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<title> - ENERGY DEMAND IN THE 21ST CENTURY: ARE CONGRESS AND THE EXECUTIVE BRANCH MEETING THE CHALLENGE?</title>
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[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]

ENERGY DEMAND IN THE 21ST CENTURY: ARE CONGRESS AND THE EXECUTIVE
BRANCH MEETING THE CHALLENGE?

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

HEARING

before the

SUBCOMMITTEE ON ENERGY AND RESOURCES

of the

COMMITTEE ON
GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

__________

MARCH 16, 2005

__________

Serial No. 109-12

__________

Printed for the use of the Committee on Government Reform

Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform

______

U.S. GOVERNMENT PRINTING OFFICE
20-471 WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada BRIAN HIGGINS, New York
KENNY MARCHANT, Texas ELEANOR HOLMES NORTON, District of
LYNN A. WESTMORELAND, Georgia Columbia
PATRICK T. McHENRY, North Carolina ------
CHARLES W. DENT, Pennsylvania BERNARD SANDERS, Vermont
VIRGINIA FOXX, North Carolina (Independent)
------ ------

Melissa Wojciak, Staff Director
David Marin, Deputy Staff Director/Communications Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel

Subcommittee on Energy and Resources

DARRELL E. ISSA, California, Chairman
LYNN A. WESTMORELAND, Georgia DIANE E. WATSON, California
ILEANA ROS-LEHTINEN, Florida BRIAN HIGGINS, New York
JOHN M. McHUGH, New York TOM LANTOS, California
PATRICK T. McHENRY, North Carolina DENNIS J. KUCINICH, Ohio
KENNY MARCHANT, Texas

Ex Officio

TOM DAVIS, Virginia HENRY A. WAXMAN, California
Lawrence J. Brady, Staff Director
Dave Solan, Professional Staff Member
Lori Gavaghan, Clerk
Richard Butcher, Minority Professional Staff Member

C O N T E N T S

----------
Page
Hearing held on March 16, 2005................................... 1
Statement of:
Caruso, Guy, Administrator, Energy Information
Administration, U.S. Department of Energy.................. 43
Portney, Paul, president, Resources for the Future........... 88
Wells, Jim, Director, Natural Resources and Environment, U.S.
Government Accountability Office........................... 3
Letters, statements, etc., submitted for the record by:
Caruso, Guy, Administrator, Energy Information
Administration, U.S. Department of Energy, prepared
statement of............................................... 46
Issa, Hon. Darrell E., a Representative in Congress from the
State of California, followup questions and responses...... 109
Portney, Paul, president, Resources for the Future, prepared
statement of............................................... 92
Watson, Hon. Diane E., a Representative in Congress from the
State of California, prepared statement of................. 86
Wells, Jim, Director, Natural Resources and Environment, U.S.
Government Accountability Office, prepared statement of.... 6

ENERGY DEMAND IN THE 21ST CENTURY: ARE CONGRESS AND THE EXECUTIVE
BRANCH MEETING THE CHALLENGE?

----------

WEDNESDAY, MARCH 16, 2005

House of Representatives,
Subcommittee on Energy Resources,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m., in
room 2203, Rayburn House Office Building, Hon. Darrell Issa
(chairman of the subcommittee) presiding.
Present: Representatives Issa, Westmoreland, Watson,
Higgins.
Staff present: Larry Brady, staff director; Sarah D'Orsie,
full committee deputy clerk; Dave Solan, Ph.D. and Steve Solan,
professional staff members; Krista Boyd and Alexandra Teitz,
minority counsels; Richard Butcher, minority professional staff
member; and Jean Gosa, minority assistant clerk.
Mr. Issa. Well, my script, of course, says ``a quorum being
present.'' We will waive a quorum being present. I will make an
opening statement, and presumably Ranking Member Watson will be
here by the time I get through.
I would like to apologize for being late. We are marking up
for the eighth time the same bankruptcy bill, and some people
had said it four times, five times, six times. But if you have
not said it eight times, there is no point in waiving.
Energy drives and ensures our Nation's security. It
determines our quality of life. The current volatility in fuel
prices and supplies has raised real questions as to whether the
current energy policy framework has failed the U.S. consumers.
U.S. oil demand is soaring, as is Chinese oil demand. Local
domestic supplies are dwindling, forcing the United States to
rely 60 percent on imported oil.
U.S. energy demand continues to increase. The U.S.
Department of Energy has projected the total energy consumption
from 2003 to 2025 will increase by 36 percent. Petroleum demand
will increase by 39 percent, and national gas demand will
increase by 40 percent. Overall, energy consumption will
increase by more than 45 percent.
Growing U.S. energy demand must be viewed in the context of
international demand for energy. The United States is now
competing for a world commodity that will see dramatically
increased rates of demand; demand from China and India will
continue to exert pressure in the world's energy markets.
World demand for crude oil typically grows annually at
about 1 million barrels a day. In 2004, it grew 2.7 million
barrels a day.
This begins to approach the total world production
capacity. Electricity demand in the developing world is also
increasing rapidly. In 2003, Chinese electricity consumption
increased by 15.3 percent.
How the United States meets its growing demand and ensures
its domestic supply of energy will require a full range of
energy resources from proven sources like oil, coal, natural
gas and nuclear to more renewables and development of new
technologies like the recent hydrogen incentives.
This hearing today is intended to focus on the key issues
confronting the United States. The subcommittee will attempt to
determine whether Congress is asking the right questions, and
whether the Federal Government's agencies are taking the right
actions to meet this growing demand, and to ensure our domestic
supplies.
How does the domestic supply situation and the increasing
international demand for energy effect the United States? How
can the United States continue to meet its domestic demand for
energy, while ensuring the future reliability, affordability,
and sustainability of the energy supply?
What factors contribute to the current volatility in the
fuel prices? Are Federal Government agencies taking the right
actions to meet the U.S. requirement in the 21st century? What
issues or policies should Congress be looking at, as a way of
meeting the energy challenge in the future?
We look forward to hearing from our three witnesses today,
as this is the first hearing on these important issues. I am
still not seeing the ranking member. I would be pleased to
introduce Mr. Jim Wells, Director of Natural Resources and
Environment at the U.S. Government Accountability Office. I
have said ``GAO'' for so many years that saying it the long way
is always difficult.
He has over 35 years of Government-related experience in
energy, natural resources, and environmental issues. Thank you
for being here today, Mr. Wells.
Also with us is Mr. Guy Caruso, Administrator of the Energy
Information Administration at the U.S. Department of Energy.
Mr. Caruso has over 30 years of energy experience, with
particular emphasis on issues related to energy markets,
policy, and security. Thank you for being here today, Mr.
Caruso.
Dr. Paul Portney is president of Resources for the Future,
an independent research and education organization, and I
assume this is a think tank, specializing in natural resources
and the environment. Thank you for being here, Dr. Portney.
We are now in that unique position that I am delighted to
see you, but we have to be patient.
Counsel advises that we can go forward. If each of you
would raise your right hand for the oath. Also, anyone else who
expects to advise or potentially speak, would you also rise to
take the oath.
[Witnesses sworn.]
Mr. Issa. The witnesses have all affirmed to the oath. As a
result, Mr. Wells, you are first up, and I look forward to
hearing your testimony.

STATEMENT OF JIM WELLS, DIRECTOR, NATURAL RESOURCES AND
ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

Mr. Wells. Thank you, Mr. Chairman, and ``GAO'' works. I
will know when to respond.
We are pleased to be here today. It is an understatement to
say that energy is important. To say it is critical, and we
cannot live without it is perhaps more accurate. It is almost a
daunting challenge, Mr. Chairman, to sit and talk energy to
someone who lives in California, because you know what it means
to you, living in the State of California, with some of the
problems you have experienced.
Before I summarize our GAO work, I want to set the stage.
The United States has built a strong energy delivery system,
and our consumers have a standard of living, second to none. We
drive the car or the truck that we want. Maybe we do complain
about high gasoline prices. The lights almost always come on
when we flip the switch.
We have a vast pipeline and transmission infrastructure.
Energy markets are working, and energy is considered by many
standards to be reasonably cheap. Having said that, we did lose
power for 50 million people in the 2003 blackout. The power was
returned in 3 days to most people. The gasoline price
volatility of today is certainly raising questions, and our
financial markets are speculating on where and how much the
next barrel of oil will cost.
These events clearly are pointing to an energy system that
is showing signs of strain and instability. While we have a
robust energy system today, the topic of your hearing, Mr.
Chairman, can we maintain it and can we meet the needs of the
21st century, is timely. I want to start my testimony and I
want to finish with timely. GAO is accepting the challenge to
explain U.S. energy in 120 minutes. I know it is a challenge.
Mr. Issa. Mr. Wells.
Mr. Wells. Yes.
Mr. Issa. Not only is it a challenge, since we have to vote
in 15 minutes, you really do have 10 minutes. [Laughter.]
Mr. Wells. OK; we are a Nation that accounts for 5 percent
of the world's population, yet we consume 25 percent of the
energy used worldwide. In 2003, each man, woman, and child
consumed in energy the equivalent of 790 billion gallons of
gasoline, or roughly 2,800 gallons per person. As EIA will
testify to today, this demand is looking like it is going to
increase another 25 or 30 percent, or even higher. I will let
Guy talk to that.
To meet this consumption, we have old 20th century policy
solutions in place. We have increased our production by
increasing drilling for oil and gas. We have increased output
from our nuclear power plants, and we have achieved small
increases in traditional renewable energy sources, such as wind
power.
We have tried to use more fuel efficient cars and the fuels
that we put in them. However, supplying this energy is a joint
effort of mostly private companies, with some direct
involvement by creating the VPA and TVA in delivering
electricity. Our energy suppliers today are mostly multi-
national corporations with worldwide shareholders.
Most of the fuel is sold at prices that are determined by
competitive markets excluding, of course, the Enron deals that
we learned about. The Federal Government has intervened by
providing billions of dollars in tax credits, tax incentives,
direct subsidies, and regulatory advice, supposedly to guide
and steer the marketplace for social good.
Despite these facts, Mr. Chairman, imports of fuel are
rising at alarming rates. Over the last 20 years, our net
imports of energy has more than doubled, reaching 32 percent of
our total consumption.
Furthermore, gasoline, as you know, is rising above $2 a
gallon. Refinery capacity is clearly not keeping pace with the
demand. Electricity transmission constraints, which you are
well aware in California, have periodically limited the flow of
electricity in parts of the country. The international turmoil
in the Middle East, Russia, and Venezuela, affects our energy
security.
Looking into the future, there are daunting challenges that
lie ahead. As you hear today from EIA, the U.S. energy demand
could increase significantly over the next 20 years. While we
must focus our own domestic needs as a developed country today,
we cannot lose sight of the fact that energy is being demanded
globally across the world, especially in the developing
countries, as you mentioned, like China and India.
Clearly, we must all buy energy from this global market
place. We must all, in a sense, go to the same spigot. If world
supplies do not keep pace with the world demand, energy prices
will continue to rise sharply.
So where does that leave us for today's hearing? It is
clear that the reliable mainstay of the 20th century: cheap
oil, gasoline, plentiful natural gas, and large amounts of
electricity from coal, seems less guaranteed in the 21st
century.
Mr. Issa. Mr. Wells, I have been advised that they want me
to run to the vote. I apologize for the nature of this. We will
allow you to continue. We will stop the clock. I will be back
in about 15 to 25 minutes, depending on how fast they roll the
next votes.
I appreciate your indulgence. You guys are pros. You have
been through our tendency to be anything but considerate to our
guests. So I appreciate that, and I will be back absolutely at
a dead run, as soon as the last vote is over.
Mr. Wells. Thank you.
[Recess.]
Mr. Issa. As promised, we are back within 15 minutes, and
the ranking member is on her way.
Mr. Wells. Thank you, Mr. Chairman, and I will make this
even shorter. We offer, in our testimony to you today, three
broad cutting observations to help frame the congressional
efforts to develop policies with the Federal Government. That
was your charter to us.
First, we would encourage you regarding demand, the amount
of energy that needs to be supplied is not fate, but choice.
Consumers can play an important role, a bigger role than what
they currently play today, in using energy wisely, if they are
given the choice, and we help educate them on how to reduce
future demand.
The second thought that we would like to suggest is that
all fuel sources share some form of problems, whether it be
environmental or economic constraints. This fuel is too dirty,
or that technology costs too much to be competitive.
The future choices will require compromises and tradeoffs.
Consequently, we will need to use all the sources that we have
available to us, if we want to make ends meet, with some
offsetting benefits and costs. The demand projections numbers
are just so large, it is going to be very difficult to meet
that demand, unless all sources are being considered.
The third cost-cutting issue that we would suggest be
looked at, with whatever Federal policies are chosen and with
the political will and the balance that needs to be achieved,
is having the Federal Government take some leadership role,
perhaps stronger than it has today and in the past, and
providing clear and consistent signals to the energy markets,
and energy markets will be extremely important.
Then the consumers and the suppliers and the investment
community will know how to buy the new products that we are
going to need, and how to invest in that future infrastructure.
If we need power plants, how do they come up with the $400
million to put in a new power plant? They will need some
leadership from the Federal Government to provide consistency
to make that happen.
We will also need new technology. Clearly, there is no one
magic source out there that is going to get us there. But
clearly, as we look at research, looking at new technology, it
will certainly help us get over that hump.
In conclusion, I think I want to go back to what I said
earlier in my statement, that the old 20th century energy
solutions may not be able to carry us into the 21st century.
What we have today may not be good enough for tomorrow.
Energy is much more global and competitive than it was in
the old days. I said in the beginning of the hearing that your
hearings, Mr. Chairman, are very timely. The good thing is that
we are thinking about what to do now. We are not in a crisis.
It has been proven, over and over again, that we can make
better decisions when we are not in a crisis like we were back
in the early 1970's. To meet the 21st century challenge, the
demand will be that we need all energy sources that we have
available to us. It is clear what the American consumers have
asked us to provide. They want secure, affordable, reliable,
and environmentally sound energy.
My written statement that we submitted for the record, as
requested, offers a series of questions that would be available
to you that may assist this committee as it seeks answers in
future hearings when you talk to the industry and when you talk
to the Federal Government agencies and the players. I would be
happy to answer any questions that you have; thank you.
[The prepared statement of Mr. Wells follows.]

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Mr. Issa. Thank you, Mr. Wells, and your entire statement
and all of the other statements will be placed in the record.
Mr. Caruso, please?

STATEMENT OF GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION
ADMINISTRATION, U.S. DEPARTMENT OF ENERGY

Mr. Caruso. Thank you, Mr. Chairman, it is a pleasure to be
here to present the Energy Information Administration's outlook
for energy markets, both for the short and the medium term.
All of EIA's outlooks are policy-neutral and rely on the
existing policy's rules and regulations. So in a way, what I am
going to be sharing with you today is, this is where we see the
United States and global energy markets headed, if we stay on
the path we are on.
I know that is the purpose of your subcommittee and your
committee, to look at whether or not there are ways to change
this path and what are the correct paths. I certainly applaud
your interest in that.
As we sit here this afternoon, the price of crude oil on
the New York Mercantile Exchange exceeded $56 a barrel. How did
we get to this point? It is mainly because the fundamentals of
the global oil market are extremely tightly balanced.
As mentioned earlier, world demand grew at 2.7 million
barrels a day last year. We see it growing at more than 2
million barrels a day this year and next. With this kind of
demand growth, it is stretching the ability to produce, store,
refine, and transport oil to the limit.
So there are no longer any cushions in the market to
provide pressure relief valves when there are unexpected
changes in either supply or demand. So small changes can lead
to large price spikes. We think our short-term outlook reflects
that fact. We are now projecting, on average, $49 crude this
year, and not declining much next year.
Over the longer term, we see very strong growth in United
States and global energy demand. In the United States, we have
about a third increase in our demand for energy projected to
2025, and domestic supplies will not keep up with demand.
Therefore, our net import position will grow from 28
percent of net imports of energy. This 28 percent will grow to
38 percent in 2025. That includes both oil and natural gas.
We are using energy more efficiently. We are getting more
energy per unit of GDP. But clearly, we can do better in that,
and we expect that as we look out at the next 20 years, energy
efficiency will continue and technology will improve. But
clearly, there is room for doing even more.
One of the issues with respect to changing our demand is
that an increasing share of our energy demand is in the
transportation sector, which is much less flexible than the
industrial sector or even the electric power sector.
That is why, when one looks at the outlook for petroleum
over the next 20 years, our import dependency will grow even
more dramatically the total energy, going from 57 percent net
import dependency in 2003 to almost 70 percent by 2025. That is
because our demand for oil is projected to grow by 8 million
barrels a day, from about 20\1/2\ million today to about 28
million barrels a day.
Our domestic supply has been and will continue to be at a
flat to declining path. Therefore, imports, and particularly
those from the Persian Gulf countries, will rise dramatically.
Now this outlook assumes that the high prices of oil that we
are experiencing today and have been over the last year will
actually come down to $25 to $30 in real terms.
Nevertheless, we recognize the great uncertainty with that
referenced assumption. We have done several cases where we have
assumed higher prices than those that are in our long-term
outlook, which was published in February. As I mentioned,
transportation will account for about 70 percent of that
petroleum demand over the next 20 years.
The other area within our energy economy that reflects this
increasing dependence on imports is natural gas. We expect the
demand for natural gas to grow from about 22 trillion cubic
feet last year to about 31 trillion cubic feet in 2025.
Once again, domestic supply will not grow nearly enough to
meet that kind of a demand growth. So we will be relying on
imports of gas, not only from Canada, which is our main
supplier today, but increasingly on liquified natural gas
[LNG], which will be coming from as far afield as Katar and
Russia, as well as our traditional suppliers of Algeria,
Trinidad, and Tobago.
So natural gas imports, as a share of total supply, will go
from 15 percent to about 28 percent. So, again, that same
pattern that we have seen in oil will be replicated in natural
gas, if our projections are accurate.
On the global market, the most rapid growth will be for
developing countries. As has already been mentioned, China and
India are growing very strongly. Last year, China grew at
almost 20 percent, in terms of its oil demand. India is
growing, as well.
We think those countries will lead to growth in global
energy demand over the next 20 years; not only for oil, but for
natural gas, as they attempt to use more gas in electric power
generation. Of course, coal will still dominate the energy
economies of China and India, because they have indigenous
supplies, and they use it to generate much of their
electricity.
When one looks at this kind of demand for oil that we are
projecting, 120 million barrels a day in our global outlook, we
are often asked, will resources be sufficient to meet that kind
of demand? I think the answer is, yes, the resources are there;
but it represents a significant investment challenge for not
only international oil companies, but national oil companies;
and whether or not the proper investment incentives and the
governance would be there from these countries, as I have I
mentioned.
Clearly, we do recognize that prices of both oil and
natural gas have been volatile in recent years. We expect that
volatility to continue, because of the tightness in the
fundamentals of supply and demand.
Although we do not project volatility in our models,
clearly, what we do project is the tightness in the
infrastructure to produce and refine oil, and to produce and
consume natural gas. Given that tightness, clearly, the
expectations are that the volatility will be with us.
In conclusion, the economic growth that we have seen will
lead to even higher energy demand. Fossil fuels are expected to
remain the dominant sources of energy. Therefore, the United
States, China, and India will become increasingly dependent on
imports of both oil and natural gas.
So the questions that you have asked, I think, are the
right ones. Clearly, as your hearings proceed, we would be
pleased to provide any additional information that you may find
useful. Mr. Chairman and members of the committee, thank you
very much.
[The prepared statement of Mr. Caruso follows:]

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Mr. Issa. Thank you, Mr. Caruso; we have been joined by Mr.
Brian Higgins of New York and the ranking member, Diane Watson
of California. Diane, do you want to do an opening statement
now, or do the final testimony and then do your opening
statement and questions?
Ms. Watson. Well, it is going to be short, so I will just
do it now. Thank you so much, Mr. Chairman. I am sorry I was
late. I was taking care of a little business on the floor.
Mr. Issa. And very well, I am sure.
Ms. Watson. I appreciate your help. This is the beginning
of several days of hearings on the energy policy, and I am sure
that was stated by our Chair.
Energy is almost like food and water in the American
lifestyle. It keeps us warm in the winter. It gets us to and
from work. It cooks our meals and it lights our way. We use it
to record the memories of our children, to play our music, and
to entertain us. In short, we have a desperate need for it.
It has become one of those commodities that we almost take
for granted. Yet, we should not take it for granted, for many
reasons. The generation and the delivery of energy is a serious
challenge; a challenge of engineering, a challenge of planning,
and even a challenge that evokes the most serious aspects of
our foreign policy.
Energy costs represent a large and growing household
expense to all Americans, and energy is a key factor in the
environmental challenges we face in modern America. These
issues are important to the American people, and when they
stare at the gas pump, amazed at the price of gasoline, that
hits people in their pocketbooks.
When their lights go out, because of deferred maintenance
or even market abuses, our constituents are deeply and
rightfully unhappy. When they learn that the money that they
send overseas for energy imports is popping up in some despotic
regimes, believe me, Americans care. When they learn that the
sea level is rising and the water supplies are threatened,
people then become very, very worried.
This was really brought home to the people in the State of
California a few years ago, when big energy companies were
allowed to run amuck. By now, many of you have heard the tape
recordings of the Enron power traders laughing at how they were
taking advantage of the elderly in California.
Well, it is not just Enron, and it was not just the
elderly. We still have not put all the pieces back together,
and California may never be compensated for the billions of
dollars in overcharges that we suffered. But we must try to
make things right and make sure that it never happens again.
These issues are important to the American people. They are
important to Californians. They expect us to find solutions to
them, and that is our job. I am glad that Chairman Issa has
convened a hearing to help us do just that.
In the past, we have seen an ideological approach to energy
that has resulted in a stalemate. It produced a bill that did
not address our Nation's challenges, but just gave away new and
larger subsidies to the big energy companies.
So in opposing this approach, and fortunately, the Senate
refused to pass it, I hope we can together find new approaches.
In this Congress, we have a chance to start again. We can build
a bi-partisan consensus on energy policy, and steer our country
through the challenges that we all face. We know it can be
done.
The National Commission on Energy Policy brought together
business, labor, Republicans, Democrats, and developed an
approach that they agreed could work. We can do the same, and I
truly hope we decide to do so. Again, Mr. Chairman, thank you
for this opportunity.
[The prepared statement of Hon. Diane E. Watson follows:]

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Mr. Issa. Thank you, Ms. Watson.
Brian, is it all right to have yours just put in the
record? OK, it will be placed in the record, and I appreciate
that.
Dr. Portney, I appreciate your patience. We look forward to
hearing your testimony, also. Again, your full statement will
be put in the record. So summarize as best as you would like
to.

STATEMENT OF PAUL PORTNEY, PRESIDENT, RESOURCES FOR THE FUTURE

Mr. Portney. Terrific, I will try to be as admirably brief
as my co-panelists have been here. They have set a real example
for me.
First of all, I appreciate you and your fellow subcommittee
members having me here today. I want to commend you all for
holding hearings sort of on more general questions of whether
Congress is asking the right questions and focused on the right
issues in the energy debate.
Most of the time, in my time in Washington, when I have
testified, it is over a particular piece of legislation. It is
not often when I have had the opportunity to come up and sort
of speak to a bigger picture issue. I commend you for asking a
more generic set of questions here than views on a particular
piece of legislation.
I want to make clear, as I did in my prepared testimony,
that my comments today are my own and should not be construed
as the views of Resources for Future. I will say also what an
honor it is to testify on such a distinguished panel with Jim
Wells and Guy Caruso.
You have asked all of us a pretty big set of questions
here. Is Congress focused on the right issues? Is the executive
branch taking the right set of actions?
There are a lot of ways one could attack this; probably as
many ways as there are energy forms. I have chosen to focus on
three issues, and I will confine my remarks today to the three
issues that I have talked about, the first of which has to do
with U.S. oil consumption. Both Jim and Guy Caruso have spoken
to this.
Let me be even more sparing than they have been in terms of
statistics. But I want to remind you that imports of oil in the
United States now account for nearly 60 percent of total
consumption.
We are sending $600 million each day to other countries in
oil payments. That runs to about $200 billion a year in an
annual total; 20 percent of which goes directly to the Persian
Gulf, where at least some governments bear the United States
ill will.
That $200 billion is a lot of money. You all remember
former Senator Dirkson saying, ``A billion here, a billion
there; pretty soon you are talking about real money.'' Well,
this is $10 billion here, $10 billion there. That is $200
billion total, and that is a significant outflow of dollars
from the United States.
That $200 billion per year, at an annual rate, is about a
third of the trade deficit; and a trade deficit of the size
that we have now, of course, puts downward pressure on the
dollar. It makes imports more expensive, and it could force
interest rates up dramatically, if the foreign governments that
have all of these dollars decide not to reinvest them in U.S.
securities. So it is a significant economic problem.
I am not given to alarmist statements related to energy and
the environment, but this is just simply a problem that we have
to deal with. There is no question about that.
In addition to the amount of money that is flowing out of
the United States because of oil imports, our overall level of
oil consumption makes us particularly susceptible to oil price
shocks. As I note in my prepared remarks, each of the last four
recessions have been preceded by a run-up in oil prices.
While it would be too simplistic to say that was the only
cause of the recession, there is no question about the fact
that run-ups in oil prices act as taxes, slow down the rate of
economic activity, and do not make recessions any better. So we
need to pay attention to our oil consumption for that reason.
Another reason we need to pay attention to oil consumption
is that every gallon of gasoline burned releases carbon dioxide
into the atmosphere. Again, I will emphasize that I do not
consider myself a Chicken Little on environmental issues, but
this climate change problem is something that I think we have
to continue to pay attention to.
Part of dealing with this problem lies in the electric
utility sector and in the industrial sector. But part of it has
to do with household consumption of gasoline.
There are only two ways that I know of to reduce the amount
of gasoline that we are consuming. One is through better fuel
efficiency in automobiles, as a result of Government mandates,
such as the CAFE program.
I have testified before Congress on a number of occasions
about CAFE, and I have said each time, and I will say again,
that this is one way that you can improve automotive fuel
economy.
I do not think it is the best way. I think a better way to
do it is by increasing the Federal excise tax on gasoline or
through a carbon tax. But I understand that this is not the
most politically popular way to do this. Either through CAFE or
through increases in the price of gasoline, that creates an
incentive for people to buy smaller cars and pay more attention
to how much they drive the cars they have.
Through some combination of these things, or one or the
other, we just simply have to do something about this problem.
I hope that you and your colleagues here will begin to take
this even more seriously than you have in the past.
The second issue to which I want to speak has to do with
natural gas. As Guy Caruso mentioned, currently, we are
importing about 15 percent of it. But it will not be long
before that is 20 percent and then 25 percent, and possibly
even 30 percent.
Obviously, prices have risen because of the imbalance
between supply and demand. Congress has taken steps to
facilitate the construction of a pipeline that would bring
natural gas from Alaska to the United States, although it still
remains to be seen when or whether that pipeline will be built.
But I think one of the important things that Congress needs
to pay attention to is the possibility that some number of
years down the line, and this is something that both Jim and
Guy might want to speak to, we will see a cartel of countries
that produce natural gas that will not look unlike the OPEC
cartel with which we deal in the petroleum market now.
I do not know if they will be an organization of natural
gas exporting countries or not. But the potential is certainly
there, and as Guy has indicated, we will begin to depend more
and more for our natural gas supplies on imports of liquids. If
one looks at where our natural gas supplies are located around
the world, the pattern looks suspiciously familiar to where
petroleum is located.
If we are concerned about the sources of the petroleum that
we import, we ought to be concerned somewhere down the line
that we will be uncomfortably dependent on imports of natural
gas, which plays a critical role in chemical and other
industrial production, as well a very useful role in the United
States in home heating and for other purposes.
Congress ought to begin to think now about what we can do
to increase supplies in the United States and engage in
conservation measures that would dampen demand, so that we are
not facing two worldwide energy cartels that have the potential
to squeeze us.
The third issue I will speak to is something that I think
Congress probably pays some attention to. Frankly, it is much
less sexy than the problems associated with petroleum and
natural gas. It actually is an organizational issue.
When I talk to people, either in Washington or outside of
Washington, about energy policy, people who follow it closely,
they say, well, we cannot understand why the Department of
Energy does not do more to solve the country's energy problems.
What I try to point out to them is that the Department of
Energy has precious few levers to influence the types of fuels
that we use, the conditions under which these fuels are used,
etc.
If one looks at the budget of the Department of Energy, it
is about $23 billion or $24 billion. By my calculations, about
$20 billion of that, almost the whole enchilada so to speak,
goes to weapons productions, waste clean-up associated with
previous weapons productions, or basic science, a lot of which
does not have very much to do with energy at all.
Who is it that does influence energy policy in the United
States? Well, it is the Nuclear Regulatory Commission, the
Federal Energy Regulatory Commission, the Minerals Management
Service, the National Highway Traffic Safety Administration
that writes fuel economy standards for light duty trucks, which
comprise more than half of the new vehicles sold. More than any
other agency, of course, the Environmental Protection Agency
which, through standards that pertain to power plants and
refineries and fuel requirements, really is the agency that
drives energy policy in the United States.
That is fine, but we ought to pay attention to the fact
that the laws that empower the EPA, that have given us air
quality benefits and water quality benefits that are of no
doubt great importance, do not direct the Environmental
Protection Agency in issuing these standards to also pay
attention to the impacts of these regulations on supplies of
fuels and regional balances or imbalances.
So at the very least, I think we need stronger coordination
within the executive branch of the activities of these five
agencies and, indeed, other Federal agencies, which have a huge
impact on the energy that we use and the way we use it.
The final thing I will say is, by way of mentioning some
odds and ends here, from my standpoint, an ideal energy policy
would be one that would eliminate the subsidies to all energy
forms, whether nuclear, renewable, fossil fuels, etc.
That would then also internalize all of the environmental
externalities, the adverse effects associated with pollution,
not only from fossil fuels, but from nuclear, because you have
to deal with spent waste and with renewables, because wind
power has some adverse effects on wildlife and visual dis-
amenities, etc. That would completely level the playing field
and we could take it from there.
Now I was born at night, but not last night. So I know the
chances of that happening are fairly slim. But in a sense, that
would be an ideal energy policy, from my standpoint.
The other thing I would say is that because you and
Congress are struggling, not only with energy problems, but
also with a budget deficit and a trade deficit, an approach
like that would help on both counts, a carbon tax or something
like that, and would begin to produce on the order of, say, $75
billion a year in new revenues by the year 2020, depending on
the level at which it was set.
That would not only create incentives to shift to cleaner
fuels in the United States, but it would reduce our dependence
on imported natural gas and on petroleum. It would create an
incentive to move toward the hydrogen economy that President
Bush, I think, has wisely committed some billions of dollars
toward.
So as you think about the energy policy, you also ought to
be thinking about solutions to energy problems that might also
help us with the trade deficit and with the budget deficit.
Because I think there are solutions out there like that. With
that, I will stop, and thank you again for having me.
[The prepared statement of Mr. Portney follows:]

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Mr. Issa. Thank you, Doctor; we have also now been joined
by the gentleman from Georgia, Mr. Westmoreland. If you would
put your opening statement into the record, and then you can
summarize your opening statement and your questions as we go
through. With that, I would like to recognize the ranking
member for the first round of questions.
Ms. Watson. I want to thank all the panelists. I think you
have described the issue quite well. I keep going back in my
mind to climate change. We saw the effects of it in Los
Angeles, where we had a record rainfall. We almost broke the
record, 33 inches. That is more than we get in 6 years.
Our electricity went off. We had floods. We had potholes,
and so on. It all goes back to energy. So I want to ask the
three of you, and I think Dr. Portney has already touched on
some of this. But what do you think we can do about taking
climate change into consideration and its relativity to energy
sources, and our need for energy in the future?
I understand that now we are competing with the Chinese for
oil. Everyone is driving a car. When I first went there, they
were on bicycles or walking. So how are you relating the
climate change to the sources of fuel, and what can we do? I
know that is a big question, but try your best.
Mr. Caruso. Well, the one thing I can say about the
greenhouse gas emissions is, if you look out over the 20 year
forecast that I have presented the highlights of this
afternoon, a significant amount of the CO<INF>2</INF> emissions
over the next 20 years will be coming from the developing Asian
countries of China, India and elsewhere.
So because so much of their electricity is generated by
coal, whatever we choose to do on an international basis,
because I do not think we can look at this just from our own
domestic perspective, we do need to bring in a broader array of
countries to deal with this.
So I think that is the thing that just jumps out at you,
when you look at the projections in our model; that there is so
much growth in greenhouse gas emissions coming from developing
Asian countries, that we need to do this on as broad a
collaborative basis as possible.
Mr. Wells. I think I would start and respond domestically
to pick up a little bit on what Paul was saying. We, as an
audit agency, have an opportunity to look at the actions that
are being taken by Federal agencies. For instance, I will go to
EPA. We have ongoing work and PASS work looking at, for
instance, mercury emissions from the power plants.
What we are finding when we look at and ask questions about
how EPA is designing and coming up with their rulemaking, we
challenge some of their methodologies and some of their
economic analysis that are being used as being missing items.
One of the things that we tend to notice, it is not only in
mercury emissions, but we have noticed it in the gasoline
marketplace, where EPA has a responsibility to approve and
grant the permission for localities to use special fuels.
What we are seeing is that the total analysis being done
are missing things that involve energy impacts. So our
recommendation to much of the Federal Government would be to,
when you make these rules, you need to consider, from a climate
change standpoint, all the factors and the consequences that
are derived from those factors. For gasoline, they were missing
factors in terms of the impact to the energy market, as well as
mercury emissions.
Ms. Watson. Thank you; Dr. Portney.
Mr. Portney. Thank you very much; I guess, in my view,
there are three pieces to dealing with this climate change
problem. One is, as Guy Caruso said, I think we need to re-
negotiate an international agreement that would eventually at
least begin to bring the developing countries in. Because as he
pointed out, it will not be too long before CO<INF>2</INF>
emissions from the developing world account for more than half
of the total, between developed countries and developing
countries.
I will also say though that I do think it makes sense for
the United States and the other developed countries to go first
in beginning to reduce greenhouse gas emissions, since the
stock of carbon dioxide in the atmosphere is mostly ours. I do
not think it is inappropriate that we take the first steps.
In terms of how we go about reducing greenhouse gas
emissions, I think there are two parts to this puzzle. One is
to invest in new technologies. The hydrogen initiative is one
part of this, but I think we need to invest more in energy
efficiency and in renewables. Hydrogen, as I say, is an
important component to that.
The third leg of the stool is the one that is politically
more unpalatable. But the way you get people to consume less
carbon-intensive fuels is to increase the price. That means
electricity that derives from coal. It means higher prices for
petroleum and higher prices for natural gas. I think we have to
do that very, very gradually, and that will not be politically
popular. I understand that.
But if we do that in such a way, through a carbon tax, for
instance, that is at least spending off revenues and reducing
the deficit and dampening the trade deficit, then I think
people will understand that we are at least getting something
else for that sacrifice, in addition to investing in a better
environment.
Ms. Watson. If I have another minute, Mr. Chairman, global
warming is something that has been looked at most often. I
think that we have not really put enough research into looking
at the impact.
We can see the net results, and we have to really change
them. You can comment on this statement I am making, or not. I
think what we really have to do is do much more in depth
research as to all the factors causing this and the results,
and we have to chance the demand, and I think you alluded to
it.
That means educating our people, starting in school, on how
to conserve, and looking for alternative technologies and so
on. Those that are politically unpopular are the ones that we
really need to get on top of.
I am so sure that our Chair is going to look into it and
have our committee hold additional hearings. You have already
started. I want to commend you for that, because I see a really
serious problem for the United States. But you did mention that
we needed to look globally and have an alliance as we tackle
the climate changes. I think that is the only way that our
hearings are going to be meaningful, if we end up doing that.
So if you would like to comment, fine; but I wanted to make
that statement, Mr. Chair.
Mr. Issa. Well, thank you, and in keeping with our bi-
partisan efforts that you and I, as Californians, are committed
to, we will be looking at those issues to the full extent of
the committee's jurisdiction.
I do very much believe that your points are valid; that we
have to take where we have come from to where we are going, and
do it to that next step. To that extent, I am not going to ask
a round of questions, yet. But I just want to put a little
point into the record, which I think sets the principle of
where we have been and where we are, and Ms. Watson says it
very well, where we need to go.
Since 1970, the U.S. aggregate emissions of the six
pollutants recognized in the Clean Air Act has been cut by 48
percent. At the same time, the U.S. GDP increased by 164
percent.
Energy consumption increased by only 42 percent, meaning
more money per BTU, so to speak. We have increased fuel
consumption, as I said, by 42 percent. But vehicular travel has
increased by 155 percent. If you think the Chinese are driving;
boy, are we driving.
It is exactly that trend, that we have to do the good part
of it; cut emissions by another 48 percent. But we also have to
do a much better job of using our fuel per GDP dollar more
wisely. With your indulgence, to my ranking member, I now call
on Vice Chair Westmoreland, please, for 5 minutes.
Mr. Westmoreland. Thank you, Mr. Chairman, and I want to
thank you for having these hearings. When I was at home last
week and had a couple of Social Security meetings, all that
people wanted to talk about was the price of gasoline. So I
think these are very timely hearings.
Let me start out by asking you, I know that there are
different formulas of gasoline that burn in different parts of
the country, due to the Clean Air Act. Do any of you know how
many types of reformulated gas are being used across the
country today? Are they just used during certain times of the
year, in certain parts of the country? What is the total number
of reformulated fuels that we actually have?
Mr. Wells. Congressman, the Government Accountability
Office has some ongoing work looking at the status of
reformulated fuels in use in the country. We hope to have that
worked out in several months. But the numbers are in the
ballpark of starting at a number around a dozen fuels that are
special fuels.
If you were to look at the seasonality of the fuels, you
get into the neighborhood of a 30 range. I am talking about
winter gasoline, summer gasoline. If you were to talk in terms
of the multiple grades of octane, you are over 100.
The upcoming work that GAO will be publishing will address
how difficult it has been for the industry to deal with these
special formulations. It is not that the special formulations
are bad. I mean, they are being driven by the Clean Air Act
rules and requirements. But they do have price consequences,
and they have cost and benefits, and that is in the ballpark
range of what we are seeing in the gasoline marketplace.
Mr. Westmoreland. Could I have a followup question, please?
Mr. Issa. Of course.
Mr. Westmoreland. Has there been a cost benefit analysis of
what it costs us to do this reformulating of gasoline, compared
to how clean it is actually making our air; and what is the end
gain on clean air? I mean, I think if I asked in this room who
all wants to have clean air, I think we would all raise our
hands.
But I guess my question to the panel is, how clean is
clean? Where are we trying to go with this, and how much
further do you think that we are from being there? What price
is it going to cost us, and is it going to cause us to have to
develop more formulas of gas?
Mr. Wells. The quality of the type of studies you are
asking, do they exist, are hard to find, particularly if you
want to try to do a cost/benefit and if you try to include
health impacts.
We hope to have a compilation of everything that exists. I
think they will fall short of the answer that the American
public is probably asking for. Perhaps some of the other
panelists are aware of some of these studies.
Mr. Portney. If I could, very briefly, you have asked, I
think, a very interesting and important question. In other
words, I will rephrase it as, how many different recipes for
gasoline are there?
The reason we began to get a proliferation of recipes that
makes sense, is that we do not want to have one size fits all.
In others words, we needed a type of gasoline that was low in
certain additives to deal with the Denver problem. So you do
not necessarily want to make everybody in the country use the
same type of gasoline because you have a problem in one city.
But I do think that what has happened is, we have almost
gotten to the point where we have now designer blends for
almost every part of the country. The difficulty that it
creates is that if a refinery that produces one of those
designer blends goes down, you cannot easily ship gasoline from
an adjacent city or State.
So while the basic motive of trying to tailor the gasoline
to the local conditions originally, I think, made sense, I
think we have probably gotten to a point now where it probably
makes sense, from an overall national standpoint, to have fewer
blends, so that if we have shortages in one area, we can ship
gasoline from California or Nevada or something, and not be in
a position where they go, well, I am sorry, that is not the
recipe we use here. It think that is what you are driving at,
and I think we have a problem on that count now.
Mr. Westmoreland. I have just one further question, and
this will be my last one. I know that in some situations in
Georgia, we had some pipeline issues of getting a certain
amount of gasoline in the pipeline. They were actually having
to lower it into tankers.
We were just putting a lot more trucks on the road than was
necessary. If we had only been using one single formulation of
gas, you know, trying to save on the one hand was costing us
dearly on the other hand.
Mr. Caruso. I have a couple comments. I agree with both of
my colleagues. Clearly, the infrastructure problem that we have
in this country, particularly on oil, is related to the point
you have made. That is, it has increased the inflexibility to
deal with unexpected changes in supply or demand, which is
exactly the point you are making about the pipeline.
But one thing to remember is, Georgia, for example, has the
lowest priced gasoline in the country and California has the
highest. Part of it is because of the different emission
standards. Specifications in California were compared with
Georgia. So that is another very sensitive issue. I agree with
Paul, we need to do something to improve the flexibility to
deal with unexpected changes. By there would be, of course, a
cost to it.
Mr. Westmoreland. Well, is there an answer to it? Do you
all have an answer of what that might be, that this committee
could look at, so we could start working toward something?
Mr. Wells. I would suggest that there may be an issue to
look at the proliferation of these specials fuels; and where in
the Federal Government, and perhaps at the Environmental
Protection level, that are granting approval for these special
fuels, what type of approval process they use; what criteria do
they use; and are they, in fact, factoring in the various
infrastructure needs and consequences of approving these
special fuels?
I mentioned 12, 30, 100 different fuels. If we continue to
allow approvals for these multiple fuels, we are talking about
multiplying the price impact and the infrastructure
consequences of trying to deliver those fuels.
So one needs to look at, you know, are we perhaps better
off regionalizing some of these special blends, as opposed to
allowing every city in the country to design their own fuel?
The best example I can give is Kansas City. Right down the
middle, you have a Missouri blend and you have a Kansas blend,
and it is the same city. A truck has to roll through the city
to the other side of the city to deliver. That is an
inefficient way to deliver gasoline products.
Mr. Issa. Thank you; Mr. Higgins, do you have any
questions?
Mr. Higgins. Thank you, I am new to the committee and new
to Congress. But obviously, I have a strong interest in energy
issues, particularly coming from New York State.
One of the problems I think we have in New York State is
particularly high energy costs, which undermines our economic
development efforts, particularly in a globalized economy.
My understanding was that deregulation of energy was to
provide more competition, which would result in a cost-cutting
stimulus. But in New York State, our problem is, I believe, a
situation where our demand is approximately 31,000 megawatts a
day and the supply is about 35,000 megawatts on any given day.
I think this creates a situation where there is not enough
supply to create the cost cutting stimulus that should come
from competition. As you may know, the price for electricity
each day is determined by this reverse auction type of scheme,
which is administered by the independent system operator.
So in trying to address the Nation's energy demand moving
forward, and particularly with respect to New York State, can
you offer any insight as to the particular problems in New York
State, beyond which I have described, relative to creating the
cost cutting influence that should come from competition?
Ms. Wells. Let me start. The decision you are talking about
was the decision the country made to restructure the
electricity industry, and to restructure it in the wholesale
marketplace to achieve benefits that hopefully would be derived
from lower prices from the electricity, by bringing in private
marketeer to deliver energy and take energy out of the realm of
being delivered locally, but across the Nation.
The situation we are now in is, unfortunately, we are sort
of halfway into it. There is sort of a hybrid that exists. Many
of the States went for restructuring and worked, in terms of
starting that process. Some of the States chose not to start
with restructuring, and have continued to deliver electricity
the old way.
So I think FERC has its hands full right now, trying to
oversee a marketplace that we are sort of in the middle of this
design to go for restructuring electricity. So the verdict is
still out, in terms of the benefits and costs and what can be
derived from a true restructured marketplace.
I think this gets back to what we are talking about, in
terms of where we need to be in the future, in terms of a
partnership.
Truly, it is going to take more than FERC. It is going to
take more than the country and the Federal Government saying,
we are going to restructure, because we have to bring in the
local communities and the individual States, and we have to
figure out a way to make delivery of electricity in the best
efficient possible way.
We are just not there, yet. I think the country is
struggling a little bit in the electricity delivery
marketplace.
Mr. Higgins. Could I ask one more question, then? This is
more localized to the western New York area. There are two
hydro-electric plants in New York State, which produce about 10
percent of the State's electricity supply.
With the Federal Energy Regulatory Commission, I am
particularly concerned about the Niagara Power Project in
western New York. It generates about 2.4 million kilowatts of
power.
The Federal Energy Regulatory Commission issued to the New
York Power Authority a license to own and operate that plant
for 50 years in the year 1957. It was part of the Niagara
Redevelopment Act, which was an act of Congress.
That license is set to expire to in 2007. That resource,
hydro-electricity, could have a profound impact on the economy
of western New York, if the power was taken from the New York
Power Authority and put into job-creating businesses in that
area.
I am just wondering, what specifically do you understand
the role of the Federal Energy Regulatory Commission to be,
relative to the mandating of where that power is allocated?
Mr. Wells. I am not familiar with that at all.
Mr. Higgins. OK, thanks.
Ms. Wells. I am sorry.
Mr. Higgins. That is not a problem.
Mr. Issa. OK, we have time for a second round; Mr.
Westmoreland.
Mr. Westmoreland. I am going to ask all three of these at
one time. Getting back to the reformulated gas, what percentage
of the gas price would you say is caused by the different
formulas, No. 1; and what effect on price do you think we could
expect if we came to a conclusion to regionalize or cut down on
the otique gases.
Mr. Wells. Otique.
Mr. Westmoreland. Yes, I mean, in the supply and demand
part of it, is there more demand for some of these different
types of gases in different cities than it is capable for these
refineries to try to refine and still keep the supply going to
other parts that they are responsible for supplying the fuel
to?
Mr. Issa. If I could help perhaps, with the gentleman's
approval, with the refinery question a little bit more? I might
suggest that you simply look at California, where every air
quality board is allowed to independently and has independently
made decisions leading to the greatest single number of
boutiques of similar cities. It is just a suggestion to look at
what I believe is described as the worst case in any one State.
Mr. Westmoreland. Right.
Mr. Wells. Mr. Congressman, I have some constraints in that
the information that is available to us, as we have ongoing
study, is not published, yet. It is not final. I can tell you
that there is a price differential that is being added because
of these blends.
Our GAO report, when released, will talk to a range. That
range will be from single digit pennies to double digit pennies
per gallon. There is a consequence of doing special blends; and
yes, there are refinery capacity issues in terms of price
impact, in terms of the quantity that is being requested versus
the quantity that can be delivered on a consistent basis on any
given day.
Therefore, we talk to the consumer and give an explanation
of the price volatility and why the pump is jumping 5 cents up
1 day, 10 cents up the next day, 5 cents down the next day. It
does cause price volatility. It is a problem that someone is
going to need to take a look at, in terms of, there are some
efficiencies.
You know, I think that is the direction that the committee
and the Congress and the people that are regulating boutique
fuels need to be aware of when they approve future boutique
fuels.
Mr. Westmoreland. How long have you been working on this
report?
Mr. Wells. The actual audit work is completed. The report
draft is being put together now. We are probably 30 days away
from it being publicly released. That work belongs to the
clients in the Congress that asked for that work. So that is
why I am a little cagey with the actual numbers.
Mr. Issa. Is that the Energy and Commerce Committee?
Mr. Wells. I believe it is over on the Senate side that we
are doing that work.
Mr. Westmoreland. But how long have you actually been
working on this report?
Mr. Wells. We have about 4 months worth of audit work done
in that area.
Mr. Westmoreland. OK, but this has been going on for a lot
longer than 4 months.
Mr. Wells. Oh, absolutely.
Mr. Westmoreland. I mean, why did we just decide all of a
sudden that it was time to do a report on it?
Mr. Wells. We work for the Congress, and the client came to
us and asked for an investigation audit of this issue, and we
agreed to accept that study. We are just about wrapping up that
study and hope to have it published within the next 30 to 45
days.
Mr. Westmoreland. Thank you.
Mr. Issa. Thank you, and I will do some additional
questions, and then if you have any more, that would be just
great.
Regarding the role of coal, here in the Congress, we speak
in flowery terms like, clean coal. Cleaning up coal does not
sound as good as clean coal. So I think we speak in less exact
terms than the reality that it is a dirty fuel, that we are
making ever cleaner. But at best, coal is only going to be as
clean as, in a perfect world, natural gas, I suppose, is today.
Having said that, and with the recognition that as we burn
fossil fuels, ultimately, we have a carbon monoxide and carbon
dioxide component coming out of any of our processes for
burning fossil fuels.
I would leave this to each of you, but I think particularly
for Mr. Caruso, where do you see nuclear/other zero emission
fuels, you know, like solar, wind, and we speak of those a lot,
but they are relatively small parts of the equation.
But where do you see nuclear, particularly in light of the
prediction that there will not be a new nuclear facility coming
on line, at least until 2025? By that time, every single
nuclear power plant on line today, if it is still on line, will
be on multiple extensions. So how would you view nuclear, in
the component of those fuels that you mentioned that we had to
do all of?
Mr. Caruso. Yes, nuclear is about 20 percent of our
electricity generation, as we speak. We, in our long-term
outlook, do not expect, or the model does not project, any new
nuclear power plants being added to the fleet. But at the same
time, we assume all existing plants are relicensed and continue
operating through the 2025 timeframe.
There will be some improvements in efficiency and
upgrading, so that the actual amount of electricity generated
by nuclear power would increase. It will lose market share
under our projections, mainly to natural gas. The coal, we
expect, would stay about the same, 50 or 51 percent.
The reason we are projecting no new nuclear power plants is
that the capital cost of building a new nuclear power plant is
higher than either combined cycled natural gas plants or
pulverized coal. So when the model searches out where the next
new electric power plant will be built and what fuel it will
use, it chooses the less costly, in terms of capital costs,
plant. That is how we come up with this.
Our best estimate of what it would take to build a new
nuclear power plant, since we have not built one from scratch
for more than 30 years, is about $1,900 per kilowatt. Now coal
and natural gas can be built much cheaper than that. But, of
course, there is a fuel component to it. But still, both coal
and natural gas, at this time, the existing technologies are
more efficient.
Now we have been criticized by the Nuclear Energy Institute
and nuclear vendors that our cost estimates are too high and
that they can do better.
So what we have done is run two other cases in this year's
outlook. One is using a $1,450 capital cost; and the lower one
is what you would call the advanced technology case. Then we
have taken the vendor cost estimates from Westinghouse and
others, which are around $1,100.
If you use those assumptions, $1,450 or $1,100, you do get
some new nuclear power plants built in this country,
particularly in the period between 2015 and 2025. At $1,100,
you get a substantial amount of new nuclear power plants. So
this is a matter of the economics and technology, in our view.
Mr. Issa. Let me have one followup question here. It is one
that I do not expect you to be able to easily answer today; but
if you could followup, if that can be done without specific
authorization.
If one were to take nuclear as a category, and the U.S.
Government were to absorb all extraordinary liability questions
and all extraordinary lawsuit questions in the citing;
basically, we defend all the claims that come, every time you
want to build a nuclear plant, and we take the extraordinary
risk of insurance completely for zero cost to the vendor,
leaving the remainder of the costs there, what would be the per
kilowatt, from the industry, that they believe they would
deliver for?
I would like it, if possible, in two bases; one, with fuel
prices in the estimate, and then based on the fact that next
generation nuclear can literally burn weapons, plutonium, which
we have an excess of that we have been trying to get rid of,
literally 10,000 years worth of fuel that, at some point, we
are not going to want to keep sitting post-silo, and then at a
zero cost.
If you could give us your best estimates of that, so that
at least when we are having these discussions, and I agree with
you, Mr. Caruso, they do not pencil out today, but taking out
particularly those extraordinary costs that come when someone
says, I want to build a nuclear versus alternate, where we
would end up?
Then, as somebody who wants to see, if you will, the swords
turned into plow shears and the burning of plutonium, once and
for all, and getting rid of as much of the weapons stockpiles
as we can, that analysis, both of those are personally
important to me, and I would like to know the cost benefit on
them.
With that, I do not want to monopolize the questions. Are
there any last rounds of questions?
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Mr. Westmoreland. I do have a closing statement.
Mr. Issa. OK, then with your indulgence, we will have the
closing statement, please.
Mr. Westmoreland. Well, I would just like to thank you
again, Mr. Chairman, for doing this. I know I am a freshman,
but I understand in the last two Congresses, there has been two
or three attempts to get an energy bill passed.
I think, from all the testimony today, it is quite evident
that we need an energy bill. It is something that we need to
have as a road map to where we have to go with our energy
policy, and also be able to put some of these guidelines in
that we have talked about today.
So I hope that this committee will encourage the Energy
Committee to pass that along. Because I think that is something
that is very critical right now; not only to our economy, but
to our national security, that we have a good energy policy in
tact and on the laws of this land. So that is all I really had
to say, Mr. Chairman; thank you.
Mr. Issa. With that, I would like to thank our panel for
their testimony and obviously for your candid answers. I would
also like to thank the majority and minority staff, because
without them, this would not have happened. They have done a
great deal of work here for all of us.
Without objection, we will hold open the record for 2 weeks
from this date, so that anyone can make submissions, including
from the witnesses and from the members of the committee. If
that will not be sufficient for any questions, please let my
staff know and we will extend that date. With that, I thank you
once again, and this hearing is adjourned.
[Whereupon, at 3:50 p.m., the subcommittee was adjourned.]

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