<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:60355.wais]
REAUTHORIZATION OF EXPIRING ENERGY POLICY AND CONSERVATION ACT PROGRAMS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY AND POWER
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 23, 1999
__________
Serial No. 106-58
__________
Printed for the use of the Committee on Commerce
U.S. GOVERNMENT PRINTING OFFICE
60-355 CC WASHINGTON : 1999
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
BILL LUTHER, Minnesota
LOIS CAPPS, California
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Energy and Power
JOE BARTON, Texas, Chairman
MICHAEL BILIRAKIS, Florida RALPH M. HALL, Texas
CLIFF STEARNS, Florida KAREN McCARTHY, Missouri
Vice Chairman THOMAS C. SAWYER, Ohio
STEVE LARGENT, Oklahoma EDWARD J. MARKEY, Massachusetts
RICHARD BURR, North Carolina RICK BOUCHER, Virginia
ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia SHERROD BROWN, Ohio
TOM A. COBURN, Oklahoma BART GORDON, Tennessee
JAMES E. ROGAN, California BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ALBERT R. WYNN, Maryland
HEATHER WILSON, New Mexico TED STRICKLAND, Ohio
JOHN B. SHADEGG, Arizona PETER DEUTSCH, Florida
CHARLES W. ``CHIP'' PICKERING, RON KLINK, Pennsylvania
Mississippi JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York (Ex Officio)
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Canes, Michael E., American Petroleum Institute.............. 11
Fuller, Lee, Vice President of Government Relations,
Independent Petroleum Association of America............... 7
Gee, Hon. Robert W., Assistant Secretary for Fossil Energy,
Department of Energy....................................... 3
Material submitted for the record by:
Warfield, Timothy, Executive Director, National Association
for State Community Services Programs, letter dated
September 13, 1999, to Hon. Thomas Bliley.................. 28
(iii)
REAUTHORIZATION OF EXPIRING ENERGY POLICY AND CONSERVATION ACT PROGRAMS
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THURSDAY, SEPTEMBER 23, 1999
House of Representatives,
Committee on Commerce,
Subcommittee on Energy and Power,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2123, Rayburn House Office Building; Hon. Joe Barton
(chairman) presiding.
Members present: Representatives Barton, Stearns, Largent,
Coburn, Rogan, Shimkus, Wilson, Shadegg, Fossella, Bryant,
Ehrlich, Hall, McCarthy, Sawyer, Pallone, and Wynn.
Staff present: Cathy Van Way, majority counsel; Miriam
Erickson, majority counsel; Donn Salvosa, legislative clerk;
Rick Kessler, minority professional staff; and Sue Sheridan,
minority counsel.
Mr. Barton. The subcommittee will please come to order. The
Subcommittee on Energy and Power of the Commerce Committee is
here today to hold a legislative hearing on the Energy Policy
and Conservation Act reauthorization.
Before we have opening statements and go to our
distinguished panel, we would like to welcome the members of
the Chilean National War College. I am told that there are
somewhere between 30 and 50 Chilean War College members in the
audience today and that they will be going over to meet with
Chairman Spence of the Armed Services Committee.
Gentlemen and lady, we welcome you and hope that you enjoy
your stay in Washington. We are delighted to have a strong
relationship between the great nation of Chile and the United
States of America. We appreciate your attendance at today's
hearing.
I want to welcome our other audience members and our panel
today. We are going to reauthorize the Energy Policy and
Conservation Act, hopefully by unanimous consent, later this
morning. Without congressional action, the EPCA will expire
next week, on September 30. We are going to consider a proposal
to reauthorize that piece of legislation.
EPCA is vital to our energy security. It established the
Strategic Petroleum Reserve; it authorizes this country's
participation in the International Energy Agency. Reauthorizing
these provisions is essential to protecting the United States
in the event of a shutoff of foreign oil supplies.
It is for this reason that I strongly support the
reauthorization of the EPCA.
While we are reauthorizing the act, I believe that we
should consider another protection from dependence on foreign
oil. That is, if we can, we need to increase our domestic oil
and gas production, or at least maintain it.
The United States produces domestically 45 percent of its
daily petroleum needs and 40 percent of that production comes
from independent oil and gas companies. Extended periods of low
prices like United States producers faced earlier this year can
be and have been devastating to independent producers and to
domestic production.
Since the beginning of this calendar year, many producers
have gone bankrupt and as many as 136,000 stripper wells have
been shut in because of low oil prices. A stripper well is a
well that produces less than 15 barrels of oil per day.
At this hearing we are going to consider one provision to
EPCA that will protect our producers of these stripper wells in
times of extraordinarily low prices. We simply cannot afford to
lose an opportunity to strengthen our domestic resource.
I am interested in learning about proposals to reauthorize
the act as well as any other suggestions as to what we can do
to preserve domestic oil and gas production during extended
periods of extraordinarily low oil prices.
I want to welcome our panel today and I look forward to our
hearing.
With that, I would recognize the distinguished ranking
member, Congressman Ralph Hall of Rockwall, for an opening
statement.
Mr. Hall. Mr. Chairman, thank you, and thank you for your
opening statement. I do have an opening statement. I have
everything except my glasses. I will ask unanimous consent to
put my statement in the record.
Mr. Barton. Without objection.
I am surprised that my glasses didn't help you. These are
the best glasses that WalMart sells.
The gentleman from California, Mr. Rogan, is recognized for
an opening statement.
Mr. Rogan. Mr. Chairman, thank you. Once again I compliment
my dear friend, the ranking member. I have my glasses but no
opening statement.
Mr. Barton. The Chair would ask unanimous consent for all
members not present to have the requisite number of days to
enter an opening statement at this point in the record.
Is there an objection?
[No response.]
Mr. Barton. Hearing none, so ordered.
We want to go to our panel. We have three distinguished
witnesses today. Leading off will be the Honorable Robert Gee,
who is the Assistant Secretary for Fossil Energy at the United
States Department of Energy. Then we will hear from Mr. Lee
Fuller, who is representing the Independent Petroleum
Association of America and the National Stripper Well
Association, and then Mr. Michael Canes, who is representing
the American Petroleum Institute.
Gentlemen, we welcome you to the hearing. Each of your
written statements is in the record in its entirety. We are
going to recognize you, Mr. Gee, for 7 minutes, and then Mr.
Fuller and then Mr. Canes. Welcome to the committee. The floor
is yours.
STATEMENTS OF HON. ROBERT W. GEE, ASSISTANT SECRETARY FOR
FOSSIL ENERGY, DEPARTMENT OF ENERGY; LEE FULLER, VICE PRESIDENT
OF GOVERNMENT RELATIONS, INDEPENDENT PETROLEUM ASSOCIATION OF
AMERICA; AND MICHAEL E. CANES, AMERICAN PETROLEUM INSTITUTE
Mr. Gee. Thank you, Chairman Barton. Mr. Chairman, thank
you for holding this hearing today on the administration's
proposed bill to amend and extend through September 30, 2003,
authorities of the Energy Policy and Conservation Act that
would otherwise expire on September 30. My remarks this morning
will be brief.
When the act last expired in September 1997, the Strategic
Petroleum Reserve was recovering from several non-emergency
sales of oil for budgetary purposes and was facing the threat
of yet another directive to sell oil for non-emergency reasons
contained in the fiscal year 1998 budget.
We appreciate the actions of members of this subcommittee
and the full committee that relieved the department from the
obligation to sell oil in fiscal year 1998 and reverse the
trend toward a smaller Strategic Petroleum Reserve.
I am pleased to report that after selling 28 million
barrels of oil in fiscal year 1996 and 1997 and narrowly
avoiding a sale in fiscal year 1998, in April of this year the
department resumed oil acquisition that it ended in April 1994
with the transfer of Federal royalty oil from the Department of
the Interior to the Strategic Petroleum Reserve. The current
program is to transfer 28 million barrels, an amount equal to
the volume sold during fiscal years 1996 and 1997.
The amendments in the administration's bill will modernize
the act by eliminating provisions which are no longer necessary
or desirable and amending others to reflect the current state
of the reserve program.
The bill proposes to delete unused provisions of the law
that provide for the establishment of regional and industrial
petroleum reserves. It deletes the anachronistic requirement
for a SPR plan and its consequent amendments and retains and
codifies the distribution plan to require the sale of reserve
oil to the highest bidder.
In addition, the bill relieves the department from the
impracticable requirement to submit a plan for an expansion to
a billion barrels by 1992 and substitutes a reasonable
requirement and necessitates submission of an expansion plan
when the Secretary determines such an expansion is desirable.
The bill would also eliminate the current 75,000 barrel per day
minimum fill rate that has not been honored during the last
decade.
Mr. Chairman, starting in 1996 the Department of Energy
conducted a review of its policies for the reserve. We issued a
Federal Register notice inviting public comment on an array of
issues and in May 1998 published an Administration Statement of
Policy on the Strategic Petroleum Reserve. Our bill reflects
the positions contained in that statement of policy.
U.S. capability to draw down the Strategic Petroleum
Reserve in a severe energy supply emergency is critical to U.S.
national security and economic interests and is crucial to our
relationship with the other member countries of the
International Energy Agency.
The extension of the act's authorities is needed, for
instance, to facilitate U.S. company participation in a major
Y2K response exercise that is being conducted by the
International Energy Agency beginning in the last week of this
month. If the act were to expire, the U.S. companies would be
required to withdraw, disrupting the exercise and preventing
the United States from playing any meaningful role.
Additionally, all direct authorities to utilize the reserve
are contained in the act, and its timely extension could become
critical were a year 2000 computer problem actually to occur
and disrupt world oil flows. We simply cannot afford to enter
December of this year without the President's drawdown
authority intact.
Mr. Chairman, I urge the subcommittee and the full
committee and the whole Congress to consider the
administration's bill favorably and expediently to amend and
extend the provisions of the Energy Policy and Conservation Act
without a lapse of authority.
Thank you, Mr. Chairman.
[The prepared statement of Robert W. Gee follows:]
Prepared Statement of Robert W. Gee, Assistant Secretary for Fossil
Energy, U.S. Department of Energy
Mr. Chairman and members of the committee: I am pleased to appear
before you today to talk about the Administration's legislative
proposal to amend and extend to September 30, 2003, certain authorities
of the Energy Policy and Conservation Act (EPCA), which are scheduled
to expire on September 30, 1999.<SUP>1</SUP> I would also like to bring
the Committee up to date on certain activities the Department has
undertaken related to these authorities.
---------------------------------------------------------------------------
\1\ The Administration transmitted its proposed legislation to the
Congress on March 15, 1999.
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EPCA authorizes (in Titles I and II) two programs at the core of
our nation's energy security: the Strategic Petroleum Reserve (SPR) and
our participation in the International Energy Agency (IEA). It also
provides authorities to support our long-term efforts to reduce
vulnerability through several energy efficiency and renewable energy
and conservation programs. These programs (in Title III) were extended
in P.L. 105-388 to September 30, 2003.
U.S. capability to draw down the Strategic Petroleum Reserve in a
severe energy supply interruption is critical to U.S. national security
and economic interests and is crucial to our relationship with the IEA.
The U.S. plays a vital role in the development of emergency response
policies within the IEA. It is imperative that Congress act expediently
to pass legislation to amend and extend these provisions, without a
lapse of authority. Such a lapse could have major implications over the
next few months. The extension of EPCA authorities is needed, for
instance, to facilitate U.S. company participation in a major exercise
with Y2K implications that is being conducted by the IEA beginning at
the end of September. Additionally, the timely extension of EPCA will
be especially important this year if it is determined a Y2K-related
drawdown is necessary.
In addition, the Department of Energy conducted a review of its
policies for the SPR. We issued a Federal Register Notice inviting
public comment on various issues affecting the Reserve and subsequently
published a Statement of Policy on the Strategic Petroleum Reserve in
May 1998. The Administration's bill reflects the Statement of Policy.
Finally, EPCA was enacted 24 years ago and includes many provisions
pertaining to the SPR which are no longer necessary, and references
programs that no longer exist. Our bill deletes or amends EPCA
provisions accordingly.
Need for the Reserve
During the last 24 years the Strategic Petroleum Reserve has become
the Nation's principal defense against oil price shocks related to
supply interruptions. Additionally, U.S. leadership in stockpiling has
been and remains critical to the accumulation of stocks in other
International Energy Agency member countries. The SPR inventory is 563
million barrels of oil, which is currently held in four sites in Texas
and Louisiana and is the equivalent of 60 days of imports. It is a
significant deterrent to the use of oil embargoes as a political weapon
as well as substantial protection against the effect of actual or
imminent disruptions in crude oil supplies. For example, the Reserve
vastly increased the flexibility of the United States to pursue the
embargo of Iraq and Desert Storm in 1990-91without concern that the
hostilities would precipitously disrupt the availability of oil.
Today, the potential for oil market disturbances remains, whether
caused by wars, political and religious unrest, natural disasters, or a
failure in transportation logistics. Meanwhile, U.S. dependence on oil
imports is expected to increase, with the world's oil reserves
increasingly concentrated in highly volatile regions. While the U.S.
currently enjoys diversity of suppliers for its imports, we remain at
potential risk. Supplier diversity will not limit the serious economic
impact of a significant rise in oil prices. A strong and viable SPR is
as relevant in today's market as it was when EPCA was passed in 1975.
Recent SPR Initiatives
This year the Administration undertook two new initiatives
affecting the SPR--the use of royalty oil to fill the SPR and
initiation of a study on the appropriate size of the SPR.
In February, Secretary Bill Richardson and Secretary of the
Interior Bruce Babbitt announced that the Department of the Interior
would take up to 28 million barrels of Federal royalty oil paid in kind
and transfer it to the Department of Energy to help fill the SPR. Staff
from the Department of Energy and Department of the Interior have
worked together cooperatively to craft and implement this program.
Under Phase I of the program, arrangements were made with four of the
largest producers in the Gulf of Mexico for the transfer of
approximately 9.2 million barrels of crude oil to the SPR in exchange
for royalty oil. Deliveries began in April. In the second phase, the
program has been expanded to offer the maximum feasible volume of oil
and open the program to a larger number of bidders using a competitive
bid process.
Phase II will be an ongoing solicitation of invitations for bids to
transfer or exchange royalty oil for oil to be delivered to the SPR. In
Phase II A of the program, the Department awarded contracts for 9.59
million barrels to four companies on June 15, 1999. Phase II A
deliveries commenced on August 1, 1999, and will continue through
February, 2000. The Phase II B request for offers will be issued in
early November, 1999, with deliveries anticipated between February 1,
2000, and November 30, 2000.
As indicated in the May, 1998, Administration Statement of Policy
on the Strategic Petroleum Reserve, an interagency group led by the
Department of Energy is revisiting the Department's 1990 study on the
appropriate size of the SPR. Participants from the Department of
Treasury, Council of Economic Advisors, Office of Management and Budget
and Central Intelligence Agency, as well as the Department of Energy
are involved in the project. A final report will be transmitted to
Congress in the near future.
I would now like to turn to a discussion of the various amendments
proposed in the Administration's bill to amend and extend EPCA.
SPR Amendments
The importance of extending SPR's basic authority under EPCA has
already been discussed. In addition, the proposed Administration SPR
amendments modernize EPCA by eliminating provisions which are no longer
necessary or desirable, and amending others to reflect the current
state of the SPR program. The Administration's bill proposes to delete
the provisions providing for the establishment of regional and
industrial petroleum reserves. It deletes the requirement for an SPR
Plan and Plan Amendments, and codifies the distribution portion of the
Plan to require the sale of oil drawn from the Reserve to the highest
bidder. The bill also would make a plan for expansion of the Reserve
necessary only when the Secretary determines such an expansion is
desirable and would eliminate the current minimum fill rate. In
addition, the bill proposes that the requirement for a 30-day
congressional review period for alternative financing contracts be
deleted.
Regional Petroleum Reserves: The Act currently provides for the
establishment of regional petroleum reserves in Federal Energy
Administration regions that are dependent upon Petroleum imports for
more than 20 percent of their consumption. The Act also permits the
Secretary to substitute crude oil for products and to store the oil in
a reserve ``readily accessible to'' rather than actually located in
such regions. Based on analytical findings and substantially higher
costs for regional storage, the Department of Energy and its
predecessor organizations have consistently determined that the storage
of crude oil in the centralized SPR would meet the requirements of all
regions of the country in the event of a petroleum supply disruption.
Because the need for a regional petroleum reserve is not foreseeable
and funding for such a program is not justifiable based on its expected
benefits, the Administration's bill deletes both this requirement and
references to regional and refined petroleum product storage.
Industrial Petroleum Reserve: The Act permits the Secretary to
establish an Industrial Petroleum Reserve as part of the Strategic
Petroleum Reserve, by requiring importers of petroleum products and
refiners to store and maintain oil in readily available inventories.
This provision has never been implemented, would shift the cost of the
program to industry, and would be particularly onerous to administer.
The Administration's bill deletes both this provision and references to
industrial petroleum reserves consonant with the Administration's
stated policy that the Nation is best served by centralized,
Government-owned, Government-controlled storage.
The Plan: The Act currently requires the Secretary to maintain a
Strategic Petroleum Reserve Plan, and specifies the details that must
be included in the Plan. This was appropriate when the Reserve was in
its planning phase during the mid and late 1970's. Currently, the
Reserve consists of four storage sites with 700 million barrels of
cumulative storage capacity, and the Plan that details those sites has
been completed. The Act also requires that the Plan specify the levels
of fill for certain years, all of which are now in the past. The
Administration's bill proposes that the requirement for the Plan and
Amendments be deleted. The one remaining part of the Plan which is
still necessary is the Drawdown and Distribution Plan embodied in Plan
Amendment No. 4. The basic policy of distributing oil from the Reserve
by competitive sale, contained in Amendment No. 4, is maintained in the
Administration's bill by making that policy part of the governing
statutes.
The Administration believes that free market sales are far superior
to allocation as a method of distributing oil from the world's
strategic reserves. While Plan Amendment No. 4 provides that public
sales will be the primary method of distribution, it also allows the
Secretary to allocate up to 10 percent of the sales volume. This
allocation authority should be eliminated. The Department has never
used this allocation authority, and its existence may unnecessarily
encourage some consumers to rely on the Government rather than the
market for supplies in an emergency. It will also put elected officials
in the difficult position of having to evaluate requests for
preferential treatment from various constituent groups during a
national emergency. The Administration's bill reflects the
Administration's belief in market mechanisms and the impracticality of
allocation; it does so by codifying open market sales to the highest
bidders as the method of distributing Strategic Petroleum Reserve oil.
Expansion: As the Committee is aware, a 1990 amendment of EPCA
requires the Department to submit an SPR Plan Amendment detailing
expansion of the Reserve to one billion barrels. While the Department
did conduct the requisite studies, analyses, and public hearings to
pick sites and complete such a Plan Amendment, final steps in the
process were not taken because it was clear that such a plan could not
be implemented within the time horizon for which the studies were
relevant. Due to budget constraints and the need to decommission the
Weeks Island site, setting a schedule date for reaching a capacity of 1
billion or even 750 million barrels was and is unrealistic. The
proposed legislation requires that the Secretary report to the Congress
on plans to expand the Reserve at the time such expansion becomes
likely. This deferred requirement would replace the current statutory
requirement.
Statutory Fill Rate: The Act contains a requirement for filling the
Reserve at a rate of 75,000 barrels of oil per day until the Reserve
has reached 750 million barrels. This requirement has been waived
regularly by a number of Congresses at the request of several
Administrations. Given that the Department has not met this requirement
for many years and the capacity of the Reserve was reduced to 700
million barrels after decommissioning the Weeks Island site, the
Administration bill deletes the requirement. The bill also proposes to
delete the linkage which makes sales authority for Naval Petroleum
Reserve No. 1 crude oil contingent upon an SPR fill rate of at least
75,000 barrels. Because Naval Petroleum Reserve No. 1 was sold in 1998,
this provision is no longer applicable.
Alternative Financing: Another issue addressed by the
Administration's bill is Congressional review of alternative financing
contracts. Alternative financing contracts, including oil ``leases'' or
similar arrangements, are a means to reduce the budgetary requirements
for Strategic Petroleum Reserve oil. No contracts have ever been
negotiated for alternatively financed acquisition and current law
imposes some requirements on alternative financing contracts that
diminish the chances that such contracts could be successfully
negotiated. Specifically, the Act requires that contracts that would
not otherwise require any Congressional action lie before the Congress
for 30 legislative days before going into effect. This provision adds a
time delay to already complicated contracts, and adds an element of
uncertainty to contract negotiations. The Administration bill proposes
deleting the requirement for a 30-day congressional ``lie before''
period after a contract is signed. Of course, if promising negotiations
should occur we intend to discuss plans with the appropriate
Congressional committees prior to any contract execution.
IEA Authorities
The Administration's bill also extends to 2003 U.S. participation
in the emergency preparedness activities of the IEA. The IEA, which is
the main forum for energy cooperation among 24 countries, was created
in 1974 under an Agreement on an International Energy Program. As a
member of the IEA, the U.S. is obligated to maintain inventories of
Government-owned or commercial stocks above minimum operating levels
equivalent to 90 days of net imports. EPCA also provides limited
antitrust defense for U.S. oil companies participating in the IEA's
emergency preparedness programs to enable them to assist the IEA in
planning or implementing a drawdown of government-controlled oil
stocks.
Last year's amendment to EPCA's antitrust provisions, broadening
the scope of U.S. oil company participation in IEA activities, has
enabled the IEA to more fully engage its oil industry advisors in
planning its response to future oil supply disruptions. Last fall's
successful Emergency Response Exercise was the first major IEA activity
at which U.S. companies made use of the broadened antitrust provisions.
On September 28-30, the IEA will sponsor an oil disruption response
simulation exercise to test its ability to respond to disruptions in
world oil markets. One element of the exercise will focus on the
potential impact on world oil supply of Y2K-related computer problems.
In addition to energy security experts from the IEA's 24 member
governments, representatives of major oil companies will play a key
role in this exercise. Immediately following the exercise on October 1,
the IEA and its oil company advisors will meet to turn the lessons
learned during the simulation into policy and response options for
addressing the Y2K problem.
We urge you to pass these authorities expeditiously to facilitate
U.S. participation in these important programs.
Committees on Renewable Energy Commerce and Trade and Energy Efficiency
Commerce and Trade
Title II of EPCA also provides the authority for the Committee on
Renewable Energy Commerce and Trade (CORECT) and the Committee on
Energy Efficiency Commerce and Trade (COEECT). COEECT is an interagency
committee whose 15 Federal Agency members, in conjunction with private
industry, develop and implement strategies for the export of U.S.
energy efficiency technologies. CORECT, which has not received
appropriations in the last three years, has curtailed its activities in
the export of renewable energy technologies. The Administration
strongly supports reauthorization of these programs to promote the
export of U.S. energy technologies and products.
Conclusion
In summary, the energy programs extended by the Administration's
bill are central to our nation's energy and economic strategies. I urge
you to reaffirm our commitment to these programs and ask for your
assistance in the passage of this bill.
That concludes my prepared testimony. I will be glad to answer any
questions.
Mr. Barton. Thank you, Mr. Secretary.
We would now like to hear from Mr. Lee Fuller, who is
representing the Independent Petroleum Association of America.
STATEMENT OF LEE FULLER
Mr. Fuller. Thank you, Mr. Chairman. Mr. Chairman and
members of the subcommittee, I am Lee Fuller, vice president of
government relations for the Independent Petroleum Association
of America.
I am pleased to appear before you today to discuss
reauthorization of the Energy Policy and Conservation Act on
behalf of the 7,000 independent oil and gas producers
represented by IPAA and on behalf of the National Stripper Well
Association.
The National Stripper Well Association represents the small
business operators in the oil and gas industry, producers with
low volume, high cost stripper or marginal oil and gas wells.
National energy policy generally receives little attention
unless there is a crisis or a public outcry. The subject you
consider today, important in its own right, also should be the
basis for a broader discussion of U.S. energy policy and
national security.
It is essential that national policy recognize that
domestic oil production is the nation's true strategic
petroleum reserve. Far more than the hundreds of millions of
barrels in the Strategic Petroleum Reserve, the ability to
produce 6.5 million or 7 million barrels a day of domestic oil
is essential to America's national security. Oil is this
nation's economic lifeblood. Without a stable oil supply, the
United States economy and the world's economic health is at
risk.
While a strong and vibrant domestic oil and natural gas
industry plays the lead role in maintaining America's energy
and national security, we must not forget the importance of a
reliable Strategic Petroleum Reserve. IPAA and NSWA welcome
most of the administration's proposed technical changes and the
extension of EPCA.
Our government's capability to utilize the Strategic
Petroleum Reserve in an energy supply disruption is critical to
U.S. national security and economic well being. Because our
members do not refine or retail petroleum products,
independents do not hold large stockpiles that can be readily
allocated. Yet we know that clarification of antitrust defenses
included in the proposed amendments, for example, are important
to private companies who play a vital role in the development
of emergency response policies within the International Energy
Agency.
Extension of the antitrust defense for U.S. companies
participating in the IEA's emergency preparedness programs is
an important component in planning response to future oil
supply disruptions.
As you know, this year the Department of the Interior and
the Department of Energy entered into an agreement to use
Federal royalty oil to fill the SPR. We believe the program to
take up to 28 million barrels of royalty oil paid in kind is an
example of good government. Not only has DOE found a way to
replace the 28 million barrels of oil sold for non-emergency
purposes in 1996 and 1997, it has also discovered a way for
Congress and the administration to meet EPCA's requirements
that call for a 1 billion barrel oil reserve without having to
appropriate scarce resources to do so.
After completion of the 28 million barrel RIK acquisition,
the reserve will still only have less than 600 million barrels
of oil in storage. The SPR currently has a capacity of 700
million barrels. IPAA and NSWA strongly encourage Congress and
the administration to continue with the initiative and fill the
reserve to its maximum capacity.
Another change proposed in the administration's EPCA
reauthorization concerns the Department of the Interior and
joint bidding for exploration and development rights on the
Outer Continental Shelf. This is a complicated and adversarial
issue that has historically caused division in the industry.
The proposal calls for the Secretary of the Interior to
establish a program for setting the terms of joint bidding by
any company for the right to explore for and develop leases in
the OCS on or after December 31, 2000. Having seen this
proposal tucked away in the reauthorization proposal with no
comment from the administration has caused apprehension among
many independent producers operating in the OCS.
Earlier this week the IPAA Offshore Committee met to
discuss the proposed changes to the existing policy on joint
bidding. The Offshore Committee has indicated their opposition
to changing the current joint bidding policy. It is the
consensus of the committee that current joint bidding policy
allows for a healthy and competitive leasing program for OCS
properties. It should also be noted that changes are not
necessary in light of the fact that the secretary of the
interior has the authority to permit joint bidding for those
excluded under the current policy.
I would like to focus the remainder of my remarks on energy
security as it relates to the SPR and America's domestic
producers. In terms of energy and our national security
preparedness, America is on thin ice. We do not have a crisis
or a supply shortage now, but that could change and could
change quickly. We want the United States to be prepared.
Maintaining the Strategic Petroleum Reserve is a vitally
important part of our energy preparedness. The reserve is
intended to be America's insurance policy against a severe oil
supply disruption or severe economic disruption. IPAA and NSWA
want to ensure that SPR is never misused by Congress or the
administration again. It is our sincere hope that non-emergency
sales of stockpiles from the SPR such as those that took place
in 1996 and 1997 to help balance the budget and pay the cost of
operating and maintaining the facility will never take place
again. The Federal Government should not cash in our insurance
policy to pay today's bills.
We also urge you to more closely examine America's true
``strategic petroleum reserve.'' That reserve is the 22.5
billion barrels of known and recoverable oil. Our technically
recoverable resources are even greater--88 billion barrels of
oil and 885 trillion cubic feet of natural gas. Every day,
thanks to technological advances, we find oil in this country
where we have heard time and again that we were drying up. In
the Gulf of Mexico, deep water exploration has shown great
promise. And on shore, in dozens of fields and basins producers
are finding new reserves and ways to get more from existing
reserves.
So as we consider policy changes to improve our Strategic
Petroleum Reserve, let us remember that there are other policy
changes that need to be made if we are to develop our domestic
resources, the other strategic reserve. Both are of great
importance to our economy and national security.
That concludes my comments. Thank you, Mr. Chairman.
[The prepared statement of Lee Fuller follows:]
Prepared Statement of Lee Fuller, Vice President of Government
Relations, Independent Petroleum Association of America, on Behalf of
IPAA and the National Stripper Well Association
Mr. Chairman and members of the subcommittee: I am Lee Fuller, vice
president of government relations for the Independent Petroleum
Association of America (IPAA). I am pleased to appear before you today
to discuss reauthorization of the Energy Policy and Conservation Act
(EPCA) on behalf of the 7,000 independent oil and gas producers who are
members of IPAA and on behalf of the National Stripper Well Association
(NSWA). NSWA represents the small business operators in the oil and
natural gas industry, producers with low volume, high cost stripper or
marginal oil and natural gas wells.
With the exception of members of this subcommittee and the Senate
Energy Committee, few in Congress focus on energy policy until there is
a crisis or public outcry. The subject you consider today--important in
its own right--also should be the basis for a broader discussion of
U.S. energy policy and national security.
It is essential that lawmakers recognize that domestic oil
production is the nation's true ``strategic petroleum reserve.'' Far
more than the hundreds of millions of barrels in the Strategic
Petroleum Reserve, the ability to produce 6.5 to 7 million barrels/day
of domestic oil is essential to America's national security. Oil is
this nation's economic lifeblood. Without a stable oil supply the U.S.
economy and the world's economic health are at risk.
While a strong and viabrant domestic oil and gas industry plays the
lead role in maintaining America's energy and national security, we
must not forget the importance of a strong and viabrant Strategic
Petroleum Reserve (SPR). IPAA and NSWA welcome most of the
Administration's proposed technical changes and the four-year extension
of EPCA. Our government's capability to utilize the Strategic Petroleum
Reserve (SPR) in an energy supply disruption is critical to U.S.
national security and economic well being. Because our members do not
refine or retail petroleum products, independents do not hold large
stockpiles that can be readily allocated. Yet, we know that
clarification of antitrust defenses included in the proposed
amendments, for example, are important to private companies who play a
vital role in the development of emergency response policies within the
International Energy Agency (IEA).
Extension of the antitrust defense for U.S. companies participating
in the IEA's emergency preparedness programs is an important component
in planning response to future oil supply disruptions. Last fall's
Emergency Response Exercise was very successful. This month IEA's 24
member governments and representatives of major oil companies will
participate in a simulation exercise to test our drawdown preparedness
for Y2K-related computer problems. Without the extension of antitrust
protection included in the proposed reauthorization legislation the
exercise will likely be conducted without the involvement of the
companies.
As you know, this year the Department of the Interior and the
Department of Energy entered into an agreement to use federal royalty
oil to fill the SPR. We believe the program to take up to 28 million
barrels of royalty oil paid in kind is an example of government at its
best. Not only has DOE found a way to replace the 28 million barrels of
oil sold for non-emergency purposes in 1996 and 1997, it has also
discovered a way for Congress and the Administration to meet EPCA's
requirements that call for a 1 billion barrel oil reserve without
having to appropriate scare resources to do so.
After completion of the 28 million barrel RIK acquisition the
Reserve will still only have less than 600 million barrels of oil in
storage. The SPR currently has a capacity of 700 million barrels. IPAA
and NSWA strongly encourage Congress and the Administration to continue
with the initiative and fill the reserve to its maximum capacity.
Another change proposed in the Administration's EPCA
reauthorization bill concerns the Department of the Interior and joint
bidding for exploration and development rights on the Outer Continental
Shelf (OCS). This is a complicated and adversarial issue that has
historically caused division in the industry.
The proposal calls on the Secretary of the Interior to establish a
program for setting the terms of joint bidding by any company for the
right to explore for and develop leases in the OCS on or after December
31, 2000. Having seen this proposal tucked away in the reauthorization
proposal with no comment from the Administration has caused
apprehensive among many independent producers operating in the OCS.
Earlier this week the IPAA Offshore Committee met to discuss the
proposed changes to the existing policy on joint bidding. The Offshore
Committee has indicated their opposition to changing the current joint
bidding policy. It is the consensus of the Committee that current joint
bidding policy allows for a healthy and competitive leasing program for
OCS properties. It should also be noted that changes are not necessary
in light of the fact that the Secretary of the Interior has the
authority to permit joint bidding by those excluded under the current
policy.
I would like to focus the remainder of my remarks on energy
security as it relates to the SPR and America's domestic producers. In
terms of energy and our national security preparedness America is on
thin ice. We don't have a crisis or supply shortage now, but that could
change . . . quickly. We want the United States to be prepared.
Maintaining the Strategic Petroleum Reserve is a vitally important
part of our energy preparedness. The reserve is intended to be
America's insurance policy against a severe oil supply disruption or a
severe economic disruption. IPAA and NSWA want to insure that SPR is
never misused by Congress or the Administration again. It is our
sincere hope that non-emergency sales of stockpiles from the SPR such
as those that took place in 1996 and 1997 to help balance the budget
and pay the costs of operating and maintaining the facility will never
take place again. The federal government should not cash in our
insurance policy to pay today's bills.
We also urge you to more closely examine America's true ``strategic
petroleum reserve.'' That reserve is the 22.5 billion barrels of known
and recoverable oil. Our technically recoverable resources are even
greater, 88 billion barrels of oil and 885 trillion cubic feet of
natural gas. Every day, thanks to technological advances, we find oil
in this country where we've heard time and again that we were drying
up. In the Gulf of Mexico, deep-water exploration has shown great
promise. And onshore, in dozens of fields and basins, producers are
finding new reserves and ways to get more from existing reservoirs.
So, as we consider policy changes to improve our Strategic
Petroleum Reserve, let us remember that there are other policy changes
that need to be made if we are to develop our domestic resources, the
other strategic reserve. Both are of great importance to our economy
and national security.
That concludes my comments. Thank you, Mr. Chairman.
Mr. Barton. Thank you, Mr. Fuller.
We would now like to hear from Mr. Canes, who is
representing the American Petroleum Institute. Your statement
is in the record in its entirety and we recognize you for 7
minutes.
STATEMENT OF MICHAEL E. CANES
Mr. Canes. Thank you, Mr. Chairman and good morning. My
name is Michael Canes, senior economic advisor to the president
of the American Petroleum Institute. API represents over 400
member companies in every aspect of the oil and natural gas
industry, including exploration and production, transportation,
refining and marketing.
My testimony focuses on the critical role of section 252 of
the Energy Policy and Conservation Act, or EPCA, and the urgent
need for Congress to reauthorize the act before it expires next
Thursday, September 30. Section 252 of EPCA enables oil
companies, including several of API's members, to assist the
International Energy Agency, or IEA, in planning for possible
oil supply disruptions and in responding to an actual
disruption.
Kenneth Haley, chairman of the Industry Advisory Board, a
group of 19 oil companies that advises the IEA on emergency
response issues, was originally scheduled to testify before the
hearing was postponed from last week. He is unable to be here
today but asked that his statement be made part of the hearing
record.
Oil companies have supported the IEA since its inception in
1974, working to maintain and improve its emergency response
procedures. These consultations between representatives of the
member governments, the IEA staff and oil companies make the
IEA unique and contribute significantly to its effectiveness.
All of the oil companies' activities in support of the IEA
have been conducted under the protection of the statutory
antitrust and breach of contract defenses established in EPCA.
Without this protection, few if any companies are likely to
participate in the activities. That would be unfortunate, both
in non-emergency times and in emergencies.
In non-emergency times, the current law provides antitrust
protections that have been indispensable in allowing oil
companies to provide advice to IEA to help it keep its policies
up to date and consistent with the continuing evolution of oil
markets. An example is the oil supply disruption simulation
exercise that will be held at the end of this month.
Oil company representatives will be working together with
energy security experts from the IEA's 24 member governments to
better understand how the IEA's emergency response measures can
work with the powers of oil markets to minimize the economic
damage resulting from a supply disruption. The exercise also
will explore the possible actions that the IEA member
governments could take in response to potential Y2K problems.
In the event of a real supply disruption, the companies are
able to provide up-to-the-moment evaluation of key supply and
demand factors and the impact of possible responses by the IEA.
Such information can be of immediate value to IEA officials.
However, EPCA is scheduled to expire on September 30. This
would eliminate the statutory antitrust defense that has
allowed the oil companies to advise the IEA and would halt the
effective consultations.
The next oil supply disruption cannot be predicted. Thus,
it would be unwise to allow EPCA to lapse. Continuity of
coverage under EPCA is essential to allow the oil companies to
assist immediately in the event of a disruption.
The U.S. oil companies have been asked by the government to
assist the IEA. I am convinced that such consultations are
useful and lead to more effective IEA response measures which
in turn reduce the economic damage that might be caused by a
future oil supply disruption. Thus, API encourages the Congress
to reauthorize EPCA immediately, extending to 2003 the
statutory antitrust and breach of contract defenses that are
essential to allow U.S. oil companies to support the IEA's
emergency response activities.
Thank you, Mr. Chairman. I look forward to your questions.
[The prepared statement of Michael E. Canes follows:]
Prepared Statement of Michael E. Canes, American Petroleum Institute
Good Morning. My name is Michael Canes, Senior Economic Advisor to
the President of the American Petroleum Institute (API). API represents
over 400 member companies in every aspect of the oil and natural gas
industry, including exploration and production, transportation,
refining and marketing.
My testimony focuses on the critical role of Section 252 of Energy
Policy and Conservation Act or ``EPCA'' and the urgent need for
Congress to reauthorize the Act before it expires next Thursday,
September 30, 1999. Section 252 of EPCA allows oil companies, including
several of API's members, to assist the International Energy Agency
(IEA) in planning for possible oil supply disruptions and in responding
to an actual disruption.
Kenneth Haley, Chairman of the Industry Advisory Board, a group of
19 oil companies that advises the IEA on emergency response issues, was
originally scheduled to testify at your hearing last week, September
16, 1999. He is unable to be here today but has asked that his
statement be made part of the hearing record.
At the request of the U.S. government, oil companies have supported
the IEA since its inception in 1974, working to maintain and improve
its emergency response procedures. These consultations between
representatives of the member governments, the IEA staff, and oil
companies make the IEA unique and contribute significantly to its
effectiveness.
All of the oil companies' activities in support of the IEA have
been conducted under the protection of the statutory antitrust and
breach of contract defenses established in EPCA. In my opinion, few, if
any, companies would participate in these activities if the defenses
were not available.
In non-emergency times, the current law provides antitrust
protections that have been indispensable in allowing the oil companies
to provide advice that helps the IEA keep its policies up to date and
consistent with the continuing evolution of oil markets. An example is
the Oil Supply Disruption Simulation Exercise that will be held at the
end of this month. Oil company representatives will be working together
with energy security experts from the IEA's 24 member governments to
better understand how the IEA's emergency response measures can work
with the power of oil markets to minimize the economic damage resulting
from a supply disruption. The exercise will also explore the possible
actions that the IEA member governments could take in response to
potential Y2K problems.
In the event of a real supply disruption, the companies are able to
provide up to the moment evaluation of key supply and demand factors
and the impact of possible responses by the IEA.
However, EPCA is scheduled to expire on September 30, which would
eliminate the statutory antitrust defense that has allowed the oil
companies to advise the IEA, and would halt the current effective
consultations.
The next oil supply disruption cannot be predicted. Thus, it would
be unwise to allow EPCA to lapse. Continuity of coverage under EPCA is
essential to allow the oil companies to assist immediately in the event
of a disruption.
The U.S. oil companies have been asked by the government to assist
the IEA. I am convinced that such consultations are useful and lead to
more effective IEA response measures which in turn will reduce the
economic damage that might be caused by a future oil supply disruption.
Thus, API encourages the Congress to reauthorize EPCA immediately,
extending to 2003 the statutory antitrust and breach of contract
defenses that are essential to allowing oil companies to support the
IEA's emergency response activities.
Thank you.
______
Prepared Statement of Kenneth W. Haley, Chevron Corporation, on Behalf
of the American Petroleum Institute
My name is Ken Haley. I am Manager of Energy Forecasting for
Chevron Corporation. I am providing this statement for the record on
behalf of the American Petroleum Institute (API). API represents over
400 member companies in every aspect of the oil and natural gas
industry, including exploration and production, transportation,
refining, and marketing. This statement describes our industry's
activities under the Energy Policy and Conservation Act (EPCA). In
particular, the statement focuses on the critical role of Section 252
of EPCA in allowing the oil companies to assist the International
Energy Agency (IEA) in planning for possible oil supply disruptions
and, most importantly, in responding to an actual disruption.
There are about 40 oil companies that operate in countries that are
members of the International Energy Agency (IEA) and have agreed to
work with and report data to the IEA. Of these Reporting Companies, 19
serve as members of the Industry Advisory Board (IAB). The IAB includes
most of the large multinational companies based in the U.S. and Europe
as well as smaller companies that operate in only one or two countries.
I have represented Chevron as a member of the IAB for 13 years, and I
am currently the Chairman of the IAB, a position I have held for over 6
years. Because of my role as Chairman of the IAB, my perspective on the
role of EPCA is perhaps unique to other witnesses.
Background
At the request of the U.S. and other IEA-member governments, and
under terms of the Agreement on an International Energy Program, the
international agreement on which the IEA is based, oil companies have
supported the IEA since its inception in 1974. Advice from companies
was an integral part of the design of the IEA's Emergency Response
System at that time, and it has contributed to maintaining and
improving the IEA's emergency response procedures over the years.
Companies were actively involved in providing advice to the IEA and its
member governments during the oil supply disruptions in 1979/80 and
1990/91.
The IEA and the member governments consult with oil companies
through the Industry Advisory Board, the body that advises the IEA on a
wide range of factors related to the emergency response measures--
policy issues, changes in the markets, and technical issues associated
with oil production, transportation and refining. Through the IAB and
its subcommittees, the IEA and its member governments have access to
the expertise of many oil companies that operate throughout the world.
These consultations between representatives of the member governments,
the IEA staff, and oil companies make the IEA unique and contribute
significantly to its effectiveness. The mechanisms for consultation are
well established, and both the IEA and the member governments actively
seek input from the private sector. Because oil markets are
continuously evolving and changing, regular input from companies plays
an important role in keeping the IEA informed of those changes.
All of the oil companies' activities in support of the IEA's
emergency response activities have been conducted under the protection
of the statutory antitrust and breach of contract defenses established
by the United States. Similarly, the European Union has adopted an
exemption for the companies. These protections, which carry with them
extensive obligations for record keeping, reporting and monitoring of
activities by government observers (all of which have been carefully
observed over the years), are of critical importance to the oil
companies. I believe it is safe to say that few, if any, companies
would participate in these activities in support of the IEA if these
defenses were not available. I base this conclusion on the fact that,
in the past, whenever the EPCA defense has lapsed, the IAB suspended
all operations until the effective date of the EPCA extension
legislation. Fortunately, these gaps in coverage have never coincided
with a real oil market disruption.
Current Situation
In non-emergency times, the current law provides antitrust
protections that have been indispensable in allowing the oil companies
to provide advice that has helped the IEA continue the process of
improving its emergency response capability. World oil markets have
evolved dramatically during the 25 years since the IEA was created, and
they can certainly be expected to continue changing. Thus continuing
advice from the companies, who operate in the oil markets on a daily
basis, is a key element of keeping the IEA's emergency response systems
and procedures up-to-date and consistent with the realities of world
oil markets.
An example of this process is the Oil Supply Disruption Simulation
Exercise that will be held at the end of this month. It represents a
major new step in developing coordinated emergency response plans that
take advantage of the efficiency of oil markets by using emergency
reserves, such as those in the Strategic Petroleum Reserve, as a first
response to offset disrupted supplies. Oil company representatives will
be working together with energy security experts from the U.S.
Government and the IEA's 23 other member governments to better
understand how the IEA's emergency response measures can work with the
power of oil markets to minimize the economic damage resulting from a
supply disruption. The exercise will also explore the possible actions
that the IEA member governments could take in response to potential Y2K
problems, addressing both the uncertainties as the end of the year
approaches as well as possible responses if supply disruptions occur in
early-2000.
In the event of a future supply disruption, the companies are
currently in a position to provide timely, well-informed advice to the
IEA and its member governments regarding key supply and demand factors,
including the likelihood of severe shortages and the impact of possible
responses by the IEA.
EPCA is scheduled to expire on September 30, 1999, which would
eliminate the statutory antitrust defense that has allowed the oil
companies to provide effective assistance to the IEA. There is, of
course, no way of knowing when the next oil supply disruption will
occur. By its very nature, the occurrence of the next oil supply
disruption cannot be predicted, but given the uncertain world in which
we live, it is likely that sooner or later there will be another crisis
of some kind. In light of these risks, it would be unwise to allow EPCA
to lapse. Emergency response programs are most effective at mitigating
the impact of a supply disruption if they are implemented quickly.
Continuity of coverage under EPCA is essential to maintain the legal
structure that allows the oil companies to immediately begin working
with the IEA and its member governments to adopt response measures in
the event of a crisis. It would be unfortunate to allow a gap in the
coverage provided by EPCA that could result in advice from the oil
companies not being available when it was most needed, if a disruption
were to occur in the months ahead.
The oil companies have been asked by the U.S. Government to assist
the IEA. The State Department, the Department of Energy and the IEA
have repeatedly advised us that they want U.S. oil companies to advise
the IEA on emergency response matters. I am convinced that such
consultations are useful and lead to more effective IEA response
measures, which in turn will reduce the economic damage to our economy
and the economies of our allies that might be caused by a future oil
supply disruption. Thus, API encourages Congress to reauthorize EPCA
immediately, extending to 2003 the statutory antitrust and breach of
contract defenses that are essential to allowing the oil companies to
support the IEA's emergency response activities.
Mr. Barton. Thank you, Mr. Canes.
The Chair would recognize himself for the first round of
questions, which will be 5 minutes.
Mr. Fuller, I think you are aware that I have been working
on an amendment to this piece of legislation that would give
the secretary the permissive authority to purchase marginal
well oil when prices fall below $15 a barrel. I have spoken
with some people at IPAA. Is your group aware of this and
willing to support it being added on a temporary basis to the
reauthorization bill?
Mr. Fuller. Mr. Chairman, this is an issue that we have
also looked at over time as a mechanism to try to deal with
marginal well production in times of crisis. I think as an
organization we would like to see this concept move forward to
see what can be done in that regard.
As you know, there are a number of complicated factors that
one needs to take into account to try to make it work,
acquiring the oil or trading for it in some fashion to get it
to the Strategic Petroleum Reserve and others.
I think there are also questions that one needs to address
in terms of whether you would preserve some capacity in the
Strategic Petroleum Reserve to be used to fill in this kind of
a crisis. For example, right now the empty capacity, as I
mentioned, is about 100 million barrels. That is roughly 80
days of production from marginal wells around the country. So
some capacity would have to be there to make that type of
process work.
I am glad to see that you are addressing the question of
price, because that is also a very significant factor in
maintaining marginal wells. These wells are higher cost wells
and therefore are more susceptible as price falls.
Mr. Barton. Mr. Secretary, I met yesterday with Secretary
Richardson and I also met in Congressman Hall's office with
some of the professional staff at the Department of Energy on
the amendment. Secretary Richardson said that he was very
sympathetic to it and the professional staff said that they had
concerns about implementation such as Mr. Fuller alluded to but
they were neutral as to trying to make it work, and they
thought they would be willing to do that if the secretary
supported it.
Have you had any conversations with Mr. Richardson since
yesterday afternoon on this amendment?
Mr. Gee. I have not had an opportunity to talk to Secretary
Richardson since he met with you late yesterday afternoon. I
have talked to my staff who met with you and am aware of your
conversations with him. We are taking a look at your amendment,
Mr. Chairman.
We are certainly sympathetic with the spirit of your
amendment in recognizing the severe impact that low oil prices
have had on stripper well capacity. One of the goals of our
office and of our department is to preserve existing domestic
production capacity of which stripper wells certainly play a
big role. To the extent that your amendment moves in the spirit
of helping to maintain that domestic capacity, certainly we are
sympathetic. We are not, however, as you know and as Secretary
Richardson indicated to you, prepared to commit to a position
on your specific proposal at this time, but we will certainly
be happy to take a look at it.
Mr. Barton. As long as it is permissive and not coercive,
the staff estimate is that there is no CBO scoring negative to
it. So, as you said, we are moving in spirit in the direction
that you all support.
Mr. Gee. That is something we are taking a look at, yes,
Mr. Chairman.
Mr. Barton. Could you comment, Mr. Secretary, on the
Strategic Petroleum Reserve's Y2K capability? Are you satisfied
that in the event of a Y2K problem that the SPR would still be
functional and could be drawn down if necessary?
Mr. Gee. Yes, Mr. Chairman. We are absolutely confident
that we have no lingering Y2K problem on the infrastructure of
our Strategic Petroleum Reserve facilities. They are ready. As
a matter of fact, we have already prepared all of the
administrative requirements in the instance of a disruption of
oil flow from foreign sources, were that the case, to be able
to respond timely on our behalf; were there, for instance, some
problem with one of our foreign suppliers of domestic crude.
We are confident that we are ready, and our staff in fact
will be on alert when the clock strikes 12 midnight December 31
to see if there is any need to begin a drawdown, if that were
the case.
Mr. Barton. Thank you, sir.
My time has expired. The Chair would recognize Mr. Hall for
5 minutes.
Mr. Hall. Mr. Chairman, thank you.
Mr. Gee, you understand that the bill that is before us
does not include reauthorization of certain programs to
encourage export of American technology for renewable energy
and energy efficiency, and I think you also understand that the
administration supports the reauthorization of these programs.
I am very hopeful that we can work out the problems with the
provisions.
It does not bother me that with my connection with the
Science Committee for them to refer it to them, but it seems
like a useless referral and time-consuming and does not really
need to be done, because I think they are largely procedural in
time for next week's full committee markup, and time is pretty
much of the essence right now.
Tell us a little more about these programs. I understand
that some of the activities have become dormant in recent
years. Give us some reasons why they ought to have life
breathed back into them other than the reason that we need to
do anything we can to help the energy community and that they
have been pretty well run roughshod over and have not been, in
my opinion, given the attention and the support of this
Congress or this administration or the past administration.
There are ten states out of 50 that produce this and they have
to almost run over the other 40 to get anything that is
worthwhile, or make trades that are almost unconscionable.
Give me some good reasons for the record as to why these
programs became dormant and without appropriations, and help us
put in the record where we can read it to others and others
will read it why they merit an extension.
Mr. Gee. Thank you, Congressman Hall. As you know, I am the
fossil energy guy at the Department of Energy and I am not the
expert in renewables or energy efficiency, but I do know that
including the necessary authorizations to continue these two
programs is part of this administration's, this department's
desire. Let me give you a very, very brief, cursory description
of what is contemplated.
One of the programs that we understand needs
reauthorization is the Committee on Renewable Energy Commerce
and Trade, which is a 14-member interagency working group of
the Federal Government. Its purpose is to develop a partnership
between the U.S. private sector and the Federal Government to
mobilize resources of these various agencies to assist the
renewable energy industry to increase their international
market share. Close cooperation is needed between U.S. industry
and our agencies because of the competitive forces that they
face in a global market.
It is my understanding that this program has not been
funded over the last two fiscal years. It was begun around
fiscal year 1994 and was funded through fiscal year 1996.
The desire on the part of the department is to have
reauthorization despite the fact that the program has not been
funded during fiscal year 1997 or 1998 because of the desire to
have that authorization in place were there a desire to re-
appropriate funds for these programs because of the need to
meet the challenges in a global marketplace and have our
private sector work closely with our agencies to promote
renewable technologies abroad.
The other program is the Committee on Energy Efficiency
Commerce and Trade. It also is an interagency working group.
Let me get my notes in order. There is one other program.
Mr. Hall. In the interest of time, if you would like to and
if the chairman approves, you could give me these things to put
in the record, to be added. I just want to get them on record
for those who are not here to read them and for those who are
not members of this subcommittee to have them available.
Mr. Gee. The other program, Mr. Congressman, is similar to
the other program. Its mission is to assist energy efficiency
industry to compete in the international market through an
interagency working group. In this instance, this is where
competitors of U.S. firms receive direct substantial government
export assistance where they face barriers into foreign
markets. The purpose of this energy efficiency commerce and
trade group is to consult and collaborate with representative
industry groups and Federal agency heads to coordinate and
leverage actions and programs of the Federal Government with
the private sector.
This program has been funded on a continuous basis since
fiscal year 1993. There is an outstanding request for fiscal
year 2000 as well. It is intended to help leverage export
assistance to foster energy efficiency technologies abroad.
Like I said, Mr. Chairman, we will be happy to provide you
and the record with more information. I am not the energy
efficiency expert at the Department of Energy, as you know, but
we will be happy to give you additional information.
[The following was received for the record:]
The attached fact sheets on the Committee on Energy Efficiency
Commerce and Trade (COEECT) and the Committee on Renewable Energy
Commerce and Trade (CORECT) are provided for the record.
COMMITTEE ON ENERGY EFFICIENCY COMMERCE AND TRADE (COEECT)
The Committee on Energy Efficiency Commerce and Trade (COEECT) is
an interagency working group of fifteen Federal agencies chaired by the
Department of Energy whose mission is to assist the U.S. energy
efficiency industry to compete in the international market--where its
competitors receivesubstantial government export assistance and where
it faces barriers to entry into foreign markets. COEECT consults and
collaborates with representative industry groups and relevant Federal
agency heads to coordinate and leverage the actions and programs of the
Federal Government affecting the export of energy efficiency products
and services to support U.S. energy efficiency industry efforts to
successfully compete for its share of the large world market. COEECT's
purpose is to increase energy efficiency exports, thus creating US jobs
and reducing global environmental pollution.
Funding History
FY 93: $248K
FY 94: $704K
FY 95: $1,116K
FY 96: $1,116K
FY 97: $1,100K
FY 98: $1,000K
FY 99: $900K
FY 00: $1,200K (requested)
Approach
<bullet> COEECT coordinates Federal member activities.
<bullet> COEECT leverages existing Federal resources by:identifying
existing export assistance programs which apply to the energy
efficiency industry;
--bringing to bear member agency resources to promote the goals of
these programs on behalf of the energy efficiency industry,
resulting in increased exports;
--and pursuing the commercial financing of projects and seeking out
host country matching dollars for the purchase of U.S. energy
efficiency goods and services.
<bullet> COEECT partners with the U.S. energy efficiency industry by:
--understanding its export market priorities and identifying
barriers that cannot be overcome without this specialized
Federal assistance;
--developing assistance for all energy efficiency firms to enter
targeted markets, including overcoming financing and regulatory
barriers, identifying projects, conducting focused trade
missions with contact with potential buyers from industry and
government, market conditioning, project implementation,
matchmaking, deal closure and market assessments;
--providing industry a link to and leveraging of the wide range of
government programs and activities designed to increase U.S.
industry's market share.
FY 1999 Activities
COEECT continues to assist industry, especially small and medium-
sized businesses that could not afford to develop business outside the
U.S., increase their market penetration and global competitiveness.
COEECT's activities support the U.S. energy efficiency industry in
providing technical information on, and assistance in, export financing
and project implementation in the areas of Latin America, Asia, and
Central and Eastern Europe.
COMMITTEE ON RENEWABLE ENERGY COMMERCE AND TRADE (CORECT)
The Committee on Renewable Energy Commerce and Trade (CORECT) is a
14-member interagency working group of the Federal Government. CORECT's
primary objective has been to forge an effective partnership between
the U.S. private sector and the Federal government to mobilize the
resources of the CORECT member agencies and assist the renewable energy
industry to increase their international market share. Given the large
potential market for renewables exports and the increasing competition
from government-aided European and Asian industries, close CORECT-
industry collaboration is needed to ensure that U.S. business is able
to secure a significant portion of this market. By increasing renewable
energy exports, the program creates U.S. jobs, returns money to the
Federal government through tax revenues and reduces pollution from
traditional energy sources.
Funding History
FY 94: $1.886 million
FY 95: $1.884 million
FY 96: $1.888 million
FY 97: $ 0 ($2.0 requested)
FY 98: $ 0 ($2.0 requested)
Approach
First, CORECT works very closely with the U.S. renewable energy
industry to obtain as clear an understanding as possible of its export
objectives. This collaboration has led to the designation of four major
regional markets: Latin America and the Caribbean, Asia and the
Pacific, Africa, and Eastern Europe and the Commonwealth of Independent
States. Within those regions high priority country markets have been
identified where U.S. firms have a significant potential to sell their
products and services.
Second, after the identification of barriers CORECT works with
industry to design practical assistance aimed at enhancing market entry
prospects for all U.S. renewable energy firms in specific country
markets. The aim of the approach is to insure that CORECT works with
U.S. business to overcome specific impediments identified by U.S. firms
with experience in specific overseas markets.
Third, CORECT aids industry by working collaboratively to identify
project lending that emphasizes commercial financing lending rather
than aid from governmental resources. This has become increasingly
feasible as life cycle costs for renewables have continued to decrease
to the point where in countries heavily dependent on petroleum imports,
many large scale renewable technologies are directly competitive with
thermal electric generation systems. Additionally, CORECT is working
with industry to bring about this same situation with smaller-scale
rural renewable energy applications, which are increasingly seen as a
more sustainable alternative than reliance on dispersed hard-to-
maintain diesel generators.
Activities
No funding for CORECT was received in FY 1997, FY 1998 and FY 1999.
No activities ongoing.
Mr. Hall. For that I thank you.
Will the chairman yield?
Mr. Barton. The gentleman's time has expired, but we will
yield for one more question.
Mr. Hall. I have a question of the chairman. Our visit
yesterday with you and members of other departments indicated
that your bill was limited to stripper wells. Have you enlarged
that?
Mr. Barton. The wording is ``marginal well.''
Mr. Hall. That would go up to 15?
Mr. Barton. Fifteen barrels. That is my understanding what
the definition is in the law.
Mr. Hall. How about the tertiary thrust? We discussed that
a little bit.
Mr. Barton. That is not included.
Mr. Hall. But could be if there is no objection?
Mr. Barton. It is permissive. So it would be at the
discretion of the Secretary.
Mr. Hall. I think it is a good bill and I think it
certainly is a tool that might aid an industry that needs not
only some aid but some kind words. Thank you. I yield back my
time.
Mr. Barton. We appreciate that support.
We want to thank our Chilean friends for your attendance
and seeing democracy in action.
The gentleman from California, Mr. Rogan, is recognized for
5 minutes.
Mr. Rogan. Mr. Chairman, thank you. Thank you for calling
this hearing. I thank each of the panelists for their
participation.
Mr. Gee, I was hoping you could just fill in a few
background gaps for me in my knowledge of the historical
background of the Strategic Petroleum Reserve. This was created
about 25 years ago as a result of the oil shocks of 1973, and
the purpose of the reserve was to protect us against future
shocks at least for a period of time?
Mr. Gee. That is correct, Congressman. It was started in
the mid-1970's roughly as an effort among the OECD countries of
which the United States is a member to collaborate in instances
of oil supply emergencies where there was a disruption of oil
flow. At that time, as you know, there was a huge dependency,
as there still is today, on oil coming from the Persian Gulf
region.
It was the United States' effort to develop a capacity to
have oil in storage in underground caverns, to have roughly
anywhere from a 60- to 90-day drawdown capability to mitigate
price shocks in the instance of a severe oil interruption from
our foreign source crude oil.
We are proud to say that this is something that the United
States has made a commitment to and is viewed worldwide among
International Energy Agency members as a model for other
nations to follow, that is, those countries that are IEA
members of which all the OECD countries are a part.
We hope that the commitment is shown by all to maintaining
the reserve and to replenishing its capacity because of our
continued dependence upon crude oil, which is even greater
today, from foreign sources than it was in 1974, which I think
at the time was around 35 percent reliance, which is now beyond
that, well into around 54 or 55 percent today on foreign source
crude.
Mr. Rogan. I am sorry. You said it has gone from about 35
percent?
Mr. Gee. It was 35 percent, I believe, in 1974 and 1975, at
the time we began the process to develop the Strategic
Petroleum Reserve. It is now, as I understand it, around 54 or
55 percent of net imports.
Mr. Rogan. Obviously it preceded my time in the Congress.
My recollection of that time was that it was the stated policy
of the United States to wean ourselves from dependence on
foreign oil. What you are saying essentially sounds like we
have committed a callosal failure in that regard. How do you
account for that?
Mr. Gee. We have not done a very good job. I think it is a
number of factors. One is the growth of the United States
economy and our huge energy consumption demands. The United
States is the most energy intensive country in the world. We
consume more energy than any other industrialized country per
capita.
Another factor, unfortunately, has simply been our
unwillingness to make the necessary policy steps to move us
toward a way of increasing our reliance on domestic sources. We
are trying to turn that around. This administration, for
instance, is committed to halting the decline in domestic
production capacity by the year 2005.
We recognize that we are going to have to take steps, among
other things, to improve the way we consume energy and also
preserve our domestic capacity because of the perilous position
it puts us in and our huge reliance on foreign source crude.
Mr. Rogan. In that regard, is the administration also
seeking out new sites to drill and produce?
Mr. Gee. We have.
Mr. Rogan. Domestic sites?
Mr. Gee. That is a sensitive political question. On the
other hand, we have been able to find areas where we think our
industry ought to be entitled to go and develop. For instance,
the Department of the Interior recently opened up parts of the
National Petroleum Reserve in Alaska for drilling. They are now
looking at various bids to help develop those public lands
because of the necessity of having to find more sources of oil.
One other thing that the Department of Energy is doing--
actually, a number of other things--is helping to improve the
economics in oil drilling technology. We have a number of
programs already in place to help lower the cost of production,
particularly among the small independents who are in a
financially distressed situation. We have programs working with
them to foster technology transfers so that they can put in
place the best available technology to lower their drilling
costs.
We have another program to help lower their electricity
costs. Part of the cost incurred out in the oil patch in
producing oil is attributable to electric utility costs, which
make up about 40 percent of overall cost of production. We are
working very closely with the industry, with the independents,
and with the National Association of State Energy Officials to
try to find a way to guide them and help them do energy audits
and find ways to lower their electricity cost which plays such
a large role in keeping a lot of the marginal capacity
economically viable.
Mr. Rogan. Thank you, sir.
Mr. Barton. The gentleman from Ohio, Mr. Sawyer, is
recognized for 5 minutes for questions.
Mr. Sawyer. Thank you, Mr. Chairman. I really appreciate
Secretary Gee's last comments. In 1974 and 1975 I was working
at the Public Utilities Commission of Ohio, policy analysis and
that sort of thing. The effect of oil on virtually all other
alternative sources of energy played itself out in the real
lives of people at that point.
The kind of effort that had begun, according to my staff,
with recommendations from Secretary Harold Ickes in the 1940's
and President Truman's Mineral Policy Commission in 1952,
Eisenhower's suggestion of an oil reserve in the Suez crisis in
1956, the Cabinet Task Force on Oil Import Control recommended
a reserve in 1970, and finally in 1975 we got to it.
Your chronicling the size of the reserve really raises a
question. You say it is about 563 million barrels now. The
current capacity is about 700.
Mr. Gee. Seven hundred.
Mr. Sawyer. The statutory target fill rate would aim us
toward 750. You argue in your testimony that 750, much less 1
billion, is unrealistic today but that we will move toward
analyzing what that ought to be.
Is the 60- to 90-day drawdown capacity still the standard
by which we ought to judge this? What would that produce in
terms of needed capacity? What should the reserve size be and
how best should we hold ourselves accountable for achieving and
maintaining it even in the face of budget pressures?
Mr. Gee. Our current capacity, as you indicated,
Congressman, is 700 million barrels. We are currently at around
563 million barrels. After we complete our royalty in kind
program with the Department of the Interior, it should be
around 585 million barrels, still leaving us something around
115 million barrels shy of full capacity.
We have a size study that is under way. It is going through
interagency review at this time. It is going to be developing
the economics underlying the different options of continuing to
fill the Strategic Petroleum Reserve and what an optimal size
may be.
The study itself will not specifically recommend a size per
se, but it would show the relative tradeoffs, depending upon
what size we choose to opt for. For instance, if we were to go
ahead and fill our capacity up to the full 700 million barrels,
right now, because we have the capacity there, probably the
cost would not be that great; it would be negligible. To go
from 700 to 800 million barrels would probably incur some
additional cost. Beyond 800 million barrels, I'm told we would
then have to determine whether there are important economic
benefits to be gained by going above 800 million barrels. At
least that is what our technical staff tells us.
We will have a much better indication once this study comes
up to be able to make a firmer recommendation on what an
optimal size could be.
Right now our drawdown capability is 60 days worth. Under
the International Energy Association requirements we are
required to have a 90-day drawdown capacity as an IEA member.
We meet that additional capacity by virtue of commercial
storage, that is, storage provided by the private sector.
Mr. Sawyer. If it were all done in the reserve, would that
be toward the billion barrel?
Mr. Gee. It moves us in that direction. The 1 billion
barrel requirement as I understand it, was something that was
in the original enabling legislation of EPCA. We were to have
achieved that by 1992. Obviously we missed that target.
Mr. Sawyer. In the very brief time remaining to me and
within the chairman's range of patience, can you tell me how
that asset is valued for budget scoring purposes as an asset of
the United States?
Mr. Gee. I am told, Congressman, that when we buy inventory
it is scored and when we sell inventory it is scored, but so
long as the inventory remains static it has no budgetary
impact.
Mr. Sawyer. So if it were a cash deposit, it would have
value, but if it is an asset, it does not?
Mr. Gee. Correct.
Mr. Sawyer. That may be something to look at, Mr. Chairman.
Mr. Barton. I thank the gentleman from Ohio. We now
recognize the gentleman from Oklahoma, which has got many, many
small independent oil and gas producers, the Honorable Mr.
Largent, for 5 minutes.
Mr. Largent. Thank you, Mr. Chairman.
Mr. Fuller, I notice that your title at the IPAA is manager
of their energy forecasting.
Mr. Fuller. I am the vice president of government
relations.
Mr. Largent. You are energy forecasting, Mr. Canes?
Mr. Canes. No.
Mr. Largent. Does anybody do energy forecasting?
Mr. Canes. No, sir.
Mr. Barton. If the gentleman would yield. We want the
record to show that Mr. Fuller's title on the committee handout
does say energy forecasting. So Mr. Largent can read.
We have obviously made a mistake at the staff level and
should not hold Mr. Largent accountable for that.
Mr. Fuller. Maybe I have skills I am unaware of.
Mr. Largent. Let us see. Let us test them.
What are the predictions for energy consumption for this
country for the next five or 10 years? What is expected to
happen? Do you know?
Mr. Fuller. I have not seen a forecast in that area. I
think probably the best forecast that is put together in that
regard is probably done by the Energy Information
Administration.
Mr. Largent. Mr. Gee, do you have any idea?
Mr. Gee. I do not have the exact number, Congressman, but I
do know the IEA numbers do show an upward trend of continued
energy consumption.
Mr. Largent. Mr. Canes?
Mr. Canes. Yes, I think that is right. It largely depends
upon economic activity. So long as that remains strong and
positive, I think the expectation is there will be some
increase in consumption of energy.
Mr. Largent. It seems to me I saw just recently across my
desk a prediction that showed that energy consumption in this
country was to double in the next ten to 20 years. I cannot
remember. It is something like that.
My question is this. The United States today is currently
producing domestically about 45 percent of our domestic needs.
Given the fact that that consumption is going to double, say,
in the next 20 years at the outside, does the United States
have the capacity to maintain 45 or 50 percent of our domestic
needs and produce it domestically?
Mr. Gee.
Mr. Gee. I think that is a very good question and that is
something that we are taking a very careful look at. I will
give you an illustration. When we talk about energy
consumption, we are talking about transportation, we are
talking about power generation, we are talking about the range
of uses of energy in our economy.
One of the concerns we have, for instance, is we know that
electric power is going put a huge demand on the drawdown of
natural gas, on natural gas proven reserves. Every forecast
that we have seen, particularly forecasts of the Energy
Information Administration, show that there will be a huge
demand for more natural gas over the next ten to 15 years for
that reason.
One of the concerns we have is whether there is sufficiency
of supply to meet that demand. That is something that we are
working very closely with the National Petroleum Council on at
this moment, doing an evaluation of what our policies are to
meet the challenge of finding a way to make sure that there is
sufficient natural gas supply to meet that huge demand.
Mr. Largent. Well, it is tough to import natural gas, isn't
it?
Mr. Gee. It is going to be very difficult. We do not expect
we will be able to import much natural gas. As you know, it
needs to be liquefied and it is hugely expensive. So it is
going to have to come presumably from a domestic source.
Mr. Largent. That brings me to a question about the IEA.
Mr. Canes, the Strategic Petroleum Reserve, is that a part of
the emergency plan of the IEA? In other words, if there was an
interruption in the supply of oil worldwide, would the United
States ever be called upon to use our Strategic Petroleum
Reserve to send to somebody else?
Mr. Canes. I do not think it works quite that way, Mr.
Largent. I believe that all countries are expected to have
emergency plans and facilities.
Mr. Largent. For their own use?
Mr. Canes. Yes, and different countries, I think, approach
this in different ways. I think some work on the demand side,
and I think our choice has been to have a Strategic Petroleum
Reserve to enhance supply. It is my understanding that there is
no requirement to ship that oil overseas.
Mr. Largent. Mr. Gee, what is the average cost of a barrel
of oil in the Strategic Petroleum Reserve today? Do you know?
Mr. Gee. Right now the average embedded cost price is
around $27 per barrel. That is my understanding. That is the
historic embedded average cost.
Mr. Largent. When we sold it on a non-emergency basis in
1996 and 1997, what was the cost per barrel in the petroleum
reserve and what did we sell it for?
Mr. Gee. Let me get that number for you, if I may.
[The following was received for the record:]
The average price paid for the oil in the Reserve was $27.14 per
barrel.
Sales were as follows:
------------------------------------------------------------------------
Amount of SPR Oil
Fiscal Year Sold Cost per barrel
------------------------------------------------------------------------
FY 1996......................... 5.1 million $18.95 per barrel
barrels.
12.8 million...... $17.81 per barrel
FY 1997......................... 10.2 million...... $21.64 per barrel
------------------------------------------------------------------------
Mr. Largent. Let me go on. What do we add to the cost of a
barrel of oil just for maintenance every year in the SPR?
Mr. Gee. I am informed that it costs us approximately 25
cents per barrel per year to maintain that capacity.
Mr. Largent. Mr. Canes, I have a question again about the
IEA. Who are the players in the IEA? Is everybody at the table?
Are the Middle East countries at the table? Is Russia at the
table with the IEA? And what enforcement mechanisms exist for
the players that participate in the IEA in the case of
worldwide interruption?
Mr. Canes. Mr. Largent, I am not completely acquainted with
every country that is in there, but I believe it is largely the
OECD countries that make up the primary members of the IEA.
Mr. Largent. So are we talking about Saudi Arabia?
Mr. Canes. No. The OECD would be primarily western Europe,
Japan, the United States, Canada.
Mr. Largent. Russia?
Mr. Canes. I am not sure whether Russia is a member of the
IEA. As far as I know, they are not, but I may be mistaken on
that.
Mr. Largent. So we are talking about a significant number.
What about Argentina or some of the countries in South America?
They are not players either. So we are talking about the most
significant producers in the world do not participate in the
IEA.
Mr. Canes. I believe that is correct.
Mr. Largent. How effective can the IEA be when the most
significant producers in the world are not at the table?
Mr. Canes. Sir, I believe that it was originally intended
to be a mechanism for consuming countries, the large consuming
countries to collectively decide on ways to deal with
disruptions or emergency situations. So it has functioned
largely for that purpose. That is the reason, I believe, why
producers other than, say, Great Britain are not members of the
organization.
Mr. Largent. Doesn't it make sense to try to make an effort
to get the producers at the table in case there is an
interruption? It is one thing to have all the people that are
in need to say, OK, how are we going to do this? We don't have
enough oil. How are we going to allocate? But in reality it is
not up to them; it is up to the people that are producing. I do
not understand why the OPEC countries, for example, are not at
the table.
Mr. Canes. It might be that a different kind of mechanism
which would include producers might be a good idea to try to
work out what should be done in emergency, but IEA, as I
understand it, was not intended for those purposes.
Mr. Barton. The gentleman's time has expired.
Mr. Largent. Thank you, Mr. Chairman.
Mr. Barton. We can submit questions for the record.
Did Mr. Fuller wish to comment on that?
Mr. Fuller. I just wanted to make a comment on that point.
One of the concerns we have had, particularly as we watch this
last oil price crisis, is the importance of trying to be a
player in the international arena with respect to these
producing countries for the United States.
As you are probably aware, there is current investigation
under the section 232 process to look at the threat to national
security that imported oil poses.
Our recommendations on ways to address that is a strong
encouragement that the United States needs to be much more
proactive with producer countries in looking at the need for
supply around the world, and particularly in responding quickly
to the kinds of events that we saw happen in the last 20-some
months that created the price crisis that had such a
devastating effect on our domestic industry.
Probably IEA is not the format for that, but it is
certainly a need that we think this country needs to pursue.
Mr. Barton. Thank you.
The gentle lady from Missouri, Ms. McCarthy, is recognized
for 5 minutes.
Ms. McCarthy. I thank you, Mr. Chairman, and I thank you
for holding this most important hearing.
Mr. Gee, through my travels and my experiences I have
learned about how other countries are cleaning our clock on
export of renewable energy to the developing countries where
traditional energy just will not work. There isn't the
infrastructure; there isn't the capacity; there isn't the use
for oil and the traditional uses we have. Japan and other
countries for some time now have been out there exporting
renewables into these countries.
There has not been much said about reauthorizing these
efforts, the two programs, the Committee on Renewable Energy
Commerce and Trade and the Committee on Energy Efficiency
Commerce and Trade, COEECT and CORECT. I wonder if you would
speak to those.
I have concern, as the administration does, with regard to
the impact of energy use particularly in developing nations. We
do not want them going down the path that China has gone down
and causing grave pollution and consequences that are going to
be very expensive for the world to clean up.
Would you kindly address those matters now in preparation
for our work on this bill.
Mr. Gee. Thank you, Congresswoman. Congressman Hall had
already asked me the same question, but I will be happy to give
you a brief description of those two programs. Let me do that
simultaneously.
Ms. McCarthy. I do not need a description. I want to know
what we are doing about reauthorizing them and also what we are
doing as an administration and a government to see that we do
not get our clocks cleaned in the future.
Mr. Gee. The administration is seeking reauthorization of
both programs because of the necessity to underscore the
importance of the export of energy efficiency and renewable
technologies by U.S. companies with a collaborative effort
between the private sector and our government to try to gain
market entry into those developing countries and other venues
that you just mentioned.
I think the purpose that they serve is to have a
competitive advantage for U.S. firms who are strongly backed by
other firms in other countries by their governments as well to
gain market access. Both of these programs are very important,
because if we do not activate them on a timely basis, the
United States stands to lose a significant market share in
marketing both those technologies.
Ms. McCarthy. Is currently losing. It isn't ``stands to.''
The tense is wrong in the administration and in the minds of
the American oil companies. British Petroleum. Look what they
are doing. And it is working. What is the administration doing
to get the attention of the industry here that instead of
playing catch-up to get out in front of it?
Mr. Gee. Our office is the fossil energy office, but I know
that Dan Reicher, who heads the Office of Energy Efficiency and
Renewable Energy at the Department of Energy, has been very
aggressive in working with our private sector to try to
preserve and improve market share among members of our industry
in those foreign venues. I will be happy to refer your
questions to him. I am not the energy efficiency and renewable
expert, as you know.
I can tell you today that both these programs are high
priorities for our department and for our administration,
because we do think that it is important for the United States
to be very actively involved working with our private sector to
market those technologies, because there are going to be
instances when traditional uses of forms of energy are not
going to be favored for a variety of reasons, either logistical
or environmental, in a number of foreign regimes, and that
energy efficiency and renewable energy will be the technology
of choice and that it is very important for the United States
to play a major role there.
Ms. McCarthy. I appreciate your efforts. I still think you
need to use the verb tense that is most appropriate. This is
not a futuristic goal. This is now, and we are behind the
curve.
When oil executives come before this subcommittee and I ask
them about this, they think maybe I'm on Mars or they are on
Venus. I don't know. But this is a great opportunity for our
economic development, for the betterment of our globe and the
environment that we share, and it is like a lost opportunity,
because we are still just talking about it here in this country
where other nations are acting on it and have been.
I appreciate your activities. I would just like to say
let's fast forward them.
I thank the Chair for his indulgence and this time.
Mr. Barton. We have got two votes on the floor. We are
going to recognize Mr. Stearns for his 5 minutes, and then we
are going to recess. We will continue the hearing at the end of
the recess, which should be around a quarter to noon. We will
recognize Mr. Stearns for 5 minutes.
Mr. Stearns. Thank you, Mr. Chairman. I will be brief,
particularly in light of the vote.
Mr. Gee, every time I come to the House floor there is
usually some amendment to decrease the fossil fuel program.
Evidently you have taken reductions both from Congress as well
as the Department of Energy. Isn't that true?
Mr. Gee. That is correct, Congressman.
Mr. Stearns. Let me ask Mr. Canes and Mr. Fuller. What are
the benefits of the fossil energy program? I hope you will be
candid with us. Many members do not know and we are trying to
determine what the benefits are. Maybe this is a perfect time
for you to tell us.
Mr. Fuller. From the independent sector, we have strongly
supported that program. Mr. Gee described a number of the
activities that the fossil energy program has been engaged in
that is particularly directed at working with independent
smaller producers. Obviously most of our companies do not have
the resources to develop elaborate technology steps forward.
Mr. Barton. Would the gentleman yield on his answer. Before
Congressman Shimkus and Congresswoman Wilson leave, would you
all be willing to submit your questions in writing for the
record? And Mr. Ehrlich and Mr. Fossella. If you all agree to
do that, we can go to authorization of the bill when we come
back instead of having questions. Is that acceptable? Is there
any objection on the Democratic side?
When we come back, we will be ready to go to markup of this
piece of legislation.
Proceed.
Mr. Fuller. This is a program that we have found to have
the potential to be very beneficial. In addition, because it
focuses frequently on trying to establish technology transfer
information to small producers, it helps us a great deal.
Mr. Stearns. Mr. Fuller, you think it is a good program?
Mr. Fuller. We do think it is a good program.
Mr. Stearns. You think we should increase the funding for
it?
Mr. Fuller. I think you should get the funding back to
where it had been. So that would be an increase from where it
is now.
Mr. Stearns. Mr. Canes.
Mr. Canes. Mr. Stearns, I was not prepared to deal with
that question today. I think in general we have had a very
strong working relationship between the industry and the DOE,
but on this specific question I would have to get back to you
for the record.
Mr. Stearns. You mean you have got to contact the institute
and talk to them?
Mr. Canes. I would want to find out.
Mr. Stearns. This has never come across your plate whether
the fossil fuel program is good or bad in your entire tenure at
this particular institute?
Mr. Canes. No. Because my responsibilities have been on the
economics and statistics side, I have not dealt with the
research side of it and the relationship between our companies
and the fossil fuel portion of DOE, but I am sure we do have
some things to say on this and will be glad to supply you that.
Mr. Stearns. Thank you, Mr. Chairman. I yield back the
balance of my time.
Mr. Barton. Thank you. We are going to recess. Before we
do, all members will have the requisite number of days to put
written questions in the record for the witnesses to answer. We
also would ask unanimous consent that some other national
organizations put a written statement in the record subject to
both minority and majority staff agreeing on those statements.
Is there objection to that?
[No response.]
Mr. Barton. We are going to recess until a quarter to noon.
We are going to reconvene at 15 until noon and we will go into
markup. The witnesses are released. We are in recess.
[Whereupon at 11:15 a.m., the subcommittee was recessed, to
reconvene at 11:45 a.m., this same day.]
[Additional material submitted for the record follows:]
National Association for State Community Services Programs
September 13, 1999
The Honorable Thomas Bliley, Chairman
United States House of Representatives
Committee on Commerce
2125 Rayburn House Office Building
Washington, DC 20515
Dear Congressman Bliley, I would like to thank the Committee for
this opportunity to express the views of our organization in the matter
of the hearing being held on September 16, 1999 related to the Energy
Policy and Conservation Act (EPCA--42 U.S.C. 6865). The National
Association for State Community Services Programs (NASCSP) is a
membership organization representing state directors of the U.S.
Department of Energy's (DOE) Weatherization Assistance Program (WAP)
and the U.S. Department of Health and Human Services' Community
Services Block Grant. DOE has offered a set of statutory changes to
revise existing WAP legislation. This letter serves our testimony in
support of these much needed revisions to the current laws governing
this important program.
The first proposed change involves the cost per unit average. The
proposed average would be increased to $2,500, adjusted annually. A
closely related proposed change involves the allowable expenditures
included in the average cost per unit. When approved, the capital-
intensive category would be eliminated and all higher cost units would
be included in this revised higher average. Also, health and safety
costs would be excluded from this average and accounted for as a
separate cost category.
NASCSP fully supports these two proposed changes. Both will result
in the reduction of the administrative workload at the state and local
levels related to tracking separate cost categories. In addition, DOE
will recognize health and safety investments as legitimate costs.
Finally, we support the DOE proposal to eliminate the out-dated
energy auditing requirements and establish a more advanced energy audit
standard.
WAP has undergone many changes in recent years and will likely face
many more in the future as we learn more about residential energy use
and discover new energy saving technologies. Because of past statutory
and regulatory revisions enacted by Congress and DOE, the state and
local agencies that deliver the WAP have been able to increase the
program's cost effectiveness and energy savings potential by 80%
between 1989 and 1996. Of course, the more than 75,000 low-income
families who receive WAP services each year are the real beneficiaries.
These families enjoy lower energy bills and safer, healthier, and more
energy efficient living conditions. Your favorable consideration of the
proposed changes currently before your Committee will help provide an
even more effective program by relieving unnecessary administrative
burden and helping to promote the integration of new advanced
technologies.
Respectfully submitted,
Timothy Warfield
Executive Director