I would like to speak today about the problem my state is facing with respect to the tightening supply and resulting high costs of natural gas.

As Governor of a Northeastern state, I understand the importance of plentiful, accessible energy supplies. New England has no natural resources of fossil fuel. As a result, all of our energy supply must come from some other region or nation. Meanwhile, our cold winters, elderly population, and highly concentrated urban centers produce a large and growing demand for energy resources.

Before the people of Rhode Island elected me Governor, I spent almost two decades working in the private manufacturing sector. As CEO of Cookson America, I managed the energy needs of a thriving manufacturing business. That experience taught me that our needs will only increase in the coming years. As Governor of a New England state and a former CEO, I have a good understanding both of the energy needs of the Northeast region generally, and the particular demands that a competitive manufacturing base puts on a reliable, cost-efficient energy supply.

Federal and state policy has encouraged the use of natural gas, because it’s clean-burning and there is an abundance of known supply. Consequently, it has become the workhorse of the energy sector, and is expected to provide 35 percent of the fuel supply for electric generation in New England this year alone. According to the Federal Energy Regulatory Commission (FERC), in the next four years 50 percent of all electricity will be generated by natural gas.

Unfortunately, natural gas supply hasn’t kept up with this burgeoning demand. In fact, New England was recently on the verge of an energy supply crisis. KeySpan, the largest local distribution company in the Northeast, had record breaking send-outs during the recent cold spell, and at one point they were forced to shut off service to approximately 250 customers in order to preserve the remaining customers. Had temperatures remained that cold for another few days we would have had a real crisis.

One would think that this combination of high demand and intermittent supply shortages would create an outcry for more natural gas production. It hasn’t. Unfortunately it may take a disaster before some in our nation get serious about this problem. As Federal Reserve Board Chairman Alan Greenspan pointed out in testimony before a Senate Committee last summer, we have embraced the benefits of natural gas, but at the same time have restricted the ability to get more supply.

Soon, the Northeast may no longer be able to offer industry a competitive venue unless the rising cost of energy is addressed. For example, while the cost has remained relatively steady since the mid-1980’s at around $2 per million BTUs, prices have recently spiked at times to upwards of $10 per million BTUs. These dollar amounts are often much higher in Rhode Island, because we sit at the end of two pipelines and consumers must pay the costs associated with transporting gas such long distances.

Some of Rhode Island’s largest employers and oldest companies are already grappling with the consequences of this looming energy crisis. Considerations of layoffs and job relocation are beginning to manifest. Electric Boat, the producers of the hulls for our Navy’s submarines, switched to natural gas for heating several years ago. Now the price is skyrocketing, and since the region’s electric generation is increasingly fueled by natural gas, EB can expect a further rise in their electric bill. This company employs more than 2,000 people in Rhode Island and many more in Connecticut.

The story is the same with Arkwright Incorporated, located in Coventry, RI. Their 300 employees coat and convert paper and films for specialty imaging devices. Arkwright’s natural gas bills have nearly doubled in the past year, jeopardizing their profitability and competitiveness. As the company struggles with this issue, it has lost bids for contracts. They were already forced to lay off some employees, and cut out bonuses last year.

Another example is Cranston Print Works, a textile company with facilities in Rhode Island and Massachusetts. The per unit price they pay for natural gas has already increased 40 percent this year, electric costs another 19 percent and oil costs another 6 percent. They will spend $200,000 more this year than last year to keep their plants operating, without any increase in overall energy usage.

Similarly, their neighbor in North Kingstown, Rhode Island, TORAY Plastics, saw energy costs rise by more than $1.6 million last year. TORAY employs approximately 700 people in our little State. It’s an energy-intensive business with huge production runs 24 hours a day. It is critical that they be able to manufacture products competitively.

The same story can be told over and again with many of the other manufacturing companies in Rhode Island that employ tens-of-thousands of workers and contribute so much to the quality of life in our State. The high cost of natural gas is taking a toll on our economy across New England and the nation. In today’s competitive world manufacturers cannot raise prices to compensate for rising energy costs.

Liquefied natural gas (LNG) offers a short-term answer for Rhode Island. But until we are able to site and build LNG receiving terminals or realize significant new sources of gas, gas prices will likely remain high and volatile.

The only long-term solution is to increase supply. We must develop reasonable policies on both state and federal levels that allow natural gas to be produced and delivered to homes and businesses across the country.

The alternative is a Northeast without sufficient energy supplies and stable prices — a Northeast that cannot keep the heat on in thousands of homes, cannot provide for the industrial capacity of manufacturing businesses, and cannot remain competitive at home or abroad.

As Governor of Rhode Island, I cannot let that happen, but I fear that it will unless we take the needed steps now to address this energy supply crisis.

Thank you for allowing me to testify before you today. I look forward to answering your questions.