[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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75-354 PS WASHINGTON : 2001
_______________________________________________________________________
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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
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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
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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
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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.
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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.
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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.
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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.
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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.''
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\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\
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\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\
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\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.
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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
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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.
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\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\
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\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\
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\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.
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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\
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\24\ Testimony of James K. Asselstine, Managing Director, Lehmann
Brother, Inc. Before the Senate Energy and Natural Resources Committee,
5/3/01.
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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.
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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.
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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.
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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.
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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.
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\1\ Wall Street Journal, March 8, 2001.
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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:
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* 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.
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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\
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\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.
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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\
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\2\ See Report of the National Energy Policy Development Group,
Chapter 4, ``Using Energy Wisely: Increasing Energy Conservation and
Efficiency,'' May 2001.
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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