[Senate Hearing 113-494]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 113-494

                        WINTER PROPANE SHORTAGES

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


                                HEARING

                               before the

                              COMMITTEE ON
                              
                      ENERGY AND NATURAL RESOURCES
                      
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   ON

      SHORT ON GAS: A LOOK INTO THE PROPANE SHORTAGES THIS WINTER

                               __________

                              MAY 1, 2014


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               Committee on Energy and Natural Resources
               
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                          Washington, DC 20402-0001              
               
               
               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                   MARY L. LANDRIEU, Louisiana, Chair

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont             MIKE LEE, Utah
DEBBIE STABENOW, Michigan            DEAN HELLER, Nevada
MARK UDALL, Colorado                 JEFF FLAKE, Arizona
AL FRANKEN, Minnesota                TIM SCOTT, South Carolina
JOE MANCHIN, III, West Virginia      LAMAR ALEXANDER, Tennessee
BRIAN SCHATZ, Hawaii                 ROB PORTMAN, Ohio
MARTIN HEINRICH, New Mexico          JOHN HOEVEN, North Dakota
TAMMY BALDWIN, Wisconsin

                Elizabeth Leoty Craddock, Staff Director
                      Sam E. Fowler, Chief Counsel
              Karen K. Billups, Republican Staff Director
           Patrick J. McCormick III, Republican Chief Counsel
           
           
                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Baldwin, Hon. Tammy, U.S. Senator From Wisconsin.................     4
Black, Andrew J., President and CEO, Association of Oil Pipe 
  Lines (AOPL)...................................................    15
Cordill, Joe, President, Cordill Butane Propane Service, Former 
  Chairman of the National Propane Gas Association...............    21
France, Gary, France Propane Service, Chairman of the National 
  Propane Gas Association........................................    32
Franken, Hon. Al, U.S. Senator From Minnesota....................     3
Kenderdine, Melanie, Director, Office of Energy Policy and 
  Systems Analysis, and Energy Counselor to the Secretary, 
  Department of Energy...........................................     6
Landrieu, Hon. Mary L., U.S. Senator From Louisiana..............     1
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2
Nichols, Nils, Director, Division of Pipeline Regulation, Federal 
  Energy Regulatory Commission...................................    12
Zimmerman, John, Immediate Past-President, Minnesota Turkey 
  Growers Association............................................    28

                                APPENDIX

Responses to additional questions................................    63

 
                        WINTER PROPANE SHORTAGES

                               ----------                              


                         THURSDAY, MAY 1, 2014

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:39 p.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Mary L. Landrieu, 
chair, presiding.

 OPENING STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR FROM 
                           LOUISIANA

    The Chair. Good afternoon, everyone. Welcome to our panel, 
Short on Gas: A look in to the propane shortages this winter.
    I really want to begin by thanking Senator Al Franken and 
Senator Tammy Baldwin for bringing this issue to the attention 
of this committee. They have been absolutely strong and 
determined advocates to try to find out, you know, what 
happened in the shortage, how it could be prevented. I'm sure 
there's some very good solutions that will be discussed today.
    Let me thank my Ranking Member, Senator Murkowski, for 
agreeing to this hearing as well because I know it's a concern 
to her.
    I'm going to give a very short opening statement, turn it 
to the ranking member and then ask if you have brief opening 
statements. Then we'll go right into the panel.
    Propane is best known in Louisiana for barbeques and 
football tailgates, but thousands of North Louisianans rely on 
propane for very common uses. But millions of Americans rely on 
it to heat their homes and to keep them warm, to prepare meals 
during winter months. Last winter was one of the harshest and 
coldest on record with temperatures reaching as low at 40 to 60 
degrees below zero.
    Many of the places hardest hit were also hit by shortages 
of propane which nearly 5 percent of American families use. The 
average family in the Midwest had to pay an extra $120 this 
year. Families in the Northeast had to pay an extra $206. 
Restaurants across the Midwest were forced to either cook meals 
by microwave or close their doors and even some church services 
were canceled because they just simply could not keep the heat 
on.
    With an abundant supply of petroleum we have here in the 
United States and North America we should not let this happen 
again. It's what this hearing is about. I look forward to how 
plentiful energy resources that we have can avoid leaving 
Americans in the cold.
    Extreme weather and long winter demonstrates how weak and 
disjointed an inadequate energy infrastructure can have real 
harmful consequences for a million American families and our 
economy. These shortages last winter remind us that it will 
take significant investments in infrastructure to harness the 
full potential of this energy revolution. We need to better 
coordinate planning between the private sector and States as 
well.
    So today's hearing will examine what caused the shortage, 
what can be done to ensure that it's not happening again, that 
this product that is so needed can be delivered safely and 
efficiently transported to consumers.
    We'll begin with an important discussion to find solutions 
to this challenge. We have experts that work in every part of 
this energy supply chain from Louisiana, where our energy 
production and refining industry supports hundreds of thousands 
of high paying jobs, billions of dollars of new investments to 
Wisconsin's expanding retailers and marketers and Minnesota's 
diverse end user community. Their stories will all be told 
today.
    I'm particularly interested to learn more about the 
Department of Energy's Quadrennial Energy Review which should 
help us to assess the many problems we face which could produce 
a new strategy for us in the future. Making sure we fix the 
problems that resulted last winter we'll be better prepared for 
the next.
    It takes leadership. I thank Senator Murkowski for joining 
me in providing the leadership to this committee. And it takes 
very active and many members to contribute to our success. Many 
of us here in Congress have been concerned about this problem. 
We're looking for ways to fix it.
    So let me now turn to my Ranking Member, Senator Murkowski, 
for her opening remarks.
    I thank our panelists. I'll introduce you all in just a 
moment.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Madame Chair.
    You have heard me say many times that when we speak about 
energy there's a few principles that I think are pretty 
uniform.
    Energy needs to be affordable.
    It needs to be accessible.
    It needs to be clean.
    It needs to be diverse.
    It needs to be secure.
    I think the propane issues that we saw in the Midwest this 
past winter, in my judgment, is a reminder to us that things 
can get pretty dire when energy is not abundant, when it's not 
affordable and when we just don't have those diverse supplies.
    I think the witnesses that we have assembled before us 
today are a great panel. You represent the key figures in this 
difficult situation. We have the producers, the pipeline, the 
distributor, the regulator, the consumer and the policy 
official.
    So I thank each of you for joining us here this afternoon. 
Look forward to your testimony. You each have part of the 
puzzle. Hopefully we can assemble a more complete picture 
today.
    We've only had a short time that has passed. But I think we 
do know a few things with certainty. It's worthy of conducting 
an inventory before we get started.
    At the most basic level we know that our propane 
inventories were low heading into the winter. As you have 
mentioned, Madame Chair, it was a pretty tough winter, pretty 
brutal all around. With low supply and high demand we saw our 
prices spike.
    So we're back to basically the simple principles of supply 
and demand but as policymakers we know it's more than just Econ 
101 that we need to be recognizing here as we consider options 
for preventing such issues from occurring again. We need to 
have a deeper understanding of the factors that were at play 
and not just which factors, but more how they interacted to 
produce the results that they did. We know about the record 
propane production, the record corn production, the record 
temperatures and the record prices.
    So stepping back we also know that something else is true 
and that's the oil and gas renaissance is highlighting the 
Nation's need for more infrastructure, an infrastructure that 
is more closely adapted to today's new resource picture. Simply 
put, infrastructure is not just keeping pace with production.
    Yet we have to add another layer of analysis on top of that 
because in some cases we've got a situation where we have 
plenty of pipeline or plenty of storage capacity but it's 
underutilized for certain reasons. We need to look at how that 
factors into the situation. It's entirely possible, indeed it's 
likely, that a completely satisfactory reckoning will prove to 
be elusive, perhaps for some time. There may be limitations on 
data.
    There may be conflicting accounts. There may be some room 
for alternative, competing hypotheses, as they say in the 
Intelligence Committee. Not that that provides any solace to 
the millions of Americans in the Midwest who had to endure a 
pretty tough winter.
    Not that uncertainty in the face of changing seasons and, 
of course, that next winter is going to come upon us just as 
the summer is coming upon us now. That's not particularly 
reassuring. So hopefully the testimony that we will have today 
will shed some light on, what I think we would agree, is an 
important topic.
    So, thank you, Madame Chairman. Look forward to the 
contributions of our colleagues here this afternoon.
    The Chair. Thank you so much.
    Senator Franken, opening remarks?

          STATEMENT OF HON. AL FRANKEN, U.S. SENATOR 
                         FROM MINNESOTA

    Senator Franken. Thank you.
    I want to thank you, Madame Chair, for holding this hearing 
and also to the Ranking Member, Senator Murkowski.
    The propane shortage that we experienced this winter has 
been a huge issue in Minnesota as well as in the rest of the 
Midwest and Wisconsin and in the Northeast as well. An 
estimated 250,000 Minnesota homes use propane. But this winter, 
as has been said, was one of the coldest ever recorded in 
Minnesota and demand for propane soared as supplies dwindled.
    In early October propane was, on average, $1.67 per gallon. 
But at the height of the crisis it, I heard reports of prices 
as high as $6.67 per gallon.
    When the propane crisis hit I traveled around Minnesota and 
heard from people hurt by the propane shortage.
    I heard from homeowners who couldn't afford to heat their 
homes.
    I heard from turkey growers who couldn't heat their barns.
    That's why I asked for this hearing today to make sure the 
shortage doesn't happen again.
    I'm very pleased that we will hear today from John 
Zimmerman, a turkey grower from Northfield, Minnesota, whom I 
invited to be here. We met a couple times on this issue. To 
explain what this shortage meant to Minnesotans.
    In Minnesota I heard how the shortage hurt homeowners and 
farmers all over the State.
    One woman in Pine County, who I talked to, went to bed in 
several layers of clothes, wrapped in an electric blanket. When 
she awoke, everything in her house, including her olive oil, 
was frozen. Her propane tank was empty. Thank goodness for the 
Salvation Army because the Salvation Army came through and 
partially filled her propane tank. They did that across our 
State.
    This problem wasn't unique to Minnesota. It was the upper 
Midwest and the Northeast. Many rural families had to use their 
savings for propane or go into debt to buy propane to heat 
their homes and their farming operations.
    That's why I was so determined, along with Senator Baldwin 
and other members, to get relief for those who were affected. I 
asked the Administration to release low income heating 
assistance to those in need. I was pleased when they did so.
    I was also pleased that, following my request, FERC, the 
Federal Energy Regulatory Commission used its emergency 
authority to require more propane to be loaded onto the 
Enterprise pipeline for delivery north. We'll be discussing 
that. But the reason we are here today, that we're holding this 
hearing is to make sure that we're doing everything to avoid 
another propane crisis.
    I look forward to the testimony of all our witnesses. I 
want to thank all of you for being here today. In particular, 
Mr. Zimmerman, John Zimmerman, I want to thank you and welcome 
you, on behalf of the committee. I'm very pleased that you're 
here today.
    So, thank you, Madame Chair.
    The Chair. Thank you very much.
    Senator Baldwin.

         STATEMENT OF HON. TAMMY BALDWIN, U.S. SENATOR 
                         FROM WISCONSIN

    Senator Baldwin. Thank you.
    I want to also extend my appreciation to you, Chair 
Landrieu and Ranking Member Murkowski. You heard us raise this 
issue in any hearing that was remotely close to talking about 
propane. I'm glad we have one dedicated to this issue.
    You know, in Wisconsin cold and snowy winters are a way of 
life. While we pride ourselves on making the most of winter, 
it's really a harsh time of year. Every household in the State 
depends on having stable and affordable access to heat.
    This year Wisconsin residents faced a crisis when the price 
of propane skyrocketed, and they couldn't access the fuel that 
they use to heat their homes and their businesses. Like 
Minnesota, approximately a quarter million Wisconsinites use 
propane to heat their homes and thousands more use propane to 
heat their small businesses. They rely on this in our cold and 
harshest weather.
    Families facing the prospect of not being able to get 
propane this winter decided on things like whether to drain 
their water pipes to prevent them from freezing and go stay 
with relatives or neighbors. Many counties in the State of 
Wisconsin opened emergency warming shelters. Propane dealers 
were unable to get fuel to deliver to the families and 
businesses they've served for years and years. Resorts and 
businesses preparing for the peak snowmobile season--as well as 
the international crowd that comes to Northern Wisconsin for 
the skiing, for the Birkebeiner race--they were faced with 
really devastating choices like having to close their doors 
during some of the busiest and most profitable weeks of their 
year.
    Many residents and business owners and propane dealers 
called my office to ask what could be done to avert the severe 
supply shortages and address the rapid price spikes. Over the 
many weeks during which this crisis unfolded I, along with my 
colleagues, called on numerous agencies to help struggling 
residents. While help came, it did not come easy and it did not 
come fast enough.
    While I appreciate the good faith effort of the 
Administration, I think this crisis exposed two major flaws.
    First, the Department of Energy and the Federal Government 
as a whole did not have the plans or the tools in place to 
respond to this crisis or anticipate it.
    Second, this country didn't have adequate propane supplies 
in reserve to respond to a crisis of this magnitude.
    So I look forward to working with my colleagues and this 
committee on legislation and other measures to address these 
problems to ensure Wisconsin residents and businesses don't 
have to worry about whether they can heat their homes and when 
another cold winter descends on the Midwest this next year.
    I also want to thank our panel. We do have a wide range of 
experts, but I'm particularly pleased that Wisconsin is 
represented by Mr. Gary France.
    The Chair. Thank you all very much.
    Let's go right to our panel.
    Ms. Melanie Kenderdine, Director of the Office of Energy 
Policy and System Analysis. This Department is here to give us 
unbiased energy analysis and supports the energy leadership in 
the Department.
    Next we have Mr. Nils Nichols, Director of Division of 
Pipeline Regulation at FERC.
    Mr. Andrew Black, President and CEO of Oil Pipe Lines. He 
represents the owners and operators of liquid pipelines.
    Of course, then from Louisiana, Mr. Joe Cordill. He's been 
in the business. He's a veteran in the business, owner of 
Cordill Propane Service in Winnsboro, Louisiana. Thank you so 
much for being with us today.
    Mr. Zimmerman has already been introduced, but I'm so 
interested to hear about the 47 million turkeys that grow with 
Minnesota Turkey Growers Association and how that could be 
affected by this crisis. None of us are going to have a good 
Thanksgiving next year if this doesn't get solved.
    Mr. Gary France has already been introduced as well. 
Chairman of the National Propane Gas Association, so 
representing 3,000 companies which represent producers, 
wholesalers, transporters and retailers. So we're really 
looking forward to a great panel.
    Let's start with you, Ms. Kenderdine, if we could.

  STATEMENT OF MELANIE KENDERDINE, DIRECTOR, OFFICE OF ENERGY 
   POLICY AND SYSTEMS ANALYSIS, AND ENERGY COUNSELOR TO THE 
                SECRETARY, DEPARTMENT OF ENERGY

    Ms. Kenderdine. Great.
    Thank you, Chair Landrieu, Ranking Member Murkowski and 
members of the committee. I appreciate the opportunity to be 
here today to discuss the Department of Energy's response to 
the propane crisis.
    I would say that I grew up in the mountains of New Mexico 
where we heated our house with propane. We had similar problems 
when I was a young child. It was 25 below for a week. You're 
probably used to that in Alaska, Senator Murkowski, but so I am 
sympathetic to the problems of your constituents.
    As you know during this past winter extremely low propane 
supplies in 3 major regions of the Nation, the Midwest, the 
Northeast and parts of the South, created public health and 
safety dangers and caused extensive disruption to some 
businesses. I will focus my remarks today on the propane 
problems in the Midwest.
    Let me first note that the Obama Administration shares your 
concerns and was deeply engaged in responding to this crisis. 
We rapidly identified possible agency actions to address the 
crisis. We implemented a range of actions, had daily calls 
among agencies, States and the private sector to track the 
prices and the progress of the actions we took and maintained 
constant situational awareness.
    A confluence of unusual events contributed to the crisis. 
These included the severe weather that you have already talked 
about, a large corn crop that requires propane for drying. I 
understand it was an unusually wet season over the summer, a 
very huge corn crop. So the drying occurred quite late in the 
season. There were also some market practices and conditions 
that both discouraged inventory builds and exposed distributers 
to price and supply risks.
    DOE's authorities to deal with this type of crisis are 
limited. The most relevant statute is the Defense Production 
Act which grants the President the authority to promote the 
national defense. That is if there is a nationwide crisis. But 
it also allows us to maximize energy supplies by prioritizing 
contracts.
    FERC has similar authorities. I think you'll hear about 
those today. FERC exercised these authorities in this crisis. 
DOE offered to intervene in support of FERC's actions. DOE also 
has extensive emergency preparedness and response 
responsibilities through the sector specific agency role it has 
for the energy sector.
    As I noted this winter there was rapid and coordinated 
response by Federal agencies. This included data collection, 
analysis and dissemination to help inform and prioritize 
Federal and State response actions. That was DOE's role.
    Issuing hours of service waivers for truck transport. That 
was the Department of Transportation.
    Prioritization of propane pipeline shipments, that's FERC.
    Efforts to assist distributors in getting loans, Small 
Business Administration.
    The acceleration in distribution of LIHEAP funds from HHS.
    As early as November DOE started participating in 
conference calls in the Midwest and Northeastern States 
regarding propane and home heating oil constraints.
    In December, EIA warned of high prices, high demand and low 
inventories.
    From January through March 2014, DOE participated in daily 
phone calls with State officials to both obtain and share 
information.
    We also shared this information on daily interagency 
coordinating calls that was led by the White House.
    Secretary Moniz made personal calls to CEOs of propane 
distribution companies urging them to prioritize propane 
deliveries and discussing problems and issues.
    During the crisis DOE's Emergency Response Organization was 
activated. The ERO issued 19 spot reports and two comprehensive 
analysis reports. We briefed Governor's offices and the House 
and Senate staff at least twice. I think we briefed the Senate 
3 times. The small and fragmented nature of propane markets and 
the limited availability of granular information inhibited 
situational awareness and could have hindered potential 
emergency responses.
    To address these challenges EIA offers funding for States 
to participate in the State Home Heating Oil and Propane 
Program or SHOPP. From October to mid-March States participate 
in weekly calls to retail heating oil and propane outlets. EIA 
releases these data which are closely watched by interested 
parties.
    Trade associations including NASEO have subsequently hosted 
lessons learned workshops. With your permission I would like to 
insert for the record a summary from NASEO that identifies 
possible mid and long term items for your consideration.
    DOE is also planning to conduct regional emergency 
workshops in the States on their energy assurance plans. In 
addition Secretary Moniz has asked the National Petroleum 
Council to conduct a study to enhance industry and government 
capabilities for addressing natural disasters.
    Looking to the future the Quadrennial Energy Review 
launched by President Obama in January of this year will focus 
on energy transmission, storage and distribution 
infrastructure. Specifically the QER will analyze the 
reliability, flexibility and affordability of these 
infrastructures and make policy recommendations including 
executive and legislative actions to help ensure that America 
has an infrastructure that can enhance its economic 
competitiveness, environmental performance and energy security.
    The Chair. Please try to wrap up, if you can.
    Ms. Kenderdine. Yes.
    Thank you.
    [Laughter.]
    Ms. Kenderdine. I do want to say one thing. We are for the 
QER, we have had two regional meetings already. We had that in 
Providence, Rhode Island and Hartford, Connecticut. We are 
planning 13 more, one in Louisiana, one in Minnesota, North 
Dakota, Oregon, etcetera, etcetera. Propane will surely be an 
issue that we discuss in those regional meetings. Thanks again.
    [The prepared statement of Ms. Kenderdine follows:]

 Prepared Statement of Melanie Kenderdine, Director, Office of Energy 
  Policy and Systems Analysis, and Energy Counselor to the Secretary, 
                          Department of Energy
    Thank you Chair Landrieu, Ranking Member Murkowski, and Members of 
the Committee. I appreciate the opportunity to be here today to discuss 
the Department of Energy's response to the propane shortages in the 
Midwest and New England this winter. I am the Director of DOE's Office 
of Energy Policy and Systems Analysis as well as the Energy Counselor 
to the Secretary.
    Madam Chair, Senator Murkowski, as you know, during this past 
winter extremely low energy supplies in three major regions of the 
nation (the Midwest, the Northeast and parts of the South) created 
public health and safety dangers and caused extensive disruption to 
some businesses. I will focus my remarks today on propane problems in 
the Midwest.
    Let me first note that the Obama Administration was deeply engaged 
in responding to this crisis and took our responsibilities in this 
regard very seriously. We rapidly identified possible agency actions to 
address this crisis, implemented a range of actions identified by 
several agencies and state officials, had daily calls among agencies, 
states, and the private sector to track the crisis and the progress of 
the actions we took, and maintained constant situational awareness. I 
will discuss these actions in greater detail below.
                         propane use in the us
    Propane use is a relatively small component of national energy 
consumption by energy content (1.7 percent in 2012). About 65 percent 
of propane is consumed in the industrial sector (including feedstocks 
and agriculture), roughly 2-3 percent for transportation with the 
remaining 32 percent used in the residential and commercial sectors. 
Propane is however a critical fuel for homes where it provides heating, 
serving roughly 5.5 million homes, largely in sparsely populated rural 
areas where energy infrastructures is more capital-intensive because of 
the distance between consumers. About half of these homes are in the 
Midwest and the Northeast (36 percent and 14 percent respectively).
    Within PADD 2 (the Midwest) which has the highest percentage of 
residential propane use, propane is used to heat 7 percent of 
residential homes. Propane is used for residential heat in 4 percent of 
residences in PADD 1 (the East Coast).
    The propane market is highly fragmented; 30 percent of the retail 
propane distribution market is held by three firms, with the remaining 
70 percent market share held by another 3,500 firms. This fragmentation 
creates challenges for information awareness, data collection, and risk 
management. Bulk propane is typically delivered to centralized storage 
locations via rail, common carrier pipeline and truck. Propane is 
further delivered to local distributors by truck and then from these 
local distributors to residential consumers, also via truck. A large 
percentage of propane is delivered to the upper Midwest via pipeline.
                       contributors to the crisis
    As we know, in the winter heating season of 2013-2014 there were 
propane shortages, propane price spikes, record low inventories, and 
delivery limitations. Shortages were most acute in states at the tail 
end of distribution networks, and retail prices were highest in Iowa, 
North Dakota, South Dakota, and Minnesota in the Midwest; and Rhode 
Island and Vermont in the Northeast. A confluence of unusual events 
contributed to a severe situation in the Midwest, resulting in 
significant negative consequences for residential and agricultural 
customers.
Weather
    There was also an unusually late and larger than normal use of 
propane for drying a large and wet corn crop, one of the major uses of 
propane in the Midwest. This larger than expected demand strained 
propane supplies going into the winter and reduced inventories at 
distribution terminals in the upper Midwest. No special refill measures 
were taken to replenish supplies that were depleted by crop drying 
demand, most likely due to NOAA forecasts and the relatively mild 
weather of the previous winter.
    This was followed by a cold winter. It is important to note that 
actual temperatures were markedly different from expectations. NOAA did 
not forecast an unusually cold or intense winter, and the previous 
winter had been relatively mild; NOAA did indicate colder than normal 
winters might occur in ``a small swath of the Northern Plains from 
northeast Montana into parts of the Dakotas and Minnesota.'' It also 
indicated ``above-average temperatures in the Southwest, the South-
Central U.S., parts of the Southeast, New England and western Alaska.'' 
As of March 6, 2014, compared to the previous winter, the Northeast was 
13 percent colder, and the Midwest and South were 19 percent colder. 
The cold in these regions came early and persisted for an extended 
period of time
Market Conditions, Industry Practice
    Throughout the buildup to the 2013/2014 winter heating season, 
propane spot prices were higher than in prior years and futures prices 
were significantly backwardated\1\. This discouraged market 
participants from building propane inventory. Also, approximately 60 
percent of residential propane retail deliveries were conducted under 
fixed-price winter heating season contracts in the $1-$2/gallon gas 
range. This market structure generally serves both consumers and 
suppliers well under earlier normal market conditions. However, in 
light of developments this winter and high wholesale prices, suppliers 
were quickly exposed to significant price and supply risks.
---------------------------------------------------------------------------
    \1\ Backwardation--A market where the price for nearby delivery is 
higher than for further forward months. The opposite of backwardation 
is contango
---------------------------------------------------------------------------
Infrastructure Issues
    The Cochin pipeline, which historically has supplied propane from 
Canada to the Midwest, was offline for maintenance in late 2013. The 
closure of the Cochin pipeline for part of November and December 2013 
was important because it reduced opportunities to refill propane stocks 
during the interim time period between crop drying and the onset of 
peak winter season. Additionally, the Hess natural gas processing and 
fractionation facility in Tioga, ND was offline due to expansion work. 
These outages were publicized before they occurred, but as noted, 
propane re-supply was challenging.
    Large draws on storage for crop drying use were not replaced before 
the onset of cold winter weather because market conditions did not 
support building inventory. The low inventories combined with cold 
weather were key physical triggers of events. Resupply was made more 
difficult by the temporary closure for maintenance of the Cochin 
pipeline and the inability to reverse flow on other pipelines that flow 
north to south, moving propane from the Midwest to the U.S. Gulf Coast. 
However, the significant flexibility of the trucking distribution 
system, especially the effective Department of Transportation (DOT) 
actions to exempt truck drivers from certain restrictions, proved key 
in facilitating propane resupply to the Midwest during the height of 
the shortages. The Federal Energy Regulatory Commission's (FERC) action 
to prioritize pipeline movement of propane during the height of the 
shortage added flexibility that was not available normally.
               consumer impacts and commercial responses
    According to EIA data, between December 2013 and January 2014, 
residential propane prices in the Midwest more than doubled from an 
average of $2.08 per gallon on December 2, 2013, to $4.20/gal on 
January 27, causing significant hardships to propane consumers. By 
February 3, prices had dropped to $3.83/gal and by March 3 to $2.78/
gal.
    Propane prices at Mont Belvieu, TX and Conway, KS, the major 
propane trading hubs on the U.S. Gulf Coast and in the Midwest, 
respectively, have historically been within pennies of each other. In 
late January the price of propane at Conway reached a record $2.97/gal 
above the price at Mont Belvieu. This differential sent a strong signal 
to producers and distributors, and market participants responded by 
moving additional supplies northward via pipeline (but also via truck 
from Mont Belvieu to the Midwest). High prices in New England also 
attracted incremental global supplies via ship.
                            doe authorities
    DOE's authorities to deal with this type of crisis are limited. The 
most relevant statutory authority is the Defense Production Act (DPA), 
which grants the President the authority to prioritize contracts deemed 
``necessary or appropriate to promote the national defense,'' as well 
as the authority to prioritize contracts necessary to maximize domestic 
energy supplies. DPA authorities have been delegated to multiple 
agencies by the President, including DOE and the Department of Commerce 
(DOC). These authorities overlap with the FERC's authority to 
prioritize certain pipeline shipments under the Interstate Commerce 
Act, and with the Surface Transportation Board's authority to 
prioritize rail shipments under the ICC Termination Act of 1995.
    DOE does however, have extensive interagency coordination 
responsibilities through its roles as the Sector Specific Agency as 
outlined in Presidential Policy Directive (PPD)-21, the Emergency 
Support Function-12 (ESF-12) in support of the National Response 
Framework, and through the information and expertise it provides to the 
National Preparedness function as outlined in the PPD-8.
    These activities focus on a range of efforts from preparedness to 
long term recovery from incidents or events. While engagement with 
industry addressed policies, practices, and procedures to enhance the 
reliability, security, and resilience of their systems, anti-trust laws 
limit the types of discussions surrounding market issues. During this 
propane event, DOE was intensely engaged with industry via daily calls 
with associations and one-on-one calls with specific companies.
                          timeline of actions
    As I noted earlier, there was a rapid and coordinated response by 
Federal agencies that included DOE, DOT, FERC, the Environmental 
Protection Agency, DOC, the Department of Labor and the Department of 
Health and Human Services. Federal actions included data collecting and 
dissemination (DOE) in order to help inform and prioritize Federal and 
state response actions, issuing hours of service waivers for truck 
transport (DOT), prioritization of propane pipeline shipments (FERC), 
and acceleration of Low-Income Home Energy Assistance Program (LIHEAP) 
funds availability (HHS).
    Several offices in the Department of Energy were engaged in 
responding to the crisis, including the Office of Electricity Delivery 
and Energy Reliability (OE) and its sub-office the Office of 
Infrastructure Security and Energy Restoration (ISER), Office of Fossil 
Energy (FE), the Energy Policy and Systems Analysis Office (EPSA), the 
Energy Information Administration (EIA) and the Office of the 
Secretary. During the crisis, DOE's Energy Response Organization\2\ 
(ERO) was activated. This organization played a key data gathering and 
reporting role and regularly reached out to States, industry, 
Interagency and intradepartmental partners. Starting in January, 2014, 
the ERO Communications and Situation Reporting Team issued 19 Spot 
Reports and two comprehensive analysis reports, and provided inputs to 
three Congressional Staff updates, and two briefs for the Department's 
senior leadership; it also generated daily consolidated situational 
reports. The DOE ERO Energy Restoration Team, comprised of industry, 
interagency, and DOE representatives, held daily calls with States, 
industry associations, and Federal partners.
---------------------------------------------------------------------------
    \2\ The DOE ERO resides in the Office of Electricity Delivery and 
Energy Reliability (OE) managed by the Infrastructure Security and 
Energy Restoration (ISER) Division, with support from OE's Energy 
Infrastructure Modeling and Analysis Division (EIMA), as well as, DOE 
Energy Information Administration (EIA), Fossil Energy (FE), Energy 
Policy and Systems Analysis (EPSA), General Counsel (GC), Congressional 
and Intergovernmental Affairs (C-IGA), and Public Affairs (PA), among 
others.
---------------------------------------------------------------------------
    These calls served several purposes: to inform senior leadership 
about the propane situation, to identify federal assistance where 
appropriate, to share information with the states, particularly data on 
product availability, and to inform federal efforts to address the 
situation.
    The following timeline shows DOE's involvement during the propane 
crisis:

   November 2013--Crop drying tightens markets to lowest 
        propane stock in PADD 2 in five years;
   November-December 2013--The Cochin Pipeline was taken 
        offline for maintenance.
   November 2013--DOE's Office of Infrastructure Security and 
        Energy Restoration (ISER), began participating in conference 
        calls with Midwest and Northeast states regarding propane and 
        home heating fuels constraints in November 2013.
   Mid-December 2013--There is a large gas storage withdrawal, 
        raising prices on gas supplies from which propane is produced;
   December 12, 2013--DOE's EIA reports that ``propane demand 
        hits a record high for November, when propane consumption hit 
        levels typically seen in January or February when the winter 
        heating season hits its peak. . .propane inventories in PADD 2 
        (the Midwest) were at their lowest level for November since 
        1996
   January 2014--In early January, the polar vortex affects 
        much of the U.S. The upper Midwest was hit especially hard;
   January 15, 2014--DOE's EIA publishes a This Week in 
        Petroleum article on the impact of cold weather on propane 
        demand, as Midwest propane markets tightened further on cold 
        weather, noting the continued low temperatures and regional 
        supply disruptions.
   January 27, 2014--DOE's Energy Response Organization (ERO--
        managed by OE) is activated to an Enhanced Watch/Monitor 
        posture to determine industry and state actions and assess if 
        there are any requests for DOE assistance. The Situation Report 
        Team begins issuing daily internal reports and holding regular 
        calls with industry associations and States.
   January--March 2014--DOE participates in phone calls with 
        Midwest State energy offices on January 10, 17, 24 and 29, 
        February 5, 12, 21, 28, and March 14 to share information on 
        Federal actions and to obtain information on propane supply 
        issues and State actions.

    --Information from these calls and other calls with state officials 
            is shared on daily interagency coordinating calls, 
            including with the White House, which commences on January 
            27 and continues daily throughout February and early March.

   January 31, 2014--DOE's EIA issues its first Propane 
        Situation Report.
   February 5, 2014--DOE's EIA issues its second Propane 
        Situation Report.
   February 2014--In early February the National Propane Gas 
        Association petitions FERC to use its prioritization 
        authorities.
   February 6, 2014--DOE and FERC staff discusses 
        prioritization authorities and DOE offers to intervene with 
        FERC in support of its use of this authority.
   February 7, 2014--FERC utilizes its prioritization 
        authorities on the Enterprise TEPPCO products pipeline after 
        discussion with other agencies;
   Late February/early March 2014--The spread between Conway 
        and Mont Belvieu spot propane prices starts to narrow;
   February 26, 2014--DOE's ERO deactivates, though DOE staff 
        remain in close communication with State, industry, and Federal 
        partners. Calls to all stakeholders continue until improvements 
        in both supply availability and moderating prices persisted. 
        The final spot report is issued.
   March 12, 2014--DOE's EIA issues its third and final Propane 
        Situation Report.

    DOE also led the following actions:

   Conference call with Governor's offices and numerous 
        individual calls to Governor's offices
   Senate and House briefings: January 28 (EIA, OE), March 3 
        (EIA)
   Senate Briefing: January 31 (WH, FERC, DOT, EIA, OE)
   Calls to large scale marketers, wholesale retailers, 
        dealers, pipeline companies, and associations.
                     lessons learned and next steps
    DOE's focus on data and communication provided critical feedback 
loops for actions taken, their effectiveness, and critical information 
to states, localities, distributors and other industry actors. The 
immense flexibility of the trucking distribution system, especially 
with the effective DOT actions to exempt truckers from certain 
restrictions, was a key element in supplying the region during the 
height of the shortages. Also, FERC's action to prioritize pipeline 
movement of propane during the height of the shortage added 
flexibility.
    The small and fragmented nature of propane markets and the limited 
availability of granular information, however, limited situational 
awareness and could have hindered potential emergency responses. In 
order to address these challenges, EIA will offer funding support for 
States to participate in the State Heating Oil and Propane Program 
(SHOPP). The State Energy Offices that collaborate with EIA to conduct 
this survey use the aggregated data to monitor the heating fuel markets 
in their States as well as to develop and maintain programs that 
provide financial assistance for heating costs to low-income residents. 
At least eight additional states have expressed interest in 
participating this coming winter. DOE has the capability to develop 
enhanced data gathering and analysis capabilities for this market 
segment.
    Associations, including the National Association of State Energy 
Officials and the National Gas Propane Association, are hosting lessons 
learned meetings to identify steps that forward to prevent shortages 
from happening in future years. OE is planning to conduct regional 
exercises with states on their Energy Assurance Plans and how these 
plans can best prepare states to respond quickly in a crisis situation, 
such as the propane crisis. In addition, Secretary Moniz asked the 
National Petroleum Council to conduct a study on emergency preparedness 
to enhance industry and government capabilities for addressing natural 
disasters that have the potential to disrupt the delivery of natural 
gas, propane, and other fuels to consumers. Looking to the future, the 
Quadrennial Energy Review, launched by President Obama in January of 
this year, will address energy infrastructure. In particular, it is 
focused on energy transmission, storage, and distribution (TS&D) 
infrastructure, and will include regional fuel resiliency studies, 
inspired in part by the propane situation as well as by the aftermath 
of Hurricane Sandy.
    As our review and surveillance of last winter's propane problems 
for the Midwest found, propane transmission pipelines, storage, and 
distribution all played roles in the challenges and solutions to the 
events that occurred. In looking at TS&D infrastructure, the Department 
will consider the challenges of the propane markets as each of these 
infrastructure elements played a role in the challenges and solutions 
to the events that occurred this past winter.
    On April 21, 2014, DOE, acting on behalf of the Interagency QER 
Task Force, held a QER public meeting in two locations in New England: 
Providence, RI and Hartford, CT. Secretary Moniz, elected officials, 
more than 20 invited panelists, and members of the general public 
participated in the meeting. A key topic discussed at the meeting was 
the recent propane shortage in New England. Representatives of the 
propane industry gave presentations and participated in the initial 
panel discussion. These representatives provided important perspectives 
and suggestions about how to address the New England propane situation 
in future years. Their written statements are available at the DOE 
website at www.Energy.gov/QER. DOE will also hold meetings in North 
Dakota, Chicago, and other Midwestern locations, where it will hear 
from stakeholders on rail, barge and truck transport of fuel. Propane 
and related issues will also be a major topic of discussion at these 
meetings.
    The first QER will examine transmission, storage and distribution 
infrastructure, specifically assessing its reliability, flexibility, 
and affordability in order to make policy recommendations including 
executive and legislative actions as appropriate, priorities for 
research and development investments, and identify analytical tools and 
data needed to support further policy development and implementation. 
These recommendations will help ensure America has an infrastructure 
that can enhance U.S. economic competitiveness, environmental 
performance, and energy security.
                               conclusion
    Madam Chair, Ranking Member Murkowski and Members of the Committee, 
I appreciate the opportunity to discuss these important issues. Please 
be assured that should conditions that tend to threaten propane supply 
arise during future winter seasons, the Administration and appropriate 
Federal agencies will work aggressively and swiftly to ensure that we 
address the needs of the American public. I would be happy to answer 
any questions you may have.

    The Chair. Thank you.
    Mr. Nichols.

   STATEMENT OF NILS NICHOLS, DIRECTOR, DIVISION OF PIPELINE 
        REGULATION, FEDERAL ENERGY REGULATORY COMMISSION

    Mr. Nichols. Madame Chair, Ranking Member Murkowski and 
members of the committee, thank you for this opportunity to 
testify here today. The comments are my own and do not 
necessarily reflect the views of the Commission.
    I'd like to begin with a brief overview of the Federal 
Energy Regulatory Commission and the oil and product pipeline.
    The Chair. Can you speak into your mic a little bit? Just 
pull it closer to you. Thank you so much.
    Mr. Nichols. Certainly. If that's not good let me know.
    I'd like to begin with a brief overview of the Federal 
Energy Regulatory Commission and the oil and product pipeline 
program and follow up with a summary of the emergency actions 
that we took this past winter with regard to propane.
    The Commission is an independent regulatory agency. As such 
it exercises only the authority that Congress has delegated to 
it in statutes such as the Federal Power Act, the Natural Gas 
Act and the Interstate Commerce Act.
    The Commission has approximately 1,500 employees. The Oil 
and Product Pipeline Regulation Program has a total of about 15 
employees or 1 percent of that small agency.
    Oil and product pipelines are common carriers which mean 
they provide service to anyone who meets the terms and 
conditions of their tariff who wishes to ship on the pipeline. 
The pipelines typically do not own the products they ship. 
Their role is to provide a transportation service. The 
pipelines provide the service pursuant to tariffs that must be 
filed with the Commission.
    We regulate the interstate rates and terms and conditions 
of service pursuant to which those services are offered. The 
Interstate Commerce Act does not provide the Commission with 
construction or abandonment authority over oil and product 
pipelines. This is in contrast to the authority that Congress 
has given us in the Natural Gas Act.
    The Interstate Commerce Act also prohibits us from 
revealing shipper information concerning the nature, kind, 
quantity, destination or routing of any property tendered or 
delivered to the pipeline. The Interstate Commerce Act also 
does not afford the Commission jurisdiction over terminal 
facilities that are not necessary or integral to the pipeline 
transportation function.
    The filings that we process are essentially administrative 
hearings that are typically conducted on a paper record. 
Interested entities may intervene and participate in those 
proceedings. We have many, many parties who do. Our rulings, of 
course, may be appealed to the court system.
    Turning to the events of this past winter.
    On February 7, 2014, which was a Friday, the Commission 
determined that an emergency existed. It did so, in part, 
through our communications with other agencies and also from 
Members of Congress, State Governors and so forth.
    On February 7th, we issued an order directing Enterprise TE 
Pipeline Products Company, which operates a batch pipeline, 
meaning it ships many products other than propane, from Mont 
Belvieu, Texas which is down in the Houston area into the 
Midwest and Northeast. We ordered them to provide 7 days of 
priority treatment for propane shipments.
    This is an authority we had not used before. It dates back 
to approximately 1920 and was apparently directed at railcar 
shortages following World War I.
    The following Monday, February 10th, I conducted a dispute 
resolution proceeding because we did not have time to construct 
a record on which to base our action because we acted so 
quickly. We wanted to make sure that we weren't going to have 
unintended consequences such as depriving the region of jet 
fuel, motor gasoline or other substances that flow through that 
pipeline.
    Thanks to the exceptional preparedness of the pipeline and 
the National Propane Gas Association we reached a satisfactory 
result in 3 hours. The parties submitted filings with the 
Commission reflecting their agreement that if we extended the 
emergency treatment of propane, of prioritization of propane, 
for an additional 7 days it would take care of the problem.
    The next day the Commission issued an order approving that 
solution. So we extended the prioritization of propane for a 
total of 14 days.
    My understanding is that approximately an additional 
500,000 barrels of propane moved up the pipeline as a result of 
that action.
    Thank you.
    [The prepared statement of Mr. Nichols follows:]

  Prepared Statement of Nils Nichols, Director, Division of Pipeline 
            Regulation, Federal Energy Regulatory Commission
    Chairman Landrieu, Ranking Member Murkowski, and Members of the 
Committee:
    My name is Nils Nichols and I am the Director of the Division of 
Pipeline Regulation within FERC's Office of Energy Market Regulation. I 
am here to discuss FERC's jurisdiction over propane and FERC's actions 
in response to the propane shortage that occurred this past winter.
    FERC has jurisdiction over the transportation of oil and other 
petroleum products by pipeline. This jurisdiction is conferred by the 
Interstate Commerce Act. There are generally two types of oil pipelines 
that FERC regulates. One is pipelines transporting crude oil. The other 
is pipelines transporting a variety of refined oil products such as 
gasoline, diesel fuel, jet fuel, and natural gas liquids, which 
includes propane. Both types of pipeline are referred to as ``oil 
pipelines.''
    The relationship between an oil pipeline and the shippers on the 
line is governed by the pipeline's FERC Tariff, which sets forth the 
pipeline's rates and its terms and conditions of service. Broadly 
speaking, FERC's statutory mandate is to ensure that a pipeline's rates 
are just and reasonable, and that it provides services in a manner that 
is neither preferential for anyone nor unduly discriminatory.
    Turning now to propane itself, it is important to understand the 
scope of FERC's jurisdiction. First, FERC has no jurisdiction over the 
commodity propane, including its price. Second, FERC does not have 
jurisdiction over the storage or the marketing of propane. And finally, 
though FERC does regulate propane pipeline transportation, it does not 
have a role in the actual day-to-day pipeline operations.
    As the Members of this Committee know, during this past winter, the 
supplies of propane in the Midwest and Northeast became critically low. 
In January, FERC Staff was contacted by representatives of the National 
Propane Gas Association who were concerned that propane supplies might 
actually run out in the Midwest and Northeast. The Association 
indicated in particular that Enterprise TE Products Pipeline Company, 
which is a pipeline that transports propane and other refined products 
to the Northeast and Midwest, might be able to transport enough propane 
to help alleviate the shortages if FERC could direct it to give propane 
shipments priority over the transportation of the other products it 
handles. The Commission Staff was also contacted by Enterprise and at 
that point encouraged Enterprise and the propane shippers to work 
informally to find ways to transport more propane within the terms of 
Enterprise's FERC Tariff.
    At the same time, the Commission began participating in a number of 
ad hoc federal and state task forces that were organized to monitor the 
propane shortage situation and to explore possible solutions. FERC 
Staff engaged in phone calls with other federal agencies, agencies and 
officials in the affected states, as well as phone calls coordinated by 
the White House. FERC Staff also responded to inquiries from this 
Committee, the House Commerce Committee, and Senators and Congressmen 
from the affected states.
    Some pipelines serving the Midwest responded to the crisis with 
voluntary filings to be able to act under their FERC Tariffs to flow 
more propane to the affected areas. These filings were promptly 
approved by the Commission.
    On February 6, 2014, the National Propane Gas Association and its 
members filed a request for emergency relief to direct Enterprise to 
temporarily provide priority treatment to propane shipments from Mont 
Belvieu, Texas to locations in the Midwest and Northeast. The 
Commission issued a notice on the same day and requested comments on an 
expedited basis. The next day, on February 7, 2014, the Commission 
determined that an emergency existed requiring immediate action and 
issued an order directing Enterprise to provide seven days of priority 
treatment for propane shipments to help alleviate the propane shortage. 
This action was taken under a section of the Interstate Commerce Act 
that gives FERC the power to act when it is of the opinion that there 
is an emergency requiring immediate action. This was the first time 
that FERC has exercised such authority under the Interstate Commerce 
Act.
    In conjunction with the emergency order, FERC Staff conducted 
alternative dispute resolution discussions with the National Propane 
Gas Association and Enterprise TE Products Pipeline Company to 
determine if a longer-term, voluntary solution to the propane shortages 
could be achieved. As a result of these discussions, the parties 
submitted filings reflecting their agreement that the emergency order 
be extended for another seven days. The next day, on February 11, 2014, 
the Commission issued an order extending priority treatment for propane 
shipments for an additional seven days. The Commission's and 
stakeholders' actions appear to have been successful, as no further 
action by the Commission with respect to propane supply was required 
this past winter.
    I appreciate the opportunity to testify before this committee on 
behalf of FERC and would be happy to answer any questions that you 
have.

    The Chair. Thank you very much.
    Mr. Black.

STATEMENT OF ANDREW J. BLACK, PRESIDENT AND CEO, ASSOCIATION OF 
                     OIL PIPE LINES (AOPL)

    Mr. Black. Thank you, Madame Chair, Senators.
    I'm Andy Black, President and CEO of the Association of Oil 
Pipe Lines. Our members operate 185,000 miles of pipelines 
delivering crude oil, refined products such as gasoline and 
diesel and natural gas liquids such as ethane and propane. In 
2013 we transported 14.1 billion barrels of crude oil and 
products for delivery to American consumers, workers, farmers 
and homeowners.
    Our businesses deliver energy products on behalf of 
shipping customers. Like FedEx or UPS, we generally do not own 
the products that we ship. We earn revenue by making shipments 
for customers. The more products pipelines deliver, the more 
pipelines earn. So we have every financial incentive to make 
deliveries including deliveries of propane when they are 
requested by shipping customers.
    This winter when local propane supplies were a concern, 
pipeline operators were asked to help. They responded. 
Operators ran their dedicated propane lines at maximum 
capacity. Operators of lines with multiple different products 
worked with customers to voluntarily defer shipments of other 
products so that propane shippers could ship more propane. 
Pipeline operators participated fully in the DOE efforts during 
the crisis and fully complied without challenge to orders from 
FERC to prioritize propane shipments.
    The events of this winter were not the result of 
insufficient pipeline infrastructure nor of insufficient 
national propane supply. There's enough pipeline capacity to 
transport propane supplies to where they are needed as long as 
the owners and the shippers of the propane adequately plan for 
their winter demand prior to winter.
    As an example, this first chart shows the 48,000 barrels 
per day Mid American pipeline western leg servicing Minnesota. 
The horizontal line across the top represents the pipeline's 
capacity and the blue line that dips down like a U shows 
deliveries requested by and made for propane shippers. As you 
can see propane shipments were at system capacity in December 
2013 and January 2014.
    However, shipments from February to October of last year 
were far below the capacity of the pipeline. On average, 
shippers use only 32 percent of this pipeline's capacity. That 
means nearly 12 million barrels per day of propane capacity on 
a pipeline went unused by propane shippers. That's 12 million 
more barrels of propane than Minnesota farmers and homeowners 
could have used last winter, but it wasn't requested or shipped 
by propane marketers and distributors.
    As another example, unutilized propane capacity is similar 
in Wisconsin. This chart shows the Eastern leg of the MAPL 
pipeline servicing Wisconsin propane terminals. It averages 
only 50 percent utilization meaning that on average, 9.5 
million barrels of propane capacity on this pipeline goes 
unutilized by propane distributors and marketers each year.
    Volumes of propane stored in the Midwest were also low 
throughout 2013. This third chart shows propane storage volumes 
in the Midwestern States of PADD-2, the mid yellow,--the wide 
yellow band is the range of storage levels over the last 10 
years. The blue line at the bottom of the yellow band is the 
monthly Midwestern propane balance last year. On the right you 
can see the balances last year were below average in the fall 
as farmers use additional propane to dry their crops and then 
homeowners continue to use propane supplies to heat their homes 
in the winter. However, this also shows that inventories last 
year were low back in March, April, May and throughout the 
summer. That means that local propane distributors went into 
the fall with low balances at a time when they could have been 
using the millions barrels of spare pipeline capacity to 
replenish their stocks and get ready for winter.
    Two other points.
    AOPL has no position on the issue of exporting energy 
commodities such as propane. Our role is simply to ship 
products within the U.S. on behalf of shippers. However as this 
chart shows, we see that U.S. propane production is at its 
highest level in 10 years.
    The country has bountiful new levels of crude oil and 
natural gas and other products such as propane derived from 
them. Our members are working diligently to expand and reroute 
our pipeline infrastructure to connect to these new supplies.
    Next, increased U.S. production of propane has led to 
shifts away from importing propane into the U.S. from Canada. 
The Cochin pipeline shipping propane and other liquid gas 
products from Alberta down through the upper Midwest has seen a 
drop in usage from 60 percent down to 22 percent annual 
utilization. With propane customers in Minnesota and elsewhere 
using only 22 percent of Cochin its owner is in the process of 
converting it to a better use, to other service. With the spare 
capacity we saw earlier in the other lines in the region we 
believe there is certainly sufficient remaining pipeline 
capacity for propane to meet regional needs.
    The simplest and most straightforward solution to prepare 
for next winter is for distributors and marketers to use the 
millions of barrels of spare pipeline capacity they have 
available to them. Also, the community may wish to discuss ways 
to encourage development and use of local and regional storage 
capacity and options to encourage individuals to fill their 
propane tanks before winter. Pipeline operators look forward to 
shipping as much propane as they can to those customers and to 
any other locations in the future.
    Thank you.
    [The prepared statement of Mr. Black follows:]

 Prepared Statement of Andrew J. Black, President and CEO, Association 
                        of Oil Pipe Lines (AOPL)
    I am Andy Black, President and CEO of the Association of Oil Pipe 
Lines (AOPL). AOPL represents the owners and operators of energy 
liquids pipelines. I applaud the Committee for its continued interest 
in energy infrastructure, and for holding this hearing. Thank you for 
the opportunity to discuss the role of pipeline infrastructure in 
propane supply.
    Liquid pipeline infrastructure across the U.S. benefits American 
consumers and workers. Pipelines are the safest and least-expensive 
mode of energy transportation over land. During the recent local 
propane shortages, pipeline operators worked with propane shippers and 
the federal government to facilitate the delivery of additional propane 
supplies. Liquid pipeline operators are expanding the nation's pipeline 
network to move energy from new production and storage areas to 
customers in traditional demand areas as well as developing markets. 
Although new or expanded capacity is needed and will be needed to 
support the tremendous growth in U.S. energy supplies, pipeline 
capacity generally is sufficient, especially during off-peak times, to 
ensure that fuel supplies such as propane and motor fuels are adequate 
to meet domestic seasonal needs. Government can help ensure the 
availability of adequate pipeline infrastructure by avoiding 
unnecessary delays in regulatory approvals and continuing to provide a 
transportation rate structure that supports new pipeline investment.
 liquid pipeline infrastructure benefits american consumers and workers
    Liquids pipelines transport the crude oil, refined products, and 
natural gas liquids that American consumers and workers use every day 
to lead their lives and fuel their jobs. In 2012, liquid pipeline 
operators delivered more than 14.1 billion barrels of crude oil and 
petroleum products across more than 185,000 miles of pipeline in the 
U.S.
    Liquids pipelines transport crude oil from production areas across 
the U.S. and Canada to storage hubs and refineries. Separate liquids 
pipelines transport refined petroleum products (like gasoline, diesel 
fuel, jet fuel, and home heating oil) from refineries to local 
distribution terminals and other demand markets. Still other liquids 
pipelines deliver natural gas liquids products (like ethane, butane, 
and propane) from production areas, to and from fractionation 
facilities, and on to U.S. consumers, manufacturers, and industrial 
users.
    Americans benefit from liquids pipelines to heat their homes, fuel 
their vehicles, dry their clothes, harvest and dry their crops, 
manufacture consumer goods, and more. Nearly every gallon of gasoline 
American consumers put into their vehicles travels at some point 
through a liquids pipeline. Liquids pipelines allow American consumers 
to benefit from U.S. crude production regions in Texas, North Dakota, 
California and states in between. Liquids pipelines are transporting 
growing supplies of natural gas liquids from new production areas in 
North Dakota, Pennsylvania, Ohio, Oklahoma and Texas to chemical and 
plastics manufacturing facilities in the U.S. and creating new, good-
paying jobs for American industrial workers. Pipeline construction 
creates good-paying jobs, as well.
                         recent propane issues
    The importance of pipelines and other midstream transportation 
infrastructure was underscored by what happened last winter in propane 
markets. Propane inventory levels in the Midwest began last fall at 
abnormally low levels, according to the Energy Information 
Administration (EIA)\1\. This set the stage for some regional supply 
difficulties last winter. Large supplies of propane were needed last 
fall to dry crops after a harvest that was late, abundant, and often 
wet. Following this increased agricultural demand, the Midwest and 
Northeast then needed considerable supplies of propane for heating 
during a winter that was early, long and often very cold. In fact, the 
NOAA data shows that this last winter was the fifth coldest in their 
115 years of record keeping. The result was more local and regional 
concerns with propane supply than has been the case in many recent 
years.
---------------------------------------------------------------------------
    \1\ EIA Propane Situation Update, April 22, 2014,http://
www.eia.gov/pressroom/presentations/propane_briefing_04222014.pdf
---------------------------------------------------------------------------
    A network of liquid pipelines delivers propane and other natural 
gas liquids from storage hubs in Texas and Kansas to distribution 
facilities across the South, Midwest, Upper Midwest, and the Northeast. 
The Dixie dedicated propane pipeline runs from Texas across the south 
to North Carolina. Enterprise TE Products Pipeline (TEPPCO) delivers 
refined petroleum products and natural gas liquids, including propane, 
from Texas north to southern Illinois and then east to Ohio, before 
continuing on as a propane pipeline into Pennsylvania and New York.
    The Mid-America Pipeline (MAPL) delivers propane and natural gas 
liquids from a storage hub in Kansas to Wisconsin and Minnesota. The 
Kinder Morgan Cochin pipeline delivers propane and natural gas liquids 
southward from Canada down across the Upper Midwest arcing below Lake 
Michigan and then up into the State of Michigan. ONEOK Partners also 
operates natural gas liquids pipelines in the Midwest.
    Pipeline operators generally do not own the products shipped on 
their systems. Like FedEx or UPS delivering the packages of others, 
pipeline operators transport energy products on behalf of shippers who 
choose if and when to ship products, what product to ship, decide on 
the quantity of their requests for pipeline transportation service, own 
the products being shipped, and accept the product when it is 
delivered. A pipeline earns revenue by collecting a rate for the 
transportation services it provides to shippers. The more pipelines 
deliver, the more money pipelines earn. Thus, pipeline operators have 
every financial incentive to make deliveries, including deliveries of 
propane, when they are requested by shipping customers.
    The rates, terms and conditions of shipping on an interstate liquid 
pipeline are regulated by the Federal Energy Regulatory Commission 
(FERC). Such matters as how much a pipeline charges a shipper to make a 
shipment, the order in which a product is shipped relative to other 
shippers' products, and the equitable apportionment of transportation 
capacity when a pipeline system is constrained are set forth in a 
tariff on file with the FERC.
    This past winter, when local propane supplies fell, concern 
naturally focused on the reasons and potential solutions. Pipeline 
operators were asked to help, and they responded. TEPPCO asked shippers 
of certain refined products on its pipeline system to voluntarily defer 
shipments so that propane shippers could ship propane from Mont 
Belvieu, Texas, and those shippers generally cooperated in light of the 
unusual circumstances. ONEOK filed multiple tariffs at FERC to 
facilitate the delivery of additional propane supplies from Conway, 
Kansas to markets. Kinder Morgan submitted a tariff filing at FERC to 
facilitate the shipment of additional propane supplies and alerted 
shippers about available capacity on the Cochin Pipeline from Alberta. 
Meanwhile, Enterprise's MAPL, a dedicated propane pipeline, continued 
to run at maximum capacity. When officials of the Department of Energy 
initiated regular calls to coordinate efforts to ease the crisis, AOPL 
participated fully and worked with its members to help address supply 
and transportation issues.
    FERC issued a one-week emergency order\2\ that was effective 
February 7-14, directing TEPPCO to prioritize shipments of propane from 
Mont Belvieu, Texas to locations in the Midwest and Northeast in order 
to help alleviate propane supply concerns in those regions. TEPPCO 
voluntarily agreed to a one-week extension of the emergency order 
through February 21. TEPPCO complied with the emergency orders and 
prioritized the propane transportation requests made by its shippers 
during this period.
---------------------------------------------------------------------------
    \2\ See Enterprise TE Products Pipeline Company, LLC, 146 FERC 
Sec.  61,076 (2014) (``Order Directing Priority Treatment''); 
Enterprise TE Products Pipeline Company, LLC, 146 FERC Sec.  61,085 
(2014) (``Order Extending Priority Treatment''). Effectively, the 
orders overrode the rules in TEPPCO's tariff on apportionment of 
pipeline capacity.
---------------------------------------------------------------------------
       pipeline infrastructure is available for propane delivery
    The propane shortages during the winter of 2013-2014 were not the 
result of inadequate pipeline infrastructure, nor were they the result 
of inadequate propane supplies. There is enough pipeline capacity to 
transport propane supplies to where they are needed, so long as the 
owners and shippers of the propane adequately plan for their winter 
demand prior to the winter. The shipping capacity of propane pipelines 
runs from approximately 50,000 barrels per day each for the Cochin and 
Mid-America East and West pipelines, to as much as 160,000 barrels per 
day on the Dixie pipeline.
    Figure 1* provides further background on the propane capacity and 
supply issues of this past winter in Minnesota as an example. The graph 
shows the 48,000 barrel per day capacity of the western leg of the MAPL 
pipeline, which serves southern Minnesota. The shaded yellow area shows 
historic average usage levels for the pipeline and the blue line shows 
the specific amount of propane requested and shipped on the pipeline.
---------------------------------------------------------------------------
    * All figures and charts have been retained in committee files.
---------------------------------------------------------------------------
    While the pipeline has a capacity of 48,000 barrels per day, on a 
yearly average, MAPL West transports only 15,000 bpd, or 32 percent of 
the pipeline's capacity.\3\ For all but a few weeks of the year during 
winter, customers ship only a fraction of the propane able to travel on 
the MAPL West pipeline. Numerically, that means about 11.8 million 
barrels of propane capacity goes unutilized each year by propane 
shippers.
---------------------------------------------------------------------------
    \3\ Enterprise Products Partners L.P, Apr. 2014.
---------------------------------------------------------------------------
    Similarly, Figure 2 illustrates the capacity and usage of the MAPL 
East Blue pipeline serving Wisconsin. MAPL East Blue has a capacity of 
53,000 barrels per day, but ships on average only 27,000 bpd.\4\
---------------------------------------------------------------------------
    \4\ Id.
---------------------------------------------------------------------------
    Similarly, this 50 percent utilization rate means that on average 
9.5 million barrels of propane capacity on MAPL East Blue goes 
unutilized each year by propane shippers.
    As discussed above, pipeline operators do not choose how much 
product is shipped on their pipeline or at which times shipments are 
made. A pipeline operator would prefer to run at or near 100 percent 
capacity all of the time. Instead, what drives pipeline utilization is 
the propane distributors and marketers who place orders for propane and 
decide how much and when they want their deliveries. As Figures 1 and 2 
show, the demand for propane shipments by propane distributors and 
marketers falls dramatically during the spring and summer months. When 
there is plenty of time and space to take propane deliveries and stock 
up for peak fall and winter seasons, propane distributors and marketers 
are not taking full advantage of available pipeline capacity.
    Figure 3 illustrates propane inventories in the Midwestern states, 
otherwise known as PADD-2 in Energy Department parlance.
    The thin blue line reflects propane inventories during 2013, and 
the broader yellow zone shows the range of balances over the last 10 
years. Figure 3 shows that inventories of propane stored in Midwestern 
states throughout 2013 were at the bottom of the range of historic 
propane balances and fell significantly after the heavy and late crop 
drying season.
    Figures 1, 2 and 3 illustrate that a large amount of unused 
pipeline and storage capacity was available in 2013 and that propane 
distributors and marketers chose to maintain supplies at levels below 
average throughout 2013, leaving them vulnerable to what happened in 
the fall and winter of 2013. While it is difficult to predict the 
amount of propane necessary for an upcoming harvest and winter heating 
season, and recognizing that 2013 certainly was an extreme case, it is 
clear that in 2013 propane market participants chose not to fully 
utilize storage facilities in the Midwest, and chose not to utilize 
available pipeline capacity to stage propane inventories farther into 
the distribution chain (and thus closer to their propane customers) 
prior to the winter.
                           pipeline reversals
    Some are asking whether plans to reverse the flow direction of the 
Cochin pipeline will adversely affect propane supplies across the upper 
Midwest. The answer is no. Local demand for propane from the Cochin 
line has dropped precipitously in recent years. There is more than 
sufficient unutilized capacity in other nearby propane pipelines to 
make up the difference. Historically, the Cochin pipeline delivered 
light natural gas liquids from Alberta, Canada, down through North 
Dakota, Minnesota, Iowa and Illinois before looping south of Lake 
Michigan and extending into Indiana, Michigan and eventually Ontario, 
Canada. The 1,900 mile 12-inch diameter pipeline has an estimated 
system capacity of approximately 50,000 barrels per day operated with 
31 pump stations and five U.S. propane terminals along its route.
    While Cochin was successful initially, the North American energy 
production boom changed shipping and market dynamics, reducing the U.S. 
demand for propane imported from Canada. Propane is a natural by 
product of oil and gas production. When oil or gas is produced, it 
comes out of the ground mixed together with other natural gas liquids 
such as propane, ethane and butane. Greatly increased oil and natural 
gas production in the Bakken fields of North Dakota, the Eagle Ford and 
Permian fields of Texas, the Marcellus shale region of Pennsylvania and 
other production areas across the U.S. has resulted in increased U.S. 
supplies of propane. The EIA recently reported that U.S. propane 
production topped 1.4 million barrels per day, higher than any time in 
the last ten years, as Figure 4 illustrates.
    U.S. propane customers turned away from importing supplies of 
propane from Canada and began to purchase additional supplies of 
plentiful, less expensive U.S. propane instead. The result, as reported 
by the Minneapolis Star Tribune, is that the Cochin pipeline has been 
operating at only 22 percent of its annual capacity.\5\ Figure 4 
illustrates how the Cochin pipeline ran at nearly 60 percent of its 
capacity in 2000, but utilization steadily declined until it was 
running at only 22 percent of capacity in recent years.
---------------------------------------------------------------------------
    \5\ David Shaffer, ``Propane Industry Scrambles to Replace Supply 
from Major Pipeline,'' Star Tribune, Dec. 7, 2013.
---------------------------------------------------------------------------
    With the Cochin pipeline so underutilized by propane customers 
along its route, the operator of the Cochin pipeline decided to reverse 
the flow of the pipeline to capture new market demand for U.S. natural 
gas liquid deliveries to Canada.
    The MAPL West Blue propane pipeline into Minnesota itself has 
almost 12 million barrels of unutilized propane capacity each year. 
Thus, even with the Cochin pipeline converting from southbound propane 
service to northbound diluent service, propane pipeline infrastructure 
in the region is ready and able to handle Midwestern propane supply 
demand, if the propane industry chooses to utilize these pipeline 
systems ahead of winter.
                avoiding propane shortages in the future
    Decisions about shipping propane and filling downstream storage are 
complex and involve many factors best explained by propane market 
participants. It is clear, however, that with increased utilization of 
existing storage and pipeline capacity, propane market participants 
could mitigate future supply concerns. The pipeline industry stands 
ready to accommodate any changes in supply planning patterns supported 
by propane market participants, should they elect to do so.
    Pipeline operators and AOPL have a strong history of working with 
shippers and government before and during times of crisis so that 
American consumers and workers can continue to receive the products 
they need. After Hurricane Sandy produced local flooding and power 
outages causing reduced supplies of gasoline and other refined products 
in New Jersey, pipeline operators worked with government and local 
stakeholders to restore service. After Hurricane Katrina knocked out 
power for pipelines and caused concerns about supplies in Georgia, the 
Carolinas and mid-Atlantic, pipeline operators worked with government 
at all levels to return pipelines to service. These rare crises 
demonstrate the importance to Americans of maintaining a robust and 
reliable pipeline network.
    pipelines are the safest, least expensive energy transportation 
                             infrastructure
    Pipelines are the least expensive, most reliable, and safest mode 
of transporting large volumes of energy liquids over long distances 
over land. In 2012 alone, 99.9998% of the crude oil, petroleum 
products, and natural gas liquids transported by pipeline reached their 
destination safely. As an example of the safety of pipelines compared 
to other transportation modes, the Final Supplemental Environmental 
Impact Statement completed by the U.S. Department of State for the 
Keystone XL pipeline found that alternative modes of transportation 
would result in 2.4 to 9.0 times more crude oil released to the 
environment each year compared to that pipeline. Denying the Keystone 
XL Presidential Permit and relying upon non-pipeline transportation 
infrastructure would result in the additional release of between 29,778 
and 172,830 gallons of crude oil to the environment.
    The safety record of pipelines is a natural outcome of the major 
financial investment pipeline operators make in pipeline safety each 
year. In 2012, pipeline operators spent at least $1.6 billion on 
pipeline integrity management evaluating, inspecting and maintaining 
their pipelines. The result is that over the last decade, liquid 
pipeline incidents are down over 60 percent and volumes released from 
pipelines are down over 45 percent.
    While pipeline infrastructure is the safest mode of energy 
transportation, liquids pipeline operators remain focused on continuous 
improvement with the ultimate goal of zero incidents. Pipeline 
operators are undertaking a number of industry-wide initiatives to 
improve pipeline safety performance. In 2012, pipeline operators 
adopted a set of industry-wide safety principles, including the goal of 
zero incidents. Industry-wide, operator-led safety groups continue to 
develop new recommended practices and safety improvement tools.
    In 2014, the liquid pipeline industry launched the Performance 
Safety Excellence initiative to take these safety efforts to the next 
level. The effort includes public sharing of our safety performance 
record and strategic initiatives addressing a number of key safety 
issues. Pipelines are also the most cost-effective form of energy 
transportation infrastructure and the ideal method of transporting 
large volumes of energy across the country.
                      importance of new pipelines
    One essential element to assure continued sufficient supply of 
energy liquids is adequate pipeline capacity, including the building of 
new pipelines. AOPL members have been responding to the North American 
energy revolution by making substantial investments needed to link new 
supply sources to refining and consuming markets. Pipeline operators 
have been constructing new pipelines, reversing pipelines, converting 
underutilized pipelines from one type of product service to another, 
and expanding the capacity of existing pipelines by adding horsepower 
to pumping stations. More than 10,000 miles of new liquids pipelines 
have been placed into service in the last four years, according to the 
U.S. Department of Transportation\6\. These new pipelines are enabling 
Americans to access growing production of crude oil from Texas to 
Alberta, growing production of natural gas liquids from North Dakota to 
Texas to Ohio, and increases in refining and fractionation capacity.
---------------------------------------------------------------------------
    \6\ Annual Report Mileage, U.S. Department of Transportation 
Pipeline and Hazardous Materials Safety Administration, http://
www.phmsa.dot.gov/portal/site/PHMSA/
menuitem.6f23687cf7b00b0f22e4c6962d9c8789/?vgne 
xtoid=d731f5448a359310VgnVCM1000001ecb7898RCRD&vgnextchannel=3b6c03347e4
d8210Vgn VCM1000001ecb7898RCRD&vgnextfmt=print.
---------------------------------------------------------------------------
    Pipeline shippers play a huge role in assuring the availability of 
needed pipeline capacity. Most new pipeline capacity projects are 
supported by long-term agreements between pipeline operators and 
shippers to assure the viability of proposed pipelines and enable 
financing. However, most existing pipelines do not have any financial 
commitments by their shippers; as stated above, the shippers, not the 
pipelines, choose if, when, and how much volume to transport on the 
pipelines, and they can freely choose to discontinue the use of a 
pipeline in favor of another pipeline or an alternate form of 
transportation. In either case, as transportation service companies 
moving products for a fee, pipeline operators have every incentive to 
maximize shipments by their customers. When shippers express their need 
for service by committing to sufficiently use pipelines, pipeline 
operators respond.
    Government policies also play a huge role in assuring availability 
of needed pipeline capacity. Thankfully, the Interstate Commerce Act 
and FERC policies today allow liquid pipeline operators to respond 
quickly to changing needs by propane and other shippers. FERC needs to 
continue to honor long-term transportation agreements between pipeline 
operators and shippers to ensure that needed new infrastructure can be 
built\7\. It is essential that States make timely decisions on siting 
requests for pipelines, Federal agencies process permits needed for 
certain pipeline construction activities, and, of course, the U.S. 
Department of State efficiently grants Presidential Permits for 
pipeline facilities crossing our national borders.
---------------------------------------------------------------------------
    \7\ Earlier this year FERC reiterated its long-held policy of 
honoring transportation service agreements between oil pipelines and 
their shippers, absent a compelling reason such as a lack of good faith 
negotiations. See Seaway Crude Pipeline Company LLC, 146 FERC Sec.  
61,151 (2014).
---------------------------------------------------------------------------
    AOPL appreciates your attention to these issues with this hearing 
today.

    The Chair. Thank you so much.
    Mr. Cordill.

   STATEMENT OF JOE CORDILL, CORDILL BUTANE PROPANE SERVICE, 
    FORMER CHAIRMAN OF THE NATIONAL PROPANE GAS ASSOCIATION

    Mr. Cordill. Good afternoon, Madame Chair and members of 
the committee. My name is Joe Cordill, the owner of Cordill 
Propane Service, a retail marketer in Winnsboro, Louisiana. 
I've served on the Board of Directors of the National Propane 
Gas Association for a number of years and served as a Board 
Chairman in the years 2000 and 2010.
    The propane industry in Louisiana did face a colder than 
normal winter. The winter affected Louisianans in many of the 
similar ways as the rest of the Nation, although perhaps not to 
the same degree. Heating degree days were nearly 30 percent 
higher in the State compared to the previous year.
    In addition due to largely to the higher demand in other 
parts of the country spot prices of propane increased in 
Louisiana as well. We became very familiar with trucks with 
out-of-State plates who were traveling to Louisiana and Texas 
to obtain supplies that they could not get elsewhere. This in 
turn increased the wait time at our terminals and increased the 
freight costs for our trucks that were supplying our own bulk 
plants in Monroe and Winnsboro.
    We are in the middle of a true energy revolution and 
propane production is up dramatically. Large volumes of propane 
are transported by petroleum products pipeline as well as rail, 
truck, ship and barge. Propane is used in residential, 
commercial and agricultural markets for space heating, water 
heating, cooking, clothes drying, grain drying, barbeques and 
increasingly as a motor fuel.
    About 50 million American families use propane in some way. 
Ten million have home delivery and approximately 6 million 
households use propane as their primary heat. This past winter 
clearly showed how much propane is relied upon in the 
agriculture sectors as well.
    As you can see from this first chart, the Nation is in the 
midst of a boom in propane production resulting from the 
production of natural gas from shale formations. We believe 
propane production may almost double between now and the year 
2020. It is important for the committee to understand how this 
increased production is causing fundamental changes to take 
place in our Nation's fuel distribution infrastructure.
    We are seeing changes in the historic flow of fuels to 
accommodate the record production levels from shale formations. 
Pipelines that once carried propane from producing regions like 
the Gulf Coast and Western Canada are being reversed to carry 
other products. The impacts of these pipeline reversals were 
made crystal clear this winter with the Cochin pipeline being 
out of service for several crucial weeks last fall.
    Another prime example is the reversal of a segment of the 
TEPPCO pipeline that runs from Texas through to Louisiana to 
Ohio. Setting aside for a moment the fact that these major 
service changes do not require FERC to consider the impact on 
propane consumers, the pipeline infrastructure is changing in 
ways that hampered our ability to rebuild inventories after the 
strong crop drying season in the Midwest and cold weather 
nationwide.
    You can see from this chart on how the effect was done. 
PADD-2 which is the upper Midwest which includes Conway, 
Kansas, due to unusually high grain drying demand and the loss 
of a million barrels of storage at Todhunter, Ohio started the 
heating season at the lowest level in the last 5 years and 
ended the heating season below the previous 10 year's low.
    On the other hand, PADD-3 which is the Gulf Coast including 
Mont Belvieu, started a heating season near the 5-year high but 
ended the heating season barely above the 10-year low. The 
graphs show a very rapid inventory draw beginning in October. 
Then a key factor in these low inventory levels could be 
exports.
    On my next chart you can see just how fast the growth in 
export capacity has been and will continue to be through 2016. 
These are announced export projects, many of which are already 
under construction. No Federal authority exists to dial this 
back for propane like the rules that apply to natural gas 
exports, much less an outright ban as exists for crude oil.
    Our industry is developing policy recommendations in many 
areas that will help us manage our transition into energy 
abundance. Our top priority is to pursue changes to ensure that 
we are able to serve our customers. There are things the 
industry can do better.
    In addition, we believe strongly that the transparency of 
the pipeline infrastructure, rules concerning pipeline 
operators affiliates and providing FERC with authority to 
review service changes are essential. EIA can be very helpful 
as well by collecting more finely tuned propane storage data. 
This data could include propane that is held by the 
petrochemical industry so that the market participants have 
better information to guide their decisions.
    Finally, we believe additional primary storage facilities, 
like the Finger Lakes project in New York State, which is ready 
to go into service had it been given authority, could greatly 
and dramatically increase our resilience in an environment of 
changing energy flows. Madame Chair, this concludes my remarks 
and I would be happy to answer any questions that you may have.
    [The prepared statement of Mr. Cordill follows:]

  Prepared Statement of Joe Cordill, Cordill Butane Propane Service, 
        Former Chairman of the National Propane Gas Association
    Good afternoon. My name is Joe Cordill and I am the owner of 
Cordill Butane Propane Service located in Winnsboro, Louisiana. My 
company has two locations, the other in Monroe, Louisiana, from which I 
deliver fuel supplies to both residential and commercial customers in 
my surrounding area. I joined the family business in 1978 after 
spending 10 years in oil and gas production and processing in the 
Louisiana Gulf Coast and in West Africa. I was reared around the 
propane industry as my family has been involved since prior to WWII. I 
have served the industry in various volunteer capacities at the state 
and national level including serving as chairman of the National 
Propane Gas Association.
    I am very pleased to be invited to present testimony to you today 
on topics related to the nature and sources of propane, our experiences 
in Louisiana this past winter, and what possibly could be done to 
improve the propane infrastructure so that we are better able to serve 
customers in the future.
                          a primer on propane
    Propane is a naturally occurring hydrocarbon commonly found in the 
production stream of oil and natural gas wells. With the chemical 
formula C3H8, it is one of the least complex 
hydrocarbons (technically an alkane). It is closely related to methane 
(natural gas), which, with the chemical formula CH4, is the 
least complex of the hydrocarbons. Chemically, only ethane 
(C2H6) separates natural gas and propane. More 
complex hydrocarbons include butane, pentane and a mixture of heavier 
hydrocarbons referred to as Hexanes plus or natural gasoline. The 
molecular proximity of propane to methane has important real-world 
consequences.
    Like natural gas, propane is colorless, odorless, and tasteless. 
(For both products the smell that people associate with them is 
artificially added at the retail level for safety purposes.) Both are 
gaseous at normal temperatures and pressures. As a result, both are 
readily usable as fuels in a number of applications. While natural gas 
liquefies at -162 Centigrade (-264 Fahrenheit), propane liquefies at -
42 Centigrade (-44 Fahrenheit) . With pressure, propane becomes a 
liquid at higher temperatures--hence ``liquefied petroleum gas'' (LPG), 
another name for propane. An important consequence of the difference in 
the temperatures at which the two compounds liquefy is that propane can 
be stored and transported in relatively lightweight containers and with 
much greater ease and economy than natural gas (in either a gaseous or 
liquefied state). While large volumes of propane are transported by 
petroleum products pipelines, it is also commercially feasible to 
transport it by rail, truck, ship, and barge. Technically those modes 
are possible for natural gas, but they are not generally economically 
feasible--on a retail basis--because natural gas, whether compressed or 
liquefied, requires much heavier storage containers and higher pressure 
or lower temperature. At ordinary temperatures and pressures natural 
gas is lighter than air, while propane is heavier than air.
    Propane is produced (as with other more complex hydrocarbons) 
through two processes. First, it can be extracted from natural gas 
streams in natural gas processing plants. Second, it can be produced by 
refiners as part of the crude oil cracking process. Today the former 
method of production accounts for more than seventy percent of domestic 
propane supply. North American supplies of propane are adequate to meet 
the entire U.S. demand. Unlike customers of gasoline, diesel fuel, and 
heating oil, propane customers are not dependent upon supplies from 
foreign nations. (Although some propane is imported, the volume is 
dramatically less than the volume of exports.) Propane is in essence a 
byproduct, and, from a commercial perspective, production varies not so 
much with the demand for propane as the demand for the products of 
which it is a byproduct (natural gas and refinery products).
    The nation is in the midst of a boom in natural gas production, 
largely involving the production of natural gas from shale formations. 
Because currently natural gas liquids draw higher prices in the market 
than natural gas on an energy content (Btu) basis, producers are 
aggressively seeking shale gas that is rich in hydrocarbon liquids. As 
a result, domestic supplies of propane will be plentiful for the 
indefinite future.
    Propane has applications in residential and commercial markets for 
heating (furnaces, boilers, and gas logs), water heating, cooking, and 
clothes drying. It is well known across America as a fuel source for 
barbecues, outdoor stoves, heaters, and the like. About 50 million 
Americans use propane for these various applications, and approximately 
6 million households use propane as their primary source of heat. 
Similarly, propane has wide usage as a cooking fuel in recreational 
vehicles and boats. Additionally, propane commands a significant market 
as a transportation fuel, for forklifts, school buses, lawnmowers, 
vans, trucks, and cars. Indeed, there are more propane vehicles on the 
road than either electric or natural gas vehicles. Propane is also used 
as a fuel in the industrial sector both for space heating and process 
applications. Propane is used on nearly one million farms for 
irrigation pumps, grain dryers, standby generators, and other farm 
equipment. In addition, propane is a vital feedstock in the 
petrochemical industry.
    Propane is a low-carbon fuel. At the point of combustion it 
produces 62 kg of CO2/MMBtu, compared to 53 kg for natural 
gas, 71 kg for gasoline, and 93 kg for bituminous coal. Factoring in 
upstream emissions, propane produces 74 kg of CO2/MMBtu, 
compared to 65 kg for natural gas, 91 kg for gasoline, and 221 kg for 
electricity. (The large number for electricity reflects the significant 
thermal loss in generation and the thermal loss in transmission and 
distribution.) A key fact in regard to carbon emissions is that when 
propane is released (i.e., fugitive) into the atmosphere, it has no 
greenhouse gas (GHG) effect because it deteriorates rapidly. In 
contrast, natural gas released into the atmosphere is approximately 25 
times more potent than CO2 as a GHG.
    Propane accounts for approximately two percent of the primary 
energy consumed in the United States, compared to 29 percent for 
natural gas, 28 percent for coal, and 41 percent for petroleum 
products. Yet propane accounts for only one percent of the nation's GHG 
emissions. Propane is essentially ``portable natural gas.'' Most 
propane today is produced alongside natural gas. It is used in the same 
applications as natural gas. Propane has an emissions profile similar 
to natural gas but with the added benefit of not being a GHG itself. 
Propane has the important benefit of being easily transportable to 
areas where there is no natural gas infrastructure.
the propane delivery infrastructure is undergoing a dramatic transition
    The delivery infrastructure for fossil fuels--petroleum, natural 
gas, and natural gas liquids like propane--is in the midst of an 
historic transition. This exacerbated propane supply and delivery 
challenges this winter heating season. Historically, propane has been 
produced in the Gulf Coast and the Mid-continent and then transported 
to consuming regions to the North and East, primarily by pipeline. 
During the summer, when propane demand is typically low, propane 
inventories built up and were placed into seasonal storage, primarily 
in the storage facilities in the Gulf Coast and Kansas. During the 
winter, propane was withdrawn from storage and shipped by pipeline, 
rail, and truck to consumer markets. In addition, the Northeast 
previously imported significant volumes of propane from Canada and by 
marine tanker, particularly during the winter.
    Over the last six years, the nation's exploration and production 
community has devoted enormous resources to finding and extracting 
fossil fuels from shale formations, all of which had previously been 
beyond both technical and economic reach. The result has been the 
production of previously unimaginable amounts of domestic fuels, 
including propane. One of the challenges, however, has been that this 
production has occurred in different areas from those where the nation 
has previously produced its energy supplies. These include, for 
example, the Marcellus and Utica formations (Pennsylvania, West 
Virginia and Ohio), the Bakken formation (North Dakota), and the 
Fayetteville formation (Arkansas).
    The result has been a change in the historical flow of fuels. The 
nation's energy infrastructure was built to deliver petroleum, natural 
gas, and natural gas liquids from Texas, Louisiana and Oklahoma to 
markets throughout the country. With the influx of energy from shale 
formations, the nation's energy delivery system has had to make 
significant adjustments. New infrastructure is being built to bring 
Bakken crude to market. Natural gas and natural gas liquids are now 
flowing from the Marcellus both toward Northeast markets and the 
traditional energy-producing markets of the Gulf Coast. Several 
petroleum products pipelines are being reversed to transport product 
toward areas that have traditionally been energy-producing. Natural gas 
pipelines are being converted to carry petroleum. Propane pipelines 
that have been underutilized in the past, or used primarily to meet 
winter demand, are being converted to carry production from the new 
producing regions to the processing facilities in the Gulf Coast or 
Canada. Rail carriers and motor carriers are being enlisted to 
transport products to make up for pipeline infrastructure that has not 
yet been built.
    Additionally, as shipments of heavy crude oil from Canada have 
increased, demand for diluent, a substance necessary for the processing 
and pipeline shipment of heavy crude, has increased. Northbound 
pipelines are increasingly targeting this demand, offering priority 
service and incentive rates to diluent producers in the Gulf Coast for 
shipments north to Canadian producing regions. As diluent shipments 
have increased, the available capacity for northbound shipments of 
traditional products, including propane, has been reduced.
    These events have been disruptive to energy infrastructure and 
energy markets. The transition is, however, nowhere near complete but 
in time facilities will be constructed to eliminate these issues. The 
challenges that have occurred for propane markets during the 2013/2014 
winter have been exacerbated by this transformation of the energy 
delivery infrastructure.
Cochin Pipeline Reversal
    One of the pipelines undergoing transition that most significantly 
affects Midwest propane delivery is the Cochin Pipeline. The Cochin 
pipeline system consists of an approximately 1,900-mile, 12-inch 
diameter multi-product pipeline operating between Fort Saskatchewan, 
Alberta, and Windsor, Ontario, including five terminals in the U.S. 
located at Carrington, N.D.; Benson and Mankato, Minnesota; New 
Hampton, Iowa; and Milford, Indiana. Last year, the pipeline was 
capable of transporting 78,000 barrels of propane a day from Alberta 
into the U.S. Midwest and Ontario. This was reduced to 50,000 barrels 
per day last summer.
    Historically, the Cochin pipeline has been a major source of 
propane into the upper Midwest, and about 40 percent of propane in 
Minnesota came via the Cochin pipeline. However, for approximately 
three weeks starting in late November 2013, the Cochin pipeline was not 
in operation. This unfortunate situation made it nearly impossible for 
propane storage levels in the region to be replenished after the crop 
drying season that saw a nearly six-fold increase in demand for 
propane. The Cochin pipeline permanently halted all propane 
transportation into the U.S. in April of this year. The owner of the 
Cochin Pipeline, Kinder Morgan, is converting the Cochin Pipeline to 
carry diluent from the U.S. shale plays to the oil sands producers in 
Canada.
ATEX Pipeline Reversal
    The Appalachian-Texas Pipeline (ATEX) is a new provider of ethane 
service from the Marcellus region to the Gulf Coast. The pipeline 
itself is not new, however; rather it is one of two parallel pipelines 
that run from Mt. Belvieu, Texas to Todhunter, Ohio. What is new is 
that the 16 inch pipe that was converted to be the ATEX pipeline used 
to deliver product batches northward as part of the Enterprise TEPPCO 
system. The decision to reverse this pipeline to take ethane southward 
reflects the economics associated with taking the huge increases in 
shale production of natural gas liquids to market. Unfortunately, this 
reversal has caused all northbound product flowing on the Enterprise 
TEPPCO pipeline to be squeezed onto the remaining northbound pipeline. 
The elimination of this northbound capacity, along with the 
introduction of priority diluent service on the remaining northbound 
line to assist in the processing of Canadian heavy crude oil, has 
caused congestion and delays for shipments of propane to the Midwest 
and Northeast.
Southern Hills Pipeline
    The initiation of NGL transportation on the Southern Hills Pipeline 
was announced in June, 2013. This pipeline will ramp up to move up to 
175,000 barrels per day of natural gas liquids from the mid-continent 
(Southern Kansas) to the Gulf coast for processing.
    The changes in the operation of both the pipeline infrastructure 
and the rail infrastructure have disrupted the historical patterns of 
flow of propane. As we saw during the winter of 2013/2014, the changes 
caused significant challenges for the propane industry in meeting the 
needs of their weather-sensitive customers, most dramatically in the 
Midwest and New England, but felt throughout the entire eastern half of 
the United States.
Rail Transportation
    Significant volumes of propane are shipped via rail, and the 
propane industry is increasingly reliant upon this transportation mode. 
Here too, however, competition from other substances for transportation 
is intense and growing. Many facilities producing natural gas liquids, 
crude oil, or any of a variety of other products have yet to have 
access to reliable pipeline service to take their products to market, 
so they rely on railroads. Some of these products use the same kind of 
railcars as propane, which places additional demands on the existing 
pressurized railcar fleet. For those products that don't use the same 
kind of railcars, additional usage of the railroad infrastructure 
increases congestion making service less reliable even when railroads 
desire to prioritize propane shipments. In addition, rail transport 
becomes more unreliable during cold weather conditions when reliable 
propane delivery is needed the most.
  dramatically increased propane exports have changed market dynamics
    The fact that America is now considering revising its energy 
policies to foster exports of natural gas and crude oil shows just how 
dramatically the shale revolution has turned the supply situation on 
its head. Unlike crude and natural gas, propane is not subject to any 
existing export prohibitions or licensing requirements, so exports have 
increased as fast as contracts could be signed and export capacity 
developed. Moreover, the capital costs of propane export facilities are 
a fraction of the costs of natural gas liquefaction facilities.
    In 2013, U.S. propane production increased by 1.6 billion gallons. 
However, propane exports increased by 2.0 billion gallons, from 2.6 
billion gallons in 2012 to 4.6 billion gallons in 2013. Last year, 
exports grew to over 25 percent of total U.S. propane production, and 
they are still increasing. There is no question that exports in such 
significant volumes were a significant factor during the winter of 
2013/2014. There are a number of factors driving propane exports. 
Propane is a global commodity, and it is easily shipped. High 
production levels of natural gas and natural gas liquids depressed 
prices in the U.S., creating a differential making international 
shipments attractive. Strong demand from buyers in Central and Latin 
America, as well as Europe and Asia, looking for relatively cheap 
propane and willing to sign long-term contracts--up to 10 years in 
duration--provided an incentive to ship propane overseas. The contracts 
for these export facilities are designed to ensure a very high 
utilization rate, with penalty payments incurred if export shipments 
are cancelled. American companies looking to serve this market invested 
heavily in constructing or upgrading export facilities. The trend of 
increasing exports shows no sign of easing. Announced plans to 
construct additional propane export capacity would triple propane 
export capacity in the next three years.
    impacts of winter 2013/2014 on louisiana marketers and consumers
    Louisiana is largely a propane producing state. In 2009, 
approximately 1.1 billion gallons of odorized propane were produced in 
Louisiana, which is more than 14% of the U.S. total, while 45 million 
gallons were sold to the consumer market in 2011. We calculate that 
nearly 50,000 homes are heated by propane in the state, nearly 3 
percent of the total. The production, processing and sale of consumer 
grade propane contributed over $2 billion to the Louisiana economy. 
Louisiana's petrochemical industry is the second largest consumer of 
propane as a feedstock. Louisiana is well-supplied from a propane 
standpoint. Not only do two of the three major interstate propane 
pipelines run through Louisiana, but the world's largest underground 
storage facility at Mt. Belvieu is only a little more than 80 miles 
from the Louisiana-Texas border.
    This winter affected Louisiana in many similar ways as the rest of 
the nation, although perhaps not to the same degree. It was a colder 
than normal winter, with heating degree days nearly 30% higher in the 
state than last year. In addition, due largely to the higher demand in 
other parts of the country, spot prices of propane increased in 
Louisiana as well. We became very familiar with trucks with out-of-
state plates who were travelling to Louisiana and Texas to obtain 
supplies for their operations elsewhere. This in turn increased the 
wait times and demurrage costs for our trucks that were supplying our 
own bulk plants in Monroe and Winnsboro.
    While this phenomenon is not unheard of, it had significantly more 
of an impact this year than previously. Seeing all of these out-of-
state trucks made it clear that the storage levels and infrastructure 
in regions to our north were not adequate for the 2013/2014 winter 
demand. I am a strong believer in preparing for each winter, whether it 
be supply contracts, physical storage in the underground storage 
caverns we have available or otherwise ensuring that my customers will 
be served. So I am similarly supportive of the approval of the Finger 
Lakes storage facility in upstate New York. Having such a robust 
facility close to the New England demand area would have made trips 
down south much less likely and would have reduced the demand for 
Canadian product that would have been available for the upper mid-west. 
In addition, I fear that had Europe experienced a colder winter than 
they did, some of the ships that supplied New England would not have 
come here. The Finger Lakes facility would have been a solid insurance 
policy against such a circumstance.
    Although we were able to maintain adequate supply for our 
customers, I was not able to respond to the numerous requests that I 
received from retailers whom I know in other states that were 
requesting additional supplies to supplement their normal distribution 
channels.
                     recommendations for the future
    There are a number of things that federal policymakers can do to 
improve the propane infrastructure and ensure deliverability of fuel to 
customers.
    Increase transparency of the pipeline infrastructure, including 
rules for pipeline affiliates and a requirement to request permission 
to abandon service.--The three main interstate propane pipelines are 
owned or controlled by a single company that also ships propane; 
markets propane; trades propane contracts and futures; and exports 
propane. However, comparable regulations regarding affiliates that 
exist in the natural gas and electric sectors do not exist for propane 
pipelines. FERC should require pipelines to justify all rate increases 
rather than permit them to become effective without significant review. 
FERC should require pipelines to file annual reports that contain data 
showing whether they are over-recovering their actual costs of 
operating and whether some rates subsidize others. When such data shows 
that the pipelines are over-charging, FERC should investigate and take 
remedial action to protect consumers. Pipelines should also be required 
to justify their rates periodically.
    Some pipelines charge ``market-based'' rates. FERC should regularly 
examine whether these are appropriate and whether the pipeline has 
acquired monopoly power in those markets. FERC should also examine 
whether pipelines have transferred essential facilities to unregulated 
entities that can charge unchecked prices for services that are 
essential to customers' utilizing the pipeline. Finally, Congress 
should amend the Interstate Commerce Act to require pipelines to 
demonstrate that the public interest is served before they discontinue 
service.
    Eliminate Department of Commerce restriction on the Propane 
Education and Research Council.--There are many programs that propane 
marketers offer to their customers to help them manage their supply and 
heating bills in the winter. Fixed price contracts, pre-buys, annual 
budget plans, and others are all viable options for consumers to 
consider. However, the Propane Education and Research Council is unable 
to undertake a public communications program in this area because such 
activities have been restricted by the U.S Department of Commerce.
    Section 9 of the Propane Education and Research Act of 1996 (PERA) 
provides for periodic consumer grade propane price analyses compared 
with residential natural gas, residential electricity, and refiner 
price to end users of heating oil. The Commerce Department has for 
years interpreted the PERA law as a residential-only law, and so has 
performed these price analyses using EIA residential only propane price 
data. This was not the intention of Congress in enacting PERA, which 
specifically covers other propane sectors in the law's many provisions. 
Congress should insist that the Commerce Department acknowledge that 
PERA covers all sectors of propane usage, so that the existing data 
collected and reported by the EIA that reflects propane prices to all 
propane market segments is used to perform the DOC analysis required by 
Section 9 of PERA. Doing this would allow the propane industry to use 
its own resources to communicate broadly with customers on matters 
related to winter heating season preparation.
    Support EIA collection and publication of better data.--The Energy 
Information Administration should collect more finely tuned propane 
storage data so that market participants have more reliable information 
to guide decisions in each region. Similarly, the Energy Information 
Administration should collect more detailed data on propane markets 
including real time export data. As market circumstances became more 
critical this winter, market participants realized they often had 
woefully insufficient information.
    Encourage additional primary storage, such as the Finger Lakes 
facility in New York.--As a Louisiana propane marketer, I am very 
fortunate to be situated close to some of the largest propane supplies 
in the world. However, there are many marketers who are not as 
fortunate. For them, storage is important, both at large primary 
storage facilities and at their own locations. I don't think many in 
the industry would have a different opinion. One of the best options 
for our industry to increase storage close to high demand is the Finger 
Lakes storage facility in New York. Private investment is ready to go, 
and millions of dollars of equipment are awaiting Governor Cuomo's 
decision to approve the expansion. This would put over 88 million 
gallons of propane in the heart of a high winter demand area. It would 
allow Americans to efficiently utilize American propane, rather than 
paying a premium for imported propane.
                           closing statement
    Madam Chair, this concludes my written statement. I appreciate this 
opportunity to provide testimony before the Committee and look forward 
to answering any questions you may have. Thank you.

    The Chair. Thank you for that excellent testimony.
    Mr. Zimmerman.

    STATEMENT OF JOHN ZIMMERMAN, IMMEDIATE PAST-PRESIDENT, 
              MINNESOTA TURKEY GROWERS ASSOCIATION

    Mr. Zimmerman. Good afternoon.
    My name is John Zimmerman and I'm a turkey farmer from 
Northfield, Minnesota and Past President of the Minnesota 
Turkey Growers Association. My family and I raise about 4 
million pounds of turkey annually and our farm also--we also 
grow about 500 acres of corn and soy beans. I also sit on the 
Board of River Country Cooperative that supplies propane in 
rural Minnesota.
    Finally, I'm also a member of the National Turkey 
Federation which represents the $29.5 billion U.S. turkey 
industry and which worked with Senator Franken and his staff 
this past winter to elevate and momentarily correct this 
dangerous propane shortage.
    The problem is far from fixed. I am here today to once 
again say thanks to Senator Franken and the rest of the 
Minnesota delegation for staying focused on finding solutions. 
Winter unfortunately will be here before we know it. The 
potential for shortages by all estimates are going to get worse 
if significant steps are not taken soon.
    What started as a Midwest propane supply shortage developed 
into a larger, national discussion with over 20 Governors 
declaring states of emergencies, scrambling to secure adequate 
supplies to meet the need during the critical winter months.
    Why did this crisis occur?
    Many of us have described it best as the 4 Cs: crop, 
Cochin, cold, and communication.
    To start, inventories were already low caused by the 
increased demand for crop drying in November.
    Second, the Cochin pipeline which is critical to 
Minnesota's propane supplies had been reduced to less than 50 
percent of its normal capacity. It didn't help that at the same 
pipeline was also shut down for scheduled maintenance in 
November.
    Finally, the volatile run up in prices started on December 
12th, 2013 when a propane supplier notified many of our 
companies of force majeure indicating they would not be able to 
complete their obligations of their contract and the rest of 
our propane would have to be bought on the open market.
    So what little propane was available we procured and what 
little storage our farms had left was filled. Unfortunately 
there was neither enough storage nor propane available to 
weather the long, brutal winter. Given the scenario I've 
presented fuel stocks were never able to rebound as early sub 
zero winter weather set in across much of the Midwest and 
Northeast hindering propane gas movement on our already 
overburdened pipeline and rail systems.
    I will highlight a few substantive ideas later, but it is 
agreed upon by many that government, at the very least, should 
establish some type of early warning system that allows time to 
formulate a plan for an impending disaster. We did not have the 
luxury of a head start on moving propane from where it was 
stored to where it was needed because such a system did not 
exist. The inadequate transport and storage system combined 
with the lack of an early warning directly hit the pocketbook 
of the people that heat their homes with propane along with 
those of us that need propane to heat our turkey barns.
    It is safe to estimate that in Minnesota the turkey 
industry saw propane use increase by over 30 percent from last 
winter. So when we saw propane prices go from $1.30 per gallon 
to over $5.00 per gallon in a few short weeks, you can see the 
impacts dug deep into our profit margins. This past winter 
alone, the Minnesota turkey industry saw an increase of over 
$25 million more in heating related input costs over the 
previous year. That's real money to farmers like me that 
operate on very thin margins.
    While this propane shortage certainly caused significant 
price increases it became clear to many of us that if something 
was not done we could very well run out of propane all 
together. This forced us to ration what propane we had on hand 
by lowering temperatures in our barns, shops and homes. This in 
turn caused a loss of production efficiency and also concerns 
of potential animal welfare issues. This has and continues to 
directly impact the grower's bottom line as these turkeys go to 
market.
    The Minnesota Turkey Growers Association has started the 
necessary precautions by forming a propane task force and our 
250 grower members are prepared to do what is necessary to 
secure as much propane and storage before the cold weather hits 
this fall. However, there's not enough capacity to satisfy all 
the needs especially since the Cochin line, that was at 50 
percent capacity this past winter, is planning to stop 
delivering propane entirely this year.
    There is currently no easy way to make up for the loss of 
the 200 million gallons that were provided by the Cochin, the 
equivalent of an additional 6,500 rail cars on an already taxed 
rail system. With rail and truck delivery being much less 
reliable comprehensive discussion must begin on how we ensure 
safe and timely deliveries to avoid the scare that caused the 
massive spikes in prices and the dangerous conditions for the 
Midwest. All options should be on the table.
    Therefore, we ask for several items to be considered in the 
short term.
    No. 1, direct the Federal Energy Regulatory Commission or 
the appropriate government agency to establish an advance 
notification system for end users when inventory levels drop 
below certain levels. There must be a way to give consumers a 
chance to adjust before these shortages occur.
    Second, in the winter months an appropriate trigger must be 
developed that allows the government to step in and prioritize 
pipeline and rail shipments of propane as well as when to relax 
hours of service for trucks hauling propane.
    Third, ease permitting for expanded propane storage.
    Fourth, direct FERC or other agencies to report to Congress 
on current infrastructure abilities to meet demand by this 
September.
    Finally, establish a Federal Government emergency response 
plan.
    Long term we'd like to see ease in the permitting of 
construction for dedicated pipeline for propane and study and 
expand storage capabilities on government facilities that can 
allow relief.
    To summarize strong demand surges, low inventories and 
supply challenges have led to the price spikes that are still 
impacting rural Minnesota today. If significant steps are not 
taken, this will happen again.
    Thank you.
    [The prepared statement of Mr. Zimmerman follows:]

    Prepared Statement of John Zimmerman, Immediate Past-President, 
                  Minnesota Turkey Growers Association
    Good afternoon, my name is John Zimmerman, and I am a turkey farmer 
from Northfield, Minnesota and Past--President of the Minnesota Turkey 
Growers Association (MTGA). My wife and I raise about 4 million pounds 
of turkeys annually on our farm as well as grow about 500 acres of corn 
and soybeans. I also sit on the board of River Country Co-op that 
supplies propane in rural Minnesota. Finally, I also am a member of the 
National Turkey Federation, which represents the $29.5 billion U.S. 
turkey industry and which worked with Senator Franken and his staff 
this past winter to elevate and momentarily correct this dangerous 
propane shortage. The problem is far from fixed, and I am here today to 
once again thank Senator Franken and the rest of the Minnesota 
delegation for staying focused on finding solutions.
    Winter, unfortunately, will be here before we know it and the 
potential for shortages, by all estimates, are going to get worse if 
significant steps are not taken soon.
    What started as a Midwest propane supply shortage developed into a 
larger, national discussion with over 20 governors declaring a state of 
emergency, scrambling to secure adequate supplies to meet the need 
during the critical winter months.
    Why did this crisis occur? Many of us have DESCRIBED IT best as the 
4 C's (Crop, Cochin, Cold, and Communication) and I will elaborate.
    To start, inventories were already low caused by increased demand 
for crop drying in November. Second, the Cochin pipeline, which is 
critical to Minnesota's propane supplies, had been reduced to fifty 
percent of its normal capacity. It did not help that this same pipeline 
was shut down for scheduled maintenance in November. Finally, the 
volatile run up in prices started on December 12, 2013 when a propane 
supplier notified many of our companies of force majeure, indicating 
they would not be able to complete the obligations of their contract, 
and the rest of our propane would have to be bought on the open market. 
So, what remaining propane was available we procured and what little 
storage our farms had left was filled. Unfortunately, there was neither 
enough storage nor propane available to weather the long, brutal 
winter.
    Given the scenario I presented, fuel stocks were never able to 
rebound as early sub-zero winter weather set in across much of the 
Midwest and Northeast, hindering propane gas movement on our already 
overburdened pipeline and rail systems. I will highlight a few 
substantive ideas later, but it is agreed by many that government at 
the very least, should establish some type of early warning system that 
allows time to formulate a plan for the impending disaster. We did not 
have the luxury of a head start on moving propane from where it was 
stored to where it was needed because such a system did not exist.
    The inadequate transport and storage systems combined with the lack 
of an early warning directly hit the pocket book of the people that 
heat their homes with propane along with those of us that need propane 
to heat our turkey barns. It is safe to estimate that in Minnesota the 
turkey industry saw propane use increase by over 30% from last winter. 
So when we saw propane prices go from $1.30 / per gallon to $5 / per 
gallon in a few short weeks you can see the impacts dug deep into our 
profit margins. This past winter alone, the Minnesota turkey industry 
saw an increase of over 25 million dollars more in heating related 
input costs over the previous year. That is real money to farmers like 
me that operate on very thin margins.
    While this propane shortage certainly caused significant price 
increases, it became clear to many of us that if something was not done 
we could very well run out propane altogether. This forced us to ration 
what propane we had on hand by lowering temperatures in our barns, 
shops and homes. This caused a loss of production efficiency and 
concerns over potential animal welfare issues. This has and continues 
to directly impact the growers' bottom line when the turkeys go to 
market.
    MTGA has started the necessary precautions by forming a ``propane 
taskforce'' and our 250 growers are prepared to do what is necessary to 
secure as much propane in storage before the cold weather hits this 
fall. However, there is not enough capacity to satisfy all the needs 
especially since the Cochin pipeline that was at fifty percent capacity 
this past winter is planning to stop delivering propane entirely this 
year.
    There is currently no way to easily make up the loss of eighty 
million barrels that were provided by the Cochin pipeline. With rail 
and truck delivery being much less reliable, comprehensive discussion 
must begin on how we ensure safe and timely deliveries to avoid the 
scare that caused the massive spikes in pricing and the dangerous 
conditions for the Midwest. All options should be on the table.
    Therefore we ask that several items be considered in the short-
term:

          1. Transparency.--Direct the Federal Energy Regulatory 
        Commission (FERC) or the appropriate government agency to 
        establish an advanced notification system for end users when 
        supplies/inventory drops below certain levels. There must be a 
        way to give consumers a chance to adjust before the shortage 
        occurs.
          2. Government Intervention.--In the winter months, an 
        appropriate trigger must be developed that allows the 
        government to step in and prioritize pipeline and rail 
        shipments of propane, as well as when to relax hours of service 
        for trucks hauling propane.
          3. Ease permitting for expanded propane storage.
          4. Direct FERC or other agencies to report to Congress on 
        current infrastructure abilities to meet demand by this 
        September.
          5. Establish a federal government emergency response plan.

    Long-term:

          1. Ease permitting for construction of a dedicated pipeline 
        for propane.
          2. Study and expand storage capabilities on government 
        facilities that can allow relief.

    To summarize, strong demand surges, low inventories and supply 
challenges have led to the price spikes that are still impacting rural 
Minnesota. If significant steps are not taken this will happen again.
    Thank you for the opportunity to testify today, I will be happy to 
answer any questions at this time.

    The Chair. Thank you for those excellent suggestions.
    Mr. France.

 STATEMENT OF GARY FRANCE, FRANCE PROPANE SERVICE, CHAIRMAN OF 
              THE NATIONAL PROPANE GAS ASSOCIATION

    Mr. France. Good afternoon.
    Good afternoon, Madame Chair, Ranking Member Murkowski and 
members of the committee. My name is Gary France and I am the 
owner of France Propane Service in Schofield, Wisconsin. I also 
serve as Chairman of the National Propane Gas Association.
    My message to you today reflects my experiences as a small 
business owner, a trade association leader and a concerned 
citizen. It is no secret that propane retailers in many States 
faced supply and distribution problems this winter. Even so, 
our industry's highest priority was always to safely and 
reliably serve the millions of households nationwide who depend 
on propane. The vast majority of retail marketers were able to 
do just that despite the significant challenges they faced.
    In my statement today I plan to briefly describe our 
industry, what we do, identify some of the main causes of this 
winter's problems and our plans to make sure it never happens 
again.
    NPGA is made up of nearly 3,000 member companies that 
produce, transport and sell propane for a wide variety of uses. 
By far the largest segment of our association is made up of 
retail propane marketers who deliver fuel locally to nearly 6 
million American households around the country. A large number 
of marketers, like myself, bill to businesses one customer at a 
time, know their customers well and share the economic impact 
of this past winter with them.
    We all know that the weather played a big role this winter. 
We had a late, wet, concentrated harvest season and farmers 
used 5 times the amount of propane they used the previous year. 
Winter started early and had sustained cold temperatures. 
Heating degree days were 10 percent higher than the previous 
year and 15 percent higher than the year before.
    In Wisconsin, specifically in my area, we are close to 
breaking the record December through March average temperature 
of 7.4 degrees set in 1903 and 2004. This year the average 
temperature was 7.7 degrees.
    We also experienced over 58 days with below zero 
temperatures.
    These two factors alone increased propane demand by over a 
billion gallons.
    We struggled to rebuild inventories all winter. The Cochin 
pipeline being down for a few weeks in November and December 
definitely didn't help. Storage levels ran low at the Conway 
bulk storage facility which is a major hub serving the Midwest, 
especially when Canadian supply from the Cochin is offline.
    Propane exports were also a factor. We are now a major 
propane exporting country. With nearly one in 4 gallons flowing 
overseas and export facilities are being as built as fast as 
the concrete can be poured.
    There is no Federal oversight or limitations that apply 
such as exist for natural gas exports. While we are generally 
free market supporters, we are now considering whether to 
recommend changes to our current propane export policy because 
of its effect on consumers and energy reliability.
    Exports have created a dramatic transition with the fuel 
distribution infrastructure in our country. Record production 
of crude oil, natural gas and propane from shale formations is 
changing the historic flow of fuels. Pipelines that once 
carried propane from the Gulf coast to markets in the North are 
being reversed to carry other products south to the Gulf coast. 
This is placing greater pressure and congestion on railroads 
and highways, backbones of the propane delivery infrastructure.
    To better understand these changes and their effects on 
reliability the NPGA's Board of Directors established a supply 
and infrastructure task force with a broad band aid to develop 
recommendations in a number of areas. Our goal is to identify 
improvements in policy and in business practices that will 
ensure our industry's resilience. We know all segments of our 
industry must examine weaknesses that may have contributed to 
the situation we experienced this past winter. We will identify 
them and propose solutions that hopefully will prevent problems 
in the future.
    I have a personal commitment investment in the success of 
this task force. As Chairman of the National Propane Gas 
Association I had the opportunity to visit members nationwide 
and hear their concerns. More importantly, I am active in our 
company and have personally delivered over 250,000 gallons of 
propane since December myself.
    This has allowed me to witness firsthand the concern of our 
customers who rely on our company to keep them comfortable, 
give them a hot shower and a warm meal. It was difficult to 
give my customers a bill higher than they expected. Many were 
frightened by the constant barrage of news stories reminding 
them of propane shortages.
    I shared their feelings as I watched an order of propane 
being delivered at my plant at a rate of 1,000 gallons a 
minute. It was at that point that I realized we could not allow 
propane to be treated strictly as a commodity to solve our 
supply problems. My son, Patrick, recently joined our business 
and I want him to have a future that allows him to continue 
serving our customers in a fair and reliable manner.
    Whether it's my passion for this industry or a father's 
love of his son, I want to ensure that industry and customers 
never face another winter like this again.
    Madame Chair, this concludes my remarks. I thank you and 
the committee for taking our time today.
    [The prepared statement of Mr. France follows:]

Prepared Statement of Gary France, France Propane Service, Chairman of 
                  the National Propane Gas Association
    The National Propane Gas Association (NPGA) is pleased to submit 
this statement for today's hearing. Our nearly 3,000 members--
predominantly small, family-owned businesses--make up an industry that 
provides propane to fuel homes, farms, businesses and vehicles in all 
fifty states. The industry employs approximately 40,000 industry 
individuals nationwide. Propane is a non-toxic gas produced from 
natural gas processing and crude oil refining. Over 70 percent of 
propane produced in the U.S. comes from natural gas.
    Today's hearing is particularly timely for the propane industry. 
During the 2013/2014 winter heating season propane retailers in several 
regions of the country faced critical supply constraints of propane. 
The supply challenges in the Midwest have been of particular concern. 
Propane retailers filled customer tanks to less than maximum levels to 
stretch their limited supplies. Propane suppliers traveled long 
distances and waited in long lines at terminals where the availability 
of supply was unpredictable, and where they confronted historically 
high prices. These high costs have hurt businesses and, worse, 
threatened the ability of propane customers to purchase essential 
heating fuel.
    NPGA's today provides examples of how America's energy future is 
changing, which in turn challenges existing energy flows and delivery 
infrastructures. We also present information on how laws affecting the 
propane industry were helpful, and also how we believe they could be 
strengthened. Our core principle in appearing before you today is that 
we must ensure that America's energy abundance continues to serve 
American citizens and consumers in a consistent, reliable, and 
affordable manner.
  causes and contributing factors of tight supplies in the winter of 
                               2013/2014
Pre-Season Inventory Levels
    The 2013/2014 heating season began with national propane 
inventories at approximately 67 million barrels, eight million barrels 
less than at the same time in 2012. Traditionally, the winter heating 
season starts the first week in October when the U.S. Energy 
Information Administration (EIA) begins publishing its ``Heating Oil 
and Propane Update,'' which is published weekly during the heating 
season each year. In 2013, national propane inventories were roughly in 
the middle of the 5-year average as reported by EIA.
    While we entered the heating season with average inventory levels, 
between October 2013 and March 2014 we estimate that total U.S. propane 
consumption increased by an about 670 million gallons relative to the 
same period in the previous year. In the Midwest, propane consumption 
from October 2013 to March 2014 increased by 485 million gallons (11.5 
million barrels) relative to the same period in the previous year. In 
the Northeast, propane consumption increased over the 2012/2013 winter 
levels by an estimated 91 million gallons (2.2 million barrels), while 
the South saw an estimated increase of 130 million gallons (3.1 million 
barrels). The only region of the country to see a drop in propane 
consumption is the West, where the dry, warm winter is estimated to 
have caused a decline in propane consumption of 36 million gallons (0.9 
million barrels).
    Inventories in PADD 2 first fell below the 5-year minimum range in 
the first week of October. By the last week of October, PADD 2 propane 
inventories fell below the 10-year minimum levels for the same week, 
and remained below the 10-year weekly minimums throughout the winter. 
In the first week of March, propane inventories in PADD 2 fell below 
the absolute lowest level in the preceding 10-years, and continued 
falling, setting a new record low the following week in the second week 
of March. Midwest propane inventories remain low; EIA's last reported 
storage levels, for April 18th, show PADD 2 inventories still below the 
previous 5-year minimum range for this week of the year.
    Throughout the winter, PADD 3 inventories also flirted with 5-year 
minimums. PADD 3, and particularly the Mont Belvieu storage complex, 
constitutes the largest propane storage capacity in the world. While 
PADD 3 storage entered the winter heating season at average levels, 
inventory levels fell to 5-year minimums, and remained so from the 
first week of January through to the last week of February, when net 
injections into storage finally began to overtake net withdrawals. 
Altogether, nationwide propane inventories ended the 2013/2014 winter 
541 million gallons below the 2012/2013 winter levels, as reported by 
the EIA for the last week of March.
Crop Drying Demand
    A primary factor leading to low inventories, particularly in the 
Midwest, was an unusually wet and large harvest that occurred late in 
the harvest season forcing farmers to use more propane than 
anticipated. During the 2013 corn harvest, about 13.9 billion bushels 
of corn were harvested, a historic record. During the same time, the 
``Corn Belt'' region of the Midwest received above-average rainfall, 
with the first week of October recording 200 to 500 percent above 
normal precipitation. Industry analysts estimate total grain-drying 
demand for propane at more than 300 million gallons in 2013, 235 
million gallons above 2012 levels. These factors led to an increased 
demand for propane late in the harvest season. Compounding this 
situation was the fact that the harvest was compressed into a much 
shorter period of time than usual. Suppliers in the Midwest did not 
have the chance to rebuild propane inventories before the onset of an 
early and cold winter.
Colder Than Normal Weather
    With propane supplies already low due to the dramatic increase in 
agricultural consumption, many propane retailers were undersupplied 
when the pace of winter home-heating demands rose quickly and 
significantly. Additionally, consumers in many instances were 
underprepared for the early, intense winter characterized most notably 
by the ``Polar Vortex'' weather phenomenon. The intensity level of 
winter was particularly unexpected, considering the unseasonably warm 
winters of the previous two years.
    When comparing Heating Degree Days (HDD)\1\ to the previous three 
years, this winter's U.S. total population weighted HDDs through March 
came in 7.5% above NOAA's 30-year average, 10.6% above the 2012/2013 
season, and 27.9% above the 2011/2012 season. Not only was this winter 
above historical norms, but heating needs compared to last year's 
equated to an increased propane demand of 640 million gallons in 
calendar year 2013 relative to 2012, and an increase in propane demand 
of about 410 million gallons for the October 2013-March 2014 period 
relative to the previous winter.
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    \1\ According to the EIA, Heating Degree Days (HDD) provide ``A 
measure of how cold a location is over a period of time relative to a 
base temperature, most commonly specified as 65 degrees Fahrenheit. The 
measure is computed for each day by subtracting the average of the 
day's high and low temperatures from the base temperature (65 degrees), 
with negative values set equal to zero. Each day's heating degree days 
are summed to create a heating degree day measure for a specified 
reference period. Heating degree days are used in energy analysis as an 
indicator of space heating energy requirements or use.''
---------------------------------------------------------------------------
      state and federal authorities helped alleviate the situation
    There are many people who contributed to resolving, and are still 
working to resolve, the issues posed by this year's heating season. On 
behalf of the industry and our customers, NPGA wishes to thank these 
individuals and organizations for their commitment to finding both 
short-term and long-term solutions.
    Many states granted Hours of Service (HOS) waivers, which helped 
immensely. These waivers allow truck drivers to obtain needed propane 
from far-away places and deliver that propane to customers. On the 
federal level, the Department of Transportation (DOT) granted four 
unprecedented regional waivers from HOS. As many as 35 states in the 
FMCSA's Eastern, Midwestern, Southern, and Western Service Centers were 
granted these exemptions, providing stability and uniformity throughout 
these regions. Exemptions in portions of the country remain in effect 
through May 31, 2014 per the Home Heating Emergency Assistance Through 
Transportation Act of 2014.
    Some states granted exemptions from weight limits for trucks 
traveling over state roads. While this does not allow drivers to carry 
overweight loads on interstate highways, it does help trucks carry 
additional fuel volumes up to the maximum amount of propane allowed by 
law.
    The State of Texas deserves specific recognition for its efforts, 
which were crucial in getting propane supplies out of the state to the 
rest of the country. Texas is host to the largest primary storage of 
propane in the world, and many truck drivers from out of state traveled 
to Texas to obtain the fuel directly from the storage facilities near 
Mont Belvieu. Specifically, the state waived its permitting 
requirements for out-of-state vehicles, a process that can otherwise 
take as much as 30 days to complete. This allowed drivers from other 
states to immediately operate in Texas so they could transport their 
loads back to their home state.
    A number of states took advantage of the Low-Income Home Energy 
Assistance Program (LIHEAP) to help consumers. At a time when we've 
seen unusually high prices, this program provided much needed 
assistance to the customers who need it most.
    Energy Secretary Ernie Moniz was personally active in asking 
pipeline companies to prioritize shipments of propane on their systems. 
He also reached out to several NPGA members to determine what further 
assistance DOE could provide. DOE's Office of Electric Delivery and 
Energy Reliability was helpful and supportive throughout the winter by 
holding conference calls, on a daily basis at times, with NPGA and 
other stakeholders to address the infrastructure and delivery concerns.
    The Federal Energy Regulation Commission (FERC) invoked, for the 
first time in its history, emergency authority requiring the operator 
of the Enterprise TEPPCO pipeline to prioritize shipments of propane. 
This action ensured that an additional 500,000 barrels of propane would 
move from Texas up into the Midwest and Northeast earlier than 
regularly scheduled.
    The Small Business Administration (SBA), through its individual 
state offices and loan partners, provided relief in the form of Express 
Loans and Micro Loans to propane retailers. These loans provided relief 
to the small propane marketers who, due to the increased cost of 
propane from their suppliers and the increased volume of propane 
required, had reached the limits on their existing lines of credit.
    Finally, we are also grateful for the meetings with the Governors 
of the affected states, and the numerous teleconferences with states' 
energy, transportation, and agriculture officials that were held, which 
allowed the sharing of credible real-time information and increased 
coordination among all parties.
    recommendations to improve propane reliability, resilience, and 
                          consumer protection
    Propane markets in the United States are not regulated except as to 
issues of safety. Neither the federal nor state governments exercise 
economic regulation (except as to pipeline transmission). The market is 
characterized by intense free market competition and low barriers to 
entry. Nevertheless, given the experiences of the winter of 2013/2014 
it is evident that there are roles for government to play to ensure 
reliability, resilience, and consumer protection. NPGA has now launched 
a broad-based effort with its membership to assess the lessons learned 
from this winter to determine what action government might take to 
avoid a future recurrence. A few areas for government action are 
already clear, and they are outlined below.
Review Export Policies
    During the winter of 2013/2014, as supply constraints emerged and 
as prices spiked, many consumers and members of the propane industry 
questioned whether these events were caused by growing exports of 
propane. Over the past four years, exports of propane from the Gulf 
Coast have increased dramatically as new export capacity has been 
developed and brought online. Based on the number of additional 
projects designed to increase export capacity that are currently under 
construction or have been announced, this growth trend is expected to 
continue. NPGA commissioned a study to examine the propane export 
question. Further in-depth analysis is, however, needed, and NPGA will 
request that the EIA conduct a study of propane supply, demand, and 
exports similar to the study it conducted with respect to Liquefied 
Natural Gas (LNG) exports.
    Should policy action with regard to exports be deemed necessary, 
there are a variety of broad options to be considered. Some have 
suggested that Section 3 of the federal Natural Gas Act of 1938 would 
empower the federal government to require export licenses. Another 
avenue would be a provision of the Energy Policy and Conservation Act 
of 1975 found at 42 U.S.C. Sec. 6212. Arguably, this authorizes the 
President to control propane exports. Such control might include 
licensing turning upon a public interest finding, export restrictions 
tied to prices or demand, or outright prohibition of exports. (NPGA 
understands that the President's authority under this law has been 
delegated to the Secretary of Commerce.) This authority has not been 
invoked in the past, and a formal proceeding engaging all stakeholders 
would, by the terms of the statute, be necessary. Congress, of course, 
also has authority to enact a new law that addresses this issue in any 
fashion that it determines to be in the interest of the United States. 
Should the federal government move forward on this front, it would be 
necessary to ensure that any policy adopted is compliant with World 
Trade Organization principles and the various trade treaties to which 
the United States is a signatory.
Ensure Markets are Performing Properly
    In January 2014, wholesale prices of propane at a key market hub in 
the Midwest tripled in the matter of a few days. This caused a 
temporary doubling of retail prices in large areas of the Midwest as 
reported by the Department of Energy (DOE). While price fluctuations in 
winter are common as supply and demand balances are achieved, these 
dramatic increases in propane prices were unprecedented.
    On January 23, 2014, Senator Charles Grassley called on the Federal 
Trade Commission (FTC) to investigate the matter to ensure that these 
price spikes were not a result of anti-competitive behavior or illegal 
manipulation. NPGA fully supports Senator Grassley's request and urges 
the FTC to review the matter expeditiously and thoroughly.
    NPGA believes it is an appropriate role of the federal government 
to assure citizens that markets are operating lawfully and to take 
appropriate action if they are not. While significant price volatility 
is common with respect to almost all energy commodities--and is in fact 
necessary to allow markets to function appropriately--it is important 
to ensure that unexpected volatility such as that observed this winter 
was in fact caused by the appropriate functioning of energy markets 
rather than anti-competitive behavior or market manipulation. 
Additionally, there may be roles for other federal agencies to play in 
ensuring that propane production, transmission, and marketing have 
occurred, and will occur, consistent with free-market principles.
Improve Inventory Data--Timeliness and Reliability
    EIA maintains a number of data gathering programs in the energy 
area and publishes weekly inventory numbers and trends for propane, 
among other fuels. EIA data includes weekly residential and wholesale 
propane prices; propane stocks in barrels and days of supply; regional 
propane production and imports; and propane demand estimates. 
Unfortunately, EIA data has not kept pace with changes in the energy 
sector, particularly with regard to the shale revolution and production 
of natural gas liquids, such as propane.
    Such high levels of production have provided incentives for 
companies to export significant volumes of propane to such an extent 
that the U.S. is now the world's largest exporter of propane. Propane 
export data is available on a per-ship basis by subscription from 
costly private sources. It would be highly useful to the industry and 
the public for EIA to expand its data gathering activities to include 
regular publication of aggregated propane export data. This would 
provide industry and policymakers with clear knowledge of the trends in 
propane exports, making appropriate business decision-making more 
rational and timely.
    Significant volumes of propane are owned and stored at proprietary 
terminals or locations around the United States. The location, size, 
contract status, and accessibility of these inventories are unknown, 
which puts the marketplace in a vulnerable position when supplies get 
tight. In previous years, the petrochemical sector sold propane back 
into the marketplace when prices rose in response to tight supplies, 
which performed a balancing role to bring prices back down. The shale 
revolution has changed this dynamic and greatly increased the 
complexity of the relationships among the various natural gas liquids 
uses and marketplaces.
    The fact remains that significant volumes of propane are stored in 
proprietary storage facilities in amounts completely unknown to the 
marketplace. In addition, an unknown quantity of the propane in the 
available propane inventory reports is committed to exports, and would 
not be available to the domestic market without paying significant 
contractual penalties. As a result, the reported propane inventory data 
overstates inventories that are actually available to the domestic 
market, and no one knows how big this overstatement might be.
    This winter, volumes at Conway, Kansas, approached critically low 
levels and NPGA was concerned this could lead to significant 
deliverability problems. NPGA had no way of knowing how low volumes 
were going to be in part because of the lack of knowledge about 
proprietary storage levels. When the marketplace does not have good 
data about supply, prices are affected; this winter was no exception. 
In the future it would be very helpful to have a better handle on 
proprietary storage levels, as this would mitigate price spikes, like 
those seen this winter.
    Beginning approximately ten years ago, EIA began collecting and 
publishing weekly natural gas storage data. There is no question that 
this data is a key information point that is reviewed and considered by 
many decision makers in the natural gas industry. The weekly storage 
report is a key piece of market data for both spot and futures natural 
gas markets. It also assists in ensuring market transparency and a 
well-functioning market. A similar data set by EIA would be of great 
assistance to propane market participants and would assist in ensuring 
transparency of markets.
    Finally, data that EIA currently collects lumps both propane and 
propylene together. Disaggregating these two commodities would aid in 
market transparency. Similarly, additional geographical granularity in 
propane inventory data would be welcomed by markets.
Increase Transparency in Petroleum Products Pipelines
    There has been significant consolidation in the interstate pipeline 
system regarding propane. Currently, the three largest interstate 
propane pipelines are owned or controlled by a single company. In a 
presentation to FERC in July 2013, NPGA presented data estimating the 
propane deliveries on the key multi-shipper propane pipelines. Of 
these, a single company shipped approximately 80 percent of propane, 
while all the others shipped approximately 20 percent. At the same 
time, there have been significant increases proposed on the federally 
regulated Dixie and TEPPCO pipelines, while the costs for other non-
regulated terminalling services have increased as well.
    From discussions with NPGA members over the past several months it 
is apparent that the operation this winter of the nation's petroleum 
products pipelines--the principal means by which propane is delivered 
to the market--is at best opaque, and the lack of transparency 
substantially increased the difficulty of dealing with the propane 
supply shortages. For example, propane shippers reported being unable 
to obtain capacity on pipelines to deliver product to markets with 
critical needs while the owner of the pipeline had product available 
for sale in those markets.
    While this situation may have served some purpose in the past, at 
this point it may give an undue advantage to a pipeline that is also 
engaged in selling, marketing, and trading propane. Similarly, the 
manner in which pipelines operate without providing adequate 
information to the marketplace in a transparent and timely manner does 
not allow the market, including propane companies, to respond 
adequately and adapt to changes in pipeline operations. Rather, it 
gives an undue advantage to the pipelines, especially those with 
marketing and other business operations outside the transportation 
area.
    The Federal Energy Regulatory Commission (FERC) should increase its 
oversight of infrastructure changes that have significant impacts on 
customers, especially when the pipeline industry is becoming more 
concentrated and when assets that have been dedicated to and paid for 
by historic shippers are spun off into unregulated ventures. There are 
several aspects to this issue. Remedies may require revisions to the 
Interstate Commerce Act or to policies of the FERC, which regulates 
interstate petroleum products pipelines under the Interstate Commerce 
Act.
Enact Pipeline Affiliate Rules
    FERC has previously adopted rules that apply to natural gas 
pipelines and electric transmission systems that govern the 
relationship with their affiliates, referred to as ``affiliate rules'' 
or ``codes of conduct''. The fundamental purpose of these rules is to 
prevent the pipeline or electric transmission provider from utilizing 
its transmission function--which is a regulated monopoly function--to 
benefit its affiliates that are market participants, usually energy 
marketers and traders.
    These rules do not apply to petroleum products pipelines, including 
those that transport propane. Some of these pipeline operators are 
involved in selling propane, trading in propane, and exporting propane, 
among other things. NPGA is concerned, particularly after the 
challenging winter market conditions, that these intra-corporate 
relationships may have been utilized to the detriment of the interests 
of consumers. NPGA will be requesting that FERC adopt rules for 
petroleum product pipelines that are similar to those for natural gas 
pipelines and electric transmission providers.
    In addition, pipelines have been removing certain terminal and 
storage assets from jurisdictional service and transferring these 
facilities to unregulated affiliates. The unregulated affiliates then 
are able to charge higher prices for the same services. The FERC has 
allowed these conversions to non-jurisdictional service based on an 
overly narrow definition of interstate transportation.
Review Pipeline Allocation and Information Rules
    Throughout the Midwest, Northeast, and South during this winter 
petroleum products pipelines were severely constrained as to capacity. 
Market participants desired to transport propane to markets with 
critical needs, but the capacity was not available to do so. On many of 
the pipelines relied on by the propane industry, propane is only one of 
many products shipped by the pipelines. During pipeline capacity 
shortages, the pipelines allocate capacity based on summer pipeline 
usage. Currently, this capacity cannot be assigned to a different 
party.
    According to Section 6 of the TEPPCO LPG pipeline tariff proration 
policy, which is similar to others in the industry:

          In no event will a capacity allocation to a LPG Shipper be 
        used in such a manner that will enhance the allocated capacity 
        of another LPG Shipper beyond the allocated capacity that such 
        LPG Shipper would be entitled to under this Policy. Carrier may 
        require written assurances from a responsible officer of LPG 
        Shipper regarding its use of its allocated capacity stating 
        that LPG Shipper has not violated this Policy. In the event any 
        LPG Shipper shall, by any device, scheme or arrangement 
        whatsoever, attempt to transfer all or any part of its 
        allocated capacity to any other LPG Shipper in violation of 
        this Policy, or in the event any LPG Shipper shall attempt to 
        receive and use such portion of capacity, the portion of 
        capacity allocated to each such LPG Shipper will be reduced in 
        the next Allocation Period after the date that the violation is 
        discovered by a volume equal to two times such attempted 
        transfer.

    In addition, under current rules, certain customer information, 
including shipper and volume information cannot be disclosed by the 
pipelines, making it impossible to determine who is shipping on the 
pipeline.
    Such provisions prevent shippers of lower-value commodities or 
shippers with sufficient storage to meet near term requirements from 
releasing their pipeline capacity to shippers of high-value 
commodities, such as propane in the winter season, even though it might 
be to the economic advantage of both to do so. As a result, this winter 
propane shippers were unable to negotiate deals with shippers of other 
products such as diluents headed to the Canadian oil sands producers to 
increase propane shipments and reduce shipments of other products.
    As this became apparent, FERC recognized the need to meet the 
essential needs of consumers and employed its emergency authority under 
the Interstate Commerce Act for the first time to ensure that an 
additional five hundred thousand barrels of propane were moved to 
Midwest and Northeast markets. NPGA commends FERC for its prompt 
action. Going forward, however, there may be other mechanisms to avert 
a recurrence. Certainly, affiliate rules, mentioned above, will give 
market participants confidence that the market is functioning in an 
above-board manner. In addition, FERC may be able to adopt mechanisms 
from other areas of its regulatory portfolio, including natural gas 
pipelines in order to ensure that market mechanisms are available to 
resolve pipeline allocation issues, instead of relying on emergency 
orders from FERC.
Revise Thresholds for the Use of Federal Emergency Authority
    NPGA has worked closely with a number of federal agencies that 
maintain oversight over the supply, transportation, and distribution 
segments of the propane industry to obtain relief from their applicable 
regulations. However, NPGA believes revisions to the thresholds for 
triggering an agency's emergency authority would permit greater 
flexibility in addressing supply and infrastructure issues in the 
future. NPGA has identified several areas where the limited authority 
of the Department of Transportation (DOT) and DOE hampered their 
efforts to facilitate a rapid response to the evolving supply, 
transportation, and distribution crisis. Congress should review and 
revise these impediments to prompt action.
        1. the robert t. stafford act (p.l. 93-288, as amended)
    The Stafford Act establishes the criteria under which the federal 
government responds to significant emergencies. An emergency 
declaration can only be requested of the President by the governors of 
the affected states. When requested, the Federal Emergency Management 
Agency performs an analysis to determine if the declaration is needed. 
If an emergency is declared, states must share a portion of the costs. 
Despite the severity of the propane situation this winter, this ``all 
or nothing'' aspect of a Stafford Act determination proved too high a 
threshold for state governors to embrace, and it foreclosed needed 
assistance to propane retailers and their consumers.
    Among the many actions taken by NPGA this winter, it sought a 
waiver of the federal weight limits for trucks hauling propane on 
interstate highways. These limits are established by the DOT's Federal 
Highway Administration (FHWA). The purpose of the NPGA request was to 
allow trucks to load propane to the maximum permitted filling capacity 
of the truck. Due to highway weight restrictions, these trucks could 
only fill to within about fifteen to twenty percent of the maximum 
permitted level, essentially leaving the filling terminals with about 
1200 to 1400 gallons less than they could carry with a waiver in place.
    The FHWA has no statutory authority to grant a waiver from the 
weight restriction regulations. Unfortunately, the only mechanism by 
which a waiver could be granted would be for the President to declare 
an emergency using the authority provided him under the Stafford Act. 
Yet, as mentioned above, governors were unwilling to invoke the 
Stafford Act to lift weight restrictions given the other costs of doing 
so. Given the nature of the fuel emergency that existed, NPGA strongly 
supports amending the Stafford Act to provide for more limited waiver 
authority. Specifically, the Secretary of Transportation, perhaps in 
consultation with the Secretary of Energy and Governors, should have 
the authority to grant a waiver from the weight restrictions, either 
under the Stafford Act or under other legislation. This narrow action 
would go a long way toward ameliorating a fuel emergency or disaster 
without all of the complications and costs of a full-fledged 
Presidential emergency declaration.
                            2. the jones act
    The Jones Act requires that all maritime shipments of any kind 
between U.S. ports (in the ``coastwise trade'') be aboard U.S.-flagged 
vessels. In our case, a marine shipment of propane from a port on the 
Texas Gulf Coast (PADD 3) to ports in New England (PADD 1a), for 
example, would have to be aboard a U.S.-flagged vessel. The challenge 
in meeting this requirement is that there are currently no U.S.-flagged 
ships available to carry propane, leaving American consumers literally 
out in the cold.
    Waterborne transport has the potential to be a critical component 
in addressing the overall supply and distribution challenges facing the 
propane industry in the Northeast. A shipment of American propane from 
Texas, where the world's largest underground propane storage is 
located, to New England would have made a significant impact on the 
supply issues in that region of the country, and also would have freed 
up transportation assets, including pipeline capacity and rail cars to 
deliver propane into the Midwest and other regions of the country. 
However, given propane production trends, a ship capable of 
transporting propane from the Gulf Coast to the Northeast likely would 
be utilized only a few times each year, and in some years, such as 
2011/2012, would not be utilized at all.
    Unfortunately, obtaining a waiver from the Jones Act is generally 
acknowledged to be nearly impossible. In order to obtain a waiver, the 
request must be made to the Department of Homeland Security's (DHS) 
Customs and Border Protection (CBP) agency. Once a waiver request is 
received, CBP consults with the DOT's Maritime Administration (MARAD) 
to determine if a U.S. ship is available. CBP also consults with DOE to 
assess the energy and fuels supply situation. This review and 
consultation is a time-consuming and arduous process.
    During the last several months, NPGA has been engaged with DOE on 
propane supply and distribution matters at a frequency of at least 
three times a week, if not daily. DOE had the greatest knowledge of the 
state of the industry supply and would have been best positioned to 
grant a waiver from the Jones Act for a de minimis period of time. NPGA 
believes that in the context of fuel emergencies DOE should be given 
the authority to grant such waivers from the Jones Act.
                          3. hours of service
    The DOT Federal Motor Carrier Safety Administration (FMCSA) 
establishes Hours of Service (HOS) regulations that specify the number 
of hours that truck drivers may drive a commercial motor vehicle and 
that they may be on-duty. The HOS regulations were changed in 2013. The 
most significant change for long-haul drivers in the propane industry 
pertained to the ``34-hour restart'' provision. This provision permits 
drivers to ``restart'' their driving service if they have been off-duty 
and have not driven for 34 consecutive hours. Most importantly, FMCSA 
2013 change required that the 34-hour period must also include two 1 
a.m.-to-5 a.m. off-duty periods, in contrast to the previous 
requirement, which permitted 34 consecutive hours off duty. NPGA 
believes that the 2013 change resulted in a reduction of productivity 
of up to fifteen percent. During the 2013/2014 winter, this loss in 
productivity reduced the amount of fuel delivered. NPGA believes that 
the 2013 change resulted in no additional increment of safety, but this 
winter it resulted in a detriment to propane consumers.
    During the height of the winter supply and distribution issues, 
FMCSA did issue regional waivers from HOS regulations for the Eastern, 
Midwestern, Southern and Western Service regions, which waived the 34-
hour restart requirement and expedited propane shipments. Nevertheless, 
NPGA believes there is no evidence to suggest there is a reduction in 
safety by reverting to the previous requirement of 34 consecutive hours 
off duty (as opposed to requiring two 1 am to 5 am periods), and we 
would recommend the reinstatement of the previous regulatory 
requirement.
Expedite Increases in Storage Infrastructure
    If there is one lesson learned from the 2013/2014 winter propane 
market conditions, it is that the infrastructure network was inadequate 
to meet consumer needs. There are a number of facets to this, and 
government can assist in ensuring that essential human needs are met.
Underground Storage
    Since 2009 NPGA has argued that permitting and constructing 
expanded underground propane storage in the Finger Lakes area near 
Reading, NY is essential to meeting Northeast propane needs. We have 
called on Governor Cuomo to approve the facility, which would add over 
88 million gallons of propane storage in a region where demand far 
exceeds local supplies. New Yorkers, and the entire New England region 
in general, are highly dependent on propane shipments from outside the 
region. New York is at the tail end of the TEPPCO pipeline, which 
delivers propane from major primary storage facilities in Mt. Belvieu, 
Texas. As discussed above, TEPPCO recently reversed part of its line to 
deliver ethane south to the Gulf Coast from the Marcellus-Utica Shale 
regions. This has inhibited the pipeline's capacity to deliver propane 
supply to New York. In addition, the closest major storage field to the 
Finger Lakes storage facility, the Enterprise Todhunter storage 
facility on the TEPPCO Pipeline in Ohio, was recently shut down, 
further increasing the need for new storage capacity in this area of 
the country.
    We have seen a number of challenges confronting the propane supply 
chain, ranging from pipeline shutdowns to rail strikes in Canada to 
ships not coming in on time from overseas. Supply lines can and do 
break during the winter, and they have caused shortages in the past. 
This winter, propane marketers found themselves needing to drive long 
distances to obtain supply. Drivers have obtained supply from 
destinations as far away as Apex, North Carolina, and Sarnia, Ontario. 
Having additional secure propane storage in New York would help ensure 
that fuel is available nearby. The propane industry is proposing to 
address these issues in a responsible way through initiatives like the 
Finger Lakes storage facility.
    It is important to note that the mix of fuels used in New England 
is changing, and many fuel oil customers are shifting to cleaner-
burning propane. It is cleaner in the house, and it is cleaner for the 
environment when it is consumed. As the propane industry expands in New 
England, we need to be able to store adequate supplies of propane 
reasonably close to serve these new customers.
    Approval of the Finger Lakes facility will also improve the 
resilience of the propane infrastructure in the Southeast and Midwest 
regions of the United States. This winter, a major propane storage 
facility in Sarnia, Ontario, saw very high demand due to its close 
proximity to both the New England and upper Midwest regions. Sarnia 
storage was drawn down to below the 5-year minimum levels in March, 
which compounded other low storage in Michigan and surrounding states. 
Similarly, the propane storage facility in Apex, North Carolina, 
supplied significant volumes into New York and New England. Were the 
Finger Lakes facility to be in operation, it would dramatically reduce 
New York's demand for propane stored in Sarnia and Apex. Approval of 
Finger Lakes would have cascading benefits far beyond New York and New 
England.
Agriculture Storage Incentives
    Unexpected demand by the record-setting crop-drying season caused a 
significant draw-down of propane supplies, particularly in the upper 
Midwest. This caused propane inventories to be lower than nominal as a 
colder-than-normal winter swept in. Storage at agricultural facilities 
is not particularly significant, requiring marketers to make multiple 
trips to some facilities sometimes as often as daily in the event of a 
large harvest. This experience has highlighted the significant impact 
that minimal storage at agricultural sites can have on the overall 
propane infrastructure, so we support incentives for farmers and crop 
dryers to increase their on-site storage capability. Such increased 
storage would have multiple benefits, including resilience in the face 
of unexpected demand; reducing the frequency marketers need to fill the 
storage; and more closely matching the capabilities of the crop drying 
equipment itself.
Permitting and Siting
    Adequate propane storage at the secondary (retailer) and tertiary 
(customer) levels is critical as we enter the crop drying and heating 
seasons. Unfortunately, it is sometimes difficult to expand the propane 
storage infrastructure in the face of local opposition. Propane storage 
is highly regulated through building and fire codes, and the 
engineering of systems is standardized to a significant degree. The 
propane industry works closely with state and local officials to ensure 
a comfort level with propane storage, and this is an ongoing process. 
It is critical for state and local officials to allow propane storage 
to be built, maintained and expanded, so that the growing customer base 
of propane consumers can be served safely and efficiently.
 assessing industry practices and opportunities for industry education
    The difficulty in meeting unexpected propane demand efficiently 
this winter can in part be attributed to industry business practices 
that have taken hold in response to shifts in market conditions over 
the last 20 years. Consumer propane sales have fallen by more than 24 
percent between 2000 and 2010. Moreover, retail propane jobs fell by 
more than 20 percent during the same period. This has been the result 
of a number of factors, including competition from other energy 
sources, as well as improvements in appliance and building efficiency.
    Consumer education plays a role in lessening the risk of supply 
shortage. NPGA believes it is critical for consumers to build a 
relationship with a local propane supplier and to buy their fuel well 
in advance.
    Propane customers typically fall into two categories: ``keep full'' 
customers, those who enter into a contractual agreement with a propane 
retailer to keep their tanks full; and ``will call'' customers, those 
who choose not to enter into a contract with a retailer and instead 
choose to buy their propane supply on their own. The ``keep full'' 
customer benefits from the security that their energy needs will be 
met, and retailers benefit from the certainty of being able to plan 
ahead for their customers' fuel needs. ``Will call'' customers must 
manage their own supply level, price shop for fuel, and ensure their 
system is in proper working order. ``Will call'' customers typically 
have a lower priority compared to ``keep full'' customers when system 
demands are high. Such customers are much more vulnerable to market 
variability and supply disruptions--like the ones resulting from this 
winter's supply, demand, and infrastructure challenges. NPGA will 
redouble its efforts to encourage consumers to build a relationship 
with a retailer in their area to make sure that their energy needs are 
met.
    Many consumers can also fill their tanks in the summer, planning 
ahead for winter heating. This can also have the added benefit of lower 
off-season propane prices. Unfortunately, many propane customers are 
unable to afford to tie up their available cash by refilling their 
tanks during the summer. For these customers, one additional way to 
increase certainty of propane supply in the winter heating months is 
for customers to enroll in a budget plan with their marketer. This 
allows the costs of fuel to be spread over the entire year, making it 
more affordable than paying for a full tank all at once.
                               conclusion
    As we analyze the causes of the problems encountered during the 
winter of 2013/2014, NPGA's goal is to ensure that such a situation 
never happens again. NPGA has established a Supply and Infrastructure 
Task Force charged with conducting a comprehensive post-winter analysis 
to identify causes and contributing factors, and analyze, debate, and 
provide recommendations for future efforts and strategy as it relates 
to propane supply, distribution and infrastructure. We intend to pursue 
the Task Force's policies and recommendations aggressively, and we 
anticipate that our efforts will focus on public policies, industry 
operations and practices, and consumer needs. We look forward to 
keeping you informed of our progress as we move forward.
    NPGA and its members appreciate the opportunity to present their 
perspective on these important issues to the Committee.
    Thank you.

    The Chair. Thank you all very much. This was an excellent 
panel. Your presentations were very heartfelt and specific with 
suggestions. I thank you so very much.
    Senator Portman has arrived and since we gave everyone else 
a minute to open, I thought we would allow him to just give a 
minute of opening remarks. Then I have a series of questions, 
turn that over then to the ranking member and then Senator 
Franken is going to Chair the rest of this meeting.
    Senator Portman. Great.
    First of all, thank you for holding this hearing. To you 
and Senator Murkowski for letting us have an opportunity to get 
the information that we just got from this great group of 
panelists.
    Ohio is one of the States hit. Mr. Cordill mentioned Ohio. 
We've got about 240,000 people who saw their prices spike 
substantially.
    We heard, I think, from Ms. Kenderdine that it's almost a 
doubling of prices in Ohio. We went up to $3.90 a gallon. As a 
result some of us, including Senator Franken, who's here, 
Senator Hoeven and I have sent a letter to the President 
looking for some help from the Federal agencies.
    I appreciate the fact that everybody kind of pitched in. We 
avoided, therefore in Ohio, having a widespread situation where 
we actually ran out of supply. That didn't happen. But we came 
awful close.
    Obviously we had a lot of family budgets that were 
stretched really thin and then some businesses as Mr. Zimmerman 
said. So again, to Chairman Landrieu and to Ranking Member 
Murkowski, thanks for letting us have this hearing. I look 
forward to further dialog with the panelists here to talk about 
solutions.
    The Chair. Thank you very much, Senator.
    Let me begin with asking all the panelists, just really 
quickly, yes or no? We had some excellent suggestions from all 
of you.
    Mr. Zimmerman said advance notification, some sort of 
trigger mechanism, increased storage capacity in the places 
it's necessary. Someone mentioned Finger Lakes. Then a better 
FEMA response, which I most certainly can understand and those 
in the short term.
    In the long run some expedited permitting.
    I'm going to start with you, Ms. Kenderdine. Can you say 
yes or no? Do these things make sense to you in trying to solve 
this problem which has to be solved quickly and 
comprehensively?
    Ms. Kenderdine. I think many of those are excellent 
suggestions.
    The Chair. What would you add?
    Ms. Kenderdine. Certainly from the Department's perspective 
I do think that we need more granular information about what is 
going on in the marketplace. There are issues when you start 
collecting information that is that specific. There are 
proprietary concerns on the part of the industry.
    There's a cost to the industry when you do those types of 
surveys. There's a cost to the government as well.
    So from our perspective we could use, I think, we would 
like to work with you all and the industry to develop 
additional information that is not unduly burdensome to the 
industry. I think that that would be very helpful.
    The Chair. Thank you.
    Mr. Nichols, do those sound like good steps to you and 
something that you could generally support?
    If not, why?
    If it's not complete what would you add?
    Mr. Nichols. I think many of those ideas sound excellent.
    As an independent regulatory agency, again, we can only act 
within the limits of our statutory authority. When we tend to 
depart from that the courts rein us in very quickly.
    The Chair. Let me ask you this.
    What one or two authorities can you immediately see that 
you would like to have that you don't that could have helped in 
this situation? You don't have to give me the whole list, but 
just the first two that come to your mind.
    Mr. Nichols. The emergency authority we have is 
extraordinarily broad. I think if it is challenged it would be 
very helpful for this body to clarify the nature of that 
authority.
    The Chair. Make it clearer.
    Mr. Nichols. But being that it is extremely broad I see us 
as having great freedom to apply it as we see necessary.
    The Chair. Mr. Black, same question to you.
    Mr. Black. Thank you, Senator.
    Two of Mr. Zimmerman's suggestions go straight to how 
pipelines can be part of the solution to making sure this 
doesn't happen again in future winters.
    One, he mentioned perhaps ease in siting of a dedicated 
propane line. Our member companies would love to build a 
dedicated propane line for shippers willing to sign a long term 
contract to finance that.
    Second was increased development of storage, particularly 
downstream, local, regional storage that can help get through a 
tough winter. We think that's appropriate as well.
    The Chair. Thank you.
    Mr. Cordill.
    Mr. Cordill. All of those things certainly are worth 
considering coming into play.
    I did mention ones. I did mention the availability of the 
Finger Lakes storage. That's an 88 million gallon storage 
cavern in the Finger Lakes region of New York that was 
previously used for natural gas storage and has been converted 
and is rated to be used for propane storage. But we're awaiting 
the authority from the New York State government to place that 
facility into service.
    The Chair. Has it received its permission from EPA? Did it 
need a Federal permit or just a State permit?
    Mr. Cordill. At this point in time the only thing lacking 
is the go ahead from the State.
    The Chair. OK. That's good to know.
    Mr. Zimmerman.
    Mr. Zimmerman. I like those suggestions.
    The Chair. Because they were yours.
    [Laughter.]
    Mr. Zimmerman. You know, in addition, storage on farm is 
very important to us and our members and growers. Companies 
such as Cenex Harvest States are adding storage around the 
State as we speak. I think that's one way to help, but even if 
we have, you know, we can only have so much storage.
    We still need to get the fuel when we need it and that goes 
back to infrastructure issues. I think that's at the crux of 
the issue for us is we either need to bring it on pipelines, 
trucks or trains. We just need to be able to bring it in when 
we need it. I think that's the biggest issue for us is an 
infrastructure issue. We need to work on our infrastructure.
    The Chair. But storage closer to the users would actually 
help, some sort of reservoir closer to you would help at least 
get it closer to you. You still have some transportation 
issues. But at least you're not starting from the source.
    So maybe something like that Finger Lakes could potentially 
help. I'm not sure at its capacity how much it would, you know, 
be able to supply. But----
    Mr. Zimmerman. I believe, you know, Conway, Kansas is our 
closest natural storage facility. But if the Finger Lakes 
project was there, obviously, you know, fuel that is needed in 
anyplace in the country, if we can then help lessen the need in 
the Northeast they'll be more supply for the Midwest.
    So, you know, that's a great suggestion, the Finger Lakes 
project.
    The Chair. Mr. France.
    Mr. France. I agree, storage is critical. The Finger Lakes 
project is a site that's ready to go right away because the 
shortage problems are the pressure on the pipelines is more 
than regional. The people from Minnesota now will start coming 
to our area in Pine Bend, Rosemount area or Janesville, which 
will put more pressure on Wisconsin people because of more 
people coming to the pipeline.
    So the more storage facilities we have will make the 
pipelines more effective. The other thing that would also be a 
benefit to our marketers would be--it was stated that there's 
pipeline capacity. But we need more year round capacity so we 
need more products.
    We do have a provision in the Department of Commerce that 
is restricting us from helping to educate our customers in 
promoting new products so that we could have more year round 
use of the pipelines.
    The Chair. OK.
    I'm going to turn this over to Senator Murkowski.
    But I would like to explore more, Mr. Black. You said we 
have enough pipelines.
    Mr. France, you said we need more or you said we could 
dedicate something, you know, propane pipeline. There's some 
issues about exports as well. So let's hone some of those.
    Thank you very much. I'm going to turn it over to Senator 
Murkowski.
    Then turn the gavel over to Senator Franken.
    Senator Murkowski. Thank you, Madame Chairman.
    You know, just trying to figure out how we keep this from 
happening again. To hear, OK, we've got the pipeline capacity, 
but so much of this is an issue of timing. Anticipating whether 
or not you're going to have a historic year when it comes to 
really, a tough winter.
    We can all look at the Farmer's Almanac, but I don't know 
how reliable that is anymore. I shouldn't say anything bad 
about it. I'm not a farmer. I don't pretend to be.
    But it does speak to the issue of how we anticipate. This 
is where the storage issue, I think, really does play a 
critical role.
    Mr. Cordill, I think you were the one that mentioned that 
we needed to do more or maybe it was you, Mr. Zimmerman, to 
expedite the permitting for storage. How big of a problem is 
the permitting process?
    Now Senator Landrieu has indicated that with this 
particular storage facility that we're talking about is just 
the State hold up. But is this an issue generally where we're 
having problems with permitting?
    Mr. Cordill. The issue with storage permitting is twofold. 
If we're talking about storage that is able to actually keep 
enough product in a region, we're talking about underground 
salt caverns. That's a long----
    Senator Murkowski. Not unlike we do with the strategic 
petroleum reserve?
    Mr. Cordill. Something, you know, like that. That's a long 
term project. It would require EPA and very long permitting 
process.
    One other factor is that where the marketers have been 
willing to add above ground storage to their existing bulk 
plants that we referred to them.
    Senator Murkowski. Um hmm.
    Mr. Cordill. They run into the local siting problems. 
Whether they're building new plants or simply wanting to expand 
their plants, people of local jurisdictions object to that on 
whatever reason, whether they're using unsupported safety 
information or what have you. They just don't want to see that 
additional storage in their backyards.
    Senator Murkowski. Hmm.
    Let me ask the question about how this all intersects with 
what we saw with the increased production in corn this past 
year. How much did the increased corn production play into the 
supply draw downs?
    What I think I've heard is that we had sufficient propane 
supply out there, but did we?
    Ms. Kenderdine, I'll direct this to you because you're 
leading DOE's effort on this Quadrennial Energy Review. Have 
you looked into this interplay of how the propane crisis 
factors into what was going on with the increased production of 
corn and really then that corn for export issue?
    How does that all come together?
    Ms. Kenderdine. I think you've put your finger on a lot of 
larger issues. It is in those larger issues are why we are 
looking at energy infrastructure in the Quadrennial Energy 
Review.
    Theere is competition, certainly for rail space, barge 
space and truck space, between for example, ethanol, corn, 
fertilizer, coal, oil, propane and other petroleum products. So 
at EIA we collect information on energy products, supply, 
demand, etcetera, etcetera. But what you're seeing is a lot 
more interdependencies of different infrastructures and moving 
these products around.
    We have been looking at and we will look at in the 
Quadrennial Energy Review, we are doing regional fuel 
resiliency studies because there are very regional issues. You 
could do a national study and it might not give you the 
solutions you want because so much of our energy is 
regionalized both in supply, demand and infrastructure. So we 
are doing those regional infrastructure resiliency studies.
    They will start with the PADDs, the oil districts. But we 
will also look at things like electricity. You saw in Hurricane 
Sandy interdependency between fuel and electricity. In that 
instance there was fuel supply there as well. But the gas pumps 
wouldn't work because the electricity was down. So we are 
looking at a range of issues like that.
    I just want to throw out one or a couple of factoids, 
actually facts.
    I think in 2006 there were 4,000 rail cars transporting 
oil. In 2013 there were 425,000 rail cars transporting oil. I 
didn't come into this job thinking I was going to be looking at 
the rail infrastructure, I work for the Department of Energy. 
But it is enormously important.
    Everything is changing. Our infrastructures are changing. 
We need to take a much broader systems look at all of these 
things. That's what we're doing in the QER.
    Senator Murkowski. Yes, I think that will be fascinating 
insight when we get to that.
    Mr. Chairman.
    Senator Franken [presiding]. Thank you.
    Ms. Kenderdine, when you talk about that rail issue with 
oil and crude. Boy, is that a big deal in Minnesota right now. 
I know, elsewhere because our farmers, our utilities, they're 
all experiencing delays and uncertainty in terms of their 
shipping and receiving what they need and shipping what they 
need to ship.
    I'm going to go through this real quick. See if I can do 
this as quick as I can, exactly. If we all agree what the--and 
I think we've mentioned them and everyone has overlapped on 
this.
    But what we had was kind of a low supply. Mr. Black talked 
about what people had bought.
    Now if you look at that people don't buy propane during the 
summer. They just don't. So that made a lot of sense.
    But also because the Energy Information Agency had actually 
made some kind of projection as to the cost increase over the 
winter of propane and it was like a very, very small 
projection. I think we have an issue of bad data or estimates 
that were given by DOE, through EIA, that discouraged the 
accumulation of supply.
    We saw the very low supply in Conway. If I'm right, was 
about a third full at the beginning of the winter. So, I think, 
that was a big issue.
    We had the large and wet, very wet harvest.
    We had the terrible winter.
    We had pipeline disruptions. We're going to talk a little 
bit about Cochin because that was down for a good month or so. 
Now starting on July 1, they're going to be reversing their 
line and we're not going to, in Minnesota, where we used to 
rely on 40 percent of our propane from there, we're not going 
to be getting any. We have to find ways to replace that.
    So we had the pipeline disruptions.
    We had a lack of coordination. Some of that is about the 
authority to share information. The granularity of the data as 
has been brought up.
    Then we have the increased exports.
    Then we, sort of, had the absence of certain authorities to 
pull the trigger on--in the way that FERC did finally on the 
enterprise. I'm not saying you did this slowly. I'm just 
saying.
    Did I miss anything? Is that the summary of what was the 
cause of this?
    Yes, OK. I think I got it. OK.
    So, what to do next?
    Now Mr. Black, you were talking about, you showed these 
charts. The charts, of course, made a lot of sense if you think 
about what happens during the summer. No one buys propane 
because they're not.
    Now, Mr. France said there should be other uses of propane 
that other propane products to sell that maybe could mean that 
we are--that would help the resilience because all year round 
there would be. But I'm not sure that that's terribly 
realistic. I think we have a seasonal thing here.
    Anybody disagree?
    Yes?
    Mr. Black. If I may, Senator, Mr. France's testimony, I 
thought, well put propane customers into two different 
categories, some that always want to be full and always want to 
be prepared and some who, kind of, wait and call when they're 
empty and think about when the price is right. You're right. 
Some people don't buy propane in the summer, but they can. The 
two of the gentlemen's companies here, I'm sure, would be happy 
to sell propane in the summer. Collectively propane market 
participants can ship propane over the summer, over that spare 
pipeline capacity, to have it ready.
    Senator Franken. I understand that. But that goes to Mr. 
Zimmerman's point which is that there's only so much storage 
outside of the big storage in Conway and in now, Belvieu and 
maybe sometime in the Finger Lakes. You can only fill so many 
tanks. Am I right?
    Mr. Zimmerman. That's correct. You know, I know we're 
building more near Glenwood, Minnesota and some other places. 
But, you know, there is local governments, local--and people do 
not like these huge tank farms either. So, I mean, there's only 
so much you can do. I think we're doing as much as we possibly 
can as far as local tank storage.
    Senator Franken. So what we need is one, somebody, maybe a 
number of you, talked about an early warning system. So we need 
an early warning system. That means we need more granular 
information.
    Do you need more authorities, Ms. Kenderdine, because we 
asked Mr. Nichols if he needed more authorities and he said his 
authority in an emergency was broad which, so we don't want to 
define something that's broad to be more narrow? But do you 
need any more authorities?
    Ms. Kenderdine. I would say a few things.
    I mentioned the coordinated effort of the Federal 
Government. With that coordination I think you had the adequate 
authorities to deal with the crisis.
    Setting aside an early warning system I would say that 
EIA's forecasts on price increases were off. I think probably 
if you look at their forecast over 5 years you'll see a pretty 
accurate. I think they do incredible work.
    Weather forecasts were off as well. The winter forecast 
from NOAA said that it was going to be--they expected 
additional--a colder than normal weather in Northern Minnesota. 
But warmer than Northern--warmer weather in New England and in 
the South which was not the case and all of those regions put a 
huge draw on propane supply.
    But when we coordinated our efforts, I think we all had 
adequate authorities. I would say many of the statutory 
authorities for energy in general are not appropriately a match 
to the energy situation we have in this country now. They were 
developed in a time of scarcity and we are in the time of 
abundance.
    That's one of the things we are looking at in the 
Quadrennial Energy Review--to see about the adequacy of our 
laws and regulations to incentivize the infrastructure we need.
    The Department of Energy, I would say, has a long history 
of emergency response in the nuclear area. We do have nuclear 
weapons, but that's an inherently government function with the 
exception----
    Senator Franken. Which I think it should be.
    Ms. Kenderdine. Yes, it should be, yes.
    Senator Franken. OK. You know what I'm going to do? I'm 
going to----
    Ms. Kenderdine. I don't want to change that.
    Senator Franken. Yes.
    I want to hand this off. We're now into an area where--I 
think my clock wasn't running. So I want give it to Senator 
Baldwin.
    Let's just have a discussion, however long we need.
    Senator Baldwin, you have first 5 minutes. Then we'll just 
kick it back and forth.
    Senator Baldwin. Sounds great.
    Thank you, Mr. Chairman.
    I thought the panel did a great job of, sort of, laying out 
a review of what happened in the past year. There's one piece 
of it that I want to just tease out a little bit that didn't 
get much attention.
    We were talking about distribution with pipelines and 
trains and trucks. One of the discussion points during the 
unfolding of this crisis was actually the need to intervene and 
ask for a change of the hours of service rules for truckers 
because of long waits.
    Mr. France, first of all thank you for coming and taking 
the time to testify.
    I'm wondering if you could talk a little bit about the 
challenges that dealers in Wisconsin and other crisis States, 
who are participants in your association, what they did to get 
the fuel, the propane, for their customers. If you do have any 
stories to share about those who, you know, I heard stories of 
people driving as far as Mississippi and Texas to be able to 
receive loads of propane to serve their customers.
    Why did we have to intervene in the hours of service?
    Mr. France. Thank you, Senator.
    My personal story is we started out the season--two years 
ago when we had notice that the Cochin was going to be closing 
down I added more storage. I had it full. I had my customers 
full. But then all of a sudden in December and January the 
terminal started going on allocation. I, from that point on, I 
could not get my storage full, the 45 or 50 percent is the most 
that I had in my storage most of the winter.
    We had long lines. Some of the transports had to wait in 
line as much as 8 to 12 hours. They charged me back $65 an hour 
which either I had to absorb or pass on to my customers which 
wasn't right.
    So it is true that we had some struggles, but I have no 
known cases. We delivered. We got all the product out there. 
That did mean some marketers drove as far as Mont Belvieu, 
Texas, Conway, Kansas, to go and get a load of gas because it 
was--if you had to have a transport wait in line for 12 hours 
at a terminal they could drive for another 6 or 7 hours, get a 
load of gas and be back in the same time as that they would 
have got their load waiting in line.
    So that was very difficult to get the amount of gas that 
one transport which we'd probably do in 3 or 4 loads a day was 
now only doing one every 4 days. Without the hours of service 
extension these fellas would have to wait or have to double 
shift a driver. Our productivity and efficiency went way down.
    But after one or 2 weeks of these types of situations, 
waiting in line and not getting the productivity from 
transport, we were just getting farther back behind every day. 
The weather was not subsiding. We were just having sustained 
cold weather. So we knew that we had to take immediate action. 
We couldn't wait. Whereas in other years we didn't have the 
type of weather we had this year.
    Senator Baldwin. Thank you.
    On the topic of storage and upping the inventory available, 
in fact there was a previous hearing that we had on a different 
topic, but one of the witnesses said we should think about a 
strategic propane reserve in much the way we think about other 
necessary fuels.
    But that said, during the crisis this winter there were 
reports that the Conway bulk storage site was close to empty. 
so I'm curious to know what would be the impact of ensuring 
that such a major shortage hub retained a certain level of 
stock going into each heating season. Then I want to talk a 
little bit more about the data issue that has been delved into.
    But Ms. Kenderdine, could you speak to that?
    Also, Mr. Nichols?
    Ms. Kenderdine. Both Secretary Moniz and I were at the 
Department of Energy in the Clinton Administration. I was there 
for all 8 years, when we set up the Northeast Home Heating Oil 
Reserve. So we both supported it and are sympathetic to those 
regional fuel needs.
    In that instance when we set it up the inventories going 
into 2000, the heating oil inventories were 72 percent lower 
than they had been the previous winter which was a bad winter. 
So we took action early and it still exists today. That was, 
however, in an environment where we had scarce energy supplies 
in the United States.
    Right now everything is in a state of flux. Again, that's 
why we are looking at our energy infrastructures because the 
location of our energy production has changed dramatically. The 
infrastructures have not caught up with it.
    We would certainly be in these regional fuel resiliency 
studies that we are doing as part of the QER, looking at what 
is the most effective way for the different regions to have 
resilient fuel infrastructures, fueling infrastructures. 
Reserves are certainly something that we will be looking at and 
we just want to make sure that we are solving the right 
problem.
    That's what this analysis is about, so.
    Senator Baldwin. Mr. Nichols.
    Mr. Nichols. Senator, the Commission does not have 
jurisdiction over product storage facilities. So we do not 
collect any information on what levels of inventories they 
contain.
    In the same vein because of the way the Interstate Commerce 
Act is constructed, we do not necessarily know the identity of 
shippers on any given pipeline, what they're shipping, the 
amounts they're shipping, the origins and destinations of those 
shipments. So we really operate in an information vacuum with 
regard to supplies of the commodity around the Nation.
    Senator Baldwin. Back to Ms. Kenderdine.
    So the propane industry has called for EIA to publish a 
weekly storage report on propane to enhance transparency on 
spot and future markets. We've heard a lot of testimony about 
the need for more granular information.
    Had such information been available on storage levels 
across geographic areas in the United States, how would that 
play a role in averting future shortages?
    Ms. Kenderdine. I don't want to give an incorrect forecast 
on that question but the----
    Senator Baldwin. You've said that more granular information 
would be helpful.
    Ms. Kenderdine. Right, right, but I want to be careful not 
to forecast.
    Senator Franken. We want a hard prediction.
    Ms. Kenderdine. What I would say is EIA does do from, I 
think it's October to March, they have the shop program that I 
mentioned where they do work with the States to develop heating 
oil and propane information. I think we should expand that 
program.
    As I mentioned earlier the issue with getting more granular 
information, I think we have information on, kind of, the 
terminal storage at this point in time, getting down to 
secondary and tertiary storage is not information that we 
currently collect. That's when it starts getting--we don't want 
to make that kind of data collection burdensome or expensive to 
the distributors. You're talking to some very small businesses 
here.
    So we need to work with the industry, work with the 
Congress, work with trade associations and see what we can come 
up with that might be both meaningful and not burdensome. I 
would say, but I would say, that we rely on the private sector 
in our energy--for our energy systems and markets. So good 
information makes them more efficient and that's what we need 
in order to meet crises like the one we just had.
    Senator Baldwin. Thank you.
    Senator Franken. Mr. Cordill.
    Mr. Cordill. Thank you.
    If I may comment on that? As a way of explanation secondary 
storage is the product that's at my facility. Tertiary storage 
is what's on the customer's tanks. OK.
    We would welcome, greatly welcome, better storage 
information, more transparency. We get the overall figures that 
EIA provides but that's lumped up into regionals. Conway only 
represents maybe half of the available storage in that PADD.
    So we see the number, but we don't know where that product 
is. We don't know who owns it. We don't know how much of it's 
already committed or under contract.
    So just because it's in storage does not mean it's 
available for purchase and shipment up into these areas. So any 
additional information that we could get as marketers would be 
greatly appreciated.
    If FERC is acting in a vacuum, we don't miss a small 
marker. We don't have a clue what's going on out there. So 
there's no way that you can have too much information to make 
business decisions.
    Mr. France. I'll agree with Joe on that.
    I was at the Minnesota Propane Gas Association meeting the 
last week of January. At that time we were right in the midst 
of the extremely cold weather. But no one had an idea how much 
product was in Conway, Kansas.
    Everyone was guessing. They didn't know if it was a week, 
10 days or a month and if we had some transparency and some 
information. There's nothing worse than uncertainty. If there's 
uncertainty people can't make good business decisions and 
you're allowing the market not to work properly.
    But that would definitely have been a help at that time 
this winter.
    Senator Baldwin. Thank you.
    Senator Franken. Senator Hoeven has arrived.
    So, sir?
    Senator Hoeven. Thank you, Mr.----
    Senator Franken. I know you look surprised, but I'm the 
Chairman right now.
    [Laughter.]
    Senator Hoeven. I am a little surprised.
    Senator Franken. Yes, I know. I can see. I can see that. 
But I'm calling on you.
    Senator Hoeven. But I like----
    Senator Franken. You're using some of your time.
    Senator Hoeven. Oh.
    [Laughter.]
    Senator Franken. No, you're not. Go ahead.
    [Laughter.]
    Senator Hoeven. Thank you, Mr. Chairman.
    Thank you to the witnesses for being here, appreciate it 
very much.
    I'd like to start with Mr. France and then also Mr. 
Nichols. Specifically the first question is we had a propane 
shortage throughout the Midwest last winter. I understand it 
was a cold winter, obviously, but very serious propane shortage 
and even had, in our State, at least one individual who died 
because she ran out of propane.
    So my first question, specifically, is what caused the 
shortage? Granted, it was a long, cold winter, but we should 
have some capacity to react to that. So if perhaps, Mr. France, 
you could start and then Mr. Nichols, why were we short of 
propane?
    Mr. France. As we stated earlier we started out with what 
we thought were adequate inventories. We then had an extremely 
wet crop drying season, followed by sustained cold weather. 
There was some pipeline down time.
    There was some refinery issues. It all came up to a bunch 
of congestion that we couldn't deliver on time.
    In some ways it's kind of a fallacy. We really, we had the 
propane, but we just couldn't get it where it needed to be at 
the right time, was one of the biggest problems.
    Senator Hoeven. So, Mr. Nichols, could you address why that 
is? Why we weren't able to get it to where we needed it?
    Mr. Nichols. Sir, what I can tell you is that under the 
Interstate Commerce Act the Federal Energy Regulatory 
Commission regulates the rates and terms and conditions of 
natural gas, I'm sorry, oil and product pipeline tariffs. We do 
not collect information on supplies. I can tell you anecdotally 
that I understand it was due to the Polar Vortex, to a large, 
wet corn crop that came in late that required a lot of propane 
to dry and that we entered the propane heating system with low 
supplies of propane in storage.
    Senator Hoeven. But Mr. France just indicated that there 
was product. We weren't able to get it where it needed to go. 
Why is that?
    Mr. Nichols. Pipelines ship product. Shippers nominate the 
product that goes over. The pipelines do not control what gets 
shipped on their pipelines. They're offering solely a 
transportation service.
    We at FERC have no jurisdiction to determine or require who 
ships what. On many of these batch pipelines you have jet fuel, 
you have ultra low sulfur diesel, motor gasoline and so forth 
being shipped. But under the law we, the way the law is 
constructed, we do not know who is shipping or what is shipped, 
from where they're shipping or to what the destination they're 
shipping to.
    So we operate largely in an information vacuum as a result 
of the structure of the Interstate Commerce Act.
    Senator Hoeven. Ms. Kenderdine, why weren't we able to get 
the product where it needed to go and how do we prevent this 
type of situation in the future?
    Ms. Kenderdine. I think as was mentioned, there was 
fundamentally a collision of events.
    There were pipelines that were down for repair.
    There was a reversal of one pipeline and that's due to 
fundamentally changing where we are producing and consuming 
energy in this country.
    We had an extremely cold winter.
    There were, at market conditions, that discouraged the 
holding of inventory.
    So all of those things came together to cause very 
significant price spikes and difficulty.
    It was also that just moving product when you have a lot of 
snow. You had difficulty with train shipments. You had 
difficulty with barge shipments. You had, as I said, pipelines 
that needed repair.
    So the harsh winter also affected other systems, barge 
traffic, other systems and how you move that product around.
    So it was a confluence of those events.
    Senator Hoeven. Starting with you, Ms. Kenderdine and I 
will wrap up here, Mr. Chairman. I appreciate the indulgence in 
the time. I see my clock is not running. So I just want to 
commend you for the job you're doing as Chairman.
    [Laughter.]
    Senator Franken. I don't know. I, somehow think that's like 
a backhanded compliment.
    [Laughter.]
    Senator Hoeven. Not at all.
    I will make this my last question. But I'd like each of you 
to ask of it. I think it is important.
    What can we do? What do we need to do so we don't repeat 
this situation?
    What kind of steps can we take, concrete steps, so we don't 
find ourselves so that we can react if there is a shortage? If 
we find, you know, very cold conditions? What practical things 
can we do and should we do so we don't find ourselves back in 
this situation in the future?
    If you would start, Ms. Kenderdine?
    Ms. Kenderdine. The, as I mentioned earlier, NASEO, 
National Association of State Elected Energy Officials. You're 
elected officials, Energy Officials. They put out a list of 
recommendations. We participated in workshops. They did next 
steps.
    There was a significant--DOE was identified in there, in 
those next steps, that they would like to see happen, primarily 
in its role in collecting and analyzing and disseminating 
information and data. They also lent their support to our 
Quadrennial Energy Review which is focusing on infrastructure 
where we will be looking at regional fuel resiliency and making 
recommendations about what we need to do to enhance our 
infrastructure.
    Senator Hoeven. In fact we'll be in our State talking about 
the Quadrennial Energy Review, something we've worked with DOE 
on. So that's good. I hope we can use that as an opportunity to 
deal with this issue as well as, of course, many others.
    Ms. Kenderdine. It's a very big issue in your State, 
certainly.
    Senator Hoeven. Big issue.
    Mr. Nichols.
    Mr. Nichols. We can interact with industry, Congress, 
Governors and other agencies, both State and Federal, to 
understand what is happening in the affected industry, in this 
case, the propane industry.
    FERC can also use its emergency powers to order 
prioritization of shipments which we did this past winter for 
the first time.
    We can order more granular level.
    We can act on terror filings and complaints that come in 
and alleging problems with discrimination, that sort of thing.
    Thank you.
    Senator Hoeven. Mr. Black.
    Mr. Black. Senator, you and your colleagues could encourage 
propane consumers to fill their tanks in the summer and the 
early fall before supplies get tight.
    You could encourage propane market participants to use 
spare capacity on propane pipelines, again, in the spring and 
the summer and early fall when there are millions of barrels of 
spare pipeline capacity.
    That may give the propane sector more confidence to 
increase local inventory levels as you head into winter in case 
it's a tough winter and a tough crop.
    Senator Hoeven. Mr. Cordill.
    Mr. Cordill. With all due respect to Mr. Black's comments 
about utilizing summer capacity, there is no where to put that 
propane once you get it up the line during that time of the 
year.
    Senator Hoeven. So what you're--but----
    Mr. Cordill. Storage is full.
    Senator Hoeven. What would you recommend then?
    Mr. Cordill. Pardon me?
    Senator Hoeven. What would you recommend to try to prevent 
a similar situation?
    Mr. Cordill. The transparency of the shippers would help 
tremendously, transparency of the information that EIA can give 
us. As a marketer we don't necessarily know.
    We buy product from brokers, who may or may not be shippers 
on the pipeline. They may buy it from shippers. But there is no 
information flow as to who the shippers are and how much 
product they control and where it's available.
    So there needs to be more general, open market information.
    The emergency order to send product up the line was quite 
helpful when it happened. But I think with enough given flow 
and exchange of information we could have the free market 
solution that would allow the pipelines to maximize the use of 
their facilities, maximize their profits and yet still provide 
us with timely service.
    As, you know, as much as we would like to be able to have a 
nice level business year round, propane is a seasonal product. 
But if you looked at charts of the natural gas pipeline 
deliverability and their product shipments and the electric 
utilities, you would find that same seasonal curve in their 
products. It's a fact of life.
    But we have to come up with a way to overcome that and have 
adequate supply during the timely part of the year.
    Senator Hoeven. Mr. Zimmerman.
    Mr. Zimmerman. I would echo what others have said.
    Communication is very important. If we knew that 
inventories were low we could plan ahead.
    That being said, I have so much storage space on my farm 
and I can definitely add more, but I don't know if I can afford 
to fill it in the summertime.
    Senator Hoeven. Right. It's a cost issue.
    Mr. Zimmerman. Yes.
    So I mean that's another issue.
    So the emergency response and what happened this winter 
when Senator Franken helped us immensely. But if that could be 
streamlined in such a way that if this does get to this point 
in the future, FERC's response in opening up the pipeline 
shipments could happen quicker. So, more streamlining of the 
emergency response would be very helpful.
    Senator Hoeven. You were referring to Chairman Franken 
there, when you----
    Mr. Zimmerman. Chairman Franken, the esteemed Senator from 
Minnesota.
    [Laughter.]
    Senator Hoeven. Yes.
    Mr. France.
    Mr. France. I agree with Joe. It's so important to have 
transparency because the energy market or the infrastructure 
system is changing dramatically. It's not what it was before. 
The fracking and shale formations have made. We're a different 
country than what we were in terms of energy than what we were 
5 or 6 years ago.
    So some of those pipelines are not working the same way, 
they've reversed what was before.
    So the more transparency, the more information marketers 
can have and the industry can have we'll be more capable of 
making better decisions so we know what we have to plan for and 
prepare for the coming year.
    Also, we do know that if we want to make our pipelines more 
effective we need to have adequate storage for when we do have 
a storage facility that's available to be used, such as the 
Finger Lakes. Let's do whatever we can to make sure that that 
happens so that we can have the storage and the capability to 
deliver. Because believe me, I, as an independent marketer 
representing our association, we don't want this any more than 
our consumers do because it hurt us just as much.
    So, we're all in it to make sure that the industry is well 
served and our customers.
    Senator Hoeven. Thank you.
    I'd like to again thank all the witnesses and also, Mr. 
Chairman for the additional time and your indulgence.
    Thanks.
    Senator Franken. Thank you.
    The clock wasn't running because Chairman Landrieu didn't 
give me the key to the timer.
    [Laughter.]
    Senator Franken. That's actually Senator Baldwin's joke.
    [Laughter.]
    Senator Franken. She gets credit for that one.
    Let's kind of open it up. Just jump in any time.
    I'm hearing two big messages with transparency. No one 
seems to have an objection to increased transparency. But I'm 
feeling like maybe there's someone here who would have that. 
Does anyone anticipate that? That's one question.
    I want to have everyone respond to that or anyone who wants 
to respond to that, respond to that, in relation to this 
because we've talked about what we did, what the emergency 
response was. Mr. Zimmerman talked about what we did and how 
helpful it was.
    It seemed late. That's the big take away that I have here 
that we're not really addressing. Part of it was lack of 
transparency while we were in the middle of this. We knew about 
it.
    But it seemed like the reaction to the Energy Information 
Agency's wrong forecast which probably could have changed after 
the wet harvest. They could have changed their forecast. It got 
cold pretty early.
    It seems to me that another question we really haven't 
asked is why--I know we've talked about an early warning 
system. But this was really late in the game before these 
emergency responses really started.
    Why were we so slow to react? What is it about the system 
that we weren't, in January, going like it's really cold now. 
It was a really wet fall. We've have some pipeline disruptions. 
We don't know what's in Conway.
    Hey, everybody, let's react. What was that about?
    Ms. Kenderdine. I'll jump in and take the bait.
    First on transparency, I think that what you would see at 
some point you start talking about proprietary information. 
There are anti-trust issues that you have to deal with. When 
you get into that proprietary information it's sensitive 
because these are competitive players in the market and that 
information could give one or another competitive advantage.
    So you've got to be very careful. That's why it has to be 
an agreed upon process.
    Senator Franken. Who are the players that would be worrying 
about that proprietary information?
    Ms. Kenderdine. Perhaps your large distributors, your small 
distributors, you know, it's--FERC might have some thoughts on 
that as well, but I know that----
    Senator Franken. I mean, is there someone at this table who 
would, maybe, put their finger on who that might be or is there 
someone at the table who might worry about their proprietary 
information?
    Mr. Black. So pipelines move what shippers ask them to 
move. But pipelines live under the Interstate Commerce Act 
which was enacted--applied to oil pipelines in 1906 when 
Congress and Theodore Roosevelt were cleaning up the oil 
sector. So right now it's unlawful for a pipeline to disclose 
to any other shipper, without the consent of the shipper, all 
those things that Mr. Nichols mentioned in his testimony, the 
nature, the kind, the quantity, the destination, the consignee, 
the routing of any property.
    We don't own it. But right now pipeline operators are not 
supposed to tell anybody else because of the concern back then 
that there was a lot of speculation and market abuse and a 
competitive behavior going on with those who had access to that 
information when others did not. Pipelines don't own that 
product.
    But that's what the pipeline operators live under. So when 
I hear you talking about transparency I think, we have this law 
that Congress enacted to curb anti-competitive behavior by 
others by, those propane, anybody who is participating in these 
commodity markets, as Ms. Kenderdine said.
    Senator Franken. OK. I think we've hit ourselves on a 
problem.
    Mr. Nichols. May I just add that it's a criminal violation 
to violate that statute.
    Ms. Kenderdine. We start many, many meetings reading with 
the lawyers, reading anti-trust language to us. So it happens 
all the time.
    Senator Franken. OK, so we have some competing goods that 
we're trying to avoid speculation and illegal use of 
proprietary information for competitive advantage. At the other 
end we want the good of having some transparency so we can 
avoid this.
    Anyone either want to speak to that or what was at the nub 
of identifying this so late of our reacting so slowly?
    Mr. Cordill. Senator Franken, I would like to address that. 
I'll ask Kaitlin to put back up the inventory charts.
    It's a little misconception that we went into the season 
with abnormally low inventories. If you'll look back at these 
charts you'll find, the red line is what you want to focus on, 
was the, even though Conway alone which is just a percentage of 
the inventory was close to the bottom of the 5-year band, it 
was in the normal band from what we look at for historical 
demand.
    If you look at the Mont Belvieu chart, it was at a 5-year 
high. What we're missing is the fact and to your question about 
the--why we were so late to react. If you'll look at about the 
first of October you'll see a dramatic draw down of inventory 
that is, in looking at the other charts, all the lines for the 
other years on the chart, you see that's unprecedented.
    So there's some factors in there that caused demand that 
would be hard to predict. There's the one other explanation was 
that particularly with the Mont Belvieu, the PADD-3 draw down, 
that some of that product was exported.
    Now when we got the situation to the emergency order to 
ship product up the pipeline from Belvieu, coincidentally there 
were a couple of export cargoes that were canceled. But they 
weren't canceled as a response to this. It was an economic 
decision. The run up in price in the United States overcame the 
price in the rest of the world. So it was an economic decision 
on those operators to cancel those cargoes and keep that 
product in the United States.
    But it's this extremely rapid draw down that would have 
been impossible to have forecasted, I believe.
    Senator Franken. I understand that was impossible to 
forecast, but that started in October. We didn't really, I 
didn't really feel the reaction to the emergency until 
February, early February.
    That's a long time. It would seem that the draw down is 
that--are you saying that there was this draw down, but we 
didn't see it at the time? That no one understood that it was 
happening? Yes?
    Ms. Kenderdine. I have a similar chart, a graph, that shows 
a significant draw down starting in October, just a very, very 
steep, steep decline in inventories, in Conway where there was, 
I think, 12 million barrels and it went down to four. So we saw 
similar things in the market.
    FERC collects its--not FERC, EIA collects its information 
on a monthly basis. So you have a lag time in early December 
EIA warned about spikes in propane prices, a big draw down in 
inventories and lower supplies. So FERC was--and starting at 
about that time, DOE and our emergency response office and ICER 
are--I don't know what, I can't remember what the acronym 
stands for. Both of those are emergency response functions, 
started having phone calls with States in order to start 
gathering information.
    We initiated by January 27, we were having regular phone 
calls led by the White House. On February 7 FERC utilized its 
prioritization authorities. So we were pretty engaged as soon 
as we gathered and analyzed the information we saw from that 
big drop off in October.
    That was the collusion of cold weather and the drying all 
happening at once.
    Senator Baldwin. I want to ask a couple of questions about 
the emergency authority that FERC used.
    But before I do, Mr. Black, I'm wondering absent this use 
of emergency authority to prioritize what's shipped on a 
pipeline, how would a pipeline prioritize between shippers 
during a period of congestion, of high use? You talked about 
summer where you'd love to have the pipelines have more paying 
customers when they're not being used to full capacity. But 
when it's being used to full capacity how does that 
prioritization process work?
    Mr. Black. Good question.
    Liquid pipelines are common carriers. Unlike contract 
carriers they are open to all comers and nobody has to ship on 
a pipeline. They can move on, ship on another mode, if they 
want to.
    If more nominations are requested for capacity on a 
pipeline then the pipeline has capacity. The pipeline moves to 
a process called pro-rationing where each shipper that asked to 
move on a pipeline gets an allocation. That allocation 
methodology is on file at FERC. Every pipeline operator files a 
tariff with the allocation methodology.
    What's going to happen if more people want to use the 
pipeline than can?
    A shipper has an opportunity to protest that allocation 
method or, in fact, to file a complaint about it. So when you 
hit your pro-rationing that methodology kicks in.
    Senator Baldwin. So that methodology is, sort of, customer/
shipper neutral. It's hypothetically filed with the FERC prior 
to this situation becoming a reality.
    Mr. Black. Yes.
    Senator Baldwin. OK.
    Mr. Black. I'm sorry, go ahead.
    Senator Baldwin. I was going to then pivot to Mr. Nichols.
    Just, I would love it if you could walk me through exactly, 
well, not exactly, because we don't have all the time in the 
world, but how that emergency authority or the process for 
invoking that emergency authority. How that works? How that 
currently functions?
    I know this is rarely, rarely used. So how did it work?
    Mr. Nichols. In fact, not only rarely used, this is the----
    Senator Baldwin. First.
    Mr. Nichols. First time it was ever used.
    Essentially we started getting calls from other agencies, 
in some cases from pipelines and particularly letters, I 
believe, from both you and Senator Franken, pointing out that 
there was a real problem that was developing with regard to 
propane shortages in portions of the country.
    We immediately began scouring our regulations and statutes 
to see what kind of authority we might invoke. Our very 
talented people in the Office of General Counsel came up with 
this provision that dates back to the days of Woodrow Wilson. 
We looked at it.
    I, personally, honestly, had some misgivings about using it 
without a record to know what the unintended consequences might 
be. I explained earlier that is why we engaged----
    Senator Baldwin. Right.
    Mr. Nichols [continuing]. In another process to fix that 
problem as quickly as possible.
    The statute itself says that whenever the Commission is of 
the opinion that shortages--and it really speaks in terms of 
railroads--but when shortages exist or other emergency 
requiring immediate action so it's not something you could 
presumably invoke 3 months in advance on anticipation.
    But it seemed to us that there was an immediate emergency. 
So we decided that we would invoke this authority.
    Senator Baldwin. So, two follow ups.
    First of all, Ms. Kenderdine, can you talk about, as you 
evaluated the data, the information you were getting, what 
difference that use of emergency authority made to easing the 
situation?
    Was this an important tool? Did it make a difference?
    Ms. Kenderdine. It was an important tool. I would say that 
the Department of Energy also has similar authorities.
    I mentioned in the Defense Production Act we did the same 
thing. You know, we start scouring our authorities to see what 
authorities we had. We came across a similar prioritization 
authority. Like FERC, we had never used that authority before.
    It was in the Defense Production Act. It really is designed 
for, kind of, national defense emergencies. But we figured we 
could have used it. FERC was, I think, a day ahead of us. We 
were working with them.
    As I said, we offered to intervene in support of what they 
were doing. There are issues when you do something like that we 
need to be aware of. There were concerns.
    We checked to try and find out what was moving in those 
pipelines. Butane was moving in the pipelines. Butane is used 
to start cars in cold weather.
    So you have to be mindful of what you are displacing. In an 
instance like this, I think that keeping people alive and warm 
in a freezing cold winter certainly has priority over starting 
your cars. But those are the kinds of things that you have to 
consider when you are doing that.
    We, anecdotally, we haven't gone through and analyzed the 
precise impacts of the use of that authority. But it seemed to 
have a positive effect on what happened. I think that, I think, 
Mr. Cordill said that it was helpful. You did start seeing some 
easing of shortages as you got into February, later in February 
and then by March we seemed to be out of the woods.
    Then we're dealing with Ukraine. So, um, yes.
    Senator Baldwin. So, for both of you, you've been pressed 
before. I'm going to try to press a little bit more on this 
that, you know, sort of, what other authorities or tools do you 
need?
    Mr. Nichols, you said because you were using, FERC was 
using, an emergency authority that was intended for the rail 
industry, little worried about what the implications would be, 
that some clarity that Congress intends you to use it for 
purposes like you did, would be helpful. I'm happy to. I know 
we'll engage in a lot of conversation about this hearing 
following the hearing.
    But I wonder, for both of you, if this perfect 
constellation, this perfect storm of things happens again next 
year, would you say, I can't believe in this hearing we didn't 
ask Congress for this tool or this authority. Here we are 
again.
    So, if you can answer now, great. But feel free also to 
follow up. We want to make sure we're very thorough about this 
and take the steps necessary to make sure this doesn't happen 
again.
    Mr. Nichols. We would be happy to follow up.
    Senator Franken. Great, thank you.
    I just want to do a couple things and then I think we can 
break for tea and then come back.
    [Laughter.]
    Senator Franken. No, I'm just--that's--I'm joking.
    [Laughter.]
    Everyone said, oh, do they normally do that?
    We brought up the heating oil reserve. Ms. Kenderdine, you 
were there when during the Clinton Administration when you did 
that.
    We actually, you know when we used that, was during 
Hurricane Sandy. So and you said that was at a different time 
when there seemed to be energy shortages. We had this heating 
oil reserve because we were in an era of shortages.
    But now we, in no small part because of research done by 
the Department of Energy, we have this gas revolution.
    So let's talk about a propane reserve. What would that look 
like? What would that be? Would that mean that Conway is just 
always kept full and Belvieu is always just kept full like it's 
just always full?
    I mean, what would that look like? What would the 
equivalent of a heating oil reserve which came in handy during 
this last hurricane or Hurricane Sandy? What would that look 
like?
    Anybody?
    Ms. Kenderdine. The heating oil reserve in the Northeast 
was used but there were distribution problems. So I think that 
that we need to focus more on distribution plans. If you did a 
propane reserve I think you really need, you know, the market 
is opaque, as we've discussed here. It is widely distributed, a 
lot of very small players in that supply chain.
    So, you need to make sure that you can distribute product, 
if you have it.
    We did have problems with that in Sandy for some of the 
reasons that I mentioned, the interdependencies of electricity 
and fuel became an issue.
    I think you have to be very careful and analyze. That's why 
we're doing these regional fuel resiliency studies. It's a 
very, very different environment.
    Senator Franken. As part of the QER?
    Ms. Kenderdine. Yes, that's part of the QER.
    Senator Franken. Yes.
    Ms. Kenderdine. So we need to look at it and see. I don't 
personally know at this point in time where the best locations 
might be or whether that's the best thing to do or whether 
providing incentives to hold storage by the private sector is 
another option. You know, one of my deputies, his title is 
Deputy Director for Incentives and Finance and Budget. So we 
are looking in the QER, looking at where incentives might be 
appropriate.
    It requires some fairly rigorous analysis. That's what 
we're going to be doing in these regional fuel resiliency 
studies.
    Senator Franken. So while as you do that, please keep a big 
eye on propane or this issue of whether or not to have a 
reserve and how we can make information more available to 
people. Because I will say that, you said that December 1st was 
when EIA made their new assessment about the price of propane 
was going to go up.
    There's a long time between December 1st and January 27th. 
That's a long period. I don't know what happened during that 
almost 2 months.
    That was really about my question a little bit, a while 
ago, about why this took so long for us to react to.
    Mr. Zimmerman. If I may?
    We started kicking and screaming, you know, middle of 
December.
    Senator Franken. OK.
    Mr. Zimmerman. That was our question also, you know, that 
FERC kind of said they didn't know they had the authority to do 
anything yet.
    I would that in the future, as I said before, that we could 
streamline this response, if there is a future emergency.
    Senator Franken. I have the feeling that one of the safest 
places to be this year was at the Boston Marathon. I have a 
feeling that next--I'm not worried so much about next winter, 
but 7 years from now, 12 years from now. You know, I don't want 
this to happen again ever.
    So in the Quadrennial Review I think that makes a lot of 
sense.
    Mr. Cordill. Senator, Ms. Kenderdine made some very good 
points about how fractured this industry is. The question about 
where to put a strategic propane reserve. It is something that 
surely should be explored. We should explore every opportunity, 
from every facet that would give us some relief on this.
    But let me draw a little difference between the heating oil 
and the propane industry. The heating oil industry is focused 
very much in the Northeast part of the country. The propane is 
a national market. We're from coast to coast.
    So you have two issues.
    One is inventory.
    The other is deliverability.
    If we'd had a Mont Belvieu that had a lot more additional 
product in there still would have been distribution delays 
getting it to the Midwest. So, location is a factor.
    We mentioned the Cochin pipeline and its reversal affecting 
the deliverability into the Midwest. There's an additional 
factor there is that it is connected to a storage facility in 
Saskatchewan that is roughly the same size as Conway. So we're 
losing the deliverability, but we're also losing the quick 
access to that product that's in inventory there.
    Now, can it come by rail? Eventually.
    But it's just a slower, less dependable, you know, approach 
to that.
    Senator Baldwin. I'm done.
    Senator Franken. Thank you all. You've been all extremely 
helpful. I appreciate all your time.
    This hearing will stand adjourned.
    [Whereupon, at 4:36 p.m. the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

   Responses of Melanie Kenderdine to Questions From Senator Landrieu
    Question 1. Propane retailers are usually small businesses that 
have difficulty financing the purchase of their propane supplies when 
price spikes occur. They also have a limited ability to extend credit 
to their customers when such credit is needed to avoid cutting off 
supplies at critical times.
    What policies is the Department considering to address this issue 
of retailers' limited credit?
    Answer. While the Department has no specific authorities to assist 
these businesses with credit extensions, we have worked with other 
agencies to do all that is possible in this regard. The Department is 
also considering techniques to increase data transparency and market 
visibility, which may lead to the development of private sector 
solutions to the credit and financing challenges of small business 
propane suppliers.
    Question 2. What are the Department's views on a regional propane 
reserve, similar to the heating oil reserve that exists in the 
Northeast?
    Answer. The Department operates regional fuel reserves in the 
Northeast for heating oil and will be operating one for gasoline this 
year to provide short-term relief in the event of significant supply 
disruptions. As part of the Quadrennial Energy Review, the Department 
is undertaking regional fuel resiliency studies.
    Question 3. Do you believe the Secretary should have limited 
emergency authority to reallocate a portion of Weatherization funds in 
response to extreme weather events?
    Answer. Given the long-term efficiency and savings benefits to 
households from the Weatherization program, the 150 percent return on 
every Federal dollar invested in the program,\1\}\2\ and the 
national environmental, economic and security advantages, DOE does not 
recommend granting limited emergency authority to reallocate 
Weatherization funds in response to extreme weather events.
---------------------------------------------------------------------------
    \1\ Schweitzer, M. 2005. Estimating the National Effects of the 
U.S. Department of Energy's Weatherization Assistance Program with 
State-Level Data: A Metaevaluation Using Studies from 1993-2005. ORNL/
CON-492. Oak Ridge National Laboratory, Oak Ridge, Tenn.
    \2\ Eisenberg, J. 2010. Weatherization Assistance Program Technical 
Memorandum: Background Data and Statistics. ORNL/TM-2010-66. Oak Ridge 
National Laboratory, Oak Ridge, Tenn., p. v.
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   Responses of Melanie Kenderdine to Questions From Senator Franken
    Question 1. What steps can we take to improve the forecasting that 
the Energy Information Administration (EIA) does, to give more timely 
warning of propane shortages in the future?
    Answer. The Energy Information Administration publishes a forecast 
of average winter residential propane prices for the. Northeast and 
Midwest regions in the monthly Short-Term Energy Outlook (STEO) during 
the winter heating season (October through March). ETA also provides 
propane market information through articles in Today in Energy (TIE) 
and This Week in Petroleum.
    ETA's first 2013/2014 winter forecast was published in the October 
2013 STEO. At the time, U.S. propane stocks were 0.2 million barrels 
higher than the previous 5-year average for that time of year, and 
NOAA's weather forecast was for winter heating degree days to be close 
to the previous 10-year average. Nevertheless, ETA forecast at that 
time that residential propane prices over the winter would average 
about 9% higher than the previous winter. Weather events, however, 
turned towards the extreme beginning with a wet corn crop followed by 
some of the coldest weather on record for many parts of the country. 
EIA flagged low propane inventories in the Midwest in a December 12 TIE 
article. From November through March winter weather was at least 10% 
colder than forecast (over 25% colder in both February and March in the 
Midwest), stocks were drawn down, and market prices and the price 
forecast went steadily higher.
    EIA has taken some immediate steps to improve its propane modeling 
and forecasting. The STEO model has been expanded to include U.S. 
propane production, consumption, and net trade flows in addition to the 
current regional propane stocks. The improved modeling is now being 
introduced into STEO web products and analysis. EIA is also providing 
additional information through new GIS maps for propane infrastructure 
including natural gas plants, pipelines, fractionators, storage 
facilities, and ports used for waterborne imports and exports.
    In the STEO Winter Fuels Outlook, the implications of 10% colder 
scenarios for prices and fuel expenditures have been routinely provided 
for heating oil, natural gas, and electricity. EIA is exploring methods 
that could be used to provide this type of analysis for propane prices 
and expenditures in the STEC, ahead of next winter.
    Question 2. What authority does the Department of Energy (DOE) 
have, and what additional authority would DOE need, to ensure that the 
federal government can effectively respond to the type of crisis that 
we experienced? What can we do to ensure a quick response?
    Answer. DOE's authorities to respond to such a crisis are limited. 
The President has authority through the Defense Production Act (DPA) to 
prioritize contracts deemed ``necessary or appropriate to promote the 
national defense'' and contracts necessary to maximize domestic energy 
supplies. These authorities have been delegated to multiple agencies by 
the President, including the DOE and the Department of Commerce. DPA 
authorities overlap with both the Federal Energy Regulatory 
Commission's authority to prioritize certain pipeline shipments under 
the Interstate Commerce Act, and with the Surface Transportation 
Board's authority to prioritize rail shipments under the ICC 
Termination Act of 1995. DOE does maintain significant responsibility 
for interagency coordination during such events as the Sector Specific 
Agency under Presidential Policy Directive (PPD)-21\3\, the Emergency 
Support Function-12 in support of the National Response Framework\4\, 
and through the information and expertise it provides to the National 
Preparedness function as outlined in PPD-8.\5\ These activities focus 
on the range of efforts from preparedness to long-term recovery.
---------------------------------------------------------------------------
    \3\ http://www.whitehouse.gov/the-press-office/2013/02/12/
presidential-policy-directive-critical- infrastructure-security-and-
resil
    \4\ Emergency Support Function (ESF) #12--Energy is intended to 
facilitate the restoration of damaged energy systems and components 
when activated by the Secretary of Homeland Security for incidents 
requiring a coordinated Federal response. Under Department of Energy 
(DOE) leadership, ESF #12 is an integral part of the larger DOE 
responsibility of maintaining continuous and reliable energy supplies 
for the United States through preventive measures and restoration and 
recovery actions. (http://www.fema.gov/odf/emergency/nrf/nrf-esf-
12.pdf)
    \5\ http://www.dhs.gov/presidential-policy-directive-8-national-
preparedness
---------------------------------------------------------------------------
    Engagement with industry can address policies, practices and 
procedures to enhance system reliability, security and resilience; 
however, anti-trust laws constrain the scope of discussions surrounding 
market issues. During this particular propane event, DOE did what it 
could to intensely engage with industry through daily teleconferences 
with associations and one-on-one calls with specific companies.
    During such events, DOE collects and disseminates data as part of a 
multi-agency response to help infoiin and prioritize Federal and State 
response actions, such as hours of service waivers for truck transport 
by the Department of Transportation, prioritization of propane pipeline 
shipments by the Federal Energy Regulatory Commission, and the 
acceleration of availability of Low-Income Home Energy Assistance 
Program funds by the Department of Health and Human Services.
    In response to this event, DOE coordinated multiple offices within 
the department to collect and analyze data from and collaborate closely 
with industry, States and other Federal agencies across the Office of 
Electricity Delivery and Energy Reliability, Fossil Energy, Energy 
Policy and Systems Analysis and the Energy
    Information Administration. In particular, the DOE's Emergency 
Response Organization (ER0)--comprising industry leaders and 
interagency and DOE officials--held daily calls with States, industry 
associations and Federal partners. This served to inform senior 
leadership about the situation, identified federal assistance where 
appropriate, shared key product availability figures to support the 
States' efforts and informed Federal efforts to address the situation.
    DOE's focus on data and communication provided critical feedback 
loops for actions taken, their effectiveness and critical information 
to states, localities, distributors and other industry actors. The DOE 
is already taking steps to ensure a more rapid response in the future. 
First, EIA will continue and expand support to States in the State 
Heating Oil and Propane Program (SHOPP); DOE will provide assistance to 
associations including the National Association of State Energy 
Officials and the National Gas Propane Association, in identifying 
steps that will help to prevent shortages in the future; hold regional 
exercises with States on their Energy Assurance Plans; and examine 
emergency preparedness to enhance industry and government capabilities 
(as requested of the National Petroleum Council by Secretary Moniz 
following this crisis). Finally, as Secretariat to the Quadrennial 
Energy Review, called for by the President in January 2014, DOE will 
address energy infrastructure in an interagency effort focused in the 
first year on transmission, storage and distribution. Regional fuel 
resiliency studies are part of this effort. Policy recommendations for 
executive and legislative action as appropriate, priorities for 
research and development programs and necessary analytical tools and 
data are the final goal of the QER. These recommendations will help 
ensure the nation's infrastructure can enhance U.S. economic 
competitiveness, environment and energy security,
    Question 3. What steps can we take to set up an early warning 
system for possible future propane shortages?
    Answer. A key element of any early warning system is timely, 
relevant, and actionable data and information across multiple regions 
and segments of the propane market. Out of this past winter's 
experience both the Department and private sector actors are studying 
and considering ways to provide better insight and warning for possible 
future propane shortages. The Department is looking at data on storage 
inventories as a critical leading indicator as particularly applicable 
to this case. We will also be examining this issue during QER 
stakeholder outreach over the next few months. The Department will also 
take follow up steps to encourage local governments, commercial 
parties, and non-governmental organizations to stay on top of market 
developments.
    Question 4. One possible way to address future shortages would be 
to create a federal reserve of propane, similar to the Northeast Home 
Heating Oil Reserve, but predominantly serving the Midwest. What 
benefits would such a reserve provide for wholesalers, distributors, 
and consumers? What potential pitfalls must be avoided for the reserve 
to be most effective? If a federal reserve of propane were implemented, 
what options exist regarding where the reserves should be located? What 
role would primary, secondary, and tertiary storage play in 
implementing a reserve?
    Answer. The Department operates a regional fuel reserve in the 
Northeast for heating oil and is in the process of implementing one, 
also in the Northeast, for gasoline to provide short-term relief in the 
event of significant supply disruptions. The costs and benefits of such 
reserves as well as questions of geographic location and the role of 
primary, secondary, and tertiary storage need to be carefully 
considered. As part of the Quadrennial Energy Review, the Department is 
undertaking regional fuel resiliency studies.
    Question 5. Without giving out information that could give one 
business an unfair advantage over another, what options do we have for 
providing greater transparency, especially during an emergency, into 
when and where propane is being shipped?
    Answer. The Department of Energy is evaluating alternatives for 
increasing data gathering and market transparency while maintaining 
business proprietary information. The core concern for the Department 
is the need to avoid situations where market participants can infer 
competitor's information and manipulate markets given their own 
proprietary information in conjunction with Department issued aggregate 
data. The issue is complicated by the small size of the propane market 
and the limited number of market participants in various segments of 
the market. Accordingly, the Department is conducting an evaluation of 
the federal options for providing greater transparency into when and 
where propane is being shipped or stored, especially during an 
emergency.
    Question 6. The Department of Commerce has interpreted the term 
``consumer grade propane'' in section 9 of the Propane Education and 
Research Act (PERA) to mean ``residential consumer grade propane.'' ETA 
data could potentially be used to distinguish residential from 
commercial propane, but currently it is not. The Department of 
Commerce's interpretation, together with other features of the PERA 
law, mean that when the price of residential propane is high relative 
to other fuels, the Propane Education and Research Council is not 
allowed to use the funds collected from industry to conduct general 
consumer education and outreach. Such educational efforts, if properly 
funded and focused, could serve to inform propane consumers of 
strategies for reducing their exposure to price spikes and supply 
shortages. Does the DOE (or ETA) collect data on consumer grade propane 
on an annual national average basis? If so, would these data be 
adequate for the Department of Commerce to use in compliance with 
analytical requirements of section 9 of PERA, potentially allowing more 
funding to be available for education and outreach efforts?
    Answer. In response to your further question, the choice of a 
propane price data series to be used in comparing ``indexed changes in 
the price of consumer grade propane'' to ``a composite of indexed 
changes in the price of residential electricity, residential natural 
gas, and refiner price to end users of No. 2 fuel oil on an annual 
national average basis'' is at its core a matter of statutory 
interpretation for the Department of Commerce (DOC) to consider in 
consultation with the Congress.
    In 2011, the Energy Information Administration (EIA) suspended 
collection of several surveys for budgetary reasons, including one that 
provided a data series that the Department had used for this purpose. 
Since that time, EIA has identified other EIA data that might be used 
for this calculation, but DOC to date has taken the position that it 
has been unable to identify a publicly available data set that in its 
judgment would meet the criteria set out in section 9 of PERA.
    With regard to the specific propane price series identified in your 
question, one matter that DOC might be weighing involves the point in 
the supply chain at which the price is surveyed. While the statutory 
language specifically refers to a composite comparison index that 
includes the ``refiner price to end users of no. 2 oil'' as well as 
residential electricity and residential natural gas, the ``price of 
consumer grade propane'' does not specify the point in the supply chain 
at which that price is surveyed. The implications of this language are 
not very clear.
   Responses of Melanie Kenderdine to Questions From Senator Manchin
    Question 1. Ms. Kenderdine, in your testimony, you point out that 
the propane market is highly fragmented, with 30 percent of the market 
held by three firms and the other 70 percent held by 3,500 firms. In my 
state, where more than 30,000 households use propane for heating their 
homes, we have a number of small distributors. What do you think can be 
done at the federal level to improve communication and coordination in 
this fragmented market both to prevent shortages like this in the 
future and to improve response if, God forbid, this happens again?
    Answer. DOE does maintain significant responsibility for 
interagency coordination during such events as the Sector Specific 
Agency under Presidential Policy Directive (PPD)-21\6\, the Emergency 
Support Function-12 in support of the National Response Framework\7\, 
and through the information and expertise it provides to the National 
Preparedness function as outlined in PPD-8.\8\ These activities focus 
on the range of efforts from preparedness to long-tem-1 recovery.
---------------------------------------------------------------------------
    \6\ http://www.whitehouse.govithe-press-office/2013/02/12/
presidential-policy-directive-critical-infrastructure-security-and-
resil
    \7\ Emergency Support Function (ESF) #12--Energy is intended to 
facilitate the restoration of damaged energy systems and components 
when activated by the Secretary of Homeland Security for incidents 
requiring a coordinated Federal response. Under Department of Energy 
(DOE) leadership, ESF #12 is an integral part of the larger DOE 
responsibility of maintaining continuous and reliable energy supplies 
for the United States through preventive measures and restoration and 
recovery actions. (http://www.fema,gov/pdf/emergency/nrf/nrf-esf-
12.pdf)
    \8\ http://www.dhs.govioresidential-policy-directive-8-national-
preparedness
---------------------------------------------------------------------------
    Engagement with industry can address policies, practices and 
procedures to enhance system reliability, security and resilience; 
however, anti-trust laws constrain the scope of discussions surrounding 
market issues. During this particular propane event, DOE engaged with 
industry through dailyteleconferences with associations and numerous 
one-on-one calls with specific companies.
    Question 2. One of the problems this winter was insufficient 
information on a timely basis of propane inventories and prices. Is the 
DOE willing to work with consumers and the propane industry to develop 
more detailed and timely propane inventory and pricing information?
    Answer. The Energy Information Administration (ETA) is engaging 
with the Natural Propane Gas Association (NPGA) to discuss ways to 
enhance ETA's propane data collection efforts. On May 8, ETA met with 
NPGA to review their specific recommendations for actions to provide 
more detailed propane inventory and pricing information. NPGA followed 
up with a May 16 letter that outlined their priority data requests and 
also identified data that would not be particularly useful to collect, 
such as inventory data at the secondary level.
    Considering both the NPGA letter and ongoing discussions with state 
energy officials, ETA is now considering what can be done to develop 
more detailed and timely propane inventory and pricing information.
    In response to sharp increases in residential propane prices 
earlier this year, EIA has already proposed to expand the State Heating 
Oil and Propane Program (SHOPP) for the first time since 1994. On April 
2, 2014, EIA sent an invitation to 26 non-participating states to 
solicit interest in joining SHOPP. An informational webinar was held on 
April 14, 2014 to provide an overview of SHOPP as well as the benefits 
and expectations for those states that choose to participate. To date, 
12 states have agreed to participate in addition to the 24 states 
already participating in SHOPP. A 60-day Federal Register Notice is 
available for comment until July 7, 2014. ETA hopes to begin data 
collection for the next heating season beginning on October 6, 2014 
with 36 states. Other actions are also likely ahead of next winter 
following up on recent discussions with NPGA.
    Beyond immediate steps to bolster propane information ahead of next 
winter, ETA is also about to undergo a thorough review of all of the 
petroleum supply surveys. ETA will be soliciting feedback on 
recommended survey changes from various stakeholders during 2014 and 
will then solicit public comment through Federal Register Notices in 
2015. These changes could include those related to the collection of 
propane inventories.
    Question 3. Is the DOE willing to undertake a study of the impact 
of propane exports on the supply and price of propane to consumers?
    Answer. DOE is considering whether to assess the impact of propane 
exports on the supply and price of propane to consumers during the next 
phase of the Quadrennial Energy Review that will be initiated in 2015; 
analysis topics for the QER are established by the White House Task 
Force for the Quadrennial Energy Review.
  Responses of Melanie Kenderdine to Questions From Senator Murkowski
    Question 1. Did access to international markets help or hurt 
efforts to alleviate the propane shortage in the Midwest? How?
    Answer. There are several factors that contributed to the limited 
supplies of propane in the Midwest this past winter, including existing 
low propane inventories at the start of the 2013-2014 heating season, a 
large, wet corn harvest during the fall 2013 that drew down inventories 
further, and the frigid weather in many parts of the northern tier of 
the U.S. in late 2013 and early 2014. As a consequence of the domestic 
propane markets and higher retail prices for propane in the Gulf region 
at the beginning of the winter, there were more propane stocks in the 
Gulf region than in the Midwest region at the time the unusually high 
demand in the Midwest region commenced. This resulted in higher prices 
and tighter supplies in the Midwest region. Also, owing to the 
continuing cold weather and heavy snow conditions in the Midwest during 
the winter, the transport of propane supplies were hampered, resulting 
in the further tightening of available supplies at the retail and local 
levels. It is uncertain whether and to what extent access to 
international markets may have increased or decreased regional propane 
supplies in the Midwest during this past winter. There are many factors 
involved that affect both the supply and infrastructure differentially 
across regions within the U.S.
    Question 2. How did propane exports react to high prices in the 
Midwest?
    Answer. Propane prices in the Midwest (Conway, Kansas) began moving 
higher in late 2013 and peaked in the second half of January. In late 
January, U.S. propane prices moved above international propane prices. 
According to U.S. Census Bureau data, U.S. exports of propane were 
410,000 barrels per day (bbl/d) in November, 402,000 bbl/d in December, 
356,000 bbl/d in January and 342,000 bbl/d in February. February is the 
most recent month for which U.S. Census Bureau export data are 
available.
    According to data and info/Illation available from commercial 
sources, including consultants and trade press, some propane exports 
planned for December, January, and February were either cancelled or 
delayed. The reported volumes cancelled or delayed were 1.0 million 
barrels in December, 1.2 million barrels in January, and 100,000 
barrels in February.
    Question 3. Does access to international markets impact domestic 
propane production?
    Answer. DOE is considering whether to assess the influence of 
access to international markets on domestic propane production during a 
future phase of the Quadrennial Energy Review; analysis topics for the 
QER are established by the White House Task Force for the Quadrennial 
Energy Review.
    Question 4. Will DOE be conducting an assessment or study of this 
year's test sale from the Strategic Petroleum Reserve? When will it be 
completed, if so?
    Answer. Yes. DOE will conduct an assessment of the test sale and 
will provide a written report to Congress. The report to Congress 
should be completed in the near future.
    Question 5. Has the U.S. ever exported crude oil from the SPR as 
part of the lEA's emergency sharing agreement? If so, when and in what 
volumes?
    Answer. The U.S. has not exported crude oil from the SPR as part of 
the. TEA's emergency sharing agreement.
    Question 6. Under what circumstances, if any, may product be 
exported from the Northeast Home Heating Oil Reserve or the new 
regional gasoline reserve announced on May 2nd?
    Answer. The Energy Policy and Conservation Act does not explicitly 
address exporting product from the Northeast Home Heating Oil Reserve. 
The new regional reserve, which will be a part of the SPR, will follow 
applicable statutory requirements governing export of petroleum 
products.
    The Northeast Regional Refined Petroleum Product Reserve (NERRPPR) 
falls under the Strategic Petroleum Reserve legislation and therefore 
follows the requirements of Section 161(1) of EPCA concerning exports:
    Notwithstanding any other law, the President may permit any 
petroleum products withdrawn from the Strategic Petroleum Reserve in 
accordance with this section to be sold and delivered for refining or 
exchange outside of the United States, in connection with an 
arrangement for the delivery of-refined petroleum products to the 
United States.
   Responses of Melanie Kenderdine to Questions From Senator Barrasso
    Question 1. You testified that: ``There was...an unusually late and 
larger than noiuial use of propane for drying a large and wet corn 
crop, one of the major uses of propane in the Midwest.'' You also 
stated that: ``This larger than expected demand strained propane 
supplies going into the winter and reduced inventories at distribution 
terminals in the upper Midwest.'' I understand that over 300 million 
gallons of propane was used to dry corn in 2013. That is 235 million 
gallons more than what was used in 2012. It is also my understanding 
that about 36 percent of last year's corn crop was used to produce 
ethanol to satisfy requirements under the Renewable Fuel Standard.

          A. Has DOE analyzed the extent to which the Renewable Fuel 
        Standard contributed to low propane inventories in the Midwest 
        this past fall and winter?
          B. If not, will you commit to conducting such an analysis and 
        sharing your results with the public?

    Answer. DOE did not analyze the extent to which the RFS contributed 
to propane Inventories in the Midwest this past fall and winter; the 
Department's focus this past fall and winter was on monitoring the 
situation, especially the supply of propane in the Midwest. DOE may 
consider such analysis, in the future.
    Question 2. Mr. France, the Chairman of the National Propane Gas 
Association, testified that: ``obtaining a waiver from the Jones Act is 
generally acknowledged to be nearly impossible.'' For that reason, Mr. 
France recommended that: ``in the context of fuel emergencies DOE 
should be given the authority to grant such waivers from the Jones 
Act.'' With respect to last winter, Mr. France explained that: ``DOE 
had the greatest knowledge of the state of the industry supply and 
would have been best positioned to grant a waiver from the Jones Act 
for a de minirnis period of time.''
    Would DOE support legislation authorizing it to grant waivers under 
the Jones Act for fuel emergencies? If not, why not?
    Answer. The Department plays a consulting role in the disposition 
of Jones Act waivers when requested by the Department of Homeland 
Security.
                                 ______
                                 
      Response of Andrew J. Black to Question From Senator Franken
    Question 1. Without giving out information that could give one 
business an unfair advantage over another, what options do we have for 
providing greater transparency, especially during an emergency, into 
when and where propane is being shipped?
    Answer. Under Section 15(13) of the Interstate Commerce Act, it is 
unlawful for a pipeline to disclose information on when and where a 
shipper is transporting products without the shipper's consent or 
pursuant to other limited exceptions in Section 15(13). The Section 
15(13) prohibition on disclosing such information protects the 
competitive interests of pipeline shippers. Depending on the number of 
shippers, volume and destinations, the disclosure of information that 
may appear aggregated in nature may in fact be specific and may 
inadvertently compromise the confidentiality of shipper information.
    However, the normal pipeline nomination and allocation processes do 
provide clear information to a pipeline's shippers of the most 
important information they would need from a pipeline, namely, whether 
capacity is available to ship product. The pipeline's shippers 
typically nominate the quantity of barrels they seek to ship from 
origin points to destination points during the month in advance of the 
month when shipments are made. Prior to a shipment month, and during a 
month as circumstances change, pipelines will evaluate tenders of 
product for shipment against the physical capacity of the pipeline.
    When tenders of product do not exceed the physical capacity of the 
pipeline, the pipeline will typically provide notice to all shippers 
that pipeline capacity remains available for additional shipments and 
will work with shippers to accommodate additional shipments during the 
month. When the tenders for shipment exceed the physical capacity of 
the pipeline, capacity must be apportioned on a prescribed basis among 
the pipeline's shippers. The pipeline will provide notice of the 
apportionment to all shippers, either prior to the month or during a 
month as circumstances warrant.
    Thus, prior to and during any month, a pipeline's shippers are 
informed and aware that the pipeline either (i) has capacity, or (ii) 
does not have capacity and that available capacity is being apportioned 
among the shippers. These communications between the pipeline and the 
shippers occur prior to a month of flow, or during the month as 
circumstances warrant, as soon as reasonably practicable after the 
pipeline is in apportionment or removed from apportionment. The 
pipeline has every incentive to timely communicate with shippers; as 
explained in my testimony, pipelines earn revenue by charging a rate 
for the transportation services they provide to shippers, and thus, 
have every incentive to make deliveries, including shipments of 
propane, when they are requested by shipping customers. Therefore, 
pipelines also have every incentive to be as transparent as possible, 
within the confines of the Interstate Commerce Act, to ensure that 
shippers are aware that capacity is available to ship products on their 
systems. As also explained in my testimony, pipeline capacity is 
generally sufficient, especially during off-peak times, to ensure that 
propane supplies are adequate to meet domestic seasonal needs.
     Responses of Andrew J. Black to Questions From Senator Manchin
    Question 1. Mr. Black, is data on utilization of the propane 
pipelines publicly available on a real-time or near-to-real-time basis?
    Answer. Data on utilization of propane pipelines is not publicly 
posted nor communicated publicly on a real-time, near-to-real-time, or 
other basis, but, as explained below, it is timely communicated to a 
pipeline's shippers through the normal pipeline nomination and 
allocation process. Due to the operational characteristics of oil and 
NGL pipelines and the products they ship (notably, as compared to 
natural gas pipelines), neither propane nor other energy liquids can be 
transported by pipelines on a real-time or near-to-real-time basis, 
and, in order to optimize the volume of shipments on behalf of their 
shippers, pipelines begin scheduling transportation services well in 
advance of the actual shipment date. During the normal pipeline 
nomination and allocation processes, pipelines provide clear 
information to shippers of the most important information they would 
need from a pipeline, namely, whether capacity is available to ship 
product.
    The pipeline's shippers typically nominate the quantity of barrels 
they seek to ship from origin points (where products are injected into 
the system for shipment) to destination points (where products are 
delivered for the shipper) during the month in advance of the month 
when shipments are made. Prior to a month, and during a month as 
circumstances change, pipelines will evaluate tenders of product for 
shipment against the physical capacity of the pipeline. When tenders of 
product do not exceed the physical capacity of the pipeline, the 
pipeline will typically provide notice to all shippers that pipeline 
capacity remains available for additional shipments and will work with 
shippers to accommodate additional shipments during the month. When the 
tenders for shipment exceed the physical capacity of the pipeline, 
capacity must be apportioned on a prescribed basis among the pipeline's 
shippers. The pipeline will provide notice of the apportionment to all 
shippers, either prior to the month or during a month as circumstances 
warrant.
    Once shipments are finalized and scheduled, products are injected 
into the system, and then shipped in cycles, commonly of five or ten 
days, meaning that a product will reach its destination point during 
the timeframe identified for deliveries associated with that cycle 
period. Once the shipment of products commences, the time required to 
transport product from an origin point to a destination point is 
typically a number of days or weeks.
    As explained in my testimony, pipelines earn revenue by charging a 
rate for the transportation services they provide to shippers, and 
thus, have every incentive to make deliveries, including deliveries of 
propane, when they are requested by shipping customers. Therefore, 
pipelines also have every incentive to be as transparent as possible, 
within the confines of the Interstate Commerce Act, to ensure that 
shippers are aware that capacity is available to ship products on their 
systems. As also explained in my testimony, pipeline capacity is 
generally sufficient, especially during off-peak times, to ensure that 
propane supplies are adequate to meet domestic seasonal needs.
    Question 2. On pages 6 and 7 of your testimony you show information 
on the utilization of the Mid-America Pipeline. Has this data 
previously been available to the public? If so, where? Is it regularly 
available?
    Answer. The information on pages 6 and 7 of my testimony on the 
utilization of the Mid-America Pipeline is proprietary information that 
was not previously available to the public and is not regularly 
available. The information was provided by the pipeline voluntarily to 
help facilitate the Committee's review. Under Section 15(13) of the 
Interstate Commerce Act, it is unlawful for a pipeline to disclose 
information on when and where a shipper is transporting products 
without the shipper's consent or pursuant to other limited exceptions 
in Section 15(13). The Section 15(13) prohibition on disclosing such 
information protects the competitive interests of pipeline shippers. 
Depending on the number of shippers, volume and destinations, the 
disclosure of information that may appear aggregated in nature may in 
fact be specific and may inadvertently compromise the confidentiality 
of shipper information.
    As discussed in response to Question 1, I note that pipeline 
shippers are provided notice of available capacity during the process 
of nominating and scheduling transportation services. Further, if 
pipeline capacity is over-nominated and, therefore, capacity must be 
apportioned among the pipeline's shippers, then notice of the 
apportionment is provided to all shippers on the same basis. Thus, any 
shipper knows whether capacity is available for a requested shipment.
                                 ______
                                 
       Responses of Joe Cordill to Questions From Senator Franken
    Question 1. One possible way to address future shortages would be 
to create a federal reserve of propane, similar to the Northeast Home 
Heating Oil Reserve, but predominantly serving the Midwest. What 
benefits would such a reserve provide for wholesalers, distributors, 
and consumers? What potential pitfalls must be avoided for the reserve 
to be most effective? If a federal reserve of propane were implemented, 
what options exist regarding where the reserves should be located? What 
role would primary, secondary, and tertiary storage play in 
implementing a reserve?
    Answer. The National Propane Gas Association has formed a task 
force to consider a variety of options to ensure that our experience 
from the 2014 winter is not repeated. A strategic reserve is one option 
that we are evaluating. However, it is important to note that propane 
is different from the heating oil industry in that we are broadly 
spread throughout the country. There is not strong regional 
concentration in a single part of the country like fuel oil. There are 
some other options that NPGA is prepared to recommend that could make a 
difference right now, such as approval of the Finger Lakes storage 
facility in New York, better transparency of pipeline operations and 
data availability, assistance with rehabilitating the Todhunter storage 
facility in Ohio, and removing the Department of Commerce restriction 
on the Propane Education and Research Council to facilitate year-round 
demand, which will help create incentives for additional 
infrastructure.
    Question 2. How can we incentivize propane users to (1) utilize 
larger tanks; and (2) fill storage tanks before the winter months?
    Answer. When the industry formed the Supply and Infrastructure Task 
Force, one working group focused on steps that can be taken to educate 
propane customers on winter readiness. Customer storage, also called 
tertiary storage, is a critical part of the supply equation. According 
to a 2011 PERC study, an estimated 111 million barrels of customer 
storage exists in the field, nearly equaling the total amount of 
primary storage capacity in the U.S. The study also found the average 
tank size for customers was 400 gallons. Many customers want to utilize 
larger tanks, but cannot due to the increased cost of replacing their 
current tank. One way the Federal Government could incentivize propane 
users to utilize larger tanks is to provide financial incentives 
towards the purchase of these tanks, either through rebates to 
customers or to marketers. The Federal Government could also provide 
tax incentives to customers who chose to increase their tank size.
    In some instances, customer storage is discouraged through 
regulatory codes such as those posed in the International Fire Code 
Chapter 61. These regulations seek to restrict the amount of fuel 
stored on-site and place additional stress on the propane 
infrastructure. In essence, these regulations are promoting ``just in 
time'' inventory management situations for propane customers in 
populated areas. Furthermore, it is increasingly difficult for 
marketers to build new storage facilities or expand existing facilities 
in the face of official and unofficial local opposition. Federal 
assistance in helping build confidence of the safety of propane 
installations would be most welcome.
    The volume of customer storage in the field underscores the 
importance of filling customer storage prior to peak season demand. One 
reason low income customers may not fill their tanks prior to the 
winter heating season is because LIHEAP funds are unavailable until the 
winter months. Adjusting the eligible months for LIHEAP funds would 
make it easier for lower income families to be prepared for the winter 
months. During the warmer months, the need to heat a home is not 
salient in the minds of many customers. Currently, the Propane 
Education and Research Council (PERC) is restricted with regard to its 
customer communications. Lifting this restriction would allow a 
coordinated industry campaign aimed at educating consumers about winter 
readiness, including off peak season fills.
    Question 3. What can we do to ensure a quick response to future 
crises?
    Answer. One of the most important things we can do to avoid future 
crises is improve the collection of meaningful data on propane 
shipments and inventories. On May 16, 2014, NPGA wrote to the Energy 
Information Administration to request that EIA provide additional 
timely information on precisely this topic. NPGA prioritized its 
request in three areas: (1) reporting enhancements that NPGA believes 
can be made without requiring EIA to collect additional data or make 
fundamental changes in the way that the data is collected; (2) one-time 
and occasional studies to address specific questions or provide 
specific information on certain aspects of the propane market; and (3) 
data reports that would require new surveys or additional information 
to be collected on existing surveys. NPGA looks forward to working with 
EIA in these areas.
    Question 4. What steps can we take to set up an early warning 
system for possible future propane shortages?
    Answer. One lesson the propane industry learned this winter is that 
the information collected by the Energy Information Administration 
should be more detailed and be available on closer to a real-time basis 
in order to provide public and private stakeholders with a better and 
more accurate picture of market conditions. As previously mentioned, 
NPGA is in a dialogue with the EIA in regard to this. As an example, 
storage inventory could be reported on a level below the PADD level on 
which it is currently reported. Additionally, more detailed pricing 
data could be collected and reported on a more contemporaneous basis 
than it is now.
    Improvements such as this would permit market participants and 
government stakeholders to have a more accurate picture of market 
conditions than they had this winter. It would then be much easier for 
the Secretary of Energy, the Administrator of the Energy Information 
Administration, the Secretary of Transportation, the Federal Energy 
Regulatory Commission, and other authorities to monitor markets for 
signs of potential energy emergencies. As winter approaches, improved 
data would permit these and other agencies to determine, at an early 
time, whether to invoke their various authorities to avert threats to 
essential human needs.
    Question 5. Without giving out information that could give one 
business an unfair advantage over another, what options do we have for 
providing greater transparency, especially during an emergency, into 
when and where propane is being shipped?
    Answer. At present the Interstate Commerce Act, a law with its 
roots more than a century ago, prohibits, pipelines from disclosing 
information as to shipments. It is clear that this provision, which may 
have been important in years past, has outlived its usefulness. In fact 
it proved to be impediment to market transparency this winter. It would 
be my recommendation that it be repealed. I recognize that there are 
legitimate and important competitive interests at stake, and it would 
be my recommendation that Congress empower the Federal Energy 
Regulatory Commission, using notice and comment rulemaking procedures, 
to determine the appropriate level of transparency on pipelines. The 
Commission has done so successfully in the past with regard to natural 
gas pipelines and electric transmission systems.
       Responses of Joe Cordill to Questions From Senator Manchin
    Question 1. Mr. Cordill, your testimony touches on restrictions 
placed on your industry by the Department of Commerce, which is an 
issue that has been raised by groups in my state of West Virginia. What 
are your thoughts on the Department of Commerce removing its 
restriction on the industry's check-off program? Could some of the 
industry's resources then be used to fund educational programs for 
residential propane customers to make sure they have information on how 
to best prepare for the winter?
    Answer. Section 9 of the Propane Education and Research Act of 1996 
(PERA) provides for periodic consumer grade propane price analyses 
compared with residential natural gas, residential electricity, and 
refiner price to end users of heating oil. The Commerce Department has 
for years interpreted the PERA law as a residential-only law, and so 
has performed these price analyses using EIA residential only propane 
price data. This was not the intention of Congress in enacting PERA, 
which specifically covers other propane sectors in the law's many 
provisions. Congress should insist that the Commerce Department 
acknowledge that PERA covers all sectors of propane usage, so that the 
existing data collected and reported by the EIA that reflects propane 
prices to all propane market segments is used to perform the DOC 
analysis required by Section 9 of PERA.
    Doing this would allow the propane industry to use its own 
resources to communicate broadly with customers on matters related to 
winter heating season preparation. There are many programs that propane 
marketers offer to their customers to help them manage their supply and 
heating bills in the winter. Fixed price contracts, pre-buys, annual 
budget plans, and others are all viable options for consumers to 
consider. PERC could also utilize industry resources to implement 
programs designed to grow year-round demand for propane, such as in the 
vehicle and commercial lawn mowing segments. This would support 
development of additional storage and delivery infrastructure during 
off-peak seasons, which would help reduce the risks of a repeat of 
winter 2014 conditions.
    Question 2. One of the other recommendations in your testimony is 
for Congress to amend the Interstate Commerce Act to require pipelines 
to demonstrate that the public interest is served before they 
discontinue service. Do you think this would help prevent a shortage 
like the one we had this winter?
    Answer. Petroleum products pipelines, such as those that transport 
propane, do not need to seek abandonment authority from the Federal 
Energy Regulatory Commission when they cease a service or cease 
operation of facilities, which is entirely unlike the regulatory system 
for interstate natural gas pipelines. Rather, propane pipelines can 
cease providing a service simply by cancelling tariff sheets on file 
with the Federal Energy Regulatory Commission. In connection with this 
past winter, this system has permitted at least three pipelines that 
deliver propane toward the market areas to go out of service 
permanently. There is no doubt that these infrastructure changes 
contributed to the conditions seen in propane markets this winter. I 
certainly recognize that energy flows across North America are changing 
as a result of the dramatic influx of natural gas and natural gas 
liquids from shale formations. But granting the Federal Energy 
Regulatory Commission authority to pass upon proposed abandonments of 
service would ensure that essential human needs do not go unserved.
                                 ______
                                 
       Responses of Gary France to Questions From Senator Franken
    Question 1. One possible way to address future shortages would be 
to create a federal reserve of propane, similar to the Northeast Home 
Heating Oil Reserve, but predominantly serving the Midwest. What 
benefits would such a reserve provide for wholesalers, distributors, 
and consumers? What potential pitfalls must be avoided for the reserve 
to be most effective? If a federal reserve of propane were implemented, 
what options exist regarding where the reserves should be located? What 
role would primary, secondary, and tertiary storage play in 
implementing a reserve?
    Answer. The National Propane Gas Association has formed a task 
force to consider a variety of options to ensure that our experience 
from the 2014 winter is not repeated. A strategic reserve is one option 
that we are evaluating. However, it is important to note that propane 
is different from the heating oil industry in that we are broadly 
spread throughout the country. There is not strong regional 
concentration in a single part of the country like fuel oil. There are 
some other options that NPGA is prepared to recommend that could make a 
difference right now, such as approval of the Finger Lakes storage 
facility in New York, better transparency of pipeline operations and 
data availability, and removing the Department of Commerce restriction 
on the Propane Education and Research Council to facilitate year-round 
demand, which will help create incentives for additional 
infrastructure.
    Question 2. How can we incentivize propane users to (1) utilize 
larger tanks; and (2) fill storage tanks before the winter months?
    Answer. When the industry formed the Supply and Infrastructure Task 
Force, one working group focused on steps that can be taken to educate 
propane customers on winter readiness. Customer storage, also called 
tertiary storage, is a critical part of the supply equation. According 
to a 2011 PERC study, an estimated 111 million barrels of customer 
storage exists in the field, nearly equaling the total amount of 
primary storage capacity in the U.S. The study also found the average 
tank size for customers was 400 gallons. Many customers want to utilize 
larger tanks, but cannot due to the increased cost of replacing their 
current tank. PERC is an organization in the propane industry that 
should be able to do significant consumer education outreach, except at 
this point PERC is restricted by the Department of Commerce, 
incorrectly in our view. Nevertheless, were we to eliminate the DOC 
restriction, PERC could do good work in this area. Larger tank sizes 
are most important in the agricultural sector such as corn farmers, who 
may only have one day of storage during peak demand. Most residential 
customers have at least 3 weeks to a month supply during peak demand.
    One way the Federal Government could incentivize propane users to 
utilize larger tanks is to provide financial incentives towards the 
purchase of these tanks, either through rebates to customers or to 
marketers. The Federal Government could also provide tax incentives to 
customers who chose to increase their tank size.
    In some instances, customer storage is discouraged through 
regulatory codes such as those posed in the International Fire Code 
Chapter 61. These regulations seek to restrict the amount of fuel 
stored on-site and place additional stress on the propane 
infrastructure. In essence, these regulations are promoting ``just in 
time'' inventory management situations for propane customers in 
populated areas.
    The volume of customer storage in the field underscores the 
importance of filling customer storage prior to peak season demand. One 
reason low income customers may not fill their tanks prior to the 
winter heating season is because LIHEAP funds are unavailable until the 
winter months. Adjusting the eligible months for LIHEAP funds would 
make it easier for lower income families to be prepared for the winter 
months. During the warmer months, the need to heat a home is not 
salient in the minds of many customers. Currently, the Propane 
Education and Research Council (PERC) is restricted with regard to its 
customer communications. Lifting this restriction would allow a 
coordinated industry campaign aimed at educating consumers about winter 
readiness, including off peak season fills.
    Question 3. What can we do to ensure a quick response to future 
crises?
    Answer. One of the most important things we can do to avoid future 
crises is improve the collection of meaningful data on propane 
shipments and inventories. On May 16, 2014, NPGA wrote to the Energy 
Information Administration to request that EIA provide additional 
timely information on precisely this topic. NPGA prioritized its 
request in three areas: (1) reporting enhancements that NPGA believes 
can be made without requiring EIA to collect additional data or make 
fundamental changes in the way that the data is collected; (2) one-time 
and occasional studies to address specific questions or provide 
specific information on certain aspects of the propane market; and (3) 
data reports that would require new surveys or additional information 
to be collected on existing surveys. NPGA looks forward to working with 
EIA in these areas.
    Question 4. What steps can we take to set up an early warning 
system for possible future propane shortages?
    Answer. One lesson the propane industry learned this winter is that 
the information collected by the Energy Information Administration 
should be more granular and be available on closer to a real-time basis 
in order to provide public and private stakeholders with a better and 
more accurate picture of market conditions. As previously mentioned, 
NPGA is in a dialogue with the EIA in regard to this. As an example, 
storage inventory could be reported on a level below the PADD level on 
which it is currently reported. Additionally, more detailed pricing 
data could be collected and reported on a more contemporaneous basis 
than it is now.
    Improvements such as this would permit market participants and 
government stakeholders to have a more accurate picture of market 
conditions than they had this winter. It would then be much easier for 
the Secretary of Energy, the Administrator of the Energy Information 
Administration, the Secretary of Transportation, the Federal Energy 
Regulatory Commission, and other authorities to monitor markets for 
signs of potential energy emergencies. As winter approaches, improved 
data would permit these and other agencies to determine, at an early 
time, whether to invoke their various authorities to avert threats to 
essential human needs.
    Question 5. Without giving out information that could give one 
business an unfair advantage over another, what options do we have for 
providing greater transparency, especially during an emergency, into 
when and where propane is being shipped?
    Answer. At present the Interstate Commerce Act, a law with its 
roots more than a century ago, prohibits, pipelines from disclosing 
information as to shipments. It is clear that this provision, which may 
have been important in years past, has outlived its usefulness. In fact 
it proved to be impediment to market transparency this winter. It would 
be my recommendation that it be repealed. I recognize that there are 
legitimate and important competitive interests at stake, and it would 
be my recommendation that Congress empower the Federal Energy 
Regulatory Commission, using notice and comment rulemaking procedures, 
to determine the appropriate level of transparency on pipelines. The 
Commission has done so successfully in the past with regard to natural 
gas pipelines and electric transmission systems.
        Response of Gary France to Question From Senator Manchin
    Question 1. Mr. France, AOPL say in its testimony that the reversal 
of the Cochin pipeline will not adversely affect propane supplies 
across the upper Midwest. What are your views on that?
    Answer. The reversal of the Cochin Pipeline does not change the 
broad propane supply picture. The Canadian propane supply that has been 
transported to the Midwest on the Cochin Pipeline will continue to be 
available to the Market. In addition, propane supply from Canada, the 
Bakken, and other regions will continue to grow.
    However, the issue with the Cochin Pipeline is not propane supply. 
The loss of the Cochin pipeline removes a major source of propane 
transportation into the Midwest during peak demand periods, and cannot 
easily be replaced. The loss of the Cochin is a transportation 
infrastructure issue rather than a supply issue. The Cochin currently 
provides much of the swing capacity to move propane into the upper 
Midwest, providing significant excess capacity to meet peak 
requirements, and direct access to major propane storage capacity in 
Alberta. Replacement of the Cochin requires replacement of the supply 
flexibility provided by the Cochin, as well as the supply delivered by 
the Cochin. The supply options currently available to replace the 
Cochin lack the flexibility to meet the peak season requirements 
provided by the Cochin.
    A major study of the Cochin Pipeline reversal conducted by ICF 
International concludes that the role that the Cochin Pipeline played 
as the swing supplier of propane into the Midwest cannot be fully 
replaced prior to the 2014/15 winter. While propane suppliers and 
transporters have made significant efforts to expand the capability of 
moving propane into the Midwest, and propane production in the region 
is expected to continue to increase, the current capabilities are 
unlikely to be sufficient to meet demand in the Cochin market region if 
weather and grain drying conditions are similar to this last year. 
Unfortunately, at this time, it is largely too late to make additional 
physical system changes prior to the 2014/15 winter if arrangements are 
not already in place. There is currently a 24 month waiting time on new 
rail cars and a 15-18 month waiting time on new storage tanks.
    ICF concludes that by 2015/16, transportation markets should be 
capable of replacing the Cochin, but continuing limits on access to 
Alberta storage may still create significant issues. While the market 
will adapt to the loss of the Cochin pipeline, the energy industry will 
not replace the flexibility provided by the pipeline. The Cochin 
pipeline provided sufficient excess propane supply capacity into the 
Midwest to meet a wide range of different demand patterns, and also 
provided access to major propane storage fields in Alberta. As a 
result, loss of the pipeline will lead to long term increase in propane 
supply and price volatility and uncertainty in the Cochin market 
region.
    The short term supply uncertainty, and long term increase in supply 
and price volatility and uncertainty will change the way that many 
marketers plan for supply in the region.
       Response of Gary France to Question From Senator Barrasso
    Question 1. You testified that: ``A primary factor leading to low 
[propane] inventories, particularly in the Midwest, was an unusually 
wet and large [corn] harvest that occurred late in the harvest season 
forcing farmers to use more propane than anticipated.'' You explained 
that: ``Industry analysts estimate total grain-drying demand for 
propane at more than 300 million gallons in 2013, 235 million gallons 
above 2012 levels.'' You also state that: ``Suppliers in the Midwest 
did not have the chance to rebuild propane inventories before the onset 
of an early and cold winter.''
    I understand that about 36 percent of last year's corn crop was 
used to produce ethanol to satisfy requirements under the Renewable 
Fuel Standard.
    Has NPGA analyzed the extent to which the Renewable Fuel Standard 
contributed to low propane inventories in the Midwest this past fall 
and winter? If not, why not?
    Answer. NPGA has not analyzed the extent to which the Renewable 
Fuel Standard may have contributed to low propane inventories in the 
Midwest this past fall and winter. NPGA has not undertaken an analysis 
of the various end-uses of corn in the United States, as they would at 
best be second-level or third-level causes rather than proximate causes 
of the circumstances experienced this past winter in propane markets.
    Thank you for the opportunity to elaborate on my hearing statement. 
Please don't hesitate to contact me with any additional questions.
                                 ______
                                 
      Responses of Nils Nichols to Questions From Senator Franken
    Question 1. Without giving out information that could give one 
business an unfair advantage over another, what options do we have for 
providing greater transparency, especially during an emergency, into 
when and where propane is being shipped?
    Answer. Broadly speaking, the Interstate Commerce Act (ICA) 
provides the Commission with jurisdiction only over the terms and 
conditions of tariffs pursuant to which jurisdictional pipelines ship 
products such as propane, as well as the rates pipelines charge for 
such shipments.
    Section 15(13) of the Interstate Commerce Act (ICA) expressly 
provides that ``[i]t shall be unlawful for any common carrier . . . 
knowingly to disclose . . . any information concerning the nature, 
kind, quantity, destination, consignee, or routing of any property 
tendered or delivered to such common carrier for interstate 
transportation, which information may be used to the detriment or 
prejudice of such shipper or consignee, or which may improperly 
disclose his business transactions to a competitor . . . .'' 
Consequently, the Commission does not possess knowledge regarding 
product shipments, including when and where propane is shipped.
    The best option for providing greater transparency into propane 
supplies, including shipments, would be to encourage market 
participants to report that information to entities which routinely 
collect and disseminate such information, aggregated or masked as 
appropriate to protect market participants.
    Question 2. In December, we knew we had a serious propane shortage, 
but the Federal Energy Regulatory Commission (FERC) did not take action 
until February 7, 2014. Why was the response delayed, and how can we 
improve it in the future?
    Answer. Because it does not have a role in the propane commodity 
market, the Commission first became aware of propane supply issues in 
January 2014 primarily through contacts with governmental entities at 
the state and federal level who directly interact with issues of 
propane supply and demand. More specifically, the Commission became 
aware that supply issues were becoming significant at the end of 
January when it was contacted informally by the National Propane Gas 
Association (NPGA). NPGA stated it was working with a pipeline 
supplying, among other products, propane into the Midwest and Northeast 
to explore what could be done to increase propane shipments. Commission 
staff asked to be kept apprised of progress in those talks.
    On February 6, 2014, NPGA filed a request that the Commission 
exercise emergency powers under the ICA to direct Enterprise TE 
Products Pipeline Company (Enterprise) to temporarily provide priority 
treatment to propane shipments from Mont Belvieu, Texas to locations in 
the Midwest and Northeast. The Commission issued a notice that it had 
received the filing on the same day and requested comments on an 
expedited basis. The next day, on February 7, 2014, the Commission 
determined that an emergency existed requiring immediate action and 
issued an order directing Enterprise to provide seven days of priority 
treatment for propane shipments. On February 10, 2014, Enterprise and 
NPGA submitted filings with the Commission requesting that the 
emergency order be extended for another seven days. On February 11, 
2014, the Commission issued an order extending priority treatment for 
propane on Enterprise for an additional seven days. Thus, the 
Commission did not delay when it had evidence that an emergency 
existed.
    Going forward, given that the Commission does not have a role in 
the propane commodity market, it can improve its awareness of market 
dislocations by increased interaction with relevant trade associations, 
and with state and federal entities who have greater awareness of the 
state of the market.
    Question 3. What new authorities could help FERC prevent future 
propane shortages?
    Answer. No new authorities are required because the Commission has 
ample emergency authority under section 1(15) of the ICA to address 
issues concerning the transportation of propane. Extending the 
Commission's authority into the propane supply or commodity market 
would be a radical departure from the historical common carrier 
regulation under the ICA and the lighter-handed regulation of oil 
pipelines mandated by the Energy Policy Act of 1992.
    Question 4. What can we do to ensure a quick response to future 
crises?
    Answer. Communication with relevant stakeholders is critical in 
terms of ensuring a quick response to future crises. Ensuring that the 
Commission interacts with trade associations and state and federal 
entities is key. Starting in the fall 2014, Commission staff intends to 
interact periodically with such entities to do what it can to 
understand conditions in the winter of 2015.
    Question 5. What steps can we take to set up an early warning 
system for possible future propane shortages?
    Answer. The frequent collection and dissemination of data regarding 
the amounts of propane in storage in regions of the country could 
provide the best early warning system. Frequent communications among 
state and federal entities could provide an additional layer of 
protection.
      Responses of Nils Nichols to Questions From Senator Manchin
    Question 1. In Mr. Cordill's testimony, he recommends that FERC 
should require pipelines to justify all rate increases and regularly 
examine whether the ``market-based'' rates that some pipelines charge 
are appropriate. What is your opinion of this recommendation?
    Answer. The ICA and the Commission's regulations do require 
pipelines to justify rate increases. The one exception is when a 
pipeline has been granted authority to charge market-based rates for a 
given movement of product. The determination that a pipeline can charge 
market-based rates is based on a determination that the pipeline lacks 
market power in a given market. Shippers paying market-based rates may 
challenge rates they believe to be unjust and unreasonable by filing a 
complaint with the Commission. Once a complaint is filed, the 
Commission investigates whether the market-based rate remains 
appropriate and rules on the complaint. In appropriate cases, the 
matter may be set for hearing before an Administrative Law Judge.
    Question 2. Mr. Nichols, FERC has rules that prevent natural gas 
pipelines and electric transmission lines from favoring their marketing 
and trading affiliates. Why does it not have similar rules for propane 
pipelines?
    Answer. The Commission's statutory mandate under the ICA is to 
ensure rates are just and reasonable for shippers, and ensure that 
pipelines provide services in a manner that is not unduly preferential 
or unduly discriminatory. The current oil pipeline regulatory regime, 
which is a result of the mandate of Congress in the Energy Policy Act 
of 1992, requires lighter-handed, more market-oriented regulation. In 
contrast, the electric and natural gas pipeline regulatory constructs 
designed by Congress represent a regulated monopoly approach, requiring 
the Commission to be more proactive to ensure all market participants 
are operating in a fair and equitable manner. As such, affiliate rules 
are appropriate in those circumstances. The ICA's requirement that 
pipelines must provide services in a manner that is not unduly 
discriminatory or preferential accomplishes the same objectives as 
affiliate rules. This is especially true given that oil and product 
pipelines are common carriers which must provide service to any shipper 
wishing to ship on the pipeline. This is in contrast to the electric 
and natural gas pipeline industries, which provide contract based 
services.
    Question 3. Are the operations of propane pipelines as transparent 
as those of natural gas pipelines in terms of being able to see what is 
being shipped on the pipeline?
    Answer. The operations of oil and product pipelines, including 
pipelines which ship propane exclusively or as one of many products, 
are not as transparent as interstate natural gas pipelines in terms of 
being able to see what is shipped on the pipeline.
    There are several reasons for this. Interstate natural gas 
pipelines are viewed by Congress under the Natural Gas Act as regulated 
monopolies, and thus Congress' focus in establishing the NGA was on 
providing consumer protections. As such, certain shipper information is 
available through, for example, the Index of Customers each interstate 
natural gas pipeline must maintain to reflect contracts with shippers.
    Congress took a different approach in enacting the Interstate 
Commerce Act. There, it determined that oil and product pipelines 
should function as common carriers and its focus was on creating a 
shipper protection statute. As relevant here, Congress sought to 
protect shippers under the ICA by specifically limiting the 
transparency of information as discussed in more detail in the answer 
to Question 1 posed by Senator Franken.

    [Responses to the following questions were not received at 
the time the hearing went to press:]

           Questions for John Zimmerman from Senator Franken
    Question 1. One possible way to address future shortages would be 
to create a federal reserve of propane, similar to the Northeast Home 
Heating Oil Reserve, but predominantly serving the Midwest. What 
benefits would such a reserve provide for wholesalers, distributors, 
and consumers? What potential pitfalls must be avoided for the reserve 
to be most effective? If a federal reserve of propane were implemented, 
what options exist regarding where the reserves should be located? What 
role would primary, secondary, and tertiary storage play in 
implementing a reserve?
    Question 2. How can we incentivize propane users to (1) utilize 
larger tanks; and (2) fill storage tanks before the winter months?
    Question 3. What can we do to ensure a quick response to future 
crises?
    Question 4. What steps can we take to set up an early warning 
system for possible future propane shortages?
    Question 5. Without giving out information that could give one 
business an unfair advantage over another, what options do we have for 
providing greater transparency, especially during an emergency, into 
when and where propane is being shipped?
          Question for John Zimmerman from Senator Manchin III
    Question 1. Mr. Zimmerman, in your testimony, you mention four 
factors that led to this crisis, including communication. My state of 
West Virginia is home to a number of small propane suppliers and in 
emergencies, communication is necessary. What do you think we can do at 
the federal level to increase and improve communication to prevent a 
shortage like this from happening again?