[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
SUBCOMMITTEE FIELD HEARING ON
THE IMPACT OF ENERGY POLICY ON
SMALL BUSINESSES
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
AUGUST 25, 2009
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 111-043
Available via the GPO Website: http://www.access.gpo.gov/congress/house
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
DENNIS MOORE, Kansas
HEATH SHULER, North Carolina
KATHY DAHLKEMPER, Pennsylvania
KURT SCHRADER, Oregon
ANN KIRKPATRICK, Arizona
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
MELISSA BEAN, Illinois
DAN LIPINSKI, Illinois
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
BRAD ELLSWORTH, Indiana
JOE SESTAK, Pennsylvania
BOBBY BRIGHT, Alabama
PARKER GRIFFITH, Alabama
DEBORAH HALVORSON, Illinois
SAM GRAVES, Missouri, Ranking Member
ROSCOE G. BARTLETT, Maryland
W. TODD AKIN, Missouri
STEVE KING, Iowa
LYNN A. WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
BLAINE LUETKEMEYER, Missouri
AARON SCHOCK, Illinois
GLENN THOMPSON, Pennsylvania
MIKE COFFMAN, Colorado
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Karen Haas, Minority Staff Director
.........................................................
(ii)
STANDING SUBCOMMITTEE
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, Pennsylvania, Chairman
HEATH SHULER, North Carolina MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana LOUIE GOHMERT, Texas
PARKER GRIFFITH, Alabama
(iii)
C O N T E N T S
__________
OPENING STATEMENTS
Page
Altmire, Hon. Jason.............................................. 1
Fallin, Hon. Mary................................................ 2
WITNESSES
Bergey, Mr. Mike, President, Bergey Windpower Company, Norman, OK 6
Sullivan, Jr., Mr. Robert J., President, Sullivan and Company,
Tulsa, OK...................................................... 8
House, Mr. David, President, Jireh Resources, LLC, Tulsa, OK..... 10
Terry, Mr. Michael E., President, Oklahoma Independent Petroleum
Association, Oklahoma City, OK................................. 12
Mocha, Mr. William, President and CEO, Air Power Systems Co.,
Inc., Tulsa, OK................................................ 15
Robson, Mr. Joe, Chairman of the Board, National Association of
Homebuilders, Broken Arrow, OK................................. 17
APPENDIX
Prepared Statements:
Bergey, Mr. Mike, President, Bergey Windpower Company, Norman, OK 29
Sullivan, Jr., Mr. Robert J., President, Sullivan and Company,
Tulsa, OK...................................................... 33
House, Mr. David, President, Jireh Resources, LLC, Tulsa, OK..... 36
Terry, Mr. Michael E., President, Oklahoma Independent Petroleum
Association, Oklahoma City, OK................................. 44
Mocha, Mr. William, President and CEO, Air Power Systems Co.,
Inc., Tulsa, OK................................................ 47
Robson, Mr. Joe, Chairman of the Board, National Association of
Homebuilders, Broken Arrow, OK................................. 64
Statements for the Record:
Mational Association Of Royalty Owners........................... 71
(v)
SUBCOMMITTEE ON INVESTIGATIONS AND
OVERSIGHT HEARING ON THE IMPACT
OF ENERGY POLICY ON SMALL BUSINESSES
HELD IN TULSA, OKLAHOMA
----------
Tuesday, August 25, 20099
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 10 a.m., in the
B.S. Roberts Room, North Building, OSU-Tulsa Campus, 700 N.
Greenwood, Tulsa, Oklahoma, Hon. Jason Altmire [chairman of the
Subcommittee] Presiding.
Present: Representatives Altmire and Fallin.
Also present: Representative Sullivan.
Chairman Altmire. Now call this hearing to order.
Energy plays a critical role in every sector of our
economy. From manufacturing products to growing the food we eat
to transporting and delivering goods, every aspect of American
commerce depends on abundant and affordable sources of energy.
This isn't about to change anytime soon. Our use of oil
increases two percent annually and is expected to reach 21
million barrels per day by the year 2030.
America's 26 million small businesses consume approximately
half of all energy use for commercial and industrial purposes.
It's also important to remember that small businesses are
key players, not just in energy consumption, but also energy
production. Nationally, independent oil and natural gas
producers represent more than 5,000 of Americans--America's
small businesses. The average number of full-time employees at
these companies is 12. That is a small business by anyone's
standard. While these companies are small, together they
produce the majority of our oil and natural gas. Small
producers drill 90 percent of the oil and natural gas wells in
the United States. More than 80 percent of American natural gas
comes from these businesses.
Entrepreneurs are also leaders in developing new sources of
energy. For example, small firms comprise 90 percent of the
renewable and efficiency industries. So as our nation looks to
our energy future, we must be sure that we factor in small
business needs from both angles as consumers, but also as
producers. A number of energy matters are being debated in
Washington right now.
My hope is that today's hearing will provide important
outside-the-beltway perspectives on these critical issues.
I thank Ranking Member Fallin for hosting this hearing so
that we can gather this valuable insight and I thank
Congressman Sullivan for being here as well and inviting me to
the district.
As I see it, the issues before us break into three broad
categories. First, lessening our dependence on foreign energy
sources is not just an economic challenge, but a question of
national security. Our national energy dialogue must examine
how to expand energy production in this country so that less of
our oil comes from unstable and dangerous parts of the world.
Second, our discussion today should touch on expanding new
forms of energy. And finally, reducing consumption will have to
be part of the equation.
We are making strides in this area by encouraging the
adoption of more fuel-efficient cars and trucks and we are also
giving consumers greater incentives to maximize energy
efficiencies in their own homes. Entrepreneurs are pioneering
the technologies that will help us meet our energy goals. The
policies we develop in Congress should harness and support the
good work entrepreneurs are already doing.
And on that note, let me thank each of our witnesses for
being here today. I thank them for their testimony and I think
it will provide us valuable insight.
[The information is included in the appendix.]
Chairman Altmire. With that, I will turn to the Ranking
Member of the Subcommittee for her opening statement.
Congresswoman Fallin.
Ms. Fallin. Thank you, Mr. Chairman, and let me just say
welcome to Oklahoma. It is Congressman Altmire's first time to
ever visit our state, and as we were visiting in Committee over
the last couple of years, I asked him to come to Oklahoma and
he made a commitment to do that, so we appreciate you taking
time to come to our great state and to have this important
field hearing on a topic that is very near and dear to our
heart, and that of course is small business and the energy
sector and how federal policy could affect Oklahoma and of
course our nation. And I appreciate your great comments about
our national security and our economic security and as it
relates to small business and energy, so thank you so much for
being here today. We welcome you.
And before I begin, I want to thank Oklahoma State and the
Tulsa campus for hosting this hearing today. It takes a lot of
time and effort to put these events together. I appreciate
President Gary Trennepohl for hosting us here. Thank you so
much and your staff has been wonderful. I want to recognize Dr.
Mary Bea Drummond who has helped us, and Travis McBride who
have been helping to coordinate this event and your vice
president Ron Bussert--I see him here, who I went to college
with at Oklahoma State. Good to see you here, Ron.
And also want to recognize our secretary of energy, J.D.
Strong. I think I heard that he walked in the room--there you
are. Welcome. Good to have you here--from Oklahoma and also
Corporation Commissioner Dana Murphy. We appreciate your
attendance today, along with all of our guests that have joined
us. Thank you so much for coming, and we're very appreciative
of Congressman John Sullivan for opening up his district to
have this hearing. I know that as a colleague, John is very
interested in energy policy so we appreciate you hosting us.
Well, let me just begin by first of all saying thank you
all for taking time to join us here, and especially our
witnesses, as we examine the impact of our nation's changing
energy policy and how that affects our small businesses. So
once again, we know that our chairman has many demands upon his
time and places that he could be, but he recognizes the
importance of energy in small business, especially as it
relates to Oklahoma, so thank you once again for being here and
taking the time to be with us. Jason has been a great friend to
me and I appreciate that. Jason and I were actually both
elected to Congress in 2006 and served on the Small Business
Committee now for three years and he has been very
conscientious, hardworking, and easy to get along with and
works with both sides of the aisle.
And Congressman Sullivan, I want to mention a couple of
things about him. We are in his hometown. John and I have
served together for many years, both when he was in the
legislature at the Oklahoma Capitol, and I have sought after
his advice and considered him to be a good friend. He, of
course, has been elected to Congress. He serves on the Energy
and Commerce Committee and is now serving a second term as a
member on this Select Committee on Energy Independence and
Global Climate Change, and he is one of only six Republicans on
that Committee, and he is the only Oklahoman who is appointed
to that Committee and he has been a great leader in the area of
energy and climate change issues and knows very well how those
issues affect our small businesses in our state. So John, thank
you once again for coming today to testify in front of this
important Committee and this conference.
Well, energy is the lifeblood of our economy along with
small businesses, and many in this room have worked together to
help build our small businesses in our state and of course to
build our energy sector. America's economic prosperity is
closely tied to the availability of reliable and affordable
supplies of energy. This is not a new issue.
However, with technology improving, the energy independence
discussion has changed greatly over the past couple of years.
The stark reality is that our nation imports about 60 percent
of the petroleum that we currently need, and to make our
petroleum supply even worse, we have not built a new refinery
in the United States in over 25 years. And this is stretching
our refining capacity to the limit, and in fact, the volatility
of energy prices.
Over the past couple of years, we have debated traditional
renewable alternative energy policies and I do not believe that
the search for energy should be limited to any one particular
form of energy, but we should look for all forms of energy and
encourage especially our small businesses to pursue those forms
of energy. It is important for our nation, for our national
security, and our economic security to pursue all the above
forms of energy to help provide for further energy independence
in our nation, to create good-paying jobs, especially as it
relates to small business, to promote a cleaner environment,
and I also believe without imposing any new national energy
taxes or some type of urban emission trade systems, which I
believe would affect our production of energy and even affect
our economy.
Another way to explore expanding our energy is through
other forms of energy such as nuclear energy, and the
Department of Energy has recently stated that the best way to
reduce our emissions is to look for cleaner forms of energy
production and nuclear energy is one of those areas. Our
economy is driven by energy, but we must also have a balanced
approach to exploring ways to meet our energy needs. And that
means looking for new ways to increase production of energy,
including all forms of energy, whether it's oil, coal, nuclear,
wind, solar, biofuels, all the different forms of alternative
energy that are available to our nation.
And while we're looking at the future of energy
independence, we also have to make sure the federal government
is doing all that it can to provide the fuel that our economy
needs to operate at a reasonable price. Leading the way in
domestic energy production, reducing the United States'
dependence on foreign oil, Oklahoma stands at the forefront as
we struggle for the energy independence.
Oklahoma has long had the tradition of producing much of
our nation's traditional sources of energy. Our state ranks
third in our nation in natural gas production, fifth in crude
oil production, and eighth in crude oil distillation, and one
in seven jobs in Oklahoma is directly or indirectly supported
by the oil and natural gas industry in Oklahoma. And we are
very fortunate to have over 80,000 active oil wells that
produce 61 million barrels of oil in Oklahoma. Eight percent of
America's natural gas reserves are located in Oklahoma and many
of our greatest energy fields in America are located in our
state, and yet we still have fields that could be produced or
need to encourage better production of.
As the United States seeks out alternative forms of energy
sources, Oklahoma has enormous potential as a source of wind
power, solar power, and even ethanol production.
The development of wind power is an exciting source of
energy in our nation. The state of Oklahoma should look at ways
to produce and promote wind energy in our state. In fact, I
think Oklahoma is sixth in the nation in development of wind
energy. The panhandle alone has the capacity to produce more
than 8400 megawatts of wind generation and western Oklahoma has
been very good in developing more wind energy, and so far, we
have an investment of over $10 billion in wind production in
our state. So we're very excited about the potential that
Oklahoma has to be one of the leaders in alternative forms of
energy and especially wind energy.
It's also very important that we take a measured and
calculated approach towards addressing our energy and climate
needs, and dramatic new requirements for energy can have
devastating effects upon our economy as we look at some of the
rules and regulations that we're discussing in Washington, D.C.
We are very fortunate today to have on our panel
representatives from many different industries who will
testify. We even have someone who's going to visit with us
about some of the proposed changes in Congress in our
homebuilding industry and how some of the new mandates can
affect energy and our homes in creating energy efficiency in
our homes. We're excited to have the national president of the
American Home Builder Association to testify, along with some
of our other producers, some of our other alternative forms of
energy sources here, some of our suppliers, who I think can
very easily, Mr. Chairman, address how small business will be
affected by some of the policies that we're discussing in
Washington, D.C. And how our policy discussions will either
hopefully reduce our dependence on foreign energy, create other
forms of energy that will be more efficient, cleaner, and cost-
effective versus how some of our policies could cost us jobs
and also further increase our dependence on foreign energy.
So we are very fortunate to have an expert panel today to
testify and may I just conclude by saying welcome to all of
you. We appreciate your time to be here.
[The information is included in the appendix.]
Ms. Fallin. Now, I'd like to introduce Congressman John
Sullivan, who has joined us here today and he's going to make
some opening comments.
Mr. Sullivan of Oklahoma. Thank you, Congresswoman Fallin
and Congressman Altmire. Thank you for being here. You guys are
doing a great job in addressing a really--something that's very
concerning is how energy policy in Washington, D.C., affects
people and small businesses, which are the backbone of our
economy as we all know.
You know, I think to address our energy policy in this
country, we could do it in a better fashion by, you know,
making sure it doesn't affect small businesses, but not taxing
people and having a carbon trading system scheme, we need to do
it differently. Like Congresswoman Fallin said, we need to look
at all of the above energy strategy.
We need to look at wind, solar, nuclear, gas, oil--all
those things are very important. But, you know, a lot of those
things aren't going to happen immediately. They're just not.
You know, we need to--you know, we want to get on a different
horse, but until we can get on a different horse, let's not
shoot the one we're on. And one of the things we need to look
at is how do we--what do we do, how do we get through this?
One of the ways we lessen our dependence on foreign oil is
focusing on natural gas. That is the way to do it. It burns
clean and we have an abundance of natural gas here in the
United States of America. Because of drilling techniques and
hydraulic fracking, every field that's found supersedes--you
know, they're always better. They're bigger. You know, we
don't--we can lessen our dependence on foreign oil. It burns
cleaner. We use about 21 million barrels of oil a day in the
United States of America. And about 69 percent of that is
refined into transportation fuel and used.
One of the things we can do, as I presented a bill in
Congress that focuses on natural gas vehicles, getting them on
the road, looking at research and development so the tanks can
run--have longer range. Can we get diesel engines in trucks to
run on natural gas. That's how we're going to do it, not
jeopardizing jobs and sending them overseas like this cap and
trade scheme does.
If someone--every emitter is going to be, you know, taxed
by their trading--or trading these schemes and what is small
business going to do, a small manufacturer? They're going to
send their jobs to Mexico. We're going to lose those jobs.
There's no environmental regulations there. It's going to hurt
our economy. And we can do it in a different way. I think we
need to look at this and look at long-term natural gas strategy
as a way to bridge the gap until we get these technologies.
We were talking about wind power in the back. I think wind
power is great, but you know, let's be realistic about wind
power. We got to get transmission, we got to get the right-of-
way acquisition, the easements bought. It's going to take years
before that's viable. I'd like to see it, you know, a large
percent of our electric generation, but it's not going to be
for a long, long time. So in the meantime, I think it's very
important that we focus on natural gas strategy and interenergy
policy. Thank you.
Chairman Altmire. Thank you, Congressman Sullivan.
[The information is included in the appendix.]
Chairman Altmire. And just a word on process to the
witnesses: We're going to hear from each of you, starting with
Mr. Bergey, one at a time. Each of you will have five minutes
for your remarks and at the conclusion of all the testimony we
will then move on to questions.
So I will turn it over to Ranking Member Fallin to
introduce the first witness.
Ms. Fallin. Thank you, Mr. Chairman.
We are very pleased to have our first witness Mr. Mike
Bergey, president of Bergey Windpower of Norman, Oklahoma. He's
the cofounder of BWC and president since 1987. Mr. Bergey is a
mechanical engineer and internationally recognized expert in
the field of small wind turbines, distributed generation, and
rural electrification.
He has authored more than 70 technical papers and articles
in the field and serves as a consultant to numerous government
and international agencies. He holds one patent in the wind
energy field. He has twice served as president of the American
Wind Energy Association and served on the board of directors
from 1981 to 2007. He's the past chairman of the U.S. Expert
Council of--for Renewable Energy, a member of the U.S.
Department of Commerce Environmental Technology Trade Advisory
Committee, and president of the Oklahoma Renewable Energy
Council.
He is currently the president of the Norman Chamber of
Commerce and board of the Oklahoma Sustainabilty Network.
Do you have anything else you could do in your spare time?
Mr. Bergey, we welcome you. Thank you for coming today.
STATEMENT OF MIKE BERGEY
Mr. Bergey. My home is full of deferred maintenance.
Mr. Chairman, Representative Fallin, and Representative
Sullivan, thank you for the opportunity to be here today.
Mr. Chairman, you--by odd coincidence, I was actually a
constituent of the fourth district in 1967, a little before
your time, when my parents moved there before taking--my father
took a job out here. So we actually lived in Sewickley,
Pennsylvania for a while.
Chairman Altmire. That's in the district I represent right
now.
Mr. Bergey. Bergey Windpower is the third-leading
manufacturer of small wind turbines in the world. Our products
are not these large wind turbines used in wind farms, but
they're small turbines used by homes, farms, small businesses,
and for rural electrification and set--remote cell sites,
things like that. We have projects in all 50 states and more
than a hundred countries. We have 65 employees and we have a
subsidiary in China.
Over the last 30 years, it has often been difficult because
of low energy prices and shall we say a minimal federal energy
policy. We have gained significantly and with little bits of
federal assistance with trade missions, foreign assistance
programs, R&D support. It's helped us to improve our
competitiveness and get a foothold in foreign markets. We've
also used the SBA--an SBA-backed loan back in the 1980s to
develop some of our products, so we have used--piggybacked on
government programs. We have just gained a federal tax credit
for small wind turbines after 23 years out in the wilderness,
and we expect significant job growth in the coming five years.
Mr. Chairman, we support the increased administration and
Congressional support for clean energy technologies. We believe
that green-collar jobs is a real economic development
opportunity for the U.S. and as an internationally competitive
company, we face competitors in Asia and Europe. We know that
we're somewhat behind the ball in our government support for
these clean technologies. Our competitors have received more
support, so we think it's a good move.
We do support also the emerging national renewable energy
standard and the actions that are being proposed to address
climate change. We think these actions are past due and they
follow what the public would like to see and they will help our
international competitiveness we believe. We have no concerns
over losing competitiveness domestically or internationally if
energy prices rise a few percent as a result. We are a
manufacturer. But energy costs are a very, very small part of
our total cost of production.
For example, our energy costs last year were under one
percent, while our health care costs were 4.4 percent, almost
five times as much. We think we can handle any future increases
in energy costs from cleaner energy sources by better product
design, better manufacturing productivity, and other things.
There are a couple of things that we would like to see the
federal government do to help end some barriers that we're
facing in our technology. First one drives me a little nuts is
as a--as an engineer, and that is the fact that because of the
lack of reciprocity for professional engineering stamped
approval of state by state, the towers for our turbines have to
be engineered by us and then reviewed by people who often don't
have much knowledge in the field to gain a professional
engineering stamp in those states. It costs consumers thousands
of dollars to get this stamp, it adds no value, and I really
firmly believe that the laws of physics and rules of
engineering do not vary state by state, so we'd really like to
see some help getting rid of that extortion.
We'd also like to see the federal government tighten some
loopholes that a few utilities--not most but just a few--are
using to discourage customer-owned wind and solar systems.
These arbitrary requirements for unnecessary insurance, new
insurance, and unneeded special equipment raise the cost, limit
competition for these utilities, and they thwart the intent--
clear intent of federal law. So we think that closing these
loopholes would be very helpful and it's a--looks like a
relatively easy job.
In closing, we like where energy policy is headed. We
believe it will benefit both our company as a clean energy
technology company, but also the national economy. We think
that it will create a lot of new jobs.
We have 350 vendors nationwide, over 200 here in Oklahoma,
and we are a growing part of their sales, and so we know that
we're helping the economy.
Thank you again for the opportunity to be here. Thank you,
Representative Fallin, for putting this together.
Chairman Altmire. Thank you, Mr. Bergey.
[The statement of Mr. Bergey is included in the appendix.]
Chairman Altmire. Next we have Mr. Bob Sullivan, owner and
president of Sullivan and Company, a 47-year-old family-owned
independent oil and gas exploration and production company
operating in several midcontinent states.
Mr. Sullivan has also founded two other successful natural
gas gathering and service companies in the past 30 years. A
graduate of the University of Notre Dame and the University of
Michigan, Mr. Sullivan was appointed to Governor Keating's
cabinet as secretary of energy in March of 2002 and continued
his service under Governor Brad Henry through October 2003.
Additionally, he served as chairman of the board for the
Oklahoma Energy Resource Board from 2003 to 2005. He was
instrumental in the original organization of the OERB in 1994
and its growth in public education and environmental cleanup,
which is modeled around the country, by the way.
Thank you for being with us today, Mr. Sullivan.
STATEMENT OF ROBERT J. SULLIVAN, JR.
Mr. Sullivan. Thank you very much, Congressman Sullivan and
Congresswoman Fallin and Mr. Chairman. I appreciate you being
here in Oklahoma.
Just for perspective, I have a--it's very personal, the
company that I have. I pay for the wells that I drill out of
the same pocketbook that I pay for my groceries. I learned the
business from my father and I have a son working for me, so
it's very much a family operation.
Independent oil and gas operators get the money for
exploration and production activities from two sources:
Internally-generated cash from production and outside capital
raised from non-operator investors. In our company we annually
plow back 100 percent of the cash generated from production and
employ several times that amount from outside investors.
Capital tends to flow into the business for new exploration
when there is a reasonable expectation of a strong financial
return in relation to risk, and flows to other industries when
oil and gas is viewed as too risky for expected rewards. In my
35 years in this volatile business, approximately 22 of those
years have been sideways or down economic experiences for our
company and for our family.
The other 13 have been rewarding economic experiences.
Obviously the good years have to pay for the bad.
Federal government actions directly impact my company.
There are three topics important to my operation that are on
your plate today in Washington, any one of which can severely
cripple my business: Number one, elimination of intangible
drilling cost as a tax deduction. IDCs are expenses we incur
every time we drill a well. They are a normal business expense,
just like any business incurs: Paying people, buying supplies,
buying services. In the name of punishing oil and gas
companies, Congress wants to repeal these items as tax
deductions.
Number two: Repeal the percentage of depletion as a tax
deduction. Percentage of depletion has been recognized for over
50 years by the accounting profession as a normal and logical
recognition of a depleting asset, much like the depreciation of
a piece of income-producing real estate.
Like drilling cost deductions, eliminating percentage
depletion has become a politically popular vehicle for nailing
oil companies. Perhaps the most misunderstood fact among
elected officials is that if the objective is to bash big oil,
major oil companies don't even take percentage depletion as a
tax deduction. They use cost depletion. So a repeal of
percentage depletion hurts only little guys like me.
In a look back on my operation for 2008, had these two
business expense deductions been repealed, as is now proposed
in Congress, my family and the investors we have attracted to
our activities would have paid $975,000 more in federal income
taxes. The consequences of that burden would be as follows:
First, my investors would direct their money to another
industry or not invest at all; secondly, our family would very
likely not continue in this business--too much risk for the
perceived reward; third, 26 employees of Sullivan and Company
be out of work; fourth, dozens of vendors would no longer be
selling supplies and services to us; and fifth, America would
have less Heartland domestic oil and gas reserves production.
The third thing on your plate in Washington that I'd like
to discuss is the classification of fracturing fluids as
hazardous materials under the Safe Drinking Water Act.
Fracturing rocks underground far below any drinking water
sources has been taking place all over the world for decades
with no known adverse consequences to drinking water supplies.
The image of oil companies polluting our water supplies makes
for a tantalizing negative picture for the uninformed and a
tempting tool to bash alleged pollute--polluters. The problem
is that it's a fictitious image. Hydraulic fracturing is not a
high-risk practice. For decades, oil and gas industry worldwide
has employed belts and suspenders to assure protection of
drinking water sources and has an enviable track record in this
regard.
In my case, over 90 percent of the drilling we are now
undertaking and planning over the next few years requires
hydraulic fracturing. While this subject is likely to be
considered initially, in the regulatory world and the EPA, it
is of such national importance that legislative action is also
likely. I urge you, as responsible representatives and fellow
stewards of our national resources, to reject any federal
action that would restrict hydraulic fracturing as a proven
method of recovering much-needed domestic oil and gas reserves.
In closing, let me make a general request. The vigorous and
innovative private sector in this country has been the engine
that has propelled America to the highest standard of living in
the history of mankind, and it can continue to be that catalyst
going forward. While responsible oversight and regulation are
necessary to prevent abuses, the general posture of the federal
government should be to avoid being a hindrance to the
ingenuity, creativity, determination, productivity, and honest
pursuit of prosperity by small companies like mine.
The best thing you can do for us is to encourage, not
discourage, the independent producers to find and produce
domestic oil and gas and to similarly allow the private sector
to create the prosperity we all seek.
Thank you for allowing me to submit this testimony.
Ms. Fallin. Thank you, Mr. Sullivan.
[The statement of Mr. Sullivan is included in the
appendix.]
Ms. Fallin. Our next witness is David House, based right
here in Tulsa, Oklahoma. Mr. House has been in the exploration
and production business in various ventures and companies for
over 30 years. His last company sold about a year ago and he is
currently in the process of establishing a new company.
He is past chairman and current board and executive
Committee member of the Oklahoma Independent Petroleum
Association. He's the past president of the Natural Gas
Association of Oklahoma, and has testified on behalf of the
OIPA at both the House and the Senate Energy Committees.
And we welcome you here to this Committee hearing, too, Mr.
House.
STATEMENT OF DAVID HOUSE
Mr. House. Thank you very much, Mr. Chairman, Congresswoman
Fallin, and Congressman Sullivan. Thank you for the opportunity
to be here.
Thank you for your insight that two of the most critical
elements in our nation today are small business and energy. As
a small exploration and production company, our mission is to
deploy capital in an efficient and effective manner to provide
energy for our nation, jobs for our employees, tax payments to
our state and nation, and to care for the land and the
environment as we do so. Our history says that we have had some
degree of success in meeting this mission.
As has already been noted, it is important for us to
realize that when we talk about the domestic energy business,
we are talking about independents that drill over 80 percent of
all the wells in America today. Independents are the domestic
energy industry. Energy is a core value in our nation which
does not get the recognition it deserves.
We must begin to total--to understand the total role that
energy plays in our economy, our defense, and our quality of
life. If we don't understand this, we will someday pay for our
ignorance.
A viable energy policy is one that promotes domestically-
sourced, reasonably-priced, and environmentally responsible
energy over a long time horizon and can meet our total energy
requirements. While the current administration goal of green
energy is laudable, the reality is that the last 25 years of
effort in the wind and solar business now produced about two to
three percent of our total energy requirements. Green energy is
good and we should encourage it, but don't be misled. It will
not be a significant part of our total energy requirement for
decades to come.
There is, however, a national energy strategy that we can
employ that will significantly change our reliance on foreign
crude oil. And very simply, as has already been noted, we must
move a substantial portion of our transportation fuel to
compressed natural gas. Starting this process is a difficulty,
and may I suggest to you that the way to start this is for the
federal government, as many states as we can get to sign on, to
mandate that all new vehicles over the next 36 months be CNG
vehicles. If there's any place that is appropriate for
government to insert itself in the free market, it is this
critical area of moving us to a sustainable, long-term fuel.
We will never replace oil, nor should that be our goal. We
have substantial remaining oil reserves in this nation that we
should produce and--develop and produce. What we must do,
however, is reduce our reliance on foreign- owned oil by those
who wish to harm us. The improvements in horizontal drilling
and fracture treatments have opened vast new natural gas
reserves that were not available to us even five to seven years
ago. The current estimate is that we have over 2,000 tcf--2,000
tcf. That's the only number out there bigger than the federal
deficit. We have to use this domestic resource. It is
environmentally acceptable and it is abundant. The technology
for using CNG is old school. I used CNG in a truck 20 years
ago. It's used around the world, and it will only improve as
the market for it grows.
At the same time, we cannot kill this goose that is about
to lay the golden egg. We must not rip up 50 years of tax
policy that's embedded in our industry. The retention of the
expensing of intangible drilling costs, percentage depletion,
and the exemption from passive loss rules are critical to our
ability to attract capital. With outside capital--without
outside capital, we cannot survive as an industry.
Let me just say that the main reason that we have this huge
amount of natural gas available to us are the improvements in
hydraulic fracturing. This, again, is old school technology. It
is totally safe; it has been studied by the EPA for years. If
you go back far enough you will find that no one other than
Carol Browner herself has declared this to be safe completion
technique. To take away this critical technology as is
currently proposed by Congress is foolhardy beyond imagination.
My five minutes is up. Thank you for your time and I'm
certainly available for questions at your convenience.
[The statement of Mr. House is included in the appendix.]*
Mr. Sullivan of Oklahoma. Our next witness is Mr. Mike
Terry, president of the Oklahoma Independent Petroleum
Association.
A lifelong Oklahoman, Mr. Terry graduated from the
University of Oklahoma and began his career in the commercial
banking industry. He later returned to join his family's oil
business in Ada. There, Mike co-owned and managed a successful
oil field service company called CFI and began purchasing oil
and gas properties in 1984. After selling the service business
in 1992, Mike was appointed as executive director of the
Oklahoma Commission on Marginal Wells at Sarkeys Energy Center
in Norman.
In 1994, Mr. Terry was hired as the first executive
director of the newly formed Oklahoma Energy Resource Board
where he manages--where he managed the nation's first oil and
gas check off program.
In March 2006, Mike accepted a position as executive vice
president of Diamondback Energy Services in Oklahoma City with
the responsibilities in operations, marketing, and sales. Mr.
Terry was named president of the Oklahoma Independent Petroleum
Association, one of the nation's largest oil and gas
associations, in February of 2007. Representing the interest of
more than 2,000 members, welcome, Mr. Terry.
STATEMENT OF MICHAEL E. TERRY
Mr. Terry. Thank you, Congressman Sullivan. Chairman
Altmire, welcome to Oklahoma. Congresswoman Fallin, thank you
for having us today.
The Oklahoma Independent Petroleum Association is the
largest state oil and gas association and one of the larger
energy groups in this country. And although some of our more
than 2,000 members are large companies like Devon and
Chesapeake, more than--many of our--most of our members are
small companies and they are the backbone of our association.
For the most part, independent producers spend more than a
hundred percent of their profits on drilling oil and gas wells.
They are not big oil. They don't operate refineries. They don't
sell gasoline. Much like the farmers and ranchers in our state
who sell cattle and wheat at the market price, independent
producers have no say in what they get for their product, they
just take what the market gives them.
Oklahoma's oil and gas fields remain strong relative to
other states, and we rank third or fourth in natural gas
production and fifth in crude oil production. Independents
dominate the energy industry, drilling 90 percent of the new
wells in our state, producing 96 percent of the crude oil, and
88 percent of the state's natural gas. Sadly, however, it is
estimated that 70 percent of the natural gas we produce in this
state leaves the state and goes to the rest of the country. We
lose that value-added by doing that and of course, that's
another subject.
Even more relevant to Oklahoma's energy industry and the
connection to small business are the marginal oil and gas
wells. These low-volume producers, also known as stripper
wells, are defined as producing less than 10 barrels of oil per
day or 60 mcf of gas. Oklahoma has more than 73,000 of these
wells. Marginal wells produce 29 percent of our U.S. domestic
production, but they present--they produce 85 percent of our
oil wells in this state. With more than 400,000 of these
marginal wells in the United States, that represents more than
a million barrels per day.
It goes without saying that these independent producers are
a major component of our state's economy. For the first time in
our history, more than one billion dollars was paid in state
gross production taxes in 2006. If you combine that with income
taxes, ad valorem taxes, motor vehicle taxes, and other
miscellaneous taxes, our industry accounts for more than 25
percent of all the taxes paid to our state. Add to that a 2000
workforce of 76,297 workers with a total labor income of 8.9
billion, which is larger than our state budget. The wages that
are paid are much higher than most other industries in our
state. In fact, in 2007 that average was $97,420 annually,
which is almost three time more than the other industries in
our state.
But equally important to the jobs and the taxes paid are
the philanthropic contributions made by these business owners
and their employees. They are the same people who devote their
time and resources to the local charities, to schools, to civic
clubs, churches, hospitals, and museums. All you have to do is
travel around this state and look on buildings and you see oil
and gas names everywhere. It's the imprint of the oil and gas
sector.
I've spent this time defining the Oklahoma energy sector to
make a point. The independent producer is inextricably linked
to small business and small business is critical to our state
and our nation. A recent survey completed by the Oklahoma
Marginal Well Commission reported that approximately 50 percent
of the respondents operated less than ten wells.
With that in mind, I want to turn to the negative impact
that U.S. Government could have on small business. I do that by
concentrating on two areas of grave concern, and that is tax
policy and regulatory burden. The tax policy of oil and gas
drilling and production activities has been the foundation of
the independent producers decision-making process for years and
years. These age-old tax policies have recognized three
essential elements of our business: Number one, the huge
capital expenditures that are required to drill and equip these
wells; number two, the high risk associated with the operation
and production activities; and number three, the ultimate steep
decline curve of the production.
In my opinion, the tax policies proposed by the White House
combined with the cap and trade bill passed by the U.S. House
would be the largest money grab on small business in the
history of our country. The proposed tax treatment is
specifically designed to dramatically curtail the drilling and
production of the independent oil and gas industry, thus
thrusting a dagger in the heart of small business. Repealing
the expensing of intangible drilling costs, reducing or
eliminating the deduction for depletion, and exempting passive
losses for interest owners will have severe implication on the
independent's capability for attracting capital as we've
already heard. Fewer wells will be drilled, production,
especially marginal production, will decrease at an alarming
rate, consumer energy prices will escalate, and dependence on
hostile foreign countries will grow dramatically.
Any government policy that would cause increases in energy
costs during the severe recession like we are in now is simply
bad policy and beyond comprehension. HR 2454, also known as the
cap and trade bill, is one of the worst pieces of legislation
to ever come out of the U.S. House in my opinion. It's the
perfect example of economic pain without environmental gain.
The estimated cost by the EPA to consumers and energy producers
would be 1 to 2.9 trillion dollars by the year 2050.
The goal, to reduce greenhouse gases 80 percent by that
time, simply impossible. Especially since most of the other top
carbon-producing countries in the world will never participate
in a meaningful reduction of emissions. Big government will
just get bigger. And a no-free-market regime will be
established as the government will dictate everything from the
number of emission allowances auction to the amounts purchased
by individuals and companies. There will be stacks and stacks
of buratic red tape and the monitoring required to prevent
fraud and cheating will go on and on.
The system is also designed in my opinion to give big
business just another advantage over small business. As the
large and the publicly-held international companies develop
emission trading departments, they'll use this as just another
profit center for their companies as they buy, sell, and trade
emissions while the small company will just be left in the
dark, unable to hire experts, establish trading activities, or
even have a good understanding of how you compete in this new
world of emissions trading.
Finally, environmental and regulatory rules and regulations
have become the ball and chain for the independent producer.
And as this environmental movement sweeps across the country,
there's a constant barrage of new bureaucracy facing our
members year after year after year. One of the most difficult
challenges of our association is to educate our members on
issues like storm water, drilling permits, water permits, air
quality, tribal authority, SBCC rules, the Endangered Species
Act, FEMA, BLM, OSHA, CO2 sequestration, flood plains--the list
goes on and on and on. It's an exhausting and very expensive
process.
And the latest warmongering by the environmentalists as has
already been talked about is the regulation of hydraulic
fracturing. Although this issue has already been investigated
by the EPA and found to be nonharmful to our water supplies,
once again, the oil and gas has the big target on their back
for more regulation. Ladies and gentlemen here today, I'm a
formal small business owner and now represent hundreds of small
businessmen and women who explore and produce the energy that's
provided our country with the greatest quality of life in the
world.
But I sit here troubled and very frustrated. I believe the
independent producer is under attack like never before. And
that means small business is under attack. Excessive taxation
and extreme regulation is the sure recipe for the demise of
small business and in my opinion a path towards socialist
society. We must educate the uneducated, we must encourage the
oppressed, and we have to stand firm in our convictions. Time
will tell if we're all up to the challenge.
Thank you for your courteous attention and the opportunity
to share my thoughts on these important issues.
Ms. Fallin. Thank you, Mr. Terry. We appreciate your great
comments.
[The statement of Mr. Terry is included in the appendix.]
Ms. Fallin. Next we have Mr. Larry Mocha, who is president
and CEO of Air Power Systems here in Tulsa, Oklahoma. Air Power
Systems manufactures pneumatic cylinders and valves for the
truck equipment industry. His company has grown from 600,000 in
sales in 1984 to over 10 million in 2006. He is a graduate of
Oklahoma State University and currently serves on a number of
academic and governmental advisory boards, and when I was
lieutenant governor of Oklahoma he was chairman of Oklahoma's
Small Business Commission for many years and worked very
actively in small business issues.
He is currently the chairman of the Mayor's Initiative For
Entrepreneurship and is the current chairman the Center for
Legislative Excellence. Mr. Mocha, we appreciate you joining
us. Oh, I see you also served on the board of directors of the
U.S. Chamber of Commerce and the U.S. chairman of the Small
Business Council. So don't want to forget all that.
Thank you and welcome, and good to have you here.
STATEMENT OF WILLIAM MOCHA
Mr. Mocha. Thank you, Congresswoman Fallin, thank you, Mr.
Chairman, and thank you, Congressman Sullivan. It's an honor to
be here today and I really appreciate you bringing this service
to Tulsa, and welcome to Tulsa.
My father started our business in 1964. I graduated from
OSU in 1970 and was the first employee. Six months later I was
the first employee to be laid off because the business couldn't
handle us. During this--I rejoined him again in 1972 and we had
a good time working together during the '70s. In the early '80s
with the Oil Bust, my father modeled to me what you do during
tough times and how you get through it, and then I lost him in
1984 and it was too early. He was almost 65 and he had a lot
more to teach me. I wish he were still here.
In the late '80s I had my share of recessions, two product
liability lawsuits, those of which propelled me to get active
in small business issues. I was a delegate to the White House
conference in 1995 and have been very active in federal and
national small business associations.
In 2000 we set a goal. Our business had been hovering
around 3 million in sales for too long. So we decided we have
to do what's necessary to be a bigger company, to be a better
company, and we set a goal. We wanted to do 10 million and 6 by
2006. We worked hard, we got very close.
In the last quarter of 2006 the EPA issued its new
standards for emissions on Class 8 trucks. Our products that we
manufacture in Tulsa go and work on Class 8 trucks, which we
sell around the United States. The market that we serve, the
ones that buy those trucks, said no, the emissions are too
expensive, they cost an initial $10,000 per truck, and the
economy, the fuel economy is worse. So they said no to buying
the trucks. We ended the year 2006 at about 9.7 in sales, 9.7
million, just short of our 10.6 million.
Since then, because of the EPA standards that were
introduced, we've had a decline in our sales for these last two
to three years. This recession that has most recently hit us
kind of surprised us. We just about worked ourselves out of the
problems with the EPA initiative when the recession hit. My
problem or my concerns now is that--is the recession is
impacting everyone. What happened to us in 2006 we've almost
resolved. We've almost gotten out of it. We've almost figured
out a way to be a better company, to do other things, and to
offer new products.
But the recession that's hit us recently has hit everyone.
And I look at Washington and it concerns me, like the EPA, who
came with a new Class 8 restriction on emissions. Why is the
government impacting and coming up with more rules and more
regulation that strangle small business.
Let's assume for a minute that all the rules and all the
regulations that come out of the agencies, all the legislation
that comes from Congress that detrimentally impacts small
business, let's assume that they're all good for small
business, all good for the world, all good for our climate. Why
aren't they imposed equally then throughout the global markets?
Why do we allow companies to come into Tulsa, to Oklahoma, to
the United States, to compete against American manufacturers
that don't have the stringent EPA standards that we have to go
by? Why do we allow that?
My concern is it is not fair. It's not fair for
manufacturers. It's not fair for American businesses. I believe
in American business. I believe in small business.
I think we can compete against everyone. I just want the
field leveled. What I'd like to ask you to do specifically,
Congresswoman Fallin, is to draw a line in the sand and say, no
more. If you want to compete for American dollars, you need to
have the same kind of American standards that we have to have.
You need to pay your people well. You need to keep from
drumping bad products into your drinking water. You need to
take care of your people.
We need someone right now to stand up for American workers
and for American business. The line in the sand.
I'd like to call for a new initiative and I took the
creativity in calling it the Fallin Initiative. I worked on the
Fallin Commission some years ago when we tackled the workers'
compensation here in Oklahoma and, Mr. Chairman, I don't mean
to insult you with it, but with the Fallin Initiative, maybe we
could come up with a new moral code, a new moral code for
importing companies and importing countries. If you want a
piece of American currency, of the American market, you've got
to take care--do your part of taking care of our world.
You know, in closing, I just want to tell you it's
difficult today to be in business. It's difficult anytime. We
have to compete, we have to be creative, we have to take care
of our employees. They have health insurance problems. We got
lots of problems in the world today. The American worker can
handle it. My small business can handle it. We're going to get
through this just fine.
But wouldn't it be nice if our government were by our side,
standing with us, helping us navigate these troubled times? In
closing, I'd only say that if you believe that small business
is the engine that is going to get us out of these difficult
times, can't we all stand up for small business? Can't we all
stand up for American businesses? Doesn't that make sense?
Thank you.
[The statement of Mr. Mocha is included in the appendix.]
Mr. Sullivan of Oklahoma. I want to thank all the
panelists. I've unfortunately got to leave after this
introduction, but I appreciate all the valuable input you've
given and it means a lot. Thank you so much.
Our final witness is Joe Robson, a builder and developer
from Tulsa, who, in 2009, became chairman of the board of over
a 2,000-member National Association of Home Builders. He is
founder and president of the Robson Companies, Incorporated,
developers of residential communities and commercial
properties. He has been a member of the board of directors
since 1990, was the chairman of BUILD-PAC in 1998 and was the
chairman of the Legislative and Regulatory Policy Task Force in
2002.
He also has served as the national vice president
representing Oklahoma, Kansas, Missouri, and Nebraska and was
the moderator of the national vice presidents in 2004.
Additionally, Mr. Robson was chairman of the Federal Government
Affairs Committee 2003, chairman of the Resolutions Committee
in 2002, and vice chairman of the Budget Committee in 2005.
Thank you, Mr. Robson, for being here today.
STATEMENT OF JOE ROBSON
Mr. Robson. Great. Thank you, Congressman Sullivan, and
thank you, Chairman Altmire and Ranking Member Fallin.
I appreciate the opportunity to testify today about energy
policy as it relates to housing and the homebuilding industry.
Despite the fact that we're in the midst of one of the worst
housing downturns since the Great Depression, homebuilders
continue to make energy efficiency and sustainability for new
homes a priority. As well, consumers continue to demand energy
efficiency in new homes. In our most recent survey of builders,
56 percent of those surveyed said that at least some of their
customers were willing to pay extra for green amenities.
However, cost and maximizing value for the dollar are
critical drivers of the potential buyer's decision making,
especially in the current economic downturn. Most consumers are
not willing to pay extra for a more efficient home, unless they
are likely to see the benefit of their investment within a
reasonable length of time. In our view, this calls for
continued robust federal incentives for energy efficiency in
the built environment. In fact, the homebuilding industry is
setting the pace in green construction with the development of
the consensus-based National Green Building Standard, the only
green building standard approved by the American National
Standards Institute.
Unfortunately, the American Clean Energy and Security Act,
or ACES Act, passed by the House in June takes the opposite
approach by imposing national building codes on states and
localities. In particular the bill aggressively increases
energy code targets for new homes, provides greater authority
for the Department of Energy to modify codes, and gives little
flexibility to the states and local governments with specific
geographic and climatic conditions. Perhaps the most
problematic aspect of the ACES Act is that in its broadest
terms, it seeks to wring significant savings from new homes,
the smallest, most energy-efficient segment of the market.
According to the Energy Information Administration, newer
homes--those built after 1991 account for only 2.5 percent of
all energy consumed nationally. Further, the Census Bureau
reports that there are roughly 128 million homes in the U.S.
today, and 74 percent, or 94 million, were built before the
existence of modern energy codes. Ensuring long-term energy
efficiency in new homes is critical, but we must also focus
where the greatest gains can be made and that's in the existing
home segment of the market.
Codes by their very nature do not address all aspects of
energy consumption in housing. Incentives for increased energy
efficiency are also critical to achieving the nation's long-
term energy goals. There are several important incentives that
exist in the tax code now, and my written statement discusses
several of those in detail.
What I'd like to highlight is the new home energy
efficiency credit established as part of the Energy Policy Act
of 2005. Use of this program has increased three-fold since its
creation and it remains the only incentive in the law for
increased energy efficiency in single-family construction. I
would urge the Congress to make this program permanent and
enhance it so that it may have a greater effect on the energy
efficiency of new home construction.
Homebuilders are stakeholders in both building and energy
efficiency industries, and we look forward to working with
Congress to craft policies that effectively address the energy
challenges facing housing and our nation.
Thank you again for the invitation here and I'd be happy to
answer any questions.
[The statement of Mr. Robson is included in the appendix.]
Chairman Altmire. Thanks to each and every one of you for
taking the time out of your day to be here, and I have a lot of
questions based on your testimony, both your written testimony,
which I've read, and your testimony here today.
I wanted to start with Mr. House. You talked in both your
written and statement today about compressed natural gas
vehicles and incentives to move forward with that. I come from
a region of the country, western Pennsylvania, natural gas was
part of our economy as well, and I was intrigued by that.
Can you talk a little bit about the differences and the
advantage or disadvantage of natural gas versus electric cars?
If you're to find an alternative source and move away from
gasoline, what's the comparison between those two technologies?
Mr. House. Well, I think that compressed natural gas
vehicles require only a minor change to the fuel system itself.
The internal combustion engine as we know it today is still
very usable with CNG as a fuel. The good part about CNG as a
fuel is that it produces less than half of the pollutants that
a gasoline engine produces, and so that's the biggest
advantage, that it is commercially available today at a
reasonable cost.
And it's something that we can actually implement in a very
short time frame. We're staring 2010 in the face today. By the
year 2020, we could have a substantial portion of our
transportation fleet on compressed natural gas. I think that
the ramp-up to using electric--electricity for our cars would
be much a much longer ramp-up time and the technology is not
quite as advanced. It's coming, but it's not quite as advanced.
Chairman Altmire. How would the fill-up process work when
you need to refill the car versus recharging an electric car?
Mr. House. Right. It would take place at the same fueling
station you use today. The only thing would have to be added is
a compressor that could compress natural gas up to a higher PSI
to get it into your tank, so the infrastructure is there as far
as the fueling stations.
They just need to make modifications to be able to accept
natural gas vehicles. Oklahoma has over 40 CNG vehicle stations
available to us today. The state of Utah has numerous. They're
one of the leaders in this technology.
So it's a very accomplishable goal is the reason I'm a
proponent of it. Something we can actually accomplish.
Chairman Altmire. Thank you.
Mr. Terry.
Mr. Terry. Mr. Chairman, could I add--
Chairman Altmire. Certainly.
Mr. Terry. --to that please, sir?
The other thing I think you have to look at when you
compare the two is where does electricity come from? Fossil
fuels. I mean, right--in our country today most of it is made
from coal, and of course coal has the most drastic emissions of
all the fossil fuels. So how efficient is that to generate
electricity from coal and then pass that on to the automobile
industry.
And the second thing is it's going to require a tremendous
amount of batteries and, first of all, do we have the
technology to really do that, and then what happens when those
batteries get old and we need to discard them? That could be a
serious environmental issue as well.
Chairman Altmire. Great, thank you.
Western Pennsylvania, we know a little bit about coal as
well. But I hear you. Your point is well taken.
Mr. Terry. Thank you.
Chairman Altmire. Mr.--oh, Mr. Sullivan, go ahead.
Mr. Sullivan. Just a quick comment. If you're looking for
something to do to dramatically impact the CNG world, seems to
me that we've got this kind of a do loop going on where people
aren't buying or converting the CNG cars because of perception
that there aren't enough natural gas filling stations. We have
40 gas stations--natural gas stations in the state; there ought
to be 400.
The people that put in that infrastructure aren't doing it
because there aren't enough people drying--driving gas cars, so
it's a--you've got to break that loop and the way to break it--
and this is something where I think it's an appropriate role
for federal government--is just create a--either a massive
incentive or a big stimulus charge or something to put in these
natural gas outlets, and the best billboard you could ever have
would be retailers that we all know around the state and have
regular, premium, diesel, and natural gas, and everybody would
see that and they'd see the difference. But if you want to
spend a relatively small amount of money to encourage that, I
think it would be a tipping point.
Chairman Altmire. What would be the general price
differential if you had natural gas versus gasoline?
Mr. Sullivan. I think natural gas, if you get apples to
apples, is about--
Mr. Terry. 96 cents.
Mr. Sullivan. How much?
Mr. Terry. 96 cents.
Mr. Sullivan. 96 cents when the world is 2.70, 2.80.
Chairman Altmire. Okay. I had a question for you, Mr.
Sullivan, as well, on the hydraulic fracturing, and, Mr. Terry,
you mentioned this also.
One of the largest finds recently for natural gas, of
course, runs not only through western Pennsylvania but Kentucky
and Ohio up through New York and West Virginia--Marcellus
Shale. How does the environmental community's concerns with
hydraulic fracturing impact the development prospects for
that--for the Marcellus Shale?
Mr. Sullivan. Well, I'm familiar with that play and the
fracturing needed to make it work. And I can tell you I've sat
in a number of rooms where capital expenditures were being
considered for infrastructure and drilling the Marcellus, and
the prospect, just the prospect, of Congress, the EPA, either
one, classifying hydraulic fracturing as hazardous activity has
already--just that prospect has kept capital from going in
there.
I just urge you--I mentioned in my testimony--just urge you
to look at the record. It's been going on for 50 years and
nobody's gotten injured by this, no water's been polluted, and
for your area and western New York and all the states that are
involved in Marcellus, this is a huge thing. It could be an
economic engine to generate new reserves of gas close to the
marketplace, close to the consumer--consumption in the
Northeast. So I think your area should be mightily interested
in being careful about the hazardous material classification.
Chairman Altmire. Thank you.
One more on this round and then I'll turn it over to
Ranking Member Fallin and then we'll come back for a second
round.
Mr. Terry, I appreciated your comments and with regard
especially to small business and the impact of different
policies may have and would have.
With regard to the Recovery Act, the stimulus bill, that
was passed earlier and there were $30 million in small business
tax cuts that were in that bill, things like expensing and
capital depreciation, all of those things.
Have you seen in your industry any benefit from the
stimulus plan upon small businesses? Did those tax cuts in any
way impact your business or nationally do you feel that the
stimulus has had a positive impact in any way?
Mr. Terry. No, I have not, and of course, when you see
natural gas prices go from 13 to 10 to 5 to many of the small
business independents are now getting $2 or less for natural
gas. Those incentives just don't help because the economic
nature of the business where price is important is just too
overwhelming, so I have not seen the impact of that in a
positive way.
Chairman Altmire. Okay. Congresswoman Fallin.
Ms. Fallin. Thank you, Mr. Chairman. As you can probably
tell by some of the testimony, we're pretty passionate about
energy in Oklahoma and I appreciate--
Chairman Altmire. I noticed.
Ms. Fallin. --I appreciate your state's interest in energy
policy, too. I know that you had a strong interest.
You know, one of the things I was thinking about was one of
the recent policies that we had in Congress with the Cash for
Clunkers program, and I was curious, Mr. House, if you could
talk to us about the conversion of a gas car to a natural gas,
compressed natural gas, car. What would that cost be? Do you
have an estimate on--
Mr. House. It varies a little by the vehicle type, but
somewhere between 2500 and forty--$4,000 is--
Ms. Fallin. And we just gave away $4,500 for Cash for
Clunkers.
Mr. House. Right. In my written testimony I think I might
have alluded to that.
Ms. Fallin. Well, and that's just interesting because here
we just spent, you know, I think almost $3 billion or so for
Cash for Clunkers and we could have been converting cars to
compressed natural gas as--
Mr. House. Absolutely.
Ms. Fallin. --an energy policy. We could have been moving
towards cleaner fuel at that time and so that's good to know
that figure and of course, that would have also addressed some
of the infrastructure issues in--in having the fill stations
for compressed natural gas once you would put more cars in the
marketplace--
Mr. House. Absolutely.
Ms. Fallin. --that could have been converted to that
compressed natural gas.
And if I could just ask all of you, I know that the
intangible drilling costs, the percentage depletion, and the
hydraulic fracturing changes that could be coming from EPA and
of course from some of the rules, regulations, possible
restrictions through cap and trade, all of us are very
concerned in Oklahoma how that will affect our production of
especially the marginal wells that you talked about, but if we
were to have some severe restrictions on hydraulic fracturing,
how many wells do you think that would shut down in Oklahoma
for production, and how would that affect the employees in our
state?
And Mr. Chairman, as I think Mike Terry had mentioned,
there's about 25 percent of our revenue from our state comes in
from gross production taxes and right now, with the price of
gas and oil the way it is, we've seen a huge shortfall in gross
production taxes to our state budget, almost 80 percent drop,
which has had a big effect on our revenue as far as state, but
could you just talk about how any potential changes in the
hydraulic fracturing and restrictions could affect revenue in
our state, production, and even the jobs, especially as it
relates to small business.
Mr. Terry. First of all, let me say on hydraulic
fracturing, I've been in that business twice in my lifetime and
I've had hydraulic fracturing fluid all over me. I probably
drank it. And the greatest component--the largest component of
that fluid is a substance called guar gum. It makes the fluid
thicker so it will carry sand and other proppants that are
used, and I don't want to get too technical here, but that is
the same constituent that's used in ice cream, in salad
dressing, and all kinds of stuff that we consume as consumers.
It is extremely overblown. I've never heard of one instance
of anyone dying from having, you know, ingested anything that
has to do with hydraulic fracturing. Like I said, I've been in
the business twice and very familiar with it. As far as the
impact, and Mr. Chairman, in your area of the country, those
Marcellus wells will not be drilled unless they're
hydraulically fractured. Just mark it down. It is absolutely
impossible for those wells to be economically feasible unless
you frac them. So in your area of the country, those--that--
it'll stop. Absolutely it will stop.
In Oklahoma, it was proposed that there would be about 500
in our--in our shale play in the southeastern part of the
state--it's called the Woodford Shale--and all of those wells
have to be, have to be, hydraulically fractured. That's 500
wells that probably would not have been drilled, and that
doesn't include the other parts of the state. So I mean, it
would be devastating, absolutely devastating, to not only the
industry but the state of Oklahoma because of the--the tax
revenues, the jobs, everything that's related to our industry
would come to a standstill if you take, you know, hydraulic
fracturing out of the picture. It's just--it just can't happen.
Chairman Altmire. May I, on that point?
The environmental community--and I'm asking you to maybe
put forward an argument that you don't agree with--but what is
the case that they make for having to regulate that or deny the
approval of it?
Ms. Fallin. Mr. Chairman, if I could ask, would you mind
passing the microphone around, because some of the people in
the back may not be able to hear your responses on this.
Mr. Terry. In my opinion, it's more of an education
situation than anything else. As we have seen the shale play go
to other parts of the country and grow exponentially, there are
people in those areas that don't understand what's going on.
And they're not educated about the oil and gas drilling
practices or the production practices, and it concerns them.
They see this large equipment and they see all the activity and
they get worried, and they know that there's drilling going on,
you know, how does that affect my drinking water.
But you know, we've been drilling wells for over a hundred
years, and particularly in Oklahoma, the safeguards are in
place at the state level. We have Commissioner Murphy here, who
could testify about all the different rules and regulations
that we put in place in our state to protect ground water. And
when you're hydraulically fracturing a well at 9,000 feet and
your fresh water system is at 400 feet, and there's concrete
and steel pipe in between, it--it's just literally impossible
for it to impact the ground water.
And so it's an education process, Mr. Chairman, and I don't
know how we solve it quickly. I know in Oklahoma we formed an
organization that educates our people about our industry and
it's been very successful. It's in the school system, it's in
the public arena and, you know, I would propose a national
education program about the energy, and just to alleviate these
kinds of things.
Chairman Altmire. Thank you.
Ms. Fallin. Mr. Bergey, you had mentioned that you felt
like there was some things that you liked in the energy
direction of our nation and, of course, Oklahoma has been one
of the leaders in wind production, but could you further talk
about the effects? I'm just kind of curious about proposed cap
and trade legislation and how it would affect your industry and
wind production.
Mr. Bergey. Sure. The cap and trade will not directly cause
new wind farms, but it will certainly provide--it'd be one of
the only--one of the solutions that companies may use to gain
credits and to offset some of their pollution.
The bigger impact would be the renewable energy standard,
which would be mandate for utilities to use a certain amount of
electricity from clean energy sources.
28 states have that. The federal government is considering
one, and that would have a large impact on large wind
development--not small wind; small wind is more expensive than
large wind so utilities won't choose our products,
unfortunately, for that.
But for large wind, it would have a very big impact and I
think would have a very positive impact for the state of
Oklahoma. We've been under the what is now called the Pickens
Plan, but actually the Department of Energy goal of 20 percent
wind power by 2030, Oklahoma would be in the top four states in
development. We could see up to 30, maybe as much as $50
billion of investment in western Oklahoma where the wind blows,
and with the transmission to move that to the larger market, we
could be a very substantial gainer from that.
And also point out that the major problem with wind power,
it's intermittency is most attractively solved by using natural
gas combustion turbines for backup. We're very strong both in
the installed capacity of that, but more importantly as my
fellow guests have alluded, we are very strong in natural gas
supply here, so it makes--we spend--it seems a little crazy to
be importing so much coal from Wyoming and maybe a little bit
from Pennsylvania, I don't know, but certainly a lot from
Wyoming when we have so much wind power and so much natural gas
here.
I'll just take--stay on the microphone for this very
quickly and say that I fully support all of the enthusiasm for
natural gas vehicles for very solid economic development
reasons.
Ms. Fallin. Can I ask you to just comment real quickly on
the transmission lines and the grid, and I hear that's a huge
issue and very expensive as far as you produce the wind, but
you've got to get it out to the community. So could you address
the availability of the transmission lines and the power grids?
Mr. Bergey. Certainly. The--well, basically you don't want
to live where the wind blows strong enough to produce cheap
electricity, where it takes six clothespins to hold your undies
on a clothesline. You just don't want to be there. So most
people live in the big cities.
Our transmission grid did not anticipate wind power or
solar power, even merchant natural gas for that matter, and so
it does--the lines just don't go from where we need it to go to
and so we're having to build that and that is expensive.
There's a who pays, how does that cost get allocated kind of
question.
The regional transmission organizations have taken a
leadership position and have worked out the rules of the road
in terms of the investments, and that--those projects are
moving forward. They're very large construction projects,
billions of dollars, they involve land rights and some cases
even eminent domain, and so they will take some time, and
that's why Boone Pickens has sort of throttled back on his
centralization of his projects in Texas. It was the realization
not that wind power was going to be less attractive, but when
he starts getting those billions of dollars of General Electric
wind turbines arriving at his doorstep, he really needs to put
them in the ground somewhere. And he wouldn't have any place to
plug them in around Pampa, Texas. So he's going to I think end
up doing projects here in Oklahoma.
But transmission is something that states and the regional
transmission organizations are aggressively pursuing and I
think that it's--that bottleneck is going to be largely gotten
rid of in the next five or six years.
Chairman Altmire. Okay. We'll do one more round of
questions. I had a few--couple.
For Mr. Robson, you talked about the consumers' incentive
to seek energy efficiency and if it's a delayed payback that
they're a lot less likely to do it. Have you seen, despite that
increased consumer demand for solar and wind--more solar I
guess in your industry--just from folks who were interested in
the technology and have questions about it and want to
incorporate it into the building process?
Mr. Robson. People are interested. They're curious about
it. Some do it--just a small percentage do it just because it's
the thing to do, but that's a very, very small percentage. It
really comes down to dollars and cents.
Chairman Altmire. Are there parts of the country where it's
more popular than others?
Mr. Robson. There's parts of the country that it's more
popular. It's primarily where the sun shines a lot more than
others, so yeah, it's going to be dependent on the kind of
climate.
Chairman Altmire. Good.
Mr. Bergey, you talked about small businesses in your
testimony and we thank you for that. I was wondering about the
comparison from your industry's viewpoint between small
businesses and larger businesses and has there been an
increased demand for alternative energy more or less in small
versus larger employers--is there an increased interest
depending the size of your business?
Mr. Bergey. There certainly has been an increased interest,
Mr. Chairman. We receive calls every day from companies that
want--large and small--who are looking to reduce their
operating costs. For the vast majority of them, the wind
resources where they're located versus the electric rates they
give don't provide an economic rate of return, and so our
advice is invest in efficiency, get thermal heat pumps, those
sorts of things, to cut your electricity demand and then wait
for solar and wind systems to get into higher production
volumes so that they'll be more economic at their sites.
But yes, there is definitely an increase in interest in
green technologies, not just for the environmental aspect but
for the green of money--to save operating costs.
Chairman Altmire. Thank you.
My final question is for Mr. Mocha, and you talked a lot
about foreign competition and things that we could do to help
our own businesses here in America, and I agree with the things
that you outlined.
I wondered if you had specific recommendations for ways
that the EPA in particular--because you talked a lot about them
and things they were doing wrong--do you have specific
recommendations on what the EPA could do in an affirmative way
to improve the process for development--developing and
implementing regulations that impact energy businesses like
yours?
Mr. Mocha. I'm sorry if I gave you that impression.
I'm under the impression that everything EPA is doing is
right. It's government trying to do its job and really doing a
pretty good job.
My concern is that the manufacturers in America have to use
different processes and we have to play by different rules than
manufacturers in other countries. In fact, we see some of the
large manufacturers moving to other countries. You see people
like me going to other countries for plating processes, for
example.
Why don't we level the playing field? Why don't we only
allow those countries who have similar processes that America
does to be able to market for the American dollar? I'm assuming
everything that EPA is doing is right and good for the country.
Chairman Altmire. Well, thank you for that. I'm glad I
asked that question. And again, being from western
Pennsylvania, we obviously can see the impact of the businesses
moving overseas and foreign competition as well, so.
Mr. Mocha. We have a lot of customers in your part of the
country.
Chairman Altmire. Okay. Well, I appreciate your testimony
and I'll again turn it over to Miss Fallin.
Mr. Mocha. Thank you.
Ms. Fallin. Thank you, Mr. Chairman. I might just follow up
on that, Mr. Mocha, on some of the proposed changes that are
coming down from cap and trade and how you affect--how you
believe that would affect your competitiveness, not only here
in the United States but especially overseas as you're trying
to operate under some of the new regulations that could be in
effect with that piece of law.
Do you see that increasing your business and your
competitiveness with foreign countries or do you think it might
diminish that?
Mr. Mocha. I'm glad you asked that. I think the American
manufacturers, including us, can compete with anyone and we can
compete successfully with anyone, but they have to have the
same standards.
My suggestion is if EPA or Congress, anyone who has new
regulations, new processes, new things that are going to
implement business, if that could be somehow accessed--somehow
regulated where everybody is impacted by it, then that's fair.
That's--let's do it.
But if you cannot enforce regulation to other countries,
then don't do it to American manufacturers because you're
hurting us, and I don't think that's the intent of the
government or EPA, so somehow we need to--if we're going to do
that--you know, in a sense, it's really good for us to stand up
and be a role model for the rest of the world. But it's only
good if the rest of the world follows suit and we cannot reward
countries that do not have those same kind of processes that
America does.
Ms. Fallin. Well, unfortunately, we can't mandate those
other countries to follow the same rules and regulations that
we do in a--
Mr. Mocha. But we can--
Ms. Fallin. --global marketplace.
Mr. Mocha. --keep them out of America--
Ms. Fallin. That's right.
Mr. Mocha. --and we can keep them out of our markets.
Ms. Fallin. But we don't always do that.
Mr. Mocha. That's right. I think we need to have a new
moral code and that's why I mentioned before, I think it ought
to be the Fallin Initiative. It may not be an easy thing to do,
but we've got lots of bureaucrats in Washington who are ready
and able to do the job.
Ms. Fallin. Well, I might be able to do it on a state
level, but nationally and globally I don't know yet.
Mr. Mocha. You can do it.
Ms. Fallin. I don't have that much influence yet. But thank
you.
And I want to ask Mr. Robson, you talked about the ACES
Act.
Mr. Robson. Yes.
Ms. Fallin. Is that the right terminology?
Mr. Robson. Yes.
Ms. Fallin. And how that affects cost on homes and
competition and some of the regulations on that, and I'm
particularly interested in how that could affect small
businesses and homebuilders and those that are involved here in
Oklahoma's economy about some of the mandates. Could you just
elaborate a little bit more on that?
Mr. Robson. Yes. The--as it pertains to the national
building code that is being proposed, the mandates are to have
30 percent increase in energy efficiency requirements over the
2006 international energy code. That would be upon enactment.
If states don't enact a 30 percent code, they lose federal
dollars and there are damages that the Department of Energy can
go against the states. By 2014, I believe, it has to be 50
percent over the 2006 energy code, and then it increases five
percent per year after that up to 75 percent by 2029, I
believe.
Our concern is that it is putting all of the burden on new
construction, which already has had a much higher standard than
we already have and we kind of talked along, Chairman Altmire,
your question on, you know, what are the economics of doing
things or not? What you do is price new homes completely out of
the market. And frankly, I don't know how you get there. We
don't have the technologies to get to 75 percent, and granted,
we've got a few years to do it, but I just don't know how you
get there and squeeze that much more energy efficiency.
You know, the housing industry, homes supposedly use 30
percent of the energy of the country. New homes since 1991 use
two and a half percent, so that leaves the 74, 75 percent
using, what, 27 and a half percent. That is where the real
efficiency comes from, and nobody is addressing it--in fact, it
specifically exempts existing homes and buildings, and that is
the problem, especially from the construction industry.
Ms. Fallin. Well, I would assume if these mandates go into
place it would increase construction costs.
Mr. Robson. Yes, absolutely.
Ms. Fallin. Which would probably slow down homebuilding and
last time I checked, home prices in the United States have been
going down and majority of people have their investments in
their homes.
Mr. Robson. Right. Well, and the other problem and one of
the major issues with the current housing crisis is appraisals.
You know, we can't get appraisals, whether it's existing homes
or new home construction. There is no allowance right now and
that's one of the big impediments to energy efficiency and
construction is getting credit from an appraisal standpoint for
the energy efficiencies you build into a new home. If you start
adding 30 percent, 75 percent efficiencies, and you don't
change the appraisal process, you completely up-end the market.
Ms. Fallin. So it doesn't change the value of the home.
Mr. Robson. No. There's no credit that's being given for
energy efficiency right now.
Ms. Fallin. What suggestions do you have for the current
homes that are built that are not the new homes that you said
are not eligible for the credit and how--what ideas do you have
to help encourage current older homes to be able to create more
efficiencies within their homes and maybe use new technology
without breaking the bank and without going over their loan
value as far as appraisals go?
Mr. Robson. I think it's got to be on all fronts. And
Commissioner Murphy is here. We've been working with the
Corporation Commission and the electric utility companies and
working on the demand side management issues in Oklahoma. I
think that's something being addressed around the country.
But that is a critical issue as to how you pay for energy
efficiency and a lot of those homes are for lower-income
housing and maybe they can't afford efficiency improvements.
There are a number of proposals, there's particular financing
mechanism called PACE that was cut out of this bill actually
that would have been a possibility--more of a local option,
financing option. You've got to be able to finance them and get
the appraisals and the value when you do those, even on
existing homes. So there's a number of proposals out there.
Unfortunately the ACES doesn't address any of them.
Ms. Fallin. Okay. And Mr. Chairman, I just want to mention,
I know that Congressman Sullivan had to leave a few minutes
early, but he has actually authored some legislation in
Congress that encourages compressed natural gas and
infrastructure development in our nation and I'm--I just want
to commend him since he is not here. I'm a cosponsor of that
legislation and it's very important to us here in Oklahoma that
hopefully we can get that bill out of Committee and get it on
the floor sometime. But it's a good piece of legislation. I
think it would serve our nation well and help us move towards
cleaner energy and help us with producing more American-made
energy, reducing our dependence on foreign energy.
Mr. Chairman, I just want to say thank you so much for
coming to our state. As you can tell by our witnesses here,
they are all experts in their field. They are very passionate
in what they believe and we think we've gleaned some great
ideas here today and heard both the good sides of what we're
proposing and some of the negative sides of what some of our
policies could do to small business and especially to our
economy here in our state to our hopefully moving away from
dependence on foreign energy and even some of the small
business as far as rules and regulations and mandates coming
from Congress and how that will affect our small businesses.
So I want to say thank you once again. Thank you to all of
our witnesses.
Chairman Altmire. And I would second what the Congresswoman
said about Mr. Sullivan. He's a good friend. I know he
represents you all very well here and I thank him for taking
the time to be here in his absence now, and I certainly thank
Miss Fallin. Enjoyed being here and thanks especially to
Oklahoma State-Tulsa for your hospitality. Thanks for helping
us set this up. These are not easy to do. We appreciate the
fact that you allowed us to hold this hearing here. I had the
opportunity to walk around a little bit before the hearing and
you have a beautiful campus and top-notch facilities. Thanks
for the work that you do every day for students from Oklahoma,
but especially thanks for allowing us to be here today. Thanks
to each one of you.
This was very instructive to me and to the Committee as a
whole, and this testimony was sent to everyone on the Committee
and I'm sure they will review it and may have follow-up
questions for you of their own, so you may be hearing from
others on this.
And with that, I would ask unanimous consent that all
Committee members will have five days to submit statements and
supporting materials to the record, and without objection, so
ordered.
Chairman Altmire. This hearing is now adjourned.
[Whereupon, the Subcommittee was adjourned.]
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