[Senate Hearing 109-37]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 109-37

                            COAL CONFERENCES

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

                               SYMPOSIUMS

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   on

                     THE FUTURE OF COAL CONFERNECE

                               __________

                             MARCH 10, 2005

                             APRIL 21, 2005


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


                                 ______

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD BURR, North Carolina         TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               JON S. CORZINE, New Jersey
GORDON SMITH, Oregon                 KEN SALAZAR, Colorado
JIM BUNNING, Kentucky
                       Alex Flint, Staff Director
                   Judith K. Pensabene, Chief Counsel
               Robert M. Simon, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
                John Peschke, Professional Staff Member
                Patty Beneke, Democratic Senior Counsel
         Jennifer Michael, Democratic Professional Staff Member


                            C O N T E N T S

                              ----------                              

                               STATEMENTS
                             March 10, 2005

                                                                   Page

Allen, Hon. George, U.S. Senator from Virginia...................    18
Beamon, Alan, Energy Information Administration..................     2
Burke, Frank, Vice President, Science and Technology, Consol 
  Energy.........................................................     3
Clayton, Bret, President and CEO, Kennecott Energy...............    21
Conrad, Greg, on Behalf of the Interstate Mining Compact 
  Commission and the National Association of Abandoned Mine Land 
  Programs.......................................................    23
Denett, Lucy Querques, Minerals Management Service, Department of 
  the Interior...................................................     9
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Dorgan, Hon. Byron L., U.S. Senator from North Dakota............     2
Gerard, Jack, National Mining Association........................     6
Habicht, Hank, Commissioner, National Commission on Energy Policy    23
Hawkins, David, Natural Resource Defense Council................. 7, 25
Holdren, John, Co-Chair, National Commission on Energy Policy....     5
Kendall, Sara, Director, Western Organization of Resource 
  Councils.......................................................    25
Koppelmann, Bob, Florida Municipal Electric Energy...............    20
Lackner, Klaus, Columbia University..............................    20
Lavin, Jack, Director, Department of Commerce and Economic 
  Opportunity, State of Illinois.................................     8
Owens, David, Executive Vice President, Edison Electric Institute     4
Pronske, Keith, Clean Energy Systems.............................    19
Salazar, Hon. Ken, U.S. Senator from Colorado....................     2

                             April 21, 2005

Alexander, Hon. Lamar, U.S. Senator from Tennessee...............    35
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    36
Bunning, Hon. Jim, U.S. Senator from Kentucky....................    45
Dalton, Stuart, Director for Generation Research, Electric Power 
  Research Institute.............................................    38
Hadley, David, Commissioner, Indiana Utility Regulatory 
  Commission, on Behalf of the National Association of Regulatory 
  Utility Commissioners..........................................    40
Hamberger, Edward R., President and CEO, Association of American 
  Railroads......................................................    46
Heller, Thomas J., CEO, Missouri River Energy Services...........    48
Lowe, Ed, General Manager of Gasification, General Electric 
  Energy.........................................................    41
McCullough, Glenn, Jr., Chairman, Tennessee Valley Authority.....    50
Mohre, David, Executive Director, Energy and Power Division, 
  National Rural Electric Cooperative Association................    49
Owens, David, Executive Vice President, Edison Electric Institute    47
Palmer, Fredrick, Executive Vice President, Legal and External 
  Affairs, Peabody Energy, on Behalf of Coal-Based Generation 
  Stakeholders Group.............................................    36
Rosenberg, William, Senior Fellow, Kennedy School of Government, 
  Harvard University.............................................    39
Salazar, Hon. Ken, U.S. Senator from Colorado....................    45
Szabo, Robert, Executive Director and Counsel, Consumers United 
  for Rail Equity................................................    47
Yamagata, Ben, Executive Director, Coal Utilization Research 
  Council........................................................    37

 
                            COAL CONFERENCE

                              ----------                              


                        THURSDAY, MARCH 10, 2005

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:41 p.m., in 
room SD-106, Dirksen Senate Office Building, Hon. Pete V. 
Domenici, chairman, presiding.

          OPENING STATEMENT OF HON. PETE V. DOMENICI, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. First of all, for those of you who are going 
to be at the table and talk with us and for those of you who 
came because of the nature of this event and the subject matter 
and those who have submitted ideas, we received about 80 
different concrete ideas, evaluations, suggestions, and the 
like.
    First, I cannot do anything about the Senate schedule. We 
are making headway there, so I would not dare. It has taken us 
8 years to get a bankruptcy bill, and if we have to vote all 
day and all night, you are just going to have to be 
inconvenienced along with me and the rest of us Senators. So we 
are going to try. Right now there are three more scheduled, but 
we have about 20 minutes, and then we will run down and see 
what happens. It may be a chance for Senators to exchange here 
where one can stay while one votes.
    Having said that, I think you all know why we are here. 
Clearly, the United States of America desperately needs to look 
to a future where we have a diversified use of energy sources. 
Some people speak of renewables. We think we ought to do 
everything we can in that regard. Some speak of adding more and 
more natural gas to our use here in America. We are trying to 
look at that. All the other kinds of energy, including nuclear, 
everybody is looking at those, but clearly the king of all that 
is coal. We currently get 50 to 52 percent of our electricity 
from coal, and there is plenty of coal in America at various 
places.
    We just have to find out here today and in our 
deliberations and legislation in the next 3 or 4 months how we 
can best move ahead to use more of our coal in a cleaner manner 
so that we can say coal is contributing to our future in an 
environmentally sound way. We all understand that is relative 
depending upon one's view with reference to the pollutants and 
how much we can and cannot do.
    Nonetheless, we must proceed with evaluating what there is 
and we have tried very hard to put together a different 
approach. If we had a hearing, we would have three of you and 
that would be it. Today we are going to have more of you, 
provided that you cooperate and be very brief. If you will do 
that, that will help us immensely.
    Having said that, it is only fair that I ask if a member of 
the minority would concur that we should proceed or you may 
make a statement, whatever you would like, Senator. You can 
start with a statement. Then we will proceed.

        STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR 
                       FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, I did not hear all that you 
said, but let me concur with whatever it was.
    [Laughter.]
    The Chairman. I think you would agree with what I said.
    Senator Dorgan. But let me just make the same point just in 
30 seconds. There is no question that when we write an energy 
bill--and we need a new energy policy--it needs to include 
coal. The aggressiveness with which we pursue clean coal 
technology to try to advance the interests of developing our 
coal resources, hopefully at some point in the future in zero 
emission plants, which I believe we can do if we decide to do 
that, I think that is just a very important part of 
understanding what new energy policy will be. Yes, there will 
be new things but included in an energy policy has to be the 
use of these vast resources of coal reserves. So I think this 
is an excellent opportunity to share views.
    One thing has happened, Mr. Chairman. They have actually 
just added another vote. So it is not always very convenient to 
do things around here as we run back and forth to votes. But I 
want to thank everybody who has come to this discussion.
    The Chairman. Senator Salazar, you are always a faithful 
attendee. If you want to make a couple of comments, go ahead. 
You might not have a chance before the afternoon is out, and I 
will get back here.

          STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR 
                         FROM COLORADO

    Senator Salazar. Coal is an extremely important resource 
for all of us in this country, and in my State of Colorado, in 
particular, we have many members of the mining industry who 
have been very active, especially in the area of clean coal in 
the western part of Colorado. So I am very much looking forward 
to the presentation of the panel. I applaud our chairman and 
the members of this committee who have pulled together this 
conference.
    The Chairman. Thank you, Senator.
    We are going to proceed, Senator Craig, and you will have 
an opportunity in between here to make a statement. We are 
going to start right down the line this way. Alan Beamon, EIA.

  STATEMENT OF ALAN BEAMON, ENERGY INFORMATION ADMINISTRATION

    Mr. Beamon. Thank you very much. I appreciate the 
opportunity to appear before you today and give our view on the 
long-term outlook for U.S. coal markets. As you said, my name 
is Alan Beamon. I am responsible for the EIA's long-term 
projections for electricity and coal markets. I am joined today 
by two colleagues at the end of the table here, Betsy O'Brien 
and Rick Bonskowski who work on current coal data issues and 
analysis.
    The projections I am going to be discussing are from our 
recently released Annual Energy Outlook 2005. The full report, 
with more than 30 scenarios, is available on EIA's web site 
today.
    Driven by growing needs for electricity generation, total 
coal consumption is expected to increase by 38 percent between 
now and 2025. Overall, coal consumption in the electric power 
sector is expected to grow as existing plants are used more 
intensively and new plants are added. We project that between 
now and 2025, 87 gigawatts of new coal capacity will be added, 
and coal plants are expected to continue to produce roughly 
half the power in the country.
    Increased coal production from the West is expected to be 
the primary supply source for growing power needs. Little 
change is expected in Appalachian coal production. Western coal 
production has been growing steadily since 1970 and is 
projected to continue to grow, especially in the Powder River 
Basin where vast reserves are contained in thick seams 
accessible to surface mining.
    Following a trend that began in the early 1990's, U.S. coal 
exports are expected to continue to decline gradually, falling 
from roughly around 43 million tons to 26 million tons. Our 
coal imports are projected to grow slightly again from 25 
million tons to 46 million tons in 2025.
    Minemouth coal prices are expected to rise in the near term 
because of growing demand and then level off as demand slows 
down until we start building new powerplants. By 2025, we are 
expecting coal prices of a little over $18 a ton.
    That completes my statement. We are certainly able and 
willing to answer any questions that you have.
    The Chairman. Thank you very much.
    Mr. Frank Burke.

     STATEMENT OF FRANK BURKE, VICE PRESIDENT, SCIENCE AND 
                   TECHNOLOGY, CONSOL ENERGY

    Mr. Burke. Mr. Chairman, thank you very much for inviting 
me. My name is Frank Burke. I am vice president of science and 
technology for Consol Energy. We are a major U.S. coal and 
coalbed methane producer.
    Under any foreseeable circumstances, coal will continue to 
be used in the United States and elsewhere as the predominant 
fuel for electricity generation for the next century and 
beyond. With proper investment, domestic coal can meet the 
increasing demand for electricity while satisfying 
environmental and economic goals. Otherwise, we become 
increasingly dependent on foreign sources to fuel our 
electricity supply.
    The recent DOE Annual Energy Outlook underscores the risk 
of failing to make sufficient investment in coal production and 
transportation and use.
    DOE forecasts that by 2025 natural gas will be used to 
generate 24 percent of our electricity, doubling natural gas-
fired generation in absolute terms. Effectively this growth 
will come from imported LNG and imports in total will grow to 
about 30 percent of our total natural gas consumption. How 
ironic to emphasize the need for less dependence on foreign 
energy while making our electricity supply increasingly 
dependent on those same foreign sources.
    The necessity of expanded domestic coal use can first be 
met by assuring regulatory certainty for the criteria emissions 
of SOX, NOX, and mercury to ensure 
continued use of our existing generating fleet and to 
accommodate new coal fuel generating capacity. Enactment of 
provisions such as those embodied in S. 131 would provide this 
kind of certainty.
    Second, advanced clean coal technologies must be developed 
and deployed. We recommend enactment of comprehensive energy 
legislation such as H.R. 6 that provides authorizations for 
coal R&D, the clean coal power initiative, and financial 
incentives for deployment of clean coal technologies.
    Finally, we believe that necessary investments must be made 
in coal transportation infrastructure and particularly the 
locks and dams of the inland waterways that are vital to the 
transportation of 120 million tons of coal annually. Congress 
must appropriate adequate funds and utilize the Inland 
Waterways Trust Fund for this purpose.
    Thank you.
    The Chairman. Thank you very much.
    We are going to now move to David Owens from Edison 
Electric. Thank you very much for coming. We appreciate your 
comments also, sir.

  STATEMENT OF DAVID OWENS, EXECUTIVE VICE PRESIDENT, EDISON 
                       ELECTRIC INSTITUTE

    Mr. Owens. I am David Owens, executive vice president of 
the Edison Electric Institute. I certainly do appreciate this 
opportunity to discuss the future use of coal. Using the poster 
boards that I brought with me, I would like to make several key 
points about current and future coal consumption in this 
country.
    The United States is the Saudi Arabia of coal. Coal is the 
fuel for more than half of our electric generation. As the 
purple area of figure 2 shows, coal is the predominant fuel in 
five of the nine major regions of the country. This is due to 
its reliability, affordability, and fuel source security. In 
addition, even as the industry has significantly increased the 
amount of electricity from coal-fired generators, we have been 
successful in significantly decreasing emissions of sulfur 
dioxide and nitrogen oxide. Controls to reduce these emissions 
also are reducing our mercury emissions by about 40 percent as 
well. Thus, coal can be used to be compatible with our 
environmental goals.
    As you all know, our society is becoming increasingly more 
dependent upon electricity and electricity will continue to 
power our economic growth. As the blue area of figure 1 shows, 
the Energy Administration projects that coal use for electric 
generation will continue to grow. That was certainly the point 
that Alan emphasized. This is true even if there is greater 
market penetration of renewables and other resources that 
increase reliance on natural gas if natural gas prices decline 
significantly. Thus, under any reasonable scenario, coal is 
needed for baseload electricity growth.
    But for the electric industry to be able to depend on coal 
to meet future electricity demand, the industry needs greater 
regulatory certainty in several areas.
    First, our industry continues to be a strong supporter of a 
sensible multi-emissions bill to harmonize overlapping 
requirements to reduce SO2, NOX, and 
mercury emissions.
    Second, as the industry prepares for the construction of 
major new baseload generation, we are also working to improve 
Federal-State cooperation, recognizing that the Federal Energy 
Regulatory Commission, which regulates wholesale power 
transactions, and the States that regulate retail electric 
service and planning and resource adequacy, need some harmony.
    And finally, we support public policies that foster greater 
deployment of advanced clean coal and integrated gasification 
combined cycle technologies. As you know, these technologies 
help reduce carbon intensity and hold the promise of cost 
effective capture of CO2 emissions and provide for 
permanent carbon storage.
    To help to bring these technological improvements to 
market, we strongly support tax credits, accelerated 
depreciation, and other methods. We also support more rapid 
amortization of pollution control equipment.
    Thank you for this opportunity. I look forward to your 
questions.
    The Chairman. Thank you very much.
    We are moving to NCEP, John Holdren. Mr. Holdren, thank you 
very much.

  STATEMENT OF JOHN HOLDREN, CO-CHAIR, NATIONAL COMMISSION ON 
                         ENERGY POLICY

    Mr. Holdren. Thank you, Mr. Chairman.
    This country needs to expand coal use both for electricity 
generation and for reducing dependence on oil and natural gas 
in other applications, but it also needs to take serious steps 
to reduce the risks from climate change. Reconciling those two 
objectives requires a three-pronged approach, as recommended in 
the recent report of the bipartisan National Commission on 
Energy Policy that I had the privilege of co-chairing.
    The first of those prongs is to provide a market signal 
that begins to slow the growth of carbon emissions, but at a 
pace that does not force premature retirement of existing coal-
fired capacity. The commission's proposal for a carbon emission 
permit system that starts in 2010, phases in gradually, and 
controls the permit costs with an initial safety valve price at 
$7 per ton of carbon dioxide is designed to achieve that.
    The second prong is speeding up the commercialization of 
integrated gasification combined cycle multi-purpose coal 
plants which can sharply reduce emissions of criteria air 
pollutants, which offer the potential for affordable, cost 
effective retrofit to capture CO2, and which can 
produce liquid and gaseous fuels, as well as electricity. The 
commission proposes $400 million a year in Federal early 
deployment incentives over the next decade in order to bring 
into operation 10 gigawatts of carbon capture-capable IGCC 
plants.
    The third prong is accelerating the development and the 
commercial scale demonstration of the carbon capture and 
sequestration technologies needed to realize the potential of 
IGCC plants to drastically and affordably reduce their carbon 
dioxide emissions. For that purpose, the commission has 
proposed $300 million a year in Federal support over the next 
decade.
    The commission's analysis indicates that under its 
proposals coal use in the United States would increase from 1.1 
billion tons in 2003 to 1.3 billion in 2020, while U.S. 
greenhouse gas emissions in 2020 would be 540 million tons of 
carbon dioxide equivalent below the business-as-usual 
trajectory.
    I also want to emphasize the commission's proposals are 
revenue neutral. The costs of all of the recommended R&D and 
the costs of the early deployment incentives would be covered 
by the revenues from the emission permit sales.
    I finally want to note that a further benefit of pursuing 
U.S. leadership in advanced coal technologies would be to 
advance the use of those technologies in China and India where 
large impending increases in coal use are going to imperil the 
whole world's capacity to limit climate change risks unless 
that coal is used in ways that capture and sequester the 
resulting carbon dioxide.
    Thank you.
    The Chairman. Thank you. Very interesting.
    Now, you are with the first person here.
    Ms. O'Brien. Yes.
    Mr. Bonskowski. Yes.
    The Chairman. Why did they set you up? Did they think he 
needed your help?
    [Laughter.]
    The Chairman. Jack Gerard, National Mining Association.

     STATEMENT OF JACK GERARD, NATIONAL MINING ASSOCIATION

    Mr. Gerard. Thank you, Mr. Chairman, and members of the 
committee.
    The coal industry is grateful for this opportunity to spell 
out the future role of our Nation's most abundant domestic 
source of energy. This conference is especially relevant to the 
larger question before the Congress, which is how to meet the 
Nation's growing needs for energy in the most environmentally 
and economically responsible way.
    Today coal generates more than half of the Nation's 
electricity and is expected to generate one-half or more of the 
50 percent increase in electric power the country is projected 
to need by 2025. This means electricity generation will require 
at least 1.425 billion tons of coal in 2025, or about 42 
percent more than is used today.
    The factors that account for this resurging coal demand are 
often overlooked, even though they are persuasive to energy 
markets. In a time of growing energy dependence on offshore 
sources, when geopolitical uncertainty and growing demand for 
finite fuels haunts global energy markets, coal provides the 
United States with a 250-year supply of energy safely from 
within our own borders. At a time of energy price volatility, 
the price of coal remains remarkably stable and is expected to 
remain so. EIA projects that coal will maintain its significant 
cost advantage over natural gas well into the future.
    And while the environmental challenges of coal utilization 
should not be overlooked, neither should the impressive 
reductions that coal-fired plants have already made or the 
continuing environmental contribution expected from a suite of 
advanced clean coal technologies.
    For these reasons, coal is and will remain the primary 
provider of electric power to the Nation. The marketplace is 
choosing coal and we hope public policy will support this 
choice to meet the future demand and bring the Nation closer to 
energy independence.
    Thank you.
    The Chairman. Thank you very much.
    Now let us proceed with David Hawkins, NRDC. Mr. Hawkins, 
it is nice to see you again.

 STATEMENT OF DAVID HAWKINS, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Hawkins. Mr. Chairman, it is nice to see you again. 
Thank you very much.
    Coal can continue to play an important role in the U.S. 
energy mix, but public acceptance of new coal investments 
depends on improving coal's environmental performance. In 
particular, attempts to build new coal plants that do not 
control CO2, the global warming pollutant, will 
encounter growing community opposition, along with resistance 
from regulators and investors.
    Global warming is real. It will not go away. Global warming 
policy will change early in the operational life of projects 
that are being planned today. As Excel Energy's resource 
planner stated last month, you would be crazy not to consider 
CO2 costs in planning a new coal plant.
    Now, coal can be made compatible with a safe climate, but 
only if we act without delay to deploy new technologies that 
capture CO2 and keep it out of the air.
    To do this, we urge Congress to adopt a program that 
combines a schedule for binding limits on CO2 with 
substantial financial incentives for the construction of low 
CO2 energy systems, including coal gasification with 
CO2 capture and geologic storage. This program not 
only will put us on the right track to leave our children with 
a safe climate, it will also reduce our dependence on less 
secure sources of energy and it will position U.S. businesses 
to take advantage of an emerging global market for clean energy 
products.
    Thank you.
    The Chairman. Thank you very much.
    Jack. How do you say your last name?
    Mr. Lavin. Lavin.
    The Chairman. Lavin. You are from the State of Illinois?
    Mr. Lavin. State of Illinois.
    The Chairman. What is your title?
    Mr. Lavin. I am the director of the Department of Commerce 
and Economic Opportunity for the State of Illinois.
    The Chairman. All right. Please proceed.

 STATEMENT OF JACK LAVIN, DIRECTOR, DEPARTMENT OF COMMERCE AND 
            ECONOMIC OPPORTUNITY, STATE OF ILLINOIS

    Mr. Lavin. Mr. Chairman and members of the committee, on 
behalf of Governor Rob Blagojevich, I thank you for this 
opportunity to discuss coal and Illinois' innovative efforts to 
cleanly use it. This discussion is quite timely because of the 
high price of natural gas, fertilizer, and transportation 
fuels. Coal is here for the digging and not under the control 
of a government or cartel that may not have America's best 
interests at heart.
    But coal, as we rely on it today, cannot be sustained as a 
reliable source of energy if it goes into aging powerplants so 
old some are eligible for Social Security.
    [Laughter.]
    Mr. Lavin. Any future scenario for coal-fueled energy must 
include a serious, detailed plan with meaningful deadlines to 
replace old, inefficient coal plants. We must not tune out coal 
critics in this regard.
    The Department of Defense recently announced its clean 
fuels initiative to catalyze domestic industries to produce 
military fuels from alternative, secure domestic resources, 
including coal through gasification.
    Coal can also promote food security. High, volatile natural 
gas prices have caused high, volatile fertilizer prices. As a 
result, U.S. fertilizer plants are shutting down, and we now 
import over 50 percent of America's fertilizer needs from the 
Middle East, Russia, and China. America's food security is at 
risk. We need a change in feedstock.
    That is why Governor Blagojevich is supporting at the East 
Dubuque nitrogen plant in East Dubuque, Illinois, a coal to 
corn initiative. We are converting its natural gas feedstock to 
coal to produce fertilizer, ultra-clean transportation fuels, 
and electricity, leading to coal mining jobs, manufacturing 
jobs, and lower cost for farmers, a triple crown, all while 
utilizing clean coal technology.
    Steelhead Energy in Johnson City, Illinois is proposing a 
500 megawatt coal gasification project. They want to make 
substitute natural gas from coal.
    These projects are not dreams. They are America's path to 
energy independence and the security that comes with it. 
FutureGen is also an essential part of this strategy.
    We are, plain and simple, a Nation energized by a fuel mix 
that includes coal, and today we also are a Nation who must 
face up to the challenge of using all of our resources in an 
efficient, effective, and environmentally safe manner. Coal 
must be included in a diversified energy portfolio. We must 
continue developing renewable energy technologies, as we use 
coal gasification to produce ultra-clean, low sulfur fuels for 
transportation, national defense, and electric generation. We 
have a number of items here up for a call to action.
    I thank you for allowing me to give you my thoughts today.
    The Chairman. You are very welcome. You talked about the 
old plants in need of Social Security. Do you think that some 
of them could go into personal accounts?
    [Laughter.]
    The Chairman. They might grow that way. Right?
    Mr. Lavin. I think we need another hearing for that.
    [Laughter.]
    The Chairman. Okay, we will not have an argument over that.
    Who is next? Could you tell us who you are?

STATEMENT OF LUCY QUERQUES DENETT, MINERALS MANAGEMENT SERVICE, 
                   DEPARTMENT OF THE INTERIOR

    Ms. Denett. Yes. Good afternoon. I am Lucy Querques Denett 
with the Department of the Interior's Minerals Management 
Service. Our agency is responsible for collecting coal 
royalties from Federal and Indian lands, and I am here to 
respond to any technical questions that the committee may have.
    The Chairman. Both of you are technical experts?
    Ms. Pierce. Yes.
    The Chairman. Okay. Have you been prompted to give us any 
technical advice yet from what you have heard?
    Ms. Denett. No.
    The Chairman. No? All right.
    Senator, do you want to talk to the witnesses about 
anything or ask the ones who have already appeared and talked? 
Senator Thomas from the State of Wyoming.
    Senator Thomas. Just very briefly.
    Wyoming is one of the largest producers of coal.
    I guess I would be interested in just a general comment of 
what do you think are the current, most difficult obstacles to 
moving toward what you all have talked about to getting coal 
more used, to be able to do other alternatives, and so on. What 
are the principal obstacles that exist? Just very briefly.
    Mr. Lavin. Well, I think one thing is we have a system that 
perpetuates the old coal plants. We have a utility industry 
that is very risk-averse, and so why are they going to invest 
in new technology? We need this new technology for coal 
gasification and sequestration, and if we do not take some of 
those risks, we are never going to get to that point. That is 
the only way the future of coal will be essential to this 
country. Right now we have a system that perpetuates being 
risk-averse and sticking with these old coal plants.
    Mr. Holdren. We also lack a market signal to tell the 
industry that there will ultimately be a price on carbon 
emissions, and the quicker we get that signal, the quicker we 
will make the transition to the advanced coal technologies 
which really are the future of the coal industry in the United 
States and around the world.
    Senator Thomas. What do you think the signal is now?
    Mr. Holdren. There is no signal at all on carbon right now. 
There is no price on carbon. There is no indication of when 
there will be one in the United States. The recommendation of 
our National Commission on Energy Policy is that we should 
announce that there will be a price on carbon starting in the 
year 2010 and gradually escalating, again, as I mentioned in my 
remarks, at a pace that does not force the premature retirement 
of existing coal plants, but which does encourage a transition 
in new plants to ones that can control carbon emissions.
    The Chairman. What do you mean price on carbon? What does 
that mean?
    Mr. Holdren. There would be any number of ways to do it. 
The simplest would be a carbon tax, a tax on carbon emissions, 
but nobody likes the T word. So the proposal of the Energy 
Commission was that you have what is called a cap and trade 
scheme, where you have a target on carbon emissions based on 
carbon intensity of the economy, that is, the ratio of carbon 
emissions to real gross national product, and you allocate 
permits for that amount of carbon emissions and you put a price 
on it.
    The Chairman. Yes, we understand.
    Senator Thomas. There are scientists, of course, who do not 
agree with your analysis.
    Mr. Holdren. Of course.
    The Chairman. I understand now what you are saying, but I 
will tell you what I think it is too. Go ahead, Senator.
    Senator Thomas. Jack.
    Mr. Gerard. Senator, we obviously do not agree with John 
and his view on the carbon question.
    However, I think it underlies a more fundamental point, and 
that is the industry needs certainty. Where we are right now 
under the Clean Air Act and the proposed amendments and other 
things, we do not know what the rules of the game are. If you 
talk about a chilling effect to investment and other things, we 
need to know what the regulatory landscape and the legal 
landscape is going to look like, 5, 10, 15 years down the road.
    We are willing to push hard. We had an unfortunate turn of 
events yesterday on the multi-emissions Clear Skies 
legislation. But that is a perfect example of what we need. 
That bill would cost the industry over $50 billion. Yet the 
industry supported it because it will provide us the certainty 
we need to make those costly investments looking into the 
future to preserve the coal burner.
    Senator Thomas. Mr. Chairman, we are going to have to go 
vote.
    Thank you. Let me just say one other thing, it seems to me, 
one of the reasons we have had gas are the smaller electric 
generating units closer to the market. So we are going to have 
some transmission grid that is going to be able to take this 
to--to build good, efficient coal plants, they have to be a 
little larger than 500 megawatts.
    The Chairman. Well, I asked about price. I understood your 
very direct approach to the trading and the tax. But also, when 
you have a regulatory scheme in place that is reasonable and 
implemented over time, that will also be a price. The price 
will be the cost versus doing business. And you will have to 
invest in it to get there, and that is the price. That is part 
of what we are looking at too.
    One last before I go, Mr. Hawkins.
    Mr. Hawkins. Well, unusually I would like to agree with 
Jack Gerard on his point about the value of regulatory 
certainty. This is an important feature and it is especially 
important for carbon dioxide. If you are planning a powerplant 
today, that powerplant is probably not going to be on line for 
10 years. If you think that policy may change sometime in the 
next 15 years, that means that powerplant is only going to be 5 
years old when the policy has changed. That is not a situation 
that is going to encourage people to put $1 billion in a new 
coal plant. You need to know, and if you set the rules now, you 
can give the industry 15 years of lead time. If you wait for 10 
years of political pressure to build, then you are not going to 
have anywhere near that lead time. You are not going to have 
the business certainty, and you are going to have a lot of coal 
plants built that are not designed to deal with CO2.
    The Chairman. I am going to go and Senator Craig is going 
to take over.
    I want to just make this last observation. This committee 
does not have jurisdiction on the Clear Skies and the 
regulatory schemes, but we have an energy bill. It is going to 
get to the shore, I am sure. If the Environment and Public 
Works Committee does not get one out, we are going to be 
confronted with the issue sooner or later. So we hope they get 
one and we hope you continue working on it.
    My question has to do with the investment in technology. 
Everybody says we must invest in the technology and somebody 
said we should be putting up $400 million a year. I hope you 
have told us for the record what companies are investing in 
research and development for new technology. They certainly 
cannot leave it all up to us.
    And secondly, since the research has to be kind of 
consolidated, not just one research, but you cannot have every 
company doing the kind of research with the kind of dollars we 
need in it. I wonder if there has been any scheme heretofore 
where money would be pooled from the companies to do concerted 
research, and I would like to kind of know about that. But if 
you would state for Larry while I am going, and he will take 
over and finish you and take the next panel.
    Mr. Burke. There is, in fact, a process that has been 
ongoing for some time with industry and the Government to 
develop a road map for clean coal technologies and to establish 
a cost estimate for the ability to follow that road map with 
specific performance goals. It is the combined Coal Utilization 
Research Council, Electric Power Research Institute, and the 
Department of Energy to put this road map together. It 
estimates a cost of about $10 billion over 20 years to develop 
technologies that meet specific energy efficiency and 
performance goals. It includes efficiency as well as criteria 
pollutants and carbon management goals.
    I think the issue with respect to uncertainty and carbon is 
importantly linked to the availability of technology to deal 
with carbon emissions on a large scale in contrast to 
technologies for sulfur and nitrogen control, which have been 
around and developed and are relatively mature technologies. 
There is a great deal of uncertainty about the feasibility of 
carbon control at the kind of scale that would have to be done 
not only in this country but worldwide if carbon sequestration 
is in fact the answer to dealing with the carbon issue. The 
quantities of carbon that would have to be dealt with are very 
large, and the necessary technology for capture of carbon and 
principally for the storage or sequestration of carbon is very 
immature technology.
    So the risk associated with any policy that would assume or 
demand the use of that technology in the future I think is very 
imprudent at this point. We need to do the research. We need to 
develop the technology. We need to know how it works and what 
it is going to cost before we make significant public policy 
decisions regarding carbon management.
    Senator Craig. Jack.
    Mr. Gerard. I was just going to comment to Chairman 
Domenici's question about pooling resources to help in the R&D 
side of this. Thinking of the history of the clean coal 
technology program, we spent about $5.2 billion since its 
inception in the mid-1980's. About $3.5 billion of that has 
come from the private sector. Now, a lot of those are one-off 
different R&D efforts, but there has been a tremendous amount 
of R&D to date from the private sector, in cooperation in the 
public/private partnership.
    The other one now that the President has proposed is the 
FutureGen initiative. We have gotten together an alliance of 
coal producers and the major utilities and we are committing 
and we are in the process now of working with the Department of 
Energy to commit upwards of $250 million to look at a 
gasification platform that would help us capture carbon and 
hopefully sequester carbon, at the same time create a stream of 
hydrogen. So I think that is one good example where the 
Government has stepped forward in some of these high-risk 
ventures and has been willing to bring some money to the table 
and, in turn, has incentivized the private sector to try to 
match it where possible.
    Senator Craig. Jeff, do you have any questions of this 
crowd?
    Senator Bingaman. I do not.
    Senator Craig. Let me venture into the area of tradeable 
credits. Senator Hagel has introduced legislation that I am 
supportive of that offers that. I have looked at that and 
talked about that in the past, offering a clear alternative I 
think to some legislation that is venturing around out there. 
Establishing its value downstream in future use and future 
technology I think is the concern we have. I say that in light 
of the risk of caps driving a market in the wrong direction 
without reasonable alternatives and without the technology in 
place to sustain the current energy base.
    Would any of you like to visit about that for a few 
moments? Tradeable credits, yes. David?
    Mr. Hawkins. Thank you, Senator.
    The thing that is very good about the cap and trade 
mechanism is that it is flexible not just as to compliance but 
also as to timing. So it is possible for you in the Congress 
today to adopt a schedule that is far enough in the future in 
terms of significant constraints that you will create the very 
market signal that is needed to drive this technology. That is 
what is going to mobilize private sector resources more than 
anything else, more than a subsidy program, more than an R&D 
program. It is a signal that there is a market out there for 
money to be made.
    If you set a schedule now, you can set it 10-15 years in 
the future. As I said before, if you wait until pressure builds 
and until the consequences of global warming are so 
indisputable that all of you will agree that it is here and 
that we need to react quickly, then that lead time will shrink 
and you will not have used the time that we have right now to 
create those market signals and to drive technology 
improvements.
    The technology is there. What it needs is optimization, and 
you will get that optimization by applying it in real-world 
commercial-scale operations. You will not get it by doing it in 
the laboratory.
    Senator Craig. Does anyone else wish to comment? I am not 
talking capping. I am talking about building trading at this 
moment, credits if you will.
    Mr. Gerard. Senator, let me make a general point. We 
obviously do not necessarily agree with David in terms of the 
cap question. If you look at what is going on in the 
marketplace now, in the last year there have been 118 proposed 
coal-fired powerplants. That is more than we have had in the 
previous decade. So I believe the marketplace is beginning to 
drive in the direction of coal-fired power, and there is a lot 
more talk now about IGCC technologies and others that David and 
others now support in terms of being carbon-capable, et cetera.
    But I think there is also enough unknown out there right 
now that there is the potential, if we go too far with a 
mandatory cap or anything along those lines, than we are going 
to send a chilling effect to the marketplace. I see some of my 
friends from General Electric and others here who are very 
active in this area now who are looking at that marketplace. I 
think we need to be very, very careful in any deliberation or 
signal that you send from the Congress as it relates to carbon 
for fear that we might chill the current interest, if you will, 
in moving to cleaner technologies and moving down that road.
    Mr. Owens. And I would agree with Jack. The attitude 
certainly of the electric power industry is that a voluntary 
approach is preferable. I do disagree with David. If you assess 
what has taken place in the industry today, something like 
20,000 megawatts are currently on the drawing board. There is a 
clear commitment in the industry to build baseload coal-fired 
powerplants. I think if you sought to have a mandatory cap and 
trade program, that would certainly have a very chilling impact 
on the industry.
    David also talked about the need to mobilize technology, 
something that we are very, very much in support of, but I 
certainly do agree with Frank that these technologies are 
evolving aggressively and it does require significant 
commitment on the part of industry and the Government for 
research, development, demonstration, and deployment.
    I do not agree with David that these technologies are fully 
mature today, and that is really where the uncertainty lies.
    Mr. Holdren. If I could just add a point or two here. 
Certainly there are some disagreements in emphasis, but I think 
there is actually more agreement around the table than perhaps 
is apparent at the moment.
    I think we all agree that advanced technologies are crucial 
to the future of coal in this country and around the world. I 
think we all agree that we need both more research and 
development and demonstration to understand exactly what the 
mix of technologies is going to be and exactly how well they 
are going to work and exactly what they cost.
    When David talked about what we have and what we need, he 
said we need to optimize those technologies further. The 
technologies are out there. Many of them are on the shelf, but 
they, nonetheless, need further effort at optimization.
    The principal problem is that coal-burning powerplants 
operate for 40 or 50 years. If, over the next 10 or 15 years, 
we build in the United States another 80 or 100 powerplants, 
China builds another 300, India builds another 80, and most of 
them are pulverized coal conventional powerplants, and if in 
2015 or 2020 the world has reached the conclusion that carbon 
capture and control is essential, we are going to have locked 
in, in those hundreds of pulverized coal plants that are not 
amenable to retrofit to capture carbon, an immense amount of 
additional carbon dioxide emissions to the atmosphere that we 
will wish we were able to affordably avoid.
    That means we as a society have a strong interest in 
accelerating the rate at which those advanced coal technologies 
that can capture carbon are brought into commercial operation. 
That is what the National Commission on Energy Policy is 
recommending this multi-pronged strategy to achieve, not a cap 
in the sense that we put a limit on carbon dioxide at the 
current level and say you cannot go any higher than that. We 
are proposing a market signal with lots of lead time that 
starts to bend over the growth curve, but does it at a rate 
that does not end up stranding assets in terms of large numbers 
of existing powerplants that become uneconomical, does it 
gradually, but combines the market signal with increased 
efforts at research and development and demonstration to make 
sure that the technologies come on line quickly enough to 
provide us the carbon capture benefits that we need.
    The Chairman. So, David, timing is everything. What kind of 
timing are you talking about? What is realistic here in your 
mind?
    Mr. Hawkins. We think that we could get a handle on the 
global warming problem with a schedule that is not that 
different than the President's voluntary initiative but that 
continues. As you know, the President's initiative says slow, 
stop, and then reverse growth in emissions. He calls for a 
slowing between now and 2012. If emissions slow more than 
business as usual between now and 2012, if they plateau in 
2012, and then if they begin to decline, we think that that is 
a schedule that provides lead time and one that would allow us 
to preserve for our kids a safe climate.
    If we go beyond that, we think we are going to wind up 
missing an opportunity to affect the design of these 
powerplants that are in the pipeline and so load up the 
atmosphere that your successors in the Senate will have no 
choice but to either select a very disruptive program to 
address this problem or to let the problem go in a manner that 
is going to have profound risks to the environment, to human 
health.
    The Chairman. Frank, I think we are going to give you the 
last word. Please, and then I will turn to Senator Bingaman for 
a question.
    Mr. Burke. Thank you. I just want to dispute one notion I 
think that has been laid here, that is, that IGCC or 
gasification technology is the only pathway to CO2 
control. I think it is a very important distinction because it 
is at the heart of a lot of what we have heard, that we need to 
replace these existing plants because they are incompatible 
with the CO2-constrained future, which I do not 
believe is true. There are technologies that can be used to 
remove CO2 from flue gas at combustion sources. The 
Department of Energy, as part of this road map that I am 
talking about, has plans and projects underway to develop 
CO2 capture technology for combustion sources and to 
bring the cost of that down to the point where it would be 
comparable to what we would expect with IGCC.
    I think that has two benefits. First of all, it broadens 
the scope of technologies or the portfolio of technologies that 
we can allow the marketplace to choose in building new plants, 
and secondly, it opens up the possibility for application of 
these technologies to existing plants not only in this country 
but throughout the world.
    We may be able to replace much of our existing capacity 
with IGCC over time in this country. But, quite frankly, the 
Chinese are using 1.5 billion tons of coal a year now. They 
expect to use 2 billion tons of coal a year by 2020. They 
expect to use 4 billion tons of coal by 2040. They are not 
building IGCC's. They are building combustion sources.
    So a strong program to develop technology that deals with 
all sources, combustion, as well as gasification sources, is 
extremely important, I believe, if there are going to be carbon 
constraints and we are going to deal with this in an 
international fashion. It would have to be done if it is going 
to be meaningful.
    Thank you.
    Senator Craig. Senator Bingaman.
    Senator Bingaman. I was just going to ask either David or 
John to comment as to whether the development of sequestration 
and capture technology is sufficiently mature, whether or not 
this is a constraint on our ability to meet the deadlines that 
David just talked about, or if we can do a lot of these IGCC 
plants and if we do not have a way to deal with the carbon, 
have we solved the problem?
    Mr. Hawkins. I will start, Senator. I have come to believe, 
after studying this pretty intensively since 1997, that we do 
have enough information to regard geologic storage as a safe 
option. We have got some important experience.
    We are, as you know, in your own State injecting 
CO2 for enhanced oil recovery operations. Those 
operations are not being monitored as adequately as we think we 
need in a future system.
    In Wyoming, we have the La Barge natural gas processing 
plant which is separating CO2 out from the natural 
gas there, pipelining it for enhanced oil recovery in Wyoming 
and Colorado.
    In North Dakota, we have a coal gasification plant which is 
stripping out CO2 and pipelining it north to 
Saskatchewan for injection into enhanced oil recovery 
operations. That one is very well monitored, and the 
CO2 is behaving as the experts say it will behave 
underground.
    In addition, we have experience under the seabed off the 
coast of Norway that has been operating for 6 years and 
injecting about 1 million tons of CO2 a year, very 
carefully monitored, and the experience is proving out the 
theory.
    British Petroleum, BP, has started injecting CO2 
into a large, new natural gas field in Algeria.
    Chevron-Texaco has plans to do the same in Australia.
    So we are accumulating experience monthly that is 
dramatically increasing the likelihood that we can do this.
    We think we should accelerate that. We think we should 
initiate some programs without additional delay, but we are 
confident that these storage systems will be ready when the 
gasifiers are built.
    Mr. Holdren. If I can add very briefly to that. As David 
says, it is happening in a number of places around the world, 
but at the same time, it is not mature, and that is why we in 
the National Commission on Energy Policy recommended a 
substantial infusion of funds to accelerate the development and 
the demonstration of these approaches so that they will be 
ready.
    I hope Frank is right in his comments about the potential 
advances in removing CO2 from flue gases. It will be 
wonderful if those bear fruit. There are some rather 
fundamental chemical engineering reasons that it is going to be 
very difficult to make flue gas removal of carbon dioxide 
economically competitive with what IGCC can do. We cannot go 
into those here, but it is a great challenge. At the same time, 
it would be a great thing if those results bear fruit and we 
have more than one way to address the carbon dioxide emissions 
of coal-burning powerplants.
    I want to say one word about China. China is building a lot 
of pulverized coal plants, but they are also building IGCC 
plants. What the mix is going to be is under continuing review. 
We, in my group at Harvard, have a cooperative project with the 
Chinese Ministry of Science and Technology and with the Beijing 
Clean Coal Technology Institute, and we think that there is a 
very considerable chance, if the United States takes a forward-
leaning role on IGCC, that we will change the trajectory in 
China as well and increase the chance that they too will build 
more IGCC plants and fewer pulverized coal plants in the years 
ahead.
    Senator Craig. All right. We are going to give you the last 
word, Jack.
    Mr. Lavin. Sure. I think back to what Mr. Gerard said. I 
think FutureGen is a key project that the Federal Government 
needs to move forward on. They have delayed it. Talking about 
partnerships, the State of Illinois is ready to invest tens of 
millions of dollars in FutureGen along with private sector 
companies, the Federal Government, if they can move this 
forward, and the Department of Energy. It is a key thing. It is 
sequestration. The State of Illinois is ready to move forward 
tomorrow on this and we are doing pilot projects later this 
spring on sequestration. Our State Geological Survey--we have 
the infrastructure to do it in the State of Illinois, and I 
think this is an important project. It relates to what 
everybody is saying here, and we need to move forward with it 
as soon as possible.
    The Chairman. Thank you very much.
    Senator Bunning, did you want to make any observations? The 
amendment that is up now is the Talent amendment, if you have 
not voted. Senator Allen, did you vote on that?
    Senator Allen. Yes, sir.
    The Chairman. So did I. So did you, Lamar. Senator Bunning 
did also.
    Senator Bunning. Mr. Chairman, since I am coming in in the 
middle, I am going to just listen for a while and see where we 
are. I know how important clean coal technology is because of 
the bill that we had on the floor last year, and I want to see 
to it that we do the best we can. I am also very interested in 
FutureGen because it is very important to Kentucky and 
surrounding States.
    Thank you.
    The Chairman. Thank you very much.
    Senator Allen, did you already get to comment or would you 
like to comment or ask questions now?
    Senator Allen. No. My sentiments are exactly the same as 
Senator Bunning's. It is good to see Consol here and thanks for 
your investment in Virginia.
    [Laughter.]
    Senator Alexander. I would like to say the same. I regret 
my absence because we were voting. No subject interests me more 
right now. I know the same is true with other Senators here 
because we have talked about it in trying to understand how the 
Federal Government can properly encourage clean coal 
technologies, especially coal gasification and eventual carbon 
capture in an appropriate way. So I will read this and I intend 
to listen, and I thank you for being here.
    The Chairman. Well, I am going to close this and take the 
next panel.
    But I just want to make an observation for those who are 
wondering about the next 25 years. It is pretty obvious that 
America is not going to stop using electricity, and it is 
equally obvious that we are going to find the energy to develop 
electricity. For those who are interested in coal playing a 
role in that expanded growth, it is quite obvious that we have 
got to do something about the technology of cleanup because the 
alternative is clearly going to be minimal growth of coal and 
maximum growth of gas.
    You might say which gas. Well it will not be American gas. 
It will be LNG. That is already predicted by most people that 
for all the energy coal proponents are exerting, that they will 
not get there and that LNG will. There are already applications 
for new terminals.
    I am very hopeful that we will find some prudent way to 
develop the standards or whatever regulatory process we are 
going to have so that coal can develop the technology and the 
cleanup in a regular way with the expenditure of dollars by 
industry and Government in a manner that is understood and is 
bound up in some kind of reliability and credibility. If not, 
we will pass an energy bill with new protection for the grid, 
new reliability standards, new push for investment in the grid 
and in power, but in an energy bill we cannot solve the problem 
of what happens to coal if we do not get some standards and 
rules set up somewhere.
    It is not our job. If they send it over to us--I am not 
asking. They would not. That is another committee, but we would 
work our way through it, but they have a tough time too. It is 
9 to 9 in that committee, I think you know that. I hope they 
can work something out.
    But that is my analysis. I have seen the best we can have 
and it will be some more coal. 12 years from now, 15, some new 
nuclear powerplants. In any event, there will be some more coal 
or some old coal will be going out, but you will not get the 
maximum amount unless we do something in the area we have been 
speaking of. I am quite certain of that.
    Thank you all very much.
    Senator Allen. Mr. Chairman?
    The Chairman. Yes.

         STATEMENT OF HON. GEORGE ALLEN, U.S. SENATOR 
                         FROM VIRGINIA

    Senator Allen. Mr. Chairman, let me, as a new member of 
this committee, thank you for all your leadership the last 
several years on this. It is very important issue from our 
perspective. The chairman has been more patient than anybody 
could tolerate in the last few years and just a few votes short 
on this in the past.
    Obviously, we are the Saudi Arabia of the world with coal. 
Clean coal technology is absolutely essential. The liquefied 
natural gas and natural gas production does need to increase, 
but in my view that should be going into tire manufacturing 
plants, being used in chemical, fertilizer manufacturing, paper 
plants and not for electricity generation. It would be like 
using this bottled water to wash your dishes in my view to be 
using natural gas to generate electricity. It is a great fuel 
and we need to be, as quickly as possible, going forward with 
clean coal technology and nuclear, as well as getting the 
repository issue decided on nuclear. That is where this country 
will be competitive.
    This energy bill, of all the bills that we are going to 
deal with, will help create more jobs. It will be most 
meaningful for the security of this country, and it also 
ultimately affects the competitiveness of our country whether 
one is a technology company, a manufacturer, no matter what.
    So coal, Mr. Chairman, you are exactly right, has to be the 
key. We are going to have the votes I know with your leadership 
to drive to get this done this year, and you all will be a key 
component of it.
    I know that Senator Alexander agrees with me that we need 
to be looking at new technologies so it is burning cleaner, but 
also using that resource and do not use natural gas on 
something such generating electricity when we have other better 
ways of generating it.
    Thank you, Mr. Chairman.
    The Chairman. I am going to close by saying the one thing 
we do not talk enough about--and I urge that you all do it. I 
urge that you use the numbers too. Figure them out. Our balance 
of trade--everybody is worrying about it--is dramatically 
affected by the fact that we import so much energy. A million 
barrels of oil a day imported per day per year is $18 billion 
added to our balance of trade. That is pretty good. Conversely, 
if you save it, you diminish the value of the balance of trade 
by $18 billion. The same will be for LNG. It is the same thing. 
You import it. The money is gone. The balance of trade is 
affected. So those who say it is not very big economic issue, 
it is a pretty big one.
    We thank you very, very much. Now we will take a 2-minute 
break while we switch, and thank you all again.
    [Pause.]
    The Chairman. Mr. Hawkins, we thank you because you are the 
only major environmental group that responded. So we are giving 
you double duty. Is that all right?
    Mr. Hawkins. That is fine with me, Senator.
    The Chairman. I am not critical of anybody. I am just 
stating the truth.
    Let us start on this side. Could you tell us what does 
Clean Energy Systems mean?
    Mr. Pronske. Clean Energy Systems is a company in 
California that believes that you can make power without 
pollution from fossil fuels.
    The Chairman. And how do you say your last name?
    Mr. Pronske. Pronske.
    The Chairman. All right. Mr. Pronske would you proceed 
under the rules. They are the same rules now as we have had.

        STATEMENT OF KEITH PRONSKE, CLEAN ENERGY SYSTEMS

    Mr. Pronske. Yes, sir. Thank you, Mr. Chairman and members 
of the committee.
    To the question at hand, we believe the primary challenge 
to the future use of coal is the need to eliminate all of the 
adverse environmental impacts from coal combustion. We know how 
to clean up coal, but with today's technology, the cost of 
cleanup is simply too high.
    To meet this challenge, our company and others are 
developing technologies that will lead to cost-competitive coal 
plants with no atmospheric emissions. The future coal plant 
will not have a smoke stack. It will have coal and air going in 
and it will have electricity, captured carbon dioxide, and 
other useful byproducts coming out. But to achieve this goal, 
there is a need for short-term support for what is known as 
climate-neutral combustion technology, or zero emissions fossil 
fuel.
    The regulatory challenge is that today in the United States 
there are no regulatory incentives for zero emissions fossil 
fuel. Other countries do provide this support and we should 
follow their lead.
    We have made two specific proposals to this end. We suggest 
an expansion of tax credits to clean energy, as well as 
renewable energy, and we believe any discussion of portfolio 
standards should address clean energy such as zero emissions 
coal plants, as well as renewable energy.
    In California, we now operate the world's cleanest natural 
gas-fired powerplant. Our goal is to have zero emissions from 
this plant by the end of this year.
    The Chairman. How big is that plant?
    Mr. Pronske. It is a 5 megawatt plant that we started up 
actually in December and started making electricity just last 
week. Our goal is to have that be a zero emissions powerplant 
by the end of this year, and collectively, we can do the same 
with powerplants fueled with coal.
    Thank you.
    The Chairman. I know you have got a long way to go with 
that technology. What is the estimated cost?
    Mr. Pronske. Where we are at today and the dilemma that we 
have is that anytime you deploy a new technology, it is not 
going to be the cheapest unit. So today we can make zero 
emission fossil fuel at about the cost of wind power, certainly 
lower than solar. Where we want it to go, though, our goal, is 
coal plants without smoke stacks with the cost of electricity 
below 4 cents a kilowatt hour. And we think we could have a 
coal plant going in a 3- to 5-year time frame at our small 
demonstration facility.
    The Chairman. Very good.
    Let us proceed to Columbia University, Klaus Lackner.

        STATEMENT OF KLAUS LACKNER, COLUMBIA UNIVERSITY

    Mr. Lackner. Thank you, Mr. Chairman. Thank you, members of 
the committee, for this opportunity. I am Klaus Lackner at 
Columbia University. I am also a longtime scientist.
    Coal in the United States is exceedingly plentiful and 
cheap. Coal produces most of the electricity and coal could, if 
called upon, replace oil and gas at prices which in my mind 
surprisingly are not that different from today's.
    Unfortunately, environmental concerns will limit the use of 
coal unless steps are taken to overcome this problem. The most 
difficult challenge is carbon dioxide. Stabilizing 
CO2 in the air is tantamount to stopping emissions 
regardless of the stabilization level we aim for. So you may 
buy some time but not much, depending on what the level is. 
Coal powerplants must capture and dispose of their 
CO2.
    The good news in my mind is that technology solutions exist 
and better ones are on the drawing boards. The Zero Emission 
Coal Alliance some years ago had the first sketch of a 
powerplant that put a lid on the stack, collected all of the 
CO2, and showed how you can get to extremely high 
efficiency. Not quite that much efficiency you can have today. 
So these solutions exist. The CO2 you have you can 
put underground in enhanced oil recovery and after that inject 
into deep underground reservoirs. Ultimately you can bind that 
carbon dioxide chemically in minerals, what I refer to as 
minerals sequestration. That technology, not quite ready for 
prime time, would give you unlimited supply and capacity to put 
the CO2 away.
    Finally, in the end coal would compete well in a world with 
strong carbon constraints. It would not do so well in a climate 
of uncertainty and with vague limits. Coal and the environment 
need not to be in collision. What it will take is a vision that 
understands the size of the challenge, putting a price on 
carbon, starting sequestration soon, and provide a climate that 
fosters innovation and research. After all, we are inventing a 
brand new technology of carbon management.
    And I thank you for your time.
    The Chairman. Thank you very much.
    Now we are going to go to FMEA. Bob Koppelmann.
    Mr. Koppelmann. Koppelmann, yes.
    The Chairman. Please tell us what are you, FMEA?
    Mr. Koppelmann. Yes. That is the Florida Municipal Electric 
Association.
    The Chairman. Okay.

    STATEMENT OF BOB KOPPELMANN, FLORIDA MUNICIPAL ELECTRIC 
                          ASSOCIATION

    Mr. Koppelmann. Chairman Domenici and members of the 
committee, thank you for the opportunity to give us a chance to 
provide our thoughts on the challenges facing future use of 
coal.
    FMEA utilities provide electric service to 2.8 million 
Floridians, with 60 percent of our energy coming from clean 
coal generation. We wish to highlight three issues today.
    A major barrier to maintaining coal as a key component of 
our energy mix is basing air quality standards for coal-fired 
generation on the environmental performance of natural gas. 
These energy-neutral standards penalize coal to the point of 
forcing fuel switching to natural gas and constitutes a major 
challenge to building new coal-fired plants.
    Second, the Department of the Interior's Federal land 
managers have developed visibility assessment criteria that are 
so stringent that proposed new coal-fired plants, locating 
within 100 to 200 kilometers of a class 1 area, are not able to 
pass the visibility criteria, even after employing best 
available control technology, inhibiting the construction of 
even natural gas plants, and in the West, they are holding up 
permitting for oil and gas drilling. These criteria should be 
reviewed and revised to reflect the 50 to 70 percent emission 
reductions that will occur due to the adoption of the CARE 
rule.
    Our final point is the need to involve multi agencies in 
assessing both environmental and health effects research, 
bringing valuable and differing perspectives to answering 
critical environmental questions. For example, for 10 years, 
EPA has focused on the size and quantity of particles and not 
the chemical composition. The Department of Energy saw a hole 
in this research and has funded PM Speciation Research at their 
national energy technology laboratory. The OMB has indicated in 
the 2006 budget that they will cut the research in this area. 
We believe this is exactly the wrong the answer, and we believe 
that DOE must be involved in speciation and mercury research.
    In conclusion, I would like to emphasize that the 
environmental standards for coal-fired generation must be based 
on the best performance possible by coal-fired generation and 
not that of gas-fired generation.
    Thank you.
    The Chairman. Thank you very much.
    Bret Clayton, nice to have you here.

 STATEMENT OF BRET CLAYTON, PRESIDENT AND CEO, KENNECOTT ENERGY

    Mr. Clayton. Nice to be here. Thank you for inviting me Mr. 
Chairman. I am Bret Clayton, president and CEO of Kennecott 
Energy. Kennecott Energy is one of the largest coal producers 
in the United States. We have operations in Colorado, Montana, 
as well as we are headquartered and have operations in Wyoming. 
Last year we produced about 130 million tons of coal that was 
converted into approximately 6 percent of the Nation's 
electricity supply.
    Today I would like to focus my comments on the development 
of technologies, technologies that will support the continued 
improvement in the environmental performance of coal, and 
thereby ensure coal as a long-term secure and affordable energy 
source as part of a diverse portfolio of energy sources.
    If the United States is to maximize its extensive coal 
reserves, continued environmental performance improvement will 
be required, and we believe that these efforts will need to be 
expanded to include cuts in CO2 emissions.
    In the short term, however, we believe the United States 
needs to focus on continuing improvement in conventional 
pollutants. We believe that reforming the Clean Air Act is an 
important part of that and that this will help accomplish more 
rapid and in a more cost effective manner these emissions 
reductions in existing law. Kennecott Energy also believes that 
market-based mechanisms like trade and cap programs are the 
best and most effective ways to reduce emissions.
    However, our long-term efforts need to focus on near-zero 
emissions technologies. Although these efforts will not be felt 
immediately, we believe that action is required now and that we 
cannot delay any longer taking action or these technologies 
will not be available when they are required.
    Carbon capture and storage is an important one that has 
been identified. I think we are all familiar with that and its 
aspects, so I will not go into the details.
    But we believe that a good example of the partnerships that 
we need to put together, FutureGen is one of them, and 
Kennecott Energy is a founding member of the FutureGen Alliance 
and supports the President's proposed budget that fully funds 
this program.
    While FutureGen is a good project and worthwhile on its 
own, we do not believe it is enough. The ultimate viability of 
this technology will require many more large scale 
demonstrations, and we believe that it is, therefore, essential 
that the DOE act in a leading role not only domestically but in 
international forums in pushing this forward. Public acceptance 
of this technology should not be--this is an issue that I think 
we should not dismiss as it is going to be a big issue that we 
will have to make sure that we have the public----
    The Chairman. Will you take your last two sentences and 
state them over again?
    Mr. Clayton. Yes. FutureGen is an important project, but in 
itself it is not enough. We need to make sure that we have 
multiple large-scale demonstrations that will help overcome 
public issues that the public might have with this technology 
and demonstrate the viability and the long-term nature and 
safety of carbon capture and storage. We think that this needs 
to be done not only domestically, but needs to be an 
international effort to do so.
    I think my time is up. I will just say there are many ways 
to do this but we believe that action needs to be started now 
in order to address these issues in an appropriate time frame.
    The Chairman. All right.
    Now, you are both technical experts here to help us. Is 
that correct?
    Mr. Craynon. That is correct, Mr. Chairman.
    The Chairman. So far we have not asked you. So if you will 
just sit there, maybe we will.
    We are coming over here now to IMCC, Greg Conrad.

 STATEMENT OF GREG CONRAD, ON BEHALF OF THE INTERSTATE MINING 
 COMPACT COMMISSION AND THE NATIONAL ASSOCIATION OF ABANDONED 
                       MINE LAND PROGRAMS

    Mr. Conrad. Thank you, Mr. Chairman. I am here representing 
the Interstate Mining Compact Commission and the National 
Association of Abandoned Mine Land Programs. Together these two 
organizations represent all of the States who exercise primary 
regulatory authority for coal mining operations within their 
borders under the Surface Mining Control and Reclamation Act.
    As we focus on the future of coal and the role it will play 
in our Nation's overall energy picture, the States continue our 
efforts to address the impacts from both current and future 
coal operations on the environment and on public health and 
safety. In this regard, we strive to operate high quality, 
comprehensive programs that will ensure that we achieve the 
necessary balance between our need for coal as a critical 
energy resource and the protection of the environment.
    We also remain focused on the legacy of past coal mining 
operations and the impact of abandoned and inactive mines on 
the health and safety of our citizens. We are advocating, for 
your serious consideration, two proposals that address these 
matters: one, the reauthorization of the authority to collect 
fees from coal operators that support the Abandoned Mine Land 
Reclamation Fund and adequate funding for State regulatory 
programs. As you know, authority to collect fees under title IV 
of SMCRA will expire on June 30 of this year, and so we are 
under the gun to resolve this critical issue so that the 
thousands of high priority AML sites that threaten coalfield 
citizens will be remediated. We urge the committee and the 
Congress to work again with us to accomplish this legislative 
priority.
    As we consider the potential for increased coal production 
and use, I want to highlight the importance of adequate annual 
funding for State regulatory programs. It is these programs 
that address the environmental impacts associated with coal 
production through permit approval and effective inspection and 
enforcement. When we commit the resources necessary to support 
strong and effective State programs, we can achieve the balance 
we desire between developing our Nation's most abundant energy 
resource while protecting our citizens and the environment.
    Thank you.
    The Chairman. Thank you very much.
    I am very sorry. I missed what IMCC is. I apologize.
    Mr. Conrad. It is a State government organization 
representing the agencies that regulate the mining industry.
    The Chairman. Thank you very much.
    Mr. Habicht.

STATEMENT OF HANK HABICHT, COMMISSIONER, NATIONAL COMMISSION ON 
                         ENERGY POLICY

    Mr. Habicht. Thank you, Mr. Chairman, Senators. I am Hank 
Habicht and I am appearing today as a commissioner of the 
National Commission on Energy Policy.
    The commission conducted thousands of pages of studies and 
analyses over the last 3 years focusing on the economic, 
security, and environmental challenges across our entire energy 
system. Among many conclusions, we concluded that coal has been 
and must continue to be an important component of our national 
energy system going forward.
    Now, on the environmental issues, coal does face three 
categories we found of environmental challenges. First are the 
conventional air pollutants that come from combustion. Second, 
the upstream impacts we just heard a bit about on land and 
ecosystems from coal mining practices, and then third, carbon 
emissions from coal.
    We addressed these in turn. After a lot of analysis, a lot 
of debate, a lot of back and forth, we came up with a 
comprehensive set of recommendations looking across the energy 
system.
    With regard to coal, we concluded that all these 
environmental issues are addressable through the kind of 
technologies, management practices, and market-based trading 
systems that we have experience with in this country and that 
can be implemented, including a market-based carbon emission 
permit system that Professor Holdren described in the last 
panel.
    I would add that we spent a lot of time also understanding 
an issue that was talked about in the first panel, which is the 
critical need for certainty for investment. These are long-term 
investments and we need as much regulatory certainty as 
possible to stimulate investment.
    Just briefly, with regard to conventional pollutants, we 
strongly concluded that there is a need for legislation that 
provides for multi-pollutant controls and a firm, predictable 
schedule of emission reductions consistent with the 
environmental requirements and system reliability and also that 
uses market-based approaches. So that is conventional 
pollutants.
    With regard to upstream impacts, we commissioned a number 
of studies, and I have had some experience on the enforcement 
side of this area over the years. We believe that those impacts 
can be addressed and are in the process of being addressed.
    Third, with regard to carbon impacts of coal, we have heard 
a bit about a number of different ways to address this. We 
believe that a phased intensity-based carbon emission permit 
system can address this issue if it is coupled with a 
reasonably aggressive public/private investment program we 
believe. And we recommend a public investment in 10 gigawatts 
of early installation of IGCC capacity and a comparable amount 
of investment in carbon capture and sequestration technology. 
Very important. And our recommendations are revenue-neutral 
which we can get into.
    But just in the interest of time, I would say that we have 
experience with national market-based trading programs. We 
believe that the market signals and the time frames of this 
trading program can stimulate the kind of investment on the 
time frames we need in IGCC and sequestration on their own 
tracks but on coordinated tracks because IGCC that is carbon-
capture-ready is a way to move forward with this technology. We 
believe that by moving forward in this way, coal can continue 
to play a very important role in our energy future.
    Thank you for you time.
    The Chairman. Thank you very much.
    Now, Mr. Hawkins.

 STATEMENT OF DAVID HAWKINS, NATURAL RESOURCES DEFENSE COUNCIL

    Mr. Hawkins. Thank you, Mr. Chairman.
    Coal has many impacts on the environment. I will 
concentrate on global warming.
    Global warming is a different kind of problem, first, 
because of the tremendous damage that destabilizing the climate 
will produce, and second, because the threat increases the 
longer we continue to emit CO2 even at current 
levels. Two features of global warming require action now, as 
Bret Clayton has said.
    First, CO2, once emitted, stays in the air for 
more than 100 years. So each year's added emissions increase 
the amount of global warming.
    Second, the largest CO2 emission sources have 
very long lives. New coal plants are likely to operate for 60 
years or more, and with today's designs, those plants are 
likely to emit large amounts of CO2 for their entire 
lives which will lock us into additional global warming. Let me 
give you just some detail.
    The coal plants that are forecasted to be built around the 
next 25 years will have cumulative CO2 emissions of 
over 550 billion tons. That is a staggering number. That is 
half the total amount of total CO2 that has been 
emitted from all energy combustion since the beginning of the 
Industrial Revolution 250 years ago. And we are going to commit 
ourselves to that additional loading with investments that are 
on the drawing boards in the next 25 years globally.
    As Klaus Lackner said, we cannot secure a stable climate 
and use coal unless coal's CO2 is captured. So we 
should start now to deploy coal plants that can capture 
CO2 for safe geologic storage.
    If the United States takes the lead on this, it will speed 
the day that all countries use this technology. That is 
essential regardless of what we later decide is a safe target 
for greenhouse gas concentrations.
    So a new law that combines a schedule for binding limits on 
CO2 with substantial financial incentives for 
deployment of coal plants with CO2 capture will 
provide multiple benefits. It will pave the way for a safe 
climate. It will provide for more secure energy supplies, as 
the chairman has noted, and it will create new global markets 
for American businesses. We should not put off this smart 
investment any longer.
    Thank you.
    The Chairman. Thank you very much.
    Now, Sara Kendall from the Western Organization of Resource 
Councils.

 STATEMENT OF SARA KENDALL, DIRECTOR, WESTERN ORGANIZATION OF 
                       RESOURCE COUNCILS

    Ms. Kendall. Thank you. I am the Washington, D.C. Director 
for WORC. WORC has worked for over 30 years to protect our 
members and others who live near coal mines and powerplants 
from the impacts these facilities have on public health, air, 
land, and water.
    As the Nation looks increasingly to coal to feed its 
appetite for inexpensive power, we think one must ask how 
inexpensive is coal really. Coal loses some of its luster when 
its full costs are considered.
    There are five challenges that we believe must be addressed 
to ensure that the true costs of coal mining and power 
generation are not passed off onto people and the environment.
    First, we urge the committee to aggressively address the 
emissions issues being discussed, but until we have proven 
technology for zero emission coal plants, we believe that we 
are better off meeting our need for additional power through 
efficiency and renewables when and wherever possible rather 
than building over 100 new coal-fired powerplants across the 
country as is currently proposed.
    Secondly, we urgently need to clean up abandoned coal mine 
sites and cannot afford to interrupt, underfund, or end the 
abandoned mine land reclamation program.
    Third, we are concerned that the amount of mined land that 
has been reclaimed but is still under bond is growing each 
year. We believe that Congress should make it a priority to 
ensure that mined land is not only reclaimed in a timely 
fashion but that companies apply for final bond release, 
thereby demonstrating to the public that they have returned 
agricultural lands to productivity and also replaced water 
supplies affected by mining.
    Fourth, we believe that continued public funding for clean 
coal technologies should be reconsidered, especially at this 
time of budget shortfalls and given DOE's program has been 
plagued by numerous failed attempts to build clean coal plants 
and also that waste and mismanagement have been documented 
repeatedly in the program.
    And then finally, last year's energy bill would have 
removed important protections that encourage a fair return to 
taxpayers for the use of the public's coal and also ensure 
diligent development of that coal. We recognize that some of 
the coal leasing program's provisions may deserve review and we 
are willing to work with the committee on appropriate updates, 
but we urge you not to make the sweeping changes of the sort 
that were in last year's bill.
    Thank you.
    The Chairman. Thank you very much.
    Now, we have one more panel. It looks like we are going to 
be okay for those who have budget votes because we are off till 
5:15. That does not mean Senator Bingaman and Senator Thomas 
have time. We have till 5:15 at least for those on the budget. 
Well, when the floor happens, it will happen.
    Senator Bingaman, would you like to proceed first?
    Senator Bingaman. Sure. Thank you very much, Mr. Chairman. 
Thank you all for your testimony.
    Mr. Habicht, let me ask you a question on your National 
Commission on Energy Policy. Your proposal, as I understand it, 
contains this safety valve so that the cost to industry of 
complying with the caps that you are talking about is somewhat 
limited in that you can buy credits. Could you explain to us 
how that would work and how you see that as an improvement on 
the other types of proposals that have been put forward to deal 
with the carbon issue?
    Mr. Habicht. Certainly, Senator, I will be happy to.
    We spent a lot of time looking at a range of options in 
dealing with the carbon issue. We recognize that there is a lot 
of very strong and deep-seated concern about moving to a 
mandatory trading system, and we took that very seriously.
    At the same time, we looked at the evidence with regard to 
climate change, with what is happening around the world and 
just concluded that from a risk management standpoint, it was 
important for the country, particularly with our ability to 
implement market-based trading systems, to move into a trading-
based system to provide for certainty and predictability.
    But because of the concerns about economic impacts, as well 
as international competitive impacts, we integrated into this 
proposal a number of features that we thought both created a 
time frame and a sense of predictability with regard to 
impacts, as well as safety valves, so that the impacts would 
not be unduly dire for the economy.
    Having said that, we undertook an intensity-based approach, 
looking for 2.4 percent reductions in intensity each year over 
a 10-year period. The $7 per metric ton of carbon safety valve 
was that in case the cost of control exceeds $7 a ton, at least 
in this initial period, that the Government would purchase 
emission credits for $7 a ton to offset any reductions that 
would have cost more than that.
    We also have a provision that every 5 years, we recommend 
that the Congress would look at what other countries around the 
world are doing, including the countries that have not signed 
Kyoto, the large, developing countries, to determine are other 
countries undertaking significant commitments with regard to 
carbon. If in fact that is not the case, then we would 
recommend that the country reexamine our carbon strategy 
because there needs to be parallel action around the world.
    But basically in a nutshell--and I can certainly go into it 
more, but in the interest of time--the idea was to have a 
phased program that would slow and ultimately reduce emissions 
growth in a way that should not cause concern about economic 
impacts and would not have an undue impact on retirement of 
existing capacity. Under this proposal, actually coal 
consumption increases by some 16 percent by 2020.
    Senator Bingaman. Let me just also ask David Hawkins if he 
would comment on this set of recommendations by this National 
Commission on Energy Policy. Do you think this would be a step 
forward, or do you think that we would be better off not 
proceeding this way?
    Mr. Hawkins. We applaud the commission's recommendation for 
a mandatory limit on emissions. We think that is critical and 
we agree with their view that the sooner we get this started, 
the sooner we get established, the better off we will be.
    We do have some concerns about the safety valve, 
particularly the impact on technology innovation. Let me 
explain very briefly. If you are an entrepreneur and you have a 
technology that you think is close to the safety valve, in 
terms of its price, but you are not absolutely certain you can 
meet it, you may decide not to pursue that technology unless 
you are clear that you can meet it because if you can meet it, 
you have a market, and if you cannot meet it, if you are just 
10 percent over the safety valve, you do not have a market. So 
you may drop things and it may deter technology innovation.
    So we would prefer to see a different way of addressing the 
price concerns. We think there are lots of ones to explore and 
we would like to work on that. But we do agree with the 
commission's recommendation that the time has arrived for a 
binding limit.
    Senator Bingaman. Thank you, Mr. Chairman.
    The Chairman. I am going to yield, but I just wanted to ask 
Mr. Hawkins. You mentioned how much new carbon dioxide is going 
to be added over the next whatever years. How many did you say? 
50?
    Mr. Hawkins. Between now and 2030, Senator, 25 years.
    The Chairman. How much did you say?
    Mr. Hawkins. Globally it is 550 billion tons of 
CO2 from new coal capacity.
    The Chairman. How much of that is American?
    Mr. Hawkins. The American capacity is, forecast by EIA, to 
be about 100,000 megawatts out of a total of 1,400 megawatts. 
So about 8 percent.
    The Chairman. So 8 percent of that 550 billion is American.
    Mr. Hawkins. That is correct.
    The Chairman. So even if America did its job, 95 percent 
would not.
    Mr. Hawkins. The fact that the rest of the world is 
exploding with coal is precisely the reason why it is so 
important for America to lead. Senator Domenici, as one of the 
authors of the Clean Air Act, you know what has worked. We 
adopted tight auto emission standards in 1970. China is 
following. We took lead out of gasoline in the 1970's. China is 
following. We required scrubbers to go on powerplants. China is 
putting scrubbers on powerplants now. If we lead the way, we 
will get other countries to get there faster, and it is 
critical that we do that because other countries are growing 
more rapidly than we are in terms of emissions.
    The Chairman. Well, I agree wholeheartedly, unless in 
getting there, by doing it ourselves, waiting for them to catch 
up, we face an inordinate economic burden on ourselves. Of 
course, that is what the contention is. You and your people do 
not believe it, but those on the other side do believe it, that 
it will cause this extraordinary burden.
    Let me ask one further one on technology development, of 
you, Hank. I have trouble with your last name. Tell me your 
last name again.
    Mr. Habicht. It is Habicht. I have heard it pronounced 
1,000 different ways. Do not worry.
    The Chairman. Just like a bad habit?
    Mr. Habicht. Yes, a good one.
    [Laughter.]
    The Chairman. Did you say that you thought you wanted to 
pursue development of the new technology all the way to zero 
because entrepreneurs might stop short of it, or was that Mr. 
Hawkins who said that? That was not you?
    Mr. Habicht. No, that was not.
    The Chairman. Okay, well, that is Mr. Hawkins again. I do 
not think that is right. I think that is right if in fact you 
are not going to place an inordinate economic burden on getting 
there in order to get a small group of entrepreneurs to do a 
little, tiny bit. It seems to me you do not have to set the 
standard at the ultimate to get tremendous innovation by way of 
change. I would like you to address that because that sounds 
more rational to me.
    Mr. Hawkins. Certainly, Mr. Chairman. I was not arguing 
that we should set the emission limits at zero. The emission 
limits need to be gradual, and if we start now, they can be 
gradual.
    I was suggesting that an arbitrary safety valve, especially 
one set at a low level, may deter technology innovation. For 
example, the commission's proposal of $7 a ton of 
CO2 is actually below the level that some power 
companies are using in their business planning today. Pacific 
Corp. is using $8 a ton of CO2 for making resource 
selections. Idaho Power is using $12 a ton of CO2 
for making resource selections. So it is very easy to get that 
number wrong and it is very easy to set it so low that it does 
not stimulate technology innovation. So we are not arguing 
against considerations of cost. We are just saying that we can 
find more sophisticated ways of doing it.
    The Chairman. You will acknowledge too that in the quest 
for technology, we have made some mistakes in using best 
available control technology as a definition in other laws, 
because when you get to a point where you do not need it any 
better, best available control technology says you can even do 
better than the best. And then you have to go out and do it. 
That has put a big burden in some of the areas of cleanup. Now, 
that does not apply directly but it has a little bit----
    Mr. Hawkins. I would just say, Mr. Chairman, that today EPA 
issued a rule for cleaning up sulfur and nitrogen in the 
Eastern United States. It is using technology that was produced 
by the best available control technology program.
    The Chairman. Right. I understand.
    Dr. Lackner, let me say you wanted to speak to this issue. 
I just want to ask you, before you talk, in your opinion, if we 
had enough resources and put the right people in charge of a 
couple of demonstration programs that are large enough, how 
long would it take and how much money would it take to get to 
that point where we had coal cleanup that was whatever you want 
to set as a standard, zero clean, or whatever that very 
wonderful standard is.
    Mr. Lackner. Let me start out saying you cannot start with 
a zero emission limit. You have to phase things in in some way 
gradually, and putting a price on carbon would precisely do 
that. So I am in full agreement with this approach.
    If you ask me, can you build technology, could new 
powerplants be built today which collect all of the 
CO2 or nearly all of the CO2, the answer 
is yes. If you go to Scandinavia, people there talk zero. There 
are people talking about powerplants which run on oxygen, 
collect their own CO2 to dilute that oxygen, and 
then have a concentrated stream, and nearly all of that 
CO2, maybe 90 percent of it, is collected. So the 
technology to do that in simple forms exists. What you hear 
over here can, in principle, do that. The IGCC plants can, in 
principle, do that.
    Now, today this will cost money. And the longer we do that 
and the more experience we get, the cheaper it will get. So we 
need to find a way of distributing these costs, and it will not 
be cheap.
    If you think about it for a moment, a single gigawatt 
powerplant is a billion dollar investment to begin with. And 
you probably have to do this multiple times before you really 
get that right. So this is a decade of effort which gradually 
will get better. On the other hand, we do not have that much 
time to waste, and therefore we need to get going. I see the 
price as one elegant way of putting the economic incentive in 
it.
    And do not forget, at the end of the day, the by far 
cheapest solution is to ignore the problem. So as a result, 
unless there is an economic incentive or a regulatory demand 
which says you must deal with this problem up to some level, 
you cannot avoid dealing with it.
    The Chairman. Anybody else up here? Yes, please, Senator 
Bunning.
    Senator Bunning. Thank you.
    I would like to ask is it Bret Clayton?
    Mr. Clayton. Yes.
    Senator Bunning. Kennecott, 6 percent of all the power in 
the United States, coal-fired power?
    Mr. Clayton. Electricity, 6 percent of the electricity.
    Senator Bunning. That is all done with Wyoming coal?
    Mr. Clayton. A little bit of Colorado and a little bit of 
Montana.
    Senator Bunning. How many dollars do you think it would 
take to get beyond where we are now and to do what Klaus just 
suggested? How many dollars?
    Mr. Clayton. I guess that is a very hard question to 
answer. What I would say is I heard in testimony earlier today 
that passage of Clear Skies would have brought in about $50 
billion of investment over a period of time to achieve those 
reductions. So I mean, to achieve what we are talking about, we 
are talking about industry investment not of billions but tens 
of billions. And to get to zero emissions, including capture 
and storage, you are probably talking 100.
    Senator Bunning. $100 billion.
    Mr. Clayton. But that is why it is so important as we 
spoke--I think your earlier panel as well spoke about clarity, 
clarity of regulation. These are plants that get on the 
planning board, they do not get built for 10 years, and then 
they operate for 50 or 60 years. For industry to make 
investments of tens and hundreds of billions of dollars, we 
need certainty to know how we are going to make a return on 
that. And the longer and longer we put that certainty off, in 
our view we lose time in pushing technologies forward and in 
developing them that will allow us to actually address these 
issues.
    Senator Bunning. We are really familiar with that in 
dealing with refineries and nuclear power. Once they start the 
planning for one of those things, the agencies that control the 
regulations and rules alter as they go down the path. I can 
just speak of experience of one nuclear powerplant that was 
being built outside of Cincinnati, Ohio, and by the time they 
got ready to open the plant, they audited it and said it was 
not going to work. It had spent $3.5 billion building the 
plant, and they converted it to coal-fired generation.
    We have to have certainty before private industry is going 
to make the investments that are necessary, but in the coal and 
energy program that was in the Congress last year, we had 
approximately $4 billion either in direct subsidy or tax 
credits. Now, that is a start.
    Mr. Clayton. And I would say those are the types of levels 
that we need to be funding to move these along.
    And we need to be sure we are encouraging other 
governments. We have a sister company in Australia that is 
working very hard in that area of the world to make sure that 
we are not the only government and only Nation funding this. 
This is an international problem and requires an 
international----
    Senator Bunning. Everybody over here on this side of the 
fence--both sides--knows that we have not built a refinery in 
over 25 to 30 years and the reasons we have not done it. The 
same thing with nuclear power. And we have to have the same 
certification and positive attitude when we are going to do 
clean coal and clean coal technologies so that we can get past 
the emissions levels that are necessary.
    Mr. Clayton. I guess that is why I would say we would 
prefer to see this done legislatively rather than rulemaking 
because it provides greater clarity.
    Senator Bunning. Well, if somebody can read the legislation 
correctly, then the rules come out pretty well. Usually we have 
a lot of people making the rules that do not read the 
legislation too correctly.
    The Chairman. Sometimes we write the legislation so fuzzy 
that they cannot help doing that.
    Senator Bunning. That is absolutely true, Pete.
    The Chairman. Senator Alexander.
    Senator Alexander. I want to follow up Mr. Habicht's 
comment. I am interested specifically in what we ought to do 
here. What can Congress appropriately do that is based on good 
science and making the minimum interference with the 
marketplace to encourage these objectives which there is a 
broad consensus about. We are all tantalized really by these 
prospects, but we do not want to be clumsy about it.
    You suggested if I understand, 10 gigawatts of IGCC and 
then whatever was spent on that, spend about the same on carbon 
recapture. That is 10,000 megawatts. That is four or five, six 
plants. Was that what that would be? And to do what? To provide 
some sort of floor or safety valve? Exactly what would we do to 
encourage the creation of 10 gigawatts worth of IGCC?
    Mr. Habicht. It is a great question, Senator. And to 
Senator Bunning's point, what we see--and the challenge in 
policy making, when you have a technology like IGCC--and we are 
not saying that IGCC is the only way to get to clean coal, but 
it certainly is one that has progressed to the point where we 
see its promise. We see that there are some costs and other 
issues that are keeping it kind of in the starting blocks.
    So we looked at what kind of legislative clarity through 
policy plus some Federal participation in getting demonstration 
plants going would break the logjam and open the door to this 
kind of investment. We thought the signals that would be sent 
through--so it is a combined recommendation of some clarity 
with regard to carbon in the economy and a trading system for 
carbon, plus this demonstration program.
    Senator Alexander. But you do not want the Government to 
build plants.
    Mr. Habicht. The Government would just provide loan 
guarantees or some kind of investment----
    Senator Alexander. Well, that is what I am getting to. How 
much loan guarantee?
    Mr. Habicht. Well, as little as possible, frankly, to move 
it forward. The best way to do these programs is through a 
competitive process where the private sector comes in and the 
organization that has the best proposal for the least Federal 
investment would move forward. The idea is just for enough 
Federal investment to move some demonstration projects onto the 
ground, into operation, have them carbon capture and 
sequestration ready, and then also invest in the sequestration 
side.
    Senator Alexander. But the proper question for us is what 
amount of Federal investment would it take to get 10,000 
megawatts, 10 gigawatts, of IGCC up and going.
    Mr. Habicht. Our estimate was that would be about $4 
billion and $3 billion or so would be for the sequestration 
research. This was based on a lot of analysis that we can 
provide to the committee that we think would move the process 
forward. There is always a question of how heavy a government 
hand needs to be imposed on the marketplace to take a new 
technology and get it through what is sometimes called the 
valley of death into the marketplace. And we do not think that 
very much is needed, as long as there is a clear set of signals 
that really sort of show what the path forward over the next 15 
years or so is with regard to policy and investment.
    Senator Alexander. Thank you.
    The Chairman. Well, we are in a real bind. The only way to 
get out of it is to tell the two panels that have not appeared 
yet that we are not going to be able to hear from you. We 
apologize profusely, but we have seven votes on the Senate 
floor starting shortly. The budget members who are here have 
seven or eight votes starting about 2 minutes from now. So we 
will do the best we can to use the information and we humbly 
apologize. Maybe we should have tried fewer panels.
    We want to thank Jeff Jarrett, Director of the Office of 
Surface Mining. He is here and spent the afternoon to be our 
helper.
    I would just suggest to those who have such an interest in 
setting these high standards, Mr. Hawkins, what happens is, if 
you set them with that ideal notion that you have given us, so 
that we will develop the technology for the world and in the 
meantime we set it as stringent as possible, maybe approaching 
zero, you do not get anything because the opposition has 
economic evaluations that say how expensive it is, that they 
cannot afford it. And they will win. What we need to do is find 
some way to get where you want to get but to get there in a way 
that we can show will be a reasonable cost economically.
    What is reasonable to those who theoretically say it is 
such a wonderful thing that we ought to do it, and do it for 
the world, the answer is going to be what I just asked you. Are 
you telling us that for 5 percent of the production of this 
pollutant which America produces, we are going to take this 
kind of economic gamble? I understand that it is not a gamble 
totally. It is also some great leadership. Right? And maybe it 
changes the world.
    But I think therein lies the problem. You end up saying, as 
an environmentalist, we want out of this game. You are not 
going all the way, and we end up having to say, well, the 
industry and the consumer is telling us that is going to be way 
too expensive and we are not going to accomplish what you want. 
So we need something in the middle. So I urge that we somehow 
find out how to do this.
    My last observation is I heard our President tell me the 
other day to my ear, do not put anything in this energy bill 
that gives any subsidies to the oil industry or the gas 
industry because they make plenty of money these days. Now, I 
know you people who think the President is something different 
do not believe he said that, but he did. And we are looking at 
the bill and saying, well, we better take out some of the stuff 
the House put in. We do not want it.
    But I have a feeling every industry that is involved today, 
coal and otherwise, with the price going up like that, we ought 
to find a way for the industry to pay for what we need. The 
problem is, we do not know how to focus your money on projects 
of this magnitude because you are 20 companies or 50. So you 
look at us to do it. If we could find a way to make your money 
come into a pot and we would match it and then get on with 
these projects, we might have much more to sell. I do not know 
how to do that yet.
    We are going to reschedule you all, the people that we 
could not hear from. Thank you very much. Thanks to all of you.
    [Whereupon, at 4:25 p.m., the symposium was recessed, to be 
reconvened on April 21, 2005.]


                            COAL CONFERENCE

                              ----------                              


                        THURSDAY, APRIL 21, 2005

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The conference was convened at 3:09 p.m., in room SD-366, 
Dirksen Senate Office Building, Hon. Lamar Alexander presiding.

          OPENING STATEMENT OF HON. LAMAR ALEXANDER, 
                  U.S. SENATOR FROM TENNESSEE

    Senator Alexander. We thank you for coming. Many of you 
were here before when, because of an uncertain Senate schedule, 
we did not get everything done, and so we have invited you back 
because of our interest in what you are doing.
    Senator Bingaman is the ranking member of our full 
committee and Senator Domenici has asked me to chair this. We 
have, as is often the case in the U.S. Senate, we have a series 
of votes that we will require us to leave at 4 o'clock. I am 
not sure that we will be able to get back for another hour or 
hour and a half after that because of a series of four votes.
    So what I am going to try to do, with Senator Bingaman's 
advice, is to get as much of the testimony of both panels in by 
4 o'clock so that we do not keep you unnecessarily, which means 
keeping the senatorial conversation abbreviated so that we can 
hear as much of you as possible.
    We were very pleased with what we heard before. We received 
more than 50 submittals. The purpose of this is to continue our 
discussion of the future of coal. We are doing that at a very 
timely--at an important time, because not only is the price of 
energy, including coal, going so high that it is threatening 
our blue collar workers, our farmers, our homeowners, and our 
standard of living--we are about to write up an energy bill in 
the next few weeks that we hope will be aggressive on a number 
of fronts and we need your best advice about how to do that.
    You know the issues. I do not need to take more of the time 
expressing them. The way we did before and the way I would ask 
that we do today is that if you will give us your written 
testimony, which most of you have, we will consider it. We 
would like to start on the left when we start and ask each of 
you to take 2 minutes, introduce yourself, say who you are. 
Then Senator Bingaman and I will ask a few questions and then 
we will invite the next panel to come up, so we can be sure and 
get your written statement and your 2-minute statement in 
before the votes start.
    Let me thank you again for coming and being understanding 
of the Senate schedule. Senator Bingaman.

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

    Senator Bingaman. Mr. Chairman, I will defer to the 
witnesses. I appreciate them being here and I appreciate you 
chairing the continuation of this forum.
    Senator Alexander. Thank you.
    Why do we not start with you, Mr. Palmer, and we will go 
right around.

 STATEMENT OF FREDRICK PALMER, EXECUTIVE VICE PRESIDENT, LEGAL 
  AND EXTERNAL AFFAIRS, PEABODY ENERGY, ON BEHALF OF THE COAL-
              BASED GENERATION STAKEHOLDERS GROUP

    Mr. Palmer. Thank you, sir.
    I am Fred Palmer of Peabody Energy. We are the world's 
largest coal company. We control close to 10 billion tons of 
coal on the North American continent and abroad and we do close 
to--over 200 million tons of coal production a year.
    It is an honor to appear before the committee and I am 
appearing today on behalf of the Coal-Based Generators 
Stakeholders Group. CBGS is a diverse group of investor-owned 
utilities, rural electric coops, public power companies, coal 
producers, coal-hauling railroads, and the associations that 
represent them. Our member companies are represented at the CEO 
level and it is co-chaired by Peabody Energy's CEO Earl 
Engelhart and Duke Power CEO Ruth Shaw.
    Coal is the fuel of the future. As demand for electricity 
increases, electricity from coal will increase accordingly. 
Full utilization of the existing coal fleet in the United 
States will play a critical role in meeting our Nation's 
electricity supply. Required new capacity will be built using a 
suite of advanced technologies that range from advanced 
pulverized coal to integrated gasification systems, resulting 
in a continuing decline in emission of criteria pollutants even 
as coal demand increases by some estimates up to 500 million 
tons over the next 20 years.
    CBGS has agreed on a vision for achieving ultra-low 
emissions from coal-fueled electric generation and we have 
submitted that document for the record, Mr. Chairman, and I 
would ask that the committee give it careful consideration.
    Imported natural gas for electricity generation is no 
solution to America's obvious energy and electricity needs, as 
the chair has identified. Liquefied natural gas is priced off 
of imported oil and it is produced in many of the same areas of 
the world. I have been doing this long enough to have been here 
during Project Energy Independence and today it is eerie how 
similar the circumstances are to the 1970's and 1980's. Dr. Jim 
Schlesinger is on our board of directors, who was the first 
Secretary of Energy.
    We believe that the best solution is to focus on an ever-
increasing use of our vast coal reserves to generate 
electricity cleanly and economically, and to do so we believe 
we need passage of Clear Skies and an energy bill.
    With respect to climate change policy, that does get a lot 
of attention here and elsewhere, we believe that the 
President's technology-based approach is sound and we believe 
Future Gen needs to be fully funded. I also would like to 
endorse the modified S. 388 introduced by Senator Hagel and 
which the chair is co-sponsoring. We think that is a sound 
approach and we identify with that.
    Artificial restraints on CO2 emissions must be 
avoided since a cap on carbon will chill the investment needed 
in new coal-based generation. Proposals such as those advanced 
by the National Energy Policy Commission, McCain-Lieberman, or 
Carper-Jeffords are the wrong path in our view for our country 
to follow. We need an energy bill that encourages energy 
supply. An energy bill containing carbon taxes or caps, whether 
hard, soft, or virtual, will be an energy rationing bill, not a 
supply bill, causing even greater increases in the----
    Senator Alexander. Mr. Palmer, we are well over the 2 
minutes.
    Mr. Palmer [continuing]. In the cost of natural gas, oil, 
and gasoline, and a reduced quality of life for the American 
people.
    Thank you, sir.
    Senator Alexander. Thank you very much.
    We are interested in everything you think you have to say 
and we will read carefully your comments. But so that everybody 
will have a chance to say their piece, if you will maybe give 
us your major points. We have a little clock over there that 
will ring after 2 minutes.
    Mr. Yamagata.

        STATEMENT OF BEN YAMAGATA, EXECUTIVE DIRECTOR, 
               COAL UTILIZATION RESEARCH COUNCIL

    Mr. Yamagata. Mr. Chairman, members of the committee, thank 
you for having me here.
    Four years ago, the Electric Power Research Institute, the 
Department of Energy, and the Coal Utilization Research Council 
agreed upon goals and objectives for clean coal technology 
development that are embodied in the Clean Coal Technology Road 
Map. If we follow the goals and objectives of the road map, by 
the year 2020 we expect to have a series of options available 
to the Nation that produce very clean energy from coal in a 
very cost effective and efficient manner, and we recommend and 
commend the road map to you as you are looking at and divining 
a new clean coal--rather, a new energy bill.
    I have two points that I would like to make to you today. 
First of all, if you look at technology development, the curve 
for technology development is very simple. There is a research 
and development phase, there is a demonstration phase, and 
really there is a deployment phase. That phase of deployment is 
very important because it moves technology from demonstration 
to first of a kind into the marketplace, and it is necessary to 
have several of those types of projects available so that we 
can reduce costs and the risks of the technologies in bringing 
them into the marketplace.
    Importantly, in the conference report that the Congress 
nearly adopted 2 years, the research and development program in 
H.R. 6, that was embodied in H.R. 6, is the type of research 
program that we believe is important for you to have in your 
next bill.
    Second, with respect to the demonstration program, also 
part of the technology development curve, that that actually 
authorized the $2 billion clean coal power initiative that was 
first recommended by President Bush, we believe that program 
also should be embodied in a new bill as well.
    With respect, however, to deployment, we have the notion 
that you have to have a 10-year program with about the same 
amount of tax incentives available for 10,000 megawatts of 
power equally divided between gasification and combustion-based 
systems. We applaud you, Mr. Chairman, for the work you are 
already doing with respect to advanced coal gasification for 
industrial and electric applications, and ask that when you 
consider that you consider combustion as well.
    Thank you.
    Senator Alexander. Thank you very much.
    Mr. Dalton.

 STATEMENT OF STUART DALTON, DIRECTOR FOR GENERATION RESEARCH, 
               ELECTRIC POWER RESEARCH INSTITUTE

    Mr. Dalton. Thank you, Mr. Chairman.
    My name is Stuart Dalton. I am the director for generation 
research at the Electric Power Research Institute. I would like 
to make four points today based on our current research.
    The first point is that, given the wide variety of coals in 
the United States, multiple technologies will be needed to use 
our coal efficiently and to reduce emissions to near zero. The 
technologies include several types of coal gasification as well 
as combustion options. Large-scale regional testing of 
CO2 storage is needed as well.
    The second point: EPRI has started a new collaborative 
program called Coal Fleet for Tomorrow, with over 40 
participants now--better than the last time I was here, so I am 
glad to report that--representing more than half of all the 
coal-fired generation in the United States, plus many of the 
manufacturers, plus a few international participants as well. 
The key objectives are to reduce costs and accelerate the 
commercial use of advanced coal technologies.
    Electricity from our initial integrated gasification 
combined cycle plants in the United States will cost more, even 
without CO2 capture, we believe 15 to 20 percent 
more, than conventional coal. That is when those conventional 
coal include SO2 and NOX controls. 
Additional experience with full-scale IGCC plants will bring 
the costs down through the learning curve and reduce or 
eliminate this cost differential.
    Fourth point: Incentives will be needed in our opinion to 
deploy these initial IGCC plants in order to overcome higher 
capital costs and the technology risks. Initial incentives 
might provide a different value to different companies, 
different types of companies. For example, loan guarantees 
provide significant benefits to independent power producers who 
have secured power purchase agreements, but little or no 
benefit to others. A tax credit could provide significant value 
to companies with tax liability, none to public or cooperative 
entities. And the new concept of availability insurance may 
provide carefully targeted value to all company types, but 
requires more refinement.
    We found no single incentive was able to close the gap 
fully. However, we believe packages could be crafted to do so. 
We plan to work with DOE to further clarify the cost of the 
different incentives to the Federal Government as we have been 
analyzing the cost and impact on the other participants.
    We have a draft working paper which is available, and thank 
you very much for the opportunity.
    Senator Alexander. Thank you, Mr. Dalton.
    Dr. Der?
    Dr. Der. I am here as technical backup.
    Mr. Bonkowski. There are three of us here from EIA if any 
technical questions should come up.
    Senator Alexander. Okay, all right. So we will go quickly 
over to Mr. Hadley--or Mr. Rosenberg, excuse me. Sorry, I did 
not mean to skip you, Mr. Rosenberg.

 STATEMENT OF WILLIAM ROSENBERG, SENIOR FELLOW, KENNEDY SCHOOL 
               OF GOVERNMENT, HARVARD UNIVERSITY

    Mr. Rosenberg. Thank you, Senator. Senator Alexander, 
Senator Bingaman, members of the committee, thank you for the 
opportunity to be here today. My name is William Rosenberg. I 
am a senior fellow at Harvard's Kennedy School of Government 
and appeared before this committee in the natural gas 
proceeding a few months ago.
    The natural gas bills recently introduced by Senators 
Alexander and Johnson recognize the energy and environmental 
benefits of widespread gasification of domestic coal and 
biomass, including lower cost syngas, reductions in natural gas 
demand and high prices, reduced dependence on imports, less air 
pollution, and establishing a technology foundation for 
CO2 capture and storage.
    Over the past 2 years, my colleagues and I at the Kennedy 
School have developed a loan guarantee program to jump-start 
construction of a fleet of gasification projects--and this is 
very important--at the lowest cost to the Federal Government. I 
would like to focus on that chart over there for a moment. This 
is a chart that compares, according to our understanding, the 
budget cost to the Federal Government of different types of 
IGCC incentives.
    In the blue is our estimate of the budget cost of an 80 
percent loan guarantee that is scored at 10 percent for this 
one plant, a $1 billion 600-megawatt plant. The cost would be 
$80 million to the Federal Government.
    Alternatively, a package of grants or investment tax 
credits of 20 percent would cost the Government $200 million 
for this plant, and indeed a package of grant or investment tax 
credits of 50 percent would cost the Government $500 million.
    Here is how the loan guarantee, which is so much more cost 
effective, would work. 80 percent loan guarantees would make 
capital available to the projects on the most favorable terms--
the lowest interest rates and the generally most favorable 
terms. This committee recognized that in the Alaskan Gas 
Pipeline bill. The cost of capital as a result would be reduced 
by 40 percent, which offsets the higher construction costs and 
makes IGCC competitive.
    For electric projects, State public utility commissions 
would assure the collection of enough revenues to pay the debt 
service when it is due, and for industrial projects credit-
worthy companies would sign purchase contracts. These two key 
credit enhancements would minimize the Federal risk, prevent 
the synfuels type losses, and limit the budget scoring to 10 
percent.
    The bottom line is when you look at the different 
incentives direct grants and tax credits, as shown there, are 
two to six times more expensive than loan guarantees. The loan 
guarantee program----
    Senator Alexander. Mr. Rosenberg, we are well over 2 
minutes.
    Mr. Rosenberg; I will just finish up.
    The program would allow you to live within the budget 
constraints and still have an aggressive program for developing 
synthetic gas.
    Senator Alexander. How many plants did you recommend?
    Mr. Rosenberg. We believe that $1 billion of authority 
would produce 20 plants, would support 20 plants, that would 
generate 500 Bcf of gas, of syngas. $3 billion of authority 
would generate as much energy as the Alaskan Gas Pipeline.
    Senator Alexander. Thank you.
    Mr. Hadley.

   STATEMENT OF DAVID HADLEY, COMMISSIONER, INDIANA UTILITY 
REGULATORY COMMISSION, ON BEHALF OF THE NATIONAL ASSOCIATION OF 
                REGULATORY UTILITY COMMISSIONERS

    Mr. Hadley. Thank you. My name is David Hadley from the 
National Association of Regulatory Utility Commissioners, 
NARUC, and I am a commissioner at the Indiana regulatory 
commission. While I had spent over 20 years of my life as a 
United Mine Worker mining coal, today I work as an economic 
regulator.
    The traditional power plants that come before our 
commission must add new environmental controls increasingly. 
One way or another, consumers end up paying that bill. Just 
several weeks ago, the EPA settled a new source review 
complaint. To date those settlements have equalled over $4.5 
billion for new compliance. No new power, just compliance for 
environmental requirements.
    Business as usual is proposed by some. Build a traditional 
coal plant, pass some environmental laws, everybody sues 
everybody else, and finally it comes before us with the cost 
for a new retrofit and the costs are passed on to consumers 
once again.
    Legislation that has been introduced, Mr. Chairman, by you 
and others, being discussed here this week and next, are 
actually hoping to break that cycle. The debate is not if we 
will burn coal. The question really is how we are going to use 
that coal most efficiently and environmentally effective. New 
technology offers hope to lessen U.S. dependence on foreign oil 
and foreign manufactured natural gas. Today new technology 
offers us the opportunity to produce domestic manufactured gas 
from the United States, our Nation's most abundant coal--
resource, coal. The technology is IGCC.
    The efficiencies alone mean less coal is used per equal 
Btu, meaning less carbon and less other emissions from such a 
plant. The same technology even adds greater value to a ton of 
coal by using it as a byproduct for fertilizer that keeps the 
industry from moving offshore, as Wyoming is developing a plant 
or in Illinois, and a gasifier in Wyoming for ultraclean 
transportation fuel.
    We recommend a portfolio of credit-based mechanisms that 
should include, target specific risk, be cost competitive, have 
performance requirements, and used in conjunction with 
expedited deployment of the initial fleets. We think this is 
doable now and we thank you for this opportunity for dialog.
    Senator Alexander. Thank you very much.
    Mr. Lowe.

STATEMENT OF ED LOWE, GENERAL MANAGER OF GASIFICATION, GENERAL 
                        ELECTRIC ENERGY

    Mr. Lowe. Thank you, Mr. Chairman and members of the 
committee. I appreciate the opportunity to be here before you. 
My name is Edward Lowe. I am the general manager of 
gasification for GE Energy.
    The time for rapid and widespread commercialization of IGCC 
is now. IGCC reduces sulphur dioxide, nitrogen oxides, and 
particulate matter by approximately 50 percent compared to a 
state-of-the-art pulverized coal plant. Just as importantly, 
IGCC is inherently more cost effective at removing mercury and 
carbon dioxide.
    Initially these plants will be more expensive, as other 
speakers have stated. To lower costs, GE will provide a 
standard IGCC plant that is projected to rapidly achieve cost 
parity with pulverized coal plants. Many power generators 
operate in a deregulated environment where new generation is 
competitively bid. This process penalizes higher cost advanced 
technologies that might have longer term efficiency and 
environmental cost advantages. Even regulated power generators 
may find it difficult to select advanced technologies that come 
with a significant cost premium.
    Federal help is needed to address the higher initial costs 
of advanced technologies. Investment tax credits, production 
tax credits, and grants for early technology adopters are all 
potential mechanisms. Also, first of a kind engineering 
programs can drive down the initial premiums required to 
utilize all ranks of coal.
    To sum up, IGCC is a commercially available technology that 
allows us to use our most abundant domestic fossil fuel, coal, 
with environmentally superior emissions. IGCC can surpass 
existing environmental regulations and offers a cost effective 
solution for potential constraints on mercury and carbon 
emissions. However, Federal incentives are required to 
accelerate the deployment of IGCC.
    Thank you.
    Senator Alexander. Thank you, Mr. Lowe.
    Let me thank each of you for being succinct, a good example 
for Senators.
    Senator Thomas and Senator Salazar have joined us. We have 
to leave by about 4 o'clock to vote and there will be a series 
of four votes at that time. So Senator Bingaman and I dispensed 
with basically our initial comments. I would like to ask the 
other Senators if it would be all right with you if--I am going 
to suggest that we--I am going to ask one question, ask you to 
make a very brief comment if you have something to say, maybe 
30 seconds, and then you can expand on that. We and the staff 
will expand on that. Then I will go to Senator Bingaman.
    Then when we get to 20 'til, I will invite the second panel 
to come up and we will have a chance to receive their testimony 
before we vote. Does that sound all right?
    Senator Bingaman. Yes.
    Senator Alexander. You have talked about multiple 
technologies and you have talked about a low-cost way to 
provide financing for multiple technologies. What about, do you 
have any suggestions for how we could introduce certainty into 
your business plans? Because sometimes I get a sense that 
certainty would be better than a subsidy.
    Are there some things we can do legislatively that permit 
these new technologies to succeed, that would be just--that 
would be worth just as much to you as dollars?
    Mr. Rosenberg.
    Mr. Rosenberg. Senator, I think if you have a target, an 
authorization for a certain number of projects, and with loan 
guarantees you assure the availability of 80 percent of the 
capital for those projects, so you establish a certainty for a 
company that then could come forward, make an initial proposal 
to the Department of Energy, and be selected, where 
construction would begin say 2 or 3 years from that time.
    Knowing that the capital would be there at the most 
favorable rates is probably the most significant thing that 
could be done in addition to making sure that the State public 
utility commission in the relevant area is joining with that.
    Senator Alexander. Anyone else?
    Senator Bingaman? Oh, Mr. Dalton.
    Mr. Dalton. Just a brief comment. Certainty in regulatory 
requirements, such as emissions control requirements, what goal 
will need to be met, since some of the technologies have 
environmentally superior performance, if there is some 
certainty to that. Now, I recognize that that is a different 
question than just the energy bill. It also implies other 
regulatory requirements. But that is one example of 
requirements that help make the choice to put additional money 
on the table to be able to meet the new energy requirements.
    Senator Alexander. That might be a question that could be 
addressed by the energy bill. Do not know.
    Mr. Palmer.
    Mr. Palmer. Senator, with respect to the question of 
certainty on emissions standards, there are maybe 90 new coal 
plants that are being pursued and planned in the United States 
today in the face of great uncertainty. So I do not think the 
emissions uncertainty as such holds back development in coal-
based generation.
    I do think by involving the Federal Government in a major 
way as partners in integrated gasification combined cycle, in 
advanced pulverized, PC, technology, Future Gen, I think, would 
send a very reassuring signal to the energy community that the 
United States likes carbon-based fuels.
    Senator Alexander. Thank you.
    Let me go to Senator Bingaman now, just so everyone can 
have a chance to comment.
    Senator Thomas.Let me just--did you say 90 plants are being 
planned?
    Mr. Palmer. Close to 90 generation plants around the 
country are being planned right now and several are actually 
under construction.
    Senator Thomas. Coal plants?
    Mr. Palmer. Coal plants.
    Senator Thomas. They must be quite a ways from being under 
construction, though.
    Mr. Palmer. Correct, Senator, and not all 90 will get 
built.
    Senator Thomas. We have not had 90 in how many years.
    Mr. Palmer. Since Project Energy Independence.
    Senator Alexander. Senator Bingaman.
    Senator Bingaman. Yes. As I understood Mr. Dalton's 
statement, there are several very promising technologies that 
are of a coal gasification nature.
    Mr. Dalton. Yes, sir.
    Senator Bingaman. I guess I am just trying to get this 
clear in my mind. Mr. Rosenberg, maybe you could tell me, what 
would be the right way? Would we set performance parameters and 
say that the Government would make these loan guarantees 
available to companies that, or to projects that, meet certain 
performance criteria as far as the reduction in emissions, as 
far as the increased efficiency?
    What are we measuring here? Also, if you could just 
explain. I know we had in our earlier forum discussion about 
the fact that this does not include the cost of capturing the 
carbon, sequestering the carbon. That is an add-on. And the 
technology is not there yet to know how to do all of that, as I 
understand it.
    How does that all relate to what we are talking about here?
    Mr. Rosenberg. Senator Bingaman, indeed there should be 
performance standards, and I believe Senator Alexander's bill 
has performance standards and even has a provision in it that 
the technology should be carbon capture-ready, which needs to 
be defined. It does not mean you make the investments, but it 
means that when the time comes to make those investments there 
is not a penalty paid to take things out and put new things in.
    I believe that should be part of the competition for the 
funds. It not only should be how much does it cost the 
Government if somebody comes forward with a program that would 
cost less that would be preferential, but how should the 
environment be treated, what would be the impact on ratepayers. 
I think there would be a whole list of performance standards 
that could be objectively developed and applied on these 
applications.
    Senator Bingaman. Thank you, Mr. Chairman.
    Mr. Yamagata. Mr. Chairman, if I may, in response to 
Senator Bingaman for a moment, please. That is with respect to 
certainty, but also with respect to performance standards. The 
type of program that we are proposing in fact includes 
emissions performance standards as well as in the case of 
advanced combustion systems an efficiency performance standard.
    I would like to make a comment about certainty and that is 
to turn it around and say the Federal taxpayer needs certainty 
as well. In the context of projects and projects that are 
chosen, it seems to us that we should not leave these projects 
dangling if they are never going to happen. We have all had 
experience in that regard with respect to Federal programs 
trying to help here. But there ought to be some method of 
certainty for ensuring that these projects really do take 
place, and if after a period of time it does not happen then 
any commitment from the Federal Government ought to be 
vitiated.
    Senator Alexander. Let me go to Senator Thomas, and if 
anyone had additional comments on that you could submit them.
    Senator Thomas. Well, I am pleased that you are here 
talking about coal, of course, because I think it is our--but I 
am a little confused. Are there any projects that are now 
producing product?
    Mr. Palmer. Brand new plants?
    Senator Thomas. Yes.
    Mr. Palmer. Yes, there are several plants that are under 
construction.
    Senator Thomas. But none are producing?
    Mr. Palmer. I think, Senator, actually one unit did come on 
line last year, the Springerville plant in northern Arizona.
    Are you talking about gasification plants?
    Senator Thomas. Yes.
    Mr. Palmer. Gasification plants.
    Senator Thomas. And what are they producing?
    Mr. Lowe. There were two plants that were constructed in 
about 1995 of approximately 250 megawatts, to demonstrate the 
capability of integrating gasification-combined cycle. So the 
technology has been proven. Right now there are two plants 
operating in my State. The challenge is getting it to a large 
enough scale and deploying it in order to drive down the cost 
so there is not significant cost penalty.
    Senator Thomas. I see. But they are producing?
    Mr. Lowe. Tampa Electric for the Folk Station in Florida is 
a reference of one plant that is operating quite well.
    Senator Thomas. But what are they producing?
    Mr. Lowe. They are producing electricity, using coal to 
produce a synthetic gas that then is combusted and used to 
produce electricity.
    There is also, in the area of gasification, Eastman 
Chemical ends up producing a syngas that then they use in 
chemical processes for the production of methanol in our State.
    Senator Thomas. What size of plant? What size do they have 
to have to be economical?
    Mr. Lowe. We believe it needs to be approximately 600 
megawatts, which is about double the scale of the gasification 
combined cycle plants that are currently operating.
    Senator Thomas. Then of course, we do this, particularly if 
it is mine-mouth, then we have to have the transmission system 
to get it to the market.
    Mr. Lowe. That is correct, Senator.
    Senator Thomas. How large do you think they can be finally? 
2,000, 3,000 megawatts?
    Mr. Lowe. I think what you would probably do is be in the 
range of traditional coal plants, or in the range of 600 to 900 
megawatts, and then you put multiple plants on a site. 
Certainly a site producing 2 to 3,000 megawatts is technically 
feasible.
    Senator Thomas. Thank you.
    Senator Alexander. Thank you.
    We have 3 minutes left for this panel and two Senators. 
Senator Salazar.

          STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR 
                         FROM COLORADO

    Senator Salazar. I have three questions and you do not have 
to answer them for me right now, but I would appreciate answers 
in writing if you can. One is the impact that IGCC would have 
on the ratepayers and specifically the differences between the 
loan guarantee program and other Federal approaches that might 
be taken, what ultimately is the impact for the ratepayer.
    Question No. 2: What is the difference in technology to be 
used with respect to eastern coal versus western coal? We have 
very clean coal in my State. Are there technological 
differences with respect to coal gasification of those types of 
coal?
    Three: Why is there reluctance among some of the electrical 
generating companies to embrace this technology? I know of two 
instances in my State where we are building coal plants on 
pulverized coal as opposed to pursuing this technology, and the 
sense is that we are not ready for embracing this technology at 
this point in time.
    You do not have to answer my questions, but I really would 
appreciate--I would appreciate a written response to my 
questions.
    Senator Alexander. Thank you.
    We will go to Senator Bunning and let him say whatever he 
would like, ask questions, and if you could respond to those in 
writing. Then we will invite the next panel up so we can get 
their testimony.

          STATEMENT OF HON. JIM BUNNING, U.S. SENATOR 
                         FROM KENTUCKY

    Senator Bunning. Well, my major concern obviously is the 
use of coal in all capacities, to be able to burn it, to clean 
it up, and use all types of coal for electric generation. The 
technology some argue is not there. Some argue that we do have 
the technology. We have got some programs that we actually put 
in the FISC ETI bill, but there are not enough money in those 
programs to really have all generators use some type of new 
clean coal technology to meet the Clean Air II and beyond.
    So with the new bill that we are proposing or we hope we 
are going to propose, there will be about $2 billion in it 
either through DOE and-or direct subsidies to coal companies 
and to generators, to come up with the technologies that we 
need so that you can burn my West Kentucky coal and my East 
Kentucky coal, and even Wyoming coal and Tennessee coal and 
anybody else that has a lot.
    But we also need to realize that we have to be able to 
extract from coal other synthetics, carbon--not the carbon, but 
extract the carbon and use the gasification and-or the fuels 
that we can get from coal, hydrogen. I think eventually 
hydrogen is going to be a big, big player.
    Now, there are a lot of people with technologies. So if you 
have any ideas that will advance those, please get them to us 
as quickly as possible.
    Thank you.
    Senator Alexander. Thank you, Senator Bunning.
    Let me thank each of you for being here, for your 
succinctness. I am quite serious. You are right on point. We do 
not have a consensus of results yet, but we have a consensus of 
interest and a very strong one in what you are telling us.
    We thank you for coming, and I would now like to invite the 
second panel to come forward.
    Senator Alexander. All right, if we can get the name tags 
up we will start. Why do we not start with Mr. Hamberger, and 
we will ask each--we will follow the same rules we did before. 
Each of you, we will thank you for your written statements and 
if each of you would highlight your statements in 2 minutes 
that will leave us a little time for questions, and then we 
will be able to vote.
    Mr. Hamberger.

     STATEMENT OF EDWARD R. HAMBERGER, PRESIDENT AND CEO, 
               ASSOCIATION OF AMERICAN RAILROADS

    Mr. Hamberger. Thank you, Mr. Chairman.
    U.S. freight railroads account for roughly two-thirds of 
U.S. coal movements and last year had a record year. 2005 is 
starting out to exceed even the 2004 year. Not only do we move 
a lot of coal, including 400 million tons from Wyoming and a 
lot of coal from Kentucky bound for export, but we move that 
coal at reasonable rates.
    The two charts behind me illustrate that from 1981 to 2003 
rail coal rates, the blue line, reduced by 63 percent in 
inflation-adjusted terms. The chart also reveals that rail coal 
rate declines have substantially outpaced the 25 percent 
decline in average electricity prices, which is the red line, 
over the same period.
    The second chart shows that the delivered price of coal to 
electric power plants, the blue bars, has trended downward over 
the past 15 years, in stark contrast to the delivered prices of 
petroleum, in yellow, and natural gas, in red, on a per-Btu 
basis.
    Together these graphs illustrate that railroads have played 
a key role in helping hold down the cost of producing 
electricity. We do that at a cost of billions of dollars each 
year, in fact 17 percent of the total revenues, reinvested back 
into the infrastructure and equipment. These investments have 
permitted railroads to sharply increase their coal-carrying 
capability as coal demand has climbed. Ton-miles are up 161 
percent since 1981.
    The Department of Energy estimates that total U.S. coal 
consumption will increase even more rapidly in the coming 20 
years. Railroads hope to be able to handle the increased demand 
for coal transportation and we think we will be able to do so 
as long as the ability to make the necessary investments in the 
network is not constrained.
    Recent dramatic increases in freight volumes across the 
board have led to some service erosion affecting rail customers 
and these have highlighted the importance of continued strong 
rail investment in capacity. To meet future expected demand, 
railroads must be allowed to earn enough to fund their 
investment needs.
    Policymakers can do two things: One, do no harm. 
Reregulation of the industry would make it impossible for 
railroads to earn enough to reinvest. Second, pass the 
President's clean air bill and the comprehensive energy 
legislation needed for clean coal technology and certainty for 
our friends in the utility industry.
    Thank you.
    Senator Alexander. Thank you, Mr. Hamberger.
    I did not even take the time to introduce the subject, 
which is what improvements in existing transportation or 
transmission structure are needed to improve the use of coal 
for power generation.

  STATEMENT OF ROBERT SZABO, EXECUTIVE DIRECTOR AND COUNSEL, 
                CONSUMERS UNITED FOR RAIL EQUITY

    Mr. Szabo. Senator Alexander, I am Bob Szabo. I am the 
executive director and counsel to Consumers United for Rail 
Equity. We have a different story than Mr. Hamberger. Our 
clients are subject to railroad monopoly power. 25 years after 
railroad deregulation, there is a significant amount of 
railroad monopoly power. It often attaches to people that move 
railroad to power plants. The people that move the coal to 
power plants are the utilities. They buy the coal at the mine 
mouth and they pay for the unit trains, they often pay for the 
cars, and they move the coal.
    We think that probably two-thirds of the coal that moves is 
captive to a single railroad. The problem with that is that the 
railroads are not subject to the antitrust laws of the Nation. 
So when you are subject to the monopoly power of a railroad 
your remedies are at the Surface Transportation Board. We 
believe those remedies do not work at all. Shippers do not win 
at the Surface Transportation Board.
    So what is the result of that? The result of that is that, 
first of all, electric utility--electric ratepayers are paying 
unduly high rates inflated by monopolistic railroad rates. We 
think that where monopolies are involved they do not always get 
the same price signals that they should, so we are not getting 
improvements in transportation. Some day, we think, because, 
dare I say, some day more capital is going to be needed to be 
applied to the use of coal, coal may not be able to carry the 
rail industry and new capital to burn coal cleanly.
    I gave you some schematics of some of the artifices that 
are used to make people captive that are not captive and get 
monopoly rates, and obviously we are petitioning Congress to 
try to address these problems.
    Thank you very much.
    Senator Alexander. Thank you very much.
    Mr. Owens.

  STATEMENT OF DAVID OWENS, EXECUTIVE VICE PRESIDENT, EDISON 
                       ELECTRIC INSTITUTE

    Mr. Owens. Thank you, Senator. I am David Owens, executive 
vice president of the Edison Electric Institute.
    In view of time, I am going to really concentrate my 
statement on the issue of the transmission infrastructure. As 
you know, reliable electric service and regional electricity 
markets depend on a strong transmission system to move power 
instantaneously to where it is needed, particularly from 
baseload coal-fired generating stations, which in many 
instances are very distant from the population.
    Now, in my view many of the measures needed to restore our 
transmission infrastructure are really contained in H.R. 6. I 
just would like to take a minute and just kind of elaborate on 
a couple of those provisions. H.R. 6, for example, provides for 
a mandatory reliability system with enforcement mechanisms, 
which is in contrast to our current voluntary system.
    H.R. 6 would provide in the instance where States would not 
agree on the need for transmission, it would seek to give FERC, 
Federal Energy Regulatory Commission, backstop signing 
authority. I think this is particularly important for coal to 
ensure that electricity produced at mine mouth plants can be 
delivered to distant load centers.
    H.R. 6 would also improve coordination of Federal 
permitting process for transmission facilities. As you know, 
there is a very complicated process for getting access across 
Federal lands to site transmission. H.R. 6 would seek to 
facilitate that process.
    H.R. 6 would also provide some very important transmission 
pricing reforms for the Federal Energy Regulatory Commission 
that would provide what we consider to be important signals to 
encourage investment in transmission.
    H.R. 6 would repeal the Public Utility Holding Company Act, 
which is a barrier to new transmission investment.
    We also support very strongly important tax code changes 
which would provide accelerated depreciation for transmission, 
moving from a 20-year period to a 15-year period. As other 
participants in this conference who have appeared before you, 
we certainly also do support investment for new clean coal 
technologies.
    I would echo some of the things that Mr. Szabo said about 
rail transportation. We are members of CURE and we strongly 
support many of their views. I also need to stress that coal is 
also moved on waterways and we are strong supporters of 
enhancing our overall waterway infrastructure.
    Thank you for this opportunity.
    Senator Alexander. Thank you, Mr. Owens.
    Mr. Heller.

   STATEMENT OF THOMAS J. HELLER, CEO, MISSOURI RIVER ENERGY 
                            SERVICES

    Mr. Heller. Senator Alexander, Senator Bingaman, and 
members of the committee, my name is Tom Heller. I am with 
Missouri River Energy Services. Missouri River Energy Services 
is a wholesale power supplier to 58 municipal utilities located 
in South Dakota, North Dakota, Iowa, and Minnesota. We own a 
17% interest in the 1,650-megawatt coal-fired Laramie River 
Station located in Wheatland, Wyoming, and we are participating 
in two efforts to build new coal generation in North or South 
Dakota.
    Coal is an abundant domestic resource of critical value in 
meeting our energy needs of the future. Furthermore, there is a 
growing need for baseload plants and coal-fired generation must 
be part of our Nation's future energy portfolio.
    However, the ability to add new baseload generation is 
dependent upon two things: No. 1, adequate transmission and 
supporting policies to assure delivery of the power from remote 
generation sites to load centers; and No. 2, relief for captive 
shippers from transportation costs that have become very, very 
high. Unless we break--unless these issues are successfully 
resolved, the future of coal is, however, I think regrettably 
bleak.
    Missouri River urges congressional action to: No. 1, direct 
FERC to issue rules that enable electric utilities to secure 
firm transmission rights or equivalent tradable or financial 
rights for the long-term delivery with reasonable price 
certainty; No. 2, facilitate the planning and expansion of 
transmission facilities to support such rights; No. 3, 
facilitate transmission siting from a Federal level; No. 4, 
promote the regionalization of costs of high-voltage 
transmission facilities.
    I would also like to associate myself with the comments of 
CURE. The need for legislation to provide relief to captive 
shippers is real and immediate. BNSF currently transports some 
8.3 million tons of coal approximately 175 miles from coal 
mines in Wyoming's Powder River Basin to Laramie River Station. 
A longstanding contract for this service recently expired and 
the new common carrier rates are now in service, and they have 
doubled our cost of coal transportation. It is projected that 
the cost to the owners of LRS will be a billion dollars over 
the next 20 years. To us, this translates into $70 per retail 
customer per year for the next 20 years.
    It is our hope that Congress will provide some legislative 
relief to these captive shippers.
    Thank you.
    Senator Alexander. Thank you, Mr. Heller.
    Mr. Mohre.

STATEMENT OF DAVID MOHRE, EXECUTIVE DIRECTOR, ENERGY AND POWER 
   DIVISION, NATIONAL RURAL ELECTRIC COOPERATIVE ASSOCIATION

    Mr. Mohre. Senator, thank you. My name is David Mohre. I am 
Executive Director of the Energy and Power Division for 
National Rural Electric Cooperative Association. You are 
probably aware cooperatives supply about 40 million Americans 
electric power in all or parts of 83 percent of the counties in 
the United States.
    I believe we all agree, from what I have heard, that the 
use of coal is critical not only to keeping U.S. electricity 
rates competitive and reliable and secure from foreign 
influence, but also to moderating the rapid increase we have 
seen in natural gas prices over the past several years. I would 
like to suggest that one of the most critical issues involved 
here is one we do not talk about much, and that is making sure 
the transmission grid is capable of carrying out that function.
    This is both through timely enhancement of the existing 
grid and in the longer run regionally planning for the bigger 
picture, if you will. You have probably seen studies, as I 
have, showing that if we could enhance the transmission grid a 
little bit, the existing grid, we can probably save about a Tcf 
of natural gas used through enhanced coal use in existing 
plants.
    If we take a look at doing that, okay, you are talking 
about perhaps a 50 cent or a dollar reduction in the price of 
natural gas, and that equates to about a 10 to $20 billion 
reduction in the cost to consumers of natural gas and a 
concomitant reduction in the cost of electricity.
    Now, why is that important today? Well, I think it is 
particularly important today because we have this little 2 to 3 
Tcf overhang of new natural gas-fired generation that is on the 
ground and waiting to go. People do not realize we use about 
the same amount of gas today as we used 30 years ago. But if 
these gas units are turned on there is going to be a tremendous 
run-up in prices, and that is before we take into consideration 
the fact that the EIA recently increased the cost projection 
for this year to $6.95.
    In the future, let me just say one thing. One of the 
critical elements is are we going to be able to site and invest 
in these $1 to $2 billion coal plants? Well, it is going to be 
very difficult if you cannot get there from here. Part of the 
problem is under the new regional transmission organizations 
you cannot get, as Mr. Heller said, long-term transmission at 
reasonable prices. We have to fix that problem.
    Senator Alexander. Thank you.
    Glenn McCullough, welcome.

STATEMENT OF GLENN McCULLOUGH, JR., CHAIRMAN, TENNESSEE VALLEY 
                           AUTHORITY

    Mr. McCullough. Thank you, Chairman Alexander, Ranking 
Member Bingaman, members of the committee. On behalf of the TVA 
board of directors and our employees, thank you for the 
opportunity to appear here today. I am Glenn McCullough, Jr. I 
have served as TVA's chairman since July 2001.
    Coal is America's most abundant domestic source of energy. 
What oil is to Saudi Arabia coal is to the United States. TVA 
relies on coal for a significant portion of our generation, 
just over 60 percent in 2004. Continued use of coal is an 
important part of TVA's strategy to provide affordable, 
reliable electric power to 8.5 million people in our service 
territory. Keeping coal as an integral part of TVA and the 
Nation's energy mix is essential to the economic wellbeing of 
both the Tennessee Valley and our Nation.
    I am going to briefly summarize our response to question 
number 4 regarding the improvement, improving coal for power 
generation, by saying that it may be cheaper to invest in coal 
transportation rather than extra high-voltage transmission 
lines, but what is sometimes overlooked in the coal-by-wire 
discussion is that redundant paths are needed for transmission 
lines to move major blocks of power from coal-rich areas to 
population centers.
    However, there are some problems in the coal transportation 
area also. The major railroads and barge companies are beyond 
their ability to provide timely and cost-effective delivery of 
coal to utilities. For coal-fired power generation to increase 
in future years, railroads and barge companies must have the 
capacity in place to meet increased customer demand.
    It would seem to us that a balanced approach of improving 
both the coal transportation and the power transmission systems 
would make the most sense. Investment in technology and 
capacity improvements in power transmission, rail lines, and 
barge lock systems will all be required for a comprehensive 
approach to maintain and to encourage greater use of coal for 
power generation in the future.
    Thank you, Mr. Chairman.
    Senator Alexander. Thank you, Mr. McCullough.
    Thanks to each of you.
    The vote has started, but I think we have time for each of 
us to ask a question or make a comment, and then we would ask 
you just to respond to it in writing if you would not mind. I 
think all of you know how to get in touch with the professional 
staff or with us if you need to.
    My question would be simply, it would help me if you could 
provide me with one or two examples of siting difficulties for 
transmission capacity so I could--you probably have several to 
choose from, but a few examples of that would be a help, and 
how the energy bill that we are working on might help prevent 
those kinds of problems in the future. That would be my 
question.
    Senator Bingaman.
    Senator Bingaman. Mr. Chairman, in light of the time 
constraints we have, let me just thank all the witnesses. I 
think it has been useful. I wish we had more time to delve into 
some of these issues. But I am sure we will try to read through 
all the detailed statements that have been given to us and 
digest what is in there. Hopefully, you will see some of that 
reflected in the legislation that we proceed with.
    Thank you very much.
    Senator Alexander. Senator Bunning.
    Senator Bunning. I am very interested in transmission and 
certain areas of our State are having difficulty getting 
transmission from one place to another. Certain transmission 
lines are owned by one utility over another. We have to get 
some type of cooperative effort so that we can keep rates low 
and get transmission to all areas, both rural and urban, in all 
parts of this country, and we have to do it as quickly and 
without new regulations.
    I would like to see them voluntary. A lot of people want a 
mandatory regulatory scheme that I am not for.
    So if you could make suggestions on transmission and how to 
get it from one area of the State and/or one area of the 
country, because that is a major, major problem right now, the 
double use or the use of other people's transmission lines 
without a huge service charge for using them, a reasonable rate 
that would not blow the electricity out of the water that goes 
through those transmission lines.
    Thank you.
    Senator Alexander. Thank you, Senator Bunning.
    Thanks again to each member of the panel and to the first 
panel for your thought and for the extra effort you have made 
and for adjusting yourselves, as we have to, to the schedule of 
the U.S. Senate. We look forward to your written answers and to 
any further comments.
    The hearing is adjourned.
    [Whereupon, at 4:01 p.m., the symposium was adjourned.]

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