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




 
       THE IMPACTS OF HIGH ENERGY COSTS TO THE AMERICAN CONSUMER

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

                           OVERSIGHT HEARING

                               before the

                       SUBCOMMITTEE ON ENERGY AND
                           MINERAL RESOURCES

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                         Thursday, May 19, 2005

                               __________

                           Serial No. 109-13

                               __________

           Printed for the use of the Committee on Resources



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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
Jim Saxton, New Jersey               Eni F.H. Faleomavaega, American 
Elton Gallegly, California               Samoa
John J. Duncan, Jr., Tennessee       Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Barbara Cubin, Wyoming               Donna M. Christensen, Virgin 
  Vice Chair                             Islands
George P. Radanovich, California     Ron Kind, Wisconsin
Walter B. Jones, Jr., North          Grace F. Napolitano, California
    Carolina                         Tom Udall, New Mexico
Chris Cannon, Utah                   Raul M. Grijalva, Arizona
John E. Peterson, Pennsylvania       Madeleine Z. Bordallo, Guam
Jim Gibbons, Nevada                  Jim Costa, California
Greg Walden, Oregon                  Charlie Melancon, Louisiana
Thomas G. Tancredo, Colorado         Dan Boren, Oklahoma
J.D. Hayworth, Arizona               George Miller, California
Jeff Flake, Arizona                  Edward J. Markey, Massachusetts
Rick Renzi, Arizona                  Peter A. DeFazio, Oregon
Stevan Pearce, New Mexico            Jay Inslee, Washington
Henry Brown, Jr., South Carolina     Mark Udall, Colorado
Thelma Drake, Virginia               Dennis Cardoza, California
Luis G. Fortuno, Puerto Rico         Stephanie Herseth, South Dakota
Cathy McMorris, Washington
Bobby Jindal, Louisiana
Louie Gohmert, Texas
Marilyn N. Musgrave, Colorado
Vacancy

                     Steven J. Ding, Chief of Staff
                      Lisa Pittman, Chief Counsel
                 James H. Zoia, Democrat Staff Director
               Jeffrey P. Petrich, Democrat Chief Counsel
                                 ------                                

              SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES

                     JIM GIBBONS, Nevada, Chairman
           RAUL M. GRIJALVA, Arizona, Ranking Democrat Member

Don Young, Alaska                    Eni F.H. Faleomavaega, American 
Barbara Cubin, Wyoming                   Samoa
Chris Cannon, Utah                   Solomon P. Ortiz, Texas
John E. Peterson, Pennsylvania       Jim Costa, California
Stevan Pearce, New Mexico            Charlie Melancon, Louisiana
Thelma Drake, Virginia               Dan Boren, Oklahoma
Bobby Jindal, Louisiana              Edward J. Markey, Massachusetts
Louie Gohmert, Texas                 Nick J. Rahall II, West Virginia, 
Richard W. Pombo, California, ex         ex officio
    officio


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on Thursday, May 19, 2005...........................     1

Statement of Members:
    Drake, Hon. Thelma, a Representative in Congress from the 
      State of Virginia, Prepared statement of...................     5
    Gibbons, Hon. Jim, a Representative in Congress from the 
      State of Nevada............................................     1
        Prepared statement of....................................     2
    Grijalva, Hon. Raul M., a Representative in Congress from the 
      State of Arizona...........................................     3
        Prepared statement of....................................     4

Statement of Witnesses:
    Bessette, Robert D., President, Council of Industrial Boiler 
      Owners.....................................................    20
        Prepared statement of....................................    21
    Cicio, Paul N., Executive Director, Industrial Energy 
      Consumers of America.......................................    11
        Prepared statement of....................................    12
    Clements, Carol, Chairperson of the Board of Directors, The 
      National Fuel Funds Network................................    40
        Prepared statement of....................................    41
    Hyde, Robbie M., President and CEO, Mill Hall Clay Products, 
      Inc........................................................    37
        Prepared statement of....................................    38
    May, James C., President and CEO, Air Transport Association 
      of America, Inc............................................     7
        Prepared statement of....................................     8
    Morrison, Katherine, Staff Attorney, U.S. Public Interest 
      Research Group.............................................    45
        Prepared statement of....................................    47
    Schmalshof, Theresa, Corn Board Member, National Corn Growers 
      Association................................................    14
        Prepared statement of....................................    17

Additional materials supplied:
    American Chemistry Council, Statement submitted for the 
      record.....................................................    60
    The 60 Plus Association, Statement submitted for the record..    67


OVERSIGHT HEARING ON ``THE IMPACTS OF HIGH ENERGY COSTS TO THE AMERICAN 
                               CONSUMER''

                              ----------                              


                         Thursday, May 19, 2005

                     U.S. House of Representatives

              Subcommittee on Energy and Mineral Resources

                         Committee on Resources

                            Washington, D.C.

                              ----------                              

    The Subcommittee met, pursuant to notice, at 10:05 a.m., in 
Room 1324 Longworth House Office Building, Hon. Jim Gibbons 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Grijalva, Peterson, Drake, Ortiz, 
and Melancon.
    Mr. Gibbons. The oversight hearing of the Subcommittee on 
Energy and Mineral Resources will come to order.
    The Subcommittee is meeting today to hold an oversight 
hearing on ``The Impacts of High Energy Costs to the American 
Consumer.'' Under Committee Rule 4(g), the Chairman and the 
Ranking Minority Member may make opening statements. If any 
Members have opening statements that they wish to submit, they 
can be included in the hearing record under unanimous consent.

  STATEMENT OF HON. JIM GIBBONS, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF NEVADA

    Mr. Gibbons. This Subcommittee meets today to hear 
testimony on the adverse impacts that high energy prices are 
having on a broad range of Americans, including agriculture, 
manufacturing, transportation, and low-income consumers. High 
energy prices are an unlegislated tax on every aspect of daily 
life in the United States. All American consumers are impacted 
by the increased costs to produce and deliver goods and 
services.
    Increased energy prices make things like groceries to feed 
our families, steel to build our schools and roads, and 
fertilizer to grow stable crops for our food supplies much more 
expensive. And when it costs more to deliver a product or a 
service to the consumer, the consumer will inevitably pay the 
price.
    Consumer needs that previously were met by a family's 
disposable income are now going unmet, in order to pay 
excessive heating bills and high-priced gasoline. Seniors on a 
fixed income and low-income families are particularly hard hit. 
But the assault of high energy prices on the American people 
does not stop with increased costs of consumption. The United 
States has the unfortunate distinction of having the world's 
highest natural gas prices. These excessively high prices have 
persisted for a number of years, and have resulted in the 
closing or severe downsizing of important segments of our 
economy.
    This downsizing has resulted in the loss of tens of 
thousands of high-paying jobs in the industrial and commercial 
sectors; particularly in the chemicals, fertilizer, steel, 
glass, and paper industries. This trend must, and can, be 
stopped. And this decline is totally unnecessary, given that 
natural gas prices are set on a regional market basis, and the 
North American region is virtually awash in natural gas 
resources.
    Sadly, current domestic energy policies restrict access to 
geologically prospective areas and discourage investment in the 
production of larger energy supplies here at home. 
Consequently, jobs are being sent overseas, while our nation 
retains high natural gas prices.
    Similarly, high oil prices also impact every aspect of our 
economy. From truckers and airline pilots getting goods to 
market throughout the country, to mothers and fathers loading 
up the car for a trip to grandmother's house, the rising cost 
of oil has increased the economic burden on everyone.
    Unlike natural gas prices, oil prices are set on a world 
market basis. And to the contrary, each nation has a duty to 
produce as much oil as it can in an environmentally acceptable 
manner, in order to keep world prices from escalating further. 
Hopefully, with significantly increased oil production by all 
capable nations, we will see oil prices lowered, and the 
adverse impacts to America's consumers lowered as a result.
    Lowering the price of energy is one of the reasons it is so 
important that we produce the vast quantities of oil contained 
in the Arctic National Wildlife Refuge. The House has developed 
a sound, realistic, and responsible energy policy that 
encourages utilization of domestic natural resources for the 
future that will ensure affordable and reliable supplies of 
energy for the American consumer.
    We need to get this energy bill to the President for his 
signature, so we can get on the path to lowering energy costs, 
increasing capital investments and jobs right here at home, and 
ensuring energy and economic security for the future of all 
Americans.
    I welcome our witnesses here today. I look forward to their 
testimony. I now would like to recognize my friend, and the 
Ranking Member of the Committee, Mr. Grijalva, for any opening 
remarks that he may wish to give at this time.
    Mr. Grijalva.
    [The prepared statement of Mr. Gibbons follows:]

 Statement of The Honorable Jim Gibbons, a Representative in Congress 
                        from the State of Nevada

    The Subcommittee meets today to hear testimony on the adverse 
impacts that high energy prices are having on a broad range of 
Americans, including agricultural, manufacturing, transportation, and 
low-income consumers. High energy prices are an unlegislated tax on 
every aspect of daily life in the United States.
    All American consumers are impacted by the increased costs to 
produce and deliver goods and services. Increased energy prices make 
things like groceries to feed our families, steel to build schools and 
roads, and fertilizer to grow staple crops for our food supply more 
expensive. And when it costs more to deliver a product or a service to 
the consumer, the consumer will inevitably pay the price.
    Consumer needs that previously were met by a family's disposable 
income are now going unmet in order to pay excessive heating bills and 
high-priced gasoline. Seniors on fixed incomes and low-income families 
are particularly hard hit. But the assault of high energy prices on the 
American people does not stop with increased costs of consumption.
    The United States has the unfortunate distinction of having the 
world's highest natural gas prices. These excessively high prices have 
persisted for a number of years and have resulted in the closing or 
severe downsizing of important segments of the economy. This downsizing 
has resulted in the loss of tens of thousands of high-paying jobs in 
the industrial and commercial sectors, particularly in the chemicals, 
fertilizer, steel, glass and paper industries. This trend must and can 
be stopped. And this decline is totally unnecessary given that natural 
gas prices are set on a regional market basis, and the North American 
region is virtually awash in natural gas resources.
    Sadly, current domestic energy policies restrict access to 
geologically prospective areas and discourage investment in the 
production of larger energy supplies here at home. Consequently, jobs 
are being sent overseas while our Nation retains high natural gas 
prices. Similarly high oil prices also impact every aspect of our 
economy. From truckers and airline pilots getting goods to markets 
throughout the country to mothers and fathers loading up the car for a 
trip to grandma's house, the rising cost of oil has increased the 
economic burden for everyone. Unlike natural gas prices, oil prices are 
set on a world market basis. To the contrary, each nation has a duty to 
produce as much oil as it can in an environmentally acceptable manner 
in order to keep world oil prices from escalating further.
    Hopefully, with significantly increased oil production by all 
capable nations, we will see oil prices lowered and the adverse impacts 
to America's consumers lowered as a result. Lowering the price of 
energy is one of the reasons it is so important that we produce the 
vast quantities of oil contained in the Arctic National Wildlife 
Refuge.
    The House has developed a sound, realistic, and responsible energy 
policy that encourages utilization of domestic natural resources for 
the future that will ensure affordable and reliable supplies of energy 
for the American consumer. We need to get this energy bill to the 
President for his signature so we can get on the path to lowering 
energy costs, increasing capital investment and jobs here at home, and 
ensuring energy and economic security for the future.
    I welcome our witnesses today and look forward to their testimony. 
I now recognize our Ranking member, Mr. Grijalva, for any opening 
remarks that he may wish to give at this time.
                                 ______
                                 

    STATEMENT OF HON. RAUL M. GRIJALVA, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF ARIZONA

    Mr. Grijalva. Thank you, Mr. Chairman. And I'm pleased to 
join with you today in welcoming our witnesses to discuss the 
impact of high energy costs on the American consumer; something 
which the American public is keenly aware of and is requiring 
Congress to begin to do something about.
    Clearly, Americans of all economic strata and sectors are 
feeling the effects of skyrocketing gasoline prices. As 
President Bush stated on Tuesday, our dependence on foreign oil 
is like a foreign tax on the American dream, and that tax is 
growing every year.
    The President also repeated his statement that the energy 
bill before Congress would have little effect on energy prices 
and demand in the short term. Instead, the President outlined a 
four-point energy strategy: increasing conservation through 
better fuel efficiency; expanding U.S. production and refining 
capacity; helping developing countries to conserve energy; and 
developing new fuels as alternatives to diesel and gasoline.
    Quite frankly, the President's plan bears little 
resemblance to the energy bill passed by the House last month; 
a bill he has nevertheless indicated he would sign if the 
Senate passes the bill. We can only hope that the Senate, which 
is marking up its own version in the Energy and Natural 
Resources Committee this week, will produce a plan that comes 
closer to meeting the definition of a ``comprehensive energy 
plan,'' and does not provide costly and unnecessary subsidies 
to oil and gas industries--I would suggest, a further insult to 
the American taxpayer and consumer.
    Americans deserve an energy plan from Congress that will 
confront our problems now and not pass them on to future 
generations. As the President noted, the first step toward 
making America less dependent on foreign oil is to improve fuel 
conservation and efficiency. That means research into new 
technologies that reduce gas consumption while maintaining 
performance, such as light-weight auto parts and more efficient 
batteries. It also means raising fuel economy standards for 
sport utility vehicles, vans, and pickup trucks.
    A report released on Tuesday by U.S. Public Interest 
Research Group shows that Americans will spend upwards of $5 
billion extra on gasoline this year, due to poor automobile 
fuel economy policies. According to the report, which we will 
hear more on today from one of our witnesses, if the Bush 
Administration tightened fuel economy standards four years ago, 
mandating that cars and light trucks get a minimum of 40 miles 
to the gallon, the U.S. would be consuming 350,000 fewer 
barrels of oil per day. And that's more than half of the 
current U.S. import from Iraq.
    As we approach Memorial Day and summer vacations, we in 
Congress should remember that the American people do not have 
infinite patience. Indeed, a recent Gallup poll shows that 
while President Bush claims he can do little to address gas 
prices in the short run, two in three Americans say there are 
reasonable steps that should be taken right now that would 
significantly lower U.S. gas prices.
    We need a comprehensive energy plan that actually will 
reduce our dependency on non-renewable fuel and foreign sources 
of energy through conservation, innovation, and efficiency. 
Only in that way will Americans see lower prices at the pump 
and in their home heating bills.
    Those are my comments. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Grijalva follows:]

    Statement of The Honorable Raul M. Grijalva, Ranking Democrat, 
                  Subcommittee on Energy and Minerals

    Mr. Chairman, I am pleased to join you today in welcoming our 
witnesses to discuss the impacts of high energy costs on the American 
Consumer.
    Clearly, Americans of all economic strata and sectors are feeling 
the effects of skyrocketing gasoline prices. As President Bush stated 
on Tuesday, ``Our dependence on foreign oil is like a foreign tax on 
the American dream, and that tax is growing every year.''
    The President also repeated his statement that the energy bill 
before Congress would have little effect on energy prices and demand in 
the short term. Instead, the President outlined a four-point energy 
strategy: increasing conservation through better fuel efficiency; 
expanding U.S. production and refining capacity; helping developing 
countries to conserve energy; and developing new fuels ``as 
alternatives to diesel and gasoline.''
    Quite frankly, the President's plan bears little resemblance to the 
energy bill passed by the House last month, a bill he has nevertheless 
indicated that he would sign if the Senate passes the bill.
    We can only hope that the Senate, which is marking up its own 
version in the Energy and Natural Resources Committee this week, will 
produce a plan that comes closer to meeting the definition of a 
``comprehensive energy plan'' and does not provide costly and 
unnecessary subsidies to the oil and gas industry--a further insult to 
the American taxpayer.
    Americans deserve an energy plan from Congress that will confront 
our problems now, and not pass them on to future generations. As the 
President noted, ``The first step toward making America less dependent 
on foreign oil is to improve fuel conservation and efficiency.'' That 
means research into new technologies that reduce gas consumption while 
maintaining performance, such as lightweight auto parts and more 
efficient batteries. It also means raising fuel economy standards for 
sport utility vehicles and vans and pickup trucks.
    A report released on Tuesday by the U.S. Public Interest Research 
Group shows that Americans will spend upwards of $5 billion extra on 
gasoline this year due to poor automobile fuel economy policies. 
According to the report, which we will hear more about from one of our 
witnesses today, if the Bush Administration tightened fuel economy 
standards four years ago--mandating that cars and light trucks get 40 
miles to the gallon, the U.S. would be consuming 350,000 fewer barrels 
of oil per day. That's more than half of current U.S. imports from 
Iraq.
    As we approach Memorial Day and summer vacations, we in Congress 
should remember that the American people do not have infinite patience. 
Indeed, a recent Gallup poll shows that while President Bush claims 
``he can do little to address gas prices in the short run,'' two in 
three Americans say there are reasonable steps that he should take 
right now that would significantly lower U.S. gas prices.
    We need a comprehensive energy plan that actually will reduce our 
dependence on nonrenewable fuels and foreign sources of energy through 
conservation, innovation and efficiency. Only in that way will 
Americans see lower prices at the pump and on their home heating 
meters.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Grijalva.
    And now, I'd like to introduce our first panel. And may I 
say that, as a former airline pilot, it's my pleasure to 
welcome Mr. James C. May here, President and CEO of the Air 
Transport Association of America. Mr. Paul--is it Cicio 
[pronounced SEEK-io]?
    Mr. Cicio. Cicio [pronounced SIS-io].
    Mr. Gibbons. Cicio [pronounced SIS-io]. My apology. And Mr. 
Cicio is the Executive Director, Industrial Energy Consumers of 
America; and Theresa Schmalshof, NCGA Corn Board Member; and 
Robert Bessette, President, Council of Industrial Boiler Owners 
of America.
    We have a requirement here in the Committee of standing and 
taking the oath for the testimony. So if you would, all stand 
and raise your right hand and repeat after me.
    [Witnesses sworn.]
    Mr. Gibbons. Let the record reflect that each of the 
witnesses answered in the affirmative.
    And before we turn to the testimony of each of the 
witnesses before us, I notice we have additional members here. 
Any opening statements, Mr. Peterson or Mrs. Drake?
    [The prepared statement of Mrs. Drake follows:]

 Statement of The Honorable Thelma Drake, a Representative in Congress 
                       from the State of Virginia

    Mr. Chairman, I would like to thank you for holding this oversight 
hearing. As was presented during the debate of the House comprehensive 
energy policy, our nation's economic and national security is at stake. 
The United States' continued dependence on foreign sources of oil will 
further strain our economy. In addition, we are jeopardizing our 
nation's security by depending on and doing business with nations that 
are ruled by dictators and support terrorist actions. American 
consumers are being hit hard at the pump, but these high energy prices 
are affecting our nation much deeper than that. Increased energy prices 
are making it more expensive to run our nation's military and straining 
the tourism industry, two very important sectors in the Second District 
of Virginia.
    The Second District is home to 8 military installations and 
includes the U.S. Navy's Atlantic Fleet, the U.S. Fleet Forces Command, 
the U.S. Joint Forces Command, the Air Combat Command of the U.S. Air 
Force, the Training and Doctrine Command of the U.S. Army, and NATO's 
Allied Command for Transformation. High energy costs are affecting the 
way the military conducts its missions and places our nation in grave 
danger.
    The Navy Region Mid-Atlantic, headquartered at Naval Station 
Norfolk, Virginia, spends approximately 29% of the total Base Operating 
Support Budget on energy and utility costs which include the use of 
electricity, sewage, water, natural gas, and steam. These costs 
represent the single largest line item in the Navy's operating budget 
in Norfolk. Because these costs cannot be neglected, rising energy 
prices have a direct impact on the quality of life for our military 
personnel, civilian employees and dependents. While the Department of 
Defense and the U.S. Navy are constantly pursing efforts to conserve 
energy and become more fuel efficient, it is a matter of fact that 
every dollar spent on energy, especially those not previously budgeted 
for based on the recent unexpectedly high fuel costs, takes a dollar 
away from critical training and operational budgets as well as the 
funds available to promote valuable quality of life programs and 
critical infrastructure recapitalization. During this time of war, we 
cannot afford to minimize our training capabilities and our military 
readiness.
    I am equally concerned about the effects of high energy costs on 
tourism. The Commonwealth of Virginia depends on tourism dollars. In 
2003, the tourism industry was the fifth largest private sector 
employer in Virginia and contributed over $2 billion in state and local 
revenues. The Hampton Roads area and Eastern Shore of Virginia, which I 
represent, are popular destinations for out-of-towners because of the 
beaches, museums, historical landmarks, amusement parks, bird-watching 
and wilderness areas. In fact, more than 2.7 million people traveled to 
Virginia Beach, the largest city in my District, in 2003. During their 
stay, these visitors stay in local hotels, eat in family-owned 
restaurants, attend regional festivals, buy souvenirs, charter fishing 
tours and rent watercraft and bicycles from our small business owners. 
The Second District has a lot to gain from a vibrant tourism industry.
    Since the average distance traveled by tourists of Virginia Beach 
is 400 miles, I don't anticipate the cost of gasoline to dramatically 
decrease the number of visitors to our area this year. However, the 
price of high energy costs will likely change the pattern of these 
tourists. A recent poll conducted by the Travel Industry Association of 
America indicated that one-third of Americans expect travel costs to be 
higher than last summer and two in five of those individuals who have 
planned a summer vacation say that high energy costs will affect their 
spending behavior. Many of these people will plan shorter trips, travel 
shorter distances, eat out and shop less, and visit fewer attractions. 
Our local economy depends on fully occupied hotels and restaurants, in 
addition to tourists who are willing to spend extra money on activities 
and attractions. If visitors to my District curb their spending and 
elect to see fewer attractions and participate in fewer activities, not 
only will they miss out on some of the treasures of the Hampton Roads 
region and the Eastern Shore, but the locals will miss out on their 
business.
    Mr. Chairman, our nation's high energy costs are surely putting a 
burden on Americans filling up their car at the gas pump. However, 
important sectors like the U.S. military and the tourism industry are 
feeling the pressure of these fuel costs as well. Thousands of jobs are 
tied to these sectors, not to mention the defense of this nation. Mr. 
Chairman, this nation can no longer afford inaction--we are in grave 
need for a comprehensive energy policy. I have highlighted how rising 
energy costs affect just two of the important industries in the Second 
District. I thank you for your continued advocacy for an energy policy 
and I look forward to hearing the testimony on how high energy costs 
are affecting agriculture, manufacturing, and transportation.
                                 ______
                                 
    Mr. Peterson. Nobody came here to hear me. I have come to 
hear the panelists.
    Mr. Gibbons. All right. Let's turn now to those individuals 
sitting before us. Again, welcome. We will start on your right, 
our left. Mr. May, welcome. The floor is yours. We look forward 
to your testimony.
    Mr. May. Thank you, Mr. Chairman.
    Mr. Gibbons. And Mr. May, may I make an educational 
statement. We have a little light here that is in front of you. 
It is in this little box, and it is just a five-minute timer 
light. We try to have you speak for five minutes. If your 
testimony is going to be much longer than that, please try to 
summarize that.
    We will, for the record, have your complete written 
testimony entered into the record. And this will allow us to 
get to both panels today and get questions from the members of 
the Committee, if we can stay within a reasonable timeframe. So 
Mr. May, I again apologize. The floor is yours. Welcome to the 
Committee.

         STATEMENT OF JAMES C. MAY, PRESIDENT AND CEO, 
           AIR TRANSPORT ASSOCIATION OF AMERICA, INC.

    Mr. May. Thank you, Mr. Chairman, and I will be brief. You 
have my written statement, and I will ask that that be 
submitted for purposes of the record.
    By way of background, the airline industry began to 
experience a significant downturn in the economy around the 
year 2000. We were then hit with the tragedy of 9/11. We had 
what we have called the perfect storm, which was the Iraq war, 
and SARS, and then the beginning of the peak of--or the spiking 
of oil prices, that hit almost simultaneously.
    The net result is that this industry has been staggered by 
all of these unnatural kinds of occurrences, to the point where 
we have lost some $32 billion over the past four years--that's 
32 ``B''-with-a-``boy''-billion dollars, over the past four 
years.
    If we are unfortunate enough to maintain our record of last 
year--we've already reported $3.1 billion in losses for the 
first quarter of this year. We are losing money at a sustained 
rate of around $17,000 a minute. And that's for 24-7; and 
obviously, we don't have all of our carriers running 24-7. So 
the impact of oil is having an extraordinary effect on our 
overall business plan.
    I would point out to you that in the year 2000, our 
industry paid roughly $14.8 billion for jet fuel. In 2005, we 
project paying $28 billion for fuel. That's a 91 percent 
increase. For every penny increase in the price of a gallon of 
jet fuel, we have to pay an additional $186 million.
    And I think the most direct impact of those high prices of 
energy for us is on our employees. A $1 increase in the price 
of oil puts another 5,500 airline jobs at risk. And I am in a 
business where we have been aggressively cost cutting for the 
past number of years. We have eliminated over 137,000 jobs in 
just the past four years in this business. That's one in every 
six employees.
    Now, we also are doing almost everything we can to counter 
the impact of high prices of oil. We are replacing less 
efficient planes. Not far from your district, Mr. Chairman, 
we've got probably 500 less fuel-efficient planes that have 
been laid down out in the desert. We're using single-engine 
taxi, as opposed to dual-engine taxi. We're cruising at lower 
speeds.
    We're doing everything we can to reduce onboard weight. 
Removing meal service was a function of cost, but it was also a 
function of weight. And you'll notice that even if you're 
sitting in the front of the bus these days, it's rare that you 
see real silverware. You'll see plastic silverware, because 
that is a weight reduction for that aircraft and makes a big 
difference when fuel is trading at 47 to 52 dollars a barrel 
right now.
    We are working hard to press for the modernization of the 
FAA air traffic control system, because the more we can do to 
make more efficient routings, the less money it's going to cost 
us. We want to shorten our taxi times; reduce ground delays.
    We are, as I have indicated, eliminating a lot of 
employees. We've put plans down in the desert. We've cut some 
$10 billion in capital expenditures over the last four years, 
and we're literally trying to economize in every area we can.
    But all of the impact of fuel on all of those changes has 
led Gary Chase, who is with Lehman Brothers and probably one of 
the top airline analysts in the country, to say, and I quote 
him, ``Unfortunately, high fuel prices are consuming what would 
otherwise be an up cycle for the industry.'' And I think that 
is very much the case.
    Let me close with a couple of thoughts. Number one, I think 
it's important that we have this committee encourage their 
colleagues to do as much as we can on production. Obviously, 
it's going to be critical.
    Two, I think we need to do what we can in increasing 
refining capacity.
    Three, we have to do a better job working with the FAA, to 
make sure that we streamline the air traffic control system.
    And four, quite frankly, I would hope you would take a very 
hard look, even though it may not be in your direct 
jurisdiction, at the impact that speculators are having on the 
price of oil. My economists tell me it could be anywhere from 
five to eight dollars a barrel impact, and I think that is 
driving those prices up to an unconscionable degree.
    Thank you for the opportunity to appear. I'll be happy to 
answer questions.
    [The prepared statement of Mr. May follows:]

             Statement of James C. May, President and CEO, 
               Air Transport Association of America, Inc.

    Thank you, Mr. Chairman for inviting me to talk about the 
incredibly harmful effect of high oil prices on U.S. air carriers and 
their employees. Clearly, air carriers are among the sectors of the 
economy most affected by the soaring price of oil and while our members 
and the manufactures of their aircraft have made remarkable gains in 
energy efficiency it has proven impossible for technology to outpace 
the growth in the price of a barrel of oil. And unlike many industries, 
we have no alternative fuel source.
    The Air Transport Association is the trade association for the 
leading U.S. airlines. ATA members transport more than 90 percent of 
all passengers and cargo traffic in the United States.
    Anyone who follows the news these days knows that all U.S. airlines 
are facing an extremely challenging commercial and policy environment, 
with few signs of material improvement anytime soon. Over the last four 
years, the industry--in total--has recorded over $32 billion in losses 
(including federal reimbursements for the shutdown and a portion of our 
security costs). We are projecting additional losses of at least $5 
billion in 2005.
    These losses have led us to borrow huge sums to survive, with few 
assets left to pledge as collateral. For the nine largest airlines, 
including Southwest Airlines, net debt stood at $81.3 billion at the 
end of 2004, resulting in a staggering net debt to capital ratio of 
110.1%. Compare this to $64.2 billion and 71.7% at the end of 2000. 
Eleven of the 12 passenger airlines rated by Standard & Poor's are 
considered ``speculative'' investments, also known as ``junk bond'' 
quality. Only Southwest Airlines is considered investment grade.
    Meanwhile, fares are running at late 1980s levels--a fourth of all 
domestic passengers now pay $200 or less including taxes for a 
roundtrip ticket; two-thirds pay $300 or less. Airline passenger 
revenue has plummeted from its historical average of 0.95% to 0.70% of 
U.S. GDP--a gap of $29.3 billion based on today's $11.7 trillion 
economy.
    It couldn't get any worse, could it? Yet it has. In January 2001, 
the price of jet fuel on the spot markets averaged 85.8 cents per 
gallon. For the first 2 weeks of May, we faced an average of $1.60--an 
87 percent increase. In 2004, the industry paid $21.4 billion for jet 
fuel. That tab would have been $5.5 billion lower at 2003 jet fuel 
prices and a whopping $8.0 billion lower at 2002 jet fuel prices. It is 
not unreasonable to argue that without the doubling of oil prices over 
the past three years the industry would not be in the economic crisis 
we find ourselves. But the future doesn't look any brighter. Our 
forecast shows that we will pay $6.8 billion more for fuel in 2005 than 
in 2004. If these projections prove accurate the industry will have 
faced a 91 percent increase in its fuel costs from 2001 ($14.8 billion) 
to 2005 ($28.2 billion). When you understand that the industry has been 
hit with more than $28 billion in additional fuel costs and $15 billion 
in taxes, fees and unfunded mandates for security since 9/11, and 
compare those uncontrollable costs to the $32 billion the industry has 
lost over that period, it easy to see where the problems lie.
    Earlier this week, the 12-month forward curve of future prices 
averaged $51 a barrel. The corresponding price of Gulf Coast jet fuel--
a conservative benchmark ``showed $1.55 per gallon. Now keep in mind 
that this industry consumed 18.6 billions gallons of jet fuel last 
year. That means that every penny increase in the price of a gallon 
increases our annual operating expenses by $186 million. Viewed from an 
employee perspective, every $1 increase in the price of a barrel of 
crude puts another 5,500 airline jobs at risk. Indeed, the airlines 
have shed 137,000 jobs from the payrolls since August 2001. That's a 
loss of 1 out of 6 employees and more cuts are on the way.
    When people say to me, ``But every time I fly the plane is full.'' 
I respond, ``They're full, alright. Full of cheap fares and expensive 
fuel.'' At today's fares and jet fuel prices, the average breakeven 
load factor for the industry--including all the low-cost carriers, is 
estimated at 80%. Compare that to 65% in the mid-90s. That means that 
every single flight on average must be at least 80% full of paying 
passengers to avoid losing money--not to make a fortune!
    So how are we coping? First, we are obviously taking all possible 
steps to reduce or mitigate fuel consumption. From 2001 to 2004 alone, 
thanks to newer fleets, single-engine taxi, lower cruise speeds, 
onboard weight reduction, access to more ATC lanes in the sky, and a 
host of other measures, our fuel efficiency jumped 18% to 45 passenger 
miles per gallon.
    Meanwhile, we are using our human capital more effectively. Airline 
productivity has risen 17% since 2000, up to 2.2 million available seat 
miles per full-time employee. And we are parking airplanes. The ``Big 
6'' passenger airlines have reduced their operating fleets by 502 
airplanes from December 2000 to December 2004.
    For this same group capital expenditures fell from $13.1 billion in 
2000 to $3.1 billion in 2004 (up slightly from $2.7 billion in 2003), 
while unit operating costs excluding fuel fell 6.2% from 10.36 cents 
per available seat mile (ASM) in 2002 to 9.72 cents per ASM in 2004.
    I think that's pretty impressive. But you don't have to believe me. 
As Gary Chase of Lehman Brothers observed on March 15:
        ``The airline industry has moved aggressively to reduce costs 
        in the face of unprecedented challenges.... On a non-fuel 
        basis, operating profitability...is as good as it was in the 
        late 1990s. While these facts are exciting...they may also be 
        totally moot if oil prices do not return to [historical 
        norms].... [W]e see a materially greater chance for oil prices 
        above $50 than below $40 over the next several years. 
        Unfortunately, high fuel prices are consuming what would 
        otherwise be an upcycle for the industry.''
    I'm often asked, ``Why don't your members just raise fares and pass 
through high oil prices?'' Well, it's this simple--if we could we 
would. To cover the costs of fuel increases from 2003 to 2004 passenger 
would have to pay, on average, an additional $21 per ticket. Yet prices 
during this period continued to fall because of the intensely 
competitive nature of the industry. Indeed, only recently have carriers 
had even modest successes in raising fares in certain markets, but this 
is hardly enough to cover the cost of crude oil rising from $26 a 
barrel in 2002 to over $50 in 2005. And as Standard & Poor's Phil 
Baggaley testified before the House Aviation Subcommittee this past 
June:
        ``Fuel represents a roughly comparable proportion of expenses 
        for railroads and many trucking companies...but they have not 
        been hurt by higher fuel prices to nearly the same degree.... 
        Part of the difference is due to more active hedging programs 
        by these freight transportation companies, but most is due to 
        the fact that many of their contracts with corporate customers 
        allow them to pass through higher fuel costs in the form of 
        surcharges. Airlines have tried repeatedly to raise fares in 
        response to high fuel costs, but with little success. [T]he 
        problem comes back to a lack of pricing power in a very 
        competitive market.''
    The unfortunate truth for most airlines today is that the economic 
principles of supply and demand still apply. If we could raise prices 
to cover the soaring cost of jet fuel or the many new taxes and fees 
that have been placed on the industry in recent years we would. But 
what many of our customers discovered in the post-9/11 world is that 
they don't have to fly. Business travelers chose teleconferences or e-
mail instead of a face-to-face meeting if they aren't able to find a 
rock-bottom fare. Families will vacation near home as opposed to flying 
to Florida's beaches, Colorado's ski slopes or grandma's house. For 
short-haul flights the addition of the TSA ``hassle factor'' has made 
taking the car a more viable option. It's important to remember, 
airlines don't just compete against each other. They compete against 
movie theaters, e-mail, video conferencing, automobiles, trains, 
corporate jets and even the local amusement park--anything that can 
substitute for a vacation or a face-to-face sales call.
    So where does that leave U.S. air carriers? Frankly, we will remain 
at the mercy of OPEC and the federal government. If oil stays high and 
our taxes with it I expect more jobs lost, more flights cut and more 
airlines in crisis. And in the international arena, our global 
competitiveness will continue to suffer because our airlines are paying 
disproportionately more than their foreign flag competitors due to the 
relative weakness of the dollar. My CEO's will continue to find ways to 
wring costs from those areas they can, and that includes further fuel 
conservation. But you can only be so efficient. As I said when I 
started, my industry is one of the most severely hurt by the soaring 
price of oil. And airplanes will be burning refined oil long after 
other modes of transportation have moved beyond it. Not because we want 
to but because the principles of aircraft design rule out our 
alternatives.
    So, will oil stay above $50? For business planning purposes it is 
prudent to assume that it will. There appear to be no short term 
solutions. This is a problem of our own creation that's been some time 
in the making.
    My solution to the problem is to do more--more of everything. And 
by more I mean more conservation and more production, including here at 
home. I am proud of the efficiency gains that the aviation sector has 
made over the past 30 years. If other industries throughout the world 
had kept pace we would not face nearly the crisis we face today. Yet 
conservation and efficiency are only half the equation. We must find 
and produce more oil in the U.S. and overseas. The rapid economic 
expansion in countries like China and India will demand more and more 
oil and keep pushing prices higher. The ``more of everything'' approach 
can work there, too. The United States should encourage those nations 
to find and produce more of their own energy as well as help them use 
it more efficiently by providing them with technologies to reduce 
waste.
    More of everything also means that as a nation we must be willing 
to produce more of our own energy and be willing to refine it here, 
too. I know that this issue is outside of this Committee's 
jurisdiction, but our nation's stagnant refining capacity is creating a 
bottleneck in the distribution chain that further increases prices. 
More and more jet fuel, gasoline and other refined products are being 
imported because of limited production capacity in the U.S. and this is 
further exacerbating the price run up. Steps must be taken to expand 
refining capacity so we do not become as dependent on foreign refined 
oil as we are foreign crude oil.
    Also, I encourage Congress and the Administration to ensure that 
forces are not working within western energy markets to unnaturally 
inflate prices. There are simply too many unnatural influences in 
global oil markets to allow market speculators to contribute to the 
problem. I encourage Congress and the appropriate federal regulatory 
bodies to exercise their oversight responsibilities to ensure that 
markets are driven by consumers demand and not speculation. The other 
day Representatives Walden and Rothman called on the Government 
Accountability Office (GAO) to examine the CFTC's oversight of domestic 
petroleum trading. I would echo this call.
    Some have attacked the airline industry for not being fast enough 
to adapt to market changes. I strongly disagree with this view and 
point the past three years of aggressive cost saving moves taken by all 
airlines to stay competitive. I also point to the past 30 years of 
aggressive efforts by the industry to save fuel and improve efficiency. 
We have been and will continue to be leaders in each of these areas.
    To conclude, in order for my ``more of everything'' approach to 
have prevented the crisis that the airlines and their employees now 
face I would have had to have made this appeal to the 89th or 99th 
Congress, not the 109th. Since I can't roll back the clock I challenge 
the world to follow the example of my industry in improving fuel 
efficiency and I challenge this Congress to avoid the mistakes of the 
past and recognize that more efficiency must be matched with more 
production. Let's do more.
    Thank you.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. May. It's stunning to 
hear those sort of figures that you have just testified to 
before us.
    We turn now to Mr. Cicio. Again, Mr. Cicio, welcome. The 
floor is yours. We look forward to your testimony.

        STATEMENT OF PAUL N. CICIO, EXECUTIVE DIRECTOR, 
             INDUSTRIAL ENERGY CONSUMERS OF AMERICA

    Mr. Cicio. Thank you, Mr. Chairman and committee members. 
Thank you for the opportunity to provide comment on this very 
timely subject.
    Globally competitive natural gas prices are essential for 
the manufacturing sector and jobs. We have a serious natural 
gas crisis, and we urge the Congress to pass comprehensive 
energy legislation this year. We especially request that 
Congress and the Administration take action to increase 
supplies of natural gas by removing areas from moratoria, to 
allow for greater access to an abundant supply of domestic 
natural gas.
    Eighty-five percent of the Lower 48 states' offshore 
acreage has been placed under congressional and executive 
moratoria. We have the most restrictive offshore policies in 
the world and the most stringent environmental regulations to 
ensure that production of natural gas can occur without 
environmental concern.
    Mr. Chairman, this June will be the five-year anniversary 
of the beginning of the natural gas crisis. It was in June of 
2000 that natural gas prices averaged about $4 per million Btu, 
a price level that immediately began to impact the 
competitiveness of U.S. manufacturing. One by one, 
manufacturing plants were permanently shut down; were idled. 
Production was shifted overseas, and resulted in the loss of 
three million relatively high-paying jobs.
    Unfortunately, this is not--this is not the end of the 
story. Even though 274,000 new jobs were created across the 
economy last month, manufacturing lost 6,000 new jobs. Factory 
jobs have fallen in nine of the past 11 months, and in the last 
quarter output grew at its slowest pace in nearly two years.
    The U.S. natural gas price is the highest and the most 
volatile in the world. The natural gas crisis has cost 
consumers nearly $200 billion more for their natural gas. In 
November 2004, prices reached levels of just under $10 per 
million Btu.
    U.S. production has--fell by 4.9 percent from the year 2001 
to 2004. This is despite record well completions by the 
exploration and production industry. U.S. first-quarter 
production fell by 1.3 percent from a year ago. And Canadian--
and the Canadian national energy board reports they will be 
hard-pressed to maintain its current level of exports to the 
United States.
    Electricity prices rose 5.2 percent between April 2004 and 
April 2005. And it is likely to increase further, primarily as 
a result of higher natural gas prices. This year's increase of 
5.2 percent is one of the highest recorded for the U.S.
    We have--if we have a hot summer, we can expect natural gas 
fired peaking capacity to turn on, consuming significant 
amounts of natural gas that is needed to balance supply and 
demand and all other end uses, including next winter's heating 
supply.
    The point is, the U.S. has a serious, serious natural gas 
crisis that has the potential to get much worse before it gets 
better. Our members are not confident that the U.S. is taking 
actions necessary to create needed domestic supply. In our 
view, sound energy policy is not praying for a cool summer and 
a warm winter.
    The United States has the most restrictive offshore 
policies in the world. Starting 23 years ago, when natural gas 
was plentiful and low cost, Congress and most of our Presidents 
proceeded to place various areas of the country, both onshore 
and offshore, in moratoria.
    The offshore areas encompass a large part of the Gulf of 
Mexico, and essentially all of the Atlantic and Pacific Oceans. 
These areas have enormous amounts of natural gas, and could 
easily supply our increasing demand through most of this 
century. But given our supply crisis, we no longer have the 
luxury of keeping all of these areas in moratoria. Improvements 
in regulation and technology have negated the original 
environmental basis for initiating this moratoria.
    Mr. Chairman, thank you so much for the opportunity to be 
here, and I look forward to the questions and answers. Thank 
you.
    [The prepared statement of Mr. Cicio follows:]

               Statement of Paul N. Cicio, on behalf of 
                 Industrial Energy Consumers of America

    Chairman Gibbons and Ranking Member Grijalva, thank you for the 
opportunity to provide comment on this very timely issue of the impact 
of high energy costs to consumers.
    The Industrial Energy Consumers of America (IECA) is a 501 (C) (6) 
nonprofit organization created to promote the interests of 
manufacturing companies for which the availability, use and cost of 
energy, power or feedstock play a significant role in their ability to 
compete in domestic and world markets.
    We urge the Congress to pass comprehensive energy legislation this 
year. We especially request that Congress and the Administration take 
action to increase supplies of natural gas this decade by removing 
areas from moratoria to allow for greater access to an abundant supply 
of domestic natural gas.
    Eighty five percent of the lower 48 states offshore acreage has 
been place under congressional and executive moratoria. We have the 
most restrictive offshore policies in the world and the most stringent 
environmental regulations to ensure that production of natural gas can 
occur without environmental concern.
    This June will be the five year anniversary of the beginning of the 
natural gas crisis. It was in June of 2000 that natural gas prices 
averaged above $4.00 per million Btu, a price level that immediately 
began to impact the competitiveness of U.S. manufacturing. One by one 
manufacturing plants were permanently shut down or idled, production 
was shifted overseas and resulted in a loss of 3.0 million relatively 
high paying jobs. Today, with a brisk economic recovery manufacturing 
is still down 2.5 million jobs.
    Natural gas prices continue to remain very high. Prices on the New 
York Mercantile Exchange (NYMEX) for the natural gas futures contract 
is currently at the $6.00 per million Btu level. In November, 2004 
prices reached levels of just under $10.00 per million Btu.
    Had it not been for industrial ``demand destruction'' as a result 
of high natural gas prices, and the resulting decline in consumption by 
the manufacturing sector, together with a cool summer and a mild 
winter, we would potentially be facing rationing of natural gas.
    It is important to elaborate on that point. Since the natural gas 
crisis began in 2000, industrial natural gas demand, according to the 
Energy Information Administration, fell by 9 percent because of high 
natural gas prices, freeing up about .8 TCF of natural gas. This 
``demand destruction'' increased the availability of natural gas for 
all other consumers by 3.5 percent of total U.S. consumption.
    At the same time, U.S. production fell by 4.92 percent from year 
2001 to 2004 or .97 TCF. This is despite record well completions by the 
exploration and production industry.
    EIA's 2005 Annual Energy Outlook shows U.S. demand for natural gas 
of 25.4 TCF in 2010. This is an increase of 3.3 TCF over 2004 levels. 
Supply of this increment is dependent on increased domestic production 
(+1.5 TCF) and a quadrupling of LNG imports (+1.87 TCF) and imports 
from Canada decline. Our members are not confident that the U.S. is 
taking the actions necessary to create this supply and anticipate that 
continued industrial demand destruction will result. Industrial natural 
gas usage in 2004 was just over 7 TCF so a shortfall of this scale will 
be very significant and manufacturers will not be able to wait another 
5 years for supplies to catch up.
    The point is the U.S. has a serious natural gas crisis that has the 
potential to get much worse before it gets better. And, sound energy 
policy is not ``praying for a cool summer and a warm winter.'' In the 
mean time, we will continue to witness the ``dismantling of U.S. 
manufacturing'' that built facilities based on globally competitive 
natural gas prices for fuel and feedstock.

Five Years After the Natural Gas Crisis Started
      The wholesale price of natural gas that manufacturers pay 
has increased from $2.11 per million Btu in 1998 to $6.05 per million 
Btu in year 2004, a nearly 300 percent increase.
      The U.S. is the only country in the world that does not 
fully utilize its natural resources. A significant amount of natural 
gas resources remain in moratoria and cannot be touched. Meanwhile, 
countries like the UK, Norway and Australia continue to expand offshore 
drilling.
      The NYMEX natural gas futures contract has the 
distinction as the most volatile commodity in the world.
      The U.S. has the highest sustained price of any 
industrialized country in the world.
      The natural gas crisis has cost consumers nearly $200 
billion. The amount does not include the cost of lost jobs or the 
increased cost of electricity.
      As U.S. manufacturing shut down facilities, imports of 
energy intensive products that had been produced here have increased 
exponentially, increasing the trade deficit.
      The ``supply gap,'' the amount of natural gas that the 
United States depends upon from Canada and LNG imports has increased 42 
% from 2.6 TCF in 2001 to 3.7 TCF in 2004, a increase of 1.1 TCF. This 
is significant given total U.S. demand in 2004 was 22.2 TCF. Canadian 
exports to the U.S. have decreased and LNG has shown only modest 
increases.
      As a result, manufacturing is not spending their ``growth 
capital'' in the U.S. in large part because of the high and volatile 
price of natural gas and energy in general relative to other places in 
the world.

The U.S. has the most restrictive offshore policies in the world
    Every major country that has natural gas reserves is increasing its 
production. While countries like the United Kingdom, Norway and 
Australia are actively increasing their offshore production, the United 
States has the most restrictive offshore policies in the world. The 
U.S. Department of the Interior reports approximately 85 percent of the 
lower 48 state offshore acreage has been placed under congressional and 
executive moratoria.
    Starting in 1982, 23 years ago, when natural gas was plentiful and 
low cost, Congress and most of our Presidents proceeded to place 
various areas of the country both on-shore and off-shore in moratoria. 
The offshore areas encompass a large part of the Gulf of Mexico and 
essentially all of the Atlantic and Pacific Oceans. These areas have 
enormous amounts of natural gas that could easily supply our increasing 
demand for this environmentally friendly clean fuel source through most 
of this century. But given our supply crisis, we no longer have the 
luxury of keeping ``all'' of these areas in moratoria. Improvements in 
technology have negated the original environmental basis for initiating 
the moratoria.

Producing more natural gas helps the environment
    It is difficult to continue to make environmental progress without 
greater amounts of natural gas until newer commercially available 
alternatives are created. Technologies like that are decades away. 
Natural gas is our cleanest burning and less polluting fuel. The only 
commercial energy sources that are cleaner are renewable energy which 
cannot be produced in significant quantities and is not reliable or 
cost competitive and nuclear energy which has its own set of issues. 
For that reason, increasing natural gas supply is imperative for 
environmental improvement.
    For example, natural gas is being used in homes and buildings to 
replace using heating oil. It is used to displace coal in electricity 
generation. It is used to make hydrogen that is then used as a fuel 
and/or used to produce low-sulfur gasoline for cars and trucks. Low 
sulfur gasoline cleans the air. In each case, natural gas replaces a 
fuel with higher emissions.

While both are needed, domestic supply is preferred over imported LNG
    In the next five years, which will be critical to many 
manufacturers, significant expansion of both domestic production and 
imported LNG is essential. As consumers, we welcome all supply 
alternatives but increasing our dependence on imported LNG has major 
disadvantages.
    Almost all LNG supply will come from the same countries that we are 
dependent upon for crude oil. These are the same countries that formed 
the OPEC oil cartel that is controlling the supply of oil to the world 
and thus the price. A news story dated April 27, 2005 reports that 
these same countries are meeting to form a LNG cartel. Beyond the 
immediate crisis, we need to determine our domestic production 
capabilities and then balance our needs with imported LNG.

Producing offshore natural gas has a tremendous environmental record
    Producing offshore natural gas has a tremendous environmental 
record. There are over 4000 offshore production platforms. Annually 
this production equals approximately 4.7 trillion cubic feet per year 
or about 23 percent of U.S. domestic consumption. As a result of a well 
blow-out 36 years ago, the environmental regulations they operate under 
are the most stringent in the world. And, as a testament to regulation 
and improved technology, there was no environmental damage this past 
summer when two hurricanes hit the Gulf of Mexico production platforms 
with full force.
    A government report dated April 19, 2005 by the Mineral Management 
Service (MMS) of the U.S. Department of Interior ``estimates that from 
1985--2001, offshore facilities and pipelines accounted for two percent 
of the volume of oil released into U.S. waters. Furthermore, according 
to the MMS, ninety-seven percent of offshore spills are one barrel or 
less in volume. A much larger amount of oil enters American waters 
through either land-based human activity or natural seepage emanating 
from the seafloor.'' In conclusion, producing offshore natural gas can 
and has been done with environmental safeguards.
    Thank you.
                                 ______
                                 
    Mr. Gibbons. Mr. Cicio, thank you very much for your 
enlightening testimony. It helps us to better understand what 
the real problems are in your part of the world. And certainly, 
we appreciate the fact that you've testified the way you have.
    Ms. Schmalshof, welcome. The floor is yours. We look 
forward to your testimony.

               STATEMENT OF THERESA SCHMALSHOF, 
                     NCGA CORN BOARD MEMBER

    Ms. Schmalshof. Thank you. Good morning, Chairman Gibbons 
and members of the Subcommittee. Thank you for the opportunity 
to testify on the impact of high natural gas on farmers.
    My name is Theresa Schmalshof, and I am a member of the 
National Corn Growers Association's Corn Board. I am from 
Adair, Illinois, where my husband Gary and I and our two sons 
grow corn and soybeans.
    NCGA was founded in 1957, and represents more than 33,000 
dues-paying members from 48 states. NCGA also represents the 
interests of more than 300,000 farmers who contribute to corn 
checkoff programs in 19 states. NCGA's mission is to create and 
increase opportunities for corn growers, and to enhance corn's 
profitability and use.
    My purpose today is to provide insight to the Subcommittee 
on how high natural gas prices affect the cost of producing 
important fertilizers that farmers rely on for their crops. 
Growers rely on affordable natural gas as feedstock for 
fertilizer; but also, energy for irrigation, powering farm 
equipment, and drying grain and producing ethanol.
    Whether used directly as a feedstock or for heat and power 
generation, reasonably priced natural gas is essential to 
grower profitability. Increased natural gas prices are having 
an adverse effect on farmers.
    Today's high natural gas prices translate into a huge 40 to 
50 dollar cost increase per acre for a typical farmer. 
According to the recent--to a recent University of Illinois 
study, across the State of Illinois, the total costs per acre 
to produce corn in 2004 increased 6 to 9 percent, due to 
increased prices for fertilizer, seed, and fuel. And there is 
no relief in sight.
    Fertilizers account for more than 40 percent of the total 
energy input per acre of corn harvested. Most of that energy is 
consumed in the production of nitrogen fertilizer. Retail 
prices for fertilizer--the prices paid by the farmers--rise 
sharply when natural gas prices increase. According to the U.S. 
Department of Agriculture, farm gate prices for fertilizer have 
jumped to near record high levels. The largest cost component 
of making all basic fertilizer products is natural gas, 
according for more--accounting for more than 90 percent of the 
cash cost of production.
    Nitrogen fertilizer is a key input for the bountiful crops 
achieved by the U.S. corn farmers. Rising natural gas prices in 
the U.S. have caused domestic nitrogen fertilizer producers to 
severely curtail production, as Mr. Cicio mentioned.
    Of the 16 and a half million tons of nitrogen capacity that 
existed in the U.S. prior to 2000, almost 20 percent has been 
closed permanently. Another 25 percent is at risk of closing 
within the next two years. Farmers face higher nitrogen 
fertilizer prices and the prospect that there might be 
inadequate supply of nitrogen fertilizer to satisfy the 
farmers' demands at any price.
    Nitrogen fertilizer producers have no way of curtailing or 
reducing their demand for natural gas, other than shutting down 
the production process itself. This not only destroys their 
businesses, but it drives up fertilizer prices to the American 
farmer and food prices to the American consumer.
    Natural gas accounts for 70 to 90 percent of the cost of 
producing anhydrous ammonia, a key source of nitrogen 
fertilizer. In the Midwest, at the beginning of 2000, anhydrous 
ammonia was selling at 160 to 170 dollars per ton. By the end 
of that year, the price had climbed to $210 per ton. Last year, 
anhydrous ammonia was selling at $360 per ton. And this year, 
we paid over $400 per ton. Unfortunately, these high and 
volatile prices are expected to continue into the foreseeable 
future.
    High natural gas prices will also negatively impact this 
country's growing ethanol industry. The second biggest cost in 
ethanol production is the cost of energy; generally, natural 
gas. Energy costs typically make up about 15 percent of a dry 
mill plant's total costs. The corn industry becomes more energy 
efficient every year, but we still must have adequate, 
reliable, and affordable natural gas to fuel the industry.
    Government policy is creating a supply squeeze for natural 
gas. On one hand, electric utilities and other industries are 
moving away from using our plentiful supplies of coal and 
toward use of natural gas. Natural gas has been the fuel of 
choice for more than 90 percent of the new electric generation 
to come on line in the last decade. In addition, as that 
happens, our access to natural gas is limited, due to the 
environmental policy. Clearly, we can't have it both ways.
    Our ability to be efficient and environmentally friendly 
corn producers will face huge obstacles if our nation cannot 
come to grips with its desire to have limitless resources like 
natural gas for production, and not realize that these 
resources have to come from somewhere. I am sure that the 
members of the Subcommittee, as individuals, know this well; 
however, Congress seems unaware of this fact. We can produce 
corn, but we need you to produce the kind of policy that 
enables us to use the needed resources to do the job.
    Our nation's current natural gas crisis has two solutions: 
increase supply, and reduce demand. The 109th Congress is 
facing a daunting task of finding ways to balance our nation's 
dwindling supply and rising demand for natural gas. Additional 
supply is available from three primary sources: onshore and 
offshore production; liquefied natural gas. While there is 
considerable activity underway in each of these areas, Congress 
can do more to facilitate the timely development of these 
critical supply sources.
    Congress must also adopt measures to ensure the new coal 
facilities are constructed. Congress should provide Federal 
loan guarantees and other incentives for the retrofitting of 
existing natural gas-fired facilities with the new integrated 
gasification combined-cycle technologies.
    It is vitally important that these forms of power 
generation be developed and deployed. Without them, the demand 
for gas-fired power plants will continue to grow and place an 
ever increasing burden on the nation's supply base. Support 
through long-term extension of tax credits and other incentives 
for other emerging technologies, including wind and biomass, is 
also an important element to diversify our nation's energy 
resource portfolio.
    Converting agricultural and industrial plants to 
environmentally friendly coal gasification technology can 
significantly reduce demand for natural gas. This is of 
particular interest for coal-rich states like Illinois.
    The conversion of an East Dubuque, Illinois, fertilizer 
plant, substituting coal gasification technology for natural 
gas, will displace 11.6 billion cubic feet of natural gas for 
residential use each year; enough to supply over 157,000 homes. 
This project also will produce 1,800 barrels per day of ultra 
clean, low-sulfur diesel fuel that will help reduce vehicle 
emissions and improve Illinois' air quality.
    By reducing [sic] coal gasification technology, fertilizer 
costs will be reduced and, at the same time, more natural gas 
will be available to the electric generation industry. Without 
enactment of the incentives package to jumpstart the deployment 
of coal gasification technologies, damage to American 
industries will continue, and farmers will be left paying 
skyrocketing prices for fertilizer.
    We urge Congress to act expeditiously to promote the 
development of domestic energy resources to help secure future 
economic growth for our nation. Congress needs to enact a 
comprehensive energy policy now that provides an enhanced role 
for renewable energy sources, further development of all energy 
sources for a more diverse portfolio, and environmentally 
sensitive production of adequate domestic supplies for natural 
gas.
    Mr. Gibbons. Ms. Schmalshof, could you wrap up?
    Ms. Schmalshof. I have one----
    Mr. Gibbons. We're at the nine-minute point.
    Ms. Schmalshof. Oh, I'm sorry.
    Mr. Gibbons. And I just want to give fair and equal 
opportunity to everybody.
    Ms. Schmalshof. Thank you. I have one paragraph left.
    Mr. Gibbons. Please, go ahead.
    Ms. Schmalshof. I encourage the Subcommittee to continue to 
address energy and natural gas issues and make it a--make it a 
national priority. Simply, farmers need access to reliable 
sources of energy and raw materials, so that they can use the 
fertilizers necessary to produce an abundant, affordable, and 
healthy food supply.
    Your decisions directly impact my farming operations. Thank 
you for this opportunity to relate my farm experiences to you.
    [The prepared statement of Ms. Schmalshof follows:]

                   Statement of Theresa Schmalshof, 
                   National Corn Growers Association

    Good morning, Chairman Gibbons and members of the subcommittee. 
Thank you for the opportunity to testify on the impact of high natural 
gas prices on farmers.
    My name is Theresa Schmalshof. I am a member of the National Corn 
Growers Association's (NCGA) Corn Board. I am from Adair, Illinois 
where my husband, Gary, and I--along with our sons--grow corn and 
soybeans.
    NCGA was founded in 1957 and represents more than 33,000 dues-
paying members from 48 states. NCGA also represents the interests of 
the more than 300,000 farmers who contribute to corn checkoff programs 
in 19 states. NCGA's mission is to create and increase opportunities 
for corn growers and to enhance corn's profitability and use.
    My purpose today is to provide insight to the subcommittee on how 
high natural gas prices affect the cost of producing important 
fertilizers that farmers rely on for their crops. Growers rely on 
affordable natural gas as feedstock for fertilizer, but also energy for 
irrigation, powering farm equipment, drying grain and producing 
ethanol. Increased natural gas prices have already had an adverse 
effect on farmers due to higher production costs, and will continue to 
do so in the future. Whether used directly as a feedstock or for heat 
and power generation, reasonably priced natural gas is essential to 
grower profitability. Today's high natural gas prices translate into a 
huge cost increase per acre for a typical farmer. According to a recent 
University of Illinois study, across the State of Illinois, the total 
costs per acre to produce corn in 2004 increased 6 to 9 percent due to 
increased prices for fertilizer, seed and fuel. And there is no relief 
in sight.

Role of Fertilizer
    Fertilizers account for more than 40 percent of the total energy 
input per acre of corn harvested. Most of that energy is consumed in 
the production of nitrogen fertilizer. Retail prices for fertilizer--
the prices paid by farmers--rise sharply when natural gas prices 
increase. According to the U.S. Department of Agriculture (USDA), farm 
gate prices for fertilizer have jumped to near record-high levels. The 
largest cost component of making all basic fertilizer products is 
natural gas, accounting for more than 90 percent of the cash cost of 
production.

Nitrogen Fertilizer
    Nitrogen fertilizer is a key input for the bountiful yields 
achieved by U.S. corn farmers. Rising natural gas prices in the U.S. 
have caused domestic nitrogen fertilizer producers to severely curtail 
production. Of the 16.5 million tons of nitrogen capacity that existed 
in the U.S. prior to 2000, almost 20 percent has been closed 
permanently. Another 25 percent is at risk of closing within the next 
two years. Farmers face higher nitrogen fertilizer prices and the 
prospect that there might not be an adequate supply of nitrogen 
fertilizer to satisfy farmers' demands at any price.
    Nitrogen fertilizer producers have no way of curtailing or reducing 
their demand for natural gas other than shutting down the production 
process itself. This not only destroys their businesses, but it drives 
up fertilizer prices to the American farmer and food prices to the 
American consumer. These production curtailments and higher nitrogen 
prices are largely the cause of the current surge in nitrogen imports. 
Imports currently account for approximately 40 percent of the total 
U.S. nitrogen fertilizer supply. Lower natural gas prices in the Middle 
East, Asia and South America make it difficult for U.S. nitrogen 
fertilizer producers to compete with these countries with much lower 
natural gas prices to take their excess natural gas, turn it into 
fertilizer and undersell U.S. producers, a practice that will only 
become more common in the future. Supplies of nitrogen fertilizer have 
been adequate during periods of high natural gas prices in the past 
primarily because of increased imports.

Anhydrous Ammonia
    Natural gas accounts for 70 to 90 percent of the cost of producing 
anhydrous ammonia, a key source of nitrogen fertilizer. In the Midwest 
at the beginning of 2000, anhydrous ammonia was selling for $160 to 
$170 per ton. By the end of that year, the price had climbed to $210 
per ton. Last spring, anhydrous ammonia was selling for $360 per ton. 
The price of anhydrous ammonia this spring is now over $400 per ton. 
Unfortunately, these high and volatile prices are expected to continue 
into the foreseeable future. Tight supplies and increasing demand will 
continue to pressure producers' margins and profitability, as farmers 
do not have the ability to pass on these increased costs.

Ethanol Production
    Higher natural gas prices will also negatively impact this 
country's growing ethanol industry. The second biggest cost in ethanol 
production--second to feedstock--is the cost of energy, generally 
natural gas. Energy costs typically make up about 15 percent of a dry-
mill plant's total costs. The corn industry becomes more energy 
efficient every year, but we still must have adequate, reliable and 
affordable natural gas to fuel the industry.

Market Watch and Impact
    Government policy is creating a supply squeeze for natural gas. On 
one hand, electric utilities and other industries are moving away from 
using our plentiful supplies of coal and towards use of natural gas. 
Natural gas has been the fuel of choice for more than 90 percent of the 
new electric generation to come online in the last decade. In addition, 
as that happens, our access to natural gas is limited due to 
environmental policy. Clearly, we can't have it both ways.
    Our ability to be efficient and environmentally friendly corn 
producers will face huge obstacles if our nation cannot come to grips 
with its desire to have limitless resources, like natural gas, for 
production and not realize that these resources have to come from 
somewhere. I am sure the members of the subcommittee as individuals 
know this well. However, Congress seems unaware of this fact. We can 
produce corn, but we need you to produce the kind of policy that 
enables us to use the needed resources to do so.

Congressional Action Needed
    Our nation's current natural gas crisis has two solutions: increase 
supply and reduce demand. The 109th Congress is facing the daunting 
task of finding ways to balance our nation's dwindling supply of and 
rising demand for natural gas. Additional supply is available from 
three primary sources: onshore and offshore production, and liquefied 
natural gas. While there is considerable activity underway in each of 
these areas, Congress can do more to facilitate the timely development 
of these critical supply sources. To promote additional production, for 
example, Congress can adopt measures to ensure that potential federal 
lands and Outer Continental Shelf areas are open for leasing, that 
leases and permits are issued promptly, that the appropriate tax and 
royalty policies are in place, and that the necessary pipeline 
infrastructure is available to bring supplies to market, while leaving 
behind as small an environmental footprint as possible.
    Alaska's North Slope is one area with significant potential 
reserves that can be unlocked in this way. Alaska's North Slope is 
believed to hold as much as 100 trillion cubic feet of natural gas, 
making it the largest reserve in North America. The natural gas 
industry anticipates the need for more than $60 billion of 
infrastructure investment over the next fifteen years just to keep pace 
with demand, including liquefied natural gas terminals, pipelines and 
storage facilities. The construction of new pipelines, such as a 
pipeline to bring Alaska's North Slope natural gas to domestic markets, 
cannot be further delayed.
    Congress must also adopt measures to ensure that new coal and 
nuclear facilities are constructed. Congress should provide federal 
loan guarantees and other incentives for the retrofitting of existing 
natural gas-fired facilities with the new integrated gasification 
combined-cycle and next-generation nuclear technologies. It is vitally 
important that these forms of power generation be developed and 
deployed. Without them, the demand for gas-fired power plants will 
continue to grow and place an ever-increasing burden on the nation's 
supply base. Support, through long-term extension of tax credits and 
other incentives, for other emerging technologies, including wind and 
biomass, is also an important element to diversifying our nation's 
energy resource portfolio.
    Converting agricultural and industrial plants to environmentally 
friendly coal gasification technology can significantly reduce demand 
for natural gas. This is of particular interest for coal-rich states 
like Illinois. The conversion of an East Dubuque, Illinois fertilizer 
plant, substituting coal gasification technology for natural gas, will 
displace 11.6 billion cubic feet of natural gas for residential use 
each year, enough to supply over 157,000 homes. This project also will 
produce 1,800 barrels per day of ultra clean low-sulfur diesel fuel 
that will help reduce vehicle emissions and improve Illinois' air 
quality. By utilizing coal gasification technology, fertilizer costs 
will be reduced, and--at the same time--more natural gas will be 
available to the electric generation industry. Without enactment of an 
incentives package to jumpstart the deployment of coal gasification 
technologies for polygeneration of products, damage to American 
industries will continue and farmers will be left paying skyrocketing 
prices for fertilizer.
    We urge Congress to act expeditiously to promote the development of 
domestic energy resources to help secure future economic growth for our 
nation. Congress needs to enact a comprehensive energy policy now that 
provides an enhanced role for renewable energy sources, further 
development of all energy resources for a more diverse portfolio, and 
environmentally sensitive production of adequate domestic supplies of 
natural gas.

Conclusion
    There are many indications that our nation's economy and energy 
security will be seriously impacted should we not take action to expand 
all sources of domestic, energy to feed our country's growing demand. A 
renewable fuels standard as part of a comprehensive energy policy would 
result in the expansion of ethanol production--directly contributing to 
domestic fuel supply and reduction in our dependence on imported oil. 
Our ability to produce food and fuel for our nation and the world 
depends on a sound energy policy.
    I encourage this subcommittee to continue to address energy and 
natural gas issues. Your decisions impact my farming operation. Simply, 
farmers need access to reliable sources of energy and raw materials so 
they can use the fertilizers necessary to produce an abundant, 
affordable and healthy food supply.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Ms. Schmalshof. And I 
would agree with you, as with many people, that the use of 
natural gas for electrical generation is probably not the 
wisest use for that resource. And we do have a lot of coal in 
this country, and perhaps we need to advance clean coal 
technology.
    But with that said, let me also turn now to Mr. Bessette.
    Ms. Schmalshof. Thank you.
    Mr. Gibbons. Thank you for your patience. Thank you for 
waiting. And the floor is yours. We look forward to your 
testimony.

          STATEMENT OF ROBERT D. BESSETTE, PRESIDENT, 
              COUNCIL OF INDUSTRIAL BOILER OWNERS

    Mr. Bessette. Mr. Chairman and members of the Subcommittee, 
thank you for the opportunity to appear before you today to 
discuss the concerns over rising energy costs. My name is 
Robert Bessette, and I'm President of the Council of Industrial 
Boiler Owners, better known as CIBO, representing the energy 
and environmental interests of the industrial energy users and 
producers since 1978.
    CIBO members include industrial boiler owners, architect-
engineers, related equipment suppliers and manufacturers, 
service suppliers, university affiliates, consisting of over 80 
members representing 20 different major industrial sectors. And 
I've provided a written statement, but I'll try to summarize 
here.
    America has been blessed with abundant, readily available, 
and inexpensive energy; so much so, it has spurred our 
ingenuity and imagination, to make us the greatest country in 
the world today. The increased product diversity and 
profitability generated by inexpensive energy has [sic] fueled 
this accomplishment. Without energy, there are no products, 
there are no jobs, and there is no country as we know it.
    The United States has led global development. However, over 
the last ten to 15 years, we have seen a change. Developing 
countries are producing products we want, and they also want, 
with inexpensive labor and benefits, at prices they can afford. 
As the cycle progresses, they become global suppliers, and the 
U.S. becomes a prime marketplace.
    Today, product competition is global. The cost of energy 
versus inexpensive foreign labor and benefits has helped shift 
the U.S. from the supplier of the world to the prime consumer 
of the world.
    For the last ten years or so, American corporations have 
been building plants in developing countries, to be able to 
take advantage of the growth in the developing markets. These 
plants were designed for future growth, with excess capacity; 
designed with the state-of-the-art, high-efficiency energy and 
production equipment, to produce products that those local 
markets could afford.
    As energy costs increase in the U.S., due to availability 
constraints, demand, or other factors, the capital spending 
decisions must be based in part on the cost of producing 
products by using the excess capacity in new plants around the 
world.
    In the era when our environmental policies have promoted a 
shift to high-cost natural gas or unaffordable environmental 
controls, we are seeing companies move production capacity to 
countries where the balance of energy costs and costs of labor 
and benefits is better.
    With these new plants, the marginal cost of production from 
excess capacity allows for the production and selling of those 
products competitively here in the United States. When this 
happens, we lose jobs. If they do anything other than that, it 
may not be in the best interests of the global corporation.
    We are at a critical time, when the environmental policy 
has favored natural gas as a solution of choice, at the expense 
of our other energy resources, and without the commensurate 
expansion of domestic supplies.
    A national energy policy is absolutely needed, one, to 
increase the supplies of natural gas; two, to promote the cost-
competitive use of our diverse energy resources, including 
renewable energy, with a broad definition of ``renewable'' to 
include biomass, waste fuel, and other potential energy 
resources--wood was our original forefathers' energy resource--
three, to promote the increase of all domestic coal reserves 
and other potential fuels, through research and development and 
demonstration at the industrial scale; four, to promote energy 
efficiency, especially through combined heat and power, at our 
industrial facilities.
    All of these will improve the efficient and effective use 
of our valuable energy resources, while improving the global 
competitiveness of our U.S. facilities. We need a national 
energy policy that addresses the concerns of industrial, 
commercial, and institutional sectors.
    The national energy base of our country and the powerhouses 
at our industrial, commercial, and institutional facilities are 
lumped with the utility sector in many cases; so that there's 
only one energy source. That seems to be electricity. We are 
more than just electricity. We use steam for heating, cooling, 
and manufacturing processes. We are different. Our boilers are 
smaller and different. Our fuel range application is different. 
And because we must compete in a global marketplace with our 
products, increasing energy costs directly impact where 
products are produced.
    For those entities like universities and others that cannot 
relocate, the cost is passed on to the consumer, or services 
are cut, or the company closes its doors. Americans feel the 
direct impact of rising energy costs in the products they buy, 
the tuition they pay and, sadly, even whether they continue to 
have a job.
    Thank you. I look forward to your questions.
    [The prepared statement of Mr. Bessette follows:]

              Statement of Robert D. Bessette, President, 
                  Council of Industrial Boiler Owners

INTRODUCTION
    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to appear before you today to discuss the concern over 
rising energy costs. My name is Robert Bessette, and I am the President 
of the Council of Industrial Boiler Owners, better known as CIBO.
    CIBO is a broad-based association of industrial boiler owners, 
architect-engineers, related equipment manufacturers, and university 
affiliates consisting of over 80 members representing 20 major 
industrial sectors. CIBO members have facilities located in every 
region and state of the country and have a representative distribution 
of almost every type boiler and fuel combination currently in 
operation. CIBO was formed in 1978 to promote the exchange of 
information within industry and between industry and government 
relating to energy and environmental equipment, technology, operations, 
policies, laws and regulations affecting industrial boilers. Since its 
formation, CIBO has taken an active interest and been very successful 
in the development of technically sound, reasonable, cost-effective 
energy and environmental regulations for industrial boilers.

RISING ENERGY COSTS
    The cost of energy continues to make headlines, as the rising cost 
continues to negatively affect the U.S. economy and the American 
public. Recent economic data show that rising energy prices have slowed 
U.S. economic growth to a two-year low and there are signs that this 
will continue in the coming months. 1
---------------------------------------------------------------------------
    \1\ Wall Street Journal, ``Energy Costs are Taking Their Toll'' 
(April 29, 2005).
---------------------------------------------------------------------------
    Most of the public's attention is focused on the most direct 
impacts to the downstream consumer, such as the price of gasoline at 
the pump, home-heating costs and the cost of electricity. Less 
apparent--but equally as important--is the impact of rising energy 
costs on the industrial sector, which powers the nation's manufacturing 
plants. Some segments of industry such as chemicals and fertilizer 
suffer disproportionately because they rely on natural gas as both a 
feedstock and fuel. The industrial sector consumes 29% of natural gas 
consumed in the U.S. The cost of natural gas, measured in cost per 
million British thermal units (MMBtu), has increased to levels that are 
testing the economic capacity of industry to absorb and continue to do 
business in the U.S.
    In the early to mid-1990's the average price of natural gas in the 
U.S. was $2/MMBtu. In 2000, with new gas-fired utilities online, demand 
and cost grew. Today the average price hovers around $7/MMBtu, the 
highest in the world. Prices in Europe are near $5.50; in Japan and 
China near $4.50; in Indonesia less than $3.00; and in North Africa, 
Russia and the Middle East less than $1.00, making it increasingly 
difficult for U.S. businesses to compete in the global marketplace. 
Once short-term cost factors are accounted for, CIBO companies report 
costs of $10-12 MMBtu, or as high as $27 MMBtu. For industrial sources 
the cost of energy has increased dramatically as a percentage of 
overall costs of production. For one CIBO member company, energy costs 
in 2002 were 29% of its total production costs. By 2004, its energy 
costs had risen to 43% of production costs.
    Other fuels are showing the same cost trend. The cost of coal has 
more than doubled in the last two years. Oil prices are around $50.00 a 
barrel and are expected to remain at that level for the near future. 
2 As U.S. Treasury Secretary John Snow noted a couple of 
weeks ago, the high cost of energy is ``taking some wind out of the 
sails of the American economy.'' 3
---------------------------------------------------------------------------
    \2\ Id.
    \3\ Wall Street Journal, ``U.S. Snow: Higher Energy Prices Slowing 
U.S. Economy'' (May 2, 2005).
---------------------------------------------------------------------------
    In addition to companies with boilers serving industrial processes 
or generating steam for electricity production, CIBO members include 
public and private universities, which operate boilers to run campus 
facilities. The boiler on a college campus is what heats the dorm rooms 
and keeps the lights on in the classrooms. Universities are also 
directly impacted by rising energy costs, with students (or their 
parents) bearing the ultimate burden of the increase in the form of 
either program cuts or increased tuition. The experience of CIBO 
members reflects similar budget shortfalls at colleges across the 
nation.
    Data from CIBO university members tell a more precise story. One 
coal-burning member that has recently bid its coal contract for FY 05/
06 will experience an 86% increase in fuel costs--an additional $3.3 
million--over FY 04/05, due to increased cost of coal.
    Similarly, another university member burning coal and natural gas 
had a 60% increase in coal costs between April 2004 and April 2005. The 
school's older, cheaper pricing coal contracts expired in January 2005, 
resulting in a $3 million increase in FY 04/05 costs and a $6 million 
increase in the FY 05/06 cost of coal. Natural gas price increases have 
also affected this member. When its current natural gas contract 
expires on June 30, it expects a 33% increase with a $1 million dollar 
impact.
    Yet another university member is currently finishing re-
negotiations on a new coal contract that indicates an increase of 
nearly 25% in coal costs. The school is also moving towards indexed 
pricing in case of market changes either up or down, which could be 
much less favorable to the school as compared to its earlier fixed 
priced contracts. In addition to the fuel cost, it also faces higher 
transportation costs in the form of fuel surcharges from the railroad 
and the trucking firms. At this campus, natural gas and fuel oil are 
being avoided as long as possible, due to an increased cost for #2 fuel 
oil of 30% over last year and for natural gas an increased cost of 20% 
over last year. In aggregate, fuel expenses increased nearly 20% year-
to-date over last fiscal year, amounting to over $1.1M in additional 
expense. Overall, its energy costs (fuel and purchased electricity) 
typically run about two thirds of the entire budget of just over $18M. 
Administrators at this university decided to forego a tuition increase 
and turned instead to program cuts to meet budget.
    This same hardship is experienced by yet another university member, 
whose overall purchased utilities budget expenses increased by 12% from 
FY03/04 to FY04/05, and will increase by another projected 26% for 
FY05/06. This is a 41% increase in two years.
    Double-digit energy price increases and significant budget 
shortfalls are the norm for CIBO university members, and is indicative 
of what is happening around the country. Coupled with rising demand 
growth on many campuses, may colleges and universities are faced with 
the unfortunate decision to cut student programs or raise tuition.
    Analysts attribute the cause of rising energy costs to many long-
term and short-term factors. Often overlooked as a significant 
contributing factor to rising demand and costs is the failure of our 
national energy policy to account for environmental initiatives. This 
lack of coordination of policies directly affects the decisions of 
manufacturers regarding where to expand capacity and where to produce 
goods.

NEED FOR A COORDINATED ENERGY/ENVIRONMENTAL POLICY
    The lack of an effective national energy policy that is coordinated 
with environmental policy results in environmental decisions that 
exacerbate the energy supply/demand imbalance. For example, a good 
national energy policy would promote the use of diverse energy sources, 
which would moderate interruptions and spikes in individual fuel supply 
availability and price. Such a policy would also provide a framework 
and incentives to promote the use of diverse energy sources and the 
full use of intrinsic U.S. energy resources, including our large 
reserves of coal. Because we do not have an effective national energy 
policy, individual fuel decisions are necessarily based on local short-
term economics that exacerbate long-term problems.
    In the Clean Air Act (CAA), Congress provided ways to ensure 
environmental protection and at the same time to meet energy demand by 
allowing dependence on the full range of the nation's diverse energy 
sources. And for the first 25 years of its implementation, the Clean 
Air Act was interpreted, as intended, to allow industry to rely on all 
energy resources. However, beginning in the mid-to-late 1990's, 
environmental policy makers began to favor natural gas over other 
fossil fuels for its cleaner burning properties. All new power 
generation was built for natural gas. This policy of favoring natural 
gas over other fuels was incorporated into Clean Air Act rules 
applicable to the industrial sector as well. These rules are framed in 
terms of ``fuel neutrality,'' meaning that all sources would have to 
meet the same Clean Air Act emission standards regardless of the type 
of fuel they burn.
    At first blush, this ``fuel-neutral'' approach looks appealing, 
because it accomplishes an environmental benefit and appears to level 
the playing field for all fuel sources. In reality, however, the 
approach is not at all neutral, because it severely punishes the use of 
energy sources other than natural gas. Under this approach, standards 
are set at a point that makes emissions reductions cost-effective for 
sources burning natural gas, but cost-prohibitive, or even in some 
cases, technically infeasible for sources burning other fuels. Under 
those circumstances, sources under pressure to comply with Clean Air 
Act standards will (if they can) switch to natural gas. Through these 
strong incentives for sources to switch fuel, environmental standard-
setting has contributed to the increasing dependence on natural gas and 
the abandonment of coal and other fuels as reliable alternatives.
    CIBO has raised these concerns often, before Congress, during 
various environmental rulemakings and through the courts. But because 
EPA has broad discretionary authority under the Clean Air Act, CIBO's 
concerns for the most part had gone unaddressed. More recently, in 
light of soaring energy prices and an effort to address the need for a 
diverse energy supply, CIBO can report that policy makers appear to be 
taking into account the negative energy implications of this ``fuel-
neutral'' approach.
    Yet, our environmental policies still do not ensure that we can 
meet the growing energy demand. Some programs outright prohibit 
expanding the domestic supply of natural gas. Others more subtly 
discourage use of fuels other than natural gas. To the extent that any 
environmental program or policy undermines the nation's parallel goal 
of using a variety of energy resources, this creates an unsustainable 
situation for the energy-dependent manufacturing base in an era of 
global competition.
    Congress is asking the industrial base to increase production 
without additional energy. Industry has met this challenge to a large 
extent, by increasing efficiency. One of our members improved energy 
efficiency from 1994-2004 by 21%, and plans to achieve an additional 
25% efficiency over the next 10 years. Similar efficiencies are being 
achieved and planned for the future by all our members.
    But Congress must know that there is a limit to the ability of U.S. 
industry to absorb the energy price shock and still remain competitive. 
Once energy costs can no longer be absorbed through energy intensity 
adjustments, companies will seek to meet production demand in parts of 
the world where energy is cheaper. In a word, our inability to address 
this issue translates into jobs.
    To take one example, in the plastics industry, the cost of natural 
gas tripled from 2000-2002, 130,000 jobs were eliminated and plastic 
product shipments declined by $14.7 billion. Similarly in the chemicals 
industry, the global chemical industry is expected to grow annually by 
4% but the U.S. will not see any of that growth under present energy 
cost projections. 4 Rather, U.S. companies now plan to meet 
export demand by developing capacity oversees. One CIBO member has 
already closed down non-competitive production facilities in 11 U.S. 
cities in NY, NJ, NH, MI, WV and TX. Overall, chemical companies closed 
70 U.S. facilities in 2004 and plan closure of another 40. Over 120,000 
jobs in the industry have been eliminated since 2002. 5 For 
80 years the U.S. maintained a trade surplus in chemicals, with a $20 
billion surplus in 1997. Today the U.S. has a trade deficit in 
chemicals. As demonstrated by just these two sectors, the crash course 
our policies are now on is eroding the manufacturing base in the U.S.
---------------------------------------------------------------------------
    \4\ By contrast, 120 new chemical plants are under construction or 
planned around the world, with only one of these being built in the 
U.S. ``No Longer the Lab of the World, U.S. Chemical Plants Closing in 
Droves as Production Heads Abroad,--Business Week (May 2, 2005).
    \5\ Id.
---------------------------------------------------------------------------
    It should be noted that CIBO is not suggesting that we sacrifice 
environmental protection for energy security. Rather, these can and 
should be parallel goals, building on the remarkable environmental 
improvements over the last three decades. In the last 30 years since 
the adoption in 1972 of the Clean Air Act, emissions of the six 
criteria pollutants declined by 54%, even though there was a 187% 
increase in the gross domestic product, a 40% increase in the 
population and a 171% increase in miles traveled by vehicles. Air toxic 
emissions declined 30% from the years 1990 to 1999 alone. 6
---------------------------------------------------------------------------
    \6\ EPA, Air Emissions Trends, http://www.epa.gov/airtrends/econ-
emissions.html.
---------------------------------------------------------------------------
    As Congress considers options for addressing the impact of rising 
energy costs, environmental policies should be closely examined for 
opportunities to ensure that these policies support rather than hinder 
efforts to address energy cost concerns.

ENERGY EFFICIENCY & INDUSTRIAL BOILER EFFICIENCY
    The average industrial boiler produces 100,000 pounds of steam per 
hour, with most boilers ranging in size from 10,000 to 1,200,000 pounds 
of steam per hour. Industrial boilers are tailored to meet the unique 
needs and constraints of widely varying industrial processes. The 
70,000 industrial boilers in use today are as varied as the products 
and processes they serve. 7
---------------------------------------------------------------------------
    \7\ For further explanation, see Attachment, ``Energy Efficiency 
and Industrial Boiler Efficiency.''
---------------------------------------------------------------------------
    Overall process or operational efficiency of a boiler is determined 
by the needs of the operation and the design of the powerhouse used to 
meet those needs. Likewise, energy efficiency for industrial boilers is 
a highly boiler-specific characteristic. Four factors are critical for 
assessing energy efficiency in the industrial powerhouse supplying 
energy to make products: (1) fuel type, (2) combustion system 
limitations, (3) equipment design, and (4) steam system operation 
requirements. The industrial facility's complexity, location, and 
objective are additional complicating factors.
    Fuel characteristics determine the design of a particular unit. 
When fuels are switched, the interaction of the new fuel and the boiler 
often produces negative impacts on either the load or the boiler 
efficiency. These effects often are amplified because of limitations 
encountered in specific areas of the boiler where these adverse 
interactions occur. Changes in fuel, load, and operation can easily 
impact overall efficiency.
    Unlike utility boilers, which operate solely to produce 
electricity, industrial boilers are more complex and designed for 
diverse facilities dedicated to a variety of different objectives. A 
boiler that serves a pulp and paper facility is very different from one 
that serves a university campus. Even at a single installation, 
application of steam from an industrial boiler can change dramatically 
with the seasons, when steam or hot water is used for heating, as well 
as from day-to-day and hour-to-hour, depending upon industrial 
activities and processes underway at a given moment and their demand 
for steam. The possibility of such widely fluctuating demand for steam 
in most industrial processes means that the industrial boiler in the 
great majority of cases, does not operate steadily at maximum capacity. 
In general, the industrial boiler will have a much lower annual 
operating load or capacity factor than a typical utility boiler. This 
results in a lower efficiency.
    In addition, because industrial boilers are smaller, operate at low 
capacity factors, and operate with a widely fluctuating load, 
environmental controls are less efficient, and less cost-effective than 
the same controls used on utility boilers. Further, some controls that 
can be applied effectively to utility units, which operate at steady 
state, cannot be readily applied to industrial boilers, which operate 
at a wide variety of loads. 8 Importantly, combustion and 
add-on control technologies often negatively impact boiler system 
efficiency as well as system reliability.
---------------------------------------------------------------------------
    \8\ For example, the control technology Selective Catalytic 
Reduction (SCR) requires placement of a catalyst grid and injection of 
ammonia at a specific operating temperature for effective reduction of 
nitrogen oxides (NOx). This design requirement cannot be met in 
industrial applications where load and temperature at a fixed point in 
the system varies.
---------------------------------------------------------------------------
    These different requirements naturally create optimal efficiencies 
that vary widely from industry to industry and from facility to 
facility. The ``one size fits all'' approach often used by regulators 
to encourage increased energy efficiency and to maximize emission 
reductions of a given pollutant simply does not work because this 
approach does not consider the many specific factors that affect 
emissions reduction and energy efficiency at a given industrial 
facility. Nevertheless, consideration of energy efficiency for 
industrial boilers often is simplified and categorized to a one-size-
fits-all approach.
    A sound energy/environmental policy would account for this wide 
variation in industrial boilers while encouraging these sources to 
utilize all available fuel sources and develop potential efficiencies. 
Two opportunities to achieve these goals are discussed below.

COMBINED HEAT AND POWER EFFICIENCY
    Starting with fuels, industry accomplishes conversion by burning 
the fuel and releasing heat. An engine then converts heat energy into 
mechanical or electrical energy. If combustion occurs inside an engine, 
it converts heat energy to mechanical energy that can be used to drive 
a pump, fan, compressor, or electrical generator. Exhaust leaving the 
engine is hot. This exhaust contains over half of the BTUs released 
during initial combustion of the fuel and it can exceed 1000 degrees F. 
If none of the exhaust heat is used, the device is known as a simple 
cycle. If heat is recovered from the exhaust for the additional 
utilization, the combination of the engine and other devices is known 
as a cogeneration system or a combined cycle system.
    The concept of combined heat and power provides further efficiency 
improvements over producing only electricity by using exhaust heat 
directly in the manufacturing process. Many manufacturing processes 
require heat at temperatures between 250oF and 700oF. The BTUs provided 
by the exhaust are at temperatures that match these temperature 
requirements well. Hence, by converting high temperature, high quality 
BTUs to mechanical or electrical energy and taking the lower 
temperature, lower quality BTUs to meet process temperature needs, the 
energy in fuel can be used most effectively and efficiently. With this 
combination, from 60% to 85% of the BTUs in the fuel can be recovered 
and used effectively. 9
---------------------------------------------------------------------------
    \9\ For further explanation, see Attachment, ``Combined Heat and 
Power.''
---------------------------------------------------------------------------
    Given that the use of CHP routinely achieves twice the efficiency 
of conventional boiler steam and electric utility generation, our 
national policies should encourage its use. Unfortunately, the 
diversity and complexity of industrial CHP facilities is not 
understood, and environmental regulation can discourage its use. For 
example, how the useful energy value of process steam is calculated 
will either encourage or discourage an industrial source to make the 
capital investment to use CHP. If the value of the steam is calculated 
at less than the cost to produce it, few sources would invest in the 
technology. In the past, EPA has assigned sources a uniform useful 
value of steam thermal energy due to difficulty in measuring output of 
thermal energy at an industrial source. This uniform valuation may not 
represent the true value to an industrial facility of the thermal 
energy produced. More recently EPA has indicated it is considering 
allowing a more precise calculation of the value of thermal energy 
facility-by-facility.
    CIBO strongly advocates a more accurate measure of thermal output 
because it will provide a significant incentive for investment in CHP 
units that use a very high percentage of their steam for useful thermal 
purposes. If Congress is truly committed to the investment in high-
quality CHP installations, our environmental regulations should allow 
facilities that make that capital investment to accurately account, 
whenever possible, for the full value of the thermal energy they 
produce.

USE OF ALTERNATIVE FUELS SUCH AS BIOMASS AND WASTE COAL
    Other environmental policies that can undermine energy policy 
involve criteria pollutant standards. Under the Clean Air Act, 
industrial sources must meet emissions standards for particulate 
matter. Depending on the emission reduction required by the standard, 
but also on the type of boiler, fuel, available control technology and 
other complex factors discussed above, a given unit may or may not be 
able to achieve the emission reduction cost-effectively. Some 
industrial boilers, particularly smaller units, may be able to fire 
non-fossil fuels such as biomass and other opportunity fuels, which 
tend to have higher particulate matter concentrations than other fuels. 
Those non-traditional fuels will likely provide an opportunity for 
marginal industrial facilities to remain in operation when compared to 
the current extremely high fossil fuel costs. In addition, use of non-
traditional fuels can help alleviate the current energy supply/demand 
imbalance and help lower fuel costs.
    Clean Air Act particulate matter standards should not be set 
without accounting for the potential economic impact on smaller 
industrial units using opportunity fuels. Standards should not 
foreclose the continued operation of these small sources that provide 
economic stability for communities, assist in balancing the energy 
demand/supply imbalance, and provide other environmental benefits by 
fully utilizing waste products for energy production.
    Another example involves the Clean Air Act standard for sulfur 
dioxide (SO2). In some geographic regions of the country, some units 
have found it possible to extract the valuable energy from waste coal 
from abandoned refuse piles. This provides a significant net benefit to 
the environment. Burning coal refuse not only prevents potential acid 
mine drainage and reclaims abandoned mine land for productive use, it 
also makes beneficial use of the remaining energy value of the refuse 
through the production of electricity. These environmental benefits 
contribute to achieving national environmental goals set forth in the 
Resource Conservation and Recovery Act and other federal and state 
laws. Nevertheless, because of the complexities of the units having 
this capability, the units have a limited ability to reduce SO2 
emissions beyond their inherent SO2 reduction capabilities compared to 
units burning traditional fuels.
    CIBO believes that the environmental and energy supply benefits 
from burning coal refuse far outweigh the slight incremental SO2 
emission reduction that would be achieved by imposing an infeasible SO2 
standard on these sources. In fact, under these circumstances, the net 
environmental impact would be harm, because units that cannot feasibly 
meet a standard will switch fuels or close down rather than recovering 
the coal refuse resources, once again abandoning the coal refuse piles 
to create an environmental hazard.

SUMMARY AND CONCLUSION
    To fully address the issue of rising fuel costs, Congress must take 
into account the impacts on the industrial sector. A substantial 
portion of the total energy budget in the nation is produced and 
consumed by industrial users. Operators of industrial boilers are major 
users of utility-generated power and are extremely vulnerable to energy 
price spikes and differentials against our global competitors. If our 
facilities become less efficient and less productive, then our ability 
to compete in the domestic and international arenas sharply declines.
    Congress has the ability to adopt a course of action to address the 
energy supply/demand imbalance and devastating energy prices. Broad 
efforts including energy efficiency, fuel diversity, infrastructure 
improvements, and improved supply need to all be included in a 
comprehensive approach. As part of that effort, Congress should include 
measures to ensure that environmental policy coincides with energy 
policy. Clean Air Act standards, for example, should encourage 
industrial sources to invest in technologies that maximize energy 
efficiency and to use alternative energy resources including biomass 
and waste coal.
    CIBO recommends that Congress adopt coordinated energy/
environmental legislation that (1) addresses energy supply concerns by 
increasing the domestic supply of natural gas, facilitating the 
permitting of energy-related facilities within the U.S., and ensuring 
continued reliance on nuclear, renewables, coal and all other energy 
resources; (2) maintains and preserves fuel diversity including not 
only coal, but diversity within coal types; (3) supports the use of all 
alternate fuels including biomass, waste coal and other similar energy 
resources; (4) abandons ``fuel neutrality'' as a basis for setting 
environmental standards, which pushes sources to use natural gas to the 
exclusion of other available fuels; and (5) insists on consistency in 
energy and environmental policy, recognizing the distinctions between 
utility and industrial boilers and ensuring industrial sources are able 
to maximize energy efficiency and use the full range of energy 
resources.
                                 ______
                                 
    Mr. Gibbons. Very nice, Mr. Bessette. And I apologize for 
pronouncing the ``E'' part of your name. It is not pronounced, 
and I apologize for mispronouncing your name. And thank you 
very much for your testimony and for the summary you provided, 
as well.
    We are going to turn now, ladies and gentlemen, to 
questions from the panel here. And they are under the same time 
restriction that I gave you. Each one will have five minutes 
within which to ask a question. And I will turn now to Mr. 
Peterson of Pennsylvania for his five minutes. Mr. Peterson.
    Mr. Peterson. Thank you very much. And I appreciate the 
testimony today. I found it interesting three of you talked 
about natural gas, which anybody knows is my issue; an issue 
that I have been concerned about for five or six years, and at 
times here in Congress felt like I was a lonely, sole voice 
arguing with leaders of the energy committees that gas was 
going to be a problem, and they were saying, ``Oh, no, it's 
just cyclical. It will be back down.''
    But they are connected. The first gentleman we heard from 
talked about the airline industry; which is petroleum directly. 
But I just want to share something that has not been spoken 
and, I don't think, often thought about. All of my school 
districts, all of my hospitals, and all those kinds of 
institutions, have dual use. They have dual fuel capacity. They 
have to have.
    And unfortunately, with natural gas prices the last two 
years, many of them have been burning fuel oil; which competes 
with the airline industry. And I mean, none of this is being 
thought about. Because it was cheaper to burn fuel oil than it 
was to burn natural gas with these spiking prices.
    So it is all related. And in my view, I have a transit 
system in State College, Pennsylvania, that is now all natural 
gas. That was a winner in the beginning. It is not a winner 
today. It actually costs them more. So the unnatural natural 
gas prices.
    The question I want to ask you in a minute is, I guess, 
what have you done to alert the public. I spoke this morning to 
CEOs of steel companies. I had a man who said he spends $10 
million a year for natural gas. He did not know it wasn't a 
world price. And I found that a little hard to believe.
    Most of the CEOs of those companies were not aware of world 
gas prices; that they are as low as 80 and 90 cents in 
countries like Russia; that right in South America it's just a 
little over a buck; Europe, we are $7, they're $5; China is 
$4--giving them another 65 to 70 percent advantage on 
everything they make that uses natural gas.
    And I have spoken to just scores of groups. I haven't 
talked to any group of leaders that had any idea that natural 
gas is an island to itself in this country, and that we pay the 
world's premium prices.
    I guess all of you, have any of you spoken out on this 
issue about natural gas until recently? I mean, it has sort of 
been like nobody knows it. Most Members of Congress don't know 
it.
    Mr. May. Congressman, not specific, obviously, to natural 
gas; which is your direct issue. We haven't figured out how to 
fly a plane on natural gas yet.
    Mr. Peterson. Yes.
    Mr. May. I recall testifying before the Senate Energy 
Committee, making public statements on the overall price of 
energy, broadly. And we understand that in the pricing scheme 
there is a fungible nature of natural gas and fuel. And that 
was two and a half years ago. It was one of the first things I 
did when I assumed my new position.
    I think you could come to any meeting of any airline 
anywhere, annual meeting or group of--my board meeting, which 
consists of, exclusively, CEOs, and fuel prices are the 
principal topic of conversation for part of that meeting, at 
least.
    It is critical. I think we ought to be looking at policies 
relative to the Strategic Petroleum Reserve. I think we ought 
to not necessarily release from that, but we're looking at 
record high reserves today; you know, 690-some million barrels 
of oil in the ground right now. I think we can't be filling 
that at extraordinarily high prices, and then down the road 
releasing it at low price.
    So I think there are a lot of things that need to be done. 
But I think, also, it's a delight to see members of your 
committee take a visible position on it because, quite frankly, 
too few in the Congress have.
    Mr. Cicio. Representative Peterson, thank you so much. And 
I want to thank you, personally, for all your leadership, 
consistently, in hammering home this issue of the challenges of 
natural gas. Quite frankly, I am surprised, and shocked, as you 
are, that the steel company executives didn't get it.
    I will assure you that the CEOs of the member companies of 
the Industrial Energy Consumers of America do understand, and 
they are actively engaged. But at the same time, I have to 
acknowledge to you that across the country, in general, CEOs do 
know what impact costs of energy--not just gas, but also coal 
has doubled, crude oil prices, electricity prices have gone--
they do know what that has had.
    And it has become in many cases their largest variable 
cost, and has had a significant impact of CEOs making decisions 
not to invest their growth capital here in this country. It's a 
very serious problem.
    Yes, they are spending their capital associated with 
maintaining these existing plants, but the growth is not here. 
Because when they look at the price of natural gas, for 
example, on the New York Mercantile, and they see high, high, 
high sustained natural gas prices as far as you can see, they 
say, ``The U.S. is no longer a place that has a competitive 
advantage that it once had through energy costs.''
    Communications and education have been a real challenge for 
us. We're an organization that was formed three years ago as a 
result of the natural gas crisis. And there is just simply not 
enough dollars to communicate as sufficiently as we need to.
    Mr. Peterson. Any other type of comment?
    Ms. Schmalshof. Mr. Peterson, I know that NCGA and our 
members have been aware of the natural gas crisis, as you know 
because of my comments. It does hit our bottom line. And we 
have been working in that endeavor. However, as Mr. Cicio said, 
monies are tight, and we don't have an expeditious amount of 
dollars. But we certainly would be glad to work with you.
    I think it's certainly a need for all of us to get the 
other congressional people onboard and let them certainly 
understand what this is about. It's not a farmer issue, alone. 
It's also across all sectors, as you said. And that's hard for 
us to get into some doors, when they see that we are a farm--a 
farm group. So we'll do what we can, and certainly keep working 
toward that entity.
    Mr. Bessette. Thank you, Congressman Peterson. We've been 
working for years, because environmental policy has been going 
at a different direction than national energy policy. We 
haven't had a linked energy and environmental policy.
    Fifteen years ago, the industrial sector was probably 
burning 60 percent of its energy for process use using coal. 
Today, we're burning 60 percent natural gas, because the 
environmental constraints have forced us into that direction. 
It's either that, shut down, or move. The costs of controls are 
inextricably high. We can't get them to those levels.
    That process is extremely important. We've put all of our 
resource eggs in the natural gas basket to solve our 
environmental problems. We need an energy policy that promotes 
fuel diversity, that promotes fuel flexibility.
    Thanks for the question. You're doing a remarkably good 
job. Thank you.
    Mr. Gibbons. Thank you, Mr. Peterson.
    We'll turn now to Mr. Grijalva. Mr. Grijalva, you have five 
minutes.
    Mr. Grijalva. Mr. Chairman, just a couple of questions. Let 
me begin with Mr. Cicio. In you testimony, you seem to be 
saying that the members that you represent are almost entirely 
reliant, or over-reliant, on one source of energy, which is 
natural gas--some of the members, like Bayer Corporation, Coors 
Brewing Company, Dow Chemical, Tysons Foods. Yet most industry 
and consumer groups are strongly in favor of a diversified 
portfolio.
    The Institute for Analysis of Global Security, a 
Washington-based think tank whose members include a spectrum of 
conservative, liberal, centrist, they've been advocating the 
transitioning away from traditional energy sources; having a 
diversified portfolio. Former Secretary James Baker is making 
similar proposals.
    So while opening up the moratorium areas seems a quick fix 
and an easy solution, I would suggest it's probably short-term 
at best. And that's assuming you overcome what will be the 
political objections to opening up those areas.
    Therefore, my question is, why would you focus so heavily 
on one energy source, and not look to the future with new 
technologies and alternative fuels?
    Mr. Cicio. Congressman, I couldn't agree more with you. The 
fact is, our organization in its many reports and 
communications supports a broad diversity--as we call it, a 
robust, diverse supply of energy. We know as a country we need 
all of the energy alternatives in the mix. We need nuclear, we 
need coal, we need gas, we need renewable energy, we need--and 
we agree, technology is the real solution to all of these 
challenges long-term. So we agree 100 percent.
    The reason that I am here today is--and why my testimony is 
focused as it is, is that there has been insufficient focus on 
the real way forward in increasing supply of natural gas. We 
cannot conserve ourselves out of this major dilemma.
    And oil and gas producers, the exploration and production 
industry, are drilling three wells to get the same amount of 
gas that they used to get out of one. Today, one of those wells 
will be produced out in a period of three years or so. They 
used to produce a well, and it would provide production for 
eight to ten years. This is a--we're putting special emphasis 
on solving the natural gas crisis.
    Mr. Grijalva. Thank you. And just to follow up on that, the 
movement toward natural gas--and my colleague is much more an 
expert on that than I am--the movement was also because the 
commodity was priced so low at the time.
    And I think also, as we try to mesh environmental policy 
and energy policy, as Mr. Bessette said, we are also in a 
position as you strike a balance to realize that we need to be 
looking to the future, as well.
    Mr. Bessette, the question I have for you is, in both your 
oral and written statement you advocate a good national energy 
policy that would promote the use of diverse energy sources, 
which would moderate those interruptions and spikes in 
individual fuel supply and price. And you made the point that 
there has not been that linkage between environmental policy 
and energy policy.
    Speaking to that linkage, what is your opinion, then, of an 
energy bill passed by the House last month that provides $3.2 
billion in new tax breaks for oil and gas industry, while 
dropping more than $3 billion for incentives for renewable 
energy and efficiency? There is a linkage question if I ever 
saw one.
    Mr. Bessette. When you start looking at the linkage of 
energy policy and environmental policy, when it comes down to 
where is the crux, the crux is in the dollars per million Btu.
    When we start looking at natural gas prices that have gone 
from, five years ago, two dollars a million Btu or less, and 
we're now up, for some of our industrial facilities, to seven 
to ten dollars and twelve dollars, and spot prices as high as 
27----
    Mr. Grijalva. I think the contradiction I'm pointing to, 
the producers right now are enjoying record profit years, in 
terms of oil and energy pricing in this country. And we are 
also, consumers, painfully aware of the price of gas. And the 
folks that all of you represent, your industries are painfully 
aware of the energy cost. And so the contradiction I'm pointing 
out is that, while that is occurring, the investment that we 
have to make in renewable alternatives research, that even 
Greenspan and others have been advocating, that isn't being 
done in conjunction.
    Mr. Bessette. A lot of the research and the renewable sides 
of what's been talked about have been aiming at wind, solar, 
photovoltaics--very, very high cost. Anything that's high cost 
is very, very difficult to apply in the industrial setting, 
because our costs are based on low-cost, inexpensive, available 
energy.
    If we raised the cost of energy, it's not solving my 
problem of where is that final product going to be produced. So 
we have to look at inexpensive energy. The renewables that are 
being----
    Mr. Grijalva. Well, as we subsidize traditional--oil, gas--
all I'm suggesting is that that same philosophy of providing 
that kind of assistance to alternatives would be a wise 
investment at this point.
    Mr. Bessette. Absolutely.
    Mr. Grijalva. OK. Thank you. No more questions.
    Mr. Gibbons. Thank you, Mr. Grijalva.
    Mrs. Drake.
    Mrs. Drake. Thank you, Mr. Chairman. I would like to thank 
you for calling this panel together. And I would like to thank 
our panelists for being here. I know you have come from all 
across America to deal with such a critical issue for us.
    I would like to ask one more thing of you, though, if you 
would do it for us. From your own perspective, if you don't 
mind sending us a letter back that just details what you think 
we do right, and what you think we can do much better. And I 
just think that would be very helpful for us as we deliberate.
    I represent the Second District of Virginia, which is the 
southeast corner--Norfolk, Virginia Beach area. And two of our 
real economic drivers, of course, are the military and tourism. 
Largest naval base in the world: 29 percent of their budget is 
spent on energy and utility costs. And I don't think we think 
about that when we talk about the war on terror.
    Mr. Bessette, you represent educational institutions. And 
one thing we're struggling with in another committee I am on is 
reauthorization of the Higher Education Act. And we talk all 
the time about costs, but never have we talked about the cost 
of energy. Have you seen with your members that that alone is 
enough to drive some of the tuition costs that we are dealing 
with?
    Mr. Bessette. One of our--one of our affiliated 
universities had a 5 percent tuition increase that they 
directly allocated from energy and environmental impacts, 
having to meet the boiler max standards that are coming up, and 
increasing coal costs.
    One of the--another one of our universities, they had coal 
prices last year at $60 a ton. This year, they're paying $123 a 
ton for coal, in the central part of the country. Primarily 
because it's not available; the utilities are burning more; the 
price has gone up for low sulfur.
    Industrial facilities need very special quality fuels. They 
just can't burn anything. So because they have a very tight 
quality requirement, sizing, it's not readily available. Price 
goes up and they're being struggled [sic]. Of course, the 
alternative is natural gas, at seven to ten dollars a million 
Btu's, so I'm going to spend $5 a million, $7--$6 a million for 
coal at my facility. It's hurting our universities. They can't 
pack up and move out.
    Mrs. Drake. Right. Well, and what I have heard from all of 
you is, I think, within your industries you are trying very 
diligently to reduce demand yourself; to be much more 
efficient. And I think you would agree with me that we have 
absolutely got to increase supply within our country, or within 
the North American continent, working with Mexico and Canada.
    Mr. Cicio, I don't know if you heard, but Virginia has had 
a very interesting debate about offshore drilling, because of a 
bill in the General Assembly this year. So I wondered within 
your industry if you are working with local governments. 
Because interestingly, in the Second District, part of the 
district is all for it, the other part of the district is very 
concerned about it. So, whether you are working in your 
industry to explain to local governments what this would really 
mean to them. Or have they started that kind of effort? Because 
we need that.
    Mr. Cicio. Yes. And in fact, we're working with a broad 
coalition of trade associations who are exclusively consumers, 
working together to work on a state-by-state basis. At this 
time, we're not working on all states. But it's an effort to 
provide education and talk about these desperate--the desperate 
need for sound energy policy and increased supply, particularly 
of natural gas domestically. We don't have, in our view, a very 
good solution to that educational process, but we are starting
    Mrs. Drake. Thank you very much for that, because I think 
that will be very helpful.
    So Mr. Chairman, I am going to yield back my time. But 
thank you for being here. I look forward to getting your 
response.
    Mr. Gibbons. Thank you very much.
    Mr. Melancon.
    Mr. Melancon. Thank you, Mr. Chairman. I appreciate the 
opportunity to visit with these people. I'm sorry I was running 
late.
    Mr Cicio, I am on the Mississippi River corridor, which is 
high industrial, petrochemical. And the life blood is natural 
gas. I guess what I would ask you, just as Mrs. Drake asked, is 
tell us what we are doing right; tell us what we are doing 
wrong; and if you have got suggestions of things that we can 
do.
    I am concerned with the job loss as they shut these plants 
down because of the price of natural gas. And it is happening. 
I am losing people weekly, I guess, if you want to go that way. 
But do you have any thoughts on that?
    Mr. Cicio. Yes, sir, I do. Thank you for that question. It 
is, in our view, almost shameful that we have so much natural 
gas in this country, yet we do not let the energy companies 
have access to produce that gas. We don't need--we should not 
have prices of natural gas as we have today, and the resulting 
loss of jobs. We have plenty of gas.
    As I pointed out earlier, the energy companies are drilling 
three wells just to get the same amount of gas that they used 
to get out of one. And that is because they are drilling in 
areas that have less gas in the ground, rather than larger 
amounts of gas. We need to give them access to those areas that 
have abundant reservoirs of gas, rather than small pockets. And 
that's what we've relegated this to.
    There are a lot of companies who used to spend billions of 
dollars of increased monies to drill for gas and oil in this 
country, that no longer do that. This has happened over time. 
And they have moved away from the United States because the 
United States is no longer an attractive place to invest their 
dollars. There's other places around the world.
    Well, to us, this doesn't make sense. We have a country 
with a very stable and growing demand. We have a country that 
desperately needs clean fuels like natural gas. And the demand 
is increasing. We can't really continue to improve our 
environment as easily as we can without increased supplies of 
natural gas.
    We have all these things going for us, yet we still just 
don't take that extra step to deal with this issue of, for 
example, the moratoria. You know, we're not asking, in fact, 
that we need everything, but we do need to address this issue; 
establish a process to open up and deal with this moratoria.
    States, for example, have little incentive to allow for 
drilling of natural gas. That needs to change. States should 
have greater control of their coast lines so that they have--
they can control whether there's drilling, you know, three 
miles, ten miles, 50 miles. They should have a say in that, and 
that's not the law of the land.
    These are basic principles that need to change the dynamics 
of producing energy in this country, so that we can have an 
attractive place for these companies to invest their dollars. 
So states need incentives. States need more control over their 
coastal waters. And that would make a huge, huge difference, we 
think, in these dynamics.
    Mr. Melancon. Thank you on that. Mr. May, if you could, I 
had a conversation with a friend of mine that is, I guess, in 
the airport business. And he was telling me that the problem 
for commercial airlines these days is they had good strategies 
and plans for getting themselves out of the problems they faced 
after 9/11; but now with the fuel costs, that is probably the 
most crippling portion, or the largest portion of what their 
costs are. Is that so?
    Mr. May. Yes, sir, it is. Next to labor, it is our most 
expensive component of our cost structure. We've dropped our 
cost for available seat-mile down significantly since 9/11, but 
we've nearly doubled the amount of money we're spending on 
fuel. We're now projecting in 2005 to spend somewhere in the 
range of $28 billion just on fuel; which will be about 91 
percent higher than we did back in 2001.
    Mr. Melancon. Thank you, sir. I apologize; he was just 
telling me I had another meeting.
    Mrs. Drake and Mr. Chairman, because I have to run, I would 
like to offer, as I did back in the 1970s, we had a group from 
the Delmarva Peninsula. So that you know how far back that was, 
Governor DuPont was still your Governor in Delaware. But to 
bring this Subcommittee, or the entire whole Committee if it is 
possible, to south Louisiana. Now, in the early part of this 
century, a lot was done wrong in exploration. But we have 
learned. The technology is there. The ability to get to these 
natural resources is phenomenal.
    And I think from a standpoint of whether it is you who had 
those questions and want to understand it, to even those of us 
that think we understand it, I would like to offer, Mr. 
Chairman, that we would be happy to try and set that up, 
because I think it would be an eye-opener for anybody that 
wants to understand.
    And I totally agree, we need to find out what is right and 
what is wrong with what is going on, so that we can try and 
direct it. Mr. Chairman, I yield back my time, and I apologize 
for having to leave.
    Mr. Gibbons. Thank you,
    Mr. Melancon. And let me assure you that this committee is 
indeed interested in visiting that area of our nation's energy 
production in the region. And we have been talking about it, 
and would certainly take great pride in the fact that Louisiana 
is one of the centers of the oil and gas industry for this 
country, and all the great work that you do for a lot of 
people. But we will certainly be in touch with you with regard 
to any plans in that regard.
    I am the final questioner here today, so that we can get to 
our next panel. Let me begin my time by saying that in our 
economy in this world in the United States, the mineral 
industry is the foundation of our economy. The energy industry, 
oil and gas, is the keystone that keeps the door of our economy 
able to open when we need to be able to open that arch. So the 
two are critically tied.
    Now, Mr. May, you paint a rather dire picture for one of 
the very, very significant parts of our economy; which is the 
transportation industry. And we in the 21st century have become 
so dependent on air travel, air transportation, whether it is 
for our own personal transportation or for goods and services 
that we move about this country. We are a high-speed society, 
and of course the airline industry is critically dependent on 
that keystone oil and gas energy supply. And you have, 
literally, a captive audience. We have nowhere to go, unless we 
want to revert back to the horse-and-buggy days in that.
    But let me ask, do you believe that with the price both of 
labor and oil and gas today, that your industry can meet the 
demands for rapid air transportation for tomorrow?
    Mr. May. Mr. Chairman, we're going to have a very difficult 
time doing that if oil stays in the $50 range or north of $50. 
This industry, airlines--not transportation broadly, but 
airlines--used to contribute just under 1 percent of the 
overall GDP of this country. Last year, we contributed 0.7 
percent of GDP. To translate that into real money, what it says 
is that there's somewhere on the order of $30 billion less 
being spent on air transportation today than there was just a 
few short years ago.
    That is principally a function--good news for the 
consumer--of lower prices on tickets; bad news for the 
industry, because price competition is so tough, so severe. And 
that competition prevents us from passing through. You talked 
about the cargo side of our business. Just-in-time economy 
depends on cargo. We've been able to price through the increase 
in oil on the cargo side; not on the passenger side.
    Regrettably, I can fly to Florida today for less money than 
it takes me to fill my SUV out in Bethesda, Maryland. That's a 
sad commentary, I think, on what's going on in this business.
    We've got a number of carriers that are in Chapter 11 
today. We have a number of other carriers that are on the 
precipice. We are at 110 percent of borrowing ratio right now. 
In other words, our asset-to-debt ratio is 110 percent; which 
is awful. And if oil prices stay where they are today, I think 
we can come very close to guaranteeing you that there are going 
to be other carriers that go into Chapter 11.
    Mr. Gibbons. Well, it seems unique to our economy, I think, 
that we are so disinterested, I think, right now in trying to 
find short answers--in other words, increasing supply for some 
of these critical resources--to stabilize the economy and 
actually reverse the increase in cost that you are 
experiencing. In the end, does the airline transportation 
industry care where their oil comes from?
    Mr. May. The one answer is ``No,'' because we recognize 
that the price of oil is a function of a world economy. We 
understand that the value of the dollar is having an impact. We 
understand that demand in China and India is having a dramatic 
impact. We understand, I think it was referenced here today, 
about dual fuel.
    A big part of the demand in both China and India has 
nothing to do with anything other than a lack of ability to 
rely upon the infrastructure. There is no electricity, so small 
business after small business after small business are buying 
generators and running generators on fossil fuel, because they 
can't rely on their own country's infrastructure for energy. 
And that is creating a big part of that demand.
    So it's a world market. It doesn't make any difference to 
us where it comes from, in the abstract. As a practical matter, 
we're as supportive of increasing domestic supply as anyone is. 
And the better job you do on natural gas, the less pressure you 
put on fossil fuels. And we can have a greater supply, and the 
price ought to come down on that.
    But remember, also, Mr. Chairman and other members of the 
Committee, we need some short-term relief. Most of the projects 
that are being talked about today are significantly longer-
term, ten-year horizons. And I've got to keep my guys in 
business, you know, this year and next; or ten years from now 
it's not going to make a difference.
    Mr. Gibbons. Well, I hear what you say; but I also believe 
that your industry, like all industries in this country who are 
an integral part of the economy, should care, should care 
mightily, about where the source of their oil comes from.
    It wasn't long ago that you and I can actively remember 
1976 and a crisis caused by OPEC: foreign countries controlling 
30 percent of the oil supply that we used in this country. 
Today, it is over 60. If we increase that dependence on foreign 
sources of oil, rather than our own domestic sources, then we 
are actually asking for a greater economic impact, if OPEC 
decides to do what it did in 1976.
    And so, like you say, we should be concerned about where we 
are getting our oil. Yes, in the short term you want lower 
prices and it doesn't matter as long as you get lower prices, 
obviously, because you have got to answer to your shareholders; 
you have got to answer to the traveling public; you have got to 
make sure your companies stay in business.
    We are here to do policy decisions that help you make those 
decisions and help you--all industries, all small farmers, 
everyone--stay in business. We have got long-term and short-
term decisions to make. The energy policy that we passed in 
this committee, I think, helps address short-term by going 
after those supplies.
    And you are right, Mr. Cicio. We do need to address the 
moratorium areas. Today, Cuba is drilling for gas closer to 
Florida than we are allowed to drill in the area; which makes 
no sense to us.
    And we have so many issues here that we are trying to get 
to. We need to do research and technology, greater investment, 
environmentally sound energy production, clean coal technology, 
coal gasification, exploration in areas that heretofore were 
off limits because of their expensive cost in breaking that--a 
lot of things. And those are decisions that we have to make. 
Your testimony has been very, very helpful, very, very 
insightful, in allowing us to make better decisions for that.
    Mr. Peterson. Just one thing?
    Mr. Gibbons. And Mr. Peterson, yes, real quickly.
    Mr. Peterson. Just real quick. I was a retailer for 26 
years, local government, state government, Federal Government, 
business, for 26. Let me tell you what we haven't talked about 
today. I appreciate everything you have come here to say, but I 
will be looking forward to the day when I get on the airline--
and I fly all the time--and the stewardess has a button on that 
says, ``When are we going to have an energy policy in this 
country?'' I mean, I am serious.
    If the four of you would get back to your associations and 
get back to your employers and you engage your employees and 
say, ``Your job is on the line because of energy prices in 
America,'' you will help us change this here.
    When CEOs of steel companies don't understand it, what do 
you think the general public knows about this issue? And so you 
need to go back to your employers with a simple message that 
says, ``Your job is in jeopardy if we don't get fair energy 
prices and have an energy policy in this country.'' I think you 
can really help us.
    Mr. Gibbons. Thank you, Mr. Peterson. Let me summarize by 
saying, had we been able to pass and get to the President an 
energy policy in 2001, which this committee and the House of 
Representatives passed four years ago, today we would be four 
years closer to a permanent solution than we are right now. 
Because some of the provisions we passed in that Act then are 
the same provisions we have today.
    So each year we find some excuse, some way to make the 
energy policies of this country not applicable to our problems, 
is a delay which causes the economic burdens of this country 
and the American worker to go right out the ceiling.
    And it is intolerable, and I am one that is definitely 
committed to finding answers to the problems that each of you 
have raised here today. Because I live in this country like 
everyone else. I love this country; I love clean air; I love 
clean water. And I also want to live in this country in the 
future with a job that I can depend upon.
    Thank you very much. We are going to excuse this panel and 
call up our second panel. And our second panel is going to 
consist of Robbie Hyde, President and CEO of Mill Hall Clay 
Product, Incorporated; Carol Clements, Chairperson, National 
Fuel Funds Network; and Katherine Morrison, staff attorney for 
U.S. PIRG.
    It might be better if you, before you sit, would continue 
to stand, because I do have to swear you in.
    [Witnesses sworn.]
    Mr. Gibbons. Let the record reflect that each of the 
witnesses answered in the affirmative to the oath.
    We would like to welcome now our second panel to our 
hearing. And I will turn to Mr. Peterson to introduce Mr. Hyde.
    Mr. Peterson. We want to thank all of you and welcome all 
of you today. I want to especially welcome Robbie Hyde.
    When was it you contacted me on this issue? How many years 
ago?
    Mr. Hyde. Probably, in the latter part of 2000, or 2001.
    Mr. Peterson. Yes. If every user of natural gas had done 
what he did--he was one of the ones that got me involved in 
this issue. Now, there were some other issues that I was 
working on, that I was aware of the potential future problem 
with natural gas. But Robbie Hyde of Mill Hall Clay Products, a 
company who has been there for all this century, and he has 
been there 35 years, making clay products which use a huge 
amount of energy, natural gas--and suddenly finding that prices 
were making it unprofitable for him and he had to close his 
plant from time to time when prices reached certain peaks.
    Robbie, you helped me really get engaged in this issue, and 
I want to thank you and welcome you for coming here today and 
sharing. Hopefully, you can inspire Congress. Thank you.

        STATEMENT OF ROBBIE M. HYDE, PRESIDENT AND CEO, 
                 MILL HALL CLAY PRODUCTS, INC.

    Mr. Hyde. Thank you, Mr. Peterson. It's been a pleasure 
working with you on this, and I appreciate all you've done for 
us.
    Mr. Chairman, we're a very small manufacturer, compared to 
my fellow witnesses that have spoken here today. But as you'll 
see in our testimony, even though we're small, we're enjoying 
the same economic problems that they all seem to be.
    We manufacture clay chimney flue liners and decorative 
chimney tops that are tied into home building. And as 
Congressman Peterson says, we've been at our plant since it was 
built in 1890. It's continuously produced the masonry products. 
In 1947, it was incorporated under the laws of the Commonwealth 
of Pennsylvania. And it's still represented by family members 
of the original shareholders.
    We bought our company in 1947 from a company called the 
Mill Hall Brick Works. The Mill Hall Brick Works was one of 32 
brick yards located in Clinton County, Pennsylvania, at that 
time. Presently, we're the only one left manufacturing clay. 
We're the only flue liner manufacturer in the State of 
Pennsylvania, and there's only, I think, seven of us in the 
United States.
    We operate our plant on what we call beehive kilns, which 
we bake our product in, and it's baked with natural gas. We 
changed over to natural gas in 1965. Prior to that, we fired 
our kilns manually with coal. Our kilns are fired 24 hours a 
day, seven days a week.
    We have 31 employees, manufacturing employees, and seven 
management and clerical personnel. And we're represented by the 
United Steelworkers of America. And our plant has 38 
manufacturing slots recognized by our contract; but over the 
last few years, we've not replaced seven men that have left our 
company, due to the decline in demand for our product. So we're 
presently meeting all of our production needs with 31 men 
instead of 38.
    Our products are sold all throughout the New England 
States. And at the present time, our largest expense, after 
plant labor, is the cost of natural gas. We are presently 
paying gas bills that are three to four times greater than 
we've paid in the past. And to compensate for this, we've 
passed on fluctuating surcharges to our consumers, price 
increases. And it seems that we're just pricing ourselves right 
out of the market with our competitors in the chimney business, 
as far as steel chimneys, ventless stoves. There's a lot of 
things working against us. Outside burners, as our Congressman 
has at his home. We have a lot of things working against us, 
and we just can't keep pace with them.
    And I'm sure that there's no one out there that uses 
natural gas that enjoys these high prices we're experiencing, 
and I feel that we must do something. And I feel that every day 
I hear excuses for the cost, the increases for the price of 
natural gas. But I feel two of the main reasons are the 
regulations and the environmental issues that we spoke here 
about this morning.
    We have tons and tons of gas out there. I have some charts 
attached to my testimony--I thought we were going to have some 
in here--but as we spoke, of all the gas available in the 
United States. And we can't drill it, due to the environmental 
people and their regulations.
    And I know that we as American people are smart enough to 
drill this gas and do it right, and not disturb the 
environment. I believe, you know, strongly in a productive 
environment for my grandchildren to grow up in and enjoy like 
I've been able to. I believe strongly in a safe workplace for 
my employees.
    But it's got to the point where we just can't continue to 
do business with the regulations and the environmental issues 
at hand. It's really--as far as production of natural gas, it's 
holding back. Like Mr. Cicio said, they're drilling three wells 
to get what they used to get out of one well.
    Congressman Peterson talked about some of the things I was 
going to talk about, all the gas available in the United 
States. His chart states that there's--with the natural gas we 
have in the United States we could supply 100 million homes for 
157 years, but you know--there it is; I'm sorry--it's all 
locked out of production.
    Somebody spoke about gas being drilled--but anyway, if I'm 
correct, Congressman Peterson, in the State of Michigan there's 
a gas field that's off limits to us, due to environmental 
issues. And across the lake, Canada is drilling under it and 
getting that gas, and then selling it to the United States. 
There's something wrong there.
    At our little plant, again, I looked at the numbers, if we 
go down, which is a possibility. We have 38 employees; their 
families, they total 90; 11 retirees. It's going to affect a 
lot of lives.
    And two other charts that I've had on here that you can 
look over. In the past, we paid $3.58--that's an average--per 
decatherm for our natural gas to bake our product. In 2004, it 
was $7.68.
    It cost us $25.11 to manufacture one ton of natural gas in 
the past. In 2004, it cost us $72 for natural gas to 
manufacture that same ton of goods.
    And finally--the chart is not up there, but if I had a 
manufacturing company in the United States, and I was spending 
$500 million a year for my natural gas, I would definitely 
consider moving my plant to Bolivia, where they would be paying 
$118 million; saving $382 million in natural gas cost, alone. 
And that's noted on one of the charts there, also, that 
Congressman Peterson has.
    That's all I have. I thank you for your time. And I'll look 
forward to your questions later. Thank you.
    [The prepared statement of Mr. Hyde follows:]

            Statement of Robbie M. Hyde, President and CEO, 
         Mill Hall Clay Products, Inc., Mill Hall, Pennsylvania

    Mill Hall Clay Products, Inc. is a manufacturer of clay chimney 
flue liners and decorative clay chimney tops located in Mill Hall, PA 
at a plant site that has continuously produced clay products since 1890 
when the manufacturing plant was built. In 1947 a small group of 
individuals purchased what was then the Mill Hall Brick Works Company, 
incorporated the business under the laws of the Commonwealth of 
Pennsylvania and continued production. All ownership of the corporation 
is still represented by family members of the original shareholders.
    The Mill Hall Brick Works Company was one of thirty-two brick yards 
located in Clinton County, Pennsylvania at one time. The present day 
facility, Mill Hall Clay Products, Inc. is the only clay manufacturing 
company still in operation in the county. It is the only manufacturer 
of clay chimney flue liners in the state and one of about only seven 
manufacturers of clay chimney flue liners in the United States.
    The plant operates with thirteen bee-hive kilns to bake its 
product, some of which have been standing and in use since the plant 
started in 1890. The kilns have been fired with natural gas since 1965. 
Before the transition to natural gas, the kilns were manually fired 
with coal. The plant works one daylight shift, 8 hours per shift, while 
the kilns are fired continuously, 24 hours a day, seven days a week.
    There are presently 31 manufacturing employees and 7 management and 
clerical personnel. We are a union shop represented by the United 
Steelworkers of America. We have 38 manufacturing slots recognized by 
our union contract, but, due to the decline in demand for our product, 
we have not replaced the last seven employees who have left us. 
Presently these 31 employees have been able to meet all of our 
manufacturing needs.
    Our products are sold all along the East Coast with our heaviest 
market in the New England states.
    At the present time, our largest expense, after plant labor, is the 
cost of natural gas. We are presently paying gas bills that are three 
to four times greater than we were paying in the past. We have been 
passing these extra costs on to our customers in the form of 
fluctuating sur-charges as well as price increases. It is getting to 
the point where many alternative chimney methods are much cheaper to 
put into new homes, when in the past they were much more costly than 
the old fashion masonry chimney. Our sales for the last three years 
have been the lowest sales years in the history of the company.
    I am sure there is not a person out there that uses natural gas 
that enjoys these high prices we are experiencing for the cost of 
natural gas. We must do something to correct this problem or our 
country will continue to ride this economic downturn we are 
experiencing and we will continue to lose our manufacturing jobs. Along 
with all the excuses I hear every day as to why the natural gas prices 
are staying high, I feel the two main reasons we are in the situation 
we are in is due to regulations and environmental issues. How can we 
continue to meet the ever increasing supply and demand for natural gas 
when regulations and environmental issues stand in the way of 
production.
    We have tons and tons of natural gas all over this United States 
and we cannot drill for it due to regulations and environment issues. 
We Americans are smart enough people that we can drill for this gas 
anywhere in the United States and do it according to regulations and 
not ruin the environment. I believe strongly in a protected environment 
for my grandchildren to enjoy all their lives. I believe strongly in 
operating a safe work place for my employees. But we must consider 
opening up some of these regulations and environmental issues so this 
country can get along with business and make sure our grandchildren can 
enjoy their freedom in this country for years to come and enjoy all the 
country has to offer them. We must do this to get back all of the 
manufacturing jobs we have lost in the last three years due to plant 
closings.
    We fear for our jobs at Mill Hall Clay Products, Inc. and these 
regulations and environmental issues are governing our fate. I have 
been at Mill Hall Clay Products, Inc. for 35 years. I was hired seven 
months after my honorable discharge from the United States Army. This 
is the only job I have ever had. In my 35 years I have negotiated 
eleven labor contracts with our local union. We have never experienced 
a labor strike since I have been there. Our labor negotiations always 
took six, eight, ten weeks with maybe two meetings a week lasting on 
the average of four to six hours per meeting. We settled our latest 
three year contract in June 2003. We met one time for two and one half 
hours and the contract was settled. Two and one half hours, our men are 
scared to death for their jobs.
    Look at the numbers if our plant goes down, 38 employees total 
whose families total 90 lives, 11 retirees that would be affected, 20 
shareholders with families. One hundred thirty-one lives plus retirees 
and shareholders families. Also, all the businesses and their employees 
and families that depend on our product. Now consider this same 
situation with a plant that employs 1000 people, a plant with 3000 
employees. Think about the numbers and the consequences. How many 
manufacturing jobs have been lost in the past three years in this 
United States? We cannot sit still and let this continue to happen.
    Please look over my attached charts and notice where we paid $3.58 
average per Dth for natural gas in the past and $7.68 average per Dth 
this past year. Also, on these charts, please notice in the past where 
we paid $25.11 for natural gas to manufacture one ton of goods and this 
past year we paid $72.00 for that same natural gas to manufacture that 
ton of goods.
    And finally, if I were spending $500,000,000 per year for natural 
gas to run my plant here in the United States that employees 5,000 
people, I would definitely consider moving my plant to Bolivia where 
the same amount of natural gas would cost me $117,857,142, saving me 
$382,142,858 in natural gas costs alone. This information is also noted 
on one of the attached charts.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Mr. Hyde. We appreciate 
your testimony and the stark realization you have brought to 
this committee from your experience with all of this.
    We turn now to Carol Clements, the Chairperson for the 
National Fuel Funds Network. Carol, welcome. We look forward to 
your testimony. And again, the clock there indicates the five 
minutes to sum it up. Your full and written complete testimony 
will be admitted for the record. Carol, welcome.

           STATEMENT OF CAROL CLEMENTS, CHAIRPERSON, 
                  NATIONAL FUEL FUNDS NETWORK

    Ms. Clements. Thank you. Mr. Chairman and other 
Subcommittee members, I'm Carol Clements, Chairperson of the 
Board of Directors of the National Fuel Funds Network, and 
Executive Director of the Victorine Q. Adams Fuel Fund in 
Baltimore. On behalf of NFFN, I thank you for the opportunity 
to testify in today's hearing on the impacts of high energy 
costs for the American consumer.
    The national organization I chair and the local agency that 
I direct are well qualified to speak on the impacts of high 
home energy costs on consumers with low income. Last year, the 
Victorine Q. Adams Fuel Fund in Baltimore provided direct 
assistance to 1,108 households. The assistance totaled 
$320,595. Our average grant was $289.
    The National Fuel Funds Network consists of 290 members, 
called fuel funds or charitable energy assistance programs. 
They raise and distribute about $100 million annually in 
private charitable contributions from their local communities 
or states, to assist people with low incomes pay their home 
heating bills. Our members include not only non-profit 
organizations, but also utility companies, local and state and 
tribal government agencies who administer these programs.
    The fuel funds often supplement LIHEAP, and they are the 
providers of last resort. Some of our members also manage the 
Low Income Home Energy Assistance Program, or LIHEAP. Since we 
operate at the boundary of Federal and private energy 
assistance, NFFN members inevitably discover the sum of the 
charitable resources they manage and the resources provided by 
LIHEAP is inadequate. Therefore, the National Fuel Funds 
Network supports increasing the appropriation of LIHEAP from 
the current $2.2 billion to $3.4 billion for Fiscal Year 2006.
    These are very dramatic times for those of us involved in 
energy assistance. Today's Subcommittee hearing is in the wake 
of continuing volatility and the steady rise in the cost of 
home energy over the last five years.
    Home energy burdens likewise continue to rise. And while 
more families receive LIHEAP assistance, the percentage of 
eligible families is declining. LIHEAP and its fuel fund 
partners are effective programs, but the national home energy 
assistance system is severely stressed, due to the lack of 
funds.
    We are now six to eight weeks into a compounding crisis 
that occurs every spring. In mid-March or early April, 
moratoria on utilities cutoffs end, and in many states, despite 
the warmer weather, thousands of households face the prospect 
of losing utilities, due to several months accrued bills. 
Moreover, the human impacts of the gap between affordable home 
energy and the home energy bills of people with low income are 
persistent, and very troubling.
    In my home State of Maryland, the study showed that 
households with incomes of below 50 percent of the Federal 
poverty level pay 47 percent or more of their annual income 
simply for their home energy bills. More than 85,000 Maryland 
households live with an income at or below 50 percent of the 
poverty level. The study breaks down each state, and I 
recommend you look at Roger Colton's analysis of the 
affordability gap for every state in the United States.
    More important than stressed social service agencies is the 
impact of affordable home energy on people's health and 
personal choices. The National Energy Assistance Directors 
Association also did a study on the choice of heating or 
eating.
    The National Fuel Funds Network also strongly supports 
including advanced appropriations for LIHEAP for 2007 at the 
level of 3.4 billion, plus 300 million emergency funds.
    An important question before the Subcommittee today is what 
other measures, besides augmenting LIHEAP funding, can be taken 
to help people with low income deal with increasing home energy 
costs. NFFN recognizes how important it is to keep energy costs 
reasonable. The increase in demand for LIHEAP can be directly 
related to the rise in energy prices for the last few years. 
Natural gas prices, in particular, have a direct impact on 
energy affordability for low-income customers.
    NFFN recognizes there must be adequate supplies of natural 
gas and home heating oil to meet the demand and keep prices 
reasonable and avoid price volatility. While it is not NFFN's 
mission to determine where natural gas and oil supplies come 
from, the network does recognize that steps must be taken to 
increase natural gas supplies. This may come in the form of 
energy legislation, or regulatory and administrative actions.
    We commend the Resources Committee for exploring 
alternative ways to supplement the LIHEAP program as part of 
national energy legislation. The provision allowing the 
Secretary of Interior to provide a preference to low-income 
individuals under the Royalty-in-Kind program also has merit, 
sir.
    We thank you for the opportunity.
    [The prepared statement of Ms. Clements follows:]

  Statement of Carol Clements, Chairperson of the Board of Directors, 
                    The National Fuel Funds Network

    Mr. Chairman and other Subcommittee members, I am Carol Clements, 
Chairperson of the Board of Directors of the National Fuel Funds 
Network (NFFN) and Executive Director of the Victorine Q. Adams Fuel 
Fund in Baltimore. On behalf of the NFFN, I thank you for the 
opportunity to testify in today's hearing on ``The Impacts of High 
Energy Costs on the American Consumer.''
    The national organization that I chair and the local agency that I 
direct are well-qualified to speak on the impacts of high home energy 
costs on consumers with low income. Last year, the Victorine Q. Adams 
Fuel Fund provided direct assistance to 1,108 households in Baltimore 
City. This assistance totaled $320,595. Our average grant was $289. The 
National Fuel Funds Network consist of 290 members--called fuel funds, 
charitable energy assistance programs, fuel or energy banks--that raise 
and distribute about $100 million annually in private, charitable 
contributions from their local communities or states to assist people 
with low incomes pay home energy bills. Our members include not only 
nonprofit organizations, but also utility companies and local, state 
and Tribal government agencies, who administer charitable energy 
assistance programs.
    The fuel funds often supplement LIHEAP assistance, and often they 
are providers of last resort. Some of our members also manage federal 
Low Income Home Energy Assistance Program (LIHEAP) funds. Since they 
operate at the boundary of federal and private energy assistance, NFFN 
members inevitably, discover that the sum of the charitable resources 
they manage and the resources provided by LIHEAP is inadequate. 
Therefore, the National Fuel Funds Network supports increasing the 
appropriation for LIHEAP from the current $2.2 billion to $3.4 billion 
for FY 2006.
    These are very dramatic times for those of us involved in energy 
assistance. Today's Subcommittee hearing is in the wake of continuing 
volatility and steady rise in the cost of home energy over the last 
five years. Home energy burdens likewise continue to rise, and, while 
more families receive LIHEAP assistance, the percentage of eligible 
families served is declining. LIHEAP and its fuel fund partners are 
effective programs, but the national home energy assistance system is 
severely stressed, due to lack of funds. We are now six to eight weeks 
into a compounding crisis that occurs every spring. In mid-March or 
early April, moratoria on utility service cut-offs end in many states, 
and despite the warmer weather, thousand of households face the 
prospect of losing their utilities due to several months accrued bills. 
Moreover, the human impacts of the gap between affordable home energy 
and the home energy bills of people with low income are persistent and 
very troubling.
    Let me address each of these factors in turn.

Home energy costs continue to rise
    In April 1, 2005 testimony to the House Labor, Health and Human 
Services, Education and Related Agencies Appropriations Subcommittees, 
the National Energy Assistance Directors Association (NEADA) said:
        ``According to the Energy Information Administration, between 
        the 2002 and 2005 winter heating seasons, average home heating 
        expenditures for natural gas increased by 55 percent, from $602 
        to $935, while home heating costs rose by 93 percent, from $635 
        to $1226 and propane increased by 52 percent from $888 to 
        $1345.''
    The Energy Information Agency just released its short-term outlook 
for May, which predicts that natural gas spot market prices are likely 
to remain in the range of $6.50 to $7.00 per mcf through the summer. 
EIA also projects that average natural gas spot market prices will rise 
above $7.00 per mcf through the rest of 2005 and 2006.

High energy burdens are persistent; the home energy affordability gap 
        is increasing
    Families receiving LIHEAP assistance, reflecting families with low 
income, in general, spend about 15% of their income on home energy, 
compared with about 3% for all other families, according to the 
National Energy Assistance Directors Association.
    Exemplifying high energy burdens in the extreme is emergence of 
several Baltimore families to whom I have provided energy assistance 
recently. These families have home energy bills that rival or exceed 
their rent or mortgage bills.
    A recent analysis by Roger Colton of Fisher, Sheehan & Colton 
(http://www.fsconline.com/work/heag/heag.htm, 2004) found that ``the 
annual [national] `affordability gap' for 2002 reached roughly $18.2 
billion'' for households with income at 185 % of the federal poverty 
level. The study defines affordable home energy as an allocation of 6% 
of household costs for home energy. In addition to LIHEAP funds, the 
gap is partially covered by $100 million from fuel funds, some $225 
million from the federal Weatherization Assistance Program, and 
probably several billion dollars in state public benefit funds and in 
discounts, arrearage forgiveness and other utility programs for 
customers with low income.
    In my home State of Maryland, the study showed that households with 
incomes of below 50 percent of the federal poverty level pay 47 percent 
or more of their annual income simply for their home energy bills. More 
than 85,000 Maryland households live with income at or below 50 percent 
of the poverty level. The study breaks down data for each state, and I 
commend it to your attention.
    While the cost of adequate home energy plagues people with the 
least income the most, it is also touches the working poor and the 
middle class. For example, 13% of the clients helped by the Victorine 
Q. Adams Fuel Fund in the past year have incomes of more than 200% of 
the federal poverty level.
More people are applying for LIHEAP, but the percentage of eligible 
        families served is declining
    The above-cited NEADA testimony noted that the number of households 
receiving LIHEAP assistance has been steadily increasing over the past 
few years to a projected total of 5 million in the current fiscal year. 
Yet, LIHEAP serves only about 15% of eligible families, a percentage 
that has declined over the past few years, due to more families being 
eligible.

Home energy assistance system stressed; cannot meet demand
    The weather is now warmer than the winter, and summer's heat waves 
have yet to hit. LIHEAP remains a very effective program, serving five 
million households with a very small administrative cost. Charitable 
energy assistance programs are increasing the amount of funds they 
raise to supplement LIHEAP, and many utilities are innovating new 
programs to serve payment ``challenged customers better. Nevertheless, 
the home energy assistance system across the nation is highly stressed. 
Low-income consumers need more assistance.
    Examples recently provided to NFFN by members and in the news 
portray our strained energy assistance system, where families in need 
are turned away daily.
    Let me start with our own experience in Baltimore. Completed 
applications for LIHEAP assistance in Baltimore City have risen from 
24,900 last year to 26,777, as of May 17, 2005, the day before the 
program closed. According to 2000 Census data, over 84,000 households 
in Baltimore are eligible for LIHEAP. For charitable assistance to 
supplement LIHEAP in Baltimore City, there is a five week waiting list 
to be seen by a staff worker. This week, we are seeing 30-40 new 
appointments daily and 100-150 telephone calls daily to apply for 
assistance.
    In Michigan, Kim Nystrom, Administrative Services Manager for the 
Inter-Tribal Council, said ``I find that this year we have been hit the 
hardest. Usually our program runs all year long. This year, to date, we 
are almost out of funds because of the increase in heating bills this 
past winter.... Although this winter has been more mild than most, the 
increase in costs to heat homes has not been so mild.''
    In Wisconsin, where the moratorium on utility cut-offs expires on 
April 15, LIHEAP agencies reported in the first week of April ``an 
increase of 800 households over the previous week'' and said ``the case 
load is expected to continue larger than average through the end of 
May.'' The May 1 Oshkosh Northwestern reports that ``about 20,000 of 
the utility's estimated half a million residential customers in a 20 
county area in Northeastern Wisconsin owed at least four months on 
their utility bills when the moratorium was lifted on April 15.''
    Western Arizona Council of Governments (WACOG), the Arizona Region 
IV Community Action Agency reports ``turning away thousands of clients 
in any given year as a result of limited LIHEAP resources. From July 1, 
2004 to February 28, 2005, WACOG assisted 1, 633 Families (5,625 
people) in La Paz, Mohave and Yuma Counties from having their utilities 
disconnected or needing their utilities re-connected. The LIHEAP funds 
WACOG does have are stretched to help as many families as possible but 
the sad truth is that our agency is only able to assist a portion of 
the people walking in our door. In Region IV, housing stock for low-
income people could be classified as `Poor,' at best. Thus an average 
monthly utility payment in warm weather areas is $297 in the summer 
months and in cold weather areas an average monthly utility payment is 
$265 in the winter months.''
    WACOG offers that ``...these are very high fuel costs for families 
living at the poverty level. For a family of three the cost of 
utilities is approximately 22% of the families' gross income and for a 
single person those costs are equivalent to 37% of the person's gross 
income.''
    The Pima County Community Action Agency in Arizona similarly 
reports to NFFN that from July 2004--May 16, 2005, it provided LIHEAP 
assistance to 4,223 individuals in 1,365 households, but that ``We were 
unable to serve more clients with LIHEAP as the funds ran out in mid-
February, 2005.'' Fortunately, the agency was able to serve another 
1,003 households with 3155 individuals by packaging various state and 
local funds during the same period. Still, Norma Gallegos of the Agency 
comments that ``...we would use additional LIHEAP funds if we had 
them.''
    In Washington, the Multi-Service Center in South King County 
reported receiving 18,392 calls for assistance in January, far above 
their monthly average. The Pierce County Community Action Agency is 
seeing about 30 households a week whose service has been discontinued 
and receiving 3,000 calls a month for aid.
    In Garrett County, Maryland, Linda Green, the administrator of 
three public and charitable energy assistance programs for the local 
community action agency told NFFN that there has recently been a ``32 
percent increase over last year of requests from low income households 
needing assistance.''
    In Florida, where many areas were devastated by hurricanes, our 
members report the demand for assistance remained high over the winter. 
In many cases agencies have run out of funds but are still receiving 
calls for aid.
    The Scranton-Lackawanna Human Development Agency in Pennsylvania 
reports how a local LIHEAP program has had no choice but to turn away 
thousand of eligible parties in one community as of April 8, 2005, when 
LIHEAP Crisis Component funds ran out.
        ``The problem is the number of applicants who are ineligible 
        due to having received the allowable maximum benefit and yet 
        are still in need. We have a large number of ineligible 
        households because of this. We turn away approximately 60 
        households per day (300 per week) who are in need and meet 
        eligibility requirements. We have nowhere to refer them at this 
        time since all local private fuel funds are exhausted

        At the rate we [have been] turning people away since the end of 
        December, it is probable that as many as 4,000 additional 
        grants were needed by otherwise eligible households who did not 
        receive them due to lack of funds.''
The home energy affordability crisis has a demonstrable human impact.
    More important than stressed social service agencies is the impact 
of affordable home energy on people's health and personal choices. 
There are many studies documenting the lack of home energy decreasing 
educational achievement, leading to homelessness and compromising 
health. One example is the April 2004 National Energy Assistance 
Director Association study (www.neada.org/comm/surveys/NEADA--Survey--
2004.pdf) of LIHEAP recipients, which found that:
        ``over 25% of families in the survey sacrificed medical care, 
        failed to make a rent or mortgage payment--and 22% went without 
        food for at least a day.''
    The report illustrates that LIHEAP works: ``the number of 
recipients spending over 25% of their income on energy declined by 2/3 
with LIHEAP help.'' But the report noted that LIHEAP serves only 13% of 
those eligible for it.

Increased Funding for LIHEAP Needed
    The National Fuel Funds Network recently requested the House Labor, 
Health and Human Services, Education and Related Agencies 
Appropriations Subcommittees Subcommittee add more funds to LIHEAP 
appropriations. Specifically, the Network believes that an FY 2006 
appropriation of $3.4 billion in regular funds, plus $300 million in 
emergency funds, is necessary. We asked for this level of funding for 
this vital program because the current LIHEAP funding level is 
virtually the same as it was when the program began in 1981, while the 
Consumer Price Index inflation calculator shows that the cost of living 
went up 107 percent over the same time period. The Network also 
supports the recent reauthorization of LIHEAP in the House Energy bill 
at the level of $5.1 Billion. I ask that each Subcommittee member 
support these higher LIHEAP levels, which truly relieve the negative 
impact of high energy costs on American families of limited means.

Advance Appropriations Need to be Restored
    The National Fuel Funds Network also strongly supports including 
advance appropriations for LIHEAP for FY 2007, at the level of $3.4 
billion, plus $300 million emergency funds. The concept of advanced 
appropriations helps programs to better plan for the impending winter 
and summer months. Due to the uncertainty of the weather, advanced 
appropriations would allow programs to disseminate assistance to those 
in need in case of unforeseen harsh weather conditions. Advanced 
appropriations would also help public and private energy assistance 
programs work together more efficiently to assist those in need. 
Advance knowledge of a state's LIHEAP funding also facilitates 
charitable energy assistance fundraising campaigns in the state.

Other measures to address the home energy needs of families with low 
        income
    An important question before the Subcommittee today is what other 
measures besides augmenting LIHEAP funding can be taken to help people 
with low income deal with increasing home energy costs.
    NFFN recognizes how important it is to keep energy costs 
reasonable. The increase in demand for LIHEAP can be directly related 
to the rise in energy prices over the last few years. Natural gas 
prices, in particular, have a direct impact on energy affordability for 
low-income consumers.
    NFFN recognizes that there must be adequate supplies of natural gas 
and home heating oil to meet demand and keep prices reasonable and 
avoid price volatility. While it is not NFFN's mission to determine 
where natural gas and oil supplies should come from, the Network does 
recognize that steps must be taken to increase natural gas supplies. 
This may come in the form of energy legislation or regulatory and 
administrative actions.
    We commend the Resources Committee for exploring alternative ways 
to supplement the LIHEAP program as part of national energy 
legislation. The provision allowing the Secretary of Interior to 
provide a ``preference'' to low-income individuals under the Royalty-
In-Kind program has merit.
    Other measures that the Network recommends include:
      The formation of a joint working group among the 
Departments of Energy, Housing and Urban Development and the Department 
of Health and Human Services to increase energy efficiency and 
conservation in public and Section 8 housing.
      Strengthening the federal Weatherization Assistance 
Program, with special attention to the summer repair or replacement of 
gas furnaces. In addition there should be more emphasis on education in 
energy efficiency and conservation for those receiving aid through the 
weatherization program.
      A more concerted public-private effort to promote energy 
conservation and efficiency. For example, the National Fuel Funds 
Network, Alliance to Save Energy, Energy Outreach Colorado and other 
partners, with funding from the Department of Energy, is engaged in a 
three-year Ad Council home energy efficiency campaign targeted at 
children (www.energyhog.org). Another example is the partnership of 
NFFN, the National Endowment for Financial Education and the Department 
of Housing and Urban Development that has distributed 90,000 copies of 
Owning is Just the Beginning: Learning to Budget the Utility Costs of 
Your New Home. Both partnerships have proven very successful and serve 
as models for other public-private educational projects.
    Other steps that should be taken include increased employment of 
energy efficiency and conservation measures by city and state 
governments; establishment of fuel blind public benefit funds in states 
which have undergone utility restructuring; and creative use of the 
Earned Income Tax Credit to reduce utility arrearages.
    I again thank the Subcommittee for the invitation to appear before 
you and am pleased to discuss any of the testimony with you.
                                 ______
                                 
    Mr. Gibbons. Thank you very much Ms. Clements. And we 
appreciate, certainly, the information you have brought to this 
community about the Low Income Home Energy Assistance Program 
for people that need that help and that assistance, low-income 
families in this country who are also suffering dramatically 
from the high cost of fuel today because of short supplies.
    We turn now to Katherine Morrison, staff attorney for U.S. 
Public Information [sic] Research Group. Ms. Morrison.

       STATEMENT OF KATHERINE MORRISON, STAFF ATTORNEY, 
              U.S. PUBLIC INTEREST RESEARCH GROUP

    Ms. Morrison. Good morning. My name is Katherine Morrison, 
and I'm a staff attorney working on energy and global warming 
issues for the U.S. Public Interest Research Group, or U.S. 
PIRG.
    U.S. PIRG is the national lobbying office for the state 
PIRGs, which are environmental, good government, and consumer 
advocacy groups active around the country. Thank you, Mr. 
Chairman and members of the Subcommittee, for the opportunity 
to speak today.
    The state PIRGs have a long history of working for a clean, 
affordable energy future. Our goal is to shift from polluting 
and dangerous sources of energy, such as nuclear and fossil 
energy, to increased energy efficiency and renewable energy 
sources.
    Today, I will be addressing the issue of our dependence on 
oil and the impact of high gasoline prices, especially focusing 
on policies that should and shouldn't be included in energy 
legislation. Overall, we are dismayed that the energy bill, 
H.R. 6, passed by the House, takes us in the wrong direction.
    Retail gasoline prices have hit over $2 a gallon across the 
country, and yet the U.S. remains dangerously dependent on oil. 
The United States has only 3 percent of the world's oil 
reserves, and uses 25 percent of the world's produced oil. As a 
result, consumers pay prices at the pump that reflect the 
instability of overseas oil supplies, as well as the often 
dubious market behavior of domestic oil corporations.
    Congress and the Bush Administration proposals will not 
solve these problems. In May 2001, the Bush Administration 
released its national energy policy, which outlined a plan that 
continues to rely heavily on oil, other fossil fuels, and 
nuclear power to meet the country's needs.
    Just this past April, the House passed an energy bill that 
does nothing to make cars go farther on a gallon of gas. The 
bill also does nothing to protect consumers from price 
manipulations by large oil and gas corporations, and in fact 
provides these corporations with new tax breaks and subsidies.
    The Energy Information Administration concluded that the 
policies outlined in last year's virtually identical bill would 
actually increase U.S. imports of foreign oil by 85 percent by 
2025, and do nothing to lower gasoline prices. In fact, the 
President recently acknowledged that the bill wouldn't change 
the price at the pump today.
    Similarly, the proposal to drill in the Arctic National 
Wildlife Refuge would do nothing to solve our energy problems. 
EIA has reported that drilling in the Arctic Refuge would not 
have any impact on world oil prices. The U.S. Geological Survey 
estimates that the oil found in the Arctic Refuge would meet 
the energy needs of the U.S. for less than one year.
    Increasing the fuel economy of our cars to 40 miles per 
gallon, in contrast, would save at least four times as much oil 
each day by 2020 as the Arctic Refuge would produce each day at 
its peak. The best way to reduce our dependence on oil and save 
consumers money at the pump is to make cars go farther on a 
gallon of gasoline. Today, fuel economy is at a 24-year low of 
20.8 miles per gallon.
    The National Academy of Sciences has stated that we already 
have the technology to make our cars get 40 miles per gallon. 
In May 2001, if instead of pushing for the President's energy 
policy and the House energy bill, we had instead taken the bold 
step forward and increased the fuel economy of our cars and 
SUVs to 40 miles per gallon, over ten years consumers and the 
U.S. economy would already be reaping the benefits.
    In 2005, just this year alone, the U.S. would be consuming 
350,000 barrels of oil less per day. This is more than half of 
our current imports from Iraq. Consumers would be saving more 
than $5 billion at the gas pump this year, or about $300 per 
new vehicle on the road. And the U.S. would be offsetting about 
23.9 million tons of carbon dioxide, the primary global warming 
gas. This is the equivalent of removing more than four million 
average vehicles from the road. After 2005, as more cars 
meeting the new standards replaced older, less efficient cars, 
the benefits would have grown even larger.
    Over the last decade, with little resistance by Federal 
regulators, the oil companies have merged into mega 
corporations with the ability to manipulate supply. These mega 
corporations are the first to benefit from high gas prices, and 
are reaping huge profits while consumers pay more at the pump. 
In 2004, the top ten oil companies enjoyed net profits of $100 
billion, an increase of more than 30 percent from 2003.
    Congress has wasted four years on an energy policy that 
won't help consumers or reduce our dependence on oil. We should 
reject this energy bill, and instead focus on increasing 
corporate average fuel economy standards to 40 miles per 
gallon.
    In addition, we should be focusing on strengthening Federal 
antitrust laws, to give the Federal Trade Commission greater 
market enforcement capabilities and to specifically prohibit 
companies from intentionally withholding supplies to drive up 
prices. The FTC should block mergers that make it easier for 
oil companies to manipulate gasoline supplies, and take steps, 
such as forcing companies to sell assets, to remedy the 
situation.
    Finally, the Administration and Congress should conduct a 
study of the reasons for the closure of more than 50 refineries 
in the past ten years, and assess how to expand refinery 
capacity.
    Thank you again for the opportunity to testify.
    [The prepared statement of Ms. Morrison follows:]

           Statement of Katherine Morrison, Staff Attorney, 
                  U.S. Public Interest Research Group

Introduction
    Good morning, my name is Katherine Morrison and I'm Staff Attorney 
working on energy and global warming issues for the U.S. Public 
Interest Research Group, or U.S. PIRG. U.S. PIRG is the national office 
for the State PIRGs, which are environmental, good government and 
consumer advocacy groups active around the country. Thank you for the 
opportunity to speak today.
    The state PIRGs have a long history of working for a clean 
affordable energy future. Our goal is shift from polluting and 
dangerous sources of energy such as nuclear and fossil energy to 
increased energy efficiency and clean renewable energy sources.
    Today I will be addressing the issue of our dependence on oil and 
gasoline prices, especially focusing on policies that should and 
shouldn't be included in energy legislation. Overall we are dismayed 
that the energy bill, H.R. 6, passed by the House takes us in the wrong 
direction.

Summary
    Retail gasoline prices have hit over $2.00 a gallon across the 
country, and the U.S. remains dangerously dependent on oil. The United 
States holds only 3 percent of the world's oil reserves and uses 25 
percent of the world's produced oil. As a result, consumers pay prices 
at the pump that reflect the stability of overseas oil supplies as well 
as the often-dubious market behavior of domestic oil corporations.
    Congress and the Bush Administration proposals will not solve these 
problems. In May 2001, the Bush Administration released its national 
energy policy, the product of Vice President Cheney's energy task 
force, which outlined a plan that continues to rely heavily on oil, 
other fossil fuels, and nuclear power to meet the country's energy 
needs. In April 2005, the House passed an energy bill does nothing to 
make cars go farther on a gallon of gas. The bill also does nothing to 
protect consumers from price manipulations by large oil and gas 
corporations and, in fact, provides these corporations with new tax 
breaks and subsidies. The Energy Information Administration (EIA) 
concluded that the policies outlined in outlined in last year's 
virtually identical bill would increase U.S. imports of foreign oil by 
85 percent by 2025 and do nothing to lower gasoline prices in the short 
or long-term. In fact, the president recently acknowledged that the 
bill ``wouldn't change the price at the pump today.''
    Similarly, the Bush Administration's proposal to drill in the 
Arctic National Wildlife Refuge would do nothing to solve our energy 
problems. EIA has reported that drilling in the Arctic Refuge would not 
have any impact on world oil prices; the U.S. Geological Survey 
estimates that the oil found in the Arctic Refuge would meet the energy 
needs of the U.S. for less than one year. Increasing the fuel economy 
of our cars to 40 mpg, however, would save at least four times as much 
oil each day by 2020 as the Arctic Refuge would produce each day at its 
peak.
    The best way to reduce our dependence on oil and save consumers 
money at the pump is to make cars go farther on a gallon of gas. Today, 
fuel economy is at a 24-year low of 20.8 miles per gallon (mpg). The 
National Academy of Sciences has stated that we already have the 
technology to make cars get 40 mpg. In May 2001, when announcing his 
national energy strategy, President Bush had the opportunity to take a 
bold step forward and increase the fuel economy of cars and SUVs to 40 
mpg by 2012. If he had, consumers and the U.S. economy already would be 
reaping the benefits as more efficient cars entered the market. In 2005 
alone:
      The U.S. would be consuming 350,000 barrels of oil less 
per day. This is more than half of our current imports from Iraq.
      Consumers would be saving more than $5 billion at the gas 
pump, about $300 per new vehicle on the road.
      The U.S. would be offsetting 23.9 million tons of carbon 
dioxide, the primary global warming gas. This is the equivalent of 
removing four million average vehicles from the road.
    After 2005, as more cars meeting the new standards replaced older, 
less efficient cars, the benefits would have grown even larger. The big 
oil companies and automakers continue to fight this progress; in fact, 
while consumers are paying more at the pump, oil companies are 
recording huge profits. Over the last decade, with little resistance by 
federal regulators, oil companies have merged into mega corporations 
with the ability to manipulate supply. These mega corporations, the 
first to benefit from high gas prices, are reaping huge profits while 
consumers pay more at the pump. In 2004, the top ten oil companies 
enjoyed net profits of $100 billion, an increase of more than 30 
percent from 2003.
    Congress has wasted four years on an energy policy that won't help 
consumers or reduce our dependence on oil. Congress should reject the 
reject the energy bill. Instead, the Bush Administration should ask the 
Secretary of Transportation to use his authority to increase Corporate 
Average Fuel Economy standards to 40 miles per gallon. His authority 
enables any increase that represents the ``maximum feasible'' standard 
consistent with technological feasibility, economic practicability, the 
effect of other government regulations on fuel economy, and the 
nation's need to conserve energy. A 40 mpg fleet wide standard is 
consistent with the criteria. In addition, policy-makers should 
strengthen federal anti-trust laws to give the Federal Trade Commission 
(FTC) greater market enforcement capabilities and to specifically 
prohibit companies from intentionally withholding supplies to drive up 
prices. The FTC should block mergers that make it easier for oil 
companies to manipulate gasoline supplies and take steps, such as 
forcing companies to sell assets, to remedy the situation. Finally, the 
Bush Administration should conduct a study of the reasons for the 
closure of more than 50 refineries in the past ten years and assess how 
to expand refinery capacity.

The Problem
    The United States is simply too dependent on oil. The United States 
holds only two percent of the world's oil reserves. It produces 10.4 
percent of the world's petroleum but consumes 25.5 percent of the 
world's total petroleum production. 1 Our heavy reliance on 
oil products to fuel transportation vehicles takes a heavy toll on the 
environment. Oil pollutes the environment from the point of extraction 
to combustion, leaving a trail of oil spills, smog-forming air 
pollution, and global warming in its wake.
---------------------------------------------------------------------------
    \1\ Light truck fuel economy standards have since been increased to 
21 mpg.
---------------------------------------------------------------------------
    Consumers pay a price too in the form of unpredictably high 
gasoline prices at the pump. Gasoline prices are sensitive to crude oil 
supply disruptions; moreover, as oil demand increases, so does the 
price of a gallon of gasoline. Gasoline averaged more than $2.00 per 
gallon during the first four months of 2005. 2 Rising gas 
prices are cutting into consumer and business confidence, as well as 
spending power, which helped slow the U.S. economy in the first quarter 
of 2005. 3

The Solution
    The best way to reduce our dependence on oil and save consumers 
money at the pump is to make cars go farther on a gallon of gas. In 
response to the Arab oil embargo of the early 1970s, Congress 
implemented the first miles per gallon (mpg) standards in 1975 to 
protect consumers from high gasoline prices and supply vulnerability 
resulting from U.S. dependence on foreign oil. The drafters of the 
successful oil savings law recognized that the only way to reduce 
dependence on foreign oil was to reduce oil demand, requiring cars and 
light trucks to nearly double miles per gallon averages to 27.5 and 
20.7 miles, respectively. 1 As a result, consumers were able 
to go farther on a gallon of gas; these standards also had the benefit 
of reducing tailpipe emissions, including emissions of global warming 
gases. Cars today use 2.8 million barrels of oil per day less than they 
would have under the old fuel economy standards. 4
    The 1975 oil savings law also requires that the National Highway 
Traffic Safety Administration (NHTSA) continuously review and increase 
miles per gallon standards as technologically feasible. 5
    A 1996 Department of Transportation appropriations bill rider 
prevented NHTSA from even studying the need and the technological 
feasibility of new fuel economy standards. In 2001, the Senate 
retracted this rider and agreed to study fuel economy standards. 
Congress ordered the National Academy of Sciences (NAS) to determine 
the effectiveness of the Corporate Average Fuel Economy (CAFE) program 
and make recommendations for moving forward with new standards.
    In 2001, NAS identified ranges of fuel economy improvements for 
both cars and trucks while holding acceleration, performance, size, 
accessories, amenities, mix of vehicle types, makes, and models sold 
constant. The result was a 2002 NAS report, Effectiveness and Impact of 
Corporate Average Fuel Economy (CAFE) Standards, which concluded that 
automakers could use existing technology to increase the fuel economy 
of their fleets to 40 mpg over the next decade while improving safety 
and maintaining performance. 6
    The technology is available today to make cars and light trucks go 
farther on a gallon of gas. The Toyota Prius, which gets an estimated 
60 mpg in the city, and the Ford SUV Escape, which gets about 35 mpg in 
the city, demonstrate that foreign and domestic manufacturers can 
produce smarter engines, more efficient transmissions, and other design 
improvements to make substantial gains in fuel economy.
    Despite the advances in technology, average fuel economy is at a 
24-year low of 20.8 mpg for model year 2004 cars and light trucks--six 
percent lower than the peak value of 22.1 mpg achieved in 1987 and 1988 
(Figure A). 7
    The overall declining trend in new light-vehicle fuel economy is 
due to the recent light truck and SUV boom. ``Light trucks'' (minivans, 
pickups, and SUVs) are defined as weighing less than 8,500 pounds. 
Because fuel economy standards separate light trucks as a class and 
subject them to different fuel economy standards, automakers often add 
weight to their trucks to exempt them from the miles per gallon 
standards altogether. The number of SUVs registered in the U.S. during 
2002 increased 56 percent from 1997. 8
    High gas prices, however, have slowed SUV sales. General Motors' 
sales fell almost eight percent in April 2005 from the same month a 
year earlier, primarily because of weak demand for SUVs. This drop in 
demand also hurt Ford, which sold five percent fewer vehicles in April 
compared with a year ago. At the same time, demand for hybrids and 
other more fuel-efficient foreign sedans is surging. 9

[GRAPHIC] [TIFF OMITTED] T1446.001


The Current Proposals
    In May 2001, the Bush Administration released its national energy 
policy, the product of Vice President Cheney's energy task force, which 
outlined a plan heavily focused on oil, other fossil fuels, and nuclear 
power to meet our energy needs. Moreover, the Bush-Cheney energy policy 
offered no plan for increasing the fuel economy of America's cars and 
trucks to reduce oil demand. For four years, the Bush Administration 
has tried to push its energy plan through Congress while actively 
opposing proposals to significantly increase the fuel economy of cars 
and light trucks. 10
    In April 2005, the House once again passed an energy bill, H.R. 6, 
which does not include any provisions to increase fuel economy or 
otherwise reduce oil demand. Instead, the 2005 House energy bill 
provides the oil and gas industry with $3.2 billion in new tax breaks, 
or more than 40 percent of the total package. Meanwhile, the House 
dropped more than $3 billion in incentives for renewable energy and 
energy efficiency in this version of the bill. 11 According 
to a recent analysis by the Energy Information Administration (EIA), by 
2025, U.S. imports of petroleum would increase by 85 percent under the 
Bush Administration's preferred energy policy, encapsulated in the 2003 
federal energy bill, which is nearly identical to the version passed by 
the House in April. EIA also found that the energy bill would actually 
slightly increase gas prices by 2010 compared with business as usual. 
12 The president himself admitted that the bill ``wouldn't 
change the price at the pump today.'' 13 Regardless, the 
president continues to push Congress to pass this energy bill. 
14
    Similarly, the Bush Administration's proposal to drill in the 
Arctic National Wildlife Refuge would do nothing to lower gas prices or 
reduce our dependence on foreign oil. The U.S. Geological Survey 
assessment of the coastal plain estimates that the oil found in the 
Arctic Refuge would meet the energy needs of the United States for less 
than a year. Even if we started drilling today, that oil would not 
reach American consumers for at least 10 years. 15 EIA 
recently reported that drilling in the Arctic National Wildlife Refuge 
would not have any impact on world oil prices, noting that ``[a]ssuming 
that world oil markets continue to work as they do today, the 
Organization of Petroleum Exporting Countries could countermand any 
potential price impact of ANWR coastal plain production by reducing its 
exports by an equal amount.'' 16 Opening up the coastal 
plain of the Arctic Refuge would not solve our energy problems. 
Increasing the fuel economy of our cars to 40 mpg, however, would save 
at least four times as much oil each day by 2020 as the Arctic Refuge 
would produce each day at its peak. 17

Our Recent Findings
    The Bush Administration has failed to apply our technological know-
how to improve the fuel economy of America's cars and SUVs, which has 
lead to higher prices at the pump, increased dependence on foreign oil, 
and a host of environmental problems stemming from oil exploration and 
combustion.
    On Tuesday, on the anniversary of the release of the Bush-Cheney 
plan, we are released a new report, America Idles: President Bush's 
Inaction Costs Americans $5 Billion at the Pump in 2005. We examined 
what would be happening if four years ago, the President had picked up 
a pen and taken a bold step forward by increasing the fuel economy of 
cars and SUVs to 40 miles per gallon by 2012. Even though we would 
still be phasing in the fuel economy standards, more efficient cars 
would already be entering the market. By 2005, new fleets of cars and 
light trucks would have averaged almost 30 mpg, or nearly 10 mpg more 
than they average today. 18
    If President Bush had raised fuel economy standards in May 2001 to 
40 mpg by 2012, in 2005 alone we would see the following benefits:
      The U.S. would be consuming 350,000 barrels of oil less 
per day. This is more than half of our current imports from Iraq. 
19
      Consumers would be saving more than $5 billion at the gas 
pump, or about $300 per new vehicle. 20
      The U.S. would be offsetting 23.9 million tons of carbon 
dioxide, the primary gas responsible for global warming. This is the 
equivalent of removing four million average vehicles from the roads.
    After 2005, as more cars meeting the new standards replaced older, 
less efficient cars, the benefits would have grown even larger.

The Oil Companies
    Politicians at the federal level and oil industry representatives 
are putting the blame for rising gas prices on everything from the 
Organization of Petroleum Exporting Countries (OPEC) to fuel additive 
requirements. While OPEC plays a role in determining gas prices, this 
finger pointing overlooks the fundamental problem: America is too 
dependent on oil. As long as demand for oil continues to climb, 
consumers will remain vulnerable to price spikes at the gas pump--
whatever their cause.
    It is instructive, however, to examine some of the other market 
factors that drive gasoline price spikes, in addition to growing 
demand. Over the last decade, with little resistance by federal 
regulators, oil companies have merged into mega corporations with the 
ability to manipulate supply. These mega corporations, the first to 
benefit from high gas prices, are reaping huge profits while consumers 
pay more at the pump.
    Although consumers continue to suffer at the pump, oil companies 
are enjoying huge profits. In 2004, the top ten oil companies enjoyed 
net profits of $100 billion, an increase of more than 30 percent from 
2003. 21 According to its 2004 annual report, ExxonMobil 
earned a record-breaking $25.3 billion in net income in 2004, a $3.8 
billion increase over 2003 and a $13.9 billion increase over 2002. Cash 
flow from operations and asset sales was $43.3 billion, also a record. 
In addition, the company handed out nearly $15 billion to shareholders 
in dividends and share buybacks. 22 During the year ending 
December 31, 2003, CEO Lee Raymond earned $27.8 million in salary and 
bonuses and exercised $15.9 million in options. In 2004, Raymond 
received a 37 percent pay increase to $38 million--about half a day's 
profits at the company. 23
    The world's four largest oil companies, Shell, BP, ExxonMobil and 
ChevronTexaco, have earned a combined $23.8 billion during the first 
three months of 2005 alone. 24
    Federal regulators have allowed multiple large, vertically 
integrated oil companies to merge into even larger entities, enabling 
them to exploit supply and demand to increase profits. Because people 
use gasoline to get to work, the grocery store, and school, the demand 
for gasoline is inelastic, meaning that demand does not change despite 
increases in price. Americans' reliance on oil products in their daily 
lives places them in the hands of the small number of multinational 
corporations that now control the bulk of the refineries and market for 
oil and gas in the United States.
    In 1981, 189 companies operating in the United States owned 324 
refineries; by 2001, 65 firms owned 155 refineries. The market share of 
the top ten largest refiners grew from 55 percent to 62 percent over 
the same period of time. 25 Today, the top ten refineries 
control 78.5 percent of domestic refinery capacity while the five 
largest oil companies (ExxonMobil, ChevronTexaco, ConocoPhillips, BP 
and Royal Dutch Shell) control half of all domestic refinery capacity. 
26 In addition, together they own 48 percent of domestic oil 
production and 61.8 percent of the retail gasoline market. 
27
    The mergers in the oil industry have forced the closing of many 
refineries, creating highly concentrated or ``tight'' markets in many 
states. The Federal Trade Commission (FTC) and the Department of 
Justice (DOJ) guidelines state that ``mergers should not be able to 
enhance market power or facilitate its exercise. Market power to a 
seller is the ability to profitably maintain prices above competitive 
levels for a significant period of time.'' Sellers may also lessen 
competition on dimensions other than price, such as product. ``The 
result of the exercise of market power is a transfer of wealth from 
buyers to sellers or a misallocation of resources.'' 28
    The government gains its authority to review mergers and 
acquisitions under Section 7 of the Clayton Act. 29 Section 
7 prohibits mergers and acquisitions that may substantially lessen 
competition or tend to create a monopoly (ownership of one). The FTC 
and DOJ measure market concentration with the Herfindahl-Hirschman 
Index (HHI).
        Under the HHI, market concentration is equal to the sum of the 
        squares of the individual market shares of every firm in the 
        market. For example, if there were only four firms in a 
        particular market, each with 25% of the market, the HHI would 
        be 2,500 (252 x 4). Any market with an HHI over 1,800 is 
        considered highly concentrated by the enforcement agencies and 
        viewed with some suspicion; between 1,800 and 1,000 the market 
        is considered moderately concentrated; and below 1,000, the 
        enforcement agencies consider such markets to be 
        unconcentrated. 30
    Where products are relatively undifferentiated, the FTC and DOJ 
guidelines also find that a merged firm may lessen competition through 
unilaterally raising prices and suppressing output where the merged 
firm owns a combined market share of at least 35 percent. The merger 
provides the merged firm a larger base of sales on which to enjoy the 
resulting price rise and also eliminates a competitor to which 
customers otherwise would have diverted their sales. 31
    If a merger does not pose a serious threat to competition, it is 
unlikely to be challenged. If a substantial threat is present, however, 
the enforcement agencies may exercise discretion to prosecute. 
32
    A recent investigation by the FTC into 2000 Midwest price spikes 
disclosed unilateral actions by firms to manipulate the market to 
increase prices. An executive of one of the companies made clear that 
he ``would rather sell less gasoline and earn a higher margin on each 
gallon sold than sell more gasoline and earn a lower margin.'' 
33 This evidences the business practice of lessening 
competition through the suppression of a product to increase price. But 
despite the oil executive's blatant admission that he was responsible 
for withholding supply to drive up price, the FTC found that ``a 
decision to limit supply does not violate antitrust laws...Firms that 
withheld or delayed shipping additional supply in the face of a price 
spike did not violate antitrust laws.'' 34
    In 2000, 28 states were considered moderately concentrated, and 
nine states had an index above 1800 and were thus considered ``highly 
concentrated.'' 35 As a point of comparison, in 1994, as 
measured by the HHI, the gasoline wholesale market was ``moderately 
concentrated'' in 22 states (see Appendix B).
    A few mega firms are gaining an exceedingly larger market share, 
enabling them to control the flow of gasoline in the U.S. This provides 
the opportunity to manipulate the market to turn a quick profit, 
because no standards govern selective pricing or withholding of supply. 
These firms individually own such a large percentage of the industry as 
a whole that collusion is not needed to manipulate the market. If they 
so chose, individual actions would be sufficient to upset the supply in 
any given sector. As long as there is no collusion involved, firms are 
free to set prices and withhold supply to increase gasoline prices and 
turn higher profits.

Conclusion
    Congress has wasted four years on an energy policy that won't help 
consumers or reduce our dependence on oil. Congress should reject the 
reject the energy bill. Instead, the Bush Administration should ask the 
Secretary of Transportation to use his authority to increase Corporate 
Average Fuel Economy standards to 40 miles per gallon. His authority 
enables any increase that represents the ``maximum feasible'' standard 
consistent with technological feasibility, economic practicability, the 
effect of other government regulations on fuel economy, and the 
nation's need to conserve energy. A 40 mpg fleet wide standard is 
consistent with the criteria. 36 In addition, policy-makers 
should strengthen federal anti-trust laws to give the FTC greater 
market enforcement capabilities and to specifically prohibit companies 
from intentionally withholding supplies to drive up prices. The FTC 
should block mergers that make it easier for oil companies to 
manipulate gasoline supplies and take steps, such as forcing companies 
to sell assets, to remedy the situation. Finally, the Bush 
Administration should conduct a study of the reasons for the closure of 
more than 50 refineries in the past ten years and assess how to expand 
refinery capacity.

BIOGRAPHY--Katherine Morrison
    Katherine Morrison is a staff attorney working on energy and global 
warming issues with the U.S. Public Interest Research Group (U.S. 
PIRG). She is responsible for policy development, research and advocacy 
on energy issues ranging from electric utility restructuring to 
gasoline prices and renewable energy. She is on the on the Steering 
Committee of the U.S. Climate Action Network.
    Before joining the U.S. PIRG staff in 2001, she worked with the 
Natural Resources Defense Council as the Communications Coordinator for 
the Clean Air Network and with the Center for International 
Environmental Law. She is 1994 graduate of American University, and a 
2001 graduate of the William and Mary School of Law, where she won the 
Thurgood Marshall Award for distinguished public service.
                                endnotes
1 Stacey C. Davis, Transportation Energy Data Book: Edition 
        23, Oak Ridge National Laboratory, October 2003, citing U.S. 
        Department of Energy, Energy Information Administration, Annual 
        Energy Review 2002, Washington, DC, July 2003, Table 11.9 and 
        updates from the International Petroleum Monthly, July 2003.
2 Energy Information Administration, ``Retail Gasoline 
        Historical Prices,'' available at http://tonto.eia.doe.gov/oog/
        ftparea/wogirs/xls/pswrgvwnus.xls. Average for regular gasoline 
        for January 3, 2005 through May 2, 2005.
3 Jeannine Aversa, ``Experts keep close eye on energy 
        prices,'' Associated Press, May 2, 2005; Michael J. Martinez, 
        ``Wall St. uncertainty outweighs good news,'' Associated Press, 
        May 9, 2005; ``Crude Oil Prices Rise Above $51 Mark,'' 
        Associated Press, May 9, 2005; Alexandra Marks and Robert 
        Tuttle, ``Oil prices spread to grapes, TVs, pizza,'' Christian 
        Science Monitor, March 29, 2005; ``High gas prices make 
        consumers gloomy,'' Reuters, April 26, 2005, available at 
        http://money.cnn.com/2005/04/26/news/economy/consumer--
        confidence.reut/.
4 National Research Council, Effectiveness and Impact of 
        Corporate Average Fuel Economy (CAFE) Standards, 2002.
5 The CAFE law recognizes that the only way to reduce our 
        dependence on foreign oil is to reduce oil demand. Thus it 
        mandates that NHTSA continually review and increase CAFE 
        standards to the maximum level technologically feasible:

   At least 18 months before the beginning of each model year, the 
        Secretary shall prescribe by regulation average fuel economy 
        standards for automobiles (except passenger automobiles) 
        manufactured by a manufacturer in the model year (emphasis 
        added). Each standard shall be the maximum feasible average 
        fuel economy level that the Secretary decides the manufacturers 
        can achieve in that model year (emphasis added). (49 U.S.C. 
        32902)

   The statute also permits the Secretary to increase CAFE standards 
        for passenger automobiles above 27.5 miles per gallon subject 
        to disapproval by either House of Congress (49 U.S.C. 
        32902(2)). The United States Supreme Court has since held that 
        legislative action by one House is invalid. (Immigration and 
        Naturalization Service v. Chadha, 103 S.Ct. 2764 (1983)). Any 
        legislative action must be passed by both Houses of Congress 
        and presented to the President for signature in order to be 
        legitimate (Immigration and Naturalization Service v. Chadha, 
        103 S.Ct. 2764 (1983)). Therefore, the section of the statute 
        subjecting an increase in passenger automobile CAFE standards 
        to approval by one House of Congress is invalid. Because the 
        remaining portions of the statute are fully operative, NHTSA 
        can honor the intent and purpose of the law by increasing CAFE 
        to 40 mpg.
6 National Research Council, Effectiveness and Impact of 
        Corporate Average Fuel Economy (CAFE) Standards, 2002.
7 Karl H. Hellman and Robert M. Heavenrich, U.S. 
        Environmental Protection Agency, ``Light-Duty Automotive 
        Technology and Fuel Economy Trends: 1975 Through 2004,'' 
        Executive Summary at 2, April 2004.
8 U.S. Census Bureau, ``2002 Fast Facts for the United 
        States.'' Available at www.census.gov/prod/ec02/viusff/
        ec02tvff-us.pdf.
9 Jeremy W. Peters, ``Ford and G.M. Suffer as Buyers Shun 
        S.U.V.s,'' New York Times, May 4, 2005; Amey Stone, ``Detroit's 
        Woe, America's Worry,'' Business Week, April 26, 2005.
10 Statement of Administration Policy, Energy Policy Act of 
        2002 (S. 517), March 5, 2002, http://www.whitehouse.gov/omb/
        legislative/sap/107-2/S517-s.html.
11 Based on Joint Committee On Taxation's April 12, 2005 
        estimates.
12 Energy Information Administration, Summary Impacts of 
        Modeled Provisions of the 2003 Conference Energy Bill, SR/OIAF/
        2004-02, February 2004. (See Table B3, Energy Prices by Sector 
        and Source.) Available at www.eia.doe.gov/oiaf/servicerpt/pceb/
        pdf/sroiaf(2004)02.pdf.
13 ``Bush Concedes Energy Bill Offers No Help on Gas 
        Prices,'' New York Times, April 21, 2005.
14 ``I applaud the House for passing a good energy bill. Now 
        the Senate needs to act on this urgent priority. American 
        consumers have waited long enough. To help reduce our 
        dependence on foreign sources of energy, Congress needs to get 
        an energy bill to my desk by this summer so I can sign it into 
        law.'' Transcript of April 28, 2005 White House Press 
        Conference, available at http://www.whitehouse.gov/news/
        releases/2005/04/20050428-9.html.
15 U.S. Geological Survey, Arctic National Wildlife Refuge, 
        1002 Area, Petroleum Assessment, 1998, Fact Sheet 0028-01, 
        available at http://pubs.usgs.gov/fs/fs-0028-01/.
16 Energy Information Administration, Analysis of Oil and 
        Gas Production in the Arctic National Wildlife Refuge, March 
        2004.
17 Estimates of the peak yield of the Arctic Refuge (between 
        639,000 to 1,595,000 barrels per day, with a mean estimate of 
        876,000 barrels per day) found in Energy Information 
        Administration, Analysis of Oil and Gas Production in the 
        Arctic National Wildlife Refuge, March 2004. Available at 
        http://www.eia.doe.gov/oiaf/servicerpt/ogp/index.html. 
        Estimates of savings from a phased-in 40 mpg standard over ten 
        years (5.4 million barrels per day by 2020) found in Union of 
        Concerned Scientists, Drilling in Detroit, June 2001. Available 
        at http://www.ucsusa.org/publication.cfm?publicationID=99.
18 Based on estimates by Therese Langer from the American 
        Council for and Energy Efficient Economy. The calculations are 
        based on a 40 miles per gallon fleet average by 2012 with 2002 
        as the first year the standards begin to take effect.
19 EIA states we imported 651,000 barrels per day on average 
        from Iraq in 2004. Available at http://www.eia.doe.gov/emeu/
        mer/pdf/pages/sec3--8.pdf
20 The Bureau of National Transportation Statistics 
        estimates that there were 16,865,000 new vehicles sold or 
        leased in 2004. Bureau of National Transportation Statistics, 
        National Transportation Statistics 2004, January 2005. 
        Available at http://www.bts.gov/publications/national--
        transportation--statistics/2004/html/table--01--17.html. 
        Assuming sales in 2005 are about the same, this translates into 
        $306 per new vehicle.
21 Jad Mouawad, ``Big Oil's Burden of Too Much Cash,'' New 
        York Times, February 12, 2005.
22 ExxonMobil, 2004 Annual Report, available at http://
        www.exxonmobil.com/corporate/files/corporate/AR--2004.pdf.
23 Dan Roberts, ``ExxonMobil chief's pay hits $38m,'' 
        Financial Times, April 13, 2005.
24 Michael Liedtke, ``Oil Industry Boom Likely to 
        Continue,'' Associated Press, April 29, 2005.
25 United States Senate, Committee on Government Affairs, 
        Gas Prices, How Are They Really Set?, April 30, 2002, p. 28.
26 Public Citizen, Mergers, Manipulation and Mirages: How 
        Oil Companies Keep Gasoline Prices High, and Why the Energy 
        Bill Doesn't Help, March 2004.
27 Public Citizen, Mergers, Manipulation and Mirages: How 
        Oil Companies Keep Gasoline Prices High, and Why the Energy 
        Bill Doesn't Help, March 2004.
28 DOJ and FTC 1992 Horizontal Merger Guidelines, p. 3; See 
        http://www.ftc.gov/bc/docs/horizmer.htm.
29 15 U.S.C. Sec. 18.
30 Findlaw, Mergers and Acquisitions Primer, by Robert W. 
        Doyle, Jr., Powell, Goldstein, Frazer & Murphy LLP; See http://
        profs.lp.findlaw.com/mergers/mergers--6.html.
31 DOJ and FTC 1992 Horizontal Merger Guidelines, p. 18; See 
        http://www.ftc.gov/bc/docs/horizmer.htm.
32 Findlaw, Mergers and Acquisitions Primer, by Robert W. 
        Doyle, Jr., Powell, Goldstein, Frazer & Murphy LLP; See http://
        profs.lp.findlaw.com/mergers/mergers--6.html.
33 Public Citizen, Mergers, Manipulation and Mirages: How 
        Oil Companies Keep Gasoline Prices High and Why the Energy Bill 
        Doesn't Help, March 2004, Citing Midwest Gasoline Price 
        Investigation, www.ftc.gov/os/2001/03/mwgasrpt.htm.
34 Federal Trade Commission, Midwest Gasoline Prices 
        Investigation, March 2001, p. 21.
35 Gas Prices: How Are They Really Set? Report prepared by 
        the Majority Staff of the Permanent Subcommittee on 
        Investigations, Released in Conjunction with the Permanent 
        Subcommittee on Investigations' Hearings on April 30 and May 2, 
        2002.
36 49 CFR Sec. 32902.
                                 ______
                                 
    Mr. Gibbons. Thank you very much, Ms. Morrison. We 
appreciate your testimony that you brought here before the 
Committee today. And let me say, from someone from the Second 
District of Nevada whose district contains Yucca Mountain, we 
have worked with you in the past with regard to the 
transportation and storage of nuclear waste at Yucca Mountain, 
and you have been very helpful to us.
    We will turn now to the questions from our panel here. And 
I will begin with Mrs. Drake, for five minutes. Mrs. Drake.
    Mrs. Drake. Thank you, Mr. Chairman. I would certainly like 
to thank each and every one of you for being here. And I do 
have several questions, but I would like to start with Ms. 
Clements because you talked very eloquently about the people 
that you are serving. And I think all of us experience that in 
our districts, that there are groups that are helping with 
energy costs for families.
    One question that I have is, you mentioned a decline in 
funds. Is it really a decline in available funds, or is it an 
increase in the amount of funds that is given to each family 
because of the dramatic increase in their fuel costs in the 
last five years?
    Ms. Clements. With LIHEAP, the buying power of LIHEAP is 
still at 1982 prices. With the increase in the amount of people 
we're seeing right now, the numbers just don't jibe. So we 
really need LIHEAP increased. As far as Fuel Fund, Fuel Fund 
does not have enough money to meet the demand of the people who 
need more above the LIHEAP program.
    Mrs. Drake. Well, I am also thinking, after hearing Mr. 
Hyde speak, that there is probably a number of people you are 
serving today who have been pushed out of their jobs, just as 
we heard in the last panel and we have heard from Mr. Hyde. He 
personally has lost seven employees, and so those are seven 
more people. Hopefully, they have found other jobs.
    But I also wondered, is there an educational component to 
what your group does, to educate people on things like keeping 
the thermostat lower, or how much the cost of energy is 
impacting on what they are doing, just for a more educational 
component, that type of education to them, so they understand? 
They should be wearing those buttons, too, ``We need a national 
energy policy,'' because they are dramatically impacted by it.
    Ms. Clements. We did bring a LIHEAP recipient over here in 
January, when we had our LIHEAP advocacy day. So the customers 
are aware of the prices. The consumers know about energy 
conservation. We do talk to them about that. But when you're 
dealing with a housing stock that in Baltimore City is very old 
in most areas--and the weatherization program, which is 
federally funded, does not do a full rehab of a house to keep 
it energy conserving. So there are gaps in a lot of the 
programs, and they all mesh together.
    And when you're dealing with a low-income consumer with 
energy, it's education, it's LIHEAP, it WAP, it's fuel funds, 
it's a massive situation. And in the last three or four weeks, 
we've seen the number of telephone calls for our service jump 
from 100 to 150 a day. And we have a five-week waiting time to 
see a customer, and they could be turned off before we even get 
to see them.
    Mrs. Drake. Thank you. Ms. Morrison, you started early in 
your remarks talking about nuclear energy and your group's 
opposition to it. Even in light of where we are today with the 
energy crisis and the fact that we have not built a nuclear 
power plant in probably over 20 years, your group would 
adamantly oppose an increase in nuclear power plants today to 
deal with this crisis?
    Ms. Morrison. We believe that we should be focusing instead 
on efficiency and diversifying into clean, renewable resources. 
We're very concerned about nuclear power, that we still don't 
have a solution as to how to deal with the waste, and that we 
still have a lot of questions about the security and risks 
posed by nuclear power plants.
    Mrs. Drake. And your information is you could provide that 
type of energy for us in a timely manner to deal with the 
crisis that we are in?
    Ms. Morrison. Energy efficiency is the quickest, cleanest, 
cheapest way to start getting our way out of this energy 
crisis. And we think that with you increasing energy efficiency 
and adding in a diversified, clean, renewable energy, that we 
could indeed help--start helping this problem.
    Mrs. Drake. But I think we would hear from Mr. Hyde, and we 
heard from the last panel, that they were doing everything they 
could do to increase energy efficiency; and that reduction in 
demand would certainly not come anywhere near close to meeting 
their supply needs.
    Ms. Morrison. Well, certainly, energy efficiency alone 
isn't going to do it right at this moment. But energy 
efficiency can certainly put us on the path to where we should 
be. Increasing energy efficiency is--there are improvements 
available in the electricity system of up to a third, easily, 
and those are conservative estimates of increasing efficiency 
in our electricity system.
    In terms of cars and automobiles, as I said, we've been 
stagnated for the past 24 years on fuel economy in this 
country. Seventy-seven percent of oil is used in the 
transportation sector, and we need to start addressing that 
problem.
    Mrs. Drake. And don't you think part of the issue--because 
I was going to ask about the car issue and the 40-mile-a-
gallon--there, again, is personal choice. I was a realtor 
before I came into Congress. And one of the most important 
things to me is that if I was driving people and their 
children, that I wanted to be sure they were as safe as 
possible. And I bought a car that I think is pretty good--
certainly not 40 miles a gallon, but that would be very safe to 
drive other people around; and now, of course, to go up and 
down the road to go home from Congress.
    And I have just come back from a trip to Europe. And in 
Italy, they have these little, tiny smart cars. I guess I need 
to stop. OK. So I don't even want you to answer me, but I think 
that is a key factor in the 40-mile-a-gallon thing; that it is 
just not something Americans would want to drive, for various 
reasons.
    Mr. Gibbons. Thank you very much, Mrs. Drake. The reason I 
am trying to get everybody to expedite their questions here is 
because we do have a series of votes that has just been called. 
We are down to about the ten-minute level.
    So what I am going to ask, for those that have questions, 
Mr. Grijalva and Mr. Peterson and myself, to certainly expedite 
it into the minimum fashion, because the series of votes will 
take us beyond the time of the end of this hearing, and we 
would like to excuse the panel before we go vote. Mr. Grijalva.
    Mr. Grijalva. Thank you, Mr. Chairman. And Ms. Clements, I 
had questions, but let me just thank you. I am very impressed 
with what your organization does. I am familiar with the work 
of Pima County Community Action, the Western Arizona Council of 
Governments. And in the information from them that you pointed 
out, they are turning people away.
    And I think your point about it as a policy issue is worked 
out in the long term. In the short term, for the people that 
you serve and the consumers that you take care of, that $3.4 
billion threshold is absolutely necessary. And thank you very 
much for that testimony.
    Ms. Clements. Thank you, sir.
    Mr. Grijalva. Ms. Morrison, in part of your testimony you 
made a point, I think, that doesn't get discussed enough. I had 
other questions, but let me just concentrate on that one--the 
issue of transparency, as we talk about an energy policy and we 
talk about how to craft it and the tough choices that are going 
to have to be made, etcetera.
    There seems to be almost no discussion on the corporate 
side of the responsibility in this issue, as well: the 
transparency issues in terms of mergers, the speculation that 
occurs, the variations in prices that occur. I just want you to 
maybe just elaborate for a minute or so on that transparency 
point that you were making.
    Ms. Morrison. Certainly. There's a couple of different 
things going on. There's a--natural gas and oil both are 
suffering from some lack of transparency. In fact, when we had 
seen all the high prices in the California price spike, they 
did an investigation of the natural gas companies, the Federal 
Energy Regulatory Commission, and found that there was such an 
engagement of false reporting that they called it an epidemic 
of false reporting of prices at that time.
    And certainly, there needs to be more investigation, to 
make sure that what we are charging in this country, and what 
people are reporting as the price of natural gas, and what 
these companies are saying, is in fact a reality.
    And in addition, the General Accounting Office also 
acknowledged that gas prices that cannot be independently 
validated and incorrect reporting of the information could 
impact on the volatility of the natural gas market.
    The oil companies, in addition, have been consolidating 
over time and have, as they have consolidated, merged into 
larger and larger corporations that have controlled a larger 
proportion of the market. It used to be you had to have more 
companies in play in order to affect the price of gasoline; but 
when you have so few companies controlling such a large 
proportion of the market share, the temptation is there to 
start having problems.
    Mr. Grijalva. Just in closing, I think, as part of your 
point, with the two top CEOs of some of these merged 
corporations, the bonus, I think, this year for one was 38 
million, and the other one was 10 million. And so, I think 
transparency as part of this energy policy discussion is 
critical.
    Mr. Gibbons. Thank you, Mr. Grijalva. And don't you get a 
$10 million bonus for being on this committee? Oh, you don't?
    Mr. Grijalva. I don't even get a free car.
    Mr. Gibbons. Oh, no.
    [Laughter.]
    Mr. Gibbons. Unfortunately, some of these issues are 
outside the jurisdiction of this committee. So we are going to 
turn to Mr. Peterson for his questions.
    Mr. Peterson. Yes. I want to thank all the panelists; 
especially you, Robbie, for coming down from my district, and 
your good testimony, and for involving me a long time ago in 
this issue.
    Ms. Morrison, you have heard a lot about natural gas today 
and the problems it is causing. Does your organization in any 
way support the interim expansion of availability of natural 
gas, which is our cleanest-burning--no SOX, no NOX, a fourth of 
the CO2; it is the cleanest-burning fossil fuel we have--does 
your organization support any expanded use of it to get us to 
the future?
    Ms. Morrison. We feel that it's unnecessary, since the 
majority of gas reserves on public lands are in fact actually 
already open to exploration and drilling. According to the MMS, 
or the Minerals Management Services, more than 88 percent of 
the natural gas resources on public lands in the West are 
already available for development, and more than 80 percent of 
the nation's undiscovered economically recoverable Outer 
Continental Shelf gas is located in the central and western 
Gulf of Mexico, which is not currently subject to the 
moratorium.
    Mr. Peterson. The facts given to us this morning: 85 
percent of the natural gas reserves in America are on 
moratorium on public land--85 percent of the natural gas 
reserves. So I think your data is very well thought.
    Let me ask a question. You talk about electric efficiency. 
What kind of electric light bulbs do you use?
    Ms. Morrison. In my home?
    Mr. Peterson. Yes.
    Ms. Morrison. I use compact fluorescent light bulbs.
    Mr. Peterson. Good. I commend you. I do, too, and I think 
it is 23 percent of the normal usage. My wife laughed at me 
when I started putting them in, but she likes them because they 
don't burn out so quick. But I commend you for that. You are 
living proof that you are doing it, too.
    But I would urge your organization to take a very hard look 
at their natural gas policy because, I want to tell you, we are 
shipping the chemical business, the polymer business, all 
melting and smelting businesses, out of this country who use 
natural gas as heat. And we can't conserve our way out of that. 
With natural gas, we are an entity to ourselves. When we buy 
$50 oil, which is damaging, the whole world buys it. But when 
we buy $7 gas, we are an island to ourselves, and we cannot 
compete.
    And the person who is going to take it in the neck is the 
person who is trying to heat their home next winter, because 
they are going to be looking at another 30-percent increase in 
home heating. And Robbie's people may lose a job, but you are 
going to find millions of Americans not maintaining their homes 
if we don't solve this crisis.
    And conservation cannot get us through this problem. I just 
think you folks need to understand that. As much as I support 
conservation and better use, it is an appropriate thing; but it 
doesn't get us where we need to be.
    And when you look at the renewables, here is the energy 
used today: 39 percent is petroleum; 23 percent is coal; 23 
percent is natural gas--these are two years old; gas is bigger 
than that now--nuclear, 8; wood alcohol waste, 3; 
hydroelectric, 3. Not even a percentage: geothermal, solar, and 
wind, and combination.
    And I do note, last year that data was, 80 percent of those 
three was geothermal. So wind and solar, as much as we see a 
lot about them, are not even a percentage. So if we double them 
and we triple them--and we may try, and we should try--it does 
not make an immediate impact.
    In the interim, if we don't deal with natural gas prices, I 
think we're kissing our economy goodbye. And I mean that 
sincerely.
    Mr. Gibbons. Thank you very much, Mr. Peterson. And 
unfortunately, the time of the clock is not controlled by me 
today. It is now controlled by the people down on the Floor who 
are scheduling us for a vote.
    I want to thank each of you as witnesses, both panel one 
and panel two, for your testimony today. We will be submitting 
written questions to you, to supplement what we didn't get to 
ask. And of course, we would ask that you would return those 
questions and answers to us within, say, about ten days, so 
that we can get them into the record.
    Let me submit for the record, just to add information that 
the Committee can find useful, five documents. One is a 
Department of Defense document dealing with clean fuels 
initiatives; Alberta Energy and Utilities Board, number two 
document, regarding oil sand production; document number three, 
Department of Energy report for increased oil production 
through enhanced oil recovery techniques; document number four, 
Department of Energy report for strategic significance of the 
American oil shale resource; and number five, finally, Energy 
Information's annual energy outlook for 2005.
    NOTE: The following information was submitted for the 
record and has been retained in the Committee's official files:
      Alberta Energy and Utilities Board document 
regarding oil sands production and potential;
      Department of Defense presentation on the Office 
of the Secretary of Defense's Clean Fuel Initiative to promote 
domestic liquid fuels production from oil shale, oil sands, and 
heavy oils;
      Department of Energy Report of the potential for 
increased American oil production through enhanced oil recovery 
techniques;
      Department of Energy Report on the ``Strategic 
Significance of America's Oil Shale Resource''; and
      Energy Information Administration's Annual Energy 
Outlook 2005.
    Mr. Gibbons. Ladies and gentlemen, again, thank you so much 
for your time, your patience, and your testimony here today. 
The information is very helpful.
    With that, we will excuse our second panel. And this 
hearing is adjourned.
    [Whereupon, at 11:54 a.m., the Subcommittee was adjourned.]

    [Additional material submitted for the record follows:]

    [A statement submitted for the record by the American 
Chemistry Council, follows:]

  Statement submitted for the record by The American Chemistry Council

    The American Chemistry Council is pleased to submit this testimony 
on the impact of high energy costs--especially natural gas--on 
consumers and the public. ACC represents the leading companies engaged 
in the business of chemistry. ACC members apply the science of 
chemistry to make innovative products and services that make people's 
lives better, healthier and safer. ACC members are committed to 
improved environmental, health and safety performance through 
Responsible Care, common sense advocacy designed to address major 
public policy issues, and health and environmental research and product 
testing. The business of chemistry is a $504 billion enterprise and a 
key element of the nation's economy. It is one of the nation's largest 
exporters, accounting for ten cents out of every dollar in U.S. 
exports. Chemistry companies are among the biggest investors in 
research and development. Safety and security have always been primary 
concerns of ACC members, and they have intensified their efforts, 
working closely with government agencies to improve security and to 
defend against any threat to the nation's critical infrastructure.
    The unbalanced and volatile U.S. natural gas market has had a 
severe impact on the chemical industry. Today, U.S. natural gas prices 
are the highest in the world--over $7 per million BTUs, versus $5.25 in 
Europe, $4.50 in China and Japan and $1.25 or less in the Middle East 
and Russia.
    The chemical industry is the backbone of our nation's manufacturing 
sector. It is the largest industrial user of natural gas. The chemical 
industry uses natural gas for heat and power, but also as a raw 
material, a key ingredient, used to make thousands of products that 
consumers use every day.
    The chemical industry has been especially hard hit--its natural gas 
costs increased by $10 billion over the past two years, it has lost 
more than $50 billion in business to overseas operations, and watched 
more than 100,000 jobs (1/10th of the U.S. chemical workforce) 
disappear since 2000.
    Business Week magazine published a story in its May 2, 2005 edition 
entitled, ``No Longer the Lab of the World, U.S. Chemical Plants 
Closing in Droves as Production Heads Abroad.'' This carefully 
researched article provides ample evidence of the severe damage 
historically high natural gas prices have had on the U.S. chemical 
industry, and by extension the entire U.S. manufacturing sector. The 
following excerpts from the Business Week article graphically 
illustrate the quandary the chemical industry is in:
      ``Only a decade ago the U.S. was the world's top spot for 
making chemicals...Today none of that is true...And in a crippling 
reversal, U.S. natural gas prices are the highest in the world.''
      ``Chemical companies closed 70 facilities in the U.S. in 
2004 and already have tagged 40 more for shutdown''.Industry employment 
is now below 880,000, down from over 1 million as recently as 2002.''
      ''..of 120 chemical plans being built around the world 
with price tags of $1 billion or more, just one ... is in the U.S. ... 
China, by comparison, has 50. The U.S. has gone from a privileged 
position to where it's hard to find a rationale to put anything here.
      ``As recently as 1997, the U.S. posted a trade surplus in 
chemicals of almost $20 billion...(now) the nation's balance of trade 
in chemicals, a rock-steady surplus for 80 years, has become a 
deficit.''
      ``For the U.S., the likely results are less investment, 
fewer jobs, and fewer scientific discoveries...Innovation may be the 
nation's next casualty. Production facilities need engineers to run 
them and scientists to do workaday research. So as capital investment 
migrates, these tasks will too.''
      ``Across the industry, capital investment is being herded 
away from the U.S. toward the Middle East and Asia''.while U.S. plants 
are being turned over to salvagers.''
    According to figures published by the U.S. Commerce Department on 
April 12, 2005 the U.S. trade deficit has risen to an all-time monthly 
high of $61 billion--lending further evidence to the exodus of 
manufacturing from the U.S. The chemical industry once had the nation's 
most favorable balance of trade--nearly $20 billion in the 1990's, but 
now posts a $4 billion deficit.
    As bad as the natural gas crisis is today, it is expected to 
deepen, further widening the gap between supply and demand. Experts 
predict demand will far outpace supply by nearly 10 trillion cubic feet 
(TCF) in the future. Today the U.S. consumes roughly 22 TCF, and 
predictions are by 2010 demand will be over 25 TCF and by 2025 will top 
30 TCF. What actions are being taken today to prevent this decade's 
growth in demand for natural gas from requiring further demand 
destruction from the industrial sector?
Higher Natural Gas Prices Shift Chemical Industry Investment Overseas
    The May 2, 2005 edition of Business Week magazine article 
succinctly provided ample evidence of the severe damage historically 
high natural gas prices have had on the U.S. chemical industry and how 
it has promoted a shift in production overseas.
    With a mature market and the movement of customer industries 
overseas, companies are shifting investments toward regions offering 
lower feedstock costs (and cost of production) as well as in markets 
experiencing a higher degree of dynamism. The absence of a 
comprehensive U.S. energy policy ensuring adequate and diverse supplies 
will retard investment (and subsequent job creation) in the United 
States. This is equivalent to ``capital flight.''
    This on-going geographical shift in spending by American chemical 
companies is evidenced by the allocation of capital budgets among 
American Chemistry Council member companies. Every few years, The 
American Chemistry Council conducts a survey of long-term geographic 
investment intentions (US vs. foreign locations) and results from the 
latest reveal significant changes in distribution patterns.

[GRAPHIC] [TIFF OMITTED] T1446.002


    American chemical companies are planning to significantly boost 
their investments in the Asia/Pacific regions. This region's share of 
the capital budget will nearly triple during the five-year period from 
2004 to 2009. Investments in China in particular will increase 
(threefold) as a share of capital budgets. Strong expansion of the 
share going to the Asian NICs and other Asian nations will gain as a 
share of total capital budgets. Even Japan will witness slightly higher 
investment. U.S. chemical companies plan to allocate greater capital 
investment in Africa & the Middle East, Central & Eastern Europe, 
Mexico and Latin America. Canada (with abundant hydrocarbon resources) 
and Western Europe will receive a larger share of capital. All of the 
aforementioned expansions of share will occur at the expense of 
projects in the United States.
    How did we get in this predicament? Concerns with the nation's 
overall air quality led the federal government to encourage use of 
cleaner burning fuels in the 1990's. Electric utilities switched from 
burning coal to natural gas, and today electricity generation consumes 
25% of all domestic natural gas.
    Ironically, at the same time the federal government policies 
encouraged greater use of natural gas, it also imposed moratoria on 
large sources of domestic natural gas supplies out of environmental 
concerns. Today much of our nation's sizeable natural gas reserves are 
off-limits to exploration and production, despite the fact that today's 
technology can safely remove natural gas with minimal disruption to the 
surrounding environment.
    The situation the chemical industry faces today is reversible--if 
Congress takes action to restore natural gas to globally competitive 
prices. Thankfully, it appears that some in the U.S. Congress are 
starting to realize that our nation is in the depths of an energy 
crisis and are taking steps to address the crisis so that our nation's 
eroding chemical and manufacturing base is revitalized and returned to 
being the robust engine that drives our economy.
    In early April 2005, Senators Lamar Alexander (R-TN) and Tim 
Johnson (D-SD) introduced bipartisan legislation, S. 726, The Natural 
Gas Price Reduction Act which recognizes the enormity of the nation's 
natural gas crisis and provides the keys to bringing the problem under 
control.
    Senator Alexander and Johnson demonstrate a thorough understanding 
of the steps needed to address the natural gas crisis. The bill 
proposes to:
      Curb consumption of natural gas by aggressively 
implementing a number of energy efficiency measures;
      Invest in development and implementation of new 
technologies, such as coal gasification;
      Improve the system for storing and transporting natural 
gas; and
      Create greater access to our own domestic sources of 
natural gas.
    The American Chemistry Council applauds the introduction of S. 726. 
It is an important step towards enacting a sorely needed balanced 
national energy plan. ACC has urged the Senate Energy & Natural 
Resources Committee to fully adopt S. 726 as it writes its 
comprehensive energy legislation.
    Every day that Congress fails to confront and address this crisis, 
more jobs are lost to foreign operations and more residential consumers 
must choose between heat or food. Only Congress can solve these 
problems and put the long-term economic future of the nation back on 
track.

[GRAPHIC] [TIFF OMITTED] T1446.003


    Since late-2000, there have been two major spikes in natural gas 
prices and recently, prices have settled in the range of about $7.00 
per million BTUs. This is triple historical levels. The figure to the 
right illustrates how prices have generally trended upwards since 2000.
    More recently, high oil prices have affected natural gas prices as 
well and prices have generally been above $7.00 per million BTUs. The 
United States now has the highest natural gas costs in the world, as 
the accompanying figure titled ``Natural Gas Costs around the World'' 
illustrates. The data in the figure are for mid-March.
    Fundamentally, the problem is one of demand for natural gas 
exceeding available supply. This has resulted in record natural gas 
prices in the United States and the highest natural gas prices in the 
world. During the last decade various environmental and other 
government policies have promoted the use of natural gas. At the same 
time, little was done to foster supply of natural gas. Natural gas 
demand is growing in all sectors but underlying economics suggest a 
fundamental imbalance in natural gas supply and demand that is unlikely 
to recede in the short-term. However, growing demand by electric 
utilities is resulting in demand destruction in the industrial sector. 
Utilities are generally allowed by state regulators to fully pass on 
their additional fuel costs to customers. Industrial companies, 
however, face international competition and have generally not been 
able to pass on these costs. This results in utilities' gas demand 
being somewhat price insensitive and has resulted in plant closures and 
job losses among the industrial sector. This demand destruction is 
illustrated in the above figure titled ``Natural Gas Consumption Trends 
by Sector''. The source is the March 2005 Short-Term Energy Outlook 
prepared by the Energy Information Administration (EIA) of the U.S. 
Department of Energy. Moreover, the EIA projects even further increases 
in natural gas prices. Actions of ACC member companies would question 
the availability of natural gas needed to increase industrial demand as 
projected by the EIA. We have member companies that use natural gas as 
a raw material with plans to shut down U.S. production facilities and 
import these products across this period. The gravity of the current 
natural gas imbalance is so pronounced that Federal Reserve Chairman 
Alan Greenspan has raised concerns about the issue.

[GRAPHIC] [TIFF OMITTED] T1446.004


The Effects of Higher Natural Gas Prices Quantified
    To better understand the role of natural gas price shocks on the 
economy, the American Chemistry Council used the Oxford Economic 
Forecasting (OEF) Global Model to examine the effects of large run-ups 
in natural gas prices on the U.S. economy. The OEF Global Model is a 
quarterly linked international econometric model that provides an 
analyst with the ability to examine how economies react to shocks to 
the economic environment, perform scenario analyses and produce 
forecasts. The model contains independent price, production and 
consumption variables for oil and natural gas, which can be changed to 
produce customized simulations. The model is linked to the OEF 
international industrial model.

[GRAPHIC] [TIFF OMITTED] T1446.005


    Changing the natural gas price assumptions and then comparing the 
results of the model solution with a baseline simulates the effects of 
higher natural gas prices. The current analysis examines the effects of 
a sustained natural gas price rise of roughly $3.50 per million BTUs 
over prior levels. This is roughly what has occurred since the first 
spike in natural gas costs.
    The results of economic modeling suggest that the effects of 
sustained higher natural gas prices have a negative effect on the U.S. 
economy. The following table presents the deviation from the base case 
that occurs with these sustained higher prices. Unless noted otherwise, 
the data are presented as a deviation from the baseline expressed as 
percentage points.

[GRAPHIC] [TIFF OMITTED] T1446.006


    Higher natural gas prices act much like a tax on consumers, 
depressing disposable personal incomes and savings, and ultimately 
consumer spending, which accounts for two-thirds of the economy. The 
results of the analysis indicate a decline in aggregate demand in 
combination with the shock to the supply side. This results in a lower 
economic growth rate, about 0.3% less per year. With a $12 trillion 
economy, that's about $36 billion in reduced GDP.
    Econometric evidence indicates that lower economic growth results 
in lessened job creation (about 325,000 fewer jobs on average during 
the first three years) and a higher unemployment rate. At the same 
time, inflation as measured by the consumer price index would 
accelerate and interest rates would rise.
    Rapidly rising U.S. natural gas prices adversely affect the 
industrial sector, resulting in less production and lower capacity 
utilization. In turn, this affects profits and corporate cash flow and 
coupled with higher interest rates, would lead to lower business 
investment (or capital spending). The most recent recession was led by 
a severe downturn in capital spending. Higher natural gas prices have 
the effect of hampering capital spending so needed for a sustained 
economic expansion. It is capital spending that is critical to 
fostering long-term productivity growth and rising incomes and wealth.
    In addition, the current account balance deteriorates, as would the 
federal deficit and deficits run by state and local governments. The 
deterioration in government balances occurs as tax receipts fall short 
of expectations and as higher unemployment increases benefit claims. 
Most state and local governments are currently facing fiscal 
difficulties and the Federal government is running record deficits. The 
analysis suggests that the current account balance deteriorates by over 
$35 billion after three years as does the Federal deficit (by about $28 
billion) as tax receipts fall short of expectations because of lower 
economic growth and as higher unemployment increases benefit claims.
    For energy-intensive sectors such as farming, cement, aluminum, 
steel and chemicals, the effects would be even more severe. For the 
business of chemistry, the effects would be felt across all segments. 
Basic chemicals would face severe competitive disadvantages as over 70% 
of feedstocks are derived from natural gas. Exports would falter and 
imports would rise. In addition, lessened industrial activity would 
result in lower demand. Over the extended period, the basic chemicals 
segment suffers the most.

Effects on Industry
    Higher natural gas prices in particular affect the competitiveness 
of industries using natural gas as input for fuel and power and as raw 
material. This occurs because natural gas markets are generally 
national (or regional) in nature. As a result, exporting industries in 
the United States and Canada face higher costs vis-a-vis competing 
nations, as the latter do not incur these costs. Natural gas is 
generally a regional market (e.g., North America) as it is not widely 
traded globally. Thus, natural gas markets outside of North America are 
largely unaffected. For energy-intensive sectors such as farming, 
cement, aluminum, steel and chemicals, the effects are quite severe.
    Rising natural gas costs have been one factor in the exploding 
manufactured goods deficit, which increased from $330.2 billion in 1999 
to a record $612.1 billion deficit in 2004. During the period from 1999 
to 2004, manufacturing sector payrolls declined 17%, about 3.0 million 
people.

Effects on the Chemical Industry
    The U.S. chemical industry is the largest industrial user of 
natural gas, consuming one-eighth of total natural gas demand. Higher 
natural gas prices in particular severely diminish the competitiveness 
of the industry as it uses natural gas not only as inputs for fuel and 
power, but also as a raw material (feedstocks).

[GRAPHIC] [TIFF OMITTED] T1446.007


    Worldwide the feedstocks for most petrochemicals are ultimately 
derived from either oil or natural gas. Oil includes heavy liquids such 
as naphtha and gas oil. Natural gas includes natural gas liquids such 
as ethane, propane, and butane. The price of a feedstock is largely 
determined by the price of oil or natural gas. Unlike oil and naphtha, 
which can be imported or exported in large quantities, natural gas 
markets are generally regionally constrained because of physical 
limitations in moving natural gas over long distances. Oil and naphtha 
prices are determined in a global market.
    Rising natural gas prices directly affect the natural gas liquids 
market. Both ethane and propane, widely used in the United States as 
feedstock, have fuel value and can be left in the gas stream along with 
methane, to sell as natural gas. Methane is another constituent of 
natural gas. Besides its thermal value, it's directly used to produce 
methanol as well. As an alternative to fuel, ethane, propane and butane 
can be processed into liquids to be sold as feedstock. Because prices 
of these feedstocks rise in proportion with natural gas prices, a 
petrochemical producer has to offer more than the equivalent fuel value 
plus processing cost to induce a gas processor to remove the liquids 
and shrink the natural gas stream.
    Rising natural gas prices directly affect the natural gas liquids 
market. Higher natural gas liquid (ethane, propane, etc.) feedstock 
costs can place much of the Gulf Coast-based petrochemical production 
in a position of diminished competitiveness relative to other major 
producing regions. In the US, 70% of ethylene, for example, is derived 
from natural gas liquids while in Western Europe, 70% is derived from 
naphtha, gas oil and other light distillate oil-based products. These 
competing nations face raw materials costs that reflect global, not the 
regional markets affecting natural gas prices in North America. U.S. 
petrochemical facilities are based on converting natural gas liquids 
and cannot be economically converted to use other feedstocks. This is a 
significant driver for new investment capital being spent in other 
regions and reducing exports from the U.S.
    The U.S. net trade position in chemicals swung from an $8.3 billion 
surplus in 1999 (before the first natural gas price spike) to a deficit 
of $9.6 billion in 2003. In 2004, rising global demand improved the 
trade deficit to $3.6 billion. We anticipate further erosion in the net 
trade position as new petrochemical facilities are built in regions of 
the world with lower raw material costs.
    Not only do high natural gas prices affect the chemical industry 
directly, but to the extent that these prices contribute to the 
deterioration of competitiveness in downstream end-use customer 
industries (rising imports and movement overseas), the chemical 
industry is also negatively affected. The chemistry content of this is 
measurable and during the period since the first natural gas price hike 
(1999-2004), the business lost from these end-use customers totaled 
$25.8 billion. Combined with the $11.9 billion swing in the trade 
position, this represents $37.7 billion in lost sales.
    During this period, chemical industry employment fell by 96,000, 
about 10%. Losses occurred in virtually every state. The decline has 
continued and based on data from the Bureau of Labor Statistics now 
exceeds 105,000 jobs.
    As a provider of raw materials to other manufacturers, the chemical 
industry is often looked on as a harbinger of what lies ahead for those 
companies. Unfortunately, it's only a matter of time until the plant 
closings, job losses, vanishing trade surplus and capital investment 
flight experienced in chemicals spreads to all of its downstream 
customers.
                                 ______
                                 
    [A statement submitted for the record by The 60 Plus 
Association follows:]

                        The 60 Plus Association

           1600 Wilson Blvd.--Suite 960--Arlington, VA 22209

        Phone (703) 807-2070--Fax (703) 807-2073 www.60Plus.org

         Statement by 60 Plus Association President Jim Martin 
        submitted to the House Energy and Minerals Subcommittee

    I submit this testimony on behalf of the 60 Plus Association, an 
11-year-old senior citizen's advocacy group. 60 Plus calls on some 4.5 
million seniors nationally for support. Our seniors are concerned about 
their needs as well as that of their children, their grandchildren, and 
their great-grandchildren.
    60 Plus commends you for convening this important hearing focusing 
on the lack of adequate energy supplies and resulting high energy 
costs. 60 Plus respects the law of supply and demand. We know that if 
energy supplies are tight, seniors pay disproportionately more for 
everything: heating, cooling, transportation, drugs, food, hospital 
costs, etc. Any increase in the cost of energy is a regressive tax on 
seniors living on fixed incomes. The same is true for the urban poor.
    60 Plus strongly supports the President's repeated call for a 
comprehensive energy strategy. If Congress wants to help bring the cost 
of energy under our control, it should swiftly enact an energy bill 
that provides more incentives for production. The President recently 
proposed that we use abandoned military bases to build new refineries. 
There has been a recent announcement of the issuance of a permit for a 
new refinery in Yuma, Arizona. These efforts to help solve the problem 
of the availability of gas for our transportation needs deserve your 
strong support.
    We need all forms of domestic energy that we can produce and this 
includes coal, natural gas, nuclear and renewables such as wind and 
hydroelectric power. But the real test is to do this at an economically 
affordable cost.
    More than half of our electricity comes from coal and we've come a 
long, long way from the days of strip mining and abandoned sites that 
were not only eyesores but environmental disasters to where sound 
technology allows for energy exploration and production with minimal 
risk now to the ecology.
    And you know, about the ecology: I was struck by the fact that 
President Bush's energy recommendations in 2001, some 120 overall, 
contained more than 40 proposals dealing specifically with the 
environment.
    You see, any limits to domestic exploration (whether offshore 
Florida, drilling in the Arctic National Wildlife Refuge, or the 
mountain West) at a time when international supplies are so uncertain 
is not good for this country. We must wean ourselves from our 
dependence on foreign energy supplies.
    Back in 1973 during the Arab oil embargo, then Minority Leader John 
J. Rhodes (R-AZ) appointed Congressman Roger Zion of Indiana, Chairman 
of the House Republican Task Force on Energy. Roger is Chairman of the 
60 Plus Association at a hale and hearty 83 years young. Roger is a 
driving force at 60 Plus for keeping us on track with this problem of 
dependence on foreign sources of energy.
    Back in his Presidency, Jimmy Carter once remarked that with oil 
imports at 37%, he stipulated that his goal was to see that this 
percentage did not rise another point. Well, 25 years later, it's more 
than 57% and still rising. When does it stop?
    With well over 80% of 60 Plus' supporters being veterans of 
military service, I assure you many of them now consider a sound energy 
policy a matter of national security, especially following September 
11, 2001 and the resultant war against terrorism our great country is 
presently engaged in.
    Now, let me say something about those who would impede the 
important work of this Committee and this Nation. They go under the 
names of groups like the Natural Resources Defense Council, and the 
Friends of The Earth with the help of organizations like MoveOn.org. 
These feel-good activists, both nationally and internationally, have 
done a simply marvelous job at swaying public opinion and building 
walls and roadblocks that stymie the vitality of the energy industry. 
And by and large, they've done it all with smoke and mirrors! Under the 
guise of something called ``global warming'', these anti-growth, anti-
energy activists have placed an economic straight jacket and political 
handcuffs upon any country--but notably, the United States--that dares 
plan for tomorrow, dares plan for the well-being of our children and 
grandchildren with much needed domestic energy supply. They were 
effective in killing the future of nuclear power and are trying to do 
the same to coal. And for the most part, it's not only my observation 
but the consideration of many in the scientific community far more 
intelligent than I, that it's all being done by myth and unsupportable 
theory. The author Michael Crichton makes this case extremely well in 
his book ``State of Fear''. I would commend this book to you because it 
is based on Dr. Crichton's extensive bibliography and footnotes.
    I'm convinced we can explore for fossil fuels like gas, coal and 
oil and do so as responsible stewards of the air that we all breathe, 
the water we drink and the land that we cherish.
    I am convinced we can expand hydro and do so responsibly.
    I am convinced we can expand nuclear energy and do so safely. As a 
matter of fact, I believe nuclear is key to the health of our planet. 
Nuclear has proven to be safe, reliable and abundant and yet we haven't 
constructed a new facility in 30 years. You'd think an energy source 
such as nuclear would be embraced by the environmental activist 
community as it effectively replaces fossil fuels to satisfy energy 
demand--but no. There is a growing awareness even in Europe that there 
must be another generation of nuclear power.
    For that matter, wouldn't you think something as readily available 
as wind--admittedly less productive on a cost versus output basis--but 
everywhere around us and plentifully available--that commercially 
feasible wind power would pass the enviro's test for suitable energy 
creation? Nope. Wind turbines kill birds and are rather unsightly so 
no, wind power must go, also. Some of the major proponents of wind 
power in the Congress come from the Northeast, yet we see staunch 
opposition in the MA delegation to the Cape Wind Farm off Cape Cod. 
This is not rational.
    This sort of anti-supply bias has to stop for the good of seniors 
and consumers of all ages. This wonderful country of ours has abundant 
energy wherewithal, much of it renewable, some of it biodegradable.
    Ladies and gentlemen, we can do something about higher residential 
energy bills, about higher gasoline costs, about the higher cost of 
food and the difficult choices that have to be made every day around 
our kitchen tables. Looking upstream, we can do something about lost 
manufacturing jobs, about farmers whose yields are lessened, companies 
that shutter their operations, about lost capital enterprise, 
diminished competitiveness and declining profitability here at home and 
all around the globe. But we must abandon sensationalism in favor of 
reasoned, informed energy progress predicated upon that which our 
country does best: market-driven solutions to solve problems and meet 
needs.
    Our economy can run better, create more jobs, provide more revenue 
to meet social security needs and afford a better tomorrow for all of 
us--but we must pass comprehensive pro-supply energy legislation now. 
The time for action is now. Our children, grandchildren, and great-
grandchildren deserve nothing less.
    Thank you for the opportunity to have my say on these important 
matters.

                                  * * *

    60 Plus is an 11-year-old nonpartisan group with a less government, 
less taxes approach to seniors' issues. 60 Plus has become one of the 
fastest growing seniors groups in the country, doubling then tripling 
its support in the past year. 60 Plus can now call on support from 
nearly 4.5 million citizen lobbyists to print and mail millions of 
letters and petitions. 60 Plus publishes a newsletter, SENIOR VOICE, 
and a SCORECARD, bestowing a GUARDIAN OF SENIORS' RIGHTS award on 
lawmakers in both parties who vote ``pro-senior.'' 60 Plus has been 
called ``an increasingly influential lobbying group for the elderly.''

                                 
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