[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]





   ENERGY DEMAND IN THE 21ST CENTURY: ARE CONGRESS AND THE EXECUTIVE 
                     BRANCH MEETING THE CHALLENGE?

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

                                HEARING

                               before the

                  SUBCOMMITTEE ON ENERGY AND RESOURCES

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 16, 2005

                               __________

                           Serial No. 109-12

                               __________

       Printed for the use of the Committee on Government Reform


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


                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida           C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada                BRIAN HIGGINS, New York
KENNY MARCHANT, Texas                ELEANOR HOLMES NORTON, District of 
LYNN A. WESTMORELAND, Georgia            Columbia
PATRICK T. McHENRY, North Carolina               ------
CHARLES W. DENT, Pennsylvania        BERNARD SANDERS, Vermont 
VIRGINIA FOXX, North Carolina            (Independent)
------ ------

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

                  Subcommittee on Energy and Resources

                 DARRELL E. ISSA, California, Chairman
LYNN A. WESTMORELAND, Georgia        DIANE E. WATSON, California
ILEANA ROS-LEHTINEN, Florida         BRIAN HIGGINS, New York
JOHN M. McHUGH, New York             TOM LANTOS, California
PATRICK T. McHENRY, North Carolina   DENNIS J. KUCINICH, Ohio
KENNY MARCHANT, Texas

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                   Lawrence J. Brady, Staff Director
                 Dave Solan, Professional Staff Member
                          Lori Gavaghan, Clerk
          Richard Butcher, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 16, 2005...................................     1
Statement of:
    Caruso, Guy, Administrator, Energy Information 
      Administration, U.S. Department of Energy..................    43
    Portney, Paul, president, Resources for the Future...........    88
    Wells, Jim, Director, Natural Resources and Environment, U.S. 
      Government Accountability Office...........................     3
Letters, statements, etc., submitted for the record by:
    Caruso, Guy, Administrator, Energy Information 
      Administration, U.S. Department of Energy, prepared 
      statement of...............................................    46
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, followup questions and responses......   109
    Portney, Paul, president, Resources for the Future, prepared 
      statement of...............................................    92
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................    86
    Wells, Jim, Director, Natural Resources and Environment, U.S. 
      Government Accountability Office, prepared statement of....     6

 
   ENERGY DEMAND IN THE 21ST CENTURY: ARE CONGRESS AND THE EXECUTIVE 
                     BRANCH MEETING THE CHALLENGE?

                              ----------                              


                       WEDNESDAY, MARCH 16, 2005

                  House of Representatives,
                  Subcommittee on Energy Resources,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2203, Rayburn House Office Building, Hon. Darrell Issa 
(chairman of the subcommittee) presiding.
    Present: Representatives Issa, Westmoreland, Watson, 
Higgins.
    Staff present: Larry Brady, staff director; Sarah D'Orsie, 
full committee deputy clerk; Dave Solan, Ph.D. and Steve Solan, 
professional staff members; Krista Boyd and Alexandra Teitz, 
minority counsels; Richard Butcher, minority professional staff 
member; and Jean Gosa, minority assistant clerk.
    Mr. Issa. Well, my script, of course, says ``a quorum being 
present.'' We will waive a quorum being present. I will make an 
opening statement, and presumably Ranking Member Watson will be 
here by the time I get through.
    I would like to apologize for being late. We are marking up 
for the eighth time the same bankruptcy bill, and some people 
had said it four times, five times, six times. But if you have 
not said it eight times, there is no point in waiving.
    Energy drives and ensures our Nation's security. It 
determines our quality of life. The current volatility in fuel 
prices and supplies has raised real questions as to whether the 
current energy policy framework has failed the U.S. consumers.
    U.S. oil demand is soaring, as is Chinese oil demand. Local 
domestic supplies are dwindling, forcing the United States to 
rely 60 percent on imported oil.
    U.S. energy demand continues to increase. The U.S. 
Department of Energy has projected the total energy consumption 
from 2003 to 2025 will increase by 36 percent. Petroleum demand 
will increase by 39 percent, and national gas demand will 
increase by 40 percent. Overall, energy consumption will 
increase by more than 45 percent.
    Growing U.S. energy demand must be viewed in the context of 
international demand for energy. The United States is now 
competing for a world commodity that will see dramatically 
increased rates of demand; demand from China and India will 
continue to exert pressure in the world's energy markets.
    World demand for crude oil typically grows annually at 
about 1 million barrels a day. In 2004, it grew 2.7 million 
barrels a day.
    This begins to approach the total world production 
capacity. Electricity demand in the developing world is also 
increasing rapidly. In 2003, Chinese electricity consumption 
increased by 15.3 percent.
    How the United States meets its growing demand and ensures 
its domestic supply of energy will require a full range of 
energy resources from proven sources like oil, coal, natural 
gas and nuclear to more renewables and development of new 
technologies like the recent hydrogen incentives.
    This hearing today is intended to focus on the key issues 
confronting the United States. The subcommittee will attempt to 
determine whether Congress is asking the right questions, and 
whether the Federal Government's agencies are taking the right 
actions to meet this growing demand, and to ensure our domestic 
supplies.
    How does the domestic supply situation and the increasing 
international demand for energy effect the United States? How 
can the United States continue to meet its domestic demand for 
energy, while ensuring the future reliability, affordability, 
and sustainability of the energy supply?
    What factors contribute to the current volatility in the 
fuel prices? Are Federal Government agencies taking the right 
actions to meet the U.S. requirement in the 21st century? What 
issues or policies should Congress be looking at, as a way of 
meeting the energy challenge in the future?
    We look forward to hearing from our three witnesses today, 
as this is the first hearing on these important issues. I am 
still not seeing the ranking member. I would be pleased to 
introduce Mr. Jim Wells, Director of Natural Resources and 
Environment at the U.S. Government Accountability Office. I 
have said ``GAO'' for so many years that saying it the long way 
is always difficult.
    He has over 35 years of Government-related experience in 
energy, natural resources, and environmental issues. Thank you 
for being here today, Mr. Wells.
    Also with us is Mr. Guy Caruso, Administrator of the Energy 
Information Administration at the U.S. Department of Energy. 
Mr. Caruso has over 30 years of energy experience, with 
particular emphasis on issues related to energy markets, 
policy, and security. Thank you for being here today, Mr. 
Caruso.
    Dr. Paul Portney is president of Resources for the Future, 
an independent research and education organization, and I 
assume this is a think tank, specializing in natural resources 
and the environment. Thank you for being here, Dr. Portney.
    We are now in that unique position that I am delighted to 
see you, but we have to be patient.
    Counsel advises that we can go forward. If each of you 
would raise your right hand for the oath. Also, anyone else who 
expects to advise or potentially speak, would you also rise to 
take the oath.
    [Witnesses sworn.]
    Mr. Issa. The witnesses have all affirmed to the oath. As a 
result, Mr. Wells, you are first up, and I look forward to 
hearing your testimony.

    STATEMENT OF JIM WELLS, DIRECTOR, NATURAL RESOURCES AND 
       ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Wells. Thank you, Mr. Chairman, and ``GAO'' works. I 
will know when to respond.
    We are pleased to be here today. It is an understatement to 
say that energy is important. To say it is critical, and we 
cannot live without it is perhaps more accurate. It is almost a 
daunting challenge, Mr. Chairman, to sit and talk energy to 
someone who lives in California, because you know what it means 
to you, living in the State of California, with some of the 
problems you have experienced.
    Before I summarize our GAO work, I want to set the stage. 
The United States has built a strong energy delivery system, 
and our consumers have a standard of living, second to none. We 
drive the car or the truck that we want. Maybe we do complain 
about high gasoline prices. The lights almost always come on 
when we flip the switch.
    We have a vast pipeline and transmission infrastructure. 
Energy markets are working, and energy is considered by many 
standards to be reasonably cheap. Having said that, we did lose 
power for 50 million people in the 2003 blackout. The power was 
returned in 3 days to most people. The gasoline price 
volatility of today is certainly raising questions, and our 
financial markets are speculating on where and how much the 
next barrel of oil will cost.
    These events clearly are pointing to an energy system that 
is showing signs of strain and instability. While we have a 
robust energy system today, the topic of your hearing, Mr. 
Chairman, can we maintain it and can we meet the needs of the 
21st century, is timely. I want to start my testimony and I 
want to finish with timely. GAO is accepting the challenge to 
explain U.S. energy in 120 minutes. I know it is a challenge.
    Mr. Issa. Mr. Wells.
    Mr. Wells. Yes.
    Mr. Issa. Not only is it a challenge, since we have to vote 
in 15 minutes, you really do have 10 minutes. [Laughter.]
    Mr. Wells. OK; we are a Nation that accounts for 5 percent 
of the world's population, yet we consume 25 percent of the 
energy used worldwide. In 2003, each man, woman, and child 
consumed in energy the equivalent of 790 billion gallons of 
gasoline, or roughly 2,800 gallons per person. As EIA will 
testify to today, this demand is looking like it is going to 
increase another 25 or 30 percent, or even higher. I will let 
Guy talk to that.
    To meet this consumption, we have old 20th century policy 
solutions in place. We have increased our production by 
increasing drilling for oil and gas. We have increased output 
from our nuclear power plants, and we have achieved small 
increases in traditional renewable energy sources, such as wind 
power.
    We have tried to use more fuel efficient cars and the fuels 
that we put in them. However, supplying this energy is a joint 
effort of mostly private companies, with some direct 
involvement by creating the VPA and TVA in delivering 
electricity. Our energy suppliers today are mostly multi-
national corporations with worldwide shareholders.
    Most of the fuel is sold at prices that are determined by 
competitive markets excluding, of course, the Enron deals that 
we learned about. The Federal Government has intervened by 
providing billions of dollars in tax credits, tax incentives, 
direct subsidies, and regulatory advice, supposedly to guide 
and steer the marketplace for social good.
    Despite these facts, Mr. Chairman, imports of fuel are 
rising at alarming rates. Over the last 20 years, our net 
imports of energy has more than doubled, reaching 32 percent of 
our total consumption.
    Furthermore, gasoline, as you know, is rising above $2 a 
gallon. Refinery capacity is clearly not keeping pace with the 
demand. Electricity transmission constraints, which you are 
well aware in California, have periodically limited the flow of 
electricity in parts of the country. The international turmoil 
in the Middle East, Russia, and Venezuela, affects our energy 
security.
    Looking into the future, there are daunting challenges that 
lie ahead. As you hear today from EIA, the U.S. energy demand 
could increase significantly over the next 20 years. While we 
must focus our own domestic needs as a developed country today, 
we cannot lose sight of the fact that energy is being demanded 
globally across the world, especially in the developing 
countries, as you mentioned, like China and India.
    Clearly, we must all buy energy from this global market 
place. We must all, in a sense, go to the same spigot. If world 
supplies do not keep pace with the world demand, energy prices 
will continue to rise sharply.
    So where does that leave us for today's hearing? It is 
clear that the reliable mainstay of the 20th century: cheap 
oil, gasoline, plentiful natural gas, and large amounts of 
electricity from coal, seems less guaranteed in the 21st 
century.
    Mr. Issa. Mr. Wells, I have been advised that they want me 
to run to the vote. I apologize for the nature of this. We will 
allow you to continue. We will stop the clock. I will be back 
in about 15 to 25 minutes, depending on how fast they roll the 
next votes.
    I appreciate your indulgence. You guys are pros. You have 
been through our tendency to be anything but considerate to our 
guests. So I appreciate that, and I will be back absolutely at 
a dead run, as soon as the last vote is over.
    Mr. Wells. Thank you.
    [Recess.]
    Mr. Issa. As promised, we are back within 15 minutes, and 
the ranking member is on her way.
    Mr. Wells. Thank you, Mr. Chairman, and I will make this 
even shorter. We offer, in our testimony to you today, three 
broad cutting observations to help frame the congressional 
efforts to develop policies with the Federal Government. That 
was your charter to us.
    First, we would encourage you regarding demand, the amount 
of energy that needs to be supplied is not fate, but choice. 
Consumers can play an important role, a bigger role than what 
they currently play today, in using energy wisely, if they are 
given the choice, and we help educate them on how to reduce 
future demand.
    The second thought that we would like to suggest is that 
all fuel sources share some form of problems, whether it be 
environmental or economic constraints. This fuel is too dirty, 
or that technology costs too much to be competitive.
    The future choices will require compromises and tradeoffs. 
Consequently, we will need to use all the sources that we have 
available to us, if we want to make ends meet, with some 
offsetting benefits and costs. The demand projections numbers 
are just so large, it is going to be very difficult to meet 
that demand, unless all sources are being considered.
    The third cost-cutting issue that we would suggest be 
looked at, with whatever Federal policies are chosen and with 
the political will and the balance that needs to be achieved, 
is having the Federal Government take some leadership role, 
perhaps stronger than it has today and in the past, and 
providing clear and consistent signals to the energy markets, 
and energy markets will be extremely important.
    Then the consumers and the suppliers and the investment 
community will know how to buy the new products that we are 
going to need, and how to invest in that future infrastructure. 
If we need power plants, how do they come up with the $400 
million to put in a new power plant? They will need some 
leadership from the Federal Government to provide consistency 
to make that happen.
    We will also need new technology. Clearly, there is no one 
magic source out there that is going to get us there. But 
clearly, as we look at research, looking at new technology, it 
will certainly help us get over that hump.
    In conclusion, I think I want to go back to what I said 
earlier in my statement, that the old 20th century energy 
solutions may not be able to carry us into the 21st century. 
What we have today may not be good enough for tomorrow.
    Energy is much more global and competitive than it was in 
the old days. I said in the beginning of the hearing that your 
hearings, Mr. Chairman, are very timely. The good thing is that 
we are thinking about what to do now. We are not in a crisis.
    It has been proven, over and over again, that we can make 
better decisions when we are not in a crisis like we were back 
in the early 1970's. To meet the 21st century challenge, the 
demand will be that we need all energy sources that we have 
available to us. It is clear what the American consumers have 
asked us to provide. They want secure, affordable, reliable, 
and environmentally sound energy.
    My written statement that we submitted for the record, as 
requested, offers a series of questions that would be available 
to you that may assist this committee as it seeks answers in 
future hearings when you talk to the industry and when you talk 
to the Federal Government agencies and the players. I would be 
happy to answer any questions that you have; thank you.
    [The prepared statement of Mr. Wells follows.]

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    Mr. Issa. Thank you, Mr. Wells, and your entire statement 
and all of the other statements will be placed in the record. 
Mr. Caruso, please?

  STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION 
           ADMINISTRATION, U.S. DEPARTMENT OF ENERGY

    Mr. Caruso. Thank you, Mr. Chairman, it is a pleasure to be 
here to present the Energy Information Administration's outlook 
for energy markets, both for the short and the medium term.
    All of EIA's outlooks are policy-neutral and rely on the 
existing policy's rules and regulations. So in a way, what I am 
going to be sharing with you today is, this is where we see the 
United States and global energy markets headed, if we stay on 
the path we are on.
    I know that is the purpose of your subcommittee and your 
committee, to look at whether or not there are ways to change 
this path and what are the correct paths. I certainly applaud 
your interest in that.
    As we sit here this afternoon, the price of crude oil on 
the New York Mercantile Exchange exceeded $56 a barrel. How did 
we get to this point? It is mainly because the fundamentals of 
the global oil market are extremely tightly balanced.
    As mentioned earlier, world demand grew at 2.7 million 
barrels a day last year. We see it growing at more than 2 
million barrels a day this year and next. With this kind of 
demand growth, it is stretching the ability to produce, store, 
refine, and transport oil to the limit.
    So there are no longer any cushions in the market to 
provide pressure relief valves when there are unexpected 
changes in either supply or demand. So small changes can lead 
to large price spikes. We think our short-term outlook reflects 
that fact. We are now projecting, on average, $49 crude this 
year, and not declining much next year.
    Over the longer term, we see very strong growth in United 
States and global energy demand. In the United States, we have 
about a third increase in our demand for energy projected to 
2025, and domestic supplies will not keep up with demand.
    Therefore, our net import position will grow from 28 
percent of net imports of energy. This 28 percent will grow to 
38 percent in 2025. That includes both oil and natural gas.
    We are using energy more efficiently. We are getting more 
energy per unit of GDP. But clearly, we can do better in that, 
and we expect that as we look out at the next 20 years, energy 
efficiency will continue and technology will improve. But 
clearly, there is room for doing even more.
    One of the issues with respect to changing our demand is 
that an increasing share of our energy demand is in the 
transportation sector, which is much less flexible than the 
industrial sector or even the electric power sector.
    That is why, when one looks at the outlook for petroleum 
over the next 20 years, our import dependency will grow even 
more dramatically the total energy, going from 57 percent net 
import dependency in 2003 to almost 70 percent by 2025. That is 
because our demand for oil is projected to grow by 8 million 
barrels a day, from about 20\1/2\ million today to about 28 
million barrels a day.
    Our domestic supply has been and will continue to be at a 
flat to declining path. Therefore, imports, and particularly 
those from the Persian Gulf countries, will rise dramatically. 
Now this outlook assumes that the high prices of oil that we 
are experiencing today and have been over the last year will 
actually come down to $25 to $30 in real terms.
    Nevertheless, we recognize the great uncertainty with that 
referenced assumption. We have done several cases where we have 
assumed higher prices than those that are in our long-term 
outlook, which was published in February. As I mentioned, 
transportation will account for about 70 percent of that 
petroleum demand over the next 20 years.
    The other area within our energy economy that reflects this 
increasing dependence on imports is natural gas. We expect the 
demand for natural gas to grow from about 22 trillion cubic 
feet last year to about 31 trillion cubic feet in 2025.
    Once again, domestic supply will not grow nearly enough to 
meet that kind of a demand growth. So we will be relying on 
imports of gas, not only from Canada, which is our main 
supplier today, but increasingly on liquified natural gas 
[LNG], which will be coming from as far afield as Katar and 
Russia, as well as our traditional suppliers of Algeria, 
Trinidad, and Tobago.
    So natural gas imports, as a share of total supply, will go 
from 15 percent to about 28 percent. So, again, that same 
pattern that we have seen in oil will be replicated in natural 
gas, if our projections are accurate.
    On the global market, the most rapid growth will be for 
developing countries. As has already been mentioned, China and 
India are growing very strongly. Last year, China grew at 
almost 20 percent, in terms of its oil demand. India is 
growing, as well.
    We think those countries will lead to growth in global 
energy demand over the next 20 years; not only for oil, but for 
natural gas, as they attempt to use more gas in electric power 
generation. Of course, coal will still dominate the energy 
economies of China and India, because they have indigenous 
supplies, and they use it to generate much of their 
electricity.
    When one looks at this kind of demand for oil that we are 
projecting, 120 million barrels a day in our global outlook, we 
are often asked, will resources be sufficient to meet that kind 
of demand? I think the answer is, yes, the resources are there; 
but it represents a significant investment challenge for not 
only international oil companies, but national oil companies; 
and whether or not the proper investment incentives and the 
governance would be there from these countries, as I have I 
mentioned.
    Clearly, we do recognize that prices of both oil and 
natural gas have been volatile in recent years. We expect that 
volatility to continue, because of the tightness in the 
fundamentals of supply and demand.
    Although we do not project volatility in our models, 
clearly, what we do project is the tightness in the 
infrastructure to produce and refine oil, and to produce and 
consume natural gas. Given that tightness, clearly, the 
expectations are that the volatility will be with us.
    In conclusion, the economic growth that we have seen will 
lead to even higher energy demand. Fossil fuels are expected to 
remain the dominant sources of energy. Therefore, the United 
States, China, and India will become increasingly dependent on 
imports of both oil and natural gas.
    So the questions that you have asked, I think, are the 
right ones. Clearly, as your hearings proceed, we would be 
pleased to provide any additional information that you may find 
useful. Mr. Chairman and members of the committee, thank you 
very much.
    [The prepared statement of Mr. Caruso follows:]

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    Mr. Issa. Thank you, Mr. Caruso; we have been joined by Mr. 
Brian Higgins of New York and the ranking member, Diane Watson 
of California. Diane, do you want to do an opening statement 
now, or do the final testimony and then do your opening 
statement and questions?
    Ms. Watson. Well, it is going to be short, so I will just 
do it now. Thank you so much, Mr. Chairman. I am sorry I was 
late. I was taking care of a little business on the floor.
    Mr. Issa. And very well, I am sure.
    Ms. Watson. I appreciate your help. This is the beginning 
of several days of hearings on the energy policy, and I am sure 
that was stated by our Chair.
    Energy is almost like food and water in the American 
lifestyle. It keeps us warm in the winter. It gets us to and 
from work. It cooks our meals and it lights our way. We use it 
to record the memories of our children, to play our music, and 
to entertain us. In short, we have a desperate need for it.
    It has become one of those commodities that we almost take 
for granted. Yet, we should not take it for granted, for many 
reasons. The generation and the delivery of energy is a serious 
challenge; a challenge of engineering, a challenge of planning, 
and even a challenge that evokes the most serious aspects of 
our foreign policy.
    Energy costs represent a large and growing household 
expense to all Americans, and energy is a key factor in the 
environmental challenges we face in modern America. These 
issues are important to the American people, and when they 
stare at the gas pump, amazed at the price of gasoline, that 
hits people in their pocketbooks.
    When their lights go out, because of deferred maintenance 
or even market abuses, our constituents are deeply and 
rightfully unhappy. When they learn that the money that they 
send overseas for energy imports is popping up in some despotic 
regimes, believe me, Americans care. When they learn that the 
sea level is rising and the water supplies are threatened, 
people then become very, very worried.
    This was really brought home to the people in the State of 
California a few years ago, when big energy companies were 
allowed to run amuck. By now, many of you have heard the tape 
recordings of the Enron power traders laughing at how they were 
taking advantage of the elderly in California.
    Well, it is not just Enron, and it was not just the 
elderly. We still have not put all the pieces back together, 
and California may never be compensated for the billions of 
dollars in overcharges that we suffered. But we must try to 
make things right and make sure that it never happens again.
    These issues are important to the American people. They are 
important to Californians. They expect us to find solutions to 
them, and that is our job. I am glad that Chairman Issa has 
convened a hearing to help us do just that.
    In the past, we have seen an ideological approach to energy 
that has resulted in a stalemate. It produced a bill that did 
not address our Nation's challenges, but just gave away new and 
larger subsidies to the big energy companies.
    So in opposing this approach, and fortunately, the Senate 
refused to pass it, I hope we can together find new approaches. 
In this Congress, we have a chance to start again. We can build 
a bi-partisan consensus on energy policy, and steer our country 
through the challenges that we all face. We know it can be 
done.
    The National Commission on Energy Policy brought together 
business, labor, Republicans, Democrats, and developed an 
approach that they agreed could work. We can do the same, and I 
truly hope we decide to do so. Again, Mr. Chairman, thank you 
for this opportunity.
    [The prepared statement of Hon. Diane E. Watson follows:]

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    Mr. Issa. Thank you, Ms. Watson.
    Brian, is it all right to have yours just put in the 
record? OK, it will be placed in the record, and I appreciate 
that.
    Dr. Portney, I appreciate your patience. We look forward to 
hearing your testimony, also. Again, your full statement will 
be put in the record. So summarize as best as you would like 
to.

 STATEMENT OF PAUL PORTNEY, PRESIDENT, RESOURCES FOR THE FUTURE

    Mr. Portney. Terrific, I will try to be as admirably brief 
as my co-panelists have been here. They have set a real example 
for me.
    First of all, I appreciate you and your fellow subcommittee 
members having me here today. I want to commend you all for 
holding hearings sort of on more general questions of whether 
Congress is asking the right questions and focused on the right 
issues in the energy debate.
    Most of the time, in my time in Washington, when I have 
testified, it is over a particular piece of legislation. It is 
not often when I have had the opportunity to come up and sort 
of speak to a bigger picture issue. I commend you for asking a 
more generic set of questions here than views on a particular 
piece of legislation.
    I want to make clear, as I did in my prepared testimony, 
that my comments today are my own and should not be construed 
as the views of Resources for Future. I will say also what an 
honor it is to testify on such a distinguished panel with Jim 
Wells and Guy Caruso.
    You have asked all of us a pretty big set of questions 
here. Is Congress focused on the right issues? Is the executive 
branch taking the right set of actions?
    There are a lot of ways one could attack this; probably as 
many ways as there are energy forms. I have chosen to focus on 
three issues, and I will confine my remarks today to the three 
issues that I have talked about, the first of which has to do 
with U.S. oil consumption. Both Jim and Guy Caruso have spoken 
to this.
    Let me be even more sparing than they have been in terms of 
statistics. But I want to remind you that imports of oil in the 
United States now account for nearly 60 percent of total 
consumption.
    We are sending $600 million each day to other countries in 
oil payments. That runs to about $200 billion a year in an 
annual total; 20 percent of which goes directly to the Persian 
Gulf, where at least some governments bear the United States 
ill will.
    That $200 billion is a lot of money. You all remember 
former Senator Dirkson saying, ``A billion here, a billion 
there; pretty soon you are talking about real money.'' Well, 
this is $10 billion here, $10 billion there. That is $200 
billion total, and that is a significant outflow of dollars 
from the United States.
    That $200 billion per year, at an annual rate, is about a 
third of the trade deficit; and a trade deficit of the size 
that we have now, of course, puts downward pressure on the 
dollar. It makes imports more expensive, and it could force 
interest rates up dramatically, if the foreign governments that 
have all of these dollars decide not to reinvest them in U.S. 
securities. So it is a significant economic problem.
    I am not given to alarmist statements related to energy and 
the environment, but this is just simply a problem that we have 
to deal with. There is no question about that.
    In addition to the amount of money that is flowing out of 
the United States because of oil imports, our overall level of 
oil consumption makes us particularly susceptible to oil price 
shocks. As I note in my prepared remarks, each of the last four 
recessions have been preceded by a run-up in oil prices.
    While it would be too simplistic to say that was the only 
cause of the recession, there is no question about the fact 
that run-ups in oil prices act as taxes, slow down the rate of 
economic activity, and do not make recessions any better. So we 
need to pay attention to our oil consumption for that reason.
    Another reason we need to pay attention to oil consumption 
is that every gallon of gasoline burned releases carbon dioxide 
into the atmosphere. Again, I will emphasize that I do not 
consider myself a Chicken Little on environmental issues, but 
this climate change problem is something that I think we have 
to continue to pay attention to.
    Part of dealing with this problem lies in the electric 
utility sector and in the industrial sector. But part of it has 
to do with household consumption of gasoline.
    There are only two ways that I know of to reduce the amount 
of gasoline that we are consuming. One is through better fuel 
efficiency in automobiles, as a result of Government mandates, 
such as the CAFE program.
    I have testified before Congress on a number of occasions 
about CAFE, and I have said each time, and I will say again, 
that this is one way that you can improve automotive fuel 
economy.
    I do not think it is the best way. I think a better way to 
do it is by increasing the Federal excise tax on gasoline or 
through a carbon tax. But I understand that this is not the 
most politically popular way to do this. Either through CAFE or 
through increases in the price of gasoline, that creates an 
incentive for people to buy smaller cars and pay more attention 
to how much they drive the cars they have.
    Through some combination of these things, or one or the 
other, we just simply have to do something about this problem. 
I hope that you and your colleagues here will begin to take 
this even more seriously than you have in the past.
    The second issue to which I want to speak has to do with 
natural gas. As Guy Caruso mentioned, currently, we are 
importing about 15 percent of it. But it will not be long 
before that is 20 percent and then 25 percent, and possibly 
even 30 percent.
    Obviously, prices have risen because of the imbalance 
between supply and demand. Congress has taken steps to 
facilitate the construction of a pipeline that would bring 
natural gas from Alaska to the United States, although it still 
remains to be seen when or whether that pipeline will be built.
    But I think one of the important things that Congress needs 
to pay attention to is the possibility that some number of 
years down the line, and this is something that both Jim and 
Guy might want to speak to, we will see a cartel of countries 
that produce natural gas that will not look unlike the OPEC 
cartel with which we deal in the petroleum market now.
    I do not know if they will be an organization of natural 
gas exporting countries or not. But the potential is certainly 
there, and as Guy has indicated, we will begin to depend more 
and more for our natural gas supplies on imports of liquids. If 
one looks at where our natural gas supplies are located around 
the world, the pattern looks suspiciously familiar to where 
petroleum is located.
    If we are concerned about the sources of the petroleum that 
we import, we ought to be concerned somewhere down the line 
that we will be uncomfortably dependent on imports of natural 
gas, which plays a critical role in chemical and other 
industrial production, as well a very useful role in the United 
States in home heating and for other purposes.
    Congress ought to begin to think now about what we can do 
to increase supplies in the United States and engage in 
conservation measures that would dampen demand, so that we are 
not facing two worldwide energy cartels that have the potential 
to squeeze us.
    The third issue I will speak to is something that I think 
Congress probably pays some attention to. Frankly, it is much 
less sexy than the problems associated with petroleum and 
natural gas. It actually is an organizational issue.
    When I talk to people, either in Washington or outside of 
Washington, about energy policy, people who follow it closely, 
they say, well, we cannot understand why the Department of 
Energy does not do more to solve the country's energy problems.
    What I try to point out to them is that the Department of 
Energy has precious few levers to influence the types of fuels 
that we use, the conditions under which these fuels are used, 
etc.
    If one looks at the budget of the Department of Energy, it 
is about $23 billion or $24 billion. By my calculations, about 
$20 billion of that, almost the whole enchilada so to speak, 
goes to weapons productions, waste clean-up associated with 
previous weapons productions, or basic science, a lot of which 
does not have very much to do with energy at all.
    Who is it that does influence energy policy in the United 
States? Well, it is the Nuclear Regulatory Commission, the 
Federal Energy Regulatory Commission, the Minerals Management 
Service, the National Highway Traffic Safety Administration 
that writes fuel economy standards for light duty trucks, which 
comprise more than half of the new vehicles sold. More than any 
other agency, of course, the Environmental Protection Agency 
which, through standards that pertain to power plants and 
refineries and fuel requirements, really is the agency that 
drives energy policy in the United States.
    That is fine, but we ought to pay attention to the fact 
that the laws that empower the EPA, that have given us air 
quality benefits and water quality benefits that are of no 
doubt great importance, do not direct the Environmental 
Protection Agency in issuing these standards to also pay 
attention to the impacts of these regulations on supplies of 
fuels and regional balances or imbalances.
    So at the very least, I think we need stronger coordination 
within the executive branch of the activities of these five 
agencies and, indeed, other Federal agencies, which have a huge 
impact on the energy that we use and the way we use it.
    The final thing I will say is, by way of mentioning some 
odds and ends here, from my standpoint, an ideal energy policy 
would be one that would eliminate the subsidies to all energy 
forms, whether nuclear, renewable, fossil fuels, etc.
    That would then also internalize all of the environmental 
externalities, the adverse effects associated with pollution, 
not only from fossil fuels, but from nuclear, because you have 
to deal with spent waste and with renewables, because wind 
power has some adverse effects on wildlife and visual dis-
amenities, etc. That would completely level the playing field 
and we could take it from there.
    Now I was born at night, but not last night. So I know the 
chances of that happening are fairly slim. But in a sense, that 
would be an ideal energy policy, from my standpoint.
    The other thing I would say is that because you and 
Congress are struggling, not only with energy problems, but 
also with a budget deficit and a trade deficit, an approach 
like that would help on both counts, a carbon tax or something 
like that, and would begin to produce on the order of, say, $75 
billion a year in new revenues by the year 2020, depending on 
the level at which it was set.
    That would not only create incentives to shift to cleaner 
fuels in the United States, but it would reduce our dependence 
on imported natural gas and on petroleum. It would create an 
incentive to move toward the hydrogen economy that President 
Bush, I think, has wisely committed some billions of dollars 
toward.
    So as you think about the energy policy, you also ought to 
be thinking about solutions to energy problems that might also 
help us with the trade deficit and with the budget deficit. 
Because I think there are solutions out there like that. With 
that, I will stop, and thank you again for having me.
    [The prepared statement of Mr. Portney follows:]

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    Mr. Issa. Thank you, Doctor; we have also now been joined 
by the gentleman from Georgia, Mr. Westmoreland. If you would 
put your opening statement into the record, and then you can 
summarize your opening statement and your questions as we go 
through. With that, I would like to recognize the ranking 
member for the first round of questions.
    Ms. Watson. I want to thank all the panelists. I think you 
have described the issue quite well. I keep going back in my 
mind to climate change. We saw the effects of it in Los 
Angeles, where we had a record rainfall. We almost broke the 
record, 33 inches. That is more than we get in 6 years.
    Our electricity went off. We had floods. We had potholes, 
and so on. It all goes back to energy. So I want to ask the 
three of you, and I think Dr. Portney has already touched on 
some of this. But what do you think we can do about taking 
climate change into consideration and its relativity to energy 
sources, and our need for energy in the future?
    I understand that now we are competing with the Chinese for 
oil. Everyone is driving a car. When I first went there, they 
were on bicycles or walking. So how are you relating the 
climate change to the sources of fuel, and what can we do? I 
know that is a big question, but try your best.
    Mr. Caruso. Well, the one thing I can say about the 
greenhouse gas emissions is, if you look out over the 20 year 
forecast that I have presented the highlights of this 
afternoon, a significant amount of the CO2 emissions 
over the next 20 years will be coming from the developing Asian 
countries of China, India and elsewhere.
    So because so much of their electricity is generated by 
coal, whatever we choose to do on an international basis, 
because I do not think we can look at this just from our own 
domestic perspective, we do need to bring in a broader array of 
countries to deal with this.
    So I think that is the thing that just jumps out at you, 
when you look at the projections in our model; that there is so 
much growth in greenhouse gas emissions coming from developing 
Asian countries, that we need to do this on as broad a 
collaborative basis as possible.
    Mr. Wells. I think I would start and respond domestically 
to pick up a little bit on what Paul was saying. We, as an 
audit agency, have an opportunity to look at the actions that 
are being taken by Federal agencies. For instance, I will go to 
EPA. We have ongoing work and PASS work looking at, for 
instance, mercury emissions from the power plants.
    What we are finding when we look at and ask questions about 
how EPA is designing and coming up with their rulemaking, we 
challenge some of their methodologies and some of their 
economic analysis that are being used as being missing items.
    One of the things that we tend to notice, it is not only in 
mercury emissions, but we have noticed it in the gasoline 
marketplace, where EPA has a responsibility to approve and 
grant the permission for localities to use special fuels.
    What we are seeing is that the total analysis being done 
are missing things that involve energy impacts. So our 
recommendation to much of the Federal Government would be to, 
when you make these rules, you need to consider, from a climate 
change standpoint, all the factors and the consequences that 
are derived from those factors. For gasoline, they were missing 
factors in terms of the impact to the energy market, as well as 
mercury emissions.
    Ms. Watson. Thank you; Dr. Portney.
    Mr. Portney. Thank you very much; I guess, in my view, 
there are three pieces to dealing with this climate change 
problem. One is, as Guy Caruso said, I think we need to re-
negotiate an international agreement that would eventually at 
least begin to bring the developing countries in. Because as he 
pointed out, it will not be too long before CO2 
emissions from the developing world account for more than half 
of the total, between developed countries and developing 
countries.
    I will also say though that I do think it makes sense for 
the United States and the other developed countries to go first 
in beginning to reduce greenhouse gas emissions, since the 
stock of carbon dioxide in the atmosphere is mostly ours. I do 
not think it is inappropriate that we take the first steps.
    In terms of how we go about reducing greenhouse gas 
emissions, I think there are two parts to this puzzle. One is 
to invest in new technologies. The hydrogen initiative is one 
part of this, but I think we need to invest more in energy 
efficiency and in renewables. Hydrogen, as I say, is an 
important component to that.
    The third leg of the stool is the one that is politically 
more unpalatable. But the way you get people to consume less 
carbon-intensive fuels is to increase the price. That means 
electricity that derives from coal. It means higher prices for 
petroleum and higher prices for natural gas. I think we have to 
do that very, very gradually, and that will not be politically 
popular. I understand that.
    But if we do that in such a way, through a carbon tax, for 
instance, that is at least spending off revenues and reducing 
the deficit and dampening the trade deficit, then I think 
people will understand that we are at least getting something 
else for that sacrifice, in addition to investing in a better 
environment.
    Ms. Watson. If I have another minute, Mr. Chairman, global 
warming is something that has been looked at most often. I 
think that we have not really put enough research into looking 
at the impact.
    We can see the net results, and we have to really change 
them. You can comment on this statement I am making, or not. I 
think what we really have to do is do much more in depth 
research as to all the factors causing this and the results, 
and we have to chance the demand, and I think you alluded to 
it.
    That means educating our people, starting in school, on how 
to conserve, and looking for alternative technologies and so 
on. Those that are politically unpopular are the ones that we 
really need to get on top of.
    I am so sure that our Chair is going to look into it and 
have our committee hold additional hearings. You have already 
started. I want to commend you for that, because I see a really 
serious problem for the United States. But you did mention that 
we needed to look globally and have an alliance as we tackle 
the climate changes. I think that is the only way that our 
hearings are going to be meaningful, if we end up doing that.
    So if you would like to comment, fine; but I wanted to make 
that statement, Mr. Chair.
    Mr. Issa. Well, thank you, and in keeping with our bi-
partisan efforts that you and I, as Californians, are committed 
to, we will be looking at those issues to the full extent of 
the committee's jurisdiction.
    I do very much believe that your points are valid; that we 
have to take where we have come from to where we are going, and 
do it to that next step. To that extent, I am not going to ask 
a round of questions, yet. But I just want to put a little 
point into the record, which I think sets the principle of 
where we have been and where we are, and Ms. Watson says it 
very well, where we need to go.
    Since 1970, the U.S. aggregate emissions of the six 
pollutants recognized in the Clean Air Act has been cut by 48 
percent. At the same time, the U.S. GDP increased by 164 
percent.
    Energy consumption increased by only 42 percent, meaning 
more money per BTU, so to speak. We have increased fuel 
consumption, as I said, by 42 percent. But vehicular travel has 
increased by 155 percent. If you think the Chinese are driving; 
boy, are we driving.
    It is exactly that trend, that we have to do the good part 
of it; cut emissions by another 48 percent. But we also have to 
do a much better job of using our fuel per GDP dollar more 
wisely. With your indulgence, to my ranking member, I now call 
on Vice Chair Westmoreland, please, for 5 minutes.
    Mr. Westmoreland. Thank you, Mr. Chairman, and I want to 
thank you for having these hearings. When I was at home last 
week and had a couple of Social Security meetings, all that 
people wanted to talk about was the price of gasoline. So I 
think these are very timely hearings.
    Let me start out by asking you, I know that there are 
different formulas of gasoline that burn in different parts of 
the country, due to the Clean Air Act. Do any of you know how 
many types of reformulated gas are being used across the 
country today? Are they just used during certain times of the 
year, in certain parts of the country? What is the total number 
of reformulated fuels that we actually have?
    Mr. Wells. Congressman, the Government Accountability 
Office has some ongoing work looking at the status of 
reformulated fuels in use in the country. We hope to have that 
worked out in several months. But the numbers are in the 
ballpark of starting at a number around a dozen fuels that are 
special fuels.
    If you were to look at the seasonality of the fuels, you 
get into the neighborhood of a 30 range. I am talking about 
winter gasoline, summer gasoline. If you were to talk in terms 
of the multiple grades of octane, you are over 100.
    The upcoming work that GAO will be publishing will address 
how difficult it has been for the industry to deal with these 
special formulations. It is not that the special formulations 
are bad. I mean, they are being driven by the Clean Air Act 
rules and requirements. But they do have price consequences, 
and they have cost and benefits, and that is in the ballpark 
range of what we are seeing in the gasoline marketplace.
    Mr. Westmoreland. Could I have a followup question, please?
    Mr. Issa. Of course.
    Mr. Westmoreland. Has there been a cost benefit analysis of 
what it costs us to do this reformulating of gasoline, compared 
to how clean it is actually making our air; and what is the end 
gain on clean air? I mean, I think if I asked in this room who 
all wants to have clean air, I think we would all raise our 
hands.
    But I guess my question to the panel is, how clean is 
clean? Where are we trying to go with this, and how much 
further do you think that we are from being there? What price 
is it going to cost us, and is it going to cause us to have to 
develop more formulas of gas?
    Mr. Wells. The quality of the type of studies you are 
asking, do they exist, are hard to find, particularly if you 
want to try to do a cost/benefit and if you try to include 
health impacts.
    We hope to have a compilation of everything that exists. I 
think they will fall short of the answer that the American 
public is probably asking for. Perhaps some of the other 
panelists are aware of some of these studies.
    Mr. Portney. If I could, very briefly, you have asked, I 
think, a very interesting and important question. In other 
words, I will rephrase it as, how many different recipes for 
gasoline are there?
    The reason we began to get a proliferation of recipes that 
makes sense, is that we do not want to have one size fits all. 
In others words, we needed a type of gasoline that was low in 
certain additives to deal with the Denver problem. So you do 
not necessarily want to make everybody in the country use the 
same type of gasoline because you have a problem in one city.
    But I do think that what has happened is, we have almost 
gotten to the point where we have now designer blends for 
almost every part of the country. The difficulty that it 
creates is that if a refinery that produces one of those 
designer blends goes down, you cannot easily ship gasoline from 
an adjacent city or State.
    So while the basic motive of trying to tailor the gasoline 
to the local conditions originally, I think, made sense, I 
think we have probably gotten to a point now where it probably 
makes sense, from an overall national standpoint, to have fewer 
blends, so that if we have shortages in one area, we can ship 
gasoline from California or Nevada or something, and not be in 
a position where they go, well, I am sorry, that is not the 
recipe we use here. It think that is what you are driving at, 
and I think we have a problem on that count now.
    Mr. Westmoreland. I have just one further question, and 
this will be my last one. I know that in some situations in 
Georgia, we had some pipeline issues of getting a certain 
amount of gasoline in the pipeline. They were actually having 
to lower it into tankers.
    We were just putting a lot more trucks on the road than was 
necessary. If we had only been using one single formulation of 
gas, you know, trying to save on the one hand was costing us 
dearly on the other hand.
    Mr. Caruso. I have a couple comments. I agree with both of 
my colleagues. Clearly, the infrastructure problem that we have 
in this country, particularly on oil, is related to the point 
you have made. That is, it has increased the inflexibility to 
deal with unexpected changes in supply or demand, which is 
exactly the point you are making about the pipeline.
    But one thing to remember is, Georgia, for example, has the 
lowest priced gasoline in the country and California has the 
highest. Part of it is because of the different emission 
standards. Specifications in California were compared with 
Georgia. So that is another very sensitive issue. I agree with 
Paul, we need to do something to improve the flexibility to 
deal with unexpected changes. By there would be, of course, a 
cost to it.
    Mr. Westmoreland. Well, is there an answer to it? Do you 
all have an answer of what that might be, that this committee 
could look at, so we could start working toward something?
    Mr. Wells. I would suggest that there may be an issue to 
look at the proliferation of these specials fuels; and where in 
the Federal Government, and perhaps at the Environmental 
Protection level, that are granting approval for these special 
fuels, what type of approval process they use; what criteria do 
they use; and are they, in fact, factoring in the various 
infrastructure needs and consequences of approving these 
special fuels?
    I mentioned 12, 30, 100 different fuels. If we continue to 
allow approvals for these multiple fuels, we are talking about 
multiplying the price impact and the infrastructure 
consequences of trying to deliver those fuels.
    So one needs to look at, you know, are we perhaps better 
off regionalizing some of these special blends, as opposed to 
allowing every city in the country to design their own fuel?
    The best example I can give is Kansas City. Right down the 
middle, you have a Missouri blend and you have a Kansas blend, 
and it is the same city. A truck has to roll through the city 
to the other side of the city to deliver. That is an 
inefficient way to deliver gasoline products.
    Mr. Issa. Thank you; Mr. Higgins, do you have any 
questions?
    Mr. Higgins. Thank you, I am new to the committee and new 
to Congress. But obviously, I have a strong interest in energy 
issues, particularly coming from New York State.
    One of the problems I think we have in New York State is 
particularly high energy costs, which undermines our economic 
development efforts, particularly in a globalized economy.
    My understanding was that deregulation of energy was to 
provide more competition, which would result in a cost-cutting 
stimulus. But in New York State, our problem is, I believe, a 
situation where our demand is approximately 31,000 megawatts a 
day and the supply is about 35,000 megawatts on any given day.
    I think this creates a situation where there is not enough 
supply to create the cost cutting stimulus that should come 
from competition. As you may know, the price for electricity 
each day is determined by this reverse auction type of scheme, 
which is administered by the independent system operator.
    So in trying to address the Nation's energy demand moving 
forward, and particularly with respect to New York State, can 
you offer any insight as to the particular problems in New York 
State, beyond which I have described, relative to creating the 
cost cutting influence that should come from competition?
    Ms. Wells. Let me start. The decision you are talking about 
was the decision the country made to restructure the 
electricity industry, and to restructure it in the wholesale 
marketplace to achieve benefits that hopefully would be derived 
from lower prices from the electricity, by bringing in private 
marketeer to deliver energy and take energy out of the realm of 
being delivered locally, but across the Nation.
    The situation we are now in is, unfortunately, we are sort 
of halfway into it. There is sort of a hybrid that exists. Many 
of the States went for restructuring and worked, in terms of 
starting that process. Some of the States chose not to start 
with restructuring, and have continued to deliver electricity 
the old way.
    So I think FERC has its hands full right now, trying to 
oversee a marketplace that we are sort of in the middle of this 
design to go for restructuring electricity. So the verdict is 
still out, in terms of the benefits and costs and what can be 
derived from a true restructured marketplace.
    I think this gets back to what we are talking about, in 
terms of where we need to be in the future, in terms of a 
partnership.
    Truly, it is going to take more than FERC. It is going to 
take more than the country and the Federal Government saying, 
we are going to restructure, because we have to bring in the 
local communities and the individual States, and we have to 
figure out a way to make delivery of electricity in the best 
efficient possible way.
    We are just not there, yet. I think the country is 
struggling a little bit in the electricity delivery 
marketplace.
    Mr. Higgins. Could I ask one more question, then? This is 
more localized to the western New York area. There are two 
hydro-electric plants in New York State, which produce about 10 
percent of the State's electricity supply.
    With the Federal Energy Regulatory Commission, I am 
particularly concerned about the Niagara Power Project in 
western New York. It generates about 2.4 million kilowatts of 
power.
    The Federal Energy Regulatory Commission issued to the New 
York Power Authority a license to own and operate that plant 
for 50 years in the year 1957. It was part of the Niagara 
Redevelopment Act, which was an act of Congress.
    That license is set to expire to in 2007. That resource, 
hydro-electricity, could have a profound impact on the economy 
of western New York, if the power was taken from the New York 
Power Authority and put into job-creating businesses in that 
area.
    I am just wondering, what specifically do you understand 
the role of the Federal Energy Regulatory Commission to be, 
relative to the mandating of where that power is allocated?
    Mr. Wells. I am not familiar with that at all.
    Mr. Higgins. OK, thanks.
    Ms. Wells. I am sorry.
    Mr. Higgins. That is not a problem.
    Mr. Issa. OK, we have time for a second round; Mr. 
Westmoreland.
    Mr. Westmoreland. I am going to ask all three of these at 
one time. Getting back to the reformulated gas, what percentage 
of the gas price would you say is caused by the different 
formulas, No. 1; and what effect on price do you think we could 
expect if we came to a conclusion to regionalize or cut down on 
the otique gases.
    Mr. Wells. Otique.
    Mr. Westmoreland. Yes, I mean, in the supply and demand 
part of it, is there more demand for some of these different 
types of gases in different cities than it is capable for these 
refineries to try to refine and still keep the supply going to 
other parts that they are responsible for supplying the fuel 
to?
    Mr. Issa. If I could help perhaps, with the gentleman's 
approval, with the refinery question a little bit more? I might 
suggest that you simply look at California, where every air 
quality board is allowed to independently and has independently 
made decisions leading to the greatest single number of 
boutiques of similar cities. It is just a suggestion to look at 
what I believe is described as the worst case in any one State.
    Mr. Westmoreland. Right.
    Mr. Wells. Mr. Congressman, I have some constraints in that 
the information that is available to us, as we have ongoing 
study, is not published, yet. It is not final. I can tell you 
that there is a price differential that is being added because 
of these blends.
    Our GAO report, when released, will talk to a range. That 
range will be from single digit pennies to double digit pennies 
per gallon. There is a consequence of doing special blends; and 
yes, there are refinery capacity issues in terms of price 
impact, in terms of the quantity that is being requested versus 
the quantity that can be delivered on a consistent basis on any 
given day.
    Therefore, we talk to the consumer and give an explanation 
of the price volatility and why the pump is jumping 5 cents up 
1 day, 10 cents up the next day, 5 cents down the next day. It 
does cause price volatility. It is a problem that someone is 
going to need to take a look at, in terms of, there are some 
efficiencies.
    You know, I think that is the direction that the committee 
and the Congress and the people that are regulating boutique 
fuels need to be aware of when they approve future boutique 
fuels.
    Mr. Westmoreland. How long have you been working on this 
report?
    Mr. Wells. The actual audit work is completed. The report 
draft is being put together now. We are probably 30 days away 
from it being publicly released. That work belongs to the 
clients in the Congress that asked for that work. So that is 
why I am a little cagey with the actual numbers.
    Mr. Issa. Is that the Energy and Commerce Committee?
    Mr. Wells. I believe it is over on the Senate side that we 
are doing that work.
    Mr. Westmoreland. But how long have you actually been 
working on this report?
    Mr. Wells. We have about 4 months worth of audit work done 
in that area.
    Mr. Westmoreland. OK, but this has been going on for a lot 
longer than 4 months.
    Mr. Wells. Oh, absolutely.
    Mr. Westmoreland. I mean, why did we just decide all of a 
sudden that it was time to do a report on it?
    Mr. Wells. We work for the Congress, and the client came to 
us and asked for an investigation audit of this issue, and we 
agreed to accept that study. We are just about wrapping up that 
study and hope to have it published within the next 30 to 45 
days.
    Mr. Westmoreland. Thank you.
    Mr. Issa. Thank you, and I will do some additional 
questions, and then if you have any more, that would be just 
great.
    Regarding the role of coal, here in the Congress, we speak 
in flowery terms like, clean coal. Cleaning up coal does not 
sound as good as clean coal. So I think we speak in less exact 
terms than the reality that it is a dirty fuel, that we are 
making ever cleaner. But at best, coal is only going to be as 
clean as, in a perfect world, natural gas, I suppose, is today.
    Having said that, and with the recognition that as we burn 
fossil fuels, ultimately, we have a carbon monoxide and carbon 
dioxide component coming out of any of our processes for 
burning fossil fuels.
    I would leave this to each of you, but I think particularly 
for Mr. Caruso, where do you see nuclear/other zero emission 
fuels, you know, like solar, wind, and we speak of those a lot, 
but they are relatively small parts of the equation.
    But where do you see nuclear, particularly in light of the 
prediction that there will not be a new nuclear facility coming 
on line, at least until 2025? By that time, every single 
nuclear power plant on line today, if it is still on line, will 
be on multiple extensions. So how would you view nuclear, in 
the component of those fuels that you mentioned that we had to 
do all of?
    Mr. Caruso. Yes, nuclear is about 20 percent of our 
electricity generation, as we speak. We, in our long-term 
outlook, do not expect, or the model does not project, any new 
nuclear power plants being added to the fleet. But at the same 
time, we assume all existing plants are relicensed and continue 
operating through the 2025 timeframe.
    There will be some improvements in efficiency and 
upgrading, so that the actual amount of electricity generated 
by nuclear power would increase. It will lose market share 
under our projections, mainly to natural gas. The coal, we 
expect, would stay about the same, 50 or 51 percent.
    The reason we are projecting no new nuclear power plants is 
that the capital cost of building a new nuclear power plant is 
higher than either combined cycled natural gas plants or 
pulverized coal. So when the model searches out where the next 
new electric power plant will be built and what fuel it will 
use, it chooses the less costly, in terms of capital costs, 
plant. That is how we come up with this.
    Our best estimate of what it would take to build a new 
nuclear power plant, since we have not built one from scratch 
for more than 30 years, is about $1,900 per kilowatt. Now coal 
and natural gas can be built much cheaper than that. But, of 
course, there is a fuel component to it. But still, both coal 
and natural gas, at this time, the existing technologies are 
more efficient.
    Now we have been criticized by the Nuclear Energy Institute 
and nuclear vendors that our cost estimates are too high and 
that they can do better.
    So what we have done is run two other cases in this year's 
outlook. One is using a $1,450 capital cost; and the lower one 
is what you would call the advanced technology case. Then we 
have taken the vendor cost estimates from Westinghouse and 
others, which are around $1,100.
    If you use those assumptions, $1,450 or $1,100, you do get 
some new nuclear power plants built in this country, 
particularly in the period between 2015 and 2025. At $1,100, 
you get a substantial amount of new nuclear power plants. So 
this is a matter of the economics and technology, in our view.
    Mr. Issa. Let me have one followup question here. It is one 
that I do not expect you to be able to easily answer today; but 
if you could followup, if that can be done without specific 
authorization.
    If one were to take nuclear as a category, and the U.S. 
Government were to absorb all extraordinary liability questions 
and all extraordinary lawsuit questions in the citing; 
basically, we defend all the claims that come, every time you 
want to build a nuclear plant, and we take the extraordinary 
risk of insurance completely for zero cost to the vendor, 
leaving the remainder of the costs there, what would be the per 
kilowatt, from the industry, that they believe they would 
deliver for?
    I would like it, if possible, in two bases; one, with fuel 
prices in the estimate, and then based on the fact that next 
generation nuclear can literally burn weapons, plutonium, which 
we have an excess of that we have been trying to get rid of, 
literally 10,000 years worth of fuel that, at some point, we 
are not going to want to keep sitting post-silo, and then at a 
zero cost.
    If you could give us your best estimates of that, so that 
at least when we are having these discussions, and I agree with 
you, Mr. Caruso, they do not pencil out today, but taking out 
particularly those extraordinary costs that come when someone 
says, I want to build a nuclear versus alternate, where we 
would end up?
    Then, as somebody who wants to see, if you will, the swords 
turned into plow shears and the burning of plutonium, once and 
for all, and getting rid of as much of the weapons stockpiles 
as we can, that analysis, both of those are personally 
important to me, and I would like to know the cost benefit on 
them.
    With that, I do not want to monopolize the questions. Are 
there any last rounds of questions?
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    Mr. Westmoreland. I do have a closing statement.
    Mr. Issa. OK, then with your indulgence, we will have the 
closing statement, please.
    Mr. Westmoreland. Well, I would just like to thank you 
again, Mr. Chairman, for doing this. I know I am a freshman, 
but I understand in the last two Congresses, there has been two 
or three attempts to get an energy bill passed.
    I think, from all the testimony today, it is quite evident 
that we need an energy bill. It is something that we need to 
have as a road map to where we have to go with our energy 
policy, and also be able to put some of these guidelines in 
that we have talked about today.
    So I hope that this committee will encourage the Energy 
Committee to pass that along. Because I think that is something 
that is very critical right now; not only to our economy, but 
to our national security, that we have a good energy policy in 
tact and on the laws of this land. So that is all I really had 
to say, Mr. Chairman; thank you.
    Mr. Issa. With that, I would like to thank our panel for 
their testimony and obviously for your candid answers. I would 
also like to thank the majority and minority staff, because 
without them, this would not have happened. They have done a 
great deal of work here for all of us.
    Without objection, we will hold open the record for 2 weeks 
from this date, so that anyone can make submissions, including 
from the witnesses and from the members of the committee. If 
that will not be sufficient for any questions, please let my 
staff know and we will extend that date. With that, I thank you 
once again, and this hearing is adjourned.
    [Whereupon, at 3:50 p.m., the subcommittee was adjourned.]

                                 
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