<DOC>
[108th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:86052.wais]
COMPREHENSIVE NATIONAL ENERGY POLICY
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON ENERGY AND AIR QUALITY
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
----------
MARCH 5, 12, and 13, 2003
----------
Serial No. 108-7
----------
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
86-052 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800
Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001
COMPREHENSIVE NATIONAL ENERGY POLICY
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON ENERGY AND AIR QUALITY
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MARCH 5, 12, and 13, 2003
__________
Serial No. 108-7
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
------------------------------
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
RICHARD BURR, North Carolina BART GORDON, Tennessee
Vice Chairman PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming BART STUPAK, Michigan
JOHN SHIMKUS, Illinois ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri LOIS CAPPS, California
STEVE BUYER, Indiana MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon HILDA L. SOLIS, California
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
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
RICHARD BURR, North Carolina (Ranking Member)
ED WHITFIELD, Kentucky ALBERT R. WYNN, Maryland
CHARLIE NORWOOD, Georgia THOMAS H. ALLEN, Maine
JOHN SHIMKUS, Illinois HENRY A. WAXMAN, California
Vice Chairman EDWARD J. MARKEY, Massachusetts
HEATHER WILSON, New Mexico RALPH M. HALL, Texas
JOHN SHADEGG, Arizona FRANK PALLONE, Jr., New Jersey
CHARLES W. ``CHIP'' PICKERING, SHERROD BROWN, Ohio
Mississippi BOBBY L. RUSH, Illinois
VITO FOSSELLA, New York KAREN McCARTHY, Missouri
STEVE BUYER, Indiana TED STRICKLAND, Ohio
GEORGE RADANOVICH, California LOIS CAPPS, California
MARY BONO, California MIKE DOYLE, Pennsylvania
GREG WALDEN, Oregon CHRIS JOHN, Louisiana
MIKE ROGERS, Michigan JOHN D. DINGELL, Michigan
DARRELL ISSA, California (Ex Officio)
C.L. ``BUTCH'' OTTER, Idaho
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Hearings held:
March 5, 2003................................................ 1
March 12, 2003............................................... 231
March 13, 2003............................................... 295
Testimony of:
Aurilio, Anna, Legislative Director, U.S. Public Interest
Research Group............................................. 124
Benjamin, Jeffrey A., Vice President, Licensing and
Regulatory Affairs, Exelon Nuclear......................... 131
Brownell, Hon. Nora Mead, Commissioner, Federal Energy
Regulatory Commission...................................... 55
Buccino, Sharon, Senior Attorney, Natural Resources Defense
Council.................................................... 419
Douglass, Bill, CEO, Douglass Distributing Company, on Behalf
of the National Association of Convenience Stores and the
Society of Independent Gasoline Marketers of America....... 444
Early, A. Blakeman, Environmental Consultant, American Lung
Association, on Behalf of Northeast States for Coordinated
Air Use Management......................................... 449
English, Glenn, CEO, National Rural Electric Cooperative
Association................................................ 329
Ervin, Sam J., Commissioner, North Carolina Public Utility
Commission................................................. 349
Fertel, Marvin S., Senior Vice President of Business
Operations, Nuclear Energy Institute....................... 117
Gent, Michehl R., President and Chief Executive Officer,
North American Electric Reliability Council................ 389
Kanner, Marty, Coordinator, Consumers for Fair Competition... 410
Keil, Julie, Director of Hydro Licensing and Water Rights,
Portland General Electric.................................. 248
Lyman, Edwin S., President, Nuclear Control Institute........ 136
Masonis, Rob, Director, Northwest Regional Office, American
Rivers..................................................... 255
Massey, Hon. William L., Commissioner, Federal Energy
Regulatory Commission...................................... 47
McSlarrow, Hon. Kyle, Deputy Secretary, U.S. Department of
Energy..................................................... 23
Meserve, Hon. Richard A., Chairman, U.S. Nuclear Regulatory
Commission................................................. 33
Meyer, Alden, Director of Government Relations, Union of
Concerned Scientists....................................... 159
Moore, W. Henson, President and CEO, American Forest & Paper
Association, on Behalf of Electricity Consumers Resource
Council and American Chemistry Council..................... 343
Murphy, Edward, General Manager, Downstream, American
Petroleum Institute........................................ 431
Nadel, Steven, Executive Director, American Council for an
Energy-Efficient Economy................................... 141
Norlander, Gerald A., Executive Director, Public Law Project
of New York, Chairman, National Association of State
Utility Consumer Advocates................................. 398
O'Hagan, Malcolm, President, National Electrical
Manufacturers Association.................................. 149
Olson, Erik D., Senior Attorney, Natural Resources Defense
Council.................................................... 455
Owens, David K., Executive Vice President, Business
Operations Group, Edison Electric Institute................ 308
Robinson, J. Mark, Director, Office of Energy Projects,
Federal Energy Regulatory Commission....................... 242
Schori, Jan, General Manager and CEO, Sacramento Utility
District, on Behalf of Large Public Power Council.......... 316
(iii)
Segal, Scott M., Counsel, Oxygenated Fuels Association....... 465
Slaughter, Bob, President, National Petrochemical & Refiners
Association................................................ 435
Szeptycki, Leon, Eastern Conservation Director and General
Counsel, Trout Unlimited................................... 263
Tezak, Christine L., Electricity Analyst, Washington Research
Group, Schwab Capital Markets, LP.......................... 402
Twitty, John, General Manager, City Utilities of Springfield,
Missouri, on Behalf of American Public Power Association... 319
Walter, Ron, Executive Vice President, Calpine Corporation,
on Behalf of Electric Power Supply Association............. 338
Wood, Hon. Patrick, Chairman, Federal Energy Regulatory
Commission................................................. 38
Additional material submitted for the record:
Dinneen, Bob, President and CEO, Renewable Fuels Association,
prepared statement of...................................... 486
Electricity Consumers Resource Council, supplemental comments 490
Lyondell Chemical Company, prepared statement of............. 491
McSlarrow, Hon. Kyle, Deputy Secretary, U.S. Department of
Energy, response for the record............................ 181
Rathbun, Dennis K., Office of Congressional Affairs, Nuclear
Regulatory Commission, letter dated April 8, 2003,
enclosing response for the record.......................... 193
Tezak, Christine L., Electricity Analyst, Washington Research
Group, Schwab Capital Markets, LP, supplemental testimony
of......................................................... 495
Walter, Ron, Executive Vice President, Calpine Corporation,
on Behalf of Electric Power Supply Association, letter
dated March 25, 2003, enclosing response for the record.... 493
Wood, Hon. Patrick, Chairman, Federal Energy Regulatory
Commission, letter dated March 31, 2003, enclosing response
for the record............................................. 221
(iv)
COMPREHENSIVE NATIONAL ENERGY POLICY
----------
WEDNESDAY, MARCH 5, 2003
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Energy and Air Quality,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2123, Rayburn House Office Building, Hon. Joe Barton
(chairman) presiding.
Members present: Representatives Barton, Cox, Burr,
Whitfield, Norwood, Shimkus, Wilson, Shadegg, Pickering,
Fossella, Buyer, Radanovich, Bono, Walden, Issa, Otter, Tauzin
(ex officio), Boucher, Wynn, Allen, Waxman, Markey, Hall,
Pallone, Brown, McCarthy, Strickland, Capps, Doyle, John, and
Dingell (ex officio).
Staff present: Jason Bentley, majority counsel; Sean
Cunningham, majority counsel; Dwight Cates, professional staff;
Andy Black, policy coordinator; Prter Kielty, legislative
clerk; and Sue Sheridan, minority counsel.
Mr. Barton. The hearing will come to order. We appreciate
everybody's attendance. We want to, before we start the opening
statements, ask for unanimous consent to adopt and enforce a
version of the new Committee Rule 4(e).
Under Committee Rule 4(e), the subcommittee chairman and
the ranking member have the right to, on the opening
statements, allow the chairman and the ranking full committee
member and the subcommittee chairman and the ranking
subcommittee member each get 5 minutes.
All other members get 3 minutes, unless they wish to defer
their 3 minutes, in which case they get an extra 3 minutes on
their question periods, the first question period.
Congressman Boucher and I have, are going to recommend
unanimous consent to adopt a version of that, in that the non-
ranking members can have perhaps a 1-minute opening statement
and they get 2 extra minutes.
Or a 2-minute opening statement and get one extra minute.
So that you can have some opening statement, but the time you
don't use in your opening statement you can have that added to
your time for questions.
Is there an objection to that unanimous consent request?
Hearing none, so ordered. We want to begin today a series of
hearings, which the series is going to be two. So I should say
two hearings, on the energy policy of this country.
I have here, you can't see them all. These are copies of
the 34 hearings we've done on this while I have been
subcommittee chairman of this subcommittee.
So we have done extensive hearings on the general policy.
We have a draft bill out. And today we are going to hear from a
series of individuals representing various groups and also
various agencies of the U.S. Government about this policy.
We're going to hold another hearing next week on Thursday.
I want to thank Chairman Tauzin for his leadership on this
issue. He and I have work with Mr. Boucher and Mr. Dingell for
the last, really you could say the last 4 years, to try to get
such a policy in place.
I also want to thank my good friend, Congressman Rick
Boucher. He has worked tirelessly making sure that the views,
not only of himself, but of his party and his region are fully
aired during these hearings.
And also full committee ranking member Congressman Dingell.
If we look at what is happening in the markets, we see several
things.
Yesterday the spot price for oil in the New York market was
$36 a barrel. Last week natural gas got as high as $12 in Mcf
on the spot market.
We also, and this is just here in the Virginia, Washington,
DC region, saw prices of a $1.65 for regular unleaded self-
service gasoline. And I am told that up in New England last
week a gallon of residential heating oil got as high as a $1.79
a gallon.
These are prices that show that our production in this
country is lagging, so the price signal is going up. The signal
that while we don't have shortages, some of these materials are
getting scarcer and scarcer.
I think this Congress this year needs to enact a
comprehensive energy policy, focusing across the board on all
our energy needs.
Today, we're going to have before us, witnesses from the
administration and key energy regulators to discuss what they
think should be done.
It has been said that Congress does not legislate until
there is a crisis. I don't think we're in a crisis, but I do
believe we need to act in this critical time for both the short
term and the long term.
Some other numbers that indicate why we should begin to
act. Last month the Baker Hughes rig count for oil and gas rigs
in the United States was 854. That is down from last year in
spite of the price signals that I have just talked about.
I have been told that somewhere in the neighborhood of
50,000 megawatts of electricity generation has been canceled
during the last year because of the crisis of confidence in the
investor community in our utility industry.
Now zero is the number of nuclear power plants that have
been ordered in the last 10 years. I believe that nuclear power
could take some of the pressure off of coal and natural gas for
the generation of electricity.
I could go on and on, but I think the message is clear.
This subcommittee is going to soon consider legislating. I have
circulated in the last week, with the support of the full
committee chairman, Mr. Tauzin, a draft to start discussions.
I want to emphasize to my subcommittee and this is a draft,
it is not written in stone. I fully expect to make changes
based on what members on both sides of the aisle suggest after
they have reviewed the draft.
I have also asked that the witnesses before us comment on
elements of the draft. Some of these elements are very
familiar. We have been over this ground many, many times.
Others are new.
We have tried to come up with some innovative ways to solve
some of the controversial parts of past energy bills. I look
forward to working with members of all the subcommittees,
Republicans and Democrats.
There are some elements in the draft that we have not had a
markup on. The electricity title, the assumption that we did
not mark up in my subcommittee last year.
I think the electricity title needs to be bi-partisan and I
hope that it will be. Both my door and Chairman Tauzin's door
are open to all members on both sides of the subcommittee to
try to see if we can improve this title of the bill.
I am going to submit the rest of my statement for unanimous
consent for the record. My good friend, Congressman Boucher,
said that I should enforce the rule. So I have stopped my
statement with 4 seconds over. And I would recognize my good
friend, Mr. Boucher, for his opening statement.
Mr. Boucher. Well, thank you very much, Mr. Chairman. I
also look forward to working with you, with Chairman Tauzin of
the full committee, with our ranking Democratic member, Mr.
Dingell, and all members of the subcommittee during the course
of the 108th Congress as we seek to develop legislation that
enjoys a broad consensus, that addresses our Nation's energy
needs.
The hearing that we are having today and the one that has
been scheduled for next week, will provide a valuable
opportunity for subcommittee members to hear from a range of
witnesses on the various topics addressed in energy policy
legislation.
It also provides a useful forum to consider the provisions
that Chairman Barton has now put before the subcommittee and
the draft energy legislation that he circulated last week.
The chairman's draft addresses a number of important energy
policy topics from authorization of a new clean coal power
initiative, to new energy efficiency standards for appliances,
to hydroelectric facilities re-licensing reforms to
encouragement of the construction of the long awaited natural
gas pipeline from Alaska to renewal of the Price-Anderson Act.
The draft legislation makes broad and valuable improvements
to the Nation's energy laws and policies. Many of the
provisions in the chairman's draft were agreed to by the
conferees between the House and Senate last year.
And I am glad to see these provisions re-emerge in the
draft that the chairman has now put before the subcommittee. I
would particularly draw the attention of members to the
provisions which would foster a new generation of advanced
clean coal technology.
Coal is the Nation's most abundant fuel with reserves
sufficient for the next 250 years. It generates electricity at
less than one-half the cost of the fuel alternatives. It is
clearly in the energy security interest of the Nation to use to
a greater extent this abundant domestic resource.
And I would note that consumers get the best prices when
they purchase electricity generated through the combustion of
coal. The inclusion of the clean coal power initiative
acknowledges the value to the Nation of coal use and takes
appropriate steps to assure the protection of air quality in
those regions where coal is burned.
I strongly commend these provisions. While not a part of
the Energy and Commerce Committee's jurisdiction, I would also
take a moment to call attention to the incentives for the use
of clean coal technologies that were included in both the House
and Senate versions of energy policy legislation last year.
In the near future, I will be joining with our colleagues,
Mr. Whitfield and Mr. Shimkus and others, in reintroducing our
legislation to promote the use of coal in both new and
retrofitted power plants that agree to use advanced clean coal
technologies.
We have all urged that this comprehensive coal advancement
measure be included in any comprehensive legislation considered
by the house.
I will also offer a few comments this morning concerning
the electricity title which is included in Chairman Barton's
draft legislation.
The House Energy and Commerce Committee has devoted 4 years
to a so far elusive quest for consensus of electricity reform
measures.
We found no broad agreement on proposals to amend PUHCA or
PURPA, to alter the merger review authority of the FERC, to
establish incentive pricing for new transmission line
construction, to vest the FERC with transmission line sighting
authority, or to alter legislatively the rules pertaining to
the management of an access to the transmission grid for
wholesale market transactions.
While I appreciate the chairman's inclusion of provisions
relating to net metering, time of use pricing and transmission
reliability, I still have a number of concerns related to the
electricity provisions.
These are complex matters. And notwithstanding several
years of review, we have not been able to reach consensus on
these contentious and difficult issues.
We have, however, under the Chairmanship of Pat Wood, an
increasingly active and shall I say imaginative FERC. The
commission has taken positive steps in order to make the
wholesale market more reliable and has provoked a spirited
debate over its proposal for a standard market design for the
Nation's transmission grid. I have a number of questions
concerning that proposal which we may be able to address this
morning.
Dependency of the SMD rulemaking obviously complicates even
further the process of seeking consensus on legislation
relating to the electricity market. Perhaps before adopting
fundamental electricity law changes, we should carefully
consider--10 more seconds. We should----
Mr. Barton. Enforce the rule, somebody said.
Mr. Boucher. I know I did say enforce the rule and I am
proud to be the first violator. My view is that we should
carefully consider how electricity markets should be best
served.
Does the statutory law truly stand in need of change or the
alternative. Can we look with confidence to the FERC to direct
the future development of the wholesale market using existing
statutory authority.
Thank you very much, Mr. Chairman. I appreciate your
indulgence and I look forward to the testimony of these
witnesses.
Mr. Barton. Well, you just gave Markey and additional 42
seconds. That is what that is going to amount to. And I would
say that imaginative and creative is good to my FERC.
There are other things that have been said about what you
all have been doing, so that is a good start. I would now
recognize the full committee chairman, the distinguished
gentleman from Louisiana, Mr. Tauzin, for a 5-minute opening
statement.
Chairman Tauzin. Thank you, Mr. Barton. Let me first thank
the subcommittee. This year, unlike 2 years ago, this
subcommittee's task is make somewhat simpler.
We now have the experience of the last 2 years when this
subcommittee produced the basic frame of the energy bill that
worked its way through the House and into a conference with the
Senate.
And, as I understand, the draft the chairman has circulated
in built on that frame. On the knowledge we gained in the
process of working H.R. 4 through the House and a similar bill
or comparable bill through the Senate.
It is somewhat more difficult because the chairman has
engaged the issue of electricity in this title this year when
it was not engaged in the House on the energy bill last year.
And so this committee has some especially difficult
decisions to make regarding that particular title of the bill.
But I wanted to update you on the progress we made. We came
within an eyelash of concluding the conference last year.
We got caught in the last minute politics of the closing
session and did not finish it. But I want you to know that the
Senate conferees and the House conferees, all of you who worked
in the process, deserve a lot of credit for bringing this to
the point where we almost completed this work in the last
session.
And so a lot of the hard work has been done. And I
particularly want to commend, again, Mr. Boucher who has been
thanked, I know, by your chairman and Mr. Dingell for the
extraordinary cooperative spirit in which we worked in the last
Congress and encourage that same spirit this year.
It is my intent, I know it is the chairman's intent to work
with you to make sure that to the extent we can, this is as
much a bi-partisan effort as we can possibly engage in.
We will have differences. We will have different
approaches. And members on either side of our committee who
have some very different views about how best to draft an
energy policy for our country and what to stress and what not
to stress.
And those differences will be aired in this and other
hearings and in our final debates. But we're on a fast track.
And no one should be upset about that. A lot of work went
through last year.
We came this close to finishing it. We'll buildupon that
experience and move as quickly as we can to get an energy
policy before the House so that Senator Pete Domenici, on the
Senate side, can begin his process and meet us in a conference
that he will chair, under our agreements, as quickly as we can
accomplish that.
That is in the nature, rather, that is an ingredient of
America at this particular moment in our history. Now I will
say early off in this process we will have some great debates
and great differences of approach.
Mr. Markey and Mr. Waxman I know will have different ideas
and emphasis in the bill than perhaps I will or perhaps Mr.
Barton and others on this committee will have. That is good. We
ought to have those good debates.
But we are all joined in this debate for a common purpose
that is especially true today. I want to hold up a fact sheet
that was prepared in the last Congress. Details of imports from
Iraq in the first quarter of the year 2002.
What this fact sheet indicates is that indirect sales of
Iraqi oil to America then was requiring Americans to spend,
indirectly, money which we sent to Saddam Hussein in Iraq to
the tune of about $12.7 million per day on Iraqi oil.
But things have changed since then. What has changed is
that an awful situation has occurred in Venezuela. Imports of
Iraqi oil have, indirectly again, grown dramatically. And the
price has changed from $20, yesterday's spot crude price of
Texas sweet was $36.88, from $20 then to $30 plus today.
Which means that everyday we are sending to Saddam Hussein,
every time we fill up our gas tank, every time we fill up a jet
engine, every time, with jet fuel, every time we buy fuel oil,
every time we buy any oil derivative product in this country,
we are helping to send Saddam Hussein better than $20 million
per day.
Because of a necessary, unavoidable dependence upon that
resource. Now whatever path we choose to end that dependence,
whether it is for conservative or alternative fuels, more
production in the United States, whatever path we choose, we
had better make some decisions quickly.
It is absolutely insane for us to depend today, as our
troops, our young men and women are preparing perhaps to do
battle in Iraq, to depend upon that country for such a large
amount of our oil import.
And to send Mr. Saddam Hussein $20 million a day to arm his
troops to kill our young men and women. There is something
insane about that. And I give back the balance of my time.
Mr. Barton. Thank you, full committee chairman. We now want
to recognize Mr. Waxman. Does he wish an opening statement, and
if so, you have 1 minute, 2 minutes or 3 minutes?
Mr. Waxman. I have what?
Mr. Barton. You can have 1, 2 or 3, and whatever time you
don't use now you get on your question period.
Mr. Waxman. Thank you very much, Mr. Chairman. Today, the
committee----
Chairman Tauzin. Mr. Chairman----
Mr. Barton. Which do you want----
Chairman Tauzin. Mr. Chairman, if I can correct the
chairman. Our rule does not allow that. Our rule says you have
to choose to either give an opening statement----
Mr. Barton. We understand that, but we got unanimous----
Chairman Tauzin. [continuing] and if you don't give it, you
get 3 extra minutes on questions.
Mr. Barton. But we, by unanimous consent, agreed to let him
have part of it. Honest.
Chairman Tauzin. I wish I had been around to object to it.
Mr. Barton. You were around.
Chairman Tauzin. I missed it.
Mr. Barton. You just didn't object.
Chairman Tauzin. I wasn't paying attention. I'm going to
pay better attention.
Mr. Barton. You need to tell us how much of the opening----
Mr. Waxman. May I inquire of the chair, if I take 8 minutes
and forego questions----
Mr. Barton. No, no, no.
Mr. Waxman. I think my opening statement will take 3
minutes.
Mr. Barton. Three minutes.
Mr. Waxman. If I succeed in doing it in 1 minute, I'd like
to reserve the two.
Mr. Barton. All right, the gentleman is recognized for 3
minutes.
Mr. Waxman. Today the committee begins consideration of an
energy bill for this 108th Congress. And based on legislation
circulated on Friday, the committee starting point appears to
be where we left off in the last Congress.
The legislation that was circulated last Friday, not only
fails to reflect the energy needs of the 21st Century, it fails
to reflect even the most dramatic events in the energy sector
that have occurred since the House finished consideration of an
energy bill in August 2001.
I would like briefly to mention some of these important
issues. The collapse of Enron was one of the more dramatic
illustrations of the dangers of inadequate government oversight
of the energy industry.
But the examples of abuses in the gas and the electricity
sectors are rampant. Back in early 2001, many of us in
California believed that energy markets were being manipulated
to price gouge western families.
It has now been revealed that our worst suspicions were
true. Unfortunately, the committee has never held a hearing on
these abuses.
For example, El Paso was recently found to have withheld
pipeline capacity in order to increase gas prices in
California. Energy traders from Dynagy, El Paso Corporation,
American Electric Power and Williams Company have all been
involved with providing false information on gas trades which
could have had major price impacts on consumers.
Reliant Energy revealed their coordinated strategy to shut
down power plants in order to drive up electricity prices.
Cynically Reliant decided to wage a campaign to blame the Clean
Air Act.
We must address the corruption in this industry in order to
protect consumers and shareholders. We must also look seriously
at this industry's practices in order to protect the
environment.
No longer can the administration turn a blind eye to the
serious threat of global warming. They are out of step with the
rest of the world, the American people and even many in the
industry.
Although the Senate has done considerable bi-partisan work
on climate change, this committee has never held a hearing on
the Senate's extensive legislative work.
And finally I would like to mention several issues that
came up in the energy conference last year that have never been
considered by this committee.
The Senate proposed a provision placing a moratorium on EPA
regulation of the practice of hydraulic fracturing. This
committee certainly should examine this before legislation on
this issue.
The majority has also proposed, in the conference,
protecting MTBE producers from liability for polluting ground
water and drinking water.
This issue is highly contentious. It has never been
examined by the committee. Mr. Chairman, I hope the committee
can work together in a collegial, bi-partisan fashion on the
legislation.
To that end I hope the committee can examine these critical
energy issues through additional hearings and investigations.
We have an obligation to responsibly address the energy
problems facing the nation.
Mr. Cox [presiding]. Thank you, gentleman. The gentlelady
from New Mexico.
Mrs. Wilson. Thank you, Mr. Chairman. I will reserve my
time for questions.
Mr. Cox. The gentleman from Michigan, Mr. Dingell.
Mr. Dingell. Mr. Chairman, I thank you. Last Congress
Chairman Tauzin asked me to work on a bi-partisan issued bill.
We did that. Members of both sides worked together to determine
which topics should be addressed in the committee of energy and
commerce's bill, and how.
As a result, the bill was supported by a wide, bi-partisan
margin. And with few exceptions, was left intact when merged
with legislation from other committees to be taken up on the
House floor as H.R. 4.
Well, veritably we find ourselves in markedly different
circumstances today. The bill circulated on Friday is not a bi-
partisan bill and the very tight committee schedule with only
two errors will make it particularly difficult for new members
of the committee to have an opportunity to fully participate in
this bill's consideration, or indeed to understand it.
Indeed, witnesses in today's hearings had little time to
review the language circulated last Friday, that concerns
significant areas of energy policy, conservation, and nuclear
matters, and the controversial topics of electricity and
hydropower.
While I appreciate the chairman's cooperation with the
minority in inviting witnesses, and I thank him for that, I am
concerned that this scheduled is so compressed as to preclude
meaningful testimony on the draft bill.
I note that there seems to be a pattern moving in this
direction, as we face a similar situation with regard to
medical malpractice, and I suspect other bills coming before
us.
Unlike the bill we recorded in this last Congress. This
bill would repeal the Public Utilities Holding Company Act,
PUHCA, and major portions of the Public Utility Regulatory
Policies Act of 1978, or PURPA.
It also contains a controversial proposal to allow States
to override Federal agency's rulings concerning potential
sighting of new transmission lines on Federal lands.
This is an extraordinary and altogether new proposal, not
contained in either the Senate or House bill last year, and is
likely to prove very troublesome since it can compromise the
authority of several Federal agencies and disregard a number of
settled pieces of environmental and other law and regulations.
I am perplexed at the decision to further deregulate the
Nation's electricity markets at a time when turmoil in the
industry, if anything, shows that consumers need more
protection from naked market forces.
It seems to me if we must act now, that a better approach
would be for us to reach agreement on a narrow range of reforms
that address specific problems in wholesale markets and leave
controversial restructuring issues, such as PUHCA repeal, PURPA
repeal, and diminishing FERC's merger authority, to another
day.
The committee held its last electricity oversight hearing
in December, 2001. Much has occurred since then.
We have learned enough about market manipulation by Enron
and other high flying marketers with no sense of responsibility
for the interest of consumers or investors, to know that there
are probably other shoes yet to drop.
FERC's own internal investigation into the turmoil in west
coast markets during the 2001 year is still underway. Criminal
investigations into Enron and others' behavior is still
pending.
In light of what we have learned since our last hearing,
what we are likely to learn when FERC releases its internal
investigation, it seems to me to be irresponsible for this
committee to act to further deregulate the electric utility
industry.
It may well be we will want different deregulation, no
deregulation or a return to more regulation. It is far more
important to learn what happened and to take time to formulate
a thoughtful response, than to move legislation on some kind of
a preordained schedule.
Furthermore, as the Chair knows, I have a special interest
in hydropower reform. I was disheartened to learn that the
carefully crafted bi-partisan House compromise in favor of
objectionable language developed by the Senate.
This does not bode well for building support for the
overall bill. Finally, I would be remiss in not mentioning one
consumer concern that constantly arises among my constituents.
That is the continuing volatility of gasoline prices. In
many areas we have seen prices with more than $2 per gallon.
While it is important to keep Congress' watchful eye on the big
picture of energy, I think our constituents all would
appreciate our attention to this which is a far less than
theoretical problem. Thank you for your kindness, Mr. Chairman.
Mr. Cox. Members are obviously aware that there is a vote
on the floor. There is a vote on the journal. And after
discussing this with Mr. Boucher, it is our proposal that we
continue with opening statements and members can come and go
during the open statements to ensure that they make the vote on
the floor.
And if there is no objection, I would go next to a
gentleman from Oregon, Mr. Walden.
Mr. Walden. Thank you very much, Mr. Chairman. I have
prepared statement I will submit for the record and reserve the
balance of my time for question and answer.
Mr. Cox. Next, I would like to welcome to the committee the
gentleman from Maine, Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman. I would like to take 2
minutes and I will do my best to stay within that. I want to
thank you for hold this hearing on comprehensive national
energy policy.
And I look forward to hearing from the panelists who are
here today. Electric deregulation in Maine has been accompanied
by rising electricity costs. The cold winter has reminded us
how much it costs to heat 19th Century homes, and gasoline
prices last week reached an all time high.
National policies of the past have perpetuated an energy
system dependent on fossil fuels, which has caused serious
human health problems in our Nation's downwind States, of which
Maine is one.
In Maine we have the highest levels in the country of
methyl mercury within, in our fish. Our adults endure the
highest rate of asthma in the country, and ozone levels made
Maine's air dangerous 17 days this past summer.
I hope that as we go forward we can craft an energy bill
that will encourage economic growth around this country, that
will protect the health of our citizens, and will confront the
looming global environmental challenges that we face.
I am not convinced that the bill in front of us will do
that, but I hope in the process of debate and discussion within
this subcommittee we will make progress to a better product.
Thank you, Mr. Chairman.
Mr. Barton. Thank you, Mr. Allen. Mr. Whitfield.
Mr. Whitfield. Mr. Chairman, there are so many important
issues that I am going to defer to the length of my question
period.
Mr. Barton. Mr. Whitfield defers. Ms. McCarthy. Whoops, we
have Ms. Capps. Was Ms. Capps before Ms. McCarthy?
Ms. Capps. Thank you, Mr. Chairman, for holding this
hearing. Shall I begin my opening statement?
Mr. Barton. If you tell us how much you are going to use.
Ms. Capps. The full amount.
Mr. Barton. All right, 3 minutes. The gentlelady from
California.
Ms. Capps. We need a national energy strategy. We need to
ensure that we have stable and predictable sources of energy.
There are new technologies to let us use energy more
efficiently. We need to identify and encourage the development
of new sources of energy, but I worry that the bill before us
would not foster these developments.
It would leave consumers at the mercy of unregulated energy
companies operating with little oversight. I want to highlight
a couple of concerns I have about this bill.
First, it contains many provisions to increase energy
efficiency and promote conservation, but it leaves out probably
the single most important step we can take, increasing the fuel
efficiency of our cars and trucks.
We all know about the National Academy of Sciences report
that concludes a significant improvement in the miles per
gallon performance of cars and trucks over the next 10 years is
possible.
One of our witnesses, Steve Nadel, will testify that
attaining an average fuel economy of one, 41 miles per gallon
is possible by 2012.
Such an improvement would result in real fuel savings that
would benefit consumers and our economy. Perhaps more
importantly, in light of what Chairman Tauzin noted, it would
reduce our dependence on foreign oil and increase our national
security.
For those who say these improvements are just not possible,
consider the President's plan to build a hydrogen car. It has
some rather bold assumptions.
Reducing the cost of fuel sales by a factor of ten.
Dramatically lowering the cost of hydrogen by 75 percent.
Solving expensive infrastructure challenges. Surely if we can
get a government program to achieve these goals, our private
companies could meet the challenges of increasing fuel
efficiency.
It is likely that hydrogen cars wouldn't have any
appreciable impact on the market for 20 or 30 years. Increasing
the efficiency of our cars and trucks can begin very quickly.
It is the right thing to do. Mr. Nadel notes that there may
not be the political will to require the kind of increases in
fuel economy, but perhaps, and I hope and pray that when we go
to mark up, it will miraculously occur.
Another major flaw in the legislation is the call for
national electricity deregulation without any real assurance
that a repeat of the price gouging that took place in
California does not happen again.
With all due respect to our witnesses here today, the FERC
response has gone from being completely nonexistent a couple of
years ago, to being inadequate today.
Energy marketers ripped off Californians, my constituents,
to the tune of billions of dollars. We said back then the power
was being withheld from the market and inappropriately, if not
illegally, driving wholesale prices, power prices through the
roof.
FERC did essentially nothing. This committee's reaction was
halting and grudging. When FERC finally stepped in, the damage
had been done to California and the western States.
Over the last couple of years we have seen some documents
from the energy companies involved in the California heist.
Enron has outlined some of their schemes, complete with
catchy names like ``Get Shorty'' and ``Death Star''. Recent
documents from Reliant Energy catch the traders' illuminating
discussion about how to jack up wholesale rates by removing
power from the grid.
If asked about it, the traders said they would just blame
the lack of power on the Clean Air Act. I know that FERC still
has some of these issues under investigation, but I have been
deeply disappointed in the outcome so far.
This bill does not address the shortcomings in FERC's
authority, or its inability or refusal to be the tough cop on
the beat.
If national electricity deregulation is enacted, we could
see the same kind of market gaming strategies that hurt
California so badly.
So I look forward to hearing from our witnesses today. And
I yield back my time.
Mr. Barton. I thank you. The gentleman from Indiana is
recognized for 1 minute.
Mr. Buyer. Thank you, Mr. Chairman. I did not get the
opportunity to sit through those 34 hearings last year. I am,
but what I did was I held an energy forum in Indiana, Mr.
Chairman, and invited producers and consumers.
We had 4 hours. I want you to know that there was a degree
of comfort out there between both, with regard to the product
that you produced last year.
The inquisitiveness would be on the electricity side, and I
think there is a pretty good agreement coming out of Indiana
that they concur with your product last year.
That we need a broad based and diversified portfolio with
regard to our energy sources, and that was the goal that you
had in that bill.
So complements from Indiana for the product that you had
put together. I did not know what to expect from all theses
individuals that came.
And I look forward to these two hearings and let us have at
it.
Mr. Barton. Thank you, gentleman from Indiana. The
gentlelady from Missouri.
Ms. McCarthy. I will just need 1 minute, Mr. Chairman.
Mr. Barton. One minute.
Ms. McCarthy. It is imperative, as we consider energy
policy, that we address the environmental ramifications of
proposals such as carbon emissions, which significantly
contribute to global climate change.
And that we establish greenhouse gas emissions reductions
in our own country by providing for an industry-wide sale of
carbon allowances by all entities that bring carbon into the
stream of commerce.
Our committee should forge policy that will provide for
reductions and a reasonable compliance time and have a safety
valve that will ensure no economic injury to our economy, and
yet move this country toward reducing carbon emissions.
Mr. Chairman, about two dozen U.S. companies including
Ford, Dupont and International Paper, and a number of large
electric utilities are already voluntarily doing this in the
Chicago area.
The Chicago Climate Exchange, if it succeeds, could be a
model for us to use with the rest of the Nation. They are
struggling in a voluntary program, and I believe what I heard
in the reports in the news that they think we should move to
broaden it and to make it something that all companies
participate in, in our country.
I yield back what little time I can and I thank you, Mr.
Chairman, for this recognition.
Mr. Barton. The gentlelady yields back the time. The
gentleman from Ohio, Mr. Brown.
Mr. Brown. Three minutes, Mr. Chairman.
Mr. Barton. He wants his full 3 minutes.
Mr. Brown. I will take the full 3. Thank you, Mr. Chairman.
We should do something on energy policy and legislation, but we
should employ a process which helps us do more than just
something, we should do the right thing.
Mr. Chairman, I have significant concerns about the
electricity title of the new energy bill. Instead of responding
to Enron and market power abuses, by strengthening PUHCA, the
bill would repeal it.
I am concerned about the transmission siting provision
which seems to make FERC look more like a Court of Appeals for
energy companies dissatisfied with State decisions, than a true
backstop.
For States like Ohio, which have worked hard to modernize
their siting laws, the potential for FERC review for every
siting decision seems a step backward.
Let me turn to my principal concern for today's hearing,
price volatility in the retail gasoline market and NRC safety
oversight.
Many observers, including AAA, raised concerns about the
role of oil industry business decisions in recent price
increases. These concerns are well founded in light of findings
by the FTC and a Senate committee concerning the oil industry's
business decision and their effect on price volatility in the
retail market.
I would make two requests on these important, this
important issue. First, Mr. McSlarrow, I would ask that you and
Secretary Abraham schedule meetings this month with oil company
representatives to do two things.
Impress upon them the importance of ensuring adequate
reserves of gas this spring and summer especially serving areas
like the midwest and demonstrate its susceptibility to price
spikes.
Second, ensure that the spring refinery maintenance cycles
are completed well in advance of the summer driving season. The
Energy Department needs to act now to prevent price spikes and
minimize those that are unavoidable.
My second request, Mr. Chairman, is that you schedule
investigative hearings on the issue of retail gas price
volatility.
The Senate held hearings last year and this year, but this
subcommittee has remained silent. Turning briefly to NRC
oversight, my district is 50 miles from the Davis-Besse Nuclear
Power Plant.
My colleagues know a football size crater was discovered in
the reactor head last year at Davis-Besse. The most alarming
part of this alarming story was the NRC Inspector General's
report.
The IG concluded that the regulators considered the
financial consequences in making their decision not to order a
shut down for inspection that would have revealed the reactor
had erosion months earlier.
Some observers have pointed the finger of blame at Davis-
Besse operators, others have blamed the senior NRC regulator
who made the decision.
The more compelling question for Congress is the
protectiveness of a regulatory philosophy that defines as
unnecessarily burdensome any action above and beyond the bare
minimum necessary for reasonable assurance of safety.
It has been years since the subcommittee has held an NRC
oversight hearing. I ask, Mr. Chairman, you schedule oversight
hearings in this subcommittee concerning the NRC's approach to
safety and a security regulation.
Thank you, Mr. Chairman. I look forward to beginning the
debate on the future of America's energy policy.
Mr. Barton. We thank you, Mr. Brown. Seeing no other
members who have not given an opening statement, the Chair is
going to recess briefly while I go vote.
When we come back, we will resume opening statements. The
members right to reserve who had to go vote. I am going to take
a point of personal privilege before I leave and recognize one
of my good friends from West Junior High School and Waco High
School, Mr. Tim Mitchell.
He was an all-district guard at Waco High while I was kind
of a has-been, also-ran. He's also been a precinct chairman in
my congressional district. He is up here with his brother
attending a conference.
Tim, why don't you stand up and let everybody recognize
you. We are going to recess very briefly. As soon as members
get back, we will resume our opening statements.
[Whereupon, at 10:44 a.m., the subcommittee recessed, to
reconvene at 10:59 a.m., the same day.]
Mr. Barton. The subcommittee will come to order. When we,
the reason we recessed is we ran out of members to give
statements. But I promised that we would let everybody give an
opening statement.
Congressman Brown of Ohio was the last member to give an
opening statement, so we would recognize Mr. Norwood.
Mr. Norwood. Mr. Chairman, I will reserve my time for
questions.
Mr. Barton. Mr. Norwood reserves his time. We go to Mr.
Markey.
Mr. Markey. Thank you, Mr. Chairman. Mr. Chairman, I would
like to take up 2 minutes.
Mr. Barton. Two minutes. Mr. Markey is recognized for 2
minutes.
Mr. Markey. Thank you, Mr. Chairman. Mr. Chairman, today is
Ash Wednesday, which I really think is quite an appropriate day
to hold a hearing on the Bush Administration's energy plan.
Ash Wednesday is recognition of the day in which you, as
Catholic, have to give something up as a sacrifice in our
religion. Well, today the Republicans have announced that they
have a plan which essentially gives up energy consumers for
Lent, and declares every day to be Fat Tuesday.
Mardi Gras for the energy producing companies across this
Nation. If the Republican energy plan is enacted into law, the
big oil companies, the natural gas companies, the coal
industry, the nuclear industry, the utility industries will all
be saying let the good times roll as long as they can chow down
on the huge legislative king cake that is being delivered up to
them by the Bush Administration and their allies in the
Republican energy crew.
And unlike more Mardi Gras king cakes, this bill has a
little plastic baby prize in every single slice. They will be
drilling in the arctic refuge and other pristine public lands
for the oil and gas industries.
Price-Anderson liability insurance subsidies for the
nuclear industry. Clean coal subsidies for the coal industry.
Hydroelectric licensing reform for the dam owners. Higher
incentive transmission rates.
Participant funding. PUHCA and PURPA repeal for the utility
industry, and no meaningful improvement in automobile fuel
efficiency for the car industry.
The SUV industry can breathe a sigh of relief. Consumers,
on the other hand, will be left nursing a legislative and
regulatory hang over of higher electricity costs, dirtier air,
disfoiled public lands and ugly--can I take the whole 3? It is
just such good stuff.
Mr. Barton. All right. Well, you have the Boucher 42 second
override anyway.
Mr. Markey. Thank you, I will just use up the whole three,
if I could. Disfoiled public lands and ugly transmission wires,
who's sighting they are preempted from blocking.
Yes, consumers may have been thrown a few legislative beads
as the Republican energy crew went by. A net metering program,
an FTC privacy rulemaking there, with a few new appliance
efficiency standards over there.
They are nice, but they are mere baubles compared to the
pinata of hefty benefits being afforded to the energy-producing
companies.
We need a balanced, comprehensive, national energy policy
that is fair to both producers and consumers. This plan is not
fair. Mr. Chairman, I look forward to today's hearing.
Mr. Barton. We knew it was too good to be true. Congressman
Boucher said, look, it is working, he is only going to take 2
minutes.
And I said, he hasn't finished yet. But it is a start. You
wanted to only do two.
Mr. Markey. No Irishman has ever given up talking for Lent,
okay. There is no known instance of that.
Mr. Barton. All right. The Chair recognizes the gentleman
from California, Mr. Cox, I believe for 1 minute, is that
correct.
Mr. Cox. I think I can get this done in 1 minute.
Mr. Barton. All right.
Mr. Cox. Mr. Chairman, I want to begin by commending you
for assembling this legislation which I hope will deal with our
country's troubling energy situation. The policy we have had up
until now, at least in California, is best described as lights
out.
And I think we need to do a lot of work to change that. I
want to just point out to my colleague, Mr. Markey, how happy I
am that the Price-Anderson reauthorization language in this
bill includes the Cox-Markey Amendment.
Beginning in the Clinton Administration, the State
Department had been giving serious consideration to making U.S.
taxpayers liable for nuclear actions in North Korean nuclear
facilities.
As was first uncovered by the Los Angeles Times, Clinton
Administration lawyers were trying to contort the Price-
Anderson Act in recovering the costs from Kim Jong-il failed
nuclear power plants, which was never intended by this
legislation.
The Cox-Markey Amendment which has been overwhelmingly
adopted in this committee and on the floor on multiple
occasions, makes it clear that U.S. taxpayers cannot be held
liable for nuclear actions in North Korea or any other
government, government of any other country that sponsors
terrorism or engages in the proliferation of weapons of mass
destruction.
And I yield back the abundant balance of my time.
Mr. Barton. All right. We now go to Mr. Wynn of Maryland.
Mr. Wynn. Thank you, Mr. Chairman, I will defer at this
time.
Mr. Barton. Mr. Wynn defers. Mrs. Bono from California.
Ms. Bono. Thank you, Mr. Chairman, I will submit for the
record.
Mr. Barton. She defers. Mr. Pallone of New Jersey.
Mr. Pallone. Thank you, Mr. Chairman. I am going to ask to
use my time, the 3 minutes.
Mr. Barton. The gentleman is recognized for 3 minutes.
Mr. Pallone. Mr. Chairman, I believe that this country
would benefit from a comprehensive energy plan, but last Friday
we received a copy of the majority's energy bill and sadly we
did not receive a comprehensive plan.
While the bill is extensive, it contains harmful provisions
that weaken existing consumer protections that could elicit
potentially dangerous business practices, including going out
of its way to repeal PUHCA, at the same time the FERC's merger
authority is also repealed. The bill also threatens to trample
on environmental laws by providing overriding authority to
States and Federal land management agency decisions and FERC
authority to override a State's decision for transmission
sighting.
It also includes no renewable portfolio standard and
provides only modest provisions for energy efficiency and
conservation efforts, and I am also concerned about the
potential inclusion of a renewable fuel provision that would
mandate the use of ethanol.
This effort is premature in that there has been no
independent analysis of the impact of the mandate on consumer's
gasoline supplies or fuel prices and numerous questions
regarding the environmental impact of ethanol use remain
unanswered.
During the next month, I hope the subcommittee will make a
concerted effort to address some of these concerns. First, I
believe it is critically important for us to reach an agreement
on a renewal portfolio standard. I understand that during last
year's energy conference, disagreement between the House and
Senate conferees on the inclusion of an RPS was a significant
factor in the failure of the energy bill.
Furthermore, I understand there is a continued disagreement
between the scope and definition of renewable energy sources as
well as the percentages and timeframes that were proposed
during discussions last year.
I believe that an RPS must be included in any energy bill
that leaves the subcommittee, especially given the fact that
language in this bill provides relief for mandatory purchase
obligations under PURPA without including strong enough
language to promote further development of small, renewable
energy facilities and distributed energy sources.
Finally, I would like to note that I am encouraged by the
FERC's activities with regard to standard market design. But I
would add that while the PJM structure works well for my State
and region, I understand that a complete replica of the system
may not work for every area of the country.
I believe that FERC's efforts to create standardized
markets, while allowing for regional differences can help to
provide the best certainty for customers. And we need to
proceed cautiously on SMD, but we should not undermine the
process with unnecessary and premature prescriptive measures
while FERC's rulemaking is still being developed.
There are a lot of issues that need to be addressed. I have
not mentioned my concern about lack of strong nuclear security
language, or the failure to include tax incentives for
purchasers of hybrid vehicles.
But I hope that through this hearing and subsequent
hearings we can move ahead and address these concerns that are
absent from this energy proposal and develop sensible
legislation that will effectively address current problems of
the energy industry today, as well as establish a long, forward
thinking energy plan which I think is so crucial that we try to
accomplish this year. Thank you, Mr. Chairman.
Mr. Barton. And thank the gentleman from New Jersey. We
recognize Mr. Radanovich from California.
Mr. Radanovich. Thank you, Mr. Chairman. Just to say one
quick thing that I hope to hear some comment on the hydro
relicensing section of this bill and I applaud you for your
efforts on this bill.
Mr. Barton. So you are going to defer? Okay, Mr. Strickland
of Ohio.
Mr. Strickland. I will save my time for questioning, Mr.
Chairman.
Mr. Barton. All right. Mr. Shimkus of Illinois.
Mr. Shimkus. Mr. Chairman, I will defer also, thank you.
Mr. Barton. Mr. Hall of Texas.
Mr. Hall. Mr. Chairman, I will be very brief. I just want
to put an addendum on to what the gentleman of Massachusetts,
his fine State, that I enjoyed so much, that I have heard so
many times.
And I do enjoy him. I want to remind him of the gentleman
we had come before this committee who was the Railroad
Commission chairman of Texas. The Railroad Commission governs
oil and gas in Texas. His name was Jim Nugent.
And he had made a speech over in Birmingham to the effect
of let the Yankees freeze and starve in the dark. When asked
about that here, and I think Mr. Markey had a copy of his
speech in front of him, he denied making that speech.
But he told me earlier he was going to deny it and for me
to ask him exactly what he said. He denied saying let the
Yankees freeze and starve in the dark.
And when I asked him to tell Mr. Markey exactly what he
said, he said let the thieving Yankees freeze and starve in the
dark.
But I don't consider them thieving Yankees. We have to have
an energy policy and we need to work toward it. I yield back my
time and congratulate Mr. Markey.
Mr. Barton. I think you cleaned up what he really said. I
don't think it was thieving Yankees.
Mr. Markey. What Mr. Hall always forgets is that Red Sox
fans are constantly saying let the thieving Yankees starve and
freeze in the dark. We hate them as much as you do.
Mr. Hall. Maybe he paraphrased.
Mr. Barton. That's better than your opening statement, Mr.
Markey. That was good. Mr. Burr of North Carolina.
Mr. Burr. Though tempted to get into this debate, I will
defer my opening statement.
Mr. Barton. Mr. John of Louisiana.
Mr. John. Unlike Mr. Burr, I can't resist. I thank you, Mr.
Chairman, for convening this hearing. And I think you for the
remarks from the gentleman from Massachusetts in sharing with
us his vast knowledge of the customs of Mardi Gras.
Although, I seem to have lost it in his frame when he
talked about pinatas, and so I'm a little confused about
pinatas and Mardi Gras. But you did well.
But thanks a lot, I will just be very brief. But there are
some important things about which I would like to speak. First
is the fact that as we face a possible war with Iraq and the
unsettling situation in Venezuela and around the Middle East, I
think it has never been more appropriate for Congress to enact
a comprehensive energy policy that will increase our domestic
energy security.
If there was an equivalent to the Department of Homeland
Security's threat level indicator for energy security, it would
surely be code orange, which is a high alert situation, and
certainly duct tape and plastic sheeting would not fix this
problem.
The spikes in gasoline and natural gas reflect our need to
increase domestic production and really modernize our national
distribution system.
Unfortunately, there is bi-partisan blame to go around for
locking up the known quantities of oil and gas around the
country. No more glaring to me than the administration's
decision to deny developing natural gas, the abundance of it,
in the large areas of the eastern Gulf of Mexico, and at the
same time promote a bill in Congress that promotes drilling in
Alaska.
I just want to say if it is good for Alaska, why isn't it
good for Florida, Mr. Chairman? And I look forward to hearing
from the Deputy Secretary of Energy today to talk about our
natural gas supply.
Second, I would like to comment briefly on the recent
actions by the FERC on SMD, the Standard Market Design, that
has my Public Service Commission in Louisiana and certainly the
Governor in Louisiana, to name only a few, concerned about the
increased costs that may lie with Louisiana consumers and
residents.
Unlike my good friends and colleagues from Texas, who will
think this debate may be only academic, for those of us who
face the real prospect of increased rates in our States to
benefit customers in higher cost States, the current SMD
proposal, in my eyes, is a non-starter.
I look forward to hearing from Chairman Wood on how he
intends to address the concerns raised by the southern and
western States, and what positive impacts and results to low
cost States, like Louisiana, you can guarantee in the SMD rule.
So, Mr. Chairman, thank you for calling this hearing. I
look forward to continue my focus and debate on a national
energy policy as I did in the last Congress, because I think
today, more than last year, that it is important that we have a
comprehensive policy for the energy security of our country.
Thank you, Mr. Chairman.
Mr. Barton. Thank you, gentleman from Louisiana. I
recognize the gentleman from Pennsylvania, Mr. Doyle.
Mr. Doyle. Thank you, Mr. Chairman, and I will take the
whole enchilada.
Mr. Barton. You got it.
Mr. Doyle. Mr. Chairman, I thank you for the time in
convening this hearing today. I anticipate an interesting and
useful discussion on a number of issues involving our national
energy policy and our efforts to improve and strengthen that
policy.
Let there be no mistake that this is one member who thinks
it is vitally important that we have a national energy policy.
Improving our energy infrastructure and national policy has
been a focus of mine since I came to Congress. Two years ago
when I first joined this committee, and one of the reasons I
sought that assignment, was that I wanted to continue this
focus and expand my ability to influence the direction that we
take.
I share the frustration that some of us have that for the
work we did on this issue during the last Congress that did not
result in the final conference report to become law.
But of course these are difficult issues and not everything
happens the first time, so we begin again this year on this
effort.
From my perspective, I'll continue to hold true to many of
the same principles that I brought to this debate in the last
Congress.
I continue to believe that it is integral that a national
energy policy be comprehensive and inclusive. I believe that
the best way to solidify our long term energy health, that that
is the best way to solidify our long term energy health.
I want to see our national portfolio involve and support
traditional fossil fuels, such as coal, oil gas, as well as
hydro power and nuclear.
But it must be in conjunction with a sincere commitment to
renewable energy sources, such as fuel cells, solar, wind power
and combined heat and power systems, as well as developing new
technologies, like the research that is ongoing to extract gas
from methane hydrates.
It is only by encouraging a diverse portfolio like this,
that we can guarantee our future energy independence and ensure
that we have access to energy that we will need in the years to
come.
Now I know it is not an easy task to marry all of these
forces and competing interests, as you can well imagine, there
is a lot to cover.
I hope we can use this hearing to begin to glean a little
more understanding of the heavy lifting ahead. But there is one
item that does concern me.
Considering the variety of issues we need to examine, I am
concerned that, as I understand it, we only have one additional
hearing scheduled on these subjects, before I assume we will
move to a mark up.
I would add my voice to those suggesting that at least one
additional hearing would be helpful. From my perspective,
representing my district in Pittsburgh, Pennsylvania, I can
attest to the fact that there is great potential in, when we
talk about an electricity title this session, that there is
great interest in Pennsylvania, as we have made significant
strides since we passed our electricity restructuring law
several years ago.
According to some recent independent studies, conducted by
the Pennsylvania public interest organization, consumers in
Pennsylvania have seen more than $2.82 billion in savings and
rate cuts of up to 39 percent since Pennsylvania law took
effect in January 1997.
It is my understanding that some of the areas I represent
in Pittsburgh, have seen some of the biggest savings. So, Mr.
Chairman, I look forward to engaging this debate.
Being able to include a discussion of the proposed
electricity title as part of that mix. I am sure we are going
to have some disagreements along the way, but I am hopeful in
the end we will be able to achieve some positive results that
will benefit the country and my constituents in Pittsburgh.
Thank you, Mr. Chair.
Mr. Barton. We thank the gentleman from Pittsburgh. All
members not present who have not made an opening statement will
have the opportunity to put their opening statement in the
record.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Vito Fossella, a Representative in Congress
from the State of New York
Mr. Chairman, thank you for holding this hearing today. Few topics
are as important as defining and passing into law a comprehensive
national energy policy. The lack of such a policy to date has caused
uncertainty in energy markets and highlighted America's severe reliance
on foreign energy sources. A Venezuelan oil strike, a chilling winter,
and the potential for war with Iraq among other things have sent oil
and gas prices soaring to near record highs. These concerns hit home
for me recently, when an explosion at a storage facility in my hometown
of Staten Island, New York, sent crude futures skyrocketing. The
current price of oil puts many Americans in a tough spot when making
decisions about paying for everything from gas and heating oil to their
groceries. Given such circumstances, we must take fast, bold steps to
shed our unnatural dependence on foreign oil.
Oil prices aren't the only cause for concern in America. The recent
crisis in California generated great uncertainty in our nation's
electricity markets and brought to the forefront serious deficiencies
in America's system of electricity transmission, generation and
distribution. With energy consumption projected to grow significantly
by 2025, we must ensure Americans have faith in transparent energy
markets and receive access to reliable electricity. The Federal Energy
Regulatory Commission is here today to discuss, among other things,
it's Standard Market Design. FERC hopes its proposal will, ``provide
certainty to all market participants, encourage new infrastructure
investment, promote fair competition and prevent a repeat of the
mistakes made previously in California.'' I'm am extremely interested
in learning more about the Commission's plan and how it responds to
American's concerns.
While oil independence and strong electricity markets are critical
goals, they are just two factors among many that need to be addressed
in sculpting a national energy policy. As we forge ahead with this
initiative, it is imperative we examine a diverse range of options to
ensure our country receives reliable energy in a clean environment.
Enhancing energy efficiency and conservation, the production of
renewable sources, and modernizing our energy infrastructure are all
crucial aspects of securing our country's power needs. It is also
important to look into the future; to plans such as the President's
proposal to expand the role of clean burning fuel cells in our
country's energy portfolio. Achieving these goals is essential to
addressing America's energy needs and allowing our great economy to
expand and flourish in the 21st century.
______
Prepared Statement of Hon. George Radanovich, a Representative in
Congress from the State of California
Thank you, Mr. Chairman for holding this hearing, and I applaud
your efforts to enact energy legislation that will spawn economic
development around our country.
The energy issues that continue to impact California and the
Pacific Northwest have only underscored the importance of the hydro
electric relicensing legislation included in the energy bill draft,
which mirrors the Radanovich/Towns Hydroelectric Licensing Improvement
Act of 2003. This legislation will help repair our broken licensing
process and will strengthen hydropower's ability to improve quality for
future generations.
The emergency surrounding hydroelectric relicensing has not changed
with the passage of time. In fact, every day that passes, we dig
ourselves into a deeper hole. As we look at the next 15 years, enough
non-federal hydroelectric capacity to serve approximately 30 million
homes must undergo the FERC relicensing process. The relicensing
process must be modified before our nation's hydropower resources lose
the ability to provide clean, emissions-free energy to America's energy
consumers.
In order for California to have a vibrant energy market, we have to
address the issue of supply in California. Industry analysts now
predict the financial situation facing the industry could result in
electricity shortages beginning in 2004, potentially hampering economic
recovery. In addition to these problems, insufficient licensing reform
threatens available hydropower supplies this year. Dependable and
affordable hydroelectric energy requires a licensing process that is
efficient and fair in order to accomplish these goals.
I congratulate FERC on their leadership in developing a policy that
will resolve many important problems with the licensing process.
However, legislation is still needed to address the fundamental
problems that have plagued the licensing process for so long. The fact
that federal resource agencies mandate restrictive conditions on the
operations of hydropower projects without either comprehensive analysis
of their impacts or an independent review of the conditions is
unacceptable. The FERC rulemaking is not meant to, nor can it, address
this problem with the licensing process. I believe that greater
interaction between the resource agencies and the licensees in the
development of environmental measures, which this legislation would
encourage, will improve the process.
In the end, I hope we can work together to forge bipartisan
legislation that will build on our Committee's progress in the 107th
Congress and result in continued improvements in the nation's energy
markets in a time of war.
Thank you, Mr. Chairman, for holding this hearing today. I look
forward to the witnesses' testimony.
______
Prepared Statement of Hon. Mary Bono, a Representative in Congress from
the State of California
Mr. Chairman: Thank you for holding this important hearing.
Prior to commenting on the bill as it relates to the witnesses here
today, I would like to urge FERC to continue looking into refunds as
they relate to the California energy crisis. I've always believed that
it should be up to FERC to uncover the extent of abuse and then
recommend corrective action. There are several ongoing cases before the
commission, so I urge you to continue to evaluate them in a thorough
and timely manner. The actions you take on this matter could very well
serve to either prevent or encourage future abuses of the system.
One aspect of the proposed energy bill I support is the
reauthorization of the Renewable Energy Production Incentive. While I
continue to work on refining the exact language of this section of the
bill, I am quite pleased it was included and urge the Department of
Energy to advocate for full funding of REPI once it is reauthorized.
Obviously, in these challenging economic times, we have to make
difficult funding choices. However, providing such an incentive
benefits both the production and development of alternative fuels which
is something our country needs to invest in.
Finally, I would also like to commend the Chairman for including
the President's Freedom Car provision in the bill. I've had the honor
and privilege of working on hydrogen fuel cell technology with the
Sunline Transit Agency, a true leader in this field. I look forward to
hearing from Deputy Secretary McSlarrow on how we can also use this
program to assist the development of hydrogen fuel cell technology with
regards to public transportation. This bill could provide a valuable
platform to encourage the development of this promising technology in
both the public and private sectors.
Thank you Mr. Chairman. I look forward to hearing from the
witnesses.
______
Prepared Statement of Hon. Greg Walden, a Representative in Congress
from the State of Oregon
Mr. Chairman, I'm from a hydro rich area of the United States where
70% of our energy comes from our abundant hydro resources. It is the
most inexpensive energy there is, and it is renewable. However, we in
the Northwest region are having a drought, and that coupled with the
current energy markets in the West is having a devastating effect on
Oregon's economy and the rest of the Northwest. The situation is
becoming so severe that large industrial customers that were once
considered the driving force behind the Northwest economy and provided
good high-paying jobs are beginning to look elsewhere to see if they
can't produce their products more efficiently.
In a year like this when hydrologists are predicting that we will
have only 73% of our normal water levels, and because 70% of our
electricity comes from hydro (as compared to 7% nationwide), the
remaining 30% from coal, nuclear and natural gas fired generation, this
puts us in a tricky predicament for the upcoming summer.
I am happy to say that we are looking at a number of new projects
in Oregon that will be gas fired. Most of these plants are being sited
in my district because a large natural gas pipeline goes right down the
center. They are an important part of meeting our region's growing
generation needs. The Northwest is no longer a region with cheap
surplus power in abundance like it was just after Bonneville, Grand
Coulee and the other dams along the Columbia were completed. It is a
region that must continue to develop alternative sources of generation
instead of relying on the traditional supply of hydropower to meet its
ever-increasing energy needs.
Coming from a district that possesses the windsurfing capital of
the World, I don't think I need to tell you what potential we have for
the further development of wind generation. Just last year I toured a
wind farm in one of my counties, which has generated enough revenue to
double the property tax base of this county. Let me put it in
perspective in explaining the economic development potential for my
district, 15 of the 20 counties have unemployment rates above the state
average of 7.0% and the state average rate is more than a point above
the national rate. The continued development of this renewable energy
source could really turn around some of the failing local economies in
my district.
If the administration could continue to support incentives to
increase the development and production of these alternatives, whether
it is geothermal, solar or wind, it would help the region plan for its
future load growth, and like I just said significantly benefit many of
the communities in my district.
And finally, Mr. Chairman, I must get my two cents in regarding the
future of RTO's and the much talked about and equally maligned Standard
Market Design (SMD). I think it's gross understatement to say that many
people in my district and in the Northwest are ``concerned'' with the
prospect of an SMD regime being uniformly applied to the Northwest.
And, I know my colleagues from other regions of the country are equally
concerned about the ramifications of its implementation. This proposed
rulemaking makes no sense whatsoever, particularly when you take into
consideration the progress that was being made last summer concerning
BPA becoming integral part, albeit with a list of concerns still to be
addressed, of an RTO West. In light of SMD, and its potential to
supercede all the progress that was made during last year's RTO
discussions, I see no reason why BPA would want to become part of RTO
West. As BPA owns approximately 70%-80% of the transmission lines in
the region, I think all of you would agree it would be difficult to
have an RTO West without its participation.
I appreciate your being here today, and I look forward to you
addressing these issues of importance for the Northwest.
With that Mr. Chairman, I'm anxious to hear what the panels have to
say and yield back the remainder of my time.
______
Prepared Statement of Hon. Mike Rogers, a Representative in Congress
from the State of Michigan
Mr. Chairman, thank you for holding this important hearing as we
begin to move forward on how best to provide for our nation's energy
needs.
One issue of concern to me is the Department of Energy's Office of
Energy Efficiency and Renewable Energy is seeking to change the
prescriptive criteria for the Energy Star Windows program, and the
Department has offered two proposals for public comment. I am concerned
with any proposal that lessens the choices currently available to
consumers, damages the marketplace for existing manufacturers, and
ultimately results in lost jobs for workers in the industry. I look
forward to learning from the Department of Energy the criteria that
will be used as the Department makes its selection between the two
proposals.
Finally, coming from a state that for nearly one hundred years has
been the world's leader of automotive technology, Michigan is poised to
develop the next generation of automobiles. Clearly, hydrogen fuel
cells will be at the forefront of the vehicles of tomorrow. I am
excited to see the strong commitment of Chairman Barton on this
critical issue to Michigan and our nation's economy and environment. I
look forward to learning how the Department envisions the FreedomCAR
proposal being integrated with current technologies being developed by
domestic automakers and then with the men and women working on the line
tasked with making the best cars in the world.
Mr. Chairman, thank you again for your continued leadership on
these key issues. I look forward to working with you as we proceed.
Mr. Barton. The Chair would now recognize and welcome our
first panel. We have a very distinguished panel. We have the
Deputy Secretary of Energy, the Honorable Kyle McSlarrow.
We have the Chairman of the Nuclear Regulatory Commission,
the Honorable Richard Meserve. We have three of our
Commissioners from the FERC, including the distinguished
Chairman from Texas, Mr. Pat Wood.
We are going to start with our Deputy Secretary from Energy
and then we will just go with Chairman Meserve and then
Chairman Wood, and Ms. Brownell and Commissioner Massey.
The Chair would recognize Deputy Secretary McSlarrow. Do
you have any idea about how long your statement should take?
Under 5 minutes, okay, then we will recognize you for 6
minutes, and let us see if we can do it in under 6 minutes.
You need to really turn the microphone on and speak into
it.
STATEMENTS OF HON. KYLE McSLARROW, DEPUTY SECRETARY, U.S.
DEPARTMENT OF ENERGY; HON. RICHARD A. MESERVE, CHAIRMAN, U.S.
NUCLEAR REGULATORY COMMISSION; HON. PATRICK WOOD, CHAIRMAN,
FEDERAL REGULATORY COMMISSION; HON. WILLIAM L. MASSEY,
COMMISSIONER, FEDERAL ENERGY REGULATORY COMMISSION; AND HON.
NORA MEAD BROWNELL, COMMISSIONER, FEDERAL ENERGY REGULATORY
COMMISSION
Mr. McSlarrow. Thank you, Mr. Chairman. I will be brief. I
am pleased to present the administration's views on the need
for comprehensive energy legislation.
First, I would like to compliment you, Mr. Chairman, and
the entire committee on your leadership in tackling these
important issues, once again.
What was true in the beginning of 2001, is still true. We
had a series of long term energy challenges that require action
now. These challenges are present along the entire energy
continuum and affect the environment and economy, the
generation and transmission of electricity and commodities
ranging from crude oil and its associated products to natural
gas.
The issues that relate to electricity pose their own set of
challenges and possible policy responses, which I will address
later. But the other challenges can be summarized by one
phrase, energy security.
To be more specific, the United States is increasingly
dependent on foreign oil and may not be far from the point in
which we can no longer assume a domestic or even a North
American supply of natural gas that fully meets our demand.
These trends are a concern, Mr. Chairman. Quite simply, we
are at the mercy of events and decisions over which we have
often limited, sometimes no control. When winters and summers
are mild, when no refineries or pipelines break down, when
supply from abroad is abundant and reliable, we do not feel
this dependency.
But when almost anything goes wrong, the markets react
instantly and we confront the higher prices and volatility that
have become by now an almost reliable, cyclical phenomenon.
Almost 2 years ago President Bush presented his solution to
the national energy policy to the American people. I would like
to take 1 minute to highlight one of his initiatives, and that
is the hydrogen initiative.
Hydrogen can be produced from diverse domestic sources,
freeing us from reliance on foreign imports for the energy we
use at home.
Hydrogen emits no greenhouse gas emissions. When hydrogen
is used to power fuel cell vehicles, it will do so with more
than twice the efficiency of today's engines.
If we are successful with the President's hydrogen
initiative, by 2040, we can reduce oil use in light duty
vehicles by over 11 million barrels per day. The amount of oil
that approximates that which American imports today.
Mr. Chairman, I would like to briefly comment on the draft
legislation, because we have only had the last few days to
review the draft, we are not in a position, obviously, to
provide an administration position on every provision and we
look forward to working with you and the members of this
committee on it.
First, the administration strongly supports completing the
transition to effective competition in wholesale power markets,
and believes that much of the electricity title in the draft
legislation is a strong step in the right direction.
Well functioning markets will, we believe, lead to lower
costs for consumers and businesses. But there is more than
simply the benefit of lower prices.
A well functioning market brings its own rewards. As
confidence is gained that the system is reliable and capable of
coping with high demand for electricity, much needed investment
is likely to be attracted.
Investment in new technologies and an improved generation
in transmission facilities, to produce additional energy and
environmental benefits.
When the opposite is true, when uncertainty reigns, when
reliability is questioned, when prices seem detached from
market forces, investment vanishes.
Because the administration supports efforts to ensure open
access for all generators to grid, we support the open access
language in section 7021.
We also support establishing mandatory enforceable
reliability rules, as found in section 7031. The administration
agrees that the Public Utility Holding Company Act should be
repealed and we support reform of PURPA in an innovative and
competition-friendly manner as contemplated in Subtitle E.
We also believe that facilitating an effective national
electric transmission grid for the benefit of consumers, last
resort Federal sighting authority for high priority
transmission lines is needed.
The administration has strongly supported efforts to
increase energy efficiency and I am pleased to note the
chairman's inclusion in this draft of agreements reached toward
this end by the energy conferees in the last Congress.
The administration strongly supports a renewable fuel
standard that will increase the use of clean, domestically
produced renewal fuels, especially ethanol, which will improve
the Nation's energy security, farm economy and environment.
However, the administration firmly believes, and I know
this is a jurisdictional point, but a balanced comprehensive
energy plan with increased domestic production in order to
reduce our rising dependence on imported oil and gas.
And the key to achieving this balance is the President's
proposal to open a small portion of ANWR to environmentally
responsible oil and gas exploration and development.
The administration strongly supports the construction of a
commercially viable Alaskan natural gas pipeline as a critical
part of our energy security portfolio.
And finally, the administration strongly believes that
comprehensive energy legislation should include long term
reauthorization of the Price-Anderson Act. And therefore we
applaud the draft bill's extension of Price-Anderson to 2017.
And at this point, I will close my statement, Mr. Chairman,
thank you.
[The prepared statement of Hon. Kyle McSlarrow follows:]
Prepared Statement of Hon. Kyle McSlarrow, Deputy Secretary of Energy
Thank you, Mr. Chairman. I am pleased to be able to present the
Administration's views on the need for comprehensive and balanced
energy legislation, and where appropriate, our views on specific
proposals before this committee.
I. INTRODUCTION
First, I would like to compliment you, Mr. Chairman, and the entire
committee on your leadership in tackling these important issues once
again.
To almost no one's surprise, the turbulent times on the energy
front continue. From our first week in office, we knew that the United
States faced an energy crisis long in the making. In addition to the
California electricity crisis, you will recall that consumers faced
unparalleled rises in natural gas and gasoline prices, and OPEC was in
the midst of a series of production cuts that aimed at higher prices
for crude oil.
That is why President Bush so quickly directed the completion of a
comprehensive and balanced national energy policy.
II. THE LONG-TERM CHALLENGE
What was true in the beginning of 2001 is still true: we have a
series of long-term energy challenges that require action now. These
challenges are present along the entire energy continuum, and affect
the environment and economy, the generation and transmission of
electricity, and commodities ranging from crude oil and its associated
products to natural gas.
The issues that relate to electricity pose their own set of
challenges and possible policy responses, which I will address later.
But the other challenges can be summarized by one phrase: energy
security. To be more specific, the United States is increasingly
dependent on foreign oil and may not be far from the point at which we
no longer can assume a domestic-or even a North American-supply of
natural gas that fully meets demand.
Thus, before I address some of the policy issues before this
committee and Congress, it is worth analyzing the premise of growing
dependence on foreign energy. I will use the analysis presented by the
Department of Energy's independent analytical arm, the Energy
Information Administration, in its Annual Energy Outlook 2003 (AEO
2003), and will confine this brief review to petroleum specifically and
total energy supply and demand.
A. Petroleum Trends
The historical record shows substantial variability in world oil
prices, and there is similar uncertainty about future prices. Three
AEO2003 cases with different price paths allow an assessment of
alternative views on the course of future oil prices. The three price
cases are based on alternative assumptions about OPEC oil production
levels, primarily from the Persian Gulf: lower output in the high price
case and higher output in the low price case. However, with its vast
store of readily accessible oil reserves, OPEC is expected to be the
principal source of marginal supply to meet demand increases in all
scenarios.
By 2025, OPEC production is projected to be 61 million barrels per
day (more than twice its 2001 level) for the ``Reference'' case. Based
on growth in world oil demand of about 2.0 percent annually, projected
prices in real 2001 dollars reach about $27 per barrel in 2025. In
nominal dollars, the reference case price is expected to exceed $48 per
barrel in 2025.
In the high world oil price case, OPEC production is assumed to
only increase to 46 million barrels per day by 2025 (about 25 percent
less than the reference case) and prices rise by about 3 percent per
year from 2001 to 2015. Prices remain at about $33 per barrel (in real
2001 dollars) after 2015 as market penetration of alternative energy
supplies become economically viable at the higher price and cap oil
prices.
In the ``low world oil price'' case, with assumed greater expansion
of OPEC production to 71 million barrels per day by 2025 (about 15
percent greater than the reference case), prices are projected to
decline from their high in 2003, reaching $19 a barrel by 2010 (in real
2001 dollars), and remain at that level to 2025.
U.S. petroleum consumption varies, not only with oil prices, but
the level of economic growth. While projected U.S. petroleum
consumption varies with the projected price of crude oil, from 28.2
million barrels per day in the high world oil price case to 30.2
million barrels per day in the low world oil price case in 2025, the
largest variation is with different assumptions about the rate of
economic growth. Total petroleum consumption in 2025 ranges from 26.9
million to 31.8 million barrels per day in the low and high economic
growth cases, respectively.
In the reference case, gross domestic product is expected to
increase by 3.0 percent per year between 2001 and 2025. In the high
economic growth case, GDP grows at a faster 3.5 percent per year and in
the low economic growth case at a slower 2.5 percent per year. However,
while petroleum consumption varies with each scenario, it increases in
all cases from today's level.
In 2001, net imports of petroleum accounted for 55 percent of
domestic petroleum consumption. Dependence on petroleum imports is
projected to grow in the reference case, reaching 68 percent in 2025.
The corresponding import shares of total consumption in 2025 are
expected to be 65 percent in the high world oil price case and 70
percent in the low world oil price case.
The growth in the share of petroleum accounted for by imports has
received little notice in recent years. Expenditures on petroleum as a
share of GDP have fallen from a peak of 9 percent in 1980 to only 3
percent today. The OPEC share of U.S. petroleum imports has fallen from
a peak of 70 percent in 1977 to 47 percent in 2001. More importantly,
the share of U.S. petroleum imports originating from the Persian Gulf
is about 23 percent today versus a peak of 28 percent in the late
1970s.
However, as the marginal source of supply, OPEC and, ultimately,
the Persian Gulf are expected to be become increasingly important for
future supplies to the United States and the world. By 2025, 53 percent
of U.S. petroleum supply is expected to come from OPEC, including 26
percent from the Persian Gulf.
Although crude oil is expected to continue as the major component
of petroleum imports, refined products are projected to represent a
growing share. Growth in domestic U.S. refinery capacity is expected to
remain constrained by regulations and economics. While total capacity
is projected to grow by 3 million barrels per day between 2001 and
2025, all of the growth is at existing refineries. No new grassroots
facilities are expected to be built over the forecast period.
Growth in total U.S. petroleum demand in the reference case, from
20 million barrels per day in 2001 to over 29 million barrels per day
by 2025, is projected to outstrip U.S. refinery capacity. As a result,
refined petroleum products are projected to account for a growing
portion of total net petroleum imports, reaching 34 percent of total
net imports by 2025 (6.7 million barrels per day) in the reference
case, up from a 15 percent share of total imports in 2001 (1.6 million
barrels per day).
This means that the U.S. will increasingly rely on foreign refinery
investors to provide not just the volume of petroleum product needed by
U.S. markets but products that meet the required characteristics (e.g.,
sulfur content, octane levels, etc.) of the U.S. supply slate. This
decreases the flexibility and direct control that U.S. policymakers
have in dealing with petroleum supply issues.
B. Total Energy Trends
Another way to analyze our energy picture is to look at our total
energy consumption and balance it against our total energy production.
Total U.S. primary energy consumption is projected to increase from
97 quadrillion Btu in 2001 to 139 quadrillion Btu by 2025 in the
reference case, 1.5 percent per year. It is important to note that the
reference case already assumes continued improvement in energy-
consuming and producing technologies, consistent with historic trends.
Without these improvements, total primary energy consumption would
otherwise grow to about 200 quadrillion Btu by 2025.
The difference between reference case consumption and domestic
energy production is the level of net imports (all energy types)
required to meet projected U.S. energy consumption levels. Because of
slow growth in domestic energy production, total net imports are
projected to grow from about 26 quadrillion Btu in 2001 to almost 50
quadrillion Btu in 2025.
As I mentioned earlier, this already assumes that future gains in
energy efficiency take place at the same impressive rate as in recent
years. Nonetheless, the EIA also analyzed what it termed a ``high
technology'' case, with an even more aggressive decline in energy
intensity.
With more rapid decline in energy intensity, total energy
consumption could be reduced to levels below that shown in the
reference case. In the high technology case, it is assumed that
increased spending on research and development will result in earlier
introduction, lower costs, and higher efficiencies for end-use and
electric generation technologies than assumed in the reference case.
Due to a faster decline in energy intensity in the high technology
case, total primary energy consumption is projected to be 6 percent
lower in the high technology case by 2025, at 130 quadrillion Btu.
With lower levels of total consumption, net imports are also
reduced. However, the reduction in imports is partially offset by lower
levels of domestic energy production resulting from a decline in the
energy prices that producers see with lower consumption levels. Net
energy imports decline to 45 quadrillion Btu by 2025 in the high
technology case from nearly 50 quadrillion Btu by 2025 in the reference
case. The result is that even in a case with an accelerated decline in
energy intensity, the U.S. will still be highly dependent on energy
imports to meet future consumption needs.
III. RISING TO THE CHALLENGE: PRESIDENT BUSH'S NATIONAL ENERGY POLICY.
These trends are a concern. We long ago ceased to fully provide for
our petroleum needs domestically, and though most of our natural gas
can be supplied currently by North American production, the trend here
is also toward a greater share for imported gas.
Quite simply, we are at the mercy of events and decisions over
which we have often limited-sometimes no -control. When winters and
summers are mild; when no refineries or pipelines break down; when
supply from abroad is abundant and reliable, we do not feel this
dependency. But when almost anything goes wrong, the markets react
instantly, and we confront the higher prices and volatility that have
become by now an almost reliable cyclical phenomenon.
President Bush recognized that to prevent those problems from
becoming a permanent, recurring feature of American life, we needed a
long-term plan for energy security that would promote reliable,
affordable and environmentally sound energy for the future.
Almost two years ago, President Bush presented his solution, a
national energy policy, to the American people.
The key to the comprehensive plan's approach was the recognition
that over the next 20 years our country would demand large and timely
increases in energy in order to keep our economy growing, keep
Americans working, and keep the nation secure.
The National Energy Policy helped define six general objectives to
ensure America's continued growth and prosperity:
-- First, we would aggressively reduce demand by employing energy
efficient technologies and encourage sound conservation
measures as essential components of our energy policy.
-- Second, realizing that even the most aggressive energy efficiency
and conservation programs would not be enough by themselves to
bring supply and demand into balance, we resolved to increase
energy supply, with an emphasis on domestic supply.
-- Third, to ensure energy security, we would maintain a diversity of
fuels from a multiplicity of sources.
-- Fourth, we would dramatically upgrade our national energy
infrastructure so as to more efficiently and reliably deliver
energy from the source to the consumer.
-- Fifth, we would accomplish our energy production, consumption and
conservation goals while building on our successful record of
environmental protection.
-- Sixth, realizing that our energy challenges would extend beyond the
next two decades, we would provide a vision of the future in
which solutions to these challenges would transform our energy
future.
IV. NATIONAL ENERGY POLICY ACHIEVEMENTS
Above all else, the underlying goal of the National Energy Policy
was to strengthen America's energy security; and pursuant to this goal,
the Administration has made significant progress in the past two years.
This Administration has made great strides toward increasing
domestic energy supplies and diversifying foreign energy sources. The
President's decision to move forward on Yucca Mountain, and Congress'
subsequent approval, will ensure the continued viability of the
nation's nuclear industry. And the President's Coal Research Initiative
continues to demonstrate great promise for the development of new
technologies for cleaning--and potentially eliminating--coal emissions
and thereby protecting the viability of this nation's most abundant
energy resource.
As part of our efforts to modernize and expand the infrastructure
we have established an interagency Task Force on Permit Streamlining
that has been instrumental in coordinating the permit process for many
infrastructure projects, joined with Congress to enact Pipeline Safety
legislation, and begun construction on the Path 15 transmission line to
ease electricity congestion in California.
The Administration's commitment to encouraging conservation,
boosting energy efficiency, and expanding the potential for the use of
clean renewable energy is demonstrated in the President's request for
increased weatherization funding, and the largest request for funding
for the Department of Energy's Office of Energy Efficiency and
Renewable Energy in 20 years.
Our promise to protect the environment for future generations is
the foundation of proposals such as Clear Skies, which will
substantially reduce the amount of pollutants resulting from the
production of electricity and through the Administration's Brownfields
initiative which seeks to return abandoned industrial properties to
beneficial use allowing location of combined heat and power facilities
on remediated lands.
V. TRANSFORMING OUR ENERGY FUTURE.
Of particular significance, however, are two Presidential
initiatives that I would like to take a moment to highlight. The
National Energy Policy recommended that the President direct the
Secretary of Energy to develop next generation technologies, and it
specifically focused on hydrogen and fusion.
A. Hydrogen.
The President soon carried out this recommendation by announcing
the FreedomCAR initiative, a program designed to greatly accelerate the
pace of development of hydrogen vehicles.
The potential benefits of hydrogen-fueled vehicles are incredible.
<bullet> Hydrogen can be produced from diverse domestic sources,
freeing us from reliance on foreign imports for the energy we
use at home.
<bullet> When hydrogen is used to power fuel cell vehicles, it will do
so with more than twice the efficiency of today's engines.
<bullet> And hydrogen-powered vehicles would have a tremendous positive
impact on the environment, as they would produce none of the
harmful emissions that we see with today's gasoline-powered
fleet. In fact, the only byproduct of the fuel cell is pure
water.
These factors also led to the development of the President's
Hydrogen Fuel Initiative, which he announced just over one month ago
during the State of the Union Address.
Today's gasoline-powered vehicles are fueled by an infrastructure
that is the result of nearly 100 years and 1 trillion dollars of
investment. It is remarkably efficient, and it is everywhere.
Initially, we won't need a hydrogen station on every corner, and our
hydrogen production will not need to match gasoline production
overnight. But we needed a plan for making the necessary research and
development breakthroughs to enable industry to develop a fueling
infrastructure that would allow hydrogen vehicles to operate alongside
their gasoline counterparts, that would be ready when the vehicles are
entering the marketplace, and that will grow with the use of this new
technology.
The President's Hydrogen Fuel Initiative provides this plan for the
future hydrogen economy, and it has already generated tremendous
enthusiasm among the energy and auto industries--partners that will be
integral to transforming our nation's energy future from one dependent
on foreign petroleum, to one that utilizes the most abundant element in
the universe.
As the President has said, his goal is to see to it that the first
car driven by a child born today could be powered by hydrogen and
pollution free. Pursuant to the FreedomCAR partnership and Hydrogen
Fuel Initiative, we propose to focus $1.7 billion over the next five
years on several significant barriers to hydrogen, fuel cell, and
advanced automotive technologies:
<bullet> First, we will work to lower the cost of fuel cells by another
factor of ten. If we were to mass-produce the fuel cell designs
we have today, they would cost approximately $300 per kilowatt.
The comparable cost of a modern internal combustion engine is
$30 per kilowatt, so we have our work cut out for us to make
this technology competitive.
<bullet> Second, we will endeavor to lower the cost of hydrogen, which
is approximately four times more expensive than its gasoline
equivalent today. Our 2010 goal is to bring down the cost of
the hydrogen equivalent of an untaxed gallon of gas to $1.50.
The way to do that is by developing cost effective, efficient
means of production and distribution.
<bullet> Third, we will undertake research aimed at devising new
methods to store sufficient amounts of hydrogen fuel aboard a
vehicle, to provide consumers with a driving range of at least
300 miles between refuelings.
<bullet> Fourth, and most critically, we will work to solve the
overarching infrastructure challenges, to develop a hydrogen-
based delivery and refueling infrastructure like the petroleum-
based one we now have.
If we are successful in this endeavor, we estimate that industry
could make a commercialization decision on fuel cell vehicles, hydrogen
production, and refueling infrastructure by 2015. A positive decision
would lead to hydrogen fuel cell vehicles in the showroom by 2020, and
by 2040, this could reduce oil use in light duty vehicles by over 11
million barrels per day--an amount of oil that approximates that which
America imports today.
B. Fusion
A second element of the National Energy Policy technologies
recommendation received much attention domestically and internationally
when President Bush recently announced that the United States would
make a major commitment to the development of fusion energy.
Fusion is the process that powers the sun and the stars, and our
best scientists believe it may become the ultimate energy source for
earth as well. In the stars, hydrogen atoms combine under extremely
high temperature and pressure to produce helium and energy. The
envisioned fusion energy plants would harness this process here on
earth, relying on an abundant fuel that is readily available to all
nations: simple seawater. Fusion energy plants would produce no harmful
emissions, no long-term radioactive waste, and because no fissile
materials are required in the fusion process, it presents virtually no
proliferation threat. It promises to be the ultimate safe, clean,
abundant energy source, and it may be the energy source for the future.
The great promise of fusion, however, presents great scientific
challenges, challenges we believe we can meet if we engage the talents
of experts from around the world. That is why on January 30, 2003,
President Bush announced that the United States would join with the
international community to develop the International Thermonuclear
Experimental Reactor. When built, ITER is expected to achieve the first
sustained burning plasma, an essential next step in demonstrating the
feasibility of commercial fusion energy systems. In his announcement,
the President noted that ITER is ``an ambitious international research
project'' that will ``advance the effort to produce clean, safe,
renewable, and commercially-available fusion energy by the middle of
this century.''
Both our hydrogen initiative and our fusion energy research program
will, of course, depend on Congressional funding and approval, and we
look forward to working with Congress to ensure that these initiatives
are fully supported.
VI. PRINCIPLES GUIDING ENERGY LEGISLATION.
Hydrogen and fusion present a long-term promise, and are primarily
focused on research and development. But there are a number of
proposals that can be implemented now. Some require action by the
Administration-indeed, three-quarters of the National Energy Policy's
105 recommendations can and are being done by actions in the Executive
Branch. However, some of the most important actions require legislative
action.
Let me outline a few of the principles that the Administration
believes should guide the development of energy legislation, and the
goals we think we should achieve.
A. Modernization of Wholesale Electricity Laws
The Administration strongly believes a comprehensive energy bill
must include a sound electricity title that modernizes our Nation's
antiquated wholesale electricity laws.
Our overarching goal is to ensure that Americans have abundant,
affordable, clean and secure electricity supplies.
Developments in the electricity industry in recent years have
brought the industry to a crossroads. While the move to competitive
markets has fostered enormous benefits, some serious problems have
given rise to a significant policy debate, especially over the past two
years.
We have three basic policy choices.
<bullet> First, go back to comprehensive rate regulation for wholesale
power sales. Have FERC set regulated rates for each
jurisdictional utility. Abandon reliance on market forces and
competition as the underpinning of Federal electricity policy.
<bullet> Second, maintain the status quo. Defer making decisions on
major policy issues. Continue to straddle the fence.
<bullet> And, third, complete the transition to effective competition
in wholesale power markets.
Going back to comprehensive rate regulation is not really an
option. Too much has happened, and too much has changed. The process of
change introduced into electricity markets by past Federal and State
policies is probably irreversible.
Preserving the status quo is not a real option, either. The status
quo has meant dramatic price spikes in wholesale power markets in
California and the West, attempts to manipulate power markets, a
dramatic expansion of generation by many independent power producers
and the subsequent challenges some have faced as a result, and stagnant
investment in an inadequate transmission grid that restricts entry into
regional power markets.
The Administration believes that there really is only one viable
policy choice: completing the transition to effective competition in
wholesale power markets designed to generate and deliver reliable,
abundant and affordable electricity.
The evidence of the price benefits derived from increased
efficiencies can already be seen. As imperfect as the market has been,
wholesale power prices declined by 23 % from 1985 to 2000. Even when
one takes into account the volatile price increases of 2001, the
decline from 1985 is still 12%.
Well-functioning markets will, we believe, lead to lower costs for
consumers and businesses. But there is more than simply the benefit of
lower prices. A well-functioning market brings its own rewards. As
confidence is gained that the system is reliable and capable of coping
with high-demand for electricity, there will increasingly be less need
for restrictive and prescriptive regulation. And that is the point when
much-needed investment is likely to be attracted--investment in new
technologies, and in improved generation and transmission facilities
that produce additional energy and environmental benefits.
When the opposite is true--when uncertainty reigns, when
reliability is questioned, when prices seem detached from market
forces--investment vanishes.
What is required to complete the transition is new and aggressive
reform, and that requires new legislation and new, streamlined
regulatory regimes.
The reforms that lead to greater competition are embodied in the
following principles:
<bullet> Prevent market manipulation and market power abuse.
<bullet> Promote reliability of electricity service.
<bullet> Ensure open access to the interstate transmission grid.
<bullet> Eliminate undue discrimination in wholesale power markets.
<bullet> Ensure that customers have the ability to respond to price in
real-time.
<bullet> Encourage investment in new generation and transmission
facilities.
<bullet> Support transmission policy options, including participant
funding, that appropriately allocates costs; and
<bullet> Lower barriers to entry to electricity markets.
The Federal Energy Regulatory Commission has already taken a number
of steps in these directions. For example, FERC already has begun a
rulemaking to establish incentive-based and performance-based rate
treatments to encourage construction of new transmission facilities,
and has acted to make regional transmission organizations a reality.
However, legislation still is needed, and the Administration
believes that much of the Electricity title in the draft House bill is
a strong step in the right direction. Because the Administration
supports efforts to ensure open access for all generators to the
wholesale electricity grid, the open access language in section 7021 of
the draft House bill is a desirable goal, and we support that goal. The
Administration also supports establishing mandatory and enforceable
reliability rules that will reduce the chances for power outages.
Therefore, we support section 7031 of the bill concerning electric
reliability.
The Administration agrees that the Public Utility Holding Company
Act (PUHCA), an outdated law that restricts utility investment, should
be repealed, and so we support Subtitle D of the Electricity title in
the House bill. We also have advocated reform of the Public Utility
Regulatory Policies Act (PURPA) in an innovative and competition-
friendly manner as contemplated in Subtitle E of the Electricity title.
The Administration supports FERC's ability to review mergers and
prohibit abuses of market power. As a result, we oppose section 7101 of
the bill, which would repeal FERC's authority to review mergers. The
Administration supports enacting legislation to further protect
consumers against unauthorized disclosure of personal information,
unauthorized switching of electricity service, and unethical
individuals and companies in this industry. As a result, we generally
support Subtitle H of the draft bill and look forward to working with
you on some of the details of this subtitle.
We also believe that to facilitate an effective national electric
transmission grid for the benefit of consumers, last-resort federal
siting authority for high-priority transmission lines is needed.
Therefore, we support the concepts of section 7012 concerning siting of
transmission facilities. However, we still are reviewing the details
and legal ramifications of this proposal. We believe the Tennessee
Valley Authority and the Power Marketing Administrations (PMA) should
be an integral part of the national grid and relevant authority should
be included in the bill. We also generally support Subtitle B of the
draft bill concerning transmission operation, though we do have some
concerns about the regional transmission organization section because,
among other things, it does not explicitly provide for Federal cost
recovery when a PMA joins an RTO, or for preserving prior contracts and
third-party financing obligations of the PMAs. We look forward to
working with you to address our concerns.
Finally, the Administration supports the ban on roundtrip trading,
the increases in criminal penalties, and the other modifications made
to the Federal Power Act in Subtitle G of the draft bill. We are still
studying the provisions of Subtitle F concerning Renewable Energy, but
it appears that the bill contains much we can support there as well.
B. Energy efficiency and conservation
A comprehensive energy policy must be balanced, and must include
initiatives that foster both supply and demand side improvements-and
importantly, those which increase energy efficiency and energy
conservation. The Administration has strongly supported efforts to
increase energy efficiency, and I am pleased to note the Chairman's
inclusion in his energy legislation of agreements reached to this end
by the energy conferees of the 107th Congress.
C. Tax Provisions
Comprehensive energy legislation must increase energy conservation
and efficiency. Nearly every dollar of the NEP's energy tax proposals
for FY 2002-2012 would be devoted to increasing efficiency,
conservation, and renewable energy. For example, the NEP includes a
consumer tax credit for the purchase of hybrid and fuel cell vehicles.
Other fiscal incentives include extending and modifying the tax credit
for producing electricity from environmentally friendly sources, such
as biomass and wind; providing tax credits for energy produced from
landfill gas, residential solar energy systems, and investment in
combined heat and power; and extending the ethanol tax exemption. It is
imperative that the tax provisions of comprehensive energy legislation
reflect the President's priorities of environmental protection and
energy conservation and maintain the fiscal discipline reflected in the
FY 2004 Budget.
D. Renewable Fuels Standard
The Administration strongly supports a renewable fuels standard
that will increase the use of clean, domestically produced renewable
fuels, especially ethanol, which will improve the Nation's energy
security, farm economy, and environment. The Administration also
supports the inclusion of a market-based, national credit trading
mechanism--such as that included in Section 5052 of the draft
legislation--that will increase efficiency and reduce costs.
E. Alaska Natural Gas Pipeline
The Administration strongly supports the construction of a
commercially viable Alaska natural gas pipeline as a critical part of
our energy security portfolio, and believes that market forces should
select the route of the pipeline. Although no such provision appears in
the House draft, the Administration reiterates its strong opposition to
a price-floor tax subsidy--and any similar provision--because it would
distort markets. It is also likely to undermine Canada's support for
construction of the pipeline, setting back broader bilateral energy
integration.
F. ANWR
As I've stated earlier, the Administration firmly believes that a
balanced, comprehensive energy plan is imperative to the long-term
strength of our economic and national security. This balance must
include a recognition that we must also increase domestic production in
order to reduce our rising dependence on imported oil and gas; and key
to achieving this balance is the President's proposal to open a small
portion of the Arctic National Wildlife Refuge (ANWR) to
environmentally responsible oil and gas exploration and development.
As you are aware, primary responsibility for managing the vast
public resources of this nation rests with the Department of the
Interior. Secretary Norton has set a goal of forging strong
partnerships with Federal and State agencies, Tribal governments, and
all of the stakeholders-including the Congress-to create greater
opportunities for the responsible development of energy resources on
Federal lands.
The Department of the Interior has taken several actions to advance
the goals of the National Energy Policy, including the approval of a 5-
year Oil and Gas Leasing program to ensure that the Outer Continental
Shelf remains a solid contributor to our nation's energy security;
completion of the EPCA inventory, which provides an estimate of
undiscovered technically recoverable resources and proved resources of
oil and gas; and recent collaboration with the Department of Energy on
a joint report that identifies and evaluates renewable energy resources
on public lands. The Bureau of Land Management will use this report's
findings to prioritize land-use planning activities, and to increase
the development and use of renewable energy resources.
G. Price-Anderson
The Administration strongly believes that comprehensive energy
legislation should include long-term reauthorization of the Price-
Anderson Act. Price-Anderson ensures prompt and equitable compensation
for the public in the unlikely event of a nuclear accident.
In the Bob Stump National Defense Authorization Act of 2003,
Congress extended Price-Anderson for DOE contractors until December 31,
2004. In the recent omnibus appropriations act, Congress extended
Price-Anderson for Nuclear Regulatory Commission licensees only until
December 31, 2003. We need a long-term extension of this important law,
and therefore we applaud the draft House bill's extension of Price-
Anderson to 2017.
We have only recently seen the provisions of the draft bill
concerning financial accountability, safety, security and other matters
relevant to the nuclear power industry, and look forward to working
with Congress to ensure that the bill achieves its intended effect
without detracting from the quality of potential contractors, or
compromising security, anti-terrorism or non-proliferation efforts.
H. Strategic Petroleum Reserve
As was demonstrated by the President's decision to fill the
Strategic Petroleum Reserve to its current statutory capacity, the
Administration recognizes the tremendous importance of this national
resource. We applaud the Chairman for including permanent SPRO
authorization in the legislation.
The Administration intends shortly to initiate a study to determine
the optimal size of the reserve. The results of this analysis are
necessary to determine the full range of impacts on markets and
national security of any decision to adjust capacity following its
expected fill in 2005. We believe such an analysis is an important
first step when considering an expansion of the Reserve above the
current goal of 700 million barrels.
At this point, I thank you for the opportunity to testify before
you today, and I welcome any questions the Committee might have.
Mr. Barton. Now recognizing the distinguished chairman of
the Nuclear Regulatory Commission. Tell him how much we have
enjoyed working with you in your chairmanship and we wish you
well in whatever future endeavors you incur once you leave the
commission. Do you know how long your statement is?
Mr. Meserve. Under 5 minutes.
Mr. Barton. Well, you all are just doing great. Okay, we
will recognize you for 6 minutes, also.
STATEMENT OF RICHARD A. MESERVE
Mr. Meserve. Thank you for your generous comments, Mr.
Chairman. Mr. Chairman and members of the committee, I am
pleased to be here today to present the Nuclear Regulatory
Commission's perspective on how nuclear energy fits into the
national energy policy.
As the subcommittee knows, the NRC's mission is to ensure
the adequate protection of public health and safety, the common
defense and security, and the environment in the application of
nuclear technology for civilian use.
The commission does not have a promotional role. Its role
is to ensure the safe application of nuclear technology if
society elects to pursue the nuclear energy option.
The commission, nonetheless, recognizes that the quality,
predictability and timeliness of its regulatory actions bear on
licensee decisions related to construction and operation of
nuclear power plants.
Currently there are 104 nuclear power plants licensed by
the commission to operate in the United States in 31 different
States.
As a group they are operating at high levels of safety and
reliability. Indeed the trends over the past decade are very
favorable, as indicated by the graphs and tables in my
submitted statement.
These plants have produced approximately 20 percent of our
Nation's electricity for the past several years. Because of the
improved economic performance of the plants, the commission has
seen a significant increase in the number of requests for
approval of license renewal that would allow the plants to
operate beyond their original 40 year term.
The focus of the commission's review of license renewal
applications is on maintaining plant safety, with a primary
concern directed at the effects of aging on important systems,
structures and components.
Applicants must demonstrate that they have identified and
can manage the effects of aging, so as to maintain an
acceptable level of safety during the period of extended
operation.
The commission has now renewed the licenses of plants at
five sites for an additional 20 years, comprising a total of
ten units. A thorough review of these applications were
completed on or ahead of schedule.
And applications for 20 units from 12 additional sites are
currently under review. Many more applications for renewal are
anticipated in the coming years.
In recent years, the commission has also approved license
amendments that permit its licensees to undertake power
uprates.
The commission takes this step only after determining that
safety margins can be maintained at the higher power.
Collectively, these approved uprates supplied the electricity
equivalent to that from three large power plants, approximately
3,000 megawatts electric.
Over the past 17 months, the commission has undertaken a
comprehensive review of safeguards and security programs, in
close consultation with the Department of Homeland Security,
the Department of Energy, and other Federal agencies, and with
significant involvement by State agencies.
Out of that review has come a series of interim
compensatory measures to strengthen nuclear security at power
reactors and other NRC licensed facilities, as well as in the
transportation of spent fuel.
Last August we put in place a five tier threat advisory
system compatible with the homeland security advisory system.
We have issued orders to strengthen programs that control
access at power reactors.
And have drafted proposed orders to strengthen guard
training and address guard fatigue. We provided revised design
based threats for comment to other Federal agencies, the States
and cleared stakeholders.
We have been conducting enhanced table-top security
exercises at our reactor facilities and are resuming the
conduct of enhanced force-on-force exercises.
While the improved performance of operating nuclear power
plants has resulted in significant increases in electrical
output, increased demands for electricity will need to be
addressed eventually by construction of new generating capacity
of some type.
As a result, industry interest in new construction of
nuclear power plants has recently emerged. As you know, the
commission has already certified three new reactor designs.
The NRC staff is currently reviewing the Westinghouse
AP1000 design and has six other designs in various stages of
preapplication review.
In addition, discussions are taking place in preparation
for three early site permit applications which are expected in
2003.
The commission has a stake in the national energy policy
and has identified areas where new legislation would be
helpful. These changes would maintain safety, while increasing
flexibility.
Additionally, the commission has long sought additional
authority in the nuclear security arena. With a strong
Congressional interest in examining energy policy, the
commission is optimistic that there will be a legislative
vehicle for making these changes.
There are many elements of the proposed legislation before
this committee that we support and a few that we believe are
unnecessary.
Mr. Chairman, we would be very pleased to work with you and
the committee in addressing matters of mutual concern. Thank
you for the opportunity to testify today, I would be very
pleased to take questions.
[The prepared statement of Hon. Richard A. Meserve
follows:]
Prepared Statement of Richard A. Meserve, Chairman, U.S. Nuclear
Regulatory Commission
INTRODUCTION
Mr. Chairman, members of the Subcommittee, I am pleased to submit
this testimony on behalf of the U.S. Nuclear Regulatory Commission
(NRC) regarding the NRC's perspective on how nuclear energy fits into
the U.S. National Energy Policy. As the Subcommittee knows, the
Commission's mission is to ensure the adequate protection of public
health and safety, the common defense and security, and the environment
in the application of nuclear technology for civilian use. The
Commission does not have a promotional role--the agency's role is to
ensure the safe application of nuclear technology if society elects to
pursue the nuclear energy option. The Commission recognizes, however,
that its regulatory system should not establish inappropriate
impediments to the application of nuclear technology. Many of the
Commission's initiatives over the past several years have sought to
maintain or enhance safety and security while simultaneously improving
the efficiency and effectiveness of our regulatory system.
The Commission's primary focus is on safety. The Commission
nonetheless recognizes that the quality, predictability, and timeliness
of its regulatory actions bear on licensee decisions related to
construction and operation of nuclear power plants.
BACKGROUND
Currently there are 104 nuclear power plants licensed by the
Commission to operate in the United States in 31 different states. As a
group, they are operating at high levels of safety and reliability.
Indeed, the trends over the past decade are very favorable.
These plants have produced approximately 20% of our nation's
electricity for the past several years and are operated by about 35
different companies. In 2001, these nuclear power plants produced about
750-thousand gigawatt-hours of electricity.
Improved Licensee Efficiencies (Increased Capacity Factors)
The nation's nuclear electricity generators have worked for over
ten years to improve nuclear power plant performance, reliability, and
efficiency. According to the Nuclear Energy Institute, the improved
performance of the U.S. nuclear power plants since 1990 is equivalent
to placing 23 new 1000-MWe power plants on line. The average capacity
factor for U.S. light water reactors was 90 percent in 2001, up from 71
percent just 10 years earlier. The Commission has focused on ensuring
that safety has not been compromised as a result of these industry
efforts.
U.S. Commercial Nuclear Power Reactor Average Capacity Factor and Net Generation
----------------------------------------------------------------------------------------------------------------
Average Net Generation of
Number of Annual Electricity
Year Operating Capacity ----------------------------
Reactors Factor Thousands of Percent of
(Percent) Gigawatthours Total U.S.
----------------------------------------------------------------------------------------------------------------
1990................................................... 111 68 577 19.1
1991................................................... 111 71 613 20.0
1992................................................... 110 71 619 20.1
1993................................................... 109 73 610 19.1
1994................................................... 109 75 640 19.7
1995................................................... 109 79 673 20.1
1996................................................... 110 77 675 19.6
1997................................................... 104 74 629 18.0
1998................................................... 104 78 674 18.6
1999................................................... 104 86 728 19.6
2000................................................... 104 88 754 19.8
2001................................................... 104 90 767 20.0
----------------------------------------------------------------------------------------------------------------
initiatives in the area of current reactor regulation
License Renewals
Because of the improved economic performance of the plants, the
Commission has seen a significant increase in the number of requests
for approval of license renewal that would allow plants to operate
beyond their original 40-year term. That term, which was established in
the Atomic Energy Act, did not reflect a limitation that was determined
by engineering or scientific considerations, but rather was based on
financial and antitrust concerns.
The focus of the Commission's review of license renewal
applications is on maintaining plant safety, with the primary concern
directed at the effects of aging on important systems, structures, and
components. Applicants must demonstrate that they have identified and
can manage the effects of aging so as to maintain an acceptable level
of safety during the period of extended operation.
The Commission has now renewed the licenses of plants at five sites
for an additional 20 years: Calvert Cliffs in Maryland, and Oconee in
South Carolina, Arkansas Nuclear One in Arkansas, Edwin I. Hatch in
Georgia, and Turkey Point in Florida, comprising a total of ten units.
The thorough reviews of these applications were completed on or ahead
of schedule, which is indicative of the care exercised by licensees in
the preparation of the applications and the planning and dedication of
the Commission staff. Applications for twenty units from twelve
additional sites are currently under review. As indicated by our
licensees, many more applications for renewal are anticipated in the
coming years.
Although the Commission has met the projected schedules for the
first reviews, we seek further improvements. The extent to which the
Commission is able to sustain or improve on our performance depends on
the rate at which applications are actually received, the quality of
the applications, and the ability to staff the review effort. The
Commission recognizes the importance of license renewal and is
committed to providing high-priority attention to this effort. As you
know, the Commission encourages early notification by licensees, in
advance of their intentions to seek renewals, in order to allow
adequate planning so as not to create unmanageable demands on staff
resources.
Reactor Plant Power Uprates
In recent years, the Commission has approved numerous license
amendments that permit its licensees to make power uprates. The
Commission takes this step only after determining that safety margins
can be maintained at the higher power. Collectively, these approved
uprates supplied the electricity equivalent to that from three large
power plants (approximately 3,000 MWe). In addition, some nuclear
generators have requested Commission safety review of increasing fuel
burnup, thereby extending the operating cycle between refueling outages
and thus increasing nuclear plant capacity factors. Again, such
approvals are granted only after a thorough evaluation by Commission
staff to ensure that safe operation and shutdown can be achieved at the
increased fuel burnup.
Risk-Informing the Commission's Regulatory Framework
The Commission also is in a period of dynamic change as the agency
continues to move from a prescriptive, deterministic approach towards a
more risk-informed and performance-based regulatory paradigm. Improved
probabilistic risk assessment techniques combined with over four
decades of accumulated experience with operating nuclear power reactors
have led the Commission to revise or eliminate certain requirements. On
the other hand, the Commission is prepared to strengthen our regulatory
system where risk considerations reveal the need.
Perhaps the most visible aspect of the Commission's efforts to
risk-inform its regulatory framework is the new reactor oversight
process. The process was initiated on a pilot basis in 1999 and fully
implemented in April 2000. The new process was developed to focus
inspection effort on those areas involving greater risk to the plant
and thus to workers and the public, while simultaneously providing a
more objective and transparent process.
Nuclear Security Enhancements
Over the past 17 months, the Commission has undertaken a
comprehensive review of safeguards and security programs, in close
consultation with the Department of Homeland Security and other Federal
agencies, and with significant involvement by State agencies. Out of
that review has come a series of interim compensatory measures to
strengthen nuclear security at power reactors, Category I fuel cycle
facilities, decommissioning reactors, research and test reactors,
independent spent fuel storage facilities, the two gaseous diffusion
plants, and the conversion facility, as well as in the transportation
of spent fuel. Last August we put in place a five-tier threat advisory
system compatible with the Homeland Security Advisory System, and we
have used that system twice to improve security measures at our
licensed facilities. We have issued Orders to strengthen programs to
control access at power reactors. We have drafted proposed Orders to
strengthen guard training and address guard fatigue. We have provided
revised design basis threats for comment to other Federal agencies, the
States and cleared industry personnel. We have been conducting enhanced
table-top security exercises at our reactor facilities and have just
resumed the conduct of enhanced force-on-force exercises at these
facilities. We plan to conduct force-on-force exercises on a thee-year
cycle and have requested the resources to do this in our fiscal year
2004 budget. We have defined the actions that we need to take to ensure
better control of high risk radioactive sources containing radioactive
isotopes of the most concern for potential use in a radiological
dispersal device.
FUTURE ACTIVITIES
Scheduling and Organizational Assumptions Associated with New Reactor
Designs
While improved performance of operating nuclear power plants has
resulted in significant increases in electrical output, significant
increased demands for electricity will need to be addressed by
construction of new generating capacity of some type. As a result,
industry interest in new construction of nuclear power plants in the
U.S. has recently emerged. As you know, the Commission has already
certified three new reactor designs, pursuant to 10 CFR Part 52, making
them readily available for new plant orders. These designs include
General Electric's advanced boiling water reactor, Westinghouse's AP-
600 and Combustion Engineering's System 80+.
In addition to the three already certified advanced reactor
designs, there are new nuclear power plant technologies which some
believe can provide enhanced safety, improved efficiency, lower costs,
as well as other benefits. The NRC staff is currently reviewing the
Westinghouse AP1000 design certification application and has six other
designs in various stages of pre-application review. In addition, pre-
application discussions are taking place in preparation for three early
site permit applications expected in 2003.
The staff is also making infrastructure improvements to ensure that
tools, information, and regulatory processes are in place for the
efficient, effective, and realistic review of new site and reactor
applications. For example, the NRC staff has developed proposed changes
to 10 CFR Part 52 ``Early Site Permits, Standard Design Certifications,
and Combined Licenses for Nuclear Power Plants'' based on lessons
learned during the previous design certification reviews and
discussions with industry representatives on the licensing processes.
Additionally, the NRC staff has initiated early site permit pre-
application public meetings in the vicinity of expected sites to inform
the public about the early site permit process and their opportunities
for participation. It should also be noted that the NRC staff is
developing options for the efficient review of security aspects of new
reactor designs and early site permits.
In order to confirm the safety of new reactor designs and
technology, the NRC believes that a strong nuclear research program
should be maintained. The NRC staff is performing a research
infrastructure assessment for advanced reactors. The assessment
identifies technology gaps and the means to fill the gaps in the form
of methods, tools, data and expertise. The Advisory Committee on
Reactor Safeguards has been briefed and has provided comments and
recommendations regarding the assessment findings. With the benefit of
these insights, the Commission expects to undertake measures to
strengthen our research program for new reactor designs over the coming
months.
NATIONAL ENERGY POLICY IMPLICATIONS
The Commission has a stake in the national energy policy and has
identified areas where new legislation would be helpful to eliminate
artificial restrictions and to reduce the uncertainty in the licensing
process. These changes would maintain safety while increasing
flexibility in decision-making. Although those changes would have
little or no immediate impact on electrical supply, they would help
establish the context for consideration of nuclear power by the private
sector without any compromise of public health and safety or protection
of the environment. Additionally, the Commission has long sought
additional authority in the nuclear security arena to enhance security
for these facilities, the need for which has been magnified by the
events of September 11, 2001.
Legislation will be needed to extend the Price-Anderson Act. The
Act, which recently received a one-year extension until December 31,
2003, establishes a framework that provides assurance that adequate
funds will be available to compensate the public in the event of a
nuclear accident and sets out a process for considering nuclear
liability claims. While our mission is not a promotional one, it is our
understanding that without the framework provided by the Act, new
private-sector participation in nuclear power would be discouraged.
Moreover, the Commission believes it is important to assure that if an
improbable accident should occur, the means are provided to care for
the affected members of the public.
Over the years, the NRC has provided and continues to pursue
legislative proposals to Congress detailing specific initiatives that
would further enhance security of NRC-licensed activities. These
proposals address a wide spectrum of activities. One provision would
authorize guards at NRC-regulated facilities to use deadly force to
protect property significant to the common defense and security. This
would give guards protection from State criminal prosecution for
actions taken during the performance of their official duties. Another
provision would allow the Commission, in consultation with the Attorney
General, to confer upon guards at NRC-designated facilities the
authority to possess or use weapons that are comparable to those used
by the Department of Energy's guard forces. Some State laws currently
preclude private guard forces at NRC-regulated facilities from
utilizing a wide range of weapons. Another provision would make it a
Federal crime to bring unauthorized weapons and explosives into NRC-
licensed facilities. The NRC would also make Federal prohibitions on
sabotage applicable to the operation and construction of certain
nuclear facilities. The NRC hopes that these and other more recently
developed legislative initiatives, such as in the area of access
authorization, will be enacted early in the 108th Congress.
With the strong Congressional interest in examining energy policy,
the Commission is optimistic that there will be a legislative vehicle
for making these changes and thereby for updating the Atomic Energy
Act. As you know, the Commission has expressed significant concerns
about several provisions that were contained in H.R. 4 and H.R. 2938
from the last Congress. We would be pleased to work with the Committee
in addressing those concerns.
SUMMARY
The Commission has long been, and will continue to be, active in
ensuring the adequate protection of public health and safety, the
common defense and security, and the environment in the application of
nuclear technology for civilian use. The Commission is mindful of the
need to: (1) reduce unnecessary burdens, so as not to inappropriately
inhibit any renewed interest in nuclear power; (2) maintain open
communications with all its stakeholders; and (3) continue to encourage
its highly qualified staff to strive for increased efficiency and
effectiveness.
I look forward to working with the Committee, and I welcome your
comments and questions.
Mr. Barton. Thank you, Mr. Chairman.
We now recognize the distinguished Chairman of the Federal
Energy Regulatory Commission, Mr. Wood. Do you know how long
your statement--5 minutes. Okay, we will give you 6 minutes
also.
STATEMENT OF HON. PATRICK WOOD
Mr. Wood. Thank you, Mr. Chairman and members. Dependable,
reliable, affordable, competitive wholesale energy markets
require three key elements. Adequate infrastructure, balanced
market rules and vigilant market oversight.
Since I became chairman 18 months ago at the FERC, the
commission has been aggressively moving forward on each of
these three elements.
For example, recently the commission has acted to safeguard
information about our critical energy infrastructure. We have
held public conferences across the country to assess
infrastructure adequacy in the different regions of the
country.
We propose to limit the sharing of cash assets between
regulated and unregulated affiliates in ways that can harm
utility customers, and, importantly, we formed a new office
that is focused solely on market oversight and enforcement.
For wholesale electric energy markets, the commission is
proposing to adopt a platform of market elements that are
shared by the best functioning markets in the world.
We are looking at financial incentives for building new
transmission or operating transmission independently of
generation ownership and we are looking at a streamlined
process to interconnect new generation to the transmission grid
for that day in the future when supply and demand come closer
into balance.
The commission also intends to act soon on the proceedings
involving the energy crisis of 2000-2001, before Commissioner
Brownell and I arrived at the commission, which plagued
California and the west, including the refund proceedings, the
staff's investigation of evidence of market manipulation in the
energy markets in the west, efforts to revisit or reform long
term power contracts, and the alleged withholding of natural
gas transportation capacity on a major pipeline serving the
California markets.
For gas markets itself, the commission has significantly
expedited its processing of natural gas pipeline construction
applications, cutting by one-third the environmental and
sighting and regulatory reviews that existed when I was at FERC
last in 1992.
We stand ready to process any applications to bring a
pipeline of Alaska natural gas into the lower continental
market. And in addition, the commission has taken steps
recently to encourage greater development and streamline the
regulatory approach for liquified natural gas, imported natural
gas on barges to the United States from other countries or from
other parts of our country.
That is a critical part of our long term gas solution. The
commission has also proposed ways to streamline the processing
of hydroelectric projects, which are an important part of the
commission's responsibility under the law.
Our intent in this process is to craft a more efficient and
timely process, while balancing the required stakeholder
interest and improving the quality of decisionmaking.
In my view, in that light of what the commission is up to,
to try to accomplish its statutory responsibilities, I would
envision that there are three critical steps that Congress
could take.
The first of which is to clarify FERC's authority to obtain
the market information necessary for price discovery and
effective monitoring of gas and electric markets; a lot of
which is in the bill, a few others are recommended in my
testimony.
Second, to increase the civil and criminal penalties for
violations of both the Federal Power Act and the Natural Gas
Act. Again, the Power Act issues are dealt with in the
electricity title.
And third, to take the steps required to make the Alaska
Natural Gas Pipeline project a reality in this decade.
This enormous Alaska Gas project is of national
significance, and in order to maintain the long term health of
all the energy markets, it must be built.
Chairman Barton, your proposed legislation would take a
number of steps in these various areas, as well as a number of
others that are really outside the FERC's issues, and I think
that they will collectively provide strong support for a
continued evolution of well overseen competitive wholesale
energy markets to meet the Nation's future electric needs and
natural gas needs as well.
[The prepared statement of Hon. Patrick Wood follows:]
Prepared Statement of Hon. Pat Wood III, Chairman, Federal Energy
Regulatory Commission
I. BACKGROUND
I appreciate the opportunity to testify on the current status of
energy markets under the jurisdiction of the Federal Energy Regulatory
Commission (FERC or the Commission). Today, I would like to focus
particularly on natural gas data reporting, the Alaskan Natural Gas
Transportation System, wholesale electricity markets and hydroelectric
licensing.
Dependable, affordable, competitive wholesale energy markets
require three key elements--adequate infrastructure, balanced market
rules and vigilant oversight. Weakness in any one element can harm
markets, American energy customers, and ultimately the entire U.S.
economy. The Commission is pursuing a number of initiatives to
establish the framework needed to spur investment in much-needed
infrastructure, to support the most efficient and competitive wholesale
marketplace, and to adequately monitor the marketplace so customers
continue to derive benefits from energy markets. Achieving these goals
restores confidence to investors and customers by promoting greater
transparency and regulatory certainty.
This FERC's commitment to prevent future market abuses, and to
remedy past ones, is now a firmly established part of our agency's
mission, and we will continue to strengthen our present coordination
with other federal agencies to ensure that we effectively regulate
energy industries so that customers and investors are fully protected.
Additionally, the Commission is moving aggressively to take steps
within its authority to remedy problems in the California and Western
energy markets. The Commission has learned many lessons from the
Western energy crisis in 2000-01, which caused unacceptable harm to
ratepayers and demonstrated the consequences of poorly designed
wholesale markets. We also have learned lessons from successful
wholesale market reforms in the East. The Commission remains convinced
that customers are best served by moving forward to complete the
transition of the wholesale power business to competition. We are
drawing from markets that work well to develop a national platform for
competitive wholesale energy markets.
While the Commission is taking steps within its authority to
encourage needed electric and natural gas infrastructure and to bring
stability and regulatory certainty to energy markets, there are several
actions that the Congress could take to help us do our job more
effectively and to ensure adequate protection of energy customers. In
my view, the three most important steps that Congress can take are
these: first, clarify FERC's authority to obtain market information
necessary for price discovery and effective monitoring of natural gas
and electric markets; second, increase civil and criminal penalties for
violations of the Federal Power Act (FPA) and Natural Gas Act (NGA) or
our rules and regulations thereunder; and, third, take the steps
required to make the Alaska Natural Gas Pipeline project a reality in
this decade. With respect to the Alaska Natural Gas Pipeline project,
in particular, I would observe that this enormous project is of such
national significance that Congress may want to consider focused
financial support in any legislation. Chairman Barton's proposed
legislation would take a number of steps in these areas as well as
provide support for the continued evolution of strong competitive
wholesale energy markets to meet our future energy needs.
II. INITIATIVES IN ENERGY MARKETS GENERALLY
While the natural gas and electricity industries differ in some
ways, they share many issues. For example, both raise the issue of how
we can safeguard our energy infrastructure against terrorists. Both
also raise issues on the need for dependable, transparent accounting
and the separation of utility operations financed by captive customers
from unregulated ventures. On these issues and others, the Commission
has taken a cross-industry approach to protect the interests of our
Nation's energy customers.
Critical Energy Infrastructure Information (CEII)--On February 21,
2003, the Commission issued a final rule to protect the American public
by safeguarding certain information about the Nation's energy
infrastructure. Within a month of the terrorist attacks of September
11, 2001, the Commission began a public proceeding to examine its CEII
policies. The final rule defines CEII and establishes a timely
procedure for the public to request and obtain such information, which
encompasses only a small portion of the information available from the
Commission.
Regional Infrastructure Conferences--In the past 20 months, the
Commission held conferences to address infrastructure concerns across
the country--California, the Northeast, Southeast, Midwest and West.
The aim of these conferences was to conduct in-depth studies of the
broad conditions of the area's energy infrastructure, and to understand
the issues in each region. These conferences featured informative
presentations on the state of each region's energy infrastructure
(electric power plants, fuel sources, hydroelectric facilities, gas
pipelines, electric transmission system, and other relevant
information), demographic and energy load forecasts, and were attended
by state energy regulators as well as industry members and concerned
citizens.
Proposed Rules on Regulation of Cash Management Practices--In
August 2002, the Commission proposed requirements for participation by
public utilities and natural gas pipelines in cash management programs
in order to prevent the abuse of such programs. Such abuse could occur
where cash from Commission-regulated utility subsidiaries is
transferred to the parent holding company and then used to finance
unregulated activities by non-utility subsidiaries. The Commission has
received comments on this proposal and I expect that we will act on
this matter very soon.
Proposed Rulemaking on Affiliate Standards of Conduct--In September
2001, the Commission proposed to revise its restrictions on the
relationship between regulated transmission providers and their energy
affiliates. The Commission proposed, for example, to broaden the
definition of an affiliate to include newer types of affiliates,
including those operating trading platforms. The proposed standards of
conduct would rely on three principles to prevent transmission market
power from being exercised in commodity markets: (1) separating
employees engaged in transmission services from those engaged in
commodity marketing services; (2) ensuring that all transmission
customers, affiliated and non-affiliated, are treated on a non-
discriminatory basis; and (3) prohibiting a transmission provider from
granting its energy affiliate an undue preference over non-affiliates
by sharing confidential or transmission information. The Commission
also proposed to eliminate the differences between the Commission's
rules for natural gas companies and electric utilities. The Commission
intends to adopt final rules soon.
Final Rule on Accounting--In October 2002, the Commission issued a
final rule on accounting and reporting of financial instruments,
comprehensive income, derivatives and hedging activities. The final
rule directs public utilities, licensees, natural gas companies and oil
pipelines to report changes in the fair value of certain investment
securities, derivatives and hedging activities. The new rules will
enhance the transparency of financial information and facilitate a
better understanding of the nature and extent to which derivatives and
hedging activities are used by regulated companies and the impact these
transactions may have on the companies' financial condition.
Industry Financial Condition Conferences--In January and February
the Commission hosted two conferences on financial conditions in the
energy markets. At these conferences, a number of factors were cited as
causing the current financial problems. FERC is continuing to explore
solutions to the financial conditions in the energy sector.
Office of Market Oversight and Investigations (OMOI)--In order to
better understand natural gas, oil and power markets and to swiftly
remedy market rule violations and abuse of market power, the Commission
created the new Office of Market Oversight and Investigations (OMOI).
In August 2002, OMOI became a formal, functioning office within the
Commission, reporting directly to the Commissioners. OMOI serves as an
early warning system to alert the Commission when market problems
develop, and allows the Commission to analyze and address any problems
more quickly. OMOI has begun an aggressive program of outreach to a
wide variety of entities including: other federal, state and provincial
regulatory agencies, state consumer advocates, industry participants,
academic institutions and think tanks, financial institutions (such as
ratings agencies), and Market Monitoring Units (MMUs) at Regional
Transmission Organizations (RTOs) and Independent System Operators.
III. INITIATIVES IN THE ELECTRIC ENERGY MARKET
The Commission has begun or continued work on numerous efforts to
improve the performance, transparency and oversight of the wholesale
electricity markets. These efforts, aimed at ensuring that electric
energy customers receive adequate supplies at reasonable prices,
include the following.
Proposed Rulemaking on Standard Market Design--On July 31, 2002,
the Commission issued proposed rules on a standard market design for
wholesale electric energy markets, including a comprehensive plan for
mitigating market power and market manipulation. The proposed rules are
intended to provide certainty to all market participants, encourage new
infrastructure investment, promote fair competition and prevent a
repeat of the mistakes made previously in California. The proposed
rules would remedy remaining undue discrimination in the use of the
Nation's interstate transmission grid and also provide a solid platform
to ensure that wholesale markets produce just and reasonable rates for
customers.
Experience in the United States and abroad has shown that
successful power markets have certain core features in common. These
include an independent grid operator; a single transmission tariff; a
long-term bilateral contract market; an available short-term spot
market with transparent prices; regional transmission planning;
locational price signals; transmission rights; and, appropriate
mitigation rules to protect against the exercise of market power.
This platform of market features works in hydro-based systems like
Scandinavia, South America and New Zealand. It works in areas where
generation may be distant from population centers as well as areas with
highly networked transmission grids. It works with thermal- and
stability-limited systems. It respects treaties, contracts, and various
forms of state regulation. It is essentially what has already been
developed in both the more mature power markets in the Northeast, mid-
Atlantic, Midwest and Texas, as well as in those markets developing in
the West and South.
Importantly, this platform leaves plenty of room for regional
variation. In our RTO dockets, we concluded that certain functions are
needed to make wholesale power markets work, but they need not be done
the same in every part of the country. These functions include, for
example, transmission planning, resource adequacy, mitigation
techniques, and RTO governance.
A platform based on these core features includes a strong customer
protection plan. It checks generation market power through mitigated
prices when necessary. It solves transmission market power through
structural separation between transmission owners and generators. It
fully protects existing wholesale contracts and native load service. On
the infrastructure side, it encourages and eases entry of new
generation into the market, facilitates new transmission construction,
and promotes demand-side bidding as a check on supplier market power.
The Commission has engaged in extensive public outreach both prior
to the issuance of the proposal and since that time. We continue to
listen to all constituencies in developing final rules. The Commission
anticipates issuing, and obtaining public comment on, a white paper
reflecting our reaction to the over 1,000 filed comments and 300+
meetings we have held since last August. Due to their necessary
breadth, the proposed rules have received much attention. Getting these
rules right, and thus increasing the benefits to customers from
competitive bulk power markets, is a priority for the Commission.
Proposed Policy Statement on Rate Incentives for Transmission
Independence and Expansion--On January 15, 2003, the Commission issued
a proposed policy statement to allow a higher return on equity when a
utility participates in an RTO, sells its RTO-operated transmission
asset to an independent company, or pursues additional measures that
promote efficient operation and expansion of the transmission grid.
Under the proposal, a utility's return on equity could be increased by
50 basis points for joining a Commission-approved RTO, 150 basis points
for selling RTO-operated transmission assets to an independent company
and 100 basis points for investing in new transmission facilities found
appropriate pursuant to an RTO planning process. This proposed policy
would further the Commission's goal of achieving a robust
infrastructure for the future and bringing lower prices and cost
savings to all customers. The proposed policy would help encourage
needed investment in transmission infrastructure and improve grid
performance. Comments are due early this month. This policy supports,
and is consistent with, the transmission tax incentives and other
language in the proposed legislation.
Information Filing Requirements--Improving market transparency
requires detailed reporting on transactions. On April 25, 2002, the
Commission issued a final rule (Order No. 2001) to enhance public
access to information on public utility services and sales by requiring
public utilities to electronically file quarterly reports. This final
rule is intended to equalize reporting requirements for traditional
utilities and power marketers, making information more easily available
to the public and helping to streamline compliance with the filing
requirements of FPA section 205. The data contained in the new Electric
Quarterly Report will provide greater price transparency, promote
competition, enhance confidence in the fairness of the markets and
provide a better means to detect and discourage discriminatory
practices.
Proposed Rulemakings on Standardized Generator Interconnections--
The Commission recently has undertaken two rulemakings to standardize
agreements and procedures for generators seeking to interconnect and
participate in the wholesale market. The first applies to large
generators (i.e., those producing over 20 megawatts) and was the
subject of proposed rules issued April 24, 2002. The second applies to
small generators (i.e., those producing no more than 20 megawatts), and
was the subject of an advanced notice of proposed rulemaking issued
August 16, 2002. Each rulemaking will produce a set of standard
generator interconnection procedures, which describe the procedural
steps for studying and securing a requested interconnection, and a
standard generator interconnection agreement for use by interconnection
providers and customers. The Commission expects that these rulemakings
will help ensure that reliability needs will be met, provide greater
certainty to generators wishing to participate in the wholesale market,
and, importantly, shorten the time needed to get a project brought on
line.
Policy on Conditioning Public Utilities' Issuances of Securities--
To prevent public utilities from borrowing substantial amounts of money
and diverting the proceeds to finance non-utility businesses, the
Commission issued an order on February 21, 2003, announcing a policy
placing conditions on all new issuances of secured and unsecured debt
authorized by the Commission under FPA section 204. These conditions
state, for example, that a public utility seeking authorization to
issue debt secured by utility assets must use the proceeds of the debt
for only utility purposes. Similarly, if the assets securing such debt
are divested or ``spun off,'' the debt must ``follow'' the asset and be
divested or ``spun off'' as well.
At its core, the policy ensures that any encumbrance of utility
assets is used for utility purposes. This policy should ensure that
future issuances of debt are compatible with the public interest and
will not impair a public utility's ability to perform its duties and
provide appropriate ratepayer protection. These concerns also lead me
to believe that FERC should have authority under the Natural Gas Act
similar to FPA section 204.
IV. PENDING CALIFORNIA-RELATED PROCEEDINGS
In addition to the initiatives described above, there are several
proceedings related to the Western energy crisis in 2000-01 currently
pending before the Commission. These proceedings are discussed below.
On February 13, 2002, in Docket No. PA02-2-000, the Commission
formally announced a fact-finding investigation into whether any entity
had manipulated electric energy or natural gas prices in the West since
January 1, 2000. In conducting this investigation, Commission staff has
coordinated closely with staff from the Department of Justice, the
Securities and Exchange Commission, the Commodity Futures Trading
Commission, and the Department of Labor. On August 13, 2002, Commission
staff released an initial report of its investigation. Based on the
staff report, the Commission initiated formal enforcement proceedings
under FPA Section 206 regarding possible misconduct by a number of
utilities. These proceedings are pending before administrative law
judges.
A public written report dealing with all aspects of this staff
investigation is on schedule to be released later this month. The
Commission will consider all relevant evidence from this investigation
once we receive the final report. The Commission also has set up a
process which has allowed the parties in the California proceedings to
conduct discovery on market manipulation in the same time period.
Parties submitted additional evidence and proposed new and/or modified
findings of fact on March 3, 2003. Reply submissions are due on March
20, 2003.
With respect to the California refund proceeding for calculating
the amount of overcharges from October 2000 through June 2001, the
Administrative Law Judge (ALJ) issued his proposed findings in December
2002. The Commission is currently reviewing the ALJ's proposed
findings.
The Commission is also currently reviewing the recommendations and
proposed findings issued by an ALJ regarding whether rates charged for
spot market bilateral sales in the Pacific Northwest for the period
December 2000 through June 2001 were unjust and unreasonable. Also, in
recent weeks, the Commission has received several decisions by ALJs on
complaints seeking to modify long-term contracts for the sale of
wholesale power in California or the West. Finally, the Commission is
reviewing an ALJ's decision on whether El Paso Natural Gas Company and
its affiliates exercised market power in order to drive up natural gas
prices at the California border in 2000-01.
The Commission will act on all of these matters soon. Then,
customers can receive all appropriate refunds, utilities can have
regulatory certainty and all of us can focus on the important goal of
preventing this from ever happening again.
V. INITIATIVES IN THE NATURAL GAS MARKET
As with the electric energy markets, the Commission has launched
numerous initiatives designed to improve the performance, transparency
and oversight of the natural gas markets. These initiatives include the
following.
Liquified Natural Gas (LNG) Facilities--To help meet the Nation's
increasing demand for natural gas, the Commission in December 2002
charted a new course for the treatment of LNG facilities. The
Commission allowed the Hackberry LNG facility in Lake Charles,
Louisiana, to provide terminalling services without a FERC tariff and
rate schedules, similar to the approach used for natural gas production
facilities. The Commission retains authority over all siting and
environmental aspects of onshore LNG facilities. We anticipate that the
new policy will stimulate the development of new LNG terminals by
accommodating various business models and will ultimately result in
increased gas supplies in the United States. Since issuing the
Hackberry decision, the Commission has been in various stages of
discussions and application processing with about ten companies
pursuing some 20 different LNG import terminal locations with a total
potential daily send-out of about 12 Bcf. This amount is at least twice
the projected capacity of an Alaskan gas pipeline.
Emergency Reconstruction of Pipelines--The Commission has proposed
rules on emergency reconstruction of interstate natural gas facilities
when immediate action is required to restore natural gas service due to
a sudden, unanticipated natural event or a deliberate effort to disrupt
natural gas service. The Commission is currently reviewing comments
received in February 2003.
Reporting on Natural Gas Data--As part of its fact-finding
investigation on electric energy and natural gas prices in the West
since January 1, 2000, Commission staff gathered information that
raised doubts about the accuracy of information reported in many
wholesale natural gas price indices. Current industry practice is for
the trade press to gather price information by polling traders. The
markets cannot function efficiently without accurate wholesale price
information. Although the industry and the trade press are now taking
steps to improve the dependability of the natural gas price indices, it
is unclear whether these steps are sufficient to restore customer,
investor and counterparty confidence.
Quicker Processing of Proposals to Build or Expand Pipelines--The
Commission has improved the efficiency of its pipeline certificate
process, and we have a number of initiatives underway to achieve even
greater streamlining. During the period beginning in January 2001, the
Commission authorized just under 16 Billion cubic feet per day (Bcfd)
of new pipeline capacity, raising total daily deliverability to 131
Bcfd. Of these additions, over 50 percent is earmarked for electric
generation, with the greatest growth in that sector occurring in the
Southeast and West. On average, these certificate applications took
about 200 days to process, a marked improvement over the average turn-
around time of nearly 300 days some years ago.
While our current inventory of pending projects is relatively low
compared to the recent past, we anticipate increasing activity in the
future. In preparation, we are pursuing several streamlining
initiatives that combine early identification and resolution of issues,
concurrent consideration by other agencies and increased opportunities
for stakeholder involvement. One such initiative is the National
Environmental Policy Act (NEPA) Pre-Filing Process, which entails a
more interactive NEPA process well in advance of the application being
filed, with earlier, more direct involvement by FERC staff, other
agencies and landowners, resulting in an overall time savings to obtain
a certificate.
Also, in accordance with the President's National Energy Policy,
which among other things calls for actions to expedite energy-related
projects, the Commission and nine other federal agencies (the
Departments of the Army, Agriculture, Commerce, Energy, the Interior,
Transportation, the Environmental Protection Agency, the Advisory
Council on Historic Preservation, and the Council on Environmental
Quality) in August 2002 signed an interagency agreement, providing that
the Commission will be the lead agency for environmental review of
interstate natural gas pipelines under the Natural Gas Act, that there
will be early interagency communication to determine schedules,
identify issues, and share information, that alternative routes and
mitigation measures will be developed jointly, and that necessary
permits will be issued jointly. The agencies completed an
implementation plan for the agreement in November 2002, and have
established a working group, chaired by the Commission, to oversee
implementation.
VI. INITIATIVES REGARDING HYDROELECTRIC LICENSING
The licensing of non-federal hydroelectric projects under Part I of
the FPA is the Commission's original mission, and still a vital aspect
of the Commission's efforts to ensure workable, competitive energy
markets. My fellow Commissioners and I are well aware of the need to
ensure that our licensing processes are in tune with the need of
today's markets for regulatory certainty and more efficient
decisionmaking on this important part of the Nation's energy mix. In
keeping with these considerations, the Commission on February 20, 2003,
issued a notice of proposed rulemaking presenting a comprehensive plan
that will result in more efficient and timely processing of
hydroelectric licenses while also balancing stakeholder interests and
improving the quality of decisionmaking.
The proposal, referred to as the ``integrated'' process, would
become the Commission's primary licensing process, with the existing
alternative licensing process (ALP) and the traditional process
remaining as options for applicants in certain situations.
The highlights of the proposed rule are:
<bullet> increased assistance by Commission staff to potential
applicants and stakeholders during the development of license
applications;
<bullet> greater coordination among the Commission and federal and
state agencies with mandatory conditioning authority;
<bullet> carrying out the Commission's environmental scoping process in
conjunction with the applicant's pre-filing consultation;
<bullet> increased public participation in the pre-filing consultation
process;
<bullet> establishing schedules and deadlines for all participants,
including Commission staff;
<bullet> development of a Commission-approved study plan by the
applicant, with informal resolution to study disagreements,
followed by mandatory, binding study dispute resolution, if
necessary;
<bullet> elimination of the need for post-application study requests;
and
<bullet> creation of a new Commission Tribal Liaison, to be the point
of contact for Native Americans' concerns regardless of the
proceeding or issue.
In addition, the traditional licensing process would be modified by
increasing public participation, and by establishing mandatory, binding
dispute resolution for necessary studies.
Before issuing the proposed rule, Commission staff held regional
forums around the country, as well as drafting sessions in Washington,
D.C., to discuss the licensing process with stakeholders and to
collaboratively draft regulatory language. We plan to obtain further
public input through regional workshops to be held around the country
in March and April 2003 to discuss stakeholder reaction to the proposed
rule. A four-day drafting session is scheduled in April in Washington
to draft language for the final rule.
VII. COMMENTS ON THE DRAFT LEGISLATION
The draft legislation addresses a wide range of energy issues
confronting our Nation. I will focus on the issues affecting FERC's
responsibilities. On these issues, the draft legislation takes a good
approach. I would suggest a few modifications and some additional
provisions, as described below. If the Committee wishes, I would be
happy to provide, in writing after the hearing, a detailed technical
analysis of the legislative language.
Section 7081, Market Transparency Rules--This section would require
FERC to issue rules establishing an electronic information system,
accessible by the public, specifying the availability and price of
wholesale power and transmission services. I support this section
because more transparency is needed in energy markets and customers
should have access to the broadest range of useful market information.
I note that this section refers to ``markets subject to the
Commission's jurisdiction,'' but does not explicitly mention natural
gas markets. I suggest modifying this section to clarify the
Commission's authority to obtain information on natural gas prices
(since these are an important factor in wholesale power prices), or
that a separate section be added to the legislation clarifying FERC's
authority under the NGA to obtain such information for purposes of
price discovery.
Section 7084, Enforcement--This section would significantly
increase the penalties available under the FPA. I have long supported
increasing these penalties, and believe the increases proposed here are
appropriate. I recommend including similar penalties under the NGA.
Section 7091, Refund Effective Date--This section would eliminate
the 60-day wait at the beginning of the refund period under the FPA, so
that refunds would be allowed from the date a complaint is filed,
instead of only 60 days later. I support this change, and also
recommend including a similar provision in the NGA.
Section 7101, Mergers and Other Dispositions--This section would
repeal FPA section 203, which requires Commission approval of most
mergers and other dispositions involving public utilities. In light of
the proposed PUHCA repeal, repealing section 203 without including the
public interest review standard in another agency's specific duties may
not be good policy. The Commission deals with the electric industry on
a daily basis and much more closely than do the federal antitrust
agencies. Thus, the Commission is better able to identify and remedy
any harmful effects of mergers and other dispositions and to ensure
that customers' rates are not adversely affected. Our efforts do not
duplicate those actually being performed today by other merger
reviewing agencies. The Commission has used its section 203 authority
as intended by Congress, and appropriately, to ensure that mergers and
other dispositions are consistent with the public interest.
Sections 2001-14, Alaska Natural Gas Pipeline--Over the last
several years, there has been much renewed interest, in both the
private and public sectors, in the development of the transportation
infrastructure needed to bring Alaskan natural gas, including supplies
from Alaska's North Slope, to markets in the Lower 48 states. The
importance of Alaskan natural gas supplies is obvious; indeed, it is
impossible to envision the 30-35 Tcf annual domestic market that the
Department of Energy has estimated may exist by 2020 without Alaskan
natural gas. Although there are currently no applications before the
Commission regarding an Alaska natural gas transportation project, the
need for Alaskan natural gas in the Lower 48 market is only going to
increase.
We will make every effort to process and act upon any applications
for Alaska gas transportation projects as efficiently as possible,
working with the applicants, other federal and state agencies, Native
Americans, shippers, end users, and other interested parties, to ensure
timely, reasonable decisions. Over the past two years, the Commission
staff has participated in the Interagency Alaska Natural Gas Task
Force, along with representatives of the Departments of Energy, State,
Interior, and Transportation, in order to prepare, to the extent
possible, for streamlined government action on an application for an
Alaska gas pipeline.
I strongly support the goals of this legislation, which provides a
statutory framework for the expedited approval, construction, and
initial operation of an Alaska natural gas transportation project. The
bill helpfully resolves some significant questions with respect to
potential projects. There are some matters that may benefit from
additional clarification, such as the extent to which the Commission
would need to interact with the proposed Federal Coordinator as it
reviews and acts on any certificate application. I would be happy to
provide the Committee with more detailed comments on this and other
provisions of this Subtitle.
I can assure you that any application ultimately filed with the
Commission, will be reviewed thoroughly, promptly, and fairly, with the
public interest firmly in mind, and with a clear understanding of how
important Alaska natural gas is to our Nation's long-term energy
security. With respect to the Alaska Natural Gas Pipeline project, in
particular, I would observe that this enormous project is of such
national significance that Congress may want to consider focused
financial support in any legislation.
VIII. CONCLUSION
Events of the past three years have demonstrated the critical role
that energy plays in our Nation's economic well-being. I appreciate the
opportunity to contribute to your debate on the best ways to ensure
that this crucial industry continues to support the many demands placed
on it by our citizens, and I will be happy to answer any questions you
may have.
Mr. Barton. Thank the chairman. We have inadvertently
seated Commissioner Brownell and Commissioner Massey out of
order. Mr. Massey is actually senior to Mrs. Brownell.
So we are going to give Mr. Massey an opportunity to speak
first, if he wishes to. Would you like to speak before
Commissioner Brownell?
Mr. Massey. However you would like to handle it, Mr.
Chairman.
Mr. Barton. Well, you are senior, and this was not
intentional, we just screwed up, to be honest about it and we
want--since you are the senior member, we are going to
recognize you for 5 minutes and then we will go to Mrs.
Brownell to be the clean up hitter.
STATEMENT OF HON. WILLIAM L. MASSEY
Mr. Massey. Thank you, Mr. Chairman and members of the
subcommittee for this opportunity to testify about the
important energy policy questions that face both this
subcommittee and the Federal Energy Regulatory Commission.
There are high prices in energy markets as the much colder
than normal winter of 2003, lingers, and demand for natural gas
remains high.
Natural gas prices in both the production and market areas
are sharply higher than normal, and unusually volatile. The
commission must take a hard look at the cause of these dramatic
price spikes.
Higher natural gas prices have caused a sharp spike in
electricity prices as well in a number of markets. These events
are rippling through the U.S. economy, impacting industrial
users, businesses and residential consumers.
In addition, the western energy crisis, coupled with the
collapse of Enron, have left their wake within the energy
industry.
Investor and lender confidence has been shaken by these
events by a declining national economy, by indictments of
energy traders, by accounting irregularities, downgrades by
rating agencies and continuing investigations by the FERC, the
CFTC, SEC and the Justice Department.
These investigations are important and necessary and must
leave no stone unturned. Refunds must be made for customers
that paid unjust and unreasonable prices.
And those found to have manipulated the market, should be
punished. Nevertheless, all of these events have severely
eroded capital availability for critical infrastructure
projects, and I am concerned about that.
In these times it is particularly important for the
commission to promote clear market rules and structure,
reasonable and stable regulation of energy transmission and
comprehensive market monitoring.
The commission must conduct thorough and forceful
investigations and oversight to ferret out abuses and our
remedies must be tough-minded and appropriate.
In his testimony, Chairman Wood provides a thorough outline
of the initiatives underway at the commission that are aimed at
reforming electricity and natural gas markets to ensure just
and reasonable prices and customer benefits.
I share his vision of well-functioning markets with
regulators playing an important role in determining market
structure, prohibiting discrimination, enforcing transparent
market rules and engaging in vigilant oversight and monitoring.
In the electricity title of the draft I agree with the call
to form regional transmission organizations. The proposal to
provide the commission with back up authority for transmission
sighting is an excellent idea.
I support the authorization to develop an electronic
information system regarding price and availability of services
in the market, and the prohibition of round trip trading.
I urge you to extend these provisions to natural gas
markets as well. Increasing the level of civil penalties the
commission may impose is a welcome addition to the tools we
have to police markets.
I recommend that the commission be given direct authority
to mitigate market power in jurisdictional markets. Removing
the 60 day delay and the refund effective date for complaints
provides additional customer protection and I support it.
I cannot support repealing the commission's merger review
authority under the Federal Power Act. Recent gas price
volatility is of great concern to me.
I am deeply concerned about the impact of these high prices
on customers. The commission would be better able to evaluate
natural gas price spikes if there were more reliable price
transparency.
I would amend section 7081 to extend its information
availability provisions to natural gas markets. Likewise, I
would amend the proposed section 7084, to provide the
commission with authority to impose civil penalties for
violations of the Natural Gas Act, an authority the commission
now lacks.
I fully support measures to facilitate natural gas supply
projects, such as our light-handed regulation of LNG and
efforts to streamline processing of natural gas infrastructure
projects.
Thank you, Mr. Chairman, I look forward to answering any
questions.
[The prepared statement of Hon. William L. Massey follows:]
Prepared Statement of Hon. William L. Massey, Commissioner, Federal
Energy Regulatory Commission
Mr. Chairman and members of the Subcommittee on Energy and Air
Quality, thank you for the opportunity to provide testimony about the
important energy policy issues facing both this subcommittee and the
Federal Energy Regulatory Commission.
There are high prices in energy markets as the much colder than
normal winter of 2003 lingers and demand for natural gas remains high.
Natural gas prices both in the production and market areas are sharply
higher than normal and unusually volatile. Members of Congress have
asked the Commission to investigate the cause of these dramatic price
spikes. Higher natural gas prices have caused a sharp spike in
electricity prices as well in a number of markets. These events are
rippling through the U.S. economy, impacting industrial users,
businesses and residential consumers.
In addition, the western energy crisis, coupled with the collapse
of Enron, have left their wake within the energy industry. Investor and
lender confidence has been shaken by these events, by a declining
national economy, indictments of energy traders, accounting
irregularities, downgrades by rating agencies, and continuing
investigations by the FERC, CFTC, SEC and Justice Department. These
investigations are important and necessary, and must leave no stone
unturned. Nevertheless, all of these events have an impact on investor
and lender confidence and have severely eroded capital availability for
the energy industry.
In these times, it is particularly important for the Commission to
promote clear market rules and structure, reasonable and stable
regulation of energy transmission, and comprehensive market monitoring.
The Commission must conduct thorough and forceful investigations and
oversight to ferret out abuses.
In his testimony, Chairman Wood provides a thorough outline of the
initiatives underway at the Commission that are aimed at reforming
electricity and natural gas markets to ensure just and reasonable
prices and customer benefits. I would like to applaud Chairman Wood's
leadership. I share his vision of well functioning markets with
regulators playing an important role in determining market structure,
prohibiting discrimination, enforcing transparent market rules, and
engaging in vigilant oversight and monitoring. In the interest of
brevity, I would like to associate myself with his excellent testimony.
I will comment on particular issues raised by Chairman Barton's
draft legislation and by the subcommittee in its letter of invitation
to testify.
I. ELECTRICITY ISSUES
The development of competitive efficient wholesale electricity
markets is a highly desirable goal. This is primarily a federal
responsibility, and achieving this goal will benefit our nation's
consumers and economy. There are, however, a number of barriers to the
creation of robust markets, including grid operation influenced by
merchant interests and a patchwork of markets and rules governing the
grid. Almost a third of the grid is not subject directly to the FERC's
open access and nondiscrimination requirements. Necessary grid
expansion in not keeping pace with the requirements of robust wholesale
markets. This means that cheaper power cannot always reach the
customers who want it. The lack of uniformity in generation
interconnection standards among regions and utilities poses unnecessary
barriers to entry by generators that could provide cheaper power for
consumers. Demand responsiveness could act as a brake on price run ups,
yet is generally absent from electricity markets. Vibrant markets
require a reliable trading platform, yet there are no legally
enforceable reliability standards.
Ensuring just and reasonable prices must be addressed far
differently as we move to competitive markets than under the monopoly
structure. It is more complex now. The basic nature of our regulatory
tasks is changing. We are moving away from reviewing cost-based prices
charged by individual sellers and toward ensuring good performance by
markets.
Transmission infrastructure improvement rulemaking
Section 7011 of the discussion draft submitted by Chairman Barton
requires the Commission to adopt rules providing for incentive-based
and performance-based transmission rates. I support such a policy
direction. The Commission has already taken a step in this direction
with our proposed policy on incentive transmission rates that provides
enhanced returns on equity for transmission assets that are operated
independently from market participants and for new infrastructure
investment. Transmission will remain a monopoly service in restructured
markets and will need to be regulated, but a performance-based rate
approach, while presenting its own significant challenges, shows
promise as a way to reward efficient behavior while protecting
customers.
Section 7011 also requires the Commission to adopt rules allowing
participant funding for new transmission investment if it is requested
by an RTO or other Commission-approved transmission organization. I
support this policy direction. I have strongly supported the
participant funding provision in the Commission's Standard Market
Design proposal. It allows participant funding where there is a
locational pricing regime in place and the grid is managed by an entity
that is independent of market participants.
Transmission Siting
Although the Commission is responsible for well functioning
electricity markets, it has no authority to site the electric
transmission facilities that are necessary for such markets to thrive
and produce consumer benefits. Existing law leaves siting entirely to
state and local authorities. This contrasts sharply with section 7 of
the Natural Gas Act, which authorizes the Commission to site and grant
eminent domain for the construction of interstate gas pipeline
facilities. Exercising that authority, the Commission balances local
concerns with the need for new pipeline capacity to support evolving
markets.
The transmission grid is the critical superhighway for electricity
commerce, but it is becoming congested because of the new uses for
which it was not designed. Transmission expansion has not kept pace
with changes in the interstate electricity marketplace. Adequate grid
facilities are essential to robust wholesale power markets. I am
confident that transmission will be built in sufficient quantities if
siting authority is rationalized, appropriate price signals and
independent regional grid operation are put in place, and adequate cost
recovery mechanisms and risk-based rates of return are allowed.
Proposed section 7012 provides the Commission with backstop siting
authority to ensure that the necessary transmission facilities are
built in areas designated as an ``interstate congestion area'' by the
Secretary of Energy, and grants authority for states to form interstate
compacts for regional siting coordination. This provision appears to
provide appropriate respect for the siting prerogatives of the states
and recognizes the regional nature of today's electricity markets. The
provision has my support.
One Set of Transmission Rules
All interstate transmission should be provided under one set of
open access rules. That means subjecting the transmission facilities of
municipal electric agencies, rural cooperatives, the Tennessee Valley
Authority, and the Power Marketing Administrations to the Commission's
open access rules. These entities control a substantial share of the
nation's electricity transmission grid. Their current non-
jurisdictional status has resulted in a patchwork of rules that may
hinder seamless electricity markets. Markets require an open non-
discriminatory transmission network in order to flourish.
Section 7021 of the discussion draft would allow the Commission to
require open access service under a comparability standard by entities
that are currently not covered under our open access rules. I support
the thrust of this provision.
Regional Transmission Organizations
The Commission has made substantial progress in forming the
Regional Transmission Organizations that are critical to the
competitive market place. I firmly believe that large RTOs consistent
with FERC's vision in Order No. 2000 are absolutely essential for the
smooth functioning of electricity markets. RTOs will eliminate the
conflicting incentives vertically integrated firms still have in
providing access. RTOs will streamline interconnection standards and
help get new generation into the market. RTOs will improve transmission
pricing, regional planning, congestion management, and produce
consistent market rules. We know for a fact that resources will trade
into the market that is most favorable to them. Trade should be based
on true economics, not the idiosyncracies of differing market rules
across the region.
I interpret section 7022 of the discussion draft as a clear
declaration by the Congress that these institutions are in the public
interest and should be formed. It is my hope that such a clear message
from Congress will speed the formation of these critical institutions
in all regions of the nation. But I believe even stronger action may be
appropriate. I recommend that the Congress clarify existing law to
authorize the Commission to require the formation of RTOs and to shape
their configuration. Well structured Regional Transmission
Organizations are necessary platforms on which to build efficient
electricity markets. The full benefits of RTOs to the marketplace will
not be realized, however, if they do not form in a timely manner, if
they are not truly independent of merchant interests, or if they are
not shaped to capture market efficiencies and reliability benefits.
Reliability
Section 7031 of the discussion draft would provide for an Electric
Reliability Organization that is independent of market participants, to
develop and enforce mandatory reliability standards subject to
Commission oversight. I support this provision. We need mandatory
reliability standards. Vibrant markets must be based upon a reliable
trading platform. Yet, under existing law there are no legally
enforceable reliability standards. The North American Electric
Reliability Council (NERC) does an excellent job preserving
reliability, but compliance with its rules is voluntary. A voluntary
system is likely to break down in a competitive electricity industry.
Mandatory reliability rules are critical to evolving competitive
markets.
Demand Responsiveness
Markets need demand responsiveness to price. This is a standard
means of ensuring good resource allocation decisions and moderating
prices in well-functioning markets, but it is generally absent from
electricity markets. When prices for other commodities get high,
consumers can usually respond by buying less, thereby acting as a brake
on price run-ups. Without the ability of end use consumers to respond
to price, there is virtually no limit on the price suppliers can fetch
in shortage conditions. Consumers see the exorbitant bill only after
the fact. This does not make for a well functioning market.
Instilling demand responsiveness into electricity markets requires
two conditions: first, significant numbers of customers must be able to
see prices before they consume, and second, they must have reasonable
means to adjust consumption in response to those prices. Accomplishing
both of these on a widespread scale will require technical innovation.
A modest demand response, however, can make a significant difference in
moderating price where the supply curve is steep.
Section 7061 of the discussion draft sets out requirements for
real-time pricing and time of use metering and communications. I
support these provisions as necessary first steps toward increasing
demand responsiveness in electricity markets. I regard these provisions
as a message from the Congress that instilling a significant measure of
demand responsiveness into electricity markets is in the public
interest. I recommend that legislation strongly encourage FERC and
state commissions to cooperate in designing markets that include demand
responsiveness. This would help to ensure just and reasonable wholesale
prices and would be an effective market power mitigation measure.
PURPA purchase obligation
Section 7062 of the discussion draft would remove the purchase
obligation on the part of utilities for power from a QF facility if the
QF has access to independently administered day ahead and real time
markets, if the utility is a member of an RTO, or if the Commission
otherwise finds the QF has access to a competitive market for
electricity. I support the policy direction of this section.
Market transparency rules
Section 7081 of the discussion draft requires an electronic
information system, under the Commission's oversight, that provides
information regarding the availability and price of wholesale energy
and transmission services. I support this measure as providing
additional transparency to energy markets. Transparency is absolutely
necessary for good market decisions and to protect against manipulation
and other abuses. I recommend that Congress broaden the coverage of
this section to include natural gas markets as well. Natural gas
markets would certainly benefit from transparency, and natural gas is
an increasingly important input to electricity production.
Section 7081 also prohibits what has come to be known as round trip
trading. I strongly support this prohibition, and recommend that
Congress also extend this prohibition to natural gas trading.
Civil Penalties and Enforcement
Section 7084 of the discussion draft significantly increases the
penalties available to the Commission. I support this provision. If the
Commission is to be the ``cop on the beat'' of competitive markets, we
must have the tools needed to ensure good behavior. Refunds alone are
not a sufficient deterrent against bad behavior. The consequences of
engaging in prohibited behavior must be severe enough to act as a
deterrent.
I believe additional tools are needed for the Commission to ensure
that markets are structured so that the benefits of competition will
inure to consumers. The FERC, with its broad interstate view, must have
adequate authority to ensure that market power does not squelch the
very competition we are attempting to facilitate. However, the
Commission now has only indirect conditioning authority to remedy
market power. This is clearly inadequate. Therefore, I recommend
legislation that would give the Commission the direct authority to
remedy market power in wholesale markets, and also in retail markets if
asked by a state commission that lacks adequate authority. For example,
such authority would allow the Commission to order structural remedies
directly, such as divestiture, needed to mitigate market power.
Refunds
Section 7091 of the discussion draft would expand the refund
protection under section 206 of the Federal Power Act by eliminating
the 60-day delay in the refund effective date. I support this provision
but would recommend additional protections. As we have seen from past
experience, when market structure and market rules are flawed, or when
suppliers act in an anticompetitive manner, electricity prices can
quickly rise to exorbitant levels. During the time that it takes to
detect the market flaws or misbehavior and to file a complaint, unjust
and unreasonable rates are charged. The Federal Power Act states that
such rates are absolutely unlawful. Yet, the weight of court precedent
strongly suggest that retroactive refunds are impermissible. I
recommend clear statutory language that would allow the Commission to
order refunds for past periods if the rates charged are determined to
be unjust and unreasonable. Limitations may be appropriate on how far
back in time the Commission can order refunds.
Review of Mergers
Section 7101 of the discussion draft repeals the Commission's
authority to review mergers. I do not support this provision. As we
strive to move toward competitive markets and light-handed regulation,
the Commission's ability to remedy market power is increasingly
important. Market power is likely to exist in the electric industry for
a while. It is unreasonable to expect an industry that has operated
under a heavily regulated monopoly structure for 100 years suddenly to
shed all pockets of market power. An agency such as the FERC with a
broad interstate view must have adequate authority to ensure that
market power does not squelch the very competition the Commission is
attempting to facilitate.
The Commission's authority over mergers is important. While mergers
can produce efficiencies, they can also increase both horizontal and
vertical market power. The Commission is particularly well suited to
evaluate proposed mergers involving electric utilities. The
Commission's detailed experience with electricity markets and its
unique technical expertise can provide critical insights into a
merger's competitive effects. In addition, the Commission's duty to
protect the public interest is broader than the focus of the antitrust
agencies and thus allows us to better protect consumers from other
possible effects of a merger, such as unreasonable costs. As the
architect of Order No. 888 and Order No. 2000 (the RTO rule), the
Commission must retain the authority to condition a merger to ensure
consistency with broader policy goals. And unlike the antitrust
agencies, the Commission's merger procedures allow public intervention
and participation in proceedings critical to the restructuring of this
vital national industry.
For these reasons, I would not support any weakening of the
Commission's merger authority. Indeed, to ensure that mergers do not
undercut our competitive goals, I recommend that the Commission's
authority over electricity mergers be strengthened in a number of ways.
The Commission should be given direct authority to review mergers that
involve generation facilities. The Commission has been upheld in its
interpretation of the Federal Power Act as excluding generation
facilities per se from our direct authority. It is important that all
significant consolidations in electricity markets be subject to
Commission review. For the same reason, the Commission should be given
direct authority to review consolidations involving holding companies.
I am also concerned that significant vertical mergers can be
outside of our merger review authority. Under section 203 of the FPA,
our merger jurisdiction is triggered if there is a change in control of
jurisdictional assets, such as transmission facilities. Consequently,
consolidations can lie outside of the Commission's jurisdiction
depending on the way they are structured. For example, a merger of a
large fuel supplier and a public utility would not be subject to
Commission review if the utility acquires the fuel supplier, because
there would be no change in control of the jurisdictional assets of the
utility. If the merger transaction were structured the other way, i.e.,
the fuel supplier acquiring the utility, it would be subject to
Commission review. Such vertical consolidations can have significant
anticompetitive effects on electricity markets. Those potential adverse
effects do not depend on how merger transactions are structured, and
thus our jurisdiction should not depend on how transactions are
structured. Therefore, I recommend that the Commission be given
authority to review all consolidations involving electricity market
participants, however structured.
II. NATURAL GAS ISSUES
Gas Price Volatility
We have been following with great interest and concern the sharply
higher and volatile natural gas prices over the last couple of weeks.
The sustained cold weather brought prices at the Henry Hub up to the $4
to $5 range early in the winter, and prices have risen steadily as the
winter weather has persisted without much letup. In recent days, there
have been large price increases that we have not seen in some time.
Since February 21, prices at the Henry Hub have ranged from a low of
$6.73 to a high of $18.60 on February 25. It is vitally important that
the Commission investigate this phenomenon to get a clear understanding
as to what is driving this volatility and to determine whether these
price spikes are a dramatic response to normal seasonal cycles, or
other forces are at work.
This winter has been one of the coldest in years in the Northeast,
Mid-Atlantic and Midwest states. By some reports, it has been 29
percent colder in these regions than last year, and demand has
increased accordingly. Late winter storage is being drawn down more
rapidly than was expected, and cold weather has led to short-term
freeze-offs of some sources of supply. As a result of these factors, a
couple of major interstate pipelines last week instituted operational
flow orders, which reduce shippers' contractual rights to draw gas from
storage. Adding to the anxiety is the fact that the weather experts
believe that the winter heating season will continue at least for
several more weeks.
High natural gas prices have sharply increased the price of
electricity in wholesale markets. Thus, consumers of both natural gas
and electricity likely will feel the impact of this price volatility.
The Commission must investigate the causes of the price run-up. I am
deeply concerned about the impact of these prices on residential
consumers, businesses and industrial users.
Adequacy of Natural Gas Supply
Natural gas exploration and production activity, as reflected in
the number of gas drilling rigs, has increased over time, and will no
doubt increase more in response to these powerful price signals. Yet,
it takes time to develop a gas well--up to 18 months from new drilling
until gas finally flows to market. This puts more pressure on the
existing pipeline infrastructure, including storage, to meet winter
demands.
The Commission recently announced a new policy of light-handed
regulation for LNG import facilities. The Commission was persuaded that
its traditional open access requirement for LNG terminals would stifle
investment in these critical energy supply projects. Hence, the
Commission's new policy will allow such projects to be developed on a
proprietary basis. This regulatory approach represents the prevailing
view that these terminals are more akin to production facilities than
to interstate pipeline facilities and thus warrant less regulatory
scrutiny.
Adequacy of Natural Gas Infrastructure
The Commission has also taken steps to streamline its approval
process for new pipeline infrastructure. It is axiomatic that where
pipeline infrastructure is constrained, prices will rise as capacity
markets tighten. Basin differential price data lead to the conclusion
that perhaps several regions of the country are now short of natural
gas transmission capacity: the Rockies, the New York metropolitan area
and other parts of the Northeast, the Mid-Atlantic Coast, the Southeast
and Florida.
Traditionally, the pipeline industry has responded to price signals
and contracted with shippers to support capacity expansions, but the
deteriorating health of the industry and sharply reduced capital
availability is a cause for concern. I note with concern that there are
only a few significant pipeline construction applications now pending
at the Commission. Our Office of Energy Projects tells me that there
are 11 major pipeline certificate applications pending Commission
approval, totaling 4.0 Bcf/day in new capacity and covering about 783
miles of new pipeline. By way of comparison, early in the year 2001,
the Commission had under consideration project proposals for 7.3 Bcf/
day of new capacity and over 2,200 miles of additional pipeline.
Clearly, constrained areas are more prone to price spikes and to
market manipulation than are non-constrained areas. This puts a premium
on the Commission's ability to process expeditiously applications for
approval of new infrastructure additions, while balancing the need for
full participation by affected parties in the NEPA process. Our track
record is solid and getting better. From 2001 to the present, the
Commission has certificated 4,814 miles of new pipeline infrastructure,
with a total capacity of 15.8 Bcf/day. The Commission remains committed
to responding promptly to facilitate the approval of necessary
infrastructure projects. A vibrant market demands a solid
infrastructure foundation.
The draft legislation contains a major initiative that would
encourage the development of natural gas supplies in Alaska for
delivery both in that state and the lower forty-eight states. The
recent natural gas price spikes underscore the need to attach new
sources of production. Alaskan gas supplies would bolster our domestic
resource base and will be an essential part of the nation's energy
future. Our agency is prepared to process an Alaskan pipeline project
application expeditiously. I stand ready to consider any proposal or
proposals that are filed.
Shaken Confidence in Price Discovery Methods
It is clear that market participants must have timely access to
accurate information about prevailing prices. Price discovery, the
ability to access this price information, helps customers determine the
price they should pay for the service or commodity, helps sellers
determine and recover their investment, and allocates resources to the
customers who value them most. Over the last twenty years, the trade
press has created natural gas price indices through the polling of
market participants. The quality of the indices depends on the
integrity of the information collected and the number of active traders
who report. Accurate and credible price indices for natural gas are the
foundation for natural gas and electric transactions nationwide.
Unfortunately, the false reporting of price and volume information has
shaken confidence in these indices. The potential fallout includes the
nullification of existing contracts pegged to indices, and the
reluctance of parties to enter into new index-based contracts.
Accurate price indices are also required by pipeline tariffs. At a
January 15 Commission meeting, Commission staff pointed to three areas
of pipeline tariffs that refer to market price data: cash-out
provisions, penalties and basis differentials. Most major pipelines
have cash-out mechanisms that allow them to resolve system imbalances.
Accurate price information is essential if cash-out mechanisms are to
account for and minimize pipeline imbalances. The Commission has
approved some pipeline penalty provisions based on market indices to
deter shipper misconduct that can threaten system reliability. Finally,
many negotiated rate transactions peg the transportation rate to the
basis differentials between two or more price index trading points.
Given the prevalence of price index information in pipeline tariffs
and contracts, it is imperative that there be trustworthy indices. As a
first step, the Commission will probably adopt minimum standards for
the natural gas price indices used in pipeline tariffs or new
contracts. We will sponsor a technical conference this spring to
explore price index issues and various proposed remedies.
The Commission is also analyzing natural gas price index issues in
its massive ongoing Western market manipulation investigation. This
investigation has already found significant manipulation of published
price indices that were used by traders, pipelines, and power
generators. These indices also had been used by the Commission in
establishing a formula for determining refunds of overcharges arising
from the dysfunctional electric western power markets. FERC staff has
recommended that the Commission modify the refund formula to eliminate
any reliance on manipulated indices. Hundreds of millions of dollars,
perhaps billions of dollars, are at stake in that huge refund
proceeding. This only underscores that reliable price discovery methods
are an imperative in well-functioning natural gas and electric markets.
In addition to developing minimum standards for natural gas price
indices, some have suggested that the Commission take even more
aggressive actions. Some have suggested that the Commission gather and
report price data. I have an open mind about how to achieve price
transparency and facilitate price discovery. However, it is critical
that the Commission be prepared to take whatever action is necessary to
restore confidence in the natural gas price indices that undergird
natural gas pipeline tariffs and negotiated rate contracts.
Section 7081 of the discussion draft amends the Federal Power Act
to promote price transparency. FERC is directed to establish an
electronic information system. As I said earlier, I fully support this
provision and recommend that it be modified to apply explicitly to
natural gas markets as well.
Penalties and Refund Effective Date
Section 7084 of the discussion draft should be modified to provide
penalties for prohibited behavior under the Natural Gas Act.
I also recommend that the Natural Gas Act be amended to include the
refund effective date provisions of Section 7091 (with the further
modification I recommended earlier).
III. HYDROELECTRIC LICENSING ISSUES
The Commission has recently proposed a rulemaking to streamline the
hydroelectric licensing process to provide more efficient decision
making. A new process, an integrated process, is proposed to facilitate
increased assistance by Commission staff early in the process and to
promote greater coordination among federal and state agencies.
The proposed amendments of section 3001 of the discussion draft
outline a process to ensure that viable alternative conditions are
given adequate consideration in the licensing process. These amendments
are worthy of serious consideration by the subcommittee.
This concludes my testimony. I stand ready to answer questions and
to assist the Subcommittee in any way. Thank you for this opportunity
to testify.
Mr. Barton. Thank you. Before I recognize Commissioner
Brownell, Congresswoman Capps has 12 students visiting her from
Santa Barbara from the Congregation of B'nai B'rith. We want to
welcome you.
And if you would like to sit at the lower dais, down here,
you will improve the intelligence of both sides of the aisle.
And it will be a little bit easier on your knees.
Let us welcome the students from Congresswoman Capps'
Congregation. You may not ask questions, though. As soon as
they get seated we will recognize Commissioner Brownell. And it
is okay to sit on the Republican side. You are not going to be
excommunicated.
And if you have cameras, feel free to have somebody take
pictures of you doing this. We now would like to welcome
Commissioner Brownell. And are you a 5-minute statement or a 6-
minute statement?
Ms. Brownell. Mr. Chairman, with all due respect, and
consistent with the inclusionary policy of outreach that the
FERC has undertaken in the last year, we would actually love to
hear from the students, because we think that they could add
value to the discussion.
Mr. Barton. Well, I wish Commissioner, the phantom
Commissioner, Mr. Kelliher, were here. He's in confirmation
purgatory over in the Senate. We wish there were four of you
here instead of just three.
Ms. Brownell. And we certainly await his arrival as well.
Mr. Barton. All right, you are recognize for 5 minutes.
STATEMENT OF HON. NORA MEAD BROWNELL
Ms. Brownell. Thank you. I am pleased to be here today, Mr.
Chairman, Mr. Vice Chairman, committee members, to discuss the
future of our energy sector in this country.
I certainly join in my colleagues' statements, but I would
just like to make a few additions. A couple of weeks ago a
major analyst from Merrill Lynch had this headline in his
morning commentary: ``Energy sector better than bad.'' And that
was supposed to be the good news. Indeed, we have seen over
$200 billion in market cap loss.
We see congestion and associated prices increasing. We see
no real innovation or investment in technology. We see an
increase in power quality disturbances. Power quality
disturbances that are having an effect on products and on
company's ability to compete.
We see market dysfunction and customers paying huge prices
that they should not have paid.
We see increased concerns about fuel supply and
distribution. The picture is quite stark. There may be no
visible crisis, but there is a slow and silent erosion of the
strength of this energy sector in our country.
And there is a cost, sadly, it is largely hidden. And Mr.
Boucher, the nicest thing that has been said about us recently
is that we are imaginative.
But we need to be more than imaginative. We need to be
innovative. We need to be committed. And we need to be focused
and courageous to deal with the crisis that we face today.
The principles that drew us to initiate the restructuring
10 years ago still hold true. But sadly, we have learned some
hard lessons.
Markets just don't happen, they need guidance, transparency
and structural change. Markets are vulnerable in transition, we
need to complete the task.
Markets must have oversight with swift and certain justice,
and above all, customers must be confident that their needs
will be met.
We have begun to transform ourselves at the FERC, as you
see in all of our testimony, to address those issues. But I am
pleased that this bill and the work that will go forward,
indeed, address critical issues to make markets work.
It addresses accountability for us, for market
participants, for the reliability organizations on which we
rely.
It addresses economic signals. Economic signals to build
infrastructure, which we so critically need. Economic signals
to incent new technologies, including renewable technologies.
It sends the right economic signals to discipline the
marketplace. It creates structures that will allow us to manage
the marketplace more effectively and with greater
accountability.
So I look forward to working with you because I think the
economic and moral imperative is essential. I hope that we can
address these issues quickly with deliberation, but with
closure and certainty.
We need to move forward. Thank you.
[The prepared statement of Hon. Nora Mead Brownell
follows:]
Prepared Statement of Hon. Nora Mead Brownell, Commissioner, Federal
Energy Regulatory Commission
I. INTRODUCTION
Thank you for the opportunity to share my thoughts. Chairman Wood's
testimony summarizes the full range of initiatives we are undertaking
at the Federal Energy Regulatory Commission (FERC), and I fully support
his comments on those efforts. I would like to offer observations about
the state of the energy sector in general and about some of the
initiatives outlined in Chairman Wood's testimony. My comments on these
initiatives will address how I believe they support the transformation
of wholesale energy markets for long-term customer benefit and how the
FERC is making internal reforms to adjust to changes in the market
place. Finally, with your indulgence, I would like to provide comment
on particular portions of the discussion draft provided on February 28,
2003. Of course, I am happy to answer any questions the Subcommittee
might have.
II. STATE OF THE ENERGY SECTOR
The state of the energy sector in this country is, at best,
precarious:
<bullet> Power quality disturbances grow--disrupting production lines
and calling into question the ability of the energy sector to
serve a growing digital economy, adding to customers' costs for
goods and services and driving jobs and business from our
cities and towns;
<bullet> Customers have a profound lack of confidence in corporate
America, public policy makers, and regulators;
<bullet> Lack of meaningful and transparent prices has led to
inefficient generator siting decisions, creating access and
transmission problems;
<bullet> Increasingly illiquid markets affect forward prices; and
<bullet> Questionable trading and reporting practices continue to
surface.
Moreover, we are experiencing a capital crisis in the energy
sector. Over $200 billion of market capitalization has been lost.
Uncertainty in the energy sector generated by the lack of clear,
understandable, enforceable rules, the California energy crisis, the
collapse of Enron, allegations of false reporting, criminal
indictments, the closing of trading operations, and federal
investigations have all undermined investor confidence. Credit ratings
have been downgraded, access to capital at reasonable rates has been
limited or cut-off. The result has been a lack of capital available for
greatly needed investment in infrastructure to reliably deliver energy
that this country so desperately needs. The near-term impact of this
lack of investment is cost to customers in terms of congestion,
security, and missed opportunity. Longer-term, the lack of investment
threatens the very future of our economy.
While the electric and natural gas sectors are intertwined, the
natural gas sector has fared better. For example, stock prices for
electric utilities declined over 40 percent in 2002 compared to 25
percent in natural gas pipelines; electric generators' prices declined
80 percent compared to a 5 percent increase for oil and gas producers.
I attribute this to a more mature natural gas market with clear,
standardized rules. The natural gas marketplace has shown itself to be
remarkably robust and I believe that the issues facing the natural gas
market are manageable over time.
I applaud the efforts of this Committee to address these very
important and difficult issues and bring together a coherent and
consistent energy policy for this nation's future. We at FERC are doing
what we can to address the problems facing us in the energy sector. I
would like to focus now on three particular initiatives: 1)
restructuring wholesale electricity markets; 2) improving efficiency in
processing applications for pipeline and hydroelectric projects; and 3)
increasing market monitoring.
III. RESTRUCTURING WHOLESALE ELECTRICITY MARKETS
The FERC has been working actively to restructure the wholesale
electricity sector into the vibrant, competitive marketplace that
customers deserve. As we do so, I have been guided by five core
principles:
First, customers must benefit. Restructuring markets toward a
competitive outcome should be a value-added proposition. We are not
abandoning what works, we are making it better. That has been the
competitive advantage of the U.S. economy.
Second, the FERC must ensure independent operation of the nation's
transmission highway. Such independence is essential to meeting
Congress' directive in the Federal Power Act of nondiscriminatory
access to the interstate grid.
Third, the FERC must promote the development of a robust and
reliable infrastructure that supports the dispatch of generation on a
least-cost basis. Until all wholesale generators can compete fairly on
an economic basis, customers will continue to be deprived of potential
savings.
Fourth, the FERC must ensure transparency in the electricity
markets. A market cannot run efficiently unless the rules are clear and
there is adequate opportunity for price discovery. We can't assume this
without an independent system operator and full access to information
Fifth, the FERC must ensure adequate customer protection against
unjust and unreasonable rates. This begins with a well-functioning
wholesale electricity market and also requires vigilant market
monitoring at all times and mitigation whenever appropriate.
My decisions to support consideration of modifications to our
affiliate rule, creation of the new Office of Market Oversight and
Investigations, issuance of Order No. 2001 requiring detailed reporting
on transactions, development of standardized procedures for generator
interconnections, and aggressive investigation of the causes of the
Western energy crisis were all in furtherance of these five principles.
However, I continue to believe that creation of Regional Transmission
Organizations (RTOs) is the single most effective way of achieving
these five goals simultaneously.
RTOs that are fully independent of market participants can ensure
non-discriminatory operation of the transmission facilities under their
control. RTOs have FERC-approved market monitors, implement FERC-
approved market mitigation plans, and conduct long-range planning all
for the protection of customers. RTOs can perform economic dispatch
over large geographic areas that will ensure the selection of least-
cost generators. Finally, RTOs can offer organized markets and one-stop
shopping that reduce transaction costs, provide transparent market
rules and allow the opportunity for price discovery.
I am pleased to announce that the majority of public utilities now
seem to recognize the value of RTOs--almost every transmission-owning
public utility has announced its intention to join a specific RTO. The
FERC recently granted RTO status to the Midwest ISO and PJM
Interconnection, and has several other RTO filings pending.
The standard market design rulemaking has been an invaluable source
of information as the FERC works through the RTO filings. The wealth of
comments we have received on the proposed standard market design rule
has given us a much greater understanding of how to create a commercial
platform within RTOs that will ensure the maximum benefits for
customers. Regional differences should and are being accommodated in
RTOs. Nevertheless, market platforms must be consistent in order to
ensure equity, eliminate barriers to entry, reduce transaction costs,
and create an environment where gaming is limited, if not eliminated.
The platform must also ensure that the most appropriate solution,
whether transmission, generation or demand-side, is implemented. As I
continue my work at the FERC on wholesale electricity matters, I commit
to you that I will retain a focus on the five principles I have
articulated here.
IV. IMPROVING EFFICIENCY IN PROCESSING ENERGY PROJECT APPLICATIONS
The FERC has responsibility for authorizing the construction and
operation of interstate natural gas pipelines and hydroelectric
projects. We have been improving our processes for handling project
applications so that our processes do not impede market development,
and may in fact advance infrastructure.
Revisions to the pipeline certification processes have resulted in
reduced processing time from an average of 273 days in 1995 to 195 days
today. In 2001, the FERC certificated 16 Bcf per day of new capacity.
More recently, the FERC, after hearing complaints for years about
the inefficiency of the licensing process for hydroelectric projects,
has proposed changes to the hydroelectric licensing regulations.
Hydroelectric projects are a critical component of this nation's energy
infrastructure, and inefficiencies in FERC's relicensing process add
unnecessary costs and uncertainties to the detriment of consumers. The
proposed rule would create a new process in which the current
duplicative, sequential environmental analyses conducted separately by
the license applicant, the FERC, and the other agencies is replaced
with a single ``integrated'' environmental analysis.
This proposal was the result of work not only by FERC staff but by
all stakeholders: individual licensees, small and large from all over
the country; non-governmental organizations (NGOs), including the
National Hydropower Association, the Hydropower Reform Coalition, and
individual environmental and recreation groups; the U.S. Departments of
the Interior, Agriculture, and Commerce; State agencies; and Indian
tribes. In fact, the proposed rule draws heavily from proposals
developed by two very different groups--the National Review Group, a
coalition of licensees and NGOs, and the Interagency Hydropower
Committee, a federal interagency working group--and reflects a
remarkable degree of consensus. We estimate that the proposed rule
would reduce the average time it takes to complete the licensing
process by 30 months--cutting down 47 months of preparation and
processing time to 17 months. Further, we estimate that the proposed
process would reduce the cost of licensing for a project under 5
megawatts by $150,000 and for a project greater than 5 megawatts by
$690,000.
V. MARKET MONITORING
The FERC's other relatively recent initiative has been on market
monitoring and investigations. Much has been said over the historic
failure of market monitoring and without revisiting history, I believe
we now recognize that market monitoring must:
<bullet> Be the responsibility of everyone;
<bullet> Be a continuous proactive process anticipating trends,
understanding market dynamics and inter-dependencies;
<bullet> Have dedicated resources;
<bullet> Develop effective ongoing communications with regional market
monitors and state commissioners;
<bullet> Clearly understand financial markets and customer needs;
<bullet> Co-ordinate effectively with sister agencies; and
<bullet> Analyze, inquire and investigate.
I am pleased to report that we have made substantive changes in
FERC's market monitoring with the reformation of the Office of Market
Oversight and Investigation (OMOI). OMOI is charged with the above
objectives and with nearly a full staff complement is well on its way
toward meeting them. Are we where we would like to be? No, but for
large portions of the country we are confident we are close.
Significantly and importantly, these areas include where we have had
independent system operators, transparency, organized markets, and
regional monitors. In other areas of the country that lack independent
grid operators, developed market rules, and independent market monitors
with access to information, I am less confident of our ability to
monitor markets for the exercise of transmission or generation market
power, discriminatory practices or manipulation.
OMOI is not only gaining experience with monitoring, but also in
responding to market conditions in a responsible manner. We have
recently analyzed gas price indices and continue to monitor the
situation. We will work with industry as they respond to problems with
gas indices. Not every inquiry calls for an investigation; I believe
that OMOI should have a panoply of tools in its tool-box to deal with
different stages and degrees of development.
VI. COMMENTS ON DISCUSSION DRAFT
I appreciate the opportunity to offer the following thoughts on
specific provisions on the discussion draft.
Section 7101--Repeal of Section 203
Section 7101 would repeal Section 203 of the Federal Power Act and,
thus, leave review of mergers and other dispositions of public utility
facilities to the Department of Justice and the Federal Trade
Commission. While I support coordination of federal agency review of
proposed utility mergers to ensure that such reviews are not
duplicative or overly time-consuming, I do not believe it is
appropriate to eliminate FERC review. The FERC has knowledge of the
electric utility industry that the federal antitrust agencies do not,
and FERC review is necessary to ensure that mergers and other
dispositions are consistent with the public interest. The FERC has
years of expertise with Section 203 matters and such matters may affect
the ability of the FERC to ensure just and reasonable rates and terms
and conditions of service as required under the Federal Power Act. I
believe merger reviews must be disciplined and focused. They are not
shopping opportunities to extract concessions on issues that add cost
not value.
Title II--Alaska Natural Gas Pipeline
This title streamlines the FERC's issuance of a certificate of
public convenience and necessity authorizing the construction of an
Alaska natural gas transportation by recognizing the need for such a
project, setting aggressive time lines for the completion of
environmental reviews, and designating the FERC as lead agency for
compliance with the National Environmental Policy Act and for
coordination with and among federal agencies. Ensuring adequate
pipeline infrastructure to deliver natural gas supplies is critical to
the security, health and prosperity of this nation. For several years
now there has been interest in the development of the transportation
infrastructure needed to bring Alaskan natural gas to markets in the
lower 48 states, and yet, for many reasons, there have been no requests
for certification filed with the FERC. I fully support inter-agency
cooperation and the streamlining of processes where possible and can
assure you that any applications ultimately filed with the FERC for an
Alaska natural gas transportation project will be reviewed thoroughly,
promptly, and fairly with recognition of the importance of Alaska
natural gas to our nation's long-term energy security.
Title III--Hydroelectric Relicensing
The discussion draft would provide applicants for hydroelectric
licenses the opportunity to propose alternatives to the mandatory
conditions and fishway prescriptions developed by federal resource
management agencies. The Secretary of such an agency would then be
required to adopt the alternative if he concluded, based on substantial
evidence and giving equal consideration to a wide range of factors,
that the alternative provided adequate protection of natural resources
and was either less costly or would result in improved electricity
generation. I believe this provision is one reasonable approach to
recognizing the expertise of the resource management agencies while
still ensuring that such agencies perform an appropriate balancing of
interests when developing mandatory conditions and fishway
prescriptions, just as the FERC is required to do when developing its
license conditions.
Section 7011--Transmission Infrastructure Improvement Rulemaking
This section would require the FERC to develop regulations on
incentive- and performance-based rates to encourage transmission
investment. An improved transmission infrastructure is critical to the
success of this nation's electricity markets. I support incentive- and
performance-based rates for transmission investment and note that the
FERC has recently issued a proposal on incentive pricing for
transmission expansion. This section would also require that the
regulations provide for participant funding of transmission upgrades
upon the request of an RTO or other FERC-approved transmission
organization. I support the concept of participant funding of
transmission upgrades provided that an independent transmission
organization, which can ensure nondiscriminatory access and rate
treatment, is operating and planning expansions of the grid, and this
provision appears to meet that standard.
Section 7012--Siting of Interstate Electrical Transmission Facilities
I support granting the FERC backstop authority to site interstate
transmission lines. As I have stated previously to this Subcommittee,
state-by-state siting of such transmission superhighways is an
anachronism that impedes transmission investment and slows transmission
construction. This section, which grants the FERC such authority to
site transmission in Department of Energy-designated ``interstate
congestion areas'' where states have been unable or unwilling to do so,
is one potential approach to this problem. I also believe new models
may respond to siting issues in a way that recognizes state concerns
while accepting the reality that electricity planning and operations
are regional in nature.
Section 7021--Open Access Transmission by Certain Utilities
This section would grant the FERC the authority to require all
transmitting utilities (not just those that constitute ``public
utilities'' under the Federal Power Act) to offer open access
transmission service, unless they sell no more than 4 million megawatts
of electricity per year. I support the intent of this provision to
ensure a properly functioning and transparent transmission grid, and
understand the concerns of parties not now subject to open access. We
must work to ensure that their rights are protected.
Section 7041--Public Utility Holding Company Act (PUHCA)
I support the repeal of PUHCA. PUHCA was necessary to address
abuses that existed a half-century ago. However, that statute has not
only outlived its usefulness, it is actually thwarting needed
development of our electricity resources by subjecting registered
utility holding companies to heavy-handed regulation of ordinary
business activities and to outdated requirements that they operate
``integrated'' and contiguous systems. One of PUHCA's perverse effects
is that it causes foreign companies to buy here and U.S. companies to
invest overseas. Nevertheless, I appreciate the concerns of those, like
the rural electric cooperatives, who have opposed elimination of
certain safeguards that PUHCA provides against market power. The FERC
is aware of the concerns of the cooperatives and of the problems with
market power in general, and we are engaged in an overhaul of our
efforts at market monitoring and market power protection. I believe
that the discussion draft strikes an appropriate balance by replacing
PUHCA with increased access by the FERC and state regulators to certain
books and records.
Section 7062--Public Utility Regulatory Policies Act (PURPA)
I support the draft's prospective elimination of the forced sale
provision of PURPA. In my view, the discussion draft appropriately
recognizes the vital role of organized markets in facilitating sales
while providing appropriate transitions rules to recognize the rights
and obligations of parties. PURPA was enacted out of concern over
dependence on oil for electric generation. Now, a quarter of a century
later, when a gas-fired generator can be on-line in less than two
years, and many advances are being made in distributed generation,
PURPA's subsidies for certain types of generation are no longer
appropriate.
Section 7084--Enforcement
The FERC must have an expanded role in monitoring for, and
mitigating, market power abuse. The enabling statutes of the Securities
and Exchange Commission and the Federal Communications Commission
provide for a range of enforcement measures, such as civil penalties. I
believe that providing FERC with similar authority would send a
powerful message to electricity market participants that we take
violations of the Federal Power Act just as seriously. Therefore, I
support the draft's increase in the level of penalties available under
the Federal Power Act.
Section 7091--Refund Effective Date
I support allowing refunds from the date a complaint is filed, as
opposed to 60 days after the filing. This proposed change will better
protect customers.
VII. CONCLUSION
I appreciate the enormous commitment of time, energy, and
leadership that the Chairman and the other members of this Subcommittee
have made to address the issues facing our energy markets. I thank you
for the opportunity to share my thoughts with you, and look forward to
continuing to work with you on these matters.
Mr. Barton. Thank you. The Chair is now going to begin the
questioning period. The Chair wants to announce that the order
of the questions is in order to seniority as of, when the gavel
was tapped and in order of appearance after the gavel was
tapped.
Now that is kind of confusing, but we checked with both
staffs and we think we have it properly. If you deferred, you
get an additional 3 minutes. Some of you only used one or 2
minutes, so we are going to have a very, separately timed
question period, which is good.
So the Chair would recognize himself for 5 minutes, since I
did take a 5-minute opening statement. Chairman Wood, I am told
that in the last several weeks, the Commonwealth of Virginia
passed a State law that prevented a private utility from
joining an RTO until a date certain.
Could you comment on that and would you also give us your
comments on how you think that affects the ability to create
the RTOs that most people think need to be created?
Mr. Wood. A little background on that, Chairman Barton.
There are two large regional transmission organization, one
that is serving where we are today and then on over to really
the entire midwest of the country up to Saskatchewan, Manitoba
down to Oklahoma, Texas panhandle, all the way back over to
Indiana.
That is the Midwest Independent System Operator, MISO and
PJM. The AEP Company, out of Ohio, a 7-State company, of which
part of it is in Virginia, is really at the cross wires between
those two RTOs.
Those RTOs came forward last summer with a plan to
integrate their markets into one large energy market where a
customer or a supplier could really have a one-stop shop, kind
of transparent, uniform approach toward business rules,
software, a lot of the stuff that we are looking at in the
standard marketing design, they are moving ahead and doing it
voluntarily.
The utilities, the stakeholders, the State commissioners in
that region are a real model for kind of, you know, working
together across State boundaries to make this market work and
deliver significant benefits. The cost benefit study from that
integrated energy market was quite pronounced. I think
something, I remember it being north of, let's see, $7 billion
over the next 10 years.
That was a cost benefit study done in July of this past
year. So that was really moving forward to have that integrated
energy market on the ground and operating by October 2004.
A lot of time lines to meet, very important. In the past 2
months this, my new home State legislature passed a bill which
I do not believe the Governor has yet signed, that would, in
fact, not allow AEP to join this RTO as it had planned to do
and as the FERC had already approved it doing back 5 years ago
when it had a merger condition in its merger with Central
Southwest from our home State.
That they made a commitment to joining an RTO, one, exists,
they joined it. They are moving forward on that. And then the
State legislature in Virginia passed a bill that basically said
you can't join that until after July 2004.
Which is going to really, in fact, make the October 2004,
day not happen. So that is unfortunate. The other States in the
area have, you know, been concerned about that, including some
from some of the different members here have expressed a
concern to us at the commissioner's meeting last week.
We are in discussions now trying to determine what is the
best way to move forward, but it does show how important it is
that when you do have an interstate grid that is in multiple
States, and when you have utilities that are spread over
multiple States, as we have throughout the country, it is very
important to kind of have a uniform regional approach that, in
this case, 26 States or 25 States and a couple of provinces are
moving forward and one who said no and it, in fact, does stop
it for all 26. So that is a little background on that.
Mr. Barton. Okay. Chairman Meserve, correct me if I am
wrong, but nuclear power plants that are already in the grid,
when we have a price spike like we have had in natural gas the
last several months, because of the cold winter, do the prices
that are generated by nuclear power plants for electricity, do
they go up also?
Mr. Meserve. Mr. Chairman, we don't regulate the power
plants in terms of their economic conditions, only their safety
conditions.
I believe it varies by the plant as to their economic
relationship to the grid. Some plants have long term contracts
and their power goes out at agreed upon rates.
And others have an opportunity to sell into the market. But
let me emphasize, this is not an area that is subject----
Mr. Barton. I know that the commission does not regulate
it, but what I was hoping you would say is that if we had more
nuclear power plants, when we have fuel shortages in other
areas, the nuclear power plants generally maintain their price
structure because they are regulated at the State level and
their prices are not allowed to go up. That is what I would
hope you would say.
Mr. Meserve. Well, let me say that the regulation does vary
state-by-state. But let me emphasize that nuclear power plants
are base load and at the moment the average cost of production
from nuclear power plants is less than that from coal or from
natural gas, which are the principal competitors.
Mr. Barton. That is a better answer. All right. My time is
expired and I would recognize the gentleman from Virginia for 5
minutes.
Mr. Boucher. Thank you, Mr. Chairman, and thanks to each of
the witnesses for the very informative testimony here today.
Mr. McSlarrow, let me begin with you. I have a number of
concerns about the electricity provisions that are contained in
the draft legislation that has now been circulated, and you
addressed a number of the matters.
I was very pleased to read in your prepared testimony that
the administration does not favor a repeal of the FERC's merger
review authority.
I share your opposition to that provision. I am concerned
that particularly when teamed with a repeal of the Public
Utility Holding Company Act, which in and of itself will
generate a large amount of industry consolidation, that this is
really not a very good time to be taking away this key consumer
protection by repealing the merger review authority of the
FERC.
My view is it is probably going to be more needed in the
future that it is even today, particularly if this
comprehensive electricity provision passes and PUHCA is
repealed.
I wonder if you would like to take the opportunity to
comment on the administration's rationale for not supporting
the repeal of the FERC's merger review authority?
Mr. McSlarrow. Well, I can hardly put it better than you
just did. There are really two goals. One, is as you put it,
consumer protection, and we would like to ensure that someone,
and FERC has the authority now and has been doing the job, will
judge mergers on their public interest standard.
And No. 2, we want to ensure that we can increase
investment into an industry that is, to put it mildly, ailing.
And so therefore, we think we ought to repeal PUHCA.
But as you pointed out, if you are going to repeal PUHCA,
it is even more important that someone have that kind of
regulatory oversight.
Mr. Boucher. Thank you. The second question I have for you
is on an entirely different topic, but one that you also raised
during the course of your testimony.
I share the administration's enthusiasm for the advent of
commercially available hydrogen-fueled vehicles. And I want to
applaud the administration for making that one of its
priorities.
The big challenge that I think we face in realizing
commercial availability of fuel cells is the source of
hydrogen. And I wonder if you could comment to the subcommittee
this morning on where you see the sources of hydrogen being and
what specific steps we in the Congress need to take in order to
make sure there are reliable hydrogen sources so that we can
achieve this commercial availability?
Mr. McSlarrow. I would be glad to. The good news is that
almost everything you can imagine as an energy source is also
something that can be made to work to produce hydrogen.
Whether you are talking about renewables, fossil fuels,
natural gas, coal, nuclear energy. Across the board, we already
know how you do it and how to produce hydrogen. The trick and
what the research and development is focused on right now, is
how to bring the cost down.
Because, candidly, it is not where it should be in order to
competitively produce hydrogen. Last week or maybe the week
before, the President announced a new initiative on a coal
gasification plant, which we are calling FutureGen.
And it is a very exciting project that we are hoping to
have international collaboration on. About a billion dollars
and it will be constructed over the next 10 years.
But the idea is to produce or to construct a coal
gasification facility that will simultaneously produce
electricity and produce hydrogen.
And do so in a way where, because of the mechanics of the
plant, any greenhouses gases, and in particular carbon dioxide,
come out in a discrete stream that makes it even easier to
sequester that carbon.
And so there are huge environmental benefits too, and it
will allow us, we hope, to really tap into what is our greatest
natural abundance, energy source, coal.
Mr. Boucher. Well, thank you very much for that answer. And
I enthusiastically endorse that proposal and I would love to
have that plant in my congressional district. We will have some
discussions, maybe, about that.
I have a number of questions I want to propound to the
commissioners from the FERC. And Mr. Chairman, I hope we will
have a second round during which we can do that.
Let me, while I have the floor, ask Mr. Meserve a question
that intrigues me. Last year, when we have representatives of
the nuclear industry here, there was discussion about the
possibility of a new generation of nuclear reactors called
pebble bed reactors.
I think that there were even plans to build a prototype in
South Africa. I have not heard much about that lately. Do you
happen to know whether those plans are still active and whether
anyone intends to go forward with this new generation of
facilities that might lead to the first new construction of a
nuclear plant in the U.S.?
Mr. Meserve. Sir, I did mention very briefly in my
testimony that we do have a process for certifying designs,
advanced designs. And we have one design for which the review
is underway which is an outgrowth of the existing fleet of
plants, and six more that are in the discussion phase.
Some of those are quite radically different designs than
our current fleet. The pebble bed reactor was one that an
American company was interested in, but decided not to pursue
because that company concluded that its mission was different
and that the pebble bed reactor was not an appropriate business
line.
The South Africans are still pursuing the pebble bed idea,
and have not yet made any final decisions, but there is great
interest in that reactor.
Mr. Boucher. And there are designs other than pebble bed
that are new and different than what we have today?
Mr. Meserve. Definitely. There are passively safe designs
that people are pursuing.
Mr. Boucher. Thank you very much. Thank you, Mr. Chairman.
Mr. Barton. The gentleman's time has expired. The next on
the list is Congresswoman Wilson of New Mexico. She is in a
meeting. Then the next would be Mr. Buyer of Indiana for 7
minutes.
All right, then on to the next would be, on our side, Mr.,
he is not here? No. Mr. Norwood for 8 minutes. Oh, wait, wait,
Mr. Whitfield is here.
Mr. Whitfield, did you reserve at the beginning? So, Mr.
Whitfield for 8 minutes.
Mr. Whitfield. Thank you. Mr. Norwood was getting ready to
take advantage of me. Mr. McSlarrow, I think all of us are very
much aware that new refineries have not been built in the U.S.
in some time, and I would like to ask you what do you consider
the main reasons that new refineries have not been built?
Mr. McSlarrow. As you point out, the last major refinery
that was built in this country was built in 1976, in Garyville,
Louisiana.
The last major expansion took place in 1983, and that was
actually the peak of our refinery capacity, about 18.5 million
barrels a day, and we are under 17 today.
There are a lot of factors. There is no question that this
is an industry where a huge capital investment up front is
required.
The refining margins are not very great, typically. The
regulatory regimes that govern refinery operations are
critically important.
When the administration did a review about refinery
capacity, as part of a national energy policy, we discovered
that most of what we were getting, now this is anecdotal, but
most of what we were getting from investors and talking through
how we expand capacity, made very clear that no one was willing
to step forward for the huge capital costs up front with
environmental rules that really could, in some ways, cripple
the ability to expand capacity.
And so what you have seen over the last, really, 10, 15
years, is rather than build new plants, there have been
incremental additions to capacity of existing ones.
But there is no question that in the future demand is going
to outstrip our refinery capacity and more and more we are
going to import, not just crude oil from foreign sources, we
are going to import increasingly refined products from abroad,
which is going to be, I think, probably a real challenge.
Because it is hard enough for our own refineries to figure
out the boutique fuels problems and all those associated
challenges.
And one wonders how the foreign suppliers are going to meet
that.
Mr. Whitfield. In your testimony you talked about the fact
that no grass root facilities are expected to be built. Now,
were you referring to refineries when you said that?
Mr. McSlarrow. Yes, sir.
Mr. Whitfield. Okay. Does the Department of Energy have any
strategic plan or suggestions on ways to provide incentives to
try to build more refineries?
Mr. McSlarrow. The, it is not directed at refineries, per
se. But there is no question that we believe that a more
sensible regulatory environment, whether it is at the State or
Federal level, to ensure that we are meeting environmental
protection goals, principally, is one that at least, as I said
before, the investors tell us is what they need to see before
they have the certainty they require before they make the
investment.
Now that is an across the board problem. And it affects
more than just refineries. But that principally is the best way
for us to move forward. And in fact EPA has made proposals
along those lines.
Mr. Whitfield. Okay. I might just make one comment also.
Kentucky is a relatively large coal State and I think it is
imperative that when we consider a national energy policy that
coal play a vital role in that.
And I know we are going to be taking up maybe clean air
reauthorization this year, and I think we need to keep that in
mind.
I would also say that as a part of the energy bill that
passed the House and went to conference with the Senate, there
were provisions in there, through the Department of Energy,
with grants regarding clean coal technology, which I think we
need to continue to do.
And I might add that Congressman Boucher and Shimkus and
others of us are introducing a bill within the week that would
provide additional R&D funds for developing newer clean coal
technology and tax credits for the use of clean coal technology
in producing electricity.
I think that it is imperative that we remember that we do
have over a 200 year supply of coal, and I hope that the
Department of Energy will certainly keep that in mind as we
move forward.
I would also express my concerns, I guess this would be
relating more to Mr. Wood, about the proposed rule for standard
market design.
And in the discussions that I have had with retail
customers as well as the public utility people in Kentucky--
Kentucky is one of those fortunate States that does have very
low rates.
In this proposed SMD rule you are taking away the
jurisdiction of State regulators and placing it all in
Washington. And I would like for you to just elaborate briefly
on why you think that that is the best way to go at this time?
Mr. Wood. Thank you, Mr. Whitfield. The commission actually
has done something much lesser than that. And it has, as the
Federal Power Act allows, the jurisdiction over both
transmission and interstate commerce and over wholesale sales
of power.
And so those two things together really define the energy
markets. We are not asserting to regulate the retail rates or
the retail service of customers in any state.
Quite frankly, our jurisdiction is not even close to that.
But we do think it is important that all the transmission be
looked at together so that it can be most efficiently utilized.
Mr. Whitfield. I was familiar that you were not doing the
retail, and the transmission is specifically what we are
concerned about.
Mr. Wood. Yes, sir. Yes, sir.
Mr. Whitfield. Can you tell me what is wrong with the
regulatory approach that Kentucky has right now about
transmission?
Mr. Wood. I think what we have got, what we envision is
that each State will continue to regulate as they have done for
many years.
That the interstate uses of transmission, which are, the
electrons don't stop at the border of Virginia or Kentucky or
any other state. They move in interstate commerce.
And so what some of the concerns that have happened, as we
have seen competition try to take root in our country over the
past 10 years since Congress passed the 1992 Policy Act, is
that there is a, kind of a second tier class of service.
You have got the transmission that is used for local
service being treated one way. And the transmission that is
being used for service between utilities, neighboring
utilities, both within a State and across the State boundaries,
at a growing inferior grade of service.
And so we are really trying to bring up the second grade,
not bring down the first grade, but bring up the second grade
so that transmission service for all can really tie together
the region.
I think Kentucky, as you mentioned, and I think as we have
seen with gas prices over the recent weeks, as Mr. McSlarrow
testified, coal is going to be an important resource for this
country for many years to come.
Mr. Whitfield. But you know we have always maintained that
the native load electric customers should have the preferential
use of these transmission systems.
Your proposed regulation is moving the opposite direction
of that, and it is a dramatic change.
Mr. Wood. Well, to be clearer about that from our
perspective, what we want to do is ensure that that preference
is maintained through the allocation of the rights to use the
system on day one.
Clearly that is something that the State commissions,
including Mr. Huelsmann, who is chairman of the Kentucky
commission, and made a clear point to us that they want to make
sure that the use of that system today is the same as it is
tomorrow.
And we don't have an issue with that. I think it is just a
question of then what happens the day after tomorrow? Will
there be investment in the grid? Will there be sufficient
signals being sent to generators to build in the right spot?
This is an issue we have got more to the south of Kentucky,
but generators right now are not building in the right spots,
if they are building at all.
And really investing in the overall grid, that is the kind
of platform that we are setting. It is not really to rejumble
what we have got today, but to take what we have got today and
set clear rules for going forward so that there are clear
signals about where investment is needed, where it is not
needed. Where people need to build.
Mr. Barton. Okay, the gentleman's time has expired.
Commissioner Wood has Senate potential. You give great long
answers. They are good but long. We want to thank our students
for coming by and hope they gained from it.
Unlike the rest of us, they get to leave early. As soon as
the clear the room, we will recognize Mr. Allen. Congresswoman
Capps, do you want to say anything to your students before they
exit the premises? Okay. The Chair would recognize the
gentleman from Maine for 6 minutes.
Mr. Allen. Thank you, Mr. Chairman. This question is really
for Mr. McSlarrow and also Mr. Wood. I understand that ISO New
England has successfully launched a standard market design on
March 1.
And in New England we have really been moving toward a
market-driven utility system for some years, but it has
included significant and varied oversight by regulators.
But what has not seemed to happen is, has not seemed to
lead to a reduction in the price of electricity. I sat with a
company yesterday who said the affect of deregulation for them
in Maine was a 30 percent increase in the price of electricity.
Can you, first question, can you explain what you think has
happened, to what extent has the price not gone down and what
kinds of factors do you think are responsible?
And then a second question, I will give it to you now,
unrelated to that. It has to do with the draft bill. And as I
read the transmission provisions, it seems to say that States
that say no to a transmission project that the Secretary of
Energy considers vital to solve interstate congestion areas,
will lose their right to say no in the future.
That is it looks as if that section, and I am not sure
which of you could speak to this, it looks as though that
section essentially strips States of their right to determine
where to place transmission lines.
Two unrelated questions. Either one, however you want to
begin.
Mr. McSlarrow. First, on the New England ISO. I don't know
the specifics about the data, and I would have to get back to
you on that.
I will say this. What is generally true in the analyses
that we have conducted is that competition, wholesale
competition has led to lower prices, and that is true in every
region in the country.
What is also the case, is that in most of the country it
has been a partial move toward wholesale competition. And so I
think that the answer is that the successes that we have
already seen lead us to believe that regional markets, properly
constructed, ought to lead to lower prices.
But I don't think that is something that we can make a
judgment about today. On the siting authority, I believe that
you are correct.
The administration has supported the idea of granting FERC
a last resort back stop authority, as we call it, in those
cases where the Department of Energy has identified what we
call national interest bottlenecks.
And I would imagine there would only be a handful really
that would rise to that level in the country. And then it would
establish a process that would look first, and hopefully in
almost every circumstance, to States and multi-state entities
working together to figure out the transmission.
But that if you had a situation at the end of the day,
after an extended period of time, where a transmission line
that was a national interest transmission line, that was
critical to reliability nationally, that FERC would ultimately
have that authority to site that line.
As I read the draft it looked very much like that and we
are very supportive of that principle.
Mr. Allen. Was that provision inserted to deal with any
past experience, any problem that you have had?
Mr. McSlarrow. There are a number of, I can't cite them to
you today. We did an analysis called the Transmission Grid
Study, which identified some, and I would be happy to send that
to your staff.
Mr. Allen. I would appreciate it. Chairman Wood?
Mr. Wood. As to the first issue, Mr. Allen, the, I was with
the Maine commissioners 2 weeks ago, two of them, they are from
all three parties, so it is a nice balanced commission.
My general impression is they are pretty pleased with how
the more competitive market has worked to benefit customers up
there.
I think the changes in electric prices may be tied back to
the fuel that is used. There is certainly some oil-burning
plants that are mostly now moving over to gas. A tremendous
amount of new investment in gas-fired plants, which due to the
fortunate discovery of gas off of Nova Scotia, has made Maine a
lot like some of the States around the Gulf of Mexico, pretty
fortunate to be close to.
But what has resulted is a lot of generation is built
there. It is trapped behind transmission, so it can't really
get out. So there are some issues there.
But that has generally resulted in a pretty glutted market.
And so your supply is well in excess of your demand there. So I
think it is driven by the fundamental, the cost of the
underlying fuel.
And with oil, of course, at $37 a barrel and gas up high
due to the cold winter, I do think that I would be surprised if
a customer saw a bill lower this year than last.
But I think it would have been true under a regulated
environment as well. I am not that expert on the, I don't
really have much more to add on the transmission issue, that
Kyle didn't already cover.
So in light of my admonition, I will just be quiet.
Mr. Allen. Thank you very much. I yield back, Mr. Chairman.
Mr. Barton. Thank you. The gentleman from Georgia. Mr.
Norwood is recognized for 8 minutes.
Mr. Norwood. Thank you very much, Mr. Chairman. I want to
thank you for this hearing. It is critical in my mind that this
country have a national energy policy and I thank you for your
discussion draft, first round of the first bill.
I have to say that I am more than a little peeved that as
many important things as there are that we need to deal with,
with a National Energy Bill, I end up coming back every time
talking about the same thing.
One of the most contentious parts of the bill, which is the
electricity title. And it is time to legislatively put that to
bed, and quit waiting on the Federal Government and the
executive branch to write rules and regulations.
Either we do it or they do it. And if we omit anything from
our bill, they are happy to do it through rule and regulation.
Let me go to where I always go. Pat, same old subject.
Incidentally, I noticed your comments on native load that came
back to Mr. Whitfield.
You implied, at least, from what you said, you thought that
was a good thing, and it certainly is State law in many cases
where a local utility really has to take care of their local
customers first.
Be good enough to write me a letter as to why your
commission keeps referring to that as discrimination. You know,
that just sort of sets folks up when they first start.
It appears to me, and I know that you have said to me that
you have a desire to correct the inefficiencies in order to
ensure reliability and maximum efficiency across the
electrician transmission grid.
You have said that directly to me in our office. And what I
have concluded over the last year or so, not so much about what
you have said, but sort of the actions, your actions and the
committee's actions.
If I catch on to this at all, it appears to me you want to
Federalize the transmission grid and control costs because, in
your view, that is the only way that you are going to ensure
reliability and maximize efficiency.
Now I didn't come to that conclusion overnight. This has
been going on, as you know, for a good while. But that is where
I think you are, regardless of what is being said.
That seems to me is to what your commission wants to do. We
will take over. We can do it best. How can we possibly be
efficient unless we do it from Washington, and by the way, we
will control the prices in the process for that.
Now, those of us from the southeast, that causes us
problems. And I want to back this up with just a little history
and see if you can remember some of our previous encounters.
When we met here in the committee in December 2001, you and
I had a discussion about, new language to me, supply margin
assessment, known as SMA. Which basically the purpose of which
is to force a few companies and mandate a few companies into
RTOs. Do you remember that carrying on we had in December?
Mr. Wood. I do.
Mr. Norwood. You know we weren't on the same page, as you
may recall. In fact, we disagreed a lot that day. And it seems
to me that the SMA, this supply margin assessment, has sort of
disappeared.
At least it seems to have been pulled back or at least it
certainly hasn't been implemented. But those of use who are on
constant alert for what might come from you guys next, know
that it is still out there.
I asked you what affect an SMA might have on the electric
rate of my constituents. And I do have interest in that. I know
it may surprise you, but I do.
And you told me that no study had ever been performed to
determine what affect an SMA would have on our constituents.
And, I am sure you recall, I took great issue with you on that
subject.
Now, stay with me just a minute because I am trying to make
a point of where we have been. Let us fast forward just a
little bit to last fall.
My staff comes to me and says that now the commission has
decided since they aren't going to use SMAs, that there is a
notice of proposed rulemaking about an SMD. That reminds me
that maybe you didn't give up on the SMAs, you just want to
force everybody into a mandatory RTO.
Now just so you don't take this personally, because I don't
want you to, I despise, at every level, heavy handed tactics of
a Federal agency, which show little or no regard for the
respect of the legitimate, repeated, over and over, Mr.
Chairman, repeated concerns of an entire region of the country.
It doesn't matter to me whether you call this darn thing an
SMA or a QRP or an SMD, I have got a big problem with you
trying to affect proposals that affect my electric rates in
Georgia, my constituents that I don't think are going to be
very positive at all.
I think that you can, if you are not very careful, that you
are going to compromise the reliability of transmission that we
do have.
Now I am sorry everybody doesn't have reliable
transmission. I am sorry everybody doesn't have rates that you
think they ought to have. But do you know what? We are not
unhappy about ours.
And we are going to be real unhappy with anybody who messes
with the reliability of the rates in the southeast and the
prices in the southeast.
Do you agree that southeasterners, from the Carolinas to
Louisiana, enjoy the delivery of low cost, reliable
electricity?
Mr. Wood. Yes, sir, I think it could be lower.
Mr. Norwood. Say again?
Mr. Wood. I think it could be lower. There was a study done
by----
Mr. Norwood. But do you agree that we already enjoy pretty
good rates and great reliability?
Mr. Wood. I think the rates are good and the reliability is
good, yes, sir.
Mr. Norwood. Me too. Do you know how many States, State
commissions and Governors that have opposed your standard
market design?
Mr. Wood. Yes, sir, and I have visited with the head of
that group in Kentucky right after that resolution came out.
Mr. Norwood. Well, so that means something to you that all
of them seem to be against that. Mr. Chairman, with unanimous
consent, I would like to submit this letter of February 21, a
letter to Chairman Wood from the Southeastern Association of
Regulatory Utility Commissioners about standard market design.
Mr. Barton. We would have to show it to the minority, but I
am sure that they will clear it and we will put it in the
record.
Mr. Norwood. I hope they will. I suspect some of them
would, anyway.
Mr. Barton. All right.
[The letter follows:]
[GRAPHIC] [TIFF OMITTED] T6052.001
[GRAPHIC] [TIFF OMITTED] T6052.002
[GRAPHIC] [TIFF OMITTED] T6052.003
[GRAPHIC] [TIFF OMITTED] T6052.004
[GRAPHIC] [TIFF OMITTED] T6052.005
[GRAPHIC] [TIFF OMITTED] T6052.006
[GRAPHIC] [TIFF OMITTED] T6052.007
[GRAPHIC] [TIFF OMITTED] T6052.008
[GRAPHIC] [TIFF OMITTED] T6052.009
[GRAPHIC] [TIFF OMITTED] T6052.010
Mr. Norwood. The point here is you are aggravating a pretty
large section of the country. What specific--what do we got, 27
second. Pat, we will continue this in round two, if we could.
Mr. Barton. If the gentleman will yield, Mr. Boucher says
he has seen the letter and thinks it is a good letter. So
without objection, it is going to be put in the record.
Mr. Norwood. Thank you, Mr. Boucher.
Mr. Boucher. Well, I didn't say it was a good letter. I
said it was okay to put it in the record. Let me modify that
comment slightly.
Mr. Barton. All right.
Mr. Norwood. That is a long letter, have you read it all?
Well, it appears to be over. Just try not to forget any of that
so we can pick right back up.
Mr. Barton. All right. The Chair recognizes Mr. Waxman for
5 minutes.
Mr. Waxman. Thank you, Mr. Chairman. I listened carefully
Mr. Norwood's comments and I wanted to indicate that in our
part of the country we also have some concerns about the SMD,
and perhaps we can talk this through and work together, because
I think we share that issue.
Mr. Norwood. I hope they will highlight this, Henry, we
have agreed on something.
Mr. Waxman. Mr. McSlarrow, I would like to ask you about
Subtitle B of Title V of the majority's draft legislation. This
provision is entitled Freedom Car and Hydrogen Fuel Program.
Is it accurate that this is the hydrogen program the
President spoke of in the State of the Union Address?
Mr. McSlarrow. Yes, sir.
Mr. Waxman. And the Energy Information Administration's
annual energy outlook only makes predictions about oil demand
as far out as 2020. EIA predicts that by 2020, the Nation's oil
consumption will grow by as much as 9 million barrels per day.
Is there anything in the President's hydrogen proposal that
will decrease oil consumption by the U.S. before 2020, and if
so, by how much?
Mr. McSlarrow. Yes, there is. Even though, of course, the
really exciting focus of the hydrogen initiative is on the
hydrogen fuel cell vehicles themselves.
The truth is the funding proposal that we have sent
Congress, that will be $1.7 billion over the next 5 years,
envisions a need to work on near term technologies.
Particularly alternative fuel vehicles, hybrid vehicles,
electric----
Mr. Waxman. Excuse me, I really want to get very, very
specific, because I have so little time and a lot of questions.
Is there anything that you can point to that will decrease
oil consumption by the U.S. before 2020?
Mr. McSlarrow. The greater use of hybrid and alternative
vehicles, which I am saying that we are pushing, would do it.
We are proposing a tax credit in the President's budget for
greater use of hybrid and fuel cell vehicles. That will do it.
Mr. Waxman. The President has said, under his hydrogen
plan, we can reduce our demand for oil by over 11 million
barrels per day by the year 2040. You testified to this affect
as well.
To put the President's statement in context, how much oil
does this prediction assume we will consume in 2040?
Mr. McSlarrow. I will have to get back to you on that.
Mr. Waxman. Okay, I would like the record held open for
that. And what CAFE standard does the administration assume is
in place between now and 2040 in making this projection?
Mr. McSlarrow. The analysis the EIA has done doesn't assume
a CAFE standard, but as you know, the NHTSA has actually
recently proposed an increase in fuel economy for light duty
trucks.
Mr. Waxman. So is there an assumption that that would be
the standard in projecting the----
Mr. McSlarrow. If it is finalized it will be, but I don't
think the assumptions that go into it assume a fuel economy
standard, so hopefully the savings will be even greater.
Mr. Waxman. So the assumptions assume a CAFE standard at
the present level?
Mr. McSlarrow. I believe so.
Mr. Waxman. The draft legislation states that the program's
goal is to enable a decision by auto makers no later than the
year 2015, to offer safe, affordable and technically viable
hydrogen fuel cell vehicles into commerce.
I am concerned that under the President's proposal, the
U.S. would provide hundreds of millions of dollars to the auto
industry year after year and they could simply decide in 2015,
that they don't want to make these vehicles.
Is that accurate? Under the President's proposal could the
auto makers simply decide that they don't want to produce these
vehicles. Could oil companies decide they simply don't want to
install the infrastructure necessary to supply hydrogen?
Mr. McSlarrow. The truth of the matter is that today these
companies are spending billions of dollars in investment. Now
they can always walk away from it, that is true.
There is no guarantees in any initiative like this. But the
money that we are spending is on R&D that will have its own
rewards, with or without the oil or energy or automobile
companies.
Mr. Waxman. The taxpayers are going to be putting in
hundreds of millions of dollars. I would hope there would be
some guarantee of a return on their investment.
If Congress had applied this approach to CAFE, the Clean
Air Act, the Clean Water Act, or other important policies, in
all likelihood we would never have made the progress we have
already seen.
Chairman Wood, I would like to ask you about the Reliant
transcripts that FERC recently released. These transcripts
revealed that as early as June 2000, Reliant managers, traders
and plant operators all worked together to shut down power
plants in a deliberate effort to increase market prices, and in
fact, they did increase market prices.
The transcripts are clearly outrageous. I am concerned that
FERC has only released 2 days of transcripts when market
manipulations could have gone on for months or even longer.
I am also disturbed that Reliant wants to blame the Clean
Air Act for shutting down their power plants. Will you seek and
release the rest of Reliant transcripts for 2000 and 2001?
Mr. Wood. We have, yes, when the filings from the
California parties came in Monday we began processes to
declassify all the documents that we have in our investigation,
and that were provided by the parties.
Under our rules, that takes a couple of weeks, but yes,
sir, we will have that out.
Mr. Waxman. Thank you very much. Mr. Chairman, my time has
expired.
Mr. Barton. The gentleman's time has expired. We would
recognize Mr. Burr for 8 minutes.
Mr. Burr. Thank you, chairman. Let me take this opportunity
to welcome all of our panelists. I was in the ante room
listening to the questions as they came through.
And when Mr. Norwood asked you, Mr. Wood, about the SMD as
it related to south, I think you started to respond to him that
there was a study that was done.
And in that study there was a scenario that basically said
that if everything were perfect, including participatory
funding, that there might be as much as a 1-percent savings to
those areas in the south.
And I guess my question to you was, in that answer to him,
were you also going to say that there were eight scenarios in
addition to the one that showed no savings or a cost to the
south, on that same study?
Mr. Wood. I was actually not going to say that. I think the
study, the eight scenarios are in fact ones that I think are
very unlikely to be the scenarios that go forward.
So the one they modeled, in fact that's a good reason why
you model, is to find out what market characteristics should we
have in the south so that customers can get the greatest
benefit from efficiently dispatched markets.
Mr. Burr. Well, I am sure everybody should go out and read
that study, because they may come to a different conclusion as
to which one of the nine scenarios is in fact closer to the
reality of what the market place might look like.
Let me ask you also, I think this was clear and I am not
sure in your testimony, but certainly in responses to questions
that I have asked you before.
Can you ever envision that there is a point in time where
FERC would ask for expanded jurisdiction on international sites
that companies, that through mergers, where you would have
jurisdiction to regulate those international points?
Mr. Wood. I don't think we would ask for that, sir. I
think, as you heard, our plate is full. But, you know, there
may be a move somewhere from the SEC or from the investor
community to have a regulatory view of that.
Mr. Burr. But you don't see FERC's expansion overseas to be
an effort that you are supporting or encouraging and
suggesting?
Mr. Wood. I think our expansion of recent months has got me
in enough hot water, so I think I will leave it at that.
Mr. Burr. Let me ask Mr. McSlarrow, as DOE. Do you ever see
a point where the Department of Energy would actually suggest
that FERC have this jurisdiction outside of the country?
Mr. McSlarrow. No, I don't.
Mr. Burr. Would DOE's position on the current merger
authority of FERC be that it is sufficient and they would not
expect or ask for further merger authority than the current
provisions that are provided?
Mr. McSlarrow. I believe it is sufficient. And, as I
testified earlier, we would encourage keeping it.
Mr. Burr. Let me, once again, thank the witnesses for their
willingness to be here today. It seems like this is always an
important annual thing for us to get into and I hope that I
will encourage all members to go back and remember the answers
and the questions that we have gone through today.
But I would also encourage those who sit at the witness
table, to go back and read the questions and the answers and
let us all remember it for the next 12 months.
I thank you, once again, and Mr. Chairman, I yield back.
Mr. Barton. Does the gentleman yield back?
Mr. Burr. Yes.
Mr. Barton. Oh, my. Mrs. Capps is recognized for 6 minutes.
Ms. Capps. Thank you, Mr. Chairman. Mr. Wood, Chairman
Wood, I would like to follow up on my colleague, Mr. Waxman's
query of you regarding the disclosure of information.
You said that FERC would declassify documents from the
California parties. And I want to ask are these all the
documents that FERC has that might show market manipulation?
And if I could read you just a statement from a local
newspaper, the Ventura County Star, one of my papers, a
columnist this morning has a piece under the title, ``A Snake
Under Every Rock, U.S. Keeps Evidence of Price Gouging
Secret.''
Mr. Tim Hurt says. ``Every Californian who pays a utility
bill has been ripped off. An agency of the Federal Government
has in its hands evidence that identifies who did it and how.
For now, however, that evidence remains a secret.'' I was a co-
signer with Mr. Waxman of a letter and to make you understand
that there are many of us who really do feel our constituents
are deserving of more information.
So I want to press for answers to this long, sordid chapter
in energy history in California that is still being paid for by
the State.
And is there more. What can we expect from you?
Mr. Wood. Well, first of all, since having spent a lot of
time before this committee, one of the main reasons I was
interested in this job was to clean up that mess.
Ms. Capps. Thank you very much.
Mr. Wood. I think it was a disastrous chapter in energy
history of recent years and not only hurt your State and a
number of others out west, particularly.
Ms. Capps. Yes.
Mr. Wood. But significantly, about the efficiency and
workability of markets. The information, there are two kind of
pots of information I think that are before the commission that
are both done under a, were information that were collected
under protective orders.
One was a process we began a year ago in February 2002, to
investigate the manipulation in the power markets and in the
gas markets out west in 2000-2001.
Much information has been collected in that process,
including information with other agencies, the Securities and
Exchange Commission, Department of Justice, CFTC, are the
principle ones, there are a few others.
They have been doing joint depositions, etcetera, with
those agencies and they are pursuing their own remedies that
they have under their laws. Some of which are ongoing.
So it is important as we go through our declassification of
the data that we have collected, which is separate from the
data that came in Monday, from the California----
Ms. Capps. Right.
Mr. Wood. [continuing] there is significant overlap from my
initial read. It is a lot, but from what I can tell there is a
lot of overlap.
But there are some issues that both, that both sets of
evidence have brought in that don't overlap. It is important
for us to make sure that on the ongoing prosecutions,
particularly of a criminal nature, that we make sure that that
type of information is retained by the Department of Justice,
for example.
And that it is not basically put out there yet so that the
trials are thwarted. Other than that, however, we have begun
our process that is required under our rules to undo a
protective order, to contact the parties to let them know this
specific information is going to be released. To hear back from
them why they would protest that. In fact, they may not. They
may want the full story out and hope that they do. And that is
going through our process, which is relatively abbreviated.
And I think in the next couple of weeks, 3 weeks, perhaps,
we will have that from both camps.
Ms. Capps. And thank you, because now I understand that you
will let us know, not only what you are going to share, but
also kind of a time line so that people can expect that,
granted that in the beginning you needed to protect some of the
information with interdepartmental issues, but now we can
expect such and such and such and on a time line.
But now I have a further question, and that pushes it back.
In addition to disclosure, and as a part of disclosure, then
Californians are going to want to know what you are going to do
with this information and the knowledge of the wrongdoing that
is there.
Part of your task, on our behalf, is to gather the data,
and you certainly have a lot of it. And we now, we have got
certain phrases that just really hurt as we understand how we
were manipulated as a state.
And it is the taxpayers that have been manipulated. FERC
has an obligation to ensure that rates are just and reasonable.
And when flagrant abuses just receive a slap on the wrist
and have to pay a fine, but with the amounts being what they
are, it is hardly a penalty.
And these companies are allowed to go right on, it doesn't
help the confidence that we seek. And also we want redress. I
mean we have a State with a huge budget problem in California
now.
Some of it is other issues, but a lot of it is because of
the burden that was placed upon the State as a governing
agency, but also citizens in the abuse of power that these
companies put upon us.
Can you be specific about what sanctions you can impose.
How can we know that FERC really has a regulating arm to it?
Mr. Wood. Well, we do have, and that is, I think, you have
probably heard from all three of us, we could use some more
penalty authority. And the Senator for your State has put that
forward, as well.
But we do have some existing remedies which we will pursue
to the maximum extent that we can.
Ms. Capps. So you want some guidance from us----
Mr. Wood. Actually we just need increased authority under
both the Gas Act and Power Act to have greater penalty
authority than we do today.
We can get, we can get the refunds----
Ms. Capps. And one final question. Oh, I am sorry.
Mr. Wood. We can get the refunds, we can required
disgorgement of profits from past activities that violated the
law or the rules. And we will do that. That is what we are set
up in the proceeding to go back an identify where violations
happen and force a disgorgement of the profits from those
transactions.
That is the most we can do. We cannot assess additional
penalties for punitive or of a nature like that. We can, and
have considered, yanking certificates, basically saying you are
not in business anymore.
Ms. Capps. Can you do that?
Mr. Wood. Yes. And that is certainly----
Ms. Capps. Will you do that?
Mr. Wood. We will. If merited by the facts, we will do
that. We have got, in fact, from our August report, which was
an interim report to the public, set up, I believe, four or
five proceedings from parties that we found earlier on that had
violated the rules.
And that was one of the remedies we put forth in the trial
before the Judges was to basically yank or amend significantly
their certificates for operating.
But that is, those are really the two. Disgorgement of
profits, i.e., refunds, or yank the certificates.
Ms. Capps. And revoking market rates would have helped as
well.
Mr. Barton. The gentlelady's time has expired. The Chair
would recognize the gentleman from Illinois, Mr. Shimkus, for 8
minutes.
Mr. Shimkus. Thank you, Mr. Chairman, I have four different
items that I want to try to get covered in the time I have
available.
First of all, just a point for the Deputy Secretary
McSlarrow. The Clean Coal Institute at SIU, Carbondale, does a
tremendous amount of work in clean coal technologies and DOE is
a major partner in that and I want to encourage you to continue
in that vein.
I toured the facility last week and I guess what amazed me
was the ability to, the initial separation of the coal and the
microscopic analysis of what is actually good to be used and
what is not to be good.
And early separation might address a lot of the problems.
And also the, I mean there is just a lot of good research done
there.
The other thing they brought about was in the hydrogen
debate, I was on tv with my colleague, Tom Allen, early this
morning for the chairman. And the people who were on prior to
it, I think it was Shell Hydrogen.
And I don't know the automobile maker, but they are
announcing today at a Shell Gas Station that they are going to
place a hydrogen fueling pump there and have a hydrogen cars
in, running around in DC.
So, this is not a farfetched proposal. This is around the
corner and we think it really addresses a lot of the concerns.
Hydrogen cars also need fuel. And fuel will come from a lot of
different locations.
There is some neat research, again, going on at SIU
University, Southern Illinois University at Carbondale at the
Clean Coal Institute where, of course, coal could be a major,
the major commodity for hydrogen production.
So I want to encourage that research and development and
that partnership with the University. The second thing, well
another thing, I do appreciate the chairman's draft.
It moves us forward and we are going to move an energy bill
and there is some contentious issues. But the chairman is
showing leadership and we are going to move on it.
So any comments we can have from all the stakeholders is
going to be, we are all going to appreciate. This great debate
on the standard market design I think is important.
There are transmission constraints across the country.
Illinois is a perfect example of a State that over produces,
but because of some transmission issues cannot get the
overproduced energy to other States.
A good case study is the power line from Chicago to
Wisconsin that is, it has been constrained for years. There has
to be, this is interstate commerce. And it is commerce going
across State lines.
So somehow we need to bring the parties together to get
commerce flowing and there has to be a good cop on the beat. So
I want to applaud this debate.
I am looking forward to the white paper in April. And I
would encourage all the stakeholders to take a good look at
that.
Maybe there is less to be feared in that proposal once it
gets published than what we are hearing right now. So I want to
encourage that addition.
Now for Secretary McSlarrow, this is another issue. The
Department of Energy was sued by environmental groups over the
Federal Government's failure to meet the goals in EPAct. And I
have a long, since my memo to Congress, my first bill that I
passed, signed into law, dealt with EPAct.
And our ability for alternative fueled vehicles to reduce
our dependence on foreign oil. A Judge ended up ruling against
the Federal Government and with the environmental community.
In essence saying we are not meeting the law requirements.
The Judge gave DOE dates to which they were supposed to submit
reports on the progress that the Federal Government was making
and whether or not to include private and municipal fleets in
the EPAct program.
Can you give me an idea of where DOE stands on these
issues?
Mr. McSlarrow. Certainly. My recollection is that the
district court ordered that we produce a notice of proposed
rulemaking by February 27. We did, under EPAct.
The determination that was before us was whether or not to
extend a mandate on fleet requirements to local governments and
private fleets, or as we did actually choose in the notice of
proposed rulemaking, to make a determination that that was not
necessary because in the Department's view doing so would not
appreciably contribute to the goal of replacement fuel
vehicles.
And that should be in the Federal Register today or
tomorrow.
Mr. Shimkus. And we will take a look at that. We, I have
been involved, along with Congressman McCarthy, on the soy
diesel issue. And again, that first piece of legislation, by
giving a 50 percent tax credit, really increased the use of
biodiesel from what was then a 500,000 gallons to almost near
25 million gallons of use.
So I think the increase in the use of the product has a
great affect on the legislation. If we were able to get that
increase in demand based upon the 50 percent tax credit, do you
expect that we would have similar numbers if we would move to
100 percent tax credit, as was debated in the last energy bill,
and may be addressed in this energy bill somewhere down the
line?
Mr. McSlarrow. I am not prepared at this time to say what
the difference would be between 50 and 100 percent.
Intuitively, it strikes me that the problem we have is the
infrastructure and surrounding in terms of availability.
But as you know, the administration has been very
supportive and we have enjoyed working with you on promoting
these kinds of products because we think it is vital that they
be part of the energy mix in the future.
Mr. Shimkus. And I would just say, for just the sake of our
discussions, that the infrastructure needs for biodiesel is
very limited.
And we actually have biodiesel pumps now in major gas
stations and diesel stations across Illinois. The mixing is
simple. So there is no large capital outlay.
And we have seen a great use by governmental fleets and the
like using the tax credit to fuel their vehicles on biodiesel.
And so I would like you to also look at the benefits on how
you affect the EPAct problem by the 100 percent credit, as this
debate moves forward.
And with that, Mr. Chairman, I have addressed my four
issues and I yield back the balance of my time, Mr. Chairman.
Not bad, 45 seconds left.
Mr. Barton. The gentleman yields back his time. The Chair
would recognize Mr. John of Louisiana for 5 minutes.
Mr. John. Thank you, Mr. Chairman. As I said in my opening
statement, I think that now is really a critical time in this
country, in this Congress, revolving around homeland security.
And obviously a huge piece of the puzzle of homeland
security must be energy security. America is so dependent and
addicted to fossil fuels.
So I think we cannot speak about homeland security in the
same breath or we must speak about it in the same breath with
energy security.
So I was listening very intently and curiously to everyone
on the panel that was talking about natural gas, in one respect
or another.
But I repeatedly heard, whether it was from Commissioner
Brownell, who said it is a slow, silent erosion, or Chairman
Massey who talked about the reliance and the importance of
natural gas; its infrastructure, supply and availability.
The chairman talked about connecting Alaska down to the
lower 48s with a natural gas pipeline. I believe that should be
part of this bill.
And of course the Under Secretary talked extensively about
natural gas and its importance. But what is curious to me is
what I said in my opening statement--is that everyone at the
table is in agreement that increasing the domestic supply of
natural gas today is where we need to go.
And therein lies the problem and the hang up that I have.
We are pursuing opening up ANWR for oil and gas, and
constructing a pipeline, which I am supporting, have supported,
and been on record as supporting.
But I don't understand what makes Alaska so special or a
silver bullet standpoint, compared to the eastern Gulf of
Mexico.
It doesn't make any sense. I think I know the answer to
that. But the election is over. And I really believe that we
should look beyond that.
So I ask Mr. McSlarrow, do you believe that we can get
natural gas from the eastern Gulf of Mexico into the domestic
market before we have built a pipeline from Alaska down?
Mr. McSlarrow. Certainly.
Mr. John. Yes. So, again, I think I know the answer to that
and I am going to continue on that road to continue to talk
about, you know, the huge reserves in the Destin Dome.
We have an infrastructure and a pipeline that connects into
Tampa, or is building toward there, to supply natural gas which
seems to be the fuel of choice in a lot of areas because of its
environmental friendliness.
And I am going to continue my quest in making sure that we
open up the eastern Gulf of Mexico, because, I mean, obviously,
Louisiana is poised and ready, along with Alabama and
Mississippi to service that area.
The infrastructure is there today and I think we are
missing it as a big part of the big picture. If we know natural
gas is part of our solution today, and the demand is going to
be through the roof, in the future, then that has to be part of
any comprehensive energy plan.
And we will continue to work on that piece. Second, as a
plan, we passed an energy bill in the House, as you well know,
that did not have an electricity title.
This bill, is a comprehensive energy bill with an
electricity title, and is a little bit different from previous
legislation.
The chairman, Mr. Barton, had a separate electricity title
last year, that we discussed a little bit in this subcommittee.
But I am a little bit concerned about this issue. And I am
slowly educating myself and having to see how it all fits
together.
But what I would like Commissioner Wood to respond to is
the issue Chairman Barton alluded to in Virginia and the
legislative initiative over there that passed and that is going
to prohibit an energy company from joining an RTO.
If we don't continue to work with the States, individual
States, I think you are going to see legislatures in Mr.
Norwood's State, from what I heard, Mr. Burr's State, and
certainly in Louisiana take action.
We are going to continue to have either legal battles or
legislative problems and hurdles that we will have to address
or we are not going to get anywhere.
So I want to encourage the commission to continue to work
with the legislatures in those States that have most at risk.
And I yield the balance of my time.
Mr. Barton. I share the gentleman's frustration and we will
work with him on some of those issues. Chairman Meserve of the
Nuclear Regulatory Commission has an airplane to catch.
So we are going to release you from duty. Everybody else is
smiling and saying they wish they had airplanes to catch too.
But we appreciate your service.
This is probably the last time we will have you before our
subcommittee and we wish you the very best in your future
endeavors.
Mr. Meserve. Thank you, Mr. Chairman, I very much
appreciate that. I very much enjoyed working with you and the
committee.
And I would be very pleased to respond to any questions for
the record.
Mr. Barton. We will have questions in writing if members
who have not yet asked questions, wish to ask you questions.
Mr. Meserve. Good, thank you.
Mr. Barton. Thank you.
Mr. John. May I be recognized, Mr. Chairman?
Mr. Barton. Mr. John.
Mr. John. Mr. Chairman, I just have a quick request. Since
I only, I took up all of my 5 minutes on my own questions, I
didn't get an opportunity for any of the panelists to answer
any of my questions.
Mr. Barton. We noticed that.
Mr. John. Okay, so I just gently request maybe some time a
little later on?
Mr. Barton. I think----
Mr. John. For the panel, not for me.
Mr. Barton. [continuing] we are going to do a second round.
We are going to give them a personal convenience break and then
do a second round with this group. Mr. Shadegg is recognized
for 5 minutes.
Mr. Shadegg. Thank you, Mr. Chairman, and I appreciate you
holding this hearing. I also very much appreciate the
attendance of the witnesses.
Mr. Wood, I want to begin by focusing on an issue that you
are working on, but I don't know that we are getting anywhere.
Unlike some of the other questioners here today, I strongly
favor your efforts, the commission's efforts and the
President's efforts to move this industry from a monopoly
structure into a competitive market structure.
I think that needs to be done and I think that over time it
will produce dramatic cost savings. I know of no place where
competition effectively initiated, has not produced cost
savings.
Having said that, I guess I must say that at least for me
in the west, you are making my life difficult. You have managed
to get my public utility, my investor-owned utility and all of
the Governors of the west united in their concern about SMD.
All of them, even though they have diverse interests, are
saying that SMD does not work. The Western Governors
Association has written you and said SMD will not work in the
west.
Both the IOUs and public utilities in the west have
expressed to me and I presume to you, and I have seen documents
that have been sent to you that SMD does not appropriately fit
in the west.
I note that it appears, and I think it is pretty well
acknowledged that the elements of your standard market design
proposal have been extrapolated largely from the Pennsylvania,
New Jersey, Maryland area, a very dense market without lengthy
transmission lines.
And it seems to me that in their criticism, the western
Governors have pointed out that Arizona is quite different. I
also note that your own staff has acknowledged that the
infrastructure in the west is very different.
For example, on July 17, of this year, I guess of last
year, your staff said energy infrastructure in the west, this
is a quote, is insufficient relative to projected energy
demand, and additional infrastructure as expansions are needed
to support a competitive market.
You said recently at a speech you made within the last few
weeks, that recognizing the differences, east to west, market
to market, that perhaps SMD could be, and the words I am
reading from, phased in regionally rather than requiring
adoption nationwide at the same time.
My first question of you is have you heard of Edmund Burke
and understand his theory on gradualism?
Mr. Wood. I was an engineering major, so I will say I have
heard of him, but I can't----
Mr. Shadegg. Well, he was not an engineering major, he was
a philosopher. And one of this theories was that in bringing
about change, particularly social change in society, one ought
to look at a model of gradualism, making a change gradually.
And I think I would urge that upon you. I would hate to see
rejection of SMD bring about the defeat of competition in the
long run in the energy market.
When you said that you thought perhaps it could be phased
in over time, one of my concerns would be, that then raises the
question, well, would you continue to propose that SMD be
adopted as the rule for the country and leave it in your
discretion to decide where it gets phased in, or are you open
to a proposal under which SMD is adopted for a region of the
country where it might work well, and other regions of the
country are left to have it phased in for them at a later point
in time on a basis other than your discretion?
Mr. Wood. I think what I meant in that statement that you
quoted so accurately, was that there could be different time
tables for different parts of the country to be phased in.
I think it depends on the underlying nature of the
infrastructure, what the retail regulatory structure is in the
markets. Really, where are the markets today.
So, I mean, when we adopted kind of an October 2004,
timeframe, at that time all the forming and working regional
transmission organizations in the country indicated that they
expected to be there by the end of 2004.
So we did not feel like that was really a push to do that.
But, I think there is a realization that we have got to work
with existing RTOs that are there. The one in Arizona is one we
have given conditional approval to.
And the one in the northwest is another. California is
existing. But we cannot ignore that problem. I mean, as I
mentioned to Ms. Capps, there was a significant bad event that
happened out there before we got on the commission, and we
would be remiss in our duties if we did not take steps to make
sure that that never happened again.
Mr. Shadegg. I understand that and I greatly appreciate
that answer and I think it will be very helpful. Let me ask you
one other question. A great deal of the concern in the west and
among our corporation commissioners, who have written you about
SMD, is they believe they are making progress toward voluntary
RTOs already.
One of my questions is what would be objectionable to a
structure in the west where you had a voluntary RTO and if it
was not functioning to allow true competition giving FERC the
authority to impose to, A, investigate it, and B, impose severe
penalties if in fact that RTO was not effectively promoting
true competition?
Mr. Wood. Let me make sure I got that. It was a lot of
interesting thoughts that I haven't really digested before. The
voluntary RTO in the southwest is moving forward.
In fact, the big Salt River project is not under FERC
jurisdiction anyway. So they have got to voluntarily join. And
without them and without western, WAPA, it is just not going to
be an effective grid. That is a big part of the regional grid.
Mr. Shadegg. SRP is already in, though, they are
voluntarily in.
Mr. Wood. And WAPA hopefully will get there. I mean
fundamentally that has got to be the platform on which it is
built.
So I think, as I indicated, we already conditionally
approved that. What we are really focusing on now is making
sure the three in the west actually work well together.
Because the fact there were big dislocations in the market
design out there led to a lot of the manipulation that we have
pointed out and that we are reviewing now.
So that is really the course making sure that what they
look at in the desert southwest works well with the northwest
and with the California market.
So I think we can get there. It is awkward because there is
no one really in charge out there to make kind of a corrective
decision. But I think our work with Governor Hull, who is just
the immediate past President of the Governor's Association out
there, was a good platform to build on that.
And I expect that we will continue work through the
Governors and through the State Commissioners out there----
Mr. Barton. The gentleman's time----
Mr. Shadegg. My time has expired. I appreciate the openness
and I would like to discuss alternatives as we go forward.
Mr. Wood. I would be glad to.
Mr. Barton. All right, we are going to recognize Mr. John,
I mean Mr. Doyle, for 5 minutes.
Mr. Doyle. Thank you, Mr. Chairman.
Mr. Barton. No, no, Mr. Doyle.
Mr. Doyle. I know we look a lot alike Mr. Chairman, thank
you. Mr. McSlarrow, welcome. I have a question. It is widely
recognized in industry that, even in the automotive industry,
that the path to transportation fuel cell applications is
through stationary fuel cells.
And most of the experts that I have talked to tell me that
there are at least two types of stationary fuel cells, solid
oxide and molten carbonate, that are commercially deployable in
the very near future.
We are talking maybe 2 or 3 years. So my question to you is
why are we putting so much money, and I don't necessarily have
a problem that you are putting money into the hydrogen program,
but why are you putting all this money into that program that
we are talking about 15 to 20 years from now.
And at the same time in your 2004, budget, you are cutting
by over $16 million the line item for the stationary fuel
cells.
You know, it seems to me that if we want to get these
vehicles on the road sooner rather than later, and start saving
all of this oil that we talk about saving by getting these cars
on the road, why aren't we putting more resources into the
technologies that are going to be commercially deployable in
the next couple of years, rather than picking winners and
losers.
You know, I am just curious what your thought is on that?
Mr. McSlarrow. No, it is a tough question. And the
interesting thing is it is precisely because things are so
nearly deployable that we will move money away from that.
It is a philosophical choice the administration has made.
And we do it across the board. But we are, as you said, making
great success from solid oxide fuel cells.
We think they have a big future in terms of the stationary
sites. But across the board we have made a commitment to
investing in long-term R&D where the risks are going to be the
greatest and potentially the reward will also be the greatest.
We think that is the appropriate way to direct the R&D. So
the nearer our technology comes to actually going to
commercialization, the more likely you are to see that we are
going to shift resources to another place.
Mr. Doyle. Listen, I am a great supporter of funding long
term R&D too, I think that is very important. It just seems to
me that if the goal here is energy independence, and that seems
to be, you know, a front burner issue now because of all that
is going on around the world.
And, you know, we are getting ready to try to drill oil up
in Alaska because we have got to be energy independent because
we are in a crisis right now.
Why, you know, if we are in a crisis and we can deploy a
technology that is environmental sound, safe, and doesn't
pollute and could save us hundreds of millions or barrels of
oil, and we are 2 to 3 years away from doing that, why are we
cutting the funding to that?
It just doesn't make any sense in the world. And I would
just ask you to go back to DOE and talk with your people there.
These programs, stationary fuel cells, have been
historically underfunded. And this is a real area that has
promise in the next couple of years.
I mean, heck, this could even happen during the Bush
Administration. What did I say, 3 years? Maybe not. But it
could happen soon, and I don't know why the President wouldn't
want to see something happen on his watch than 15 or 20 years
down the road when we don't know who is going to be President
then.
I understand this philosophy as you get close to
commercialization, you start to pull the money back. That is
fine under normal times and when everybody is fat and happy.
That is not where we are at right now. We are in a crisis
right now. The President keeps telling the American people we
are in a crisis, we have to become energy independent so we are
not being held hostage in the Middle East all the time.
And I would just ask you, go back to DOE and put some more
money in these stationary fuel cells. It is just the good,
right thing to do for the country and we are in a crisis.
So I want to bring that to your attention and we will leave
it at that. To the FERC commissioners, welcome. I just have one
question, and maybe you can all take a shot at that.
But we know there is strong support at FERC for formation
of the RTOs, and that a significant portion of the country is
currently being serviced by these entities.
One of the concerns I have, as we move into RTOs, is that
we preserve and in fact enhance the future ability of non-
traditional generation sources easy access to connect to the
grid through these RTOs.
For instance, I am thinking of the advances we are making
in fuel cell technology and the growth of combined heat and
power systems.
What steps do we need to take legislatively or do you need
to do through regulatory action, to ensure that these
innovative generation systems will be available to
interconnect.
I think Commissioner Massey, that in your testimony you
stated that you think the RTO formation will streamline
interconnection standards and help get new generation into the
market.
When you say this, do you have types of new and developing
sources in mind? And I would repeat, that any of you that want
to answer this question, what steps can we take in the future
to ensure access for these types of generation?
Mr. Barton. This will have to be your last question.
Mr. Doyle. You know, I got that right in under the mark.
Mr. Barton. You all, everybody is really good at right in
under the buzzer here.
Mr. Doyle. Don't forget, more money in those stationary
fuel cells, too.
Mr. Barton. But at least you asked it to Mr. Massey, and I
know he will give a shorter answer than Chairman Wood would
have given. He says the commission shares your goal.
Mr. Doyle. It is a right wing conspiracy, Massey. There you
go. Give this guy a microphone.
Mr. Massey. I am not sure, oh, this one is working.
Actually the standard market design is also aimed at
interconnecting and providing a market for the kinds of
resources you are talking about with a day ahead market and
locational marginal pricing, which the distributed generation
organizations and distributed generators strongly support.
No. 2, we have an interconnection rulemaking underway which
would streamline the interconnection processes and rules for
small generators.
And we hope to finalize that soon. And I also believe that
the RTOs will streamline interconnection because they won't
have any incentive to delay the interconnection process.
I believe that they will seek to interconnect these
generators as quickly as possible.
Ms. Brownell. Can I just add something because Mr. Doyle
and I come from the same State where we had an ISO, now an RTO.
And, in fact, what we saw was the introduction of new
technologies because market forces could speak, investors knew
that they had a fair shot at getting interconnected, and
customers expressed, both at the wholesale and the retail
level, some choice in being innovative.
We saw the growth of wind farms in Pennsylvania. So I think
that is a classic working laboratory, albeit, perhaps, based on
regional differences, the very fact that there are wholesale
markets where choices can be expressed and investors can have
confidence in the equity of the rules, will attract just the
very kinds of innovation that you are talking about. And has.
We know that.
Mr. Barton. All right, the gentleman's time has expired.
The Chair recognizes the gentlelady from New Mexico, Mrs.
Wilson, for 8 minutes.
Mrs. Wilson. Thank you, Mr. Chairman. I wanted to thank all
of you for joining us today. I am also one of those that
believes we need a balanced long term energy policy for the
country that includes both increases in production and an
emphasis on conservation and new technologies.
There are some things that I wanted to focus on as far as
questions are concerned. I wanted to associate myself with Mr.
Shadegg's comments about the standard market design, as a
western legislator.
And Mr. Wood, I wonder if you could expand a little bit on
which elements of this standard market design are most
important to you, so that we can figure out how we can work
with you to alter the approach that FERC is taking here?
Mr. Wood. Actually, let me see if I can make that simple,
because I did put that in my testimony, Representative Wilson.
The, and I will just call reference to that, if you want to
look it up later. On Page 7 at the bottom. But I will just go
in those, independent grid operator, single tariff. In other
words, everybody plays by the same rule.
A long term bilateral contract market, which is not
imposed, it just is what it is. A voluntary short term spot
market with transparency.
Regional transmission planning, so it is bigger than just
one utility looking after its plan. Locational price signals
and transmission, basically property rights, so people have a
defined property right.
And appropriate mitigation so that you don't have repeats
of what happened out west. Those would be the eight, kind of
the core eight that I have been talking about in recent
public----
Mrs. Wilson. Of your core eight, which ones are the core of
the core eight. I mean that is a pretty long list. What is the
most important to you? What are the top things we are talking
about here?
Mr. Wood. The independent operator, which is the RTO, which
is what has been proposed in your home state. The spot markets.
Mrs. Wilson. Okay.
Mr. Wood. The transmission rights.
Mrs. Wilson. That is three.
Mr. Wood. And the market monitoring.
Mrs. Wilson. Thank you. Mr. McSlarrow, I wonder if you
could summarize the position of the Department of Energy and
efforts you have underway to reinvigorate the nuclear power
generation capacity in this country? And I wonder if you could
expand on that a little.
Mr. McSlarrow. I would be glad to. As you know, nuclear
energy provides about 20 percent of our electricity generation.
From the President's National Energy Plan forward, we have
made very clear working with you and others that we believe
that nuclear energy is important and has to be part of the
energy mix for the future.
Now we are approaching that several different ways, because
there is no question that nuclear energy brings with it its own
challenges.
One of those, obviously, is what do you do about nuclear
waste. Now Congress has answered that and moved us down the
road a good bit by the suitability and determination and then
the selection of Yucca Mountain.
And we are going to have to move forward with the license
application. Another is what does it take to convince those
people, investors, principally, to front the capital necessary
to build these kinds of projects so that we don't have the kind
of horrific examples with Shoreham and WAPA and other classic
cases that happened in the last 30 years.
And so we are working with the NRC and Chairman Meserve to
move forward with what we call early site permitting processes
designed to speed up and provide more certainty with the
regulatory process.
In addition, we are trying to focus on the future of
nuclear energy in terms of advanced fuel cycle and advanced
reactor concepts.
And I know you are personally very familiar with all of
this, but briefly, one of the things we are doing is a
collaboration called Generation IV, which is a collaboration
with nine other foreign countries on future reactor types.
And then, most recently in the 2004 budget request from the
President, we have asked for $63 million for a program we call
advanced fuel cycle initiatives.
And that is designed to produce technology that will allow
us to reduce the waste in the first instance, reduce its
toxicity and also to make any of the waste from nuclear energy
more proliferation resistant.
And so if you attack all of those things, waste,
proliferation, investor certainty, we believe you can get to a
point whereby 2010, which is another program we have, we can
actually build our first nuclear plant in a long time.
Because, as I said, it is, we believe it is vital for our
future.
Mrs. Wilson. Thank you. Mr. Wood, I have a question about
the gas price indices. As you know, there has been recent
information that the data that is given by the companies that
do submit data is false or manipulated.
And there are companies that rely on those indices in their
contracts to set prices, and I think you also use them for some
pipeline tariffs.
Mr. Wood. Yes, ma'am.
Mrs. Wilson. What is the solution to this? What are you
looking at for getting a more reliable index or what are your
answers?
Mr. Wood. We have had a couple of workshops lately focused
on actually other issues and this issue has crept into it as
well.
We got a report from the Committee of Chief Risk Officers,
which is a group of energy industry, you know, executives that
were trying to figure out the best way to get past the mess
that the financial books are in right now.
And, among other things, looking at accounting fixes. But
one of the issues that they have focused on and proposed some
solutions to last week, was the gas index and how that ought to
be dealt with.
On the other hand, the current providers of those indices
are a number trade journals, publications. They have also
proposed revisions to their own collection methodologies.
At the end of the day, though, there is a question. If
everybody doesn't have to play, in providing data, how do you
know you are really getting the right universe of information
to report an accurate price.
You know, by and large everybody that wants to trade AT&T
stock, trades it through the New York Stock Exchange or one of
the publicly traded exchanges and you have got that range and
that average on the information from everybody.
We have nothing like that in the gas industry. We have got
more like that in the electric industry, but it is pretty new.
It is something that we just installed last year.
We don't have authority to do this fix on the gas side. We
are going to have a conference, we have announced that we are
doing one in April, once we get past all the California dockets
and the important things we have to resolve there, to focus on
this answer.
So if I could maybe beg off a month and give you a good
answer after we hear from the industry what, and the parties
and the customers, what is really the smart thing to do.
But it needs probably a little bit more attention.
Mrs. Wilson. Okay, thank you. And finally, Mr. McSlarrow,
and this is not something you can probably answer here, but I
would like to see the answer probably as a follow up to our
discussion here today.
I understand the department is changing its criteria for
the EnergyStar windows program. And I wonder if the department
could provide me with the criteria the department will be using
as it makes a selection between the two proposals.
And if you could take that back and get us an answer, I
would appreciate it.
Mr. McSlarrow. I would be glad to.
Mrs. Wilson. Thank you, Mr. Chairman.
Mr. Barton. Mr. Markey, you are recognized now.
Mr. Markey. Thank you, Mr. Chairman.
Mr. Barton. For 4 minutes and 1 more minute to go over.
Mr. Markey. Thank you, Mr. Chairman. First I would like to
congratulate the Nuclear Regulatory Commission. They may not
have an emergency evacuation plan for around nuclear power
plants, but the definitely had one to get out of this committee
to escape the full questioning and I want to congratulate them.
Mr. McSlarrow----
Mr. McSlarrow. They left me holding the bag.
Mr. Markey. You have got the cleanest face here, Mr.
McSlarrow. Today's Washington Post reports that some in the
administration, as well as some in South Korea and Japan, have
decided to give up on trying to stop North Korea from getting
nuclear weapons.
Except the fact that they are definitely going to have
dozens of nuclear weapons instead of possibly having one or
two, and focus instead on trying to prevent North Korea from
transferring nuclear technology to other countries.
Mr. McSlarrow, I received a letter from Secretary Abraham
yesterday, responding to a letter which I sent him in October.
In this letter the Secretary acknowledged that in May 2001,
he extended authorization for 5 years to Westinghouse to
transfer nuclear technology to North Korea. This is in May
2001.
He reveals in the letter that, ``to date approximately
3,200 technical documents have been reviewed for export control
concerns. Of these, roughly 3,100 were approved for release to
North Korea, with the stipulation that they only be transferred
when needed and the balance denied.
``Roughly 300 documents have been transferred to North
Korea.'' The Secretary then goes on to say, again, ``recent
actions taken by North Korea clearly violate its international
non-proliferation obligations.''
The administration is now considering appropriate courses
of action, possibly to include suspension or revocation of the
May 2001 Bush Administration authorization to transfer nuclear
technology to North Korea.
First, Mr. McSlarrow, how long have you been considering
the cancellation of this nuclear agreement between the Bush
Administration and North Korea?
Mr. McSlarrow. The--I can't give you a precise date. It is
as long as everybody is aware by reading the papers when this
crisis first erupted on the front pages is about when
discussion took place within the administration as to what the
appropriate steps are.
And we are trying to pursue this through multilateral,
diplomatic negotiations.
Mr. Markey. So did you begin reconsideration of this
agreement immediately after learning of the secret or
confirmation by the North Koreans of their secret nuclear
weapons program?
Mr. McSlarrow. We did. But there is also less there than
meets the eye Congressman. I mean this is not nuclear
technology in the sense that most people would understand it.
This is licensing and safety procedures. We have always
followed a policy of not transferring nuclear technology and we
are following that policy and we won't make a----
Mr. Markey. But this is an agreement to transfer to two
nuclear power reactors to North Korea.
Mr. McSlarrow. Correct.
Mr. Markey. And my question is why haven't you already
revoked the authorization to sell two nuclear power plants to
North Korea? What are you waiting for?
Mr. McSlarrow. We are waiting for, to allow the process to
unfold.
Mr. Markey. What else do they have to do before you would
revoke the sale of two nuclear power plants to a homicidal
sociopath?
Mr. McSlarrow. Well, there is not transfer taking place
right now, so revoking it or suspending is irrelevant to that
point.
What is relevant is the Secretary of State is trying to
pursue this diplomatically and I am not going to say, at least
in an open session, of what the steps are----
Mr. Markey. I don't think, no, the Secretary of State is
not advancing this diplomatically. The Secretary of State has
yet to take this to the United Nations. It is 6 months.
The Chinese and the Japanese and the South Koreans are
basically holding our coat, you know, while we do this alone.
And they have not done anything diplomatically. What is holding
up the Department of Energy from canceling this agreement, Mr.
McSlarrow?
Mr. McSlarrow. We are not going to make a decision without
consulting with the rest of the administration. This is a very
delicate issue with North Korea.
Mr. Markey. This is very----
Mr. McSlarrow. As I know you are very well aware.
Mr. Markey. This is very scary.
Mr. McSlarrow. We did actually go to the United Nations. We
asked the International Atomic Energy Agency to go to the
United Nations Security Council, which they did.
They referred it to experts. But we are pursuing it in
multilateral ways.
Mr. Markey. I think you are holding this up to reserve the
right to still transfer the two nuclear power plants to North
Korea. That is what I think the Bush Administration is going to
do.
I think if this was happening in Iraq, and you were still
considering sending two nuclear power plants to Saddam Hussein,
you would charge those who supported it with appeasement.
I am not saying that here, but what I am saying is that
this is a very serious issue. It is sending the wrong signal
around the world that we are not, with all this evidence about
Kim Jong-il, not just canceling these two nuclear power plants.
And I don't care if Westinghouse wants it, I don't care who
wants it. There is something more important than private
commerce. And it should just be ended.
And we should square up our policy in North Korea with
Iraq, or else the rest of the world is going to think that we
are hypocritical on this nuclear issue.
And it is just time for us to end it, once and for all. And
Bush Administration has to take the lead now.
Mr. Barton. The gentleman's time--I agree with the
gentleman from Massachusetts. I want to associate myself with
what you said. I will give the Deputy Secretary a chance to
respond and then we are going to go Mr. Otter.
Mr. McSlarrow. It is a factual dispute. When this first
erupted and news of what we found out about the uranium
enrichment program took place we halted the oil shipments to
North Korea. No meaningful work is being done on the light
water reactors.
You can quibble with whether or not the agreed frame work
that was agreed to by the Clinton Administration was good
policy or not.
The fact is when we found out what was going on in North
Korea, things have changed, nothing is happening except a
diplomatic initiative to figure out a resolution.
And we are not at the end of that process yet.
Mr. Markey. Does the State Department oppose cancellation?
Mr. McSlarrow. No decision has been made on that.
Mr. Markey. They don't oppose cancellation?
Mr. McSlarrow. No decision has been made.
Mr. Barton. We are going to have to continue this at a
later--we have got two more members on the Republican side. We
have got a series of three votes that are going to start in the
next 20 minutes.
I am going to ask these two gentleman to do their questions
and then I am going to give the panel a chance to have a very
brief personal convenience break.
We will start a second round if we can start it before the
series of votes. But if we have to go vote, then I am going to
have to release the panel, because we won't be back over here
until after 2 o'clock, and we have an entire second panel with
seven witnesses.
So, I know that is a little convoluted. If we are quick, we
can get some second questions in, if these two gentleman ask
their questions in 5 minutes or less.
I will recognize Mr. Otter for 5 minutes and then Mr. Issa
for 5 minutes.
Mr. Otter. Well, thank you, Mr. Chairman, and I appreciate
Mr. McSlarrow and the commission for being here today and
responding to our inquiry.
I would like to get back to the genesis which provided the
opportunity, I guess, the reasons for us to be here today. And
let us go back to the energy crisis of 2000.
And primarily, where it really focused, the greatest
distortion was on the west coast, the southwest coast, if you
will, which caused ripples everywhere else.
Coming from the pacific northwest, I saw some things
happening in the lower southwest that were--I can say
California--thank you, Mr. Issa.
The lower southwest that were very disturbing because they
were running under the guise of deregulation. And, in fact,
although I am new to this committee, I am not new to the issue,
because we held several hearings in the Government Reform
Committee over regulatory agencies.
And what we found was basically that California had
released the wholesale price but set the retail price. And then
were alarmed or disturbed that there wasn't any conservation in
the process.
Had they released, do either one of you gentleman or
anybody on the panel, know of any study that was conducted by
either the Department of Energy or FERC, to find out how much
conservation would have in deed taken place had the market
place allowed to work its magic and floated to a level which
would have got a certain amount of conservation.
And how much conservation would of we in fact gotten in
California?
Mr. Wood. It wasn't a FERC-initiated study, but the
subsequent summer which was, of 2001, which is when California
did implement a number of conservation measures, actually is a
number of non-governmental types were reviewing that.
But I think the data are pretty clear. I mean if there is a
clear price signal in basically either a carrot or a stick, but
one of them, that there is a pretty clear response. A flat rate
clearly I think your point is correct.
The flat rate just continuing as usual does not send a
signal to a customer as my natural gas bill sent a signal to me
last night to really watch and conserve and cut down the
thermostat or up as it may be.
Mr. Otter. Well, one of the concerns, obviously, that I
have is how much additional information, or I guess I should
say regulatory authority that FERC is asking for through either
your own agency or through the Department of Energy.
And it seems like we are asking to override the States. We
are asking to override regional producers, investor-owned
producers of energy.
We are asking to even municipal energy producers. And yet,
we haven't gone back and said we are never going to engage in
this kind of market manipulation.
If there was ever any serious market manipulation that was
engaged in, as far as I am concerned, the reason we gave relief
to those who may have engaged in that later on was the fact
that we released the wholesale price and set the retail price,
therefore allowing, not allowing the market place itself to
work.
But I notice that you didn't ask for any regulatory
authority over allowing folks to do that, which I think was the
very genesis of the problem in the first place.
Let me just run through several very serious questions that
we would have in the pacific northwest and in particular Idaho.
Obviously the transmission contracts under the transmission
authority and organizations that you are asking for, concern me
because it appears that all of our long term transmission
contracts that we are already engaged in, are no longer going
to be allowable under the new rule. Am I wrong?
Mr. Wood. The existing contracts, in fact, we have already
approved in the context of RTO West, which is a filing of Idaho
Power and others that the existing contracts can either choose
to convert to the new service or stay with the old service
until the contract runs out.
So that was actually, yes, sir, we have approved that in an
order about, in the fall.
Mr. Otter. So if we have got a 20 year contract on
transmission----
Mr. Wood. Then that stays and we work around that.
Mr. Otter. Then how would you provide for the standard
market?
Mr. Wood. Well, it is harder. It is just a long transition.
But we, as we did in the gas industry, it was the view of us
that we do not need to abrogate existing contracts to make this
work.
That we work through it over a longer period of time.
Mr. Otter. Well, my time is about out and I appreciate your
response. But, I just want you to know that in my country, in
Idaho, almost everything that we produce in Idaho is a value-
added product.
And every value-added product has a large contingent of
energy in it. Either driving brand new technology or driving
natural resources into a form that the world wants to consume.
And so energy is, not just important in our lifestyle, it is
important in our economy.
It is important to our ability to produce, whether it is on
the farm or in the factory. And our ability to live no matter
where that is. Thank you, Mr. Chairman, I yield back.
Mr. Barton. The gentleman yields back. We recognize Mr.
Strickland of Ohio for 8 minutes.
Mr. Strickland. Thank you, Mr. Chairman. Mr. Chairman, I
have a question that I was wanting to direct toward Chairman
Meserve and I was wondering if I could submit that? I will get
back to that.
Mr. McSlarrow, if the papers are right, and if we are
prepared to accept North Korea as a nuclear power and basically
move on from there, it seems fairly outrageous to me that we
would accept that without first of all engaging in bilateral
discussions with this country to see if we could prevent that
awful conclusion from becoming a reality.
But I want to thank you for issuing the Department of
Energy's Physician's Panel Rule for the Energy Employees
Occupation Illness Compensation Program Act.
From hearings held in this committee and others, we know
that workers were placed in harms way at many of DOE sites
under the pressures of the cold war. And at least we can
provide some assistance for these workers who have been harmed.
I am pleased that the Department included many
recommendations from the bipartisan congressional group on both
sides of the Capitol.
But today the Energy Department has received approximately
14,000 requests for assistance under DOE's program for claims
related to State worker compensation or Subtitle D of the law.
Your staff indicates that a mere seven claims have been
processed through the Physician's Panel in the 6 months since
the Physician's Rule was issued.
That is seven claims in 2\1/2\ years since the bill became
law. By comparison, the Department of Labor has been tasked
with reviewing claims for cancer, beryllium disease and
silicosis, under this same program.
And to date the Department of Labor has received over
39,000 claims, recommended decisions on over 16,000 claims and
issued $483 million in payments to 6,700 claimants since July
2001.
In deed, DOL began paying claims 9 days after the deadline
for accepting claims and processed and paid thousands of claims
in the first 6 months.
And the question that I have is how long will it take for
DOE to work through its backlog of claims?
Mr. McSlarrow. First, let me just be clear. The policy of
the United States is for nuclear weapons free Korean peninsula.
I don't believe everything I read in the papers, and that
hasn't changed.
Second, I appreciate your question about the Physician's
Panel and the law and appreciate your leadership on all of
that.
First, I do want to at least claim some credit. DOL could
not have processed its claims, as you well know, without DOE
having gathered the records in the first instance.
We did that, it was the first phase of the program. And we
think it is great that they are doing a terrific job on that.
The Rule for our part, that we are monitoring, as you know,
did not go final until September 2002. We have barely gotten it
off the ground, that's correct.
But the good news is that we are now at a point of
processing claims where we gather all the records about a given
site or location or contractor.
The hard case is the first one. Once you do it then you
start moving right through it and the rejections, I can't give
you a final date, I will try to give you one for the record.
But I do know that in short order, going from seven or 14,
is actually what I think we are at today, we are going to be
going through hundreds a week.
Mr. Strickland. Just a follow up, if I may. It is my
understanding that DOE has contracted out the claims processing
to a private entity called SEA. How have they been unable to
move these claims very quickly, as we know.
I further understand that SEA still doesn't have final
claims processing procedures written up and available to
claimants. And I am just asking, would you be willing to take a
hard look at this to see if SEA is going to be able to do this
in an appropriate, expeditious manner?
And, if not, take appropriate action?
Mr. McSlarrow. I would be glad to.
Mr. Strickland. Mr. Chairman, you weren't paying attention
to me earlier, but I had asked if I could submit a question to
Mr. Meserve since he had to leave.
Mr. Barton. Without objection.
Mr. Strickland. Thank you so much. And I yield back my
time, sir.
Mr. Barton. The Chair thanks you for yielding back your
time. The Chair would recognize Mr. Issa for 5 minutes.
Mr. Issa. Thank you, Mr. Chairman. Chairman Wood, I guess,
although this is a FERC general question, it probably falls to
your broad shoulders primarily.
As my colleague alluded to in non-specific terms, perhaps
not fully understanding that California goes considerably north
of some portions of Idaho, maybe he doesn't believe so, but in
either case the pacific coast, dominated by the State of
California, did experience market opportunism or market
manipulation.
But that is open for some debate. But there is no question
that suppliers of energy took full advantage of the opportunity
to get exorbitant rates from the people of California.
And as my colleague, again, loosely alluded to, it was our
own damn fault for having a system that just didn't make any
sense.
and then when we discovered that is was dysfunctional, we
didn't do anything about it for a very long time. Now the part
that is open to debate going forward. When we are looking back
at 2000-2001, I understand that you are in the process of
figuring out the amount of unfair compensation that was
received.
And I would like you to explain for myself, for the record,
and hopefully for the people of California, because I think it
is very important, the difference between our State
administration, the Governor's interpretation of what we are
entitled to in the way or repay and your interpretation.
And I will just be simplistic for a moment. Our Governor
believes that everything over and above the rock bottom rate
that you would have paid if you had long term contracts and you
hadn't deregulated and what was actually paid, is the amount
that the State of California is entitled to.
That is my interpretation. And then I would like you to
explain how you are going to arrive at whatever figure you are
going to arrive at based on the criteria of something else as
to what the wholesale price should have been fairly.
Mr. Wood. When we, last year, voted a mitigation plan in
place to keep the, basically set the price where a competitive
market would have set it. That became the bench mark.
Wherever the competitive market, working on supply and
demand, had set the price. So you look at what plants would
have run. What does it cost to run the most, the marginal plant
that is setting the price.
And that is, a big part of that price is what was the gas
price at the time. So that is really a very key driver here,
and just kind of keep that thought out there.
What we have done, and it took longer than we had hoped,
but it took a while to calculate that amount because you are
looking at every hour, actually every 10 minute segment of an
hour over an 8-month period in the California market with, you
know, numerous power plants and power customers and the like.
The difference between what was charged in that hour and
what this formula would calculate is really where we have gone
forth and sent the calculators off to do.
That, in fact, came back with a number, that is before the
commission for review now as to whether it was right or wrong
or high or low or just right on, of $1.8 billion.
There was a question raised about the use of the gas price
in that number. And if a different gas price is used, that
number could change notably.
One of the, I think, largest issues that we have already
ruled under our law, we can't do, is to go back before the date
that the complaint was filed and do this same calculation going
backwards.
And I think that is just an issue where our Federal Power
Act is pretty clear that a refund obligation can start as early
as 60 days after a complaint is filed.
Now the Chairman's mark goes back and gets rid of the 60
days so that you haven't lost those 2 months, going forward.
But the law we have got to work with today does make that,
going back, and I think that is probably a big part of the
difference between where the Governor and some of the State
officials have talked about on refunds and what the commission
has done on the same issue is the building to go backward.
Mr. Issa. I appreciate that. And I think that will help the
people of California understand how a fair price was realized.
One quick follow up question or separate question.
The use of public lands for transmission lines in
California. Can you briefly State the administration's position
and how we and the Congress, when delineating potential lines
should approach that?
Mr. McSlarrow. Our position is that the Federal Government
has to do its fair share. We can't, on the one hand, talk about
the need for more transmission capacity and just expect to go
in the west where there is such huge areas under Federal
ownership that somehow it is going to get around that.
I know the Department of Interior and the land management
agencies themselves, working with DOE and FERC and some others
who have some signing authority, whether it is for gas
pipelines or electricity transmission grids, have been working
together to try to streamline ensuring that we can make those
available.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Barton. We have a vote, three votes on the floor. We
are going to recognize Mr. Wynn for 5 minutes, and then we are
going to recess.
And then we will ask you folks to come back. Can you all
come back about 2:15? Anybody that has tremendous heartburn? I
don't think the second round of questions are going to take
that long.
We do have another panel after you. So, I recognize Mr.
Wynn for 5 minutes. Then we are going to recess until 2:15, and
begin our second round of questions at 2:15.
So Mr. Wynn is recognized for the last question period of
the first round.
Mr. Wynn. Thank you, Mr. Chairman. Mr., excuse me,
Secretary McSlarrow. Right now our strategic----
Mr. Barton. Mr. Wynn has 8 minutes. You have 8 minutes.
Mr. Wynn. Thank you, Mr. Chairman. Right now strategic
petroleum reserve is down 100 million barrels below capacity.
Is it your expectation that we will be replenishing this in
the near future?
Mr. McSlarrow. Yes. Right after September 11, President
Bush directed us to fill the strategic petroleum reserve to its
full capacity of 700 million barrels.
We began to do that. It is now at 599 million barrels, it
is the highest point ever in its history. Over the last 4
months we have deferred putting oil into the petroleum reserve
because of the crisis in Venezuela in order to ensure that we
minimize any additional price pressure on crude and on gasoline
and home heating oil.
But it is our full intention to get back on track and fill
the reserve by the end of 2005 to the full capacity of 700.
Mr. Wynn. By the end of 2005.
Mr. McSlarrow. Yes, sir.
Mr. Wynn. So that anticipates a likely increase as a result
of our activities in Iraq?
Mr. McSlarrow. It is impossible to anticipate what is going
to happen there. What I do know is that by deferring the oil
that was supposed to go in the last 3 months, we actually get a
premium, is that we get more oil later.
So we should still be on track.
Mr. Wynn. Okay. The other issue you talked about was the
hydrogen vehicle and again our dependency on foreign oil. And
the target that I seem to hear you saying is 2020, based on the
very modest investment of $1.7 billion the President is
recommending.
I guess my question is somewhat rhetorical, but why can't
we put more money into this if it is in fact a priority.
And why can't we move that up with a major commitment to
make it in 2010 rather than 2020, given the fact that after
Iraq we are likely to see a much more volatile situation with
respect to foreign oil and given the instability in Venezuela?
Mr. McSlarrow. Originally when our department studied what
it would take to produce a hydrogen economy, if you will, the
road map showed us, even with high expenditures, not being able
to accomplish these same kinds of decisions that you were just
referencing until like 2035 or 2040.
The Secretary and the President came back to our analysts
and said tell us how fast you can move this up and then tell us
how much it will cost?
The answer came back that we could make a commercialization
decision by 2015, with the idea of mass penetration by 2020.
And it turns out, working with the scientists who have been
working on this, this is one of those things that you just
can't spend more money and speed it up.
There are things that are sequential in nature that
prevents----
Mr. Wynn. So that is the administration's position that
additional funding would not change the timeframe?
Mr. McSlarrow. Not based on what we know right now.
Obviously, if we find out differently down the road, we would
be interested in trying to move up the schedule.
Mr. Wynn. All right. Is there, let's see, Mr. Wood. Do you
support the reliability language introduced in Barton-Tauzin?
Mr. Wood. Yes, sir, I think that language looks fine.
Mr. Wynn. Okay. And the other question, and any of the
three commissioners may want to respond to this. It says, it
proposes three conditions for PURPA relief.
And I don't understand, because they all seem to be relying
on a competitive market, how a competitive market addresses a
problem of expanding utilization of renewable energy.
It seems to me, and I could be way off the mark, but it
seems to me that just the opposite would be the case. If the
renewables were more expensive and less profitable that there
would be a competitive dis-incentive to use renewables.
So maybe I am looking at this wrong, but could you explain
how those three provisions in Barton-Tauzin would work?
Mr. Wood. All right, this is in Section 7062(m)1(a). The
first is, I think to cut to the chase, I think the issue is
that, and I remember this amendment from last year, Senator
Carper, I think, introduced it on the Senate side.
I am pretty sure this is language that mirrors that. Is
that if there is a sufficiently competitive market to sell
into, then the requirement from the 1978 law that the only
person to sell to at that point was the local utility, so they
had to take the power, is that the competitive market is
enough.
Now if there is a resource, such as maybe some renewable
resources or others, may be more expensive, then the clearing
price of the market, I think that would be a problem.
I think there would be perhaps an inability to profitably
generate that power. I don't honestly think that in most of the
competitive markets there is an open retail State, there is a
lot of customers who are interested in renewable power.
I am not sure that that would work out in reality to be a
problem, but theoretically, I think, you know, it could be.
Mr. Wynn. So the plan would be for you to make a
determination with regard to the competitiveness of the market
place.
And if you found competitiveness, you are saying that you
would then allow PURPA relief. Is that----
Mr. Wood. That is what the provision says, yes, sir. That
we have got to make one of these three findings, not all three
together.
You have either got a real market to sell into or something
that resembles that or an RTO. Which would be hopefully a
competitive market to sell into.
So I think A, B or C, really, basically is the same thing.
Do you have an alternative or alternatives to sell to other
than the utility that you have been selling to for 20 years?
And if the answer to that is yes, then the PURPA relief
would happen.
Mr. Wynn. All you need is one alternative? I mean do you
make a determination of----
Mr. Wood. It actually does say competitive market, so it
doesn't just say you have got one other one, but do you have a
competitive market. Which, in, I think, our understanding,
would be certainly more than one alternative.
Mr. Wynn. All right. I relinquish the balance of my time.
Thank you very much.
Ms. Brownell. Mr. Wynn, could I just add that we are about
wholesale choice, but in Pennsylvania where we had retail
choice, 20 percent of the customers who exercised that choice
chose green power, often at a higher price.
Mr. Wynn. Now when you say green power, are you referring
to clean coal or are you referring to renewables?
Ms. Brownell. I am referring to renewables.
Mr. Wynn. Okay, all right, thank you.
Mr. Pickering [presiding]. Thank you, we are closing in on
the time where we have a vote and we will recess. But I do want
to welcome Mr. McSlarrow, an old friend, to the committee. I
thank you for your testimony.
I do have a number of questions that I would like to ask
the panel and specifically Commissioner Wood, Chairman Wood. As
you know, we in the southeast are very concerned about your
work on SMD.
I think we have made progress on trying to perfect the
wholesale markets. Your efforts and the industry's efforts on
regional transmission organizations has made tremendous
progress.
But I do caution you, and as you go forward on the SMD,
that there is a rule, not only in the market place, but in the
political market place, that if you get too far out, it can be
overturned.
And we need to be very careful that as you go forward that
there is a consensus in my region and in other regions as to
how these costs are going to be possibly transferred and what
possible economic harm could be done.
I do want to submit to the record some questions. But, Mr.
Wood, let me ask--people have talked about the concept of
socializing costs when an IPP connects to a transmission grid.
Do you believe that there should be a socialization of
cost?
Mr. Wood. I think it depends on really where the load is
serving. I know there has been a concern in the south that a
lot of that IPP generated power is being exported from the
region so there is nobody benefiting from it being there.
I think we have embraced that, that that should actually
not be born by the local ratepayers because they are not
getting benefit. But I think it should be focused on where the
benefits are.
In many cases across the rest of the country the IPPs are
building near where their load is so putting the transmission
costs in the pot with everybody else's is not objectionable.
But I understand, from hearing back from a lot of the
people you reference, our State colleagues and some of the
customer groups down there that they are concerned that the use
of that power for export really does benefit someone else and
that someone else ought pay the price.
I think we are looking forward to a response from the
filing utilities down there, Entergy, Southern and the others
in the Seatrans proposal for a voluntary RTO to define exactly
how we would determine that beneficiary.
Mr. Pickering. I have some specific questions about the
recent action that you took that could retroactively apply some
of the new interconnection policy agreements to the contractual
agreements that were reached in my region.
And so I want to understand your thinking as to why you
reopened some of those contractual agreements and how you want
to look at participant funding.
But we are out of time today, and I will follow up with
some questions. I thank you and all of you who have spent a
good bit of your day here and for your testimony.
We will recess until 2:15. At that time we will be hearing
from the second panel and continuing the--oh, I'm sorry. The
second, not the second panel, your second round.
So that will start at 2:15. Thank you very much.
[Whereupon, at 1:48 p.m., the subcommittee recessed, to
reconvene 2:19 p.m., the same day.]
Mr. Barton. If we could have our panel reassemble. We
concluded our first round of questions, we are going to start
the second round with members present and any members that show
up.
As we begin, we are going to recognize the ranking member,
Mr. Boucher, for 5 minutes.
Mr. Boucher. Well, thank you very much, Mr. Chairman. And
my thanks also to our witnesses for their willingness to remain
with us for what is proving to be a very lengthy day.
Mr. Wood, I would like to take a few moments to discuss
with you the standard market design proposed rulemaking which
you presently have underway.
It strikes me as a somewhat complex mechanism. I have
reviewed it carefully and I have a number of questions about
just how the mechanics of it would work.
And let me just raise with you some of the questions that
have been brought to my attention and give you an opportunity
to respond.
Reference was made earlier, in the course of this hearing,
to the action taken by the Virginia General Assembly, that in
essence says that investor-owned utilities may not place their
transmission in a regional transmission organization for a
period, I think, of 1 year from the effective date of that
measure. I can tell that what generated that proposal and the
concern that gave fuel to it as it was considered in our
State's legislature, was the provision in your notice of
proposed rulemaking that would say that electric utilities
would no longer be in a position to favor their native load.
That they in effect would be placed in a bid in the market
for transmission access, in competition, perhaps, with
unaffiliated generators. And that the result of their having to
bid for access to their own transmission lines, might be an
increase in the cost of electricity for consumers, occasioned
by an increase in the transmission component of that charge.
And so my question, my first question to you is, how valid
is that concern? Do you think there would be opportunities or
occasions where the price of electricity for consumers might
increase on account of what I have described?
Or would there be offsetting savings coming from lower
generation components for that charge based upon the presumed
freer flow of unaffiliated generation into the service
territory?
How do you balance that and what do you say to those who
have concerns that the price for electricity for consumers will
increase because of this provision?
Mr. Wood. We certainly heard those concerns, Congressman
Boucher, in response to the commission's initial proposal. And
I expect that we will make very clear how current utilities and
current customers can be held harmless on day one.
But what we are really looking after is a longer term plan.
And I think it is important to think of the cost that you are
paying of generation, inefficient generation, which is what we
call congestion, and I just put that as a little small bar on
top, and then transmission.
The rate of transmission is set. Generation, the broader
the market and the more efficient it is, certainly the pressure
is downward on generation is where we expect the bulk of the
savings will come.
But this part in here that we are paying today, is for the
inefficient dispatch of the power grid because of congestion.
Because of the current lack of investment in the grid itself.
And if we can identify that and isolate that out, as our
pricing policies would do, and then allow that to be competed
down and competed away, either through construction of better
sited generation or through demand response.
Or through even renewables, as I heard some of the members
mention. Or through new transmission investment. Those kind of
things can really get that inefficiency, that cost of
congestion whittled down and whittled away.
What we were not clear enough about, and I understand the
concerns. And again, the three of us have heard this in
excruciating detail. Is we want the ability to preserve what we
have today.
And we have committed to doing that in a number of
implementation orders of the RTOs, which really is the same,
really a broad agenda as the SMD.
The SMD is to give some rational frame work for the RTOs.
But, yes, sir, I think we have heard that and we full expect to
address that and hopefully address it fully for the people who
raise those concerns, because I would have them as well.
Mr. Boucher. Did you say there might be some mechanism to
hold harmless consumers so that they would not experience price
increases as a consequence of this rule going into effect?
Mr. Wood. Correct. And one of the things that we have
indicated that we are looking at, and I think we have put in a
couple of orders, but certainly we have talked about
informally, that would be in the white paper, is the ability to
have that day one cut over of your rights today are this, your
rights tomorrow are the same thing if not better.
And then going forward, those rights get in the broad
market place with everybody else's.
Mr. Boucher. I will await with interest your further
illumination on that point. Let me quickly ask one other
question. I just have some doubts about how the mechanism works
for the disposition of the receipts from the bid for congestion
rights in those instances where congestion exists, who actually
gets the money when a bid is made and money is paid for the
right of access during times of congestion?
And then secondarily, at the end of 4 years you are
proposing that the entire congestion receipt mechanism be
eliminated and that there be an auction of the congestion
rights.
Who would get the receipts? Upon the completion of that
auction, where would that money go?
Mr. Wood. The receipt, to take the latter question, I
expect that we will be looking at the 4 year, it just was kind
of an absolute standard.
That we did admittedly indicate after the 4 years we could
just keep continuing what we have. But a lot of people just
viewed that the 4 years, it would be over with.
But none, notwithstanding that, we anticipate clarifying
how the rights will be allocated up front. And I think a lot of
the State commissioner colleagues have indicated they would
like a role in allocating those up so that the current uses of
the grid are maintained.
And I think we are probably pretty comfortable with that.
On the other issues, when congestion is----
Mr. Boucher. So the answer is for an auction at the end of
4 years of the congestion rights, you are not entirely sure you
are going to maintain that structure?
Mr. Wood. Right. But where we do have auctions, the
revenues that are generated at auction are credited back to the
customers or the utilities serving the customers that are
paying the cost of transmission.
So, in other words, the folks in the area that are paying
the access charge to use the grid today. Which are mostly the
local utility customers would be credited back with the auction
revenues.
Mr. Boucher. All right, that is very clear. And the other
question?
Mr. Wood. When you dispatch out of merit, basically you go,
this inefficient dispatch of the, because of congestion I am
having to turn on the unit here as opposed to this one here
which would have been the smarter one.
This is $35, this is $55. That $20 delta is going to be
paid for by the person who does not have transmission rights.
Just unprotected, unhedged rights. He, that customer will, that
required that extra power, will pay that $20 increment to that
generator.
So that is how the congestion works. Is to make sure that
the person who is causing the congestion is the one who is
paying the bill. As opposed to spreading it across the entire
grid and making everybody pay, even though they didn't cause
congestion.
Mr. Boucher. And tell me again who gets that $20?
Mr. Wood. The generator who has dispatched out a merit, who
cost $55 to run as opposed to the market clearing price of $35,
that all generators were getting at the time.
Mr. Boucher. Okay. Well, thank you. It is a very complex
mechanism. I am going to send a letter to you asking for a
statement of the problem that you see, on a national basis,
that this very complex mechanism is designed to address.
And that will give you an opportunity to describe at some
length, exactly why this kind of structure is necessary. Lots
of questions remain about it.
I am sure you are going to be hearing them. I am hearing
them every day and hopefully we will have further opportunities
to discuss this prior to your putting a rulemaking into effect.
And thank you very much, Mr. Wood, and Mr. Chairman, thank
you.
Mr. Barton. I just have one question. Mr. Wood, do you
still expect to issue your final rule in April?
Mr. Wood. No, sir. We are doing a white paper, which is
really our first kind of collective response to the comments
that we have heard, you know, 1,000 comments. Really we have
gotten three rounds of comments on the rule in November,
December and February.
And then a number of probably 300 meetings between, that
either we have had or the staffs have had with parties that are
interested.
So there has been a lot of good debate and actually a lot
of refinement on the issue. But the April white paper will be
our response to, here is what we said, here is what we have
heard, here is where we are today.
Mr. Barton. So what is your expectation if you issue a
rule, a final rule, when would that, when would the earliest
that would occur?
Mr. Wood. I have gotten burned by making that commitment in
the past. I certainly think late summer at the earliest.
Mr. Barton. Okay. The Chair recognizes Mr. Markey for 5
minutes.
Mr. Markey. I thank the Chairman very much. Mr. McSlarrow,
I just wanted to put on the record that I am very impressed
with the confidence the Department of Energy has that they can
construct a Star Wars system to knock down incoming ballistic
missiles on a couple of minutes notice.
And that they can develop that technology. And I am also
very impressed that they have the confidence that they can
develop a hydrogen car 15 or 20 years from now. But I am
extremely disappointed that they can't figure out how to use
off-the-shelf technology today to improve the fuel economy
standards of SUVs, and that is an available technology.
The other technologies are speculative at best. They may or
may not ever develop, and I would just encourage you to
continue to try to move along that front.
Chairman Wood, it is now 3 years since electricity price
spikes afflicted California and the pacific northwest. And 3
years ago your predecessor, Chairman Hebert, told this
subcommittee that these price spikes were just the result of
natural market forces supply and demand.
We now know differently. We now know that Enron, Reliant,
El Paso and others were engaged in a wide array of abusive,
deceptive and manipulative trading practices that helped drive
up prices in the western market.
The FERC staff, State regulators and others have been
investigating these manipulations and hopefully these actions
will result in refunds being given to those victimized by these
frauds.
My concern is that if these refunds are granted, that it
will, at best, be a posthumous victory for those utilities and
consumers that were harmed.
I think that you need to have stronger regulatory tools in
your quiver, than the mere threat of denying market based rates
or seeking a refund for unjust, unreasonable and unduly
discriminatory or preferential rates.
As I understand it, the Federal Power Act does not have a
basic anti-fraud, anti-manipulation provision with civil and
criminal penalties.
The gentleman from Michigan and I crafted an amendment last
year which we offered in the Energy Conference, which would add
such a provision to the Act.
We also introduced this as a free-standing bill. It is
based on the anti-fraud provisions and the Federal securities
laws.
Would you support that kind of power?
Mr. Wood. It certainly sounds appropriate, sir. I would
have to pull that bill, I don't remember from last year. But,
yes, sir, I think, to be sure, one of the items that we are
doing now may be challenged later in court if this provision is
not included, is to include that in the standard market design
rulemaking.
And we have got a list of the seven deadly sins and we are
going to basically put that in FERC regulation. But it may be
challenged if we don't have sufficient statutory authority for
it.
I think we do, but in case we don't, I would certainly
appreciate any buttressing from the Congress.
Mr. Markey. Commissioner Massey and Commissioner Brownell,
do you, would you accept that additional set of powers for you
to act in the manipulation and fraud area?
Mr. Massey. I would, Congressman, and I think it is an
excellent idea.
Mr. Markey. Thank you. Commissioner Brownell?
Ms. Brownell. I would happily do so. Markets do not work
where there is a lack of confidence and a lack of
accountability. So I would applaud your efforts in that regard.
Mr. Markey. Okay. Now, Chairman Wood, the discussion draft
that Chairman Barton circulated last Friday contains a
prohibition against round tripping or wash trades. Is this the
only type of abuse in trading activity that the FERC staff
identified in its investigation into Enron and California
electricity markets?
Mr. Wood. No, sir, there are others. And, again, they are
included in our deadly sins in the----
Mr. Markey. Do you think, in other words, the point I guess
I am getting at is do you believe that all abusive and
manipulative trading practices should be prohibited or just
that, just the couple that are mentioned?
Mr. Wood. I think they should be. I think it is important
to define clearly, as I think that particular sin was defined
pretty clear as to what it is so people know what counts and
what doesn't count.
But conceptually, yes, sir.
Mr. Markey. Okay. Let me turn to an issue which of great
concern to many of us in New England. Recently ISO New England
submitted its standard market design proposal to the FERC.
One part of that plan would designate eastern Massachusetts
and the Greater Boston area as a designated congestion zone. As
a result, electricity generators or marketers in the zone,
would be given a safe harbor, allowing them to charge higher
prices.
A step which the ISO claims is needed in order to
incentivize new generation and transmission. However, we have
been building new generation in Massachusetts.
I have two new gas plants coming on line in Everett and I
have been told that efforts are being made to relieve
transmission constraints in and around Boston.
Here is my concern. Some utilities in my district and some
of their customers have expressed a fear that the proposed safe
harbor could become a pirate's cove for trading abuses, similar
to that which occurred in California.
Specifically the fear that allowing generators to avail
themselves of the proposed safe harbor, even in periods where
there is no actual congestion.
Can you alleviate my concerns about this, Mr. Chairman?
Mr. Barton. This will have to be the last question and then
we will go to Mr. Waxman.
Mr. Markey. Okay, thank you.
Mr. Wood. Certainly the designated control area, safe
harbor issue, is one that is raised before our commission. We
have ruled on it.
It is an attempt to identify congestion and make it, you
know, focused on the areas where it happens. I do note that
just this week the ISO New England filed, just to make sure it
had the authority to yank that without having to go through the
60 day process at FERC if they find that it is not working as
intended.
Now that is something that they just filed and asked for
from us. But I think it is looking at California so they don't
have to wait for 30 or 60 days to make changes to their system.
I think in the past week that there has been this new
mechanism in place, there hasn't been congestion on the system
at all.
So the market clearing price in Maine and Connecticut and
Boston and all the areas, congestion or not, have been the
same. So I don't think that in the times when it is not
congested, that this safe harbor will in fact be and issue at
all.
Because I think the market clearing price will be certainly
probably below it.
Mr. Markey. Shouldn't we be able to get ourselves off the
list, if there is not congestion.
Mr. Barton. Okay, the gentleman's time has expired.
Mr. Markey. Thank you.
Mr. Barton. We have another member that wishes recognition.
Mr. Waxman is recognized for 5 more minutes.
Mr. Waxman. Thank you, Mr. Chairman. Mr. McSlarrow, I want
to follow up on your answers regarding the President's hydrogen
program.
First, I would like for you to submit for the record the
administration's projections on how much oil the Nation will
consume in 2040, and also explain how this projection was
calculated and what assumptions about fuel economy and oil
production were used.
If we can get that for the record. Just so it is clear on
the record, I understood you to say that hydrogen cars, under
the President's hydrogen proposal, would not significantly
reduce the Nation's oil consumption before 2020, however R&D
and tax incentives for new technology would help. Is that
right?
Mr. McSlarrow. What I answered was whether or not there
were any other technologies that could reduce it before that
time, and I said yes.
The tax credits for hybrid vehicles being one example.
Mr. Waxman. Okay. Can you give the committee an estimate of
how much projected oil consumption will decrease as a result of
these new policies and other alternatives? You can do that for
the record, if you don't have it off hand.
Now, you talked about tax incentives. It appears to me that
the President's budget is much more committed to luxury SUVs
than it is to hybrid vehicles.
For example, a Hummer H2 is reported to get 11 miles per
gallon, while a Toyota Prius can achieve over 50 miles to the
gallon while meeting the most rigorous air emission standards,
without question encouraging the purchase of vehicles such as
the Prius over the H2 would help meet the dual goals of clean
air and decreased oil dependence.
Unfortunately, the Bush plan increases incentives for
vehicles such as the H2 instead of energy efficient vehicles
like the Prius.
If the Bush plan were adopted, a small business could
deduct the entire price of the $55,000 H2 in the first year it
is put into service.
The business could only deduct about one-half of the
$20,000 Prius in the first year and the Prius would remain
subject to the luxury car tax. Is this an inaccurate summary of
the President's tax proposal?
Mr. McSlarrow. The tax provision that I am familiar with on
the hybrid vehicles is fairly straightforward and would not, in
my view, drive you toward a vehicle that is a larger
consumption vehicle.
I would be glad to give you an analysis of it, in detail,
for the record.
Mr. Waxman. I would appreciate that and I would like to
submit for the record, Mr. Chairman, a recent article from the
Wall Street Journal, that discusses how city policy forces
around the country are buying significant quantities of hybrid
vehicles.
This articles suggests that when the market isn't distorted
by tax incentives, there is a good market for hybrid vehicles.
Mr. Barton. So ordered.
Mr. Waxman. As I understand the President's proposal, I
think it gives the wrong incentives, but I would be interested
in your further analysis.
Has the administration analyzed how its tax proposal might
discourage or encourage the purchase of hybrid vehicles by
businesses that otherwise would have an economic reason to buy
one?
Mr. McSlarrow. I know we have done an analysis, I don't
know the results of it. But, again, we will get that to you.
Mr. Waxman. You will get that for us. Okay, thanks. To
follow up with you, Mr. Wood, in the last round of my questions
you indicated you would lift the protective order in California
refund case and make evidence submitted by the California
parties available to the public.
As you may know, a bipartisan group of members from
California wrote to you yesterday requesting this. However, I
am interested in knowing if FERC will also seek and release
Reliant transcripts for 2000 and 2001, so that the public can
be assured that FERC hasn't missed anything?
Mr. Wood. I will have to see if that is in the body
evidence that we are in the process of declassifying now. If it
is, then that would be released.
If not, I will communicate that back to you in writing.
Mr. Waxman. Okay, well I would hope it is going to be made
public. Because if we are going to have faith in FERC's
investigation, I think all the activities ought to take place
with public scrutiny.
If there ever were a reason to withdraw market based rate
authority, this would seem to be the appropriate situation.
In fact, on July 15--so anyway, I would like that
information made public and let us know. But on July 15, 2001,
the California PUC petitioned FERC to withdraw the Reliance
market based rate authority.
Why did FERC never act on these petitions and why didn't
FERC withdraw Reliant's market based rate authority?
Mr. Wood. We are as, I think a question from Mr. Norwood
pointed out, we are in a process of revising our market screen.
It was the supply margin assessment. We put that on hold
because there was significant concern if that was the right
screen or not.
We have gotten a lot of comments on that in the past years.
So there was not just Reliant and some other companies, but
probably about 60 companies now that we are waiting to move
forward on.
It is a policy issue that we have not resolved as to what
standards for----
Mr. Waxman. And I am interested in further information for
the record. But if this didn't warrant withdrawal of market
based rates, I would like you to provide the committee with an
example that would warrant such action. Thank you, very much,
Mr. Chairman.
Mr. Barton. The gentleman's time has expired. We are going
to release this panel. You all have been more than gracious
with your time and your answers, your input and your written
testimony.
There may be members that wish to submit written questions
for the record and we would hope that you would reply
expeditiously to those written questions.
But thank you for your time and you now are excused. Let us
welcome, as soon as the first panel vacates the premises, the
second panel.
We have Mr. Marvin Fertel with the Nuclear Energy
Institute. Mrs. Anna Aurilio with the U.S. Public Interest
Research Group.
Mr. Jeff Benjamin with, the Vice President for Licensing
and Regulatory Affairs with Exelon. Dr. Edwin Lyman who is the
President of the Nuclear Control Institute.
Mr. Steven Nadel, Executive Director for the American
Council for an Energy-Efficient Economy. Dr. Malcolm O'Hagan
who is the President of National Electrical Manufacturers
Association.
And Mr. Alden Meyer who is Director of Government Affairs
for the Union of Concerned Scientists. Welcome lady and
gentleman.
Your testimony is in the record in its entirety and we are
going to start with Mr. Fertel. We will give you 5 minutes and
we will just go right down the line, 5 minutes each. And then
we will have some questions. Welcome to the committee.
STATEMENTS OF MARVIN S. FERTEL, SENIOR VICE PRESIDENT OF
BUSINESS OPERATIONS, NUCLEAR ENERGY INSTITUTE; ANNA AURILIO,
LEGISLATIVE DIRECTOR, U.S. PUBLIC INTEREST RESEARCH GROUP;
JEFFREY A. BENJAMIN, VICE PRESIDENT, LICENSING AND REGULATORY
AFFAIRS, EXELON NUCLEAR; EDWIN S. LYMAN, PRESIDENT, NUCLEAR
CONTROL INSTITUTE; STEVEN NADEL, EXECUTIVE DIRECTOR, AMERICAN
COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY; MALCOLM O'HAGAN,
PRESIDENT, NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION; AND
ALDEN MEYER, DIRECTOR OF GOVERNMENT RELATIONS, UNION OF
CONCERNED SCIENTISTS
Mr. Fertel. Thank you, Mr. Chairman. Chairman Boucher,
Ranking Member Boucher, on behalf of Nuclear Energy Institute I
commend you for your leadership in both the last Congress and
this Congress on pursuing legislation to implement a
comprehensive national energy strategy.
I would also like to commend the committee for its
leadership last year in supporting the President's decision on
the Yucca Mountain repository site, which was a tremendous step
forward in energy policy matters.
Today I will offer a few key points on the proposed
legislation, but I would be remiss if I did not first comment
on the security at our nuclear power plants.
The nuclear industry had extensive and robust security
prior to the tragic events of September 11. Since then, the NRC
has imposed additional requirements.
And during the past 18 months, the nuclear industry has
invested an additional $370 million in security related
improvements, including hiring about a third more security
officers, bringing our total to about 7,000.
The State of our security was recently demonstrated as part
of a study by the Center for Strategic and International
Studies that looked at the vulnerability of our Nation's
critical infrastructure to terrorist actions.
At the end of that assessment, CSIS recognized the
effectiveness of nuclear plant security and acknowledged our
plants as the best protected industrial facilities in the
Nation.
The legislation passed in the last Congress by this
committee and reintroduced in the discussion draft this year,
contains a number of provisions directed at studies and
programs the NRC should implement to improve security at
commercial nuclear plants.
Given both the enhanced security requirements imposed by
the NRC, since September 11, and the extensive requirements for
threat and vulnerability analysis contained in the legislation
creating the Department of Homeland Security, we conclude that
those provisions in Section 4012 are no longer necessary and
respectively suggest that they be deleted from the discussion
draft.
We will, of course, continue to implement every sensible
sound approach as we can for security, drawing on industry
resources and enforcement agencies and national defense forces,
in what we would expect to be a seamless integration of
response to any potential terrorist threats.
Let me turn now to energy policy. Energy drives our
Nation's economy and diversity of energy supply and technology,
as well as demand side management efficiency and conservation
are all necessary.
Nuclear energy is a major part of our Nation's energy
diversity, providing electricity for one in every five homes
and businesses.
The industry's average capacity factor last year was a
record 91.5 percent, the most efficient among all types of
power plants.
And when all the data are in, we estimate that total
electricity production from nuclear energy last year, will
reach 778 billion kilowatt hours, which is another record.
That is more electricity than is used in total by all but
three other countries in the world. America's nuclear plants
are essential to meeting our air quality policy goals.
Nuclear energy produces no air pollution and in fact will
play a major role in helping meet the President's goal for
reducing greenhouse gas emissions.
A comprehensive national energy policy should take full
advantage of the benefits of nuclear energy. To accomplish
this, legislation actions are needed in the following areas.
Congress should, as soon as possible, renew the Price-
Anderson Act, and we would propose it be done indefinitely.
It is a proven frame work that has worked for over 45
years. Congress should also move forward and amend the Atomic
Energy Act, to remove statutory requirements that are no longer
necessary because of changes in time and the responsibilities
of other agencies.
To address the infrastructure investment crisis we face as
a Nation, we have proposed the Secretary of Energy be
authorized to provide financial incentives, such as loans, that
would be paid back, to a limited number of nuclear projects.
We have proposed that is probably also true for any large
capital investment, like coal plants or transmission lines.
Congress should continue to support nuclear energy research
and development programs at DOE, including the Nuclear Energy
Research Initiative, the Nuclear Energy Plant Optimization
Program and Nuclear Power 2010.
Updated tax treatment should reflect today's business
environment. As such, reform of the treatment of
decommissioning funds, as proposed in the House version of H.R.
4 that passed last year, should also be reenacted.
And in order to stimulate continued investment in our
critical energy infrastructure, the depreciation period of
nuclear plants and other large energy related capital projects
should be made equitable for with that for other industrial
investments.
Finally, Congress should ensure that money paid into the
nuclear waste fund by America's consumers is fully available to
support the Yucca Mountain project.
We encourage the committee to support the administration's
proposal to adjust the nuclear waste fund's discretionary
spending cap and to work with the administration on a longer
term permanent fix.
In conclusion, America's economic strength depends on a
strong, reliable energy supply. Nuclear energy is a vital
component of that supply.
Any prudent national energy policy must include provisions
for expansion of the nuclear energy industry for the benefit of
all Americans. Thank you for your time.
[The prepared statement of Marvin S. Fertel follows:]
Prepared Statement of Marvin S. Fertel, Senior Vice President, Nuclear
Energy Institute
Chairman Barton, Ranking Member Boucher and distinguished members
of the subcommittee, I am Marvin Fertel, senior vice president at the
Nuclear Energy Institute (NEI). On behalf of NEI, I would like to
commend you for focusing the 108th Congress' attention today on
legislation to implement comprehensive national energy policy.
NEI is responsible for developing policy for the U.S. nuclear
industry. NEI's 270 corporate and other members represent a broad
spectrum of interests, including every U.S. electric company that
operates a nuclear power plant. NEI's membership also includes nuclear
fuel cycle companies, suppliers, engineering and consulting firms,
national research laboratories, manufacturers of radiopharmaceuticals,
universities, labor unions and law firms.
The nuclear industry continues to play an important part in
addressing the issues that face this country in meeting our energy
needs. Nuclear energy already is a vital part of our diverse energy
portfolio, producing electricity--safely and cleanly--for one of every
five U.S. homes and businesses. Our nation's comprehensive energy
policy must ensure an affordable, reliable supply of energy, and
nuclear energy provides one of the solutions to several policy
challenges that our nation faces. Among these policy challenges are:
<bullet> generating reliable and affordable electricity to meet
projected increases in consumer demand over the next two
decades
<bullet> protecting our nation's air and ecological quality through the
emission-free generation of electricity at nuclear power plants
<bullet> providing secure national energy supplies that are not
susceptible to price spikes or disruptions because of global
politics.
I will speak to each of these points briefly. Before doing so,
however, I feel that I must comment on the readiness of our nation's
nuclear energy facilities in the wake of the events of Sept. 11, 2001.
We support to the fullest the president's creation of the
Department of Homeland Security, and we commend the leadership of the
House of Representatives in supporting his efforts. We believe that a
central organization is essential to provide the necessary integration
of intelligence information, vulnerability and threat assessment and,
ultimately, to assure the availability of necessary government
resources to protect our critical infrastructure.
The nuclear industry's goal is to develop a seamless integration of
private and public capabilities to protect vital facilities within our
country's infrastructure, including nuclear energy facilities. This
integration should coordinate response capabilities of industry, state
and local entities, national defense and homeland security. The nuclear
industry is working diligently with the Nuclear Regulatory Commission
and other federal entities to achieve this comprehensive response
capability.
Since Sept. 11, 2001, the nuclear energy industry has been on a
high state of alert. The defense-in-depth inherent in the robust design
of our plants has been reassessed and augmented. During the past 18
months, our industry has invested an additional $370 million in
security-related improvements, including stronger perimeter security;
improved background checks; and tighter access control at our plants.
As part of this effort, the nuclear energy industry has added about
one-third more security officers, for a total of 7,000 well-trained,
heavily armed security officers at 67 sites.
The industry will continue to make these investments and
improvements to comply with the Nuclear Regulatory Commission's
requirements.
INCREASED NUCLEAR PRODUCTION
With assured security, the industry's 103 operating reactors will
continue to provide safe, affordable and reliable electricity for the
nation. U.S. nuclear power plants generated a record 778 billion
kilowatt-hours of electricity <SUP>1</SUP> last year and the industry's
capacity factor--a measure of efficiency at power plants--was a record
91.5, well above any other type of power plants in the United States.
The industry will continue to increase the amount of electricity
generated by nuclear power by relicensing current reactors, continuing
to improve efficiency and implementing new technology to ``uprate''
reactors. We also are pursuing major initiatives leading to building
advanced nuclear power plants over the next two decades.
---------------------------------------------------------------------------
\1\ Nuclear Energy Institute estimate for 2002.
---------------------------------------------------------------------------
Nuclear energy is the second largest source of electricity in the
United States. The industry has reached record levels of safety,
reliability, efficiency and output in the United States.
Nuclear energy is the least expensive source of baseload power in
the United States, with very stable forward pricing. It therefore
provides stability to the entire country's electrical supply system and
plays an important role in sustaining our nation's economy.
Nuclear energy's contribution to U.S. electricity supply is
essential to sustain economic growth, meet the electricity needs of our
increasing population, and meet growing U.S. electricity demand for
today and the future. The Energy Information Agency anticipates a 1.8
percent electricity growth rate through the next two decades, requiring
the addition of 400,000 megawatts of new electricity capacity. The
nuclear industry's Vision 2020 strategic plan has set a goal of 50,000
megawatts of additional nuclear generation by 2020, which is required
simply to maintain the nation's current level of electricity production
from emission-free sources, such as hydropower, nuclear and renewable
energy. We must have new sources of energy for economic growth, but we
also must maintain our commitment to improving our air quality and our
environment. With nuclear energy, we can do both.
To satisfy this growing electricity demand, the nuclear industry is
implementing a three-part program:
<bullet> maintaining the energy production of existing reactors through
license renewal
<bullet> expanding output from the existing reactors by continuing to
improve efficiency and reliability, and by investing the
capital required to increase the capacity of the reactors
<bullet> laying the groundwork for construction and operation of new
nuclear plants.
Several of America's nuclear generating companies, working with
NEI, are implementing a broad-based plan to create the business
conditions necessary for construction of new nuclear power plants. The
plan includes:
<bullet> initiatives to reduce the initial capital cost of new nuclear
power plants
<bullet> programs to create a stable licensing regime and reduce
regulatory uncertainties, including industry programs to
demonstrate the new NRC processes for siting and licensing new
nuclear plants.
The 1992 Energy Policy Act significantly improved the licensing
process for new nuclear plants. All design, safety and site-related
issues are resolved with full public participation before capital is
invested. The chairman of this subcommittee, Mr. Barton of Texas, was a
principal author of this major improvement to the NRC licensing
process.
The new approach allows the NRC to:
<bullet> ``certify'' a standardized nuclear power plant design.
Certification is a formal rulemaking process. It requires a
substantial up-front investment to prepare a reactor design--
complete and detailed enough to satisfy the NRC that the design
meets all NRC safety standards.
<bullet> evaluate and pre-approve a prospective site for a new nuclear
plant
<bullet> issue a single license to construct and operate a new nuclear
plant if a company uses an NRC-certified design and a pre-
approved site.
Three reactor designs--a 1,300-megawatt advanced boiling water
reactor, a 1,300-megawatt pressurized water reactor, and a 600-megawatt
pressurized water reactor--have been certified by the NRC. Two advanced
boiling water reactors have been built in Japan. Taiwan is building two
more. And South Korea is building variants of the large pressurized
water reactor. A design for a 1,000-megawatt advanced pressurized water
reactor is undergoing certification review, and five other designs are
in varying stages of certification.
Private companies would only undertake investments of this size if
new nuclear power plants are competitive in the marketplace with other
sources of electricity and if there is stability in the regulatory
process to license the facilities. Few policy initiatives, however, now
exist to stimulate companies to invest in new nuclear plants sooner
than they otherwise would. Though the Department of Energy is working
with the industry to demonstrate the new plant licensing concepts,
larger initiatives do not exist to reduce the investment risk
associated with a large capital project, such as the construction of
new nuclear power plants.
The policy initiatives necessary to stimulate construction of new
nuclear generating capacity include:
<bullet> continuation of the Energy Department's ``Nuclear Power 2010''
initiative, which is a government/industry partnership to
pursue two short-term objectives: resolving technical and/or
economic issues associated with new nuclear plant designs, and
validating the new NRC licensing process--verifying that it
works as intended and that it will not place private sector
investment at risk. This initiative requires relatively modest
federal investment in nuclear energy research and development.
<bullet> new authorization for the secretary of energy to provide
financial assistance through loans, loan guarantees and lines
of credit for a limited number of new nuclear projects
<bullet> changes to the tax laws to treat depreciation of investment in
critical energy infrastructure--such as nuclear power plants--
equitably with other large capital investment projects.
Additionally, incentives through investment tax credits may be
desirable.
NUCLEAR PLANT SAFETY LAYS GROUNDWORK FOR EXTENDING OPERATIONS
The excellent safety record of U.S. nuclear power plants lays the
groundwork for refining regulatory oversight of these plants for
extending the federal licenses of the reactors for an additional 20
years, to a total of 60 years of production.
Through the NRC's revised nuclear plant oversight process,
regulators now focus their attention on areas that are most significant
to safety at the plant, rather than treating all areas as if they were
of equal significance to safety.
In addition, America's nuclear energy plants represent the gold
standard for industry safety. Working in a nuclear power plant is safer
than working in the banking industry, according to safety statistics
from the Bureau of Labor Statistics.
In addition, the agency has put in place an efficient process for
renewing the licences for today's plants. The average nuclear plant
today is about 18 years old, far from the expiration of its original
40-year operating period established in NRC licenses. The 40-year
license term reflects both the amortization period generally used by
electric utility companies for large capital investments and the
licensing approach used for radio stations. However, as some of the
plants built in the 1970s approach the end of their original license
periods, experience demonstrates clearly that reactors can generate
electricity safely much longer than their original 40-year license.
As computer systems, instrumentation and other technologies have
advanced, whole systems have been replaced in nuclear power plants. In
many of these areas, nuclear power plants are virtually new, and they
are safer and more efficient than ever.
Ten U.S. reactors already have been approved for 20-year license
renewals, and about half of the nation's 103 nuclear power plants have
filed or announced plans to submit license renewal applications to the
NRC during the next few years. NEI expects that nearly all of the
nation's reactors will eventually apply for license renewal.
USED NUCLEAR FUEL MANAGEMENT
The industry safely manages used nuclear fuel today at nuclear
power plant sites. There has never been any health or environmental
impact to the public from used nuclear fuel management.
Federal law has mandated the development of a centralized geologic
repository for long-term stewardship of used fuel from nuclear power
plants and the radioactive byproducts of the federal government's
nuclear programs. The Nuclear Waste Policy Act of 1982 and its 1987
amendments require DOE to locate, build and operate a deep, mined
geologic repository for used nuclear fuel. The 1987 amendments
designated Yucca Mountain, Nev., as the site to be studied for a
potential repository.
President Bush last year approved Yucca Mountain as the site to
develop a federal repository and the decision was upheld by the 107th
Congress. I want to thank this committee for its leadership in moving
the Yucca Mountain resolution in Congress. The next step in that
process is the NRC's licensing the repository site and granting
construction authorization. DOE expects to file a license application
with the NRC by December 2004. It is imperative that DOE meets its
milestones for licensing so the repository can be built and operating
by 2010.
To pay for the repository, the Nuclear Waste Policy Act established
the federal Nuclear Waste Fund. Since 1983, consumers of electricity
generated at nuclear power plants have paid a tax of one-tenth of a
cent per kilowatt-hour of nuclear-energy-generated electricity they use
into the fund, which now totals some $22 billion in payments and
interest. More than $6 billion from the Nuclear Waste Fund has been
used for scientific and engineering studies.
Congress must ensure that the program is adequately funded through
the annual appropriations process. Budget restrictions and processes
that unnecessarily prohibit use of the Nuclear Waste Fund for project
development must be removed. The nuclear energy industry supports the
administration's proposal to adjust the fund's discretionary spending
cap. We encourage the committee to support that proposal, but we
recognize that a more permanent fix is needed to ensure that funds
collected for the waste program are allocated as needed to that
project.
NUCLEAR ENERGY'S PROVEN ROLE IN PRESERVING OUR ENVIRONMENT
Nuclear energy is the only large source of electricity that is both
emission-free and readily expandable. Its exemplary safety record,
outstanding reliability, low operating costs and future price stability
make nuclear energy a vital fuel for the future.
Nuclear energy accounts for three-fourths of all U.S. emission-free
electricity generation. The Bush administration has established a
proposal to cut U.S. greenhouse gas emissions by 18 percent by 2012
through a voluntary approach that is compatible with economic growth.
The administration clearly believes that nuclear energy is a key to the
plan's success. Secretary of Energy Spencer Abraham recently said of
nuclear energy, ``It's obvious to me that an energy source capable of
supplying a significant proportion of the world's power with no
greenhouse gas emissions should be at the center of the debate.''
The electric utility industry and DOE have established a voluntary
partnership called Power Partners to develop and implement voluntary
greenhouse gas reduction activities that will also sustain economic
growth. Power Partners' actions are guided by the principles of
improved energy efficiency, increased investments in research and
development, technological innovation, market-based initiatives, and
cost-effective reductions in carbon emissions.
The nuclear energy industry will play a significant role in the
Power Partners program. The U.S. nuclear industry can increase its
output by about 10,000 megawatts of capacity by 2012, resulting in
incremental reductions of 22 million metric tons of carbon equivalent.
The additional electricity production at nuclear power plants would
come from power uprates, improved productivity and plant restarts.
As a result, the nuclear energy industry could meet one-fifth of
the president's goal of reducing greenhouse gas emissions by 18 percent
in the next 10 years, building upon the nuclear industry's clean-air
accomplishments during the past four decades.
Looking beyond 2012, the nuclear energy industry is prepared to
play a major role in sustaining the president's commitment to reduce
the greenhouse gas intensity of the U.S. economy, as the industry
pursues its goal of building 50,000 megawatts of new nuclear energy
capacity in the United States by 2020. This additional 50,000 megawatts
would reduce U.S. greenhouse gas emissions by approximately 100 million
metric tons of carbon equivalent. At the same time, nuclear energy
avoids emissions of sulfur dioxide and nitrogen oxide.
PUBLIC SUPPORT FOR NUCLEAR ENERGY
Protecting our environment and improving U.S. energy security are
among the reasons why two out of three Americans favor nuclear energy
as one way to generate electricity.
Another reason for the public's steady support for nuclear energy
is that the public views nuclear energy as a fuel of the future.
In an October 2002 survey, a record high 73 percent of college
graduates registered to vote favored the use of nuclear energy. Those
who ``strongly support'' the use of nuclear energy outnumbered those
who ``strongly oppose'' by an increasingly wide margin--three to one.
Nearly two-thirds of the general public favored nuclear energy, and
the gap between those who strongly favor (30 percent) and strongly
oppose (15 percent) nuclear energy is the largest that it has been
during the past two decades. The trends among the general public over
the years have paralleled those among college graduates who are
registered to vote--but the more educated and politically active group
always has been more favorable toward nuclear energy.
Record numbers of college graduate voters--88 percent--also
supported renewing the licenses of nuclear power plants that meet
federal standards, and 77 percent strongly agreed we should keep the
option to build more nuclear power plants in the future. Fifty-nine
percent of college graduate voters and 55 percent of all adults agreed
that we should ``definitely build more nuclear power plants.''
COMPREHENSIVE ENERGY LEGISLATION
NEI believes that diversity of supply and technology are the
strength of our electrical system. With regard to nuclear energy's role
in a comprehensive energy policy, NEI encourages the committee to
support the following recommendations:
Renewal of the Price-Anderson Act. Congress should renew the Price-
Anderson Act as soon as possible. The Price-Anderson Act of 1957,
signed into law as an amendment to the Atomic Energy Act, provides for
payment of public liability claims related to any nuclear incident. It
is a proven framework that has worked for nearly 45 years. Given this
proven record, Congress should renew it indefinitely. If needed,
Congress can reopen the law--as it can any law--at any time if
modifications are needed. In addition, Congress can request periodic
updates on the status of Price-Anderson Act implementation from the NRC
in order to provide a basis for change if necessary.
In its 1998 report to Congress, the Nuclear Regulatory Commission
said that the Price-Anderson Act has ``proven to be a remarkably
successful piece of legislation'' that has grown in depth of coverage
and that proved its viability in the aftermath of the Three Mile Island
accident.
Amendments to the Atomic Energy Act. The Atomic Energy Act should
be amended so that the NRC is positioned to meet the energy challenges
of the 21st century. Recommended amendments to the law include:
<bullet> Removing the statutory requirement that NRC conduct antitrust
reviews of applications to build new nuclear plants. This
review already is being done by other federal agencies that
have the core competencies to perform it.
<bullet> Removing the statutory prohibition of foreign ownership of
U.S. commercial nuclear power plants. The NRC would have the
responsibility to ensure that their actions are not inimical to
our national security.
<bullet> Ensuring that smaller, modular nuclear reactors are not
subjected to inappropriate liability under the Price-Anderson
Act's secondary financial protection provision.
The secretary of energy should be authorized to provide financial
assistance through loans, loan guarantees and lines of credit to a
limited number of new nuclear projects.
Tax treatment updated to reflect today's business conditions and to
enable sustained private sector investment in, and large-scale
commercial deployment of critical energy infrastructure, particularly
large capital projects--such as nuclear projects. Also, reform is
needed for tax treatment for decommissioning funds, as in the House
version of H.R. 4 that was passed last year.
Authorization for nuclear energy research and development should
include:
<bullet> Funding for government/industry activities, including the
Nuclear Energy Research Initiative, aimed at the development of
new reactor technologies; the Nuclear Energy Plant
Optimization, focused on the optimization of existing reactors;
and the Energy Department's ``Nuclear Power 2010'' initiative,
with an objective of building a new reactor within this decade.
<bullet> Authorization to support enhanced university nuclear science
and engineering programs to ensure ample nuclear professionals
for the future.
<bullet> Funding demonstration projects using nuclear energy to produce
hydrogen, both at existing nuclear energy plants and through
new advanced reactors. NEI urges supporting a demonstration
project for using new reactor designs in this effort at a
national laboratory. This would provide a dramatic boost to the
president's Clear Skies initiative to promote the use of this
clean fuel for the future.
<bullet> Providing increased predictability for the introduction of
uranium from U.S. government inventories into the commercial
marketplace. Market participants must be able to plan prudently
for the introduction of this uranium into the market, and to
avoid adverse affects on the domestic uranium mining,
conversion or enrichment industries.
<bullet> Elevating the Office of Nuclear Energy at the Department of
Energy to assistant secretary status, thereby assigning the
appropriate level of focus to nuclear energy within the
nation's energy policy.
<bullet> Creating an Office of Used Nuclear Fuel Research within the
Energy Department.
CONCLUSION
Nuclear energy provides clean, affordable and reliable electricity
to one of every five U.S. homes and business and has been a vital
partner in meeting clean-air requirements since passage of the Clean
Air Act. As our country's electricity demand continues to rise, nuclear
energy will be even more important to American consumers. A prudent
national energy policy must include provisions for expansion of the
nuclear energy industry. One of the most fundamental elements of
America's economic strength is the diversity of energy supply that
drives our economy. Nuclear energy is a critical component to preserve
our diverse energy supply, to continue to lessen our dependence on
volatile foreign energy, and to meet new requirements for emission-free
electricity.
Thank you for this opportunity to share the nuclear energy
industry's perspective on the important policy issues this subcommittee
is considering. NEI encourages the subcommittee to give full
consideration to the policy recommendations the industry has outlined
in this testimony.
STATEMENT OF ANNA AURILIO
Ms. Aurilio. Good afternoon, Mr. Chairman, Congressman
Boucher and others. Thanks for the opportunity to testify.
My name is Anna Aurilio, I am the Legislative Director for
the U.S. Public Interest Research Group. We are the national
lobbying office for the State PIRGs, which are non-profit, non-
partisan, good government, environmental and consumer advocacy
groups active across the country.
Now we have a long history in working for clean energy and
against dirty energy of which nuclear energy certainly has to
be probably the No. 1.
Our vision of the future is a clean energy future. We
propose to increase renewable energy production so that it
results in a fifth of our energy electricity production by
2020.
We proposed to reduce oil consumption in vehicles by a
third, by 2020. We propose to increase consumer protections,
not repeal things like PUHCA, so that electricity consumers are
protected.
And finally, of course, if we do the renewable energy and
energy efficiency policies that we know are possible, we won't
have to drill in places like the Arctic National Wildlife
Refuge or other special wilderness areas.
Let me focus on nuclear power and the draft legislation
which we got on Friday. Our basic position is that nuclear
power is unsafe, uneconomic, unreliable and it generates waste
for which there is no sound solution.
Unfortunately, this legislation is a recipe for nuclear
disaster. It proposes more subsidies, more bail outs. It
actually rolls back a two decades long non-proliferation
policy, and it fails to address basic and major safety concerns
that have been raised both before and after September 11.
Let me go into some specifics. Consumers, myself included.
I couldn't believe it when I opened my gas bill this month,
were faced with skyrocketing energy bills.
Yet this legislation promotes the most expensive
electricity source. I know you have heard different facts and
figures about the cost of nuclear power, but you have to strip
away the subsidies.
So, first and foremost, for existing nuclear power plants,
you need to understand that in almost every State where
deregulation has happened, the nuclear power plant owners got
their mortgages paid off through stranded cost bail outs.
So any forward going costs that they are proclaiming right
now, is because rate payers have already paid. And our estimate
is in 11 States alone, rate payers paid an extra $112 billion
as a cost of deregulation.
So you have to face reality there in terms of what the
actual costs of those nuclear power plants are going forward.
There is no reason then to continue to subsidize the existing
plants.
Policies like the Price-Anderson Act were intended to be
temporary. In 1957, when the legislation was passed, it was
supposed to be for 10 years until the industry could stand on
its own.
Time for the industry to stand on its own. We are gratified
that this legislation at least contains some of the amendments
that the House Energy and Commerce Committee put on to address
nuclear terrorist threats, address contractor accountability,
etcetera.
But, so I am stunned to hear Mr. Fertel say that he doesn't
like those because those are about the only provisions we
approve of there.
But we see no justification for continuing Price-Anderson
anyway. If the nuclear industry is safe, there is no reason to
limit the liability of nuclear power plants.
Second, we have also seen a plea for more money to develop
new nuclear power plants by 2010. My testimony has footnotes
that will drive you to DOE's website where they have
commissioned a company called Scully Capital, to look at what
it would actually take to build a new nuclear power plant by
2010.
Again, don't believe the numbers that you hear. This is a
financial analyst organization that says that the Federal
Government would have to create even more subsidies than
already exist in order to build new nuclear power plants by
2010.
Including potentially entering into power purchasing
agreements at 50 percent or more above market price. This is
not an energy source that the Federal Government should be
investing in.
Next point. While Americans are being asked to sacrifice to
prevent rogue nations from using nuclear weapons, this
legislation actually rolls back important non-proliferation
policies.
The sections which deal with advanced fuel recycling
policies, basically roll back a policy the U.S. has had against
extracting plutonium from commercial fuel.
Plutonium is the problem. Getting it out of the commercial
spent fuel will make it easier for wrong-doers to get their
hands on it. And certainly, as some documents on DOE's website
suggest, to start a commercial nuclear fuel cycle, based on
plutonium, seems to me the silliest thing I have ever heard in
this day and age.
Finally, we have aging nuclear power plants around the
country. In Ohio, the Davis-Besse plant, which several people
actually referenced in their opening statements, is a clear
example of where the Nuclear Regulatory Commission is not
adequately regulating.
Where a company begged and kicked and screamed, according
to NRC Inspector General transcripts of interviews with NRC
employees, and basically convinced the regulators to not shut
down the plant for 3 additional months, even though there was
very, very convincing evidence that there was something wrong
at the plant.
Now I thank God that nothing happened there, but basically
there was an eighth of an inch of stainless steel left by the
time the plant was finally shut down and checked.
So I think we need to and Congress and this committee in
particular, which has oversight of the NRC, needs to do a
couple of things.
One is it needs to demand that NRC enforce its own safety
regulations. And two, it needs to demand that NRC actually send
a report to Congress, every month, like it does on other NRC
issues and report on the progress of that enforcement.
I think my time is up, but I just want to make one more
plea, which is States rights. A lot of Governors and a lot of
folks in the States are realizing that the evacuation plans
which are only ten mile evacuation plans, when we know that if
there is an accident there could be harm in a greater area than
that, are realizing that they are very, very inadequate to
protect public safety.
And I think we should give Governor's the rights to, one,
veto evacuation plans. Shut down plants if they serve an
unreasonable risk. And veto the sighting of any new plants if
they are an unreasonable risk to public health and safety.
Thank you.
[The prepared statement of Anna Aurilio follows:]
Prepared Statement of Anna Aurilio, Legislative Director, U.S. Public
Interest Research Group
Good morning, my name is Anna Aurilio and I'm the Legislative
Director of the U.S. Public Interest Research Group, or U.S. PIRG. U.S.
PIRG is the national office for the State PIRGs, which are
environmental, good government and consumer advocacy groups active
around the country. Thank you for the opportunity to speak today.
The state PIRGs have a long history of working for a clean
affordable energy future. Our goal is shift from polluting and
dangerous sources of energy such as nuclear and fossil energy to
increased energy efficiency and clean renewable energy sources.
Nuclear power is unsafe, unreliable, uneconomic and generates long-
lived radioactive wastes for which there is no safe solution. All
aspects of the nuclear fuel cycle pose a risk to humans and the
environment. It should be phased out as soon as possible and should not
be encouraged as a future energy source.
Since the late 1970's, the PIRGs have worked to protect the public
from unsafe, expensive nuclear reactors. PIRGs successfully opposed the
construction of several nuclear power plants because of cost, safety
and nuclear waste concerns. For example, in 1982, litigation by
MASSPIRG helped cancel the proposed Pilgrim 2 nuclear power plant. In
1983, NJPIRG helped cancel the proposed Hope Creek nuclear power plant.
CoPIRG worked for the creation of the Office of Consumer Counsel (OCC)
in 1984. The OCC was key in protecting ratepayers from being burdened
with ``stranded costs'' in the St. Vrain nuclear power plant case.
During the last reauthorization of the Price-Anderson Act, the
PIRGs successfully advocated for lower taxpayer liability in case of a
nuclear accident. From 1993 through 1995, PIRG helped shift more than
$500 million in nuclear and fossil R&D spending to efficiency and
renewable programs. During that time, we helped convince Congress to
eliminate funding for two extremely expensive advanced reactor
programs, the gas-cooled reactor and the breeder reactor known as the
Advanced Liquid Metal Reactor, saving taxpayers at least $5.6 billion.
In 2002, the PIRGs helped defeat a nuclear-subsidy laden energy bill in
House/Senate conference.
Today I will be addressing nuclear energy issues, especially
focusing on policies that should and shouldn't be included in energy
legislation. Overall we are dismayed that the draft legislation
developed by this subcommittee takes us in the wrong direction. By
extending and increasing nuclear subsidies, reversing decades of
nuclear non-proliferation policy, and failing to address major safety
concerns, this legislation is a recipe for nuclear disaster, not a safe
energy future.
Uranium mining threatens public health. Uranium mining and
enrichment has caused sickness and death in workers and has generated
tons of mining and enrichment wastes, which continue to threaten nearby
communities. Current uranium mining practices include ``in-situ''
leaching, which pollutes precious aquifers in the arid West. We are
particularly disappointed to see that the draft legislation circulated
by this subcommittee contains a subsidy for ``in situ'' leach mining
(Section 4029). This section authorizes the Department of Energy (DOE)
to spend $10 million annually for fiscal years 2004, 2005, 2006 to
identify, test and develop ``in situ'' leach mining technologies. This
uranium mining technology, whereby mining companies inject millions of
gallons of chemical solutions into the groundwater to extract uranium
from the host rock, pollutes groundwater in the West. We are concerned
that a three-year, $30 million subsidy will serve to prop up a failing
industry that has a terrible environmental track record. We are
particularly concerned that this type of subsidy could allow a disputed
project in New Mexico to go forward, threatening a pristine water
supply for the Crownpoint Navajo Nation.<SUP>1</SUP>
---------------------------------------------------------------------------
\1\ U.S. PIRG, ``Polluter Payday'', November 2001, p. 33. http://
www.newenergyfuture.com/polluter__payday__11__8__01.pdf
---------------------------------------------------------------------------
Nuclear power plants threaten nearby communities. Nuclear power
plants are very complex and contain enormous amounts of potential
energy in the fuel at the core of the reactor. The most tragic example
of the dangers posed by this technology is the 1986 accident at the
Chernobyl reactor in the Ukraine. The explosion and core meltdown at
Chernobyl released radiation that generated a plume encompassing the
entire Northern Hemisphere <SUP>2</SUP>. Here in the U.S., in addition
to the partial core meltdown at Three Mile Island in 1979, which forced
the evacuation of nearly one hundred fifty thousand people, there have
been four other nuclear accidents in the U.S. involving at least
partial core meltdown.<SUP>3</SUP>
---------------------------------------------------------------------------
\2\ OECD Nuclear Energy Agency report ``Chernobyl Ten Years On,
Radiological and Health Impact', November 1995.
\3\ Public Citizen website http://www.citizen.org/Press/pr-
cmep84.htm
---------------------------------------------------------------------------
The potential consequences of a serious accident are staggering. A
1982 study by the Sandia National Laboratories found that a serious
accident at a U.S. nuclear reactor could cause hundreds to thousands of
deaths in the near term.<SUP>4</SUP> In 1985, in response to a question
posed by Representative Markey, an NRC commissioner responded that
there was a 45% chance of a severe nuclear accident in the following
twenty years.
---------------------------------------------------------------------------
\4\ Union of Concerned Scientists, Nuclear Plant Safety: Will the
Luck Run Out? December 15, 1998
---------------------------------------------------------------------------
Nuclear power plants are not secure. The tragic events of September
11, 2001 have raised serious concerns about safety and security at
nuclear facilities in this country. Many facilities cannot even meet
the current security requirements widely considered to be inadequate.
Nearly half have failed to repel small groups of intruders on foot in
``force-on-force'' exercises conducted by the Nuclear Regulatory
Commission. Researchers at Princeton University found that an attack on
irradiated fuel stored at nuclear power plants could cause
contamination problems 8 to 70 times worse than those caused by the
1986 meltdown at the Chernobyl nuclear power plant.<SUP>5</SUP>
---------------------------------------------------------------------------
\5\ http://www.noradiation.org/hazards/spent__fuel__pre-
print__1__311.pdf
---------------------------------------------------------------------------
Even before September 11, we were very concerned about the safety
of nuclear reactors currently operating in this country. We are
encouraged to see that the draft legislation maintains amendments added
by Rep. Markey and Waxman in last year's markup (Sections 4012, 4013).
However, these requirements are not enough to guarantee adequate
protection from the radiation released in case of terrorist attacks or
accident.
For example, Dr. Ed Lyman of the Nuclear Control Institute
estimates that a terrorist attack on the Indian Point 3 nuclear power
plant resulting in core melting and containment breach would result in
an 1500 fold increase in childhood thyroid cancer for children living
35 miles downwind.<SUP>6</SUP> Despite these and other risks, the
Nuclear Regulatory Commission (NRC) has insisted that the NRC does not
have to consider the environmental impacts of terrorist attacks on
licensing new and existing facilities since the threat is
``speculative.'' Despite studies that show harmful impacts beyond
current evacuation zone boundaries, NRC insists on limiting emergency
evacuation zones to only 10 miles.
---------------------------------------------------------------------------
\6\ Statement of Dr. Edwin Lyman, Nuclear Control Institute before
the Committee on Environmental Protection, New York City Council,
February 28, 2003.
---------------------------------------------------------------------------
This committee should require that NRC be obligated to consider the
risk of a terrorist attack on licensing new facilities and extending
the license on existing facilities. The NRC should increase emergency
evacuation zones to fifty miles and re-evaluate the adequacy of
existing evacuation plans to take into account the threat of attacks.
Finally, Congress should restore states' rights and give governors the
right to veto the siting or license extension of facilities that pose a
significant public safety risk.
NRC does not adequately regulate the ongoing safety of nuclear
power plants. There is a consistent pattern and history of lax NRC
enforcement and oversight ranging from fire prevention to worker
fatigue. The agency is focused on increasing the industry's
profitability, not protecting humans and the environment.
We are concerned that utility deregulation and new ownership of
reactors may increase risks of accidents because of increased pressure
to run the plants closer to the margin. This risk is heightened by the
fact that the 103 operating reactors around the country are
deteriorating with age more quickly than expected. Even Vice President
Cheney acknowledged the aging problem on the television show
``Hardball'' (March 21, 2001): ``[T]oday nuclear power--produces 20
percent of our electricity, but that's going to go down over time--
because some of these plants are wearing out.'' Despite industry's
claims that nuclear power is ``safe'', at least ten existing reactors
have experiencing aging-related shutdowns since January
2000.<SUP>7</SUP> One aging-related problem is reactor embrittlement.
Cracks in the reactor vessel caused by constant neutron bombardment
could lead to a meltdown. When problems were found, the Nuclear
Regulatory Commission (NRC) simply changed the safety margins and
allowed the utilities to recalculate their compliance. The recent
events at a reactor in Ohio expose a serious problem in NRC's
management culture and decision-making.
---------------------------------------------------------------------------
\7\ Union of Concerned Scientists, ``Aging Nuclear Plants and
License Renewal,'' Issue Brief, May 22, 2001
---------------------------------------------------------------------------
In November of 2001, the NRC allowed FirstEnergy, the owner of the
Davis-Besse plant in Ohio to ignore warning signs, then delay a
shutdown for three months. Inspectors found a six-inch hole in the
reactor cover that had only millimeters left until it breached the
cover. According to interviews with NRC personnel, the agency backed
down from issuing a safety-related shutdown order after FirstEnergy
argued vigorously against a shutdown at that time because they didn't
want bad publicity nor a drop in their financial ratings. At least one
NRC employee felt that the company withheld important information about
evidence of serious corrosion.<SUP>8</SUP> The NRC's decision to let
the plant operate and rake in profits a few months longer even with
evidence of serious problems jeopardized the health and safety of the
surrounding communities.
---------------------------------------------------------------------------
\8\ Nuclear Regulatory Commission Inspector General Interviews on
Davis-Besse http://www.ucsusa.org/clean__energy/nuclear__safety/
page.cfm?pageID=1123
---------------------------------------------------------------------------
Steam generators are also susceptible to premature degradation. The
failure of as few as ten tubes can lead to a reactor meltdown, yet the
NRC has inadequate steam generator tube standards. For example, the
Indian Point 2 nuclear power plant is located 35 miles north of New
York City, along the Hudson River. It had been scheduled for steam
generator tube replacement in 1993, yet this never happened thanks to
increasingly lax NRC requirements. On February 2, 2000, a tube
ruptured, releasing radioactive steam.
We are astonished that the industry and the regulatory agency have
been lobbying for an even greater relaxation of safety standards and
oversight and limiting the public's access to these processes. This
committee should exercise its oversight over NRC's operations. It
should demand that the commission fully enforce its own safety
regulations and report to Congress monthly on its progress.
Nuclear power is unreliable. Complex and often mis-managed nuclear
power plants are subject to frequent fires, leaks and other accidents.
For example in 2001, the Nuclear Energy Institute's website boasts that
``Increased Nuclear Output Would Satisfy California's Residential
Demand.'' <SUP>9</SUP> It failed to mention a February 3 fire at the
San Onofre Nuclear Generating Station that shut the plant for weeks and
was a key factor in rolling blackouts in California.
---------------------------------------------------------------------------
\9\ http://www.nei.org/doc.asp?docid=724
---------------------------------------------------------------------------
Nuclear power is uneconomic. Nuclear power would not exist in this
country today if it weren't for enormous subsidies paid for by
ratepayers and taxpayers. Originally touted as being ``too cheap to
meter'', nuclear power plants are still too expensive for America. The
nuclear industry has received the vast majority of energy research and
development funding, a special taxpayer-backed insurance policy known
as the Price Anderson Act, unjustified electric rates from state
regulators, enormous and unwarranted bailouts in state deregulation
plans, taxpayer-funded cleanup of uranium enrichment sites plus a
giveaway of the Uranium Enrichment Corporation, and an ultimately
taxpayer-funded nuclear waste dump. Many of the issues I raise here are
described in more detail in the Green Scissors report
(www.greenscissors.org) released by U.S. PIRG, Taxpayers for Common
Sense and Friends of the Earth.
It is incredible that the nuclear industry shamelessly revises
history to pretend that it has transformed itself into a cost effective
energy source. This is an industry that is addicted to government
handouts, like an addict, it continues to ask for more handouts.
Congress should oppose nuclear research and development funding.
According to the Congressional Research Service, nuclear research and
development has gotten more than 60%, or $66 billion in energy research
and development funding from 1948-1998. Led by Representative Markey,
Mark Foley and others, Congress wisely killed funding for the gas-
cooled reactor and the breeder reactor, saving taxpayers at least $5.6
billion.
Now proposals to revive research programs to develop these
uneconomic and dangerous reactors are creeping into the Department of
Energy's budget. We are extremely disappointed that the subcommittee
draft legislation includes authorization of nearly $2 billion in
commercial nuclear research and development subsidies. These programs
are pure corporate welfare for an industry that has never paid its own
way. DOE's own studies (referenced in the draft legislation)
<SUP>10</SUP> show that new reactors developed through taxpayer-funded
programs such as Generation IV and Nuclear Power 2010 are not cost-
competitive. Private utilities are not interested in building new
nuclear plants. Despite DOE's squandering taxpayer dollars on the gas-
cooled reactor known as the Pebble Bed Modular Reactor, the project's
lone U.S. supporter, Exelon has pulled out of the project. This reactor
design remains uncompetitive despite the fact that its developers
propose cutting costs by not building containment.
---------------------------------------------------------------------------
\10\ http://www.nuclear.gov/nerac/ntdroadmapvolume1.pdf
---------------------------------------------------------------------------
DOE commissioned a report by Scully Capital called ``Business Case
for New Nuclear Power Plants,'' <SUP>11</SUP>which concludes that
existing taxpayer backed insurance (known as the Price Anderson Act),
federal research and development funds and ultimately federally-funded
nuclear waste program are not enough to make these new reactors cost-
competitive. Instead it recommends a mind-boggling suite of new
subsidies including: a federal energy credit program, low interest
loans, power purchase agreements (at up to 50% more than market
rates!), emissions credits and additional insurance. This report
estimates that the federal government would have to spend at least $1.5
to 2.75 billion in subsidies to bring down the capital costs of five
new nuclear plants. This estimate does not include any additional
subsidies for nuclear waste disposal, siting and permitting the new
plants.
---------------------------------------------------------------------------
\11\ http://www.nuclear.gov/home/bc/businesscase.html
---------------------------------------------------------------------------
Congress should oppose programs, which increase the threat of
nuclear proliferation. Plutonium, an element that can only be produced
in nuclear reactors, is the material of choice for nuclear weapons. All
reactors produce it, but it must be separated from highly radioactive
irradiated fuel before it can be used in weapons. This separation
process is known as ``reprocessing.'' For at least two decades, the
United States has had a policy against reprocessing waste from
commercial nuclear reactors and not allowing plutonium to be used as
fuel in nuclear reactors to prevent the proliferation of weapons-usable
material. There are several DOE projects and provisions in the draft
legislation that violate this common-sense policy or otherwise increase
the risk of nuclear proliferation. At a time when U.S. citizens are
asked to sacrifice to reduce the risk of rogue nations deploying
nuclear weapons, these programs will make the world an even more
dangerous place.
Section 6431, the Advanced Fuel Recycling Program specifically
reverses the decades-long U.S. policy against reprocessing commercial
nuclear waste. It advocates reprocessing commercial nuclear fuel and
using several types of reactors, including breeder reactors, to
allegedly reduce the volume and toxicity of the waste. Nuclear
``breeder reactors'' can be configured to produce plutonium. Congress
wisely killed the U.S. breeder reactor program in 1994, citing economic
and non-proliferation concerns. The breeder reactor supporters ignore
the dismal failure of France's breeder reactor program and the chance
of a reactor explosion if the coolant (usually highly reactive sodium)
leaks.
A January 2003 report, entitled ``Report to Congress on Advanced
Fuel Cycle Initiative: The Future Path for Advanced Spent Fuel
Treatment and Transmutation Research, admits that this costly program
will not obviate the need for a geologic repository. Further it
contradicts itself with regard to nuclear non-proliferation. First, it
claims that the program can ``destroy'' plutonium thus reducing the
risks of this material falling into the wrong hands.<SUP>12</SUP> On
the same page, however, it touts the potential for a commercial nuclear
fuel cycle based on the plutonium separated from existing irradiated
fuel--a program that would dramatically increase the risk of weapons
materials falling into the wrong hands by putting separated plutonium
into commercial nuclear reactors!
---------------------------------------------------------------------------
\12\ Report to Congress on Advanced Fuel Cycle Initiative: The
Future Path for Advanced Spent Fuel Treatment and Transmutation
Research, DOE, January 2003, p. II-6.
---------------------------------------------------------------------------
Congress should phase out the Price Anderson Act. We oppose
extension of the Price Anderson Act, which expired in August 2002, and
then was reauthorized for one year in the recently passed Omnibus
Appropriations bill. This insurance program is an unwarranted taxpayer
subsidy to the nuclear industry that has no parallel in any other
industry. This law, passed in 1957 and amended in 1988 provides
taxpayer-funded insurance for the nuclear industry in the event of an
accident. In case of an accident at a nuclear power plant, the industry
gets a guarantee of limited liability while the public gets no
guarantee of full compensation. This confers a substantial annual
subsidy to the nuclear industry in terms of foregone insurance
premiums. The Price-Anderson Act also provides blanket indemnity to
Department of Energy contractors, even in cases of intentional
misconduct and gross negligence. While we are encouraged by some of the
House-passed provisions that would: re-evaluate nuclear security
measures, require consultation with the Department of Homeland Security
and allow for civil penalties in the case of intentional misconduct by
a DOE contractor, this committee should reject Title IV, Subtitle A
which reauthorizes the Price Anderson Act. Not only does this section
reauthorize the Act for an additional fifteen years, it allows new,
untested ``modular'' reactors to pay less money in case of an accident.
If nuclear power is as ``safe'' as its proponents claim, there is no
need for a limit on industry liability.
Protect citizens from unjustified rate increases and bailouts at
the state level. We oppose the draft legislation's repeal of the Public
Utility Holding Company Act of 1935, one of the only laws still on the
books that protects electricity consumers. In analyzing current
electricity problems, it is important to recognize the magnitude of the
ratepayer subsidies enjoyed by this industry and the role these
subsidies have played in blocking competition and propping up
economically marginal nuclear power plants.
In the 1980's, the PIRGs successfully blocked unjustified rate
increases for nuclear power mismanagement. As states across the country
restructured their electricity markets, the promise to consumers was
that these changes would provide competition among electricity
providers. Instead, utilities lobbied, and for the most part received,
an unjustified ratepayer-funded bailout of their uneconomic
investments, usually nuclear power plants. The PIRGs, free market, and
other consumer and environmental groups in several states fought back
against these requests for ``stranded cost'' recovery. We argued that
these bailouts were unjustified and unfair to consumers and would
hamper efforts to shift towards clean energy. According to a report
released in 1998 with the Safe Energy Communication Council entitled
``Ratepayer Robbery'' we estimated these bailouts could total more than
$112 billion for just eleven states. There is strong evidence that
without these bailouts, almost half of the nuclear power plants would
have shut down. Instead, aging plants have been given a new lease on
life, are in some cases, still shielded from market forces. Some have
been sold at rock-bottom prices to new owners who have every incentive
to run them close to the margin. Instead of repealing electricity
consumer protection laws, the subcommittee should strengthen consumer
protections and block the continued bailout of the nuclear industry
through ``stranded cost'' provisions.
Curb taxpayer costs for nuclear waste and index the fee to
inflation. The nuclear industry is the only industry that we are aware
of which has a government program to guarantee disposal of lethal
waste. We agree with the industry that the DOE has mismanaged the
program. However, our solution is stop spending money on the program
and insure that enough money is collected now to adequately cover
future costs of a sound waste disposal program. A 1998 financial review
commissioned by the State of Nevada concluded that the funding
shortfall for the program would range from $12 to $17 billion in 1996
dollars. We urge that the Nuclear Waste Fund Fee be indexed to
inflation so that there will be adequate funds to cover the ultimate
cost of nuclear waste disposition.
There is no current sound solution for the nuclear waste problem.
Nuclear waste is one of the most dangerous substances created by
humans. This waste remains dangerous for at least a quarter of a
million years (based on the decay of Pu-239). One would expect that
policies for dealing with this lethal material would be based on sound
science and protecting public health. Instead nuclear waste policies in
this country have been based on political expediency. The incredible
problems faced by citizens living near former DOE weapons sites, such
as Hanford, Washington should be a lesson to those who want to ignore
science and public health. Irradiated fuel from nuclear reactors is
perhaps the most toxic material generated by humans. Unshielded, it
delivers a lethal dose of radiation within seconds. According to the
Department of Energy, 95% of the radioactive waste (by radioactivity)
in this country has been generated by commercial nuclear reactors.
We believe that the current project should be stopped, as the
proposed dump site at Yucca Mountain cannot meet current standards for
containing the waste. In 1998, PIRG and more than one hundred
environmental, consumer and safe energy organizations petitioned then-
Energy Secretary Richardson to disqualify Yucca Mountain because it
would not meet current standards for containing the waste. Instead, DOE
weakened the site guidelines, a clear case of changing the rules when
science gives the answer that is not wanted.
Last year, Congress ignored serious safety concerns including the
risk of transporting this waste across the country, and overrode the
State of Nevada's veto to designate Yucca Mountain, Nevada as the
nation's nuclear waste dump. The Bush Administration's 2004 budget
proposal would reserve funds specifically for the Yucca Mountain
project within discretionary cap adjustments for 2004 and 2005. This
proposal would inappropriately limit the discretionary authority of
appropriators to balance various budget priorities, essentially
granting the DOE a blank check for Yucca Mountain spending. The General
Accounting Office reported last year that, ``DOE currently does not
have a reliable estimate of when, and at what cost, a license
application can be submitted or a repository can be opened.''
We urge this committee to re-examine nuclear waste policy and
develop a public, fair process based on sound science and protecting
the public for deciding the ultimate fate of this extremely dangerous
material. No country in the world has a permanent solution to this
problem. The U.S. should reject its current mismanaged program that
relies on changing the rules when the science isn't favorable to the
industry's solution. Instead, we should show leadership by developing a
solution focused on sound science and protecting the public.
CONCLUSION
Nuclear power is unsafe, uneconomic, unreliable and generates waste
for which there is no sound solution. It is a failed technology of the
past and would not exist were it not for enormous and unjustified
government subsidies and policies. The U.S. should do everything it can
to protect the health and safety of the public as well as our
pocketbooks. Nuclear power should be phased out as quickly as possible
and replaced by energy efficiency and clean renewable energy.
STATEMENT OF JEFFREY A. BENJAMIN
Mr. Benjamin. Chairman Barton, Ranking Member Boucher and
members of the subcommittee. My name is Jeff Benjamin, Vice
President of Licensing and Regulatory Affairs for Exelon
Nuclear.
I have also led our company's efforts to respond to the
security issues following the tragic events of September 11,
2001. My background includes working at four different reactor
sites over the past 17 years, including as a Site Vice
President at Exelon's LaSalle generating station.
Exelon is the largest operator of nuclear plants in the
United States. We own and operate 17 reactors at 10 sites in 3
States, which represents approximately 20 percent of the
commercial industry here in the United States.
I am particularly grateful for the opportunity to discuss
the matters before you today regarding legislation to define
and implement the comprehensive energy policy for this country.
Mr. Chairman, throughout my career in the nuclear power
industry, safe operation of our plants and the safety of the
public has been job one.
We recognize that operating our plant safely is essential,
both from a public confidence standpoint and as a matter of
good business economics.
The safe operation of our plants also includes providing
effective security to protect the public from radiological
sabotage. Since September 11, the nuclear industry has taken
numerous and comprehensive steps to further strengthen security
at our sites.
We have discussed these steps before you previously and
maintain those improvements today. Suffice to say, with these
improvement in place, we have added real security over the past
17 months.
Security measures that complement the pre-existing robust
security that we had in place prior to September 2001. Recently
the Nuclear Regulatory Commission provided the industry with an
opportunity to comment on the staff view of adversary
attributes for radiological sabotage.
This staff document contains a proposed change to the
design basis threat which defines the nature of threats against
which we are responsible for defending against.
The current NRC proposal contains several significant
changes, that if implemented, present a number of considerable
policy and legal challenges.
Challenges that also translate to other critical
infrastructure. The issue at the heart of these challenges is
improperly defining the division of responsibility between a
civilian guard force and government, largely law enforcement
and the military.
We have asked the NRC to resolve these issues, in full
consultation with the Department of Homeland Security and
Congress prior to proceeding with a revised design basis
threat.
The NRC seems intent on issuing a revised design basis
threat prior to resolving these issues. But the steps we have
taken to strengthen security to date, we have the time to do
this right.
We also feel that the creation of the Department of
Homeland Security has defined the appropriate structure for
threat assessment, response and recovery and has obviated the
need for any additional legislation in these areas.
Much of what is included in Section 4012 of your bill has
been overtaken by events and should be reconsidered. I would
now like to discuss Exelon's view on the viability of nuclear
option going forward.
Our company has a consistent standard for operating our
nuclear plants. We will only operate them if they are both
economical and safe.
I would like to start by addressing the notion that our
industry is heavily subsidized. First of all, and I believe
this is unique from other fuel sources, our industry pays for
the cost of being regulated by the NRC, through the NRC's
collection of fees.
Second, we pay for the existence of an industry watch dog
group, the Institute of Nuclear Power Operations, who's main
focus is plant safety and the sharing of best practices.
And third, and again, unlike the other forms of generation,
we prepay our ultimate environmental clean up costs through
decommission funds and the payments to the Nuclear Waste Fund.
Last year alone Exelon paid close to $119 million into the
Waste Fund. Collectively, this prevents future generations from
inheriting the burden of radiological decommissioning and waste
disposal after our plants have shut down.
Our position on new reactors is simply that we believe that
nuclear power is an option that must be maintained. We also
believe that any new nuclear investment must be based on
rigorous financial and risk evaluations that reflect the
reality of a deregulated market.
Exelon has also been aggressive in upgrading the output of
our units. And we have done that safely. Since 1998, in
Illinois alone, we have added nearly 800 megawatts of capacity
to our existing plants at a cost of just under $300 per
installed kilowatt.
This compares roughly to $600 to $650 per installed
kilowatt for a new combined cycle gas turbine and roughly
$1,000 to $1,100 an installed kilowatt for a new coal plant.
Over the past 4 years, concurrent with installing these
upgrades, we have operated our plants more efficiently and
safely than ever before. Exelon has also submitted an
application to the NRC to extend the licenses for Peach Bottom,
Quad Cities and Dresden, for an additional 20 years.
The preparation of the Peach Bottom submittal alone
involved over 30 man years of engineering effort to meet NRC
application requirements and to assure the plant can operate
safely for another 20 years.
We are expecting approval of our Peach Bottom submittal in
May. The cost of this effort equates to less than $10 an
installed kilowatt, for another 20 years of 2,300 megawatts of
generation.
As a final point regarding the overall economics of our
plants, in the year 2002, we operated our nuclear fleet at a
capacity factor of 92.7 percent.
Our production costs, which includes our operating and
maintenance costs and fuel, was 1.3 cents a kilowatt hour. Our
all end costs for 2002, which includes everything from
operating and capital expense to fuel, our property taxes and
our mortgage, was 2.01 cents per kilowatt hour.
These costs remain relatively steady even with cold
weather. Fuel is not a major driver to our costs. Our costs are
driven by operating and maintenance expenses.
One simply needs to compare these generation costs with
recent volatility in the spot electricity prices to recognize
the stable yet cost-efficient role of nuclear power.
In summary, we recognize the special importance placed on
our industry to operate our plant safely. However, we also feel
that nuclear has an appropriate an important role in assuring
the energy security of America in the future. Thank you.
[The prepared statement of Jeffrey A. Benjamin follows:]
Prepared Statement of Jeffrey A. Benjamin, Vice President, Licensing
and Regulatory Affairs, Exelon Corporation
Mr. Chairman and Members of the Subcommittee: I am Jeff Benjamin,
Vice President of Licensing and Regulatory Affairs for Exelon Nuclear,
a subsidiary of Exelon Corporation.
Thank you for the opportunity to share Exelon Corporation's views
on the nuclear energy provisions of Chairman Barton's draft
comprehensive energy legislation being considered by the Subcommittee.
Exelon Corporation is one of the largest electric suppliers in the
United States, with major interregional operations in generation,
transmission, distribution and marketing. Our two utilities,
Commonwealth Edison of Chicago and PECO Energy of Philadelphia, serve
approximately 5.1 million retail customers, the largest customer base
in the country. Exelon and our affiliates own or control generation
totaling over 40,000 megawatts, the largest generation portfolio in the
country. Our wholesale power marketing division, known as the Power
Team, markets the output of our generation portfolio throughout the
lower 48 states and Canada with a perfect delivery record.
Exelon Nuclear owns the nation's largest fleet of commercial
nuclear plants, operating 17 reactors at 10 sites in Illinois,
Pennsylvania, and New Jersey. These plants--with 17,800 net megawatts
of total operating capacity--represent roughly 20 percent of the
nuclear capacity in the United States.
During 2002, Exelon's fleet of nuclear plants operated at an
average capacity factor of over 92 percent and produced 118.7 million
megawatt-hours of electricity, about 3 percent of all the electricity
generated in the United States last year. All of this electricity was
generated without emitting any criteria air pollutants or greenhouse
gases. In fact, Exelon's nuclear fleet avoided the emissions of over
119 million tons of CO<INF>2</INF> during 2002.
Exelon achieved this performance while refueling 11 reactors in a
record average of 22 days and completing the year without a single
lost-time or restricted-duty injury at 9 of our 10 plant sites.
As Congress considers changes to America's energy policy, it is
important to recognize the role of nuclear power and to make changes to
Federal policy that will promote a diversity of generation technologies
in the future. Exelon firmly believes that nuclear power will continue
to play a valuable role in providing the nation with a safe,
affordable, and environmentally-friendly supply of electricity, and I
encourage the committee to move forward with many of the nuclear
energy-related proposals included in Chairman Barton's draft
legislation.
COMMENTS ON TITLE IV
Subtitle A. Price-Anderson Act Renewal
Subtitle A of Title IV would renew the Price-Anderson Act,
legislation that ensures that the public is quickly compensated in the
event of a radiological event at a commercial nuclear reactor. Exelon
supports Price-Anderson renewal, both to continue the operation of our
current fleet of nuclear plants with contractor support and to provide
an essential prerequisite to the potential construction of new nuclear
plants.
While the draft legislation includes the Price-Anderson provisions
approved by the House of Representatives last year, Exelon would
encourage the committee to support the Price-Anderson renewal language
for commercial nuclear facilities that was agreed to last year by House
and Senate conferees to H.R. 4 during conference committee
consideration of that legislation.
One section of the draft proposal that was not included in last
year's conference agreement (Section 4012) addresses the issue of
nuclear facility threats. This section of the bill would direct the
President, in conjunction with the Nuclear Regulatory Commission (NRC)
and other federal, state and local agencies and private entities, to
assess the types of threats faced by commercial nuclear facilities. The
provision would also direct the President to assess the nature of any
threat posed by enemies of the United States and to classify threats as
being the primary responsibility of the Federal government or NRC
licensees.
Much of what is included in Section 4012 has been overtaken by
events, namely the creation of the Department of Homeland and the NRC's
current effort to develop a revised Design Basis Threat. However,
Exelon believes that it remains critical for all relevant agencies of
the Federal government--in conjunction with state and local agencies
and private entities--to fully examine the new threat environment
facing the nation's critical infrastructure industries and to classify
threats as being the primary responsibility of either the government or
private industry. This should be done prior to the issuance of a new
Design Basis Threat.
Additional comments on the issue of nuclear security are included
later in my testimony.
Subtitle B. Miscellaneous Matters
Subtitle B includes a number of miscellaneous provisions to amend
the Atomic Energy Act.
Section 4021 would clarify that the 40-year license period for
commercial nuclear reactors begins once the reactor commences
operation, not upon approval of the license. Exelon supports this
change, which codifies existing Commission policy.
Sections 4022 through 4025 address miscellaneous NRC-related issues
that have been requested by the Commission. Exelon has no objection to
these provisions.
Sections 4026 through 4028 include provisions requested by the NRC
to address security-related issues. Exelon has no objection to these
provisions.
NUCLEAR SECURITY
Protection of the health and safety of the public and our employees
is of paramount importance to the nuclear power industry. The industry
has worked closely with a variety of Federal, state and local officials
to identify safeguards and resources necessary to respond to potential
threats to plant security, and we are fully supportive of taking all
reasonable and necessary steps--whether they be by licensees or the
government--to ensure that nuclear plants are able to withstand an
attack by terrorists.
Commercial nuclear power plants are regarded by many to be the most
well-protected industrial facilities in the United States today.
Indeed, many other industries are turning to the nuclear industry as a
model for providing security at a variety of commercial facilities. For
example, in addition to unique physical protections employed at
commercial nuclear facilities, the nuclear industry is alone among
critical infrastructure industries in using the Federal Bureau of
Investigations to run criminal background checks on applicants for
positions at sensitive facilities.
Since September 11, 2001, the nuclear industry has undertaken
extensive measures to enhance security at the nation's 72 commercial
nuclear reactor sites, including actions to harden site access,
increase security resources, and improve operational readiness.
To harden site access, Exelon has:
<bullet> established armed owner control area checkpoints for all
vehicles entering the site;
<bullet> implemented additional vehicle pre-screening and control of
all on-site deliveries upon entry to the owner-controlled area;
<bullet> positioned barriers to prevent access at alternate Owner
Controlled Area entrances;
<bullet> restricted visitor access to those required for essential
plant work;
<bullet> extended background checks for all personnel with temporary
unescorted access; and
<bullet> checked employee databases against FBI watch lists of
suspected terrorists from all known terrorist organizations.
To increase security resources, Exelon has:
<bullet> increased the number of security officers at each site;
<bullet> procured additional weapons and upgraded armaments;
<bullet> added armed security posts at key plant locations;
<bullet> increased security presence at the site entrance; and
<bullet> posted local law enforcement and, at times, National Guard
units at site entrances.
To enhance operational readiness, Exelon has:
<bullet> enhanced plant procedures and operator training for use during
an attack or credible threat;
<bullet> implemented a fleet-wide threat assessment procedure to
respond to threat situations;
<bullet> elevated attention to security and fire protection related
equipment; and
<bullet> established protocol for augmented federal and state law
enforcement assistance and intervention.
Mr. Chairman, I want to stress the multiplicity of concrete actions
we have taken since September 11, 2001, to respond to the increased
security needs of our Nation and to further enhance our already
substantial preparedness.
Revision of the Design Basis Threat
Since shortly after September 11, the Nuclear Regulatory Commission
has been engaged in a top-to-bottom review of the Design Basis Threat
(DBT), which defines the nature of threats against which nuclear plant
operators are responsible for defending, to reevaluate its adequacy. As
an interim measure, the Commission issued Orders on February 25, 2002,
that impose significant additional requirements on licensees pending
the completion of a more comprehensive review of safeguards and
security program requirements.
On January 2, 2003, the NRC provided the nuclear industry an
opportunity to comment on the ``Staff View of Adversary Attributes for
Radiological Sabotage.'' This staff document contains a proposed change
to the Design Basis Threat. The NRC proposal contains several
significant changes that, if implemented, present a number of
considerable policy and legal challenges. These challenges must be
addressed by the NRC, in formal consultation with the Department of
Homeland Security, other relevant Departments of the Administration,
state and local responders and Congress, prior to moving forward with
changes to the current DBT.
THE FUTURE OF NUCLEAR ENERGY
I would now like to discuss Exelon's view on the viability of the
nuclear option going forward. Exelon has had a consistent standard for
operating our nuclear plants--we will only operate them if they are
economical and safe. Opponents of nuclear power frequently claim that
the nuclear industry is heavily subsidized. Yet, unlike other
generation sources, the nuclear industry incurs several costs unique to
electric generators. First, our industry pays for the cost of being
regulated by a Federal entity (the Nuclear Regulatory Commission)
through the payment of NRC user fees. Second, the industry funds an
``industry watchdog'' group--the Institute of Nuclear Power
Operations--whose main focus is plant safety and the sharing of best
practices. Third, the industry fully prepays our ultimate environmental
cleanup costs through plant-specific decommissioning funds and the
Nuclear Waste Fund. This prevents future generations from inheriting
the burden of radiological decommissioning and waste disposal after our
plants have shut down.
With regard to new nuclear plants, Exelon strongly believes that
nuclear power is an option for the future that must be maintained. We
also believe that any new nuclear investment must be based on rigorous
financial and risk evaluations that reflect the reality of a
deregulated market.
We are one of three companies pursuing approval of an Early Site
Permit (ESP) from the NRC. We are seeking an ESP for our Clinton site
in central Illinois with the objective of ``banking'' the site for
potential use in the future (the permit would be good for 20 years).
Importantly, this process will serve to test the NRC's process for
determining site adequacy. We are also working with the NRC through NEI
to develop improved licensing processes for the consideration of new
plants. All of these efforts are focused on ensuring that when new
plants are built there is a well-defined and predictable regulatory
process in place.
Even without the addition of new plants, the industry is
dramatically increasing the amount of electricity generated from the
nuclear sector. Exelon has been a leader in uprating the output of our
existing units. In Illinois alone, we have added nearly 800 megawatts
of capacity to our plants since 1998 at a cost of just under $300/
installed kilowatt. This compares to roughly $800-1000/installed
kilowatt to build a new gas or coal plant. Coincident with these
uprates, our plants are running more efficiently and safely than ever
before.
The industry has also been active in pursuing the renewal of
operating licenses for existing plants. Exelon has submitted an
application to the NRC to extend the licenses for Peach Bottom, Quad
Cities, and Dresden for an additional 20 years. The preparation of the
Peach Bottom submittal alone involved over 30 man-years of engineering
effort to meet the application requirements and to assure the plant can
operate safely for another 20 years. We are expecting approval of our
Peach Bottom submittal in May.
CONCLUSION
Mr. Chairman, thank you for the opportunity to discuss these issues
with you. Exelon looks forward to working with you and members of the
subcommittee as you consider energy legislation this year.
STATEMENT OF EDWIN S. LYMAN
Mr. Lyman. I would like to thank Chairman Barton and the
other distinguished members of the subcommittee for the
opportunity to present the views of the Nuclear Control
Institute on the role that nuclear power should play in a
comprehensive national energy policy.
In the post-September 11, era, this issue merits most
careful consideration. The Nuclear Control Institute is not an
anti-nuclear organization. However, we do believe that the
nuclear industry and its regulator, the NRC, have an
extraordinary obligation to ensure that this inherently
dangerous technology is used as wisely, safely and securely as
possible.
We also believe that the Department of Energy has a
responsibility to respect longstanding U.S. non-proliferation
policy in considering the development of new nuclear
technologies, both in its domestic and international
cooperative research programs.
We cannot afford to repeat the mistakes of the early
promoters of nuclear energy, who's lack of foresight has
contributed in no small measure to real and growing threat of
nuclear and radiological terrorism that Americans face today.
Unfortunately, the lackluster response of the NRC to the
urgent nuclear security concerns after September 11, calls into
question is credibility as a responsible regulator.
And DOE's misguided plans to revive spent fuel reprocessing
and plutonium recycling in the U.S., and to encourage it
abroad, albeit under the guise of proliferation resistant
technology, will only increase the threat of nuclear
proliferation and nuclear terrorism in the world.
It is therefore up to Congress to ensure that any nuclear
component of a national energy policy be fully consistent with
the fundamental objectives of Homeland Security and non-
proliferation.
This requirement raises difficult issues. It is becoming
increasing apparent that effective Homeland Security cannot be
brought on the cheek.
It may turn out that the cost of measures needed to protect
Americans from nuclear and radiological terrorism will be too
great for the nuclear industry to bear and remain economically
viable.
But if the security of nuclear facilities can be guaranteed
only with public subsidy, Congress should assess how its
constituents feel about using their tax money for this purpose.
If public reaction is negative, Congress needs to
reconsider the role of nuclear energy in the future and whether
efforts should be directed toward technologies that present
less tempting terrorist targets.
I would now like to discuss a few specific objectives I
think are necessary for responsible nuclear energy policy. If
nuclear power is to have a continuing role in the Nation's
energy mix, there has to be a fundamental change in our
approach to protecting nuclear plants and materials from being
used as terror instruments.
Nearly 18 months after September 11, NRC is still dragging
its heels in putting into place a new frame work for nuclear
facility protection.
The industry is bitterly resisting any new security
requirements that will cost it money, and policymakers appear
no closer to resolving a crucial issue.
And I agree with Mr. Benjamin. This is crucial. Who should
have responsibility for protecting nuclear facilities against
September 11 scale threats?
Congressional action is needed to break these logjams and
the section on nuclear facility threats in the draft energy
bill is a step in the right direction.
The draft legislation would authorize a Presidential review
of threats to nuclear facilities in consultation with NRC and
other appropriate agencies. I believe that this review is
needed.
Because the current decision, a revised design basis
threat, is being made entirely within NRC, including closed
door consultations with the industry on the impact of the
revision on its financial bottom line.
This isn't appropriate. The magnitude of today's threat
should be based on the best intelligence information, something
utility executives are not in a position to assess.
And the decision on where the responsibility in the
industry stops and that of the Federal Government begins,
definitely deserves a wider range of discussions.
Now a related issue is the private sector is having
difficulty providing security forces that are flexible enough
to adjust rapidly to changes in the homeland security threat
status.
Utilities are unwilling to hire new security guards to meet
the greater demands associated with an increase in the status
if it appears the alert will only last for a short time.
But this means the existing guard forces are being burdened
with excessive over time in exactly the times they need to be
at peak levels of alertness.
Federal and other public resources, such as a reserve force
of nuclear responders may be needed to smooth out these
transitions.
Other issues that should be considered are the impact of a
jet attack on a nuclear plant and what defenses maybe
necessary, which again would be a responsibility we believe of
the Federal Government.
Also, the draft bill's provisions to establish and
operational safeguards response evaluation program are needed
because the current program, even though NRC is putting into
place, still have a number of weaknesses, including it is going
to remain a voluntary program for at least another year.
And I think that they need to have enforcement and NRC
should have the ability to choose the plants that it wants to
test. We shouldn't wait for the industry to come forward and
put their best foot forward.
Finally, other issues, such as new plant design approval,
license renewal, new plant siting, should take into account the
potential for terrorism.
For instance, for plant siting, there should a required
assessment of the desirability of plant locations as terrorist
targets from the standpoint of symbolic value, consequences,
and inability to evacuate the area.
This would help to avoid ill-advised siting decisions, such
as the one that allowed Indian Point to be built only 30 miles
from New York City.
Many of these issues could be addressed in NEPA
proceedings, but the NRC has recently ruled that out as far as
its own NEPA activities goes.
And so I believe Congress should mandate the NRC carry out
homeland security impact assessments for all significant agency
actions.
In summary, we need to solve today's outstanding security
problems affecting the nuclear industry before we can guarantee
a long term role for nuclear power in our country. Thank you
very much.
[The prepared statement of Edwin S. Lyman follows:]
Prepared Statement of Edwin S. Lyman, President, Nuclear Control
Institute
I would like to thank Chairman Barton and the other distinguished
members of the Subcommittee for the opportunity to present the views of
the Nuclear Control Institute on the role that nuclear power should
play in a comprehensive national energy policy. In the post-September
11 era, this issue merits most careful consideration.
The Nuclear Control Institute is not an anti-nuclear organization.
However, we do believe that the nuclear industry and its regulator, the
Nuclear Regulatory Commission, have an extraordinary obligation to the
American people to ensure that this inherently dangerous technology is
used as wisely, safely and securely as possible. We also believe that
the Department of Energy has a responsibility to respect long-standing
U.S. nonproliferation policy in pursuing the development of new nuclear
technologies, both in its domestic and international cooperative
research programs. We cannot afford to repeat the mistakes of the early
promoters of nuclear energy, whose lack of foresight has contributed in
no small measure to the real and growing threat of nuclear and
radiological terrorism that Americans face today.
Unfortunately, the lackluster response of the NRC to the urgent
nuclear security concerns that arose after the September 11 attacks
calls into question its credibility as a responsible regulator of the
U.S. nuclear energy infrastructure. And DOE's misguided plans to revive
spent fuel reprocessing and plutonium recycle in the U.S. and to
encourage it abroad--albeit under the guise of ``proliferation-
resistant'' technology--will only increase the threat of nuclear
proliferation and nuclear terrorism in the world.
It is therefore up to Congress to ensure that any nuclear component
of a comprehensive national energy policy be fully consistent with the
fundamental objectives of homeland security and non-proliferation. This
requirement raises difficult policy issues. It is becoming increasingly
apparent that effective homeland security cannot be bought on the
cheap. It may turn out that the cost of measures needed to provide the
American people with adequate protection from nuclear and radiological
terrorism will be too great for the nuclear industry to bear and remain
economically viable. If the security of nuclear facilities can be
guaranteed only with public subsidy, Congress should assess how its
constituents feel about using their tax money for this purpose. But if
public reaction is decidedly negative, Congress needs to reconsider
whether nuclear energy should have a significant role in the future or
whether efforts should be directed toward technologies that present
less tempting targets to terrorists.
I would now like to discuss a few specific objectives that are in
our view essential elements of a responsible nuclear energy policy.
If nuclear power is to have a continuing role in the nation's
energy mix, there must be a fundamental change in our approach to
protecting nuclear power plants and materials from being used as
instruments of terror. Nearly 18 months after the September 11 attacks,
NRC is still dragging its heels in putting into place a new framework
for nuclear facility protection, the nuclear industry is bitterly
resisting any new security requirements that will cost it money, and
policymakers throughout the government appear no closer to resolving
the crucial issue of who should have responsibility for protecting
nuclear facilities against September 11-scale threats. Congressional
action is needed to break these logjams, and the section on ``Nuclear
Facility Threats'' in the draft energy bill under discussion is a step
in the right direction.
The draft legislation would authorize a Presidential review of
threats to nuclear facilities, in consultation not only with NRC but
with other appropriate agencies. This review would take into account
realistic assessments of the post-September 11 terrorist threat, and
would identify an appropriate ``design basis threat'' (DBT),
establishing the dividing line between the level of protection that is
the responsibility of NRC licensees and the level that is the
responsibility of the Federal Government. This question raises complex
policy issues requiring high-level consideration and full interagency
involvement, including the appropriate role of Federal assets in
protecting commercial nuclear facilities.
This review is needed because right now the decision on a revised
DBT is being made entirely within NRC, including closed-door
consultations with the industry on the impact of the revision on its
financial bottom line. This is inappropriate. The magnitude of today's
terrorist threat should be based on the best intelligence information,
something that utility executives are not in a position to assess. And
the decision as to where the responsibility of the industry stops and
that of the Federal Government begins should obviously involve a wider
group than just the NRC and the industry it regulates.
A related issue that needs to be addressed is that the private
sector is having difficulty providing security forces flexible enough
to adjust rapidly to changes in the homeland security threat status.
Utilities have proven to be unwilling to hire new security guards to
meet the greater demands associated with an increase in the threat
status if it appears that the higher alert will only last for a short
time, as has been the case so far. B |
