[Senate Hearing 110-826]
[From the U.S. Government Publishing Office]
S. Hrg. 110-826
DEPARTMENT OF ENERGY'S DECISION TO RESTRUCTURE THE FUTUREGEN PROGRAM
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HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
SPECIAL HEARING
MAY 8, 2008--WASHINGTON, DC
__________
Printed for the use of the Committee on Appropriations
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COMMITTEE ON APPROPRIATIONS
ROBERT C. BYRD, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont TED STEVENS, Alaska
TOM HARKIN, Iowa ARLEN SPECTER, Pennsylvania
BARBARA A. MIKULSKI, Maryland PETE V. DOMENICI, New Mexico
HERB KOHL, Wisconsin CHRISTOPHER S. BOND, Missouri
PATTY MURRAY, Washington MITCH McCONNELL, Kentucky
BYRON L. DORGAN, North Dakota RICHARD C. SHELBY, Alabama
DIANNE FEINSTEIN, California JUDD GREGG, New Hampshire
RICHARD J. DURBIN, Illinois ROBERT F. BENNETT, Utah
TIM JOHNSON, South Dakota LARRY CRAIG, Idaho
MARY L. LANDRIEU, Louisiana KAY BAILEY HUTCHISON, Texas
JACK REED, Rhode Island SAM BROWNBACK, Kansas
FRANK R. LAUTENBERG, New Jersey WAYNE ALLARD, Colorado
BEN NELSON, Nebraska LAMAR ALEXANDER, Tennessee
Charles Kieffer, Staff Director
Bruce Evans, Minority Staff Director
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Subcommittee on Energy and Water Development
BYRON L. DORGAN, North Dakota, Chairman
ROBERT C. BYRD, West Virginia PETE V. DOMENICI, New Mexico
PATTY MURRAY, Washington THAD COCHRAN, Mississippi
DIANNE FEINSTEIN, California MITCH McCONNELL, Kentucky
TIM JOHNSON, South Dakota ROBERT F. BENNETT, Utah
MARY L. LANDRIEU, Louisiana LARRY CRAIG, Idaho
DANIEL K. INOUYE, Hawaii CHRISTOPHER S. BOND, Missouri
JACK REED, Rhode Island KAY BAILEY HUTCHISON, Texas
FRANK R. LAUTENBERG, New Jersey WAYNE ALLARD, Colorado
Professional Staff
Doug Clapp
Roger Cockrell
Franz Wuerfmannsdobler
Scott O'Malia (Minority)
Brad Fuller (Minority)
Administrative Support
Michael Bain
C O N T E N T S
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Page
Opening Statement of Senator Byron L. Dorgan..................... 1
Opening Statement of Senator Pete V. Domenici.................... 3
Prepared Statement of Senator Mitch McConnell.................... 3
Statement of Senator Christopher S. Bond......................... 4
Statement of Senator Larry Craig................................. 5
Statement of Senator Richard J. Durbin........................... 6
Statement of Senator Wayne Allard................................ 8
Statement of Hon. Samuel W. Bodman, Secretary, Department of
Energy......................................................... 9
Prepared Statement........................................... 11
Commitment to Clean Coal......................................... 11
Original FutureGen Approach...................................... 12
Changing Technology, Markets, and Regulations.................... 12
Decision to Restructure FutureGen................................ 13
Retrofitting Existing Coal Plants................................ 14
CCPI Round Three Solicitations................................... 15
Revised FutureGen Project........................................ 16
Coal Policy Issues............................................... 17
FutureGen Revision............................................... 18
Coal Technology.................................................. 19
Loan Guarantees.................................................. 20
Original FutureGen Project....................................... 21
FutureGen Cost Increase.......................................... 21
Increase Cost of Projects........................................ 23
Project Management............................................... 24
Project Management Cost Increases................................ 25
New Initiatives.................................................. 26
Prepared Statement of Senator Richard J. Durbin.................. 27
Introduction--A Commitment to FutureGen at Mattoon............... 27
FutureGen as Originally Conceived................................ 27
DOE Abandons Mattoon............................................. 28
The Efforts of Illinois.......................................... 28
DOE's Inadequate Explanations.................................... 28
DOE and the United States Have Lost Credibility.................. 29
The FutureGen Alliance is an Unprecedented Industrial Partnership 29
Climate Change and the Need for Coal............................. 29
FutureGen at Mattoon Should Proceed.............................. 29
Statement of Paul W. Thompson, Chairman of the Board, FutureGen
Industrial Alliance, Inc....................................... 29
Prepared Statement........................................... 32
Benefits of FutureGen at Mattoon................................. 33
Project Costs and Financing...................................... 34
History of DOE Interactions...................................... 37
DOE's Proposed Restructuring..................................... 40
Additional Committee Questions................................... 54
Questions Submitted to Hon. Samuel W. Bodman..................... 55
Questions Submitted by Senator Robert C. Byrd.................... 55
Questions Submitted by Senator Wayne Allard...................... 57
Questions Submitted by Senator Richard J. Durbin................. 57
Questions Submitted to Paul W. Thompson.......................... 59
Questions Submitted by Senator Wayne Allard...................... 59
DEPARTMENT OF ENERGY'S DECISION TO RESTRUCTURE THE FUTUREGEN PROGRAM
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THURSDAY, MAY 8, 2008
U.S. Senate,
Subcommittee on Energy and Water Development,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 9:34 a.m., in room SD-192, Dirksen
Senate Office Building, Hon. Byron L. Dorgan (chairman)
presiding.
Present: Senators Dorgan, Domenici, Craig, Bond, and
Allard.
Also present: Senator Durbin.
opening statement of senator byron l. dorgan
Senator Dorgan. We'll call the hearing to order. This is a
hearing of the Senate Appropriation Committee, the Subcommittee
on Energy and Water. We have called a hearing today to discuss
the Department of Energy's FutureGen project and the
development as a result of the announcement by the Department
of Energy of that project and the advancement of other related
issues on carbon capture and storage.
In June we will be taking up climate change legislation on
the floor of the United States Senate. It underlines once
again, the urgency that all of us feels about the need to have
technology capable of allowing us to continue to use our coal
resources and capture carbon and sequester carbon in order to
protect our environment. Even as we pass climate change
legislation, I don't think climate change legislation is likely
to go to the President for a signature this year. But we will
take it up on the floor of the Senate.
And I think all of us understand that the three remaining
candidates in the race for the presidency all believe there
needs to be legislation enacted. So it's very likely that, at
the very least, next year climate change legislation will be
enacted. And the question seems to me for a good many of us is
with 50 percent of the electricity coming from coal and with
climate change legislation being enacted calling for targets
and time tables and so on.
How do we continue to use our coal resource without causing
damage to our environment? The answer to that is through
technology and through learning. Through demonstration projects
and going from demonstration to commercial application of
projects that will capture carbon and sequester carbon or use
carbon for beneficial use, financed oil recovery or perhaps
producing algae and therefore diesel fuel and so on.
I mention all of that only because I think this is a
critical area and a very important issue. And the timeline is
becoming much tighter than previously. Some long while ago the
concept of a FutureGen was created and the FutureGen project
was--I kind of see it as a big bang project where you put
together a number of different technologies with a coal-fired
IGCC plant that brings together many different technologies
which includes on the back end capture and sequestration, of
carbon.
And the FutureGen project, when announced, was announced
with great excitement. Then as time moved on and various
selections were made and sites were established and so on, the
Department of Energy announced the costs of the FutureGen would
be increasing and their estimated cost to completion would
increase. And ultimately the Department of Energy announced
that they were abandoning the FutureGen project as we know it
with one large project and going to reformulate that to several
smaller projects.
Even as that is working with the announcement by the
Department of Energy the Clean Coal Power Initiative, I think
has been suffering for money. And in part, perhaps because of
FutureGen, but for whatever reasons the Clean Coal Power
Initiative which I view just as urgent because it's the
initiative that will move out the funding for various projects
around the country that will give us also information about
technology and capability of carbon capture. And we have, I
think, short changed the Clean Coal Power Initiative.
Now I don't know what we should do about FutureGen frankly.
I'm not an expert in this area, but I do think this. I think
that the ultimate decision about FutureGen should probably be
made in 8 or 10 months by the next administration.
In the meantime that should not be meant to express that we
can tread water or waste time. I'm going to emphasize in the
mark up of our bill this year a substantial amount of income
necessary to be applied to the Clean Coal Power Initiative.
We've got to move ahead. And move ahead with urgency.
We need to understand what we're doing here. We need to get
these projects out. We need to understand the capability with
both demonstration and also the potential commercialization of
opportunities to capture carbon.
And ultimately we've got to have targets and time tables in
the climate change legislation that meets the technology
capability because if we don't, we're in big trouble. As I said
with half of our electricity coming from coal if we're not
going to decide one day by the way there's going to be no coal
used. And so the question is how do we use coal. And much of
the answer to that is in the bowels of the Department of
Energy's projects and the projects that we will fund here in
this subcommittee.
So we're holding a hearing today to better understand what
the Secretary has announced with respect to his judgment about
FutureGen. And what he would like to do moving forward. And
what I'm saying is that I believe that ultimately the fate of
the FutureGen project, as we know it, will likely be made by a
new administration.
But in the meantime the Secretary's judgment about what we
do with respect to other resources that are vitally necessary
to allow us to continue to use coal and do so while we protect
the environment. It's just very important. And there's a much
greater urgency about that now than there was previously.
So I'm going to call on my colleague, Senator Domenici, for
an opening statement. And then if we can very brief statements
from the other members of the subcommittee because we want to
move on. We're going to have a rather lengthy hearing, I think.
Senator Domenici.
opening statement of senator pete v. domenici
Senator Domenici. Thank you very much, Mr. Chairman. Thank
you for attending, Mr. Secretary. And let me suggest that it
has been this Senator's impression that our country has been
rather fortunate that you have become our Secretary.
More things are being done at the Department than ever
before in history. And that there's more prospects for good
things to happen, coming forth from your management of that
Department. That I'm very hopeful, whatever your goals are for
completion before you leave, that you will be able to achieve
them.
Obviously it is not a good thing that happened to FutureGen
because there was a lot of expectation that will not be
achieved at least in the time span and pursuant to the ideas
that were originally put forth. But I believe it's important
that we hear and pay attention carefully to your views as to
why what happened happened. Now there seems to be, some people
seem to be talking about Congress issuing this contract on
FutureGen.
I don't believe we can do that. I don't believe we're in
the business of issuing contracts. I think we're in the
business of providing authority for the executive branch to do
that.
PREPARED STATEMENT
I hope we have an honest evaluation from both sides, good
discussion and that perhaps as a result of openness and
indication of grave concern on all parts that some good will
come of this hearing. I thank you for coming. And I thank you
for calling the meeting, Mr. Chairman.
Senator McConnell has submitted a statement to be inserted
in the record.
[The statement follows:]
Prepared Statement of Senator Mitch McConnell
Thank you, Mr. Chairman, for convening this hearing of the
Subcommittee on Energy and Water Development to discuss FutureGen and
carbon capture technologies. This is an issue that is very important to
my State.
First, I would like to recognize Paul Thompson, who will testify on
behalf of the FutureGen Industrial Alliance. Paul is a resident of
Louisville, Kentucky, and he currently serves as the chairman of the
board of the FutureGen Industrial Alliance. In addition to his duties
on the FutureGen board, Paul serves as senior vice president of Energy
Services at E.ON U.S. Paul is also a leader in his local community,
dedicating his time to the University of Kentucky Center for Applied
Energy Research, Greater Louisville Inc., as well as the Louisville
Free Public Library Foundation and the March of Dimes. I am pleased to
have him here today to receive an update on the FutureGen Alliance.
Each time a Kentuckian turns on their favorite television show or
uses their computer they likely owe the ability to do so to coal. That
is because Kentucky derives over 90 percent of its electricity from
coal. While coal is a vital part of Kentucky's economy, it also
provides over half the country's electricity and constitutes over 90
percent of America's fossil-fuel resources. The truth is we have enough
coal in America to supply our Nation for more than 250 years.
The use of this abundant resource in local power plants has played
no small part in economic development in my home State. We have some of
the lowest power rates in the Nation, which helps attract new
industries and bring high-paying jobs to local communities. We must
maintain that competitive advantage by ensuring incentives for the
development of clean coal and carbon capture technologies.
Kentucky, along with the rest of the Nation, can and will be a
leader in working toward producing clean coal energy. I have met with
many leaders in the coal industry as well as other Kentuckians who are
excited about the possibility of continuing to provide America's power
in an innovative and environmentally responsible manner. I look forward
to working with them to make sure we reach that goal.
Senator Dorgan. Senator Domenici, thank you very much. Let
me also echo my colleague's comments. Secretary Bodman, you've
had kind of a unique position of being well qualified for the
position that you've been appointed to. That doesn't always
happen in the Congress. And I've enjoyed working with you.
Senator Bond.
Secretary Bodman. Thank you, sir.
STATEMENT OF SENATOR CHRISTOPHER S. BOND
Senator Bond. Thank you very much, Mr. Chairman, Senator
Domenici, Secretary Bodman. The chair and the ranking member
have already said the nice things that you deserve to have said
about you. I'm very happy to endorse them.
The one little area where we have discussed previously,
I've talked with the White House. I've talked with the
leadership of the Congress. The leadership of this subcommittee
is about FutureGen, the importance of FutureGen at Mattoon. But
as you can tell, it's important to me and I'm excited to hear
the chairman's proposal to make major contributions towards
speeding up clean coal technology.
We'll hear about all these things in FutureGen. Then we'll
hear most of all about the need to avoid further delay in this
area. These are all important points.
But I think we ought to look at it in the big picture.
We're all here because we're committed to making our energy
cleaner, our families, our children, our climate, all demanding
cleaner energy. And on their behalf, I think we stand at the
edge of a new era of clean energy which produces little or no
pollution or energy production will emit nothing more than
clean, pure water in the environment.
It's a long way to go towards zero pollution.
Unfortunately, I think we're doing far too little to enter this
era. Now don't get me wrong, I agree with what Senator Domenici
said with the executive branch, your Department, with the
leadership of Congress, the scores of bright and dedicated
professionals that you have at DOE.
You're researching and developing these technologies. In
the area of coal we need to find ways to make current plants
pollute less. Capture carbon emissions and sequester them. The
problem is they have too few resources which limit them to too
few projects.
They have the technology they've developed in the labs, but
they can only afford small pilot scale testing. And it's a
whole lot easier to make up, do something in a lab than to
demonstrate it and to apply it in a commercial setting. And I
think that's where we have a slightly different focus.
Only when these technologies become proven, reliable,
affordable, will they become widespread. Only when we can
export proven and affordable technologies to big polluters like
China and India will they be willing to join us. I happen to
think that President Bush is Asia Pacific partnership, sharing
these clean coal technologies with our late, large Asian
nations.
It's not only the best hope we have for getting worldwide
air cleaner and improving it, but it means jobs for American
workers. But this era will take money every year, not tens or
hundreds of millions, but billions of dollars. Not 5 or even 10
years, but perhaps 20 years. And we'll not be getting there by
fighting over little pieces of the small pie. We'll not get
there by trying to convince ourselves that three little
projects are better than one.
It's not how we put a man on the moon. It's not how we
ended a world war. It's not how we'll usher in a new clean
energy era.
Embracing clean energy means providing resources and order
of magnitude more than we ever have before for everything from
clean coal to nuclear, solar, wind, clean cars, energy
efficient buildings and homes and we need the technology not in
test plants, but in every plant. We need hybrid cars, not in
yuppie garages, but in every garage. We need the technology
that someday is affordable for rich countries, made affordable
for all countries. Then all of us can enter the clean, new,
clean energy era.
That's not going to happen today. We need to start it. And
I appreciate so much the leadership of the chairman and ranking
member of this subcommittee. And I'm pleased to be one of the
ones supporting as best we can their efforts. Thank you, Mr.
Chairman.
Senator Dorgan. Senator Bond, thank you very much. Senator
Durbin is a member of the full committee and has asked to join
us this morning. I'm pleased to extend that courtesy on this
subcommittee. Senator Durbin, thank you.
Senator Durbin. Thank you very much.
Senator Dorgan. Let me call on Senator Craig for a brief
opening comment and then I'll call on you Senator Durbin. We're
trying to keep comments as short as we can. And then we'll call
on Secretary Bodman for his statement.
But Senator Craig, would you proceed.
STATEMENT OF SENATOR LARRY CRAIG
Senator Craig. Thank you very much, Mr. Chairman.
Secretary, we're pleased to have you with us this morning.
Idaho doesn't produce one modicum of coal. So from a passionate
point of view, I may be less concerned about FutureGen. But I
still remain extremely concerned about FutureGen or future
technologies as it relates to coal.
And it's quite simple, Mr. Secretary, crude on the world
market hit $124 today. It is $3.65 headed for $4 at the pump.
The news is saying it could go to $7 a gallon? I mean there are
long list of things out there that are frustrating Congress and
the American people at this moment relating to energy.
We're debating climate change. And my guess is within the
next year this Congress will stumble into and a President may
sign a climate change bill that will or won't distort a market.
We don't know yet what is happening.
What we do know is critically necessary. And this country
has the unique opportunity to lead, to lead the world in areas
of technology using public resources, well directed for the
purpose of maximizing that. I find it almost unforgivable that
the politics of this country would tumble us into a cap and
trade and market control system when we could lead the world in
technologies that would make us cleaner.
We never dreamed that last June, China would surpass us in
carbon emissions into the environment. But they did. We
expected it down the road a good number of years.
But it's now happening. So there is a world out there
crying for a need for change and a reasonable supply of cost
effective energy. And in the area of electrical generation
there is no question in my mind that coal must play a role.
So I hope this is not an opportunity lost. For if it is,
then shame on us and shame on you. And so I'm anxious to hear
your point of view this morning on what it does represent.
Because opportunities lost when we passed EPACT 5 and we said
that in that field in which we knew not where to go we would
provide loans and opportunities to push technology out to the
edge. Some would win and some would lose.
That was 2005. It's 2008 and not a loan has been yet
issued. And so I'll chat about that in my question and answer
period.
Am I frustrated? Yes. I am.
And a Congress that wants to get something done 20 years
later than they should have started. And an administration that
clearly wants to get something done too. And that we can't
harmonize on some of these key issues that take us into the
future with the kind of leadership and technology that will be
critical. Thank you. Thank you, Mr. Chairman.
Senator Dorgan. Senator Craig, thank you very much. Senator
Durbin.
STATEMENT OF SENATOR RICHARD J. DURBIN
Senator Durbin. Senator Dorgan, thanks to you and Senator
Domenici, my colleagues, for giving me an opportunity to join
you this morning to speak about the FutureGen project. I
welcome Secretary Bodman, as I'm sure you already have and I'm
certain that his testimony and mine may be at variance. And I
would like to explain my point of view about what happened with
the FutureGen project.
We face a challenge in this country. And I think each of us
understand it, how to come up with energy sources to fuel our
economy and serve our country and do it in an environmentally,
responsible way.
And so over 5 years ago President Bush came up with a
novel, creative and innovative approach. He suggested that we
would build an electric powered generating facility, powered by
coal that would have zero emissions. It was a source of great
pride for the administration when they announced this over 5
years ago. This is the website of the U.S. Department of Energy
up to and through the day when they made the site selection,
when the FutureGen Alliance made its site selection.
In fact this continued to be on their website with great
pride long after that selection had been made. Well, as a
result of the announcement by the Bush administration about
this new, exciting, research project, seven States took this
administration and its word and got into fierce competition to
win this site. The States included: North Dakota, Wyoming,
Texas, Illinois, Kentucky, Ohio and West Virginia.
The competition went forward with great expense, great
investment by each one of these States. It wasn't a casual
commitment. They had to prove that theirs was the best site in
the Nation for this groundbreaking technology that would
finally allow us to sequester carbon dioxide so it wouldn't get
into the environment and cause environmental damage. And at the
same time we could unleash the potential of coal as an energy
source.
My State went into this competition with great excitement
and enthusiasm. Illinois is part of the Illinois Basin Coal
Reserve. It is a huge energy reserve smack dab in the middle of
the United States. And we decided we want to be sure that we
were well represented and that our communities went in
competition.
We first went to southern Illinois. The natural place where
most of the coal mines originally were located and then
realized because of seismic concerns, which we learned about a
few weeks ago, we couldn't qualify. But we found another place
in the State, two communities in the central part of the State
including Mattoon, Illinois.
And I want to just tell you, members of the committee; they
put their heart and soul in this effort. Mr. Secretary, every
member of those communities from the chamber of commerce,
working people and businesses. I mean they really believed in
what this administration said that this was the promise of the
future and they want to be part of the future.
And they went to their State legislatures and said to them,
we need your help too. We need loan guarantees. We need to make
sure we are competitive so that this project will work.
On a bipartisan basis in the Illinois general assembly they
got that cooperation. They passed that legislation. They went
to the Governor and the administration at the State level. I
haven't seen an effort by this administration to try to win a
Federal grant the way they did. And it went forward.
And of course the field was narrowed in terms of site
selection until December of last year when it came down to two
States, Texas and Illinois. And the FutureGen Alliance was to
make the selection. The Illinois site had been endorsed by more
than just Illinois. In fact, the States of Indiana, Kentucky,
Michigan, Ohio, Pennsylvania, West Virginia, Wisconsin and
Wyoming all endorsed this effort. Saying they thought Mattoon,
Illinois, the Illinois site was the right place to go.
Now I understand, Mr. Secretary, this wasn't your idea.
FutureGen preceded your arrival here in Washington as Secretary
of Energy. But that website and that proposal and all of this
effort went on for a full 2 years after you became Secretary.
It wasn't until the FutureGen Alliance chose Mattoon,
Illinois over the Texas site that a few weeks later you came to
my office and said that's the end of the project. We're killing
it. That will be the end of FutureGen. Saying at the time we're
concerned about the cost.
You know, I understand that. We should be concerned about
cost. The longer you wait on a project, you know it's going to
cost more each year.
FutureGen Alliance represents international and national
private sector partners who are willing to share in the cost of
that. Did you negotiate with them? No. You walked away from it.
You pulled the plug on this project and left these people
hanging after 5 years of effort.
Well, the good news is that a new administration is on the
way. And I hope that administration will have a more
enlightened and positive view toward the opportunity that
FutureGen will provide for us. I think what you did, what the
administration did, not only to my State, but to the seven
States that in good faith competed for this, was unfair and
unfortunate. For the good and future of coal as an energy
source, I hope that we can keep FutureGen alive after you're
gone.
Senator Dorgan. Senator Durbin, thank you. I want you to
save some for questions, if you're able to stay around. But
thank you very much.
Senator Allard, did you wish to make a brief opening
statement?
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Just a brief one if I might, Mr. Chairman.
Senator Dorgan. Yes, please.
Senator Allard. Mr. Chairman, thank you for holding this
hearing. Coming from the State of Colorado I'm a strong
proponent of the use of coal for electrical generation. The
FutureGen concept is one that I've been looking forward to
seeing come to reality. So I was concerned about reports of
restructuring the proposal and deviating from the original
intent of research and development. As a scientist I'm strongly
supportive of basic science.
Once the new proposal was clear however, I was very
interested to hear that the administration has chosen to focus
on multiple commercial demonstrations of carbon capture and
storage capabilities rather than taking the more narrow
approach of a single research and development facility. I
happen to believe that competition between scientists serves us
best. I think it also helps save the taxpayer dollars. And I
was equally concerned when we saw the high cost of this
particular project evolve as it developed.
So I think that you've taken a responsible approach. So I
look forward to hearing your testimony and to engaging a
dialogue with you on this matter. Thank you.
Senator Dorgan. Senator Allard, thank you very much. Mr.
Secretary, thank you for being with us. Again, I thank you for
your work. This issue is a controversial issue as you know. And
we asked you to come and give us your perspective.
What we have heard so far is really only the public
announcements. Although, we've, a number of us have had some
phone calls from you. But you may proceed with your statement.
Your entire statement will be made a part of the permanent
record and you may summarize.
STATEMENT OF HON. SAMUEL W. BODMAN, SECRETARY,
DEPARTMENT OF ENERGY
Secretary Bodman. I'll do that, sir. I do appreciate the
opportunity to discuss this matter with you. Also to discuss
the FOA or the Funding Opportunity Announcement that occurred
yesterday related to the restructured program.
In the beginning of my remarks I'd like to make one thing
clear. I made a very difficult decision to restructure the
FutureGen project. And I did it in order to save it from
itself.
Without this intervention I do not believe the originally
structured project was sustainable either politically or
economically. And that in order to bring the vitally important
technology of commercial scale carbon capture and storage or
CCS as we call it, to the marketplace a change in the project
structure simply had to be made. Understanding the series of
events which led us to this decision is fundamental to
appreciating the need for restructuring and to fostering
support for the path forward.
To begin I believe that it is necessary to acknowledge that
America's energy production, as you know, is heavily reliant on
coal. Coal powered electricity generation accounts for roughly
half of our domestic electricity mix. And it is the most
abundant of our domestic fossil fuels with some estimates
accounting for recoverable reserves of roughly 240 years at
current use.
However coal powered electricity also accounts for a
significant release of carbon dioxide emissions into the
atmosphere. It was with those realities in mind that the
President proposed the concept of FutureGen. The project was
originally envisioned as a large scale engineering laboratory
for testing new, clean power, carbon capture and coal to
hydrogen technologies.
It was originally conceived of as a $950 million public/
private venture. Using escalation factors at the time the
program was conceived the original estimate was roughly $1.1
billion instead of $950 million. I think that's a fair number
to use.
However by early 2007 the escalated estimated cost of the
project increased to roughly $1.8 billion. With the taxpayers
responsible for 74 percent of the total cost and the private
sector partners responsible for 26 percent. That means the
taxpayer was being asked to shoulder at least $1.3 billion of a
projected total project cost which we anticipated would only
continue to escalate in the future.
The Alliance, for its part, almost doubled the number of
companies involved in the project between 2005 and 2007. Even
though the American taxpayer was being asked to fund $1.3
billion instead of $700 million or almost double, an individual
company participating in the Alliance actually was investing
less money than they were before. Something in my judgment was
profoundly wrong with this deal.
These problems did not go unnoticed by Congress. In fact
this very subcommittee issued report language during the debate
over fiscal year 2008 appropriations process that stated ``the
subcommittee has emphatically stated its intent and has warned
that this R&D project (that is to say FutureGen) must not be
funded at the expense of the balance of the coal R&D program.''
The House Appropriations Committee went even further calling on
DOE last summer to restructure FutureGen in a fashion that is
quite similar to what we have already done.
Concurrent with the reexamination of the project and the
cooperative agreement significant changes in the marketplace
began to occur. And they continue to this day. When FutureGen
was first announced, few proposals for the construction of the
highly technical, integrated gasification and combine cycle or
IGCC coal plant, they hardly existed.
Today there are three operating IGCC plants with two more
in the permitting process and nearly an additional 30 in
various stages of planning. Carbon capture and storage
technology has also made important strides since the original
FutureGen program was launched in 2003, largely through the
efforts of DOE's carbon sequestration program.
Adding to these changes is the recent trend of regulatory
uncertainty. More and more we are seeing States and communities
say no to the construction of new coal-fired plants. As a
result we've seen 36 powerplant cancellations, 14 postponements
between January 2007 and March of this year.
Collectively these plants would have produced an estimated
37 gigawatts of electricity. Depending on how much a typical
house would use that's about 37 million houses in America. So
it's a sizable amount. As you can tell from these statistics
the need to demonstrate CCS technology on a commercial scale is
now. And we believe that FutureGen is the appropriate program
to get it done.
This brings me back to the decision to restructure the
program. After 7 months of discussions between DOE
representatives and the FutureGen Alliance it became evident to
me that we could not reach agreement on the amount of cash that
would be contributed to the project by the Alliance along with
an allocation, a change in the allocation of risk in the
future. A number of you I've spoken to about this personally.
Recognizing that our failed attempts at limiting taxpayer
exposure required us to change course, we undertook a formal
effort last December to build upon our previous work. While
taking into account the technology advances and the new market
conditions to restructure the project. The goal of
demonstrating system integration of CCS technologies in our
restructured FutureGen program remains the same as the original
FutureGen approach announced in 2003.
The difference is that under the restructured program our
plan with current cost estimates will support funding for
multiple commercial demonstrations of integrated advanced CCS
technologies that will operate commercially from the start.
While also harnessing the power of the private sector
innovation, capping taxpayer exposure and maximizing the impact
of Federal investment. To move this restructured FutureGen
program forward DOE launched an aggressive schedule for its
implementation including a request for information issued last
January which resulted in a significant amount of input from
over 50 parties that responded to that. Yesterday the
Department issued a draft funding opportunity announcement or
FOA which will allow perspective proposers an opportunity to
provide the Department with additional input before we release
the final FOA by mid summer with an announcement of selections
targeted for December of this year.
As I explained at the start, coal is a strategic energy
resource for America. Our commitment to coal cannot waiver. But
to be successful in confronting the energy and environmental
challenges before us, we cannot continue the business as usual
approach.
We must continually ask if we are efficiently using our
taxpayer investments to achieve a cleaner, more sustainable,
more affordable and more secure energy future. Where we are
not, we must make changes. That is the difficult responsibility
of leadership. And that is exactly what we are doing with the
FutureGen program.
PREPARED STATEMENT
Mr. Chairman, I know that you and the other Senators have
questions for me. So at this time I would like to enter my
written statement for the record. Thank you.
[The statement follows:]
Prepared Statement of Hon. Samuel W. Bodman
Chairman Dorgan, Senator Domenici, members of the subcommittee, I
appreciate the opportunity to discuss with you the status of the
Department of Energy's FutureGen program. Today I will summarize how we
have restructured the program, describe the reasons for the
restructuring, and then discuss in greater detail how we intend to
carry out the program.
COMMITMENT TO CLEAN COAL
The United States Government is on an ambitious course to develop
and deploy clean energy solutions that are technologically feasible,
commercially scalable, and economically sustainable to increase
America's energy security while reducing greenhouse gas emissions.
America's energy production, as you know, is heavily reliant on
coal. Coal powered electricity generation accounts for roughly half of
our domestic electricity mix and it is the most abundant of our
domestic fossil fuels, with some estimates accounting for recoverable
reserves of roughly 240 years at today's usage rates. Of course, the
burning of this tremendous resource for electricity generation results
in a release of emissions, including carbon dioxide, which is widely
identified as contributing to climate change.
Last month President Bush announced a national goal to stop
greenhouse gas emissions growth by 2025. This is a major step forward
in the United States' ongoing efforts to address global climate change.
Deploying advanced technology, including carbon capture and storage
(CCS), will play a vital role in U.S. efforts to meet this goal. And
advancing CCS technology in a commercial setting at an accelerated pace
is a key objective of the restructured FutureGen initiative that I am
here today to discuss.
The focus of our restructured FutureGen program remains the same as
the original FutureGen approach announced in 2003--to maximize the
effectiveness of our national investment in clean coal research through
demonstration of cutting-edge system integration of CCS technologies.
The difference is that under the restructured program, our plan aims to
support not just a single R&D testing laboratory, but rather to provide
funding for commercial demonstration of integrated, advanced CCS
technologies.
FutureGen is one of a suite of initiatives in our broad portfolio
to advance clean coal technology. We are spurring investment in
advanced fossil energy technology by supporting not only robust
research and demonstration, but also making available nearly $10
billion in publicly-backed incentive measures through 2010, including:
--Up to $8 billion in loan guarantees to support advanced fossil
energy projects that deploy the most promising new or
significantly improved technology. In addition, the Department
identified three integrated gasification combined cycle (IGCC)
projects during its first round of loan guarantee solicitations
that we have invited to submit a full application, on which we
expect to begin our thorough financial and technical review
this year.
--Portions of $1.65 billion in clean coal tax credits to reduce risks
of early commercial deployment of advanced clean coal
technologies.
U.S. investments to demonstrate the potential of clean coal
technology, including carbon sequestration, are leading the world.
Since 2001, the administration has invested more than $2.5 billion in
clean coal technology, including carbon sequestration projects and IGCC
research that have advanced our understanding of the potential for
clean coal technology. In addition, our budget request for next year is
the largest amount requested for DOE's coal program in more than 25
years. This $648 million request will further the development of more
efficient gasification turbine, and carbon capture technologies, drive
innovations for existing coal power plants, and support large-scale CCS
injection tests that are critical to demonstrating the safe and
permanent storage potential in domestic geologic formations.
ORIGINAL FUTUREGEN APPROACH
As announced in 2003, the FutureGen program was originally
envisioned as a large-scale engineering laboratory for testing new
clean power, carbon capture, and coal-to-hydrogen technologies. It was
conceived as a $950 million public/private venture with the taxpayers
responsible for 74 percent of the total project cost and the private
sector partners responsible for 26 percent. In December 2005, the
Department formally entered into a Cooperative Agreement with the
FutureGen Alliance to build and operate the facility.
In 2007 the estimated cost of the project had increased roughly to
$1.8 billion, of which, the Department would be responsible for at
least $1.3 billion of the total cost, which we believed would only
continue to escalate and would ultimately threaten funding for our
other ongoing coal research and development projects. As such, Deputy
Secretary Clay Sell and others immediately made our concerns known to
the Alliance in a meeting in April 2007; we began internal deliberation
on changing the scope of the project that spring and summer; and we
engaged Congress on the cost escalation issue relative to the fiscal
year 2008 appropriations process. In fact, report language issued by
this subcommittee stated, ``the subcommittee is concerned about
maintaining adequate funding for the core fossil energy research,
development, and demonstration programs. The subcommittee has
emphatically stated its intent and has warned that this R&D project
must not be funded at the expense of the balance of the coal R&D
program.''
By the end of the summer, we began formal negotiations with the
Alliance to limit taxpayer exposure, change the scope of the project,
and ultimately restructure the terms of the Cooperative Agreement to
make the project sustainable and viable.
CHANGING TECHNOLOGY, MARKETS, AND REGULATIONS
At the same time that the FutureGen project was experiencing
dramatic cost escalation, significant changes were occurring (and
continue to this day) within the technology field, the marketplace, and
the regulatory environment. When FutureGen was first announced, few
proposals for the construction of the highly technical IGCC coal plants
existed. Today, in addition to the two IGCC plants currently operating
on coal in Florida and Indiana, and one operating on pet-coke in
Delaware, two newly proposed IGCC power plants have passed the
permitting process (an AEP plant in Illinois and a Duke plant in
Indiana), and nearly 30 additional clean-coal plants of this type have
been publicly announced and are in various stages of planning.
Carbon capture and storage technology has also made important
strides since the original FutureGen program was launched in 2003.
DOE's Carbon Sequestration program has developed a network of seven
Regional Carbon Sequestration Partnerships to help demonstrate the
technology, infrastructure, and basis for regulations necessary to
implement large-scale carbon dioxide (CO2) sequestration
projects in different regions and geologic formations across the
Nation. The Partnerships have estimated that U.S. geologic formations
have the technical potential to store more than 600 billion metric tons
of CO2, the equivalent of more than 200 years of emissions
from stationary fossil energy sources in the United States. The large-
scale tests are a continuation of the 25 small-scale geologic storage
tests that the Partnerships are implementing today and the
characterization phase for these large scale injections that was
successfully completed in 2005.
Those marketplace changes and technological advances are important,
as is the recent trend of regulatory uncertainty. More and more, we are
seeing States and communities say ``No'' to the construction of new
coal-fired plants because of concerns over the carbon dioxide emissions
they will produce, in addition to cost considerations. Further, some
companies have become concerned about investing in coal plants, even
those utilizing advanced technology, citing uncertainty about future
regulations.
As a result of regulatory, economic and environmental concerns,
we've seen 36 power plant cancellations and 14 postponements between
January 2007 and March 2008. Collectively, these plants would have
produced an estimated 37 gigawatts of electricity.
The marketplace is showing increased interest in beginning the
deployment of commercial scale IGCC plants that could be coupled with
carbon capture and storage technologies. As I see it, we need to use
the FutureGen program to spur the use of this advanced technology and
at a faster rate.
DECISION TO RESTRUCTURE FUTUREGEN
Returning to our decision to restructure FutureGen, after several
months of discussions between DOE representatives and the FutureGen
Alliance, it became evident that we could not reach agreement to revise
the cost sharing arrangement for cost escalations in a manner that
would limit in a reasonable way the Government's financial exposure on
this project. Moreover, the Alliance insisted on leveraging major
portions of its 26 percent contribution as debt against the entire
project. Recognizing that our efforts to limit taxpayer exposure had
been unsuccessful, we undertook a formal effort last December to
reconsider the direction of the FutureGen Project, with the intent to
build upon the technology advances in CCS and respond to the new market
conditions, while retaining and accelerating the original goal of
finding a way to produce electricity from coal with dramatically
lowered emissions into the atmosphere.
After much thought and consideration, I chose to restructure the
FutureGen Project in order to improve the prospect of success for the
commercial introduction of this technology within the increasingly
urgent timeframe that the global situation requires. Without this
intervention, I believe that the originally structured project would
not have been sustainable--either politically or economically--and
that, in order to bring the vitally important technology of commercial-
scale CCS to the marketplace, a change in the project structure simply
had to be made.
Unlike the original approach, the new plants are expected to
operate commercially from the start and will provide a significant
amount of electricity to our Nation's electric grid. This should help
meet the Nation's rapidly growing demand for energy, while also
demonstrating the commercial viability of permanently and safely
storing carbon dioxide deep underground. These commercial plants should
be able to be replicated around the world. The power sector should be
able to plan and to finance new state-of-the-art coal facilities based
upon cutting-edge system integration of CCS technologies at commercial
plants under the restructured FutureGen program.
The restructured approach harnesses the power of private sector
innovation, caps taxpayer exposure, and maximizes the impact of the
Federal investment while substantially increasing our likelihood of
success.
--Projects collectively will sequester at least double the amount of
CO2 expected from the original FutureGen program.
The CO2 generated by each plant will be sequestered
in a saline formation.
--Projects will build on technological R&D advancements that have
been made since the FutureGen concept was announced in 2003,
which include laboratory-scale and small-scale carbon
sequestration projects, through the Regional Carbon
Sequestration Partnerships.
--Projects aim to hasten the timeframe for full-scale commercial
operation of IGCC or other advanced technology coal power
plants with CCS, enabling market use as soon as the plants are
commissioned.
--This approach allows us to join industry in an effort to build
clean-coal plants by providing funding for the addition of CCS
technology to multiple plants.
--Projects will demonstrate the integration of CCS technology with
advanced coal-power electricity generation, and seek to clear
hurdles associated with early technology demonstration, thereby
increasing the likelihood of rapid commercial deployment after
2015.
--Projects will help provide the technology basis to inform
regulatory and technology development to the next generation of
coal plants, many of which are facing cancellations due to
concerns about the statutory and regulatory situations relating
to greenhouse gas emissions.
To move this restructured FutureGen program forward, DOE launched
an aggressive schedule for its implementation. The Department initiated
this schedule with a Request for Information (RFI) to secure industry
input in advance of a competitive solicitation to provide financial
assistance for CCS demonstrations integrated with market-ready,
commercial IGCC or other clean technology coal power plants. The
deadline for the public to submit comments was March 3, 2008. I am
pleased to report to you that many of the approximately 50 parties that
responded to the RFI expressed strong interest in conducting coal-based
projects using CCS. The comments we received from the RFI provided
valuable input into the development of a draft Funding Opportunity
Announcement (FOA), the next stage of moving forward with the
restructured FutureGen program.
This week the Department issued a draft FOA, which will allow
prospective applicants an opportunity to provide the Department
additional input before we release the final FOA this summer. Following
the issuance of the final FOA, we will evaluate the applications
received, and hope to announce selections in December 2008. After
successful completion of National Environmental Policy Act (NEPA)
analyses, commercial operations could begin in 2015.
CONCLUSION
As I explained at the start, coal is a strategic, energy security
resource. It is the most abundant, lowest-priced fossil fuel in the
United States and will remain a major source of energy both at home and
abroad well into this century. In 2007 alone, the United States
consumed 1.1 billion tons of coal, and that figure is expected to grow
to an estimated 1.5 billion tons by 2030, a 37 percent increase,
according to DOE's Energy Information Administration.
The United States must continue to use coal, and we are committed
to doing so more cleanly and efficiently while, at the same time,
reducing its environmental impacts.
Our commitment to coal cannot waver, but to be successful in
confronting the energy and environmental challenges before us, we
cannot continue the business-as-usual approach. We must continually ask
if we are using our taxpayer investments efficiently to achieve a
cleaner, more sustainable, more affordable and more secure energy
future. Where we are not, we must make changes. That is the difficult
responsibility of leadership and that is exactly what we are doing with
the FutureGen program. Understanding the series of events which led us
to this decision is fundamental to appreciating the need for the
restructuring and to cultivating and engendering support for the path
forward. I hope that my testimony before this subcommittee will help
shed light on these issues and illustrate the vital need to support and
proceed with the revised project.
The Department appreciates the support we have received from
Congress in our efforts to advance clean coal technologies, and we look
forward to continuing that partnership. We hope you will join us in
supporting the restructured FutureGen program.
I thank you, Mr. Chairman, for scheduling this hearing and for your
interest in the new FutureGen program, and I look forward to answering
any questions that you and members of the subcommittee may have.
RETROFITTING EXISTING COAL PLANTS
Senator Dorgan. Secretary Bodman, thank you very much. I
think from the opening statements you understand that most of
us feel there is an urgent need to move and move quickly. You
indicated that in your statement. And I indicated in my opening
statement that the need for us to pursue the Clean Coal Power
Initiative and do that aggressively.
You know when the President announced at the start of his
term a $2 billion pledge for clean coal technology which then
has morphed into a Clean Coal Power Initiative. The seven plus,
now 8 years of the administration has come up far short of that
pledge. I mean, and that includes FutureGen.
If you take a look at what's been requested for the clean
coal technology or Clean Coal Power Initiative and the money
that's gone out the door and include FutureGen with that which
I understand you define as part of the Clean Coal Power
Initiative. It's far short of what the President said should be
done. And now we come to the tip of the pyramid with climate
change and all of these issues. It makes it even more urgent
that we be more aggressive.
Now let me ask a question about--I know that you don't put
together the final budget. You ask for the money you think is
necessary. You then send it to OMB and then you're not able to
tell us what you ask OMB for. And then OMB sends the President.
And so, you know we have this annual spring ritual where you
can't answer the questions that we ask.
But let me ask a question.
Secretary Bodman. I think that is accurate, sir, if I may
say.
Senator Dorgan. Yes, well, as I said, I think, at the last
hearing, I said former Congressman Parker was sitting at the
table. And he in a moment of great candor in response to
Senator Bond actually told us an answer to the question and the
next morning he was fired.
The answer to the question was; are you getting the money
you need. The answer is no. This budget is short of that. And
the next morning he was no longer working. So we understand the
pain on the chair on which you sit.
But let me ask about the annual EIA outlook. I have a graph
from March 2008 that you're, no doubt, are familiar with. It
shows that 79 percent of the CO2 generated by coal-
fired plants in 2030 will come from coal-fired plants that
exist today, so about 80 percent of that which will be emitted
by these plants in 2030 in terms of CO2 will come
from plants that exist today.
That seems to me to indicate an urgency to work on
retrofitting existing plants with new technology and that that
is as much or perhaps even more critical than building new
plants. Now I'm not suggesting we shouldn't have a new plan.
I'm not suggesting I oppose FutureGen. I am saying, however,
that we've got a range of things to deal with.
And I guess the first question is why are we not addressing
the retrofitting of existing plants?
Secretary Bodman. I think we are, I mean.
Senator Dorgan. How are we doing that?
Secretary Bodman. We're doing that through CCPI. That's
what differentiates CCPI from FutureGen and from other
programs. It is meant to deal with the question of
retrofitting.
Senator Dorgan. But I just described the under funding of
that by the administration.
Secretary Bodman. Well, it's $85 million, the research.
Senator Dorgan. This year. Last year was----
Secretary Bodman. Last year was somewhat less than that.
Senator Dorgan. But my point is it doesn't, that none of
this meets the President's objective of saying we're going to
do $2 billion in 10 years.
Secretary Bodman. I think that we've done over $2.5 billion
during the 8 years that this President has been in office. And
so----
Senator Dorgan. Well, we'll compare notes, but----
Secretary Bodman. I'd be happy to go through all that with
you.
CCPI ROUND THREE SOLICITATIONS
Senator Dorgan. Sure. On the Clean Coal Power Initiative
you're about 44 percent of what was pledged at near or the end
of the term. So let me ask about the Round Three solicitations.
Secretary Bodman. Right.
Senator Dorgan. It seems to me that is the best existing
program for demonstrating the addition of these existing plants
to this approach. And yet, Round Three is lagging and tell me
what's happening with Round Three.
Secretary Bodman. We need about $300 million, my
recollection is. And with the 2009 request which is about $85
million, best memory serves, that would put us at $300 million
and we would be able to proceed with Round Three.
Senator Dorgan. So when do you think the administration
will make an announcement on Round Three?
Secretary Bodman. It's going to be a function of budget
matter when we get the money.
Senator Dorgan. And so if there's?
Secretary Bodman. I believe I think we're required to have
enough money in the till at the time we solicit the input. And
so it's going to be whenever we get the budget done, hopefully
this summer.
Senator Dorgan. Mr. Secretary, you called me when you were
about to make your announcement. And you described most of the
announcement, I think, to cost increase.
Secretary Bodman. That was what originally got me started,
I think, in terms of thinking about this. The question of going
in 2 years time from roughly 2005 we had the number verified by
the way in early 2005 or early to mid 2005. And by the time 2
years had passed we saw a scale up from $1 billion, $1 billion
to $1.8 billion.
There was a meeting that occurred with all of the chiefs
following my talking to Mike Morris who is the chairman of
American Electric Power. And I talked with him about the need
for changing this. This whole thing where we were funding 74
percent of it yet the Alliance had the opportunity to continue
to enlarge their membership.
They actually saw a decline having doubled the total cost
of the program and the report I got back from the meeting of
the CEOs was no one in the room believed that this project
could be built for $1.8 billion, no one. That said to me that
we had a major cost issue.
Senator Dorgan. Now the Federal commitment for that was
$1.1 billion as I understand it, given the cost. Is that
correct? Federal commitment?
Secretary Bodman. It was a--well, it would have been $1
billion. We were committed to 74 percent according, on the
original FutureGen. And that's roughly $1.3 billion out of $1.8
billion.
REVISED FUTUREGEN PROJECT
Senator Dorgan. So your call for the follow on projects is
about equivalent then, $1.3 billion? You're talking about the
smaller FutureGen project?
Secretary Bodman. Well, exactly. I mean that was--when I
talked to Morris, I said, look, I will live with the $1.3
billion. And I will go to OMB to try and get the $1.3 billion.
But I will ask you to make a commitment to change the
Alliance's future cost allocation because I wanted there to be
some pressure on them since they were making all the decisions
on this project. And I was putting up all the money. It
didn't--there was a loss of connection there.
Senator Dorgan. Do you believe there should be additional
FutureGen like projects including the integrated projects of
the type that the Department originally announced in 2003?
Secretary Bodman. Of course, that's what the revised the
adjusted FutureGen is.
Senator Dorgan. Just not this project.
Secretary Bodman. That's what it is.
Senator Dorgan. Just not this project you're saying.
Secretary Bodman. It is more modest spending. It is, you
know, roughly one-third of the cost of the total project. And
there are limits as to how far we can go.
Senator Dorgan. Right.
Secretary Bodman. That's what the issue is.
Senator Dorgan. Right. I have some additional questions,
but let me turn to Senator Domenici.
COAL POLICY ISSUES
Senator Domenici. Mr. Secretary, we have worked together on
a lot of projects, for instance, nuclear power starting from a
position where we were down and out to a position where nuclear
power may indeed be undergoing a renaissance. And you in your
position and we in ours up here, we all saw it as something
urgent that had to be done.
Secretary Bodman. Right.
Senator Domenici. Now, I'm going to state for myself that
probably the aspect of the United States Government's energy
policy that has least affected me, affected me the least has
been our coal policy. The implementation of our coal policy
has, you know, it borderlines a dud from this Senator's
standpoint. We just don't seem to be getting it done.
We don't seem to be cleaning up the coal sufficiently which
we've had a lot of money poured into clean coal technology. We
don't seem to be getting our act together with reference to
using coal in other ways, coal to liquid.
We don't seem to be getting our act together in terms of
cleaning up coal in ways that we know are necessary for the
climate change issue. We don't seem to be making great strides,
and you correct me on this one, in terms of sequestration, are
we?
Secretary Bodman. No, sir. I mean, I think that's fact.
Senator Domenici. Yes, I do too. Thank you very much. Now
having said that I guess I would ask before I get to this
program do you have a couple of sentences or a couple of
observations as to why that's the case?
Secretary Bodman. I think the--it's very difficult for the
Government to get itself organized to effect massive change.
Having said that, I do believe we are, at long last, on the
right path, on the right track. I think this FutureGen project
as we have redefined it will build hopefully two or three
competing CCS programs that will be connected to IGCC or other
type of electricity generation. That's what the hope is and the
goal.
Senator Domenici. And you're suggesting that FutureGen was
going to solve one of these problems of fumbling around and not
knowing exactly where we're going and not having control
because of what you described. Is that right?
Secretary Bodman. Well, I think, look, what I think
happened was the world changed as we were working on this.
Senator Domenici. Yes.
Secretary Bodman. We didn't have IGCC plants that were
built and operating heretofore. We do now. And I think the goal
has been to try to respond to those changes. That's what this
new this revised CCS program is all about, about the FutureGen
program.
FUTUREGEN REVISION
Senator Domenici. Now, Mr. Secretary, having said these few
preliminary things. There's lots of blame to go around. I,
myself, think we haven't spent enough time in oversight over
this.
We keep pouring money into so-called clean coal technology
for at least the last 12 years. I don't know if Senator Craig
thinks that it's been weak, as I do. But I think it's been a
weak effort. I think I know why. But I haven't spent enough
time to get it on the record.
FutureGen was intended to be a workable program in terms of
the application of technology to the solution of a big American
problem regarding coal. Is that right?
Secretary Bodman. That's correct.
Senator Domenici. That's what FutureGen was.
Secretary Bodman. That's correct.
Senator Domenici. Now from my standpoint I'm not going to--
I want you to tell us one more time as brief as you can, why
you cancelled it. What is the outcome going to be for America
in terms of the utilization of our coal in some programmatic
way by you as you push for the alternative? Could you do that
one more time?
Secretary Bodman. Sure. Look, I think this is a critically
important program that is to say using coal. It's very
important to the country that we find a way to use the coal
that we have available. FutureGen, as we have revised it, I
believe is current and that it deals with the current
marketplace, that is to say, the existence of IGCC projects
which are three in number that exist today. There's some 30
more that are in various stages of planning.
There seems to be, I hesitate to say it, because we don't
know it yet, but there seems to be a commitment on the part of
the industry that if we fund CCS they will build the IGCC
plant. And I believe we will get the support of States. We have
had a number of States, Florida, Kansas, the State of
Washington, the State of Minnesota, the State of California,
all of which have got either legislation or have outright
turned down coal based projects based on the carbon dioxide
emissions.
This, I think, is a reflection of--and that's only during
this last year that we've sort of seen that occurring.
Senator Domenici. Yes, sir.
Secretary Bodman. And so that's the reason that we have
changed the program. It would have been a lot easier for me not
to suffer Senator Durbin's criticisms and been a lot easier for
me personally to have let this thing slip by and to go forward
with the Alliance and have everyone be happy. In my judgment it
was not the right thing to do.
And so I have acted in the way that I have acted and made
the decisions that I have decided. But they were done in good
spirit. They were done with good intentions. And they were done
in order to try to protect the American taxpayer.
Senator Domenici. Now what's the result going to be the way
you're doing it?
Secretary Bodman. The result is going to be multiple
projects, multiple programs. We don't have funding yet from
Congress, but assuming we get funding and get the $1 billion,
$1.3 billion over time, we'll have multiple programs, multiple
projects in different geographical areas that will demonstrate
on a commercial basis that this approach works.
Senator Domenici. Thank you very much.
Senator Dorgan. Senator Bond, or Senator Craig? I'm sorry.
COAL TECHNOLOGY
Senator Craig. Thank you, Mr. Chairman. Well, Mr.
Secretary, I've listened with great interest because it's an
issue that I have not focused on with the intensity that I
might have had I been a coal producing State. But I do reflect
some concern.
And the concern is we're about ready here in Congress to
produce a climate change bill.
Senator Domenici. Right.
Senator Craig. And that more than likely will have a cap
and trade scheme in it that is beyond the imagination of human
kind to create, but we will create it. We'll create a board and
we'll redistribute wealth in an unprecedented way. That may
happen.
But something else could happen if the technology of coal
isn't advanced as rapidly as we can advance it. We may set in
motion a fuel switching reality in the utility industries of
our country that could chase gas out of the stratosphere. We've
already seen a huge relocation of gas affected industries into
the Middle East.
Secretary Bodman. I agree with you.
Senator Craig. Billions of dollars of investment going
there now because it won't come here.
Secretary Bodman. That's correct.
Senator Craig. And that's a tragedy. It is a tragedy of our
economy. It is a reality of the markets.
Secretary Bodman. You bet.
Senator Craig. What are we going to do if we are
politically so stupid as to create a scheme we cannot even
begin to proceed. And we create in the marketplace an anomaly
of fuel switching before the technology gets to coal to make it
clean. Now, I don't know that you can answer that question.
But let me tell you of my frustration because you just hit
on it a moment ago when you said, it's very difficult to get a
government organized. Government is about as nimble as a turtle
with its head buried. And I'm not going to suggest that DOE has
been much different. I think you reflected that in your
statement of frustration a moment ago.
And I'm going to tell you that my frustration is that I sat
down with a fellow by the name of Brian Foody, the CEO of Iogen
Corporation a week ago after I had been up to Ottawa to look at
the facility. And a sense that we're at the verge of
dislocating the food chain by the phenomenal acceleration of
corn based ethanol and it was critically important that we
bring to the market cellulosic based ethanol.
Secretary Bodman. Right.
LOAN GUARANTEES
Senator Craig. They're not coming to the lower 48 now
because they can't get the loan guarantee in a timely fashion.
So they're going to build their first out of laboratory,
commercial facility in Canada. And I and others had worked a
long time to nurture this and move it rapidly starting in 2005.
But because those loan guarantees didn't come in 2007 and
aren't out yet in 2008 their investors, Shell and Goldman Sachs
said do it. Don't wait for the Government of the United States.
Move. And they're moving.
Now we're going to get the technology in time, I suspect.
But it's not going to be in the lower 48 to begin with. And of
course I was excited about it. I was focused on it because it
was Idaho.
Secretary Bodman. Sure.
Senator Craig. Because they had found the kind of base of
fuel of substance they needed, if you will, the cellulosic
materials. Again, the nimbleness of government today in a time
of urgency is to me, frustrating. And that's why I'm here today
to listen with great detail about decisions made as it relates
to where we're headed.
At a time when CEOs of utilities are telling me, we'll put
some money up. Government can partner with us. We've got to get
to the technology because if we don't and if you do, meaning if
you do create a climate change policy, than we're going to see
the escalation of power rates beyond our greatest imagination
if we have to start fuel switching to meet the needs.
Any general comment you want to make on that?
Secretary Bodman. Well, first of all on Iogen, the--and to
defend my colleagues who are working on the loan guarantee
office.
Senator Craig. Now, I agree, you're working now.
Secretary Bodman. At the time the loan guarantees were
first talked about we put out a request. I think there were 16
positive responses, one of which was Iogen.
Senator Craig. That's correct.
Secretary Bodman. Iogen has never responded, sir, to my
knowledge with a loan application. And so they are well down on
the list in terms of where their problems are, at least as a--I
asked because I, anticipating your question I asked that this
morning. And so to my knowledge Iogen is not even considering
coming here. So I can't respond to that other than saying in
terms of the loan guarantee issue.
Senator Craig. Well it's my reaction based on my
conversation with them and will not take this any further than
to say the timeliness of where they are and where we are here
with loan guarantees. And yes, they're in the 16. And they did
make that final project sponsor group. Is the reality of timing
that has been almost 4 years now in the making and yet not a
loan. Are you prepared to make loan guarantees before the end
of 2008?
Secretary Bodman. Yes, sir.
Senator Craig. Ok. So that's--you're going to make it in a
window of 3 years. And, you know, I and a good many members of
this subcommittee have been terribly frustrated by that.
And my reaction is quite simple. Because we could not be
nimble, we lost potentially, a substantial project for the
lower 48. It is in the hemisphere. It will ultimately come if
its technology is proven. And it appears that it can be. I've
been there to see it. I'm no scientist, but it appears to be
working.
And there's going to be heavy investment made in it now.
Secretary Bodman. I hope that's the case.
Senator Craig. Enough said. Enough said. A frustration, let
me say, registered. Thank you.
Secretary Bodman. Thank you, sir.
Senator Domenici. What was that comment, sir? What was your
comment? What was your comment? You said something.
Secretary Bodman. I was just agreeing with the Senator,
that's all.
Senator Dorgan. Thank you, Senator Craig. Senator Durbin.
ORIGINAL FUTUREGEN PROJECT
Senator Durbin. Thank you, Mr. Chairman. Secretary, when
you opened you said that the FutureGen project in your words in
your written statement was unsustainable, politically and
economically. You used an example, 37 communities resisted the
construction of new coal-fired plants. I can tell you there was
no resistance to the idea of building FutureGen in Mattoon,
Illinois.
Secretary Bodman. I'm glad to hear it, sir.
Senator Durbin. Well, I think you're well aware they worked
hard to bring that plant. There's no NIMBY involved here. So
the political resistance to locating the plant, I don't know
how that would apply to this circumstance at all.
The second point about whether this is economically
sustainable. I'd like to take you back in history to February
2003 when President Bush announced this project. Now you
weren't the Secretary at that time, but I'm sure you've
reviewed what he had to say.
Secretary Bodman. Right.
FUTUREGEN COST INCREASE
Senator Durbin. He said that it would cost about $1
billion. And he said that the Department of Energy, the Federal
Government was going to carry about 80 percent of the cost.
You come to us today and say well, another reason why I
ended FutureGen was the Federal Government was going to have to
carry 74 percent of the cost. From the President's initial
announcement the Federal Government was prepared to cover 80
percent of the cost.
Second, you say there was a scale up in cost. Mr.
Secretary, when the President announced the $1 billion, he
announced it in 2004 constant dollars. He didn't build
inflation into the estimated cost of the project. He knew. We
knew. Everyone knew. The project would take time to build. And
inflation would add to its cost.
Now there is an assumption moving from $1 billion or $1.1
billion to $1.8 billion of an inflation rate for construction
projects of 5.2 percent over the period of time to 2017. Do you
dispute that?
Secretary Bodman. Yes, sir.
Senator Durbin. Do you think that any project that you are
going to fund that involves construction will not face the same
inflation rate of somewhere near 5.2 percent over a similar
period of time?
Secretary Bodman. No, I do dispute that. I think the issue
of--first of all, we had that cost estimate verified in, I
think I mentioned, in the middle of 2005. So, and it was $1.1
million, pardon me, $1.1 billion.
In 2 years time this escalated from $1.1 billion to $1.8
billion.
Senator Durbin. Well let me stop you there and ask you----
Secretary Bodman. And----
Senator Durbin. So was there a change in the project? Had
they somehow or another changed the scope of the project in
that period that resulted in this increased estimate as to its
cost?
Secretary Bodman. In fact we talked to them about reducing
the scope of the project.
Senator Durbin. But was there a change in the original
scope of the project?
Secretary Bodman. No.
Senator Durbin. I know there wasn't.
Secretary Bodman. No.
Senator Durbin. And you make that point in your letter----
Secretary Bodman. Right.
Senator Durbin [continuing]. To the FutureGen Alliance. So
from the moment that President Bush announced this project
until you started getting worried about its cost there was no
change in its scope. The only difference is the estimate of
what inflation will be.
Secretary Bodman. It's not a matter of inflation, Senator.
Senator Durbin. Well, please explain to me. If you're not
changing the scope of the project, how do you move from $1.1
billion to $1.8 billion?
Secretary Bodman. Because the cost of doing this and
undertaking this project reviewed as having escalated by far
more than 5 percent a year.
Senator Durbin. Why?
Secretary Bodman. I don't have an answer to that.
Senator Durbin. Well that is the critical question. Because
I think it gets to the heart of your decision. Any time that
you've expressed concern to me about the FutureGen project----
Secretary Bodman. Right.
Senator Durbin. It wasn't about whether there would be a
NIMBY that Mattoon may someday change its mind about a coal-
fired plant.
Secretary Bodman. No. That was not the concern.
Senator Durbin. So there was no political sustainability
question. The only questions you've ever raised to me relate to
cost.
Secretary Bodman. That's correct.
Senator Durbin. And if the project itself is still the
project that President Bush announced.
Secretary Bodman. Yes.
Senator Durbin. In February 2003, the FutureGen Alliance
has not added to the cost of that project. What the--if there's
any increase it's because of your best guess and their best
guess as to what inflation would do.
Secretary Bodman. That's far more than inflation.
Senator Durbin. Explain to me what is the difference then?
Secretary Bodman. It's one--the difference in 2 years time
of going from $1.1 billion to $1.8 billion. It's more than
inflation.
Senator Durbin. Explain to me what was it?
Secretary Bodman. That's a 50 percent increase. That's 25
percent a year.
Senator Durbin. Well the question is why. Why did it
increase in cost from $1.1 billion to $1.8 billion?
Secretary Bodman. I don't know the answer to that. But I--
--
Senator Durbin. Well isn't that a question you should be
able to answer before you pull the plug on a project after 5
years?
Secretary Bodman. No, I wouldn't think so.
Senator Durbin. I would think it's the first.
Secretary Bodman. Let me explain to you, sir. I raised the
issue with respect to the chairman of American Electric Power.
And I did that directly with him, personally.
And I told him that this would not, in my judgment, if it
was $1.8 billion, and I could live with a $1.3 billion. And I
told him I would live with--try to get the $1.3 billion out of
OMB that in the case of American Electric Power and the
Alliance that I wanted them to share in the future on a more
equitable basis of what I viewed a cost share ought to be. It
ought to be 50-50. And I never got that.
Senator Durbin. What was the President's original proposed
cost share? It was 80-20.
Secretary Bodman. The President's original cost share was
apparently 80. I don't know that.
Senator Durbin. Yes.
Secretary Bodman. Ok.
Senator Durbin. So in good faith all of these States and
all of these companies engaged in their pursuit of this project
understanding that they would be responsible for 20 percent of
the cost.
Secretary Bodman. Senator?
Senator Durbin. You can not explain to me why there's such
a variance in the estimated cost of the project. And you
certainly are now criticizing a percentage, 74 percent, which
is lower for the Federal Government than the President
originally envisioned. I can't follow you. I don't think this
was----
Secretary Bodman. You can't follow it? You do follow me,
sir.
Senator Durbin. No, I don't. I tell you, you say this was
an act of political courage when you can't answer these basic
questions.
Secretary Bodman. I do answer the basic questions, sir.
INCREASE COST OF PROJECTS
Senator Durbin. You have not. You have not explained to me
the difference.
Secretary Bodman. There has been an escalation in the cost
of all projects----
Senator Durbin. Yes.
Secretary Bodman [continuing]. Throughout the world.
Senator Durbin. Yes.
Secretary Bodman. Right?
Senator Durbin. Yes. It's called inflation.
Secretary Bodman. If that's how you want to describe
inflation.
Senator Durbin. That's what I'll call it. Let's call it
inflation.
Secretary Bodman. You can call it inflation, but there is
an increase in costing of what it costs to undertake capital
projects.
Senator Durbin. And so it----
Secretary Bodman. There is also a problem with respect to
people, getting people to do the work.
Senator Durbin. So if we face a project.
Secretary Bodman. Yes.
Senator Durbin. That is a long term project that involves
inflation in construction cost.
Secretary Bodman. Yes.
Senator Durbin. You are going to show the courage to pull
the plug on that project?
Secretary Bodman. We'll show the courage to, at a minimum,
try to renegotiate the cost sharing in the future such that
there is, what I consider to be a more equitable sharing of
future cost.
Senator Durbin. Well I thank the subcommittee. You've given
me more than enough time. But I would not describe it as
courage to ignore inflation any more than it is courageous to
ignore gravity.
Secretary Bodman. Well.
Senator Durbin. And in this case that project cost more
because it's being anticipated that it would take until 2017
until completion. And to think that the President's original $1
billion estimate would not increase over that period of time is
fact less.
Secretary Bodman. It did increase. It went to $1.8 billion.
Senator Durbin. It did. And any project would have.
Secretary Bodman. And it was probably headed to something
significantly more than that.
Senator Durbin. And I hope----
Secretary Bodman. And you want to have $3 billion shipped
to Illinois. More power to you, Senator and get it done.
Senator Durbin. We were in competition with a lot of States
including Texas.
Secretary Bodman. I understand that. And I'm all for you. I
really am. But I----
Senator Durbin. I'm not sure you've shown that, Mr. Bodman.
Thank you.
PROJECT MANAGEMENT
Senator Dorgan. Senator Domenici, did you have a further
inquiry?
Senator Domenici. I thought I had one here just a second
ago, but it got away from me. Let me just think here a minute.
I wanted to ask Mr. Bodman a question.
At the point in time when you looked at the program and saw
that the price was what everyone calls, escalating rapidly.
Secretary Bodman. Right.
Senator Domenici. How much money did you actually have that
you could apply to the project? And by that question, I mean,
weren't you and/or others going to have to get more money from
the Government?
Secretary Bodman. Oh, yes, sir. We think we had $160
million.
Senator Domenici. And how much were you going to have to
look for, the extra there, $500 million?
Secretary Bodman. Well, $1.3 billion. So it was going to go
up by $1.1 or $1.2 billion.
Senator Domenici. Alright.
Secretary Bodman. And it was likely to go beyond that.
Senator Domenici. And was that part of your consideration?
Secretary Bodman. Yes, sir.
Senator Domenici. That you might not get the money?
Secretary Bodman. Oh, absolutely.
Senator Domenici. Alright. Thank you very much. Thank you,
Mr. Chairman.
Senator Dorgan. Mr. Secretary, before you leave, Senator
Durbin asked a question, I think, that's an important question.
And the fact is you know and I know that under a number of
administrations of both parties, big projects managed by the
Department of Energy, have in many cases turned out to be
vastly more expensive.
Secretary Bodman. Right.
Senator Dorgan. And in many cases mismanaged, frankly.
Secretary Bodman. They have been.
Senator Dorgan. And so we have a history here of big
projects which come in costing much, much more than was
estimated. You know, the question my colleague asked was a
pretty reasonable question. And that is what's causing this?
What causes a circumstance where you go from $1.1 to $1.8
billion cost?
And you say you don't know. But something caused it. And it
seems to me reasonable for us to try to figure out not even
just in this project, but what causes these things?
Secretary Bodman. I will be happy to get you an answer to
that.
[The information follows:]
Project Management Cost Increases
The primary reasons for the cost increases in the FutureGen project
were unprecedented escalations in materials, equipment and labor since
the initial DOE estimate. These escalations were significant and
occurred among many construction-related activities. The estimates were
confirmed by comparisons with well-respected industry indices.
With respect to our other, more typical DOE capital asset line-item
projects, the biggest reasons cited for most cost variances, as
documented in the Department's recently completed Root Cause Analysis
report, include, but are not limited to, inadequate upfront planning
and risk management, unrealistic estimates of cost and schedule,
insufficient numbers of skilled and trained contract and project
management professionals, ineffective prioritization and resource
allocation, and lack of alignment and integration between contract and
project management functions and organizational elements. The
Department has recently completed a Corrective Action Plan to address
the most significant root causes, and we will now begin implementing
that plan. It must be recognized that some of these root causes will
require additional resources and time to institutionalize the
corrective actions.
Secretary Bodman. I can tell you that in my judgment we are
doing a much better job than we have ever done before of
managing the projects within the Department. And we have, for
the first time in our environmental management area, which is
basically all, the entire budget, all of $5.5 to $6 billion is
all projects basically.
And we, when I arrived on the scene we didn't even have
people who were trained and certified as project managers
managing the projects. We do now. And for the first time we
have now had an outside auditor, if you will, review all these
projects.
And we are, I think, in much better shape than we have ever
been before. And so I would comment on that. If you ask me the
specifics of other than inflationary pressures, I think there
have been pressures beyond what I think of as inflationary
pressures which are 4 to 5 percent per year that have accrued
in the case of large capital projects throughout the world.
It's very hard to get the people. It's very hard to get the
equipment. It's very hard to get the materials to build the
kind of structures that are needed for this project.
NEW INITIATIVES
Senator Dorgan. Well, I don't know what we should do about
FutureGen. In many ways the new administration will inherit the
bigger question, I think because I believe what we will end up
doing is retaining the funding that's been appropriated for
FutureGen allowing perhaps in February of next year for a new
administration to make a judgment do they continue, don't they
continue. But I come back to the--I misplaced a piece of
information I was going to give you.
Come back to the point of FutureGen or not, in order for us
to work through this climate change and energy intersection
that we've come to we have to use coal. In order for us to use
coal we've got to understand the capability that technology
will give us to continue to use coal. And the Clean Coal Power
Initiative, I said to you, the budget and again, you can't tell
me how much you've asked for.
But the budgets that have come to us from the President
have under funded clean coal technology and the Clean Coal
Power Initiative. So, you know, we're far short of what had
been pledged. And I think what you're doing is you're adding in
the normal coal research we've done all along the way into coal
technology.
Secretary Bodman. Right.
Senator Dorgan. Well we would have done that anyway, Mr.
Secretary. But these new initiatives, try to figure out how do
we capture carbon and how do we do the other things. They're
very important and I'm disappointed that the administration has
under funded them.
Now I'm working with my colleague, Senator Domenici and
others just to try to find a way to provide robust funding for
that issue. We need on an urgent basis to do this and move
forward because if we're going to continue to use coal we have
to unlock the mystery of how to do that by capturing carbon and
sequestering carbon.
Secretary Bodman. And to do it on a retrofitted basis.
Senator Dorgan. Well.
Secretary Bodman. Because that's what CCPI is all about, I
believe.
Senator Dorgan. Well, I understand. But, I mean there's a
whole series of things we have to try to think through here in
terms of how and where we commit our resources. I just showed
you a chart, 80 percent into 2030. Eighty percent of the
carbons are going to come from existing plants.
And how do we, you know, retrofit that. Should we continue
with FutureGen? Should we change FutureGen to Big Bang
FutureGen to three smaller FutureGen?
I don't know the answer to that, but----
Secretary Bodman. This is an EIA estimate, sir?
Senator Dorgan. Yes.
Secretary Bodman. EIA what they do is to take current
technology. They do not anticipate any change in technology. I
would hope that between now and 2030, in 22 more years we will
have material changes in technology.
Senator Domenici. I would hope so.
Senator Dorgan. Well I hope that among those material
changes in technology are the changes that we drive urgently
and aggressively with the funding provided by this
subcommittee.
Secretary Bodman. I certainly hope that as well, sir.
Senator Dorgan. Mr. Secretary, we appreciate your being
here today. You'll be available I trust to receive questions in
writing that we might wish to address.
Secretary Bodman. I'd be happy to do that.
Senator Dorgan. Thank you very much for being with us
today.
Secretary Bodman. Thank you.
Senator Domenici. Thank you, Mr. Secretary.
Senator Durbin. Mr. Chairman?
Senator Dorgan. Next--Yes?
PREPARED STATEMENT
Senator Durbin. May I ask consent that my full statement be
part of the record?
Senator Dorgan. Without objection.
[The statement follows:]
Prepared Statement of Senator Richard J. Durbin
INTRODUCTION--A COMMITMENT TO FUTUREGEN AT MATTOON
Thank you, Chairman Dorgan and Ranking Member Domenici, for holding
this hearing today.
We have a dilemma in this country. We need to secure America's
energy supply. And we have to slow global warming. Coal combustion with
carbon capture and sequestration may be our best hope. Time is running
out, though. We need to develop and test these technologies and bring
them to commercialization, and we need to do it quickly.
The FutureGen project at Mattoon is our best hope for building and
operating a near-zero-emission, coal-fired power plant. After 5 years
of progress, the Department of Energy's attempt to scuttle this program
is the wrong decision at the wrong time. I am determined to see the
Mattoon project get back on track. The climate problem we are facing is
too urgent to tolerate any more stalling by this administration.
FUTUREGEN AS ORIGINALLY CONCEIVED
President Bush rolled out the FutureGen Initiative in February 2003
with great fanfare. The administration touted FutureGen as the
centerpiece of its energy policy and as its response to global warming
concerns.
The Department launched the FutureGen initiative as a full-scale,
integrated demonstration of advanced coal gasification, electricity
production, and carbon capture and sequestration.
The goal has always been to optimize the entire system to build, to
quote DOE's website, ``a technically cutting-edge power plant that is
intended to eliminate environmental concerns associated with coal
utilization . . . The prototype will be the cleanest fossil fuel fired
power plant in the world.''
DOE ABANDONS MATTOON
This was the flagship project of the President's clean coal
program. It went through a 4\1/2\ year independent, scientifically
based site selection process--and the planners chose Mattoon, Illinois,
as the best location for the FutureGen demonstration plant.
Governors and leaders of nine States agree with that decision.\1\
Those nine states represent three-fourths of the coal mined in the
United States and more than one-half of the electricity produced from
coal.
---------------------------------------------------------------------------
\1\ Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania, West
Virginia, Wisconsin and Wyoming.
---------------------------------------------------------------------------
Then in January 2008, 1 month after the site selection announcement
and after nearly 5 years of planning, the Department of Energy decided
to abandon the program. It's a decision that seems to defy explanation.
Let us be clear. DOE did not put an end to a project that only
existed on paper. The group has gone into field work and site mapping.
DOE wants to bring FutureGen to a screeching halt just as the project
was about to move into three-dimensional seismic testing around the
Mattoon site and just as plans were being made for a 1 mile-deep well.
THE EFFORTS OF ILLINOIS
Seven States with 12 sites put together proposals to host
FutureGen. Those States and communities competed for this project in
good faith, trusting the administration's commitment to explore a
promising technology to fight global warming.
I can't speak for the other States, but I can tell you that the
people of Illinois put their heart and soul into bringing FutureGen
home.
The Department's requirements were ambitious by any standard--they
required all geographic, socioeconomic, environmental, regulatory,
legal, and technical information that's necessary for the Environmental
Impact Statement be completed in only 12 months.
Nine Illinois State agencies; 5 colleges and universities; 12
private companies; 2 research institutions--all worked day and night to
meet DOE's deadlines.
In Illinois, private groups and the State legislature worked
together to come up with a compelling $90 million incentive package.
They put together low-interest-rate loans, tax credits, liability
protection, employee training, public improvement funding, and support
for the environmental impact statement process. The Mattoon City
Council rezoned more than 500 acres west of the city from rural-
suburban to industrial use to support a FutureGen plant.
The result: A set of documentation provided to DOE that totaled
12,300 pages, weighing 133 pounds. That's a stack of paper 49 inches
tall--over 4 feet. The State of Illinois spent almost $3 million to
respond to DOE's new program--and that does not count the more than $3
million raised by the State's private partners.
Remember, seven States put resources into the FutureGen
competition. I can't speak to the heft of the proposals from Texas, but
I'm confident the other finalist worked with just as much fervor.
And think about the people who work for Secretary Bodman. How did
the decision to pull the plug on this project affect the program
managers and specialists who dedicated themselves to this effort for 5
years, based on the promise of clean coal.
Mattoon, a city of 18,000 people, is closely watching today's
hearing. This is the same city that Under Secretary Albright derided as
``some swamp in Illinois.''
Unlike DOE management, though, the people of Mattoon understand
that America has a responsibility to address climate change. They
understand that the FutureGen program is a critical next step toward
large-scale carbon sequestration. The people of Mattoon have done the
hard work of demonstrating the merits of their site. Their sleeves are
still rolled up, waiting to begin the next phase of the project.
DOE'S INADEQUATE EXPLANATIONS
I am looking forward to hearing Secretary Bodman's explanation for
his decision in January. I am aware of two rationalizations--one is
program cost and the other is recent advances in technology. Neither
justifies the Secretary's decision.
Time and again over the past few weeks Secretary Bodman has claimed
that the Mattoon project costs had just grown too large. One might have
thought the Secretary would discuss that question with Congress before
making his unilateral decision.
Instead, the Secretary has proposed to replace the integrated
project in Mattoon with several, smaller projects that haven't been
developed. It is inconceivable that this approach would cost the
Government less money while achieving the intended goals.
Mr. Thompson will be able to address the second argument--whether
coal gasification technology has made the great strides in recent years
that DOE claims. It is my understanding that Integrated Gasification
Combined Cycle technology is anything but a mature technology. It's
hard to imagine that this technology has reached a point that justifies
such a drastic and sudden change of course. It's been more than a
decade since the United States has seen a commercial-scale
demonstration of this kind of electric power generation.
DOE AND THE UNITED STATES HAVE LOST CREDIBILITY
DOE has misled its industrial partners. The Department showed every
indication of moving forward with the FutureGen program up until it
became clear that the Illinois site would be chosen by the Alliance as
the technically best option. This sorry episode has not only stained
DOE's credibility, but has also tarnished the credibility of the United
States with our partners in China, Australia, and the UK.
THE FUTUREGEN ALLIANCE IS AN UNPRECEDENTED INDUSTRIAL PARTNERSHIP
The FutureGen Alliance is an unprecedented partnership among coal
and power industry leaders. Its U.S. members include American Electric
Power, Consol Energy, E.ON U.S., Peabody Energy Corporation, Rio Tinto
Energy America, and Southern Company, among others. International
members include Anglo American, BHP Billiton, Xstrata Coal, and the
China Huaneng Group.
These leaders have come together because they are committed to
contributing to global warming solutions. They know that clean coal
technologies are not yet available and that we need to work together--
Government and industry--to develop those technologies that can be
commercially deployed.
CLIMATE CHANGE AND THE NEED FOR COAL
We're starting to wake up to the reality of climate change as a
result of human activities. Global average surface temperatures are
rising year after year at an ever-increasing rate. It is no
exaggeration to say that global climate change is the greatest threat
of our time.
Meanwhile, coal is not going away. We cannot replace one-half of
our electricity supply with a snap of the fingers. That is why the
FutureGen program, as originally conceived, is so important.
FUTUREGEN AT MATTOON SHOULD PROCEED
The good news is that there is still hope to correct DOE's ham-
handed management of this program. The FutureGen project at Mattoon
meets all the technical goals as a commercial-scale demonstration. The
Mattoon FutureGen project is years ahead of any new program DOE could
possibly put in place to demonstrate large-scale carbon capture and
sequestration from a coal-fired power plant. The urgency of the problem
demands that we not abandon the progress that has been made over the
past 4\1/2\ years.
Senator Dorgan. The next witness at today's hearing will be
Paul W. Thompson, the chairman of the board, FutureGen
Industrial Alliance. Mr. Thompson, you may come forward and may
proceed.
Mr. Thompson, we appreciate your being with us today. Your
entire statement will be made a part of the record and we would
urge you to summarize and then we will have some questions. You
may proceed.
STATEMENT OF PAUL W. THOMPSON, CHAIRMAN OF THE BOARD,
FUTUREGEN INDUSTRIAL ALLIANCE, INC.
Mr. Thompson. Thank you. I need to find my glasses first,
sir. Is that on?
Senator Dorgan. We have some we could loan you.
Mr. Thompson. I have them, thank you. Thank you, Senator
and the subcommittee. I appreciate the opportunity to be here
in front of the subcommittee.
As indicated I am the chairman of the board of the
FutureGen Industrial Alliance. The Alliance is a global, non-
profit consortium of 13 energy companies formed at the request
of the U.S. Department of Energy to co-fund, design and
construct the world's first full-scale, near zero emission coal
fueled power plant with hydrogen production and 90 percent
CO2 capture and sequestration. In addition to my
role as Alliance chairman I am senior vice president with E.ON
U.S. Energy Services.
And I would add in that capacity I am responsible for over
10,000 megawatts of generation. So I'm quite familiar with much
of what is going on in our power production industry. I would
like to address three topics: my view on the enormous benefits
of FutureGen at Mattoon, project costs and the Alliance view on
DOE's restructured approach.
With respect to my first point, climate change is one of
the most pressing and most challenging environmental concerns
we face globally. The success of the policy that is ultimately
adopted and our economic future will hinge on the availability
of affordable, low carbon technologies. FutureGen at Mattoon
offers the opportunity to advance many technologies faster and
further than any other project in the world. President Bush is
to be commended for originally launching it.
FutureGen at Mattoon will meet or exceed all low emission
goals including 90 percent CO2 capture which DOE has
reported to Congress numerous times as essential to our energy
future. Also, it is a fully integrated plant based on
commercial scale component technologies. As a utility industry
executive I would emphasize the importance of seeing a fully
integrated plant come to fruition.
Importantly and unlike entities that will participate in
DOE's restructured approach, the FutureGen Alliance is a non-
profit enterprise. And every Alliance member has agreed to
forego all rights to intellectual property and revenue sharing.
This will enable the Alliance to share important findings from
the project with the Nation and world which will foster rapid,
widespread commercial deployment of the technology.
FutureGen at Mattoon has demonstrated already 5 years of
successes such as one, using a first of its kind citing process
which can and should serve as a model for future commercial
projects. A site that is ready to go has been selected on a
fair, non-political and competitive basis. That site is
Mattoon, Illinois.
The site selection of this site relied heavily on
scientific expertise within the DOE laboratory system and other
premier scientific institutions. And it included addressing
complex legal, liability, regulatory and site geology issues.
It will take years for new projects to go through this process.
Second, based on extraordinary work by the States of
Illinois and Texas, the Alliance, DOE and many other
institutions a nearly 2,000 page environmental impact statement
has been issued by DOE which concludes the Mattoon site is
environmentally acceptable.
And three, a team of nearly 50 engineers and scientists
have completed an initial conceptual design and initial cost
estimate for the project and far along on the next phase of
design and more detailed cost estimate.
This leads me to my second topic, project cost. DOE cites
an original project cost of $950 million which is in constant
fiscal year 2004 dollars. The total estimated project cost in
as spent or nominal dollars through 2017 is $1.8 billion. The
difference between the two numbers is inflation. It is not
scope changes. DOE has acknowledged this on numerous occasions.
After 3 months of review and negotiation DOE accepted these
costs when they signed the cooperative agreement that governs
the project. It is difficult to understand why these costs were
acceptable in March 2007, but in January 2008 they formed the
primary basis for terminating the project. Given that the
Nation appears to be on the cusp of a massive effort to
regulate CO2 emissions that may cost electricity
consumers across the Nation hundreds of billions of dollars
over the coming decades, we believe it is reasonable and
necessary to invest this $1.8 billion on the front end to prove
out the technology.
Just as important as the $1.8 billion cost is what the non-
profit Alliance has offered to do to mitigate the Government's
financial exposure. First we are contributing nearly $400
million of cash. Second, as a non-profit venture hundreds of
millions of dollars of revenue from the electricity sales will
be used to either offset project costs or be invested in public
benefit R&D. Industry will never receive a single dollar of
profit from this project. Third, after the project's mission is
fulfilled and the plant is sold, DOE will be repaid in part or
in full for its investment. Unlike DOE Industry Alliance
members will not receive a single dollar of repayment from
investment nor will they receive any proprietary intellectual
property benefits.
We are very mindful of the fact that appropriated dollars
are a limited and valuable resource. But we believe that the
FutureGen at Mattoon project is a good investment for our
Nation. And I reiterate our offer to the DOE to explore
reasonable avenues to mitigate the Federal Government's
exposure.
Moving to my third topic, DOE's proposed restructuring. We
are disappointed in DOE's abrupt and unjustified change in
course. The Department has also cited a changing marketplace as
the basis for their decision.
While there are numerous proposed IGCC projects as has been
discussed here, it is widely recognized within industry, the
industry that I participate in, that very few of these projects
will come to fruition. In fact since the DOE signed the
cooperative agreement in March 2007, the number of commercial
IGC proposed projects have declined, not increased. Further,
should DOE's restructured approach move forward it has a number
of business, technical and financial issues which must be
addressed.
Importantly it is under funded. An under funded approach to
such a massively complex problem using several small projects
attached to commercial ventures did not make sense for landing
men on the moon. And it does not make sense for solving the
climate change challenge.
In a House hearing last month DOE also acknowledged that
their new plan will result in up to 5 years of delays. Further
DOE testified that they may not meet the critical goals of 90
percent CO2 capture. This delay and reduced
standards do not make sense. FutureGen at Mattoon is already 5
years down the path of success. And it would be a huge mistake
to move backward on the progress we have already made.
PREPARED STATEMENT
In closing as chairman of the FutureGen Alliance Board of
Directors I want to convey our unwavering commitment to the
continuation of FutureGen at Mattoon. We remain open and
willing to work with the Congress and the Department of Energy
to put FutureGen at Mattoon back on the fast track. This
concludes my remarks. And I welcome the subcommittee's
questions.
[The statement follows:]
Prepared Statement of Paul W. Thompson
The FutureGen program is a global public-private partnership formed
to design, build, and operate the world's first near-zero emission
coal-fueled power plant with 90 percent capture and storage of carbon
dioxide (CO2). It will determine the technical and economic
feasibility of generating electricity from coal with near-zero emission
technology. FutureGen has 5 years of progress behind it. More than $50
million have been obligated to the effort with the majority spent. It
is positioned to advance integrated gasification combined cycle (IGCC)
and carbon capture and storage (CCS) technology faster and further than
any other program in the world. The location of the plant will be
Mattoon, Illinois. The nonprofit structure of the FutureGen Alliance,
and involvement of 13 companies that operate on 6 continents, is
consistent with its mission to facilitate rapid deployment of near-zero
emission technology not only in the United States, but throughout the
world.
Climate change is one of the most pressing, and most challenging,
environmental concerns we face, from both a domestic and international
perspective. Our Government, and other governments around the world,
either intend to, or are in the process of, developing policies to
address the concern. Irrespective of which specific climate policy is
ultimately adopted by the United States, the success of that policy and
our economic future will hinge on the availability of affordable low-
carbon technology. Nuclear, renewables, biomass, and efficiency will
all be part of the low-carbon technology solution. However, coal is
used to generate over 50 percent of the electricity in the United
States, and is projected to remain the backbone of the U.S. electricity
system for most of this century. Given that the growing economies of
China and India will be fueled with coal plants, the availability of
affordable, near-zero emission coal technology, incorporating CCS, is
essential to our future energy security.
The Federal Government has a pivotal role to play in fostering the
development, demonstration, and deployment of near-zero emission coal
technology. It is important that, as a Nation, we invest at the scale
required to develop, prove, and deploy CCS technologies to the
marketplace. While estimates vary, the required Federal investment is
certainly in excess of $10 billion over the coming decade. This
investment in our Nation's future must be supported by the development
and demonstration of near-zero emission coal technologies and CCS in a
variety of applications.
The U.S. Department of Energy (DOE) is to be commended for its
vocal support of near-zero emission coal technology, including CCS. Its
support of this technology was recognized in backing the FutureGen
program as originally envisioned, but a recent proposal to restructure
FutureGen fails to recognize the scale of the challenge that this
Nation, and indeed the world, is facing. DOE's proposal to restructure
the FutureGen program will delay technology development and integrated
demonstration of commercial scale CCS by 5 years or more. It backs away
from a nonprofit partnership that was created, at the request of DOE,
to act in the public benefit and broadly share its technical results
throughout the world. It rebuffs the participation of international
companies (and countries) that are critical to the ultimate deployment
of clean coal technology around the world. It undermines the
reliability of the U.S. Department of Energy--and the United States--as
a dependable partner.
Therefore, regardless of what other projects or what type of
restructuring DOE proposes, it is essential that the Department
reaffirms the Unites States' position as a global leader in near-zero
emission coal technology and CCS development by maintaining its
historical position that FutureGen at Mattoon is the flagship program
for advancing CCS technologies.
BENEFITS OF FUTUREGEN AT MATTOON
FutureGen, located in Mattoon, Illinois, is in the national
interest and is advancing IGCC technology with CCS faster and further
than any other project in the world. Some key features of this program
include:
--FutureGen at Mattoon Offers DOE an Opportunity to Beat its Proposed
Timeline.--DOE's January 15, 2008 Request for Information (RFI)
suggests an on-line date of 2015 for projects using its
restructured plan. In recent testimony before the House Science
Committee DOE suggested 2016 or 2017. The FutureGen Alliance
has already delivered 5 years of progress, including contract
negotiations, an enthusiastic and committed local community, a
site that is technically and legally ready to go, a design and
cost estimate, a final environmental impact statement, vendor
relationships, and a team of 50 engineers and scientists. Prior
to DOE-imposed delays FutureGen at Mattoon was on-track for a
2012 start-up. Even with these delays, no fully integrated,
near-zero emission power plant project in the world can compete
with FutureGen in terms of its ability to move forward with
urgency on the required technology development and
demonstration.
--FutureGen at Mattoon Will Meet or Exceed all DOE Emissions and
CO2 Capture Goals.--All emissions and CO2
capture criteria included in the 2004 FutureGen Report to
Congress and DOE's current Request for Information (RFI) will
be met by FutureGen at Mattoon, including 90 percent
CO2 capture. It is imperative that DOE maintain the
requirement of 90 percent CO2 capture from the
entire facility for the FutureGen program.
--FutureGen at Mattoon is Fully Integrated and at Commercial Scale.--
FutureGen at Mattoon incorporates a commercial-scale gasifier
and commercial-scale ``Frame 7'' turbine. As configured, and
with the commitment to share lessons learned widely, it gives
industry a chance to learn about the cost, performance, and
operating strategies for an integrated system with CCS. This
knowledge will be directly applicable to the marketplace.
--FutureGen at Mattoon is a Hallmark for Public Benefit and
Information Sharing.--As a nonprofit enterprise, the FutureGen
Alliance will broadly share information from the project,
facilitating the deployment of commercial, near-zero emission
power plants throughout the world. It is appropriate for DOE to
provide cost sharing for additional commercial CCS projects to
facilitate deployment of CCS technology, but it must recognize
that commercial projects, such as those being solicited under
DOE's restructured plan, by their very nature will feature
protection of technological know-how and intellectual property
within individual companies rather than sharing it for broad
benefit.
--FutureGen at Mattoon is a Model That Provides International
Involvement at an Unprecedented Level, Which is Essential to
the Rapid Deployment of CCS Technologies.--Thirteen companies
with operations on six continents are participating as members
of the Alliance. Climate technologies must be globally accepted
and globally deployed, or they will not be effective.
International participation has been exceptionally well-managed
and has been a cornerstone of the information sharing in the
program. No other project or program can replicate FutureGen at
Mattoon's level of international involvement. We need to
remember that we are all striving to address ``global climate
change'' not simply ``U.S. climate change.'' What better
framework than a global public-private partnership to develop
and establish the acceptable approaches to measure, monitor and
verify that CO2 has been successfully captured and
permanently stored.
--FutureGen at Mattoon Provides a Platform for Testing Advanced
Technologies, Which Accelerates Technology Development and
Saves the Taxpayers Money.--A power plant constructed and
operated by any for-profit entity must by its nature operate as
much as possible. There is no incentive to periodically shut
down to cooperate with the DOE and technology providers to
install and test new technologies so as to keep improving the
performance and driving down the costs of zero-emission
technology. Maximizing revenue rather than advancing technology
is a duty to both ratepayers and shareholders.
Once built, and power generation, carbon capture, and sequestration
operations are underway, FutureGen at Mattoon can serve as a test bed
for advanced technologies emerging from DOE's Fossil Energy R&D program
and industry R&D efforts. Such testing will not interfere with the
primary mission of the facility to prove integrated CCS technology at a
90 percent capture level and sequester a minimum of 1 million tons per
year of CO2, and to develop and prove cost-effective
approaches to advancing CCS technology. Absent FutureGen at Mattoon,
alternative testing approaches will be far more expensive to both
industry and taxpayers. Areas where DOE expects advancements to occur
include oxygen production, gasifier improvements, gas clean-up,
H2 and CO2 separation, H2 turbine
advancements and fuel cells. By proposing to end its support of
FutureGen at Mattoon, DOE will be increasing the cost and difficulty of
testing the very advanced technologies that its program managers seek
to develop and deploy.
PROJECT COSTS AND FINANCING
In DOE's March 2004 report to Congress, DOE estimated the project
cost as $950 million in fiscal year 2004 constant dollars. The
estimated gross project cost in as-spent dollars through 2017 is $1.8
billion. The difference between these figures ($950 million and the
$1.8 billion) is recent and projected inflation/escalation. There is no
change in project scope. In preparing the $1.8 billion estimate,
aggregate future inflation across the project was assumed to be 5.2
percent per year through 2017. This is higher than general rates of
inflation, but is consistent with inflation rates for heavy
construction and the process equipment industry over the past 5 years.
These higher rates of inflation will likely be seen by all power-
related projects, including FutureGen at Mattoon and other projects
that DOE might advance. It is also important to note that this assumed
rate of inflation is a long-term average. Finally, the $950 million is
expressed in fiscal year 2004 constant dollars and the $1.8 billion is
expressed in as-spent dollars; therefore, it is technically incorrect
to characterize the cost as having doubled. This would be comparing
apples and oranges.
In March 2007, after reviewing the $1.8 billion project cost
estimate, DOE signed a legally binding agreement to conduct the
FutureGen project. Although the project cost estimate has not changed
since DOE's original signing of the agreement, in a January 30, 2008
letter, DOE notified the FutureGen Alliance that it wanted to terminate
support for FutureGen at Mattoon, citing two concerns:
--``the Department's serious concerns over the substantial escalation
of projected [project] costs''; and
--``the [FutureGen] Alliance's insistence regarding project
financing'' (emphasis added).
DOE's letter goes on to state that the Department cannot agree to
the Alliance's request to ``satisfy a substantial portion of its cost
share commitment with borrowed funds using FutureGen assets as
collateral'' and concludes that ``the Alliance's desire to mortgage the
FutureGen project would have subordinated the taxpayers' interest and
placed DOE--the majority owner of the project--at risk of having to
surrender the facility to the Alliance's outside lenders had the
Alliance withdrawn from the project or defaulted on its debt repayment
obligations.'' The letter states that ``[i]n short, the financing
approach proposed by the Alliance not only represented a substantial
departure from DOE practice concerning projects in which the Government
bears a majority of costs, but would have significantly increased
taxpayer risk as well.''
The Alliance takes issue with both of DOE's points:
--Costs have not escalated since DOE's last review of the cost
estimates for the project, so there is no basis for DOE's
apparent surprise about the projected costs for the project.
Also, following completion of the next design phase, all
parties will have the opportunity to review refined site-
specific cost estimates before proceeding with final design and
construction.
--Third-party financing for power plants is a commonly used tool to
help ensure project success. Nearly every coal-fueled power
plant project in the country, including DOE co-funded efforts,
has involved financing. Further, the Alliance is largely
providing cash to the project and the financed component is
relatively small.
With respect to cost escalation, the DOE letter acknowledges that
the change in projected costs, which occurred prior to their last
review, ``appears to be largely attributable to market conditions.'' As
the letter appears to recognize, such costs are not the result of any
mismanagement by the Alliance. Rather, DOE and the Alliance recognized
up front that market conditions were an uncertainty that could affect
the cost of the project. Article 21 of the Cooperative Agreement states
that, ``Given the nature of this first-of-a-kind Research and
Development project, DOE and the Recipient recognize that many
uncertainties (e.g., plant design, selection of a site, construction
and operations, market conditions, the impact of DOE requirements on
any potential cost increases to subcontractors who bid the project, and
the project schedule, CO2 storage and MMV, and market
conditions for power plants and commodities) still exist in formulating
a firm estimated cost.'' In fact, large construction and infrastructure
projects throughout the global economy are affected by these same
market conditions. There is no reason to believe that any alternatives
to FutureGen at Mattoon would not also be affected by these same market
conditions and cost impacts.
With respect to financing, it should be noted that the Alliance, as
a 501(c)(3) organization, relies upon contributions from its member
companies as a source of its industry cost share. The Alliance's member
companies will donate nearly $400 million to this DOE project, and
unlike with other DOE clean coal technology projects, they will gain
neither financial return nor intellectual property. This contribution
is spread over approximately 8 years. However, the peak construction
cost--and thus peak cash outflow--occurs in the middle years of the
project. The Alliance proposes to use financing to match construction
cash flow requirements with member company cash contributions, and also
as a risk management tool to handle potential cost increases in the
future, if they should occur.
Specifically, the Alliance has proposed the following approach to
DOE to achieve these goals and address DOE concerns, even though the
Alliance does not find DOE's concerns fully founded:
--DOE will have an opportunity for partial-to-full repayment.
--Alliance member companies have no opportunity for repayment.
--Each Alliance member company would make a minimum dollar pledge.
This would ensure that the companies would have ``skin in the
game'' and not use financing to avoid meaningful industry cash
contributions.
--The Alliance would use a modest portion of the plant asset, which
the Alliance is helping to purchase, as collateral for
financing, as is done on other DOE clean coal projects.
(Commercial projects are typically 50-80 percent financed.
FutureGen would likely only be 10-20 percent financed).
--The Alliance will use potential revenue from the operation of the
facility as a pledge to the lending institution for financing,
which is common commercial and DOE practice.
DOE has been aware that financing would be used on the project for
years, and did not object to such an approach when it signed the
Cooperative Agreement for the project. The Alliance reiterated to DOE
that the project would probably require such a financing structure in
the summer of 2007, when the Alliance and DOE engaged in discussions to
address new DOE concerns with the Cooperative Agreement. So, the
apparent surprise on DOE's part that the Alliance would seek third-
party financing is unwarranted.
The Alliance's proposed financing approach, which includes
borrowing funds to meet a portion of the Alliance's cost-sharing
commitment to the project, is fully consistent with applicable law and
the existing Cooperative Agreement between the DOE and the FutureGen
Industrial Alliance, and therefore, not, as DOE alleges, ``a
substantial departure from DOE practice.''
Nothing in the law prohibits DOE award recipients with cost-sharing
obligations from utilizing third party, non-recourse financing to
facilitate fulfillment of their cost-share obligation. Similarly,
nothing in the existing Cooperative Agreement prohibits the Alliance
from utilizing such financing. Indeed, the governing regulations that
establish rights to project property and that are specifically
incorporated into the Cooperative Agreement (10 C.F.R. 600.130-
600.137), and the current Cooperative Agreement itself, both
contemplate this possibility. Article 25 of the Cooperative Agreement
provides that the Alliance may not ``encumber the property (acquired
during the project) without DOE's prior written consent,'' and thus
contemplates that the Alliance may encumber the property with DOE
approval. The regulations are substantively similar. Thus, rather than
prohibit third party financing security interests, the governing
regulations and Cooperative Agreement instead require that the
Alliance, the recipient, obtain DOE consent to the creation of any
financing encumbrances.
Many DOE-supported projects rely on similar financing approaches.
There is ample precedent where DOE has accepted projects that have
proposed to finance the industry portion of a cost-share project by
means of a project finance structure in which recourse, in the event of
a default on a loan, is limited to the project itself and associated
assets. Indeed, DOE's willingness to accept such financing structures
is embedded in the recently inaugurated loan guarantee program
authorized by title XVII of the Energy Policy Act of 2005. Further, DOE
has a pending solicitation posted on its website for the Clean Coal
Power Initiative that allows financing.
Moreover, overall, the Alliance's proposed approach would not, as
DOE asserts, ``significantly increase taxpayer risk.'' The Alliance
recognizes that its financing proposal results in some manageable risk
to the Federal Government.\1\ However, the Alliance's proposal on
financing was and is only one element of a larger package of
compromises offered to DOE in good faith in the summer of 2007 to help
ensure that project is successfully completed and that the intended
benefits of the project accrue to DOE and the public. On balance, we
believe that the benefits of this overall package far outweigh any
incremental risk to DOE associated with the package's financing
proposal component.
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\1\ So long as the Alliance neither withdraws from the project nor
defaults on its debt repayment obligations, DOE will not incur any
additional risk or obligation as a consequence of the Alliance's
financing proposal. Even if the Alliance were to withdraw from the
project or default on its debt obligations, DOE's risk should be
limited, and DOE should have the ability to prevent a situation where
it would be at risk of ``having to surrender the facility to the
Alliance's outside lenders,'' as stated in its letter.
---------------------------------------------------------------------------
It is important to reinforce that an existing legally binding
agreement is in force and these discussions are an attempt by the
Alliance to address DOE concerns earlier than both parties previously
planned.
It is significant to note that if DOE walks away from the project
now, as it is apparently willing to do, a significant portion of DOE's
contribution to date will not have achieved the desired taxpayer
return. DOE not only risks losing its financial investment, but also
risks losing its investment of time, given the years already spent
moving the project forward to this point.
The way to ensure the highest return on the investment that the
Federal Government already has made in the project is to successfully
demonstrate, with international participation, an advanced power
generation technology that is not being planned elsewhere coupled with
the capture and long term storage of CO2. The Alliance and
its members are in the same situation. For that reason, there is every
incentive on the part of the Alliance and its members that the project
succeeds.
FutureGen at Mattoon is not an ordinary project for our country.
The FutureGen Alliance represents a totally unique attempt by industry
to aggregate financial and technical resources, to do so on an
international basis, and to undertake a research, development, and
demonstration project with no promised return on investment to its
members other than addressing a global problem through a technological
solution. By the Government's own admission, the FutureGen project
represents our Nation's most significant attempt to support technology
development to comprehensively address global climate change. It should
be given a fair chance to succeed.
Given that the Nation appears to be on cusp of a massive effort to
regulate CO2 emissions that will cost electricity consumers
across the Nation hundreds of billions of dollars over the coming
decades, it seems reasonable to invest several billion dollars on the
front-end, in this project and others, to prove out the technology.
Just as important as the $1.8 billion cost is what the non-profit
Alliance has committed to in the Cooperative Agreement to mitigate the
Government's financial exposure and additional offers the Alliance has
made to DOE. Among the provisions in the Cooperative Agreement are:
--Alliance agreed to provide 26 percent industry cost-share. This is
up from the original 20 percent requested by DOE on the day the
President first launched the initiative.
--The Alliance and DOE agreed to negotiate an adjustable cap on the
DOE contribution, where the level of the cap would be adjusted
up or down based on inflation/escalation indices (a common
practice in industry). This adjustment would be negotiated
after the current project phase.
--The Alliance and DOE agreed to share revenues pro-rata instead of
the typical cooperative agreement whereby the private partner
keeps all of the revenues. The effect of this was to have 74
percent of the estimated $300 million in revenues be allocated
to reduce DOE's cost share.
--The Alliance and DOE agreed to share proceeds from the sale of the
facility on a pro-rata basis instead of all being allocated to
the industry partner as is typical for industry/DOE co-funded
projects. This has the net effect of creating the potential for
a material repayment of DOE's cost share. To the best of our
knowledge, this is unprecedented in the history of Clean Coal
Technology (CCT) or Clean Coal Power Initiative (CCPI)
projects.
--Contributing Alliance members under the 501(c)(3) structure would
not receive any repayment of their contributions from project
revenues or a facility sale. Such funds must be directed back
to research and development.
At the end of the current project phase (i.e., Budget Period 1), an
updated cost estimate will be prepared that takes into consideration
site-specific design considerations and makes adjustments (up or down)
for changes in marketplace escalation.
The Alliance has every motivation to control costs. The FutureGen
Alliance is not simply a contractor billing DOE to perform a service.
The Alliance is sharing in the costs pro-rata and is motivated to see
technology developed at the lowest possible cost. FutureGen at
Mattoon's unique financial structure mitigates taxpayer exposure. After
the project's mission is fulfilled, if the plant is sold, DOE will be
repaid in part or in full for its investment from sale proceeds.
Industry financial contributors will never receive a single dollar of
financial return. This represents an unprecedented level of commitment.
Further, the Alliance members are providing their expertise in
developing and managing large power plant projects with the discipline.
The Alliance is willing to make this commitment because this investment
is squarely in the interest of both the Nation and the world.
HISTORY OF DOE INTERACTIONS
The FutureGen program was initially launched in February 2003 by
President Bush. At this time, industry was challenged to organize a
consortium of companies to participate in the project. A consortium was
judged to be a better approach than DOE's historical approach of co-
funding single company projects, as there was a clear objective to have
broad industry engagement. DOE representatives clearly conveyed that
the business arrangement would be patterned after previous CCT
cooperative agreements. Also, because of the project scale and the
desire to make the effort a global one to accelerate the technology
use, it was indicated that the more restrictive CCT requirements would
be removed. Specifically, the DOE represented the following anticipated
terms:
--twenty percent non-Federal cost-sharing;
--no repayment requirement from the industry partner;
--ability to vest ownership of the plant with the industry partner;
--traditional CCT program data protections for the industry partner;
--potential for program income (electricity, CO2, and
byproduct sales) to be shared among project participants
proportional to their cost sharing during the 4-year project
operating program;
--all of the post-project revenues to the industry partner, including
any proceeds from a sale of the facility after the project; and
--an advance appropriation of $300 million toward the project through
a programmatic transfer of funds from several cancelled CCT
projects. (Typically, DOE appropriates all of the funds on a
CCT project in advance. However, in FutureGen's case, DOE
determined full advanced appropriation was not possible).
It was with this framework in mind that industry formed the
Alliance, made representations to Congress and around the world, and
grew its membership. Further, in the interest of ensuring that neither
the DOE nor industry were inappropriately considered to be engaging in
``corporate welfare,'' the Alliance was formed as a nonprofit 501(c)(3)
entity. The decision to incorporate as a 501(c)(3) entity is
unprecedented for an industrial partner in a DOE clean coal project
cooperative agreement, and has the following implications for the
Alliance members and DOE:
--unlike DOE, the industry contributors can never share in a single
dollar of program income or proceeds from the plant sale if
that ever occurs;
--any program income or proceeds from the plant sale realized by the
Alliance must be reinvested in public benefit R&D; and
--unlike DOE, the industry contributors do not gain any stake in
intellectual property rights.
At the time of the project launch the DOE leadership team included:
--Secretary Spencer Abraham,
--Deputy Secretary Kyle McSlarrow,
--Under Secretary Robert Card, and
--Assistant Secretary for Fossil Energy Michael Smith.
The public-private partnership was cemented through an initial
Limited Scope Cooperative Agreement signed in 2005. This limited scope
agreement supported preparation of a conceptual design report and
initiation of the site selection process.
By the time of the signing of the initial Limited Scope Cooperative
Agreement, Secretary Abraham, Kyle McSlarrow, Robert Card, and Michael
Smith had left the Department and were replaced by:
--Secretary Samuel Bodman,
--Deputy Secretary Clay Sell,
--Under Secretary David Garman, and
--Acting Assistant Secretary for Fossil Energy Mark Maddox.
For the Cooperative Agreement, the National Energy Technology
Laboratory (NETL) under the Office of Fossil Energy serves as the
official contracting entity for DOE on FutureGen. The Alliance is
accountable to NETL on all technical and contractual issues. The
official contracting officer is the individual with the authority to
modify the Alliance's work scope, adjust budgets, or make binding
determinations on which activities under the Cooperative Agreement can
and cannot proceed. The working relationship with the staff at NETL has
been very positive. This included DOE management regularly being
invited to Alliance board of directors meetings. This is also
unprecedented for a DOE clean coal project. From our vantage point, it
appears that DOE concerns about the project have been raised by its
political leadership. It is also been the case that the DOE political
leadership has often provided advice, which was valuable and consistent
with contractual obligations, and has been followed.
During the conduct of the Limited Scope Cooperative Agreement, Mark
Maddox left the Department and was replaced by:
--Assistant Secretary for Fossil Energy Jeffrey Jarrett.
Following completion of the activities covered by the Limited Scope
Cooperative Agreement, in December 2006, the Alliance submitted a
conceptual design report and cost estimate to DOE. This material served
as the basis for negotiating a $1.8 billion Full Scope Cooperative
Agreement.
The Full Scope Cooperative Agreement acknowledged the higher
project costs similar to those of every other major energy
infrastructure project. In its original estimates DOE had expressed
costs as constant fiscal year 2004 dollars versus out-year, as-spent
dollars. Both the Alliance and members of DOE's leadership team were
advised of and were well aware of their increased contributions
resulting from global escalation. The project did not change in scope
from its inception. DOE agreed to proceed and a Full Scope Cooperative
Agreement was signed in March 2007, with a gross cost of $1.8 billion,
and a net cost of $1.5 billion (the net cost reflects credit for
electricity sales used to offset part of the gross project cost).
The Full Scope Cooperative Agreement runs through 2017, with most
of the expenditures concentrated in the next 5 years. Upon DOE's
approval of the agreement, Alliance members irrevocably committed $10
million to the current project phase and collectively budgeted nearly
$390 million of private money for future project phases. The Alliance's
responsibilities in the first phase (termed Budget Period 1) of the
Cooperative Agreement include selection of the final site, additional
design, preparation of a site-specific cost estimate, and procurement
of long-lead items.
Throughout 2007, the Alliance and the four finalist sites continued
to spend millions of dollars to advance the activities. The DOE
continued its efforts to bring in government partners including China,
India, Japan, South Korea and Australia. Project costs were a part of
the negotiation with these countries. A few have already committed
funding to the project. The Alliance hired staff, leased office space
and retained key global contractors.
At some point after the Full Scope Cooperative Agreement was signed
in March 2007, something in the Department had clearly changed or
confusion had evidently developed, as Deputy Secretary Sell raised very
surprising concerns about out-of-control costs, scope growth, that DOE
was liable for 100 percent of the cost growth, and that the Alliance
was ``mismanaging the project.'' The Alliance did not agree with these
observations and the Alliance promptly suggested a meeting to discuss
the new concerns. A presentation from that meeting is included in this
testimony as an attachment. In August 2007, DOE representatives
routinely attended an Alliance Board of Directors meeting where they
acknowledged to the Alliance Board that the cost growth was now
understood to be due to market escalation, recognized that the project
was managed by the Alliance effectively, that the Alliance has been
responsive to the DOE, and that cost increases were not due to scope
growth.
To this day, it is unclear why after a multi-month review process
and negotiation for the Full Scope Cooperative Agreement, concerns
could have arisen within DOE as early as 1 month after the signing of a
$1.8 billion agreement.
It should be pointed out that both the Alliance and DOE were
concerned about marketplace escalation. It was the Alliance's view that
the appropriate way to address the issue was to follow the plan in the
Cooperative Agreement and complete the current project phase, which
included a site-specific engineering cost estimate. At that time all
parties could discuss how DOE's financial exposure could be mitigated
further. In the Alliance's view it was premature to renegotiate the
original agreement when neither party had better engineering cost
information or better information about escalation than when the
original negotiations and agreement occurred.
Further, to maintain a large capital project on track, it is
important to establish and follow a well designed plan with predefined
project phases. Had DOE and the Alliance followed the plan as agreed to
in March 2007, we would be sitting here today with a final site,
Mattoon, a site-specific construction design, and a site-specific cost
estimate. There would have been sufficient time during this
administration to adjust the Cooperative Agreement based on this new
information. Instead, the effort is nearly stalled and valuable time is
being lost.
During the late-Spring/Summer of 2007, David Garman and Jeffrey
Jarrett left the Department and were replaced by:
--Under Secretary Clarence ``Bud'' Albright, and
--Acting Assistant Secretary for Fossil Energy Thomas Shope.
In late-September 2007, newly appointed Under Secretary Albright
communicated, as general concepts, a set of Cooperative Agreement
modifications. This introduced a new series of requests. Most were
related to shifting more risk and cost from DOE to the Alliance. Early
conversations were cordial and productive. From a business and capital
project management perspective it did not make sense to the Alliance to
modify the agreement in mid-stream without further project data such as
site and cost estimate details; however, there was a recognition and
willingness of the Alliance to modify the agreement at the appropriate
time. Further, there was Alliance willingness, in principle, to accept
DOE's request that after the DOE had expended a mutually agreeable sum,
any future cost increases above that sum would be shared 50/50 versus
the previously agreed to 26/74. During meetings with DOE, the general
concepts were developed in an initial term sheet of modifications for
further discussion.
Thomas Shope left the Department during this time period. The
Assistant Secretary position remains vacant to this day.
In mid-October 2007, a stumbling block was reached when DOE raised
for the first time an absolute demand to limit the Alliance's ability
to use commercial financing for a portion of the project. Commercial
financing is routinely used on DOE clean coal projects and is expressly
contemplated in the applicable regulations. Financing is an important
tool to manage project cash flow and manage unforeseen risks. Normal
private sector energy projects are typically financed 50-80 percent of
total project cost. In the case of FutureGen, a lesser amount of 10-20
percent is manageable. Financing had been discussed with DOE as early
as 2003 and the Alliance had an obligation to provide a financing plan
to DOE prior to the start of the next project phase. Thus, for
financing to be eliminated or highly restricted by DOE came as another
surprise.
Still, the Alliance, based principally on a series of strong
positive signals to come from DOE and the administration, operated
under the view that the DOE concerns could ultimately be resolved no
later than the start of the next project phase and that selection of a
final site and preparation of a site-specific cost estimate would help
in the resolution of those concerns. The Alliance made it very clear
that its members would agree to contribute their pro-rata financial
commitments of $400 million in cash, subject to the availability of
matching DOE cost-share. Thus, there should be no concern over the
Alliance walking away after construction begins. Moreover, the Alliance
would have already spent tens of millions of private sector money
before construction so there would be the added incentive to see the
project to completion.
In parallel to these discussions with DOE, and DOE's position that
financing should be highly restricted, the following very positive
events occurred over the fall of 2007 leading up the final site
announcement:
--Secretary of State Condoleezza Rice made positive mention of
FutureGen in a speech before the United Nations.
--President Bush made positive mention of FutureGen in a meeting of
Major Economies on Energy Security and Climate Change.
--DOE issued an approximately 2,000-page Final Environmental Impact
Statement (EIS) and published a Notice of Availability in the
Federal Register on November 16. The EIS described the
relationship between DOE and the Alliance, the project costs
and cost-share, and DOE's preferred alternative to provide
financial assistance to the FutureGen project.
--DOE issued a press release indicating that completion of the EIS
would enable a site announcement by year-end.
--DOE was communicating to Members of Congress that a site would be
chosen by year-end.
--The EIS Notice in the Federal Register started an important clock
on a 30-day ``wait period'' before the end of which DOE could
not issue a final Record of Decision (ROD). The Alliance and
DOE had discussed, multiple times, in the preceding 6 months,
that DOE would issue the ROD when the 30-day wait period
expired (December 16, was the expiration date) and the Alliance
would announce the site no later than December. DOE provided an
advance copy of the final draft ROD for Alliance review. This
interaction included a discussion that DOE was on-track in its
preparation of the ROD so that it could be issued on December
17, albeit an aggressive schedule. DOE staff were working hard,
and it was an excellent team effort.
On the basis of these positive actions by DOE and the
administration, the Alliance made the final site decision the first
week in December. The Alliance was obligated to make this site
selection under the terms of the still active Full Scope Cooperative
Agreement. Given the involvement of 13 companies, communication
planners, project staff, and others, within a week approximately 50
individuals knew the site was Mattoon. While still confidential, the
Alliance recognized the wheels were now in motion and the site would be
known either through an organized message or through an unintended
leak. Obviously an organized, versus unintended, release was the
preferred approach.
On December 10, DOE's Deputy Assistant Secretary for Oil and
Natural Gas Programs, who was also Acting Principal Deputy Assistant
Secretary for Fossil Energy, called the Alliance CEO to indicate a
letter would be coming to the Alliance. A letter followed, from Mr.
Slutz, indicating a delay in DOE's issuance of the ROD and indicating
it was ``inadvisable'' for the Alliance to schedule an announcement of
the selected site while offering no compelling reason for a delay. At
that time, (with all due respect to Mr. Slutz and his position), the
Alliance cannot recall having heard from him before, nor was he known
to be a central player in the Department's project decisionmaking
process. Consequently, the Alliance weighed very strongly whether or
not to take DOE's advice against other compelling factors for
proceeding.
Given that the wheels on the site announcement were already in
motion, the site decision was already made and becoming more difficult
to keep confidential with so many individuals knowing the final site,
and project delays costing as much as $10 million per month, the
Alliance felt the reasons for proceeding outweighed the reasons for
delay. The Alliance had already reviewed an advance copy of the ROD,
which reaffirmed the EIS findings and concluded all four candidate
sites were acceptable. It was assumed the ROD would indeed be released
on time or soon thereafter without issue, as it was effectively
complete. There was also a strong feeling that it was inappropriate for
the Alliance to string along the States of Texas and Illinois with
another delay. The States had been spending substantial amounts of
their sparse State resources and had originally been promised a site
announcement in September, then October, and then November driven by
slippage in the EIS release. The efforts of both States were
commendable and they earned our admiration for always having been
prompt when it came to meeting their deadlines to the Alliance.
While DOE had suggested a possible restructuring to several of the
Alliance member companies, this information was only heard by the
Alliance management through third parties with sketchy details. Since
the project's outset, it has not been uncommon to hear rumors or
misinformation third hand that never materialized as correct. No
official representative of the Alliance was specifically told of the
restructuring plans by DOE prior to the day of the DOE announcement.
DOE'S PROPOSED RESTRUCTURING
As currently configured, DOE's proposed restructuring would
effectively result in the termination of FutureGen at Mattoon. The
Alliance Board carefully evaluated the proposed restructuring and has
concluded that neither a 13-member consortium nor a smaller Alliance
consortium could successfully conduct FutureGen at Mattoon under the
newly proposed model. The reasons for this are technical, financial,
and business structure related. The Alliance also has serious concerns
about the adequacy of funding under the proposed restructuring, and
whether any project conducted by any party could meet the stated DOE
goals in a timely manner. The Alliance view remains that it is in the
national interest to complement FutureGen at Mattoon with additional,
adequately funded projects in a variety of engineered applications and
a variety of geologic formations, but that complementary projects must
not come at the expense or delay of the number one priority, FutureGen
at Mattoon.
Further, DOE has cited a changing marketplace and cost-related
issues as the basis for their decision. Cost issues have been addressed
above. With respect to the changing marketplace, DOE argues there are
now many commercially announced IGCC projects and carbon capture and
sequestration could be incrementally added to them. While there are
numerous proposed IGCC projects, it is widely recognized within
industry that few of these projects will come to fruition. In fact,
since DOE signed the Cooperative Agreement in March 2007, the number of
commercial IGCC projects has declined not increased. Those few projects
which are proceeding face both financial and regulatory challenges.
Thus, the market is not as mature or stable as DOE has implied.
DOE cites two conventional IGCCs without CCS as being permitted. We
applaud the leadership of Duke, AEP, and Southern Company who are
farthest along in the development of commercial IGCC projects without
capture. However, one must look at the actions of these companies as
early market deployments that must overcome some substantial hurdles.
In the case of Duke's IGCC, nearly $400 million in tax incentives and a
18 percent rate increase were required in order for this plant to
represent a sound commercial investment. Further, last week Duke
reported the need for an additional $365 million from the ratepayers
for its 630-MW IGCC. This again is for a plant without CCS. In the case
of AEP's IGCC, it has had difficulty gaining approval for the rate
increases in both Ohio and Virginia necessary for it to be a sound
commercial venture. Thus, one cannot conclude there is a mature,
sustainable market for conventional IGCC plants without CCS.
Adding CCS to an IGCC further complicates the siting, design,
construction, and operation of the plant. It also complicates the
business structure associated with building such a plant. It is a
common misconception that adding CCS to a conventional IGCC is simple,
particularly at high rates of CO2 capture. It is relatively
straightforward to capture at rates of 20 percent. It becomes more
costly at rates approaching 60 percent. As one exceeds 60 percent and
approaches 90 percent capture, which is DOE's stated goal, it becomes
technologically very challenging as major system components must be
modified or changed out completely. It also is far more expensive.
Given these complications and the need for bold technological advances,
the first such plant is best left to a public-private partnership that
is not bound by the constraints of a normal profit-making venture. That
partnership involves building FutureGen at Mattoon with 90 percent
CO2 capture.
Currently, DOE's proposed restructuring leaves many unanswered
issues that are of concern. Some of the specific concerns about DOE's
proposed restructuring include:
--DOE's Schedule Under the Restructuring Proposal is Unrealistic.--
DOE has an important obligation to the taxpayer to follow
comprehensive contracting processes, conduct technology
reviews, and prepare an environmental impact statement on any
new project. The schedule (i.e., a proposed on-line date of
2015) in the Request for Information (RFI) is not realistic for
a project that meets 100 percent of the stated goals. Many
potential industrial partners are unfamiliar with DOE's
required practices, and it is important that the DOE inform
them of a reasonable schedule so that they can properly conduct
the project and deal with their third-party investors. Overly
optimistic schedules are a disservice to Congress, industry,
and the public.
Based on our experience, the following would be a fast-track
schedule for DOE to identify an alternative, fully integrated project
that meets all of the existing performance goals for the FutureGen
program:
--2009+: project selection and cooperative agreement negotiation.
--2012: completion of preliminary design, environmental impact
assessment and record of decision.
--2013: completion of detailed design and procurement of major
technology components.
--2017: completion of construction.
--2018: initial operation.
--2022: completion of test period.
--DOE's Restructured Approach has Problematic Business Parameters.--
DOE's proposal implies that 90 percent capture simply involves
the addition of new technology to an existing IGCC. It does
not. The complex integration of CCS into a commercial IGCC
plant will entail significant modifications to many other
systems, including commercial systems inside the base plant. It
would also largely require a restart of design work done to
date on the base commercial plant. Thus, the Government, its
procurement rules, and its oversight practices could easily
extend into the commercial, for-profit power plant. Further,
applying FutureGen funds to a project with anything appreciably
less than capturing 90 percent of the total CO2
emissions from the entire plant would fall short of what is
needed to rapidly develop near-zero emission coal plants.
--DOE's Restructured Approach Does Not Address the Increased Marginal
Cost of Electricity Due to Adding CCS to a Plant.--The modified
plant that DOE proposes that industry build will cost
substantially more to operate than a traditional plant. DOE's
RFI is largely silent on operating costs. Adding CCS to an IGCC
plant is expected to increase the cost of electricity by as
much as 50 percent and the marginal production cost by as much
as 20 percent. Because power plants dispatch electricity to the
grid based on their marginal operating cost, the approach DOE
proposes could result in a plant that is too expensive for
industry to operate.
--DOE Appropriately Retained the 90 Percent Capture Goal in its RFI
and Must do so in any Awarded Projects.--However, DOE has
recently made public statements that this goal may be relaxed.
The FutureGen program has identified 90 percent CO2
capture as an important requirement to advance CCS technology.
This level of CO2 capture has significant impact on
the design of many critical components of the facility, such as
the combustion turbine, gas clean-up system, and syngas clean-
up system. It would be a serious mistake if this target level
is relaxed. Ninety percent is a technical goal designed to
ensure a sustainable future for coal in a carbon-constrained
world. Today's commercial projects cannot technically or
economically achieve this goal and DOE's program should focus
on bold technological advances, not incremental change.
--Plant Revenue Must go to the Industrial Partner.--In a commercial
project, it is expected that all of revenue would need to go to
the industry partner. For FutureGen at Mattoon, DOE shared in
the project revenues substantially offsetting Federal
investment. For projects conducted under DOE's new approach,
the industrial partner would insist that plant revenues go to
the industrial partner so that the private sector participants
can generate a commercial financial return.
In its 2004 report ``FutureGen Integrated Hydrogen and Electric
Power Production and Carbon Sequestration Research Initiative,'' DOE
acknowledged the necessity for the type and level of risk sharing
associated with FutureGen at Mattoon if technology is to advance at the
required pace. In its report, DOE said:
``FutureGen's integration of concepts and components is key to
providing technical and operational viability to the generally
conservative, risk-adverse coal and utility industries. Integration
issues such as the dynamics between upstream and downstream subsystems
(e.g., between interdependent subsystems such as the coal conversion
and power and hydrogen production systems and carbon separation and
sequestration systems) can only be addressed by a large-scale
integrated facility operation. Unless the production of hydrogen and
electricity from coal integrated with sequestrating carbon dioxide can
be shown to be feasible and cost competitive, the coal industry will
not make the investments necessary to fully realize the potential
energy security and economic benefits of this plentiful domestic energy
resource.''
Technology advancements and market changes in the last 5 years have
not changed this need for a full scale validation envisioned in DOE's
report and FutureGen at Mattoon.
There is no program in the world that can move near-zero emission
power and CCS faster or further than FutureGen at Mattoon. The
FutureGen Alliance is nonprofit, includes unprecedented international
involvement and information sharing, and has a site that is technically
and legally ready to go. Alternatives will cost the country 5 years or
more of delay, cost the taxpayers more, and/or deliver less in terms of
results.
As Congress and the administration debate the appropriate structure
for the FutureGen program, the Alliance urges that all of the factors
raised in this testimony be taken into account. FutureGen at Mattoon
should be maintained as a global flagship program that is the Nation's
top priority for advancing near-zero emission coal technology, and
complementary projects should be added to the program as the budget
allows.
Senator Dorgan. Mr. Thompson, thank you very much for your
testimony and for being here. Let me ask you the question that
Senator Durbin was asking the Secretary on the issue of cost.
And the reason I ask it first is because when the Secretary
called me and indicated that he was ``pulling the plug'' on
FutureGen, the first point he made was the growth in cost.
Give me your estimate of why that has happened. What has
caused the growth in the cost of FutureGen?
Mr. Thompson. What has occurred is in fact escalation of
component materials, component cost, labor, so inflation of the
materials and the activity that will go into building the
plant. The constant dollar estimate of $950 million that scope
is essentially what we are still looking at. So today's
estimate, really March 2007 when we signed that cooperative
agreement, it did have in as built dollars, so the real dollars
cash that would be played out over the next 9 to 11 years that
was going to be higher, $1.8 billion. And that difference was
inflation, as discussed the 5.2 percent inflation factor is the
difference.
Senator Dorgan. Let me understand that. I didn't quite
understand the point of the March 2007 signing. At that point
when an agreement was signed between the Alliance and the
Department of Energy what was the cost estimate then?
Mr. Thompson. It was that $1.8 billion. So all of that work
had been established and the work with the Department of
Energy. There was full understanding of what that cost estimate
was when we move forward with the full agreement.
Senator Dorgan. So you're saying the escalation, there
wasn't an escalation or a change in the estimate between the
time when the Department of Energy signed the agreement and in
January/February timeframe when they announced they were
pulling the plug on FutureGen.
Mr. Thompson. The data points that we the Alliance, are
working with what continues to be this 5.2 percent inflation.
We have not changed our estimates. The project activity that we
are under obligation as the Alliance to work with the
Department of Energy on does have us working on refined
estimates that may or may not change. It could go down. It
could go up.
Our estimation is still the same as it was in March 2007.
Senator Dorgan. I see. You know there are some who have
notwithstanding the reasons for the cancellation or the
announcement to cancel FutureGen, there are some who have felt
that the so called Big Bang Theory of doing one big project
called FutureGen would have been better accomplished if you had
done a number of smaller projects similar to what the
administration had announced. You have indicated that first of
all, it is a timing issue. I indicated earlier there's an
urgency here.
But second you indicated that there is no set of smaller
projects that will accomplish and give us the knowledge base
that your project will. Expand on that if you will because I
want to understand that.
Mr. Thompson. Yes, sir. First of all, for retrofit
applications there are a number of other technology
developments that are underway which we, as the Alliance, all
members of the industry greatly applaud. And there needs to be
substantially more money put into that in anticipation of
potential climate change legislation. So that work, we
certainly don't think should be stopped. It has to be expanded
also.
What we really look at as the Alliance, the members who are
very keen to get the big bang, as you call it, project going is
that it does just that. It takes all of our known technological
pieces that science, chemistry and so on can piece together.
But it has to be put all together into one operating plant.
As an electricity provider I can't store my product. I have
to make sure that everything from the time I start putting fuel
into the system to when I deliver electricity out, everything
has to work. It's integrated.
So trying to get cost effective, long term, near zero
emission projects together, it does take putting it all
together. And that's what this project does. It doesn't
supplant all of the other efforts that are ongoing.
But for us to see how fast that we can get cost effective
power using coal in this technology choice that's out there,
that's why this big bang is important. All other smaller
activities don't get us to the moon fast enough.
Senator Dorgan. Senator Domenici?
Senator Domenici. Thank you very much. Mr. Thompson, thank
you very much for coming today.
Mr. Thompson. You're welcome.
Senator Domenici. I assume you've been under a lot of
pressure. You look alright though.
Mr. Thompson. Well, thank you.
Senator Domenici. You must be pretty tough. Yesterday as I
understand it the DOE issued a draft funding opportunity
announcement for clean coal plants with carbon capture and
storage under the restructured FutureGen. Will you or your
members submit a proposal to build a plant in Mattoon under the
solicitation based on the work that has been done at Mattoon?
It seems like this would give you a head start over other
applicants.
Mr. Thompson. As the FutureGen Alliance, no we will not be
submitting under this revised approach. The approach does
require that there's effectively a front end power plant that
is commercially built that the activity would then add on to
for carbon capture and sequestration. So this Alliance will not
be focusing on building a commercial power plant that is a
prerequisite for following through. Others may, but we will not
be.
Senator Domenici. You say others will or may?
Mr. Thompson. Other companies that are in the industry
certainly may want to look at that. And if they do that that is
their choice and if it advances our understanding of technology
that too should be applauded. But it's a complement, not a
replacement of what we're trying to do.
Senator Domenici. As you might know after much delay we did
get a rather substantial allocation of loan guarantee money for
both nuclear powerplants and coal. Coal got about $8 billion.
Excuse me. Does that mean anything to you and your future?
Mr. Thompson. From the standpoint of the FutureGen
Alliance, no, we have not been focusing on that loan guarantee
package as a part of that act in 2005.
Senator Domenici. In other words it doesn't help you, per
se.
Mr. Thompson. To be honest I don't really know. So I can
say that I'm not familiar with what we may have looked in as
the Alliance, we've not been. I do know that we've not been
counting on it as part of our process thinking forward.
Senator Domenici. I had noted in my statement that it would
seem that the Alliance was fully aware of the opposition by the
Department with the site selection announcement but decided to
move forward anyway. Is that true?
Mr. Thompson. I would say actually there was a number of
compelling actions taking place even with the Department of
Energy that suggested we do move forward. Then there was a
letter that was received by the CEO of the Alliance that
suggested it was inadvisable to move forward but with no other
explanation. That is really the only communication we've had
with respect to not making a site announcement.
Senator Domenici. Well my staff tells me that it's our
understanding that the cooperative agreement is done on a
yearly basis to allow both sides an exit option. When DOE
signed the current cooperative agreement in 2007 did they not
inform you that they wanted a new funding share structure by
June 15, of this year?
Mr. Thompson. No, sir, they did not in March 2007. The
cooperative agreement does, as you suggest, but slightly
different, does have budget periods. And at the end of each
budget period parties do have the opportunity to not proceed
for various reasons. And we are coming up on the end of budget
period one.
The cooperative agreement though does have a situation in
March 2007 in it where the parties agreed that when we were at
the conclusion of budget period one when we now have further
estimated, refined our estimates, that does have a phrase in
there that allows us, says that we, the Alliance, will work
with the Government to provide caps to them. But it is a
generic statement saying we will do this at the end of budget
period one. So shortly after the signing of the cooperative
agreement that is when the Department of Energy said that they
really wanted to do that at that point in time not at the end
of budget period one.
Senator Domenici. Now just in the final, make sure I've got
it. The new proposal that DOE is submitting in lieu of
FutureGen as you were a part of originally is not of interest
to you or your Alliance. Is that correct?
Mr. Thompson. Just to be clear, for the Alliance, the
Alliance will not be proceeding to respond to it. When you
speak as me, as an individual in the utility industry I do
welcome all engagement of technology development for coal based
fuel and power production. So as an individual I certainly
support further efforts to look at technology development in
this case the carbon sequestration. As a powerplant provider
I'm eventually, certainly very interested in how the carbon
will be stored.
Senator Domenici. Thank you very much. Thank you, Mr.
Chairman.
Senator Dorgan. Senator Durbin?
Senator Durbin. Mr. Thompson, thank you for being here and
for your testimony. And I struggled with Secretary Bodman's
explanation of why this was an economically unsustainable
project when he couldn't explain to me where the $1.8 billion
came from. As I understand your testimony it is simply the
projection of original cost in constant dollars over the period
when this project would be built and operated with an inflation
rate of about 5.2 percent per year. Is that a correct
understanding?
Mr. Thompson. That is a correct understanding.
Senator Durbin. So if he disputes the annual inflation
rate. That's one thing. But to ignore inflation is another
thing.
It's like saying that I can drive to the airport from this
spot anytime, any day and I know I'll arrive there at the same
time. We know better. If you leave during rush hour it's going
to take a lot longer. If you have a project that's going to
take 13 or 14 years to build and operate, it's going to cost
more. And that's why I've struggled from the beginning with his
explanation as to why he walked away from this project in the
manner that he did.
I'd like to go to the point that the chairman raised
because it's one that is important. And I think we need to
address as to whether or not existing coal-fired plants can be
retrofitted in a way to capture CO2 or other
emissions because we're going to face this. I mean in coal
country we face it head on. I think about half of our
electricity in Illinois comes from coal-fired plants, the other
from nuclear.
So I certainly see the merit in his suggestion of moving
toward retrofit technologies, but as I understood FutureGen
from the start they were looking at geologic formations where
we could sequester CO2 safely over long periods of
time. It wasn't a matter of picking an existing plant and
deciding whether there was a field nearby where we could sink
CO2 safely. They were looking for one of the best
places to experiment.
Is there a current effort underway in this country to in
any way develop carbon sequestration on a commercial basis?
Mr. Thompson. I am not aware of companies, private
companies, trying to commercially pull together a program. So
if that will come from the commercial sector I'm not aware of
it. And so, I do believe that, particularly for our utility
industry and it's a large number in all of this equation,
everything that is carbon capture and sequestration related is
work that we are doing with public/private partnerships.
Senator Durbin. Unless we come up with carbon sequestration
technology or some alternative that I can't imagine at the
moment, it really means that our coal resources in future years
could be compromised in terms of their energy potential. Am I
correct in that conclusion?
Mr. Thompson. I completely agree with that. We have as was
said earlier incredibly increasing fuel costs of oil, for
example. So you have economic factors. You have the climate
factor.
All of these factors come together more than just that. And
this is a situation where from an energy security point of view
if we can solve this coal, carbon dioxide capture and
sequestration issue in a large scale quickly, which is what
FutureGen is trying to do. If we can solve that we've also
solved some energy security. So economics, energy security and
climate all benefit from what we've been trying to do.
Senator Durbin. Well I think that's a point that really I'm
glad is on the record because, you know, if we are dealing with
the long term security issue in terms of energy for the United
States and we are going to have an energy policy I think we may
find that $1.8 billion is a modest investment for what it can
bring back to our Nation in terms of energy security and
environmental responsibility. I think those two things will
work together. And I'm going to do my best, Mr. Thompson, to
work with the Alliance. A lot of companies, utility, coal
companies, others that are interested in this, I think have, in
good faith have tried to move forward.
I'm afraid as you could tell from the testimony of
Secretary Bodman, not much is likely to happen in a positive
way while this administration is in power. But I'm not giving
up. I'm going to try to work with this subcommittee and my
colleagues to keep the FutureGen Alliance concept alive.
And I just want to close by thanking you and all the
members of the Alliance. And I also want to thank David Workman
who's here, who is the public works director in Mattoon,
Illinois. Thank you for joining us. We're not going to quit.
We're going to keep working on this. Thank you very much.
Mr. Thompson. Thank you, Senator. And the Alliance will
continue as well.
Senator Durbin. Thank you, sir.
ADDITIONAL COMMITTEE QUESTIONS
Senator Dorgan. Mr. Thompson, thank you very much for being
with us today. And obviously this discussion and debate and all
of the concern about the carbon capture and the technologies
necessary to continue to use coal will continue for some while.
Senator Durbin, we appreciate your joining the subcommittee
today.
We would like to submit some additional questions to the
witnesses for their response.
[The following questions were not asked at the hearing, but
were submitted to the witnesses for response subsequent to the
hearing:]
Questions Submitted to Hon. Samuel W. Bodman
Questions Submitted by Senator Robert C. Byrd
Question. Mr. Secretary, how do you propose to re-engage the
private sector in future ventures after the administration walked out
in the middle of the project with the FutureGen Alliance and has barely
lived up to its commitments with regard to the Clean Coal Power
Initiative?
Answer. The FutureGen Cooperative Agreement between DOE and the
Alliance contained clear decision points that envisioned periodic re-
assessments as the project progressed. The Department must make sound
decisions when determining how to invest taxpayers' funds. The public's
interests were not best served by the continuation of the original
FutureGen agreement with the Government shouldering up to 74 percent of
the project cost, and with the estimated costs increasing and likely to
go higher. Therefore, FutureGen is being restructured as a commercial
demonstration program to better serve the interests of both the public
and industry. The Department received responses from approximately 50
parties to the Request for Information (RFI) issued in January on the
restructured approach, and more responses were submitted for the Draft
Funding Opportunity Announcement (FOA) that was issued in May. The
Department believes that the restructured FutureGen program will have
ample industry support; given its orientation toward commercial
demonstration projects and the availability of as much as $1.3 billion
in possible cost share. Additionally, because changes to the project
were made based on sound reasoning and good faith negotiations, the
Department believes that the restructured FutureGen will have the
support the program deserves.
Regarding the Clean Coal Power Initiative, we plan to issue the
solicitation for a third round later this year.
Question. The Department of Energy is on record for abandoning the
FutureGen project primarily based on escalating costs. Escalating costs
are a reality for any major construction project. What safeguards will
the administration put in place to ensure that any new alternative
FutureGen initiatives will not endure the same fate?
Answer. The primary safeguard is that the restructured FutureGen
program will be capped at $1.3 billion for the Federal contribution
focused on addressing the Carbon Capture and Storage portion of
commercial plants and associated integration issues. Consequently, the
restructured program requires a significantly greater industry cost
share. The fiscal year 2009 budget proposes statutory language guarding
against cost escalation. For example, it limits escalation of the
Government cost share to 25 percent of the original award. Furthermore,
the Funding Opportunity Announcement explicitly states that DOE does
not plan to set-aside funds for cost growth. Industry will be operating
the facilities for commercial power production. Hence, industry will
have strong incentive to complete the project even if cost increases
occur.
Question. The Department of Energy also raised concerns about
third-party financing of FutureGen. Is it not true that nearly every
coal-fired project in the country, including DOE's own CCPI program,
involves financing? Why was the former FutureGen project held to a
different standard?
Answer. DOE's financial obligations for the original FutureGen
project would have been much higher than on any of our CCPI projects,
in terms of both dollar value and cost share percentage. DOE's cost-
share for CCPI would be 50 percent or less while its share for the
original FutureGen was 74 percent. If project financing were allowed
under such a circumstance, then lenders could have taken a lien on the
entire facility and future cash-streams, making it much more difficult
for DOE to complete the project if the Alliance chose to terminate the
agreement. This arrangement would have presented too much risk to the
taxpayer.
For restructured FutureGen where DOE will contribute only the
incremental cost of the CCS related portion of the plant, our
assumption is that commercial power producers investing at least 50
percent (compared to only 26 percent in the original FutureGen), and
potentially upwards of 75 percent or more of the project cost will have
a strong incentive to complete the project. Hence, project financing in
this case will not expose DOE to as great a risk of project
abandonment.
Question. The agency has contended that the revised FutureGen
approach will place emphasis on gaining early commercial experience
validating clean coal technologies through multiple demonstrations of
Carbon Capture and Storage (CCS) technology in commercially operated
Integrated Gasification Combined Cycle (IGCC) electric power plants.
How realistic is it to expect that these projects will be on line
quicker than the original FutureGen project, given that DOE will need
to evaluate new proposals, make selections, conduct environmental
reviews for new projects, and realize commercial operations?
Answer. The restructured program will be premised on multiple
commercial demonstration projects, rather than a single R&D plant. This
strategy will produce more commercial plants sooner. Depending upon the
number and nature of proposals received, we expect multiple projects
that can enter commercial operations as soon as 2015.
Under the original approach, the R&D plant would have initiated R&D
test operations in 2012 or 2013, and those operations would have
continued for 3 years, after which separate commercial projects would
have followed and entered commercial operations around the 2020
timeframe.
Question. The revamped FutureGen and CCPI-3 are starting to look a
lot alike. What are the key differences?
Answer. The key differences are that CCPI is focused on getting
new, low-cost and efficient carbon capture technologies that mature
from the R&D sub-pilot scale to be tested and demonstrated in clean
coal projects, while FutureGen's primary goal is aimed at demonstrating
at a commercial scale multiple IGCC (or other advanced coal) power
plants with carbon capture and storage (CCS) using a variety of coals.
Furthermore, FutureGen requires the storage of at least 1 million
metric tons CO2/yr in a saline reservoir, while CCPI will
require a lesser amount of CO2 capture and allows for the
beneficial reuse and/or permanent storage of the captured
CO2 from the power plant. Both FutureGen and CCPI provide
expanded demonstration experience for integrated power plants with CCS.
Both programs aim to provide valuable commercial experience for these
clean coal technologies, and FutureGen's goal of capturing as much as
90 percent of CO2 along with CCPI's demonstrations to
integrate CCS with power generation are complementary and necessary
activities leading to affordable near-zero emission coal plants with
CCS.
Question. I understand that the revamped FutureGen effort will not
continue as 74 percent Federal/26 percent private cost-shared
demonstration projects. Please explain how the agency will determine
its financial role in the revamped FutureGen program.
Answer. Under the restructured FutureGen approach, the Government
would contribute a portion of the incremental cost of implementing the
CCS portions of the demonstration when compared to a state of the art
facility without such technology, and up to 50 percent of the total
allowable project costs. For example, if a project proposes a
greenfield IGCC facility that would have a total project cost of $1
billion without CCS and $1.4 billion with CCS, then DOE's maximum
contribution to the project would be $400 million.
Question. How much funding is expected to be available for
FutureGen and for Round 3 of the Clean Coal Power Initiative (CCPI-3)?
What are the out-year budget implications for FutureGen? How many
projects do you anticipate funding under FutureGen and how many under
CCPI?
Answer. For FutureGen, we expect to have $290 million available
through fiscal year 2009, plus $1.01 billion in the out-years, for a
total of $1.3 billion. For CCPI we expect to have $224 million
available for Round 3, plus significant funding over the next several
years in order to pursue a fourth round solicitation. The number of
projects is highly dependent upon the amount of funding available and
the number and nature of the proposals received.
Question. Will you be proposing a forth round of CCPI as originally
planned, and when do you expect that to happen? How will out-year
funding for FutureGen impact the ability to fund these important future
rounds of CCPI?
Answer. We are currently focused on Round 3 of CCPI. Out-year
funding for FutureGen is not expected to impact the ability to fund
future rounds of CCPI.
Question. I understand that $134 million of the $173 million
appropriated for the original FutureGen project is unobligated. Does
the agency intend to submit a reprogramming request to the
congressional committee of jurisdiction to make the $134 million
available for the restructured FutureGen?
Answer. No, at this time we do not believe that we will need to
reprogram funds. However, we will correspond with the appropriate
committees in advance of any award to discuss our needs for financing.
As a matter of policy, the Department typically abides by the
reprogramming guidance provided by the appropriations subcommittees
each year. The general reprogramming guidance contained in the
Explanatory Statement accompanying the Consolidated Appropriations Act,
2008 is that a ``reprogramming includes the reallocation of funds from
one activity to another within an appropriation, or any significant
departure from a program, project, activity, or organization described
in the agency's budget justification.'' There has been no change in the
description of the fundamental goal of FutureGen. Both the Department's
fiscal year 2008 and fiscal year 2009 budget justifications describe
FutureGen as a program that ``will prove the technical feasibility and
economic viability of the near-zero atmospheric emission (including
carbon) coal concepts.''
Question. I understand that $39 million of the $173 million
appropriated for the original FutureGen project was obligated. What
return on investment is there to show the taxpayer on this obligation?
Answer. We believe the knowledge gained and lessons learned over
the past 5 years will be very helpful as we move forward with the
restructured approach. The original approach provided a great deal of
valuable information, especially in terms of siting processes for coal-
based power plant projects equipped with carbon capture and storage, as
well as conceptual and preliminary design parameters, equipment
specifications, and a preliminary cost estimate. This information may
also be insightful during the early stages of the restructured program,
and will provide value in the form of analytical techniques and thought
processes that were developed and utilized. Additionally, we have four
sites that were identified in the Environmental Impact Statement as
suitable candidate sites that could be eligible for proposed projects
under the restructured FutureGen. Much of the environmental and siting
information has been gathered on these sites, which will be useful in
future projects.
______
Questions Submitted by Senator Wayne Allard
Question. Did the administration work with industry when making
their restructuring decision to ensure that the decision was one that
was workable for industry?
Answer. On January 30, 2008, DOE issued a Request for Information
(RFI) seeking industry comment on the restructured project. DOE has
taken those industry comments under consideration and published a Draft
Funding Opportunity Announcement (FOA) on May 7, 2008, in order to give
industry a second opportunity to comment on the restructured approach
before the final FutureGen FOA is released.
Question. Mr. Secretary, will there be special consideration given
to proving carbon capture and storage capabilities at high altitudes?
Answer. All projects will be evaluated fairly on their merit and
strength of proposal. If a project that proposes CCS happens to be
located at high altitudes, and is otherwise a strong project, it will
be given due consideration along with the other projects during the
selection process.
______
Questions Submitted by Senator Richard J. Durbin
Question. President Bush announced the FutureGen Initiative in
February 2003. It was called a $1 billion initiative with DOE carrying
80 percent of the cost--$800 million. In March 2007 the Department of
Energy signed a cooperative agreement with the FutureGen Alliance
stating that DOE's share of the project would be $1.1 billion,
approximately 40 percent more. Ten months later, in January 2008, DOE
cancelled the project, citing increasing costs.
If the cost estimate and terms were acceptable in March 2007, why
were they suddenly unacceptable a few months later?
Answer. The 2004 Report to Congress on FutureGen identified the
following funding sources: $500 million from DOE for the base plant; up
to $120 million in DOE funding for the sequestration component, with
the possibility of industry cost share reducing the DOE share; $250
million from the FutureGen consortium, and $80 million from
international partners. The Department became concerned about cost
increases in early 2007. Our concerns over future cost escalations
prompted a series of meetings between the Department and the FutureGen
Alliance in an attempt to resolve the cost containment issues. Through
December 2007, the Department still hoped that a suitable arrangement
with the Alliance could be achieved. Unfortunately, an agreement could
not be reached, and we decided to restructure the FutureGen project to
better build upon technological advances achieved in CCS technology
through Federal and private R&D work, as well as changes in the
marketplace including more IGCC projects proposed for construction.
Question. How can DOE claim that its costs have doubled?
Answer. In the Report to Congress in 2004, DOE provided a project
estimate of $950 million in ``current year dollars'' without escalation
in an attempt to identify the scale of the project. It was not until
the Alliance completed their conceptual design in 2007, that the $1.8
billion (``as spent'' dollars) estimate was finalized. Therefore, the
$950 million estimate in constant year 2004 dollars is now estimated to
be $1.8 billion in escalated ``as spent'' dollars for the same project
scope.
Question. I want to understand when DOE made the decision to pull
the plug on FutureGen. On November 8, 2007, Acting Principal Deputy
Assistant Secretary Slutz wrote to me, informing me that the
Environmental Impact Statement would be issued the next day and that
DOE would issue a Record of Decision after the public comment period.
Again on November 30, you notified Congress that a Record of Decision
would be issued and a site would be selected by the end of the year.
Then on December 18, 2008, DOE issued a press release that the program
would be restructured.
DOE's decision to restructure was made sometime between November 30
and December 18?
Answer. DOE's final decision to restructure the FutureGen project
was made on January 30, 2008 after it was determined that DOE could not
reach a mutually agreeable restructured cooperative agreement with the
Alliance.
Question. Whom specifically at the Alliance did Mr. Albright speak
with?
Answer. Under Secretary Albright spoke with representatives from
member companies of the Alliance.
Question. Did you personally ask any members of the Alliance not to
make the site announcement? Please instruct Mr. Albright to send the
subcommittee a list of FutureGen Alliance managers that he personally
spoke with between November 30 and December 18. His list should include
a brief explanation of what was said in each conversation.
Answer. On December 11, 2007, the Department advised the Alliance
not to move forward with any site selection announcement through a
letter sent by Acting Principal Deputy Assistant Secretary Jim Slutz.
Under Secretary Albright spoke with representatives of member companies
of the Alliance, asking them not to move forward with a site selection
announcement in light of the nature of the negotiations that were
taking place between the Alliance and DOE.
Question. We have established that DOE's restructuring decision was
made sometime between November 30 and December 18. What specifically
prompted you in this 19-day period to scuttle the program?
Answer. DOE's final decision to restructure the FutureGen project
was made on January 30, 2008 after it was determined that DOE could not
reach a mutually agreeable restructured cooperative agreement with the
Alliance.
Question. I have some questions about the new program you've
proposed to replace FutureGen at Mattoon. DOE released a draft
solicitation yesterday and announced that a final solicitation will be
released in mid summer. Furthermore, DOE expects to select projects in
December, maybe 5 months later--conveniently in time for a new
administration to be saddled with this new program.
From the time of the Request for Proposals, how long did it take
DOE and the Alliance to select the Mattoon proposal?
Answer. DOE did not select the Mattoon site proposal. The Alliance
issued its Request for Siting Proposals in March 2006, and unilaterally
announced its site selection (Mattoon) in December 2007.
Question. What effort went in to preparing those proposals?
Answer. The proposals included extensive site characterization
efforts, which should be considered by prospective developers who are
evaluating Mattoon, Tuscola, Jewett or Odessa for a possible site to
bid on the new FutureGen solicitation when it is released.
Question. And in the new program you expect the site
characterization, system design, proposal writing, and proposal review
process to take only 5 months?
Answer. Yes, though a comprehensive site evaluation under NEPA will
take place after conditional project selections are made, and will
require 18 to 24 months in parallel with preliminary project design
activities.
Question. The intent of the proposed program is for DOE to cover
the additional costs of a carbon capture and sequestration system
tacked on to a commercial power plant?
Answer. Under the restructured FutureGen approach, the Government
would contribute a portion of the incremental cost of implementing the
CCS portions of the demonstration when compared to a state of the art
facility without such technology, and up to 50 percent of the total
allowable project costs. For example, if a project proposes a
greenfield IGCC facility that would have a total project cost of $1
billion without CCS and $1.4 billion with CCS, then DOE's maximum
contribution to the project would be $400 million.
The CCS system will reduce plant efficiency substantially. For
instance, the CCS system will draw much electricity that would
otherwise be sold on the grid. Currently, these costs are not covered
in the latest draft solicitation.
Question. The costs of less efficient electricity production will
be passed on to the ratepayers?
Answer. There will be costs for controlling carbon emissions, just
as there have been costs associated with controlling other types of
emissions. The determination of what costs will be passed on to rate
payers would be made by the project owners and/or the regulators
depending on the electricity market territory.
______
Questions Submitted to Paul W. Thompson
Questions Submitted by Senator Wayne Allard
Question. What is the project doing to ensure that the results of
the project are something that industry can pick-up and integrate into
current or future facilities smoothly?
Answer. Facilitating the rapid transfer of project results to a
broad cross-section of the industrial community, with a goal of
stimulating subsequent commercial near-zero emissions coal projects, is
an important aspect of FutureGen at Mattoon. Further, it is our view
that this transfer of the results must be continuous throughout the
project.
The first step taken by the Alliance to facilitate the sharing of
results was to incorporate as a non-profit organization and welcome all
coal-fueled utilities and coal companies to participate. This has at
least two major benefits. First, the industrial backers of subsequent
commercial projects have an open and equal opportunity to gain hands-on
knowledge through their early participation in FutureGen at Mattoon.
Second, the non-profit structure of the Alliance prohibits
participating companies from gaining preferential intellectual property
benefits or financial returns; thus, participants do not have the
traditional for-profit motivation of keeping knowledge to themselves
for individual corporate advantage. Instead, they benefit through the
accelerated advancement of the technology.
DOE's proposed approach for restructuring FutureGen will intertwine
the advancement of technology with commercial ventures. This will
incentivize participants to limit information sharing in order to
improve their own competitive advantage and gain a direct financial
return on their investment.
One can look to the Alliance website, www.FutureGenAlliance.org,
for evidence of the Alliance's early efforts to share results. During
the siting process, the Alliance published a comprehensive set of
siting criteria that were designed to help select a suitable power
plant site that also offered safe, permanent sequestration
opportunities. We believe that these criteria and the methodology can,
and should, be adapted to the specific needs of future commercial
projects in order to aid in the selection of high quality sites.
As a second example, upon completion of an initial conceptual
design and cost estimate, documentation of this work was publicly
distributed and is also posted on the Alliance's website. On typical
DOE clean coal projects, and almost certainly on projects that are part
of DOE's proposed and restructured program, program participants will
not publicly share information at this detailed level.
As FutureGen at Mattoon moves from design to construction and
operation, the pace of information sharing will only increase.
Questions. As this is a ``global public-private partnership'' can
one of you share with us some of the contributions being made by the
global community?
What is the plan for sharing the results of these demonstration
projects with industries and markets outside of this country?
Answer. There are currently 13 industrial members of the non-profit
FutureGen Alliance, which has joined in a global public-private
partnership with DOE. Approximately one-half of the participating
companies are headquartered overseas. These overseas companies
currently plan to provide approximately one-half of the approximately
$400 million to FutureGen at Mattoon with no expectation of corporate
financial return. Thus, funding to a DOE program is a major
contribution by the global community.
In addition, the global community is providing technological know-
how through the industrial member companies, independent technical
experts, and technology vendors. This is a hallmark of FutureGen at
Mattoon, as the United States is benefiting from the best and brightest
minds around the world in its effort to design and build this first-of-
a-kind power plant. This is important so that we can ensure that the
power plant is truly state-of-the-art. It is also important because
sequestration technology will only be a viable part of a comprehensive
response to climate change if it is viewed globally as technically and
socially acceptable. Involvement of the global community during the
design process will help ensure ultimate stakeholder and commercial
acceptance of sequestration technology.
With respect to sharing results with the international industries
and markets, this will take place in several ways. In all cases, export
laws, other regulations, and the rights of participating technology
vendors will be respected. Consistent with this, there is substantial
know-how, particularly related to sequestration, operational data,
procedures and experience, design approaches, and lessons-learned that
can be shared internationally and to the benefit of the United States.
Among other approaches, publications, participation in industrial
forums, and participation in scientific forums will be used. Further,
technology vendors participating in FutureGen at Mattoon will be well
positioned to sell selected, U.S.-made technologies to international
markets. This will improve U.S. trade and at the same time important
progress will be made in globally deploying near-zero emissions
technology that addresses climate change and energy security concerns.
It is also important to note that the technologies developed as
part of FutureGen at Mattoon will also be shared throughout the United
States. As an example, the FutureGen at Mattoon plant is fuel flexible
in terms of the coals it can gasify. So, while it is located in the
Midwest, it will be able to gasify eastern coals and western coals,
such as Powder River Basin coal.
CONCLUSION OF HEARING
Senator Dorgan. This hearing is recessed.
[Whereupon, at 11:09 a.m., Thursday, May 8, the hearing was
concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]
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