<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:71502.wais]
CONGRESSIONAL PERSPECTIVES ON ELECTRICITY MARKETS IN CALIFORNIA AND THE
WEST AND NATIONAL ENERGY POLICY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY AND AIR QUALITY
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MARCH 6, 2001
__________
Serial No. 107-8
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia BILL LUTHER, Minnesota
ED BRYANT, Tennessee LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Energy and Air Quality
JOE BARTON, Texas, Chairman
CHRISTOPHER COX, California RICK BOUCHER, Virginia
STEVE LARGENT, Oklahoma RALPH M. HALL, Texas
Vice Chairman TOM SAWYER, Ohio
RICHARD BURR, North Carolina ALBERT R. WYNN, Maryland
ED WHITFIELD, Kentucky MICHAEL F. DOYLE, Pennsylvania
GREG GANSKE, Iowa CHRISTOPHER JOHN, Louisiana
CHARLIE NORWOOD, Georgia HENRY A. WAXMAN, California
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
HEATHER WILSON, New Mexico BART GORDON, Tennessee
JOHN SHADEGG, Arizona BOBBY L. RUSH, Illinois
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York THOMAS M. BARRETT, Wisconsin
ROY BLUNT, Missouri BILL LUTHER, Minnesota
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan
GEORGE RADANOVICH, California (Ex Officio)
MARY BONO, California
GREG WALDEN, Oregon
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
------------------------------
C O N T E N T S
__________
Page
Testimony of:
Aderholt, Hon. Robert B., a Representative in Congress from
the State of Alabama....................................... 86
Bartlett, Hon. Roscoe G., a Representative in Congress from
the State of Maryland...................................... 77
Bereuter, Hon. Doug, a Representative in Congress from the
State of Nebraska.......................................... 73
Bono, Hon. Mary, a Representative in Congress from the State
of California.............................................. 11
Calvert, Hon. Ken, a Representative in Congress from the
State of California........................................ 78
Capito, Hon. Shelley Moore, a Representative in Congress from
the State of West Virginia................................. 83
Davis, Hon. Susan A., a Representative in Congress from the
State of California........................................ 33
DeLay, Hon. Tom, a Representative in Congress from the State
of Texas................................................... 70
Filner, Hon. Bob, a Representative in Congress from the State
of California.............................................. 8
Ganske, Hon. Greg, a Representative in Congress from the
State of Iowa.............................................. 48
Honda, Hon. Michael M., a Representative in Congress from the
State of California........................................ 35
Inslee, Hon. Jay, a Representative in Congress from the State
of Washington.............................................. 23
Issa, Hon. Darrell E., a Representative in Congress from the
State of California........................................ 25
Radanovich, Hon. George, a Representative in Congress from
the State of California.................................... 14
Sherman, Hon. Brad, a Representative in Congress from the
State of California........................................ 19
Stenholm, Hon. Charles W., a Representative in Congress from
the State of Texas......................................... 52
Thompson, Hon. Mike, a Representative in Congress from the
State of California........................................ 28
Watts, Hon. J.C., Jr., a Representative in Congress from the
State of Oklahoma.......................................... 45
Woolsey, Hon. Lynn C., a Representative in Congress from the
State of California........................................ 81
Material submitted for the record by:
Baca, Hon. Joe, a Representative in Congress from the State
of California, prepared statement of....................... 94
Cunningham, Hon. Randy ``Duke,'' a Representative in Congress
from the State of California:
Prepared statement of.................................... 95
Prepared statement of.................................... 96
DeFazio, Hon. Peter A., a Representative in Congress from the
State of Oregon, prepared statement of..................... 98
Gephardt, Hon. Richard A., Democratic Leader, and Hon. Martin
Frost, Chairman, Democratic Caucus, prepared statement of.. 105
Hunter, Hon. Duncan, a Representative in Congress from the
State of California, prepared statement of................. 106
Larson, Hon. John B., a Representative in Congress from the
State of Connecticut, prepared statement of................ 107
Luther, Hon. Bill, a Representative in Congress from the
State of Minnesota, prepared statement of.................. 109
Otter, Hon. Butch, a Representative in Congress from the
State of Indiana, prepared statement of.................... 110
Ryun, Hon. Jim, a Representative in Congress from the State
of Kansas, prepared statement of........................... 111
Sandlin, Hon. Max, a Representative in Congress from the
State of Texas, prepared statement of...................... 111
(iii)
CONGRESSIONAL PERSPECTIVES ON ELECTRICITY MARKETS IN CALIFORNIA AND THE
WEST AND NATIONAL ENERGY POLICY
----------
TUESDAY, MARCH 6, 2001
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Energy and Air Quality,
Washington, DC.
The subcommittee met, pursuant to notice, at 1 p.m., in
room 2123, Rayburn House Office Building, Hon. Joe Barton
(chairman) presiding.
Members present: Representatives Barton, Largent,
Whitfield, Ganske, Shimkus, Shadegg, Radanovich, Bono, Walden,
Tauzin (ex officio), Boucher, John, Waxman, Markey, Strickland,
Barrett, and Luther.
Staff present: Jason Bentley, majority counsel; Miriam
Erickson, majority counsel; Hollyn Kidd, legislative clerk;
Karine Almian, professional staff; Rick Kessler, minority
counsel; and Sue Sheridan, minority counsel.
Mr. Barton. If the subcommittee could please come to order,
if the audience would take your seats, we have approximately 30
Members who want to testify.
Today we are going to receive testimony from Members of
Congress, both sides of the aisle, perhaps several Senators
from the other body, on the situation in California and the
West and the general energy policy. I am looking forward to
this. It is obvious there is a lot of interest, given the
number of Members that asked to come before the subcommittee
and testify.
This subcommittee will continue to review what has happened
and is happening in California and the surrounding Western
States. We want to learn from the lessons of California's
retail restructuring attempt, its efforts in the wholesale
market and its responsibility in attempting to manage supply
and demand for the State and the reactions at various times to
the problems that began last summer and continue to this day.
The lessons that we can learn from what has happened out
West will help other States as they decide whether or not to
open their retail electricity markets.
We also want to conduct oversight over the general
interstate situation in the West, both in the wholesale
market--and consider what legislation, if any, might be needed
at the Federal level in that area. I hope that the members of
the subcommittee will think not just short term and State
specific, but longer term and more generally what is going on.
The development of additional generation capacity in this
country should not be discouraged. In fact, it needs to be
encouraged, in my opinion. The people that produce power should
be kept interested in selling in the markets that need that
power and encouraged to do so. We should also look at
transmission capacity and what, if anything, we need to do at
the Federal level to expedite additional transmission capacity
for our country.
Finally, some thought needs to be given to the consumers,
the high prices that they have to shoulder and sometimes the
inability of the market to send the appropriate price signal at
the appropriate time.
On our second, panel, we are going to look at the broader
issue of national energy policy. We have approximately 15
Members to testify on that issue, including the Republican Whip
and the Republican Conference Chairman. We are going to hear
testimony from Members representing all parts of the country.
This is a good thing, because we do have regional energy
markets, and if you have regional markets, there are going to
be regional differences of opinion and regional differences in
emphasis in the areas of our country.
The subcommittee is going to conduct a number of hearings
this spring as we attempt to put together a comprehensive
energy policy for this country. The ability of the Members of
Congress who are not on our committee to come forward and give
their perspective before we put together a proposal, I think is
very important and is very beneficial to the subcommittee. So I
appreciate all the Members who have asked to testify.
With that, I would see if the full committee chairman would
like to give an opening statement.
Chairman Tauzin. Go to the other side first.
Mr. Barton. We will be honored to go to Mr. Markey. Usually
I yield to the full committee chairman, but if he wants to
defer to the distinguished member from Massachusetts, that is
fine by me.
Mr. Markey. I thank the chairmen very much, both of you.
Thank you so much for having this great hearing today, hearing
from our congressional colleagues.
President Bush has suggested that the solution to the
California energy crisis is to drill for oil in the pristine
Arctic National Wildlife Refuge. He makes this recommendation
despite the fact that only 1 percent of California's
electricity comes from oil-fired power plants. In fact, 67
percent of all the oil we consume in America, 13 million
barrels a day out of the 20 million barrels we consume, just
goes into gasoline tanks. So I think if you are looking for the
problem, it is right there in every vehicle we are driving
every day, not trying to pretend it is an electricity crisis,
because it is not.
The Republican leadership has introduced a bill to reduce
foreign oil dependence, and they want to reduce it from 56
percent today to 50 percent 10 years from now. That is their
goal, only down to 50 percent in terms of our foreign
dependence, which ultimately undermines quite simply the
futility of taking that approach, if all we do is reduce the
dependence on foreign oil down to 50 percent, Because we
consume 25 percent of the oil today, but we have only 3 percent
of the world's reserves.
Seventy-six percent of those reserves are in OPEC, and
there is not a lot we can do about that, unless we look at fuel
economy standards. Sending in the oil rigs to scatter the
caribou and shatter the Arctic wilderness is what I call the
Unimog energy policy. You might have heard about the Unimog. It
is a proposed new SUV that will be 9 feet tall, 7.5 feet long,
3.5 inches wider than a Humvee, weighs 6 tons and gets 10 miles
per gallon. Or is that 10 gallons per mile? I don't know. But
it is heading in the wrong direction. That is not the big
announcement that should have been made by the auto industry
last week--A new breakthrough: They are even bigger; they are
even more efficient at guzzling gas.
It perpetuates a head-in-the-haze attitude toward polluting
our atmosphere with greenhouse gasses and continuing our
reliance upon OPEC oil for the foreseeable future. That is the
bad news about that announcement. It is saying we are going to
become more dependent.
Now that our energy roles have forced us to think about the
interaction of energy and environmental policy, it is a good
time to say ``no'' to the Unimog energy policy and ``yes'' to a
policy which moves us away from gas-guzzling SUVs and
automobiles to clean-burning fuels, hybrid engines and much
higher efficiency in our energy consumption. And we can do it.
If we just improve our fuel economy standards by 3 miles per
gallon, we will be able to save all the oil that we would
produce out of the Arctic refuge.
As a matter of fact, in 1987, 13 years ago, the average
fuel economy in the United States was 26 miles per gallon.
Today, 13 years later, it is 24 miles per gallon. In other
words, in this technology-based economy, in this country that
prides itself on its mastery of technology, we have gone
backwards by 2 miles per gallon in the last 13 years, which is
the height of technology innovation in our country's history.
So just using existing technology on the shelf already, we
would be able to save 3 miles per gallon, and more, if we made
the commitment to do so.
There is 26 to 38 trillion cubic feet of natural gas at
Prudhoe Bay. I support going for it. Let's get that 26 to 38
trillion feet.
Mr. Barton. The gentleman's time has expired.
Mr. Markey. The same thing is true across the board. We
just need a common-sense policy.
I thank the chairman.
Mr. Barton. I thank the gentleman from Massachusetts.
The gentleman from Louisiana, Mr. Tauzin, for a brief
opening statement.
Chairman Tauzin. Thank you, Mr. Chairman.
Mr. Chairman, I want to commend you for holding this
important hearing on the power situation in the Western third
of our Country as you and the committee explore a new national
energy policy for the entire country.
There was a gentleman in the Carter administration, named
Bob Freeman, who once postulated a truth profundity. He said
that energy would last us forever if we just didn't use it, and
it was upon that basis that much of the energy policy of the
Carter years was formulated. And I hear that again echoed today
in this room, that if we simply stop using it, everything will
be okay.
In California, electric generating capacity dropped 2
percent in the last 10 years. Demand went up 14 percent. Now,
we can stick our heads in the sand and believe that demand
won't go up in this country, that the high-tech economy we are
building doesn't require more energy; or we can face the real
truth, and that is that when consumers need energy in this
economy, this Nation needs to respond by making it available.
Of course we ought to have conservation and conservation
ought to be part of our plans. But recognizing growing demand,
Mr. Chairman, requires us to recognize that supplies are
critical and that keeping this country secure in its supplies
is as important as keeping California secure in the supply of
energy.
We have had a previous hearing of this subcommittee--and I
want to thank you for that--on the California regulatory
experience. I think we understand a lot of those issues better
today. You and I went to California. We had a chance to talk
firsthand with the generators and the utilities and the
regulators in California; and I think we also have a much
better idea about what has to be done to make that market work.
Frankly, I must say that having been there with you, I am
very skeptical about the road that California itself is taking
in trying to solve the problem for Californians, but I am also
very pleased that you going to hear from other Members of
Congress today, and that you are giving them a forum to voice
their concerns and their opinions, because I think each will
bring a new perspective to our understanding of the California
situation.
California, as we said earlier, is a huge part of this
country, 12 percent of our GDP, and you can't have a crisis in
that big a part of our country without it being a crisis for
America. And we need to collectively find the answers. We are
realizing more and more that electricity problems of one State
are never confined to that State's boundaries. They are
regional problems, and that is why this Western hearing is so
important, because the whole Western region has been affected.
We should be cautious about quick fixes in one State that
can have unintended consequences for its neighbors, but I am
confident that given the chance, mark-based approaches with an
emphasis on supply are the long-term solution. The experience
of States like Pennsylvania, Texas and Ohio, with the
electricity markets that are working, should demonstrate to us
that these markets can and will work.
I want to urge all of our colleagues, those who are coming
to testify and those who serve you on this great subcommittee,
to look at the experience of the States where it is working,
just as you look at the State of California where it has
failed, and learn the differences and to help instruct the
Nation on making good policy that can make good energy markets
work again for the country.
Joe, thank you for this hearing. I wish you well again.
Mr. Barton. Thank you, Chairman Tauzin. We appreciate your
attendance.
I am told the gentleman from Louisiana does not wish to
make an opening statement since he was here before. The
gentleman from California, Mr. Waxman, is recognized for 3
minutes for an opening statement.
Mr. Waxman. Thank you very much, Mr. Chairman. I am going
to be very brief because we have a very long and distinguished
list of Members of the House and, I understand, maybe even from
the Senate that will come and talk to us today about this
energy issue.
The energy problems in California, as Chairman Tauzin
noted, are not going to be just a California problem; it is a
problem for the West and it is going to be a problem all around
this country if we have the expression, ``we want market forces
to work''; that is what we were told in California, market
forces were going to work in California and consumers would
benefit. Instead, we have seen that California has clearly a
dysfunctional market.
We in the delegation met with Federal Energy Regulatory
Commission Chairman Curt Hebert. During that meeting Mr. Hebert
discussed how dysfunctional this California energy market is,
and he said it was broken with regional and national
ramifications. Well, what we are waiting for is if, as he said,
California cannot put things right on its own, we want to know
what the policy is going to be from this administration and
from the FERC.
I am interested in hearing what our colleagues have to say.
I look forward to working with all of them and this new
administration in dealing with this problem, but let no one
think that what has happened in California will happen only in
California. It is happening elsewhere, and it will continue to
happen elsewhere if we have a blind faith in what is called
market forces and deregulation without making sure that the
market is really functioning and that there is in fact a market
to function.
I yield back the balance of my time.
Mr. Barton. I thank the gentleman from California. We
appreciate his interest in this issue. It is very important to
his constituents. We really are pleased you are going to be
involved in the debate.
The gentleman from Illinois, Mr. Shimkus, for a brief
opening statement.
Mr. Shimkus. Mr. Chairman, I too will be brief.
I think one of the big lessons we have learned so far is
you can deregulate the industry if you are inherently an energy
exporter. It is very tough to deregulate if you are an energy
importer. Then you constrain yourself to other forces which--
then the consumer or the market has no control.
When we talk about energy, we are talking about a broad
portfolio of fuels, not really petroleum based, mostly natural
gas, coal, nuclear. Those make up the energy portfolio that
creates electricity for our use. Really one of the answers on
the national scale is to have a wide range of choices, and
where I beg to differ with my friend from California, the
market will determine the most efficient use of these fuels.
Make no mistake about it, if government intervenes and tries to
have the fuel of choice, which is what we have seen with
natural gas, then the market will be distorted. Then you will
have government intervention through legislation that distorts
the market.
So I think we need to keep our clean air regulations, but
we need to explore a broad base of fuels and let the market
make the most efficient use for our consumption.
The transmission grid is another thing we are going to be
highly involved in. Even in Illinois, it should be a regional
approach, because even though the Illinois utilities were in a
transco, many of them are leaving. We in essence may have three
RTOs or transcos in the Midwest area where, for more efficient
operation, you will probably need to get that down to one. We
will be working with FERC to do that.
An interesting issue, very emotional. I look forward to it.
Thank you, Mr. Chairman.
Mr. Barton. I thank the gentleman from Illinois.
Does the gentleman from Kentucky wish to make an opening
statement?
Mr. Whitfield. Mr. Chairman, thank you very much.
For those of us that have listened to the testimony and
have read the articles about what is going on in California, I
think many of us would conclude that if California had set out
to determine a way to make energy more expensive, they probably
could not have done a better job than what they did.
I was reading an article just recently that said neither
Governor Davis nor the State legislature seemed ready to do the
one thing that would solve the energy problem, and that is free
retail rates. In fact, Governor Davis admitted as much a few
weeks ago saying, ``Believe me, if I wanted to raise rates, I
could solve this problem.'' So I look forward to the testimony
of the Representatives from California and recognize that what
is happening in California does have the potential to affect
our entire country on this important issue.
Mr. Barton. Thank you.
Does the gentleman from Oregon wish to make a brief opening
statement?
Mr. Walden. Mr. Chairman, the current energy crisis is not
just a California problem, it is a regional problem. The
Northwest is already feeling the drastic consequences of high
electricity markets. We are now at the epicenter of the perfect
storm of electricity, high energy prices and low water levels
behind our dams.
As you know, Mr. Chairman, over 70 percent of the Pacific
Northwest is powered by hydropower. That means in a bad water
year, like we are in right now, the Northwest has got to go to
market to supplement its energy needs. As anyone can see, given
the crisis facing California, this is the worst time to
purchase energy from this spot market. These high energy costs
are now being passed down to our farmers, small business
people, schools, seniors, anybody purchasing power.
Some businesses have already begun to close. Farmers are
now being bought out of their energy contracts for pumping.
While it might help some of these farmers this year when they
have low commodity prices and high energy costs, it sure raises
havoc with the community in which they farm. The implement and
seed and fertilizer dealers will not be able to continue
without the farmers farming. If something doesn't happen soon
to calm that storm, more trouble will follow.
I know that Oregon is not the only State to experience
these types of problems.
Mr. Chairman, I remain concerned about the impact of some
of the California utilities' inability to pay the bills for the
power they have purchased from utilities in my region and the
impact that may have on our ratepayers; and I look forward to
hearing the comments of all the witnesses.
Mr. Barton. Does the gentleman from Oklahoma, the vice
chairman, wish to make a brief statement?
Mr. Largent. Just a brief one, Mr. Chairman. I would like
to enter my full opening statement for the record and also
commend to the panel an article that appeared in the Los
Angeles Times October 10, 2000, on ``Transmission Grid Funding
Tangled Up by Power Crisis in California.'' I would like to
enter that into the record as well.
[The information referred to is retained in subcommittee
files.]
Mr. Barton. Without objection, so ordered.
Mr. Largent. I would just say I look forward to the
testimony of our panels before us. This is an important part of
the process as we move forward to doing what we can at the
Federal level to untangle the grid as it exists today.
[The prepared statement of Hon. Steve Largent follows:]
Prepared Statement of Hon. Steve Largent, a Representative in Congress
from the State of Oklahoma
Mr. Chairman, thank you for holding this afternoon's hearing. I'm
looking forward to listening and learning our House colleagues'
perspective on the energy crunch that has hit California and the
ancillary impact it has had on the surrounding states.
I've said previously and I'll repeat it today, California took a
bold and forward looking step when it decided five years ago to
restructure the state's electric utility industry. Unfortunately, the
implementation of its deregulation plan was based on the presumption
that wholesale rates would remain low. It was a very faulty
presumption.
Wholesale rates did not remain low--in fact, wholesale prices
reached historic highs. Consequently, PG&E and southern California
Edison were unable to recoup their costs for the purchase of power on
the spot market because consumer's retail rates remain capped.
The result--a dysfunctional market, two very large investor-owned
utilities on the verge of bankruptcy, the state of California floating
a $10 billion bond issue to ensure that PG&E and So. Cal Edison can
continue to purchase power, and the very real possibility of a state-
wide owned transmission system.
Mr. Chairman, since December I've heard several people use the
``perfect storm'' analogy to describe California's electricity crisis.
At this point, I would ask for unanimous consent to insert into the
record a ``Dear Colleague'' I sent on October 13, 2000. The title of
the ``Dear Colleague''--`Forecast: Storms Ahead! The perfect storm'.
The text of the ``Dear Colleague'' is only a few sentences:
``Dear Colleague:
Increased demand, stagnant supply, and a congress stuck in neutral.
Are these three elements combining to create ``the perfect storm''?
California is only the first ``weather pattern'' showing up on
doppler radar pointing to the growing crisis in our national electric
delivery system.''
On the reverse side of the ``Dear Colleague'' was an October 11,
2000 article from the Los Angeles Times chronicling the lack of
investment of the transmission grid.
I take no pleasure in predicting California's electricity problems.
I wish I had been wrong. But Mr. Chairman, with your leadership, I'm
confident that this subcommittee will help lay the foundation to
alleviate some of California's energy problems. I look forward to
working with you and all interested parties on this worthy endeavor.
Mr. Barton. Seeing no other members present, the Chair
would ask unanimous consent that all members not present be
given the requisite number of days to submit a formal opening
statement in the record.
Hearing no objection, so ordered.
We want to welcome our first panel.
If everyone testifies who signed up, we are going to have
about 30 people today. I will start out with some of the best
and brightest. By seniority, Mr. Filner of California, you are
recognized for 5 minutes. Your statement is in the record in
its entirety.
Welcome to the subcommittee.
STATEMENT OF HON. BOB FILNER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mr. Filner. Thank you, Mr. Chairman, for giving all of us
the opportunity to testify before this distinguished committee.
I particularly thank you for coming to San Diego last summer.
You recognized the crisis could spread and you brought your
subcommittee there, and we appreciate that very much.
I represent San Diego, California, which was ground zero in
this whole tragic episode. We were the first part of California
to fully deregulate. That is, our retail prices and our
wholesale prices were deregulated and within the space of 1
month, retail prices doubled; within the space of 2 months,
they tripled. Panic literally ensued in San Diego, and I think
you witnessed part of it, Mr. Chairman. Scores of small
businesses closed, almost right away. There was a sense that
people could not keep up with these prices either as
individuals, families or as businesses.
I want to tell the committee that in San Diego, this was
not fundamentally a crisis of supply and demand. There were
tight supplies, but the summer was less warm than the previous
one, the demand had actually gone down from the previous
summer, and the costs doubled, tripled, and were heading even
higher. There was no cost relationship to these higher prices.
The natural gas price, the higher gas price, had not yet
entered the picture. In fact, at the request of our San Diego
delegation, FERC investigated the situation and found these
prices to be unjust and unreasonable, and, therefore, illegal.
Mr. Chairman the prices that we are paying in California
are illegal. And yet FERC took no sanctions against the
perpetrators of those illegal rates, and by not taking action,
basically said, ``Go in and rob the State blind, then rob the
region blind, and then rob the country blind.''
The utilities in the northern and central parts of our
State are facing bankruptcy, bankruptcy coming about because of
the illegal prices that they have to pay. Mr. Chairman--at this
moment, the State of California is paying for the cost of
electricity $2 million an hour, $45 million a day, $1.2 billion
a month. The energy cartel which is responsible for this has
taken $20 billion out of our State in the last 6 or 7 months,
and we are being bled dry.
As we heard from the Representative from Oregon, this has
become a regional problem. Washington, Oregon, Idaho and New
Mexico are now paying these higher prices. It will be a
national problem shortly.
The President has announced he is going to take a hands-off
policy and let the markets work, as we have heard from several
members today. I will tell this committee, there ain't no
market in California, there ain't no market in the Western
region. There is a small energy cartel which controls the
prices, and in fact they manipulated the market to their
benefit.
I do have legislation, Mr. Chairman, H.R. 268, which not
only orders the FERC to set cost-based rates for electricity in
our region, but says that the excessive costs over what is
found to be just and reasonable shall be refunded to the
consumers of California. I am joined in this bill by
Congressman Hunter of California, who unfortunately could not
be with us today. It is in his district that the tragic
shooting took place. I know that we all mourn for those
families.
This is the only way, Mr. Chairman, that California will be
made whole, to refund the money to the utilities of California
and the consumers of San Diego. I think the administration has
to act to do that.
I agree with the chairman of the full committee, we do need
more generating capacity and the Governor is working on that
very diligently. And, yes, we need more conservation; and, yes,
we need to work on renewable resources. But the market is not
there. The market has been manipulated. There is evidence of
illegal withholding of power. There is evidence of falsifying
transmission documents to raise prices. There is evidence of
laundering electrons through other States when there was a cap
in California.
Just a couple days ago, Mr. Chairman, a television station
in San Diego ran a story which they showed that Duke Energy, a
member of the energy cartel that I speak about, removed its
largest turbine from production in its San Diego plant 50
percent of the time during the recent Stage 3 alert in
California. During 32 days of our Stage 3 alert, the plant
removed from service its largest turbine, taking out 222
megawatts of power.
We had the power, Mr. Chairman, there was no shortage. They
removed it illegally.
I believe that the FERC must take action to restore price
stability for the 3 year transition period during which we are
building new capacity, and they must take sanctions. Just
yesterday, Mr. Chairman, I filed charges against this energy
cartel for grand larceny, theft, fraud, attempted murder, and
violation of antitrust rules. This cartel is stealing our
economic future, they are robbing our bank accounts, they are
killing off our businesses; and I think this committee ought to
concentrate on bringing this energy cartel to justice.
[The prepared statement of Hon. Bob Filner follows:]
Prepared Statement of Hon. Bob Filner, a Representative in Congress
from the State of California
Mr. Chairman and Colleagues, thank you for this opportunity to
testify about the ongoing electricity crisis in the western United
States. I would like to thank you, Mr. Chairman, for following this
issue since last summer when you convened a special hearing of this
subcommittee in San Diego, California. At that point, only San Diego
was affected and I testified that this was a harbinger of things to
come.
San Diego was the first region to be affected by this so-called
deregulation crisis because retail electricity rates were uncontrolled
and in the space of one month, rates doubled. Another month passed and
rates were triple what they had been just two months earlier.
This situation became a California crisis when two utility
companies became over-burdened with debt due the difference in the
wholesale price they paid for power and the retail rates they were
allowed to charge their customers.
This situation became a regional problem when the supply of
electricity to the states of Oregon and Washington was reduced and
rates were increased. Now, Oregon and Washington were forced to join
California in paying more for less electricity. It appears that other
states, such as Idaho and New Mexico have been or soon will be
affected.
This situation has now become a national problem and it is
imperative that this Congress, this Presidential Administration, its
Justice Department and its Federal Energy Regulatory Commission (FERC)
must act immediately to stop the abuse, the exploitation that is being
perpetrated upon the American people.
This Congress must act now, by immediately approving my legislation
H.R. 268, the Electricity Consumers Relief Act of 2000. This
legislation would require that the Federal Energy Regulatory Commission
set cost-based rates for electricity if it makes the legal finding that
wholesale rates are ``unjust and unreasonable.'' The FERC made that
finding in a report issued last November. In addition, my legislation
would require that the energy producers and marketers that profiteered
from these illegal rates be required to provide restitution for their
ill-gotten gains to western region consumers.
This Administration must act immediately by ordering its two
agencies, the Justice Department and the FERC, to comply with their
mandates to protect the American public. The FERC is mandated to ensure
that rates are ``just and reasonable,'' and the Justice Department is
mandated to ensure that the electricity cartel is operating in
compliance with our laws.
The FERC has already found that rates are ``unjust and
unreasonabl''--therefore illegal, but it has refused to act.
Just last week, the California Independent System Operator (ISO)
released a report in which they found that California ratepayers were
overcharged by the electricity cartel $562 million over a two-month
period. That is half a billion dollars in just two months! In addition,
the ISO found that two-thirds of the costs charged by the electricity
cartel in January 2001 were ``excessive.''
We have been told that the problems in the western region were
simply a matter of ``lack of supply to meet an increasing demand.'' If
this were true, then why are rates higher in the winter when demand was
one-third less than last summer? The electricity cartel blamed the lack
of supply on plant closures for ``routine maintenance.'' I find it hard
to believe that it was necessary to shut down 25-33% of our electrical
generating capacity for ``routine maintenance.''
Well now, there is evidence that shutting down electrical
production was to create a ``shortage'' of electricity was simply
another example of unethical and criminal behavior on the part of the
electricity cartel. And I believe it is imperative that the Justice
Department uses all of its powers to investigate what is criminal fraud
and negligence by the electricity cartel.
A couple of days ago, the San Diego ABC-affiliate, KGTV Channel 10,
ran a story in which the plant manager of the Duke Energy plant in my
district admitted that its largest turbine, Generator #4, was removed
from service 50% of the time during the recent Stage III alert in
California. Let me repeat, during our 32 days of Stage III alert in
California, this plant removed from service its largest turbine 50% of
the time! This meant that 222 Mw of power was shut down for no good
reason!
In addition, the Duke Energy plant completely shut down its second
largest generator during the entire 32 days of Stage III alert. To make
maters worse, as soon as the Stage III alert was declared, the output
of a generator that was in operation was reduced by 12 Mw.
The Stage III alert caused severe disruptions to businesses and
families in San Diego. Workers at the Kyocera plant, the National Steel
& Shipbuilding Company (NASSCO) were sent home--without pay--and their
family life was thrown into turmoil because we had a ``power
shortage.'' It turns out that we had no such power shortage--in fact,
we had power to spare. Yet prices continue to skyrocket, causing small
businesses to fail, forcing senior citizens to choose between heating
their homes and purchasing food, and gouging all consumers with the
artificially inflated cost of electricity.
Mr. Chairman, it is imperative that all of us--Congress, the
Administration, Justice Department and FERC--comply with our mandate to
protect the public! FERC must immediately set cost-based wholesale
rates and launch an investigation into this apparent price-fixing and
market manipulation. The Justice Department must investigate and bring
charges against the electricity cartel for criminal fraud and anti-
trust violations. And our Congress must act to hold the cartel
accountable and to provide the relief that Americans so desperately
need and deserve.
Thank you for allowing me the opportunity t address you today and I
look forward to working with this panel to protect and serve the
American public.
Mr. Barton. We thank you, Congressman Filner. We will put
you down as undecided on the cause of the problem in
California.
Mr. Filner. Was that a question? Do I have another 5
minutes, sir?
Mr. Barton. I am going to go to the gentlelady from
California, a member of the subcommittee, Congresswoman Bono.
Your statement is in the record in its entirety. We recognize
you for 5 minutes to summarize it.
STATEMENT OF HON. MARY BONO, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF CALIFORNIA
Ms. Bono. Mr. Chairman, thank you for agreeing to hold this
important hearing on California's continuing energy crisis. It
is comforting to know you are ready and willing to assist our
State in this time of need.
As you well know, over the past decade this committee and
our government have been focused on the new economy. The high-
tech revolution has dominated our agenda while the old economy,
like electricity and other energy concerns, have been put on
the back burner. It is becoming abundantly clear that you need
the old economy to run the new economy.
Despite numerous warnings from those in the industry, our
country refused to develop a sound policy that addressed both
the generation and transmission of energy. Even after the
energy crisis of the 1970's, our country was focused on short-
term solutions rather than long-term planning. The State of
California embarked on a deregulation plan which, as we have
heard often, had several shortcomings. Combined with
uncooperative weather and increased use in neighboring States,
California was faced with the worst possible scenario.
Further complicating this problem was the fact that even
the basic economic laws of supply and demand were left
unconsidered. Our State did not build any substantial new power
plants the last decade, and just as importantly, since 1975,
studies indicated that annual utility investments in the U.S.
power transmission system have fallen by more than half.
Now, due to this lack of a dependable supply, we in
California are faced with the nearly inevitable situation of
rolling blackouts. In the month of July, temperatures in the
city of Coachella average 106 degrees; during the summer we
even top off at 120 to 126 degrees. Make no mistake, with
temperatures this high, blackouts are not a question of quality
of life; rather, they can be a matter of life or death.
Therefore, we must confront two critical issues, the price
of energy and the availability of energy. According to the 1990
census, the median household income for California's 44th
Congressional District was $29,000. A family of four who earns
about $2,500 a month before taxes cannot afford an electricity
bill of $500 to $600 a month during the summer.
While we choose to live in this climate and realize the
cost of cooling our homes will be higher than in other parts of
the State, there comes a point when these costs become
unrealistic. As we attempt to understand what brought about
these increases on the wholesale market, we must again turn
toward California's flawed effort at deregulation.
With the California Power Exchange offering suppliers the
highest market clearing price and not the actual bid, we
saddled ourselves with unnecessary cost, and despite FERC's
December 15th order to change its methodology, the PX continued
with its practice. Undoubtedly, the loss system set up by the
State of California fed this vulture culture we have witnessed
on the wholesale markets.
But even more critical this summer will be the availability
of power. While I applaud the Governor's efforts to bring on
generating facilities as soon as possible, I wonder whether or
not these facilities indeed will be ready by this summer and
whether or not the State will have the capacity to transmit
this new power. If not, I am deeply concerned as to our state
of readiness to handle an emergency such as the one we might be
faced with.
The transmission of power is also of major importance. In
fact, two of California's recent rolling blackouts were blamed
on the bottleneck at Pad 15, a 90-mile transmission corridor
linking the northern and southern sections of the State's power
grid.
The inability to shift power within our own State is very
disconcerting. We should work on finding a means to encourage
capital spending on the grid. If utilities are allowed to
receive a higher rate of return on transmission investments, we
can make great strides in shoring up this foundation.
But while we work to rebuild our ability to generate and
transmit energy, part of the short-term solution lies in our
ability to conserve energy. I commend the Governor for
embarking on an aggressive conservation effort. California is
second only to Rhode Island in per capita electricity use.
Still, I think we have the ingenuity and determination to
improve further on this effort.
However, the full bounty of any conservation effort will
not materialize unless consumers are sent nominal price
signals. We cannot continue to live in a world of smoke and
mirrors while shifting costs along in another manner. Sooner or
later, the bills will catch up with us.
While the merits of price control State ownership of
transmission lines are being debated, the truth remains that
neither adds a single megawatt of power to the grid. Only by
encouraging an increase in supply, can the affordability of
price and the consistency of service improve.
Mr. Chairman, while this hearing is focused on the
electricity crisis in California, I would also like to commend
you for having the foresight to conduct a hearing last week on
the national shortage of natural gas. Since most new generating
facilities in California are gas powered, the gas shortage is
inevitably tied with our ability to power our State. It is my
hope that we do not ignore the difficult choices our country
must make to provide a dependable source of natural gas.
It would seem then that we have many angles to address--
price, availability of electricity and natural gas, and the
transmission of both these sources of energy. As we move
forward to face this challenge, I am heartened by the fact that
our country and our State have consistently risen to the task.
If we have the courage to make the difficult choices today, we
can pave the way for a successful and prosperous future.
Now, I am going to take a breath. Thank you, Mr. Chairman.
[The prepared statement of Hon. Mary Bono follows:]
Prepared Statement of Hon. Mary Bono, a Representative in Congress from
the State of California
Mr. Chairman. Thank you for agreeing to hold this important hearing
on California's continuing energy crisis. It is comforting to know that
you are ready and willing to assist our state in this time of need.
As you well know, over the past decade, this committee and our
government have been focused on the new economy. The high tech
revolution has dominated our agenda while the old economy, like
electricity and other energy concerns, has been put on the back burner.
It is becoming abundantly clear that you need the old economy to run
the new economy.
Despite numerous warnings from those in the industry, our country
refused to develop a sound policy that addressed both the generation
and transmission of energy. Even after the energy crisis of the 1970's,
our country was focused on short-term solutions rather than long term
planning.
The State of California embarked on a deregulation plan which, as
we have heard often, had several shortcomings. Combined with
uncooperative weather and increased use in neighboring states,
California was faced with the worst possible scenario.
Further complicating this problem was the fact that even the basic
economic laws of supply and demand were left unconsidered.
Our state did not build any new substantial power plants the last
decade. And just as importantly, since 1975, studies indicated that
annual utility investments in the U.S. power-transmission system have
fallen by more than half.
Now, due to this lack of a dependable supply, we in California are
faced with the nearly inevitable situation of rolling blackouts.
In the month of July, temperatures in the City of Coachella average
106 degrees. During the summer, we even top off at 120 to 126 degrees.
Make no mistake, with temperatures this high, blackouts are not a
question of quality of life, rather they can be a matter of life or
death.
Therefore, we must confront two critical issues: the price of
energy and availability of energy.
According to the 1990 Census, the median household income for
California's 44th Congressional District was $29,049.
A family of four who earns around $2,500 a month before taxes
cannot afford an electricity bill of over $500 to $600 a month during
the summer. While we choose to live in this climate and realize the
cost of cooling our homes will be higher than in other parts of the
state, there comes a point when these costs become unrealistic.
As we attempt to understand what brought about these increases on
the wholesale market, we must again turn towards California's flawed
effort at deregulation. With the California Power Exchange offering
suppliers the highest market clearing price, and not the actual bid, we
saddled ourselves with unnecessary costs. And despite FERC's December
15 order to change this methodology, the PX continued with this
practice. Undoubtedly, the lawful system set up by the State of
California fed this ``vulture culture'' we have witnessed on the
wholesale market.
But even more critical this summer will be the availability of
power.
While I applaud the Governor's efforts to bring on generating
facilities as soon as possible, I wonder whether or not these
facilities will indeed be ready by this summer and whether or not the
state will have the capacity to transmit this new power. And if not, I
am deeply concerned as to our state of readiness to handle an emergency
such as the one we might be faced with.
The transmission of power is also of major importance. In fact, two
of California's recent rolling blackouts were blamed on the bottleneck
at Path 15, a 90-mile transmission corridor linking the northern and
southern sections of the state's power grid. The inability to shift
power within our own state is very disconcerting.
We should work on finding a means to encourage capital spending on
the grid. If utilities are allowed to receive a higher rate of return
on transmission investments, we can make great strides in shoring up
this foundation.
But while we work to re-build our ability to generate and transmit
energy, part of the short term solution lies in our ability to conserve
energy. I commend the Governor for embarking on an aggressive
conservation effort. California is second only to Rhode Island in per
capita electricity use. Still, I think we have the ingenuity and
determination to improve further on this effort.
However, the full bounty of any conservation effort will not
materialize unless consumers are sent nominal price signals. We cannot
continue to live in a world of smoke and mirrors while shifting costs
along in another manner. Sooner or later, the bills will catch up with
us.
While the merits of price controls and state ownership of
transmission lines are being debated, the truth remains that neither
adds a single megawatt of power to the grid. Only by encouraging an
increase in supply come the affordability of price and the consistency
of service.
Mr. Chairman, while this hearing is focused on the electricity
crisis in California, I would also like to commend you for having the
foresight to conduct a hearing last week on the national shortage of
natural gas. Since most new generating facilities in California are gas
powered, the gas shortage is inevitably tied with our ability to power
our state. It is my hope that we do not ignore the difficult choices
our country must make to provide a dependable source of natural gas.
It would seem then, that we have many angles to address: price,
availability of electricity and natural gas and the transmission of
both these sources of energy.
As we move forward to face this challenge, I am heartened by the
fact that our country and our state have consistently risen to the
task. If we have the courage to make the difficult choices today, we
can pave the way for a successful and prosperous future.
Mr. Barton. Thank you, Congresswoman.
Congressman Inslee, we had a spot for you at the dais, and
since you weren't here, we let Mr. Issa take it. If you will
squeeze in, we will give you a chance on this panel.
We are trying to go by seniority and by members of the
committee. It is going to be confusing. I think Mr. Radanovich
would be the next and then Mr. Sherman, Mr. Inslee, and then
Mr. Istook.
Mr. Radanovich, your statement is in the record in its
entirety. You are recognized for 5 minutes.
STATEMENT OF HON. GEORGE RADANOVICH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Radanovich. Thank you, Mr. Chairman, and again, thank
you for holding this hearing today and for also coming out to
California a couple of weeks ago to get apprised of our
situation.
The California Central Valley district that I represent has
experienced both rolling blackouts and the beginnings of rate
increases which will affect us for years to come. The
California electricity disaster is not behind us; the worst is
yet to come. The State of California continues to hemorrhage
while we are transfusing blood into the victim, but we have not
yet done what is necessary to stop the bleeding at its source.
To describe this crisis simply as a rare one-time event or
a perfect storm is also to fail to recognize that California
and the rest of the Nation have serious and fundamental
problems in our energy policy. For government officials to say
that they did not or could not see the storm coming is to deny
their responsibility in this disaster.
There are many warning flags in the record to show that
responsible officials should have been aware of the forces of
increasing demand for energy and restrictions on the supply of
energy were to clash at a price point that was unsupportable.
Past low natural gas prices may have postponed the day of
reckoning and recent low-water years may have accelerated that
day, but the day was inevitable.
The California electricity disaster was preventable under a
different public policy. A more rational energy policy of
encouraging supplies to meet demand at low prices instead of a
policy of restricted supplies at high prices to limit demand
the answer. The root cause of the failure was the unwillingness
of government officials to admit and explain that policies have
price consequences. For example, encouraging conservation
requires higher and higher energy prices to encourage more and
more savings.
California is already the second lowest energy per capita
consuming State in the Nation, and no doubt will be the lowest
once more industry leaves the State because of high energy
prices. Clean air is an important goal, but it requires the
investment in technologies that add to the cost of producing
energy. Economics dictate if we do not allow the construction
of new facilities, the increasing competition for the existing
resources makes them more valuable.
California regulators have for decades taken advantage of
strategies to delay the unacceptable cost impacted on consumers
of these policies. These strategies have included eating into
the generation reserves to satisfy demand for new capacity,
gambling on the hope of low spot market prices, depending on
out-of-State resources that have competing demands, and
delaying rate impacts through the use of artificial consumer
rates.
The most recent failed strategy was to hope that
deregulation would provide lower prices forever. Deregulation
is an essential tool for the eliminating and avoiding of
unjustified costs, but does not control the price point. Under
deregulation, pricing will settle high or low depending on the
policy that affects the availability of supply.
So where do we go from here? I was happy to hear the States
of Pennsylvania and Ohio understand that successful
deregulation requires extensive citizen involvement and
effective government deregulators that constantly monitor the
markets so that appropriate mid-course corrections are taken in
a fairly timely manner. I was also happy to hear that they
understand that sustainable low energy prices are a result of
abundant supplies and not of deregulation itself.
In California, I hope we have also learned the very
important lesson about price volatility in both the gas and
electricity markets and that consumer protection from that
volatility is essential. It is unacceptable to pass on all the
market risk to consumers, who are in no position to mitigate
much of that risk.
Unfortunately, the California PUC put energy consumers in
the same position as those who choose to live without health
insurance. As long as you don't get sick, it is the lowest cost
approach. But when you do get sick, you face enormous bills.
Adequate consumer protection could have been provided in the
deregulated model by requiring that consumers be required
contracts with terms of either a fixed price for some period of
time, or at a variable price with escalation caps, as much as
mortgages are purchased at fixed rates or adjustable rate
mortgages, and prior notification of price changes. If these
consumer protections had been required in California, I believe
the utilities, energy marketers and the new producers would not
have accepted the flawed restructuring scheme that was put in
place.
These market participants also would have then been
motivated to reduce their risk so as to gain market
competitiveness by building new power plants, encouraging
demand management and diversifying the energy mix.
Unfortunately, California seems to have fallen back on the
regulated model, which previously failed to protect consumers
as the only way to provide consumer protection. The serious
flaws of the regulated model, where an inefficient bureaucratic
planning agency determines the marketplace, have been
temporarily forgotten, until we are forced to relearn them.
I would ask for additional minute, if I may.
Mr. Barton. If you can make it a quick minute.
Mr. Radanovich. Sure.
I am encouraged by the actions of Governor Davis and
President Bush to expedite the permitting of new power
generation and transmission facilities in California. This
indicates that the Governor also understands the true answer to
the consumer's need for energy at reasonable cost lies
primarily with an increasing supply. However, expedited
permitting must produce results and not become a faster process
for regulators to simply say no.
It is also important to understand that building a large
number of gas-fired power plants will not bring down the cost
of energy unless there is an ample supply of inexpensive gas to
fire the plants. The United States must aggressively and
responsibly develop its own gas resources to assure a low-cost
supply. There is an arrogance in the view that it is acceptable
to develop the gas resources off the coast of Sable Island in
Canada to meet the needs of New England, but it is not
acceptable to develop the same resources off our own coast. If
ANWR were located in Canada, would it be equally
environmentally concerned? We must develop our own resources in
an environmentally responsible way and not take undue advantage
of other countries to meet our domestic needs.
Thank you, Mr. Chairman, for your interest in the issue. I
look forward to this hearing.
[The prepared statement of Hon. George Radanovich follows:]
Prepared Statement of Hon. George Radanovich, a Representative in
Congress from the State of California
Thank you, Mr. Chairman, for holding this hearing today on the
electricity disaster in California. The California Central Valley
district I represent has experienced both the rolling blackouts and the
beginnings of rate increases, which will affect us for years to come.
I speak today on behalf of the consumers in my district who
recognize that they are the ones who will carry the burden of more
blackouts and much higher electricity prices because of the actions,
sometimes lack of actions, and decisions of government officials that
led to, or at best failed to prevent, the disaster. Higher electricity
prices and blackouts have a devastating impact on low and fixed income
citizens. Because energy is a part of everything we do, the impact is
seen not only in higher energy bills, but also in loss of jobs, higher
rents, higher food bills, and higher bills generally. These bills will
only grow larger either by rate increases or tax increases. We haven't
seen the largest portion of this problem yet.
The Central Valley district I represent comprises the two largest
agricultural producing counties in the nation. As a result, it
continues to be affected by the stagnation of agricultural commodity
prices over the past years. Higher bills cannot be readily passed on or
absorbed.
The California electricity disaster is not behind us, the worst is
yet to come. The State of California continues to hemorrhage. We are
transfusing blood into the victim, but that we have not yet done what
is necessary to stop the bleeding at its source.
To describe this crisis simply as a rare, one-time event, a
``Perfect Storm,'' is also to fail to recognize that California, and
the rest of the nation, have serious and fundamental problems in our
energy policy. For government officials to say they did not or could
not see this storm coming is to deny their responsibility in this
disaster. There are many warning flags in the record to show that
responsible officials should have been aware that the forces of
increasing demand for energy, and restrictions on the supply of energy,
were about to clash at a price point that is unsupportable. Past low
natural gas prices may have postponed the day of the reckoning, and
recent low water years may have accelerated that day, but the day was
inevitable.
The California electricity disaster was preventable under a
different public policy. A more rational energy policy of encouraging
supplies to meet demand at low prices, instead of a policy of
restricted supplies at high prices to limit demand, was the answer. The
root cause of the failure was the unwillingness of government officials
to admit and explain that policies have price consequences. For
example, encouraging conservation requires higher and higher energy
prices to encourage more and more savings. California is already the
second lowest energy-per-capita consuming state in the nation and no
doubt will be the lowest once more industry leaves the state because of
high energy prices. Clean air is an important goal, but it requires the
investment in technologies that add to the cost of producing energy.
Economics dictate that if we do not allow the construction of new
facilities, the increasing competition for the existing resources makes
them more valuable.
California regulators have for decades taken advantage of
strategies to delay the unacceptable cost impact on consumers of these
policies. These strategies have included:
<bullet> eating into generation reserves to satisfy the demand for new
capacity,
<bullet> gambling on the hope of low spot market prices,
<bullet> depending on out-of-state resources which have competing
demands,
<bullet> and delaying rate impacts through the use of artificial
consumer rates.
The most recent failed strategy was to hope that deregulation would
provide low prices forever. Deregulation is an essential tool for
eliminating and avoiding unjustified costs, but it does not control the
price point. Under deregulation, prices will settle high or low
depending on the policy which affects the availability of supply.
So where do we go from here? I was happy to hear from the States of
Pennsylvania and Ohio that they understand that successful deregulation
requires extensive citizen involvement; and effective government
``deregulators'' that constantly monitor the markets so that
appropriate mid-course corrections are taken in a timely manner. I was
also happy to hear that they understand that sustainable low energy
prices are a result of abundant supplies and not of deregulation
itself.
In California, I hope, we have also learned a very important lesson
about price volatility in both the gas and electricity markets, and
that consumer protection from that volatility is essential. It is
unacceptable to pass on all the market risks to consumers who are in no
position to mitigate much of that risk. Unfortunately, the California
PUC put energy consumers in the same position as those who choose to
live without health insurance. As long as you don't get sick, it is the
lowest cost approach. But when you do get sick, you face enormous
bills.
Adequate consumer protection could have been provided in the
deregulated model by requiring that consumers be provided with
contracts at terms of either a fixed price for some period of time, or
at a variable price with escalation caps, much as mortgages are
purchased as fixed rate or as ARMs; and prior notification of price
changes. If these consumer protections had been required in California,
I believe the utilities, energy marketers and new producers would not
have accepted the flawed restructuring scheme that was put in place.
These market participants also would have then been motivated to reduce
their risk so as to gain market competitiveness by building new power
plants, encouraging demand management, and diversifying the energy mix.
Unfortunately, California seems to have fallen back on the
regulated model, which previously failed to protect consumers, as the
only way to provide consumer protection. The serious flaws of the
regulated model, where an inefficient bureaucratic planning agency
determines the market place, have been temporarily forgotten until we
are forced to relearn them.
I am encouraged by the actions of Governor Davis and President Bush
to expedite the permitting of new power generation and transmission
facilities in California. This indicates that the Governor understands
that the true answer to the consumers need for energy at a reasonable
cost lies primarily with increasing supply. However, expedited
permitting must produce results, and not become a faster process for
regulators to simply say ``No.''
It is also important to understand that building a large number of
gas fired power plants will not bring down the cost of electricity
unless there is an ample supply of inexpensive gas to fire the plants.
The United States must aggressively and responsively develop its own
gas resources to assure a low cost supply. There is arrogance in the
view that it is acceptable to develop the gas resources off the coast
of Sable Island, Canada to meet the needs of New England, but that it
is not acceptable to develop the same resources off our own coasts. If
ANWR where located in Canada, would we be equally environmentally
concerned? We must develop our own resources in an environmentally
responsible way and not take undue advantage of other countries to meet
our domestic needs.
In summary, a lesson of the California electricity disaster is that
our energy policy must focus on meeting the energy needs of America's
consumers at a reasonable cost. We must provide the consumer adequate
protection from higher and higher prices by developing all of our
energy resources in a responsible manner.
Mr. Chairman, there are things the Federal government can do now to
help California start immediately on the path to correct the
fundamental problems instead of compounding the problem. I have
developed and propose for your consideration the attached letter to the
Governor offering to assist wherever it is feasible to resolve the
California crisis. However, we must be asked to provide the assistance,
as clearly this crisis requires a largely State initiated solution.
Thank you again Mr. Chairman for interest in this issue and holding
this hearing. I look forward to working with you in developing a
national energy policy for the benefit of our Nation.
Mr. Radanovich. I also have a letter to Gray Davis on
possible ways that the Federal Government might be able to help
in this if he is so inclined to ask. I would like to submit
that for the record.
Mr. Barton. Without objection.
[The letter follows:]
U.S. House of Representatives
Washington, D.C.
March 3, 2001
The Honorable Gray Davis
Governor, State of California
Sacramento, CA 95814
Dear Governor Davis: I am writing to discuss the California energy
situation. The fundamental problems that led to the California
electricity disaster cannot be corrected with simple, quick, crisis
driven actions which avoid or postpone the more difficult decisions
that are also necessary. Addressing the fundamental problems will
require constant hard work, attention, openness, and reporting for
several years to come. An extraordinary, expedited process must be
implemented now to bring together all the parties, especially
consumers, to a common table to establish a comprehensive plan of
action and make sure it is implemented successfully. I encourage you to
involve consumers especially so they understand and agree with the
future vision for meeting electricity needs in California, what it will
cost, and how it will benefit them. As you know, time is of the
essence.
The federal government can participate beneficially, in a
collaborative and expedited manner, in such an extraordinary process.
For the near-, mid- and longer-terms, until the situation is fully
corrected, it can assist by providing:
--enhanced market monitoring to prevent abuses;
--a third party view of the reasonableness of proposed bilateral
contracts to spur negotiations;
--coordination of federal reviews of power generation facilities to
expedite permitting and construction;
--expertise to identify and correct the flaws in the current
restructuring scheme to help California establish an effective
path to the future;
--accelerated input on its designs for a Regional Transmission
Organization (RTO) in the West, including California, to
establish a more effective wholesale market;
--expedited analysis of Path 15 and other transmission ``bottlenecks''
to maximize the flow of lowest cost power;
--anticipatory FEMA assistance, until adequate electricity supplies are
brought online, to reduce the impact of brownouts and
blackouts.
I will work with you to help obtain this federal participation and
assistance in setting California on an effective path to a future of
low-cost and abundant electricity for its citizens. Thank you for your
attention to this pertinent matter.
Sincerely,
George Radavovich
Member of Congress
Mr. Barton. The gentleman from California, Mr. Sherman.
Your statement is in the record. You are recognized for 5
minutes.
STATEMENT OF HON. BRAD SHERMAN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mr. Sherman. Thank you, Mr. Chairman, for holding these
hearings. I want to commend my colleagues from California. They
have presented much useful information that I will try to avoid
repeating. I agree with most of what they have said on both
sides of the aisle.
I would point out that this was a crisis that the smartest
people in the country did not see. The smartest people on Wall
Street were not selling PG&E or SoCal short, and the executives
for these two large utilities were not objecting to the
structure of the situation as recently as a year ago. This
caught a lot of us by surprise.
This problem is perhaps greater----
Mr. Barton. Congressman Inslee, you might want to go down
there where that microphone is.
Mr. Sherman. I will miss you.
Mr. Barton. I am sorry.
Mr. Sherman. The problem is perhaps greater than we
realize. It could push California into a recession. That could
pull the Nation into a recession.
Beyond the economics, people will die in California and the
West this summer. Some will die because of crime caused by
rotating blackouts. Some will die in overheated apartments
without air conditioning.
This problem is not only one of electrical generation, it
may also be one of natural gas supply in California. I do not
think that we will have a supply crisis nationwide, but in
California, we use natural gas to generate electricity, and we
may not have enough of it to even fire up the limited number of
plants that we have.
I am here to support one small step toward conservation
which will be the least controversial thing Congress could do
to help this crisis, and the quickest thing that Congress can
do, and that is to allow California and other Pacific time zone
States to adjust daylight saving time in order to conserve
energy. I ask this committee as quickly as possible to have a
markup on H.R. 704, a bill I proposed to this Congress roughly
a month ago--actually less than that--and which has
cosponsorship from such diverse members as Mr. Filner and Mr.
Doolittle.
What this bill would do is simply allow California to alter
its daylight savings time and allow other Pacific States to do
the same. This is in response to a resolution passed by the
California legislature last year asking for this freedom. I
think people on both sides of the aisle will believe that we
ought to let the Federal Government allow California to respond
to this crisis.
My own suggestion to the State government is, if this power
is available, we should go to double daylight saving time from
May 1st until Labor Day. This is a period of time when even if
we were on double daylight savings time, it would be light at 7
a.m. in the morning. It is also a period of time when children
are not going to school except during May, when, as I say, it
would be lighten well before 7 a.m., and it is the period of
time when we are going to face the greatest energy crisis since
the electrical availability crisis will be greatest when the
days are warmest.
The other States in the Pacific time zone are given the
same freedom, first because they also have an energy crisis
that they share with us, and second, because many of these
States want to remain in sync with California, and that is
perhaps why the bill is cosponsored by Shelley Berkley of
Nevada.
Now, daylight saving time will save between 1 and 2 percent
of our energy. This is as a result of a recent study done by
the California Department--California Energy Commission and is
consistent with quite a number of studies done by the U.S.
Department of Transportation. As a matter of fact, daylight
savings time was initiated for the purpose of saving energy
during World War I and has been reemployed several times during
other energy crises such as World War II and the 1970's.
In addition to the reduction in energy usage, that energy
usage reduction will take place just at the right time; that is
to say, roughly between 5 and 7 in the evening or 5 and 8 in
the evening when energy demand is at one of its peaks during
the day. This is because when people go home, they will not
have to turn on all the lights in their home in order to make
it light; they need simply raise the curtain. It is when people
first begin arriving home when homes are operating and using
electricity and businesses are still open using electricity as
well. It is one of the times we need to reduce energy usage.
In addition, studies show, including a 1975 study from the
Department of Transportation, that daylight saving time of this
type would reduce crime and that it would reduce traffic
accidents as well.
I would hope that this committee would move forward as
quickly as possible on what, as I mentioned before, would be
the one thing I think we could do that is noncontroversial and
we can do quickly. Thank you.
[The prepared statement of Hon. Brad Sherman follows:]
Prepared Statement of Hon. Brad Sherman, a Representative in Congress
from the State of California
Mr. Chairman, thank you for giving me the opportunity to testify
before the subcommittee this afternoon.
We all recognize that the crisis facing California is a complex
problem that no single action will resolve. I would like to discuss one
step Congress can take to give California an additional tool with which
to combat this crisis: authorizing California to adjust it's time to
conserve energy.
H.R. 704--THE EMERGENCY TIME ADJUSTMENT AUTHORIZATION ACT
Last year, the California State Legislature passed Assembly Joint
Resolution (AJR) 56 asking Congress to permit California to move
immediately to daylight saving time (DST) in order to help solve the
energy crisis. Congress has yet to act. California State Senator Betty
Karnette has reintroduced the resolution during the current legislative
session and she asked me to introduce legislation at the federal level
to allow California to lengthen daylight saving time.
H.R. 704, the Emergency Time Adjustment Authorization Act (ETAAA),
which I introduced on February 14, 2001, would authorize California and
the other Pacific Time Zone states to adjust their time if the State
Legislature of a State finds that an adjustment would lead to energy
reduction. If one State makes a finding that an adjustment would lead
to energy reduction and adjusts its time, the other States in the time
zone could make an adjustment without making a similar finding. The
bill extends this authority to the Pacific Time Zone states until
December 31, 2003.
Mr. Chairman, as Congress considers H.R. 704, there are a number of
important points to remember about the bill: (1) H.R. 704 does not
require California or the other States to make adjustments to their
time; (2) it does not mandate what adjustment the States must make; (3)
the bill is temporary in nature, to allow California to deal with the
crisis at hand; (4) historical and contemporary analyses of the effects
of daylight saving time indicate that extended daylight saving time
does indeed save significant energy, in addition to other ancillary
benefits. In short, it gives a temporary authorization to the
California and the other western states to adjust their time to deal
with a very specific problem.
H.R. 704 Gives the Authority and the Responsibility to the State
Legislatures
The President has indicated that the energy crisis is a State issue
which demands a State response. H.R. 704 does not require California or
the other States to make adjustments to their time. Rather, the bill
authorizes the States to adjust their time if they make a finding that
such an adjustment would ``help alleviate the energy crisis.''
H.R. 704 gives the State legislature a tool it needs to address the
energy crisis, specifically, the authority to adjust the time in a
manner which benefits the state the most. The State legislature is the
appropriate body to consult with the transportation authorities,
broadcast corporations, school districts and other interested parties
in the State regarding the adjustment of time.
There is No Congressional Mandate for Action
The Emergency Time Adjustment Authorization Act authorizes action;
it does not require it. The Legislature has asked for this authority,
so it is likely that they would use this authorization. By granting the
authority without giving the State a mandate, the bill provides
California with the tools to ease the burden. The bill opens the doors
for action; it does not tell California which door to walk through.
My suggestion to California is double daylight saving time--
standard time plus two hours--from May 1 to Labor Day. Under this plan,
it will be light by 6:52am during the school year and well before
7:30am in the August and pre-Labor Day period. Also, the warm Summer
months are when we will have the greatest electrical shortage.
The Authority to Adjust the Time is Temporary and Specific in its
Rationale
The authority that the bill grants to the States is temporary and
its purpose is limited in nature. The bill gives the States the
authority to adjust their time until December 31, 2003.
Other Pacific Time Zone States
H.R. 704 gives other Pacific Time Zone States the same authority as
California. These states face many of the same electrical shortages as
California. Even if they did not, some Pacific Time Zone States may
feel the need to keep time with California. I am pleased that
Representative Shelley Berkley of Nevada is a co-sponsor of my bill.
BRIEF HISTORY OF THE EFFECTS OF DAYLIGHT SAVING TIME
Mr. Chairman, throughout the history of daylight saving time,
Congress has adjusted daylight saving time to conserve energy in times
of crisis. The energy crisis that grips California calls for this
unusual, but not unprecedented, step to ease the burden on the
California power grid.
When daylight saving time (DST) was first enacted by Congress in
1918, its purpose was to conserve resources for the war effort. During
World War II, the United States observed daylight savings time year-
round from 1942 to 1945 for the same reason. And, in the 1970's,
Congress extended daylight saving time in response to various energy
crises.
Following the extension of daylight saving time in 1974, Congress
directed the Department of Transportation (DOT) to conduct a study on
the effects of the extended daylight saving time. The DOT study
released in 1975 made a number of conclusions. The following list is
not inclusive of the entirety of the report's conclusions.
<bullet> DST saves energy. DOT estimates that observing DST in March
and April saved the equivalent in energy of 10,000 barrels of
oil each day--totaling 600,000 barrels each year in 1974 and
1975.
<bullet> DST saves lives and prevents traffic injuries. DST allows more
people to travel home from work and school in the daylight,
which is much safer than darkness. And, according to the DOT
report, except for the months of November and December, DST
does not increase the morning hazard for those going to school
and work.
<bullet> DST prevents crime. Because people get home from work and
school and complete more errands and chose in daylight, DST
seems to reduce people's exposure to various crimes, which are
more common in darkness than in light.
DST Saves Energy
DST saves energy because it alters the time at which demand for
electricity is at its peak. One of the peak demand periods for
electricity occurs between 5pm-8pm, when the sun sets and people come
home from work. As people come home from work, their first inclination
is to turn on a light. If people come home and it is light outside,
there is less of an inclination to turn a light on. But pushing the
sunset back one hour does not save the energy alone. Energy savings is
realized because even with the time adjustment, people tend to go to
sleep at the same time under daylight saving time as standard time.
And, in the morning, whether it is light out or not, lights are turned
on. People get ready for work and school. And, it takes the same amount
of time to get ready to go to work or school under daylight saving time
as it does under standard time.
Data analyzed by the DOT and the California Energy Commission (CEC)
support the claim. The 1975 DOT report estimated that year-round DST
resulted in approximately 1% reduction in energy consumption.
In response to the resolution passed by the California Legislature
and the introduction of H.R. 704, the California Energy Commission
(CEC) is reviewing data on the conservation benefits of daylight saving
time. The following information is preliminary and the final review
should be completed in the very near future.
<bullet> According to CEC econometric analysis, DST would save
California about 500 MWh in the Spring months.
<bullet> Results of the CEC study on DST's ancillary benefits during
the Spring months are consistent with the 1975 DOT report.
DST Saves Lives and Prevents Traffic Injuries
DST saves lives and prevents traffic injuries. DST allows more
people to travel home from work and school in the daylight, which is
much safer than darkness. And, according to the DOT report, except for
the months of November and December, DST does not increase the morning
hazard for those going to school and work.
The 1975 DOT report states that ``after the nation goes on DST
there is one hour more of darkness in the morning and one hour less in
the evening.'' The DOT hypothesized that there should be an increase in
morning fatal accidents and a decrease in evening fatal accidents.
Since there are more fatal events in the evening, DST should produce a
net decrease in the total number of fatal accidents.
According to the report, as a result of DST, there was a net
reduction of .7% in fatal motor vehicle accidents during the DST
period, March and April 1974, compared to the non-DST period March and
April 1973. It is estimated that 50 lives were saved and 2,000 injuries
avoided during this two month period as a result of DST.
The report found DST negatively effected the rate of school
children fatalities in November and December only. In fact, the report
demonstrated that DST reduced the number of school children fatalities
by between 18%-40% in March, April and October 1974.
DST Prevents Crime
The 1975 DOT study included the results of a study that was
conducted on Los Angeles and Washington, DC by the Law Enforcement
Assistance Administration (LEAA). While the data on Los Angeles were
inconclusive, the Washington DC data show consistently less violent
crimes (-10%---20% difference) for DST periods when compared with
similar periods of standard time. Statistics on other crimes were less
significant and less reliable.
AVERAGE SUNRISE AND SUNSET TIMES
The following chart describes the average sun rise and sun set
times in Los Angeles for year-round Standard Time (ST), year-round
Daylight Saving Time (DST) and year-round double Daylight Saving Time
(DDST). Bold indicates the average sun rise and sun set under current
law. The average time does not take into effect the effect of partial
DST in April and October. The table treats April and October as being
on DST the entire month.
Average Sunrise and Sunset Times for Standard Time, Daylight Saving Time and Double Daylight Saving Time
----------------------------------------------------------------------------------------------------------------
Sun Rise Sun Set Sun Rise Sun Set Sun Rise Sun Set
Month (ST) (ST) (DST) (DST) (DDST) (DDST)
----------------------------------------------------------------------------------------------------------------
January....................................... 6:57am 5:08pm 7:57am 6:08pm 8:57am 7:08pm
February...................................... 6:38am 5:36pm 7:38am 6:36pm 8:38am 7:38pm
March......................................... 6:02am 6:01pm 7:02am 7:01pm 8:02am 8:02pm
April......................................... 5:22am 6:24pm 6:22am 6:24pm 7:16am 7:24pm
May........................................... 4:52am 6:48pm 5:52am 7:48pm 6:52am 8:48pm
June.......................................... 4:42am 7:05pm 5:42am 8:05pm 6:42am 9:05pm
July.......................................... 4:53am 7:04pm 5:53am 8:04pm 6:53am 9:04pm
August........................................ 5:15am 6:38pm 6:15am 7:38pm 7:16am 8:38pm
September..................................... 5:37am 5:59pm 6:37am 6:59pm 7:37am 7:59pm
October....................................... 5:59am 5:19pm 6:59am 6:19pm 7:59am 7:19pm
November...................................... 6:26am 4:50pm 7:26am 5:50pm 8:26am 6:50pm
December...................................... 6:51am 4:46pm 7:51am 5:46pm 8:51am 6:46pm
----------------------------------------------------------------------------------------------------------------
CONCLUSION
Mr. Chairman, giving California the option to adjust the time in
California will not by itself solve the energy crisis, but it will
help. I hope you will act soon on H.R. 704 which already has 14
bipartisan co-sponsors from California and Nevada. I thank you for the
opportunity to testify on this important issue.
Mr. Barton. We thank you. We will look into that. When
Congressman Boucher, the ranking Democrat gets here, we will
check with him. It looks like an idea whose time may have come.
We will work on that.
We now recognize the gentleman from Washington State,
Congressman Inslee. Your statement is in the record. You are
recognized for 5 minutes.
STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WASHINGTON
Mr. Inslee. Mr. Chairman, Members, thank you for letting me
join you.
I am here to report two disasters out in the Seattle neck
of the woods where I hail from. First, as of you have heard
about, the 6.8 earthquake in Seattle last week. I want to
report to you the Federal Government has done a good job
responding to that natural disaster. FEMA is there on the job
trying to deal with people's problems. Things are okay with the
earthquake when it comes to the Federal Government.
But in the energy price disaster, these obscene price hikes
we have seen which are driving people to food banks, which are
taking people's jobs, which have the potential to ripple
through the whole U.S. economy and drive us over the brink--the
cliff potentially of recession--the Federal Government has been
a pathetic disaster in itself in refusing to come to the aid of
the West. It has done so despite the fact it has got a tool at
its disposal. Short-term wholesale, cost-based electrical
Western energy caps that we ought to adopt in short order in
this country to prevent that disaster from occurring.
To me, it is remarkable, the difference in the Federal
Government that has helped so well in our earthquake and so
poorly in the larger-scale disaster of these electrical rates;
and it boggles my mind why that has been taken off the table,
Mr. Chairman, and I will tell you why.
The rate hikes that we have seen that people are
experiencing are unprecedented in the U.S. economy. People are
experiencing residential rate increases of 50 percent already,
and they could go to 80 to 100 percent this year. I will give
you a sample of three conversations I had last week.
I went to the food bank and talked to people who were
working two jobs. They have never been in a food bank before,
but by gum, they are there now because of these energy prices
have spiked so high.
I talked to a fellow on a ferry boat whose uncle was losing
a job as a longshoreman because the aluminum industry is going
to heck in a handbasket because of these enormous price hikes.
The third and perhaps most disturbing to all of us are the
words of Alan Greenspan when he testified last week at
Financial Services, who pinpointed these energy prices as one
of the greatest danger signals to the U.S. economy. This is a
national problem, not just a Western United States problem, and
the Federal Government has failed to act.
Now, what can they do? FERC at this time has a
congressionally established plan already. The tool is already
in the Federal toolbox. The tool says that if you have got
unreasonable prices, FERC can establish some meaningful short-
term wholesale price tariff so you have a cost-plus profit
system in this country on a short-term basis. This is already
law, and the administration, to date, failed to even consider
it.
How should you do it? Let me tell you why the
administration has been loath to even consider this to date.
They have been concerned that it would end up being a long-term
rather than a short-term price cap. I think that is a
legitimate concern, and we can establish a price cap that is
limited either as to a specific time, No. 1, or to a trigger
mechanism which will have the cap expire when certain
conditions exist. For instance, it has been suggested that we
have the cap expire when utility reserves get to a certain
level. We can deal with this to make sure it is short term.
The second criticism of this proposal has been it will be a
disincentive for the creation of new generating capacity. That
also is a legitimate issue, but we deal with that very simply
by this: We exempt new generating capacity from the price cap.
We exempt it, or we exempt long-term contracts. There are many
ways to deal with this price cap.
But I will tell you what we believe we need right now. The
whole U.S. Economy and the people I represent are going to food
banks because of their energy prices. We need the
administration to sit down in a bipartisan fashion to fashion a
wholesale short-term price cap which will not be a disincentive
for the creation of new generating capacity, which will have
some means to make sure it is short term, to act as a circuit
breaker for what is going on in the U.S. economy. We just need
a circuit breaker.
I am also here to tell you this is not the panacea to our
energy problems. But to relieve these small businesses
suffering on a short-term basis, it is necessary, if you don't
want to see this economy continue to go downhill.
I encourage you all to join us. I have sent a letter today
with 25 Members asking the administration to discuss this with
us. It does not take legislative action. It simply needs the
administration to take a look at how severe this problem in the
West is and get a little bit creative on how to deal with the
problem.
Thank you, Mr. Chairman.
Mr. Barton. We appreciate your input.
We would like to hear from Congressman Issa. I apologize
for saying Issa; I am told it is Issa. Your statement is in the
record. You are recognized for 5 minutes.
STATEMENT OF HON. DARRELL E. ISSA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Issa. Thank you, Mr. Chairman. For the record, Rush
Limbaugh is getting it wrong too. It is the nature of a name
like mine. Since you have been so kind as to put my entire
statement into the record, I will not read from it nor repeat
it.
I would like to urge this body to think federally, to think
long-term. First of all, deregulation has not been proven to be
a failure because California has not had deregulation. Second
of all, for deregulation or any other free market system to
work, you must tear down barriers to entry. California did not
do this.
It takes so long to get a permit and, in fact, self-help
permits, what is normally called ``distributed power'' has been
all but prohibited in California. So between the long times
necessary and a grid which was closed to many of the potential
10 or less, sometimes even more, 15 or 20 megawatt producers,
by closing that, they in fact closed a huge amount of supply. I
believe that this body can easily get caught up in what is both
the administration's job and, in fact, the State of California
Governor's and legislature's job.
One of those problems is in fact to deal with the
production of energy and in fact to look at its own internal
regulations that have been barriers to entry. California today
imports electricity. Much of that electricity directly or
indirectly comes from non-natural gas, fossil fuel production.
It comes from hydroelectric, something which California has
been in fact reducing by determining that in hydroelectric
versus fish, the fish win. That is not wrong--not that
preserving the environment is wrong, but buying power from
other States, so that in fact you shift that which you are not
willing to do in your own State to other States, is a mistake.
States which produce clean coal in fact are supplying
electricity directly or indirectly to California, a State that
essentially, other than the limited amount of nuclear and a
limited amount of hydroelectric, allows only natural gas.
Today, with the shortage of natural gas as we bring on
power, we are faced with an absence of sufficient natural gas.
There is sufficient natural gas around the world if we had the
willingness to bring in liquefied natural gas. California has
not been willing to, and I do not expect them to.
The present natural gas generators without scrubbers
typically put out about 15 parts per million of the prohibited
pollution, while diesel and other liquid distillates put out
about 25. In many parts of the country, those generators, which
are not allowed to be operated here, are operating. Around the
world, those that are not allowed to operate here are
operating. California has taken an attitude that its air must
be clean while in fact it is polluting other parts of the
country.
This is not to disparage my own State. I live in a
wonderful State and one that shows a lot of promise for the
future in leading the country. However, if you in fact were to
encourage price caps to be on for a long length of time, in all
fairness to my colleague, it is one thing to limit the price of
water right after an earthquake, but a year later, if no one
has dug a well, it is not fair to keep that price artificially
low.
California has had artificially low prices for a long time.
In fact, I would propose, in addition to legislation which my
office is working on, to free up the ability to have
distributed power, thus alleviating some of the demands on the
grid. It will be easier in California.
I would suggest certain other ideas which our office has
been working on. Energy self-sufficiency could include Federal
buildings within California providing their own distributed
power, something that circumvents the State's willingness to do
that, and military installations which have been barred from
producing their own power.
I have spoken with several of the base commanders. They are
certainly willing to reduce their costs and increase their
likelihood of a steady supply if this body will in fact empower
them to produce their own rather than buying off the economy,
which has been the tradition.
Additionally, tribes such as the Pechanga Native Americans
in my district are now putting in their own power generation
because, in fact, they can do it, and they can do it without
the limitations the State has placed.
These and other solutions are possible, but energy self-
sufficiency has to be a two-way street. I encourage this body
to press the State of California to participate in these
solutions.
Thank you very much, Mr. Chairman.
[The prepared statement of Hon. Darrell E. Issa follows:]
Prepared Statement of Hon. Darrell Issa, a Representative in Congress
from the State of California
Thank you, Mr. Chairman for giving Members the opportunity to
testify before your Subcommittee on a subject that is so crucial to our
districts. I respectfully ask to revise and extend my remarks and that
my full testimony be entered into the record.
Let me start out by expressing my appreciation for your leadership
and hard work that you've shown, Mr. Chairman, on the California energy
crisis. I know you have traveled to California twice in the past six
months and continue to meet with all parties involved, so you already
have an understanding of the complexity and the urgency of the
situation.
I would like to point out some simple truths and lessons that can
be learned from this experience, and then share with the Subcommittee
several initiatives that I'm working on that are a small but important
part of the solution to the energy problems facing California.
We find ourselves facing a crisis today because of an historical
lack of leadership and the absence of a comprehensive energy policy.
From the Governor's office to the state Public Utilities Commission to
the state Energy Commission, and even the state legislature, these
public officials over the last two decades failed the California energy
consumer. They failed to plan for the increased demand for electricity;
they failed to diversify the state's energy portfolio; they failed to
invest in transmission and generation capacity; they failed to provide
electricity consumers with real choice; they failed when they only
restructured the wholesale market while shielding ratepayers from price
signals that would trigger necessary conservation; and finally, they
failed to take responsibility for problems the state created this past
summer. And now, nearly a year into the crisis, the state response is
sluggish at best--with state officials scrambling to pursue missed
opportunities and avoiding responsibility.
Rather than allowing energy consumers to see the true cost of
electricity and send the appropriate price signals to conserve, state
politicians continue to shift the cost to state taxpayers--spending
billions of dollars to shield themselves from the political fallout.
Only yesterday, Mr. Chairman, a state Senate Committee voted to extend
retail rate caps through 2003, further undermining a struggling utility
that is prohibited from passing the true cost of energy to its user.
Much of the state activity in resolving this issue has centered on
price caps and rate freezes, and many of the Members testifying today
are advocating a temporary ``time out.'' This is not the right answer.
Before considering a rate freeze or price cap, several objectives must
be met.
First, it must be linked with a long term plan demonstrating that
the supply of electricity will keep pace with demand and that the state
will ensure for the proper infrastructure to achieve this plan. Second,
the state must make tough choices in diversifying our energy portfolio.
I applaud efforts to increase the use of renewable energy, but
renewable energy is only a partial solution. Reliance on natural gas
has a cost. We must take another look at nuclear energy, hydropower,
and other resources. Third, California needs to do a better job of
working with and coordinating with the other western states. What
happens in one state dramatically affects another; in fact, ratepayers
in surrounding states have seen their electricity bills increase
considerably more than those in California. The West must have a single
energy strategy. Finally, a deadline must be included with any freeze
or cap. It must not continue indefinitely, otherwise we lose the
incentive to make the tough choices we face to work through the crisis.
We all have a responsibility to roll up our sleeves and begin the
hard work necessary to ensure that California and the West move towards
an energy solution. It will take state, local and federal officials to
work together through the regulatory, permitting and siting processes
to expedite the building of new generation and transmission capacity
and significant investment in improving existing infrastructure. It
will take individual initiative to conserve energy and act responsibly.
While California has the bulk of responsibility and the greatest
ability to respond resides with the state, there are several positive
steps that the Federal government can do to help California. I have
been working with Representative Heather Wilson from New Mexico in
developing a legislative package to promote energy self- sufficiency.
That's the message I bring to you today--energy self sufficiency. Let's
empower people in California to help themselves out of this crisis. The
technology exists today to allow businesses, municipalities, even
individuals, to generate their own energy--to become self-sufficient--
and in many cases to produce excess power, which can be put on the grid
for other users. This micro-turbine and small natural gas turbine
technology is clean, quiet, and efficient. It provides a solution for
high tech companies that might otherwise leave the state because of
concerns about the reliability of California's energy supply, and
increases generating capacity while reducing the strain on the grid.
There are several artificial barriers to the proliferation of this
technology. The utilities have historically resisted the move to energy
self-sufficiency with high fees for connecting to the grid and
technical roadblocks. The bill that I intend to introduce with Rep.
Wilson will establish the right of distributed generation users to
interconnect to the grid, establish national technical standards for
interconnection, determine fair and reasonable costs to interconnect,
include a tax incentive to purchase distributed generation units, and
authorize the Department of Energy's R&D program on alternative
technology. I look forward to working with this Subcommittee in moving
this bill through the legislative process.
Other positive initiatives that can be worked on at the federal
level include enhancing energy self-reliance in federal buildings and
installations. There are several military bases that have the proper
pipelines and grid infrastructure to have independent generators, but a
provision in law that requires them to purchase energy from the private
sector prevents a move to self-sufficiency. Minor language included in
the upcoming Defense Department authorization bill could make this
happen. Distributed generation demonstration projects at federal
buildings would also alleviate some of the burden on the grid. The
Pechanga Indian tribe in my district is also taking proactive steps.
Local tribal leaders met with FERC to see what would be necessary to
build a 50-megawatt power plant on their reservation. It turns out that
tribes don't need permission from the federal government to become
energy self-sufficient. I encourage Members and officials to work with
their tribes to find ways to become more self-reliant and energy
efficient at the local level. These are all modest initiatives, but
they send a message. If we're going to make consumers and businesses
make tough decisions to conserve and reduce consumption, the federal
government must do its part as a user of the grid and a major consumer
of electricity.
In meetings with local communities and city councils over the
February District Work Period, many came to me with local
infrastructure projects, several of which were energy dependent. I told
them that they had to include plans to either reduce their energy needs
or create new energy sources--again, emphasizing that we're all in this
together. One city has a methane source from a landfill that they are
simply venting into the atmosphere. A small generation facility could
produce energy from that waste gas and have an added clean air benefit.
Mr. Chairman, there are no easy answers. It takes strong leadership
to make these tough decisions. Absence of leadership will only
exacerbate and continue the energy crisis. It is time for the Governor,
state regulators, and the state legislature to get their heads out of
the sand and lead. It is time for those of us in Washington to roll up
our sleeves and do what we can to encourage this effort.
The American people have a history of solving problems where
government has failed to do so. We have a responsibility and an
obligation to let them help us out of this crisis. As you move forward
in addressing this crisis, please make energy self-sufficiency and
distributed generation a part of the solution.
Again, Mr. Chairman, thank you for allowing me the opportunity to
share my thoughts with you. I look forward to working with you and my
colleagues on these critical issues.
Mr. Barton. Thank you, Congressman Issa.
We would now like to hear from another Californian,
Congressman Mike Thompson. Your statement is in the record and
you are recognized for 5 minutes.
STATEMENT OF HON. MIKE THOMPSON, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mr. Thompson. Thank you, Mr. Chairman and members. I want
to thank you for allowing me to testify. I think the fact that
we are having this hearing today is emblematic of the
importance that we all see in solving this energy crisis that
not only affects California but will affect the entire Nation.
I have a statement that I would like to submit.
Mr. Barton. Without objection.
Mr. Thompson. Thank you. And I would like to just make some
brief remarks today.
It is important to note that this California energy crisis
is not just a California crisis. It is a crisis that could
affect the whole country, and failure to adequately ensure
reliability of supply at affordable rates in California could
have an economic ripple that goes across the entire United
States and hurts, where California in the past has really been
the engine that has driven this economic boom that we have all
benefited from.
In my district, we have had tremendous impact from the
energy problems, both on individuals and on businesses. I have
had timber operations that have been disrupted. I have had a
pulp plant that has been shut down and a particle board plant
that has been shut down. One dairy in my district had to throw
away thousands of gallons of milk because the rolling blackout
stopped them from being able to process this milk. I have a
senior center that may have to close its doors permanently
because it can't afford to pay its energy bill and the ongoing
energy costs of keeping those doors open.
I have small electrical generators who have been selling
power to PG&E for a number of years, and I have two in one
small county in my district that together are owed $26 million
from PG&E for electricity that they have generated, sold, and
not been paid for. Not only has this hurt this individual
business but any of you can imagine the economic impact of
taking $26 million out of a county in your district. And
individuals have experienced such trouble and such costly bills
that they are just too numerous to mention.
I think it is important to note that everybody has focused
on trying to solve this problem. State level, Federal level,
everybody has some idea as to how it can be dealt with.
Everything from energy conservation to seeking out long-term
contracts, to the State of California buying transmission
lines, to the expediting of building permittings for
generators. But the fact remains, there is only the Federal
Government can take action that will provide immediate relief,
and that action would be in the area of temporary cost-based
price caps. Anything else is a long-term solution, and
individuals and businesses in California cannot wait for long-
term solutions. We need to step up to the plate and help solve
this issue.
I would encourage this committee to take swift action on
the Eshoo-Hunter bill and to encourage, to demand that FERC
take swift action. They have already found that generators have
been charging unjust and unreasonable prices. They have a
responsibility to all consumers, businesses or individuals, to
take action immediately, to intercede in this effort and to
provide some relief.
I would like to thank the committee. I have my testimony
here that I would like to submit and appreciate your convening
this hearing.
[The prepared statement of Hon. Mike Thompson follows:]
Prepared Statement of Hon. Mike Thompson, a Representative in Congress
from the State of California
Mr. Chairman and Members of the Subcommittee, thank you very much
for the opportunity to testify today. The fact that you are holding
this hearing shows how important the resolution of the current energy
crisis is for California and the United States.
The current situation in California will have far reaching
consequences for the country as a whole, as Federal Reserve Chairman
Alan Greenspan recently noted. Failure to adequately ensure reliability
of supply at affordable rates in California could have a huge ripple
effect on the economy of our entire nation.
In my Congressional District, the crisis has disrupted timber and
lumber operations in Humboldt County including lay-offs at the
Louisiana-Pacific's Samoa pulp plant and costly interruptions at
Louisiana-Pacific's particle board plant. Blue Lake Forest products had
to move its one daytime shift of 92 employees to the graveyard shift.
Electrical producers in my district also are feeling the crunch. One
small generator is owed $19 million by PG&E.
The crux of California's current problem lies with the wholesale
market, where costs have been allowed to skyrocket to unprecedented
levels. Last week, former Federal Energy Regulatory Commission (FERC)
Chair Elizabeth Moler--who was initially appointed to the Commission by
President Reagan--said that the FERC should intervene more strongly in
California's energy crisis, including imposing temporary price caps on
wholesalers. I, along with many of my California colleagues from both
sides of the aisle, share this view.
Unfortunately, FERC has failed to take timely and necessary action
to stabilize the market despite its findings on November 1, 2000 that
wholesale rates being charged to California utilities were ``unjust and
unreasonable.'' FERC's failure to fulfill its most basic mission--
ensuring reasonable rates for consumers--has allowed the crisis to
fester. In my view, the commission acted in an unjust and unreasonable
manner when it refused to impose temporary, cost-of-service based caps
on wholesale prices.
I am a cosponsor of the legislation (H.R. 238) introduced by Reps.
Anna Eshoo and Duncan Hunter that would expand the authority of the
Secretary of Energy to stabilize wholesale electric prices during
periods of unjust and unreasonable rate increases. This new parallel
authority with FERC, will help ensure that the Federal government has
to authority to act in times of an energy crisis if FERC fails to do
so. FERC's recent action--or should I say inaction--demonstrates that
this legislation is clearly needed. I hope you, Mr. Chairman, and the
other Members of the Committee will support the bill's swift passage
and enactment.
I recently requested the General Accounting Office (GAO) to
investigate the causes of the energy crisis and to present and evaluate
what can be done to increase electrical supplies in the West. As a part
of this investigation, the GAO is to conduct a feasibility study on
building or reconstructing power plants on military bases for civilian
use. Twenty-three of our colleagues joined me in making this request
and we look forward to sharing the report's findings with the Members
of the Energy and Commerce Committee.
Both long-term and short-term solutions must be developed and
implemented. On the state level, California has been purchasing its own
power in an effort to stabilize prices and ensure supply. It has
stepped up conservation efforts, leading to an impressive eight percent
drop in energy consumption in February. Further, the state is working
quickly to bring new generating facilities on line and has proposed to
purchase transmission grids owned by the debt-ridden utilities in order
to stabilize the market. Still, despite these initiatives, California
remains in danger of power outages when demand for electricity climbs
this summer.
We should remember that this is a regional energy crisis. It is
true that California has not built enough new generation and
transmission to keep up with the demand. But California is not alone.
New generating facilities and transmission lines have not kept pace
with demand throughout the West. Further, the Pacific Northwest is also
facing a possible shortage of electricity this summer because low
rainfall this winter will require dam operators to dip into reservoirs
for water to turn turbines. Regional problems demand regional
solutions, which can only be accomplished by the Federal government.
Congress and the Administration, with the support and leadership of
President Bush, have the authority to forge solutions across state
boundaries. As the President noted in his February 27th address to
Congress, he has formed a task force headed by Vice President Cheney to
address the crisis as part of a national energy strategy and is working
with the State of California to streamline permitting procedures for
new power plants. These two actions, while helpful in crafting long
term solutions to the crisis, do not go far enough or fast enough. To
avert severe blackouts and price spikes this summer, the Federal
government needs to act quickly and more forcefully, including the
imposition of interim cost-of-service-based rate caps across the
Western region. These temporary caps will stabilize the market until
sufficient power and transmission sources are developed.
As the committee is well aware, this crisis isn't just about
electricity. There is an emerging natural gas crisis in California and
across the United States. Over the past year, natural gas prices have
skyrocketed 59% nationwide and have tripled in California. Natural gas
storage is at record lows and experts agree that one of the major
causes of this crisis is an increase in demand and a lack of supply.
The dramatic price increases are especially alarming since all the new
generation coming on line in California is natural gas powered.
The price increases are passed directly on to consumers and are
hitting my constituents hard. I recently received a letter from Mr. and
Mrs. Frank Kelly of Napa. They sent me a list of their gas bills
starting in September 1999 when they were paying $20 a month. In
December 2000, their bill was $475. Ms. Karen O'Rourke of Orleans owns
a RV park. She is faced with a mostly vacant park and a gas bill of
$685. Mr. and Mrs. Shields of Fairfield, Mr. Bolling of Eureka, Mr.
Carrell of Mendocino and Mr. Blankenship of Ukiah are seniors living on
fixed incomes. They have to make the choice between buying food to eat,
medication to live or heat for their homes. These letters are just a
few examples of the people who are suffering through this energy
crisis. Again, this energy crisis is not unique to California--I'm sure
many of you have also heard about the difficult choices facing your
constituents.
To help determine why supplies are so low and, in turn, why prices
are so high, I have introduced H.R. 712. This bill commissions the
National Academy of Sciences to investigate and determine the cause of
recent price spikes in natural gas. First, the study will examine
whether the drastic increase in natural gas prices is from the usual
market fluctuations or whether it can be attributed to other causes.
Second, the study will determine if federal or state policies that
might have contributed to the shortage of supply. And, third, the study
will examine the scientific feasibility of a federal natural gas
reserve system. This system would be modeled after the Strategic
Petroleum Reserve to be used in times of decreased supply and price
emergencies.
On February 28, 2001, Pacific Gas and Electric (PG&E) announced
that market prices for natural gas will decline an average of 16% on
consumer bills over the next month. While this looks promising, we must
remember that the newly approved power generation plants coming on line
in the next few years in California are all powered by natural gas. In
addition, California's population has increased 13.5% over the last 10
years and continues to grow.
We also must continue to do what we can to ease the burden on those
less fortunate. That is why I support Representative Ed Markey's
Emergency Energy Response Act of 2001. I also have signed onto letters
to the Appropriations Committee and to President Bush. The legislation
and the letters ask for an increase in funding of the Low-Income Home
Energy Assistance Program (LIHEAP) and Weatherization funds.
I invite you to join with me in cosponsoring H.R. 712. By
determining the dimensions and causes of the high price of natural gas,
we can work towards a solution that will ensure an adequate, reliable
and affordable supply of natural gas.
Again, I thank you for the opportunity to testify before the
Subcommittee. I ask that my testimony be submitted for the record and
am pleased to answer any questions.
Mr. Barton. Thank you Congressman.
The Chair would recognize himself for 5 minutes. We are
going to have one round of 5-minute questions and then we will
go to the next panel.
Which of you gentlemen could give me an indication what the
baseload generation capacity is in California and what is the
baseload demand? Congressman Inslee.
Mr. Inslee. These are off the top of my head, but it is
about 45,000 megawatts available in the California market, and
there is a real interesting fact, because while there are
45,000 megawatts available, there has only been 30,000
essentially on line at any given time. So there has been about
15,000 megawatts capacity of the California generators on any
given day that has not been on line, and we can only account
for about half of that being down due to maintenance or
potentially emission standard issues.
So there is about anywhere in a given today from about 6-
to 8,000 megawatts of capacity that has not been on line that
are sort of AWOL and no one has come before us to----
Mr. Barton. Do you know what the baseload demand is? Over
that?
Mr. Inslee. It is around 32,000 or--no, wait a minute. You
can check me on that.
Mr. Barton. I am told the demand is about 20 percent higher
than the supply.
Mr. Inslee. The demand is infinite, regardless of price.
Mr. Barton. Average prices. I am not talking about peak
demand, I am talking the baseload intrastate generation
capacity is--let's forget--is less than the baseload demand.
Mr. Issa. Mr. Chairman, it is about 45 as a normal demand.
If California threw everything out the window we can produce
about 52 peak. Peak. The Congressman has a point, which is at
any given time there is quite a bit down for both maintenance,
which is expected, remembering that some of this 52 potential
includes peakers and it includes a lot of systems which don't
run efficiently if you tell them that you are going to produce
at a certain amount.
Mr. Barton. My point is if we are going to look at
solutions, and I agree that we should, that the chronic problem
is more demand than supply intrastate, and it is exacerbated
because the California law didn't have a planning mechanism for
additional supply. It was--they just forgot about it, or what.
So the price cap solution, obviously there would be some short-
term benefit or should be some short-term benefit to wholesale
price cap, but I don't see that that helps the long-term
solution.
Mr. Thompson. If I may, everything that we have been
talking about now has been long term. There is an attempt to
expedite the permits, to bring on new generators. There are new
generators on line, and anywhere from within the next 2 to 4
years to come on line. So the needed supply numbers are
projected on being there within the next 2 to 4 years.
Mr. Barton. I understand that.
Mr. Thompson. The price cap point they alluded to was in
the immediate. The only way to deal with the exorbitant price
that is being charged is to apply on a temporary basis to
correspond with the new generators coming on line these cost-
based caps.
Mr. Barton. But if we go down that trail and don't
restructure the retail price, if you maintain for lack of a
better definition, a below-market retail price and you put in
wholesale price caps on top of that, don't you just extend the
problem around the region, around the country, because a rate,
a cost-based wholesale price cap, if somebody has power
generating capacity outside the region, and they can make more
by selling it somewhere else, i.e. Somewhere else other than
California, you have not done anything. I mean, California has
adopted wholesale price caps at the State level several times
in the last 12 months and it doesn't appear to have done
anything. So I just--I don't--I kind of understand the general
theory, but I don't understand the application and practice
because it just simply hasn't worked.
Mr. Inslee. Mr. Chairman, could I address that?
Mr. Barton. Sure.
Mr. Inslee. I think It is analogous. It is a very important
point you make that wholesale price caps are not the long-term
solution either to a price or supply issue. I think that is an
important point. What we are suggesting is we adopt a short-
term, well-defined system of wholesale price cost-based caps
that have this very important feature, and I hope it is not
lost in this. You exempt from the cap new generating capacity,
so that there is no disincentive for the creation of additional
generating capacity which we clearly need in addition to
conservation. It is akin to the situation where you have the
India earthquake. We want people to drill new wells, but you
don't want people to charge $500 a quart for water.
What we are suggesting is, we tell existing generators on a
short-term basis you can't charge $500 a quart for water during
the emergency part of this economic and natural disaster,
because it is a combination of California's deregulation
debacle and our water-short years in the Northwest, but we are
going to allow you to go out and encourage you to go out and
build new wells, and we're going to exempt that from the price
cap. And this is why, frankly, the administration has failed to
even consider price caps, because they haven't thought about
the fact that we cannot create a disincentive if we exempt them
from the cap. That is what we need this administration to
consider and I hope the committee can in some way urge them to
do so.
Mr. Issa. I think, Mr. Chairman, you made a very valid
point and you hit it right on. California already, with what it
produces internally, it can decide what it is going to allow
those prices to be. When we talk about power that could come
into California or go to some other State, we already have the
western States paying a premium for the sins of California. If
in fact the Federal Government just automatically says without
a long-term strategy that is signed onto that is amenable to
the other States and the rest of the country, if we simply say,
sure, we will protect you from your past errors for a period of
1, 2, or 3 years, those years could go well beyond that. And in
the meantime, any sensible commodity seller is going to move
their commodity to a place where they can get a better price,
and right now California is trying to get a below-market price.
Mr. Barton. My time has expired. We have been joined by the
two other members who wanted to give testimony. Normally once
we start questions we continue it, but this is an unusual
hearing in that it is a members' hearing. So we are going to go
to Congresswoman Davis for her statement and then Congressman
Honda and then we will go to Mr. Strickland for questions.
Your statement is in the record in its entirety and you are
recognized for 5 minutes, Congresswoman Davis.
STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mrs. Davis of California. I appreciate the opportunity to
comment on the electricity prices in California and I
appreciate I just came in during the last questioning and would
be happy to engage in that afterwards.
As you have heard from previous speakers, deregulation on
electricity prices was intended to create competition in a free
marketplace and to result in reducing the price of electricity.
However, in the dysfunctional market, prices were manipulated
by a handful of producers and this resulted in soaring prices
unrelated to the cost of production.
Despite repeated requests and suits, the Federal Energy
Regulatory Commission has refused to exercise its mandated
authority to assure that power rates are just and reasonable,
either by making cost-basis temporary caps we have just been
discussing on existing generators, or by fining those companies
which have egregiously manipulated the market.
The ironic consequence, I think, of this manipulation may
well be an increase in municipal ownership of utilities. As
Members of Congress, we need to look at some actions we can
take to foster environmentally and economically sound
municipally owned generators. And there are four areas which I
would like to cite for you.
The first would be to increase the tax credit incentives
for renewable source generators; and, second, to assure
adequate safe natural gas pipeline capacity; third, to support
refinery-level cleansing of diesel fuel; and finally, in
addition, to meet the personal impacts of the crisis, to
provide some temporary cost-of-living housing increases for our
military families to cope with the escalating energy costs.
The city of San Diego and the county of San Diego, the San
Diego County Water Authority, and some other municipalities are
now setting options to build new facilities. In January I
initiated a meeting among city and county leaders and State and
Federal legislators to discuss some options. Our staffs
continue to meet to share information. Either individually or
through joint powers agreements, local governments can benefit
from tax-free bonds to capitalize plants and potentially could
receive preference for Federal hydropower projects.
I am pleased to report that the projects that have been put
forward include some exciting additions to the renewable
resources market, and these include a project approved by the
county of San Diego to construct a biomass generator at a
closed county landfill site. San Diego sewage treatment
facilities already are using waste gas for generation in excess
of their needs. They have plans for fuel cell and photovoltaic
pilot projects to capture other sources of renewable energy.
Although the effect of each project is small, together they
add to total generation and carry out our responsibility to
invest in new nonpetroleum-based power generation.
In addition, the San Diego County Water Authority had
already received authority to build power plants and
transmission lines. We will be able to operate hydroelectric
generators using water stored behind the new Olivenhain Dam
which is under construction. Because we generally think of San
Diego County as being water poor, it is exciting to realize
that even here some hydroelectric power can be produced.
Because the regulations limit where the Water Authority can
sell power, it is important that all new sources of power be
enabled to sell power to the distributing agency, which in that
case would be San Diego Gas and Electric Company.
Renewable energy sources for generation of power such as
these deserve our support, with expanded tax credits for
development, and several traditional projects are being
considered. My colleague, Duncan Hunter, who unfortunately has
not had a chance to address you yet today, would have told you
about the Marine Corps Air Station Miramar proposal which he
has been pursuing. Another project has been proposed by a local
energy company for a 750-megawatt natural gas power generating
plant to be sited near a city landfill. The city of San Diego
was exploring this option along with other government entities
to create some publicly owned utilities to serve the entire
county.
In addition to these proposals, small cogeneration plants
are being built to serve the 35,000 population of our State
universities. Because these projects use petroleum resources,
they require a supply of natural gas or clean diesel fuel of
sufficient quantity at nationally comparable prices. Congress
must be certain that natural gas pipelines are safe and that
they are sufficient.
It would also serve us well to give incentives to promote
cleaning diesel fuel to the lowest sulfur levels at the
refinery stage, thus reducing the need for adding scrubbers to
newly constructed turbines. It would enable diesel refined in
California to be used as available to meet responsible air
quality. This goes both for power plants and for use in diesel
trucks. And while these proposals clearly address near- and
long-term goals, it is critical that we address the immediate
needs----
Mr. Barton. Could you summarize, Congresswoman?
Mrs. Davis of California. Sure--of some of our most
vulnerable citizens. And that is why I wanted to cite the
effects of the cost of gas and electric utilities on our
military families in San Diego and suggest to you perhaps that
we respond to this issue by increasing housing allowances for a
limited period of time for military living in the area where
basic utility costs have more than doubled as a first step to
meeting the challenge to adequately support our military
personnel there in the San Diego region.
Thank you very much for the time and appreciate your
questions.
Mr. Barton. Thank you for your testimony. We now go to
Congressman Honda. Your statement is in the record. We would
recognize you for 5 minutes.
STATEMENT OF HON. MICHAEL M. HONDA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Honda. Thank you, Mr. Chairman, members of the
committee. Thank you for inviting me to testify today and for
your decision to hold this hearing on California's electricity
crisis.
I can assure you that my constituents in California's 15th
Congressional District welcome this discussion and look forward
to the committee's consideration of important legislation that
might provide short-term relief and long-term incentives to
bolster California's electricity supply.
Like all Members from California, I receive letters and
phone calls from almost every segment of my constituency
expressing concern over rising electricity prices and rolling
blackouts. Almost 2 weeks ago, I invited a number of
individuals representing various organizations, companies, and
communities to my office to discuss the devastating effects
that California's energy crisis is having on Silicon Valley
residences and businesses. The attendees included
representatives from nonprofits, chambers of commerce, high-
tech companies, health care organizations and schools. Each
offered a unique perspective and eloquent case for stronger
Federal action. I would love to detail all their stories, but
for brevity's sake I will just concentrate on two areas: high-
tech and education.
You know that Silicon Valley is comprised, in part, by
high-tech companies that operate machinery and computers that
are incredibly sensitive to fluctuations in electrical
currents. This is especially true for semiconductor companies
and co-location facilities. When a blackout interrupts work at
a high-tech company, millions of dollars in unfinished products
can be lost and it can often take huge financial investments to
return operations to normal working order.
When rolling blackouts swept through the San Francisco Bay
Area in mid-January, the Silicon Valley Manufacturing Group
reported that approximately 60 of its members had been directly
impacted. The manufacturing group estimated that 100,000
Silicon Valley employees were unable to work and tens of
millions of dollars were lost.
The Bay Area is accustomed to addressing quality-of-life
concerns, and the issue of energy is no exception. Governor
Davis announced just 2 days ago that California businesses and
consumers cut their energy consumption by 8 percent in
February. This is a dramatic cut and I compliment Californians
for the great sacrifices that they are making. But I must say I
am impressed with the resolve of high-tech companies to be part
of the solution. I am especially pleased to see the significant
efforts made by high-tech companies aimed at reducing
electricity demands.
But the high-tech sector recognizes it cannot be a
substitute for the role of government. The State of California
and the Federal Government must also stand firmly on the side
of sound energy policy.
While the media has given a great deal of attention to the
private sector and the crisis, the media has paid considerably
less attention to the detrimental effects that higher
electricity prices have had on our schools. One school district
in our valley estimates they will pay $136,000 more for
electricity this fiscal year. And this next year the numbers
are even more startling. The school district will increase its
budget for electricity by $500,000. These dollars come out of
the district's general funds, meaning that schools in this
district will have fewer funds to hire teachers, pay for school
books and upgrade education technology.
These numbers are even more striking when you consider that
the school district has already implemented strong conservation
measures. In fact, the average energy cost per square foot is
almost 25 percent less than the cost per square foot at an
average K-12 California school district. To save money, some
schools have even considered limiting operating hours from 8
a.m. to 3 p.m. Such a decision would preclude a school from
offering after-school activities, as well as a suitable
environment for teachers to prepare for the next day's lessons.
As a former educator, I am disheartened that schools are
forced to adopt such measures, especially when many of our
schools have little money to invest in energy-efficient
devices. I know that Congressman Mark Udall has shown exemplary
leadership on this issue, and I hope that the committee will
follow his lead and look more closely at how the Federal
Government can further encourage school districts to deploy
these technologies in their schools.
My goal today in testifying is not just to communicate to
you the challenges that are faced by my constituents. Rather, I
offer their stories to you as further evidence that the Federal
Government must act to bring down skyrocketing electricity
prices and help prevent further blackouts. We have a role, and
I join my colleagues in expressing my great dismay that the
Federal Energy Regulatory Commission has been so reluctant to
act.
I urge this committee to consider carefully and
expeditiously legislation introduced by Congresswoman Anna
Eshoo and legislation offered by Congressman Filner. The chief
aim of each bill is to establish cost-of-service-based rates or
regional caps for wholesale electricity based on the
determination that current prices are ``unjust and
unreasonable.''
Mr. Barton. Congressman, could you summarize?
Mr. Honda. Certainly. Just to close, what we are really
looking at is trying to make sure that there is a short-term
cost mechanism and then a long-term strategy to solve the
problem California is facing.
And finally, I want to voice my support for increased
funding and emergency supplemental appropriations for LIHEAP,
as well as the energy and weatherization programs.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Mike Honda follows:]
Prepared Statement of Hon. Mike Honda, a Representative in Congress
from the State of California
Mr. Chairman, Congressman Boucher and Members of the Committee,
thank you for inviting me to testify today and for your decision to
hold this hearing on California's electricity crisis.
I can assure you that my constituents in California's 15th
Congressional District welcome this discussion and look forward to the
Committee's consideration of important legislation that might provide
short-term relief and long-term incentives to bolster California's
electricity supply.
Like all members from California, I've received letters and phone
calls from almost every segment of my constituency expressing concern
over rising electricity prices and rolling blackouts.
Almost two weeks ago, I invited a number of individuals--
representing various organizations, companies and communities--to my
office to discuss the devastating effects that California's energy
crisis is having on Silicon Valley residents and businesses.
Attendees included representatives from non-profits, chambers of
commerce, high tech companies, health care organizations, and schools.
Each offered a unique perspective and an eloquent case for stronger
federal action.
I would love to detail all of their stories, but for brevity's sake
and more importantly--because of the Committee's strict time limit, I
will only share with the committee the effects that this crisis is
having on two important sectors in my district: high tech and
education.
As many of you know, Silicon Valley is comprised, in part, of high
tech companies that operate machinery and computers that are incredibly
sensitive to fluctuations in electrical currents. This is especially
true for semiconductor companies and co-location facilities. When a
blackout interrupts work at a high tech company, millions of dollars in
unfinished products can be lost and it can often take huge financial
investments to return operations to normal working order.
When rolling blackouts swept through the San Francisco Bay Area in
mid-January, the Silicon Valley Manufacturing Group reported that
approximately sixty of its members had been ``directly impacted.'' The
Manufacturing Group estimated that 100,000 Silicon Valley employees
were unable to work and tens of millions of dollars were lost.
The Bay Area is accustomed to addressing quality of life concerns
and the issue of energy is no exception. Governor Davis announced just
two days ago that California businesses and consumers cut their energy
consumption by 8% in February. This is a dramatic cut and I compliment
the Californians for the great sacrifices they are making.
But I must say I am impressed with the resolve of high tech
companies to be part of the solution. I'm especially pleased to see the
significant efforts made by high tech companies aimed at reducing
electricity demand.
Companies that have already reduced energy consumption through
implementing energy reduction plans have pledged to further reduce
consumption during peak times. In addition, many of these companies are
educating their employees on electricity reducing steps that can be
implemented at work and at home.
But the high tech sector recognizes it cannot be a substitute for
the role of government. The State of California and the federal
government must also stand firmly on the side of sound energy policy.
While the media has given a great deal of attention to the private
sector and the crisis, the media has paid considerably less attention
to the detrimental effects that higher electricity prices have had on
our schools.
One school district in Silicon Valley estimates that it will pay
$136,000 more for electricity this fiscal year. Next fiscal year, the
numbers are even more startling. The school district will increase its
electricity budget by $500,000. These dollars come out of the
district's general funds--meaning that the schools in this district
will have fewer funds to hire teachers, pay for school books and
upgrade education technology.
And these numbers are even more striking when you consider that
this school district has already implemented strong conservation
measures. In fact, the average energy cost per square feet is almost
25% less than the cost per square feet at an average K-12 California
school district.
To save money, some schools have even considered limiting operating
hours to 8am to 3pm. Such a decision would preclude the school from
offering after school activities, as well as a suitable environment for
teachers to prepare for the next day's lessons.
As a former educator, I'm disheartened that schools are forced to
adopt such measures, especially when many of our schools have little
money to invest in energy efficient devices. I know that Congressman
Mark Udall has shown exemplary leadership on this issue and I hope the
Committee will follow his lead and look more closely at how the federal
government can further encourage school districts to deploy these
technologies in their schools.
My goal in testifying today is not merely to communicate to you the
challenges facing my constituents. Rather, I offer their stories to you
as further evidence that the federal government must act to bring down
skyrocketing electricity prices and help prevent further blackouts.
I join a number of my colleagues in expressing great dismay that
the Federal Energy Regulatory Commission has been so reluctant to act.
I, therefore, urge this committee to consider carefully and
expeditiously legislation introduced by Congresswoman Anna Eshoo and
legislation offered by Congressman Filner. The chief aim of each bill
is to establish cost-of-service based rates or regional caps for
wholesale electricity based on the determination that current prices
are ``unjust and unreasonable.''
Clearly, instituting price caps is an unusual measure and one that
should not be implemented carelessly. But I contend that in the case of
California's electricity market, regional price caps or cost-of-service
rates are appropriate and warranted.
I hope and expect that the Committee will further explore the
importance in further diversifying electricity supply with affordable
renewable energy sources. I also believe that the federal government
can play a stronger role in offering incentives to companies and
homeowners that install devices that promote energy efficiency.
On a related note, I urge the Committee to retain strong federal
environmental laws governing the process for electrical generating
plant construction, while at the same time exploring ways in which the
process can be streamlined. The California energy crisis must not be an
excuse to rollback hard fought environmental laws.
Finally, I want to voice my support for increased funding--
including emergency supplemental appropriations--for LIHEAP, as well as
the Energy and the Weatherization Programs.
But I fear that federal action may be stalled by the mistaken
perception that California's energy crisis is California's problem. I
hope this is not the case because the consequences of California's
electricity crisis are already rippling through the West and the
detrimental effects this crisis has on California--the sixth largest
economy in the world--will ultimately hurt our national prosperity.
Thank you.
Mr. Barton. We are now going to resume our questions. The
gentleman from Ohio, Mr. Strickland, is recognized for 5
minutes.
Mr. Strickland. Thank you, Mr. Chairman. As I listened to
my colleagues from the West, I could say to them that many of
my constituents in southern Ohio are facing high costs of
energy, electricity--not so much electricity currently but
certainly natural gas. I think we have a looming disaster
facing our economy, a disaster that could drag us down into a
deep recession.
What this does, I think, or it should do is impress upon
this Congress that we need a national energy policy that is
comprehensive and inclusive and includes all forms of energy.
And I see my friend from California shaking his head. We
believe in the use of coal. We believe in the use of nuclear
energy. We believe in more ethanol use. We need to get on with
that. But the fact is that would be a longer-term solution, and
what we face is in an immediate crisis.
Now, Mr. Inslee, your comments indicated, I believe you
said that some of the generating capacity in California was
AWOL. What are some of the plausible explanations for that?
Mr. Inslee. Well, there are many. And basically there is
45,000 megawatts available. There has only been 30,000 on any
given day on line.
Mr. Strickland. Why?
Mr. Inslee. That is a really great question and we have
written a letter to the General Accounting Office, Peter
DeFazio and I, to get a report on that. There is an explanation
for about half of that missing 15,000. There are long-term or
short-term maintenance requirements. They are down for a
legitimate reason, and these generators are required to report
the reasons when they are down. But that leaves about 6- to
8,000 megawatts that are AWOL, that are missing. There is no
explanation they are not on except this--the ability to jigger
and gain the market, to increase prices by withholding
generating capacity. And there is a significant reason to
believe that that has gone on.
In fact, I am certainly not the wisest head on that. There
was a study done, which I will provide to the members of the
committee, by a professor of MIT who studied the market just
last year and concluded that there was a likelihood that, in
fact, gaming had gone on, that generating capacity was withheld
from the market to drive up these prices, and that is obviously
very disturbing.
Now, one way to deal with that is a short-term wholesale
price cap, to deal with this. And I should repeat, these are--
there is nothing wrong with profits in America, healthy, great,
we all aspire to them. But these were extraordinary profits not
taken because they have developed a new technology or that they
have taken a great investment risk which is now paying off, it
is simply that they were there in the midst of a natural
disaster, water-short year in the Pacific Northwest and the
collapse of the California market, due to some political
mistakes that were made.
So I have to tell you this is disturbing. We asked the
General Accounting Office to have an investigation of this. It
should be investigated. Appropriate sanctions should be taken
if there is a finding there is inappropriate conduct, but even
if there is not, even if somehow some mysterious explanation
arises, the one thing we do know, abundantly clear, there are
profits being taken in this industry that are beyond any
imaginable returns in this industry ever for any reason, and I
have got people going to food banks because of it.
Mr. Barton. Would the gentleman yield on that point?
Mr. Strickland. I would.
Mr. Barton. Is it not true that 30 percent of the plants in
California are at least 30 years old and over 20 percent are at
least 40 years old? So the older plants might tend to have a
little bit higher-than-normal maintenance.
Mr. Inslee. Yes. In fact, in typical years, only about
2,000 megawatts are down at any one time. This year there is a
legitimate explanation of about 7- to 8,000 being down for
exactly the reasons that you point out, but there are still
another 6- to 8,000 megawatts where there is no explanation.
Mr. Barton. My understanding is that California has been in
a Stage 1 reserve, or 3, for about the last 6 months. So that
as it begins to ease, some of these plants that were being
given routine maintenance, they might legitimately be out of
service simply to catch up on deferred maintenance. I don't
know that, but that is at least a plausible explanation to
the----
Mr. Strickland. Sure. And if I could reclaim my time, the
reason I asked the question is that your comment implied some
possible guilt on the part of the companies to increase
profits, and it seems as if the size of this crisis facing the
country should encourage us to try to find an answer to that,
without any opinion going into the research. You know, I just
think we need to know that.
Now, one other question and I ask this question because
many of us in the Midwest are fearful that what is happening in
California--you know, California is a trend setter, proudly so,
cultural, arts and so on and so forth. But we are afraid that
California may be a trend setter in terms of blackouts and high
prices, and I think there has to be a national response.
Now, I know that you had a chance to speak briefly with the
President at the Democratic retreat. Have you spoken with other
members of the administration and, if so, what has been the
response?
Mr. Inslee. Well, unfortunately, it has been disappointing.
And let me tell you, I have been very--before expressing
disappointment in this administration, I want to express some
praise. They have done a good job for the one disaster in
Seattle, which is the earthquake last year. We have got a good
response from the administration in that, but after that it is
very disappointing. I spoke to the President. He came to our
bipartisan retreat, or our retreat in Pennsylvania. I spoke to
him about this issue. I proposed this price cap to him. He
expressed a disinclination, to put it mildly, to do so. But I
said there is a way to do this, Mr. President, which will not
be a disincentive for new generating capacity; and he said, if
that is true, you and your group go talk to the Vice President.
So for the last 3 weeks I have been attempting to get a
meeting with the Vice President's task force to discuss this,
and we have been told they won't meet with us, and that is very
disappointing to me in today's air of bipartisanship. So we
have written a letter today, signed by 25 members up and down
the West Coast, including at least one good Republican, asking
for a meeting to discuss this issue. And I hope that they will
avail us that opportunity, because I think it is very important
not to allow ideology to stand in the way of good solutions.
Mr. Strickland. Mr. Chairman, my time is up. I want to
thank you, and I want to thank you, and I really believe that
this is not an issue that we can deal with in a partisan way.
This is----
Mr. Barton. I agree.
Mr. Strickland. This is an issue that has got to have all
of us working together because it affects all of us, and I
think the answer is going to take, you know, the best minds
among us to figure out the best approach. Thank you.
Mr. Issa. Mr. Chairman, could I respond quickly to that?
Mr. Barton. Actually, you can respond in writing. But we
have got a whole other panel of Congressmen and Congresswomen
already here. So we are going to try to expedite the questions
on this panel, but if you want to put it in writing,
Congressman Issa, we would love to have it.
Congressman Shimkus would be recognized. And I want to let
Congressman Bono and Congressman Radanovich know, since they
testified, we can't let the witnesses ask themselves questions,
you know, that it was the greatest testimony you ever heard,
so.
Mr. Honda. Mr. Chairman, I just want to thank you for this
opportunity and I feel very comfortable with the mindset that
Congressman Strickland had laid out. So I thank you for the
opportunity.
Mr. Barton. Mr. Shimkus for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman. A couple questions,
and I was going to ask Mike but he has left. Congressman Davis,
you were a member of the California General Assembly; is that
correct?
Mrs. Davis of California. Yes, I was.
Mr. Shimkus. Part of the hearings that we have had already
and part of the news article that I have quoted a couple of
times, part of the problem dealt with long-term--that
California did not go into long-term contracts.
Mrs. Davis of California. Right.
Mr. Shimkus. Some of the debate as to why California did
not deal with long-term contracts that the State went into
under the PURPA, under the renewable--the clean producing
technologies which created exorbitant prices for the producers
because they were forced to purchase these long-term contracts.
Could you--I have heard that, you know, through articles
and it has been raised in hearings. In your discussions, was
that part of the reason why California in their deregulation
bill did not go into for the retail long-term contracts.
Mrs. Davis of California. The experience was that in the
long term, that it would not be helpful to consumers. But
clearly I think there were so many parts to that plan that
misfired or really didn't materialize in the way that people
anticipated, and of course one of those is they didn't expect
all the generation to be out of State.
Mr. Shimkus. But to go back to the issue then, the PURPA
requirement to purchase renewable clean energy producing over a
long-term contract was not advantageous to the consumers based
on the electricity prices, is that correct to say, and that is
why there was a fear of going into any long-term contracts?
Mrs. Davis of California. Well, at the time, they really
felt that it would be not necessarily better purchasing on the
spot market per se, but that there were problems in the long
term with doing that.
Mr. Shimkus. Was there anything else that you personally as
a legislator thought that was good about the plan? You
supported it; is that correct?
Mrs. Davis of California. Right at that time, as you know,
it was unanimous and everybody was really at the table at that
time, and I think that they believed that this would lower
electricity rates, but again there were so many things that
changed in the interim that weren't really anticipated.
Mr. Shimkus. Congressman Issa.
Mr. Issa. Yes, there was some dissension; it just wasn't in
the legislature. The PUC had a 3-to-2 vote with Commissioner
Jessie Knight and one other pushing very hard not to bar the
energy companies from buying long term, and so basically that
is what created more of this problem than anything else.
One of the problems in California is the legislature and
the three members who voted to require buying on a daily
market. They made the assumption that, well, you can buy
cheaper and, just like anything else, if you want to get a
hotel room in Las Vegas after 2 in the morning, if there is one
available you can get it for and amazingly low price. On the
other hand, if there is a convention in town, guess what? Even
the penthouse at the best hotel may not be available, and if it
is, it may be $10,000 a night because it is available and
nothing else is.
This is exactly the problem California got into is they
thought they were smart when they bought short. Now that, in
fact, short is more expensive, they have a reluctance to buy
long, and even the Governor's proposal to spend billions, 10
billion plus dollars in ensuring buying, he is buying the
baseload. Rather than saying let the companies buy their own
baseload long term, we are going to guarantee the additional
purchase. If the Governor were to buy $5 billion worth of
future excess capacity in addition to the 52,000 megawatts that
are available, in fact he would be driving down the price, and
this is exactly the opposite of what the Governor is doing.
Mr. Shimkus. And let me ask each of you--and if you can
answer it briefly because my time's going to run up. This is
going to be my last question. If we cap--there are two parts of
the equation. There is the supply and then there is the demand.
If we cap wholesale rates, like California capped the retail
rates for individual consumers, how do you encourage
conservation with a capping of rates? How do you affect the
other side of the equation, not just the supply but the
demands?
Mr. Inslee. I tell you one thing you can do is you can
adopt variable pricing. Variable pricing has a higher cost
during peak hour is one way, and we are going to have the first
utility in the country doing that this year up in the Puget
Sound area, and I hope this committee will look at that issue
carefully.
Mr. Shimkus. We had energy deregulation debate. We think
there is going to be metering and people are going to buy based
upon peak hours so you would say that there should be some rate
changes for the consumer.
Mr. Inslee. Yes.
Mr. Shimkus. To help conservation.
Mr. Inslee. Yes, and I believe there ought to be and need
to be some price increases at the retail level in certain
circumstances, but if the ones we have experienced of 50 to 100
percent in a 12-month period are so shocking to the economy,
they can't deal with it.
Mrs. Davis of California. I think one of things we didn't
deal with was deal with the demand side, and this is where we
can do that both on the commercial and residential end. After
this experience, people have an understanding now of how they
can utilize their own utilities at home in a different way. So
it is not my opinion that this is going to, if we do wholesale
caps, that people would start using more electricity than they
need or not conserving.
The real difficulty, and I think perhaps there was a little
confusion about the wholesale versus the retail caps, we do
think that had the FERC capped the wholesale rates plus a
profit, a reasonable and just profit early on, we would not
have had to even step in on the retail prices, but that was the
only thing we could really control in California. And San
Diego, of course, experienced this before everybody else did
and it was difficult for us to get a across the sense of panic
really among residents over this.
Mr. Shimkus. But your deregulation----
Mr. Barton. The gentleman's time has expired. We need to go
to our next and last questioner in this round, the Congressman
from Kentucky, Mr. Whitfield, for 5 minutes.
Mr. Whitfield. Thank you, Mr. Chairman. I think all the
evidence indicates that most of the price spikes occurred
within the area of natural gas. It hasn't really happened that
much in coal or nuclear that I know of.
Now, some of you have made some rather serious allegations
in my view. I know Mr. Filner has gone, but the words have been
mentioned that prices were manipulated, there was illegal
withholding of power, falsification and so forth. And Chairman
Hecker, who happened to be a Democrat over at FERC, had asked
for a report and analysis of the western markets on the
wholesale rates. And as some of you have indicated, FERC has
the legal authority to put caps on interstate rates if they are
found to be unreasonable. And in that report which was issued
in November of 2000, they said they found no evidence of market
power abuse.
So that is the agency. The Federal Government has the
authority to do this. So assuming that what they say is true
and they are not going to act, are you all, particularly Ms.
Davis and Mr. Inslee, despite the fact that maybe there is no
proof of anything, are you still advocating that there be a cap
on wholesale rates?
Mr. Inslee. Mr. Whitfield, yes, I am advocating that,
whether or not there was withholding generated or not, and I
don't know that for sure. I want to make sure you understand we
have asked the GAO to investigate this. I can't tell for sure
there was or not. I think there was enough to cast some
suspicion in that regard, but I am advocating that for this
reason. The FERC also, in that very same report I think you are
referring to, found ``the Commission has found in this
proceeding that the existing market structure and market rules,
in conjunction with an imbalance of supply and demand in
California, has caused and until remedied will continue to have
the potential to cause unjust and unreasonable rates for short-
term energy during certain time periods.''
Now, to me, it is absolutely stunning that the Federal
organization charged with the responsibility of assuring
reasonable rates makes that finding and then does nothing,
zippo, nada, to solve this particular problem, you know,
whether there was withholding generating, but I do know people
are being gouged for their electrical prices today with
unreasonable prices that are not required for the cost of
producing that power.
Mr. Issa. Mr. Whitfield, just to maybe shed a little light
on this, the FERC Commissioner, or Chairman, met with the
California delegation, bipartisan Republican and Democrat, and
I think he explained this very very well. And the words the
Congressman is saying are absolutely correct, but the finding
is not that there was wrongdoing on behalf of the industry. The
finding is there was wrongdoing on behalf of the California
legislature and the people of California, and they created an
environment in which they bought badly. And the change that
needs to happen for the most part needs to happen in
California, and they are beginning to change the rules so they
buy smarter. And for the Federal Government to say you bought
badly and you paid less for a time, but now when you are paying
more we are going to prohibit that and claim there was some
wrongdoing, would be folly.
Mr. Whitfield. Well, I mean I personally agree with you
that what California did is almost unbelievable when you look
through the process, but, Mr. Inslee, you made the comment,
which makes a lot of sense, that if you institute short-term
caps on wholesale rates and exempt new generators, that that
could help solve the problem; except it is my understanding
that in the State of California, if you are a new generator,
then you are going to have to bear part of the cost of the
stranded cost of the existing utilities to come in, plus you
are going to have to reduce your rates to meet their initial 10
percent reduction of their retail rates.
Mr. Inslee. Could I address this? This has to come down to,
I think, the role of the Federal Government. I don't pretend
with all my friends in California to say that every decision
made there in retrospect was the right decision. What we are
here to say, though, that the Federal Government is the only
government right now who can care for my constituents, and
simply sort of throwing rocks at California constantly is not
going to solve this problem. We need a western statewide grid
solution only this body, and the administration has the
capability in my view of providing that and I urge you to do
so.
Mr. Whitfield. So you would be in favor of overriding that
aspect of California law.
Mr. Inslee. I will leave that to you and California in that
regard, but in one shape or another we need a wholesale price
cap that is grid systemwide in the western United States short
term.
Mr. Barton. Time of the gentleman has expired. Congressman
Walden, I am told, does not want to ask questions, is that
correct?
We are going to excuse this panel. We thank you for your
testimony. There may be some written questions but we obviously
appreciate the input into this problem. We will have a specific
hearing on California when we have experts come, hopefully
later this month.
We would now like to welcome our second panel of
Congressmen. We are going to recognize you basically in
seniority, with some exceptions for committee members. And
Congressman J.C. Watts, who has a leadership meeting, will be
allowed to go first. So, J.C., if you will come forward. If it
was up to me I would recognize Texans first, since we have Mr.
Stenholm, but we are going to do this. So we are going to
recognize Congressman Watts, and then we will go to Congressman
Ganske who is a member of the committee, and then we will start
by seniority, and I think it would be Mr. Bereuter and Mr.
Stenholm, and then after that I am lost, but I am sure that you
all will help me.
So, gentlemen and lady, welcome to the subcommittee.
Congressman Watts, your statement is in the record. You are
recognized for 5 minutes to elaborate on it.
STATEMENT OF HON. J.C. WATTS, JR., A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OKLAHOMA
Mr. Watts. Thank you, Mr. Chairman, and thank you for
accommodating my schedule, and I want to thank my colleagues
for allowing me to go first.
Chairman Burton and members of the committee, thank you for
the invitation to testify before you here today on an issue
that is critical to the national security and continued
prosperity of our Nation. This issue I speak of is the need for
a comprehensive national energy policy that will ensure that
the standard of living we enjoy today in America will continue
in the future for our children and for our grandchildren. The
last 8 years have seen a lack of such a policy and it is now
time for that to change.
The energy issue is a critical national security issue.
Currently we are importing about 57 percent of the oil used in
this country, with 23 percent of that coming from the Persian
Gulf region. Unless we take action, that number is forecast to
increase to 64 percent in the year 2020. By contrast, our total
imports were only 35 percent in 1973 when the Arab oil embargo
created gas lines here at home. As recently as 1991 we went to
war with Iraq not only to liberate Kuwait, but also to assure
Saudi Arabia and the Persian Gulf States and our European
allies that the United States was committed to the security of
that region. Unfortunately, the last 8 years have seen such a
weak-handed foreign policy toward Iraq that a nervous Saudi
Arabia is now reaching out toward Iran. America cannot be so
vulnerable to the leaders of OPEC.
Our reliance on imported oil weakens our national security,
and it must be reduced through the implementation of a
comprehensive national energy policy.
The energy issue also is an economic issue. As the former
chairman of the Oklahoma Corporation Commission, the governing
body in Oklahoma that regulates oil and gas, I am well aware of
the essential role that energy plays in our economy. Without
affordable, abundant, and reliable energy available, the wheels
of our economic machine will slow and eventually halt. We must
not allow that to happen.
Some people think that our new Information Age economy is
less reliant upon energy than our old economy based on
manufacturing. Nothing can be further from the truth. All of
these Internet computer systems, e-businesses, and software
firms require electricity to keep them running. The Internet
and the systems associated with it consumes approximately 8
percent of the electricity used in the United States. In
addition, all of those wonderful things ordered on the Internet
still require transportation to reach the consumer,
transportation that is 97 percent fueled by petroleum products.
And, yes, America still does make products in factories that
rely on energy to light the lights, run the conveyor belts, and
heat the buildings.
Energy is essential to the production side of our economy.
Energy is also essential to the consumption side of our
economy. There is no greater detriment to consumer confidence
than not knowing what your utility bill will be at the end of
the month. No working family in America is going to buy a new
car, a washing machine or computer when they are uncertain of
the cost of their monthly utility bill.
Every person that has ever had an economics class knows the
theory of supply and demand. Our energy supply is dwindling
while our energy demand is growing. The Department of Energy
predicts a growth in total energy consumption of 32 percent by
2020; 390 megawatts in new electrical generation capability
will be required to meet that increased demand. This is the
equivalent of constructing 40 new 500-megawatt power plants per
year for the next 20 years.
Our oil refinery infrastructure is in no better shape.
Currently our domestic refineries are running at 95 percent
capacity and there has not been a new refinery built in the
United States for the last 20 years. The nuclear industry that
provides 20 percent of our electrical generation capability has
been stagnant for years but offers the potential for large
amounts of emission-free electrical power. The siting and
permitting process required of the nuclear industry should be
streamlined. The hydroelectric plants operating today must be
maintained for the future.
Clearly the energy infrastructure in our country is in
decline. The transmission lines used to transport electricity
around the country are now operating at their maximum and
building new ones is next to impossible to do due to a myriad
of Federal, State and local regulations. Pipeline construction
is similarly difficult in the regulatory environment we see
today. Without an investment in infrastructure, improvement, it
will not matter how much our supply is increased because it
will not be able to reach the users.
Beyond our infrastructure needs, we must increase the
supply of energy in this country. When I say energy, I mean all
types of energy: oil, natural gas, coal, nuclear,
hydroelectric, geothermal and renewables. No one source has the
single answer. The domestic oil and natural gas industry must
be kept alive and thriving.
Mr. Barton. Can you summarize?
Mr. Watts. Environmentally responsible access to Federal
lands should be pursued. And let me say in conclusion, we have
an energy crisis bearing down on us, and it is our duty to do
something about it, and I hope we can look at the Energy
Department, all of us can look at a comprehensive national
energy policy that will chart a sensible course that can be
followed by many for many years to come.
And with that, Mr. Chairman, I thank you.
[The prepared statement of Hon. J.C. Watts, Jr. follows:]
Prepared Statement of Hon. J.C. Watts, Jr., a Representative in
Congress from the State of Oklahoma
Good afternoon . . . Chairman Barton and members of the
subcommittee, thank you for the invitation to testify before you today
on an issue that is critical to the national security and continued
prosperity of this great nation. The issue I speak of is the need for a
comprehensive National Energy Policy that will ensure that the standard
of living we enjoy today in America will continue in the future for our
children and our grandchildren. The last 8 years has seen a lack of
such a policy and it is now time for that to change. It is our duty as
Members of Congress and it is our duty as mothers and fathers to step
forward and provide the necessary leadership on this critical issue.
The energy issue is a National Security issue. Currently, we are
importing about 57 percent of the oil used in this country, with 23
percent of that coming from the Persian Gulf region. Unless we take
action, that number is forecast to increase to 64 percent by 2020. By
contrast, our total imports were only 35 percent in 1973 when the Arab
oil embargo created gas lines here at home. As recently as 1991, we
went to war with Iraq not only to liberate Kuwait, but also to ensure
Saudi Arabia, the Persian Gulf states, and our European allies that the
United States was committed to the security of that region.
Unfortunately, the last eight years has seen such a weak-handed foreign
policy toward Iraq that a nervous Saudi Arabia is now reaching out
towards Iran. Friends, our great country cannot afford to be so
vulnerable to the whims of the leaders of OPEC. Our reliance on
imported oil weakens our national security and it must be reduced
through the implementation of a comprehensive National Energy Policy.
The energy issue is also an economic issue. As the former Chairman
of the Oklahoma Corporation Commission--the governing body in Oklahoma
that regulates oil and gas, public utilities, and trucking--I am well
aware of the importance that energy plays in our economy. Energy is the
grease that keeps the large wheels of our economic machine in motion.
Without affordable, abundant, and reliable energy available, that
machine will slow and eventually halt. We must not allow that to
happen. Some people think that our new Information-age economy is less
reliant upon energy than our old economy based on manufacturing.
Nothing could be further from the truth. All of these Internet computer
systems, e-businesses, and software firms require electricity to keep
them running. The Internet, and the systems associated with it,
consumes approximately 8 percent of the electricity used in the United
States. In addition, all of those wonderful things ordered on the
Internet still require transportation to reach the consumer.
Transportation that is 97 percent fueled by petroleum products. And
yes, America does still make products in factories that rely upon
energy to light the lights, run the conveyor belts, and heat the
building. Energy is essential to the production side of our economy.
Energy is also essential to the consumption side of our economy.
There is no greater detriment to consumer confidence than not knowing
what your utility bill will be at the end of the month. No working
family in America is going to by a new car, washing machine, or
computer when they are uncertain of the cost of their monthly utility
bill. Opening your electricity bill should not be like playing Russian
roulette!
Our current energy problems are no more complex than a lesson of
Economics 101. Every person that has ever had an economics class knows
the theory of supply and demand. That is our problem. Our supply is
dwindling while our demand grows. The Department of Energy predicts a
growth in total energy consumption of 32 percent by 2020. 393,000
Megawatts of new electrical generation capability will be required to
meet that increased demand. This is the equivalent of constructing 40
new 500-megawatt power plants per year, for the next 20 years. Our oil
refinery infrastructure is in no better shape. Currently, our domestic
refineries are running at a 93 to 95 percent utilization rate, and
there has not been a new refinery built in the United States for the
last 20 years. Even if we had the oil, it would be difficult to refine
it into usable fuels to run our cars and heat our homes. Clearly we
have a problem that we must get to work on before rolling blackouts
become a norm in the most powerful and technologically advanced country
in the world.
The systematic approach to any problem requires that the problem be
fully understood prior to trying to solve the problem. I applaud
President Bush for appointing an Energy Task Force headed by Vice
President Cheney and I applaud Senator Murkowski and my friends in the
Senate for their leadership on this issue. I especially applaud your
leadership and Chairman Tauzin's leadership on this issue. Now is the
time for us to assume the mantle of leadership and move forward on this
critical issue.
We must increase the supply of energy in this country. When I say
energy, I mean all types of energy: oil, natural gas, coal, nuclear,
hydroelectric, geothermal, and renewables. No one source has the single
answer. The domestic oil and natural gas industry must be kept alive
and thriving. Measures such as the Independent Energy Production Act,
H.R. 805, which I co-sponsored and was recently introduced, helps those
independent and marginal well producers weather the ups and downs of
the market. A look at environmentally responsible access to Federal
lands should be pursued. Coal is abundant in the United States and
currently serves as the fuel for 51 percent of our electrical
generation. Clean coal technology needs to be supported. The nuclear
industry that provides 20 percent of our electrical generation
capability has been stagnant for years, but offers the potential for
large amounts of emission-free electrical power. The siting and
permitting process required of the nuclear industry should be
streamlined. The hydroelectric plants operating today must be
maintained for the future. Renewable sources such as geothermal, solar,
wind, and others offer great promise for the future. Continued support
of these developing energy sources will secure our future.
The American demand for energy is large and growing. While
conservation will never solve our problems, it will certainly go a long
way to help. We can probably all remember the cars of the 1970s that
achieved 5 miles per gallon. Today, the family mini-van gets 25 miles
per gallon. When I was in high school, I remember every light switch
had a sticker on it reminding us to turn out the light when we left the
room. Today, I see office buildings here in Washington D.C. ablaze with
lights at 10:00 at night. There is either some very dedicated public
servants working late, or they simply forgot to turn out the lights on
their way out. We have become a nation of ``super-consumers'' who
believe that energy will always be available if we are willing to pay a
fair price for it. The people in California have learned a different
lesson. We have not yet reached the maximum efficiencies that can be
reached. Vehicles, appliances, electronic devices, homes, buildings,
and heating systems can all be made for efficient. Programs to assist
low-income people to weatherize their homes should be supported. We as
the government need to lead the way by establishing rigid energy
conservation programs in government office buildings and in the fleets
of vehicles that governments at all levels operate. Industry should be
encouraged to replace old inefficient systems with new, more efficient
systems. Great gains can be made in energy conservation when it becomes
economically viable. We should take measures to make this happen.
Finally, the energy infrastructure in our country is in decline. I
have alre1ady mentioned that no new refineries have been built in the
United States in the last 20 years. Additionally, no construction
permits for nuclear plants have been granted since 1979. The
transmission lines used to transport electricity around the country are
now operating at their maximum and building new ones is next to
impossible due to a myriad of Federal, state, and local regulations.
Pipeline construction is similarly difficult in the regulatory
environment we see today. Without an investment in infrastructure
improvement, it will not matter how much our supplies increase, because
it will not be able to reach the users.
In conclusion, we have an energy crisis bearing down on us and it
is our duty to do something about it. While the free and competitive
market can solve many of our problems, there is also a role for
government. The government helped create the problems we now face, so
we in the government must now work with the industry to solve these
problems. The solution will not happen overnight. There will be bumps
in the road. However, the development of a comprehensive National
Energy Policy will chart a sensible course that can be followed for
many years to come. The American people are counting on us.
Thank you.
Mr. Barton. Thank you. And your experience at the State
level on the Oil and Gas Commission in Oklahoma will be
invaluable as we put this policy together. I understand you
have to go to a meeting at 3. So anytime you need to leave,
feel free to do so.
Now, welcome to a member of the subcommittee and the full
committee, Congressman Ganske. Your statement is in the record.
You are recognized for 5 minutes to elaborate.
STATEMENT OF HON. GREG GANSKE, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF IOWA
Mr. Ganske. Thank you, Mr. Chairman. Well, as we look at a
national energy policy and as we are looking as a committee at
the bill, an energy bill, it is clear that we need to get
adequate supplies of natural gas and oil and to reduce our
dependence on imports, as my colleague J.C. Watts has just
talked about. I think we also need to focus on renewable
sources of energy, and that is mainly what I want to talk about
and provide the committee with an example of how regulations
can run amok and can prevent us from using some of our cleanest
sources.
It is no surprise that I have been strongly in favor of
renewable energy sources like ethanol, along with colleagues
such as Mr. Shimkus on the committee. But I want to focus on a
situation that really has to deal with one of the main problems
the committee will be facing, and that is the NIMBY situation,
the ``not in my backyard'' syndrome that is, I think,
preventing us from developing new sources, but also the sources
for transportation of both natural gas and the location of new
sources. And so I am going to provide the members of this panel
with an example from California, and I know my California
colleagues may be interested in this.
There is a recent example, as an example of the obstacles
to new generation, it is the failure to build a geothermal
plant on U.S. Forest Service land at Telephone Flats in
northern California near Medicine Lake.
With the written consent and support of the Forest Service,
the Bureau of Land Management leased these lands to private
companies in 1981 pursuant to the Geothermal Steam Act of 1970
which was passed by Congress to ensure and encourage the BLM to
lease federally owned geothermal resources for commercial
production and use.
The proposed geothermal plant, while on Federal land, is
hardly in an area that hasn't seen other uses. In the immediate
area are paved grounds, developed campground and picnic areas,
numerous privately owned cabins, a boat ramp and an active
pumice mine. Motor boats are used regularly in the summer.
Snowmobiling is a major activity in the winter, and substantial
logging has occurred and continues to occur in that area.
The Forest Service and the BLM compiled numerous documents
for this project, covering the range of environmental acronyms.
In its first environmental assessment of 1981 the Forest
Service concluded that, ``geothermal exploration will not
create any environmental impacts which cannot be avoided.'' As
a result, developers constructed numerous roads and well pads
at the site and drilled several dozen test wells to assess the
commercial viability of the geothermal resource.
The two Federal agencies completed a supplemental
environmental assessment in 1984 and approved additional
leasing, noting contrary to, quote, coal, oil and gas-fired
electric generating plants, geothermal power is one of the few
alternatives remaining capable of contributing to energy
demands without creating serious environmental impacts,
unquote.
When a geothermal developer proposed further exploratory
drilling in 1995, the BLM and Forest Service prepared another
environmental analysis and issued a finding of no significant
impact to the environment, approving the project.
The company then submitted its plan of operation in 1997 to
construct and operate its geothermal plant. So the agencies
prepared an environmental impact statement. The draft and final
EIS adopted by the agencies approved proceeding with the
project, with certain mitigation measures. But both reports
concluded that denying the project would conflict with the
company's leasing rights.
While everything seemed on track to approve this
environmentally friendly geothermal plant, then the problems
began. The preferred route for the transmission line and access
road were found to be unacceptable because forestland would be
disturbed. The second alternative, a much longer transmission
line, was also found to be unacceptable because of its possible
impact on a nesting area, although mitigation measures were
readily available. And one of the three native American tribes
in the area complained that the entire project would interfere
with what they described as a sacred area of vision quests,
although the other two tribes did not oppose the project.
After nearly 4 years of study, the record of decision which
was finally issued last year, turned down the project, citing,
``the need to protect the visual and cultural values associated
with the uniquely and highly significant historic properties of
Medicine Lake.'' In a prime example of bureaucratic statement
of the obvious, quote, selection of the no action alternative
was the most effective measure to eliminate the impacts on the
cultural and social environments----
Mr. Barton. Could the gentleman summarize, please?
Mr. Ganske. To summarize, Mr. Chairman, after 20 years, no
geothermal plant, and a clear lack of a national energy policy,
leaving California facing an electricity crisis. This was an
opportunity to bring 50 megawatts of clean renewable
electricity to 50,000 homes in power-starved California. It
didn't happen. The developer followed every rule and
regulation. The judge has already told the government not to
bother trying to dismiss this case, and we are left without a
very clean source of energy, and it all relates to ``not in my
backyard.'' we need to do something to fix this.
[The prepared statement of Hon. Greg Ganske follows:]
Prepared Statement of Hon. Greg Ganske, a Representative in Congress
from the State of Iowa
America needs a comprehensive energy policy. You don't need to look
far from home to realize the challenges we face. My constituents face
energy bills this winter two or three times the rate of a year ago. A
national energy policy might not prevent such price surges, but I feel
it would go along way toward tempering them.
We need legislation to provide adequate supplies of natural gas and
oil and to reduce our dependence on foreign imports. But we must also
focus on renewable sources of energy.
One of my first initiatives this year was to author bipartisan
legislation to promote the use of ethanol. Twenty-six Members, from
both parties, joined me in introducing the ``Clean Air and Water
Preservation Act of 2001'' to call for an end to the use of MTBE. MTBE
is a chemical used to decrease automobile pollution and to improve air
quality. Unfortunately, it is also a ground water contaminant. The
Environmental Protection Agency warns it may even cause cancer. My
legislation phases out the use of MTBE and replaces it with ethanol
which burns cleaner, without harming our water away as Pennsylvania and
Florida have joined me in cosponsoring the legislation. Even though,
they don't grow supply. The bill is good public policy, which is why
members from as far very much corn in those states, they recognize
ethanol is a cleaner fuel alternative. Americans should not have to
face a false choice between clean air and clean water. With corn based
ethanol, we can have both.
In addition to ethanol, we must also include hydroelectric power,
solar power, wind generation, biomass, geothermal power and measures to
promote conservation and innovation. I feel very strongly about
renewable sources, but they alone are not the solution. We also need to
look at developments in ``clean-coal'' technology, and as I mentioned
previously, we must ensure our domestic supplies of natural gas and oil
are sufficient.
It is not enough just to talk about renewable resources, we have to
create an environment that fosters their development. We must remove
obstacles and champion them to make them an important player in a
diversified energy mix.
One recent example of the obstacles to new generation is the
failure to build a geothermal power plant on U.S. Forest Service land
at Telephone Flat in northern California, near Medicine Lake. With the
written consent and support of the Forest Service, the Bureau of Land
Management (BLM) leased these lands to private companies in 1981
pursuant to the Geothermal Steam Act of 1970, which was passed by
Congress to encourage the BLM to lease federally owned geothermal
resources for commercial production and use.
The proposed geothermal plant, while on federal land, is hardly in
a pristine area. In the immediate area are paved roads, developed
campground and picnic areas, numerous privately owned cabins, a boat
ramp, and an active pumice mine. Motor boats are used regularly in the
summer, snowmobiling is a major activity in the winter, and substantial
logging has occurred and continues in the area.
The Forest Service and BLM compiled numerous documents for this
project, covering the range of environmental acronyms. In its first
Environmental Assessment in 1981, the Forest Service concluded that
``geothermal exploration will not . . . create any environmental
impacts which cannot be avoided.'' As a result, developers constructed
numerous roads and well pads on the site and drilled several dozen test
wells to assess the commercial viability of the geothermal resource.
The two federal agencies completed a Supplemental Environmental
Assessment in 1984 and approved additional leasing, noting that,
contrary to ``coal, oil and gas fired electric generating plants . . .
geothermal power is one of the few alternatives remaining capable of
contributing to . . . energy demands without creating serious
environmental impacts.''
When a geothermal developer proposed further exploratory drilling
in 1995, the BLM and Forest Service prepared another environmental
analysis and issued a Finding of No Significant Impact to the
Environment (``FONSI'') approving the project. The company then
submitted its Plan of Operation in 1997 to construct and operate its
geothermal plant, so the agencies prepared an Environmental Impact
Statement (``EIS''). The draft and final EIS adopted by the agencies
approved proceeding with the project, with certain mitigation measures,
but both reports concluded that denying the project would conflict with
the company's lease rights.
Everything seemed on track to approve this environmentally friendly
geothermal plant. Then the problems began. The preferred route for the
transmission line and access road were found to be unacceptable because
forest land would be disturbed. The second alternative, a much longer
transmission line, was also found to be unacceptable, because of its
possible impact on a nesting area, although mitigation measures were
readily available. And one of the three native American tribes in the
area complained that the entire project would interfere with what they
described as a sacred area of ``vision quests.'' Although the other two
tribes did not oppose the project.
After nearly four years of study, the Record of Decision, which was
finally issued last year, turned down the project, citing ``the need to
protect the visual and cultural values associated with the uniquely and
highly significant historic properties in the Medicine Lake'' area. In
a prime example of a bureaucratic statement of the obvious, ``the
selection of the No Action Alternative was the most effective measure
to eliminate the impacts on the cultural and social environments in the
. . . area.''
The result after 20 years? No geothermal plant and a clear lack of
a national energy policy, leaving California facing an electricity
crisis. Here was a golden opportunity to bring 50 megawatts of clean,
renewable electricity to 50,000 homes in power-starved northern
California. It didn't happen. California will continue to experience
blackouts. The developer followed every rule and regulation. It paid
dearly for the geothermal lease rights, and it's now in court seeking
damages from the U.S. Government of at least $50 million--and the judge
has already told the Government not to bother trying to dismiss the
case.
California's experience in trying to build a geothermal plant is
only one example of the obstacles new energy sources face, but I hope
it is an instructive one as we work to build a national energy policy
that is comprehensive, inclusive and designed to build a bridge to an
America which is secure in its energy needs. Thank you Mr. Chairman.
Mr. Barton. We thank the gentleman. If we could let the
whip come forward, Mr. DeLay, and let him go and then we will,
I don't know--Doug, are you senior to Mr. Stenholm? Which of
you all are the senior man?
Mr. Bereuter. We came in together.
Mr. Barton. So we go by alphabetical order or Texas order.
Which do we do here?
Mr. Stenholm. Mr. Chairman, if I might, I will just submit
my statement for the record and save you 5 minutes because I
have to be someplace at 3 o'clock.
Mr. Barton. Well, I was actually looking forward to
listening to you. We will go with Mr. DeLay and if Charlie
wants to stay for 5 more minutes, We will be glad to go with
Mr. Stenholm.
Mr. DeLay. I will be glad to defer to him if he has to go.
Mr. Barton. Well, then let's let Congressman Stenholm go
right now, then DeLay and Bereuter.
So, Congressman Stenholm, you are recognized for 5 minutes,
if you wish it.
STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Stenholm. This will cost me big time, Mr. Chairman.
Mr. Barton. Just a vote on the tax bill or something.
Mr. Stenholm. Thank you, Mr. Chairman. I will indeed
summarize my comments and I thank you for holding this hearing.
I thank this committee for making an effort once again for
developing a national energy policy, something that I have been
interested in for 22 years. And I believe this year, and this
Congress with this administration, we are going to get it done.
You know, I represent not only the cotton patch but also
the oil patch. And, you know, there is an old saying in
agriculture as well as the oil patch, and that is low prices
always bring high prices. And in my district when prices were
at $10 dollars a barrel and $2 per thousand cubic feet of
natural gas, no one, including my own constituency, was
concerned about the low prices. But my constituency is no
different than California or any other State today. The high
prices that we have now have become rather disruptive to home
owners and agriculture, et cetera, and it is important that we
begin to focus on the solution. We know what the problem is--
Mr. Watts outlined the problem very very well. Now what we
need, we need improved access.
Mr. Ganske stated a moment ago, when most of the remaining
natural gas to be found in the United States lies on land owned
by the United States taxpayers, it is time for us to begin
having access. We know with modern technology that we can in
fact develop safely, environmentally sound oil and gas
production, coal production, all other sources of energy. It
can be done and it is time for the ``not in my backyard''
syndrome to end.
Improved technology requires research and I hope that in
our budget deliberation this year we will provide for continued
research and development of finding even newer and better ways
to develop found energy. Consumer needs must be taken into
consideration and programs like LIHEAP do need to be fully
funded in order to take care of the short-term problem.
We, as part of a national energy policy, need to be looking
at alternative energy sources, and I come to you today as
ranking member of the House Agriculture Committee. I want to
share with you the impact it is having on agriculture. You know
this, everyone should know this: High prices for natural gas
electricity are causing many farmers to go to dry land farming
because you cannot afford to produce food and fiber with these
costs and sell it for what we are having to sell our
agriculture products.
I have been working for the last several years on
developing a partnership between the oil and gas industry and
agriculture, because you cannot produce food and fiber without
oil and gas. You cannot produce oil and gas without food and
fiber, and therefore it needs to be a natural partnership.
We all have our environmental concerns, we all have those
who believe that somehow, some way, we can produce in abundance
without drilling, without building power plants, or without
doing any of the things that promote new sources. However, I am
happy to say to you today that we are on the verge of building
meaningful kinds of coalitions.
I believe that it is going to be very possible this year to
get the kind of bipartisan support that we do need to do all of
the things necessary in developing alternative energy sources.
Ethanol, I support. I didn't used to support it. I have done a
180 degree turnaround because it was very difficult for me to
convince my independent oil and gas producers that having the
government subsidize their competition when they were going
broke. I couldn't do that. But now we are finding a realization
we need to develop all of the energy sources we have in this
country and therefore, working together, we can do so.
I also encourage one thing additional and that is to take
another look, which so far the Ways and Means Committee has not
done, at using the Tax Code to provide incentives for domestic
oil and gas producers, as well as developing alternative energy
sources. That is not in the President's proposal. That is not
in anybody's proposal that I am hearing talked about that will
fit within the number we are talking about. That is why some of
us are having a little difficulty with the manner in which we
are going about our budget business, and that is something we
will talk about another day.
But I thank you. Again, I appreciate the majority whip for
his indulgence with me today. I know it will, in fact, cost me
dearly, but it will be a price I will be more than willing to
pay if he and I are working together on that, which, Mr.
Chairman, you and he and a lot of other folks in this room
would like to see done. I thank you very much.
[The prepared statement of Hon. Charles W. Stenholm
follows:]
Prepared Statement of Hon. Charles W. Stenholm, a Representative in
Congress from the State of Texas
Thank you Mr. Chairman, and I thank the members of the committee
for allowing me to come and be here today. I commend you for holding
this hearing today on the development of a national energy policy. I
have become increasingly concerned about this Country's lack of a
national energy policy and what impact that failure has on both
producers and consumers. The state of our energy industry has far
reaching economic, geographic and political ramifications and we ignore
it at our own peril. My hope is that this hearing can begin a process
of developing a comprehensive national policy for this vital industry.
current conditions
Cold weather and ever-hotter gas prices have meant an expensive
winter in Texas. The pinch, which consumers have felt in both electric
and gas bills is, in part, due to supply and demand as well as to the
weather. Gas prices remained static for several years, hovering in the
$2 per thousand cubic feet range. That, along with oil prices that
remained low as well, discouraged drilling.
Oil Production
Oil prices, on a long slide, dipped to $10 and under in late 1998
and early 1999. The average dip in oil prices lasts about six months,
and this recent one lasted three times as long. The price collapse
forced many oil and gas companies to sell equipment, layoff employees,
and shelve exploration and production plans. A number of energy
companies went out of business as a result.
In my District, the 17th District of Texas, which also is known as
the ``oil patch,'' claims for unemployment from the oil and gas
industry quadrupled from 1,171 to 4,730 between December 1997 and 1998.
During this time, the lost oil wellhead value dropped $5.79 million and
the value of oil to the Texas economy dropped almost $1 billion.
The number of producing wells declined by 2,855 during this time as
well. In my home county of Jones, oil production in December 1997 was
83,706 barrels, in December 1998 it was 69,966 barrels, and in December
1999 it had declined to 58,534 barrels. That's a decline of 25,172
barrels per month from December 1997 to December 1999, or a decline of
30%.
Oil production in the United States is on the decline as we are
operating from a mature resource base that makes the cost of production
high as evident in Chart 1 from the Energy Information Administration.
Total domestic crude oil production has declined from 8.7 million
barrels per day in 1986--the first oil price collapse--to 5.9 million
barrels per day in 1999. We must recognize that a healthy domestic oil
production industry is also essential for a healthy domestic natural
gas industry, because they are inherently intertwined.
Gas Production
Much of the nation's natural gas comes from oil wells. Many of the
nation's independent producers, particularly hard hit by the industry
down turn, focused on finding natural gas. When prices are below the
cost of exploring and producing crude, these small independent
producers cannot stay in business, causing a ripple effect throughout
local communities as schools and hospitals in Texas rely on a strong
oil and gas industry for revenues. Over the past several years, we
warned that critically low prices have the potential to turn into a
price shock. Unfortunately, this is a lesson that we should have
learned many times over in the last two decades. Production of both oil
and gas declined in 1999 and, despite high prices paid to producers
now, has not climbed to pre-collapse levels.
As indicated in Chart 2, oil and natural gas producers are
responding. In April of 1999, only 126 rigs were drilling for oil and
362 rigs were drilling for natural gas, nationwide. By January 2001,
rigs drilling for natural gas more than doubled with 878 rigs in
production and the rig count for crude oil double as well (240 rigs in
production). However, wells generally take three months to a year to
come on line, so, with temperatures lower than normal nationwide,
prices likely will not go down significantly for several months.
Despite a doubling of rigs in production, demand for natural gas is
far out-weighing supply. According to a study conducted by the National
Petroleum Council, the natural gas demand will increase by slightly
more than 30% over the next decade (see Chart 3 submitted with this
testimony). The U.S natural gas demand has grown from 19 Thousand Cubic
Feet (TCF) in 1990 to approximately 22 TCF in 1998, or about 2% per
year, and has continued to represent about one quarter of the nation's
fuel needs.
Some may see it as a blessing that we are moving out of a season of
high winter heating costs but, unfortunately, this will not alleviate
the price pinch as we are moving into the spring and summer months with
an average increase in transportation and cooling costs.
LOOKING FORWARD
If ever there was a time of dramatic demonstration, the compacted
experience of the last three years with its highs and lows illustrates
the need for our Nation to take responsibility of its energy future. We
do need a free market for the production of energy, but it cannot be a
``free'' market dominated by foreign producing countries that do not
necessarily have our best interests at heart. Former Senator Lloyd
Bentsen of Texas once said that when America imported more than half of
its crude and petroleum products, it would have reached a peril point.
We are now there!
In formulating a national energy policy, it must be in the context
of a continuously improved understanding of how energy demands of the
21st Century challenge the energy infrastructures of the 20th Century,
of how the new economy is affecting the competition for the capital
needed to improve and upgrade our energy infrastructures, and of how
the government's incentive structure and statutory frameworks should
evolve to meet emerging energy needs. As policymakers, we can focus on
the role of oil and gas in power production, producer incentives--
including making more federal lands available and access to capital
using tax incentives (an issue that the Ways and Means Committee should
consider)--and conservation measures. And the impact of price on demand
has not come to its full effect. The combination of increased
production and price-induced conservation might balance supply and
demand at a more comfortable price level.
Improving Access
At the same time we promote protection of our treasured
environments as a high priority, it is imperative that we also consider
enhancing our recovery and wildcat exploration by examining our federal
lands, both onshore and offshore, for possible responsible exploration.
From 1997 to 1999, oil well completions for drilling for new reserve
declined by 54%, but by providing financial incentives and access to
capital to increase domestic oil production and exploration, we can
encourage the discovery of new domestic oil and gas reserves. The
Bureau of Land Management oversees 264 million acres of Federal land
and 300 million acres of subsurface mineral resources. (Refer to Chart
4) These lands contain subsurface resources amounting to eight percent
of the natural gas and five percent of the crude oil produced annually,
in addition to resources like coal, forest products, grazing forage,
and rights-of-way for pipelines and transmission lines. Of the total
$1.4 billion in annual revenues these lands bring, nearly $835 million
(60%) is generated by royalties, rents, bonuses, sales, and fees from
oil and gas operations. The total direct and indirect economic output
of oil and gas production is estimated at nearly $12 billion annually.
Chart 5, which I have submitted with this testimony, depicts
resource estimates in restricted areas in the lower 48 states of the
United States where enhanced, environmentally sound production could
occur if these areas were to be opened up to drilling. Access to the
resource base and to rights of way for infrastructure is critical for
sustainable supply. Chart 5 estimates that slightly over 200 TCF, or
15% of the Lower 48 unproved resource base, is either off limits or is
available with significant restrictions.
Of the almost 1,500 TCF of the Lower 48 resource base cited in
Chart 5, approximately 47% is owned by the Federal Government. Offshore
drilling moratoria have virtually closed activity in the Eastern Gulf,
Atlantic and Pacific coast waters, all under Federal jurisdiction.
Policy makers need to understand the importance of this resource base
in meeting the nation's growing gas demand.
Chart 6 shows the decline profile for gas wells for their given
year of completion--where the younger the vintage, the sharper the rate
of decline. There are two key reasons for this increasing rate of
decline:
1) The new field discoveries tend to be smaller in size; and
2) Drilling and completion technological advances have enabled higher
flow rates, resulting in shorter reserve lives versus older
vintages.
This further indicates that drilling rates and better access to
lands will have to increase to meet projected demand.
Skilled Workers
With increased drilling comes an increase in the need for skilled
workers to build and run rigs used in production. The oil and gas
industry has been experiencing a skilled worker shortage for some time.
This shortage is a direct philosophical product of the volatility found
in the oil and gas industry. By stabilizing the market, skilled workers
are more likely to stay in the business instead of seeking jobs where
the pay is steadier and the risks are much less. Additionally, we
should consider utilizing our colleges and universities to establish
federally qualified training centers to ensure workers have the best
training and skills to safely operate drilling equipment.
Improved Technology
It is important to note that technology has advanced to a point
that we can assess and develop resources in these areas more
efficiently, and with less environmental impact, than ever before.
In recent decades, new technologies have been key to finding and
extracting recoverable oil and gas resources--located in deeper and
more remote locations, in more challenging geologic formations, in more
difficult terrain, in smaller pockets, under sensitive wetlands, and
far out at sea.
By maintaining federal funding in research and development for
technological improvements either at high-end research labs or as a
supplement to kick-start industry venture capitalism, we could really
help bring new initiatives along like we have seen in the past with
horizontal drilling, new methods to plug wellheads, and improved drill
bits. Our nation has come to expect the benefits of fossil-based fuels
and products, but also a cleaner environment. Ongoing research and
development will be the lead force in continuing to protect the
environment during exploration and production. Great strides have been
made, but more opportunities remain.
Consumer Needs
We need to consider measures to help restore market stability with
domestic crude oil and natural gas prices maintaining a level where
domestic producers can compete in a global market. However, our
national energy policy must recognize both producer and consumer
issues. We need to consider the use of incentives to encourage
consumers to make energy efficient improvements to their homes and
purchase energy efficient automobiles as well as further promote and
fund the Low-Income Home Energy Assistance Program (LIHEAP).
Alternative and Renewable Energy Sources
As part of a national energy policy, we also need to further
improve and expand other avenues of energy, including wind, solar,
hydroelectric, and other renewable energy resources as well as
alternative sources such as nuclear energy. If we are to achieve energy
independence, we must research and develop all sources of energy.
Wind Energy--The U.S. wind industry has successfully financed and
built wind plants capable of generating 1700 Mega Watts of power. These
plants now produce more than 3.1 billion kilowatts per hour per year.
Based on this performance, the industry is developing a corporate
structure that has increasing access to some of the same capital
markets as electric utilities. Many rural communities, including some
in the 17th District of Texas, are taking advantage of the wind's clean
energy to provide their electrical needs or for pumping water when they
are unable to be tied to a utility grid, lack conventional resources,
or simply want to be independent of utility bills. This demand for wind
energy is helping expand the industry as well as helping provide a
cleaner environment while operating in harmony with farming, ranching,
forestry, and other open space operations. Research and development
play a key role in advancing wind technology. These organizations
include national laboratories and facilities for testing new hardware.
Since the 1980's, wind energy production has increased its
efficiency by a remarkable 80%--from 25 cent per kilowatt-hour to 4.5
cents per kilowatt-hour. Through expected equipment and manufacturing
efficiencies, the industry anticipates the cost of wind energy will
fall to 3 cents per kilowatt-hour or less in the next few years. It is
important that we continue to support the wind energy production tax
credit (PTC) for this environmentally friendly form of renewable energy
that produces no greenhouse emissions.
Solar--Solar resources will remain infinitely available for as long
as the solar energy system continues to exits--in other words, for the
rest of Earth's history, a period of approximately five billion years.
In order to use solar resources, we need continued research and
development for improved technologies that can be applied locally. The
use of solar resources leads to the operation of countless small-scale
installations, involving a shift away from a few large-scale
investments towards countless small investments and away from remote
delivery of energy towards regional and individual energy subsistence.
Solar energy is an important component contributing clean power to the
nation's energy mix.
Nuclear--The recent rolling blackouts in California may change
forever how the public and policymakers think about U.S. energy policy.
Many are comparing the recent energy crisis to that of the 1973 oil
embargo--a time when soaring fossil fuel prices revealed the pitfalls
of foreign oil dependence. One of the most compelling reasons for the
recent focus on energy security is that supply has not kept up with
demand. And, as a reliable, low-cost producer of large quantities of
base-load power, nuclear energy promises to figure prominently in this
important component of the nation's energy security providing emission-
free electricity sources.
In terms of public health consequences, the safety record of the
U.S. nuclear power industry has been excellent. However, we need to
address two major issues if the nuclear power industry is going to grow
at a rate comparable to demand. First, we need to address the issue of
what to do with the byproducts of nuclear power. There are solutions to
this problem that could be responsibly put in place, and it is up to
Congress to act on legislative proposals such as Yucca Mountain.
Second, we need to continue to streamline the licensing process so that
safety and site-related issues are resolved before capital is invested.
AGRICULTURE'S ENERGY NEEDS
I also come before you today as the Ranking Democrat on the House
Agriculture Committee. I want to share with you not only the impact
that energy price and availability have on agriculture, but also how
America's farmers and ranchers can play a role in meeting our energy
needs.
As you can see from Chart 7 that is attached to my testimony,
agriculture utilized 1.7 quadrillion BTUs in 1998, which equals about 2
percent of the total energy consumed in the United States that year.
This chart includes the direct energy consumed in various forms as well
as the energy utilized by farmers and ranchers in the indirect forms of
fertilizer and pesticides.
Keith Collins, USDA's Chief Economist, recently testified before
the Agriculture Committee regarding the state of the U.S. agricultural
economy. In his testimony, Dr. Collins indicated farmers' production
expenses increased by 4 percent or $7.6 billion in 2000, and that
higher fuel and oil prices accounted for over \1/3\ of that increase.
To put that increase in perspective, he recounted that farm production
expenses had risen only one percent from 1997 to 1999.
Particularly hard hit were farmers who utilize irrigation to
produce their crops, since not only were natural gas and electrical
prices two to three times higher than the previous year, but drought in
many parts of the country forced producers to water more times at that
increased cost. This may mean in a few cases that producers who
actually had a crop to harvest in some regions of the country may have
been worse off than their neighbors who didn't irrigate and had no crop
to harvest.
For 2001, cash production expenses are forecast to increase $1.5
billion to a record level of $179.5 billion for the sector. Fuel prices
are expected to remain close to last year's level, however, the recent
spikes in natural gas prices have led to much higher fertilizer prices,
which will have a major impact on producers' bottom lines and even what
they plant this year.
The recent spikes in natural gas prices have wreaked havoc in the
domestic fertilizer industry. While natural gas prices appear to have
moderated, albeit at a higher price, and the availability of fertilizer
for spring pre-planting application is less in question, there is no
doubt that farmers will be paying much higher prices for nitrogen
fertilizers this spring. As an example, anhydrous ammonia prices went
from an average price of $200 per ton in 2000 to $334 per ton at the
beginning of January.
As Chart 8 shows, nitrogen fertilizer is utilized on a range of
agricultural commodities. Although application rates are lower for
rice, soybeans, wheat, cotton and corn, the nitrogen that is applied
accounts for 20-30 percent of the cost of production for those crops,
as opposed to 5-10 percent of the cost of production for the listed
fruits and vegetables.
The increase in natural gas and electrical prices is also impacting
the floral and horticulture industries as well as poultry producers who
utilize natural gas to heat and circulate air in their greenhouses and
chicken houses.
Agricultural producers cannot pass along higher costs. An increase
in energy and energy-related input costs not only increases farmers'
direct out of pocket expenses, but also results in lower prices from
the market as the purchasers of their commodities try to recoup the
higher costs they are paying for transportation, processing and
marketing.
As Congress has had to pump billions of dollars into the farm
economy to prevent disaster, there is no doubt that the picture is not
improving in the short term, especially with agriculture's reliance on
energy in various forms and the impact that higher energy prices will
continue to have on agriculture's bottom line.
HOW AGRICULTURE CAN HELP
American agriculture can provide a ready source of raw materials to
help meet our domestic energy needs. I was pleased that ``The Biomass
Research and Development Act of 2000'' was enacted into law during the
last session of congress. I hope that this legislation will continue
the close working relationship that developed between the Energy and
Agriculture Departments over the last several years to continue the
research and development of all types of agricultural and forestry
products and waste materials into energy sources.
Now the Congress must do its share and continue to fund the ongoing
work and new research that needs to be done in the areas ranging from
cellulosic feedstock enhancement that would allow the expansion of
ethanol production into areas where corn is not as readily available,
to finding ways to utilize animal manure for energy production on and
off the farm as well as continuing to address the remaining questions
in corn ethanol production, such as the transportability issue.
Any national energy strategy must include incentives for additional
renewable fuel utilization. Over the last 20 years, we have made great
progress in promoting the use of ethanol at both the state and federal
level. I believe the time is right to also promote the use of
biodiesel. It is a fuel that can be made from vegetable oils (which we
currently have a surplus of) as well as recycled oils and animal fats.
The fuel has passed vigorous environmental, health and engine testing.
Soybean growers have spent over $25 million of their own money, with
little government assistance, to successfully commercialize this fuel.
Biodiesel blends are being used to meet the requirements of the
Energy Policy Act (EPACT) due to the efforts of your colleagues here on
the Energy and Commerce Committee, Karen McCarthy and John Shimkus. I
am told the changes their legislation made in the EPACT program have
resulted in biodiesel being used as a flexible, safe way to help meet
the requirements of the program. I am also reminded the legislation
passed in 1998 resulted from a compromise with the natural gas industry
and was supported by most members of the Committee.
This proves to me that our energy policies should be comprehensive
and framed to encourage the development and use of many viable fuels.
The answers to our energy dependence and power generation problems can
best be met by broadening our base of energy resources. I personally
feel strongly that fuels like biodiesel and ethanol can be and should
be a part of a national energy program.
Additionally, there is a tax situation with ethanol that needs to
be addressed by our colleagues on the Ways and Means Committee.
Currently those states, mainly in the Midwest, which utilize ethanol
the most are penalized in the amounts they receive for highway
improvements and construction from the Transportation Efficiency Act
for the 21st Century or TEA-21 bill passed by Congress in 1998. I do
not believe that we should be penalizing these states for using a
homegrown product, corn, to meet their energy needs.
I hope the Committee will be innovative and creative as you shape
our country's next energy program. We can no longer rely on the same
old policies and program. We must look for additional sources and
resources to complement our traditional sources of energy. I look
forward to working with the leaders of the Committee to make certain
that renewable fuels made from our abundant agriculture and forestry
resources are a part of the answer to our energy challenges.
CONCLUDING REMARKS
America needs a balanced-forward-looking energy policy based on the
proposals that have been put before this Congress. We need a
responsible approach that will infuse our energy sector with both
efficiency and competition, seeking to protect America against
emergencies in the energy market.
Appendix
LIST OF CHARTS
Chart 1 Crude Oil Production by Source 1970-2020--Courtesy of DOE/EIA
and DOI
Chart 2 Natural Gas Rig Counts--Courtesy of National Petroleum Council
Chart 3 U.S. Natural Gas Demand--Courtesy of National Petroleum Council
Chart 4 Government Lands--Courtesy of National Petroleum Council
Chart 5 Resource Estimates for Restricted Areas--Courtesy of National
Petroleum Council
Chart 6 U.S. Production History--Courtesy of National Petroleum Council
Chart 7 Estimated farm energy use, 1998--Office of Chief Economist/
Office of Energy Policy & New Uses, USDA
Chart 8 U.S. Ammonia Price--CF Industries
Chart 9 Midwest Anhydrous Ammonia FOB Prices--Office of Chief
Economist/Office of Energy Policy & New Uses, USDA
Chart 10 Nitrogen Application Rates--Office of Chief Economist/Office
of Energy Policy & New Uses, USDA
Chart 11 Direct energy expenditures as percent of total production
expense, 1998--Office of Chief Economist/Office of Energy
Policy & New Uses, USDA (Recent increases in fuel prices would
revise these estimates upwards by nearly double since 1998)
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Mr. Barton. Thank you. We now go to the distinguished
majority whip, who is coordinating the various jurisdictional
issues between the committees on energy policy. It is a job
that is going to be difficult, but I know that he is up to it.
Your statement is in the record. You are recognized for 5
minutes.
STATEMENT OF HON. TOM DeLAY, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF TEXAS
Mr. DeLay. Thank you, Mr. Chairman. I am here representing
the leadership, and we are here to help you.
Over the course of the campaign, Mr. Chairman, President
Bush insisted that the country needed to make fundamental
changes in our energy sector. He pointed out and pointed to
warning signs and inefficiencies that threatened the safe and
dependable energy supply that our economy and national security
demand. Subsequent events have now vindicated the President's
perseverance. That is why we are here today.
As we all know, we have serious problems within the
American energy sector, and it is past time that we took stock
of our position. We have seen things recently that offer a
clear position. We have seen things that give us a clear
lesson. There are artificial barriers in place that are
preventing us from producing the steady, dependable energy
supply that the American consumers expect, and this problem has
brought consequences, because we must remember that our
economic strength depends on our energy security. So it is our
job as Congress to remove those barriers.
A great source of pride among the men and women that work
for the companies that make up our various energy sectors is
the satisfaction that they take in providing a secure
dependable energy supply to American families and businesses.
Unfortunately, their ability to supply consumers with steady
energy at a fair price has been compromised by burdensome
regulation and inefficient government policy.
Of course, everyone also wants clean air and water, and
fortunately this is not an ``either/or'' proposition. I am
certain that by applying common-sense standards to the
restrictions hampering energy development and exploration, we
can create both deep and reliable sources of energy and the
infrastructure to deliver that energy to our consumers.
Taken together, these improvements will once again provide
the energy security Americans want and expect, but first we
must face the challenges that lie ahead. The upheaval in
California clearly demonstrates that energy issues are not
simply a State-by-State problem. California's troubles lay the
predicate for a Federal role in enhancing energy security. A
comprehensive solution cannot ignore the shortcomings of either
energy generation or transmission.
California's supply shortcomings are harming other States,
and California is damaging neighboring States in two ways:
First, consumers in surrounding States are paying higher rates
to subsidize the increased demand caused by California's
inability to meet its own needs. Second, California's neighbors
are compromising their own energy security by drawing down
resources that historically provide the energy needs during
periods of peak demand.
For example, States like Idaho traditionally allow their
lakes and dammed rivers to rise during the winter and spring to
ensure a steady supply of hydroelectric power for periods of
peak demand over the summer. This year the mountain States are
being forced to squander those water resources to produce power
for California instead of storing up water for the dog days of
summer. Because when the hot weather hits, California may very
well have succeeded in exporting the rolling blackouts and
brownouts it brought upon itself to its neighbors.
We now have the technology and the experience to provide
energy security for the American people without trading
environmental degradation for efficiency, but this will not
happen unless we first adopt a comprehensive plan to create a
dependable energy supply. What we need is a national energy
strategy that considers all of our potential sources of supply
and all the challenges that are constraining the market for
energy in America today.
I have listed in my testimony, Mr. Chairman, many issues
that we have to resolve, and I will just leave that for the
record. Many of them have already been talked about, such as
expanding our supply by encouraging a variety of sources,
increasing our refinery capacity.
I want to say, Mr. Chairman, I represent a lot of the
refining capacity, in fact, most of the refining capacity in
this country. We have not built a new refinery in 30 years. In
1981, we had 315 refineries. Today, we have only 155, and that
has to change.
I also listed many other issues that we have to talk about,
including what Mr. Stenholm was talking about. We have to
reform our Tax Code.
So on the Speaker's direction as the leadership's energy
point man, Mr. Chairman, I am looking forward to working with
you, with the chairman of the full committee, Mr. Tauzin----
Mr. Barton. Who was here.
Mr. DeLay. He is right behind you.
--and the President and Vice President Cheney, my good
friend, J.C. Watts, and the committees of jurisdiction, as we
work together to develop a comprehensive energy strategy that
balances regulation with the imperative for energy security.
I thank you.
[The prepared statement of Hon. Tom DeLay follows:]
Prepared Statement of Hon. Tom DeLay, House Majority Whip
Over the course of the campaign, President Bush insisted that the
country needed to make fundamental changes in our energy sector. He
pointed to warning signs and inefficiencies that threaten the safe and
dependable energy supply our economy and national security demand.
Well, subsequent events have now vindicated the President's
perseverance. That's why we're here today.
We have serious problems within the American energy sector. And
it's past time that we took stock of our position. We've seen things
recently that offer a clear lesson: There are artificial barriers in
place that are preventing us from producing the steady, dependable
energy supply that American consumers expect. And this problem has
broader consequences. Because we must remember that our economic
strength depends on our energy security. So, it's our job as a Congress
to remove those barriers.
A great source of pride, among the men and women that work for the
companies that make up our varied energy sector, is the satisfaction
that they take in providing a secure, dependable energy supply to
American families and businesses.
Unfortunately, their ability to supply consumers with steady energy
at a fair price has been compromised by burdensome regulation and
inefficient government policies.
Of course, everyone also wants clean air and water. Fortunately,
this is not an ``either or'' proposition. I'm certain that, by applying
common sense standards to the restrictions hampering energy development
and exploration, we can create both deep and reliable sources of energy
and the infrastructure to deliver that energy to consumers. Taken
together, these improvements will, once again, provide the energy
security Americans want and expect. But first, we must face the
challenges that lie ahead.
The upheaval in California clearly demonstrates that energy issues
aren't simply a state-by-state problem. California's troubles lay the
predicate for a federal role in enhancing energy security. A
comprehensive solution can't ignore shortcomings in either energy
generation or transmission.
California's supply shortcomings are harming other states.
California is damaging neighboring states in two ways. First, consumers
in surrounding states are paying higher rates to subsidize the
increased demand caused by California's inability to meet its own
needs. And second, California's neighbors are compromising their own
energy security by drawing down resources that historically provide
their energy needs during periods of peak demand.
For example, states like Idaho traditionally allow their lakes and
damned rivers to rise during the winter and spring to ensure a steady
supply of hydroelectric power for periods of peak demand over the
summer.
This year, the mountain states are being forced to squander their
water resources to produce power for California instead of storing-up
water for the dog days of summer. Because when the hot weather hits,
California may very well have succeeded in exporting the rolling
blackouts and brownouts it brought upon itself to its neighbors.
We now have the technology and the experience to provide energy
security for the American people without trading environmental
degradation for efficiency. But this won't happen unless we first adopt
a comprehensive plan to create a dependable energy supply. What we need
is a national energy strategy that considers all of our potential
sources of supply and all of the challenges that are constraining the
market for energy in America.
Among the issues we must resolve are:
<bullet> Expanding supply by encouraging a variety of sources to
produce the energy necessary to meet our growing needs,
including oil, nuclear, clean coal, natural gas, and
renewables.
<bullet> Increasing our refining capacity. We haven't built a new
refinery in 30 years. In 1981 we had 315 refineries. Today we
only have 155. That must change.
<bullet> Providing access to our domestic resources at home to reduce
our dependence on foreign supplies. And yes, that includes
opening up Alaskan reserves and approving Lease Sale 181 in the
Gulf of Mexico. Today the energy industry can extract oil and
gas while treading lightly on the environment.
<bullet> Developing an adequate system of electricity transmission. We
need to not only increase electricity generation by building
new plants in underserved states like California, we need to
also build the transmission facilities that will create a
reliable electrical grid. If we can do that, electricity will
become a true commodity and consumers will benefit through
enhanced reliability and more competitive prices.
<bullet> Reforming our tax code to promote capital investment in energy
technologies and infrastructure.
<bullet> Streamlining the regulatory process to promote a free and
competitive marketplace in pricing, technology, energy
efficiency and selection of fuels and energy suppliers.
<bullet> Promoting energy technology development and long-range
research and development initiatives.
On the Speaker's direction as the Leadership's energy point man,
I'm looking forward to working with the President, Vice President
Cheney, my friend J.C. Watts, and the committees of jurisdiction as we
work together to develop a comprehensive energy strategy that balances
regulation with the imperative for energy security.
Mr. Barton. I thank the distinguished whip. I knew we had
good staff, but I didn't know they were that good. The
committee chairman is staff now.
We are going to go to Congressman Bereuter of Nebraska. His
statement is in the record in its entirety.
We recognize you for 5 minutes.
STATEMENT OF HON. DOUG BEREUTER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEBRASKA
Mr. Bereuter. Chairman Barton, Congressman Boucher, members
of the subcommittee, thank you for holding the hearing on the
concept of national energy policy. I think you are trying to
make that concept a reality. Of course, I think almost all of
us are totally supportive of that.
I want to bring to your attention just one or two of the
particular problems affecting my constituents and State, and
then try to move to a couple of solutions that perhaps may not
be offered or given much support necessarily by other Members.
I am sure you aware of many of the challenges facing the
country. The most immediate energy concern for most of my
constituents is a dramatic increase in natural gas prices.
Individuals, small businesses, nonprofits are paying hundreds
of dollars more per month on natural gas than they did last
year. Some of our businesses are on interruptible contracts,
which means they may soon have to stop their production lines
and other kinds of business activities.
The CRS report that just came out lately, quoting a
reputable source, suggests that we have 58 years' worth of
technically recoverable natural gas in this country. While the
number of wells being drilled has gone up dramatically in the
last half of 2000 versus the first half of 1999, we obviously
have some big problems.
I have written to Chairman of the Federal Trade Commission,
Robert Pitofsky, twice on this subject, in fact early last
July, and received what I considered to be only pro forma
responses. So I would like to see some attention to this issue.
Mr. Stenholm has already mentioned a particular problem in the
farm sector, but it goes beyond that, since most of the
fertilizer used today is natural gas-based and some of the
firms producing it similarly have not produced what is
necessary for this spring. So it is one more particular problem
faced by the agricultural sector.
Now I would like to make a couple of comments about
solutions. I think, of course, that a strong national energy
policy has to include an emphasis on renewable sources, such as
wind. I don't say this is a huge part of it, but it is an
important part of it. I want to make sure that we do not ignore
some of those areas as you move ahead. One of them I want you
to focus on, if you will, is wind as an energy source. I think
it is important as a potential source.
It is important to the rural communities. The source of
energy is especially important to the Great Plains region from
the Dakotas to Texas, as well as parts of the American West
like Wyoming and parts of California. According to the American
Wind Energy Association, my State ranks sixth in potential,
maybe much higher, according to other sources.
Mr. Chairman, Texas ranks No. 2 in potential source for
wind for energy.
Mr. Barton. A lot of hot air down there in Texas.
Mr. Bereuter. Yes. Well, Oklahoma has a lot too, but it is
mostly in tornadoes.
Quite simply, much more needs to be done to promote the use
of wind energy, which I believe is vastly underutilized in this
Nation; but at the same time, it is much more likely to soon be
cost-effective.
One of the current incentives to promote wind energy is the
use of investment in production tax credits. While I agree this
is a useful tool, I would emphasize here that these credits,
unfortunately, do not provide any benefit for publicly owned
electrical utilities. That is certainly an important
deficiency, one particularly important to my State since we are
the only all public power State in the Nation.
There are several options which could provide public power
with incentive to pursue renewable sources such as wind, but
others as well. I understand that Congresswoman McCarthy, a
member of the subcommittee, is also interested in pursuing
legislative options to provide incentives for public power
entities to produce more renewable sources of energy, and I
would be pleased to work with her and other members of the
subcommittee.
Also there are at least several options that could be
considered that would provide renewable energy incentives for
public power beyond that. One possibility would be to establish
a tradable investment and production tax credit program in the
Internal Revenue Code for publicly owned electrical utilities
that produce electricity from eligible renewable energy
projects. Participants in this program could receive credits
for electricity generated from wind, solar, geothermal, hydro
and biomass, including the conversion of landfill methane gas
to energy.
As I approach the last 30 seconds of my time, I want to
emphasize that I continue, of course, to be in support of
energy-producing from biomass, especially in the ethanol area.
It is, I think, one more important way that we can supplement
our energy and make us a little less dependent upon foreign
sources. Increasing the use of ethanol creates a win-win-win
situation for consumers, farmers and the environment. Analysis
released last month by renowned economist John M. Urbanchuk,
executive vice president of AUS Consultants, found that greater
ethanol use also has positive implications for our Nation's
economy.
I close by saying, I endorse Congressman Ganske's
legislation, which would address the MTBE problem now causing
major problems in our groundwater resources.
Thank you very much for listening to my testimony.
[The prepared statement of Hon. Doug Bereuter follows:]
Prepared Statement of Hon. Doug Bereuter, a Representative in Congress
from the State of Nebraska
Chairman Barton, Congressman Boucher and Members of the
Subcommittee: I would like to begin by thanking you for the opportunity
to present testimony regarding the concept of a comprehensive national
energy policy. I commend you for holding this hearing on an issue of
such critical importance to the nation. During my testimony, I would
like to mention briefly one or two of the particular energy problems
affecting my constituents and also offer some specific areas of
solutions designed to reduce our dependency on foreign energy sources.
It is obvious that the U.S. is facing problems throughout the
energy sector. Each month seems to bring the focus on a new crisis.
It's unfortunate that the previous administration displayed such an
appalling lack of leadership on developing a comprehensive energy
policy which would have led to greater energy self-sufficiency for the
U.S. As a result, higher energy costs threaten to slow the economy and
cause hardships for farmers, motorists, businesses and homeowners.
Although we have clearly lost much time, it's now important that we
examine the causes for the current problems, but more importantly
search for both short-term and long-term solutions.
I understand that the previous panel addressed the energy problems
which have been afflicting California and other states throughout the
West. I would like to emphasize that energy problems do not respect
state borders. For instance, the ripple effect has begun to affect
communities in Nebraska which use power from the Western Area Power
Administration. I encourage the Subcommittee to work to resolve these
problems. I would also like to stress that Nebraska is unique in that
it is an all public power state and I believe that any energy
legislation must take its situation into account.
I'm sure that the Subcommittee is well aware of the many energy
challenges facing the country. The most immediate energy concern for
most of my constituents is the dramatic increase in natural gas prices.
Individuals, small businesses and non-profits are paying hundreds of
dollars per month more for natural gas than they did last year. While I
believe it would be helpful to review the effectiveness of the Low-
Income Home Energy Assistance Program (LIHEAP), it also important for
Congress to determine whether other options can be made available for
those who do not qualify for this program. More must also be done to
encourage the development of a more stable and affordable natural gas
supply. Because of these concerns, I have contacted the Chairman of the
Federal Trade Commission, Mr. Robert Pitofsky, to request an
investigation of the dramatic increase in prices. This is my second
such request for an investigation by the FTC. I originally contacted
Mr. Pitofsky already in July 2000 and again early this year about this
subject, but I was unsatisfied by what appeared to be a pro forma
response.
I would also like to mention a component of the natural gas problem
that has not received as much attention. Farmers are facing a shortage
of nitrogen fertilizer along with expected and attendant price
increases with spring planting fast approaching. This shortage is due
to much higher natural gas prices, the major cost component of
producing all basic fertilizer products. As a result of the rising
natural gas costs, some fertilizer companies have reduced or halted
production at their facilities. For those agricultural producers able
to locate fertilizer supplies, the prices will be drastically higher
than in previous years. With farmers already facing low prices for
their crops, such an increase in fertilizer expenses is likely to cause
even further problems in rural America. In addition to rising
fertilizer costs, farmers also face the prospect of increased energy
expenses related to agricultural activities such as irrigation and
field work.
I would like to begin my comments on energy solutions by focusing
on an issue which I believe has received inadequate attention. A strong
national energy policy must include the promotion of renewable sources
such as wind. The cost of producing energy from wind turbines has
decreased substantially in recent years, but more should be done so
that this form of clean power can reach its potential. Increasing the
use of power from wind would not only reduce our nation's reliance on
foreign sources of energy, it would also benefit our rural communities
which are now confronting extremely difficult times. Wind turbines
don't use much space, but farmers would still be able to derive much-
needed income by leasing a small portion of their land to electric
utilities.
This source of energy is especially important for the Great Plains
region from the Dakotas to Texas, as well as other parts of the
American West--Wyoming and parts of California. According to the
American Wind Energy Association, Nebraska has the sixth greatest wind
energy potential among all fifty states. Other research reports place
it even higher--near the top. Chairman Barton may be interested to know
that Texas ranks number two.
Quite simply, much more must be done to promote the use of wind
energy, which I believe is vastly under-utilized in this nation but, at
the same time, much more likely soon to be more cost-effective. One of
the current incentives to promote wind energy is the use of investment
and production tax credits. While I agree that this is a useful tool, I
would emphasize here that these credits unfortunately do not provide
any benefit for publicly-owned electric utilities. That is certainly an
important deficiency--especially to Nebraska since we are currently the
only state that is served exclusively by public power systems. There
are several options which could provide public power with the incentive
to pursue renewable sources such as wind. I understand that
Congresswoman McCarthy, a member of this subcommittee, is also
interested in exploring legislative options to provide incentives for
public power entities to produce more renewable sources of energy and I
would be pleased to work with her and other members of the Subcommittee
on this important issue.
Also, there are at least several options which could be considered
that would provide renewable energy incentives for public power. One
possibility would be to establish a tradable investment and production
tax credits program in the Internal Revenue Code for publicly owned
electric utilities that produce electricity from eligible renewable
energy projects. Participants in this program would receive credits for
electricity generated from wind, solar, geothermal, hydro and biomass,
including the conversion of landfill methane gas to energy.
Another legislative option would be to provide targeted tax-free
bonds for use by public power utilities to pursue renewable and
environmental projects. The subcommittee may also want to consider
legislation to create a program of credits or incentives that provide
benefits for public power utilities equivalent to existing and new
renewable energy tax production and investment credits available to
private electric utilities.
There is currently only one incentive program available for public
power interested in promoting the use of renewable energy. The
Renewable Energy Production Incentive program permits direct payments
to publicly and cooperatively owned utilities for electricity generated
by certain renewable means. Unfortunately, this program has not been
adequately funded. In addition, not all eligible projects receive
equitable funding. However, since it is the only program of its kind
currently available, I support its reauthorization as well as its
reform to provide greater funding and fairness.
Clearly, one of the keys to developing a sound national energy
policy is to focus on efforts to reduce our dependence on foreign
sources. I want to state emphatically that ethanol must be an integral
part of any energy policy which Congress considers.
Increasing the use of ethanol creates a win-win-win situation for
consumers, farmers and the environment. An analysis released last month
by renowned economist John M. Urbanchuk, Executive Vice President of
AUS Consultants, found that greater ethanol use also has positive
implications for our nation's economy. The study found that quadrupling
the use of ethanol over the next fifteen years would save American
consumers $57.5 million (1996 dollars). This is the equivalent of
nearly $540 for each household in the U.S. In the process, more than
156,000 new jobs would be created throughout the economy by 2015.
Greater use of ethanol is clearly needed to reduce our increasing
reliance on foreign oil. Last year, the U.S. imported nearly 60 percent
of its crude oil. The U.S. Department of Energy's Energy Information
Agency now projects that figure to grow to nearly 70 percent by 2010.
This is clearly unacceptable. Fortunately, part of the answer is
growing in our own backyard in the form of corn, sorghum and other
renewable feedstocks.
Another factor pushing the need for greater ethanol production is
the realization that the use of MTBE must be phased-out quickly because
of the threat this petroleum-based fuel additive poses to our nation's
groundwater and drinking water supplies. I am cosponsoring legislation
introduced by Representative Greg Ganske which would ban MTBE within
three years and encourage refiners to replace it with ethanol. I
understand that there are other legislative approaches which may be
helpful in promoting the use of ethanol. Now is the time for action.
It's clear that ethanol producers are up to the challenge if given
the appropriate opportunities and incentives. A study prepared for the
Governors' Ethanol Coalition last year found that the ethanol industry
has the capability of doubling in size by 2004 and tripling by 2010
without disruption in supply or increasing consumer costs. I am pleased
that the current chairman of the Governors' Ethanol Coalition is
Governor Mike Johanns of Nebraska. He has been an effective advocate on
behalf of ethanol and its importance to our nation.
A related issue is the general promotion of plant biomass as an
energy source. I believe it holds great potential for replacing natural
gas as a source of electricity and steam and as well as the production
of fuels such as ethanol. There is exciting work going on which is
leading to more efficient collection and conversion of biomass into a
sustainable matter. There are tremendous environmental and economic
reasons to promote biomass energy resources. I encourage Congress and
the Department of Energy to aid in these research efforts.
Again, Chairman Barton, Congressman Boucher, and Members of the
Subcommittee, thank you for this opportunity to present my views. You
have a daunting challenge ahead as you work to develop legislation to
ease the nation's energy problems. However, it is obviously a necessary
task and I look forward to working with you as we seek solutions.
Mr. Barton. We appreciate it.
Now, the Chair has tried to figure out who is senior. We
think it is Mr. Bartlett, senior, and then Congressman Calvert
and Congressman Woolsey are coequally senior. If we are wrong
about that, we apologize.
Mr. Bartlett. We are all the same class.
Mr. Barton. You are all the same class?
Ms. Woolsey. I just look younger than the rest of them.
Mr. Barton. I was about to say that.
Given you are all in the same class, we are going to go
with Mr. Bartlett, Mr. Calvert and Congresswoman Woolsey.
Mr. Bartlett, you are recognized for 5 minutes.
STATEMENT OF HON. ROSCOE G. BARTLETT, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MARYLAND
Mr. Bartlett. Thank you very much.
I would like to spend a few moments adding my voice to
those who have urged the need for a national energy policy. I
would like to call your attention to the world energy
assessment by the United Nations. Although you may not agree
with the conclusions they draw, I think we can use the data
that they compile.
They have used a number of sources of estimates of the
amount of recoverable oil which we know of. That amounts to
about 1,000 billion barrels of oil. You can make assumptions as
to what is out there that we haven't found, and you can make
assumptions with a 95 percent level, a 50 percent level, and a
5 percent level of assurance. Even the most wildly optimistic
levels do less than double that.
Now, if you take that 1,000 billion barrels of oil and say
we are today using about 80 million a day, and that is roughly
what we use----
Mr. Barton. Eighty million. We don't use 80 billion a day.
Mr. Bartlett. Eighty million. We, the world.
Mr. Barton. Just a few zeros. It does count.
Mr. Bartlett. We, the world, use about 80 million barrels a
day in the world. A year is roughly 400 days long, and to keep
the arithmetic simple, if you multiply 80 million times 400,
you get 32 billion. The 32 billion divides roughly 30 times
into 1,000 billion. So according to these data, we have about
30 years at present-use rates of known reserves of oil in the
world.
I now would like to put a couple of graphs up here that
come from this same document. These are very illustrative.
About half of this is history, and the other half of it is a
projection for the future.
What you can see here is that we started out in----
Mr. Barton. Why don't you turn that, Congressman, so the
cameras can see it.
Mr. Bartlett. We started out in 1800 essentially using
wood. We went to 1900, and in 1900 we were using essentially
coal. There were some other things used, but that was the major
source of our energy. Now in 2000, it is mostly oil. The
question mark is what we will be using a century from now.
As you can see from these graphs, they make two different
assumptions. One is that nuclear will play a meaningful role,
and the other is, we won't use nuclear. That is the fundamental
difference between these two graphs. But as you see, in the
year 2100 we are going to be getting more than three-fourths of
our energy from nuclear, solar, others, which includes hydro
and so forth, and biomass.
This speaks to an urgent need for research on renewables
and alternatives. This is all that remains. There is not an
infinite amount. God in his wisdom knew--I am sure he knew how
profligate we would be in the use of fossil fuels, but he
didn't put a limitless amount there and our only challenge is
to go find it. There is a limited amount of fossil fuels in the
world, so we desperately need a program which focuses on
research on renewables and alternatives.
Several of those relate to agriculture, an industry in big
trouble. Biomass, biodiesel, ethanol from corn and the exciting
possibility of getting it from cellulose with a new
bioengineered organism, these all will really help our farmers
who are in trouble.
We need to exploit geothermal in those few places where we
can in this country. Hydro, wind and solar, all of these
provide opportunities to produce electricity at a local level
to avoid the enormous line losses that we have when you move
electricity. If you move liquid through a pipe, what comes out
at the other end will be what you put in. When you put
electricity into a line, if you move it long enough, nothing
will come out the other end of the line; there are enormous
losses. If we have a better distributive system, we can avoid
many of those losses.
We need to focus on efficiency, we need to focus on
conservation. I am not talking about shivering in the dark.
There are things we can do in conservation which are really
meaningful, which will not depreciate our lifestyle. We have 2
percent of the known reserves of oil in the world, 2 percent.
We use 25 percent of the world's oil. We now import 56-or-so
percent of all the oil we need.
I submit when we have only 2 percent of the known reserves
of oil in the world and use 25 percent, it doesn't make any
sense to immediately go out and find that 2 percent that we
have and pump it. I know this is a rainy day, but I suspect in
the future there will be an even rainier day, and this says
nothing about the enormous petrochemical industry we have. As
Charlie Stenholm mentioned, all of nitrogen fertilizer comes
from gas today.
I really encourage the development of a long-term energy
policy which focuses on getting energy from sources other than
fossil fuels to the extent that we can.
Thank you.
Mr. Barton. Thank you, Congressman Bartlett. We appreciate
that input and that scientific evaluation. Very helpful.
Congressman Calvert, who I believe is a subcommittee
chairman on the Resources Committee this year.
Mr. Calvert. Yes.
Mr. Barton. You are recognized for 5 minutes.
STATEMENT OF HON. KEN CALVERT, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mr. Calvert. Chairman Barton, Ranking Member Boucher, thank
you for holding today's hearing. I would like to submit my full
written statement for the record.
Mr. Barton. Without jokes.
Mr. Calvert. America's unprecedented economic growth and
prosperity, of course, rests on affordable energy, and gasoline
in my State of California is still about $2 a gallon, and in
some parts even higher, so our energy crisis continues to
plague our State and certainly is well-publicized throughout
this country. This Congress and this administration finally are
working together and must develop a comprehensive energy plan
that securely meets our growing demand, based upon a sound
portfolio of energy sources.
For the foreseeable future, we will need to rely on our own
domestic fuels that provide the bulk of the base-load
electricity, and that is coming basically from fossil and
nuclear fuels. Nuclear, which Mr. Bartlett mentioned just now,
is quite frankly our most reliable and cleanest form of energy.
Since nuclear energy does not burn fuel, it does not produce
greenhouse gasses. Also, efficiency improvements in 1998
alone--this is interesting--adds the equivalent of six to seven
nuclear plants to the Nation's electricity grid. To put this in
a perspective, the 1 percent increase in nuclear efficiency
called for in Senator Murkowski's energy bill would be 22 times
the total generation of solar and twice the total wind
generation in 1999--just a 1 percent increase in efficiency on
nuclear.
We need to reconsider the numerous fossil fuel plants also
in the short term that have been shut down in California. Such
plants are immediate sources of sorely needed electricity and
may be our quickest way to provide relief to our citizens in
California in the short run. I understand the environmental
problems, but we need those plants back on line as quickly as
possible until alternatives are found.
America's unprecedented economic growth and prosperity rest
also on an affordable supply of energy and water. As chairman
of the Resources Subcommittee on Water and Power, I intend to
hold hearings to examine contradictory Federal regulations that
prevent hydroelectric production on Federal lands, not to
mention gas and oil. I will also investigate Federal-State
cooperation regarding water quality and quantity. Today the
water crisis in California is real, and I predict may be more
severe than the electricity crisis. That crisis will spread
also to the rest of the country.
The challenge we face in formulating a comprehensive energy
policy is how to balance costs and benefits in order to
minimize the environmental effects and yet provide the energy
we need to prosper by growing the economy, creating jobs and
creating wealth.
I know that in California we have some significant
problems, and it was talked about by various of the panelists.
I would like to point out these problems are really systemic
throughout the United States. There are 35 million people in
California, and we produce a tremendous amount of electricity;
but by far, we are the largest economic generator in the
country, about 15 percent of the GNP comes from the State of
California. The computer industry, the entertainment industry,
agriculture, all No. 1 in the country in California, utilize a
tremendous amount of electricity. So I hope we think about
that.
As far as ethanol, I would also point out, which is very
important, and I am somewhat supportive of ethanol production
here in the United States; but the requirement to utilize
ethanol as a replacement for MTBE in California scientifically
is not necessary. We should, even though we may use it and
utilize it, it should not be required within California to use
that as oxygenate when it is technically not necessary in order
for us to meet our clean air objectives without it. Because it
gives us flexibility potentially to find other alternatives to
ethanol, at the same time, I think there would not be enough
ethanol to replace MTBE in California, which is an equivalent
of adding about 10 percent of California's fuel supply.
With that, I want to thank the chairman and the ranking
member, and I look forward to working with all of you on these
issues. And certainly renewables are important and all of the
alternative energies are important, but also we need to look at
nuclear as an alternative to really meet the energy demands of
the future.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Ken Calvert follows:]
Prepared Statement of Hon. Ken Calvert, a Representative in Congress
from the State of California
Mr. Chairman, thank you for holding today's hearing on
``Congressional Perspectives on Electricity Markets in California and
the West and National Energy Policy''.
America's unprecedented economic growth and prosperity rests on an
affordable supply of energy. While gasoline prices continue to hover
around 2 dollars per gallon in some parts of California the energy
crisis continues to plague my state. The time has arrived for this
Congress and this Administration--working together--to develop a
comprehensive energy plan that securely meets growing demand based on a
sound portfolio of energy resources.
We can all agree that reducing emissions is a good idea--and there
are several ways to do it; through energy efficiency and with renewable
and nuclear energy. I continue to advocate the pursuit of greater
efficiencies and reduced energy consumption in our industrial
processes, in our transportation sector and in our communities and
homes. The University of California, Riverside, CE-CERT has a number of
innovative programs to reduce energy demand and improve the
environment. For example, they have a hydrogen-vehicle fleet
demonstration at the campus. These advances not only save energy, but
also prevent greater dependence on oil imports while improving the
environment.
Deploying renewable energy is part of the ``cleaner, greener''
future. Renewable energy should be integrated where the economics make
sense. For example, in my district, both the county and the city of
Riverside collect methane gas from a municipal landfill and the sewage
treatment plant to produce nearly 5 megawatts of electricity--enough to
power facilities at the landfill and the treatment plant with some left
to sell to the grid.
However, renewable energy sources and energy efficiency measures
are not going to be enough to meet growing energy demand in our
nation--necessary for economic growth and wealth creation. The DOE's
own Energy Information Administration predicts that even if we triple
renewable energy supplies over the next twenty years, renewable energy
will only maintain its current share of supply. For the foreseeable
future, we will need to rely on domestic resources that provide the
bulk of base-load electricity--fossil and nuclear energy.
Today, nuclear energy is our most reliable and cleanest form of
domestic energy. Since nuclear energy does not burn fuel, it does not
produce greenhouse gases or other emissions, such as sulfur dioxide,
that pollute our air. I mentioned earlier the importance of achieving
greater efficiencies in energy production. An outstanding example of
this is our nation's nuclear plants. Though no nuclear power plants
have been built in the U.S. over the last 20 years, efficiency
improvements in 1998 alone added the equivalent of six to seven nuclear
plants to the nation's electricity grid. To put this in perspective,
the 1 percent increase in nuclear generation efficiency called for in
Senator Murkowski's energy bill would be 22 times the total generation
by solar and twice the total wind energy generation in 1999.
We also need to reconsider the numerous fossil fueled plants that
have been shut down in California because they did not meet emission
standards. These plants represent immediate sources of sorely needed
electricity and may--in the short term--be our quickest supply. And in
North America as a whole, where an enormous amount of natural gas
resides, fossil fuel exploration on millions of acres, mostly in the
western states, has all but halted. In fact, several million acres in
California and the Rockies were taken out of production on the last day
of the Clinton Administration. Fortunately, President Bush has delayed
the implementation of these last minute designations until May 12th in
order to allow his Administration time for review.
As a senior member of the House Resources Committee, I plan to
examine contradictory federal regulations which prevent
environmentally-friendly fossil fuel exploration and production on
federal lands.
As I began today, I stated that America's unprecedented economic
growth and prosperity rests on an affordable supply of energy. But, in
the West, it also rests on WATER. The House Resources' Subcommittee on
Water and Power, which I chair, recognizes the interconnection of these
two valuable resources. As Chairman, I intend to hold hearings on the
role of not only federally-produced energy in the West, but also on the
importance of federal-state cooperation when it comes to water--both
quantity and quality. Today the water crisis in California is real,
though not widely know, and it will likely be a crisis for much of the
nation in the not so distant future.
Every energy source has risks, costs and benefits yielding a unique
set of problems and opportunities. The challenge we face in formulating
a comprehensive energy policy is how to balance the costs and benefits
in order to minimize environmental effects and yet provide the energy
we need to prosper by growing the economy, creating jobs and creating
wealth.
Thank you Chairman Barton and Ranking Member Boucher. I look
forward to working with you on all these issues as this Congress forges
a National Energy Strategy.
Mr. Barton. I want to thank you, and your leadership is
going to be very important in this issue.
The Chair would now recognize the gentlelady, Congresswoman
Woolsey. The Chair wants you to know that I knew what your name
was. My staff didn't know, but I knew. So I apologize for its
being misspelled.
Ms. Woolsey. You are not the only one that misspells it
like that.
Mr. Barton. It wasn't me.
Your statement is in the record. You are recognized for 5
minutes to elaborate.
STATEMENT OF HON. LYNN C. WOOLSEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Woolsey. Thank you, Mr. Chairman. Thank you for the
opportunity to testify today.
As a Californian, I am echoing my colleagues who testified
earlier about our State's energy crisis. It is a very serious
problem. But I am here today wearing a new hat for me as the
Science Committee's ranking member on the Energy Subcommittee
where Roscoe Bartlett is the Chair. I look forward to working
with him on energy in the future.
But I want to emphasize the need for a national energy
policy to include renewable energy sources, energy efficiency,
and conservation.
Since passing the National Energy Policy Act in 1992,
Congress has generally ignored energy issues. But the power
problems in California, as well as the increased price of
natural gas and oil throughout the United States, have brought
energy back to the top of our Nation's agenda.
The energy shortage we are experiencing in California is
proof enough, however, that Congress must raise the stakes in
search of alternative energy sources. Obviously, what we are
doing is not good enough. We can no longer ignore wind, we can
no longer ignore solar, fuel cell and geothermal energy
sources.
At last week's Science Committee hearing on the role of
renewable energy sources and energy efficiency, our witnesses,
each one of them an economic and policy analyst, spoke about
the increased role renewables and energy efficiency must play
in meeting our Nation's long-term growing energy demand.
As Congress forges a long-term energy policy, it is
absolutely imperative that we make a true commitment to
alternative energy sources, to efficiency and to conservation.
Otherwise, we will not prevent future energy crises.
Measures of this kind can and do work. For example, in my
district, which is just north of the Golden Gate Bridge, north
of San Francisco, several Marin County communities, including
Mill Valley, San Raphael and Novato, are currently installing
new energy-efficient traffic lights that only use 10 to 20
percent of electricity that current lights do.
In Sonoma County, the city of Santa Rosa is working on a
project to send 11 million gallons of reclaimed waste water to
The Geyser's geothermal plant each day. When this project is
completed, The Geyser's steam fields will continuously displace
85 megawatts of fossil energy. That is just by using reclaimed
waste water.
The Sonoma County Transit Department is building a landfill
gas conversion facility that allows excess landfill gas to be
used as an alternative fuel for their buses.
Encouraging measures like these all across our country will
make a huge difference in meeting our energy demands in the
future.
Like my constituents and like many of my colleagues, I
strongly believe there is an important role for the Federal
Government to encourage clean, efficient and renewable
technologies as part of our national energy portfolio.
As this Congress embarks on developing a national energy
policy, this committee, your committee, Mr. Chairman, along
with the Science Committee and the Ways and Means Committee,
can broaden our horizons by getting out of the box, by
encouraging policies for the future.
I look forward to working with this subcommittee to develop
and move a comprehensive legislative agenda that prominently
features renewable energy sources and energy efficiency and
conservation measures as an integral part of our national
energy policy.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Lynn Woolsey follows:]
Prepared Statement of Hon. Lynn Woolsey, a Representative in Congress
from the State of California
Mr. Chairman, thank you for the opportunity to testify today. As a
Californian, I'm echoing my colleagues who testified earlier about our
state's energy crisis . . . it's a serious problem.
I'm pleased to be here wearing a new hat as the Science Committee's
Ranking Member on the Energy Subcommittee. Specifically, I want to
emphasize the need for a national energy policy to include renewable
energy sources, energy efficiency and conservation.
Since passing the National Energy Policy Act in 1992, Congress has
generally ignored energy issues. But the power problems in California,
as well as the increased price of natural gas and oil throughout the
country, have brought energy back to the top of our nation's agenda.
The energy shortage we're experiencing in California is proof enough
that Congress must raise the stakes in search of alternative energy
sources. Obviously, what we're doing isn't good enough. We can no
longer ignore wind, solar, fuel cell and geothermal energy sources.
At last week's Science Committee hearing on the role of renewable
energy sources and energy efficiency, our witnesses--all economic and
policy analysts--spoke about the increased role renewables and energy
efficiency must play in meeting our nation's long-term, growing energy
demand. As Congress forges a long-term energy policy, it's imperative
we make a true commitment to alternative energy sources, efficiency and
conservation to prevent future energy crisis.
Measures of this kind can work. For example, in my district,
several Marin County communities--including Mill Valley, San Rafael and
Novato--are currently installing new energy-efficient traffic lights
that use only 10-20 percent of the electricity used by current bulbs.
In Sonoma County, the City of Santa Rosa is working on a project to
send 11 million gallons of its reclaimed wastewater to the Geysers
geothermal plant each day. When completed, the Geysers steam fields
will continuously displace 85 megawatts of fossil energy. The Sonoma
County Transit Department is also building a landfill gas conversion
facility that allows excess landfill gas to be used as an alternative
fuel for their buses. Encouraging measures like these all across our
country will make a difference in meeting our energy demands.
Like my constituents and many of my colleagues, I strongly believe
there's an important role for the federal government to encourage
clean, efficient and renewable technologies as part of our national
energy portfolio. As this Congress embarks on developing a national
energy policy this Committee with the Science Committee and the Ways &
Means Committee, can broaden our horizons by getting ``out of the box''
and encouraging policies for the future. I would look forward to
working with this Subcommittee to develop and move a comprehensive
legislative agenda that prominently features renewable energy sources,
energy efficiency and conservation measures as part of a national
energy policy.
Thank you.
Mr. Barton. Thank you, Congresswoman.
We now want to hear from one of our newer members,
Congresswoman Capito from the great State of West Virginia.
Your statement is in the record. You are recognized for 5
minutes.
STATEMENT OF HON. SHELLEY MOORE CAPITO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WEST VIRGINIA
Ms. Capito. Thank you, Mr. Chairman.
Mr. Barton. Make sure that microphone is on.
Ms. Capito. I am new, remember.
Thank you, Mr. Chairman, Ranking Member Boucher and members
of the subcommittee. I appreciate your holding this day of
hearings, and I am grateful for the invitation to speak.
Mr. Chairman, the signs of an impending energy crisis are
no longer just on the horizon. In 1999, an OPEC-imposed
reduction in oil supply forced United States consumers across
the country to pay record prices at the pump. In the year 2000,
restricted supplies, combined with the poor distribution
system, resulted in staggering price increases for home heating
oil in the Northeast. During the summer of 2000 and continuing
into the fall, California's electricity emergency is forcing
many utilities into potential bankruptcy.
Regrettably, we do not have a workable energy policy in
place to help us address our current energy crisis and, perhaps
more importantly, to help us prevent future problems. However,
I do believe that help is on the way.
As you know, President Bush has asked Vice President Cheney
to lead the development of a national energy policy designed to
help the Federal, State and local governments, as well as the
private sector, promote dependable, affordable and
environmentally sound production and distribution of energy for
our future.
Mr. Chairman, as you and the members of the subcommittee
work with the President's task force, I would strongly
encourage you to consider our 275-billion-ton reserve of
recoverable coal. To put this number into perspective, the
reserve is one-quarter of the world's coal. It is equal to more
than half of the combined energy of the world's proven reserves
of oil and gas. It is 36 times as large as America's domestic
reserve of natural gas and 46 times the domestic reserve of
oil.
As you know, estimates of energy reserves are counted in
British thermal units, also known as BTUs. For further context,
approximately 1 BTU of every 6 BTUs available to do the work of
the world is in the U.S. coal reserve. If all of America's coal
were converted to electric power at the current efficiencies of
generating plants, it would develop 495 trillion kilowatt hours
of the energy, which is the lifeblood of our modern economy.
In 1999, the U.S. generated 1.9 trillion kilowatt hours
with coal, which equates to approximately 51 percent of all
power. In terms of domestic energy, coal represents 40 percent
of all fossil fuel energy production, and 90 to 95 percent of
all fossil fuel reserves.
My State of West Virginia is one of America's leading coal
States and the estimate of our recoverable coal is 20 billion
tons. Further estimates reveal that West Virginia coal alone is
the rough equivalent of more than twice the energy in America's
recoverable gas reserves and three times the proven oil
reserves.
Coal is America's low-cost fossil fuel and is a secure
energy source that can and does provide economic and energy
security to all Americans, especially West Virginians. Advanced
technologies for generating electrical power through coal are
more efficient than the current processes. Higher efficiencies
mean that more power can be generated with less coal.
The 495 trillion kilowatt hour potential of the reserve
will expand as new technologies are put into place. Advanced
pulverized coal generation and the generation technologies in
the U.S. coal demonstration program all perform significantly
better than required by the most stringent clean air standards.
Therefore, with the advancement of clean coal technology
and a working partnership with all parties involved, I am
certain we will be able to create a national energy policy that
will benefit every American.
It is essential that we include coal in any policy that
will determine the way we proceed down this path. I am here
today to show my support to the working men and women in the
Nation's coal industry.
Again, thank you, Mr. Chairman. I look forward to working
with you and the subcommittee members on this issue. As we all
know, energy will continue to drive our lives and coal is an
essential part of that driving force. Thank you for giving me
this opportunity.
[The prepared statement of Hon. Shelley Moore Capito
follows:]
Prepared Statement of Hon. Shelley Moore Capito, a Representative in
Congress from the State of West Virginia
Thank you Mr. Chairman, Ranking Member Boucher, and members of the
Subcommittee. I appreciate your holding this day of hearings, and am
grateful for the invitation to speak.
Mr. Chairman, the signs of an impending energy crisis are no longer
just on the horizon. In 1999, an OPEC imposed reduction in oil supply
forced U.S. consumers across the country to pay record prices at the
pump. In 2000, restricted supplies combined with a poor distribution
system resulted in staggering price increases for home heating oil in
the Northeast. And during the summer of 2000 and continuing into the
fall, California's electricity emergency is forcing many utilities into
potential bankruptcy.
Regrettably, we do not have a workable energy policy in place to
help us address our current energy crisis's and, perhaps more
importantly, to help us prevent future problems. However, I do believe
that help is on the way. As you know, President Bush has asked Vice-
President Cheney to lead the development of a national energy policy
designed to help the federal, state and local governments as well as
the private sector promote dependable, affordable, and environmentally
sound production and distribution of energy for the future.
Mr. Chairman as you and the members of this subcommittee work with
the President's task force, I would strongly encourage you to consider
our 275-billion ton reserve of recoverable coal.
To put this number into perspective, the reserve is one quarter of
the world's coal, it is equal to more than half of the combined energy
of the world's proven reserves of oil and gas, it is 36 times as large
as America's domestic reserve of natural gas and 46 times the domestic
reserve of oil.
As you know, estimates of energy reserves are counted up in British
thermal units, also known as Btus. For further context, approximately
one Btu of every six Btus available to do the work of the world is in
the US coal reserve.
If all of America's coal were converted to electric power at the
current efficiencies of generating plants, it would deliver 495-
trillion kilowatt-hours of the energy, which is the life-blood of our
modern economy.
In 1999, the US generated 1.9 trillion kilowatt-hours with coal,
which equates to 51% of all power. In terms of domestic energy, coal
represents 40% of all fossil fuel energy production and 90 to 95 % of
all fossil fuel reserves.
My state of West Virginia is one of America's leading coal states
and the estimate of our recoverable coal is 20 billion tons. Further
estimates reveal that West Virginia coal alone is the rough equivalent
of more than twice the energy in America's recoverable gas reserves and
three times the proven oil reserves.
Coal is America's low-cost fossil fuel and is a secure energy
resource that can and does provide economic and energy security to all
Americans.
Advanced technologies for generating electric power through coal
are more efficient than the current processes. Higher efficiencies mean
that more power can be generated with less coal. The 495-trillion
kilowatt-hour potential of the reserve will expand as the new
technologies are put in place.
Advanced pulverized-coal generation and the generating technologies
in the US Clean Coal demonstration program all perform significantly
better than the most stringent clean air standards--the New Performance
Standards of the United States.
Therefore, with the advancement of clean-coal technology and a
working partnership with all parties involved, I am certain that we
will be able to create a National Energy Policy that will benefit every
American.
It is essential that we include coal into any policy that will
determine the way we proceed down this very tricky path. I am here
today to show my support to the working men and women in the nation's
coal industry.
Again, thank you Mr. Chairman, I look forward to working with you
and the Subcommittee members on this issue. As we all know, energy will
continue to drive our lives, and coal is an essential part of that
driving force.
Thank you. I will be happy to take any questions.
Mr. Barton. Thank you, Congresswoman.
It looks as though Congressman Markey has brought help with
him. Is this the help we keep talking about that is on the way?
You brought some of your constituents from the great State of
Massachusetts?
Mr. Markey. These represent the superior seniors from my
alma mater, Malden Catholic High School.
Mr. Barton. Welcome to the subcommittee. You have got a
distinguished alumnus in Congressman Markey. He will be on his
best behavior because you are here. We appreciate your being
here.
We now want to go to Congressman Aderholt. Your statement
is in the record. You are recognized for 5 minutes to elaborate
on it.
Congressman Inslee, if you want to take Congresswoman
Woolsey's place, you will be our cleanup hitter.
STATEMENT OF HON. ROBERT B. ADERHOLT, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ALABAMA
Mr. Aderholt. Thank you for allowing me to testify today on
behalf of my constituents, and particularly thank you for
allowing me to speak on behalf of my constituents in Alabama.
Many of the constituents I represent have been particularly hit
hard by high natural gas prices this winter.
Mr. Barton. With the disappearance of this panel, if you
want to come around to the main part of the table--we let one
of them go, and they all just bailed out on us.
Mr. Aderholt. This testimony, I hope will help to
illustrate some of the impact that high natural gas prices have
had recently on consumers in Alabama and throughout the Nation,
and outline some possible solutions. I have been concerned
about the dramatic increase in the price of natural gas that
has burdened Alabama consumers over the past few months.
In my own hometown of Haleyville, my most recent winter gas
bill was over $400 for 1 month. That was well over twice the
amount for the same period last year.
A $200 or more monthly increase is particularly a major
burden for those across our Nation who live on fixed incomes.
This increase in prices has hit them especially hard. This
price increase causes the amount of income available for other
necessities such as food, medicine and other utilities to be
greatly reduced. Without these life necessities, these people
and their families are at risk of co-related illnesses, hunger,
homelessness, just to name a few of the potential problems.
This situation also affects businesses and their bottom
line. When their costs are passed along to consumers, this, in
turn, increases prices for everyone.
As an example of these dramatic price increases, one
poultry grower informed me that in November and December 1999,
propane costs represented 17 percent of his gross receipts.
During the same period in 2000, this same grower used 61
percent of his gross receipts for propane needs. While it is
true this has been an unusually cold winter, the costs appear
to have been due not only to increased consumer demand; there
has in fact been a shortage which has made prices higher.
Evidence of this shortage in the propane market is
evidenced by the fact that from January 1999 to January of
2000, U.S. propane exports to Mexico increased from 50,000
barrels per day to 85,000 barrels per day. It seems very likely
that these increased propane exports have driven up propane
prices at the same time that increased demand for propane is
occurring.
As has been brought to my attention, the U.S. Department of
Energy has estimated that residential customers will pay 40 to
50 percent more for their gas service this winter. This
situation is made worse by the fact that the cost of delivering
propane to consumers in rural areas is higher than in urban
areas.
In Alabama, I have discussed with the State public service
commission the importance of natural gas suppliers and propane
dealers not cutting off any resident or business who needs
extra time to pay their bills. I am especially concerned about
seniors who are on fixed incomes, that they do not get cutoff.
Second, I want to applaud the efforts of our colleague from
Mississippi, Congressman Chip Pickering, who serves on this
subcommittee, for his bill, H.R. 396, which would allow the
Secretary of Agriculture to provide assistance to poultry and
livestock producers and greenhouse operators who have incurred
economic losses due to the increased energy prices in 2000 and
2001. While Representative Pickering's bill is under the
jurisdiction of the Agriculture Committee, I certainly urge all
of my House colleagues to join as cosponsors of this important
legislation.
I believe that there are several very important questions
to be answered, all of which will fall under the jurisdiction
of this subcommittee. With the increasing reliance on natural
gas by electric utilities for power generation, I urge this
subcommittee to examine whether or not recent price spikes for
electricity in California may have impacted the market price of
natural gas supplies nationwide. Also, I urge this subcommittee
to investigate the possibility of price gouging by refiners and
also the impact on prices of our exports of propane to Mexico
in recent years.
As you know, Mr. Chairman, I have written to you and the
other members of the committee in more detail regarding these
questions, and I respectfully ask you to insist that the
Department of Energy and others involved in this process answer
these questions.
Finally, in addition to these short-term solutions, I
believe that there is also a long-term problem that reveals the
need for a sound energy policy. Of course, it goes without
saying that this subcommittee is urged to work with the
administration to make sure that we put a comprehensive
national energy policy together so we can avoid problems like
this in the future.
Thank you for allowing me to come share these thoughts with
the subcommittee today. I look forward to working with you.
Mr. Barton. Thank you, Congressman. When you came into the
room earlier, I should have asked you to come to the dais at
that time. I apologize.
Mr. Aderholt. That is fine. Thank you.
[The prepared statement of Hon. Robert B. Aderholt
follows:]
Prepared Statement of Hon. Robert B. Aderholt, a Representative in
Congress from the State of Alabama
I want to thank Chairman Barton and the Members of the Subcommittee
for allowing me to testify today on behalf of constituents in the North
Alabama district that I represent. Many of these constituents have been
particularly hard hit by high natural gas prices this winter. This
testimony will help to illustrate some of the impact that high natural
gas prices have recently had on consumers in North Alabama and
throughout the Nation, and outline some possible solutions.
I have been concerned about the dramatic increase in the price of
natural gas that has burdened Alabama consumers over the past few
months. In my own hometown of Haleyville, my most recent winter gas
bill was well over $400 for one month, over twice the amount over the
same period last year.
A $200 dollar monthly increase is particularly a major burden for
those across our nation who live on a fixed income--this increase in
prices has hit them especially hard. These price increases cause the
amount of income available for other necessities such as food,
medication, and other utilities to be greatly reduced. Without these
life necessities, these people and their families are at risk of cold-
related illnesses, hunger, or homelessness, to name just a few
potential problems. This situation also affects businesses, and their
bottom line. When their costs are passed along to consumers, this in
turn increases prices for everybody.
As an example of these dramatic price increases, one poultry grower
informed me that in November and December of 1999, propane costs
represented 17 percent of his gross receipts. During the same period in
2000, the same grower used 61 percent of his gross receipts for propane
needs.
While it is true this has been an unusually cold winter, the costs
appear to have not been only due to increased consumer demand. There
has in fact been a shortage which has made prices higher. Evidence of
this shortage in the propane market is evidenced by the fact that from
January 1999 to January 2000, U.S. propane exports to Mexico increased
from 50,000 barrels per day to 85,000 barrels per day. It seems very
likely that these increased propane exports have driven up propane
prices at the same time that increased demand for propane is occurring.
It has been brought to my attention that the U.S. Department of
Energy (DOE) has estimated that residential customers will pay 40 to 50
percent more for their gas service this winter. The situation is made
worse by the fact that the cost of delivering propane (often referred
to as the fuel of rural America) to consumers in rural areas is higher
than in urban areas.
In Alabama, I have discussed with the State Public Service
Commission the importance of natural gas suppliers and propane dealers
not cutting off any residents or businesses who need extra time to pay
their bills. I am especially concerned that seniors on fixed incomes do
not get cut off.
Secondly, I want to applaud the efforts of our colleague from
Mississippi, Rep. Chip Pickering, who serves on this Subcommittee, for
his bill, H.R. 396, which would allow the Secretary of Agriculture to
provide assistance to poultry and livestock producers and greenhouse
operators who have incurred economic losses due to increased energy
prices in 2000 or 2001. While Rep. Pickering's bill is under the
jurisdiction of the Agriculture Committee, I urge all of my House
colleagues to join me as cosponsors of this important legislation.
I believe there are several very important questions to be
answered, all of which fall under the jurisdiction of this
Subcommittee. With increasing reliance on natural gas by electric
utilities for power generation, I urge this Subcommittee to examine
whether or not recent price spikes for electricity in California may
have impacted the market price of natural gas supplies nationwide.
Additionally, I urge the Subcommittee to investigate the possibility of
price gouging by refiners, and also the impact on prices of our exports
of propane to Mexico in recent years. As you know Mr. Chairman, I have
written to you in more detail regarding these questions, and I
respectfully request you insist on that DOE and others involved in this
process answer these questions.
Finally, in addition to these short term solutions, I believe that
this is also a long-term problem and reveals the need for a sound
energy policy. I urge Members of this Subcommittee to work with
President Bush and his Administration to make sure that we put together
a comprehensive national energy policy, so we can avoid problems like
this in the future. Thank you for this opportunity to offer my
concerns. I look forward to continuing to work with you to address the
impact of high natural gas prices on rural America.
Mr. Barton. I think we have seen this witness before once
today. I don't think we have ever had a witness testify on two
separate panels in the same day, so this is an historic event.
Congressman, your statement is in the record in its
entirety, and you are recognized for 5 minutes to testify on
it.
Mr. Inslee. Thank you, Mr. Chairman. My mother will note
that I have created history here. It will surprise my father
and please my mother.
The reason I came back is I was really talking about short-
term issues before, and I would like to make three points on a
long-term energy policy for the country. I am cleanup hitter,
so I think it is incumbent on me to deliver some good news. I
have two pieces of good news.
Before I get to that, I want to tell you the bad news. I
just urge the committee to acquaint itself with one chart when
you draft our energy future, if I can just share this chart
with you. It is basically showing the carbon dioxide
concentrations in the atmosphere beginning with the dawn of the
Industrial Age to the present, and then you can see where that
line is going in the future.
I really believe, in drafting a national energy policy,
this chart has got to play a major role in our decisionmaking.
The reason is that this chart is unambiguous, certain and
indisputable. All scientific folks agree with this chart, that
CO<INF>2</INF> levels in the atmosphere are going up
dramatically, and probably unless this committee and this
Congress and we act internationally, it is going to double in
the next century.
The result of that is a profound increase in the global
tendency to trap energy in the atmosphere because of the
presence of what are called global climate change gasses, and
CO<INF>2</INF> is the predominant one. Energy comes in, like a
greenhouse, in ultraviolet rays, but infrared light--excuse me,
I have them reversed--does not go out through the
CO<INF>2</INF>. It is a blanket and it is doubling and it is
getting thicker and it is indisputable.
I just think whatever we do and whatever discussions we
have in this committee, I just hope you will discuss this
phenomenon about what we are going to do about it, because it
means, indisputably, we are going to have some changes in our
climate. As you know, an international panel of scientists
about a month ago came back with very disturbing news that this
process is accelerating faster than most people anticipated
even 2 or 3 years ago. So I just urge the committee to think
about this in our deliberations.
That is the bad news.
The good news is there are some great things happening on
the horizon. Solar power prices have come down 50 percent since
1995. Wind power prices have come down 45 percent in the last
decade. Interestingly enough, wind power for every doubling of
amount of wind in the field, the price comes down 15 percent.
There is very positive technology coming on-line if we can spur
it through Federal action to help us out.
The third piece of good news, I hope, Mr. Chairman, you can
help me pass the Home Energy Generation Act, a little act that
will have a national net metering policy that I have introduced
with many others, which would simply require the utilities to
accept home generation of electricity to feed back onto the
grid so your meter will run backwards essentially while you are
contributing energy to the grid. It is one small thing we can
do to boost renewable energy sources at the home level.
Thank you very much for this historic opportunity, Mr.
Chairman.
Mr. Barton. You gave us back almost 2 minutes, Congressman.
The Chair has no questions. The Chair would recognize Mr.
Boucher.
Mr. Boucher. No questions.
Mr. Barton. Mr. Largent?
Mr. Largent. No questions.
Mr. Barton. Mr. Barrett?
Mr. Barrett. No questions.
Mr. Barton. Mr. Shadegg? Welcome back to the subcommittee.
We appreciate your being here.
Mr. Shadegg. Thank you, Mr. Chairman. I will be brief. I
want to begin, I could not be here earlier, but I want to
commend you for holding this hearing. As you know, I went to
Pasadena, California, with you some 2 weeks ago to look at the
California energy crisis. I think it is indeed an energy
crisis, but it is an energy crisis which is largely of our own
creation.
I listened to my friend, Mr. Calvert--I notice virtually
all of the witnesses except Mr. Inslee have decided to depart,
so there is almost no one to question, but we will make
comments about some of the testimony nonetheless.
Mr. Calvert noted that many of the California problems are
systemic throughout the country, but I think that is not
completely correct. In part, when you look at the California
energy crisis that we examined, Mr. Chairman, when we were
there, it is clear that some of the contributing factors to
that crisis are man-made and were conscientious efforts to
ignore, quite frankly, reality.
The failure of California to build additional production is
quite obvious. As a matter of fact, for example, in the last
decade, the amount of electricity generated in California
actually decreased from 208,350 gigawatts in 1990 to 205,246
gigawatts in 1998. That shows that that State over a 10-year
period actually lost production capacity. That should not come
as any surprise in light of the fact that at least since the
imposition of their retail price caps, we had an artificial
market where we had retail price caps, but no wholesale price
caps. That kind of policy sends exactly the wrong message.
I commend you, Mr. Chairman, for the meetings we conducted
in California, in Pasadena, for what I was able to learn there,
and for the hearing today. I have to say I felt the testimony
there was much more informed than some of the testimony we
heard here today.
Mr. Ganske, I was going to comment upon the fact that he is
right about the ``not in my backyard'' syndrome, and I wanted
to bring a couple of facts to the attention of the subcommittee
with regard to that syndrome, the ``not in my backyard''
syndrome, impending directly on the California energy crisis.
These are the facts I wanted to bring forward.
The Los Angeles Times poll taken in Southern California in
the L.A. Area and released on February 18 showed that--this is
February 18, less than a month ago, a full 57 percent of
Californians do not believe that there is a shortage of
electricity. They are, pretty clearly, Mr. Chairman, living in
La-la Land.
Now, perhaps we can't blame them, because we imposed
artificial price caps holding down the retail price as a
seriously low level. Indeed, electricity prices in most of the
Western United States have gone up by 20 percent over the last
few years. In California, they have gone up by zero percent. So
perhaps we should not be surprised that 57 percent of
Californians in this poll don't believe there is a shortage of
electricity. But I think we have a crisis of knowledge when we
have that kind of ignorance.
I would like to illustrate that that then has public policy
implications.
Mr. Barton. Is there a question in here somewhere?
Mr. Shadegg. There is no question, Mr. Chairman. I need to
just get a few things in the record.
I commend Mr. Inslee for coming forward. I would be happy
to ask Mr. Inslee from his earlier testimony, he advocated
price caps and we might talk about that in just a moment.
But the consequence of the ignorance of this electricity
shortage can be shown in one more symptom, and that is the L.A.
Times in an editorial yesterday--the day before yesterday, on
Sunday, excuse me--said a sense of public urgency is lacking.
That might be a monumental understatement, Mr. Chairman.
They go on to say, one indicator is a municipal vote on
Tuesday--that is, today--on whether a new power plant should be
built in Southgate. Polls show currently that that vote is
currently at about a 50-50 level. It may or may not pass. This
is in a State which is literally thousands of megawatts short
of electricity at peak times of being able to meet their
demand. Fifty-seven percent don't believe there is a crisis,
and only roughly half may vote to build this new power plant in
Southgate.
There are a number of issues I think we need to address. I
wanted to commend Mr. Calvert for his commentary on ethanol.
While I think ethanol is a technology we need to pursue, we
should have learned from our policy last time around.
Last time around we mandated oxygenates and essentially
mandated MTBE. We now know it is causing a serious problem to
our water table. I hope this committee and this Congress does
not make the same mistake by mandating ethanol. As Mr. Calvert
pointed out in his testimony, you can in fact creatively
produce very clean gasoline and improve air quality without
mandating a particular solution. I would urge this committee
not to do that.
I will conclude by asking indeed one question of Mr.
Inslee.
Mr. Barton. In your last 4 seconds.
Mr. Shadegg. To please you, Mr. Chairman, my concern is,
and two questions:
One, when----
Mr. Barton. One question.
Mr. Shadegg. One question. Two questions in one.
When has any temporary rate cap imposed by the Federal
Government in fact ever been allowed to expire; and what is it
about a rate cap that you think would cause either the
encouragement of additional production in the Western United
States to meet the demand that we have, or the encouragement of
reduced consumption and greater conservation by the people in
the State of California?
Mr. Inslee. Well, the first question, there have been many
times where various public entities in this country have
imposed some control over prices--many, many times, going back
to President Nixon's time. Some were successful, some were not.
But there have been many times where price caps have been
imposed and then removed. I think this should be one of these.
I want to reiterate, it can and should be short-term. We can
fashion a way to do that.
The second part, as far as the creation of new generation,
again I would suggest that we exempt new generation capacity,
thereby sending price signals to new generators who make
investments to indeed have higher prices for new generating
capacity-produced electricity.
But I will tell you, it is going to be a disincentive for
creation of that new electricity if the economy goes to heck in
a handbasket, and I am really afraid that is what is going to
happen if we don't act.
Mr. Barton. Thank you, Congressman.
For the last word, Congressman Markey for 5 minutes.
Mr. Markey. Thank you, Mr. Chairman, very much.
Mr. Inslee, it is reported there is going to be a 4 percent
cut in the Department of Energy's budget. Since it is quite
clear the areas that they are going to protect, it is projected
there will be a 30 to 35 percent cut in energy efficiency
grants and a 40 to 45 percent cut in renewables on research and
development and a 20 percent cut in fossil fuels R&D.
Do you think that would be a good idea?
Mr. Inslee. I am a specialist in rhetorical questions, so I
can handle this one.
Mr. Markey. Thank you. I am always glad when someone can
recognize a rhetorical question.
Mr. Inslee. You know, I really am disturbed and
disappointed by that. I will tell you why, Congressman.
Last week I actually heard some--what I thought, very
encouraging signs from the administration. Some of the comments
from our new EPA Administrator, Governor Whitman, I thought
were very encouraging where she recognized the necessity of
dealing with global climate change issues, where she recognized
the necessity of working on new technologies. That was very,
very encouraging to me as a voice from the administration.
But this proposed actual slashing of budgets for renewable
energy to me incredibly manifests ignoring clear science. Where
we have got a chart like this we are looking at, which is going
to demand that we reduce our amount of carbon dioxide loading
of the atmosphere, we are not going to have a choice. Whether
you are a Democrat or Republican, 10 years from now you are not
going to have a choice, but to reduce our carbon dioxide
loading the environment. It is very disturbing.
As you know, just maybe to answer the next question----
Mr. Markey. No, let me ask the next question. There is a
certain ``Carnack'' quality to your answering my next question,
I realize that, but just so that we do square up before you
answer it, it would be on the remarkable fact that there was
actually a 60 percent increase in natural gas production on
Federal lands from 1992 when Bill Clinton took over until
today, and in fact there was a 62 percent increase in offshore
drilling from 1992 to 1999, and natural gas production in deep
waters increased 80 percent over just the last 2 years.
Is it surprising to you to learn that, notwithstanding all
the criticism of the environmental movement in the Clinton
administration, there has been such a dramatic increase in the
production of energy on public lands in just the last 8 years?
Mr. Inslee. I must actually admit to my ignorance. I have
not heard those numbers. I have learned something today, and it
proves it pays to come to this committee.
Mr. Markey. Thank you. Let me see if I can continue to
broaden your education.
Mr. Barton. Your constituents may be so young they may not
know who Carnack was.
Mr. Markey. How many of you know who Carnack was?
Mr. Barton. That is what I thought.
Mr. Markey. Wow. Let me ask you, where is Jay Leno from?
Andover. See, they know that. He is from the Andover High
School. So they know what happened when they got rid of this
guy from Nebraska, we got a good guy from Andover in there.
You know, another very interesting fact that people are
unaware of is Jeb Bush's opposition to drilling 100 miles out
at sea off of the Florida coast, even though there is a
consensus we should drill, and there is loads of energy out
there. What do you think about Jeb Bush opposing drilling in
areas where there is a consensus reached by Democrats and
Republicans that we should go out there?
Mr. Inslee. I think it is most enlightened and very
encouraging, and we hope there is a familial line of
communication which will extend that far to the Northwest part
of our States up to the Arctic refuge. We hope that that policy
will be forthcoming. I have to tell you----
Mr. Markey. Do you consider him an environmentalist? Is he
an extremist for taking that position?
Environmentalists actually support drilling in this water.
In other words, this is not being opposed by environmentalists,
but actually supported. Do you consider him to be an
environmental extremist for taking that position?
Mr. Inslee. Hardly, and I think it is consistent with what
Americans think. I got to tell you, since last week's
discussion of the Arctic refuge, I have had more and more
people come up to me in the street--truck drivers, teachers--
just come up to me unprovoked and say, don't let them get into
the Arctic refuge. It has been actually interesting to me. I
have heard more about that from my constituents than perhaps
any issue in the last 2 months. I hope that America's sentiment
is listened to in this regard.
It is not going to be a solution. As you know, CAFE
standards are going to solve a lot more problems. Mark.
Mr. Barton. This will have to be the last illuminating
question.
Mr. Markey. To some of these kids, CAFE is on Highland
Avenue, so we will have to explain what CAFE is as well.
The final question would be on Prudhoe Bay, the fact that
there is 32 to 38 trillion cubic feet of natural gas ready for
development--with, by the way, the support of the most liberal
Democratic environmental members of the United States
Congress--and yet there has been no progress as of yet by the
oil and gas industry in drilling and bringing it down.
Before we go to the Arctic refuge, which is a sacred,
untrammeled, wild, wild wilderness preserve, what do you think
about that? What recommendations could you make to the oil and
gas industry about first going to the Prudhoe Bay area?
Mr. Inslee. I am going to give you a very honest answer,
not a cheeky one.
I really do believe that this country is not going to open
up the Arctic refuge. I believe that is very much the public
sentiment. I believe that the public will come to agree with us
that it is not a solution to this problem, long- or short-term.
Honestly, if John, a friend of mine in the industry, asked me,
I would say, that is not a place we are going to go. That would
be my honest, candid, frank and right answer.
Mr. Markey. Thank you.
Mr. Barton. We appreciate your honesty, candor and
frankness.
This subcommittee hearing on this particular issue for the
Members' testimony is over. We will have future hearings in the
very near future.
[Whereupon, at 3:54 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of Hon. Joe Baca, a Representative in Congress from
the State of California
Chairman Barton and Ranking Member Boucher:
I appreciate the opportunity to testify before this subcommittee,
concerning California's energy situation.
The energy crisis is upon us. Deregulation is broken, and
California must dig itself out of this hole. We need a stable supply of
electricity at a reasonable rate if we are to keep the gold in the
Golden State.
Without a consistent supply of power that we control, we will
always be at the mercy of out-of-state interests who seek to turn a
profit on the backs of consumers. Without control, our whole economy
will suffer. It is essential that we maintain our standard of living
and our competitive edge. We need to ensure that new industries wish to
locate in California.
That is why I met recently with President Fox of Mexico and
obtained an agreement from him to supply California with an additional
50 megawatts of power, doubling the amount of power supplied by Mexico
to California. This will be enough to serve another 50,000 homes.
Mexico will give us the additional megawatts, but we need the
infrastructure and additional power lines. The problem is the United
States lacks the required infrastructure. We really need to work on our
side. We need to secure additional appropriations for infrastructure.
We need to get in the ball game. That is why I supported Governor
Davis's direction to state and local agenices to expedite the review
and licensing of new power generation facilities, and I supported his
request that federal agencies do the same. I appreciate that in
response to the Governor's request, the President will be accellerating
federal permit reviews, consistent with federal law and continued
protection of public health and the environment.
It is time to enact a national energy policy. That is why I joined
my colleagues in signing a letter to President Bush recently, urging
him to meet with us. Together we will roll up our shirt sleeves and
figure out how to solve these problems.
The national energy policy should include new ways to map how power
flows through our nation, to help us identify, in real time, where we
need new facilities and transmission lines. The technology exists to do
this having been applied by Los Alamos labs to other areas, such as our
highway transportation system.
I am co-sponsoring legislation to prohibit out-of-state electricity
producers from charging excessive rates (H.R. 238, Hunter, and H.R.
268, Filner). We must protect consumers and businesses in our state.
This is about fairness. This is about ensuring that people can make
ends meet.
I have also worked on the following measures to address the crisis:
<bullet> Letter from California Democratic Congressional Delegation,
requesting that the Federal Energy Regulatory Commission (FERC)
take immediate action to address the energy crisis on the
western region of the country.
<bullet> Letter to the United States General Accounting Office
requesting a presentation and evaluation of what can be done to
increase the electricity supplies in the west as an action to
address the energy crisis in the western region of the country.
<bullet> Letter and phone call to President Pro Tem John Burton's
office supporting the letter from George Miller to Senator
Burton in support of SB 33X, to assist the state of California
with the energy crisis by purchasing transmission lines.
<bullet> Letter to President Bush requesting increased funding for the
Low Income Home Energy Assistance Program (LIHEAP), the
weatherization assistance program, and the state energy
program.
While a solution is being formulated, as energy consumers, we must
be as efficient as possible with this commodity. We must encourage
family and friends to turn out the lights when not in use, reduce the
use of outside and decorative lighting, turn our thermostats down at
night, make full use of the sun to light and heat our home during the
day, close the drapes at night and chimney vent when not in use.
We should not be interested in assigning blame, only in finding
ways to resolve the crisis. While state lawmakers are working on a
resolution, I am concerned about the human impact of the crisis: how
are these stage three alerts affecting the elderly, infirm, low income
residents in particular?
Our focus should be on information dissemination. For instance,
many low-income families are not aware of the care program which
provides a 15% discount off their electric bills if they meet the
qualifications and income guidelines. We are also sharing conservation
tips for all consumers, but targeting seniors in particular.
I am concerned with how this energy crisis will affect our
economy--both in the growth and development of small business, as well
as the increase in rates to all consumers.
We need to provide for America's long-term needs, whether through
conservation or new production. The continued health of businesses
depends upon reducing price swings for energy.
I am concerned that proposed budget cuts may harm our long-term
national interests, taking funds away from renewable energy research.
We need to explore all energy alternatives.
The time to act is now. We will work hard, we will succeed.
______
Prepared Statement of Hon. Randy ``Duke'' Cunningham, a Representative
in Congress from the State of California
Subcommittee Chairman Barton, Ranking Member Boucher, and Members
of the Subcommittee, I rise today to speak in support of federal
efforts to assist California in addressing our ongoing energy crisis.
Mr. Chairman, California needs relief. In Congress, you will find
no greater proponent of capitalism and free markets than myself.
However, due to the current crisis I support temporary price caps on
wholesale electricity in the Western United States. We need relief.
I would urge you to listen to FERC commissioner, William Massey,
who said, ``Runaway prices, like we have out West in electricity
markets, are both unlawful and politically unacceptable. Consumers see
these prices as a blatant rip-off, and I fear that we are on the verge
of a political backlash . . . I believe we need a temporary timeout in
western electric markets. I would cap bids into the spot markets . . .
Without some price mitigation, not only the utilities but the state of
California may go broke.''
My constituents are suffering. Consumers, businesses, schools, and
local governments are the victims of actions and powers beyond their
control Furthermore, if we are not afforded relief, we will likely see
a consumer outrage that will harm any future effort to bring
competitive markets to electricity producers and utilities.
Last week, the California delegation met with FERC Chairman Hebert
who expressed his continued opposition to price caps. This outright
opposition to temporary price caps, which could provide us the
opportunity to get back on our feet, is harmful to the people of
California and America.
Mr. Chairman over the last year, we in California we have been
overcharged by power companies. The California Independent System
Operator (ISO) has issued a report showing that we were overcharged
$555 million in December and January alone. This has been accomplished
by power generators taking advantage of energy shortages to increase
prices. This report by ISO, which runs the electricity grid, said that
when it needed to buy last-minute power to avoid blackouts in December
and January, energy producers raised rates to outrageous levels, and
the ISO had no choice but to pay them.
Those energy shortages came amid an unusually high number of
shutdowns of power plants, which are owned by energy companies. Many
people are asking about the timing of these shutdowns and their
potential connection to the extraordinary price hikes. Currently, the
ISO has filed a motion with the FERC for refunds of those overcharges.
The FERC has 60 days to respond.
I would urge all my colleagues to examine this report of gross
overcharges. And should FERC not act, we must.
I know this isn't a popular position for us to take; and it is
certainly a deviation from my free-market beliefs. However, we need
relief in California. While this is a state created problem, the people
of California are looking to the federal government for relief.
Mr. Chairman, I support the legislation sponsored by my colleague,
Mr. Hunter, for temporary price caps. I urge the committee to consider
solutions that will provide relief to the people of California while we
try to solve this problem.
Mr. Chairman thanks for holding this hearing today. I appreciate
the opportunity to share my concerns with you.
______
Prepared Statement of Hon. Randy ``Duke'' Cunningham, a Representative
in Congress from the State of California
Subcommittee Chairman Barton, Ranking Member Boucher, and Members
of the Subcommittee, I rise today to speak in support of an important
component of a National Energy Strategy, specifically the Energy
Efficient Buildings Incentives Act (H.R. 778).
California, specifically San Diego's North County has become the
poster child for energy problems in America. Last winter and summer we
were hit hard by a failed regulation proposal combined with a lack of
instate generation. This combination created shortages and extreme
price fluctuations.
As many of you know, this problem is ongoing. This winter has been
tragic and included rolling blackouts. Earlier today, you heard from
many members about this ongoing problem. Many regions across the
country face severe challenges to their electric grid, with California
being the extreme example. In addition, all across America the
situation is likely to get a whole lot worse before it gets better.
New York may have serious disruptions in electricity distribution
this summer and the Central U.S. may again experience similar problems
to those of last year. More troubling, this summer California may have
more than a price problem. We may actually be unable to get power at
any price.
The problem is an imbalance between supply and demand, which has
driven up the price of electricity several-fold compared to last year.
This has resulted in increased prices for consumers, and compromised
the financial stability of utilities and businesses.
The nation is in desperate need of a comprehensive energy policy.
We must have a policy that looks at the supply side, new avenues of
production and generation, as well as the demand side, innovative
conservation alternatives. These policies should consider the costs and
risks to consumers and businesses. They should also provide incentives
for economic growth and environmental protection.
I have no illusions that developing a national consensus on a
comprehensive energy policy will be easy. But, I am fairly confident
that we will pass bi-partisan legislation, which will meet our growing
need for energy.
I believe one major piece of the comprehensive energy policy will
be an expanded effort to increase energy efficiency by end users.
Energy efficiency was an important part of President Bush's energy
strategy of 1991 and has been the cornerstone of a number of state
efforts.
To this end, Mr. Markey of Massachusetts and I have introduced the
Energy Efficient Buildings Incentives Act (H.R. 778). This is a
companion to Sen. Bob Smith's S. 207 in the Senate. This legislation is
designed to give new impetus to energy efficiency in buildings. This
avenue shows the greatest short-term as well as long-term promise.
Increasing energy efficiency is one of the few policy tools that
can make an immediate difference. Within a matter of months after
passage of this legislation, manufacturers and building designers will
be able to provide significantly increased energy efficient technology
to families and to businesses.
These new technologies will help in two ways: first, the consumers
who utilize them will immediately see lower energy bills. Second, as
homes and businesses become more efficient, we will see reduced price
pressure on fuels, and prices will come down.
The sooner we can introduce energy efficiency into the marketplace,
the sooner consumers and businesses will start to see solutions to
their energy problems.
Congress has passed several important pieces of bipartisan energy
legislation over the past 15 years. These laws provide for more
competitive energy markets.
They also provide for federal standards on the efficiency of
appliances and equipment, and for federal assistance to states
considering building efficiency standards. They also provide tax
incentives on the production side of the energy equation.
Utilities have also learned over the past 20 years how to develop
incentives that can encourage energy efficiency. Utilities have been
very successful in promoting improvements in energy efficiency.
However, there are two powerful difficulties when it comes to
encouraging state-of-the-art improvements in energy efficiency, and
that is why we need to work through the tax code.
The first problem is that energy-consuming devices are produced for
national markets, but utilities only serve a single region.
Even if a utility offers attractive incentives for, say, an
advanced new air conditioner, manufacturers will not be inclined to
produce the product because their production has to be geared to
national or even global demands, not those of a single region. National
incentives will solve this problem.
The second difficulty is timing. A major commercial building often
takes over 2 years to construct. If the architect learns that the
utility is offering an incentive for energy efficiency, the first
question he or she will ask is: will the incentive still be available
in 30 months when my building is finished?
Most utilities will have to answer that they cannot ensure that
this is the case. Therefore, the architect will refrain from making the
commitment to energy efficiency.
The efficiency investments that will be made are for minor changes
in the design at the last minute that can be implemented during a
period when the incentive is known to be available.
H.R. 778 addresses both of these problems and sets the stage for
unleashing a wave of new technology that can provide major advances in
energy efficiency in the easiest manner.
HR 778 provides incentives for enhanced energy efficiency in
buildings, because buildings account for over $300 billion a year in
energy costs and account for over a third of pollution emissions in the
United States.
There are opportunities for new technology to save from 30% to 50%,
and maybe even more of energy costs, while enhancing the productivity
of workers in the buildings and increasing the comfort of families at
home.
HR 778 targets the entire set of building-related energy systems,
including: Non-residential buildings, commercial buildings such as
offices, stores, warehouses, etc., as well as public buildings such as
schools, and rental housing.
Homes, including single-family, multi-family, and manufactured
homes. Heating, cooling, and water heating equipment; and solar
photovoltaic and water heating equipment. It provides incentives based
on energy performance, not on cost.
This structure is different from the energy efficiency tax
incentives of the 1970's, which were based on cost and are perceived by
many to have failed. These targets are ambitious but realistic.
If they were less ambitious, there would be a risk of paying for
energy efficiency investments that would have happened anyway. If they
are too ambitious, no one would claim the tax incentive, which would
fail to accomplish the purpose of the energy policy.
The bill provides tax incentives for a fixed time period and are
intended to be temporary through the end of taxable year 2007. Six
years should be sufficient to provide financial reasons for
manufacturers to invest in plants producing efficient equipment.
This should also be enough time for designers and contractors to
get additional education and training in energy efficient design,
construction practices, and to establish competitive markets for more
efficient buildings and equipment.
At the end of 6 years, I anticipate that the markets for energy
efficiency will be strong enough that these tax incentives will no
longer be needed. I believe that these incentives can transform the
markets for energy efficient buildings over these 6 years, as several
utility-sponsored programs have done in the past.
This is because they rely on market forces, and establish a level
playing field for competition between different industries and
different companies.
HR 778 will reduce energy demand and bring quick relief to the
power grid, which will help alleviate electric supply problems. That is
why HR 778 is so broadly endorsed by utilities, including all of
California's major electric utilities and many national power
generators as well.
But the legislation also has significant environmental benefits to
the nation. It will reduce America's greenhouse gas pollution
emissions, as well as air pollution emissions, by 3% by the year 2010.
That is why this bill is endorsed by the nation's major
environmental organizations. We have worked hard to deliver a bill that
has both bipartisan support in the congress and support from the
business and environmental community.
Although the primary motivations for this bill are to help solve
America's energy policy problems and reduce emissions, there are also
large economic benefits of the bill.
By reducing energy costs for businesses, which are tax-deductible,
it will actually increase revenues to the Treasury over a 5-year
period.Energy efficiency can be an excellent investment, with returns
of 25% per year and better. By stimulating such investment, this bill
will save businesses and families over $40 billion on net by 2010.
The benefits of this bill grow over time, as more and more energy-
efficient buildings are constructed and the technologies for efficiency
get cheaper and better due to competition.I want to close by saying
that the solution to California and America's energy problems is not
found on the supply side alone. We must address demand, and our bill
will do that.I want to thank you for the opportunity to come before the
Committee today. After swift enactment, we can all enjoy lower energy
bills and a better environment.
______
Prepared Statement of Hon. Peter A. DeFazio, a Representative in
Congress from the State of Oregon
INTRODUCTION
Chairman Barton, Ranking Member Boucher, and Members of this
Committee, I appreciate the opportunity to testify here today on an
issue that is of critical importance to the economy, the environment,
and the quality of life in the Western United States--the errant
electricity ``market.''
Let me be clear at the outset, the energy debacle in the West is
not just a regional problem requiring regional or state-specific
solutions. Rather, the misguided energy deregulation wave set in motion
by the U.S. Congress in 1992 is a threat to the well-being of the
entire nation and will require leadership from the highest positions of
power in our national government to solve.
Unfortunately, the White House, the Department of Energy (DOE), and
the Federal Energy Regulatory Commission (FERC) seem content to let the
bloodletting and obscene profiteering continue unimpeded. I guess we
shouldn't be surprised since the chief beneficiaries of this massive
transfer of wealth from taxpayers to energy companies just happened to
contribute huge financial sums toward the election of the current
Administration.
There is no excuse for the Administration and Congress to continue
abdicating their responsibility to help solve the energy crisis.
By way of background, I have been deeply involved in energy issues
for more than two decades. In the late 1970s-early 1980s, I helped lead
a group of residential ratepayer activists in halting the Washington
Public Power Supply System's (WPPSS, pronounced ``Whoops'') nuclear
power plant investments. These investments were such a colossal
misjudgment that ratepayers in the Northwest are still paying for it. I
fought President Reagan's attempt to push energy deregulation on
unwilling consumers in 1987. I was also one of only two Conference
Committee members and one of only 60 members of the House to vote
against the 1992 Energy Policy Act. This law is responsible for
allowing California and other states to get us into the mess we're
discussing today.
I will address the specific problems facing California and the
Northwest shortly. But first, I want to provide some brief historical
context for the current debate and describe the fundamental shortfalls
of a deregulated energy market, which will continue to wreck havoc
across the United States until policymakers come to their senses.
HISTORICAL CONTEXT FOR ELECTRICITY DEREGULATION DEBATE
The last time the United States had a deregulated electricity
market was in 1932. Astute students of history will recognize this was
during the Great Depression. Is that a coincidence? Perhaps, but it
certainly did not help restore stability to the economy. Deregulation
ended with the collapse of the ``Insull Empire'' (a huge multi-state
conglomerate similar to today's Enron). The collapse threatened to
blackout the entire industrial heartland of the Midwest.
Franklin Delano Roosevelt described the situation in his 1933 book,
Looking Forward. Since his words sound eerily relevant to today, it is
worth quoting him at length:
``Through lack of vigilance in state capitals and in the
national government, we have allowed many utility companies to
get around the common law, to capitalize themselves without
regard to actual investment made in property, to pyramid
capital through holding companies and without restraint of law.
The investing public did not realize then, as it does now,
that the methods used in building up these holding companies
were wholly contrary to every sound public policy . . . They
did not realize that some subsidiaries had been milked and
milked to keep alive the weaker sisters in the great chain.
They did not realize that there had been borrowings and
lendings, an interchange of assets, of liabilities, and of
capital between the component parts of the whole. They did not
realize that all these conditions necessitated terrific
overcharges for service by these corporations.'' <SUP>1</SUP>
Similarly, in a letter to Congress, President Roosevelt wrote:
``[The holding company] is a corporate invention which can
give a few corporate insiders unwarranted and intolerable
powers over other people's money. In its destruction of local
control and its substitution of absentee management, it has
built up in the public-utility field what has justly been
called a system of private socialism which is inimical to the
welfare of a free people.'' <SUP>2</SUP>
The same could be said of today's runaway holding companies like
Enron, Dynergy, and others who have transferred billions in wealth from
subsidiaries operating in California to the parent corporation while
the subsidiaries then plead poverty to government officials and demand
a taxpayer bailout. Seven out-of-state power producers operating in
California had after-tax profits totaling $4.7 billion from April to
December of 2000. For example, Duke Energy made $1.3 billion. Dynergy,
$373 million. Enron, $928 million. And Reliant, $613 million.
<SUP>0</SUP>
Fortunately, in the 1930s, Congress quickly came to the rescue
after the collapse of the Insull Empire in the 1930s through the
creation of the New York State Power Authority in 1931, the Federal
Public Works Administration in 1933, the Bonneville Power
Administration in 1937, as well as enactment of the Tennessee Valley
Act of 1933, the Public Utility Holding Company Act of 1935, the
Federal Power Act of 1935, and the Rural Electrification Act of 1936.
These laws set up the mixed federal and state regulatory structure that
provided affordable, reliable electricity for the next 60 years, thus
setting the stage for the economic boom years that soon followed.I fear
this Congress and this Administration will not have similar foresight.
fundamental miscalculations of deregulation proponents
In discussions of energy policy, I often read or hear the line ``no
one could have foreseen the current problems.'' I beg to differ. I and
a small number of energy deregulation critics predicted just this sort
of disaster.
Actually, it is not widely known, but even the U.S. Department of
Agriculture (USDA) predicted problems for rural America due to energy
deregulation in a January 1999 report. This report was leaked to the
press and subsequently buried in the bureaucracy under pressure by the
DOE. The full report has still never been released. But, the
conclusions in the leaked portion are as startling as they are
instructive. The USDA projected electric rates would increase for
residents of 19 states, including my home state of Oregon. The report
also noted, ``Economic growth will slow under competitive pricing by up
to one-half percentage point in those states that experience increases
in electric utility rates under competitive pricing.'' <SUP>4</SUP>
Let me take a step back for a minute, beginning in the mid-1930s
and for more than 60 years, utilities were regulated monopolies with a
statutory and regulatory duty to serve customers. In return, utilities
were allowed to charge rates to recover their investments in
infrastructure and operational costs while also being allowed a
reasonable profit (so-called ``cost-based-plus rates'').
I agree there are a lot of things markets do very well. Reasonable
price competition tends to allocate social and economic resources more
efficiently than a command and control economy. Innovation is rewarded.
Consumers are offered a broad array of choices.
But, we know--or ought to know--that unregulated and under-
regulated markets have significant shortcomings. These markets lead
directly to monopolies, price fixing and other uncompetitive practices.
Markets also aren't very good at accounting for environmental costs.
And, in the world of electricity, universal service was not a
natural goal of the market, but rather had to be achieved through
regulation. The same could be said of energy conservation today.
As I've repeatedly stated, the fact that free markets are good
doesn't mean that freer markets are always better. That is certainly
true for the generation, transmission and distribution of electricity.
In 1992, with little scrutiny or public attention, Congress adopted
and President George H.W. Bush signed the 1992 Energy Policy Act. This
legislation delegated tremendous power to FERC to mandate transmission
and wholesale competition and opened the door for states to deregulate
retail electricity. In 1996, FERC adopted sweeping rules mandating
transmission deregulation and ushered in a new market in which
independent energy generators could sell power to the highest bidder--
with no responsibility to serve residential consumers.
Deregulation was based on two principal arguments. First,
proponents argued consumers were demanding to ``choose'' their energy
provider the same way they choose their long-distance phone provider.
Second, they argued deregulation would create a more efficient and
innovative marketplace that would not only bring huge savings to big
business, which was pushing the scheme, but to all consumers.
The first point was sheer fabrication. In hundreds of town halls, I
was never once asked by a constituent that they be given the right to
shop around for an electricity provider. And, why should they? When
they flipped the switch, the lights came on. When they turned on the
hot water, it flowed. When they received their electricity bill, it was
reasonably priced. This lack of consumer interest has been borne out in
states that have deregulated. In California, less than one percent of
residential and small-business customers have opted to switch
providers. Other states have experienced similar results.
On the second point, not surprisingly, what sounds logical in an
economics textbook doesn't work when put into practice.
Of course, when we talk about deregulating the electric utility
industry, we aren't talking about creating a truly unregulated free
market. Electricity will still remain essentially a natural monopoly,
with barriers to market entry extremely high. Besides the obvious
downside of three or four competing sets of wires running down every
residential street, there are equally obvious inefficiencies from this
kind of competition.
Rather, ``deregulation'' essentially replaces one rule book that
was designed to promote social, environmental, and reasonable profit
goals with another set of rules designed to create winners and losers
while padding the bottom line of a few large corporations.
WHAT'S WRONG AND NOT WRONG IN THE WEST?
The media, energy experts, and many of my colleagues in Congress
point to a host of causes of the California energy crisis, which has
spread north to my home of Oregon and elsewhere in the Northwest and
West.
As is probably clear from what I've said so far, I place much of
the blame on the 1992 Energy Policy Act and the state-level
deregulations that followed.
Let me address some of the most common sources of blame as
described by deregulation proponents, which may contain a small nugget
of truth, but are largely based in myth perpetuated by rigid ideology.
Consumer Price Caps:
No one disputes the California State Legislature passed a
deregulation law (AB 1890) in 1996 that included a retail rate freeze
over the transition period, set to expire before March 31, 2002. Under
the deregulation law, small consumers were guaranteed immediate rate
reductions and promised future decreases. The quid pro quo was that the
utilities could collect from consumers the ``stranded costs'' of
unprofitable investments made under the regulated regime. At the time
the rates were frozen, they were substantially higher than market
rates. Thus, for several years the price caps people are pointing to
now as destroying competition were actually artificially high price
floors. The frozen rates, that many argue need upward revision, were
50% higher than the average energy costs and have produced $17.6
billion in excess revenue for two of the major energy companies.
<SUP>5</SUP>
The only area to truly deregulate both wholesale and retail prices
was San Diego. For those who preach we can solve the ills of energy
deregulation with still more deregulation apparently learned nothing
from the unmitigated disaster in San Diego. As required by the original
California deregulation legislation, price caps in the San Diego area
were lifted after San Diego Gas and Electric's stranded costs were
recovered from consumers. Thus, consumers in the San Diego did feel the
full impact of the volatile energy market the past summer. The sudden
and staggering increased energy expense caused consumers and businesses
in that conservative part of the State to angrily demand immediate
relief. In September, the California State Legislature capped San Diego
rates once again in response to the ratepayer revolt.
One argument against price caps is that they impair the free market
to send price signals to consumers to conserve. The run-up in prices in
San Diego, which at times reached 150 percent, should have caused a
drastic reduction in energy use. In reality, the runaway prices
resulted in only a 9 percent curtailment of energy consumption.
<SUP>6</SUP> Given the essential nature of energy for homes and
businesses, a certain static level of demand exists regardless of the
price. Economists refer to this as price inelasticity. An essential
good which is price inelastic does not dramatically respond to
increases in price. Another way of putting this is if we have a 50
percent increase or 350 percent increase in residential utility bills,
consumers can only conserve so much in the short-term and invest in
energy efficiency for the long-term. One study found that--if all costs
were passed on to consumers, the average residential monthly consumer,
who paid approximately $55 a month before deregulation, would have paid
approximately $600 a month when prices spiked in California this
winter.'' <SUP>7</SUP>
I don't know about your district, but there aren't too many people
in the 4th District of Oregon who could afford a $600 monthly ``price
signal.''
I would urge those who merely blame California for not ``fully''
deregulating because residential rate caps were maintained to go tell
their own constituents in a town hall meeting that a $600 monthly bill
is actually good for them because the price signal will cause them to
conserve energy and help bring demand and supply into line. If anyone
on the Committee is willing to do this, I'd be interested in a report
back on what happens.
The free market model which should send price signals is further
complicated by a concentration of power in the hands of a limited
number of energy producers and marketers. Without any type of
protection, the incentives lie with profit-oriented utilities who can
withhold energy generation, see market-prices increase, and then
deliver huge returns to shareholders.
In short, I think it is irrational and uninformed to argue that
rate freezes, intended to protect consumers, are wholly or partially
responsible for the California energy crisis. Further, I disagree with
those who advocate for dramatically increased rates for Pacific Gas and
Electric (PG&E) or Southern California Edison (SCE) customers.
California's Utilities are Bankrupt:
California's investor-owned utilities claim they need approximately
$12 million from either ratepayers or taxpayers to cover the expenses
they incurred in the high wholesale energy market. An investor-owned
utility in Oregon recently received a $2 million billing from the
California Power Exchange (PX) to cover SCEs debt. SCEs assets have not
been frozen nor has there been an effort to collect from the parent
corporation. While no one can dispute a huge difference in the price
California utilities paid for energy and the price they charged for
energy, the need for a bailout deserves some serious scrutiny.
First and foremost, it is important to note that PG&E and SCE did
not completely divest themselves of all their generation capacity. Of
the generation assets they sold, they received approximately three
times book value. <SUP>8</SUP> The generation the investor-owned
utilities retained was sold according to the rules of the California
Power Exchange. During the first eight months of 2000, PG&E and SCE
generated approximately $3 billion in revenues from generation they
owned and sold through the California PX. The California restructuring
plan allows the utilities to add those excess revenues to their
stranded cost recovery fund. <SUP>9</SUP>
In addition to the fuzzy math dealing with stranded costs and
revenues from retained generation, PG&E and SCE are wholly-owned
subsidiaries of PG&E Corporation and Edison International. According to
an audit commissioned by the California Public Utility Commission, PG&E
transferred $4 billion to its parent corporation between 1997 and 1999.
In addition, for the first nine months of 2000, PG&E transferred an
additional $632 million to corporate headquarters. We see similar
trends with SCE. The parent companies are refusing to use their vast
resources to assist their subsidiaries. In the case of PG&E, the parent
corporation created a ring fence in late December to shelter itself
from the debts of its subsidiaries. <SUP>10</SUP>
PG&E and SCE supported the California deregulation law. One would
assume that they also understood and assumed the risk inherent with the
structure of the deregulated market, such as continually operating in
the spot market. The audits of their financial situation revealed that
both utilities made a series of business decisions which accelerated
their current financial difficulties.
While the investor-owned utilities are crying poor, independent
energy generators are raking in huge revenues from the inflated market.
Financial Times Energy Insight evaluated the revenue flow from four
out-of-state generators and found a fivefold increase in revenues.
<SUP>11</SUP>
The take home message here is that we need to look closer at the
real accounting behind the claims of PG&E and SCE. It is quite possible
that the culmination of stranded cost recovery and record revenues from
independent generators negate the need to raise consumer rates or
impose an undue burden on taxpayers for a utility bailout.
Market Manipulation:
Proponents of deregulation claim increased demand is the cause of
power shortages. However, the facts disputes. For example, Data from
the California ISO shows power demand during the last six months of
2000 was actually lower in four of those months--July, August, October
and December--than in the same period in 1999. Demand was only slightly
above 1998 levels. <SUP>12</SUP> In addition, ``there have been
blackouts when demand was less than 30,000 megawatts, approximately
15,600 megawatts less demand than the peak amount of electricity needed
in California in the summer.'' <SUP>13</SUP>
In addition to need for more scrutiny for utility bankruptcy
claims, I also think Congress needs to exercise oversight on claims of
market manipulation. Many critics of California's energy suppliers
argue that suppliers are deliberately withholding generation to
manipulate market prices. While the Federal Energy Regulatory
Commission (FERC) recently released a study which failed to document
collusion, other independent investigations are coming to opposite
conclusions. Personally, I am skeptical whether the methodology used by
FERC, which included phone calls, only three visits to plants in
California, and visits to company headquarters in Texas, was rigorous
enough to reach a final conclusion about market manipulation.
An independent analysis of the potential market manipulation
coauthored by an MIT Economics Professor concluded that there is
considerable empirical evidence to support a presumption that high
prices experienced in the summer of 2000 reflect a withholding of
supplies from the market by suppliers. <SUP>14</SUP> The Wall Street
Journal also reported that a Stanford economics professor who is a
member of the Independent System Operators market-monitoring committee
suspects market manipulation. <SUP>15</SUP>
Last month, the California Independent Systems Operator (ISO)
reported 30 unplanned shutdowns. I recognize that all plants have to
perform maintenance, and that a substantial amount of maintenance was
deferred. However, in other deregulated wholesale markets, including
New England, there is a documented increase in unscheduled maintenance.
Based on New England ISO data, Synapse Energy Economics found that
following deregulation, the average amount of generating capacity out
of service each weekday increased by 47%. The same study indicates that
forced steam plant outages, which account for a substantial amount of
New England's power supply, doubled following deregulation. It
shouldn't then be surprising that wholesale spot market rates reached
all time highs following deregulation. <SUP>16</SUP>
Whether energy providers are deliberately manipulating the market
or not, no one can dispute that in a deregulated market, generators
have no duty to serve consumers. They also have no mandate to keep
adequate resources in reserve. According to the California Energy
Commission, the California Energy Grid typically had between 15 to 20%
of excess capacity. Commission analysts project that a deregulated
market will only result in a reserve margin of 7%. <SUP>17</SUP>
I support a wholesale energy market which prices power at cost,
with a reasonable return margin, and requires energy producers to keep
excess generation in reserve. Economics 101 will tell you that
deregulation will not accomplish these goals. Under a deregulated
system, what incentive exists to build excess generation to hold in
reserve? When supplies are tight, prices go up as do profits. No
rational executive would then build reserve generation to drive prices
and profits down. That's heresy to free market ideologues.
Environmental Restrictions:
Several weeks ago as I was traveling through my district I listened
into a local talk radio program. The host kept asserting that
environmental extremists were responsible for a power shortage in
California by opposing new construction of power plants and imposing
air quality standards on existing plants. I can only assume the talk
show host was referencing plant siting processes and clean air
requirements. While this makes for sensational talk show banter, it
does not reflect reality.
Take for instance the comments of major energy producers in
California. In a January 25th Los Angeles Times article, the spokesman
for a California energy marketer, Reliant Energy, stated that claims
air quality restrictions were holding back output were ``absolutely
false.'' In reality, only 100 megawatts of generation from a city-owned
utility in Glendale, California was curtailed due to air quality
concerns. The city utility still had plenty of power available to serve
its customers and transmission constraints limited their ability to
ship extra megawatts to Northern California. <SUP>18</SUP>
Critics of government regulation also point to long citing
processes and opposition by environmental and community organizations
to new plants as inhibitors to new energy generation. In the Coyote
Valley, south of San Jose, the Sierra Club, American Lung Association,
the NAACP, and Chamber of Commerce all supported the construction of a
600 megawatt Metcalf Energy Center. It was not environmentalists who
opposed this site, it was Cisco Systems and the San Jose City Council.
<SUP>19</SUP> California has 6,278 MW of new generation approved and
ready for distribution by 2001, with an additional 6,734 MW currently
under consideration. The price signals have already been sent. What's
the use in further gouging consumers?
The bottom line is that there are a lot of problems with the
California deregulation framework. Environmental opposition is not one
of them.
California Is An Anomaly:
To date twenty-three state legislatures have approved some form of
wholesale and/or retail deregulation. <SUP>20</SUP> Pennsylvania and
Massachusetts are often pointed to as success stories for deregulation.
The Pennsylvania plan is geared more towards retail deregulation than
wholesale deregulation. The plan does not require generators to sell
assets, allows long-term contracting, and freezes consumer rates. The
highly acclaimed consumer choice program has only resulted in 11
percent of Pennsylvania consumers choosing a different energy provider.
<SUP>21</SUP> The Pennsylvania plan also required consumers to pay
utilities around $10 billion in stranded costs and capped residential
retail rates for at least 10 years. That's not deregulation. Like San
Diego, it is likely prices will spike when the caps are withdrawn.
Massachusetts has also deregulated its electricity system, but high
prices promoted FERC to impose rate caps for the New York and New
England grid last year. <SUP>22</SUP> Interestingly, Massachusetts
consumers are moving towards municipal aggregation in an effort to have
more control over their energy supply and price. <SUP>23</SUP>
We all agree there are better models for deregulation than
California. However, if every deregulated state imposes rate freezes
for consumers and other regulations to make the ``market'' work, I
wonder, why deregulate in the first place?
This fundamental question might explain why several states,
including Idaho and Utah have put their deregulation plans on hold. The
promise of lower and more reliable energy from deregulation has yet to
be realized. Instead, consumers and energy companies outside of
deregulated states are beginning to feel the impact of volatile energy
markets though higher energy costs and difficulty attracting capital
for new investments.
Future:
Last month I attended the Western Governors Association meeting on
the West Coast energy crisis. Eight of eleven Western Governors
advocated for a short-term return to cost plus energy rates until the
West Coast energy markets returned to normal. Many of the panelists,
including FERC Chairman Curt Hebert and executives from Enron, Dynergy,
and Edison Electric adamantly opposed these rate caps seeing them as
the cause instead of the cure to these prices. Let's be honest here for
a minute. Everyone in this room knows that the exorbitant increases in
energy will negatively impact consumers, small business, and big
industry. Politicians will make accommodations to protect those
interests. So in California, the state is bailing out utilities by
entering into long-term contracts with marketers. In the Northwest,
local utilities and federal power marketing agencies are paying
industry to not use power. While folks are saying let the free market
work what I see is a privatization of the profits and a socialization
of the risks. Energy generators continue to profit from the volatility
and uncertainty of the wholesale market while taxpayers and ratepayers
bail out business interests. Is this really the free market working?
For years the Northwest and California have had a symbiotic
relationship which has minimized the need to overbuild the energy
infrastructure. In cold winter months, the Pacific Northwest has
imported California power while returning the favor as California's
temperature rises in the summer. When California's markets went
berserk, the Pacific Northwest had to purchase power in that inflated
market. Utilities in Washington and Oregon have already raised rates
between 15 and 50%. Given a drought and federally imposed salmon
recovery constraints, the Bonneville Power Administration is proposing
between and 60 and 160% rate increase. This is in addition to what has
already been approved. While I recognize that Northwest energy rates
are some of the lowest in the county, a doubling of rates in a two year
time frame is crippling.
The California crisis is clearly affecting Washington, Oregon,
Montana, Idaho, Arizona, and New Mexico. Policymakers in Congress and
the Administration can not continue to sit idle while businesses are
losing millions of dollars in revenues and consumers are experiencing
financial distress caused by increased energy costs.
WHAT IS THE SOLUTION?
Let me briefly touch on what will not solve the energy crisis in
the West. I find it totally disingenuous and incredibly insulting that
Secretary Norton and others are using the West Coast energy crisis as
an excuse to develop oil in the Arctic National Wildlife Refuge. There
is absolutely no correlation.
Drilling in general will not solve the crisis, which is not
fundamentally about demand.
So what is the solution?
I have introduced legislation, HR 264, to repeal FERC orders 888
and 889. This would return the U.S. to the pre-1992 system of regulated
utility monopolies and cost-based-plus pricing. Support is building for
re-regulation, which is the best long-term solution. To those who say
we're already too far down the deregulation road, I would offer the
analogy provide by Jude Noland in a recent column in the newsletter
Clearing Up, ``That's like saying you can't turn around when you come
to a `road-closed--bridge out' sign on the highway.''
I would urge my colleagues to support HR 264.
If Congress is not ready to admit energy deregulation was a
mistake, there other short-term and long-term steps that can be taken
to mitigate the unfolding disaster.
First, temporary price caps must be imposed in the West. Despite
President Bush's rhetoric about the need for California to solve its
own problems, temporary price caps can only be imposed by his
Administration through FERC. FERC Commissioner William Massey supports
price caps and has reminded his colleagues, so far without success,
that FERC has a statutory obligation to ensure prices are ``just and
reasonable.'' Prices should be based on the cost of generation, plus a
reasonable profit. Profits made through unreasonable pricing should be
refunded to ratepayers.
Second, we must dramatically expand federal investment in
alternative and renewable energy. My region is already contributing to
this effort. The Bonneville Power Administration just announced a five-
year, $200 million investment in conservation and renewable energy
efforts. Solar and wind generation, fuel cell technology, and biomass
all have the potential to produce vast amounts of clean, reliable,
affordable electricity. Congress should mandate a certain percentage of
electricity generation come from renewable sources.
Third, conservation efforts must be expanded. Oregonians have
already gotten price signals and are trying to do our share.
Consumption in Oregon and Washington declined by 2-4 percent in
December and January. Even Californians cut energy usage by 8 percent
last month. The conservation effort should also include increasing CAFE
standards.
Fourth, Congress must reinstate the ban on Alaskan oil exports. I
have introduced legislation, H.R. 660, with Representative Hooley to do
just that.
Fifth, Congress must expand assistance for those who have been
hardest hit by volatility in energy markets. This should include
increased funding for LIHEAP, the Weatherization Assistance Program,
and the State Energy Program.
Sixth, Congress should impose a Windfall Profits Tax on energy
companies whose rates are found not to be ``just and reasonable.'' This
would remove the incentive for market manipulation.
Finally, Congress should create incentives and/or remove barriers
to promote public and municipal power. When much of California was
suffering through rolling blackouts, the 30 percent of Californians
with municipal power were not hurt. In fact, the public power agency in
Los Angeles had a surplus of power to sell. While rates in San Diego
soared to $138.50, prices in L.A. were around $50 a month. Government
is often demonized, but energy generation and distribution is one
activity public agencies in California have done with more reliability
and at a lower cost than the private market.
Again, I appreciate the opportunity to share my views with you. I
would be happy to answer any questions you might have.
Endnotes
<SUP>1</SUP> Roosevelt, Franklin. Looking Forward. The John Day
Company. New York. 1933. Pages 148-149.
<SUP>2</SUP> Higley, Charlie. ``Disastrous Deregulation.'' Public
Citizen. December 2000. www.citizen.org
<SUP>3</SUP> Public Citizen. ``Billion-Dollar Bailout Would Still
Allow Profiteering Power Producers to Call the Shots.'' January 24,
2001. www.citizen.org
<SUP>4</SUP> U.S. Department of Agriculture, Office of the Chief
Economist. Electric Utility Deregulation: Rural Effects. January 1999.
<SUP>5</SUP> The Utility Reform Network. ``Cooking the Books.''
October 18, 2000. www.turn.org
<SUP>6</SUP> ``Why San Diego, Where Rates Rose First, No Longer
Conserves Energy.'' The New York Times. January 31, 2001.
www.nytimes.com
<SUP>7</SUP> Hauter, Wenonah and Tyson Slocum. ``It's the Greed
Stupid! Debunking Ten Myths of Utility Deregulation.'' Public Citizen.
January 2001. www.citizen.org
<SUP>8</SUP> California Energy Commission. ``Electric Divestiture
in California.'' December 29, 1999. www.energy.ca.gov
<SUP>9</SUP> ``Review of PG&E Company Financial Condition for the
California Public Utilities Commission.'' Barrington-Wellesley Group.
January 30, 2001. ``Report to California Public Utilities Commission.''
KPMG. January 29, 2001.
<SUP>10</SUP> Ibid.
<SUP>11</SUP> www.latimes.com/business/reports/power/
lat__profits001209.htm
<SUP>12</SUP> Public Citizen. ``The Facts Are In: Electricity
Demand in California Was Lower Four of Past Six Months Than in 1999.''
January 19, 2001. www.citizen.org
<SUP>13</SUP> Hauter, Wenonah and Tyson Slocum. ``It's the Greed
Stupid! Debunking Ten Myths of Utility Deregulation.'' Public Citizen.
January 2001. www.citizen.org
<SUP>14</SUP> Joskow, Paul and Edward Kahn. ``A Quantitative
Analysis of Pricing Behavior in California's Wholesale Electricity
Market During the Summer 2000.'' Http://web.mit.edu/pjoskow
<SUP>15</SUP> ``For Power Suppliers, the California Market Loses
Its Golden Glow.'' The Wall Street Journal. January 25, 2001.
<SUP>16</SUP> Synapse Energy Economics for the Union of Concerned
Scientists. ``Generator Outage Increases.'' January 7, 2001.
<SUP>17</SUP> California Energy Commission. ``Summer of 2001
Forecasted Electricity Demand and Supplies.'' November 20, 2000.
<SUP>18</SUP> ``Bush's Idea of Easing Smog Rules Won't Help,
Experts Say.'' The Los Angeles Times. January 25, 2001.
<SUP>19</SUP> ``Turning on the Juices.'' The San Francisco
Chronicle, web edition. January 30, 2001.
<SUP>20</SUP> www.eia.doe.gov/cneaf/electricity/chg__str/
regmap.html
<SUP>21</SUP> http://puc.paonline.com
<SUP>22</SUP> www.state.ma.us/dpu/restruct/competition/
index.htm#BACKGROUND
<SUP>23</SUP> www.appa.org
______
Prepared Statement of Hon. Richard A. Gephardt, Democratic Leader and
Hon. Martin Frost, Chairman, Democratic Caucus
We want to thank the Committee on Energy and Commerce and the
Subcommittee on Energy and Power for calling this hearing today. Since
early 2000, we have been reminded that unstable energy prices and
supplies pose a tremendous threat to even a strong economy. The
situation in California and the sharp rise in home heating costs this
winter, underscore that energy is one of the most important issues
facing the Congress this year. High prices and unreliable supplies have
an immediate affect on the quality of life of every family and the
success of every business. Our goal should be to attack this problem on
all fronts, and to do so in a manner that provides the most help to
consumers today. The energy proposals put forward by the Bush
Administration fail on both points.
We cannot endorse an energy policy that relies solely on drilling
in the Artic National Wildlife Refuge as the answer to all that ails
us. We cannot endorse an energy policy that ignores conservation,
shortchanges research and development, and limits the funds for
weatherization and low-income energy assistance. We hope we can work
together, Democrats and Republicans, North and South, East and West, to
forge a policy that will reflect national realities in the 21st
Century.
The Democratic Caucus Energy Task Force will work in tandem with
and in cooperation with our Democratic colleagues on this Committee and
the other committees with jurisdiction over the various components of
energy policy. It is also our hope to work with Vice President Cheney
and other Republican leaders to find common ground on energy policy to
benefit American families.
We recognize that our current energy situation is the result of a
myriad of interconnecting factors that cannot be resolved with a quick
fix. However, we do believe there are short-term solutions that can
help consumers in the months ahead.
It is for that reason we must seriously question the priorities of
the new Administration when their budget affectively cuts the
Department of Energy's (DOE) non-defense programs over ten percent.
During the Fall campaign, President Bush called for a doubling of funds
for the low income weatherization program. His budget unfortunately
falls $40 million short of that goal in 2002 alone--and $450 million
short over ten years. In fact, the Bush plan simply restores the
program to the level it was at under the Clinton Administration, before
it was severely cut when Republicans took control of Congress in 1995.
Absent these shortsighted cuts, DOE has estimated that an additional
250,000 homes would be weatherized today. These 250,000 families--who
get nothing under the Bush tax plan--would be saving hundreds of
dollars per family per year.
Despite his campaign statements in support of the LIHEAP program,
that helps the low-income families pay their heating and cooling bills,
the Bush Budget is silent on LIHEAP funding. The only reference to
LIHEAP in the budget notes how LIHEAP funds can be diverted to the
weatherization program. It raises the question whether the
Administration plans to pay for its increase in weatherization at the
expense of LIHEAP. Today, despite record high prices and recent winter
storms, fewer than one in three eligible families get LIHEAP assistance
because the program is not fully funded.
In this regard, we encourage this Subcommittee to take up and pass
H.R. 683, the Emergency Energy Response Act of 2001, which was
introduced by Congressman Markey and and Congressman Frost and which is
supported by a wide range of Members of the Democratic Caucus. This
legislation substantially increases funding for LIHEAP and
weatherization, increases funding for state energy programs, requires
federal facility managers to immediately evaluate opportunities to
increase energy efficiency and installation of renewable energy
projects, and which strengthens the Federal Energy Management Program,
which promotes greater energy efficiency in the federal government's
use of energy. This is a constructive first step and we urge to act on
it soon.
We believe the Congress must address infrastructure deficiencies,
the new relationships between the states and the federal government,
tax policies that can encourage production and construction of new
facilities to produce energy, policies that can reduce the demand for
oil, as well as how we can ensure an adequate supply of fuels to
produce the energy this country needs.
For example, natural gas is the fuel of choice for most new
electricity generation plants coming on line or in the planning stages.
Reserves of this fuel are all but depleted, but at the same time there
is an abundant supply waiting to be tapped. In the vicinity of Prudhoe
Bay on the Alaskan North Slope there is an estimated 32 to 38 trillion
cubic feet of natural gas ready for development--all in an area that
does not compromise the environment. While the infrastructure to bring
this fuel south has yet to be put into place, this is an area well
worth exploring considering that the U.S Geological Survey has
estimated that with additional exploration, the potential could be
double the current estimate.
The Bush budget is silent on improving the integrity of our
pipeline systems, other than to propose to continue to charge pipeline
owners tens of millions per year to cover the cost of an inadequate
federal safety inspection system. Pipeline accidents killed 17 people
last year. These mishaps contributed to major energy supply disruptions
in multiple regions of the country. This failed safety system costs
money and costs lives.
President Bush campaigned as a supporter of conservation and
renewable energy, but his energy budget will compel major cuts in these
programs. In fact, the Bush budget states that any increase in solar
and renewable programs will only come if drilling is allowed the Arctic
Wilderness. Even if this controversial drilling proposal became law,
solar and renewable programs would have to wait another three years
before getting even a dime even by the Administration's own estimate.
According to the Rocky Mountain Institute, since the 1970's,
America has saved more than twice as much energy through conservation
and improved efficiency than was produced from new sources. Despite
that fact, the Bush Administration's ``comprehensive energy policy''
described in their budget does not even use the words ``conservation''
or ``efficiency.'' This is a particularly glaring omission when many
meaningful conservation and efficiency measures can be put in place as
quickly as it takes to change a light bulb. We do not need to tell the
consumers in California--or in other parts of the Country facing tight
energy supplies and rolling blackouts this Summer--there is nothing we
can do to help when we could be taking the lead on making our economy
more energy efficient today.
This is just the beginning of a vigorous debate on energy policy.
Democrats intend to join in a constructive dialogue to find real
solutions to our energy problems. Solutions that help working families
and truly contribute to making us energy independent. In the months
ahead, we look forward to working with this Subcommittee and the other
Committees of the House to formulate a policy that will benefit all
Americans.
______
Prepared Statement of Hon. Duncan Hunter, a Representative in Congress
from the State of California
Chairman Barton, members of the Subcommittee, I would like to
extend my appreciation for the opportunity to be here today to provide
testimony on the electricity crisis currently impacting my home state
of California. Further, I thank you for your continued willingness to
examine this matter and I know that you share the view that this crisis
must be given every priority if we are expected to help reestablish a
properly functioning power market in California.
Mr. Chairman, I believe that one of the prevailing themes that the
Subcommittee will receive today is that the electricity problem in
California is an emergency, and it is a crisis that is bigger in
proportion than any natural disaster our State has ever experienced.
The startling element associated with this problem is the staggering
amount of life savings and business capital that is gone forever. This
is money that could go to mortgage payments, to educate children, and
in the case of small businesses, money that has already left our local
economies that may have otherwise served to further stimulate our
State's financial growth.As you know, one of the central issues to this
dilemma is the inability to establish enough power generation in
California to meet our ever-increasing electricity needs. To help
remedy this situation, I am introducing separate pieces of legislation
that would provide the authority to expedite and expand the siting and
operations of electricity producing facilities of all sizes. More
precisely, my legislation would provide the following:
1) the statutory authority necessary for the President to suspend all
applicable siting and emissions compliance requirements for the
purpose of establishing new electricity generation capacity in
any State experiencing a power crisis; and
2) the ability for any individual or business, during designated times
of emergency, to operate any independent source of generation,
with any sort of fuel available, until the emergency has
subsided.
Mr. Chairman, I recognize the profound and ambitious nature of
these proposals, but I believe that this level of action is more than
warranted. In the absence of a properly functioning market, which has
allowed for the major power generators selling into California to
establish a monopoly that is every bit as effective as anything John D.
Rockefeller could have conceived, our cities, businesses and private
citizens must have the ability to develop electricity independence.
In closing, I would implore this Subcommittee to consider all
proposals designed to establish and expand all possible sources of
electricity generation. Our consumers cannot, under any circumstances,
be expected to be held hostage by an electricity market that has
witnessed price increases which have exceeded 9,000 percent in a matter
of hours.
Thank you, Mr. Chairman, and members of this Subcommittee, for the
opportunity to provide this testimony. I am confident that if we pursue
this matter in an aggressive and expedited manner, we can provide
California with the resources necessary to help stabilize its
electricity industry before the existing crisis deteriorates any
further.
______
Prepared Statement of Hon. John B. Larson, a Representative in Congress
from the State of Connecticut
Mr. Chairman, I would like to thank you for calling this hearing to
allow members to discuss the current California energy crisis and other
issues generally related to energy efficiency. I am sure that
throughout the day you will be hearing testimony from many Members
about the problems in California at this time and the desperate
situation individuals and business have been subjected to. However, I
hope to bring before the Committee and my colleagues from the western
United States a potential solution to many of the current energy
problems facing California and its neighboring states.
The problems in California did not develop in a vacuum. Ever since
the people of the First District of Connecticut first sent me to
Congress I have been fighting with the help of many of my colleagues to
begin a serious debate about energy policy reform in this country.
Since I was sent here in 1998, energy prices in New England have risen
over 200 percent for home heating oil, and natural gas, diesel, and
gasoline have also all seen significant increases. That is why we have
been fighting so hard for programs like the Strategic Home Heating Oil
Reserve now established in New England to head off emergency in the
heating oil market, and increased LIHEAP assistance for eligible
individuals.
Fortunately for Connecticut's consumers and businesses and unlike
California, electricity prices have remained stable during this time
because Connecticut allows for long-term contract purchasing of power
under its deregulated electricity market, and provides incentives that
make generating electricity more attractive than attempting to purchase
it on the open spot market. However, it is only a matter of time before
the overall inflation of energy costs, particularly those related to
electricity generation, will catch up with the northeast as well. As
the California situation is reminding us, there are no real short-term
solutions for long-term problems.
That is why I introduced HR 5585, the Energy Independence Act,
toward the end of the 106th Congress, to begin to address these issues
and the fundamental weaknesses beginning to show in America's energy
infrastructure. I am working to reintroduce the legislation targeting
development of fuel cell technology again soon, and I believe that this
technology and my legislation could provide immediate and beneficial
effects improving the energy and environmental outlook of California
and the United States as a whole.
Specifically, my legislation would invest approximately \1/60\ of
the nation's total yearly expenditures in 1999 and \1/120\th of 2000's
expenditures on foreign oil to develop and demonstrate fuel cell
technology that can power our homes, businesses, and vehicles over the
next five years. My bill calls for a $1 billion 5-year investment that
should eliminate our reliance on foreign energy sources by 2010 and
improve world environmental conditions by reducing overall consumption
of fossil fuels and the harmful chemical emissions they produce. It
authorizes a federal purchase programs for commercially available
stationary fuel cell power systems and demonstrations of new Proton
Exchange Membrane (PEM) technology for residential, commercial and
transportation applications including transit vehicles. In addition, it
would establish a grant program for states and local municipalities to
help local communities incorporate this new technology into their
overall energy portfolios.
I believe that government action is necessary at the state and
federal level to help defray the high introductory costs of fuel cell
technology at this time and accelerate their commercialization. A
federal tax credit, such as the one proposed by my colleague Nancy
Johnson, as well as grant programs for federal facilities and
municipalities will increase volume and thereby reduce overall costs,
making the technology more available so its many benefits can be
enjoyed by the general public. State and federal government purchases
of fuel cells represent another means to deploy the technology while
enhancing public safety and ensuring critical energy loads are served
with reliable, clean energy sources. The government can also help to
eliminate barriers to distributed generation so fuel cell technology
can compete with existing power generating sources.
The government must play a role in this transition for several
reasons. First and foremost, it will provide for the security of the
country in both economic and military terms by eliminating our reliance
on foreign energy sources. Second, we have a responsibility to our
seniors and to other people living on fixed incomes to see that they
have opportunity to live within their means without being forced to
choose between putting food on their tables, gas in their cars, buying
oil to heat their homes, or buying electricity to power their homes.
Third, there is the opportunity within the government's infrastructure
to most easily begin a widespread integration of this technology.
Fourth, the spread and use of this technology has the opportunity to
create a contribution in economic growth and in job creation every bit
as significant as the development of the high tech industry during the
last decade. Further, as government regulations increasingly call for
stricter clean air and other pollutions limits, fuel cells can provide
an effective way for states and communities to meet these new
environmental challenges.
Many people would argue that the problems in California stem from
underestimating projected energy demands and a deregulation program
that failed because it capped retail sales to consumers and prevented
long term contacting. Regardless of the cause, California must increase
its power generating capability by thousands of megawatts, an increase
it is expected to take 1-3 years to deploy, select, and become
operational.
There are clear benefits in using fuel cell technology to address
the California energy situation that can also be applied in other areas
throughout the country. First, as a distributed generation technology,
fuel cells address the immediate need for secure and adequate energy
supplies, while reducing grid demand and increasing grid flexibility.
Fuel cells can be used by electric utilities to fill load pockets when
and where new large-scale power plants are impractical or cannot be
sited. Fuel cell systems also avoid the costly and environmentally
problematic installation of transmission and distribution systems.
Commercially manufactured fuel cell power plants can be sited in a few
months period of time and can provide continuous, reliable power
without the need to roll back existing environmental requirements.
Second, Fuel cell power plants provide a constant source of power
that can be used for base load applications. Unlike other
environmentally favorable solutions, fuel cells can be used as a
continuous source of base power--independent of time-of-day or
weather--for critical facilities, thereby offloading current strains on
existing demand.
Third, fuel cells represent an environmentally favorable solution,
with near-zero emissions--positively impacting the State's air quality
objectives, particularly as compared to less efficient, polluting
alternatives. When operating at its rated power, a single 200 kW PC25
fuel cell power plant, manufactured by International Fuel Cells (IFC)
and currently the only commercially available unit, eliminates an
average of more than 40,000 pounds of air pollutants including
NO<INF>X</INF> and SO<INF>X</INF> and two million pounds of
CO<INF>2</INF> emissions per year otherwise emitted by typical US
combustion-based generators.
Fourth, fuel cells are a highly efficient technology that uses an
electro-chemical reaction to generate electricity and are inherently
more efficient than combustion-based systems. In the electricity-only
mode of operation, the IFC PC25 unit achieves approximately 40 percent
efficiency. When the waste heat from the fuel cell is utilized, the
system's efficiency reaches 87 percent. In addition, fuel cells can be
installed at the point of use thus eliminating transmission line losses
and enhancing their overall efficiency, providing power at the point-
of-use, thereby alleviating the load on the existing transmission and
distribution infrastructure, and eliminating or minimizing the need for
additional investment in the existing transmission and distribution
network.
Fifth, the use of fuel cells helps to diversify California's and
the country's energy market. Fuel cells can operate with a variety of
fuel sources, but most commonly use natural gas. For example, fuel cell
systems have been developed that use anaerobic digester gases from
wastewater treatment facilities as their source of energy. These
applications are particularly significant since they avoid the flaring
of methane--a potent greenhouse gas that contributes to global
warming--and the need to use a fossil fuel energy source. This
employment of fuel cell technology is currently in use at the Rancho
Las Virgenes Composting facility in Calabasas, California outside of
Los Angeles, the first installation of its kind in California and the
fourth in the United States. Similar systems also manufactured by
International Fuel Cells in South Windsor, Connecticut, are also
operating in Germany and Japan. A total of Eight PC25 units are
currently operating in California, including power plants at a hospital
in Riverside, a hotel in Irvine, a jail in Santa Barbara, and the South
Coast Air Quality Management District Headquarters outside Los Angeles
in addition to the one in Calabasas.
Finally, the compact size, low noise and near zero emissions allows
a fuel cell system to be readily absorbed into communities and
neighborhoods. Unlike many other forms of power generation, fuel cell
power plants are good neighbors to concerned citizens. For example, a
PC25 installation in New York City is located inside the Conde Nast
skyscraper at 4 Times Square, where it provides 5 percent of the
building's electrical needs and the waste heat is used to run the air
conditioning. The fuel cell system also provides critical backup power
in case the grid fails.
While fuel cells cannot supply enough power in the short term to
solve the entire power supply needs of California, they can be deployed
strategically to ensure that critical services and operations have a
secure, reliable, efficient and clean source of energy. High priority
should be given to the installation of fuel cells in assured power
applications involving emergency services, public safety, health care,
communications and data processing operations. Leading industry
officials have assured me that 20 to 40 megawatts of new fuel cell
power supply could be available to California for such applications in
the next 18-24 months.
In conclusion, I believe that implementation of fuel cell
technology could significantly improve California's immediate energy
needs and their extraordinary efficiency would improve the overall
national energy portfolio. This technology has been with us since it
was first used to power the Gemini and Apollo spacecraft, and is still
powering NASA's fleet of space shuttles. It has finally matured to a
point where stationary power plants are providing reliable commercial
power today and is prepared to demonstrate its advantages to the
general public in clean, quiet, and efficient residential, bus, and car
applications.
Fuel cell technology presents us with an extraordinary opportunity,
at a critical time in this country's development. I believe we stand
now on a fundamental crossroad in this country where we have the
ability to provide for the economic and national security of the nation
by integrating this new technology into our economy. As you move
forward with potentially compatible programs under your jurisdiction, I
urge you to consider integrating fuel cell technology to meet your
energy and energy efficiency requirements. Your leadership at this
critical juncture in our nation's history can profoundly improve the
security and independence of every American, and provide a safer, more
secure, more productive, and cleaner environment for generations to
come. We must not allow this opportunity to be lost.
Thank you again Mr. Chairman and members of the Subcommittee for
you efforts in this important area.
______
Prepared Statement of Hon. Bill Luther, a Representative in Congress
from the State of Minnesota
Thank you Mr. Chairman for holding this hearing today so we can all
better understand and learn from the events in California over the past
few months. I am pleased that there are so many members from the West
Coast testifying today and offering their unique perspectives on the
issue. I come from Minnesota, a state that has not moved toward
restructuring legislation at the state level. This committee would be
well served to continue these types of hearings in an attempt to
analyze what some states did better than others as they moved toward a
restructured market. This type of analysis should prove helpful as this
committee attempts to produce a comprehensive national energy policy.
Thank you Mr. Chairman, I look forward to the testimony.
______
Prepared Statement of Hon. Butch Otter, a Representative in Congress
from the State of Indiana
Thank you, Chairman Barton and Ranking Member Boucher, for inviting
me to testify today before the Energy and Commerce subcommittee about
the growing energy crisis we now face in the West. Let me say it
again--this is an energy crisis in the West--not just in California.
While almost all of the media and legislative attention has focused on
California citizens' inability to meet their growing demand for
electricity, I am here representing 600,000 people in an area of Idaho
that is on the forefront of this growing crisis. And, it's time for
straight talk.
I read recently that California's three major electric utilities
have accumulated debts totaling $1 billion. This debt includes millions
of dollars owed by California's utilities to Idaho Power Company, and
other major power producers in the Pacific Northwest. That is money
that will undoubtedly be made up through huge rate increases to
families, rural towns, farmers, and industries that provide jobs to
thousands of Idaho citizens. At this point, Idaho power users could
face rate increases from 24 to 55 percent in the next few months.
Farmers, already suffering from record low agricultural prices for
their products, will also face additional costs to pump irrigation
water this spring and summer. Mills and factories have already been
forced to shut down or lay off workers because of they high electricity
costs.
Meanwhile, water and snowpack levels in Pacific Northwest
reservoirs--the same water that is necessary to irrigate crops, improve
endangered fish runs, provide for recreation, and which generates
electricity--is at a dangerously low level. Federal dams are now
spilling water that should be available for the region's needs later.
Mr. Chairman, the current drought and power crisis have
demonstrated the importance of hydropower to the energy needs of the
west. Hydropower is cheap, clean and renewable, all elements we need in
our 21st century needs. California receives 24 percent of its energy
capacity from dams. In the entire West more than 25,000 Megawatts (MW)
of capacity are supplied by non-federal facilities. These hydropower
supplies, however, are threatened by the Federal Energy Regulatory
Committee's (FERC) stringent re-licensing process.
In 1986 Congress mandated that FERC give ``equal consideration'' to
environmental and economic factors during relicensing. Unfortunately,
equal consideration has been interpreted to consider economic factors
last during relicensing. Since 1987 the average FERC relicensing has
caused 10 percent of peak generating capacity to disappear.
I believe that steps must be taken to ease the FERC relicensing
project in order to protect our energy supplies. Mr. Chairman, you and
Mr. Towns deserve to be congratulated for your efforts last Congress to
bring regulatory reform. I look forward to working with you and my
fellow Idahoan Senator Craig to make FERC reform a reality.
FERC reform is good for the environment. Right now every watt of
power lost from hydro projects is replaced by the burning of fossil
fuels. FERC relicensing will enable power producers to make more
extensive use of mitigation banking, enhancing the environment while
protecting energy supplies.
In addition to regulatory streamlining, we must take steps to
expand our hydroelectric capacity. The United States Department of
Energy estimates there are more than 10,000 MW of generating capacity
that can be added at existing dams. Tax credits for producing renewable
electricity and adding generating capacity to dams that lack it will
enable us to meet more of our energy needs in a safe and
environmentally friendly way. Currently Bonneville Power Administration
(BPA) is paying farmers $75 per megawatt hour not to use their electric
pumps. Surely that money would be better spent on generating the extra
power to keep our farms and businesses in operation. Renewable energy
credits could be extended to wind, solar and nuclear plants as well.
All of these additional sources of power will help alleviate the
current crisis, and help build a long-term and stable national energy
policy.
Thank you again Chairman Barton for asking me to testify.
______
Prepared Statement of Hon. Jim Ryun, a Representative in Congress from
the State of Kansas
I want to thank the Chairman and subcommittee members for holding
this important hearing on current energy issues and for providing
members the opportunity to testify on our nation's energy policy. I am
grateful for the opportunity to speak on behalf of my constituents in
the Second District of Kansas and to offer my perspective on our need
for a comprehensive energy policy.
As we all know, this winter season has been especially difficult
for natural gas customers. Senior citizens and others on fixed incomes
simply can not keep up with the cost of rising natural gas bills. For
example, at a January hearing before Kansas lawmakers a seventy-seven
year-old man from my district who suffers from cerebral palsy testified
that he simply could not afford to pay his $636.72 gas bill. Another
constituent gave lawmakers a copy of her January electric and gas bill
totaling $1,785.09. Mr. Chairman, I know these stories are not uncommon
to the rest of the country. They also underscore the vital importance
of the Low-Income Home Energy Assistance Program.
In addition, our nation's farmers are also affected by the impact
of skyrocketing natural gas prices. Farmers will especially feel the
impact this spring when they will have to pay up to one-third more to
fertilize spring crops. The high cost of natural gas has forced several
fertilizer plants to curb production or shut down temporarily.
Fertilizer companies use natural gas to produce ammonia, which is
converted into nitrogen fertilizer. America's farmers are already faced
with low commodity prices. They can not afford to endure high natural
gas prices.
Clearly, a combination of factors has contributed to high natural
gas prices. Increase in demand caused by a hot summer and cold winter
combined with a decrease in drilling as a result of low commodity
prices two years ago contributed substantially to high natural gas
prices.
However, while supply and demand will always control prices, we can
support and promote a national energy policy intended to curtail high
energy costs in the future by increasing supply.
This winter has proven the danger of our heavy reliance on natural
gas. Prices for natural gas have soared faster than any other energy
source. It is vital that we take advantage of additional sources to
supply our energy needs. Clean coal, for example, is certainly a viable
alternative to natural gas for electric generation. A comprehensive
energy policy should include support for clean coal technologies.
In addition, we need an energy plan that promotes domestic oil and
gas production and decreases our dependence on foreign suppliers.
Unfortunately, the energy policy we inherited from the previous
administration failed to reduce our dependence on foreign oil as we
remain 56 percent dependent on foreign sources for our oil supplies.
Clearly, we cannot continue to bow to the demands of the OPEC cartel
and remain subject to oil supply interruptions. That is precisely why
we need to increase exploration of our own domestic resources.
Alaska's Arctic National Wildlife Refuge alone contains at least 16
billion barrels of recoverable oil. Opening this area to oil
exploration, development and production that is done in an
environmentally sensitive manner would greatly increase our domestic
supply and help meet growing demand. In addition, we could increase
domestic production of natural gas by easing restrictions on national
forests and other Federal lands that contain natural gas reserves.
Moreover, we can encourage energy conservation by extending the
wind tax credit to include electricity produced from biomass,
agricultural and animal waste, incremental hydropower, geothermal,
landfill gas and steel cogeneration. We can also explore more
opportunities for nuclear power production as it serves as a one of the
cleanest sources of energy.
I am pleased by efforts made in my state of Kansas to provide
immediate relief to natural gas consumers faced with exorbitant energy
bills. However, we in Congress must provide the leadership in
implementing a long-term energy policy that meets the growing energy
needs of our nation while reducing our dependence on foreign supplies.
I want to thank you, Mr. Chairman, and the Committee for the
opportunity to testify on this very pressing issue and for hearing my
views. I look forward to working with you in the future to promote a
sound energy policy for our nation.
______
Prepared Statement of Hon. Max Sandlin, a Representative in Congress
from the State of Texas
First, I would like to start by thanking Chairman Tauzin and
Subcommittee Chairman Barton and Ranking Member Boucher for calling a
hearing to receive testimony from Members of Congress on current energy
issues. There are few topics of greater importance to my constituent's
than soaring energy prices and the instability of domestic energy
supplies. Although Texas has not experienced the type of energy crisis
now occurring in California, high natural gas prices, combined with a
colder than normal winter, produced steep increases in residential
heating bills--increases that eat up a large share of East Texan's
incomes. I know that several members from the California delegation can
testify with greater certainty as to the true impact of what is now
occurring in their state. Rather than speak to the situation in
California directly, I would like to pull-back, and talk briefly about
what I feel are a few key things Congress can do to promote domestic
energy sources and thus strengthen our economic and energy security.
My district is home to some of the oldest oil and gas production
wells in Texas. In fact, I doubt that there is any part of my nineteen
county district that has not been surveyed, drilled, or plugged for oil
and gas over the last century. As a member of Congress representing an
energy producing part of the country, I look at the problems in
California and throughout the United States as an opportunity to have a
serious discussion on energy issues. It was because of the last energy
shock, a quarter century ago, that Americans were forced to think about
energy as anything but an uninterrupted resource, immune from
political, economic, and natural events. That crisis produced actions
from policymakers, consumers, and energy producers that significantly
altered our nation's energy strategy. This year, as the issue of energy
is once again front and center in America's consciousness, Congress has
an opportunity to realign an energy policy that is adrift and does not
meet our needs.
The United States is a country dependent on fossil fuels and will
be for the foreseeable future. Petroleum and natural gas currently
account for approximately 65 percent of the nation's energy supply and,
in fact, natural gas demand is expected to increase by more than 30
percent over the next decade. Although many want to wish this fact
away, doing so will not improve our current situation, and will
actually cause greater long-term damage.
Another reality is that our dependence on foreign oil imports is
greater than at any time in our history. Foreign oil imports have grown
to 56 percent of crude oil needs, and the Department of Energy projects
our energy dependence will grow in the years to come--reaching 65
percent by 2020. In 1973, foreign oil only accounted for 35 percent of
our needs. We are going in the wrong direction.
As demand for oil and natural gas increases our ability to control
these critical resources is eroded by a failure to strengthen the
domestic energy sector. Although the United States remains the second
or third largest producer of petroleum, it is operating from a mature
resource base that makes the cost of production higher than in
competitor nations. The United States has approximately 600,000 oil
wells in operation today. Nearly 500,000 of those wells produce less
than 3 barrels of oil per day--making our oil the most cost sensitive
and price sensitive oil in the world. (Compare this to Saudi Arabia
where the average oil well produces more than 5,000 barrels of oil per
day!)
What can be done to encourage and strengthen our domestic oil and gas
industry?
We must begin working on ways to draw people back into the domestic
energy sector. Domestic independent oil producers--the producers who
account for 60 percent of oil production in the lower 48 states
onshore, produce two-thirds of our natural gas, and drill 80 percent of
the natural gas wells--are essential to limiting U.S. reliance on
foreign oil and developing domestic natural gas. Unfortunately, foreign
countries that export oil to the U.S. have used crude oil price
volatility to remove ``high costs'' U.S. marginal oil production and
gain a bigger piece of the market share in the U.S. We have the
opportunity to reverse this trend.
Reforming our tax code to provide incentives for domestic
production and exploration will promote our national interests by
removing the barriers to capital access that are causing the mass
exodus of independent producers from the domestic oil and gas industry.
These reforms include:
Marginal Well Production Tax Credit: This credit will allow a $3
barrel tax credit for the first 3 barrels of daily production from an
existing marginal oil well and a $.50 per Mcf tax credit for the first
18Mcf of daily natural gas production from a marginal well. Without
such safety nets, thousands of U.S. well and tens of thousands of U.S.
jobs they support will be lost when prices fall.
Inactive Well Recovery: We should consider providing producers with
a federal income tax exemption for bringing back into production
abandoned, idled, and plugged wells.
Geological and Geophysical Costs: By allowing current expensing of
geological and geophysical costs incurred domestically, domestic
producers can benefit from the same tax incentives for research and
development that we provide to other industries.
Eliminate the Net Income Limitation on Percentage Depletion: Once
wells are plugged and abandoned, access to the remaining resource is
often lost forever. Eliminating the net income limitation on percentage
depletion would encourage producers to keep marginally economic wells
in production and enhance optimum oil and natural gas resource
recovery.
Enhanced Oil Recovery: By expanding the definition of methods
qualifying for the EOR tax credit, we can encourage conservation
measures to expand recovery of existing crude oil reservoirs and
promote new drilling activity.
Tax Treatment of Delay Rentals: We should consider clarifying that
delay rental payments are deductible, at the election of the taxpayer,
as ordinary and necessary business expenses. Given the disagreement
over the legislative history and the likelihood of costly and
unnecessary litigation to resolve the issue, clarification would
eliminate administrative and compliance burdens on taxpayers and the
IRS.
These bipartisan proposals to modify the tax code can augment the
inflow of capital and reinvestment of cash flow crucial to the
expansion of this industry. Independent producers are still recovering
from the low oil prices of 1998-99 that resulted in the loss of 65,000
jobs and a 10 percent decline of domestic oil production. Now is the
time to replace counterproductive tax actions with policies that will
encourage production and shield the industry when prices again decline.
Mr. Chairman, I am hopeful that Congress will take up these pro-
growth tax reform proposals in the 107th Congress. In past
Administrations, Democratic and Republican, various public officials
have taken an ad hoc pledge to pursue energy independence for the
nation, but this commitment quickly fades into complacency once the
crisis-of-the-moment begins to subside. We must not allow this to
happen again. We have an opportunity to implement policies that would
encourage, rather than discourage, U.S. oil and gas production and make
our domestic energy industry more efficient. I sincerely hope that
individuals of good faith can work together in implementing significant
parts of this agenda.
Mr. Chairman, thank you for the opportunity to comment today on
these important matters and I look forward to working with you and
other Members' on these issues.
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