[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

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

                                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


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html

                               __________



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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
                                 ------                                

              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

                              ----------                              
                                                                   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

                              ----------                              


                         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.
---------------------------------------------------------------------------
    \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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