<DOC>
[109 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:30004.wais]
S. Hrg. 109-503, Pt. 3
IMPLEMENTATION OF THE PROVISIONS OF THE ENERGY POLICY ACT OF 2005
=======================================================================
HEARINGS
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
on
ENHANCING OIL AND GAS PRODUCTION; GEOTHERMAL ENERGY AND OTHER
RENEWABLES; AND HYDROGEN AND FUEL CELL RESEARCH AND DEVELOPMENT
__________
JUNE 27, 2006
JULY 11, 2006
JULY 17, 2006
Printed for the use of the
Committee on Energy and Natural Resources
______
U.S. GOVERNMENT PRINTING OFFICE
30-004 WASHINGTON : 2006
_____________________________________________________________________________
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska RON WYDEN, Oregon
RICHARD BURR, North Carolina TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri DIANNE FEINSTEIN, California
CONRAD BURNS, Montana MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia JON S. CORZINE, New Jersey
GORDON SMITH, Oregon KEN SALAZAR, Colorado
JIM BUNNING, Kentucky
Bruce M. Evans, Staff Director
Judith K. Pensabene, Chief Counsel
Robert M. Simon, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
Dick Bouts, Professional Staff Member
Kathryn Clay, Professional Staff Member
Patty Beneke, Democratic Senior Counsel
Jonathan Epstein, Legislative Fellow
C O N T E N T S
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Page
Hearings:
June 27, 2006................................................ 1
July 11, 2006................................................ 45
July 17, 2006................................................ 121
STATEMENTS
June 27, 2006
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 2
Clarke, Kathleen, Director, Bureau of Land Management, Department
of the Interior, accompanied by Dale Hall, Director, U.S. Fish
and Wildlife Service........................................... 2
Craig, Hon. Larry E., U.S. Senator from Idaho.................... 10
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 9
Eppink, Jeffrey, Senior Vice President, Advanced Resources
International, Inc., Arlington, VA............................. 19
Flanderka, Mary, State Planning Coordinator, Office of the
Governor, State of Wyoming..................................... 10
Martinez, Hon. Mel, U.S. Senator from Florida.................... 9
Reed, Tom, Wyoming Field Organizer, Trout Unlimited, Arlington,
VA............................................................. 22
Salazar, Hon. Ken, U.S. Senator from Colorado.................... 34
Thomas, Hon. Craig, U.S. Senator from Wyoming.................... 1
Western Colorado Congress........................................ 41
Zavadil, Duane, Vice President of Government and Regulatory
Affairs, Bill Barrett Corporation, on behalf of the Independent
Petroleum Association of Mountain States, Denver, CO........... 14
July 11, 2006
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 45
Collins, Sally, Associate Chief, Forest Service, Department of
Agriculture.................................................... 53
Craig, Hon. Larry E., U.S. Senator from Idaho.................... 45
Geothermal Energy Association.................................... 901
Karl, Bernie, Proprietor, Chena Hot Springs Resort, Fairbanks, AK 106
Linden, Robert B., Executive Vice President and General Manager,
Stirling Energy Systems, on behalf of the Solar Energy
Industries Association......................................... 101
Murkowski, Hon. Lisa, U.S. Senator from Alaska................... 79
Scarlett, Lynn, Deputy Secretary, Department of the Interior..... 46
Snyder, Walter S., Director, Intermountain West Geothermal
Consortium, Boise, ID.......................................... 82
Taylor, Chris, Director of Development, Horizon Wind Energy, LLC,
on behalf of the American Wind Energy Association.............. 97
Thomas, Hon. Craig, U.S. Senator from Wyoming.................... 46
Thomsen, Paul A., Public Policy Administrator, ORMAT
Technologies, on behalf of the Geothermal Energy Association,
Reno, NV....................................................... 88
Wells, Jim, Director, Natural Resources and Environment,
Government Accountability Office............................... 58
White, V. John, Executive Director, Genter for Energy Efficiency
and Renewable Technologies, Sacramento, CA..................... 110
July 17, 2006
Alexander, Hon. Lamar, U.S. Senator from Tennessee............... 121
Balcom, James D., President and Chief Executive Officer,
PolyFuel, Inc., Mountain View, CA.............................. 157
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 128
Dorgan, Hon. Byron L., U.S. Senator from North Dakota............ 149
Garman, David, Under Secretary of Energy, Department of Energy... 123
Leuliette, Timothy D., President and Chief Executive Officer,
Metaldyne Corporation, Plymouth, MI............................ 140
McCormick, J. Byron, Ph.D., Executive Director, Fuel Cell
Activities, General Motors Corporation, Detroit, MI............ 136
Paul, Dr. Donald L., Vice President and Chief Technology Officer,
Chevron Corporation, San Ramon, CA............................. 149
Thomas, Hon. Craig, U.S. Senator from Wyoming.................... 123
UTC Power, a United Technologies Company......................... 170
APPENDIX
Responses to additional questions:
June 27, 2006................................................ 175
July 11, 2006................................................ 197
July 17, 2006................................................ 210
ENHANCING OIL AND GAS PRODUCTION
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TUESDAY, JUNE 27, 2006
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:03 a.m. in
room SD-366, Dirksen Senate Office Building, Hon. Craig Thomas
presiding.
OPENING STATEMENT OF HON. CRAIG THOMAS,
U.S. SENATOR FROM WYOMING
Senator Thomas. The meeting will come to order, please.
The chairman, I'm sure, will be here soon. He's asked me to
go ahead and get us started while he's completing his work with
the appropriations.
Let me first thank the witnesses for appearing here today.
Kathleen and Tom, nice to see you here. It was good to sit down
with you yesterday and discuss the topics. Mary, welcome, glad
to have you, and thanks for making the trip from Cheyenne.
I'm a strong supporter of oil and gas development. It's
brought a tremendous amount of good for the State of Wyoming,
and, obviously, to the Nation, a challenge we have in keeping
our energy program moving and using the public lands and so on
to be able to use those resources. I do believe we have to do
this in a responsible way. And, of course, I know all of you do
that. And I think the energy policy tries to establish that
proposal, that we can do it.
One of the most significant parts of the energy bill is the
creation of the pilot offices to improve Federal permit
coordination. There are two of these in Wyoming--one in Buffalo
and the other in Rawlins. These pilot offices are not just a
way to get more permits out the door, but to do it in a way
that is sensitive to the needs of the areas that are producing
energy. And, of course, as you know, in a State like ours, half
of the State belongs to the Federal Government. Much of it is
BLM land, of course, which is open for all kinds of
development, and should be. Some of it is national parks, and
some of it is national forests. So, we want to be able to use
that energy, to the extent that we can. At the same time, we
have to preserve those things that are fundamental to the
future, and be making decisions now so that we'll be where we
want to be 30 years from now, in terms of our resources and so
on.
I believe BLM and other agencies are doing a good job at
this. And it's not easy to balance our needs between energy and
the desire to protect open space in the natural resources. So,
that's really what we're asking about here today. And we look
forward to these hearings and to talk a little bit about how we
can best do that to achieve the kind of energy production we
need; and at the same time, maintain the resources that we want
and to look forward to the kind of country we want to have in
the future.
Senator Bingaman.
STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR
FROM NEW MEXICO
Senator Bingaman. Thank you very much, Senator Thomas.
Thank you for chairing the hearing. And thank you all for being
here.
I'll just underscore what Senator Thomas said, and that is
about the importance of seeing the provisions in last year's
energy bill carried out in a way that recognizes the important
multiple-use mandate for our public lands. Obviously, oil and
gas production is important, but we obviously also know that we
have a lot of other uses--grazing and mining and recreation,
and fish and wildlife, and other uses of the public lands and
the forests that are important, as well. So, I think we're
interested in being sure that is properly carried out.
One other point I want to just mention, in opening here, is
that I understand there are over 26 million acres of onshore
Federal lands that are currently under lease but are not
producing. In the National Petroleum Reserve Alaska, there are
11 million acres available for leasing and 2.8 million acres
that are currently under lease. I'm told that there was only
one well drilled during the past drilling season. I'm sure
there are many reasons for the fact that we have so much
Federal land under lease that is not being drilled. I think we
need to understand that better, and I hope we can get some
insights into that during the course of this hearing.
Thank you, Mr. Chairman.
Senator Thomas. Thank you, Senator.
Welcome, to our witnesses this morning. Kathleen Clarke, of
course, is the Director of the Bureau of Land Management. We're
delighted to have you here. Mr. Hall, you're not on my list--
I'm glad you're here--Director of the Fish and Wildlife
Service. Mary Flanderka, who's the State planning coordinator
for the State of Wyoming--delighted, of course, to have you
here. I've been there, I believe. Tom Reed--I guess I skipped
down there--Tom is the field organizer for Trout Unlimited.
And, let's see, who do we have here? Duane Zavadil, vice
president, Bill Barrett Corporation, on behalf of the
Independent Petroleum Producers. And Jeff Eppink, vice
president, Advanced Resources International, of Arlington,
Virginia.
So, we'll start with you, Kathleen, please.
STATEMENT OF KATHLEEN CLARKE, DIRECTOR, BUREAU OF LAND
MANAGEMENT, DEPARTMENT OF THE INTERIOR, ACCOMPANIED BY DALE
HALL, DIRECTOR, U.S. FISH AND WILDLIFE SERVICE
Ms. Clarke. Thank you very much.
I have submitted a joint statement for the record that
represents the thoughts of both Dale Hall and myself as it
relates to our shared efforts, and those, really, of other
Federal agencies and State partners, to move forward with the
creation of the pilot offices.
BLM is an agency that is really quite small, but with a
huge mission. We manage over 260 million acres of Federal lands
in the West, and over 700 million acres of subsurface land. And
the vision that we bring to the BLM is that we should manage
these lands to sustain and enhance the quality of life for
Americans. And we recognize that the multiple-use mission that
we have requires that we pay attention to many resource values
and to all of the ways that the public relate to those lands
and benefit from their uses. And clearly an important element
of our mission is managing the energy resources to serve the
needs of the public, particularly at this time.
BLM lands produce about 18 percent of the natural gas that
is consumed in this Nation. Our inventory of five key Western
States tells us that we have nearly 140 trillion cubic feet of
natural gas, which is enough to heat 55 million homes for
nearly 40 years. So, there is a very significant natural gas
resource that we are working in partnership with the Fish and
Wildlife Service, Forest Service, the Corps of Engineers, with
EPA, and with State partners to make available and provide
access for development.
The demand for access to oil and gas resources in the
Rockies has certainly resulted in an increase in the request
for applications for permits to drill, commonly known as APDs,
coming in from industry. And there has been much discussion
about the backlog of APDs. And we refer to that backlog as
``pending APDs,'' those applications that have come in the door
and have not yet been through a complete process of approvals.
I put up a chart here so that you can see that the rate at
which the applications are coming in is growing rapidly. Now, I
want to show you another chart that shows you how fast we are
increasing the processing of permits to drill, and let you see
that we are also ramping up significantly. In fact, if you were
to total the total number of applications for permits to drill
that were granted between 1996 and the year 2000, it comes in
to something a little over 12,000. It you take the next 4 years
and measure from 2001 to 2005, BLM has approved over 24,000. We
have actually had a 104-percent increase in our productivity in
granting permits to drill. But, as you'll recall, we are also
getting a huge ramp up in the applications coming in the door.
And so, indeed, we find ourselves constantly climbing an uphill
battle to get on top of the workload.
Clearly, as we watch this demand increase and we all
understand the challenges of meeting the demands of this Nation
for energy resources, it's important that we continue to
improve our processes and that we do everything we can to meet
that demand. But it's equally important that we are also
sensitive to the impacts of this ramp-up in energy production,
and that we pay commensurate attention to the issues of
inspection and enforcement and environmental monitoring. And
that is one of the reasons we are very grateful for the
partnerships that were envisioned by the Congress in the
establishment of the energy pilot offices.
I am very pleased today to have Dale Hall with me. When we
took a look at the many responsibilities that were laid at
BLM's feet in the Energy Policy Act of 2005, it was clear to us
that one of the key provisions was the creation of the energy
pilot offices, in section 365. And as we better understood what
that mandate was, I was grateful that it recognized the
partnerships that were necessary for BLM to be able to improve
its production of APDs and improve its management of oil and
gas development in the West. I went to Dale Hall, and invited
Dale to join with me in a set of visits to Western pilot
offices, to meet with the staff, to understand what their
challenges were, to make sure that the many partners had a
shared vision of what we were undertaking together. And I want
to give Dale a minute here to talk about what his reactions
were and some of the messages that he shared, both with BLM
people and the other partners that were there.
Mr. Hall. Thank you, Kathleen.
In our view, these pilot officers are really, really good
offices, with a lot of potential not only to help us move
forward in working through oil and gas permitting, but also to
learn how to do proper oil and gas extraction, learn through
experimentation and working with the oil and gas industry to
figure some of these things out. You know, good government, in
our view, means that we work together as one government. And
so, working with Director Clarke has been a real pleasure for
me. And I do believe that the Fish and Wildlife Service is
really there, and our role should be to help the BLM accomplish
its mission, but in a way that meets the other laws and takes
care of fish and wildlife resources. And I think that these
offices are exemplifying that.
Our people on the ground are really working together. And
if I had to point out two major things that I think are the
most critical accomplishments already of the two--of the seven
offices that we've established, one of them is that we're
working as a team to get the job done. And, as many of you know
through history, where there are conflicts with Fish and
Wildlife resources, Endangered Species Act, and other issues,
it usually is because we're not involved from the beginning to
help plan, to help work through the issues. Our people are
sitting right in the office with BLM folks, and they're
planning, from the beginning, to avoid the issues and to still
allow the projects to move forward.
And the second thing is, the ability to work together in
one office to come up with means such as programmatic
biological consultations, so that we can have overarching
consultations, so that only minor consultation for incidental
take may be required later.
Those two things, in and of themselves, are extremely
important. Working together and coming up with techniques and
approaches that help us get the job done and protect the
natural resources while getting oil and gas extraction out is
really important to all of us, and I think these offices are
outstanding. And I look forward to what they can do in the
future in helping us learn how to do it in other areas.
[The prepared statement of Ms. Clarke follows:]
Prepared Statement of Kathleen Clarke, Director, Bureau of Land
Management and H. Dale Hall, Director, U.S. Fish and Wildlife Service,
Department of the Interior
Mr. Chairman and Members of the Committee, thank you for the
opportunity to appear here today to discuss the Bureau of Land
Management's (BLM) and U.S. Fish and Wildlife Service's (Service)
efforts to improve oil and gas permitting pursuant to the Energy Policy
Act of 2005 (EPAct). Our testimony today will highlight our efforts and
achievements to date implementing the Pilot Project to Improve Federal
Permit Coordination under Section 365 of the EPAct.
BUREAU OF LAND MANAGEMENT
At the BLM, we are dedicated to ensuring that the American people--
regardless of where they live--benefit from the agency's multiple-use
mandate. Recent natural disasters and the price of energy serve as
reminders of the extent to which the availability of energy affects our
quality of life. Our agency plays an important role in providing an
appropriate mix of both renewable and conventional energy supplies from
the public lands and, in turn, contributes to a more secure and
reliable energy future for our Country.
We can accomplish all that we do only by involving the public
through partnerships and working with our cooperating agencies. Our
track record in developing and maintaining partnerships is second to
none and in each community across the West you will find the men and
women of the BLM hard at work to ensure that our decisions are based on
the principles of multiple-use.
The BLM manages significant oil and gas resources on the public
lands. Over the next decade, demand for natural gas is anticipated to
increase by more than 25 percent. Public lands and the BLM play a key
role here, as they currently provide 18 percent of the Nation's natural
gas production. Our inventory of public lands in five key western
basins identified nearly 140 trillion cubic feet (TCF) of natural gas,
enough to heat more than 55 million homes for nearly 40 years. In the
Pinedale area of Wyoming, industry expects to produce 15 TCF of gas
over the life of the field. This would supply nearly 10 million homes
for 20 years. Natural gas reserves of this magnitude are relatively
rare. For example, Alaska's Prudhoe Bay field, the largest oil and gas
field on the North American continent, contains 35 TCF of gas. Although
much of the Nation's domestic oil production takes place offshore, oil
production from the onshore public lands is still significant, totaling
more than five percent of all domestic production.
U.S. FISH AND WILDLIFE SERVICE
The Mission of the U.S. Fish & Wildlife Service is to work with
others to conserve, protect, and enhance fish, wildlife, and plants and
their habitats for the continuing benefit of the American people. The
agency's role regarding energy development is multifaceted. For
example, the Service facilitates the environmentally sound exploration
and production of privately held minerals on National Wildlife Refuge
System lands in order to minimize impacts to those resources. We work
in partnership with oil and gas operators to streamline this process so
that the financial and operational needs of the operator are met, while
fulfilling our role in protecting species and ecosystems for the
enjoyment of the American public. We also work closely with other
entities, such as the BLM, Environmental Protection Agency, and the
Army Corp of Engineers, in the assessment of potential impacts to
natural resources, when the requirements of the National Environmental
Policy Act (NEPA) apply, and we consult with state and local agencies
to ensure their regulatory requirements are met. The Service
participates in necessary clearances for protected resources, such as
Endangered Species Act consultation for threatened and endangered
species, monitoring and compliance activities, and establishing
mitigation and reclamation standards for individual projects. The
Service consults with the oil and gas operators on all phases of
exploration. This has helped in establishing effective relationships
with the oil and gas community, and has effectively reduced delays and/
or issues that may arise for either side. The Service works with
partners to streamline regulatory processes, while fully supporting the
conservation, protection and enhancement of wildlife and wildlife
habitat.
BACKGROUND
The demand for onshore oil and gas is reflected in the dramatic
increase in the number of applications for permit to drill (APDs) the
BLM receives from one year to the next. The number of APDs received by
the BLM has increased every year since 2002, and we anticipate this
trend to continue into 2007 and beyond. A recitation of the numbers
illustrates this dramatic trend. The BLM received 4,585 APDs in 2002;
5,063 in 2003; 6,979 in 2004; and 8,351 in 2005. Our current projection
is that we will receive over 9,300 in 2006 and over 10,500 in 2007. We
are proud of the progress we have made in response to this increasing
demand; in 2005, we processed 7,736 APDs, a record number. However,
despite this significant achievement, it is clear that more needs to be
done to improve the APD process.
By signing the EPAct into law, and again more recently in the State
of the Union Address, President Bush declared his continuing intention
to secure America's energy future, which includes promoting dependable,
affordable, and environmentally-responsible domestic energy production
while reducing U.S. dependence on foreign oil. In passing the EPAct,
Congress also signaled that it shares the President's goal of providing
access to reliable domestic energy supplies that are crucial to the
economic health and security of every American household and business.
The EPAct creates an innovative way for Federal resource management
agencies to cooperate in meeting this challenge through the Pilot
Project.
In order to address the increasing demand for drilling permits,
Section 365 of the EPAct authorized the creation of the seven Pilot
Project Offices, where interagency coordination improvements can be
developed and tested, along with other methods to improve permit
processing. These Pilot Project Offices (Buffalo and Rawlins, Wyoming;
Carlsbad and Farmington, New Mexico; Grand Junction/Glenwood Springs,
Colorado; Miles City, Montana; and Vernal, Utah) are existing BLM
offices within the five key western basins that have processed about 70
percent of the APDs received by the BLM in the last three years. Their
workload and location makes them ideal for permit processing
innovations.
In addition, Section 365 authorized an estimated $20 million in
mandatory funding for these offices from the Federal share of rental
receipts from onshore oil and gas leasing. The Treasury Account for the
Permit Processing Improvement Fund for the Pilot Project Offices was
established on November 1, 2005, and the authorized receipts are now
being placed in that account.
The track record of the BLM and the Service for cooperation will
serve as a solid foundation for the efforts underway in the Pilot
Project Offices. We understand that your interests today are in the
progress made by the BLM and the Service in implementing the Pilot
Project for improved oil and gas permitting, pursuant to Section 365 of
the EPAct. We will now turn to discussion of the efforts underway to
implement the Pilot Project.
IMPLEMENTING THE PILOT PROJECT
Together, we recently toured the Pilot Project Offices. Key leaders
of many of our Federal and state partnership agencies joined us on
these tours. Based upon what we have seen we are pleased to report to
you that the BLM and the Service are making considerable progress
implementing the Pilot Project.
The Pilot Project provides a vehicle to bring more resources to
accomplish permitting, increased inspection and enforcement, foster
innovation, test more efficient interagency processes, and try new and
emerging technologies. The Pilot Project Offices will be laboratories
of efficiency and environmental protection, providing one-stop
coordination for review of oil and gas development and for conducting
inspection and enforcement activities.
Interagency MOU
An Interagency Memorandum of Understanding (MOU) to implement the
oil and gas Pilot Project Offices was signed by the Administrator of
the Environmental Protection Agency (EPA), the Secretary of
Agriculture, the Assistant Secretary of the Army for Civil Works, and
the Secretary of the Interior on October 24, 2005, ahead of the 90-day
requirement in the Act. The MOU establishes the roles,
responsibilities, and delegations of authority among the Federal
agencies. In order to implement the terms of the MOU, BLM managers and
their counterparts at partner agencies have been engaged in intensive
planning and recruitment efforts to ensure that staff and support are
in place in the Pilot Project Offices to meet the responsibilities
outlined in the MOU and in the EPAct.
Under the terms of the MOU, the BLM and the Forest Service will
continue cooperating closely to administer oil and gas development on
lands managed by the Forest Service. Particular attention will be given
to improving communication and information-sharing and to field reviews
and inspection and enforcement activities. Furthermore, the involvement
of the Service will ensure increased cooperation concerning threatened
and endangered species during project planning and implementation.
Staff from the Forest Service and the Service will be collocated in a
number of the BLM Pilot Project Offices.
Together with BLM staff, they will complete environmental analysis
required by NEPA; develop necessary clearances for threatened and
endangered species and cultural resources; conduct monitoring and
compliance activities; and establish mitigation and reclamation
requirements for individual projects.
The Service is working with the BLM at all levels to implement
Section 365 of the EPAct. A memorandum of understanding between the BLM
and the Service identifies six specific responsibilities that, once
fully implemented, will allow the Service to streamline its efforts
under the permit review process. The two agencies are customizing the
duties of positions at collocated offices to improve permitting
processes, while protecting of natural resources. Adaptive,
programmatic measures will reduce the Service's permit review time
while enhancing stewardship of endangered species and other Federal
resources. By integrating Service personnel with BLM staff early in the
land use planning process, the Service anticipates greater regulatory
flexibility, fewer delays, and an overall reduction in related negative
environmental effects.
The Service has filled positions in five of the seven Pilot Offices
and has assigned temporary staff to the remaining two offices that will
remain in place until the Service can complete the hiring process for
those positions. These staffs are supported by three full-time existing
Service employees who will oversee the initial stages of implementation
of the pilot program. Critical to the Service's long-term success is
the identification and application of new and improved procedures to
address the high volume of APD workload anticipated by the BLM, and
increasing staff in the pilot offices (and elsewhere) as workload
increases and additional pilot program funding become available.
The recent increase in approved APDs will lead to increases in the
need for inspection and enforcement activities. Accordingly, the BLM
will work to focus appropriate resources on inspection and enforcement
activities.
State Coordination
We are also working with state governments to bring state wildlife,
environmental quality, oil and gas commission, and historic
preservation staff into the Pilot Project. This will further coordinate
energy development activities and further ensure the protection of
important species and cultural resources.
Staffing and Administrative Efforts
One of the very important items for the BLM has been meeting
staffing needs for the Pilot Project Offices. To date, a total of 99
BLM Pilot Project Office positions (out of 105 identified) have been
filled. The agency has hired a total of 19 Petroleum Engineering
Technicians and 21 Natural Resource Specialists for the Pilot Project
Offices as well as other subject matter experts and the necessary
support staff to meet the goals of the Pilot Project.
On February 23, 2006, the BLM transferred funds to the Forest
Service for 6 Pilot Project Office positions, to the Fish and Wildlife
Service for 10 Pilot Project Office positions, and to the Army Corps of
Engineers for three and one-half Pilot Project Office positions. We
also have transferred funds to the Bureau of Indian Affairs to add one
position in Farmington, New Mexico, and are working with the Bureau of
Reclamation to add one position in Carlsbad, New Mexico.
The BLM, through the Department of the Interior National Business
Center, has hired a contractor to assist in the review and reporting of
implementation and performance of the Pilot Project streamlining
efforts over the next three-year period. This independent review will
assure an impartial analysis of our performance on the Pilot Project
implementation.
Additionally, the BLM has issued interim guidance for APD
processing that incorporates the timeframes required by the EPAct.
These processing timeframes will also be incorporated into a reissuance
of Oil and Gas Onshore Order No. 1, which will be published in the
Federal Register. The BLM has also issued interim guidance to implement
the statutory categorical exclusions contained in the EPAct.
RESPONSIBLE DEVELOPMENT
As we implement Section 365, it is important to bear in mind that
the EPAct does not change the requirements of the Endangered Species
Act, the National Historic Preservation Act, the Clean Water Act, the
Clean Air Act, the National Wildlife Refuge Improvement Act, or Federal
Land Policy and Management Act. The BLM looks forward to cooperating
closely with its Pilot Project partners, such as the Service, in
continuing to implement these important laws that protect our
environment and cultural resources.
One of the BLM's responsibilities is managing wildlife resources,
which is an important aspect of our multiple-use mandate. Some have
questioned BLM's practice of using its wildlife biologists in the
permitting process, but doing so specifically ensures that wildlife
needs are considered in areas slated for energy development.
BLM wildlife biologists are involved in the permitting process from
an early stage in order to ensure the best protection for wildlife near
proposed well drilling sites. They work with companies to identify
areas where there are wildlife concerns; attend onsite meetings with
the operator at proposed drilling points; make recommendations
regarding necessary Section 7 consultations for threatened or
endangered species; and consult with state game and fish agencies
concerning species of state interest. They are also an important part
of the interdisciplinary NEPA team responsible for the preparation of
environmental analysis and development of appropriate mitigation and
protective measures.
Through the EPAct, Congress directed the BLM to work on a number of
important initiatives relating to energy development. The BLM
continually seeks new ways to minimize, mitigate, or compensate for any
adverse impacts from development activities.
Innovation of the type envisioned in the Pilot Project is already
underway at the BLM. Some examples include a pilot block survey BLM
initiated in the Carlsbad Pilot Office to identify cultural resource
properties in the area, and the incorporation of advanced technologies
and environmental Best Management Practices (BMPs), such as drilling
multiple wells from a single location, centralizing production
facilities or relocating them offsite, minimizing road construction,
and performing interim mitigation. In the Jonah Field, the BLM is
evaluating an experimental drilling technique proposed by the operator
using temporary wooden pallets for roads and well pads to determine if
this technology reduces impacts to surface vegetation and soil.
The BLM is also using performance-based standards to challenge
industry to reduce emissions, minimize surface disturbance, and develop
quick and effective reclamation techniques to improve restoration of
disturbed areas. If on-site mitigation measures do not achieve the
desired conditions, companies have the option of undertaking off site
mitigation measures. For example, in March of this year, we announced
that EnCana is contributing up to $24.5 million over ten years toward
an office dedicated to funding offsite mitigation and monitoring in the
Jonah Field, Wyoming. We expect that offsite mitigation will become an
increasingly useful tool for improving habitats adjacent to natural gas
development areas.
In the Pinedale area of Wyoming, for example, concerns about
impacts to wildlife have resulted in reduced surface disturbance
compared to past development. By implementing such measures as the
consolidation of infrastructure, such as roads, pipelines, and
production facilities, we have achieved an overall reduction in the
footprint of development involved in winter drilling projects in the
Pinedale Anticline.
CONCLUSION
In conclusion, Mr. Chairman, energy is vital to expanding our
economy and enhancing Americans' quality of life. The Administration is
proud of the progress we have made in responding to the increased
demand for access to the Federal onshore oil and gas resources we
manage. As noted at the beginning of our statement, over the next
decade, demand for natural gas alone is anticipated to increase 25
percent. The BLM and the Service plan to help meet this unprecedented
demand by using tools provided under the EPAct, such as the Pilot
Project, and developing and applying program innovations and process
efficiencies that improve inter-agency coordination and effectiveness.
The Pilot Project will further enhance our ability to respond to
the demand for oil and natural gas, while meeting the other goals of
our multiple-use mandate. In the 10 months that have elapsed since the
enactment of the EPAct, we have made substantial progress in our
ongoing efforts to respond to this demand.
Thank you for the opportunity to testify today about the Pilot
Project. We would be happy to answer any questions you have.
Senator Thomas. Good. Thank you.
The chairman has returned.
The Chairman [presiding]. Thank you very much.
Thank you, Mr. Hall. Thank you, Kathleen Clarke. And will
you stay, even though you're finished?
Ms. Clarke. Yes.
The Chairman. Just so you might fill in for responding to
others----
Ms. Clarke. Absolutely.
The Chairman [continuing]. Who are making observations.
That would be very helpful.
I had some opening remarks. I'll say a little bit about
them, because I want to just put the overview, as I see it, on
this hearing and what it's about.
STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR
FROM NEW MEXICO
The Chairman. These hearings have been called because we
had estimates that the inventory of oil and gas on Federal
lands, at least in 2003 in the Rocky Mountain region, is
considered to have the largest untapped, onshore natural
resource reserves in the country. Estimates of 138 trillion
cubic feet of natural gas on Federal lands in the interior West
is sufficient to heat all the 55 million homes that use natural
gas in the United States for 39 years.
Obtaining access to these Federal resources is probably the
most often cited issue affecting oil and gas production in the
Rocky Mountain West. Among those provisions, one stands out:
Section 365 of the Energy Policy Act of 2005, the Pilot Project
to Improve Federal Permit Coordination. This section
establishes Federal permit streamlining projects in seven BLM
field offices in the State of Wyoming, Montana, Colorado, Utah,
and New Mexico. This section also provides over $20 million of
the new funding for these seven offices. Some assert that, with
the volume of natural gas in this region, these provisions may
do more to increase production than anything else in the energy
bill.
Today, we hope to get an update on what the progress has
been, and how good it has been. It's been 10 months since the
energy bill was signed, so we are still early in the process.
Today, we will hear from five witnesses, four of whom I expect
we will gain a clear picture as to how these programs are
proceeding.
So, we're going to start, as we already have, with Kathleen
leading off, as she has. And she called on Mr. Hall, as she
did; and then we will proceed right down the line with the
other witness and see where we end up.
With that, let us now proceed.
I know that some Senators have not made a statement of any
type. Senator Martinez, would you like to comment?
Senator Martinez. Mr. Chairman, thank you very much for
holding the hearing today. I would like to just submit a
statement for the record, in the interest of time.
Thank you very much.
The Chairman. Thank you. That will be done.
[The prepared statement of Senator Martinez follows:]
Prepared Statement of Hon. Mel Martinez, U.S. Senator From Florida
Chairman Domenici, I wanted to thank you for holding this hearing
today on the development of oil and gas resources from our nation's
public lands. Section 365 of the Energy Policy Act directed the Bureau
of Land Management (BLM) and other related federal agencies to improve
coordination of permitting for the extraction of these resources and
ease the backlog of permits waiting for consideration.
According to BLM, public lands provide over 18 percent of our
country's supply of natural gas production. This trend can only be
expected to go up with the increase in natural gas demand in the U.S.
In 2003, an inventory of resources was conducted on the Rocky
Mountain region which concluded that greatest untapped on-shore reserve
of natural gas was located there. The study estimated 138 trillion
cubic feet of natural gas resided in the region and would heat nearly
55 million homes for almost 40 years. This is truly an astonishing
amount of natural gas, considering that it is over 20 times as large as
the natural gas reserves estimated to be in the Lease 181 area off the
coast of Florida (6 trillion cubic feet).
Because of the incredible size of reserves and the escalating price
of natural gas, applications for permits to drill (APDs) have sky-
rocketed from 4,585 in 2002 with projects for 10,500 APDs by 2007.
This rapid increase has concerned many not just in the
environmental community, but in the sportsmen groups as well. As a
Senator from an environmentally sensitive state, I well understand
these concerns when dealing with energy development on federal
resources. Florida has very little public land left for hunters and
fisherman to enjoy, which is partly a result of the staggering growth
the state has experienced.
Economic growth, prosperity, conservation, and our nation's energy
needs are not mutually exclusive priorities. Public lands belong to
everyone. And what happens on these public resources--be it recreation,
preservation, or energy development--it's still vetted and subject to
the Endangered Species Act, the Clean Water Act, the Clean Air Act, and
a whole host of other environmental, cultural, and historic protection
standards.
We also need to remember that our public lands are also our
nation's heritage--our inheritance, if you will. The forests,
mountains, rivers, streams, the picturesque vistas and solitary wide-
open spaces--as we move forward we need to remember that there is an
intrinsic public value that can not be measured only in Btu's or
kilowatts.
I look forward today to hearing from our agency partners in the
Administration, the energy industry, and conservation associations so
that we can work collaborative to develop and protect our national
public treasures.
The Chairman. Senator Larry Craig.
STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR
FROM IDAHO
Senator Craig. Mr. Chairman, thank you for another
oversight hearing on this critical issue. I know that Kathleen
has been working due-diligently for the last good many months,
since the passage of EPAct, to accomplish what we feel can be
effectively and responsibly accomplished out in the overthrust
in certain of those States of the West that you've mentioned.
So, I look forward to the balance of the comments, and I have
some questions.
Thank you.
The Chairman. Thank you very much.
Now we will proceed. I think the next witness, Senator
Bingaman, if I am correct in order, will be Mrs. Mary
Flanderka.
Would you please identify yourself and proceed with your
testimony?
STATEMENT OF MARY FLANDERKA, STATE PLANNING COORDINATOR, OFFICE
OF THE GOVERNOR, STATE OF WYOMING
Ms. Flanderka. Thank you, Senator. Thank you, Mr. Chairman
and members of the committee. It's an honor to be here.
I work for the State Planning Office, under Governor
Freudenthal. And our office, along with State agencies and
local government, have been very involved with the BLM, working
on many, many pilot projects, as well as many projects dealing
with oil and gas development.
And, at this time, I want to say thank you to Director
Bennett, the State director of Wyoming, and his staff and his
field offices. One of the goals of the Energy Policy Act was to
create partnerships and coordination with many entities, and
the director has done that, and he is committed to that. It is
not easy, especially when you look at multiple organizations
with different missions. Do we agree all the time? No. But
there is a commitment to work together and work through these
delicate and difficult multifaceted issues.
There are many steps to successful development. And right
now I'd just like to focus on the permitting, especially in the
pilot project offices.
They have ramped up, they have gotten people employed
there. They're located there. They've issued, I believe, 2,900
permits in Wyoming in 2005, and they're hoping, or expecting,
to issue 4,500. Things are going well, but you can't put old
heads on young shoulders, and that's going to take time,
experience, and training to get these folks up and moving as
efficiently as possible.
But there are other components of successful development
that I'd like to talk about right now. And the first one is
planning.
We have three field offices that have resource management
plans that have been delayed for over 2 years. There are other
field offices, as well, that have not begun these resource
management plans. These plans were developed in the 1980's.
They're outdated for the level of development we're seeing.
The importance of these plans is, they outline the pace and
place of development, as well as the thresholds that we expect
to see on other resources. And part of the problem--and I don't
want to pass blame or judgment on the BLM, because, frankly,
they've got a lot of pressures right now, but to work through
these RMPs and to work through these project EISs takes a skill
set that is very specific. It just can't be a specialist that
gets along with other people; it takes a very specific skill
set and a project manager to complete these.
The other aspect of development is the implementation; of
course, development, production, reclamation, and plugging.
Right now, Wyoming is really focused on reclamation. We're in a
drought. With 12 inches of rain last night, I'm jealous. I wish
that we could take some of that back. But reclamation, if it's
improperly done, or not done, or not done timely, will affect
air-quality issues, permittees, weed management, and habitat
issues.
And then, the last leg of the stool, as Director Clarke had
mentioned, was inspection and monitoring. And the pilot offices
are ramping up for inspection. However, what the Wyoming office
has seen is that they've only been able to complete two-thirds
of the required 10 percent of inspections. And with development
going fast and furious, it's important to make sure, one, that
the right things are being done, they're being done in the
right way; and, if they are being done, that they're effective.
And I don't know that we know that. As we issue more and more
APDs, we want to make sure that the right conditions of
approval are included in that, in new APDs, so we don't get
into an environmental problem.
Finally, the suggestions that have come out of our
experience is that it's really important to complete the
resource management plans, as well as the project EISs. If they
drag out, we get into more and more problems, and then we drag
out longer. We need to complete these RMPs, these EISs, get
them done, outline the thresholds that need to be met for the
other resources. And, although we talk about resources for BLM,
which is needed--of course, that's money or people--there is a
need to make sure that there is money for EPA, as they do flow-
through money for our Department of Environmental Quality, who
also has a role and a responsibility in issuing permits to the
industry. And then, there is also the National Historic
Preservation Grant, which provides a block grant to States to
do SHPO clearance. And, frankly, Wyoming is the fourth-busiest
State dealing with APDs, and ranks 44th on the list of funding.
And then, finally, a thought is, at the Pinedale Field
Office, we were surprised that that was not considered a pilot
project office, with everything going on. With deep gas that's
going on in Pinedale Field Office, that would be worth
considering, also, to take a look at that.
Thank you very much.
[The prepared statement of Ms. Flanderka follows:]
Prepared Statement of Mary Flanderka, State Planning Coordinator,
Office of the Governor, State of Wyoming
Good morning, Mr. Chairman and members of the Committee. I
appreciate this opportunity to submit this statement as a part of
today's hearing related to the implementation of the Energy Policy Act
provisions on enhancing oil and gas production on federal lands in the
Rocky Mountain region.
In their role as cooperating agencies, the Wyoming State Planning
Office, along with various state agencies, have been involved in Bureau
of Land Management (BLM) oil and gas development in Wyoming as well as
participating in the implementation of many of the 2005 Energy Policy
Act provisions.
For successful energy development to occur, attention needs to be
given to these three issues: flexibility in permitting based upon site-
specific issues and appropriate available technology; speed in permit
issuance; and accountability to ensure that the right practices are
implemented in the right way and at the right time. The early
implementation of the Energy Policy Act has focused on permit issuance.
My remarks this morning will focus on the impact of the legislation
on energy development in Wyoming regarding permitting, planning,
monitoring/inspection and reclamation activities.
The opportunity exists for the BLM, with appropriate funding, to
maximize the positive impacts and minimize the negative impacts
associated with energy development in Wyoming.
There is no question of the need to develop Wyoming's energy
resources. As a result of that development, the state of Wyoming
receives significant revenue from royalties generated by mineral
production. However, concurrently, Wyoming feels the impact of
accelerated development through social and economic changes in local
communities as well as impacts to wildlife, recreation and air and
water resources.
There is support for permit-streamlining efforts that will increase
energy production; however, there is equal support for strengthening
other aspects of regulating energy development. This includes effective
and efficient planning and inspection/monitoring activities. Planning
and monitoring require a partnership between the state of Wyoming, the
BLM and others. Without improving planning and inspection/monitoring
activities, permitting times could continue to languish due to social
or even legal constraints related to impacts on other resources.
Bottom line, an increase in permits is not the only element that
will increase and maintain energy production. The entire development
stream (planning, permitting, monitoring and reclamation) must be fully
attended to if energy development is to occur efficiently and
effectively.
Project environmental impact statements (EIS) and resource
management plans (RMPs) are overdue. These documents are imperative to
successful energy development.
Three of the four BLM time-sensitive projects identified in a June
2004 priority list of Wyoming BLM land-use planning projects are yet to
be finalized--two years after their initial deadlines. The staff at the
state and local field offices find themselves multi-tasking to a
remarkable degree and being torn between planning and permitting.
Additional resources are needed to allow a planning team to focus on
completing RMPs, and project EISs are needed to ensure that there is
always a next generation of applications waiting to be processed.
The completion of RMPs is important for reasons other than just
permitting; there is a need to address thresholds of protection for
other important resources. The current RMPs are outdated. At the time
of printing the current RMPs, the current level of development had
never been anticipated and new technology and science have since
created additional opportunities for development. The RMP revisions
need to identify those areas whose leasing should be deferred for the
protection of other resources, while energy-rich areas are fully
developed. As an example, the Pinedale Field Office had 92% of its area
leased, with a high likelihood of full development. The 8% of remaining
land does not seem able to protect other resource values such as sage
grouse, mule deer, antelope or recreation opportunities.
Even with additional personnel in the pilot offices, the permitting
increase is occurring. The state and local BLM offices are still
struggling under increasing workload and high turnover. This will
change with training and experience.
I would like, to take just a few minutes, though, to give credit to
the state BLM office and Wyoming's field offices. The state agencies,
local counties and BLM offices have been working on many issues, either
as partners or via cooperating agency status. Although the process is
always not smooth, there is a commitment by all to continue to make the
relationships more effective and efficient. Wyoming BLM Director
Bennett has been a leader in making sure communication continues
regardless of impediments.
Permitting is ramping up in Wyoming. The BLM has processed 2900
Applications for Permit to Drill (APD) in 2005 and is anticipating
processing 4500-5000 APDs in 2006.
Wyoming BLM, from the state's perspective, has faced serious
pressure to lease and permit--both of which are necessary for
development. The Buffalo and Rawlins field offices have received almost
all personnel to fulfill permitting goals. But throwing money and
personnel at a problem does not necessarily make permitting go faster.
Experience and coordination are necessary if efficient permitting is to
happen. It is ludicrous to expect field offices with up to 20% annual
turnover rates to be operating at full speed.
There are currently no state agency employees actively involved in
the permitting emphasis in the pilot projects. The state departments of
Environmental Quality and Game and Fish see their roles evolving with
planning or monitoring/inspection activities. And, again, both areas
are suffering. Dialogue is occurring regarding the placement of state
employees in these two offices.
Monitoring is vital to validating whether or not development is
proceeding properly.
Although the Energy Policy Act refers to the development of best
management practices and the need for enforcement, very little
attention was directed to those areas during the act's development.
Moving ahead quickly on any project is dangerous if there is no
monitoring to make sure that the project is being done correctly. BLM
energy development in Wyoming is headed in exactly this direction due
to a focus on permits above all else and a lack of funding. Without the
assurance that development is proceeding appropriately, additional
permits could be processed with faulty information, leading to serious
environmental problems--which could in turn lead to court injunctions.
BLM monitoring funds have seen limited increases from the national
monitoring funding, but that funding is spread continually thinner as
more wells are completed. A smaller overall percentage of wells is
actually inspected annually. Frankly, the words in the lease become
meaningless if there is no accountability, assurance or inspection that
the work is getting done. Numbers already indicate that field offices
in Wyoming are having a difficult time meeting the existing inspection
requirements. Wyoming BLM field offices in 2001 were able to complete
93% of 1750 required environmental inspections, for a total of 15,000
federal permitted wells. In 2005, the BLM completed only 66% of its
required 2100 environmental well inspections of a total of 20,000
federal permitted wells; this year, the state office anticipates that
it will be able to conduct 66% of required well inspections. The data
clearly indicates that an expedited well permitting process coupled
with increased drilling applications requires that federal agencies be
provided additional adequate resources to fulfill inspection and
enforcement guidelines. Some may argue that there is no need, but there
was an inspection incident in and adjacent to the Pinedale Field Office
Jonah field in 2005, where a reporter uncovered many significant
environmental violations. Inspection is far less expensive to industry,
the BLM and the state than an injunction stopping additional
development. The pilot office initiative has addressed inspection and
enforcement capability to the Rawlins and Buffalo Field Offices but is
only in the early stages of implementation. Similar assistance needs to
be added to other BLM field offices.
A Government Accounting Office (GAO) Oil and Gas Report June 2005
identified the concern that increased permitting activity by the BLM
has lessened the agency's ability to meet its environmental protection
and liability responsibilities. The report indicates that field
managers under pressure to complete permitting processes often shift
workloads from inspection and enforcement to application processing.
Examples from the report describe how the Buffalo, Wyoming and Vernal,
Utah field offices, the two field offices with the largest amount of
permitting activity, were only able to each meet their annual
inspection goals once in the past six years. Additionally, the report
highlights that the Buffalo Field Office was only able to achieve 27
percent of its required environmental inspection goals during the 2004
fiscal year. Clearly it is in the interest of the public, state
agencies, the BLM and industry to ensure that the guidelines of leases
and permits are being followed. The GAO recommends acquiring staff who
would be dedicated to performing inspection and monitoring activities.
Again, Wyoming concurs with this recommendation.
Federal energy development in Wyoming can be accomplished in such a
way that meets the nation's energy needs while still protecting the
state's social, economic and natural resources. In order to do that,
the entire development process from cradle to grave needs attention
from planners, decision makers, permitters and inspectors.
Suggestions for improvement:
In an effort to improve the effectiveness and efficiency of oil and
gas development the following suggestions are offered:
<bullet> Complete RMPs and project EISs.
<bullet> Provide performance-based objectives, rather than
prescriptive limitations within project and RMP final
decisions.
<bullet> Continue to obtain and develop the necessary staff in both
numbers and expertise to continue to permit.
<bullet> Continue to coordinate formally (via cooperating agency
status) or informally with local and state governments to
address site-specific social, economic and resource concerns in
an appropriate manner.
<bullet> Stabilize and/or increase the U.S. Environmental Protection
Agency's (EPA) funding to states so that existing state staffs
can provide equal attention to their portion of the permitting
process.
<bullet> Increase the funding for EPA's Underground Injection Control
program to the Wyoming Oil and Gas Conservation Commission.
<bullet> Maintain or increase the National Park Service funding for
the Historic Preservation Grant. Wyoming is the busiest state
in the nation for Section 106 reviews with over 400 requests
for comment from the BLM, but ranks 44th in funding.
<bullet> Commit funding to coordinating and procuring the most up-to-
date resource data.
<bullet> Consider the creation of NEPA teams led by individuals with
project management experience to complete RMPs and project
EISs.
<bullet> Make the Pinedale field office a pilot office.
Finally, there was much controversy in 2005 about whether winter
stipulations on BLM land were a hindrance to energy development. I
would encourage you to avoid any hasty action that would remove these
stipulations. Generally, these stipulations provide crucial protection
to wildlife. Our preference is to have BLM outline in advance
opportunities to work through stipulations. With proper planning and
good communication, more times than not, issues can be worked out
appropriately.
Again, thank you for this opportunity to submit my written comments
to the record.
The Chairman. Thank you.
Mr. Zavadil.
STATEMENT OF DUANE ZAVADIL, VICE PRESIDENT OF GOVERNMENT AND
REGULATORY AFFAIRS, BILL BARRETT CORPORATION, ON BEHALF OF THE
INDEPENDENT PETROLEUM ASSOCIATION OF MOUNTAIN STATES, DENVER,
CO
Mr. Zavadil. Mr. Chairman, members of the committee, my
name is Duane Zavadil. I am the vice president of the
Independent Petroleum Association of the Mountain States. I'm
also a vice president of government and regulatory affairs for
Bill Barrett Corporation, an independent, Denver-based E&P
company, exploration and production company.
I'd like to thank the committee for holding a hearing about
the benefits of the act. IPAMS has submitted written comments,
and I'll be summarizing those.
First, I'd like to thank all the members of this committee
for their dedication and hard work in passing the Energy Policy
Act of 2000. I want to tell you, the good news is that the
committee's work from last summer is, in fact, making a
difference in public land development, to help increase
supplies from natural gas headed to consumers. Close oversight
of the bill's implementation, or the act's implementation,
however, is going to be necessary in order to see continued
increases in production, going forward.
Public lands contain the largest onshore reserves of
natural gas in the Nation. And, as the Director pointed out, 18
percent of our current production is from Federal lands
onshore. The Energy Information Administration estimates that
Intermountain West natural gas production will need to double
over the course of the next two decades, ultimately surpassing
the production in the Gulf of Mexico in order to keep pace with
the Nation's demand. That doubling number is significant. I'll
point out later that some sort of a paradigm change is going to
be necessarily, ultimately, to accommodate that growth.
The agency currently responsible for administering energy
production on public lands, the Bureau of Land Management,
faces a multitude of issues. The critical land-use plans have,
in fact--or the completion of those critical plans has slowed
to a crawl. Leasing has become divisive, and appeals are the
norm. NEPA remains a source of delay and uncertainty for
investment. Demand for drilling APDs has outpaced the agency's
ability to process them. BLM's management of this dynamic
combination of factors has a real effect on the market price of
natural gas. Notwithstanding these problems, the act is
providing, and will continue to provide, relief for those 62-
million households, by our calculation, that consume natural
gas.
The act contains provisions to improve the Federal
Government's ability to develop its onshore energy resources.
Both leasing and permitting on Federal lands were addressed in
the legislation. For some provisions, it's really too early to
determine whether implementation will yield substantive changes
in public-land energy development. However, we are seeing
tangible benefits from this legislation, in the form of
increased production, that will reduce the impact of another
serious supply disruption like we suffered last year.
The act requires agencies to examine their leasing process
to determine where improvements can be made. The act requires
further coordination between the agencies, as was pointed out
earlier, where there are overlapping jurisdictions within the
Fish and Wildlife Service, the Environmental Protection Agency,
and so forth. And we believe the pilot project offices, with
their expanded capacity, will, in fact, aid, ultimately, the
nomination, slash, leasing process. These measures will provide
the basis for BLM to reduce the delays associated with
nominating and issuing leases for energy production.
Permitting remains the most immediate, and perhaps most
manageable, element controlling the amount of natural gas to
reach consumers from public lands. Commodity prices tell us
that more wells need to be drilled. Both industry and BLM have
responded, and drilling is up. The number of permits approved
by the BLM, by one statistic, has increased 20 percent over the
last 3 years. At the same time, the number of permits that we
have submitted as an industry to the BLM has increased by 27
percent. Field offices have, therefore, fallen further behind.
The act created the Pilot Program to Improve Federal Permit
Coordination, the busiest offices. We think that is a
tremendously valuable asset. We've seen real progress in each
of the pilot offices. The number of permits that have been
approved, for example, in the Vernal field area office has
dramatically improved. Of course, since we're submitting more
APDs, the delay is still there, but the throughput has, in
fact, increased dramatically.
One very tangible improvement on the permitting front is
the use of the section 390 categorical exclusions. We conducted
an informal survey of our members, and a third of the
respondents had suggested the use of categorical exclusions; 28
percent of those were, in fact, adopted. They seem to be taking
as long as the APD process, the normal APD process, but, maybe
with a bit more certainty in the outcome.
I have a case in point, from our own company's experience,
that illustrates, sort of, both the good and bad. We have a
drilling program in a field in Utah that we simply wouldn't be
able to be going forward with at this point in time. We expect
we'll drill on the order of 30 wells and produce 50-million
standard cubic foot of gas by the end of this summer. That
simply would not have been possible without the categorical
exclusion process.
In closing, I think it's important to recognize the efforts
of the BLM and commend them for accommodating the growth that
we've seen over the course of the last year or so, or the last
several years. The growth has been dramatic. Public-land
natural-gas development is vitally important to the Nation. The
Government's role in the natural-gas markets today should be
apparent, and will only increase with time. And while paradigm
changes in the administration of the Federal permit programs
are necessary to get to that--twice the level we are today, the
Energy Policy Act of 2005 will, in fact, help reduce our
dependency on foreign natural gas. We hope that the Federal
agencies, at all levels, continue to work with industry to
ensure that those opportunities created by the Act continue to
increase production on Federal lands.
Thank you.
[The prepared statement of Mr. Zavadil follows:]
Prepared Statement of Duane Zavadil, Vice President of Government and
Regulatory Affairs, Bill Barrett Corporation, on Behalf of the
Independent Petroleum Association of Mountain States, Denver, CO
Mr. Chairman and members of the Committee, my name is Duane Zavadil
and I am Vice President of the Independent Petroleum Association of
Mountain States. I want to thank this Committee for holding a hearing
about the benefits to the public of the Energy Policy Act of 2005.
First, I'd like to thank all members of this Committee for their
dedication and hard work in passing the Energy Policy Act of 2005.
Second, I want to tell you the good news, that this Committee's hard
work from last summer, is making a difference in public land
development to help increase supplies of natural gas headed to
consumers. The final point I would like to make is that close oversight
of the Act's implementation will be necessary to see continued
increases of energy production on federal lands in the Intermountain
West.
PUBLIC LAND ENERGY AND THE ENERGY POLICY ACT
Public lands owned and managed by the federal government hold
resources that benefit the nation in multiple ways: food, recreation,
habitat for wildlife, and last but not least, energy. As the nation's
appetite for energy continues to grow and production from traditional
sources decline, public lands in the Rockies must play a significant
role in the nation's energy security.
The federal government is the largest owner of natural gas reserves
in the nation by way of its surface and subsurface management of public
lands. The Bureau of Land Management (BLM) and the Forest Service
manage 261 million and 193 million acres of surface lands respectively.
These lands are located overwhelmingly in the Western states. The
federal mineral estate underneath BLM, Forest Service, other agencies
and even some private lands, encompasses 699 million acres.
The federal government will play a significant role in the future
development of natural gas because demand for natural gas is not
expected to decline significantly in the next two decades and likely
beyond. According to the Energy Information Administration (EIA), by
2030 U.S. consumption of natural gas will be 27 trillion cubic feet, up
from 21.9 Tcf today. It is estimated that federal lands contain nearly
200 trillion cubic feet of technically recoverable natural gas. Public
lands contain the largest onshore reserves of natural gas in the nation
and currently supply 11 percent of the nation's natural gas. The EIA
estimates that Intermountain West natural gas production will double
over the next two decades surpassing the Gulf of Mexico. Today, more
than half of the natural gas from this region is produced from public
lands.
The current bureaucratic process for developing these lands,
however, moves slowly and in recent years has not kept pace with the
nation's energy demands. Last year, hurricanes Katrina and Rita
underscored the lack of secure, excess natural gas. The agency
currently responsible for administering energy production on public
lands, the Bureau of Land Management faces a multitude of issues.
Preparing critical land use plans has slowed to a crawl. Leasing has
become divisive, spurring extended administrative processes through
protests and appeals of federal agency decisions. NEPA remains a source
of delay and uncertainty. Demand for drilling permits has outpaced the
agency's ability to process them. BLM's management of this dynamic
combination of factors has a real effect on the market price for
natural gas. Notwithstanding these problems, the Energy Policy Act of
2005 is providing, and will continue to provide relief to the 62
million households that consume natural gas.
The Act contains provisions to improve the federal government's
ability to develop its onshore energy resources in the public interest.
Both leasing and permitting on federal lands were addressed in the
landmark legislation. For some provisions, it is too early to determine
whether the implementation of this legislation will yield substantive
changes in public land energy development. However, we are seeing
tangible benefits of this legislation in the form of increased
production that could reduce the impact of another serious supply
disruption.
LEASING, PLANNING AND PERMITTING
Planning
The land use planning process is critical to oil and gas
development on public land. Both the BLM and Forest Service are
required to prepare planning documents pursuant to federal law. These
plans guide multiple-use activities in the areas covered by the plans.
The importance of these plans cannot be understated. If land-use plans
are not updated with sufficient consideration of the need for expanded
energy production, the nation's ability to provide affordable domestic
energy is severely limited.
Many of the current plans are outdated and do not reflect the
importance of public lands in meeting energy demands. Recognizing this,
in 2001 BLM initiated an overhaul of its entire planning base with the
goal of updating all 160 RMPs within ten years. Twenty-one ``Time
Sensitive Plans'' (TSP) were identified as high priority because they
address energy resource development, respond to nationally significant
lawsuits, or have legislatively mandated time frames. With 2006 upon
us, six TSPs critical to oil and gas development are not yet final
(Table 2) limiting BLM's ability to effectively manage the public's
energy resources. Furthermore, some of the plans, in their draft form,
contain prescriptions that further limit, rather than expand, the
potential for energy production. Simply put, many of these draft plans
are inconsiderate of the effect that the government has on natural gas
prices and consumers. If these plans are appropriately updated, BLM
managers will be able to more effectively carry out many elements of
energy program administration, elements such as leasing and permitting
that were addressed by the Act. These plans need to be reviewed for
their impact on consumers and completed as soon as possible.
Leasing
Media accounts of oil and natural gas leasing lead one to believe
that leasing is galloping along at a break neck pace. In reality,
leasing has continued at an even pace through both the Clinton and Bush
Administrations. For the last several years, with rising natural gas
prices and improved technology, there has been significant interest in
areas that were not feasible to develop in the past. As these areas
have been nominated for oil and gas leasing by companies, conflicts
arise with organizations who want to block all development. As a
result, administrative challenges, called ``protests,'' of leases in
the Intermountain West have been on the rise over the past few years.
BLM lease sale protests have increased significantly over the past
few years. Between 2001 and 2005, 42% of all lease parcels offered in
the Intermountain West have been protested. In 2005, 55% of the lease
parcels offered were protested (Table 1). Isolating Colorado and Utah,
80% of all offered lease parcels were protested. Protests divert BLM
personnel and funding from effectively managing the multiple uses of
the land to fighting litigation and administrative processes. Protests
further tie up a company's capital that could be used to produce
energy.\1\ (See Attachments for more information about Leasing Public
Lands).\2\
---------------------------------------------------------------------------
\1\ Companies that successfully bid on a lease are required to pay
the entire bonus bid (sometimes upwards of $2,000 per acre in recent
sales) and first year's rent within 10 days of the lease sale.
\2\ Attachments have been retained in committee files.
Table 1.--2005 LEASE PROTESTS
------------------------------------------------------------------------
Parcels Parcels
State offered protested Percent
------------------------------------------------------------------------
Colorado............................... 292 234 80%
Montana................................ 442 48 11%
New Mexico............................. 314 197 63%
Utah................................... 329 264 80%
Wyoming................................ 968 542 56%
------------------------------------------------------------------------
Table 2.--APPLICATIONS FOR PERMITS TO DRILL (APD)
------------------------------------------------------------------------
Q1-Q3 Q1-Q3 Q1-Q3 Average
2004 2005 2006 change
------------------------------------------------------------------------
APDs received................... 4470 5769 7272 27%
APDs approved................... 3363 4296 4874 20%
------------------------------------------------------------------------
The Energy Policy Act of 2005 has the potential to improve the
leasing process for public lands. The Act requires agencies to examine
their leasing processes to determine where improvements can be made.
The Act requires further coordination between agencies where there is
overlapping jurisdictions (wildlife, air quality, etc.). Pilot project
offices should have expanded capacity to review nominations and offer
parcels for leasing. These measures provide the basis for BLM to
eliminate many of the delays associated with nominating and issuing
leases for public land energy production.
PERMITTING
Permitting remains the most immediate and perhaps manageable
element controlling the amount of natural gas to reach consumers.
Commodity prices tells us that more wells need to be drilled. Both
industry and BLM have responded and drilling is up. The backlog of
permits in BLM field offices, however, continues to grow. As Table 2
shows, the number of permits approved by BLM has increased 20% over the
last three years. At the same time, the number of permits received by
BLM has increased by 27%. Field offices have fallen further behind. For
companies juggling tight drill rig availability with seasonal
stipulations that allow drilling only during a narrow time frame,
permitting delays are very problematic. Approval times are
unpredictable and often reaching six months or more. An unpredictable
permitting process leaves drilling contractors unable to sufficiently
respond to market conditions by moving more rigs into the region, and
producers are threatened with increased costs by losing drilling rigs
or paying for drill rigs that they cannot keep busy. Multiply these
pressures by the number of rigs that are working and the need to have
multiple permits available to execute a coordinated, flexible drilling
program and the need for a more timely permitting process becomes
painfully apparent. (See Attachments for more information about
Drilling Rigs in the Rockies).
The Energy Policy Act of 2005 created the Pilot Program to Improve
Federal Permit Coordination in the busiest BLM field offices throughout
the Intermountain West. The provision creating the pilot program also
included a funding mechanism that uses one-half of the revenues
received from lease rental payments. BLM has diligently implemented
this section by hiring and training new personnel in the pilot offices.
Although the program is just getting off the ground, IPAMS has great
expectations that new personnel will quickly learn their
responsibilities to minimize the apparent losses in efficiency that are
inherent in any new program.
In addition to improving coordination among the federal agencies,
IPAMS is very pleased that the pilot program will examine the
permitting process to see where efficiency gains are possible. IPAMS
believes this may be the most important step toward improving the
permitting process on federal land. A comprehensive look at the current
process to identify where the bottlenecks occur will help this
Committee determine potential legislative action and oversight
opportunities. Without examining the permitting process and making
changes to improve its efficiency, BLM will likely continue to fall
behind in permit approvals even as the agency's role will grow more
important in meeting the nation's energy needs.
One tangible improvement on the permitting front is the use of
Section 390 of the Energy Policy Act of 2005 which categorically
excludes certain oil and gas operations from redundant analysis under
the National Environmental Policy Act. Recently, IPAMS conducted an
informal survey of our members regarding their experience with Section
390 of the Energy Policy Act.
Nearly one-third of the respondents had suggested the use of the
categorical exclusions to the BLM and 28% were accepted. Another
interesting result from IPAMS' survey was that Section 390 categorical
exclusions took just as long to complete as the normal process for
approving permits. This finding may indicate the need for closer
oversight by this Committee to ensure the agency is carrying out the
Congressional intent of Section 390.
CONCLUSION
Public land natural gas development is vitally important to the
nation. The government's role in the natural gas markets today should
be apparent and will increase in over time. While paradigm changes in
the administration of the federal minerals program are necessary to
avoid increasing dependency on foreign natural gas, the Energy Policy
Act of 2005 is helping to address some of the immediate barriers to
meeting natural gas demand. IPAMS hopes that federal agencies, at all
levels, will continue to work with industry to ensure that the
opportunities created by the Energy Policy Act of 2005 continue to
increase energy production on federal lands.
Thank you for the opportunity to testify before you today, I am
happy to answer any questions you may have.
The Chairman. Thank you very much.
Let's proceed to our next witness, Jeffrey Eppink.
STATEMENT OF JEFFREY EPPINK, SENIOR VICE PRESIDENT, ADVANCED
RESOURCES INTERNATIONAL, INC., ARLINGTON, VA
Mr. Eppink. Good morning, Chairman Domenici and members of
the committee. My name is Jeffrey Eppink. I am a senior vice
president with Advanced Resources International, an energy
consulting firm based in Arlington, Virginia. I'd like to talk
about the EPAct pilot offices and the potential of that
program.
As a result of the passage, last summer, of EPAct section
365, the Secretary of the Interior was directed to establish a
pilot project to improve Federal drilling permit coordination.
The pilot comprises seven Bureau of Land Management field
offices: Miles City, in Montana; Buffalo and Rawlins, in
Wyoming; Verna, in Utah; Glenwood Springs, in Colorado; and
Farmington and Carlsbad, in New Mexico. These field offices are
the locations of some of the richest natural-gas resources in
the lower 58 States.
Subsequently, last fall, Advanced Resources was asked by
the Secretary's office to perform an analysis of the impacts
for processing outstanding applications for permits to drill--
so-called APDs--from the pilot offices. Specifically, the
Secretary's office asked us to assess the benefits that could
accrue from the first 5 years of incremental funding to the BLM
pilot offices. The funding for the program is anticipated to be
$19 million per year. At the time of the analysis, the backlog
of APDs in process in the pilot offices stood at 3,100, upon
which our analysis was based.
Since last fall, in the wake of the devastation of
Hurricane Katrina, natural-gas prices rose to record highs.
Prices have now moderated significantly; although, on a
historical basis, they are still quite high. As a consequence
of these natural-gas prices, in the areas of the pilot offices,
particularly, industry responded to the price signals and
increased drilling applications. As a result, the number of BLM
APDs in process has grown.
I checked with the BLM in late May, and there were over
4,500 APDs in process for the pilot offices, nearly a 50-
percent increase from fiscal year 2005. Of these APDs, BLM
indicated that 1,615 are administratively complete, meaning
that the applications are not deficient for information that
would delay processing. I mention these increased APDs, because
the benefits I present below would be larger if the current
backlog were considered.
The results from our analysis of last fall indicate that
the benefits from the pilot program could be significant for
the Nation, given the modest investment. The major effect of
the assumed activities is to accelerate production, moving it
earlier in time to capture most benefits within 15 years.
The analyses show that there would be a number of positive
impacts. Production would be increased up to over 1,000
billion-cubic-feet-equivalent per year. Proved reserves would
be increased up to 11,800 BCFe over the 5 years of drilling
that would occur. The Federal share of royalties would be
increased by $2.1 billion. The amount of incremental economic
value developed as a result of the assumed activities could
represent a net-present-value of about $20.4 billion. And jobs
would be increased, peaking at over 14,000 per year. The cost
of the initiatives is negligible, less than 1 cent per thousand
cubic feet of added reserve.
In the absence of the increased APD processing capacity by
BLM, it is unlikely that the backlog could be worked off as
additional APDs are generated. As I have indicated, the backlog
has already grown significantly this past winter. Were the
backlog to be worked off, production resulting from drilling
would act to increase supply and moderate prices for the
Nation. It is noteworthy that, in order to accomplish this
increased production, land-access issues need to be considered.
Although the results I have presented are robust,
implementation of the pilot project will likely present
challenges, including issues of hiring APD-knowledgeable BLM
staff, rig availability, the politics of land access, and
possible pipeline constraints.
I appreciate the opportunity to present our analysis of the
benefits of processing APDs and BLM pilot offices to you, and
would be glad to answer any questions that you might have.
[The prepared statement of Mr. Eppink follows:]
Prepared Statement of Jeffrey Eppink, Senior Vice President, Advanced
Resources International, Inc., Arlington, VA
Good afternoon, Chairman Domenici and members of the Committee. My
name is Jeffrey Eppink. I am a senior vice president with Advanced
Resources International, an energy consulting firm based in Arlington,
Virginia.
As a result of the passage last summer of the Energy Policy Act of
2005 (EPAct), Section 365, the Secretary of the Interior was directed
to establish a pilot project to improve Federal drilling permit
coordination. The pilot comprises seven Bureau of Land Management (BLM)
field offices: Miles City, Buffalo, Rawlins, Vernal, Glenwood Springs,
Farmington, and Carlsbad. These field offices are the locations of some
of the richest natural gas resources in the lower-48 states.
Subsequently, last fall Advanced Resources was asked by the
Secretary's office to perform an analysis * of the impacts for
processing outstanding Applications for Permit to Drill (APDs) from the
pilot offices. Specifically, the Secretary's Office asked us to assess
the benefits that could accrue from the first five years of incremental
funding to the BLM pilot field offices. The funding for the program is
anticipated to be $19MM per year. At the time of the analysis, the
number of APDs in-process in the pilot offices stood at 3100 (at the
end of FY2005), upon which our analysis was based.
---------------------------------------------------------------------------
* The analysis has been retained in committee files.
---------------------------------------------------------------------------
Since last fall, in the wake of the devastation of Hurricane
Katrina, natural gas prices rose to record highs. Natural gas prices
now have moderated significantly, although on a historical basis, they
still are quite high. As a consequence of these prices, in the areas of
the pilot offices particularly, industry responded to the price signals
and increased drilling applications. As a result, the number of BLM
APDs in-process has grown. I checked with the BLM in late May and there
were over 4500 APDs in-process for the pilot offices--nearly a 50
percent increase from FY2005. Of these in-process APDs, BLM indicated
that 1615 are ``administratively complete'' meaning that the
applications are not deficient for information that would delay
processing.
I mention these increased in-process APDs because the benefits I
present below could be larger if the current backlog were considered.
The results of our analysis from last fall indicate that the
benefits from the pilot program could be significant for the Nation
given the modest investment. The major effect of the assumed activities
is to accelerate production, moving it earlier in time to capture most
benefits within 15 years. The analyses show that there would be a
number of positive impacts:
<bullet> Production would be increased, up to over 1,000 billion
cubic feet-equivalent (BCFe) per year,
<bullet> Proved reserves would be increased, up to 11,800 BCFe over
the five years of drilling that the initiatives would affect,
<bullet> The Federal share of royalties would be increased by over
$2.1 billion,
<bullet> The amount of incremental economic value, developed as a
result of the assumed activities, would represent a net present
value (NPV) of $20.4 billion, and
<bullet> Jobs would be increased, peaking at over 14,000 per year.
The costs of the initiatives are very low--less than 10 per
thousand cubic feet (MCF) of added reserve, which is negligible
compared to current natural gas prices of about $6 per MCF.
In the absence of increased APD processing capacity by BLM, it is
unlikely that the backlog could be worked off as additional APDs are
generated--as I have indicated, the backlog has already grown
significantly this past winter. Were the backlog to be worked off, the
increased production resulting from drilling could act to increase
supply and moderate prices for the Nation. It is noteworthy that, in
order to accomplish this increased production, land access issues need
to be considered.
Although the results I have presented are robust, implementation of
the pilot project will likely present challenges, including issues of
hiring of APD-knowledgeable BLM staff, rig availability, the politics
of land access, and possible pipeline constraints.
I appreciate the opportunity to present our analysis of the
benefits for processing APDs in BLM pilot offices to you and would be
glad to answer any questions you might have.
The Chairman. Thank you very much.
Now, Mr. Tom Reed.
STATEMENT OF TOM REED, WYOMING FIELD ORGANIZER, TROUT
UNLIMITED, ARLINGTON, VA
Mr. Reed. Thank you very much. My name is Tom Reed. I work
for Trout Unlimited. I also used to work for the Wyoming Game
and Fish Department, and I'd like to speak specifically about
Wyoming today.
Wyoming is more than carrying its weight for the energy
needs of this country. Oil and gas development and exploration
is taking place at an unprecedented rate. It is estimated that
25 percent of the State will be impacted by oil and gas
development to meet our Nation's demands. That's a land area
roughly equivalent to 360 Washington D.C.'s.
At Trout Unlimited, we feel that oil and gas development is
appropriate in some places, and inappropriate in others. But
even where it is appropriate, there needs to be sound science
that protects our fisheries and wildlife, and, as an extension,
our fishing and hunting opportunities. Wyoming truly is blessed
with natural resources, both below and above the ground. The
State's scenic beauty, wildlife, and fisheries are
unparalleled. This State is known for its long vistas, its
sagebrush deserts, high mountains, deep forests, and crashing
rivers. To the hunter and angler, Wyoming offers some of the
finest outdoor opportunities in the world, from its abundant
pronghorn antelope and mule deer to its elk to its four
subspecies of native cutthroat trout, this State sustains a
wide variety of game and fish and enough wild country to absorb
a lifetime of exploring. I, personally, have hunted Wyoming's
deep spruce forests for elk, fished the high mountain lakes for
native trout, and crawled through the sagebrush in an attempt
to take a nice pronghorn buck. I've ridden my horse in the high
country and floated down the wild rivers in the lower deserts.
There are a lot of people in Wyoming just like me, they live
there for the great outdoors and for the opportunity to hunt
and fish and enjoy the time out there with their families.
But these can troubling times for people like me who love
the great outdoors. At the current rate of development,
scientists, particularly with the Wyoming Game and Fish
Department, are having a difficult time keeping up with much-
needed research. It is important for Congress to recognize that
intensive impacts are occurring, and will continue to occur, as
this region is changed from wild, empty country into
industrialized zones. Funding for land management agencies,
such as the Bureau of Land Management, needs to be secured
specifically for scientists who deal with the impacts on
wildlife and fisheries. State wildlife agencies, like the
Wyoming Game and Fish Department, also need national funding so
that biologists can be hired to deal solely with oil and gas.
These biologists would collect data, monitor impacts, and
design and implement mitigation, working closely with industry
and land management agencies.
There is a willingness among many in industry to move in
this direction, but Congress also needs to step up with money
so these agencies could take care of our fisheries and
wildlife.
How this development is going to impact our wildlife and
fisheries heritage is largely unknown, because much of the
development has taken place in the last few years. To keep
abreast of this, we need more science, and we need more
scientists. For example, there are only three people in the
Game and Fish Department's Cheyenne office to deal with oil and
gas issues. When one realizes that just one corner of Wyoming,
the Powder River Basin, faces an estimated 60,000 coalbed
methane wells, it is clear that this is too much too fast.
The Department estimates that it needs staff biologists
that deal with nothing but oil and gas development to study,
understand, and try to mitigate impacts to crucial big game,
sagebrush-sensitive species, and fisheries habitats.
I mentioned earlier that there are also places where oil
and gas development is inappropriate, and I'd like to
personally thank our Senator, Craig Thomas, for his landmark
stance against oil and gas drilling on our national forests.
We, too, believe that our national forests should be off-
limits. These are our headwaters and our hunting grounds. They
are places where Wyomingites go to recreate and relax, and to
spend time with family and friends. The Wyoming Range, in
western Wyoming, is just such a place. It harbors some of the
finest mule deer, moose, and elk hunting in the State. It is
also home to three important subspecies of native trout. People
from all over the country come to this region to fish, hunt,
and relax.
Today, we are heavily developing country east of the range
for oil and gas. Places like the Pinedale Anticline and the
Jonah gas field are helping to fuel this Nation, but they are
also places that have been historically used as winter range
for our big-game herds. We are very concerned about the amount
of development that is taking place on these winter range, but
it is also very important to us that we save places like the
Wyoming range.
An example of why some places should be off limits is the
LaBarge Creek drainage in the Wyoming range. Here is a stream
that the Wyoming Game and Fish Department is putting Colorado
River cutthroat back into after years of absence. This is a
fish that has swum these waters for thousands of years. At an
estimated cost of $2 million, the Department is revitalizing 58
miles of stream. Yet, at the same time, there is seismic
exploration in the headwaters.
In conclusion, we would like to emphasize to Congress that
more money needs to be made available for the States to study
wildlife and fisheries. And, also, we would like to see some
places kept off-limits.
Thank you very much.
[The prepared statement of Mr. Reed follows:]
Prepared Statement of Tom Reed, Wyoming Field Organizer, Trout
Unlimited, Arlington, VA
Chairman Domenici, Senator Bingaman, and Members of the Committee,
thank you for giving me the opportunity to speak to you today about oil
and gas production on Federal lands in the Rocky Mountain Region.
My name is Tom Reed. I grew up in Colorado and graduated from
Arizona State University. I spent several years working as an
instructor in Wyoming teaching, among other things, fly fishing and
horse-packing. I also worked for the Wyoming Game and Fish Department.
I currently serve as the Wyoming Field Coordinator for Trout
Unlimited's Public Lands Initiative, the purpose of which is to develop
sound scientific and technical information demonstrating the importance
of public lands to coldwater fisheries, wildlife, and hunting and
fishing opportunities as well as sharing this information with
sportsmen across the West.
Our public lands sustain some of the cleanest water, healthiest
habitats, and finest fishing and hunting in North America. More than 50
million Americans hunt and fish, however, too often their voices are
lost in the din of controversy that has come to define public land
management. A significant and growing concern among sportsmen is the
impact of energy development on fish and wildlife habitat on our public
lands.
Wyoming is at the forefront of these energy and public land issues
and is more than carrying its weight for the energy needs of this
country. Oil and gas exploration and development is taking place at an
unprecedented rate. It is estimated that 25 percent of the state will
be impacted by oil and gas development to help meet our nation's
demands. That's a land area the equivalent of 360 Washington DCs.
In the Rocky Mountain West, energy development is proceeding at an
ever increasing rate. More than 26 million acres of public land managed
by the Bureau of Land Management (BLM) in Wyoming, New Mexico, Utah,
Colorado, and Montana are open for leasing. In a year's time, BLM
approved 5,700 new drilling permits in those states--a 62% increase
over the previous year. BLM has a total of nine fisheries biologists in
those five states. That's about 3 million acres of leased land per
fisheries biologist. Most people agree that is an impossible
responsibility to place on nine people.
At Trout Unlimited, we feel that oil and gas development is
appropriate in some places and inappropriate in others. But even where
it is appropriate, sound science needs to be utilized to protect our
fisheries and wildlife, and as an extension, our fishing and hunting
opportunities. We are not side-line critics. We believe in rolling up
our sleeves and working with industry to minimize the effects of
development on fish, game, and water resources. For example, we are
working in Wyoming with Dudley and Associates on the Seminoe Road
coalbed methane project to try and develop operational protocols for
development that minimize effects on ground and surface water and
fisheries. Questar has similarly demonstrated a willingness to work
with us. We believe it is important to work with companies to ensure
that development is done right.
In our view, however, doing development right includes
acknowledging when it's being done wrong, and where it shouldn't be
done at all. Wyoming truly is blessed with natural resources, both
below and above the ground. The state's scenic beauty, wildlife and
fisheries are unparalleled. This state is known for its long vistas,
sagebrush deserts, high mountains, deep forests and crashing rivers. To
the hunter and angler, Wyoming offers some of the finest outdoor
opportunities in the world. From its abundant pronghorn antelope and
mule deer to its elk to its four subspecies of native cutthroat trout,
this state sustains a wide variety of game and fish and enough wild
country to absorb a lifetime of exploring. I personally have hunted
Wyoming's deep spruce forests for elk, fished the high mountain lakes
for native trout, and crawled through the sagebrush in an attempt to
take a nice pronghorn buck. I've ridden my horse in the high country,
and floated down wild rivers in the lower deserts. There are a lot of
people in Wyoming just like me: they live there for the great outdoors
and for the opportunity to hunt and fish with their families.
But these can be troubling times for people like me who love the
great outdoors. At the current rate of oil and gas exploration,
scientists, particularly with the Wyoming Game and Fish Department, are
having a difficult time keeping up with the pace of development.
It is important for Congress to recognize that intensive impacts
are occurring and will continue to occur as this region is changed from
wild, undeveloped country into industrial zones. Funding for land
management agencies such as the Bureau of Land Management needs to be
secured specifically for scientists who deal with impacts on wildlife
and fisheries. State wildlife agencies like the Wyoming Game and Fish
Department also need national funding so that biologists can be hired
to deal solely with oil and gas issues.
These biologists should collect data, monitor impacts and design
and implement mitigation, working closely with industry and land
management agencies. There is a willingness among many in the industry
to move in this direction, but Congress also needs to step up with
money for these agencies so that our wildlife and fisheries resources
are taken care of. We believe that the scale and pace of development on
oil and gas fields far outstrips the organizational capacities of both
state and federal agencies responsible for managing fish and wildlife
and the habitats they depend on.
How this development is going to impact our wildlife and fisheries
heritage is largely unknown because much of the development has taken
place only in the last few years. To keep abreast of this, we need more
science and we need more scientists. We also need to slow down and not
allow energy production to outstrip the land's productive capacity.
To clarify how overworked and understaffed our biologists are,
consider: there are only three people in the Game and Fish Department's
Cheyenne office that deal with oil and gas issues. When one realizes
that just one corner of Wyoming the Powder River Basin--faces an
estimated 60,000 wells, it is clear that is too much, too fast.
The Department estimates that it needs staff biologists that deal
with nothing but oil and gas development to study, understand and try
to mitigate impacts to crucial big game, sage grouse, sensitive species
and fisheries habitats. That tally is as much as $2 million per year.
Similar expenditures will be needed in other states and for federal
agencies.
The purpose of this hearing is to determine the effects of the
Energy Policy Act's provisions. The fact is that after 11 months it is
difficult to determine the effects on fish, wildlife, and water
resources from the acceleration of development. As a life-long hunter
and angler, I can say with certainty, it isn't looking good for game
and fish. A biologist within the Wyoming Game and Fish Department told
me that wildlife and fisheries are going to lose, and the best we can
hope for is to minimize the loss.
Along these lines, one aspect of the Energy Policy Act that I would
urge the Committee to look into is implementation of Section 1811 of
the Act. That section authorized the National Academy of Sciences (NAS)
to prepare a report on the impact of coalbed methane development on
water. Unfortunately, because NAS is depending on funding from BLM to
get this report together, and the BLM has not provided any money to
them to do it, the study has not been initiated.
Given the concern of sportsmen and communities in the West over the
impact of rapidly expanding coal bed methane development on both water
supplies and water quality, an NAS evaluation of the issue would be
very helpful to states, local communities, and individual citizens in
determining what sort of regulatory regime is appropriate for
addressing the impacts on water quality and quantity. We urge the
Committee to let the BLM know that it expects the agency to provide the
funding necessary to the NAS to get on with this important study.
I mentioned earlier that there are also places where oil and gas
development is inappropriate and I'd like to specifically thank our
Senator Craig Thomas for his landmark stance against oil and gas
drilling on our national forests. We, too, believe that our national
forests should be off-limits to oil and gas drilling. These are our
headwaters and our hunting grounds. They are places where Wyomingites
go to recreate and relax, to spend time with family and friends. These
are heirloom places that should be passed down to our children and to
their children.
The Wyoming Range in the Bridger-Teton National Forest harbors some
of finest mule deer, moose and elk hunting in the state. It also is
home to three important subspecies of native trout: the Colorado River,
Bonneville and Snake River cutthroat. People from all over the country
come to this region to fish, hunt and relax. Today, we are heavily
developing country east of the range for oil and gas. Places like the
Pinedale Anticline and the Jonah gas field are helping to fuel this
nation, but they are also places that have been historically used as
winter range for our big game herds.
We are very concerned about the amount of development that is
taking place on these winter ranges. It is a virtual certainty that our
big game resource, and as an extension, the quality of big game hunting
in this region is going to decline. If we develop not only winter
ranges, but migration routes and summer ranges as well, we believe it
will spell the end of quality hunting in western Wyoming. We'd like to
see some very special places such as the Wyoming Range set aside for
recreation and relaxation.
An example of why some places should be off-limits to energy
development is the La Barge Creek drainage in the Wyoming Range. This
stream is the site of a large restoration project being undertaken by
the Wyoming Game and Fish Department to bring back a native trout, the
Colorado River cutthroat. At a cost of an estimated $2 million, some 58
miles of stream are being reclaimed and revitalized for this native,
pure fish that has swum these waters for thousands of years. Yet even
while fisheries biologists are hard at work with the restoration
process, there are daily flights of helicopters doing seismic testing
in the backcountry headwaters of La Barge Creek for potential gas field
development.
Oil and gas development in the headwaters would mean roads and
roads heavily impact fish by flushing sediment into drainages and
blocking the passage of spawning fish. These two things: native pure
fish swimming in clear, clean water on our national forests and
industrial development cannot make for a happy marriage.
Our public lands sustain the last-best fish and wildlife habitat
and hunting and fishing opportunities in the West. We only have one
chance to develop our lands for gas and oil responsibly and all
indications show that expedited leasing, rushed approvals for
application to drill, and a lack of resources for meaningful studies,
monitoring, and enforcement are spoiling that chance. Trout Unlimited
commissioned a literature review of information describing the effects
of energy development on coldwater fisheries. The lack of data is
daunting. I would like to submit this report for the record.
I want to share with you a few more examples from the field that
help to explain why state fish and game departments, federal fish and
wildlife biologists, and hunters and sportsmen across the Rocky
Mountain West are so concerned about energy development.
<bullet> In the past two years on the Uinta National Forest in Utah,
the leasing of National Forest Lands was approved and carried
out, and did not take into account the important fisheries
restoration work that has occurred or the 2000 Range-wide
Conservation Agreement and Strategy for Bonneville Cutthroat
Trout. In at least one instance, neither the forest's fisheries
biologist nor District Ranger was aware that the resources they
are charged with managing would be facing new threats and
challenges resulting from leasing that occurred in the Diamond
Fork, a watershed that sustains a Conservation Population of
native Bonneville Cutthroat Trout and also in the Strawberry
Valley, where Utah's most popular trout fishery, Strawberry
Reservoir, is located.
<bullet> In April, 2006 the Forest Service leased areas of the
Wyoming Range. Many of these leases are part of watersheds that
sustain core-conservation populations of Colorado River
cutthroat trout, a species that is currently regarded as
``sensitive'' by both State and Federal agencies. However, the
Bridger-Teton National Forest is lacking baseline data and
inventory information. In addition to other concerns such as
air quality, Canada Lynx habitat damage, and cumulative
impacts, we don't think it's prudent to lease and develop areas
in the absence of baseline data.
<bullet> Preliminary results of an ongoing study on mule deer impacts
in the Upper Green River Basin of Wyoming by Western EcoSystems
Technology, Inc. (WEST), BLM, the energy industry and Wyoming
Fish and Game show:
--Mule deer abundance on the Mesa has declined. The Mesa's overall
mule deer population is down 46 percent since 2002.
--Over-winter fawn survival rates have been slightly lower on the
Mesa compared to the control region for four of the five
years;
--Mule deer are moving from previously ``high use'' winter habitat
areas into areas that previously had been of ``low use''
suggesting that drilling and development has displaced mule
deer to less suitable habitats;
--Sublette County's mule deer are among the most migratory in the
West, traveling between 60 to 100 miles between summer and
winter ranges. Documented migration routes, such as
Trapper's Point Bottleneck, remain important pathways
between winter range in the Upper Green and summer range in
the surrounding mountains.
A complete and sound understanding through research and continued
monitoring of the impacts to our fish, wildlife, lands, waters and air
is only prudent before jumping head-first into lease obligations and
expedited development.
Thank you again for the opportunity to testify today. I will be
happy to answer any questions you may have.
The Chairman. Thank you very much.
Many of us are very proud to hear you talk about the
marvels of hunting and fishing.
Mr. Reed. Thank you.
The Chairman. Maybe I don't share it anymore, but I did, at
some point in my life, and it's good to hear from you about it.
We are finished with the witnesses. Now we're going to go
to Senators. And I would just ask if any Senator has an
important series of questions and is on a tough timeframe. Is
there anybody that needs to go--if they want to ask any
questions, if they need to do it right now--Senator, are you on
that kind of time schedule?
Senator Martinez. I'm going to have to move on, but I'm
going to forego any questions at this time. I just need to go
onto the floor to speak on another matter.
The Chairman. Thank you very much. Thanks for coming,
Senator.
Senator Martinez. Thank you.
The Chairman. All right.
Senator Bingaman.
Senator Bingaman. Thank you very much, Mr. Chairman, for
having the hearing.
Let me ask Mr. Hall, since he's here--we have this report
from the GAO that's dated last year, June 2005, and it's called
``Oil and Gas Development: Increased Permitting Activity Has
Lessened BLM's Ability to Meet Its Environmental Protection
Responsibilities.'' That's the title of the report. And then,
it goes on at length, but it basically--I think the operative
conclusion is that, ``BLM officials in five out of eight field
offices GAO visited explained, as a result of the increases in
drilling permit workloads, staff had to devote increased time
to processing drilling permits, leaving less time for
mitigation activities such as environmental inspections, and
idle-well reviews.''
This was a year ago--this was in June 2005--has this
problem been solved? Does it continue? Is it not a problem, in
your view? What's your thought on it? It's sort of in your
jurisdiction, I would think.
Mr. Hall. Well, thank you, Senator. I think that at least
it has been lessened. And this act has really helped us there,
because it diverted some funds. It allowed BLM to fund some
particular positions in these offices, to focus on APDs, which
then freed up our folks and some of the BLM folks to work on
some of these other areas.
Senator Bingaman. But, now, that's just in the pilot
offices, right?
Mr. Hall. That's just in the pilot offices.
Senator Bingaman. Now, what about BLM-wide?
Mr. Hall. Oh, I think, BLM-wide, they're still strapped,
from a funding standpoint. Director Clarke could answer that
better than I could on the workload and funding for them. But
our impression is--we have a really good working relationship
with the BLM folks on the ground, but a lot of them, and a lot
of our folks, feel a little overwhelmed in some areas. But
these pilot offices are teaching us a lot about how to get that
job done better.
Senator Bingaman. Let me ask Director Clarke, Do you agree
with the basic conclusion of this GAO study, that the
environmental protection responsibilities of BLM are being
given short shrift because of all of the other workload that
you have, dealing with all these permit applications?
Ms. Clarke. I believe that the conclusion of the study was
that biologists and other people who are on staff, with duties
specific to the environment, were being pulled in to work on
the oil and gas program. And that is, indeed, correct. And the
reason we have them assigned to the oil and gas program is, we
needed their expertise. We needed them to help us understand
how to avoid specific wildlife conflicts. We were using the
archeologists to make sure that we were addressing cultural
resource issues in the siting of wells. And so, those folks are
part of interdisciplinary teams that serve the oil and gas
program, but that also assemble to address impacts on any of
the permitted uses that BLM overseas. So, I do believe we are
vigilant in maintaining our environmental controls.
Senator Bingaman. So, you don't think that there has been a
lessening of your ability to meet these environmental
protection responsibilities.
Ms. Clarke. We are working very diligently right now to
ramp up inspections and enforcement and to make sure that we do
not fall behind on those commitments. The workload has been
tremendous, but, of the some-110-plus positions in the pilot
offices that are being hired, over 50 of those are specialists
that will assist us in the environmental inspection and
monitoring arena.
Our 2007 budget proposal would put additional funds into
the non-pilot offices to make sure that we also are well
balanced in those areas and that we can make sure that we are
matching our commitment to development of oil and gas resources
with a robust commitment to monitoring and inspection and
environmental management.
Senator Bingaman. Let me change the subject a little bit.
We were in a discussion, Senator Domenici and I, with someone
who has substantial background with oil and gas activity, and
the point was made--I don't know if it's valid; I'm asking you,
Director Clarke, if you would have an opinion on this--the
point was made that the royalty rates the Federal Government is
receiving on its leases on Federal land are less than those
that private landowners are receiving normally these days, and
less than States are receiving on State land. Do you have an
opinion on that? Is that something you've looked into?
Ms. Clarke. I have not looked into that, so I couldn't
answer. You may have other folks here on the panel that would
have some experience.
Senator Bingaman. Mr. Zavadil, did you have a view on that?
Mr. Zavadil. I do. The royalty rates range from--anywhere
from 8 percent, in some sliding scales that are less, to--our
company pays up to 18 percent for some leases on certain State
lands. I find that the Federal royalty rate is essentially
right in the middle of--and very close to, and consistent
with--call it the ``traditional'' royalty rate that we see.
But, clearly, mineral owners, mineral holders, are free to
select, ultimately, the royalty rate and, kind of, take the
consequences of that, that if the royalty rates are high, you
have lesser development; royalty rates are lower, you have more
development.
Senator Bingaman. Let me ask about abandoned and orphaned
wells. I'm advised that New Mexico has 4,224 abandoned wells on
public land. That's the largest number of any State. There is a
program, as I understand it, for remediation of abandoned and
orphaned wells. Can you tell me the status of that, Director
Clarke?
Ms. Clarke. There is a very positive effort which is taking
place in New Mexico in conjunction with industry, and they are
working, on a voluntary basis, to take under their wing, if you
would, some of those abandoned wells and help us in the
remediation. And the Energy Policy Act also gives us provisions
to offset royalties to offset the costs of them doing that work
for us. So, I believe we're going to be able to expand our
commitment to remediation of legacy and orphan wells. It
certainly is an important item on our agenda, and one that we
want to see expand.
We've also got some significant legacy well problems in
Alaska, so it would----
Senator Bingaman. Is there some kind of timeframe for
actually remediating these wells? I mean, is this something
that has an endpoint?
Ms. Clarke. I do believe that we have a program laid out
which would get to an endpoint. Let me get with you and give
you a more detailed briefing on that.
Senator Bingaman. Thank you very much.
Let me ask, also, about coordination on oil and gas
activities between the BLM and the Forest Service. We've had
complaints in New Mexico--particularly, I've heard them in the
San Juan Basin--about how the BLM has one policy and one set of
procedures and policies, the Forest Service had a totally
different set. Is that problem a real one? Is it getting fixed?
Has it been fixed?
Ms. Clarke. Another direction we received from the Energy
Policy Act was for us to work with the Forest Service on an MOU
that would set forth our coordinated approach to development.
And we have done that. The Forest Service has also been very
forthcoming in working with us on the establishment of the
pilot offices. Dale Bosworth made sure that we had good support
at the visits that we made, and I think we are all committed to
working together and having a shared commitment to the dual
goal of improved development and solid environmental
stewardship as we move forward. So, I want to comment the work
of the Forest Service. They have been very responsive to the
dictates under the Energy Policy Act and are working very
closely with us, at this point.
Senator Bingaman. Thank you, Mr. Chairman. Appreciate it.
The Chairman. Thank you, Senator.
Senator Thomas.
Senator Thomas. Thank you, Mr. Chairman.
Ms. Flanderka, you indicated something about the State's
role. Would you comment on--is there a further role the States
ought to play in these pilot projects?
Ms. Flanderka. Senator, thank you. Yes. And through your
office and your supportive cooperating agency, that's primarily
the role in which we function with BLM and Forest Service, in
front-end project EIS work. We also--the county commissioners,
conservation districts, they're also very involved, and we each
play a role. It's a little messy, at first, to outline our
roles and objectives, and to make sure that we can be as
efficient as possible, but I think that the bottom line, the
Jonah EIS record of decision, I think, is an example. We worked
with Questar on year-round drilling. We're also working on all
the resource management plans. So, yes, the State and local
governments definitely have a role, and they--I think there is
agreement that the end decision ends up with a great product.
Senator Thomas. That's good. I think, really, what we're
faced with here is, there need to be a lot of decisions made
with respect to these permittings, but there needs--it needs to
be done in a manner in which all the interested parties can get
together in the beginning. I think, Ms. Clarke--don't you?--
that one of the things that has extended all these is, one
agency will make a decision, and then, after that's made,
another agency moves in to make a decision, and so on and so
on, so that if we can consolidate that, isn't that really the
purpose and--of the pilot projects?
Ms. Clarke. Absolutely. That is absolutely the purpose. I
also appreciate Mary mentioning the cooperating agency status
and am proud to advise the committee that BLM was the first
Federal agency to make the cooperating agency provisions of
NEPA a rule. And so, it is mandated that all of our field
managers reach out, and, when they are doing any kind of a NEPA
activity or a planning activity, they need to invite local
counties and State governments and other elected officials to
join us at the table. And the pilot offices allow us to take
that a step further. And, actually, we have offered to bring
State officials into those offices, and we have the capacity,
with the funding that was provided, to support the salaries of
those people. So, we actually have some DEQ people that are co-
locating with us up in our Miles City office. We are working
with various States to get oil and gas commission
representatives in to get the Fish and Game representatives in
the offices with us so that we anticipate the challenges before
we get in the middle of them. And I think it--we have seen some
slowdown in our plans as we have gotten into this effort,
because it does take a while to establish relationships and get
people working together.
Senator Thomas. Do you have the NEPA people working there,
from the other agencies, as well?
Ms. Clarke. They're all working on the NEPA documents
together, they're working on planning, we're working on
mitigation, and we're also discovering that, as we bring these
people from different agencies with different backgrounds
together, we're creating laboratories for innovation and
improvement, and we're seeing new ideas that are forthcoming.
We expect to pull some representation from all of these pilot
offices together later in the fall to sort of pull out of them
what they're learning. What are some of the best practices that
are being employed, and how can we share good ideas with the
other offices and the non-pilot offices to really advance our
stewardship activities, as well as our development activities?
Senator Thomas. OK. Thank you.
Mr. Reed, you were talking about people being involved. Do
you think you're--you represent, kind of, the other uses of
these lands--do you feel like this process is including your
interests, as well?
Mr. Reed. Somewhat, Senator. We think that certainly the
State wildlife agency could be a little bit more involved. And,
as you know, the funding for Fish and Game, the model comes
from sportsmen--sportsmen's dollars. So, it's not coming from
much Federal money at all. So, what's happening there is,
there's a shortage of manpower and money for those agencies to
cooperate very closely.
Senator Thomas. Well, that's great. I just think--you know,
in Wyoming we've very concerned about our lands and the future
and where we're going to be 30 years from now, in terms of it.
I--that's overstated a little, one time, when I said we
shouldn't do any forest lands. I didn't mean that, really.
Grasslands, for example, are managed by the forest, and they
ought to be available. Only 2 percent of the forest lands are
being used now for production. We need to be very careful about
them. But I do look forward to that.
You mentioned, Mr. Eppink, the production we're having now
in the Midwest and the West is--much more than the gulf coast?
Mr. Eppink. It wasn't I who mentioned it, but I'm familiar
with the situation.
Senator Thomas. Oh.
Mr. Eppink. The production for the Rockies will exceed the
gulf.
Senator Thomas. The gulf. But the fact is, the gulf has a
lot of potential that we haven't yet reached, isn't that true?
Mr. Zavadil. It's interesting that the gulf production has,
in fact, been on the decline over the course of the last two
decades. There is potential in the deep water. We are----
Senator Thomas. We are changing some things. They're
talking about making some changes there, however, aren't we?
Mr. Zavadil. I hope for the Nation's sake, that we start to
produce some of our offshore resources.
Senator Thomas. Great. Thank you.
Thank you, sir.
The Chairman. Thank you.
Senator Craig.
Senator Craig. Thank you very much, Mr. Chairman.
As I said briefly in my opening remarks, I'm pleased that
we are following through with our oversight on EPAct, and this
particular area of it, and what we effectively established
when--in the passage of that, dominantly in the sections that
are referring now to--I guess, section 365. But let me ask
several questions, I think, collectively, of all of you,
because a combination of forces are at work. We are clearly
focused on these cooperative groups that you've put together,
Kathleen, and it's pleasing to hear that out of that is coming
some synergy. That oftentimes happens when you cause people to
come together who once thought they all had to operate
independently of each other. And you can do that, I hope,
without compromising the concerns of Mr. Reed and other
conservation and environmental groups that--really, putting a
variety of agencies together to work collectively instead of
individually oftentimes is a very productive thing to do in
that respects--in that respect.
At the same time, I don't think it necessary that you
defend the Forest Service. They've got a lot to learn from you,
when it comes to mineral management and how you utilize the
lands. Forest Service is much defensive, I think, with less
experience with subsurface rights and responsibilities than the
BLM. And in most instances, I think they can learn from you.
I say that, and I may be stepping on the toes of my Wyoming
friend and Mr. Reed. A good number of years ago, I was
overflighting some area of Wyoming, and stopping and looking at
drill sites and that kind of thing. And I'll not forget--not
far from Jackson, but in between Jackson, probably that area we
were talking about, Craig--we landed at what was a former drill
pad--not all react this way, environmentally, because of the--
all of the circumstances of the situation--and we couldn't find
it. The reason was, the rehabilitation had been so effectively
done on the part, and I believe--while I've just criticized the
Forest Service, I have to give them a little credit--I think
was Forest Service property. A big cow elk and her calf jumped
up out of the tall grass and ran off as the helicopter was
landing, and we had a hard time finding the drill pad.
Having said that, how much trouble are you running into
with this circumstance? In these resource management plans that
we put together in the 1980's, when gas was less than $2, one
of the easy ways to avoid some of the conflicts that Mr. Reed
might have put forth was simply to say, ``During certain
periods of time, it's off-limits, go away for 4 months or 5
months and come back later?'' When, in fact, if gas had been
$10, we might have worked our way through a plan that would
have said, ``Yes, under certain mitigations and certain
procedures, you can continue to operate, to drill, to
discover.'' But we're stuck in the mode of the 1980's. Driven
economically, we just avoided it. And we didn't do the hard
work at the time to cause us to continue to explore and develop
under circumstances and under conditions that it's possible Mr.
Reed might have agreed with.
How much of that are we running into now with these
obsolete plans, or plans that are still in effect that we've
not had time to get to, to modernize and bring online?
Ms. Clarke. We certainly have inherited the practices and
policies that were created in the 1980's in our plans to impose
upon oil and gas activities, timing stipulations, and winter
drilling limitations. And those continue. As we are dealing
with the imperative that we expand natural gas and oil
production, but also our very solid commitment to good
stewardship, we are beginning to question whether those
practices are, indeed, the best for wildlife and the best for
energy development.
And we have, ongoing, an activity in Wyoming, in the
Pinedale area, that is testing out some theories that we can
really minimize the impacts to wildlife if we do very wise
winter year-round drilling. And we are checking the postulate,
so to speak, to see if, indeed, that may be the case. And one
of the benefits of really starting to develop some positive
relationships with the Fish and Game offices from all the
Western States and also with the Fish and Wildlife service is
that we can benefit from their science and their wisdom as we
really understand what are the impacts and what scenarios are
going to be best over time.
I also believe that industry is recognizing that they need
to work with us and to find less invasive ways to conduct their
business. And I've been very pleased to see that they are
coming in with new technologies that are leaving much smaller
footprints. We're doing interim reclamation. It is an evolving
industry, and our science is evolving. I think we're all
committed to the dual goal of good development activities, but
sound stewardship, that will leave the country, that we love so
much, for the next generation.
Senator Craig. Mr. Chairman, I see my time is up. Let me
make one comment and also a question of Dale and Mary.
My guess is, the greatest dislocation for elk and
nonpredator wildlife today in Wyoming, Idaho, and Montana are
wolves and not oil rigs. Let me repeat that for the press: are
wolves and not oil rigs. I believe that. While our great elk
herds in Idaho have crashed in part because of habitat, it's
also in part because of dramatic predation that they had
historically not experienced that are very, very frustrating to
me, Dale, that we cannot come in that three- to four-State area
with a regional management plan because of the--not the
arrogance of the law, but the absolute requirement that every
``i'' be dotted and every ``t'' be crossed. And we've not had
that happen yet. As a result, the wolf lives in Shangri-la and
continues to populate at an ever-spreading rapid rate against
predation. That's the bad news. The good news is, they're
starting to take dogs and pets and animals of campers. And when
that happens, the public outcry will become so loud, not in
fear of the pet, but in fear of the child, which may be
unrealistic, but is going to be real by character of the fear
itself, that maybe collectively we can get our heads together
and solve a problem that should have been solved 4 or 5 years
ago. That's not the question.
The question is, Dale and Mary: Is the Forest Service using
the cooperative agency rule, or the cooperative agency status,
as effectively as the BLM is using it, at this time?
Mr. Hall. I think that there is a lot of work that we're
doing with the Forest Service through their collaborative
process and through their cooperation with us. I work with Dale
Bosworth quite a bit, and our regional foresters on the ground
work with our regional directors. So, I think a lot of
coordination is taking place. To compare it to BLM, you know, I
don't know how to do that, exactly.
Senator Craig. Okay.
Mr. Hall. But I can tell you that I believe the Forest
Service leadership is really trying to work collaboratively, as
well.
Senator Craig. Good.
Mary, is the Forest Service as engaging with you as the BLM
in the State level?
Ms. Flanderka. They are. There's two different tracks, and
there's different issues. But, yes, they're doing a great job.
Senator Craig. Thank you.
Thank you all very much.
The Chairman. Larry, let me say--you ran out of time, but
you wouldn't have got cut off. You were right on. It took a
long time for this hearing to get to the point. You finally got
to it here, right here at the end, and thank you for getting to
that issue.
Senator Craig. Wolves.
The Chairman. Wolves. Well, actually, the plans that
involve predators and other things.
Senator Craig. Mr. Chairman, thank you very much.
Sometimes, as analytical as we like to be, we also like to show
just a little emotion, and there's a great deal of emotion out
there in Idaho today.
And I just got a transcript from a young fellow who's done
a brilliant job of training hunting dogs in Idaho, up in Idaho
County, in Grangeville, and he took--he and his friend, as they
normally take their dogs out to operate and train, just had
them wiped out by a group of wolves the other day, a pack of
wolves, and he was--you could hear him, feel him crying inside
this transcript that he offered to my office. And, you know,
it's those kinds of emotions that are beginning to impact
Idahoans ever-increasingly. While we recognize the value of the
wolf in the habitat, we don't recognize its uncontrolled
impacts.
The Chairman. Very good.
Senator Salazar? You follow the wolf, here.
[Laughter.]
Senator Salazar. Well, I hope I don't catch him.
The Chairman. Yes, sir.
Senator Salazar. It could be a violation of the Endangered
Species Act, right, Mr. Chairman?
The Chairman. Right.
Senator Salazar. Let me, first of all, thank you and
Senator Bingaman for holding this oversight hearing.
I have a fuller statement for the record that I'll submit
for the record, and then I will just have several questions
that I want to ask, Mr. Chairman.
The Chairman. Please.
[The prepared statement of Senator Salazar follows:]
Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
Thank you Chairman Domenici and Senator Bingaman. As always, I am
excited about the opportunity to attend hearings on subjects that are
critical to Colorado.
I am especially happy to have Director Clarke of the BLM here
today. In Colorado, the BLM is the landlord of 8.4 million surface
acres as well as 27.3 million sub-surface acres.
The Energy Policy Act of 2005 contained many provisions to enhance
domestic oil and gas production. Glenwood Springs in my State of
Colorado is home to one of the pilot project offices to increase the
efficiency of the APD process, and I welcome that effort.
While the timely processing of APD's is important to industry, I
would like to focus on a related issue, leasing, that is important to
me and our local communities.
I think it is necessary to recognize that, as we seek to expand our
domestic energy production, land use conflicts are increasing. The
search for energy is taking companies to land that is closer to, or
neighboring, local communities as well as onto lands that generations
of westerners have grown up fishing, hunting, and recreating on. There
are also a sizable number of split-estate situations that are affecting
family farms and ranches across the west. These lands are essential to
our natural heritage and must be treated accordingly.
I am increasingly concerned about the BLM's rush to lease every
acre of land as quickly as possible without regard to local
communities. This rush is often at the expense of local communities
with real, substantive concerns as to how this activity will affect
their communities and the natural heritage of their area. I am further
alarmed at the BLM's willingness to brush these concerns aside and the
contentious atmosphere that is being created.
In the west, we believe in multiple-use on our lands, but we
realize that every use on every acre is not a sustainable approach. It
seems, though, that the BLM has elevated energy exploration and
development above every other use when multiple uses conflict.
There are two good examples in Colorado I would like to talk about.
On Colorado's Western Slope the City of Grand Junction and the Town
of Palisade learned that mineral leases underlying their watersheds
were to be leased. Both Grand Junction and Palisade protested the
inclusion of these parcels in the lease sale, asking the BLM to delay
their leasing so that the local communities could work with the BLM to
assess the situation and to address their concerns prior to leasing.
Along with Congressman John Salazar, who represents the district, I
supported the local governments' protests. The BLM went ahead anyway,
ignoring the legitimate concerns of a pro-growth and pro-development
community who simply needed more time to work with the agency.
Also in western Colorado is the Roan Plateau. The Roan Plateau has
been a contentious topic as the BLM develops the resource management
plan for the area that is highly valued by local communities and
sportsmen in Colorado. The final EIS is likely to contain provisions
that have not been previously addressed in the process. I asked the BLM
to commit to re-submit the plan for further public comment, if that
proves to be the case, only to be flatly told ``no''.
As a United States Senator who is having difficulty working with
the BLM is his own state, I can empathize with the local communities
who feel that their concerns are being brushed aside in a mad rush to
lease every acre for oil and gas exploration and development. Of
course, none of this is meant to say that Colorado is not helping to
address our country's energy needs. In 2005 Colorado produced over 1
trillion cubic feet of natural gas and is a net energy provider to the
United States, something we are very proud of.
I thank the Chairman and Ranking Member for the opportunity to
share my thoughts on these important issues to Colorado.
Senator Salazar. My first questions are to Ms. Clarke. You
know, as much as we appreciate the fact that we have abundant
oil and gas resources in my State of Colorado, I also recognize
that we are seeing the potential of a revolution in the West
against oil and gas exploration and drilling activity. In
Colorado, in 2004, there were approximately 2,000 drilling
permits that were issued. In 2006, there were 4,800 permits
that were issued. We had 28,944 active wells in 2005. By this
year's end, 2006, it's projected to be at 31,000. And what I
hear, in places like Grand Junction and Palisade and Gunnison,
and many places around the West, is that the BLM simply is not
taking into account the community input and the concerns that
the community has with respect to the leasing and permitting
decisions that the BLM is making.
Two specific examples of that for me have been the Grand
Junction and Palisade watershed areas, where the BLM made a
decision to move forward with the leasing of those properties,
against the wishes of Grand Junction and Palisade, against my
own protests about that leasing decision and wanting the BLM to
take more time; concerns also with respect to the drilling
decisions--leasing decisions that have been made on top of the
Roan Plateau, near Glenwood Springs, where I specifically asked
the BLM to delay decisions on leasing until they had an
opportunity to receive public input on a dramatic shift in
approach in the leasing program on top of the Roan Plateau.
So, my question for you is this. How do you, as Director of
the Bureau of Land Management, take into account what affected
communities are telling you and the people who work with you,
prior to making your decisions on leasing or on permits that
are issued by the BLM? How important is that community input to
you?
Ms. Clarke. Absolutely, we seek out community leaders and
elected officials, and want them engaged in the processes
involved with setting up plans and making decisions under the
National Environmental Policy Act. And we routinely reach out
to them.
We have the very difficult challenge of managing lands for
multiple use and acknowledging that there are both local issues
to be dealt with, as well as national needs and national
perspectives. That is a challenge. And someone told me that the
job of the BLM director was measured by whether or not you had
everyone equally mad at you on a given day, because it is
difficult to please all of the different interests, because
there are so many.
But we have made it a policy--we've made it a rule at BLM
that we do invite State and local officials to be with us at
the table, and they don't just come in and comment, they can be
behind the scenes and help us craft the alternatives, help us
make decisions. And so, we do try to balance those perspectives
and the desires of local communities with the national needs
and the mandates that we have, under law, at the BLM.
Like I say, we try to make decisions that accommodate those
interests, and balance them. We try, always, to strive for good
stewardship while we're accommodating uses that are
appropriate.
Senator Salazar. I appreciate the policy directive, Ms.
Clarke, that you are describing there, in terms of reaching out
to local communities. In the case of Grand Junction and
Palisade and the watershed that could potentially be affected
by the drilling activities in those watersheds, it's my view
that the BLM did not take into account the concerns of the
local communities. And when you are dealing with drilling
within the watersheds themselves, that provide the water supply
to these very important communities, I think the request that
was made, that we have a delay in the leasing decision, was
something which was a very simple, rational request that we
were making of the BLM. And to receive what essentially was a
flat no from the BLM is something that I think was wrong on the
part of the BLM. Seems to me that, when you are dealing with
something that is as critical as the water supply of a local
community, that it is important for you to give additional
opportunity to try to bring about the kind of buy-in that,
perhaps with best management practices and other kinds of
things that could be accommodated, you'd have those local
communities in support.
The converse has, in fact, happened there, and what we find
ourselves now in is a situation where the local communities and
the residents of those local communities are very, very much
against the decisions that have been made by the BLM.
So, on that one, I'm going to ask you, here on the record,
Ms. Clarke, if you would take another look at the decisions
that have been made on the ground with respect to the Palisade
and Grand Junction watershed and the leasing decisions that
have been made there.
Ms. Clarke. It is my understanding that those decisions are
under protest right now and are being reviewed at headquarters
at the BLM. The solicitors are looking at them. So, we are
giving those another look before those leases are issued.
Senator Salazar. Mr. Chairman, I have several other
questions that I want to pursue, but I see my time is up, on
this round.
The Chairman. Senator, if you'd like to submit them, they
obviously will be answered.
We're pleased that you came by. I think you see before us
our best effort to show you, and show the Senate, how this--in
a short time, this section of our law is working. It's not a
miracle on the ground yet. Everybody here finds fault with it,
obviously. The gentleman who's the independent producer,
sitting among these others, feels sort of like a thorn in the
midst of a patch of blueberries----
Senator Thomas. Roses.
The Chairman [continuing]. Roses, because he's got a
terrible job of trying to make this program sound good, when,
as a matter of fact, it's tough for the producer. On the other
hand--is that not right, sir?
Mr. Zavadil. I do see benefits in the program and in the
act, and you've got to start somewhere.
The Chairman. Right.
Senator Salazar. Mr. Chairman, if there's not going to be
another round of questioning, could I have another couple of
minutes to----
The Chairman. You have it right now. I'm going to close up
here shortly, whenever you finish.
Senator Salazar. Absolutely.
Let me just--continuing that--and this is a question for
Ms. Clarke and also for Mr. Zavadil. And welcome here from
Douglas County, Colorado. It's good to see you.
Mr. Zavadil. Good morning.
Senator Salazar. I have a concern that part of what's
happening is with the rush that we're seeing for oil and gas
exploration, is that we're seeing the local communities
standing up and taking it upon themselves to address many of
the conflicts that occur between local land use and oil and gas
exploration in Colorado. For example, we'll see an initiative
on the ballot, I think, this November, that will address the
issues of surface damage compensation. I think you're going to
continue to see that resistance from local communities that are
affected when you have this kind of drilling activity. In your
testimony, Ms. Clarke, one of the things that you say in your
testimony is that the BLM is using performance-based standards
to challenge industry to reduce emissions, minimize surface
damage disturbance, and develop quick and effective reclamation
techniques to improve restoration of disturbed areas. I'd like
you to comment on specifically what it is that you're doing on
that; and, Mr. Zavadil, you, for the independent--IPAMS to do
the same thing.
To put it into context--let me just give you the context.
When I go to Glenwood Springs, Garfield County, and I meet with
a company by the name of Antero, they have brought the whole
community with them--communities like Rifle and Silt, who are
supporting--supportive of the drilling program, that has
included consultation with the local community on the siting of
the well sites, has included discussions on the kind of
chemicals that are being used with respect to hydraulic
fracking. And we have a very peaceful situation there.
The converse is true with many of the companies that are
operating on the Western Slope, where the communities are in an
all-out fight with the oil and gas companies that are engaged
in these activities.
So, I would ask you to comment on these performance-based
standards, Ms. Clarke, that you included in your testimony;
and, Mr. Zavadil, for the producers, what you think that the
companies are doing out there, in terms of trying to make sure
that they're avoiding as many of these conflicts as they can
with the local communities.
Ms. Clarke. Thank you. We are moving ahead with a vision of
sitting down with community partners, with Fish and Wildlife,
with the State Fish and Game, EPA, and the partners identified
in the pilot offices, but also those who come together in other
communities, to determine what it is that we care about and
what other resource values or uses are important in an area
that's identified for oil and gas development, and working with
the industry to ask them to put forth proposals that allow them
to access and develop a resource, but finding ways to diminish
the impacts to other resources and allow us to protect those
resources that are of great interest and concern to communities
and that we want to leave as a legacy for future generations.
So, instead of just going in and saying, ``Well, here's the
oil and gas resource, so traditionally that would mean you
ought to have this many wells, spaced like this,'' we're
saying, ``Get creative. If you want to extract those resources,
we need you to figure out how to do that and--understand that
we need to protect the sage grass while we're doing it. So, how
are we going to do that together? Or to understand that there
is an elk herd in this area that's very important to the
community, and we want to maintain that.'' So, we are working
to complement----
Senator Salazar. Ms. Clarke, if you were to identify best
management practices for companies that are involved in oil and
gas exploration and drilling activities, would you have a list
of what those best management practices would be?
Ms. Clarke. We do have that list. I'll be happy to get a
copy of that to you.
Senator Salazar. If you would get that to me, I would
appreciate it. And it may be something that we want to visit
with you concerning whether or not there are any improvements
that we might suggest for those best management practices.
Ms. Clarke. We'd welcome that dialogue.
Senator Salazar. Mr. Zavadil.
Mr. Zavadil. Good morning.
I'd like to say that, although not all the operators within
IPAMS' organization have the same opportunity as Antero, in
that their activity isn't within an incorporated municipality,
such as the town of Silt, where IPAMS or Antero is developing,
I think there are a number of things that operators are doing.
I've been involved with companies that have been operating in
the Piceance Basin for about 20 years now. And we fought, tooth
and nail, 15 years ago, directional drilling. And now,
essentially, 80 to 90 percent of the wells that we drill in the
Piceance Basin are, in fact, directional, multiple well pads,
where we're drilling six and eight well bores from one
individual site. So, that's one thing that we can do to
significantly reduce impacts to the surface owners.
I think industry is working hard. We're not wildlife
biologists, but I think we do recognize now that the American
people want their gas, and they want their wildlife, too. And
while we're looking for opportunities for mitigation,
unfortunately we're not wildlife biologists, so we do have to
develop the partnerships with wildlife organizations, such as
Trout Unlimited, Rocky Mountain Elk Foundation and so forth.
So, you're seeing more and more of those kinds of efforts to
mitigate--in some cases, offsite--the impacts associated with
oil and gas development. And IPAMS' members recognize that
that's the reality of today, that, again, Americans want their
energy, and they want their wildlife, at the same time.
On split-estate issues, I think that responsible operators,
and certainly IPAMS', position is that reasonable compensation
in split-estate situations is necessary and part of business,
as well. I think that you'd find a very remarkably small
proportion of situations where there are, in fact, conflicts
between the split-estate--in the split-estate situation.
And, on the community front, in the case where--we
immediately offset, for example, Antero. Our situation is
slightly different in that we're in a rural residential
subdivision. We're not working with a municipality, such as the
town of Silt. So, we have to respect those individual surface
owners and what their desires and needs are for development on
their lands, and how we mitigate those things. But we do pull
together the community, about every 6 months--the folks in the
subdivisions where we work--and field questions, input, and
modify our operations accordingly.
It's not a very public process, but it is something that
goes on. And I think you find other operators, on a day-to-day
basis, doing that in those kinds of communities where you have
a lot of individual surface owners, versus the Federal land
type of situation where you have one owner, the Bureau of Land
Management.
Senator Salazar. Well, I appreciate the comments. And, just
to close off on this point, I think some of the work that can
go on with the communities beforehand and before the decisions
are made could have--avoid many of the conflicts and the
backlash that we're getting from these conflicts. I'll give you
the example, again, back to Palisade and to Grand Junction. You
know, it may not be that the leasing decision is one that ought
to be reversed, but that with the kinds of management practices
that would include siting decisions, directional drilling, you
know, moving away from where the watersheds are located, in
terms of where the drill sites are located, using some best
management practices with respect to hydraulic fracking, all of
those kinds of things might, in fact, have avoided the kind of
conflict that we're seeing in that area right now, which I
don't think is going to go away.
So, my only suggestion here, Director Clarke, to you and to
the Federal agencies that are involved, as well as to the
companies who work on this every day, having that community
involvement and input up front avoids major problems on down
the road.
Thank you very much for your testimony today.
Ms. Clarke. Appreciate that.
The Chairman. Thank you very much, Senator.
Let me close this by saying to all of you that we very much
appreciate your efforts to try to make this project work in the
very short period of time that you've been involved.
Dale Hall, first of all, this is my first opportunity to
have you before us here, and at the table with your big hat on,
and we're very proud of your new job, and we hope that you've
enjoying it.
Mr. Hall. I am, sir.
The Chairman. Are you?
Mr. Hall. Yes, sir, I am. I still feel like it's a
privilege to be here.
The Chairman. It's good. I wish it would last for the whole
term. Sometimes it doesn't. But if it doesn't, you know and
understand that's rather human, too.
I don't know where we got you--I was just wondering, Ms.
Clarke--but it appears to me that we're very fortunate to have
you heading up the BLM. And I think you know that we have a
marvelous leader in New Mexico heading up BLM there. I guess
you know Linda.
Ms. Clarke. I certainly do.
The Chairman. Linda Rundell.
Ms. Clarke. Yes.
The Chairman. I don't think you could find a better leader.
Ms. Clarke. She's doing a great job.
The Chairman. And I'm glad that you said that, because it
just confirms what I know. I hope you're not saying it just
because of me. I hope it is true. It is true, is it not?
Ms. Clarke. It is absolutely true.
[Laughter.]
The Chairman. Right. It's too bad she suffered the family
problem of losing her husband, which I am very sorry for her.
But she seems not to be struggling too much. She's doing her
work well. And that's very exciting for me. And I'm proud of
her.
Ms. Clarke. Doing very, very well.
The Chairman. The rest of you, well, let me just say, we
understand this is a terribly difficult job. It varies from
State to State. The Senator from Colorado is bringing forth the
very difficult situations in his State. They're not quite as
difficult in other States. But, clearly, the best of each of
you is required as you put on your hat to try to negotiate for
what we have really asked--Congress has asked, in that section
of the law--that these offices be set up not to run roughshod,
but neither to just sit down and do nothing. I mean, it's
really an effort to get things done in a reasonable manner and
to flush out those delays which don't make sense. And there
certainly are plenty of delays that don't make sense, and there
are plenty of delays that are justified. And you have a
difficult job of finding out which they are, Ms. Clarke, as you
put this together, with others working with you.
The State is involved, and we're delighted. That happens
all the time. And it looks like, in the State of Wyoming, as
usual, you have somebody that really knows about it. I'm hoping
the same is true nationally, as you work your way through the
other States, Director Clarke, that you find the same in New
Mexico, you find the same in other States, with really strong
local representation.
Independent involvement by independent drillers, it's
obvious that some choose to be involved. And it seems like
you're one, with your company. Some choose to sit on the
sideline and complain. And I have plenty of those. And we all
do. No offense. Nobody's going to know which one it is up there
in the part of New Mexico where there are hundreds of them, so
that they aren't going to guess which ones are that way. And
the same with Mr. Reed and his interest. We have some States
where they seem to be over-represented; and others, they seem
to be under-represented. I won't tell you which I think is the
case, but we're somewhere in the middle in New Mexico.
But I think you've all shown us that by breaking down just
the physical barrier of not being together while you're doing
things, not being off alone, but being put in that one room
with somebody in charge--is certainly an advantage. You would
agree with that, would you not, Mary?
Ms. Flanderka. Absolutely. Appreciate the participation of
our many partners.
The Chairman. The only thing we'd like to know, in due
course--a couple or 3-4 more months--is if there's something we
can add to the process--because we'll have another bill one of
these days--is there something we can add to the process that
would push a little more vigorously on those who are still
slowing the process up, even though they're in this same
operation with you? There must be something that's not quite
working as well as you would like. And, in fact----
Ms. Flanderka. Well, we look forward to the opportunity to
work with the committee as we assess the effectiveness of the
pilot offices and discover opportunities to improve our
stewardship and our development activity.
The Chairman. Good, that's what I'm asking, and that's the
answer. Thank you.
Unless any Senator has something else to say, we're in
recess.
Thank you all very much.
[Whereupon, at 11:30 a.m., the hearing was recessed, to be
reconvened on July 11, 2006.]
[The following statement was received for the record:]
Statement of Western Colorado Congress; Wyoming Outdoor Council
Earthjustice; Southern Utah Wilderness Alliance; Oil & Gas
Accountability Project; Western Resource Advocates Amigos Bravos;
Sustainable Obtainable Solutions; Californians for Western Wilderness;
Colorado Environmental Coalition; Powder River Basin Resource Council;
San Juan Citizens Alliance; The Wilderness Society; Coalition for the
Valle Vidal; Northern Plains Resource Council; Natural Resources
Defense Council; Western Organization of Resource Councils
Dear Chairman Domenici and Ranking Member Bingaman: On behalf of
our members and supporters, we submit for the record our comments on
two specific provisions of the Energy Policy Act of 2005: (1) Section
323--Addressing Stormwater Pollution from Oil and Gas Activities, and;
(2) Section 322--Hydraulic Fracturing Exemption from the Safe Drinking
Water Act.
Our lives and communities continue to suffer damage from oil and
gas activities. We do not oppose all exploration and drilling, but we
want it to be done responsibly in the places where it is appropriate.
We urge the Senate Energy and Natural Resources Committee to work with
the Environmental Protection Agency (EPA), the Bureau of Land
Management (BLM), as well as state and local governments, to ensure
that pollution from oil and gas development is addressed and not simply
ignored.
A. DAMAGE TO WATER QUALITY--BEST MANAGEMENT PRACTICES SHOULD BE
MANDATORY
Landowners and communities across the West are suffering from
erosion and runoff of large amounts of sediment from oil and gas
activities. Sediment increases water-treatment costs for municipalities
responsible for delivering drinking water to its residents. It can
cause a loss of storage in reservoirs and increase agricultural ditch
maintenance. It impacts recreation. It harms fish and other aquatic
life. It decreases property values. The U.S. Environmental Protection
Agency has determined that ``siltation is the largest cause of impaired
water quality in rivers.'' National Pollutant Discharge Elimination
System--Regulations for Revision of the Water Pollution Control Program
Addressing Storm Water Discharges, 64 Fed. Reg. 68722, 68724 (Dec. 8,
1999). We have enclosed additional evidence of the harm excessive
erosion and sediment from energy development is causing in the West.
Simple, inexpensive measures exist to prevent erosion and runoff of
sediment from oil and gas sites. These include silt fences and
revegetation. Unfortunately, EPA's recent final rule implementing
Section 323 of the Energy Policy Act of 2005 removes the legal
incentive for companies to put these simple best management practices
in place. EPA's rule excuses oil and gas companies from permits for
storm water controls even when their runoff contributes to violations
of state water quality standards. This is inconsistent with the Clean
Water Act and the Energy Policy Act of 2005.
B. DAMAGE FROM TOXIC CHEMICALS--MONITORING AND DISCLOSURE IS NECESSARY
We urge the Committee to press the Bureau of Land Management and
Forest Service to disclose and regulate toxic chemicals used in oil and
gas development. Where potentially toxic chemicals are used during oil
and gas exploration and development operations, responsible agencies
should monitor the levels and effects of these chemicals. The groups
believe such complete disclosure and monitoring requirements are
necessary for several reasons.
1. Toxic chemicals with known health effects are being used
Many of the products used in the exploration, drilling, and
production phases of the natural gas and oil industry contain toxic
chemicals with known human health effects. A recent analysis of
products and ingredients used in natural gas development in western
Colorado shows that oil and gas operators are using toxic chemicals
throughout the development process, including during hydraulic
fracturing. Of the 192 chemicals on the list, 53 percent are toxic to
skin and sense organs, 48 percent cause gastrointestinal and liver
damage, and 43 percent are neurotoxins. More than 26 percent of the
chemicals are reproductive, kidney, or cardiovascular/blood toxicants,
and 22 percent are carcinogens.
2. Toxic chemicals are being released into the environment
Toxic chemical products, as well as harmful hydrocarbons produced
during oil and gas production, can and do escape into the environment
via a number of pathways. For example, spills release chemicals into
the air through volatilization, and spills can enter the water and
soil. Additionally, chemicals injected into the ground may come in
contact with drinking water aquifers; chemicals may escape from
recovery fluids that are stored or placed in pits or tanks on the
surface; and flammable chemicals may burn, releasing a host of toxic
by-products into the air.
3. Disclosure of these chemicals must be required
Despite the widespread use of toxic chemicals, emergency
preparedness staff, state environmental staff, medical professionals,
health departments, and people living in close proximity to oil and gas
facilities often do not have access to complete information concerning
what chemicals are being transported through, stored, and used in their
communities or on their private property. Without such information, not
only are communities and citizens kept in the dark about potential
health impacts, but the regulatory agencies do not know what chemicals
to sample for in the event of a spill or release.
4. No agency has comprehensive jurisdiction over disclosure and
monitoring of the chemicals in products used in oil and gas
development
On the federal level, toxic chemicals associated with oil and gas
operations and wastes enjoy a wide range of exemptions and exclusions
from EPA oversight. Releases of toxic chemicals and wastes are excluded
from reporting under the Toxics Release Inventory; wastes are exempt
under the Resource Conservation and Recovery Act; hydraulic fracturing
is now exempt from regulation under the Safe Drinking Water Act; and
completion operations are exempt under the Clean Air Act.
As a consequence of these exemptions and gaps in agency
jurisdiction, public health in oil and gas field communities is
increasingly at risk from chemical exposure. There is currently no
federal or state agency that is requiring the comprehensive disclosure
of the make-up and volumes of the chemicals in products used in oil and
gas development or the comprehensive monitoring for levels of, and
impacts from, these chemicals. We believe that protection of public
health and safety requires full disclosure of the make-up and volumes
of the chemicals in products used in oil and gas development and the
monitoring of their use because chemicals with known human toxicity are
being used by the oil and gas industry in the West.
CONCLUSION
We urge the Committee to press the BLM and Forest Service to
require disclosure of chemicals used during operations when federal
lessees submit plans for federal leases. Such disclosure will provide
federal, state, and local health officials, as well as local residents,
an opportunity for an informed evaluation of the risks to water quality
and human health that may accompany oil and gas activities on federal
lands.
GEOTHERMAL ENERGY AND OTHER RENEWABLES
----------
TUESDAY, JULY 11, 2006
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 2:30 p.m., in
room SD-366, Dirksen Senate Office Building, Hon. Larry E.
Craig presiding.
OPENING STATEMENT OF HON. LARRY E. CRAIG,
U.S. SENATOR FROM IDAHO
Senator Craig. Good afternoon, and welcome. We're here
today to receive testimony on geothermal and other renewable
energy production from our Federal lands.
Our energy bill last summer included a number of measures
to address renewable energy. We hope to learn how these
provisions may be bringing about new energy production.
The American West has become our Nation's energy
storehouse. This applies as much for renewable energy as to
other conventional sources, with vast amounts of geothermal,
biomass, wind, and solar resource development opportunities.
As is the case with oil and gas development, much of this
energy resource is on public lands, and obtaining access to
these Federal resources is probably the most often cited issue
affecting new development. It's my hope that from today's
testimony we will gain a better perspective of the current
status of renewable energy development and what else needs to
be done.
I have purposely kept my testimony short so that we may
have more time for our witnesses. Today we have two panels.
First, we will hear from the administration and from the
Government Accountability Office, and the second panel consists
of representatives from industry and public-interest groups. We
are eager to hear your perspectives and concerns.
And before I do that, let me recognize my colleagues before
us and the committee. Let me turn to our ranking member,
Senator Bingaman, for any opening comments he would want to
make.
Senator Bingaman.
STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR
FROM NEW MEXICO
Senator Bingaman. Thank you very much, Senator Craig, for
having this hearing. I think this is very useful. And I
appreciate the administration being here to give us their
perspective on the provisions related to renewable energy
development on Federal lands. Those were provisions we spent a
lot of time on during the drafting of that legislation.
I agree with your comments, that energy development on
Federal lands is a great opportunity for us, and geothermal, of
course, and other renewable energy development, as well.
Let me also just indicate that I appreciate very much GAO
being here to provide their information to us. I had requested
a GAO report on several aspects of Federal geothermal leasing
some time ago, and that is now ready to go, and I appreciate
them being here to tell us about it.
With that, I will look forward to the testimony. Thank you.
Senator Craig. Senator, thank you.
Senator Craig Thomas.
STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR
FROM WYOMING
Senator Thomas. Thank you, Mr. Chairman. I, too, want to
hear from the panels. Obviously, this Energy Policy Act
implementation is where we are. I still think we're very, you
know, concerned about what we can do in the fairly short term
to get volumes of energy out there. But we're also looking at
the long term for new ways to do that. And, of course, perhaps
there are some things here. The energy--or the wind energy on
public lands is something of a concern that we all have, and
how we handle that.
So, I'm anxious to hear from the panel. Thank you.
Senator Craig. Thank you very much.
So, we will now turn to our first panel. With us today is
Ms. Lynn Scarlett, Deputy Secretary for the Department of the
Interior. Lynn, thank you. Sally Collins, Associate Chief for
the Forest Service. Sally, we appreciate you being with us. Jim
Wells, Director of Natural Resources and Environment for the
Government Accountability Office. And he's accompanied by Ron
Belak, who may assist and respond to questions.
So, with that, first of all, Lynn, we will turn to you.
Welcome to the committee.
STATEMENT OF LYNN SCARLETT, DEPUTY SECRETARY, DEPARTMENT OF THE
INTERIOR
Ms. Scarlett. Thank you very much, Mr. Chairman and Senator
Bingaman and members of the committee, for this opportunity to
talk about our renewable energy work on public lands.
In the 2006 State of the Union Address, President Bush
reaffirmed his intention to secure America's energy future, and
the Congress, in passing the Energy Policy Act, also signaled
the importance of providing access to reliable domestic energy
supplies. And we thank you for that.
While there is no single answer to our energy needs, our
energy portfolio, we believe, must include renewable and other
alternative energy. The Department of the Interior, as manager
of one in every 5 acres of the United States, plays a
significant role in increasing domestic renewable energy
production. Lands managed by the Bureau of Land Management
supply almost half of the Nation's geothermal generation and
over 5 percent of domestically installed wind capacity. The
potential for more renewable energy production is high,
especially in seven Western States.
The Bureau of Land Management manages approximately 100
wind energy right-of-way authorizations, and, since 2001, the
BLM has issued more than 90 wind energy right-of-way
authorizations, compared, for example, to less than five issued
in the preceding 5 years. Approximately 25 of these
authorizations are active wind farms with production capacity
of 500 megawatts of electricity. That, by the way, is enough to
meet the need of about 420,000 homes, based on average
consumption.
In response to increased demand for wind energy, the BLM
completed a programmatic wind energy environmental impact
statement in 2005 amending 52 land-use plans in nine Western
States. This should provide the foundation for authorization of
more than 3,200 megawatts of wind energy, enough to meet the
needs of some 2 and a half million homes.
In addition to wind power activities, the BLM has received
two right-of-way applications for large concentrated solar-
power commercial generating facilities. The BLM also manages
354 geothermal leases, 55 of which are producing and provide
geothermal energy to 35 powerplants. And I'm pleased to
announce today that the Minerals Management Service and the BLM
geothermal proposed regs did go to the Federal Register, I
believe, today or last night.
Since 2001, the BLM has processed more than 200 geothermal
lease applications, compared to 20 lease applications received
in the preceding 5 years. Over the past 5 years, the BLM has
reduced the number of pending geothermal lease applications on
public lands. Since 2001, it has issued 199 leases, compared to
25 leases from 1996 to 2001.
The USGS is updating a nationwide geothermal resource
assessment, which will include estimates of electric power
production potential from identified geothermal systems.
As you all well know, biomass from public lands also offers
additional energy opportunities. Utilization of biomass
byproducts from timber harvest and fuels treatments both reduce
wildfire risks and expand economic opportunities for local
communities to develop energy generation.
In 2004, the BLM offered nearly 30,000 tons of biomass,
mostly through stewardship contracts, which was the first full
year that BLM had this authority. In 2005, 71,000 tons of wood
byproducts were offered through contracts by the BLM. Our goal
for 2006 is to offer biomass in 10 percent of BLM's mechanical
fuels treatment projects, which we expect to increase to 50
percent in 2008.
The BLM has also established six demonstration sites with
the potential generation capability of 66 megawatts.
I want to note one particular MOU with the Confederated
Tribes of Warm Springs. Through that, the BLM and the Forest
Service in central Oregon agreed to offer, annually, 80,000 dry
tons on 8,000 acres of woody biomass material. The competitive
offerings will be available beginning in 2008, and, based on
that MOU, the tribe is now seeking a power purchase agreement
and bank financing to develop a 15\1/2\ megawatt cogen plant.
The DOI is also facilitating the development of alternative
sources of energy from unconventional fossil fuel resources
such as gas hydrates, which, while currently uneconomic,
present enormous potential for domestic energy production in
the years to come.
Energy production is just one aspect of energy--of the
energy equation. And I want to close by mentioning a little bit
on consumption.
The Department of the Interior advances the role of
renewable energy resources not only by providing access to its
production, but by using technology, where practicable, at
numerous facilities. Interior agencies rank second only to the
Department of Defense as the Nation's leading users of
photovoltaics. The BLM generates a total of 185 megawatt hours
of electricity from photovoltaic systems each year from over
600 installations.
The National Park Service and Fish and Wildlife Service are
also utilizing alternative energies at many facilities. For
example, at Zion National Park Visitor Center, designed with a
variety of alternative energy sources, the project is resulting
in cost savings of more than $10,000 a year, as well as
significant energy savings from traditional sources.
Mr. Chairman, renewable and other alternative domestic
resources are important components of the Nation's energy
portfolio. I thank you for the opportunity for us to highlight
our development of renewables and other alternative energy
resources on public lands, and would be happy to answer any
questions.
Thank you.
[The prepared statement of Ms. Scarlett follows:]
Prepared Statement of Lynn Scarlett, Deputy Secretary,
Department of the Interior
Mr. Chairman, thank you for the opportunity to appear here today to
discuss with you the Department of the Interior's role in managing
renewable energy resources on the public lands.
BACKGROUND
Rising gasoline prices and home heating and cooling bills are
reminding Americans of how dependent we are on secure, reliable
supplies of energy. Energy is vital to expanding our economy and
enhancing Americans' quality of life. The Energy Policy Act of 2005
(EPAct) encourages the development of renewable energy resources as
part of an overall strategy to develop a diverse portfolio of domestic
energy supplies for our future. In fact, public and private wind and
other renewable energy generating sectors of our economy are the
fastest growing energy sources in the United States.
However, an imbalance exists between our energy consumption and
domestic energy production. We are looking at ways to narrow the gap
between the amount of energy we use and the amount we produce. Earlier
this year, in the State of the Union Address, President Bush declared
his continuing intention to secure America's energy future, which
includes promoting dependable, affordable, and environmentally-
responsible domestic energy production while reducing U.S. dependency
on foreign oil. In passing the EPAct, Congress also signaled that it
shares the President's goal of providing access to reliable domestic
energy supplies that are crucial to the economic health and security of
every American household and business. The EPAct creates incentives and
streamlined procedures for Federal resource agencies to cooperate in
meeting this challenge. The Department of the Interior (DOI) is doing
its part in implementing these incentives. There is no single solution,
but renewable and other alternative energy sources are integral
components of our energy future.
While the quantity of domestic energy produced from renewable
resources on Federal lands is small in comparison to conventional
resources, the growing cost of conventional energy resources and the
need to diversify our energy portfolio has spurred an increased
interest and growth in renewable energy development: The Energy
Information Administration's (EIA's) recently released 2006 Annual
Energy Outlook estimates that our consumption of renewable fuels will
grow approximately 60 percent from 6 quadrillion BTUs in 2004 to 9.6
quadrillion BTUs in 2025 as a result of advancements in renewable
energy technologies, higher fossil fuel prices, State requirements to
produce renewable energy, and incentives provided by the EPAct. The EIA
estimates that in 2030 renewable energy will account for over ten
percent of our domestic energy production and about seven percent of
our consumption.
DOI, as the manager of over one fifth of the nation's land, has a
significant role to play in this projected increase in domestic
renewable energy production. Lands managed by the Bureau of Land
Management (BLM) currently supply almost half of the nation's
geothermal generation and over 5 percent of domestically-installed wind
capacity. The potential for more renewable energy production is high
according to the 2003 assessment by the BLM and Department of Energy's
National Renewable Energy Laboratory of the potential for renewable
energy production from public lands. The assessment indicated that 20
BLM planning units in seven western states have high potential for
power production from three or more renewable energy sources.
New authorities and provisions in the EPAct have given DOI bureaus,
such as the Minerals Management Service (MMS), the BLM, and the U.S.
Geological Survey (USGS), the ability to explore the future development
of promising new energy sources such as onshore and offshore wind,
solar, and biomass energy; the EPAct also has provided bureaus, such as
the U.S. Fish and Wildlife Service (USFWS), additional resources to
help ensure these technologies are developed in an environmentally
responsible manner.
I will discuss each of these energy sources, as well as alternative
sources of fossil energy, and how they are integrated into DOT's energy
programs. I also will discuss how DOI agencies are playing a leadership
role in utilizing renewable energy resources at existing and new DOI
facilities.
PRODUCTION OF RENEWABLE ENERGY RESOURCES
Wind
The BLM manages approximately 100 wind energy right-of-way (ROW)
authorizations. Since 2001, the BLM has issued more than 90 wind energy
ROW authorizations, compared to less than 5 issued from 1996-2000. Most
of these authorizations are for testing and monitoring. Approximately
25 of the ROW authorizations are producing windfarms, with the capacity
to produce 500 Megawatts (MW) of electricity--enough to meet annual
electricity consumption of 420,000 homes based on EIA's average
consumption statistics that a 1 MW plant running continuously at full
power for a year could produce the amount of electricity consumed
annually by 804 U.S. households.
In response to increased demand for wind energy, the BLM and the
USFWS completed a programmatic wind energy EIS and a programmatic
biological opinion in 2005 allowing 52 land-use plans in 9 western
states to be amended. Completion of this EIS and the biological opinion
was a significant accomplishment that should provide the foundation for
the authorization of more than 3,200 MW of wind energy in an
environmentally responsible manner. The BLM is reviewing several
proposals that would more than double the capacity of wind generation
on public lands. It is anticipated that applications or authorizations
for 300-500 MWs--of the 3,200 MW wind capacity identified in the EIS--
will be processed in the next two years.
With the new authority under the EPAct, the MMS is working
diligently to develop a regulatory program to authorize offshore
alternative energy proposals, such as wind, solar, wave, and ocean
current technologies. The Renewable Energy and Alternate Use
Programmatic EIS, developed by the MMS, is currently open for public
scoping. The EIS will form the foundation for the new alternative
energy program and for future applications. The MMS expects to complete
the programmatic EIS and rulemaking process by November 2007.
Solar
The BLM has received two ROW applications for large concentrated
solar power commercial generating facilities encompassing 12,800 acres
with an estimated output of 1,750 MW. The BLM is prepared to respond to
additional industry interest for concentrated solar power use of the
public lands based on a BLM Solar Energy Development Policy issued in
2004.
Geothermal
The BLM currently manages 354 geothermal leases, 55 of which are
producing and provide geothermal energy to 34 power plants. Since 2001,
the BLM has processed more than 200 geothermal lease applications,
compared to 20 lease applications received from 1997-2001. Since the
enactment of the EPAct, Nevada BLM has issued 25 geothermal leases.
Another 97 applications filed prior to enactment are pending approval.
In addition, the BLM manages a small number of direct-use leases, which
provide an alternative source of energy for greenhouses, fish farms,
and other commercial facilities. Demand for both electrical power and
direct-use from Federal geothermal resources is expected to increase.
Over the past 5 years, the BLM has diligently worked to expedite
the processing to pending geothermal lease applications on public
lands. Since 2001, 199 leases have been issued, compared to 25 leases
from 1996-2001. In 2004, the BLM completed a strategic plan to guide
the agency in allocating resources for high priority geothermal
activities.
The EPAct made comprehensive changes to the Geothermal Steam Act--
the authorizing statute for geothermal development on public lands--by
requiring land nominated and made available for leasing to be leased on
a competitive basis; restructuring royalties; and revising lease terms,
conditions, and rentals. As a result, the BLM and the MMS are rewriting
their geothermal rules to conform to the statutory changes. The BLM
authorizes geothermal development on Federal lands, and the MMS
collects revenues owed to the Federal government and ensures these
payments comply with applicable statutes and regulations.
To improve coordination in the geothermal leasing and permitting
process, address pending leases, and develop a joint data system for
geothermal activity, the BLM and Forest Service (FS) signed an
Interagency Memorandum of Understanding (MOU) in April 2006.
This year, the USGS began a three-year effort to update a
nationwide geothermal resource assessment completed in the 1970's. The
assessment will include estimates of electric power production
potential from identified geothermal systems; estimates of the
magnitude and general location of undiscovered geothermal systems; and
evaluations of the impact of new geothermal technologies, such as
Enhanced Geothermal Systems. The USGS is collaborating with other
Federal, State, and local government agencies and the geothermal
industry on a number of specific geothermal research projects,
including new geothermal technologies, consulting with States
developing and implementing Renewable Portfolio Standards (RPS), and
providing technical advice to local agencies, Indian tribes and others
seeking to develop geothermal projects.
Biomass
Utilization of biomass by-products from timber harvests and other
activities on the public lands is an innovative market solution for
reducing recurrent wildfire danger, disposing of wood waste, and
expanding economic opportunities for local communities to develop
energy generation industries. The BLM offered nearly 30,000 tons of
biomass mostly through stewardship contracts in 2004, the first full
year the BLM had this authority. In 2005, 71,000 tons of wood by-
products were offered through contracts by the BLM. The target for 2006
is to offer 60,000 tons of biomass through contracts or agreements.
When treating areas for hazardous fuels reduction, the goal for
2006 is to offer biomass in 10 percent of the BLM's mechanical
treatment projects, increasing to 50 percent by 2008. The BLM has also
established six demonstration sites, which have a potential generation
capability of 66 MW.
We have been working to sponsor conferences, participate in
workgroups, and form partnerships to identify and remove barriers to
biomass utilization. For example, BLM entered into a Memorandum of
Understanding (MOU) with the Confederated Tribes of Warm Springs and FS
in Central Oregon under which 80,000 dry tons (8,000 acres) of woody
biomass material would be offered each year. The competitive offerings
will be available beginning in FY 2008. Based on this MOU, the Tribe is
seeking a power purchase agreement and bank financing to develop a 15.5
MW cogeneration plant.
A Declaration of Cooperation was signed in mid-January, 2006 in
support of a Lakeview, Oregon Biomass Energy Facility. The BLM Lakeview
District was one of 22 signatories, including businesses, governments,
and non-profit organizations in support of this project. Some hurdles
still need to be cleared before there are any ground-breaking
activities to build the proposed power plant, which is planned to be
10-15 megawatts in size. The Oregon governor's office is touting this
agreement as a prototype for other potential agreements throughout the
state to achieve multiple objectives, including sustaining rural
communities, dealing with high fire prone forests, and encouraging
utilization of biomass in lieu of burning. One noteworthy item about
this agreement is that it garnered support from a broad cross-section
of stakeholders from industry and conservation groups.
To aid in the utilization of biomass, in 2003, the Departments of
the Interior, Agriculture, and Energy signed a Memorandum of
Understanding agreeing to work together to promote the use of wood
biomass. An interagency working group has been established under this
Memorandum of Understanding and will report to the Biomass Research and
Development Board.
Early in 2004, the Secretary of the Interior charged DOI bureaus
with development of a coordinated biomass implementation strategy.
Under this direction, and using the authorities provided in the Healthy
Forests Initiative, the National Fire Plan, stewardship contracting,
and the Healthy Forest Restoration Act, the BLM implemented its
strategy for increasing biomass utilization from BLM-managed lands.
DOI also adopted a standard contract provision that allows for the
removal of biomass as part of all forest and rangeland thinning
projects or any other contracts that cut vegetation. This contract
option is for use by all DOI bureaus. In addition, Section 210 of the
EPAct authorizes Federal grants for biomass use. The BLM is working
with the FS to implement a joint biomass action plan and foster new
markets in biomass utilization. To help increase the market for
materials made of small wood and wood biomass, the agency has added a
factor to their procurement solicitations to encourage the purchase of
bio-based materials.
ALTERNATIVE SOURCES OF FOSSIL ENERGY
DOI is also facilitating the development of alternative sources of
energy from unconventional fossil fuel resources, such as gas hydrates,
which, while currently uneconomic to commercially develop, present
enormous potential for domestic energy production in the years to come.
Gas Hydrates
Gas hydrates are naturally occurring solids in which water
molecules trap gas molecules (usually methane) in a cage-like
structure. Gas hydrates are widespread in permafrost regions and areas
offshore and have the potential to contribute significantly to the
world's gas supply. The most recent assessment of gas hydrate potential
for the United States was conducted by the USGS in 1995. The USGS
estimated that the United States had more than 200,000 Trillion Cubic
Feet (TCF) of in-place gas hydrate resources, compared to current
estimates of approximately 1,200 TCF of natural gas from conventional
sources. More than 98 percent of this potential resource is believed to
exist offshore. Currently, the nation consumes approximately 24 TCF on
an annual basis.
Although there is no current commercial production of gas from
known gas hydrates deposits, recent studies have demonstrated that
production of these resources is technologically feasible.
Research into gas hydrates has been conducted for approximately 25
years, and the level of knowledge about the occurrence and potential
recoverability of gas hydrates has evolved. Promising results have been
shown in Alaska. With this new knowledge, the MMS, in co-operation with
the USGS and leading academic researchers, is currently in the process
of reassessing the extent of potential quantities of in-place gas
hydrates on the Outer Continental Shelf and MMS will be the first to
assess the technically recoverable resource.
The MMS has focused its hydrate activities on assessing and
evaluating hydrate resources and assuring that industry hydrate
exploration and development activities can occur in a safe and an
environmentally sound manner. In addition to partnering with USGS in
developing a methodology for assessing offshore gas hydrates and
performing a new resource assessment, the MMS is also developing a
detailed tract-specific methodology that would be used as the basis to
determine fair market value assuming production of this resource
eventually becomes economic. The methodology will provide significantly
more specificity on the location of the resource.
The USGS, the BLM, and the State of Alaska are currently in the
process of reassessing the potential quantities of technically
recoverable gas hydrates on the North Slope of Alaska--the first ever
technically recoverable resource estimate of its kind. This estimate
will support the BLM and the Alaska Department of Natural Resources
resource management responsibilities.
Working with other Federal agencies, DOI has established goals to
(1) improve our understanding of the various aspects of gas hydrate
occurrence in the natural environment, (2) improve our detection
abilities via various geophysical techniques, including remote sensing,
and (3) improve our understanding of potential production techniques
and the behavior of hydrates during production, including reservoir
performance and fluid behavior.
DOI is evaluating the need for rulemaking to encourage natural gas
production from gas hydrates as directed by Section 353 of EPAct.
UTILIZATION OF RENEWABLE ENERGY RESOURCES AT DOI FACILITIES
In addition to DOI's significant role in domestic renewable energy
production, bureaus within DOI are taking on a leadership role by
working to advance the use of renewable energy resources at numerous
facilities in the field. There is significant potential for the
installation and use of renewable energy resources, such as solar,
geothermal, and wind power at existing and new DOI facilities.
The BLM generates a total of 185 Megawatt-hours of electricity from
photovoltaic systems each year from over 600 installations. Varied uses
of photovoltaics include water pumping, outdoor lighting, communication
sites, weather and water monitoring, remote field stations, and visitor
centers. Since 1995, the BLM has installed over 130 photovoltaic
systems to replace fossil-fuel powered generators. The seasonal nature
of the remote facilities and long summer sun hours have made solar
energy a cost effective approach to supplying power to these
facilities. Some examples of solar photovoltaic projects undertaken at
the BLM facilities include:
<bullet> Grid-connected systems at the Cannonville and Big Water
Visitor Centers (Utah); and the Vale Fire Dispatch Center
(Oregon);
<bullet> Outdoor lighting systems at various recreation sites along
the Colorado River near Yuma and on Lake Havasu (Arizona);
<bullet> Upgrades to the Nixon system (Arizona) to meet the needs of
the new 3,000 sq. ft. fire station;
<bullet> Water pumping and water treatment at the Clay Creek
Recreation Site (Oregon);
<bullet> Water pumping on a remote stock and wildlife site water
system (Idaho);
<bullet> Off-grid system (3 kW) at the Washburn Ranch, Carrizo Plain
National Monument (California); and
<bullet> Grid-connected system (7.5 kW) at Escalante Science Center,
Grand Staircase-Escalante National Monument (Utah).
The National Park Service (NPS) also is utilizing innovations in
solar power at facilities throughout the National Park System. The Zion
National Park Visitor Center, designed collaboratively by the NPS and
the Department of Energy's National Renewable Energy Laboratory, uses
66 percent less energy than code and is virtually immune to the
frequent power outages in the region. The project represents a
synthesis of passive heating, cooling and daylighting, energy
efficiency, and photovoltaic technology. Shading, natural ventilation,
passive evaporative cool-towers, clerestories, trompe walls, direct
solar gain, thermal mass, high efficiency lights, and 7 kilowatts of
photovoltaics all work together to nearly eliminate loads. The project
resulted in cost savings of more than $10,000 and 309 million BTU in
site energy and 1 billion BTU in source energy.
At Mojave National Preserve, the NPS has constructed a new Wildland
Fire Center that is highly functional, energy efficient, and cost
effective. The Center features an 11 kilowatt hybrid system with 85
thin flexible photovoltaic panels placed on the roof, eliminating the
expense of a solar panel array frame. In interior spaces without
windows, solar light tubes practically eliminate the need for
electrical lighting during the day. A solar-powered radiant floor
heating system prevents the water lines in the fire engine bays from
freezing. The project has achieved an energy savings of 624 million BTU
and a cost savings of more than $16,000 in one year. At the White River
Entrance of Mount Rainier National Park, the NPS has constructed a 20-
kilowatt solar hybrid system, which brings reliable electrical power to
a remote area without a connection to an electric utility. The new
system is saving the White River installation more than $9,000 in fuel
costs and approximately 776 million BTU annually.
The Bureau of Indian Affairs improved energy conservation at
Sherman Indian High School by installing new lighting, heating,
ventilation, and a renewable energy photovoltaic system. These and
other improvements helped achieve a savings of more than 8 billion BTU
and more than $179,000.
At Missisquoi National Wildlife Refuge, the FWS has worked
collaboratively with community partners, Efficiency Vermont, the State
of Vermont, the Town of Swanton, and a design team led by Centerbrook
Associates on a new headquarters and visitor contact station that
exemplifies the principles of sustainable design. This facility,
dedicated on October 15, 2005, minimizes energy use, makes efficient
use of resources, and reflects sensitivity to the site. Achievements of
the project include selection of recycled-content materials, passive
solar energy design, energy efficiency, water conservation and runoff
treatment, and sustainable architecture. Its renewable energy systems
capture geothermal, solar, and wind energy with a geothermal heating,
ventilation, and air conditioning (HVAC) system; a 15 kW photovoltaic
solar array; a Bergey 10 kW wind turbine; and an energy-efficient
lighting and controls system.
At the Parker River National Wildlife Refuge, the USFWS
incorporated the use of recycled building materials and low-VOC
building materials, including engineered wood, plastic lumber, linoleum
flooring, fiberboard, sheetrock, exterior decking, tile, deck piers,
and carpet with high recycled content in the construction of the
visitor center and administrative headquarters. Water conservation
technologies, including directing roof runoff to groundwater recharge,
installing low-flush toilets, and implementing other best water
management practices, save thousands of gallons of water per year.
Passive solar techniques such as southeast building orientation and
daylighting, along with super insulation of the building envelope and
high-efficiency lighting with self-adjusting dimmers significantly
reduce energy use over a traditional office building.
CONCLUSION
In conclusion, Mr. Chairman, energy is vital to expanding our
economy and enhancing Americans' quality of life, and producing energy
from renewable and other alternative domestic resources is a critical
component of the Nation's energy portfolio. Lands managed by DOI have a
major role to play in the diversification of the Nation's energy
sources while ensuring protection of habitat and mitigating impacts to
wildlife, cultural and natural resources. DOI also will continue to
lead by example, utilizing renewable energy resources at existing and
new DOI facilities.
DOI has been working with other agencies and has taken steps in a
variety of scientific endeavors to understand renewable and other
alternative energy resources and to help bring them to a place where
they may contribute to the energy mix of the country. Even the
development of renewable energy resources requires surface acreage, and
DOI manages millions of acres of land, many of which have energy
potential. The BLM and MMS have been working on a variety of fronts to
meet industry demand for renewable and other alternative sources of
energy. The USGS has been leading scientific investigations to improve
our understanding of these energy resources. We stand ready to respond
to the ever-increasing need for energy development from the resources
we manage on behalf of the Nation.
Thank you for the opportunity to highlight a few of the steps the
Department of the Interior has taken to encourage the development of
renewable and other alternative energy resources on the public lands.
Renewable energy will be extremely important in delivering larger
supplies of clean, domestic power for America's growing economy. This
concludes my testimony. I would be happy to answer any questions you
have.
Senator Craig. Lynn, thank you very much.
Now we turn to Sally Collins.
Sally.
STATEMENT OF SALLY COLLINS, ASSOCIATE CHIEF, FOREST SERVICE,
DEPARTMENT OF AGRICULTURE
Ms. Collins. Mr. Chairman and members of the committee, I
thank you, also, for the opportunity to discuss renewable
energy production on the national forest and national
grasslands.
The U.S. Forest Service is fully committed to moving the
country toward energy independence, and we view increasing
opportunities for renewable energy as a key part of this.
I'll submit my full testimony in writing, so let me just do
a quick summary here for you today.
We have accomplished a lot through the Energy Policy Act of
2005, a law that we believe increases energy supplies while
protecting the environment, fosters greater competition in the
marketplace, and reduces risks to entrepreneurs seeking and
entering renewable energy enterprises.
Under the law, so far we have completed three MOUs with BLM
related to expediting oil and gas and geothermal leasing, as
well as field operations. We have established pilot offices
throughout the West to ensure better coordination of those
field operations. Backlogs of permits and leases have been
significantly reduced. And close to 100 percent of permit
applications for electric transmission lines, oil and gas
pipelines, and renewable energy generation facilities have been
processed within the timeframes established by that law.
More specifically, renewable energy has huge potential on
national forests. Of the 354 geothermal leases, 116 are on
national forest land, five of which are producing--we have two
geothermal powerplants that contribute a 12- and a 45-megawatt
plant--together, combined enough--produce enough energy to
service close to 60,000 households.
The nature of geothermal development makes reducing risk to
the developer critically important, as the GAO report alludes
to. One way the Policy Act addresses this is to promote
interagency coordination in leasing and in permit operations.
And, in response to that, the Forest Service is developing a 5-
year schedule to expedite the processing of geothermal lease
applications. We're also amending our forest plans to address
geothermal development.
Now, for woody biomass development, the Forest Service and
other Federal agencies expect to treat more than 13 million
acres over the next 3 years, yielding massive quantities of
biomass as a byproduct, as well as, of course, reducing the
risk to communities.
The lion's share of the biomass from Federal lands comes
from our national forests. So far this year, about 50 percent
of the almost half a million acres that have been mechanically
treated by the Forest Service have yielded woody biomass for
utilization in some manner.
The energy potential is huge, especially as markets for
wood increase. And, as you all know, it takes energy to make
energy. Even with today's energy and today's technology,
biofuels from wood materials are significantly less energy
intensive to manufacture than our other sources of biofuels,
including corn ethanol, and all are more energy efficient to
produce than gasoline.
The energy ratio for ethanol for wood products can be even
higher as science and technology advance, and we are doing our
research on this at our research lab in Madison, Wisconsin. In
addition to this, we're working with local communities to
promote local investments in biomass utilization. Currently,
approximately 38 million megawatts of electricity are produced
from woody biomass nationwide.
And, finally, just a few words about solar and wind energy.
In 2005, together with the Department of Energy, the Forest
Service identified 99 units of National Forest System with high
wind or solar potential. To date, we haven't received any
applications for solar development on the national forests, but
we have received two applications for wind energy.
Right now, we're developing some guidelines for wind energy
production, and these guidelines will help facilitate and
expedite the processing of these permits, which we expect these
guidelines to be completed in this fall sometime.
And we anticipate that as interest in solar on the national
forests increases, we will also have a similar policy for
solar.
In conclusion, Mr. Chairman, the Forest Service is firmly
committed to the development of renewable energies on National
Forest System lands. These lands are one of the largest
producers of hydropower and woody biomass, and will play an
increasing role as a source of geothermal wind and solar energy
in the future.
I appreciate the opportunity to be here today, and look
forward to answering any questions you might have.
[The prepared statement of Ms. Collins follows:]
Prepared Statement of Sally Collins, Associate Chief, Forest Service,
Department of Agriculture
Mr. Chairman and members of the Committee, thank you for this
opportunity to discuss renewable energy production on National Forest
System lands.
I understand this hearing is one of a series the committee is
holding regarding implementation of the Energy Policy Act of 2005,
Public Law 109-58. Renewable energy development plays a significant
role in the agency's implementation of the Energy Policy Act of 2005
(EPAct 2005). As you know, that law significantly benefits consumers by
increasing energy supplies while protecting the environment and
fostering greater competition in the marketplace. The Act also improves
the Nation's energy security and reduces our dependence on foreign
sources of oil by increasing the use and diversity of renewable energy
sources and by reducing energy consumption through greater conservation
and energy efficiency.
First, a quick synopsis of what we've done under the EPAct 2005 to
date. To meet the provisions of titles II and III of the Act, we have
completed three Memorandums of Understanding (MOUs). One, under section
365, improves energy permit coordination on Federal lands and which
assigns agency personnel to pilot project offices. The second, with the
Bureau of Land Management (BLM) for timely processing of pending
geothermal lease requests under section 225 was completed in April
2006. The third with the BLM under 363 improves oil and gas leasing and
permitting procedures between the BLM and Forest Service. We also
worked cooperatively with BLM to revise the Oil and Gas Onshore Order
No. 1 regulation on the approval of oil and gas onshore lease
operations.
In addition, we have processed 254 special use authorizations (97
percent) within established timeframes for electric transmission lines,
oil or gas pipelines, and renewable energy generation facilities. We,
along with other Federal agencies developed and published an
interagency rule making for expedited trial-type hearings for
applicants or other parties contesting conditions for hydropower
facilities. We have begun implementing section 368, which calls for
designating energy corridors on Federal lands. This effort included
public scoping meetings in 11 Western states. The public comment period
started with the publication of the preliminary draft corridor map
(June 9, 2006) and ran until July 10, 2006.
I will now discuss each renewable energy source separately.
GEOTHERMAL ENERGY
Nearly 50 percent of the nation's geothermal energy production
comes from Federal lands. There are currently 354 Federal geothermal
leases, 116 on NFS lands. At the present time, there are 5 producing
leases on NFS lands contributing to a 12 mega-watt power plant and a 45
mega-watt power plant. Generally, one megawatt provides enough
electricity for about 1,000 homes.
A joint report prepared by the Department of Energy's (DOE)
National Renewable Energy Laboratory and the Department of the Interior
(DOI) describes the potential for geothermal development on public
lands in the 7 states that have geothermal resources. The report is
entitled Opportunities for Near-Term Geothermal Development on Public
Lands in the United States. While no specific geothermal resource
assessment analysis has been completed to date addressing NFS lands,
the report provides a synopsis of geothermal activity and site specific
facts related to this activity for NFS lands by State.
The BLM and the Forest Service coordinate geothermal resource
leasing activities on NFS lands. The Forest Service provides the
consent to lease and the BLM issues the leases. The Forest Service
serves as lead agency for geothermal leasing availability analyses and
decisions and conducts analysis on geothermal activities on NFS lands.
Also, we develop lease stipulations for NFS lands that are only as
restrictive as necessary to protect the resources for which they are
applied. The Forest Service and the BLM coordinate the signing and
release of decision documents in leasing of NFS lands. Despite the
environmental benefits of geothermal energy, there have been barriers
to development of these resources on NFS lands. The study conducted
jointly by the DOE and DOI concluded there is a need to streamline
environmental reviews. The EPAct 2005 addresses this and other issues.
The Act calls for streamlining the permitting process, changes the
royalty structure to provide payments to local governments, and directs
the U.S. Geological Survey to update the assessment of geothermal
resources made during 1978 and submit this updated assessment to
Congress. It also provides a production tax credit. These changes have
spurred increased interest in developing geothermal resources.
The Forest Service concurrence is pending on 65 lease applications
in Oregon, Washington, California, Arizona, Nevada, and Idaho. Issues
to be addressed include requirements associated with threatened and
endangered species and the need to amend land management plans that do
not presently address geothermal development. Under section 225 of the
EPAct 2005, the Forest Service has signed an MOU with BLM that provides
administrative procedures for processing geothermal lease applications,
establishes a program to reduce the backlog of lease applications by 90
percent within five years, and provides for a joint data retrieval
system for tracking lease and permit applications.
WOODY BIOMASS
Biomass has surpassed hydropower as the largest domestic source of
renewable energy. A recent joint U.S. Forest Service--Department of
Energy report, Biomass as Feedstock for a Bioenergy and Bioproducts
Industry: The Technical Feasibility of a Billion-Ton Annual Supply,
commonly known as the ``Billion Ton Report,'' projects that there are
over 1.3 billion dry tons per year of biomass potential--enough to
produce biofuels sufficient to meet more than one-third of the nation's
current demand for transportation fuels by 2030. About one-quarter of
that total, roughly 400 million dry tons of biomass could be produced
in a sustainable manner from all forest and rangelands--including
private, state, tribal and federal lands.
Woody biomass is woody materials removed from National Forest
System, other Federal, State and private lands as a byproduct of forest
management activities. Woody biomass includes tree stems, limbs, tops,
needles, leaves and other woody parts. Currently most of this material
is underutilized, commercial value is low, markets are small to non-
existent and the infrastructure needed to process this material is
insufficient or nonexistent in many parts of the country.
The Administration's Healthy Forests Initiative has significant
potential to increase the availability of woody biomass from Federal
lands. As the committee is aware, the Forest Service and the Department
of the Interior last year treated hazardous fuels on more than 2.9
million acres of land, and reduced hazardous fuels on an additional 1.4
million acres through other land management actions. Roughly one-
quarter of the acres treated resulted in biomass utilization for forest
products, bio-based or bio-energy purposes, but the potential exists
for substantial expansion of biomass use. Federal agencies plan to
treat 2.9 million more acres in 2006, and accomplish hazardous fuels
reduction on an additional 1.6 million acres through landscape
restoration activities, with an additional 4.6 million acres planned
for 2007, which includes 3 million acres of hazardous fuels treatments
and 1.6 million acres through landscape restoration activities.
To put this material to productive use requires an integrated
strategy involving federal, state, tribal and private forest owners
along with communities and other private interests. The public benefits
of diverting this material from other disposal options such as open
burning or expensive landfilling, and the positive environmental
consequences of a clean and renewable energy source are just beginning
to be articulated and valued in the market through renewable energy
credits, carbon credits and pollution credits.
Local areas and regions of the country have unique opportunities
and challenges related to biomass utilization. Hurricane damage in the
South, fuels treatments needs around communities, and insect outbreaks
all provide cross-ownership woody biomass utilization challenges.
The Forest Service is also increasing our Research and Development
efforts at the Forest Products Laboratory and at our Research Stations
to provide renewable energy and alternatives to fossil fuels from woody
biomass. This effort includes improved in-woods operations,
transportation and handling, processing and new bio-based products.
The restoration of our nation's forest to be more resilient to
natural disturbance, such as catastrophic wildfires is a primary
objective for a significant portion of our timber sale program. These
restoration efforts are dramatically affected by biomass utilization
and the global timber market.
Therefore, biomass utilization is critical to our ability to meet
our restoration needs. The FY 2007 President's Budget addresses this
need by dedicating $610 million to implementing the Healthy Forest
Initiative. This includes $5 million to foster markets in biomass
utilization. Additionally, the President's Healthy Forests Initiative,
the Healthy Forests Restoration Act, and stewardship contracting, allow
the Forest Service to work more effectively and efficiently with the
local community in treating hazardous fuels, and to promote investment
in the local timber infrastructure.
In summary, the Forest Service's biomass energy activities are
aimed at providing a predictable and sustainable supply, improving
utilization through technical assistance and science, and developing
partnerships across woody biomass interests.
WIND AND SOLAR ENERGY
In 2005, the Forest Service and the Department of Energy's National
Renewable Energy Laboratory established a partnership to conduct an
assessment of renewable energy resources on National Forest System
lands in the continental United States, including administrative and
physical limitations on access to them. One goal of the resulting
report was to identify those National Forest and Grassland units that
have the highest potential for private-sector development of wind,
concentrating solar power and photovoltaic energy resources.
Using geographic information system (GIS) data, the interagency
team developed screening criteria for each of the solar and wind
resources to produce maps of the 25 NFS sites with the highest
potential for development of each energy source. Sites had to be
relatively flat and not near urban areas and were excluded if they were
not accessible to appropriate transmission capacity or a major road.
Inventoried Roadless Areas and other Specially Designated Areas were
also excluded. The assessment found that 99 NFS Units have high
potential for power production from solar or wind sources and 20 have
high potential for power production from two or more wind or solar
sources.
Energy facilities qualify as one of the potential uses of National
Forest System lands. (Mining and Minerals Policy Act and Forest Service
Manual 2802). The Forest Service processes proposals for solar and wind
energy facilities using existing Special Uses regulations and policies.
Proposals to use National Forest System Lands are submitted to the
District Ranger or Forest Supervisor having jurisdiction over the
affected lands. The authorized officer then initiates pre-application
actions that involve initial and second-level screening which are
followed by a formal application in the event that a proposal meets the
screening criteria.
The processing of recent wind energy proposals on the Green
Mountain National Forest in Vermont and on the Huron-Manistee National
Forest in Michigan has revealed that policy needs to be developed
related to wind energy projects due to the unique factors, such as the
impact on migratory birds, associated with this energy resource.
In response, Joel Holtrop, Deputy Chief for the National Forest
System, announced the creation of an ad hoc wind Energy Guidance Team
on February 24, 2006. The team is developing policy to addressing the
factors associated with wind energy facilities on National Forest
System lands.
The primary goal of the team is to provide local Forest Service
officials with the information and tools necessary to efficiently
process proposals for wind energy facilities. A specific wind energy
policy will ensure that local officials can make well-informed
decisions and will ensure that adequate and consistent analyses and
procedures are implemented to assess and evaluate proposals.
The team will determine whether any special considerations should
be made when screening wind energy proposals, the type and term of
authorizations, and the methodology for calculating the fees associated
with the authorization. The team is also considering guidance for
potential visual, scenery, recreation, or wildlife impacts and measures
to mitigate those impacts.
The recent BLM Programmatic Environmental Impact Statement on Wind
Energy Development is being used as a resource to allow for interagency
consistency in policy. The ad hoc team has directly consulted with BLM
employees concerning certain text and procedures of the BLM
Programmatic Environmental Impact Statement (PEIS). The Forest Service
intends to adopt many of the best management practices provided in the
PEIS. In those instances where the Forest Service's legal authority,
management practices and procedures do not allow us to completely align
with the BLM, we are developing direction that is better suited to our
agency's particular needs.
Our guidance also differs from the BLM due to continuing advances
in wind energy technology, as well as new information on its affects on
wildlife and civilian and military radar. Our direction will address
these emerging issues to ensure it is based on the available best
science. The Forest Service expects to publish the wind energy policy
and handbook direction in the Federal Register this fall. The policy
will call for the evaluation of wind energy proposals to be done at the
Forest level using public comment processes due to the differing
landscapes, habitats, wildlife populations, and public concerns unique
to each site.
To date, the Forest Service has received no applications to
construct a concentrating solar power or photovoltaic project.
In conclusion, Mr. Chairman, the Forest Service is firmly committed
to the development of renewable energy sources on National Forest
System lands. These lands are already one of the nation's larger
sources of hydropower and geothermal energy. The agency will play a
leading role in increasing the utilization of woody biomass as a
renewable energy source. We are confident we can accomplish all of this
within the statutory and regulatory framework under which the Forest
Service manages 193 million acres of forests and grasslands.
I would be glad to answer any questions you may have.
Senator Craig. Sally, thank you very much.
Now let's turn to Jim Wells, Director of Natural Resources
and the Environment for the Government Accountability Office.
Jim, Ron, thank you for being with us.
STATEMENT OF JIM WELLS, DIRECTOR, NATURAL RESOURCES AND
ENVIRONMENT, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Wells. Thank you, Mr. Chairman and members of the
committee.
We, today, as Senator Bingaman referred to, are releasing
to the public our most recent work on the challenges facing
geothermal development. We're pleased today to talk about the
successes of EPAct of 2005 as it relates to geothermal energy.
In today's world, energy in any form has, and is, becoming
more valuable. As prices of oil, natural gas, and electricity
rise, interest in renewable energy, like geothermal, rises.
Most will agree, in the room today, that we, as a Nation, have
a need to develop renewable sources. The passage of EPAct 2005
last year served notice that the Federal Government is, in
fact, a major participant and is uniquely involved by owning
huge amounts of Federal land with the potential for future
geothermal development.
The GAO report gives you a geothermal status, if you will,
of what we have to date, what we know about the potential for
the future. It also addresses the challenges to expansion,
describes the Federal, State, and local governments'
activities, and finally, tries to explain how the royalty
payments are collected for the use of these Federal resources,
which has always been a complicated process.
What we are currently getting from geothermal sources is
not huge, by electricity production standards, but it is
locally important. If you live in Hawaii, California, Nevada,
Utah, or Idaho, you will know how important geothermal is.
Mr. Chairman, you may have noticed we used a picture of the
Boise district heating system in our report. Another 2,300
businesses, jobs, and consumers, with over 1 million existing
geothermal heat pumps, know how important the source of energy
is.
The statistics show that this source of energy is producing
2,500 megawatts of electricity, enough to run about 2.5 million
homes. Fifty percent of that energy is coming from the Federal
lands. However, in a perspective, this is still only .3 percent
of our Nation's total electricity production.
Our report title, perhaps, tells the story best. The
potential of geothermal will depend on the ability to overcome
some pretty significant challenges. Harassing--excuse me--
harnessing--I don't want to harass geothermal----
[Laughter.]
Mr. Wells [continuing]. I want to harness geothermal
energy--it is not easy, and it's not easy to say that word,
either. The GAO report describes capital-intensive business--
risky business environment that they have to deal with,
exploration and drilling technology hurdles that have to be
overcome, transmission inadequacies, lengthy administrative and
regulatory lease and permit reviews, lawsuits, and a very
complex royalty payment system. The list of challenges is
longer than what I've described here.
Some, if not all, of these challenges are being addressed
either by existing programs or planned actions as a result of
the passage of EPAct 2005. The State, the local governments,
they are giving incentives with tax credits, grants, and they
are mandating renewable portfolio standards to encourage
production of geothermal energy. And it appears to be working.
The Federal Government, in EPAct 2005, also grants
developers a Federal tax credit to recoup investments quicker.
It instructs DOI, Department of the Interior, to simplify the
royalty payments with the lower fee structures. It lowers
exploration risk by getting the U.S. Geological Survey to
update a 1978 study of the assessment of the locations of these
resources. And it authorizes FERC new authorities to issue
permits for transmission rights-of-ways in the national
interest.
I want to leave you with an impression that a lot has been
done to provide incentives to this industry.
Lastly, EPAct 2005 significantly changed how royalties are
to be paid and disbursed. Half will go to the States, 25
percent to the counties in which these projects are located,
and another--the remaining 25 percent to the Federal
Government.
The Department of the Interior was charged with designing a
simpler method for charging for the resource use while seeking
to lower the cost and design rules to maintain the same level
of royalty collections as before the act over the next 10
years. Our analysis is going to suggest that this is going to
be a challenge for the Department of the Interior.
Mr. Chairman, in summary, today's geothermal usage is
relatively small. Geothermal is clearly a unique energy
offering of an environmental friendly alternative to fossil
fuels; yet, where and how far we can stretch and expand this
industry is still unknown. EPAct 2005 and at least half of the
States have stepped up to the plate with incentives to grow
this industry. Many of these efforts are showing promise, but
it's too early for GAO to give you an assessment to declare
success.
There's a children's book that talks about a little train
engine that wanted to climb a hill. ``I think I can, I think I
can,'' is like the geothermal industry today. Industry is
optimistic for the future. Encouragement has been provided. Now
that the Federal agencies have the task, they've got to step to
the plate to use this expanded authority that the Congress has
given them, and the industry and the marketplace also must take
advantage of these offers. They need to reduce their operating
cost and gain market share.
The bottom line is: Going to the 21st century, we're going
to need a diverse supply of energy, and we will need an ever-
increasing amount from all energy sources, including
renewables.
Mr. Chairman, I'll stop here and would be glad to answer
any questions.
[The prepared statement of Mr. Wells follows:]
Prepared Statement of Jim Wells, Director, Natural Resources and
Environment, Government Accountability Office
RENEWABLE ENERGY
Increased Geothermal Development Will Depend on Overcoming Many
Challenges
WHY GAO DID THIS STUDY
The Energy Policy Act of 2005 (Act) contains provisions that
address challenges to developing geothermal resources, including the
high risk and uncertainty of developing geothermal power plants, lack
of sufficient transmission capacity, and delays in federal leasing.
Among the provisions are means to simplify federal royalties on
geothermal resources while overall collecting the same level of royalty
revenues. This testimony summarizes the results of a recent GAO report,
GAO-06-629. In this testimony, GAO describes: (1) the current extent of
and potential for geothermal development, (2) challenges faced by
developers of geothermal resources, (3) federal, state, and local
government actions to address these challenges, and (4) how provisions
of the Act are likely to affect federal geothermal royalty disbursement
and collections.
WHAT GAO RECOMMENDS
GAO concluded that it will be difficult for the Department of the
Interior (DOI) to demonstrate that it intends to collect the same level
of geothermal royalties as called for in the Energy Policy Act because
the Minerals Management Service (MMS) does not systematically collect
sales revenue data from electricity sales. Therefore, GAO recommends
that the Secretary of the Interior instruct the appropriate managers
within MMS to systematically collect these data, and DOI agreed.
WHAT GAO FOUND
Geothermal resources currently produce about 0.3 percent of our
nation's total electricity and heating needs and supply heat and hot
water to about 2,300 direct-use businesses, such as heating systems,
fish farms, greenhouses, food-drying plants, spas, and resorts. Recent
assessments conclude that future electricity production from geothermal
resources could increase by 25 to 367 percent by 2017. The potential
for additional direct-use businesses is largely unknown because the
lower temperature geothermal resources that they exploit are abundant
and commercial applications are diverse. One study identified at least
400 undeveloped wells and hot springs that have the potential for
development. In addition, the sales of geothermal heat pumps are
increasing.
The challenges to developing geothermal electricity plants include
a capital-intensive and risky business environment, technological
shortcomings, insufficient transmission capacity, lengthy federal
review processes for approving permits and applications, and a complex
federal royalty system. Direct-use businesses face numerous challenges,
including challenges that are unique to their industry, remote
locations, water rights issues, and high federal royalties. The Act
addresses many of these challenges through tax credits for geothermal
production, new authorities for the Federal Energy Regulatory
Commission, and measures to streamline federal leasing and simplify
federal royalties, which totaled $12.3 million in 2005. In addition,
the Department of Energy and the state of California provide grants for
addressing technology challenges. Furthermore, some state governments
offer financial incentives, including investment tax credits, property
tax exclusions, sales tax exemptions, and mandates that certain
percentages of electricity within the state be generated from renewable
resources.
Under the Act, federal royalty disbursement will significantly
change because half of the federal government's share will now go to
the counties where leases are located. Although the Act directs the
Secretary of the Interior to seek to maintain the same level of royalty
collections, GAO's analysis suggests this will be difficult because
changing electricity prices could significantly affect royalty
revenues. Finally, MMS does not collect sales data that are necessary
to monitor these royalty collections.
Mr. Chairman and Members of the Committee:
We are pleased to participate in the Committee's hearing to discuss
the development of geothermal energy on federal lands and the role of
geothermal resources in the nation's portfolio of alternative energy
sources. We previously testified that fossil fuels, such as coal, oil,
and natural gas, provide about 86 percent of our nation's total energy
consumption, with the rest coming from other sources, including nuclear
energy and renewable resources, such as hydroelectric energy; wind,
solar energy, and geothermal resources.\1\ Our nations' long-standing
reliance on imported crude oil and natural gas and disruptions in their
supply highlight the need to develop renewable energy sources. Among
these sources is geothermal energy. Geothermal energy is a unique
renewable resource in that it can provide power that is independent of
weather and climate, thereby enabling a consistent and uninterrupted
supply of heat and electricity. Geothermal energy also creates fewer
environmental impacts than the production of natural gas and other
conventional fossil fuels. Because many areas that have the potential
to produce additional geothermal energy are located on federal lands,
the federal government plays a major role in the future development of
geothermal energy.
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\1\ See Meeting Energy Demand in the 21st Century: Many Challenges
and Key Questions, GAO-05-414T (Washington, D.C.: March 16, 2005).
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Harnessing geothermal energy, however, is not easy. Developers of
geothermal energy face many challenges, including the high risk and
uncertainty of developing geothermal power plants, lack of sufficient
capacity to transmit electricity from these plants to consumers,
inadequate technology, and delays in leasing federal lands, which
supply about 50 percent of the geothermal resources used to generate
electricity. To address these and other challenges, the Congress
included detailed provisions in the Energy Policy Act of 2005.
My testimony today is based on a report we recently completed
entitled ``Renewable Energy: Increased Geothermal Development Will
Depend on Overcoming Many Challenges.'' In this report, we addressed:
(1) the current extent of and potential for geothermal development; (2)
challenges faced by developers of geothermal resources; (3) federal,
state, and local government actions to address these challenges; and
(4) how provisions of the Energy Policy Act are likely to affect
federal geothermal royalty disbursements and collections. In addressing
these issues, we reviewed key studies on the extent and potential of
geothermal development, interviewed a variety of government and
industry officials, reviewed substantial supporting documentation and
the Energy Policy Act, analyzed geothermal royalty data, and toured
geothermal electricity plants and other facilities in California,
Idaho, Nevada, and Oregon.
In summary, we found the following:
<bullet> Although locally important, geothermal resources produce a
very small portion of our nation's total electricity and
heating needs. In 2004, geothermal resources generated about
0.3 percent of the nation's total electricity and supplied heat
and hot water directly to about 2,300 district heating systems,
fish farms, greenhouses, food drying plants, spas, and resorts.
The most recent estimates of future electricity generation from
geothermal resources suggest that the current production of
2,500 megawatts of electricity--enough to supply 2.5 million
homes--could increase to as much as 12,000 megawatts in 11
years. Although the future potential of other geothermal
applications is less known, about 400 undeveloped geothermal
wells and hot springs could supply heat and hot water directly
to a variety of businesses and other organizations.
<bullet> The developers of geothermal resources face significant
financial, technical, and logistical challenges. Geothermal
electric power plant developers face a capital intensive and
risky business environment in which obtaining financing and
securing a contract with a utility are difficult, where
recouping the initial investment takes many years, and where
transmission expenses could be costly due to remote locations
or capacity constraints on the electric grid. These developers
must also use exploration and drilling technologies that are
inadequate for the unique attributes of geothermal reservoirs.
Developers of electric power plants on federal lands face
additional administrative and regulatory challenges and a
complicated royalty payment system. Businesses and individuals
trying to tap geothermal resources for direct use face unique
marketing, financing, and technical challenges and, in some
cases, must contend with remote locations, restrictive state
water rights, and high royalties.
<bullet> To address the many challenges of developing geothermal
resources, federal, state, and local governments have
implemented a number of incentives and initiatives, many of
which show promise. However, it is too early to assess their
overall effectiveness. To address the capital intensive and
risky nature of developing geothermal power plants, the Energy
Policy Act grants developers a federal tax credit. Some states
also encourage the production of electricity from renewable
energy by granting various tax credits or by passing laws or
adopting policies requiring that public utilities provide a
minimum percentage of their electricity from renewable energy.
To address technological challenges, the federal government and
the state of California awarded research and development grants
through the Department of Energy's Geothermal Technologies
Program and the California Energy Commission, respectively. The
Energy Policy Act gives the Federal Energy Regulatory
Commission new authorities to address transmission limitations
and contains provisions designed to improve the efficiency of
federal geothermal leasing and to simplify or reduce federal
geothermal royalties.
<bullet> How federal royalties are shared will change significantly
since passage of the Act, and the total amount of royalties
collected could change significantly if electricity prices also
change. While the Act continues to provide that 50 percent of
federal geothermal royalties will be disbursed to the states in
which the federal leases are located, an additional 25 percent
will now be disbursed to the counties in which the leases are
located, leaving only 25 percent to the federal government. The
Act also directs for most leases that the Secretary of the
Interior seek to maintain the same level of royalty revenues as
before the Act, but our analysis suggests that this will be
difficult because of two factors. First, because lessees in
certain situations will have the option of choosing a different
formula for calculating royalties, changing electricity prices
could significantly affect the percentage of future royalty
revenues that they pay. Second, the Minerals Management Service
(MMS) does not routinely collect from royalty payors the gross
sales revenue figures for the electricity they sell so MMS
cannot determine if or how these future royalty revenues differ
from what lessees would have paid before the Act. We have made
recommendations to the Secretary of the Interior to instruct
the appropriate managers within MMS to collect from royalty
payors the gross sales revenue figures from electricity sales.
MMS has agreed to do so.
BACKGROUND
Geothermal energy is literally the heat of the earth. This heat is
abnormally high where hot and molten rocks exist at shallow depths
below the earth's surface. Water, brines, and steam circulating within
these hot rocks are collectively referred to as geothermal resources.
Geothermal resources often rise naturally to the surface along
fractures to form hot springs, geysers, and fumaroles. For centuries,
people have used naturally occurring hot springs as places to bathe,
swim, and relax. More recently, some individuals have constructed
buildings over these springs, transforming them into elaborate spas and
resorts, thereby establishing the first direct use of geothermal
resources for business purposes. Businesses have also established other
direct uses of geothermal resources by drilling wells into the earth to
tap the hot water for heating buildings, drying food, raising fish, and
growing plants. Where the earth's temperature is not high enough to
supply businesses with geothermal resources for direct use, people have
made use of the ground's heat by installing geothermal heat pumps.
Geothermal heat pumps consist of a heat exchanger and a loop of pipe
extending into the ground to draw on the relatively constant
temperature there for heat in the winter and air conditioning in the
summer.
Geothermal resources can also generate electricity, and this is
their most economically valuable use today. Only the highest
temperature geothermal resources, generally above 200 degrees
Fahrenheit, are suitable for electricity generation. When companies are
satisfied that sufficient quantifies of geothermal resources are
present below the surface at a specific location, they will drill wells
to bring the geothermal fluids and steam to the surface. Upon reaching
the surface, steam separates from the fluids as their pressure drops,
and the steam is used to spin the blades of a turbine that generates
electricity. The electricity is then sold to utilities in a manner
similar to sales of electricity generated by hydroelectric, coal-fired,
and gas-fired power plants.
In the United States, geothermal resources are concentrated in
Alaska, Hawaii, and the western half of the country, primarily on
public lands managed by the Bureau of Land Management (BLM). The
Congress set forth procedures in the Geothermal Steam Act of 1970 for
leasing these public lands, developing the geothermal resources, and
collecting federal royalties. Today, BLM leases these lands and sets
the royalty rate, and the Minerals Management Service (MMS)--another
agency within the Department of the Interior (DOI)--collects the
federal geothermal royalties and disburses to the state governments its
share of these royalties as required by law. In 2005, MMS collected
$12.3 million in geothermal royalties, almost all of which was derived
from the production of electricity.
CURRENT GEOTHERMAL DEVELOPMENT IS LIMITED, AND ESTIMATED POTENTIAL
FOR ADDITIONAL DEVELOPMENT VARIES
Geothermal resources currently account for about 0.3 percent of the
annual electricity produced in the United States, or 2,534 megawatts--
enough electricity to supply 2.5 million homes. Even though the
percentage of electricity generated from geothermal resources is small
nationwide, it is locally important. For example, geothermal resources
provide about 25 percent of Hawaii's electricity, 5 percent of
California's electricity, and 9 percent of northern Nevada's
electricity. As of January 2006, 54 geothermal power plants were
producing electricity, and companies were constructing 6 additional
geothermal power plants in California, Nevada, and Idaho that
collectively will produce another 390 megawatts of electricity. Over
half of the nation's electricity generated from geothermal resources
comes from geothermal resources located on federal lands in The Geysers
Geothermal Field of northern California; in and near the Sierra Nevada
Mountains of eastern California; near the Salton Sea in the southern
California desert; in southwestern Utah; and scattered throughout
Nevada.
Industry and government estimates of the potential for electricity
generation from geothermal resources vary widely, due to differences in
the date by which forecasters believe the electricity will be
generated, the methodology used to make the forecast, assumptions about
electricity prices, and the emphasis placed on different factors that
can affect electricity generation. Estimates published since 1999 by
the Department of Energy, the California Energy Commission, the
Geothermal Energy Association, the Western Governor's Association, and
the Geo-Heat Center at the Oregon Institute of Technology indicate that
the potential for electrical generation from known geothermal resources
over the next 9 to 11 years is from about 3,100 to almost 12,000
megawatts. A more comprehensive and detailed study of electricity
generation from all geothermal resources in the United States was
published in 1978 by the U.S. Geological Survey (USGS). This assessment
estimated that known geothermal resources could generate 23,000
megawatts if all of them were developed. The USGS estimate is greater
because it did not consider how much electricity could be economically
produced, given competing commercial sources of electricity. In
addition, the USGS estimated that undiscovered resources could generate
an additional 72,000 to 127,000 megawatts. In short, geothermal
resources that could generate electricity are potentially significant
but largely untapped.
In 2005, over 2,300 businesses and heating districts in 21 states
used geothermal resources directly for heat and hot water. Nearly all
of these are on private lands. About 85 percent of these users are
employing geothermal resources to heat homes, businesses, and
government buildings. While most users heat one or several buildings,
some users have formally organized heating districts that pipe hot
water from geothermal wells to a central facility that then distributes
it to heat many buildings. The next most plentiful direct use
application is for use by resorts and spas, accounting for over 10
percent of sites. About 244 geothermally heated resorts and spas offer
relaxation and therapeutic treatments to customers in 19 states. Two
percent of geothermal direct use applications consist of heated
greenhouses in which flowers, bedding plants, and trees are grown.
Another two percent of geothermal direct use applications are for
aquaculture operations that heat water for raising aquarium fishes for
pet shops; catfish, tilapia, freshwater shrimp and crayfish for human
consumption; and alligators for leather products and food. Other direct
use geothermal applications include dehydrating vegetables, like onions
and garlic, and melting snow on city streets and sidewalks.
The potential for additional direct use of geothermal resources in
the United States is uncertain due to the geographically widespread
nature of low-temperature geothermal resources and the many different
types of applications. USGS preformed the first national study of low-
temperature geothermal sites in 1982, but this study was not specific
enough to identify individual sites for development. In 2005, the Geo-
Heat Center at the Oregon Institute of Technology identified 404 wells
and springs that might be commercially developed for direct use
applications--sites that had the appropriate temperatures and are
within 5 miles of communities.
Geothermal heat pumps have become a major growth segment of the
geothermal industry. They make use of the earth's warmer temperature in
the winter to heat buildings and use the earth's cooler temperature in
the summer for air conditioning. The Geothermal Heat Pump Consortium
estimated that 1 million units were in operation in all 50 states as of
January 2006. Because geothermal heat pumps are effective where ground
temperatures are between 40 and 70 degrees F, they can be installed in
almost any location in the United States and, therefore, constitute the
most widespread geothermal application and represent the greatest
potential for future development.
GEOTHERMAL DEVELOPMENT FACES MANY CHALLENGES
The development of geothermal resources for electricity production
faces major challenges, including high risk and financial uncertainty,
insufficient transmission capacity, and inadequate technology.
Geothermal groups reported that most attempts to develop geothermal
resources for electricity generation are unsuccessful, that costs to
develop geothermal power plants can surpass $100 million, and that it
can take 3 to 5 years for plants to first produce and sell electricity.
Although some geothermal resources are easy to find because they
produce tell-tale signs such as hot springs, most resources are buried
deep within the earth--at depths sometimes exceeding 10,000 feet--and
finding them often requires an in-depth knowledge of the area's
geology, geophysical surveys, remote sensing techniques, and at least
one test well. The risks and high initial costs associated with
exploring for and developing geothermal resources limit financing.
Moreover, few lenders will finance a geothermal project until a
contract has been signed by a utility or energy marketer to purchase
the anticipated electricity. Geothermal industry officials describe the
process of securing a contract to sell electricity as complicated and
costly. In addition, lack of available transmission creates a
significant impediment to developing geothermal resources for
electricity production. In the West where most geothermal resources are
located, many geothermal resources are far from existing transmission
lines, making the construction of additional lines economically
prohibitive, according to federal, state, and industry officials.
Finally, inadequate technology adds to the high costs and risky nature
of geothermal development. For example, geothermal resources are hot
and corrosive and often located in very hard and fractured rocks that
wear out and corrode drilling equipment and production casing.
Developing geothermal resources for direct use also faces a variety
of business challenges, including obtaining capital, overcoming
specific challenges unique to their industry, securing a competitive
advantage, distant locations, and obtaining water rights. While the
amount of capital to start a direct-use business that relies on
geothermal resources is small compared to the amount of capital
necessary to build a geothermal power plant, this capital can be
substantial relative to the financial assets of the small business
owner or individual, and commercial banks are often reluctant to loan
them money. Challenges that are unique to certain industries include
avoiding diseases in fish farms; combating corrosive waters used in
space heating; and controlling temperature, humidity, and light
according to the specifications of the various plant species grown in
greenhouses. Even when overcoming these unique challenges, successful
operators of direct use businesses may need to secure a competitive
advantage, and some developers have done so by entering specialty
niches, such as selling alligator meat to restaurants and constructing
an ``ice museum'' in Alaska where guests can spend the night with
interior furnishings sculptured from ice. Furthermore, developing
direct uses of geothermal resources is also constrained because
geothermal waters cannot be economically transported over long
distances without a significant loss of heat. Even when these resources
need not be moved, obtaining the necessary state water rights to
geothermal resources can be problematic. In areas of high groundwater
use, the western states generally regulate geothermal water according
to some form of the doctrine of prior appropriations, under which
specific amounts of water may have already been appropriated to prior
users, and additional water may not be available.
Developing geothermal power plants on federal lands faces
additional challenges. Power plant developers state that the process
for approving leases and issuing permits to drill wells and construct
power plants has become excessively bureaucratic. BLM and Forest
Service officials often have to amend or rewrite resource or forest
management plans, which can add up to 3 years to the approval process.
Delays in finalizing the resource and forest management plans and in
conducting other environmental reviews have resulted in backlogs of
lease applications in California and Nevada, particularly when the
public has raised more environmental issues. Geothermal applications,
permits, and environmental reviews are also delayed by a lack of staff
and budgetary resources at the BLM state and field offices that conduct
the necessary work and when BLM must coordinate with the Forest
Service, which manages land in some project areas. In addition,
developers of geothermal resources for both power plants and direct
uses faced a challenging federal royalty system prior to the Energy
Policy Act. While developers of geothermal power plants generally did
not consider the federal royalty system to be a major obstacle in
constructing a geothermal power plant, some described paying royalties
as burdensome and reported expending considerable time and expense on
royalty audits. On the other hand, some developers of geothermal
resources for direct use stated that the federal royalty system was a
major obstacle and no longer economically feasible.
EFFORTS BY FEDERAL, STATE, AND LOCAL GOVERNMENTS TO ADDRESS THE
CHALLENGES OF DEVELOPING GEOTHERMAL RESOURCES SHOW PROMISE
The Energy Policy Act of 2005 includes a variety of provisions
designed to help address the challenges of developing geothermal
resources, including the high risk and financial uncertainty of
developing renewable energy projects and the lack of sufficient
transmission capacity. Provisions within the Act address high risk and
financial uncertainty by providing tax credits and other incentives.
For example, starting on January 1, 2005, the Act extends for 10 years
a tax credit on the production of electricity from geothermal resources
for already existing plants and for any new plants producing by
December 31, 2007. The Act also provides a financial incentive for tax-
exempt entities, such as municipalities and rural electric
cooperatives, by allowing the issuance of clean renewable energy bonds
for the construction of certain renewable energy projects, including
geothermal electricity plants. Investors can purchase the bonds, which
pay back the original principal and also provide a federal tax credit
instead of an interest payment. Another provision in the Act may
decrease the high risk of geothermal exploration by directing the
Secretary of the Interior to update USGS's 1978 Assessment of
Geothermal Resources, which is in need of revision because significant
advancements in technology have occurred since its publication. The Act
addresses transmission challenges by providing the Federal Energy
Regulatory Commission (FERC) with new authorities in permitting
transmission facilities and in developing incentive-based rates for
electricity transmission in interstate commerce. FERC can now approve
new transmission lines in certain instances when a state fails to issue
a permit within 1 year of a company's filing of an application, and
companies that acquire FERC permits for transmission facilities can
acquire rights of way through eminent domain proceedings. In November
2005, FERC initiated the rulemaking process for establishing these
rates.
State governments are also addressing the financial uncertainty of
developing renewable energy projects by creating additional markets for
their electricity through Renewable Portfolio Standards (RPS). An RPS
is a state policy directed at electricity retailers, including
utilities, that either mandates or encourages them to provide a
specific amount of electricity from renewable energy sources, which may
include geothermal resources. To date, 22 states plus the District of
Columbia have RPSs, and three other states have set RPS targets,
although not all states have significant geothermal resources.
Additional state programs also provide tax credits and other financial
incentives for renewable energy development, including electricity
generation from geothermal resources. These incentives include property
tax incentives, sales tax incentives, and business tax credits.
To address technological challenges, the state of California and
the Department of Energy provide financial assistance and grants to the
geothermal industry. California's Geothermal Resources Development
Account competitively awards grants to promote research, development,
demonstration, and commercialization of geothermal resources.
California's Public Interest Energy Research Program also funds awards
for renewable resource projects, including geothermal projects. On the
federal side, the Department of Energy's Geothermal Technologies
Program competitively awards cost-sharing grants to industry for
research and development. In the past, program funds have been used to
pioneer new drill bits, demonstrate the large scale use of low-
temperature geothermal resources to generate electricity, produce new
seismic interpretation methods, commercialize geothermal heat pumps,
develop slimhole (reduced diameter) drilling for exploration, and
produce a strategy for reinjection at The Geysers Geothermal Field. The
program's budget was $23 million in fiscal year 2006. However, the
President's budget contains no funding for fiscal year 2007, and the
House's proposal for fiscal year 2007 is to appropriate a substantially
reduced amount of $5 million. In contrast to these funding decisions,
the Senate Energy and Water Appropriations Subcommittee just recently
approved a budget of $22.5 million for geothermal research and
development. While the future impacts of reduced or eliminated funding
for geothermal technology is uncertain, industry representatives
believe that this funding is necessary to address the near-term need to
expand domestic energy production and the long-term need to find the
breakthroughs in technology that could revolutionize geothermal power
production.
The Energy Policy Act also contains provisions aimed at addressing
the challenges of developing geothermal resources on federal lands.
Specific provisions are aimed at streamlining or simplifying the
federal leasing system, combining prospective federal lands into a
single lease, and improving coordination between DOI and the Department
of Agriculture. The Act also requires the Secretary of the Interior and
the Secretary of Agriculture to enter into a memorandum of
understanding that establishes an administrative procedure for
processing geothermal lease applications and that establishes a 5-year
program for leasing of Forest Service lands and reducing its backlog of
lease applications, as well as establishing a joint data retrieval
system for tracking lease and permit applications. Finally, the Act
also contains provisions that simplify and/or reduce federal geothermal
royalties on resources that generate electricity and on resources put
to direct use. MMS is in the early stages of implementing these
provisions, and hence it is too early to assess their overall
effectiveness.
GEOTHERMAL ROYALTY DISBURSEMENTS WILL CHANGE SIGNIFICANTLY, AND CHANGES
IN ELECTRICITY PRICES COULD ALTER TOTAL ROYALTY COLLECTIONS
A royalty provision of the Energy Policy Act redistributes the
federal royalties collected from geothermal resources--cutting in half
the overall geothermal royalties previously retained by the federal
government. Established by the Geothermal Steam Act of 1970, as
amended, the prior distribution provided that 50 percent of geothermal
royalties be retained by the federal government and the other 50
percent be disbursed to the states in which the federal leases are
located.\2\ While the Energy Policy Act continues to provide that 50
percent of federal geothermal royalties be disbursed to the states in
which the federal leases are located, an additional 25 percent will now
be disbursed to the counties in which the leases are located, leaving
only 25 percent to the federal government. The Act also changes how the
federal government's share of geothermal royalties can be used. Prior
to passage of the Act, 40 percent of the federal government's share was
deposited into the reclamation fund created by the Reclamation Act of
1902, and 10 percent was deposited into the general fund of the
Department of the Treasury. For the first 5 fiscal years after passage
of the Act, the federal government's share is, now to be deposited into
a separate account within the Department of the Treasury that the
Secretary of the Interior can use without further appropriation and
fiscal year limitation to implement both the Geothermal Steam Act and
the Energy Policy Act.
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\2\ 30 U.S.C. Sec. 191(a). The State of Alaska is an exception to
this provision, receiving 90 percent.
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While, for most leases, the Energy Policy Act directs that the
Secretary of the Interior seek to maintain the same level of royalty
revenues as before the Act, our analysis suggests that this will be
difficult because changing electricity prices could significantly
affect the percentage of future royalty revenues collected. Electricity
prices are not possible to predict with certainty, and as discussed
below, changing prices could significantly impact royalty revenues
because electricity sales account for about 99 percent of total
geothermal royalty revenues. The Act contains provisions for each of
three specific types of leases that generate electricity: (1) leases
that currently produce electricity, (2) leases that were issued prior
to passage of the Act and will first produce electricity within 6 years
following the Act's passage, and (3) leases that have not yet been
issued.
For leases that currently produce electricity, future geothermal
royalty revenues will depend on electricity prices. The Act specifies
that the Secretary of the Interior is to seek to collect the same level
of royalties from these leases over the next 10 years as it had before
the Act's passage but under a simpler process. Prior to passage of the
Act, lessees of most geothermal electricity projects paid federal
royalties according to a provision within MMS's geothermal valuation
regulations referred to as the ``netback process.'' To arrive at
royalties due under this process, lessees are to first subtract from
the electricity's gross sales revenue \3\ their expenses for generation
and transmission and then multiply that figure by the royalty rate
specified in the geothermal lease, which is from 10 to 15 percent.\4\
The Act simplifies the process by allowing lessees, within a certain
time period, the option to request a modification to their royalty
terms if they were producing electricity prior to passage of the Act.
This modification allows for royalties to be computed as a smaller
percentage of the gross rather than the net sales revenues from the
electricity so long as this percentage is expected to yield total
royalty payments equal to what would have been received before passage
of the Act. Royalty revenues from a geothermal lease currently
producing electricity will remain the same if the lessee elects not to
convert to the new provision of the Act. On the other hand, if the
lessee converts to the new provision, royalty revenues should remain
about the same only if DOI negotiates with the lessee a future royalty
percentage based on past royalty history and if electricity prices
remain relatively constant. If royalties are based on historic
percentages of gross sales revenues and electricity prices increase,
however, royalty revenues will actually decrease relative to what the
federal government would have collected prior to passage of the Act.
The federal government will receive less revenue under this situation
because expenses for generation and transmission do not increase when
electricity prices increase, and the higher royalty rate specified in
the lease is not applied to the increase in sales revenues.
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\3\ The valuation regulations 30 C.F.R. Sec. 206.352(c)(1)(ii)
actually call for using gross proceeds, not sales revenue, in this
calculation. The Energy Policy Act also refers to the term gross
proceeds. Gross proceeds are all financial compensation accruing to the
lessee from the sales of electricity. Since sales revenues are
generally the largest component of gross proceeds, we use the two terms
synonymously in this report for simplicity.
\4\ Deductions are estimates that are to be recalculated at the
beginning of each year. Prior year's deductions are to be adjusted
based on actual costs during that year.
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For the second type of lease--leases that were issued before the
Act and that will first produce electricity within 6 years after the
Act's passage--royalty revenues are likely to drop somewhat because
lessees are likely to take advantage of an incentive within the Act.
The Act allows for a 50 percent decrease in royalties for the first 4
years of production so long as the lessee continues to use the netback
process.\5\ Because of the substantial reduction in royalties, it is
likely that lessees owning leases issued before passage of the Act will
elect to pay only 50 percent of the royalties due on new production for
the 4-year period allowed by the Act. This incentive also applies to
sales revenues from the expansion of a geothermal electricity plant, so
long as the expansion exceeds 10 percent of the plant's original
production capacity. Owners of geothermal electricity plants currently
paying royalties under the netback process may elect to take the
production incentive for new plant expansions if they perceive that the
royalty reduction is worth the additional effort and expense in
calculating payments under the netback process and worth the
possibility of being audited.
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\5\ Pub. L. No. 109-58 Sec. 224 (2005).
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It is difficult to predict exactly how royalty revenue from the
third type of lease--leases that have not yet been issued--will change,
but it appears that revenue impacts are likely to be minor, based on
our review of historic royalty data. The Act specifies that the
Secretary of the Interior should seek to collect the same level of
royalty revenues over a 10-year period as before passage of the Act.
The Act also simplifies the calculation of royalty payments by
providing that, for future leases, royalties on electricity produced
from federal geothermal resources should be not less than 1 percent and
not greater than 2.5 percent of the sales revenue from the electricity
generated in the first 10 years of production. After 10 years,
royalties should be not less than 2 percent and not greater than 5
percent of the sales revenue from the electricity. Our analysis of data
for seven geothermal projects showed that lessees were paying a wide
range of percentages after 10 years of production--from 0.2 to 6.3
percent. Three of the seven projects paid under the minimum 2 percent
royalty rate prescribed in the Act, suggesting that some projects in
the future could pay more under the Act's new provisions than they
would otherwise have paid. On the other hand, one project paid greater
than the maximum 5 percent prescribed in the Act, suggesting that it is
possible for a plant to pay less in the future than it would otherwise
have paid. However, neither the amount that the one plant would have
overpaid nor the amounts that the three plants would have underpaid are
significant.
Even though provisions of the Energy Policy Act may decrease
royalties on direct use applications, the impact of these provisions is
likely to be small because total royalty collections from direct use
applications are minimal. In fiscal years 2000 through 2004, MMS
reported collecting annually about $79,000 from two direct use
projects, or less than 1 percent of total geothermal royalties. While a
provision of the Act may encourage the use of federal geothermal
resources for direct use by lowering the federal royalty rate, we
believe based on challenges facing developers that it is unlikely that
this royalty incentive alone will stimulate substantial new revenues to
compensate for the loss in revenue due to the lower royalty rate. We
believe that in order to substantially increase the development of
federal direct use applications, developers must overcome the
relatively high capital costs for investors, unique business
challenges, and water rights issues.
Finally, MMS does not routinely collect data from the sales of
electricity that are necessary to demonstrate that MMS is seeking to
maintain the same level of royalty collections from geothermal
resources, as directed by the Energy Policy Act. For most geothermal
leases, MMS will need to calculate the percentage of gross sales
revenues that lessees will pay in future royalties from electricity
sales and compare this to what lessees would have paid prior to the
Act. However, MMS does not routinely collect these data. Accordingly,
we are recommending that the Secretary of the Interior instruct the
appropriate managers within MMS to collect from royalty payors the
gross sales revenues from the electricity they sell. MMS has agreed to
do so.
CONCLUSIONS
The Energy Policy Act of 2005 addresses a wide variety of
challenges facing developers of geothermal resources. The Act
incorporates many of the lessons learned by state governments and
federal agencies in an attempt to provide financial incentives for
further development and make federal processes more efficient. However,
the Act was only recently adopted, and insufficient time has passed to
assess its effectiveness. Several of the Act's major provisions will be
left to the federal agencies within DOI for implementation, and the
drafting and public comment period for regulations that implement these
provisions will not occur overnight. Agencies will also need to spend
considerable time and effort in working out the details for
implementation and securing the necessary budgets. Hence, the fate of a
significant portion of our nation's geothermal resources depends on the
actions of these federal agencies.
Mr. Chairman, this concludes my prepared statement. I would be
pleased to respond to any questions that you or other Members of the
Committee may have at this time.
CONTACT AND ACKNOWLEDGEMENTS
For further information about this testimony, please contact me,
Jim Wells, at 202-512-3841 or wellsj@gao.gov. Contributors to this
testimony include Ron Belak, John Delicath, Dan Haas, Randy Jones,
Frank Rusco, Anne Stevens, and Barbara Timmerman.
Senator Craig. Jim, thank you very much.
Let me turn to our panel, then, for questions. And I'll
start the round.
Lynn, in your testimony, you discussed new rulemaking to
address geothermal changes made by the energy bill. How long
before BLM issues a proposed rulemaking?
Ms. Scarlett. We went out with the proposed rule today, for
both the Minerals Management Service and Bureau of Land
Management, on that proposed rulemaking.
Senator Craig. Excellent.
Ms. Scarlett. Yes.
Senator Craig. When might you expect to see final rules?
Ms. Scarlett. Well, we would have to go through the normal
comment period, and so forth, but I would hope towards the end
of the year.
Senator Craig. OK.
I understand that the Fish and Wildlife Service issued
guidelines on how wind turbines can avoid wildlife impacts.
Apparently, these guidelines were developed, I am told, without
public involvement, and have been widely criticized by both
industry and the environmental community. Why has the Fish and
Wildlife Service not involved affected stakeholders in their
process? And does the Department plan on developing new,
revised guidelines for wind power?
Ms. Scarlett. Yes, Senator, the interim guidelines that
were issued were issued several years ago, when we were wanting
to get something out as voluntary guidance only--they were
voluntary--but to get something out so that folks could have,
kind of, a benchmark as they worked on wind projects as it
related to protection of birds and so forth. We did get
criticism on those guidelines, although I want to underscore
they were voluntary. We committed to a collaborative process.
We are working to develop that process. Initially, we hoped
to move forward right away, but we find that we face some
Federal advisory committee constraints. And so, we have to
figure out whether we have to go a FACA route or some other
collaborative process. And that's what we have under discussion
right now.
Senator Craig. How long before you expect this process to
commence?
Ms. Scarlett. We would hope as soon as we could work out
the legal details on the mechanism. Obviously, if it's a FACA,
it takes longer. We're hoping that we can find some other
mechanism so that we can engage in some kind of dialogue and
get the underway quickly. Dale Hall, the head of the Fish and
Wildlife Service, is actively involved in making that happen.
Senator Craig. Well, we hope it will be sooner rather than
later, but I also hope that we can, in that process, make it as
public and transparent as possible. All stakeholders ought to
be involved in this.
Sally, you mentioned the Forest Service's 65 pending
geothermal lease applications that the agency must concur on.
When will you have those leases issued?
Ms. Collins. Our largest barrier in getting our backlog of
geothermal lease applications completed is forest planning
processes. We have forest plans that are not up to date
relative to geothermal development. So, that's why we put
together the 5-year schedule, to look at what it--what it's
going to take to get those forest plans online. And it really
varies, depending on the forest plan and the forest we're
talking about, the schedule that those are on.
Senator Craig. You're suggesting you won't do anything
until a plan comes up for renewal and----
Ms. Collins. We can amend a forest plan in the interim. And
that is possible. And one of the things that they are looking
at, on a case-by-case, forest-by-forest basis, is how to
complete that NEPA analysis--again, in conjunction with BLM
looking at their priorities.
One of the things that we've found--and BLM has found, in
going back to many of these old lease applications--is that
they are--they've gone back to the applicants and said, ``Do
you still want to keep these leases?'' And a number of them
have relinquished the lease applications. And so, a lot of it
is just updating these, because some of them are very old. And
there was not an interest in continuing on with that
development.
Senator Craig. Well, I'm glad that process is diligent and
well underway, because, you know, those leases that might have
occurred in the 1970's, or even in the 1960's or in the 1980's,
technologies are changing, and, therefore, some geologies would
yield where others may not. And I hope you're looking at it on
that kind of a sensitive basis instead of just the normal plan
rotation. If that's the case, some of these may have valuable
geologic resources, in the sense of geothermal, but they may be
5 years out.
Ms. Collins. You know, you're absolutely right, we need to
bringing in the new information. One of the reasons why we're
very excited about the USGS data and this mapping project is
that we'll have a better feel for where the resources are and
where we need to prioritize that work to get those projects
moving forward.
Senator Craig. You mentioned the formation of an ad hoc
wind energy guidance team. Why is the agency developing its own
guidelines for wind power, when the BLM just completed an
exhaustive process on the very subject? Or should I say, Are
you collaborating and working together? And, if you aren't, why
aren't you?
Ms. Collins. We actually have used a lot of the best
management practices that came out of that process that BLM
just completed as part of these guidelines that we're
developing that this team is looking at. So, yes, we are
collaborating quite closely, we're using that information as we
develop our guidelines. But, remember, we only have two
applications. BLM has 22 existing facilities. We have a lot to
learn from them; and yet, we do have our own procedures that we
need to go through in order to get those permits completed. We
have the authorities now to do it. We just need better
guidelines to expedite the process in the future.
Senator Craig. It's also my understanding that the Forest
Service is not involving affected stakeholders in their
process. If that's true, why is it?
Ms. Collins. I would disagree with that, because I think
that as we go through--as this group is going through the
process of developing these procedures, they're working very
closely and informally with a number of entities, including the
industry. Actually, they're on their way to Florida, in the
next couple of weeks, to visit one of the wind energy
facilities there. They've been trying to understand the
perspective of the developer as we develop these guidelines.
And so, I would say we are. And by fall we expect to have a
policy out so that we'll have something for people to look at.
But at this point in time, we feel like the informal
process of working with the industry is working quite well.
Senator Craig. Thank you.
Senator Bingaman.
Senator Bingaman. Well, thank you all very much.
Let me ask about one issue that we've heard about, some in
this committee, and also in the Finance Committee. We put in
place these provisions that intend to stimulate these renewable
energy projects on Federal land. We also put in place
production tax credits for renewable energy. The production tax
credits are going to expire at the end of 2007. And much of the
other preparation for doing projects on Federal land is sort of
still in the works. Do we have a real danger here, if we let
those production tax credits expire at the end of 2007, that we
will have had such a narrow window of opportunity that we're
not going to really have a lot of renewable energy projects
brought into service on Federal land. Is that a real concern?
Does anybody have that concern? Secretary Scarlett, did you
have any----
Ms. Scarlett. I think, in the later testimony by those in
industry, they may have some additional thoughts, but let me
offer a couple of thoughts.
We have seen an explosion in investment in renewable energy
on public lands, whether it be geothermal, or wind, in
particular, as well as, now, some biomass. Those are driven by
multiple factors. Certainly, the acts of Congress and those
incentives are a part of that, but I would also say that, with
the continued high prices of fossil fuels, these particular
energy sources are also more competitive than they might have
been in the past; and, therefore, I would imagine that some of
that investment will continue. But the specific effect of those
tax benefits, I think, I'd look forward to hearing the hearing
the industry views on that.
Senator Bingaman. Ms. Collins, did you have a view?
Ms. Collins. Well, the only thing I can say is, the GAO
report, I think, addressed that quite well, and projecting that
we would look at--a couple-of-year extension would help that
situation, but, because I don't really deal with the royalty
side of the issue, or the tax credit side of the issue, you
know, I think I would defer to GAO on that.
Mr. Wells. Senator, clearly that was raised by the industry
as a concern or a challenge that needed to be addressed, and
perhaps changed. We have seen statistics and evidence that many
of these leases could be 2 to 3 years in process before they're
actually approved. So, you are correct in assuming that for
some activity the tax credit will expire in 2007 before a final
decision can be made; therefore, that industry recipient would
not benefit from that incentive.
Senator Bingaman. Yes, my understanding is that the way we
wrote the tax credits, you've got to have your facility in
service by the end of 2007 in order to get the advantage of the
tax credit. Is that your understanding?
Mr. Wells. That is correct.
Senator Bingaman. OK. Secretary Scarlett, let me ask
about--one of the GAO findings, as I understanding it, is that
40 percent of Minerals Management Service geothermal royalty
data reviewed by the GAO was erroneous or missing. Did you have
any comments on that and whether that is a problem that is
getting fixed?
Ms. Scarlett. Yes, Senator. We thank the GAO for its
report, and we did concur with them that we had some challenges
with respect to that data. However, the new rules--one of the
issues that they pointed to was the lack of information on
gross electricity sales--the new rules that we are proposing
through MMS on royalties actually peg the fees to, in fact, the
gross electricity sales. So, we will now be gathering those
data on a routine basis, and that will, I think, significantly
help and address some of the issues that they raised.
In addition, though, as a result of that report, we are
enhancing our auditing and our efforts at data collection.
Senator Bingaman. Let me ask Mr. Wells. Again, you refer, I
believe, to the renewable portfolio standards that have been
adopted in various States as one of the factors stimulating
some of this development. Did you have any additional comments
on any of that as to how big a factor that was?
Mr. Wells. Clearly, we put it in the report, Senator,
because the evidence shows us that the proliferation of these
energy--renewable portfolio standards, at least in 22 States
and the District of Columbia, has, in fact, caused utilities to
start looking for additional sources of energy that they had
not been getting. And some of those inquires are going to
geothermal projects. So, the evidence is suggesting that these
renewable mandates are, in fact, causing increased interest in
supply issues.
I will say, from a Federal perspective, EPAct 2005 did have
provisions, that are in the process of being implemented, to
address new, increased requirements for the Federal sector,
including Federal buildings. To increase the amount of
renewable energy that they use in Federal buildings to 3
percent initially and to go as high as 7\1/2\ percent, the
energy consumed in Federal buildings is mandated to be
renewable-type energy. So, all evidence suggests that that is a
positive influence on increasing usage of renewables.
Senator Bingaman. One other issue, Mr. Wells, that you
refer to here is the importance of the technical challenges
involved with geothermal development and the role the Federal
Government can play there. Did you get into the question of
funding levels? I notice the Department of Energy, the way I
read their budget proposal to us this year, was for zero
funding for geothermal technology research and development. Did
you look into that? Am I accurate in my reading of that?
Mr. Wells. We are aware, and it is an accurate statement,
that the administration did zero out that program, and we've
been monitoring the results of the Congress, and--and just
within the last week, have indicated their willingness to put
back at least 99 percent of that funding because of its
importance to the industry.
Senator Bingaman. OK.
Mr. Wells. We do not know what the administration's
motivation was for zeroing out the program.
Senator Bingaman. Okay. I'll stop with that, Mr. Chairman.
Senator Craig. Thank you very much, Jeff.
Now let me turn to Senator Thomas.
Senator Thomas. Thank you, Mr. Chairman.
Ms. Scarlett, where does the process for geothermal leases
differ from those needed for gas and oil development?
Ms. Scarlett. Well, we're in a period of transition. Let me
say that first. In the past, with geothermal uses, there--or
leases--there were designated geothermal areas, and we had
noncompetitive leasing in many instances. There was also what
we called direct leases--that is, not for--geothermal for
commercial sale, but, rather, for direct use.
The new rules that we are promulgating and that we sent to
the Federal Register today changed that leasing process, per
the direction of the Energy Policy Act, and essentially migrate
the process to a competitive process, although there are
provisions for noncompetitive. If no one bids on specific
tracts, there is a provision for noncompetitive leasing. But
that would be the primary difference between the traditional
oil and gas leasing and the geothermal, as it has been
practiced in the past.
Senator Thomas. But there are, I presume, some criteria
with respect to the use of the land and the impact on the land.
Ms. Scarlett. Absolutely. In terms of the energy/land
interface, whether it be wind, whether it be geothermal or
otherwise, we, of course, abide by, and take very seriously,
our responsibilities under the Endangered Species Act, under
the National Environmental Policy Act, to look at environmental
impacts and alternatives for reducing those impacts. So, in
that regard, that would be the same.
Senator Thomas. I see.
I guess this is tough to answer, but what do you see as the
potential here? We're now producing, totally, about 1 percent
of our energy out of wind. Do you see this as becoming a
significant--obviously, we all want to work at whatever is
available, but in terms of really dealing with the total, in
the end, what do you see happening?
Ms. Scarlett. Well, I'm going to defer to the experts on
that, but my understanding is that right now the utilization
of--or, excuse me, the production of the composite of
renewables is the fastest-growing energy sector, something like
a 60-percent growth just in recent years----
Senator Thomas. But it's still less than 6 percent----
Ms. Scarlett. Exactly. I think the projections that I have
read are, by about 2025 or 2030, it could represent 10 percent
of production and about 7 percent of consumption, actually.
Senator Thomas. That's not hydro.
Ms. Scarlett. So, it's still very small.
Senator Thomas. That doesn't include hydro, then.
Ms. Scarlett. That does not include hydro.
Senator Thomas. OK.
Ms. Collins, the Forest Service has a little different
criteria for the development on your lands. Is that right?
Ms. Collins. Well----
Senator Thomas. Some of them, at least.
Ms. Collins. We have some different processes and
procedures we go through, but, on geothermal development, we
work together on the recommendation to lease, and we work
together on the recommendation for how to develop that
geothermal project on the ground.
And let me just add a little bit to Lynn's answer on your
previous question. The biggest difference that we've seen
between oil and gas, for example, that you have a lot of in
Wyoming, and geothermal development is that you need a lot more
transmission facilities, because you've got to have the
infrastructure close to the heat source, because geothermal is
geothermal, it's not as easy to pipe, for example, as oil or
gas. So, you do see a different kind of infrastructure around
geothermal than you do around oil and gas.
Senator Thomas. That's true. And bio thing, what potential
do you see there, in terms of----
Ms. Collins. For biofuels?
Senator Thomas. Yes.
Ms. Collins. I actually think biofuels has huge potential.
And I think biofuels--I can't say what percentage potential it
has, but, when you look at--I think somebody has projected, in
the billion-ton report, that 30 percent of the gasoline we use
to run cars could be run on an ethanol from biomass--a portion
of which would be biofuels from woody----
Senator Thomas. The extraction of the timber comes off the
forests, but the conversion to gas is not normally done in the
forest. Isn't that right?
Ms. Collins. Right, that would be true.
Senator Thomas. OK.
Ms. Collins. That would be true.
Senator Thomas. Now--of course, there's still impact from
those. And you have highways involved, and all those kinds of
things, so you have to----
Ms. Collins. Well, you'd have to--you'd have to, of course,
process the biofuel someplace, and then transport them like you
would with gasoline.
Senator Thomas. OK. Mr. Wells, you mentioned charges based
on--like on wind. What are the charges based on?
Mr. Wells. The charges for geothermal, for instance, is--
the program we looked at--is based on gross revenues. In the
past, before EPAct, it was based on gross revenues minus
expenses, and then a certain percentage, anywhere between 10
and 15 percent of that amount, was paid in royalties. And that
was the cost of using the Federal resource. Under EPAct, there
was the proposed rulemaking that's underway, that will be
completed, hopefully, by the end of the year, and will provide
a new royalty fee structure, which will deal with simplifying a
process where you just take the gross receipts from the sale of
electricity from the geothermal resource. And a smaller
percentage will be applied to that amount--in the range of 1 to
5 to 6 percent of that will be charged as a fee for the using
of the Federal resource. This will eliminate some of the
netbacking and the expense calculations that were always
controversially involving a lot of audits. So, its schedule is
based on a certain percentage based on gross sales.
Senator Thomas. I see. So, it's not on the lease of the
land, but it's on revenue.
Mr. Wells. It's on revenue, in terms of the fee, once it's
produced--once the drilling is done and the production occurs.
Senator Thomas. What about wind?
Mr. Wells. Prior to that, it's a----
Senator Thomas. What about wind energy? There's not
drilling there.
Mr. Wells. Anybody want to talk to the fee structure for
wind?
Ms. Scarlett. My understanding is that the fee structure
for wind is a royalty based on percentage of the gross
electricity sales.
Senator Thomas. They said, somewhere in here, the 10-year
projection is 10,000 megawatts. Does that sound reasonable to
any of you?
Ms. Scarlett. In--are you talking--any particular----
Senator Thomas. Renewables, nonhydric-hydrogen--or water
minerals.
Ms. Scarlett. Well, I'd have to tally that up. I know we
have, for wind alone, a projection of--potential right-of-way
authorizations for 3200 megawatts. We have two solar projects
right-of-way applications that would be about 1700. So, I guess
we could tally that up, and we might come to that 10,000, or
close to it.
Mr. Wells. We can give you the calculation for geothermal,
in terms of 2500 megawatts today, and the estimates are
anywhere from 25 percent to 400-percent potential increase in
10 or 11 years. We're cautiously optimistic that the industry
can step to the plate and expand and gain market share.
However, the verdict is still out, in terms of whether they can
achieve those types of numbers. I can give you a comparison. We
mention, in our report, existing geothermal production provides
2.5 million homes with the capacity to run. And wind, we
understand, today, was around the neighborhood of 400,000
homes. So, there's a little comparison of what you're actually
getting from wind with geothermal today.
Senator Thomas. One of the real problems, particularly with
wind, is the transmission idea. You've got relatively small--
over time, we're going to have to start getting a little more
efficiency out of those. There's not a lot of production out of
a wind machine, and you have to get some transmission out of
there. And so----
Mr. Wells. It's also an intermittent source. Sometimes the
wind blows, and sometimes it doesn't. Geothermal is running 24/
7.
Senator Thomas. Come to Wyoming; it blows most of the time.
[Laughter.]
Senator Thomas. Thank you.
Senator Craig. Craig, thank you.
About Wyoming and wind, I'll leave that one alone. We have
our share, but it's not as strong.
Senator Thomas. No, it's the State, not the Senator.
Senator Craig. Oh, I see.
[Laughter.]
Senator Craig. All right. There is no wind on the slopes of
the Rockies. That's not true.
Let me turn to Senator Salazar for any opening comment and
questions he would like to make at this time.
Senator Salazar. Thank you. Thank you very much, Senator
Craig.
Let me ask Ms. Collins a question concerning biomass and
what's happening with respect to the bark beetle problem and
the huge infestations that we see throughout the West.
I know this is very much the case also in Senator Craig's
State, in Idaho, and, I think, an issue affecting Oregon, also
affecting Wyoming. But in my State, when I look at Colorado and
I look at the Western Slope, I would say that 75 percent of all
our mountain areas, which is most of the western half of the
State, is owned by the Federal Government, owned by the Forest
Service. And on those lands, about 1\1/2\ million acres, as I
understand it, are acres which have been infested by the bark
beetle. So, you see great swaths of Forest Service lands that
essentially are brown and have become a tinderbox and create a
huge fire hazard for Colorado.
My question to you is, What opportunity do we have with
respect to using those fuels for biomass energy kinds of
projects? And what is it that the Forest Service is doing to
try to encourage those kinds of projects from taking place?
Ms. Collins. Well, you're absolutely right that you can
almost blink and you've got 1,000 more acres dead in the
central Rockies, Colorado high country. And we are doing a lot.
Part of the problem right now is infrastructure. We don't have
the traditional mills in Colorado--just a couple of them that
actually can process materials. So, biomass really is the hope
we have for the future, in terms of thinning those stands and
protecting those communities.
That is one of our objectives, and that's one of the
reasons why we've spent a lot of time working with grants to
communities to look at that woody biomass projects. And we've
done that throughout the West over the last 5 years. We've also
done a lot of research on woody biomass, and given some grants
out through our Forest Products Lab to try to reduce the cost
of these kind of forest-health treatments and convert those
into woody biomass energy.
But it's just a drop in the bucket. There is so much more
that can be done. And we get groups, from Colorado, in
particular, coming in here to meet with us, and they're just
very concerned about the safety of their communities and
wanting to do something to save these lands. And I think,
collectively, there's a lot of energy to do that; we just need
to get our resources together to do that.
Senator Craig. Ken, could I interrupt to ask a technical
question? How long is a bug-killed tree of value to the biomass
community? Do you know that, Sally?
Ms. Collins. I do not know, and I--it's probably dependent
on the species, and it's probably--you know, dependent on a lot
of things like that the size of the tree. But we know that
lodgepole--a lot of those lodgepole pine that are up there in
the central area north of, you know, Dillon and that area,
those are mostly lodgepole, and they're probably not good for
10 years after they die.
Senator Salazar. Sally, let me following up on--I think
both Senator Craig and--many of us are going to have an ongoing
concern about this issue. And what really is troubling to me is
that we don't seem to have a strategic plan on how we deal with
this huge problem that we see across the West. Someone tells me
that somewhere between 75 and 90 percent of all those great
forests in Colorado are going to be infected by the bark beetle
within the next 5 to 10 years, and that one way of trying to
address a part of the problem is to use that timber as part of
our biomass renewable energy efforts in Colorado. And yet, I
don't see how it is that we can get that done. And so, I guess
my question to you is, Do we recognize the problem?
Ms. Collins. Yes.
Senator Salazar. We know that the communities out there are
very concerned about it. So, you, as one of our leaders of our
U.S. Forest Service, what would you say is our strategic plan
for addressing the biomass opportunity that we have in these
bark-beetle-infested acreages?
Ms. Collins. Well, I think we need to look to partnerships
like the one that Lynn talked about in Oregon, where the tribes
have come together with industry and with BLM and the Forest
Service to put together a small--and the communities--to put
together a 15-megawatt biomass powerplant. Communities can come
together. And I think what we've done in Oregon and other
places is show, with a sort of proof of concept, that this is
economical, that it pays, over time, to do this. And so, what
we've got to do--and the--probably the most important thing the
Federal Government can do is assure a levelized supply of
product to an investor. And one of the things that we've been
finding is that we haven't necessarily been coordinating as
well as we can across agency boundaries and ownership
boundaries, working with private landowners within a geographic
area, say 100-mile radius of a potential facility. If we can
provide a levelized supply over 10 years, an investor is going
to want to come in and spend some money on a biomass plant. But
they're not going to want to, unless they can be assured of a
supply.
We've got about five or six projects around the country
that are looking at levelized supply so that we can make sure,
in drawing these sort of--like we used to do in the timber
program, with quality circles for looking at infrastructure in
mills--we're doing the same with biomass as a way to draw
investment into an area. So, I--probably, that's the most
important thing we can do.
Senator Salazar. You know, it would be useful to me, and
perhaps other members of the committee that are interested in
this biomass opportunity, to have examples of where those
partnerships have, in fact, been put together, as communities
contact us about what they can do, we can say, ``Well, in
Oregon, they were able to put together this kind of program.''
So, I----
Ms. Collins. That would be good.
Senator Salazar. In fact, I would ask you, Ms. Collins, if
you could provide that information to us so that we can share
it with some of our communities.
Senator Allard and I, by the way, have most of those
communities from Colorado coming in to see us, I think, in 2
days, and it's going to be important for us to be able to show
them what's happening in other parts of the country.
Just one final question. Last year, when this committee,
when this Congress, passed the Energy Policy Act, we created a
program for grants to improve the commercial value of forest
biomass. And I know that one of the big problems the local
communities face is finding money to be able to move forward
with these biomass projects. The President zeroed out any money
at all, even though there was a $60 million authorization for
that. There are a number of us on this committee, including
Senator Bingaman, Senator Craig, and Senator Gordon and others,
who have written to our appropriators saying we would like to
put some more money into this program to address the issue. And
I hope--and we're hopeful that there will be some money set
aside for that grant program.
But let me tell you that, from my perspective, we need to
have those kinds of resources if we're going to make some
honest, realistic headway with respect to this biomass
opportunity.
Ms. Collins. Appreciate that comment. Thank you.
Senator Salazar. Thank you, Mr. Chairman.
Senator Craig. Senator Salazar, thank you very much.
Now let me turn to my colleague from Oregon, Gordon Smith.
Senator Smith. Thank you, Mr. Chairman. Thank you for this
hearing.
I understand, Mr. Wells, that the Bureau of Land Management
has yet to promulgate rules for new geothermal leasing
processes established under the act. It's a year gone by now,
and I wonder if you have any updates you want to give us on
that.
Mr. Wells. We understand----
Ms. Scarlett. We issued them today.
Senator Smith. You did?
Ms. Scarlett. Yes.
Senator Craig. See what the onslaught of a hearing brings?
[Laughter.]
Senator Smith. That's great.
Senator Craig. I won't let Lynn off quite that easily.
Ms. Scarlett. Or, I should clarify, we sent them to the
Federal Register today.
Senator Craig. All right.
Mr. Wells. It also agreed with our recommendation in our
report, so it's been a good day for both of us today.
Senator Smith. Oh, that's great. It moots my question. But
I--obviously, I hope it is going to move forward now, because
there are geothermal resources in the State of Oregon, and I
think there is potential development there that will be of
great advantage to the country and to my State.
Lynn Scarlett, I understand that the U.S. Geologic Service
is updating the assessment of geothermal resources. Is this
going to include resources that are on lands with protected
designations?
Ms. Scarlett. Senator, I will have to look into what the
scope of the lands are. They're doing it in phases, and I know
it's a 3-year process. But whether they're excluding certain
lands or not, I'd have to get that detail for you.
Senator Smith. Yes, I'd like to know that, and what are the
percentage of resources on such restricted lands? I'd like to
know, and I think it's important.
Sally Collins, I'm interested in making more biomass
available. And I know, obviously, the Forest Service has
treatments for burning and for mechanical thinning. What is the
Forest Service's mix between mechanical and controlled burn?
And what does that impact have, potentially, on creating
biomass?
Ms. Collins. Well, whenever we can capture value off any
acre of land, as opposed to using burning, prescribed burning,
we will capture that value. And that's why I say 50 percent of
the acres that we've treated mechanically, so far this year--
and there have been about a half a million acres--we've
captured value off of those lands. So, you know, I would say
that when we can, that's exactly what we do, because it offsets
the costs of having to--and wanting to--do fuels treatment.
Senator Smith. And obviously there's a value,
environmentally, to burn as well, in a controlled fashion,
anyway.
Ms. Collins. Right.
Senator Smith. But I'm just curious as to what the
percentage is. And is there a policy that emphasizes producing
biomass?
Ms. Collins. I'll have to get you the precise percentage. I
can actually get you that fairly quickly, but in terms of a
policy, I would say, in general, what we do try to do--if there
is value on that land, it's always better to thin it--almost
always better to thin it and prescribe-burn later, because so
many of these stands are so dense.
Senator Smith. But they're not exclusive activities.
Ms. Collins. Yeah.
Ms. Scarlett. Senator, if I might just add for the
Department of the Interior, we have a definite policy of trying
to increase the amount of mechanical treatment relative to
prescribed burn, part of that is reflected in the significant
increases towards wildland/urban interface treatments, the
majority of which are mechanical. And then, within that policy,
we project, for 2008, a requirement of 50 percent of all
mechanical treatment projects having biomass components. So,
it's a very deliberate effort.
Senator Smith. And you've got a lot of takers in the
marketplace wanting to receive the material, I'm sure.
Ms. Scarlett. We have some of the get-the-material-to-
marketplace challenges that have been discussed here, but
increasingly we have a--we have a biomass--a woody biomass
utilization group that is working on both products and energy
utilization to try and stimulate that demand.
Senator Smith. Very good.
I want to commend the Forest Service for establishing a
wind energy guidance team. I think that that's important. But I
understand, from one of our witnesses, Chris Taylor, that no
representatives from stakeholders--not the wind industry, the
power sector, consumers, and environmentalists--are not being
consulted. Is that the case? And if that's the case, is there
some problem with including their input in----
Ms. Collins. Because we're in this informal process of
building this policy that we intend to have in the Federal
Register by the fall, we are talking to a whole lot of people,
not through a formal structured process, but through a much
more informal process. That team has been to a number of wind
energy facilities and looked at them to try to understand what
an industry goes through to put a facility together. So, I
would say they're doing their best to try to get that
perspective in the process. And there'll be opportunities for
people to get involved later on, as well.
Senator Smith. So, if my constituent, Chris Taylor, from
Oregon, who's here--and I'm grateful for his presence--if he's
not been consulted, he can be, and will be, I guess.
Ms. Collins. I'm sure that he could give a call to the
team, and they'd be happy to talk to him.
Senator Smith. Well, as long as there's not some----
Ms. Collins. Or they could call him.
Senator Smith [continuing]. Inherent conflict of interest--
I mean, it does seem to me that, to develop these guidelines
best, including not just industry folks, but all of the
stakeholders, including the environmentalists, is of value.
Ms. Collins. Let me just add one thing about that, because
the BLM did go through a pretty extensive process of developing
an EIS, a programmatic EIS, and, in that process, developed
best management practices, which we are really incorporating in
our guidelines. So, a lot of that input that they received is
being reflected in these guidelines we're developing.
Senator Smith. Very good.
Thank you, Mr. Chairman.
Senator Craig. Gordon, thank you very much.
Now let me turn to Senator Lisa Murkowski.
Lisa.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman. I appreciate
you holding this hearing this afternoon. I think it is
important that we be really looking to those areas,
particularly on our public lands, where we can make a
difference when it comes to renewable energy sources.
This hearing is particularly important to my State of
Alaska. We have--we are so typically viewed as the production
State for oil and gas and coal and the like, but the reality
is, is our renewable potential is enormous, with the wind and
with the ocean energy, and certainly with the geothermal.
We've got a gentleman who will be with us on the second
panel, Mr. Bernie Karl, from an area outside of Fairbanks,
Alaska, who owns the Chena Hot Springs Resort. He's going to be
speaking to the promise of the lower-temperature geothermal,
which we look at as, quite honestly, very, very exciting, and
are pleased that we're pioneering this in the State. They're
installing a geothermal powerplant that will convert the
geothermal water as low as 165 degrees Fahrenheit into
electricity. And what this means to us in Alaska is absolutely
enormous. They are hopeful that they're going to see power
generated at about 5 to 7 cents per kilowatt hour, and, in many
of our villages out there, we're looking at 40 to 50 cents per
kilowatt hour in villages that right now are being run off
diesel. So, if we can make this happen, again, the potential is
enormous. And when I asked, they said, ``Well, in Alaska, where
we are a land that is sitting on top of volcano after volcano
after volcano.'' What's our potential here? And we've got areas
where I understand we've got high-heated water flows under
about 70 to 80 percent of the State, sometimes at depths of
less than 1,000 meters. So, the potential there, whether it's
up at Chena Hot Springs in the interior, or out near Katmai
National Park. The Chugach Electric Association is looking at
the potential for the south-central area. We've got a volcano,
an active volcano, Mount Spur, 15 miles from our major
transmission areas. We've got Makushin Volcano near Unalaska.
So, our opportunity out there is enormous.
And I was more than just a little bit concerned to read
that the administration was proposing to zero out the funding
for the DOE's Office of Geothermal Energy, but I'm pleased, as
I think all of you are, that we're seeing a restoration of that
money.
So, for us, the geothermal is just so promising. So, I'm
pleased that we're able to focus a little bit more attention on
it this afternoon.
Secretary Scarlett, I wanted to ask you a question not
related to geothermal. You didn't mention anything in your
written statement--and I apologize, I wasn't here for your oral
testimony--but in your written statement, you didn't refer to
any opportunities for hydropower. And small hydro, as you know,
in the State of Alaska, offers enormous opportunities for us.
And for us it's going to require Interior to lease certain
sites and to actually utilize some of that power that's
produced. And I know that you're familiar with the area just
near Glacier Bay National Park, where we've got power for the
park that's currently being generated by diesel. So, you've got
a beautiful park, and we're keeping it running off of diesel,
but we've got an opportunity, with the Falls Creek small hydro
project, to power that area through the use of the small hydro,
but we're going to need--we're going to need the park to
utilize that. Can you speak a little bit as to what the
National Park Service can do, what the Department can do, to
move towards utilization of more small hydro? I notice, in your
written testimony, you speak to those specific projects on DOE
lands--DOI lands--where you are utilizing renewables, and it's
good to look to those examples, but can you speak a little bit
about the small hydro, as well?
Ms. Scarlett. Yes, thank you, Senator.
Let me speak generally, and then specifically to the small
hydro. In general, the Department of the Interior, with all of
our land management agencies, has a policy to drive towards the
increased utilization of renewables, whether they be solar,
wind, geothermal, passive solar, biomass, and so forth. And we
have more and more facilities; and, indeed, for photovoltaic
utilization, I believe we're second only to Department of
Defense in our usage.
With respect to the small hydro, I do not have available
for me any specifics on whether we have any such projects. What
I will do is look to see if we have utilized small hydro on our
lands, and, in particular, look at whether there are any issues
or challenges as it relates to doing so in Alaska. I simply
have not looked at that specific energy opportunity.
Senator Murkowski. I would appreciate it if you would.
I notice, in your testimony, the reference to the ``sense
of the Congress'' regarding the renewable generation, and you
speak to the goal of nonhydro renewable energy generation
capacity. And I know we want to certainly expand the focus in
other areas, but is there a purposeful exclusion of the hydro?
Ms. Scarlett. No, that statement is not intended to be a
purposeful exclusion, it simply was our understanding of the
focus of the particular hearing, rather than anything
particularly intended by that.
Senator Murkowski. Well, if you can look into the specifics
for me, particularly as it relates to Glacier Bay National Bay,
I'd appreciate it.
Ms. Scarlett. We'll do that.
Senator Murkowski. Thank you.
Thank you, Mr. Chairman.
Senator Craig. I'm ready to conclude this panel. Are there
any further questions by the members?
[No response.]
Senator Craig. If not, let me thank you all for being here.
Jim, and the GAO, let me thank you for your work. I'm pleased
that you can come in under the general sense of a job well done
and work in progress. That's usually not what we get from the
GAO, and we appreciate it, in this instance. It tends to make
us believe that EPAct got most of it right, but there's more to
be done.
Mr. Wells. Absolutely. Thank you, Mr. Chairman, for the
compliment.
Senator Craig. Thank you all very much--Lynn, Sally.
[Pause.]
Senator Craig. Well, let me thank all of the panelists for
being here. We have a large panel, so we'll ask you, as we will
attempt, to move speedily through so we can get all of your
testimony and get questions back toward you.
Let me first recognize Dr. Walter Snyder, director,
Intermountain West Geothermal Consortium, of Boise. We're glad
you're here. Appreciate it, Walt. We have Paul Thomsen, public
policy administrator, ORMAT Technologies, testifying on behalf
of the Geothermal Energy Association, from Reno, Nevada; Chris
Taylor, director of project development, northwest region,
Horizon Wind Energy, testifying on behalf of the American Wind
Energy Association, from Gordon's home State of Oregon, from
Portland; Bob Liden--Bob is vice president and general manager
of Stirling Energy Systems, testifying on behalf of the Solar
Energy Industry Association, from Phoenix, Arizona; Bernie
Karl, proprietor of the Chena Hot Springs Resort, from
Fairbanks, Alaska, Lisa's constituent; and V. John White,
executive director, Center for Energy Efficiency and Renewable
Technologies, Sacramento, California.
With that, we'll turn to you, Walt, for your testimony.
Please proceed.
STATEMENT OF WALTER S. SNYDER, DIRECTOR, INTERMOUNTAIN WEST
GEOTHERMAL CONSORTIUM, BOISE, ID
Dr. Snyder. Thank you, Mr. Chairman and members of the
committee.
I am Walter Snyder. I'm a professor at Boise State
University, as well as being director of the Intermountain West
Geothermal Consortium. This consortium was established by the
Energy Policy Act explicitly to focus on various aspects of
research on geothermal resources. Presently, it's comprised of
members from Utah, Idaho, of course, Nevada, and Oregon, and we
have partners of other organizations and universities, as well.
So, I'm really honored to be able to talk a little bit today
about research and it's important to bringing more geothermal
resources online.
From the previous testimony and what you're going to hear
from the people that follow me, I really do not have to beat on
the issue of the importance of geothermal resources to the
Nation's energy portfolio. I think we know that. There have
been many, many reports written on it. In fact, a couple of the
most important ones have come from the Western Governors
Association.
And, Mr. Chairman, if I could, I'd like to, for the sake of
completeness, enter into the record copies of those two recent
reports from the Western Governors Association dealing with
geothermal energy. One was January 2006, from the Geothermal
Task Force, that they submitted. And another just came out last
month, in June 2006, on Clean Energy, a Strong----
Senator Craig. Without objection, they will become a part
of the file of the record. I need to say that so that we don't
enter their total transcript into the record, but they're a
part of it on file. Thank you.
Dr. Snyder. Great. Thank you.
I think the testimony you heard before, and, again, what
you're going to hear after me, really underscores my first
point about research. I think that the next generation of
geothermal research has to be done in very, very close
collaboration with all the stakeholders. And that's because we
have both near-term and long-term needs, and, really, to be
able to define those and address those as scientists, we need
to have very, very close working relationships. And that's
certainly what the consortium is dedicated to, and I think all
such research for geothermal should follow the same track.
Those stakeholders, by the way, that we have to work with
is more than just industries, it's our Federal agencies, but
it's also our State agencies, it's also the municipalities out
there, and it's also small businesses, as well.
But that does not answer the question, Is research really
necessary? And I think the short answer to that, of course, is
yes. And the reason it's important is, to be able to fully
utilize, economically, the geothermal resources, we have to
better understand the full context of these complex systems,
the full geological, geophysical, hydrologic, and geochemical
context.
Right now, our knowledge is simply insufficient not only to
give a proper assessment of the geothermal potential of the
West, but certainly it's insufficient to help industries and
others do a better targeted effort of bringing these resources
online. We need to provide the information that makes all this
more viable.
You've heard a lot about the power generation. And, of
course, that's extremely important. But we also want to make
sure we emphasize direct use. Direct use is very important, and
it's a woefully underutilized part of the geothermal energy
portfolio. If you think about it, using lower-temperature or
moderate-temperature geothermal resources helps reduce power
consumption. And that's a savings that can be very, very
important. It's also been very important for a lot of small
businesses that otherwise wouldn't exist, small businesses from
greenhouses to food dehydration or aquaculture or--alligators--
that forms, I think, a potentially important part of our local
States' economies. And we need to think about that.
Boise, of course, is a prime example of a slightly larger-
scale use--direct use of moderate temperature resources,
because the city has been heating many homes and buildings for
quite a long time. We know a lot about the system. We've got it
balanced, so we can utilize it in a sustainable way. But we
don't yet completely understand the system so that we can
export that knowledge to other places, other municipalities
that could use it. Two big places that come into mind would be,
of course, Reno and Salt Lake City. Other large metropolitan
areas are pretty much unassessed with respect to the potential
of direct use near them. And there are certainly smaller
municipalities, like Klamath Falls and whatnot, that could
really tap in if we have a better understanding of the
geological situations behind it.
So, we can't forget direct use either. We have to be able
to fully characterize those systems, as well as those that
generate higher-temperature power-generating resources.
Another compelling reason, I think, why we have to pursue
research through academic institutions, of course, I would
argue, is that the geothermal development companies do not have
the staffing and the resources to do the research themselves.
They're not oil companies. All right? But the resources they're
targeting are equally complex as an oil reservoir, and they
have some, of course, particular quirks about them that even
make them more difficult. And so, somebody has to provide that
research. And this consortium and others out there are trying
to put ourselves in a position to provide that help.
Before I conclude, I want to add one more thing about not
necessarily why research is important, but how we should do
research. And I think one of the--it's very, very important
that our research results get to the stakeholders as quickly as
possible, and an understandable way as possible. That's not
always the case with academic research. We are very aware of
that, and we want to turn that around. This is a complex issue.
Some of it's being debated on the Hill today--or, not today,
but recently. But we've got to get--we've got to maximize the
return on the investment of the Federal research dollar. So,
not only are publications necessary, but we've got to get all
our information into a digital information system so people can
get at it, the stakeholders can get at it, in an understandable
way, so the nonspecialists can understand it. That's very
important.
Second, we've got to make sure that the physical samples
that we get from cores and physical rock samples are equally
available. The Energy Science Institute at University of Utah
presently has such a repository. We plan to fully utilize that
and make sure that all those samples are available to everybody
who wants to see them and utilize them as they move forward.
And the last component of that is that we, as researchers,
cannot isolate ourselves from the stakeholders, and we need to
interface with them on a regular and a continuous basis. And,
again, not just including the agencies, State and Federal, the
municipalities, the larger development companies, but the small
business. We have to be aware of that, and move forward on
that. And that makes a package for research, I think, that's
fairly--well, in my mind, fairly compelling, and it's certainly
the way we have to go.
So, I think the parting shot is that to understand these
complex resources, we really need an ongoing sustained research
program to help bring these resources online.
And I'll leave it there, and I want to thank you for the
opportunity. I'd be happy to answer any questions later.
[The prepared statement of Dr. Snyder follows:]
Prepared Statement of Walter S. Snyder, Director, Intermountain West
Geothermal Consortium, Boise, ID
Mr. Chairman and distinguished members of the Energy and Natural
Resources Committee, I am Professor Walter S. Snyder from Boise State
University and Director of the Intermountain West Geothermal Consortium
(IWGC). The IWGC is comprised of members from academic institutions in
Idaho, Nevada, Utah and Oregon and from DOE's Idaho National
Laboratory; our members conduct geothermal research throughout the
West. I am honored to have this opportunity to testify today about the
importance of geothermal energy production and use on Federal lands in
the Western States on behalf of all members of the IWGC.
As has been articulated by the President and Congress, the United
States faces a pressing need for the diversification of the national
energy portfolio to promote national energy security, lower energy
costs, increase reliability, and decrease foreign dependence.
Geothermal resources are a key component of this portfolio both for the
generation of electricity and the direct use of geothermal heat. This
diversification requires the full utilization of high and low
temperature geothermal resources, including increased geothermal power
generation, expansion of existing geothermal sites, and the development
of resources in urban environments close to end users. This is
particularly opportune for the West where geothermal resources are
sufficient to allow for their economic utilization by our rapidly
growing urban centers.
To be able to fully and economically utilize geothermal resources,
we must better understand the geological, geophysical, geochemical, and
hydrologic nature of these complex systems. Our existing geologic
knowledge is insufficient for an accurate assessment of the West's
geothermal resource potential. To find new resources, increase the
productivity of known resources, and bring these resources online and
sustain them, we must improve our ability to fully delineate and
characterize both deep and shallow geothermal resources through
improved scientific methodology and understanding. That is, we must
continue to conduct the basic research that is required to develop this
crucial natural and renewable resource.
Through a strategic research program, the Intermountain West
Geothermal Consortium (IWGC), authorized by EPACT 2005, is poised to
aid federal agencies, industry, state governments, and municipalities
to address a wide variety of issues related to geothermal resources.
The Consortium is unique in the geothermal community by being the only
true multi-institution geothermal research entity. We have moved
quickly since EPACT became law and this reflects the collaborative
spirit that is our underpinning. The Consortium will bring to the
geothermal research community and industry the first coherent,
integrated research program and plan for geothermal energy development.
My comments, from the perspective of the IWGC, reflect needs and
concerns of all geothermal researchers, and research centers from other
universities and national laboratories, such as the Geothermal Energy
Program at New Mexico State University, Sandia National Laboratories,
the Great Basin Center for Geothermal Energy, the National Renewal
Energy Laboratory, and others.
THE CONSORTIUM'S GOAL
Our central position is that expanded use of geothermal within the
Nation's energy portfolio requires a better understanding of the
complex geologic context of these resources. This complexity is due to
their natural heterogeneity, the complexly interrelated processes that
have produced these geothermal systems, the impact of production on the
natural conditions of the reservoirs, and the need to integrate studies
at scales ranging from regional down to the specific details of an
individual well. This understanding requires improved geology,
geophysics, hydrodynamic modeling, and geochemistry. This knowledge can
be used by industry to explore for and find new prospective geothermal
regions, maximize the production at sustainable levels from existing
sites, and develop procedures to assess the extent and sustainability
of direct use geothermal resources. A sustained research program, one
that is collaborative in nature and strategic in design, will greatly
help expand the geothermal component in the Nation's and West's energy
portfolio.
GEOTHERMAL IN THE WEST'S ENERGY PORTFOLIO
Perhaps one of the most powerful statements on the importance of
geothermal resources is provided by the Western Governors' Association
Geothermal Task Force report of January, 2006 and the recent ancillary
report by the WGA's Clean and Diversified Energy Advisory Committee
(June, 2006). Several of the highlights of these reports that are
relevant to my testimony are:
<bullet> The Western States share a capacity of almost 13,000
megawatts of geothermal energy that can be developed on
specific sites within a reasonable time frame. This is a
commercially achievable capacity for new generation and does
not include the much larger potential of unknown, undiscovered
resources.
<bullet> Geothermal power can be a major contributor to the power
infrastructure and economic well-being of the Western States.
New geothermal power capacity could add nearly 10,000 jobs, and
also generate about 36,000 person-years of construction and
manufacturing business.
<bullet> Geothermal power is a reliable, continuously available (24
hours per day--7 days per week) baseload energy source that
typically operates 90 to 98 percent of the time.
<bullet> Insulated from conventional fossil fuel market volatility,
geothermal power supports energy price stability and boosts
energy security because it is a domestic resource.
<bullet> Geothermal power can help fulfill Renewable Portfolio
Standards (RPS) that strive to diversify the states' and
nation's energy supply.
<bullet> Geothermal energy is a clean electricity source, discharging
far less emissions, including greenhouse gases, than equivalent
fossil-fueled generation.
These are powerful, compelling conclusions and have been supported
and expanded by others, including the Geothermal Energy Association,
the Geothermal Research Council, and the Sustainable Energy Network.
The 13,000 megawatts of capacity noted above is the equivalent of about
15 nuclear power plants or 30 coal-fired plants. The Geothermal Energy
Association suggests that the potential may actually be two or more
times greater, and we agree with that assessment. The 13,000 megawatt
estimate is based on current knowledge of the geology, geophysics,
hydrology, geochemistry, and reservoir and production engineering. With
a more rigorous and complete assessment of the details of this geology,
there is no reason that geothermal power output capacity cannot be
doubled or even tripled above the 13 gigawatt base estimate. But to
reach this output requires continued, indeed expanded, and more
targeted research.
Direct use is another important, but often overlooked, part of
geothermal energy portfolio. Expanded direct use can significantly
reduce our power consumption, but it is a woefully underutilized
resource. Direct use includes heating of buildings, greenhouses,
aquaculture, and food dehydration. Its utilization has allowed local
business enterprises to flourish that would not have otherwise been
possible. Direct use for these and other purposes should and could
become much more widespread. Boise, Idaho is a prime example within the
U.S. of a city that utilizes direct geothermal heat to reduce power
consumption. For over 100 years, this moderate temperature geothermal
system has provided heat to homes and businesses and since 1983 has
been utilized by the City of Boise to heat over 50 downtown buildings.
It is estimated that the use of the Boise geothermal system saves the
equivalent of about 40,000 megawatt hours per year. What we can learn
from a much needed detailed study of the Boise system (that does not
currently exist) could be transferred to other metropolitan areas where
there are similar systems; for example Reno, Nevada and Salt Lake City,
Utah. The potential in these and other Western metropolitan areas is
effectively unassessed at this time.
THE ROLE OF RESEARCH
The West is rich in geothermal resources, this is common knowledge.
This is amply documented by the regional maps depicting high heat flow,
the reports of the Western Governors' Association, Geothermal Energy
Association, Geothermal Research Council, and other organizations.
However, the challenge to changing prospects into reality lies in the
details--the geologic, geophysical, geochemical and modeling research
that must be conducted to fully understand and produce these complex
geothermal systems. Compounding this challenge is the fact that many
geothermal systems do not have obvious surface expressions, such as hot
springs; they are hidden and require a new approach to find them. This
information can be made available to federal agencies as they manage
geothermal resources on our federal lands, to state agencies as they
pursue their mandates, to counties and municipalities as they attempt
to assess potential use of geothermal, and to industry as they seek new
geothermal resources and ways to better use existing ones. A major
hindrance to understanding geothermal systems is that none of the
geothermal development companies have in-house research capabilities
and thus they, and the nation must rely on university and national
laboratories to conduct the needed research. For power generation,
whereas operating costs are comparatively low once a producing field is
established, perhaps the major impediment to expanding geothermal's
contribution to the energy portfolio is the relatively high up-front
cost of bringing power on-line. One of the best remedies to this
impediment is improving resource information through efficient
exploration and maintaining successful wellbore logs. The geothermal
industry agrees with this, and it is the academic and national
laboratory research community that must address ways to increase the
rate of successful drilling by providing industry with necessary basic
geoscience facts and models.
For direct use, the main issues are the extent and size of the
resource and the sustainable rate at which it can be used. States,
counties, municipalities, and small direct-use companies simply do not
have the resources to conduct the level of studies necessary to fully
delineate and characterize potential direct use resources. Again, the
academic and national laboratory research groups need to step in.
As with most resource industries, ours finds that there is a
shortage of trained professionals available to meet personnel needs in
both government and industry. This shortage will only become worse
without concerted efforts to educate the next generation of science and
engineering professionals. Only those universities involved in research
will be able to adequately train the students who must become the next
generation of state, federal and private industry professionals working
on geothermal and related activities.
THE INTERMOUNTAIN WEST GEOTHERMAL CONSORTIUM
The Intermountain West Geothermal Consortium (IWGC) is comprised of
six institutions from four states and will be conducting targeted
studies of low-, moderate-, and high-temperature geothermal systems in
Idaho, Oregon, Utah, Nevada, California, and elsewhere. As recently
stressed in letters to Congress by the Geothermal Energy Association,
the knowledge gained by IWGC-type activities is necessary for the
continued expansion of geothermal development throughout the West, and
indeed, nationally.
The Energy Policy Act of 2005 authorized the creation of the
Intermountain West Geothermal Consortium. The IWGC is initially
comprised of the Idaho National Laboratory, the Idaho Water Resources
Research Institute at the University of Idaho, the Geo-Heat Center at
Oregon Institute of Technology, the Desert Research Institute (Nevada),
the Energy and Geoscience Institute at the University of Utah, and
Boise State University.
We have moved quickly to implement the IWGC once EPACT became law.
The IWGC works closely with industry and state and federal agencies to
assist in bringing geothermal resources online for direct use and power
generation. The consortium proposes to conduct targeted studies of low-
temperature systems of importance to municipalities and small
companies. It will conduct critical studies of high- and moderate-
temperature resources to better aid industry in bringing these
resources online for power generation. By working with the Geothermal
Research Council, the Geothermal Energy Association, state geothermal
working groups, state geological surveys, the USGS, Forest Service,
Bureau of Land Management, and by partnering with other geothermal
groups and institutions, we will be able to broaden the scope and
impact of our work. Although IWGC focuses regionally, the knowledge and
technology developed will be used to enhance utilization of geothermal
energy as a resource throughout the West and the United States.
IWGC is and will address numerous research questions including the
following: To better assist exploration and development efforts, can we
better couple geophysical signals with reservoir simulation, including
forward and backlooking (inverse) modeling? ``What geophysical
techniques can be used to identify and characterize hidden geothermal
systems such as the Raft River geothermal system in Idaho? What
geoscience information on geothermal systems is required to allow
geothermal systems to be engineered to enhance and maintain
permeability and long-term reservoir productivity? How can we assess
and reduce the predictive uncertainty in geothermal reservoir
performance? How can energy conversion be improved and operation and
maintenance costs reduced? Are there new non-power generation uses of
geothermal fluids? And, can we develop better methodologies to monitor
the reservoir for exploration, production and long term maintenance
using new methodologies and a more complete understanding of the
system? The list of questions go on but this serves as an example of
the geothermal resource research needs.
RESEARCH AND KNOWLEDGE TRANSFER
There is an growing awareness of the need to maximize the return on
the federal research dollar investment by making research results more
readily available. Traditionally, part of that return is reinvested in
the science research process itself--typically through publications.
However, for a subject such as geothermal, publications alone are an
insufficient outcome. What is needed is better method of knowledge
transfer to geothermal stakeholders--the relevant federal and state
agencies, state, county, and municipality governments, and industry.
There are several ways to accomplish this that taken together
constitute a new paradigm for research: 1) publication of results, 2)
open access to all relevant data through a digital information system,
3) open access to physical geologic samples and logs, and 4) directly
working and communicating with stakeholders.
It is important to note that items 1 and 2 are significantly
different. What hinders public policy decision making, agency
management decisions and activities, knowledgeable use by state and
local governmental bodies and industry, and the science itself is not
access to published papers, but the lack of complete access to relevant
data and metadata. Item 3 highlights the fact that far too often in the
geological sciences physical samples, that still have great value are
not properly stored or made available to all interested parties--
samples that were paid for by federal research dollars. IWGC will make
those data available. Finally, item 4 requires that research
organizations persistently engage in stakeholder communication.
The IWGC is adopting this new paradigm for research operations.
Publications will continue to be written, for that is the golden frank
of the researcher. But we are also developing a digital information
system that will host all data generated by IWGC researchers and make
these data openly available in understandable format after a reasonable
moratorium period. The Energy and Geoscience Institute at the
University of Utah, currently houses the largest collection of
geothermal cores and samples, and the IWGC is committed to continue to
support that effort. The IWGC will work with stakeholders not only
through our website, but by hosting and participating in conferences,
seminars, and workshops and engaging in other outreach efforts. We will
work directly with stakeholders on specific issues of importance to
them. We will also partner with organizations already engaged in
community outreach, including the Geothermal Energy Association,
Geothermal Research Council, GeothermalBiz, the Geothermal Education
Office, the Sustainable Energy Network, the Environmental and Energy
Studies Institute, GeoPowering the West, and others. Separately, these
four approaches are not revolutionary, but taken together they
represent a new approach to research and knowledge transfer to better
serve the geothermal stakeholders.
FUNDING
The Senate Appropriations Committee has approved $22.5 million in
FY07 to the Department of Energy budget for geothermal research and
development. The House approved $5 million. The members of the
Intermountain West Geothermal Consortium want to express their support
for the Senate's mark. Although EPACT authorizes geothermal research
and the IWGC, without funding it will be impossible to implement the
Act's provisions. More fundamentally, without ongoing and sustained
research and therefore research funding, the continued expansion of
geothermal energy within our nation's energy portfolio will be severely
curtailed.
All members of the IWGC want to thank the Senate Energy and Natural
Resources Committee for holding this hearing addressing geothermal and
renewable energy resources in the Western U.S. The decisions made by
this Committee can have a very real impact on the nation's energy
supply and we appreciate and ask for your continued support.
Thank you.
Senator Craig. Well, Doctor, thank you very much. It was
stated to the earlier panel, and for the committee, that it had
been zeroed out in the executive budget. We've put back dollars
to sustain a research program of about $22 million, for all of
the reasons you've just articulated, because we think that it's
a resource that's technology is changing, and our knowledge is
limited of it. So, we'll move forward with that and hope the
consortium will be a valuable partner in that.
Now let me turn to Paul Thomsen, public policy
administrator, ORMAT Technologies, Reno.
Paul.
STATEMENT OF PAUL A. THOMSEN, PUBLIC POLICY ADMINISTRATOR,
ORMAT TECHNOLOGIES, ON BEHALF OF THE GEOTHERMAL ENERGY
ASSOCIATION, RENO, NV
Mr. Thomsen. Mr. Chairman, members of the committee, it's
my honor to testify today, not only on behalf of my company,
ORMAT Technologies, but also on behalf of the Geothermal Energy
Association, whose testimony has been reviewed and approved by
the entire board and will be submitted, along with my
testimony, for the record.
By way of introduction, ORMAT Technologies is a New York
Stock Exchange registered company. ORMAT Technologies develops,
owns, and operates, geothermal and recovered-energy facilities
throughout the world. ORMAT has supplied 800 megawatts of
geothermal powerplants in 21 countries throughout the world.
Here in the United States, ORMAT owns and operates 250
megawatts of geothermal powerplants in the States of
California, Hawaii, Nevada, and we are pleased to be providing
US Geothermal Company with the technology needed to bring
online Idaho's first geothermal powerplant.
To date, ORMAT has arranged over $1 billion in geothermal
projects and corporate financing, which is particularly
significant since geothermal projects require the upfront
financing of a continuous lifetime supply of fuel. So, when GAO
says, ``We think we can,'' ORMAT would disagree and say, ``We
are.''
On to the impacts of the EPAct. From the industry
perspective, we agree with the GAO report and feel that it is
too early to accurately assess the impact of the EPAct. Why is
that? Because only one operating 20-megawatt facility, which
happens to be ORMAT's, has qualified to date for the production
tax credit. The new regulations, as we heard earlier, to
implement the Rishel amendment to the Steam Act, have yet to be
drafted, or have just been turned in to the Federal Registry.
And, finally, the DOE geothermal research program funding for
fiscal year 2007, as you well know, has been zeroed out by the
administration, causing some uncertainty and delay.
With that being said, the industry truly believes that
despite the fact that geothermal power provides approximately
50 percent of the kilowatts of renewable energy produced in the
United States, the impact of the production tax credit and the
EPAct will enhance the ability of geothermal projects to
compete with fossil fuel technologies. The production tax
credit can effectively lower the price of geothermal energy by
1.9 cents a kilowatt hour, making more resources of geothermal
energy cost competitive, enabling the full development of the
5600-megawatt capacity that is considered available in the
Western United States over the next decade.
The John Rishel amendment to the Geothermal Steam Act will
simplify processes, allowing the BLM and other Federal and
State agencies to work in the spirit of the legislation,
enabling expanded geothermal production.
And the significant increase in funding authorized by the
EPAct for the Department of Energy's renewable energy research
programs, including geothermal energy, will facilitate
collaboration between researchers and industry to harness the
underutilized geothermal resources of the West.
So, how do we make this committee's and the geothermal
industry's will a reality? ORMAT believes that the production
tax credit should be extended more effectively to geothermal
facilities. This may be accomplished by qualifying geothermal
facilities' further production tax credit before the
operational placed-in-service date, as earlier discussed. We
feel that if the facility has a power purchase agreement, and
if the facility has begun construction, this could be--this
could allow for this. This is not without precedent. For some
other tax provisions with similar time-certain requirements,
the law allows investments to quality, based upon having
binding contracts in place.
ORMAT also believes that the BLM and other State agencies
need to move quickly on the pending lease applications and
complete regulations that will implement this new law. BLM
needs to hold new lease sales in every Western State. Let's
implement the new law. Urge Congress to actively oversee the
process to ensure that all agencies keep the spirit of the
legislation, which is obviously to boost the production of
geothermal energy. Then, and only, after thorough of the
results should industry ask Congress to take action on any
changes that may be needed.
Finally, ORMAT believes that the full geothermal potential
of the Western United States can be brought online in the near
term with the assistance of the Department of Energy. In the
next decade, ORMAT feels that the Department of Energy research
budget can benefit by focusing its funding in the following
areas: We need to improve the accuracy of exploration
technology to reduce risk; we need to improve drilling
technology to reduce risk and cost; we need to improve
identification and characterizations of geothermal resource
areas; we need to share in the cost of exploration in drilling
in these new areas; and continue the investigations into future
technologies, such as enhanced geothermal systems. These three
considerations are crucial to the future of geothermal energy.
On behalf of ORMAT and the Geothermal Energy Association, I
want to applaud this committee for its interest in the secure,
domestic baseload energy supply that is geothermal energy. We
humbly realize that the decisions made by this committee impact
our Nation's energy security.
This concludes my prepared comments, and I'm happy to
respond to any questions that the committee might have.
Thank you.
[The prepared statement of Mr. Thomsen follows:]
Prepared Statement of Paul A. Thomsen, Public Policy Administrator,
ORMAT Technologies, on Behalf of the Geothermal Energy Association,
Reno, NV
Mr. Chairman, members of the committee, it is my honor to testify
today on behalf of not only ORMAT Nevada, but also on behalf of the
Geothermal Energy Association which has an attached statement that has
been reviewed and approved by the Board of Directors and will be
submitted into the record.
By way of introduction ORMAT Nevada is a subsidiary of ORMAT
Technologies, which is a New York Stock Exchange registered company
(symbol ``ORA''). ORMAT is a technology based company which develops,
owns, and operates geothermal and recovered energy facilities as well
as manufacturers and supplies geothermal and renewable energy power
plants to third parties. ORMAT has supplied 800 MWs of geothermal power
plants in 21 countries throughout the world. We own and operate
geothermal power plants producing over 250 MW in the United States and
more specifically in California, Hawaii, and Nevada, and is pleased to
provide US Geothermal Company with technology to bring Idaho's first
geothermal power plant online. To date ORMAT has arranged over $1.5
billion in geothermal projects and corporate financing.
THE IMPACT OF THE EPACT
From the industry prospective we feel it is too early to assess the
impact of the EPACT on the geothermal Industry because: (i) only one
operating 20 MW project, which happens to be the ORMAT Richard Burdette
Project has qualified to date for the PTC; (ii) the new regulations to
implement the Rishell Amendment to the steam act are still currently
being drafted, and (iii) the DOE Geothermal Research Program funding
for fiscal year 2007 has been zeroed out by the administrations current
2007 budget.
THE POTENTIAL IMPACT OF THE EPACT
That being said the Industry truly believes that despite the fact
that geothermal power currently provides approximately 50% of the KWhs
of renewable energy produced in the United States, the PTC will enhance
the ability of geothermal projects to compete with other fossil fuel
technologies. The PTC can effectively lower the price of geothermal
energy by 1.9c/KWh making geothermal energy cost competitive with
fossil fuels, enabling the development of the potential 5,600 MW
capacity available in the Western United States over the next decade.
The John Rishell Amendment to the Geothermal Steam Act will
simplify processes allowing the BLM and other federal and state
agencies to work in the spirit of the legislation encouraging expanded
geothermal production.
The significant increase in the funding authorized for DOE's
renewable research programs, including geothermal energy will
facilitate collaboration between researchers and industry to harness
the underutilized geothermal resource in the West.
AS CONSIDERATIONS FOR THE FUTURE
ORMAT believes that the Production Tax Credit should be extended
more effectively for geothermal facilities. This may be accomplished by
qualifying geothermal facilities for the PTC before the operational
placed in service date if: (i) the facility has a power purchase
contract in place and (ii) has begun construction. This is not without
precedent. For some other tax provisions with similar time-certain
requirements, the law allows investments to qualify based upon having
binding contracts in place that meet specified requirements.
ORMAT believes that the BLM and other state agencies need to move
quickly on the pending lease applications and complete regulations that
will implement the new law. BLM needs to hold new lease sales in every
western state. Let's implement the new law and urge Congress to
actively oversee the process to ensure that all agencies keep the
spirit of the legislation--to boost production of geothermal energy.
Then and only after a thorough review of the results, should industry
ask Congress to take action on any changes that may be needed.
ORMAT feels that the full geothermal potential of the Western
United States can be brought online in the near term with the
assistance of DOE. In the next decade ORMAT feels that the DOE research
program can best benefit by focusing its funding in the following
areas: (i) improve accuracy of exploration technology to reduce risk;
(ii) improve drilling technology to reduce risk and cost; (iii) improve
identification, and characterizations of geothermal resource areas;
(iv) share in the cost of exploration and drilling in new areas; (v)
continue investigations into future technologies such as Enhanced
Geothermal Systems (EGS).
On behalf of ORMAT, and the Geothermal Energy Association, I want
to applaud this committee for its interest in the secure domestic
baseload energy supply that is geothermal energy. We humbly realize
that the decisions made by this committee impact our nations energy
security.
______
Statement of the Geothermal Energy Association
Mr. Chairman, Members of the Committee, the Geothermal Energy
Association (GEA) appreciates the Committee's interest in the
development and use of geothermal and other renewable energy resources
on the public lands. Mr. Paul Thomsen of ORMAT Technologies will be
testifying today as a witness for both his company and the Association.
The GEA Board of Directors has reviewed this statement to be submitted
for the record of the hearings along with his testimony.
The Energy Policy Act of 2005 has had a major, positive impact on
geothermal energy. In March of this year, GEA conducted a survey of
industry activity. The survey showed a substantial surge in developing
geothermal power projects in the U.S. Some 45 projects are under
development. These projects could nearly double U.S. geothermal power
output to a total capacity of roughly 5,000 MW. The U.S. had 2,828 MW
of geothermal power capacity on-line in 2005.
The survey identified new power projects in Alaska, Arizona,
California, Hawaii, Idaho, New Mexico, Nevada, Oregon and Utah. These
projects, when developed, would provide between 1778 MW and 2055 MW of
new electric power for the grid. This would be enough electricity to
meet the needs of cities the size of Albuquerque, Las Vegas, Sacramento
and Seattle combined.
Results of the survey provide dramatic evidence that new federal
and state initiatives to promote geothermal energy are paying off. The
most significant catalyst behind this new industry activity has been
passage of the Energy Policy Act by Congress (EPAct) in 2005. EPAct
made new geothermal plants eligible for the full federal production tax
credit, previously available only to wind and closed-loop biomass
projects. It also authorized and directed increased funding for
research by the Department of Energy (DOE), and gave the Bureau of Land
Management (BLM) new legal guidance and secure funding to address its
backlog of geothermal leases and permits.
If we can build and sustain the momentum that EPAct has given the
industry, geothermal energy can become a major U.S. energy source. The
untapped potential of this resource is enormous. Today, geothermal
energy provides nearly 3,000 MW of reliable electric power in the U.S.
but according to the U.S. Geological Survey (USGS) this represents only
a small fraction of U.S. resource potential. Representatives from the
USGS testified before the Subcommittee on Energy and Mineral Resources
of the House Resources Committee, U.S. House of Representatives, on May
3, 2001 that their 1978 report still represents the best available
resource estimate. According to that report, there is an identified
geothermal potential of 22,000 MW and an undiscovered, unidentified
potential for geothermal production of an additional 72,000 to 127,000
MW from hydrothermal resources alone.
We want to thank Members of this Committee for helping us turn back
some of the early challenges to this new momentum. The FY 2007 Budget
could have undermined several of EPAct's initiatives, which would have
been major setbacks to progress. We were pleased to see Chairman
Domenici state his support for directed funding for BLM's geothermal
program in his letter to the Budget Committee. These funds are
critically needed to ensure that the backlog of leases and permits is
addressed. Also, we were very pleased that the Senate Energy and Water
Appropriations Subcommittee and the full Senate Appropriations
Committee restored FY 2007 funding for DOE's geothermal research
program.
BUILDING UPON THE ENERGY POLICY ACT
The Energy Policy Act has helped launch a new era for the
geothermal industry. But, as this Committee knows, it's only the
beginning. Consistent federal and state policies over a longer period
of time will be needed to develop a new industry. The roller-coaster of
federal and state energy policies has undermined development of many
clean technologies. As the Preface to the report of the Western
Governors' Association's (WGA) Clean and Diversified Energy Advisory
Committee (CDEAC) states, ``A strong, overarching theme . . . is the
need for stable, long-term policies at both the federal and state
levels. . . .''
The Chairman and Members of the Senate Energy Committee know well
that energy is too often an issue of the moment, or the latest crisis.
But to address U.S. energy needs the nation needs sustained longer-term
energy policies. GEA has supported the work of this Committee to
develop such policies, including the landmark Energy Policy Act of
2005. We hope that the Committee will consider new energy legislation
this session to build upon this success, and we make the following
suggestions and observations to assist your efforts to expand the
future contribution from our nation's largely untapped geothermal
resources.
TAX INCENTIVES AND STATE RENEWABLE INITIATIVES
Because of the high initial cost and risk of developing new
geothermal power projects, geothermal, one of the largest renewable
energy resources in the western U.S., has not been developed to its
full potential. The CEC recently estimated that the initial capital
cost of a typical geothermal facility was roughly $2700 per kilowatt,
which is 4-6 times greater than the capital cost of a comparable-output
combined cycle natural gas power plant as shown in the following table.
(The CEC estimate does not reflect recent increases in steel and
drilling costs discussed later in this statement, and does not include
``site specific'' costs such as permitting and transmission.)
Table 1.--CAPITAL COSTS OF NATURAL GAS AND GEOTHERMAL FACILITIES
[CEC estimates]
------------------------------------------------------------------------
In-service
Capital costs Installed costs cost
------------------------------------------------------------------------
Combined cycle natural gas.............. 542 592 616
Geothermal flash........................ 2128 2410 2558
Geothermal binary....................... 3210 3618 3839
------------------------------------------------------------------------
Source: Comparative Cost of California Central Station Electricity
Generation Options, Magdy Badr and Richard Benjamin, California Energy
Commission, 2003.
Because a geothermal facility has very low fuel costs and no fuel
market volatility, in the long run, over 30-50 years, the ``levelized''
cost of a facility might be quite reasonable. But without the Section
45 Production Tax Credit (PTC), the initial risks, long lead times, and
high capital cost will compel many investors to choose other
alternatives that have shorter lead times, less risk, and lower front-
end costs.
The Energy Policy Act amended the Section 45 PTC to include new
geothermal facilities on the same basis as new wind facilities. The PTC
gives the developer the incentive needed to choose an investment in
geothermal energy. However, given the longer construction lead-time for
geothermal plants, 2-3 years, the short period the law allows for new
plants to be placed in service undercuts its effectiveness. The short
timeframe also means that some of the largest new geothermal facilities
may not go forward because they face unacceptable risks trying to meet
the rigid deadline.
Ideally, the placed in service deadline for the Section 45 PTC
should be extended an additional 3 to 5 years and geothermal facilities
should be given greater flexibility in meeting the placed in service
requirement. If geothermal facilities that secure binding contracts and
are under construction by the placed in service deadline could be
certain to qualify for the credit, substantial additional geothermal
generation would be developed in the next few years. Otherwise, many
developers may balk at taking an all-or-nothing gamble on future
extensions of the credit.
We also urge Congress to consider extending to geothermal energy
the favorable tax treatment provided for oil and gas exploration in
EPAct. The cost and risk of exploration for new geothermal resources is
as high or higher than those in the oil and gas industry, and the
ability to attract capital to finance geothermal exploration is far
more difficult. We understand that the DOE has also completed a study
examining the potential for a targeted loan guarantee program to
address exploration risk, and would urge the Committee to examine this
report when it is released.
Further, we should point out that state initiatives to use more
renewable resources, particularly Renewable Portfolio Standards (RPS),
are critical complements to these federal incentives. These state
efforts ensure that renewable power developers will be able to sell
their power after undertaking the considerable expense and risk to
build a power plant. Power purchase contracts that meet developer,
consumer and utility needs for clean, reliable and affordable power are
vital. Today, the combination of state initiatives and federal
incentives makes this possible. We also know that this Committee has
considered and supported adopting a national RPS, which GEA has also
supported. However, we caution the Committee that the states are still
learning how to make these standards work effectively, and that the
lessons they learn should be examined as the Committee considers any
future federal initiative. It has been our position that any federal
effort should build upon these state initiatives and be careful not to
undermine them, and we appreciate the effort the Energy Committee has
taken to address this issue in the past.
BLM LEASING AND PERMITTING
The Energy Policy Act included an extensive re-write of the
Geothermal Steam Act of 1970. In its provisions, DOI is directed to
place a priority on clearing up its large pending lease backlog. For
new leasing, regular lease sales must be held at least every two years
in states with geothermal resources, and all leases will be subject to
competitive bidding. BLM and Forest Service (FS) are directed to adopt
a 5-year leasing plan for National Forests with geothermal potential.
The royalty provisions of the law are completely rewritten. For new
leases royalties will be determined on a ``gross proceeds'' basis.
Royalties for existing leases are reduced for expanded production in
the next four years (following enactment). County governments will
receive 25% of the royalty income, and the federal share of the
royalties is dedicated to BLM's geothermal program for the next five
years to provide the resources needed to address the lease and permit
backlog and implement amendments to the law.
GEA supports many of the changes made by the Energy Policy Act to
the Geothermal Steam Act. We are, however, concerned about the long
lead-time involved in putting the new program in place, and are aware
that in the intervening time there have been concerns and fears
expressed about how the new leasing system might work. GEA believes
that the new leasing law should be put into place as quickly as
possible, and once it is operating Congress should plan an oversight
hearing to determine whether there are changes needed in the law or the
implementing regulations.
Earlier this year, U.S. Senators Harry Reid and John Ensign were
joined by Senators Bingaman, Murkowski, Wyden, Craig, Crapo, Cantwell,
Akaka, Feinstein, Murray, Allard, Inouye, and Salazar in a letter to
the Interior Secretary nominee Dick Kempthorne, Acting Interior
Secretary Lynn Scarlett, and Bureau of Land Management Director
Kathleen Clark urging them to move forward expeditiously on geothermal
energy leasing and permitting.
On June 16th BLM Director Kathleen Clarke replied saying, in part:
We understand and share your concern about the need to
provide access to Federal lands for the development of
geothermal power. Currently there are 354 geothermal leases on
BLM and U.S. Forest Service (FS) lands. Of these, approximately
50 are producing geothermal resources, which contribute over 45
percent of the Nation's geothermal power. Over the past five
years, the BLM has issued over 200 geothermal leases, compared
to less than 10 issued in the previous five years. Increased
demand for alternative energy has resulted in a significant
increase in the number of new applications filed, leaving the
BLM with 130 pending applications and the FS with 64 pending
applications. As mandated by the Section 225 of the Energy
Policy Act of 2005 (EPAct), the BLM and the FS have finalized a
Memorandum of Understanding to work together to eliminate the
inventory of pending lease applications over the next five
years.
Many of these lease applications cannot be issued because the
applicable BLM or FS land use plan did not analyze the
potential impacts of geothermal energy production. To resolve
this problem, the BLM has prioritized areas that have the
greatest geothermal potential and number of pending
applications and directed resources to revise the land use
plans to allow the issuance of geothermal leases. In addition,
the BLM and FS will prepare a programmatic environmental impact
statement to amend or revise those land use plans that have the
greatest potential for geothermal energy production.
The BLM and Minerals Management Service (MMS) are also
drafting proposed regulations to address significant changes to
the Federal geothermal program as mandated by the EPAct. The
EPAct does not authorize the BLM to issue new competitive
leases in the absence of regulations. The BLM and MMS have
established an aggressive timetable that meets the legal
requirements for rulemaking, with plans to publish proposed
regulations by early July and final regulations by December
2006. Although the EPAct did not place a deadline on the
agencies, expeditious completion of these regulations is a
priority.
The BLM Director's response to the fourteen Senators indicates
several causes of delay in developing geothermal resources on federal
lands. First, it appears that EPAct should have given the agencies
deadlines, since that would ensure faster implementation. Second, there
is more demand for geothermal leases than the agencies can process with
existing resources, which creates a backlog. And, third, a fundamental
cause for delays is the need to meet land use planning and National
Environmental Policy Act (NEPA) requirements and the associated need
for the agencies to have the resources to do so.
Land use plan amendments and associated NEPA documents are posing
serious and continuing obstacle and delays, particularly in California
where these federal requirements are routinely interpreted broadly and
add to already cumbersome state processes. But, the problem is not just
the planning and analysis, it is the double-bind that is created when
agencies do not have the millions of dollars needed to conduct these
studies and, as a result, no action gets taken.
Although California has extensive untapped geothermal resources,
California's BLM offices have not issued a geothermal lease in some 20
years. People applying for geothermal leases in California have been
more likely to die while waiting in line than receive a lease. The
impact this has had on whether companies want to even consider applying
for a federal lease, or making nominations under the new law, is, is
simply incalculable.
Further, the economic impact of delays can simply wipe away any
incentives that Congress or the states might provide. In a recent
report, GEA examined what the cost of a 20 year delay could mean for a
project. If a rate of return of 17% is applied to a specific
exploration cost of 150$/kW during 20 years, the resulting cost of
exploration would be 3466$/kW. This cost corresponds to the total
capital costs for the most expensive projects currently under
development. Figure 1 shows the evolution of exploration cost when long
delays take place.*
---------------------------------------------------------------------------
* Figure 1 has been retained in committee files.
---------------------------------------------------------------------------
Reaching NEPA decisions in a timely manner is critical to the
future development of geothermal energy. Adding mandatory timelines for
the completion of NEPA documents would be one of the most beneficial
actions that Congress could take to address the inordinate delays
created by agency implementation of NEPA. While it is unfortunate that
Congress may have to take this step, there does not appear to be any
more reasonable approach than establishing statutory requirements for
NEPA compliance.
DOE RESEARCH AND DEVELOPMENT
EPAct included a significant increase in the funding authorized for
DOE's renewable research programs, including geothermal energy. It also
included specific direction and goals for their geothermal research
efforts and created an ``Intermountain West Geothermal Consortium'' to
facilitate collaboration between researchers and industry to harness
the underutilized geothermal resource in the West.
There are substantial needs for improvements in geothermal
technology, information, and efficiencies for which federal research is
vital. The range of near-term needs is broad. Knowledge of the
geothermal resource base is limited and largely outdated. The
technology available today to identify and characterize the resource is
too unreliable to effectively mitigate the high risk of development.
Drilling is expensive and faces a range of difficulties in harsh
geothermal environments. While power cycles are improving, there is
always room for additional efficiencies. Where the resource does
support commercial production, ``we need to be able to apply the
techniques under development to engineer it to achieve power
generation.
A recent workshop was conducted by the National Renewable Energy
Laboratory (NREL) to examine the simple question: What is the total
``potential'' accessible geothermal resource in the U.S.? That workshop
went beyond the identified and undiscovered hydrothermal resources
mentioned earlier to examine the potential from direct uses, co-
production from oil and gas fields, geopressured resources, distributed
generation, engineered geothermal systems, and geothermal heat pumps.
The workshop concluded that the energy potential from the full range of
geothermal resources was in the millions of megawatts!
The Department of Energy should be working with industry, the
university, and the laboratory research community to develop the tools
needed to access this massive resource base. But, we believe DOE needs
some encouragement to re-examine the potential of geothermal energy and
its role in meeting U.S. energy needs. We strongly urge this Committee
to hold a separate hearing on research priorities for geothermal energy
and invite witnesses from DOE, leading laboratories, industry, and
university research centers to provide testimony to help structure an
effective federal effort.
THE WESTERN GOVERNORS' CLEAN ENERGY INITIATIVE
As Congress considers its next steps after EPAct, we call to the
Committee's attention the recent recommendations from the Western
Governors' Association (WGA) Clean and Diversified Energy Advisory
Committee (CDEAC), and specifically the CDEAC Geothermal Task Force
Report and recommendations. The CDEAC effort is unquestionably the most
systematic, thorough, and contemporary examination available of the
potential for geothermal energy and other clean energy technologies to
contribute to the energy needs of the West. The CDEAC effort concluded
that clean technologies can meet or exceed the West's need for new
energy sources, but that sustained federal and state support is needed
to achieve this goal.
The CDEAC Geothermal Task Force made the following specific
recommendations, which we recommend to the Committee:
E. Geothermal Priority Recommendations
Market Development--The marketplace needs to support the
continued development of geothermal resources.
1. Federal and state tax credits are important to reduce the
risk and high capital cost of new projects. The federal
production tax credit (and clean renewable bonding authority)
should be made permanent, or at least extended ten years.
2. State laws and regulations should promote a continuing
series of opportunities for power purchase agreements between
developers and utilities. Whether generated through Renewable
Portfolio Standards, Integrated Resource Planning, or other
mechanisms, power purchase contracts are fundamental drivers of
the market.
3. Federal and state laws and regulations should provide
incentives for utilities and others to enter into long-term
contracts for renewable power. Accounting and regulatory
standards should treat renewable power contracts as benefits
instead of liabilities, and power purchase contracts should
have the backing of the government to ensure their credit
worthiness.
Timely Permitting and Environmental Reviews--Geothermal
projects should be prioritized to ensure that permitting,
leasing, and environmental reviews are completed in a timely
and efficient manner.
1. Federal, state, and local agencies should coordinate
resources and requirements. Agencies should be designated to
take the lead on specific issues to avoid duplication, and once
issues are resolved, they should not be revisited without
cause.
2. A critical path for new projects should be defined as part
of this cooperative effort, and timeframes for key agency
decisions along the pathway should be established
Transmission Access and Adequacy--The Western Governors
should lead the process to ensure that adequate transmission is
available for the identified resources.
1. There should be consistent Western state policies on
inter-connection to the grid that facilitate new geothermal
(and other renewable) power development.
2. A fee to support the cost of new transmission could be set
that would spread the cost across all states, parties and
technologies on a capacity basis.
3. Both inter- and intra-state transmission is needed to
support the identified resources and should be fast-tracked for
permitting and environmental reviews.
Federal Program Support--Continuing support from key federal
programs is needed to achieve the 2015 goals. Federal programs
should be coordinated with state agencies.
1. As the National Research Council concluded (Renewable
Power Pathways, 2002), given the enormous potential of the
resource base, geothermal research by the U. S. Department of
Energy should be increased, particularly into technologies that
can reduce risk, reduce costs, or expand the accessible
resource base.
2. Better resource information is needed. The new USGS
resource assessment and DOE's cost-shared drilling and
exploration technology efforts should be priorities.
3. The U.S. Department of Energy's GeoPowering the West
initiative should continue to support state and local
governments, Indian Tribes, and others seeking to utilize the
West's untapped geothermal resources.
(From the Executive Summary of the Geothermal Task Force
Report, available at: http://www.westgov.org/wga/initiatives/
cdeac/geothermal.htm)
GEOTHERMAL ENERGY'S FUTURE POTENTIAL
While only a small fraction of the geothermal resource base is
utilized today, it already provides significant energy for our nation.
The United States, as the world's largest producer of geothermal
electricity, generates an average of 16 billion kilowatt hours of
energy per year--more than wind and solar combined. With continued
federal and state support, much more geothermal generation is possible.
The U.S. Geological Survey (USES), in its Circular 790, estimated a
hydrothermal resource base of between 95,000 and 150,000 MW, combining
both the identified and estimated undiscovered resources. As the recent
NREL workshop concluded, the full range of geothermal resources has
even greater potential to serve our nation's energy needs.
Within the next ten years, it is estimated that with continued
federal and state support geothermal resources could be providing
between 8 and 15 Gigawatts of electric power to help meet national
energy needs. With advances in technology, even more of the largely
untapped domestic resource base could be developed. Geothermal's role
among clean energy technologies is important to recognize. It is one of
the few technologies that can supply, clean, reliable, low emission
fuel that is also a baseload resource providing power 24-hours a day,
365 days a year. This power could also support our national hydrogen
initiative and nation ethanol goals, both of which will require
significant amounts of energy to produce alternative domestic
transportation fuels.
In addition to significant electric power generation, direct uses
of geothermal resources by businesses, farms, and communities have
substantial potential for energy, economic, and environmental benefits.
While geothermal resources have been used in communities and homes for
decades--for example Boise, Idaho has been using geothermal resources
for space heating for over 100 years--the extensive potential for
direct use has been largely ignored and underutilized. Direct use
resources span the entire country--from New York to Hawaii--and their
increased use would displace fossil fuels.
The benefits of expanding new geothermal production will be
substantial. Geothermal power can be a major contributor to the power
infrastructure and economic well-being of the United States. Geothermal
power is a reliable, 24/7 baseload energy source that typically
operates 90 to 98 percent of the time. Insulated from market price
volatility, geothermal power supports energy price stability and boosts
energy security because it is a domestic resource. Geothermal power can
help diversify the nation's energy supply and is a clean, renewable
energy source.
We appreciate the interest of the Senate Energy Committee in
geothermal energy and are prepared to work with the Committee and its
staff to achieve the enormous potential of this renewable resource.
Thank you.
Senator Craig. Paul, thank you very much.
Now let us turn to Chris Taylor, director of project
development, northwest region, Horizon Wind Energy, testifying
on behalf of the American Wind Energy Association, in Portland.
Gordon, any additional comment in introduction?
Senator Smith. No, just--good to have you here, Chris.
Thank you for traveling here and for your company's work in
eastern Oregon. Got lots of windmills around me now, and I
guess you're looking at some in Union County, as well.
Mr. Taylor. Thank you very much.
Senator Craig. Chris, please proceed.
STATEMENT OF CHRIS TAYLOR, DIRECTOR OF DEVELOPMENT, HORIZON
WIND ENERGY, LLC, ON BEHALF OF THE AMERICAN WIND ENERGY
ASSOCIATION
Mr. Taylor. Thank you very much, and thank you for the
introduction, Senator Smith. I'm here to testify on behalf of
the American Wind Energy Association.
Very brief background: Horizon Wind Energy is the third
largest wind developer in the United States. We're building
about 700 megawatts of projects this year all across the
country, and we have another 600 megawatts slated for
construction next year, including about 100 megawatts in
Senator Smith's district, in eastern Oregon, that will be
serving Idaho Power under contract, in Senator Craig's----
Senator Craig. Did you hear that, Gordon? You've got the
wind, but we get the power.
[Laughter.]
Senator Smith. At least our wind is being put to some use.
Senator Craig. All right.
Mr. Taylor. And so, we're very happy to have this activity
going on, and happy to have this opportunity.
I'd like to start, very briefly, by thanking the committee
for your past support of renewable energy. I think you've
heard, from a lot of the people today, some of the critical
provisions of EPAct 2005; and, particularly, the 2-year
extension of the PTC has been vital to the continued growth of
all of our industries. And this year and next, it is expected
to lead to new record levels of construction of new wind farms.
And we thank you very much for that extension and hope that a
longer extension will be adopted in the near future so that
developers, manufacturers, and others in our industry can make
the kind of long-term commitments that are necessary, so far as
procurement and construction, to allow us to continue to
increase sufficiency and reduce costs of our technology.
I'd like to talk very briefly about the three main Federal
land agencies--or Federal resource agencies whose decisions and
policies most directly impact our agency. That's the BLM, the
Forest Service, and the Fish and Wildlife Service. And I think
it--several people have mentioned, today, President Bush's
stated goal, the 20--reaching 20 percent of our energy supply
from renewable sources, and I think it's--it's certainly my
opinion, and I believe most people would agree, that the only
way we're going to reach that goal is by tapping the
significant resources on Federal lands. The part of the country
where I live, most of the land is owned by the Federal
Government. We just aren't going to get there without tapping
those resources.
We've heard a fair bit about the BLM today. I'll try to
keep my remarks very brief.
The wind industry is generally very pleased with the
outcome of the programmatic EIS that the BLM released. We
believe that they're workable, that they're realistic, that
they provide adequate environmental protection while still
allowing for cost-effective and economically viable development
on Federal lands, as evidenced by the fact that there are
operating projects on BLM lands. My company has applications
pending with BLM. We've had, by and large, very successful
experience. Like any large bureaucracy, you occasionally
encounter individual staff in the field that don't want to
follow the rules, but we've always been able to find supportive
management within BLM, and we really, overall, commend the
agency for taking the directive from Secretary Norton and
President Bush and really implementing it as rapidly as they
could. And we believe that they, overall, do an excellent job
of facilitating that type of development.
Another Interior agency, the Fish and Wildlife Service--
there were some questions from Senators on the panel today
about those guidelines. Again, you heard from Lynn Scarlett,
and we've also heard from the Director of the Fish and Wildlife
Service, that they're committed to revising those guidelines.
Our emphasis here is just that that needs to be done quickly.
Three years may seem like a rapid timeframe to them, but, to
us, that's more than one whole production tax credit cycle, and
that's a long time for us, and a lot of missed opportunities.
So, we encourage them to get going on that sooner rather than
later.
One other comment I'd like to make about both the Fish and
Wildlife Service guidelines and the Forest Service guidelines
that are under review, which is that this industry has matured
and evolved tremendously in the past several years. Now that
the leading developers of wind power projects--most of the
megawatts that are going in the ground are being built by
publicly-traded, big companies. My company is owned by Goldman
Sachs. You've got Florida Power & Light, energy companies like
GE. This is a serious business. And all of these companies take
these wildlife issues seriously. You don't put a $200 million
investment in the ground without a lot of environmental due
diligence. And I think that perhaps some of the agency folks
need to appreciate just how seriously we take these issues.
Irrespective of the regulations that are in place, we develop
projects everywhere from California to Texas, where the
regulatory schemes couldn't be more different, but we still--
there's a baseline level of wildlife study that we do, because
that's the appropriate thing to do, whether the Government
tells us to, or not.
I want to really thank Senator Smith for the advocacy with
the Forest Service. And I--just to clarify, we have made
repeated requests. I wouldn't go to the trouble of bothering
the good Senator on this issue if we hadn't tried on our own.
We have been repeatedly rebuffed in our attempts to get
involved. I suspect that our phone calls will get answered now,
and I'm tremendously appreciative of that.
Our concern--they may be developing a great set of
guidelines, and I have no knowledge of what those guidelines
that they're developing look like. They may be fantastic. I
might find myself here, 2 years from now, saying that we love
them. But we just get nervous when things are being developed
in a vacuum without the involvement of the people that do this
every day. And, you know, we have--my company spends probably a
million dollars every year on wildlife studies. We have a lot
of expertise. We employ the best consultants--we believe, the
best consultants in the business. And we'd like to bring that
knowledge and that expertise to bear, to help in developing a
public policy that works for everyone. And we know that that
means involving other stakeholders, as well.
So, I'm one of those two applications that they have, by
the way, so we're very interested in the potential on Forest
Service lands, and we look forward to participating in that.
And we thank the committee for your continued support of
renewable energy.
[The prepared statement of Mr. Taylor follows:]
Prepared Statement of Chris Taylor, Director of Development, Horizon
Wind Energy, LLC, on behalf of the American Wind Energy Association
INTRODUCTION
Mr. Chairman (and members of the committee), my name is Chris
Taylor. I am Director of Development for Horizon Wind Energy (Horizon).
Horizon is one of the nation's largest wind energy development firms.
We develop, build and operate wind power projects across the U.S. from
upstate New York to Southern California. We currently have over 700 MW
of wind projects under construction in Washington, New York, Illinois
and Texas and expect to construct another 600 MW in 2007. These
projects represent an investment of nearly $2 billion in 2006 and 2007
alone. Horizon Wind Energy is a wholly owned subsidiary of Goldman
Sachs, a leading international financial services firm. I direct
Horizon's development efforts in the Northwest region and have projects
under development and/or construction in Washington, Oregon and
Montana.
I also serve on a variety of committees for the American Wind
Energy Association, a trade association representing every aspect of
the wind industry, and I have been an active participant in the
development of state, regional and national siting policies related to
wind power. For example, I represented the wind industry in
negotiations with the Washington Department of Fish and Wildlife which
resulted in the issuance of the state's wind power siting guidelines in
2003; I was appointed by Governor Kulongoski in 2005 to the Oregon
Renewable Energy Working Group; and I am a member of the National Wind
Coordinating Committee's Wildlife Core Group, which is a diverse group
of experts from industry, environmental NGO's, state and federal
agencies and independent biologists.
Horizon Wind Energy and the American Wind Energy Association (AWEA)
greatly appreciate this opportunity to provide testimony before the
Senate Energy Committee today.
I'd like to start by thanking the committee for its past support of
renewable energy and wind energy in particular. The Energy Policy Act
of 2005 contained a critical 2 year extension of the Production Tax
Credit (PTC) which has fueled the continued rapid growth of the wind
industry and is expected to lead to record levels of new wind plant
construction in 2006 and 2007. We thank you for this extension and hope
that a longer term extension will be adopted in the near future so that
manufacturers, developers and others in our industry can make the type
of firm, long term commitments for procurement and construction that
will drive further cost reductions.
With respect to the subject of today's hearing, I would like to
provide a very brief overview of our perspective of the current
regulatory climate for development of wind power on federal lands. The
three federal resource agencies that have the greatest effect on our
industry are the Bureau of Land Management (BLM), the Fish and Wildlife
Service (USFWS), and the Forest Service (USFS), and I will try to touch
briefly on each agency today.
BLM
The wind industry is generally very pleased with the outcome of the
BLM's recent (2005) Programmatic Environmental Impact Statement (PEIS)
process for wind energy development. The process the BLM followed was
very open and involved participation from a wide variety of
stakeholders (including representatives of both the wind industry and
environmental organizations) and resulted in practical, common sense
rules. As a result, the BLM produced a set of successful guidelines
featuring ``Best Management Practices'' for wind power development on
federal lands. These guidelines have been widely accepted by both the
wind power industry and the environmental community. These BLM
guidelines allow for commercially successful development of wind power
facilities on federal lands while protecting habitat, wildlife and
other resources.
The BLM has a fairly long history of leasing land for wind power
generation in California and Wyoming and there are many operating wind
projects on BLM land in these two states. My firm and many of our
competitors are now actively seeking Rights of Way (ROWs) from BLM for
wind testing and monitoring as well as for actual wind project
development. As with any large bureaucracy, we occasionally encounter
individual BLM staff at the local field office level who are resistant
to our requests, but overall, we believe the BLM does an excellent job
of facilitating wind power development on lands under its jurisdiction.
USFWS
In July 2003, the USFWS issued a document it called ``Interim
Guidance on Avoiding and Minimizing Wildlife Impacts from Wind
Turbines''. While these guidelines are in theory voluntary, the reality
is that wind energy developers are increasingly being asked to follow
these guidelines by USFWS field personnel offering comments on proposed
projects being reviewed under NEPA or its state equivalents and by
state and local agencies. We have very serious concerns with this
guidance document, which we have shared with the USFWS on many
occasions. These guidelines were developed with little to no
stakeholder involvement, despite requests from members of our industry
and others to participate before the document was issued. As a result,
the guidelines have been widely criticized by both wind energy
developers and the environmental community. In addition, more than a
full year of effort was required to even begin correcting the factual
and practical problems with the first set of guidelines.
It is my understanding that senior managers within the USFWS have
acknowledged the need to revise and correct these guidelines and that a
collaborative process to do so will be initiated in the near future. My
company and AWEA hope to be actively involved in that effort. We thank
the leadership of USFWS and the Department of the Interior for their
willingness to correct the current guidance document. I do want to
emphasize, however, the urgency of getting the current, flawed USFWS
guidelines revised and corrected. Over the past 3 years, the current
document has caused countless delays in the permitting and review of
proposed wind energy projects with no appreciable benefit in terms of
wildlife protection. We can not afford to spend another three years
correcting this document.
The reality is that the vast majority of the wind power projects
that are being built today are built by large, responsible, well-
capitalized firms that understand the importance of proper siting and
are sensitive to the needs of birds and other wildlife. Firms like FPL
Energy, PPM Energy, and Horizon (the three largest developers in the
U.S. today) take these siting issues very seriously and have experts on
staff and consultants under contract specifically to address them. We
spend millions of dollars a year on wildlife related studies and
mitigation efforts, most of it totally voluntary. This is both the
responsible thing to do and a logical business decision, since our
future growth depends on being able to permit and construct lots of new
wind projects. Even for those projects developed by smaller firms, it
is increasingly difficult to obtain financing to construct a new wind
project without having conducted appropriate studies to evaluate
potential impacts to birds and other wildlife.
USFS
It is my understanding that the United States Forest Service is
currently in the process of drafting national guidelines for wind
energy development on Forest Service lands. The wind industry first
learned of this informally at a meeting with wildlife groups and
agencies in Washington DC in March 2006. We immediately asked the
Forest Service personnel involved in the guidelines process to allow us
to participate in the development of this document which will likely
have a substantial impact on our industry. My company and several
others have applications pending with the USFS for ROW's for wind
testing and monitoring in states from Vermont to California. Given how
much of the western U.S. is administered by the Forest Service, it is
vital that whatever guidelines are developed regarding wind development
on National Forest lands be realistic and informed by the latest
science.
To date, no wind developers or other parties have been involved--
despite their repeated requests--to lend their expertise in helping to
draft the proposed Forest Service guidelines. Given that the USFS has
virtually no experience or expertise in the issues surrounding wind
power and wildlife, it seems unwise to reject input from those parties
with the greatest experience and expertise in these issues.
We urge the Forest Service to open up this process to allow input
by wind energy developers and other groups who have knowledge and
experience vital to forming sound, practical policies that encourage
wind energy development while also protecting Forest Service lands.
Given the considerable expenditure of time and federal funds that go
into such efforts, we also urge the Forest Service to follow the BLM
approach in developing guidelines for wind power development on Forest
Service lands.
To that end, we strongly encourage the Forest Service to
immediately open up the wind power guidelines development process and
to allow for meaningful participation and input from all interested
groups.
Senator Thomas. Mr. Chairman?
Senator Craig. Please.
Senator Thomas. For the record, while Idaho gets the power,
we're pleased that Oregon will keep the tax revenues from the
sale of that power.
[Laughter.]
Senator Craig. You would have to erect a reasonably good
scenario here.
[Laughter.]
Senator Craig. I was asked the inquisitive question the
other day by another Senator who happens to be downwind of
Idaho, ``As we use the wind, is used wind as productive as pre-
used wind?''
[Laughter.]
Senator Craig. I'll leave--no, you don't need to answer
that.
Mr. Taylor. I think it is. It's renewable.
Senator Craig. Yes, it is renewable, isn't it? All right.
So, it is reusable, then, by definition.
Now let me introduce Bob Liden, executive vice president
and general manager, Stirling Energy Systems, testifying on
behalf of the Solar Energy Industry Association from Phoenix.
Bob, welcome to the committee.
STATEMENT OF ROBERT B. LIDEN, EXECUTIVE VICE PRESIDENT AND
GENERAL MANAGER, STIRLING ENERGY SYSTEMS, ON BEHALF OF THE
SOLAR ENERGY INDUSTRIES ASSOCIATION
Mr. Liden. Good afternoon, Mr. Chairman and members of the
committee. I appreciate the opportunity to offer testimony on
this vitally important issue.
Stirling Energy Systems, Inc., or SES, is a concentrating
solar energy development company headquartered in Phoenix,
Arizona. We also have engineering offices at Sandia National
Laboratories, in Albuquerque, New Mexico, and a small satellite
office in Tustin, California.
I would also like to express my personal thanks for your
continued support for solar energy, and, in particular, for
concentrating solar power. The incentives provided in the
Energy Policy Act of 2005, including an increase in the
investment tax credit and the loan guarantee program, would not
have been possible without your able leadership. Frankly,
without the committee's support, we would not have been in a
position to bring into commercial deployment the technology
that is the fruit of over 20 years of research and development
by private industry, the U.S. Department of Energy, and the
national laboratories, particularly Sandia National Laboratory.
Our company has signed contracts with two large utilities
in southern California, and are in negotiations for two other
projects to develop the world's largest solar powerplants. What
is particularly relevant here is that these projects will be
sited primarily on Federal land. And this should be not very
surprising to anybody on this committee. I did put a map up
there, on--which is almost impossible to see because of the
glare, I'm afraid--but the map there shows, kind of, a light
green. All that light green area is federally owned land. And
you'll notice that in the Southwestern United States, which is
where the sweet spot is for concentrating solar power, almost
all of the land outside of the cities themselves is owned by
the Federal Government or, in some cases, by State governments.
Regarding the two large solar contracts in California, both
are 20-year power purchase agreements, one with Southern
California Edison, the other with San Diego Gas & Electric. The
SCE contract is for 500 megawatts peak output, with an
expansion option for an additional 350 megawatts. The plant
will be sited in the Mojave Desert, east of Barstow,
California. The SDG&E contract is for an initial 300 megawatt
plant with options to expand by another 600 megawatts. This
project will be sited in the Imperial Valley, near El Centro,
California. The two contracts, when fully built out, including
the expansion options, will result in 1,750 megawatts of peak
power generation capacity. The solar technology being employed
for these projects is a concentrating dish engine system that
was initially developed in the mid 1980's by McDonnell Douglas,
later purchased and further tested by SCE, and, in 1996,
purchased by SES. We have spent the past 10 years testing and
modifying the dish system design for high volume manufacturing
and deployment. You can see a picture of two of those dishes
that are located at Sandia National Laboratories in the picture
that's at the top on that poster.
It's important to note that this technology does not use
water for cooling, so it's well suited for the hot arid desert
locations where we find it's most appropriate to site this type
of technology.
For these two contracts, we will be deploying as many as
70,000 dishes, each about 35 feet in diameter, that will be
installed on a total of 11 to 13 square miles of desert land.
The specific land requirement is partly dependent on local
siting issues, such as washes, rock outcroppings. In essence,
though, we will be planning 70,000 technological trees in two
large solar forests. As mentioned above, almost all of the land
at the selected sites is owned by the Federal Government and
administered by BLM.
We are currently in the process of performing environmental
impact studies and preparing permit filings required by the
Federal Government and by the State of California. I am pleased
to report that the two regional BLM offices that are working
with us have both provided excellent support and help. This is
a continuing experience for us, and we are, in a very real
sense, plowing new ground. These will be the first--large solar
dish powerplants ever constructed, and it's been nearly 15
years since any large-scale solar plants of any kind have been
built in the United States.
I offer the following observations, however, based on the
experience to date:
Renewable energy projects, particularly solar and wind,
require large amounts of land. However, to put this in
perspective, a solar dish farm covering about 11 square miles
of land in the solar-rich Southwest United States can generate
as much energy each year as the Hoover Dam, which requires 247
square miles of Lake Mead.
The Mojave Desert is the prime site for large-scale solar
project development in California. There are persistent efforts
by environmentalists and conservationists, however, to get
legislation enacted to preserve all of the Mojave Desert and
not allow any development.
Third, endangered species, such as the desert tortoises
that seem prevalent throughout the Southwest deserts, require
mitigation efforts, including securing up to six times the
amount of land actually required for the project. This is
expensive, and, in many cases, is a real deal-stopper. At
times, the BLM requires the developer to purchase non-BLM land
for this mitigation and deed it over to the BLM for use in
providing a protective habitat for the displaced tortoises.
This is also problematic, since BLM no longer has enough
staffing to handle the real estate acquisitions, and the
private landowners approached by a developer like us generally
seizes the opportunity to hike, significantly, the price of
their land.
In fact, just as an aside, what we have observed, while
we've gotten good support from the regional offices of BLM,
we've noted that these offices, particularly, at least, in
Barstow and El Centro, are understaffed and stretched too thin,
even providing emergency medical services to people injured on
government lands is a challenge, given the few people and the
vast amount of land they're required to oversee.
Now, how Congress could help encourage the development of
renewable resources on Federal lands, besides perhaps helping
staffing of the BLM, one would be to encourage landholding
agencies, such as the Department of the Interior, Department of
Defense, and so forth, to establish set-aside lands in their
resource plans that are specifically for the development of
solar, wind, et cetera. Now, NREL--that's the National
Renewable Energy Laboratories--has well-developed maps showing
the primaries for development of solar and wind, at least, and
some other maps that are perhaps not quite as well developed
for the other renewable resources, that could assist the
agencies in this effort.
To further encourage the development of renewable energy
projects on these lands, environmental impact studies should be
undertaken by the Federal Government resulting in the
identification of, for example, solar or wind enterprise zones
where solar or wind developers can more rapidly and efficiently
bring their projects online. Doing an environmental impact
study oftentimes requires anywhere from 1\1/2\ years to 3
years.
Second recommendation is to encourage FERC, WAPA, and other
Federal power transmission authorities to develop a master plan
for upgrading and expanding the transmission network to
facilitate getting the power from Federal lands to the major
load centers and population centers. These upgrades are sorely
needed, but they're generally very expensive. Requiring
developers to finance these upgrades, even if the developers
are ultimately repaid their expenses, is onerous, and it
discourages all but the most deep-pocketed developers from
proceeding with their projects, in many cases.
Finally, establish some ground rules for setting lease
rates on Federal lands that encourage the use of these lands
for renewable project development, and recognize the need for
low-cost land to keep the overall cost of renewable energy as
low as possible.
Again, I thank you for this opportunity, and I look forward
to any questions that the committee might have.
[The prepared statement of Mr. Liden follows:]
Prepared Statement of Robert B. Linden, Executive Vice President and
General Manager, Stirling Energy Systems, on Behalf of the Solar Energy
Industries Association
Good afternoon. My name is Robert Liden, and I am the executive
vice president and general manager of Stirling Energy Systems, Inc.
(SES), a solar energy development company headquartered in Phoenix,
Arizona. We also have engineering offices at Sandia National
Laboratories in Albuquerque, New Mexico, and a small satellite office
in Tustin, California.
I want to thank you Mr. Chairman and Senator Bingaman for having
this important hearing and allowing SES the opportunity of testifying
before this committee. Without this committee's continued support for
solar energy and, in particular, for concentrating solar power, we
would not have been in a position to proceed with these large
contracts, bringing into commercial deployment technology that is the
fruit of over 20 years of research and development by private industry,
the U.S. Department of Energy, and the national laboratories
(particularly Sandia National Laboratory).
I also would like to applaud you for passing the very comprehensive
Energy Act of 2005, which, among other things, provides increased tax
credits, a loan guarantee program, and other key incentives for the
development of clean, renewable energy.
Our company has signed contracts with two large utilities in
southern California and are in negotiations in New Mexico for a third
project to develop the world's largest solar power plants. What is
particularly relevant here is that both of the projects in California
will be sited primarily on BLM land.
Regarding the two large solar contracts in California both are 20-
year power purchase agreements, one with Southern California Edison
(SCE), and the other with San Diego Gas & Electric (SDG&E). The SCE
contract is for 500 MW (peak output), with an expansion option for an
additional 350 MW. The plant will be sited in the Mojave Desert east of
Barstow, CA. the SDG&E contract is for an initial 300-MW plant, with
options to expand by another 600 MW. This project will be sited in the
Imperial Valley near El Centro, CA. The two contracts, when fully built
out (including the expansion options) will result in 1,750 MW of peak
power generation capacity.
The solar technology being employed for these projects is a
concentrating dish-engine system that was initially developed in the
mid 1980's by McDonnell Douglas, later purchased and further tested by
SCE, and in 1996, purchased by SES. It is important to note that our
dish technology does not require water for cooling. We have spent the
past 10 years testing and modifying the dish system design for high-
volume manufacturing and deployment.
For these two contracts, we will be deploying as many as 70,000
dishes, which will be installed on a total of 11-13 square miles of
desert land and our technology. (The specific land requirement is
partly dependent on local siting issues, such as washes, rock
outcroppings, etc.) In essence, we will be planting 70,000
technological trees in two large solar forests. As mentioned above,
almost all the land at the selected sites is owned by the Federal
Government and administered by the Bureau of Land Management (BLM).
We are currently in the process of performing environmental impact
studies and preparing permit filings required by the Federal Government
and by the State of California. I am pleased to report that the two
regional BLM offices that are working with us have both provided
excellent support and help.
This is a continuing experience for us, and we are, in a very real
sense, plowing new ground. These will be the first large solar dish
power plants ever constructed, and it has been nearly 15 years since
any large-scale solar plants of any kind have been built in the U.S. I
offer the following observations however, based on our experience to
date:
1. Renewable energy projects, particularly solar and wind, require
large amounts of land. (However, to put this in perspective, a solar
dish farm covering about 11 square miles of land in the solar-rich
southwest can generate as much energy each year as the Hoover Dam,
which requires 247 square miles of Lake Mead.)
2. The Mojave Desert is the prime site for large-scale solar
project development in California. There are persistent efforts by
environmentalists and conservationists, however, to get legislation to
preserve all of the Mojave Desert and not allow any development.
3. Endangered species (such as desert tortoises) require mitigation
efforts, including securing up to 6 times the amount of land actually
required for the solar project. This is expensive and, in many cases,
is a real ``deal-stopper''. At times, the BLM requires the developer to
purchase non-BLM land for this mitigation and deed it over to the BLM
for use in providing a protective habitat for the displaced tortoises.
This is also problematic, since BLM no longer has enough staffing to
handle the real estate acquisitions, and the private land-owners,
approached by a developer, generally seize the opportunity to hike
significantly the price of their land. (In fact, what we have seen is
that the BLM regional offices--at least the ones in Barstow and El
Centro--are understaffed and stretched too thin. Even providing
emergency medical services to people injured on the government lands is
a challenge, given the few people and the vast amount of land to
oversee.)
How Congress can help encourage the development of renewable
resources on federal lands:
1. Encourage the land-holding agencies (Department of Interior,
Department of Defense, etc.) to establish ``set aside'' lands in their
resource plans specifically for the development of solar, wind, etc.
(NREL has well-developed maps showing the prime areas for development
of all the renewable resources to assist the agencies in this effort.)
To further encourage the development of renewable energy projects on
these lands, environmental impact studies should be undertaken by the
federal land owners, resulting in the identification of, for example,
solar or wind enterprise zones, where solar or wind developers can more
rapidly and efficiently bring their projects ``on line''.
2. Encourage FERC, WAPA, and other federal power transmission
authorities to develop a master plan for upgrading and expanding the
transmission network to facilitate getting the power from federal lands
to the major load centers and population centers. These upgrades are
sorely needed, but they are generally very expensive. Requiring
developers to finance these upgrades (even if the developers are
ultimately repaid their expenses) is onerous, and it discourages all
but the most deep-pocketed developers from proceeding with their
projects.
3. Establish ground rules for setting lease rates on federal lands
that encourage the use of these lands for renewable project development
and recognize the need for low-cost land to keep the overall cost of
renewable energy as low as possible.
Finally, a brief reminder of why renewable energy development is
important:
1. The economic impact of new renewable energy projects is
immense--hundreds to thousands of jobs to develop and operate these
power plants, bringing new tax dollars into primarily rural
communities, where unemployment is high and a boost to the local
economies are sorely needed.
2. Renewable power plants reduce the nation's dependence on fossil
fuels and imports, enhancing our national security, improving our
balance of payments; and stimulating our economy.
3. Renewable power plants improve our environment, reducing
greenhouse gases, and cleaning our air. (For example, our two solar
projects in California, if built out to their full potential of 1,750
MW, will displace 1.8 million tons of coal consumption and reduce
CO<INF>2</INF> emissions by 400 tons per year compared to a coal-fired
plant of the same size.)
Again, I thank you for this opportunity and I look forward to any
questions the committee may have.
Senator Craig. Bob, thank you very much.
Now let us turn to Bernie Karl, proprietor, Chena Hot
Springs Resort, Fairbanks, Alaska.
Senator, do you have any additional introductory comments?
Senator Murkowski. Well, I would just like to personally
welcome Mr. Karl. Bernie is not only a constituent, but a
friend who has been running a terrific business up in the
interior. And I would certainly encourage anyone who has the
opportunity to travel to Chena Hot Springs to see what is
happening out there. In addition to not only a lovely place to
have a weekend and soak in the great waters there, the entire
facility is being run off of the geothermal power. What Mr.
Karl is doing, in terms of the lower-temperature geothermal
technology, is, as I mentioned in my opening statement, really
very exciting for the State. So, I'm just very pleased to have
him here and thank him for traveling all the distance to speak
to the committee today.
Mr. Karl. Thank you, Senator.
Senator Craig. Please proceed, Bernie.
STATEMENT OF BERNIE KARL, PROPRIETOR, CHENA HOT SPRINGS RESORT,
FAIRBANKS, AK
Mr. Karl. Thank you very much for the opportunity to speak.
Chena Hot Springs is 60 miles northeast of Fairbanks,
Alaska. We will be bringing online, this month, the first
geothermal powerplant in the State of Alaska, the first
geothermal powerplant in the history of the United States to be
making electricity off 165-degree water.
I don't really know if people know how significant that is.
We have enough geothermal energy in the world to take care of
the whole energy. We're 5 percent of the world's population,
we're consuming 25 to 35 percent of the world's energy. What's
wrong with that equation? We have to start somewhere. We need
to start here today. So, what do we do? We cut the geothermal
budget so there's no money--no money to work with geothermal.
Yet it is the absolute best bang for the buck. If you want to
do something great for this country, take the geothermal budget
and make it $150 million a year. That's what you need to do to
help this country if you want to become self-sufficient. The
President of the United States said that we are ``addicted to
oil.'' He's absolutely right. We have the worst addiction of
any addiction known to man. We think drugs are bad? Drugs are
nothing. Look at what we spend for oil. If you don't believe
me, go fill your car up sometime--$50. And you know why it's
$50? Because it should be $100. It should be $100, because we
do not put what it costs to replace that energy. If the actual
cost was there to replace the energy, it would be $100. And I
guarantee you we would have alternative energy, then.
Right now, you are sitting on top of alternative energy. If
you will finance half of the well, I will finance half. We will
drill a well right in front of the Department of Energy, 20,000
feet, and I will provide you enough energy to heat the
buildings, all of the capital buildings. I can promise you
that. But I think I can also give you enough energy to turn the
lights on. I will pay for half of it. So, I challenge you--I
challenge you to come up with that money.
We should be the world's leaders in alternative energy. At
Chena Hot Springs, we're a little, bitty company. Little bitty.
I have $1.7 million of my family's money and the bank's money,
not counting some Department of Energy money, and a lot of
money from United Technologies. I believe that the technology
that's coming out of this powerplant will make the most
significant contribution to power generation in the 21st
century. There is nothing that's going to compete. Why?
Because--a quick example. United Technologies, because they are
a company that is committed, committed to this project, you
will see 500,000 of these units working in the United States in
the next 10 years. You say, How can you make a statement like
that? In Texas alone, there's 225,000 producing oil and gas
wells. They produce 5 percent oil and gas, 95 percent water, 4
million barrels a day at 265 degrees. There's 125,000 wells
that are nonproducing. That's 350,000 wells. Every well should
be producing electricity. Every well should be producing
refrigeration. At Chena Hot Springs, we keep the largest ice
structure in the world cold, frozen, all summer by using
absorption chilling. We use 95 gallons a minute of hot water,
75 gallons of cold water. We make 15 tons of refrigeration,
minus-29 below in the evaporator. It's the largest ice
structure in the world to be up all summer. Forbes magazine
voted it the Dumbest Business Idea of the Year in 2004. Forbes
can kiss my--it's----
[Laughter.]
Mr. Karl. He might think it's dumb----
Senator Craig. Careful, now.
[Laughter.]
Senator Craig. Kiss your ``cachena''?
[Laughter.]
Mr. Karl. I'm sorry, sir. But I did not say it.
[Laughter.]
Mr. Karl. My wife will kick my--if I----
[Laughter.]
Mr. Karl. Anyway--right now at Chena Hot Springs, this
year, we will become as totally close to a self-sustained
society in the United States. We have 65 employees that live
onsite. We have 445 acres. We built and maintain our own
runway, our own landfill, our own water system, our own
electric system. By putting this powerplant in, we're going to
displace $400,000 a year worth of fuel. I already displaced
over $300,000 worth of fuel by heating 44 buildings. We just
built our third greenhouse. Everything that you eat there will
be growing there on a 365-day basis. We have 165 separate
experiments going on in horticulture with the University of
Alaska. We have our first hydrogen plant there. Our first
hydrogen vehicle will be there in August. By the first quarter
of next year, everything I own will be running on hydrogen.
Everything. And the only way you get to a hydrogen economy is
through geothermal. You have to use alternative resources. To
burn fossil fuels is insane. Absolutely insane. We're burning
our children's future. We need those fossil fuels to get us to
alternative energy, and then we need to use them for the carbon
that they have so that we can build everything with carbon
fiber. But if we burn it all now, we're spending the bank
account. There's going to be nothing left.
So, if you can do anything at all, you need to increase
geothermal's budget to at least $150 million. I'm thankful that
you put in the measly $23,000. Don't take it wrong; I'm very
appreciative.
Senator Craig. Million. There's a difference between
thousand and million.
Mr. Karl. I mean, excuse me, million. I'm sorry.
[Laughter.]
Mr. Karl. Thank you for correcting me.
I see my time is up. And I don't want to take any more of
your time. But you don't know how much I appreciate your time
and how important this is. There's nothing more important in
our society today than alternative energy, and we have to start
here. And for anyone to think that geothermal is an industry
that is so--you know, they say that the industry is already a
mature industry. Well, if that was true, why did I have to work
so hard to find somebody that wanted to build a turbine on 165-
degree water? And if that is true, why isn't everyone on
alternative energy?
Thank you, sir.
[The prepared statement of Mr. Karl follows:]
Prepared Statement of Bernie Karl, Proprietor, Chena Hot Springs
Resort, Fairbanks, AK
My name is Bernie Karl. I am the proprietor of Chena Hot Springs
outside of Fairbanks, Alaska. Chena Hot Springs will be the site of the
only new geothermal power plant installation in the United States this
year. It will also be the site of the lowest temperature resource (165
F) ever used for commercial power generation in the world. Attachments
to my written statement contain additional details on this exciting and
unique project.*
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* The attachment has been retained in committee files.
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The power generation project at Chena would not be possible without
support from the United States Department of Energy's Geothermal
Technologies Program, which is currently threatened with elimination. I
am testifying in support of reinstating and expanding the Department of
Energy's geothermal budget as well as extending the production tax
credit for geothermal resources.
Our country faces a number of critical energy concerns including
the need for a diverse portfolio of clean, renewable domestic sources
of supply. Additional investment in public private geothermal R&D
partnerships can open up extensive new opportunities for domestic
production of renewable energy. New technologies that hold tremendous
promise for tapping moderate temperature geothermal resources,
including those associated with oil and gas production are emerging.
Without validation in real world operating conditions and a stable,
sustained commitment to financial incentives, the necessary investment
will not be made and these technologies will never penetrate the market
resulting in lost opportunities for renewable domestic energy
production and the associated economic and environmental benefits.
For example, until just a few years ago, it was believed that power
generation from geothermal resources lower than 230 F was
uneconomical. However, that picture is changing as the cost of energy
rises, and the technology improves. Moderate temperature geothermal
resources are by far the most prevalent in the United States and around
the world. Estimates indicate there are between 20,000 and 40,000 MW of
geothermal electrical energy potential in the U.S. alone in the 190 to
300 degrees Fahrenheit range.
In fact, you could hit those temperatures right here underneath
Washington DC if a hole 20,000 feet deep \1\ were drilled. Heat from
the earth, whether used for power generation or heating buildings and
homes is the most reliable form of renewable energy available to us. It
doesn't depend on clear skies, windy days, or rainfall, making
geothermal a good base load alternative energy. While using the heat
from the earth for heating and cooling is economical throughout the
U.S., our best geothermal resources for power generation are in the
western states.
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\1\ According to the U.S. Heat Flow Map created by Southern
Methodist University. www.smu.corn/geothermal
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4% of power generation in the West today is generated from
geothermal resources. However, this existing generation is almost all
from high temperature, easily accessible resources. The next step in
geothermal power generation will require new technologies, including
enhanced geothermal (EGS), exploration for blind systems, and
development of improved technologies for moderate temperature power
generation. All of these areas are being explored by the Department of
Energy's Geothermal Technologies Program and are jeopardized by the
Administration's proposed elimination of funding.
I can testify from firsthand experience that the Department of
Energy's program, with Dr. Roy Mink, and until recently David Garman,
at the helm represents the best our government can offer. They are
hands-on managers, who understand the possibilities and are tirelessly
working to steer our country in the right direction while keeping a
close eye on the bottom line. Without their support, the geothermal
projects at Chena Hot Springs, which have attracted $3 million in
private investment alone, would never have come to fruition.
In the future, the geothermal industry is also going to need to
think outside of the box. There are currently 225,000 producing oil and
gas wells \2\ in Texas which produce 95% water along with 5% oil and
gas. This water is a waste by product of the oil industry. However, at
temperatures averaging 265 F, this water could be used in a power
generation cycle before being re-injected into the ground.
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\2\ There are an additional 125,000 existing wells currently not in
use that could also be tapped for power generation.
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If every producing oil and gas well in Texas alone used this
technology, the same power generation technology being tested right now
at Chena Hot Springs in Alaska, we could generate 5000MW of power from
this renewable geothermal resource. This is the equivalent of 5 new
nuclear power plants. In addition, this technology could extend the
life of currently unprofitable oil and gas wells thus providing
additional jobs and energy security benefits. With the modular power
plant designed and developed by United Technologies in partnership with
Department of Energy, this type of power generation could be brought
online within a very short time period after the technology is
demonstrated and validated in real world operating conditions.
Geothermal energy is also a potentially vital piece of a future
`hydrogen economy' in which Congress is investing research dollars.
Hydrogen production over the long run makes sense only from using
renewable energy sources. Therefore, development of those resources
should go hand in hand with hydrogen research.
President Bush has stated repeatedly that we are addicted to oil
and as a country we need to wean ourselves from this addiction.
Geothermal energy is part of that solution. Geothermal development has
had success with readily accessible higher temperature sources. The
opportunities for geothermal technology development have not been
exhausted; there is still huge potential for additional future
generation of heat and power by applying new technologies to abundant
lower temperature resources.
The Department of Energy has historically been the driving force
behind new development and exploration in geothermal--the `thinking
outside the box' that industry is often reluctant and financially
unable to undertake alone. I believe that reinstatement, and even
expansion of the geothermal technologies program budget is critical for
the future of power generation in the Western United States.
In addition, I recommend the Renewable Electricity Production
Credit that is due to sunset in 2008 be extended until 12/31/14 as
provided in S. 2829. The continued R&D investment via cost shared
public private partnerships sponsored by DOE coupled with a longer term
production credit will provide the market with more certainty and
enable sound investment choices. There are never simple solutions, only
intelligent choices. Thank you for the opportunity to speak on this
important and timely topic.
Senator Craig. Bernie, thank you very much for that very
interesting testimony. You've almost convinced me to come. I
was in Soldotna last weekend. Do you have fish?
Mr. Karl. Yes, sir.
Senator Craig. I'll be there.
[Laughter.]
Senator Craig. All right.
Mr. Karl. And I'll tell you what. We have the fish there,
and I--I'm for sure that Senator Stevens is going to be there.
I believe Senator Murkowski will be there. But let me tell you,
we have your fish. I mean, they're right there. We've got your
fly rod ready. You're going to have one heck of a good time.
It's on August 20. We anticipate there'll be 1,000 people
there.
Senator Craig. I'm not allowing commercializing at this
hearing.
[Laughter.]
Senator Craig. That's a commercial advertisement. You'll
have to pay the committee.
[Laughter.]
Senator Craig. All right.
Mr. Karl. I apologize, sir.
Senator Craig. All right.
Now let us turn to John White, executive director, Center
for Energy Efficiency and Renewable Technologies, in
Sacramento.
John.
STATEMENT OF V. JOHN WHITE, EXECUTIVE DIRECTOR, CENTER FOR
ENERGY EFFICIENCY AND RENEWABLE TECHNOLOGIES, SACRAMENTO, CA
Mr. White. Thank you, Senator. I appreciate the committee's
invitation to be here today.
The Center for Energy Efficiency and Renewable Technologies
is a collaborative made up of environmental organizations and
companies that are involved with the renewable energy business.
Our affiliates include members and companies involved in solar,
wind, geothermal, and the major energy and environmental
organizations.
I'll be brief, because I know the committee's time is
valuable, and we have submitted remarks for the record.
A couple of observations. We have done some work on
stakeholder planning efforts regarding renewable resource
development and transmission. And I think a couple of things
have come from that work that we have done to try to actually
facilitate the development of these resources.
The first is, when the lands are sensitive, then there
needs to be appropriate amount of time and effort and energy
expended with those lands. And if we try to streamline the
siting on sensitive lands, we're going to end up having delays
down the road, because we'll have litigation. So, we really
think involvement and engagement with the parties early is very
important.
Second, with regard to the State and Federal agency
coordination, we need to see some improvements there. I would
share the observation about the budget and staffing issues in
the Federal agencies, but also, as the BLM is developing its
new guidelines for geothermal, we'd hope that we could have a
higher level of coordination between the State environmental
process, which, in California, is fairly well developed, and
the Federal processes.
We have been working in the Tehachapi wind resource area,
near Kern County, with a variety of the parties, including the
utilities, the Federal agencies, the environmental community,
developing a plan for developing a coordinated approach to
transmission and renewable resources. And I think that's a
critical thing to recognize, that for renewables to be
successful, they're going to need to have transmission. And the
planning of that transmission needs to be coordinated with the
procurement and the development of the resource. It's a little
bit like a chicken-and-egg problem.
The FERC, Federal Energy Regulatory Commission, needs to be
made especially cognizant of its role in providing access to
the grid for the--for the existing grid, and to recognize the
public benefits of renewable resources when considering new
transmission. All of these State renewable portfolio standards
that are helping to guide and direct the utility procurement
ultimately will be influenced by FERC action on transmission
plans, and there needs to be a recognition specifically that
there are public benefits associated with renewables to be
accomplished with the transmission plans.
The Western Governors Association, as Dr. Snyder mentioned,
has done a significant amount of work recently. I commend to
you their task force recommendations on efficiency, geothermal,
and concentrating solar, all of which represent a contribution
from a lot of stakeholders. But one of the key findings of that
report is the need to recognize the known renewable resource
areas in renewable--in regional transmission planning. There's
a lot of talk about regional transmission planning and lines
being built from the resource areas to the load centers. Those
planning efforts need to involve the renewable resources
equally in that process.
Last, I would echo the concerns about the production tax
credit. I think one of the reasons we have had a sort of start-
and-stop process with regard to siting and difficulty of
Federal agency response is that we have had short lead times on
the production tax credit. And what we need to figure out a way
to do--I think the geothermals suggestion about the in-service
date being changed to when there's a contract makes a lot of
sense--but we need to provide more certainty, over the long
run, for these production tax credits, particularly for
geothermal and solar, as well as for wind, in such a way that
we can know that these resources are going to be developed, and
we can then take upon us some of these suggestions regarding
developing set-aside areas, areas that we know are going to be
developed, instead of waiting for individual projects to come
in one at a time.
So, I would commend to you the work that the Western
Governors has done, and the need to link procurement with
transmission planning and to provide as much certainty as
you're able with regard to the production tax credits.
Thank you very much.
[The prepared statement of Mr. White follows:]
Prepared Statement of V. John White, Executive Director, Center for
Energy Efficiency and Renewable Technologies, Sacramento, CA
The Center for Energy Efficiency and Renewable Technologies (CEERT)
greatly appreciates the opportunity to offer testimony to the Senate
Energy Committee on the implementation of the Energy Policy Act of 2005
(EPAct) as it pertains to the growth of geothermal and other renewable
resources in the Western U.S. While we believe that the legislation
provides an excellent opportunity to enhance the growth of these
sustainable resources, the Committee is right to realize that the
implementation of such policies must be done correctly to achieve the
maximum benefit.
CEERT is a non-profit public benefit organization composed of
national environmental groups including Natural Resources Defense
Council, Environmental Defense and Union of Concerned Scientists as
well as technology and energy producers working to increase the use of
renewable energy and energy efficiency. Our organization has become an
important forum and a vehicle for these various groups to come together
and generate positive action on common issues like global warming, air
pollution and environmental and economic sustainability.
Over CEERT's 15 years of existence we have seen renewables grow
from a boutique industry to an increasingly significant energy
resource. Internationally, the renewable industry has one of the
world's fastest growing markets with new capital flowing in all the
time. Our home state of California is in many ways the birthplace of
this industry, yet as in the rest of the U.S., the growth of renewables
has lagged behind many other leading economies. While there are a
number of reasons for this, the EPAct affords an excellent opportunity
to improve the process for the development of renewable energy in the
West and around the U.S.
RESOURCE PLANNING
CEERT has had extensive recent experience in facilitating
stakeholder groups for the development of transmission around renewable
energy resource areas. Through these processes we have learned a number
of valuable lessons which can be readily applied to the implementation
of the energy bill. First and perhaps most evident is that areas that
are sensitive must always be treated as such. Whether the concerns are
environmental sensitivity, proximity to population centers or any one
of the other myriad issues that must be addressed when developing
energy infrastructure, concerned stakeholders can greatly affect the
development of any project if they see sufficient need. Any
streamlining of project impact review processes must not come at the
expense of a thorough investigation of all potential effects from a
project. It has been our experience that any steps skipped or missed
early in the process will only lead to delays later on. From the
perspective of many of our affiliates, those developing geothermal as
well as other renewables, these delays at later stages can be far more
costly as those involved will have more to lose. This is very clearly
illustrated in a report recently released by the Geothermal Energy
Association (GEA) which shows a curve of project cost growing ever
steeper with each year of delay.\1\
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\1\ See Appendix 1 for graphic illustration. From: Factors
Affecting Costs of Geothermal Power Development, by Cedric Nathanael
Hance, Geothermal Energy Association, August, 2005. Available for
download at http://www.geo-energy.org/publications/reports/
Factors%20Affecting%20Cost%20of%20Geothermal%20Power%20Development%20-
%20August%202005.pdf
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Despite the clear economic value to an efficient permitting and
development process, the Bureau of Land Management (BLM) has seen a
massive backlog of geothermal energy lease applications accumulate. In
fact California's BLM office has not issued a geothermal permit for 20
years despite the fact that there are substantial known developable
geothermal resources in the state.
AGENCY COORDINATION
One major reason for these delays is the insufficient staffing for
federal agencies such as the U.S. Forest Service (USFS) and BLM for
review of National Environmental Protection Act (NEPA) documents. A
great deal of money and hard work is put into the development of these
documents by the project developer and a similarly thorough review
process by the requisite agency should be expected in compliance with
federal laws. A renewed commitment from the Department of the Interior
and its sub-agencies should be made to eliminate these inefficiencies
and thoroughly evaluate all NEPA documents. Ideally the BLM and other
federal agencies should have staffing to take part in the actual
studies of these projects as well as assessing their impacts. In our
experience this path for permitting, in which the agencies are engaged
early in the study process, has resulted in better projects and a more
thorough assessment of the impacts.
Related to this inefficiency by the federal agencies are the often
overlapping and seemingly cumbersome procedures of various state
permitting processes. In California the California Environmental
Quality Act (CEQA) demands an extremely rigorous environmental
investigation. A higher level of coordination between the various state
and federal agencies responsible for evaluating these project proposals
could be very helpful in speeding the process along. As the BLM enters
into a rulemaking for regulations to address the changes in the Federal
Geothermal Program as mandated by the EPAct, careful considerations
should be made to ensure that any new rules can work together with
existing state permitting processes without slowing down the approval
process.
Under CEERT's leadership, the Tehachapi Collaborative Working Group
worked to find innovative ways to address these inefficiencies through
an open stakeholder process. The study group was organized with the
mission of developing a transmission plan to access the considerable
known resources in the Tehachapi Wind Resource Area. The stakeholders
included utilities such as Southern California Edison and Pacific Gas &
Electric, wind developers such as PPM Energy, and EnXco Inc., state and
federal land use agencies including USFS, private land owners and other
important stakeholders. Though this can appear unwieldy, the early
involvement of these numerous stakeholders ensures that potential
problems are addressed early and more costly delays are avoided later
in the development process. After a year of work by TCSG, all
stakeholders are nearing agreement on a comprehensive, multiphase
transmission project that will provide access to over 4000MW of wind
energy in the Tehachapi region. Given the scale and complexity of the
project this is an important step forward for all of those involved in
its development.
This process also highlights an important aspect of most large
scale renewable development including geothermal, wind and utility
scale solar. All of these resources are tied directly to the location
where the energy is generated. The wind blows where the wind blows, the
sun shines where the sun shines and there is no way to change those
characteristics. The mobile nature of gas, oil and coal through trains
pipelines and tankers give those types of power plants and added
flexibility in their siting and development process and offer those
resources easier access to the existing electricity grid. As the West's
transmission system has begun to approach the outer limits of its
capacity, renewables have begun to run into a chicken and the egg
problem. Without transmission, developers cannot secure financing to
build their projects; and without committed projects, regulators cannot
approve the transmission to connect them. By following the study group
process used in Tehachapi there is now a plan in place to develop the
transmission in concert with the procurement of the electricity on a
phased, as needed basis. Additional help could also be provided if the
FERC process allowed for the public benefits of clean renewable energy
to also be considered in the evaluation of new transmission projects.
CEERT is also currently following a similar route in developing
transmission plans to access geothermal in Southern California's
Imperial Valley as well as a project in the early stages to develop a
plan for accessing solar energy from the Mohave Desert. To sufficiently
develop the West's renewable energy including the still substantial
untapped geothermal, it is important that the planning of transmission
run parallel to the development and procurement of renewable resources.
These resources are of increasing competitiveness in an open market and
offer substantial societal benefits from their increased use. Their
growth should not be hindered by public policies that put these
resources at a disadvantage while making it easier for utilities and
developers to permit and construct fossil fueled plants.
Though the technology has not been at the forefront of renewable
energy growth, CEERT would like to draw the committee's attention to
the continuing development of the Concentrating Solar Power industry.
This technology, which was initially developed in California, has
matured considerably with modern installations in Europe producing
reliable utility-scale power on demand with exceptionally low
environmental impact. CEERT sees this as the next generation of
renewable development in the Western U.S. which has considerable solar
resources in the desert Southwest. The recent report of the Western
Governors' Association (WGA) Solar Task Force estimated that if 4,000
MW of new CSP capacity were to be built the cost of electricity would
be competitive with conventional sources.\2\ Though the technology
currently represents only a small piece of the renewable pie, it is
important that it is not forgotten in the resource assessments and
transmission planning that will be conducted. This largely untapped
resource has huge potential to serve the ever growing electricity needs
of the desert Southwest with out having to transmit the energy through
massive interstate transmission projects.
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\2\ Clean Energy, a Strong Economy and a Healthy Environment, a
Report of the Clean and Diversified Energy Advisory Committee to the
WGA, June 2006, This document can be found online at: http://
www.westgov.org/wga/meetings/am2006/CDEAC06.pdf
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WESTERN GOVERNORS' ASSOCIATION
Looking at these problems in the bigger picture of the entire
American West, the Western Governor's Association (WGA) offers an
excellent venue to address these issues of coordination. The
organization's approach to problems that affect the entire Western
Region are clearly reflective of the nature of the electricity grid.
The development of geothermal in Idaho will ideally be deliverable in
California helping to meet renewable needs there and the WGA will
undoubtedly be critical in making that happen.
The WGA recently adopted the recommendations from the Clean and
Diversified Energy Advisory Committee (CDEAC) for a current, systematic
and thorough examination of the development potential for clean
resources in the West. Building on the model used in the California
working groups, the federal government's policies should support
stakeholder processes being setup by the WGA to develop transmission
plans for expansion across the west, ensuring that access to new
renewable resources is an important piece of the planning process. In
considering the location of known renewable resources in the
transmission planning, development of these resources can occur more
rapidly. Large transmission projects designed to access renewable
resources will make development of those resources more realistic. It
will provide access to better project financing by decreasing the risk
of the investment and lessening the possibility of delays in the
future.
In the interim, close attention should also be paid to the WGA's
recommendations regarding the use of the existing transmission in the
West. The committee should encourage FERC to implement policies that
offer better access for renewables to the existing grid including:
short term transmission services and products, and urging utilities to
assess available transmission capacity and opportunities to make better
use of the existing transmission systems.
CEERT has worked with the WGA to offer input on the various
recommendations made by the CDEAC and feel that the situation of
California, already a net importer of electricity, is very closely tied
to the energy systems of the other Western states. Many of the other
recommendations made by the CDEAC echo our concerns and experiences in
California. This includes timely permitting and environmental reviews
for renewable projects particularly geothermal whose value can suffer
greatly due to delays in this process. Additionally the recommendations
call for increased coordination among the various states, local and
federal agencies in the permitting process. These are all positions
that should be supported by the Committee.
PRODUCTION TAX CREDITS
Another disadvantage faced by developers of geothermal and other
renewable resources is the short time horizon in which they can receive
a Production Tax Credit (PTC) for their project. The nature of
renewable energy is such that the primary cost of the resource is paid
in upfront financing for the development and construction of a project.
Once in operation a renewable energy project demands only the operation
and maintenance costs--there is no fuel cost. This is vastly different
from a fossil fuel plant, which is cheaper to construct and thus able
to turn a profit in a shorter amount of time, making an investment a
lower risk and therefore more appealing to investors. It makes little
difference that the renewable technology, over its lifecycle, will
offer stable electricity rates compared to the gamble over thirty years
on a natural gas plant. Moreover, once the initial capital investment
has been repaid, these renewable projects can offer wholesale
electricity rates below most fossil fuel generation facilities.
To help resolve this situation, production tax credits offered by
the federal government have made initial investments in renewable
energy much more financially appealing for a broader range of
institutional investors. However, with longer lead times for
construction of geothermal and other renewable energy facilities, an
extension of the PTC would provide a more stable, long-term capital
flow to allow projects to be constructed more efficiently. In the end
better projects will be built because developers will have the
flexibility to address any problems and build the most effective plant
for its purpose.
This extension of the PTC will also allow renewable energy
developers to create more effective business plans and make more
effective business decisions based on long-term market strategy. As the
PTC is currently designed, it must be reauthorized every few years
leaving these companies in limbo each time the credits reauthorization
is in question. Leaving the PTC in place for a longer period of time
will allow these companies to develop strategically into more effective
players in the larger energy market.
CONCLUSION
CEERT believes that within the next 10 years the renewable energy
industry is poised for an unprecedented boom in the U.S. Indeed, this
current situation is already due to many innovative and forward looking
public policies that have pointed our nation to a sustainable future.
However, to ensure that these policies are effective they must be
carefully and prudently implemented. CEERT greatly appreciates the
interest of the Senate Energy Committee on these important issues for
geothermal and other renewable energy resources. We are prepared to
offer any help to the committee in achieving the enormous potential of
these vast resources.
Thank you.
Senator Craig. John, thank you very much. You've broached a
question that I was going to ask you as it related to the
planning and development--for the future of transmission lines.
We've heard not just, from you, but from others, that we've got
to make both FERC and States much more aware of the need for
connectivity. Obviously, renewables are sometimes only where
they are. Obviously, with geothermal. It's also true of siting
for solar. And, therefore, the connectivity is critically
important, getting the systems into the grid.
One of the reasons DOE did not put money in the budget this
time for geothermal--and it's been spoken to here today--was
that it was a mature technology. Yet we've heard Bernie talk
about 140-plus-degree temperatures. We saw the industry, in the
early 1970's, I believe, in the Raft River area of Idaho, walk
away from 300-degree temperatures. Now they're back. It
obviously demonstrates to me there's a great deal of potential
in the technological side of the generating capability of those
kinds of temperatures. Could you speak to that?
Dr. Snyder. Oh, yes, certainly. I think the notion that it
was mature--the best word I can think of is ``naive.'' As you
mentioned, as our technology advances, then it opens up a whole
new suite of potential sites to develop.
One thing I forgot to mention, by the way, in terms of
that, is, I think a lot of the future potential is going to be,
as it was in Raft River, hidden resources, ones that do not
have the obvious surface expression of hot springs, et cetera.
And, in that case, you need to understand the geological
situation even better so that you can save industry from
drilling wells that are not going to be productive. It's going
to be tough. There is not now, nor will there ever be, a magic
black box that you can take out there and find the perfect
place to drill. You're going to have to gather information, and
you're going to have to think about it. These are complex
heterogenous resources that, each one, you have to study, one
after the other, in order to bring them online.
Senator Craig. Okay.
Anyone else wish to speak to that general question about
mature technology versus future opportunity?
Mr. Karl. Yes, I would like to just----
Senator Craig. Bernie.
Mr. Karl. Mr. Chairman, on that mature technology, you
know, just recently, just in the last year, has United
Technologies come up with the proper gas to even use this
hundred and--well, we've been experimenting from 140 to 165
degrees. We have 1,500 hours on the unit up at the research
center. And, I might add, it's in Alaska now. And the thing of
it is, is that this is just brand new. You know, so, I mean, to
say that it's mature is absolute--a falsity. And, once again,
you can't expect--you can't expect industry or private sector
to take all the risk. I mean, in this case, United Technologies
has accepted a tremendous amount of risk. We've accepted a
tremendous amount of risk. And so has DOE. And DOE actually was
good enough to put all this together. If it hadn't have been
for DOE, this consortium wouldn't be put together. And that's
what DOE is really good at, is putting together what I would
call partnerships. And these partnerships are going to be the
future of alternative energy. It's not the Government doing it
all. It's not industry doing it all. It's, kind of--it's, kind
of, a consortium of the end-user, Government, and industry,
working together. And that's what's happened here. And to say
that it's mature is just not so.
Senator Craig. Thank you.
Yes, John.
Mr. White. Senator, I would just say that not only is this
not a mature technology, this is probably cutting-edge, what
Mr. Karl is talking about. And if you look at the significance
of being able to access substantial amount of low-temperature
geothermal energy, it's not just in Alaska, it's throughout the
West. And----
Senator Craig. Very, very true.
Mr. White [continuing]. And I think that the amount of
energy that could be extracted, were this technology able to
work on a large scale, would be very, very significant.
Senator Craig. Chris, it sounds like you are generally
satisfied with BLM's approach to permitting, but have serious
concerns with existing Fish and Wildlife Service guidelines and
guidelines being developed by the U.S. Forest Service. Can you
elaborate? And, in your opinion, could BLM policies be
successfully applied to Forest Service lands?
Mr. Taylor. Thank you, Senator. Yes, we certainly believe
that the BLM guidelines looked at many of the issues, if not
most of the issues, that would be relevant for Forest Service.
Any type of guidelines that attempt to cover a whole swatch of
the United States or all the lands under BLM's jurisdiction is
going to be local circumstances, and there's going to be
sensitive areas, as John described, that are going to require
adaptation of any general guidelines. So, I think that by the
very nature, any kind of universal guidelines are going to have
to be tailored somewhat at--to the local circumstances. And I
think, you know, with that in mind, most of what the BLM has
recommended would make sense for the Forest Service. I'm not a
forester by training, so I wouldn't profess to know if there
are some very specific issues related to that. But I think, by
and large, I have worked with timber companies, and am working
today with a timber company in the Northwest to develop wind
energy on private timberland. And typically what we find is
that the--we're interested in the ridgetops, where the wind is
howling. And that doesn't make for good tree growing. So,
typically, they are compatible, in the sense that, one,
commercial forest land has roads, and we're not proposing to go
into roadless areas; and, two, that those areas that are of
greatest interest for wind development don't have great timber
potential, because the wind creates relatively low-value
timber.
So, yes, I think the BLM guidelines could be adapted. And
we hope they will be.
Senator Craig. Thank you.
Bob, while you were speaking, I was looking at numbers, and
I was already beginning to calculate the equivalency of land
coverage of the Hoover Dam in its 1750 megawatts and your 11 to
13 square miles project in the Mojave would produce. I'm glad
you came up with those numbers. I think often times we don't
look at equal-to or commensurate impacts and what they mean.
Having 20 years' purchase agreements with two large power
companies certainly provides the financial certainty necessary
to take on a large-scale project like the one you're proposing.
How long, do you believe, will it take to complete the
permitting and environmental studies necessary to get your
project started?
Mr. Liden. Good question, sir. The actual permitting
process, we believe, will take us into 2008. So, when we'll
actually start the construction of the plants will be in early
to mid-2008. The buildout of the first 300 megawatts of the San
Diego project is estimated to take 18 months to 2 years. And
then we'll continue on with the add-ons, the additional 600
megawatts, on the tail of that. And on the SCE project, we have
a contract to build the 500 megawatts within 4 years. We are,
internally, expecting to do it in something around 3 years. And
then, the expansion of another 350 megawatts, about another 2
years beyond that. So, these are projects that will continue
through 2014 before they're completed and built out to their
entirety.
That being said, it's important to know that, at least with
our technology--and this is also true of Chris's wind
technology--you don't have to put the entire powerplant, the
entire 1750 megawatts, online before you turn the switch on and
start generating renewable energy. We'll start turning on,
about a megawatt at a time, power onto the grid, and build
these things out over that period of time. So, we'll have a
very significant amount of renewable energy generation really
in place in the 2009-2010 timeframe.
I was once in Barstow and held a hearing on the greater
desert issue and the management of that desert. And it was an
interesting time. I had, in the last days of Roy Rogers, him
strumming his guitar with Trigger there, singing ``Don't Fence
Me In,'' and somebody packing a desert tortoise around in a
cage, speaking of the life of the desert tortoise. Now I'm
looking at a artist's conception of your potential facility,
and I see around it a chainlink fence.
Mr. Liden. Right.
Senator Craig. Does the concentration of this many solar
disks in a given area increase the general heat of the area?
Mr. Liden. No, it actually doesn't. If anything, it reduces
the heat. What we're doing is, we're concentrating heat energy
that otherwise would be hitting the surface of the Earth----
Senator Craig. So, you're actually creating shade patterns
here.
Mr. Liden. So, we're actually creating some shade patterns.
Senator Craig. I see. So, my recommendation to you is, if
you would lift the chainlink fence 6 inches above the ground so
the desert tortoise could move under it, you would not be
creating an obstructive environment for the desert tortoise,
nor would you be taking away from him 11 to 13 square miles of
habitat.
Mr. Liden. Well, we fully intend to do that. The purpose of
the perimeter fencing is for insurance purposes.
Senator Craig. Sure.
Mr. Liden. But we don't intend to put it with the blockage
so that these little critters that are crawling around on the
ground, the lizards and the desert tortoises and so on, won't
be able to get through. We will have, during the construction
phase, probably a need to put a more restrictive type of a
fence around the specific area where we've got construction
vehicles and cranes and things like this. But once the area has
been built out, then we will actually open up and put the
conventional, sort of, 6-foot chainlink fence around, and
that--that will also have to be solar-lit. We'll have, probably
photovoltaic panels and so on to provide lighting so that
somebody riding through on the desert in the middle of the
nighttime on one of their off-highway vehicles doesn't run into
the fence.
Senator Craig. Good idea.
Well, gentlemen, my time is up, and I've kept you long
enough. Let me thank you all for your testimony. I think you
have brought phenomenally valuable information to the committee
today, and to the agencies involved. Agencies have been here
listening to your testimony. And I appreciate that very much.
I think the reality is, as was well stated, what you do,
you do in an environmentally sensitive way, and that, of
course, is in direct connection with all of the stakeholders
and the Federal agencies involved, where there's Federal land.
I think, also, Bernie, where you're self-contained, the rest of
the industries represented here need to be connected. And all
of this fits, and fits amazingly well. What many people don't
realize is that a large portion of downtown Boise, Idaho, is
heated geothermally, and has been for a long time. And that
grows with a resource that is a very quiet and clean resource.
And that's the very kind of thing you're talking to, Bernie. It
isn't just the generating of electricity, it's the kind of
space heat and other uses that is extremely valuable in lower
temperatures than might otherwise be envisioned by the industry
itself, and that can localize it in many instances.
So, we want to thank you all for being here.
I hesitate to give you the last word, Bernie.
Mr. Karl. Just one quick thing, if I could, sir.
Senator Craig. Certainly. Go right ahead.
Mr. Karl. I built a powerhouse big enough to hold 20
megawatts. So, the concrete's poured, the building's built.
This is the first two turbines. Next year, we hope to have a
megawatt--1-megawatt turbine, that hasn't been designed yet.
With United Technologies' help and with your help--if you put a
bigger budget in with your help, we'll put 20 1-megawatt
turbines, Golden Valley, our local utility, has agreed to run
the high line. And the high line--they're doing the study on it
now. There's actually a letter that I didn't get in here in
time to be part of the record. But if----
Senator Craig. If you want to send it to us, though, we'll
be happy to include it.
Mr. Karl. I will do that, sir.
And so, we will be connected. Golden Valley is a very
forward-thinking utility. They want to be--have 50 percent of
their grid on alternative energy in 50 years, and they're going
to do it in 20 megawatts. That'll be from Chena Hot Springs.
And all the reports showed, from back--you know, you talk about
technology--they said that Chena Hot Springs would never be
able to produce any electricity. Boy, were they wrong. We've
drilled 21 holes there. We have her drilled like Swiss cheese.
And I bought two of my own drill rigs, and I can tell you that
the most important thing you can do is drill a hole.
Senator Craig. Okay. Don't get the volcanists upset.
With that, gentlemen, thank you very much for your
testimony.
The committee will stand in adjournment.
[Whereupon, at 4:35 p.m., the hearing was recessed, to be
reconvened on July 17, 2006.]
HYDROGEN AND FUEL CELL RESEARCH AND DEVELOPMENT
----------
MONDAY, JULY 17, 2006
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:33 p.m., in
room SD-366, Dirksen Senate Office Building, Hon. Lamar
Alexander presiding.
OPENING STATEMENT OF HON. LAMAR ALEXANDER, U.S. SENATOR FROM
TENNESSEE
Senator Alexander. The Energy Subcommittee hearing will
come to order.
Senator Domenici is on his way. Senator Bingaman's expected
to be here. There may be other Senators, but I think we'll try
to start on time.
The purpose of this hearing is to take a look at the
implementation of the Energy Policy Act provisions on hydrogen
and fuel cell research and development. In fact, this is
another in a series of Monday afternoon hearings that we've
been having this year, during 2006, to make sure that we know
what's happening with the provisions of the Energy Policy Act
that were enacted last year.
This should be an especially interesting hearing, because
it's talking about a possible substitute for the internal
combustion engine by the use of hydrogen fuel cells. And, as
the price of oil heads toward $80 a barrel and the crisis in
the Middle East--people talk about the possibility of $4-a-
gallon gasoline--as we see the price of gasoline four times as
high as it was in 1997, anything that has promise for reducing
our dependence on oil from overseas is welcome.
The United States uses about 25 percent of all the energy
in the world. The transportation sector uses the largest amount
of our oil. And so, focusing on the transportation sector is
what we're primarily going to do today.
In his 2003 State of the Union speech, President Bush
announced the creation of a new Hydrogen Fuel Initiative which
built on the FreedomCAR Initiative announced in 2002. Together,
these two initiatives will develop the technology for a
hydrogen-based transportation economy.
Now, a hydrogen-based transportation economy holds out the
possibility that automobiles and other vehicles might be able
to operate with a different kind of engine, one that uses
hydrogen and only emits water at the end. So, that's a very
tantalizing prospect for those who are interested in using less
foreign oil, or less oil of any kind, and who are concerned
about clean air, as all of us are. This is a real prospect. At
least that's what I hear from the American automobile industry.
And we have representatives of that industry, both of the
automobile manufacturers and suppliers, here today. It's also a
real prospect, from what I hear, from people around the world.
General Motors will be testifying today about its progress
with hydrogen fuel cells. We welcome that. A couple of years
ago, in Yokohama, I went to a hydrogen filling station, where
there were hydrogen fuel cell prototype SUVs for nine different
automobile companies. And each of them were hard at work on
this. General Motors is not the only company interested. Ford
and DaimlerChrysler are, as well. Nissan is spending $700
million a year on hydrogen fuel cell research. And Toyota has
said that it expects to have a commercially available car
perhaps as soon as 10 years from now.
Title VIII of the Energy Policy Act of 2005 authorizes an
ambitious program of research, development, and demonstration
of hydrogen and fuel cell technologies. It provided over $3.2
billion in authorizations for hydrogen and fuel cell programs.
The National Academy of Sciences has stressed the need for
more emphasis on basic exploratory research that could yield
breakthroughs in hydrogen production and storage. And the
Department of Energy, from whom we'll be hearing in a moment,
has responded by expanding the hydrogen program in the Office
of Science, and has requested $50 million for fiscal year 2007
to fund basic research efforts, an increase of $17 million over
fiscal year 2006. We still need major technological advances to
ensure hydrogen can be affordable, safe, cleanly produced, and
readily distributed. And we believe it's important to include
all participants--the energy companies, the automotive
industry, the suppliers, the Department of Energy, everyone who
makes automobiles in the United States and others--as we
address these changes.
Today's hearings will be focused on what the next steps
should be, what the Government can do to create an environment
for the possibility of a hydrogen economy to succeed, to talk
about obstacles that may stand in the way of a hydrogen
economy, and to talk about how we might bring down the price of
hydrogen. Those are some of the questions.
We have an excellent panel, and we'll look forward to
hearing from them. They include the Under Secretary of Energy,
David Garman. Dr. Byron McCormick, executive director of fuel
cell activities for General Motors is here. Tim Leuliette, the
president and chief executive officer of Metaldyne,
Incorporated, in Plymouth, Michigan, is here, a supplier of the
automotive industry. Dr. Don Paul, vice president and chief
technology officer for Chevron Corporation, and Jim Balcom,
president and chief executive officer for PolyFuel.
So, it is a distinguished group. And the first panel
includes one person, the Honorable David Garman, the Under
Secretary of Energy.
Mr. Garman, I'll ask you to perhaps summarize your
testimony in 7 minutes or so. Take the time you need. We'd like
to hear from you, whatever your thoughts are.
It's good to be joined by Senator Thomas, and I'll ask him
if he has an opening statement that he'd like to make.
STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR
FROM WYOMING
Senator Thomas. Thank you, Mr. Chairman. Very briefly.
Good morning, Mr. Garman--or--morning--it's not morning. It
seems like I left Wyoming not too long ago. But, in any event,
I'm glad we're having this hearing today. And, Mr. Chairman,
thank you for doing it. We obviously depend heavily on foreign
countries for our energy. And so, hydrogen presents an
opportunity to reverse that trend somewhat.
We need to pursue, I think, our options in the short term.
This whole energy thing is tied to two things, of course. One
is, 15-20 years from now there will be lots of different
opportunities out there, but the fact is we have needs this
year, next year, and 5 years from now. And what we're talking
about here are things that we pretty much know how to do, maybe
not as sophisticated as we will sometime in the future, but the
fact is that we do know how to do this and to produce hydrogen
domestically and cleanly. I'm interested in the opportunities
to do it through coal gasification. And we're prepared to do
that, as a matter of fact. And some of the incentives are in
the bill--are in the policy. They haven't been implemented yet
through the bureaucracy, but there's people prepared to move
forward on this. And, of course, coal being our largest fossil
fuel, why, this is an opportunity for us, I think, to do some
things.
In any event, the administration's doing some good work on
this. I hope we can continue to pursue it and get some
incentives out there for the private sector to get moving on
the thing.
Thank you, Mr. Chairman.
Senator Alexander. Thank you, Senator Thomas.
Mr. Garman.
STATEMENT OF DAVID GARMAN, UNDER SECRETARY OF ENERGY,
DEPARTMENT OF ENERGY
Mr. Garman. Thank you, Mr. Chairman. I must begin by
thanking this committee for its leadership, and the Congress,
as a whole, for passage of title VIII of the Energy Policy Act
of 2005, the so-called hydrogen title, containing requirements
that we research, develop, validate, and demonstrate hydrogen
technologies. And thank you for this opportunity to update the
committee on the progress we have made, the challenges we face,
and how we intend to overcome those challenges to enable a
hydrogen economy.
Since the President launched the Hydrogen Fuel Initiative
in 2003, we've made substantial progress toward our technical
goals. For example, our research has reduced the high-volume
cost of automotive fuel cells from $275 per kilowatt in 2002 to
$110 per kilowatt in 2005. We've doubled the lifetime of the
automotive fuel stack. We have reduced the cost of producing
hydrogen from small distributed natural-gas reformers of a size
that could be installed at the corner gas station from $5 per
gallon gasoline equivalent to approximately $3 per gallon of
gasoline equivalent today. We even appear to be making superb
progress on perhaps our most difficult technical challenge, how
to affordably and practically store enough hydrogen aboard the
vehicle to power the vehicle for 300 miles without refueling.
Our research program has identified, or developed, some
innovative new metal hydrides, chemical hydrides, and carbon-
based materials that can store 6 or even 9 percent weight of
hydrogen, advancing toward our 2010 and 2015 system targets,
respectively. This is significant progress, up from a maximum
of 5.5 weight percent a year ago.
In sum, we are on track to meet our 2010 and 2015 technical
goals. However, we're not there yet. It is, indeed, an
achievement to bring down the high-cost volume of fuel cells to
$110 per kilowatt, but we know we must eventually bring the
cost down to below $40 a kilowatt to compete with the internal
combustion engine. And while we have doubled automotive fuel-
cell stack durability from about 1,000 hours to about 2,000
hours, we need to achieve 5,000 hours of durability to achieve
parity with today's conventionally powered automobiles.
And while we have brought down the price of hydrogen
derived from natural gas to more competitive levels, we know we
must do the same for hydrogen from nuclear, renewables, and
carbon-sequestered coal if we can ever expect to take full
advantage of hydrogen's environmental and energy security
benefits, namely, its ability to be produced from a variety of
domestically available primary energy resources, and then to
produce power for vehicles, stationary power, and other devices
with no carbon emissions or criteria pollutants.
And, finally, while it is exciting to successfully identify
new materials that appear to be excellent hydrogen storage
media, we must still tailor those materials to store and
release hydrogen under practical temperature and pressure
conditions, and engineer them into an affordable package that
can provide consumers with a 300-mile driving range.
We have, indeed, made excellent progress, and most of the
credit goes to our partners in the private sector, our national
labs, our universities, as well as Congress, for the support
that we have received through your appropriations. But that
progress must continue if we're to deliver against the
President's vision that these vehicles be available in the
showroom at a price consumers can afford, by 2020.
The provisions of the Energy Policy Act will help us
tremendously in this regard. Apart from codifying our hydrogen
and fuel cell research programs, the Energy Policy Act contains
important provisions, many of which we have implemented, for
coordinating across the Federal Government and for obtaining
independent advice on our hydrogen efforts from outside the
Department. I'm pleased to report that the Interagency Hydrogen
and Fuel Cell Technical Task Force created under the act meets
monthly, and, as you may already know, Secretary Bodman
announced and selected members of the Hydrogen Technical
Advisory Committee just a few weeks ago, on June 20.
The Department has already received critical independent
advice in two reviews of the National Academies. In a report of
the latest review, released last summer, they recognized our
hydrogen effort as being well planned, and the review committee
chair confirmed the program is making significant headway, and
that it could have an enormous beneficial impact on energy
security and the U.S. economy. Our next review by the National
Academies is planned for early calendar year 2007. We're also
diligently working on a number of studies and reports required
by the Energy Policy Act, and a few more will be finding their
way to you very shortly.
Mindful that my full testimony will be included in the
hearing record, I'll stop here, and am happy to respond to your
questions. But, again, let me thank this committee for its
leadership and support in this important work.
[The prepared statement of Mr. Garman follows:]
Prepared Statement of David Garman, Under Secretary of Energy,
Department of Energy
Mr. Chairman and Members of the Committee, I appreciate the
opportunity to testify on the President's Hydrogen Fuel Initiative. My
focus today will be on the provisions of the Energy Policy Act of 2005
(EPACT 2005) which are related to hydrogen and fuel cell technologies,
the Department of Energy's activities to support both EPACT 2005 and
the President's Initiative, the progress we have made, the challenges
we face, and how we intend to overcome those challenges to enable a
hydrogen economy.
Hydrogen is an important part of our Nation's strategy for long-
term energy and environmental security because it can be made from a
variety of domestic resources and, as a transportation fuel, it can
result in zero criteria pollutant or carbon emissions from vehicle
tailpipes.
Launched in 2003, the President's Hydrogen Fuel Initiative commits
$1.2 billion over five years to accelerate the research, development,
and demonstration of hydrogen and fuel cell technologies.\1\ These
technologies may ultimately shift our primary transportation fuel from
petroleum, which is increasingly imported, to hydrogen, which can be
produced using a wide variety of domestic feedstocks. The development
and widespread use of hydrogen can contribute to an abundant, reliable,
and affordable supply of clean energy to maintain our Nation's
prosperity through the 21st century and beyond.
---------------------------------------------------------------------------
\1\ Office of the President. ``Hydrogen Fuel: A Clean and Secure
Energy Future.'' 30 Jan. 2003. Available on the Web at http://
www.whitehouse.gov/news/releases/2003/01/20030130-20.html.
---------------------------------------------------------------------------
More than three years after he announced the Initiative, the
President's commitment to hydrogen continues to be strong; the $289
million request before Congress reflects a tripling of the budget
compared to pre-Initiative levels, and it directly supports the
President's Advanced Energy Initiative goal to help break our Nation's
dependence on foreign energy sources and our addiction to oil.\2\
---------------------------------------------------------------------------
\2\ Bush, George W. ``2006 State of the Union Address.'' Capitol,
Washington. 28 Jan. 2003. Available on the Web at http://
www.whitehouse.gov/stateotheunion/2006/.
---------------------------------------------------------------------------
The Department of Energy Hydrogen Program supports the President's
vision. Our research focuses on pathways to produce and deliver
hydrogen from diverse and domestic, fossil, nuclear, and renewable
resources while also developing fuel cell technologies that can
significantly decrease vehicle greenhouse gas emissions compared to
today's vehicles. At the highest level, our program goals and targets
are set to ensure that hydrogen fuel cell technologies will be
competitive with the projected performance and cost of vehicles and
fuels in the United States. For example, our hydrogen cost target of
$2.00-$3.00 per gallon gasoline equivalent, untaxed, ties directly to
Energy Information Administration gasoline price projections. This
would enable the cost of hydrogen at the pump to be equivalent on a
cost-per-mile basis to the estimated cost of operating vehicles on
gasoline. Similarly, the cost of an automotive fuel cell system must be
competitive with the cost of an internal combustion engine drivetrain--
$30/kW.
We commend this Committee and the Congress for its strong support
of the Hydrogen Program, as demonstrated in Title VIII of the Energy
Policy Act of 2005. Title VIII includes requirements that very clearly
align with our plans to research, develop, validate, and demonstrate
hydrogen technologies. It also includes important provisions, which we
have implemented, for coordinating across the Federal Government and
for obtaining independent advice on our hydrogen efforts from outside
the Department. I am pleased to report that the Interagency Hydrogen
and Fuel Cell Technical Task Force meets monthly, and, as you may
already know, Secretary Bodman announced the selected members of the
Hydrogen Technical Advisory Committee just a few weeks ago, on June 20.
The Department has already received critical independent advice in
two reviews of the National Academies. In a report of the latest review
released last summer, they recognized our effort as being well-
planned,\3\ and the review committee chair stated that the program ``is
making significant headway'' and ``it could have an enormous beneficial
impact on energy security and the U.S. economy.'' Our next review by
the National Academies is planned for early (calendar year) 2007.
---------------------------------------------------------------------------
\3\ National Academies of Science. `` `Clean' Vehicle Research
Initiative on Track, But Many Challenges Ahead.'' 2 Aug. 2005.
Available on the Web at http://www8.nationalacademies.org/onpinews/
newsitem.aspx?RecordID=11406.
---------------------------------------------------------------------------
EPACT 2005 requires a number of studies and reports to determine
the impact of hydrogen and fuel cell technology deployment. A report
mandated under section 1812 of EPACT 2005, the Solar and Wind
Technologies for Hydrogen Production Report to Congress, published in
December 2005, provides information on solar and wind hydrogen projects
and recommendations for promoting the availability of solar and wind
technologies for production of hydrogen. Section 804 of EPACT 2005
mandates submission of a coordinated five-year plan for the programs
authorized under Title VIII. This report is currently under review and
will be submitted to Congress shortly.
Over the next year, the Department will focus on completing other
hydrogen-related reports required under EPACT 2005. In section 1819,
the Department is required to submit a report evaluating the
methodologies used to establish goals and milestones for the Hydrogen
Program. By February 2007, the Department will report on a study,
required in section 1820 of EPACT 2005, of the likely effects of a
transition to a hydrogen economy on overall employment in the U.S. The
Department issued a competitive solicitation and recently made an award
for the completion of this study. The Department will utilize the
expertise of the National Academies to complete a study required by
section 1825 to provide. a budget roadmap for the development of fuel
cell technologies and a transition from petroleum to hydrogen in a
significant percentage of the vehicle fleet.
We have made notable progress in the three years since the start of
the President's Hydrogen Fuel Initiative. Our research has reduced the
high-volume cost of automotive fuel cells from $275 per kilowatt in
2002 to $110 per kilowatt in 2005.\4\ DOE-funded research has also
doubled the lifetime of the automotive fuel cell stack. We're not at
the end-point yet, however. Further research is required to meet our
ultimate cost target of $30 per kilowatt and our durability target of
5,000 hours, which is equivalent to the vehicle lifetime that drivers
expect today. In FY 2007, the Department will initiate new projects in
several areas, including improved fuel cell membranes, cold-weather
start-up and operation, advanced cathode catalysts and supports,
innovative concepts, and the effects of impurities on fuel cells.
Through our investment in these competitively-awarded projects, we
expect to make even greater progress in improving fuel cell performance
and durability and lowering cost, moving closer toward achieving those
ultimate technical targets.
---------------------------------------------------------------------------
\4\ Cost Analysis of PEM Fuel Cell Systems for Transportation,
September 30, 2005, Carlson, E.J., et. al., Tiax, LLC.
---------------------------------------------------------------------------
Developing storage technology to carry hydrogen on-board, while
still meeting vehicle performance and cost requirements, is one of the
most technically-challenging barriers we face. To address the critical
need for improved on-board hydrogen storage, the Department has
developed a diverse portfolio through three Centers of Excellence and
independent projects in both applied and basic science. Together, these
efforts tap into vast technical expertise at about 40 universities, 15
companies, and 10 Federal laboratories.
These projects are beginning to produce promising results, with
innovative materials being developed in different areas such as metal
hydrides, chemical hydrides, and carbon-based materials. Some of these
materials can store 6- to even 9-percent by weight of hydrogen, our
2010 and 2015 targets, respectively. This is significant progress, up
from a maximum of 5.5 weight percent a year ago. The next step is to
tailor these materials to store and release hydrogen under practical
temperature and pressure conditions.
Further research on materials and systems engineering is required
to meet our hydrogen storage system target to provide consumers with a
300-mile driving range. To help ensure we can meet this aggressive
goal, the Department's basic research is carefully coordinated with our
applied research in materials development for hydrogen storage.
We are also analyzing transition scenarios on how the Nation might
initiate early hydrogen production and delivery infrastructure
development as vehicle market penetration ramps up, and we plan to
submit a transition analysis report to the National Academies in March
of 2007. We are pursuing ``distributed'' options for reforming
renewable fuels, such as ethanol, as well as natural gas, to produce
hydrogen on-site at the fueling station. This distributed scenario can
also be used for on-site electrolyzers that use electricity to split
water into hydrogen and oxygen. These methods provide an alternative to
large infrastructure investments in a hydrogen delivery system before
there are large numbers of hydrogen vehicles on the road.
In terms of hydrogen production, we have already been successful in
reducing the cost of producing hydrogen from natural gas--from $5.00/
gallon gasoline equivalent (gge) to approximately $3.00/gge today. This
status for cost is currently being verified by an independent panel
that will release its results later this summer.
We fully recognize that producing hydrogen from natural gas is not
a strategy for the long term. All four Department offices that comprise
the Hydrogen Program--Energy Efficiency and Renewable Energy, Nuclear
Energy, Fossil Energy, and Science--are working together to pursue
revolutionary approaches to hydrogen production. For example, heat from
nuclear reactors or solar energy can be used to split water into
hydrogen and oxygen, with no carbon or criteria emissions. In our
nuclear-based hydrogen program, we plan to complete the assembly and
preliminary testing of a laboratory system using nuclear heat to drive
thermochemical cycles that split water to produce hydrogen. In another
approach using nuclear energy, we will demonstrate hydrogen production
from a high temperature electrolysis system that is more efficient than
the electrolyzers used today.
By 2010, the Department anticipates completing integrated
laboratory-scale experiments of thermochemical cycles and high-
temperature electrolysis technologies for producing hydrogen with
nuclear energy to confirm technical feasibility of the closed loop
processes. Results of these experiments will inform the selection of
the high-temperature hydrogen production technology required by EPACT
2005 by the end of FY 2011. For the process or processes selected for
further development, design activities will be initiated by 2011 for
pilot-scale experiments at higher power levels to evaluate scalability
of the processes for eventual commercial use.
Also, in a separate activity in support of EPACT 2005, the
Department has received industry proposals to conduct a feasibility
study of how to produce hydrogen using small-scale equipment at
existing nuclear reactors. If the Department selects any of the
proposals, it will partner with industry for up to three years to
examine the economics of producing hydrogen at an existing reactor, the
environmental effects, and the regulatory requirements.
Other high-risk, high pay-off production approaches also involve
harnessing the huge potential resource of solar energy. Through a
collaboration of our basic and applied research programs, we are
developing ``photobiological'' hydrogen production technology that uses
micro-organisms to produce hydrogen and ``photoelectro-chemical''
hydrogen production technology, in which solid state devices convert
photon energy into hydrogen. These approaches may be up to 25 years
away from maturity but offer great promise for fully sustainable
hydrogen fuel production without environmental impact.
In our coal-based hydrogen program, we plan to scale up membrane
reactors for separating carbon dioxide and hydrogen gas streams for
zero emission fuel cell vehicles and pollution-free power production.
This research is closely coordinated with our FutureGen effort to
create the world's first coal-based near-zero atmospheric emissions
power plant to produce electricity and hydrogen, incorporating clean
coal and carbon sequestration technologies.
We are also demonstrating hydrogen technology in vehicles that are
on the road today. Through ``50-50'' cost-shared partnerships with the
automotive and energy industries, four teams are installing hydrogen
refueling stations and putting fuel cell vehicles on the road to test
the technology as integrated systems in real-world conditions. Through
this ``National Hydrogen Learning Demonstration,'' we are collecting
data on vehicle performance, durability, and fuel economy and feeding
it back into our research program to ensure that we remain focused on
the most relevant problems. Consistent with the President's Management
Agenda, the results we plan to report later this year will provide a
transparent ``risk assessment'' that allows Congress and taxpayers to
evaluate progress toward meeting our established performance-based
goals.
As mentioned, hydrogen is critical to our Nation's strategy for
long-term energy and environmental security. Developing hydrogen
technologies that can be manufactured domestically should improve our
economic competitiveness as well. Our manufacturing research and
development effort is new in FY 2007 and will address the need for
high-volume manufacturing processes for components such as those used
in fuel cells that are currently hand-built. These processes are
important to lowering the costs of fuel cells and developing a domestic
supplier base. Establishing an early supply base for fuel cell
applications such as portable; stationary, remote, and emergency back-
up power also lays critical groundwork for the much larger supply
chains needed for automotive applications. In January, Secretary Bodman
released for public comment a draft roadmap on manufacturing research
for the hydrogen economy. This roadmap is being finalized and will be
the foundation for executing this important research.
Finally, since the Hydrogen Fuel Initiative was unveiled in 2003,
investments have been made not only at the Federal level but also at
the state and local levels. From Aiken, South Carolina, to Golden,
Colorado, to Sacramento, California, hydrogen research facilities and
infrastructure investments have demonstrated a long-term commitment to
hydrogen and the beginnings of the hydrogen economy. These diverse
investments increase our probability of success in solving technology
barriers and in enabling industry to not only make fuel cell vehicles
that consumers will want to buy, but also invest in hydrogen refueling
infrastructure that is profitable and addresses the root cause of
foreign oil dependence and greenhouse gas emissions.
This concludes my testimony, and I would be pleased to respond to
any questions you may have.
Senator Alexander. Thank you, Mr. Garman. We appreciate
your coming. Your full statement will be included in the
record.
We've now been joined by the chairman of our full
committee, Senator Domenici, and the ranking member, Senator
Bingaman. And Senator Thomas and I each had a chance to make an
opening statement. Would you like to go first Senator Domenici,
and then Senator Bingaman?
STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR
FROM NEW MEXICO
The Chairman. Senator Alexander, Senator Bingaman, first of
all, I am very pleased that you're holding this hearing. It is
a terribly exciting and apropos hearing about an initiative
that is just earthshaking when you consider what could happen
if this does work. My opening remarks are basically that kind
of statement, excepting I am clearly aware of the fact that
title VIII of the Energy Policy Act laid out a balanced R&D
program to develop fuel cells for vehicle stationary and
portable applications. The President's request for a hydrogen
initiative was $289 million this year, and we hit that mark in
the Energy and Water Appropriations Subcommittee, as you
indicated. That was my subcommittee, and I'm pleased to tell
the committee that, and I think you know that. I think it's a
very worthwhile expenditure, especially when you consider the
marriage that is occurring outside of the Department with those
who are putting up their own money, initiative, drive,
experience, et cetera.
But even with this level, over a quarter of a billion
dollars, we know we cannot support every possible fuel cell
technology for every possible application, and we have to have
priorities, and that means we get people and institutions who
feel let down and who feel like they have a lot to complain
about. And they might. They may be right, and those who made
our decisions may be less right. But, nonetheless, everything
is being done, we think, in good faith and pursuant to good,
sensible rules.
So, with level investment, over a quarter of a billion
annually, we know we cannot support everyone, as I indicated,
but we're trying to do it in a way to give it the best chance
of success.
I'm hopeful that today's witnesses are going to advise the
committee on whether we are achieving the right balance among
the technologies, and I know there is an ongoing argument about
research on technologies that are fixed and technologies that
are mobile as it applies to the particular fuel cell. We can't
resolve that. Both are needed. But we can talk about it and see
if there's anything we have to do to make adjustments.
Thank you for conducting the hearing, Senator Alexander. In
the usual sense, the committee is heavily indebted to you, and
I'm pleased to come and join for a few minutes just to make
sure that everybody knows that, on a nonbusy day, we are busy.
Senator Alexander. Thanks, Mr. Chairman. And I had said a
little earlier that this was another in a series of hearings
that have been held on Monday afternoon for oversight on the
Energy Policy Act of last year to make sure that it's beginning
to work.
Senator Bingaman.
Senator Bingaman. Mr. Chairman, I appreciate you having the
hearing. I did not have an opening statement. I'll just wait to
ask some questions.
Thank you.
Senator Alexander. In that event, I'll ask a few questions.
We'll take 5 minutes each.
Mr. Garman, in your testimony, you described--at least in
your written testimony--the importance of high-risk, high-
payoff research on hydrogen production technologies such as
photobiological production. I wonder what fraction of the
hydrogen program's budget supports high-risk--what you would
call high-risk research.
Mr. Garman. That's a difficult question to answer, in the
sense that Federal R&D, by its very nature, is the sort of
research that one would not expect the private sector to do by
itself. There's not going to be a financial return on
investment in the near term. So, in one sense, depending on one
definition, everything we do is high-risk research. However,
there are clearly some elements, particularly when we're
talking about hydrogen production, that we see as more near
term. We think that photobiological--or photolytic-type methods
of making hydrogen are probably a ways away. And so, we're
mindful of that. And, therefore, we balance that with shorter-
term efforts that focus on natural gas, on coal, on nuclear,
and some of the things that can make contributions sooner,
rather than later. So, we think we have a balance between the
very long term and things that we expect, and need, to come
into play in the 2015-and-beyond timeframe.
Senator Alexander. To follow that up, this committee
stimulated a report from the National Academies of Sciences
that Norm Augustine chaired in which 70 Senators have
cosponsored here, and one of the recommendations of the
Augustine Report was that 8 percent of research funding be set
aside for high-risk research, including, if I remember right,
in the funds of the laboratory directors. Do you agree with
that? And, if you don't, why not?
Mr. Garman. I would say that our percentage is probably
higher than that, when you're talking about the hydrogen
program, that this is a high-risk, high-reward proposition. And
in an answer for the record that I would like to provide to
you, I'd like to enumerate, in some greater detail, the
elements of this program that we do regard as high risk.
[The information follows:]
Several technical challenges must be overcome before hydrogen and
fuel cell technologies can meet consumer requirements and be widely
commercialized. High-risk research and development (R&D) is required to
address the complex and demanding technical and cost requirements
needed for commercial viability. This type of R&D is considered too
risky an investment for industry to handle alone. Therefore, one could
maintain that the Department of Energy's entire Hydrogen Program is a
high-risk research area. However, within the Program, there are some
elements that are more challenging than others. These involve materials
R&D to overcome several challenges. High-risk areas are being addressed
through basic and applied research and technology development projects
that comprise over 85 percent of the Program's funding. Specific
examples of high-risk research include:
(1) Novel hydrogen storage materials to enable at least 300-mile
vehicle range
Current ``learning demonstration'' vehicles have ranges of 120 to
225 miles and use high pressure or liquid storage tanks which may be
acceptable for some vehicle platforms. However, hydrogen storage
technologies are needed that do not compromise passenger or cargo space
and are applicable to many light-duty vehicle models for widespread
market penetration. High-risk/high-payoff applied R&D is being
conducted to discover completely novel materials that can store large
amounts of hydrogen at low pressure while meeting all weight, volume,
cost, safety, and other requirements. Basic research is aimed at
greater understanding of hydrogen interactions in materials to enable
the design of storage materials with higher capacities and more
practical operating characteristics.
(2) Membranes and catalysts for fuel cells to enable lower cost and
increased durability
The membrane-electrode assembly (MEA) is the most costly component
of the fuel cell and plays a critical role in the durability and
performance of fuel cell systems under a range of conditions. Novel,
low-cost membranes and catalysts are needed, particularly non-precious
metal catalysts to address cost and availability of such materials. R&D
is also required to develop a greater understanding of degradation
behavior to enable improved MEA design.
(3) Membranes and catalysts for producing low-cost hydrogen from a
variety of domestic resources
Reforming and water-gas-shift catalysts with higher activities as
well as improved separation membranes are needed to lower the cost of
producing hydrogen. Improved catalysts are also needed to increase the
efficiency and reduce the cost of photoelectrochemical hydrogen
production. Materials research is critical to developing solar and
nuclear thermochemical hydrogen production. Another area of high-risk/
high-payoff research is in understanding pathways by which hydrogen is
made and processed in living organisms to enable breakthroughs in
photobiological and biological reactor technologies. Nanoscience is
also applicable to virtually all the high-risk areas in the Program.
Senator Alexander. We would welcome that.
One other question. One of the witnesses in the second
panel, Mr. Tim Leuliette, is an automotive supplier
representing that large group of people. I know, in our State
of Tennessee, we're very grateful for the General Motors Saturn
plant for the big Nissan plan and the engine plant. Together,
they may employ 11,000 or 12,000 people. But the suppliers--
there are 800 or 900 suppliers of various kinds--they employ
150,000 people. So, they're important, as well.
Mr. Leuliette says in his testimony that the auto supplier
companies are not direct participants in the FreedomCAR
Program. I know you haven't heard his testimony, but I
wondered, if that's true, why they're not.
Mr. Garman. Well, let me say, at the outset, that if I'm
looking at the total fiscal year 2006 funding of $234.5
million, and look to where that funding went, the automotive
manufacturers, Ford, Daimler/Chrysler, and GM, got roughly 5
percent of the funding, and the industry suppliers, the tier 1,
2 and 3 suppliers, got 24 percent of the funding. So, they
clearly are a participant in the R&D activities. I did read his
testimony, and I do understand his point. What he is saying is,
they are not direct participants in the FreedomCAR partnership,
which is comprised, on the automotive side, by members of
USCAR. And part of that's just a practical consideration. There
are, as you point out, thousands of tier 1, 2 and 3 automotive
suppliers. And how to gather them in a room in such a manner
to, you know, have a useful exchange of views is a difficult
proposition. But our doors are open to them to comment on pre-
solicitation announcements, on go/no-go decisions, and on every
other realm that they choose to participate in. And that's our
goal. We want to hear from as many folks as we can.
Senator Alexander. Well, I would encourage that.
My time is up.
Senator Thomas.
Senator Thomas. Thank you.
In order to benefit from a transition to the hydrogen
economy, we have to produce gas cleanly and domestically. What
do you know about the HydroMax technology for coal gasification
to produce hydrogen, electricity, and other products? Is the
Department of Energy actively researching and developing those
things?
Mr. Garman. The Department of Energy is actively
researching and developing different methods of coal
gasification. I'm not familiar with--and I may be familiar with
the specific technology you've mentioned, but perhaps not by
that name.
Senator Thomas. I see.
Mr. Garman. But we clearly view coal gasification as a very
important--if memory serves, we have a total hydrocarbon
endowment in this country of something exceeding 9,000-billion
barrels of oil equivalent, a lot of which is in the form of
coal. And if we want to use that in a manner that can replace
gasoline without adding to the carbon dioxide burden in the
atmosphere or criteria pollutants in our cities and towns,
hydrogen and gasification of that coal to make hydrogen is a
very important technology, and we are--we're looking at that
very, very closely, and spending money on it, on a daily basis.
And I can give you a breakout of what we have spent on these
different technologies, if you care.
[The information follows:]
The total fiscal year 2006 funding (in adjusted budget authority)
on coal gasification related research to produce hydrogen, electricity
and other products is $95,341,000, and is broken out as follows:
FutureGen: $17,820,000
Advanced Integrated Gasification Combined Cycle:
$55,886,000
Fuels (Hydrogen from Coal): $21,635,000
Senator Thomas. Well, there's different ways of doing
things, as you know. I visited the plant down in Florida where
they're doing this sort of thing, and they could make some
small steps and produce hydrogen out of that, as well.
Wyoming's applied for--along with several other States--to host
the Department's FutureGen. How much coordination exists
between FutureGen program and the hydrofuel?
Mr. Garman. A great deal of coordination. The very
technologies that one would see in a FutureGen plant--the
gasifier, the gas cleanup train--are the same technologies that
one would use to produce hydrogen for automotive technologies.
So, there is a great deal of coordination going on. Part of the
value of this program--and it was, frankly, something new for
us at the Department, in that it broke down the stovepipes of
having the Office of Fossil Energy, the Office of Energy
Efficiency, the Office of Science working together on a common
hydrogen posture plan. We have published a version of the
posture plan in the past, and we owe the Congress a newer
version of that posture plan now, and hope to get it to you
soon.
Senator Thomas. That's good. You know, sometimes you get a
little concerned as we move toward some of these things.
There's sort of the chicken-and-the-egg thing, and we tend to
be focused on the laboratory type of business. And
understanding that R&D needs to be done, we need to focus on
the infrastructure and the vehicles and the motives to cause
the private sector to be able to produce and do some of the
things we already know how to do. And there seems to be some
delay in implementing some of the incentives that we have out
there that we put in the energy bill. Do you hear that?
Mr. Garman. I don't know that I would, at some peril here,
fully agree with that. I think that we have laid out a very
detailed program plan of technical obstacles that need to be
overcome, a plan that was developed in concert with both the
automotive companies and the fuel suppliers, who would have to
develop both the vehicles and the refueling infrastructure to
understand what sorts of technologies we have to deal with. Don
Paul's testimony, on the next panel, makes a brilliant point
about the differences between petroleum and hydrogen, and how
the infrastructure situation is a bit more complicated. So, we
have some technical obstacles to overcome, and we think that
we're going to need some time. I will also tell you that we
have been asked in the past, ``How could we speed this up?''
And we've been asked by folks from the White House to the
Congress and elsewhere. And the answer is, we need time, and we
need that as much--you know, more money doesn't necessarily
help. There is a learning process that needs to happen.
Senator Thomas. I understand that. But, of course, as you
know better than I, we're increasingly needing to move. As the
price of oil goes up, as the controversy goes on in the Middle
East, and so on, why, we have some incentives to move along,
and we can't let our laboratory people just go on doing these
tests forever.
Mr. Garman. I absolutely agree with you, Senator. And it
was our intention from the outset that we would not let this
become just another government R&D program, and that we had
measurable results and a timeframe.
And let me add--I know our time is short, but our efforts
on biofuels, advanced hybrid engines, plug-in hybrids, these
are things that we're doing to advance technology in the near
term, knowing that the hydrogen is going to take some time. And
we think that this is a balanced program and a balanced
approach.
Senator Thomas. Thank you.
Senator Alexander. Senator Bingaman.
Senator Bingaman. Thank you very much, Mr. Chairman.
Secretary Garman, let me thank you for your work. I wanted
to focus on stationary power production from fuel cells. I
visited a small company out in California a few months ago that
is in the business of--they've developed a relatively small
fuel cell production unit to produce power which they believe
is commercially viable. But what they need are someone to buy
it. I mean, they need some people to place orders for this. And
they were asking me, ``Where is the Government, as the first
adopter? Why can't the Government agree to assist us in getting
from the prototype, which we now have several of, to the
manufacturing lines so that we can turn out a few hundred of
these and not just go further in debt to do so?'' What is
available--I know we have a provision in the bill that was
passed last year. I think it's section 783, Federal procurement
of stationary, portable, and micro fuel cells. What is the
status of our efforts, or our programs, to actually procure
some of these that are ready to be sold if there would just be
someone to buy them?
Mr. Garman. Well, let me first make the point that there
are manufacturers producing stationary fuel cells that are
being sold today. Verizon is a big purchaser of stationary fuel
cells for backup power and continuous high-quality power. So,
there are buyers, and there are sellers in the market today.
And those who are willing to pay more for fuel cells can do so
to get value to these purchasers that they can't get from grid-
supplied electricity.
Section 783 is something that we are looking at and
evaluating, and, in fact, are conducting studies with our
interagency task force to evaluate the most promising near-term
applications. And we're considering how we might integrate such
Federal procurements into our existing efforts. This is
something where we want to help Federal purchasers of fuel
cells purchase fuel cells, if they're ready to do so. And, of
course, section 783 allows us the opportunity to foot the bill
for that Federal agency for the difference in the price of the
fuel cell and what they might otherwise be able to procure. We
have not, to date, sought funding to procure large numbers of
fuel cells, nor have we been appropriated funds to do so yet.
But it's something that we're open to. I have to put in this
note of realistic caution. Given the limits to our
discretionary spending, we believe it's important for us, at
this juncture, to focus on meeting our technical targets that
are likely to help us achieve our ultimate objectives. But
we're mindful of the provision, and we're looking for
opportunities where the Federal Government might purchase more
than they're purchasing today.
Senator Bingaman. In a similar vein, let me ask about an
issue that's not directly the subject of this hearing. About 5
or 6 weeks ago, I drove one of the plug-in hybrid cars that
they had here beside the Russell Building that get over 100
miles per gallon. And the plea of the people who brought those
cars here was, ``If we could just get an automobile
manufacturer to agree to make some of these, then, you know,
this could be a tremendous thing for the country.'' I spoke to
Bill Ford, the head of Ford Company, when he was here at some
reception, and I asked him, ``Why don't you agree to turn out
1,000 of these or something, and maybe we could get the Federal
Government to buy them, just to see if these things will
work?'' That's not an exorbitant investment of taxpayer
dollars, if the benefit were actually achieved. He did not
commit himself one way or another, but basically, I think,
indicated something to the effect that he didn't think there
was a market for them.
Why can't the Federal Government be the market for things
like that? I mean, we're going to continue to talk about plug-
in hybrid vehicles for the next 10 years, and still not have
any on the road, unless the Federal Government steps up and
says, ``We'll buy 1,000 of them, or we'll buy 10,000 of them,
or something, if you bring them in at a certain cost.''
Mr. Garman. Well, that's actually the pathway that we're
on. A plug-in hybrid vehicle needs a very different kind of
battery than a traditional hybrid vehicle. It needs to be a
high-power battery. We're looking at lithium ion chemistries,
primarily, to meet that need. And some auto companies are
working with plug-in hybrid vehicles. DaimlerChrysler and
Toyota both are working on these, and others that I might not
know about. My knowledge is not complete. But we have brought
down the cost of lithium ion battery packs for advanced hybrid
applications from about $3,000 to about $1,000, and we need to
get it down closer to the $500 level. We've made tremendous
progress, and we still have some cost issues. We're looking at
durability, and we're looking at calendar life, and we're
looking at heat produced by lithium ion batteries.
Now, meanwhile--and the next panel can go into more detail,
because they're the experts--but they're also looking very
closely at consumer acceptance and cost, and they're learning a
great deal in the hybrid vehicle market today. I think plug-in
hybrids offers a tremendous opportunity; the President does, as
well. He's mentioned them. He has been to plug-in hybrid
vehicle battery plants in Milwaukee. And it's something that
we're paying more attention to. And when they get close
enough--again, this is another opportunity for Federal
procurements that makes sense, and we will work that with GSA
and through the interagency committees to advance that.
Because, you're absolutely right, you need a certain base to
give us the operating experience that we need and to give the
auto companies the experience they need to understand whether
they have a viable consumer product. Because, ultimately, if
these technologies, whether we're talking about plug-in hybrids
or fuel cells, they have to be adopted on a mass basis. The
Government procurements are important to get us down the road,
but, ultimately, they need to be a significant portion of the
18 million vehicles that are sold in North America each year.
Senator Alexander. Senator Domenici.
The Chairman. Well, I want to say, for the record, that I
think the generic issue raised by Senator Bingaman of creating
a market for these kind of research--quasi-research
investments--is important enough for us to do something about,
because I think if we just leave things like they are, Senator
Bingaman, it'll just be a good subject matter for discussion,
because: Who's going to put up the money? I mean, I go through
appropriations, and if the administration doesn't ask for it,
I'm tempted to do it anyway. But, you know, this isn't cheap,
and this isn't without risk, by definition.
So, I think it should be a question of policy. When do you
decide that you are going to do this and trigger, in some way,
the evolution of a fund? I would be very willing, in a broader
sense than just this--but I think you are already, in your
mind's eye, way beyond just this, because over the areas that
we're looking at with this high price of oil, all these
breakthroughs are ready, and they're waiting for somebody to
buy the prototype, right? And the prototype is generally very,
very expensive. There's no question. So, they're not going to
just get out there and buy them; somebody's got to be willing
to do it. And we have to figure out whether we've got a role.
That's, kind of, what I'm saying in response to your
observation.
Mr. Garman, the multiyear roadmap for hydrogen fuel cells
specifies a 300-mile range for fuel cell vehicles. Now, data
from the Bureau of National Transportation Statistics indicates
that the average American driver travels only 40 miles per day.
Can you explain where the figure 300 miles originated as the
key definition of success and why the Department has adopted
it? It's difficult--more difficult when you make it 300 than if
you make it 40. It's obvious, if--you know, if you can get 300,
it's terrific. Should we be taking a one-size-fits-all approach
for fuel-cell fuel range?
Mr. Garman. No. And let me answer your question this way.
We developed that 300-mile metric in partnership with the
FreedomCAR partners, because it was the view of the automotive
companies, knowing what they know about their customers, that
their customers don't like to go to the fueling station on a
daily or twice-weekly basis, and they want to minimize those
trips to the station. And when they're traveling a long
distance, they don't want to have to stop every 70 or 80 miles
or so to refuel.
We have 62 fuel cell vehicles on the road today in our
Technology Validation Program. And those vehicles are averaging
somewhere between 120 and 225 miles between refueling, which is
pretty good. But they're using high-pressure hydrogen storage
onboard the vehicle to achieve that kind of range, and that's a
generally unreasonable intrusion in trunk and passenger space
in the vehicle, and probably unacceptable to the consumers,
ultimately, which is why we have been working on solid-state
methods of storing hydrogen that will give that kind of range.
There are folks that can, today, deliver 300-mile range on
a hydrogen vehicle, but it takes big tanks in the chassis and
trunk and possibly passenger compartment to do that, and we
think that's just not realistic for a consumer vehicle that my
kid will want to buy and drive when he's old enough to drive.
The Chairman. Thank you very much.
Senator Alexander. Thank you very much, Mr. Garman, for
your testimony, and for being here.
Now, I'll invite the second panel to come forward, and
we'll look forward to their testimony.
The Chairman. Mr. Chairman, might I say to David, when you
came here and took this job, you were excited about it, wanted
to do it very much. Are you still excited about it, and do you
still see all that potential out there in front of you?
Mr. Garman. Yes, sir, I do. And with the leadership of
Secretary Bodman at the Department, and Deputy Secretary Sell,
it remains an exciting and energizing place to work, and I'm
excited to come to work every day. Thank you for asking.
The Chairman. Thank you.
Thank you very much, Mr. Chairman.
Senator Alexander. We welcome our four witnesses on this
panel. I've introduced them earlier, but I'll introduce them
again now: Dr. Byron McCormick, from General Motors; Tim
Leuliette, Metaldyne, Incorporated; Dr. Paul, vice president
and chief technology office from Chevron; Jim Balcom, president
of PolyFuel.
What I'd like to do is to ask each of you to take about 5
minutes, if you would, and summarize your testimony. That would
give the Senators a little more chance to ask you questions and
have a back-and-forth exchange.
Dr. McCormick, we'd like to start with you and just go
right down the line, if we may. Thank you very much for coming.
STATEMENT OF J. BYRON McCORMICK, Ph.D., EXECUTIVE DIRECTOR,
FUEL CELL ACTIVITIES, GENERAL MOTORS CORPORATION, DETROIT, MI
Dr. McCormick. Thank you, Mr. Chairman and committee
members. Thank you for the opportunity to testify.
I'm Byron McCormick, executive director of GM's fuel cell
activities. I lead GM's global fuel cell development effort of
hydrogen fuel cell vehicles.
This is a critical time in the history of the automotive
industry. Automotive technology is clearly and irreversibly
changing. Technologies like our new six-speed and variable-
valve-timing active fuel management will incrementally improve
the fuel economy of internal combustion engines.
Hybrid technology such as our hybrid transit bus, hybrid
pickup, and new Saturn VUE Green Line are saving energy by
shutting off the engine and recapturing the energy that's lost
during breaking. Two million of our on-the-road flex-fuel
vehicles are E85 capable, providing immediate opportunity to
replace petroleum with renewable fuels.
Taken together, these technologies will have a definite
impact on our consumption of petroleum, but we believe that it
is hydrogen and fuel cell technology that provides the greatest
opportunity.
We are developing fuel cell propulsion systems that
unambiguously can compete head to head with internal combustion
engine systems, in terms of performance, durability, and cost
once deployed at high volume. And I've got to say, high volume
is not the thousand kind of thing. You've got to get into the
hundreds of thousands before you really hit those kind of
economic breakpoints. We are making great progress and
increasingly feeling confident we're going to make our goal.
For example, in the last 7 years we have improved the power
density of our fuel cell stack by a factor of 14. We have
significantly improved, and will continue to improve, fuel cell
durability, reliability, and cold-start capability, and
honestly believe those will be done in the next few years. We
are developing safe hydrogen storage systems that approach the
range levels for customer acceptance, and we are making really
significant progress on cost reduction as the technology
improves, but, more importantly, also with systems
simplification.
Today, we are demonstrating our vehicles around the world.
Here in Washington, D.C., over 4,300 people have driven our
fuel-cell-powered vehicles. The U.S. Postal Service has
delivered over a half-million pieces of mail in northern
Virginia. And we have similar demonstrations in ride-and-drives
underway in California, Japan, Germany, China, and Korea. We
have collaborated with the U.S. Army in demonstrating the
world's first fuel-cell-powered full-size military truck. We've
created the Sequel, the first fuel cell vehicle capable of 300
miles between fill-ups, which will be demonstrated later this
year. And we will field 32 of our next-generation fuel cell
vehicles as part of the Department of Energy's learning
demonstration.
While we have made dramatic progress towards what I'll call
first-generation systems, the real volume and benefits will be
realized in later generations of designs and improved
technologies.
As a result, we recommend four specific areas for continued
U.S. policy development:
First, we would like to see a continued and expanded
national R&D initiative--and I want to emphasize, on
breakthrough fuel cell materials, hydrogen storage, and
hydrogen generation, leveraging the creative capabilities of
our government labs, university, industrial research
facilities, to help us move quickly to later-generation
technologies.
Second, we would like to see the Federal Government
articulate a clear, consistent, sustained vision that requires
agencies beyond the DOE and DOD to make hydrogen fuel cell
technology development and application priority areas of
engagement.
Third, even after we succeed in developing competitive fuel
cells, the transition to hydrogen will take time. It takes
about 20 years to sell enough vehicles to change over the
entire U.S. fleet. And since low volume equals high cost in the
automotive business, early vehicles, even at moderate volumes,
will still be very expensive. So, we face the proverbial
``valley of death'' for new technologies as we attempt to grow
this market. This is where we see the need for creative
policies incentive and governments as customers to support the
development and market creation of a high-volume-capable supply
base.
Fourth, although GM is not in the energy business, we have
a keen interest in the pathways to creating and distributing
hydrogen and the technology and the economics involved.
Hydrogen can be made from all of the same sources that can be
used to generate electricity, which gives us the power as a
society to choose how we want to produce the energy we need.
Fundamentally, we do not see an ultimate barrier to making
clean hydrogen at prices that can compete with today's price of
gasoline. To date, the development of hydrogen fuel cell
technology has primarily been an industry-led initiative, but
we also face challenges ahead. Clearly, the Government has an
important role to play in helping incentivize, reduce
investment risk, and achieve the transition to a hydrogen
economy. Low-interest financing, appropriate vehicle purchase
incentives, tax credits for investment in job-producing
industries such as hydrogen fuel cell automotive supply base,
hydrogen generation industry, and hydrogen refueling industry,
timed regionally, focused to match the rollout of fuel cell
vehicles, will be critical.
These policies will be necessary to support the industry's
massive investments in transportation systems, supply base, and
fuel infrastructure. We, at GM, are making a very large
commitment in dollars and manpower to create a market-ready
fuel cell vehicle as soon as possible. Building clean renewable
energy pathways will enable America to reduce its dependence on
imported oil, increase our energy security, promote creation of
new industries, stimulate job creation and sustained economic
growth, and ensure our country's ability to compete on a global
basis.
Thank you.
[The prepared statement of Dr. McCormick follows:]
Prepared Statement of J. Byron McCormick, Ph.D., Executive Director,
Fuel Cells Activities, General Motors Corporation
Mr. Chairman and Committee Members, thank you for the opportunity
to testify today on behalf of General Motors. I am Byron McCormick,
Executive Director of GM's Fuel Cell Activities. I lead GM's global
effort to develop hydrogen-powered fuel cell vehicles.
This is an important time in the history of the automotive industry
and of General Motors. The world we live and do business in is
changing. Automotive technology is clearly changing. Technologies like
our new 6-speed transmissions, variable valve timing, and cylinder de-
activation--what we call active fuel management--continue to
incrementally increase the fuel efficiency of the internal combustion
engine. Hybrid technologies--such as our transit bus hybrid system, our
hybrid pickup truck, and our new Saturn VUE Green Line hybrid--are
saving energy by shutting off the engine while the vehicle is stopped
and capturing energy previously wasted during braking. Our two million
already fielded FlexFuel vehicles capable of burning E85 ethanol, and
diesels running on biodiesel, provide an immediate opportunity to
replace petroleum with renewable fuels. And we continue to track new
developments in battery technology and believe these could be relevant
in a variety of applications.
Taken together, these technologies will have a definite impact on
our consumption of petroleum. But, we believe it is hydrogen fuel cell
technology that can make the greatest progress.
At General Motors, we believe this technology will simultaneously
increase energy independence and security, remove the automobile as a
source of emissions, and allow automakers to create better vehicles
that customers will want to buy in high volumes.
GM's fuel cell program is focused on four areas:
<bullet> Developing a fuel cell propulsion system that can compete
head-to-head with future internal combustion engine systems.
<bullet> Demonstrating our progress publicly to let key stakeholders
experience firsthand the promise of this technology.
<bullet> Collaborating with energy companies and governments to
ensure that safe, convenient, and affordable hydrogen will be
available to our customers in a timely fashion.
<bullet> Working with governments worldwide to ensure that
appropriate market conditions and incentives are in place to
enable a successful market introduction and subsequent
sustainable market expansion.
At General Motors, we are targeting to design and validate an
automotive fuel cell system that has the performance, durability, and
cost, assuming scale volumes, to compete effectively with internal
combustion engine-based systems. We are making great progress in
developing the necessary technologies, and are increasingly confident
that we will reach our goal by 2010. Achieving marketplace volume,
however, will depend on a number of factors beyond GM's or any vehicle
manufacturer's control, as I will discuss later.
Technically, we have made significant progress:
<bullet> In the last seven years, we have improved the power density
of our fuel cell stack by a factor of fourteen. This means that
for the same amount of power, our fuel cell is 1/14th as large
today as it was seven years ago. This allows it to fit nicely
within our vehicles while providing excellent driving
performance.
<bullet> We have significantly improved, and will continue to
improve, fuel cell durability, reliability, and cold start
capability--all keys to meeting our customers' expectations.
<bullet> We are developing safe hydrogen storage systems that
approach the range levels required for customer acceptance, and
are exploring very promising concepts for the next generation
of storage technology.
<bullet> We are making significant progress on cost reduction through
technology improvement and system simplification.
Today, we are demonstrating our vehicles around the world:
<bullet> Here in Washington, D.C., over 4,300 people have
participated in a ride or drive over the past four years. And
the U.S. Postal Service has delivered over a half million
pieces of mail in northern Virginia. We also have similar
demonstrations under way in California, Japan, Germany, China,
and Korea.
<bullet> We have collaborated with the U.S. Army in demonstrating the
world's first fuel cell-powered full-size military truck, which
is being evaluated and maintained by military personnel at both
Ft. Belvoir and Camp Pendleton.
<bullet> We will field 32 of our next-generation fuel cell vehicles
as part of the Department of Energy's Learning Demonstration.
<bullet> And we created the AUTOnomy, Hy-wire, and Sequel concepts,
which show how new vehicle architectures based on fuel cells
and hydrogen can reinvent the automobile. Sequel is the first
fuel cell vehicle capable of driving 300 miles between fill
ups. Later this year, we will be holding test drives to
demonstrate the capabilities of this truly impressive vehicle.
The development of technically and commercially viable hydrogen
fuel cell vehicles is a team effort, and we are working with key
partners on virtually every aspect of fuel cell and infrastructure
technology. In addition to the military, some major partners include
Shell Hydrogen, Sandia National Lab, Dow Chemical, Hydrogenics, QUANTUM
Technologies, and the Department of Energy through the FreedomCar and
Fuel Partnership.
GM applauds the Department of Energy and the federal government for
its hydrogen infrastructure initiatives. However, in our view, more
needs to be done if we are to be ready for fuel cell introduction and
the sustainable market growth that we envision over the coming decades.
Four specific areas for U.S. policy development should be
considered:
First: While we have made dramatic progress toward a first-
generation automotive-competitive system, as with any new technology,
the real volume and benefits will be realized in second-generation
designs and beyond. As such, we would like to see an expanded national
R&D initiative on breakthrough fuel cell materials, hydrogen storage,
and hydrogen generation--leveraging the creative capabilities of our
government labs, universities, and industrial research facilities--to
help us move quickly to later-generation technologies and designs.
Second: We would also like to see the federal government articulate
a clear, concise, broadly sanctioned vision that requires agencies
beyond DOE and DOD to make hydrogen and fuel cell technology
development and application priority areas of engagement.
Clear, consistent, ongoing communication to the American people of
this vision and the underlying rationale for hydrogen and fuels cells
is also vitally important to building public acceptance of fuel cell
vehicles.
Third: Even after we succeed in developing ``auto-competitive''
fuel cells, the transition to hydrogen will take time. It takes about
20 years to sell enough vehicles to change over the entire vehicle
fleet. And, since low volume equals high cost in the automotive
business, early vehicles even at moderate volumes will still be
expensive, even if our technology can compete at high volume. So we
face the proverbial ``valley of death'' for new technologies as we
attempt to growth the market. This is where we see the need for
creative policies, incentives, and governments as customers to support
the development of the market and creation of a high-volume-capable
supply base.
Fourth: Although GM is not in the energy business, as we work to
commercialize fuel cell vehicles, we have a keen interest in the
pathways to creating and distributing hydrogen, and the technologies
and economics involved.
We think about hydrogen like we think of electricity. When we
switch on a light, we are usually not thinking about how the
electricity is being generated. In most cases, how that is done depends
on where we are. We may be drawing on a hydroelectric plant, natural
gas-fueled generating station, a nuclear or coal-fired power plant,
wind turbines, or even solar cells.
Hydrogen can be made from all the same sources that can be used to
generate electricity, which gives us the ``power'' as a society to
choose how we want to produce the energy we need. Each region will
evaluate the resources it has available--and, as technology progresses,
the economics improve, and societal expectations for environmental and
energy sustainability heighten, different options will become
preferable in different locations. We do not see an ultimate barrier to
making clean hydrogen at prices that can compete with today's price of
gasoline. But, coordinating a successful, sustained market transition
will require proper government policies.
So, what is the best way to proceed? To date, this has been
primarily an industry initiative, but we're facing a larger challenge
than technology development, larger than something a single automotive
company or industry can accomplish--the federal government has an
important role to play in helping to incentivize and reduce investment
risk and achieve a sustainable transition.
The federal government has historically played this role in
transportation initiatives that have addressed larger societal needs--
for example, in the creation of the transcontinental railroad and the
federal interstate highway system. Low-interest financing; appropriate
vehicle purchase incentives; tax credits for investment in a jobs-
producing U.S.-based automotive supply base, hydrogen-generation
industry, and hydrogen refueling infrastructure, timed and regionally
focused to match the rollout of fuel cell vehicles; or other meaningful
policies are necessary to support industry's massive investments in the
fundamental underpinnings of our automotive transportation systems,
supply base, and fuel infrastructure.
At GM, we are making a very large commitment in dollars and
manpower to create a market-ready fuel cell vehicle as soon as
possible. Our fuel cell program expects to develop clean, affordable,
full-performance fuel cell vehicles that will excite and delight our
customers. We believe that with the support of a well-conceived set of
policies to incentivize and sustain market and industry development,
our customers will buy these vehicles in large numbers and that society
will reap the economic, energy, and environmental benefits.
Similarly, we believe that building clean, renewable energy
pathways will enable America to reduce its dependence on imported oil,
increase our energy security, promote the creation of new industries,
stimulate jobs creation and sustainable economic growth, and ensure our
country's ability to compete on a global basis.
General Motors is ready and eager to work collaboratively with
government, energy companies, and suppliers to help drive the Hydrogen
Economy to reality.
Senator Alexander. Thank you.
Mr. Leuliette.
STATEMENT OF TIMOTHY D. LEULIETTE, CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, METALDYNE CORPORATION, PLYMOUTH, MI
Mr. Leuliette. Mr. Chairman and members of the committee,
thank you for this opportunity to testify before you today on
the need for this Nation to move quickly to a hydrogen economy.
I am Tim Leuliette, chairman, president, and chief
executive officer of Metaldyne Corporation. Metaldyne is a
leading global supplier of metal-based components, assemblies,
and modules for the transportation industry in the power-train
and chassis area.
Let me make it very simple. Ninety-eight percent of all the
vehicles produced in this country rely upon us in the engine or
the transmission or the chassis, if not all three, for our
components, to build their vehicles. We have annual revenues of
$2 billion. We have more than 6500 employees in 38 facilities
in 14 countries.
I've had the privilege of working in the auto industry for
more than 30 years, most of which I spent in the supplier
community. I have served as president of Penske Corporation,
ITT Automotive, and Siemens Automotive. I also held executive
positions at Bendix and various engineering and planning
positions at Ford and American Motors. In addition, I am a
partner in a private equity fund, which I used to help build
Metaldyne in the first place.
In these roles, I have been witness to, and part of, many
restructuring strategies, new business models, and makeovers in
the automotive industry. These were minor compared to the
transformation our industry is going through today as it
grapples with globalization and soaring energy costs.
Remember the term ``creative destruction,'' from economist
Joseph Schumpeter? The transformation in creative destruction--
this is transformation, in all its glory, in creative
destruction. Creative destruction is, according to Schumpeter,
the process of replacing good things with better things. The
hydrogen economy is the ``better thing.''
I'm here today to share my views on how we can use this
transformation to move more quickly to a hydrogen economy. By
doing so, we will boost our Nation's economy, improve the
environment, maintain, if not enhance, our national security,
and bring jobs to the automotive industry and its supporting
infrastructure.
I want to address three issues: first, the need for a
national energy policy; second, the role private equity can
play in bringing this energy policy to life; and, third, what
happens if we don't move quickly to alleviate our dependence on
foreign oil.
First, we must create a national energy policy that
mandates collaboration with every part of the U.S. auto
industry to develop alternative energy such as hydrogen. This
energy policy must include suppliers and all automakers, both
domestic- and foreign-based, with a strong U.S. presence.
Involving automotive suppliers in the hydrogen movement is near
and dear to my heart, and it needs to become near and dear to
the hearts of all stakeholders. U.S. automotive suppliers are a
$384-billion industry. Overall, the U.S. automotive supplier
industry employs more than 1.2 million people. There are 2.9
jobs created in the auto industry supply base for every OEM
job, meaning that 75 percent of the people employed in the auto
industry work for suppliers today.
Suppliers play a key role in automotive R&D and innovation.
According to a recent National Science Foundation report, the
auto industry spent $16.9 billion on R&D in the United States
in 2003. Of that, supplier R&D accounted for 40 percent. So,
let me, again, go through the numbers: 75 percent of the
employment is in the supplier community, 40 percent of the R&D
is done by suppliers, and, by the way, 50 percent of the
capital invested in the auto industry is done by suppliers
today, and 60 percent of the patents are held by the suppliers
today in the auto industry. This is no small group. Under
Secretary Garman said we're hard to a hands-on, hard to talk
to, we're a large number of people, but we are very focused,
and becoming more focused on hydrogen. We are a vast well of
knowledge that has yet to be tapped. This is not an oversight,
it's just a mistake at times as we extend the timeline to
achieve the hydrogen economy.
Attracting private equity is also key to quickly moving the
hydrogen economy forward. It is a huge undertaking that cannot
be funded by industry alone, the Federal Government alone, or
any other group alone. However, there are billions of dollars
of capital from private equity that could be channeled into
creating the hydrogen economy. Think. This is hydrogen--private
equity capital is demanding capital, it is high-expectation
capital, but it's the same type of capital that was used to
fund the dot-com economy that the industry used once the
Government supported the establishment of the basic protocols
and framework and goals of the Internet.
In 2004, there was approximately $100 billion of
underemployed, private-equity funds in the United States, and
39 billion euros in Europe, according to Alex Partners, a
private equity form with substantial investments in the auto
industry.
The hydrogen title directed the Secretary of Energy to
draft a coordinated plan for the programs that are directly
related to fuel cells or hydrogen. This plan could attract
substantial interest from private equity as it lays out a solid
platform, a strong roadmap and timeline, and provides the
underlying stability needed from the Federal Government. We
need an energy policy.
Third, if we don't move quickly, we stand to lose not just
our jobs and clout in the auto industry, but also our standing
as a superpower. Today, there is much talk about oil reaching
$100 a barrel. This would have a devastating impact on this
economy. A recent study by the Office of Study of the
Automotive Transportation, the University of Michigan
Transportation Research Institute, and the National Resources
Defense Council, called ``In The Tank,'' * says that at $80 to
$100 a barrel, the equivalent of $2.86 to $3.37 at the pump,
Detroit's big-three automakers would see their sales fall 9 to
14 percent. In addition, 16 facilities, mostly in the Midwest,
would close, and at least 300,000 jobs would be on the line, 37
percent which are in Michigan, Indiana, and Ohio.
---------------------------------------------------------------------------
* The study has been retained in committee files.
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Washington has committed $1.2 billion to its Hydrogen Fuel
Initiative, with the goal of producing commercially viable fuel
cell vehicles by 2020 and a major dent in oil usage by 2040.
It's a start, but it's not good enough. I firmly believe that
increasing our collaborative efforts to include suppliers, all
automakers, and private equity in the process, we can move this
timetable ahead substantially.
I thank you.
[The prepared statement of Mr. Leuliette follows:]
Prepared Statement of Timothy D. Leuliette, Chairman, President and
Chief Executive Officer, Metaldyne Corporation, Plymouth, MI
Mr. Chairman and members of the committee, thank you for this
opportunity to testify before you today on the need for our nation to
move quickly to a hydrogen economy. I am Tim Leuliette, chairman,
president and chief executive officer of Metaldyne Corporation.
Metaldyne is a leading global designer and supplier of metal-based
components, assemblies and modules for transportation related
powertrain and chassis applications including engine, transmission/
transfer case, wheel-end and suspension, axle and driveline, and noise
and vibration control products to the motor vehicle industry. It has
annual revenues of $2 billion and over 6,500 employees at 45 facilities
in 38 countries around the world.
To put it in a different perspective we are the 69th largest
automotive supplier in the world, according to Automotive News.
I have had the privilege of working in the auto industry for more
than 30 years, most of which I spent in the supplier community. I have
served as president and chief operating officer of Penske Corporation,
a closely-held diversified transportation services company managing
businesses with annual revenues exceeding $10 billion and more than
33,000 employees at over 200 facilities worldwide. I also was president
and chief executive officer of ITT Automotive Inc., and president and
chief executive officer of Siemens Automotive L.P. In that position I
became a member of the Siemens Automotive Managing Board and a
corporate vice president of Siemens AG. I was the first non-German to
hold this level of authority in the 143-year history of the electrical
and electronics company.
I also held executive positions at Bendix and various engineering
and planning positions at Ford Motor Company and American Motors
Corporation.
In addition, I have experience in private equity as a former
partner in Heartland Industrial Partners, a private equity firm
established to acquire and expand industrial companies in sectors ripe
for consolidation and growth. Heartland builds value by investing in
well-positioned industrial companies, whose talent, technology, assets
and market position afford them the opportunity to be a platform for
industry consolidation and value-creation.
I also have had the privilege of serving on several boards
including Collins & Aikman, TriMas Corporation, Vattikuti Urology
Institute of Henry Ford Health Systems, and Karmanos Cancer Institute.
I am the past chairman of the board of The Detroit Branch of The
Federal Reserve Bank of Chicago and have strong affiliations with
Detroit Renaissance and Junior Achievement.
In these roles I have been witness to, and part of, many
restructuring strategies, new business models and makeovers in the
automotive industry. These were minor compared to what our industry is
working through today. Globalization has thrown the auto industry into
a transformation on a scale greater than we have ever witnessed. This
globalization in no way resembles what we saw in the 1980s and 1990s
when the mature automakers and their suppliers began to build more
plants in emerging countries . . . and in the southern U.S. This
globalization is the 21st century kind that will redraw boundaries
geographically, politically, economically and socially. It will change
our business, our technologies and our relationships.
In the end new regions . . . and companies . . . will be super-
empowered to become superpowers of industry. Our challenge as a nation
and as an industry is to play a key role in creating and influencing
that structure.
To accomplish that, we must quickly create a National Energy Policy
that mandates collaboration with every part of the U.S. auto industry
to develop new technologies such as hydrogen. That means including
suppliers and all automakers, both domestic and foreign-based with a
strong U.S. presence, in the national debate on hydrogen. As a nation
and an industry we cannot afford to allow politics and competitive
concerns freeze out companies, people or regions to stand in the way.
The National Energy Policy must transcend elections, political
parties and corporate boundaries to meet the needs of the consumer, the
environment and national security. I commend this Committee on the
collaborative business model it set as it worked in a bipartisan manner
to promote energy policy.
As GM's head of research Larry Burns has said ``the biggest risk of
all is to sit on the sidelines and not try to create this future.''
There's plenty of precedent, he noted, for a society-wide effort. The
Panama Canal, the Manhattan Project and the moon missions of the 1960s
all involved public funds and private partners. And all produced
dramatic results.
The same can be accomplished with the Hydrogen Title. We must begin
building a national consensus for its necessity then fund aggressive
research programs aimed at moving the relevant technologies toward
commercial viability, and keep them in the U.S.
ROLE OF AUTOMOTIVE SUPPLIERS AND THE NEED TO INCLUDE THEM IN
THE NATIONAL DEBATE
The stated purpose of the Hydrogen Title is to:
<bullet> enable and promote comprehensive development, demonstration,
and commercialization of hydrogen and fuel cell technology in
partnership with industry
<bullet> build a mature hydrogen economy that creates fuel diversity
in the massive transportation sector of the United States
<bullet> sharply decrease the dependency of the United States on
imported oil, eliminate most emissions from the transportation
sector, and greatly enhance the nation's energy security.
Accomplishing these goals requires a comprehensive ``partnership
with industry.'' Unfortunately, no such partnership exists between the
federal government and the automotive industry because current programs
fail to include two-thirds of the auto industry . . . the supplier
community.
According to the most recent statistics released by Motor &
Equipment Manufacturers Association (MEMA) in June 2006:
<bullet> U.S. automotive suppliers (parts manufacturers) are a $384
billion industry ($199.2 billion of the market consists of
Original Equipment and $184.7 billion consists of the
Aftermarket), which are the components used to repair and
service vehicles once they are already out on the road.
<bullet> Overall, the U.S. automotive supplier industry employs more
than 1.2 million people at over 11,500 domestic plant locations
across the country.
<bullet> There are 2.9 jobs in the auto supply chain for every 1
assembly (automaker) job and supplier products account for more
than two-thirds of the content on each new vehicle.
This is a large, nationally and globally influential group that
must play a leading role in this initiative: Yet, despite their weight
in terms of employment, facilities and capital investment, suppliers
have no formal or direct ability to participate in the federal
government's hydrogen program (FreedomCAR). They can only bid for
grants and projects under the EERE Vehicle Technologies Program, which
focuses more on hybrid components and short term gains in fuel
efficiency. They also don't have a seat at the table in the
Congressional and national debate on hydrogen policy.
This is not only an oversight; it is a huge mistake that will
extend the timeline to achieving the Hydrogen Economy by decades. There
is a misconception that suppliers simply build systems, components and
parts to automaker specifications. In readily suppliers play a key role
in automotive R&D and innovation. According to a recent NSF report, the
auto industry spent $16.9 billion on R&D in the U.S. in 2003. Of that,
supplier R&D accounted for $6.9 billion, or 40%.
Let's take a look behind the numbers and into the DNA of the
supplier network. The R&D done by the automakers is often applied R&D.
The pure R&D is done by suppliers, and it has been for years.
Automakers didn't develop airbags, suspension systems, anti-lock brakes
or windshield wipers that sense the rain and automatically turn on,
just to name a few innovations created by suppliers and ``applied'' by
the automakers.
Suppliers are used to being nimble, fast and flexible, to serving
numerous customers and to delivering new products to the marketplace
quickly. They have honed these skills through collaboration within the
supplier community and innovative partnerships.
Many suppliers already have such programs in place for alternative
energy. For example:
<bullet> Freudenberg-NOK General Partnership (FNGP) between
Freudenberg & Co. of Germany and NOK Corporation of Japan has
been involved in the research and development of advanced fuel
cell sealing technology for more than 10 years. Headquartered
in Plymouth, Michigan, FNGP handles the entire group's
manufacturing R&D work, with a portion of the operation focused
on automotive and stationary fuel cell development. Originally
considered less critical than other parts of the fuel cell
tack, sealing technologies have received renewed attention over
the past few years.
<bullet> ECD Ovonics and its partners successfully completed a
demonstration project to modify a commercial gasoline/electric
hybrid vehicle to run on hydrogen utilizing a new low-pressure,
metal hydride hydrogen storage system developed and
manufactured by Texaco Ovonic Hydrogen Systems, LLC, a joint
venture between a unit of ChevronTexaco Corp and ECD Ovonics.
<bullet> Delphi Corp., a partner in the U.S. Department of Energy's
advanced fuel cell development program, has exceeded the power
density level required to meet the government's $400 per
kilowatt cost goal for fuel cells. Meeting the cost target is
essential if fuel cells are to expand beyond their current
niche markets into widespread commercial use. At $400 per
kilowatt--nearly one-tenth the cost of power-generating fuel
cells currently sold on the market--fuel cells would compete
with traditional gas turbine and diesel electricity generators
and become viable power suppliers for the transportation
sector.
<bullet> Siemens is partnering with the University of South Carolina
to build and test a prototype diesel engine that runs on
hydrogen instead of petroleum.
As you can see the supplier community is ready, willing and more
than able to play a leading role in the march to the hydrogen economy.
It simply needs an avenue to march down and an invitation to the
parade. The Hydrogen Technical and Fuel Cell Advisory Committee the
Secretary of Energy is establishing to advise the government on
hydrogen programs is just that avenue.
The committee is to consist of representatives from domestic
industry, academia, professional societies, government agencies,
federal laboratories, previous advisory panels, and financial,
environmental, and other appropriate organizations. I urge this
Committee to ensure that DOE makes this group an active participant in
its efforts and the creation of future policies and national
strategies.
I also strongly encourage this Committee to extend membership in
the Hydrogen Technical and Fuel Cell Advisory Committee to the
automotive supplier industry, to other groups such as SAE and to the
entire ``domestic'' auto industry. We need to include foreign-owned
manufacturers with a significant presence in the U.S. (e.g. Toyota,
Honda, Nissan, Bosch, Denso, etc.)
As I've outlined this hydrogen strategy, you're probably asking
yourself, why is this guy who heads a nuts and bolts company pushing
hydrogen? The answer is simple. The industry and the hydrogen movement
need the engineers at Metaldyne and other suppliers to address the
tactical issues of hydrogen vehicles. Suppliers are often the inventors
of technology and hydrogen is no different. There is money to be made
here and I intend to be sure Metaldyne is at the forefront. As
suppliers of powertrain and chassis components and systems we must not
only be prepared for new and developing technologies, we must take a
leadership role in ensuring the most positive long-term solutions are
adopted. That solution is hydrogen.
INVESTMENT IN HYDROGEN TECHNOLOGY IS A JOBS AND GLOBAL
COMPETITIVENESS ISSUE
The countries and industries that develop the technologies that
move to the hydrogen economy first will see significant job growth.
However, none of this will happen overnight. Many of those jobs will be
in the traditional automotive supplier community as well as in new
entrepreneurial companies that will continue to grow up as a result of
new technology. There will be new R&D and manufacturing jobs. There
will be new jobs created to develop and build new alternative energy
distribution networks.
To attract and maintain these jobs we must create a collaborative
environment in the U.S. that will foster the growth of the hydrogen
economy. Otherwise there is every reason to believe the jobs will go to
other countries with strong R&D networks and aggressive collaborative
government/industry programs.
We have the resources in this nation to makes the hydrogen economy
a reality. For example, Michigan currently is home to GM, Ford,
DaimlerChrysler, Toyota, Nissan, Hyundai R&D centers as well as dozens
of supplier R&D centers. South Carolina formed the South Carolina
Hydrogen and Fuel Cell Alliance, a state-wide initiative designed to
promote the development and use of quality, cost effective and
accessible hydrogen fuel cells, and related technologies. Indiana has
supported the development of several efforts such as the ForeverGreen
Enterprises Inc. construction of a high-technology hydrogen production
facility in DeKalb County. The company will manufacture Green Hydrogen
from materials that would otherwise be regarded as waste, therefore
reducing manufacturing costs and the negative impact this waste would
otherwise have on the environment. Our national labs have hydrogen
programs going.
During a visit to the California Fuel Cell Partnership last year
President Bush said ``the idea of a hydrogen-powered automobile is not
a foolish dream. It is a reality that is going to come to be . . .
Hydrogen has vast potential to dramatically cut our dependence on
foreign oil . . . Investing in new technologies, like hydrogen, will
enable our economy to be strong.''
I couldn't agree more that the world is hooked on oil. It's a life-
threatening addiction that is driving countries, companies and
individuals to try and kick the habit. This dependence not only
threatens to further weaken profits and cost jobs among the U.S.
automakers, it is a national security risk to the United States and is
wreaking havoc on the global environment.
The U.S. is currently struggling with how it will maintain its
superpower status and our status as the largest consumer of energy and
oil is making it more and more difficult. The only way we are going to
gain a competitive advantage is if we solve the energy issue before
other countries do and that demands a National Energy Policy and a
larger commitment to hydrogen.
Washington has committed $1.2 billion to its Hydrogen Fuel
Initiative, with the goal of producing commercially viable fuel cell
vehicles by 2020 and a major dent in domestic oil usage by 2040. As you
know, that is simply too little. I commend this Committee for its
strong stand to authorize substantial monies to the hydrogen initiative
and encourage the current Administration to move that recommendation
forward. The United States can't be a superpower if it's out of power.
The current plan outlines a timetable 10 times longer than the
Manhattan Project and four times longer than putting a man on the moon.
In short, there is no unified sense of urgency on a national level
to develop a robust, realistic, well-funded energy policy that allows
us to thumb our noses at gas stations in the near future.
Such a play is essential as the globalization march continues. As
China, India and other developing countries embrace free markets and
foreign investment, they're producing hundreds of millions of newly
minted middle-class car buyers. In the U.S. we are producing a new
person every 12 seconds, and each one of them will need a car. Between
now and 2020, the number of vehicles worldwide likely will rise from
750 million to more than a billion.
We can't keep up with the oil consumption needed to run those
vehicles. The International Energy Agency says that in its base line
year of 2002 the world consumed 78 million barrels of oil daily and had
a production capacity of 80 million barrels a day. By 2015 the agency
estimates that the world will be consuming 103 million barrels a day,
and 119 million barrels a day by 2025.
The catch is the world cannot meet the demand.
Boone Pickens says worldwide production of oil is 84 million
barrels a day and is never going any higher . . . that is unless we
find the capital investment money needed to search under new sands and
seas for untapped reserves.
So if we add the expected 300 million vehicles to the mix, and the
result could be a ``super spike,'' with the price of a barrel of crude,
at least for a time, exceeding $100. That $100 a barrel price tag would
have a devastating impact on the Midwest, and ultimately, the nation.
A recent study by the Office for the Study of Automotive
Transportation, the University of Michigan Transportation Research
Institute and the National Resources Defense Council called ``In the
Tank'' says that at $80 to $100 a barrel . . . the equivalent of $2.86
to $3.37 at the pump . . . Detroit's Big Three automakers would see
their sales fall 9-14 percent, a decline of 1.9 to 3 million vehicles.
That would mean an industry-wide drop of $11.2 to $17.6 billion in pre-
tax profits.
In addition, 16 factories, mostly in the Midwest, could close and
at least 297,000 jobs would be on the line, 37 percent of which are in
Michigan, Ohio and Indiana.
It should be noted that the week of July 4 the U.S. consumers paid
an average of 3.9 cents more than the week before, or $2.97 a gallon,
the second-highest level ever, the government said Monday. The national
pump price for regular unleaded gasoline is up 65 cents from a year ago
and not far from the record $3.07 reached last September after
Hurricane Katrina disrupted petroleum supplies, according to the
federal Energy Information Administration's weekly survey of 800
service stations.
Depending on fuel prices and consumer incentives, sales of hybrids
and advanced diesels are likely to go from about 100,000 units this
year to as many as 1.8 million by about 2010. Initially, most of these
vehicles will be imported. Since advanced diesel engines under about 5
liters will displace many gasoline engines, and since full hybrids
don't use conventional transmissions, Michigan and Ohio--and to a
lesser extent Indiana--stand to be major losers unless production of
these vehicles, or at least their powertrains, are produced in this
area.
Specifically, if 1.8 million ``HADs'' . . . that is hybrids and
advanced diesel vehicles . . . are sold by the end of the decade, these
three states stand to lose more than 66,000 jobs, nearly one-third of
the U.S. total of 207,000 potentially lost jobs, according to Fuel-
Saving Technologies and Facility Conversion: Costs, Benefits, and
Incentives.
These statistics drive home the need for a collaborative strategy
that attracts not only hybrid technology but ensures future alternative
energy powertrains and vehicles are developed and manufactured in this
country. If the U.S. truly wants to be player in 2020 there must be a
strong, doable national plan for hydrogen. Hydrogen is the most
abundant, environmentally friendly fuel source in the universe and it
is the way of the future.
We need to follow a four-step plan to reduce our dependency on oil.
The first two we can do in the automotive industry. The second two
require political action.
<bullet> First, establish a well-funded and powerful industry
consortium made up of all the major stakeholders . . .
automakers, suppliers and labor.
<bullet> Second, establish a hydrogen-powered vehicle design team to
set industry practice and design rules.
<bullet> Third, set a national target that 80 percent of the vehicles
sold in the United States and 100 percent of the imported
vehicles are hydrogen-powered by 2025.
<bullet> Fourth, provide federal customer incentives, research
dollars and funding for infrastructure issues by imposing a gas
tax and/or by alternative means that include investment by
public and private equity.
CAPTURING THE INTEREST OF THE AMERICAN PEOPLE--EDUCATING THE
PUBLIC ON HYDROGEN
One of the hydrogen economy's greatest challenges is moving the
public away from its fascination with hybrid and ethanol vehicles. That
will require a collaborative effort among all stakeholders--government,
automakers, suppliers, unions--to educate people on the benefits of
hydrogen and the need to quickly move to that technology.
The timing is right. A CNN poll conducted in early May found that
60% of adults thought seriously about purchasing a fuel-efficient
vehicle because of the skyrocketing price of gasoline.
The message is simple. Hybrids and ethanol, while good and
necessary intermediary steps to hydrogen, are not long-term solutions
to our dependency on oil. There are many studies out today that are
either pro or con when it comes to these forms of alternative energy.
The most important thing is that they are being discussed in many
forums and are generating conversation and public awareness. That can
only help create more conversation about the need to move more quickly
to the hydrogen solution.
Hybrid vehicles might actually use more fuel than a normal car.
They run on full gasoline at highway speeds because the ECU detects
highway long journeys might drain the battery too fast. In addition,
the gasoline in hybrids relatively small and therefore has to work
harder and use more fuel compared to a conventional powered vehicle
with a larger more potent engine.
There are other disadvantages. The metals in the nickel-metal
hybrid battery currently used in hybrid vehicles are 25 times more
expensive than lead. Nickel has been identified as a carcinogen. Hybrid
vehicles have not been on the road long enough to allow the batteries
to prove their projected cycle life. No significant recycling
capability exists.
Ethanol also is not a long-term cure. According to scientists in
New York and California, it takes more energy to make ethanol than you
get back in fuel savings. More precisely, says David Pimentel of
Cornell University, it takes the equivalent of 1.29 gallons of gasoline
to produce enough ethanol to replace one gallon of gasoline at the
pump. Instead of making the nation more energy self-sufficient, ethanol
production actually increases our need for oil and gas imports, he
says. Pimentel and Tad W. Patzek, professor of civil and environmental
engineering at Berkley, conducted a detailed analysis of the energy
input-yield ratios of producing ethanol from corn, switch grass and
wood biomass as well as for producing biodiesel from soybean and
sunflower plants.
``The United State desperately needs a liquid fuel replacement for
oil in the near future,'' says Pimentel, ``but producing ethanol or
biodiesel from plant biomass is going down the wrong road, because you
use more energy to produce these fuels than you get out from the
combustion of these products.''
In a recent paper in the journal Natural Resources Research, he
calculates it takes the energy equivalent of 271 gallons of gasoline to
grow a hectare (about 2.47 acres) of corn. Part of that energy is for
tractor fuel, but the biggest use is for manufacturing nitrogen
fertilizers, which are mandatory for high-yield corn-growing. These
fertilizers are made by heating natural gas under controlled
circumstances so that it reacts with nitrogen in the air. Not only does
it take heat to do this, but it uses up natural gas that could have
been burned as fuel. Pimentel estimates that in corn-growing, nitrogen
fertilizers alone use the equivalent of 80 gallons of gasoline per
hectare.
Another study done at the Universite Laval in Quebec, Quebec, in
2004 says E85 costs substantially more to operate annually. For
example, the annual cost to use E85 in a Chrysler Sebring convertible
was $1323 in 2004 U.S. dollars, compared with $900 for gasoline.
While this study and others are heavily questioned by pro-ethanol
groups the positive side is that they are generating conversation and
public awareness. That can only help create more conversation about
need to move more quickly to the hydrogen solution.
a national strategy on hydrogen--how private equity can help fund this
NEEDED TRANSITION TO A NEW ENERGY SOURCE
The Hydrogen Title directed the Secretary of Energy to draft a
coordinated plan for the programs that are directly related to fuel
cells or hydrogen. The plan was required to describe the national
agenda for the next five years for the programs and the milestones that
will be used to evaluate the programs for the next five years. This
strategy could attract substantial interest from private equity if the
Secretary's plan lays out a solid platform, a strong roadmap and
timeline and provides the underlying stability needed from the federal
government.
Attracting private equity is key to quickly moving the hydrogen
economy forward. The federal government does not have the funds.
Private equity does. In 2004 there was approximately $100 billion of
undeployed private equity funds in U.S. and \39 billion in Europe,
according to Jay Alix, president of Alix Partners, a private equity
firm with substantial investments in the auto industry.
``Enormous new markets are developing through the commercialization
of energy technologies,'' said M. Grier Eliasek, managing director of
Prospect Street Ventures, a leading private equity and merchant banking
firm focused on investing in energy companies. ``We believe these
markets offer excellent opportunities for private equity investment,
and we are actively pursuing a number of such opportunities at this
time. In an economy in which many sectors are struggling for growth,
energy technology represents a robust, rapidly growing market.''
Several firms have shown interest in several forms of alternative
energy as concerns about peak oil supply, skyrocketing oil and natural
gas prices and national security issues heat up. In fact, the energy
component is the fastest growing clean technology and makes up more
than 70% of investments in the clean technology industry, Tucker
Twitmyer, managing partner with Philadelphia-based EnerTech, a venture
capital firm focused on energy technologies, said in a recent Knowledge
@ Wharton article.
The article also points out that the window of opportunity for
investment in clean technology has never been more robust. According to
the 2006 Cleantech Venture Capital Report on North American venture
capital investing, up to 3% of all venture capital was used for clean
technology during the dot.com bubble from 1999-2001. That rose to 5-6%
from 2002-2005 and the study suggests that it will jump to 10% of all
VC investment by 2009. That amounts to between $6.2 billion to $8.8
billion invested as venture capital firms go to the markets to raise
capital in an estimated 1,000 rounds between 2006 and 2009, the article
said.
Following are some example of venture capital investments in clean
energy:
<bullet> Kleiner Perkins Caufield & Byer has backed a handful of
clean tech companies, including Miasole, a San-Jose based solar
technology firm. Former Secretary of State Colin Powell is one
of KPCB's general partners.
<bullet> EnerTech, which invests in power and energy consumption,
manages $290 million, 80% of which is in clean energy.
<bullet> New Energy Capital (NEC) in New Hampshire is financing
renewable and efficient energy projects from wind power to
geothermal to biofuels.
<bullet> Goldman Sachs owns wind farm projects through its
acquisition of Horizon Wind Energy.
<bullet> Yellowstone Energy Ventures has made minority investments in
public and private companies involved in alternative energy and
renewable energy technologies. It has invested in several fuel
cell companies including Protonex Technology Corporation, which
is developing fuel cells with emphasis on military
applications, and Cellex, which is a leader in fuel cell power
solutions for industrial vehicles.
<bullet> Virent Energy Systems, a University of Wisconsin spin-off,
just received $7.5 million in venture capital from Cargill
Ventures. Virent is trying to develop a cost-effective way to
generate hydrogen fuel from water and sugar in a one step
process as part of a car's engine or an electrical generator.
CHALLENGES FACING THE AUTO INDUSTRY
The U.S. auto industry is going through a transformation unlike
anything we have witnessed before. This transformation has been in the
offing for more than 25 years, ever since the first oil crisis in the
early 1970s. Since then the traditional domestic auto industry has been
teetering on the edge of the cliff only to be drawn back by the
deceitful business cycle of improved sales, better profits and the
promise of diversification success we've come to expect over and over
again. This time the consumer is driving the transformation and many
companies are not prepared because they didn't learn from the past and
adjust their strategies accordingly.
That said we need to remember in all this that the auto business is
strong, vibrant and growing. We have had record or near record annual
sales in the U.S. since the turn of the century. The difference is the
competition is stronger . . . and there's more of it. The U.S. auto
market now looks more like the European market with 8-10 major
companies vying for business instead of three companies--General
Motors, Ford and Chrysler--dominating the market.
This transformation is good and necessary . . . for the industry
and the U.S. It is a form of creative destruction that is driving home
a sense of urgency to develop the right product, be flexible, embrace
change and learn from the past. As economist Joseph Schumpeter said
creative destruction is the process of replacing good things with
better things. This creative destruction has shaken the auto industry
to the core and instills a sense of urgency to change . . . to find and
embrace new, more innovative business models and technologies that
require working together.
Industry, government and public and private investors need to have
that same sense of urgency about the pace at which this nation moves
toward a hydrogen economy. There is no time to waste. The product
development decisions being made today are for vehicles that will be
built 10 years from now. Companies are not only deciding what vehicles
they will build . . . you can bet many will be alternatively fueled . .
. but where they will build them and where their systems and components
will be sourced. The only way to ensure those vehicles are built in the
U.S. is to develop a robust, innovative and comprehensive national
energy policy that requires collaboration among all domestic industry
(automakers and suppliers), academia, professional societies,
government agencies, federal laboratories, previous advisory panels,
and financial, environmental, and other appropriate organizations.
CONCLUSION
The auto industry, which has long been the bedrock of the U.S.
economy, is at a crossroads and must adopt a new business model that
will weave its collective expertise into a single fabric. This new
model requires collaboration at all levels--manufacturing, technology,
and research and development. This new business model will be based on
realistic relationships that will meld cultures, philosophies and
technologies and prepare us for a new future that will be nothing like
we've seen before.
Developing alternative energy sources that will decrease the U.S.
dependence on petroleum imports is key to developing that new business
model. To accomplish that we must collaborate and share information--
without jeopardizing competitive advantages for companies. The
technological challenges facing the industry and the nation today are
more than any single company can achieve without extraordinarily large
financial expenditures within a reasonable timeframe. The problem
requires a national effort that pools the resources of the federal
government, all sectors of the automotive industry and public and
private investors to move the U.S. to a hydrogen economy faster and
more efficiently.
There is simply no future in the status quo and there can be no
status quo in our future.
Senator Alexander. Thank you very much.
First let me recognize that Senator Dorgan has arrived,
who's been a strong proponent of the hydrogen economy for some
time.
We've all made brief statements. Would you like to make
one, Senator Dorgan?
STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR
FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, only that I regret I have
been downstairs at another hearing, and I'm scheduled--we have
a schedule on the floor to speak on stem cell research, and I'm
scheduled to be there for my presentation in a short while. But
thank you for holding this hearing. I know my other two
colleagues here, as well, are spending a great deal of time on
this issue. I think that the issue of hydrogen fuel cells is
just critically important, and I've been happy to work with a
bipartisan group of legislators on these issues in recent
years.
Senator Alexander. Thank you, Senator Dorgan.
Dr. Paul.
STATEMENT OF DR. DONALD L. PAUL, VICE PRESIDENT AND CHIEF
TECHNOLOGY OFFICER, CHEVRON CORPORATION, SAN RAMON, CA
Dr. Paul. Thank you, Mr. Chairman and members of the Senate
Energy Committee. Chevron is pleased to have the opportunity to
testify before the Senate Energy and Natural Resources
Committee on the future of hydrogen as a transportation fuel,
as well as DOE's hydrogen program and the impact of the Energy
Policy Act in advancing hydrogen as a fuel.
As Chevron's chief technology officer, I oversee all facets
of our company's new energy technology development and
commercialization, including hydrogen generation and hydrogen
infrastructure, can share our experience as well as our views
regarding the critical next steps.
Chevron, first and foremost, is committed to diversifying
the Nation's fuel supply. As you know, Chevron is the second-
largest U.S. energy company. We've been involved in the
fuelmaking business for 125 years.
Although there's no silver bullet, from our perspective, we
are actively pursuing new energy fuel sources, including
biofuels, gas-to-liquids, and hydrogen, to name a few.
Today, as we've heard from my distinguished colleagues,
we're facing a new energy equation, in terms of the world's
demand for energy. I believe that we are going to need every
form of energy, we must develop new types of energy, and we
must increase energy efficiency and conservation. We, at
Chevron, are committed to providing American citizens with
reliable and affordable supplies of energy.
In terms of hydrogen as a fuel, we believe that the fuel
cell technology and related infrastructure technology will
continue to evolve. As we heard before, in current use today
are stationary fuel cells, which deliver high-quality, high-
reliability power. Chevron, in fact, uses them for such
critical applications ourself, and have done so for several
years.
In addition to stationary power, we believe that hydrogen
can provide, in the nearer term, viable transportation fuel,
such as for transit systems, which I will describe some more
later, while widespread use for passenger vehicles will be
dependent upon resolving key technological, operational, and
economic challenges. We're very encouraged to date, as we have
heard, but there remain significant challenges to a
distribution of a new fuel system at scale.
Although hydrogen has many positive attributes, there are
still important challenges. These happen to come from the
nature of infrastructure, and I'll discuss those a little bit
more as time goes on.
We have been involved with the Department of Energy's
controlled hydrogen fleet infrastructure demonstration and
validation program for the last few years. We're the only major
energy company leading such a project, and, as such, as you
will hear in a few minutes, we have been able to focus on the
challenges specifically associated with distributing--
manufacturing and distributing, store and dispensing fuel.
We believe that demonstration programs have been critical
to advancing hydrogen as a practical fuel. Oftentimes, the
infrastructure part of the energy equation is ignored. Our
current infrastructure took us almost a century to build. The
challenge of building an entirely new one is unique, and we
haven't faced that as a Nation for some time. It's absolutely
critical that both the devices that use hydrogen as a fuel for
the vehicles and the hydrogen infrastructure be developed
simultaneously. This is part of the key challenge.
What I would like to do is to talk about a couple of the
key issues associated with infrastructure.
Infrastructure amounts to advancing the technology,
integrating all the technologies and systems together,
operationalizing the technology and practice to deliver a safe,
reliable, and continuously operating infrastructure, and
ultimately understanding how it will be used by customers. All
of our programs through DOE demonstrate some of these elements.
I'd like to refer you to the picture there. This is the
first hydrogen energy station that Chevron had put up with its
partners, Hyundai and UTC. It's located in southern California.
The key elements of this demonstration were to understand,
Could you practically distribute, manufacture, store, and
operate, on a continuous basis, a hydrogen infrastructure? This
is a small demonstrate site at Hyundai's research center.
The next project, which opened, this last February, is a--
oh, I'm sorry. Let me back up.
What you see here is actually a distributed hydrogen
production plant. As many of you know, we make hydrogen at
scale in refineries today. They're the biggest single user. The
challenge in translating that system to a consumer fuel
distributed out where it can be used in society is
miniaturizing--in our view, miniaturizing those facilities.
What you see here is actually a new technology hydrogen
generation facility. It's located at Chino. What we have done
is actually miniaturized the technology, but included in it
full safety, control, and operational characteristics, which
are the other key elements of including a new--building a new
fuel infrastructure.
Our second project actually took all of this to the next
scale. What you see here is a station located in Oakland. This
is Alameda, a Contra Costa County transit-system station. This
is a system that supports both buses--there are three fuel cell
buses--and a small fleet of cars. Hydrogen is made onsite;
stored, distributed onsite. I think what is significant about
this demonstration is, every element that would be involved in
a commercial-scale demonstration is included here: maintenance,
continuous operation. These buses operate every single day. And
one of the benefits that we've learned from this demonstration
is that tens--literally tens of thousands of individuals are
going to be part of the hydrogen economy because they ride
these buses.
I think we underestimated the value of that. Even the
largest single fleet demonstration is a dozen.
The Chairman. You said tens of thousands?
Dr. Paul. Tens of thousands of riders.
The Chairman. Are going to be what?
Dr. Paul. Riding these buses and being part of--in their
view, part of the new energy--the new hydrogen economy.
The Chairman. Using that?
Dr. Paul. These buses operate a regular bus schedule in
Oakland/Alameda County in Los Angeles. These are not--there's
three buses. They operate full operational schedules every day.
Thousands of passengers over the course of a year will ride
these buses, take them to work, take them shopping, take them
home. These are not--this is not--this is a miniature transit
system, but it is complete. We make the fuel, we store the
fuel, you distribute the fuel, people ride these buses, the
buses come home, they get fueled, they get serviced. This is a
fully integrated miniaturized system, the only one of its kind
actually operating in the world today.
But what we learned was, it matters to the community that
they can actually get on this bus, and it works fine. In fact,
not only does it work fine, it's the quietest bus they've ever
been on. And that was the other thing we discovered, that----
The Chairman. It was what?
Dr. Paul. The quietest bus. And the reason that
demonstrations are important is, you don't learn these things
until you demonstrate the technology in the real world. And the
other thing we learned is, these buses are quiet. They make
no--basically, no mechanical noise that ordinary buses make.
That actually turns out to be a benefit in a dense urban area.
So, I think this is a very important demonstration. This is
number two.
Our third demonstration, which is under development, will
be in Michigan, Selfridge Air National Guard Base. This is a
result of a combination of the DOE program and a joint venture
that Chevron has with TARDEC, which is the Tank and Automotive
RD&E Center. So, that's our next site. It will be coming up
this next year.
I'd like to wrap up by just going to the final one and talk
for a moment about R&D. This is a picture of Chevron's large
R&D center, devoted to hydrogen. That's in Houston. The
question is, What are we working on? As you read, from the
testimony, we have chosen to use natural gas as the fuel for
our current demonstrations, basically miniaturizing what we do
in industrial applications. Clearly, the great benefit of
hydrogen is, it can be made from many, many things. That's
really its true strength and diversification. We're working on
research that would diversify this to other opportunities,
particularly other liquid fuels, that include biofuels, for
example.
The second challenge--and I--my friend and colleague, Dr.
McCormick, mentioned that the challenge we have in both the
automotive business and the energy business, like Chevron--is
the sheer scale of these endeavors. One of the challenges today
is that most hydrogen production at site run what are called
100 kilograms. Let me convert. Kilograms----
Senator Alexander. Dr. Paul, we'd like to go on to Dr.
Balcom, then come back to all four of you for questions.
Dr. Paul. OK. I would just finish.
Increasing the scale by at least a factor of ten is a
critical requirement.
I will close with two--focus on just two specific
recommendations. One is, continue to support the
demonstrations, because they do things in practice that you
can't do in the lab. Second, it's very important to continue to
fund basic research, particularly with respect to the number-
one priority of storage.
Thank you very much, and I look forward to your questions.
[The prepared statement of Dr. Paul follows:]
Prepared Statement of Dr. Donald L. Paul, Vice President and Chief
Technology Officer, Chevron Corporation, San Ramon, CA
Mr. Chairman and Members of the Senate Energy Committee, Chevron is
pleased to have the opportunity to testify before the Senate Energy and
Natural Resources Committee on the future of hydrogen as a
transportation fuel as well as DOE's hydrogen program and the impact of
the Energy Policy Act (EPACT) in advancing hydrogen as a fuel.
As Chevron's Chief Technology Officer, I oversee all facets of our
company's new energy technology development and commercialization,
including hydrogen generation and hydrogen infrastructure, and can
share our experience as well as our views regarding the critical steps
required in the development of this technology.
By way of background, Chevron is an integrated, global energy
company that produces oil, natural gas, transportation fuels and other
energy products. We operate in 180 countries and employ more than
53,000 people world-wide. Chevron is the second-largest U.S.-based
energy company and the fifth largest in the world, based on market
capitalization. We are also involved in a wide-range of advanced clean
energy and fuel technologies.
Chevron is committed to diversifying our nation's fuel supply.
Although there is no ``silver bullet'', we are actively pursuing new
energy and fuel sources including biofuels, gas to liquids and hydrogen
to name just a few. As Chevron's Chairman and CEO David J. O'Reilly,
has discussed on numerous occasions, including at a speech over two
years ago at the U.S. Chamber of Commerce here in Washington, D.C., we
are facing a new energy equation as the world's demand for energy
grows. I believe that we are going to need every form of energy, we
must develop new types of energy, and we must increase energy
efficiency and conservation. We at Chevron are committed to providing
U.S. citizens reliable and affordable supplies of energy.
Before discussing Chevron's extensive and innovative work in the
hydrogen infrastructure area over the past 5 years, I would like to
briefly mention that just over a month ago Chevron announced the
formation of a new biofuels business unit to specifically pursue
opportunities for supply of biofuels, and development of cellulosic
ethanol. We have biofuel projects underway, including investing in
development of a large scale biodiesel plant in Galveston, Texas and an
E-85 demonstration project in California.
In terms of hydrogen fuel, we believe that fuel-cell technology and
related infrastructure technology will continue to evolve. In current
use are stationary fuel cells which generate high reliability and
quality power and are commercially available today. Chevron has
installed two stationary fuel cells at our facilities in San Ramon,
California, and Houston, Texas. These fuel cells convert hydrogen from
natural gas into electricity, clean water and usable heat, and provide
secure, digital-grade power to select data systems and laboratories. We
undertook these projects to gain experience with designing and
installing stationary fuel-cell systems, and to help us translate this
experience into other types of fuel cell projects. Our subsidiary,
Chevron Energy Solutions, has installed fuel cells in many facilities,
including at U.S. Postal facilities.
In addition to stationary power, we believe that hydrogen may
provide a viable transportation fuel under certain conditions in the
nearer term, such as for transit systems, while future widespread use
for passenger vehicles will be dependent on resolving technological and
economic challenges. We believe that central vehicle fleets and transit
systems are the most practical means of using hydrogen in the near
future in addressing both infrastructure as well as vehicle challenges.
Fleets, such as buses, use a centralized fueling point and hydrogen
storage can be overcome by vehicle size. Although hydrogen has many
positive attributes as a transportation fuel, as I will discuss, there
are still some major challenges that must be overcome before hydrogen
will be an integral component of the fuel mix. We are still very much
in the learning and demonstration mode.
CHEVRON'S RESEARCH AND DEVELOPMENT INITIATIVES
Chevron has been a leader in researching and demonstrating the
potential for using hydrogen as a transportation fuel, including using
proprietary reforming technology developed at our labs to generate
hydrogen on-site. We are the only major energy company leading projects
under DOE's ``Controlled Hydrogen Fleet and Infrastructure
Demonstration and Validation Program'' with our auto partner, Hyundai
and fuel cell partner, UTC. This demonstration program is a unique
five-year cost-share program in which autos and energy company partners
develop demonstration sites, test vehicles and infrastructure, and
share information in coordination with the DOE. Currently participating
are all three major U.S. auto companies and Hyundai, three major energy
companies and a number of fuel cell companies and other related
businesses, many of whom are smaller, new technology suppliers.
We believe that this demonstration program is the centerpiece of
DOE's hydrogen program, and is critical to advancing hydrogen as a
practical transportation fuel. Often times, we see the infrastructure
part of the energy equation being ignored or forgotten entirely. Our
current infrastructure for fuels took over 100 years to fully develop--
and given the complexities, it is absolutely critical that both the
fuel cell vehicles and the hydrogen infrastructure be developed
simultaneously. In Title VIII of EPACT, there is also a demonstration
program included, and we believe that it needs to be complementary to
the one now well underway for the past three years, rather than
competitive and creating potential duplication. The Hydrogen Fleet and
Infrastructure Demonstration program must be completed, results
evaluated, and shared among all parties to better define a roadmap for
the future.
Under the DOE's Hydrogen Fleet and Infrastructure Demonstration
program, we currently have two demonstration projects in full operation
in California and are planning two additional sites, including a cold
weather site in Michigan in coordination with the Department of
Defense. The first demonstration site opened in Chino, California, in
February, 2005, at the Hyundai Research Center. We provided our on site
reforming technology and hydrogen pumps for the station, and are
testing three passenger vehicles. The second demonstration site is at
the AC Transit Bus headquarters in Oakland, California, and again we
installed reforming technology and pumps for three fuel cell buses that
travel in daily operation throughout the city. The site will be
expanded in the future to incorporate the next generation of reforming
technology and provide increased hydrogen production. The benefit of
this demonstration project is that it allows citizens to actually
experience riding the buses and directly benefit from the technology.
Our infrastructure portions of these projects are unique--as I
mentioned, we produce the hydrogen on-site, on-demand. We believe that
decentralized production is a very important infrastructure pathway for
a number of reasons--not only do you save transporting the hydrogen
which is very difficult (unlike gasoline), but also it allows you to
control how much is manufactured and stored for consumption when it is
needed. In addition, having the hydrogen production on-site provides
the potential for hydrogen to be supplied to power a stationary fuel
cell.
We have learned many lessons from the demonstrations that we can
share, and believe these could not have been learned had the DOE
program only operated in laboratory and research settings. For example,
our station systems are designed to run safely in an unattended
remotely monitored production mode, (such as a fueling station would in
the future), and therefore, the scope and sophistication of the
technology we installed for the demonstrations is aligned with the path
towards commercial reality. Another example is leak detection systems--
these are particularly important for hydrogen production and storage
systems and our demonstration facilities employ state-of-the-art,
industrial-grade systems. We are now beginning to understand both the
detailed and broad engineering factors which must be incorporated to
meet commercialization standards. This knowledge is being used for
future system improvements, and to gain the cost efficiencies essential
for eventual commercial implementation. Because this is a new fuel
infrastructure, the supplier community is new, often comprised of
smaller companies, and needs to be developed to industrial-scale
standards and size. The demonstration program has been an essential
mechanism in developing this community. At this point, we have also
learned that site location is very important, and permitting can be
challenging due to various levels of understanding by local officials.
We understand the value of public consultation and education as part of
developing a demonstration site and the need for this as the technology
develops. Also we are familiar with how to build confidence with
important stakeholders, such as our site host, fire marshal and vehicle
operators, in using the technology.
CHALLENGES TO COMMERCIALIZATION
Production and distribution of hydrogen
Hydrogen must be available when and where it is will be needed.
Hydrogen is a fuel--not a natural resource. It must be manufactured
from other sources, so how the supply system is developed is critical.
The two primary sources of hydrogen are water and hydrocarbons. For the
past 50 years, Chevron and the industry have been engaged in the large-
scale conversion of hydrocarbons to hydrogen through refinery and
gasification processes. As you may be aware, oil refineries are the
largest current producers and users of hydrogen. Additional industrial
uses are for chemicals, metals, and electronics manufacturing.
Approximately 9 million tons of hydrogen is produced for industrial
applications in the United States (world-wide production is about 40
million tons). The core technical and business challenge is to
transform and adapt the hydrogen production and distribution system to
support a much broader energy supply system for transportation and
distributed power. The fundamental properties of hydrogen create both
opportunities (it can be made from a variety of sources) and challenges
(distribution and storage).
In Chevron's hydrogen program, we are adapting long-standing core
competencies and proprietary technologies in fuels, catalysis, and
process engineering to explore the development of a new distributed
fuel-processing and delivery infrastructure. The fundamental technology
model relies on distributed, on-demand production of hydrogen, thereby
materially reducing the costs and logistical barriers associated with
large-scale transportation of hydrogen and significant onsite storage.
Distribution and storage are the two primary cost components for
hydrogen (as compared to production). It is important to note that this
is essentially the opposite of gasoline, where production costs
dominate distribution and storage. For the current generation of
hydrogen infrastructure demonstrations, Chevron has concentrated on
miniaturizing and distributing natural gas reforming and processing
technology. This creates maximum use of the existing and extensive
natural gas grid, resulting in dramatically reduced costs for the early
stages of developing the infrastructure. Successful current R&D
programs would allow for the extension of the small-scale reformer
technology to utilize other light hydrocarbon feedstock as well.
Storage of hydrogen
Storing hydrogen in the car, at the refueling station and
throughout the delivery infrastructure is a significant critical path
challenge. The nature of the storage problems vary by application and
each deserve the attention of R&D and demonstration by industry,
national labs and the DOE. While much attention is given to storing
hydrogen on board the vehicles, and rightly so, similar attention is
needed in the other critical locations in the hydrogen infrastructure.
In particular, cost effective dynamic storage in moderate volume is
essential at the production and fueling sites. Today, all hydrogen
storage is essentially in high-pressure vessels, typically at 5,000
pounds per square inch. Even at these pressures, the energy stored is
far lower than with typical liquid hydrocarbon fuels. Where space is
not a pressing limitation, such as with our production sites or on
large vehicles, such as busses, the current technology is functional,
but expensive. For the evolution to light duty vehicles, most believe
that cost effective solid-state storage will be required. This is an
important focus area for R&D programs. The bottom line is that the
development of the infrastructure for hydrogen as a fuel will require
advancements across a full system including production, distribution,
and storage.
New codes and standards need to be developed that permit the
development of the infrastructure
Existing building codes and hydrogen system design standards were
not developed with consumer applications in mind. Today's codes provide
large distance ``setbacks'' from other facilities that limit the
locations where hydrogen can be manufactured, stored and dispensed.
This was appropriate for hydrogen applications and applications of the
20th century, but they make retrofits of existing sites with limited
area for expansion impractical for future hydrogen facilities.
Codes and standards will need to be updated to reflect the
developments in safer hydrogen technologies arising from the new
storage and control system technologies. In some cases, building codes
will need to be strengthened to ensure safe maintenance facilities.
Through research and demonstration of hydrogen generation and storage
technology we will be able to gain the necessary safety knowledge which
will lead to data driven codes and standards that do not currently
exist.
PATHWAY TO COMMERCIALIZATION
We at Chevron anticipate that, realistically, the hydrogen supply
of the future will have to be produced by a blend of energy sources--
both hydrocarbons and renewable sources. This is the only scenario we
can foresee that will enable hydrogen markets to emerge at scale, to
adapt to diverse market structures, and allow hydrogen businesses to
become profitable over the long term.
An avenue that leverages using the existing current infrastructure
to produce hydrogen will be a critical step. We believe that using a
distributed generation model will provide the most cost effective way
to support the development of a fuel cell market. The technology to
make this happen is small reformers and small electrolyzers. Providing
consumers with this practical solution may help remove fuel
availability as a near-term impediment to commercial adoption of fuel-
cell vehicle systems.
Greenhouse gas emissions are being reduced using current reforming
technology to produce hydrogen, and, in the future, those emissions may
be further reduced by adding renewable energy sources, such as solar or
wind, to produce hydrogen through electrolysis.
In sum, to develop a commercial-scale infrastructure, the cost of
using hydrogen to consumers needs to be competitive in the market with
other energy fuels. Large scale deployment requires that energy
suppliers be convinced that hydrogen can compete with other fuels in
the market. While there is reason for encouragement in special markets,
broad commercial applicability has not been demonstrated.
Participation by auto companies, energy companies, and communities
in the development of demonstration fleets of fuel-cell cars and buses
will be important to get the infrastructure started and to prove the
value and functionality. Specialty applications and niche markets that
use much of the same technology but in different products are going to
be important and will be a signpost along the pathway. One opportunity
in this area may be for use of the hydrogen and fuel cell technology by
the military. In addition, applications, such as airport ground
equipment vehicles and fleets of industrial vehicles with centralized
and stationary refueling, need to be successful before consumers are
likely to be a significant user of this technology.
PUBLIC POLICY RECOMMENDATIONS
To pursue commercialization of hydrogen infrastructure and fuel
cell technology, we believe that there are several critical areas for
policy action. We recommend the following:
1. Continue to Support DOES Hydrogen Fleet and Infrastructure
Demonstration and Validation Program: It is absolutely critical
that DOE work on the infrastructure issues simultaneously with
fuel cell vehicle development and storage technology which is
being done with these demonstration projects. Energy companies
have a key role to play in the development of the fuel cell
market and Chevron is committed to helping the U.S. market move
towards safe and cost competitive solutions. This should be a
high priority in terms of DOE and other government R&D support.
2. Fund Key Basic Research: We believe that fundamental
research must continue to be supported by Congress for this
technology to move towards commercialization. Basic research
performed by DOE national laboratories, the private sector, and
academia will create the essential science and technology base
needed for long-term, sustained advancement of hydrogen. We
believe that the number one priority for this should be
hydrogen storage. Without resolving the significant technology
challenges, it will be very difficult to move forward on the
large-scale implementation of hydrogen as a fuel.
3. Engage Private Industry In Commercialization: We believe
that this will help make the technology commercial, and also
focus government priorities on areas where there is the most
need. Chevron has already significantly invested in R&D in the
areas of hydrogen generation and storage. However, public-
private sector partnerships are needed to provide the resources
necessary to create conditions to allow commercialization of
technologies that may not see economic returns for decades.
4. Public Education: When new technologies are on the
horizon, there is a lot of fanfare and media attention
surrounding the development of the technology. Unfortunately,
this leads to unrealistic public expectations. As the hydrogen
market evolves over the next few decades, technology
breakthroughs will change the way hydrogen is made and supplied
to the consumer. It is important that the public understand the
market drivers, environmental benefits and cost benefits and
challenges associated with each stage of the transition. The
physical reality in the community provided by demonstration
projects can uniquely educate the public.
5. Monitor Market Signals: Often we see that factors can
change the need for a particular technology--either increasing
or decreasing demand. Some of these factors may include
competing technologies, availability of resources, and public
opinion. We believe that this is addressed by EPACT in the
roadmaps and studies required by the law. Periodic reviews will
be necessary to assess progress, to steer or change policy as
needed, and to implement appropriate mid-course corrections.
EPACT, for the first time, provides an authorized path forward for
the hydrogen program which is very positive. It is appropriate that
Congress oversee the DOE program and that public-private partnerships
continue. We find that a partnership-based approach gives the most
flexibility, delivers the best value for the dollars invested, and
speeds the pace of technological innovation.
Thank you for the opportunity to testify and I would be happy to
answer any questions.
Senator Alexander. Thank you, Dr. Paul.
Mr. Balcom.
STATEMENT OF JAMES D. BALCOM, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, POLYFUEL, INC., MOUNTAIN VIEW, CA
Mr. Balcom. Good afternoon, Mr. Chairman. My name is Jim
Balcom, and I'm the president and CEO of PolyFuel, a world
leader in engineered membranes for fuel cells.
Mr. Chairman, the Energy Policy Act of 2005 contains a
variety of R&D initiatives designed to accelerate the
commercialization of fuel cell technology, and I want to thank
the committee for its leadership in drafting this legislation,
and I would urge the committee to continue to advocate the full
funding for the implementation of the act.
As the committee evaluates the administration's progress in
implementing the act, I'd like to share two observations.
First, while the automotive application will allow society
to realize the environmental benefits of fuel cells, the
success of fuel cells in this critical market will be preceded
by, and catalyzed by, their success in the portable power
market.
And second, companies and governments that want to have a
leadership role in automotive fuel cell technology must play an
active role in the introduction of fuel cells into the portable
market. And the reasons for this are several. First of all, the
portable fuel cell application ranks higher in six critical
areas, in terms of market readiness. The cost targets are much
easier to hit. Second, the durability or lifetime targets are
much easier to hit. Third, the fuel infrastructure, which we've
just learned about, is much easier to put in place than in the
automotive application.
Fourth, the regulatory changes are much easier to put in
place and are already well on their way to being established.
And, fifth, the market kinetics--that is, the speed at
which new technology is adopted--in the portable power
marketplace is much more rapid than in the automotive
application.
And, last, consumer demand for the longer run times that
this portable fuel cell technology enables is very strong.
And these last two are the most critical. From history, we
know that technological progress happens most rapidly in real
markets with real demand pressures. And the examples of this
are all around us, from rates of improvements in digital camera
technology to hard-disk-drive technology and portable computing
technology.
Unlike the automotive fuel cell market, where the best-case
scenario has fuel cell technology meeting the DOE's commercial
targets in mid-next-decade, we believe that strong consumer
demand and these rapid market kinetics will result in the
implementation of fuel cell technology within the next 2 to 3
years in the portable arena. After that, the subsequent mass
commercialization of portable fuel cells will catalyze the
automotive market, and that's because of the experience-curve
effect. This occurs as new designs, materials, and processes
are developed to meet market demand and solve real customer
problems, and we predict that these innovations in portable
fuel cells will have direct spinoff benefits for automotive
fuel cells, which share many similar designs, materials, and
processes as portable fuel cells.
And we feel that we're already seeing this at PolyFuel,
both internally and externally. Internally, we have spent a
significant amount of money developing membranes for portable
fuel cells, and that knowledge has led us to achieve critical
advances in membrane technology for automotive fuel cells, as
well. And externally, a number of leading fuel cell industry
players have recently recognized the opportunity for market
leadership--this is overall market leadership--and are moving
convincingly into the portable fuel cell market space.
The 21st century will be dominated by energy concerns, and
fuel cell technology will play a key role in U.S. efforts to
achieve energy independence, improve the environment, and grow
the economy. However, without a strong presence in portable
fuel cells, the United States risks missing the boat in the
broader fuel cell market applications. The U.S. auto industry
has already experienced this to some extent with hybrid vehicle
technology, where one U.S. auto executive complained recently
that it could manufacture and sell more hybrid vehicles, but it
could not obtain enough hybrid components from the foreign auto
manufacturer that developed the technology.
The United States has the opportunity to solidify a strong
leadership role in fuel cell technology, but it must act now to
strengthen government and industry partnerships and refine the
key enabling technologies to realize this opportunity.
I recommend that the Government reinstate funding for the
competitively awarded, cost-shared portable fuel cell programs
that were deferred, based on budget constraints, by the
Department of Energy in early 2006. And, second, I also
recommend that the Government look for ways to increase its
support for research, development, demonstration, and
commercialization of portable fuel cell technology. In this
way, I strongly believe that the United States will best
position itself to benefit from the synergies that will soon be
available as portable fuel cell technology acts to catalyze the
automotive fuel cell application. And in an era of rapid
decline in domestic manufacturing jobs, the importance of
securing a leadership position in this next-generation
technology cannot be overstated.
I appreciate the opportunity to appear before the
committee. I look forward to your questions.
Thank you.
[The prepared statement of Mr. Balcom follows:]
Prepared Statement James D. Balcom, President and Chief Executive
Officer, PolyFuel, Inc., Mountain View, CA
I. INTRODUCTION
Good afternoon, Mr. Chairman. My name is Jim Balcom, and I am the
President and Chief Executive Officer of PolyFuel, a world leader in
engineered membranes for fuel cells.
PolyFuel is headquartered in Mountain View, California, and our
leading-edge hydrocarbon membranes enable a new generation of portable
and automotive fuel cells that for the first time can satisfy the
desire for long-running and cost-effective portable power, and can
deliver on the long-awaited promise of clean, efficient automotive
power based upon renewable energy sources. PolyFuel's unmatched
capability to rapidly translate the system-level requirements of fuel
cell designers and manufacturers into engineered polymer nano-
architectures has led to its introduction of best-in-class hydrocarbon
membranes for both portable direct methanol fuel cells and for
automotive hydrogen fuel cells. Such capability--based on PolyFuel's
more than 150 combined years of fuel cell experience, world-class
polymer nano-architects, and a fundamental patent position covering
more than 23 different inventions--also makes PolyFuel an essential
development partner and supplier to any company seeking to advance the
state of the art in fuel cells. Polymer electrolyte fuel cells built
with PolyFuel membranes can be smaller, lighter, longer-running, more
efficient, less expensive and more robust than those made with
conventional fluorocarbon membrane materials.
PolyFuel was spun out of SRI International (formerly Stanford
Research Institute), in 1999, after 14 years of applied membrane
research. The company is publicly listed on the AIM stock exchange in
London.
II. PORTABLE POWER--CATALYZING THE FUEL CELL INDUSTRY
Mr. Chairman, as the Committee on Energy and Natural Resources
conducts oversight and evaluates the Administration's progress in
implementing the Energy Policy Act of 2005, I would like to share with
the Committee two extremely important observations:
1. While the automotive and stationary markets will allow
society to realize the environmental benefits of fuel cells,
the success of fuel cells in these markets will be preceded and
catalyzed by their success in the portable power market.
2. Companies and governments that want to have a leadership
role in automotive and stationary fuel cells must play an
active role in the introduction of fuel cells into the portable
market.
Simply put, widespread adoption of fuel cells, and their long-term
commercial viability, depends heavily on their rate of adoption in the
power-hungry portable market. The U.S. government's focus on automotive
and stationary markets is based on our need to increase energy
independence, reduce emissions from power generation and transportation
sources, economically revitalize the automotive sector domestically,
and improve the reliability of our electric grid. Unfortunately, this
strategy neglects the fact that portable fuel cells will achieve
widespread adoption before automotive or stationary fuel cells are
commercialized, and the positive impact that commercialization of fuel
cells in the portable sector will have on the introduction of
automotive and stationary fuel cells. This disconnect is not limited to
government policy; companies who elect to focus their energies on the
more technologically challenging but less immediate market segments,
such as automotive or stationary, will ``miss the boat'', even in their
own targeted markets. Unlike the automotive or stationary fuel cell
markets, the commercialization of fuel cells into the portable market,
supported by the development of high performance hydrocarbon membranes,
is viable today.
Key distinctions between these three sectors are highlighted in the
table below:
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Market Drivers....................................... Niche Opportnity Oil Supply Urgency
Global Warming ``Run-Time GAP''
Market Kinetics...................................... Slow Glacial Rapid
Cost vs. Targets
Low volumes........................................ 5-10 X 50-100 X In Range
Commercial volumes................................. 1.5 X 3.5 X In Range
Durability vs. Targets............................... 2/5th 2/5th In Range
Regulatory Environment............................... Achievable Complex Coalesing
Fuel Infrastructure Requirements..................... Simple Profound Simple
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Energy, Ballard, Honda, PolyFuel, and others.
Market Dynamics
The global effort to commercialize fuel cells in automotive and
stationary applications is primarily driven by a desire to reduce the
environmental impact of combustion engines and power plants fueled by
hydrocarbon based fuels such as gasoline, diesel, natural gas, and
coal. Additional drivers include a desire to reduce consumption of
petroleum in the face of concerns about the stability and longevity of
oil supplies, and a need to revitalize both the domestic auto industry
and the aging power grid.
Unfortunately, and ironically, the dynamics of the automotive fuel
cell markets resemble the pace of the environmental changes caused by
global warming. The best case scenario in the automotive market has
fuel cell technology meeting commercial targets outlined by the DOE in
2015, followed by commercial introduction around 2020. It is likely
that significant environmental benefits from fuel cell vehicles will
not be realized until the second half of the century. Similar dynamics
exist in the stationary market.
The portable market, on the other hand, is characterized by rapid
cycles of new product introduction and technological progression as
illustrated by Moore's Law and the emergence of more and more advanced
devices such as cellular phones, laptop computers, personal digital
assistants, and media players. In addition to more computing power,
these latest devices are taking advantage of growing wireless
connectivity to deliver to users more and more capability such as
mobile TV, wireless music downloading, and GPS among others.
Unfortunately, these advanced capabilities require more power and
energy than current and future battery technology can deliver. This
deficit manifests itself in decreased runtimes for the ``power user''
class of consumers. Content providers, wireless carriers, portable
device makers, and battery manufacturers are all feeling the pain and
are urgently seeking a solution to this problem.
PolyFuel refers to the gap between the capabilities of available
battery technology and the demands of power hungry portable devices as
the ``runtime gap''. Recently published studies indicate that portable
device power demand is increasing three times faster than the rate of
battery improvement. The Boston Consulting Group predicts that by 2010,
the demand for energy is forecast to be four times that which is
available using conventional technologies. Without a better power
supply such as a portable fuel cell, users of contemporary personal
electronic devices will experience runtimes measured in tens of minutes
versus the hours that they will demand.
Technology Readiness
In addition to more challenging market dynamics, automotive and
stationary applications have product requirements and environmental
operating conditions that are much more demanding than those in the
portable market. Two of these that are particularly challenging for
fuel cells are cost and durability. As shown in the table above, the
costs for today's automotive and stationary fuel cell technology,
either at today's low volumes or when projected to commercial scale
volumes, are well in excess of what is required for mass
commercialization. A similar disparity exists for durability, where to
date the industry has only been able to achieve lifetimes that are 40%
of what is required for automotive and stationary applications.
Portable fuel cell durability is well within the required operating
lifetime of 2,500-5,000 hours. PolyFuel has demonstrated lifetimes of
6,000 hours with the fuel cell membrane, the most critical and
sensitive component in a portable fuel cell.
Commercial cost targets for portable power supplies, which range
from $5,000 to $10,000/kW, are achievable today with Direct Methanol
Fuel Cell (DMFC) technology. DMFC, the fuel cell technology of choice
at most of the leading consumer electronics companies and all of the
leading rechargeable battery companies, is widely considered to be
ideal for the portable fuel cell application due to methanol's safety,
energy density, low cost, ease of use, and ease of transport.
Regulatory & Infrastructure Requirements
Two other critical areas where the portable market compares
favorably against the automotive and stationary markets are regulation
and infrastructure. Before any significant adoption of fuel cells can
take place in the automotive market, codes and standards in diverse
areas such as hydrogen storage, hydrogen sensing, refueling, car parks,
garages, fire, insurance, and building construction need to be adopted.
Even more challenging will be the development of a multi-billion dollar
``hydrogen infrastructure'' which includes widespread compressed
hydrogen gas distribution, filling stations and storage depots. While
the infrastructure issues for the stationary application are relatively
simple, regulatory issues are complicated by the fact that many of the
relevant codes and standards for stationary devices are different from
city to city and state to state.
In contrast, the regulatory and fuel infrastructure issues in the
portable market are relatively simple, particularly after the recent
decisions by the United Nations and the International Civil Aviation
Organization that have set the stage for the carriage and use of
methanol fuel cartridges onboard commercial aircraft. Such fuel
cartridges, resembling disposable cigarette lighters, will, in the not-
too-distant future, be available in every convenience store and
market--which explains why companies such as BiC, Tokai, and Duracell
are very active in the development of methanol fuel cartridges for fuel
cells.
Portable as a Gateway to Automotive & Stationary
More than any other factor, the key variable that drives rapid
technological and commercial progress is market demand. Significant
market demand driven by the ``runtime gap'' is going to drive portable
fuel cells to mass commercialization years before automotive fuel cells
become economically viable, or stationary power fuel cells become
widely deployed. Portable device manufacturers engaged in fuel cell
systems development include Samsung, BYD, NEC, Sharp, LO, Sanyo,
Fujitsu, Hitachi, Toshiba, and Sony; and all of these companies are
well positioned to roll-out fuel cell solutions that address the
``runtime gap'' for multiple products before the end of the decade.
The mass adoption of portable fuel cell technology will have a
catalyzing impact on the commercialization timelines for fuel cells in
the automotive and stationary markets. The three markets share many
characteristics, including materials, suppliers, and manufacturing
processes. Portable fuel cell technology shares many components with
fuel cells for automotive & stationary applications. Wide and early
adoption of portable technologies will provide experience to industry
and consumers, develop a supply base, and drive economies of scale
which will benefit commercialization of automotive and stationary fuel
cells.
It is well understood that government support for research and
development is critical to sustain the leadership position that the
United States has achieved in the global race towards a fuel cell-based
economy. Less well understood is the importance that government
investment into the portable sector will have on both speeding
commercialization of fuel cells in the automotive and stationary
markets and on the potential for the United States to recover its
leadership position in the $5 billion portable power industry that long
ago moved overseas. In an era of a rapid decline in domestic
manufacturing jobs, the importance of this potential cannot be
understated.
Most of the U.S.-based companies in the portable power arena are
working with foreign partners that will have prototypes available
within the next 12 to 24 months. Without sufficient attention by the
U.S. Government, it is possible that by the time the initial
applications which integrate portable fuel cells take root here in the
U.S., their design and manufacture will be firmly entrenched offshore.
This scenario is not unlike that of Lithium ion batteries, whose
technologies were predominantly developed in the U.S. but
commercialized first in Japan, and are now produced exclusively by
foreign companies in Asia.
It should be noted that in addition to the growing consumer demand
for extended-run portable power in commercial products, U.S. military
forces are also actively seeking alternatives to conventional battery
technology to extend the run-time of critical sensor, soldier power,
communications, and auxiliary power systems. As the Defense Department
continues its efforts to transform the U.S. military into a more
strategically responsive ``network centric'' force, I believe it is
critical that the Departments of Energy and Defense work more closely
to jointly leverage technology development and demonstration
activities, and to ensure that the U.S. maintains both the
technological capability and surety of supply necessary to promote our
overlapping commercial and military interests.
The Energy Policy Act of 2005 contains a variety of initiatives
designed to accelerate the commercialization of fuel cell technology.
Most importantly, the legislation supports new funding for research and
development; it also calls for increased technology validation and
establishment of a modest market transition program. This comprehensive
approach will complement existing programs, improve technology, and
stimulate a reliable supply base. Importantly, I believe this strategy
will help deliver the key technologies that must be developed to meet
the deployment timelines set forth by the President and Congress. I
would urge the Committee to continue advocating full funding for the
implementation of the Energy Policy Act of 2005.
III. CONCLUSION
Mr. Chairman, as I have outlined in my testimony, the success of
fuel cells in the automotive and stationary markets will be preceded
and catalyzed by their success in the portable power market. Companies
and governments that want to have a leadership role in automotive and
stationary fuel cells must play an active role in the introduction of
fuel cells into the portable market. Wherever possible, the U.S.
Government should increase financial support for research, development,
demonstration, and commercialization of portable direct methanol fuel
cell technology within the Department of Energy's broader Hydrogen,
Fuel Cells, and Infrastructure program. Additionally, funding should be
reinstated for competitively-awarded, cost-shared portable fuel cell
programs that were deferred by the Department of Energy in early 2006
based on budget constraints.
I appreciate this opportunity to appear before the Committee, and I
look forward to your questions.
Thank you Mr. Chairman.
Senator Alexander. Thank you, Mr. Balcom.
I'm going to ask Senator Domenici if he's like to ask the
first questions in this round.
The Chairman. Well, I appreciate it. And I won't do justice
to the panel. I'm thankful for you setting this up. This is the
kind of panel that we would need a full 3 hours with five or
six more Senators, because this is a truly exciting series of
observations, and you have been cut short. And I'm not going to
sit here and tell you that I'm going to help out much, because
I'm supposed to be somewhere at 4 o'clock, and--just like
everybody else. That's a true statement, and I'll have to do
that.
But let me jump around.
Mr. Balcom, you noted, in passing, that there were many
provisions in the Energy Act which we are very proud of--I hope
you are--many provisions that do justice to the area we're
speaking of: fuel cells. But then you quite properly said, as I
understand the problem, we should push hard to fully fund the
programs. Do I read you that that means that the programs are
nicely worded and nice, cherished American goals, but, unless
you put some money in them, they're not going anywhere, and
that they're not funded very fully in--so far? Is that a fair
assessment?
Mr. Balcom. That's as we've experienced it. As a matter of
fact, there were several competitively awarded cost-shared
programs focused in the portable space. And I think this was a
recognition by the Department of Energy that one needed to
balance the early market opportunities with the mid- and the
longer-term opportunities. And these competitively awarded
programs, indeed, did do that. My understanding----
The Chairman. Well, I don't know what to do about it. I'm
so frustrated. We went ahead and funded about $350 million over
and above the executive branch this year in the Appropriations
Subcommittee for energy activities found in the Energy Act.
Now, I can't go back and think how many of them were in the
area we're speaking of, but that's a pretty nice plateful when
there was no money to back it up. We just had to take it out of
something else, so we tried. But that's a tough, tough problem.
You noted in your testimony that the portable market is
moving toward direct methanol fuel cells. Do you think that
ultimately these same fuel cells could be used in vehicle
applications?
Mr. Balcom. Not exactly that same technology, Mr. Chairman,
but a similar technology. The direct methanol fuel cell bears
many similarities with the solid polymer PEM fuel cell
technology, which is being used for automotive fuel cells.
The Chairman. Dr. Paul, in your testimony and--here before
us, you talked about Chevron's--and you used some descriptive
words regarding its research facility. What did you call it?
Full center?
Dr. Paul. Yes, it's a full research facility devoted to
hydrogen.
The Chairman. Full center devoted to hydrogen. And how much
do you--for purposes of letting the public know that you are
investing in matters like this, how much is invested in that by
you?
Dr. Paul. Well, we have been spending at the rate of about
$50 million a year.
The Chairman. About $50 million a year.
Dr. Paul. Yes.
The Chairman. So, when they say you aren't interested in
options for vehicles that aren't going to be run by gasoline,
this is at least $50 million worth of interest, right?
Dr. Paul. Yes, Senator. In fact, I would argue that we're
basically in the broad energy business, and diversifying the
range of molecules that we have to provide energy and fuel, I
think, is the key to the future.
The Chairman. Well, that's what my guess would be.
Dr. McCormick, General Motors has made impressive
progress--and you have stated that today--in fuel cell
technology, much of that in recent years, although it's not
yesterday. What are the greatest--or what are the remaining
technical challenges, as you see them? Tell them to us.
Dr. McCormick. Well, first of all, I think that the early
generation technology can be done with derivatives of things we
know today. So, first of all, I think the notion of a
breakthrough for early generation is probably not critical. I
think over a longer period of time the need for advanced
hydrogen storage is absolutely critical, because we want to
make it cheaper and more condensed on the vehicle. So, I'd say
hydrogen storage is the leading thing that we want to focus on.
Most importantly--and it may be implied in your question--
my mind today goes much more to commercialization and the
challenges of getting it out of the laboratory and into the
market, because of that ``valley of death'' problem, where we
have very, very low volume, and trying to figure out how we
actually bootstrap this technology up, like the Minuteman
Program did for silicon chips, like ARPANET did for Internet,
like the Transcontinental Railroad was done. I think we are
going to have to have a very good partnership between
government and industry, in terms of actually, as you said
earlier, making the market. That's where my real thoughts are
these days.
The Chairman. Well, Doctor, it seems to me that--as I
reviewed for today, it came back to me that the big monkey on
this future is, What do we do, ultimately, with the carbon
dioxide? Because we can play around with it on a small scale,
but, when we get to the big-time, and we hit the big leagues,
we've got be talking about getting rid of it permanently. And
that means we've got to make those technical breakthroughs that
are much different than the one's we're making now. They've got
to be the ultimate disposition of carbon dioxide.
Dr. McCormick. Correct.
The Chairman. Right?
Dr. McCormick. Right.
The Chairman. And that's not there yet. So, I mean, I would
hope you would say when next--when you're asked what the big
issues are--that's a big one, right?
Dr. McCormick. I speak about it from a car company, and I
think Don Paul can talk about it from the energy side, but
certainly we've got to mobilize all the sources of energy. No
doubt about it.
The Chairman. If you listen here, it's the same for
automobiles, because if it's going to make a big dent in the
transportation energy, which is the transportation crude oil
usage, which is what we're talking about--to be a big player
there, that's going to have to be a macroimpact, which is still
going to get back to--you've got to get rid of the
CO<INF>2</INF>, not just on an interim little bit--play a
little game, but really getting rid of CO<INF>2</INF>.
Dr. McCormick. Right.
The Chairman. Now, Mr. Leuliette, I was very impressed with
your great knowledge, and also sympathetic toward your position
about where you and your suppliers are in this marketplace, and
how you get so easily overlooked, not found, forgotten, which--
depending upon which way you look at it. But tell me--part of
that's because it's hard when there are so many small--so many
thousands of components that are called what you are. But let
me ask you, in your testimony you described several
shortcomings of the hybrid vehicles and a reliance on ethanol.
Am I correct?
Mr. Leuliette. As a long-term solution, that's correct, Mr.
Chairman.
The Chairman. Aren't there also business opportunities for
the supplier community related to hybrid vehicles and biofuel-
based vehicles?
Mr. Leuliette. Yes, there are. And we're very active in
that today. As a matter of fact, our company, Metaldyne,
supplies key components for every vehicle using E85, and
diesels, and everything else.
The Chairman. OK.
Mr. Leuliette. The issue here, I believe, is more, I think,
the hearings here, for the longer term--the hydrogen issue--is
a longer-term solution.
The Chairman.Well, I'm glad I asked because actually there
is no disagreement. It is vital. It's just not--long term, it's
not going to fit right? So, the automobile supply industry must
be involved in developing a range of alternative technology
vehicles, correct?
Mr. Leuliette. Correct. As Dr. McCormick mentioned,
critical mass, volume, is key to success. There are two issues
here with respect to putting hydrogen in place. One is the
technology to create it, and the other is the process
technology to produce it at low cost. It's the supplier
community that is key to producing in high volumes at low cost
and high quality. That's the role we've played today, and it's
a role we'll play in the future.
The Chairman. Thank you very much.
Thank you, again, Mr. Chairman.
Senator Alexander. Thank you, Senator Domenici.
Senator Thomas.
Senator Thomas. Well, thank you, gentlemen. I guess my
questions are a little more broader.
Mr. Balcom, you talked about portable fuel cells. How does
that differ from what you're talking about with Chevron?
Mr. Balcom. The principal difference is the fuel that's
used. In a portable fuel cell, the fuel will be a methanol, a
liquid methanol fuel, typically. Most of the industry has
selected methanol as the fuel because it's easier to package,
it's less expensive, it has a higher energy----
Senator Thomas. So, you're not talking about hydrogen.
Mr. Balcom. Yes, hydrogen would be used for the automotive
application. That's where the difference lies. The similarities
are similar membrane materials, similar plate materials,
similar electrode materials, similar catalyst materials. More
of the materials are similar than they are different between
the two technologies.
Senator Thomas. What's the source of the supply for both of
them?
Mr. Balcom. The methanol--as a fuel, are you referring to?
That comes from natural gas, principally. It's produced in the
millions of tons per day--or per year, pardon me.
Senator Thomas. OK.
I guess, Dr. Paul, when you were talking about your
production, that the source is natural gas. Is that correct?
Dr. Paul. Yes. The current fuel source is natural gas--
basically what we use in industrial applications today, but
miniaturized to take advantage of the infrastructure----
Senator Thomas. In terms of the long-term supply of energy,
is natural gas a long-term supply?
Dr. Paul. I think natural gas is a long-term supply some
places. I think the key to hydrogen, the key leverage we have
by going to hydrogen, is going to be made by so many places--so
many things. Some places, it's coal; some places, it's natural
gas; some places it will be ethanol; some places, it will be
conversion of electricity. I think--some places, nuclear--I
think that's the great strength. But natural gas will be, I
think a part of the production.
Senator Thomas. So, there could be a number of other
sources for what you're doing. I see. And that's great.
Dr. Paul. Absolutely.
Senator Thomas. Mr. Leuliette, you talked about the need
for an energy policy. Don't we have an energy policy?
Mr. Leuliette. I think we have an energy bill, but I don't
know if we have an energy policy. With respect--and I mean in
the terms of energy policy, a goal, an established, real goal
that's funded to achieve a certain outcome.
When we look at--and we've used many--and many people have
used this goal, or this comparison of putting a man on the
moon--if you want to attract private equity, the Government
would need to say, ``This is the target date, the real date, of
achieving a 40-percent, 50-percent, 60-percent conversion of a
vehicle fleet over to hydrogen,'' something for which there's a
hard target for which people can start investing in. As I said,
in the beginning, private equity did not flow to the dot-com
and to the Internet world until it was established, until it
was defined, until protocols were established, until the
interface was defined. But it didn't take government money to
grow Yahoo! or Google or anyone else. Once the infrastructure
was in place and the economics were visible, capital came in to
invest. And I believe that some role here in the hydrogen
economy, that will occur, as well.
Senator Thomas. There may be other things, but I guess I
question a little bit how you think the role--the basic role
is--of the Federal Government--the private industry is where
the real opportunities exist.
Mr. Leuliette. The--you're asking the private--the
Government played a role in the Internet in supporting the
infrastructure and the protocol.
Senator Thomas. And they're playing a role in energy
policy, as well.
Mr. Leuliette. Yes.
Senator Thomas. Incentives, reduction in loans, all kinds
of financial incentives are there.
Mr. Leuliette. But the conversion to a hydrogen economy,
Senator, is bigger than Chevron, bigger than General Motors,
bigger than Toyota----
Senator Thomas. Well, a hydrogen economy isn't the only
alternative in the world, either, you know. There are other
kinds of things that are going on.
Mr. Leuliette. Yes. And to the----
Senator Thomas. It's a part of it. We've got nuclear, we've
got solar, we've got wind, we've got all kinds of things that
we're working on. It's not just hydrogen.
Mr. Leuliette. Agreed, Senator. But if we are here focusing
on mobile transportation----
Senator Thomas. No, I understand. And I'm all for that. I
just----
Dr. McCormick, you're an automobile industry person with
lots of automobile industry things going on around the world.
Are they doing things like this? Are other countries doing some
things of this kind?
Dr. McCormick. Yes, absolutely. A couple of comments. All
major auto companies have substantial programs in fuel cells
and hydrogen. For my part, I have approximately 1,000 people
working on it. For my part, a couple of years ago we
acknowledged we had passed through, very rapidly, a billion
dollars expended. And so, that's the kind of scale that work is
going on around the world.
I must say that one of the things we do--and we're doing
demonstrations around the world and stay actively engaged with
governments around the world--because, to the discussion we've
been talking about here, in terms of commercialization, some
government somewhere in the world will find the right equation
with the right amount of capitalism, the right rules and
regulations, the right return, and all of us that are in the
automotive industry will have to be there. And so,
consequently, it is a worldwide activity. You have to look at
the pronouncements of the Japanese prime minister and what
MITI's doing, discussions that on-go continuously in China.
Korea is actively engaged, and the European Union's actively
engaged. So, it is very big.
Senator Thomas. So, it is something others are involved, as
well, and we have to share in learning that, and so on.
Dr. McCormick. No doubt.
Senator Thomas. One very quick question. How do you store
enough hydrogen in a single tank? Isn't the single-tank issue a
problem?
Dr. McCormick. It is. What we really had to acknowledge was
that hydrogen geometry looks different. We need a
cylindrically--a cylindrical tube, and we had to acknowledge
that we had to change the vehicle architecture a little bit and
put the tube down the center of the vehicle, basically, rather
than trying to stick it in the trunk. So, fundamentally, we
started designing the vehicle around the hydrogen storage,
rather than trying to make it look like gasoline.
Senator Thomas. Oh, really? So, we need a longer car, huh?
Dr. McCormick. No. No, actually not. The Sequel, which will
be out later this year, is a full-sized vehicle that you would
recognize. We could put it out in the parking lot and you'd
recognize it.
Senator Thomas. That's great.
Dr. McCormick. Nothing unique about it----
Senator Thomas. Well, we appreciate all of what all of you
are doing. This is a real challenge for us, and an opportunity.
So, thank you.
Dr. McCormick. Thank you.
Senator Alexander. Thank you, Senator Thomas.
Just a couple of other questions.
Mr. Leuliette, you have suggested that the supplier
community is very important to the research and development and
the transformation of the hydrogen economy, but it's not
properly integrated into the Government's efforts. Do you--for
example, were any suppliers included in the new advisory--
technical advisory committee that was just announced by the
Energy Department?
Mr. Leuliette. As I understand, there is no one involved in
that. I need to check that, but there is no one involved. But,
again, that wasn't because they were precluded. I don't think a
supplier raised his hand and tried to be involved in that
process.
Senator Alexander. You don't think one did raise his----
Mr. Leuliette. No.
Senator Alexander. It's the Hydrogen and Fuel Cell
Technical Advisory Committee. Do you think it would be helpful
if suppliers were represented on that committee?
Mr. Leuliette. I think it is. I'm not here today just to
represent Metaldyne, but a collection of the CEOs of many of
the suppliers, and we've discussed this, is that we need to
provide a better way for you to talk to us. The supply
community is a large group. It is thousands. But there's really
only about 50 or 60 of us that are the large, multibillion-
dollar, multinational companies that supply some of the key
components. And so, the group could be a little bit more
focused. And we need to provide a better avenue for you and
Government to talk to us, and we are working on that.
Senator Alexander. Well, I would like to encourage that.
Mr. Garman is a reasonable person, but I didn't think his
explanation of why you weren't involved was really a very
strong one, that there were so many of you that they'd just not
pick any of you. That didn't make much sense to me. You're here
today, out of four representatives. And I would think that
maybe your association, or, as you just suggested, some of the
larger suppliers or some of representative group of suppliers,
might suggest to the Department of Energy, in a more formal
way, or to us, on this committee, how we can make certain that
as we consider this subject and other subjects, that we don't
overlook the fact that suppliers are a very important part of
our economy, our jobs, our capacity for R&D. I doubt if any of
the automotive manufacturers would disagree with that at all.
And so, it may just be a matter of the Department of Energy or
us, in developing our formula and our legislation, haven't been
as attentive to that as we should be. So, I would look forward
to your suggestions, and my guess would be, Mr. Garman would
look forward to any suggestion that you might make, about how
to make it easier for him to select among suppliers so that
they are included. And I'll be glad to mention that to him
myself, specifically.
I have one other general question, really for any of you,
and it's a sort of a blunt question, but it's an appropriate
one, I think, for this discussion. Is the hybrid-car phenomenon
of the last couple of years simply a passing fancy or a fad
that is occupying our attention while we wait for some
transformative technology, such as hydrogen fuel cells? Or, to
put it another way, why would we expect major automobile
companies to invest a lot of money in a technology on which
they cannot make money, which is--as I understand it, the
hybrid car costs so much more for consumers to buy that the
margin of profit for each unit is relatively small. Some people
have suggested that what the automobile companies are doing--
and I'm not just talking about General Motors here; I'm talking
about Nissan or others, as well--they may just be making a
certain number of them to satisfy the public attention that's
been focused on them, while, in fact, they're investing the
real dollars in fuel cell economies and other more transforming
technologies. How do we put that into perspective? Or is that
an unfair characterization?
Let me just start with you, Dr. McCormick, since you're in
this area, where you work.
Dr. McCormick. A couple of comments. First of all, given
the magnitude of the challenges that we see, both
environmentally and in terms of dependence on petroleum, hybrid
vehicles won't get us there, a 10-, 20-, 30-percent kind of
improvement--I think, many times Secretary Garman has testified
about the Department of Energy projections, and if you put
those kind of efficiencies on top of what we're seeing, in
terms of growth population and things, you can't get there from
here. So, clearly, under any circumstances, it's a stopgap.
So, what we have done is really taken a portfolio approach.
In the near term, it's hybrids, it's advanced engine technology
of more conventional sorts, it's the E85, recognizing--and I
think Dr. Paul said it really correctly--as we look at the
world and all the emerging economies, and the pressures that
are going to be there, both environmentally and energywise,
we're going to need every amount of energy we can get, and
we've got to use it most efficiently. And that inevitably leads
you back to the fuel cell solution. So, what we want to do is
get away from incrementalism and get as quickly as we can to
something like hydrogen, where we can look for a sustained
period of using that technology. So, we've got a very strong
investment in all these things. But, at the end of the day, we
think the hydrogen fuel cells is where we've really got to go.
Senator Alexander. Mr. Leuliette.
Mr. Leuliette. Let me echo that from our perspective as a
supplier. We see the economics of hybrid and E85, et cetera,
being such that they are intermediate solutions. Our biggest
concern in the supplier community is that the industry, the
Government, or other groups look at these, what we call,
``feel-good solutions'' as solutions, and stop the focus in the
energy in the longer-term scenario, such as hydrogen. That's
the biggest risk we face. Because if we spend a lot of money on
E85 infrastructure, if we promise that hybrids will be the
solution, we will all be sitting around this table 3 or 4 years
from now, facing an even greater challenge, and had not spent
the money properly to solve the root cause and deal with the
root cause of the problem.
Senator Alexander. Thank you.
Dr. Paul.
Dr. Paul. I guess what I would add, Mr. Chairman, is that--
go back to where I started and what Byron just mentioned. We're
going to need all of it. I think we've got to have a
comprehensive program. We have it. I know General Motors has
it. And I would strongly encourage, and do encourage, the
efforts being made by DOE and the Federal Government to support
across the band of opportunities. Hydrogen, in the long run,
but certainly coal, bio, oil shales, all of these things are
going to--I think you want in your research portfolio, because
you're going to need many options as time goes on.
Senator Alexander. Mr. Balcom, we'll let you have the last
word.
Mr. Balcom. I'd like to just reinforce that the work that
the U.S. DOE has done in balancing the portfolio between the
short-term, the medium-term, and the long-term applications, I
think, is an appropriate one. Just as one wouldn't put all of
its practice into the long pass or the Hail Mary pass in a
football game, you practice your ground plays as well as your
short passes and your long passes, I'd recommend that they
continue to do the same thing here.
Senator Alexander. Well, you might, if you--if there were
only a minute to go, put more of your options----
[Laughter.]
Senator Alexander. But we don't--hopefully, have more than
a minute to go.
This has been very helpful. This has been a very helpful
hearing.
Our purpose today has been to put the spotlight on what our
committee and the Senate regards as a transforming technology
that could very well help us dramatically reduce our dependence
on oil in this country. The advantages of that are reduced cost
to consumers, cleaner air for our families, and a
transformation of our foreign policy, as we can see, in terms
of what's going on in the Middle East today.
What we want to do on this committee is not create the
hydrogen fuel cell automobile; what we would like to do is to
create an environment in which you can do that, and--by
encouraging it, by staying out of the way, where that's the
more appropriate thing is to do.
We've heard some very helpful suggestions today about where
to put the focus, such as on hydrogen storage. We've heard
suggestions about how to include a broader number of ideas. Dr.
McCormick reminded us, this is a worldwide enterprise. There
are many people with ideas. They ought to be included in
whatever the Department of Energy is doing. Mr. Leuliette has
reminded us that suppliers are a major part of our R&D effort
and our effort to go ahead. Dr. Paul has talked about the
demonstration projects that Chevron already has in place. This
is no pipedream we're talking about. Mr. Balcom has reminded
us, this is a transforming technology. So, this is very
helpful.
This is, by far, from the last time we'll be discussing
this. As Senator Domenici said before we left, this is so
important that we need to find one or two of us in the Senate
who can spend the time simply on the idea of the hydrogen fuel
cell economy and make sure that we keep our eye on what the
Department of Energy is doing and what we ourselves are doing
to make sure that we help create this environment in which you
can succeed.
Thank you very much for your time.
The hearing is adjourned.
[Whereupon, at 4:15 p.m., the hearing was adjourned.]
[The following statement was received for the record:]
Statement of UTC Power, A United Technologies Company
UTC Power, a United Technologies Corporation (UTC) company, is
pleased to submit the following statement for the record relating to
the July 17, 2006 hearing on ``Implementation of the Energy Policy Act
Provisions on Hydrogen and Fuel Cells.'' With more than 40 years of
experience, UTC Power is the world leader and the only company in the
world that develops and produces fuel cells for applications in each
major market: on-site power, transportation and space flight
applications. We are also the world leader in the development of
innovative combined cooling, heating and power applications in the
distributed energy market.
SUMMARY
Fuel cells provide an opportunity to address a variety of U.S.
energy needs including:
<bullet> Reducing dependence on foreign oil;
<bullet> Delivering assured, high quality reliable power;
<bullet> Decreasing toxic air and greenhouse gas emissions; and
<bullet> Improving energy efficiency.
UTC Power does not see any ``show stopper'' technical barriers to
the advancement of fuel cells, but continued U.S. commitment to
research, development, demonstration and market transition initiatives
are essential to reduce cost, improve durability and enhance
performance. Hydrogen storage and infrastructure requirements represent
challenging obstacles for transportation applications, but near term
opportunities exist with fleet vehicle applications such as transit
buses that minimize these concerns. Stationary fuel cells for assured
power represent another opportunity for near term commercialization at
higher cost targets than those required for personal vehicles.
Fuel cells are available today for the transit bus and stationary
markets. Near term successes in these applications are required to
create public awareness and acceptance, establish a viable supplier
base and stimulate continued investment. Last year's Energy Policy Act
provides the basic framework for a comprehensive strategic focus, but a
sustained national commitment to robust funding will be critical to our
success. Hurricane Katrina reconstruction efforts represent an
opportunity to deploy fuel cells in schools to serve as emergency
shelters, hospitals and other critical infrastructure facilities to
demonstrate their ability to provide sustainable energy for assured
power requirements.
As we enter the summer hurricane and electric grid blackout season,
concerns regarding reliable assured power increase. UTC Power believes
there is an opportunity to enhance the value of fuel cell vehicles by
enabling them to deliver power to the grid or other critical
infrastructure such as emergency shelters. We are currently working
with the Department of Defense to validate this concept with our heavy
duty vehicle PureMotion<SUP>TM</SUP> 120 fuel cell power plant system.
COMPANY EXPERIENCE AND LEADERSHIP
UTC Power has led the development and introduction of fuel cell
technology for more than four decades. We hold the unique distinction
of having:
<bullet> produced all the fuel cells that provide electrical power
and drinking water for both the Apollo and Space Shuttle
missions;
<bullet> sold more than 255 stationary 200 kW units that have
produced more than 1.2 billion kilowatt-hours of electricity
and have accumulated more than 7 million hours of operating
time by customers in 19 countries;
<bullet> provided stationary fuel cells that have a stack life of
40,000 hours (an 80,000 hour life cell stack is in the final
stages of development);
<bullet> developed fuel cells for a number of automotive customers
including Hyundai, Nissan and BMW and working with almost all
of the major automobile manufacturers on fuel cell powered
vehicles; and
<bullet> provided 120 kW fuel cell power systems that are currently
powering four zero emission transit buses in revenue service in
California.
UTC Power has participated in public-private partnerships with the
Departments of Defense, Energy and Transportation in the development of
its technology solutions for the stationary and transportation markets.
Our proprietary low pressure drop, internally humidified natural water
management proton exchange membrane (PEM) fuel cell technology has led
to significant advances in efficiency, power density and cold weather
performance.
Our longstanding involvement in these varied markets and
applications provides a unique vantage point to discuss how fuel cell
technology can help address U.S. energy needs, the status of technology
today and the barriers we face.
NEED FOR SHORT TERM SUCCESSES
Our dependence on imported oil is well documented and personal
automobiles consume the lion's share. Deployment of fuel cell vehicles
powered by renewable sources of hydrogen can break our dependence on
imported oil and at the same time take transportation out of the
environmental debate. The auto market also represents the highest
volume market, which is another reason this sector has received so much
attention. But fuel cell vehicles for private use in meaningful
quantities are a decade away since they represent the most demanding
application in terms of cost, packaging and infrastructure. Existing
electrical infrastructure and state and federal regulations create
hurdles for any form of base load distributed generation to overcome.
Nothing breeds success like success. We therefore need to increase
our immediate focus on near term applications that are available today
such as stationary and fleet vehicles, including transit buses, to
stimulate early volume and build the industry's supplier base. Since
fuel cells represent a disruptive technology, the supplier base is
reluctant to make the necessary investment. Early successes in the
transit bus and stationary applications will help to overcome these
fears.
In addition, stationary and fuel cell fleet vehicles have less
demanding requirements and can compete at costs higher than those
required by autos. Concentrating on these applications would enhance
our ability to establish a profitable industry today and create
stepping stones to the most demanding longer term auto application. Few
companies can survive the next ten years waiting for the high volumes
offered by the car market. Instead, they must find applications where
profits can be realized today that will support the development of a
strong industrial base in preparation for the future auto market.
Success in these early applications can build the necessary public
awareness and public confidence.
TRANSIT BUSES AND FLEET VEHICLES
Fuel cell transit buses offer the best strategic, near term
potential to address the energy concerns cited above. In 2002, transit
buses consumed the equivalent of more than 43,000 barrels of crude oil
per day. The fleet of zero emission hybrid fuel cell buses currently
powered by our fuel cells in revenue service in California is
demonstrating greater than twice the fuel economy of a conventional
diesel bus. Transit buses and fleet vehicles present an opportunity to
begin to reduce oil imports in the near term while also improving air
quality and reducing greenhouse gas emissions.
Buses and heavy duty commercial vehicles travel a relatively low
percentage of the nation's vehicle miles, but they produce significant
levels of toxic air emissions in densely populated urban areas. The
transit buses equipped with UTC Power's PureMotion<SUP>TM</SUP> 120
fuel cell power system significantly reduce overall emissions due to
the zero-emissions technology inherent in hydrogen fuel cells.
As we enter the summer hurricane and electric grid blackout season,
concerns regarding reliable assured power increase. In light of this
vulnerability, we believe there is an opportunity to enhance the value
of fuel cell vehicles by enabling them to deliver power to the grid
rather than from the grid as some people have proposed with the plug in
hybrid approach. The ``exportable power'' approach could improve
reliability and provide assured power during times of emergency to
shelters, hospitals and critical infrastructure.
UTC Power is currently working with the Department of Defense to
validate the ability of our PureMotion<SUP>TM</SUP> 120 fuel cell power
system for heavy duty vehicles to export power to the grid or to
provide power to emergency shelters. This approach would enable a
transit authority, military base or school system to use their fuel
cell buses to transport people in zero emission, efficient, hydrogen
powered, quiet buses under normal conditions and provide emergency
power during natural disasters or terrorist incidents.
Bus durability requirements assume a life of more than 30,000 hours
for a system that must operate up to 16 hours per day, but with
frequent starts and stops. We offer a warranty of 4,000 hours for the
four buses that are operating today in AC Transit and SunLine Transit
revenue service in California and have a technology plan to increase
the life of these power plants to 25,000 hours by 2010 and up to 40,000
hours by 2015.
Cost targets for buses are more forgiving than for autos and their
infrastructure requirements are limited since they rely on centralized
fueling and maintenance. The four buses produced last year cost over $3
million per bus, but we have been able to reduce this cost to under
$2.5 million and with volume of 100 units per year we can see a path to
$1 million per bus. We are actively engaged in pursuing a number of
worldwide opportunities to aggregate bus orders and achieve volume
sales that will result in potential near term commercialization of the
technology in this strategically important application.
STATIONARY FUEL CELLS
We also view stationary fuel cells as another near term opportunity
to address air quality, climate change, reliability and energy
efficiency concerns. The stationary fuel cell mission involves 24/7
steady state operation and a life of at least ten years or 80,000
hours.
Early adopters have been attracted by the ability of these systems
to operate as base load grid-connect or grid independent assets. We've
deployed units at schools, hospitals, law enforcement, research,
telecommunications and military facilities to address assured power and
other customer concerns. In addition, one of our units is operating at
a Connecticut high school that enables the school to be designated as
an emergency shelter. This concept could be replicated in areas subject
to natural disasters to provide additional community benefits.
We also believe there's a significant opportunity in the Katrina
reconstruction effort to rebuild with sustainable energy objectives.
For example, we could reduce the environmental footprint of power
generation and increase reliability by installing onsite, assured power
fuel cells to help meet future emergency needs at schools serving as
mass care shelters, hospitals and health care facilities, prisons, and
other critical infrastructure facilities.
Since fuel cells can be deployed at the point of use, in addition
to not relying on the vulnerable transmission and distribution assets
of the grid, customers can benefit from the ability to capture waste
heat and put it to constructive use for space heating, domestic hot
water heating and industrial processes. Our units operating in the
combined heat and power mode can operate at 85-90% efficiency thus
generating energy savings that can reduce the cost of electricity by
four to five cents per kilowatt hour.
Our PureCell<SUP>TM</SUP> stationary fuel cell power plant uses
phosphoric acid technology and has demonstrated best in class
durability with 27 of our units surpassing 40,000 hours without
significant maintenance or replacement of the original cell stack. Our
current high time unit has 60,000 hours and we are testing a new
generation of technology that we plan to introduce to the market in the
next several years that we are confident will achieve 80,000 hours.
The cost of these units is currently around $4,500 per kilowatt,
but at volumes of 500 units per year and with the aggressive cost
reduction efforts we have underway, we expect our next generation
technology to be competitive at less than $2,000 per kW.
AUTOMOBILES
Cars are only driven an average of two hours a day which means
their life requirement is low compared to other applications, However,
autos experience many starts and stops and changes in speed that create
unique needs for a robust and durable system through many different
duty cycles. The Department of Energy's (DOE) short term durability
goal for cars is 2,000 hours by the end of the learning demonstration
program in 2008 with 5,000 hours as the ultimate objective.
We are participating along with Hyundai in DOE's Hydrogen Fleet and
Infrastructure Learning Demonstration program as part of the Chevron
led team. Ten cars using our power plant are currently operational with
a total of 32 vehicles planned.
As part of this initiative, we have cars on the road today that
have passed the 500 hour mark and are still accumulating hours. In the
laboratory we have run stationary loads for 13,000 hours, auto stress-
test cycles of 5,000 hours and one million acceleration cycles, which
gives us confidence that we can meet the goal of 5,000 hours in
production vehicles.
Fuel cell cars must be capable of both starting and operating in
cold conditions if they are to gain broad market acceptance. The
consensus performance criteria are the ability to survive at -40
degrees Celsius and start at -30 degrees Celsius. Great progress is
also being made in this arena. For example, one of our cars has run 25
cycles from frozen conditions as low as -10 degrees Celsius and we have
demonstrated 43 cycles at -35 degrees Celsius in the laboratory.
BARRIERS
In short, technology development barriers for transportation fuel
cells are being addressed at a rapid pace. At a small scale, we can
meet the identified requirements and we don't envision any formidable
show stoppers. This doesn't mean, however, that we don't need to
continue our public-private partnership research, development or
demonstration efforts. We strongly endorse the continuation of these
activities and increased financial commitment to accelerate the
progress we have made in the last few years.
The basic concepts of fuel cell technology have been proven. Our
task now is to enhance key performance characteristics (such as
durability); reduce costs; validate the technology in real world
operating conditions; identify hidden failure modes through extended
operation; and then identify and incorporate cost effective solutions.
In the case of transportation applications, infrastructure and hydrogen
storage still represent key challenges.
Three strategies are necessary for cost reduction:
<bullet> Internal programs to reduce cost through material
substitution, longer life parts, and fewer parts. Examples
include less expensive membranes; better seals; reduced use of
platinum; enhanced performance materials for bipolar plates;
and reduced system complexity.
<bullet> Improved manufacturing processes to eliminate labor
intensive processes and identify high volume manufacturing
solutions; and
<bullet> Incentives to help increase volume thereby spreading costs
over a larger product base.
RECOMMENDED ACTIONS
UTC Power has called for a comprehensive national strategy to
achieve fuel cell commercialization. Last year's enactment of the
Energy Policy Act (EPAct) establishes such a framework, but more work
needs to be done.
Budget requests and appropriation figures for this year fall far
short of levels authorized by Congress. We recognize there are tight
budget constraints, but given the benefits of fuel cell technology and
the price we pay today for imported oil, health costs associated with
poor air quality and lost productivity due to lack of reliable power,
substantial increases in fuel cell technology investment represent a
fiscally sound strategy.
While we are pleased that EPAct provides a fuel cell investment tax
credit, the term is only for two years. We support legislative efforts
to extend the tax credit timetable for the maximum length possible.
In addition, we believe more attention needs to be paid to ensuring
the successful commercialization of near term fuel cell applications
such as transit buses, fleet vehicles and stationary units. There are
opportunities today for government purchases of fuel cell technology as
part of Katrina reconstruction and pilot programs for schools powered
by fuel cells to double as emergency shelters as well as the concept of
fuel cell vehicles exporting power to the grid or critical
infrastructure that merit consideration.
APPENDIX
Responses to Additional Questions
----------
Responses of the Hon. Dirk Kempthorne to Questions From
Senator Domenici
Question 1. I'm pleased that you are aggressively moving forward on
implementing the provisions of the Energy Bill. I continue to hear
reports that things are not moving fast enough.
How long before BLM has this program fully operational?
Answer. Implementation of the Pilot Office project pursuant to
Section 365 is well underway, and is in the last stages of
implementation.
By October 4, 2005, an Interagency Memorandum of Understanding
(MOU) to implement the oil and gas Pilot Offices was signed by the
Administrator, Environmental Protection Agency; Secretary, Department
of Agriculture; Assistant Secretary of the Army for Civil Works, U.S.
Army Corps of Engineers; and the Secretary of the Department of the
Interior. This MOU was signed nearly a month ahead of the 90-day
timeframe required by the Act. This Interagency MOU establishes the
roles, responsibilities, and delegations of authority among the Federal
agencies for streamlining the Application for Permit to Drill (APD)
processing and inspection and enforcement (I&E) in the seven BLM Pilot
Offices identified by the Act.
In October 2005, the BLM initiated the recruitment process for 105
approved positions to support the APD approval process and I&E. The BLM
Vernal, Utah pilot office has since noticed a substantial increase in
their APD workload and identified a need for 11 additional positions to
meet their workload demand. This increases the total number of approved
BLM positions for the Pilot Offices to 116 positions. Currently, 102
BLM Pilot Office positions have been filled. In addition, BLM has hired
nine contract positions (Botanist, Natural Resources and Wildlife
Specialist, Geologist, and Soil Scientist) to support operations in the
Pilot Offices. The Farmington, Carlsbad, Vernal, Buffalo and Rawlins
offices have completed the hiring of all initial BLM positions. The
Glenwood Springs office has only two vacancies remaining, the Miles
City office has only three vacancies remaining. The BLM has transferred
funds to support 6 Forest Service positions, 10 U.S. Fish and Wildlife
Service (FWS) positions, 3.5 Corps of Engineers positions, and 1 Bureau
of Indian Affairs (BIA) position for these agencies to support the
Pilot Offices under the MOU.
The BLM Director has personally visited each Pilot Office, the BLM
staff, and other Federal agencies and staff to emphasize the
significance of this project to both the BLM and the Nation.
The BLM has been aggressive in implementing this section; we
appreciate the support you have given us and we look forward to seeing
real results from this effort.
Question 2. How have you directed the field offices to use the NEPA
categorical exclusions found in Section 390?
Answer. The BLM policy guidance (Instruction Memorandum (IM) 2005-
247) was issued on September 30, 2005, to BLM Field Offices for
implementation of the NEPA categorical exclusion provisions of Section
390 of the Energy Policy Act (EPAct). The IM also provides guidance for
improved NEPA compliance for oil and gas activities. The BLM is using
this authority wherever applicable. Since the issuance of IM 2005-247,
we have processed 895 APDs in the pilot offices using some form of this
authority.
Question 3. As you mentioned, the Energy Bill does not change the
requirements for endangered species, historic preservation, clean water
and clean air.
What is BLM doing to actually develop new and innovative ways to do
business?
Answer. In addition to the Pilot Office project, the following are
two examples of how the BLM is developing new and innovative ways to do
business:
1. The BLM has conducted a joint study of oil and gas practices
with the Forest Service (FS). Section 362 of the EPAct requires that
the Secretary of the Interior (BLM) and the Secretary of Agriculture
(FS) improve the process for timely action on oil and gas leases and
APDs, and improve the inspection and enforcement of oil and gas
activities. The agencies are also required to develop and implement
best management practices to improve the administration of the onshore
oil and gas program. The BLM has updated the Gold Book of ``Surface
Operating Standards and Guidelines for Oil and Gas Exploration and
Development'' and posted the update on September 28, 2005, on the BLM
Best Management Practices webpage at www.blm.gov/bmp. In June 2006,
copies of the Gold Book were printed to provide copies to the operators
as a reference guide.
The BLM issued IM No. 2005-069 on February 1, 2005, establishing
offsite compensatory mitigation guidelines for oil and gas
authorizations, thereby providing additional opportunities to address
impacts of proposed projects.
The BLM issued IM No. 2006-071 on January 19, 2006, establishing
oil and gas process improvement teams in BLM Field Offices.
2. The BLM is developing innovative ways to create a ``one-stop-
shopping'' approach to the APD process. By co-locating staff from
cooperative Federal and state agencies, the BLM is making headway on
this innovation. For example, in Montana, the BLM, together with the
Montana Department of Environmental Quality (DEQ), signed a Memorandum
of Agreement (MOA) on June 1, 2006, to fill one hydrologist and one air
quality specialist position in the Miles City Pilot Office and one
permitting position in Montana's DEQ Helena Office in support of Pilot
Office operations. The BLM in Montana and Montana Department of Fish,
Wildlife and Parks are drafting a MOA to support a wildlife position in
the Miles City Pilot Office. The BLM in Wyoming is working with the
Wyoming DEQ to establish a position in the Buffalo Pilot Office. Under
a new statewide cultural resources protocol agreement, they are working
to staff a position with the State Historic Preservation Office (SHPO).
The BLM in New Mexico is working with the New Mexico Oil and Gas
Commission to fund two positions, which will work directly with BLM
inspectors to increase state and Federal program coordination. These
innovative approaches aim to complete cooperative task in a more timely
manner.
3. Another innovative approach is a pilot project to survey and
protect cultural resources. The New Mexico BLM's pilot project will
entail completing cultural clearances (a Class III archaeological
inventory) for APDs in one large block of approximately 6,000 acres in
Pierce Canyon outside Carlsbad. This pilot project is in response to
recommendations of the national task force assembled to review the
National Historic Preservation Act Section 106 compliance process in
connection with reviewing APDs. The purpose is to test the long-term
cost effectiveness and overall efficiency of doing Section 106
compliance for APDs on large blocks of land, rather than piecemeal on a
permit-specific basis. This innovative approach should help protect
cultural resources and aid in the management of energy programs by
providing reliable data on the most efficient and cost effective way to
do Section 106 compliance. The BLM is planning a meeting in November of
2006 to discuss lessons learned and best business practices developed
in the pilot offices. The BLM plans to use this information to improve
business practices bureau-wide, where practicable.
Question 4. Is there a better way to protect wildlife values than a
blanket of winter stipulations and wildlife restrictions?
Answer. We typically have used blanket stipulations; but we are
also testing new methods, such as voluntary off site mitigation, year-
round drilling with other forms of mitigation, such as minimizing
surface disturbance through directional drilling, consolidation of
production facilities, and reducing truck traffic. For example, in the
winter for 2005-2006, the BLM authorized the Questar Company, a BLM
lessee to do winter well completions (drilling) in the Pinedale
Anticline. The BLM is also working on a supplemental Environmental
Impact Statement in the Pinedale anticline that would include
directional drilling and consolidation of drilling infrastructure for
Questar, Shell Oil and Ultra, other BLM lessees. This proposal would
allow development of the Pinedale anticline while reducing habitat
fragmentation, impacts to wildlife, and air pollution. In addition, the
proposal would allow year-round activity over approximately six percent
of the anticline. This would enable a year-round workforce to address
some of the local community concerns over the seasonal boom and bust
cycle of oil and gas activity in Sublette County. It will provide a
more stable economic engine and better environmental planning.
Question 5. Last year the Fish and Wildlife Service decided Sage
Grouse are not endangered, but I understand BLM continues place
conditions to protect Sage Grouse.
Can you explain why this is?
Answer. In 2005, the U.S. Fish and Wildlife Service (FWS) issued a
finding that the listing of the Greater sage-grouse as threatened or
endangered was not warranted. The FWS cited numerous reasons for their
finding, but cautioned that there was reason for concern because of the
long-term declines in the population across the range and because
current distribution of the species was significantly less than
historic distribution. The FWS Director emphasized the need for the
Federal and State managers and local working groups to continue their
efforts to conserve sage-grouse and sagebrush habitats over the long-
term. Part of the reason for this finding was the BLM's commitment to
implement a range-wide conservation strategy.
In keeping with the FWS Director's suggestion that sage-grouse and
sagebrush habitat protection efforts continue, the BLM continues to
work closely with the state wildlife agencies, local working groups,
the FWS, and private land owners on a wide variety of conservation
projects for sage-grouse and other sagebrush-dependent species. Prior
to the issuance of a lease, the BLM routinely places stipulations on
the lease to protect habitat while allowing other multiple-use
activities to occur. We do this in accordance with State Game and Fish
conservation strategies. The BLM has learned through years of
experience that addressing species and habitat conservation prior to
allowing development is the best approach for avoiding the need to list
species under the Endangered Species Act.
Question 6. What can you tell me about the listing efforts for the
Lesser Prairie Chicken in my State of New Mexico?
Answer. The BLM has a major effort underway in southeast New Mexico
that we believe will result in healthier populations over time and may
preclude the need to list the species under the Endangered Species Act.
Our strategy is to manage traditional public land uses (oil and
gas, and ranching) in a manner that allows continued operations on
public lands, but preserves key habitat for the Lesser Prairie Chicken.
This is being done through a planning process that has involved
industry, ranchers, the State of New Mexico, southeast New Mexico
counties, and conservation groups.
Beginning in 2005, BLM partnered with the Natural Resources
Conservation Service (NRCS), the New Mexico Association of Conservation
Districts (NMACD), oil and gas companies, and ranchers to begin a major
reclamation effort of land damaged by past practices with emphasis on
Lesser Prairie Chicken and Sand Dune Lizard habitat. Our goal is to
expand habitat conservation efforts and populations across a broad area
of southeast New Mexico. We are improving habitat by removing remnant
facilities from abandoned oil and gas fields, such as power lines and
old tanks. We have also reclaimed old unused roads, pads, and caliche
pits. We are cooperating with ranchers in the area to improve grazing
management with additional fencing and water development.
Responses of the Hon. Dirk Kempthorne to Questions From Senator Thomas
Question 1. A large part of the problem with considering
applications for permit to drill is that the staffs in your field
offices are buried with NEPA work in an effort to get projects to a
point that people can even apply to drill. Many of the staff that have
been hired as a result of these Pilot Offices will be good at getting
Environmental Impact Statements done. Do you think they can transition
as easily to the processing of APD's?
Answer. Most resource specialist in the BLM Field Offices already
work on both NEPA documents and APD processing. Since NEPA compliance
is an integral part of each APD or group of APDs being processed, we do
not expect any problems with the staff transitioning to the processing
of APDs.
Question 2. Many of the BLM field offices in Wyoming are currently
revising their Resource Management Plans. Can you give us an update as
to when you expect these revisions to be completed and how long its
been since they were last changed?
Answer. Currently, the BLM in Wyoming is preparing four Resource
Management Plan (RMP) revisions, and one planned to start in January
2007. The status of the five efforts is as follows:
Pinedale RMP Revision. The initial Pinedale RMP was completed in
1988. The Record of Decision for the RMP revision is currently
scheduled to be completed in the spring of 2008.
Rawlins (formerly Great Divide) RMP Revision. The initial Rawlins
RMP was completed in November 1990. The Record of Decision for the RMP
revision is currently scheduled to be completed in March of 2007.
Kemmerer RMP Revision. The initial Kemmerer RMP was completed in
1986. The Record of Decision for the RMP revision is currently
scheduled to be completed in spring of 2008.
Casper (Platte River) RMP Revision. The initial Casper RMP was
completed in 1985. The Record of Decision for the RMP revision is
currently scheduled to be completed in October of 2007.
Lander RMP Revision. The initial Lander RMP was completed in June
1987. The Notice of Intent to revise the RMP is scheduled for release
in the first quarter of 2007.
In addition, there are three projects involving plan amendments.
They are:
Jack Morrow Hills Coordinated Activity Plan. The Record of Decision
was signed on July 17, 2006, and a Notice of Availability was published
in the Federal Register on July 20, 2006.
Buffalo Oil and Gas Leasing EA. The Notice of Intent was issued on
December 16, 2004. There is potential that the current plan may be
amended.
Hiawatha Regional Energy Development Project. This project is
located in both the BLM Rock Springs, Wyoming office and the Little
Snake, Colorado Field Offices. The Little Snake RMP is currently being
revised. Because the level of drilling may exceed the analysis scope of
the Green River RMP, an amendment may be required.
Question 3. I hear an awful lot about the high turnover rate of
staff in many of the state BLM offices. What are some of the ways in
which BLM has looked at reducing the number of folks who leave from
year to year? Is it a function of an aging workforce or is it simply
that there are better jobs to be had in the private sector?
Answer. Staff turnover has been substantial in some of our offices.
Turnover is due to a variety of factors, including retirements,
competition with industry for skilled staff, and the fast pace and
heavy workload in our oil and gas offices. Additional staff resources
in our pilot offices are helping to meet workload commitments and, in
some cases, BLM is investigating ways to provide incentives, such as
retention bonuses.
Question 4. What percentage of domestic oil & gas production comes
from BLM lands?
Answer. The percentages of domestic oil and gas produced from BLM
lands are 18% of domestic gas and 5% of domestic oil.
Question 5. Section 365 of the Energy Policy Act, which established
the Pilot Offices we're discussing today, also required a Memorandum of
Understanding be signed by several agencies. You discussed the
memorandum in your testimony. This Section also allowed for Governors
from affected states to be included as signatories to this Memorandum.
Did Governors sign this memorandum, and if not, why?
Answer. The Governors have not signed the MOU. Each state has
unique needs and we are working closely with the states on individual
agreements for pilot office involvement. The first state agreement was
recently signed with the Montana Department of Environmental Quality
(DEQ). This agreement places three state DEQ positions in support of
the Miles City Pilot Office operations. Similar agreements are being
developed with a variety of state agencies in the five pilot office
states.
Question 6. I'm certain we'll hear from Mr. Reed about the
fisheries issues associated with BLM lands. What types of expertise
exists at BLM to address wildlife issues associated with oil & gas
development?
Answer. All of the BLM Field Offices, including the Pilot Offices,
have wildlife biologists on staff. Several of our Field Offices also
have fisheries biologists. In addition, we work closely with State game
and fish agencies and the FWS.
Responses of the Hon. Dirk Kempthorne to Questions From
Senator Bingaman
Question 1a. Multiple Use--I am pleased that BLM has been making
efforts to improve permit processing, but I want to be sure that the
program is balanced with BLM's other responsibilities.
Is BLM taking resources away from other programs (grazing, mining,
recreation) in order to handle the oil and gas activities? If so,
please provide specifics as to the programs and the magnitude of the
diversion of resources.
Answer. The EPAct was passed after the enactment of the Interior
Appropriations for Fiscal Year 2006. Immediately after passage of the
EPAct, BLM analyzed the requirements in the law and identified
milestones that must be achieved in FY 2006. In order to meet those
timeframes additional funding was required in FY 2006. The BLM
submitted and received Congressional approval on two requests to
reprogram funds from non-energy programs to implement the Act. Under
the first reprogramming, the BLM requested and received Congressional
approval to reprogram $1,366,000 on March 29, 2006, from Fiscal Year
2005 unobligated balances in non-energy programs. The second request
for reprogramming was for $4,889,000 from Fiscal Year 2006 funding, and
was approved by Congress on May 4, 2006. Both of these reprogrammings
were one-time changes that will not be carried forward into future
years. The amounts are shown by program in the table below:
AMOUNTS APPROVED FOR REPROGRAMMING INTO OIL AND GAS MANAGEMENT PROGRAM
------------------------------------------------------------------------
Fiscal year Fiscal year
Subactivity 2005 2006
------------------------------------------------------------------------
Soil, Water and Air Management............ $29,000 $437,000
Range Management.......................... $103,000 $410,000
Forestry Management....................... $21,000 $0
Riparian Management....................... $65,000 $150,000
Cultural Resources Management............. $62,000 $227,000
Wild Horses & Burros Management........... $19,000 $0
Wildlife Management....................... $90,000 $0
Fisheries Management...................... $125,000 $0
Threatened & Endangered Species........... $103,000 $0
Wilderness Management..................... $126,000 $62,000
Recreation Resource Management............ $41,000 $194,000
Other Mineral Resources Management........ $56,000 $91,000
Alaska Conveyance......................... $90,000 $22,000
Cadastral Survey.......................... $36,000 $137,000
Lands and Reality Management.............. $0 $72,000
Resource Management Planning.............. $117,000 $283,000
Resource Protection & Law Enforcement..... $0 $411,000
Hazardous Materials Management............ $33,000 $138,000
Deferred Maintenance...................... $0 $1,991,000
Information Systems Operation............. $98,000 $47,000
Administrative Support.................... $143,000 $172,000
Land & Resource Information Systems....... $9,000 $45,000
-----------------------------
Total................................. $1,366,000 $4,889,000
------------------------------------------------------------------------
In the President's FY 2007 budget, BLM is requesting additional
funding in the Oil and Gas Management Program for energy. These funds,
if approved, will assist the non-Pilot offices to meet the demand for
energy permitting and continue to meet inspection and monitoring
commitments.
Question 1b. What steps is BLM taking in implementing the pilot
program to ensure that other BLM programs are not adversely affected by
the emphasis on oil and gas activities?
Answer. The BLM continues to manage the Federal resources under its
multiple-use mandate. As indicated in the response to the previous
questions, the reprogramming request approved by Congress were a one-
time funding shift made necessary by the EPAct deadlines the BLM has to
meet during FY 2006. In the FY 2007 budget request, the Administration
has asked for an additional $9.2 million for non-pilot offices'
processing of APDs, inspection and enforcement and monitoring.
Question 2a. Inspection and Enforcement--I have long advocated the
importance of BLM having a robust inspection and enforcement program.
What steps is BLM taking to ensure that its inspection and
enforcement program is adequate?
Answer. The Inspection and Enforcement (I&E) program is identified
as a high priority in the Department of the Interior's Strategic Plan,
and the BLM has committed considerable resources in recent years to
ensure that we have an effective I&E program. The BLM recognizes the
importance of inspections in environmentally-responsible energy
development. In fact, this critical need was the rationale for a
significant portion of the energy reprogramming requested and approved
this fiscal year (See answer 1 a). As note above, the BLM's FY2007
budget request includes an additional $2.9 million to perform an
additional 1,930 inspections and $2.0 million to conduct monitoring
related to oil and gas development.
Over the past four years, the BLM recognized the need to strengthen
its I&E program as the number of approved APDs and drilling increased.
The BLM has successfully documented through its budget justifications
the need for additional inspectors and to obtain additional funding.
The BLM is committed to ensuring that the highest priority inspections
are completed.
Question 2b. How many additional inspectors do you expect to hire
in New Mexico with the funding from the pilot program?
Answer. Since enactment of the Energy Policy Act, the BLM has hired
a total of 12 oil and gas inspectors--including 4 Production
Accountability Technicians and 8 Petroleum Engineering Technicians--in
the pilot offices in New Mexico. No additional hires are currently
anticipated, although this could change depending on new development in
New Mexico.
Question 3. Split Estates--We continue to hear concerns expressed
by some ranchers in situations where there is oil and gas development
on split estate lands. What is the status of the report on split
estates? What steps is BLM taking to address these issues?
Answer. Since the passage of EPAct, the BLM conducted an extensive
public outreach effort to identify issues and solicit recommendations
from the public regarding the management of Federal split estate. BLM
is currently finalizing the Split-Estate Report to Congress. The Report
is expected to contain a number of recommendations for administrative
action necessary to facilitate reasonable access for Federal oil and
gas activities while addressing surface owner concerns and minimizing
impacts to private surface.
Question 4. NEPA--How has BLM implemented section 390 of EPAct
pertaining to categorical exclusions? What is intended for instances
where extraordinary circumstances exist that would make use of a
categorical exclusion inappropriate? Has this new policy been put out
for public comment? If not, why not?
Answer. The BLM issued policy guidance (IM 2005-247) on September
30, 2005, to BLM Field Offices for implementation of the NEPA
categorical exclusion provisions of Section 390 of the EPAct. The IM
also provides guidance for improved NEPA compliance for oil and gas
activities.
Section 390 of the Act establishes a rebuttable presumption that
the listed categorical exclusions apply to the listed activities. There
is no requirement in the statue to document the absence of exceptional
circumstances in order to apply these statutory categorical exclusions.
The statue made the exclusions immediately effective, and there is no
provision for rulemaking or other means of seeking public comment
before implementation.
Question 5. Abandoned and Orphaned Wells--According to information
provided by the Department, New Mexico has 4224 abandoned wells on
public lands, the largest number of any state. What is the status of
implementation of the program for remediation of abandoned and orphaned
wells? Can you please provide information relating to the timing of
implementation for the record?
Answer. BLM defines wells as ``Abandoned'', ``Plugged and
Abandoned'', ``Orphan'', and ``Idle'' (and further classifies ``Idle''
wells as either ``Temporarily Abandoned'' or in ``Shut-in'' status).
These terms are defined and discussed below. BLM would be happy to
provide a briefing to further clarify these terms as well.
By Bureau definition, the term ``Abandoned'' well means a well
where the well bore was properly plugged to the surface, but surface
reclamation has note been completed and/or approved. When the surface
reclamation is complete, and inspected for proper reclamation, the well
is then classified as ``Plugged and Abandoned.'' In general, both
``Abandoned'' and ``Plugged and Abandoned'' wells pose no future
liability to the public.
The Bureau definition of an ``Orphan'' well is ``A well that is not
associated with a responsible or liable party nor has sufficient bond
coverage for plugging and surface restoration costs.'' There are
currently 14 known Orphan wells on BLM-managed land in New Mexico. (The
Energy Policy Act includes Orphan well provisions that are discussed
below.)
An ``Idle'' well is a well which has been inactive for at least 12
consecutive months. There are 1197 Idle wells on BLM-managed land in
New Mexico--a significant reduction from 1999, when there were 4,219
Idle wells in New Mexico. Idle wells are classified as either
Temporarily Abandoned (TA) or in Shut-in (SI) status. Temporarily
Abandoned status is defined by the BLM as a well that is not physically
and mechanically capable of producing oil or gas in paying quantities,
but which may have future value or beneficial use. Shut-in status is
defined by the BLM as a well that is physically or mechanically capable
of producing, but is not producing for other reasons. As of June 28,
2006, New Mexico's current inventory of idle wells is 735 wells in
Temporarily Abandoned (TA) status and 462 in a Shut-In (SI) status.
The reduction in the number of idle wells is he result of higher
oil and gas prices and the implementation of an idle well review
program, which resulted in the return of wells to production or service
use or the permanent abandonment of wells having no future use.
Section 349 of the EPAct directed the BLM to establish a means of
ranking for priority, those orphan wells located on lands administered
by the BLM. This ranking format of remediation, reclamation, and
closure has been designed and field tested in select BLM field offices.
In addition, an Instruction Memorandum is being drafted to implement
Subsection (f), a reimbursement, via Federal royalty credits, for
remediation, reclamation, and closure of orphaned wells. A draft report
to Congress (required within one year of enactment of the Act), to
comply with Section 349, is currently under review.
Question 6. Coalbed Methane Report--What is the status of the
report on section 1811, relating to coalbed methane production and
water resources?
a. Please provide a timeframe for entering into an arrangement with
the National Academy of Sciences to conduct the study as required by
the Energy Policy Act.
Answer. On September 27, 2005, the BLM provided the National
Academy of Sciences copies of several studies and reports that were
previously prepared on the effects of coal bed natural gas production
on surface and ground water resources. In addition, the BLM attended a
meeting with the Committee on Earth Resources of the National Academy
of Sciences on November 16, 2005, and discussed the requirements of
Section 1811 of the Act. The BLM provided a letter to the National
Academy of Sciences on April 24, 2006, requesting a review of the
previous studies and reports to determine if significant deficiencies
exist or if other information may be critically needed to address the
requirements of the EPAct. No response has been received from the
Academy; however, the BLM is prepared to discuss any additional study
which the Academy can demonstrate is needed. The BLM will keep the
Committee informed about any response from the Academy.
Question 7. Land Under Lease but Not Producing--Why are there so
many acres under lease but not producing?
Answer. Exploration and production companies have inventories of
leased acreage where there is currently no oil or gas production. It is
normal for companies to have leased acreage inventories. This is
necessary for an efficient exploration and production program. The
initiation of drilling activities is a business decision that
ultimately rests with the lessee. In making this decision, lessees must
factor in the availability of exploration and development resources,
such as drilling rigs, pipelines, and a qualified workforce. In
addition, leased parcels can remain undeveloped due to litigation or
requirements to complete further NEPA analysis and documentation.
Question 8. Resources--Are you finding that you must divert
resources from other BLM programs and activities in order to process
oil and gas leases? If so, what other activities have been cut?
Answer. Please see answer to Senator Bingaman question 1a.
Question 9. Inspections--Statistics in the BLM budget justification
for FY 2007 indicate that environmental inspections decreased from 2004
to 2006. Why?
Answer. The Federal Oil and Gas Royalty Management Act of 1982
established an annual inspection cycle for high priority inspections.
BLM implemented a policy that high priority wells are inspected
annually, while all other wells are inspected on a three-year cycle. It
appears in the FY 2007 BLM budget justification that many of the
environmental inspections decreased because they fall into the three-
year inspection cycle. For FY 2006, the BLM plans to complete all high-
priority inspections. High priority inspections are those performed for
wells with prior year production of over 12,000 barrels per month of
oil or over 120,000 thousand cubic feet per month of gas, or for a
record of noncompliance, i.e., 2 major or 6 minor violations in the
prior year. The BLM is focusing on the high priority inspections to
ensure that I&E resources are allocated where they are most needed.
Question 9a. Can you provide us statistics on the percentage of oil
and gas operations on federal lands subject to environmental
inspections over the past 8 years?
Answer. The BLM's Automated Fluid Minerals Support System (AFMSS)
is the system with which the BLM tracks these statistics. Ongoing
litigation in Cobell v. Norton has resulted in the continuing shut-down
of AFMSS, so those statistics cannot be provided at this time.
Question 10. Processing Costs--Approximately what is the average
cost for processing an application for permit to drill?
Answer. The average cost for processing an APD over the last three
years has been $3,729.
Question 11. Cost Recovery Proposal--I see that the President's
budget request for FY2007 proposes that the mandatory funding for the
pilot project offices be terminated and replaced with APD processing
fees paid by the industry at the end of FY2007. The Administration has
transmitted proposed legislation to the Congress to accomplish this.
What is the thinking behind this proposal?
Answer. The Administration's proposal is to replace the mandatory
Pilot Office funding provided by the EPAct with cost recovery from APD
processing fees effective at the end of fiscal year 2007. The
Administration will be requesting authority to conduct a rulemaking to
phase-in full cost recovery for APDs, beginning with a fee amount that
will generate an estimated $21 million, replacing the amount authorized
by the EPAct. Increased reliance on cost recoveries is consistent with
the finding of previous Inspector General reports and the 2005 Program
Assessment Rating Tool (PART) review of this program, that found the
program does not adequately charge identifiable users for costs
incurred on their behalf.
Question 12. Pilot Project on Permit Processing--How well is the
new pilot project on permit processing working from the perspective of
the Fish and Wildlife Service?
Answer. The U.S. Fish and Wildlife Service (Service) is actively
working with the Bureau of Land Management (BLM) at all levels in
implementing EPAct section 365. A memorandum of understanding between
the BLM and the Service identifies six specific responsibilities that
will, once fully implemented, allow the Service to streamline its
efforts under the permit review process. The two agencies are
customizing the duties of each position at each office to result in
improved permitting and protection for natural resources. Adaptive,
Programmatic measures will reduce our permit review time while
enhancing stewardship of endangered species and other federal trust
resources. By integrating Service personnel with BLM staff early in the
land use planning process, we anticipate greater regulatory
flexibility, fewer last-minute delays, and an overall reduction in
related environmental effects.
At this time, the Service has filled positions in 5 of the 7
identified Pilot Offices and has assigned temporary staff to the
remaining 2 offices until we complete the hiring process for those
offices. These staff are supported by 3 full-time existing Service
employees who will oversee the initial stages of implementation.
Critical to our long-term success is identifying and applying new and
improved procedures for addressing the high volume of applications for
permits to drill (APD) workload anticipated by the BLM. Also key to
success is increasing staff in the pilot offices, and elsewhere, as
workload increases and additional pilot program funding becomes
available.
Although the new pilot project on permit processing is still coming
online, the Service has seen improvements and considers, the program a
success to date.
Question 13. Resources--Are you finding that you must divert
resources from other Fish and Wildlife Service programs and activities
in order to process oil and gas leases? If so, what other program and
activities have been cut? What is the extent of the cuts?
Answer. At present, the Service is receiving sufficient resources
from BLM to effectively evaluate pilot office needs and to provide
initial levels of support to those offices. In addition, the Service is
using base funds to support additional staff outside of the pilot
program's scope to provide technical assistance and other services on
oil and gas development activities throughout the nation. The Service
has filled positions in five of the seven Pilot Offices and has
assigned temporary staff to the remaining two offices that will remain
in place until the Service can complete the hiring process for those
positions. These staff members are supported by three full-time
existing Service employees who will oversee the initial stages of
implementation of the pilot program. Critical to the Service's long-
term success is the identification and application of new and improved
procedures to address the high volume of APD workload anticipated by
the BLM, and increasing staff in the pilot offices (and elsewhere) as
workload increases and additional pilot program funding become
available.
Question 14. Good Science--Several of the witnesses have discussed
the importance of science. I believe that it is essential that
decisions in the field be based on the best available science.
As the head of the Fish and Wildlife Service, what steps are you
taking to ensure that the biologists and other scientists at the
Service can do their jobs and apply their best scientific judgments to
leasing and permitting decisions?
Answer. The Service places the highest priority on using sound
science in our decision-making. We expect each of our employees to
attend a minimum of 40 hours of training each year to help them stay
current in their area of expertise. Within the Endangered Species
program, which would include staff at the pilot offices, we have
policies that describe information standards (59 FR 3427; July 1,
1994), encourage our biologists to coordinate closely with their
colleagues in State agencies (59 FR 34274, July 1, 1994), obtain peer
review (59 FR 34270, July 1, 1994), and a recent policy on use of
genetic information to help ensure that our decisions are based on the
best scientific data available. In cooperation with the National Marine
Fisheries Service, we have also developed regulations and a
consultation handbook to clarify the procedures that Service biologists
must follow when conducting consultations. We also provide each of our
Regional Offices with capability funding on an annual basis to provide
for a consultation expertise to support their field offices.
Responses of the Hon. Dirk Kempthorne to Questions From Senator Salazar
Question 1. Sec. 1811 of the EPAct authorized a National Academy of
Sciences study of the impacts of coalbed methane development on water.
When will the BLM provide the Academy with the funds it needs to
complete the study mandated by Sec. 1811?
Answer. On September 27, 2005, the BLM provided the National
Academy of Sciences copies of several studies and reports that had
previously been prepared on the effects of coal bed natural gas
production on surface and ground water resources. In addition, the BLM
attended a meeting with the Committee on Earth Resources on the
National Academy of Sciences on November 16, 2005, and discussed the
requirements of Section 1811 of the Act. The BLM provided a letter to
the National Academy of Sciences on April 24, 2006, requesting a review
of the previous studies and reports to determine if significant
deficiencies exist or if other information may be critically needed to
address the requirements of EPAct. No response has been received from
the Academy; however, the BLM is prepared to discuss any additional
studies which the Academy can demonstrate are needed. The BLM will keep
the Committee informed about any response form the Academy.
Question 2. How well is the new APD streamlining pilot project
working? Do you have any specific information about the pilot office in
Glenwood Springs, Colorado?
Answer. The BLM has made considerable progress in implementing the
Pilot Office Streamlining Project provisions of Section 365 of the Act.
An Interagency MOU for the Pilot Offices was signed on October 24,
2005, by the Administrator, Environmental Protection Agency; Secretary,
Department of Agriculture; Assistant Secretary of the Army for Civil
Works, U.S. Army Corps of Engineers; and the Secretary of the
Department of the Interior. The MOU established roles, responsibilities
and delegations of authority for streamlining the processing of oil and
gas permits in the seven Pilot Offices. We are close to full staffing
of the Pilot Offices and will continue to track the progress in
expediting the permit application process.
The BLM in Colorado has filled 10 BLM positions in the Glenwood
Springs Pilot Office, hired a contract Botanist, and funded a FWS
position to support oil and gas permit processing. In addition, a
collateral duty Corps of Engineers position has been assigned to
support the Glenwood Springs Pilot Office. The number of APDs processed
in the Glenwood Springs/Grand Junction office has increased by almost
10% over the same period of time in FY 2006 as compared to FY 2005. The
number of APDs approved has increased by almost 15% over the same
period of time in FY 2006 as compared to FY 2005. The Glenwood Springs/
Grand Junction office has approved over 250 APDs this fiscal year.
Question 3. When does the BLM expect to report back to Congress on
the split-estate issue as directed by the EPAct, Sec. 1835? Can you
tell me, from the BLM's perspective, how the split estate listening
session in Grand Junction went?
Answer. The BLM is currently finalizing the Split-Estate Report to
Congress. The Report is expected to contain a number of recommendations
for administrative action necessary to facilitate reasonable access for
Federal oil and gas activities while addressing surface owner concerns
and minimizing impacts to private surface. The March 22 listening
sessions were well received; 65 people attended one of the afternoon or
evening sessions, and 19 individuals addressed the panels. Issues
identified by the public and the energy industry varied widely. Some
people identified serious concerns; however, conflicts between mineral
development rights and private surface rights seemed to affect a small
minority of the public. No overriding issues were identified that would
substantially affect all or most surface owners who may be subject to
development of the mineral estate where the Federal government manages
the minerals.
Question 4. What is the BLM doing to support non pilot project
offices such as the White River Field Office in Meeker, CO that has
experienced a 300% growth in APD requests?
Answer. To help the non-pilot offices keep pace with the pilot
offices the BLM asked the Congress to approve two reprogrammings of
funding to address the needs of the non-pilot offices. These requests
were approved by Congress and additional funding has been provided to
the non-pilot offices. In the FY 2007 budget request the Administration
has asked for an additional $9.2 million for non-pilot offices'
processing of APDs, inspection and enforcement and monitoring.
Question 5. It was recently announced that the White River Field
Office in Meeker, CO was proposing to amend its resource management
plan (RMP) because the existing plan anticipated 1,000 new wells over
the life of the plan but it now appears that 10,000 to 15,000 new wells
are likely over the course of the plan. In other booming gas areas,
such as Grand Junction, is there a need to do the same?
Answer. The number of oil and gas wells anticipated in the original
white River Field Office Resource Management Plan will likely be
exceeded at the current rate of development. As a result, the BLM's
White River Field Office proposed an RMP Amendment to analyze
reasonable foreseeable development and the impacts of various
development scenarios.
In other areas, RMP revisions have been scheduled well in advance.
For instance, the Little Snake RMP is currently in the revisions
process and the Glenwood Springs and Kremmling RMPs are currently in
the initial stages of the revision process. The Grand Junction RMP is
currently scheduled for revision in 2010.
The level of development in Grand Junction is not the same as it is
in Meeker and in Glenwood Springs. The current level of development in
Grand Junction has not exceeded the level expected in the existing RMP,
nor is it expected to do so.
Question 6. What is the BLM doing to bolster its inspection and
enforcement component in light of the June, 2005 GAO report?
Answer. The Inspection and Enforcement (I&E) program is an integral
and key component of the Bureau's management of onshore oil and gas
operations. In addition, the I&E program is identified as a high
priority in the Department of the Interior's Strategic Plan. The Bureau
has committed considerable resources in recent years to ensure that we
have an effective I&E program.
Over the past four years, the BLM recognized the need to strengthen
its I&E program as the number of APDs approved and drilled increased.
The BLM has successfully documented through its budget justifications
the need for additional inspectors and additional funding. Additional
funding was provided for the pilot project offices in the EPAct, which
has helped the BLM increase the inspection force. In the pilot offices,
the BLM has hired 47 new Natural Resource Specialists and Inspectors.
Additional funding has been requested in the FY 2007 budget to further
increase the BLM's I&E capability. This funding will be used by the
non-pilot offices to increase the number of inspections including
environmental and monitoring inspections.
______
Advanced Resources International, Inc.,
Arlington, VA, June 30, 2006.
Senator Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Senator Domenici: Thank you for the opportunity to testify
before the Senate Committee on Energy and Natural Resources on June
27th, 2006 regarding the Energy Policy Act provisions. Below I present
answers to questions raised as a result of the hearing.
If there are any other questions, or if I can amplify our analysis
of timing limitation impacts, please let me know.
Sincerely,
Jeffrey Eppink,
Senior Vice President.
Question 1. Please describe the method used for the analysis.
Answer. Briefly, for this analysis we used two primary analytical
tools that have been developed for the Departments of Energy and
Interior by Advanced Resources. These tools are the Model of
Unconventional Resources and the Energy Policy and Conservation Act
Inventory model. We made assumptions, based upon historic data and
professional judgment, for parameters such as the number of wells that
could be drilled, federal land access, rig availability and jobs. The
method used is fully described in Attachment 1.
Question 2. Can you elaborate on the effect that the increased
permit backlog could have on your results?
Answer. As described in my testimony, the backlog of permits has
increased by nearly 50 percent since last fall. I attribute this
increase to the natural gas price spike over the winter. Barring
further supply disruptions such as that resulting from last year's
hurricane season, I would expect permit demand to moderate. To answer
this question specifically, we would need to re-run the analysis based
upon assumptions about the APD spike and future demand, which we could
do over the course of a couple of weeks if requested by the Interior
Secretary's Office.
However, to answer the question based upon my knowledge at this
point, I would expect the results that we presented to increase by 15
to 30 percent as a consequence of the increased backlog. I would not
expect the results to increase by 50 percent commensurate with the
permit demand increase because I believe the demand increase will not
to be a sustainable in the long run.
Question 3. What do you think are the toughest challenges to
accomplishing the results you have outlined?
Answer. BLM staffing. I believe that the most significant challenge
is hiring and retaining BLM staff that are knowledgeable about drill
permit processing and, further, inspections and enforcement activities.
BLM is competing with industry, which is also short-handed, for the
same labor pool. Individuals could be trained to perform these jobs,
but that will take additional time. I do note that Director Clarke, in
her testimony at the hearing, indicated that BLM has had success in
filling a significant number of positions, which is a good turn of
events.
Land Access. The next most significant challenge is the issue of
land access. Drilling in the Western U.S. is often contentious and I
would expect this situation to only deepen. I do believe that the
federal government can streamline the leasing and APD process,
especially with regard to stipulations and permit conditions of
approval. It is more a question as to whether this can be accomplished
in a manner that is both timely and promotes sound stewardship of the
nation's public lands. It is a difficult challenge.
I do want to comment on a related issue raised by Senator Craig,
where he questioned the need for timing limitation stipulations,
devised in the 1980s, and whether this access issue needed to be
addressed specifically. We examined this precise issue for the
Department of Energy, where we determined which of the timing
limitations have the greatest impacts and, assuming modest
environmentally acceptable changes were made to the stipulations, what
the benefits would be. As it turns out, big game ranges, sage grouse
and raptor stipulations are the most significant. If a modest 10 to 20
percent change in the geographies, timing and exception rates were to
be made for these stipulations, the benefits could be substantial--
estimated undiscovered natural gas resources on the order of 8 to 15
trillion cubic feet (equivalent) could be significantly more accessible
for exploration and subsequent development. Such a result could
accommodate anticipated growth in Rocky Mountain region production. The
critical issue is the performance of the requisite science to justify
such changes. It is a tall order to accomplish this in the near term.
Rig Availability and Pipeline Constraints. Based upon discussions I
have had with industry players, the perception is that these issues
will be (and are) solved in the marketplace. While short-term
dislocations can occur, the market quickly reacts and makes the proper
adjustments. Rig availability is a case in point--given the higher
prices last winter, the rig market was very tight. However, since then,
I have heard that a few companies have actually laid down (terminated
contracts for) rigs in the wake of the natural gas price spike of this
past winter.
[Attachment 1]
description of the method used for analysis of energy policy act pilot
project offices, impacts of incremental application for permit to drill
(apd) processing
Implications from Historical Drilling Trends. BLM indicates that
about 84 percent of all APDs that are submitted become approved.
Further, data from BLM's Automated Fluid Minerals Support System
(AFMSS) \1\ for the last five years indicate that 82 percent of the
productive wells completed on Federal lands \2\ are natural gas wells.
Table 1 shows a summary of the AFMSS data.
---------------------------------------------------------------------------
\1\ The AFMSS data were available to the project from the EPCA
Phase II Inventory. AFMSS had been queried in March 2005 for the EPCA
Inventory.
\2\ Includes split estate minerals. Excludes Indian minerals.
Table 1.--AFMSS DATA ANALYSIS
------------------------------------------------------------------------
Portion of
Status 2000 to 2004 APDs issued
------------------------------------------------------------------------
Expired.................................... 21 0.2%
Dry Hole................................... 863 7.0%
Prod Gas................................... 9,390 75.9%
Prod Oil................................... 2,093 16.9%
----------------------------
APDs issued............................ 12,367 100.0%
------------------------------------------------------------------------
Although modest drilling for oil has occurred, such drilling does
not appear to be growing significantly; except for the Vernal BLM Field
Offices, incremental oil drilling has remained flat over the last five
years.
Incremental drilled wells are most likely to be located in the
Rocky Mountain region; BLM data show that 93 percent of current pending
APDs are in Rocky Mountain states. Advanced Resources estimates that
over 85 percent of the oil and gas resources in the Rocky Mountains are
unconventional natural gas. Although complete resource-specific
drilling statistics for all types of natural gas resources are not
available, it is anticipated that additional Federal wells are highly
likely to be unconventional natural gas wells.
Modeling Approach. The conclusion to be drawn from the discussion
above is that incremental wells that could be drilled on Federal lands
are likely to be natural gas wells in unconventional resources in the
Rocky Mountain region. As such, it is appropriate in this analysis to
model incremental impacts on a natural gas-equivalent basis by
examining unconventional resources.
Model. Modeling necessitated the use of an engineering/geologic and
econometric-hybrid approach of the type available with the
Unconventional Gas Recovery Supply Sub-module (UGRSSM), a component of
the Energy Information Administration's (EIA's) Oil and Gas Supply
Model. EIA's UGRSSM was developed by Advanced Resources, which calls
its version of the model ``MUGS'' (Module for Unconventional Gas
Supply). MUGS uses modified resource data from U.S. Geological Survey's
(USGS) 1995 assessments, and cost data from various sources, including
American Petroleum Institute's Joint Association Survey on Drilling
Costs.
In addition, MUGS incorporates results from the Energy Policy and
Conservation Act (EPCA) Phase I Inventory \3\ to integrate Federal land
access factors. The EPCA Inventory currently provides estimates of
undiscovered technically recoverable resources and proved reserves of
oil and gas as well as an inventory of the extent and nature of
limitations to their development (generically called ``Federal lands
access''). EPCA access data are available for the Rocky Mountain region
and are incorporated in MUGS.
---------------------------------------------------------------------------
\3\ See http://www.doi.gov/epca/ for the EPCA Phase I report.
---------------------------------------------------------------------------
MUGS provides sound analytical modeling features appropriate for
this analysis because the model:
<bullet> Accounts for 87 percent of natural gas resources in the
lower-48 states relative to USGS (1995) assessments,
<bullet> Incorporates resource limitations relative to drilling,
<bullet> Employs specific, typical well performance curves by
resource play,
<bullet> Performs project economics for drill/no drill decisions,
<bullet> Covers the Rocky Mountain region, and
<bullet> Underpins the Department of Energy (DOE) National Energy
Modeling System (NEMS) model for natural gas.
Access. Assessing Federal lands access is a complex issue. Actually
the term ``access'' is somewhat of a misnomer. In fact, a minority
(albeit significant) of resource-bearing Federal lands are
``inaccessible'' in that they cannot be leased the more significant
issue revolves around the restrictions associated with leasable lands,
where the majority of the undiscovered resource exists. These
restrictions are primarily a function of timing limitations associated
with various wildlife species, foremost among which are big game,
raptors and sage grouse.
To estimate potential production, the access issue must be
addressed. In this analysis, acting as a guide for setting EPCA access
parameters for the MUGS model, a recent analysis performed for the DOE
\4\ by Advanced Resources was used. The DOE work entailed the use of
datasets and modeling capabilities developed to support the EPCA
Inventory. The DOE analysis quantified the degree to which wildlife
resources such as big game, raptor and sage grouse habitat afford
opportunity for increasing efficiency and access to resources. Figure 1
illustrates for the Rocky Mountain region, the relative impacts from a
10 percent scenario for increasing access. Figure 1 * shows various
species modeled independently and in an integrated run. The resource
changes result from the contribution of previously unleasable lands
becoming leasable, but primarily from leasable restricted lands
becoming less restrictive. Without this increased access, the estimates
reported below could be as much as 20 percent less.
---------------------------------------------------------------------------
\4\ Memo to DOE: ``Analyses to Support Oil and Natural Gas
Environmental Program R&D Planning Based Upon the EPCA Datasets and
Model'' by Advanced Resources, June 2005. The DOE analysis was
performed to support efforts for evaluating and planning R&D activities
related to Federal lands access.
* Figures 1, 2a, and 2b have been retained in committee files.
---------------------------------------------------------------------------
Modeling Scenario and Parameters. Parameters and considerations
incorporated into the modeling process were established during multiple
planning meetings with BLM personnel.
The parameters identified as major tangible levers for modeling
are:
<bullet> Number of wells that can be drilled, and
<bullet> Federal land access parameters from the EPCA Inventory.
The modeling is conducted by setting up the base case, which
reflects the status quo. The scenario case is then constructed to
reflect changes. The difference between the base case and the scenario
reflects the impacts due to changes.
The scenario is modeled under the assumption that the effects from
APD processing are ``quicker to market'' than land access changes
because incremental APD processing results in drilling that can
immediately increase production. Alternatively, land access changes
produce results by increasing resource availability and can ultimately
result in greater aggregate production. The scenario constructed for
the analysis capture the historic trends observed on issued APDs as
cited above, namely, 84 percent of wells that start the APD process are
approved and that 93 percent of drilled wells are productive.
Base Case. A base case was set up using a combination of price
tracks from EIA's Short Term Energy Outlook (STEO) and the Annual
Energy Outlook (AEO),\5\ projected over 25 years. BLM spent about $27
million in FY2005 to process about 7700 APDs, and its workload is
increasing. Figure 2a shows BLM's recent historical APD demand,
processing capacity and backlog. Advanced Resources has projected these
into the future based upon assumptions of modest growth in APD demand
of 5 percent per year and increases in BLM APD processing capacity of
3.5 percent per year.\6\
---------------------------------------------------------------------------
\5\ See EIA's STEO (http://www.eia.doe.gov/steo) and 2005 AEO
(www.eia.doe.gov).
\6\ For years 2007-10. Estimates for 2006 were provided by BLM.
---------------------------------------------------------------------------
Scenario. The scenario incorporates base case conditions, but
represents the incremental impact of additional spending by BLM for the
pilot program of an average of $19MM per year over five years. The
majority of funding is devoted to APD processing, which is estimated to
cost $4000 per well based upon historical BLM data. The distribution of
future drilling is guided by current ``pending well'' APD counts in the
pilot BLM FOs.
Land access increases by approximately 10 percent (based upon prior
analysis of the issue for DOE as described above). The costs for land
access planning and implementation were assumed to be $2.5MM per year.
The land access is introduced into the model by resource play by basin
as determined by the EPCA Phase I Inventory. The land access changes
are incorporated based upon the DOE study, where access was increased
by an average of 10 percent during the five years of the scenario for
Rocky Mountain basins.
Figure 2b shows the APD processing as a result of the scenario. The
static backlog is worked off while the number of APDs submitted also
increases following the second year of the pilot project.
All MUGS modeling runs were conducted on a natural gas BCF-
equivalent (BCFe) basis. Other modeling considerations based on
historic trends included the following:
<bullet> For every 1000 APDs processed, 780 productive wells will
result (see above),
<bullet> Average lag time between APD approval and spud of 3.3 months
based on AFMSS data,
<bullet> Implementation year: FY2006,
<bullet> First production effects year for APD processing: CY2007,
and
<bullet> First production effects year for land access: CY2008.
Rigs and Jobs. Although not accounted for explicitly in the model,
rig and crew availability were also examined briefly. Short term
projections of rig availability were made based on available data \7\
for recent-year trends, and current and expected 2005 rig counts for
Rocky Mountain states. Drilling crew requirements were determined based
on information obtained from field operator and from national
statistics.\8\ Table 2 shows projections based these sources.\9\
---------------------------------------------------------------------------
\7\ See World Oil Magazine Feb. 2005--http://www.worldoil.com/and
Baker Hughes Rig Count datahttp://www.bakerhughes.com/investor/rig/rig_
na.htm.
\8\ See U.S. Department of Labor statistics--http://
www.umsl.edulservices/govdocs/ooh20022003/cgs005.htm
\9\ The Rocky Mountain region rig fleet grew by more than 25
percent in 2004, a rate that would be unsustainable in the future, when
additional rigs will need to be built or imported.
Table 2.--DRILLING RIG AVAILABILITY AND CREW REQUIREMENT
----------------------------------------------------------------------------------------------------------------
Year 2005 2006 2007 2008 2009 2010
----------------------------------------------------------------------------------------------------------------
Rig availability................................................ 285 331 364 385 398 407
Crew Requirement................................................ 6,273 7,290 7,999 8,466 8,762 8,946
----------------------------------------------------------------------------------------------------------------
The projected 2005 national rig utilization is 88 percent, a rate
that could increase to over 90 percent at which point additional rigs
would likely be built or regionally exogenous rigs would be brought
into the Rocky Mountain Region. It should be noted, however, that for
coalbed methane rigs, which are not separated in the statistics,
increasing the rig fleet would be less difficult due to the shallow
nature of coalbed methane wells.
Work force parameters included an estimated 22 workers per active
drilling rig and the historic average of 37 wells drilled per rig in
the Rocky Mountains to compute direct jobs. Indirect jobs were
estimated using Bureau of Economic Analysis (BLS) Employer Costs for
Employee Compensation (ECEC), which is about $60,000 per job per
year.\10\ To compute the amount of indirect jobs, Advanced Resources
examined the 2004 income statements for three public companies and
determined that the ratio of ECEC expenditures to wellhead revenue is
about 25 percent.\11\ Advanced Resources has not computed the
multiplier effect of these increased jobs.
---------------------------------------------------------------------------
\10\ Based on rates from BLS at http:/A,vww.bls.gov/news.release/
ecec.t10.htm
\11\ This ratio was computed based upon examination of the income
statements for Burlington Resources, EOG Resources and St. Mary Land
and Exploration, which were chosen based upon their Rocky Mountain
focus as dominantly domestic, publicly traded producers. ECEC expenses
were computed net of royalties, taxes, interest, DD&A and other non-
job-related expenses.
---------------------------------------------------------------------------
______
Responses of Tom Reed to Questions From Senator Domenici
Question 1. The pilot project office provision comes with funding
of $20 million and we are reporting an Interior Appropriations bill
today that will add $28 million in additional funding for Fiscal Year
2007. Industry has been putting millions into funding wildlife studies
and cultural surveys.
Do you think this represents a good start on addressing the needs
you have raised?
Answer. The $20 million and $28 million that you mention is
allocated to the oil and gas program and for expediting processing of
APDs pursuant to the pilot projects. To address the needs we have
raised, these funds should have been allocated to the BLM's fish and
wildlife habitat account and riparian management account. We strongly
urge you to ensure that there is adequate staff and resources in place
to properly manage fish and wildlife habitats and to mitigate for
impacts from expanded energy development. Unfortunately, neither the
fish and wildlife habitat account, nor the riparian management account,
received significant increases in the FY 07 budget request or the
Senate appropriations bill.
In recent years and in response to the demand for energy permits
and subsequent workload, the BLM has re-directed resources from other
programs (either through funding shifts or re-directing work of
resource specialists to work on energy permits), including fish and
wildlife programs. This has left long-established fish and wildlife
resource programs without support and has caused abandonment of those
programs that were formerly actively managed. In fact the BLM's own
proposed guidance for implementing the 2005 Energy Policy Act directs
states and offices to divert funding and staff from non-energy offices
and programs to implement the Act.
The BLM plans on processing over 10,000 permits in FY2007, a
significant increase from previous years compounding the impact to
resource staffs. We believe that in order to deal appropriately with
the expanded development of energy resources, wildlife and fisheries
resources need more attention, not less. We oppose shifting funding or
staff, as proposed by BLM, intended to manage fish and wildlife
resources to expedite energy permitting, and suggest that any funding
increases for energy development and permitting should be accompanied
by comparable increases dedicated to managing fish and wildlife
resources. Additionally we believe that fish and wildlife managers need
to actively manage the resources and habitat not just work on energy
permitting.
With respect to your question about industry contributions, some
companies have provided funds for wildlife studies and we are very
appreciative of their contributions.
Finally, we hope that the Committee will continue to conduct
oversight functions to ensure that BLM takes the appropriate corrective
actions if fish and wildlife studies determine that new or modified
mitigation measures are necessary. Too often studies are implemented
without the benefit of follow-through, either through lack of
foresight, funding, or personnel. For any of these funds to be spent on
studies that will prove beneficial, consideration for monitoring with
resolute actions has to be part of the plan.
Question 2. We can all agree that it's too early to determine
whether this program can be successful.
What are the top 2 or 3 items you think are essential to making
this successful?
<bullet> Engage local sportsmen stakeholders and land mangers in the
pilot office permitting process. The pilot office is a top-down
permitting process and it alienates local biologists, land
mangers, and citizens who want to be involved in oil and gas
decisions affecting the places they know best. No doubt, this
will not expedite APD processing in the near term. However,
engaging and heading the advice and expertise of local
biologists, land managers, and stakeholders in decisions
affecting oil and gas activities, the pilot offices will have a
broader base of support and result in long-term working
relationships that will expedite decisions regarding
responsible oil and gas activities down the road.
<bullet> Think cumulatively. With the tremendous increase in
development (including oil, gas, housing, infrastructure) it
becomes more and more apparent that when the bigger ``40,000
mile view'' is not considered, the consequences can be severe.
For example, protection of the Colorado River Cutthroat trout
(CRCT) population is a multi-state initiative that requires
cooperation among multiple state and federal agencies for its
success. If not coordinated, with considerations and protection
measurements from impacts of oil and gas development, the CRCT
(already a sensitive species) can easily warrant a threatened
and endangered status.
<bullet> Put money in effort in studying the impacts to coldwater
fisheries NOW. There is a profound lack of research on the
impacts of development to coldwater fisheries and an attitude
of ``develop now . . . monitor and mitigate later'' is short
sighted and irresponsible way to conduct business on our public
lands.
Responses of Tom Reed to Questions From Senator Thomas
Question 1. As an example, EnCana has donated $24.5 million to
create the Jonah Interagency Mitigation and Reclamation Office. This
effort represents an innovative approach to minimizing the footprint of
development by pursuing off-site mitigation. Do you see other
opportunities for industry to pursue environmental improvements in
these sorts of unconventional ways?
Answer. While offsite mitigation can be a good tool to help reduce
landscape-wide impacts from oil and gas development, the net result
should not be a loss in fish or wildlife habitat. If there are 100,000
acres of wildlife habitat, and 50,000 acres is turned into and
industrialized zone for oil and gas while the other 50,000 acres is
``improved'' for fish and wildlife, the public and our fish and
wildlife is still out 50,000 acres. In short, off site mitigation can
be a useful tool, but it is not the cure-all to define responsible oil
and gas development.
Industry can continue their innovative approaches by using their
business management approach for long-term corporate planning and apply
similar principles to the long-term comprehensive planning for the
environment and the impacts their companies will contribute to the
environment. This obviously means working on the ground with key state,
federal and natural resource interests to devise such strategies.
Industry leaders need to seriously consider hiring permanent and
professionally qualified staff who will be part of the problem solving
scenario. Similarly, state and federal agencies need to think about
long-term impacts defined with specific desired results and incorporate
those parameters into their long-term planning efforts.
While preliminary steps toward this type of action have been
initiated (potentially through the JIO) this type of opportunity needs
to be incorporated into a committed plan from all participants. Based
on the industry and BLM extraction scenario (up to 50 years in some
places), this type of thinking and planning has to now become part of
everyday business.
When the bottom line of a state wildlife agency will be affected
due to a decrease in hunter numbers due to a decrease in herd size due
to loss of habitat, that agency needs to be able to plan . for their
budget inadequacies. In Wyoming, up to 90% of the Wyoming Game and Fish
Department's budget comes from hunter and angler license fees. The
issue is broader than simply minimizing the footprint of development
through off-site mitigation.
The BLM needs to proactively engage in more innovative thinking.
For many years now, industry and environmental/conservation groups have
been working together to try and develop off site mitigation strategies
but were thwarted by the BLM's reluctance to accept such a concept.
Moreover, innovative thinking has to include the future prospect of
extraction decline, when the resource plays itself out. Planning for
the decline during this wealthy period we are experiencing should also
become part of the long-range vision.
Water quality and quantity is a big issue in the west. In the
current drought situation, not enough emphasis is placed on water
conservation in the energy industry. Innovative approaches that use
water conservation techniques to maintain streams and rivers,
municipalities drinking standards and agricultural practices need more
emphasis. Coal bed methane, or coalbed natural gas, produced waters are
just now receiving levels of recognition within the industry and
agricultural. More emphasis and consideration on wildlife and fisheries
impacts are needed.
Finally, reducing the impacts whenever possible is another
innovative approach to pursue. For example, using directional drilling
even if it may reduce profits in certain scenarios, remote monitoring,
busing in workers, reducing well densities, reducing the number of
roads needed for a field and limiting the use on those roads,
minimizing generator noise, and not flaring wells at night are all ways
to pursue environmental improvements.
Question 2a. If I could be a stickler on some of the numbers we're
hearing for a moment, I have a couple questions:
When you say that 25 percent of Wyoming will be impacted by oil &
gas development, how exactly do you come up with that number?
Answer. This number was provided by John Emmerich, Deputy Director
of the Wyoming Game and Fish Department in Cheyenne. This includes all
associated impacts from energy development on private and public
surface lands, including roads, power lines, compressor stations, and
indirect surface development from human traffic.
Question 2b. You said in your testimony that 3 million acres of
land had been leased for every fisheries biologist at the BLM. Wouldn't
the miles of streams and rivers per biologist be a more accurate
measurement of their workload? Do you have those numbers?
Answer. Stream miles do not accurately reflect the true workload
that fisheries biologists face regarding impacts affecting watersheds.
This is because poor land management practices quite literally flow
downhill. Streams and rivers are directly affected by what happens on
surface lands. Infrastructure of energy production includes road
building and can include roads adjacent to streams/rivers, over
streams/rivers, and within vicinities of streams or rivers and their
drainages. Such construction is almost always permanent and has the
characteristic of eroding soils and silt into streams and rivers,
through various means (culverts, sudden event weather-related
drainages, heavy traffic, winds, etc.).
Even if a development is occurring a mile from the actual stream,
ground water contamination, aquifer draw-down, increased erosion, and a
host of other considerations need to be taken into account when
reviewing the impacts of oil and gas on a watershed. Rather than using
miles, perhaps acreage of watershed would better serve as a descriptive
measurement for a biologist's workload. However, it is safe to say that
all three million acres of land described fall within a watershed, so
the effect would be the same.
Question 3. I appreciate your emphasis on working with everyone
involved, early on in the process, to make sure development is done
right. Can you elaborate on the sorts of cooperative efforts that Trout
Unlimited is engaged in?
Answer. In Wyoming, TU is working with various energy companies
seeking to develop oil and gas on public lands:
<bullet> Currently underway is a collaborative partnership with the
project company, Dudley and Associates, on the BLM Seminoe Road
CBM project in south central Wyoming. This project involves
coal bed methane production with discharges occurring into a
popular reservoir and river system. TU and Dudley, along with
state and federal permitting agencies, are working on
establishing parameters that provide minimal impact to
fisheries while maintaining development goals for the company.
Significant research on coldwater fisheries and cbm discharge
is being conducted with cooperation from the company, the BLM,
Wyoming Game & Fish, EPA, Dept. of Environmental Quality, and
the Governor's office.
<bullet> Shell Oil established an Advisory Panel this past winter and
invited TU, among other conservation groups, to sit on the
panel and assist in developing guidelines for wildlife and
energy impacts in the Pinedale Anticline area.
<bullet> Encana Oil and TU have had numerous conversations about
working collaboratively on projects which will enhance
fisheries and protect waters from current and future
development in the Upper Green River Valley.
<bullet> Questar and TU have had several opportunities to discuss
ways to mitigate impacts to wildlife and fisheries through
adaptive project development.
<bullet> TU participated as a contributor to the Western Governors'
Association (April 2006) ``Coal Bed Methane Best Management
Practices'' handbook.
<bullet> In Utah, we hosted a workshop to address oil and gas
planning issues on the Uinta National Forest that brought
together the BLM, Forest Service, Utah Division of Wildlife
Resources, Utah Division of Oil Gas and Mining, Utah Division
of Water Quality, Sage Grouse Working Group, Strawberry
Anglers, Audubon Society, Utah Environmental Council, Questar,
Wild Utah Project, Blue Ribbon Fisheries Advisory Council, and
local concerned sportsmen to bring all to the table and address
concerns early on in the process.
______
Responses of Duane Zavadil to Questions From Senator Domenici
LEASING, PLANNING AND PERMITTING
Question 1. You indicated some of the proposals in recent revisions
to BLM's Resource Management Plans have the capacity to actually limit
energy production in Western States.
Will you elaborate by describing for the committee some examples?
Answer. Given the fact that the majority of lands in the Rocky
Mountain Region are managed by federal land management agencies, new
development of important natural gas resources can only occur if
federal land management agencies recognize the importance of allowing
reasonable access to reserves. Updates to Resource Management Plans
(RMP) often do not realistically plan for needed development of the
energy resources in the area and do not include Reasonably Foreseeable
Development scenarios for oil and gas activities and the necessary land
use allocations to meet our country's energy demands. For example, the
Draft Environmental Impact Statement (EIS) for the Price RMP identifies
restrictions to development without any apparent consideration or
description of expected future uses. The number of allowable wells per
year is a highly significant conclusion of the Draft RMP/EIS and
represents a regulatory ceiling of 1,540 wells. However, at the time
the draft was issued, 1,402 wells were already in place, allowing for
the drilling of just 138 additional wells. The number is completely
inadequate to develop the energy resources contained in the Price area.
Although there are many resources, BLM's mandate is to manage for
multiple use as defined by the Federal Land Policy and Management Act,
43 USC Sec. 1702 (c) (``Section 103(c)''). That section defines
multiple use as the ``management of the public lands and their various
resource values so that they are utilized in the combination that will
best meet the present and future needs of the American people.'' Id.
Again the Price Draft RMP/EIS takes the most restrictive means of
allowing mineral development. BLM's Fluid Minerals planning manual H-
1624-1 requires the use of the ``least restrictive stipulations that
effectively accomplishes the resource objectives.'' There are adequate
laws in place to ensure resources are protected including the National
Historic Preservation Act, the Clean Water Act, the Clean Air Act, the
Safe Drinking Water Act, and the National Environmental Policy Act. The
Price RMP protects resources to the exclusion of all other multiple
uses while also requiring energy companies to prove they will not
damage resources. This is contrary to BLM's fundamental mandate of
managing lands for multiple uses. Conditions placed on development are
extremely restrictive without due cause and would cause severe and
unacceptable adverse impacts on the ability of oil and gas operators to
develop the resources in the Uinta Basin, a major producing area.
While the above two examples relate to the Price Time Sensitive
RMP, the same issues of inadequate Reasonably Foreseeable Development
and unnecessary stipulations on development are observed in other RMPs
designated as ``Time Sensitive Plans'' (TSP). Twenty-one TSPs were
identified as high priority because they address energy resource
development, respond to nationally significant lawsuits, or have
legislatively mandated time frames. With 2006 upon us, six TSPs
critical to oil and gas development are not yet final, limiting BLM's
ability to effectively manage the public's energy resources. Without
these TSPs finalized, the expanded energy resource development they
were meant to address cannot proceed.
The Rawlins, Wyoming RMP is also a TSP, which is scheduled to be
released this autumn. Many wildlife stipulations are based upon
inaccurate scientific data or assumptions. These wildlife stipulations
commonly restrict year-round drilling to just the spring and fall,
leading to further delays in developing energy resources.
The Roan Plateau TSP contains numerous legal inadequacies that fail
to comport with the Federal Land Policy and Management Act (FLPMA)
which expressly declares Congressional policy that BLM manage public
lands ``in a manner which recognizes the Nation's need for domestic
sources of minerals, [and other commodities] from the public lands.''
In addition, the RMP/DEIS does not comply with the Congressional
statute that transferred administration of the Roan to BLM for the
stated purpose of oil and gas exploration and development. Section 3404
of Title 34 of the National Defense Authorization Act for 1998 directed
the Secretary of the Interior to lease the former Naval Oil Shale
Reserves (NOSR) on the Roan Plateau for oil and gas exploration and
development. The purpose of the Roan Plateau RMP was to fulfill the
Congressional mandate for oil and gas development, yet the process has
led to alternatives which would be in direct opposition to the law.
Question 2. How has BLM responded to these concerns?
Answer. IPAMS submitted very detailed comments to the BLM for the
above-mentioned RMPs and others involving oil and gas development. It
is difficult to know how, if at all, IPAMS' concerns are being
addressed in these documents until the next version of the document is
released. It is IPAMS' hope that our recommendations are being
incorporated into the final versions of these plans. However, we
suspect for some that is not the case. In addition, the Price RMP is
being further delayed by a supplement to the Draft EIS that is adding
four new Areas of Critical Environmental Concern (ACEC) that were not
included in the original Draft RMP/EIS. These ACECs would further
restrict leasing and development of energy resources in the Price area.
Question 3. The Energy Bill provided 5 Categorical Exclusions from
NEPA to reduce the burdensome permitting process, yet it sounds as if
they may be taking as long as an APD in some cases.
What would you attribute this delay to?
Answer. Permitting remains the most immediate and perhaps
manageable element controlling the amount of natural gas to reach
consumers. Commodity prices tell us that more wells need to be drilled.
Both industry and BLM have responded and drilling is up. The backlog of
permits in BLM field offices, however, continues to grow. The number of
permits approved by BLM has increased 20% over the last three years. At
the same time, the number of permits received by the BLM has increased
27%. Field offices have fallen further behind. For companies juggling
tight drill rig availability with seasonal stipulations that allow
drilling only during a narrow time frame, permitting delays are very
problematic. Approval times are unpredictable and often reaching six
months or more.
Categorical exclusions could be used to help ease this backlog.
Since it takes time to implement new statutes and regulations, we
anticipate the usage of categorical exclusions will increase over the
next few years. Even when an Application for Permit to Drill (APD)
meets all the criteria for a categorical exclusions, many field offices
are still requiring site inspections which take time, and other review
processes, such as ESA and historic preservation, lead to continued
long processing times.
There are some notable success stories and I should have
highlighted these in my testimony before the Committee on June 27,
2006. The BLM's Farmington Field Office has issued 249 categorical
exclusions at last count, and their processing times have decreased
significantly. For comparison, the entire state of Wyoming has issued
339 categorical exclusions and Utah 62. The recent completion of the
Farmington Resource Management Plan (RMP) is the key to this extensive
use of categorical exclusions. The experience in Farmington underscores
the importance of land use planning as giving the agencies tools that
can be used in conjunction with the EPAct to ensure natural gas
supplies are headed to consumers. As other RMPs are updated, such as
the Price, Vernal, Roan Plateau, and Rawlins Time-Sensitive RMPs, we
hope to see more BLM field offices as successful as Farmington. IPAMS
is planning to work with the BLM and Forest Service over the next few
months to increase the usage of this advantageous provision of the
EPAct.
Question 4. You touched on the three challenges facing producers on
public lands--leasing, planning and permitting.
Given what we've heard today, what changes would you propose beyond
those measures implemented in the Energy Bill?
Answer. A comprehensive look at the current process to identify
where bottlenecks occur will help this Committee determine potential
legislative action and oversight opportunities. Without examining the
permitting process and making changes to improve its efficiency, BLM
will likely continue to fall behind in permit approvals even as the
agency's role will grow more important in meeting the nation's energy
needs.
Recently, IPAMS conducted an informal survey of our members
regarding their experience with Section 390 of the Energy Policy Act.
Nearly one-third of the respondents had suggested the use of the
categorical exclusions to the BLM and 28% were accepted. This finding
may indicate the need for close oversight by this Committee to ensure
the agency is carrying out the Congressional intent of Section 390.
Another area that needs attention is the processing of Expressions
of Interest (EOI) to lease lands competitively. Much attention has been
placed on the processing of APDs, but in some instances this has
resulted in a de-emphasis on lease processing. Expressions of Interest
are critical to exploration of new reserves and fields. The discovery
of new resources in the Rockies being developed today is the direct
result of past exploration on public leases. The continued backlog of
leasing severely limits future energy development. Therefore, measures
must be taken to increase BLM field office personnel and resources
devoted to processing EOI as well as APDs. EOIs must become a higher
priority for BLM personnel.
RIG AVAILABILITY, PIPELINE CAPACITY AND MANPOWER
Question 1. We often hear that the backlog of permits is
increasing, yet we also hear that there are not enough drilling rigs
available to actually drill anyway.
Please comment on the issue of availability of drilling rigs in the
Rockies.
Answer. The market for drilling rigs is responding to demand for
natural gas. Between 2000 and today, the number of rigs in the Rocky
Mountains has increased 200% as noted on the attachment to IPAMS
written testimony which is part of the official record and incorporated
herein by reference.
Federal land management agencies have the ability to positively
impact rig availability by implementing efficiencies in the permitting
process. An unpredictable permitting process leaves drilling
contractors unable to sufficiently respond to market conditions by
moving more rigs in to the region, and producers are threatened with
increased costs by losing drilling rigs or paying for drill rigs they
cannot keep busy. Multiply these pressures by the number of rigs that
are working and the need to have multiple permits available to execute
a coordinated, flexible drilling program and the need for a more timely
permitting process becomes painfully apparent.
Timing limitations are an excellent example of a regulatory burden
that inhibits a larger response of drilling rigs to the Intermountain
West. The drilling window in many areas is limited by timing
limitations imposed under resource management plans for various reasons
(wildlife habitat, nesting, breeding, etc.). The timing limitations
prevent rig companies from sending more rigs to the Intermountain West
because they are unable to keep their drilling rigs active the entire
year and must move them to other geographic areas. Moving rigs is
expensive for operators, but disruptive to those working on the rigs
because they must either move or seek other employment.
We are optimistic that the Federal Permit Streamlining Pilot
Project will help relieve some of the problems with permit processing,
and hence rig availability. The current work being conducted by the
Booz Allen consulting company to analyze permit processing in the pilot
offices and recommend workflow and process improvements will help
achieve this goal. IPAMS has contacted the project manager to become
involved and provide an industry perspective to the study.
Question 2. Are there enough rigs and crews to meet demand by the
producers?
Answer. The free market will respond to the demand for drilling
rigs and crews if the regulatory process permits. However, the
regulatory process discourages a larger response by the drilling
sector. Timing stipulations serve as a deterrent for some drilling
companies to bring more rigs to the Intermountain West since these rigs
will only be busy half the year.
New and refurbished rigs are on order, but take time to deliver.
Whether building or refurbishing, it requires long-term commitments by
the operator. As a result, permitting becomes critical for keeping
committed rigs working to bring natural gas to consumers.
A more predictable regulatory process would enable companies to
commit to long-term development, and drilling companies would respond
by increasing the supply of rigs. Year-round drilling enables a stable
workforce of crews with the right training and experience. A stable
workforce has obvious benefits to the communities where they live and
work, and alleviates the problems associated with boom and bust cycles
and seasonal work.
Question 3. Is there pipeline capacity to meet demands for the
Rockies' gas?
Answer. The free market responds to the demand for pipeline
capacity in the Intermountain West. As production has increased,
pipeline constraints have yielded substantial projects that are
increasing pipeline capacity. The Rockies Express pipeline, with a
daily capacity of 1.8 billion cubic feet, is currently under
development to connect the Rockies with key markets in the mid-West and
East Coast.
Question 4. Would you please comment on labor markets and the
availability of qualified personnel to work in the field?
Answer. Like many other industries, the market for experienced,
skilled labor is becoming tight with the aging workforce across the
nation. We are seeing many highly skilled professionals moving into the
area from declining fields in Texas and Louisiana. The current
opportunities in the Rockies are providing excellent opportunities to
groom junior professionals. Petroleum Engineering programs are seeing a
resurgence in attendance as the market has become lucrative. As
mentioned in question 2, a stable regulatory environment will help to
smooth the boom and bust cycles experienced in the past and lead to a
stable workforce in every aspect of the industry.
Responses of Duane Zavadil to Questions From Senator Salazar
Question 1. Thank you for your testimony, I appreciate hearing the
views of an industry that is so important to our country, and Colorado.
As natural gas exploration and development expands into lands
neighboring local communities and into areas that are highly valued,
what opportunities exist for industry to collaborate with local
communities to reduce conflict? I am motivated to ask this question by
the positive experience between Antero Resources and Garfield County
residents.
Answer. IPAMS encourages community involvement in providing input
on development. However, where federal resources are involved,
operators and the federal government have an obligation to maximize the
recovery of resource so as to prevent waste. While operators are able
in many instances to make operational concessions, it is a two-way
street where the local community needs to understand the needs of the
nation and that mineral resource development is a principle or major
use of BLM lands under FLPMA (along with livestock grazing, fish and
wildlife development, rights of way, recreation and timber production).
See 43 U.S.C. Sec. 1702 (1). The balance is sometimes difficult to
strike especially in the Intermountain west where the population
continues to increase on the western Slope.
Question 2. What is industry's position on due diligence
requirements for lease that are held?
Answer. The term ``due diligence'' encompasses a broad number of
issues. Most issues of due diligence occur on the lease in terms of the
duty to the royalty owner. Based on Question number 1 above, presumably
the question deals with what the industry's position is on external due
diligence prior to developing a lease. IPAMS believes the answer to
Question 1 above adequately addresses this issue.
______
Responses of Dave Freudenthal to Questions From Senator Domenici
Question 1. What has been the States involvement in Bureau of Land
Management's (BLM) planning efforts?
Answer. The state has been involved in numerous BLM oil and gas
development projects. State agencies often participate in scoping
through the final environmental impact statement/record of decision.
The real work is accomplished when the state is at the
interdisciplinary team level as cooperating agencies as defined by the
National Environmental Policy Act (NEPA). State cooperating agencies
usually involve personnel from the Game and Fish Department, Department
of Agriculture, Office of State Lands and Investments, Department of
Environmental Quality, State Trails Program, State Historic
Preservation Office, Oil and Gas Conservation Commission and the
Geological Survey. Because of the number of individual energy projects
the BLM is working on, the agencies tend to focus on the major planning
efforts. A current list of projects is attached. The state has also
been involved in the Governor's consistency review of the Jack Morrow
Hills Plan.
Question 2. Has the State been satisfied with its opportunities to
involvement in BLM's planning and monitoring?
Answer. The interaction between the state and BLM field offices
concerning planning and monitoring has been evolving. We are clearly
further along in the area of planning. However, there is currently
discussion on how to create a synergism between federal, state and
local entities to conduct appropriate monitoring. Overall, the
relationship has been better than ever, however, there is still work to
do on communication in certain areas, but overall we see progress being
made. Coordination and communication must exist between state and local
cooperators and the BLM at the field and at the state office level.
Question 3. We can all agree that it's too early to determine
whether this program can be successful.
What are the top 2 or 3 items you think are essential to making
this successful?
Answer. First of all, the BLM and state need people with strong
problem-solving skills to be able to work through issues. Adequate
funding and support from the top are also an absolute must for
monitoring and inspection to be successful. Without inspection and
monitoring receiving the same level of attention and funding as
currently provided to permitting efforts the chance of legal action--
over everything that has been, accelerated or streamlined--could be
jeopardized.
Responses of Dave Freudenthal to Questions From Senator Thomas
Question 1. Can you expand upon the comments in your testimony
related to the role that the states can and should play in the
implementation of these Pilot Offices?
Answer. The state can clearly play a role in the pilot offices, but
also in other offices such as the Jonah Interagency Field office. The
state can assist in gathering specific resource information and data to
assist in the permitting, however, the state agencies see their true
expertise as being in the implementation and monitoring of oil and gas
development.
Question 2. You spoke about the Pinedale office in your testimony
and said that 92% of the land that office oversees has been leased and
that only 8% of the remaining land is available for wildlife and
recreation. I do not believe that is true--just because something has
been leased does not mean that it has been drilled or otherwise
disturbed. Wouldn't a more accurate measure be the percentage on which
drilling has been approved? Do you have those numbers?
Answer. I would like to expand on and clarify the 92%/8% issue. I
agree that undeveloped leased land is certainly available for other
activities and wildlife to use the leased areas. As long as development
may occur, there is never the assurance, however, that the habitat will
remain undisturbed. The main point of my statement, `As an example, the
Pinedale Field Office had 92% of its area leased, and a high likelihood
that would fully developed, 8% of the remaining land does not seem to
protect other resources values such as sage grouse, mule deer or
antelope or recreation opportunities that provide solitude,' was to
emphasize that, once leased, the BLM has the responsibility to allow
the lease to be developed and, if developed, will then impact habitat
because of surface and human disturbance.
The BLM is not eager to invest habitat or mitigation monies in a
leased section of BLM land due to the possibility of additional surface
and human disturbance. One might argue that the lease stipulations are
in place to offset impacts to wildlife and other resources. To this
point, there are currently studies suggesting that existing
stipulations may not adequately protect mule deer herds or antelope
migration or sage grouse nesting areas from impacts in later-developed
areas. Many biologists are requesting that the BLM at the very minimum
defer leasing in those areas with crucial habitat and low potential for
development while other areas are fully developed to provide areas of
undisturbed habitat. Pinedale is reviewing this option for its RMP.
In order to truly mitigate disturbance, in order for it to be
effective, the mitigation must persist undisturbed during the life of
the project.
Question 3. You make a case for the Pinedale, Wyoming field office
being added to the Pilot Office program in your testimony. Is it fair
to say that you would characterize Section 365 of the Energy Policy Act
as a success even in these early stages of its implementation?
Answer. It is fair to characterize the early stages of the Energy
Policy Act as a vast improvement over the pre-existing situation. There
still remain many items that need to be implemented for success to be
fully declared.
Responses of Dave Freudenthal to Questions From Senator Bingaman
Question 1. Inspection and Enforcement--Your testimony makes some
excellent points regarding the importance of inspection and
enforcement. What additional steps do you think the Federal Government
should take in this area?
Answer. There should be a minimum number of drill/production lease
sites that are inspected randomly each year by a diverse team including
representatives of engineering, biology, conservation, transportation,
grazing and others, based on consistent parameters. The inspection team
should also include all agencies that have regulatory and/or inspection
authority. The results should be released to the public.
Question 2. Monitoring--You also discuss the importance of
monitoring the impacts of oil and gas production. Please provide us
with your thoughts on what BLM should be doing in this regard.
Answer. During production, a minimum number of sites and/or leases
should be inspected randomly each year. This again should include a
team with a variety of expertise. The team should include
representation from agencies with regulatory authority or interest in
the issues. These inspections should be publicly announced and the
results released to the public.
Question 3. Water Resources--What are your views with respect to
the potential impact of coalbed methane production on water resources?
Are there steps the Federal Government should be taking that are not
being taken?
Answer. Additional monitoring regarding underground aquifers is
needed. The federal government could help in this regard. As for
surface water, the EPA is involved with the disagreement over water
quality issues between Montana and Wyoming. The Wyoming Legislature has
created a coal bed methane taskforce that is looking at this issue as
well. Federal funding may be needed to help create a viable solution to
water management for the Powder River Basin.
Responses of Dave Freudenthal to Questions From Senator Salazar
Question 1. I appreciate your testimony regarding the need to
improve inspection and enforcement activity by the BLM. Does Wyoming
have any additional suggestions for how to accomplish better inspection
and enforcement in the field?
Answer. There should be a minimum number of drilling and/or
production sites that are inspected randomly each year by a diverse
team including representatives of engineering, biology, conservation,
transportation, grazing conditions of approval and others, based on
consistent parameters. The inspection team should include all agencies
that have regulatory and/or inspection authority in order to facilitate
information sharing. The results should be released to the public.
Question 2. I also appreciated your recommendation to avoid
``hasty'' action to remove winter stipulations when our wildlife is
most susceptible to pressure from industrial activity. How often are
these stipulations able to be worked through with communication and
cooperation with the state?
Answer. Attached is a letter sent to Senators Domenici and Bingaman
in December 2005 that outlines our concerns. Essentially, Wyoming has
been successful in meeting companies' operational needs when they are
willing to help reduce the impacts to wildlife.
Attachments: BLM Hotsheet and 2005 Winter stipulation letter have
been retained in committee files.
TUESDAY, JULY 11, 2006
______
Responses of Chris Standlee to Questions From Senator Domenici
Question 1. Your company is truly global in its pursuit of biofuel
technologies. You are pursuing projects in Europe and here in the US.
Do you see opportunities for technological cooperation internationally?
Answer. We believe that there are great opportunities for
international cooperation on new ethanol technologies. Air quality and
energy independence are not just U.S. issues, and our goals are
complimentary to, rather than competitive to, the goals of other
nations in the area of renewable fuels. Abengoa promotes the sharing of
information and improvements between companies both within and outside
our borders, and that cooperation is critical to the most efficient
development of these new technologies. Our current cost share project
with the DOE promoted partnerships with international companies to
develop better enzymes to more efficiently break down starch and sugars
and improve the yield of feedstock to ethanol. We believe this has
helped to encourage the development of the best technologies available.
Several other countries in Europe, Asia and South America are also
promoting the development of new ethanol technologies. In addition to
our cost share project with DOE, we have similar cost share agreements
with the European Union that make Abengoa one of the EU's leading
partners. While these projects are clearly separately funded and
address separate technologies, the pursuit of multiple potential
technologies is the most logical way to determine which are the best.
We are confidant that the lessons we learn from the operation of our
new biomass facility in Salamanca, Spain (which is designed to
demonstrate enzymatic hydrolysis technology), will help us more
efficiently complete our pilot plant in York, Nebraska (to demonstrate
biomass fractionation and fermentation technology). The simultaneous
evaluation of both technologies will allow us to make a better and more
informed decision as to the design of a full commercial scale biomass
production facility which we are currently proposing to DOE in response
to their most recent solicitation.
Question 2. How competitive are American biofuel companies
internationally?
Answer. American biofuel companies are among the most price
competitive internationally. However, this does not mean that American
ethanol is the least expensive to produce. Brazil has a more mature
ethanol industry that has been based on over thirty years of government
support, plants that are fully depreciated, substantially less
expensive feedstock supplies, fewer environmental regulations, no
natural gas expenses, and low manpower costs. On a pure cost per gallon
basis, Brazil is the current international leader, but it will not be
able to replace the world's oil supply by itself. Additionally, there
is little benefit to be gained in exchanging a dependence on imported
oil for a dependence on imported ethanol.
The U.S. ethanol industry is capitalizing quickly with the passage
of the Renewable Fuels Standard. It is by far the most diverse,
developed and efficient renewable industry in the world. In fact, we
expect the U.S. industry to quickly surpass the Brazilian ethanol
industry as the U.S. industry expands both traditional starch
fermentation production, and funds the anticipated cellulosic
demonstration plants. Our industry is certainly the most
technologically advanced of any ethanol industry in the world.
Continued governmental support of the U.S. industry, and especially the
development of new technologies such as biomass, will make the U.S.
industry even more competitive internationally in the long term.
Probably just as important to the survivability of this growing
industry, is a discussion on how to maintain a market driven system
without putting the significant R&D investment by both the federal
government and private industry at risk when oil prices fluctuate. We
hope this discussion would include how the lessons learned from the
early development of the starch based ethanol industry could help
provide stability for the development of the cellulosic industry. For
example, the Brazilian government made a commitment to be free of
imported oil and backed that pledge up with a consistent policy on
which the industry could move forward. We ask that the U.S. provide the
same type of commitment to the renewable industry that would allow the
U.S. to become much less reliant on imported energy.
One significant first step in making that commitment would be to
fund the renewable programs created in the Energy Bill. We encourage
the Committee to have a frank discussion on providing a consistent
message regarding a commitment to the future of the renewable industry.
We encourage the Committee to consider policies that would allow the
market to send price signals to the industry, while also providing
consistent incentives to ensure ongoing private investment in the
future of the industry and the goal of reducing substantial dependence
on imported oil.
Question 3. Can you help me to understand what exactly is meant by
the term ``biorefinery''? I have heard this term used to talk about
existing ethanol plants, new ethanol facilities and future production
sites for cellulosic biomass ethanol. What is the correct use of this
term and does it refer to a facility that will produce a slate of fuels
(i.e. gasoline, jet fuel, naptha, diesel, asphalt and chemicals) as an
oil refinery does today, or is there only one product supplied--ethanol
or biodiesel?
Answer. In our view, the term ``biorefinery'' means any facility
that produces fuel or other products (including human or animal food
products, plastics, lignin or even other energy sources, such as
electricity) from renewable resources. It is not limited to ethanol or
biodiesel, although those are the most common Biofuels today. The term
would not be limited to fuels, as other valuable products are already
capable of being produced.. However, products derived from petroleum or
other non-renewable resources would not be included.
______
Responses of Paul Thomsen to Questions From Senator Domenici
Question 1. Of the numerous directives aimed at the geothermal
industry within EPAct, which are considered the most important by the
geothermal industry, and why?
Answer. EPAct included many different provisions related to
geothermal energy, including tax credits, a revision of the Geothermal
Steam Act governing leasing and royalties, research directives for the
Department of Energy, and others. In addition, geothermal energy and
projects could be part of the federal loan guarantee program and are
affected by many provisions relating to energy markets, reliability,
and so forth.
Most within the industry would identify the inclusion of geothermal
energy in the Section 45 Production Tax Credit as the most important of
these items for two main reasons. First, the tax credit puts geothermal
on an even footing with wind energy, which is often a competitor with
geothermal projects in states with renewable portfolio standards.
Without parity, geothermal projects had a difficult time winning
solicitations. Second, the PTC helps reduce the high upfront costs
associated with geothermal projects, which is important because states
and consumers are seeking renewable energy but don't want to pay a
premium for it. Together, state renewable standards and other state
initiatives, along with the PTC, will spur the development of many new
geothermal power plants.
Beyond the tax provisions, the leasing, royalty provisions, and
research directive have many important benefits that would be difficult
to prioritize. A company must obtain a lease before development can
occur on federal land, so leasing is important; the counties in which
geothermal development occurs should receive royalty payments, so
royalty provisions are important; and finally, there is a continuing
need for advances in technology, particularly to help industry find and
develop the subsurface resource better, so research is important.
Question 2. On what type of land does the majority of geothermal
development take place? (federal land, private land, etc) In the
future, do you expect this to change?
Answer. We understand that roughly half of the geothermal power
produced today involves some federal land or leases. It is expected
that in the future this percentage will increase because so much of the
potential resources in the West are on federal land. If working on
federal lands becomes more difficult, which has been the case over the
past decade or more, this may change. Additional bureaucratic burdens,
delays, restrictions and other impediments on federal land will give
development on private or state land a higher premium--even though the
better resources may be on the public lands. This is already occurring
in California, where obtaining leases and permits from the federal
agencies have ground to a near complete halt.
A trend towards growing reliance on the federal lands is indicated
by the recent GEA survey of geothermal projects. Of the 44 geothermal
projects in nine western states that GEA identifies as currently under
development, we estimate that more than 60% involve federal leases. The
GEA 2006 ``Update on Geothermal Power Production and Development'' is
available on the organizations web site at: http://www.geo-energy.org/
publications/reports.asp.
Question 3. Why should geothermal, a regional resource, be
supported by a federal agency such as the DOE? Why not focus on the
regional support provided by WGA and individual western states?
Answer. Geothermal energy--the heat from the earth--is not a
regional resource, but is available everywhere in the United States.
Geothermal heat pumps capture the heat from the ground at shallow
depths in all 50 states. Direct uses of geothermal energy, which use
low and moderate temperature resources, are used to support commercial
enterprises in some 26 states.
Today, only high temperature geothermal power production is
geographically limited. High temperature power production currently
exists in four states--California, Hawaii, Nevada and Utah--but that is
expected to expand to six in just the next year (Idaho and Alaska), and
could expand even further with continued federal and state support.
Western Governors' Association identified eleven states that are
capable of producing geothermal electricity in the near term from known
hydrothermal resources, given continued federal and state support. This
expansion to a dozen states could be more than doubled in the coming
decade if the ability to find and characterize geothermal resources
improves; if efforts to produce power from oil and gas fields, small
off grid systems, and other applications not typically considered are
successful; and, if there is a multi-year commitment to fund the DOE
geothermal research program needed to support these and other
objectives. Relying on state and regional support alone would limit
potential expansion. Not only do state and regional programs lack the
resources of the federal program, but there would be little incentive
to develop important improvements in technology applicable in other
states or across the entire nation.
Energy is unquestionably a national issue, as well as a state and
regional one, and new energy development needs support and
encouragement from both federal and state governments. Geothermal
energy can make a significant contribution to our national energy
needs. As the Geothermal Energy Association stated in its testimony to
the Senate Energy and Water Appropriations Committee this past April,
``GEA projects that with continued federal and state support geothermal
power could expand beyond providing 5% of California's electric power
to providing 6% of the entire nation's electric power by 2025. We
estimate that over 30,000 MW of geothermal power could be developed in
the next 20 years, representing an investment in new domestic energy
supplies of over $70 billion. This level of production and new
investment in geothermal energy would mean 130,000 new full time jobs
and 500,000 person-years of construction and manufacturing employment.
Yet, at this level of geothermal production, we would only be utilizing
a small fraction of the ultimate geothermal potential.''
Response of Paul Thomsen to Question From Senator Wyden
Question 1. As renewable energy proponents, do you think that the
federal government should play a different or larger role in assessing
the value and availability of solar, wind and geothermal energy
resources on federal lands? We authorized several provisions under last
year's Energy Bill that put DOE and USGS in the driver's seat here, and
yet now we are hearing that if you're measuring wind availability on
BLM land, there's one set of rules and if you're planning a geothermal
project on Forest Service land there's another set of rules. What
should the federal government be doing to provide better assessments of
renewable energy resources?
Answer. The directive and authorization of EPAct for a new national
geothermal resource assessment, combined with the directive for DOE to
conduct research into improved technologies for detecting geothermal
resources and reducing drilling and development costs, seek to address
this important question. The high cost and risk of identifying and
characterizing geothermal resources is a principal barrier to our
expanded use of these resources. According to the last USGS resource
assessment, more than 80% of the conventional geothermal resources were
considered ``hidden'' because we lacked the technology to find them
without expensive and risky blind-drilling. That situation remains
fundamentally unchanged today.
What can or should be done? First, the federal government should
carry the mandate of EPAct and not shortchange resource assessment for
renewable resources, particularly geothermal energy, both in agency
budgets and congressional appropriations. Further, DOE and DOI should
build upon the directives in EPAct by developing collaborative plans
with state governments and industry to target exploration and
subsurface research in order to identify the most promising new sites,
and support cost-shared efforts or loan guarantees for early
development activities as well as DOE's efforts to develop and apply
advanced resource engineering techniques. Finally, the tax incentives
included in EPAct for oil and gas exploration should be expanded to
include geothermal energy.
Further, the question raises the issue of inter-agency
coordination, which has created problems in the past for geothermal
development. Large areas of the West involve the jurisdiction of
multiple federal agencies, and coordination between these agencies and
state and federal agencies is critical. EPAct addressed this, in part,
for geothermal by requiring a new Memorandum of Understanding between
the BLM and U.S. Forest Service regarding geothermal leasing and
development. That MOU is a first step and now must be put into action
as BLM resumes a federal leasing program. Congress can help see that
the good intentions of the MOU translate into agency actions through
effective oversight. Also, Congress should consider directing the
federal agencies to enter into similar agreements with state agencies
that have overlapping jurisdiction.
______
Responses of Dr. Walter Snyder to Questions From Senator Domenici
Question 1. The Consortium is presently comprised of six
institutions in the Intermountain west.
Is participation limited to the current members and if not what do
you see the membership in the Consortium becoming in the future?
Answer. As you know, the Intermountain West Geothermal Consortium
(IWGC) was authorized by EPACT (section 1820) as a collaboration among
academic institutions and federal research laboratories. We are
certainly open to new members. Our focus is on developing a better
fundamental understanding of the geology, geophysics, hydrology, and
geochemistry of geothermal systems and to transfer this knowledge to
industry, federal and state agencies, municipalities, and industry. Our
immediate goal is to fully launch the IWGC, that is, to implement
section 1830 of EPACT. However, because of the importance of geothermal
to the West's energy portfolio, we are open to new members interested
in geoscience research. Collaboration is the key issue here.
Collaboration occurs through new membership, but also between the IWGC
and other institutions and programs. The IWGC should not, cannot, and
will not do all the needed geothermal research, in particular that
which focuses on the engineering aspects which are best done my other,
ongoing efforts, such as at Sandia Laboratories, New Mexico State
University, National Renewable Energy Laboratory, and elsewhere. Others
may prefer to remain independent, such as Nevada's Great Basin Center
for Geothermal Energy. But we clearly understand the need for
collaboration of all groups doing geothermal research, regardless of
focus. We want to emphasize that the membership of the IWGC will always
reflect the need for doing practical research that agencies and
industry can use, and that our membership must reflect that commitment.
Question 2. In your testimony you mentioned the Consortium
represents a new way of doing research.
Can you clarify what that approach is and how it will benefit
development of renewable geothermal resources in the west and the
Nation?
Answer. Much is said about ``technology transfer,'' that is, about
transferring basic research results to the stakeholders for their use.
This is easy to say, but more difficult to do effectively, and even
more difficult to document. Because many of the IWGC members have for
years worked closely with agencies and industry, we recognized this
problem and have devised a four-point approach that taken together
constitutes a new paradigm for research: 1) publication of results, 2)
open access to all relevant data through a digital information system,
3) open access to physical geologic samples and logs, and 4) directly
working and communicating with stakeholders. Separately, these four
approaches are not revolutionary, but taken together they represent a
new approach to research and knowledge transfer that can better serve
the geothermal stakeholders.
Item 1 is standard and a basic requirement for research, however,
it is important to note that items 1 and 2 are significantly different.
It is not access to published papers that hinders public policy
decision making, agency management decisions and activities, and use of
research results by state and local governmental bodies and industry,
but the lack of complete access to relevant data and metadata. Item 2
is, therefore, a significant new step for knowledge transfer that does
not exist for geothermal energy research--and for much of the rest of
federally-funded research. The IWGC is constructing an open-access,
digital information system to capture data as it is generated.
Item 3 highlights the fact that far too often physical samples that
have great, long-term value, are not properly stored or made available
to all interested parties--samples that were paid for by federal
research dollars. IWGC will make those samples and associated data
openly available.
Item 4 is a bridge to stakeholders that researchers, on their own,
typically have difficulty crossing. The IWGC is committed to working
with stakeholders not only through our website, but by hosting and
participating in conferences, seminars, and workshops and engaging in
other outreach efforts. We will work directly with stakeholders and
community organizations on specific issues of importance to them.
Question 3. What research is needed to promote direct use?
Answer. Direct use research is a wonderful example of the need for
technology transfer. The first part of the answer lies in continuing to
improve, through engineering research, technologies to utilize low and
moderate temperature resources in a cost-effective way and delivering
those solutions to the parties who can use them.
The second part of the answer lies with the type science research
that the IWGC conducts. It is important to note that engineering
solutions must be based on sound science. The answer to the first
question applies here: we need a better fundamental understanding of
the geology, geophysics, hydrology, and geochemistry of low-temperature
geothermal systems. A general suite of questions illustrates the
scientific challenges for direct use systems; these include the
following.
<bullet> Where are the available direct use resources?
<bullet> What is the size of the resources?
<bullet> Can we develop better geophysical methodologies to
inexpensively and reliably image the subsurface expression of
these geothermal systems?
<bullet> At what rate of production can each system be used but
sustained?
<bullet> With use, will the geological conditions of the system
change over time as the chemistry and thermal characteristics
change, and how might this affect production and
sustainability?
The Boise geothermal system is a prime example within the U.S. of a
city that utilizes direct geothermal heat to reduce power consumption.
If we can answer the questions above, and others, then we will have the
opportunity to apply this knowledge to other locations, such as Salt
Lake City, Reno, Klamath Falls, and other metropolitan areas that have
not yet assessed the potential for direct geothermal use.
Finally, the IWGC can serve as a contact point for the small
businesses and entrepreneurs seeking to utilize geothermal energy for
aquiculture, heating, food dehydration, etc. In some cases, we can work
directly with these people, in other cases we would connect them with
other existing and more appropriate organizations that can provided
them more effective help.
Responses of Dr. Walter Snyder to Questions From Senator Wyden
Question 1. As renewable energy proponents, do you think that the
federal government should play a different or larger role in assessing
the value and availability of solar, wind and geothermal energy
resources on federal lands? We authorized several provisions under last
year's Energy Bill that put DOE and USGS in the driver's seat here, and
yet now we are hearing that if you're measuring wind availability on
BLM land, there's one set of rules and if you're planning a geothermal
project on Forest Service land there's another set of rules. What
should the federal government be doing to provide better assessments of
renewable energy resources?
Answer. The BLM and Forest Service should quickly implement plans
and licensing rules and procedures that are uniform, reflect reasonable
and attainable requirements, a streamlined process, and that are
incentives to the development and use of renewable resources.
The federal government, through the BLM, Forest Service, USGS and
DOE should also do more to help assess the value and availability of
renewable energy resources on federal lands.
Insufficient manpower is a major limit on the speed and
effectiveness of our federal agencies re streamlining the permitting
and licensing processes. Some of these duties can only be done by the
agencies, e.g., the permitting and licensing processes. Others, in
particular the background work necessary for proper planning and
assessment, can be leveraged by increased collaboration with academic
institutions, federal research laboratories, and industry. Such
collaboration is fostered by EPACT through DOE funding of research at
academic institutions and federal laboratories, for example, in section
1820 where the establishment and funding of the Intermountain West
Geothermal Consortium (IWGC) are authorized.
For geothermal, the first step to assessing its value and
availability is to recognize that our scientific understanding of this
energy resource is immature. To emphasize what is in the written
testimony, to be able to fully and economically assess, find, and
utilize geothermal resources, we must better understand the geological,
geophysical, geochemical, and hydrologic nature of these complex
systems. Our existing geologic knowledge is insufficient for an
accurate assessment of the West's geothermal resource potential, much
less to fully utilize our known resources. Some of the resources are
hidden, that is they have no obvious surface expression. Others require
engineering technology improvements that are predicated on first
understanding the geological details. In short, without additional
joint federal-academic research we can't realize our nation's potential
for renewable energy.
The Energy Policy Act calls on the USGS to update the 1978
Assessment of Geothermal Resources, and then update this assessment as
the availability of data and developments in technology warrant. Thus,
the collaboration between academic institutions and DOE must extend to
the USGS. It is recommended that periodically a concise assessment be
provided to Congress on the progress and effectiveness of the
collaboration among the federal agencies, academic researchers, and
federal research laboratories.
______
Responses of Bernie Karl to Questions From Senator Domenici
Question 1. The Technology you are planning to use at your Hot
Springs specialized and designed to fit just your unique situation?
Answer. The unique thing about this particular geothermal power
plant is that it was not designed specifically for our site. In fact,
many similar components came directly off the Carrier Refrigeration
chiller production line. This means the infrastructure for mass
production of these unit is already largely in place. While the idea of
reversing a refrigeration cycle to generate power is not new in
principle, United Technologies (UTC) is the first large scale
manufacturer to build a commercial product based on this concept. While
some small sacrifices to system efficiency are inevitable, these are
more than compensated for by the resulting reduction in the upfront
cost of these types of power plants, and similarly reduced maintenance
costs because most components can be serviced by a certified
refrigeration mechanic.
Question 2. How economically feasible is it for the oil and gas
industry to use this technology to produce electricity from the large
volumes of produced water they often deal with?
Answer. The estimated payback period for the generation facilities
is 3 to 4 years, with an expected plant lifetime of 20 years. Once the
power plant is in place, the generated power is essentially `free' as
no drilling or engineering would be required to obtain the power other
than the upfront costs of the turbines.\1\ The biggest initial hurdle
to this idea is not economic, but in obtaining the buy-in of an oil
company to install the first unit and demonstrate the feasibility of
the concept. This is the role the Department of Energy Geothermal
Technologies Program can and should play in developing this concept.
---------------------------------------------------------------------------
\1\ Paraphrased from the September 5, 2005 issue of Oil and Gas
Journal, `Geothermal electric power supply possible from Gulf Coast,
Midcontinent oil field waters'.
---------------------------------------------------------------------------
Question 3. Are there other possible applications of this
technology?
Answer. Yes, absolutely! While Chena Hot Springs happens to have
geothermal water as a heat source, it is important to remember this
technology will work off any type of low-grade or waste heat source.
Landfill flares and stack heat rejected from reciprocating engines have
already been used to generate power in this way; biomass fuel is a
frontrunner in Alaska for remote power generation using the same
technology.
Response of Bernie Karl to Question From Senator Wyden
Question 1. As renewable energy proponents, do you think that the
federal government should play a different or larger role in assessing
the value and availability of solar, wind and geothermal energy
resources on federal lands? We authorized several provisions under last
years Energy Bill that put DOE and USGS in the driver's seat here, and
yet now we are hearing that if you're measuring wind availability on
BLM land, there's one set of rules and if you're planning a geothermal
project on Forest Service land there's another set of rules. What
should the federal government be doing to provide better assessments of
renewable energy resources?
Answer. I do not have personal experience with the circumstance you
present in this question, so I cannot speak to this directly. However,
I would encourage the federal government to adopt measures to simplify
permitting and encourage renewable energy development on federal lands.
______
Responses of Jim Wells to Questions From Senator Bingaman
Question 1. According to GAO's report, 22 states and the District
of Columbia have encouraged the production of electricity from
renewable resources through renewable portfolio standards. Can you
please describe more specifically the role of the state RPS's in
advancing the use of renewable electricity generation? Would a federal
RPS have the same effect of encouraging renewable electricity
production?
Answer. A state RPS is a policy that requires the retail sellers of
electricity within that state, such as utilities and other marketers,
to meet a portion of their energy needs with eligible forms of
renewable energy. Eligible forms of renewable energy include geothermal
energy, wind, and solar energy. Industry and government officials told
us that the RPS standards have resulted in additional renewable energy
development in both California and Nevada, and some officials noted
that without an RPS, it is questionable whether utilities would readily
purchase additional geothermal energy. GAO has not done work nationally
to determine whether a federal RPS would also encourage development of
renewable energy. Each state's energy situation is unique, and so are
the RPS policies for those states that have them. Although some
officials told us that there would be interest in a national standard,
they noted there is no consensus on how the standard would be defined,
what fuels would be included, or how it would be implemented. They also
expressed concerns that a national standard not override states with
aggressive standards such as California and Nevada. In addition, there
are significant challenges in the West to the development of renewable
energy, including the availability of adequate and affordable
transmission that could make enforcing an RPS a challenge.
Question 2. Do you believe that the percentage of gross proceeds
royalty as prescribed by EPAct 2005 will achieve the same revenues as
the percent of the value of production royalty under the Geothermal
Steam Act prior to amendment? Do you have advice on how this can best
be accomplished?
Answer. It is not possible to ensure that the amount of royalties
collected under provisions of the Energy Policy Act will be exactly the
same as what would have been collected prior to the Act. However, we
stated in our report that Interior could collect from currently
producing leases the same general level of geothermal royalties as
before the Act if the percentage of gross sales revenue collected in
the future is based on past royalty histories and if electricity prices
remain relatively stable. Interior already has a track record in
examining past royalty histories and negotiating future royalties based
on these data. However, it is not possible with reasonable assurance
for Interior to predict future electricity prices, and if electricity
prices rise, geothermal royalties will actually fall. Although
challenging, one could implement contingencies for changing electricity
prices, such as prescribing adjustment clauses that would track prices
as they rose or fell within the 10-year period during which the Act
directs the Secretary to seek to collect the same level of geothermal
royalties.
Question 3. Do you think that the law as drafted will help ensure
that where there is competitive interest in a lease the lease will be
issued competitively resulting in a fair return to the public? Do the
EPAct 2005 provisions improve upon the previous law in this regard?
Answer. We believe that the competitive leasing process prescribed
by the Act will enhance the exposure of future leases to greater market
forces which in theory should result in a more fair return to the
federal government. We consider this to be an improvement. Before the
Act, BLM determined whether leases had a reasonable potential for
geothermal development and only offered those leases with a reasonable
potential through a competitive auction. Geothermal companies will now
have the option to independently determine whether any lands available
for leasing have geothermal potential and can pursue these lands
through the competitive auction process.
Question 4. Your report indicates that some developers noted
difficulty in consolidating various geothermal leases into economically
viable projects, and goes on to state that speculators lease geothermal
resources not for development but to resell the leases at a significant
profit. How widespread do you think this problem is? How can it be
addressed? Do you think the federal government can or should share in
the benefits of any secondary market for geothermal leases?
Answer. We defined speculators as companies or individuals who
acquire leases to promote and resell, rather than to develop the leases
themselves. Speculation is not necessarily bad. Sometimes speculators
can actually lead to the future development of leases by promoting a
new geological idea that results in the drilling of a test well. We did
not uncover evidence that speculation in geothermal leases was
widespread, but BLM officials did call our attention to some situations
in which speculators were requesting excessive compensation for their
leases that made geothermal projects uneconomic and therefore unlikely
to be developed. Unfortunately, we again do not know the extent of this
practice in either oil or gas leases as well as geothermal. We believe
that the provision within the Energy Policy Act that directs
competitive geothermal leasing and the provision that allows BLM to
consolidate smaller leases into a larger block may reduce speculation
and make it more likely that leases will be acquired by the developers
of geothermal power plants.
______
Responses of Bob Linden to Questions From Senator Domenici
Question 1. The technology you are using is a ``concentrating dish-
engine system.''
Can you describe how these work? How much energy one dish will
produce? How much actual surface disturbance is needed for each dish?
Answer.
Stirling Energy Systems Overview
Stirling Energy Systems, Inc. (``SES'' or ``the Company''), a
developer of solar power generation equipment for utility-scale power
plants, has developed an innovative and highly efficient solar energy
technology that is ready for commercialization. The Company's unique
technology, the SunCatcher<SUP>TM</SUP>, combines a mirrored
concentrator dish with a high-efficiency Stirling engine specially
designed to convert sunlight to electricity.
Technology Overview
The SES SunCatcher is a 25-kilowatt (``kW'') solar power system
designed to automatically track the sun and collect and focus solar
energy onto a power conversion unit (``PCU'') that in turn converts the
intense heat to grid-quality electricity. The concentrator consists of
a 38-foot-diameter dish structure that supports 82 curved glass mirror
facets, each three-feet by four-feet in area. These mirrors concentrate
solar energy onto the heater head of a high-efficiency, 4-cylinder
reciprocating Stirling cycle engine, generating up to 25 kW of grid-
quality electricity per system. Exhibit 2 illustrates the basic
operation of the system.
Technology Advantages
Unlike conventional power generation, the SunCatcher produces no
pollution or greenhouse gas emissions such as carbon dioxide
(``CO<INF>2</INF>''). The energy source is free, renewable, abundant,
and inexhaustible. Most importantly, through advances made over the
last decade, the technology is poised for commercialization. Key
advantages over competing renewable technologies include:
Efficiency
Solar technologies in the past have been challenged by the
economics associated with low efficiencies. On an annualized basis, the
SunCatcher converts approximately 26-28% of the available solar
insolation to grid-quality electricity, nearly twice that of the
nearest solar alternative. The SunCatcher also holds the world's record
at 29.4% conversion efficiency.
Best Fit--Least Cost
Leading California utilities have reported using a ``best fit-least
cost'' evaluation methodology as the basis for selecting SES for a
majority of the renewable capacity contracted to date. SunCatcher
energy production is predictably maximized at mid-day, coincident with
peak demand for electricity, for which utilities are willing to pay a
premium. Due to its efficiency advantage, the manufacture and
construction of a SunCatcher requires roughly one-half the raw
materials of competing solar technologies for equivalent annual power
generation, creating a significant cost advantage.
Predictable Costs, Easier Siting
SunCatcher operating costs are predictable. While up-front
investment costs are higher than conventional generation, the
SunCatcher is cost efficient to operate over its useful life because it
relies on the sun, a free source of energy. As a result, SunCatcher
plants are not subject to the volatility of fossil fuel prices. In
addition, SunCatchers are easier to site since they do not produce
emissions (in contrast to oil, gas, and coal), obstruct views (e.g.,
wind), and are not considered hazardous (e.g., nuclear). As a result of
these benefits, solar energy enjoys broad public support.
As an illustration of the SunCatcher's land-use efficiency, an SES
solar dish farm covering approximately 13 square miles of desert land
is capable of producing 3.5 million megawatt-hours (``MWh'') of power
per year--the same amount of power produced by the Hoover Dam in an
average year, but with a footprint that is less than 5% of the 250
square miles required by Lake Mead.
Additional Advantages and Customer Benefits
Additional advantages and customer benefits of the SunCatcher
technology include:
<bullet> low water use, requiring water only for monthly dish mirror
cleaning, a significant constraint for other concentrating
solar technologies in the U.S. Southwest;
<bullet> units can be serviced and repaired individually without
impact to the rest of the project, resulting in high overall
plant availability;
<bullet> power production can be brought on-line incrementally as
individual units are connected to the electric grid; and
<bullet> sites can grow as power needs increase from tens to hundreds
of megawatts.
Technology
The SES SunCatcher is a 25 kW solar system designed to
automatically track the sun, collect and focus the solar energy onto a
power conversion unit that in turn converts the intense heat to grid-
quality electricity. Exhibit 3 below illustrates the sun tracking cycle
during daily operation.
The SunCatcher produces electricity efficiently, without fuel costs
or environmentally harmful emissions. The modular nature of the system
allows individual 25 kW units to be assembled and ready for operation
in less than one day after the dish pedestal has been installed. This
modularity allows the SunCatcher to produce power during the
construction phase of a power plant, as soon as the first units are
operational and connected to the transmission grid. More importantly,
modularity permits maintenance to be performed on individual systems
without shutting down the entire power plant, contributing to high
overall plant availability.
The modular SunCatcher system can be scaled for smaller power
plants (tens of megawatts) or for larger, utility-scale plants
(hundreds of megawatts). For a detailed comparison of the SES
SunCatcher to other power-generating technologies, see the SES
SunCatcher Competitive Advantages section.
Power Conversion Unit
The PCU consists of a solar receiver, Stirling engine, 480-volt
inductiongenerator, radiator cooling system, and support frame. The
heart of the PCU, the Stirling engine, is the most thermodynamically
efficient cycle for converting heat into mechanical power.
The Stirling engine is designed to be a low maintenance, highly
efficient engine with a long useful life. There are many versions of
the Stirlingengine, each customized for different applications. The
Stirling engine used in the SunCatcher system is called a ``4-95''
which refers to the engine's four cylinders each with a 95 cubic
centimeter displacement. Its inclusion in the SunCatcher system is the
critical element which makes the SunCatcher technology so efficient and
revolutionary.
In general, all engines require heat. Stirling engines use an
external heating source where heating occurs outside the engine instead
of within it, as in a conventional internal-combustion automotive
engine. This external heating feature makes the Stirling engine very
flexible and highly efficient while also allowing it to achieve ultra-
low emission and noise levels.
In comparison to internal combustion engines, Stirling engines have
a longer life and require less maintenance. Internal combustion engines
must inject hydrocarbon fuels directly into the interior engine
components, depositing corrosive combustion by-products, greatly
reducing overall engine life. By contrast, the Stirling engine's
internal components are never exposed to corrosive hydrocarbon fuels,
which keeps the engine clean and significantly extends its useful life.
Dish Concentrator
The concentrator dish consists of a 38-foot diameter steel dish
structure that supports 82 curved glass mirror facets, each three-foot
by four-foot in area. It also includes a boom that connects the mirror
support structure to the PCU. The boom is supported by a tubular
pedestal, equipped with an integral azimuth drive, which is then
anchored to a concrete pad. The boom-pedestal connection is pivoted to
allow vertical motion via an elevation drive. The. dish controller is
located inside the pedestal and is accessible through a weatherproof
hatch. The dish structure is designed for low-cost factory automated
fabrication and rapid on-site assembly.
Installation and Operation
Each SunCatcher system requires about a 20-inch augered hole about
16 feet deep for the foundation and mounting of the pedestal. About 8
dishes can be installed on each acre of land, with adequate spacing to
minimize the shadowing from neighboring dishes.
When installed in a solar-rich desert (such as the Mohave Desert in
California), each SunCatcher will produce about as much electrical
energy each year as will be used by 8 to 10 households.
Question 2. I like your idea of ``solar or wind enterprise zones.''
Would you explain this idea further? Might we expand on that idea
for whatever energy is being developed with ``National Energy Areas''?
Answer. The concept of a solar enterprise zone is not original--It
was actually tried out in Nevada about 10-15 years ago. The state set
up a study group that identified some 5 different areas in Nevada that
had excellent solar resources, available public lands (mostly BLM), and
were acceptable to the nearby populations (i.e., there was no serious
NIMBY (``Not In My Backyard'') issues.
The largest of these, the El Dorado Valley south of Las Vegas, has
been selected as a site for a 64 MW solar trough plant that is
currently under construction.
The general concept is to establish a program whereby all Federal
lands would be evaluated for potential use for renewable energy
production. Each land-holding Agency would designate some portion of
the lands determined to have renewable energy potential in their land-
use plans as ``set-aside'' areas for renewable energy development.
This concept could certainly be expanded to cover virtually all 50
states and result in the development of National (Renewable) Energy
Areas. (For some states, the idea resource would be solar, for others
wind, still others geothermal or biomass.) To be most effective as a
tool for developing renewable energy production, the selected ``set-
aside'' lands would be further evaluated, with at least preliminary
environmental impact studies ( so-called programmatic EISs) performed,
transmission interconnect analyses performed and incorporated into a
broader transmission grid upgrade study.
A couple of important cautionary observations: these energy
enterprise zones or set-aside areas should remain Federally-owned land
and not be deeded over or sold to third parties. In the El Dorado
Valley (NV) example, shortly after the area was identified as an ideal
area for solar energy production, the land was deeded over from the BLM
to the city of Boulder City. The city initially set unreasonably high
lease rates for the land, which discouraged and delayed the development
of any solar projects. More recently (in the past few months), the
citizens of the city voted to sell off the land for residential
development, which the city believes will make each of its citizens
very wealthy. Sadly, though, the largest, most ideal solar area of the
state will no longer be available for solar energy production.
It is also important to establish low-lease-rate guidelines for
these renewable energy enterprise zones. Renewable energy, in general,
can be characterized as having large front-end capital costs, which are
offset over the lifetime of the plants by low or no fuel costs. They
usually also require large amounts of land (particularly wind, solar,
and biomass). Putting a high price-tag on land, either in the form of
lease rates or property taxes, will likely make the projects
uneconomical or non-financable.
Response of Bob Linden to Question From Senator Wyden
Question 1. As renewable energy proponents, do you think that the
federal government should play a different or larger role in assessing
the value and availability of solar, wind and geothermal energy
resources on federal lands? We authorized several provisions under last
year's Energy Bill that put DOE and USGS in the driver's seat here, and
yet now we are hearing that if you're measuring wind availability on
BLM land, there's one set of rules and if you're planning a geothermal
project on Forest Service land there's another set of rules. What
should the federal government be doing to provide better assessments of
renewable energy resources?
Answer. I'm not familiar with what the degree of support the
federal government is providing the geothermal industry. DOE has
developed maps that show the general availability of solar, wind,
biomass, and geothermal resources. In the case of solar, NREL has
published hourly solar availability data for some 239 locations in the
U.S. and its territories. These data were collected over a 30-year
period from 1961 through 1990. More recent satellite data is now being
collected to augment this large database.
About two years ago, NREL announced that it had developed a
relatively high-resolution map of wind resources based on satellite
data that covers much if not all of the U.S. (Because of the very site-
specific characteristics of wind, it is still necessary for a developer
to operate one or more wind survey towers (generally 50 meter towers)
at a planned site for a minimum of one year in order to ensure that the
particular planned wind turbine site will provide sufficient wind to
support the economics of the project.)
The BLM has undertaken a program to revise their land use plans for
all their controlled lands. Plans have been completed by some field
offices, and others are still under development.
With regard to your observation that there seem to be different
standards or rules for wind or geothermal projects. I believe the
genesis of this difference lies in the fact that wind is treated as a
resource affecting above ground-surface use rights, whereas geothermal
affects below-ground resources use rights and is treated in the same
general way as minerals management issues by the Department of the
Interior.
Finally, with respect to your question of what else should the
federal government be doing in the area of resource assessments, I
think it is important for NREL and USGS to expand and update the
extensive data available for solar and wind resource assessment by
utilizing the latest state-of-the-art satellite survey capabilities.
______
Responses of V. John White to Questions From Senator Domenici
Question 1. As an organization that represents both industry and
the environmental community, you are probably best equipped to see both
sides of the fence.
What will be most significant challenges to developing renewable
energy on public lands?
Answer. All energy infrastructure projects face numerous barriers,
and for renewable technologies, some of the challenges are unique. The
close connection between renewables and electric transmission can make
the very earliest stages of project development very difficult.
Renewables are faced with trying to line up transmission access,
project siting and site control and a power purchase agreement all
concurrently.
In known renewable resource areas, state and federal agencies
should closely to coordinate siting of both renewable technology
projects and needed expansion of electric transmission. The active
participation of federal land management agencies in these coordination
efforts can help renewable technology projects overcome these hurdles.
As discussed in my earlier filed testimony, without access to
transmission, renewable developers cannot secure financing to build
their projects; and without committed projects, regulators cannot
approve the transmission to connect them. These are complicated issues
that can only be addressed by a very high level of coordination between
federal, state and local governments with a stake in the process, and
the private entities such as developers and utilities that will make
the projects a reality. By beginning early and working together, we can
achieve the goal of sustained, orderly development of our nation's
renewable resources.
The framework which the California Energy Commission and CEERT have
initiated in California can serve as an excellent template for these
kinds of coordination efforts. The Tehachapi Wind Resources area has an
estimated 4500 megawatts of wind energy potential, and remains untapped
because of a lack of transmission capacity. It is essential that these
resources be developed in a timely and orderly fashion, if we are to
achieve Governor Schwarzenegger's goal of 33% renewable energy by 2020.
Tehachapi's enormous potential will only reached, however, if we
can find a way to achieve unprecedented cooperation between all the
parties, especially the Federal Energy Regulatory Commission and
federal land managers such as the Forest Service.
In the Tehachapi Collaborative Study Group (TCSG) process, CEERT
facilitated planning among renewable energy developers, public
agencies, public and investor owned utilities, land holders and public
interest advocates. Each one of these entities will represent a
critical piece in the course of Tehachapi's full development, FERC and
the U.S. Forest Service have critical roles to play, and both have
taken actions which, in the past, impeded California's efforts.
The goals of sustained, orderly development of renewable resources
and coordinated long term planning have been especially difficult for
renewable technologies to achieve. Because the fuel for a renewable
project is essentially free, the vast majority of the cost of renewable
energy comes from the up front financing required. Also, because the
technologies and equipment are significantly more expensive than their
fossil fuel counterparts, they are more difficult to finance and have a
higher level of risk. However, once the initial capital has been paid
back most renewable projects can sell power at or below the cost of
most conventional fossil fueled generation. Similarly many of the
benefits from renewable energy will not be reaped immediately. The
benefits of the critical role renewable energy plays in the fight
against climate change will not be realized for possibly generations.
However, if renewables are to indeed play such a role the action must
begin now.
Question 2. What is needed to address the planning and development
of the additional transmission lines necessary for renewable resources?
Answer. With knowledge of the location of the West's prime
renewable resources, major transmission projects must take into account
these resources in their planning, and recognize the need for
renewables to gain access to the grid. Electricity infrastructure has
an extremely long life time, and renewables will benefit greatly from
farsighted and coordinated transmission planning which focuses on the
sustained, orderly development of the West's best renewable resource
regions.
We believe that the most significant untapped renewable resource
areas throughout the Western U.S. should be evaluated and prioritized.
Among the considerations should be: quality and size of the resource;
market for renewable power; the existing transmission grid near the
resource; and the alternative generation options that will impact the
economics of the development. Much of this work has already been done
for some regions, while others will need additional investigation.
Once the regions have been identified, transmission planning groups
should be formed in the mold of the TCSG. The Western Governor's
Association has the existing capacity to jumpstart these groups and
could serve as the coordinating body.
An example of the need for this kind of early coordination and
cooperation between public agencies and energy stakeholders is the
opportunity in the Mohave Desert regarding for concentrated solar power
(CSP) projects.
The Bureau of Land Management (BLM) has conducted its current
planning process for land in the Mohave with very little consultation
with renewable energy advocates. As a result, though the Mohave has
some of the best solar resources in the world, almost none of the BLM
land in that area has been designated for solar development. This plan,
if not modified, could significantly reduce the viability of
concentrating solar power, which we believe is the next major renewable
technology on the horizon. The recent heat storm in California provided
a powerful reminder of the importance of development and
commercialization of utility-scale solar technologies.
CEERT is working with the California Energy Commission to establish
a study group for Mohave, which will seek to develop a consensus among
stakeholders, including BLM, regarding transmission, land use, and
procurement policies needed to rapidly develop large scale solar
projects. We envision the process being similar to the Tehachapi
process, but including siting and land use issues unique to this region
and CSP technologies. We would hope the Committee could encourage the
BLM's full and active involvement in this process, and that the result
will be the kind of intense, coordination and cooperation that we
believe is essential between California and the federal government.
A recently released study contracted by National Renewable Energy
Labs and preformed by Black and Veatch consultants analyzed scenarios
for the deployment of 2100 MW and 4000 MW of concentrated solar power
in California. The study found substantial economic viability and
benefits from these scenarios, yet without cooperation from the federal
government, the projects will not come to fruition.
Responses of V. John White to Questions From Senator Wyden
Question 1. As renewable energy proponents, do you think that the
federal government should play a different or larger role in assessing
the value and availability of solar, wind and geothermal energy
resources on federal lands?
Answer. As mentioned in Question 2 of our responses to Senator
Domenici, the government could play an important role in helping to
identify key renewable resource areas around the Western US. It will
also be important for federal agencies to engage meaningfully in the
collaborative process of planning the transmission. This is a fine line
to walk as we are not recommending that the federal government seek to
gain more authority in the process but rather increase their engagement
collaboratively with the various other stakeholders. Many people will
play a role in the expansion of renewables and transmission
infrastructure around the West. An inclusive collaborative process will
ensure that this is done in the most effective fashion. Additionally
agency work in conducting environmental impact studies has generally
led to the construction of better energy projects. This level of
involvement has fallen off and should be restored.
As mentioned in our initial written comments, the lack of funding
and the requisite staffing to adequately perform environmental studies
and reviews has been an ongoing problem for many federal agencies
including the BLM and Forest Service. Increasing the government's role
in assessing renewable resources, would depend on increased funding for
the Federal land managers.
Question 2. We authorized several provisions under last year's
Energy Bill that put DOE and USGS in the driver's seat here, and yet
now we are hearing that if you're measuring wind availability on BLM
land, there's one set of rules and if you're planning a geothermal
project on Forest Service land there's another set of rules. What
should the federal government be doing to provide better assessments of
renewable energy resources?
Answer. Consistency and harmony are always difficult issues to
resolve when it comes to multi-agency efforts. These agencies, DOE,
USGS, BLM, and USFS, may have different goals and statutory
obligations. This highlights yet again the need for early collaboration
and cooperation. However there is a very tangible value in being able
to agree on the assessment of renewable resource areas throughout the
west. As mentioned earlier, a cooperative state and federal government
effort, coordinated through the Western Governor's Association, to
identify and prioritize key renewable energy resource regions would be
a crucial first step in creating collaborative planning for
transmission and siting of projects. It is imperative in the West that
the federal government play a role in this process from the very
beginning because the Federal Government owns so much of the land where
renewable resources occur.
In order to achieve this, it will likely be necessary for agencies
to come together and try and resolve the differences in consistency
between their different assessment strategies and priorities. Your
question highlights an important first step in the process. Public
input in developing an assessment strategy will be crucial to ensure
that all factors impacting development are considered early on,
including impacts on wilderness and environmentally sensitive land.
This will help all stakeholders avoid delays later on in the process
when more time and money has been invested by all those involved.
MONDAY, JULY 17, 2006
______
General Motors Corporation
Warren, MI, August 14, 2006.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Senator Domenici: Please accept my apologies for my delayed
response to the committee questions. On the evening of my testimony in
Washington, my mother fell into a coma and subsequently passed away
last week.
I hope my responses are still timely enough to be of use to the
committee.
Sincerely yours,
Byron McCormick,
Executive Director, Fuel Cell Activities.
Responses of J. Byron McCormick to Questions From Senator Domenici
Question 1. I'd like to poll the panel on the key questions we have
to answer about building a hydrogen infrastructure. Do you believe we
should rely on on-site production, or centralized production with
pipeline distribution?
Answer. My belief is that we will use both centralized and
distributed production depending on the energy source and location.
GM's vision includes centralized production from coal, biomass, natural
gas, and nuclear and geothermal energy as well as distributed
production from natural gas, wind and solar power, and electrolysis
from any outlet for electricity. We also envision some degree of home
refueling for customer convenience and to augment the infrastructure
during the early phases on deployment.
Question 2. What further work is needed on codes and standards for
fuel cells for vehicle applications?
Answer. This is a particularly relevant question. With respect to
vehicular codes and standards, the Society of Automotive Engineers
(SAE), NHTSA, and the International Society for Standardization (ISO)
are doing an excellent job. There are remaining open items, but these
are being addressed in an orderly technical way. The more troubling and
perhaps more difficult issue is siting of fueling stations. Codes are
local and interpretations vary greatly. GM and the energy companies are
finding it very difficult to open stations in a timely fashion. Some
sort of national standards would be very useful in order to expedite a
rapid rollout once, or if, the U.S. decides to move to a hydrogen-based
transportation system.
Additionally, techniques and government-approved uniform codes and
processes for ensuring the quality of the hydrogen delivered would be
very helpful. This is not so important initially, when large energy
companies are the likely source, but becomes critical as we diversity
our sources of hydrogen and entrepreneurs, small businesses, and other
enterprises enter the ``fuels'' business, creating jobs and
diversifying our energy portfolio.
In regard to the above two issues, the U.S. is competitively
handicapped versus other countries like Japan, where such matters are
centralized and then ``rolled out'' for implementation.
Question 3. Are you satisfied with the progress to date on these
codes and standards?
Answer. In general, we are satisfied with the progress on codes and
standards, with the exception of those for fueling stations. This is
one area where the modeling capabilities and scientific insights of DOE
labs such as Sandia could be useful. The big issue of concern to
neighborhoods near the stations is ``setback,'' or distance from stored
hydrogen, in the event of a major accident. To support the creation of
codes that will be broadly accepted, we need the participation of
knowledgeable technical organizations that are viewed as neutral and
objective. Corporations are not viewed in this manner.
Question 4. Are there any areas where you feel additional focus
would be warranted?
Answer. Senator, I believe the path you were beginning to explore
relative to transitioning the market is becoming the most critical.
While we have not yet accomplished all of our technical and cost
objectives, the questions associated with focusing and mobilizing the
necessary financial resources to underwrite such a massive
transformation is becoming progressively more important. Basically, we
are creating a new industry, or industries if you include the massive
automotive supply base and new hydrogen-production industry. The
question is, how as a country do we get this done? How do we work our
way through the phase during which both the vehicles and hydrogen are
too expensive because we are not at high-volume deployment? This is a
business question for GM. It is a tax and incentives question for
governments around the world.
Our ability to simultaneously develop answers to this question from
both a business and government perspective may well determine whether
this technology can make it out of the lab and into the hands of
consumers in a timely and efficient fashion, and whether the U.S. is
placed in a competitively advantaged or disadvantaged position.
Responses of J. Byron McCormick to Questions From Senator Bingaman
Question 1. The Department's hydrogen program hopes to achieve
milestones out in the 2015 timeframe that will determine whether it is
feasible to produce commercial hydrogen vehicles. At that point, how
many years past these initial milestones will it take to introduce
significant quantities of hydrogen vehicles into the U.S. market? What
kind of government policies are needed in this transition period?
Answer. The speed at which fuel cell vehicles penetrate the market
depends heavily on a number of critical factors, largely beyond the
control of any auto manufacturer. Among these is convincing the public
that fuel cell and hydrogen storage technologies are safe and that
refueling will be available. Another is convincing industry (auto,
energy, suppliers) that this initiative--which is different from all
other previous alternative fuel/vehicle programs--is a key U.S.
priority and that the transition will be accompanied by long-term,
sustained government incentives, since the transition to a significant/
meaningful volume of vehicles in the marketplace will indeed take some
time. (The normal insertion of any automotive technology into the
entire light-duty vehicle fleet takes more than 20 years!) Due to the
technologies involved and the new supply base required, we estimate
that it will take from 500,000 to one million vehicle sales per year to
reach efficient scale. This represents a very significant
capitalization risk to automotive OEMs and a very long-term outlook. As
a result, the longer it is expected to take to reach these volumes, the
more difficult it becomes to justify the initial investment required.
Government incentives will be crucial to closing this gap.
More specifically, relative to actions the government can take to
enable the transition.
<bullet> Provide unprecedented support of alternative fuel program
with a clearly articulated, bold national vision:
--``Moonshot'' advertising and public service campaigns.
--Education program to increase public confidence on safety and
benefits.
<bullet> Sustained, long-term, compelling incentives (total package):
--Substantial early vehicle purchase incentives (could be on the
order of $500 million per year) for government fleets,
commercial fleets, and retail customers (critical for mass-
market acceptance).
--Consumer non-financial incentives (e.g., HOV lanes, parking
privileges).
--OEM incentives (lessen the burden/share the high risk of early
capitalization).
--Supply base financial incentives (support early supply base
capitalization with loan guarantees, tax-free facilities,
etc.).
--Incentives to hydrogen infrastructure providers.
--Incentives to hydrogen station owners/operators (credits, loan
guarantees, tax incentives).
--Incentives initially applied broadly to all hydrogen feedstocks
(later, applied to encourage renewable sources).
--Hydrogen fuel incentives to ensure compelling price relative to
gasoline--e.g., no hydrogen fuel tax until some percentage
market penetration is achieved (recommend 10 percent), plus
additional incentives (since price of fuel is a significant
motivator of sales).
Additionally, the federal government should financially support the
long-term, strategic development of a high-tech U.S. fuel cell industry
capable of producing the world-class components required in Proton
Exchange Membrane (PEM) fuel cells and hydrogen storage systems.
Question 2. What do you see as the two or three long R&D poles in
the tent and based upon your experience will they be ready in the 2015
timeframe for initial decisions to be made on the commercial viability
of a hydrogen vehicle?
Answer. I want to make a distinction between where I think
government should play in R&D versus R&D in general. In general, the
basic technologies and materials sets for early fuel cell vehicles are
established. GM and others like us currently are working on design
refinement, manufacturing process development, and durability and
reliability improvements. Government-funded research at the National
Laboratories and universities should focus on high-risk, high-payoff
items. Specifically, hydrogen storage should lead the list. The more
hydrogen we can put on board cost-effectively at lower weight and
volume, the better the vehicle and the greater the likelihood of
consumer acceptance. Following this, there is a whole list of
``substitution'' materials that would reduce cost and provide the
opportunity for more cost-effective solutions, including: cheaper, non-
noble metal, high-activity fuel cell catalysts; cheaper membranes;
cheaper hydrogen-tolerant materials to replace stainless steel; and
less costly high-strength composite fibers. DOE, NSF, and other
research funds should be directed toward such high-risk, high-payoff
endeavors.
In the nearer term, siting of fueling stations with uniform codes
and the ability to expand the fueling infrastructure rapidly is a
significant ``long pole.'' Government research on the most effective
ways to safely store hydrogen at local fueling stations, based on
science, is a critical element, along with the requisite translation of
that science to workable codes that can be implemented across the U.S.
in a uniform way. Government facilities like the Sandia Combustion
Research facility would be well positioned to deliver this important
element in a timely manner.
Question 3. Since hydrogen is only a carrier of energy and not an
energy source per se like gasoline, how do you expect to produce the
volumes of hydrogen needed outside the realm of reforming natural gas,
which is already in high demand for industry and residential purposes?
Answer. Senator, this is a very important question. Our reason for
developing hydrogen fuel cell technologies is based on the potential
for diverse energy sources to create hydrogen. With over six billion
people in the world, mankind is clearly going to need to be able to use
all possible sources of energy efficiently and cleanly. There is
currently a large hydrogen-from-natural gas industry already in place,
growing, and geographically well-aligned with U.S. population centers.
This industry services the petroleum industry, as ``clean,'' low-sulfur
gasoline requires processing with additional hydrogen to ``replace''
contaminants in the petroleum. Also, we are using progressively
``heavier'' crude oils; these oils have more carbon and less hydrogen
and so require the addition of hydrogen for use in modern automobiles.
As a result, it is natural that the initial vehicle introductions
will build off this large, in-place infrastructure. However, we see
coal, nuclear and geothermal energy, wind and solar power, and biomass
all playing a role as the hydrogen industry develops. Which sources
will lead and when will very much depend on local circumstances, i.e.,
the trade-off between local generation and transportation from more
distant sources. The good news about hydrogen is that local conditions
can and will favor different solutions, which in turn creates energy
diversity and the creation of local jobs.
______
Department of Energy,
Congressional and Intergovernmental Affairs,
Washington, DC, August 31, 2006.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate,
Washington, DC.
Dear Mr. Chairman: On July 17, 2006, David Garman, Under Secretary,
testified regarding the implementation of the Energy Policy Act
provisions on hydrogen and fuel cell research and development.
Enclosed are the answers to eight questions that were submitted by
Senators Smith, Bingaman, and Wyden for the hearing record.
If we can be of further assistance, please have your staff contact
our Congressional Hearing Coordinator, Lillian Owen, at (202) 586-2031.
Sincerely,
Jill L. Sigal,
Assistant Secretary.
[Enclosures.]
Response of David Garman to Question From Senator Smith
Question 1. It has been over 3 years since President Bush announced
our nation's Hydrogen Fuel Initiative, and I know the Department of
Energy has been working diligently on this initiative ever since.
Indeed, your testimony today reports on considerable progress on many
technology fronts.
While using hydrogen as a fuel for transportation has many
attractions, including source diversity and essentially zero tailpipe
emissions, it also faces major hurdles, including shipping, on board
storage, and infrastructure development. Some believe that there are a
number of alternatives that also have very attractive features with
perhaps fewer technical or economic challenges. These include electric
vehicles, plug hybrids, and a variety of fuels such as ethanol,
methanol, and even methane. Isn't it possible that in the near term one
of these pathways will be more technologically and economically
successful than hydrogen powered vehicles? And, if so, should we be
putting just as much effort and funding into these alternatives?
Answer. Hybrid vehicles and ethanol vehicles can have more of an
impact in the near term on reducing oil consumption than hydrogen fuel
cell vehicles. The Advanced Energy Initiative, announced by the
President in his 2006 State of the Union address, proposes a 22 percent
increase in research that will accelerate breakthroughs in energy
technologies such as ethanol and plug-in hybrids. The Department's FY
2007 budget request for the Biomass Program is $149.7 million--$59
million higher than current funding. The budget request for the Vehicle
Technologies Program, which includes hybrid technologies, is $166
million. However, these technologies alone cannot fully substitute for
light-duty vehicle petroleum use in the long term. The National Academy
of Sciences concluded that hydrogen has the most potential for
dramatically reducing oil consumption and carbon emissions. The
technical challenges involved in developing viable hydrogen and fuel
cell technologies require significant R&D to achieve these long-term
benefits. The Department's FY 2007 budget request includes a balanced
portfolio of near- and long-term approaches that will all play an
important role in overcoming our Nation's dependence on foreign oil.
Responses of David Garman to Questions From Senator Bingaman
Question 1. Section 783 of the Energy Policy Act directs the
purchase of stationary fuel cell systems and potable fuel cell systems
by the federal government to meet the federal energy management
savings--what is the status of this program with respect to stationary
fuel cell systems such as those produced by Ion American and portable
fuel cells such as those produced by Poly-Fuel?
Answer. The Department recognizes that stationary and portable fuel
cell technologies offer early market opportunities and that the Federal
Government is a potential early adopter. The Department is evaluating
EPACT 2005 section 783 requirements to determine how it could be
integrated with existing efforts. The Secretary will call upon the
Interagency Hydrogen and Fuel Cell Technical Task Force and the
Hydrogen Technical Advisory Committee for recommendations regarding the
status of stationary and portable fuel cell technology to determine how
to proceed. The Department also is conducting studies to determine: a)
the most promising near-term end-use applications for stationary and
portable fuel cells, b) the user requirements necessary for adoption of
the most promising applications, c) an economic comparison of most
promising technologies, and d) strategies for DOE to promote deployment
of fuel cells in the most promising market segments--when ready
technologically and economically.
Background:
The focus of the Department's current research efforts in these
areas is on reducing cost and improving performance so that these
technologies can compete in the marketplace. The Department's 2007
budget request includes $63.35 million for research and development of
solid oxide fuel cells such as the Ion America technology and $7.42
million for development of polymer-based fuel cells for stationary and
portable power, such as the Polyfuel technology. To compete with
existing technologies, stationary systems need to achieve 40%
efficiency and 40,000 hour durability; current status is 32% efficiency
and about 20,000 hours durability. Portable power systems must cost
less than $3/W and have a lifetime of 5,000 hours; current status is
$40/W and about 500 hours.
Question 2. Section 782 (c) of the Energy Policy Acts sets a number
of actions that the Department must take with respect to developing
fleet purchase requirements for fuel cell vehicles by 2010, what is the
status of the Department in developing such a program?
Answer. The Department agrees that section 782 of EPACT provides
opportunities to accelerate Federal adoption of fuel cell vehicles for
fleets. However, fuel cell vehicles are not currently available for
federal fleet purchasing or leasing. Because the technology is in the
research and development phase, fuel cell vehicles are too costly and
do not meet the current performance requirements of Federal fleets.
Some fuel cell vehicles are being used by Federal, State and local
agencies as part of our Hydrogen Program learning demonstration
project. The agencies are not leasing or purchasing these vehicles but
are operating them so that the automobile manufacturers and the
Department can obtain data on the performance of the vehicles, and
address any problem areas.
The Department will continue to assess the status of the
technology, with input from the Interagency Task Force and the Hydrogen
Technical Advisory Committee, and will recommend that Federal agencies
purchase or lease fuel cell vehicles when the technology is available
and competitive--on the basis of performance--with conventional
vehicles.
Question 3. The National Academies identified hydrogen storage as
the key technical challenge facing the successful outcome of a hydrogen
car system and that traditional gaseous fuel tanks will not work--how
close is the Department to overcoming this issue and do you think it
will be met by 2015 when you are hoping to achieve a 300 mile driving
range?
Answer. Through the Department's Centers of Excellence and
independent projects, which include 40 universities, 15 companies and
10 federal laboratories, the Program has made significant progress. We
have identified materials with over 50% improvement in hydrogen storage
capacity. Achieving the 2010 target of 6 weight percent, or percent
hydrogen by weight, will enable some vehicles to achieve a 300-mile
range; however, the long-term target of 9 weight percent is required to
achieve this range in all light-duty vehicle platforms. Given the
Department's plans, including theory-guided experiments and high-
throughput experimental techniques, and the support of Congress, the
Program believes that it may be possible to achieve target projections
in laboratory prototype systems by 2015. Scaling up of laboratory
prototypes to commercial systems by industry and developing high volume
manufacturing capabilities to reduce cost would be expected to follow,
if industry carries through with their present intentions.
Question 4. The Department's goal is to produce distributed
hydrogen fueling stations with consumer cost of $2 per gallon of
gasoline equivalent. It is my understanding that for reformed natural
gas you have decreased the price from $5 to $3 but using reformed
natural gas is unrealistic given its demand by industry and home
heating. How close is the Department to meeting this goal using other
methods such renewables (bio-production) or electrolysis of water?
Answer. The price of natural gas should not be considered
exclusively as a factor when assessing the competitiveness of hydrogen
cost; the price of gasoline should also be considered. If, for example,
natural gas was available at a price of $12.50 per million Btu,
analysis indicates that the resulting hydrogen cost would be $4.50 per
gallon gasoline equivalent (gge). When used in a fuel cell vehicle,
hydrogen at $4.50/gge may be competitive on a cents-per-mile basis with
gasoline at $1.90 per gallon (untaxed) because of the increased
efficiency of the fuel cell. EIA analysis indicates that natural gas
demand is projected to increase by less than 3% between 2020 and 2025,
when fuel cell vehicles are expected to be introduced into the market.
Although natural gas provides an available feedstock pathway for
distributed hydrogen generation, it is clearly a near-term ``bridge''
strategy because long-term supply concerns and price volatility are an
issue. The Department is also making progress in renewable production
of hydrogen and in electrolysis:
<bullet> Using ethanol as a feedstock, the current projected cost of
producing hydrogen is about $4.40 per gallon gasoline
equivalent (gge), an improvement from $6.70 per gge status in
2003. This price may be projected to fall further, with the
anticipated decline in ethanol pricing.
<bullet> The economics of electrolyzing water into hydrogen and
oxygen is heavily dependent on the cost of the electricity. The
current cost of water electrolysis in a distributed system is
estimated at $4.80/gge based on an electricity cost of $0.039/
kWh, the lowest industrial electricity price that 25% of the
population paid from 2000-2005. To reduce cost further, capital
equipment costs for electrolyzers must be reduced from the
current cost of $665/kW to $125/kW.
<bullet> We are also pursuing longer-term renewable hydrogen
production pathways such as water-splitting using solar-driven
high-temperature thermochemical, photoelectrochemical, and
photobiological technologies, and other renewable resources,
such as geothermal and wind as they become feasible.
Responses of David Garman to Questions From Senator Wyden
Question 1. The New York Times last Sunday, reported on the advent
of fuel cell power packs for recharging cellphones, Blackberrys, and
Personal Digital Assistants. Apparently the Europeans and Asians are
ahead of the U.S. in marketing these devices that are due to become
available next year. Why does the Administration focus almost
exclusively on the use of hydrogen fuel cells for transportation when
there are other technologies that could help us save energy, create
jobs, clean up the environment and compete in today's global hydrogen
markets?
Answer. The Administration is primarily focused on hydrogen fuel
cells for automotive applications because transportation accounts for
2/3 of the 20 million barrels of oil our nation uses each day; fuel
cells in transportation applications could significantly reduce our
dependence on foreign sources of oil. Fuel cells for portable power
applications, such as cell phone chargers, etc., can improve energy
efficiency of consumer electronics and decrease electricity use, but
these do not provide the significant energy savings that are possible
in the transportation sector. The Department, however, recognizes that
stationary and portable fuel cell technologies offer early market
opportunities that will facilitate the development of fuel cells for
later use in the automotive sector. The Administration's 2007 budget
request includes $7.4 million for development of polymer-based fuel
cells for stationary and portable power, and approximately $2 million
for research on manufacturing of fuel cells. This will help the U.S.
maintain a leading position in all fuel cell technologies, including
portable power.
Question 2. Toyota has been showing off their new hydrogen fuel
cell demo car. Built at nearly $1 million each, Toyota has been
involved in a Cooperative Research and Development Act Agreement with
the Department of Energy to test their experimental engine designs
under extreme driving conditions. Toyota claims that we are still 5-6
years away from seeing hydrogen fuel cell powered cars and trucks for
sale. Is this true? What is the national timetable now for reducing the
costs of fuel cells and getting hydrogen fuel celled vehicles on the
road? If Chevron can power up a fleet of buses in the Bay Area today
why can't we start driving hydrogen-fueled cars and trucks tomorrow?
Answer. There are a number of technical challenges that need to be
overcome before hydrogen fuel cell vehicles become viable. These
include improvements in hydrogen storage capacity to enable 300-mile
range, further reductions in fuel cell cost, and improvements in fuel
cell durability. Under the President's Hydrogen Fuel Initiative, the
Department's Hydrogen Program is implementing an R&D plan to overcome
these challenges during the next 10 years.
Fuel cell buses, like the ones run by AC Transit in the Bay Area
and the CUTE buses in Europe, are available today because the cost and
performance requirements of buses are very different from those of
light-duty vehicles and trucks. For example, a fuel cell bus can carry
large tanks of hydrogen on its roof and travels fewer miles between
refuelings, so storage is not a major barrier for this application.
Also, because public transit vehicles have specified routes and parking
locations, hydrogen fuel cell buses can have dedicated fueling
facilities on fleet property and do not require the flexibility in
fueling locations that the public demands for its vehicles.
Question 3. Mr. Leuliette testified at the hearing, that the United
States lacks a fresh, new, comprehensive, national energy policy that
sets specific targets and goals for reducing American's dependence on
imported oil and gas while we transition to a hydrogen fuels and
renewable energy economy. Don't you think these types of targets or
goals would be useful? Does the Energy Department have any official or
unofficial targets or goals for reducing oil dependence using hydrogen
or renewable energy? If not, why not? What are the latest estimates of
how much of our domestic and imported oil could be displaced by
hydrogen cell fuels? By when?
Answer. The Advanced Energy Initiative (AEI) will accelerate
investment in clean energy technologies in order to transform the way
we power our homes, businesses, and the entire transportation sector.
To achieve these goals, the President has requested $2.1 billion in FY
2007--a 22 percent budget increase--to develop new technologies and
alternative sources of energy to help diversify and strengthen our
Nation's energy mix. The AEI focuses on researching and developing
technologies that we believe hold great promise for reducing America's
dependence on foreign oil and for increasing our use of solar, wind,
biofuels, hydrogen, nuclear, and clean coal technologies. In addition,
we have the ambitious metric of making cellulosic ethanol cost
competitive by 2012. Through the development of advanced technologies
for cellulosic ethanol, plug-in hybrids, and hydrogen fuel cells, we
can help achieve the President's goal of replacing more than 75 percent
of the oil imported from the Middle Ease by 2025.
DOE's benefits modeling suggests that, assuming a light-duty fuel
cell vehicle penetration of 37% by 2050, oil savings would be 5.3
million barrels of oil per day. In an aggressive penetration scenario,
which assumes that the vehicle penetration is 80% in 2040, the
petroleum savings would be 11 million barrels of oil per day (our
current import level).
______
Response of Tim Leuliette to Question From Senator Domenici
Question 1. Do you believe we should rely on on-site production or
centralized production with pipeline distribution?
Answer. This is not an area where Metaldyne has a great deal of
technical information or expertise.
However, I believe it is too early to tell which distribution
system should be used. Long term we need to look to the technology
experts to lay out our options. When we decided to put a man on the
moon we didn't specify a lunar module attached to a three-man capsule.
In the end technology dictates the solution.
Responses of David Garman to Questions From Senator Bingaman
Question 1. Do you know how well integrated the Japanese parts
suppliers are with the Japanese hydrogen car program?
Answer. While it is not public information, the Japanese parts
suppliers are exceptionally well integrated in the Japanese car
program. Traditionally they work very closely with the automakers at
the earliest development stages of any vehicle project and the hydrogen
car program is no different.
There is a Japan Hydrogen & Fuel Cell Demonstration Project,
subsidized by the Ministry of Economy, Trade and Industry (MITI), that
shows promise.
Question 2. Your testimony states that the DOE should include in
its Hydrogen Technical and Fuel Cell Advisory Committee foreign-owned
manufacturers with a significant presence in the U.S. can you explain
this statement in a little more detail?
Answer. The auto industry is a global business. Where a company is
headquartered is not indicative of the economic impact it has on that
country or region. For example, Honda sells more vehicles in the U.S.
than it does in Japan.
In Metaldyne's case we are headquartered in Plymouth, Michigan, but
we see substantial growth and human resources and technical talent
coming from other countries and regions. Integrating those skills and
abilities into our corporate structure has allowed Metaldyne to more
quickly develop innovative products and processes that have made us a
leading global supplier. The same strategy holds true for developing a
hydrogen economy.
As a nation and an industry, we cannot, and should not, ignore the
talent base and technological expertise foreign-based automakers can
offer to the U.S. hydrogen program. These automakers and suppliers
employ thousands of people across our country, who everyday share their
expertise with their global colleagues.
In addition, I would note that an exception was made and rules were
constructed in order to allow DaimlerChrysler to be part of the current
program given that their headquarters is in Germany. These same rules
could be applied to the other foreign owned automakers.
The bottom line is, we need the best and the brightest to help move
us as quickly as possible to the hydrogen economy.
______
Response of Jim Balcom to Question From Senator Domenici
Question 1. I'd like to poll the panel on the key question we have
to answer about building a hydrogen infrastructure. Do you believe we
should rely on on-site production, or centralized production with
pipeline distribution?
Answer. In my humble opinion, I expect that the solution will be a
combination of the two approaches of on-site production and centralized
production, however, I understand that transporting hydrogen by
pipeline is challenging and cost-prohibitive, other than for
industrial-scale production and consumption situations.
Instead, I expect that the onsite supply of hydrogen for
transportation purposes will be either through the reformation of
natural gas, or through the electrolysis of water using electricity.
Hydrogen produced at central locations (via larger scale natural gas
reformation or water electrolysis) will be distributed in cryogenic
liquid form in tankers or in high pressure gas form in tube trailers.
Hydrogen is relatively easy to produce and distribute in each of these
processes.
Some persons have proposed that the U.S. can use its abundant
supply of coal to reduce its dependence on foreign oil; the conversion
of coal to hydrogen along with CO<INF>2</INF> sequestration would
provide an environmentally acceptable method of centralized hydrogen
generation. This would require that the hydrogen be transported. An
efficiency study would need to be conducted comparing the cost of
transporting hydrogen versus producing the electricity first, and
transporting the electrical power to an electrolyzer for the production
of hydrogen closer to the point of use.
Nuclear power, and renewable sources of electricity such as wind,
wave or solar can be used to produce electricity for the electrolysis
of water into hydrogen. It may be more economical over the coming
decades however to deliver the energy generated from these sources to
the grid to offset any oil currently consumed to generate electricity.
In this way, available oil supplies can be allocated to the
transportation sector, where fuel mobility is most important and most
challenging.
Responses of Jim Balcom to Questions From Senator Bingaman
Question 1. I sense the same dynamics with your industry much like
that with the chip industry when we formed SEMATECH in the 1980's--that
the U.S. has developed the cutting edge critical technologies but that
foreign competitors, particularly those in Asia, are about to win by
bringing them first into market and setting the standards for use. Do
we need to develop a similar industry--government partnership for
critical R&D like SEMATECH or are there some other mechanisms that the
government can employ such as federal purchasing to ensure we do not
loose this market?
Answer. My understanding is that SEMATECH was established to
counter a national threat to semiconductor technology in the U.S. The
stakes are indeed high today in the case of energy, with the need to
reduce U.S. dependence on foreign oil, and to reduce the threat of
global climate change.
However, in this case the DOE already has a solid plan in place
whereby industry-government partnerships would work together to conduct
the long term R&D that will be required to change the massive
transportation sector from one that relies on fossil fuels to one based
on hydrogen. It includes several competitively bid, cost-shared
projects with industry across a broad range of technologies.
The DOE has recognized and acknowledged that the portable fuel cell
market will precede and has the potential to catalyze the automotive
fuel cell market. Since so many of the designs, materials and processes
are the same or similar between the portable and automotive fuel cell
applications.
Unfortunately, due to a lack of funding, the DOE has suspended the
portable fuel cell programs, along with several other programs for
FY06. Until recently, the National Institute of Standards and
Technology (NIST) also had competitively awarded, cost shared programs
with industry focused on portable fuel cell technology through the
Advanced Technology Program (ATP). Funding for this program has also
recently been suspended and the projects cancelled.
PolyFuel doesn't feel that a specific SEMATECH initiative is
required, but rather that funding for the existing government programs
be maintained and the industry-government projects be executed.
Question 2. The Department is projecting initial milestones for
developing commercially viable fuel cell vehicles by 2015, where will
your market be by that time frame and who do you expect to be the major
players?
Answer. Most of PolyFuel's customers are major consumer electronics
manufacturers. They project that the market for portable fuel cells
could reach 10% of the portable consumer electronic device customer
base. One of the largest laptop manufacturers projects that the
adoption rate could reach 30% of their customer base. Overall market
projections vary, but one of the larger market forecasting firms,
Allied Business Intelligence (ABI) has projected that the market for
portable fuel cells could reach 50 million units by 2011. This would
represent a 2% to 3% adoption in that timeframe. Several of the leading
consumer electronic manufacturers have indicated that they intend to
launch portable fuel cell powered devices in the 2007 or 2008
timeframe. One has indicated that they expect to have 1 million units
in the field in late 2008 or early 2009.
Several U.S. based companies have leading technology in the
portable fuel cell space. These include companies such as DuPont,
PolyFuel and MTI Inc. However, many more Asian, European and Canadian
firms are further ahead in terms of technology and market development.
The risk is that foreign fuel cell manufacturers will achieve a
substantial lead in the larger, but later, automotive fuel cell market
by virtue of having been more active in the earlier portable fuel cell
market.