
different royalty incentives to stimulate production from marginal 
fields. This modeling effort should be completed and, if appropriate, 
royalty incentives implemented.
ipaa's recommendations for increasing access to capital for the onshore
1. High Risk Exploration Onshore
    Like in the offshore, independents are interested in the 
significant natural gas and oil reserves that could be developed by 
onshore deep drilling. Royalty incentives should apply to expensive, 
high risk plays on new and existing onshore federal leases. Such relief 
would, of course, be phased out at higher prices.
2. Marginal Production Onshore
    It has always been understood that much of the production lying 
beneath onshore federal lands is marginal. This is why the Bureau of 
Land Management continues to offer royalty relief for stripper oil 
wells (e.g., wells that produce less than 15 barrels per day) under 
certain prices. A similar program should be implemented for marginal 
natural gas wells.
3. The National Energy Security Act of 2001, S. 388
    The National Energy Security Act of 2001, S. 388 contains a 
provision entitled Royalty Investment in America. This provision allows 
lessees to forgo federal royalty payments during periods of low energy 
prices and instead make capital investments in energy production. 
During low prices this type of provision will reduce the likelihood of 
dramatic decreases in exploration, such as those during the 1998-99 
downturn. This applies to both onshore and offshore production.
4. The Administration's National Energy Policy
    The National Energy Policy acknowledges the contribution the 
Deepwater Royalty Relief Act made to increasing supply. It recommends 
that the President

        . . . direct the Secretary of Interior to consider economic 
        incentives for environmentally sound offshore oil and gas 
        development where warranted by specific circumstances: explore 
        opportunities for royalty reductions, consistent with ensuring 
        a fair return to the public where warranted for enhanced oil 
        and gas recovery; for reduction of risk associated with 
        production in frontier areas or deep gas for formations; and 
        for development for small fields that would otherwise be 
        uneconomic.

IPAA supports this review and encourages the Administration to have 
this review include the above incentive proposals for both offshore and 
onshore federal production.
5. The Comprehensive Balanced Energy Policy Act of 2001, S. 597
    This bill provides for a study to determine how production can be 
increased from State and privately controlled lands. We believe that 
many of the recommendations of such a study will fall in the capital 
side of the equation. How can we reduce costs for onshore production? 
We believe such a study should be expanded to include onshore and 
offshore federal lands and consider many of the recommendations 
contained above.
    Royalty incentives, in conjunction with new tax policies, must be 
developed to encourage renewed exploration and production needed to 
meet future demand, particularly for natural gas. The NPC gas study 
projects future demand growth for natural gas and identifies the 
challenges facing the development of adequate supply. For example, the 
study concludes that the wells drilled in the United States must 
effectively double in the next fifteen years to meet the demand 
increase. Capital expenditures for domestic exploration and production 
must increase by approximately $10 billion/year--roughly a third more 
than today. Generating this additional capital will be a compelling 
task for the industry. As the NPC study states:

          While much of the required capital will come from reinvested 
        cash flow, capital from outside the industry is essential to 
        continued growth. To achieve this level of capital investment, 
        industry must be able to compete with other investment 
        opportunities. This poses a challenge to all sectors of the 
        industry, many of which have historically delivered returns 
        lower than the average reported for Standard and Poors 500 
        companies.

    In fact, as the past year has shown, capital markets have not 
shifted to supporting the energy sector. For the industry to meet 
future capital demands--and meet the challenges of supplying the 
nation's energy--it will need to increase both its reinvestment of cash 
flow and the use of outside capital. The role of royalty incentives and 
the tax code will be significant in determining whether additional 
capital will be available to invest in new exploration and production 
in order to meet the $10 billion annual target.

           THERE'S NO SHORT TERM FIX--RECOVERY WILL TAKE TIME
    It will take time for any realistic future energy policy to achieve 
results. There is no simple solution. The popular call for OPEC to 
``open the spigots'' failed to recognize that the low oil prices of 
1998-99 reduced capital investment from the upstream industry all over 
the world. Only Saudi Arabia had any significant excess production 
capacity and no one knew just how much or whether the oil was of a 
quality that it could be refined in most refineries. The collateral 
damage of low oil prices on the natural gas industry is affecting gas 
supply today and will until the industry recovers. The producing 
industry lost 65,000 jobs in 1998-99. While about 65 percent of those 
losses have been recovered, they are not the same skilled workers. If 
measured by experience level, the employment recovery is far below the 
numbers. Less obvious, but equally significant, during the low price 
crisis equipment was cannibalized by operating and support industries 
who were decimated. It will take time to develop the infrastructure 
again to deploy new drilling rigs and provide the skilled services that 
are necessary to rejuvenate the industry.

                               CONCLUSION
    Providing access to the resource base will be critical and requires 
making some new policy choices with regard to the onshore and offshore 
federal lands. Access has and can occur while we accelerate the 
protection and improvement of the environment, and increase our 
nation's energy security. A critical first step is to require agencies 
to measure and document the impact of their decisions on the 
development of energy resources.
    Overall, attracting capital to fund domestic production under these 
circumstances will be a continuing challenge. This industry will be 
competing against other industries offering higher returns for lower 
risks or even against lower cost foreign energy investment options. The 
slower the flow of capital, the longer it will take to rebuild and 
expand the domestic industry.
    These two issues are the ones that are particularly dependent on 
federal actions, and should be the immediate focus of this Congress and 
the Administration.
    Energy production--particularly petroleum and natural gas--is an 
essential component that must be included and addressed at once. 
Independent producers will be a key factor, and the industry stands 
ready to accomplish our national goals, if policies reflect that 
reality.

    The Chairman. Thank you all very much for your testimony. 
Mr. Young, let me just ask you. You have indicated your support 
and your organization's support for the energy accountability 
provision that is called for in the President's energy plan, 
where it calls for an Executive Order directing all Federal 
agencies to include in any regulatory action that could 
significantly or adversely affect energy supplies a detailed 
statement on the energy impact of the proposed action.
    In your view, if that Executive Order is issued--it has not 
been issued yet, as I understand it. Is that right?
    Mr. Young. That is my understanding.
    The Chairman. Yes. If it is issued--if it had been issued 
by the President, would it apply to the decision that Secretary 
Norton made earlier this week to limit drilling in the 181 
area? Would she have had to be in compliance with it?
    Mr. Young. It is my understanding, yes, that is true.
    The Chairman. But she did not issue any statement that 
would have complied with that type of Executive Order. Am I 
correct in that?
    Mr. Young. Yes, you are.
    The Chairman. Okay. Any other witness have any view on 
that, the appropriateness of this energy accountability 
requirement that is being talked about in the administration's 
plan? Senator Johnston, did you have a thought about it?
    Senator Johnston. I think it is a very good idea. I think 
it is like a risk analysis that we ought to have, I think, for 
all Federal regulations, but particularly on energy. I mean, we 
need to know anytime they do something like reducing the sale 
area of 181. What is the real result? And I think in the 
process, they wouldn't do some of the silly things they do.
    The Chairman. So you don't really think that homework was 
done prior to the decision that was done this week.
    Senator Johnston. I think it was, and I think they know 
full well how much they sacrificed, but they didn't want to 
make it public.
    The Chairman. Well, let me just ask on one other issue here 
that Senator Johnston raised, whether any of the rest of you 
have thoughts on it. It is not really in the area of a lot of 
the subject that others dealt with, but this transmission 
eminent domain issue which Senator Johnston raised as an 
important item for us to try to legislate on. Any of the rest 
of you have any thoughts on that? Is that something that you 
have looked into?
    [No response.]
    The Chairman. Nobody seems to have a point of view they 
particularly want to express.
    Mr. Clusen. Well, we find it very ironic that this 
administration wants to pursue eminent domain for transmission 
lines, pipelines, and so on, when they appear to be so hostile 
to any kind of acquisition of park lands and things of that 
sort, so we just find that ironic.
    The Chairman. Okay.
    Senator Johnston. I don't think the administration has yet 
taken a position, have they, Frank, on that? And I hope they 
will.
    Senator Murkowski. They support it.
    The Chairman. Yes. I think there is a statement in the 
President's energy report, indicating support for eminent 
domain authority at FERC.
    Mr. Burton.
    Mr. Burton. Mr. Chairman, certainly under the Natural Gas 
Act, the FERC has had authority of eminent domain on natural 
gas pipelines, and thank goodness for that or we wouldn't have 
the network of natural gas pipelines around the country that we 
do. As the FERC moves to a--as we move the country to a 
national grid--and I am sure staff and the committee noticed 
the FERC yesterday moved to consolidate some of the RTOs in the 
East, which is indicative that we are moving to a national 
grid, they issued an order to begin the process to consolidate 
some of the regional transmission organizations in the East. I 
think eminent domain is going to be critical if you are going 
to have a Federal grid that works.
    The Chairman. Okay. Let me stop with that and defer to 
Senator Murkowski.
    Senator Murkowski. I think one of the differences between 
Senator Bingaman's bill and our bill is we discussed the merits 
of including eminent domain and thought it really was an 
obligation of the States to address their responsibility, and 
our position continues to be we are open to including it if, 
indeed, it is necessary. And we are going to, I guess, get a 
pretty idea of what the States' attitudes are towards that as 
we progress. If the States obviously want to be disruptive, 
clearly we are going to have eminent domain. We have got it for 
the pipelines. We don't have it for the electric transmission 
lines, but it may very well be necessary, so I am certainly 
open on that.
    But let me ask Mr. Jerry Hood the question basically with 
regard to oil exploration and if it can be done in a--well, in 
an environmentally sensitive manner. I would like your opinion, 
and then why are some of the environmental groups so adamant in 
opposing it. You know, we have pretty science; we have pretty 
good record; we have 30 years of history in the Arctic, but 
clearly it is being actively opposed by some of the extreme 
environmental community.
    Mr. Hood. Mr. Chairman, Senator Murkowski, I think as I 
said earlier, we have a 30-year history of producing oil in a 
safe and sound and environmentally responsible manner in the 
State of Alaska. In fact, I would make a wager that if you take 
the Prudhoe Bay fields and the ancillary fields there, and take 
their safety and their environmental record, and put them up 
against any other producing oil field in the world, that you 
will find that they will rank one, two, or three.
    Yes. We have had some accidents. The Wall Street Journal, I 
think, reported that we had that spill recently in the State, 
and they were appalled that it took 12 minutes to shut that 
pipeline down. I defy anyone to try to find another oil field 
in the world that can act that rapidly when they have a 
problem. I represent workers who perform maintenance on the 
Trans-Alaska Pipeline and on the North Slope. One of the 
companies where I have employees that I represent just went 
over 2 million man hours without a lost-time accident. So the 
emphasis in the North Slope oil fields is one of safety and 
environmental responsibility.
    And the answer to the second part of your question, I 
think, really is quite simple. It was pointed out in a series 
of articles in the Sacramento Bee here recently. ANWR is a cash 
cow for the environmental industry, and I call it the 
environmental industry, because that is what the head of the 
Audubon Society has said, and I think I can almost quote him 
verbatim, that this is a growth industry, one of the largest 
growth industries in the country.
    They have, through people like Robert Redford, sent out 
solicitations for donations to their causes, saying: Don't ruin 
this last pristine wilderness in Alaska, and they raise--and 
this may astound you--$9.6 million a day. They raised $3.5 
billion in 1999, and that, sir, astounds me. Of the top ten 
environmental groups, the CEOs of nine of those make over 
$200,000 a year. One of them was just recently fired and got a 
severance package of three-quarters of a millions dollars, and 
I would like to say that the Teamsters Union negotiated that 
contract, but we didn't.
    [Laughter.]
    Mr. Hood. But I will say this about their salaries and 
those severance packages. You know, you read a lot about union 
bosses in the paper. They make us look like pikers, and I think 
that is what it is all about is money.
    Senator Murkowski. Your implication is it is big business. 
All right.
    Mr. Hood. It is.
    Senator Murkowski. Senator Johnston, you recall when you 
were concluding your chairmanship of this committee, we took a 
run--I was working with you at that time--on the reality that 
we were developing an energy crisis and we had to do something 
about it. Our demand was increasing; our supply was not. And we 
put together a little chart here, and this is what passed in 
your committee.
    We had increased domestic production provisions. We had 
reduction of dependence on imports, expedited infrastructure, 
develop alternative fuels, encourage renewables, promote 
conservation energy, increase LIHEAP. Of course, the 
significant thing was the deep-water royalty relief, and you 
recall our discussion, because I wanted to add frontier relief 
to that, and you and your members were sensitive that this 
might kill deep-water royalty relief by adding to it, and I 
acquiesced at that time.
    The interesting thing, though, is what came out of the 
floor action, and we got encourage renewables, promote 
conservation, increase LIHEAP, deep-water royalty relief, and I 
think we got left turns on red lights, and we got low flush 
toilets that you could flush twice. My point is we acted in 
this committee. The floor did not act. And the thing I want to 
emphasize is why it is different this time, and I think you 
would agree with me, Senator Johnston.
    Our increased dependence on imported oil is up 56 percent. 
We have seen natural gas prices triple. We have seen no nuclear 
plants licensed in 10 years, no gasoline refineries in a couple 
of decades, no new coal-fired plants since 1995, and now we 
have the transmission problem associated with both gas and 
electric transmission, all coming together now. That is why it 
is different now. That is why we have the crisis. That is why 
we are going to have to have the relief. And I commend those of 
you who recognized that and recognized the realities associated 
with the technology advancement that we have in this country.
    When you were talking, Senator Johnston, about deep-water 
royalty, we were talking 1,500 feet. You are selling leases in 
6,000 feet and developing in 3,000 feet, and that is the 
advanced technology. But again we seem to have a mentality 
around here that it is not going to take place in my 
background, and that is what lease sale 181 is really all 
about, with the exception of the States of Louisiana, Texas, 
Alabama, Mississippi. We have excluded the entire east coast, 
the entire west coast, very difficult to open up Alaska as you 
know.
    And how do we communicate to the American people the 
reality that, you know, you are going to have a footprint but 
it is manageable? That you have advanced the technology and 
that it can be done safely. This is a little map that shows 
reality of what has been withdrawn. Everything in gray has been 
withdrawn: the west coast, the east coast, now lease sale 181, 
and then the previous administration through its roadless 
policy basically took out the overthrust belt of Wyoming, 
Colorado, and eliminated about 22 trillion cubic feet of 
recoverable gas.
    How do we communicate? You are out there in the private 
sector there, and, you know, you have been a part of this 
process, and we try and communicate realities, and some people 
say we can simply get there through conservation. We spent $6 
billion in the last decade on renewables and alternatives which 
we continue to support. As a matter of fact, one of the 
interesting things that is often overlooked is the proceeds 
from an ANWR lease sale, a billion and a half or whatever they 
are, are likely to go to R&D on renewables. We want to decrease 
our dependence on imports, develop alternatives, and we need 
money to do it, but we don't seem to get this idea across. And 
you have seen the strength of the lobbying group that says: no, 
not on public lands.
    Senator Johnston. Mr. Chairman--I will still call you Mr. 
Chairman; both of you I will call Mr. Chairman. We say that 
that problem of educating the American public has bedeviled me 
and the country for almost 30 years. I first got on this 
committee in 1973, and there is an enormous amount of self-
deception by the American public, by the press, by even policy-
makers.
    Look, if you think that the age of fossil fuels is anywhere 
close to being over with, I mean, that is a self-deception. I 
have spent so many years, I mean, following these things. Oh, 
it was going to be the age of fusion. Remember Armand Hammer 
used to come here and talk about shale oil, and we were going 
to do all these great things. All of those things--you know, 
there will be little boutiques here and there; there will be 
some important uses which----
    But Jimmy Carter said we were going to have 20 percent 
solar by the year 2000. I mean, that was a national obsession. 
Do you know that the percentage of solar has basically not 
moved in 25 years? Do you know that--you said we have spent $6 
billion on research. That doesn't count PURPA, which was many, 
many billions of dollars; 70 percent of SoCal Edison's stranded 
costs was PURPA projects. It doesn't count the tax credits; I 
mean, not only the Federal tax credits, the State tax credits.
    Now, I am not trying to say that just to tell you that you 
shouldn't add some money here or there for research, because 
there is some very good research that ought to be done. I have 
got a lot of ideas on that, and we ought to have photovoltaics 
and windmills, which by the way, last time I looked at EIA were 
12/100ths of 1 percent of the electricity. It may be up to 15/
100ths of 1 percent now. That is after all those billions of 
dollars spent.
    So what you have got to do is look at what is real, and, 
you know, one of the things that the country needs to do, which 
we haven't done, is to figure out this choice of fuels. I think 
Senator Dorgan had one of the right questions, which is: where 
do you want to be. It should not be the question of where do 
you want to be in terms of how much oil or gas you use, but 
where do you want to be in air quality; where do you want to be 
in global warming. You need to make those decisions, because 
that is going to make to dictate what fuels you use.
    Look, we have got plenty of coal in this country. If you 
want to burn coal without the expensive air quality things, we 
have got plenty of coal. Let her rip. I don't think that is 
what the country wants to do. At the same time, you have got to 
have coal as a very big part of this thing. What do you want to 
do on nuclear? That is one of the reasons why Price Anderson 
right now is so important.
    I mean, I--look, I have studied this thing a long time, as 
you all have. You can't get there without nuclear. Particularly 
you can't there on global warming, and I don't think you can 
meet the haze rules. By the way, I would--if I were still in 
the Senate, I would be a lot stronger on the haze rules than I 
used to be. Maybe that is because I have a place out by 
Shenandoah National Park where you have all this haze. But that 
is what needs to be done is to figure out where you want to be 
on these environmental issues, and then the rest of it kind of 
falls in place. Then the free market can make the decision.
    You say you can burn coal without a scrubber. Free market 
can make you a nice simple-cycle coal plant that will be cheap. 
If you say that you have got to pay some price to pollute the 
air, then nuclear then becomes feasible. I think it is becoming 
feasible now just with the price of natural gas. But those are 
the kind of decisions that need to be made is to look at what 
are the real choices.
    The Chairman. Well, thank you very much. Let me thank the 
whole panel for your testimony. We have a third panel, in fact, 
on the nuclear issue, and I would ask them to please come 
forward.
    [Pause.]
    The Chairman. We have three statements for the record that 
I want to include. Senator Thurmond sent a statement related to 
the nuclear provisions. We have a statement from Westinghouse, 
Savannah River Company, and also from Kerr-McGee Chemical, and 
we will include all of those in the record.
    Let me welcome these three witnesses, and please ask you to 
summarize your testimony, and we will be glad to include your 
full testimony in the record and any attachments you would like 
to have included. Mr. Fertel, let's start with you.

     STATEMENT OF MARVIN S. FERTEL, SENIOR VICE PRESIDENT, 
         BUSINESS OPERATIONS, NUCLEAR ENERGY INSTITUTE

    Mr. Fertel. Thank you, Mr. Chairman, and thank you, Senator 
Murkowski. I appreciate the opportunity to testify today on 
behalf of the nuclear energy industry.
    I would also like to thank you, Mr. Chairman, and the other 
members of the committee for your leadership in supporting the 
renewal of Price-Anderson Act, and I would second Senator 
Johnston's urging to move forward and renew Price-Anderson 
sooner rather than later.
    We also appreciate the proposal for legislation addressing 
the important human resources needs facing our Nation and for 
the introduction of legislation like we are discussing today 
which will help us address our nation's critical energy needs.
    Let me start by addressing the specific provisions you 
requested comments on at this hearing. The nuclear industry 
supports sections 106 and 107 of S. 388, the National Energy 
Security Act of 2001. We also support the study of the 
feasibility of building new nuclear plants at government-owned 
sites required by S. 919.
    With regard to the provisions of S. 472, the Nuclear Energy 
Electricity Supply Assurance Act of 2001, we support sections 
128, 129, and 130. And we also support section 126 which 
relates to the disposition of U.S. inventories of surplus 
nuclear fuel, but we believe that the effectiveness of this 
provision could be enhanced by broadening the scope of 
materials covered and establishing a date of 2009 for beginning 
of disposition of the material. We would be pleased to provide 
the committee with proposed language and a rationale for it 
after this hearing.
    The proposed partnerships between industry and government 
on early site permits, and focused requirements for planning 
R&D at both DOE and NRC called for in title II of the Nuclear 
Energy Electricity Supply Assurance Act will benefit the Nation 
and are supported by the industry. The nuclear industry views 
early site permitting as one of the most important steps along 
the path to building new nuclear powerplants. We support the 
provision because it helps provide certainty to a process to 
bank approved sites, making our Nation better prepared to build 
new nuclear plants in response to growing electricity demand.
    Finally, recognizing the significant role that nuclear 
energy plays in avoiding the emissions of Clean Air Act 
criteria pollutants and all forms of greenhouse gases, we 
strongly endorse the provisions in title III of S. 427 which 
would ensure that nuclear energy is not discriminated against 
in either Federal electricity procurements or by international 
funding institutions supported by the United States.
    Title III of S. 427 would also make emission-free power 
sources like nuclear energy eligible for economic incentives 
available under State implementation plans, a provision that 
makes great sense for all nonemitting sources.
    Mr. Chairman, your leadership and that of others on the 
committee, particularly Senators Murkowski and Domenici, in 
moving forward on legislation as we are discussing today is 
important to our Nation. Demand for electricity in the United 
States is growing. The Nuclear Energy Institute believes that 
to meet future electricity demand requires an energy policy 
that combines conservation and efficiency measures with major 
investments in powerplants, transmission lines, and other 
infrastructure components. We also believe that diversity of 
fuel type and technology is necessary to ensure reliability, 
hedge against fuel cost volatility, and to meet our 
environmental goals.
    Nuclear energy is our second largest source of electricity 
and our largest source of electricity that doesn't emit 
greenhouse gases or other air pollutants. Increasing nuclear 
energy's contribution to U.S. electricity supply is essential 
to sustain economic growth, meet the electricity needs of the 
growing population, improve our quality of life, and satisfy 
our nation's clean air goals.
    To satisfy future electricity demand and ensure that 
nuclear energy is available when needed, the U.S. industry is 
implementing a three-part program. First, we are maintaining 
the contribution from our existing plants through license 
renewal. We fully expect all of our plants will pursue license 
renewal.
    Second, expanding output from existing nuclear plants by 
continuing to improve efficiency and reliability and by 
investing the capital necessary to increase the rated capacity 
of the plants, this program has been so successful to date that 
over the last ten years, improved efficiency and upgrades at 
our 103 plants have added the equivalent of 22,000 megawatts of 
new capacity.
    And, finally, we are moving forward towards construction of 
new plants. In May, our industry announced the Vision 2020 goal 
of adding 50,000 megawatts of new capacity by the year 2020. 
The industry is pursuing two parallel approaches to employ new 
plants. In both paths, we will be looking at building families 
of standardized plants. On one path, we are looking at 
employing the new reactor designs already certified by the NRC 
or derivatives of those designs.
    Also, several companies are developing advanced gas-cooled 
reactors. These designs would also be standardized and modular 
in nature. We expect license applications for new plants will 
be filed over the next few years. Leadership and support from 
this committee in the past has been instrumental in 
establishing a more effective licensing process for new plants, 
and continued support from the committee will be instrumental 
to the success that will be achieved in the future.
    In this regard, again, we appreciate your leadership in 
addressing the legislative provisions we are talking about 
today, as well as the commitment to renew Price-Anderson and to 
pursue hearings on other legislation addressing infrastructure 
needs and focused R&D. We also appreciate your continued 
oversight of the Government's portion of the program for used 
nuclear fuel management.
    The used nuclear fuel repository program is the foundation 
of our national policy for managing used fuel, and while the 
industry recognizes the value in research and future use fuel 
management technologies for as called for in S. 388, the 
residue from these technologies will still require an 
engineered repository for disposal.
    Again, thank you for the opportunity to testify today, and 
I would be glad to answer any questions you may have.
    [The prepared statement of Mr. Fertel follows:]
    Prepared Statement of Marvin S. Fertel, Senior Vice President, 
             Business Operations, Nuclear Energy Institute
    Chairman Bingaman, Ranking Member Murkowski, and distinguished 
members of the Senate Energy and Natural Resources Committee, I am 
Marvin Fertel, Senior Vice President of the Nuclear Energy Institute. I 
am pleased to have this opportunity to testify regarding the provisions 
in the Nuclear Energy Electricity Supply Assurance Act of 2001 (S. 
472), legislation to require the Department of Energy to study the 
feasibility of developing nuclear power plants at existing DOE sites 
(S. 919), and legislation to amend titles X and XI of the Energy Policy 
Act of 1992 (S. 1147). Together, these provisions promote a robust 
future for nuclear energy in the United States.
    The Nuclear Energy Institute (NEI) is the Washington, D.C.-based 
policy organization for the nuclear industry. NEI coordinates public 
policy on issues affecting the nuclear energy industry, including 
federal regulations that help ensure a safe and robust future for our 
industry. NEI represents nearly 275 companies, including every U.S. 
utility licensed to operate a commercial nuclear reactor, their 
suppliers, fuel fabrication facilities, architectural and engineering 
firms, labor and law firms, radiopharmaceutical companies, research 
laboratories, universities and international nuclear organizations.
    The nuclear energy industry commends you, Mr. Chairman, Ranking 
Member Murkowski, and the members of this committee, for the strong 
bipartisan support you have demonstrated toward ensuring the American 
people continue to have the energy security and environmental benefits 
associated with the use of nuclear energy in the United States. The 
provisions in this comprehensive energy legislation related to nuclear 
energy that we are discussing today are a critical component of that 
support.

                   ELECTRICITY: WILL WE HAVE ENOUGH?
    Today, America's 103 nuclear power plants are the safest, most 
efficient and most reliable in the world. Nuclear energy is the second 
largest source of electricity in the United States, and our largest 
source of emission-free electricity generation. The industry last year 
achieved record levels of safety, reliability, efficiency and 
electricity production. In our view, increasing nuclear energy's 
contribution to U.S. electricity supply is not an option. It is 
essential to sustain economic growth, meet the electricity needs of our 
growing population, improve our quality of life, and satisfy our 
nation's clean air and environmental goals.
    U.S. electricity demand grew by 2.2 percent a year on average 
during the 1990s, and increased by 2.6 percent in 2000. Even if demand 
grows by a modest 1.8 percent annually over the next two decades--as 
forecasted by the U.S. Energy Information Administration--the nation 
will need nearly 400,000 megawatts of new electric generating capacity, 
including replacement of power plants that will close during that time. 
This capacity is the equivalent of building about 800 new mid-size 
(500-megawatt) power plants--or 40 new plants every year for the next 
20 years. New nuclear energy plants should account for a portion of 
this new capacity.
    In California, shortages of electric generating capacity and rising 
natural gas prices have contributed to skyrocketing consumer 
electricity rates, the bankruptcy of one major electric company, and 
blackouts affecting millions of people and thousands of businesses--all 
at a cost of billions of dollars. Electricity shortages are also 
forecast for other regions of the country during the next few years.
    To satisfy growing electricity demand, and ensure that nuclear 
energy is available as needed, the U.S. nuclear industry is 
implementing a three-part program:

   maintaining the contribution from its existing plants 
        through license renewal;
   expanding the output from the existing nuclear units by 
        continuing to improve efficiency and reliability, and by 
        investing the capital required to increase the rated capacity 
        of the units; and
   laying the groundwork for construction of new nuclear 
        plants.

    Many of the nation's largest nuclear generating companies and 
suppliers, working with NEI, are implementing a broad-based plan to 
create the business conditions necessary for construction of new 
nuclear power plants. The plan includes: (1) a number of initiatives to 
reduce the initial capital cost of new nuclear power plants; (2) 
programs to create a stable licensing regime and reduce regulatory 
uncertainties, and (3) a series of initiatives to build support for new 
nuclear power plants among policymakers, the media and local 
communities around prospective sites for new nuclear power plants.
    The companies intent on starting construction of new nuclear power 
plants in the United States within the next five years are doing so 
because new nuclear capacity represents a solid business opportunity. 
For an electricity generating company, new nuclear power capacity 
represents:

   a reliable source of electricity with low ``going-forward'' 
        or ``dispatch'' costs;
   a high level of forward price stability and protection 
        against the fuel price volatility that impacts gas-fired power 
        plants; and
   protection against possible escalation in environmental 
        requirements imposed on fossil-fueled power plants. For 
        companies already operating coal-fired or gas-fired power 
        plants, new nuclear capacity reduces the cost of clean air 
        compliance that might otherwise be imposed on that coal- and 
        gas-fired capacity.

    Rising energy prices topped the list of economic concerns voice by 
Americans in a February Wall Street Journal/NBC survey.\1\ Eighty-six 
percent of Americans agree that the country faces an energy problem, 
and they ranked energy prices as a more pressing concern than federal 
taxes and the budget. One-third said the United States faces an energy 
crisis, and more than one-half see rising energy costs as a problem.
---------------------------------------------------------------------------
    \1\ Wall Street Journal, March 8, 2001.
---------------------------------------------------------------------------
    Today, nuclear energy supplies electricity to one of every five 
homes in the country, at production costs that are cheaper than coal, 
natural gas and oil-fired power plants. Increased efficiency, and 
therefore greater production, at the nation's 103 nuclear power 
reactors during the past decade, has met 22 percent of all new 
electricity demand during that time. Importantly, this electricity is 
generated without producing any air pollution or greenhouse gases.
    If we are to responsibly meet our nation's soaring demand for 
electricity while maintaining clean and safe supplies of air, nuclear 
energy must continue to be an important part of our nation's energy 
mix. The industry is taking steps to ensure that nuclear energy remains 
a vital part of our country's electricity portfolio. We commend this 
committee for its foresight that nuclear energy must be a significant 
component of a comprehensive energy plan for our future.
    I will address the nuclear energy issues in the Committee's draft 
energy policy by topic.

                        NEW NUCLEAR POWER PLANTS
    The industry is committed to building new nuclear power plants to 
meet growing electricity demand during the next 20 years. In that 
context, the industry supports provisions in S. 919 that would study 
the feasibility of building new nuclear power plants at existing 
Department of Energy sites.
    The industry supports Section 106 of S. 388, which is mirrored in 
Section 130 of S. 472, and would require the Nuclear Regulatory 
Commission to report to Congress on the state of nuclear power 
generation in the United States. The industry believes that its 
outstanding record of safety and performance would garner greater 
support in Congress--as it has in this Committee--for building advanced 
reactor designs as part of a balanced energy portfolio to serve 
Americans in the decades to come. This section also would require the 
NRC to assess its ability to extend the operating licenses of existing 
nuclear power plants and to license new nuclear plants. This 
information will be helpful to the NRC, Congress and other interested 
stakeholders in assessing the certainty of the new NRC licensing 
process.
    Like the industry, the Department of Energy has been looking at 
issues related to new nuclear power plant construction in the United 
States. The legislation directs the Energy Department to undertake a 
number of initiatives, including examining the near-term prospects for 
completing reactors that are partially built and the long-term 
possibilities for building emerging reactor technology.
    The Secretary of Energy would, under Section 202 of S. 472, be 
directed to study the feasibility of completing and operating 
unfinished commercial nuclear power plants. The industry believes that 
completion and eventual operation of unfinished commercial reactors can 
be done safely and economically. We also believe it will provide a 
much-needed bridge of electricity between today's nuclear power plants 
and the facilities we will build in the near future to meet the 
nation's growing energy needs.
    In addition to the Energy Department's role in studying the 
feasibility of completing unfinished nuclear power plants, the 
department would initiate a government/private partnership to 
demonstrate the NRC's early site permitting process, which has part of 
the nuclear plant licensing reforms passed in the Energy Policy Act of 
1992. The nuclear energy industry views early site permitting as one of 
the most important steps along the path to building new nuclear power 
plants. We support this provision because it helps electric companies 
test a process to ``bank'' approved sites, making the companies much 
more nimble in responding to the emergence of business conditions that 
are favorable to building new nuclear power plants.
    S. 919 would require the Energy Secretary to conduct a study to 
determine the feasibility of building commercial nuclear power plants 
at existing DOE facilities. This study would provide valuable input to 
those private sector and/or government entities that might be 
considering building new nuclear power plants in the future.
    To its credit, DOE has launched a project to prepare a technology 
roadmap for developing the next generation nuclear plants, called 
Generation IV. The industry is working cooperatively with the Energy 
Department in this projects and supports Section 204 of S. 472 that 
directs the Secretary of Energy to study Generation IV nuclear power 
systems. Similarly, the industry supports Section 205 of the bill, 
which requires the NRC to develop a research program to support 
resolution of potential licensing issues associated with new nuclear 
reactor technology and concepts that could be incorporated into current 
reactor designs. However, the NRC should avoid duplication among other 
federal agencies and the industry in its research efforts, and funding 
for the agency's research should be separate from industry user fees 
where appropriate.

                      USED FUEL MANAGEMENT ISSUES
    The nuclear energy industry also supports Section 107 of S. 388, 
which establishes the Office of Spent Nuclear Fuel Research within the 
Department of Energy's Office of Nuclear Energy Science and Technology.
    The used nuclear fuel repository program--including the Department 
of Energy's commitment to forward a formal decision on the site 
suitability of Yucca Mountain to the president this year--is the 
foundation of our national policy for managing used nuclear fuel. In 
addition, the nuclear industry recognizes the value in researching 
future used fuel management technologies. The farsighted research and 
development programs that the new Office of Spent Nuclear Fuel Research 
will conduct will allow our nation to remain the world leader in 
nuclear technologies. However, it is important to note that even 
technologies like transmutation--the conversion of used nuclear fuel 
into less toxic materials--require a repository for disposal of the 
radioactive byproducts generated from the process.

        NUCLEAR ENERGY IS AN ENVIRONMENTALLY PREFERABLE PRODUCT
    In his recent address on climate change, President Bush made a 
critical observation regarding the path forward on climate change, 
stating: ``There are only two ways to stabilize concentration of 
greenhouse gases. One is to avoid emitting them in the first place; the 
other is to try to capture them after they're created.'' This framework 
builds on our historical success with combining pollution avoidance and 
end-of-the-pipe controls in addressing other potentially harmful air 
emissions from power generation.
    As early as 1969, the Department of the Interior listed increased 
use of nuclear energy as one of 11 methods to control sulfur dioxide 
emissions. Since then, the advent of nuclear energy has been a major 
component of achieving domestic air quality goals.
    For example, from 1975 to 1990, generating electricity at nuclear 
plants instead of fossil-fueled alternatives avoided more tons of 
nitrogen oxide than were eliminated through controls under the Clean 
Air Act. In 2000 alone, nuclear plants avoided more than 4 million tons 
of sulfur dioxide, nearly 2 million tons of nitrogen oxides, and 174 
million metric tons of carbon equivalent.
    Without today's nuclear energy production--which generates 20 
percent of our electricity and two-thirds of all emission-free 
electricity--the difference between U.S. greenhouse gas emission levels 
and our 1990 baseline established in the Framework Convention on 
Climate Change would double.
    Sections 301, 302 and 304 of S. 472 appropriately recognize the 
environmental contributions of nuclear energy. First, Section 301 
provides that electricity generated by a nuclear power plant ``shall be 
considered to be an environmentally preferable product'' for the 
purposes of Executive Order 13101, which encourages federal agencies to 
use environmentally preferable products. The industry believes this is 
an important first step in a broad affirmation of nuclear energy's role 
in environmental protection.
    Section 302 of S. 472 mirrors language in Senator Frank Murkowski's 
recent legislation that recognizes nuclear energy's demonstrated role 
in improving our nation's air quality. This section modifies the 
current definition of ``emission-free electricity source'' to include 
``a facility that generates electricity using nuclear fuel that meets 
all applicable standards for radiological emissions under Section 112 
of the Clean Air Act.'' The industry supports this provision because it 
recognizes that continued operation of an emission-free electricity 
source or improved availability of the facility is considered a 
pollution control measure, and therefore is eligible for incentive 
programs for control measures, such as emission trading, loan funds, 
and tax benefits.
    The industry also supports Section 304, which would prohibit the 
use of federal funds to support domestic or international 
organizations, such as the World Bank, International Monetary Fund and 
the Export-Import Bank, engaged in financing or developing power plants 
if the activities do not include nuclear power projects.

                             URANIUM SUPPLY
    A strength of our nation's nuclear energy program is the low cost 
of producing electricity at nuclear power plants and the stable forward 
pricing of electricity produced by nuclear power plants. The importance 
of this price stability was evident last year as sharp increases in 
natural gas prices resulted in significant increases in the price of 
electricity across the United States. The availability of a long-term, 
reliable and competitive fuel supply is a critical factor in achieving 
the excellent economic performance at nuclear power plants.
    In that regard, the industry supports sections 128 and 129 of S. 
472. Both of these provisions act to provide contingencies in the event 
of undesirable supply problems affecting the domestic conversion and 
enrichment sections of the nuclear fuel supply chain. The industry also 
supports section 126 of S. 472, but suggests that a more comprehensive 
approach establishing a broad framework for disposition of uranium by 
the Department of Energy be considered. The industry will forward 
specific changes regarding this provision to the Committee.
    The industry also supports the federal government's commitment to 
appropriately reimburse Kerr-McGee Chemical LLC for the federal share 
of cleaning the West Chicago thorium site as stated in Section 1 (a) of 
S. 1147. However, any increase in funding for this effort should not 
come at the expense of taking funds from the portion of the Uranium 
Enrichment Decontamination and Decommissioning Fund that is allocated 
for cleanup of the gaseous diffusion plants.

                               CONCLUSION
    One need only look at the current energy situation in the United 
States, marked by thinning capacity margins and volatile prices for 
fossil fuels, to understand why nuclear energy is so important to our 
nation's energy mix.
    In the future, as electricity demand continues to rise, nuclear 
energy will be even more important to American consumers, and to our 
nation's economy as a whole. Our nation's nuclear energy industry has 
proven over the past two decades that nuclear energy is a safe, 
reliable, and efficient source of electricity for our nation's economic 
growth. It plays a significant role in many of the states represented 
on this Committee, providing both electricity to power economic growth 
and clean air benefits that protect both our environment and our 
health.
    Federal Reserve Chairman Alan Greenspan, in a speech before the 
Economic Club of Chicago in June, said that nuclear energy is ``an 
obvious major alternative'' for electricity to production in the United 
States. ``Given the steps that have been taken over the years to make 
nuclear energy safer and the obvious environmental advantages it has in 
terms of reducing emissions, the time may have come to consider whether 
we can overcome the impediments to tapping the potential more fully.''
    I commend the members of this Committee for having the foresight 
for taking this important step to tap the incredible potential that 
nuclear energy offers the nation and its citizens. I urge you to 
continue to support nuclear energy as a critical part of the United 
States' diverse energy policy as you move forward with this important 
legislation

    The Chairman. Thank you very much.
    Mr. Thadani and Ms. Aurilio, let me ask you both to give us 
a short version of your testimony. We are about halfway through 
a vote, and there are going to be several in a row, so we are 
going to have to conclude, but go right ahead, Mr. Thadani.

  STATEMENT OF ASHOK C. THADANI, DIRECTOR, OFFICE OF NUCLEAR 
REGULATORY RESEARCH, NUCLEAR REGULATORY COMMISSION, ROCKVILLE, 
                               MD

    Mr. Thadani. Certainly, then I will be very brief. Mr. 
Chairman, thank you very much. I am pleased to submit this 
testimony on behalf of the U.S. Nuclear Regulatory Commission 
concerning three sections of S. 472.
    One section, section 130, requires a report to the Congress 
on the state of nuclear generation in the United States. The 
other two sections, sections 201 and 205, discuss the 
establishment and implementation of a research program to 
support resolution of various technical issues.
    As per section 130 requirement, the NRC would be pleased to 
provide the report on the status of the activities related to 
nuclear power generation and on NRC's work to prepare for 
future applications and the issues related to licensing and 
regulation facilities.
    While such a report could provide information and insight 
related to nuclear power generation, we would caution that the 
NRC would prepare such a report from the perspective of a 
safety regulator.
    As for sections 201 and 205 relating to new reactor 
concepts and new technologies for current reactors, the 
Commission approves of the direction in S. 472 to develop a 
research program to support resolution of issues for new 
reactor designs and technologies and appreciates the 
recognition of the importance of NRC's research program to any 
successful licensing of new nuclear powerplants.
    The Commission believes that a strong nuclear research 
program needs to be maintained to support our regulatory 
activities, including activities relating to new concepts and 
designs. The NRC's research program has historically provided 
valuable information to support a wide spectrum of regulatory 
activities. Research has provided the technical basis for 
license renewal and for the certification of advanced plant 
designs such as the Westinghouse AP-600, General Electric's 
Advanced Boiling Water Reactor and Combustion Engineering 
System 80+ design.
    Perhaps most fundamentally, research has developed the 
analytical tool, probabilistic risk assessment, that underlie 
the NRC's efforts to implement a more risk-informed regulatory 
paradigm. In addition to the three certified advanced reactor 
designs, there are new nuclear plant technologies which some 
believe can provide enhanced safety, improved efficiency, lower 
costs, as well as other benefits. The Commission has already 
begun to undertake the groundwork for the efforts sought in S. 
472.
    To ensure that the Commission staff is prepared to evaluate 
applications to introduce these advanced nuclear reactors, the 
Commission recently directed the staff to assess the technical, 
licensing, and inspection capabilities that would be necessary 
to review an application for an early site permit, license 
application, or construction permit for a new unit.
    The Chairman. Mr. Thadani, let me ask--I note that you are 
going through your testimony, and we have the full statement 
here. Could we just ask that it be submitted for the record, so 
we can take a few minutes and hear from Ms. Aurilio?
    Mr. Thadani. Yes, indeed, Mr. Chairman.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Thadani follows:]
  Prepared Statement of Ashok C. Thadani, Director, Office of Nuclear 
   Regulatory Research, Nuclear Regulatory Commission, Rockville, MD

                              INTRODUCTION
    Mr. Chairman and members of the Committee, I am pleased to submit 
this testimony on behalf of the U.S. Nuclear Regulatory Commission 
(NRC) concerning three sections of S. 472. One section (Section 130) 
requires a report to the Congress on the state of nuclear power 
generation in the United States. The other two sections (Sections 201 
and 205) discuss the establishment and implementation of a research 
program to support resolution of potential licensing issues associated 
with new reactor concepts and new technologies for nuclear power 
plants.
    As the Committee knows, the Commission's mission is to ensure the 
adequate protection of the public health and safety, the common defense 
and security, and the environment in the application of nuclear 
technology for civilian use. The Commission does not have a promotional 
role; rather, the agency's role is to ensure the safe application of 
nuclear technology. The agency's perceptions of the three sections of 
S. 472 are presented from this perspective.
    1. Section 130 requires the Nuclear Regulatory Commission to report 
to Congress on the state of nuclear power generation in the United 
States.
    The NRC would be pleased to provide a report on the status of its 
activities related to nuclear power generation, and on NRC's work to 
prepare for future applications and the complex issues related to 
licensing and regulating nuclear power facilities.
    While such a report could provide information and insights related 
to nuclear power generation and electricity supply for the country, we 
would caution that the NRC would prepare such a report from the 
perspective of a safety regulator. Economic issues will be of central 
importance in defining the future course of nuclear power in this 
country and the NRC, which does not engage in economic regulation, does 
not have any particular insights on such matters. In particular, with 
respect to advanced reactor designs and future applications, the report 
would address NRC's readiness for such future applications rather then 
the relative merits from an energy policy perspective of the designs 
being considered. Congress will have to decide whether a report from 
the perspective of the NRC will serve the policy needs of Congress.
    2. Sections 201 and 205, requires the NRC to develop a 
comprehensive research program to support resolution of potential 
licensing issues associated with nuclear reactor concepts and new 
technologies that may be incorporated into new or current designs of 
nuclear power plants.
    The Commission approves of the direction in S. 472 to develop a 
research program to support resolution of licensing issues for new 
reactor designs and technologies and appreciates the recognition of the 
importance of NRC's research program to any successful licensing of new 
nuclear power plants. The Commission believes that a strong nuclear 
research program needs to be maintained to support our regulatory 
activities, including activities relating to new concepts and designs. 
The NRC's research program has historically provided valuable 
information to support a wide spectrum of regulatory activities. 
Research has provided the technical basis for license renewal and for 
the certification of advanced plant designs, such as the Westinghouse 
AP-600, General Electric's Advanced Boiling Water Reactor, and 
Combustion Engineering's System 80+. Research programs have allowed the 
NRC to address reactor pressure vessel issues, steam generator issues, 
and issues associated with longer fuel burnup and power uprates. 
Perhaps most fundamentally, research has developed the analytical tool, 
probabilistic risk assessment, that underlies the NRC's efforts to 
implement a more risk-informed regulatory paradigm.
    In addition to the three certified advanced reactor designs, there 
are new nuclear power plant technologies, which some believe can 
provide enhanced safety, improved efficiency, lower costs, as well as 
other benefits. The Commission has already begun to undertake the 
groundwork for the effort sought by S. 472. To ensure that the 
Commission staff is prepared to evaluate applications to introduce 
these advanced nuclear reactors, the Commission recently directed the 
staff to assess the technical, licensing, and inspection capabilities 
that would be necessary to review an application for an early site 
permit, license application, or construction permit for a new reactor 
unit. This will include evaluating the capability needed to review the 
designs for generation III+ or generation IV light water reactors, such 
as the Westinghouse AP-1000, the Pebble Bed Modular Reactor, General 
Atomics'' Gas Turbine Modular Helium Reactor, and the International 
Reactor Innovative and Secure (IRIS) designs. The Commission will also 
examine its regulations relating to reactor licensing, such as 10 CFR 
Parts 50 and 52, in order to identify whether any enhancements are 
necessary. NRC's research program will provide important information 
and contributions to these efforts.
    Decisions concerning research programs that address new designs, as 
well as other possible new technologies and concepts, must onsider the 
potential for applications for the new designs and technologies. The 
first priority must be on those designs or concepts that appear most 
likely to be pursued by licensees. In addition, such decisions must 
include consideration of the timing of potential requests for NRC 
approval to use new technologies and designs. The NRC seeks to assure 
the availability of research results to support timely decision making. 
Such decisions must also include consideration of resources for and the 
method of funding of new research programs. Operating reactor licensees 
have expressed concern about the fees imposed on them and, as a result, 
about the size of the NRC's budget. One approach that would address 
licensee concerns is to fund additional research from the general fund, 
as opposed to funding additional activities from the fee-based portion 
of NRC's budget. Such support could be justified on the basis of the 
broad public benefit from such research.
    The funding proposed in S. 472 would be used to augment and 
accelerate research programs in support of the future application of 
new technologies in operating reactors (e.g., behavior of advanced fuel 
designs, advanced instrumentation controls and sensors), and to 
establish new programs to address the technical needs identified in the 
Commission's assessment of future licensing capabilities.
    The Commission believes that its past research programs have made 
important contributions to support the NRC's regulatory activities in 
many areas. We welcome the opportunity to work with the Congress to 
develop and implement research programs to address new reactor designs, 
as well as new technologies and concepts which could be incorporated 
into new or current nuclear plants.
    Thank you Mr. Chairman. I welcome your comments and questions.

    The Chairman. Ms. Aurilio.

       STATEMENT OF ANNA AURILIO, LEGISLATIVE DIRECTOR, 
              U.S. PUBLIC INTEREST RESEARCH GROUP

    Ms. Aurilio. Thank you. My name is Anna Aurilio. I am the 
legislative director for U.S. PIRG with the national office for 
the State public interest research groups including New Mexico 
PIRG.
    We have a long history of working for a clean, affordable 
energy future, and we believe nuclear energy plays no part in 
that. We have a web site that describes our vision of 
increasing energy efficiency, saving consumers money, reducing 
pollution and shifting to clean renewable energy, and I believe 
that is something that you have supported in the past as well, 
and our web site is newenergyfuture.com.
    I will comment on some of the sections of S. 472, just to 
highlight those, but we basically say that the nuclear industry 
wouldn't exist today if it weren't for massive Federal 
subsidies. It is still unsafe, uneconomic, unreliable, and we 
feel that it is time for taxpayers to stop having to pay to 
hand out yet more money to an industry that generates 
radioactive waste for which there is no sound solution.
    First of all, in terms of the existing reactors, we are 
very, very concerned with the sections in Senator Domenici's 
bill that provide incentives for the reactors to run more than 
they otherwise would have, and this is because there are aging-
related problems at reactors. In fact, in the last year, there 
have been nine aging-related shutdowns at nuclear reactors, 
according to the Union of Concerned Scientists, and I just got 
word that yesterday three reactors in Minnesota were found to 
have some significant problems.
    The Prairie Island nuclear powerplant which is on the flood 
plain of the Mississippi River, a place where you probably 
shouldn't have sited a nuclear powerplant to begin with, had 16 
out of 17 flood panels not working. These were supposed to 
protect parts of the nuclear powerplant from flooding, so that 
seems very dangerous and not appropriate.
    The second thing is the other nuclear powerplant there 
hadn't removed its shipping casement from some safety bellows 
that also would have prevented the release of radioactive steam 
in case of an accident. This was shipping material that was 
installed when the reactor was first put in 30 years ago. So, 
again, it seems to us that you shouldn't be asking existing 
reactors and rewarding existing reactor operators to run their 
plants closer to the safety margins. That is not appropriate at 
all.
    The second thing is Price-Anderson. We do not support the 
extension of Price-Anderson. We believe that if the nuclear 
industry is so clean and so safe as it says it is, there is no 
justification for a limit on liability, and there is certainly 
no justification to have taxpayers bail out potentially victims 
if there were to be an accident so big that it would exceed the 
liability limit.
    Finally, there are several provisions that talk about so-
called Generation IV reactors, new reactor designs. Again, you 
will hear the nuclear industry talking about how clean and 
inherently safe these reactors are, and yet they continue to 
ask for special insurance coverage that no other industry have, 
and a limit on liability that guarantees that the industry is 
protected in case of an accident, but the public is not. That 
is simply not acceptable, and even several utility 
commissioners in several States have now said, if new reactors 
are to be built, they should be forced to buy insurance on 
their own, including, I believe, a gentleman from the Public 
Utility Commission of New Mexico.
    Finally, I had to chuckle when I saw the environmentally 
preferable purchasing provisions in the Domenici bill, section 
301. It attempts to legislate away the polluting reality of 
nuclear power. We have being barraged by misleading nuclear 
energy ads, touting how clean and safe they are, and yet even 
the Federal Trade Commission has said that any advertising 
campaign touting nuclear power as environmentally clean is 
without substantiation.
    Now, the one comment I have to make on that is if it is so 
environmentally clean, why did Mr. Fertel's group on June 6 sue 
in D.C. District Court to try to weaken radiation standards for 
a nuclear waste dump. Basically Mr. Fertel's group does not 
want to afford people who have the misfortune of living around 
a proposed nuclear waste dump in Nevada safe drinking water 
standards for radiation that apply to the rest of the country.
    In closing, S. 919, to look at DOE sites for the potential 
of developing commercial reactors there, DOE weapons production 
sites are some of the most heavily contaminated sites around 
the world. A 1997 DOE report concluded that nuclear fuel 
reprocessing generated 94 percent of the waste at these sites, 
and by the way, title III of the Domenici bill contains the 
authorization for accelerator transmutation of waste which is 
reprocessing, and according to a DOE report would cost $281 
billion over 100 years and not solve the nuclear waste problem, 
so that should be rejected.
    But in terms of Senator Thurmond's bill, we believe that 
the DOE should focus on cleaning up extremely contaminated 
sites and not risk more contamination by promoting commercial 
reactors at these sites.
    Thank you.
    [The prepared statement of Ms. Aurilio follows:]
 Prepared Statement of Anna Aurilio, Legislative Director, U.S. Public 
                        Interest Research Group
    Good morning, my name is Anna Aurilio and I'm the Legislative 
Director of the U.S. Public Interest Research Group, or U.S. PIRG. U.S. 
PIRG is the national office for the State PIRGs, which are 
environmental, good government and consumer advocacy groups active 
around the country. Thank you for the opportunity to speak today.
    The state PIRGs have a long history of working for a clean 
affordable energy future. Our goal is to shift from polluting and 
dangerous sources of energy such as nuclear and fossil energy to 
increased energy efficiency and clean renewable energy sources. Our 
website on energy is www.newenergyfuture.com.
    Today I will be addressing nuclear energy issues. In particular, I 
will be focusing my testimony on the nuclear energy subsidy provisions 
contained in S. 472, ``The Nuclear Energy Supply Assurance Act of 
2000.'' I also will comment briefly on S. 919.
    Nuclear power is unsafe, unreliable, uneconomic and generates long-
lived radioactive wastes for which there is no safe solution. It would 
not exist without massive federal and state subsidies. It should be 
phased out as soon as possible and should not be encouraged as a future 
energy source.
    Therefore, PIRG opposes further subsidies to the nuclear industry 
including those included in S. 472. We are especially dismayed at the 
plethora of new subsidies proposed by S. 472 as well as its support for 
the expansion of existing subsidies such as the Price Anderson Act and 
nuclear waste ``transmutation.'' In fact, the only assurance the public 
gets in S. 472 is the production of more lethal radioactive waste and 
the waste of billions of taxpayer dollars.
    This legislation takes us in the wrong direction. Taxpayers should 
not be asked yet again, to prop up a failed industry, which has 
garnered the lion's share of federal research and development funding, 
yet continues to be among the most expensive and dangerous energy 
sources. According to the Congressional Research Service, nuclear 
research and development has gotten more than 60%, or $66 billion in 
energy research and development funding from 1948-1998.
    Even an industry spokesman seems a little embarrassed at some of 
the unjustified handouts in S. 472. At a previous hearing this spring 
before this committee, Mr. Marvin Fertel of the Nuclear Energy 
Institute said of additional subsidies for operation of existing 
nuclear power plants:

        I think what you will see is that the industry will move down 
        that road on its own to produce as much safe, reliable 
        electricity as we can in this country, so I think that while we 
        appreciate the incentives, I think that they may expedite 
        things, but they are probably not going to cause a radical 
        change in the behavior on what the industry will do . . .

    PIRG supports the elimination of nuclear subsidies and wishes that 
the nuclear industry would move down the road ``on its own.'' PIRG has 
been working to shift funding towards energy efficiency and clean 
renewable energy programs such as solar and wind. From 1993 through 
1995, PIRG helped shift more than $500 million in nuclear and fossil 
R&D spending to efficiency and renewable programs. During that time, we 
helped convince Congress to eliminate funding for two extremely 
expensive advanced reactor programs, the gas-cooled reactor and the 
breeder reactor known as the Advanced Liquid Metal Reactor, saving 
taxpayers at least $5.6 billion. By 1998, the Department of Energy 
spent no money on commercial nuclear research and development.
    Unfortunately, since that time, the nuclear industry and its 
supporters have succeeded in reviving funding for commercial nuclear 
research and development. Some in the industry are even trying to 
revive the breeder reactor and gas-cooled reactor programs killed by 
Congress under the guise of ``Generation IV'' reactor research. Hard-
earned tax dollars would be better spent on developing and promoting 
energy efficiency and clean renewable energy technologies.

          NUCLEAR POWER IS A FAILED ENERGY SOURCE OF THE PAST
    Despite industry's claims that nuclear power is ``safe'', nine 
existing reactors have experiencing aging-related shutdowns since 
January, 2000.\1\ Despite industry claims that nuclear power is clean, 
no country in the world has solved the nuclear waste problem, and the 
industry is suing to allow more radiation leakage from a proposed waste 
dump in Nevada.\2\ Despite industry's promises of power that would be 
``too cheap to meter'' it remains wildly expensive for taxpayers and 
ratepayers. For example, ratepayer bailouts of utilities'' so-called 
``stranded'' investments in nuclear power plants total an estimated 
$112 billion in the deregulation legislation in just 11 states.\3\ The 
nuclear industry currently receives more subsidies and favorable 
government treatment than any other industry. Consider that:
---------------------------------------------------------------------------
    \1\ Union of Concerned Scientists, ``Aging Nuclear Plants and 
License Renewal,'' Issue Brief, May 22, 2001.
    \2\ Nuclear Energy Institute, Inc. vs. U.S. and U.S. EPA, filed in 
U.S. District Court of Appeals, DC Circuit, June 6, 2001.
    \3\ Safe Energy Communication Council, ``The Great Ratepayer 
Robbery: How Electric Utilities are Making Out Like Bandits at the Dawn 
of Deregulation,'' Fall 1998.

   Federal taxpayers paid to develop commercial nuclear 
        technology;
   In case of an accident, federal taxpayers will pay public 
        damages for accidents caused by DOE contractors, and may be 
        ultimately liable for commercial nuclear accident damages above 
        $9.4 billion;
   Federal taxpayers will ultimately pay for nuclear waste 
        disposal; and
   Federal taxpayers were cheated out of billions of dollars 
        during the privatization of the Uranium Enrichment Corporation.

    While it is difficult to imagine how the public could possibly do 
more to prop up this failed industry, the nuclear industry has devised 
a whole new menu of additional unjustified and expensive subsidies.

        CONGRESS SHOULD OPPOSE FUNDING FOR NEW NUCLEAR RESEARCH 
                        AND DEVELOPMENT PROGRAMS
    This country is at a crossroads on energy policy. We should reject 
the failed, polluting energy sources of the past and work for a smarter 
cleaner energy future, that focuses on energy efficiency and shifting 
to clean renewable energy sources such as wind and solar.
    The Bush energy plan and S. 472 would increase costs to taxpayers 
and increase the amount of radioactive waste that will ultimately need 
disposal. Further, both plans undermine the democratic process by 
cutting citizens even further out of decisions affecting their health 
and safety. For example, Section 610 in S. 472 would allow the NRC to 
deny citizens and others their right to a formal hearing even for very 
significant decisions such as the licensing of a national nuclear waste 
dump.

    S. 472 WILL COST TAXPAYERS AT LEAST $237.2 MILLION IN FY02 FOR 
         ADDITIONAL UNJUSTIFIED AND DANGEROUS NUCLEAR SUBSIDIES
    The following describes these programs with proposed FY2002 funding 
in ( ).
          Title I--Support for Continued Use of Nuclear Energy
    Price Anderson Amendments--My colleague from Friends of the Earth 
has already testified on our behalf on this issue. Briefly, the Price 
Anderson Act was supposed to be a temporary measure for a fledgling 
industry. Today that industry has grown enormously and has reaped 
substantial benefit from this and other taxpayer subsidies. Under Price 
Anderson, nuclear reactor operators get a guarantee of limited 
liability for public damages in the event of a nuclear accident. The 
designers, builders and suppliers of the reactors are exempt from all 
liability for damage to the public. DOE contractors are fully 
indemnified by the government. In contrast, the public gets no 
guarantee of full compensation. There is no justification for limiting 
the liability of an industry that spends millions in advertising its 
``safety.'' The Price Anderson Act should not be renewed and should be 
either radically reformed or replaced by legislation that truly 
protects the public.
    Sec. 122. Nuclear Energy Research Initiative ($60m)--As 
Representative Mark Foley (R-FL) so eloquently put it on the House 
floor last June, ``The money goes to such corporate giants as 
Westinghouse and General Electric. Why does this mature industry need 
the help of the American taxpayer to develop and design the next 
generation of nuclear reactors?'' This program may fund duplicative 
research on advanced instrumentation and controls already undertaken by 
the Nuclear Regulatory Commission. Nuclear power is inherently unsafe 
and generates highly radioactive waste. All of the advanced reactors 
under consideration will still generate radioactive waste.
    Sec. 123. Nuclear Energy Plant Optimization ($15m)--This program is 
pure corporate welfare, as it funds research into optimizing the 
performance of existing nuclear power plants.
    Sec. 124. Uprating of Nuclear Plant Operations ($15m)--This section 
is blatant corporate welfare; it provides an incentive payment of up to 
$1 million per nuclear plant for increased operations. This means 
nuclear plant operators could get a taxpayer bonus for running their 
plants closer to safety margins.
    Sec. 125 University Programs ($34.2m)--We oppose funding university 
programs to the extent that they support the commercial nuclear power 
industry.
    Sec. 127 Cooperative Research and Development and Special 
Demonstration Projects for the Uranium Mining Industry ($10m)--This 
section would subsidize the extremely dangerous practice of in situ 
leach mining. This mining method guarantees pollution of scarce 
groundwater resources.
                Title II--Construction of Nuclear Plants
    Sec 202--Nuclear Plant Completion Initiative ($3 m)--This is 
another attempt to prop up the industry by subsidizing the restart or 
completion of plants that have been shut down. This is a ridiculous 
waste of money, since many plants were shut down or halted for economic 
reasons and through democratic decisions such as ballot initiatives.
    Sec. 203--Early Site Permit Demonstration Program ($15 m)--This is 
again more corporate welfare to the industry to help pay for permit 
applications.
    Sec. 204--Nuclear Energy Technology Study for Generation IV 
Reactors ($50m)--This seems duplicative with the Nuclear Energy 
Research Initiative since that program also supports research and 
development of ``Generation IV'' reactors. Some of the proponents of 
Generation IV reactors promote, once again, breeder reactor technology. 
Congress has killed this program twice and breeder reactors have been a 
dismal failure in France and Japan.
    Sec. 205--Research Supporting Regulatory Processes for New Reactor 
Technologies and Designs ($25m)--These programs should be funded by 
industry user fees at the Nuclear Regulatory Commission.
                Title III--Evaluations of Nuclear Energy
    Sec. 301--Environmentally Preferable Purchasing--This section 
attempts to legislate away the polluting reality of nuclear power. The 
American public is being barraged by misleading NEI ads touting the 
safety and positive economics of nuclear power. The Federal Trade 
Commission has said that NEI's ``advertising campaign touting nuclear 
power as environmentally clean was without substantiation.'' \4\ If it 
is so clean and environmentally-preferable, why is the industry suing 
to allow even more radioactive leakage at the proposed nuclear waste 
dump?
---------------------------------------------------------------------------
    \4\ Federal Trade Commission, letter to Public Citizen, 12/13/99.
---------------------------------------------------------------------------
    Sec. 302--Emission--Free Control Measures Under a State 
Implementation Plan--This section tramples over state's rights and 
again attempts to legislate away the ugly reality that nuclear power 
plants have emitted at least 42,000 metric tons of highly radioactive 
waste so far.
    Sec. 304--Prohibition of Discrimination Against Emission--Free 
Electricity Projects in International Development Programs--The U.S. 
cannot safely manage its reactors and radioactive waste, why should we 
foist this failed technology on developing countries?
     Title IV--Development of National Spent Nuclear Fuel Strategy
    Sec. 402--Office Of Spent Nuclear Fuel Research and Section 403 
Advanced Fuel Recycling Technology Program ($10m)--These sections 
attempt to promote several dangerous and expensive nuclear 
technologies. First, these sections support pyroprocessing, a vestige 
of the breeder reactor program killed by Congress in 1994, which saved 
taxpayers at least $3 billion. Pyroprocessing is a nuclear fuel 
reprocessing technology, which could be used to separate weapons-usable 
material. Pyroprocessing will not reduce the quantity of nuclear waste, 
and will likely increase the amount of waste generated because of 
contamination of the machinery and chemicals used in the separations 
process. Most of the waste stream is uranium, which will not be pure 
enough to recycle again into new fuel and hence must be dealt with 
along with the other radioactive wastes. A three-year demonstration of 
this technology failed to accomplish the original goals of processing 
125 fuel elements, but unfortunately proved its danger when several 
serious incidents, including contamination of 11 personnel occurred.
    Second, these sections promote Accelerator Transmutation of Waste--
a nuclear alchemy program that will not get rid of nuclear waste. 
According to a DOE report to Congress in 1998, ATW will cost at least 
$280 billion over 118 years and will not obviate the need to open a 
waste repository. Both of these technologies pose proliferation 
risks.\5\
---------------------------------------------------------------------------
    \5\ Lyman, Edwin S., ``Research on Accelerator Transmutation of 
Waste and Pyroprocessing is a Colossal Waste of Taxpayer Money,'' May 
24, 2001.
---------------------------------------------------------------------------
    S. 919--PIRG opposes this legislation that would ``study the 
feasibility of developing commercial nuclear energy production 
facilities at Department of Energy sites . . .'' DOE weapons production 
sites are some of the most heavily contaminated sites in the world. A 
1997 DOE report concluded that nuclear fuel reprocessing generated 94 
percent of the waste at these sites (by radioactivity). We believe that 
the DOE should focus on cleaning up these extremely contaminated and 
hazardous areas, not risk more contamination by promoting the 
generation of still more lethal radioactive waste.

                               CONCLUSION
    Nuclear power is unsafe, uneconomic, unreliable and generates waste 
for which there is no sound solution. It is a failed technology of the 
past and would not exist were it not for enormous and unjustified 
government subsidies and policies. The U.S. should do everything it can 
to protect the health and safety of the public as well as our 
pocketbooks. Nuclear power should be phased out as quickly as possible 
and replaced by energy efficiency and clean renewable energy.

    The Chairman. Let me thank all three of you. This has been 
useful testimony. We will take it under advisement, and we 
appreciate you being here. Thank you very much.
    That will conclude the hearing.
    [Whereupon, at 12:16 p.m., the hearing was recessed, to be 
reconvened on July 13, 2001.]
                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

                        U.S. Nuclear Regulatory Commission,
                                     Washington, DC, July 26, 2001.
Hon. Frank Murkowski,
Ranking Minority Member, Committee on Energy and Natural Resources, 
        U.S. Senate, Washington, DC.
    Dear Senator Murkowski: Enclosed are the Nuclear Regulatory 
Commission (NRC) responses to the two post hearing questions from the 
May 24, 2001, hearing on the Price-Anderson Act. We will be releasing 
the response to the public on July 27, 2001.
            Sincerely,
                                         Dennis K. Rathbun,
                         Director, Office of Congressional Affairs.
[Enclosure]
             Responses to Questions From Senator Murkowski
    Question 1. Under the current Price-Anderson Act, does the 
Commission believe it is authorized to treat multiple modular units at 
a single site as a single facility, for purposes of the retrospective 
assessment? If so, are there any modifications to the Commission's 
regulations that would be required to achieve this result? Please 
identify any such changes that would need to be made in your 
regulations.
    Answer. The Commission believes there are substantial doubts 
whether it has the authority to treat multiple modular reactor units as 
only one facility for purposes of the retrospective assessment because 
the specific financial protection and retrospective assessment 
provisions in section 170b. are specified for a ``facility'', elsewhere 
defined as a single reactor or even an important component part of a 
reactor. In our view, Congress should amend the Atomic Energy Act if it 
seeks to assure that multiple modular units at a single site are 
treated as a single facility.
    Question 2. If the Commission is unable under the current Price-
Anderson Act to treat multiple modular units at a single site as a 
single facility for purposes of retrospective assessment, what changes 
would you recommend in the Act (either the Price-Anderson Act or, more 
generally, the Atomic Energy Act) to permit this result? Please provide 
legislative language that you would propose to accomplish this, 
together with your views from a policy perspective on such legislative 
language.
    Answer. As indicated in our response to Question 1, the Commission 
believes that Congress should amend the Act if Congress concludes that 
multiple modular reactor units at a single site should be treated as a 
single facility for Price-Anderson purposes. The Commission is also of 
the view that any statutory changes proposed to address this matter 
should be made within the Price-Anderson provision itself (section 170 
of the Atomic Energy Act) so as to limit the potential for unintended 
impacts of changes on the overall regulatory framework. Redefining the 
term ``facility'' exclusively within section 170 in a way different 
from the way it is used throughout the Atomic Energy Act and 
legislative histories will have the advantage of not disturbing 
existing law and implementing rules with respect to non-Price-Anderson 
issues.
    Consistent with this view and in response to the request that we 
provide legislative language, we have drafted an amendment to section 
170 of the Atomic Energy Act that would treat multiple modular units at 
a single site as a single facility for purposes of the Price-Anderson 
retrospective assessment. In evaluating whether to pursue such a 
provision, the Congress might consider the need to trigger the maximum 
insurance and retrospective assessment provisions against the impact 
and equity of such requirements on multiple modular units and on 
existing plants.If Congress determines that multiple modular units at a 
single site should be treated as a single facility for purposes of the 
retrospective assessment, Congress might consider an insert to Section 
170b(1), following immediately after the first proviso and before: 
``Such primary financial protection . . .'':

          And provided further, That for multiple modular reactors 
        located at a single site, a combination of such reactors 
        (irrespective of whether they are licensed jointly or singly) 
        having a total rated capacity between 100,000 and 950,000 
        electrical kilowatts shall, exclusively and only for the 
        purposes of this section, be denominated a single facility 
        having a rated capacity of 100,000 electrical kilowatts or 
        more.

    This provision would define a range of power levels--the current 
threshold of 100 Mwe to an upper limit of 950 Mwe--for which a 
combination of multiple modular reactors would be treated as a single 
facility for the retrospective assessment. We use 100 Mwe as the lower 
limit because it is the longstanding threshold power level that 
Congress established as the level at which Price-Anderson coverage must 
be provided.
    We suggest 950 Mwe as a possible upper limit because it roughly 
approximates the median power level of the large currently licensed 
power reactors (55 licensed reactors have rated power levels between 
800 and 1105 Mwe). If chosen, 950 Mwe would avoid conflict with the 
existing retrospective premium assessments in the secondary insurance 
pool. However, there are many different fairness and equity arguments 
on this issue and the Commission does not have a view or preference as 
to the specific limits--that is a policy decision for Congress.
    If Congress were to choose to amend Section 170 to treat multiple 
modular units at a single site as a single facility for purposes of 
retrospective assessment, there is no doubt that there are other 
formulations that would achieve the same result.
                                 ______
                                 
                        U.S. Nuclear Regulatory Commission,
                                    Washington, DC, August 3, 2001.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Enclosed is the NRC's response to a question 
submitted by Senator Domenici following the July 12, 2001, hearing on 
S. 472, the Nuclear Energy Supply Assurance Act. We ask that this 
response be included in the record of the hearing.
            Sincerely,
                                         Dennis K. Rathbun,
                         Director, Office of Congressional Affairs.
[Enclosure]
               Response to Question From Senator Domenici

                    SAFETY OF GENERATION IV REACTORS
    Question. I've been concerned that the NRC is not adequately funded 
or staffed to explore the full range of safety questions that arise 
with introduction of more modern technologies into our present reactors 
or even into entirely new reactor designs.
    Do you concur that NRC needs to rebuild its research infrastructure 
to respond to new demands on your staff?
    Answer. Yes. NRC needs to rebuild or strengthen aspects of its 
research infrastructure to respond to new demands. These demands are 
increasing with the deregulation of the electricity market and the 
renewed interest in new reactor designs. In order to confirm the safety 
of new reactor designs and technology, a strong nuclear research 
program should be maintained.
    In response to industry deregulation, reactor licensees can expect 
to operate plants longer, increase power output, extend fuel burn-up, 
and make use of advanced technologies to optimize power production 
capability. Research plays an essential role in enabling the NRC to 
assess the safety of such actions. NRC must also be fully prepared to 
address safety matters regarding new reactor designs and new 
technologies. In addition, NRC must be prepared to revise our 
regulatory framework and infrastructure for dealing efficiently and 
effectively with new technology applications. To support such a state 
of readiness, we must conduct the necessary research activities that 
cover not only the present issues facing the nuclear industry, but also 
those that enhance the staff's knowledge base and tools for the future.
    Over the last two decades, the NRC research program support funding 
declined from more than $200M in the early 80s to $46M in FY 2001. This 
long term decline in resources is one factor that has contributed to a 
declining infrastructure (people, facilities, and analytical tools) and 
resulted in a limited ability to provide NRC with an independent 
capability to focus on longer term and forward-looking research on 
emerging safety issues or new designs. We, like other nations with 
major nuclear power programs, have become more and more dependent on 
international research efforts conducted outside of the U.S. and have 
consequently lost significant control over access to facilities. This 
dependency is due primarily to limited availability of NRC as well as 
the DOE funds, which have impacted the availability of U.S. research 
and test facilities. For example, in preparing for readiness for new 
reactor licensing, the Commission recently directed the staff to 
consider an integrated international research program with respect to 
gas reactors that would reduce costs, leverage facilities in various 
countries, and obtain information in a more timely fashion.
    The NRC's FY 2002 budget request includes some funds to evaluate 
new technologies as they apply to existing operating reactors. However, 
this research is generally focused on near term applications. In 
addition, our FY 2002 budget also provides a very low level of effort 
to support the Department of Energy's Generation IV initiative by 
identifying potential regulatory issues related to advanced reactor 
designs. The House and Senate Energy and Water Development 
Appropriation bills increased the budget request by $10 million for 
future NRC licensing activities. Some of these funds will be used for 
research in new reactor technologies.
    The Commission is mindful of the important role of research in 
fulfilling the agency's mission and is continuing to look at ways to 
rebuild or strengthen aspects of its research infrastructure to respond 
to new demands. Your interest and support in this matter are greatly 
appreciated.
                                 ______
                                 
                                      Department of Energy,
                                Washington, DC, September 25, 2001.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: On May 24, 2001, Spencer Abraham, Secretary of 
Energy, testified, regarding the Administration's National Energy 
Policy Report.
    Enclosed are the answers to seven questions requested by Senator 
Murkowski. The three remaining answers are being prepared and will be 
forwarded to you as soon as possible.
    If we can be of further assistance, please have your staff contact 
our Congressional Hearing Coordinator, Barbara Barnes at (202) 586-
6341.
            Sincerely,
                                   Dan R. Brouillette,
                                           Assistant Secretary,
                                           Congressional and 
                                               Intergovernmental 
                                               Affairs.
    [Enclosures]
             Responses to Questions From Senator Murkowski

                           ALASKA OIL AND GAS
    Question 1a. I am pleased to see that the National Energy Policy 
encourages the development of the 1002 Area of ANWR. I am also pleased 
to see the Administration encouraging the development of a natural gas 
pipeline to bring Alaska natural gas to market in the lower 48. To what 
extent do these provisions constitute a key portion of your National 
Energy Policy?
    Answer. These provisions are a key portion of the National Energy 
Policy in meeting our Nation's needs for oil and natural gas. The U.S. 
Geological Survey 1998 assessment of the greater 1002 area indicates 
technically recoverable resources ranging from 5.7 to 16 billion 
barrels of oil, and from 0 to 10 trillion cubic feet of natural gas. 
Additionally, the U.S. Geological Survey estimated that Northern Alaska 
has 35 trillion cubic feet of commercially recoverable natural gas. 
These significant resources are keys to meeting the Nation's energy 
needs.
    Question 1b. In your opinion, are financial incentives necessary to 
develop these resources, or is it simply a matter of access to land for 
development and pipeline siting?
    Answer. The U.S. Geological Survey's 1999 economic analysis of its 
1998 assessment of the 1002 Area alone indicates that about half of the 
technically recoverable oil resources (2.03 to 9.38 billion barrels of 
oil, and from 1.04 to 3.72 trillion cubic feet of associated natural 
gas) are economically recoverable at today's prices using today's 
technology. This indicates that market forces provide adequate 
financial incentive to develop these resources. However, in addition to 
this economic assessment, the Department of Energy, in partnership with 
the industry, is developing advanced technologies that will reduce the 
costs of recovery and environmental compliance, and increase recovery 
and environmental protection.

                           ALASKA OIL AND GAS
    Question 2. The Alaskan Natural Gas Transportation Act (ANGTA) 
directed the President to appoint a Federal Inspector to ensure 
expedited construction of an Alaskan gas pipeline.
    The Energy Policy Act of 1992 abolished that position but 
transferred the Federal Inspector's functions and authorities to the 
Secretary of Energy. These functions and authorities are the keys to 
expediting construction of the pipeline.
    Do you currently have the staff and resources to carry out the 
function and authorities of the Federal Inspector?
    Answer. Subsequent to the abolition of the Federal Inspector's 
Office by the Energy Policy Act of 1992, there has been little activity 
related to the proposed natural gas pipeline from Alaska's North Slope. 
In the absence of any activity there are no Department staff or 
resources assigned to perform the functions of the Federal Inspector's 
office.
    The infrequent requirements for analysis or comment on the Alaskan 
Natural Gas Transportation System (ANGTS) has been handled by the 
Office of Fossil Energy and the Office of General Counsel. This same 
staff has been conducting the initial coordination between our 
Department and other Federal agencies, as well as consultations between 
our Department and Canadian government agencies and the State of Alaska 
in preparation for a possible filing concerning the ANGTS or other 
North Slope gas project.
    Should a filing be made for the ANGTS and it becomes necessary for 
the Department to exercise the authorities of the Federal Inspector, we 
would assign qualified staff from other program areas to meet the 
requirements of carrying out the responsibilities of the Federal 
Inspector's authority.

                           ENERGY EFFICIENCY
    The National Energy Policy indicated that energy efficiency and 
improved energy conservation should be made a ``national priority.''
    Question 1. How do you as Secretary of Energy plan to translate 
this ``priority'' into concrete action?
    Answer. The National Energy Policy will build upon our nation's 
successful track record and will promote further improvements in the 
productive and efficient use of energy. Of the 105 recommendations in 
the Policy, over twenty of these recommendations address energy 
efficiency, either directly or indirectly. These actions promote 
conservation in residences, commercial establishments, industrial 
sites, electrical power plants, and transportation. Implementing these 
actions will enable us to continue our trend of decreasing energy use 
per dollar of GDP, while improving our standard of living.
    Question 2. Other than tax incentives for consumers purchase of new 
energy efficient technology, what policy options exist?
    Answer. This Policy report uses almost every tool available in 
order to promote energy conservation. Allow me to provide a few 
examples from the Policy:
    Education: One recommendation directs the EPA Administrator to 
develop and implement a strategy to increase public awareness of the 
sizeable savings that energy efficiency offers to homeowners across the 
country.
    Information: Another recommendation directs the Secretary of Energy 
to promote greater efficiency by expanding and extending the 
application of the Energy Star labeling program.
    Executive Directive: This recommendation directs the heads of 
executive departments to take appropriate actions to conserve energy at 
their facilities.
    Financial Incentives for Industry/Utilities: One recommendation 
directs the Secretary of Treasury to work with Congress to encourage 
energy efficiency through Combined Heat and Power projects by 
shortening their depreciation life.
    Standards: This recommendation directs the Secretary of 
Transportation to review and provide recommendations on establishing 
Corporate Average Fuel Economy Standards for the U.S. automotive 
industry.
    Federal R&D: This recommendation directs the Secretary of Energy to 
review and provide recommendations on the appropriate level of energy 
efficiency program funding.

                           FUEL ECONOMY/CAFE
    The National Energy Policy deferred on the question of increased 
CAFE standards for auto fuel economy until the National Academy can 
finish its review as directed by Congress last year.
    Question 1. Are there options to improve auto fuel economy--other 
than CAFE standards--that you will consider?
    Answer. Yes. The National Energy Policy report indicates that the 
Department of Transportation should consider, in addition to modified 
CAFE standards, other market-based approaches to increasing the 
national average fuel economy of new motor vehicles. The Department of 
Energy is analyzing possible forms of voluntary fuel economy 
improvement agreements to support the DOT's consideration of a broad 
range of approaches. In addition, the report calls for the Secretary of 
Treasury to work with Congress on legislation to increase energy 
efficiency with a tax credit for fuel-efficient vehicles. The NEPD 
Group recommended that a temporary, efficiency-based income tax credit 
be available for purchase of new hybrid or fuel cell vehicles between 
2002 and 2007. The Department of Energy will be working closely with 
both the Treasury and Transportation Departments to implement these 
recommendations.

                            RENEWABLE ENERGY
    As part of the National Energy Policy, you have been directed to 
carry out a review of all energy efficiency and renewable energy R&D 
programs--and focus on those that are ``performance based.''
    Question 1. Does this imply a greater focus on ``proof of concept'' 
demonstration projects over basic research?
    Answer. No. We will be reviewing all programs to determine their 
performance and potential in terms of delivering benefits to the 
public. We will reevaluate those programs that have not made progress 
toward national energy goals. Likewise, we will be redoubling our 
efforts in those programs that have shown, and continue to show, good 
performance and potential in contributing to national energy goals. I 
expect that when the review is complete we will have a range of 
activities that are performance-based, including both proof of concept 
projects and basic research programs. This would be consistent with 
developing a balanced energy technology R&D portfolio that delivers 
short-term, intermediate, and long-term energy benefits.
    Question 2. Are plans underway for such a review and when do you 
expect such a review might conclude?
    Answer. On May 23, 2001, I announced the schedule for the review of 
both the energy efficiency programs and the renewable energy and 
alternative energy programs. The Department has completed its public 
comment period and is continuing with it's Strategic program review of 
EERE programs. Our review will be completed by September 1.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

   Prepared Statement of William F. Kane, Deputy Executive Director, 
  Reactor Programs, U.S. Nuclear Regulatory Commission, Rockville, MD
    Mr. Chairman, Members of the Committee, I am pleased to appear 
before you today to present the views of the Nuclear Regulatory 
Commission (NRC) on extending and amending the Price-Anderson Act. We 
hope that these views will assist the Committee in its consideration of 
the Price-Anderson Act renewal provisions in the energy policy bills 
pending before you (S. 388, S. 472, and S. 597). Our testimony, of 
course, addresses the application of the Price-Anderson Act to nuclear 
power plants regulated by the NRC.
    I am here, to deliver the strong and unanimous recommendation of 
the Commission that the Price-Anderson Act be renewed with only minor 
modifications. But I would like to preface my statement of that 
position with the reminder that the Commission's primary concern is 
public health and safety. Our mission is to ensure the safe use of 
nuclear power. We can look back on a successful history of safe 
operation and intend to exercise vigilance to maintain or improve on 
this record of safety. Nonetheless, it remains important to assure that 
if an improbable accident should occur, the means are provided to care 
for the affected members of the public. It is also important, if the 
Congress intends that nuclear power remain a part of the nation's 
energy mix, that this option is not precluded by the inability of 
nuclear plant licensees to purchase adequate sums of insurance 
commercially.
    As you know, Congress first enacted the Price-Anderson Act in 1957, 
nearly a half century ago. Its twin goals were then, as now:

          (1) to ensure that adequate funds would be available to the 
        public to satisfy liability claims in a catastrophic nuclear 
        accident; and
          (2) to permit private sector participation in nuclear energy 
        by removing the threat of potentially enormous liability in the 
        event of such an accident.

    On original passage the Congress provided a term during which the 
Commission could extend Price-Anderson coverage to new licensees and 
facilities. When that term expired, the Congress then, and repeatedly 
since, has decided that the nation would be served by extending the 
Price-Anderson Act so that new coverage would be available for newly 
licensed reactors. This action preserved the option of private sector 
nuclear power and assured protection of the public. At this point, in 
order to avoid confusion, I should note that Price-Anderson coverage 
for NRC licensees is granted for the lifetime activities of the covered 
facility and does not ``expire'' in 2002. Thus, in any event, Price-
Anderson coverage with respect to already licensed nuclear power 
reactors will continue and will afford prompt and reasonable 
compensation for any liability claims resulting from an accident at 
those facilities.
    While Congress has amended the Price-Anderson Act from time to 
time, it has done so cautiously so as to avoid upsetting the delicate 
balance of obligations between operators of nuclear facilities and the 
United States government as representative of the people.
    Perhaps the most significant amendments to date were those that 
effectively removed the United States government from its obligation to 
indemnify any reactor up to a half billion dollars and that placed the 
burden on the nuclear power industry. Congress achieved this by 
mandating in 1975 that each reactor greater than 100 MWe, essentially 
each reactor providing power commercially, contribute $5 million to a 
retrospective premium pool if and only if there were damages from a 
nuclear incident that exceeded the maximum commercial insurance 
available. The limit of liability was then $560 million. Government 
indemnification was phased out in 1982 when the potential pool and 
available insurance reached that sum.
    In 1988, Congress increased the potential obligation of each 
reactor in the event of a single accident at any reactor to $63 million 
(to be adjusted for inflation). The maximum liability insurance 
available is now $200 million. When that insurance is exhausted each 
reactor must pay into the pool up to $83.9 million, as currently 
adjusted for inflation, if needed to cover damages in excess of the sum 
covered by insurance. The $83.9 million is payable in annual 
installments not to exceed $10 million. Today, the commercial insurance 
and the reactor pool together would make available over $9 billion to 
cover any personal or property harm to the public caused by an 
accident.
    In 1982, when the federal government ceased to be the backup 
insurer in the event of a power plant accident, the retrospective 
premium pool was still counted in hundreds of millions of dollars. 
Today the funds available to assist the public, counted in billions of 
dollars, are more than 15-times as great as they were in 1982. No other 
country in the world today can come close to matching that level of 
protection available for people injured and property damaged by a 
nuclear power plant accident.
    In 1998, as mandated by Congress, the Nuclear Regulatory Commission 
submitted to the Congress its report on the Price-Anderson system. That 
report was entitled ``The Price-Anderson Act--Crossing the Bridge to 
the Next Century: A Report to Congress.'' The report included a concise 
history and overview of the Price-Anderson Act and its amendments as 
well as an update on legal developments and events pertaining to 
nuclear insurance and indemnity in the last decade. Congress had also 
required the NRC to address various topics that relate to and reflect 
on the need for continuation or modification of the Act: the condition 
of the nuclear industry, the state of knowledge of nuclear safety and 
the availability of private insurance.
    After considering pertinent information, the Commission considered 
what its recommendations should be. It concluded then that it should 
recommend that Congress renew the Price-Anderson Act because it 
provides a valuable public benefit by establishing a system for the 
prompt and equitable settlement of public liability claims resulting 
from a nuclear accident. That, as I said at the outset, remains today 
the strongly held position of the Commission.
    Having noted that substantial changes in the nuclear power industry 
had begun and could continue, the Commission believed it would be 
prudent to recommend renewal for only ten years rather than the 15-year 
period that had been adopted in the last reauthorization so that any 
significant evolution of the industry could be considered when the 
effects of ongoing changes would be clearer. Notwithstanding that view, 
the Commission, recommended that the Congress consider amending the Act 
to increase the maximum annual retrospective premium installment that 
could be assessed each holder of a commercial power reactor license in 
the event of a nuclear accident.
    The NRC suggested that consideration be given to doubling the 
ceiling on the annual installment from the current sum of $10 million 
to $20 million per year per accident. The total allowable retrospective 
premium per reactor per accident was to remain unchanged at the 
statutory ``$63 million'' adjusted for inflation. (It is now $83.9 
million as so adjusted). The Commission recommended consideration of an 
increase to $20 million because it then appeared likely that in the 
coming decade a number of reactors would permanently shut down. The 
effect of these shutdowns would have been to reduce the number of 
contributors to the reactor retrospective pool. Fewer contributors 
would, in turn, reduce the funds that, in the event of a nuclear 
accident, would become available each year to compensate members of the 
public for personal or property damage caused by an accident. 
Increasing the maximum annual contribution available from each reactor 
licensee would provide continuing assurance of ``up front'' money to 
assist the public with prompt compensation until Congress could 
consider whether to enact additional legislation providing further 
relief, should it be needed.
    Recent events have led the Commission to review its 1998 
recommendations and to reevaluate its recommendation that Congress 
consider increasing the annual installment to $20 million. There is now 
a heightened interest in extending the operating life for most, if not 
all, of the currently operating power reactors, and some power 
companies are now examining whether they wish to submit applications 
for new reactors or complete construction of reactors that had been 
deferred. As a result, the Commission does not believe that there is 
now justification for raising the maximum annual retroactive premium 
above the current $10 million level.
    The NRC appreciates the opportunity to present its views, and will 
elaborate further on any of them at your request. In addition, the NRC 
is preparing its views on the various bill affecting nuclear regulation 
pending before this Committee and would be pleased to provide these 
views for the record. Mr. Chairman, I welcome your comments and 
questions.
                                 ______
                                 
         Statement of the Environmental Business Action Council
    In 1957, Congress enacted the Price-Anderson Act as an amendment to 
the Atomic Energy Act of 1954. For almost fifty years, this legislation 
has provided public protection in the unlikely event of a nuclear 
incident. Price-Anderson ensures the availability of $9.5 billion to 
cover any personal injury or property damage resulting from a nuclear 
accident. Much of the focus to date has been on Price-Anderson and the 
commercial nuclear utility industry. However, Price-Anderson also plays 
a vital role in the environmental remediation of our nation's nuclear 
legacy from World War II and the Cold War. Price-Anderson provides 
indemnification to the contractors who undertake the important task of 
cleaning up nuclear waste and nuclear facilities at Department of 
Energy (DOE) sites around the country.
    On August 1, 2002, the Price-Anderson Act will expire. The 
Environmental Business Action Coalition (EBAC) supports a simple and 
expeditious renewal of Price-Anderson by the 107th Congress. EBAC 
represents a broad spectrum of the contractors that assist in the 
nuclear cleanup, associated with numerous sites in communities 
throughout the country including:

    Oak Ridge, Tennessee
    Idaho Falls, Idaho
    Hanford, Washington
    Savannah River, South Carolina
    Rocky Flats, Colorado
    Paducah, Kentucky
    Livermore, California
    West Valley, New York
    Brookhaven, New York
    Portsmouth, Ohio
    Fernald, Ohio
    Mound, Ohio
    Las Vegas, Nevada
    Amarillo, Texas
    Los Alamos, New Mexico
    Carlsbad, New Mexico

    This renewal is needed in order to provide adequate levels of 
protection to the public and ensures that reputable, experienced and 
qualified contractors continue to be able to work for DOE. Price-
Anderson's unique omnibus coverage also ensures that subcontractors and 
suppliers, often small businesses, are indemnified.
    Price-Anderson has been renewed three times since 1957. Under the 
last renewal in 1988, Congress made three significant improvements to 
Price Anderson: (1) the amount of money available to cover damages was 
greatly increased; (2) the indemnification of DOE contractors was made 
mandatory, not optional; and (3) DOE was given authority to impose 
civil and criminal penalties against contractors that knowingly violate 
nuclear safety rules and/or orders.
    Both the DOE and the Nuclear Regulatory Commission (NRC) strongly 
support the reauthorization of Price-Anderson with only a few modest 
changes. In a 1999 report to Congress DOE stated ``Elimination of the 
DOE indemnification (Price-Anderson) would have a serious effect on the 
ability of DOE to perform its missions. Without indemnification, DOE 
believes that it would be difficult to obtain responsible, competent 
contractors, subcontractors, suppliers and other entities to carry out 
work involving nuclear materials.''
    EBAC is made up of exactly these responsible, competent contractors 
and we are concerned about Price-Anderson's looming expiration date. An 
extension of the Price-Anderson legislation is not assured. As some of 
you may remember, five congressional committees spent a total of five 
years on the previous renewal with protracted review. The legislation 
actually lapsed for a total of 12 months until it was renewed creating 
less protection for the public and substantial uncertainties for DOE 
contractors.
    EBAC thanks the Senate Energy & Natural Resources Committee for its 
leadership in addressing this important issue at today's hearing and 
encourages its members to endorse a simple extension of the Price-
Anderson Act with all current provisions for indemnification and 
penalties retained. Remember, Price-Anderson is not just about nuclear 
power. Price-Anderson is vital if we are to continue to remediate and 
restore the nation's nuclear waste sites.
                                 ______
                                 
                               Stewart and Stewart,
                                               Law Offices,
                                      Washington, DC, June 7, 2001.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Dirksen Building, Washington, DC.
    Dear Senator Bingaman: I am writing on behalf of PPG Industries, 
Inc., and the Primary Glass Manufacturers Council, to respectfully 
request that the enclosed statement be included in and published with 
the official record of the Full Hearing of the Committee on Energy and 
Natural Resources held on May 24, 2001, wherein the Committee received 
testimony on the Administration's National Energy Policy report.
    If you have any questions, you may call me at (202) 785-4185.
            Respectfully submitted,
                                              Alan M. Dunn,
                                      Counsel, PPG Industries, Inc.
     Statement of the Primary Glass Manufacturers Council (PGMC) *
    All U.S. flat glass manufacturers strongly encourage the adoption 
and advancement of the following programs, initiatives, and actions. 
The reasons supporting each action are discussed in more detail below:
---------------------------------------------------------------------------
    * Statement submitted by the Primary Glass Manufacturers Council 
(PGMC) and its member companies, Guardian Industries Corp., PPG 
Industries Inc., and Pilkington North America, in conjunction with non-
PGMC members AFG Industries Corp., Visteon and Cardinal. This diverse 
group of corporations accounts for 100% of the flat glass manufacturing 
capacity in the United States.
---------------------------------------------------------------------------
                              energy star
   Promote widespread awareness and use of the Energy 
        Star program, especially the Energy Star 
        Home and Energy Star Window programs, administered by 
        the Environmental Protection Agency (EPA), in partnership with 
        Department of Energy (DOE).
   Ensure that the value of high-performance windows is 
        emphasized in DOE and EPA consumer awareness campaigns to 
        promote Energy Star and energy conservation.
   Require the federal government to purchase, install, and 
        utilize only energy-efficient fenestration products that carry 
        the EPA's Energy Star label.
                          state building codes
   The DOE should require the States to review their 
        residential building codes regarding energy efficiency against 
        the standards contained in the International Energy 
        Conservation Code (IECC) (formerly the Model Energy Code 
        (MEC)), promulgated by Building Officials and Code 
        Administrators International, Inc. (BOCA).
   The DOE should encourage the States to: 1) align their codes 
        with the IECC; and 2) promote the use of MECcheck, a free 
        software package developed by the DOE that explains 
        requirements and simplifies calculations for builders.
                   weatherization assistance program
   Include language in the appropriation for the DOE 
        Weatherization Assistance Program, which provides grant funding 
        to states and localities to encourage cost-effective, energy-
        saving home improvements, making it clear that high-performance 
        windows are eligible for grants under the program.
   Encourage the Secretary of Energy and his staff to allocate 
        program funds specifically for high-performance windows.
                          mortgage assistance
   Encourage energy efficiency through reduced home mortgage 
        rates or other preferences to help offset the higher initial 
        costs of energy-efficient building products.
                      tax deduction and/or credit
   Encourage energy efficiency by providing tax credits or 
        deductions to individuals and businesses to offset the cost of 
        purchasing energy-efficient glass products.
Why Promoting Energy-Efficient Windows Is in the National Interest
    1. High-Performance Glass Products Have Tremendous Potential to 
Significantly Reduce Overall Energy Consumption by Individual 
Homeowners, Businesses, and the Nation.
    Buildings and homes in the United States consume more than 40% of 
the national energy budget, i.e., 3 5 quadrillion Btu's of energy 
(quads)--principally for heating, cooling, lighting, and operation of 
appliances. Residential structures consume more than half of this 
total--approximately 22% (19 quads). Lawrence Berkeley National 
Laboratory (LBNL) estimates that the 1994 stock of 19 billion square 
feet of residential windows accounts for approximately 2%, or 1.7 quads 
per year (1.3 quads for heating and .4 quads for cooling) of total U.S. 
energy consumption.
    Glass products are an essential part of a home's exterior and, if 
chosen wisely, can have a significant effect on the amount of energy 
consumed. A wide array of energy-saving glass products are currently 
available. These products can reduce heat loss in northern climates by 
up to 70% compared to traditional products. Similarly, in southern, 
cooling-dominated areas, coated glass products can reduce solar gain, 
and therefore air-conditioning loads, by up to 60% compared to 
traditional non-coated products. Moreover, use of energy-saving glass 
products allows the use of larger window areas, which, in turn, permits 
better use of natural lighting, lowering energy use still further.
    According to the LBNL analysis, if all new residential windows sold 
throughout the United States were energy efficient, the energy savings 
in the year 2010 would be approximately 0.5% of the total national 
energy budget, or .43 quads (.19 cooling and .24 heating). For 
illustrative purposes, .43 quads is equivalent to:

   Over 20 million short tons of coal, or enough coal to fill a 
        coal train of railroad cars almost 2,000 miles long
   418 billion cubic feet of natural gas
   Almost 3.5 billion gallons of gasoline, or more than 10 days 
        of U.S. gasoline consumption
   Almost 10 hours of the entire world's energy use (based on 
        consumption levels in 1996)
   Nearly half of the approximate annual primary consumption of 
        any one of the following states: Arizona, Arkansas, Colorado, 
        Iowa, Kansas, Mississippi, or Oregon (based on consumption 
        levels in 1996)

    This .43 quads represents a 39% total annual savings in cooling and 
a 19% savings in heating, or a total heat and cooling savings of 
approximately $2.5 billion per year by 2010 (given an adoption baseline 
of 1996).
    This potential energy savings is comparable to eliminating the 
future need for approximately 20 (300 MW) power plants over the next 
decade and up to 60 power plants over the next 20 years.
    This significant reduction in energy consumption offers an 
opportunity to likewise substantially reduce carbon dioxide 
(CO2) emissions. More than one-third of CO2 
emissions--about 187 million metric tons--are directly related to the 
performance of the building envelope.\1\
---------------------------------------------------------------------------
    \1\ The building envelope is the roof, walls, and foundation of a 
building. The envelope provides the thermal barrier between the indoor 
and outdoor environment and is the key determinant of a building's 
energy requirements. See Oak Ridge National Laboratory web site, 
``Questions and Answers about Building Envelope Research at ORNL'' at 
http://www.ornl.gov/roofs+walls/q--and--a.html.
---------------------------------------------------------------------------
    2. While Use of Energy-Saving High Performance Glass Products Is 
Becoming More Prevalent, Their Use Is Far Below Potential.
    Insulating glass, with its superior insulating performance, has 
been available for decades, but as of the early 1970's represented only 
about 20% of the windows used in the United States. It took the oil 
embargoes of 1974 and 1979 to propel more widespread use.
    The introduction of even higher energy-conserving low emissivity 
(``low-e'') glass is a more recent development.
    Low-e glass usage has grown slowly during the past decade, 
averaging about 2% change per year, and is now used for almost 40% of 
the nation's window surface area. The total surface area put in place 
over the decade was 2.24 billion square feet. Low-e glass that is 
already in place greatly contributes to the reduction of heating and 
cooling-related energy consumption, and saves, on an annual basis, .58 
quads.
    Based on the trend indicated in the chart above, low-e glass usage 
will continue to grow but will only reach the 50% level in 
approximately five years. The recommendations in this statement are 
specifically aimed at accelerating the growth of low-e glass usage so 
that the significant energy-savings that are possible with increased 
use of high-performance glass will be realized.
    3. The Bush Administration's Energy Plan Recognizes the Under-
utilization of Advanced Window Products and Recommends Addressing the 
Problem Through Consumer Education Campaigns and Increased Funding.
    In the Report of the National Energy Policy Development Group (the 
National Energy Report), the Bush Administration proposes that the 
Secretary of Energy be charged with strengthening the Energy 
Star program and promoting greater awareness of the benefits 
of energy efficiency. The Administrator of the Environmental Protection 
Agency is charged with developing and implementing ``a strategy to 
increase public awareness of the sizeable savings that energy 
efficiency offers to homeowners across the country.\2\
---------------------------------------------------------------------------
    \2\ See Report of the National Energy Policy Development Group, 
Chapter 4, ``Using Energy Wisely: Increasing Energy Conservation and 
Efficiency,'' May 2001.
---------------------------------------------------------------------------
    The Energy Star program was introduced by the U.S. 
Environmental Protection Agency (EPA) in 1992 as a voluntary labeling 
program designed to identify and promote energy-efficient products in 
order to reduce CO2 emissions. The EPA partnered with the 
U.S. Department of Energy in 1996 to promote the Energy Star 
labeling program, which has expanded to cover a variety of products 
including windows, homes, residential heating and cooling equipment, 
major appliances, and other products. On its web site, the EPA notes 
that:

          If all consumers, businesses, and organizations in the United 
        States [including governmental. organizations] made their 
        product choices and building improvement decisions with Energy 
        Star over the next decade, the national annual energy 
        bill would be reduced by about $200 billion. With that would 
        come a sizable contribution to reducing air pollution and 
        protecting the earth's climate for future generations.\3\
---------------------------------------------------------------------------
    \3\ See EPA web site at http://www.epa.gov/nrgystar/about.html.

    The National Energy Report also recommends significantly increased 
funding for the Department of Energy's Weatherization Assistance 
Program, which provides grants for energy-saving improvements in homes 
---------------------------------------------------------------------------
around the country. The Report notes that:

          The energy burden on low-income households, as a proportion 
        of income, is four times greater than for other American 
        households. The Weatherization Program provides grant funding 
        for a network of all states and some 970 local weatherization 
        agencies to provide insulation, duct system improvements, 
        furnace upgrades, and other cost-effective, energy-saving 
        improvements based on the energy needs of each home 
        weatherized. Currently, each dollar spent on home 
        weatherization generates $2.10 worth of energy savings over the 
        life of the home, along with additional economic, 
        environmental, health, and safety benefits associated with the 
        installations and resulting home improvements. Typical savings 
        in heating bills, for a natural gas heated home, grew from 
        about 18 percent in 1989 to 33 percent today.

    The Primary Glass Manufacturers Council strongly supports both of 
the initiatives proposed by the Administration. The use of high-
performance low-e glass is one of the most important ``cost-effective, 
energy saving improvements'' that can be made to make homes more energy 
efficient.
    4. But More Needs to be Done. In Particular, the Federal Government 
Needs to Encourage the States to Strengthen Their Building Codes to 
Require More Energy-Efficient Construction.
    Section 101 of the Energy Policy Act of 1992 authorizes the 
Secretary of Energy to require states to review their residential 
building code(s) regarding energy efficiency and to determine whether 
the code(s) should be revised to meet or exceed the Council of American 
Building Officials (CABO) Model Energy Code (MEC), 1992, or successor 
codes. A successor code was adopted last year--the International Energy 
Conservation Code (IECC), 2000. The IECC sets standards for the entire 
building envelope. It requires high-performing windows, with both well-
insulated frames and coated glass. It is under review in several 
states. A push from the DOE, by exercising its Section 101 authority, 
would help States understand and accept this significant step forward 
in energy-conserving building codes. The DOE has greatly facilitated 
the adoption of the IECC by developing MECcheck, a software package 
that explains requirements and simplifies calculations.
    5. Federal Support for Mortgages Is Necessary to Help Offset the 
Higher Initial Costs of Energy-Efficient Glass Products.
    A new home that meets Energy Star can typically cost 5% 
more than a conventional home. Energy Star mortgages, which 
effectively deduct this incremental cost from the qualifying amount, 
are available but are not widely understood or utilized.
    In addition, the flat glass industry recommends that Fannie Mae 
provide preferential mortgage rates for buyers of Energy Star 
homes and homes that exceed the IECC standard.
    6. Finally, a Tax Credit or Deduction Is Necessary to Help Offset 
the Higher Initial Costs of Energy-Efficient Glass Products.
    Energy-efficient low-e glass products are readily available and a 
broad industry infrastructure is in place to provide them, but still 
market acceptance has been slow and a huge potential for energy 
conservation remains unrealized. A credit against the tax of an 
individual homeowner or businesses for energy conservation expenditures 
or a deduction from the taxable income of homeowners is necessary to 
help offset higher initial costs and to encourage consumers to take 
full advantage of these energy-saving products.
                                 ______
                                 
    Statement of Joseph J. Buggy, President, Westinghouse Savannah 
                             River Company
    Mr. Chairman, and Members of the Committee, my name is Joe Buggy 
and I am President of the Westinghouse Savannah River Company, the 
operating contractor at the Department of Energy's Savannah River Site 
(SRS).
    I appreciate this opportunity to present my testimony on the 
concept of Nuclear Energy Parks or Campuses to be located at Department 
of Energy (DOE) owned sites, such as the Savannah River Site--also 
called SRS. The Bush National Energy Policy, which was released on May 
16, 2001, envisions a comprehensive long-term strategy that uses 
leading edge technologies to produce an integrated energy, 
environmental and economic policy.
    And, I am pleased to note that it includes a renewed emphasis on 
nuclear power production.
    Certain strategically located DOE sites across the country could be 
designated as Nuclear Energy Parks or Campuses. The Parks could be 
designated as sites for new base load nuclear generating capacity and 
to demonstrate the viability of new nuclear reactor technologies. They 
could also be used as the sites for an educational initiative that is 
needed to sustain the nuclear power option, namely they could be used 
to promote and maintain the nuclear science and engineering 
infrastructure of regional universities.
    Sites, such as SRS where substantial taxpayer investment has 
already occurred; where significant cost-saving infrastructure is 
already in place; and where community acceptance is well established; 
could be made available through cooperative public-private 
arrangements. These arrangements would help nurture the reemergence of 
safe and efficient nuclear generated electricity in the U.S.
    The remainder of my testimony today will focus on describing the 
attributes of SRS as a potential Nuclear Energy Park or Campus.
    For those of you that are not familiar with SRS, it is a 310 sq. 
mile federal reservation owned and operated by the Department of 
Energy. SRS's historical mission has been the production of materials 
for the nuclear weapons program.
    SRS is located in the approximate center of large and rapidly 
growing southeastern cities (Atlanta, Jacksonville, and Charlotte) 
allowing markets for a utility to sell any newly installed capacity. 
SRS's location could also provide a convenient centralized location for 
a research/test reactor campus that would serve universities in the 
Southeast. The SRS is in immediate proximity to a high-capacity 
transmission system that would permit distribution of any new 
electrical generation.
    There are other extremely important practical factors. SRS is 
located on the South Carolina-Georgia border, near Augusta, GA. The 
Central Savannah River Area (CSRA) has a long history of supporting SRS 
nuclear activities support that is based upon informed and in-depth 
understanding of nuclear issues. Nuclear activities are accepted and 
championed by state and local business civic and political leadership 
and the populace at large. I would also add that there are 7 commercial 
reactors in South Carolina and they generate 60% of the state energy 
requirements.
    The unique combination of a large land mass, a complete nuclear 
infrastructure and supportive community base provides an opportunity 
for the development of a Nuclear Energy Park to meet the nation's 
current and future energy needs.
    Additionally, costs commonly associated with the construction and 
operation of a nuclear site, e.g. geo-technical characterization; 
emergency response, environmental monitoring, etc., could be reduced 
for a potential utility customer. It is anticipated that these factors 
could reduce the time required and the resultant financial risks to 
construct and license demonstration, as well as commercial power 
reactors.
    The SRS is an ``enduring'' site in the DOE complex--meaning that it 
has continuing missions to perform. It also has the advantage of being 
one of the most geo-technically and environmentally characterized sites 
in the U.S.
    Now let me share with you my notion of how we would support the 
implementation of the proposed Nuclear Energy Park concept. As 
described in Senator Thurmond's legislation, Senate Bill S. 919, we 
would propose to participate in a study to determine the feasibility of 
developing commercial nuclear energy production facilities at 
Department of Energy sites.
    First, we would study options for how and where nuclear power 
plants can be developed on existing DOE sites. Second, we would develop 
an estimate on cost savings that may be realized by locating new power 
plants on DOE sites. We would also investigate the potential 
improvements to be gained in the licensing and safety oversight 
procedures of nuclear power plants located on DOE Sites. Additionally, 
SRS would work with industry to identify utilities interested in a new 
nuclear plant by leveraging the unique attributes of the site to reduce 
costs and some licensing obstacles and we would quantify the advantages 
to a utility in siting a plant at SRS. Finally, we would assess the 
effects of nuclear waste management policies and projects as a result 
of locating nuclear power plants on DOE sites.
    And as I previously noted, we would work with Southeast 
Universities to bring about increased emphasis on nuclear engineering 
curriculums, which would be required to support a nuclear energy 
renaissance.
    In conclusion, it is obvious to me that the potential use of DOE 
sites as a tool to implement nuclear energy policy in the U.S. makes a 
great deal of sense. There is a clear fit with DOE's interest in 
protecting the nation's energy future.
    Moreover, the substitution of nuclear energy for fossil fuels over 
the past several decades has paid enormous environmental dividends. We 
must not fail to consider ways to increase those benefits.
    The use of existing DOE sites would not only provide a readily 
available resource to demonstrate the next generation of nuclear 
generation facilities, but also supports the Department of Energy's 
statutory role for energy policy development.
                                 ______
                                 
      Statement of Gregory F. Pilcher, Senior Vice President and 
                General Counsel, Kerr-McGee Chemical LLC
    Kerr-McGee Chemical, LLC (``Kerr-McGee'') is the licensee at the 
West Chicago Rare Earths Facility in West Chicago, Illinois (the 
``Facility''). The Facility is one of the mills covered by Title X of 
the Energy Policy Act of 1992 (``the Act''). Most of the Facility's 
production was dedicated by contract to the federal government in 
support of the Nation's nuclear defense programs. In a rulemaking 
proceeding, DOE determined that the federal government is responsible 
for 55.2% of West Chicago cleanup costs.
    Under the Act, Congress required off-site disposal of contaminated 
material in order to obtain reimbursement of the government's share of 
cleanup costs. That requirement has dramatically impacted the cost of 
decommissioning the Facility and remediating vicinity properties. At 
year-end 2000, Kerr-McGee had shipped almost 1 million tons of material 
to Utah.
    In 1997, Kerr-McGee and the City of West Chicago signed an 
agreement providing zoning and local permitting approvals for the final 
phase of decommissioning and remediation work. Much progress has been 
made since, and the final phase of remediation work at the Facility 
should be completed in 2004, though groundwater remediation will take 
longer. As to vicinity properties, Kerr-McGee already has completed 
work at the Reed Keppler Park vicinity property and, in addition, has 
completed remediation of 600 of the 661 residential properties 
requiring cleanup. Remediation has not yet begun on the only remaining 
vicinity property, Kress Creek, as that site is still being 
investigated and cleanup requirements have not been determined.
    Through the end of last year, Kerr-McGee had spent more than $375 
million to decommission the Facility and remediate the vicinity 
properties. Kerr-McGee expects to spend a total of $488 million through 
project completion (not including costs for groundwater remediation or 
for remediation of Kress Creek, as not enough is known to accurately 
estimate those costs). The increase over the $360 million that was 
estimated in 1998 is due to an increase in the scope of work resulting 
from the identification of almost 200 additional residential properties 
requiring remediation; the completion of remediation at Reed-Keppler 
Park, where the quantity of material excavated and disposed of exceeded 
estimates; and the required removal of significantly more material 
(about 150,000 tons) from the Facility than was estimated in 1998.
    The government's share of the $488 million is $269 million. The 
current thorium authorization ($140 million plus $6 million in 
inflation adjustments) underfunds the federal share by $123 million. A 
corresponding increase in the authorization is necessary to raise that 
cap to a level that is consistent with demonstrated needs. It is 
anticipated that one final increase will be necessary in the future, 
once cleanup standards for Kress Creek are determined and groundwater 
requirements are known.

                         WEST CHICAGO, ILLINOIS
    My name is Gregory F. Pilcher. I am Senior Vice President and 
General Counsel of Kerr-McGee Chemical LLC (``Kerr-McGee''). I am 
pleased to join you today to discuss the progress at the West Chicago 
thorium mill tailings remediation site and the need for certain 
adjustments in the reimbursement limitations established by Title X of 
the Energy Policy Act of 1992.
    Title X of the Energy Policy Act recognizes the contribution to 
national defense made by companies that had produced uranium and 
thorium for the United States Government during the years our country 
was developing its nuclear defense program. The Act followed a 1979 GAO 
report that concluded: ``the most significant factor in favor of 
providing federal assistance in cleaning up tailings pertains to the 
federal government's role in creating the mill tailings situation. 
These are tailings for which the government has a strong moral 
responsibility.'' That moral responsibility became a commitment in 1992 
when Congress passed Title X of the Energy Policy Act. Under the Act, 
the federal government agreed to pay its portion of the costs 
associated with stabilizing and decommissioning the mills that were 
used to produce uranium and thorium.
    Kerr-McGee is the licensee at the West Chicago Rare Earths Facility 
(``the Facility'') in West Chicago, Illinois, which is among the mills 
covered by Title X. More than 55% of the Facility's thorium production 
was dedicated by contract to the federal government in support of the 
Nation's nuclear defense programs. Through 2000, Kerr-McGee had spent 
more than $375 million in West Chicago to decommission and remediate 
the Facility and surrounding areas. To date, DOE has reimbursed Kerr-
McGee approximately $146 million under Title X, completely exhausting 
the current thorium authorization. Nonetheless, Kerr-McGee has 
proceeded with its cleanup work on schedule and has continued to pay 
all decommissioning and remediation costs. I point this out to make you 
aware that at this level of financial exposure, you can be assured that 
our company is doing all it can to contain the cost of this project.
    My testimony today will focus on the progress we have made since 
July of 1998, the last time Congress considered an increase in the 
Title X reimbursement ceiling. I will also address the need for an 
increase in the current thorium authorization.
    First, however, I will provide some background.
I. Background
    Operations. The Facility began operations in 1932 and was shut down 
in 1973. Various owners operated the Facility until it was acquired by 
Kerr-McGee in 1967. Kerr-McGee operated the Facility, on a limited 
basis, for only the final six of the 41 years the Facility was open. 
The Facility produced a variety of chemical compounds containing rare 
earth elements and thorium, a naturally occurring radioactive element 
derived from ores and ore concentrates.
    The milling process produced a substantial volume of sand-like 
materials and sludges, called ``tailings'', which are mildly 
radioactive. The government contracts included specifications 
addressing physical characteristics, grade and impurities. However, the 
contracts did not include provisions for mill decommissioning, long-
term management of the tailings, or stabilization of tailings piles. 
The reason for this omission is that the potential hazards of tailings 
were not appreciated at the time the contracts were executed.
    After several decades of operations, the Facility was contaminated 
with tailings generated by the milling activities. Also, as happened at 
similar sites across the country, local residents and others apparently 
used the sand-like tailings as fill which resulted in low-level 
contamination of surrounding areas.
    After closing the Facility in 1973, Kerr-McGee began working with 
the U.S. Nuclear Regulatory Commission (``NRC'') to decommission the 
Facility and remediate the surrounding areas. In 1989, the NRC staff 
issued an environmental impact study in which the NRC staff 
preliminarily endorsed a plan by Kerr-McGee to bury the tailings at the 
Facility in an appropriately secured disposal cell.
    In 1990, at the request of the State of Illinois, the NRC 
transferred jurisdiction to the State, which is requiring off-site 
disposal. At that time (and until as recently as late summer 1994), 
there was no disposal facility anywhere in the United States licensed 
to accept the tailings for disposal. Kerr-McGee ultimately contracted 
with a disposal facility located in the state of Utah and, in late 1994 
began shipping contaminated soils from the West Chicago site to the 
Utah facility.
    Energy Policy Act. Title X of the Energy Policy Act of 1992 
recognized the obligation of the United States to reimburse those who 
produced uranium and thorium for the Government for a portion of the 
costs of stabilizing and decommissioning the mills. The Act 
specifically authorized the Department of Energy to reimburse licensees 
for the federal government's share of decommissioning and reclamation 
costs.
    Under the Act, Congress required off-site disposal in order to 
obtain reimbursement for the government's share of cleanup costs. The 
requirement that the tailings be disposed of off-site has dramatically 
impacted decommissioning costs. The Act initially set a limit on 
reimbursement at the West Chicago thorium site of $40 million, plus 
inflation adjustments. At that time, however, Congress did not know the 
actual dollar amount of the federal government's share of West Chicago 
cleanup costs. Further, the Department of Energy had not yet determined 
the federal government's percentage share (i.e. 55%) of cleanup costs. 
Additionally, the scope of the contamination at the Facility and at the 
vicinity properties and the full financial impact of shipping 
contaminated soils across the country to the Utah disposal facility was 
not known.
    As more information became available, Congress increased the 
federal government's authorized thorium reimbursement at West Chicago 
to $65 million in 1996, and to $140 million in 1998, plus adjustments 
for inflation. Even then, however, the full financial impact of the 
remediation effort was uncertain, as cleanup standards and other 
closure requirements imposed by the regulatory agencies were not fully 
in place and the cleanup of surrounding areas was still far from 
complete.
H. Remediation Activities--Progress Through Year-End 2000
    Kerr-McGee began shipping material to Utah in 1994. Significant 
progress has been made since. As of December 31, 2000, we had shipped 
more than 927,000 tons of material to Utah, including 250,000 tons from 
the vicinity properties, and had treated more than 98 million gallons 
of water.
    At the Facility, we are continuing with deep excavations and remain 
on schedule to complete the cleanup, with the exception of groundwater 
remediation, in 2004. Significantly, about 70% of the contaminated 
material has already been shipped to Utah from the Facility.
    With respect to the vicinity properties, we completed excavation 
and removal of contaminated material at the Reed-Keppler Park vicinity 
property during 1999. Approximately 115,000 cubic yards of material was 
shipped from that site. Restoration was completed during 2000.
    We are nearing completion of work on the residential properties in 
the vicinity of the Facility that have been identified as being 
contaminated with materials that originated at the Facility. At year-
end 2000, work was finished on nearly 600 of the 661 identified 
residential properties to be cleaned up. We anticipate completing 
remediation of the remaining sites this year, though it remains 
possible that EPA may identify additional properties. The cleanup 
orders issued by EPA for the vicinity properties are based upon EPA 
regulations promulgated to implement the Uranium Mill Tailings 
Radiation Control Act (``UMTRCA'') and the agreement state's source 
material milling facility regulations. License authorizations issued by 
the state regulatory agency provide for contaminated materials 
excavated from the vicinity properties to be returned to the Facility 
for processing and shipment to the Utah disposal facility.
    Remediation has not yet begun at the only other vicinity property, 
known as Kress Creek and the Sewage Treatment Plant (``Kress Creek''). 
The site investigation is still underway and cleanup requirements have 
not been determined for this vicinity property.
    We constantly seek ways to reduce costs. At West Chicago, we 
successfully pioneered the successful use of a physical separation 
facility (PSF) for use in separating thorium tailings from native 
soils, thereby reducing the volume (and cost) of material that must be 
shipped to the Utah disposal facility. Today, the PSF is in full 
operation. Through 2000, more than 293,000 tons of material had been 
processed through the PSF, producing 147,000 tons of material that was 
backfilled at the site instead of being shipped to Utah. We are now 
projecting that we will save $10-$15 million through use of PSF, up 
from our 1998 estimate of $5-$10 million.
III. Project Costs
    The progress made over the past three years allows us to better 
estimate the cost of completing the decommissioning and cleanup work. 
Our estimate of total project costs eligible for reimbursement under 
Title X from inception of the project through project completion now 
totals $488 million, which reflects an increase of $128 million over 
the $360 million estimated in July 1998. This estimate does not include 
cleanup of the Kress Creek vicinity property since it is still being 
studied and cleanup requirements have not been determined. Similarly, 
groundwater remediation costs over and above the source removal that is 
now taking place are not included in this estimate. Groundwater costs 
cannot be accurately predicted until excavation at the Facility is 
complete and actual groundwater conditions are known. The increase over 
the estimate provided in 1998 is primarily attributable to an increase 
in the scope of the remediation project due to the identification of 
almost 200 additional residential properties requiring remediation; the 
completion of the remediation at Reed-Keppler Park, where the quantity 
of material excavated and disposed of exceeded the prior estimates; 
and, the required removal of significantly more material from the 
Facility than was estimated in 1998 (150,000 tons of additional 
material). The increased excavation work at Reed-Keppler Park and the 
Facility and the cleanup of the 200 additional residential properties 
resulted in corresponding increases in transportation, disposal, 
engineering, infrastructure, and regulatory oversight costs.
IV. Funding Issues
    In a rulemaking proceeding, DOE determined that the Federal 
government is responsible for 55.2% of the West Chicago cleanup costs. 
This means that the government's share of total projected costs, 
excluding costs for Kress Creek and for groundwater remediation, is 
approximately $269 million. Therefore, the current thorium 
authorization ($140 million plus inflation adjustments of approximately 
$6 million) underfunds the federal government's share by about $123 
million. A corresponding increase in the authorization is necessary to 
raise the cap to a level that is consistent with demonstrated needs and 
allow reimbursement of the government's share of the actual cleanup 
costs. A summary of cleanup costs for the Facility (excluding 
groundwater) and the vicinity properties (excluding Kress Creek) is 
attached.
    It is anticipated that one final increase will be necessary in the 
future, once cleanup standards for Kress Creek are determined and 
groundwater remediation requirements are known.
                       west chicago cost summary
Federal Share
Total costs (excluding Kress Creek and ground water remediation) = $488 
million
Federal government's percentage share = x55.2%
Federal share = $269 million
Current Shortfall in Authorized Funding
Federal share = $269 million
Less: Title X authorization = <$146 million>
Current shortfall in authorized funding = $123 million
                                 ______
                                 
             Statement of the American Petroleum Institute
    The American Petroleum Institute (API) welcomes this opportunity to 
present the views of its member companies on the production components 
of a national energy policy. API is a national trade association 
representing nearly 500 companies engaged in all sectors of the U.S. 
oil and natural gas industry, including exploration, production, 
refining, distribution, and marketing.
    API appreciated the opportunity to address government lands issues 
at the Committee's April 3 hearing and we provide additional views here 
on more recent developments.
    We applaud the President and Vice President for their leadership 
and the comprehensive nature of their national energy proposals. 
Americans will benefit from the important national discussions about 
our energy future now underway as a result of these and other proposals 
from Democrats and Republicans in Congress.
    We believe that new technologies enable us to move beyond the old 
rhetoric of energy-versus-environment to produce more oil and natural 
gas in ways that protect the environment. With the proper changes in 
the policy arena, we can keep the nation supplied with fuel while at 
the same time continuing to improve our technology for the future--
technology that will ensure additional environmental gains.
    The Department of Energy has recently forecast U.S. energy 
consumption between 1999 and 2020. While natural gas rises from 23 
percent of consumption in 1999 to 28 percent in 2020, oil maintains its 
current 40 percent share. Most recent energy studies agree that this 
share is likely to continue well into this century--even with strong 
increases in energy efficiency and a rapid infusion of new technology.
    Thus, we need to focus on our future needs for reasonably priced 
oil and natural gas. The United States is becoming more and more oil 
import dependent. This dependency now amounts to about 57 percent of 
U.S. oil demand. The U.S. Department of Energy projects that 64 percent 
of oil demand will be met by imports in 2020. In order to ensure 
reliable and secure sources of oil, we must diversify the sources of 
our supplies, both domestic and foreign, and increase the volumes of 
both. To do this, we must remove the barriers that currently impede the 
U.S. oil and natural gas industry's ability to find and produce the 
energy for our nation's needs.
    We are encouraged that the national energy proposals put forth by 
the Administration and the Democrats and Republicans in Congress agree 
on the need to expand access to government lands through onshore and 
offshore leasing programs. Increased access to domestic oil and natural 
gas resources is vital to a comprehensive national energy strategy, and 
failure to provide such access will only further complicate and delay 
solutions to the energy problems facing our nation.

                   OCS LEASE SALE 181 SHOULD PROCEED
    The U.S. House of Representatives has taken the extremely harmful 
and short-sighted step of blocking environmentally compatible 
development of urgently needed oil and natural gas resources in the 
Eastern Gulf of Mexico. By voting to delay Lease Sale 181, the House 
took a giant step backwards in meeting future U.S. energy and economic 
needs. We are appreciative of the Senate's rejection of an amendment by 
Senator Nelson of Florida to delay Sale 181.
    The nation needs the oil and natural gas this promising area could 
provide and the U.S. petroleum industry has the advanced technology to 
produce these resources in an environmentally responsible manner.
    According to a 1999 National Petroleum Council study, the nation's 
demand for natural gas is expected to increase by 32 percent by 2010 
and by 41 percent by 2015. We saw only this past winter the 
consequences of demand outstripping supply. While particular regions 
were harder hit than others, no region was immune to the problem of 
sharply higher natural gas prices. Thus, a delay in new supplies from 
the Gulf of Mexico is not merely a regional issue. The reserves in the 
sale area would provide oil and natural gas throughout the United 
States. In fact, the impact of delay could be especially severe in the 
Midwest, where natural gas is used in more than three-fourths of the 
households and is a major energy source for agriculture and heavy 
industry.
    Opponents of Lease Sale 181 allege that offshore development in the 
Eastern Gulf would be environmentally harmful. They ignore the heavily 
documented fact that the offshore oil and natural gas industry has an 
outstanding record for operating safely on the more than 3,900 offshore 
platforms now in operation. With some production platforms now costing 
more than a billion dollars, they are constructed with enormous 
environmental and safety care.
    Moreover, U.S. oil and natural gas companies are subject to careful 
scrutiny in their offshore endeavors. Before a drop of oil is removed 
from beneath the seabed, a platform will have met some of the most 
rigorous environmental standards ever devised. The success of these 
efforts has been proven by the industry's exemplary safety record, even 
in the face of devastating hurricanes in the Gulf. Between 1980 and 
1999, 7.4 billion barrels of oil were produced off the nation's coasts 
with less than 0.001 percent spilled--a 99.999 percent safety record.
    The Gulf of Mexico has been a major, stable source of U.S. gas 
supply, comprising 28-30 percent of Lower-48 gas supplies over the past 
decade. The Gulf is expected to maintain that share over the next 
decade. Over the same period, the Gulf has been the major factor in 
stabilizing Lower 48 crude oil supply. As onshore oil supply fell by 30 
percent during the decade, offshore supply rose by nearly two thirds, 
increasing from only 18 percent of Lower-48 oil supply in 1990 to about 
a third in the year 2000. Over the next decade, its share is expected 
to rise, to about 46 percent.
    By far the most significant contribution to sustaining the role of 
the Gulf of Mexico has been the revolution in new technology that has 
enabled development of the deep waters of the Gulf. Annual natural gas 
production from the shallow waters of the Gulf, which was the focus of 
exploration efforts for almost five decades, has declined 1.4 trillion 
cubic feet, but a full 90 percent of this decline was offset by rising 
deepwater production. Even more significantly, total Gulf oil 
production rose 65 percent over the decade, as rapidly rising deepwater 
production offset a 9 percent decline in supply from the shallow waters 
of the Gulf.
    The continued growth of deepwater operations, which have played the 
essential role in sustaining the supply contribution of the Gulf for 
the past decade, is by no means assured. The Department of Energy 
forecasts that, even with access to all lands currently scheduled, the 
oil supply growth from the deepwater areas of the Gulf will not 
continue for more than five years, and that gas production growth from 
the deepwater areas may peak as early as 2002.
    The modified Sale 181 area is entirely in deepwater, and directly 
on trend with a number of major deepwater discoveries made just to the 
west of the area, in the easternmost portion of the Central Gulf. The 
Minerals Management Service estimates that the sale area holds 1.25 
trillion cubic feet of natural gas and 185 million barrels of oil, 
enough gas to serve one million U.S. families for 15 years and enough 
oil to fuel the automobiles of one million U.S. families for nearly 6 
years. It is the natural extension of the success in the deepwater of 
the Central Gulf, which has been widely heralded for both its 
development success and its environmental responsibility.
    Lease Sale 181 is not a new energy initiative. The sale has been 
scheduled for five years and has undergone comprehensive environmental 
reviews, and consultations between former Secretary of the Interior 
Bruce Babbitt and then-Governors Lawton Chiles of Florida and Fob James 
of Alabama. Congress in the past several appropriations bills 
understood the importance of Sale 181 going forward and did not include 
it in the areas placed off-limits by moratoria.
    It would be truly ironic if the first response of this Congress to 
the current energy situation were to aggravate the problem by 
jeopardizing the development of deepwater Gulf of Mexico resources.
       offshore oil and natural gas resources should be developed
    The focus on Lease Sale 181 highlights how the Outer Continental 
Shelf (OCS) has assumed increasing importance to U.S. energy supply 
over the past half century.
    Technological revolutions, such as 3-D seismic profiling of 
promising structures, coupled with astounding computer power and 
directional drilling techniques which allow numerous reservoirs to be 
accessed from one drill site, have driven down the costs of finding 
offshore oil and gas. At the same time, these technologies allow 
development with much less disturbance to the environment. Tremendous 
advances in our ability to drill and produce in the deepwater areas of 
the Gulf have also resulted in vast new reserves being added to our 
resource base. The Deepwater Royalty Relief Act, passed by Congress in 
1995, has significantly aided that endeavor.
    Advanced technology used in offshore operations includes the 
following:

   Advanced Offshore Platforms. Traditionally, offshore 
        resources were developed from a fixed structure attached to the 
        sea floor. At 1,500 feet of water, fixed platforms become 
        unwieldy and too expensive. The answer for tapping resources in 
        deeper water was found in floating platform technology. New 
        platform designs offer the advantages of fixed platforms with 
        faster construction time, lower investment costs, less impact 
        to marine habitats, and the capability to operate in deeper 
        waters.
   Deepwater/Subsea Completions. Subsea completions involve 
        placing the Christmas tree, the assembly of valves mounted on 
        the casinghead through which a well is produced, on the seabed. 
        By connecting subsea wells to host facilities, such as a less 
        expensive platform in shallower waters or an existing platform, 
        operators are able to develop discoveries that otherwise would 
        not be economic.
   Dynamic Positioning Systems. Dynamic positioning systems 
        compensate for the effects of wind, waves, and current, 
        enabling mobile offshore drilling units to hold position over 
        the borehole. Greater environmental protection and worker 
        safety are among the most significant advantages of dynamic 
        positioning systems.
   Subsalt Imaging. Much of the Gulf of Mexico is underlain by 
        salt formations. Technology developed by the U.S. Navy during 
        the Cold War for stealth submarines has been applied 
        successfully to enhance seismic images, giving a much clearer 
        picture of possible oil and gas traps within and below the 
        salt.
   Synthetic-Based Drilling Fluids. Drilling fluids--or muds--
        are essential to carry rock cuttings to the surface, maintain 
        pressure balance and stability in the borehole, lubricate and 
        clear the drillstring and bit, and prevent the influx of other 
        fluids. Synthetic-based muds not only effectively minimize 
        drilling problems, they are reuseable and therefore generate 
        less waste than other drilling muds.

    Those in the federal government who are most familiar with our 
industry have lauded our technological advances. A 1999 DOE report, 
Environmental Benefits of Advanced Oil and Gas Exploration and 
Production Technology, stated that, ``. . . innovative E&P approaches 
are making a difference to the environment. With advanced technologies, 
the oil and gas industry can pinpoint resources more accurately, 
extract them more efficiently and with less surface disturbance, 
minimize associated wastes, and, ultimately, restore sites to original 
or better condition. . . . [The industry] has integrated an 
environmental ethic into its business and culture and operations . . . 
[and] has come to recognize that high environmental standards and 
responsible development are good business. . . .''
    The U.S. must increase deepwater development, and provide access to 
areas presently restricted. Currently, presidential moratoria, and 
annual Interior appropriations bill riders preclude leasing in most of 
the Eastern Gulf of Mexico, the entire Atlantic and Pacific federal 
OCS, and portions of offshore Alaska. As a result, only 200 million 
acres out of 1.5 billion federal OCS acres are available for 
environmentally compatible exploration and production.
    Moreover, the ``consistency'' provisions of the Coastal Zone 
Management Act (CZMA), under the guise of due process and consultation, 
have caused serious duplicative and incredibly costly delays to federal 
OCS leasing and production activities that would have no adverse 
environmental impacts on states' coastal zones. And regulations issued 
by the National Oceanic and Atmospheric Administration (NOAA) in the 
last days of the Clinton Administration appear to add impediments to 
environmentally compatible energy development in the OCS, contrary to 
the balancing of competing interests directed by Congress when it 
enacted the CZMA. Both the summary withdrawal of multiple use 
government lands without stakeholder consultation under the Antiquities 
Act, and the endless due process used by opponents to block federal 
offshore production that does not affect a state's coastal zone are 
extreme, and must be modernized.
    We urge the Senate to reject efforts to continue or expand barriers 
to offshore development. We are opposed to S. 771, S. 901 and S. 1086, 
which would further prohibit drilling on the federal Outer Continental 
Shelf off the Atlantic and Pacific coasts or seaward of any state that 
has a moratorium.

                  THE NEED FOR ACCESS TO WESTERN LANDS
    The U.S. oil and natural gas industry does not ask to drill on 
parklands or in wilderness areas set aside by acts of Congress. Rather, 
we seek access to areas offshore, in Alaska and in the American West 
that have been designated as ``multiple use'' so that oil and natural 
gas operations as well as other activities can take place there.
    Most of these ``multiple use'' areas are simply vast expanses of 
nondescript government lands. However, because they lack the beauty and 
grandeur of the Grand Canyon or the Grand Tetons does not mean that we 
treat them with less respect than we do any other lands entrusted to us 
by the government, or by private landowners. Most people driving near 
or hiking in one of these areas would be hard-pressed to locate one of 
our facilities once the drilling rig is removed. Safety and 
environmental protection are critical concerns, regardless of the 
location of drilling, and where our contractual obligations with the 
government require us to return the land to its original condition once 
drilling and production cease.
    Many of the technological innovations of the industry have spawned 
substantial environmental benefits. The recovery of coalbed methane, 
for example, not only adds a very clean-burning fuel to our nation's 
energy supply, but also greatly enhances the safety of coal miners. The 
use of directional drilling and new techniques such as slimhole or 
coiled tubing have reduced the footprint, or surface area required to 
tap into oil and gas resources. Greater drilling efficiency reduces 
fuel use and emissions and time spent at the location.
    Some technologies have been developed specifically to enhance 
environmental performance. A good example of this is downhole oil-water 
separation technology. Producing oil often means producing substantial 
volumes of water that must be treated or disposed. By separating the 
oil from the water in the wellbore and reinjecting the water to another 
subsurface formation, this technology eliminates the production of 
water and its attendant environmental concerns. New leak detection and 
emission control technologies have also been developed to minimize the 
environmental impacts of supplying our country's oil and gas needs.
    Additional examples of industry use of advanced technology in oil 
and gas development include:

   3-D and 4-D Seismic Technology. Three-dimensional seismic 
        technology creates a 3-D image of underground geological 
        structures by gathering information not just from the grid area 
        of interest, but also from all of the areas around the specific 
        grid area. The newest development is 4-D visualization, through 
        the application of time-lapse monitoring of 3-D data. This 
        technique is proving highly successful in identifying bypassed 
        reserves in existing formations.
   Remote Sensing. Satellite imaging already contributes to our 
        efforts to locate oil and gas deposits, but newer radar 
        satellites hold even greater potential. Radar imagining 
        satellites are able to work in nearly any atmospheric 
        condition. Combining the images with sophisticated digital 
        imaging processing can produce maps that can help identify oil 
        and gas deposits.
   Unconventional Gas Recovery. According to the National 
        Petroleum Council, 25 percent of our nation's remaining gas 
        resources are in unconventional formations. The key to 
        producing unconventional gas resources is a technology called 
        hydraulic fracturing which involves the injection of water or 
        other fluids at high pressure to create cracks in the producing 
        formation.
   More Efficient Drilling Techniques. Advances in materials 
        technology and bit hydraulics have allowed new drill bits to be 
        developed that can reduce drilling time by up to 50 percent. 
        New corrosion-resistant alloys and composites have improved 
        drill bits and equipment designed to operate in deep, hot, and 
        sour (high hydrogen sulfide content) wells.

    However, despite the industry's record of sound stewardship, the 
U.S. Forest Service recently banned our companies from exploring for 
oil and natural gas on promising government lands when it published 
rules to bar road building on 58.5 million acres in the Forest System 
that could hold 11 trillion cubic feet of natural gas.
    In the lower-48 states, a study by the Cooperating Associations 
Forum found that federal lease acreage available for oil and gas 
exploration and production in eight Western states (California, 
Colorado, Montana, Nevada, New Mexico, North Dakota, Utah and Wyoming) 
decreased by more than 60 percent between 1983 and 1997--and that does 
not count the major land withdrawals since 1997.
    Approximately 205 million acres of federal lands in these states 
are under the control of two federal agencies with broad discretionary 
powers. The Bureau of Land Management (BLM), whose land management 
planning authority is derived from the FLPMA of 1976, and the U.S. 
Forest Service (USFS), whose jurisdiction is derived from the National 
Forest Management Act, administer these federal, non-park lands.
    Both agencies are required to manage lands they administer under 
the congressionally mandated concept of multiple use. Yet, BLM and USFS 
discretionary actions have withdrawn federal lands from leasing, and 
long delayed other leasing decisions and project permitting.
    API believes that the following steps should be taken in the short-
term by the Executive Branch, with assistance from Congress as needed, 
to stimulate environmentally sound oil and natural gas development on 
non-park federal lands:

   Fully fund the congressionally-mandated inventory of 
        reserves on federal lands, including the identification of the 
        impediments to development.
   Update outdated and inadequate resource management plans for 
        BLM-administered management areas in the natural gas-prone 
        areas in the Rocky Mountain region and revise USFS road-
        building moratoria to allow for development of oil and natural 
        gas resources.
   Eliminate unnecessary impediments to wise development of 
        those reserves by: committing the resources necessary to 
        eliminate the huge backlog of exploration and production permit 
        applications; adequately staffing BLM field offices to ensure 
        timely processing of permit applications; reducing 
        significantly the time required to process federal exploration 
        and production permits; and streamlining interagency review of 
        plans and development applications under the National 
        Environmental Policy Act and the Endangered Species Act.

             EXTENT OF WESTERN LANDS OFF-LIMITS TO LEASING
    Unfortunately, we find that the facts are often ignored and often 
distorted by those who do not believe greater access to government 
lands is needed by our industry. In testimony earlier this year before 
the House Commerce Committee's Subcommittee on Energy and Mineral 
Resources, we heard material distortions by witnesses for the Natural 
Resources Defense Council (NRDC) and the Wilderness Society.
    The NRDC witness' testimony and a Wilderness Society study 
submitted for the record concluded that only a small percentage of BLM 
lands in five western states is off limits to leasing and development. 
That conclusion glosses over the most significant point: the percentage 
of government lands available for leasing is a meaningless figure 
without knowing whether the leases can be developed.
    In many instances, lease holders cannot obtain the permits needed 
to develop leases. In others, development is rendered uneconomic by 
unnecessarily restrictive operation stipulations. An appropriate 
analogy would be leasing a car without a starter motor or keys. Or 
renting a house and being allowed to use only the roof. Would a person 
really have a car if he or she cannot drive it? And what good would it 
do anyone to rent a house if it can't be lived in? Similarly, a lease 
that cannot be developed is a lease in name only.
    The NRDC and the Wilderness Society witnesses surgically selected 
certain data, and omitted other significant data to attempt to prove 
their inaccurate assertions. For example, while the numbers presented 
by the Wilderness Society do show that only about 3.5 percent of BLM 
lands are off-limits, the recent National Petroleum Council (NPQ 
natural gas study identifies another 3.2 percent that are subject to 
``no surface occupancy.'' The NPC study indicates that this 6.7 percent 
of BLM lands represents 15 percent of the BLM natural gas resources, 
which are either off-limits or significantly impinged.
    More important, however, is the role of non-standard lease 
stipulations. The Wilderness Society's data show that seasonal and 
other non-standard stipulations restrict access to an additional 32 
percent of BLM lands. However, this impacts access to 47 percent of the 
natural gas resources estimated to exist on BLM lands in the Rockies. 
When all of these restricted and off-limit BLM lands are combined, they 
total 38.7 percent, affecting 62 percent of the natural gas resources.
    Further, BLM is not the only federal land management agency making 
such restrictions. The NRDC and Wilderness Society witnesses omitted 
the U.S. Forest Service, the Bureau of Indian Affairs and the 
Departments of Defense and Energy in their computation of federal 
multiple-use lands that are restricted to oil and gas development. In 
total, the National Petroleum Council estimates that some 137 trillion 
cubic feet of natural gas resources lie beneath federal lands in the 
Rockies that are either off limits to exploration or heavily 
restricted. This is 48 percent of the natural gas on federal land in 
the region.
    Moreover, a recently released U.S. Department of Energy analysis 
has concluded that access to natural gas-rich areas in the Rocky 
Mountains may be much more restricted than previously thought. Analysts 
studied federal lands on virtually a tract-by-tract basis in the 
Greater Green River Basin of Wyoming and Colorado and found that nearly 
68 percent of the area's technically recoverable natural gas 
resources--as much as 79 trillion cubic feet of natural gas--is either 
closed to development or under significant access restrictions. The 
study found that about 30 percent of the natural gas resources is 
completely off limits, with about one percent underlying lands such as 
national parks and wilderness areas that are closed by statute; the 
rest have been closed by administrative action. An additional 38 
percent of the gas resources have some type of leasing stipulation that 
would restrict access without preventing it completely. The remaining 
32 percent is subject to standard lease terms, which include stringent 
environmental requirements.
    Difficulties in acquiring permits to drill wells and overly 
restrictive lease stipulations are responsible for significantly 
limiting natural gas production. Restrictions, such as ``no surface 
occupancy'' or seasonal stipulations that go above and beyond the 
normal environmental stipulations, often prevent economic development 
of the lease without commensurate environmental benefit.
    Given this situation, API and its member companies strongly support 
the provisions in Chairman Bingaman's legislation to streamline and 
speed up the permitting process. These provisions are urgently needed 
and we urge the Congress to enact them as part of a comprehensive 
national energy strategy package.

       THE NEED TO OPEN THE ANWR COASTAL PLAIN TO OIL EXPLORATION
    Congress has refused to authorize exploration in the small section 
of the Arctic National Wildlife Refuge (ANWR) that was specifically set 
aside by law for exploration in 1980. DOE's Energy Information 
Administration estimates that the ANWR coastal plain contains between 
5.7 billion and 16 billion barrels of recoverable oil. The coastal 
plain provides the best prospect in North America for a new giant, 
Prudhoe Bay-sized oil field. Moreover, the citizens of Alaska 
overwhelmingly favor opening the coastal plain to oil operations.
    API strongly supports inclusion of a provision opening the ANWR 
coastal plain to oil operations in national energy strategy 
legislation. To exclude ANWR operations from consideration would be a 
major step backward in meeting U.S. energy needs and would only repeat 
the major mistakes of our recent energy history.
    Moreover, the industry's North Slope record provides overwhelming 
evidence that ANWR coastal plain development would not be harmful to 
the Arctic ecology and wildlife. Prudhoe Bay oil operations, located 60 
miles to the west of ANWR, have been underway for nearly a quarter 
century and have produced more than 10 billion barrels of oil during 
that time. Prudhoe Bay is among the most environmentally sensitive oil 
operations in the world. For example, the Central Arctic caribou herd 
at Prudhoe Bay has grown from 5,000 to 27,000 over the last 25 years. 
Furthermore, as a result of the enormous technological advances of 
recent years, only 2,000 acres would be needed for ANWR development--
out of the 1.5 million acre coastal plain and the total ANWR area of 
19.8 million acres.
    Advanced technology has enabled the industry to fully safeguard the 
sensitive Arctic ecology and wildlife. Examples include:

   Reduced Footprint. Advanced technology has greatly reduced 
        the ``footprint'' of Arctic oil development. If Prudhoe Bay 
        were built today, the footprint would be 1,526 acres or 64 
        percent smaller. Less than 1 percent of the coastal plain would 
        be subject to exploration and production activities. That is an 
        area about the size of Washington, D.C.'s Dulles Airport.
   Ice Roads. Temporary ice roads allow the construction of oil 
        field pipelines during the winter months, largely eliminating 
        the need for permanent gravel roads adjacent to pipelines. Ice-
        road building techniques are also used to create ice runways 
        and ice pads to support exploratory drilling. Ice roads and 
        pads melt in the spring and leave no significant damage to the 
        tundra.
   Directional Drilling. As was dramatically shown in a recent 
        ``60 Minutes'' show, directional drilling on the North Slope 
        allows for several locations to be reached from a considerable 
        distance from a single well, by angling the well directly to 
        where the oil or gas can be found.

                               CONCLUSION
    We are encouraged by the serious efforts by the Administration and 
by Democrats and Republicans in Congress to address U.S. energy needs 
and shape a comprehensive national energy strategy. The level of 
agreement on major components of that strategy bodes well for enacting 
meaningful legislation in the months ahead.
    However, we should recognize that energy supply cannot be matched 
to demand without massive capital investment, construction, and 
turnover in equipment and this requires long lead times. In order to 
ensure that these adjustments are made as soon as possible with the 
least amount of disruption, we must start making the necessary energy 
strategy decisions now--and that is particularly true of the critically 
important issues affecting access to government lands.
    After more than two decades of inaction, the American public can no 
longer afford the luxury of not coming to grips with U.S. energy needs 
while maintaining a clean environment. We can no longer declare off-
limits vast oil and natural gas resources on our government lands and 
ignore the advances in technology which ensure their safe and 
environmentally sound development. Meeting U.S. energy needs and 
protecting the environment are both critical to our nation's continued 
economic growth--and critical to achieving the future prosperity and 
well-being we all seek.
                                 ______
                                 
                  Statement of Citizen Action/Illinois
    Citizen Action/Illinois strongly supports S. 900, the Consumer 
Energy Commission, sponsored by Senator Richard Durbin. As the state's 
largest public interest organization, Citizen Action/Illinois is 
committed to ensuring consumers clean and affordable energy.
    As there has been increased consolidation in the gasoline industry, 
there is less competition. For the second year in a row, gasoline 
consumers in Illinois paid the highest prices in the nation. Meanwhile, 
oil industry profits have continued to skyrocket. In the fourth quarter 
of 2000, profits for fuel and utility companies jumped $7.8 billion, or 
87 percent, above their earlier level. The reason given for these huge 
price spikes varies daily. We are told that the problem is the lack of 
oil supply, while two local gas suppliers in Illinois get caught 
hoarding gas. We are told that there is a need to build more 
refineries, while the president of a major oil company says that we 
have more than enough. We are told that the cost of reformulated 
gasoline is the problem, but that doesn't explain why some states with 
the same reformulated gasoline offer their fuel at much lower prices.
    There needs to be a serious investigation that would focus on the 
real cause of these energy price spikes. Gasoline, heat, and 
electricity are not luxuries, but consumer necessities. When prices go 
up, consumers have no choice but to pay them. According to the 
Department of Energy, this past winter heating bills rose nationally by 
70% between October 2000 through March 2001. In Illinois, prices were 
much higher. These energy spikes hurt American families, especially 
those who struggle to pay other bills. Consumers need protection from 
these sharp increases.
    The Consumer Energy Commission should conduct a serious 
investigation that would focus on the real cause of these energy price 
spikes. The commission should also be charged with investigating any 
opportunistic behavior by energy companies or possible abuses of market 
power. This commission should also issue a report with recommendations 
on how to protect consumers from future spike jolts. Such a report 
should prove helpful as we craft a national long-term energy policy.
    We realize that we cannot drill and guzzle our way out of our 
energy problems. A comprehensive, forward looking energy plan must 
include consumer tax incentives for energy efficient cars and 
appliances, renewable energy and a major expansion of public 
transportation. Investing in these long-term solution would not only 
save consumers money, but will also protect our nation's environment 
and yield better health outcomes for our citizens.
    In conclusion, consumers should not be subjected to the 
unpredictable price swings of oil, gas and utility companies. A 
Consumer Energy Commission would ensure consumers energy that is clean, 
affordable and steady. We applaud Senator Dick Durbin for this proposal 
and we stand ready to offer any assistance that we can to create this 
important commission.
            Sincerely,
                                   William McNary,
                                           Co-Director,
                                           Citizen Action/Illinois.

                                   Lynda DeLaforgue,
                                           Co-Director,
                                           Citizen Action/Illinois.

                                   Ashley Collins,
                                           Environmental Program 
                                               Associate,
                                           Citizen Action/Illinois.
                                 ______
                                 
                                                    March 20, 2001.
Hon. George W. Bush,
President of the United States, The White House, Washington, DC.
    Dear Mr. President: As scientists and natural resource managers 
from the United States and Canada with many years of experience in 
ecology, wildlife and conservation biology, resource management and 
cultural anthropology, we encourage you to reconsider plans for 
exploring and developing the potential oil and gas reserves of the 
Arctic National Wildlife Refuge's coastal plain. Instead, we urge you 
to support permanent protection of the coastal plain's significant 
wildlife and wilderness values.
    The wildlands of the Arctic Refuge include the barrier islands and 
estuaries of the Beaufort Sea, the Arctic coastal plain, the Brooks 
Range, and the boreal forest within the upper Yukon River watershed. 
First set aside by President Dwight D. Eisenhower as the Arctic 
National Wildlife Range in 1960, this is the United State's only 
conservation unit that encompasses an intact arctic ecosystem. Combined 
with the adjacent Ivvavik and Vuntut national parks in Canada, the 
Arctic Refuge represents one of the largest protected landscapes in the 
world. Moreover, the Arctic Refuge's coastal plain is a rare example of 
an ecosystem where ecological and cultural processes continue to 
interact much as they have for thousands of years. Unlike the adjoining 
refuge lands, that are designated Wilderness, the coastal plain is not 
permanently protected from development.
    When President Eisenhower established the Arctic National Wildlife 
Range, he had the foresight and wisdom to include the entire ecosystem 
both south and north of the Brooks Range, encompassing the biologically 
rich coastal plain considered essential to the integrity of this 
ecosystem. In 1980, Congress enlarged the range to encompass additional 
wildlife habitat and designated this unique area the Arctic National 
Wildlife Refuge. The refuge mission was broadened to include 
international research and management, as well as support for 
subsistence uses that form the basis of Native cultural values. Most of 
the original wildlife range was designated as a Wilderness. Only the 
1.5 million-acre coastal plain was omitted. And today, this oversight 
remains a significant concern.
    Five decades of biological study and scientific research have 
confirmed that the coastal plain of the Arctic National Wildlife Refuge 
forms a vital component of the biological diversity of the refuge and 
merits the same kind of permanent safeguards and precautionary 
management as the rest of this original conservation unit. In contrast 
to the broad (greater than 150 mi.) coastal plain to the west of the 
Arctic Refuge, the coastal plain within the refuge is much narrower 
(15-40 mi.). This unique compression of habitats concentrates the 
occurrence of a wide variety of wildlife and fish species, including 
polar bears, grizzly bears, wolves, wolverines, caribou, muskoxen, 
Dolly Varden, Arctic grayling, snow geese, and more than 130 other 
species of migratory birds. In fact, according to the U.S. Fish & 
Wildlife Service, the Arctic Refuge coastal plain contains the greatest 
wildlife diversity of any protected area above the Arctic Circle.
    The coastal plain provides essential calving and post-calving 
habitat for the Porcupine Caribou Herd, the largest (at about 130,000 
animals) international migratory caribou herd in the world. The United 
States and Canada share the immense responsibility of managing this 
herd and protecting the key habitats on which the herd depends. In 
1987, the two nations signed an international agreement to protect the 
Porcupine Caribou Herd. Since then, the calving grounds on the Canadian 
side of the border have received full protection, while the United 
States has not yet taken similar steps to adequately protect this 
essential habitat within the coastal plain of the Arctic Refuge, where 
most calving occurs. The Gwichin Nation of Alaska and Canada depends 
upon the sustained productivity of the Porcupine Caribou Herd, for 
their subsistence economy and cultural identity, and are justifiably 
concerned about its security. Extensive research on the Central Arctic 
Caribou Herd at Prudhoe Bay indicates appreciable losses of preferred 
calving and summer habitats in response to petroleum development. 
Although the Central Arctic Herd has recently increased associated with 
mild weather conditions, we cannot be certain that even current state-
of-the-art mitigation measures will guarantee access to critical 
habitats for the much larger, more densely aggregated Porcupine Herd. 
Displacement to new calving areas from developed oil fields, as has 
occurred with a portion of the Central Arctic Herd, does not appear to 
be an option for the Porcupine Herd because of the lack of suitable 
adjacent terrain.
    Biologists also have identified conservation concerns with other 
wildlife populations in the Arctic Refuge, including polar bears, 
muskoxen, and snow geese. Although many polar bears den on the pack 
ice, the refuge's coastal plain is the most important land denning area 
for Beaufort Sea bears in Alaska. Muskoxen are year-round residents of 
the coastal plain, and disturbance from industrial development, 
particularly in winter, holds the potential to increase energetic costs 
and result in decreased calf production. Also, snow geese might be 
displaced from important feeding and staging habitats prior to autumn 
migration, increasing energy expenditure and reducing their ability to 
accumulate the fat needed for migration. The coastal plain serves many 
biological functions, including nesting habitat for shorebirds, 
waterfowl, songbirds, raptors, and other migratory birds.
    The Interior Department has predicted that oil and gas exploration 
and development would have a major effect on water resources. Fresh 
water already is limited on the refuge's coastal plain, and direct 
damage to wetlands will adversely affect fish, waterfowl, and other 
migratory birds. These potentially disruptive effects to fish and 
wildlife should not be viewed in isolation, however. Arctic ecosystems 
are characterized by many complex interactions, and changes to one 
component may have secondary but significant effects on other parts of 
this fragile ecosystem. Based on our collective experience and 
understanding of the cumulative effects of oil and gas exploration and 
development on Alaska's North Slope, we do not believe these impacts 
have been adequately considered for the Arctic Refuge, and mitigation 
without adequate data on this complex ecosystem is unlikely. Oil 
exploration and development have substantially changed environments 
where they have occurred in Alaska's central Arctic. Since the 
discovery of oil at Prudhoe Bay in 1968, the U.S. Fish & Wildlife 
Service estimated about 800 square miles of Arctic habitats have been 
transformed into one of the world's largest industrial complexes. Oil 
spills, contaminated waste, and other sources of pollution have had 
measurable environmental impacts, in spite of strict environmental 
regulations. Roads, pipelines, well pads, processing facilities, and 
other support infrastructure have incrementally altered the character 
of this ecosystem.
    Please understand that we are not philosophically opposed to oil 
and gas development in Alaska. Indeed, we all clearly recognize the 
need for balanced resource management. But we also recognize the 
importance of maintaining the biological diversity and ecosystem 
integrity of our nation's Arctic. Nearly the entire Arctic Coast of 
Alaska north of the Brooks Range is available for oil and gas 
exploration or development. The 110-mile-long coastal plain of the 
Arctic National Wildlife Refuge encompasses 1.5 million acres of key 
wildlife habitat vital to the integrity of the Arctic National Wildlife 
Refuge. We urge you, Mr. President, to permanently protect the 
biological diversity and wilderness character of the coastal plain of 
the Arctic National Wildlife Refuge from future oil and gas 
development.
    Thank you for considering our concerns and recommendations.
            Sincerely,
                          Arctic Refuge Science Letter Signatories.
                                 ______
                                 
                      Federal Energy Regulatory Commission,
                                     Washington, DC, July 13, 2001.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Thank you for your staff's invitation to submit 
written comments pursuant to your Committee's July 12, 2001 hearing on 
certain provisions of interest to the Federal Energy Regulatory 
Commission included in Title I of S. 388, the ``National Energy 
Security Act of 2001,'' Title III of S. 597, the ``Comprehensive and 
Balanced Energy Policy Act of 2001,'' and S. 900, the ``Consumer Energy 
Commission Act of 2001.''
    I asked the Commission's staff to review the appropriate provisions 
under consideration by your Committee at its July 12 hearing. The staff 
comments are enclosed.
    I hope that this information is helpful to you. Please let me know 
if I can be of further assistance in this or any other matter.
            Sincerely,
                                       Curt L. Hebert, Jr.,
                                                          Chairman.
[Enclosure]
Comments of the Federal Energy Regulatory Commission Staff for Hearing 
                            of July 12, 2001
    The staff of the Federal Energy Regulatory Commission (hereinafter 
``Commission staff') was asked to provide written comments on certain 
provisions of interest to the Commission included in Title I of S. 388, 
the ``National Energy Security Act of 2001, Title III of S. 597, the 
``Comprehensive and Balanced Energy Policy Act of 2001,'' and S. 900, 
the ``Consumer Energy Commission Act of 2001.''
                           comments on s. 388
    As to the relevant provisions of S. 388 and S. 597, the Commission 
staff has only the following comments to section 101 of S. 388. Section 
101 states:

Sec. 101. Consultation and Report on Federal Agency Actions Affecting 
Domestic Energy Supply.

    Prior to taking or initiating any action that could have a 
significant adverse effect on the availability or supply of domestic 
energy resources or on the domestic capability to distribute or 
transport such resources, the head of a Federal agency proposing or 
participating in such action shall notify the Secretary of Energy in 
writing of the nature and scope of the action, the need for such 
action, the potential effect of such action on energy resource 
supplies, price, distribution, and transportation, and any alternatives 
to such action or options to mitigate the effects and shall provide the 
Secretary of Energy with adequate time to review the proposed action 
and make recommendations to avoid or minimize the adverse effect of the 
proposed action. The proposing agency shall consider any such 
recommendations made by the Secretary of Energy. The Secretary of 
Energy shall provide an annual report to the Committee on Energy and 
Natural Resources of the United States Senate and to the appropriate 
committees of the House of Representatives on all actions brought to 
his attention, what mitigation or alternatives, if any, were 
implemented, and what the short-term, mid-term, and long-term effect of 
the final action will likely be on domestic energy resource supplies 
and their development, distribution, or transmission.
    Commission Staff is concerned that section 101 of S. 388 could have 
unintended consequences if enacted into law, and could significantly 
delay the addition of needed natural gas infrastructure in the United 
States, thus exacerbating delivery problems and contributing to higher 
natural gas prices. Among other things, section 101 requires the head 
of a Federal agency to notify the Secretary of Energy before ``taking 
any action that could have a significant adverse effect on the 
availability or supply of domestic energy resources or on the domestic 
capability to distribute or transport such resources. . . .'' The 
agency must provide the Secretary adequate time to review the proposed 
action and must consider any recommendations made by the Secretary. 
Because section 101 does not define or clarify ``significant adverse 
effect'' Commission staff is concerned that parties who oppose an 
application before the Commission may be able to delay final action on 
almost any project by arguing that it is potentially adverse to the 
distribution or transportation of natural gas. It is common, for 
instance, for local distribution companies (``LDC's'') to object to 
interstate pipelines seeking to serve an industrial user in the LDC's 
service territory (the so-called ``by-pass'' issue). In those cases, 
the distributors often claim that approval of the project, by 
potentially removing large consumers from their customer base, will 
harm their ability to provide quality service at reasonable rates to 
their other customers. While the Commission at present considers such 
concerns in making its public interest finding, the Commission staff 
can foresee LDCs, and others, claiming that such proposals qualify as 
an ``adverse effect'' triggering section 101's requirement to notify 
the Secretary of energy and await a response. It is possible to imagine 
similar arguments of ``adverse effect'' being raised in almost any 
certificate proceeding before the Commission. The delays and expense 
resulting from such a requirement may offset any gains achieved through 
on-going efforts to streamline the processing of certificate 
applications before the FERC. In effect, this proposed legislation, by 
requiring a narrative of impacts and options to mitigate and 
alternatives, duplicates the National Environmental Policy Act.
    In addition, the Commission staff believes that this section 
conflicts with the goals of section 305 of S. 597, ``Comprehensive and 
Balanced Energy Policy Act of 2001'', which requires the Commission to 
review its policies for certification of natural gas pipelines to 
determine how to reduce the cost and timing of obtaining a certificate.

                           COMMENTS ON S. 900
    As a general matter, the Consumer Energy Commission Act of 2001 is 
focused on assessing and providing recommendations to Congress on 
recent energy price spikes from the perspective of consumers. The FERC 
is not the appropriate body to undertake such a task, as its statutory 
scheme gives it jurisdiction over sales for resale of natural gas in 
interstate commerce, and not sales to residential or small business 
customers. FERC's statutory authority involves wholesale natural gas 
markets, not retail natural gas markets. The FERC has jurisdiction over 
the transmission of natural gas in interstate commerce and sales for 
resale that are made in interstate commerce. The FERC has no expertise 
in natural gas retail markets, on which this legislation is intended to 
provide information.
    For example, section 2 of the act refers to entities over which the 
Commission has no jurisdiction and on which it gathers no information:

          Sec. 2. FINDINGS (3) price spikes undermine the ability of 
        low-income families, the elderly, and small businesses 
        (including agricultural producers) to afford essential energy 
        users.

    The Commission staff believes that a representative from a state 
utility regulatory commission, which has jurisdiction over, and 
expertise on, retail markets, or perhaps from the NARUC, which is the 
overarching organization for the state utility commissions, might be a 
more appropriate body to supply a representative to the Consumer Energy 
Commission. Furthermore, the Commission does not regulate, nor collect 
information on, nor have expertise in, home heating oil, gasoline or 
propane markets.
    S. 900 stipulates that the proposed Consumer Energy Commission 
shall be comprised of 11 members, one of whom shall be appointed by the 
President from the Federal Energy Regulatory Commission. To the extent 
that the FERC member of the new Commission makes recommendations to 
Congress, under the provisions of the Administrative Procedures Act, 
such member may be barred from participating as a decisional employee 
on any matter involving the same or a common set of issues that may 
later come before the FERC in the context of a contested on-the-record 
proceeding.
    Federal agencies with members serving on the Consumer Energy 
Commission are directed to provide the Commission such information and 
such administrative expenses as the Commission requires to carry out 
this section. The FERC's budget does not include any general funds that 
would be appropriately used for this purpose. Should the FERC be 
required to fund such a program, it would have to request an 
appropriate from Congress for these amounts.
    S. 900 further provides that the Consumer Energy Commission ``shall 
conduct a nationwide study of significant price spikes in major United 
States consumer energy products during the 10 years preceding the date 
of enactment of this Act.''
    The legislation does not define what would constitute a 
``significant'' price spike.
    The FERC has no jurisdiction or expertise in consumer energy 
products, and collects no information about home heating oil, gasoline 
or propane markets, as none of these commodities are jurisdictional to 
this agency. The FERC's expertise in natural gas markets is limited to 
interstate wholesale markets. The FERC has no jurisdiction over retail 
sales of natural gas [see the Natural Gas Act, Section 1(b)].
    Under the provisions of S. 900, the study to be undertaken by the 
Consumer Energy Commission shall:

          (i) focus on the causes of the price spikes, including 
        insufficient inventories, supply disruptions, refinery capacity 
        limits, insufficient infrastructure, possible over-regulation 
        or under-regulation, flawed deregulation, excessive 
        consumption, over-reliance on foreign supplies, insufficient 
        research and development of alternative energy sources, 
        opportunistic behavior by energy companies, and abuse of market 
        power; and
          (ii) investigate market concentration, potential misuse of 
        market power, and any other relevant market failures.

    Furthermore, not later than 180 days after the date of enactment of 
this Act, the Commission is directed to submit to Congress a report 
that contains--

          (A) A detailed statement of the findings and conclusions of 
        the Commission; and
          (B) recommendations for legislation and administrative 
        actions to protect consumers from future price spikes in 
        consumer energy products.

    In the FERC staff's opinion, it would be extremely difficult for an 
11-member Commission to reach agreement on what constitutes 
``significant'' price spikes, to decide on the proper protocols and 
methodologies by which to put together an investigation, collect and 
analyze data going back ten years for home heating oil, gasoline, 
natural gas and propane markets, and then reach agreement on 
recommended legislative and administrative actions--all within 130 days 
(the Congress has 30 days from the date of enactment of this Act to 
name Commission members, and the Commission must meet within 20 days 
after the date on which all members have been appointed).
                                 ______
                                 
                                                 USEC Inc.,
                                       Bethesda, MD, July 16, 2001.
Hon. Jeff Bingaman,
Chairman, Senate Energy and Natural Resources Committee, Senate Dirksen 
        Office Building, Washington, DC.
    Dear Mr. Chairman: Thank you for the opportunity to provide written 
testimony for the record in relation to your hearing held on Thursday, 
July 12, 2001 with respect to certain nuclear energy provisions: S. 472 
(Domenici), S. 919 (Thurmond), and S. 1147 (Nickles).
    In general, USEC Inc. supports the provisions of the enumerated 
bills that are intended to ensure a continued supply of nuclear energy 
as part of the electricity needs of the United States. Taken together, 
these bills provide a comprehensive approach to policy on the nuclear 
fuel cycle from Section 126 of S. 472 on uranium sales, to S. 919 
provisions on facilitated siting of nuclear plants, to the S. 1147 
authorization for the federal government to pay for its share of 
thorium cleanup. We encourage this comprehensive approach.
    As you know USEC is the sole domestic enricher of uranium, 
therefore, we are particularly pleased by provisions of S. 472, which 
are intended to support the front end of the nuclear fuel cycle. 
Specifically, we have no objections to Section 126 delaying sales of 
uranium hexaflouride by the Secretary of Energy until 2006. We see no 
need, at this time, for government sales of uranium into the 
marketplace and appreciate this section's intent with respect to the 
domestic mining industry.
    We also strongly support Section 128 which would provide assistance 
to Converdyn, the sole domestic converter of uranium. It is critical, 
in our view, to maintain this domestic conversion capability from both 
the energy supply and strategic needs perspectives of the United 
States. We cannot afford to lose a domestic option for any necessary 
step in the nuclear fuel cycle.
    We also support Section 129, which authorizes the cold standby 
status of the Portsmouth gaseous diffusion enrichment plant. For the 
record, it should be noted that USEC is the contract operator of this 
government function. Nevertheless, we feel that it is an important 
backup function for current private market capabilities. In that vein, 
we would emphasize that USEC intends to maintain its private sector 
ability to produce needed enriched uranium for the future.
    Thank you again for this opportunity to provide our views on issues 
important to the nuclear industry. We also stand ready to provide the 
committee with our views on other nuclear related issues, which were 
not the subject of this hearing, such as our strong support of renewal 
of the Price-Anderson Act. If we can provide any assistance to the 
Committee, please contact me at (301) 564-3300 or Gary Ellsworth, Vice 
President, Government Relations at (301) 564-3336.
            Sincerely,
                                   William H. Timbers, Jr.,
                             President and Chief Executive Officer.
                                 ______
                                 
                            Anadarko Petroleum Corporation,
                                        Houston, TX, July 20, 2001.
Hon. Jeff Bingaman,
Chairman, Senate Energy and Natural Resources Committee, U.S. Senate, 
        Washington, DC.
    Dear Senator Bingaman: I am writing to elaborate on a statement 
contained in the written testimony submitted by Tom Young on behalf the 
Independent Petroleum Association of America for the record of the 
hearing the committee held July 12, 2001, on production components of a 
national energy policy. I ask that this letter be included in the 
record of the hearing.
    In his written statement, Mr. Young referred to the action taken by 
the Minerals Management Service to provide for a two-year lease 
extension for subsalt plays in the Gulf of Mexico. He pointed out that 
the MMS action was taken in recognition of the high-risk nature of 
subsalt exploration and suggested that more time may be needed for 
geophysical imaging to refine subsalt drilling targets. We concur with 
this statement and urge the committee to address this issue in its 
consideration of national energy policy.
    The current five-year term for OCS leases handicaps companies 
pursuing deep, subsalt targets. Because subsalt geology is much more 
complex, the imaging process is much lengthier, and the cost of 
drilling a dry hole is much greater than for conventional prospects.
    Partly offsetting the greater risk is the potential to find much 
larger reserves. The average subsalt discovery made on the OCS during 
the 1990s contained roughly 60 million barrels equivalent of reserves 
each, versus less than 14 million barrels equivalent of reserves each 
for conventional fields.
    Because of this, it's in the best interest of U.S. consumers for 
the government to encourage more subsalt exploration by providing 
greater lease term flexibility. With energy demand outpacing supply--
particularly demand for natural gas--it is vital that the U.S. 
aggressively explore for new reserves in the places where the biggest 
accumulations are likely to be found, such as the subsalt.
    Longer lease terms would draw more oil and gas operators to explore 
in the subsalt, many of whom are now on the sidelines because they view 
the tight time schedule as creating an unacceptable risk.
    It is also in the best interest of the U.S. government as a royalty 
owner to make the lease terms more conducive to subsalt exploration, 
because bigger fields yield bigger royalties.
    Why do subsalt operators need more than five years to prepare their 
prospects for drilling? By definition, subsalt exploration is an 
imaging challenge, because the thick sheets of salt that geophysicists 
must peer through to find oil- and gas-bearing geologic structures 
distort views produced by conventional technology.
    The easiest-to-image subsalt structures take a minimum of four 
years to complete; ``fuzzier'' structures may take five to six years or 
longer to adequately image. A comparison of the steps taken to prepare 
a conventional prospect for drilling versus a subsalt prospect should 
illustrate this point:
    Before drilling a conventional well, producers would shoot and 
interpret a 2-D seismic survey and probably a smaller 3-D survey to get 
an adequate ``picture'' of the prospect before drilling. This process 
takes one year to mature a prospect for drilling. These surveys 
combined would cost about $3 million.
    Before drilling a subsalt well, producers start with the same 3-D 
dataset, but the 3-D coverage is typically 10 times the area required 
to drill a shallow well. The data is used to conduct extensive 
``depth'' processing studies to create a clearer three-dimensional 
image of both the salt structure and the rock structure beneath it. If 
the first set of images produced is inconclusive, producers may have to 
purchase or acquire a second 3-D seismic study, and the whole process 
must be repeated. Each iteration takes two to three years to complete. 
Some prospects can be adequately imaged from just one or two depth 
studies. Others may require four or five, or may not be imaged with the 
currently available technology.
    Since Anadarko began subsalt exploration in 1993, it has spent $43 
million on data acquisition, processing and interpretation that was 
used to identify the 13 prospects drilled to date.
    The reason we do all this expensive upfront work is because these 
deep subsalt wells are much more difficult to drill. Whereas a 
conventional well drilled in 350 feet of water to a depth of 10,000 
feet would cost $6-8 million, a subsalt well drilled to 20,000 feet in 
the same water depth would cost $18-20 million.

    Under existing lease terms, companies are sometimes forced to drill 
prospects that aren't ``ready'' in order to maintain the lease. 
Anadarko found itself in that situation in 1999 on two subsalt 
prospects. Moonstone and Garnet were drilled prematurely at a combined 
cost of $30 million because the leases were about to expire. Both were 
dry holes.

    As you know, there's a lot more to exploring than just drilling a 
well. Three-dimensional seismic is a perfect example. The refinement of 
3-D in the late 1980s revolutionized the exploration process and 
reduced the number of dry holes.

    Seismic acquisition and interpretation became a key part of the 
exploration process during this period. Companies began spending months 
and in many cases years mapping and imaging prospects before they 
drilled. With the more sophisticated imaging tools that have been 
developed and enhanced just in the last three years, the pre-drilling 
phase of exploration has become even more critical, particularly in the 
sub-salt.

    The Minerals Management Service has recognized that developing good 
subsalt prospects is much more difficult and time consuming, and it 
attempted to address this problem in a Notice to Lessees dated December 
2000. Unfortunately, it did not go far enough in its remedy, and still 
required companies to drill a well--albeit to a shallower target--to 
maintain the lease.

    The MMS has the existing authority under current regulations to 
extend leases and allow companies to continue exploratory studies 
without drilling a well; to date it has not exercised that authority, 
however.

    Lessees who are spending millions of dollars in earnest subsalt 
exploratory studies should not be required to drill prematurely and 
risk a dry hole in order to maintain a lease--particularly in today's 
tight market environment, where offshore rigs are demanding premium day 
rates.

    I urge your committee to carefully consider this issue as you work 
to develop a national energy policy for the United States.

            Best regards,
                                        Michael D. Cochran,
                             Vice President--Worldwide Exploration.

                                 ______
                                 
                                                     June 26, 2001.
Committee on Energy and Natural Resources,
U.S. Senate, Washington, DC.

    To Whom It May Concern: Listed below are written statements on 
proposed amendments to the Price-Anderson Act. We are requesting that 
these statements be included in the transcripts from the June 26, 2001 
hearing.

    As representatives of not-for-profit contractors who operate 
Department of Energy (DOE) national laboratories that engage in nuclear 
activities within the meaning of the Price-Anderson Amendments Act of 
1988, we urge you to preserve the exemption from civil penalties for 
the not-for-profit contractors named in that statute, and those 
subsequently exempted contractually or under 10 CFR 820.20(d) of the 
DOE nuclear safety requirements. We appreciate having this opportunity 
to express our views.

                              INTRODUCTION

    We believe that the current approach to this issue is working well 
for all parties, including the public. Not-for-profit contractors 
already have sufficient incentives to comply with applicable DOE 
nuclear safety requirements and relevant statistical evidence 
demonstrates that their level of compliance equals that of for-profit 
contractors. Furthermore, DOE already has sufficient authority to take 
action against a poorly performing not-for-profit contractor, including 
the reduction of fee and termination of the contract, without having to 
resort to the imposition of civil penalties.
    Eliminating the not-for-profit exemption would further increase the 
risks, and attendant costs, not-for-profit contractors face in 
contracting with the DOE. Increasing these risks and costs would 
diminish the resources available for DOE's vital mission to operate its 
national laboratory system. It also would serve to discourage not-for-
profits from undertaking, or continuing, their public service in 
support of the DOE mission.

  CURRENT NOT-FOR-PROFIT INCENTIVES AND DOE AUTHORITY ARE SUFFICIENT 
                         TO PROMOTE COMPLIANCE
    Our institutions undertake to operate DOE facilities because of the 
commitment we share to the national laboratory system, and to the 
continued development of science and technology in the public interest 
that flourishes there. Our participation in these efforts comes with 
risks, many well beyond those ordinarily assumed by not-for-profits. 
While our contracts protect us against certain risks, most importantly 
the indemnification afforded by the Price-Anderson Act in the event of 
a nuclear incident, many significant risks must be borne by the not-
for-profit contractor.
    For example, apart from cases involving DOE enforcement of its 
nuclear safety requirements, we are subject to potential liability for 
the full costs of defending ourselves, and for any fines and penalties, 
in government proceedings charging violations of federal and state 
statutory and regulatory requirements. Even as to DOE proceedings to 
enforce its nuclear safety requirements, although we are exempt from 
civil penalties, nonetheless we are potentially liable for our defense 
costs, and we remain subject to possible criminal penalties.
    As another significant risk, contractors may suffer a reduction or 
loss of earned fee or even a termination of the contract, if the DOE 
makes a finding of poor performance in meeting contract requirements. 
Above all, we face the ongoing risk that our good names and reputations 
could be tarnished by some negative event arising out of our 
contractual performance. To remove the not-for-profits' exemption from 
civil penalties cannot provide us with any greater motivation to strive 
for compliance with DOE nuclear safety requirements than the potential 
risks that already exist, nor can it afford DOE any greater measure of 
accountability for our performance.
  adding not-for-profit civil penalties would not improve performance
    The statistics with regard to recent enforcement actions taken by 
the DOE Office of Price-Anderson Enforcement (EH-10), based on 
information available from EH-10 annual reports, show that the not-for-
profit contractors take compliance just as seriously as the for-profit 
contractors. DOE pursues enforcement actions against all contractors on 
an equal basis, whether they are for profit or not-for-profit, even to 
the point of assessing virtual civil penalties against the not-for-
profits. Cumulative results for the three year period 1998 through 2000 
show that not-for-profit contractors, which represent approximately 20% 
of DOE contractors, have been the subject of approximately that same 
percentage of the EH-10 enforcement actions, and their virtual civil 
penalties average about the same level as the for-profits' civil 
penalties. This confirms that the exemption from civil penalties has 
not made the not-for-profits less zealous in complying with the DOE 
nuclear safety requirements, when compared with DOE for-profit 
contractors.

               CHANGE WOULD INCREASE NOT-FOR-PROFIT RISKS
    The contracts under which we operate the facilities provide for a 
fee for our efforts. But the fee structure available to a not-for-
profit contractor is not commensurate with the fee paid to a for-profit 
contractor to operate a similar facility.
    In enacting the exemption from civil penalties, Congress recognized 
that attracting and retaining quality not-for-profit institutions to 
serve as contractors for its laboratories is fundamental to DOE's 
ability to fulfill its mission. When it authored the exemption from 
civil penalties, Congress was acknowledging the distinction between 
DOE's not-for-profit contractors and for-profit contractors, both as to 
the risk-reward balance each can tolerate, and the factors that 
motivate their respective performance. Removing the exemption from 
civil penalties certainly would continue to increase the risk, and the 
related costs, faced by not-for-profit contractors. One expected impact 
would be to move not-for-profit contractors to seek higher fees to 
compensate for the additional risk. This in turn would result in 
additional costs to DOE in carrying out its mission and diminish the 
resources available for research and development. Another expected 
impact would be to discourage not-for-profits to serve in the public 
interest to support DOE's mission of operating the national laboratory 
system.

                               CONCLUSION
    For these reasons, we strongly urge you to continue the exemption 
from civil penalties for the not-for-profit operators of DOE facilities 
identified in the Price-Anderson Amendments Act of 1988, and other 
eligible not-for-profit contractors.
    Thank you for your consideration of these comments.

Princeton University
William Happer
Chair, University Research Board
  
Southeastern Universities
  Research Association
John G. Mullin
Sr. VP for Operations and
  General Counsel
University of Chicago
Robert J. Zimmer
Vice President for Research and
  Argonne National Laboratory
  
Universities Research Association
William A. Schmidt
General Counsel