[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
   THE PRESIDENT'S CLIMATE ACTION PLAN: WHAT IS THE IMPACT ON SMALL 

                              BUSINESSES?
=======================================================================



                                HEARING

                               before the

             SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                             JULY 18, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED]
                               

            Small Business Committee Document Number 113-031

              Available via the GPO Website: www.fdsys.gov




                  U.S. GOVERNMENT PRINTING OFFICE
81-938                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001




                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director



                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Scott Tipton................................................     1
Hon. Patrick Murphy..............................................     2

                               WITNESSES

Michael Kezar, General Manager, San Miguel Cooperative, Inc., 
  Jourdanton, TX.................................................     4
James L. Brown, President, Bremen Castings, Inc., Bremen, IN.....     5
Bernard L. Weinstein, Maguire Energy Institute, Southern 
  Methodist University, Dallas, TX...............................     8
Paul Gardner, Vice President, Business Development, Agilis, Palm 
  Beach Gardens, FL..............................................    10

                                APPENDIX

Prepared Statements:
    Michael Kezar, General Manager, San Miguel Cooperative, Inc., 
      Jourdanton, TX.............................................    25
    James L. Brown, President, Bremen Castings, Inc., Bremen, IN.    30
    Bernard L. Weinstein, Maguire Energy Institute, Southern 
      Methodist University, Dallas, TX...........................    37
    Paul Gardner, Vice President, Business Development, Agilis, 
      Palm Beach Gardens, FL.....................................    48
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Ad-Hoc Coalition of Small Business Refiners..................    51


   THE PRESIDENT'S CLIMATE ACTION PLAN: WHAT IS THE IMPACT ON SMALL 
                              BUSINESSES?

                              ----------                              


                        THURSDAY, JULY 18, 2013

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Agriculture, Energy and Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Scott Tipton 
[chairman of the subcommittee] presiding.
    Present: Representatives Tipton, Luetkemeyer, Hanna, and 
Murphy.
    Chairman TIPTON. Well, good morning. I would like to thank 
everyone for taking the time to be able to come into our 
hearing this morning and we officially call this to order.
    I would like to thank our witnesses for appearing today to 
discuss the potential implications of the president's recently 
announced Climate Action Plan on small businesses. I will note 
that this was supposed to be a two-panel hearing. The Committee 
invited officials from the Environmental Protection Agency to 
testify, but they declined. This is unfortunate for several 
reasons. As many members know, the purpose of this Committee is 
to give small businesses a voice in government. All too often, 
Congress and federal agencies fail to consider the potentially 
negative consequences to small businesses of the laws we pass 
or the regulations that agencies seek to impose. The Regulatory 
Flexibility Act, of which this Committee has jurisdiction, is 
intended to ensure that when federal agencies consider new 
regulations that they analyze and quantify their potential 
effects on small businesses.
    In addition, the RFA requires certain government agencies, 
including the EPA, to conduct small business advococy review 
panels prior to the regulation's publication in the Federal 
Registry. This process not only helps small businesses 
understand the potential scope and costs of government 
regulations, but allows them to actively inform and assist 
agencies in developing less burdensome alternatives. 
Unfortunately, compliance with RFA has too often been the 
exception rather than the rule, and few agencies have done a 
worse job in meeting their RFA obligations to small businesses 
than the EPA, which declined to attend the meeting today.
    In too many instances, the EPA has improperly certified 
rules as not having significant impacts on small businesses. It 
has produced flawed economic analysis of its rules, and failed 
to provide small business review panels with sufficient 
information to assist them in informing agency rulemaking. 
Poorly crafted and burdensome regulations have been the result. 
And let there be no mistake; the new emission limits from 
electric power generating facilities outlined in the 
president's Climate Action Plan will have significant and far-
reaching implications for the economy and for small businesses.
    A previously proposed rule to limit greenhouse gas 
emissions from electric generating facilities, which the EPA 
never finalized, would have increased the cost of producing 
power from coal by between 30 and 80 percent depending on the 
facility. This, in turn, would directly impact small coal 
mining operations and small business electricity producers. And 
let us never forget those same rules and regulations impact 
senior citizens on fixed incomes and working men and women; 
that are trying to provide for their families. These costs are 
real.
    The regulations would have also raised costs to energy 
consumers, particularly manufacturers. Unfortunately, in its 
usual pattern, rather than taking these factors into 
consideration, the EPA is moving forward with complete 
disregard to small end-users. Perhaps the agency feels it is 
justified in pursuing rulemaking without seeking small business 
input. If so, then they should have appeared before this 
Committee today and should have said so on the record. However, 
if the EPA and the Obama Administration will not listen to 
small businesses, this Committee will.
    I look forward to hearing the testimony of today's 
witnesses and will now yield to Ranking Member Murphy for his 
opening statement.
    Mr. MURPHY. Thank you, Chairman Tipton. And thank you for 
having this important hearing today.
    I want to thank you all for being with us today. It is 
important that we hear from you, both ourselves and this entire 
Committee, on how federal policies may affect your livelihood, 
positively or negatively.
    Climate change is already having a serious impact 
throughout many of our nation's communities. In southern 
Florida, where my district is located, we are seeing these 
changes firsthand. As sea levels rise, the storms we face every 
hurricane season are becoming more violent and more dramatic, 
increasing the threat to public safety and jeopardizing 
infrastructure, homes, and businesses more than ever before. 
These changes also impact the local economies that are most 
vulnerable to these sea-level conditions.
    For small businesses, the effects of climate change are 
significant. Extreme weather events have become more common, 
causing billions of dollars in damages during the last two 
years. Small firms are left not only with physical damages but 
often with lower consumer demand. As a result, many shut their 
doors altogether. In addition, climate change is now affecting 
human health for small businesses and this is a real concern. 
Heat waves continue to blanket parts of the country while 
respiratory illnesses and asthma associated with pollution 
remains a problem. This is a double-edge sword for small 
firms--fewer customers and a less healthy workforce.
    To address these challenges, the president has put forth a 
Climate Action Plan which contains a wide range of proposals to 
reduce emissions of carbon dioxide and other greenhouse gases, 
and to help our nation adopt to expected changes in the 
climate. Among its most important provisions are the directives 
to reduce pollution from power plants, incentivized greater use 
of renewable energy, and encourage the development of energy 
efficient technologies. Taken together, these steps have the 
promise to reduce U.S. greenhouse gas emissions while spurring 
investment in new industrial sectors.
    While these steps would reduce our country's CO2 emissions, 
increase efficiency, and move the U.S. toward an ``all of the 
above'' energy strategy, it is critical to address the plan's 
impact on small businesses. Small firms could face higher 
energy bills. As lower pollution but potentially more costly, 
energy sources come on online. Some businesses are some of the 
largest energy consumers, so we need to carefully consider how 
the president's plan will affect them.
    Another outcome of the president's plan would be to 
stimulate further energy innovation. By prioritizing cleaner 
energy broadly, new technologies would be developed and brought 
to market. Such stimulus is often accompanied by job growth, 
providing many communities with a foundation for a more 
prosperous future. From a development of new generation 
turbines to the construction of more efficient buildings, small 
businesses are ready to lead American forward.
    All these factors are important as we evaluate the best way 
to address climate change as they touch on all aspects of our 
economy. The panel here today will help us understand the 
potential impacts, both positive and negative, the president's 
plan on the small business community, ensuring that the plan 
helps us reduce carbon emissions but in a way that minimizes 
economic disruption is critical.
    I look forward to hearing from our witnesses today and 
yield the remainder of my time. Thank you, Chairman.
    Chairman TIPTON. I thank the ranking member for his opening 
statement. If Committee members have an opening statement 
prepared, I ask that they submit it for the record.
    And I would like to take a moment to be able to explain our 
timing lights for you. Each of you will have five minutes to be 
able to deliver your testimony. At the beginning of your 
statement it will start out green. When you have one minute 
remaining the light will turn yellow, and finally, at the end 
of your five minutes it will turn red and if you could wrap up 
at that time, we would appreciate it.
    I would like to go ahead and begin the testimony from our
    panel. Our first witness is Mr. Michael Kezar, general 
manager of San Miguel Electric Cooperative, Inc., which is 
located in Jourdanton, Texas. Mr. Kezar joined the cooperative 
when the San Miguel facility was first under construction, and 
has served in a number of capacities prior to his becoming 
general manager.
    Mr. Kezar, thank you for taking time to appear before this 
Committee, and please deliver your testimony.

   STATEMENTS OF MICHAEL KEZAR, GENERAL MANAGER, SAN MIGUEL 
 ELECTRIC COOPERATIVE, INC.; JAMES L. BROWN, PRESIDENT, BREMEN 
CASTINGS; BERNARD WEINSTEIN, MAGUIRE ENERGY INSTITUTE, SOUTHERN 
  METHODIST UNIVERSITY; PAUL GARDNER, VICE PRESIDENT BUSINESS 
                   DEVELOPMENT, AGILIS GROUP.

                   STATEMENT OF MICHAEL KEZAR

    Mr. KEZAR. Good morning. My name is Mike Kezar and I serve 
as general manager of San Miguel Electric Cooperative.
    I appreciate the invitation to appear before the 
Subcommittee this morning to discuss the potential impact that 
the regulation of carbon dioxide emissions under the New Source 
Performance Standards of the Clean Air Act could have on San 
Miguel and its members.
    San Miguel was organized for the sole purpose of owning and 
operating a mine-mouth, lignite-fired generating plant and 
associated mining facilities in Atascosa County, Texas, 
approximately 60 miles south of San Antonio. As a not-for-
profit cooperative, San Miguel has no shareholders, and the 
total cost of owning and operating the plant, including any 
compliance costs associated with regulation of CO2 emissions 
will be borne directly by San Miguel's consumers and members.
    I want to stress at the outset that the Clean Air Act is 
not the appropriate vehicle for the regulation of CO2 for 
several important reasons. First, any meaningful effort to 
produce emissions will require the kind of tough national 
economic and public policy choices that must be made by 
Congress with the transparency and participation allowed 
through the legislative process.
    Second, reducing greenhouse gas emissions in the U.S. alone 
will have no significant impact on worldwide inventories; 
however, it would likely have a notable impact on our nation's 
ability to compete in the international marketplace. Any 
significant effort to address greenhouse gas emissions must 
only be undertaken as part of an overall initiative that 
properly balances domestic and international interests. The 
Clean Air Act is not structured to facilitate the balancing of 
these interests and public policy concerns.
    EPA's NSPS CO2 standards for new coal fire generation were 
initially proposed in April 2012. That proposal is to be 
withdrawn with the president requesting a new proposal no later 
than September 20th of this year. The new proposal must not 
include the same technical and legal flaws that were present in 
the April 2012 proposal. One of those flaws was a combination 
of coal-fired and natural gas-fired generating facilities into 
a single regulated category and then establishing one emission 
limit for the entire category. This combination into one large 
source category is unprecedented for this type of rule. Coal-
fired and natural gas-fired generating units are very different 
and combining them makes no practical sense, flies in the face 
of decades of EPA Clean Air Act precedent, and likely violates 
the Clean Air Act's requirements regarding sub-categorization 
of different types of source categories.
    EPA admitted that new coal-fired generation was incapable 
of meeting the proposed emission limit, and the proposal 
allowed potential new units the option of meeting an interim 
standard coupled with carbon capture and storage (CCS) to be 
applied in the future. The mandate to install in the future a 
technology that is not currently commercially available 
effectively ensures that no new coal-fire generation will be 
built within the foreseeable future.
    Section 111 of the Clean Air Act requires that cost be 
taken into account when developing NSPS for both new and 
existing units. CCS may be technically feasible, but its 
deployment would effectively double the cost of power produced 
by coal-fired, electric-generating facilities, and there is no 
evidence that the technology will become commercially available 
in the new future. If EPA were to make CCS applicable to San 
Miguel, the doubling of costs would almost certainly force the 
unit out of service; therefore, the technology does not meet 
the NSPS mandate for cost consideration.
    Although Section 111 requires that NSPS be economically 
achievable at the unit level, the EPA could force guidelines on 
states that are unrealistic and couple them with requirements 
for emissions averaging or offsets with natural gas or 
renewable generation. While this approach may be viable for 
larger electric utilities with broader generation portfolios, 
it would not be viable for San Miguel or other small electric 
utilities whose generation is primarily coal-based.
    Lastly, EPA must follow the requirements of the Regulatory 
Flexibility Act. The act mandates that EPA take steps to 
minimize the economic impact that Section 111 regulations would 
have on small business entities such as San Miguel. I am 
especially concerned that EPA may posit that the guidelines 
themselves do not directly affect small business, but rather 
that the state implementation plans would. Executive Order 
13563, as well as the president's June 25, 2013 memorandum 
entitled ``Power Sector Carbon Pollution Standards'' clearly 
advocates that policy formulation not prejudice small business 
entities. An upfront consultation process involving small 
business entity representatives would be an excellent 
opportunity for the administration's own objectives to be 
satisfied.
    That concludes my statement. I thank the Committee for the 
opportunity to address these important issues and I would be 
happy to answer any questions.
    Chairman TIPTON. Thank you, Mr. Kezar. You left 20 seconds 
on. Mr. Brown, you may or may not use those if you would like.
    We would like to introduce our next witness.
    Mr. James Brown is president of Bremen Castings, Inc., 
located in Bremen, Indiana. Bremen Castings is a fourth 
generation, family-run business which was started by his great 
grandfather in 1939. Mr. Brown, thank you for appearing today, 
and we look forward to your testimony.

                  STATEMENT OF JAMES L. BROWN

    Mr. BROWN. Good morning, Chairman Tipton, Ranking Member 
Murphy, and members of the Subcommittee. Thank you for this 
opportunity to testify before you on this timely subject of the 
President's Climate Action Plan: What is the Impact on Small 
Business?
    My name is J. B. Brown, and I am president of Bremen 
Castings in Bremen, Indiana, a small town of 5,500 people, 
roughly 50 minutes south of South Bend, Elkhart. As a small 
business that is energy intensive, I am very concerned that the 
regulations proposed by President Obama on the utility sector 
to force a quick reduction in carbon emissions would place on 
my company and the entire U.S. foundry industry a substantial 
disadvantage to our foreign competitors and will raise our 
electric rates greatly.
    Today, the metal casting industry remains critical to the 
U.S. economy, as 90 percent of all manufactured goods 
incorporate engineered castings into their makeup. Castings are 
used in cars, trucks, planes, railroads, ships, air 
conditioners, refrigerators, lawnmowers, oil and gas field 
equipment, medical devices, water infrastructure, wind 
turbines, tanks, bombs, just to name a few areas. In short, 
Castings represent a vital, yet very basic aspect of our 
everyday life.
    I am proud to be a fourth generation Indiana metal caster 
and president of the family-owned small business that has been 
in continuous operation for over 75 years. Growing up I spent 
many hours around the foundry and continued my experience 
through high school and college. I have worked every job, every 
shift throughout our 155,000 square foot facility. Both my 
parents' fathers worked in this plant and today we still have 
other families that are currently on their fourth generation as 
well. More recently, my daughter representing a fifth 
generation has been learning the business interning in the 
foundry machine shop every chance she gets when she is on break 
from school at Indiana University.
    After weathering a number of recessions and overcoming 
changes in the marketplace, our foundry continues to be a 
leading metal caster producing thousands of different types of 
gray and ductile iron castings. Our team of over 250 associates 
today manufacture an array of castings for heavy truck, 
agricultural equipment, valves, pipe fittings, pump components, 
compressors, lawn and garden equipment, as well as a variety of 
critical parts for the military Humvees, Oshkosh defense for 
the U.S. Department of Defense. BCI has been a long-time 
supplier of John Deere and Case New Holland in the agricultural 
sector, as well as Eaton in the heavy truck sector. We are now 
exporting castings from agricultural equipment to Brazil, 
France, Mexico, and Canada.
    By the way of background, the U.S. metal casting industry 
and the world's second largest producer of castings after 
China, metal castings are truly the foundation for all 
manufacturing. The U.S. foundry industry is comprised of 2,000 
operating casting facilities with over 50 of these plants 
located in Indiana. More recently, a few new foundries have 
been built in states with inexpensive electricity, as well as 
proximity to their customers.
    The American metal casting industry provides employment to 
over 200,000 men and women directly, and supports thousands of 
other jobs indirectly. The industry supports a payroll of more 
than 8 billion and sales of more than 32 billion annually. Our 
industry is dominated by small business with over 80 percent of 
the U.S. metal casting employers having 100 workers or less.
    Over the past two years, Bremen Castings has worked 
diligently to cut some of our energy costs and become more 
efficient. In fact, we have made significant investments, over 
half a million dollars in a variety of energy-saving projects. 
Despite being an energy-intensive industry, foundries are major 
recyclers. Castings are manufactured from recycled scrap 
material rather than newer virgin material and melt stock. 
Annually, U.S. foundries consumed 15 to 20 million tons of 
recycled scrap material giving new life to products that would 
otherwise go to the landfills.
    The foundry industry believes that it is imperative for the 
Americans to continue to expand access to our domestic energy 
supply in order to meet current needs for affordable energy and 
shore up our energy security. Oil, natural gas, and clean coal 
remain essential contributors to America's energy security. In 
addition, we strongly support the building of the Keystone XL 
pipeline and urge the U.S. Department of State to approve the 
president's permit for this project to move forward.
    As an energy-intensive manufacturer, I am very concerned 
about the consequences of the president's plan outlined on June 
25th to regulate greenhouse gas emission from new, modified, 
and existing power plants on my foundry, other industries, and 
in manufacturing across the United States. I believe this new 
rule will cause power plants to close, drive up power costs for 
households and businesses across the country, and especially 
harm manufacturing-heavy states.
    Additionally, these new regulations have banned all of the 
above energy policy and will threaten the foundry industry's 
ability to remain competitive in the international 
manufacturing environment. We compete globally against 
countries like China, where the industry is often state-owned, 
controlled, and subsidized, including for electricity costs. 
Furthermore, if the proposed rules will adversely affect 
Indiana manufacturing consumers much more than most states. 
Indiana is a top energy-using state, and most of its 
electricity comes from coal-fired power plants. Currently, coal 
generates about 40 percent of electricity in the U.S.; however, 
in Indiana it is 80 percent. The proposed utility rules will 
make Indiana manufacturing, including BCI, less competitive 
with other states that are not coal dependent in countries that 
do not have strict rules in place, ultimately costing jobs.
    Energy is the life blood of the U.S. foundries and most 
manufacturers, and even slight competitive advantage if the 
price of energy can make an enormous difference for the 
companies like mine that compete globally. Like all 
manufacturers, we benefit from the decreased production costs 
attributed to lower energy prices.
    In conclusion, as an energy-intensive industry, comprised 
primarily of small business, metal casters are troubled by the 
prospect of increased electricity costs and reliability issues 
that will likely result from the administration's new power 
plant regulation being developed. Establishing new, stringent, 
and burdensome regulations on the power sector will have a 
negative effect on all U.S. manufacturers regardless of company 
size, consumers, or long-term health of the U.S. economy and 
the prosperity of American workers. As we are transitioning our 
power-generating fleet, utilities need flexibility to ensure 
that they can manage these emerging environmental regulations 
while continuing to control costs. We do not need more 
regulation roadblocks as the country and our industry struggle 
out of this recession.
    Thank you for the opportunity to appear before you today. I 
look forward to your questions.
    Chairman TIPTON. Thank you, Mr. Brown.
    Our next witness is Dr. Bernard Weinstein. He serves as an 
associate director for the Maguire Energy Institute and is an 
adjunct professor of Business Economics at the Cox School of 
Business at Southern Methodist University in Dallas, Texas. Dr. 
Weinstein has authored and co-authored a number of books and 
articles on the subject of energy security. He has also served 
as a consultant to energy firms on legislative and regulatory 
topics.
    Dr. Weinstein, thank you for appearing, and we look forward 
to your testimony.

                 STATEMENT OF BERNARD WEINSTEIN

    Mr. WEINSTEIN. Thank you, Mr. Chairman, and members of the 
Committee, for this invitation to speak for a few minutes.
    I want to focus on some of the macroeconomic concerns that 
I have about these proposed climate change policies and 
regulations. As the previous speaker mentioned, the economy is 
not in great shape. Second quarter gross domestic product is 
probably going to come in at about 1 percent growth rate. The 
unemployment rate is 9.6 percent. It has been virtually 
unchanged over the past year. There are 12 million Americans 
unemployed. If you add in discouraged workers and part-time 
workers who want to work full-time, we are talking about 22 
million. If we look at total payroll employment in the U.S., it 
is 3 percent lower than it was before the Great Recession 
began. We have a long way to go before we get back to full 
employment and sustainable growth.
    This recession and its aftermath has really hit small 
businesses, and that matters because, as you know, small 
businesses employ two-thirds of the nation's workforce, but we 
are seeing declining rates of business formation in recent 
years. Businesses with less than five years in business 
represent 35 percent of all companies today down from 50 
percent a couple of decades ago. Employment in young firms has 
dropped from 20 percent to 12 percent in recent years, and as 
your Committee's own research has demonstrated, the regulatory 
burdens, the compliance costs facing small businesses are 
considerably higher than they are for large businesses. And 
that is why I think it is very important for this Committee and 
indeed all Committees in the U.S. Congress to look very 
carefully at the president's proposed Climate Action Plan 
because those proposals will raise the cost of electricity. And 
we do not know the specifics yet, but we do have some history 
that suggests that these regulations that will be promulgated 
by EPA will be quite costly. We have seen analyses in the past 
of CSAPR, of course, that air pollution rule, which is now 
before the Supreme Court, the Utility Maximum Achievable 
Control Technology (MACT)--I always have trouble saying that. 
But a very reputable economic research firm estimated that 
those two regulations will decrease national GDP by $350 
billion over 20 years, cut employment--net employment--by 2.5 
million, even taking into account location of so-called green 
jobs, and increase the cost of electricity to households and 
small businesses by at least $1,000 a year. And in some states 
that increase could be even greater.
    Now, if we add in the compliance costs that will likely be 
associated with these GHG regulations, that is obviously going 
to push up power costs even more. I think it is fair to say 
that the president's plan is mainly at coal-fired power 
generation. We need to keep in mind, of course, that 40 percent 
of this nation's electricity comes from coal, and we have seen 
a slight decrease in the contribution of coal to the grid 
mainly because of a sluggish economy and because of the aging 
of plants and low natural gas prices, but we are going to need 
coal for a long, long time.
    When we talk about higher electricity costs, anything that 
is going to affect business in general is going to affect small 
businesses disproportionately. Small businesses are typically 
operating on thinner margins. If they have to pay more for 
power, that is really going to affect their bottom-line.
    And then there are grid reliability issues. We have already 
heard about that. If we were to switch off 40 percent of the 
nation's power, or even if we were to phrase it out over say a 
10-year period, there would be some serious, serious concerns 
about having adequate reliability on the grid. Worst case 
scenario we see rolling brownouts and blackouts all over the 
country. Power shortages can disrupt communities, can disrupt 
businesses, can affect the economy more broadly, could derail 
the nascent revival of U.S. manufacturing. So there are lots of 
issues there that we need to be concerned about.
    Some of you may have seen this plan that has been put forth 
by the National Resource Defense Council. They hope the EPA 
will adopt their proposals. Basically, what NRDC is calling for 
is a very, very complex approach to greenhouse gas reduction. I 
do not have time to discuss it here but I would encourage you 
to read my written testimony in which I present a detailed 
critique.
    And finally, I think there are some other issues that we 
need to keep in mind when we talk about climate change and 
climate change action. Number one, greenhouse gas emissions in 
the United States are lower than they were 20 years ago, even 
though the economy is a third larger. And as we have already 
heard, any marginal reductions in GHGs from the U.S. will 
likely be more than offset by increases in emerging countries. 
That is why we need a global approach to greenhouse gas 
reduction.
    Then there is the whole issue of who should be making 
energy policy. Should it be Congress or the EPA? There are 
other things that we can do if we are really concerned about 
climate change. We can encourage a nuclear revival in this 
country. We can talk about natural gas fueled vehicles instead 
of electric vehicles. We can talk about liquefied natural gas 
(LNG) exports. Ironically, one way that we could help bring 
down global GHG is by exporting our gas and encouraging other 
countries to buy our gas instead of burning coal.
    So, again, the EPA is proposing what could be some very, 
very expensive regulations with disproportionate impacts on 
small businesses, and I think it is very important to keep in 
mind the fragile state of the U.S. economy and the fragile 
state of a lot of small businesses when we move forward on 
climate change issues.
    Thank you very much for your attention. I will be happy to 
answer any questions you may have.
    Chairman TIPTON. Thank you, Dr. Weinstein.
    I would now like to yield to the ranking member so that he 
may introduce our next witness.
    Mr. MURPHY. Thank you, Mr. Chairman.
    I am pleased this morning to introduce Mr. Paul Gardner, 
who is the vice president of Business Development for Agilis 
Group, a company headquartered in Palm Beach Gardens, Florida. 
Mr. Gardner has been working in the aerospace industry for 25 
years and has particularly focused on research and development 
of turbine engines for power generation and flight 
applications. Mr. Gardner has a broad range of experience in 
the turbine industry and has helped his company grow by 
developing relationships and wind contracts to support several 
key clean energy initiatives, including research and 
development of high-efficiency natural gas engines, clean coal 
combustion, CO2 sequestration systems, fuel burn reduction and 
increased fuel efficiency for advanced air Force and Navy 
aircraft systems, turbine power generation from advanced small 
modular nuclear reactors, catalytic low emissions combustion 
systems, advanced wind turbine gear systems, and turbine power 
generation from advanced fuel cell systems.
    Thank you for being here today, Mr. Gardner, and I look 
forward to hearing your testimony. That was a tongue-twister. 
That was impressive.

                   STATEMENT OF PAUL GARDNER

    Mr. GARDNER. Thank you, Chairman Tipton, and Ranking Member 
Murphy for allowing me the opportunity to testify before your 
Subcommittee regarding President Obama's Climate Action Plan 
and its impact on small business.
    My name is Paul Gardner, and I am the head of business 
development for Agilis Group. Agilis is a 20-year-old 
professional engineering services company focused on the 
technical research and engineering development of turbine 
engines. Agilis is a small business with approximately 130 
full-time employees, mostly degreed engineers in Palm Beach 
Gardens, Florida. We also have an engineering office in Camden, 
South Carolina. We currently provide advanced research and 
development engineering to the turbine original equipment 
manufacturers in the industrial power generation, oil and gas, 
military flight, and commercial flight industries.
    Our business contracts and engineering projects primarily 
come from private industry. Only a very small percentage of our 
work comes directly from government agencies and direct 
government contracts. Agilis wins contracts from the turbine 
engine companies and provides sub-supplier support to the 
government contracts these companies have received. At Agilis, 
we believe that the president's Climate Action Plan will have a 
definite impact on our business.
    I would like to explain some details of the work we have 
performed to illustrate how funding of clean energy 
initiatives, specifically the research and engineering 
development of clean energy technologies can provide direct 
support to small businesses like Agilis.
    In 2002 and 2003, Agilis provided sub-supplier support to a 
DOE contract to convert the waste coal dust from a coal-fired 
plant in Alabama into electricity. The original plant design 
collected the residual coal dust from the coal-fired boiler, 
compressed and packaged it into transportable blocks, and 
shipped it off to be stored as toxic waste. In support of the 
DOE contract, Agilis performed the combustion research, 
engineering design and development of a turbine combustion 
system that burns the residual coal dust as a fuel for a small 
industrial gas turbine. The turbine engine now produces enough 
direct electric power from the coal dust to operate the entire 
facility.
    Since 2009, Agilis has provided sub-supplier support to DOE 
contracts directly focused on the technical research and 
engineering development of the next generation fuel efficient 
turbine engines. These DoD programs include the Navy's Task 
Force Energy and the Air Force's VATE (Versatile Affordable 
Advanced Turbine Engine) initiatives. These programs directly 
aligned with the DoD Operational Energy Strategy Implementation 
Plan released in March 2012 with a key goal factor to increase 
fuel efficiency and reduce reliance on foreign oil supply. 
Since 2009, Agilis has received more than 5 million in 
engineering contracts from the turbine engine contracts to 
support these programs.
    Agilis has provided over $5 million in engineering effort 
in support of the DOE program to develop advanced compression 
systems used in the capture and sequestration of CO2. This 
effort is in direct support of the president's plan to cost 
effectively meet financial and policy goals, including the 
avoidance, reduction, or sequestration of anthropogenic 
emissions of greenhouse gases.
    Agilis has provided over $10 million of engineering support 
to develop and implement advanced catalytic combustion and low 
emission systems. Agilis has also supported development of 
turbine engine designs for advanced helium-cooled small modular 
nuclear reactors powered by stored nuclear waste material. Our 
customers published research suggest that there is enough 
degraded nuclear waste stored in the United States today to 
fully meet our domestic energy needs once this technology has 
been fully developed and implemented. If additional DOE and 
customer internal funding is made available to continue this 
development, Agilis and other small businesses will directly 
benefit.
    Many of these clean energy technologies and energy 
efficiency programs are ongoing development efforts that will 
provide future contracts and work for Agilis. Agilis does not 
receive these projects directly from government agencies. We 
receive our business contracts and engineering projects from 
the turbine engine companies. However, the majority of these 
programs have been driven by specific government initiatives 
that are aligned with the needs and goals of private industry. 
In support of these programs, Agilis has been able to grow and 
hire 23 full-time engineers in 2013, of which 15 have been 
recent college graduates. These clean energy initiatives create 
high-paying jobs for small businesses.
    Now, as we try to understand the implications of the 
climate action plan and its impact, we believe there are 
several related topics and issues that must be addressed by 
this Committee for the Climate Action Plan to have a positive 
impact. These topics include stronger encouragement for the 
prime government contractors to flow work to small businesses, 
keeping high-skilled, high-value engineering jobs on shore; 
meaningful tax incentives for small businesses to grow; 
controlling the insurance cost burdens that small businesses 
bear, and consistency in funding subsidies and government 
research and development initiatives. Small businesses are 
often the first impacted when budgets are in doubt. Small 
businesses struggle to find the financial stability to weather 
through the uncertainties of funding delays, sequestrations, 
and continuing resolutions.
    Mr. Chairman and Ranking Member, thank you again for 
allowing me the opportunity to testify today. I hope I have 
helped you further understand how the Climate Action Plan could 
impact small business.
    Chairman TIPTON. Thank you, Mr. Gardner. And I would like 
to thank all of our panel for testifying. It is my 
understanding that the ranking member has another obligation 
shortly and so I will yield to him to start our questioning.
    Mr. MURPHY. Thank you, Mr. Chairman. I appreciate that.
    Thank you all for your testimony. I appreciate your time.
    Mr. Gardner, your company is an example of how a shift 
toward cleaner energy can result in business opportunities and 
job growth. Without federal leadership in this area of clean 
energy, how successful, in your opinion, would Agilis be today?
    Mr. GARDNER. Right now, about 40 percent of our business 
comes as a sub-supplier for government contracts. Our customers 
are in a very competitive industry. They sell gas turbines for 
flight and industrial power. There will be competition. They 
will spend internal research and development money, but the 
initiatives that the government has put forth are giving them 
goals and things that they need to achieve through new levels, 
and for us that means research and development. It means the 
effort required, the scientific technology and research 
required to go and find how practically and cost effectively to 
make the changes to those engines so that you do get cleaner 
natural gas burn or you do find ways to make power in a 
different way from residual heat in other areas.
    Mr. MURPHY. So you mentioned about 40 percent of your work 
is government-related. Are you seeing an increase from the 
private and demand from the private sector?
    Mr. GARDNER. In some degrees, yes; but, as a small 
business, the private sector is more directly related to the 
timing of how the economy does. As a small business there is a 
delay, and so as the economy improves--and it is sluggish right 
now--as the economy improves what we see is a delay in getting 
contracts. As there is still uncertainty, these companies are 
unwilling to spend a lot of their own money until they know 
that they can continue to make a profit.
    Mr. MURPHY. How impotent do you feel a consistent stream of 
government funding is to the advancement of some of these 
technologies? And part two of that is I read a study recently. 
I verified to myself that China is, in fact, investing about 
three times as much in renewable energy as we are. Can you 
comment on both of those?
    Mr. GARDNER. Well, for us the consistency is important in 
hiring because as a small business the margins are small. And 
we are affected greatly by the utilization of our employees. We 
have to keep them busy. So as things are consistent and these 
programs are funded long term and you do spend multiple years 
with a wind subsidy or with some other subsidy for clean coal, 
then that work can trickle down to a small business, and those 
prime contractors feel more confident in giving the work or 
investing their own money in that research and development. 
When things are in a stop and start mode, what happens is that 
work stays at the prime contractors and I never get to see it.
    Mr. MURPHY. Thank you.
    Mr. Brown, you commented, and I agree, the importance of 
manufacturing in our economy and in your business metal 
castings, the importance of that, how have you seen your 
business change with the increased demand or supply of greener 
energy technologies, whether it is geo thermal, wind, solar, 
etcetera? Has that increased your business investing?
    Mr. BROWN. Well, for some foundries that produce, for that 
industry, yes, for those castings. But where we are located, 
solar and wind is not really--northern Indiana--is not viable 
for us. One of the things that we are seeing is from our 
customers where we have an energy surcharge. And as our 
electric rates go up, so does the price of our castings. So 
they go to states that have manufacturers or can get castings 
that do not have such a high energy surcharge, so we are 
saying--we are being--I do not want to say punished, but we are 
losing work because of that.
    Mr. MURPHY. I would imagine in your business it is a pretty 
energy-intensive production to produce these castings. Have you 
done anything internally within your company to perhaps make it 
more efficient with energy costs?
    Mr. BROWN. Right. We spent about $500,000 last year on 
energy-efficient new technologies, and also, we work with our 
town. But one of the things that we are, we can only melt 
between 6 p.m. and 6 a.m. And if we go above those time periods 
we get fined essentially about $15,000 for the rest of the 
month because of how much electricity that we do use. It is 
about 40 percent of our costs, so it does hurt us.
    Mr. MURPHY. Thank you.
    Mr. Kezar, the president is proposing to phase out tax 
provisions that benefit fossil fuels. How would this affect 
your cooperative and its consumers?
    Mr. KEZAR. Phasing out tax benefits for fossil fuels would 
not affect us at all.
    Mr. MURPHY. It would not?
    Mr. KEZAR. No.
    Mr. MURPHY. Okay.
    And Professor, you state in your testimony that CO2 
emissions are lower than they were 20 years ago. Do you feel 
that this is enough, we have gone far enough? Should we stop 
here? Or do you think we should continue to look at perhaps 
other ways. You mentioned fossil fuels, LNG. While I support 
that as a transition fuel, do you think renewables are 
ultimately where we should end up?
    Mr. WEINSTEIN. First, can I make a correction? I misspoke. 
At least I think I misspoke when I said the nation`s 
unemployment rate was 9.6 percent; it is 7.6 percent.
    Chairman TIPTON. We knew what you meant.
    Mr. WEINSTEIN. I want to correct that for the record.
    It is a very broad question. We have made significant 
progress in reducing GHG, mainly in response to market forces, 
as well as regulatory mandates. We know the air is cleaner 
today than it has been in a long, long time. From a global 
perspective, one could argue that we have done more than our 
fair share but I do not have any philosophical opposition to 
doing more. I just think whenever we talk about addressing 
climate change we need to look at the costs versus the 
benefits. Renewables have a role to play. I do not believe we 
can run our economy solely with a combination of efficiency and 
conservation and renewable. We are going to need base-load 
power in the future.
    Now, I saw something yesterday. I think it was an article 
in the New York Times or the Wall Street Journal about advances 
in battery-stored technology. I do not have any problems using 
some of my tax dollars to underwrite that type of research 
because ultimately, renewables are only going to make sense if 
we can develop that battery storage technology. But it is 
probably not going to be in my lifetime, and maybe not in your 
lifetime where we get to the point where we can store thousands 
of megawatts during the day and use them at night.
    So I am for an ``all of the above'' energy policy, but when 
Mr. Obama talks about all of the above, he may have a different 
vision than when I talk about all of the above.
    Mr. MURPHY. Okay, good.
    Well, thank you all for your testimony. I appreciate your 
time. And Chairman, thank you for holding this hearing. Thank 
you.
    Chairman TIPTON. Thank you. I now recognize Mr. Luetkemeyer 
for his questions.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman.
    I just have a comment before we get started here with 
regards to the EPA not showing up today. I am very sorry that 
did not happen. I think their lack of attendance shows a lack 
of respect for this Committee and the process that we, as 
congressmen, and as this Congress have for oversight. I also 
think it disrespects our panel who they need to hear from. If 
they are going to promulgate rules and impact your lives and 
your businesses, they need to hear from your side so that they 
have a better understanding of what their rules have as far as 
consequences. So I am very disappointed.
    With that being said, that is not unusual with that group. 
They do not want to listen to anything that happens in the 
private sector. They have their own mindset and off they go.
    Mr. Kezar, thank you for coming today. Quickly, you live in 
a state that is expanding dramatically, economically, and 
obviously there is going to be tremendous increased energy 
needs. How do you anticipate meeting those energy needs with 
this kind of restriction unable to expand with coal-fired 
plant? Are you going to continue to do this or are you going to 
build a natural gas plant next to the other one? What's your 
plan?
    Mr. KEZAR. That is a broad question, so let me deal with 
maybe the first part a little differently.
    As you are probably aware, the state of Texas is dealing 
right now with issues regarding the increased demand for energy 
within the state. As you know, ERCOT has an energy-only market, 
which does not necessarily tend to incent new construction of 
generation facilities. So the state right now has been 
grappling both at the legislative level and within the 
Reliability Council on how to incent new generation. And it is 
an uncertain market right now. I will just put it that way.
    From our perspective, it is very difficult to envision the 
construction of a gas-fired power plant where we are located. 
The plant is situated at the mine. We are where we are because 
that is where the fuel source is, and we are physically 
dislocated from the major load demand requirements of our two 
customers. And so a gas-fired plant would be more likely built 
closer to those higher load demand centers then at the mine 
location itself.
    Mr. LUETKEMEYER. What do you anticipate your increased 
costs to be to be able to comply with the EPA new regs and 
rules in order to be able to expand and meet your customers' 
needs?
    Mr. KEZAR. Are you speaking about the greenhouse gas 
regulations?
    Mr. LUETKEMEYER. Yeah.
    Mr. KEZAR. Well, if the requirement for existing facilities 
mirrors the requirements that were contained in the new source 
proposed rule--and that is the rule that was proposed in April 
of 2012--we could not meet those requirements. There is not 
technology commercially available that would allow us to meet 
the emissions requirements that were contained within that 
proposal.
    Mr. LUETKEMEYER. That is a great point. I appreciate you 
bringing that out.
    Mr. Brown, in your testimony you said that 40 percent of 
the cost to production recasting is energy. I have a company in 
my district actually who got the number one award for the 
casting of the year last year, and so I have toured their 
plant. I know what you do. I appreciate what you do.
    I did some quick calculations here, and if we--becuase of 
where you live--my state is very similar to yours. About 85 
percent of the energy that we get is produced from coal, so I 
would assume that I think the testimony said anywhere from 30 
to 80 percent of the increased cost is the result of going to 
something else. If you had to go to natural gas it would raise 
your cost of operation roughly 14 percent f4om 40 percent--
excuse me, your energy costs would go from 40 percent to 54 
percent of your total budget. You do not have to tell me how 
much money you make, but what is your spread? Is it less than 
14 percent?
    Mr. KEZAR. It is definitely less than 14 percent.
    Mr. LUETKEMEYER. So in other words you are going to go out 
of business if you cannot raise the cost of the production of 
your product to be able to put a margin back in there to cover 
not only the cost of the electricity but also something that 
you can go to the bank with and keep everybody----
    Mr. KEZAR. And that is 100 percent true. I mean, we have to 
have a higher margin to be able to invest in future growth and 
better electric and everything else. And being a small 
business, we do have small margins.
    Mr. LUETKEMEYER. I am running out of time here so Dr. 
Weinstein, thank you for your comments as well. Can you tell me 
what the price of natural gas would have to get down to to be 
able to compete with coal so that we would not experience an 
increased cost for electric production, energy production?
    Mr. WEINSTEIN. Well, as you probably know, natural gas 
prices have fallen quite a bit in recent years.
    Mr. LUETKEMEYER. Can you turn your microphone on, please?
    Mr. WEINSTEIN. I am sorry. Natural gas prices have fallen 
considerably in recent years and they are now below $4 in MCF. 
When you get down to the $3 range, gas becomes very competitive 
with coal. I do not think we are going to get back down to $3, 
assuming the economy starts to grow, assuming we can get into 
the business of exporting LNG as I indicated earlier, that is 
going to increase demand and push up prices. So I do not think 
gas is likely to get down to the point where it is going to be 
competitive with coal. There are other advantages obviously 
that gas has, and certainly, we have an abundance of gas, but 
all of the prognosticators that I look at see gas prices 
getting back up to the $5 to $7 range, which is kind of an okay 
place. It is good for producers. It does not really hurt 
consumers. Gas prices tend to be more volatile, a lot more 
volatile than coal prices. That is one of the downsides of 
relying on natural gas. So it is really hard to say but I think 
coal will continue to be the cheapest power source for a long, 
long time.
    Mr. LUETKEMEYER. Thank you. My time is up. I yield back.
    Chairman TIPTON. Thank you for your questions.
    Mr. Kezar, I would like to ask you, have you calculated out 
should the president's initiative and the EPA's rules go into 
effect, how much will that increase the cost for your consumers 
in terms of the monthly bill? Have you been able to calculate 
that?
    Mr. KEZAR. We have estimated that the cost of being forced 
to install--and assuming the carbon capture storage equipment 
were available--which as I have indicated it is not 
commercially available today--but based upon the best estimates 
available and the amount of additional parasitic load that is 
taken away from power that would otherwise go to customers to 
power this additional equipment that is required to capture and 
sequester that CO2, the price of power could effectively 
double.
    Chairman TIPTON. Could effectively double.
    Mr. KEZAR. Yes.
    Chairman TIPTON. Texas is a pretty popular state right now 
and a prosperous state right now.
    Mr. KEZAR. Yes, sir.
    Chairman TIPTON. Would senior citizens, maybe on fixed 
incomes, some young families that find the doubling of their 
power costs difficult to be able to accommodate for their 
family budget?
    Mr. KEZAR. Absolutely.
    Chairman TIPTON. Where are they going to go to get that 
additional money?
    Mr. KEZAR. That is a good question.
    Chairman TIPTON. Maybe we ought to ask the EPA and the 
president where they are supposed to get the money to be able 
to pay the bill. Would you view this basically as taxation via 
regulation?
    Mr. KEZAR. I am probably not the best person to ask that 
question. I am a power plant guy. What I know is that the 
regulations are driving up the cost of producing power.
    Chairman TIPTON. Mr. Brown, you are in business. You are 
working. Is this taxation via regulation?
    Mr. BROWN. It could be looked at that way. Yes. But we are 
not going to be able to afford to pay those taxes.
    Chairman TIPTON. But you are not going to be able to afford 
it. I think Mr. Luektemeyer's point in terms of going up to 54 
percent of your overall costs and that expands your margins. 
Where are your people going to get a job if we have 
relinquished those to people overseas?
    Mr. BROWN. They are not going to.
    Chairman TIPTON. They are not going to be able to do that. 
We have got a 7.6 percent unemployment right now, Professor, 
and you and I both know that is probably not an accurate 
figure; that it is actually much higher when we look at people 
that are underemployed; people that have simply given up 
looking for work. And I see Mr. Gardner nodding his head in 
agreement with that. What is the impact? We are talking about 
businesses. Businesses employ people. Is this a way to move 
forward or are there more sensible approaches?
    Mr. GARDNER. Well, look at it this way. Energy really 
drives the economy. There is a pretty close relationship 
between economic growth and energy consumption. It is about 
0.3. In other words, for every 1 percent increase in GDP 
growth, you need a third of a percent increase in energy 
production.
    What has bothered me in recent years is the fact that 
America is rich, the fact that we are abundant in energy, the 
fact that we have cheap energy is somehow a bad thing. And in 
fact, the availability of abundant and cheap energy is the 
basis of our international competitiveness. So why do we 
constantly talk about policies that are going to drive up the 
cost of energy when those costs, it seems to me, are going to 
far exceed any benefits in terms of environmental quality. So 
if we want to continue growing this economy, we need adequate 
supplies of cheap and abundant energy.
    And this is not the forum for me to get on my soapbox, but 
why do we behave as though we are an energy-poor nation when we 
are an energy-rich nation? I mean, we export a lot of coal. We 
should be exporting natural gas. We should be exporting oil. 
But there is a mindset, particularly in Washington, that we 
have got to husband these resources.
    So it seems to me someone who has spent most of his 
professional life focusing on economic growth and policies to 
encourage economic growth, that we have before us in terms that 
have not been spelled out with this climate action policy, 
regulation policies that are going to retard economic growth, 
not stimulate it.
    Chairman TIPTON. So would it be a fair assessment--Mr. 
Gardner commented about a sluggish economy right now--to have 
an American policy rather than the EPA and the White House, as 
opposed to going through Congress to actually develop American 
energy on American soil, to be able to put Americans back to 
work, to make us competitive in the world and actually make us 
prosperous. Is that maybe a good idea?
    Mr. WEINSTEIN. Well, absolutely. I am not opposed to green 
energy. I remember during the campaign, President Obama was 
saying that on his watch, 85,000 jobs had been created in clean 
energy. What he did not mention was that 500,000 jobs had been 
created in the oil and gas industry with no new federal 
incentives.
    Chairman TIPTON. There we go.
    Mr. WEINSTEIN. But we do not acknowledge that. We do not 
acknowledge the fact that we are the richest nation in the 
world when it comes to energy. We have produced more coal. We 
produce more nuclear. We produce more renewable energy, and we 
are number two in oil.
    Chairman TIPTON. I would like you to maybe speak just a 
little bit, Doctor, if you would, about the reliability on the 
electrical grid. As you noted, we do not have the technology 
right now to be able to store energy that is generated. I have 
a piece of legislation calling for all of the above solutions. 
But we have got to make sure that we can deliver that base load 
so that Mr. Brown can do his casting and Mr. Kezar is going to 
be able to deliver to his consumers as well. Can you talk just 
a little bit about----
    Mr. WEINSTEIN. Well, understand I am an economist; I am not 
a technical person. But when it comes to reliability on the 
power grid there are two issues. One is the physical capability 
to move electrons around the country, and then two is having 
adequate generating capacity to meet peak demand. And my 
concern with these GHG regulations is that they will limit, 
they will take additional units off stream and that could occur 
in a timeframe when alternatives are not available and then we 
have to deal with reliability in terms of just having enough 
electrons on the grid.
    Chairman TIPTON. Just a final question for you, Doctor. The 
Regulatory Flexibility Act is a federal statute, and it does 
obligate agencies to consider alternative regulatory approaches 
if the rule has a substantial economic impact on a significant 
number of small entities, and we have heard about those this 
morning. How would you rate the EPA's compliance with the 
statute?
    Mr. WEINSTEIN. I think the EPA is pretty much ignoring the 
statute.
    Chairman TIPTON. Just ignoring it. Like they ignored this 
hearing.
    Mr. Brown, a number of experts have credited lower and 
stable domestic energy prices for helping contribute to 
domestic energy manufacturing rebound. How important are stable 
energy prices for your business?
    Mr. BROWN. Well, our customers would love that; that way 
they could know what their products are going to cost, and when 
they do fluctuate, so does the price of those materials. And to 
get their materials. So having a constant price would be 
wonderful for everybody. And knowing what we could charge you 
over here. We can only go to our customers so many times for 
price increases, and when the energy fluctuates so much in 
price, that changes the price of that product.
    Chairman TIPTON. Thank you.
    Mr. Kezar, the EPA has recently sent a draft of new NSPS 
emission regulations to the White House for review, and it did 
not consult small business. Has this been the agency's pattern 
for an extended period of time on other rules that affect small 
power producers?
    Mr. KEZAR. That has been my experience recently. Yes, sir.
    Chairman TIPTON. Never bothered to consult you or to be 
able to seek your input?
    Mr. KEZAR. No, sir.
    Chairman TIPTON. The Clean Air Act stipulates that the EPA 
can determine that it is not technologically feasible or cost 
effective to establish a standard of performance for certain 
types of emissions from certain facilities. Mr. Kezar, in your 
view does this apply to greenhouse gas emissions from coal-
fired power facilities?
    Mr. KEZAR. Well, the problem, Mr. Chairman, is what EPA 
effectively did is combined all fossil fuel-fired sources into 
one category and then set an emissions limit that was based 
upon emissions from a natural gas combined cycle unit and 
applied those to all fossil-fuel fired plants. And that is just 
not a feasible thing to do. There was no sub-categorization 
whatsoever.
    Chairman TIPTON. So is the EPA required to establish a 
standard that they know is too costly?
    Mr. KEZAR. No, sir.
    Chairman TIPTON. They are not?
    Mr. KEZAR. No, sir.
    Chairman TIPTON. We have got some real challenges.
    Mr. Luetkemeyer, do you have any further questions?
    Mr. LUETKEMEYER. Sure. This is a great panel. I have lots 
of questions over here.
    Mr. Kezar, with EPA's new standards, the technological 
cannot even be reached, how are you going to do that? How do 
you anticipate being able to comply?
    Mr. KEZAR. As I mentioned earlier, we cannot comply. The 
EPA essentially established a rate. It is not a gross amount of 
tons of CO2 that can be omitted; it is a rate that is applied 
per megawatt of production. So even reducing output from the 
facility does not achieve the standard. Unless there is a 
technology that is commercially available that can be applied, 
we have really no hope of meeting it and continuing to consume 
the fuel that we mine at the plant.
    Mr. LUETKEMEYER. So what is your alternative then? Shut 
down?
    Mr. KEZAR. That is right.
    Mr. LUETKEMEYER. So effectively, at some point in the near 
future, you will shut the plant?
    Mr. KEZAR. If the final regulations that are applied to 
existing facilities mirror the ones that were proposed in April 
of 2012, I do not see any other alternative.
    Mr. LUETKEMEYER. Have you discussed with them some sort of 
waiver or some sort of extension of any kind?
    Mr. KEZAR. No, sir. The rules for existing facilities have 
not yet been proposed.
    Mr. LUETKEMEYER. Okay.
    Mr. KEZAR. We are waiting to see those.
    Mr. LUETKEMEYER. How many other plants around the country 
are in your position?
    Mr. KEZAR. There are a lot of coal-fired plants.
    Mr. LUETKEMEYER. Do you have a percentage roughly?
    Mr. KEZAR. There are, well, I think we heard earlier that 
in excess of 40 percent of the power produced in this country 
comes from coal-fired facilities. There are on coal-fired 
facilities that can meet the EPA standard as it was proposed.
    Mr. LUETKEMEYER. So we are going to have to replace 40 
percent of our electrical production, energy production here 
shortly?
    Mr. KEZAR. Unless some commercially available technology--
--
    Mr. LUETKEMEYER. Unless the great FEAT EPA folk decide to 
do something different.
    Mr. KEZAR. Yes.
    Mr. LUETKEMEYER. Amazing.
    Mr. Gardner, I am just kind of curious. Do you export any 
of your product at all?
    Mr. GARDNER. Mostly what we provide is engineering 
services.
    Mr. LUETKEMEYER. New services? Okay.
    Mr. GARDNER. We do have a small portion of our business 
that does software for engine health monitoring that we do 
export. We have international customers in Europe, and we do 
engineering work for them, so we have been able to bring large 
contracts from Europe into the United States to work those, so 
we have done that. But primarily, our customers are the engine 
companies here in the United States.
    Mr. LUETKEMEYER. Now, you mentioned small nuclear reactors 
a while ago.
    Mr. GARDNER. Yes.
    Mr. LUETKEMEYER. And that really piqued my interest because 
I have got a nuclear plant in my district and they are 
competing for a small nuclear reactor grant to be able to 
develop and work with the government and work with some other 
folks. There are three or four companies that are doing this--
you are probably more aware of it than I am--to try and come up 
with ways and to use the spent fuel to go back and recycle it 
and actually get rid of the stuff and actually be a positive 
force. Can you explain a little about that? Are you familiar 
with the process? Can you enlighten us all a little bit?
    Mr. GARDNER. I can tell you a little bit about it. I do not 
want to get into the particular customers' intellectual 
property. But there is an enormous amount of spent military 
nuclear fuel which only loses a small portion of its heat and 
effectiveness before it is not of a military grade anymore, and 
that is stored across the United States. The calculations for 
that is that the heat coming off of it now that the storage 
facilities have to dissipate and get rid of is an enormous 
amount that could be turned into effective electrical energy. 
And so these small modular nuclear reactors, at least this one 
particular idea, is to go take that and case it safely in a way 
that is as safe as it is being stored now and then use that 
heat to power turbine equipment to produce power. And that can 
be done very effectively. It requires a different cooling 
medium and it does require some research to do it, but when it 
is done you can then go put that in the ground for 30 years 
with the existing fuel and have it produce power.
    Mr. LUETKEMEYER. You said there is a new cooling medium 
that would be required. What would that be?
    Mr. GARDNER. Helium is the one that this customer is 
proposing.
    Mr. LUETKEMEYER. Okay. Right now it is water; right?
    Mr. GARDNER. I am not really familiar with all the other 
processes. The helium is something now that is a gas though 
that you can actually run through a gas turbine engine. You can 
use that instead of air.
    Mr. LUETKEMEYER. Very good.
    Professor Weinstein, I wish you would really speak up and 
tell us what you really think. I appreciate your passion this 
morning, I appreciate your comments. They have been very 
insightful and from your standpoint as an economist, I am sure 
you would like to see some cost benefit analysis done on all 
the proposed rules each time; that way we would know how much 
it is going to cost our economy and our people with regards to 
jobs and the lack of a competitiveness for Mr. Brown and Mr. 
Gardner here to be able to sell their products. So I certainly 
appreciate your testimony this morning, all of you as well.
    So with that I will yield back and thank the chairman or 
the Committee for the hearing this morning. And again, bemoan 
the fact that we do not have EPA here to listen to the fine 
testimony of these gentlemen to be able to understand the 
unintended consequences of what their rules do to their 
businesses, their way of life, and people in this country's way 
of life. Thank you very much.
    Chairman TIPTON. I would like to thank my colleague for the 
questions. And I had just a couple more, if I may.
    Dr. Weinstein, in an effort to be able to justify recent 
regulatory activity, the EPA has been citing the social cost of 
greenhouse gas emissions. As an economist, could you testify to 
any flaws in the EPA's methodology for estimating these costs?
    Mr. WEINSTEIN. I have not examined the EPA's technology. I 
know that they magically increased the coal costs of carbon 
from $21 a metric ton to $35 a metric ton.
    Now, I do not know what----
    Chairman TIPTON. Do you know what you used for the basis on 
that?
    Mr. WEINSTEIN. I really have not investigated that. But 
social cost is kind of a squishy concept, and economists like 
things that we can really put our arms around and measure. And 
my concern with social costs, it is not so much the theoretical 
issue; it is a measurement issue and how do we really get our 
hands around what they would call the negative impacts of 
carbon emissions and quantify? I have not examined their 
methodology. I know that just yesterday there was I think the 
U.S. Chamber held a seminar on the social costs of carbon. 
Everybody is kind of looking into it but I think we were all 
surprised a week or two ago when all of a sudden that cost 
increased from $21 to $35 and nobody seems to know why.
    Chairman TIPTON. Well, you might want to hang around for 
our next panel and the EPA will--oh, that is right. They did 
not bother to show up so we will not actually get an answer 
from them.
    I think you have pretty much identified this cannot be 
accurately quantified.
    Mr. WEINSTEIN. Yes.
    Chairman TIPTON. That the EPA is grasping for straws in the 
wind to be able to justify an agenda which may or may not make 
sense but we do not know because they will not bother to sit 
down and actually discuss----
    Mr. WEINSTEIN. Well, I do not want to impugn any of the 
professional staff at the EPA. Maybe they have good analytical 
reasons for increasing that number from 21 to 35. It is just 
that right now we do not know what those reasons are.
    Chairman TIPTON. Right. And it might be helpful if they 
actually----
    Mr. WEINSTEIN. And the problem is, as you suggest--and 
again, I am not--I do not want to impugn the staff at EPA, are 
they fudging the numbers to get the costs and benefits to 
somehow balance out? And again, I do not know.
    Chairman TIPTON. You know, Mr. Brown, it caught my eye. I 
am a small businessman. We are a large power user in our local 
area through our REA. And you have been pursuing demand 
efficiency or it has been imposed on you because you are only 
able to actually produce over a 12-hour period. Is increasing 
demand efficiency, in your opinion, is that a viable greenhouse 
reduction strategy to be pursuing?
    Mr. BROWN. Yes. Yes, I do believe it is.
    Part of the problem is that operating with the amount of 
energy that we need, the technology to produce what the EPA is 
talking about and everything else and the electric company is 
coming back and talking to us, they do not know what the cost 
is going to be. They are telling us our electric rates could go 
up as high, as much as 100 more percent because we are coal-
fired. And I do not know what is going to happen then.
    Chairman TIPTON. So you are willing to comply to do your 
part; you just do not need to be further punished when you are 
trying to create jobs and produce a product?
    Mr. BROWN. We always try to do our part under regulation, 
but the thing is when the demands on waste or whatever it might 
be are more stringent than what even possibly can be contained 
either by technology or whatever, the technology is just not 
even there.
    Chairman TIPTON. Well, thanks.
    Mr. Gardner, you had noted in your business that you rely 
on government investment I guess, if you will, and I am sure we 
probably share this--correct me if I am wrong--but you are 
probably concerned as all of us are about a $17 trillion debt 
in this nation. And if we are looking at that in terms of 
investment, it is really best if we get the economy going, is 
it not, and we start to actually, rather than punishing 
businesses and increasing their costs, let us get the American 
economy moving once again and create jobs?
    Mr. GARDNER. Well, I think that is true. I mean, I have 
four children. I do not want to give them a crushing debt as a 
legacy from me. At the same time, I do not want to give them an 
environment that is not sustainable. I cannot speak to all of 
the things in the president's budget, but I do think there 
needs to be a hard look to look at the priorities of that 
budget to determine where the important areas are that we need 
to invest money and where are the areas in which industries 
that have been receiving subsidies for decades, that it is time 
that they stand on their own feet and move on and where the 
other areas need to be invested. I mean, there is wasteful 
spending, but there are also areas that are not getting the 
funding that they need. And if we want to do renewables, if we 
want to do these things, a lot of what I have heard here so far 
has been we do not know if it is going to be ready. We do not 
know if it is going to be ready. Well, I can tell you from our 
perspective, we spend a lot of time in start and stop modes 
with those projects whether they are internally funded by our 
customers or whether the government subsidies, government 
grants, government contracts, because they go on for a time, 
they make a little progress, and then they wait and they fret 
and they argue. And so if we are going to get on renewables, we 
need to go set a path and get on with those so that we have the 
ability to make that choice whenever it is time to go look at 
these. It is hard because companies like Mr. Brown's, we buy 
product from those companies and we see that direct impact, it 
happens to them. So I do fully appreciate the position he is 
coming from. If it costs him more, it is going to cost me more 
to go buy a product from him. So we understand that as well. I 
think it all needs to be balanced.
    Chairman TIPTON. Thank you so much.
    We certainly want to be respectful of your time and would 
like to thank all of our witnesses for taking the time to come 
before this Committee today. You all provided valuable insight 
into how the government's actions in Washington affect real 
people, affect small businesses in the real economy that we are 
all struggling with right now.
    It is unfortunate, again, that officials from the EPA chose 
not to testify at today's hearing. If they had, I am sure that 
they would better understand the importance of involving small 
businesses early in the rule-making process, and this would 
benefit not only small businesses but I believe the EPA as 
well.
    As a Committee, we have examined this a number of time. The 
present and future prosperity of our economy and the viability 
of small businesses in the global marketplace are truly 
dependant on access to secure and affordable energy sources. 
That has been a great key to the American success story as I am 
sure Dr. Weinstein can attest to.
    For far too long, policymakers in Washington have acted as 
if the United States is an energy resource foreign nation as 
you noted, sir, when that is far from the case. Resources, like 
coal--coal in my district--are important sources of energy and 
feedstock for small businesses in rural communities throughout 
much of the Midwest and our mountain states. While many in 
Washington pay lip service to the importance of developing an 
all-inclusive, ``all of the above'' energy strategy, proposed 
regulations such as those outlined in the president's Climate 
Action Plan will undermine our goal of energy independence and 
weaken our already fragile economy. Should the Obama 
administration continue what many of us see as a war on coal, 
small businesses and the people who you are providing a service 
to--senior citizens and young families on fixed incomes--will 
be the first casualties.
    I ask unanimous consent that members and the public have 
five legislative days to insert statements and extraneous 
material for the record. Hearing no objection, so ordered.
    The Committee is now adjourned. Thank you again, gentlemen, 
for being here.
    [Whereupon, at 11:12 a.m., the Subcommittee was adjourned.]
                            A P P E N D I X


            Written Testimony Submitted by Mr. Michael Kezar


                            General Manager


                 San Miguel Electric Cooperative, Inc.


                     U.S. House of Representatives


                      Committee on Small Business


             Subcommittee on Agriculture, Energy and Trade


                                Hearing:


   The President's Climate Action Plan: What Is the Impact on Small 
                               Business?


                             July 18, 2013

    Good morning. My name is Mike Kezar, and I serve as the 
General Manager of San Miguel Electric Cooperative, Inc. I 
appreciate the invitation to appear before the subcommittee 
today to discuss the potential impact that regulating carbon 
dioxide emissions under New Source Performance Standards (NSPS) 
provisions of the Clean Air Act could have on San Miguel and 
its 26 member cooperatives.

    San Miguel is a Rural Electric Cooperative Corporation 
organized for the sole purpose of owning and operating a mine-
mouth, lignite-fired generating plant and associated mining 
facilities in Atascosa County, approximately 60 miles south of 
San Antonio, Texas. Power produced from the San Miguel facility 
is furnished exclusively to Brazos Electric Power Cooperative, 
headquartered in Waco and South Texas Electric Cooperative, 
headquartered in Nursery. Through the 24 retail distribution 
cooperatives they serve, power from San Miguel flows to rural 
electric cooperative members throughout the state of Texas. As 
a not-for-profit cooperative, San Miguel does not have 
shareholders and the total cost of owning and operating the 
plant, including any compliance costs associated with the 
regulation of CO2 emissions, will be borne directly 
by the cooperative consumer/members served by Brazos and South 
Texas Electric Cooperatives. Additionally, San Miguel's annual 
sales of electricity total less than 3 million MWh, placing it 
will under the 4 million MWh ceiling with the Small Business 
Administration uses to classify electric utilities as small 
business entities.

    Before I address my specific concerns with NSPS regulation 
of greenhouse gases--including CO2--I want to stress 
that the Clean Air Act is not the appropriate vehicle for the 
regulation of greenhouse gas emissions for several important 
reasons. First, any meaningful effort to reduce emissions must 
necessarily involve tough economic and public policy choices 
that would significantly impact the nation as a whole. These 
are choices that must be made by the U.S. Congress, acting as 
direct representatives of the people, with the transparency and 
participation allowed through the legislative process. This 
cannot be left up to Washington bureaucratic agencies. Second, 
reducing greenhouse gas emissions in the U.S. alone will have 
no significant impact on worldwide inventories. These 
reductions, however, would likely have a notable impact on our 
nation's ability to compete in the international marketplace. 
The price of virtually all products and services would 
necessarily increase as the cost of compliance for industry, 
particularly the electric generation industry, is spread 
throughout the various economic sectors. Therefore, any 
significant effort within the U.S. to address greenhouse gas 
emissions must only be undertaken as part of an overall 
international initiative that properly balances domestic and 
international interests. The Clean Air Act is clearly not 
structured to mandate or allow the appropriate balancing of 
these interests and public policy concerns.

    Unfortunately, and despite the flaws outlined above, the 
administration has announced its intention to regulate 
greenhouse gas emissions under Section 111 of the Clean Air 
Act, and has set timetables for establishing New Source 
Performance Standards for both new and existing fossil fueled 
electric generation facilities. This means that the 
Environmental Protection Agency will have to re-propose an NSPS 
for new sources. The fact that EPA is now pursuing a different 
regulatory path is particularly important, given the fact that, 
as with the original proposal and now with the anticipated re-
proposal, there is no commercially available technology to 
significantly reduce CO2 emissions. That means there 
is no ``best demonstrated technology'' or ``best system of 
emission reduction'' as called for under Section 111 of the 
Clean Air Act that would produce meaningful reductions in 
CO2 emissions from fossil fueled electric generation 
facilities.

    Nonetheless, EPA appears intent on regulating fossil fueled 
electric generation under Section 111 by re-proposing a rule 
directed at new sources, followed by guidelines for states to 
follow in regulating existing sources. The regulation of 
existing sources is required by Section 111, after NSPS for new 
sources is established. The cost impacts of these regulations, 
particularly on new and existing coal-fired generation, and 
especially on small business entities such as San Miguel, could 
be catastrophic.

    EPA's NSPS CO2 standards for new coal-fired 
generation were initially proposed in April 2012. This proposal 
is to be withdrawn, with the President requesting a new 
proposal no later than September 20, 2013. Any new proposal, 
however, should not include the same technical and legal flaws 
as the April 2012 proposal. One of the primary flaws was the 
combination of coal-fired and natural-gas fired electric 
generation facilities into a single regulated category for the 
purposes of the rule and then establishing one emissions limit 
for that entire category. This combination of various types of 
generation facilities into one-large source category is 
unprecedented for this type of rule. Coal-fired and natural-gas 
fired electric generation units are very different, and 
combining them makes no practical sense, flies in the face of 
decades of EPA Clean Air Act precedent, and likely violates the 
Clean Air Act's requirements regarding subcategorization of 
different types of source categories.

    Unfortunately, due to a language quirk in Section 111 of 
the Clean Air Act, any unit constructed or modified after the 
proposal of the rule must comply with standards applicable to 
new units. This short-circuits a common sense approach to 
regulating facilities only after considering public comment on 
the proposal. The April 2012 proposal did allow 
``transitional'' sources, essentially those close to beginning 
construction, a one year transitional period to begin 
construction without meeting the proposal CO2 
standards. However for generation sources not that far along in 
the planning process, the proposal mandated one emission 
standard--based upon natural gas-fired generation--for all new 
sources, including coal-fired generation facilities. EPA 
admitted that new coal-fired generation was incapable of 
meeting that standard, and the proposal allowed potential new 
units the option of meeting an interim standard, coupled with 
required Carbon Capture and Storage, or CCS, utilization to be 
applied in the future. The technical and economic uncertainties 
inherent in constructing new coal-fired generation with the 
absolute mandate to install in the future a technology that is 
not currently commercially available has the effect of ensuring 
that no new coal-fired generation facility will be built, at 
least within the foreseeable future. Furthermore, since the 
requirements were contained in a proposed regulation, they were 
not subject to a court challenge. Stop and think about that. 
Practically speaking, you cannot build a power plant in the 
United States of America using coal--the one fuel that we have 
more of than any other nation. The one fuel that mine-mouth 
facilities like San Miguel know will not be subject to price 
volatility and we are going to take that off the table. I 
cannot think of another point in history that any nation has 
ever done something so clearly against its economic and 
national security interests.

    Section 111 of the Clean Air Act requires that cost be 
taken into account when developing NSPS for both new and 
existing units. While I fully support the development of 
technologies that would cost effectively reduce CO2 
emissions from coal-fired generation facilities, presently no 
such technology is commercially available. Carbon Capture and 
Storage may be technically possible but its practical and 
economic viability is very uncertain. Deployment of CCS 
technology would effectively double the cost of power produced 
by coal-fired electric generation facilities and there is no 
evidence that this technology will become commercially 
available anytime in the near future. If EPA were to make CCS 
applicable to the San Miguel unit, now or in the future, the 
unit would likely have to cease operation due to this doubling 
of power costs. This technology clearly does not meet the NSPS 
mandate for cost consideration.

    Since there are no commercially available technologies that 
can produce meaningful reductions in CO2 emissions 
and satisfy Section 111 NSPS cost viability requirements for 
coal-fired generation, EPA may well formulate NSPS regulatory 
policy that requires the use of natural gas in lieu of coal for 
electric power generation. Additionally, I expect EPA to 
propose that states develop guidelines that would require 
physical changes at existing units, such as the San Miguel 
unit, to gain, at best, moderate efficiency improvements, to 
thereby reduce CO2 emissions a few percent for every 
MWh of electricity produced. Although Section 111 requires that 
any NSPS be economically achievable at the unit, my concern 
here is that EPA will force guidelines on states that are 
unrealistic and couple them with, in effect, requirements for 
emissions averaging or off-sets with natural gas or renewable 
generation. While this approach may be viable for larger 
electric utilities with broader generation portfolios, it would 
not be viable for San Miguel or other small electric utilities 
whose generation is primarily coal-based.

    I want to make it clear I do not oppose flexible regulatory 
compliance options, but such options cannot substitute for the 
ability to comply cost-effectively at the individual unit 
level. Compliance cost for a single coal-fired generation 
facility small business entity must be affordable. Since 
companies like San Miguel, with only one facility, have no 
opportunities to average emissions using these concepts, this 
is simply not feasible, let alone affordable.

    Lastly, I want to address the absolute necessity that EPA 
follow the requirements of the Regulatory Flexibility Act. In 
this case, the act mandates that EPA take steps to minimize the 
economic impact that Section 111 regulations would have on 
small business entities such as San Miguel. Unfortunately, EPA 
has a poor track record recently of following its own 
guidelines regarding the formation of Small Business Regulatory 
Enforcement Fairness At (SBREFA) panels for the purpose of 
meeting the Regulatory Flexibility Act mandates.

    For example, EPA's guidelines require that small business 
representatives who participate on Small Business Regulatory 
Enforcement Fairness Act panels be given adequate background 
information on the rulemaking, as well as options to lessen the 
economic impact on small business entities of the regulatory 
program in question. However, in the last two Clean Air Act 
major rulemakings directed at fossil-fuel fired electric 
generation--the new source NSPS and the UMATS rules--EPA failed 
to provide small business representatives with any regulatory 
options, let alone allowing an opportunity for panel members to 
meaningfully comment on alternatives to lessen economic impacts 
on small businesses.

    I am especially concerned that EPA may seek to skirt a 
responsibility to minimize the regulation's impact on small 
business entities under the guise that the guidelines 
themselves do not directly affect small business but rather 
that the State Implementation Plans would. While I believe that 
small businesses should be afforded full participation as 
contemplated in the SBREFA on any potential NSPS rule, at the 
very least, EPA should conduct comprehensive consultations with 
small business electric utilities in an effort to minimize 
impacts on small entities even if such efforts are not 
conducted under the auspices of the SBREFA. In fact Executive 
Order 13563, as well as the president's June 25, 2013 
Memorandum entitled Power Sector Carbon Pollution Standards, 
clearly advocate, at the very least, that policy formulation 
not prejudice small business entities. An upfront consultation 
process involving small business entity representatives would 
be an excellent opportunity for the administration's own 
objectives to be satisfied.

    That concludes my statement. I thank the subcommittee for 
the opportunity to address these important issues. I would be 
glad to answer any questions you may have.
[GRAPHIC] [TIFF OMITTED] 81938.001

    Good Morning, Chairman Tipton, Ranking Member Murphy, and 
members of the Subcommittee, thank you for the opportunity to 
testify before you on this timely subject of The President's 
Climate Action Plan: What Is the Impact on Small Businesses?
    My name is JB Brown and I am President of Bremen Castings, 
Inc. (BCI) in Bremen, Indiana--a small town of about 5,500 
people roughly 15 minutes south of South Bend/Elkhart. As a 
small business that is energy intensive, I am very concerned 
that the regulations proposed by President Obama on the utility 
sector to force a quick reduction in carbon emissions would 
place my company and the entire U.S. foundry industry at a 
substantial disadvantage to our foreign competitors and will 
invariably raise our electricity costs. Metalcasting is one of 
our nation's oldest and most important industries. It is the 
most cost effective method to manufacture a shaped metal 
component. The process consists of pouring molten metal 
(virtually any type of metal) into a mold made of sand, metal 
or ceramic, to form geometrically complex parts.

    Today, the metalcasting industry remains critical to the 
U.S. economy, as 90 percent of all manufactured goods 
incorporate engineered castings into their makeup. Castings are 
used in cars, trucks, planes, railroads, ships, all types of 
machinery, air conditioners, refrigerators, lawn mowers, oil 
and gas field equipment, medical devices, water infrastructure, 
kitchen appliances, wind turbines, tanks, bombs, mining and 
agricultural equipment--just to name a few areas. In short, 
castings represent a vital, yet very basic, aspect of our 
everyday lives.

    I am proud to be a fourth generation Indiana metalcaster 
and president of this family-owned small business that has been 
in continuous operation for over 75 years. My great-grandfather 
founded our foundry in 1939, which was originally established 
to produce manhole covers, furnace grates, pumps, truck parts 
and natural gas parts for its customers. Growing up I spent 
many hours around the foundry and continuing my experience 
through high school and college. I have worked every job, every 
shift throughout our 155,000 square foot facility. Both my 
parents' fathers worked in this plant and today we still have 
other families that are currently in their 4th generation as 
well. More recently, my daughter, representing the fifth 
generation, has been learning the business interning in the 
foundry and machine shop every chance she gets when she is on 
break from school at Indiana University.

    After weathering a number of recessions and overcoming 
changes in the marketplace, our foundry continues to be a 
leading metalcaster producing thousands of different types of 
gray & ductile iron castings ranging in weight from .5 pounds 
to 100 pounds. Our team of over two hundred and fifty 
associates today manufactures an array of castings for heavy 
duty trucks, agricultural equipment, valves & pipe fittings, 
pump components, compressors, lawn/garden equipment, as well as 
a variety of critical parts for Humvees and Oshkosh Defense for 
the U.S. Department of Defense. BCI has been a long time 
supplier to John Deere and Case New Holland in the agriculture 
sector, as well as Eaton in the heavy truck sector. We are now 
exporting castings for agricultural equipment to Brazil, 
France, Mexico and Canada.

    Metalcasting Industry is Critical to the U.S. Economy

    By way of background, the U.S. metalcasting industry is the 
world's second-largest producer of castings, after China. Metal 
castings are truly the foundation for all other manufacturing. 
Foundries produce both simple and complex components of 
infinite variety. Castings are seldom seen or identified by 
consumers, because they are normally component parts found 
inside assemblies.

    The U.S. foundry industry is comprised of 2,000 operating 
casting facilities, with over 50 of these plants located in 
Indiana. Approximately 600 foundries produce iron and steel 
castings, while another 1,400 manufacture aluminum, brass and 
bronze castings. Metalcasting plants are found in every state 
in the nation, with the highest geographic concentration of 
facilities located in Alabama, Ohio, Pennsylvania, Indiana, 
Illinois, Michigan, California, Texas, and Wisconsin. Foundry 
locations have traditionally been sited close to raw materials, 
coal, water, and transportation. More recently, a few new 
foundries have been built in states with inexpensive 
electricity, as well as proximity to their customers.

    The American metalcasting industry provides employment to 
over 200,000 men and women directly and supports thousands of 
other jobs indirectly. The industry supports a payroll of more 
than $8 billion and sales of more than $32 billion annually. 
Our industry is dominated by small businesses, with over 80 
percent of U.S. metalcasters employing 100 workers or less. In 
fact, many are still family-owned, like BCI.

    Castings have applications in virtually every capital and 
consumer goods. Metal castings are used in cars, trucks, 
railroads, ships, all types of machinery, air conditioners, 
refrigerators, lawn mowers, medical devices, weight lifting 
equipment, oil and gas field equipment, water works, mining, 
wind energy, and agricultural equipment. The major industries 
supplied by our industry include agriculture, construction, 
mining, railroad, automotive, aerospace, communications, health 
care, defense, and national security. Cast metal products are 
integral to our economy and our way of life.

    Metalcasting Involves Energy-Intensive Processes

    Metalcasting is among the most energy-intensive industries 
in the United States. The heating and melting of metals consume 
large amounts of energy, accounting for about 55% of the total 
energy used. Mold making, core making, heat treatment and post-
cast operations use significant energy as well.

    Compared to other foundry sectors, energy costs are 
typically higher for iron foundries, such as BCI. Most iron 
casting work is done at temperatures up to 2850+ F, with 
subsequent heat treating done at up to 1900+ F. The melt 
temperature is much higher for gray and ductile iron compared 
to non-ferrous metals. In addition, our foundry utilizes two 
different types of furnaces--one called a cupola furnace that 
utilizes foundry coke to reach these high temperatures, and the 
other is an electric melt furnace. Approximately half of the 
total energy used in iron foundries with cupolas is consumed in 
these furnaces. Typically, our cupola furnaces cannot be turned 
off during the production cycle. The electric melt furnace is 
never shut down. It remains operating twenty-four hours a day--
365 days a year. Basically, 40 percent of our energy costs come 
from the cupola furnaces, while 60 percent comes from our 
electric melt furnaces.

    We are already restricted by the utilities from when we can 
run our furnaces--essentially during non-peak hours from 6:00 
p.m. to 6:00 a.m.--this basically limits us to just two work 
shifts--a night shift and morning shift. If we were to violate 
our agreement, we would be fined $15,000 for the month. It's 
already a burden to find top management and other skilled 
workers, but trying to find that same talent to work the late 
night shift is almost impossible.

    In addition, our energy-intensive operations have forced 
the foundry industry to find ways to become more energy 
efficient in order to remain competitive. The industry has made 
good progress in reducing its energy costs by developing and 
adopting more efficient equipment and by making changes in some 
of its processes.

    Over the past two years, Bremen Castings has worked 
diligently to cut some of our energy costs and become more 
energy efficient. In fact, we made a significant investment of 
over a half-million dollars in a variety of energy-savings 
projects including: replacing old lighting with energy 
efficient fluorescent lighting ($65K); switching out old air 
compressors with energy efficient electronic compressors 
($300K); installing new premium efficient electric motors and 
drives ($75K); updating furnace to use less coke and get same 
melt rate ($100K); adding extra insulation in the roof for 
heating in the winter ($50K); adding foot pedals for on-demand 
air for machines instead of constant air supply ($15K); and, 
installing an on-demand hot water for the plant ($50K). 
Additionally, we are no longer purchasing incandescent lighting 
and have replaced lighting fixtures with LED lights. We are 
also recouping waste heat from air compressors to heat in 
winter.

    Despite being an energy-intensive industry, foundries are 
major recyclers. Most castings are manufactured from recycled 
scrap materials rather than new or ``virgin'' materials as melt 
stock. Annually, U.S. foundries consume 15-20 million tons of 
recycled scrap metal, giving new life to products that would 
otherwise go to landfills. As a result, foundries take tens of 
thousands of old cars from our nation's highways, as well as 
broken radiators, water meters and other discarded metal 
products for use in the manufacture of our castings.

    The foundry industry believes that it is imperative for 
America to continue to expand access to our domestic energy 
supply in order to meet current needs for affordable energy and 
shore up our energy security. Oil, natural gas and clean coal 
remain essential contributors to America's energy security. In 
addition, we strongly support the building of the Keystone XL 
Pipeline and urge the U.S. Department of State to approve the 
Presidential Permit necessary for this project to move forward.

    The foundry industry supports an energy strategy that 
embraces all forms of domestic energy production, including 
nuclear power, hydropower, alternative fuels and renewable 
energy sources like wind energy and solar power. We are pleased 
to see the technological advancements in fracturing which have 
led to an abundance of natural gas production in the U.S. that 
is fundamentally changing the energy landscape. The result in 
the growth of all these sectors has provided more work for the 
foundry industry, more jobs, and consistently lower domestic 
natural gas prices in what has known to be a historically 
volatile market.

    Continued access to affordable energy sources will help 
U.S. foundries and our customers better compete against growing 
global competition and allow us to keep and create more jobs in 
the U.S.

    Impact of President Obama's Plan to Regulate Power Plants 
on Indiana Foundries

    As an energy-intensive manufacturer, I am very concerned 
about the consequences of the President's plan outlined on June 
25th to regulate greenhouse gas (GHG) emissions from new, 
modified, and existing power plants on my foundry, our industry 
and manufacturers across the U.S. I believe these new rules 
will cause power plants to close, drive-up power costs for 
households and businesses across the country, and especially 
harm manufacturing-heavy states. Additionally, these new 
regulations abandon an all-of-the-above energy policy and will 
threaten the foundry industry's ability to remain competitive 
in this international manufacturing environment. We compete 
globally against countries, like China, where the industry is 
often state-owned, controlled and subsidized, including for 
electricity costs.

    Furthermore, the proposed rules will adversely affect 
Indiana manufacturers and consumers, much more than most 
states. Indiana is a top energy-using state, and most 
electricity comes from coal-fired power plants. Currently, coal 
generates about 40 percent of electricity in the U.S. However, 
in Indiana, more than 80 percent of our electricity is 
generated from coal-fired power plants. The proposed utility 
rules will make Indiana manufacturers, including BCI, less 
competitive with other states that aren't coal dependent and 
countries that don't have strict rules in place, ultimately 
costing jobs.

    Increasing regulations is also unfair to many of these coal 
dependent regions of the country and will encourage fuel-
switching, since there are no proven technologies to control 
carbon dioxide (CO2) emissions from power plants. The shift 
from coal to natural gas is already well underway due to the 
low price of natural gas and other EPA Clean Air Act 
regulations. However, certain areas of the country, including 
many of the states where there is a high concentration of 
foundries (i.e. the Midwest), have more abundant coal sources; 
whereas, other regions are better suited for production from 
wind and solar sources. The Administration's plan makes coal-
fired electricity supply less affordable and less reliable to 
major industrial customers, which will threaten the loss of 
valuable manufacturing jobs. For foundries, wind and solar 
don't have the reliability, affordability or the capacity that 
you have with fossil fuels. In northern Indiana, it would be 
challenging to power a foundry on alternative energy year-
round, as we do not have a lot of sunny days in the winter.

    Indiana utilities have long relied on coal because it's 
been a stable and abundant low-cost source of fuel. In fact, 
this supply of coal from the southwestern part of the state has 
enabled utilities to offer some of the nation's lowest 
electricity rates for years. These relatively low electric 
rates have helped to keep our foundry and other Indiana 
metalcasters more competitive against foundries in other 
states, as well as our foreign competitors.

    For foundries in coal dependent states like Indiana, 
Wisconsin, Ohio and Pennsylvania, there is no doubt the cost to 
produce castings will increase. With the continued sluggish 
economy, many foundries across the country are reluctant to 
hire new workers given the continued uncertainty in regards to 
energy prices, health care costs, cuts to defense programs, 
potential changes to the U.S. tax code, and new federal 
regulations from the U.S. Environmental Protection Agency (EPA) 
and the Occupational Safety and Health Administration (OSHA).

    Energy is the lifeblood of U.S. foundries and most 
manufacturers and even the slightest competitive advantage in 
the price of energy can make an enormous difference for 
companies like mine that compete globally. Like all 
manufacturers, we benefit from the decreased production costs 
attributable to lower energy prices.

    For many metalcasters energy is a significant expense, only 
behind raw materials and labor in terms of the costs of doing 
business. When coal and natural gas are both a key input and a 
main cost driver, market volatility makes it extremely 
challenging to plan and to remain competitive. Furthermore, due 
to the competitive nature of our industry, cost increases can 
rarely be passed onto our customers. Since state laws allow the 
power companies to pass all energy and environmental compliance 
costs through to the consumer, we expect our energy prices to 
increase substantially due to these new EPA regulations. Even a 
$0.01/kWh increase in the cost of electricity imposes 
additional costs of nearly $9 billion per year on domestic 
manufacturing facilities.

    Another key factor will be how much time the EPA will allow 
the utilities to comply with the new power plant rules. We will 
be closely watching to see how the EPA handles the transition 
period to minimize the cost and reliability impacts, especially 
on states like Indiana that are still dependent on coal-
intensive electricity generation.

    In addition, we remain concerned that the EPA continues to 
fail to consider the cumulative impact of its power sector 
regulations on grid reliability. In fact, no comprehensive 
study has been done to assess the effect on the price of 
electricity, jobs, reliability of electricity supply, and the 
overall economy. The Federal Energy Regulatory Commission 
(FERC) has questioned whether the compliance deadlines set 
forth in other EPA regulations are too expeditious to allow 
sufficient lead-time to replace retiring resources. So far, 
over 140 coal-fired electricity-generating units in 19 states 
have announced they will retire by 2015. These retirements will 
create volatility within the electric grid if steps are not 
taken to balance the retirements with new capacity.

    Conclusion

    As an energy-intensive industry comprised primarily of 
small businesses, metalcasters are troubled by the prospect of 
increased electricity costs and reliability issues that will 
likely result from the Administration's new power plant 
regulations being developed. Establishing new stringent and 
burdensome regulations on the power sector will have a negative 
effect on all U.S. manufacturers, regardless of company size, 
consumers, the long-term health of the U.S. economy and the 
prosperity of American workers. As we are transitioning our 
power generating fleet, utilities need flexibility to ensure 
that they can manage these emerging environmental regulations 
while continuing to control costs. We don't need more 
regulatory road blocks as the country and our industry 
struggles out of the recession.

    Foundries need a secure and reliable supply of electricity 
at affordable rates in order to remain competitive. Without 
healthy production growth in manufacturing, we believe 
acceptable progress on the hiring front will be impossible.

    Thank you for the opportunity to appear before you today. I 
look forward to your questions.
                      Bernard L. Weinstein, Ph.D.


              Associate Director, Maguire Energy Institute


                         Cox School of Business


                     Southern Methodist University


        Before the Subcommittee on Agriculture, Energy and Trade


                of the House Committee on Small Business


                             July 18, 2013


    Mr. Chairman and Members of the Subcommittee, I am Bud 
Weinstein and I am the Associate Director of the Maguire Energy 
Institute at Southern Methodist University (SMU) and an adjunct 
professor of business economies at SMU's Cox School of 
Business. Thank you for this opportunity to address the 
President's climate action plan and its impact on small 
business.

    Several weeks ago, President Barack Obama released his 
``Climate Action Plan.'' Specifically, he wants to use his 
executive power to limit carbon dioxide (CO2) emissions from 
both new and existing power plants, further increase fuel 
economy standards for motor vehicles, and provide additional 
incentives for the development of renewable energy sources. 
Among these initiatives, the potentially most damaging to the 
economy, and small businesses in particular, are those related 
to power generation.

    Electricity drives our economy, and almost 40 percent of 
the electrons on the grid come from coal-fired power plants, 
which will be most affected by mandates to reduce CO2 emissions 
and other greenhouse gases (GHG). Coal's contribution to the 
electricity mix has been slowly declining in recent years, 
mainly because of a sluggish economy and comparatively cheap 
natural gas prices. And though we haven't yet seen the 
specifics from the Environmental Protection Agency (EPA), the 
forthcoming GHG standards will unquestionably accelerate plant 
closures. The consequences, in terms of higher energy costs and 
compromised grid reliability, could be serious. The new 
standards could also derail America's nascent industrial 
revival while eroding the competitiveness of US manufacturers. 
Hundreds of thousands of jobs are at risk--not a happy prospect 
in an economy that's barely growing four years after the Great 
Recession with a 7.6 percent unemployment rate, 12 million 
workers currently unemployed, and millions more underemployed 
or discouraged from even looking for work.

    The outlook is even gloomier for small business enterprises 
who have historically been the primary job producers in our 
economy. Businesses with fewer than 500 employees, along with 
sole proprietorships, account for about two-thirds of the 
nation's employment. But the country's rate of new business 
development is sliding. According to the US Bureau of the 
Census, the rate of new business formation has fallen to 
between 7 percent and 8 percent (as a portion of all 
companies), down significantly from the rate of 12 percent to 
13 percent in the 1980s.

    As Robert Litan of the Kauffman Foundation has observed, 
``Without the new jobs created by business startups, the Great 
Recession would have been even deeper, with many more jobs 
lost.'' \1\ But the Foundation finds that businesses less than 
five years in existence now represent merely 35 percent of all 
companies, down from the 50 percent they represented three 
decades ago. The share of employment at these young firms has 
fallen from 20 percent to 12 percent in recent years, a trend 
that's present to some degree in every single state, with those 
in the West, South, and Southwest regions seeing the greatest 
drop-offs in entrepreneurship.
---------------------------------------------------------------------------
    \1\ A Cited in L. Mutikani, ``U.S. Business Startups at Record 
Low,'' Reuters, May 2, 2013.

    Government regulations and red tape are already a 
tremendous barrier to small business growth. By the House Small 
Business Committee's own reckoning, small enterprises bear 
regulatory compliance costs that are 36 percent higher than 
large businesses. By driving up energy costs, the forthcoming 
EPA greenhouse gas regulations will place additional burdens on 
---------------------------------------------------------------------------
those enterprises that provide most of the jobs in America.

    Likely negative impacts of forthcoming GHG regulations: 
higher electric power costs and impaired grid reliability

    Every 1 percent increase in economic output necessitates a 
0.3 percent increase in energy use. By extension, any 
combination of policies that serves to increase the price of 
electricity or reduce the reliability of energy sources will 
have a negative impact on economic growth. Higher power costs 
can be especially detrimental to manufacturing industries, who 
consume proportionately more electricity than other sectors of 
the economy. Five million manufacturing jobs were lost during 
the Great Recession, and very few have come back during the 
recovery. But manufacturing still matters because of its strong 
linkages with other sectors of the economy. About one in eight 
private sector jobs, mainly in small and medium-size 
businesses, rely on America's manufacturing base.

    Within the past few years, EPA proposed two new air quality 
rules that would prove extremely costly to America's utilities 
and manufacturers: (1) the Cross-State Air Pollution Rule 
(CSAPR) that would cap key emissions crossing state lines and 
(2) the Utility Maximum Achievable Control Technology Rule 
(MACT) that would set absolute limits on mercury and other 
chemical emissions. The CSAPR was overturned by the D.C. 
Circuit Court of Appeals and is now under review by the US 
Supreme Court.

    The Utility MACT may prove to be the most expensive direct 
rule in EPA history. Indeed, EPA itself has estimated it will 
impose costs of about $11 billion a year on the US economy, 
though third-party estimates of compliance costs are 
considerably higher.\2\ For example, an analysis by National 
Economic Research Associates (NERA) finds that complying with 
the proposed standards will cost power companies close to $18 
billion per year for the next twenty years.\3\ Some coal-fired 
plants will be so expensive to retrofit to comply with the 
standard that they will simply be shut down. The NERA study 
projects that about 48 gigawatts of coal generation may be 
retired by 2016, representing a 13 percent decline. New natural 
gas generators would be the most likely substitutes for these 
shuttered facilities, and the increased demand for gas is 
estimated by NERA to push up gas prices by about 17 percent by 
2016. Higher prices, in turn, will increase natural gas 
expenditures by the residential, commercial, and industrial 
sectors of the economy by $85 billion (present value over 2011-
2030 in 2010$) or $8.2 billion per year. Average retail 
electricity prices could jump by about 12 percent with some 
parts of the country recording increases as high as 24 percent.
---------------------------------------------------------------------------
    \2\ US Environmental Protection Agency, Regulatory Impact Analysis 
of the Proposed Toxics Rule: Final Report,'' March 2011.
    \3\ National Economic Research Associates, Proposed CATR + MACT, 
May 2011.

    In addition to CSAPR, Utility MACT, and forthcoming GHG 
regulations, EPA has promulgated several other rules that will 
affect the utility sector. These include air quality standards 
for sulphur dioxide, nitrous oxide, and fine particulate matter 
as well as new standards for ash and other residuals from coal 
combustion. Taken together, these regulations will impact about 
400,000 megawatts (MW) of oil and coal-fired power generation, 
almost 40 percent of currently available US capacity. Should 
all of the proposed implementation deadlines remain unchanged, 
the reliability of the entire US power grid could be 
---------------------------------------------------------------------------
compromised.

    The utility industry is already laboring to comply with 
these and a myriad of other EPA mandates. The result could well 
be a reduction in reserve margins, making less power available 
during periods of peak demand or plant outages. Imagine what 
would have happened in Texas and other southern states that 
rely heavily on coal-fired generation during the record summer 
heat wave of 2011 if adequate reserve power had not been 
available? Not only would many energy-intensive industries have 
been forced to shut down, but rolling blackouts could have put 
the public's health at risk in the face of 100 degree 
temperatures week after week.

    This prospect was highlighted by the Electric Reliability 
Council of Texas, which operates the state grid, which stated 
that likely production cuts to comply with the proposed CSAPR 
rules alone would have threatened the state's ability to keep 
the lights on.\4\ American Electric Power Company has stated it 
will retire nearly 6,000 MW of generating capacity if the CSAPR 
rule is reinstated while Duke Energy will shutter 862 MW and 
Georgia Power another 871 MW.\5\ Should the EPA promulgate 
costly emissions reduction standards for GHGs, even more 
generating capacity is likely to go offline, further weakening 
the integrity of the power grid.
---------------------------------------------------------------------------
    \4\ ``Energy Future Holdings envisions cutting power production to 
comply with EPA rules,'' Dallas Morning News, July 30, 2011.
    \5\ ``Dozens of coal factories forced to shut down in response to 
strict EPA regulation,'' Business Insider, August 9, 2011.

    At the same time, by substituting higher-cost electricity 
(natural gas) for lower-cost electricity (coal), many energy-
intensive industries could see their overall production costs 
rise while their competitive advantages in the global 
marketplace decline. At risk are not only hundreds of thousands 
of high-paid jobs but a worsening of America's balance of 
---------------------------------------------------------------------------
trade.

    Some have suggested that the benefits of carbon reduction 
outweigh its regulatory costs. However, unilateral carbon 
regulations in the US will do little to affect global warming 
which is, as the name implies, a global phenomenon. As the EPA 
has noted, ``climate change presents a problem that the United 
States alone cannot solve. Even if the United States were to 
reduce its greenhouse gas emission to zero, that step would be 
far from enough to avoid substantial climate change.'' \6\
---------------------------------------------------------------------------
    \6\ US EPA, Technical Support Document, Social Cost of Carbon for 
Regulatory Impact Analysis (February, 2010) at 10.

    A flawed proposal from the Natural Resource Defense Council 
---------------------------------------------------------------------------
(NRDC) to lower GHG emissions

    The NRDC is proposing that the EPA set an emission standard 
for carbon dioxide from existing power plants that would vary 
by state. The standards would not describe the required 
technology or even the total amount of allowable GHG emissions. 
Instead, the NRDC argues that EPA should:

           Calculate each state's ``baseline fossil 
        fuel fleet generation mix of coal-and-gas fired plants 
        for 2008 through 2010'';

           Establish nominal carbon dioxide emission 
        rate targets for coal- and gas-fired power plants;

           Determine each state's emission rate 
        standard as a function of the state's nominal targets 
        weighted by the state's generation mix;

           Allow the use of emission rate averaging 
        across fossil-fuel fired units and create a system to 
        credit emission reductions achieved from increased use 
        of non-emitting power plants and increased demand-side 
        energy efficiency; and

           Create a system allowing states to consent 
        to combine their power plants fleets into a multistate 
        region for compliance purposes and to permit states to 
        trade emission credits on a multistate exchange.\7\
---------------------------------------------------------------------------
    \7\ National Resources Defense Council, Closing the Power Plant 
Carbon Pollution Loophole, December 2012.

    Taken together, this collection of regulatory mandates is 
unprecedentedly broad in its effect. This proposal would have 
the EPA create and manage a hybrid inter- and intrastate cap-
and-trade system for carbon emissions, would require federal 
oversight and micromanagement of virtually every aspect of 
electricity generation in every state, and would also require 
EPA oversight of how much electricity is consumed in states as 
---------------------------------------------------------------------------
a part of its demand-side efficiency (DSE) mandates.

    Putting aside the questionable legality of the approach to 
GHG reductions proposed by the NRDC, their argument for 
creating a new carbon control regime is built around 
unrealistic assumptions. The truth is that neither NRDC nor any 
other proponents of the proposal have described how exactly it 
should be used. NRDC fails to specify how any of the proposed 
measures would be practically enforceable and what objective 
standards would apply to ensure sources, regulations, and the 
public can clearly determine if compliance is being achieved 
and if compliance is realistically possible.

    For example, the proposal envisions broad ``demand side 
efficiency'' (DSE) improvements. In fact, NRDC's analysis is 
built around the assumption that within seven years, energy 
efficiency will replace 11 percent of electricity generation 
needs.\8\ However, while the NRDC report does include a call 
for EPA to impose mandates on states requiring that such 
efficiency gains be quantifiable and independently verified, it 
is unclear how NRDC expects states to actually meet these 
standards and how energy efficiency standards can be 
practically enforceable.
---------------------------------------------------------------------------
    \8\ NRDC Report at 44.

    The types of efficiency improvements called for by NRDC 
that serve as the key component to their overall scheme cannot 
be implemented in a manner that makes them practical to use in 
a tradable credits system. As NRDC notes, their proposal 
depends on efficiency programs that will lower the demand for 
[peak] energy through mechanisms ranging from direct load 
control of individual customer appliances to programs designed 
to create incentives for individual customers to use less 
electricity during peak times or select more energy efficient 
appliances.\9\
---------------------------------------------------------------------------
    \9\ NRDC Report at 35-36.

    While the NRDC may believe that practical issues regarding 
measurement and attribution of efficiency gains can be 
accomplished by regulatory fiat, the reality of electricity 
supply, consumer choices, and consumption is much more complex. 
This complexity is demonstrated by the various Congressional 
efforts to grapple with energy efficiency. Legislation on this 
issue has been a top priority for many lawmakers, and multiple 
measures to stimulate energy efficiency have been proposed.\10\ 
Outside analysts, including those inclined to support proposals 
similar to the NRDC's, have noted that ``it is difficult to 
know whether an efficiency programs is leading to reductions in 
energy demand or if, instead demand has slowed due to economic 
or other factors.'' \11\ Other analysts have added that ``the 
nature of electricity markets and electricity transmission 
makes it difficult to link energy efficiency-driven reductions 
in electricity demand to avoided generation at a particular 
unit'' and that ``while evaluation, measurement, and 
verification (EM&V) methods for energy efficiency are well 
developed in some contexts, the NRDC proposals pose unique EM&V 
challenges.'' \12\
---------------------------------------------------------------------------
    \10\ Bills introduced in the 113th Congress include: H.R. 83: To 
require the Secretary of the Interior to assemble a team of technical, 
policy, and financial experts to address the energy needs of the 
insular areas of the United States and the Freely Associated States 
through the development of action plans aimed at reducing reliance on 
imported fossil fuels and increasing use of indigenous clean-energy 
resources, and for other purposes; H.R. 115: School Building 
Enhancement Act; H.R. 123: Water Advanced Technologies for Efficient 
Resource Use Act; H.R. 184: Mechanical Insulation Installation 
Incentive Act of 2013; H.R. 400: Clean Energy Technology Manufacturing 
and Export Assistance Act; H.R. 472: Federal Cost Reduction Act: H.R. 
540: Energy Efficient Government Technology Act; S. 52: Promoting 
Efficiency and Savings in Government Act.
    \11\ Jonas Monast, Tim Profeta, Brooks Rainey Pearson, and John 
Doyle, Regulating Greenhouse Gas Emissions from Existing Sources: 
Section 11(d) and State Equivalency, 42 ELR 10206, 10209 (March, 2012).
    \12\ Jeremy Tarr, Jonas Monast, & Tim Profeta, Regulating Carbon 
Dioxide under Section 111(d) of the Clean Air Act (January, 2013) at 
14.

    Efficiency gains that cannot satisfy EM&V demands create 
dual problems for the NRDC proposal. First, if energy 
efficiency gains are improperly measured as the economic 
recovery demands more electricity, it will be impossible for 
NRDC's assumptions regarding reduced carbon emissions to be 
accurate, imperiling all of the alleged benefits from 
addressing climate change. Second, if EPA does not believe that 
state efficiency programs satisfy EM&V standards, those states 
will face the possibility of having their plans rejected and 
replaced by a federal plan, setting up a clash between EPA and 
the states, which is contrary to the cooperative federalism 
structure of the Clean Air Act (CAA). History has shown that 
when EPA replaces state plans with federal plans, EPA imposes 
even more draconian limits on energy production from 
traditional fuel sources, exacerbating concerns about 
electricity prices and reliability and making it more difficult 
---------------------------------------------------------------------------
for those state economies to grow.

    Compounding the EM&V problems is the fact that the NRDC 
proposal includes no details regarding how states or 
electricity generators can structure their policies or 
investments in a manner that allows for compliance with overall 
emission limitations when that compliance is dependent on 
actions completely out of their control, such as reductions in 
generation needs by consumers as a result of efficiency 
measures. Electricity generators cannot control consumers' 
demands or choices for electricity and if those consumers 
require electricity that offsets any efficiency gains it is not 
clear how generators are expected to comply with the NRDC 
proposal. Development of new generation facilities or switching 
of fuels is a capital intensive and time-consuming endeavor, 
and it is unreasonable and impractical to expect that 
electricity generators can rapidly change the nature of their 
generation from month to month or year to year based upon the 
relative success or failure of the broadly described efficiency 
measures discussed in the report.

    Implementation of the NRDC plan would also be an economic 
straightjacket on states and localities while undermining the 
reliability of the US electricity supply. For instance, the 
NRDC proposal would lock in GHG emissions at 2008-2010 levels, 
which coincided with the deepest points in the Great Recession. 
Fortunately, the economic climate is improving, but the 
recovery is demonstrating that the 2008-2010 emission levels 
cannot be maintained. As the World Resources Institute has 
noted, ``The economic slowdown experienced by the United States 
and other parts of the world over the period of 2008 to 2012 
has lead to decreased demand for goods and services and reduced 
energy consumption...This decline is projected to be temporary. 
Manufacturing output is expected to accelerate from 2010 
through 2020, and emissions are projected to increase by 4 
percent over this time.'' \13\
---------------------------------------------------------------------------
    \13\ World Resources Institute, Can the US Get There From Here? 
Using Existing Federal laws and State Action to Reduce Greenhouse Gas 
Emissions (2013) at 11.

    If the economy continues to recover, states will be forced 
with stark choices under the NRDC proposal. States that have an 
increase in economic activity, and hence electricity needs, 
will be required to actually decrease electricity production at 
a time when demand for electricity is increasing. This will 
have the effect of increasing electricity prices while 
simultaneously driving manufacturing and other energy-intensive 
industries out of those states to areas with less stringent 
environmental regulations. This result harms both the economy 
---------------------------------------------------------------------------
and the environment.

    This process will also undermine the reliability of the US 
electricity supply. Although NRDC attempts to camouflage this 
reality, other analysts have noted that their proposal will 
inevitably require the retirement of significant portions of 
the electricity generating fleet, in part facilitated by low 
natural gas prices from increased shale gas development.\14\ Of 
course, groups such as NRDC are also working to hamper the 
further development of these natural gas resources to achieve 
separate environmental goals. Making NRDC's goals a reality 
would force the retirement of coal-fired generation and require 
it be replaced with other sources of electricity generation. 
However, none of these sources have the ability to reliably 
replace the 59% of coal-fired units that some supporters of the 
NRDC approach want retired.\15\ Put simply, there is no 
evidence that any alternatives can replace the staggering 80.2 
GW of coal-fired generating capacity that NRDC estimates will 
be retired if their proposal is adopted.\16\
---------------------------------------------------------------------------
    \14\ Robert B. McKinstry, The Clean Air Act: A Suitable Tool for 
Addressing the Challenges of Climate Change, 41 ELR 10301, 10308 
(April, 2011).
    \15\ Id.
    \16\ NRDC Report at 45.

    The carbon regulatory system suggested by the President and 
proposed by NRDC is so broad in scope and vague in details that 
the costs of the program for consumers, business, states, and 
the federal government are breathtaking. Perhaps this is why 
NRDC dedicated less than one page to calculating such costs in 
the nearly 90 pages of their report.\17\ Unfortunately, 
ignoring the cost of the NRDC proposal will not be an option 
and for individuals and state governments on tight budgets.
---------------------------------------------------------------------------
    \17\ NRDC Report at 29.

    It is beyond doubt that that adoption of carbon standards 
will increase electricity prices in many areas of the country. 
NRDC and others hide this fact in plain sight when they call on 
states to lower the demand for electricity by adopting policies 
that give state and utility companies the power to control when 
individuals and companies can use appliances such as air 
conditioners and water heaters and set new electricity rates 
that would ``charge more during high-demand hours.'' \18\ Once 
again, NRDC is proposing that the government make choices for 
consumers, ranging from what appliances and other energy 
demanding products to buy, to how they operate and during what 
time of the day such products can be used. When one combines 
the costs associated with the retirement of existing coal-fired 
electricity generation, the conversion of some generating 
facilities to natural gas, the administrative costs associated 
with developing and implementing the broad array of efficiency 
mandates called for by the proposal, and the direct increase in 
electricity prices called for by these efficiency polices, it 
is clear that the consumers and business will be forced to pay 
substantially more for their electricity.
---------------------------------------------------------------------------
    \18\ NRDC Report at 36.

    Higher electricity prices as a result of policies designed 
to limit carbon dioxide emissions would ``ripple through the 
economy and result in higher production costs and less spending 
on non-energy goods,'' and could lead to ``lower real wage 
rates because companies would have higher costs and lower labor 
productivity.'' \19\ These costs would have a significant 
impact on the manufacturing sector and could threaten to 
reverse the momentum of our economic recovery by causing 
manufacturing output from energy-intensive sectors to decline 
by as much as 15 percent.\20\ Small manufacturing companies 
would be hit especially hard.
---------------------------------------------------------------------------
    \19\ National Association of Manufacturers, Economic Outcomes of a 
US Carbon Tax Executive Summary, (2013) at 9.
    \20\ Id.

    In addition to higher electricity prices, the NRDC proposal 
would be extraordinarily costly for states. NRDC makes 
absolutely no effort to estimate the administrative costs 
associated with their proposal. That is understandable because 
it is hard to conceive of another proposal that requires states 
to perform a larger array of tasks to try to satisfy EPA 
regulators. NRDC's proposal would require that states draft 
policies, subject to detailed enforcement and oversight by EPA, 
that would regulate every aspect of electricity production and 
consumption--from the selection of fuels used in a power plant 
to the amount of electricity use by a washing machine in an 
individual's home. If EPA finds the policy, or the 
implementation of the policy, to be lacking the state would be 
required to draft a new policy and dedicate more resources to 
EM&V or have EPA force a federal plan on them. In a time of 
tight budgets, adding an expansive new regulatory regime on top 
of the panoply of existing environmental mandates on states 
will require that states dedicate more resources they don't 
have to pleasing the EPA. Those resources can only be made 
available by cutting basic services to citizens.\21\ For NRDC 
to simply ignore these administrative costs on states is an act 
of irresponsible fancy.
---------------------------------------------------------------------------
    \21\ See Will Reisinger, Trent Dougherty, and Nolen Moser, 
Environmental Enforcement and the Limits of Cooperative Federalism: 
Will Courts Allow Citizen Suits to Pick Up the Slack?, 20 Duke Envtl. L 
& Pol'Y F. 1, 21-22 (2010).

---------------------------------------------------------------------------
    Threats to electric reliability have serious consequences

    EPA can ill-afford to risk undermining the availability of 
electricity supply in the US, placing electricity reliability 
in jeopardy and risking catastrophic economic impacts. Coal-
fired plants cannot be replaced overnight by natural gas 
plants, and they certainly cannot quickly be replaced by 
alternative energy facilities. The time it takes to install 
pipeline and other infrastructure necessary even to begin the 
conversion of an old plant or construction of a new one is 
considerable. Accordingly, if the EPA forces the retirement of 
power plants it will increase the probability of an 
insufficient supply of electricity at times when demand peaks, 
such as during hot weather, or when there are unexpected 
problems with electricity generation or transmission.

    EPA should not be developing long-term energy policy 
through environmental regulation. The improper regulation of 
GHG's could drastically reduce the diversity of this country's 
energy sources, particularly by minimizing coal-fired power 
generation, and hold the nation hostile to volatile natural gas 
prices for the next fifty years. NRDC's proposal is therefore 
inconsistent with the administration's ``all-of-the-above'' 
strategy.

    These risks must be taken seriously. As the Institute of 
Electrical and Electronics Engineers (IEEE) has stated, ``a 
reliable supply of electricity is more than just a convenience, 
it is a necessity; the global economy and world's very way of 
life depends on it.'' \22\ IEEE further observes that ``Even 
minor occurrences in the electric power grid can sometimes lead 
to catastrophic `cascading' blackouts. The loss of a single 
generator can result in an imbalance between load and 
generation, altering many flows in the electricity network.'' 
\23\ The direct costs to high-technology manufacturing in just 
the San Francisco Bay Area during the California blackouts 
alone ran as high as one million dollars a minute due to lost 
production. The relatively brief Northeast blackout of 2003 
cost business about $13 billion in lost productivity.\24\
---------------------------------------------------------------------------
    \22\ IEEE, Reliability and Blackouts, at http://electripedia.info/ 
reliability.asp (accessed Nov. 11, 2011).
    \23\ Id
    \24\ G.F. McClure, Electric Power Transmission Reliability Not 
Keeping Pace with Conservation Efforts, Today's Engineer (online) (Feb. 
2005).

---------------------------------------------------------------------------
    Alternative approaches for achieving GHG reductions

    When President Barack Obama recently directed EPA to put an 
end to ``the limitless dumping of carbon pollution from our 
power plants,'' he was obviously relying on hyperbole and not 
facts. Mainly because of fuel diversification in power 
generation, as well as cleaner burning and more fuel efficient 
motor vehicles, CO2 emissions today are lower than they were 20 
years ago. Even without new directives and mandates from 
Washington, CO2 levels from fixed and mobile sources will 
continue to fall. But begging the question of whether America 
is already doing more than its fair share to fight global 
warming, can we really expect government agencies, such as the 
EPA, to regulate the economy towards a carbon-free future?

    Assuming no pushback from Congress and industry, in theory 
the EPA could move us toward a carbon-free economy that is the 
ultimate goal of the environmental community. But at what cost 
in terms of lost jobs, higher energy prices, and limited 
consumer choice?

    The EPA is not the best way to attack climate change. 
Though federal law requires agencies like the EPA to calculate 
the costs and benefits of its proposed rules, politics, often 
trumps economics when preparing these studies. For example, the 
purported ``social costs'' of carbon may be included in cost-
benefit calculations to either support new EPA restrictions on 
power plant emissions or to make the case against a project 
like Keystone XL. Given the Administration's recent move to 
quietly increase the so-called social cost of carbon from $21 
to $35 per metric ton, we can expect future regulations to be 
more costly since the estimated benefits will be artificially 
higher.

    The only effective way to significantly reduce global GHG 
emissions is through a coordinated strategy involving all of 
the planet's major economies. Otherwise, any marginal 
reductions in America as a result of the president's proposals 
will be more than offset by rising emissions in China, India, 
Brazil, and other fast-growing economies around the world.

    Still, there is much we can do at home. In particular, 
investing in natural gas and nuclear power can be much more 
effective approaches for diversifying our base-load portfolios 
and thereby reducing CO2 emissions than the regulatory regime 
proposed by the President and by the NRDC. As a result of 
market economics, clean natural gas now accounts for 30 percent 
of power generation compared with 20 percent five years ago. 
With supplies projected to remain abundant and prices 
competitive for the foreseeable future, gas may eventually 
surpass coal as the nation's primary fuel for utilities and 
manufacturers. What's more, if instead of wasting billions of 
taxpayer dollars on electric vehicles, government and industry 
partnered to develop the infrastructure to support better 
transmission of natural gas and even natural-gas fueled 
vehicles, carbon emissions would be further reduced.

    Regrettably, in his proposed climate plan, President Obama 
omitted an initiative that could have a greater impact on 
reducing GHGs globally than any future EPA regulations with no 
cost to taxpayers--accelerating American exports of liquefied 
natural gas. The world is hungry for clean natural gas, 
especially for use in electric power generation. With gas 
prices averaging $12 in Europe and $15 in Asia, US gas at $ is 
a bargain, even when processing and transportation costs are 
included.

    We also need to encourage a nuclear revival in America. 
Though the US has 104 nuclear plants operating in 31 states, no 
new facilities have been ordered since the 1970s. Still, those 
plants currently generate about one-fifth of the nation's 
electricity while emitting no greenhouse gases. Investing in 
new nuclear power plants will be good for the economy, good for 
the environment, and good for energy security.

                                 *****


    Addressing global climate change is no easy task. However, 
the command and control regulations suggested by the President 
and his environmentalist supporters miss important 
opportunities, harm households and small businesses by 
increasing electricity prices, and will do little to address 
actual environmental challenges.

    Thank you for the opportunity to testify, and I am happy to 
answer your questions.
                       Testimony of Paul Gardner


              Business Development for Agilis Group, Inc.


              Before the House Committee on Small Business


             Subcommittee on Agriculture, Energy and Trade


      Hearing on: Climate Action Plan and Impact on Small Business


    Thank you Chairman Tipton and Ranking Member Murphy for 
allowing me the opportunity to testify before your subcommittee 
regarding President Obama's Climate Action Plan and its impact 
on Small Business.

    My name is Paul Gardner, and I am currently the head of 
Business Development for Agilis Group. I have spent 25 years in 
the aerospace industry with a particular focus on the research 
and development of advanced turbine engines for both flight and 
power generation applications. I have been with Agilis for the 
past 16 years.

    Agilis is a 20 year old professional engineering services 
company focused on the technical research and engineering 
development of turbine engines. Agilis is a Small Business with 
approximately 130 full time employees, mostly degreed 
engineers, based in Palm Beach Gardens, Florida. We also have 
an engineering office in Camden, South Carolina. We currently 
provide advanced research and development engineering to the 
turbine original equipment manufacturers in the industrial 
power generation, oil and gas, military flight, and commercial 
flight industries.

    Since I have been at Agilis, we have developed business 
relationships and won contracts to support several key clean 
energy initiatives, including the research and development of 
high efficiency natural gas engines, clean coal combustion, CO2 
sequestration systems, fuel burn reduction and increased fuel 
efficiency for Air Force and Navy aircraft propulsion systems, 
turbine power generation from advanced small modular nuclear 
reactors, catalytic and low-emissions combustion systems, 
advanced wind turbine gear systems, and turbine power 
generation from advanced fuel cell systems.

    Our business contracts and engineering projects primarily 
come from private industry. Only a very small percentage of our 
work comes directly from government agencies and direct 
government contracts. Agilis wins contracts from the turbine 
engine companies and provides sub-supplier support to the 
government contracts these companies have received from the 
DOE, DOD, NASA and other agencies. Currently, about 40% of our 
engineering business is as a sub-supplier for government 
contracts. The other 60% comes from the turbine engine 
companies' internally funded development efforts.

    At Agilis, we believe that the President's Climate Action 
Plan will have a definite impact on our business. I would like 
to explain some details of the work we have performed to 
illustrate how funding of clean energy initiatives, 
specifically the research and engineering development of clean 
energy technologies, can provide direct support to Small 
Businesses like Agilis.

    In 2002 and 2003, Agilis provided sub-supplier support to a 
DOE contract to convert the waste coal dust from a coal fired 
power plant in Alabama into electricity. The original plant 
design collected the residual coal dust from the coal fired 
boiler, compressed and packaged it into transportable blocks 
and shipped it off to be stored as toxic waste. In support of 
the DOE contract, Agilis performed the combustion research, 
engineering design and development of a turbine combustion 
system that burns the residual coal dust as a fuel for a small 
industrial gas turbine. The turbine engine now produces enough 
direct electric power from the coal dust to operate the entire 
facility.

    In 2009, Agilis provided sub-supplier support to a DOE 
contract to convert the waste heat from a fuel cell system into 
additional electricity. The fuel cell system used natural gas 
as a fuel source, but produced a large quantity of residual 
heat as the fuel cell converted the fuel into electricity. 
Agilis performed the system design and engineering development 
of a turbine system that converts the excess heat into work 
that powers an additional electric motor. The overall 
efficiency and power output of the fuel cell facility design 
was increased by 20%.

    Since 2009, Agilis has provided sub-supplier support to DOD 
contracts directly focused on the technical research and 
engineering development of the next generation fuel efficient 
turbine engines. These DOD programs include the Navy's Task 
Force Energy and the Air Force's VAATE (Versatile Affordable 
Advanced Turbine Engine) initiatives. These programs are 
directly aligned with the DOD Operational Energy Strategy 
Implementation Plan, released in March 2012, with a key goal 
factor to increase fuel efficiency and reduce reliance on 
foreign oil supply. Since 2009, Agilis has received more than 
$5M in engineering contracts from the turbine engine companies 
to support these programs.

    Agilis has provided over $5M of engineering effort in 
support of a DOE program to develop advanced compression 
systems used in the capture and sequestration of CO2. This 
effort is in direct support of the President's plan to ``cost 
effectively meet financial and policy goals, including the 
avoidance, reduction, or sequestration of anthropogenic 
emissions of greenhouse gases''.

    Agilis has provided over $10M of engineering support to 
develop and implement advanced catalytic combustion and low 
emissions systems that have achieved new industry levels for 
emissions reduction.

    Agilis has also supported development of turbine engine 
designs for advanced helium cooled small modular nuclear 
reactors powered by stored nuclear waste material. Our 
customer's published research suggests that there is enough 
degraded nuclear waste stored in the United States today to 
fully meet our domestic energy needs once this technology has 
been fully developed and implemented. If additional DOE and 
customer internal funding is made available to continue this 
development, Agilis and other Small Businesses will directly 
benefit.

    Many of these clean energy technologies and energy 
efficiency programs are ongoing development efforts that will 
provide future contracts and work for Agilis. Agilis does not 
receive these projects directly from government agencies. We 
receive our business contracts and engineering projects from 
the turbine engine companies. However, the majority of these 
programs have been driven by specific government initiatives 
that are aligned with the needs and goals of private industry. 
In support of these programs, Agilis has been able to grow and 
hire 23 full-time engineers in 2013 of which 15 have been 
recent college graduates. These clean energy initiatives create 
high paying jobs for Small Businesses.

    As we try to understand the implications of the Climate 
Action Plan and its impact on Small Business, we believe there 
are several related topics and issues that must be addressed by 
this Committee for the Climate Action Plan to have a positive 
impact. These topics include stronger encouragement for prime 
government contractors to flow work to Small Businesses, 
keeping high-skilled, high value engineering jobs on-shore, 
meaningful tax incentives for Small Businesses to grow, control 
on the insurance cost burdens that Small Businesses bear, and 
consistency in funding subsidies and government research and 
development initiatives. Small Businesses are often the first 
impacted when budgets are in doubt. Small Businesses struggle 
to find the financial stability to weather through the 
uncertainties of funding delays, sequestrations and continuing 
resolutions.

    Mr. Chairman and Ranking Member, thank you again for 
allowing me the opportunity to testify today before this 
subcommittee on behalf of Agilis. I hope I have help you 
further understand how the Climate Action Plan could impact 
Small Business.
[GRAPHIC] [TIFF OMITTED] 81938.002

    I. Introduction

    Chairman Tipton, Ranking Member Murphy, and Members of the 
Subcommittee, thank you for giving the Ad Hoc Coalition of 
Small Business Refiners the opportunity to testify for the 
record for the hearing entitled ``The President's Climate 
Action Plan: What is the Impact on Small Business?'' As 
Congress proceeds with legislative considerations, our group 
believes it is important for Congress to know about the 
companies that will be impacted by the President's Climate 
Action Plan.

    Small Business Refiners (SBRs) are located across the 
country from Pennsylvania to the West Coast. We vary greatly in 
operational configuration, product slate, marketing area, crude 
slate, and capacity. We have worked together for many years in 
an ad hoc coalition which has enabled us to share views, 
exchange relevant information and work cooperatively on issues 
of importance, often of survival. Small Business Refiner 
flexibilities included in EPA rulemakings and other compliance 
requirements are particularly important to the continued 
viability of the small business refiner segment of the 
industry.

    Background on the Ad Hoc Coalition of Small Business 
Refiners

    SBRs occupy a unique place in the economy and the energy 
sector. We have long been recognized by the U.S. Congress, 
Department of Energy, the EPA, the Small Business 
Administration, Department of Defense and other agencies as 
critical in providing supply and competition that benefits 
consumers and the nation. Clearly, SBRs have important 
financial differences from large refiners. It is a well-settled 
fact that our size limits the options we have to comply 
economically with new regulations.

    Small Business Refiners are important to the economy

           Small refiners foster competition in the 
        petroleum industry.

           Small refiners are critical to easing the 
        tight supply of petroleum products and often are the 
        only sources of supply in their areas.

           Most small refiners serve as the major 
        economic resource in the small, often rural, 
        communities in which they operate.

           It is generally agreed that the economic 
        ``multiplier effect'' (jobs and other local and 
        regional investment and businesses) resulting from 
        refinery operations is eight-to-ten times the 
        refinery's actual budget.

           Many small refiners provide a reliable and 
        competitive supply of military jet fuel to our 
        country's military bases and thus are important to 
        national security.

    Small Business Refiners Do Not Enjoy Economies of Scale

           Small refiners are not able to spread 
        compliance and operating costs over much greater 
        product sales and over a much greater asset base.

           SBRs are not fully integrated and many do 
        not have upstream crude oil and gas production, 
        midstream pipelines and terminals, or downstream retail 
        marketing.

           SBRs as a group are most vulnerable to 
        decreasing domestic demand for refined products and 
        increased competition from renewable fuels.

    Small Business Refiners Have Limited Resources and 
Compliance Flexibility

           Access to capital present great obstacles 
        for SBRs.

           Small refiners do not have large staffs with 
        a diverse range of specialties and in-house expertise 
        to negotiate and implement permitting, regulatory, and 
        compliance requirements.

           Qualified outside engineering consulting is 
        limited even where financial resources to procure such 
        help are available. Due to the smaller size of 
        projects, SBRs are disadvantaged when competing with 
        large refiners to garner outside engineering resources.

           The majority of SBRs do not have port access 
        and are therefore more reliant upon local domestic 
        crude supplies; they therefore have little or limited 
        ability to change crude slate when regulations and 
        specification change.

           The majority of SBRs are not 
        organizationally complex and thus have less operational 
        flexibility and fewer outlets for intermediate 
        products.

           Small refiners owning just one or two 
        facilities have limited internal compliance flexibility 
        relative to the industry at large with respect to 
        Average, Banking, and Trading (ABT) programs. ABT 
        programs, which are a fundamental aspect of many EPA 
        fuel regulations, inherently provide more flexibility 
        to companies owning multiple refineries than SBRs owing 
        a single or few facilities.

    All Small Business Refiners compete in a highly competitive 
global commodity market where imported products from foreign 
competition influence refining margins and economics. Unlike 
large, fully integrated oil companies, we only operate between 
two commodity markets: 1) the oil market; and 2) the gasoline 
market. We must purchase crude oil that is priced in the global 
market and refine it. We then sell our products into the 
gasoline market, which is a very sensitive, volatile market. 
Between these two markets, SBRs are able to stay in business 
based on how well we control our costs compared to other fuel 
suppliers.

    Regulations and mandates increase operating costs, which in 
turn negatively impact Small Business Refiners' ability to 
manage costs between the oil market and the gasoline market. 
This impact affects all refiners, especially Small Business 
Refiners. When a refiner cannot pass on or absorb these costs 
they go out of business. The result is reduced domestic 
refining capacity and higher gasoline costs for the consumer.

    The following sections explain how current, proposed and 
potential future GHG regulations drive up our costs. These 
regulations when added to other regulations that affect our 
industry show the cumulative burden place on our sector of the 
industry. These higher costs are either passed on to the 
consumer in the form of increased gasoline or diesel prices, or 
the refinery goes out of business when the costs exceed the 
capitol reserves or credit of the refinery; in the case of a 
Small Business Refiner, reserve capital and credit are 
insufficient and do not provide a long term solution.

    In addition, several regulations have conflicting 
consequences, so our industry ends up in between the proverbial 
rock and a hard place. Regulatory development must be 
coordinated and use a holistic approach to ensure cumulative 
costs are taken into account and unintended consequences are 
mitigated.

    II. GHG Reporting Rule

    In October 2009, the EPA issued the final Mandatory 
Reporting of Greenhouse Gas rule, which required facilities 
that emit greater than 25,000 metric tons of GHG's to submit 
annual reports to the EPA. During the months leading up to the 
final rule, the ad-hoc group of SBRs commented on the proposed 
rule. Here we would like to highlight two of those comment 
areas; specifically, 1) compliance cost and 2) de minimis 
emissions.

          1. Compliance Cost: From our perspective, the EPA is 
        ineffectively examining the actual cost of compliance. 
        In the proposed rule, EPA estimated that the cost of 
        compliance with the GHG reporting rule was small, and 
        therefore did not have a significant impact on 
        businesses, including SBRs. For example, the EPA's cost 
        estimate for installation of Continuous Emission 
        Monitoring Systems (CEMS) was $9,500 per refinery. With 
        this presumed minimum impact, the EPA did not establish 
        a Small Business Regulatory Enforcement and Fairness 
        Act (SBREFA) process to investigate the negative 
        impacts on small refiners and determine flexibility 
        options. One SBA's actual cost to install the required 
        CEMS was $450,000--47 times more expensive than the 
        EPA's estimate. First year set-up and compliance cost 
        exceeded $750,000. Over the next ten years, the cost to 
        comply with this rule alone will exceed $4 million for 
        one single SBR.

          2. De Minimus Emissions: According to 2010 data 
        published by the EPA, the entire refining industry 
        represents only 5.7% of the 3.2 billion metric tons of 
        reported stationary sources GHGs. One SBR's total of 
        199,913 metric tons represents 0.00625% of the total 
        reported GHG emissions. Not only does the refining 
        industry contribute a small percent to the economy's 
        overall GHG emissions, but a single SBR's contribution 
        is infinitesimal. Combined, SBRs only represent about 
        15% of the industry which translates to less than 1% of 
        total GHG emissions. Any rational regulatory approach 
        would recognize an SBR's GHG emissions as de minimis. 
        However, SBRs are subject to this regulatory burden, 
        and in fact, it increased our operating cost 
        disproportionately to the overall impact that our 
        refinery has to global GHG emissions. This rule, and 
        its consequences, are not isolated in their affect, and 
        in fact, interact with other Rules to create even 
        larger negative consequences.

    III. GHG Tailoring Rule

    In May 2010, EPA issued its final rule addressing GHG 
emissions from stationary sources under the Clean Air Act (CAA) 
permitting programs. This final rule sets thresholds for GHG 
emissions that define when permits under the New Source Review 
Prevention of Significant Deterioration (PSD) and Title V 
Operating Permit programs are required for new and existing 
industrial facilities. Under the tailoring rule, existing 
facilities with carbon dioxide emissions exceeding 100,000 
metric ton per year are required to obtain an updated operating 
permit. In addition, facilities that would implement 
modifications increasing carbon dioxide emissions by 75,000 
metric tons per year would require a PSD permit. Both 
thresholds were set to limit the number of GHG permits that 
would be required throughout the national economy. Because most 
SBR's GHG emissions exceed 100,000 metric tons per year, we 
will need to update our Title V permits for current operations. 
However, due to our small size, any modifications we make would 
most likely have emissions less than 75,000 metric tons, and 
therefore, not require a GHG PSD permit. To illustrate this 
point, a small facility like CountryMark's 27,000 barrel per 
day refinery has process heaters and boilers that average 
approximately 30 MMBTU/Hr. This results in approximately 15,000 
metric tons per year of GHG emissions. This is well below the 
75,000 metric ton threshold set by the GHG tailoring rule. 
Therefore, in the current environment, CountryMark would be 
able to replace obsolete equipment such as 1950's vintage 
boilers without the requirements and costs of a PSD permit.

    All SBRs are or are preparing to operate under the current 
tailoring rule. However, decreasing the tailoring rule limits 
would put significant regulatory pressure on SBRs, especially 
with regards to replacement of obsolete equipment or making 
improvements. Without the ability to upgrade, SBRs will 
eventually not be able to operate and potentially go out of 
business. The EPA has not indicated significant upcoming 
changes to the tailoring rule limits at this time. However, of 
great concern is that EPA has indicated they intend to further 
restrict GHG emissions for the refining sector applying another 
concept called New Source Performance Standards.

    IV. New Source Performance Standards (NSPS)

    Several of the undersigned participated as a Small Entity 
Representative (SER) on Small Business Advocacy Review (SBAR) 
panels for both the Tier 3 Fuels and the ``Petroleum Refinery 
Sector Risk and Technology Review and New Source Performance 
Standard (NSPS)'' proposed rule makings. Meetings were held for 
both panels on June 28, 2011 and August 18, 2011. The SERs are 
on record stating the information provided as part of the 
``Petroleum Refinery Sector Risk and Technology Review and New 
Source Performance Standard (NSPS)'' was inadequate for the 
purpose of providing flexibility options to the EPA from the 
SERs.

    At the SBAR panel meetings, the EPA articulated how they 
intended to further control GHG emissions only in refineries, 
below the tailoring rule limits that apply to the general 
economy. SERs were able to evaluate the impact of the EPA's 
intentions to lower the GHG limits below those stipulated in 
the tailoring rule. By uniquely regulating GHG emissions from 
only the U.S. refining sector, the EPA directly threatens small 
refineries since we lack the ability to pay for costly and 
arbitrary regulations.

    Unlike the tailoring rule, meeting NSPS requirements may 
involve implementation of Best Available Control Technology 
(BACT). BACT is usually applied to larger sources, because 
economic considerations are part of the determination. For 
smaller facilities, BACT implementation is typically 
uneconomical, because the size of the equipment and de minimis 
emissions cannot justify the cost. For example, at large 
refineries with fired process heaters that burn 100's of 
millions of BTUs an hour, BACT equipment includes expensive air 
pre-heat equipment. In these situations, this makes economic 
sense because it optimizes energy input costs. At a small 
refinery, the smaller sized process heaters are natural draft 
design and do not have air pre-heat. For small process heaters, 
requiring air pre-heat could add more that 50% to the cost of 
the new equipment. The additional cost of installing BACT 
equipment at a small refinery would not provide a commensurate 
energy savings.

    If the EPA uses the NSPS rulemaking to drive GHG limits to 
statutory limits of 100 and 250 metric tons, it would be orders 
of magnitude more stringent than the tailoring rule. Since most 
SBRs are sensitive to capital costs, the additional increase 
required to meet the stricter limits would make most 
modifications uneconomical, limiting or precluding growth at 
the refinery.

    The EPA also told the SERs they were considering energy 
management and intensity benchmarking as additional ways to 
further reduce GHG emissions through the proposed NSPS 
rulemaking. In addition, the EPA discussed leak detection 
programs and benzene reduction could also be targeted in new 
regulation. There are significant problems with these 
prescriptive approaches to reducing GHG emissions.

          1. Energy Management: Energy costs are a very high 
        expense item in a refinery. Economic realities for 
        refineries have already forced operators to undertake 
        energy management programs in order to optimize and 
        reduce energy costs which have already lowered GHG 
        emissions. In 2007, one SBR implemented an energy 
        program where the primary energy savings were achieved 
        from tuning and optimizing excess air in heaters and 
        boilers. Significant investment was made for program 
        implementation, including shared savings in energy 
        reduction. EPA discussed prescriptive requirements for 
        meeting stringent energy management goals. EPA's type 
        of approach would increase compliance costs due to 
        reporting requirements alone. Prescriptive EPA rules do 
        not allow for innovation and consistently cost more to 
        implement than EPA estimates. Any energy management 
        program should be performance-based and flexible enough 
        to allow existing programs to meet compliance 
        objectives.

          2. Intensity Benchmarking: Intensity benchmarking 
        would compare every refinery to the same standard 
        developed by the EPA. The problem with EPA setting 
        standards is that no two refineries have the same 
        capacity, complexity and feed stock. Based on past 
        experience with benchmarking programs, the impacts on 
        small refineries are inadequately understood by the 
        EPA's approach. Small refineries do not have the 
        economies of scale. Even on a process by process basis, 
        small facilities have limited opportunities for heat 
        integration. Also, while a large facility has more 
        power demand, their scale provides opportunities for 
        co-generation facilities which also improve 
        efficiency--this is not true in a small facility. 
        Benchmarking has to account for complexity of 
        processing units and power generation. Physical 
        equipment size should be taken into account. Treating 
        small refineries and larger complexes the same is like 
        comparing apples to oranges. A prescriptive approach to 
        benchmarking has the potential to inadvertently drive 
        small business refiners out of business, due to 
        disproportional economic impacts of ignoring facility 
        size in the equation.

          3. Leak Detection and Repair (LDAR): Many SBRs have 
        significant resources invested in their LDAR program. 
        Existing programs include thousands of monitoring 
        points. Adding the fuel gas system to the leak 
        detection program would increase monitoring points by 
        over 50%. Since many SBRs are located in rural areas, 
        they are hundreds of miles away from the nearest large 
        refinery or refining complex. This provides little 
        opportunity to use the same reputable contractors at a 
        competitive cost. Therefore, our costs are 
        disproportionately greater. Initial estimates by one 
        SBR show that the cost of the current program would 
        increase by a minimum of $500,000 per year due to 
        increased monitoring requirements.

          4. Total Annual Benzene (TAB): Changing the 
        wastewater amendment to require controls for less than 
        10 Mg Total Annual Benzene-in-waste (TAB) would require 
        significant capital for many SBRs. Based on the 
        estimates provided by the EPA, this could be in the 
        millions. Definitive estimates could not be developed 
        at this time because the proposed Benzene floor is not 
        known. The Benzene requirement appears to be driven by 
        the EPA risk review dealing with cancer and non-cancer 
        risks from refineries but could be related to reducing 
        VOC or GHG emissions. Regardless of the driver, this 
        low limit would not exceed a risk related threshold nor 
        should be considered as a potential GHG reduction.

    In the end, it appears that EPA is headed toward further 
restricting GHG emissions from refineries even though the 
tailoring rule as it now stands would not require dramatic 
changes for small refiners. A one-size-fits-all approach is 
clearly inappropriate and, if true, would further damage SBR's 
ability to stay in business. EPA's approach outlined in the 
SBAR panel meetings presents uncertainty as to how the EPA will 
further reduce the threshold for GHG permits requiring BACT. 
Implementing BACT for small sources would have diminishing 
returns since the cost would be high but the incremental 
reduction would be very small. EPA even admitted in the SBAR 
panel meetings that reductions from refinery process heaters 
and boilers would only be in the 1-3% range. With the entire 
refining industry only contributing 5.7% of GHG emissions, 
stringent requirements for process heaters would only reduce 
national GHG emissions by 0.17%. This begs the question as to 
why require additional expense, which will threaten our 
existence, for minimal returns?

    V. Conflicting Requirements

    EPA's Clean Air Highway Diesel rule and Non-road Diesel 
rule requires that only 15 parts per million (ppm) of sulfur 
diesel fuel be sold on and off-road. To achieve compliance with 
this requirement and continue to stay in business, SBRs were 
required to construct and start-up Distillate Hydrotreating 
Technology. One SBR completed this project which included 
construction of sulfur recovery facilities for a total cost of 
approximately $50 million. The annual operating cost for this 
complex is $4.4 million.

    EPA's Tier 2 Gasoline rules required that gasoline sulfer 
be reduced to 30 ppm. To comply, SBRs constructed additional 
sulfur removal capacity for gasoline in order to continue to 
sell product and stay in business. For one SBR, this project 
cost $33 million and has an annual operating cost of $1.8 
million per year.

    Now The EPA has proposed Tier 3 gasoline regulations that 
would further reduce sulfer in gasoline from 30 ppm to 10 ppm. 
One SBR has estimated that complying with this additional 
requirement has potential capital costs of $15 million and 
increased operating costs of over $200,000 per year.

    Removing sulfur from diesel fuel and gasoline takes 
hydrogen and energy, which in turn, significantly increases GHG 
emissions. Prior to installing desulfurization capabilities, 
some SBRs purchased minimal amounts of natural gas for 
combustion. Instead, excess hydrogen produced by reforming was 
burned in process heaters resulting in minor GHG emissions. 
This hydrogen is now required to remove sulfer from diesel fuel 
and gasoline. Many SBRs now purchase natural gas for combustion 
in process heaters and to produce hydrogen needed for removing 
sulfur. Hydrogen is produced by reforming natural gas which 
essentially strips away hydrogen from the molecule and 
discharges carbon as carbon dioxide--a GHG. In addition, 
desulfurization takes energy which requires additional process 
heaters and increased steam production. Therefore, the energy 
intensity of the refinery has increased, due to additional 
fired sources. These effects combined have increased GHG 
emissions at some small refineries by 10-15%.

    One SBR spent or will spend nearly $100 million over a ten 
year period to comply with EPA's low sulfur fuel requirements 
just to stay in business. These changes have increased GHG 
emissions. Now with GHG reductions looming on the horizon, SBRs 
will be penalized through GHG regulation for complying with 
other EPA requirements. Even with the increased GHG emission 
due to removing sulfur from fuels, SBRs still only contribute 
an infinitesimal fraction to the nation's GHG emissions.

    VI. Renewable Fuels Standard

    The decision to blend renewable fuels should be driven by 
customer demand and economics. The marketplace was working to 
drive the use of these fuels. The Renewable Fuels Standard 
(RFS) changed the natural progression of these fuels by 
mandating that obligated parties either purchase and blend 
ethanol and biodiesel or purchase Renewable Identification 
Number (RIN) credits. This flawed regulatory regime was 
partially driven by reducing GHG emissions. Even though there 
are four distinct categories of renewable fuels required, 
ethanol and biodiesel are the only products in commercial 
volumes that can be used to comply with this complicated rule. 
Cellulosic biofuels are not commercially available; therefore, 
obligated parties are required to purchase cellulosic waiver 
credits from the EPA for compliance.

    Many SBRs became obligated party under the RFS in 2011. 
Thirteen small business refiners were granted an additional 2-
year extension for compliance based on economic hardship due to 
the RFS. As an obligated party, an SBR can calculate the cost 
of compliance by using the current RIN credit pricing and 
estimated annual standard requirements. RIN prices are at 
record high levels. Under the current rule and pricing, one SBR 
estimated compliance costs of $50 million in 2013 which 
increases to $94 million in 2022. The average cost of 
compliance for this period is $70 million per year. Even though 
some SBRs received hardship exemptions, since these costs 
increase over time, the hardship will only increase. As of 
today, we predict these costs will eventually drive some SBRs 
out of business.

    VII. Cap and Trade

    In addition to those issues outlined in previous sections, 
the specter of implementing potential limits on GHG emissions 
through a cap and trade regime is still within EPA's power. A 
GHG regulatory regime of the variety discussed in Congress in 
2009 would be devastating to all SBRs. The first year 
compliance costs could exceed annual income, as was the case 
with some prior legislative proposals. SBRs would not be able 
to absorb the high compliance costs and remain economically 
viable. Therefore, the industry would need to pass those 
additional costs on to consumer in the market or go out of 
business.

    VIII. Summary

    In summary, the cumulative effect of current and proposal 
EPA regulations as estimated has significant current and future 
financial impact on SBRs. Figure 1 provides the cumulative 
impact of increased operating costs (left vertical axis) and 
their potential impact on clean fuels (gasoline and diesel) 
prices to the consumer (right vertical axis). The data provided 
in Figure 1 is based on actual cost provided by one SBR. The 
annual operating cost includes a capital recovery factor which 
over time extinguishes when the capital is recovered. However, 
the timing of current and proposed regulations overlap each 
other resulting in cumulative increases in cost when viewed in 
total. This is not to say that all of these costs will be 
passed to the consumer in every area. Fully integrated oil 
companies or larger refiners may be able to absorb these 
incremental costs and continue to maintain profitability. 
However, for Small Business Refiners these increases cannot be 
absorbed, they must be recovered. If the market does not bear 
the additional costs with high prices, eventually marginal 
refiners will go out of business. Jobs are then lost and 
gasoline and diesel prices go up. Refinery shutdowns due to 
lack of profitability are not new to our industry--117 refiners 
(nearly half the industry) have shutdown since 1982 according 
to the Energy Information Agency.
[GRAPHIC] [TIFF OMITTED] 81938.003

    IX. Conclusion

    SBRs operate in a highly competitive commodity market, 
where oil prices and refining margins are influence by global 
events beyond our control. Regulation and mandates increase 
capital requirements, operating costs and product costs, which 
in turn, make refiners, especially Small Business Refiners, 
less competitive. When refiners cannot pass on these costs to 
the consumer, or absorb these costs, they go out of business. 
The result is reduced domestic refining capacity and 
consequentially higher gasoline and diesel costs for the 
consumer. If domestic refining capacity is reduced, EPA 
regulations will actually increase U.S. demand for imported 
fuels and consumer prices will increase.

    Currently, EPA reviews and analyzes each regulation 
separately to determine the impacts on the industry. The 
current regulatory regime forces our industry to comply with a 
new rulemaking seemingly about every year or two. The new rules 
keep coming regardless of environmental improvements that have 
been made. New rules that pile onto existing rules appear to be 
proposed before adequate time to determine the benefits of a 
current rule has occurred.

    Regulation of GHG poses a significant threat to all 
refiners and especially small business refiners. The refining 
industry as a whole only contributes 5.7% of the nation's GHG 
emissions reported from stationary sources. The EPA admits that 
regulating the refining industry will only lower GHG emissions 
by 1-3%. For the example, let's assume that refinery GHG 
emissions could be reduced by 5%. According to published 
reports, the United States contributes approximately 18% of 
global GHG emissions. Doing the math, regulating GHG for 
refineries has the potential to reduce (5.7% x 5% x 18% =) 
0.00051% of global GHG emissions. The potential cost of 
compliance is high for very small impacts on global GHG.

    Industry must analyze every aspect of the business 
including regulation in total. It is critical to understand 
what the cumulative effects of regulations and mandates are on 
the business and the timeline over which they will occur. 
Capital and expense that is spent on regulatory compliance 
cannot be spent on growth opportunities that lead to higher 
employment. If these costs cannot be absorbed or passed on to 
the consumer, refiners will shut down. Either way, costs will 
increase in the long term as refining capacity is rationalized.

    The following SBRs endorse this testimony and would welcome 
participating in the legislative process that would stop or 
limit EPA's ability to regulate GHG emissions from the refinery 
industry and especially small business refiners.

    Respectfully submitted:

    Countrymark Cooperative Holding Corporation, Indianapolis, 
IN and Mt. Vernon, IN

    Petro Star, Inc., Anchorage, AK

    Placid Refining Company, LLC Dallas, TX and Port Allen, LA

    Wyoming Refining Co. Denver, CO and New Castle, WY
    [GRAPHIC] [TIFF OMITTED] 81938.004
    
                                 
