[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
H.R. 793 and H.R. 794
=======================================================================
LEGISLATIVE HEARING
before the
SUBCOMMITTEE ON ENERGY AND
MINERAL RESOURCES
of the
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
Thursday, March 6, 2003
__________
Serial No. 108-4
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
or
Committee address: http://resourcescommittee.house.gov
______
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WASHINGTON : 2003
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COMMITTEE ON RESOURCES
RICHARD W. POMBO, California, Chairman
NICK J. RAHALL II, West Virginia, Ranking Democrat Member
Don Young, Alaska Dale E. Kildee, Michigan
W.J. ``Billy'' Tauzin, Louisiana Eni F.H. Faleomavaega, American
Jim Saxton, New Jersey Samoa
Elton Gallegly, California Neil Abercrombie, Hawaii
John J. Duncan, Jr., Tennessee Solomon P. Ortiz, Texas
Wayne T. Gilchrest, Maryland Frank Pallone, Jr., New Jersey
Ken Calvert, California Calvin M. Dooley, California
Scott McInnis, Colorado Donna M. Christensen, Virgin
Barbara Cubin, Wyoming Islands
George Radanovich, California Ron Kind, Wisconsin
Walter B. Jones, Jr., North Jay Inslee, Washington
Carolina Grace F. Napolitano, California
Chris Cannon, Utah Tom Udall, New Mexico
John E. Peterson, Pennsylvania Mark Udall, Colorado
Jim Gibbons, Nevada, Anibal Acevedo-Vila, Puerto Rico
Vice Chairman Brad Carson, Oklahoma
Mark E. Souder, Indiana Raul M. Grijalva, Arizona
Greg Walden, Oregon Dennis A. Cardoza, California
Thomas G. Tancredo, Colorado Madeleine Z. Bordallo, Guam
J.D. Hayworth, Arizona George Miller, California
Tom Osborne, Nebraska Edward J. Markey, Massachusetts
Jeff Flake, Arizona Ruben Hinojosa, Texas
Dennis R. Rehberg, Montana Ciro D. Rodriguez, Texas
Rick Renzi, Arizona Joe Baca, California
Tom Cole, Oklahoma Betty McCollum, Minnesota
Stevan Pearce, New Mexico
Rob Bishop, Utah
Devin Nunes, California
VACANCY
Steven J. Ding, Chief of Staff
Lisa Pittman, Chief Counsel
Michael S. Twinchek, Chief Clerk
James H. Zoia, Democrat Staff Director
Jeffrey P. Petrich, Democrat Chief Counsel
------
SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
BARBARA CUBIN, Wyoming, Chairman
RON KIND, Wisconsin, Ranking Democrat Member
W.J. ``Billy'' Tauzin, Louisiana Eni F.H. Faleomavaega, American
Chris Cannon, Utah Samoa
Jim Gibbons, Nevada Solomon P. Ortiz, Texas
Mark E. Souder, Indiana Grace F. Napolitano, California
Dennis R. Rehberg, Montana Tom Udall, New Mexico
Tom Cole, Oklahoma Brad Carson, Oklahoma
Stevan Pearce, New Mexico VACANCY
Rob Bishop, Utah VACANCY
Devin Nunes, California Nick J. Rahall II, West Virginia,
Richard W. Pombo, California, ex ex officio
officio
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C O N T E N T S
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Page
Hearing held on March 6, 2003.................................... 1
Statement of Members:
Cubin, Hon. Barbara, a Representative in Congress from the
State of Wyoming, Prepared statement of.................... 61
Delahunt, Hon. William D., a Representative in Congress from
the State of Massachusetts................................. 17
Prepared statement of.................................... 19
Kind, Hon. Ron, a Representative in Congress from the State
of Wisconsin............................................... 4
Prepared statement of.................................... 16
Rahall, Hon. Nick J. II, a Representative in Congress from
the State of West Virginia, Prepared statement of.......... 5
Rehberg, Hon. Dennis R., a Representative in Congress from
the State of Montana....................................... 1
Prepared statement of.................................... 3
Statement of Witnesses:
Bailey, Bruce H., President, AWS Scientific, Inc............. 40
Prepared statement on H.R. 793........................... 41
Burton, Johnnie, Director, Minerals Management Service, U.S.
Department of the Interior................................. 22
Prepared statement on H.R. 793 and H.R. 794.............. 24
Kendall, Sara, Washington Office Director, Western
Organization of Resource Councils.......................... 56
Prepared statement on H.R. 794........................... 58
Quinn, Harold P., Jr., Senior Vice President, Legal and
Regulatory Affairs, and General Counsel, National Mining
Association................................................ 50
Prepared statement on H.R. 794........................... 52
Reilly, Hon. Thomas F., Attorney General, State of
Massachusetts.............................................. 34
Prepared statement on H.R. 793........................... 36
Shelley, Peter, Vice President, Conservation Law Foundation.. 43
Prepared statement on H.R. 793........................... 45
Smith, Eric, Vice President for Strategic Planning, Global
Industries, Ltd............................................ 37
Prepared statement on H.R. 793........................... 39
Additional materials supplied:
Alliance to Protect Nantucket Sound, Statement submitted for
the record on H.R. 793..................................... 7
Long Island Power Authority, Statement submitted for the
record on H.R. 793......................................... 63
Rackstraw, Kevin, Clipper Windpower, Inc., and Aquantis, LLC,
Bethesda, Maryland, Statement submitted for the record on
H.R. 793................................................... 64
LEGISLATIVE HEARING ON H.R. 793, A BILL TO AMEND THE OUTER CONTINENTAL
SHELF LANDS ACT TO AUTHORIZE THE SECRETARY OF THE INTERIOR TO GRANT
EASEMENTS AND RIGHTS-OF-WAY ON THE OUTER CONTINENTAL SHELF (OCS) FOR
ACTIVITIES OTHERWISE AUTHORIZED BY THAT ACT, AND H.R. 794, THE COAL
LEASING AMENDMENTS ACT OF 2003.
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Thursday, March 6, 2003
U.S. House of Representatives
Subcommittee on Energy and Mineral Resources
Committee on Resources
Washington, DC
----------
The Subcommittee met, pursuant to notice, at 10 a.m.,in
Room 1334, Longworth House Office Building, Hon. Dennis R.
Rehberg presiding.
Present: Representatives Rehberg, Cannon, Souder, Cole,
Pearce, Kind, and Faleomavaega.
STATEMENT OF THE HON. DENNIS R. REHBERG, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MONTANA
Mr. Rehberg. Let us begin, please. We are probably going to
be called to a vote, so I would like to get started, and I see
that Mr. Delahunt is not here yet. So we will dispense with the
opening statement.
The legislative hearing by the Subcommittee on Energy and
Mineral Resources will come to order.
The Subcommittee is meeting today to hear the testimony of
H.R. 793 to amend the Outer Continental Shelf Lands Act to
authorize the Secretary of Interior to grant easements and
rights-of-way on the Outer Continental Shelf for activities
otherwise authorized by the Act, and H.R. 794 to amend the
Mineral Leasing Act to provide for the development of Federal
coal resources.
Under Committee Rule 4(G), the Chairman and the Ranking
Minority Member can make opening statements. If any members
have other statements, they can be included in the hearing
record under unanimous consent. I ask unanimous consent that
Representative Kind, when he arrives, have permission to sit on
the dais and participate in the hearing.
Today, the Subcommittee on Energy and Mineral Resources
will hear testimony about these two bills, H.R. 793 and H.R.
794. First, H.R. 793 addresses the need for statutory authority
to permit future non-traditional energy and energy related
projects on the OCS. Such projects would include alternative
energy projects, such as wind, wave, and solar power
production, as well as ancillary projects to oil and gas
development on the shelf, such as emergency medical facilities
and supply facilities that support deep water exploration and
development projects. Working with the Administration, we have
addressed the clarification of the permitting process for these
innovative projects and introduced a bill that gives the
Secretary of Interior to permit and oversee energy-related
activities under the OCS Lands Act.
H.R. 793 is needed because no authority currently exists to
permit alternative energy projects and ancillary projects to
support oil and gas development on the OCS. Clearly, America
faces a growing energy supply and demand imbalance that calls
for new solutions. Two innovative ways that will help us meet
the challenge are increased production and use of energy,
renewable energy, and production of oil and gas from deep
waters.
H.R. 793 facilitates both of these solutions. The bill
clarifies the jurisdiction for these projects so that private
sector entities wanting to develop alternative energy resources
offshore will have a clear path by which to approach relevant
Federal agencies for permits. It also ensures that future
projects on the OCS will be performed in a safe and
environmentally sensitive manner and that a proper abandonment
and reclamation process will exist for each project.
This bill will not supersede or modify existing authority
or any other agency responsible for permitting or regulating
offshore energy projects. It is designed to complement existing
statutes and ensure that all innovative offshore energy
projects have a clear and certain permitting process.
I understand that offshore wind energy projects are now
being considered in the U.S. and that several have already been
developed in northern Europe with significant generation
capacity on the drawing board. In fact, a record 6,868
megawatts of new wind power capacity was installed worldwide in
2002, increasing generating capacity by 28 percent last year.
We need a new alternative and traditional energy solution
in order to meet our future energy needs. This bill will help
facilitate those solution.
Mr. Rehberg. The second bill, H.R. 794, makes targeted
technical changes to the Mineral Leasing Act that adapt to the
realities of market conditions so that we may make full use of
America's Federal coal resources. It encourages continued
diligent development of coal on Federal lands and ensures the
flow of Federal royalty revenue, while giving the Interior
Secretary the ability to manage coal resources for maximum
value to the public. Coal is an abundant domestically produced
fuel and through the continued development and implementation
of clean coal technology will remain secure energy resource for
years to come.
Federal coal benefits the Nation not only because it is a
domestically produced energy resource, but also because the
Minerals Management Service collected about 5.5 billion in
revenues last year on coal produced from Federal lands. The
legislation we discuss today would facilitate the continued
development of Federal coal by making only changes to coal
leasing provisions in the Mineral Leasing Act that present
impediments to the efficient development of Federal coal
resources.
One provision amends the 160-acre life-of-lease limitation
on Federal coal lease modifications. This provision provides
flexibility by giving the Secretary the discretion to allow
production of non-competitive coal contiguous to an existing
lease so that small quantities of coal would be recovered that
might otherwise be left behind. This provision is not designed
to sidestep the competitive lease process, and I am willing to
work the minority to address any concerns to the contrary.
Other provisions allow the consolidation of leased coal
reserves requiring more than 40 years to mine; to allow the
Secretary to accept the payment of advance royalties in lieu of
continued operations for a total of years; a provision
addresses the requirement of surety bonds for the payment of
bonus bids on coal leases; and a provision to eliminate the
requirement that a lessee has to file a mining plan no later
than 3 years after the lease is issued. These are common sense
adjustments that provide flexibility and allow cost effective
development of the resource.
Mr. Rehberg. Both of these bills would provide dynamic ways
for Government to help the private sector increase energy
production at a low cost to the consumer.
[The prepared statement of Mr. Rehberg follows:]
Statement of The Honorable Dennis R. Rehberg, a Representative in
Congress from the State of Montana, on H.R. 793 and H.R. 794
Madam Chairwoman, I thank you for scheduling this hearing today--it
allows us to address an issue of supreme importance: streamlining
development of additional energy sources for the nation.
H.R. 793 facilitates energy-related uses on the Outer Continental
Shelf (OCS), where interest has increased in non-traditional energy
projects, such as wind, wave, and solar energy production.
These non-traditional projects are important to diversifying our
energy portfolio, unfortunately, authority to permit these kinds of
projects is not addressed in the Outer Continental Shelf Lands Act, and
existing authority to review, permit, and regulate such projects is
either non-existent or limited in scope.
Chairwoman Cubin's bill helps to remedy this deficiency in
permitting authority for non-traditional energy projects by clarifying
the regulatory process considerably and clearly providing one agency
within the Federal Government with the full array of tools needed to
comprehensively manage non-traditional Outer Continental Shelf energy-
related uses.
I support the Chairwoman's legislation--and the President's
National Energy Policy initiative--to simplify permitting for energy
production in an environmentally sensitive manner.
I am a cosponsor of the second bill on today's agenda, H.R. 794,
which streamlines coal leasing on Federal lands, which comprise a huge
percentage of lands in the western states and my home state of Montana.
According to the 2002 Minerals Management Service estimates,
Montana sold over 18 million tons of Federal coal. The Federal
royalties paid (50% to Montana) were nearly $25 million- that means
over $12 million goes right back in to the state.
Nearly 40% of current United States coal production is from mines
located on Federal lands. Over one-third of the nation's coal reserve
is found on lands owned or controlled by the Federal Government.
The Mineral Leasing Act of 1920 outlines the law with respect to
Federal coal leasing. Unfortunately, certain provisions in the Mineral
Leasing Act impede operational flexibility; result in the bypass of
nearby Federal coal resources; compel inefficient production; and
reduce Federal and state royalty and tax revenues. Changes in market
and economic conditions necessitate modifications in the coal leasing
provisions of the MLA.
In order to ensure that these vast Federal coal reserves can be
developed in an orderly and efficient manner without distorting coal
markets nationwide, it is necessary to update the Mineral Leasing Act
of 1920 or we face continued inefficient or wasteful production of coal
resources.
For example, this legislation eliminates the 160 acre life-of-lease
limitation on Federal coal lease modifications. The intent is to allow
the flexibility to add smaller tracts of non-competitive coal that
would otherwise be bypassed. This is absolutely essential in my state
of Montana.
I am proud to cosponsor legislation and look forward to hearing the
panelists comments and testimony today.
Thank you, Madame Chairwoman, for considering these important bills
today.
______
Mr. Rehberg. I want to welcome our witnesses as well as our
Subcommittee members to their first Subcommittee hearing of the
108th Congress. Mr. Kind will now be recognized for an opening
statement.
STATEMENT OF THE HON. RON KIND, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WISCONSIN
Mr. Kind. Thank you. Excuse my tardiness. Thank you, Mr.
Chairman. Thanks for the recognition.
I want to thank the witnesses here today for your presence
and for your testimony, including our good friend from
Massachusetts, Mr. Delahunt. This is an issue I know that he
has been paying particular attention to, and we appreciate your
time here today, Bill. Thanks for coming.
With the imminent threat of war with Iraq looming over this
hearing, the need to develop renewable energy sources such as
wind, solar, biomass could not be more evident. In addition to
other concerns, a substantial portion of the domestic oil
imports from the Middle East may soon be at risk; therefore, we
must continue to encourage clean renewable energy alternatives
now so that they will be available should the need arise.
Generally, I believe it is a good idea to clarify and
specify that the Minerals Management Service has the necessary
authority grant easements or rights-of-ways for alternative
energy projects on the Outer Continental Shelf not currently
authorized by law. I feel that with their history of managing
oil and gas development projects on the OCS, the MMS is well
equipped to do the job.
Last year, we expressed an interest in hearing testimony
from representatives of coastal states that have a vested
interest in the bill. I am pleased to see that Attorney General
Reilly is here to speak on behalf of the people of
Massachusetts, along with Mr. Delahunt who here with us.
We are currently engaged in a discussion over a proposed
wind farm in the Nantucket Sound. I would like to see H.R. 793
amended to specifically require consultation with the affected
states prior to permitting alternative energy projects such as
wind farms on the OCS. While there is no shortage of
controversy with the Nantucket Sound project, it is critical
that the affected states and the public have sufficient
opportunity to participate in the permitting process.
That said, if we are to reduce our dependance on foreign
oil imports and reduce greenhouse gas emissions, as a Nation we
are going to have to develop alternative energy strategies,
including wind farms. We should not, indeed cannot, advocate
alternatives to fossil fuels and then cry not in my backyard
whenever a new project is being proposed.
I am not saying that the Nantucket Sound project should go
forward. I haven't taken a position on it. I am not as
acquainted with the facts as others who have been involved with
this issue have been for sometime, but nevertheless, I think we
need to wrestle with this so-called NIMBY problem and find out
some resolution in order to encourage further development of
alternative and renewable energy sources in our own
jurisdiction.
However, I would note that during a recent Congressional
trip to northern Europe to learn more about alternative energy
projects as well as other issues before the Committee, members
of this Committee had the opportunity--and the ranking chair
here today was along with that trip--to view the wind energy
facilities at the mouth of the Copenhagen Harbor. According to
local government officials, there was some initial resistance
to the proposal and still some dislike for the way the wind
mills look lining up across their skyline. Nevertheless, once
the wind field had been in operation and the residents became
accustomed to its presence, and more importantly its
production, their fears started to abate. They have found that
the benefits of inexhaustible, clean and renewable energy from
the offshore wind farm have thus far outweighed the more
undesirable factors often cited.
Though I support the goals of H.R. 793, there are problems
with the legislation which I hope to be able to work with the
Chairman and other members on the Committee before the mark-up
and see if we can resolve them.
The second bill being discussed today, H.R. 794, is one
that relates to Federal coal leasing practices. I am aware that
our Committee Ranking Member from West Virginia, Mr. Rahall,
has numerous and specific concerns with the proposed
legislation. I fully support his views on the subject and defer
to him to comment on a bill that would most certainly upset the
current state of coal leasing in America and would affect a
large majority of his constituency.
In his absence, I would, however, ask for unanimous consent
to have his statement recorded in the record.
[The prepared statement of Mr. Rahall follows:]
Statement of The Honorable Nick J. Rahall, II, Ranking Democrat,
Committee on Resources, on H.R. 794
While I have a great deal of respect for the Chair of this
Subcommittee, my dear friend Representative Barbara Cubin of Wyoming, I
must express vehement opposition to H.R. 794.
In my view, this legislation would eliminate many of the reforms
Congress made to the Federal coal leasing program in 1976. In effect,
H.R. 794 would significantly dilute the competitive nature of the
Federal coal leasing program, allowing a few large coal companies to
control a vast amount of America's coal resources for infinite periods
of time. This is not only bad public policy, but it would also
artificially enhance the competitiveness of the select few western coal
producers who would benefit from this legislation to the detriment of
coal producers in the Appalachian and Midwestern regions of the
country.
More specifically, by eliminating the 160-acre lease modification
limit the bill would subsequently eliminate the need to compete for
coal leases that companies require to expand existing coal mines. And
in so doing, the bill would shortchange both Federal and state coal
revenues by foreclosing the kind of increased bonus payments secured in
recent years.
According to BLM, since1991 successful bidders have generated more
than $1.1 billion in bonus bids on Federal coal leases. These revenues
are shared equally with the States in which the coal is located. For
example, a 2002 Powder River Basin lease sale generated a $328 million
bonus payment from Kennecott Energy. Had this bill been in effect at
that time, the State of Wyoming would not have received its approximate
$164 million share of the bonus payment.
In addition, under current law the Federal Government is required
to let successful coal lease bidders defer payment of bonus bids. A
successful bidder can either pay the full amount at the time of the
sale or opt to pay in five 20 percent increments over five years.
However, H.R. 794 would let coal companies terminate that Federal lease
and walk away scot-free without paying any remaining balance on the
outstanding bonus payment. The bill does this by preventing the BLM
from requiring a surety bond guaranteeing payment of deferred bonus
bids and by requiring forgiveness of any balance due from either the
coal company or the surety if the coal company for any reason opts to
terminate the lease. The BLM requirement to secure a bond, or other
financial guarantee, in the amount due to the Treasury is simply good
business practice. By requiring a bond, the Federal Government is
simply trying to protect the interests of the public.
In my view, H.R. 794 has additional problems. For instance, under
current law leased coal reserves can be consolidated into logical
mining units in order to achieve maximum economic recovery of the coal.
However, the coal reserves of the entire logical mining unit must be
mined within a period of 40 years. According to information supplied to
us by the BLM, there are 45 logical mining units covering approximately
367,000 acres of Western Federal land. That is nearly 80% of the
469,000 acres under coal lease on Federal lands that is closed off to
other uses for the duration of the logical mining unit. However, H.R.
794 would allow these 45 units to continue in operation--and be
unavailable for other uses--for as long as the coal mine wants.
Not only would H.R. 794 allow a relatively few number of
corporations to hold vast sums of public lands for undetermined lengths
of time---measured in decades not years--- the bill would also allow
the coal companies to take a free ride while doing so. That is because
H.R. 794 would allow coal companies to be forgiven on paying certain
royalties, known as advance royalties, when they decide to stop
producing coal, but want to keep the lease in force anyway.
Finally, the bill would change the formula for advance royalties
from one that is based on production to one that is based on the
average price of coal sold in the spot market from the region.
According to BLM officials, however, for many parts of the country
there are no reliable spot markets for the particular type of coal
produced there, and as such, there is no guaranty that this system has
any merit.
Coal leasing policies in current law are not unlike standard
business practices in other parts of our economy. Taken together, the
bonus payment, rent and royalties paid to the U.S. Treasury equal the
fair market value of the coal to be extracted from the public domain
and are all parts of doing business in a Federal leasehold. The option
to pay a bonus bid over time, to pay advance royalties while not
producing coal, basing advance royalties on production, limiting
logical mining units to 40 years are all provisions that have withstood
the test of time and are still valid Federal policy that allows the
coal industry to be profitable, efficient and also protects the public
interest.
In sum, while certain amendments may be in order to improve the
Federal coal leasing program, there is nothing on the record that I
know of to justify the broad changes proposed in H.R. 794. If enacted,
this bill would provide a huge windfall to a select few western coal
producers while shifting significant costs and risks to the American
public.
______
Mr. Kind. I would also like to ask that the statement of
the Alliance to Protect Nantucket Sound also be admitted in the
record for purposes of this hearing.
[The statement of the Alliance to Protect Nantucket Sound
follows:]
Statement submitted for the record by The Alliance to Protect Nantucket
Sound
Ms. Chairwoman.
Thank you for the opportunity to submit these comments on H.R. 793.
I am Douglas Yearley, Chairman of the Alliance to Protect Nantucket
Sound, a coalition of diverse interests with the objective of
protecting the important environmental, scenic, cultural and economic
values of Nantucket Sound. The Sound includes offshore areas owned both
by the Commonwealth of Massachusetts and the Federal Government. The
Alliance is composed of a broad mix of business, local government,
fishing, environmental and other interests, with the common purpose of
ensuring that development does not occur in the Sound that would
destroy the unique values and natural beauty of this national treasure.
Indeed, the Sound is a designated ``marine protected area'' under
Massachusetts law and the Executive Order issued by President Clinton,
and subsequently endorsed by President Bush.
The Cape Wind Project
While the interests of the Alliance are long-term and broad-based,
an immediate threat has galvanized our organization. Specifically, this
is the Cape Wind Project, which proposes to construct what would be the
largest offshore wind energy plant in the world in the middle of the
Nantucket Sound, and the first in this country. It is important for
this Committee to have a sense of the scale of this project and how
serious its impacts will be. Cape Wind's industrial facility would
consume 24 square miles of the outer continental shelf (OCS) in
Nantucket Sound. The project would include 130 wind towers, each of
which would be 416 feet tall. We believe this project has significant
potential to cause serious damage to the most basic values of the
Sound. This includes adverse effects on endangered species, migrating
birds, marine mammals, and commercially valuable fish; threats to
navigation and air traffic, including national security flights;
declines in property values, tourism, and tax revenue; and harm to
recreational activities and scenic values. All of these adverse impacts
would be caused by a project for which there is no clear energy demand
in the region, and which would likely not be constructed at all but for
a variety of public subsidies which make it economically profitable for
the developer, largely at taxpayer expense.
While the Alliance, and the diverse interests and individuals who
support it, share the public policy goal of increasing alternative and
renewable energy as a part of our total energy supply, this general
objective simply does not offset or justify the negative impacts of a
project on this scale, in this location. Nor, as I shall explain, does
it in any way legitimize the rush to develop this site, without
adequate consideration of other, more suitable locations, and in the
absence of any Federal law providing the authority even to build the
project.
This proposed project intersects with H.R. 793 in the following
way. The Minerals Management Service, and the Department of the
Interior, along with the Chairwoman of this Subcommittee, have
correctly recognized that no legal authority exists to convey the
Federal property rights which are mandatory to allow this project to be
developed. What the Administration concludes on this authority issue is
in doubt and perhaps will be clarified in this hearing. Equally
important to the issue of Federal ownership and authority is the
complete lack of a comprehensive Federal program to articulate
standards for decision making, to set environmental rules, to impose
rent, or even to designate a lead agency. In the meantime, in addition
to Cape Wind, a number of other wind energy projects are being proposed
in this region and along the Atlantic Coast. Thus, the need for
congressional authority and guidance is clear, and we commend the Chair
for taking the initiative on these issues.
Despite the absence of legal authority, Cape Wind is proceeding to
move the project forward with the assistance of one Federal agency in
particular, the Army Corps of Engineers (COE). Cape Wind intends to
build this huge energy project in an offshore area owned by the Federal
Government simply on the basis of a permit under section 10 of the
Rivers and Harbors Act, a law which has the important but narrow role
of permitting potential obstructions to navigation. One permit already
granted, but subject to appeal, is for a single scientific data
gathering tower, and a second section 10 permit application, believe it
or not, is the sole Federal process for the entire 130-tower wind
energy project.
Remarkably, even with the admitted knowledge that no Federal
authority exists to build the project on the Federal OCS, and that a
section 10 permit conveys no property rights whatsoever, the COE has
moved expeditiously to process the permits, including undertaking the
preparation of a major environmental impact statement under NEPA for
the entire 130-tower project. The COE explanation, conveyed directly to
me and other Alliance representatives is, to paraphrase--``We get a
permit application; we process it.'' To the COE, the largest offshore
wind energy project is apparently like any other section 10 permit,
such as a buoy or small dock. Such a single-minded approach by the COE
ignores the larger and more difficult issues that are presented by the
lack of legal authority, or the existence of any Federal program for
such a huge energy project in our valuable offshore waters. While the
COE has expressed some limited doubts about processing the permits (at
hearings of the U.S. Commission on Ocean Policy), and makes clear that
no property rights whatever are conveyed in a section 10 permit, it
nonetheless overcame its institutional misgivings, and has undertaken a
full EIS process for 130 wind towers, despite the fact that the Federal
Government has no authority for this project.
Your legislation, Ms. Chairwoman, enters the scene at this point,
seeking to confirm and assert Federal ownership and control of the OCS
for non-oil and gas purposes, and to provide congressional authority
for a program to make Federal offshore lands available for development.
The Alliance has a number of comments as to how the legislation can
be modified to increase its credibility in coastal areas, to achieve a
better balance between development objectives and management and
protection of the offshore environment, and to better serve taxpayer
interest and the free market policies of the Congress and the
Administration. To advise the Committee on these issues, we intend to
touch briefly on the Federal ownership issues, and then in more detail
on the nature of a program authorizing these uses you intend in H.R.
793.
At the heart of the dispute over the use of offshore lands for wind
energy plants and other facilities is the absence of a mechanism to
authorize the use and occupancy of Federal property held in the public
trust for private development.
The United States has clear ownership of this land. This principle
is embedded in Supreme Court decisions and a long line of Federal
actions. It also has been clearly established through case law that
private parties cannot simply make use of such land for their own
purposes without express authority to do so. Under Federal law,
however, no such grant of power has been delegated by Congress to the
Executive Branch to approve land use and occupancy for wind energy or
other projects, other than oil and gas under the OCSLA and a few other
specific activities such as deep water ports and ocean thermal
conversion.
Cape Wind and other developers anxious to stake out what they
perceive to be a claim before a law can be passed, argue that a section
10 permit alone is enough, and if a law ultimately does provide
authority that does not exist now, have their claim preserved under
that law. The Corps of Engineers, also seeking to have it both ways,
says that a section 10 permit does not confer property rights. At the
same time, however, the Corps has stated in its brief in the pending
lawsuit filed by the Alliance against the section 10 permit issued for
Cape Wind's initial industrial facility that it is ``the sole authority
to allow and regulate all other (non-oil/gas) structures on the OCS
pursuant to section 10.'' Corps of Engineers Brief, at 18. Thus, under
the Corps' approach, the property right issue is ignored and Federal
ownership of the OCS is literally at the mercy of any developer who can
obtain a section 10 permit. The only exception to this, according to
the Corps, is for oil and gas activities, which must comply with the
rigorous OCSLA procedures and standards.
The Department of the Interior clearly takes a different position.
In a statement that directly conflicts with the Corps' position on the
Cape Wind project and the authority conferred by section 10, Assistant
Secretary Watson has stated:
Generally, mechanisms do not currently exist by which an
applicant can obtain approval from the Federal Government to
utilize the OCS for non-oil and gas related activities.
Similarly, there exists no designated Federal agency that is
tasked with the authority to protect the Federal interest in
the OCS and to manage such activities to ensure that they are
conducted in a safe and environmentally sound manner.
Letter from Rebecca W. Watson, Assistant Secretary of the Interior
for Land and Minerals Management, to the Honorable Richard B. Cheney,
President of the Senate 1 (June 20, 2002)(transmitting proposed
legislation to provide authority to the Secretary of the Interior to
grant easements or rights-of-way for traditional and non-traditional
energy-related projects on the OCS). In addition, the DOI's Minerals
Management Service (MMS) has testified before Congress that renewable
energy projects on the OCS, including wind energy, ``are not currently
covered under existing statutes,'' and that ``there currently is no
legal authority to permit these types of projects.'' Legislative
hearing on H.R. 5156, Before the House Subcommittee on Energy & Mineral
Resources, Committee on Resources, 107th Cong. 2 (July 25,
2002)(statement of Johnnie Burton, Director, Minerals Management
Service, Department of the Interior).
As this discussion demonstrates, there is a clear need for Congress
to address the questions of whether and how to authorize the use of the
OCS for non-oil and gas purposes. This question is so confused that the
Federal Government is arguing against itself on this question, with the
Corps saying authority currently exists and Interior saying it does
not. Clearly, Congress needs to reconcile these conflicting views and
define precisely what the law is.
To its credit, H.R. 793 addresses this question by establishing the
mechanism by which such property rights would be conferred. As
discussed below, however, the approach called for by this bill is not
adequate. Granting such rights by means of an easement, though a
noncompetitive process that does not apply rigorous environmental
standards, or the defined and meaningful inclusion of coastal states
and communities in the process, is not the appropriate solution to this
issue. This testimony sets forth the Alliance's recommended approach.
The Need for a Comprehensive Program and a Moratorium
Those larger questions of law and policy have now been framed even
more vividly by the appearance of numerous additional wind energy
projects that are proposed for the OCS off the southwest coast of
Massachusetts and down the Atlantic Ocean shoreline to Virginia (see
map attached). If the COE follows its rote ``receive a permit; process
a permit'' approach for additional projects which cannot be built under
present law and which raise issues outside the Corps' expertise, it
will have contributed to the creation of an ``open to entry'' approach
to the use of Federal offshore resources for energy development. And it
will have done so without adequate review, without meaningful
standards, and without revenue return to the Federal Government.
Such an applicant-driven program, called an ``over-the-counter''
land program in some states, puts the Federal Government, the adjacent
coastal state, and all affected interests, including local and regional
regulatory bodies already strapped for resources, in the position of
always responding to the initiative and pressures of a project sponsor,
one at a time. Such sponsors relentlessly press for quick decisions on
a specific location of their choice which, as in the case of Nantucket
Sound, may not be an appropriate place to develop such a project at
all. This ``open-to-entry'' pressure is just what is happening with
Cape Wind. Such project-driven programs to commit public land or other
resources to private development may work for selected, unique, and
smaller projects, like a single offshore platform for a support
function, or a right-of-way for an underwater transmission line, but
private developers of large projects requiring vast tracts should not
simply be able to stake an offshore claim and hold it for development.
Congress has recognized previously that such a ``permit on demand''
approach does not work for larger nationwide programs like geothermal
or oil and gas, which also require large areas, in different regions,
and which, because of the presence of rich resources in certain
locations, should always involve competition for a site to ensure
maximum return to the public and the U.S. Treasury. Clearly, the
permit-by-permit approach is the wrong one for the large-scale wind
energy projects which are proliferating. A comprehensive Federal
program is essential.
A comprehensive program for developing Federal resources or for
using Federal offshore tracts is proactive, positive, and best protects
the public interest. A good program should, among other purposes,
encourage wise and needed energy development, guarantee a fair return
for the taxpayers, set uniform standards for environmental protection,
and provide extensive state, local and public participation in the
process. And it should designate Federal agency leadership, not simply
accept decisions from any agency with limited permit authority.
Moreover, because of the importance of these public policy objectives,
there is a real need to put a hold on all such development until a
comprehensive program is enacted. If this is not done, important
resources, such as Nantucket Sound, could be sacrificed before a
legally valid and adequate Federal program exists.
We recognize and appreciate that H.R. 793 addresses the reality
that no authorization now exists under which any Federal agency may
grant and condition legal rights to develop resources on the OCS, other
than those already authorized under the Outer Continental Shelf Lands
Act (OCSLA) and a few other laws governing specific activities. The new
offshore uses which are being proposed are currently without Federal
legal authorization, despite their extensive and significant impacts,
and without regard to the value of the taxpayer-owned resources they
will use. These unauthorized uses include not only the wind energy
projects I described, but also the construction of platforms and
transmission systems for liquid natural gas (LNG) gasification
projects, electric transmission lines, pipelines and cables, oil
storage platforms, and other offshore industrial facilities. Without a
doubt, such intensive uses of the Federal OCS call for a comprehensive
and thoughtful program. Specifically, and in addition to whatever
permitting right-of-way or easement authority is established or smaller
and more simpler projects, there should be a leasing program for large-
scale and longer term uses, for which the best general model available
in our current system of laws is the OCSLA itself.
H.R. 793 and the OCSLA Model
For these reasons, the Alliance applauds the intent of H.R. 793 to
provide much needed authority for new energy-related uses of the
Federal OCS. The Alliance cannot, however, support passage of the bill
unless it is substantially amended to provide for the sort of overall
program and standards that are included in the OCSLA and its
legislative history, and in addition, there is assurance in the bill,
that none of the so-called ``Section 10 projects'' will be allowed to
proceed until they have fully complied with that program.
The OCSLA is a law that has evolved since 1953 to provide a
balanced Federal program intended to encourage the development of
Federal oil and gas and mineral resources on the OCS. Because of the
OCSLA, this development has proceeded on terms that ensure the balanced
protection of the public interest, affected local governments, and the
significant participation of states which, after all, are the owners of
offshore land up to three miles from shore. As introduced, H.R. 793
amends only section 8 (43 U.S.C. Sec. 1337) of the OCSLA. Beyond this,
H.R. 793 makes no reference to the OCSLA, almost as if the application
of the OCSLA is being avoided. To the contrary, H.R. 793 would be a
significantly more credible bill if it were a true amendment to OCSLA
and included many of its provisions.
Respect for the role of states runs throughout OCSLA, and other
laws regulating the use of OCS, such as the Coastal Zone Management
Act. Federal laws for offshore and marine resources reflect this
respect by recognizing that the three-mile limit of state ownership
must be regarded with flexibility so that states, localities and
Federal agencies can work together to provide the best management of
the resources.
While H.R. 793 is well intended in its creation of general
authority for the Secretary of the Interior, in a number of areas the
problem is that, because of the generality of the delegation of
authority in the bill as introduced, the Secretary is given too little
guidance as to the details of the program to be created. Congress can,
and should, do more. In addition, H.R. 793 fails to give a proper role
to agencies with responsibility over marine resources, such as the
National Oceanic and Atmospheric Administration. Congressman Delahunt
is developing proposed legislation which recognizes this role, and even
assigns lead responsibility to the Department of Commerce for this
reason.
The following specific areas must be addressed if H.R. 793 is to
provide a credible foundation for new offshore energy development, as
it appears intended to do.
Recommendations
Although this testimony does not include specific language for
amendments to H.R. 793, the following points should be covered by
amendments if the legislation is to provide a level of authority,
guidance and protection of the public interest, similar to what
currently exists in the OCSLA.
First, it is essential that any new authorization, such as H.R.
793, that would allow a broad range of new, energy uses on the OCS, is
based, at least in large part, on a programmatic approach relying on
leases, rather than just permits, rights-of-way or easements. A permit-
to-permit, ``open-to-entry'' approach to the commitment of Federal
property interests for project development simply does not provide
either a programmatic approach or sufficient property rights, properly
conditioned, for energy projects the size of those being proposed.
Where 23 square miles, or more, of the OCS is committed to intensive,
long-term, energy development, the Federal Government should not be
approving one project at a time based on a simple permit. Rather, it
must develop a serious and comprehensive program that addresses choices
between alternative locations to develop or protect, that applies to
all projects, and that gives coastal states, communities and citizens
fair notice and a chance to do more than react to one project proposal.
The details and descriptions of such a program are scattered
throughout the OCSLA and other Federal laws, but the central
description of the OCS program is in 43 U.S.C. Sec. 1344. Section 1344
directs the Secretary to prepare, periodically revise, and maintain a
leasing program for offshore oil and gas, and minerals, that implements
the policies set out in the Act. The program is specified to be
conducted in a manner that considers economic, social and environmental
values of both renewable and non-renewable resources contained in the
OCS, as well as the potential impact of oil and gas exploration on
other resource values including the marine, coastal and human
environments. The program is to be based on a broad range of existing
information regarding developmental benefits and environmental risks
among regions of the country, so that the risks and benefits may be
equitably shared. If we had relied on the proposals of the oil industry
to develop each area they wanted, Georges Bank, instead of being
comparatively considered, would have been developed long ago. The
program must also fully consider other uses of the sea and seabed,
including conservation, fisheries, and navigation. The OCSLA is a model
that H.R. 793 would wisely follow, and it would require only slight
adaptation to apply.
Such a programmatic approach can give full and fair attention, but
not unfair advantage, to corporate project sponsors by comprehensively
studying various areas for the significance of their resources,
including wind resources, and seeking nominations for those areas that
are most favored by industry. Such a program should also allow for
certain areas to be nominated, and selected, for exclusion from
development, where, for a variety of reasons, development would not be
appropriate. Any nominations can be balanced against other factors that
would include competing resource and economic values in the area, the
nature of Federal or state protection of the marine resources in the
area, the opinions of the adjacent state and local governments, and
other factors. Such a process is intended ultimately to make available
for development those areas which have high potential for energy
production, but which present few conflicts for enabling the
development to occur. This is exactly the sort of program that has
evolved with respect to offshore oil and gas development. It is also
the sort of program that led to the decision not to lease and develop
some areas off of Alaska, Florida, California and New England, despite
the industry's belief that the most promising resources were there. At
the same time, this balanced program opened up some of the other
highest potential areas with limited conflict. It is essential that a
similar program be instituted for the new offshore energy uses
authorized by H.R. 793.
Second, the program proposed in H.R. 793 should not be vested
exclusively in the Department of the Interior. These projects will
dramatically affect marine resources, and authority should be shared
with the Department of Commerce through NOAA. Serious consideration
should be given to the proposal of Mr. Delahunt for even greater
authority, or program leadership, in the Department of Commerce and
NOAA.
Third, such a program must have respect for, and provide for the
substantial involvement of states, local governments and the public, in
each area for which new offshore energy development is proposed. Among
other provisions, 43 U.S.C. Sec. 1344 and Sec. 1345 set out important
standards directing that the Federal OCS program be fully cooperative
with adjacent states. These provisions include not only coastal zone
management planning, but also involve the states fully in the Federal
offshore development planning process. They establish the right of
states to submit recommendations to the Secretary regarding the size,
timing or location of a proposed project or lease sale. The Act also
permits a state to recommend areas that should not be eligible for
leasing. In essence, much of the success of the offshore oil and gas
leasing program is due to the fact that the consultative process
eliminates areas where state-Federal conflict is likely to forestall
development, even if leases are issued. H.R. 793, in contrast, provides
only the most general direction for state consultation and fails to
detail a role for states, local governments or the public. For example,
the Governor and Attorney General of Massachusetts oppose the Cape Wind
Project. Yet under the Corps' permit by permit process, state and
community concerns were relegated to reacting against a single permit
proposal, rather than being part of a larger process to decide whether
Nantucket Sound is an appropriate location prior to opening the area to
development proposals.
Sound legislation also must authorize an ongoing program of
environmental studies to identify areas where alternative energy
resources, like wind, are greatest. The studies must also assess the
environmental effects of developing those resources, since the impacts
are certainly not benign. Such a program, as directed in 43 U.S.C.
Sec. 1346, has been established and maintained for many years with
respect to offshore oil and gas. The same type of program, specifically
modified to address alternative energy development, could serve as a
basis for an alternative energy environmental studies program. The goal
is a successful long-term approach to alternative energy development,
not a rush to get the first project expedited on any terms.
Fourth, a fair return for taxpayers is addressed only in the most
general terms in H.R. 793. The bill, as introduced, directs the
Secretary only to establish ``reasonable forms of annual or one-time
payments for any easement or right-of-way granted.'' It also authorizes
negotiated arrangements with the party to whom the easement or right-
of-way is granted. The one-time payment and negotiated arrangement
approach is typical of right-of-way and easement grants, for single
facilities or for very defined and limited land-uses. Such a one-time
fee payment approach is, however, inappropriate for large projects that
consume a great deal of land or resources, and for which the taxpayers
deserve a market value return and a marketplace approach. Indeed, it is
surprising that a market-driven approach would not be the cornerstone
of a program from the Congress or current Administration.
In contrast, under the OCSLA, Federal leases are sold competitively
to the highest bidder, an approach which is made possible by the fact
that leasing of tracts occurs only after a plan has been developed that
identifies high priority areas in which more than one bidder will be
interested. This is far preferable to a ``first come, first served,
let's make a deal'' approach. 43 U.S.C. Sec. 1337. A fair return for
taxpayers can be accomplished for alternative energy development, but
not under the open-to-entry approach that H.R. 793 presents. At the
very minimum, H.R. 793, or any bill intending to provide authorization
for new energy-related uses of the OCS, should direct that competitive
bidding be treated as the preferred approach to be used, unless there
is justification not to do so, or an attempt to offer a property
competitively draws no interest. High resource value areas, either for
industrial wind projects or pipeline rights-of-way, should be
competitive and sold accordingly to the market as a program preference.
Otherwise, public resources will be negotiated away, and sold for
single payments at levels that do not return to the taxpayers the fair
market value of the valuable resource rights that are conferred. The
development of alternative or renewable energy resources, to be sure,
is a worthy objective, but not at any price, particularly considering
the other subsidies that are provided.
The use of a competitive bidding approach is especially appropriate
for offshore wind projects. As the multiplicity of sites and developers
indicates, there appears to be a true ``market'' for offshore wind
project property rights. In Massachusetts alone, there are eight sites
under consideration. The Nantucket Sound site being pursued by Cape
Wind is known for its wind resources, yet the Federal Government,
through the Corps, ignores the potential that multiple developers would
be interested and is prepared to authorize a single for profit
developer to proceed with no return whatever to taxpayers. The only way
to provide any return for taxpayers is to rely upon competitive
bidding, and competitive bidding can only occur through a program which
identifies and offers areas for development to the development
community.
Neither Cape Wind, nor other alternative energy proposals, are
``public service projects'' undertaken by non-profit organizations. The
project may provide cleaner electric generation, but the projects are
private, for-profit enterprises by corporations; they create other
environmental impacts, and they are based on the use of taxpayer-owned
resources, just like oil and gas. The profit is supplied in substantial
part by taxpayers through subsidies. This is precisely what is
happening now in Nantucket Sound and is another reason that an
immediate moratorium must be imposed on the permit speculators until
authority and standards are established by Congress.
Fifth, H.R. 793 fails to provide for specific environmental
standards. As the Cape Wind Project demonstrates, these projects have
the potential to be very damaging to the environment. Any authorization
for such a program must establish real standards for environmental
review, including prohibitions on locating any such project in areas
designated as sanctuaries or protected zones under state or Federal
law. It is not good enough, in the view of coastal states and
communities, and those, like fisherman, who depend on the marine
environment, for Congress to simply say, ``The secretary will take care
of it.'' The question is how? And Congress must provide the standards.
Other issues that must be resolved in any bill establishing new
authority for alternative energy uses for the OCS include the
following:
The authorization should contain provisions, such as
those in 43 U.S.C. Sec. 1347, providing for safety and health
regulations including the use of best available and safest economically
feasible technologies. No such provision exists in H.R. 793, in spite
of the potential for such problems in LNG operations, oil storage and
even wind energy facilities.
The authorization should incorporate 43 U.S.C. Sec. 1349,
to provide rules for citizen suits challenging program decisions and
dealing with significant jurisdictional issues. No such provision
exists in H.R. 793.
Separating leasing and development decisions, as OCSLA
does with respect to OCS oil and gas, should be addressed in any
authorization. H.R. 793 contains no such provisions, and in the limited
hearings afforded to this legislation, there was no way in which this
option could be explored. The point is that the separation of leasing
and development into two phases makes sense in certain situations, as
it affords states an added opportunity to review the specific plans for
development before it proceeds. The authorization need not require
separation in all cases, but instruct the Secretary to consider it in
all cases.
There are numerous other features of the OCSLA that would be
desirable for inclusion in a bill authorizing alternative energy uses
on the OCS. These features include the requirement of annual program
reports, as well as regular reports on human and budgetary resources
needed to carry out a credible program that will make a contribution to
the nation's energy supply, while protecting the environment and other
significant interests.
Perhaps no element of the OCSLA demonstrates the differences
between the approach of H.R. 793, and the approach taken by the
Congress for the offshore oil and gas program than does 43 U.S.C.
Sec. 1332. This section is an impressive declaration of policy by the
Congress with regard to petroleum and mineral development on the
Federal OCS, and confirms that it will occur only in balance with other
significant interests, including environmental protection and state and
local government involvement. It is unclear why H.R. 793 did not
incorporate such a declaration of policy or reference Section 1332 at
all.
Finally, the OCSLA includes authority to exclude specific areas
that are not suitable for development from the leasing program. This
provision is based on the obvious fact that particular locations in the
marine environment are incompatible with development under the OCSLA.
Such a principle also should be included in H.R. 793. Any such
provision should, either by direct reference or through a statement of
standards, ensure that marine ecosystems as pristine and valuable on
ecological, economic and aesthetic grounds as Nantucket Sound are not
sacrificed for private development. As the current rush to development
of offshore wind projects demonstrates, there are an abundance of
possible sites. There is no reason that Nantucket Sound, or other areas
of similar value, should be made available to developers seeking to
maximize their profits.
Comments on Other Issues
In addition to the points made above supporting comprehensive
legislation to authorize the new alternative energy uses proposed on
the OCS, it is also necessary that we comment on some elements of the
testimony given last year on behalf of the American Wind Energy
Association, testimony we are certain the Committee will hear again.
First, this testimony asked that any rules that may flow from
passage of H.R. 793 ``be sensitive'' to the financial investments in
potential offshore projects made prior to enactment of the legislation.
The Association was concerned, as it said, about projects that have
already begun being ``disadvantaged by new rules and requirements'' or
``unnecessarily delayed'' by whatever system Congress ultimately
chooses to put in place to manage these new uses of the outer
continental shelf.
This position essentially stands reason on its head. It asks that
the speculative corporate developers who proceeded to invest in and
force consideration of the projects they staked out, in a legal setting
that clearly does not provide authority for such projects, should
actually be rewarded for the attempt. Just the opposite is called for;
not only should such ``transitional relief'' not be granted to those
who were presumptuous enough to assume that they could begin these
developments for their personal profit and without regard to the
desires of affected communities and interest groups, but a moratorium
should be placed on all Federal agencies from processing such permits
to avoid creating even a suggestion of such grandfathered rights to
proceed free of the constraints of a new program.
Similarly, in a short section entitled ``Interconnection,'' the
Association expressed its concern that if a current or future project
gains approval and begins construction, that there be an ``orderly
process'' to ensure the project can connect to electric substations and
distribution lines on the mainland. While no one can oppose an
``orderly process,'' and we do not, our concern is that this is
``code'' for the preemption of legitimate state and local rights with
respect to rights-of-way across state offshore lands or local planning,
zoning and utility location requirements. This would amount to an
extraordinary breach of the Federalism concepts so long championed by
this Committee and inherent in the OCSLA itself.
Essentially, what the Association appeared to have in mind here
last year, and no doubt still does, is a totally Federalized program
for alternative energy projects that preempts legitimate state and
local prerogatives and eases the way for approval with minimal review
and no standards. That kind of Federal overreaching should not be
tolerated by this Congress. In essence, any bill that is passed to
establish a new program for granting and conditioning rights for
alternative energy development on the OCS should be fully applicable to
all proposals, whether underway or not, and should be deeply respectful
of the prerogatives of state and local governments, avoiding Federal
preemption in all cases. Those who invest prior to the existence of
such authority should do so at their own risk.
Conclusion
The Alliance to Protect Nantucket Sound recognizes, as do the
sponsors of H.R. 793, that no authority currently exists for the
Federal Government to grant property rights for the OCS to develop
alternative energy, or for other energy activities, which are not
already authorized by the OCSLA. We have already learned from the
emerging wind energy project proposals that these developments can be
of immense scale and impact. Fully recognizing the general and long-
term value of alternative or renewable energy, offshore projects of
this type must be undertaken. But they will be most successful if
undertaken through a comprehensive program incorporating virtually all
of the elements that are already delineated in the OCSLA. This is the
approach, not the ``give me my project now'' approach, that will truly
cause renewable energy to become institutionalized over the long-term.
All who care about the manner in which the offshore areas of our
country are developed should support the points that are outlined in
this testimony. The Alliance urges Congress to pass legislation that
provides for the development of new offshore energy resources in
balance with all of the other factors that are involved. We trust that
such a program, properly administered, is more likely than not to
determine that a site such as Nantucket Sound should never be chosen
for a project like Cape Wind. The outcome on this authorization,
however, raises issues which go well beyond one project and one
location. The formula for the long-term success of offshore alternative
energy development is not permit by permit conflict, nor a cursory
direction to the Secretary, but a comprehensive program which creates a
solid foundation for offshore development. Thank you again for this
opportunity to submit comments.
______
[Maps attached to the Alliance statement follow:]
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Mr. Kind. And with that, Mr. Chairman, I will yield back.
Mr. Rehberg. Thank you, Mr. Kind.
[The prepared statement of Mr. Kind follows:]
Statement of The Honorable Ron Kind, Ranking Democrat, Subcommittee on
Energy and Mineral Resources, on H.R. 793 and H.R. 794
With the imminent threat of war with Iraq looming over this
hearing, the need to develop renewable energy sources such as wind,
solar and biomass could not be more evident. In addition to other
concerns, a substantial portion of domestic oil imports from the Middle
East may soon be at risk, therefore we must continue to encourage
clean, renewable energy initiatives now so that they will be available
should the need arise.
Generally I believe it is a good idea to clarify and specify that
the Minerals Management Service has the necessary authority to grant
easements or rights-of-way for alternative energy projects on the Outer
Continental Shelf not currently authorized by law. I feel that with
their history of managing oil and gas development projects on the OCS,
the MMS is well equipped to do the job.
Last year, we expressed an interest in hearing testimony from
representatives of coastal states that have a vested interest in the
bill. I am pleased to see that Attorney General Reilly is here to speak
on behalf of the people of Massachusetts, who are currently engaged in
discussion over a proposed wind farm in Nantucket Sound. I would like
to see H.R. 793 amended to specifically require consultation with
affected States prior to permitting alternative energy projects, such
as wind farms, on the OCS. While there is no shortage of controversy
with the Nantucket Sound project, it is critical that the affected
States and the public have sufficient opportunity to participate in the
permitting process.
That said, if we are to reduce our dependence on foreign oil
imports, and reduce greenhouse gas emissions, as a Nation we are going
to have to develop alternative energy strategies, including wind farms.
We should not, indeed, cannot, advocate alternatives to fossil fuels
and then cry ``not-in-my-backyard'' whenever a new project is proposed.
I am not saying that the Nantucket Sound project should go forward, I
am not fully aware of the facts in that case.
However, I would note that during a recent Congressional trip to
Northern Europe to learn more about alternative energy projects, as
well as other issues before the Committee, Members of this Committee
had the opportunity to view the wind energy facilities at the mouth of
the Copenhagen harbor. According to local government officials, there
was some initial resistance to the proposal--and still some dislike for
the way the windmills look lining up across the skyline. Nevertheless,
once the wind field had been in operation and the residents became
accustomed to its presence, and more importantly, its production, their
fears abated. They have found that the benefits of inexhaustible,
clean, and renewable energy from the offshore wind farm have, thus far,
outweighed the more undesirable factors.
Though I support the goals of H.R. 793, there are problems with the
legislation, which I hope to work out with Chairman Cubin before the
bill is marked-up.
The second bill being discussed today, H.R. 794, is one that
relates to Federal coal leasing practices. I am aware that our
Committee Ranking Member from West Virginia, Mr. Rahall, has numerous
and specific concerns with the proposed legislation. I fully support
his views on the subject and defer to him to comment on a bill that
would most certainly upset the current state of coal leasing in America
and would affect a large majority of his constituency. In his absence,
I ask unanimous consent to submit his statement in the hearing record.
______
NOTE: A report submitted for the record by Mr. Kind entitled
``Review of State and Federal Marine Protection of the Ecological
Resources of Nantucket Sound'' prepared by the Center for Coastal
Studies has been retained in the Committee's official files.
______
We had anticipated there would be a vote. There hasn't been
yet. Why don't we just kick off. We will get as far as we can
and we will begin with Panel No. 1 and Mr. Delahunt.
STATEMENT OF THE HONORABLE WILLIAM D. DELAHUNT, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS
Mr. Delahunt. Thank you, Mr. Chairman, and let me extend an
invitation immediately to all members of the Committee to come
visit Nantucket sound. I am sure we could arrange for a field
trip sometime in May or June and give you an opportunity to see
firsthand the concerns that the people have in my district, and
I think it would be enlightening to see the rather small area
for which the project that Mr. Kind referred to in his opening
statement, is proposed.
First, I want to extend my regards and my gratitude to you,
Mr. Chairman, and specifically to the Chair of the
Subcommittee, Ms. Cubin, for her leadership in charting a
course for development of renewable energy in our coastal
waters. Your interest in this issue is vital to districts like
mine and states like Massachusetts.
I am especially pleased that the Committee will hear from
my good friend and former colleague, Tom Reilly, the Attorney
General of the Commonwealth of Massachusetts and I might add
one of the best Attorneys General in these United States. And
as an advocate of local control and civil and states rights, I
know that you will find his testimony compelling.
The problems we are here to address derive from impressive
technological break-throughs that now make large renewable
energy projects commercially feasible. That is very good news,
as Mr. Kind indicated. Unfortunately, there is no coherent
comprehensive Federal permitting process to ensure development
does not violate multiple public policy considerations. Current
Federal law does not provide a yardstick so we can responsibly
judge the merits of individual proposals.
For example, the proposal that Mr. Kind alluded to is being
processed by the Army Corps of Engineers under the authority of
a statute that was enacted in 1899. With the current pace of
development accelerating, I welcome your commitment to bridging
the gaps in current law, and it is imperative that we act
quickly to create a coherent responsible regulatory process,
one that is fair and predictable for investors and one that
would restore public confidence and governance of the coastal
zone.
Today, I am introducing legislation which I believe will
address those concerns, and I respectfully ask you to review
this proposal as you proceed. My bill would affirmatively
encourage alternative energy development on the Outer
Continental Shelf by requiring a new licensing regime to be in
place within 1 year after passage that draws, as does the so-
called Cubin bill, from analogous existing provisions of oil
and gas regulation.
But there are key differences: The average size of an oil
and gas track leased by the Department of Interior is roughly
eight square miles, while the size of proposed wind farms range
from 15 to 100 square miles. The Long Island Power Authority's
proposal for the waters off New York covers more than 50 square
miles. The sheer size of these facilities make them more
intrusive than oil and gas platforms. More over, decisions
about renewable facilities tend to be more permanent than those
related to oil and gas.
OCS platforms are mobile and can be moved if needed, but
once concrete and steel wind towers are built, they are there
imbedded in the seabed for decades. Finally, oil and gas
development typically take place far from shore and Federal
waters. Improved technology allows oil companies to access
reserves in deep waters of the gulf and elsewhere. Because this
activity is far from shore, it doesn't tend to conflict with
competing interests. Conversely, almost all of the sites for
proposed wind farms either straddle or abut state waters in
their coastal zone.
For all these reasons, the processed outlined in my
legislation foresees a new licensing program that calls on the
expertise of the National Oceanographic and Atmospheric
Administration and their coastal zone managers. As you know,
NOAA already oversees the development of and licensing of ocean
thermal energy conversion facilities. Specifically, the bill
encourages coastal states and requires the Federal Government
to identify priority areas for prospective renewable energy
development. It includes incentives to encourage states to
amend their coastal zone management plans accordingly. It
requires the construction and operation of licensed facilities
to be consistent with these state CZM programs, and once a
facility begins producing energy, it requires annual royalties
for allocation to coastal states.
In short, our goals are to expedite energy development,
minimize disruption of competing uses, capitalize on existing
regulatory expertise, and respect state coastal priorities.
Where I live, Mr. Chairman, the sea is in our blood. We are
a people bound to the water, and, as you know, the term
``Yankee ingenuity'' signifies our welcoming creativity and
innovation, and they don't necessarily have to be mutually
exclusive, our love for the sea and this time honored Yankee
ingenuity, but when we speak of new proposals, we have to
obviously factor in the consequences.
What is at stake in my area is a marine environment so
ecologically valuable and fragile that is a candidate for
designation as a National Marine Sanctuary. The commercial
fishing fleet and vibrant tourism industry is utterly dependant
on the health of Nantucket Sound. There are some mistakes that
you can only make once. This is that situation.
I commend your efforts to address the shortcomings of
Federal law so that we can get it right the first time. I thank
the Chair and yield back whatever time I may have.
[The prepared statement of Mr. Delahunt follows:]
Statement of The Honorable William Delahunt, a Representative in
Congress from the State of Massachusetts
First, my thanks to you, Madame Chairman, for your leadership as we
chart a course for development of renewable energy in our coastal
waters. Over the past year, I have benefited from your counsel, and
that of your staff; and I appreciate your resuming this discussion so
early in this session of Congress.
As you know, this is a very important issue to me and my
constituents. Every community in my district is touched by the ocean.
We rely on the ocean to drive important segments of our economy, such
as fishing and tourism. Our ocean is also important for recreation and
transportation, and because of that we have a profound respect and
appreciation for a healthy marine environment.
Some months ago, developers proposed building a wind farm spanning
25 square miles in Nantucket Sound. This proposal set off a firestorm.
Since then, issues of ocean governance and new policies for renewable
energy in the marine environment have dominated our newspapers, our
fishing piers and our town halls. I have opposed the Nantucket Sound
project, not because I oppose renewable energy, but rather because I
believe that we must have sensible policies in place before the Federal
Government starts issuing permits for such large projects.
Since our discussions last year, when this issue arose in the
context of the energy bill, I have been working with the Massachusetts
Attorney General--from whom you'll hear soon--as well as the fishing
and boating communities, conservation and wildlife groups, and coastal
zone management experts to develop a predictable and inclusive
regulatory program. Legislation I will be introducing today, I believe,
a consensus among the major interest groups.
I would be pleased to discuss specific provisions of the bill and
possible changes to any of them, but frankly I would rather spend the
few moments we have together this morning to share with you our
concerns about what appears to be a corporate land rush for our ocean
seabed and the need to involve at the earliest of stages the coastal
states and other users of the ocean resources.
From the outset, I want to say that I am a strong supporter of
renewable energy and the bill I introduced is intended to encourage
sensible development of alternative energy in the marine environment.
The problems we're here to address derive from impressive
technological breakthroughs that finally mean that offshore renewable
energy projects can be commercially viable. That's very good news,
particularly given the geopolitical challenges we now face. The merits
of wind energy are indisputable; and we should do all we can to nurture
and reward investment in this sector by providing sensible guidance on
how to authorize these new uses of the oceans.
That's why I welcome your commitment to addressing this issue. Last
session, you introduced your own proposal. Since then, we have
witnessed dozens of new wind farm proposals up and down the east coast,
with a half dozen off the New England coast alone. To the taxpayer, it
seems as if our coastal waters are being held hostage to whatever
commercial interests stake the first or loudest claim.
In the absence of guidance from Congress, regulators now find
themselves with no choice but to default to rules and standards as
archaic as the mashing of corn in the gears of Cape Cod windmills. For
developers, this vacuum yields uncertainties and public attacks without
the benefit of referees or even ground rules.
With the pace of proposed development accelerating, I am here today
to propose several constructive steps that I believe could yield a more
responsible process.
First, we need to move quickly. The bill I am introducing requires
the proposed licensing regime to be in place within one year after
passage so as not to delay development. It recognizes that development
should be done with due consideration to all the competing uses and
public interests in our ocean. Just as we discourage oil development in
environmentally sensitive areas like coral reefs, we would not want to
put a wind farm right in the middle of a prime fishing area, shipping
lane, critical marine habitat or even in the middle of a state-
designated ocean sanctuary.
In many respects the siting decisions related to marine renewable
energy facilities are more difficult than those related to oil and gas.
For example, the average size of an oil and gas tract leased by the
Department of Interior is roughly 8 square miles, while the size of
proposed wind farms range from 15 to 100 square miles. The Long Island
Power Authority's proposal for siting a wind farm in the coastal waters
of New York covers more than 50 square miles. The shear size of these
facilities makes them more intrusive than oil and gas platforms, and
consequently the impacts on the other users of the ocean even greater.
Moreover, decisions about renewable facilities tend to be more
permanent than those related to oil and gas. OCS platforms are mobile
and can be moved if needed but once a wind farm is built it's there for
decades. Concrete and steel wind towers imbedded in the seabed are
permanent until dismantled.
Finally, oil and gas development in large part takes place far from
shore in Federal waters. New deep water technology is allowing oil
companies to access reserves in deep waters of the Gulf and elsewhere
and because this activity is far from the coast, avoiding conflicts
with a multitude of competing uses.
Conversely, almost all of the sites for proposed wind farms either
straddle or abut state waters, near designated coastal zones, shipping
lanes, fishing or boating areas and critical habitat. For this reason
alone, states must have a major say in the development of offshore
resources.
Consequently, the process outlined in our legislation establishes a
new licensing program that calls on the expertise of the National
Oceanographic and Atmospheric Administration (NOAA) and their coastal
zone managers. As you know, NOAA already oversees the development and
licensing of Ocean Thermal Energy Conversion (OTEC) facilities. NOAA's
experience with the marine environment makes them particularly well
equipped to guide this process.
Specifically, the bill encourages coastal states and the Federal
Government to identify priority areas for the siting of renewable
energy facilities. Identifying these priority areas up-front will help
avoid costly and protracted battles among marine interests, and
expedite offshore renewable energy development.
The bill authorizes financial assistance to states to ensure that
they amend their coastal zone management plans to incorporate policies
for assisting in the development of renewable energy. In addition to
requiring that the construction and operation of renewable energy
facilities be consistent with approved state management programs, the
bill requires the Secretary of Commerce to consult with the relevant
Federal agencies to ensure that the construction of one of these
facilities will not compromise national security efforts to harm the
environment. Finally, once a facility begins producing energy, the
Secretary is required to establish annual royalties that will go back
into the Coastal Zone Management Fund for allocation to coastal states.
In short, our goals are to expedite energy development, minimize
disruption of competing uses, capitalize on existing regulatory
expertise, and respect state coastal priorities.
Where I live, our historical heritage and economic vitality are
interdependent with the marine environment. It's in our blood to
welcome innovation, and we have always embraced renewable technology.
But no matter how noble our intentions, we must never lose sight of the
consequences. Any more than public transit would mean running the
Boston subway system to the Cape Cod National Seashore. Or the need for
prescription drugs would argue for abolishing the FDA.
What is at stake, in our own area, is a body of water so abundant
in natural resources that it was nominated by the Commonwealth of
Massachusetts as a National Marine Sanctuary. It is a resource that
helps sustain a vibrant tourism industry and a commercial fishing
fleet.
There are some mistakes you can make only once. I commend your
efforts to address the shortcomings in the Federal law, so that we get
it right the first time.
______
Mr. Rehberg. Thank you, Mr. Delahunt, and certainly those
concerns will be taken into consideration in this Committee,
and the Chairman I know will look forward to working with you
on an acceptable compromise.
As Mr. Kind mentioned, we saw the facilities in Norway last
summer, and there can be a visual change in the horizon or the
outer banks that we recognize and know that not everybody will
like it the way that it is, but if anybody did a nice job with
it, their facilities are fairly attractive.
Mr. Delahunt. I believe we pose a distinctly unique
situation, and again, I am going defer to my Attorney General
to explain his concerns, but I think our collective concerns
are concerns that you would all share. And let me again repeat
the invitation to come to Nantucket Sound to visit the Cape,
Nantucket, and Martha's Vineyard to observe the potential
impact of this proposal on the people in my district.
Again, thank you, Mr. Chairman.
Mr. Rehberg. Thank you. Even those of us from Montana are
tired of the winter. We would rather wait until spring or
summer to visit you.
Mr. Delahunt. We will schedule it accordingly.
Mr. Rehberg. That would be nice.
Before you leave, are there any other questions from the
Committee for Mr. Delahunt?
Mr. Kind.
Mr. Kind. Before you get away that easily, just so I
understand the position of your constituents back home, Mr.
Delahunt, are they adamantly opposed to any wind farm project
occurring in the Nantucket Sound, or is it the size of the
project, or is it the sight-line problem?
Mr. Delahunt. There are a variety of concerns. We have
obviously an active commercial fishing fleet. We have safety
concerns. We have flights from the mainland and Cape Cod to the
islands. There would be the obvious, again, safety concerns
there. The Coast Guard and the Navy have articulated concerns.
And, the issue of the seabed itself, it is a breeding ground
for gray seals, for example.
There are multiple, multiple concerns, and I think it is
important to understand that there is, in fact, a marine
sanctuary that was created by the Commonwealth of Massachusetts
back in 1970, and if I had a map before you now, I could
demonstrate to you that this particular proposal is surrounded,
if you will, by this state marine sanctuary. And back in 1980,
the entire Nantucket Sound was nominated for National Marine
Sanctuary status, and again, I think this reflects the
interests of the state before any proposal for a wind farm was
ever put forward.
Now what we have learned, of course, is that there is no
coherent comprehensive policy regarding these particular
proposals, and with the advent of the first proposal, that has
spawned numerous proposals. Just this past week, there were
three more proposals for wind farms off of Cape Cod and
Nantucket. If they were all permitted and were developed to
sail from Cape Cod to Nantucket would require a skillful
navigator. It would be a slalom course. It would be a disaster.
Mr. Kind. Just for my information, there is pending
litigation in Boston Federal Court right now?
Mr. Delahunt. I will let the Attorney General address that,
and again, I think it is very important, and even under the
existing current Federal statutory scheme, there is language
that recognizes the interests of the state and that the state
must be consulted in terms of the impact as far as state
coastal waters are concerned, and as I just mentioned earlier,
the fact that we have a state marine sanctuary, I would suggest
speaks volumes about the attitude of the state regarding this
particular body of water, which I would suggest to you is
absolutely one of not just Massachusetts', but this Nation's
treasured resource.
Mr. Kind. Thank you.
Thank you, Mr. Chairman.
Mr. Rehberg. Thank you, Mr. Delahunt, and we will conclude
with Panel No. 1 and invite Ms. Burton who is the only person
on Panel 2 to please come up to the desk there.
There are advantages and disadvantages to serving in
Congress. The advantage is you don't have to sit through many
hours of Committee meetings. The disadvantage is when you do
testify, there is a time limit, and if you will notice in front
of you, there is a panel of lights. That will designate when
your 5 minutes are up, and please understand that the record is
always open to witnesses to put in the testimony they were
unable to read before the Committee, and then we will follow
with questions.
So, at this time, I would like to welcome Ms. Johnnie
Burton, Director, Minerals Management Services, United States
Department of Interior.
Ms. Burton.
STATEMENT OF JOHNNIE BURTON, DIRECTOR, MINERALS MANAGEMENT
SERVICE, U.S. DEPARTMENT OF THE INTERIOR
Ms. Burton. Thank you, sir, and good morning. I appreciate
the opportunity to appear today to testify on H.R. 793, the
Administration's OCS alternative energy uses legislation, and
also on H.R. 794, the Coal Leasing Amendment Act of 2003.
I would like to begin my oral remarks by discussing H.R.
793. As the Department has stated in previous testimony, the
Administration strongly supports the enactment of this
legislation. H.R. 793 embodies the Administration's legislative
proposal that was formally sent to Congress in June the 2002. I
would like to thank Chairman Cubin, even though she is not here
today, but I would like to thank her for introducing this
legislation and introducing H.R. 793 this year.
We look forward to working closely with you and other
members on this legislation as it proceeds through the
legislative process. It is our hope that the legislation can be
enacted in an expeditious manner.
The Administration believes that there are several benefits
associated with enacting the legislation. In general, we
believe it has the potential to encourage innovative
alternative energy projects on the Outer Continental Shelf. It
supports the President's national energy policy initiative to
streamline permitting for energy production in an
environmentally sensitive manner, and it will further the
Secretary's commitment to facilitate renewable energy projects
on Federally managed lands.
Equally important, we believe the legislation will clarify
the regulatory process considerably and will provide the
Department with the tools to comprehensively address in one
statute the array of issues associated with permitting and
managing OCS alternative energy uses. As it currently stands,
the vast majority of OCS alternative energy activities that are
or may be contemplated have no coordinated permitting process,
nor is there a single Federal agency with an overarching role
to coordinate that process and protect the spectrum of Federal
interests. This legislation is designed to address those
deficiencies.
There are obvious drawbacks to the present process. First,
it does not ensure that Federal Government's economic and land
use interests are fully considered and protected; and second,
it does not encourage innovation in the energy arena since the
private sector has no clearly defined and transparent
permitting process.
It is important to note that the legislation does not
supersede or alter the existing authority of any Federal or
state agency or other Federal law. H.R. 793 is drafted as an
amendment to the OCS Lands Act and sets up a comprehensive
framework for permitting alternative energy activities on the
OCS. Placing the authority into the OCSLA which already
provides the statutory framework for oil, gas, and other
mineral activities will allow the Department to build on many
of the provisions already in the Act while tailoring this
bill's or this act's relevant provision to innovative
alternative energy-related activities.
In addition to these underlying authority, H.R. 793 also
enumerates other specific provisions that are critical to the
comprehensive management of alternative management activities
on OCS, including: the explicit authority to grant an easement
or right-of-way for an array of alternative energy activities;
including renewable energy projects, such as wind, wave, solar,
or other uses of the OCS oil and gas structures previously
permitted under the OCSLA; provisions to protect the public's
interest to capture fair value for the use of Federal OCS;
provisions to issue an easement or right-of-way on either a
competitive or non-competitive basis as appropriate and
determined by the Secretary; provisions to ensure safety and
environmental protection through the development of appropriate
regulations and inspection activities; provisions to ensure
that appropriate enforcement actions can be taken in the event
violations occur; and provisions to require bonds to ensure
that companies have a financial surety to conduct operation on
the OCS to complete end of life site clearance and reclamation.
Since the legislation was introduced last year, we have
received numerous comments from interested parties, including
the need for rigorous environmental review and safeguards and
the need for active and meaningful participation by affected
states, local governments, and the public. We agree these are
important considerations, but we also believe by amending the
OCSLA, a lot of the framework for these activities are already
included in the present law, and these issues, after 793 is
enacted into law as an amendment to OCSLA, will be dealt with;
however, we are also very amenable to working with the
Committee and other interested parties to ensure that these
issues are addressed in an appropriate manner.
Before concluding these remarks on this bill, Mr. Chairman,
the Administration would like to reiterate its strong support
for enactment of H.R. 793. The bill has the potential to help
increase and balance both sources and supplies of energy that
are critical to our nation. Further, if we are serious about
encouraging new and innovative technologies to help us meet our
increasing needs, enactment of this legislation will be one
important step in helping us meet those needs.
Thank you very much, Mr. Chairman.
[The prepared statement of Ms. Burton follows:]
Statement of Johnnie Burton, Director, Minerals Management Service,
U.S. Department of the Interior, on H.R. 793
Madam Chairman, thank you for the opportunity to appear before the
Subcommittee today to discuss two energy Bills before the Committee:
H.R. 793, a Bill to facilitate alternative energy -related uses on the
Outer Continental Shelf; and H.R. 794, the Coal Leasing Amendments Act
of 2003.
H.R. 793, OCS Alternative Energy and Energy Related Activities
The President's National Energy Policy report laid out a
comprehensive, long-term energy strategy for securing America's energy
future. While many critics focus on the report's call for the
production of energy from traditional sources, there are critical
components of the President's policy that call for production of energy
from alternative sources, such as renewable energy projects.
In support of the President's energy policy initiative to simplify
permitting for energy production in an environmentally sensitive
manner, the Administration developed a legislative proposal last year
to facilitate the permitting and development of alternative energy-
related projects in the Outer Continental Shelf (OCS). The
Administration's legislation was submitted to Congress in June 2002,
and was introduced as H.R. 5156 by Chairman Cubin on July 18, 2002. The
Administration expressed its strong support for the Bill at a hearing
before this Subcommittee on July 25, 2002 and continues to strongly
support enactment of this legislation.
Highlights of H.R. 793
H.R. 793 would amend the Outer Continental Shelf Lands Act (OCSLA)
to set up a comprehensive framework for permitting alternative energy-
related uses on the OCS not already expressly covered by existing
statutes. Placing this authority under the OCSLA, which already
provides the statutory framework for oil, gas, and other mineral
activities, will allow the Department to build on many of the
provisions already embodied in that Act, including: the authority to
coordinate with and enter into agreements with other Federal agencies;
requirements for occupational safety for activities; authority for site
access to facilities; and the authority for imposing civil and criminal
penalties. Using the OCSLA as the umbrella statutory authority will
allow us the flexibility to tailor the Act's relevant provisions to
innovative alternative energy-related activities.
Specifically, the proposed legislation would grant the Secretary of
the Interior the authority to:
Grant an easement or right-of-way for alternative energy-
related activities on the OCS--including renewable energy projects,
such as wave, wind, or solar projects; projects ancillary to OCS oil
and gas operations, such as offshore staging areas; and energy or non-
energy related uses of existing OCS facilities previously permitted
under the OCSLA;
Protect the public's interest to capture fair value for
the use of the Federal OCS by authorizing the Secretary to require an
appropriate form of payment such as a fee, rental, or other payment for
use of the seabed;
Issue the easement or right-of-way on either a
competitive or non-competitive basis, as appropriate and determined by
the Secretary;
Oversee all activities associated with a project through
regulations and inspection activities to ensure safety and
environmental protection;
Pursue appropriate enforcement actions in the event that
violations occur; and
Require financial surety to ensure that any facilities
constructed are properly removed at the end of their economic life.
There are several benefits associated with enacting H.R. 793.
First, it will clarify the regulatory process considerably. The private
sector will know where to start the permitting process, and the
Department will be able to inform other relevant Federal agencies of
the proposal, thus better facilitating its timely review and
consideration. Second, the legislation will explicitly provide the
Department with the tools to comprehensively address in one statute the
array of issues associated with permitting and overseeing alternative
energy-related uses on the OCS.
Why the Department of the Interior Is Designated as the ``Lead''
Permitting Agency
As the Administration began to actively consider the best approach
for addressing issues associated with siting alternative energy-related
activities on the OCS, it became clear early in the process that the
Department of the Interior should be given the lead role in the
permitting of such activities. While there are numerous Federal
agencies with permitting responsibilities on the OCS, the Department is
the primary agency in the Federal Government to oversee development of
our Nation's Federal energy resources. The Department manages more than
500 million surface acres of land. The Minerals Management Service
(MMS) managing approximately 1.76 billion acres of offshore Federal
lands for oil, gas and other mineral activities and the Bureau of Land
Management (BLM) manages 262 million surface acres and more than 700
million subsurface acres of Federal mineral estate. Since the proposed
legislation pertains to the permitting and oversight of energy uses on
offshore Federal lands, it is only logical that any new legislative
authority that is enacted remain with the Department already entrusted
with that overall responsibility.
In this role, the Department has demonstrated unparalleled
experience in multiple-use land management and routinely makes
decisions to balance economic activities with the need to protect the
environment. For this reason, the proposed legislation fits well with
the Department's core missions.
Within the Department, MMS has many years of experience in
overseeing oil, gas, and sand activities on offshore Federal lands.
This experience covers many areas such as:
Environmental expertise and research which are used to
make informed decisions with regard to leasing and operations;
Engineering expertise and research regarding emerging
offshore technologies used to develop oil and gas resources and the
various safety issues associated with these activities;
Regulatory expertise in overseeing OCS oil and gas
activities to ensure human safety and environmental protection;
A trained offshore inspection workforce that, in addition
to enforcing MMS regulations, also conducts offshore inspections for
the Coast Guard and the EPA; and
Established working relationships with State, Federal and
international regulators to coordinate and share information and
experience on regulation of offshore energy projects to ensure safety
of workers and protection of the environment.
Highlights of Comments Received on the Administration's Legislative
Proposal
Since we submitted our original legislative proposal to Congress in
June 2002, we have received numerous comments from a variety of
interested parties on the proposal. In general, comments and concerns
can be grouped into several overarching themes. The first set of
comments involve the issue of proper site planning. Many commenters
expressed concerns that there needed to be a mechanism in place to view
alternative energy sites from the standpoint of all projects that may
be appropriate for an area as well as what sites will be best for all
affected parties--as opposed to reviewing one project and one site at a
time without concern for cumulative impacts or other considerations.
Commenters also expressed concerns about the need for active and
meaningful participation from the public--particularly participation
from State and local governments. This participation included the
review of any proposed activities under the Coastal Zone Management Act
(CZMA) to ensure that a potential activity is consistent with a State's
CZMA program.
Finally, commenters expressed concerns that whatever statutory
process was put in place must provide for a rigorous environmental
review and appropriate environmental safeguards.
We agree that these are important concerns and we are amenable to
working closely with the Committee and others to ensure that the
concerns mentioned above are addressed in an appropriate manner.
Conclusion
H.R. 793 will provide for the sound management of offshore public
lands by ensuring that principles of safety, environmental protection,
multiple use, fair compensation, and conservation of resources are all
addressed before a project is initiated. It will also provide the
private sector, which has expressed a desire to invest in offshore
energy-related projections, certainty and predictability. Finally, H.R.
793 has the potential to help increase and balance both our sources and
supplies of energy that will be so critical to our Nation in the
future. We strongly believe that we must encourage new and innovative
technologies to help us meet our increasing energy needs--enactment of
this legislation will be one important step in helping us meet those
needs.
I would again like to thank the Committee for its interest in this
issue and express our sincere desire to work with you on all aspects of
this important legislation.
H.R. 794, the Coal Leasing Amendments Act of 2003
H.R. 794 would amend portions of the Mineral Leasing Act relating
to the development of Federal coal resources.
Coal produced from the Federal lands contributes about 40% of the
national coal supply. Production from Federal lands continues to
increase. In Fiscal Year 2002, production from Federal lands exceeded
400 million tons. The BLM's management and development of these Federal
coal resources are governed by the Mineral Leasing Act as amended by
the Federal Coal Leasing Amendments Act and implementing regulations
found at 43 CFR 3400.
The Department recognizes that the Federal Coal Leasing program
would benefit from select modifications to provisions of the Mineral
Leasing Act (MLA), as amended by the Federal Coal Leasing Amendments
Act of 1976 (FCLAA).. The President's National Energy Policy directed
the BLM to analyze the effectiveness of the MLA as it relates to coal
leasing on Federal lands and to recommend any needed administrative or
legislative changes. Accordingly, a working group established to
accomplish this task should be releasing a draft report soon. In
reviewing your legislation Madam Chairman, we see several changes that
are useful and important.
The Department supports repeal of the current 160-acre limitation
for lease modifications as provided in section 2 of the bill. We
believe the current limitation has unintentionally caused the bypass of
some otherwise recoverable coal reserves. The amendments in section 2
do not affect the requirements of section 3 of the MLA that lands added
to a lease be contiguous to the existing leasehold and that the
Secretary find the lease modification is ``in the interest of the
United States.''
We also agree with the provision in the bill allowing the Secretary
to extend the life of a mine beyond 40 years if the Secretary
determines a longer time period will ensure the maximum economic
recovery of a coal deposit or is in the interest of the orderly,
efficient, or economic development of the coal resources. The current
legislative limit requires that a mine operator submit a plan that
shows all reserves being mined out within 40 years. In some cases, this
does not reflect actual mining practice, particularly where incremental
parcels are being added to established logical mining units. There may
also be cases where the size of a reserve in an original logical mining
unit is large enough to require more than 40 years to develop it.
The Department supports legislative changes to the advanced royalty
provisions. Under current law, the Secretary may suspend the condition
that a lessee continually operate upon payment of advance royalties. In
granting a suspension, the Secretary must find that the public interest
must be served thereby. However, the aggregate number of years during
the period of the lease for which advanced royalties may be accepted
cannot exceed ten. H.R. 794 would extend that to 20 years. Under this
provision, an operator would not have to relinquish a lease if
unfavorable market conditions make resumption of coal production
uneconomic.
Section 5 of the bill eliminates the requirement that a lessee
submit a mine plan within 3 years of lease issuance. We support the
elimination of this provision as most mine plans submitted to meet this
requirement do not reflect the actual mine plan submitted under the
Surface Mining Control and Reclamation Act (SMCRA) and, therefore, are
a wasted effort for both lessee and the BLM. The ultimate mining plan
is reflected in the application for a permit submitted under SMCRA.
Section 6 addresses the issue of surety bonds and deferred bonus
bids. The Department is concerned about the current bond availability
dilemmas facing lessees, and this issue has been a subject for review
by the Department's Bonding Task Force. However, we are not certain at
this time that a broad prohibition on the use of surety bonds is the
most appropriate solution. We would be happy to discuss the findings of
the Task Force when their review is complete.
In addition, the bill removes the direct prohibition on the
Secretary waiving advance royalties. We have no objection to that
provision. Section 3 of the MLA provides the Secretary may only grant a
waiver or suspension of royalties if it is in the interest of
conservation and for the purpose of achieving the greatest ultimate
recovery of the coal.
Finally, we support the objective of a Federal coal resource
inventory and impediment assessment. We do point out though that
funding for such an inventory should be subject to review during
development of the President's budget.
We appreciate the opportunity to testify on these changes to
Federal coal legislation and look forward to working with you and your
staff on these and other changes to the MLA that will ensure that
Federal coal resources are efficiently developed for the continued
benefit of the public. If H.R. 794 is enacted, the Department will
develop guidelines for carrying out the determinations required under
the MLA related to the provisions mentioned above that recognize the
importance of the competitive leasing process, a fair return to the
taxpayer, and the efficient and orderly development of coal resources.
This concludes my written testimony. However, I would be pleased to
respond to any questions from Members of the Subcommittee.
______
Mr. Rehberg. Thank you very much.
To begin the questioning, I would like to ask you doesn't
Mineral Management Service have expertise in permitting
offshore alternative energy projects now?
Ms. Burton. The Mineral Management Service today has
acquired over the last 20 years an enormous amount of
experience in dealing with submerged lands and the management
of the facilities offshore. It works very closely with the
Coast Guard and with EPA. In fact, in inspections of offshore
facilities, we have memoranda of understanding with both of
these agencies, and we work very closely together to make sure
that the regulations are respected and that everything is done
in a manner that is going to be watching over the safety of the
people as well as the safety of the environment.
So, Mr. Chairman, we have do considerable expertise.
Mr. Rehberg. Under this bill, would applicants still comply
with the environmental statutes like NEPA, Coastal Zone
Management Act, Endangered Species Act, Marine Mammal
Protection Act? Does the language somehow supersede these
statutes?
Ms. Burton. Absolutely not, Mr. Chairman. We will comply
with all those statutes because they are also referred to and
expressed in the OCSLA, and this is an amendment to the OCSLA
that adds, does not subtract. So we will have to follow all of
those.
Mr. Rehberg. Do you believe that the state and local
governments will continue to play an important role, and do you
have an relationship with them now?
Ms. Burton. They will continue to play a role under the
Coastal Zone Management Act. We will continue to work with
them. If the Committee feels that there has to be more
consultation, we are perfectly willing and amenable to any
direction on this issue.
Mr. Rehberg. Thank you. Before I pass it along to you, Mr.
Kind, I would like to point out under unanimous consent, if
there is no objection, if Mr. Delahunt were to come back and
would like to sit at the dais as a member of the Subcommittee,
we would allow him to do that.
Mr. Kind, do you have any questions?
Mr. Kind. Thank you, Ms. Burton. Thank you for your
testimony here today.
I need a little clarification, because there seems to be a
conflict in statutory interpretation within the Administration.
If our records are correct and our memory serves us well, I
believe last July when you were here testifying on H.R. 5156,
you indicated that renewable energy protection projects,
including wind energy projects, on the OCS are not currently
covered on existing statutes and that there currently is no
legal authority to permit these type of projects, and maybe the
Attorney General can help me out on this as well, but in the
pending case before the Federal Court in Boston, the Department
of Justice is taking a different interpretation and instead is
saying that Section 10, in fact, does apply and that is all the
permitting process that is required, is through Section 10.
So there is a little bit of confusion between the left hand
and the right hand in the Administration. Maybe you can shed a
little light on that for us today.
Ms. Burton. Mr. Chairman, this is a delicate subject
because we are in litigation. So I won't be able to expand very
much on that, but suffice it to say that we are not saying
there is no authority to do this today under a Section 10
permit. What we are saying is that there is not one agency that
has the overarching management of the land today and that it
becomes very difficult to know that all precautions have been
taken to make sure everything is done correctly.
Also, we need to coordinate and to make sure that the
private investor who comes to do that is being guided properly
to the right permits, to the right agencies, and also we need
an agency that will have responsibility for monitoring the
project all the way to its very end.
So it is not just a matter of a permit. It is a matter of
the life of a project and who is going to watch over the
Federal interest and the state interest in those projects.
Mr. Kind. But you understand the dichotomy we are kind of
faced with here. Under your testimony again here today, if you
feel Section 10 doesn't grant you the authority for the
permitting process, then why are we allowing a project to move
forward under a Section 10 analysis?
Ms. Burton. Mr. Chairman, I don't think I said that. The
Section 10 does give authority to grant permit to the Corps of
Engineers. All I am saying is that we feel there has got to be
more for the life of the project and that it would be easier to
have everything in one agency and possibly one that has
experience and expertise in managing those projects offshore.
Mr. Kind. Got it. Thank you.
Mr. Rehberg. Additional questions?
Mr. Souder.
Mr. Souder. Do you see any reason to delay the permitting
process until the release of the U.S. Oceans Commission and Pew
Oceans Commission reports?
Ms. Burton. Mr. Chairman, I think we are all waiting for
that report anxiously, and we know that at that time it will
have to be analyzed; it will have to be looked at, and that may
change some things. But the report is due this summer or early
summer. It will take for the Administration and Congress to
analyze the report and to decide if new legislation is needed,
and we may be two, 3 years before there are effective changes.
There are issues today, as witness the Cape Winds example,
that need to be addressed. So we feel that we need to move and
do something now. It may have to be amended later when that
commission report comes in and is fully analyzed, but we don't
think we should wait.
Mr. Souder. Will the environmental impacts will be
adequately studied?
Ms. Burton. Sir, the environmental impact, if this bill
were to pass, will be studied as they are now for oil, gas,
sand, gravel, any minerals offshore. So yes, there would be a
very serious review of environmental impact.
Mr. Sounder. Relating to Congressman Delahunt's concerns,
when you say the environmental impacts will be studied, would
that include the impact on any marine sanctuaries that are
adjacent or are pending proposals, and would it also include
potential impact on economic revenues in an area such as
tourism? I mean, the visual impact of the wind farms are
substantially different than oil rigs even.
Ms. Burton. Mr. Chairman, the impact will be determined and
studied under the NEPA process, and you know this is a very
comprehensive process. So yes, all of this will be looked at.
Mr. Souder. And that includes economic impact on an area?
Ms. Burton. I am afraid I can't answer that specifically,
but I do believe that there is a provision for it in NEPA.
Mr. Souder. I would hope, and I am less familiar -- I am
from Indiana, and so I am less familiar since we have 3 percent
public land in the entire state, counting township and
counties, than a lot of the westerners are, but I would hope
because it goes both directions in energy projects and in
environmental projects that just like when we add public lands,
we look at what economic impact that has, that when we do
energy things, we look at economic impact too, because these
things cut both directions.
Ms. Burton. Right, and, Mr. Chairman, I do believe there is
a segment of NEPA that addresses economic impact.
Mr. Souder. Thank you.
I yield back.
Mr. Rehberg. Thank you. Understanding that you ran out of
time before you had an opportunity to give your opinion on 794,
H.R. 794, would you like to give a brief opinion on that
particular legislation?
Ms. Burton. I will try, sir. Thank you very much.
H.R. 794 is the Coal Leasing Amendment Act of 2003. I don't
need to remind anybody that coal is produced in very large part
off Federal land, 40 percent of it and about 400 million tons.
It is substantial.
BLM had a group that studied the Mineral Leasing Act to see
whether or not it needed to have some amendments, and it came
up with some amendments. I will go through them very quickly.
The Department supports, generally supports, the bill. It
supports the repeal of the current 160-acre limitation to lease
modification. We believe that this is a very important
provision and a good one.
We agree with the provision allowing the Secretary to
determine whether a mine could be continued for more than 40
years if more coal is to be recovered. We support the changes
to the requirements of advance royalty to provide coal
operators more flexibility to meet their diligence
requirements. It would extend the number of advance royalty
years from 10 to 20, and the Secretary would have to
flexibility there. So we think it is a good change.
The law today requires that a mine submit a plan within 3
years after leasing. We feel that very often this is a waste of
time for both the staff and the operator and the requirement
would be abolished by this law. We support that very much.
Bonding is an issue and it is an issue that concerns
everybody. The bill, 794, proposes to abolish bonding
requirements for the bonus bids, and we do support that. It
does not at this point propose abolishing bonding for the
option of the mine, but just for the bonus bids, and we support
that, but I need to let you know that the bonding task still
working on the issue, and their report is not final yet, and we
would be happy to work with you when that report comes out.
And finally, we support the objective of a Federal coal
resource inventory and impediment assessment; however, I am
here to tell you that the bill gives the BLM 2 years to do it
and the BLM just doesn't have the resources and people and
funds to do it in 2 years. So if that is going to be done, they
would appreciate some reconsideration of this particular issue.
I appreciate the opportunity to say a few words on this,
Mr. Chairman, and I would be happy to try and answer some
questions.
Mr. Rehberg. Thank you.
Are there questions from the Committee of Ms. Burton on
H.R. 794?
Mr. Pearce.
Mr. Pearce. Thank you, Ms. Burton and Mr. Chairman.
Can you go a little bit more into the surety bond process,
the fact that they are not available, meaning that a bidder
must put up the total bid in cash equivalent. What is the
outcome of that going to be on Federal and state revenues? Our
state, New Mexico, has a tremendous amount of coal leasing
land.
Ms. Burton. Right. Mr. Chairman, what is proposed here is
to do away with bonding requirements on bid, meaning that a
company would have to either pay cash up front, which could be
a problem, but they could still defer payment as they do today.
They would have 5 years to pay for their bid. There wouldn't be
a bond required, but if they were to default, then BLM would
take back the lease and the money that had already been paid
would stay with the state and the Federal Government, and the
lease could be put back in the market and could be bid on
again.
In other words, the bonding is replaced by the collateral
of the lease. You would take the lease back if the operator
defaults. This is how it would work. Now, how would it impact
the state or the Federal Government? It would obviously
abbreviate the revenue that were anticipated from that
particular lease sale, but you could put the lease back on the
block, so to speak, and then you would get a second bid, sell
it to another company. So in the very end, you get more money
because you keep whatever they paid before they defaulted. Then
you get the second sale, which would bring back a new amount of
money.
So there would be a gap in the revenue between the time
that the company defaults and the lease is repossessed, so to
speak, and the time it is sold again, but there would be at the
end of the second sale additional money.
Mr. Pearce. Mr. Chairman, when businesses do that in real
estate, we call them slum lords. Are you suggesting that we are
going set up a process in the Federal Government where we are
going to depress the initial bid price and then hope that
companies are not able to carry through and the Federal
Government would enjoy some economic gain because of the
inability?
Have you taken full comments from business on this?
Ms. Burton. We have, Mr. Chairman, and at this point, I
don't think we are too concerned about that. We are going to be
conducting the business as we normally do, and I don't think
that is an issue that we are going be very worried about.
Mr. Pearce. Thank you, Mr. Chairman.
Mr. Rehberg. Are there any questions from the minority?
Mr. Faleomavaega.
Mr. Faleomavaega. Thank you, Mr. Chairman.
I basically plead ignorance in terms of the provision on
794, but something did catch my attention in terms of the
forgiveness of debts to the Federal Government. Can you
elaborate on that?
Ms. Burton. I am sorry, Mr. Chairman. I am afraid I did not
understand the question.
Mr. Faleomavaega. There is a provision in 794 that allows
forgiveness of loans or some kind of debt owing to the Federal
Government by these companies. Is there a provision in that
proposal, in 794, that addresses that issue?
Ms. Burton. Mr. Chairman, not that I am aware of.
Mr. Faleomavaega. Advance royalties.
Ms. Burton. Oh. The advance royalties is a different issue,
Mr. Chairman. The advance royalties are paid by a company that
cannot continue producing every year for whatever reason, and
they can continue to keep their lease by paying advance royalty
to the Secretary, and the advance royalty will be paid based on
the spot market when they have exhausted the number of years
allowed for them to do that.
If they never produce again, the Federal Government is
really ahead because it kept all these advance royalties when
the coal was not produced. If they produce after that, then
they will get credit for what they have paid ahead of time.
So no, sir, we don't forgive debts. The company is taking a
chance, if you will, when they pay advance royalty without
production, and the chance they are taking, the risk they are
taking, is maybe they will never be able to produce again. But
that is their decision.
Mr. Faleomavaega. I gather that the Department keeps very
excellent records in terms of the provisions of the royalties
and amount of profits that are made by the companies. For how
many years has this been done through this Mineral Leasing Act?
Ms. Burton. I am not sure I know the answer to that, but it
is has been done a long time on the 10 year. Now we are
extending it to 20 years through the lease life.
Mr. Faleomavaega. Well, I am sure this is not just
something that happened just 10 years ago. We have been doing
this for many, many years.
Ms. Burton. That is correct.
Mr. Faleomavaega. My only thought here is that if the
office has been able to keep good records in terms of royalties
owing not only to the Federal Government, but whatever is owing
to these companies, unlike a very serious problem we have with
the Native Americans, their royalties and the leases of their
lands that companies have been using for how many years, and we
can't even find the money in the Department in terms of what is
owing to the Native Americans who have interests in these
tracts of lands.
I was just curious if we do better recordkeeping with the
leases as they go on to the mineral resources than we do with
the Native Americans, what is expected to be gotten for them.
Ms. Burton. Mr. Chairman, this is really a different
system, because in this case, we know who the lessee is and we
keep track per lessee. In the issue of the Native Americans,
MMS collects the money, collects the royalty, but does not
distribute it to individual Indian owners. We don't know who
they are. That goes to the Bureau of Indian Affairs.
So I can't speak for them or what they do, but I can speak
for us and we keep very good records. We have audits. Every 3
years, everything is audited. Every year, the books are audited
by an outside entity, and I assure you we do keep good records.
Mr. Faleomavaega. Thank you.
What surprises me, Mr. Chairman, if we do it with this area
in our lease program, then I am very disappointed that we
couldn't do the same for the funds needed by the Native
Americans. It ranges somewhere from two to ten billion dollars
that is owing that the Department of Interior has not kept good
records. I mean, this is ridiculous.
Thank you, Mr. Chairman.
Mr. Rehberg. Thank you.
Mr. Cole.
Mr. Cole. Thank you, Mr. Chairman. I actually want to
follow up on a question my colleague on the other side raised
just for a little specificity. This legislation impacts lands
that we do hold in trust for Native American tribes. Have any
tribes expressed any opinion on 794 so far as you know, and has
their opinion been solicited?
Ms. Burton. Mr. Chairman, I cannot answer that question. I
do not know the answer, but I would be happy to find an answer
and get it back to you.
Mr. Cole. I would appreciate that very much. Thank you.
Ms. Burton. You bet.
Mr. Rehberg. Additional questions on the minority side?
I would like to follow up with one last question then.
Surety bonds are not available now. Doesn't this cause a
reduction in bonus bids in the future of coal lease sales
resulting in a significant loss in revenue to states like
Montana and the Federal Government?
Ms. Burton. The fact that companies cannot find bonds is a
real, real problem, Mr. Chairman. It is a problem not just for
coal. It is a problem for oil, gas offshore. It is a problem
for lots of people. We are studying that today, and that
certainly has been a problem for industry.
What this bill attempts to do is alleviate that problem
somewhat by not requiring bonds for bidding, but the bonds will
still be required for operations, and we are awaiting a bonding
task force report that will, I hope, give us some options, and
we are working with the bonding market as well as industry to
find solutions. It is definitely a problem.
Mr. Rehberg. Great. Thank you very much for being with us.
Mr. Faleomavaega?
Mr. Faleomavaega. I just again plead a layman's ignorance
in the very important proposed legislation that we have with
us. On page 4 of the H.R. 794, subparagraph B, line 1 does say
under Section 39 we are amending something here that would
allow or authorize the Secretary of the Interior, at least if I
correctly read the proposal here, is to allow the Secretary of
the Interior to waive, suspend, or reduce the advance
royalties.
Is this something that would enure to the benefit of the
government? Are we giving something away that should belong to
the people?
If I read this correctly, it allows the Secretary of the
Interior to forgive certain royalties owed to the U.S.
Treasury. That is my reading of this provision here. Can you
elaborate on this a little more?
Ms. Burton. Mr. Chairman, I don't think I can elaborate on
that specifically. There might be someone else who can in here,
but again, this is something I would need to get back to you
on.
Mr. Faleomavaega. Please.
Ms. Burton. The bill, generally speaking, is designed to
give a little more flexibility to the Administration in order
to give industry a better hold on producing the coal. The
bottom line is that this Administration would like to have more
production of energy, coal being one of the major fuels that we
use.
So with more flexibility, we can provide more help to
industry to go and produce more coal, but I don't think that I
can answer your question specifically, and I would appreciate
if you would let me get back to you in writing.
Mr. Faleomavaega. I would really appreciate it if you could
submit that for the record.
Ms. Burton. I sure will.
Mr. Faleomavaega. Thank you, Mr. Chairman.
Mr. Rehberg. Ms. Burton, we will excuse you now and thank
you for appearing before our Subcommittee.
We will now invite Mr. Reilly, Mr. Smith, Mr. Bailey, and
Mr. Shelly, Panel No. 3.
Mr. Cannon. [presiding] Thank you all. We appreciate your
indulging us as we shift chairs for just a moment. Mr. Rehberg
will join us shortly and take over the Chair.
We appreciate this panel for joining us. We have the
Honorable Tom Reilly, the Massachusetts Attorney General. Thank
you for joining us; Mr. Eric Smith, Vice President for
Strategic Planning, Global Industries, Inc. Thank you, Mr.
Smith. We have Mr. Bruce Bailey, the President of AWS
Scientific, and Mr. Peter Shelley, the Vice President of the
Conservation Law Foundation. Thank you.
Mr. Reilly, if you would like to begin your testimony, we
would appreciate that now.
STATEMENT OF HON. TOM REILLY, MASSACHUSETTS ATTORNEY GENERAL
Mr. Reilly. First of all, my name is Tom Reilly. I am the
Attorney General for Massachusetts. I want to thank the
Committee for the courtesy of allowing me to appear and testify
before you on this very important issue. I have submitted
written testimony with supporting documents and certainly will
rely upon that.
I want to use the time that I have, realizing that it is
limited, to focus on a few specific points. The first is that
there is certainly no question that we have to develop new
sources of energy. It is vital for our economy and our national
security and certainly for the protection of our environment.
There is also no question in our mind that wind energy presents
very exciting possibilities and must be part of that effort.
But I am here today to tell you that there is a right way
to do things, and there is a right way to develop renewable
energy. It includes planning. It includes respect for our
national treasures. It includes respect to the rights of the
state. It requires a set of rules and regulations which will
guide the development of wind energy, and that is not what is
happening now.
Exhibit No. 1, case study, what is happening is a proposal
to build an offshore wind plant in Nantucket Sound, and I won't
repeat what Congressman Delahunt so eloquently described as the
beauty of Nantucket Sound. I would urge you to visit it. I
would urge a little bit of a wait. It has been a very harsh
winter even by Montana standards.
But it is beautiful, beautiful area. It is absolutely
fantastic body of water, situated right off of Cape Cod and
between the scenic islands of Nantucket and Martha's Vineyard.
It has been a historic treasure for our state and all of New
England. People from all of over the world come and enjoy its
scenic beauty and its recreational opportunities. It has been
considered so important by our state that we have designated
the entire sound as a protected ocean sanctuary.
Tragically, unless Congress acts and acts quickly,
Nantucket Sound is about to be violated in a major, major way.
There is a proposal with a full head of steam by Cape Wind
Associates which is proposing to build a large wind power plant
smack dab in the middle of Nantucket Sound. If you can
visualize it, 130 wind turbines over 400 feet in the air. They
are going take up over 24 square miles of pristine waters, and
those 24 square miles are about to be turned over to a private
developer -- a private developer -- for no compensation to the
state or Federal Government. No compensation. No competition.
One person. One private developer.
This is the first project of this kind offshore in this
nation. It will be, if it goes ahead as planned, the largest
wind energy facility in the entire world. This is not the way
that renewable energy should be developed, and this is not the
precedent that we want to establish as to how we are going to
go about this process, but that is exactly what is about to
happen.
The Army Corps of Engineers has been very clear about this,
and they recently have told unless Congress acts, this project
is moving forward. I think it is clear and I don't think anyone
can question that Federal law as it exists today is
insufficient and there is a gaping loophole that one private
developer is taking advantage. Congress and only Congress can
close this loophole and stop this project now.
And when I say Exhibit 1 and people say it is provincial,
what does that have to do with the other states and the rest of
the country, this isn't just Nantucket Sound. If it can happen
here, it can ham anywhere up and down our coastlines, and you
will see exhibits, dozens of them. There are 22 proposals now
as people see a wind rush with no rules, no regulations unless
Congress steps in.
And that is why I am here today and that is why I am here
before this Committee, this Subcommittee. I am asking you to
step in and set a framework for development that takes into
consideration the rights of a state that are impacted
dramatically, as this will be, and bring in the types of rules
and regulations and safeguards that you would build in. This
wouldn't happen anywhere. Any other type of development would
be put under some type of rules and regulations and certainly
oversight which is not happening here.
I will close by saying that H.R. 793 is certainly a good
starting point. I have worked long and hard, and I want to
thank Congressman Delahunt for his leadership and his efforts,
but I do believe we need more. We need a mechanism for
identifying in advance, not ad hoc, in advance what are the
appropriate sites. We need a process for soliciting competing
proposals. We need compensation, compensation for state and
Federal Government, and we need a meaningful role where states
like Massachusetts or any other state that is impacted
dramatically by a project of this sort.
So this is Nantucket Sound and it is beautiful and it is
gorgeous and it is important to New England and certainly to
Massachusetts. It is a national treasure like the Grand Canyon
to us, but we are asking you to step in with rules and a
framework that will strike the proper balance as we go forward.
Thank you very much for you consideration.
[The prepared statement of Mr. Reilly follows:]
Statement of The Honorable Thomas F. Reilly, Attorney General, State of
Massachusetts, on H.R. 793
Thank you Congressman Delahunt, for that kind introduction and for
your leadership on this issue.
Good morning, Chairman Cubin, Ranking Member Kind, and members of
the Committee. I very much appreciate the opportunity to testify before
you today on this extremely important issue--the appropriate
development, permitting and siting of alternative sources of energy.
There is no question that the sensible development of new sources
of energy is one of the most important energy matters facing us today.
Indeed, offshore wind projects present exciting possibilities for the
development of renewable energy resources. The controversy surrounding
a recent proposal to build a large wind energy facility in Nantucket
Sound, however, highlights the immediate need to develop a meaningful
process at the Federal level to carefully review these types of
proposals.
Let me start by giving you a frame of reference for the debate--the
proposal to build an offshore wind energy facility in Nantucket Sound.
First, for those of you who aren't from New England--Nantucket
Sound is a body of water 163 square nautical miles in size, situated
between Cape Cod, and the islands of Martha's Vineyard and Nantucket.
Massachusetts has historically revered Nantucket Sound as a vital
national treasure--not unlike the Grand Canyon and other national
parks. The Sound is renowned for its natural resources, marine
habitats, scenic beauty and extensive recreational outlets--and
Massachusetts has designated the entire Sound, as well as much of the
Massachusetts coastline as a protected Ocean Sanctuary.
With that context in mind--I turn to the specific proposal of Cape
Wind Associates to illustrate one project that seems to have generated
the largest head of steam so far--at least in New England. Cape Wind
has proposed to develop a wind energy facility consisting of:
130 wind turbines
spread over 24 square miles
in the middle of the Sound, only
4 + miles off the coast of Cape Cod
The proposed facility would occupy 15% of the entire Sound and
would literally be surrounded by (and within 2 miles in some directions
of) the area that Massachusetts has designated as a protected Ocean
Sanctuary. This would be the first project of its kind in the nation,
and to date, the largest offshore wind energy facility in the world.
Chairman Cubin, your leadership in recognizing that Federal law is
insufficient to appropriately license and site proposed wind energy
facilities is admirable. And your timing in directing your attention to
this issue now is critical, since the Army Corps of Engineers recently
told the Cape Cod Times that, without legislation or:
``unless Cape Wind pulls its application, the process [of
permitting the Cape Wind proposal] will move forward.''
It is imperative that no proposals to site such offshore facilities
be permitted until Congress has had the opportunity to establish
national policy to govern them. To allow otherwise will effectively
lead to a gold rush--or wind rush--if you will. Developers such as Cape
Wind Associates are taking advantage of a perceived loophole in the law
before Congress has time act. In addition to the 130 turbines proposed
in Nantucket Sound, another company is proposing to build wind farms on
22 separate sites along the east coast, and published reports estimate
that in New England alone, proposed wind developments are now valued at
$615 million,
Elsewhere, according to published reports, Florida Light and Power
plans a project that, upon completion, would cost $4.7 billion and
increase wind generation this year by at least 25 percent. These
proposed projects--and many likely in the future--highlight the
importance of a rational planning process.
We should not allow the permitting of offshore projects to move
forward with such haste that we risk siting large-scale wind projects
in areas that--with proper deliberation--we may determine to be
inappropriate.
Such an approach is consistent with Federal policy with respect to
other offshore projects. As you know, Section 1701 of that Federal Land
Policy Management Act establishes that:
``the national interest will be best realized if public lands
and their resources are periodically and systematically
inventoried and their present and future use is projected
through a land use planning process coordinated with other
Federal and State planning efforts.''
The Bill that you have introduced--H.R. 793--certainly provides a
good starting point for a national policy. I respectfully suggest,
however, that an appropriately comprehensive regulatory scheme must
include--at a minimum--
a mechanism for identifying--in advance--appropriate
sites for developing offshore wind energy facilities that provide the
greatest source of energy with the least damage to the environment and
do not pillage our most treasured natural resources;
a process for soliciting competing proposals for
renewable energy facilities in the same locations;
compensation to the government for the value of the
license; and
meaningful state input throughout the process.
I have worked with Congressman Delahunt on this issue, and my
office stands ready to assist the Subcommittee in any way that you deem
helpful and appropriate as you craft this crucial national policy.
______
Mr. Cannon. Thank you very much, Mr. Reilly, and what we
will try to do is just give a little tap of the mallet as you
get at the end of the timeframe so that we all can move
forward, and you can finish your thoughts. We don't mean to
shut everything off, but if you will finish your thought and
try to draw it to a close, then I think we are going to have a
pretty aggressive questioning period where you can elaborate on
the ideas that you all have on the panel.
So thank you very much, Mr. Reilly.
Mr. Smith, would you favor us with your comments?
STATEMENT OF ERIC SMITH, VICE PRESIDENT FOR STRATEGIC PLANNING,
GLOBAL INDUSTRIES, LTD.
Mr. Smith. Thank you, Mr. Chairman, members of the
Subcommittee. I appreciate the opportunity to testify here
today on H.R. 793. It is a bill to provide authority to the
Secretary to grant easements or rights-of-way for energy-
related projects on the OCS.
I am the Vice President of Global Industries, one of the
companies that builds things on the OCS. I am also a member of
the Board of Directors of NOIA, National Ocean Industry
Association. NOIA is the only trade group that speaks for all
of the companies that participate in the OCS. We have 300
members who range from drillers to producers to developers to
engineering firms to folks who provide marine transportation,
air transportation, offshore construction, equipment
manufacturing, pretty much the gamut of activities that occur.
This testimony is submitted on behalf of NOIA as well as
DPC, the IPAA, IADC, and NGSA. These are other trade groups
that have an interest in what happens on the OCS. We all work
together to explore and produce hydrocarbon energy resources
from the Nation's Outer Continental Shelf in an environmentally
responsible manner.
Global itself provides offshore construction, engineering,
and support services, including pipeline construction, platform
installation and removal, diving services for the oil and gas
industry in the Gulf of Mexico and around the world. We are a
leading provider of offshore services with 20 construction
barges, 22 lift boats, 17 dive boats, and 15 support units
around the world. A large portion of those operate in the Gulf
of Mexico today.
The domestic offshore natural oil and gas industry
generates nearly $4 billion in revenue for the Federal Treasury
every year. We produce something like 13 billion cubic feet of
natural gas and 1.3 million barrels of oil a day. We also have
over 4,000 fixed structures installed in the Gulf. We have
installed over 6,000 and removed over 2,000. There is also
31,000 miles of pipeline, pipeline rights-of-way that exist and
are monitored by the MMS with very stringent rules about what
you have to do if you want to cross one of them, for example.
All told, there are more than 170,000 jobs associated with
the OCS and in the offshore oil and gas production industry. So
in our business, we are well acquainted with the Federal
process required of companies operating on the OCS.
The U.S. Minerals Management Service implements, also, the
Outer Continental Shelf Lands Act, and it regulates our
activities to ensure that we produce natural gas and oil for
the Nation in a safe and environmentally sound manner; however
there are several energy-related projects under discussion for
the offshore that are not clearly covered under the Outer
Continental Shelf Lands Act as currently constituted.
In order to continue to supply the United States with
natural gas and oil, our industry has moved into deeper waters
of late. Today, over half of the oil that is produced off of
the Outer Continental Shelf is produced from deep waters, a
thousand feet or greater. That wasn't true 10 years ago. It
wasn't true 5 years ago.
The offshore oil and gas industry is contemplating
ancillary projects offshore that would directly support this
OCS oil and gas development in deep water. These projects may
include developing offshore staging facilities, emergency
medical facilities, supply points, a whole variety of support
structures which will keep the time and support costs to a
minimum for these facilities that may be out in 8,000 feet of
water and over 200 miles from shore.
Unfortunately, no Federal agency currently has a statutory
authority to permit these ancillary facilities; therefore, our
industry finds a regulatory black hole as we discuss possible
future developments with our clients and with the various
interested Federal agencies. H.R. 793 will fill that statutory
gap for those structures, those activities not already covered
by authority, and would give the Secretary of the Interior the
authority to permit and oversee these energy-related activities
on the Outer Continental Shelf.
Current natural gas and oil operations will unavoidably be
affected by anything that is added to that offshore universe,
those 4,000 platforms and 31,000 miles of pipe. It is a finite
area, and as I say, whether it is a wind farm or a solar
facility or whatever, it is going to need to be installed. It
is going to need to have umbilicals and service lines
connecting it back to the shore, and those will unavoidably
cross other rights-of-way that exist and are monitored by the
MMS.
Our industry interest is 793 is substantial. We are
uniquely suited to comment on this positive impact it could
have for continued safe and productive offshore operations. We
commend the Administration and you, Mr. Chairman, for allowing
us to speak.
[The prepared statement of Mr. Smith follows:]
Statement of Eric Smith, Vice President, Strategic Planning, Global
Industries, Ltd., on behalf of the National Ocean Industries
Association, Domestic Petroleum Council, Independent Petroleum
Association of America, International Association of Drilling
Contractors, and Natural Gas Supply Association, on H.R. 793
Madam Chairman and Members of the Subcommittee, I appreciate the
opportunity to testify here today on H.R. 793, a bill to provide
authority to the Secretary of the Interior to grant easements or
rights-of-way for energy-related projects on the Outer Continental
Shelf (OCS). I am the Vice President for Strategic Planning of Global
Industries, Ltd., and a member of the Board of Directors of the
National Ocean Industries Association (NOIA). NOIA is the only national
trade association representing all segments of the offshore energy
industry. The NOIA membership comprises more than 300 companies engaged
in activities ranging from producing to drilling, engineering to marine
and air transport, offshore construction to equipment installation,
manufacture and supply, and geophysical surveying to diving and
remotely operated vehicle operations.
This testimony is submitted on behalf of NOIA, the Domestic
Petroleum Council, the Independent Petroleum Association of America,
the International Association of Drilling Contractors, and the Natural
Gas Supply Association. We all work to explore for and produce
hydrocarbon energy resources from the nation's Outer Continental Shelf
in an environmentally responsible manner.
Global Industries Ltd. provides offshore construction, engineering
and support services, including pipeline construction, platform
installation and removal, and diving services, to the oil and gas
industry in the Gulf of Mexico and around the world. We are a leading
provider of offshore construction services, with 20 construction
barges, 22 liftboats, 17 dive support vessels, and 15 support vessels.
Of these, 9 construction barges, 22 lift boats, 7 dive support vessels,
and 4 support units operate in the Gulf of Mexico.
The domestic offshore natural gas and oil industry generates nearly
$4 billion annually for the Federal treasury in bonuses, rents and
royalties. Our industry produces approximately 13 billion cubic feet of
natural gas and 1.3 million barrels of oil from the Outer Continental
Shelf per day. In the Gulf of Mexico, our industry works from
approximately 4,034 offshore platforms, and more than 31,000 miles of
pipeline have been installed. And, more than 170,000 Gulf region jobs
result directly from the offshore exploration and production industry.
In our business, we are well acquainted with the Federal processes
required of companies operating on the Outer Continental Shelf. The
U.S. Minerals Management Service implements the Outer Continental Shelf
Lands Act, regulating our activities to ensure that we produce natural
gas and oil for the nation in a safe and environmentally sound manner.
However, there are several energy-related proposals under discussion
for the offshore that are not clearly covered under the Outer
Continental Shelf Lands Act.
In order to continue to supply the United States with natural gas
and oil, our industry has moved into the deep water of the Gulf of
Mexico. The offshore oil and gas industry is contemplating ancillary
projects offshore that would directly support OCS oil and gas
development, particularly in these deep water areas. These projects may
include developing offshore staging facilities, emergency medical
facilities, and supply facilities. However, no Federal agency currently
has the statutory authority to permit these types of projects.
Therefore, our industry finds ourselves in a regulatory black hole as
we discuss possible future projects with our clients and the different
Federal agencies, and try to determine the appropriate and legal means
to proceed. H.R. 793 would fill that statutory gap for those activities
not already covered under some other statutory authority, and would
give the Secretary of the Interior the authority to permit and oversee
these energy-related activities on the Outer Continental Shelf under
the Outer Continental Shelf Lands Act.
Current natural gas and oil operations would be directly affected
by any approvals granted under the proposed legislation, whether the
new approvals were to support existing offshore operations or for
alternative energy projects. Our industry's interest in H.R. 793 is,
therefore, substantial, and we are uniquely suited to comment upon the
positive impact it could have for continued safe and productive
offshore operations.
We commend the Administration for its efforts in transmitting this
proposed legislation to Congress in support of the National Energy
Policy Initiative, and thank you, Madam Chairman, for sponsoring the
bill. This legislation would authorize the Secretary of the Interior to
grant easements or rights-of-way for projects to support development in
the deep water areas of the Outer Continental Shelf. Under the bill,
the Secretary would also be able to authorize renewable energy
projects, such as wind, wave and solar energy. The proposed legislation
would provide clarity to potential new and innovative energy-generating
OCS operators, identifying the agencies, laws, and regulations with
jurisdiction over their proposals.
We support this grant of authority to the Secretary of the Interior
to manage activities on the Outer Continental Shelf that are not
currently covered under existing authorities. The Secretary, through
the Minerals Management Service, currently manages natural gas and oil
operations on the Outer Continental Shelf These operations constitute
more than 25% of our nation's daily natural gas and oil production. The
agency's experience in overseeing the construction, installation,
operation, and eventual removal of thousands of offshore facilities and
pipelines, the granting of rights-of-way, the conducting of
environmental reviews under the National Environmental Policy Act, not
to mention coordinating approvals among all interested Federal and
state agencies, make it clear that the Department of the Interior and
the Minerals Management Service are uniquely qualified to manage and
regulate these alternative energy-related activities, as well.
This concludes my prepared remarks. I will be happy to answer any
questions.
______
Mr. Cannon. Thank you, Mr. Smith.
Mr. Bailey, if you would like to present your testimony.
STATEMENT OF BRUCE H. BAILEY, PRESIDENT, AWS SCIENTIFIC, INC.
Mr. Bailey. Thank you and good morning, Mr. Chairman and
members of the Subcommittee.
My name is Bruce Bailey. I am the president of AWS
Scientific based in Albany, New York. I am also on the Board of
Directors of the American Wind Energy Association. My 20-year-
old firm provides wind energy consulting services to some of
the country's most progressive energy companies which are
building wind farms all across America.
Wind energy holds the distinction of being the world's
fastest growing electricity-generating technology as well as
being one of the lowest cost renewable energy sources. Over the
past 2 years, I have had the good fortune of working with
several public and private organizations interested in offshore
wind energy. They include Cape Wind Associates, the
Massachusetts Technology Collaborative, Northeast Utilities,
the Connecticut Clean Energy Fund, the New York State Research
and Development Authority, and the Long Island Power Authority
or LIPA.
On behalf of LIPA and over 30 civic and environmental and
faith-based groups, I led the siting team to identify the
targeted area for a hundred megawatt offshore wind farm south
of Long Island which is planned for construction within the
next 4 years. We have had several discussions with the U.S.
Army Corps of Engineers, the Coast Guard, the FAA, and other
agencies to identify relevant authorities and the logistics of
permitting and environmental reviews. The single offshore wind
project will generate enough clean energy to satisfy the needs
of over 30,000 Long Island homes for next 30 years.
Offshore wind power has the potential of providing a
significant portion of the electricity requirements of coastal
states. Indeed, about 54 percent of the country's population
lives in coastal areas; however, many coastal states are in
short supply of appropriate on-shore sites for large-scale wind
development. So, consequently, turning to the sea is the only
option for states to make wind power a meaningful part of their
energy mix. Many coastal areas, including Long Island, are also
transmission constrained. So using the sea as an alternative
path for electricity delivery helps relieve transmission
congestion and avoids the need for expensive grid upgrades.
I would like to address a few issues specifically involving
H.R. 793 and the future of wind energy development on the OCS.
First, recognizing wind energy as a national asset, offshore
wind energy development offers significant benefits to the
Nation's energy economy, the environment, and national
security. The bill's goal of expediting projects to increase
the production and transmission of energy like wind on the OCS
is welcomed.
Second, payments for easements and rights-of-way, if
Congress deems it appropriate, the wind industry is willing to
make fair payments for easements and rights-of-way just as it
already does for projects on land. The bill appropriately
leaves the method of determining payment amounts to the
discretion of the Secretary.
Due to the long lead time and millions of dollars required
to determine the commercial viability of wind resources at any
specific offshore site, it is imperative to leave an incentive
for private initiative in proposing offshore commercial wind
projects. For much the same reason, the Bureau of Land
Management recently announced its interim wind development
policy which includes the first come review of wind projects
proposed by private industry on public lands at prescribed
royalty rates as the preferred method with bidding for sites
selected and tested for commercial viability by the Government
as a secondary option. At this early and entrepreneurial stage
of the offshore wind industry, the same treatment is
appropriate here.
Third, transitional issues, is it requested that the
offshore wind projects already underway not be disadvantaged by
new rules that would cause unnecessary and expensive delays or
the need to begin a new application process. Considerable
effort has already been taken to work with state and Federal
agencies to fulfill permitting requirements in an
environmentally responsible way.
And finally, implementation, it is also requested that the
implementation of this bill not inadvertently impose new
barriers in the permitting approval process for offshore wind
projects. Rather, it is desired that the process become more
orderly and predictable.
Our country's demand for energy sources continues to grow
as does the public's appetite for cleaner sources of energy.
Offshore wind energy is an untapped resource that holds great
promise, especially for coastal states that have very limited
opportunities for wind development on land due either to land
use competition or relatively weak wind resources. By
facilitating development of environmentally responsible wind
projects on the Outer Continental Shelf, the many benefits of
clean wind power can be realized by a greater portion of the
American public.
I thank you for your attention.
[The prepared statement of Mr. Bailey follows:]
Statement of Bruce H. Bailey, President, AWS Scientific, Inc., Albany,
New York, on H.R. 793,
Chairman Cubin and members of the Subcommittee, my name is Bruce
Bailey. I am the president of AWS Scientific, Inc., based in Albany,
New York. I am also on the Board of Directors of the American Wind
Energy Association. My 20-year old firm provides wind energy consulting
services to some of the country's most progressive energy companies.
These companies, which include EnXco, FPL Energy, Renewable Energy
Systems, Zilkha Renewable Energy, and Atlantic Renewable Energy, are
building wind farms all across America. Wind energy holds the
distinction of being the world's fastest growing electricity generating
technology as well as one of the lowest cost renewable energy sources.
Over the past two years I've had the good fortune of working with
several public and private organizations interested in offshore wind
energy. They include Cape Wind Associates, the Massachusetts Technology
Collaborative, Northeast Utilities, the Connecticut Clean Energy Fund,
the New York State Energy Research and Development Authority, and the
Long Island Power Authority (LIPA). On behalf of LIPA and over 30
civic, environmental and faith-based groups, I led the siting team to
identify the target area for a 100 MW offshore wind farm south of Long
Island, which is planned for construction within the next four years.
We have had several discussions with the U.S. Army Corps of Engineers,
the Coast Guard, the FAA, and other agencies to identify the relevant
authorities and the logistics of permitting and environmental reviews.
This single offshore wind project will generate enough clean
electricity to satisfy the needs of over 30,000 Long Island homes for
the next 30 years.
Offshore wind power has the potential of providing a significant
portion of the electricity requirements of coastal states. Indeed,
about 54% of the country's population lives in coastal areas. However,
many coastal states are in short supply of appropriate onshore sites
for large-scale wind development. Consequently, turning to the sea is
the only option for states to make wind power a meaningful part of
their energy mix. Many coastal areas, including Long Island, are also
transmission constrained, so using the sea as an alternative path for
electricity delivery helps relieve transmission congestion and avoid
the need for expensive grid upgrades.
Wind power applications on land are technologically mature and
reliable, and in windy areas they are cost-competitive with
conventional energy sources. Worldwide, the wind is satisfying the
electricity needs of over 30 million homes. Wind can also be a major
electricity provider, as evidenced in Denmark which derives 18% of its
electricity needs from the wind. Wind energy can provide a number of
local, regional and national benefits as well. The U.S. Department of
Energy's Wind Powering America initiative states that wind power ``can
help the United States achieve targeted regional economic development,
protect the local environment, reduce air pollution, lessen the risks
of global climate change, and increase energy security.'' Some specific
advantages of wind power:
It is clean and inexhaustible. A single large-scale wind
turbine can displace over 2,000 tons of carbon dioxide, 14 tons of
sulfur dioxide, and 8 tons of nitrogen oxides (based on the U.S.
average utility generation fuel mix). In California alone, wind plants
effectively save the energy equivalent of nearly 5 million barrels of
oil per year, and unlike oil, it is renewable year after year without
incurring fuel costs.
It promotes local economic development. Wind energy
provides more jobs per dollar invested than any other energy
technology. And major manufacturers like General Electric are investing
heavily in developing world-class wind turbine designs tailored for
offshore applications. Wind plants throughout America also increase
property tax revenues for local communities while providing another
source of income to landowners who lease their land for wind
development.
It is modular and scalable. Wind applications can take
many forms, including large wind farms, distributed generation, and
singe end-use systems.
It promotes energy price stability. By further
diversifying the energy mix, wind energy reduces dependence on
conventional fuels that are subject to price and supply volatility.
Europe's pursuit of offshore wind development, which began over 10
years ago, is being demonstrated as a viable way to realize the
benefits of wind energy while avoiding the barriers to its use posed on
land in coastal areas. By the end of this decade, thousands of
megawatts of offshore wind power will be built off the shores of the
United Kingdom, Germany, Denmark, and other countries. The most recent
offshore project--known as Horns Rev and having a generating capacity
of 160 MW--was commissioned last fall off the west coast of Denmark.
Interest in offshore opportunities in the U.S. is growing rapidly, as
evidenced by projects in Massachusetts and New York that are in the
advanced stages of planning.
I would like to address a few issues specifically involving H.R.
793 and the future of wind energy development on the outer continental
shelf:
Recognizing Wind Energy as a National Asset: Offshore
wind energy development offers significant benefits to the nation's
energy economy, environment, and national security. The bill's goal of
expediting projects to increase the production and transmission of
energy like wind on the Outer Continental Shelf is welcomed.
Payments for Easements and Rights-of-Way: If Congress
deems it appropriate, he wind industry is willing to make fair payments
for easements and rights-of-way, just as it already does for projects
on land. The Bill appropriately leaves the method of determining
payment amounts (i.e., whether by specified rates or competitive
bidding) to the discretion of the Secretary. Due to the long lead-time
and millions of dollars required to determine the commercial viability
of wind resources at any specific offshore site, it is imperative to
leave an incentive for private initiative in proposing offshore
commercial wind projects. For much the same reason, the Bureau of Land
Management recently announced its Interim Wind Development Policy,
Inst. Memo No. 2003-020, which includes the ``first come'' review of
wind projects proposed by private industry on public lands, at
prescribed royalty rates, as the preferred method, with bidding for
sites selected and tested for commercial viability by the Government
(at taxpayer expense and risk) as a secondary option. At this early and
entrepreneurial stage of the offshore wind industry, the same treatment
is appropriate here. Unlike oil or natural gas facilities, offshore
wind plants will not extract any finite fuel source from the Outer
Continental Shelf where the wind is naturally replenished.
Transitional Issues: It is requested that offshore wind
projects already underway not be disadvantaged by new rules that would
cause unnecessary and expensive delays or the need to begin a new
application process. Considerable effort has already been taken to work
with state and Federal agencies to fulfill permitting requirements in
an environmentally responsible way.
Implementation: It is also requested that the
implementation of this bill not inadvertently impose new barriers in
the permitting approval process for offshore wind projects. Rather it
is desired that the process become more orderly and predictable.
Our country's demand for energy sources continues to grow, as does
the public's appetite for cleaner sources of energy. Offshore wind
energy is an untapped resource that holds great promise, especially for
coastal states that have very limited opportunities for wind
development on land, due either to land use competition or relatively
weak wind resources. By facilitating the development of environmentally
responsible wind projects on the outer continental shelf, the many
benefits of clean wind power can be realized by a greater portion of
the American public. Thank you.
______
Mr. Rehberg [presiding]. Thank you.
Mr. Shelley.
STATEMENT OF PETER SHELLEY, VICE PRESIDENT, CONSERVATION LAW
FOUNDATION
Mr. Shelley. Thank you, Mr. Chair, and members of the
Subcommittee. My name is Peter Shelley. I am with the
Conservation Law Foundation, a regional environmental advocacy
organization in the New England area, founded in 1966. I am
also pleased to be here on behalf of the Union of Concerned
Scientists, the Natural Resources Defense Counsel and
Environmental Defense. I would ask that a copy of our full
statement be introduced into the record of the Subcommittee.
Mr. Chair, our groups are committed to ensure that critical
renewable energy development occurs in a timely manner, occurs
in the right locations, occurs subject to terms that fully
project the public interest and through processes that ensure
ample public input. To that end, we urge Congress to establish
a comprehensive statutory framework for offshore renewable
energy development.
However, we do not see H.R. 793 as the vehicle for
developing that framework and urge that the Subcommittee reject
this bill as it is currently written. H.R. 793 fails to specify
the appropriate balances between industrial activities and our
coastal waters and stewardship of shelf's invaluable living
resources and other public values.
H.R. 793 improperly grants jurisdiction over a broad range
of potential new industrial activities to an agency with little
core expertise in these technologies or policies, and H.R. 793
improperly mixes unrelated extractive and non-extractive
industries in one statutory framework, threatening to
overregulate some activities and underregulate others.
I would like to spend some time addressing for the
Subcommittee some of the core principles that we feel should be
in any comprehensive legislation that should go forward for
renewable energy development. First, we do believe this
legislation should wait and be informed by the reports of the
President's U.S. Commission on Ocean Policy and the Pew Oceans
Commission. Both of these bodies are likely to make very
important recommendations both in terms of the government
institution who should be involved in the marine resource
issues as well as some of substantive programs, including
renewables.
Second, we think that offshore renewable energy development
is fundamentally different from oil and gas extraction and
related oil and gas extraction activities and should be
regulated separately such as was done with the Ocean Thermal
Energy Conversion Act. The legislative purpose of such
legislation should be to establish a comprehensive regime to
promote appropriate offshore renewable energy development while
minimizing harm to the environment and mitigating unavoidable
harms.
We feel that Interior Minerals Management Service is not
the right agency for the task of regulating offshore renewables
which falls more within the core competencies of NOAA or
perhaps the National Ocean Service. We believe that project-
specific reviews and permitting should fully include state
agencies and the Governors of the states in the process. We
believe that ocean renewable energy projects should be fully
subject to all applicable Federal law. Any financial
obligations or lease assignments associated with renewable
leasing arrangements -- and we do prefer leases to govern these
activities at this point to easements or rights-of-way --
should be tailored to the different nature and the state of
maturity of the offshore renewable industry; and finally,
sitings should avoid all designated marine protected areas as
well as physical or biologically unique or important areas, not
just national marine sanctuaries as is specified in H.R. 793
currently.
Finally, we would like to collectively state that because
of the imperative need to develop renewable wind energy as well
as what we feel is a comprehensive environmental review process
currently in place and being applied to all projects, that
there is no need for Congressional moratoria on these projects.
It is simply not needed.
In conclusion, on behalf of our members, we ask that this
Committee reject H.R. 793 and offer our assistance to the
Committee staff and others to develop legislation that
approaches offshore renewable regulations separately, directly,
and in a positive light.
Thank you very much.
[The prepared statement of Mr. Shelley follows:]
Statement of Peter Shelley, Conservation Law Foundation, on behalf of
The Conservation Law Foundation and the Union of Concerned Scientists,
on H.R. 793
Madame Chair and Members of the Committee, thank you for this
opportunity to appear before you today to present testimony on H.R.
793. My name is Peter Shelley. I am a Vice President of the
Conservation Law Foundation, directing CLF's Rockland, Maine Advocacy
Center. CLF is the oldest and largest regional environmental advocacy
organization in the nation. I have worked extensively on marine issues
at CLF, including landmark cases on fisheries management, the pollution
of Boston Harbor, and Outer Continental Shelf oil and gas leasing
proposals.
I am pleased to be here to testify on behalf of CLF and the Union
of Concerned Scientists (UCS), a nonprofit organization of more than
60,000 citizens and scientists working for practical environmental
solutions. For more than two decades, UCS has combined rigorous
analysis with committed advocacy to reduce the environmental impacts
and risks of energy. UCS' energy program focuses on encouraging the
development of clean and renewable energy resources, such as solar,
wind, geothermal and biomass energy, and on improving energy
efficiency.
We are committed to ensuring that environmentally important
renewable energy development occurs in a timely manner, in the right
locations, subject to terms that fully protect the public interest, and
through processes that ensure ample public input. To that end, we
believe that Congress should establish a comprehensive statutory
framework for offshore renewable energy development, and we stand ready
to assist Congress in whatever way appropriate to develop and enact
such legislation.
As much as our organizations want to see the promotion of timely
and environmentally responsible renewable energy projects on the Outer
Continental Shelf (``OCS''), we cannot support H.R. 793. This piece of
legislation is fundamentally flawed and should not be supported by the
members of this Subcommittee. The proposed legislation fails to strike
an appropriate balance between industrial development of the coastal
marine system and protection of its invaluable living marine resources;
it grants broad jurisdiction to an agency without expertise in the
requisite areas of marine policy and regulation; and it would require
substantial modification before it could serve as an appropriate
framework for offshore renewable energy development.
H.R. 793 is substantially identical to H.R. 5156, legislation that
was introduced and failed in the last session as a result of widespread
opposition. In its current form, H.R. 793 grants unprecedented
jurisdiction to the Secretary of the Interior over future permitting
and rights of way for virtually all energy and energy-related
activities on the OCS, mixing together renewable energy projects with
unrelated fossil fuel facilities and activities. While we salute the
fact that this bill recognizes offshore renewable energy development as
important, a bad bill in this area is worse than no bill at all.
Rather than simply registering our objections to H.R. 793, however,
we would like to provide the members of the Subcommittee with an
affirmative view of what a regulatory framework for offshore renewable
energy projects should look like and what form the Federal legislation
creating such a framework should take.
Any legislation of this kind should be informed by the findings and
reports of the U.S. Commission on Ocean Policy and the Pew Oceans
Commission on Ocean Zoning, which are due to be released this year.
Both Commissions are expected to make critical strategic
recommendations on this Nation's ocean policy, including the siting of
renewal energy projects on the Outer Continental Shelf. In light of the
high relevance of these studies to marine protection and siting issues
inherent in offshore renewable energy development, it seems premature
to go forward with legislation before knowing the outcomes of these
studies.
That said, I would like briefly to present some core principles on
which we believe any statutory framework for offshore wind, wave, and
tidal energy projects should be based. These principles are
complimentary to existing Federal law, as many of them are derived from
existing Federal schemes including the Ocean Thermal Energy Conversion
Act (OTEC Act):
1. LOffshore renewable energy (wind, wave, and tidal energy)
development is fundamentally different from oil and gas extraction and
related activities, and therefore should be subject to a separate
statutory framework. Impacts of offshore renewable energy projects are
generally limited to the installation and dismantling of structures
that are attached to the seabed. Once in operation, renewable energy
projects have minimal impacts and risks compared to oil and gas
operations.
2. LThe purpose of offshore renewable energy legislation should be
to establish a comprehensive regime to permit and promote development
of appropriate wind, wave, and tidal energy projects in a manner that
minimizes harm to the environment and provides proper mitigation of
unavoidable harms.
3. LThe Department of the Interior/Minerals Management Service
(MMS) should not be the principal Federal agency overseeing offshore
renewable energy.
4. LOversight of offshore renewable energy projects in the oceans
should include a leading role for Federal agencies with a direct marine
regulatory and habitat protection mission, including the National
Oceanic and Atmospheric Administration (NOAA) and the National Marine
Fisheries Service (NMFS).
5. LProject-specific reviews and permitting processes should
include state environmental and marine resource agencies and governors
from affected states.
6. LConstruction of an offshore renewable energy project should be
fully subject to existing Federal law, including the National
Environmental Policy Act (NEPA), the Coastal Zone Management Act
(CZMA), the Endangered Species Act (ESA), the Marine Mammal Protection
Act (MMPA), and the Magnuson-Stevens Fisheries Conservation and
Management Act.
7. LAny financial obligations that come from renewable leasing
arrangements should be appropriate for renewable energy applications,
which differ from conventional resource projects, are non-extractive,
and have lower environmental impacts and risks than other offshore
facilities based on extractive industries.
8. LSiting of renewable energy projects should be avoided in areas
on the Outer Continental Shelf that meet the definition of a Marine
Protected Area (MPA) contained in Executive Order 13158 (65 Fed. Reg.
34909 (May 26, 2000)) (``any area of the marine environment that has
been reserved by Federal, State, territorial, tribal, or local laws or
regulations to provide lasting protection for part or all of the
natural and cultural resources therein'') and in areas that contain
biologically or physically unique or sensitive marine habitats.
9. LOffshore renewable energy legislation should authorize term-
limited leases, rather than easements or rights of way, for eligible
offshore energy projects.
10. LLeases for offshore renewable energy projects should be
assigned on a basis that considers factors including the following:
minimum environmental detriment, timely commencement of operation,
maximum net energy impact, and lower initial installation and
operations and maintenance costs to the extent that such differentials
may significantly affect the ultimate cost to the consumer.
Measured against these principles, H.R. 793 falls far short of the
mark and should be rejected by the Subcommittee.
While we would support legislation that incorporated these
principles and promoted the findings of the U.S. Commission on Oceans
and the Pew Oceans Commission on Ocean Zoning, I want to clarify that
our organizations do not believe that Congress should impose an
economically and potentially environmentally damaging moratorium on
offshore wind development pending enactment of such a comprehensive
statutory framework.
The absence of a Federal asset management framework for renewable
energy does not compromise environmental protection of the OCS and its
resources from the impacts of development. Given existing permitting
authority and environmental regimes, it would be a mistake to put
review of offshore wind proposals on hold. Together with the National
Environmental Policy Act, the Army Corps of Engineers' Section 10
regulations provide clear authority to conduct a comprehensive
environmental review process and to issue permits after consultation
with all relevant agencies and entities. If these authorities are used
together, and used thoughtfully and in combination with state
environmental reviews, we believe they provide an adequate process
until appropriate legislation can provide additional clarity and
establish a process for addressing various aspects of a developer's
relationship with the Federal Government, such as leases and royalties.
Timely development of wind energy is imperative in light of
dramatic current and future damage caused by power plant emissions and
the importance of wind energy as a means of mitigating that damage. In
New England, for example, wind power represents about three-fourths of
the region's renewable energy potential and is considered a critical
component to the region's strategy to combat global warming.
Specific concerns about H.R. 793
As I mentioned, we are very concerned about H.R. 793 because it
would grant unprecedented jurisdiction to the Secretary of the Interior
over future permitting and rights of way for virtually all energy and
energy-related activities on the Outer Continental Shelf (OCS). The
Department of Interior's record in managing the nation's offshore oil
and gas program and in preventing that program from damaging our
environment is, unfortunately, not one we would like to see emulated
for other types of offshore energy development. We are particularly
concerned that this bill would provide a shortcut mechanism by which
proponents of a wide range of commercial-scale projects could
circumvent existing Federal jurisdictions and sidestep longstanding
requirements for appropriate environmental review of the full range of
energy facilities and activities in the marine environment.
It appears this bill would not only grant Interior/MMS jurisdiction
over offshore wind generation, wave energy, and other ``alternative''
energy projects, but also significantly expand and centralize Interior/
MMS jurisdiction over new types of offshore hydrocarbon facilities such
as at-sea floating and stationary marine terminals, gasification
plants, and subsea pipelines. This new authority would be created over
and above the new jurisdiction for the Department of Interior that was
established only last year over Liquefied Natural Gas (LNG) facilities
in the adopted amendments to the Deepwater Ports Act.
In addition, it appears that H.R. 793 would establish broad, open-
ended Interior/MMS authority over a range of additional unidentified
``support'' facilities associated with offshore oil and gas
development, such as offshore floating oil storage and processing
facilities. In this regard, H.R. 793 could create a regulatory ``end
run'' for many types of offshore activities that are otherwise subject
to the jurisdictional protections of the present Presidential OCS
Deferrals and the long-established bipartisan legislative OCS
moratorium provisions.
On behalf CLF and UCS, we urge the members of this Subcommittee to
reject this bill as written. Any legislation governing offshore
renewable energy projects should be separate and apart from legislation
affecting oil and gas activities on the OCS, and should strike an
appropriate balance between promoting offshore renewable energy
development and protecting the resources of our marine environment.
H.R. 793 fails to do so.
Thank you for the Committee's attention to these matters.
______
Mr. Rehberg. I thank the members of the panel. If you will
bear with us, we have a series of at least one, perhaps two,
votes. We will get back as quickly as we can and we will open
up it up for questions that we might have of you.
So if you could bear with us, and we will begin as soon as
I get back. Thank you.
[Recess.]
Mr. Rehberg. All right. Why don't we start.
Question for Mr. Reilly: Doesn't the OCS Lands Act which
House Resolution 793 would amend require state and local
participation in activities affecting the state's coastal zone?
Mr. Reilly. It does allow for that. It is unclear exactly
how this is going to happen here, and it is still outside that
three-mile limit. It certainly impacts the coastal zone, but
what exactly the role is going to be, how much importance is
going to be given to it, and simply as well, you know, in terms
of the way this goes about, this is not what the Army Corps of
Engineers does in terms of their area of expertise and interest
and focus. They are going to be focused on the navigational
aspects of it.
Mr. Rehberg. You suggest identify appropriate offshore wind
energy sites in advance. Who would identify these sites and how
might the selection process work?
Mr. Reilly. I believe that you could select, certainly, the
agency, but putting it under the Coastal Zone Management Act
with a meaningful role for certainly the state and particularly
in an area as close as this to do the siting, to do the
planning, and to go about it in a logical and a rational way.
But I believe that the Coastal Zone Management is the
appropriate vehicle.
Mr. Rehberg. OK. The legislation allows the Secretary of
the Interior to set the compensation to the Government for the
easement or right-of-way by rule or through negotiations with
the lessee. Do you think that is the right way to go? Do think
that is sufficient, or do you believe that these fees should be
set by legislation?
Mr. Reilly. I think these fees should be tied to fair
market value unless there is specific reasons why you would not
follow that. Certainly, I would be in favor of encouragements
and particularly with the development of renewable energy and
take into consideration certain benefits that would go into it,
but fair market value and one of the most important factors is
competition, that there be a competitive process and that is
how you will find fair market value.
Mr. Rehberg. I understand you have a plane to catch, and I
have no further questions.
Mr. Delahunt.
Mr. Delahunt. Yes. Thank you, Mr. Chairman, and I want to
extend my gratitude to Attorney General Reilly. You are making
us proud, Tom, in terms of protecting the people of
Massachusetts and particularly this resource that truly is a
national treasure.
I think it is important, Mr. Chairman, to note also, and we
have not yet had an opportunity to sit down with the Governor
of the state, the newly elected Governor whom of course Mr.
Cannon knows quite well because of his connection to Utah, and,
Mr. Chairman, he also happens to be a Republican, but he
recently made public statements regarding this specific
proposal, that he shares the same perspective that Mr. Reilly
and myself do regarding the Cape Winds proposal.
I again want to emphasize that the Attorney General and I
are looking forward to sitting down with the Governor and have
him reaffirm his public statements to us that we can work
together to protect the people, not just in Massachusetts, by
the way, but on both coasts and maybe even up the Mississippi.
Who knows? I am not really familiar with that issue.
But I would also ask unanimous consent to introduce a
report that I commissioned that was conducted by the Center for
Coastal Studies located in Provincetown, and it is entitled
``The Review of State and Federal Marine Protection of the
Ecological Resources of Nantucket Sound'', and if the Chair
would indulge me, I am just going to read very quickly an
excerpt, again to underscore the particular value of this body
of water.
``Nantucket Sound contains significant ecological,
commercial, and recreational resources that have been at the
heart of several past nominations for enhanced environmental
protection and conservation policies within the region. The
biological diversity and unique habitat areas of Nantucket
Sound led the state, the Commonwealth of Massachusetts, to
nominate the area for national marine sanctuary status in
1980'', a long time before the application was filed by the
entity known as Cape Wind. The resources of Nantucket Sound
were again deemed worthy of consideration for national marine
sanctuary status by the Resource Evaluation Committee appointed
by the National Marine Sanctuary program in 1983.
These resources are equally significant today, and I would
hope you and other members would have the time and the
opportunity to read this report which I think speaks eloquently
of why Attorney General Reilly and myself are here today.
Mr. Rehberg. Thank you very much.
Mr. Delahunt. Thank you.
Mr. Rehberg. Thank you. If you need to leave, please do.
Mr. Smith, under the status quo, how would you go about
applying for permits for energy-related projects not covered by
the OCS Lands Act?
Mr. Smith. I think our natural tendency would be to go to
the MMS and say who should we be talking to on this particular
issue, we see where it fits partly into MMS, but perhaps the
Corps of Engineers has a role to play and frequently does on
the Gulf Coast.
I was making the point earlier that in Massachusetts right
now, there is a pipeline project ongoing using equipment that
would be typically seen in the Gulf of Mexico, and as I
understand it, the basis of the code, if you will, for building
that pipeline started out with the MMS rules which were then
modified for use by the State of Massachusetts.
Mr. Rehberg. Do you see a value in having one agency with
the lead role?
Mr. Smith. Absolutely. I don't see how it is possible to go
out in an area certainly one as developed as the Gulf of Mexico
and start putting in rights-of-way and pipelines and power
cables and other structures without having some context and
some understanding of what is already there. MMS has very
strict rules about how you approach pipeline crossings, for
example, how much separation, whether it is buried or not, what
permission you need from the title holders to the existing
line. All of that needs coordination.
Mr. Rehberg. Mr. Bailey, will you answer the same question?
Do you see a value in having a single agency take the lead role
in energy permitting?
Mr. Bailey. Yes. I can see some value in having one agency
take sort of lead authority. I say it that way because the
current process is very rigorous in terms of environmental
scrutiny and looking after the public interest. Siting and
permitting of offshore wind projects fall under the
jurisdiction of the Army Corps of Engineers, and the number of
other Federal agencies as well as state agencies who have to be
involved in this process does require rigorous review and
scrutiny.
So we feel that it is not essential to have MMS step in as
an overseeing body. We see that it can facilitate the process
and give more clarity and predictability to it, but the process
right now, we don't feel is broken.
Mr. Rehberg. Mr. Shelley, H.R. 793 specifically says that
nothing shall be construed to displace, supersede, limit, or
modify the jurisdiction responsibility or authority of any
Federal or state agency under any other Federal law. Doesn't
this fully address the situation of offshore renewable energy
under the existing Federal law? I guess I don't understand what
the concern is.
Mr. Shelley. Mr. Chair, we just wanted to reemphasize that
all those statutes should continue to apply to this new
development activity as well as other activities related to oil
and gas development. We wanted the legislative history to be
clear on that point.
Mr. Rehberg. OK. It also says that it shall not apply to
any area outside the Outer Continental Shelf designated as a
marine sanctuary. Doesn't this address your concern about the
national marine sanctuaries?
Mr. Shelley. The national marine sanctuary program is
actually quite a limited program in the United States. It was
frozen at a certain point by Congress and in our view doesn't
reflect all of the areas that are really entitled and deserving
of special protection. So that is why we have spoken in terms
of President Bush's executive order designating marine
protected areas, as well as really wanting to put an emphasis
on some of the unique resources that could be irreversibly
harmed in a siting process.
So national marine sanctuaries are a subset, Mr. Chair, but
not fully sufficient.
Mr. Rehberg. At this point, I would ask if there were any
other questions of any Committee members, but clearly there
must not be. So I will excuse this panel and thank you all for
coming, and any additional material you would like to have put
into the record, please do so at this time or feel free to at a
later date.
At this time, I will invite Mr. Quinn and Ms. Kendall.
Mr. Rehberg. I thank you both for joining us today, and I
would like to introduce Ms. Sara Kendall, Washington Office
Director, Western Organization of Resource Councils, and Mr.
Harold Quinn, Senior Vice President, Legal and Regulatory
Affairs and General Counsel, National Mining Association.
Why don't we begin with Mr. Quinn.
STATEMENT OF HAROLD P. QUINN, JR., SENIOR VICE PRESIDENT, LEGAL
& REGULATORY AFFAIRS AND GENERAL COUNSEL, NATIONAL MINING
ASSOCIATION
Mr. Quinn. Thank you, Mr. Chairman.
Thirty years ago in the wake of the 1973 oil embargo,
attention was focused upon the development of our Nation's vast
coal resources, especially our Federal coal reserves as a
source of fuel for our domestic energy needs. Back then,
despite vast reserves under Federal leases, the relatively few
Federal leases that were in production accounted for only 3
percent of our national production.
Today, we again face questions about the security and
reliability of our Nation's energy supply. For Federal coal,
the questions about its role and capability have largely been
answered. The critical role of Federal coal and the coal
industry's capability to produce it reliably and affordably has
been realized. Today, coal produced from Federal leases
accounts for almost 40 percent of all domestic production, and
with electricity requirements predicted to rise by 40 percent
in the next two decades, Federal coal will need to assume a
greater role in the energy equation. In order to meet this
challenge, we should now decide whether to change existing
leasing policies which thwart the most efficient and orderly
development of our Federal coal resources.
A number of the existing leasing policies embodied in the
Mineral Leasing Act were established to address concerns and an
industry structure of a different era. The industry, its
market, and price structures are substantially different now
than they were 25 years ago when the Mineral Leasing Act was
amended substantially in 1976.
Allow me just to address a few of those structural issues
and differences that bear on that legislation before you.
First, substantially more coal is produced from substantially
fewer mines today. Coal prices in both nominal and real terms
have declined substantially and consistently since the early
1980's. The average mine size is three times larger than 25
years ago, and in turn, the life of mines must be longer in
order to justify the substantial capital investment required to
compete in today's marketplace.
Larger mines with longer lives require more coal reserves
to replace those depleted; however, in the last decade, the
reserves owned or leased at producing mines continues to
decline as reserves are not being replaced at a rate which
keeps pace with production. H.R. 794 would provide the changes
to leasing policy that are required to accommodate the
operating flexibilities necessary today, extend the life of
those mines, and preserve the high-paying jobs as well as the
tax and royalty revenue stream those mines provide the Federal
and state governments.
In the interest of time, I won't address all the sections
or provisions of H.R. 794, but I will address a number of those
that I heard questions about this morning. First, the lease
modification process: The law allows the addition of coal
contiguous to an existing lease on an emergency or expedited
basis. This process affords the opportunity to add nearby coal
that might otherwise be bypassed if not mined while the
operations are in that vicinity; however, the current law
places a 160-acre limit on the amount of land that can be added
in this manner over the entire life of the original lease. This
limit seems arbitrary since it does not appear reasonably
related to geological or other circumstances that would dictate
the addition of greater amounts of Federal coal that might be
bypassed permanently if not mined in conjunction with the mine
plan for the existing operations.
Removing the acreage limit would not provide an open
invitation to add any amount of coal desired. The decision to
approve the use of this expedited leasing mechanism would still
be subject to the findings that the Government will receive
fair market value, there is no competitive interest in leasing
the area, and that the area itself could not support and
independent operation.
Advance royalties: The law requires that a lease commence
production in commercial quantities within 10 years. After this
so-called due diligence milestone is reached, the lease must
continue producing coal annually at minimum commercial quantity
rates of 1 percent of the coal reserves or pay advance
royalties in lieu of production; however, the law currently
imposes a 10-year limit on the number of years one can pay
advance royalties for the entire life of the lease. Operations
are idle from time to time when, for example, the mine loses
its customers, its competitive position is eroded by changes in
cost structure due to new or changed regulatory requirements,
increases in labor, fuel, or material costs, or unanticipated
geological conditions that increase mining costs.
Once the 10-year limit has been reached, the operator has a
difficult choice, either forfeit the lease and the investment
or produce the minimum quantities and sell that production at
distressed prices. Neither choice is desirable from an economic
standpoint. First, if the operator produces coal to avoid
forfeiture of the lease and its investment, the coal will
likely be placed on the market at distressed prices which harms
other producers competing in the marketplace. The amount of
coal pushed into the market can be substantial since the
minimum commercial quantities for many Federal leases exceeds
the annual production for most mines in the United States.
Second, if the operator forfeits the lease, the
investments, jobs, Federal and state revenue generated by the
operation will be lost.
There is one other feature that deserves some attention
that I will address today on the advanced royalties. Advanced
royalties paid in the first 20 years cannot be credited against
subsequent production produced during the next 20-year term.
This artificially inflates the effective royalty rate on
subsequent production to twice the otherwise applicable rate.
In the case of surface coal mines, it will be 25 percent,
underground coal mines, 16 percent.
I see my time is out, but let me just conclude with one
final word about the revenues these mines provide to the
Federal and state local governments. Production of Federal coal
generates more than $330 million annually in Federal coal
royalties with half of that being shared with the states. In
addition, these mines pay abandoned mine land taxes, black lung
taxes, and an assortment of state severance and sales taxes.
Placed in perspective, a large surface coal mine in Wyoming,
for example, that would produce 67 million tons of coal
annually has a payroll or supports a payroll of $50 million,
purchases about a hundred million dollars in goods and services
each year, pays $14 million in state severance taxes, $13
million in black lung taxes, $23 million in AML taxes, and more
than $41 million in Federal royalties. Quite apart from the
essential fuel these mines with Federal coals leases supply for
our Nation's energy needs, I think these are the types of
investments everyone should see as worthy of supporting and
preserving.
Thank you, Mr. Chair.
[The prepared statement of Mr. Quinn, Jr. follows:]
Statement of Harold P. Quinn, Jr., Senior Vice President, Legal &
Regulatory Affairs and General Counsel, The National Mining
Association, on H.R. 794
My name is Harold P. Quinn, Jr. I am appearing here on behalf of
the National Mining Association (``NMA''), to testify on the critical
role coal resources on Federal lands have in providing a reliable and
affordable supply of energy to sustain our economy and Nation's well
being. More specifically, I am here to provide the reasons why the
National Mining Association supports H.R. 794, the ``Coal Leasing Act
Amendments of 2003,'' introduced by Chairman Cubin. Thank you for the
opportunity to express the mining industry's views on this subject and
legislation.
General Introduction
The National Mining Association (NMA) represents producers of over
80% of America's coal--a reliable, affordable, domestic fuel that is
the source of over fifty percent (50%) of the electricity used in
America. NMA's members also include the producers of metals and non-
metal minerals, manufacturers of processing equipment, machinery and
supplies, transporter of coal and mineral products, and engineering,
consulting and financial institutions serving the mining industry.
Federal Coal and Its Contribution to the Nation's Energy Security
Coal accounts for approximately one-third of the United States'
primary energy production, the largest portion of any energy source.
About 35% of the nation's coal production is from mines located on
Federal lands. The Energy Information Agency (EIA) is predicting that
electricity use will increase by over 40% by 2020, which in turn will
require a 28% increase in coal production. A substantial portion of the
coal production needed to meet this increase will come from Federal
lands.
Currently, over one third of our coal reserves are owned or
controlled by the Federal Government. More than 70% of the coal
production in the western United States comes from mines located on
Federal lands. Moreover, a majority of privately held western coal
reserves are effectively controlled by Federal land policies as a
result of land ownership patterns that place state and private coal
reserves nearby Federally owned coal.
There is no question that our Nation will require more energy in
the future to fuel economic growth. We will use energy more efficiently
due to technological advances, conservation and increased efficiency.
But, we will use more energy. Meeting this demand with reliable
affordable and secure sources will be a challenge, but a challenge that
can be met with the correct policies that enhance the role of all
domestic energy sources, including those found on Federal lands. H.R.
794 embodies the very type of policy choices that must be made to meet
this challenge by adjusting Federal coal leasing polices to ensure that
our Federal coal resources can continue to play a critical role in our
energy future.
Background
The Mineral Leasing Act of 1920 (MLA) established a program for
leasing Federally owned coal for development subject to various terms
and conditions. The oil embargo of 1973 focused attention on the
question of domestic energy supplies including the development of the
Federal coal resource base. By the early 1970s, the amount of coal
under lease was four times the amount leased prior to 1960, but actual
production had not increased significantly. Apparently only about 10%
of the Federal coal leases were producing coal in an amount just
slightly more than 3% of the national total. This raised concerns about
the holding of vast coal reserves for speculation and whether the
government was receiving a fair return for the resource.
In 1976, after several administrative moratoriums on coal leasing,
Congress addressed these concerns with the passage of the Federal Coal
Leasing Amendments Act (FCLAA). FCLAA imposed a series of requirements
related to development time frames, land use planning, and royalty
rates for Federal coal leases. Many of these policies were based upon
forecasts of immediate spikes in coal demand and prices in the wake of
the 1973-1974 oil embargo. For example, FCLAA's legislative history
cites forecasts that predict coal demand reaching as high as 1.4
billion tons by 1980. Although the energy supply disruptions of the
early 1970s spurred development of western coal reserves, coal demand
never reached the level predicted, and coal prices actually declined in
real terms by $10 a ton in just 10 years following FCLAA's enactment.
In many respects, the coal leasing policies adopted in FCLAA were
intended to address a coal market and industry structure anticipated in
a different era. In the more than 25 years since FCLAA's enactment, the
coal industry has undergone a substantial restructuring in order to
survive a market and price structure that dictates flexibility and
efficiency. A combination of market forces and coal leasing policies
has reduced by 40% the number of Federal coal leases. A number of
features of the Federal coal leasing program today present impediments
to the most rational and efficient development of Federal coal
resources. The changes proposed in the Coal Leasing Amendments Act of
2003 address provisions of the MLA that: no longer reflect economic and
coal market realities; result in the bypass of nearby Federal coal
reserves; compel inefficient production; and reduce Federal and state
royalty revenues.
H.R. 794 recognizes the long lead times and extremely large capital
expenditures necessary to produce Federal coal in the most efficient,
low cost and environmentally sound manner. Moreover, it reflects the
very type of flexibility most private coal lessors retain in order to
assure that their coal resource can be fully developed so they can
maximize their return in the form of future coal royalty revenue.
Coal Lease Modifications
The MLA recognized that it might not always be possible to
determine all the lands to include in an initial lease due to geologic
uncertainty and that that an operating mine may need to add Federal
coal. In 1976, amendments imposed a limit of 160 acres for all such
modifications throughout the life of a lease. Section 2 of H.R. 794
would eliminate the 160 acre life-of-mine limitation on Federal coal
lease modifications. This would allow the Secretary to add small
quantities of non-competitive coal to an existing lease outside the
time consuming lease-by-application process. The lease modification
process facilitates the leasing of contiguous coal that might otherwise
be bypassed forever as the coal in question cannot support a stand
alone mining operation.
The Secretary s discretion in the granting of lease modifications
is not unfettered. 43 CFR 3432 allows the authorized officer to modify
the lease to include all or part of the lands applied for if it is
determined that: (1) the modification serves the interests of the
Untied States; (2) there is not competitive interest in the lands or
deposits; and (3) the additional lands or deposits cannot be developed
as part of another potential or existing independent operation. While
the lands could be added without competitive bidding, the government
would retain discretion to lease these tracts based upon its
determination whether it will receive the fair market value for the
lease of the added lands, either by cash payment or adjustment of the
royalty applicable to the lands added to the lease by the modification.
40 Year Mine-out Requirement
The Secretary should be given the discretion to allow the
consolidation of leased coal reserves into a logical mining unit (LMU)
that will require more than 40 years to mine. A logical mining unit may
include Federal leases as well as contiguous lands where the U.S. does
not own the coal. The purpose of an LMU is to allow the coal lessee to
achieve maximum economic recovery of Federal coal, as well as nearby
state and private coal, by combining these tracts of coal into one unit
for purposes of coordinating and meeting the diligent development and
continued operations requirements of the law. Current law requires that
the coal reserves of the entire LMU must be mined within a period of 40
years.
This change would allow long term efficiency and orderly
development of Federal, state and private coal and minimize the
premature closure of mines, the potential for bypassing nearby coal
resources, and the attendant loss of Federal and state royalty and tax
revenue. This proposal would not affect the existing requirement of
diligent development or continued operation.
Advance Royalties
The Secretary should be allowed to accept the payment of advance
royalties in lieu of continued operation for a total of 20 years, allow
the lessees to apply those paid royalties against actual production
beyond the initial twenty year lease term, and simplify the methodology
for computing advance royalties. This change would permit the Secretary
and Federal coal lease holders the flexibility to manage Federal coal
resources for maximum return to the Federal and state treasuries and
avoid the compulsion of production that is not warranted by market
conditions.
Federal coal leases are subject to the MLA's requirements of
``diligent development'' and ``continued operation.'' To meet the
diligent development requirement, a Federal lessee must produce the
commercial quantities of the recoverable coal reserves within the
initial 10-years of the lease. ``Commercial quantities'' is defined by
regulation as 1% of the recoverable coal reserves contained in a lease.
Failure to meet diligent development requirements results in the
termination of the lease. The diligent development requirement cannot
be postponed or substituted by the payment of advance royalties. H.R.
794 does not alter the existing diligent development requirement in the
MLA.
After the diligent development requirement is met, however, the
lessee must continue to produce coal in commercial quantities (i.e., 1%
of the recoverable reserves) during the remainder of the lease term.
This is commonly referred to as the continued operation requirement.
The law currently limits the flexibility to pay advance royalties in
lieu of production to ten years for the entire life of the lease. Once
that limit is reached, the lessee must either produce coal at the
commercial quantity level, notwithstanding economic and market factors,
or forfeit the lease.
Continued operation is not always possible if the coal producer
cannot mine coal at the prevailing market price. As a practical matter,
a lessee must spend tens of millions of dollars, if not hundreds, in
order to lease Federal coal, prepare and process permits, acquire
equipment, hire a labor force, and achieve diligent development.
Obviously, the mine operator desires to continue operating after the
significant costs to open the mine have been expended. However, a
currently operating mine may temporarily lose its competitiveness, due
to a number of factors, including: increased costs of production due to
geology; limited labor supply in rural areas; changes in prices for
competing fuels; changes in transportation costs; and changes in state
and Federal environmental regulations which affect either production
costs or the ability of customers to use the coal from that lease. When
one or more of these factors arise, an operation is generally idled and
when the market dictates, operations resume.
Advance royalties provide a royalty income stream for the
government while a mine is idled. However, the current 10-year limit on
accepting advance royalties constrains the lessee's flexibility in
operating the mine in accordance with prudent economic principles. With
the current life of many currently operating mines exceeding 25 years,
and the potential for many additional years of mining at the same
locations, the 10-year limit should be increased to 20 years.
When advance royalties are paid in lieu of continued operation,
those amounts can be used to offset production royalties due when coal
is again produced. At present, no advance royalty paid during the
initial 20-year term of a Federal lease or LMU may be used to reduce a
production royalty after the 20th year of that lease or LMU's initial
term. This arbitrary limitation should be removed in light of the
longevity of mines producing Federal coal.
When advance royalty is accepted in lieu of continued operation, it
is paid in the amount equal to the royalty that would be owed on the
production of 1 percent of the recoverable coal reserves. The royalty
on this production is calculated by selecting an assumed sales price
that reflects the value at which the coal would have been sold in the
market. Determining the appropriate sales price is a long and
contentious process. Establishing that the value on the basis of the
average price for coal sold in the spot market from the same region
would save considerable Federal and industry resources currently
expended over disputes on acceptable valuation methods, and more
accurately reflects the current market conditions that idled the mine.
Simply put, if the mine is idled, the coal is marginal and would find
its highest value in the spot market. If the actual sale price is
higher later when the coal is produced and sold, the difference is paid
at that time.
Due to the shifting competitiveness of various operations, several
Federal coal lessees have been forced temporarily to curtail production
and idle mines. Without the option of extending the lease by paying
advance royalties, producers will be forced to take one of three
courses of action: 1) prematurely terminating leases and walking away
from the massive existing investment; 2) pay advance royalties on older
leases with no opportunity to recover advance royalties; 3) dump coal
onto the market at distressed prices. All of these options will have a
negative impact on the Nation's energy position, disrupt coal and
electricity markets, waste Federal coal resources, cost jobs, and
reduce Federal and state tax and royalty income.
If leases are terminated, the probability of the lease being mined
again is small. Royalty income that would otherwise flow from the
payment of advance royalties would cease. Not only would jobs at the
subject mine be lost, but so would jobs in the mine support sector
(transportation, construction, vendors, consultants, and other jobs in
the community that support the miners and their families.) Coal that
otherwise would fuel electricity generation would remain in the
ground--wasted.
Paying advance royalties without ever recouping the payment would
result in the practical application of a 25 percent royalty on future
production. Even if the market could bear the price of coal burdened
with this levy, which is unlikely, electricity rates would ultimately
reflect this increase.
If Federal coal lessees produce this coal in order to recover at
least a portion of their capital and operating costs, it would compete
not just with other Federal coal from the West, but also private coal
in markets shared by private coal from the Midwest and Appalachia.
Failure to address these anachronistic provisions in the MLA will hurt
non-Federal coal producers in the Midwest and Appalachia. Modifications
to the advance royalty provisions do not favor Western coal over
Eastern coal or Federal coal over private coal. They just make good
sense for America's energy future.
Coal Lease Operation and Reclamation Plan
Under current law, before causing a significant disturbance of the
environment, but no later than three years of lease issuance a lessee
must submit for the Secretary's approval an operation and reclamation
plan. NMA supports the elimination of the three year mandate.
This change would allow the coal operator to coordinate the
preparation and submission of its MLA mine plan dealing with coal
resource recovery with the permit required under the Surface Mining
Control and Reclamation Act (SMCRA) which addresses the environmental
planning and protection measures. This will eliminate duplication of
resources by both the lessee and the Department while still requiring
the lessee/operator to submit a plan before it takes any action which
might cause a significant environmental disturbance as required
presently by the MLA.
Financial Assurances with Respect to Bonus Bids
This section clarifies that MLA does not require a bond in
connection with deferred bonus bids for coal leases. However, if the
lessee fails to pay any installment of a deferred bid, the lease would
terminate.
A combination of economic conditions and extraordinary events over
the past two years has caused severe constraints in the surety capacity
available to satisfy financial assurance requirements of the coal
mining industry. It is unlikely that in the near term adequate surety
capacity will be available to meet the mining industry's financial
assurance requirements. The mining industry's inability to access
surety for various financial assurance requirements imposed under
Federal and state regulatory programs is a product of severe
disruptions to the credit markets, and not a result of any unusual loss
experience associated with mining related projects. Indeed, the surety
industry loss experience for mining related bonds are no more, and
often less, than that for the other surety lines. Between 1989 and
2000, for example, the loss ratio for the entire surety industry was
about 28%, while the ratio for mining related obligations was about
25%. However, substantial losses that began to appear at the end of
2000 through 2002 in the surety industry's other underwriting lines of
business has resulted in the exit of many primary sureties from the
market and caused the remaining ones to limit their underwriting in all
areas. For the mining industry, the inability to access surety
jeopardizes the continuation of existing operations and thwarts
development of new operations since bonds are required as a condition
to receive permits or other necessary government authorizations.
Last summer, the House Resource Committee Subcommittee on Energy
and Mineral Resources conducted a hearing on this emerging crisis in
the surety market. The Subcommittee heard testimony describing how an
investment grade company was unable to access a surety bond at a
reasonable price and terms to secure its deferred bonus bid payments
for a Federal coal lease. Companies that cannot access surety bonds for
their financial assurance requirements must use cash or cash
equivalents which compromise their capital and liquidity positions. The
effect of these developments for the Federal coal leasing program is
that potentially fewer bidders will participate and bids will be lower
than before as companies factor in the higher expense of posting some
form of financial assurance. At the same time, not requiring a bond or
other form of financial assurance to secure future installments for a
deferred bonus bid does not pose any undue risk. First, bonus bids must
be paid in five installments with the first due upon execution of the
lease. Placing a lease into production typically exceeds five years so
the leasehold will remain largely undisturbed. If the successful bidder
defaults on an installment and is unable to cure that default, the
Department of the Interior can cancel the lease and the cancelled lease
resold to another prospective bidder.
In sum, this provision protects the government in the event of
default without further reducing the limited surety capacity available
to guarantee performance of other regulatory obligations.
Conclusion
Again, thank you for the opportunity to express the mining
industry's views on the critical role of Federal coal resources to our
Nation's energy security and how H.R. 794 will assist in ensuring that
those resources are produced in an orderly and efficient manner for the
benefit of all Americans.
______
Mr. Rehberg. Thank you.
Ms. Kendall.
STATEMENT OF SARA KENDALL, WASHINGTON OFFICE DIRECTOR, WESTERN
ORGANIZATION OF RESOURCE COUNCILS
Ms. Kendall. Good afternoon. My name is Sara Kendall. I am
the Washington Office Director for WORK, the Western
Organization of Resource Councils. WORK is a network of
grassroots organizations from seven western states. Many of our
members live and work in communities impacted by coal mining,
and most are taxpayers in coal-producing states.
We have worked for over 30 years to ensure that the
benefits of natural resource development are shared with the
local people and that Federal coal management takes into
account the needs of local people and communities to plan with
certainty for their futures.
WORK was one of the principal organizations advocating for
the passage of the Coal Leasing Amendments Act of 1976. This
Act was passed in direct response to a decade of rampant
speculation on Federal coal leases and enjoyed strong
bipartisan support of Members of Congress from coal-producing
areas.
I want to thank you for the opportunity to present our
views on H.R. 794. We are concerned that the broad changes
proposed in this bill would eliminate many of the requirements
Congress placed on the Federal coal leasing program to
encourage a fair return to Federal and state taxpayers for the
use of public minerals and promote the diligent development of
those minerals. I will focus on our three primary concerns with
the bill this morning.
First, by eliminating the 160-acre limit on lease
modifications, H.R. 794 would effectively allow mines to expand
indefinitely without having to bid competitively and make bonus
payments. In areas where there has been competition to secure
leases for the remaining unleased acreage, a coal company
seeking to expand its operation could submit a plan
modification for additional acreage and not have to compete for
the coal as is currently the case.
While there is some limits on the Secretary's discretion to
improve lease modifications, we believe that maintaining an
acreage limit is necessary to ensure that the lease by
application process remaining part of common practice in order
to ensure that the public's coal is properly valued. In
removing the acreage limit, we remove the incentive for lessees
to design tracts that are big enough and allow lease
configurations that split deposits that would be competitive as
a whole into a series of noncompetitive parcels that can be
added later without undergoing the competitive bid process. An
acreage limit helps ensure that the lease modification process
is used as was intended for adjustments to borders and that the
lease by application process is used when the lessee needs more
coal.
Second, although the Mineral Leasing Act's requirement that
lessees produce commercial quantities of coal within 10 years
would not be changed, a series of provisions in H.R. 794 would
remove other important protections that currently ensure that
coal leases are developed in a timely way and that the leasing
program is not misused to speculate with the people's coal.
When the investment required to hold the lease is reduced below
the fair market value and the requirements for timely
production are relaxed, a lessee is more free to hold a lease
during the period when it can be economically mined and then
terminate the lease and walk away.
H.R. 794 would eliminate the requirement of a surety bond
or other financial assurance to guarantee cash bonus payments,
allow operators to mine logical mining units for more than 40
years, allow companies to stop producing coal for 20 years
instead of 10 and pay advance royalties instead of production
royalties during this period, and finally, give the Secretary
the discretion to reduce, suspend, or forgive advance royalties
during such periods of nonproduction.
The provision that would allow the waiving of advance
royalties is particularly disturbing to us. I see no protection
against uneven application of royalty waivers, and only way
that this provision when implemented could be viewed as
anything other than a special favor for specific companies is
if it applied across board to all lessees. I don't think either
of these options is a desirable alternative.
We are also particularly concerned with the proposal to
eliminate the requirement of a surety bond for deferred bonus
payments. Requiring such financial assurance is a well-
established business practice and entirely appropriate in this
case. Bonus payments are part of the cost of securing a Federal
leasehold and should not be forgiven if a lessee changes its
business plan or the market chains.
Our third area of concern is with the impact these
amendments would have on the states. Since bonus payments and
royalties are shared equally with the states in which the coal
is located, state as well as Federal revenues would be impacted
if the removal of the 160-acre limit on the lease modifications
results in reduced bonus payments, if deferred bonus payments
are not paid in full due to a lack of financial assurance, if
advance royalty waivers are granted, and/or if we see a return
to speculation that reduces the overall development of Federal
coal resources.
In closing, although there may be some specific cases where
the requirements of current law are impeding further
development, we do not believe that the case has been
adequately made that the overall program is not functioning
well and that the broad changes are needed. We are not as
opposed to allowing narrow exemptions for individual companies
in specific cases where burdensome problems can be alleviated,
but we are concerned that the amendments proposed in H.R. 794
would return us to speculation with public resources, and we
urge you to reconsider this approach.
Thanks again for the opportunity.
[The prepared statement of Ms. Kendall follows:]
Statement of Sara Kendall, on behalf of the Western Organization of
Resource Councils, on H.R. 794
Madam Chairwoman, my name is Sara Kendall. I am the Washington,
D.C. Office Director for WORC--the Western Organization of Resource
Councils. WORC is a network of grassroots organizations from seven
western states that include 8,250 members and 46 local community
groups--the Dakota Resource Council in North Dakota, Dakota Rural
Action in South Dakota, the Idaho Rural Council, the Northern Plains
Resource Council in Montana, Oregon Rural Action, the Powder River
Basin Resource Council in Wyoming and Western Colorado Congress.
Many of WORC's members live and work in communities impacted by
coal mining, and most are taxpayers in coal-producing states. We have
worked for over 30 years to ensure that the benefits of natural
resource development are shared with local people, and that Federal
coal management takes into account the needs of local people
communities to plan with certainty for their futures. WORC was one of
the principle organizations advocating for the passage of the Coal
Leasing Amendments Act of 1976. This Act was passed in direct response
to a decade of rampant speculation on Federal coal leases, and enjoyed
the strong bipartisan support of members of Congress from coal
producing areas.
Thank you for the opportunity to present our views on H.R. 794.
WORC is concerned that this bill would eliminate many of the
requirements Congress placed on the Federal coal leasing program to
encourage a fair return to Federal and state taxpayers for the use of
public minerals, and promote the diligent development of those
minerals. We are quite concerned that the broad changes proposed in
H.R. 794 would result in a return to policies that allowed coal
companies to amass control of large amounts of public land and coal,
and hold them for an indefinite period without mining. We have four
concerns with the bill.
First, by eliminating the 160-acre limit on lease modifications,
H.R. 794 would effectively allow mines to expand indefinitely without
having to bid competitively and make bonus payments. In areas where
there has been competition to secure leases for the remaining unleased
acreage, such as the Powder River Basin, a coal company seeking to
expand its operation could submit a plan modification for additional
acreage and not have to compete for the coal as is currently the case.
While there are some limits on the Secretary's discretion to
approve lease modifications, we believe that maintaining an acreage
limit is necessary to ensure that the lease by application process
remains part of common practice in order to ensure that the public's
coal is properly valued. In removing the acreage limit, we remove the
incentive for lessees to design lease tracts that are big enough, and
allow lease configurations that split deposits that would be
competitive as a whole into a series of non-competitive parcels that
can be added later without undergoing the competitive bid process. An
acreage limit helps ensure that the lease modification process is used
as it was intended, for adjustments to borders, and that the lease by
application process is used when the lessee needs more coal.
Second, although the Mineral Leasing Act's requirement that lessees
produce commercial quantities of coal within ten years would not be
changed, a series of provisions in H.R. 794 would remove other
important protections that currently ensure that coal leases are
developed in a timely way, and that the leasing program is not misused
to speculate with the peoples' coal. When the investment required to
hold a lease is reduced below the fair market value, and the
requirements for timely production are relaxed, a lessee is more free
to hold a lease during the period when it can be economically mined,
then terminate the lease and walk away.
H.R. 794 would:
Eliminate the requirements of a surety bond or other
financial assurance to guarantee cash bonus payments,
Allow operators to mine ``logical mining units'' for
longer than 40 years,
Allow companies to stop producing coal for 20 years
instead of ten, and pay advance royalties instead of production
royalties during this period,
Give the Secretary the discretion to reduce, suspend or
forgive advance royalties during such periods of non-production, and
Eliminate the requirement that operating and reclamation
plans be submitted within three years of lease issuance.
The provision that would allow the waiving of advance royalties is
particularly disturbing. I see no protection against uneven application
of royalty waivers. The only way this provision, when implemented,
could be viewed as anything other than a special favor for specific
companies is if it's applied across the board to all lessees. Neither
of these options is a desirable alternative.
Congress had the foresight to allow bonus payments to be deferred
over a five-year period. In return, the lessee must secure a surety
bond or other financial assurance mechanism to protect the government's
interests. Requiring such financial assurance is a well-established
business practice and entirely appropriate in this case. Bonus payments
are part of the cost of securing a Federal leasehold, and should not be
forgiven if a lessee changes its business plan or the market changes.
Third, we are concerned about the impact many of these amendments
would have on the states. Since bonus payments and royalties are shared
equally with the states in which the coal is located, state as well as
Federal revenues would be impacted if:
Removal of the 160-acre limit on lease modifications
results in reduced bonus payments,
Deferred bonus payments are not paid in full due to lack
of financial assurance,
Advance royalty waivers are granted, and/or
We see a return to speculation that reduces the overall
development of Federal coal resources.
Finally, H.R. 794 would change the method for computing advance
royalties from the amount of production royalties that would have been
paid to be based instead on the average price of coal sold in the spot
market from the region. It is unclear how this system would work and
whether it would result in a fair return to the public.
In closing, although there may be specific cases where the
requirements of current law are impeding further development, we do not
believe that the case has been made that the overall program is not
functioning well and that broad changes are needed. We are not opposed
to allowing narrow exemptions for individual companies in specific
cases where burdensome problems can be alleviated, but we are concerned
that the amendments proposed in H.R. 794 would return us to a day of
speculation with public resources. We urge you to reconsider this
approach. Thank you again for the opportunity to testify.
______
Mr. Rehberg. Thank you.
Mr. Quinn, Ms. Kendall reiterated a position or at least a
question that Ms. Burden was asked earlier about the fact that
the Secretary could forgive debt. Could you explain what the
provision does? Can the Secretary just forgive royalties that
are due?
Mr. Quinn. No. There is no provision in law that allows the
Secretary to forgive royalties that are due on production. It
believe there was some confusion being expressed about advance
royalties. Advance royalties are not due the Government.
Advance royalties are paid in lieu of production if allowed,
and you have to pay them to get the opportunity to put your
mine on an idle status. So the fact that this law would allow
some flexibility to continue to pay advance royalties does not
absolve anybody of paying them if they choose that option.
Mr. Rehberg. I thought I heard you say that there could not
be a cumulative expansion under the 160 acres, and yet Ms.
Kendall said that there would be. How do you respond to her
position that there would be that expansion indefinitely?
Mr. Quinn. The criteria that applies currently for what we
call bypass or at least modifications is that the Government
will receive fair market value at the operation, there is no
other competitive interest in that lease tract, and three, that
tract alone could not support an independent operation on its
own. Those criteria, I think would govern and guide the
Secretary's discretion in ensuring that, as Ms. Kendall
suspects, that people will take a lease initially at a smaller
size and then just keep adding on.
I can tell you from a matter of economics in the west, for
western mines, you are not going to start with a small lease
and then try to grow it. You are going try to start with a
sizable lease that will support production levels that get you
into the marketplace, and thereafter, you will try to add to
it. But the marginal lease modification process won't be
adequate for that. That is really to pick up coal nearby that
you would otherwise be bypassing anyway and would be lost
forever.
Mr. Rehberg. Do the provisions of this proposed legislation
eliminate or change the diligence development requirement of
the Mineral Leasing Act?
Mr. Quinn. No, they don't, and the diligence development
requirement of 10 years was the provision in the 1976 Act to
address so-called speculation. That provision stays in tact.
You cannot evade that by paying advance royalties. You have to
be in production within 10 years.
Mr. Rehberg. Ms. Kendall, right now, surety bonds -- and I
asked this question earlier -- are not available, meaning that
the bidder on a coal lease must put up the total bid in cash or
cash equivalent, thereby negating any advantage of deferring
payment of the entire bonus bid. Isn't this going to cause a
reduction in bonus bids in future lease sales, causing a
significant loss of revenue to both state and Federal
Governments?
Ms. Kendall. I think our concern is that, you know, whether
doing away with financial assurance for deferred bonus payments
is an appropriate response. There was a hearing before the
Subcommittee last year in which the surety industry testified,
and with respect to these specific bonds, their testimony was
that the concern they had -- if my recollection is correct, the
concern that they had was that they were not allowed to cover
the cost of the bond, that the lease would revert back to the
Government and that that is what made those bonds are poor
risk.
So I am not sure that completely doing away with the
bonding requirement is the appropriate response to the problem
that we are seeing in the industry right now.
Mr. Rehberg. You expressed concerns about the affects this
bill would have on the royalties collected by states. What
states? Have you heard from individual states that have
concerns about this?
Ms. Kendall. We have not, and I think this is just a
general concern, and part of the problem is that we don't have
specifics, and I think the industry has asked for these
changes. The Administration supports them, and they have talked
about the need to maintain flexibility, but we don't have a lot
of specifics. There was some testimony over on the Senate side
from Arch Minerals, I believe it was, last week, and they
talked about certain companies coming close to the 160-acre
limit, for example, but we don't have the details.
So it is very hard to assess what kind of impact these
changes would have, but I do think that if you look at doing
away with the 160-acre limit on lease modifications, that does
away with the bonus payments for any additional average that is
added, and that is a reduction in revenues. I mean, there may
be also an associated rise in coal production, but it is very
hard to assess in the absence of more information.
I think the other points that we raised about the language,
the language in the bill that I was referring to earlier that
had to do with the authority to waive, suspend, or reduce
advance royalties is near the end, and it basically strikes
language that says nothing in this section shall be construed
as granting the Secretary the authority to waive, suspend, or
reduce advance royalties, which subjects that you are giving
the Secretary the authority to do that or the discretion to do
that. I mean, you may be able to argue that that will spur more
coal development, but if the Secretary is reducing advance
royalties, then that is a reduction in revenues to both the
Federal and state governments.
And so those are just two examples. I think there are
others that we have the concerns about. We have not assessed
the specifics and we have not heard from states.
Mr. Rehberg. Well, I want to thank you for coming before
this Committee today. I apologize on behalf of our Chairman,
Chairman Cubin who has an excused absence today, was not
anticipating being absent, and so I need to say that member of
the Subcommittee will have additional time. They might have
additional questions that they might have of the witnesses, and
we ask that you respond in writing, if you would, please.
The hearing record will be open for 10 days for these
responses, and if there is no further business before this
Subcommittee, the Chairman again thanks the members of the
Subcommittee and our witnesses, and the Subcommittee stands
adjourned.
[Whereupon, at 12:29 p.m., the Subcommittee was adjourned.]
The following information was submitted for the record.
[The prepared statement of Mrs. Cubin follows:]
Statement of The Honorable Barbara Cubin, Chairman, Subcommittee on
Energy and Mineral Resources, on H.R. 793 and H.R. 794
Today, the Subcommittee on Energy and Mineral Resources will hear
testimony about two bills, H.R.793, legislation on energy related uses
of the Outer Continental Shelf (OCS), and H.R. 794, the Coal Leasing
Amendment Acts of 2003.
H.R. 793 addresses the need for statutory authority to permit
future non-traditional energy and energy-related projects on the OCS.
Such projects would include alternative energy projects--such as wind,
wave and solar power production--as well as ancillary projects to oil
and gas development on the Shelf--such as emergency medical facilities
and supply facilities that support deepwater exploration and
development projects.
Last year, I was contacted by the Administration about the need for
legislation that would clarify the permitting process for these
innovative projects on the OCS. Working with the Administration, we
introduced a bill that gives the Secretary of the Interior the
authority to permit and oversee energy related activities under the OCS
Lands Act. I have again introduced that bill for consideration in the
108th Congress.
H.R. 793 is needed because no authority currently exists to permit
alternative energy projects and ancillary projects to support oil and
gas development on the OCS. Clearly, America faces a growing energy
supply and demand imbalance that calls for new solutions.
Two innovative ways that will help meet that challenge are
increased production and use of renewable energy and production of oil
and gas from deep waters. H.R. 793 facilitates both of these solutions.
The bill clarifies the jurisdiction for these projects so that private
sector entities, wanting to develop alternative energy resources
offshore, will have a clear path by which to approach relevant Federal
agencies for permits. It is crucial for the development of any
alternative or traditional energy project to have certainty in the
permitting and regulatory processes. This bill would provide such
certainty. It also ensures that future projects on the OCS will be
performed in a safe and environmentally sensitive manner and that a
proper abandonment and reclamation process will exist for each project.
H.R. 793 enables the Department of Interior to inform and work with
other Federal agencies that will be involved in the project permitting
process. It is my understanding that the legislative language in H.R.
793 has gone through an extensive discussion and approval process
amongst all Federal agencies that have an interest in the OCS, and that
the legislative language has been agreed to by those agencies and the
OMB. This bill will not supercede or modify any existing authority of
any other agency responsible for permitting or regulating offshore
energy projects. It is designed to complement existing statutes and
ensure that all innovative offshore energy projects have a clear
permitting process.
The President's National Energy Plan called for the simplification
of permitting for energy production in an environmentally-sensitive
manner. It also called on the Secretaries of the Interior and Energy to
evaluate access limitations to Federal lands in order to increase
renewable energy production. This legislation helps to address both of
these goals.
I understand that offshore wind energy projects are now being
considered in the U.S. and that several have already been developed in
Northern Europe with significant generation capacity on the drawing
board. In fact, a record 6,868 megawatts of new wind power capacity was
installed worldwide in 2002, increasing generating capacity by 28% last
year, according to new figures released from the American Wind Energy
Association and European Wind Energy Association.
Offshore wind development is a sound use of public resources for
energy production. We need new alternative and traditional energy
solutions in order to meet our future energy needs. I believe this bill
will help to facilitate these solutions.
H.R. 794 makes targeted technical changes to the Mineral Leasing
Act that adapt to the realities of market conditions so that we may
make full use of the America's Federal coal resources. It encourages
continued diligent development of coal on Federal lands and ensures the
flow of Federal royalty revenue while giving the Interior Secretary the
ability to manage coal resources for maximum value to the public.
Coal is the largest domestically produced energy source and remains
the largest source of electricity generation in the nation, at about
50% of current generation capacity. Coal is an abundant, domestically
produced product and, through the continued development and
implementation of clean-coal technology, will remain a secure energy
resource for years to come.
Currently over one-third of our coal is mined on Federal lands.
Federal coal benefits the nation not only because it is a domestically
produced energy resource, but also because the Minerals Management
Service collected about $5.5 billion in revenues on coal produced from
Federal lands. The legislation seek today would facilitate the
continued development of Federal coal by making only changes to coal
leasing provisions in the Mineral Leasing Act that present impediments
to the efficient development of Federal coal resources.
One provision amends the 160 acre life-of-lease limitation on
Federal coal lease modifications. This provision provides flexibility
by giving the Secretary the discretion to allow production of non-
competitive coal contiguous to an existing lease so that small
quantities of coal will be recovered that might otherwise be left
behind. This provision is designed to provide a common sense way to
encourage efficient production of a domestic energy resource. It is not
designed to side step the competitive lease process. I am willing to
work with the minority to address any concerns to the contrary.
Other provisions allow the consolidation of leased coal reserves
requiring more than 40 years to mine, allow the Secretary to accept the
payment of advance royalties in lieu of continued operations for a
total of 20 years and eliminate the requirement under the Mineral
Leasing Act that a lessee to file a mining plan no later than three
years after the lease is issued. SMCRA contains a similar requirement
which remains in force. These are common sense adjustments that provide
flexibility and allow cost-effective development of the resource.
Finally, a provision addresses the requirement of surety bonds for
the payment of bonus bids on coal leases. A lease will be terminated if
a lessee fails to make a bonus bid payment.
These bills promote ways for government to help the private sector
increase energy production. A new round of energy price spikes in
recent weeks are yet another wake-up call concerning our need to
increase domestic energy production in this country. Energy issues will
again be a major priority in this Congress and the development of a
comprehensive energy bill is underway.
I want to welcome our witnesses as well as our Subcommittee members
to the first Subcommittee hearing of the 108th Congress. I look forward
to working with you all on these legislative issues and all of the
issues that will come before our Subcommittee this year.
______
[A statement submitted for the record on H.R. 793 by the
Long Island Power Authority follows:]
Statement submitted for the record by the Long Island Power Authority
The Long Island Power Authority (``LIPA'') is pleased to provide
testimony on H.R. 793, to amend the Outer Continental Shelf Lands Act
for Alternative Energy-Related Uses. LIPA is a corporate municipal
instrumentality of the State of New York and was established by the New
York legislature in 1986. LIPA provides electric service to nearly 1.1
million customers in Nassau and Suffolk counties, and the Rockaway
Peninsula in Queens, New York.
LIPA requests that H.R. 793 not impose new impediments on offshore
wind projects that are currently underway. On January 22, 2003, LIPA,
supported by a coalition of interests representing over 30 Long Island-
based environmental, civic and faith-based groups, released a Request
for Proposals (``RFP'') seeking development of an offshore wind project
to be operational by 2007. The RFP requests proposals for wind power to
be produced from a facility located 2 to 6 miles offshore of Long
Island with a total generating capacity of 100-140MW. LIPA intends to
purchase 100% of the capacity, ancillary services, and environmental
attributes of the offshore project for a term of at least 15 years. We
will provide an underground cable to connect the offshore wind project
to LIPA's power grid.
The offshore wind project is intended to help meet the region's
growing electricity demands in an environmentally sensible way.
Population density and the continued rapid development on Long Island
has resulted in the lack of suitable locations to site and construct
electricity generation projects powered by wind. The offshore area of
Long Island, however, has the potential to accommodate significant
amounts of wind energy. One recent study shows that an area of over 314
square miles off the coast of Long Island could yield 5,200 megawatts
of wind power capacity which would produce the equivalent of 77% of
Long Island's current electricity needs.
This ongoing wind project is part of LIPA's Clean Energy
Initiative, a multi-year, $170 million program implemented by New York
Governor George Pataki to promote energy conservation and efficiency,
and to research, develop and implement the use of alternative energy
technologies. These programs have yielded over 122 GWH of energy
savings with 290 GWH of energy savings projected by the end of 2004.
In addition, this offshore wind project is an important means for
achieving Governor Pataki's proposed renewable energy portfolio
standard which requires that 25% of electricity bought in New York
State must come from renewable technologies within 10 years.
This project has broad support from the State of New York, business
groups and the environmental community on Long Island, including the
Environmental Advocates of New York, the Natural Resources Defense
Council, the Neighborhood Network, the Long Island Sustainable Energy
Alliance, the Citizen's Campaign for the Environment, the New York
Public Interest Group and the Citizens Advisory Panel.
The developer of the offshore wind project must obtain all
necessary Federal, state and local permits. LIPA has already conducted
studies on the project's impact on marine and avian species and a legal
analysis of Federal, state and local laws relevant to project. In
addition, LIPA has completed siting assessments on the location of the
offshore wind project. The 60-page Phase II Siting Assessment evaluated
a number of environmental, economic and operational factors to identify
for potential developers the offshore area that offers the best
opportunity for constructing and operating the offshore park with the
least environmental impact on the communities. The success of our
efforts thus far, is evidenced by the fact that the major environmental
groups on Long Island support the project.
As the Committee continues its assessment of H.R. 793, LIPA
requests that this legislation not be drafted in a manner that will
impose delays or added costs to offshore projects, like ours, that are
well underway. LIPA's offshore wind project is important to meeting
Long Island's growing electricity needs in an environmentally sensible
way. As consideration of this legislation moves forward, LIPA would be
pleased to provide any additional information about this offshore wind
project.
______
[A statement submitted for the record on H.R. 793 by Kevin
Rackstraw, Clipper Windpower, Inc., and Aquantis, LLC,
Bethesda, Maryland follows:]
March 19, 2003
The Honorable Barbara Cubin, Chair
Committee on Resources
Subcommittee on Energy and Mineral Resources
1334 Longworth House Office Building
Washington, DC
Dear Representative Cubin:
My name is Kevin Rackstraw. I am the Eastern Regional Leader for
Clipper Windpower, Inc., one of the leading developers of wind energy
projects. In addition, I also represent an affiliated company called
Aquantis, LLC, which is developing an undersea ocean current turbine.
Thank you for your efforts to bring some certainty and structure to
the approvals process for utilizing the tremendous energy resources off
the coasts of the United States. Attached is written testimony I would
like to submit for the record related to the hearing held on March 6,
2003, about H.R. 793, your bill to amend the Outer Continental Shelf
Lands Act for Alternate Energy-Related Uses. I apologize for not being
present at the March 6 hearing, but unfortunately we did not learn of
the opportunity to testify until relatively late. I am happy to make
myself or members of the Aquantis team available to the Subcommittee
should the opportunity arise to brief you, the Members or staff on the
ocean current turbine.
Thank you again for your interest in this important matter.
Sincerely,
Kevin Rackstraw
Eastern Regional Leader
Eastern Regional Office: 6500 Pyle Road, Bethesda, MD 20817
(301/263-0028; 301/263-0042 fax)
Headquarters: 6305 Carpinteria Avenue, Suite 300
Carpinteria, CA 93013
(805/899-9199; 805/899-1115 fax)
______
Statement submitted for the record by Kevin Rackstraw, Clipper
Windpower, Inc., and Aquantis, LLC, Bethesda, Maryland, on H.R. 793
My name is Kevin Rackstraw. I am the Eastern Regional Leader for
Clipper Windpower, Inc., one of the leading developers of wind energy
projects. I am submitting testimony to support your efforts to
streamline and clarify the process for the granting of rights to
develop renewable energy projects on the Outer Continental Shelf (OCS).
Clipper is expecting offshore windpower to be an important part of the
country's effort to develop domestic, renewable energy projects over
the coming years. It is vital that the process for granting rights to
utilize the huge offshore wind resource be clarified and streamlined.
The current situation of overlapping and uncertain jurisdiction and
absence of a grant or easement process makes it difficult to attract
the necessary capital to move this huge opportunity forward. Clipper
supports the testimony submitted by Bruce Bailey for the American Wind
Energy Association at your March 6, 2003, hearing.
I also represent an affiliated company called Aquantis, LLC, which
is developing an ocean current turbine that can be deployed at moderate
depths below marine traffic and yet cause a minimal disturbance to the
ocean floor. Ocean currents are relatively constant, meaning that ocean
current technology can provide baseload power year around. We also
believe that this technology will be competitive with any other
renewable energy technology within a relatively short time and has the
potential to be directly competitive with conventional energy as well.
Aquantis is within several years of commercial deployment of this
technology, so it is vital to the technology's future that any effort
to clarify the offshore permitting process addresses ocean currents as
well.
Aquantis has received substantial research grants from the State of
California and the U.S. Government through the Small Business
Innovative Research (SBIR) program to continue the development of this
very promising technology and has recently tested a prototype at the
Naval Surface Warfare Center at Carderock. Admiral Albert Baciocco,
former Chief of the Office of Naval Research, is on the Aquantis Board
of Directors, as is Richard Metrey, former head of the Carderock
facility.
Much like Clipper, Aquantis will also seek the right to utilize the
huge natural and renewable resources that are present offshore of the
United States. Ocean currents are not mentioned in your current bill,
which does make specific mention of wave energy. We believe that ocean
current technology will be the first ocean energy technology to make a
significant contribution to our energy future, so we would respectfully
request that the bill's language be expanded to cover ocean currents. I
will provide in a separate mailing to the Subcommittee more details on
the design and operation of the turbine to allow the Members and staff
to validate the strides that this new technology has made.
I would like to echo in particular one specific comment made by
Bruce Bailey in his March 6, 2003, testimony before the Subcommittee.
We respectfully request the Subcommittee to ensure that the
implementation of this bill not impose new barriers in the permitting
approval process for offshore projects, whether wind or ocean-based. We
support the purpose of the bill, which is to make the process more
orderly and certain.
Thank you for the opportunity to present testimony on this
important bill. We look forward to working with you to develop the huge
offshore renewable energy resources that are available to us.
Generating electricity from clean and renewable sources of energy from
the wind and oceans will help to lessen our dependence on imported and
polluting sources of energy, which will be a boon to both our
environment and our economy.