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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? | |
| [The information referred to follows:] | |
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| [GRAPHIC] [TIFF OMITTED] T0471.087 | |
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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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