[Senate Hearing 109-279]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 109-279
 
                      HURRICANES KATRINA AND RITA

=======================================================================

                                HEARINGS

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   TO

 RECEIVE AN UPDATE ON HURRICANES KATRINA AND RITA'S EFFECTS ON ENERGY 
  INFRASTRUCTURE AND THE STATUS OF RECOVERY EFFORTS IN THE GULF COAST 
                                 REGION

                               __________

                            OCTOBER 6, 2005

                            OCTOBER 27, 2005


                       Printed for the use of the
               Committee on Energy and Natural Resources


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
26-082                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               JON S. CORZINE, New Jersey
GORDON SMITH, Oregon                 KEN SALAZAR, Colorado
JIM BUNNING, Kentucky

                       Alex Flint, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
                         Lisa Epifani, Counsel
         Jennifer Michael, Democratic Professional Staff Member
                   Deborah Estes, Democratic Counsel


                            C O N T E N T S

                              ----------                              
Hearings:
    October 6, 2005..............................................     1
    October 27, 2005.............................................    83

                               STATEMENTS

                                                                   Page

                            October 6, 2005

Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................     6
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     5
Burns, Hon. Conrad, U.S. Senator from Montana....................     7
Cavaney, Red, President and CEO, American Petroleum Institute....     8
Corzine, Hon. Jon S., U.S. Senator from New Jersey...............     3
Curtis, Kevin S., Senior Vice President for Programs, National 
  Environmental Trust............................................    25
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Feinstein, Hon. Dianne, U.S. Senator from California.............     4
Hebert, Curtis, Executive Vice President, External Affairs, 
  Entergy, New Orleans, LA.......................................    43
Helms, Christopher A., President, Pipeline Group, NiSource, Inc., 
  on behalf of the Interstate Natural Gas Association of America, 
  Merrillville, IN...............................................    37
Liveris, Andrew, President and CEO, Dow Chemical Company, 
  Midland, MI....................................................    30
Smith, Hon. Gordon, U.S. Senator from Oregon.....................     6

                            October 27, 2005

Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................   114
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    88
Bodman, Samuel W., Secretary, Department of Energy...............    99
Bunning, Hon. Jim, U.S. Senator from Kentucky....................    84
Corzine, Hon. Jon S., U.S. Senator from New Jersey...............    85
Craig, Hon. Larry E., U.S. Senator from Idaho....................   103
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............    83
Norton, Gale A., Secretary, Department of the Interior...........    88
Salazar, Hon. Ken, U.S. Senator from Colorado....................    86
Talent, Hon. James M., U.S. Senator from Missouri................    87

                                APPENDIX

Responses to additional questions................................   131


                      HURRICANES KATRINA AND RITA

                              ----------                              


                       THURSDAY, OCTOBER 6, 2005

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
SD-366, Dirksen Senate Office Building, Hon. Pete V. Domenici, 
chairman, presiding.

          OPENING STATEMENT OF HON. PETE V. DOMENICI, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. Let us get started.
    First, thank you, everyone, for coming, in particular the 
Senators who are here, and I assume there will be a few more.
    I would like to take a few moments to make a few 
observations and then yield to Senator Bingaman and to any of 
you Senators who would like to comment.
    Yesterday Senator Bingaman, Senator Akaka, and I returned 
from Baton Rouge. We went down there to see and hear and, 
firsthand, to review the hurricane Katrina and Rita damages to 
the energy infrastructure and whatever else came to our 
attention that might be relevant to us either in this 
assignment or as Senators when we begin to address the problems 
that have come.
    We spent time at Exxon Mobil's Baton Rouge refinery, the 
second largest in the country, with the capacity of 500,000 
barrels a day. Although that refinery did not sustain major 
damage in the storms, its access to oil and its ability to move 
products was severely harmed. In addition to loss of 
electricity that set the refinery back, many times throughout 
the trip we heard about the need to ensure some kind of 
redundant and robust power grid if possible.
    We met with Colonial Pipeline, which is a 5,500-mile 
interstate pipeline, that originates in Houston and terminates 
in New York, and delivers millions of gallons of gasoline, home 
heating oil, and aviation fuel and other refined products over 
that distance and that geography of the United States. Right 
now Colonial is operating at about 70 percent of its normal 
mainline capacity from Houston. Lack of supply and lack of 
commercial power, due to both the storms, are major impediments 
to getting that pipeline back to 100 percent.
    We went to Dow's St. Charles petrochemical complex and 
talked to them about the high cost of natural gas prices after 
we had discussed the disaster and how they responded, which was 
really something to hear in terms of how they responded. But 
the interesting thing was a discussion with this industry which 
is so vital to America because it is good jobs, it is products 
that they can compete in and technology that is American, that 
is modern and has great workers.
    With all of that, they are implicitly tied to the price of 
natural gas such that, for instance, every $1 increase of cost 
of natural gas for this plant means an additional $35 million 
in fuel costs per year. Senator Alexander, you have been 
working on this. Now, add it all up and they say how far it 
goes up could be the difference between whether they can stay 
there or not. It is rather frightening. Obviously, natural gas 
should be used there. No question. But will it? Maybe not.
    At each of these energy facilities, I believe we were 
universally impressed by the employees' dedication and the 
company's concern for the well-being of their employees and the 
extraordinary efforts and extraordinary competence that they 
put into preparing for the storm and afterwards.
    There is a great deal of work to be done and there is a 
great deal of courage and confidence that it can be done, which 
was rather surprising. I do not think it should have been 
because Americans generally are that way, but this was so 
devastating I wondered. Nonetheless it is there. The ``can 
do,'' ``we will do,'' the hope is there.
    Hurricanes Katrina and Rita did not just hit the gulf coast 
region. Those natural disasters impacted our entire energy 
chain in all regions of the economy. As we prepare to help, we 
have to understand it is not just helping the coastal regions. 
It is helping to maximize the positive impact of the great 
energy base that is there and the facilities that make it 
usable. We need to have realistic expectations about how long 
we should expect high prices of natural gas and related 
products, and we need to prepare for the potential for 
shortages. I hate to say that. I hate to say both of those 
statements, but I think it is important to us that we get the 
facts out and that we attempt to produce facts that indicate 
what I just said is a reality. And I will repeat it. We need to 
have realistic expectations about how long we should expect 
high prices and, I might add, ever-increasing prices, and we 
need to prepare for potential shortages.
    Earlier this week Secretary Norton said that substantial 
portions of the oil and gas production in the gulf coast 
affected by the hurricanes could take several months to resume, 
with major repairs extending into next year. She also noted 
that some of the hurricanes' most significant energy impacts 
were to onshore natural gas processing facilities. Natural gas 
prices closed above $14 yesterday, and uncertainty about the 
supplies may keep those prices painfully high. I do not believe 
just a few months ago anybody believed that was possible. I 
believe there is genuine concern that that not only is possible 
but probable, and rising is probable also.
    The storm impacts have also affected our inventories. 
Yesterday the EIA reported that total motor gasoline 
inventories fell by 4.3 million barrels last week and 
distillate fuels like diesel fell by 5.6 million barrels last 
week. Although our inventories are still within the range for 
this time last year, these kinds of drops cause serious concern 
and most probably cannot be sustained.
    Our purpose today is to hear from some of the industries 
that have been impacted by the hurricanes. They will tell us 
about the damage assessments and the recovery efforts. We know 
we have a number of experts and we have a number of Senators 
interested. So while we are going to listen, we would very much 
like to be as brief as possible and leave us as much 
information as you can.
    In addition to learning about the physical damage, this 
committee will hold hearings on economic effects of the 
hurricanes and the price expectations for consumers this 
winter. I have alluded to that in general terms, but we will 
have hearings on that subject.
    We are also planning to convene a hearing where we can hear 
from the administration witnesses, DOE and Interior as 
examples, about emergency preparations and response, as well as 
steps that can be taken to improve the supply/demand picture. I 
am impressed with Secretary Bodman's efforts that he has 
launched, especially in the campaign to highlight how American 
families, business, and the Federal Government can save energy 
in response to rising winter costs. I know for some, they still 
do not think that is necessary, but I for one think it is 
absolutely vital, and I commend them for it and hope they will 
do more and do it better.
    The President has made it clear that conservation is going 
to be one of our most effective tools in this crisis. I agree 
with that and hope we can continue on a bipartisan effort to 
strengthen conservation in the short term.
    I thank the witnesses in advance for today. Senators, we 
have Mr. Red Cavaney, CEO of American Petroleum; Mr. 
Christopher Helms, president of Pipeline Group, NiSource, Inc., 
on behalf of the Interstate Natural Gas Association of America; 
Mr. Andrew Liveris, president and CEO of Dow Chemical. We thank 
you for the visit to your plant yesterday. We have Kevin 
Curtis, senior vice president for programs, National 
Environmental Trust; and we have Mr. Curtis Hebert, executive 
vice president of external affairs for Entergy.
    Now, with that, I will yield to Senator Bingaman. Senator 
Bingaman, thank you for going with me and accompanying me on 
the trip. I think it was very good for all of us and I hope it 
will help us in our efforts.
    [The prepared statements of Senators Corzine and Feinstein 
follow:]

Prepared Statement of Hon. Jon S. Corzine, U.S. Senator From New Jersey

    I would first like to thank Senators Domenici and Bingaman for 
holding this hearing. Our nation has been dealt a substantial blow by 
Hurricanes Katrina and Rita and we have an enormous undertaking ahead 
of us. First and foremost, we must take care of the immediate needs of 
the victims of these terrible tragedies.
    In addition to the lives lost and the devastation that so many Gulf 
Coast residents have experienced, the storms greatly impacted our 
energy infrastructure. Our offshore production and refining capacity 
were severely disrupted and we must take deliberate yet careful steps 
to get our supply back on-line.
    Mr. Chairman, we must make every effort to repair the devastated 
Gulf Coast as quickly as possible and mitigate the immediate effects of 
the hurricane on our energy system and gas prices. We must be careful, 
however, not to trade effective long-term policies for damaging short-
term policies.
    First of all, we absolutely cannot take the route of drilling for 
more oil. Many of my colleagues have cited the events in the Gulf as a 
reason to open the Outer Continental Shelf and ANWR to drilling. I 
wholeheartedly disagree--the interruption to our energy supply is not a 
reason to drill for more oil. Instead, it is a wake up call 
underscoring the need to reduce U.S. dependence on oil.
    Secondly, many of my colleagues have already made proposals that 
will do nothing to address the vulnerabilities in our energy system. 
Instead, proposals that would provide the President or the EPA 
Administrator with the blanket authority to waive or modify federal, 
state, or local statutes or regulations will only prove to be harmful 
in the long-run. I urge my colleagues to reject these short-sighted 
policies that undermine existing environmental and public health 
protections.
    Mr. Chairman, Hurricanes Katrina and Rita exposed the fragility of 
our energy infrastructure and highlighted the inadequacies in the 
energy bill passed by Congress this summer. The Senate had a chance to 
increase fuel efficiency in the energy bill, but unfortunately my 
colleagues voted the CAFE amendment down. This was a blatant missed 
opportunity to create a policy that will reduce this nation's reliance 
on oil. In addition, it is frustrating that the final energy bill did 
not include an oil savings provision. Mr. Chairman, it would take 
savings of at least three to five million barrels per day to truly 
reduce our energy dependence. Therefore, I supported an amendment on 
the floor of the Senate that would reduce imports of foreign oil by 40 
percent over the next 20 years, but unfortunately most of my Senate 
colleagues did not--again another missed opportunity. It is my hope 
that we no longer ignore such obvious ways to increase our energy 
independence.
    Mr. Chairman, while I am pleased that President Bush has asked the 
American people to focus on conservation, I am frustrated that it took 
the devastation of Hurricanes Katrina and Rita for this Administration 
to realize that conservation is key to weaning this country off its 
unhealthy dependence on oil. It is essential that the federal 
government take the lead in this regard and set an example for the rest 
of the country. In fact, I joined many of my colleagues in signing a 
letter to President Bush urging him to require a 40 percent commitment 
to federal petroleum savings by 2020. We must take these types of steps 
to ensure that we are prepared for similar disasters of this magnitude 
in the future.
    Again, I thank the Chairman for holding this hearing and I thank 
the witnesses for being here. I look forward to hearing the testimonies 
today. It is my hope that we learn from the terrible tragedies that 
have happened in the Gulf Coast to create an energy system that will 
make us less vulnerable to these tragedies in the future.
                                 ______
                                 
    Prepared Statement of Hon. Dianne Feinstein, U.S. Senator From 
                               California

    Mr. Chairman, thank you for holding this timely hearing.
    The one-two punch of Hurricanes Katrina and Rita showed us how 
dependent we are on the Gulf Coast for our energy supplies. I would 
like to thank the witnesses for being here today to give us a status 
report on the energy infrastructure in the Gulf.
    While I know that natural gas prices are going to soar because of 
the damage to the energy infrastructure, I think it is important to 
note that prices were rising even before the hurricanes hit.
    In California, PG&E expects that utility bills in their service 
territory will rise 40 to 50 percent this winter compared with last 
winter. In other words, average residential gas bill in January will 
likely rise to $154 from $108 last year.
    Southern California Edison expects those rates to rise between 30 
and 40 percent, or the average bill will rise from $83 to $110 or more.
    Higher energy prices means less money for consumers to buy food, 
rent, or other necessities.
    I know that most of the witnesses today will be talking about 
supply side solutions, but I want to take a few minutes to point out 
that drilling will not help us get through the price spikes this 
winter. What will help us in the near-term are two things: energy 
efficiency and diversifying our fuel mix.
    While the rest of the nation's per capita energy consumption has 
risen by nearly 50% over the past 50 years, California has kept the per 
capita average flat.
    The State has successfully curbed electricity usage by 
implementing:

   cost-effective building and appliance standards;
   effective energy efficiency programs, including aggressive 
        energy savings targets for both electricity and natural gas; 
        and
   public education programs about the importance of energy 
        efficiency.

    In addition, the State has the most aggressive renewable portfolio 
standard in the nation--requiring that 20% of California's electricity 
come from renewable resources--not including large hydropower--by 2010.
    Further, the Governor has endorsed increasing the renewable 
standard to 33% by 2020.
    I do not disagree that we need new supply. That was why we included 
federal loan guarantees for the Alaska Natural Gas Pipeline as part of 
the Fiscal Year 2005 Military Construction Appropriations Bill.
    The Alaska pipeline would provide 4.5 billion cubic feet of natural 
gas a day, or about 7 percent of current consumption. Yet the pipeline 
project sponsors have not even been selected, further delaying the 
construction of the pipeline.
    It seems to me that we can reduce demand for natural gas if we:

   bring to market natural gas from areas where we already 
        drill for oil, namely Alaska;
   fully implement the energy efficiency standards and tax 
        incentives in the energy bill, and extend those incentives for 
        another three years;
   and implement a national renewable portfolio standard.

    I look forward to hearing from the witnesses. Thank you, Mr. 
Chairman.

         STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Bingaman. Well, thank you very much, Mr. Chairman, 
and thank you for having this hearing. I thought the trip that 
you and Senator Akaka and I took to this area was very 
informative, and thank you and your staff for organizing it.
    Obviously, we did see a lot of heroic effort going on there 
by many companies trying to recover from the damage that was 
caused by these two hurricanes, and a lot of employees who were 
working very long hours trying to restore service and get the 
situation back to one of normalcy.
    What I am interested in--I think all of us are--is wanting 
to know, are there things that we in Congress could be doing to 
assist with the recovery that we are not engaged in right now? 
Second, are there ways that we could be helping with the 
mitigation of the effects of these hurricanes on people in the 
region, consumers of various kinds in the region, and also 
nationwide mitigation of the high prices? And third, are there 
ways to mitigate damage from future hurricanes? Are there 
things that we can do to be smarter in this rebuilding, in this 
recovery, which will lessen the extent of the damage and the 
extent of the disruption that we will encounter in the future? 
Those are issues that I think I am anxious to learn more about.
    I welcome all the witnesses. Thank you for having the 
hearing.
    The Chairman. Thank you very much, Senator.
    Mr. Hebert, I had difficulty with your French name and I 
apologize.
    Mr. Hebert. I understand that.
    The Chairman. If it helps, it took them 10 years to say 
Domenici.
    [Laughter.]
    The Chairman. Anyway, I am not going to say it. I am going 
to call you Curt because I am still going to mess it up. I am 
not that familiar with you, so excuse me.
    Does any other Senator desire to comment?
    Senator Akaka, you were on the trip and I thank you for 
coming on the visit.

        STATEMENT OF HON. DANIEL K. AKAKA, U.S. SENATOR 
                          FROM HAWAII

    Senator Akaka. Mr. Chairman, thank you very much for giving 
me this opportunity to make a very brief statement and for 
holding this hearing today. I just came from a Homeland 
Security hearing with FEMA, and I will be returning to that 
after this hearing. We are also investigating Katrina and Rita.
    I thank you, Mr. Chairman, for organizing the committee 
tour of the damages and challenges to the Nation's and gulf 
coast's energy infrastructure.
    Mr. Chairman, my immediate impression is that we have a 
national crisis on our hands in the aftermath of Katrina and 
Rita and that the needs are complex. More than 30 percent of 
the Nation's domestic oil comes from the gulf. 10 percent of 
our refining capacity has been knocked out. Entergy's New 
Orleans subsidiary filed for bankruptcy on September 21. 
Natural gas pipeline companies were severely challenged to keep 
their supplies going throughout the South and up to the 
Northeast, fueling the likelihood of even higher natural gas 
prices.
    For 2 days, we visited energy and chemical companies in the 
gulf. I was really impressed and moved by the heroic untold 
stories of humanitarian actions by company employees. Companies 
deployed their own resources, both personnel and supplies, to 
save people from flooding homes, all this as they were fighting 
to save the energy infrastructure so vital to our Nation.
    The first phase in this national disaster was to assist the 
victims with their immediate needs. As we continue to assist 
the people displaced by hurricanes, we must also move to the 
second phase, which we are doing now, of rebuilding the energy 
infrastructure which underlies the economy of the Nation and 
the region.
    Mr. Chairman, I thank you for setting up that trip. It was 
enlightening for me, and I can now tell you that we need to 
really focus on restructuring and moving our Nation forward 
with respect to energy infrastructure. Thank you very much.
    The Chairman. Thank you very much.
    Would any other Senator like to comment?
    Senator Smith.

         STATEMENT OF HON. GORDON SMITH, U.S. SENATOR 
                          FROM OREGON

    Senator Smith. Mr. Chairman, I would like to put a 
statement in the record and indicate to my colleagues my 
concern about not just these refineries, but also natural gas 
prices that are affecting so many industries, and obviously 
refineries for home heating oil. It poses a very real problem 
for us in this coming winter.
    I appreciate your holding this hearing.
    [The prepared statement of Senator Smith follows:]

   Prepared Statement of Hon. Gordon Smith, U.S. Senator From Oregon

    Mr. Chairman, I appreciate your convening this hearing to examine 
further the impacts of Hurricanes Katrina and Rita on the nation's 
energy infrastructure. While we must continue to aid those directly 
affected by these disastrous storms, we must not forget that every 
family and business in America feels the effects of these storms. 
Gasoline and natural gas are at historically high prices, and those 
prices are expected to continue into the foreseeable future.
    The most recent report is that almost 90 percent of the oil 
production in the Gulf of Mexico remains shut in, and 70 percent of the 
region's natural gas production remains off-line. The damage is more 
extensive than originally estimated. The Interior Department projects 
it will take several months and billions of dollars to restore damaged 
refineries, transmission lines and pipelines in the region.
    While we will hear today about the impact on the Gulf, I am hearing 
from constituents who are concerned about their family budgets and 
livelihoods.
    My agricultural constituents, particularly in eastern Oregon, are 
facing lower commodity prices, higher transportation costs, and higher 
fertilizer costs. Families that have farmed for generations are getting 
out of the business, and selling their land. High energy costs will not 
help us revitalize rural America.
    Because natural gas is such an important feedstock for the 
fertilizer and petrochemical industries, those industries are being 
decimated by natural gas prices that are now seven times higher than 
they were a few years ago.
    The United States has the highest natural gas prices of any 
industrialized nation, and industries that rely on natural gas are 
finding it increasingly difficult to remain competitive in a global 
economy.
    As we head into the winter heating months, high natural gas prices 
will also affect the 55 percent of American households that heat their 
homes with natural gas. It is estimated that the average household can 
expect to spend $700 to $1200 more to heat a home this coming winter.
    I am pleased that the Administration is urging Americans to 
conserve energy, and requiring federal agencies to conserve.
    However, the federal government is also a major producer of 
electricity. I urge the Energy Department to examine the operation of 
all federal generation assets to see if those assets can produce more 
electricity this winter, so that less natural gas will be needed.
    I firmly believe that the recently enacted Energy Policy Act will 
enhance our nation's energy security over time. The Act provides 
numerous incentives for the development of renewable energy and 
cleaner, more fuel-efficient vehicles, as well as incentives for new 
electric transmission and natural gas infrastructure.
    These incentives are even more critical as we seek to rebuild the 
Gulf Coast region.
    The Energy Policy Act will not, however, see us through the tight 
energy supplies we are facing today. I am committed to working with 
you, Mr. Chairman, to examine options to meet our nation's current 
energy demands in an environmentally responsible manner.
    I want to thank each of the witnesses who have agreed to testify 
here today, and I look forward to your statements.

    Senator Burns. Mr. Chairman?
    The Chairman. Yes, indeed.

         STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR 
                          FROM MONTANA

    Senator Burns. I do not know whether I am going to get down 
to my turn or not. I wanted to hear the testimony this morning.
    We are having problems getting to our supplies of natural 
gas, as you well know. We have billions and billions of cubic 
feet of natural gas in this country that we are unable to 
access right now.
    I will be holding a hearing on October 25, oversight on 
Interior Appropriations on Public Lands and the impediments 
that we are running into in accessing and permitting on Federal 
lands. I think it is long overdue. When we look at the 
staggering figures that we have in front of us, I think it is 
time that we took a common sense approach on access to natural 
gas.
    I represent a large agricultural sector. Not only are we 
impacted by transportation and transportation fuels, we are 
impacted in fertilizer and the operation of our ranches. I want 
to tell you the squeeze that we are in real quickly, and this 
illustrates.
    The other day a young farmer walked up to me and had the 
scale tickets from his father's wheat in 1948. Today it is the 
same price. Now, there is not anybody in this room that is not 
making more money or getting more for their produce and their 
production personally or in goods, even at the basic level, 
today than American agriculture is.
    We are in a bind, and I want to talk about the basics. It 
is the way we feed our country. That is the second thing we do 
every morning when we get up. Now, with the first thing you do, 
you have got lots of options, but the second thing you do is 
eat. I will tell you we are in a bind.
    So this is a very important hearing. I think it is a very 
important thing not only to venture into new technologies. I 
was one of the first ones that appropriated money for fuel cell 
development because I knew 1 day we are going to need them. It 
was inevitable.
    But I think this acute problem that we have right now, Mr. 
Chairman, I think has to be addressed in a very realistic and 
common-sensical way, and we are going to do that on October 25 
for the folks who will be interested in giving input into that 
hearing on oversight on our access to our energy sources. Thank 
you very much.
    The Chairman. Thank you, Senator.
    All right. With that, we are going to proceed. The first 
witness is president and CEO of the American Petroleum 
Institute. Please proceed.

STATEMENT OF RED CAVANEY, PRESIDENT AND CEO, AMERICAN PETROLEUM 
                           INSTITUTE

    Mr. Cavaney. Thank you, Mr. Chairman, members of the 
committee.
    The U.S. oil and natural gas industry recognizes the 
catastrophic impact of hurricanes Katrina and Rita on millions 
of Americans. The gulf coast is the very heartland of our 
industry, as you have indicated, and we are not just responding 
to this disaster, we are actually living it. Thousands of our 
workers are suffering hardships of living in this devastated 
region they call home, many now without their own homes. In 
concert with fire and police, friends and neighbors, suppliers, 
government officials, our employees are restoring production, 
bringing refineries back on line and restarting the pipelines.
    Our companies have made much progress in recovering from 
the hurricanes, but let us be frank. Much remains to be done. 
Let us remember this was a once-in-a-century natural disaster 
of monumental impact. It has been 90 years since two hurricanes 
of this magnitude struck the gulf coast in the same year, and 
Katrina and Rita came within 1 month of one another. If you 
look at the chart to my right, what you will see is the impact 
was literally side by side, affecting directly 99 percent of 
the gulf facilities, quite an extraordinary occurrence.
    So while many refineries, pipelines, and other facilities 
are back in operation, some facilities are still out of 
service, either because of the lack of electricity or because 
of damage. Fuels are flowing to consumers nationwide, but below 
normal levels in some areas.
    At this time, energy conservation and energy efficiency are 
critically important. We support the recent calls to conserve 
energy by President Bush, by the Alliance to Save Energy, and 
others. API has run full-page ads in major metropolitan 
newspapers across the Nation urging consumers to use available 
supplies efficiently. We have urged them to use such things as 
common sense steps in planning trips carefully, properly 
maintaining their cars, driving efficiently, and using energy 
wisely in their homes.
    Access to crude oil from the Strategic Petroleum Reserve 
and various government waivers to expedite the flow of fuels, 
particularly to emergency responders, have been vital in 
speeding this recovery.
    The gulf region includes some 4,000 offshore platforms in 
Federal waters, two dozen refineries, and hundreds of 
production, transportation, and marketing facilities. These 
Federal waters account for nearly 30 percent of our Nation's 
crude oil production and approximately 20 percent of our 
Nation's natural gas production.
    There is a reason for this geographic concentration in a 
high-risk weather area. Government policies have largely 
limited offshore exploration and production to the central and 
western gulf, and our onshore facilities, including refineries, 
have been welcomed by the communities in the region. 
Unfortunately, offshore oil and natural gas development has 
been barred elsewhere, specifically the eastern half of the 
gulf, and the entire Atlantic and Pacific coasts.
    In my written testimony, I provided you with the latest 
detailed information, along with lessons we have learned. The 
situation can change markedly from day to day.
    In summary, here is where we stand today. Offshore shut-in 
oil production is 1.3 million barrels per day, or 86.7 percent 
of the daily Gulf of Mexico production, which is down from 100 
percent a week ago. Shut-in natural gas production is 6.9 
billion cubic feet per day, which is 69 percent of the daily 
gulf production, also down from 80.4 percent last week. 
Companies continue to assess damage to offshore platforms, on 
rigs, and throughout the infrastructure. Of the Nation's 
refining capacity, 20 percent remains offline or is in the 
process of restarting in the aftermath of both Katrina and 
Rita. Eight of those refineries are down due to Rita and four 
of them remain down due to Katrina. The restoration of 
electricity services is a priority for getting refineries back 
up and running.
    Many pipelines have recovered rapidly with only limited 
damage to those pipelines. The double hit of Katrina and Rita 
has negatively impacted several key pipelines that are 
currently closed or operating partially. I am pleased to 
announce that Colonial this morning has indicated they have 
gone from 70 up to 90 percent of capacity, which is very, very 
helpful to us all.
    We know that the hurricanes have had a huge nationwide 
impact through skyrocketing prices for gasoline and other 
fuels. We understand the concerns consumers have expressed, and 
our companies are doing everything in their power and are 
working 24/7 to restore operations and to get supply back to 
normal levels. This work, wise energy use by consumers, and a 
``do no harm'' approach by government officials provide the 
quickest path to consumer relief from tight supplies.
    In conclusion, we remain very focused on the serious work 
needed to ensure Americans continue to get the fuels that they 
need, and we look forward to working with the committee in this 
regard. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Cavaney follows:]

         Prepared Statement of Red Cavaney, President and CEO, 
                      American Petroleum Institute

    I am Red Cavaney, President and CEO of the American Petroleum 
Institute--the national trade association for the U.S. oil and natural 
gas industry, representing all sectors of the industry, including 
companies that make, transport, and market gasoline.

                            I. INTRODUCTION

    The oil and natural gas industry recognizes the catastrophic impact 
of Hurricanes Katrina and Rita on millions of Americans, and our 
industry has been working around the clock with all levels of 
government and the private sector to restore operations and ensure that 
consumers have adequate fuel supplies.
    As I will explain, our companies have made much progress in 
recovering from the hurricanes, but much remains to be done. While many 
refineries, pipelines, and other facilities are back in operation, or 
are about to be, some facilities remain damaged and out of service. 
Fuels are flowing to consumers nationwide, but not at the normal 
levels. Thus, our companies are facing a more difficult challenge in 
keeping up with demand for gasoline and other products. We are facing 
tight supplies, making it all the more important to heed the 
President's recent call for consumers to use energy wisely.
    Energy conservation and efficiency in this time of tight supply are 
crucial--as important as our efforts to bolster supply. Companies are 
working 24/7 to get fuels to where they are needed in the quantities 
they are needed. And they are supplementing domestic production with 
increased imports of gasoline to help alleviate tight supplies.
    API has run full page ads in major metropolitan newspapers across 
the nation urging industry and consumers to use available supplies 
wisely. We have urged these steps:

   Plan trips carefully. Combine multiple trips into one to do 
        your errands. Minimize stop-and-go driving by avoiding rush 
        hours. Consider car pooling.
   Maintain your car. Under-inflated tires can rob up to one 
        mile per gallon from fuel economy.
   Drive efficiently. Unnecessary speedups and slowdowns can 
        decrease fuel economy by up to two miles per gallon. Accelerate 
        slowly and avoid engine idling.
   Slow down. Typically the faster you drive, the more fuel you 
        use.
   Use energy wisely at home. Turn down thermostats, seal 
        window and door leaks, clean furnace filters and replace less-
        efficient furnaces and hot water heaters.

    The Gulf Coast is the very heartland of our industry. We are not 
just responding to this disaster, we are living it. Thousands of our 
employees and their families and friends are also suffering the 
hardships of living in this devastated region they call home. In 
concert with fire and police officials, neighbors, suppliers, and 
government authorities, our companies are restoring the production, 
bringing the refineries back online, and restarting the pipelines--
while at the same time grieving over the loss of homes, neighborhoods, 
and even loved ones.
    The Gulf Coast region includes some 4,000 offshore platforms in 
federal waters, dozens of refineries, and hundreds of production, 
transportation and marketing facilities. These federal waters account 
for nearly 30 percent of the nation's crude oil production and 
approximately 20 percent of the natural gas production. There is a 
reason for this geographic concentration in a high-risk weather area. 
Government policies have largely limited offshore exploration and 
production to the Central and Western Gulf--and our onshore facilities, 
including refineries, have been welcomed in communities in the region. 
Unfortunately, offshore oil and natural gas development has been barred 
elsewhere--including the eastern half of the Gulf and the entire 
Atlantic and Pacific Coasts. Onshore construction has been held back by 
government restrictions, permitting delays, and not-in-my-backyard 
(NIMBY) sentiments.
    It is ironic that we talk so much about diversifying the sources of 
our energy supplies from abroad, yet we have done so little to 
geographically diversify our oil and natural gas industry here at home.
    An area of much recent concern is the need to bring additional 
clean-burning natural gas to industries and consumers nationwide. Yet, 
efforts to increase domestic natural gas production, both in the Rocky 
Mountain West and offshore, have been stymied--and efforts to build 
more terminals outside the Gulf region to permit increased imports of 
liquefied natural gas (LNG) have also been largely blocked.

         II. THE IMPACT OF HURRICANES KATRINA AND RITA ON THE 
                   U.S. OIL AND NATURAL GAS INDUSTRY

    I know that I speak for every one of our member companies when I 
say that our first concern--from the moment it becomes evident that a 
hurricane is approaching the Gulf--is for the well-being and safety of 
the thousands of men and women from across the country who work on 
offshore facilities, on the vessels that serve them, and in the 
refineries, distribution networks, and retail outlets around the Gulf 
coast.
    Equally as important is the welfare and recovery of the communities 
in the Gulf region. Millions of people in the area are experiencing 
firsthand the physical and emotional hardship of the death and 
devastation caused by these two hurricanes, and our hearts and our 
prayers are with them.
    API is working with the American Red Cross to facilitate U.S. oil 
and natural gas industry efforts to help people throughout the Gulf 
region. Our member companies are helping relief efforts through 
corporate contributions and by encouraging customer and employee 
contributions.
    The companies are donating millions of dollars to humanitarian 
relief efforts to assist evacuees and help rebuild lives and 
communities. They are supporting national, state and local initiatives 
in recovery and relief through contributions of products, services, and 
technology. API and its members, in conjunction with the Gulf Coast 
Workforce Board and the U.S. Department of Labor, are working with 
employers in Texas and the surrounding states to help people displaced 
by the hurricanes to find new jobs.
    We want to thank President Bush for making available more than 24 
million barrels of crude oil from the Strategic Petroleum Reserve (SPR) 
to help offset supply shortfalls after Katrina and Rita--truly a 
circumstance for which the SPR was intended--and we appreciate the 
International Energy Agency (IEA) member nations' contributions of 
additional strategic reserves. We are also grateful that the 
Environmental Protection Agency (EPA) and the Department of 
Transportation, in conjunction with the involved states, have granted 
waivers to expedite the flow of fuels, particularly to emergency 
responders--an action that is very helpful at a time when logistics and 
distribution of fuels are extremely difficult and critical.
    In addition, the Department of Homeland Security's waivers of the 
Jones Act have helped to provide fuel supplies by enabling foreign as 
well as U.S. vessels to transport crude oil and refined petroleum 
products between domestic ports. And, through both hurricanes, the 
Department of Energy has played a central and invaluable role in 
leading and coordinating overall efforts by all levels of government to 
respond to the energy impacts of Katrina and Rita.
    These and other positive steps by government are most helpful in 
dealing with this catastrophe. We also believe it is particularly 
important for government officials at the federal, state and local 
levels to urge citizens nationwide to use energy wisely, particularly 
in terms of not hoarding gasoline and not ``topping off' their vehicle 
tanks. We welcomed the President's recent comments on the need to use 
fuel wisely and avoid unnecessary travel.
    In attempting to meet the challenges we face, it is also most 
important to do no harm. The worst thing Congress could do in these 
challenging times would be to repeat the mistakes of some past energy 
policies by overriding the structures of the free marketplace. Imposing 
new controls, allocation schemes, new taxes on industry, or other 
obstacles will only serve to make the situation much worse--for the 
very individuals who are being relied upon to bring our energy systems 
back to full operating order.
Effects of Hurricanes Katrina and Rita on Industry Facilities
    While our companies are still assessing the full effects of the 
hurricanes on production, refining, and pipeline facilities in the Gulf 
region, the storms clearly had a significant and widespread impact on 
our operations. Thanks to the around-the-clock work of company 
employees and contractors, facilities are coming back online and fuel 
is flowing from refineries through pipelines to consumers.
    While I will attempt to provide you with the latest information we 
have, I would caution you that the situation can change markedly from 
day to day, from the standpoint of what we know and what actual 
progress has been made.
    Our latest information from the Department of Energy (DOE), the 
Minerals Management Service (MMS), the Association of Oil Pipe Lines 
(AOPL), and member companies on the status of our industry and its 
facilities is as follows:

                          OFFSHORE PRODUCTION

Summary of Impact of Hurricanes Katrina and Rita
    Recent hurricanes have reinforced the important role domestic 
energy supplies play in our economy. Shut-in oil and natural gas 
production from Hurricanes Ivan (2004) and Katrina and Rita this year, 
combined with growing demand for petroleum products and natural gas, 
have increased costs for all energy consumers. And, the tight supply/
demand balance has made energy markets more volatile.
    It had taken almost a year for the last of the offshore facilities 
to near recovery from Hurricane Ivan, when Katrina struck. Cumulative 
shut-in production from Ivan was 40 million barrels of oil and 160 
billion cubic feet of natural gas. Ironically, API, along with the 
Minerals Management Service and Coast Guard, had just convened a 
workshop at the end of July to evaluate the experiences of Hurricane 
Ivan and examine whether new policies/practices should be considered.
    Hurricane Katrina initially shut in virtually all oil production 
(about 1.5 million barrels per day) from the Gulf of Mexico (GOM) and 
88 percent (about 8.8 billion cubic feet per day) of the Gulf's natural 
gas production. Just prior to Hurricane Rita's entry into the region, 
oil production had recovered with about 55.8 percent (837.6 MMB/D) 
still shut in and about 33.7 percent of GOM natural gas shut in (3.375 
billion cubic feet per day).
    The advent of Hurricane Rita forced offshore facilities to shut 
down again to protect employees. It has been estimated that about 75 
percent of the offshore facilities in the Gulf were in the path of 
Hurricane Rita. Once again, as of 9/30/05, virtually all (97.8 percent) 
GOM oil production was offline (1.47 million barrels per day) and about 
80 percent of the natural gas (7.9 billion cubic feet per day). This 
situation has begun to improve slowly. As of 10/3, shut-in oil 
production was equivalent to 92.8 percent (1.39 MMB/D) of daily Gulf 
production and almost 75 percent (about 7.5 billion cubic feet per day) 
of natural gas production. The cumulative production shut-in from both 
Katrina and Rita (8/26/05--10/3/05) is 45.1 million barrels of oil 
(about 8.2 percent of yearly GOM production and almost 219.6 billion 
cubic feet of natural gas, which is about 6 percent of yearly 
production.
    At present, this situation continues as companies diligently assess 
their platforms and subsea production and delivery systems to assess 
damage and ensure that it is safe for employees to return to offshore 
structures and that production can resume without any environmental 
impacts. Considering the magnitude of the hurricane and its path, 
damage to offshore platforms seems less than anticipated. However, 
while damage reports are still being collected, we do know that 
Chevron's Typhoon platform was severed from its moorings and suffered 
severe damage. According to news reports, Typhoon produced about 40 MB/
D of oil and 600 million cubic feet per day of natural gas.
    Recovery from Hurricane Rita in terms of offshore oil and gas 
production will be dependent on the other vital parts of the supply 
chain downstream of the production site. Subsea gathering pipelines and 
delivery systems must be operable. For natural gas, onshore processing 
plants must be up and running before that gas can be placed in 
pipelines for delivery to consumers. For crude oil, pipelines and 
terminals associated with shipping the oil must be working--not to 
mention the refineries that will transform the oil into products like 
gasoline, heating oil and jet fuel as well as the pipelines that will 
deliver those products to consumers.
    It may seem self-evident, but it is worth remembering that every 
hurricane is unique and their impacts can differ substantially. Last 
year, Hurricane Ivan's impacts were most notable on the seafloor, as it 
triggered undersea mudslides. Hurricane Katrina seemed to have its 
greatest impacts onshore, although it did damage deepwater facilities 
serving the Mars, Ursa, Cognac and West Delta 143 fields. Shell had 
indicated that production from these fields may not be feasible the 
rest of this year. According to Bloomberg News, Mars produced 220 MB/D 
of oil and 220 million cubic feet per day of natural gas. Prior to 
Hurricane Rita, Shell had indicated that about 60 percent of total 
production would be restored to pre-Katrina level within the fourth 
quarter.
    Katrina's impact was also notable in terms of damage to older 
facilities operating in shallower waters. These were mostly low-volume 
producing wells. Overall, Katrina destroyed about 45 producing 
structures and 20 structures incurred extensive damage.
    While the industry is working around the clock to restore 
production, damage from Hurricane Rita is still being assessed. And, 
damage to the drilling fleet and platforms may turn out to be somewhat 
greater than initially thought.
    In all of the hurricanes, drilling rigs were impacted--often 
photographs of drifting rigs were the most visible impact in terms of 
news coverage. Putting this in perspective, during Ivan, five rigs went 
adrift; six during Katrina; and eight during Rita. In terms of damage, 
Katrina destroyed four drilling rigs, while nine incurred extensive 
damage. Based on preliminary reports, Rita inflicted major damage on 
five drilling rigs and minor damage on 10. [Source: Reports from 
Rigzone.com]

Offshore Production Observations/Lessons Learned
    It is important to remember that the offshore infrastructure (4,000 
platforms and 33,000 miles of pipeline) is sturdy and has weathered 
three powerful storms in the last 13 months without widespread major 
damage or environmental pollution. The majority of structures damaged 
by these hurricanes were older, lower volume producing facilities in 
shallower waters.
    Not only is resumption of production dependent on the downstream 
oil and gas supply chain, all parts of our infrastructure depend on 
other critical links such as electrical power. We must continue to make 
recovery of all parts of this critical infrastructure a primary 
priority.
    Additional attention should be placed on securing and tracking 
drilling rigs. We will incorporate the lessons of Katrina and Rita in 
our ongoing work initiated to assess and learn from Ivan. We will 
continue to work cooperatively with government to find ways to improve 
performance.
    Communication and coordination between government at all levels and 
industry is vital to recovery. Prompt actions by government to, where 
necessary, temporarily remove regulatory obstacles have proved 
essential.
    As a nation, we also must confront our energy needs and take the 
necessary steps to enhance domestic production of oil and natural gas. 
We can no longer afford to place ``off limits'' vast areas of the 
Eastern Gulf of Mexico, off the Atlantic and Pacific coasts, and 
offshore Alaska. Similarly, we cannot afford to deny Americans 
consumers the benefits that will come from opening the Arctic National 
Wildlife Refuge and from improving and expediting approval processed 
for developing the substantial resources on federal, multi-use lands in 
the West.
    For example, there are about 300 trillion cubic feet of natural gas 
and 50 billion barrels of oil (technically recoverable resources) on 
the federal Outer Continental Shelf (OCS) off the lower 48 states with 
additional resources on the Alaskan OCS of 122 TCF of natural gas and 
25 billion barrels of oil. Thus, the total recoverable with today's 
technology is equivalent to the oil resources of Canada and Mexico 
combined and nearly three times the natural gas resources of these two 
countries. Yet, these estimates may be conservative since these areas 
are largely unexplored. Generally, the more an area is explored, the 
more its resource estimates grow. For example, the U.S. Geological 
Survey (USGS) estimates of undiscovered oil resources in the Central 
and Western Gulf of Mexico increased from 6.32 billion barrels of oil 
in 1995 to 33.39 billion barrels in 2003--an increase of more than 400 
percent. And, USGS estimates of undiscovered natural gas resources in 
those same areas increased from 88.1 TCF to 180.2 TCF over the same 
time period--an increase of more than 100 percent.

Natural Gas
    The natural gas situation deserves special attention due to its key 
role in so many sectors of our economy and especially given its 
importance in heating homes throughout the nation. More than 60 million 
homes rely on natural gas. On September 29, natural gas prices set a 
record. Although they have settled down a bit ($14.017 per MMbtu on 
October 4--down 28.4 cents from the record), natural gas prices are 
more than double what they were this time last year--$7.15 above last 
year. And, winter has yet to arrive.
    Unlike petroleum products where increased imports can help enhance 
available supplies, the ability to do that for natural gas is limited. 
Hurricanes Katrina and Rita have not only shut in a significant portion 
of the nation's natural gas supplies, the hurricanes have damaged 
natural gas processing plants which must be restored. Major issues 
affecting repairs and start-up of these plants include: access to 
facilities (standing water remains; some roads are not open); access to 
materials needed for repairs; and manpower issues.
    Facilities in and near Houston do not appear to have sustained much 
damage. The Mont Belvieu area (about 25 miles east of Houston) is in 
the process of restarting. Natural gas liquid import/export facilities 
around the Houston Ship Channel have returned to service. Overall, 
Texas natural gas processing plants seem to have incurred little damage 
although some remain closed due to lack of electricity.
    The area most impacted from a gas processing standpoint is 
Louisiana. A number of these plants were just recovering from damage 
due to Hurricane Katrina when Rita approached. Even those that did not 
sustain additional damage have been affected by the mandatory 
evacuations and other issues (e.g., access to Cameron Parish) related 
to Hurricane Rita. Repairs are resuming as conditions allow workers to 
return. In Alabama and Mississippi, plants in Mobile Bay and Pascagoula 
have been at heavily reduced recovery levels since the Tri-States 
pipeline has been out of service since Hurricane Katrina. This line 
crosses Lake Pontchartrain and many problems have been encountered in 
trying to return this line to service.

                               REFINERIES

Summary of Impact of Hurricanes Katrina and Rita
    Based on the latest assessments (as of 10/4), 24.4 percent of U.S. 
refining capacity remains off-line or is restarting in the aftermath of 
Hurricanes Katrina and Rita. This includes 5 percent of U.S. refining 
capacity that remains off-line because of damage caused by Katrina in 
Louisiana and Mississippi. Refineries with approximately 6.8 percent of 
U.S. refining capacity are in the process of restarting operations, 
while refineries with approximately 12.6 percent of U.S. refining 
capacity are still awaiting power, continuing to assess damages, or 
making necessary repairs. The following is the latest information we 
have on Texas/Louisiana refineries:

------------------------------------------------------------------------

------------------------------------------------------------------------
Houston area (2,291,850 barrel/day capacity)

BP/Texas City......................      437,000  Shutdown; no restart
                                                   date estimate
Marathon/Texas City................       72,000  Normal operations
Valero/Texas City..................      209,950  Reduced runs to
                                                   203,000 b/d
Pasadena Refining/Pasadena.........      100,000  Normal operations
Valero/Houston.....................       83,000  Normal operations
Lyondell-Citgo/Houston.............      270,200  Restarting
Shell/Deer Park....................      333,700  Restarting
ExxonMobil/Baytown.................      557,000  Restarting
ConocoPhillips/Sweeney.............      229,000  Normal operations.

Beaumont/Port Arthur (1,122,000 barrel/day capacity)

Total Petrochemical................      233,500  Shutdown
Motiva.............................      285,000  Shutdown; no restart
                                                   date estimate
Valero.............................      255,000  Shutdown; estimate
                                                   restart within 1
                                                   month
ExxonMobil.........................      348,500  Shutdown; no restart
                                                   date estimate

Lake Charles (593,800 barrel/day capacity)

Citgo..............................      324,300  Shutdown; no restart
                                                   date estimate
ConocoPhillips.....................      239,400  Shutdown; estimate
                                                   restart in mid-
                                                   October
Calcasieu Refining.................       30,000  Shutdown
                                    ------------------------------------
    Total..........................    4,007,550
------------------------------------------------------------------------

Refinery Observations/Lessons Learned
    Refineries are complex. It takes more than a flip of a switch to 
get a refinery back up and running. In a normal situation, once the 
decision has been made that it is safe to start-up the refinery, it can 
take several days before the facility is back to full operating levels. 
This is because the process units and the associated equipment must be 
returned to operations in a staged manner to ensure a safe and 
successful start-up.
    Once a hurricane leaves the region, refinery managers assess what 
impact the hurricane had on their facilities. If any damage has 
occurred, repairs will need to be made before the refinery can be 
brought back online. Also, any flooding--a potentially significant 
problem--that has occurred will need to be dealt with before restarting 
the refinery.
    In the case of a start-up following a hurricane, other factors 
could cause further delay. These factors include the availability of 
crude oil, electricity to run the plant, and water used for cooling the 
process units. A refinery requires electricity to operate; if it is 
flooded, it cannot use electricity and cannot restart.
    Refineries have been prepared with hurricane preparedness and 
response plans for a very long time. Safety for neighboring communities 
and employees is a top priority. It takes a few days to shut down a 
refinery, and the better job done at shutdown, the more likely will be 
a smooth and safe startup.
    Most damage to refineries requires minor repairs, but it may take 
some time to completely assess and finish those repairs. Some 
refineries have been harder hit and are still awaiting power or 
repairing floor damage, and it will take more time to enable them to 
safely restart.
    Employees have shown incredible dedication, working on bringing the 
refineries back online. Some have lost their homes and are still 
focused on getting their refineries back up and running. Our member 
companies are proud of these efforts and are dedicated to finding 
employees temporary housing in cases where homes are lost.
    For example, ConocoPhillips' Alliance Refinery brought in two 
vessels to support operations. One sleeps 700. The company is operating 
the refinery like an offshore platform and sharing the vessel with some 
National Guardsmen to provide them shelter as well.
    Another example is at Shell's Deer Park refinery, where the company 
gave one operator an emergency vehicle to join his distraught wife who 
had already evacuated the area. The company filled the vehicle with 
extra gasoline so he could help those whom he passed who had run out of 
gasoline.
    At ExxonMobil's Baton Rouge refinery, managers relied on creativity 
and improvisation to keep the facility functioning during and after 
Katrina. For example, loss of electric power shut off imports, 
particularly those coming through the Louisiana Offshore Oil Port 
(LOOP), which are vital to the refinery. As a stopgap, company 
officials located a foreign tanker full of oil that had ridden out the 
storm south of Baton Rouge and brought it to the refinery--after 
quickly obtaining a waiver from the Jones Act that prohibits a foreign-
flagged vessel from traveling between two U.S. ports. The company also 
created a ferry system using company barges to bring Strategic 
Petroleum Reserve (SPR) oil across the river from a Port Allen, 
Louisiana, refinery, which was the nearest location to which a pipeline 
could bring the SPR oil.

                               PIPELINES

Summary of Impact of Hurricanes Katrina and Rita
    Despite the severe conditions caused by Hurricanes Katrina and 
Rita, most pipelines recovered rapidly, with only limited damage done 
to the pipeline system--indicating that this is a robust, durable 
system capable of withstanding considerable stress. After Hurricane 
Katrina, the industry worked around the clock to restore full 
operations at all major crude oil and petroleum product pipelines. 
However, Hurricane Rita impacted many of these pipelines again, and 
several key pipelines currently are closed or operating at partial 
capacity.
    The following is the status of hazardous liquids pipelines as 
reported by the Association of Oil Pipe Lines (as of 9/27):

   Capline, a major crude oil pipeline from the Gulf region to 
        the Midwest, is operating at 80 percent capacity.
   Centennial Pipeline, which transports refined products from 
        Beaumont, Texas to the Midwest, is closed;
   Colonial Pipeline is operating at full capacity from Krotz 
        Springs, Louisiana eastward, but operations are limited in its 
        origin pipeline segments in Houston and Pasadena, Texas;
   Dixie Pipeline, a 1,300-mile propane pipeline originating in 
        Mont Belvieu, Texas to eastern transmission points in North 
        Carolina and Georgia, is operating.
   Explorer Pipeline, which ships refined products from the 
        Houston area to the Midwest, is now undertaking partial 
        operations;
   Longhorn Pipeline is open; a 700-mile common-carrier 
        pipeline, it can transport up to 72,000 barrels per day of 
        refined products.
   LOOP, the Louisiana Offshore Oil Port, has stopped 
        offloading tankers, but is continuing to deliver crude oil to 
        customers. The port facility is located in the Gulf of Mexico, 
        18 miles south of Grand Isle, Louisiana, in 110 feet of water. 
        LOOP is the only port in the U.S. capable of offloading deep 
        draft tankers.
   Magellan Pipeline is fully operational. Magellan is a 
        refined products system consisting of 8,500 miles of pipelines 
        supplying 13 Midwestern states.
   Marathon Pipeline has portions closed; the Texas City to 
        Pasadena system is shut down.
   Plantation Pipeline, a 3,100-mile pipeline from Baton Rouge, 
        Louisiana to the Washington, D.C. area, is operating.
   Seaway Pipeline, from the Texas Gulf Coast to Cushing, 
        Oklahoma is operating.
   TEPPCO Pipeline, which moves petroleum products from 
        Beaumont, Texas to New York, is operating at limited capacity.

    API has been provided with the following additional information:

    Colonial Pipeline: Colonial was able to restore service at reduced 
rates on its lines from the Gulf Coast after a two-day interruption. 
Colonial is currently (9/29) pumping at an average rate of 65 percent 
of its normal volumes on these lines from the Gulf Coast. The 
constraint on Colonial is not its capacity but the availability of 
product to lift from Gulf Coast refineries and origin terminals. At 
present, Colonial is without commercial power at five consecutive 
pumping stations in the Beaumont, Texas-Lake Charles, Louisiana area. 
Commercial power will likely not be available at some of these pumping 
stations for at least two weeks.
    Explorer Pipeline: The main line from Houston/Pasadena has been 
ready to run at the full rate since 9/26. Explorer is currently (9/29) 
running at about half of its capacity due to lack of availability of 
product. The Port Arthur to Houston segment is still not operating.
    Shell Pipeline Company LP: In Texas (as of 9/29), onshore crude oil 
and product pipelines, stations and terminals in the Port Arthur area 
are flooded and without power and onshore crude oil. Onshore crude oil 
pipelines, stations and terminals in the Port Neches area are flooded 
and without power. In Louisiana (as of 9/29), onshore crude oil 
pipelines, stations and terminals in the Houma and Erath areas are 
flooded and without power. The offshore central crude gathering system 
sustained platform damage. Offshore crude systems in Eastern, Central, 
and Western corridors are being assessed for damage. Some chemical 
systems and delivery points in Lake Charles are without power.

Marathon Pipe Line LLC

            Hurricane Katrina
    Garyville-Zachary 20" System was shut down on 8/29/05; on 8/30/05, 
power out at Zachary facility; house power only at Garyville facility; 
helicopter over-flight of system showed no damage. On 8/31/05, power 
and SCADA communications restored at Garyville, Plantation Junction and 
Zachary; restarted 9/1/05.
    St. James-Garyville 30" System was shut down on 8/28/05; on 8/29/
05, power out at St. James and Garyville; on 8/30/05, house power 
restored at Garyville; helicopter over-flights showed no damage. On 8/
31/05, system remained shutdown. Power and SCADA communication restored 
at St. James. Waiting on LOCAP and Garyville; restarted 9/4/05.
    Offshore Gulf of Mexico Crude System was shut down on 8/28/05; on 
8/30/05, helicopter over-flight of system showed damage at West Delta 
Receiving Station. On 9/3/05, MPL Assessment Team traveled via boat and 
completed a preliminary assessment on the West Delta Receiving Station; 
platform and all station equipment submerged; no mechanical damage; 
electrical gear and instrumentation destroyed; security fence 
destroyed; on 9/30/05, South Pass West Delta System remains down.
    Midwest Crude System, on 8/29/05, crude lines from Patola, 
Illinois, terminating at Robinson, Illinois, Cattlesburg, Kentucky, and 
Lima, Ohio, slowed down as a result of refinery slowdowns due to 
uncertainty of crude supply. By 9/4/05, those systems were resuming 
normal operations.

            Hurricane Rita
    Texas City-Pasadena 16" System shut down on 9/21/05; on 9/26/05, 
preliminary assessments made to Texas City and Pasadena facilities 
noted no damage; restarted 9/26/05.
    Centennial 28" System (Marathon operator) shut down on 9/22/05; on 
9/27/05, commercial power out with 2-6 weeks repair time; preliminary 
assessments indicated little or no damage at all sites; on 9/30/05, 
four temporary generators in place; Entergy reports that electrical 
service (at reduced levels) may return in the next few days to the 
Beaumont area; on 9/30/05, remains shut down.
    Offshore Gulf of Mexico Crude (operated by Marathon).
    East Cameron Lateral shut down on 9/20/05; on 9/27/05, initial 
reports indicated significant damage to platform facilities with 
potential for involvement of underwater pipelines; undersea and riser 
inspection will be required; as of 9/30/05, remains shut down.
    Eugene Island Lateral shut down on 9/20/05; on 9/27/05, some 
platform damage has been noted from initial aerial inspection; undersea 
and riser inspections will be required; as of 9/30/05, remains shut 
down.
    Vermillion Lateral shut down on 9/20/05; on 9/27/05, some platform 
damage has been noted from initial aerial inspection; undersea and 
riser inspections will be required; as of 9/30/05, remains shut down.
Pipeline Observations/Lessons Learned
    Electricity. Commercial power availability is essential to pipeline 
operation. The ability of emergency response officials at the federal, 
state and local levels to facilitate, coordinate and prioritize the 
response of electric power utilities is essential. In-place backup 
generation equipment would be just as vulnerable as the local utility 
to major storm or attack, costly and difficult to accommodate in 
pipeline facilities.
    Communications. The lack of reliable telecommunications was a major 
issue in slowing response to the storms. In many cases land lines were 
out and cell coverage was spotty at best. Even when land lines were 
available, A/C-powered phones were useless. Satellite communication 
worked well, but the number of units available was limited. Loss of 
computing services removed email as a viable communications tool, 
except in some instances where personal data assistants (blackberries, 
etc.) allowed personnel to keep in touch. More clearly delineated 
contact points within the federal government made Rita response easier 
than Katrina response--there were fewer duplicate requests for updates 
and better use of designated contacts. This also made it easier to get 
federal help when needed as we had much improved channels into the 
government.
    Physical Security. Personnel and critical infrastructure assets 
must be protected--generators and fuel supplies (to name only two) 
become valuable in a natural disaster.
    Aerial Reconnaissance. Many operators had difficulty getting 
clearance to conduct flyovers of their facilities to assess damage and 
stage repairs. It would be helpful if FAA could determine priorities 
and inform companies of what they are.
    Federal Fuel Waivers. The use of fuel quality waivers to allow the 
allocation of available fuels appeared to be helpful.
    Effects Extend Beyond Regional. Impacts can be wide ranging
    Operations. A backup control center in a different building in the 
same city may be suitable in the event of terrorist attack (especially 
with backup generation capability), but not when dealing with a major 
area-wide event like a hurricane. The New Orleans pipelines that had a 
backup control center outside of the area and Houston pipelines with 
the same did not experience the same upset / contingency planning 
problems as did pipelines that had their backup centers in the same 
city.

Government-related Issues
    In the aftermath of Hurricanes Katrina and Rita, consideration 
should be given to:

   Improve telecommunications and electric power contingency 
        operations for crude and petroleum product lines and establish 
        protocols for continued service and prioritized restoration of 
        service in emergencies.
   Governments should be prepared to provide security around 
        critical infrastructure and military or police escorts for 
        response personnel, critical equipment transport, and fuel 
        delivery.
   Short-term relaxation of federal, state and local regulatory 
        and permit requirements in the event of natural disasters to 
        expedite recovery of pipeline service.
   Permit streamlining with DOT's Pipeline and Hazardous 
        Materials Safety Administration (PHMSA) as the lead 
        coordinating agency for oil pipelines, would be helpful in 
        speeding repairs and making capacity expansion projects more 
        attractive.
   Support for industry recommendations on FERC oil pipeline 
        rates.
   Designation of National Energy Corridors for rights-of-way 
        would encourage increased pipeline and electrical capacity.
   FAA should determine priorities and request procedures for 
        flyovers to aid in assessment and repair of critical 
        infrastructure and better communicate those priorities.
   Expedite and streamline deployment of housing for emergency 
        responders.
   Develop an integrated refueling strategy for emergency 
        responders (FEMA, National Guard, state and local authorities) 
        and stranded motorists to minimize conflicting priorities, 
        prioritize short-term emergency (re)supply focus, and ensure 
        emergency responder refueling equipment is compatible with 
        industry safety standards.
   Deployment of government-owned power generation and pump 
        units.

                         MARINE TRANSPORTATION

Impact of Hurricanes Katrina and Rita
    The Houston Ship Channel and Texas City Channel have reopened for 
24-hour navigation.
    The Gulf Intercoastal Waterway is fully open as a result of the 
operational agreements reached with the Corps of Engineers. The 
flooding in the Texas/Louisiana border area temporarily shut down the 
Calcasieu Locks in Calcasieu Parish, Louisiana, and the Leland Bowman 
Locks in Vermillion Parish. The Gulf Intercoastal Waterway is a 
critically important artery for both the oil and chemical industries. 
API worked with various government entities to ensure top priority for 
returning these locks to normal operations.

Marine Transportation Observations/Lessons Learned
    In responding to the hurricanes, the industry has worked in close 
cooperation with the U.S. Coast Guard, the Department of Energy, and 
the Maritime Administration to address marine transportation concerns. 
It has built on strong relationships that already existed between the 
industry and government in this area.

Government-related Issues
    It was helpful to the industry's efforts that the President 
directed Homeland Security Secretary Chertoff to waive the Jones Act to 
facilitate transportation of materials from the Gulf Coast in the 
aftermath of Hurricanes Katrina and Rita. The Jones Act requires that 
all vessels used to transport cargo and passengers between U.S. ports 
be owned by U.S. citizens, built in U.S., shipyards, and manned by U.S. 
citizen crews. The original Hurricane Katrina waiver was through 
September 19; following Hurricane Rita, the waiver was extended until 
October 24 for both crude oil and products.
    It was also helpful that the Coast Guard gave port captains 
permission to waive requirements related to Oil Spill Response Operator 
requirements in the Gulf. Shippers were faced with possibly being out 
of compliance with their Vessel Response Plans because of the 
widespread commitment of response equipment for hurricane clean-up 
operations.

                  INDUSTRY SECURITY/EMERGENCY RESPONSE

Impact of Hurricanes Katrina and Rita
    Providing security in the aftermath of a hurricane is particularly 
important and difficult. In the aftermath of Katrina and Rita, the 
ranks of local law enforcement were significantly depleted as officers 
elected to look after their families, which in many instances meant 
leaving the area. There are, of course, a great number of other 
interests competing with the need to protect critical infrastructure. 
Nevertheless, refineries and other similar infrastructure are at an 
elevated risk during a hurricane emergency and require protection by 
local law enforcement, state police, National Guard, or other entities 
that can fill the void.
    In the aftermath of a hurricane, companies' priorities are to gain 
access to the facility to conduct an assessment of the damage, provide 
security and control access to the site, facilitate any immediate 
safety and/or environmental remediation, undertake cleanup, make 
repairs of critical operating elements, and initiate restart of the 
facility.
    The first requirement is to conduct an assessment of the site. This 
necessitates access by personnel to the site. In some instances, public 
sector personnel attempt to restrict access based upon the need to 
maintain law and order. In the aftermath of Katrina and Rita, 
roadblocks and other impediments were established to ensure that only 
first responders were provided access.
    However, it did pose some challenges for companies attempting to 
transport necessary supplies via ground transport. Generally, these 
challenges involved coordinating with law enforcement officials to 
obtain permits authorizing access into affected areas.
    One concern was that emergency electrical generators, gas, food, 
and other necessities that companies were attempting to deliver to 
their locations would be seized by local agencies. Companies made 
special arrangements for materials to be carried in convoys comprising 
several vehicles and escorted by local law enforcement
Industry Security/Emergency Response Lessons Learned
    Housing for rescue, response and facility and infrastructure repair 
personnel in the storm-affected areas can be a major bottleneck to 
beginning recovery operations.
    Development of a formal communications channel into governmental 
response organizations/departments would be helpful.
    Development of an established process to expedite access to those 
areas shut down after a major disaster to begin rebuilding of critical 
industries is needed.

Additional Industry Security/Emergency Response Observations
    Companies report that the U.S. Coast Guard did an outstanding job 
in every area and on every level in responding to Hurricanes Katrina 
and Rita. Considering its diverse and demanding portfolio, which 
includes search and rescue, safety and security of ports and waterways, 
vessel inspections and response plans, the Coast Guard continues to 
provide the necessary leadership for a comprehensive and effective 
response.
    Companies provided their own officers for their facilities' 
protection in the affected areas and in support of their relief 
efforts; local law enforcement priority was public health and safety.
    Companies provided humanitarian response for their employees and 
contractors in the high impact areas due to lack of other support and 
response. Support was also provided to some police and other emergency 
responders from company distribution sites.
    ConocoPhillips provided fuel to National Guard and local government 
(including police) in storm-affected areas. The company is working with 
local hotels in storm-affected areas, providing generator power to 
allow them to open up prior to the power grid being restored. The 
hotels are being used to lodge response and repair crews.
    ConocoPhillips has been operating a toll-free phone number for 
employees since before Hurricane Rita. Employees are encouraged to call 
the toll-free number to update the company on their welfare and status. 
The company is offering financial assistance to employees displaced by 
Rita.

Government-related Issues
    In general, need more coordination and more timely issue of 
information about the situation on the ground.
    Companies need assurances that materials intended for production 
and delivery of gasoline, diesel, and other fuels necessary for 
operation of emergency generators and vehicles would not be diverted 
from their intended purpose.
    Difficulty was experienced in getting air restrictions lifted in a 
timely manner to fly over affected areas and operations to assess 
damage to our facilities, although government agencies were requesting 
information.

                III. GASOLINE PRICES AND RELATED ISSUES

Impact of Hurricanes on Gasoline Prices
    We know that the effects of Hurricanes Katrina and Rita on our 
industry are having a nationwide impact. We understand how Americans 
throughout the country have faced increased prices for gasoline and 
other fuels. However, we believe the market is working, as prices have 
moderated in recent weeks and are now well under the post-Katrina 
highs. What follows is background on two key components of the price of 
gasoline: crude oil price and taxes.
    Crude Oil Price. Before Hurricanes Katrina and Rita struck, the 
price of gasoline was rising primarily because U.S. refiners are paying 
more for crude oil, the principal cost component of a gallon of 
gasoline. In fact, the Federal Trade Commission noted this exact point 
in a report this July: ``To understand U.S. gasoline prices over the 
past three decades, including why gasoline prices rose so high and 
sharply in 2004 and 2005, we must begin with crude oil. The world price 
of crude oil is the most important factor in the price of gasoline. 
Over the last 20 years, changes in crude oil prices have explained 85 
percent of the changes in the price of gasoline in the U.S.'' The crude 
oil price is set in the international oil marketplace by the forces of 
supply and demand for oil worldwide.
    Tax Component. While more than half the cost of gasoline is for 
crude oil, every time a motorist pulls up at the pump, he or she pays 
46 cents in federal and state taxes per gallon of gasoline. The 
remainder is the cost to refine and market the gasoline. The average 
price of a gallon of regular gasoline reached $2.81 on September 27, 
according to AAA. When the price of a barrel of crude oil is $66, as it 
was at the end of September, a refiner paid about $1.57 per gallon for 
the crude oil in order to make a single gallon of gasoline. As noted 
above, taxes average 46 cents per gallon nationwide. The remaining 78 
cents per gallon includes the cost of running refineries, transporting 
the finished gasoline to markets via pipelines and tank trucks, and 
operating retail outlets. The cost to refine, market and distribute 
gasoline has been trending downward for many years. The recent price 
spikes are a direct consequence of disruptions in crude oil and 
gasoline supplies. (Attached is a chart showing combined federal, state 
and local gasoline taxes for each state.)*
---------------------------------------------------------------------------
    * The chart has been retained in committee files.
---------------------------------------------------------------------------
    Our industry has never experienced back-to-back events like 
Hurricanes Katrina and Rita and their brutal aftermath. The hurricanes 
hit an industry that was already stretched to its limit by an 
extraordinarily tight global supply and demand balance. As the U.S. 
Energy Information Administration (EIA) noted in its September Short-
Term Energy Outlook, ``Continued high crude oil prices were expected 
prior to Hurricane Katrina.'' Even before Rita hit the industry, EIA 
anticipated crude oil prices to average between $67 and $69 per barrel 
during the fourth quarter, depending on the pace at which damaged 
facilities are restarted. The damage wrought by Katrina and Rita has 
clearly exacerbated the very market conditions that have led to today's 
higher prices.
    Oil and gasoline prices jumped immediately after Katrina due to the 
widespread damage to energy infrastructure, but have moderated slightly 
as the industry restores operations. Oil prices rose to nearly $70 per 
barrel, but have moderated somewhat to around $66 per barrel. 
Similarly, the average price for gasoline nationwide jumped 46 cents 
per gallon in the week after Katrina hit, rising from $2.65 to $3.11 
per gallon. However, as companies restarted some affected refineries 
and pipelines and the damage from Rita appeared less severe than 
expected, gasoline prices moderated. As of September 27, nationwide 
gasoline prices averaged $2.81 per gallon. Over the past week the 
average price of gasoline has increased 12 cents per gallon to $2.97 
per gallon.

Zero Tolerance for Price Gouging
    In the aftermath of Hurricanes Katrina and Rita and their effects 
on gasoline prices, some accused the oil and natural gas industry of 
price gouging. Let me be clear and direct: the American Petroleum 
Institute and its member companies condemn price gouging. There is zero 
tolerance for those who break the law.
    History provides an important guide here. Our industry has been 
repeatedly investigated over many decades by the Federal Trade 
Commission, other federal agencies, and state attorneys-general. None 
has ever found evidence that our companies have engaged in any anti-
competitive behavior to drive up fuel prices.
    The gasoline marketing system has the complexity and flexibility 
required to meet the varying needs of both companies and consumers. 
Companies have three basic types of outlet options and may employ any 
and all in their marketing strategies to maximize efficiencies and 
compete in the marketplace. First, they can own and operate the retail 
outlets themselves (company owned and operated outlets). The second 
option is to franchise the outlet to an independent dealer and directly 
supply it with gasoline. This option may have three different forms of 
property ownership: The operator can lease from the refiner, lease from 
a third party, or own the outlet outright. The third option is to 
utilize a ``jobber,'' who gains the right to franchise the brand in a 
particular area. Jobbers can choose to operate some of their outlets 
with their own employees and franchise other outlets to dealers. The 
mix of distribution methods varies widely across firms. Different 
refiners, depending on which type is perceived as most efficient, use 
different types of outlets.
    Retailers are typically categorized as branded and unbranded 
sellers of fuel. Those who are retailers of unbranded gasoline 
generally pay lower wholesale prices for gasoline and they attract 
customers with generally lower retail prices. These retailers price 
gasoline at retail based on an unbranded ``rack'' price. They typically 
shop around in the marketplace, without any binding long-term 
contracts, in order to obtain the best price. Understanding up-front 
that there is a certain degree of supply and price risk associated with 
this method of petroleum retailing, gasoline purchased by an unbranded 
retailer and priced off an unbranded rack price thus entails no long-
term relationship or security of supply between buyer and seller. Most 
importantly, unbranded purchases do not typically allow the purchaser 
the use of the supplier's brand name.
    In contrast, a branded retailer is obligated by a contract to buy 
branded gasoline and pay a ``dealer tank wagon'' (DTW) price, which is 
generally higher than the rack price. Branded product is typically 
priced somewhat higher because it offers the dealer greater security of 
supply and the right to use the supplier's brand name. This makes sense 
when one considers the investment in the brand name and the importance 
to both the supplier and retailer of assuring reliable and 
uninterrupted supply to customers.
    In periods of market tightness, however, when a supplier may not 
have enough product to supply all branded dealers plus the 
unaffiliated, unbranded buyers, the unbranded retailers, without supply 
contracts, may pay higher wholesale prices than name-brand retailers. 
This typically occurs when there is a supply disruption caused by a 
pipeline or refinery breakdown--such as was caused by the two recent 
hurricanes.

Gasoline Prices and the World Oil Market
    As noted above, prices are rising because of the forces of supply 
and demand in the global crude oil market. Supply and demand is in a 
razor-thin balance in the global market. Small changes in this market 
have a big impact.
    World oil demand reached unprecedented levels in 2004 and continues 
to grow. Strong economic growth, particularly in China and the United 
States, is fueling a surge in oil demand. The U.S. Energy Information 
Administration (EIA) reports that global oil demand in 2004 grew by 3.2 
percent--the strongest growth since 1978--and projects growth to 
increase by about 2.1 percent this year and next. By comparison, world 
demand between 1993 and 2003 grew at an average rate of 1.6 percent.
    At the same time, world oil spare production capacity--crude that 
can be brought online quickly during a supply emergency or during 
surges in demand--is at its lowest level in 30 years. Current spare 
capacity is equal to about 1 percent of world demand. EIA projects 
spare capacity for 2005 at just over 1 million barrels a day. Thus, the 
world's oil production has lagged, forcing suppliers to struggle to 
keep up with the strong growth in demand.
    The delicate supply/demand balance in the global crude oil market 
makes this market extremely sensitive to political and economic 
uncertainty, unusual weather conditions, and other factors. Over the 
past several years, we have seen how the market has reacted to such 
diverse developments as dollar depreciation, cold winters, the post-war 
insurgency in Iraq, hurricanes in the Gulf of Mexico, the Venezuelan 
oil workers' strike in 2002-2003, uncertainty in the Russian oil patch, 
ongoing ethnic and civil strife in Nigeria's key oil producing region, 
and decisions by OPEC.
    While consumer concern about high gasoline prices is very 
understandable, we must recognize that gasoline prices mirror crude oil 
prices. Crude oil costs make up more than 50 percent of the cost of 
gasoline. Retail gasoline prices and crude oil prices have historically 
tracked, rising and falling together. When supply is abundant and 
demand is low, we see the opposite of today's situation: only six years 
ago, crude oil was selling at $10 per barrel--and gasoline was selling 
for less than $1.00 a gallon.
    We currently import more than 60 percent of the crude oil and 
petroleum products we consume. American refiners pay the world price 
for crude and distributors pay the world price for imported petroleum 
products. U.S. oil companies don't set crude oil prices. The world 
market does. Whether a barrel is produced in Texas or Saudi Arabia, it 
is sold on the world market, which is comprised of hundreds of 
thousands of buyers and sellers of crude oil from around the world.

Earnings
    There is considerable misunderstanding about the oil and natural 
gas industry's earnings and how they compare with other industries. The 
oil and natural gas industry is among the world's largest industries. 
Its revenues are large, but so are its costs of providing consumers 
with the energy they need. Included are the costs of finding and 
producing oil and natural gas and the costs of refining, distributing 
and marketing it.
    The energy Americans consume today is brought to us by investments 
made years or even decades ago. Today's oil and natural gas industry 
earnings are invested in new technology, new production, and 
environmental and product quality improvements to meet tomorrow's 
energy needs. Oil & Gas Journal estimates that the industry's total 
U.S. spending this year will be $85.7 billion, compared with $80.7 
billion in 2004 and $75.5 billion in 2003. It also estimates that 
exploration and production spending in the U.S. will grow 6 percent 
this year and that total upstream oil and gas spending in the U.S. will 
reach nearly $66 billion.
    The industry's earnings are very much in line with other industries 
and often they are lower. This fact is not well understood, in part, 
because the reports typically focus on only half the story--the total 
earnings reported. Earnings reflect the size of an industry, but 
they're not necessarily a good reflection of financial performance. 
Earnings per dollar of sales (measured as net income divided by sales) 
provide a more relevant and accurate measure of a company's or an 
industry's health, and also provide a useful way of comparing financial 
performance between industries, large and small.
    For the second quarter of 2005, the oil and natural gas industry 
earned 7.7 cents for every dollar of sales compared to an average of 
7.9 cents for all U.S. industry.\1\ Many industries earned better 
returns in the second quarter than the oil and natural gas industry. 
For example, banks realized earnings of 19.6 cents on the dollar. 
Pharmaceuticals reached 18.6 cents, software and services averaged 17 
cents, consumer services earned 10.9 cents and insurance saw 10.7 cents 
for every dollar of sales. Last year, the oil and natural gas industry 
realized earnings of 7 percent compared to an average of 7.2 percent 
for all U.S. industry. Over the last five years, the oil and natural 
gas industry's earnings averaged 5.7 cents compared to an average for 
all U.S. industry of 5.5 cents for every dollar of sales.
---------------------------------------------------------------------------
    \1\ Earnings equal profits divided by sales calculated from 
``Corporate Scorecard,'' Business Week, August 22/29, 2005; and from 
company financial reports for oil and natural gas figures.
---------------------------------------------------------------------------
    Some are calling for reinstatement of a windfall profits tax as a 
response to the nation's energy challenges. However, our industry's 
earnings are hardly a ``windfall.'' Strong earnings enable our industry 
to remain competitive globally, benefit millions of shareholders and 
enable the industry to invest in innovative technologies that improve 
our environment and increase energy production to provide for America's 
future energy needs. Levying new taxes would likely end up harming 
consumers. As The Wall Street Journal editorialized recently, (``China 
Does Carternomics,'' August 19), ``A windfall profits tax only 
discourages increases in supply by disincentivizing further 
production.''
    According to the Congressional Research Service (CRS), the windfall 
profits tax drained $79 billion in industry revenues during the 1980s 
that could have been used to invest in new oil and natural gas 
production. In fact, 1.6 billion fewer barrels of oil were produced 
domestically due to the windfall profits tax--barrels that instead had 
to be secured from foreign sources. CRS found that the tax reduced 
domestic oil production from between 3 and 6 percent, and increased oil 
imports from between 8 and 16 percent.

Gasoline Prices: What Can Be Done?
    The solution to high gasoline prices is more supply of crude oil 
and gasoline and less demand, but there is no simple strategy to make 
that happen. The United States is at a critical turning point in 
shaping its future energy policy. The legislation signed by the 
President signals a first step in a much-needed effort to enhance 
energy security and ensure the reliable delivery of affordable energy 
to consumers. But much remains to be done.
    The problems we face are very real: growing world demand for energy 
at a time when many oil-producing countries around the world are 
increasingly limiting or restricting our industry's access to new 
resources; a lack of national commitment to develop our abundant 
domestic energy resources and critical infrastructure; and scant 
attention to energy efficiency. These factors have resulted in a tight 
supply/demand balance for U.S. consumers, causing recurring price 
spikes, greater market volatility, and overall strain on the nation's 
energy production and delivery systems.
    Energy demand continues to grow. The Energy Information 
Administration (EIA) forecast that by 2025, U.S. energy consumption 
will increase by 35 percent, with petroleum demand up by 39 percent and 
natural gas up by 34 percent. These demand increases occur despite 
expected energy efficiency improvements of 33 percent and renewable 
energy supply increases of 41 percent.
    Additional EIA forecasts point out our basic problem: Domestic 
energy supplies are not keeping up with increased demand; and we are 
relying more and more heavily on imports to meet our energy needs. EIA 
projects that U.S. crude oil production will fall by 17 percent by 2025 
(assuming no production from ANWR), while crude oil imports will 
increase by 67 percent, and net petroleum product imports increase by 
90 percent. Given these trends, it comes as no surprise that EIA 
forecasts that our nation's dependency on foreign sources of petroleum 
will rise from 59 percent today to 68 percent in 2025.
    This increase, to the extent that it reflects import costs lower 
than domestic supply costs, would represent a gain from trade which 
should be encouraged. However, when we have resources that can be 
developed at prices competitive to imports, and we choose not to do so, 
we place a wasteful and unnecessary burden on our own consumers.
    In fact, we do have an abundance of competitive domestic oil and 
gas resources in the U.S. According to the latest published estimates, 
there are more than 131 billion barrels of oil and more than 1000 TCF 
of natural gas remaining to be discovered in the U.S.
    However, 78 percent of this oil and 62 percent of this gas are 
expected to be found beneath federal lands and coastal waters.
    Federal restrictions on leasing put significant volumes of these 
resources off limits, while post-lease restrictions on operations 
effectively preclude development of both federal and non-federal 
resources. The most comprehensive study of the effects of such 
constraints was the 2003 National Petroleum Council study of natural 
gas, which included an analysis of federal constraints on U.S. gas 
supply in two key areas--the Outer Continental Shelf (OCS) and the 
Rockies. The study found that in key areas of greatest supply 
potential, federal policy precludes or seriously constrains 
development. For instance, of the 209 TCF of estimated undiscovered gas 
in the Rockies, 69 TCF is completely off limits, while another 56 TCF 
is seriously constrained by federal policy. On the OCS, the entire 
Atlantic, Pacific, and most of the Eastern Gulf of Mexico are off 
limits to development. Furthermore, the study found that sustaining 
these constraints over the next 20 years would cost U.S. consumers more 
than $300 billion in increased energy costs.
    We are aware that opponents of oil and natural gas development 
still raise environmental concerns. However, we would point out that 
history provides overwhelming evidence that our industry can find and 
develop oil and natural gas resources safely and with full protection 
of the environment, both on land and offshore. For example, according 
to the U.S. Coast Guard, for the 1980-1999 period, 7.4 billion barrels 
of oil were produced in federal offshore waters, with less than 0.001 
percent spilled. That's a 99.999 percent record for clean operations--a 
statistic few others can likely match or best, and far less than the 
volumes of natural seeps that occur on ocean and gulf floors. The 
industry's leak prevention performance in offshore production during 
Hurricanes Ivan, Katrina and Rita continues this remarkable 
environmental record.
    Using advanced technology and sound operational practices, our 
industry has steadily reduced the environmental impact of oil and gas 
development, both onshore and offshore. The surface presence for 
exploration and development wells has shrunk significantly. For 
example, a drilling pad the size of Capitol Hill is all that is needed 
to access any oil reserves that might exist in the entire 68.2 square 
mile District of Columbia. Horizontal and directional drilling now 
enables our industry to drill multiple underground wells from a single 
pad, sometimes reaching sites as far away as 10 miles from the drilling 
pad.
    Additionally, the U.S. oil and natural gas industry is among the 
most heavily regulated industries in our country. Every lease contains 
a standard stipulation to protect air, water, wildlife and historic and 
cultural resources, but leases may also include any number of 
additional stipulations to further protect resources.
    The recently enacted energy legislation takes a positive step by 
requiring an inventory of OCS oil and natural gas resources. It will 
not, by itself, result in new energy supplies.
    We need to build on the energy legislation by encouraging the flow 
of more natural gas and oil to the marketplace. And, while we must 
focus on producing more energy here at home, we do not have the luxury 
of ignoring the global energy situation. In the world of energy, the 
U.S. operates in a global marketplace. What others do in that market 
matters greatly.
    For the U.S. to secure energy for our economy, government policies 
must create a level playing field for U.S. companies to ensure 
international supply competitiveness. With the net effect of current 
U.S. policy serving to decrease U.S. oil and gas production and to 
increase our reliance on imports, this international competitiveness 
point is vital. In fact, it is a matter of national security.
    We can no longer wait 12 years, as we just did, to address our 
nation's energy policy. The energy legislation is a foundation, but it 
must be built upon. More needs to be done and more quickly, 
particularly increasing access to offshore resources. We have the 
ingenuity, the technology, and environmental protections. If enactment 
of the energy legislation means we have a commitment to continued 
action, then it will truly be a turning point in reshaping U.S. energy 
policy.

Refineries
    We cannot understand or deal with high gasoline prices if we do not 
consider the state of refineries in the United States. During the 
1980s-90s, the oil industry earned relatively poor rates of return on 
their investments. This was especially true in the refining sector, 
which was hard hit with the need for new investment in technology and 
equipment to produce cleaner burning fuels to meet clean air standards 
set by the Clean Air Act of 1990. The Act had a major impact on the 
operation of refineries in the U.S. and the return on investment 
realized at the time.
    From 1994 to 2003, the industry spent $47.4 billion to bring 
refineries into compliance with environmental regulations. That 
included $15.9 billion in capital costs and $31.4 billion in operations 
and maintenance costs to comply with regulations covering air, water 
and waste rules. Moreover, by 2010, the U.S. refining industry will 
have invested upwards of $20 billion to comply with new clean fuel 
regulations. This is an addition to the cost of compliance with many 
dozens of other environmental, health, safety and security regulations. 
All this investment severely reduces the funds available for 
discretionary capacity expansion projects.
    Technological advancements have helped refineries produce more from 
existing facilities than they did in the past. Refineries are doing a 
better job of bringing product to market for less--and the consumer has 
benefited. Even though a new refinery has not been built from scratch 
in 30 years, existing refineries are continually being upgraded and 
reworked to improve efficiency. Inefficient process units are replaced 
and new units are built to provide more fuel processing flexibility.
    We can see this in the decline in the refiner/market margin 
(measured as the difference between the retail price of gasoline minus 
taxes and minus the refiner's composite crude oil price). Back in 1980, 
the cost to refine and market and distribute gasoline averaged about 95 
cents per gallon (in inflation-adjusted terms). By 1990, it averaged 
more than 61 cents per gallon, and, by 2000, it was 52 cents per 
gallon, which is about where it has averaged over the last five years. 
Multiplying these reductions by the 330 billion gallons of petroleum 
products consumed translates into billions of dollars of savings for 
consumers. We all benefit every day from these improvements and 
efficiency gains.

The Need to Remove Refinery Capacity Constraints
    The record-high gasoline prices, while primarily caused by 
increased crude oil prices and exacerbated by Hurricanes Katrina and 
Rita, have underscored the fact that U.S. demand for petroleum products 
has been growing faster than--and even exceeds--domestic refining 
capacity. While refiners have increased the efficiency, utilization and 
capacity of existing refineries, these efforts have not enabled the 
U.S. refining industry to keep up with growing demand.
    The fact is that--faced with increasingly more challenging fuels 
regulations--only major refineries have the resources needed to expand 
their capacity. Smaller refineries are increasingly unable to afford to 
expand. Moreover, local opposition and not in my backyard (NIMBY) 
attitudes persist and prevent new refineries from being constructed.
    The U.S. refining industry has been expanding at a rate of 
approximately 1 percent over the past decade--the equivalent of a mid-
size refinery. In order to create the opportunity for increasing the 
growth of U.S. refinery capacity, government policies are needed to 
create a climate conducive to investments to expand domestic refining 
capacity.
    In addition, many of the steps the federal government could take to 
help the refinery capacity situation are covered in the December 2004 
National Petroleum Council (NPC) study, Observations on Petroleum 
Product Supply--A Supplement to the NPC Reports ``U S. Petroleum 
Product Supply--Inventory Dynamics, 1998'' and ``U.S. Petroleum 
Refining--Assuring the Adequacy and Affordability of Cleaner Fuels, 
2000.'' For example, that NPC study suggested that the federal 
government should take steps to streamline the permitting process to 
ensure the timely review of federal, state and local permits to expand 
capacity at existing refineries.
    New source review regulations could be reformed to clarify what 
triggers these reviews. Some refineries may be able to increase 
capacity with relatively minor adjustments, but are unsure if the 
entire facility's permit review would be triggered--a burdensome and 
time-consuming process.
    In addition to the myriad of other issues deterring new refining 
capacity investments, there are financial constraints as well. 
Attracting capital for new refinery capacity has been difficult with 
refining rates of return historically averaging well below the average 
for S&P Industrials. Over the 10-year 1994-2003 period, the return on 
investment for the refining and marketing sector was 6.2 percent or 
less than half as much as the 13.5 percent for S&P Industrials. In only 
one year between 1977 and 2003 did the average return of refiners 
exceed the average for the S&P Industrials.
    It is important to remember that the oil and natural gas industry 
operates in a global marketplace. Many oil and gas companies are global 
companies, whose U.S. investment decisions compete not only with 
decisions as to how to allocate capital investments in the U.S. among 
various sectors of the industry, but also with competing demands and 
investment needs overseas. In a global marketplace, companies will make 
the best economic investment decisions in order to bring affordable 
petroleum products to consumers. Imports may be the more economical 
option than new U.S. refineries, but that is a decision to be left to 
the global marketplace. Government policies must encourage, not 
interfere with, the global marketplace.

Conclusion
    The U.S. oil and natural gas industry recognizes the catastrophic 
impact that Hurricanes Katrina and Rita have had on millions of 
Americans and our industry is working with government and others in the 
private sector to do all we can to alleviate their suffering.
    If we all do our part--industry providing supplies and repairs as 
expeditiously as possible, government facilitating needed approvals, 
and consumers adjusting their driving habits to consume less fuel--
Americans can overcome this challenge as we have others in our nation's 
history.

    The Chairman. Thank you very much.
    Let us proceed then to senior vice president of programs, 
National Environmental Trust, Kevin Curtis. Thank you for 
coming.

    STATEMENT OF KEVIN S. CURTIS, SENIOR VICE PRESIDENT FOR 
             PROGRAMS, NATIONAL ENVIRONMENTAL TRUST

    Mr. Curtis. Thank you very much for having me here. I have 
had the pleasure of working with this committee for 25 years, 
my entire career in Washington, and it is truly an honor to be 
here testifying. It is also a terrible shame that the topic of 
the hearing is the impact of hurricanes Katrina and Rita.
    In my testimony, I will try to touch on a couple of points 
related to the environmental and public health impacts of the 
hurricanes and then three policy points as it relates to energy 
policy. I will not even try and describe the devastation that 
you have seen and that these gentlemen whose companies are 
working on. They are doing a terrific job. We thank them. It 
needs to be dealt with. Again, I just cannot put words to it.
    What I can try to touch on, though, is from an 
environmental and public health perspective, the biggest threat 
facing people is from the toxics and pollutants that they will 
be dealing with as they move back into the area, both the first 
move back, then cleanup, and then get on with their lives. 
Those pollutants will be in the air, the soil, the water, and 
the fact is we simply do not know where they are yet. So I 
think the appropriate governmental response in such a situation 
is to go overboard in terms of providing testing and 
information to people about what you know and about what you do 
not know is in the air.
    Fortunately, the Government has a lot of experience in this 
area from Superfund, from Brown Fields, from some of the DOE 
cleanup efforts that this committee has overseen over the 
years, and I think those lessons should be learned from and 
applied to government efforts to fund the cleanup and convince 
people that it's safe to live there--not convince them, but be 
assured that it is safe.
    The second point I would like to make related to the 
cleanup effort is there is an opportunity here. There is an 
opportunity to rebuild using the best lessons learned for 
energy efficiency, building smarter, and many of the other 
topics that fall under the heading of sustainable development. 
NET and the rest of the environmental community would strongly 
encourage Congress to direct and mandate that the rebuilding 
efforts incorporate these lessons so that the rebuilt gulf 
region can become a model for the future rather than an example 
of the many problems associated with industrial and energy 
development from the past.
    Now my policy recommendations.
    Energy policy. This is the golden moment, if you will, for 
energy efficiency and conservation. I have watched the debates 
for 25-plus years, and I cannot remember an occasion when 
industry, government, both Congress and the administration, and 
the environmental groups are all in massive agreement about the 
role of energy efficiency and conservation. It is the only 
short-term tool we have available to us to help this Nation get 
through this crisis.
    So I think the challenge to this committee and to others, 
including the environmental community, is to seize this moment 
and not let it pass by, not let it simply be a 2-week PR effort 
by the administration or others. The ads are great, but the ads 
have to be followed up by action. They have to be followed up 
by full funding of the energy conservation and renewables 
efforts laid out in the act you passed a couple months ago. We 
need to monitor it and this committee needs to hold the 
Department of Energy accountable. Again, it is more than just 
PR. It is a good start, but there are appliance efficiency 
standards that need to be met. There are people that need to be 
hired. That needs to happen.
    For the long term, I would not be doing my job as an 
environmentalist if I did not say this committee, which does 
not have the jurisdiction, can lead the way in Congress to deal 
with the issue of automobile fuel efficiency. 70 percent of our 
Nation's oil goes to the transportation sector. It is just an 
embarrassment to this country that we do not have a policy in 
place that will mandate significantly higher levels of fuel 
efficiency for our Nation's consumers and businesses. They will 
help the farmers in Montana. They will help everybody.
    The second policy point is over in the House of 
Representatives, there is currently an effort to address the 
refinery issue by rolling back many of the clean air laws. We 
simply do not believe that is the appropriate response. This 
Nation clearly does need more refinery capacity, but I think by 
no means are environmental laws the reason we have not had an 
increase in refinery capacity. In fact, I think business and 
industry should be commended for having taken the rational 
economic steps in the last 10-15 years by consolidating 
operations, by becoming more efficient, by getting more 
production out of a fewer number of refineries. That is 
terrific. That was the right thing to do.
    It is now time to build more refineries. A silver lining 
for industry, if you will, out of the last 2 years is profits 
are high. There is lots of money in the system. There is no 
reason, I believe from an environmental group perspective, that 
refineries cannot be built and should not be built, but they 
should meet all existing laws and they should actually stand 
out as a model for the future, involving the best technologies 
and really be built with the state-of-the-art technology mind 
set.
    Finally, let me just conclude by asking this committee to 
be thoughtful and careful, as you always are, in your 
deliberations. There is an old maxim that to go fast, you must 
go slow. This is that time. Just 2 months ago, this committee 
and its members participated in the signing ceremony for an 
energy bill that took 5 years to pass. Two months later, many 
people are talking about energy bill two. Now is not the time 
to do that. Now is the time to implement that energy bill and 
find some short-term efforts to work on, the one place being 
energy efficiency and conservation.
    Let me stop with that. Thank you.
    [The prepared statement of Mr. Curtis follows:]

   Prepared Statement of Kevin S. Curtis, Senior Vice President for 
                 Programs, National Environmental Trust

    Thank you very much for the opportunity to testify in front of this 
committee. I first worked with this committee in the mid-1970's when I 
was a very young political appointee at the newly created Department of 
Energy representing the Carter administration to Congress during the 
debate over the Synfuels Corporation, Windfall Profits Tax Act, Energy 
Mobilization Board and the various other titles of that decade's 
comprehensive energy package. Every decade since then, I have observed 
and/or participated in the renewed efforts at setting national energy 
policy by the administration and Congress. I have drawn as much from 
that experience as from my current position with the National 
Environmental Trust for this testimony.
    The National Environmental Trust is a non-profit, non-partisan 
organization established in 1994 to inform citizens about environmental 
problems and how they affect our health and quality of life. NET's 
public education campaigns use modern communication techniques and the 
latest scientific studies to translate complex environmental issues for 
citizens. Furthermore, NET works in states across the country to 
localize the impacts of national problems, as well as to highlight 
opportunities for Americans to engage in the policymaking process. 
Energy policy has been an important area of focus for NET since its 
inception because of its far reaching implications for the environment.
    Katrina is certainly among the worst environmental catastrophes to 
befall our country and its citizens. The human toll is tremendous and 
the physical damage is only now starting to be truly catalogued and 
understood. In other words, it is much too early to make definitive 
statements about the ultimate scope of this disaster. That said, part 
of my charge for this testimony was to address the environmental 
impacts of the storm, which I have tried to do below with an eye 
towards our nation's energy infrastructure and policies.
    I would also like to make three energy policy points in my 
testimony today. First, a focused commitment to energy efficiency and 
conservation is the most effective and least utilized option available 
to this country to deal with the short and long term energy issues 
facing us. Second, waivers of existing law, including environmental 
statutes, are not a trivial exercise. The cacophony of waivers being 
proposed for post-Katrina energy infrastructure building and rebuilding 
efforts are neither necessary nor justified. Third, don't jump on the 
``Energy Bill II'' mentality that seems to be driving much of the 
current debate in the House of Representatives.
      brief summary of the environmental impact of the hurricanes
    As noted above, Katrina ranks as one of the nation's largest 
environmental catastrophes due to natural disasters. I have listed 
below a few statistics and anecdotes designed to help convey the scale 
of its impact:

   At least seven million gallons of oil were spilled from 
        known, identifiable sources. Estimates add another one to three 
        million gallons from disparate sources. By way of comparison, 
        the Exxon Valdez spill released 11 million gallons.
   Early estimates of the amount of debris to be disposed of 
        range up to 100 million cubic yards. Such an amount would be 
        enough to cover 1,000 football fields 50-feet deep in waste.
   Up to 350,000 automobiles are estimated to have been ruined 
        due to the flooding.

    In the flood's aftermath, the primary threats to public health are 
posed by exposure to pollutants and toxic materials in the air, soil, 
water as well as the general muck being cleaned up. These pollutants 
come from a wide variety of sources, including energy production, 
refining and infrastructure facilities.
    Another potentially major source of pollution seems to be the 
sediments from the bottom of various lakes, canals, and other waterways 
that were stirred up and distributed by the flood waters. A 
considerable amount of pollutants appears to have been stored in these 
sediments.
    A future potential source of pollutants and toxics is likely to 
arise from the ultimate disposal of the debris from the storm. Early 
estimates of this waste are simply mind-boggling. Whether it is burned 
or buried, there are major environmental and public health implications 
and concerns that must be factored into the upcoming disposal 
decisions.
    Given this tremendous amount of uncertainty, it strikes me that the 
most prudent course of action by the government is to spend a 
considerable amount of time and resources sampling and monitoring the 
environment in New Orleans and the rest of the impacted Gulf region. 
Furthermore, there is clearly a need for this monitoring to be done in 
as transparent and inclusive a manner as possible, so that all the 
citizens of the region can feel comfortable with the conclusions. The 
EPA and CDC have considerable experience through the Superfund and 
other programs in involving impacted citizens and communities in the 
monitoring of their immediate environment for toxic and chemical 
pollutants. Such a monitoring effort must also take into account the 
environmental justice concerns due to the demographics of those left 
most vulnerable by the region's prior chemical and petroleum industry 
development.

                   ENVIRONMENTAL OR ECOLOGICAL ISSUES

    In addition to the storm's well publicized impact on wetlands and 
the general consensus that rebuilding and restoring the wetlands is an 
important part of preparing for the future, the impact on the region's 
fisheries is also starting to emerge. Just this week, NOAA's Fisheries 
Service declared a fishery failure for Texas and Louisiana following 
Hurricane Rita, with a similar declaration made in the wake of 
Hurricane Katrina extending from Pensacola, Florida to the Texas/
Louisiana border. This disaster declaration authorizes assistance to 
assess the impacts and assist fishermen, but we have yet to determine 
the extent of the storms' impacts on the marine ecology of the Gulf.
    There are high levels of bacteria present in the water, and testing 
continues to determine the extent to which oil and other toxics may be 
impacting Gulf fisheries. Because some pollutants accumulate in 
sediments or are persistent and tend to build up over time, it may be 
months before we are aware of the full impact on the marine species in 
the region.
    Only extensive long-term monitoring will ensure that we have the 
most accurate assessments, and it is critical that Congress considers 
the cost of monitoring and assessment programs on NOAA's budget, 
particularly in light of the budget cuts proposed for NOAA in the House 
version of the fiscal 2006 appropriations bill.

    THE PROMISE AND POTENTIAL OF ENERGY EFFICIENCY AND CONSERVATION

    I will not attempt to recreate in my testimony all the information, 
arguments and policy proposals in support of energy efficiency and 
conservation that have been provided to this committee during the past 
five years of congressional debate on energy. (Instead, please find 
attached a reasonably thorough review of recent recommendations by a 
variety of groups focused on energy efficiency and the environment.) 
Rather, I would like to underscore the rather remarkable political 
situation we find ourselves in today, where the entire range of 
stakeholders in energy policy seems to be in agreement about the need 
for conservation and an increased focus on energy efficiency. Just this 
week, the nation's leading newspapers printed full page advertisements 
from the American Petroleum Institute, Chevron Oil Company and other 
major players in the oil and gas industry extolling the virtues of 
conservation. On Tuesday, a headline in the Washington Post business 
section announced, ``White House Renews Call for Conservation.'' 
Senators Domenici, Bingaman and others on this committee have all 
issued public statements over the past month noting the importance of 
energy efficiency and conservation. This is the moment in time to 
actually turn the promise of energy efficiency and conservation into 
reality.
    Beginning today, you can accomplish this by using the authority of 
this committee to educate the rest of Congress, the press and the 
public about the immediate gains available from increased efficiency 
and conservation. For the longer term, you can pursue and build the 
legislative record and political support necessary to establish 
additional incentives for the adoption of energy efficiency and 
conservation policies. As you well know, the most fundamental challenge 
facing efficiency and conservation is that the powerful array of energy 
suppliers tend to view energy efficiency as a revenue loser even though 
our nation's consumers and businesses would benefit from it. And while 
I certainly appreciate and applaud the fact that oil companies and 
their trade association are preaching conservation, I would not expect 
their shareholders to encourage them to stay with that position for an 
extended period of time. After all, they are in the business of 
producing and selling oil and natural gas.
    A very concrete way in which this committee can help promote energy 
efficiency is to hold the US Department of Energy accountable for it's 
track record on energy efficiency. Recent PR efforts notwithstanding, 
the department's track record is rather poor in this area. Examples 
include: 1) the department has so lagged in implementing the appliance 
efficiency standards that it's being sued, 2) just last week, the DOE 
supported rolling back energy efficiency standards for new building 
construction and 3) the department was stopped from rolling back 
efficiency standards for air conditioners only by court order. I would 
be much more optimistic about its recent commitment to energy 
efficiency if its leadership were to announce a large scale public 
education campaign at the funding levels authorized by the energy bill 
and it planned to hire the additional staff necessary to finalize the 
pending appliance efficiency rules.
    It is one thing for the administration to opposed regulations for 
energy efficiency on philosophical grounds. Yet its record on energy 
efficiency technology R&D is also disappointing. EOS's FY 2006 budget 
request for spending is significantly lower than the amount authorized 
by the new energy bill. In order to take advantage of the unique 
political opportunity facing them, congress and the administration must 
pursue an aggressive agenda to expand the pipeline for new energy 
technologies that represent the real and long-term solutions to our 
energy problems.
    Finally, I would be remiss if I did not mention the need for 
increased efficiency from our automobile and truck fleets. 
Transportation accounts for approximately 70% of our nation's oil use, 
and it is a national embarrassment that we have not significantly 
adjusted CAFE standards for close to 20 years. Not only will adopting 
significantly higher fuel efficiency standards help consumers at the 
gasoline pump, but it will contribute to our national security by 
reducing our reliance on imported oil. Moreover, there is ample 
evidence to suggest that adopting these technologies is also key to the 
survival of the U.S. auto industry. I have attached a recent NET-
sponsored study documenting the potential employment gains available to 
the domestic industry by producing more fuel efficient vehicles. Now is 
the time for Congress to exert leadership on this issue.

 CONCERNS ABOUT H.R. 3893 AND THE LARGER ISSUE OF ENVIRONMENTAL WAIVERS

    The House of Representatives is scheduled to consider this coming 
Friday, a bill, H.R. 3983, that passed out of the Energy and Commerce 
Committee last week. This bill, and its companion from the House 
Resources Committee, represent a blatant attempt by the chairmen of 
those committees to exploit the genuine public concerns about high 
gasoline prices following Hurricanes Katrina and Rita to pursue 
legislative goals that were rejected just months ago in the House-
Senate energy conference committee process.
    Fortunately, the Resources Committee bill has already run into 
political difficulties in the House, as 25 of the 27 members of the 
Florida delegation objected to the offshore drilling provisions 
contained in the legislation. Unfortunately, H.R. 3893 appears to be 
moving ahead. While I have attached a detailed critique of the 
legislation by the environmental community for your review, I would 
like to touch upon a few of the more objectionable aspects of this 
legislation in hopes of convincing the Senate to avoid its pitfalls.

                      KEY CRITICISMS OF H.R. 3983

    1. Backers of the bill often suggest that environmental regulations 
are to blame for our current shortfall in refining capacity. This 
premise is flawed. The U.S. is facing limits on its refining capacity 
largely because over the past few decades the refining industry has 
been a mature, low profit-margin business. Consequently, it was 
significantly more profitable to consolidate operations and increase 
the output at existing refineries than to build new refineries. The 
attached fact sheet documents the industry's success at increasing 
production while at the same time reducing the number of refineries. It 
is clearly time for industry to build new refineries, and there is no 
doubt that oil companies have the financial resources to build new, 
state-of-the art facilities while complying with all applicable laws.
    2. The environmental waivers contained in the bill are too broad 
and pose a significant public health risk. For example, the delays 
contained in Section 109 (Attainment Dates for Downwind Ozone Non-
attainment Areas) will result in the following additional public health 
problems, according to Abt Associates, EPA's leading air pollution 
consulting firm. For each year of delay, the nation will experience an 
additional:

   387,000 or more asthma attacks
   Almost 4,900 hospitalizations due to respiratory distress
   573,000 missed school days

    3. The legislation would also essentially eliminate the New Source 
Review program for up to 20,000 facilities (Sec. 106); undermine the 
diesel rule that was successfully negotiated between the Bush 
administration, diesel engine manufacturers and the environmental 
community several years ago (Sec. 108); and arbitrarily limit the 
number of cleaner burning, boutique fuels to six (Sec. 108).

     CONGRESS SHOULD NOT RUSH INTO A ``NATIONAL ENERGY POLICY II''

    Less than three months ago the President signed the National Energy 
Policy Act of 2005 into law. This legislation took over five years to 
pass and contains a wide range of provisions designed to promote the 
oil, gas, coal and nuclear power industries. It also contains a major 
new initiative for biofuels, but provides far less support for 
renewables and energy conservation. According to a recent report I 
read, the legislation contains over 500 congressionally mandated 
deadlines for everything ranging from studies to regulations. Nothing 
in these 500 directives or the legislation as a whole, however, would 
meaningfully increase in fuel efficiency standards for cars and trucks, 
establish a renewable portfolio standard or address global warming. I 
raise this not to cover old ground but rather to point out a new 
opportunity. The ink is not even dry on the latest national energy plan 
and nothing I have seen indicates that the political dynamic has 
changed for the very important but politically difficult issues that 
did not make it into the national energy plan, with one key exception--
energy efficiency and conservation.

                               CONCLUSION

    Energy efficiency and conservation are now ``in.'' It would be a 
major contribution by this committee to our nation's future if you were 
to focus your prestige and political strength on ensuring that this 
attention is not fleeting and that meaningful commitments to energy 
efficiency are actually adopted.
    Thank you.
                                 ______
                                 
                              ATTACHMENTS*
---------------------------------------------------------------------------
    * All attachments have been retained in committee files.

    The Chairman. Thank you very much.
    The president and CEO of Dow Chemical. Let me repeat we had 
a very good visit. We were sorry we could not spend more time. 
We want to publicly commend your company for all the work that 
was done to preserve life, to take care of your workers, and to 
do everything possible to maintain the facility in a method and 
manner that it could be opened as soon as possible. It was also 
a pleasure to see the modern facilities. Many think that the 
kinds of things you do are very risky and dangerous and have 
heavy pollutants. What we saw were very, very modern facilities 
with all the pollution controls you could imagine. We are very 
worried that with all that, you are now as good as there is in 
the world, but the price of natural gas may be the negative 
trump card over all those good things. We welcome your 
testimony here today.

        STATEMENT OF ANDREW LIVERIS, PRESIDENT AND CEO, 
               DOW CHEMICAL COMPANY, MIDLAND, MI

    Mr. Liveris. Thank you, Chairman Domenici. I burst with 
pride at your words and I will transmit them to our people. 
Thank you for your visit with Senator Bingaman and Senator 
Akaka yesterday.
    As you say, I am Andrew Liveris, CEO of the Dow Chemical 
Company. Dow has been in business since 1897 and is the world's 
leading manufacturer of chemicals and plastics around the 
world. I thank you for the opportunity to testify here on 
behalf of our company, but also the American Chemistry Council 
which employs 900,000 people and is responsible for $500 
billion of value-add in our economy here in the United States. 
We are also here testifying on behalf of the Consumers Alliance 
for Affordable Energy and Natural Gas.
    Let me start by saying, where the chairman left off, that 
my heart and the hearts of all our people in our industry go to 
the victims of Katrina and Rita. The devastation was first a 
human tragedy and, second, an economic challenge for this great 
Nation.
    Our priorities have been to help our employees and our 
communities recover and to ensure that our facilities return to 
safe and normal operations. Texas and Louisiana are home to 81 
percent of Dow Chemical's production in the United States, and 
11,500 of our people reside there, over half of our employee 
base in the country.
    The hurricanes' disruptions will be, indeed, short-term. 
Our company will recover. Our communities will rebuild. The 
American spirit is alive and well. Our industry will continue 
to produce the products that are essential to the quality of 
our lives. And a far greater threat, as the chairman has noted, 
to the U.S. chemical industry and to the entire U.S. 
manufacturing sector is the serious vulnerability that this has 
posed to the Nation's energy supply.
    We say it unequivocally, the United States is in a natural 
gas crisis. The hurricanes have dramatically underscored the 
problem, but they did not cause it. Dow, the ACC, and others 
have spoken repeatedly of the supply/demand imbalance that is 
at the root of this crisis, actually since the year 2000. The 
price of natural gas, once $2 per million Btu, as noted, closed 
yesterday at $14. If that was put in gasoline terms, the 
gasoline price at the pump would be $7 a gallon right this 
minute, and we are all alarmed at $3, as you well know. This 
price of $14, simply put, renders the entire U.S. chemical 
industry uncompetitive. And why? Because we not only use it as 
a fuel, we use it as a raw material. We simply cannot compete 
with the rest of the world at these prices. It undermines all 
U.S. manufacturing because we supply all of U.S. manufacturing.
    Today energy and raw materials in my company constitute 50 
percent of my costs, the highest in our history. Even though we 
have improved our energy efficiency by 42 percent since 1990, 
we have raised our prices. We have shut down 23 inefficient 
plants in North America since 2002. We and others are now 
investing in China and the Middle East where energy is much 
cheaper to our incredulity. In short, in a very short time, we 
know we will rehabilitate. Our company, our industry will 
continue to grow. It is simply a question of where we will 
grow.
    Two weeks ago, I went to Louisiana to survey our sites. I 
met with our people there. Many of them lost their homes and 
more to Katrina. They came back to work. They kept our plants 
safe. They worked around the clock to bring them back on line. 
They did the heroics. They made the products that are essential 
to restore the communities and to the rebuilding of the area. 
These are hardworking people. They earn wages and salaries far 
higher than in any other industry, $70,000 a year on average 
for every worker.
    They are counting on me to secure their jobs and to retain 
our strong presence in this country. As their leader, I am 
going to do everything in my power to make that happen. Yet, 
when faced with a choice of investing in the United States at 
$14 gas versus $2 to $3 elsewhere, how can I recommend 
investing here?
    Dow does not face this decision alone. There are 120 world-
scale chemical plants being built around the world with price 
tags of $1 billion or more, only one in this country. China 
alone has 50.
    Congress can make America competitive again. The Energy 
Policy Act of 2005 was a great start. I commend you all for it, 
but more can be done.
    And our policy recommendations. Four of them.
    Promote environmentally responsible production in the Outer 
Continental Shelf, giving coastal States a greater role, and 
sharing new production revenues with them.
    Two, expedite development in Sale Lease 181, at least for 
areas greater than 100 miles off the Florida coast.
    Three, declare a national emergency, as the Energy 
Secretary did and the President did this week, that mobilizes 
every American to save energy.
    And four, assure that the most efficiently generated energy 
is dispatched to the power grid first.
    Our written testimony has many more things.
    Let me say in closing that everywhere I go, the Middle 
East, Asia, the government wants our industry. They want the 
investments. They want the high-paying jobs that go with it. 
They want the science graduates. They want the living 
standards. Everywhere I go except here. This cannot be the 
case.
    Tomorrow I am leaving for China where they have put in 
place a sound energy policy. I urge us all to take the next 
step and build on the great Energy Act of 2005 so we can keep 
investing in this great Nation. Thank you, sir.
    [The prepared statement of Mr. Liveris follows:]

               Prepared Statement of Dow Chemical Company

             SECTION I--INTRODUCTION AND EXECUTIVE SUMMARY

          ``After Katrina we got a call from a bottled water company in 
        the South scrambling to get some HDPE (high density 
        polyethylene plastic). His regular supplier curtailed him. He 
        needed the plastic to make bottles so he could supply bottled 
        water to FEMA. Our Louisiana plants were still restarting, gas 
        supply was curtailed and we were closing our TX plants in 
        anticipation of Rita. We couldn't help him.''

                        --Chemical Company Executive Located in 
                        Hurricane Zone

    The Dow Chemical Company and the American Chemistry Council welcome 
the opportunity to provide the Committee with an update on Hurricanes 
Katrina and Rita's effects on energy infrastructure and the status of 
recovery efforts in the Gulf Coast region.
    This topic is of acute interest to the US chemical industry because 
the Gulf Coast is home to the world's largest concentration of chemical 
manufacturing capacity. The Gulf is to chemical manufacturing as Wall 
Street is to finance.
    The chemical industry has been operating in the Gulf for more than 
seven decades. Our engineers and operators are experts in hurricane 
preparedness. Plants are designed and built to withstand Category Five 
storms. All members of the American Chemistry Council (ACC), under our 
trademark health, safety, environment and security program, Responsible 
Care', have long-established hurricane plans that operate 
before, during and after storms. Facilities cooperate with local, state 
and national authorities, other businesses and transportation systems, 
along the path of the storms and through recovery. Companies will 
evaluate and enhance those plans to incorporate learnings from Katrina 
and Rita as part of their ongoing performance improvement process.
    Typically, these emergency plans include the safe shutdown and 
lockdown of facilities, removal of vehicles and other equipment, 
evacuation and accounting of employees, and placement of emergency 
``ride-out'' crews on-site, when feasible. We then carefully assess 
post-storm conditions to allow facilities to resume operations safely.
    Having said that, our industry has also been severely damaged by 
the hurricanes. Not by the high winds and not by the storm surges and 
floodwaters, but by the high cost and limited availability of natural 
gas.
    Natural gas is of vital importance to our industry. It heats and 
powers our facilities, but it is also our most important raw material. 
We process natural gas molecules into thousands of products that can be 
found everywhere in the economy.
    Today, most chemical plants in the Gulf Coast are closed or are 
operating at reduced rates. For some, it is because they are without 
power. For others, they have been cut off from their gas supply or they 
are choosing not to pay today's prices. Soon the loss of chemical 
manufacturing in the Gulf will ripple through the economy in the form 
of shortages and higher prices.
    The industry faces hard choices on how and where it will base its 
operations in the future. On September 30, 2005 the wholesale spot 
price of natural gas was $14.50 per MMBtu. In Europe natural gas costs 
about $7.00. In China, it's less than $5.00. In Saudi Arabia, it's less 
than $1.00. US manufacturers must compete in global markets. Companies 
must decide where to locate production, where to locate jobs, where to 
pay taxes and support communities. When US production costs two to 
twenty times more than it does in the rest of the world, it is hard to 
justify investing in America.
    Public policy makers will exert enormous influence on how those 
decisions are made. It is well documented how certain policies bid up 
demand for natural gas to make electricity in the US and other policies 
restrict access to supply. What is not as well known is that the 
manufacturing sector pays the price for those policy decisions. In the 
recent past, policy decisions costs the US chemical industry dearly. 
Policy induced price gyrations between 2000 and 2005 handed overseas 
chemical operations a huge competitive advantage: The US chemical 
industry went from posting the largest trade surpluses in the nation's 
history in the late 1990's to becoming a net importer. In that time, 
the industry lost more than $50 billion in business to overseas 
operations and more than 100,000 good-paying jobs in our industry have 
disappeared. The National Association of Manufacturers reports that 2.9 
million American manufacturing jobs disappeared in that time.
    Policy makers are again in a position to influence the US 
manufacturing environment. The short-term outlook for natural gas 
consumers is grim. Until very recently, government officials had 
severely underestimated the combined impact of the two hurricanes 
(especially Rita) on the nation's energy infrastructure. As of this 
writing, nearly 100 percent of the Gulf of Mexico oil production and 80 
percent of natural gas output remain shut in. More than 20 natural gas 
processing plants on shore are closed, some are damaged, some have no 
power. Pipelines are not fully operational. Eight refineries remained 
closed and eight are restarting. Power remains out in the Beaumont-Port 
Arthur-Lake Charles area.
    ACC is doubtful that the Gulf's energy infrastructure will be fully 
restored before the winter heating season starts. There is no surplus 
natural gas production capacity available to fill the void. There is 
not a ``Strategic Natural Gas Reserve'' available to make up for supply 
disruptions. Natural Gas will be in short supply this winter.
    Natural Gas consumers will be competing for a scarce commodity. 
Policy makers can cushion the blow, if swift action is taken to stretch 
the supply and curb consumption. We recommend the following:

          1. Send a powerful message to the markets by eliminating 
        barriers to energy production in the Outer Continental Shelf 
        (OCS) and share revenues on new production with states.
          2. Expedite leasing in the area of the eastern Gulf of Mexico 
        known as Lease Sale 181, at least for areas greater than 100 
        miles from the coast of Florida.
          3. Declare a national emergency before winter, shock national 
        awareness of supply problem and mobilize federal resources
          4. Give priority to dispatching highly efficient CHP and 
        Natural Gas Combined Cycle generating capacity to the grid.
          5. Restore service to damaged natural gas processing plants 
        on the Louisiana coast.

    More detailed policy recommendations are contained in Section V.
    If the right responses are put in place right away, tensions in the 
market can be eased and gas consumers can weather the current crisis. 
If prices remain at or near current levels, manufacturers will be 
driven out of the market and many may not return.

            SECTION II--THE US CHEMICAL INDUSTRY AT A GLANCE

    The chemical industry fuels the American economy.

   The chemical industry is the leading American export 
        industry accounting for 10% of all U.S. exports.
   We generate more than half a trillion dollars to the U.S. 
        economy each year.
   The chemical industry has created a $154 billion trade 
        surplus over the past ten years.
   The industry directly employs more than 885,000 people, a 
        figure larger than the combined populations of Boston and 
        Buffalo.
   Chemistry dependent industries account for nearly 37 million 
        jobs or 26.6% of the entire workforce.

    The chemical industry improves our health and keeps our families 
safe.

   New drugs and medicines made possible by chemistry have 
        increased life expectancy in the US by more than 30-years over 
        the past century.
   A plastic bicycle helmet, one of the chemistry industry's 
        most popular innovations, can reduce a child's risk of head 
        injury by 85% according to Safe Kids USA.
   98% of all U.S. public drinking water is safe to use because 
        of chemistry.
   According to the National Highway Traffic Safety 
        Administration, more than 14,000 lives have been saved thanks 
        to airbags, a product of chemistry.

    Chemistry is essential to U.S. business and industry.

   The chemical industry supplies the raw materials used by 
        virtually every industry from aircraft construction to zoo 
        management.
   More than 80% of the materials used to formulate all 
        medicine come from the chemistry industry.
   The chemical industry is America's second largest rail 
        shipper.
   The major innovations over the past century that have 
        increased productivity from the phone, computer and Blackberry 
        exist because of chemistry.

    Chemistry is at the heart of innovation, helping to make our lives 
better, healthier and safer.

   The chemical industry invests more than $22 billion a year 
        in research and development--the most of any single industry 
        outside of national defense.
   One out of every eight new patents is awarded to the 
        chemistry industry.
   The American chemical industry employs the highest 
        percentage of knowledge workers of any industry and employs 
        more than 80,000 chemists, scientists and engineers.

  SECTION III--HURRICANE KATRINA & RITA: RIPPLE EFFECTS FROM SHORTAGES

Potential Product Shortages Following Hurricanes Katrina and Rita
    Some of the most commonly used consumer and industrial products may 
be in short supply in coming months due to North American chemical 
capacity shut-ins following the hurricanes in the Gulf of Mexico. 
Following are some examples of products for which there may be 
shortages.

   Tires, radiator and other hoses, fan belts, and bumpers; 
        seals and gaskets; automotive belts and hoses, asphalt binder 
        and roofing. (62 percent of North American butadiene capacity, 
        used to make these products, is down)
   Oil, milk, detergent bottles; gasoline tanks; corrugated and 
        drainage pipe. (55 percent of North American high density 
        polyethylene capacity, used to make these products, is down.)
   Syringes, medical fabrics, automotive battery cases, dairy 
        containers, diaper coverstock, and food packaging. (55 percent 
        of North American polypropylene capacity used to make these 
        products, is down).
   Diaper liners, shrink film and bread bags. (46 percent of 
        North American low density polyethylene capacity, used to make 
        these products, is down).
   Plastic resins, films and bottles; automobile antifreeze 
        blends, including those for military vehicles, and for de-icing 
        runways and aircraft; fire extinguishers and sprinkler systems. 
        (39 percent of North American ethylene glycol capacity, used to 
        make these products, is down)

    Source: CMAI, petrochemicals consultant (www.cmaiglobal.com)

SECTION IV--BACKGROUND: THE IMPORTANCE OF AFFORDABLE ENERGY TO THE U.S. 
 CHEMICAL INDUSTRY, HOW THE NATURAL GAS CRISIS DEVELOPED, AND WHAT THE 
                 ENERGY POLICY ACT OF 2005 ACCOMPLISHES

    America's chemical industry is the nation's largest energy 
consumer. We use energy--especially natural gas--to heat and power our 
facilities, and as a raw material to make thousands of products 
consumers use every day. Chemical companies use more natural gas than 
California and more electricity than the state of New York. The 
chemical industry consumes enough natural gas to heat 30 million homes 
a year--almost half of the nation's home heating needs
    Natural gas can do amazing things. It can be used to heat and cool 
a home, to make electricity and as a key ingredient in products--lots 
and lots of products. These include medicines, medical equipment, 
packaged goods, military applications and others. Numerous 
``downstream'' industries rely on natural gas-produced chemistry 
products, including agriculture, steel, aluminum, and cement.
Advances in Energy Efficiency
    Fortunately, the chemical industry has made great strides in energy 
efficiency. For example, we can make a pound of product with half as 
much energy as it took a generation ago. But even with these efficiency 
improvements, an immense amount of energy is still required for 
chemical manufacturing. Chemical makers need more energy than the 
entire country of Mexico, and roughly the same amount as Brazil.
    Many chemistry products that are made with natural gas help make 
other parts of the economy more energy efficient. Energy-saving 
products such as insulation, lightweight vehicle parts, advanced window 
systems and reflective coatings are all made from chemicals made from 
natural gas.
Supply/Demand Imbalance Leads to Skyrocketing Natural Gas Costs
    The problem is, America is using more and more natural gas and 
producing less and less. As a result, the price of natural gas has 
increased by 700 percent since the late 1990's. If the same thing 
happened to gasoline, prices at the pump would be more than $7.00 a 
gallon.
    For industries like ours, those high prices hurt. In 1999, the 
chemical industry paid about $25 billion for all of its energy inputs--
fuel, power and feedstocks such as natural gas. Last year, the tab 
topped $52 billion. Beginning in 2000, the industry has shelled out $80 
billion more for energy than it was paying in the 1990's.
    The effect of those additional costs--think of it as a huge energy 
tax--has been severe. We've seen a 20 percent decline in natural gas 
consumption in the chemical industry. Call it demand destruction. 
Dozens of plants around the country have closed their doors and gone 
away--and are never coming back.
    U.S. chemical industry domestic operations lost $50 billion in 
business to overseas operations since 2000. We went from posting trade 
surpluses in excess of $20 billion--the most successful export industry 
in the history of this nation--to becoming a net importer of chemicals. 
More than 100,000 American jobs have been displaced, in large part due 
to the hidden ``energy tax.''
    Not long ago, Business Week noted that of the 120 large-scale 
chemical plants under construction around the globe, only one is being 
built in the United States. The plants under construction are located 
in places where natural gas supply is abundant, reliable and 
affordable.
    Unlike oil, natural gas is a regional commodity, not a global one. 
And US natural gas prices are the highest in the world--at the moment, 
US gas prices are 20 times higher than in Saudi Arabia.
Impact of Government Policies on Natural Gas Supply, Price
    In the 1990's, new government regulations began driving electric 
utilities to reduce air emissions by burning natural gas to make power. 
An enormous amount of gas-fired power generation capacity came on line 
in the past decade. Utility consumption of natural gas grew by 31 
percent in a few short years.
    The nation's appetite for electricity is rapidly growing and is 
expected to increase by as much as 50 percent in the next 20 years. 
Natural gas supply cannot meet incremental demand. The government says 
that new supplies of domestically produced natural gas will only meet 
30 percent of future demand growth. Quite simply, there's not enough 
gas to go around. To meet this challenge, the U.S. must meet its 
growing energy needs by investing in new technologies that produce 
power from renewables (for example wind and solar), non-polluting 
nuclear, agricultural sources of energy (sometimes called biomass) and 
low-polluting coal power.

Energy Policy Act of 2005
    In August of 2005, the president signed into law a sweeping new 
energy bill called the Energy Policy Act of 2005. On balance, it is a 
very good policy and, over the long haul, it can change the way the 
nation makes and uses power. The legislation breaks new ground in the 
area of energy efficiency: We will see new standards of performance for 
appliances, homes and buildings as a result of the legislation's 
efficiency measures.
    It also makes a serious effort to diversify the energy supply--to 
move away from the natural gas-is-the-answer-to-everything mentality 
that dominates current policy. The legislation will launch a new 
generation of technologies used to make power, including coal 
gasification, renewable energy and nuclear power.
    The nation's energy infrastructure will get a much-needed facelift. 
The legislation will lead to new investment in gas pipelines and 
storage facilities and will result in new LNG terminals.

      SECTION V--UNFINISHED BUSINESS. NEW POLICIES NEEDED IN THE 
                         POST-HURRICANE PERIOD

    Expand natural gas supplies and reduce concentration of nation's 
energy infrastructure in three ways:

   eliminate barriers to energy production in OCS and share 
        revenues on new production with states. MMS estimates that OCS 
        contains 406 TCF of recoverable natural gas. More than 85 
        percent of OCS is off-limits to use as a result of federal 
        policies set in place 25 years ago when NG was cheap and 
        plentiful;
   increase gas production on shore by removing red tape and 
        seasonal restrictions;
   accelerate and increase tax credits and guarantees for 
        investing in gasification technologies for the production of 
        fuels and feedstocks;
   expedite leasing in the area of the eastern Gulf of Mexico 
        known as Lease Sale 181, at least for areas greater than 100 
        miles from the coast of Florida.
   Site new LNG terminals, especially on Atlantic and Pacific 
        coasts. Set a goal of four new terminals (not all on Gulf 
        Coast) by 2010.

    Restore lost gas and oil production. The government should use its 
authority to speed emergency reconstruction of damaged pipelines 
(Emergency Reconstruction of Interstate Pipeline ruling of 2003) and 
implement other red-tape cutting measures to restore damaged drilling 
rigs and production platforms. The government should also employ the 
Coast Guard, Army Corps of Engineer and other federal assets as needed 
to speed repairs of damaged production sites and infrastructure. 
Priority should be given to restoring service to damaged natural gas 
processing plants on the Louisiana coast. In addition to removing 
sulfur and other impurities, these plants also remove natural gas 
liquids, such as ethane and propane, primary chemical feedstocks. Three 
of those damaged plants process the equivalent of three LNG terminals. 
Help is needed to transport and house repair crews, pump out the 
plants, restore power, repair damages and resume operations.
    Encourage Efficient Consumption. To avert shortages this winter and 
in future years, actions are needed now to ease the strain on natural 
gas markets. In the short term emphasis should be placed on reducing 
gas demand through conservation and efficiency measures. These 
immediate actions are needed:

   Declare a national emergency before winter, shock national 
        awareness of supply problem and mobilize federal resources, 
        including . . .
   Fund in 05 the national public education campaign authorized 
        in Title I of EPACT05. Doing so will harness the American 
        people's strong desire to ``do something'' to help recovery 
        efforts. Little actions can achieve big results. If all 
        Americans turned down their thermostats by 2 degree this 
        winter, it would free up 3 BCF of gas per day.
   Move up to Oct. 1, 2005 effective date for tax credits 
        authorized in EPACT05 for homeowners, builders and commercial 
        building owners for investment in energy efficiency.
   Require up-to-date building codes in states using federal 
        funds to recover from the hurricanes and encourage all states 
        to use most current codes.
   Accelerate completion of tardy appliance codes and 
        development of new codes authorized in the energy bill.
   Expand and spotlight The Partnership for Home Energy 
        Efficiency (DOE, HUD, EPA).
   Expand funding for weatherization programs and dispatch 
        crews to go into homes, audit energy consumption, and install 
        weatherization materials and equipment as needed.

    Encourage Efficient Generation: In many parts of the country 
inefficient natural gas power generators supply baseload power and 
highly efficient generation is reserved for peak demand. To make power 
generation more efficient, the following actions are needed:

   Build new and efficient transmission capacity in order to 
        remove system constraints.
   Retire or put in reserve inefficient single-cycle generation 
        capacity.
   Give priority to dispatching CHP and Natural Gas Combined 
        Cycle capacity . . . restore CHP tax incentives.

    Diversify Fuel Supplies. The large build up of natural gas fired 
power generation in recent years is putting an unsustainable strain on 
natural gas supplies. Gas consumption for power generation increased by 
25 percent this summer, driving prices up from $6.00 to nearly $10.00 
per million BTU. Utilities should be encouraged to make power from 
other fuel sources, by:

   Accelerating coal and biomass gasification. The US has the 
        world's largest reserves of coal and (potentially) biomass. 
        Gasification technology is ready for deployment and the 
        government should help speed up commercial use by utilities.
   Site new nuclear power. Nuclear answers environmental and 
        energy questions. The government should consider building new 
        reactors on federal lands.

    Distribute energy supply and power generation. The Hurricanes 
proved that the entire nation can be affected by regional disruptions 
and the energy infrastructure is highly reliant on the integrity of the 
electrical grid. To reduce economic and national security 
vulnerabilities government should:

   Create incentives for refineries, pipelines and large energy 
        using industrial, institutional and commercial facilities to 
        produce heat and power on site
   Encourage all states to implement ``efficient portfolio 
        standards'' defined to include renewables, CHP, gasification 
        and other low-polluting means.

    Increase Natural Gas storage capacity to make the natural gas 
system more resilient. The Strategic Petroleum Reserve did its job and 
restored calm to jittery oil markets. Natural gas does not have 
adequate reserve capacity and that contributes to price volatility. 
Additional storage capacity would help the market adjust to temporary 
supply shortages.
    [Note: The following attachments have been retained in committee 
files: Hurricane Katrina & Rita: Ripple Effects From Shortages (Source: 
CMAI and ACC); Notable Quotes; and the Dow Chemical Company and the 
U.S. Natural Gas Crisis: Update on Actions Taken to Remain Globally 
Competitive.]

    The Chairman. Christopher Helms, president of the Pipeline 
Group, testifying on behalf of the Interstate Natural Gas 
Association of Merrillville. Where are you from, Merrillville?

 STATEMENT OF CHRISTOPHER A. HELMS, PRESIDENT, PIPELINE GROUP, 
    NiSOURCE INC., ON BEHALF OF THE INTERSTATE NATURAL GAS 
            ASSOCIATION OF AMERICA, MERRILLVILLE, IN

    Mr. Helms. Merrillville, Indiana, Senator, the Heartland of 
the United States.
    I want to thank you, Mr. Chairman and the members of the 
committee, for giving us an opportunity to visit with you this 
morning. The company that I am privileged to be with has 
significant Gulf of Mexico pipelines, but more importantly, we 
transport that gas to middle America, to the Mid-Atlantic 
States, to the Northeast. We are the third largest underground 
storage operator in the United States. We have over 16,000 
miles of pipelines.
    Like my colleagues to the right, I had the opportunity to 
go to Louisiana last Friday and meet with the employees, many 
of whom have lost their homes, whose parents have lost their 
homes, whose brothers and sisters have lost their homes, and 
they showed up to work the next morning. And they are working 
to get this vital energy infrastructure back into place. I 
really want to commend them for doing that. There are a number 
of challenges that we have seen in getting the infrastructure 
back into place.
    We appreciate the opportunity to be here with you this 
morning.
    I am also representing the Interstate Natural Gas 
Association of America, which is the association that 
represents, if you will, the middle link of the energy chain. 
In our association are those pipeline and storage operators 
that are federally regulated. Our opportunity is to move the 
gas from the point where it is produced, through the 
processors, and then downstream ultimately to the consumers.
    We have filed our testimony and rather than go ahead and 
refer to it, I would like to make a couple points, if I can.
    The first point is I believe we are going to face some very 
serious challenges this winter. Now, of course, the thing that 
could cooperate the most for us is that we have a mild winter, 
and a mild winter will really solve some of the near-term 
issues we have. If we have a normal to colder winter, however, 
I think we have to be prepared for a number of significant 
operational challenges, which I am more than happy to discuss 
this morning.
    One of the other things I would like to make in my 
presentation this morning is the point that the natural gas 
industry is not a vertically integrated industry. We provide 
but one link in the energy chain getting to the ultimate 
consumer. Upstream of us are the gas processors and the 
producers, and the reality is all three of us are competing for 
limited resources of crews, supply boats, helicopters, 
generating capability to get our infrastructure on line.
    But the reality is we cannot put all of the focus on fixing 
but one chain of the energy supply. If we do not have producers 
bringing production back on line, if we do not do something to 
process the gas when the gas gets to the beach, if we do not do 
something to put the pipelines back in shape, we are not going 
to be getting molecules to our customers and our consumers. And 
we have got to be working together.
    The issue today is we cannot afford to lose natural gas 
supply, and our industry is doing everything we can to bring it 
back in. We are in recovery mode, and that is really where we 
are focusing right now.
    The supply/demand balance is very tenuous, and we have seen 
that. Today, as Mr. Cavaney pointed out, we are probably about 
7 billion cubic feet short of the supply that we had pre 
Katrina and pre Rita. What does that mean? What that means is 
we are going to lose a certain amount of that production this 
winter when we need it. The way our system works is about 65 
percent of the peak-day demand is met by storage and 35 percent 
is met by flowing pipeline gas. We believe that although 
everybody along the chain is working very diligently to get the 
production back on line, we may be facing this winter with a 
significant amount of supply from the Gulf of Mexico not 
flowing in the pipelines.
    So what does that mean? What it means is we are going to 
have a greater reliance on storage. Storage is going to have to 
meet those daily demands and the real challenge is going to be 
in the late winter when storage deliverability is declining and 
we do not have the same amount of gas flowing.
    One of the things that I think we really have to recognize 
is that natural gas processing is so critical to the chain. The 
natural gas that is produced offshore of Louisiana and Texas 
and Alabama and Mississippi is not of what is called pipeline 
quality. We cannot pipe that gas directly from a well into a 
person's home. It just will not burn. There are heavy liquids 
in the gas. There is CO2. There is sulfur. The gas 
has to be processed.
    And I want to at least alert this committee to the issue of 
this winter, if people start saying, well, those natural gas 
pipelines are not taking gas that is available, we really have 
to point to the fact that we have to get the gas processing 
infrastructure up and running. It is not that we do not want 
production on. We have no interest in keeping production off 
the market. We are federally regulated. Our rates are reviewed 
by the FERC. Our job is to get the gas from those processing 
plants to the ultimate consumer. So those are the things that 
we really have to realize, that there are physical, chemical 
reasons why we cannot take that gas.
    As we bring the pipes back into supply, there are a couple 
of things we need. One, we need some Federal coordination, 
quite frankly, because we are so disaggregated, if you will. We 
need an agency like DOE to be a clearinghouse for us. We really 
need to start talking about where we can prioritize, repair 
equipment, lay barges, those sorts of things to get our 
industry back in shape. We think there are things, obviously, 
you can do.
    Mid-term conservation is very important to us.
    We think funding for LIHEAP is going to be a very 
challenging year for our fellow Americans that have low income 
issues going forward.
    I think as Andrew had mentioned to my right, I think access 
is a real issue. We cannot ignore it. It is the elephant in the 
room. We really do need to have public policies that allow us 
to have access to reserves we have in this country. We are not 
running out of natural gas. We are running out of the 
capability to find and to develop the reserves that are in 
areas that can be environmentally and economically developed.
    Mr. Chairman, thank you, and I look forward to answering 
questions from the committee.
    [The prepared statement of Mr. Helms follows:]

Prepared Statement of Christopher A. Helms, President, Pipeline Group, 
NiSource, Inc., on Behalf of the Interstate Natural Gas Association of 
                                America

    Mr. Chairman and Members of the Committee: Thank you for the 
opportunity to testify on this important topic. My name is Chris Helms, 
and I am President of the NiSource Inc. Pipeline Group. NiSource Inc. 
is a fully integrated energy company engaged in natural gas 
transmission, storage and distribution, as well as electric generation, 
transmission and distribution. Our operating companies deliver energy 
to 3.7 million customers located within the high demand energy corridor 
that runs from the Gulf Coast through the Midwest to New England. One 
of our pipelines, the Columbia Gulf Transmission Pipeline, operates in 
the central Gulf of Mexico and brings natural gas on-shore in central 
Louisiana.
    I am here today on behalf of the Interstate Natural Gas Association 
of America (INGAA). INGAA is a trade organization that represents 
virtually all of the interstate natural gas transmission pipeline 
companies operating in the U.S., as well as comparable companies in 
Canada and Mexico. Its members transport over 95 percent of the 
nation's natural gas through a network of 180,000 miles of pipelines. 
Many of these pipeline systems operate in the Gulf region--either off-
shore or along the coastal area that includes Texas, Louisiana, 
Mississippi and Alabama.
    Before discussing the recent hurricanes and their effects on our 
industry, I first want to make a few points about the structure of the 
natural gas industry. The natural gas industry has never been as 
vertically integrated as the oil and electric power industries. Put 
differently, it is the exception and not the rule for a single company 
to be significantly involved in all segments of the industry. These 
segments can generally be broken down into the following categories: 
production, gathering and processing (also known as midstream 
services), interstate pipelines, marketing, and local distribution. 
Some of these segments are subject to economic (i.e., rate) regulation 
at the federal or state level, while others are not subject to any rate 
regulation.
    INGAA represents the interstate pipeline segment, which is 
regulated economically by the Federal Energy Regulatory Commission 
(FERC). As part of the natural gas industry restructuring that occurred 
during the 1980s and early 1990s, the interstate pipeline industry gave 
up its merchant role as the provider of bundled wholesale natural gas 
services. Under the current industry structure, interstate pipelines 
transport and store natural gas, but do not produce, purchase or sell 
the commodity itself. We are analogous to a trucking company that 
provides both transportation and warehousing services for goods, but 
does not take title to the goods themselves. The maximum rate an 
interstate pipeline may charge for transportation and storage is set on 
a pipeline-by-pipeline basis by the FERC, based upon the costs incurred 
by that pipeline to provide those services.
    Despite the disaggregated structure of the natural gas industry, 
significant interdependencies remain. This is especially true for off-
shore production in the Gulf. Generally speaking, the chain of delivery 
is as follows: Natural gas is first produced at off-shore platform or 
wellhead facilities; it is then gathered and transported through 
smaller diameter gathering pipelines for redelivery to FERC-regulated 
transmission pipelines for transportation to onshore processing plants. 
There, the natural gas is processed to remove hydrocarbon liquids, such 
as propane and ethane. Those liquids must be transported, via dedicated 
pipeline, barge or truck, to markets for those products, such as 
refineries and petrochemical facilities. Once the liquids are removed, 
the natural gas is fit for consumption and is delivered into the 
interstate pipeline network where it is transported to end-use 
customers. All of these systems must work together in order for natural 
gas to flow onshore, and from there to the millions of customers 
downstream. If any link in this delivery chain is disrupted, the 
remaining links in the chain will be affected in some way.
    I point this out to emphasize that Hurricanes Katrina and Rita have 
highlighted these interdependencies. Links in the delivery chain have 
sustained major damage. In cases where multiple links have been 
damaged, we cannot repair just a single link and expect natural gas 
supplies to return to pre-hurricane levels. All of the links must be 
working in order to achieve that result.
    Mr. Chairman, I think it is safe to say that two major hurricanes 
striking back-to-back at the heart of our nation's energy system have 
caused an unprecedented disruption in our Gulf-based natural gas 
infrastructure. As many of you know, the federal waters in the Gulf of 
Mexico account for about 10 billion cubic feet (bcf) per day of natural 
gas production, which is about 20 percent of total U.S. demand. As of 
early this week, about 72 percent of this daily production, about 7.5 
bcf per day, remained ``shut-in'' due to the storms. To place this 
number in some perspective, the United States typically consumes on 
average 61 bcf per day nationwide. Given the tight supply/demand 
situation we were already facing before the hurricanes, this loss of 
supply--even temporarily--is cause for concern as we approach the 
winter heating season.
    The media, and indeed most Americans, have focused on how the twin 
hurricanes have affected the price and supply of gasoline. Gulf Coast 
oil production and refineries are a critical part of the nation's 
infrastructure for obtaining supplies of gasoline, jet fuel and fuel 
oil. Nonetheless, the United States imports almost 60 percent of our 
petroleum supplies from overseas. This means that a short-term increase 
in imports can mitigate some portion of the impact of the hurricanes on 
petroleum supplies. However, when it comes to natural gas, the United 
States still produces 85 percent of the total supplies needed to meet 
domestic demand, while most of the remaining supply needed to meet 
demand comes from Canada. Our ability to import natural gas from 
outside North America is far more limited than with petroleum, given 
the limited number (5) of operational liquefied natural gas (LNG) 
import terminals in the U.S. Therefore, even as the country continues 
to be focused on gasoline prices, we believe the hurricanes will have a 
greater and more protracted impact on natural gas prices and supplies.
    I also want to challenge the notion that Hurricane Rita produced 
far less damage to energy infrastructure than did Hurricane Katrina. 
While this might be true with respect to the oil refinery complex in 
the Gulf region, it is not the case with natural gas. In fact, for 
operations in the Western Gulf including my company's pipeline, the 
Columbia Gulf Transmission Pipeline, Rita had more impact than Katrina. 
For example, our offshore system was able to redirect some natural gas 
produced in the central Gulf that was not able to reach the shore due 
to damage from Katrina. This worked well for a few weeks, but the 
impacts of Rita only compounded the difficulties associated with 
bringing more gas production back on line. The ``one-two punch'' nature 
of these storms means that repairs will take longer than normal, 
because the limited manpower and equipment resources for assessing 
damage and making repairs are being stretched far beyond normal 
capacity. Damage sustained during Rita that, for example, normally 
might take a week or two to repair is taking much longer, due to the 
limited availability of crews, boats and equipment that were already 
working on Katrina-related damage.
    I want to assure the Committee that we are doing all we can. The 
dedication of our employees, in the face of losing their homes and 
possessions and having their families uprooted, has been phenomenal. 
Across the industry, people are showing up to work long hours even as 
they have no place to go home to. Finding temporary housing within the 
region so our employees can continue to repair critical energy 
facilities is crucial to speeding the pace at which natural gas 
supplies in the Gulf can be brought back online.
    Let me now turn to our outlook for the winter heating season. While 
assessments are continuing, there can be no doubt that, compared to 
last winter, there will be less natural gas delivered from the Gulf of 
Mexico region this winter. The damage is too widespread, and the amount 
of repair work too great, for everything to be made right within a 
month or two. The fundamentals of supply and demand in the North 
American natural gas market already were tight before hurricanes 
Katrina and Rita. Consequently, any loss of supply--even a relatively 
small one--can have a disproportionate impact on natural gas prices 
over the winter. All of this puts an extra emphasis on natural gas 
storage levels.
    While it is largely invisible to the public, the United States has 
a significant amount of natural gas storage scattered throughout the 
country. These storage facilities, typically located in depleted oil 
and gas fields, are usually filled during the warmer months of the year 
when there is excess natural gas supply and pipeline capacity to move 
it. Storage fills are generally completed by November 1, which is the 
beginning of the winter heating season. During the coldest winter days 
which typically are the days of peak natural gas demand, storage 
withdrawals can meet more than 50 percent of the daily natural gas 
load.
    Prior to the hurricanes, storage fills were proceeding at total 
volumes above the five year average. The hurricanes have slowed storage 
fills somewhat, but volumes still remain ahead of the five-year 
average.
    Still, storage is a supplement to--not a replacement for--natural 
gas flowing through the interstate pipeline network. Many of the 
pipelines serving the Midwest, Northeast and Southeast draw their 
primary supplies from the Gulf region. If pipelines are not flowing 
their full volumes of natural gas, and the winter is normal to colder-
than-normal, greater volumes of natural gas are likely to be withdrawn 
from storage earlier in the winter season than is the norm. Should this 
occur, storage would be depleted more quickly and there could be an 
even greater dependence on flowing pipeline gas to make up the 
difference. This could create significant operational challenges for 
pipelines in late winter, particularly if cold weather, limited supply 
availability, and low storage drive customers to attempt to take more 
natural gas off a given pipeline than is available.
    I should also mention the importance of returning damaged natural 
gas processing facilities to service. As mentioned previously, natural 
gas processing plants remove the heavier hydrocarbons entrained within 
produced natural gas. These ``natural gas liquids'' include propane, 
ethane and butane. Once removed, there is a separate market for these 
liquids, principally in the petrochemical industry. Just as with oil 
refineries in the Gulf region, however, a number of natural gas 
processing plants were damaged by the hurricanes. Several of these 
facilities may be out of operation during most, if not all, of the 
winter.
    This presents another operational challenge for pipelines. A 
certain amount of unprocessed natural gas can be accepted into the 
natural gas pipeline network. If the quantity of heavier hydrocarbons 
in the gas stream becomes too high, these substances can ``drop out'' 
of the natural gas stream as liquids and collect in pipelines and end-
use equipment. This is a particular concern during the winter heating 
season when the lower ambient temperatures cause the temperature of the 
flowing gas to drop, increasing the amount of heavy hydrocarbons that 
will convert to liquids. This phenomenon can cause safety and 
operational problems as slugs of liquids work their way through 
sensitive equipment. Therefore, as off-shore production facilities come 
back on line, it is also important to bring corresponding processing 
capacity back on line as well; otherwise, pipelines may be compelled to 
limit the volumes of unprocessed natural gas that can be accepted 
during the winter heating season in order to preserve the operational 
integrity of the transmission and distribution pipelines and in order 
to protect end-users.
    How high will natural gas prices go this winter? While a number of 
factors will affect the answer to this question, the most important 
factor is completely outside of our control. It is the weather. The 
single most significant factor in determining natural gas demand, and 
therefore prices, will be the weather. Peak winter demand is driven by 
space heating needs. If it is a mild winter, there will be less demand 
for natural gas and prices will almost certainly moderate, even with 
the effect of the hurricanes. Conversely, if the winter is normal or 
colder-than-normal, then the supply disruptions caused by the 
hurricanes will be reflected in higher natural gas prices.
    Another factor affecting the ultimate price level will be the rate 
at which demand is reduced in response to higher prices. Price 
allocates supply in a demand-constrained market. At what price will a 
consumer choose to conserve and reduce use of natural gas? The 
industrial sector is the most price sensitive consumer of natural gas; 
and at a certain price level, it can be anticipated that industrial gas 
consumers will choose either to curtail production or to switch to an 
alternative fuel rather than purchase natural gas. The market clearing 
price for natural gas will be driven by how much a customer is willing 
to pay for the last molecule of natural gas available. My colleague 
from Dow Chemical, who is already facing some of these challenges, can 
explain this better than any of the other witnesses at the table today.
    For most residential and commercial consumers the price paid for 
natural gas this winter will depend on the purchasing strategy employed 
by the local natural gas distribution company (LDC) that serves their 
community. For example, to what degree has the LDC hedged the price of 
its natural gas purchases using either long-term purchase contracts or 
financial instruments? How much natural gas does the LDC have in 
storage, and at what price was that gas purchased before it was placed 
into storage? The price paid by the average consumer will be a blended 
price, taking into account these factors, and not just the spot price 
for natural gas on a given day.
    The ripple effects of higher natural gas prices will be felt across 
the economy. All of us expect to pay more for natural gas this winter 
to heat homes and businesses. Electricity prices also will be affected, 
particularly in regions where gas-fired power plants make up a 
significant part of the generating fleet. And, as I mentioned, higher 
natural gas prices will affect the cost of manufactured products.
    What can be done? The short-term imperative is repairing the 
infrastructure as quickly as possible. That means expediting permitting 
and approvals for repair work. It also means the various levels of 
government should consider the value of granting individual companies 
some forbearance from legal restrictions that might frustrate their 
ability to coordinate assessment and repair activities. The twin 
hurricanes have resulted in extraordinary damage, and extraordinary 
measures are needed to get systems repaired on a timely basis
    Also in the short-term, both the energy industry and the government 
must educate consumers in advance so they are prepared for higher bills 
and have the ability to implement strategies for conserving energy. 
This is important, because unlike the gasoline price that is posted at 
the local gas station, the consumer sees the price of natural gas after 
the fact when he or she receives a bill for the previous month's 
consumption. Many of you are already familiar with some of these 
measures, including weatherization of homes, regular inspections of 
furnaces and changing of filters, installing programmable thermostats 
and setting them a couple of degrees cooler. The funding of the Low 
Income Heating Energy Assistance (LIHEAP) program is also critical in 
helping needy families cope with rising heating costs.
    In the long-term, Mr. Chairman, we agree that more needs to be done 
to diversify our supplies of natural gas. Katrina and Rita have clearly 
demonstrated the high degree of our reliance as a nation on the Gulf 
region to supply our energy needs. Other regions of the country can and 
should be a part of our overall energy resource development. Yes, many 
groups have complained about the environmental risks associated with 
expanding offshore energy to include waters outside the western Gulf of 
Mexico. After three significant hurricanes in two years, it is time to 
concede that apprehensions about the environmental consequences of 
offshore energy development are greatly overstated. The fact that we 
have not had significant environmental incidents after Ivan, Katrina 
and Rita must stand for something! Our national energy policy should 
not be premised on hypothetical problems or on assumptions based on 
incidents from 40 years ago.
    In addition, the United States will need to build new liquefied 
natural gas import terminals to keep pace with our demand for this 
fuel. Most of the new terminals that have been approved by the FERC in 
recent years have been located in the Gulf of Mexico. There are good 
reasons why the Gulf is attractive, such as access to an extensive 
pipeline network, but it is also true that the Gulf has been the ``path 
of least resistance'' in terms of NIMBY-type opposition. Perhaps the 
hurricanes, and the effects this winter on natural gas prices and the 
larger economy, will finally convince other regions of the country of 
the importance of having a geographically diverse mix of these 
facilities.
    Finally, it is worth examining the factors that have precluded 
electric generators from installing dual-fuel capability when building 
a gas-fired power plant. Over the last decade, dual-fueled facilities--
facilities that can operate on both natural gas and fuel oil--have been 
discouraged by emissions limits and by the difficulty in siting oil 
storage facilities on site. Also, the rules in some electric power 
markets provide such generators no assurances that the additional 
capital cost of such facilities can be recovered in the price received 
for electricity. These factors have compelled developers to build power 
plants totally dependent on natural gas. Should natural gas supplies 
remain tight this winter, these facilities will face the choice of 
either paying huge fuel charges, or not running at all.
    Before I conclude, I want to suggest some responses that should not 
be undertaken. During times of crisis, it is easy to overreact in ways 
that are ultimately counterproductive. The first suggestion I would 
like to leave you with is this: please do not try to regulate commodity 
prices. This country actually did regulate natural gas prices for many 
years, resulting in artificial supply shortages and a misallocation of 
resources. Similarly, the government should not attempt to pick winners 
and losers in allocating scarce supplies among end-users. Some debate 
has surrounded the notion of limiting the use of natural gas for 
generation. Mr. Chairman, you and Senator Bingaman were present when 
Congress debated the deregulation of wellhead natural gas prices and 
the Fuel Use Act, so you remember the problems that existed at the 
time. While it can be painful in the short run, the market really does 
the best job of efficiently allocating scare resources and sending the 
right price signals that will solve supply problems.
    Mr. Chairman and Member of the Committee, I thank you once again 
for the opportunity to testify, and I will be happy to answer your 
questions.

    The Chairman. Thank you very much.
    Mr. Hebert, I know that you have been chairman of the FERC 
in your earlier life. I had an opportunity for the first time 
to talk to you about some of these problems on this visit. I 
very much appreciate your helping us today. I know you wear an 
industry hat, but frankly, we need good ideas. We need to 
understand our problems, and from my standpoint, I am 
appreciative of your thoughtfulness. Thank you for coming 
today. We will probably be talking to you more in the future. 
Thank you.

   STATEMENT OF CURT HEBERT, JR., EXECUTIVE VICE PRESIDENT, 
           EXTERNAL AFFAIRS, ENTERGY, NEW ORLEANS, LA

    Mr. Hebert. Thank you, Mr. Chairman. I am always glad to be 
here and have always been happy to be at the committee's 
disposal.
    I also want to thank this committee and your leadership as 
well for the vision with the Energy Policy Act of 2005. I hate 
to think of where we believe we would be in the future but for 
that step forward, and it is a step forward.
    But one of my colleagues put it best in the very beginning: 
``once in a century.'' I think that is what this has to be 
about, and I am going to wear a customer hat, if I can, today 
for a little while. I am glad to answer any questions about 
natural gas and where we think that may be going, why it is 
where it is, what levers we can pull to aid and assist, but for 
5 minutes I would like to be here for Entergy Corporation, our 
CEO, Wayne Leonard, and our customers.
    We have had a once-in-a-century event. That event was 
actually three events almost. It was hurricane Katrina. It was 
the levee that broke, and it was hurricane Rita.
    As you know, Entergy Corporation has several different 
operating companies. We have Entergy-New Orleans, Entergy-
Louisiana, Entergy-Mississippi, Entergy-Arkansas. We have 
Texas. We also operate in New York, Vermont, Massachusetts, and 
Nebraska. So we are spread out. We have 14,000 employees. We 
had 1,400 basically displaced through the storm as we tried to 
put it back together in the gulf south region.
    What Katrina did was it basically took the center to the 
east side of our service territories and it tore them apart, 
leaving nothing in New Orleans, no revenues, no customers, very 
little infrastructure, certainly no lights, and much less even 
in other areas right outside of that in Mississippi and 
Louisiana.
    Rita came and it took the west side of those service 
territories, hitting the areas in Beaumont and Lake Charles, 
knocking them out as well.
    I do not have to tell you--it has already been covered--how 
many refineries, how many platforms that we provide energy for 
that have to be a priority.
    But I do want to tell you this. We, like everyone else 
here, put our folks on the ground. Our folks were committed. We 
made an early decision at Entergy to tell all 14,000 employees 
you have a job. You are going to be paid. And as important, if 
you have been displaced, if you lost your home, you are going 
to have something over your head and we are going to pay for 
it. So do not worry about it because what is important is that 
we take care of the gulf south region. What is important is 
that we take care of America because this is an American 
problem once in a century.
    We need help for the consumers and the customers because we 
lost cumulatively 1.8 million customers through those storms 
and disasters. We lost 1.1 million with Katrina. We lost over 
700,000 with Rita, and we leave a city called New Orleans 
something less than a city.
    I have a couple of exhibits up here. The first one, the out 
of service, tells you what the numbers are. I am not going to 
spend a lot of time on them. You can see them and I have 
exhibits for you.
    I am not going to read through this, Mr. Chairman. There is 
a lot in here. I know how much you have to read, all these 
members. I know how much is put in front of you. If you do not 
read anything else this year, I hope you read this because it 
will tell you what has happened and it will tell you the need 
that is there.
    If you look at the transmission piece, which I think is 
over here, 520 transmission lines down, 6,700 miles of 
transmission that had to be brought back up. The distribution I 
think he is putting up now. 25,000 poles. If we could think of 
you as our bosses, and telling this group of business people, 
what I need you to do in the next 3 to 4 weeks is put up 25,000 
utility poles, can you do that for me, I think we would all get 
our heads together and, with all due respect, we would tell you 
we think you had lost your mind. It cannot be done. It is 
impossible. And then, Mr. Chairman, you would have to come 
back. You would say, well, now, Curt, what I need you to do is 
understand it is not just about 25,000 poles, but where those 
poles go, there are poles already there and there is line 
wrapped around it and there are trees on top of it and there 
are flooded waters above that. And I need you to do it in 3 to 
4 weeks' time. And, oh, and by the way, can you put the wires 
back up when you are done? And by the way, can you do it 
safely? And by the way, when you are done, can it be reliable 
so that when people flip their switch, the light comes on? And 
I would have to tell you, Mr. Chairman, I am not sure that can 
be done. But it has been done.
    It is incredible to see what these people do, how they can 
be focused and how they can get it done when their house is 
under water, when their aunts and uncles have died, their 
parents. But they do it. We are focused on restoration and we 
will rebuild the gulf south, my home.
    The cost of that restoration is going to be as much as $1.6 
billion. $1.6 billion. Just in New Orleans alone, it could be 
as much as almost $500 million for the restoration costs.
    The Chairman. You said in New Orleans?
    Mr. Hebert. Just in New Orleans, that operating company 
alone.
    The bulk of our costs is transmission and distribution. We 
do have some generation costs. Some of those are insurable. 
Obviously, we would attempt to recover that. But we are not 
certain about those numbers yet, but it could be as much as 
$1.6 billion.
    Having said that, I know you have to ask yourself why do 
you come to the Federal Government and why does the Federal 
Government owe these people in New Orleans, why do they owe the 
people in the gulf south, and why should they come and take 
care of their needs.
    Well, we are trying to do some of that ourselves, Mr. 
Chairman. At Entergy-New Orleans, that operating company right 
there, as you know, we had to file bankruptcy, and we had to 
file bankruptcy for several reasons. One, you understand that 
the SEC has borrowing limits from a short-term perspective. We 
were downgraded on our credit ratings. So accessing the capital 
markets was something that was very tough on us. So we filed 
for bankruptcy protection, and Entergy Corporation was 
obligated to spend $100 million there. We have already spent 
$60 million of that in debtor-in-possession financing.
    We are going to do everything we can--and that is what the 
bankruptcy is all about--to make certain that the restoration 
continues and that we do have electricity there so that all 
these people here can do their job and so that we can do what 
we can to not only take that crude, but refine it and make 
certain there is as much in America as possible.
    Senator Burns is right. Let me tell you when we hurt a 
farmer, we hurt America. My grandmother and grandfather were 
farmers. You know those farmers in the Midwest--what they do, 
Senator Burns--and you know this as well as anybody--is they 
take these barges and they fill them with grain and they fill 
them with corn and they ship it down the Mississippi River and 
they ship it to that port down in New Orleans and they put it 
on ships and they send it out everywhere. That is going to be 
tough to do right now.
    Senator Burns. They send fertilizer back up.
    Mr. Hebert. Absolutely. It goes both ways, does it not?
    My point is it is an American problem. It is not just a New 
Orleans problem. It is not just a Mississippi problem. It is 
not just a Louisiana problem.
    But as a regulated utility, what we at Entergy have to do 
is have all these restoration costs go into the rate base, and 
if that is done in New Orleans without assistance from the 
Federal Government, their rates will double.
    When we talk about these people and we look at these 
customers--and I tell you that there are 1.8 million customers 
that lost service during our storms--I know you think of that 
as people, but I want you to think of it as meters. I want you 
to think of it as maybe 4 million or 5 million people. As we 
look at Entergy-New Orleans and we look at rate increases, 
which by the way, double, they not only double on Boudreaux 
down in the parish, but they double on small business, they 
double on industry, which right now has rates they cannot 
afford and be competitive in the American economy, much less a 
world economy.
    So we need your help. America needs your help. We need the 
direct assistance and we need the indirect assistance. But most 
importantly, we need it as quickly as we can get it.
    There are several different options here, and then I will 
close out, Mr. Chairman, and answer any questions.
    One, there is what is called the Airline Stabilization Act, 
which was used after 9/11, and that has been recrafted into a 
bill put forth by Senator Landrieu, who I know right now is on 
the floor arguing for Louisiana and the gulf south region, and 
Senator Vitter. It is called the Utilities Stabilization Act, 
but it is modeled on what was done after 9/11 for the airlines. 
There are moneys that would be put in there for direct costs 
and for indirect costs. We think that is one vehicle, and we 
think it is a useful vehicle. It would get us money quickly if 
that legislation were passed.
    Another option is the Stafford Act. I know you are all 
familiar with the Stafford Act. But the problem with the 
Stafford Act is the folks that I live around and the folks that 
I work with, quite frankly, down in New Orleans and in parts of 
Mississippi and Louisiana and Texas do not get help from FEMA 
due to the Stafford Act because when the Stafford Act was put 
together, since our customers are investor-owned customers, the 
Stafford Act said we will give to co-ops and municipals and 
public power, but we will not give to investor-owned.
    And I did not understand that. I had quite an education as 
I went through this process. What I learned from meeting with 
folks like yourself on the Hill and your staffs, which work so 
hard, is that the Stafford Act was made that way for a reason 
because they said investor-owned can get insurance. And that 
makes sense to me. All of a sudden, I said, well, that makes 
sense. That is fair.
    But what we did not understand at that time was two things. 
One, you cannot get insurance, after hurricane Andrew in 1992, 
on transmission and distribution. So it does not apply there. 
And how important is our transmission and distribution? And for 
the folks I have shared it with, they said, well, that makes 
sense. We ought to be treating them the same. How do we say one 
customer who lives in a rural community or lives somewhere 
served by a co-op or a municipal or a public power system gets 
to keep their rates low, but another customer does not keep 
their rates low because they have to absorb these costs? That 
is not fair. And I agree, that is not fair.
    And the other side of that is this. So many of these public 
power systems, certainly the co-ops and the municipals, are 
transmission-dependent on investor-owned utilities like 
Entergy, like CLECO, like Southern. So it does not matter how 
much Federal money we give to these co-ops and municipals in 
some circumstances. If they rebuild their systems, it would not 
matter if they gold-plated them. And I am not saying they do 
that. They certainly do not. But if our transmission line is 
down because we do not get it up because our customers cannot 
afford it and we cannot do it quickly enough, you cannot light 
the first light bulb in those areas.
    So it is important that we rethink that. A waiver of the 
Stafford Act for a necessary element of our economy, like 
electricity and gas, is something that I think you should 
entertain. And I know you are going to say, once we waive it, 
how do we waive it for anybody? Where do we draw the line? I 
think you have to draw the line on energy.
    I will tell you I have friends and family that are in the 
medical business. Hospitals are important. They are important. 
Telephone companies are important. They are very important. 
Refineries, very important. But you do not pump through pumping 
stations that are electric crude. You do not light up 
hospitals, much less make them run, and you do not make 
telephones ring unless you have electricity first. If you do 
not get that right and if you do not keep that competitive and 
if you tell the folks in New Orleans that their rates are going 
to be doubled because they are treated differently, you are not 
going to rebuild that economy. You are not going to get people 
to go back in there.
    There is a third alternative: community development block 
grants.
    The Chairman. Can I just remind you your time has expired 
and would you wrap it up please?
    Mr. Hebert. I will wrap up with this, Mr. Chairman. I 
apologize.
    Community development block grants were used after 9/11. 
ConEd--there was a block of money put in, about $250 million, 
of which, let me say, they have only collected, $93 million, 
for customers there in that region. I do not mean to compare 9/
11 and Katrina and Rita. They are certainly different events. 
But for a cost analysis, I want to draw this comparison. If you 
look at ConEd, that was less than 1 percent of their revenues. 
It was around 12,000 customers. I have told you how many 
customers we are talking about here. We would like to look at 
the same opportunity for our customers. We think that is a 
great way to do it.
    Immediate waiver of Stafford or the Utility Stabilization 
or the community development block grants would all be a way to 
do it. This is a destitute city. It is empty and we are doing 
everything that we can to rebuild it, but we cannot rebuild it 
on the backs of folks who can least afford it. And we cannot 
rebuild it on an economy that sends its crude and its refined 
product everywhere throughout the United States and expect them 
to absorb that cost.
    Once in a century, Mr. Chairman. Thank you.
    [The prepared statement of Mr. Hebert follows:]

   Prepared Statement of Curt Hebert, Jr., Executive Vice President, 
                          Entergy Corporation

    Good morning. I am Curt Hebert, Jr., Executive Vice President of 
Entergy Corporation, and I appreciate the opportunity to appear this 
morning on behalf of Entergy, its CEO Wayne Leonard, and the thousands 
of Entergy employees who have been working tirelessly since late August 
to respond to the destruction wrought by hurricanes Katrina and Rita. 
I've never been more proud to represent Entergy than I am today. As I 
sit before you, thousands of dedicated Entergy employees are basically 
working non-stop to restore service to the more than 1.8 million of our 
customers whose lives have been disrupted, many permanently, by Katrina 
and Rita. Entergy's employees have been joined by thousands of other, 
equally committed personnel from our sister utilities throughout the 
region and the nation. We have come together on a scale unprecedented 
in American history--as a company and as an industry--to meet this 
challenge.
    The purpose of my testimony is three-fold. First, I summarize the 
devastating effect of these catastrophic storms on our infrastructure. 
Second, I summarize our efforts to date in restoring service and the 
unique challenges being faced by the City of New Orleans. Finally, I 
discuss what federal financial assistance is needed so that our 
restoration efforts can be completed successfully.

                       THE EFFECTS OF THE STORMS

    The two hurricanes and the flooding that resulted when the levees 
in southeastern Louisiana failed were more devastating than any natural 
disaster previously experienced in this country. The effects on the 
energy industry and upon the utilities in the area, whose customers are 
severely burdened by the loss of their jobs, homes, and property, have 
been unusually severe. This emotional and financial stress will have a 
damaging and long lasting effect upon the economy of the Gulf South 
region, including particularly the City of New Orleans.
    These unprecedented events require an immediate federal response so 
that utilities such as Entergy can promptly and efficiently address the 
massive damage and destruction that has occurred. This assistance must 
take the form of federal legislation that provides immediate financial 
aid to the electric and gas utilities affected by Katrina and Rita in 
order to ensure that storm restoration and recovery occur timely and 
without imposing additional financial burdens on the citizens of these 
areas.
    By any measure, Hurricane Katrina is the most costly and one of the 
most deadly hurricanes to strike the United States in recorded history. 
Hurricane Andrew, the previous benchmark, carved a much narrower path 
of destruction across south Florida in 1992. During Andrew, one of the 
hardest hit areas was Homestead, Florida. Of 26,000 homes in Homestead, 
7,500 were destroyed completely. By comparison (and without minimizing 
the impact on the good people of Homestead), all 26,000 homes in St. 
Bernard Parish, Louisiana have been lost, along with the destruction of 
much of the housing stock of the City of New Orleans and large segments 
of the Mississippi Gulf Coast. In the area of southeast Louisiana that 
Entergy serves, nearly 170,000 homes or businesses were damaged so 
badly that those structures will not be able to accept electric service 
for an extended period of time. This will severely restrict the long-
term recovery and economic prosperity of the region.
    The effect of these hurricanes on the energy industry is a matter 
of national importance that can be measured by economic barometers. In 
contrast, the effect of the storms on the citizens of the Gulf Coast 
region will be measured by their suffering and the loss of their 
families, their belongings, their homes, their businesses, and their 
jobs. Helping the people of this region rebuild must be our main focus 
at this time, and I am here today to request your support of our 
efforts.
    Katrina devastated the electric utility infrastructure across much 
of the Gulf Coast region. Katrina was so large that it affected about 
90,000 square miles--an area equal to the size of Great Britain. At the 
height of the service outages due to Katrina, Entergy lost:

   1.1 million customers in Louisiana and Mississippi (previous 
        Entergy customer outage record was 290,000)
   Virtually all generation in southeast Louisiana was lost or 
        had to be isolated from the grid to protect the ability of the 
        equipment to return to service;
   Approximately 3,000 miles of transmission lines;
   30,000 miles of distribution lines;
   263 substations;
   1,560 feeder lines were damaged; and
   14,500 poles were damaged or broken.

    One distinguishing characteristic of Katrina was the flooding of 
mammoth proportion. Although hurricanes frequently result in high winds 
and heavy rain, Katrina left many areas of southeast Louisiana flooded 
with several feet of water for several weeks when the levee system 
failed. Although other areas of the United States are susceptible to 
flooding, in the case of Katrina, the impacted area in southeast 
Louisiana became an extension of the gulf for nearly a month, a 
condition that has not occurred elsewhere in the U.S. during modern 
times.
    On the heels of the destruction and flooding of Katrina, a strong 
category four storm, Hurricane Rita, a strong category three storm, 
inflicted significant additional damage to the Gulf Coast region, a 
critically important natural gas producing region. At the height of the 
service outages due to Rita,

   An additional 766,400 customers experienced power outages in 
        Texas and Louisiana:
   Another 3,400 MW of generation was damaged or had to be 
        taken out of service to protect vital equipment;
   Over 3,800 miles of transmission lines were lost;
   344 substations were damaged; and
   11,500 utility poles were damaged or broken.

    In responding to both storms, utility restoration efforts were 
swift, well-planned and of a scope that is unprecedented--just as two 
severe hurricanes hitting roughly the same area of the Gulf Coast 
region within weeks of one another is unprecedented--just as the 
pervasive submersion of large segments of southeast Louisiana for weeks 
at a time is unprecedented. In response, Entergy mobilized more than 
13,000 utility lineman and other workers and hundreds of millions of 
dollars have and will be spent to get the lights back on as safely and 
quickly as possible.
    While responding to the storms, Entergy remained in daily contact 
with the Department of Energy, providing daily reports and briefings. 
As a result of these communications, situation reports were posted by 
the U.S. Department of Energy, Office of Electricity Delivery & Energy 
Reliability under Energy Emergencies: Hurricane on its website at: 
www.electricity.doe.gov/program/electric_oat.cfm?section= 
divisions&level2=home.
    While much work remains to be done, restoration efforts have been 
quite successful outside of the flood zone. Many of the customers who 
have lost service as a result of Katrina and who are capable of 
receiving service have been restored, and more than 75 percent of the 
customers who lost service as a result of Rita have been reenergized. 
However, it is slow and difficult going in New Orleans and the other 
hardest hit areas of the Gulf Coast, such as Beaumont and Port Arthur, 
Texas, and Lake Charles, Louisiana.
    Entergy has spent considerable resources to restore service to ten 
refineries that it serves in the Beaumont/Port Arthur, Lake Charles and 
New Orleans area. Many of these refineries suffered significant damage 
to their facilities and the transmission lines and substations that 
serve these facilities fared no better. However, as of early this week, 
transmission paths were established to seven of these facilities and at 
least one substation was energized at each of these refineries, 
enabling them to take clean up/restoration power. Entergy is in 
constant contact with each of these customers and stands ready to 
provide power to meet site specific start-up schedules. These 
refineries have an aggregate refining capacity of 2.27 million barrels 
of crude per day and therefore are very important nationally as well as 
regionally.
    Rita also caused interruption at two DOE Strategic Petroleum 
Reserve sites that we successfully restored several days ago. 
Similarly, Entergy quickly restored service following Katrina to 
critical shipping ports, including the Port of New Orleans. In fact, 
the City's Command Center in the Hyatt Hotel and the Port of New 
Orleans were among the first facilities to receive power following that 
storm's landfall.
    As a final example, Katrina halted activity at a fuel depot in 
Collins, Mississippi, which is outside of the Entergy service 
territory. Because of its critical importance to the energy industry in 
the region, Entergy provided immediate assistance to restore 
electricity to this facility. Attached is a summary of those events 
which highlight the exceptional service of the men and women on the 
frontlines of the restoration battle.
    Entergy's emergency response and operational restoration efforts in 
the devastated region have been vital to the recovery effort. It has 
given confidence and hope to citizens throughout the region that we can 
rebuild. It is clear to me from seeing firsthand the commitment of the 
hearts, minds and souls of these men and women directly involved in the 
restoration, that our employees will do anything to help our customers 
and our neighbors. The cost of these efforts has been staggering. 
Entergy estimates that storm related and business continuity costs from 
Katrina at between $750 million and $1.1 billion. Estimates of 
restoration costs for repair or replacement of Entergy's electric 
system damaged by Rita are in the range of $400 to $550 million.
               the unique challenges faced by new orleans
    Katrina not only presented the problems attendant to a hurricane; 
its rain and wind, combined with the failure of the levee system in 
southeast Louisiana, damaged as many as 170,000 homes and businesses in 
the area so severely that they cannot be re-energized until some 
combination of demolition, reconstruction, and inspection occurs--a 
process which may take many months. The utility subsidiary that serves 
New Orleans, Entergy New Orleans (``ENO''), has been especially hard 
hit:

   From an infrastructure perspective, ENO's electric and gas 
        system sustained massive damage.
   From a customer perspective, due to the unprecedented 
        flooding, many tens of thousands of homes and businesses in the 
        City have been underwater for weeks. These structures cannot 
        simply be repaired after being submerged for so long. As a 
        result, the City has lost a large segment of its housing stock, 
        and ENO has lost the vast majority of its customer base.
   From a financial perspective, current estimates of the cost 
        to restore ENO's system for gas and electric service range from 
        $325 million to $475 million--an amount that exceeds the total 
        amount invested to provide those utility services in New 
        Orleans on the day before Katrina came ashore.

    Clearly, the confluence of events following Katrina caused an 
immediate and severe deterioration in ENO's financial condition in the 
days following Katrina. ENO's revenues, the continuity of which is 
vital to pay timely fuel, purchased power, and restoration costs, 
disappeared overnight. And because of ENO's relatively small size, it 
quickly hit short-term borrowing limits pursuant to SEC orders, and its 
debt was downgraded by rating agencies to below investment grade.
    Also, ENO was unable to access capital markets to raise new debt, 
because simple steps, like due diligence could not be completed timely, 
ENO is unable to provide revenue projections assure a revenue source 
sufficient to demonstrate its ability to service new debt given the 
uncertainty surrounding the timing and size of the return of its 
customer base.
    Faced with a severe and immediate need for cash to continue its 
restoration efforts, ENO filed and obtained Chapter 11 bankruptcy 
protection on September 23, 2005. This filing allowed Entergy 
Corporation, ENO's parent, to provide up to $100 million in short-term, 
debtor-in-possession financing so that ENO can make currently due 
payments while continuing to restore service as areas of New Orleans 
rebuild and recover.
    But this is only a temporary stop-gap measure. It will take many 
times this amount to reconstitute ENO in a manner that is able to 
provide reliable service to its customers. To understand this, consider 
the following comparative data:

                                 Table 1.--ENTERGY NEW ORLEANS COMPARATIVE DATA
                                            [All Amounts Approximate]
----------------------------------------------------------------------------------------------------------------
                                                             Pre Katrina       Post Katrina          % Change
----------------------------------------------------------------------------------------------------------------
Electric Customers........................................  190,000\1\        60,000-75,000\2\      (68)%-(60)%
Annual Non-Fuel Electric Revenues.........................   $316M\1\              $90-120M\2\      (72)%-(62)%
Average Annual Storm Restoration Cost.....................     $2M\3\                $325-475M       1+16,000%-
                                                                                                       +24,000%
Average Annual Storm Restoration Cost per Customer........     $11\3\         $4,300-$7,900\4\        +39,000%-
                                                                                                      +72,000%
----------------------------------------------------------------------------------------------------------------
\1\based on 2004 actuals
\2\estimated based on 115,000-130,000 customers unable to take service for extended period of time per September
  30, 2005 press release [A process that could take many months or years]
\3\cost estimated based on last 5 years; average per customer based on 2004 customer count
\4\cost estimated based on Katrina restoration; average per customer based on post Katrina customer count

    As a regulated utility that has devoted its property to public use, 
Entergy operates under a cost-of-service regime. As such, ENO is not 
entitled to unregulated profits, but it is entitled under well-
established law to the opportunity to recover from its customers all of 
its costs, including its storm restoration costs. This traditional cost 
recovery approach has been used in response to past hurricanes and ice 
storms and has raised customer bills. But the magnitude of those cost 
increases was manageable. That would not be the case for the level of 
destruction caused by Katrina and Rita.
    These storms, coming as they did one after the other, and 
accompanied by massive, long-term flooding, require a different 
approach. Even under the best of circumstances, it is difficult to see 
how these customers, many of whom live in some of this nation's poorest 
neighborhoods, could bear the loss of their belongings, homes, and 
jobs, and also bear the cost of the restoration of the utility system. 
This problem is particularly acute given the extent of the devastation 
to hundreds of thousands of homes and businesses throughout the Gulf 
Coast region. In addition to bearing that cost, the cost of restoration 
will also be unprecedented.
    Entergy estimates that electric rates in New Orleans would have to 
more than double to keep ENO operating during the period 2006 to 2008. 
This is due to a combination of the extraordinarily high restoration 
costs in absolute terms (+16,000%--+24,000% higher than average for 
that company over the last five years) and the fact that the customer 
base among which restoration costs would be spread is significantly 
lower. On a per customer basis, the cost of Katrina would be $4,300 to 
$7,900, a level that is unaffordable given the below-national-average 
income of citizens in New Orleans' citizens before the storms. Clearly, 
the federal government must provide alternative means of funding the 
restoration and the cost of rebuilding one of the exceptional areas in 
the United States, the City of New Orleans and the Gulf Coast region.
    Some may ask, ``Why should the federal government take a role 
different from the one it has taken for years through its well-
established programs for natural disaster and emergency management?'' 
The answer, I believe, is four-fold:

          1. Unprecedented levels of damage and destruction caused by 
        Hurricanes Katrina and Rita;
          2. Unprecedented flooding for an unprecedented period of time 
        resulted from levee failures in and around the New Orleans 
        area;
          3. Unprecedented displacement of a large number of people for 
        an indeterminate period of time. This includes a very 
        significant portion of the population of the City of New 
        Orleans and virtually the entire population of St. Bernard 
        Parish.
          4. The extraordinary level of poverty among large segments of 
        the population of the region--citizens who would be required to 
        pay the cost of restoration through regulated utility rates if 
        federal assistance is not provided to protect them from this 
        unaffordable burden.

    In short, the potential rate effects of the enormous restoration 
costs and the loss of customer base will stifle any form of economic 
development--much less full recovery--if the federal government does 
not intervene. In such a scenario, the rates for power services--
electricity and gas--will be so abnormally high that no industry will 
locate here or bring new jobs that are the engine of economic recovery 
and growth.
    We cannot let that happen. The City of New Orleans and the 
Mississippi Gulf Coast have too much economic, social, and cultural 
importance to the nation. We urge you at the federal level to do 
everything that can be done to reduce the burden on customers who 
already have lost so much, and to restore safe and reliable utility 
service.

                    THE NEED FOR FEDERAL ASSISTANCE

    We must put in place immediate, direct federal assistance for 
utilities serving the Gulf Coast region, particularly ENO, which, 
unlike municipal utilities or cooperatives, are not eligible under the 
Stafford Act for emergency financial assistance to pay for restoration 
and rebuilding costs under existing federal law. There are several ways 
in which the Congress can help those who were hardest hit by Katrina 
and Rita.
    For example, enactment of the Privately Owned Utility System 
Restoration Act of 2005 (modeled after the post-9/11 Relief Act 
provided for the Airline industry) would provide financial compensation 
to electric and gas utilities to recover the direct costs resulting 
from Hurricanes Katrina and Rita for plant, equipment and restoration 
costs, as well as providing financial compensation through 2007 to 
cover the incremental losses for those companies which have significant 
and sustained loss of customers. A provision providing compensation for 
direct and incremental costs is included in the Landrieu/Vitter 
``Pelican Bill'' (S. 1765 & S. 1766), which was introduced in the 
Senate on September 22, 2005 and referred to the Senate Committee on 
Finance.
    We would also urge the Congress to consider other federal 
legislative efforts to provide financial relief to help utilities such 
as Entergy and Entergy New Orleans rebuild the Gulf Coast region.
    Another approach to providing financial assistance is through the 
Department of Housing and Urban Development under the Community 
Development Block Grant (CDBG) program. Community Development Block 
Grants appear to be a viable approach to providing direct federal 
assistance to utilities. Congress used CDBG funds to provide direct 
assistance to Consolidated Edison (and other utilities) following the 
September 11, 2001 terrorist attacks.
    These grants, if funded and dispersed on a timely basis, can 
significantly mitigate costs that would otherwise be passed through to 
utility customers. Entergy strongly recommends that the CDBG program be 
modified to fit the extraordinary circumstances resulting from Katrina 
and Rita. For instance, Entergy is recommending to Congress that the 
CDBG program and funds by tailoring language to directly target 
electric and gas utility companies so that there is no ``battle'' among 
other service providers (phone, cable, etc.) for such grants. Funding 
for these other entities should be done separately so as to not impede 
financial assistance to electric and gas companies. Restoring electric 
and gas service is simply too important to the City, region and the 
national economy.
    Additionally, Congress must streamline the CDBG fund distribution 
process. Entergy recommends that Congress itself must set specific 
statutory timetables and periods during which the CDBG funds must be 
distributed.
    Finally, Congress must recognize the special and unique 
circumstances of New Orleans generally, and ENO specifically. As noted 
earlier, New Orleans is home to some of the poorest citizens in the 
country. This has always presented special challenges for ENO. That 
challenge has become exponentially more difficult as a result of the 
significant and perhaps sustained loss of ENO's customer base as a 
result of hurricane Katrina and Rita, and the associated flooding. 
Simply put, increasing electric rates to cover storm and on-going costs 
would place far too great a burden on those customers remaining or 
returning to the City, and is therefore not a viable alternative.
    Thus, in order to recognize these unprecedented conditions, Entergy 
recommends that Congress implement a means of direct federal 
assistance, perhaps through CDBG funds, that can be used for those 
electric and gas companies that have and will continue to suffer as 
result of this dramatic and potentially sustained loss of customers.
    To ensure that only those utility companies in such dire straights 
are eligible for such relief, Congress must also establish specific 
eligibility requirements for such federal compensation. One approach 
would be to limit this relief to a company that has seen its customer 
level return to no more than 80% of its pre-Katrina/Rita levels.
    A third alternative for providing federal relief is through a 
waiver of the Stafford Act. The Federal government has intervened with 
immediate financial assistance to utilities on the north shore of Lake 
Pontchartrain (electric cooperatives) that were impacted by hurricane 
Katrina, but has not and cannot do so for the privately-owned utilities 
on the south shore of the lake without Congressional intervention. Who 
can seriously claim that customers of utilities on the north shore 
deserve aid and protection against crippling rate effects, but those on 
the south shore--many of whom have been commanded not to return to 
their homes for the last month due to flooding--do not? In this time of 
need, such disparate treatment cannot be justified.
    This disparate treatment stems from the fact that privately-owned 
utilities are not eligible to receive financial assistance from the 
Federal Emergency Management Agency due to a statutory prohibition on 
such funding in the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act. A waiver of this provision was included in the 
``Pelican Bill'' (S. 1765 & S. 1766), and the need and basis for such a 
waiver of the Stafford Act is clear in my view. This type of waiver 
would provide direct assistance for infrastructure restoration of a 
critical national interest and for immediate and permanent relief of 
these customers who are beset with massive losses due to these storms. 
The rates, terms and conditions of service to customers are heavily 
regulated by state and local regulatory authorities (i.e., the 
Mississippi Public Service Commission, the Louisiana Public Service 
Commission and the Council of the City of New Orleans). One of the key 
features of utility regulation is that the utility and its shareholders 
are entitled to charge only the rates set by the government, in 
exchange for which they are given the opportunity to recover all of 
their costs of doing business--including their cost of capital. Without 
assurance that investors will obtain a return on their investments, the 
investors will not provide the funds necessary to finance the 
restoration.
    Without direct federal assistance, the customers remaining on the 
utilities' systems will face enormous rate increases. This would 
cripple any hope of economic recovery for the region and discourage 
people from returning as utility rates in those areas would be 
unacceptably high. Such rates would initiate a regulatory ``death 
spiral,'' from which there is no means of recovery. For the City of New 
Orleans, this is a potential doomsday scenario. Even if there were a 
foreseeable and significant customer base for ENO, something that no 
reasonable person could confidently predict will occur even in three to 
ten years, the rate increases to the remaining and returning customers 
would be unsustainable. Without federal intervention, these costs will 
cripple the City's and the region's economy for decades and render the 
local utility unable to restore this vital infrastructure. We strongly 
urge that Congress pass such a waiver immediately. President Bush 
committed the country to rebuild the City of New Orleans in his 
September 15th speech from historic Jackson Square. The ultimate 
economic and social recovery of the City will be difficult and made 
even harder if there is not a commercially viable local electric and 
gas utility. Yet without direct federal aid, a company such as ENO that 
has sustained such a significant erosion of its customer base cannot 
maintain safe and reliable on-going operations and provide the 
necessary foundation for the City's economic restoration and growth.
    You have seen the pictures of the devastation, but this isn't about 
pictures or devastation; it is about the recovery, about the future and 
about hope. The City of New Orleans can only have a future if it can 
obtain the federal financial assistance necessary to rebuild its 
infrastructure. Obviously, that infrastructure includes that of the 
electric and gas utility that serves the City and its citizens.
    We ask for your assistance so that we can continue to help one of 
this country's great Cities get back on its feet.
                                 ______
                                 
                  COLLINS, MS FUEL DEPOT EVENT SUMMARY

    Hurricane Katrina knocked power out to millions of customers in MS 
and LA. The outages impacted all classes of customers especially energy 
sector facilities such as refineries, pipelines and fuel depots. This 
led to a gasoline crisis in the midst of restoration efforts. One such 
facility was a fuel depot located in Collins, MS in the Mississippi 
Power Company (MPCo) service area. A portion of that facility is served 
from the west by South Mississippi Electric Power Association (SMEPA), 
but an overwhelming majority of the facility is served by MPCo from the 
South. SMEPA was able to reenergize its portion a day after the storm, 
but this only supplied power to a few of the facilities in this large 
complex.
    Mississippi Power Company's distribution facilities were brought up 
in quick time, but transmission facilities that served this facility 
from the South were badly damaged. MPCo, recognizing the importance of 
this facility, considered providing power from a different route from 
the east and immediately began work to provide this interim fix.
    Four days after the storm on Friday, September 2nd, Entergy's 
Transmission group received a call from Southern Company's transmission 
group requesting assistance. The damage to MPCo's transmission 
facilities were much worse than originally thought and it became 
apparent that it would take too much time to rebuild their transmission 
facilities to serve the fuel depot in Collins. While surveying the area 
by helicopter the Southern Transmission group assessed a 230 kV 
transmission interconnection segment south of the Mississippi border in 
Louisiana just north of Bogalusa, LA that belonged to Entergy 
Louisiana. Southern believed it would be quicker to repair this damaged 
transmission tie and feed power into the Collins Fuel Depot by tying 
into the Southern/MPCo transmission system that ran from the MS/LA 
border through Hattiesburg, MS North to Collins.
    In addition, EMI had received calls from MEMA, FEMA and DoE asking 
if there was anyway they could help with restoring power to the fuel 
depot in Collins. They identified this as a high priority in helping to 
resolve the fuel crisis that was mounting in the area.
    Entergy had previously assessed this transmission tie and given it 
a low priority to repair since it was only an interconnection tie and 
was not used to directly serve any Entergy customers. After receiving 
the call Entergy recognized the importance the Collins fuel depot meant 
to the growing fuel crisis and immediately began diverting resources 
working on restoration in Mississippi to this very isolated 
transmission tie located in Louisiana marshlands.
    While the damage to these transmission facilities were less than 
those experienced by MPCo, they were still significant. The 
transmission line in question ran some 20 miles north of Bogalusa, LA 
to the MS border. The assessment identified a dozen broken arms, three 
spans of transmission lines downed and three transmission structures 
along a 4 mile stretch of marshlands. Furthermore, the location of the 
downed structures were in an in accessible area and after discussion 
with surrounding landowners, Entergy soon realized that a two mile road 
would have to be cut through dense forest to the damaged structures. 
Workers also soon learned that the structures were so badly damaged it 
would take weeks to reconstruct the towers so engineers began looking 
for alternatives. The plan they came up with, airlift three 
transmission structures from existing transmission facilities on dry 
ground into the marshlands.
    Work got underway on Saturday, September 3rd, first priority 
cutting the two mile long road through dense forest. The next 
challenges involved locating existing transmission structures and a 
helicopter capable of lifting 7,000 lbs. A sky crane was located in 
Oregon, but it would be a week before it was available. A call was 
placed to the Mississippi National Guard who gladly provided a Chinook, 
capable of lifting 10,000 lbs, to assist with the restoration.
    After working through numerous resource and environmental 
challenges, this team of 120 Entergy personnel and contractors 
completed restoration by Saturday, September 10. An event that should 
have taken weeks to complete was completed in days. Through the use of 
ingenuity and creativity these individuals helped resolve a fuel supply 
crisis that was hampering restoration efforts in Mississippi.

    The Chairman. Thank you very much.
    Senators, normally we would just proceed to Senator 
Bingaman and move around, but with his permission--you have 
time, do you not? I am going to waive. Is there any Senator who 
has an absolutely urgent appointment somewhere else who would 
like to ask, or they cannot stay? I do not want to do that 
always, but it has been a very, very important hearing. Is 
there anybody who must ask a few questions or they will not be 
here? You are all very generous if you do not.
    Senator Talent. You are tempting us all.
    [Laughter.]
    The Chairman. But you are all being very, very 
understanding that I am being generous and you are not 
accepting it. So, Senator Bingaman, you are first.
    Senator Bingaman. Thank you very much, Mr. Chairman. I 
thank all the witnesses for your excellent testimony.
    One issue I wanted to get into relates to an amendment that 
Senator Alexander offered during the markup on the energy bill, 
an amendment to require efficient dispatch, as I recall it. I 
supported the amendment. I thought it made sense, essentially 
saying that we should use our most efficient power generation 
plants first to meet our demand and our less efficient ones 
should be left until they are absolutely needed.
    As we are urging Americans to save and to be efficient in 
their use of energy and to cut down their use of natural gas, 
it seems to me eminently reasonable that we do the same thing 
with regard to the electric utility industry. I am under the 
impression that 23 percent of our natural gas consumption today 
is essentially natural gas that is consumed by the power 
industry to produce electricity. And requiring them to go ahead 
and produce that from the most efficient plants that they have 
available seems to me to make absolute sense. I believe, Mr. 
Liveris, you had this in one of your recommendations.
    I wanted to ask Mr. Hebert. One of the concerns that I have 
had is that in the rebuilding that you folks undoubtedly have 
to accomplish, and we want to see you accomplish, there has 
been criticism of your company by the Louisiana Public Service 
Commission saying that there is too much use by Entergy of old 
and inefficient natural gas units and that there are more 
efficient units that could be used, but your transmission 
system has not been configured to take advantage of those. I 
would be interested in whether you think that is a valid 
criticism. Is this an opportunity?
    I know all of the catastrophe that we have and that you are 
faced with, and I am sympathetic to that. But if you are going 
to rebuild that transmission system, is it possible for you to 
reconfigure that so as to use the most efficient power 
generation assets available in your region, even if those do 
not belong to Entergy, even if those belong to independent 
power producers? Because my understanding is that there are 
some very new, more efficient plants that are not able to sell 
into your system because you are just not configured to accept 
their power. Any reaction you would have to that I would be 
interested in.
    Mr. Hebert. I have a huge reaction. Senator Bingaman, you 
and I have been working toward this end for a long time, and 
you know I am very vocal about my opinions and certainly I will 
do that here.
    First, let me say that we do have a pending matter before 
the FERC with regard to what you are talking about, so I will 
be a bit careful. But also let me suggest to you several 
things.
    We have been working with many different facets of the 
Federal Government: the Nuclear Regulatory Commission, the 
Federal Energy Regulatory Commission, and the Department of 
Energy. As recent as last week, we had Gil Benderhal--I believe 
is how you say his last name. I will apologize to him if I say 
that incorrectly. But he is, I think, with the Office of 
Electricity Delivery and Energy Reliability. We had them down, 
and we are working in concert with the DOE and they are helping 
us and providing us with some information. But they came down 
and actually assessed our approach of restoration and assessed 
our restoration in infrastructure.
    So, having said that, I think that would be evidence to you 
that we are doing anything and everything that we can to make 
certain that the system that we rebuild is an operational 
system that functions reliably and, yes, certainly as 
efficiently as possible.
    But since I have laid that foundation for you, I think 
there are several other important pieces of information that 
this committee needs to know about.
    When you look at a generating station--and it does not 
matter what kind of generating station it is, but what does 
matter about it is something sometimes other than efficiency. 
Efficiency is a small factor when it comes to us looking at and 
deciding whether or not we use that facility. It is probably 
important, if you need load following, to use load following 
and combine that with efficiency. It is probably important if 
you need voltage support. In other words, you have a system 
here but you have got to get power over here, and if this 
system is not running, you lose the voltage support. So from a 
physics and engineering standpoint, you lose your ability to 
transmit power. It is probably important to look at something 
other than just efficiency.
    Having said that, I do not want you to think that 
efficiency is not on the tops of our minds. I do not have to 
tell you how much we worked toward that in Entergy. You know 
that. But you have to look at all the factors.
    Having said that, when I was at FERC--I believe it was in 
1997, and I have told this story 100 times, but I want you to 
know it because I do not think I have told you and I think you 
need to know it. I had a meeting with a group of merchants when 
I was a FERC commissioner, and I know Mississippi and Louisiana 
like the back of my hand because that is my home. I have spent 
my adult life in the energy industry. I started in natural gas, 
but then ended up in electricity. And I told the merchants at 
that time, do not site here. It is not where the constraint is. 
It is not where the bottleneck is. It is not where the 
congestion is. Do not site there. It is going to cost you a lot 
when you do it. The upgrades are going to be horrific. Why 
would you do that?
    But you have got to remember in 1997, as we talked about 
gas prices, it was a very different day. In 1997, what they 
were telling me is we are going to make enough money. We are 
going to pay for that interconnection. Do not worry about that. 
So much so that they contracted with utilities to do that very 
thing.
    I told them they were putting them in the wrong places. It 
is going to be expensive to fix that sometimes.
    But I will close with this, and I think this is 
significant. Our energy needs in 2004--34 percent of the energy 
we purchased from non-affiliate merchants. I think that is very 
significant.
    But we always look at efficiency, and I appreciate your 
question.
    The Chairman. Senator Bingaman, you had a number of 
questions, but you do not have any time left.
    Senator Bingaman. I know that.
    [Laughter.]
    The Chairman. I am going to start. When we give you a 
question, we are going to set a limit on how long you can take 
to answer it.
    [Laughter.]
    Mr. Hebert. It was a difficult question, Mr. Chairman, but 
it was an important question.
    The Chairman. Well, it was one that seemed to stir you up 
for some reason.
    [Laughter.]
    The Chairman. In any event, on this side we are going with 
the next Senator. I think that is Senator Alexander. Senator 
Thomas, you are next on this side, Senator Akaka on that side.
    Senator Alexander. Thank you, Mr. Chairman. Thanks to all 
of you for very helpful testimony. I am going to ask several 
questions and if you could give me short answers, I can get 
more questions in because this is a learning experience for all 
of us.
    I greatly appreciate Senator Bingaman's question about the 
efficient dispatch of natural gas. We have lots of old 
inefficient gas plants around and we have lots of new gas 
plants around. The principal driver for demand of natural gas 
is the fact that in the 1990's almost all of our new plants for 
electricity were natural gas.
    So, Mr. Liveris, what should we do about the efficient 
dispatch of natural gas, and how much would that help in terms 
of stabilizing the price of natural gas?
    Mr. Liveris. Thank you, Senator Alexander.
    There is no question that combined heat and power, co-gen, 
facilities are the most efficient, technically proven, and they 
should be given priority to dispatch into the grid. There are 
also combined cycle power stations that we could actually put 
in front of single fire-powered stations. So what I am really 
saying is that there is a priority. There is a tier.
    To be very brief, this could free up 644 bcf of gas.
    Senator Alexander. How much gas is that? Can you give us 
some way to imagine it? Is that a little bit or is that a whole 
lot?
    Mr. Liveris. Well, it is a lot. I totally agree with the 
comment that this is a complex solution, and this is one part 
of it. So it will not solve everything. The studies we did when 
we brought this into the componency, LNG, more OCS gas, when we 
put all that together, we can solve the problem. But some will 
be 2 years. Some will be 5 years. Some will be 10 years.
    Senator Alexander. What is the timeframe for us to deal 
with the issue of automobile fuel efficiency?
    Mr. Liveris. A 0-to-2-year timeframe. It will not solve the 
probably immediately. Natural gas prices will stay up high for 
a while, but the futures markets will start to see that we have 
taken action to actually be more efficient and increase----
    Senator Alexander. But there are not very many things that 
are in the 0-to-2-year timeframe that make much difference. Is 
that not correct?
    Mr. Liveris. There are not. Correct. But your action--your 
action--will signal to the futures markets. Why did it go up 
instantaneously? It was basically demand destruction that is 
going on. Fundamentally it is saying, go away at $14, because 
it will not get any more supply anytime soon. If we work on OCS 
today and we get gas in the 2-to-5-year timeframe, the futures 
market will bring that price down.
    Senator Alexander. You said the cost of raw material, 
natural gas, was 50 percent of your cost of production today. 
What was it 5 years ago?
    Mr. Liveris. Twenty-five percent. It has doubled.
    Senator Alexander. May I move to Mr. Cavaney with a 
different point? Senator Johnson and I introduced a bill called 
the Natural Gas Price Reduction Act. Senator Domenici and 
Senator Bingaman and others took parts of that and added many 
ideas of their own. In a way you could say that the energy bill 
that we passed 2 months ago was a natural gas price reduction 
act because it was conservation and then alternative energy and 
then new supplies, as well as other things. Now I think we need 
to have more aggressive conservation, more aggressive new 
supplies.
    Let me ask you very specifically about one idea: Lease 181. 
Lease 181 is basically a line, I believe, that could be drawn 
in the Gulf of Mexico between Florida and Alabama. Is that 
correct?
    Mr. Cavaney. Essentially, with a few variations, yes.
    Senator Alexander. Does the President today have the 
authority to draw that line?
    Mr. Cavaney. In concert and consultation with you all, yes, 
he could do that.
    Senator Alexander. So, does he need any new legislation in 
order to draw that line?
    Mr. Cavaney. I would have to check and get back with you. I 
am not exactly sure it is precise in terms of how you interpret 
it. You would have to talk to the legislative counsel here, as 
well as at the White House.
    Senator Alexander. Well, would you let me know what your 
opinion is?
    Mr. Cavaney. I will.
    Senator Alexander. Because my opinion is that the 
administration could draw the line.
    Mr. Cavaney. It is our understanding it can be lifted, yes.
    Senator Alexander. If the line were drawn and if it were 
100 miles away from Florida, which is further away from Florida 
than Cuba is, for example, how much natural gas might be found 
on the Alabama side of the line?
    Mr. Cavaney. We cannot be exactly that precise, but it is 
known and there is enough exploration that has been done that 
the eastern part of the gulf, the area you are talking about 
generally, is considered to be the most gas-rich part of the 
gulf. Therefore, there are some very, very rich, almost 
exclusively dry gas deposits of significant size, closer in, 
but that also indicates to the point--as I said, everything 
over there in that area--you are talking about 181, which is 
why it was so attractive when we were attempting to get it.
    Senator Alexander. Can you give me any rough idea of the 
dollar value or of the amount of gas? Mr. Liveris was trying to 
estimate how much natural gas efficient dispatch might save. 
Could you either later or now----
    Mr. Cavaney. Yes. We can get that to you. We could tell you 
about various elements. The closer-in gas is more significant, 
but out beyond 100 miles, we can break that out.
    Senator Alexander. Well, my sense is it is a huge amount of 
gas.
    Mr. Cavaney. A huge amount of gas.
    Senator Alexander. Is it probably the first place to go to 
get the largest amount of new natural gas most quickly?
    Mr. Cavaney. Yes, it is because it is also closest to some 
of the most attractive and needful markets.
    Senator Alexander. How long would it take? This is my last 
question, Mr. Chairman. How long would it take if the President 
drew the line for the gas to be drilled and be into the market 
and would that not have some effect on the futures market and 
begin to help stabilize gas if the market knew that that gas 
was coming?
    Mr. Cavaney. There is no question it would send a very 
powerful signal. I want to associate myself with the comments 
before. The signal that is being sent by public policymakers in 
America is natural gas is not something you should count on at 
$14. And if we do not turn this around, you are going to have 
demand destruction, the likes of which we will not even to be 
able to calculate. Once you move those people away, they will 
not be here.
    I did want to tell you that the President does have the 
authority to move that through MMS. They would have to go 
through their lease sale. There are already some leases along 
those areas that could be used, but it is very, very important 
to reinstitute that part of the lease sale. Then you could do 
it and they could be up within probably 5 to 7 years.
    Senator Alexander. So, Mr. Chairman, as I hear him, in 
plain English, we do not have to pass a law for the President 
to draw a line on 181, which would produce a huge amount of 
natural gas and send a signal to the market.
    The Chairman. I heard it.
    Senator Smith had an observation.
    But let me just say you asked them to give us the estimates 
of what we could count on if this occurred. We can also get 
that from the Federal Government. I think as an aftermath we 
should do that. We should have that in here.
    Yes, Senator Smith.
    Senator Smith. Mr. Chairman, I wonder if I could ask my 
colleagues--I know I am not next--if I could ask one question 
to throw in the mix of this because I do have to leave now.
    The Chairman. Senator Akaka, is that all right with you?
    Senator Akaka. Fine.
    The Chairman. All right, Senator Smith. We are going to 
hold you to one question.
    Senator Smith. Thank you, Senator Akaka.
    Gentlemen, we talked a lot about natural gas and the 
problem and how it is being used to create electricity, 
frankly, rather inefficiently. But that has all been driven, in 
part, by Government policy to meet the Clean Air Act. But the 
Government owns many assets that are non-polluting, non-global 
warming, if you will, nuclear, and specifically hydro. These 
are assets that run at half speed at best.
    Are any of you aware of the administration taking any 
efforts to utilize these power assets to get us through this, 
at least in a brief period of time?
    [No response.]
    Senator Smith. Thanks, Mr. Chairman.
    The Chairman. Senator, what public assets are you talking 
about?
    Senator Smith. Well, Mr. Chairman, obviously we have 
capacity in hydroelectric that is limping because of 
environmental restraints on it. We could light up most of the 
country if these assets were utilized. I just wanted to make 
that point. We are in an emergency and maybe there is a brief 
period of time we ought to use what we already have to help the 
American people get through this crisis.
    The Chairman. As we ask questions, you might ask Mr. Curtis 
what he thinks about that. That would give us an idea. We will 
ask you in a while.
    Mr. Curtis. At the risk of feeling like the skunk at the 
party here, I----
    The Chairman. Wait a second.
    Mr. Curtis. I am sorry. I will wait my turn.
    The Chairman. I was not going to ask you to comment now 
because that is not his question. Let us go on here. That is a 
question somebody is going to ask you.
    Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Since we are talking about natural gas, let me ask an easy 
question to Mr. Helms. Some industry analysts have posed the 
idea of a strategic natural gas reserve that could be used in 
times of supply emergency, as we have now, and similar to the 
SPR, Strategic Petroleum Reserve. What are your pros and cons 
of this idea?
    Mr. Helms. Senator, I think it is very important for this 
country to have a robust storage backbone, if you will. The 
challenges for our industry to develop that storage is the same 
thing as my colleague to the right said, that it takes a 
certain amount of base gas to provide the pressure to produce 
the gas that you put into storage, and at $14, there are no 
economics in the world that will permit you to do that. It 
takes storage development from inception, through permitting 
and construction, between 2 to 3 years to be able to get there.
    The industry has gone through a period of deregulation over 
the last 15 years where the interstate gas transmission 
companies used to be the supplier of the natural gas to the 
market. Today that is not the case. So the storage is held by 
others, local distribution companies, and users like Dow, and 
also trading and marketing companies.
    So I think the issue really gets to where do you want to 
have the storage, who is going to go ahead and buy the gas to 
put it in storage, and then in those periods of time that you 
need to allocate or withdraw from storage, what is the 
mechanism or the processes and procedures to do that. And we do 
have a very competitive market today.
    Senator Akaka. Mr. Liveris, would you have a comment on 
this?
    Mr. Liveris. I would just reinforce what Mr. Helms said. 
There is no question it will be a powerful signal. More storage 
will reduce volatility. But the issue is the $14 number, which 
is why the 181 question and why the whole notion of releasing 
OCS becomes so powerful. Increased supply will lower price in 
the futures. Then you can start working on storage as a check 
against future vulnerability, which is really the key. You will 
never ever get there the way we have with petroleum, though.
    Senator Akaka. Thank you.
    Mr. Hebert, as you know, I have just returned with my 
colleagues from New Orleans and Baton Rouge and was struck by 
the contributions of Entergy employees during the hurricanes 
and the needs and challenges facing the company to rebuild and 
provide reliable electricity to the region. You have eloquently 
mentioned that.
    With respect to Federal assistance, can you expand more 
about the unique circumstances in your case and why Entergy in 
New Orleans should receive Federal financial assistance? Are 
you suggesting this kind of financial assistance be available 
for any utility that suffered a severe natural disaster, or do 
you see this need limited particularly to New Orleans' case?
    Also, you mentioned in your testimony using community 
development block grants as a way to provide Federal assistance 
to utilities, citing assistance to Consolidated Edison and 
other utilities as a precedent, and provided suggestions on how 
to improve the block grant process. Even without a streamlined 
distribution process and targeting language would financial 
assistance through block grants still be a helpful form of 
assistance or are other options needed?
    Finally, do you have further ideas on additional mechanisms 
for Federal financial assistance?
    I know I have many questions here. If you choose to, you 
can answer some of it because of time, and you can provide 
responses for the record.
    Mr. Hebert. Senator Akaka, thank you. What I will do, at 
the committee's request, is answer a couple in about a minute 
and then provide for the record a more detailed answer because 
that is the crux of why I am here.
    I think fundamentally it is an equity argument. As we look 
at this--and now we understand that transmission and 
distribution is something that is not insurable within any 
reasonable means after hurricane Andrew--is it fair to continue 
to distinguish between customers and say that customers of one 
group, if you live in one area, your rates get to stay low 
because you get Federal assistance; if you live in another 
area, you do not? I think that should be changed. So having 
said that, I think that answers the simple and easy question.
    As far as Entergy-New Orleans itself, the reason it is 
different is that for the first time in American history, an 
American city, an entire city, an entire utility operating 
company, has been taken off the map. We have no revenues. We 
have nothing. We need immediate assistance there, and that is 
why something like waiver of Stafford or quick legislation, 
something to give an immediate cash infusion of, say, $475 
million or somewhere close to that, would be sufficient.
    The community development block grants would be more in 
line with doing similar to what you did for ConEd after 9/11, 
understanding that we do not want to raise their rates either. 
So spread that among the other investor-owned utilities. I 
think that would be the fair approach.
    But I will give you a much more detailed answer. But I 
think the bottom line is, should not all customers be treated 
the same?
    Senator Akaka. Thank you for your response.
    The Chairman. Senator Akaka, would you yield?
    Senator Akaka. Yes.
    The Chairman. I do not want you to answer, Mr. Hebert, but 
I just want to make an observation. I understand clearly the 
unfairness or the lack of equity and have great empathy. But I 
think when you tell us you have no customers, the issue then 
comes, are not some of them never going to be customers? Have 
they not stopped being customers in the future because of what 
has been destroyed? That would have to be taken into 
consideration as part of some plan. I saw it and all those 
houses that are not customers now--and that is well over two-
thirds of the customers, not two-thirds of the use--many of 
those are never coming back as users. I do not know what other 
people think.
    Mr. Hebert. Yes, sir, Mr. Chairman. The people of New 
Orleans would never ask you to give them money for something 
they did not do. If we do not restore an area, we certainly 
would not have costs.
    The Chairman. I understand, but it might lower the price 
too because you might not have to do all of it.
    Mr. Hebert. Let us hope so.
    Senator Akaka. Mr. Chairman, my time has expired.
    The Chairman. The next Senator is Senator Thomas.
    Senator Thomas. Thank you, Mr. Chairman.
    Mr. Cavaney, we hear from the industry that there will be 
an adequate supply of natural gas for the winter. Is that a 
valid statement?
    Mr. Cavaney. As best we can tell--and obviously, the 
biggest variable is always the weather. If you get an extremely 
harsh winter, there will be strains on the fuel supply that 
will be exceptional. But if we have a normal winter or just 
moderately colder than normal, we think that there is going to 
be enough fuel available, natural gas, home heating oil and the 
like, that we will be able to work our way through that.
    Basically it has already been announced by EIA that the 
cost of those fuels is also going to be very high, about 40 
percent higher than normal. So at least the way it is right 
now, we are hoping that the availability will continue. The 
cost will be high.
    Senator Thomas. Well, is that the relationship? Because the 
availability is there, you would not--what was the cost 3 
months ago?
    Mr. Cavaney. This projection was pretty much--you could see 
this getting----
    Senator Thomas. What was the cost 3 months ago?
    Mr. Cavaney. I do not know exactly. I can find out for you.
    Senator Thomas. It was not $14.
    Mr. Cavaney. No, it was not. But natural gas also interacts 
with home heating oil and with propane. There is a mixture and 
they all interplay with one another. So one price does not make 
one market.
    Senator Thomas. Well, I guess you cannot help but wonder 
sometimes if there is enough of a product, why is there that 
much of an increase. It begins to make you wonder a little.
    Mr. Helms, maybe it has something to do with 
transportation. Now, you are in the transportation business, so 
obviously you want to use gas as much as possible.
    Mr. Helms. We certainly want to transport it, and I will 
tell you, Senator, that our people are doing everything they 
possibly can to get it in.
    Senator Thomas. What is the capacity to do it?
    Mr. Helms. We can do it, but if we do not get the gas 
processing plants at Venice, at Toka, and Wyclosky, Louisiana, 
for three examples, back online, we cannot transport the gas. 
So my colleagues upstream can do everything they want to get 
the gas flowing, but if it is not processed, it cannot go 
downstream.
    Senator Thomas. But he said there is going to be enough, I 
believe. It means it is already processed. Now, there is some 
confusion here as to whether we are short of a product or 
whether there is a product there. And then you say, well, how 
come the price has gone up quite as much as it has.
    Mr. Helms. Sure. Senator, first, let me tell you we have no 
direct economic interest in the price of the commodity. We do 
not own it. We do not take title to it.
    Senator Thomas. But your ability to transport it has 
something to do with it. I am from the West where there is 
production, and some of the reasons why more production is not 
there is because we do not have the transportation to get it 
out.
    Mr. Helms. Right. We have the infrastructure in place. Our 
infrastructure has been damaged significantly.
    Senator Thomas. Not in the West it has not.
    Mr. Helms. We are working hard to put the pipes back in the 
ground. The problem we have is we cannot find lay barges. I 
cannot get a dive boat out to my Vermillion 245 platform 
because those dive boats are being used in other sectors of the 
industry.
    Senator Thomas. One of the things we have to be looking at 
is the future a little bit. I know, first of all, we have an 
impact immediately, obviously. For instance, you talk about the 
generation. You know there are some other ways to generate 
electricity besides gas. Indeed, given the whole market, there 
is probably a better reason to be using coal than there is gas. 
We have more availability of coal. So that is one of the things 
we need to be doing, making some differentials between the use 
of the available energy.
    So I hope that we are thinking a little bit about the 
future in terms of how Dow has to have gas for some of their 
manufacturing. You mentioned we have not had generation plants 
built recently. We have not. And the ones that have been have 
been smaller ones close to the market because we have not had 
the transportation to get them there. So I guess what I am 
saying is we have some obligations to look at in the future, 
not just talk about gas, but the use of gas, and so on.
    Yes, sir.
    Mr. Liveris. If I may, Senator. 69 percent of the gas 
processing capacity is down. So there is not enough gas to be 
provided. So what happens is even if you say that the rigs can 
pump the gas out, he cannot get the extracted gas to us. What 
that means then is demand destruction. The price 3 months ago 
was $8 in the futures market. Today it is $14. People were 
thinking already with the cold winter, followed by a hot 
summer, there would not be enough gas to supply through these 
processing plants. Period. So there is true shortage upstream. 
There is processing capacity down, and at $14 people are 
shutting down. The plant you saw at St. Charles yesterday is 
going to be kept down for 4 months through the winter. We have 
no choice. I cannot get the gas.
    Senator Thomas. And there is not enough gas available, 
which is what we hear.
    Mr. Liveris. At $14 I cannot run economically, so I have 
got demand destruction. That is really the answer.
    Senator Thomas. I am not talking about the price. I am 
talking about the availability of the product.
    Mr. Helms. Senator, 7 billion cubic feet are shut in today 
as a result of the storm. It is not flowing. We cannot get our 
liquid separation plant operable for another 5 weeks. It had 8 
feet of salt water under it--every pump, every motor, every 
electrical piece of equipment. And we are not alone. The 
refineries, Entergy, my colleagues on both sides have the same 
demands for the electricians----
    Senator Thomas. What is the total demand in the country?
    Mr. Helms. About 60 billion cubic feet.
    Senator Thomas. Yours is 7. Yours is 10 percent that is 
shut down for a while.
    Mr. Helms. We will get some of that back on by November and 
by December and January, but I would not be honest with you if 
I said we will have all seven back on by November 1.
    Senator Thomas. I guess I am just trying to really get a 
determination as to whether this kind of a price increase is 
relative to the amount of gas that is available. Frankly, I 
guess that is a hard question, but we need to talk about it 
some more.
    Mr. Helms. It is that marginal supply. It is the 
incremental supply that sets the price for the balance. Our 
local distribution companies have gas in storage and they have 
continued to buy at $7, $8, $9, $10, $14 to make sure that 
consumers have gas this winter.
    Senator Thomas. I see. Thank you.
    Senator Allen. Mr. Chairman, I have conferred with Senators 
Burr and Martinez. I have to be on the floor to argue on an 
amendment very shortly. I thought this would move more quickly. 
If I may, if I could pose my questions now.
    The Chairman. Sure, you are next.
    Senator Allen. All right. Thank you to my colleagues from 
North Carolina and Florida.
    Several things. Gentlemen, thank you all for your 
testimony. It was very probative and I think very helpful, and 
I think we need to move forward on a variety of these fronts.
    One thing Senator Burr and I are working on has to do with 
gasoline. I am going to talk about gasoline and then natural 
gas.
    The Government Accountability Office did a study on all the 
different fuel blends we have in this country, over 100 fuel 
blends. What Senator Burr--and I am sure he will talk about 
this--and I are looking to do is reduce it to the, say, three 
to five cleanest-burning fuels, formularies. Non-attainment 
areas pick from those fuels as opposed to having 100 different 
ones.
    Indeed, all of this was predictable. In June 2005, the 
Government Accountability Office said because of the inflated 
number of fuels that we have in this country, it adds 
complexity and costs at refineries. Shipping more special 
gasoline blends reduces pipeline capacity and raises costs. The 
special gasoline blends contribute to higher and more volatile 
prices. Gasoline prices are higher now than they would be if 
gasoline were closer to a single commodity.
    This is something I think we need to work on. It will be 
good for consumers, but it also makes sure that in non-
attainment areas they have clean-burning fuels, working with 
those communities where they have non-attainment areas.
    Second, natural gas. Listening to Mr. Liveris, you are 
saying the same thing I say all the time. We are losing jobs 
every month in this country for people who manufacture tires, 
chemicals, fertilizers, masonry products, and other important 
products. Natural gas permitting, as was said earlier by one of 
the other questioners, in my view, needs to be used for homes 
and for manufacturing. We need to be generating electricity 
maybe out in the West with hydro. But we are the Saudi Arabia 
of the world in coal, and we ought to be using clean coal 
technology. We also need advanced nuclear, and we also ought to 
learn from what the French are doing in reprocessing that spent 
fuel so it is less dangerous, safer, and more efficient.
    In my view, if we were able to do this, there would be less 
of a demand for natural gas for electricity generation and more 
available for manufacturing, so that companies are not going 
overseas where they have lower prices and a more reliable and 
more affordable approach. And if they leave, these chemical and 
fertilizer and tire manufacturers, they are not going to come 
back in here.
    I know this is a controversial issue. I was Governor of 
Virginia at one time and certainly respect the rights and 
prerogatives of the people in the States. The fact of the 
matter is on the east coast of the United States, there may be 
good supplies of natural gas. It is being explored in the 
Bahamas and in Nova Scotia and possibly also Cuba. Florida does 
not want exploration off their coast. I support Senator 
Martinez and the will of the people of Florida. However, the 
people of Virginia, through their representatives, in a 
bipartisan coalition would like to have exploration far off 
their coasts. If Virginia or another State would like to do so, 
I do not think they should be precluded.
    I also believe that it is very important that we, the 
Federal Government, share it with the States. My proposal is 
that they use it for reducing college tuition, use it for 
transportation infrastructure, and either beach replenishment 
or shoreline erosion in Virginia.
    I think that this crisis, as Mr. Hebert said once in 100 
years, recognizes that a lot of progress was made in our energy 
bill. More needs to be done. We have the platform there, but if 
something is not done quickly on some of these fuels that 
Senator Burr and I are working on and I think also increasing 
the supply of natural gas, we are going to be hurting our 
economy and jobs. We are going to clearly continue to allow our 
companies to be at a less competitive advantage or have less of 
a level playing field. Ladies and gentlemen, this is a national 
security issue as well as jobs in our economy and 
competitiveness.
    So if any of you all have any comments on these ideas, I 
would like to hear from you all.
    Mr. Cavaney. Senator, speaking on behalf of the refiners 
and the American Petroleum Institute, we have mentioned this 
and talked with Senator Burr on a number of occasions. We 
strongly support a significant reduction in the number of 
boutique fuels. We think that will add great fungibility to the 
system. It will make fuels more readily available. We would 
love to be at the table when there are discussions about this 
and work in a positive way to continue to make the 
environmental gains we have made with cleaner air, but also to 
get the number of fuels down. We do not know what the magic 
number is, but it is somewhere down in the mid single digits. 
Probably realistically you can satisfy most of the individual 
State needs and still get those numbers reduced.
    I would like to say another thing. We support the opt out 
sort of opportunities that have been promoted by some for 
States that do not want to be a part of the moratoria and would 
like to participate. I would like to just make one warning. We 
represent the people who explore and actually produce natural 
gas and the crude oil. In order to permit, obtain everything, 
get the necessary stuff to do the exploratory after the 
seismic, and determine whether or not you have got something 
that you actually could produce on, as a company, you are 
probably going to spend somewhere between $60 million to $80 
million. Technology today does not allow you, in the 
exploratory process through seismic, to be able to determine 
whether you are going to go in gas only or whether you are 
going to pick up some crude oil or gas liquids or other things.
    So we just want to make sure that the people who are 
promoting gas only understand that there may be a bit of a 
false promise there. You could win and opt in, but with that 
provision, it may be far, far too expensive and too high a risk 
to have anybody to go out there and dig rigs.
    What I would like to just point out is if you look at this 
100-year experience that we had in the gulf here, there has not 
been one single leak of crude oil into the gulf from 
production, let alone natural gas. So I think we have more than 
proved that we can operate in a safe kind of environment, and 
we hope that we will be able to work together on this 
opportunity for States that do want to opt out and have some 
production off their coasts.
    The Chairman. Senator Allen, I am going to let you go first 
this time.
    Senator Allen. All right. Mr. Curtis and Mr. Hebert.
    Mr. Curtis. I would just like to touch on a couple of 
points.
    The Chairman. Let us make sure I understand.
    Senator Allen. They are answering my questions.
    The Chairman. Yes. Is Mr. Curtis to answer your question?
    Senator Allen. Yes, and then Mr. Hebert.
    The Chairman. Fine. Go ahead, Mr. Curtis.
    Mr. Curtis. I will be very brief.
    I made my comments at the beginning and I would like to 
repeat them now. Everyone supports the notion of a balanced 
energy plan. We talked about energy conservation, and then for 
the last 45 minutes of questions, it has all been about more 
production. I would like to bring you back to the immediate 
gains available from energy efficiency and conservation and 
just remind people that we need to do that.
    I think one of the challenges I would like to extend to the 
committee is that I think one of the reasons you are hearing 
this is there are no economic actors at this table who stand to 
benefit from promoting energy efficiency. All these gentlemen 
represent great companies that make lots of good money and do 
lots of good stuff, but they do it by producing energy. There 
is nobody here that makes money by producing energy efficiency 
or renewables.
    The Chairman. Mr. Curtis, we are so pleased that we started 
off by saying we are together for a change, and we want to stay 
together. Okay?
    Mr. Curtis. I do too.
    The Chairman. So if we do not have the right people here, 
it does not mean that we do not want to get the best 
information. So if we need to have a different array of people 
with you to tell us about this, we want them.
    Mr. Curtis. That is terrific, and I look forward to working 
with you and your staff to try to give you some suggestions.
    The Chairman. Because we need them.
    Mr. Curtis. I agree.
    The Chairman. Okay.
    Mr. Curtis. Let me just stop there.
    Mr. Hebert. I will just jump in quickly. To answer Senator 
Allen's question, I think Mr. Curtis has got some real good 
merit there, and so does Red, obviously, but I think it is a 
combination of all of that.
    I apologize for getting a little emotional earlier, but it 
is my family, it is my friends, and I am down there in the 
middle of all of this, and it is a tough time. But we have kind 
of learned to be gatherers again. At night you go out and you 
make sure you have enough gasoline for the next day, enough 
water, and enough ice, and it really makes you focus kind of on 
pure economics again. As we know, the economics of price have 
everything to do with the functions of supply and demand, and 
you hit on that. And you are right.
    But there are some easy-to-grab fruit out there for us. 
Senator Burr and I have had this conversation. I had it with 
Senator Domenici as well. At the Nuclear Regulatory Commission 
right now, if you want to ease some burden on natural gas--like 
our Vermont Yankee plant right now. We have already 
reconfigured our fuel. We have 95 megawatts of up-rate capacity 
that within 3 or 4 days I could have flipped on. You could 
relieve that pressure on some of these gas systems. I do not 
know how much is at the NRC now. I told, I think, Senator Burr 
the other day around 500. Some think there could be as many as 
1,000 megawatts of up-rate capacity at the NRC, and as long as 
that is done safely and securely--I have every reason to 
believe it is--that is something that we could get out there 
quickly and could help us on these gas prices. So I would 
submit that to you.
    [The following was submitted for the record:]

    In the question and answer session at the end of the hearing, the 
discussion shifted to higher natural gas prices and the importance of 
nuclear energy in providing an alternative to natural gas in the 
future. I mentioned the reactor upgrades pending at the Nuclear 
Regulatory Commission and the hope that those upgrades would be 
approved in a timely manner to help deal with high natural gas prices, 
particularly in the Northeast. I am happy to report to you that the NRC 
has approved a 20% upgrade in the operating capacity at our Vermont 
Yankee Plant, saving approximately 7 million MMbtu's of natural gas a 
year. This will save the Vermont consumers over $70 million a year.

    Senator Allen. Thank you.
    The Chairman. What we need to do is we need something from 
you. That may not be something for us. It may be something for 
somebody else who is holding it up, the States or something. We 
need to know whether we should be involved. So would you let us 
know?
    Mr. Hebert. Yes, sir. I am certainly not blaming the NRC. I 
think it is resource agencies and things of that sort.
    The Chairman. But if it is so, this is not the time to have 
that.
    Mr. Hebert. Correct.
    Mr. Liveris. Mr. Chairman, if I can. Senator Allen, I think 
you did a great job summarizing all the components of a multi-
dimensional energy plan on top of the energy act that was 
passed 2-3 months ago. If I add support--and I think we are 
together, Mr. Chairman--to Mr. Curtis's conservation point, 
which is a here and now, I think you have all the components we 
need. What you said plus conservation, we will get a solution 
for America's problems and keep jobs here.
    Senator Allen. Thank you, sir. Thank you all.
    The Chairman. I have been at this hearing for all the time, 
but I stepped out and I did not hear the distinguished Senator. 
So he just discussed the solutions.
    [Laughter.]
    The Chairman. I am very sorry. I am not part of the 
solution. Right?
    [Laughter.]
    Senator Allen. Mr. Chairman, we cannot do it without you.
    The Chairman. I know that. I am quite sure that we cannot 
have a meeting without me, but that is the only reason I am 
important.
    [Laughter.]
    The Chairman. In any event, let us move along here. Who is 
next? Senator Salazar is not here, so we have Senator Burr.
    Senator Burr. Thank you, Mr. Chairman.
    So much has already been said, but I think all of you 
alluded to the fact that predictability is the No. 1 challenge 
for us. I take us backward just a little bit to remind you that 
we did pass an energy bill, and I think the focus of that 
energy bill was to make the future short-term more predictable 
for business, for producers, for environmentalists. My belief 
is that we can move forward. We can move forward with 
conservation. We can move forward with new supply. And both can 
be done in a complementary way. We can live by the rules that 
are out there. The only thing it needs is coordination. I 
think, in its own weird way, disasters bring people together 
where we communicate for once versus all staying in our little 
holes.
    Mr. Cavaney, I appreciate the comments on the boutique fuel 
issue, and we will continue to work with you to try to refine 
that.
    I received an email this week that disturbed me from one of 
my gasoline retailers in Winston-Salem. He is considered an 
unbranded retailer. In his email, he described to me a scenario 
where we have gone through a period of time where unbranded 
retailers have paid as much as 50 cents a gallon more for gas 
than branded retailers. I think you referred to that in your 
testimony as price inversion.
    I guess my question is quite simple. Can you explain to us 
why price inversion occurs? Describe for me, if a supplier 
supplies their name stations 50 cents cheaper than they supply 
a station that does not have their name on it, why that is not 
price gouging?
    Mr. Cavaney. But you have to look at each circumstance. The 
first question you have to ask is usually--usually, not 
always--what happens is the branded stations operate under a 
contract. They have a contract, which means at a certain price, 
which is flexible to some metric that they have set. They can 
be pretty assured of having a supply. Many unbranded do not 
operate under contract. They work off the spot market, and when 
there is plenty of fuel available, they actually have a good 
deal and they can go many, many years actually being able to 
purchase gasoline at a lower cost than somebody who is under 
contract often, and that is their competitive advantage.
    But it works the other way when prices invert and they go 
high, and it is economics 101. What you are now talking about 
is you are getting sparse supply, and therefore the price to 
bid up that incremental gallon of gasoline can go literally 
through the roof.
    So we try and point out--and I have testified to this 
effect--just because two gas stations are across the street 
from one another and one guy's price is 60 cents per gallon 
higher than another does not automatically mean that that 
person is gouging. He may well be trying to collect just as 
much overhead as the other person and being able to try to 
recover his costs. So it is a function of what choice the 
independent businessman or woman actually makes.
    The owned and operated, which means by the refineries, we 
own the station and we operate them, are well less than 10 
percent. So over 90 percent of the decisions that are made on 
how I want to purchase my gas and under what terms is made by 
independent businessmen and women. So you cannot generalize on 
this, but this covers I think, Senator, most of the cases.
    Senator Burr. I hope you understand the purpose of asking 
the question. I think if this were 10 cents or 12 cents--50 
cents is huge. I think this retailer has a reason to question 
it. I think the American public has a reason, when there is a 
50 cent difference from one station to another, to pick up the 
phone, call their attorney general, and say there is a guy here 
up on the corner that is price gouging. Our job is to try to 
make sure that, in fact, that is not happening.
    Again, I think everybody alluded. This is a once-in-a-
century type of deal. We have certainly had some shortages 
before. We did not see that drastic a move, and clearly we did 
not see it as fast. If there is a better way for the system to 
set up--I am not sure that it is necessarily responding to the 
market. It is responding to whatever contracts existed before. 
We had the reverse of that in California as it related to an 
electricity shortage, and it was not existing contracts. It was 
the one that California went out and negotiated in the midst, 
and it caused a back-end problem.
    But I thank you and I appreciate your willingness to look 
into that.
    Let me make a comment, if I could, in the time that I have 
left about the rigs in the gulf. It was, I think, a pleasant 
thing for all of us to see, that the technology that we have 
been told about worked, that the rigs themselves did not leak 
at the platform or at the wellhead. I think this is something 
that has not gotten enough press on. As a matter of fact, I 
have seen some press accounts of a certain number of gallons 
having polluted with no explanation that that came from onshore 
storage and not from platform destruction. I hope the industry 
will get that word out there.
    Mr. Cavaney. Yes, sir, Senator. There are over 33,000 miles 
of pipeline on the seabed of the Gulf of Mexico, and every bit 
of it held together. So that is even more important.
    I think one of the things we will be finding, though, is 
already several companies have talked about absorbing huge 
amounts of write-offs that they are going to have to do to 
replace all this and the costs. So we are just beginning the 
exploratory process of finding out the cost side of what all 
this has done. We are not asking for the Government to help 
fund or do anything. This is our stuff. We are going to pay for 
it. We took the risk with our insurance companies.
    So it is a great story and hopefully it will give comfort 
to these opportunities to look to other areas on OCS and 
elsewhere we think we can operate in an environmentally 
responsible way.
    Senator Burr. I thank all of you.
    The Chairman. Now, with the Senators' permission and 
consent, I passed over myself, so I am going to use a couple of 
minutes, and then I will get back to the next Senator, which I 
think is Senator Martinez.
    But I will first say, Senator Martinez, there has been a 
lot of discussion about things very dear to you here today. We 
welcome you on the committee so you can be a voice, but we 
think we have heard that we have got to do something about 
offshore drilling. We will share what we plan to do with you, 
obviously. But there is no question that things are at a crisis 
and something must be done.
    Now, let me make first an observation. Mr. Liveris, I am so 
both impressed and frightened about your testimony that I can 
only wish, which is only going to be a wish, that somehow 
opinion makers could hear what you had to say. We are a small 
group of opinion makers. We speak so much in this country about 
losing jobs in the past and in the future because of 
competition overseas, and here we have right in front of us one 
of the huge remaining industries that hire and pay people big 
wages that is dependent upon natural gas that cannot save any 
more. We speak of conservation. Mr. Curtis has told us, and he 
is right. But in your statement, you said you have already 
increased efficiency to the tune of 40 percent, and the 
problems remain as you discussed them. Right?
    Now, frankly, I am very, very worried because I do not 
know, first, whether our country understands. I do not know 
what we can do about it, and I am not sure that when we try 
that we are going to get it done.
    So could I ask you to recap one more time? And then I will 
move right along. You gave us four suggestions. Would you make 
them again please?
    Mr. Liveris. Thank you, Mr. Chairman. You said in your 
statement there something that I did want to actually make sure 
that it was understood. We profit from efficiency.
    The Chairman. Oh, I understand.
    Mr. Liveris. The 42 percent of savings that we have 
generated is through efficiency. We have done what we can.
    So the four things we are suggesting that should be done, 
which are really very, very key here, is that we absolutely, 
totally find a way to increase natural gas supply.
    The Chairman. Right.
    Mr. Liveris. And the Outer Continental Shelf--Senator 
Alexander and others have spoken very eloquently. State rights 
is the way to do it, and it allows Florida and elsewhere to get 
what they need to get for their constituencies. It is very 
critical. The redrawing of Sale Lease 181 we believe can be 
done without legislation. We think it can be done through 
Presidential intervention, and I think it is something that is 
within your hands.
    We have got some numbers. We can share them with you later. 
It is in our testimony. But if we released the area that is 
available and that is known, it will power 25 million homes for 
15 years. Available today.
    The third is conservation and we need to declare a national 
crisis. We need to do it. I think the start has happened in the 
Energy Act. The President, Secretary Bodman, all of us. It is 
serious. Two degrees down on the thermostat, three LNG 
terminals. We talk about permitting LNG terminals and how long 
it will take. two degrees down on the thermostat for every 
American this winter, three LNG terminals saved or not needed 
to be constructed in the timeframe they need to be constructed. 
That is the 0 to 2 years impact of conservation. Very, very 
key.
    And then the efficient dispatch of electricity, which was 
referenced by Senator Bingaman. I think that needs a lot of 
investigation. I think our friends from the utility sector have 
a lot to say about it. I think we need deep drills--forgive the 
pun--to understand tier one of efficiency on the combined heat 
and power cycle, followed by tier two, followed by tier three. 
Those four things.
    The Chairman. Now, Mr. Curtis, the suggestion by Senator 
Smith about hydro. A brief answer, if you can. What would you 
think about it and what is right or wrong about it?
    Mr. Curtis. The brief answer is I do not know enough about 
what he proposed to give an informed answer, so I will get back 
to you. So let me just stop there.
    The Chairman. I am not being facetious. Can we expect the 
same real open-mindedness that you have given us here today? We 
need to know that this is an emergency.
    Mr. Curtis. It is an emergency. You will not get a knee-
jerk environmental response. You will get a thoughtful one.
    The Chairman. That is terrific.
    Mr. Curtis. Sometimes they are the same.
    [Laughter.]
    The Chairman. Look, you are so good at it that we are not 
going to know the difference.
    [Laughter.]
    The Chairman. Mr. Helms, in your remarks you suggested, I 
think, better ``coordination,'' which was the word you used, is 
needed in the restoration of gas production to help ensure 
adequate supplies this winter. Could you tell us how this 
coordination can be improved? We would like to help with that. 
How is it to be done?
    Mr. Helms. I think really at this point, Mr. Chairman, 
there is a question about the interaction and sharing of 
information and prioritization of equipment between the 
upstream producers, the gatherers, processors, and the 
interstate transmission companies. Under the legislation which 
was passed, which was landmark and I think is good for this 
country, there was the imposition of civil penalties of up to 
$1 million a day for violation of the Natural Gas Act. I can 
assure you there are people in my organization that are very 
sensitive to that issue, and quite frankly, that has acted as 
an impediment in the short term for people sharing information. 
They are worried that they are violating the FERC regulations, 
and we had the opportunity to visit with the chairman of the 
FERC last week and raised that issue. We are beginning to get 
that dialog going.
    What we are finding is the producers cannot, for antitrust 
reasons, sit in the same room with each other to start talking 
about, well, where is my production, how long will it take to 
get my production in. And I think quite frankly, 4 weeks now 
after both of the hurricanes, we are beginning to hear some of 
the major producers disclose what production is shut in. It is 
very difficult at this point without having, if you will, a 
Federal agency as a clearinghouse to allow us to get in the 
room and say, I need a lay barge at Vermillion 245. That will 
get 400 million cubic feet of gas back into the system in 4 
weeks. One of the things we need to do.
    Senator, I would be remiss if I did not raise this one 
point. One of my members, who is a western company, mentioned 
to me yesterday that if there was a relaxation on the drilling 
moratorium in the Rockies from November through March, that the 
industry could probably provide a billion cubic feet of 
deliverability by March of next year. That is an issue that I 
think needs to be raised and I think we need to take a look at 
it. That is something that can be done I believe 
administratively.
    The Chairman. Okay, if the staff can get that comment. Why 
is there a moratorium? Environmentally?
    Mr. Helms. It is environmental issues, Senator.
    The Chairman. So we ought to take that up with the 
environmental community also in terms of no knee-jerk response. 
Do you want to answer right quick?
    Mr. Curtis. No, I do not.
    [Laughter.]
    The Chairman. You are being tremendous today. Thank you.
    [Laughter.]
    The Chairman. Let me just ask any of you. We discussed this 
issue of economic dispatch. Is there not a problem with that, 
that the State PUC's, public utility commissions, have been the 
ones principally involved in that and we would have to in some 
way overtake them or take authority from them? Does somebody 
know the answer? Quickly. I do not want a long discussion.
    Mr. Hebert.
    Mr. Hebert. Mr. Chairman, that is part of the answer. 
Obviously, there are things such as regional transmission 
organizations are filing to basically do the same through our 
independent coordinator of transmission, which is before the 
FERC right now, that we would hope we would get final approval 
of pretty soon, and we have every reason to believe we are 
going to do that. It is going to make for more opportunities 
through the bidding process to try to get them to bid more into 
the system. So that is part of the answer, yes, sir.
    The Chairman. One last question. You know that chart you 
had up there with all the drilling activities out there in that 
area with two circles.
    Mr. Cavaney. Yes, sir.
    The Chairman. Can you put that up there? I want to ask you 
just a dumb favor. Maybe your people have the technical skills. 
If not, maybe you could go to one of the laboratories, Sandia 
or Los Alamos. But I wonder if you could have somebody produce 
a new one and assume today's drilling technology and tell us 
what that would look like with today's technology.
    Mr. Cavaney. Okay.
    The Chairman. I think it is possible and I think it would 
be terrific to be able to show that when we go to these other 
States, this is not going to be the case because it cannot be. 
One of those holes is going to take 20 wells and 30 wells. Can 
you do that?
    Mr. Cavaney. We can. We will.
    The Chairman. If you have to spend a little money, spend 
it. I think we should see that. You have got a lot of money to 
spend. That is what it is for. Do not come up here and ask us.
    [Laughter.]
    Mr. Cavaney. We will do it.
    The Chairman. Now we are going to go to the next Senator 
here, Senator Martinez.
    Senator Martinez. Mr. Chairman, thank you very much. You 
are so perceptive because that is exactly the picture I have 
been focusing on. I must tell you that to see that off the 
coast of Florida and the eastern gulf scares me to death. I 
think it scares Floridians to death. If a picture in today's 
technology would look dramatically different from that, I think 
that would be instructive and interesting and good to know.
    Let me just make a couple of comments and then I will have 
a question or two. But, Mr. Hebert, I want to just tell you how 
much I appreciate that dramatic picture you have of those 
linemen getting people back in service. I very much appreciate 
the work that those people do, that they have done over the 
years oftentimes in the middle of the night with a spotlight 
trying to get service back, not in dramatic circumstances like 
Katrina, but just in everyday Florida thunderstorms in the 
afternoon or evening. A tree limb falls and there they are, and 
folks never even know, except for the blinking light on their 
alarm clocks, that the lights were out for a period of time 
while they were out there working. It is a dramatic thing to 
see how many people were out of power.
    Something I will point out is that I believe last year 
during the horrible series of hurricanes that we had in 
Florida, there were more customers out in Florida last year 
than there were this year as a result of Katrina and Rita. I 
think that is very telling that, again, with the cooperation 
and the help of linemen from South Carolina, from Georgia, from 
North Carolina, from Texas, from everywhere, and probably 
Louisiana as well, they responded to Florida and helped us get 
through our crises. I know the favor has been returned. It is a 
fraternity that works together and it is a very impressive 
thing to see. I can not only understand but appreciate your 
emotion as you talk about that.
    I had a question for you, Mr. Curtis. You mentioned in your 
testimony there were 7 million gallons of oil spilled as a 
result of the storms. Then I heard the chairman's questions on 
the rigs, and I understand that they were not impacted by any 
spills. Please state clearly today where those spills occurred, 
how did they occur, and whether you can tell us too how it 
might be avoided in the future. It is a pretty dramatic amount 
of spillage.
    Mr. Curtis. It is a lot of oil that was spilled, and I 
think by point of reference, I think the Valdez was 11 million 
and this was 7 million. It is my understanding--and I will 
double check it and provide it back for the record--it came 
from about 11 different major identified sites. It was storage 
on the land, and I think it happened at a bunch of different 
places.
    Senator Martinez. I think the other point to talk about, 
though, is I heard you describe that there was not one leakage 
from the OCS. I have never heard that before. They are honest, 
but it is skeptical. I would like to go take a look. But there 
are lots of leakages that occur as a result of energy 
production, and it is not just at the well. It is through the 
whole infrastructure. I think as people talk about exploring in 
other parts of the Outer Continental Shelf or elsewhere, you 
have to look at the whole thing, not just the drilling. It is 
the transport. It is the storage and all that. That is where I 
believe a lot of the leakage came from.
    Mr. Cavaney. I can comment on both parts of that. To speak 
to the latter, using government figures, the amount of leaks in 
the aggregate over about a 12-year period is less from the 
industry than the natural seeps in the gulf area. So it is 
fairly insignificant.
    The leaks that occurred were all onshore. Essentially what 
they were, they were tanks that were hit or punctured, whatever 
the case may be, and the leakage occurred in what are called 
secondary storage, all in the facility. So there are large 
berms that captured all of this. What happened was with the 
amount of water, storm surge rising and all that, it was so 
much, it came over these berms and actually displaced the oil 
and pushed it out into other facilities. Obviously, we can see 
this and we have been cleaning it up since them. But it does 
require us to take a look at and work with the Government on 
new approaches to this because the old system, even though it 
was once in a hundred years--we have never seen this happen 
before--it did happen here, and we do not like that kind of 
experience any more than the next person.
    So as we did with Ivan, which was the fierce storm of last 
year that you had mentioned happened down in Florida, we worked 
together with the MMS part of the DOI and the Government to 
have a lessons learned conference, and we will make available 
to the committee, if you would like, all the things we were 
trying to implement. Our problem was that Katrina and Rita came 
within about 60 days of that conference, and so there was 
little you could do.
    But one of the take-aways here is very clearly we need to 
look at the secondary berms and how we are going to be able to 
protect against this problem if we have another experience like 
this.
    Senator Martinez. Mr. Curtis, then Mr. Helms.
    Mr. Helms. Senator Martinez, thank you. I would like to 
make two observations. The first is the chart that you have 
referred to. That is a record of 50 years of offshore 
development and production off the coast of Louisiana, and the 
technologies have changed dramatically.
    My second observation is the network of gas pipelines, 
particularly the natural gas transmission lines, have had an 
exemplary environmental record. Quite frankly, I would like to 
see the facts and the figures and the empirical evidence that 
there has been an environmental failure of those pipelines and 
those plants in south Louisiana by either hurricane Ivan last 
year or Katrina or Rita. I think the facts will speak for 
themselves.
    Senator Martinez. Mr. Curtis, do you have something else?
    Mr. Curtis. One point I want to make is kind of the 
assumptions everybody is making in listening to this testimony, 
that it is a once-upon-a-century occurrence. It will not happen 
again for another 100 years is the implication. I sure hope so, 
but we cannot count on that. We cannot count on that at all. 
Industry should not plan on that. Government should not allow 
industry to plan on that.
    Whatever you believe about global warming--and this is not 
a global warming hearing--there is a lot of evidence from 
scientists and people that the ocean waters are warmer, storms 
will be more severe. There is a natural 20- to 40-year cycle 
going on. That may be very well compounded--I believe, but 
others can disagree--and exaggerated by global warming. All 
that is happening.
    Senator Martinez. The science does not agree with you on 
that one. I am with you, but the science does not agree. I do 
not think we should link the two.
    Mr. Curtis. But as we plan for the future, that should be, 
I think, one of the assumptions people look at.
    Senator Martinez. I agree with the underlying premise. I 
just do not think that we can----
    Mr. Curtis. I agree. I am not trying to take you there.
    Senator Martinez. Mr. Chairman, may I have just one brief 
final question?
    I would like to ask you, Mr. Cavaney, and maybe the others. 
Feel free to chime in. I have heard you allude to the crisis of 
the moment. Katrina was the trigger point of this. The part I 
do not understand is how drilling in the Outer Continental 
Shelf for either gas or oil relates to the current problem, 
which seems to deal with refinery capacity and transmission 
issues. I do not know how the people that are under salt water 
and are being replaced have a whole lot to do with what we do 
in the Outer Continental Shelf to avoid the crisis of the 
moment. When someone goes to a gas station tomorrow and they 
are paying $3 a gallon, the fact is--and I would like for you 
to agree or disagree--that that will not be impacted for any 
period of time in the foreseeable future by any exploration in 
the OCS.
    Mr. Cavaney. Senator, we have fully agreed. Energy is very 
long-lived and has a long planning cycle in order for anything 
to happen. So there is almost without exception very, very 
little that can be done in the near term to change the dynamic. 
It will not, in and of itself, change the price at the pump or 
whatever.
    Now, what it will do is there is a lot of activity in what 
we call the futures market, in other words people hedging, 
speculation, looking at various kinds of things, and they try 
to factor in all the future risks and back that into a price in 
today's market.
    What we have done as a country is we have basically taken 
off the table all the attractive places where natural gas can 
be gained within our country. So the signal we are sending is 
that we do not want natural gas. So as a result, people who are 
factoring in risk run up the price, particularly when you run 
into short-term problems like this.
    So my point that I wanted to make is we need to begin 
planning today so that if a circumstance similar to this occurs 
in the future, we will at least have in place more tools to 
deal with it and more flexibility than we have today.
    Senator Martinez. But we could all agree that OCS drilling 
will not impact the current crisis we are in and, further, that 
conservation measures, as frankly we have already seen over the 
last several days, could in fact impact immediately what is 
taking place in the marketplace.
    Mr. Cavaney. Absolutely. The most powerful thing we could 
do today is to have everyone ramp up their efforts at 
conservation and energy efficiency. No question.
    Senator Martinez. So our focus for the immediate crisis 
ought to be at conservation, not OCS drilling.
    Mr. Cavaney. We should have the discussion on OCS drilling 
because if we never talk about it----
    Senator Martinez. I understand that. But my question is 
simple. The current crisis is more easily resolved by 
conservation than drilling on the OCS.
    Mr. Cavaney. To affect today, conservation is the quickest 
thing we can do.
    Senator Martinez. We are here on Katrina, and if we are 
dealing with Katrina, the issues relating to Katrina really can 
much better be solved by conservation.
    Mr. Cavaney. Absolutely.
    Senator Martinez. Thank you.
    The Chairman. Mr. Liveris.
    Mr. Liveris. Demand destruction is part of conservation, 
Senator, and I think the answer to that question on the short 
term. Katrina just showed the issue that has been around for 5 
to 7 years.
    Senator Martinez. I understand there are some underlying 
problems in our energy supply, in the refinery capacity, 
frankly in long-term conservation, diversification of fuels. 
There are lots of problems in the energy front. When we talk 
about Katrina, we can limit the discussion to the issues that 
will impact and resolve Katrina issues.
    Mr. Liveris. It is very unfortunate that a hurricane showed 
the shortfall of the Energy Policy Act of 2005, which I am a 
big fan of. But frankly, the OCS supply issue should have been 
tagged onto that bill, as I think the chairman was trying to do 
and others were trying to do. Available gas in this country is 
there. There are 406 tcf gas available. Why are we importing it 
from the Middle East?
    The Chairman. I do not think this is the place for me to 
engage in a debate predicated by the questions asked by my good 
friend from the State of Florida. But you cannot isolate 
Katrina and say we are here to solve Katrina. We are hearing 
testimony here today about the short-term impact of natural gas 
shortages on Dow Chemical. That is not 5 years from now. You 
may be in trouble during the recovery and you are certainly in 
trouble after the recovery if we do not have some solutions to 
this problem. Am I correct in that statement?
    Mr. Liveris. Yes, Mr. Chairman, you are very correct.
    The Chairman. Now, having said that, I want to get to 
Senator Talent and then Senator Murkowski.
    Senator Talent. Thank you, Mr. Chairman. You took the words 
out of my mouth, Mr. Chairman. If this were just the hurricane 
and a crisis induced by that, of course, that would be bad 
enough, but what the hurricane did was exacerbate conditions 
already in place. If this crisis has done nothing else, it has 
concentrated energy and attention on this issue, and that at 
least is a good thing.
    Most of my questions have been asked. Mr. Liveris, let me 
just ask you specifically. In your judgment, to keep Dow and 
other industries in the United States, what do we need to do 
legislatively to increase the natural gas supply? Can you give 
us an idea of what price of natural gas you would like to see 
long term? Obviously, as low as possible, but give us some 
sense.
    I think you discussed this some before, but what would be 
the effect of just an announcement that we were going to open 
up Lease 181? Would that be sufficient by itself? You are 
probably going to say no. It is terrible when you answer the 
questions at the same time you are asking them, is it not?
    [Laughter.]
    Senator Talent. But it would be a big deal, would it not? 
Just comment on these questions.
    Mr. Liveris. I think that is a great way to phrase the 
question. Your answers are actually not correct. I would say 
they would be a stabilization factor. I think we have heard the 
uncertainty point. The volatility point is our greatest enemy 
as much as the absolute supply. The two are working together.
    Senator Talent. Because the price today reflects not only 
supply today and demand today, but the market's estimation of 
unpredictability in the future.
    Mr. Liveris. Correct, Senator.
    Senator Talent. So when you take that unpredictability out 
or you lower that risk, it affects price.
    Mr. Liveris. Absolutely. If you couple that with a 
conservation message, the two things together will stabilize a 
lot of the volatility.
    Now, the other question you asked. The well price of LNG, 
which has not yet appeared--LNG or gas is still a very regional 
business. LNG trade around the world is long-term contracts. 
They are to support the huge capital infrastructure that has to 
be put in place, including the ships. It sits between $4 and 
$5, depending on where it comes from, landed somewhere. 
Although China did a deal with my home country of Australia 
that lands natural gas from remote Australia to China at $3.20.
    So we used to have $2 here in this country. Obviously, ``as 
low as possible'' is the right answer, but I am a realist. All 
we need is the certainty of supply, i.e., lack of volatility, 
and a world price or less that enables me to serve the domestic 
sector. It would be great if the American chemical industry can 
once again be an exporter. We used to export over $20 billion a 
year, second only to aviation. $154 billion of trade surplus 
over the last 10 years gone. All that has disappeared on us 
because we no longer have the $2 price. If we can get the world 
price, we can at least compete against foreigners importing 
into this country.
    Senator Talent. Sure, because before the hurricane, you 
were paying prices elevated compared to your competitors.
    Mr. Liveris. Since 2000-2001, we have been living with 
prices bouncing around. It is unbelievable that a technology-
rich industry like ours, with college graduates as our primary 
work force, suffers because of the weather. We go by hot 
summers and cold winters, or the other way around, and that is 
our input cost. So we live and die by the weather. It is 
unbelievable that chemical engineers and scientists and Ph.D.'s 
and people do not have jobs because of the weather forecast. It 
is incomprehensible.
    Senator Talent. Mr. Chairman, there is a win-win that you 
and I have talked about with all this. An adequate and diverse 
energy supply with lower prices means much stronger economic 
growth and risk taken out of the economy. And economic growth, 
because of the marvelous productivity of the American people, 
produces wealth on the basis of which we can enhance 
technology, enhance conservation efforts, improve the 
environment, take care of our coasts. So we end up with the 
growth, the jobs, the industry, the exports, and a better 
environment and a better community all at the same time, and we 
do it by having faith and confidence in the productivity and 
the decent instincts of the American people. That is what you 
are saying.
    We have seen those instincts on display in response, just 
an immediate, gut-level response to this crisis, and we will 
see it again. Really all they need us to do is to unshackle 
them a little bit, and they will go out and get us out of this. 
I really believe it.
    I thank you all. This has been a very good hearing. The 
chairman walked over to me before and said that, and I think he 
is right.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Murkowski, there is a vote up but you have time for 
your questions.
    Senator Murkowski. Thank you, Mr. Chairman, and thank you 
to the members of the panel. I am sorry that I missed most of 
your testimony. I was presiding and I was listening to the 
comments of Senator Landrieu from Louisiana who was speaking to 
the devastation in her region and spent a great deal of time 
talking about how the gulf region is the area of commerce not 
just for the region, but truly for the whole world. We 
recognize and appreciate the contributions offshore and onshore 
that the region has made and continues to make and will 
continue to make to the energy needs of this country.
    I sit so frustrated and we all know why. It is the whole 
access issue. We have got the resources and we have it so many 
times over and whether it is off of our shores or whether it is 
up in Alaska, we have it. We just do not allow ourselves to go 
there. In the meantime, what happens is our companies, our 
businesses are suffering. I was just commenting to the chairman 
here. We are no different than the times back in the age of 
Mesopotamia when the rivers flooded and everybody had to move. 
You would like to think that our technology gets us beyond 
being controlled by the weather, but it should serve to be a 
very humbling reminder to all of us that we are not in charge.
    So what is it that we can do? I am real concerned about my 
constituents up home who are panicked about home heating costs 
this winter. They are already looking to how they are going to 
make it financially through the winter and pay their bills and 
keep their homes warm. I do not know how they are going to do 
it, quite honestly.
    A couple different questions for probably you, Mr. Cavaney, 
on the prices that we are seeing now with natural gas and the 
doubling that we have seen just from last year. We recognize 
this one-in-a-100-year crisis that we have been hit with. Where 
do you see the price of natural gas going?
    Mr. Cavaney. Senator, we had the problem with natural gas 
really before the hurricanes. All the hurricanes did was just 
draw undue attention and take it up to the next level. For a 
number of years, really about the last 15 to 20 years, our 
growth here in the United States was supported by Canadian gas 
that we imported, and they kept growing sufficiently. As they 
have developed their oil sands up in Alberta, what has happened 
is they had to re-route their gas growth in order to make the 
oil up there. So we have lost that growth capacity.
    What that did several years ago was underscore the fact 
that we were not producing enough here to make up for the very 
steep declines in the U.S. fields because we were not getting 
the access to the attractive new fields where you could go.
    So again to complement Mr. Liveris, back in the year 2000, 
this started to become very much in evidence and it is just 
regrettable that it took this long for people to understand. I 
applaud the committee and particularly Senator Alexander for 
drawing attention to natural gas. Because it is a regional fuel 
and not a global fuel like crude oil, we do not have the 
options of trying to bring in substitutes when we run into 
periods like we are right now.
    Senator Murkowski. So where do you see it going? We are at 
$14.
    Mr. Cavaney. Well, I think the most important thing is we 
need to get a signal from the policymakers that you recognize 
the problem is here and we are going to do something about it. 
I agree, I think the markets will show some relief and that may 
well be the point where you start to see the corner being 
turned.
    Senator Murkowski. Let us talk about the Alaska project for 
just a second here. We are trying our darnedest to make that 
project come to fruition. And it is so frustrating that for 
years the price has not been there, and then boom, the price 
takes off like that. The fact of the matter is it takes 7-8 
years to bring that gas down and to supplant what we have been 
getting from Canada. So if we move forward with that project, 
even though it is 8 years down the road, recognizing the 
incredible potential that we have up there in supplying this 
country, is that enough of a signal to the market, even though 
it is years off, to provide some assistance?
    Mr. Cavaney. It is definitely going to help. These people 
look at future risks and then they factor it in in prices 
today. So anything that sends signals about the opportunity for 
more natural gas or a more positive environment for people to 
take risks I think is going to have to help in today's market.
    Senator Murkowski. So we need to have a flow chart or a 
time line saying Alaska gas comes on here. In the interim, we 
can loosen some restrictions in the Rockies.
    Mr. Cavaney. LNG is a very important intermediate help. 
Access and LNG, Senator, are the two things that will help us 
significantly fill the gap, along with conservation again I 
want to underscore. Those three things will help us get there 
until the northern gas can get in here and take its place.
    Senator Murkowski. But we have got to have the northern 
gas.
    Mr. Cavaney. Yes.
    Senator Murkowski. And this is the point that I want to 
bring home to everybody. Right now we do not have that northern 
gas. We do not have those producers signed onto a deal. If they 
think that they need more subsidies than they are getting now, 
it is wrong, wrong, wrong.
    Mr. Cavaney. I understand that this is a commercial 
venture, but that is not what their problem is. They are just 
trying to go through the process of ensuring that they can get 
the supplies and they work with the State. We are very pleased 
to see that the State of Alaska has shown an interest in 
becoming an equity partner, and I think that makes for a good 
partnership.
    Senator Murkowski. We want to be able to supply it.
    Thank you, Mr. Chairman.
    The Chairman. Senator, you wanted to comment.
    Senator Alexander. I just wanted to express my thanks to 
Mr. Hebert for the people of Tennessee for the extra efforts 
your company made to get the electricity back on so the 
Colonial pipeline would work. That helped us avoid a very 
severe shortage.
    And I wanted to invite you and anyone else who wants to 
suggest to the chairman and Senator Bingaman and me ways to 
make efficient dispatch work. We would like to have them in the 
next few days.
    The Chairman. All right. We know we have to go, but they 
are going to hold up for us for a minute. I want to just say 
once again thanks to all of you. It was terrific. I am just 
sorry that more people do not get a chance to hear what was 
said. That is not possible. We have to do a better job.
    Mr. Curtis, I want to say we clearly did not intend to 
outnumber you.
    [Laughter.]
    The Chairman. But we are very pleased. I think the issue I 
want to place before you is we have always been versus the 
environmental and conservation community--we have been faced 
with the proposition that they want conservation and savings 
and others want production. Therefore, a stalemate occurs 
because those who want efficiency saying we are not on with the 
business of efficiency, so we do not want more production. 
Production is saying we want more production.
    Now, we are saying we want both. But the problem is how do 
we get them to work in tandem with credibility. Most of the 
time you can put two eggs and two eggs and you have got 
credibility. It is two and two, and when you add one, you have 
three and three. But one is very intangible and the other one 
is very tangible. We have to find some modus operandi where 
when we start efficiencies, they are credible so they are not 
saying you are not doing efficiency, so we do not support 
supply. We have to find some way to measure that, and I hope we 
can.
    Mr. Curtis. I completely agree, and I look forward to 
working with you and whomever to try to help make that happen.
    The Chairman. Last, we did not ask any of you, but let me 
see if I can summarize. Those from the coast, from the area 
affected, told us that the Federal Government, in terms of 
their agencies and Secretaries, had been terrific in their 
response to requests for assistance, modification of rules, 
expeditious handling from DOE to EPA to Commerce. Is that a 
correct statement? Was the Federal Government responsive? 
Quickly, could we just say, Mr. Hebert?
    Mr. Hebert. Very favored. NRC, FERC, and DOE were great for 
us to work with and helped us restore quickly. Absolutely.
    The Chairman. Mr. Helms?
    Mr. Helms. We found it all the way through, Senator. We 
have had tremendous cooperation.
    The Chairman. Mr. Liveris?
    Mr. Liveris. Absolutely, yes.
    Mr. Cavaney. Absolutely. It could not have been better.
    The Chairman. Now, Mr. Curtis.
    Mr. Curtis. From the community groups we work with and 
interact down in the gulf, EPA and the other agencies were 
fabulous.
    The Chairman. Okay. It looks, for once, we had something on 
our side go right.
    [Laughter.]
    The Chairman. Everybody says everything was right except 
something happened that was not. Maybe it was just the storm.
    I wanted to say, Mr. Curtis, with reference to the 
pollution in the ecosystem and water, we were amazed yesterday 
to hear from the Corps of Engineers at the top level that they 
are in the business of measuring pollution all the time 
everywhere very scientifically. They said that there was not 
any. Do you believe it? There had been no big, serious bacteria 
in the environment that was dangerous. Now, that does not mean 
anything yet. I mean, I could not believe it. I said, are you 
kidding? And they said, no, no, not so.
    So I do not know what it means. But somebody is going to do 
it right. But it may be that there is some kind of a cleansing 
mechanism that we do not know about in terms of water-related 
products. But I just wanted that in the record. I know you are 
looking at me with furrows in your brow.
    [Laughter.]
    The Chairman. I am only repeating what they told me. I do 
not believe it either.
    [Laughter.]
    The Chairman. But I thought we should say it here.
    We need you to go with me somewhere, Mr. Chairman, Mr. 
President. Which do they call you in your company?
    Mr. Liveris. Andrew.
    [Laughter.]
    The Chairman. Okay. If you will join me outside, I need to 
use you for something.
    Thank you, everybody.
    [Whereupon, at 12:25 p.m., the hearing was recessed, to be 
reconvened on October 27, 2005.]


                      HURRICANES KATRINA AND RITA

                              ----------                              


                       THURSDAY, OCTOBER 27, 2005

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:35 a.m. in 
room SH-216, Hart Senate Office Building, Hon. Pete V. 
Domenici, chairman, presiding.

          OPENING STATEMENT OF HON. PETE V. DOMENICI, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. Good morning. First of all, to our 
distinguished witnesses, I want to apologize for the lateness 
of the event. But the Senate doesn't ask the committees when 
the Senate will vote; they tell us.
    First, for the Senators and the witnesses, there is a 
Senate resolution which authorizes the Senate chambers and the 
Senate office buildings be filmed for use in the Capitol 
Visitor Center. Members should know that that production 
company might--will spend a few minutes during this hearing 
obtaining footage for the educational video to be shown in the 
Capitol Visitor Center. So, if you want to make sure you're at 
your prettiest, be aware.
    First, I want to thank both Secretaries for being with us 
today. This hearing is the fourth hearing that we've had to 
discuss the impacts of the devastating hurricanes in the gulf 
and the general energy state of the country. The people of 
Florida have suffered again, just this week, with Hurricane 
Wilma. It's been a very difficult season. I hope it's over, 
but--who knows? There's a level of frustration with the energy 
industry, due to high prices, record profits, and perceived 
lack of investment, that has taken center stage in the public 
arena. There is also a level of fear about the energy supply, 
possible transportation bottlenecks and shortages that will 
make the winter particularly hard, especially if it's a cold 
winter.
    Over and over, the experts that this committee has invited 
have told us that there are no quick fixes to our energy 
challenges. All have stressed the need for conservation as our 
most effective short-term tool to deal with this crisis, 
especially the crisis in natural gas, which is, sort of, the 
unseen crisis at this point.
    We're all advocating that Americans encourage--and 
encouraging Americans--in trying to persuade them to take 
conscious steps to reduce energy consumption. So are you, 
particularly Secretary Bodman, and I want to thank you and 
indicate that I think you're on the right track with some of 
the things you're doing in that regard. I wish that program, 
nationally, could get bigger and more persuasive, but that's 
not all in your hands.
    The list of saving tips with multiple resources, like local 
utilities companies are talking about, big oil companies are 
beginning to advertise about, they're showing some significant 
interest, and the public is, I believe, getting the message. I 
think everybody knows that the lighting of our homes, as 
Senator Bingaman has been talking about for some time, can 
represent 20 percent of the home electricity bills, and there 
are some real areas of savings that can occur there. If the 
public were to change a light to an ENERGY STAR one, together 
we'd save enough energy to light seven million homes. That's up 
to the people of the country, not up to us, but, still, we'd 
better talk about it. Same thing applies to light fixtures. 
There are models of ENERGY STAR for energy efficiency that 
could save substantial amounts.
    On the transportation front, consumers can take a number of 
steps. We know about them. Perhaps we can ask you about them, 
Mr. Secretary, or you, Madam Secretary. So, as part of this 
hearing we're encouraging consumers to take action--drive less, 
when possible, replace an old furnace, keep your tires inflated 
properly, change light bulbs, all those things we've been 
talking about.
    So, I think conservation is like a diet on our demand, but 
without sufficient supply our economy will end up very skinny, 
in any event. So, I know that supply is one of the topics that 
several members want to talk about here today, and I would say 
to both of you, while it might not be the subject matter of 
Katrina and Rita, Lease Sale 181 will be brought up and 
discussed, I'm sure. I'm going to save for the questions a 
discussion of Lease 181, other than to say it is a very, very 
energy-laden lease, and to discuss the fact that it is not 
really subject to a moratorium. And we will proceed from that 
point on with asking the Secretary of the Interior, in 
particular, about that issue.
    Senator Bingaman.
    [The prepared statements of Senators Bunning, Corzine, 
Salazar, and Talent follow:]

   Prepared Statement of Hon. Jim Bunning, U.S. Senator From Kentucky

    Even though my home state of Kentucky is situated far enough away 
from the gulf coast to avoid the brunt of these recent storms, 
Hurricanes Katrina and Rita really hurt us, and the rest of America, at 
the gas pump. These natural disasters have shown that in many ways, the 
federal government has been sleeping at the switch. But perhaps Katrina 
and Rita's biggest wake up call goes to the energy industry which has 
failed to diversify.
    Katrina and Rita were able to cause such a large disruption because 
so much of our production and refining capabilities are concentrated in 
the Gulf of Mexico. We must diversify this capability. Right now we are 
working to open up ANWR, which will finally allow us to tap a vast oil 
resource in Alaska. But there is more we can do--with Kentucky coal, 
Western natural gas and offshore drilling. We will remain vulnerable to 
continued price spikes unless we explore new areas domestically to 
produce and process fuel.
    We have also seen ineffective regional energy markets that, when 
faced with disaster, are unable to quickly shift resources and 
capabilities to areas in need. Much of this inability is caused by 
overly-complicated federal regulations. For example, government 
policies have been a roadblock to oil refinery construction. It has 
been nearly 30 years since the last one was built. We must take a hard 
look at federal regulations and ensure that they are not needlessly 
constraining the energy marketplace.
    Even after addressing these issues, at the end of the day we need 
to diversify our sources of energy beyond oil. I have long talked about 
the benefits of coal, particularly new clean coal technologies, and how 
coal can replace more expensive oil and natural gas electric plants. 
From synthetic fuel production to FutureGen, coal can and will play a 
more important role in America's energy future. I also believe we can 
displace gasoline demand with biofuels made from corn, soybeans and 
even recycled cooking grease. We have many new technologies under 
development and we should encourage this continued fuel source 
diversification.
    I am hopeful that today's hearing will explore the potential impact 
of the recently passed Energy Bill, what additional government policies 
are needed to stimulate diversification and what lessons we have 
learned from this tragedy. Secretary Norton, I would like to hear from 
you how we can best access the untapped sources of oil, coal and 
natural gas here in America. And Secretary Bodman, I look forward to 
hearing from you how we can better stimulate the energy industry to 
diversify and use new technologies so we can achieve lower prices and 
energy independence. Thank you for your testimony before the Committee 
today.
                                 ______
                                 
Prepared Statement of Hon. Jon S. Corzine, U.S. Senator From New Jersey

    I would like to thank Senator Domenici and Senator Bingaman for 
calling this hearing to address the Hurricane Recovery Efforts. 
Hurricane Wilma once again highlighted our nation's vulnerability to 
the devastation that can be caused by hurricanes and my thoughts and 
prayers are with those who now have to rebuild their lives.
    I would also like to thank Secretary Norton and Secretary Bodman 
for being here today to testify. In order to establish a comprehensive 
recovery plan that will restore our full energy system, as well as make 
improvements that will reduce the damage that hurricanes and other 
natural disasters have on our energy infrastructure, efforts must be 
coordinated among all of our government agencies. These ongoing 
discussions on hurricane recovery efforts are vital not only to the 
short term revitalization of our energy system and the mitigation of 
the burden on consumers, but also to our nation's future energy 
security.
    Mr. Chairman, one of the most immediate ways to help Americans 
dealing with the high energy costs is the Low Income Home Energy 
Assistance Program (LIHEAP). I am deeply disappointed that the Senate 
continues to underfund this vital program. Energy costs place a severe 
and continuing burden on household budgets. In many cases, families are 
forced to choose which bills to pay and which necessities to survive 
without.
    Of course, Mr. Chairman, it is not just low-income families that 
will be affected. In fact, the Department of Energy estimates that 
Americans will spend over $200 billion more on energy this year than 
they did last year.
    Meanwhile, big oil companies are making record profits. In fact, 
the combined total quarterly profits for the top five oil companies are 
$32.88 billion. I implore the oil companies to do their part to ease 
the energy cost burden on consumers. How can oil companies sit back 
while their profits, even in the wake of the hurricanes, are increasing 
at such astronomical rates--all while American families are being 
squeezed by skyrocketing home heating costs and gasoline prices?
    Yet, instead of dipping into their own profits, these oil companies 
are calling for the expansion of drilling in the Arctic National 
Wildlife Refuge (ANWR) and off our shores, claiming that this will ease 
prices. I'm disappointed that some of my colleagues are giving in to 
them. I have been clear about my opposition to such proposals and am 
deeply disappointed that this Committee included opening ANWR in its 
portion of the reconciliation bill. In addition, I am greatly concerned 
that the House Resources Committee just approved legislation that not 
only opens ANWR to drilling, but also allows states to opt out of the 
decades-old Congressional moratoria on oil and gas leasing in the Outer 
Continental Shelf--which will damage my State's economy, as well the 
economies of other states that depend so heavily on the cleanliness of 
their beaches and oceans.
    I urge my colleagues to avoid this knee-jerk reaction. We should 
instead be discussing more effective policies to reducing our 
dependence on oil and strengthening our energy security such as 
reducing CAFE standards and investing in renewable energy.
    Again, I thank the witnesses for being here today and I look 
forward to hearing about the status of hurricane recovery efforts at 
the Department of the Interior and the Department of Energy. I hope 
that both Secretaries offer recommendations for the short and long term 
and make progress toward fortifying our energy system and reducing the 
damage that hurricanes and other natural disasters have on our energy 
infrastructure.
                                 ______
                                 
   Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado

    Good morning. Thank you, Mr. Chairman, for holding this hearing. 
During the August recess I began a tour of Colorado that took me to all 
64 counties. I just finished this tour last week and I can report that 
in every county the biggest concern was high energy prices. It is 
important to note that I began the tour before the hurricanes came 
through the Gulf of Mexico and hit the gulf coast where much of our 
energy production is based. High energy prices were the greatest 
concern even before the hurricanes. The hurricanes ramped up already 
high prices as well as increased the frustration Coloradans are 
feeling.
    Mr. Chairman, I share that frustration. I know I am new to this 
body. While I am proud that I had some small hand as helping to craft 
our nation's long-term Energy policy this past summer, I nevertheless 
feel we are missing an opportunity--actually, failing in our 
obligation, to take immediate steps to address our near-term energy 
crisis. Since we returned to Washington immediately following Katrina, 
the Senate has failed. The Senate has failed to take action to address 
high energy prices, period.
    I have offered 5 bills to address the problems the country faces 
regarding high energy prices. I would like to talk briefly about each 
one.

                    ACCELERATING EFFICIENCY CREDITS

    The first bill I have offered is S. 1850, the Rapid Efficiency 
Credit Act of 2005. Under the energy bill signed into law in August, 
tax credits are available to consumers and businesses for purchases of 
energy efficient products (such as energy efficient windows, air 
conditioners and furnaces, solar power collectors, fuel cells and 
hybrid vehicles), as well as expanded ethanol fuel refueling 
facilities.
    But these tax credits do not go into effect until January 1, 2006. 
People in Colorado and across America want to know what they can do now 
in order to prepare for high heating and electricity costs this winter. 
These tax credits would have a positive impact if they went into effect 
now. Why are we waiting?
    In an effort to promote energy efficiency in vehicles and buildings 
sooner, my legislation would accelerate some of those credits to become 
effective upon enactment of this legislation.
    This legislation also adds a new provision for energy efficiency. 
Consumers will be eligible for a 30% tax credit for the purchase of 
compact fluorescent bulbs, which take the place of traditional 
incandescent bulbs, save significant amounts of energy, and save 
consumers real money.

                            TIRE EFFICIENCY

    My second bill has to deal with vehicle tire efficiency. S. 1851 
would require replacement tires to meet the same standards as new 
vehicle tires, including fuel economy requirements. If you go to buy 
new tires today, you can't find out how those tires will affect your 
gas mileage.
    But the truth is that replacement tires are in general between two 
and four percent less efficient than the original tires that come with 
the vehicle. Two percent may not seem like much, but it ends up costing 
the buyer as much as $150 over the life of the tires. And it also means 
we use more foreign oil as a nation.

                       GAS GUZZLERS TAX LOOPHOLE

    My next bill, S. 1852, addresses a specific tax loophole that 
encourages gas guzzling. Currently the tax code effectively punishes, 
through smaller deductions, those small businesses that purchase 
vehicles that get good gas mileage. At the same time, the current tax 
code actually rewards small businesses that purchase bigger, heavier 
vehicles--those over 6,000 pounds.
    Businesses purchasing vehicles that consume more fuel are rewarded 
with markedly larger and accelerated deductions.
    I am not saying that we should tell small businesses to purchase 
one class of vehicle or another. What I am saying is that the playing 
field must be level for all vehicles, so small businesses can purchase 
the vehicles of their choice without being unnecessarily pushed into 
bigger, heavier vehicles. That is what my bill does: it levels the 
playing field.

                    FEDERAL GOVERNMENT FUEL SAVINGS

    To address saving energy used by the federal government, I have 
introduced bill S. 1853, the ``Reduce Government Fuel Consumption 
Act.'' This bill directs federal agencies to try to achieve a target of 
10% reduction in fuel consumption over the next year. For obvious 
reasons, it specifically excludes any fuel consumed for military use. 
However, it is important that the federal government practice what it 
preaches.

                             PRICE GOUGING

    Finally, Mr. President, I have offered a bill that addresses price 
gouging. It may come as a surprise or even a shock to most Americans, 
but there is no federal law against price gouging. My proposal, S. 
1854, changes that by establishing a law stating that price gouging may 
exist when prices rise by ten percent as a result of an emergency 
compared to the same point one month before.
    My bill allows for both the U.S. Attorney General as well as the 
state Attorneys General to file a price gouging lawsuit in state or 
federal court. My bill requires the U.S. Department of Justice to 
cooperate with states on anti-gouging efforts.
    I am sure there are other measures that would provide small doses 
of relief, but we have not advanced them.
    So, there it is, I am frustrated at the Senate's inaction. Today, I 
am sure that we will discuss policies that may provide relief in 2-20 
years, but I am more concerned about this winter. Many of America's 
families, farmers, ranchers, and small businesses are on a financial 
cliff, and they need action to pull them back from that edge.
                                 ______
                                 
 Prepared Statement of Hon. James M. Talent, U.S. Senator From Missouri

    Mr. Chairman, we've spent over four years working to get an energy 
bill, and even after passing that bill into law, we find ourselves 
facing a fundamental problem--energy prices are too high because supply 
is not keeping pace with demand.
    We've tried for years to work around these fundamentals, but now we 
are to the point where, if we do nothing, the problem will solve itself 
in a way we cannot afford: energy prices will chase industry and jobs 
away to countries where prices are more reasonable. That's no solution; 
it is a disaster, it is real, and it is coming unless we do something 
soon.
    Dow Chemical CEO Andrew Liveris provided just one example of a 
business that no longer finds it economic to produce in the United 
States.
    He noted the huge disparity in natural gas costs that existed even 
pre-Katrina and will be a problem even after the gulf recovers from the 
hurricanes, unless we do something.
    Natural gas prices set a record of $14.50 per MMBtu last month (9/
30/95), double the already high $7 per MMbtu price from last year at 
this time. (API) In Europe, it's about $7.00 today, China less than 
$5.00 and in Saudi Arabia it's less than $1.00. This is largely the 
reason that, between 2000 and 2005, more than 2.9 million American 
manufacturing jobs disappeared. (Dow Chemical) I think that we can all 
agree that this cannot continue.
    Likewise, gasoline prices, while largely down from their post-
Katrina peak over $3.00 per gallon, are still almost a dollar higher 
than a year ago, and even then it wasn't cheap. Our airlines are 
teetering on the brink of bankruptcy, in part due to the high cost of 
jet fuel.
    What will bring these prices down to sustainable levels? Not 
conservation alone. Certainly not new taxes on oil companies or 
regulations on industry.
    Mr. Chairman, a first year economics student could tell you the 
answer--when demand is increasing, supply must increase as much or more 
to keep prices down. And we've got the supply. The untapped portion of 
Lease 181 in the Gulf of Mexico, 100 miles offshore, has enough natural 
gas to heat 6 million homes for 15 years. Alaska and the Western 
Mountains have an estimated 1,450 trillion cubic feet of natural gas, 
enough to meet current U.S. demand for more than 60 years, according to 
the Natural Gas Supply Association.
    ANWR has enough oil to produce 900,000 barrels per day, or 4.5 
percent of current U.S. consumption, for thirty years.
    This is an important hearing on rebuilding our nation's 
infrastructure and planning for our energy future. I am hopeful that 
our witnesses will discuss how we are working together to find ways to 
overcome obstacles and tap into these vital resources that drive 
economic growth in this nation.
    To that end, I sponsored a letter, signed by 11 of my colleagues, 
to President Bush asking that he direct Secretary Norton to include the 
remaining portion of the Lease Sale 181 area in the 2007-2012 five year 
leasing plan on the Outer Continental Shelf.
    Thank you.

         STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Bingaman. Thank you very much. Thank you, Mr. 
Chairman, for having this hearing. And, as you point out, it's 
one of a series of hearings that we've had.
    The two issues that I hope we can explore are what the two 
Departments see as their roles in post-Katrina reconstruction, 
and any recommendations that they have on avoiding future 
damage to the energy infrastructure and critical infrastructure 
in these hurricane-prone regions of our country. The second, of 
course, is probably the nearest to the hearts of most 
Americans, and that is what the Secretaries can tell us about 
how we can propose to address these very high energy costs and 
prices that we are faced with, what actions have been taken, 
and what actions may be taken.
    I have an industry alert here, put out by Deutsche Bank, 
dated yesterday, which says that the White House is close to 
sending a series of oil recommendations to the Hill for 
legislative action; two key proposals. First, a 5-day regional 
reserve for gasoline, diesel, and jet fuel, and, second, a tax 
on the oil industry to fund the Low Income Home Energy 
Assistance Program. It goes on to say that, while at first 
glance, this looks--this 5 percent profit haircut that these 
proposals represent are arguably bullish in the view of 
Deutsche Bank, they're arguably bullish for the industry, 
because they would reduce the pressure from more severe and 
troublesome windfall profits taxes, and, second, they can be 
passed along to the consumer. That doesn't sound like a very 
good arrangement, the way I'm generally thinking of it.
    So, at any rate, those are issues I would like very much to 
explore when we get into the questions.
    Thank you very much, Mr. Chairman.
    The Chairman. Thank you very much, Senator.
    Now we're going to proceed. We're going to start with our 
witnesses, and we're going to take Secretary Norton first, and 
then Secretary Bodman.
    Would you please proceed, Madam Secretary?

         STATEMENT OF HON. GALE A. NORTON, SECRETARY, 
                   DEPARTMENT OF THE INTERIOR

    Secretary Norton. Thank you.
    Good morning, Mr. Chairman and members of the committee. I 
appreciate the opportunity to be here today to share with you 
our experiences from the hurricanes and what we can learn from 
those.
    Hurricanes Katrina and Rita clearly demonstrated the need 
for diversification of our energy supply. President Bush 
recognized, in his national energy policy, that we need to 
increase our energy supply and invest in our energy 
infrastructure. Diversification is a key goal for this 
administration and must remain a top priority for our Nation's 
economic and national security.
    Achieving a goal of secure, affordable, and environmentally 
sound energy will require diligent, concerted efforts on both 
the supply and demand sides of the energy equation.
    I'm pleased to be here today with Secretary Bodman. One of 
the things that we have learned very dramatically during this 
experience is how interconnected our energy supply is, how much 
offshore production depends on onshore facilities. We have had 
the opportunity to work together very closely, and even to 
visit the gulf region together to see the impacts.
    Now, let me begin by explaining what happened to our 
offshore energy infrastructure as the hurricanes came through. 
This map--and you have been provided with copies of that--the 
map in your packets--the map shows the path of the two 
hurricanes. The key point is that three-fourths of our offshore 
platforms were in the path of one or another of the hurricanes. 
Of 4,000 platforms, 2,900 were in the path. One platform 
reportedly clocked sustained winds of 170 miles an hour for 5 
to 6 hours, with gusts over 200 miles an hour during Katrina. 
As Hurricane Rita came through, although, fortunately, it had 
subsided by the time it reached ground, it was still category 4 
as it hit some of our offshore platforms. Coming so close 
together, these storms created an unprecedented challenge for 
offshore production.
    We have a few charts that show both gas production and oil 
production from the hurricanes, and the top green line on each 
of these goes back to last year. That is the pattern that we 
saw for Hurricane Ivan in 2004. What you can see from Hurricane 
Ivan, which, similarly, had a significant effect offshore, is a 
fairly quick recovery. We see stages of recovery. Essentially, 
the first stage is checking to see if there is damage to 
facilities. If there's no damage, restoring those quickly, 
getting people back on the platforms. The next phase is dealing 
with minor damage, and restoring those things. And then you 
have a longer time of restoring the more significant damage, 
and that results in a--more gradual parts of the recovery 
process. When you look at the bottom blue line on each of these 
charts--one shows oil, one shows gas, but the pattern is 
basically the same--the blue line shows what happened with 
Katrina, and then with Rita. After Katrina, we had a slower 
path of recovery than we had with Ivan, because the damage was 
more severe. And then, with Hurricane Rita, we have seen an 
even slower path of recovery.
    All together, between Hurricanes Rita and Katrina, we had 
over a hundred offshore platforms destroyed. Many of those were 
small, old platforms, but those were destroyed. In the 
recovery, we have now seen getting back to about two-thirds of 
our oil production continuing to be shut in. And that's our 
current situation. Wilma caused a brief blip on that, but 
essentially caused no additional damage. But we remain with 
two-thirds of our gulf oil production not producing, and 53 
percent of natural gas production shut-in.
    The Department of the Interior has been taking active 
measures to help get production back online. We tried to cut 
through red tape and be practical in our application whenever 
possible. We've been streamlining the processes for various 
permit approvals to resume production. We've expedited the 
reviews of requests for temporary barging of oil until 
pipelines could be repaired. We've accelerated the process to 
approve pipeline repairs.
    One of the key things that we have seen in this whole 
experience is the effect of our environmental protection 
measures. As we saw these two huge hurricanes roll through with 
so much of an impact, one might have expected the entire Gulf 
of Mexico to be blackened by oil spills. The reality is that 
even with over a hundred platforms destroyed, there were no 
significant spills from any of our wells.
    What we see in these two charts are the valves that protect 
the wellheads. And the--Tom, if you could point to where the 
wellhead shutoff valves would be, they are 100 feet below the 
sea-floor level, which means that each well is protected by a 
valve that will prevent that well from leaking into the water, 
even if the entire platform is destroyed. What we found was 
that, in each and every case, those valves operated correctly. 
We had no spill from any of our wells. The National Oceanic and 
Atmospheric Administration recently announced the results of a 
study they did with samples from fish and other marine life, 
and found that there were no elevated levels of hydrocarbon 
contaminants in those fish populations, which indicates that--
again, that our oil-spill prevention measures worked.
    There is no official estimate, but the damages in repair 
costs will be in the billions of dollars. We recognize that 
this is a complex system, companies need to be checking 
platforms, they need to be dealing with pipeline damage, with 
onshore facility damage. We've had to respond in a variety of 
ways. We're working closely with the Department of Energy and 
with the Coast Guard in the Department of Homeland Security on 
our recovery efforts.
    Some of the reasons for slow recovery include limited 
amounts of repair equipment and skilled personnel that have to 
be divided in many more directions than has been the case in 
the past as a result of past hurricanes. So, know that our 
employees are working hard. The industry is working hard, and 
there is a lot of repair work that needs to be done. That's 
going to take many more months before we see a full recovery.
    Let me run through a few of the lessons that we have 
learned from this.
    First of all, we learned that our upgraded design standards 
for platforms worked well. Of all of the platforms that were 
destroyed, only one was built after 1988. And so--certainly, at 
least, of any significant platform--our current standards 
worked very well. The one exception is shown in this set of 
charts, the chart that is headed ``Mini-Tension Leg Platform'' 
shows the typhoon facility owned by Chevron. It was one of the 
newest facilities in the Gulf of Mexico and was producing 
28,000 barrels of oil a day. We are investigating the cause of 
this, but there may have been a collision between this facility 
and another--possibly drilling units--in the midst of the 
hurricane. But, unfortunately, the after-photo is what you see 
over there. That is the upside-down version of the platform--
view of the platform. We found it floating about 30 miles away 
from where it was supposed to be located. Other than that, 
perhaps collision causing damage, all of our other major 
platforms performed fairly well. There were some areas of 
damage on the platforms, but the overall structures survived.
    One area that we did find where our standards need to be 
reviewed is on mobile offshore drilling units. And this is an 
example of one of those units. Those are moored in place, and 
we found, unfortunately, those moorings did not hold. We found 
some of that with Hurricane Ivan, and the Minerals Management 
Service had already initiated a study to see how those should 
be strengthened. We found that 19 of these drilling rigs were 
knocked loose from their moorings during the hurricanes, and 
some of them dragged anchors. That caused pipeline damage. And 
so, we have learned that is an area we need to focus on.
    I have called for a conference with the energy industry on 
November 17, to discuss what we need to do to strengthen those 
moorings and where we need to go in a future regulatory stance.
    The hurricanes have shown us the importance of diversifying 
our energy supply. We have been working on that issue in a 
number of ways. The Minerals Management Service is looking at 
its 5-year plan for the leasing of offshore areas from 2007 to 
2012. We have had the first round of public comment on that, 
and we will then be doing environmental impact reviews.
    Of all the comments received to date on the 5-year plan, 
there were 8,998 comments in support of opening additional 
areas, and 2,276 against.
    The House----
    The Chairman. Would you repeat that one?
    Secretary Norton. Yes. We had close to 9,000 comments----
    The Chairman. What was the issue?
    Secretary Norton. This is on the areas that should be 
opened for leasing, between 2007 and 2012, in the Outer 
Continental Shelf.
    The Chairman. Thank you.
    Secretary Norton. It was 8,998 for, 2,276 against.
    The House, last night, as you're probably aware, included 
an OCS provision in its budget reconciliation. We're still 
reviewing that. We do not have an official position yet. We're 
pleased that Chairman Pombo has worked with Governor Bush to 
try to resolve some of the issues of concern to Florida 
especially.
    Very briefly, we are looking at other areas. ANWR is one 
that I have talked with this committee about before. We 
continue to consider that an important part of our energy plan 
and our diversification. We've been working onshore, through 
the Bureau of Land Management, to process applications for 
permits to drill. And, as a result of the provisions in the 
energy bill that you all recently passed, we have additional 
funding to process APDs, and we're moving quickly to get 
additional personnel in place. You have also passed some 
categorical exclusions from NEPA that do very straightforward 
things, like saying if you drill two wells from the same 
drilling pad, you don't need to go through the whole process 
for the second well being placed on the same pad. Those kinds 
of things are very helpful to us, and we anticipate being able 
to move more quickly as a result of those things.
    I will stop at this point, but thank you very much for your 
attention.
    [The prepared statement of Secretary Norton follows:]

         Prepared Statement of Hon. Gale A. Norton, Secretary, 
                       Department of the Interior

    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear today to discuss energy policy and hurricane 
recovery, especially the Department of the Interior's activities and 
responsibilities in bringing the offshore oil and gas production in the 
Gulf of Mexico back on line.
    Hurricanes Katrina and Rita clearly demonstrated we have no margin 
to mitigate the impacts of natural disasters on our energy supply. The 
wake-up call being sounded for the past decade has reached the point 
where it must be heard. The President recognized, in his National 
Energy Policy, that we need to increase our energy supply and invest in 
our energy infrastructure. The President's National Energy Policy 
report envisioned a long-term energy strategy. As the report stated 
``America's energy challenge begins with our expanding economy, growing 
population, and rising standard of living. Our prosperity and way of 
life are sustained by energy use. America has the technological know-
how and environmentally sound 21st century technologies needed to meet 
the principal energy challenges we face: promoting energy conservation, 
repairing and modernizing our energy infrastructure, and increasing our 
energy supplies in ways that protect and improve the environment. 
Meeting each of these challenges is critical to expanding our economy, 
meeting the needs of a growing population, and raising the American 
standard of living.'' In fact, in recent testimony presented to the 
Senate Interior Appropriations Subcommittee by the Industrial Energy 
Consumers of America stated that ``[s]ince 2001, natural gas prices 
have significantly contributed to the loss of 3.0 million manufacturing 
jobs and the shifting of future investment overseas.''
    Therefore, we must not lose sight of this fact: Diversification of 
our Nation's energy supply is a key goal for this Administration and 
must remain a top priority for our Nation's economic and national 
security. Achieving the goal of secure, affordable and environmentally 
sound energy will require diligent, concerted efforts on many fronts on 
both the supply and demand sides of the energy equation.

                  HURRICANE KATRINA AND RITA RECOVERY

    The oil and gas produced from the Gulf of Mexico are vital to the 
American economy and way of life. Production from the Gulf of Mexico 
provides 27% of oil and 20% of natural gas produced domestically. 
However, it took two major hurricanes back-to-back to drive home the 
importance of this region to our Nation's energy security. As a country 
we face tightening oil and gas supplies and higher prices. It is time 
to take a closer look at the full impact of Hurricanes Katrina and 
Rita.
    The attached map* shows that Hurricanes Katrina and Rita moved 
through a core area of offshore operations. Of the approximately 4,000 
platforms, 2,900 were in the path of Katrina and Rita. One platform in 
the path of Katrina clocked sustained winds of 170 mph for 5-6 hours 
with gusts of over 200 mph. At Rita's peak on September 25, 100% of 
daily oil production and 80% of daily gas production in the Gulf was 
shut-in. Prior to Hurricane Katrina, the Gulf of Mexico produced 
approximately 1.5 million barrels of oil per day, and 10 billion cubic 
feet of natural gas per day. In the wake of these two devastating 
hurricanes, a significant portion of our Gulf production has been 
curtailed: as of October 21, 2005, some 65 million barrels of oil and 
327 billion cubic feet of natural gas have not been produced due to 
shut-in wells. We do, however, want to note that additional facilities 
were shut-in due to Hurricane Wilma, resulting in an approximately four 
percent increase in shut-in production. These facilities did not 
sustain any damage and therefore, are expected to come back on line in 
the next few days.
---------------------------------------------------------------------------
    * All attachments have been retained in committee files.
---------------------------------------------------------------------------
    There is good news regarding offshore operations. Katrina and 
Rita--both reaching Category 5 strength as they spun through the Gulf 
and the heart of the offshore energy production--caused no loss of life 
among offshore industry personnel or significant spills from any 
offshore wells on the Outer Continental Shelf (OCS). This bears 
repeating: We faced down two of the most devastating hurricanes ever to 
hit the Gulf of Mexico without one significant spill from any offshore 
well on the Outer Continental Shelf. Although there were some minor 
pollution events from lines or equipment, all subsurface safety valves 
installed beneath the seafloor successfully prevented uncontrolled 
releases of hydrocarbons into the Gulf of Mexico.
    The Department of Commerce's National Oceanic and Atmospheric 
Administration (NOAA) has been collecting fish samples in the aftermath 
of the hurricanes to determine exposure to contaminates resulting from 
the storms. On September 29, 2005, NOAA announced the results of the 
first sample tests of Gulf of Mexico fish two weeks after Hurricane 
Katrina. The latest tests found no elevated exposure to hydrocarbon 
contaminants, which can be present at elevated levels in marine life 
after exposure to oil spills. The first round of samples were from 
Pensacola, Florida, along the coastlines of Alabama and Mississippi and 
then around the southern tip of Louisiana at the mouth of the 
Mississippi River and back. NOAA has advised that samples from two 
subsequent cruises are currently being analyzed and NOAA will continue 
to assess impacts throughout the year. The Department's Minerals 
Management Service (MMS) regulates all exploration, development and 
production activities on over 8,000 leases in the Gulf of Mexico alone. 
Since human and environmental safety are two of MMS's major goals, we 
are very pleased with this result.
    At the same time, significant damage has been reported regarding 
facilities in the OCS. Katrina destroyed 47 platforms and 4 drilling 
rigs; extensively damaged 20 platforms and 9 drilling rigs; and shut in 
95% of Gulf oil production and 88% of Gulf natural gas production. 
Production had not fully recovered post Katrina when Rita hit the Gulf. 
Rita destroyed an additional 66 platforms and 4 drilling rigs; 
extensively damaged 32 platforms and 10 drilling rigs; and shut in 100% 
of Gulf oil production and 80% of Gulf natural gas production.
    Today, we are seeing incremental progress in the Gulf oil and gas 
production. As of October 21, 2005 shut-in numbers are 66% of the oil 
and 53% of the natural gas production. Again, these percentages are 
slightly higher post Hurricane Wilma but we expect that portion of 
production to resume quickly. It is fair to say, however, that oil 
production in the Gulf of Mexico will not be back to 100% for many 
months. Recovery is dependent on repairs to onshore facilities, 
offshore and onshore pipelines transportation systems, and offshore 
platforms. Generally Industry must conduct the necessary inspections of 
these networks, determine the repairs required, and then perform any 
necessary repairs. It is evident from reports received from Industry to 
date that this work will take approximately several months to a year. 
For example, we estimate, based on Industry reports, that approximately 
30 percent of pipelines have not been leak tested and approximately 60 
percent of underwater/riser inspections have not been completed.
    Industry has reported billions of dollars in damage and we expect 
the figure to grow as inspections are complete. The oil and gas 
industry continues to use all available resources to board, assess 
damage, re-man and begin repair of OCS facilities, concentrating on the 
high-producing operations first. Even as production repairs are made, 
however, problems with dislocated employees, onshore support 
facilities, terminals, refineries and pipelines could delay the 
resumption of supply to market.
    The industry is exploring various alternatives to restore 
transmission of oil and gas from the OCS while repairs are being 
carried out on pipelines and onshore facilities. Concerning pipelines 
in the area impacted by Katrina and Rita, we estimate that 45 percent 
of the pipelines are operational, 30 percent need repair, and 25 
percent are undamaged but cannot flow due to downstream problems. In 
some cases, oil is being barged to shore until pipelines and other 
facilities can be repaired, inspected and judged safe for operation. 
The MMS, along with the U.S. Coast Guard, has approved these requests 
resulting in 33,000 barrels of oil per day being brought back online 
that had been shut in due to downstream refinery problems. The MMS is 
evaluating such applications on a case by case basis.
    Both onshore natural gas processing facilities and oil refineries 
suffered extensive damage from the storms. In fact, some onshore 
production in the states of New Mexico and Texas was also shut-in due 
to the lack of refining capacity. Following Katrina, the Mont Belvieu 
plant could not accommodate any refinery product from the Dukes plant 
in New Mexico, where some of the natural gas produced from federal oil 
and gas leases in New Mexico is sent for processing. Consequently, the 
Dukes plant could not accommodate any raw product for approximately 24 
hours resulting in some production having to be shut in. This example 
serves as an illustration of the ripple effect that occurred oil and 
gas production and refining. It will take multiple months to repair 
processing plants.
    A number of variables are impacting this restoration process. 
Industry personnel, for both offshore and onshore operations, have been 
and continue to be affected by the storms and must ensure their 
families' well-being and safety first. Onshore infrastructures suffered 
significant damage. For example, 16 natural gas processing plants in 
Louisiana and Texas are inoperable due damaged from the hurricanes.
MMS Actions
    As directed by the MMS's Continuity of Operations Plan (COOP), the 
Gulf of Mexico Regional Office, which is located in the New Orleans 
area moved its COOP team to Houston, Texas, in advance of the 
evacuation triggered by Katrina. As Hurricane Rita bore down on 
Houston, the COOP team evacuated once more to the MMS's offices in 
Herndon, Virginia, and continued collecting and evaluating data on the 
status of operations in the Gulf. In addition, the MMS also moved its 
Lake Charles District Office operations to other district office sites 
in the region.
    In September Johnnie Burton, the Director of the Minerals 
Management Service, and I visited our New Orleans staff recently 
relocated to Houston where we witnessed the dedicated employees hard at 
work to bring facilities back on line and resume normal operations. The 
dedication of these public servants--many of whom had their homes 
destroyed or severely damaged--is beyond words.
    The MMS has notified all 530 MMS Region employees that they will be 
back to work on October 31, 2005, at one of four office sites, three in 
the New Orleans area and one in Houston. The top five floors of the 
Region's headquarters building were severely damaged and are being 
renovated. The bottom five floors are habitable and employees will be 
using this space as of October 31, 2005. All administrative and health 
procedures have been put in place to ensure our employees will be 
working in a safe and healthy environment.
    The Department is also taking other actions to help bring 
production back online. After Katrina, it was apparent that there was 
massive disruption to not only the producing, transporting and 
processing infrastructure, but also the supporting infrastructure 
including the companies' land-based operations essential to repairing 
damage. Hurricane Rita amplified this impact by disrupting operations 
which had been recently reconstituted after Katrina and significantly 
expanded the coastal area that was disrupted. The culmination of the 
two storms created Herculean challenges for the industry and based on 
prior experience, the MMS immediately began the following:

          1) streamlining processes for various permit approvals to 
        resume production,
          2) expediting reviews of requests for the temporary barging 
        of oil until pipelines are repaired, and
          3) accelerating the process to approve pipeline repairs.

    MMS is also providing regulatory relief to those companies hardest 
hit by Hurricanes Katrina and Rita. This relief eliminates undue 
burdens on companies at a time when the focus must be maintained on 
repairing and restoring infrastructure. For example, MMS extended the 
time to report and pay royalties for companies that certify that they 
cannot report or pay due to the hurricanes' impact on their offices and 
staff. Finally, the effective dates for two regulations have been 
extended in order that we do not place additional burdens on industry 
at this time.
    Gulf oil and gas operations account for a significant portion of 
our domestic production and the Department is determined to bring 
production back on line as quickly as possible. This is truly a vital 
issue, which we are pursuing every day. MMS is always striving to 
ensure that appropriate technology is used in the design and operation 
of offshore facilities and MMS assesses all potential improvements for 
withstanding hurricane-force wind and waves. I have been working 
closely with Energy Secretary Bodman and Transportation Secretary 
Mineta on these important issues.

Lessons Learned
    Damage reports post-Rita have highlighted a problem with Mobile 
Offshore Drilling Units (MODU). Nineteen MODU's broke loose from their 
moorings and were set adrift; some causing damage to pipelines as 
anchors dragged along the ocean floor. To address this issue, I have 
called for a Conference on Mobile Offshore Drilling Units to be held at 
the Department, here in Washington, D.C. on November 17, 2005. During 
this conference we will assess lessons learned and we will define a 
path forward.
    What lessons have we learned from the past month? Major new 
facilities, constructed to meet MMS's 1988 updated design standards, 
fared much better than their older counterparts. Typhoon was the only 
platform built under the 1988 standards that was destroyed. I have 
asked MMS to work together with the U.S. Coast Guard to investigate the 
destruction of the Typhoon tension leg platform. The MMS has 
commissioned studies that are assessing the actual wind, wave and 
current forces that were present in Hurricane Ivan, analyzing the 
consequential damage to structures and pipelines, determining the 
effectiveness of current design standards and pollution-prevention 
systems and developing recommendations for changes to industry 
standards and MMS regulations. If funding permits and it is practical 
to do so, these studies will be expanded to include information from 
Hurricanes Katrina and Rita.
    Hurricanes Katrina and Rita confirmed that our offshore oil and gas 
industry produces environmentally safe energy for America. Even in the 
face of two back-to-back major hurricanes, all subsurface safety valves 
held on the OCS and there was no significant spill from production. The 
small amounts of oil observed in the water surrounding platforms may 
have come from damaged pipelines or petroleum supplies for running 
platform machinery, but, as stated, it did not come from OCS production 
wells.
    In addition, the Katrina/Rita scenario has confirmed that our 
domestic offshore oil and gas resources are key components in the 
energy mix which provide some of the basic necessities Americans have 
come to expect--gasoline for our cars, heating fuel for our homes, 
natural gas to cook our meals, to power our factories, and to generate 
the electricity that is critical to our way of life and critical to 
powering our advanced economy. At present, more than 25% of America's 
total domestic oil and natural gas production comes from only 10% of 
the total OCS acreage.

                 ENERGY DEVELOPMENT AND DIVERSIFICATION

ANWR
    President Bush's National Energy Policy report laid out a 
comprehensive, long-term energy strategy for securing America's energy 
future. That strategy recognized that to reduce our rising dependence 
on imported oil and gas, we must also increase domestic production 
while pursuing conservation and development of alternative and 
renewable energy sources. The President proposes to open a small 
portion of the Arctic National Wildlife Refuge (ANWR) to 
environmentally responsible oil and gas exploration using newly 
available, environmentally friendly technology. ANWR is by far the 
largest potential untapped source of onshore resources in the country. 
Had ANWR been opened in 1995, it is possible that today we could have 
oil from the area, which may have helped mitigate the effects of the 
hurricanes. I would like to thank you and the rest of the Congress for 
taking up this important issue as we continue to try to provide 
additional energy resources in an environmentally responsible way.

OCS 5-year plan
    Under the OCS Lands Act, the MMS is required to prepare a new 5-
year leasing plan that specifies the size, timing and location of areas 
to be considered for Federal offshore natural gas and oil leasing. The 
5-year planning process provides several opportunities for MMS to work 
with stakeholders, including Federal and State agencies, local 
communities, private industry, and the general public to develop a 
program that offers access in an environmentally responsible manner to 
those areas with potential for discovery of natural gas and oil. Not 
every area analyzed in a 5-year plan is recommended for leasing 
consideration. In addition, public participation through input and 
comments is an integral part of preparing the environmental impact 
statement (EIS) in conjunction with the 5-year program, and there are 
multiple opportunities for public comment during the EIS process as 
well.
    The MMS announced in late August that it is seeking initial public 
comment on the development of its 2007-2012 five-year leasing plan for 
energy development on the Outer Continental Shelf (OCS) and 
accompanying environmental impact statement.
    In seeking public comment, MMS asked the public to comment 
specifically on whether the existing withdrawals or moratoria should be 
modified or expanded to include other areas in the OCS; and whether the 
Interior Department should work with Congress to develop gas-only 
leases. Throughout the process of developing a new 5-year program, MMS 
requests comments from states, local and tribal governments, American 
Indian and Native Alaskan organizations, the oil and gas industry, 
Federal agencies, environmental and other interest organizations, as 
well as the general public. Consultation with affected parties also 
occurs at the local level through MMS regional offices. Of all of the 
comments received to date on the 5-year plan, MMS has received 8,998 
comments for opening additional areas of the OCS and 2,276 against.
    We have received several letters from senior citizens expressing 
their ``strong support'' for opening additional areas of the OCS. One 
senior citizen wrote ``I'm writing to express my strong support for 
developing more domestic oil and natural gas resources off our coasts--
in the country's Outer Continental Shelf (OCS)--by providing for more 
acreage for lease in the government's next five-year leasing program 
for 2007-2012 . . . Higher energy prices of the past two years have 
forced me to make hard choices. And I worry that high energy prices 
will harm our economy affecting the value of pensions and making it 
more difficult for Social Security to help make ends meet.''
    We have also received several letters from Chambers of Commerce 
throughout the country. The Indiana Chamber of Commerce wrote ``The 
Indiana Chamber of Commerce and our members are experiencing high 
energy costs, resulting in a negative impact on production and 
transportation in Indiana.'' The Arkansas Chamber of Commerce stated 
``Over the last five years the price of natural gas has risen 140%. 
There is no doubt this increase has played a role in the reduction of 
manufacturing jobs available to Arkansans.''

Onshore Mineral Development
    The Bureau of Land Management (BLM), an agency within the U.S. 
Department of the Interior, administers 261 million surface acres of 
public lands, located primarily in 12 Western States. The BLM sustains 
the health, diversity, and productivity of the public lands for the use 
and enjoyment of present and future generations. The BLM continues to 
balance the energy needs of the country while working within its 
multiple use framework and is mindful of alternative uses of the land 
it manages.
    Within areas designated for appropriate mineral development, the 
BLM has been making a concerted effort to help bring additional oil and 
gas supplies to the market. Domestic production of natural gas has been 
increasing over the last three years. In Fiscal Year 2002, 2.1 trillion 
cubic feet (Tcf) of natural gas and 107.5 million barrels of oil (bbl) 
were produced from Federal (non-Indian) lands. In Fiscal Years 2003 and 
2004, 2.2 Tcf and 3.1 Tcf and 101 million bbl and 98.2 million bbl, 
respectively, were produced. In addition to the Federal onshore leases, 
the BLM supervises the operational activities of 3,700 producing Indian 
oil and gas leases.

            Permitting and Leasing
    Processing Applications for Permits to Drill (APDs) and operating 
an efficient federal oil and gas leasing program continues to be a 
major priority for the BLM. Increased funding provided by Congress and 
management improvements have enabled the BLM to make significant 
progress in responding to the greatly increased number of APDs being 
submitted by industry. In FY 2004, the BLM processed 7,351 APDs, 
approving 6,452 (on both Federal and Indian lands). In FY 2005, the BLM 
had processed approximately 7,736 APDs (about 400 ahead of FY-2004's 
pace), approved 7,018 APDs (about 600 ahead of FY-2004's pace).
    Also, as directed by the Energy Policy Act of 2005, BLM is 
implementing a pilot project to better coordinate APD processing. The 
BLM has entered into a Memorandum of Understanding with the Fish and 
Wildlife Service, Bureau of Indian Affairs, Army Corps of Engineers, 
Environmental Protection Agency, and United States Forest Service to 
provide staff and expertise to better coordinate activities in order to 
improve efficiency while maintaining environmental protection. The 
pilot offices will be aggressive and innovative in finding better and 
more efficient ways to manage the oil and gas program and within 18 
months, we will have identified best management practices that can be 
implemented bureau wide. New money from rental revenue will help BLM 
accomplish this task. With more efficient processes and additional 
funds, we anticipate BLM could process more than 9,600 permits in FY 06 
and 11,400 permits in FY 07.
    The Energy Policy Act of 2005 also gives us a valuable tool for 
improving our NEPA compliance related to the exploration or development 
of oil and gas by providing a legislative determination that a set of 
defined and very minor development activities do not need further site 
specific NEPA review and if proposals meet certain conditions, they 
should be deemed to be categorically excluded from further NEPA review.
    It is important to note the dramatic increase in the number of 
protests that the BLM has experienced in recent years, which create 
processing delays. For example, in 1999, approximately 4.5 percent of 
leases offered were protested; BLM received approximately 166 protests 
on 3,628 leases offered. In 2005, 50 percent were protested; 1,291 
protests on 2,342 leases offered. The State of Utah provides a clear 
illustration of the impact of protests on the oil and gas program. In 
2004, every lease sold in Utah was protested resulting in delays in 
issuing them of up to 18 months. The real challenge for BLM is that the 
same personnel who process protests also process APDs, conduct leasing, 
inspection and enforcement, land use planning, and a range of other 
activities.

            National Petroleum Reserve Alaska (NPR-A)

    BLM is also working to make oil and gas resources in Alaska 
available through its leasing, exploration and development activities 
in the NPR-A, an area covering more than 23 million acres in the 
northwest corner of the state. Development of these oil and gas 
resources is an important component of the President's National Energy 
Policy. It is estimated that NPR-A contains 10.6 bbl and 61.4 Tcf 
undiscovered resources for the entire assessment area. The first 
significant commercial production from the NPR-A is expected as early 
as 2008.

            Oil Shale
    The United States holds significant oil shale resources underlying 
a total area of 16,000 square miles. This represents the largest known 
concentration of oil shale in the world and could contain the 
equivalent of 2.6 trillion barrels of oil. More than 70 percent of 
American oil shale is on Federal land, primarily in Colorado, Utah, and 
Wyoming. The Energy Policy Act directs that public lands in these three 
States be made available for research, development, and demonstration 
(RD&D) leasing within six months of the measure becoming law. In 
response to its announcement of an oil shale RD&D program, the BLM has 
received 20 nominations for parcels of public land to be leased in 
Colorado, Utah, and Wyoming. BLM intends to offer RD&D leases for the 
viable nominations early in 2006. BLM will also be conducting a 
programmatic Environmental Impact Statement and will develop a 
commercial leasing program by mid 2007.

            Coal
    The BLM is doing its part to ensure that the Nation has an 
efficient, affordable, and reliable domestic energy supply of coal. 
Bonus bids are up 177%; existing lease production is up nearly 24%; and 
the royalty and estimated rent income is up nearly 33%. During this 
time period, 2001-2004, nearly 1.8 billion tons of coal were produced 
from Federal leases. In addition, the Energy Policy Act of 2005 gives 
the Department the authority to increase the number of acres per lease, 
which we are working on implementing.
    The Office of Surface Mining Regulation and Enforcement (OSM) works 
with coal operators to ensure that land that has been mined is restored 
to its previous condition. OSM has a successful working relationship 
with the States and mining industry to ensure sites are properly 
reclaimed. OSM brings a level of regulatory stability to the benefit of 
all stakeholders.

Conservation and Renewable Energy
    Fossil fuel development is only apart of the solution to our 
Nation's energy issues. We also must increase energy conservation and 
the use of alternative and renewable resources. The Department echoes 
Secretary Bodman's call for an increase in conservation measures. Most 
media coverage of the President's National Energy Policy and the 
recently enacted Energy Policy Act of 2005 focused on the parts dealing 
with production of traditional energy. However, both call for increased 
energy conservation and alternative and renewable sources as critical 
components to a balanced energy program. Good stewardship of resources 
dictates that we use energy efficiently and conserve resources. 
Americans have already made great strides in using energy more 
efficiently. Since 1973, the United States economy has grown nearly 
three times faster than energy use, in part due to more efficient use 
of energy. Efforts over the past 20 years have proven that simple 
conservation actions by individuals and businesses can yield impressive 
results in demand reduction.
    Alternative and renewable sources of energy can also play an 
important role in helping meet our increased energy needs. To this end, 
the President and the Energy Policy Act of 2005 encourage development 
of a cleaner, more diverse portfolio of domestic energy supplies, and 
include measures to aid in the development and expansion of renewable 
energy technologies in use today, including geothermal, wind, solar, 
and biomass, as well as continued research into using hydrogen as an 
alternative energy carrier. Such diversity helps to ensure that 
Americans will continue to have access to the energy they need.
    With that in mind, the Department has been working hard to 
establish conditions that will permit the development of renewable 
sources both on and offshore. We are proud of our record of results. We 
are increasing permitting, improving land use planning, and 
establishing policies that emphasize the use of renewables. In fact, 
since 2000, we have approved 200 geothermal leases and 92 wind energy 
permits. To further encourage wind energy development, the BLM has 
prepared a national EIS, which will assist the BLM in expediting wind 
energy permitting across our public lands. In addition, offshore we are 
developing a process to implement new authority provided for in the 
Energy Policy Act of 2005 that allows MMS to permit alternative energy-
related uses such as wind, current, and wave technology on the OCS.
    Hydropower is also a key renewable energy source. The Bureau of 
Reclamation's 58 power plants make it the 10th largest producer of 
electricity in the Nation. Those plants have an exemplary record of 
reliability, with a forced outage rate of about one-half of the 
industry standard. We are continually expanding generation at our 
facilities by upgrading turbines. In addition, the Fish and Wildlife 
Service is involved with Federal Energy Regulatory Commission licensing 
of private hydroelectric facilities. We are working to make that 
process more streamlined, predictable and effective.
    For solar energy, last fall the BLM issued a solar energy 
development policy, which, among other things, establishes the 
authority and procedures for BLM field offices to use when processing 
applications for solar projects. It helps establish solar markets by 
encouraging BLM field offices to consider the use of solar power for 
BLM facilities and field stations. More than 650 facilities owned and 
operated by the Department are equipped with solar systems. These 
include office buildings and remote systems such as weather stations 
and water pumps. Many other Federal agencies often use solar for power 
at isolated facilities as well.
    Finally, the Department of the Interior continues to explore ways 
to encourage the use of wood biomass created as a result of wildfire 
prevention and healthy forest treatments. Most people think of ethanol 
from corn when they think of bioenergy, but wood is the source for 72 
percent of all U.S. bioenergy production. Two Presidential initiatives, 
one to prevent catastrophic wildfires and the other to restore 
rangeland and forest health, encourage the removal of excess or 
diseased wood debris from forests and rangelands. This wood debris can 
be used as a renewable source of biomass energy.
    The Department is working to reduce regulatory barriers and 
encourage the development of markets for the material produced from 
biomass and are actively working with other stakeholders on ways to use 
this resource. For instance, we will be hosting, along with the 
Departments of Agriculture and Energy, a conference on bioenergy. The 
Department will also provide training to local communities in biomass 
utilization.

                               CONCLUSION

    Hurricanes Katrina and Rita brought devastation and destruction to 
a wide area of our Nation. The road to recovery after these storms will 
be long and, at times, very difficult. However, it is in these 
instances more than ever that humanity comes together as one to begin 
the journey toward recovery, rebuilding, and restoration. I am proud of 
the commitment and dedication shown by the employees of the Department 
of the Interior during this difficult period. Our resolve to assist in 
recovery and restoration activities remains strong. We will do all that 
we can to assist those affected by these storms as they begin the 
process of rebuilding. Our agency is not alone in this endeavor. We are 
working shoulder to shoulder with other Federal, State, local agencies, 
and industry in these efforts.
    The disruption to our energy production in the Gulf is significant 
but we have learned lessons that will serve us well into the future. 
Most importantly, we have learned that the systems in place have 
worked. Modern oil and gas production techniques are effective and 
environmentally sound even in the most challenging and unpredictable of 
environments.
    Thank you for the opportunity to be here today to discuss the 
Department's role in hurricane recovery and energy development. I will 
be happy to answer any questions members of the Committee may have for 
me.

    The Chairman. Thank you, Secretary Norton.
    I would note, just in passing, for you and for the record, 
that I'm working very hard to get Lynn Scarlett released here 
in the Senate. And I commented last night, and I did talk to 
the leader and the Democratic leader about it. I know you need 
every additional expert in your staff that you can get, and I'm 
trying my very best.
    Secretary Norton. I'd greatly appreciate that.
    The Chairman. I will soon solicit the help of Senator 
Bingaman on that. I haven't asked him yet, but I think he won't 
object to helping me.
    Senator Bingaman. I'd be glad to help.
    The Chairman. We don't even know who's holding her up. It's 
not my side now, but it took me 6 months for my side, so it's 
not--I'm not complaining.
    Secretary.

        STATEMENT OF HON. SAMUEL W. BODMAN, SECRETARY, 
                      DEPARTMENT OF ENERGY

    Secretary Bodman. Mr. Chairman, Senator Bingaman, members 
of the committee, I'm very pleased to have the opportunity of 
being here. I'm particularly pleased to be here with Secretary 
Norton, with whom I have been working even more closely than 
before, following these hurricanes.
    The Department of Energy's Office of Electricity Delivery 
and Energy Reliability has been the center point of much of 
what we have done as a consequence of these hurricanes. They 
have put together a very succinct chronology of every action 
that was taken by the Department with respect to the 
hurricanes. This timeline covers a 2-month period from when 
Katrina first struck south Florida, as a matter of fact, on 
August 25, and that chronology is up through this current week. 
It notes actions that were taken not just by the Energy 
Department, but by the White House, the Department of Homeland 
Security, Department of the Interior, Transportation, EPA, 
Coast Guard, and the International Energy Agency, among others. 
So, it's fairly comprehensive.
    I would like to ask, Mr. Chairman, that that be included in 
the record.
    The Chairman. Yes.
    Secretary Bodman. And I would refer all of you to this 
document, as well as to the daily situation reports, which have 
been sent to congressional offices from the Department since 
Hurricane Katrina made landfall.
    Let me just highlight a couple of the points that are 
spelled out in that chronology.
    Hurricane Katrina struck the gulf coast on August 29, 
several days after first landing in south Florida. It left an 
unprecedented amount of destruction and an area that totaled 
90,000 square miles. A total of 2.7 million people lost their 
electricity, 11 petroleum refineries were shut down, which 
represented 2\1/2\ million barrels a day of capacity, or nearly 
one-sixth of our refining capacity.
    With Katrina, more than a quarter of U.S. crude oil 
production, 1.4 million barrels a day, was shut in. Nearly nine 
million cubic feet a day of natural gas production, as is shown 
on the charts the Secretary just showed you, was shut in, 
representing 17 percent of U.S. gas production. There were 
additional production losses occurring in areas on land in 
Louisiana.
    Louisiana Offshore Oil Port was shut down, as were a number 
of major oil and gas pipelines. As a consequence, pipeline 
deliveries of gasoline, diesel, jet fuel, and propane supplies 
to the east coast and Southeastern United States were halted in 
their entirety.
    The administration responded quite well, in my judgment, 
and took several critical actions. Prior to the storms' 
landfall, our Department dispatched employees to the Emergency 
Response Centers in the Southeastern United States, where they 
assisted utilities and coordinated with the power restoration 
efforts. Our job is really a matter of collecting the 
information and trying to provide coordination and getting 
barriers out of the way. We worked closely with State and local 
officials, first-responders, and power companies to assist in 
coordinating their efforts to begin restoring power and fuel 
supplies as quickly as possible.
    We engaged with Entergy, the local utility, electric 
utility and other utilities, to help coordinate the work of 
over 13,000 utility crew personnel from all over the United 
States and Canada to restore electric power. We arranged for a 
shipment of fuel to two companies that manufactured electricity 
poles, a move which was absolutely critical in order to get 
their production going.
    These efforts were very successful in reestablishing and 
helping to reestablish electricity throughout the affected 
areas. Within 2 weeks, the number of customers without 
electricity fell from 2.7 million to under a half a million.
    We also took a number of crucial measures to minimize the 
impact of the storm on the Nation's energy supply. We worked to 
get power to the interstate pipelines. That was essential to 
ensuring adequate supply of refined products to the Southeast 
and east coast. We authorized loans from the Strategic 
Petroleum Reserve to refiners in the gulf region and the 
Midwest whose scheduled deliveries had been disrupted by the 
storm.
    The President authorized the sale of oil from the Strategic 
Petroleum Reserve to help keep markets well supplied at a time 
when there were widespread fears of looming shortages. We 
reached an agreement with the International Energy Agency, 
which is located in Paris, for its membership to release an 
additional 30 million barrels of crude oil and refined products 
to world markets. The EPA provided temporary waivers, allowing 
the early use of winter-blend gasoline. The Department of 
Homeland Security rescinded legal restrictions on tanker 
transportation of fuel supplies. The Department of the 
Interior's Minerals Management Service immediately began to 
streamline processes for various permit approvals to resume 
production and expedited reviews of requests for temporary 
barging of oil until pipelines could be repaired.
    The Treasury Department increased the supply of diesel fuel 
available for use on the highway by waiving penalties for the 
highway use of so-called ``dyed'' diesel fuel. The Navy and 
Coast Guard worked to clear shipping channels. We worked with 
our European allies to provide extra cargo tankers, as well as 
refined product, to help supply the American gasoline market. 
These steps had a very positive effect and helped calm the 
markets.
    And then came Rita. That storm made landfall on September 
24 and did even greater harm to our Nation's energy markets 
than Katrina. After Rita, 19 refineries were shut down, 
representing a third of the U.S. refining capacity. In the 
Federal Gulf of Mexico, virtually all crude production and 80 
percent of natural gas production was shut in. Twenty-seven 
natural gas processing facilities were shuttered, representing 
half the gulf coast natural gas processing capability. Offshore 
rigs and platforms suffered great damage, as you just heard 
about. The LOOP facility, the offshore oil port, was shut down 
once again, along with a number of major pipelines.
    An extraordinary situation was brought on by the one-two 
punch of Katrina and Rita. Energy markets have taken a big hit, 
and consumers will continue to face high prices for gasoline, 
natural gas, and home heating materials this winter. However, 
many of the steps which we took after Katrina have helped us 
deal with the supply crunch caused by Rita, such as making 
crude oil from the Strategic Petroleum Reserve available to the 
market.
    The administration has launched an energy efficiency and 
conservation campaign that the chairman took note of. That is 
aimed at educating consumers on steps that they can take to 
reduce their utility bills. This is the major effort that I 
think will be effective in dealing with this forthcoming 
winter. There is a copy of the Energy Saver's Guide, that we've 
provided for each of you, that we have been distributing 
throughout the country.
    I have been traveling, along with senior Department 
officials, encouraging these conservation efforts. We're also 
working with energy intensive businesses and industries on ways 
to conserve. The President has called on the Federal Government 
to lead by example and conserve its own energy use, and we're 
working on that, as well.
    Both the President and I have encouraged Federal agencies 
and employees to use these reference guides in their daily 
activities. Many members have requested copies for their 
constituents, and an online version has been mailed to each of 
your offices.
    Mr. Chairman, Senator Bingaman, this concludes my 
statement. I'd be happy to take questions.
    [The prepared statement of Secretary Bodman follows:]

        Prepared Statement of Hon. Samuel W. Bodman, Secretary, 
                          Department of Energy

    Chairman Domenici . . . Senator Bingaman . . . members of the 
Committee . . . I want to thank you for the invitation to appear today. 
I am pleased to be joined by Secretary Norton and appreciate the 
opportunity to talk with you about the Administration's response to 
Hurricanes Katrina and Rita.
    The Department of Energy's Office of Electricity Delivery and 
Energy Reliability has put together a very succinct chronology of every 
action taken in this regard.* This timeline covers the two month period 
from when Hurricane Katrina first struck south Florida, on August 25, 
up to the present week. It notes actions taken not just by my 
Department, but by the White House, the Department of Homeland 
Security, the Department of the Interior, the Department of 
Transportation, the Environmental Protection Agency, the U.S. Coast 
Guard, the International Energy Agency and others.
---------------------------------------------------------------------------
    * The chronology has been retained in committee files.
---------------------------------------------------------------------------
    I ask that this be included in the record, and refer Senators to 
this document as well as the daily situation reports which have been 
sent to Congressional offices from the Department since Hurricane 
Katrina made landfall.
    Mr. Chairman, I would like to highlight just a few of the points 
spelled out in that chronology.
    Hurricane Katrina struck the Gulf Coast on August 29, several days 
after first landing in south Florida. It left an unprecedented amount 
of destruction in an area totaling 90,000 square miles.
    A total of 2.7 million electricity customers lost power.
    Eleven petroleum refineries were shut down, representing 2.5 
million barrels per day--or nearly one-sixth--of U.S. refining 
capacity.
    With Katrina, more than a quarter of U.S. crude oil production--1.4 
million barrels per day--was shut in.
    Nearly 9 billion cubic feet per day of natural gas production in 
the federal Gulf of Mexico was shut in, representing 17 percent of U.S. 
gas production with additional production losses occurring in areas 
under Louisiana's jurisdiction.
    The Louisiana Offshore Oil Port (LOOP) was shut down, as were a 
number of major oil and gas pipelines. As a consequence, pipeline 
deliveries of gasoline, diesel, jet fuel, and propane supplies to the 
east coast and southeastern states were halted.
    The Administration responded immediately by taking several critical 
actions.
    Prior to the storm's landfall, the Department of Energy dispatched 
employees to emergency response centers throughout the southeastern 
United States to assist utilities as they coordinated power restoration 
efforts.
    We worked closely with state and local officials, first responders, 
and power companies to assist in coordinating their efforts to begin 
restoring power and fuel supplies as quickly as possible, wherever 
possible.
    We engaged with Entergy and other utilities to help coordinate the 
work of over 13,000 utility crew personnel from all over the U.S. and 
Canada to restore power.
    We arranged for a shipment of fuel to two companies that 
manufactured electricity poles, a move which was absolutely critical to 
efforts to restore power throughout the region.
    Those efforts were very successful in re-establishing electricity 
throughout tie affected areas. Within 2 weeks, the number of customers 
without electricity fell from 2.7 million to under half a million.
    We also took a number of crucial measures to minimize the impact of 
the storm on the nation's energy supply.
    We worked to get power to the interstate pipelines that were 
essential to ensuring adequate supplies of refined products to the 
southeast and east coast.
    We authorized loans from the Strategic Petroleum Reserve to 
refiners in the Gulf region and the Midwest whose scheduled deliveries 
had been disrupted.
    The President authorized the sale of oil from the Strategic 
Petroleum Reserve to help keep markets well supplied at a time when 
there were widespread fears of looming shortages.
    We reached an agreement with the International Energy Agency for 
its members to release an additional 30 million barrels of crude oil 
and refined products to world markets.
    The Environmental Protection Agency provided temporary waivers 
allowing the early use of winter blend gasoline.
    The Department of Homeland Security rescinded legal restrictions on 
tanker transportation of fuel supplies.
    The Department of the Interior's Minerals Management Service 
immediately began to streamline processes for various permit approvals 
to resume production and expedited reviews of requests for temporary 
barging of oil until pipelines could be repaired.
    The Treasury Department increased the supply of diesel fuel 
available for use on the highway by waiving penalties for highway use 
of ``dyed'' diesel fuel.
    The Navy and Coast Guard worked to clear shipping channels in the 
Gulf and the Lower Mississippi River.
    And we worked with European allies to provide extra cargo tankers, 
as well as refined product to help supply the American gasoline market.
    These steps had a positive effect and helped calm the markets. 
Though gasoline prices spiked in the immediate aftermath of Katrina, 
they quickly eased in the weeks following.
    And then came Rita.
    That storm made landfall on September 24, and did even greater harm 
to our nation's energy markets than Katrina. After Hurricane Rita, 19 
refineries were shut down, representing nearly a third of U.S. refining 
capacity. In the federal Gulf of Mexico, virtually all crude production 
and eighty percent of natural gas production was shut in. 27 natural 
gas processing facilities were shuttered--representing half of Gulf 
Coast natural gas processing capability. Offshore rigs and platforms 
suffered damage. The LOOP was shut down once again, along with a number 
of major pipelines.
    An extraordinary situation was brought on by the one-two punch of 
Katrina and Rita. Energy markets have taken a big hit and consumers 
will continue to face high prices for gasoline, natural gas, and home 
heating oil this winter. However, many of the steps we took after 
Hurricane Katrina have helped us deal with the supply crunch caused by 
Hurricane Rita, such as making crude oil from the Strategic Petroleum 
Reserve available to the market.
    The Administration has launched an energy efficiency and 
conservation campaign aimed at educating consumers on steps they can 
take to reduce their utility bills. I have been traveling the country, 
along with other senior Department officials, encouraging consumer 
conservation efforts. We are also working with energy-intensive 
businesses and industries on ways to conserve. And the President has 
called on the Federal government to lead by example and conserve its 
own energy use.
    Additionally, in front of you, please find a copy of the 
Department's Energy Saver$ booklet; an informative guide for your 
constituents with helpful tips on saving energy and money at home. Both 
the President and I have encouraged Federal agencies and employees to 
use these reference guides in their daily activities. Many Members have 
requested copies for their constituents and an on-line version has been 
emailed to your offices.
    Mr. Chairman . . . Senator Bingaman . . . this concludes my 
statement. I'll be happy to answer your questions.

    The Chairman. Thank you very much.
    I'm aware that a lot of Senators come to these hearings, 
and I know they all want to ask questions. I know witnesses 
think we're all here to hear them. We are. But many of you want 
to get your questions in. I have many, but I'm going to start 
another way and see if I can come along a little later.
    So, Senator Bingaman, with your permission, I'm going to go 
to Senator Craig, then to you and--Senator Craig, you take my 
position, at this point.

        STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR 
                           FROM IDAHO

    Senator Craig. Well, thank you, Mr. Chairman. And to both 
Secretaries, thank you for your overview and your summary. And 
I think no one understands the magnitude yet of the damage, 
except those of us who look at it and those of you who deal 
with it and what you've had to do, in an extraordinary way. 
And, as you said, Secretary Bodman, the one-two punch almost 
took us down. And so, that's a reality that is being faced at 
the moment. And thank goodness gas at the pump is dropping 
again now. But natural gas, of course, remains extremely high. 
Diesel is high, hasn't moved. There's irregularities in the 
market there. And it's terribly frustrating.
    Having said that, let me move on. That was then, this is 
now. And the national media is reporting, this morning, 
``gushing profits'' from the major oil companies. And I believe 
the consumer is increasingly feeling that they've been taken 
for a ride, or very frustrated about their inability to do 
something about it. And what is now important is for us to 
focus on what we can do in the short term while we're doing 
things in the long term to resolve and get us through this 
period of time. Obviously, what you've said here is important. 
Can it get into the hands of every consumer? Probably not. 
Should it? Yes. Can it be presented in a different, less 
comprehensive, more detailed way, or action way? Probably can. 
You've asked for $10 million more. We ought to provide it. You 
need to be on television, you need to be talking about it. I 
suggested maybe we could put the President in a sweater and put 
him on television. And then somebody said, ``But remember, 
Jimmy Carter did that?'' And yet, in a hearing last week, we 
know that if the American consumer turns their thermostat down 
two degrees with the demand destruction that's going on in the 
petrochemical industry and the less of use of high gas there, 
we can get through the winter and gas prices could fall if that 
were to happen. But that needs to be communicated, and how you 
do that, in ways that it's capable of doing.
    So, we ought to help you there. You ought to be very vocal 
to us where you need any additional resource. We're also going 
to track very closely with you, especially Secretary Bodman, 
but also with Department of the Interior. Now that you've got 
an energy bill in your hands, don't take 3 years to write the 
regs. I hope this committee comes back to you on a quarterly 
basis. We're going to mark you and move you along the chart. 
You were here, now you're here. How long is it going to take 
you to get here? How much can we move into the market very 
quickly to get things happening out there?
    Having said that--and I'm cognizant of the time--this week, 
we had Kathleen Clarke before the Subcommittee on Energy, in 
Approps, and I made a misstatement, but it was a misstatement 
that I want to bring into context, because it's an important 
context for us to understand and maybe for you to do things. I 
referred to less APDs or drilling permits versus leases, and I 
compared it with Clinton, and I was wrong. Clinton released--
Clinton leased more acres, but you have, on a large factor, 70 
percent more--gotten more drilling permits out to the field, in 
the overthrust especially, and in the West. And those are very 
interesting and important figures, because we've incentivized 
you through the bill. I know you're doing those pilot programs 
out there now to see how we can expedite the process of leasing 
to get out to where the gas is. There's a trillion cubic feet 
out there inside the infrastructure today, if we can get to it. 
But we are restricted. The thing that is most interesting to me 
is that while you have accelerated dramatically the effort and 
need--and more needs to be done, comparatively speaking, with 
leases, there are now 664 percent more protests and lawsuits 
filed against the effort to lease gas in the Bush years than in 
the Clinton years. And so, those who still don't want us to 
produce are out there fighting us. And somehow we need to work 
with them to get through this process. And that's going to be 
important.
    Also, the automatic shutdown in the middle of the winter. 
We did these land-use plans 10 or 15 years ago, and it was an 
easy way to get around the wildlife problem, just say we won't 
drill during the winter. But we do know we can drill during the 
winter, and we don't hurt wildlife, and we ought to revisit 
that. The idea of this fits-and-starts, stops-and-starts kind 
of things where you drill for a little while and you pull your 
rig out because the snow is falling, and you don't go back 
until midsummer--we can bring capacity online very, very 
quickly. We need to help you there. When you ask us how to 
help. Thank you for doing what you've done. We're going to 
track you very closely. There is no reason for the bureaucracy 
to grind on at the moment of a crisis. We ought to expedite 
everywhere we can, as quickly as we can. As fast as you've all 
worked with Katrina and Rita, we ought to be doing the same 
thing for the next 3 to 5 years to get us out from under this 
problem.
    We'll work with you. We'll monitor you closely. You've got 
to be held accountable. We need to be held accountable. And we 
can get through this.
    Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Larry. Thank you, Senator Craig.
    Senator Bingaman.
    Senator Bingaman. Thank you very much.
    Let me ask Secretary Norton about Lease Sale 181. That area 
was put off limits to energy development earlier in this 
administration. Is there a reconsideration of that going on in 
the administration right now? Is there a possibility that that 
will be open to lease? What is your position on that?
    Secretary Norton. We are actively, in our preparation of 
our 5-year plan, looking at the Lease Sale 181 area, and that 
is an area, as we know, is not subject to moratoria or to 
withdrawal. And so, that is an area we are seeking comment on 
as we move forward with that. It does not include the area 
within a hundred miles of the Florida coastline.
    Senator Bingaman. Well, I certainly encourage you in that 
regard. And I know that most--probably many members, at least 
of this committee, and of the Senate--agree with that. I know 
that there have been letters sent to you. And I believe I'm 
sending a letter along those same lines in the very near 
future. So, I encourage you--I think when you look at where the 
potential is for substantial increases in natural gas 
production, that seems to be No. 1 on the list, as far as I am 
informed. I mean, a lot of other ideas are out there, but they 
are more speculative than 181 is, as I understand it.
    The Chairman. Senator, would you yield?
    Senator Bingaman. Certainly.
    The Chairman. I think that, Madam Secretary, Senator 
Bingaman is being very mild on this issue. I believe 181 has to 
be done. And I don't believe 5-year plans and all of that 
business are very important. We've been told that it is the 
single most significant act that can be taken to stabilize and/
or possibly reduce the cost of the price of natural gas. You're 
aware of that, right?
    Secretary Norton. I'm aware it is an area with very 
significant--especially natural gas reserves----
    The Chairman. Yes. I said natural gas. I didn't say crude 
oil.
    Secretary Norton. Right.
    The Chairman. Well, we have actually had an expert witness, 
more than one, tell us what I just said, that it--because it is 
so big and so timely, that it might be seen as an actual 
addition to available reserves, and that would have an impact. 
So, I'd not only join--I've been telling you all, and I don't 
know how to get through any more--that this shouldn't be 
delayed. And you don't need anything from us. You keep talking 
about us. You don't need anything from us.
    Secretary Norton. Well, actually, Mr. Chairman, under the 
process set up under the Outer Continental Shelf Lands Act, 
that is operated on a 5-year program. And clearly, we know a 
lot today that we did not know when we made the decisions for 
the program 2002 to 2007. For one thing, we have now seen the 
toughest test of our offshore safety, and we know that we can 
do a lot to alleviate any concerns about oil spills, and that 
has been proven today. That was not proven at the time we made 
the first round of decisions. But in order to move ahead, we'd 
need to go through all of the environmental planning and so 
forth, which really, under our administrative capabilities, 
puts us on the schedule of completing our 5-year plan and 
looking at 2007, the latter half of 2007, before a lease sale 
would take place.
    The Chairman. All right.
    Senator Bingaman, I apologize.
    Senator Bingaman. No, that's fine.
    Let me just follow up. Tell me if this is wrong, but my 
understanding is that Lease Sale 181 was part of the 5-year 
plan adopted by the Clinton administration for the years 1997 
through 2002. And then a judgment was made early in this 
administration that it would not be permitted to be drilled, or 
that parts of it would not be. And so, now we're talking about 
a 5-year plan for 2007 through 2012. So, we've essentially lost 
a decade, as I understand the numbers. Am I right about that?
    Secretary Norton. It is correct that that area was approved 
by the Clinton administration as an area to be leased, and that 
this administration made a determination to reduce the area of 
the sale. We anticipate that if the area were subject to sale, 
it would take about 5 years for production to actually commence 
in that area.
    Senator Bingaman. Let me ask Secretary Bodman just a 
question about this item I referred to in my opening statement, 
the suggestion that the administration may urge Congress to 
adopt a tax on the oil industry to fund the Low Income Home 
Energy Assistance Program, or LIHEAP. I'd be interested in any 
insight you could give us about that, but also the suggestion 
that this is--would be somewhat welcome by the industry, 
because these are costs that could then be passed on to the 
consumer. I mean, are we in a circumstance here where we're 
going to pay for low income home energy assistance--largely 
natural gas, I would think, and home heating oil--by adding a 
price to what people have to pay at the pump? Is that the 
suggestion?
    Secretary Bodman. I don't know what the suggestion is. I'm 
unfamiliar with the suggestion. If your question, Senator, is 
directed at what my feelings are about having the oil companies 
pay for LIHEAP, that is not something that I would be in favor 
of. It is the equivalent of a windfall profits tax, it strikes 
me, and we have proven, I thought, to our general satisfaction, 
back in the 1970's and 1980's, that that didn't work when we 
last had a windfall profits tax. I should also mention that the 
LIHEAP program does not reside in the Energy Department or in 
the Interior Department, but is in HHS, and so that questions 
about how that is funded and what the initiatives are should be 
directed to Secretary Leavitt. But my own views, however, are 
as they are.
    I can tell you that the LIHEAP program is one of a number 
of initiatives that is being discussed at the current time by 
the White House, and Secretary Norton and I have joined in and 
made our views known on it. And I would expect their views and 
proposals, if any, to be coming forward in the relatively near 
future.
    Senator Bingaman. Let me just ask one other question. On 
this public campaign for conservation, I commend you on it. I 
think it's a good thing. I think it's something we should have 
been doing each year for a long time, but it's good that we're 
doing it now. How much additional funding should we be 
providing to you? I keep thinking that if we were spending 
about a third as much on this as is spent every year on 
promoting use of Viagra or something, we would really solve 
this energy problem. Do you have a figure you could tell us?
    Secretary Bodman. No, sir.
    Senator Bingaman. I fear that this is terribly underfunded. 
It's a nice gesture. It's nice to get these brochures. I mean, 
I think all of us who hang around inside the Beltway are well 
aware of it. But I don't know that the people in my State are 
that focused on this campaign to encourage conservation.
    Secretary Bodman. We have made every effort of the senior 
leadership of the Department to get out to, largely, the States 
that are most affected by the winter fuel issues. All States 
will be, to one degree or another, but we're particularly 
concerned about the Northeast and the Midwest. And so, we have 
covered--we've been in 11 States, and----
    Senator Bingaman. But you need to be on television, right? 
That costs money.
    Secretary Bodman. I can't speak to that, other than we're 
doing, I think, an effective job, given the resources that we 
have. We have not put together a budget for any expansion, and 
we would be happy to work with you and your staff to develop 
what ideas we think--and to make a determination of how much 
additional funding we could effectively put to use. We simply 
haven't done the work on that.
    Senator Bingaman. That would be a very useful thing, from 
my perspective. Thank you.
    Senator Craig [presiding]. Thank you very much.
    Senator Alexander.
    Senator Alexander. Thank you, Mr. Chairman.
    Following Senator Bingaman's line of questioning, I notice 
that the beer companies over the years, who are very good at 
advertising, now spend a lot of money encouraging people not to 
drink when they drive, and to drink moderately. I wonder if a 
good use of all of these big oil profits might not be to let 
the American people know that if we actually turn down our 
thermostats two degrees, that we could get through the winter 
with a lot less hardship. That might be a good use of those 
profits, without the Government having to require a single 
thing. It might be a good corporate gesture by companies that 
are making a whole lot of money at a time when a lot of people 
are hurting.
    Secretary Bodman. Is that a question, sir?
    [Laughter.]
    Senator Alexander. Well, I was hoping to elicit a comment.
    Secretary Bodman. My comment would be that the oil 
companies seem to be individually advertising--I see newspaper 
advertising--talking about conservation. And so, I would agree 
with the general thrust of your idea, and would take note that 
they seem to have pursued it with some vigor.
    Senator Alexander. Secretary Norton, back on Lease 181, 
just so we understand, this is the largest area in the Gulf of 
Mexico where drilling is not banned that could be leased for 
gas. Am I correct about that?
    Secretary Norton. It's certainly the area that is closest 
to infrastructure. And, of course, you know, there are areas in 
Alaska, but we have no natural gas pipeline yet, so----
    Senator Alexander. But within the Gulf of Mexico, it's----
    Secretary Norton. It is an area that has very significant 
reserves and is very close to existing production; and so, 
could come online very quickly.
    Senator Alexander. My information is that there is enough 
gas there, even if we stay a hundred miles away from Florida, 
or 125 miles away from Florida, to heat six million homes for 
15 years, which would be a couple of cities the size of Los 
Angeles and Houston. So, we're talking about lots of gas, and 
enough gas--we've heard in our testimony here, that it's so 
much that just the act of doing it might tend to stabilize the 
price of gas and send a signal that the price should come down. 
So, I want to pin down a comment you made. If you follow your 
present course, and if you were to conclude, after all the 
appropriate studies, that Lease 181 ought to be a part of the 
lease plan in the next 5-year plan, when would you lease 181?
    Secretary Norton. We would anticipate that would be one 
that would come up very early in our leasing cycle. We have not 
made any decisions yet. It would be predecisional for us to say 
that area would be in, and it would be leased at a particular 
time.
    Senator Alexander. When does the leasing cycle begin?
    Secretary Norton. It begins in July 2007.
    Senator Alexander. July 2000. So the earliest would be in 
the second half of 2007 that you could actually put it out for 
lease.
    Secretary Norton. That is correct, under our administrative 
process.
    Senator Alexander. And the public decision wouldn't be made 
and announced much earlier than that, would it? Or would it?
    Secretary Norton. That's correct, yes. But we would take 
into account, as we make those decisions, the input on what 
areas had the most benefits the most quickly. And, obviously, 
what we're hearing is that there is a lot of benefit quickly.
    Senator Alexander. So, we're talking about a huge amount of 
gas, and we're in late 2005, and it would be early 2007, if you 
should decide to do this, before the markets would know that 
this big amount of gas might be coming--might be coming 
forward.
    Secretary Norton. That's generally correct. We make those 
decisions earlier in the calendar year of 2007.
    Senator Alexander. Now, given the fact that natural gas 
prices, when we were debating the energy bill last year, or 
earlier this year, were at $4 or $5 or $6, and now they're at 
$13 or $14, and that hundreds of thousands of jobs might move 
overseas as a result of that, wouldn't it make sense to 
accelerate that? And let me be specific in that. Senator 
Johnson and I offered legislation a year ago, when natural gas 
prices were a third of what they are today, that would 
basically order the Department to lease 181 within a year. If 
the Congress were to do that today, is there any administrative 
reason you couldn't get that done? If we were to order you to 
do that within a year, could you actually accomplish it?
    Secretary Norton. Assuming the language gave us the ability 
do that, obviously we would move forward, according to that 
statutory language, to do a sale in 2006.
    Senator Alexander. And, Secretary Bodman, might it not be 
possible, if I may shift to you for this, although, Secretary 
Norton, you may--and this will be my last question, Mr. 
Chairman--if the Congress were to decide to do that, and the 
President should sign the law, and the signal would go out that 
we would suddenly be leasing 181 within the next year, might 
not that be a signal to the markets that would help to 
stabilize the gas prices during this winter, rather than 
waiting until 2007?
    Secretary Bodman. It certainly would be a signal. 
Quantitatively, how it would be interpreted is hard to judge, 
sir, but it would certainly be a signal.
    Senator Alexander. Thank you.
    Senator Craig. Senator Landrieu.
    Senator Landrieu. Thank you.
    Let me begin by saying, on the record, that I was both 
relieved and felt somewhat vindicated, Secretaries, when we had 
minimal, if any, oil spills offshore, as a strong advocate of 
the new technologies that are available to provide more energy 
independence for the Nation. So, while there was destruction to 
the rigs, as you mentioned, and you were accurate in your 
testimony, we were relieved, and those of us supporting it, 
vindicated, in our arguments over the years that this could be 
done safely.
    However, I am aware that there were quite a few pretty 
disastrous spills at refineries onshore that have left some of 
our communities completely uninhabitable. People--thousands of 
people--unable to return within miles of their neighborhoods. 
So, what are you, Madam Secretary and Secretary Bodman, doing 
to work with our local governments, particularly Murphy 
Refinery that had the worst spill, and other onshore 
refineries, to help provide technical assistance and specific 
financial resources to help our areas recover?
    Secretary Norton. I am aware of the Murphy Refinery spill, 
and it truly was a terrible situation for that neighborhood. 
But the Department of the Interior doesn't really have the 
onshore jurisdiction to be addressing that, so I would defer to 
Secretary Bodman.
    Secretary Bodman. I would think that the role of the Energy 
Department, as I described in my testimony, Senator, really is 
one of working with the private sector to facilitate getting 
things back up and functioning. I, too, am aware of the damage 
done by the Murphy Refinery, in particular. I assume that's 
what you're referring to, particularly. And the Department 
doesn't really have the technical skill, it's not in our skill 
set. I would think the EPA, that's what their program would be, 
so I can't speak to the financial resources that might be 
available.
    Senator Landrieu. Well, I might suggest, if we're going to 
continue to promote responsible energy development, that both 
the Secretary and the Department of the Interior and the 
Secretary and the Department of Energy might come up with a 
coordinated plan with the Department of the Environment, so 
that when we promise people that we can produce energy safely 
and securely, that we can actually deliver on that promise. So, 
I'm going to be submitting some suggestions that I hope would 
be included in any legislation that promotes new development 
anywhere, so we can really be accurate in our projections and 
promises made to the people of this country.
    No. 2, Secretary Bodman, the--our State, which is still--of 
course, our economy has been devastated in Louisiana. We're the 
heart of the energy coast. And we still are devastated, with a 
lot of talk and little action. And while the independent and 
private sector is trying their best to stand up with not very 
much help, despite the testimony that's been given today on the 
part of the Federal Government--what role and what are you 
proposing to stop the real culprit, which was the shutdown of 
the electric system, which basically shut down the refineries, 
despite the workers being there, despite the bravery of the 
people on the ground? We just suffered so much, not just 
locally, but nationally, because of the failure and collapse of 
the electricity system. So, what are you proposing, so that we 
can weather a storm better, either in terms of backup 
generators or more fuel available or--what are your 
recommendations? Quickly, because I've got one more question.
    Secretary Bodman. Senator, there again, I don't have 
specific recommendations. The reconstruction of the 
transmission lines, which was the major problem that caused the 
electricity to be lost, particularly in western Louisiana, when 
they are reconstructed, they will be done at higher standards, 
at a higher level, at higher codes, thereby improving things. 
But that, again, is not what we do.
    Senator Landrieu. Well, let me just suggest that we all 
start doing that a little bit better, because this is a very 
integrated system, Mr. Chairman. And what I'm suggesting here 
is that you can't produce energy independently. It is all 
integrated with the environment, with coastal protection, with 
navigation, with electricity. And we found ourselves, in this 
Nation, quite vulnerable. So, you could have the most 
sophisticated platforms in the world, you could have the 
greatest technology in the world, and because we haven't spent 
2 minutes thinking about how we get energy to these platforms 
in the middle of either a terrorist attack, God forbid, or 
another hurricane, which we most certainly will have, we will 
not have made any progress.
    My third question is this: In 1998, the Republican chairman 
of the House Energy Committee, my colleague Mr. Tauzin, and I 
introduced the first revenue sharing bill in 1998. It's now 
2005. This bill suggested that, as this country pursued more 
aggressive drilling policies, that we might share a portion of 
those revenues with those States that would step up and do so. 
That was during the former administration and unfortunately, 
nothing was done. I have a letter from May 2003 here. President 
Bush came to our State in 2000 to campaign--and I will provide 
this for the record--and promised that he would be willing to 
share revenue with coastal producing States during the 
campaign. However, I'm going to submit to the record that, in 
May 2003. ``The administration would object to any coastal 
impact payments such as those authorized by the bill. Under 
current law, more than one billion already goes . . . ''--the 
one billion goes, really, to States that don't produce, not to 
the States that do. The record will reflect that.
    In July 2004, ``We recognized the importance of investing 
in coastal conservation. However, rather than establish new and 
complicated processes.'' We can't do it.
    June 2005, right before this hurricane, ``We oppose 
significant new funding authorizations and diversion of OCS 
revenues.'' We can't do it.
    July 15, a month before the hurricane, ``The administration 
strongly opposes provisions in the House and Senate.''
    My question is: Do you two Secretaries think the 
administration will ever change their views that would allow 
coastal producing States to receive a portion of offshore oil 
and gas revenues? Very quickly, yes or no?
    Secretary Norton. Senator, we have taken an additional look 
at that approach in one of our most--our most recent statement 
of administration position----
    Senator Landrieu. What is it?
    Secretary Norton [continuing]. Did indicate that we would 
be willing to discuss the issue of revenue-sharing. While that 
is, obviously, a sensitive issue, because many of those funds 
have already been spent by the Federal budget, we are 
interested in looking at the sharing of revenues with States, 
in an appropriate way.
    Senator Landrieu. And, Mr. Secretary, real quickly.
    Secretary Bodman. Yes.
    Senator Landrieu. I have one final comment.
    Let me go on record to my colleagues, Republicans and 
Democrats, here. I have been a strong and long proponent of 
access of production. I will vigorously and aggressively oppose 
any opening of Lease Sale 181, or any new openings, unless 
there is a substantial and aggressive revenue-sharing provision 
for States based on the production or based on some fair share 
that we would establish.
    It is inconceivable to this Senator from Louisiana, having 
gone through the devastation that we are still living through--
I wish we had thermometers to turn down. I wish we had a house 
to send energy to. The energy coast is flat on its back. And 
for this Congress to consider opening up new areas of 
production without providing the current States of Texas, 
Mississippi, Louisiana, and Alabama, who have borne the brunt, 
for 60 years, of the production for this Nation, to even begin 
to talk about that is really an insult to the people of my 
State.
    So, let me just go on record. I will vigorously oppose any 
opening unless there's more than talk, but delivery, on a fair 
share of revenues to be spent appropriately, transparently, and 
accountably for the environment and for the people who happen 
to live there, digging the ditches, producing the oil, digging 
the channels, and helping this country become energy 
independent.
    Thank you, Mr. Chairman.
    The Chairman [presiding]. Thank you very much.
    Senator Craig.
    Senator Craig. No, Senator Thomas.
    The Chairman. Senator Thomas.
    Are you going to be here for a while?
    Senator Landrieu. I will be back.
    The Chairman. Well, Senator, would you yield for a minute?
    Let me say, Senator, I know your State's going through a 
very difficult time, and I know how much you are fighting for 
it, and we all appreciate the circumstances you're in. But I 
don't believe that those of us on this committee, who have been 
working to help your State, deserve the comments you've just 
made.
    Senator Landrieu. I didn't direct them at you, Mr. 
Chairman.
    The Chairman. Well, we ought to direct them--you ought to 
be fair. You ought to also say a giant step has been taken.
    Senator Landrieu. A giant step has been taken.
    The Chairman. We gave you $350 million a year for 5 years.
    Senator Landrieu. You gave us a billion dollars. A billion 
dollars. And, Mr. Chairman----
    The Chairman. How much to your State?
    Senator Landrieu [continuing.] And, Mr. Chairman, without 
you, it would not have happened.
    The Chairman. Well, I'm----
    Senator Landrieu. And without Senator Bingaman, it would 
not have happened. But----
    The Chairman. Yes, but I'm suggesting that to say nobody's 
been doing anything about it.
    Senator Landrieu. I did not say that, Mr. Chairman.
    The Chairman. We have been.
    Senator Landrieu. I have been extremely grateful. I have 
said that the administration, both the previous and current----
    The Chairman. Okay, now let me finish.
    Senator Landrieu. Thank goodness for these Senators----
    The Chairman. Excuse me.
    Senator Landrieu [continuing]. Because we wouldn't be 
anywhere without them.
    The Chairman. May I--you talked, and I want to finish. The 
Senator from Wyoming is being patient.
    We are having difficulty talking about the existing--the 
States that are producing, getting additional revenue, when we 
speak about revenues for new leases, because there's a big 
budgetary difference. And I'm trying to solve that budgetary 
difference. And you're aware of it. The new ones don't count 
against the budget. The old ones do. So, every time we think 
about giving you increases, there's a huge budgetary cost, and 
we can't fit it in a bill. So, if we introduce a bill helping 
you, it does the other--it's immediately subject to all kinds 
of points of order, so we just leave it aside. But we're not 
intending to leave it aside. This Senator intends to do 
something about it.
    Senator Landrieu. And you already have, Mr. Chairman.
    The Chairman. I intend to insist that we equalize the 
royalties. If we are going to add royalties to new, then we 
must add royalties to old. Now, that's the end of my 
conversation. And I don't think we need any threats. We need 
your help. And you need our help.
    Having said that, we'll yield to the Senator from Wyoming.
    Senator Thomas. Thank you, sir. I wish you'd make yourself 
a little more clear about the way you feel, but----
    [Laughter.]
    Senator Thomas. If we were to, kind of, define where we 
are, which do you think was the problem that had more impact, 
the refining aspect or the production aspect?
    Secretary Norton. Mr. Chairman and Senator Thomas, there 
were a number of offshore platforms that could have produced, 
were it not for the problems at the onshore facilities. And, 
although there were some others that went the other direction, 
from the offshore perspective we found that there were a great 
many onshore problems that prevented it.
    Senator Thomas. But what we hear all the time is that 
generally the increased demand for gasoline, for example, is 
not a product of not having enough oil, it's a refining 
restriction, which, in this instance, that--in the short term--
and this is the second point I want to make, is, we've been 
working for a long time with all of you, and you've been 
working well, but more on a long-term energy policy. Now we're 
looking more at a very short-term policy, and--to try and deal 
with an issue. So, is it refining you think is more--has more 
impact on our prices and on our capacity than--or oil?
    Secretary Bodman. I think at least my understanding of the 
situation is, it depends on what the timeframe is, Senator. The 
refineries are expected to be back up and functioning by the 
end of this calendar year. At the current time, there are five 
refineries that are up. We expect one back this week, two at 
the end of November, two at the end of December. And, 
therefore, the refineries, as such, will be back and, under 
normal circumstances, will be functioning. My guess is that the 
offshore production of oil is going to take longer, because 
it's going to--it will require construction of new platforms, 
in some instances, and that will be a longer-term thing.
    Senator Thomas. That's really not my question. I understand 
what you're saying, but I'm talking about the impact on 
consumers. Which one has the more impact, the limit on----
    Secretary Bodman. I think it's fair to say that the 
refineries have a greater impact on consumers. We've had crude 
oil available. It's been made available out of the Strategic 
Reserve.
    Senator Thomas. So, really, if we had to focus priorities, 
it really ought to be on getting the refining capacity back in 
shape.
    Secretary Bodman. Well, the priorities--I think that's yes, 
but it's being done. It's--and the refineries will be back in 
shape. The issue is expansion. I think that Speaker----
    Senator Thomas. And even putting these pack in shape 
doesn't resolve the problem that we had before this ever 
happened.
    Secretary Bodman. I agree with that.
    Senator Thomas. I'm talking about refining capacity before 
this hurricane ever came.
    Secretary Bodman. I agree with that.
    Senator Thomas. And part of that has been the difficulty in 
the restrictions on expanding and developing new refineries.
    Secretary Bodman. That is also true.
    Senator Thomas. And so, it seems to me that's one of the 
things that's--and I'm really interested in this short-term/
long-term thing. For example, Secretary Norton, offshore leases 
are going to take a while to produce.
    Secretary Norton. Yes.
    Senator Thomas. On the other hand, we have some 
availability of gas and oil in the West that is held up largely 
because of approval of permits and all those kinds of things. 
If you were really going to focus on the short-term impact, 
where would you get the most change the quickest?
    Secretary Norton. We, obviously, have a significant impact 
in two places. One is getting the offshore capacity back up and 
running again. And that is being done----
    Senator Thomas. 181 leases----
    Secretary Norton [continuing]. And we're working on that.
    Senator Thomas [continuing]. Don't have anything to do with 
getting that up.
    Secretary Norton. No, I'm sorry, the existing facilities.
    Senator Thomas. All right.
    Secretary Norton. But, you're correct that onshore is very 
significant in the short term for getting things going again. 
And we appreciate the additional funding that was provided 
through the energy bill. And we are working very quickly to 
implement the provisions from that bill in our pilot offices, 
and we anticipate that, with that additional funding, we would 
be able to get increases of production up to a trillion cubic 
feet over the space of a year, and that is very significant. 
That is more than our current loss from the offshore, and that 
would be as the result of processing more quickly, under the 
current standards, the applications for permits to drill.
    Senator Thomas. Just to interrupt you a little bit. I see 
some reports--this is, kind of, a bureaucratic thing--where you 
have big increases in some offices, and less in another. So, I 
would hope you'd take a little look at what can be done to get 
a little more oomph out of a few of those offices.
    Secretary Norton. We've created an Energy Coordinating 
Council within the Department that allows us to look not just 
at what BLM is doing, but to make sure that moves quickly, but 
also to make sure we've got Fish and Wildlife Service people 
onboard. We've moved 2 weeks ahead of the statutory schedule to 
get an MOU signed with all of the other relevant Federal 
departments on working together on processing applications for 
permits to drill in those pilot offices.
    Senator Thomas. Okay. Just as an observation on your last 
comment, as we look to the future, you talk about offshore 
drilling and all these things, and then you keep talking 
about--many people do--of the gulf. We ought to pick--does it 
make any difference--if you're going to develop offshore, 
should it be in hurricane--where the hurricanes generally come, 
or should we be looking somewhere else?
    Secretary Norton. I think that diversity is important. We 
are hearing interest from some States--for example, Virginia--
that is not an area where production has occurred in the past. 
They're interested, if there is revenue-sharing, in looking at 
natural gas production.
    Senator Thomas. I've heard quite a little bit, you know, 
about the concentration of energy development in this area that 
is subject to these kinds of disasters. And I should think, as 
we look long term, we ought to be giving that some attention. 
I'm sure you have.
    Thank you.
    Senator Craig [presiding]. Thank you.
    Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    I would like to ask that the full statement that I have be 
included in the record.
    Senator Craig. Without objection.
    [The prepared statement of Senator Akaka follows:]

  Prepared Statement of Hon. Daniel K. Akaka, U.S. Senator From Hawaii

    Thank you, Mr. Chairman, for holding this hearing today. As you 
know, I also serve on the Homeland Security and Governmental Affairs 
Committee, which is conducting an investigation into the federal, 
state, and local government's response to Hurricane Katrina. I welcome 
this opportunity to build upon the HSGAC investigation and review the 
impact of Katrina and Rita on energy infrastructure.
    On October 6th, the Energy Committee held a hearing on energy 
infrastructure and recovery. I remarked then, and continue to note, 
that we have a national crisis on our hands. The repeated hammering by 
hurricanes has exposed significant weaknesses in the nation's energy 
infrastructure and is sending us warning signs about our vulnerability 
during next year's hurricane season.
    The price shock waves that rippled across the nation have pushed up 
prices on the mainland and in Hawaii. Gasoline prices went sky-high, 
but also the costs of materials, transportation, petrochemical 
products, and food prices--almost everything has been touched by the 
impact on our energy infrastructure.
    Climate experts predict that hurricanes will hit our coasts with 
greater intensity when they do hit, so it is critical to ensure 
adequate and durable infrastructure on our coasts. Hurricanes Katrina 
and Rita shut down 20 Gulf Coast refineries at one point and a total of 
4.8 million barrels a day, or 28 percent of the U.S. refining capacity. 
The most recent hurricane, Wilma, will leave the east coast of Florida 
without electricity for days, in a much smaller repeat of the losses in 
New Orleans and the Gulf. Collectively, the hurricanes have exposed 
significant weaknesses in the nation's energy infrastructure and 
significant effects on consumer prices across a broad range of goods 
and services.
    I look forward the testimony of the witnesses and I have some 
questions I would like to ask Secretaries Bodman and Norton about their 
agencies' role in hurricane recovery.

    Senator Akaka. I want to add my welcome to the Secretaries 
here as we talk about this great disaster.
    Hurricanes Katrina and Rita highlighted the vulnerability 
of our energy infrastructure, particularly--and I'm so glad my 
fellow Senator has raised the question about refineries--and 
particularly in refining capacity and capability. After 
Hurricane Rita, we lost almost one-third of the U.S. refining 
capacity, as you noted in your testimony. However, even when 
Katrina hit our gulf coast region, the Nation's refineries were 
already running at 98 percent capacity to meet demand. Yet, no 
new crude oil refinery has been constructed in the United 
States since 1976, for 30 years. And that was indicated. It is 
estimated that it could take up to 10 years to build a refinery 
in the United States. So, my question is: Why is it that oil 
companies have not taken the initiative to bring more refining 
capacity online in the United States, given the expected 
announcement of third-quarter profits of as much as $28 
billion? Why have they not done that? And, to continue, what 
does the Department of Energy see as the shortfall in current 
policy that perpetuates the lack of domestic refineries? What 
policies would you suggest that could be initiated by the 
Department of Energy to correct this, beyond tax incentives?
    Secretary Bodman. First of all, Senator, the reason that is 
usually given by the oil companies is that they have not found 
it profitable to invest in refining capacity. I think the 
Speaker got it about right yesterday, when he--I think it was 
yesterday--when he had his press conference, that these 
companies are turning in record profits, that they have a 
responsibility to increase refining capacity, that the American 
public expects that and should see that. And I believe that, 
that I do think that there is a--every possibility that we 
would--that we will see an expansion of capacity. But I think, 
as I said, the Speaker got it about right, until we get a sense 
that there is a concerted and broad-based effort to do that, we 
should continue to speak publicly about it. And I will continue 
to do that, both publicly and privately.
    You asked a second question, Senator?
    Senator Akaka. Yes, I asked about the tax--beyond tax 
incentives, what policies would you suggest?
    Secretary Bodman. Yes, what the policies are. You know, the 
issue there has really been one, I think, that you will find in 
talking to both the large oil companies, as well as the 
companies that specialize in refining, that we have a 
significant problem with respect to siting new refineries. 
People want the energy, but don't want to have the facility 
that creates the energy in their backyard or in their 
neighborhood. And so, there is a difference, in terms of siting 
coordination between the Federal and State and local 
authorities. We did favor and support Mr. Barton's bill, which 
sought to deal with that matter. And so I think those sorts of 
approaches of trying to improve the siting, the permit 
issuance, is something that would help materially. I think it's 
also true that, with the increase in gasoline prices that we've 
seen, that the margins in the refining side of the business are 
quite strong, and very much would support at least increasing 
the capacity of the refineries that already exist, as well as 
creating new refining capacities, new refineries.
    Senator Akaka. A final fast question. My time is expired. 
What is your view of the idea of a Strategic Refinery Reserve, 
similar to the Strategic Petroleum Reserve, as discussed in the 
Environment and Public Works Committee only yesterday?
    Secretary Bodman. Right. That is one of the subjects that 
is being talked about by our colleagues at the White House, 
including the Secretary and myself, who participate in it. I 
will tell you that it's a complicated matter. Gasoline has a 
limited shelf life. It starts to lose its performance 
characteristics after 2 or 3 months, typically. And so, it has 
to be constantly turned over. So, if you were to set up a 
reserve, you have to take that into account. We also have to 
remember that we have--I think it's 15 different types of 
gasoline, then all the different States that have various 
requirements under the Clean Air Act. And, therefore, which 
grade are you going to put in the reserve, and where? So, there 
are issues there that need consideration, but there are many 
who are intelligent, and who observe this industry as it 
operates, that think a reserve of refined products is something 
that we should have. And it's being looked at, as best I can 
tell, quite closely.
    Senator Akaka. Thank you, Mr. Chairman.
    Senator Craig. Thank you, Danny.
    Senator Salazar came first, but Senator Cantwell stayed 
longer.
    [Laughter.]
    Senator Craig. Senator Cantwell. I flipped a coin. She won.
    [Laughter.]
    Senator Craig. All right? Thank you. Appreciate it, your 
courtesy. Please proceed.
    Senator Cantwell. Thank you, Mr. Chairman.
    Senator Salazar did come back, and he has a pressing--I'm 
happy to defer to him so that he can get his question in.
    The Chairman [presiding]. Go ahead, Senator Salazar.
    Senator Salazar. Let me just ask this question, Secretary 
Bodman. One of the conversations I've had with Chairman 
Domenici and Ranking Member Bingaman and others of the 
committee has to do with your statement that the only real 
short-term action we can take for this winter is conservation.
    Secretary Bodman. Yes.
    Senator Salazar. And there are two concepts that I included 
in legislation that I've been talking to my colleagues about, 
and I want your reaction to them. One would be to have a 
Federal law that essentially would mandate the Federal 
Government to reduce its consumption of energy by some 
percentage. I don't know whether that would be 2 percent or 5 
percent, but that way the Federal Government could lead, if you 
will, by example, in terms of conservation. The second concept 
has been to accelerate the parts of the energy bill, which we 
passed, to provide the tax credit for--tax credits for energy 
efficiency to kick in earlier than they are now scheduled to 
kick in under the bill. And my thought has been that, given the 
high prices of natural gas and heating oil and the like, is 
that you would have consumers that would be incentivized to put 
in the new furnaces or the new water heaters or the more energy 
efficient windows if we had that tax credit, that tax incentive 
for them to do it. And so, one of the ideas that I've thought 
about is moving that time for the implementation of those tax 
credits up to, say, December 1, as opposed to when they kick in 
later in the bill.
    What's your reaction to those concepts? And, also, do you 
think that there might be something that we should be doing 
here in the Congress, and out of this committee, with respect 
to some kind of emergency conservation legislation for this 
year?
    Secretary Bodman. First of all, we are working very hard--
we, in the Energy Department, and with our colleagues 
throughout the executive branch--on energy-saving programs. 
We're just pulling it all together and getting feedback as to 
what everybody's efforts are. I don't have any quantitative 
numbers to give you. When you start mandating certain energy 
savings, you get into the very situation that you mentioned: 
What percent, and how do you do it? Because some departments 
are much more energy intensive than others, and some activities 
are more energy intensive than others. And so, when one starts 
to mandate, one gets, I think--it may well interfere with the 
functioning of the very departments that you want functioning 
well. And so, we will pull together and make available the 
information that we are currently--under the current program, 
working on.
    In terms of advancing the tax incentives, I think most of 
those incentives start January 1. It's a matter of, would there 
be an advantage in having it take effect December 1? I think 
there would be some. And therefore, depending on what's 
involved in getting it done and getting it passed, I would 
think that that would help, in terms of the conservation 
efforts.
    I think it would be a mistake to assume that it would be a 
big effect, because you're talking only, I think, about 30 
days, because I think that the tax incentives for ENERGY STAR 
appliances and that sort of thing start January 1, sir, I 
believe.
    Senator Salazar. Right. Secretary Bodman, my only comment 
on that is that I do think, following up on many of the 
questions and comments of my colleagues, that part of it is 
educating the Nation, as a whole, about energy conservation. 
And if we look at this as the kind of crisis that we're in, and 
we're taking action, even though it may only--it may only help 
us, in terms of providing a 30-day window in December, that it 
may be part of just elevating the consciousness of the country 
on conservation.
    Secretary Bodman. It could well be. Yes, it could well be. 
That's not my long suit, is, you know, trying to make a--you 
know, a public-relations sort of judgment on that. I do want to 
emphasize that this initiative goes beyond just the little 
booklet in working with consumers. We are working with 
consumers, and we've done public-service announcements, to get 
this information out to some, I think, 4,000 radio stations 
throughout the country. We're also working with industry, as 
well as with the Government. We have teams of people that come 
from the energy-efficiency part of the Department of Energy who 
are working with the 200 largest energy users in industry and 
also are working with our colleagues in the Federal Government 
at devising methods of reducing energy use.
    Senator Salazar. Just one other quick question. In terms of 
the status of DOE's regulations that would implement the 
conservation measures that were passed in the energy bill, 
including the tax credits, how are those coming along?
    Secretary Bodman. We have literally hundreds of different 
reports and initiatives that we have been charged with doing. I 
think we're doing well--we're managing it in terms of the 
equipment--the appliance regulations that were in the energy 
bill. I think there were some 15 or 16 different appliances. 
Those have already been done. They've been published and 
they're in the Federal Register. We did that about a week ago.
    Senator Salazar. Let me just say I--I've often said this to 
Chairman Domenici--and that is that I think that the work that 
you have in your hands on energy for our country is probably 
the most important domestic agenda, and I look, very much, 
forward to working with you on these issues in the future.
    Thank you very much.
    Secretary Bodman. Thank you, sir.
    The Chairman. Senator Cantwell.
    Senator Cantwell. Thank you, Mr. Chairman, Secretary 
Norton, Secretary Bodman.
    Secretary Norton, it's good to see you. Last time I saw you 
was at the U.S. Geological Office in Vancouver, Washington, 
when you were concerned about Mount St. Helens erupting. And at 
least we can say that's one natural disaster that didn't 
happen, we didn't have to worry about.
    Secretary Bodman, I wanted to follow up on a couple of 
things that my colleagues brought up. I actually have two 
subjects I wanted to see if I could get your input on. In the 
energy bill, we've put in a new section dealing with the sale 
of electricity and transmission, that basically says, ``Let's 
not have any manipulative or deceptive conveyances or 
devices.'' That was our way of getting at what had transpired 
in the electricity markets. Do you think we need that kind of 
authority, at the Federal level, to make sure that there isn't 
price gouging going on?
    Secretary Bodman. That's a complicated question. It's 
really a legal question, I think, Senator. My own view of it is 
that we have what I would characterize as a reasonably 
effective outreach for identifying citizens who indicate that 
there are gouging problems in their neighborhood. We've got 
both a Website and have had a toll-free number to identify 
those. We pull the information together, we make it available 
to the Federal Trade Commission, and they work with individual 
States. As I'm sure you know, each State has its own definition 
of just exactly what gouging is, and----
    Senator Cantwell. We don't have any Federal authority 
there.
    Secretary Bodman. No, we don't. And when one gets to 
superceding what has traditionally been, you know, local legal 
authority, I would be very careful about doing that, that's 
all.
    Senator Cantwell. So, the Department doesn't have an 
official position on way or another, at this point?
    Secretary Bodman. It's not something that we have sought, 
no.
    Senator Cantwell. Perhaps we could send you legislation, 
and you can give us comments on that?
    Secretary Bodman. Be happy to do that.
    Senator Cantwell. Okay, great, thank you.
    On this strategic reserve issue, I think the Europeans have 
done something on jet fuel. Is that something we should 
consider?
    Secretary Bodman. Yes, it's--the strategic--the Strategic 
Reserve looks at any distilled product. I think the Europeans 
do that. And they--each country there has its own procedure. 
Many of them put the maintenance of the strategic reserve of 
refined products in the hands of industry, because industry is 
the one that's constantly dealing with this, and that way, you 
overcome the question of maintaining the freshness of the 
product, where if you--a government were to get into that 
business, let's say, you're then constantly in the business of 
having to turn over the inventory and getting it moved out.
    Senator Cantwell. But is that something you think we should 
consider?
    Secretary Bodman. I think that it's something that ought to 
be considered. It's not going to help, near term, for sure, but 
it is something that needs to be considered. I just would 
repeat, we have a variety of grades of these different 
materials. And so, when you talk about refined products, you're 
not talking about three or four things, you're talking about 
20, or some large number--I don't know what the different 
grades are--of jet fuel, for example. But I'll bet they're--
that they've--it varies----
    Senator Cantwell. Somehow, the Europeans have figured that 
out, right?
    Secretary Bodman. Somehow, the Europeans have figured that 
out. And, apparently, it works there.
    Senator Cantwell. Okay. I'm curious about your thoughts 
about whether we should do that on some of these new areas of 
alternative fuels that we're looking at, but I'll save that, 
because, while I know this hearing is about energy costs, I 
wanted to ask if you had seen the IG report on the audit of 
tank waste retrieval at Hanford, if you had had a chance to see 
that report? I think it came out a week or so ago.
    Secretary Bodman. I have not read it, Senator, but I'm 
generally aware of the contents.
    Senator Cantwell. Are you concerned about meeting the 
milestones for cleanup at the Hanford site?
    Secretary Bodman. Absolutely. As you're well aware, we have 
looked very hard at the entire Hanford effort, and I have made 
a determination that we are going to miss some of those 
milestones. Your office, as you know, was informed. Your 
colleague's office, Mr. Hastings, who----
    Senator Cantwell. Were we informed that they were going to 
be missed?
    Secretary Bodman [continuing]. The Congressman from the 
area, as well as the Governor. So, everybody's been informed.
    Senator Cantwell. I think we were informed that they might 
be missed. And so, you're saying that they will be missed.
    Secretary Bodman. Best we can tell at this point in time, 
they're going to be missed, yes, ma'am.
    Senator Cantwell. Okay. So, what do you think we do about 
that, given that there are, you know, 67 single-shelled tanks 
that are either confirmed leaking or suspected leaking?
    Secretary Bodman. We are very committed to the cleanup of 
the Hanford site. The issues that will--we're going to miss 
milestones relate to the vit plant, to the so-called vit plant, 
and getting that started on time.
    Senator Cantwell. This is about tank waste, though. This 
report is about tank waste.
    Secretary Bodman. Okay. Well----
    Senator Cantwell. In fact, the budget is going to double. 
The original estimates by the Department were way off, and now, 
the cost is going to double.
    Secretary Bodman. I haven't seen it, but I'm not surprised 
by it.
    Senator Cantwell. Okay. Well, we're obviously very 
concerned about it.
    Secretary Bodman. No, I understand. I understand. We're 
very committed to cleaning up that site, and we're doing our 
level best to try to accomplish that. But what I don't want to 
do, and will refuse to do, is to--as best I am able to--is to 
make commitments we can't keep. And that has been the case in 
this project in the past, where we have made commitments in 
terms of what the various cost levels were going to be. And the 
Government is very good at buying highways, buying bridges, 
buying things that are of that type, because we do it all the 
time. I'm a chemical engineer and it is very difficult, I will 
tell you, to accurately estimate in advance what things are 
going to cost. Everybody has to understand that there are very 
wide bands, in terms of precision, on this. And so, it's a real 
issue.
    Senator Cantwell. I don't know if you remember, Secretary 
Bodman or Mr. Chairman, but before this committee, I did 
recommend that you become Secretary of Energy for life, or 
until Hanford cleaned up, because I do think it is a very, very 
complex project and it needs the oversight of somebody who 
understands that complexity. But we certainly feel that the 
budget shortfall there needs to be addressed. And so, we'll be 
working with you and the chairman and others to try to address 
what has been a larger projection for cost than was originally 
estimated. And, again, the fact that the tank waste is reaching 
toward the Columbia River has got all of us very concerned.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Frankly, after all the Secretary has to put up with, I'm 
not sure he wants to be Secretary for life.
    [Laughter.]
    The Chairman. But I haven't asked him yet.
    Senator, I'm going--I haven't asked any questions.
    Senator Talent. Sure. Can I just say, Mr. Chairman, I might 
almost think of that as a life sentence, rather than life 
service.
    [Laughter.]
    The Chairman. Same for the Secretary of the Interior. It's 
the same thing.
    Well, first, Secretary Bodman, I'm very sorry that the 
hearings have not quite been as extensively on the subject of 
the hurricanes as it might have been, but you can tell there's 
a high, high degree of frustration about our inability to get 
our arms around this energy problem, which is bigger than 
Katrina and Rita, obviously. So, I want to ask, with reference 
to Katrina and Rita and the fact that we have so much energy--
of our energy assets there, are you looking at lessons to be 
learned? I'm not asking that you disclose them all, but----
    Secretary Bodman. Yes. Yes. Yes, we are.
    The Chairman. I would think that there's got to be some 
things that come out of that. For instance, the pipelines just 
told us, when we were down there--that one little visit of 
Senator Bingaman and Senator Akaka and I--that they're looking 
very, very diligently at the possibility of having a dual 
pipeline system in an area so that they have an extra capacity 
when problems occur. That'll come up later, but I would think 
that there ought to be some possibilities that we could prevent 
the shutdown of industries and utilities because most of it's 
not coming from being destroyed, most of it's coming from not 
having any electricity.
    Secretary Bodman. Yes, sir. But it's not obvious to me how 
putting in two lines would help.
    The Chairman. I understand.
    Secretary Bodman. I mean, trying to put in electric power 
and have the electric power delivered with greater degree--with 
greater reliability would help.
    The Chairman. But maybe it's some real effort at backup 
that's targeted. I'm just saying it's--I think it's incumbent 
on the industry and your Department to really work at that. And 
somebody has to spend some resources on it. It would be 
resources well spent.
    Secretary Bodman. Thank you, sir.
    The Chairman. Second, Secretary Bodman, it seems to me that 
this is a new day, in terms of the public versus energy, and 
that they will accept and go along with things that they might 
have not gone along with in the past on the side of supply. And 
I just urge, as a general proposition, that you not be bound 
by, you know, ideas about what you could and couldn't do 5 
years ago. And I don't know whether that applies to you or not 
in any specifics, but I really think the public--for instance, 
on ANWR, the public polls show an incredible change in the last 
2 or 3 years, most of which has occurred in 6 months, in terms 
of favor/disfavor.
    And that leads me from the Secretary to you, Madam 
Secretary. First, I apologize for any pushing on you about 181. 
But I want to tell you, and state for the record, and then I'll 
ask you some specifics, you know, if the United States of 
America, believe it or not, were going to put all its eggs in 
one basket on its natural gas future--sorry, Alaska--the eggs 
would be put in offshore drilling of natural gas. It is, all by 
itself, more than enough natural gas for all of America's needs 
for as far as we can see.
    Now, part of it's impossible, as I guess it's impossible to 
do it off the shore of California, no matter how far out you 
go. But I want these numbers in the record. We are using 22.9 
trillion cubic feet per year. It is now estimated, under old 
estimates, that the entire offshore has 420 trillion cubic feet 
of natural gas.
    Now, I understand how we have been--tied ourselves in knots 
about doing anything about it in the past, but I submit to you 
that the knots are coming apart, and we can sit by and worry 
about them, or we can decide we're going to hurry up and take 
them apart. And it's in that context that I urge that you look 
at the Outer Continental Shelf with a new, new vision.
    I applaud the House. They're doing some very, very terrific 
things. In fact, the Peterson approach was thought to be, kind 
of, wild--it might get a lot of votes in the House--for us to 
just open them, instead of the opt-in/opt-out, and give them a 
very extensive and new royalty. I did not ask you what you 
think about it, and I won't ask you, but I'm letting you--
leaving you with that thought.
    Well, maybe I will. What do you think about what I've just 
said?
    [Laughter.]
    Secretary Norton. Mr. Chairman, you are correct, there are 
vast resources offshore. I also should point out that in your 
own State, as well as the rest of the Rocky Mountain region, we 
do have 139 trillion cubic feet there, as well.
    The Chairman. Right.
    Secretary Norton. And so, we need to look both onshore and 
offshore.
    The one point I'll make on the natural-gas-only leasing, 
which is the Peterson amendment, there are some technical 
issues as to that. We have asked for comments in our 5-year 
plan on the technical aspects of that, so we should have some 
additional information for you.
    The Chairman. I understand. Now, we're going to talk about 
onshore for a minute, very precise and specific with you. I've 
been informed that, in just one area of Wyoming, Pinedale, we 
are on a winter no-drilling rest-of-the-year drilling. Now, for 
everybody listening, that sounds neat, right? But, you 
understand, that's a terrific problem. Secretary Bodman, you 
understand, you know, you put a drilling rig in, and you drill, 
and then you've got to move it, or shut it down, and 6 months 
later, bring it back--I mean, that's a very, very onerous--you 
know, but for something unusual, it's rather impractical, to 
say the least.
    I am told that if just that area, Pinedale, were put on 
year-round, it would yield as much natural gas as is needed for 
one-third of all of Los Angeles' needs. They're always 
comparing and saying, ``It doesn't matter much.'' I'm beginning 
to try to compare locally, so, when they say, ``It doesn't 
matter much, it's only one-tenth of 1 percent of America's''--I 
say, ``Well, how many counties in New Mexico?'' or, ``How many 
of my major cities?'' It turns out a little different.
    So, I want to ask you to do this for us. I want you to 
respond to us very precisely in writing, What is the problem--
legally, administratively--with lifting, changing, or 
substantially altering the winter prohibitions? Would you do 
that?
    Secretary Norton. Mr. Chairman, we'd be happy to do that.
    I will note, we have approved some winter drilling 
proposals in that area, and the ones I'm aware of total 54 
billion cubic feet that will be brought online by allowing the 
winter drilling, which is a very significant amount. That was 
done with mitigation--it's largely dealing with big game animal 
populations--but with mitigation and with some steps taken to 
be sure that the environment is protected at the same time.
    The Chairman. Okay. Now, on 181, I would like you to tell 
us, in writing, with your lawyers--you're a lawyer, also--but 
go through with us exactly what is the most expeditious way, 
and what are the impediments, to proceeding with 181, in whole 
or in part, and give us--don't do this on the basis of assuming 
that every problem is one that's not doable. Assume, quite to 
the contrary, that, unless they're absolutely legal, that the 
time has come to do some of them. Can you do that for us?
    Secretary Norton. We'd be happy to look at what would need 
to be done administratively as well as what legislation might 
be able to do it.
    The Chairman. And I would really urge that you have the 
best people you can do that, and not people who are looking for 
every--you know, every fly in the ointment, but, rather, that 
this is something very important to the American people. This 
could be taken to them very easily, in terms of, Are you 
worried enough about this or not? Especially if you do a 
hundred miles out.
    I would add to that the request that you do it also if we 
move a hundred miles away from the coast. Give us your 
analysis.
    I don't think it's going to be any different, because I 
think you can draw the line wherever you'd like. But I'm not 
sure of that.
    Secretary Norton. Thank you, Mr. Chairman.
    The Chairman. Will you also give us the estimate of natural 
gas that we currently think would be on 181? And then what 
would be there if we start a hundred miles out. Do you know 
those numbers?
    Secretary Norton. I actually can give you that, assuming we 
start a hundred miles out, so everything that's more than a 
hundred miles from shore, the area that has not been leased in 
Lease Sale 181 contains 6.03 trillion cubic feet of gas, which 
translates to providing enough gas for 4.3 million households 
for 20 years.
    The Chairman. Now, see, this is not just a little field. 
This is pretty big stuff for America and our future.
    Now, Secretary Bodman, with reference to the energy bill--
--
    This is my wrap-up, and I'll go to you and--the Senator 
wants a second round. If you can stay a minute and let him do 
that--okay, well, anybody that comes back, we don't want to 
keep these Secretaries too long, they'd better get back pretty 
quick.
    Secretary Bodman, you're overwhelmed with many things, 
including the crisis of the hurricanes, but I think it's really 
important that we not let a whole year go by in analyzing the 
energy bill in terms of resource needs to accomplish some of 
the goals, and also administrative needs on your part.
    Madam Secretary, there are a number of them for you, also.
    I would ask that you inform us on what kind of a timetable 
you have for getting these--you pick the most important ones. 
What's the timeframe for you to get them done?
    And then I'm going to ask you informally--and this, you 
shouldn't do on the record, but I'm just going to lay it before 
you--I think it's important that the administration know, as 
they produce their budget, in these times of constraints and 
everybody wanting to cut, that we really--you know, we just did 
a bill which was lauded, but if you look at it, you've got to 
do some things to make the praise bear fruit, right? Some of 
it's not automatic.
    Secretary Bodman. Most of it, sir, I think, is not 
automatic.
    The Chairman. Not.
    Secretary Bodman. No.
    The Chairman. You know, for instance, even nuclear, we're 
all proud of it, but you've got to draw some rules for the 
loans, right?
    Secretary Bodman. Right.
    The Chairman. I mean, for the insurance.
    Secretary Bodman. Right.
    The Chairman. And you're doing that, right?
    Secretary Bodman. Yes, we are.
    The Chairman. So, I think I would like to be helpful, in 
terms of advising the administration of five or six important 
funding areas, maybe some on your end, without which we're not 
going to get any of the fruits, then they'll say the bill 
didn't work. So, I would ask both of you if you might 
informally share that kind of thing with me, if you feel 
comfortable.
    If it's something you don't think you can do, because of 
your relationship to OMB, then we'll do it over a cup of coffee 
and nobody will know we did it.
    [Laughter.]
    Secretary Bodman. We'll find a way, sir.
    The Chairman. Now, what I'm going to do is yield to you, 
Senator.
    Senator Talent. I'll just take a minute.
    The Chairman. And then Senator Murkowski--is this your 
first round?
    Senator Murkowski. Yes, sir.
    The Chairman. You go, and then Senator Akaka. And will you 
stay here for a while?
    Senator Murkowski. I will. Thank you.
    The Chairman. Thank you very much, Secretaries. How about 
your time? You're okay?
    Secretary Bodman. Yes, sir.
    The Chairman. Other than getting hungry, I guess you're 
okay. Thank you for your time.
    Senator Talent. They need some fuel, too, I guess, Mr. 
Chairman, don't they?
    Thank you, Mr. Chairman. And I can be brief, in part, 
because you went into a lot of the areas I was going to go 
into.
    You know, I want to say that I think we have a tremendous 
opportunity now to move ahead, in terms of supply. And I hope 
you will both, for your portfolios, just take the attitude that 
any energy package that does not contain a substantial supply 
component is just a nonstarter. And I'm talking about supply of 
natural gas, oil, traditional fuels, which, in the short term, 
we're going to need. Yes, then conservation, on top of that. 
That's great. We should do that. And, of course, we should find 
the supply in environmentally sensitive ways. But this is the 
time to do supply. I think that's what the people are looking 
for. The chairman was mentioning that, and I think he's right. 
If we just look at natural gas, demand is going to increase, 
over the next 20 years, about three times that the projected 
supply is going to increase. And that's when prices are already 
intolerably high. So, we have got to increase supply.
    Let me add a question to the chairman's, and you can 
respond later on this. But I'd like to know--and I'm not sure 
he asked it exactly this way. What areas, onshore or offshore, 
hold the most promise? And which of those areas are the easiest 
to access, both in terms of readily available pipeline and 
processing infrastructure and in terms of overcoming legal 
impediments to get natural gas? In other words, Madam 
Secretary, I think it would be useful if you looked at the 
areas which contain reserves that you guys control, looked at 
which ones were the easiest to get at, in terms of practical 
impediments, which would be pipeline processing, and then 
looked at the ones that are most difficult, in terms of legal 
impediments, and then maybe did a cross to see which of the 
ones that are the easiest to get at practically and the easiest 
to get at legally and maybe supply us with a sense--a set of 
priorities on that.
    I don't like you to have to go away with a bunch of 
information requests, but I sure would like to know what are 
the easiest to get at from both standpoints. Maybe we can 
remove some of those legal impediments.
    And then just--the chairman asked about Lease 181. I'm very 
interested in that, but I won't go into that.
    Let me just ask you both to opine on one subject, and then 
I'll yield to my colleagues. How will the natural gas supply 
and price forecast change if we were able to move ahead, let's 
say, with Clear Skies if we were able to make coal more readily 
available, either through Clear Skies or perhaps some kind of 
coal gasification program, so that we could take some of the 
burden off of natural gas as an electricity-generating fuel?
    Secretary Bodman. Why don't I talk about that. First, 
neither of these are going to deal with this winter, sir, as 
you're well aware. And so, that's why our focus has really been 
on conservation, and that's what we're out trying to make known 
to the American people. Certainly, clean coal technology will 
make a huge difference. Nuclear power will make a huge 
difference by removing the pressure on natural gas. The natural 
gas situation is even more difficult than the gasoline 
situation today, because we don't have any ready means of 
importing product. We have LNG, but it's only 2 percent or 3 
percent of what our needs are. And it's a major problem.
    I am very much committed to working on the clean coal 
technology, working on nuclear power in order to try to 
accomplish that. In order to give you a price forecast, I can't 
do that off the top of my head, but we'd be happy to have our 
folks at EIA looking at what we might be able to accomplish. 
Looking long term and what the impact would be on natural gas, 
we'd be happy to make that available to you.
    Senator Talent. I agree with what you're saying about this 
winter. I just think the conservation medicine will go down a 
lot easier if people know that supply is on the way.
    Secretary Bodman. Well, sure.
    Senator Talent. And I would encourage you to link those as 
you talk about them, while making clear that the supply is not 
going to produce more in the next, you know, 3 or 4 months.
    Secretary Bodman. Right.
    Senator Talent. But we've already done a lot in the bill, 
and I'm glad you mention that, with regard to LNG. With 
renewables for oil and gas--and we're working on ANWR, and 
hopeful that we can get that. So, I think some help is on the 
way. But the more that we can do, the better. And I would 
encourage you both to talk about it, in terms of increasing 
supply. The chairman is right, people are not only ready for 
that, they're expecting it.
    Secretary Bodman. Thank you.
    Secretary Norton. And, Senator Talent, we are looking at 
what we can do in the short term, as well as in the long term, 
in terms of our access to supply.
    Senator Talent. Thank you, Madam Secretary.
    Thank you, Madam Chairman.
    Senator Murkowski [presiding]. Thank you. And it's--you 
know, it's great to be talking about ``Help is on the way.'' 
And we always say, ``Alaska stands ready.'' We are just itching 
to help you out. Whether it's oil or natural gas or coal 
gasification or wind or geothermal or ocean energy, we've got 
it all. We just can't get it to you. And this is the concern 
that I have. Recognizing how much potential we do have up 
north, and in other parts of the country that we just haven't 
been able to get at, we, as a country, certainly when it comes 
to our oil supplies, have chosen to look overseas, have chosen 
to look abroad. And that's why we are approaching about 60 
percent--between 58-60 percent dependency on foreign sources of 
oil.
    I am so concerned--and I raise this at every opportunity--
that we're going, potentially, in the same direction when it 
comes to natural gas. We've all heard the statistics, we all 
know that the supply is just so far outstripping--and what 
we're talking about are these projects that are longer term, 
whether it is the coal gasification--we've got a project in 
Alaska that we're looking at that's just kind of right on the 
edge of coming together, in terms of possibilities. We're very 
excited about it, but we recognize that the window on that is 
years off.
    Our natural gas pipeline, I want to talk to you a little 
bit about that this morning, because there's a great deal of 
frustration that we haven't been able to get at least two of 
the three major producers to come online with a project that 
we, in this country, have said, ``We want Alaska's natural 
gas,'' we, in the Congress, have said, ``We want it, and we're 
willing to put taxpayer dollars to help with incentives''--we 
did that last year, and we still can't get two of the three to 
commit. And so, we're at that situation where, because we can't 
establish to the markets that it's here for the short term, 
it's going to be available in the short term, we look offshore, 
we look to Indonesia, we look to Qatar, we look overseas. We 
sign these 25-year contracts. We set up the LNG siting 
facilities to receive it. But what are we doing here in this 
country? And I get very nervous about--in a quest to meet the 
short term, we're making long-term commitments, without making 
the commitment to develop it here.
    And I want to get back to--to my--now I'll make it a 
question, on the gas line. Press reports that the Governor and 
his administration have pretty much come to agreement with 
ConocoPhillips, one of the three major producers in the State, 
for agreement on a gas line. Exxon and BP have not yet come to 
the table, are not yet participating. And I am not privy to the 
details. The public is not. But we know that we can't even 
discuss the issue of a natural gas pipeline before our 
legislature to approve it unless and until we've got a--
producers out there that are willing to make it happen.
    Now, some of my colleagues here earlier were beating up a 
little bit on the oil companies and saying, ``Look, they're 
facing major profits this year, and it's a growing trend, and 
that we expect the trend to continue.'' What it is that we have 
to do to move this project further? We have, last year, as you 
very well know, moved forward with some fiscal incentives at 
the Federal level that we were told, ``Boy, if we can get 
those, gas is coming from Alaska.'' Given where we are and what 
you know, what can you advise?
    Secretary Norton. Senator, I know that each of us has had 
conversations urging the companies to move forward with the 
pipeline and getting that constructed and emphasized the 
importance to the country of having that pipeline constructed. 
As you know, at this point it is largely in the hands of that 
negotiation for a proposal to emerge in which the Federal 
Government would then be taking action to handle that proposal.
    Senator Murkowski. Secretary.
    Secretary Bodman. I wish I had a good answer for you. I 
would certainly associate myself with what Secretary Norton 
just said. I think while you were out, Senator, I made the 
statement that I think Speaker Hastert had it about right in 
his press conference, that these companies are showing record 
profits, they're doing very well, and it's time for them to 
demonstrate to the American public that they're going to be 
responsible in running, you know, our collective energy 
business, our country's energy business. And that involves 
increasing refining capacity, and it involves dealing with this 
pipeline, because my information is, we're, you know, up to 
four billion cubic feet a day of gas that can come out of this 
pipeline. We only use 60 or 61 billion cubic feet. It's a 
massive injection of gas into our economy that we desperately 
need. And I think the Speaker had it about right.
    Senator Murkowski. When I think whatever we can do, at a 
public level and at higher levels, to remind the companies that 
the country needs this and that it is as much an issue of 
energy security as economic and national security. And I think 
the more that we can do to impress that, it's very important 
for us. So, I would appreciate your assistance in that.
    One very quick question. There was a comment made by Red 
Cavaney of the American Petroleum Institute. And Mr. Cavaney 
indicated that when it comes to refineries, it may not be so 
much construction of new refineries that is needed as much as 
expansion of the existing refineries that we have. I haven't 
had a chance to speak directly with him about that to see what 
it is that we can do, at the congressional level, at the 
Federal level, to help facilitate the further expansion. Any 
comments or thoughts, Secretary Bodman?
    Secretary Bodman. Well, I think the reason that there seems 
to be greater interest in expansion rather than building a new 
greenfield facility is, one, it's easier to get it permitted, 
because you already have a site there; and so, therefore, 
getting the expansion done, it's proven to be a couple of 
years, rather than 3 or 4 years. You're looking at big 
differences in at least the historical timeframe. Second, by 
expanding, you already have available, presumably, at a refiner 
that already exists, crude oil supply. You have a way of 
getting crude to the facility, so you can expand that. And you 
also have customers and places you can put it, whether it's the 
chemical industry, whether it's retail consumers, by access to 
a pipeline that gets the product eventually. So, there are a 
number of reasons, both financial and from the standpoint of 
getting the approvals done, that encourage that.
    I think it's useful to look at either one. I think that 
it's useful to think about additional refining capacity. If you 
look at a map of refineries, there are a lot of refineries all 
over America. They're scattered pretty well. They're much less 
concentrated, in terms of individual units, than I once 
thought. It's true, the larger refineries are down in the gulf 
coast and in New Jersey, New York area, as well as in Los 
Angeles. That tends to be where the concentrations are. So, the 
additional refining capacity will help. But I just think we 
also should be encouraging the greenfield or grassroots type 
development.
    Senator Murkowski. Thank you both, Secretary Norton, 
Secretary Bodman.
    Senator Akaka.
    Senator Akaka. Madam Chairman, may I ask two fast 
questions? And I didn't want to leave without asking Secretary 
Norton a question. But this has to do with what we're just 
discussing now, and that is pipelines and delivery of energy.
    Secretary Norton, under section 368 of the Energy Policy 
Act of 2005, several agencies are required to identify energy 
corridors for oil, gas, and hydrogen pipelines, and electricity 
in 11 Western States. I understand that the Bureau of Land 
Management and Forest Service recently began holding public 
meetings to gather comments that will be considered in 
designating new energy right-of-way corridors on Federal lands 
across the West. One question, of two, is, Can you elaborate on 
the anticipated increase in energy transmission that the 
corridors will provide to growing areas? And I understand that 
the corridors will not cross national parks lands or wilderness 
areas. Is that correct?
    Secretary Norton. Senator, yes. I'm not aware of any 
proposals that would do that. And that was not included in the 
legislation. So, we're focusing on our multiple-use lands.
    Senator Akaka. And what about the national monuments on 
Bureau of Land Management lands? And what about National 
Landscape Conservation Lands, which have been designated as 
uniquely important landscapes? And so, my second question is, 
Will the transmission corridors cross those lands?
    Secretary Norton. There are some specific things that are 
included under the statutes. The monuments that are BLM 
monuments are not. One would have to look at the purposes 
outlined in the monuments' designation. A number of those do 
include existing rights-of-way in existing corridors. We are 
going through a process, working with the Western Governors 
Association, to try to identify desirable rights-of-way. And 
those kinds of factors would certainly be considered as we 
would be looking at which areas make the most sense for having 
the designations.
    Senator Akaka. Yes. And my first question was if you would 
elaborate on the anticipated increase in energy transmission 
that the corridors will provide for.
    Secretary Norton. I'll have to provide that for the record.
    Senator Akaka. Fine.
    [The information follows:]

    The BLM has begun its efforts to identify energy corridors pursuant 
to section 368 of the Energy Policy Act of 2005. The public scoping 
period for the West-wide Energy Corridor Programmatic EIS began on 
September 28, 2005 and concluded on November 28, 2005. At this point in 
the process we are unable to quantify an anticipated increase in energy 
transmission capacity. We anticipate an estimate will be possible as we 
continue through the EIS process. We will be happy to update you as 
information becomes available.

    Senator Akaka. Thank you very much, Madam Chairman.
    And thank you for your responses.
    Senator Murkowski. Thank you, Senator Akaka. And thank you, 
again, to both of you, for giving us as much time as you have 
this morning and for your work on behalf of the country. 
Appreciate it.
    And, with that, we're adjourned.
    [Whereupon, at 12:40 p.m., the hearing was adjourned.]

                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

                                  The Dow Chemical Company,
                                                  October 25, 2005.
Hon. Pete Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Senator Domenici: Thank you once again for inviting me to 
testify before your committee on October 6 on the subject of the 
effects of the recent hurricanes on our nation's energy infrastructure. 
Thank you as well for your words of praise for the people of my company 
that you met during your visit to Saint Charles, Louisiana.
    Enclosed per your request of October 11 are my written responses to 
the questions posed by Senators Akaka and Feinstein. Should you or your 
staff have any additional questions, please do not hesitate to contact 
me, or Dow's Vice President of Government Affairs, Peter Molinaro, at 
202-429-3429.
            Very truly yours,
                                         Andrew N. Liveris,
                                                 President and CEO.
[Enclosure.]

                      Question From Senator Akaka

    Question 1. Mr. Liveris, thank you for your testimony. I appreciate 
all that your company, and other petrochemical companies, do to keep us 
supplied with a wide array of products for everyday use. I am concerned 
about the ripple effects that are being reported throughout the 
economy. We are seeing price spikes of key raw materials for 
manufacturing. How long do you expect these prices to continue, and 
what do you as an industry expect the ultimate effect will be?
    Answer. Prior to hurricanes Katrina and Rita, the chemical industry 
was experiencing increasing sales volumes as the inventory de-stocking 
activity of the 1st half of 2005 (the result of the soft-patch in 
global manufacturing) was ending and as orders improved. This was 
pushing operating rates (or capacity utilization) for many polymers up 
to the 91% to 94% range. Hurricanes Katrina and Rita resulted in the 
unavailability of as much as 60% of North American capacity for a 
number of key petrochemicals, petrochemical derivatives and polymers. 
With already tight markets, this pushed operating rates for available 
capacity up to 100%. Although much of the capacity has now returned to 
service, according to CMAI, a leading industry consultant, for example, 
9% of high density polyethylene (HDPE) capacity and 6% of polypropylene 
capacity remains shut-down. The reduced polypropylene capacity is now 
running at a 100% rate Given current demand, this is placing upward 
pressure on prices.
    Most energy, industrial, and chemical products have a low price 
elasticity so even minor supply disruptions have large effects on 
prices paid for products in short supply. These price effects are now 
working their way through the supply chain. Prices for polymers (e.g. 
polyethylene) are highly correlated with monomer prices (e.g. 
ethylene), which in turn are highly related to feedstock prices (e.g. 
ethane), which in turn are highly correlated to natural gas prices.
    Chemistry accounts for a high degree of materials value of many 
household items we take for granted. The chemistry share of the 
materials value of a bottle of shampoo, for example, is 100%. For tires 
it is 62%. For semiconductors it's 30%. Even for paper cups it's 22%. 
Higher prices for key industrial supplies and materials will now begin 
filtering through the value chain to other manufactured goods and 
ultimately to the consumer. These price effects and shortages are now 
being witnessed in the most recent import price report released by the 
Bureau of Labor Statistics, which indicated the largest increase in 
non-petroleum import prices since monthly publication of the report 
began in December 1988. The rise in non-petroleum industrial supplies 
and materials prices was led by a jump in natural gas prices, although 
higher prices for chemicals, building materials, and some metals were 
also contributing factors. This will next show up in producer prices 
and then the CPI. As inflationary pressures intensify, central banks 
will tighten, resulting in higher interest rates, which at some point 
reach a tipping point for the economy, resulting in the next downturn. 
Future economic historians may very well talk about the recession of 
2006-7 as being engendered by higher natural gas costs as a 
contributing factor.
    What follows is a sampling of products that have or will rise in 
price or be in short supply because of high natural gas costs that are 
driving up the cost of chemicals used to make finished goods. We have 
already seen news accounts that tire companies (dependent on butadiene 
chemistry), carpet makers (dependent on nylon chemistry) and furniture 
companies (dependent on polyurethane chemistry) are paying far higher 
costs or are unable to obtain raw materials because of gas costs and 
availability.

                           CONSUMER PRODUCTS

Diapers
    Natural Gas  Propane*  Propylene  
Acrylic acid  acrylate esters  super absorbent 
polymers
---------------------------------------------------------------------------
    * Where Propane appears, propane can also be derived from petroleum 
refining as well as from natural gas processing. About 45% of US 
propane supply is derived from natural gas. Another 47% comes from oil 
refining (crude distillation, cat cracking, hydrocracking, catalytic 
reforming, and thermal processes) with the remaining 3% of propane 
imported.
---------------------------------------------------------------------------
    Petroleum  Propylene  Polypropylene (liners)
    Natural Gas  Propane  Propylene  
Polypropylene (liners)

Shampoo
    Natural Gas  Ethylene  polyethylene glycol 
 Sorbitan Laurate (primarily baby shampoos)
    Natural Gas  Ethylene-polyethylene glycol  
Ammonium Lauryl Sulfate
    Natural Gas  Ethylene  High-density polyethylene 
(HDPE)

Lotions
    Natural Gas  Propane  Propylene  Allyl 
Chloride  Epichlorihyrdin  Glycerin
    Natural Gas  Ethane  Ethylene  High-
density polyethylene (HDPE) packaging

Toothpaste
    Natural Gas  Propane  Propylene  Allyl 
Chloride  Epichlorihyrdin  Glycerin
    Natural Gas  Ethane  Ethylene  High-
density polyethylene (HDPE) packaging

Laundry detergent
    Natural Gas  Ethane  Ethylene  High-
density polyethylene (HDPE) packaging
    Natural Gas  Ethane  Ethylene  linear 
alpha olefins  alcohol ethoxylates [liquid detergent raw 
material]
    Natural Gas  Ethane  Ethylene  linear 
alpha olefins  alcohol ether sulfates [liquid detergent raw 
material]
    Natural Gas   Ethane  Ethylene  linear 
alpha olefins  alcohol sulfates [liquid detergent raw 
material]
    Petroleum  benzene  linear alkylbenzene  
linear alkylbenzene sulfonate (LAS) [liquid and powder detergent raw 
material]

Dishwashing liquids
    Natural Gas  Ethane  Ethylene  High-
density polyethylene (HDPE)
    Natural Gas  Ethane  Ethylene  linear 
alpha olefins  alcohol ether sulfates [detergent raw material]
    Petroleum  benzene  linear alkylbenzene  
linear alkylbenzene sulfonate (LAS) [detergent raw material]

Milk Jugs
    Natural Gas  Ethane  Ethylene  High-
density polyethylene (HDPE)
Yogurt/Sour Cream/Cream Cheese/Margarine Containers
    Natural Gas  Propane  Propylene  
polypropylene
Bottles for Mustard/Honey/Salad Dressing/Peanut Butter/Jelly
    Natural Gas  Ethylene  Low-density polyethylene 
(LDPE)
    Natural Gas  Ethylene  Polyethylene Terepthalate 
(PET or PETE)

Water Bottles (5 gallon)
    Petroleum  Benzene  Cumene  Phenol 
 Misphenol A  Polycarbonate

Water/soft drink/juice bottles
    Natural Gas  Ethylene  Polyethylene Terepthalate 
(PET or PETE)

Plastic Wrap for Food Packaging
    Vinyl chloride film--commercial use
    Vinylidene chloride--home use
    Natural Gas  Ethane  Ethylene  Ethylene 
Dichloride  VCM  PVC

Meat trays
    Expandable polystyrene packaging
    Natural Gas  Ethane  Ethylene  
Ethylbenzene  Styrene  Polystyrene
Prepared food packaging (i.e., rotisserie chickens, sushi)
    Natural Gas  Ethane  Ethylene  
Ethylbenzene  Styrene  Oriented Polystyrene

Bread bags
    Natural Gas  Ethane  Ethylene  Low-
density polyethylene (LDPE)

Trash can liners
    Natural Gas  Ethane  Ethylene  Low-
density polyethylene (LDPE)

Fast Food packaging
    Crystal polystyrene--fast food service cold drink cups, cutlery
    Expandable polystyrene packaging--hot beverage cups
    Natural Gas  Ethane  Ethylene  
Ethylbenzene  Styrene  Polystyrene

Food/Beer cans
    Epoxy coatings on the interior of food cans to protect food from 
contamination with dissolved metal
    Petroleum  Benzene  Cumene  Phenol 
 Bisphenol A  Epoxy resins

                           BUILDING SUPPLIES

PVC plumbing pipe
    Natural Gas  Ethane  Ethylene  Ethylene 
Dichloride  VCM  PVC
Vinyl siding, doors, and windows
    Natural Gas  Ethane  Ethylene  Ethylene 
Dichloride  VCM  PVC
Kitchen cabinets/countertop laminates
    Natural Gas  Methanol  Formaldehyde  
Phenol-Formaldehyde Resins

Architectural paint
    Natural Gas  Ethane  Ethylene  Vinyl 
acetate  paints
    Petroleum  Propylene  Acrylic acid  
paints
    Natural Gas  Ethane  Ethylene  Ethyl 
glycol  Ethyl acrylate  paints
    Petroleum  Propylene  n-Butyl acrylate  
paints
    Natural Gas  Methanol  Methyl methacrylate 
 exterior paints

Carpet
    Petroleum  Benzene  Phenol or Cyclohexane 
 Caprolactam  Nylon 6
    Petroleum  Benzene  Cyclohexane  Adipic 
acid  Nylon 6,6 fibers
    Petroleum  Propylene  Polypropylene  
Polyether Polyols  flexible polyurethane foam  carpet 
cushion
    Petroleum  Toluene  Toluene diisocynate  
flexible polyurethane foam  carpet cushion

Housewrap
    Natural Gas  Ethane  Ethylene  High 
density polyethylene fibers

Plywood
    Natural Gas  Methanol  Formaldehyde  

Phenolic Formaldehyde Resins
Insulation
    Natural Gas  Ethane  Ethylene  
Ethylbenzene  Styrene
    Natural Gas  Propane  Propylene  
Polypropylene  Polyether Polyols  spray polyurethane 
foam insulation

                         OTHER IMPORTANT GOODS

Car parts
    Gaskets, hoses, belts
    Natural Gas  Ethylene  Ethylbenzene  
Styrene  Styrene-Butadiene Rubber (SBR)
    Petroleum  Propylene  Polypropylene  
Polyether Polyols  Polyurethane elastomers

Tires
    Natural Gas  Ethylene  Ethylbenzene  
Styrene  Styrene-Butadiene Rubber (SBR)
    Petroleum  Benzene  Phenol or Cyclohexane 
 Caprolactam  Nylon 6 for tire cord
    Petroleum  Carbon Black

Brake fluid
    Natural Gas  Ethylene  Triethylene glycol 
monomethyl ether
    Natural Gas  Ethylene  Diethylene glycol 
monomethyl ether

Fertilizer
    Natural Gas  Ammonia

Contact Lenses
    Natural Gas  Ethylene  Methyl Methacrylate (MMA)

Eyeglasses
    Petroleum  Benzene  Cumene  Phenol 
 Bisphenol A  Polycarbonate

Printed circuit boards
    Petroleum  Benzene  Cumene  Phenol 
 Bisphenol A  Epoxy resins
    Petroleum  Propylene  Epichlorihydrin  

Epoxy resins

                    Questions From Senator Feinstein

    Question 1. I want to start of by thanking Dow Chemical for 
endorsing the energy efficiency bill that Senator Snowe and I 
introduced (S. 680). In light of this, I was disappointed when I read 
your testimony and found energy efficiency buried in Section V. 
Following along these same lines, the United States is currently paying 
twice as much for natural gas as Europe and almost 3 times as much as 
China. It seems to me that the very first step we should take as a 
nation to help bring down the cost of natural gas would be to implement 
energy efficiency standards and incentives. Do you agree?
    Answer. Dow continues to believe that energy efficiency is indeed 
the most important thing the nation can do in the near term to blunt 
the high cost of natural gas. In addition to endorsing S. 680, Dow 
supported the other aggressive energy efficiency measures in the Energy 
Policy Act of 2005, and have subsequently signed on to letters to 
Congress asking that the tax credits be accelerated, along with the 
funding for the authorized public education campaign.
    Dow has taken significant proactive steps to reduce our energy 
demand, improving our energy efficiency by 42% since 1990. We recently 
exceeded our publicly stated goal of improving energy efficiency by 20 
percent by the year 2005 from 1994. By year-end 2004, Dow had already 
achieved a 21% energy intensity improvement vs. 1994. In 2004, alone, 
we reduced our energy intensity by 5.4% vs. 2003. We are now setting a 
new aggressive goal to continue our energy efficiency drive through 
2015. Within the chemical industry, Dow is a leader in efficient energy 
use. We use highly efficient cogeneration to generate 95% of the power 
and heat needed to run our processes in the U.S. and 75% of that needed 
globally. Cogeneration is 20-40% more efficient than producing power 
and steam separately.
    Dow has saved more than $3 Billion since 1994 through our focus on 
energy efficiency & conservation,
    While we agree that the nation needs to make an immediate and 
aggressive commitment to improved energy efficiency, we also believe 
that we must begin immediately as well to develop additional sources of 
domestic natural gas supply. Efficiency alone will not cut the price of 
natural gas enough to make domestic manufacturing globally competitive 
again. More fuel diversity will help reduce gas demand as well, but the 
need for additional domestic natural gas supply is inescapable.
    Question 2. As you mention in your testimony, the U.S. currently 
does not have a Strategic Natural Gas Reserve, like we do for crude 
oil. Do you think the federal government should require a certain 
amount of natural gas to be stored at all times in order to mitigate 
supply shortages?
    Answer. The reference to there not being a strategic natural gas 
reserve was more an observation than a recommendation. It was meant to 
illustrate that there is no real safety valve like there is for 
petroleum supply emergencies. Rather than a strategic natural gas 
reserve, we need to generally increase the existing natural gas storage 
infrastructure. The nation's current 3 TCF storage capacity has changed 
little since the 1970's despite the dramatic increase in natural gas 
demand for power generation. The Energy Policy Act of 2005 provided for 
increased storage. More storage will reduce volatility, but we must be 
prudent about how and when to do it lest we further drive up the short 
term price of natural gas. Natural gas supply and demand are so out of 
balance that there is no gas to spare to increase storage. Additional 
domestic supply, and growth in storage infrastructure, go hand in hand.
                                 ______
                                 
                              American Petroleum Institute,
                                  Washington, DC, October 28, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Enclosed please find the responses to Committee 
member questions from the October 6th hearing on Hurricanes Katrina and 
Rita's effects on energy infrastructure and the status of recovery 
efforts.
    Should you require additional information on the industry's ongoing 
Hurricane recovery efforts, please do not hesitate to contact me.
            Sincerely,
                                               Red Cavaney,
                                                   President & CEO.
[Enclosure.]

                     Questions From Senator Bunning

    Question 1. Legislation pending in the House of Representatives 
would grant the President authority during periods of extreme fuel 
supply emergencies to grant waivers of fuel standards. Are you aware of 
the types of changes to fuel standards that producers of crude oil and 
refiners might seek?
    Answer. It is impossible to predict what type of waivers may be 
needed in the future; however, producers and refiners could seek 
waivers similar to those granted in the wake of Katrina and Rita. The 
U.S. Environmental Protection Agency (``EPA'') was given authority, 
after consultation with the Department of Energy, to waive fuel 
standards during periods of extreme fuel supply emergencies by the 
Energy Policy Act of 2005 (``EPACT 2005''). EPA used this new authority 
after Katrina and Rita. EPA waived certain requirements for federal 
gasoline volatility, federal reformulated gasoline, federal low sulfur 
diesel fuel, and specific state fuel requirements. These waivers were 
targeted to create a significant increase in supply with a minimal 
environmental impact.
    Gasoline volatility refers to the vapor pressure, or how quickly 
the gasoline will evaporate, as evaporated gasoline can contribute to 
smog in high heat summer months. In most areas, low vapor pressure 
gasoline is required for sale until September 15th, although Phoenix, 
Arizona and east Texas extend the requirement to September 30th, and 
California extends the requirement to October 31st. In response to 
Katrina and Rita, EPA allowed summertime requirements to expire early, 
allowing more volatile components, such as butane, to be blended with 
gasoline allowing for greater supply.
    Reformulated gasoline is required for sale in some areas to reduce 
levels of smog producing elements. Conventional gasoline was allowed 
for sale in a limited number of reformulated gasoline covered areas 
that the EPA recognized as facing supply disruptions.
    Individual states have created specific rules concerning the 
composition of gasoline blends. These vary from state to state and are 
commonly referred to as ``boutique fuels.'' Several of these 
requirements (Atlanta low sulfur gasoline and Texas low emission 
diesel) were waived to allow for more gasoline to be pooled together in 
pipelines, barges, and tanks, thus increasing the supply available to 
these areas.
    EPA also waived the low sulfur requirement in diesel fuel. On-road 
diesel accounts for two thirds of diesel supply and has a sulfur cap of 
500 ppm. The remaining one third of supply is used in such off road 
purposes as farm and construction equipment. The waiver allows for the 
use of these fuels interchangeably, helping to increase the supply 
available to trucks.
    These waivers were granted by the EPA to address supply problems in 
specific areas and greatly contributed in keeping supplies available 
and preventing shortages.
    Question 2. I have been told that certain changes in the content of 
automotive fuels (e.g., sulfur content) could degrade the emissions 
system and catalytic converters in automobiles. This degradation could 
limit the useful life and effectiveness of these pollution control 
devices. Further, it could require automobile owners to incur 
significant expenses to replace their cars emissions systems so they 
can pass their state's emissions tests. Are you aware of whether 
producers of crude oil or refiners would seek or support waivers in 
fuel content that would allow the fuel to include components (e.g., 
sulfur) that could damage the vehicles emission system?
    Answer. Refiners and producers would not support waiving fuel 
requirements that would cause increased degradation of emissions 
control systems.
    The sulfur requirements that were recently waived by EPA for diesel 
fuel did not affect the current fleet of vehicles. The sulfur 
requirements that were waived would have posed a problem for emissions 
systems only in automobiles and trucks designed to be introduced for 
the 2007 model year. These vehicles will require Ultra Low Sulfur 
Diesel fuel, a new product that is being introduced in June 2006. Some 
of these vehicles have already been introduced in test fleets, but are 
supplied via a segregated distribution system, and thus were unaffected 
by the recent waivers.
    Once the ULSD program begins in June 2006, the trucks and vehicles 
designed to run only on ULSD will be labeled ``ULSD only'' at the gas 
cap. This will inform the owner/operator of the fueling requirement. As 
the years advance, these ULSD-only vehicles will gradually increase 
their penetration into the in-use vehicle fleet (``fleet turnover''). 
Retail and fleet pumps will also be required to label as to whether 
they are offering for sale ``ULSD'' or ``low sulfur (up to 500 ppm)''. 
The low sulfur pumps will have a notice warning not to fuel ULSD-only 
vehicles. All of these safeguards are intended to protect the emission 
control devices on the model year 2007 and later vehicles from sulfur 
poisoning. In the future, waivers will not change these requirements. 
Thus ``ULSD-only'' vehicles will not be able to use any fuel other than 
ULSD, regardless of whether waivers are issued to increase the on-
highway diesel fuel supply for those vehicles that do not require ULSD.

                    Questions From Senator Feinstein

    Question 1. A Deutsche Bank study from September 16, 2005 finds 
that refinery margins have doubled on the West Coast from 2003 to 2005. 
Can you explain the reasons for these dramatic increases?
    Answer. The California Energy Commission (www.energv.ca.gov/
gasoline) provides estimates of the breakdown of gasoline price prices 
and margin details for both branded and unbranded product. According to 
their data branded refinery cost and profits increased from an average 
of 49.6 cents per gallon in 2003 to an average of 55.5 cents per gallon 
in 2004 and 54.7 cents per gallon so far this year.
    The chart below* provides a breakdown of the component price of a 
gallon of regular gasoline. It shows that the price of crude oil has 
been the main driver in the increase in prices at the pump. Taken 
together, the cost to refine and distribute branded gasoline increased 
from 66.3 cents per gallon in 2003 to 72.7 cents per gallon in 2004, 
but then fell back to 66.9 cents per gallon so far this year (January-
October 24, 2005). The tax data reported by (CEC) in the chart differ 
from the tax data compiled by the American Petroleum Institute (API). 
According to APIs estimates the average tax on a gallon of gasoline in 
California increased from 50.8 cents per gallon in 2003 to 54.3 cents 
per gallon in 2004 to 60 cents per gallon in 2005.
---------------------------------------------------------------------------
    * Retained in committee files.
---------------------------------------------------------------------------
    Question 2. In July, API met with the Minerals Management Service 
and the Coast Guard to assess the damage Hurricane Ivan caused and 
determine whether new policies or industry practices should be put in 
place to avert similar damage. What were the results of this 
collaboration?
    Answer. This past summer API, along with Minerals Management 
Service and the United States Coast Guard, sponsored an industry 
conference on hurricane preparedness and reviewed the industry's 
performance during Hurricane Ivan in 2004. From this workshop the 
industry generated a number of items to explore for potential changes 
to standards, including revised 100-year design criteria, and revised 
mooring design criteria for drilling units (currently covered by API RP 
2SK, Design and Analysis of Stationkeeping Systems for Floating 
Structures, 2nd Edition, December 1996.) These items are currently 
being reviewed and studied by industry and the regulatory agencies and 
final recommendations on proposed standard revisions will be 
forthcoming. Data generated during the two most recent hurricanes also 
will need to be evaluated before final proposals are developed.
    Question 3. The American Petroleum Institute and its member 
companies have recommended that, due to the current limited supply of 
oil and natural gas, American consumers modify their driving and living 
behaviors so that energy may be used as responsibly as possible.
    While supply has been limited by the hurricanes, gas prices have 
been rising due to increased global demand. Don't you think that 
increasing fuel economy standards would help moderate gas prices even 
after the Gulf refineries are brought back online?
    Answer. It is not clear that increasing fuel economy standards 
would moderate gasoline prices--and it definitely would not do so in 
the short-run. Increasing fuel economy standards lowers fuel cost per 
unit distance traveled which may result in additional miles traveled 
and fuel consumed. In addition, even assuming that increased fuel 
economy standards did reduce aggregate demand for motor fuel, it would 
take years for a significant impact to be felt. The auto manufacturers 
need years of lead time to comply with more stringent standards. Even 
after the standards go into effect, it typically takes 10 years or more 
to completely turnover the existing fleet of passenger motor vehicles.
    At API's web site (www.api.org) we provide plenty of tips to 
consumers on how to use fuel more wisely. In addition, consumers that 
are considering buying a new car or truck can certainly factor fuel 
economy into that decision, given the large number of fuel-efficient 
vehicles currently offered for sale.
                                 ______
                                 
                                                   Entergy,
                                 New Orleans, LA, November 1, 2005.
Hon. Pete Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Chairman Domenici: Enclosed are my responses on behalf of 
Entergy Corporation to the questions forwarded to me after the 
submission of my written and oral testimony to the Senate Energy 
Committee on October 6, 2005. I appreciate the opportunity to respond 
to your questions and look forward to being of further assistance.
            Sincerely,
                                             Curtis Hebert,
                        Executive Vice President, External Affairs.
[Enclosure.]

                    Questions From Senator Domenici

    Questiion 1a. Your testimony states that ``current estimates'' for 
restoration of ENO's system range from $325 million to $475 million.
    How much, if any, of these amounts would cover amounts that have 
already been spent by ENO or any other entity within Entergy 
Corporation?
    Answer. Since the date of the testimony, the Entergy System has 
refined the estimated restoration costs based on in-the-field 
inspections of the damages caused by Hurricanes Katrina and Rita, as 
well as detailed plans for restoration of service. The current 
estimates of restoration costs only (not including any incremental 
losses), are as follows:

                                           ESTIMATED RESTORATION COSTS
                                              [U.S. $ in millions]
----------------------------------------------------------------------------------------------------------------
                                                                   Katrina            Rita            Total
----------------------------------------------------------------------------------------------------------------
ELI..........................................................         325-375            30-40          355-415
ENO..........................................................         260-325                           260-325
EGSI.........................................................           29-42          365-500          394-542
EMI..........................................................           75-90                             75-90
Other........................................................           11-18             5-10            16-28
                                                              --------------------------------------------------
    Total....................................................         700-850          400-550      1,100-1,400
----------------------------------------------------------------------------------------------------------------

    Through September 2005, ENO had already incurred $113 million of 
the estimated $260--$325 million in restoration costs. Entergy's other 
operating companies have incurred costs consistent with those estimates 
listed above given that restoration efforts for those operating 
companies are nearing completion.
    Question 1b. How much, if any, of ENO's losses resulting from 
Katrina or Rita are covered by insurance?
    Answer. Entergy maintains insurance coverage for the Entergy System 
of $400 million. However, Entergy's insurance coverage is limited in 
that it only covers certain assets. Most of the transmission and 
distribution lines, towers, and poles are not covered. This is because 
cost-effective insurance for these types of assets have not been 
available since Hurricane Andrew devastated utility infrastructure in 
Florida in 1992. As a result of that event, annual premiums, for 
limited coverage for those types of assets, equal as much as 50% of the 
policy limit. The costs and limited nature of such insurance coverage 
render such policies effectively unavailable.
    The vast majority of damage incurred from Hurricanes Katrina and 
Rita were to the transmission and distribution lines, towers, and poles 
and thus will make up a majority of the estimated restoration costs. As 
a result, much of Entergy's damaged facilities were uninsurable, and 
Entergy's insurance claim is expected to be below the $400 million 
limit.
    Entergy cannot provide an estimate of the amounts that will be 
recovered by insurance; however, please see the table supplied in 
response to 1.c. which estimates the restoration costs by function and 
provides a description of the insurance coverage for such assets.
    Question 1c. Please provide a breakdown of exactly what these 
amounts would cover (i.e., generation, transmission, distribution, 
etc.).
    Answer.

                                           ESTIMATED COST BY FUNCTION
                                              [U.S. $ in millions]
----------------------------------------------------------------------------------------------------------------
                 Function                    Entergy  System         ENO         Insurance Coverage Description
----------------------------------------------------------------------------------------------------------------
Distribution..............................        $648-$829           $78-$95   Generally covers damage to
                                                                                 substations and underground
                                                                                 wires only, subject to a $1
                                                                                 billion Katrina cap for all Oil
                                                                                 Insurance Limited insureds.
                                                                                 Assets not covered by insurance
                                                                                 include above-ground power
                                                                                 lines, towers, poles, line
                                                                                 transformers, etc. outside a
                                                                                 1000 meter radius of generating
                                                                                 stations, switchyards and
                                                                                 substations and any insurance
                                                                                 proceeds discount caused by the
                                                                                 aforementioned cap.
Transmission..............................        $228-$283           $34-$43   Generally covers damage to
                                                                                 substations and underground
                                                                                 wires only, subject to a $1
                                                                                 billion Katrina cap for all Oil
                                                                                 Insurance Limited insureds.
                                                                                 Assets not covered by insurance
                                                                                 include above-ground power
                                                                                 lines, towers, poles, line
                                                                                 transformers, etc. outside a
                                                                                 1000 meter radius of generating
                                                                                 stations, switchyards and
                                                                                 substations and subject to the
                                                                                 cap provisions noted above.
Generation................................          $55-$71           $26-$33   Generation property damage
                                                                                 losses are covered (including
                                                                                 lost inventory), subject to the
                                                                                 cap provisions noted above.
Gas.......................................         $99-$124          $99-$124   Gas system property damage
                                                                                 losses are covered (including
                                                                                 lost inventory), subject to the
                                                                                 cap provisions noted above.
Other.....................................          $70-$93           $23-$30   Facilities (owned buildings and
                                                                                 leased buildings where Entergy
                                                                                 has risk of loss under the
                                                                                 lease agreements) damages are
                                                                                 covered (including lost
                                                                                 inventory), subject to the cap
                                                                                 provisions noted above. Other
                                                                                 costs not covered by insurance
                                                                                 include business continuity.
                                           ---------------------------------------------------------------------
    Total.................................    $1,100-$1,400         $260-$325
----------------------------------------------------------------------------------------------------------------

    Question 1d. Your testimony refers to the ``uncertainty surrounding 
the timing and the size of the return of its [ENO's] customer base.'' 
In making estimates of the costs of restoring ENO's system, what 
assumptions have you made regarding the timing of construction and the 
size of the customer base over time?
    Answer. Entergy estimates that as of mid-October approximately 25% 
of ENO's customers have returned and are actually taking electric 
service. By the end of 2007, Entergy estimates that approximately 51% 
or 96,000 customers will return. This level of customers is estimated 
to produce load of approximately 60% of the Pre-Katrina levels. The 
estimated percentage of load is higher than the estimated percentage of 
customers returning due to the assumption that a higher percentage of 
commercial and industrial customers will return resulting in relatively 
higher load.
    This estimate is consistent with previous estimates in the City of 
New Orleans' repopulation plan but is highly uncertain and dependent on 
ongoing clean-up, demolition and reconstruction efforts that must occur 
in the severely flooded areas of the city. Please also see Entergy's 
response to 1.f. for further details on the assumptions upon which this 
estimate is based.
    Question 1e. If you received capital today, how long do you 
anticipate it will take to rebuild the system?
    Answer. Rebuilding the ENO system is dependent on having a 
financially viable ENO during the rebuilding process. Today, ENO is not 
financially viable as evidenced by the necessity of having ENO file for 
bankruptcy protection. Absent the recovery of reasonable incremental 
losses for the period August 29, 2005 through December 31, 2007, it is 
not expected that ENO can be a financially viable entity. Assuming the 
recovery of incremental loses by ENO, it is believed that, if 
sufficient funds for restoration are made available timely, it will be 
able to restore the infrastructure in a timely fashion such that 
customers who are ready, willing and able to take service will have 
electric and gas service available. When that can occur is a function 
not only of the capital ENO has available, but also, the timing of the 
clean-up efforts and reconstruction activities in the portions of New 
Orleans severely damaged by flooding.
    Question 1f. What assumptions have you made regarding the type and 
location of ENO's future load? Do your assumptions include any 
allowances for increased efficiency of new housing stock?
    Answer. For the period through 2007, ENO's projections are based on 
a determination of what areas are capable of taking service immediately 
as well as those areas that will be capable of taking service during 
the period through 2007. Entergy's estimates do not reflect significant 
portions of the anticipated future customer base resulting from 
completely new construction through 2007. Rather, the vast majority of 
customers anticipated to return during this period will return, 
primarily, to structures that were repaired or renovated as opposed to 
completely new construction.
    Regarding efficiency gains from new housing stock, ENO does 
anticipate that new construction will produce homes that are more 
energy efficient than the structures that are to be replaced. However, 
ENO residential customers already consume about 20% less electric 
energy annually than Entergy Louisiana, Inc.'s or Entergy Gulf States, 
Inc.'s residential customers. Each of these companies is geographically 
similar and has similar weather; however, the housing stock in ENO's 
service area is older and smaller. Newer homes tend to be larger than 
homes built decades earlier. The U.S. Census Bureau reported this trend 
toward larger homes in a report titled ``These Old Houses,'' released 
in February 2004. This trend toward larger houses will likely mitigate 
potential efficiency gains from new housing stock.
    Question 1g. ENO and/or other Entergy operating companies own 
generation that was used to serve ENO's now-diminished load. Is this 
generation now being used to serve other customers or being sold in the 
wholesale market? Are you assuming that revenues being generated by 
these facilities will be used to offset the costs of rebuilding ENO's 
system? Please compare actual revenues expected to be generated by 
these facilities post-Katrina to revenues from the equivalent amount of 
power distributed by ENO before the storm.
    Answer. Certain generating resources that were used to provide 
service to ENO customers pre-Katrina are now being used to serve ELI 
and EGS customers. Specifically, certain purchased power contracts of 
ENO have been assigned to ELI and EGS on a temporary basis subject to 
recall by ENO as it reacquires load. ENO's Grand Gulf purchased power 
obligation either will be used to meet ENO's load requirements or will 
be sold in the wholesale market pursuant to applicable regulatory 
requirements.
    The resale of purchased power to ELI and EGS are at actual cost, as 
is required under the applicable FERC approved tariff. The sale of 
Grand Gulf in the wholesale market pursuant to applicable regulatory 
requirements will mitigate the costs incurred by ENO for this resource. 
ENO's estimate of incremental losses includes these mitigating effects.
    Question 2. Many utilities, particularly those in hurricane-prone 
areas, have set aside hurricane reserve funds to be used for system 
restoration. Does ENO or any of Entergy's operating companies have such 
a fund, and how large is (are) they?
    Answer. Each Entergy Operating Company can establish a storm damage 
reserve only with the approval of its regulator. In each instance, the 
regulator determines the annual accrual to the storm damage reserve 
account.
    The actual annual accruals for storm damage approved by each retail 
regulatory authority are generally based on some historical average of 
storm damage expense. The average can vary from five to 15 years. The 
annual accruals currently approved by each retail regulator for each 
Entergy Operating Company are as follows:

                          [U.S. $ in millions]
------------------------------------------------------------------------
                                                                Storm
                          Company                              Damage
                                                               Accrual
------------------------------------------------------------------------
ENO--Electric.............................................        0.0
ENO--Gas..................................................        0.0
ELI.......................................................       20.4
EGS-Louisiana.............................................       16.2
EGS-Texas.................................................        1.7
EMI.......................................................        7.6
EAI.......................................................        4.8
------------------------------------------------------------------------

    Several years ago, ENO ceased collecting for storm damages in rates 
as a result of significant over funding. Since that time, the reserve 
has been largely depleted. Over time, the reserve balance can be 
positive (meaning that the actual cost of storms has been less than the 
accruals) or negative (meaning that the actual cost of storms has been 
more than the accruals). The current pre-Katrina and Rita storm damage 
reserves for each Operating Company are as follows:

                          [U.S. $ in millions]
------------------------------------------------------------------------
                                                                Storm
                          Company                              Damage
                                                               Reserve
------------------------------------------------------------------------
ENO--Electric.............................................        1.3
ENO--Gas..................................................        0.3
ELI.......................................................      (41.7)
EGS-Louisiana.............................................      (44.6)
EGS-Texas.................................................      (12.5)
EMI.......................................................        2.4
EAI.......................................................      (29.0)
------------------------------------------------------------------------

    Question 3a. Your testimony states that ``on a per-customer basis, 
the cost of Katrina would be $4,300 to $7,900.''
    Exactly what costs are included in this calculation? Is this the 
cost of system restoration, or are other costs included as well? Please 
explain in detail.
    Answer. The average Katrina cost for ENO of $4,300 to $7,900 per 
customer was based on an initial range of estimated restoration costs 
of between $325 million and $475 million and estimated post-Katrina 
number of customers of between 60,000 and 75,000. Prior to Katrina, ENO 
had 190,000 customers. ENO estimated that, during 2006, approximately 
30% to 40% of those customers would return. Consequently, by the end of 
2006, it would have between 60,000 and 75,000 customers. The average 
per customer restoration cost would be between $325 million divided by 
75,000 customers or $4,333 per customer and $475 million divided by 
60,000 customers, or $7,917 per customer.
    The restoration costs include the total costs estimated to restore 
the electric and gas facilities to their pre-Katrina condition and do 
not reflect any insurance proceeds. They also do not include any 
incremental losses.
    As noted above, the values presented in earlier testimony were 
based on the initial estimates of storm damage costs. Based on in-the-
field inspections of the damages caused by Hurricane Katrina as well as 
detailed plans for the restoration of service, those estimates have 
been refined and, as announced on October 19, 2005, the revised 
estimate for ENO is in the range of $260 million to $325 million. 
Furthermore, projections indicate that ENO will regain approximately 
51%, approximately 96,000 of its pre-Katrina customer base by year-end 
2007. This equates to a cost per customer of between $2,710 and $3,390 
(see also Entergy's response to 3.d., which computes the cost per 
customer for ENO and the other affected operating companies.)
    The actual storm costs incurred by ENO over the past five years has 
averaged about $14 per customer or less than one-half of 1% of the 
Katrina per customer cost. In the following table are shown the five-
year average actual storm costs for the other Entergy Operating 
Companies, as well as for other electric utilities prone to hurricanes.

------------------------------------------------------------------------
                                                               5-Year
                                                               Annual
                                                               Average
                          Company                           Storm Damage
                                                              Cost Per
                                                              Customer
------------------------------------------------------------------------
ELI.......................................................      $36
EGS.......................................................      $30
EMI.......................................................      $25
EAI.......................................................      $86
------------------------------------------------------------------------

    During 2004, Florida endured four hurricanes. The total storm 
damages costs for all four hurricanes are computed on per customer 
basis in the table below. Note that ENO's Katrina cost per customer of 
between $2,710 and $3,390 is 10 to 12 times the highest cost per 
customer rate incurred for the four hurricanes that affected Florida in 
2004.

------------------------------------------------------------------------
                                                             Total Storm
                          Company                            Damage Cost
                                                            Per Customer
------------------------------------------------------------------------
Florida Power & Light.....................................     $211
Gulf Power................................................     $274
Tampa Electric............................................      $97
Progress Energy--Florida..................................     $236
------------------------------------------------------------------------
Source: EEI's ``After The Disaster: Utility Restoration Cost Recovery,''
  released in February 2005 and internal analysis.

    Question 3b. You refer to a diminished ``customer base among which 
restoration costs would be spread.'' What assumptions did you make 
about that future customer base when you calculated your per customer 
cost?
    Answer. The original estimate of the 60,000 to 75,000 customers 
that would return in 2006 was preliminary, and based on an overall 
assessment of the extent of the damage due to flooding. These 
projections have been refined based on neighborhood-by-neighborhood and 
block-by-block inspections. It is now projected that, by the end of 
2007, approximately 96,000 electric customers (51% of the pre-Katrina 
level) will be taking service from ENO. See also the response to item 
3.a., above.
    Question 3c. In light of your assumptions regarding a diminished 
customer base, what assumptions have you made about changes in overhead 
for on-going operations (apart from system restoration costs)?
    Answer. Most of ENO's non-fuel and purchased energy costs are 
fixed, at least in the short-run of one to three years. (These are 
generally referred to as ``base rate costs''). For example, the 
Company's pre-Katrina indebtedness will not decline because of a loss 
of customers. Consequently, the interest costs are fixed. The same is 
true for depreciation, benefit costs and the like. Assuming that ENO 
will be able to emerge from bankruptcy as a viable entity, ENO will 
attempt to reduce certain of its base rate costs such that the Company 
and its customer base will be better aligned to its reduced size.
    Question 3d. What would be the pre-customer cost if these costs 
were shared by the customers of Entergy Louisiana, all customers in 
Louisiana, and all customers of all Entergy operating companies?
    Answer. This is not a viable alternative, as it conflicts with the 
laws and decisions applicable to cost recovery in each of Entergy's 
retail jurisdictions. Generally, each Entergy Operating Company is 
allowed to recover only the costs prudently-incurred to provide service 
to that Operating Company's customers. This is a requirement 
established by each of the Entergy Operating Company's regulators. 
Thus, the Louisiana Public Service Commission generally allows Entergy 
Louisiana, Inc. (``ELI'') to recover only costs incurred to provide 
service to ELI's customers, but not the cost to provide service to 
Entergy Gulf States, Inc. (``EGS'') customers' or to ENO's customers.
    Based on the current estimated Katrina/Rita costs, the per customer 
average is as follows:

----------------------------------------------------------------------------------------------------------------
                                                                 Estimated
                                                             Restoration Costs
                          Company                               (U.S. $ in        Customers    Cost Per Customer
                                                                 millions)
----------------------------------------------------------------------------------------------------------------
ELI.......................................................          $355-$415     662,000             $540-$630
ENOI......................................................          $260-$325      96,000         $2,710-$3,390
EGSI......................................................          $394-$542     720,000             $550-$750
EMI.......................................................            $75-$90     419,000             $180-$210
----------------------------------------------------------------------------------------------------------------

    Question 4a. The only numbers cited in your testimony are for 
system restoration in New Orleans. However, legislation introduced in 
the aftermath of Katrina has provisions for grants of money to Entergy 
that are several magnitudes larger than the costs cited in your 
testimony.
    What is the total amount of assistance sought by Entergy for 
damages from Katrina and Rita?
    Answer. The proposed legislation did not apply to just Entergy. As 
we understand it, the proposed legislation applied to all electric and 
gas privately-owned utilities that suffered damage as a result of 
Hurricanes Katrina and Rita in the states of Louisiana (including the 
City of New Orleans), Texas, Mississippi, and Alabama. The legislation 
contained a cap of ``up to $2.5 billion for all affected privately-
owned utilities.
    With regard to the current estimate of restoration costs, see the 
response to 3.d, above. Note, however, that these values are prior to 
any insurance proceeds and the assistance requested is net of all 
insurance proceeds. These estimates cover generation, transmission, 
distribution, and related infrastructure facilities as detailed in 
response to 1.b., above.
    In addition to the net restoration costs that Entergy would seek 
under the proposed legislation, Entergy is seeking incremental losses 
for ENO.
    Question 4b. Exactly what do these amounts cover (i.e., generation, 
transmission, distribution, overhead, lost profits, etc.)?
    Answer. These amounts cover the cost of restoring the generation, 
transmission, distribution, and related infrastructure damaged by 
Hurricanes Katrina and Rita, net of insurance. In addition, they cover 
the incremental losses of ENO through December 31, 2007. Entergy would 
agree to exclude any return on the equity capital invested in ENO from 
this request.
    Question 4c. Please describe in detail the allocation of these 
costs, by operating company and by state. Also please provide a 
breakdown of these costs on a per-customer basis.
    Answer. The vast majority of these costs are not allocated to the 
Operating Companies. Rather, they are the costs of restoring the 
damaged facilities in the specific service territories of each 
Operating Company, such that service can be restored to the customers 
of each Operating company. The only costs that will be allocated are 
business continuity costs, which represent less than 5% of total costs. 
The estimated restoration costs per customer are detailed in response 
to 3.d., above.
    Question 5a. What is the total market capitalization of Entergy 
Corporation?
    Answer. On October 25, 2005, Entergy had approximately 207 million 
outstanding shares of common stock, and the closing market price per 
share was $68.64. Accordingly, Entergy's market was approximately $14.2 
billion.
    Question 5b. Why has Entergy Corporation chosen not to make a 
direct investment in the reconstruction of the New Orleans system?
    Answer. Entergy has made significant contributions to the 
reconstruction of the New Orleans system by providing Debtor-in-
Possession financing to Entergy New Orleans, Inc. ENO, as Debtor-in-
Possession has been authorized to borrow up to $100 million under this 
financing, an amount that is expected to be depleted by December 2005. 
Entergy could provide additional amounts pending internal analysis and 
receipt of legal and regulatory approvals. Like any public company, 
Entergy has a responsibility to act in the best interests of its 
various stakeholders, including its shareholders. Entergy must evaluate 
the likelihood of earning a fair return on any funds it invests. 
Accordingly, Entergy's investments in the New Orleans system must take 
into consideration factors such as long-term customer retention rates, 
the cost structure implicit in a given level of investment, the rate 
implications of that cost structure, and other such factors. Finally, 
ENO's equity capital (common and preferred equity) as of the year 
ending December 31, 2004 was approximately 174.2 million dollars.
    Question 6. What was the book value of assets destroyed by Katrina? 
Please provide this information for each operating company. What was 
the book value of assets destroyed by hurricane Rita?
    Answer. Entergy has not yet completed its identification of all 
assets that were destroyed by Hurricanes Katrina and Rita. However, for 
that portion of the restoration work performed and/or assessed thus 
far, Entergy estimates that assets with a total original cost of over 
$270 million were destroyed. This level of asset destruction is more 
than ten times greater than Entergy has experienced with any previous 
storm. It should be noted that this estimate only includes a small 
portion of the cost of assets destroyed in our New Orleans service 
territory, where damage was most extensive on both an absolute and a 
relative basis. Restoration efforts will need to proceed much further 
before all destroyed assets can be identified. Entergy has based these 
estimates on the original, historical costs of these assets that, in 
many cases, representing price levels that are several decades old. 
Accordingly, replacement costs for these assets will substantially 
higher at today's prices, and it is this current cost that would be 
borne by customers through the ratemaking process if federal assistance 
is not obtained.
    Question 7a. Please list the total capital construction 
expenditures for all of the Entergy operating companies for each of the 
last ten years.
    Answer. The requested data is shown in the following table:


                                                  [$ Millions]
----------------------------------------------------------------------------------------------------------------
                        Year                             EAI       EGS       ELI       EMI       ENO      Total
----------------------------------------------------------------------------------------------------------------
1995................................................     165       186       120        79        28       578
1996................................................     146       155       103        85        28       517
1997................................................     141       133        85        50        16       425
1998................................................     190       137       105        59        22       513
1999................................................     238       199       131        95        46       709
2000................................................     369       278       203       121        49     1,020
2001................................................     281       318       203       160        61     1,023
2002................................................     277       355       210       158        58     1,058
2003................................................     335       349       258       189        66     1,196
2004................................................     270       358       240       163        51     1,083
----------------------------------------------------------------------------------------------------------------

    Question 7b. What is total capital construction budget for all 
Entergy operating companies for 2005?
    Answer. The requested data is shown in the following table:


                                                  [$ Millions]
----------------------------------------------------------------------------------------------------------------
                        Year                             EAI       EGS       ELI       EMI       ENO      Total
----------------------------------------------------------------------------------------------------------------
2005 Budget.........................................     321       275       455       147        47     1,244
----------------------------------------------------------------------------------------------------------------

    Amounts budgeted for 2005 do not encompass hurricane restoration 
costs.
    Question 8. Your testimony cites a per-customer cost of $4,300 to 
$7,900 per customer for the reconstruction of ENO's system. If these 
costs were securitized and collected over a ten year period, what would 
be the average charge per each residential customer per month? What 
would be the average cost per customer per month if these costs were 
allocated to the customers of Entergy Louisiana as well?
    Answer. As noted in response to 3, above, the revised per-customer 
cost is between $2,710 and $3,390 based on the restoration cost 
estimates of $260 to $325 million. These cost estimates do not include 
incremental loses as noted in various responses, above. The annual cost 
of a securitization for 10 years of the lower estimate of $260 million 
would be about $35 million. The required rate increase for residential 
customer would be composed of the increase necessary to recover ENO's 
ongoing fixed costs over a smaller customer base plus the amount 
necessary to recover the storm restoration costs, securitized or 
otherwise.
    ENO's current base rates are approximately 4.5 cents per kilowatt-
hour or $45 per month for an average residential customer consuming 
1,000 kilowatt-hours each month. Recovering the ongoing fixed cost over 
a smaller customer base consisting of 60% of the load would require an 
increase of approximately $30 per month or roughly 67% increase in base 
rates for the lost customer component alone. The rate increase 
necessary to recover the $35 million associated in addition to the 
recovery of ongoing fixed cost over a smaller customer base will be 
approximately $39 per month., or a total of 87% in base rates.
    As noted in response to question 3.d., above, having the cost 
associated with ENO's damage flow to Entergy Louisiana is not a viable 
alternative, as it conflicts with the laws and decisions applicable to 
cost recovery in each of Entergy's retail jurisdictions. Generally, 
each Entergy Operating Company is allowed to recover only the costs 
prudently-incurred to provide service to that Operating Company's 
customers. This is a requirement established by each of the Entergy 
Operating Company's regulators.
    Question 9. Entergy has long been an outspoken opponent of the 
socialization of the costs of transmission and distribution systems, 
and has been a supporter of ``participant funding,'' a system whereby 
those that benefit from the costs of facilities are required to pay for 
them. Entergy has long argued that transmission and distribution 
facilities that cannot be entirely supported by the market which they 
are intended to serve should not be built. How do you distinguish the 
present case, in which you are arguing for the socialization of the 
costs of rebuilding an entire system?
    Answer. As citizens throughout our service territory are still 
struggling to rebuild their lives and as Entergy is still working hard 
to restore service in the hardest hit areas, especially New Orleans, we 
do not think it is appropriate to reopen the policy debate on 
participant funding. Suffice it to say that Entergy was pleased that 
Congress in the EPAct of 2005 authorized participant funding and 
generally codified prior FERC orders authorizing the use of participant 
funding.
    Entergy's position on participant funding was based on one simple 
principle: protecting our customers from bearing costs associated with 
facilities that they did not cause to be built. Our position on seeking 
federal relief for the costs associated with Katrina/ Rita is based on 
this exact same principle: protecting customers from bearing the costs 
associated with the destruction of our system--something obviously that 
neither our customers nor ENO caused to occur. The case for federal 
assistance for ENO is especially critical and warranted. But for the 
flooding of 80% of the City of New Orleans when the federal levee 
system failed, ENO and the citizens of New Orleans would not find 
themselves in these dire straits. Moreover, merchant plant developers 
had complete control of the business decisions they made on where to 
invest and locate their facilities on the electric grid. ( This is 
explained in more detail below in the answer to Senator Feinstein's 
question.) That most, if not all, did so without considering 
transmission implications and potential costs is beyond dispute. 
Obviously ENO and the citizens of the Gulf Region are innocent victims 
of the worst natural disaster in our country's history.
    In sum, just as we sought to protect our consumers from bearing 
unwarranted costs in advocating for participant funding, we are seeking 
federal assistance here in order to avoid massive and significant rate 
increases that our customers would otherwise bear if we were to seek 
cost of service rate recovery for storm related costs. Our positions 
are consistently based on seeking to protect our customers--in this 
instance to protect our customers from bearing the burden of this 
nation's worst natural disaster. That is why participant funding is a 
just policy. That is why providing immediate federal relief for the 
costs incurred to rebuild from Katrina and Rita is a just policy 
warranting immediate Congressional action.

                    Question From Senator Feinstein

    Question 1. As we look at proposals to rebuild the Gulf Coast, I 
understand that Entergy has asked for federal money to rebuild or 
restore power plants damaged during the recent hurricanes. While all of 
our thoughts and prayers go out to you and your employees, I am 
wondering why Entergy is looking for federal money to rebuild power 
plants in an area where there is an oversupply of electric generation?
    Answer. Prior to Hurricane Katrina, Entergy New Orleans, Inc. 
(``ENO'') had two generation stations, Paterson and Michoud, both of 
which are located in the City of New Orleans and both of which were 
flooded.
    The Senator is right in the sense that there are a number of 
merchant generators who have built facilities in and around our service 
territory. However, few, if any, of these generators took transmission 
considerations into when they located their plants. Their location was 
certainly not the result of their participation in any Entergy or 
regional planning processes. In fact, for reliability purposes, it is 
necessary to have a certain amount of generation located in proximity 
to the load being served. This is critically important, especially for 
a utility like Entergy New Orleans.
    For the New Orleans area, it is necessary to have operating a 
minimum number of generating units in order to maintain voltage and 
provide reliable service. The Michoud generating unit is one of the 
units that serves that function. While there are many merchant 
generating facilities in the Entergy service area resulting in the 
referenced ``oversupply,'' none are physically located in the New 
Orleans area, and thus, none are available to serve the reliability 
needs of New Orleans' customers. These other units simply do not have 
the same electrical characteristics for serving Entergy New Orleans' 
customers. For that reason, it is critical that Entergy have available 
the generating facilities necessary to meet reliability needs and to 
have them available in the right place.
                                 ______
                                 
   Responses of Christopher Helms to Questions From Senator Feinstein

    Question 1. How much natural gas is stored through the U.S. in the 
winter storage facilities?
    Answer. The five-year average (2000-2004) for natural gas in 
storage by November 1 is 2.95 trillion cubic feet (tcf). The current 
inventory for this winter, as of October 7th, is 2.99 tcf, and it is 
expected that storage will be filled to 3.1 tcf by the beginning of 
next month. This is in line with the five-year average at this time of 
the year.
    Question 2. Would you agree that the largest factor on the price of 
natural gas is demand?
    Answer. No, we would argue that supply and demand are equal factors 
in determining commodity prices, consistent with the fundamental 
principles of economics. The proximate cause of the recent run-up in 
natural gas commodity prices has been the impact from Hurricanes 
Katrina and Rita, which reduced natural gas supplies going into the 
winter heating season--a period of high demand. Still, even before the 
twin hurricanes, natural gas prices in the forward market were high 
compared to previous years, which signaled a tight supply and demand 
balance. Changes in either demand or supply will impact the price of 
natural gas.
    Question 3. If so, then would you agree that the most important 
step we can take as a nation to reduce the price of natural gas is to 
reduce the demand?
    Answer. High commodity prices are already reducing demand, 
particularly in the industrial sector, which has historically been the 
largest consumer of natural gas in the U.S. In the short-term, energy 
conservation and efficiency improvements can also help consumers reduce 
their energy costs and reduce some further demand. In the long-term, 
however, the U.S. must focus on developing additional natural gas 
supplies in North America and building the infrastructure required to 
take advantage of the growing global natural gas supply market. Natural 
gas remains a popular product given its environmental attributes. 
Therefore, demand will remain strong. Developing new supply resources 
will be critical to meeting future demand.
    Question 4. As you mention in your testimony, the natural gas 
market is not regulated and you believe that the market should continue 
in this manner. Do you think that natural gas prices are being driven 
up by speculators on the market?
    Answer. The natural gas commodity market was decontrolled by 
Congress more than 15 years ago. Interstate transportation of natural 
gas remains regulated by the Federal Energy Regulatory Commission 
(FERC), as does local distribution services by state public utility 
commissions. Further, FERC has taken an active role in ensuring that 
adequacy of reported price data and investigating price spikes in 
wholesale gas and electric markets. To that end, FERC has recently 
completed a Memorandum of Understanding with the Commodity Futures 
Trading Commission to enhance vigilance and assure the price integrity 
of the markets for natural gas and other energy products.
    The current commodity prices for natural gas reflect the fact that 
demand is outstripping supply. The significant supply reductions caused 
by the twin Gulf hurricanes temporarily have exacerbated this supply 
situation in a major way. We believe current prices are being driven by 
these market fundamentals, and not by speculation.
                                 ______
                                 
                        Department of the Interior,
           Office of Congressional and Legislative Affairs,
                                  Washington, DC, January 19, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Enclosed are responses prepared by the U. S. 
Department of the Interior to questions submitted following the October 
27, 2005, hearing regarding ``Hurricane Recovery Efforts.
    Thank you for the opportunity to provide this material to the 
Committee.
            Sincerely,
                                             Jane M. Lyder,
                                               Legislative Counsel.
[Enclosure.]

                    Questions From Senator Domenici

    Question 1a. Texas, Louisiana, Mississippi and Alabama are major 
producing states of timber and manufactured forest products. Hurricanes 
Katrina and Rita have ripped through timber country and left 
substantial devastation to the natural resource. Forest Service damage 
estimates from Katrina suggest approximately 19 billion board feet of 
downed timber on more than 5 million acres in Mississippi, Louisiana 
and Alabama. The vast majority of which is from private land. Estimates 
from Rita are still coming in, but they will no doubt add to the loss 
of standing timber in Louisiana and now Texas.
    Some of the debris and damaged timber that is unusable for 
manufacturing forest products could be used to produce electricity and 
steam at forest products manufacturing facilities in the region. Using 
this otherwise wasted material for energy could have multiple benefits 
including creating value for landowners and reduced natural gas 
consumption for manufacturing facilities. Since natural gas prices are 
now four times higher than they were just a few years ago, what has the 
Interior Department done since these hurricanes occurred to facilitate 
increased biomass utilization?
    Answer. In the immediate aftermath of Hurricane Katrina, the 
Department of the Interior organized a meeting of technical 
specialists, the Woody Biomass Utilization Group, from across the 
federal agencies in Washington, D.C. to help coordinate the response to 
assist the States in their recovery efforts. On September 27-28, the 
Department and the Department of Agriculture (Forest Service) met in 
Jackson, MS, with State foresters affected by the Hurricanes to propose 
the strategy to improve utilization of storm damaged wood. At that 
meeting, the agencies and States identified the following short-term 
focuses as most important to improving the utilization of storm damaged 
wood for forest products and biomass: coordination, inventory, 
transportation and storage, and market development. The Department and 
the Forest Service will continue to work closely with its federal 
partners in providing assistance to the States regarding biomass 
utilization.
    Question 1b. In some cases, current environmental laws and 
regulatory limitations prevent additional biomass utilization. In your 
view, what obstacles are limiting the use of Hurricane debris as 
biomass for energy production?
    Answer. Some constraints that could limit the use of hurricane 
debris for biomass, as noted above, include issues with transporting 
and storage of the forest debris. However, in many cases, the more 
significant limiting factors are economic, including a lack of 
transportation and processing infrastructure.
    Question 1c. What steps can Congress undertake to further assist in 
the utilization of damaged timber as an energy source?
    Answer. The Environmental Protection Agency has jurisdiction over 
many of the issues surrounding the use of damaged timber as an energy 
source. We would prefer you address this question to EPA.
    Question 2. In 1999 and 2000, the FERC undertook a rulemaking to 
institute reporting requirements for gas pipelines on the OCS in an 
effort to implement the open and non-discriminatory access requirement 
of Section 5(f) of the OCSLA. The MMS supported FERC's efforts. 
Subsequently, however, the reporting rules were nullified by the D.C. 
Circuit, which held that FERC did not have any general rulemaking 
authority under Section 5(f) of the OCSLA. As a result, the regulation 
of OCS pipelines [sic] with MMS. What is the Department of Interior's 
position on a clarifying amendment of the OCSLA that would clearly 
delegate to FERC authority to administer, implement and enforce 
Sections 5(e) and 5(f) of the OCSLA, dealing with open and non-
discriminatory access to OCS pipelines?
    Answer. The Department of the Interior would support efforts to 
amend the Outer Continental Shelf Lands Act (OCSLA) to clarify 
regulatory jurisdiction over gathering pipelines and would support 
changes to section 1334(f) to provide FERC the authority for ensuring 
open and nondiscriminatory access to pipelines. However, we would want 
to ensure that any amendment expressly states that the Department of 
the Interior maintains authority over granting pipeline rights-of-way 
and operations of those pipelines. We have been working closely with 
FERC on these issues and will continue to maintain close coordination.
    Question 3. What is your interpretation of the Outer Continental 
Shelf Lands Act with respect to the question of whether the Secretary 
has the authority to lease the remaining Lease Sale 181 lands prior to 
the issuance of the new 5-year plan?
    Answer. Under our existing authority, the remaining Lease Sale 181 
Lands would need to be included in a 5-year plan in order for these 
areas to be leased. The current 5-year plan, which ends in June 2007, 
would need to be amended to include these areas since there is no such 
sale scheduled in the current 5-year program. Some NEPA analysis of the 
amendment would also be required.
    In August, the Department took the first step in the two year 
process of developing the next 5-year program for 2007-2012. The 
Department asked for comments on all OCS areas, including the Lease 
Sale 181 area, for the 2007-2012 5-year leasing program. The public 
period has closed.
    MMS received 8,998 comments in favor of opening additional areas of 
the OCS and 2,276 against. The Department will consider all comments 
received when formulating the draft proposed 5-year leasing plan.
    Question 4. In 2001, Department of Interior offered a reduced 
portion of Lease Sale 181 for leasing (only 1.47 million acres of the 
entire 5.9 million acres). Presumably in making this decision the 
Department looked at a number of factors such as environmental 
concerns, proximity to state coastlines, our nation's domestic energy 
supply, and several other considerations.

   Can you comment on whether the state of any or all of these 
        considerations has changed in any significant way since the 
        decision in 2001?
   Have the changes in the state of these considerations led 
        the Department to change its policy position in the upcoming 
        2007-2012 Five-Year Plan?

    Answer. In 2001, the Secretary spent a considerable amount of time 
talking to and listening to officials and citizens of the affected 
states around the original Lease Sale 181 area. Based on these 
discussions and information available, a decision was made to modify 
the area that would be available for leasing during the 2002-2007 Oil 
and Gas Leasing Program, which is the current program in effect.
    As stated above, the Department has taken the first step in a two 
year process to develop the next 5-year Oil and Gas Leasing Program for 
2007-2012. In August, we requested comments on all OCS areas, including 
the Lease Sale 181 area. The public comment period has closed. The 
Department will consider all comments received when formulating the 
draft proposed 5-year leasing plan.
    Question 5. Would the Secretary have to go through the steps 
required by a five year plan such as a public comment period etc. . . . 
or, could the Secretary simply amend the current 5-year leasing plan to 
include the remaining non-leased 181 areas?
    Answer. The Department is looking at what would be required if the 
current 5-year plan were to be so amended.
    Question 6. If the Department were to have a lease sale in the Sale 
181 area early next year, how long would it take before any natural gas 
production might be realized from that sale? Assume there are no CZMA 
``consistency challenges'' or lawsuits against the sale itself or plans 
of exploration and production.
    Answer. The Department anticipates that production would occur 
within five years of the first sale.
    Question 7. Please comment on the most recent DOI resource 
estimates for Lease Sale 181. Start with the entire 181 area; then the 
entire non-leased portions of 181 and then the entire non-leased 
portions of 181 which are more than 100 miles from the Florida and 
Alabama coastlines.
    Question 8. Could you please comment on what these numbers mean in 
real terms? In other words, how many homes could be heated for what 
period of time, and how many cars could be fueled for how long if these 
resources were produced?
    Answer for both 7 and 8. According to the MMS National Resource 
Assessment Update in 2003, undiscovered technically recoverable 
resources for the entire 181 area is 1.87 billion barrels (bbl) of oil, 
which equates to enough oil to fuel 136 million vehicles for one year 
or 6.8 million vehicles for 20 years, and 11.69 trillion cubic feet 
(Tcf) of gas, which equates to enough gas to cover current U.S. 
household consumption for 2.5 years or 8.3 million homes for 20 years.
    The estimate of undiscovered technically recoverable resources for 
the non-leased portions of 181 are 1.11 bbl of oil and 7.45 Tcf of gas. 
This is equivalent to enough oil to fuel 80.7 million vehicles for one 
year or 4 million vehicles for 20 years and enough gas to cover current 
U.S. household consumption for 1.6 years or 5.3 million households for 
20 years.
    Most of the undiscovered technically recoverable resources in the 
non-lease portion of 181 are more than 100 miles from both Florida and 
Alabama coastlines, .93 bbl of oil and 6.03 Tcf of gas. This would 
provide enough oil to fuel 67.5 million vehicles for one year or 3.4 
million vehicles for 20 years and enough gas to cover U.S. households 
for 1.29 years or 4.3 million households for 20 years.
    Question 9. Please comment on the procedure that the federal 
government goes through in determining whether an area on the OCS 
should not be offered for leasing because it is an area that is 
critical for military use by the DOD.
    Answer. The Department of the Interior coordinates closely with the 
Department of Defense to determine whether an area contemplated for 
leasing is critical for military use. We have a Memorandum of Agreement 
with the Department of Defense on a process for resolution of such 
issues if a conflict does arise. This process has worked well and has 
achieved balanced decisions regarding the best uses of the OCS that 
avoid interference with military operations.
    Question 10. Can you comment on whether any determination has been 
made with respect to any portions of the Lease Sale 181 area on the 
question of whether there is a strategic military interest sufficient 
in that area to prohibit leasing there?
    Answer. The Department understands that the Department of Defense 
uses portions of the Eastern Gulf of Mexico planning area. However, 
since we have not developed any leasing proposal for consideration in 
the non-leased portions of Lease Area 181, it is premature to speculate 
as to whether there may be a conflict with the Department of the 
Defense. As stated above, we coordinate with the Department of Defense 
to determine whether an area contemplated for leasing is critical for 
military use.
    Question 11a. New Production: As you know we are facing a very 
serious energy situation for this winter. We received an update from 
BLM on the backlog of oil and gas permits. It's apparent there is 
progress being made, but it's not even close to what will be needed. 
After listening to testimony for years on this issue, I am of the 
opinion that we have created so many barriers and so much process that 
more funding will not be enough.
    Do you have any estimate of how much gas we are sitting on?
    Answer. The EPCA Phase I study estimated that 138 Tcf of 
undiscovered technically recoverable natural gas resources and proved 
reserves are under federal lands within the five basins that were 
assessed in the study. This is enough natural gas to heat 55 million 
homes for approximately 30 years.
    Question 11b. What will it take to actually process the 10,000 
drilling applications anticipated next year?
    Answer. The Bureau of Land Management (BLM) has taken numerous 
administrative steps to ensure that applications for permits to drill 
(APDs) are processed promptly, while at the same time ensuring that 
environmental protections are fully addressed in the review. In FY 
2005, the BLM processed approximately 7,736 APDs and approved 7,018 of 
those processed. This is approximately 4,000 more than BLM was able to 
process in 2000.
    The Energy Policy Act of 2005 gave the Department valuable tools 
for improving APD processing. Pursuant to section 365 of the Act, BLM 
is implementing a pilot project to improve Federal permit coordination. 
Section 365 also establishes a permit processing improvement fund that 
will provide the funds necessary to hire additional staff in the pilot 
offices established. We anticipate that the BLM will process more than 
10,326 permits in FY 06 and 12,150 permits in FY 07. The new pilot 
offices handle approximately 72 percent of the current permit 
application activity.
    Another tool that will assist the BLM in more timely application 
processing is the improvement of our NEPA compliance related to the 
exploration or development of oil and gas. Section 390 of the Energy 
Policy Act of 2005 establishes a rebuttable presumption that a set of 
defined development activities do not need further site specific NEPA 
review. This will assist the BLM in processing applications in a more 
timely manner.
    Question 11c. This is an opportunity; we have companies with the 
money to spend. You have a challenge. We've got to find a way to make 
this work.
    What can be done to encourage new production right now?
    Answer. The Department is actively implementing provisions of the 
Energy Policy Act of 2005, which provides additional authorities and 
resources to streamline current procedures.
    Question 11d. What can Congress do to help?
    Answer. As stated above, the Department is actively implementing 
provisions of the Energy Policy act of 2005, which provides additional 
authorities and resources to streamline current procedures. The 
Department will continue to evaluate its existing authorities, and if 
we find that additional changes are appropriate, we will recommend 
those changes to the Congress.
    Question 11e. If we were to do something with winter drilling 
restrictions, is it still possible to protect wildlife and habitat?
    Answer. Regulations at 43 CFR 3101.1-4 allow the BLM to grant 
exceptions, waivers, or modifications to lease stipulations when the 
authorized officer determines that the factors leading to the inclusion 
of the stipulation in the lease have changed sufficiently to make the 
protection provided by the stipulation ``no longer justified'' or if 
the proposed operations would not cause ``unacceptable'' impacts. 
Exceptions are granted more frequently than waivers or modifications 
and can involve temporary changes to seasonal or locational drilling 
restrictions. To ensure impacts are not unacceptable, BLM conducts a 
biological review prior to granting an exception, waiver, or 
modification. The identification and use of environmental Best 
Management Practices can play a significant role in reducing impacts to 
an acceptable level. Therefore, when circumstances and mitigation are 
appropriate, BLM believes it can grant seasonal and locational 
exceptions for energy development while protecting wildlife and its 
habitat.
    Question 12a. Pilot Project Offices: In your testimony you spoke of 
the BLM's plans for implementing the Permit Processing Pilot Offices.
    How will this program serve to expedite permitting?
    Answer. The pilot offices will provide the BLM the ability to test 
new management strategies designed to further expedite the processing 
of APDs. These strategies include placing employees of other Federal 
agencies in the pilot offices to provide for improved coordination and 
expedited consideration of applications. The additional funds provided 
through the pilot fund established under section 365 of the Energy 
Policy Act of 2005, will also help BLM process APDs more expeditiously.
    Question 12b. This program comes with funding. How do you make sure 
the new funding is used to make a difference on the ground?
    Answer. Funding will be allocated to the seven BLM pilot offices 
identified in the Energy Policy Act of 2005 and it will augment base 
funding BLM already receives in order to expand its capacity for 
processing APDs and related activities. The BLM has also established an 
accounting structure and project codes for the pilot offices to monitor 
and track associated expenditures.
    Question 12c. What feedback have you received from State 
governments on participating in this effort?
    Answer. The pilot program established by the Energy Policy Act of 
2005 authorizes coordinated permit processing arrangements with states. 
The BLM has initiated discussions with appropriate state contacts. We 
will also begin working with the states on a Memorandum of 
Understanding to better coordinate activities with those states.
    Question 12d. As a pilot program we will need regular feedback on 
what is working and what is not. Can you make sure, say once a quarter, 
to provide a regular report?
    Answer. The Energy Policy Act of 2005 requires the Secretary to 
provide a report to Congress on the pilot project by August 2008. The 
BLM will provide interim reports and briefings for Congressional staff 
on implementation and progress in the pilot offices.
    Question 13. Oil Shale and Tar Sands Program:

   Can you give us any additional information on the 20 
        nominations for research and development leases?
   Are these real and substantive proposals?

    Answer. The BLM has received 20 nominations for research, 
development, and demonstration (RD&D) proposals in Colorado, Utah, and 
Wyoming. These nominations include proposals to use a variety of oil 
shale extraction technologies. The nominations are currently being 
reviewed by an inter-disciplinary team to consider their merits, 
economic viability, and potential environmental effects. At the 
conclusion of the review process, recommendations for RD&D leases will 
be made. The BLM expects to issue RD&D leases for viable nominations 
early in 2006.
    Question 14. In the FY2006 Appropriations Congress provided a $2 
million increase with specific direction from both the House and the 
Senate about oil shale.
    Is BLM using this funding for this new program?
    Answer. Congress provided an increase of $3.0 million for 
conventional oil and gas activities and oil shale development. Of that 
amount, $1.0 million has been dedicated to oil shale. BLM is using the 
funds on the oil shale RD&D program and for the programmatic 
Environmental Impact Statement for commercial oil shale leasing.

                     Questions From Senator Talent

    Question 1. Skyrocketing natural gas prices are damaging the 
manufacturing and farm economies, hurting residential bill payers and 
driving up inflation. They are not going to come down on their own, in 
fact EIA projects residential cost increases of up to 70% this winter. 
The Administration has taken significant portions of Lease 181 out of 
the leasing program by executive action, areas that are known to be 
rich in natural gas and where existing infrastructure could bring that 
gas to market relatively quickly. In the face of $14 natural gas what 
is preventing the Administration acting to expand leasing in the 
eastern Gulf and ease the supply shortages?
    Answer. In 2001, the Secretary spent a considerable amount of time 
talking to and listening to officials and citizens of the affected 
states around the original Lease Sale 181 area. Based on these 
discussions and information available, a decision was made to modify 
the area that would be available for leasing during the 2002-2007 Oil 
and Gas Leasing Program, which is the current program in effect.
    To expand leasing in the non moratoria areas that have been 
deferred from leasing in the Eastern Gulf, the Department would need to 
amend the current 5-year leasing plan, which ends in June 2007, to 
schedule an additional sale in the Eastern Gulf that would include any 
of these deferred areas. It would take time to go through the necessary 
procedures, including NEPA, to amend the current program.
    The Department has taken the first step in a two year process to 
develop the next 5-year Oil and Gas Leasing Program for 2007-2012. In 
August, we requested comments on all OCS areas, including the Lease 
Sale 181 area. The public comment period has closed. MMS received 8,998 
comments in favor of opening additional areas of the OCS and 2,276 
against. We will be considering all comments received when formulating 
the proposed draft leasing 5-year plan.
    Question 2. Are there any procedural impediments from the way the 
Lease Sale 181 area has been handled that could be raised that might 
delay the actual sale process for an extended time if you were to re-
offer them in the near term?
    Answer. In order to lease additional lands, the current five year 
plan would need to be amended. Amending the plan requires new work 
under NEPA, since the EIS for the current 5-year program did not 
analyze these tracts. Other statutes, such as the Coastal Zone 
Management Act, would need to be complied with prior to the Secretary 
conducting a lease sale.
    Question 3. How does the law prioritize need or use of the Lease 
181 area between energy production and military use? How is DOI working 
with DOD to resolve these issues so that we might access the oil and 
gas while not weakening our defense?
    Answer. The Department of the Interior coordinates closely with the 
Department of Defense to determine whether an area contemplated for 
leasing is critical for military use. We have a Memorandum of Agreement 
with the Department of Defense on a process for resolution of such 
issues if a conflict does arise. This process has worked well and has 
achieved balanced decisions regarding the best uses of the OCS that 
avoid interference with military operations.
    Question 4. Do I understand correctly that there were no oil or 
natural gas leaks from offshore facilities in the Gulf of Mexico as a 
result of the recent hurricanes?
    Answer. There were no significant spills from any offshore wells on 
the OCS. Although there were some minor pollution events from lines or 
equipment, all subsurface safety valves installed beneath the seafloor 
successfully prevented uncontrolled releases of hydrocarbons into the 
Gulf of Mexico.
    Question 5. What issues, if any, do you see if the Senate were to 
vote to allow individual coastal states to choose whether or not to 
allow oil and gas exploration in federal waters off of their coasts?
    Answer. The Department does not see any major issues with giving a 
state the right to request moratoria be lifted off its coast in order 
for the state to ``opt-in'' to an oil or gas leasing program. The 
Administration also supports increasing offshore energy production in 
areas where States agree to lift current offshore moratoria.
    Question 6. There have been some proposals to break the traditional 
oil and gas lease to be oil-only or gas-only in case a particular State 
prefers to allow only natural gas drilling, for instance. It seems to 
me that being forced to choose to produce only one or the other may 
present a high degree of risk to exploration companies who may be 
granted a gas-only lease, discover oil only, and be forced to abandon 
their facilities and write off the investment. What is the likelihood 
of accurately knowing in advance whether a lease area contains just oil 
or just natural gas?
    Answer. The Department, either through legislation or regulations, 
would need the ability to create procedures to address situations where 
oil or gas is discovered on a lease restricted to development of one of 
those resources. Resource assessments, through geologic and geophysical 
evidence, provide an indication of what may be located in an area, 
however, the likelihood of accurately knowing in advance whether a 
lease area contains just oil or just natural gas is minimal in frontier 
areas (areas with little or no previous exploration).

                    Questions From Senator Bingaman

                           ROLE OF DEPARTMENT

    Question 1. What has been the role of the Interior Department in 
coastal wetlands restoration? Do you see that role changing in the 
aftermath of these hurricanes?
    Answer. The Fish and Wildlife Service (Service) is actively engaged 
in coastal wetlands restoration. The Coastal Wetlands Planning, 
Protection and Restoration Act of 1990 (CWPPRA) established a Task 
Force that includes the Department of the Interior, Corps of Engineers, 
Environmental Protection Agency, Department of Commerce, Department of 
Agriculture, and the State. The CWPPRA Task Force has approved 154 
restoration projects to protect and restore more than 101,000 net 
acres, and completed the comprehensive Coast 2050 Restoration Plan. 
Over the past 14 years, the Service sponsored 20 CWPPRA projects 
amounting to 14,600 net acres. The Service continues to work with 
partners to implement other restoration projects on National Wildlife 
Refuges and non-Federal lands.
    Question 2. What has been the impact of the hurricanes on 
Departmental facilities and on units of the National Park and National 
Wildlife Refuge Systems?
    Answer. Several units of the National Park and Wildlife Refuge 
Systems were damaged. The most severe damage to Park units occurred to 
the Mississippi District of the Gulf Islands National Seashore, to the 
units of Jean Lafitte National Historic Park and Preserve, and New 
Orleans Jazz National Historical Park. Several other units including 
Everglades National Park, Dry Tortugas National Park, Natchez Trace 
Parkway and Natchez Historical Park sustained damage from Hurricane 
Katrina.
    Gulf Islands National Seashore sustained virtually complete 
destruction of five government housing units in the Davis Bayou area, 
all housing and facilities on the islands, the interior of the visitor 
center and district offices, and associated docks and piers. 
Additionally, thousands of downed trees blocked roadways. All 
Mississippi offshore islands, Davis Bayou Campground and Visitor Center 
in the Mississippi District of the park remain closed. In the Florida 
District, the Fort Pickens and Santa Rosa Areas are also closed due to 
damage from Hurricane Ivan last September and further damage sustained 
from Hurricane Katrina.
    Jean Lafitte National Historical Park and Preserve's French Quarter 
Visitor Center in New Orleans, Chalmette Battlefield and National 
Cemetery in Chalmette, and Barataria Preserve in Marrero will be closed 
until, at a minimum, early 2006. The park's Acadian Cultural Center in 
Lafayette, Prairie Acadian Cultural Center in Eunice, and Wetlands 
Acadian Cultural Center in Thibodaux are open and programs continue as 
scheduled. New Orleans Jazz National Historical Park headquarters and 
visitor center remain closed.
    Hurricane Katrina impacted 22 national wildlife refuges (NWR) in 
Alabama, Mississippi, and Louisiana. The office/visitor center at 
Mississippi Sandhill Crane NWR remains closed and was damaged beyond 
repair. Delta NWR is closed for the foreseeable future. Access to the 
refuge is limited and the headquarters building was damaged. The Breton 
NWR experienced a 50 percent loss in its landmass. The facilities and 
levee system at the Bayou Sauvage NWR were almost completely destroyed. 
The Big Branch Marsh NWR lost many facilities, but remains open. 
Existing facilities at the Grand Bay NWR were destroyed. Bon Secour NWR 
also suffered damage and additional debris removal will have to take 
place. Public access at this station remains limited.
    Hurricane Rita impacted 22 national wildlife refuges in Louisiana 
and Texas. All facilities and infrastructure at Sabine NWR were 
completely destroyed. There were extensive damages to Anahuac NWR, 
Cameron Prairie NWR, Lacassine NWR, and McFaddin NWR.
    Hurricane Wilma impacted multiple national wildlife refuges in 
Florida. The Florida Keys Refuges headquarters was destroyed. The 
A.R.M. Loxahatchee NWR lost its office and experienced a great deal of 
damage to facilities.
    Question 3a. What coordination is taking place between the Interior 
Department and other Federal agencies in addressing the aftermath of 
the hurricanes?
    What input are you having with respect to FEMA's activities?
    Answer. The Department is actively engaged in several interagency 
efforts to assess the government's response to Hurricanes Katrina and 
Rita. We participate in the ``Comprehensive Review of Federal 
Government Response to Hurricane Katrina'' that is being led by the 
Assistant to the President for Homeland Security. We are also 
participating in several of the Working Groups established by the White 
House Task Force on Hurricane Katrina, including Economic Recovery, 
Environmental Impacts and Cleanup, Transportation Network Restoration, 
Energy Supply, and Law Enforcement and Public Safety. The Department's 
participation in these efforts includes input related to the activities 
of FEMA.
    Question 3b. What input are you having with respect to the 
activities of the Corps of Engineers?
    Answer. As noted, the Department is actively engaged in several 
interagency post-hurricane review efforts, and our input relates in 
part to all of our federal partners, including the Corps of Engineers. 
The Department is a major supporting agency of Emergency Support 
Function (ESF) 3, Public Works and Engineering, for which the Corps of 
Engineers is the lead agency. At the present time, 187 Department of 
the Interior personnel are deployed under ESF-3, including personnel 
from the Bureau of Reclamation, Bureau of Land Management, Bureau of 
Indian Affairs, Fish and Wildlife Service, National Park Service, 
United States Geological Survey, Minerals Management Service, and 
Office of Surface Mining.
    Question 3c. Do you view the hurricane response as largely a FEMA 
and Corps effort or does the Department also have a role to play?
    Answer. FEMA is the primary federal agency responsible for 
responding to the hurricanes. The Department of the Interior has had a 
significant role in assisting that response, with every Interior bureau 
participating. Although The Department of the Interior is not a lead 
agency for any of the Emergency Support Functions under the National 
Response Plan (NRP), several thousand Interior employees have directly 
participated in the hurricane response efforts, primarily under the NRP 
framework. The Department of the Interior has provided substantial 
support to ESF-3 (Public Works and Engineering), ESF-4 (Firefighting), 
ESF-10 (Oil and Hazardous Materials Response), ESF-11 (Agriculture and 
Natural Resources), ESF-13 (Public Health and Safety). While the 
Department of the Interior's deployment fluctuated day-to-day, our peak 
deployment included over 2,300 personnel. At the present time, 
approximately 284 personnel are deployed.
    Question 4. What role is the Department playing in shaping the 
Administration's proposed legislation relating to hurricane relief?
    Answer. The Department fully participated in the development of the 
reallocation request transmitted by the President on October 28, 2005.
    Question 5. Do you think there is any need for Federal dollars for 
land acquisition in the aftermath of Hurricane Katrina and Rita?
    Answer. At this time, the Department is not aware of a need for any 
land acquisition arising from the aftermath of the hurricanes.
    Question 6. The Energy Policy Act (Section 342(j)) provides the 
federal government with a new opportunity to help low-income energy 
consumers. The section authorizes you to provide royalty natural gas to 
low-income consumers at a reduced price and is intended to supplement 
the LIHEAP program. You have significant discretion in implementing 
this royalty gas program. Have you developed a plan that can help low-
income consumers this winter? Are you consulting with consumer 
representatives and the state agencies that implement the LIHEAP 
program?
    Answer. Immediately following enactment of the 2005 Energy Policy 
Act, the Minerals Management Service began exploring ways to implement 
section 342(j) of the Act. The Department's Office of the Solicitor 
determined, after discussions with the Office of Management and Budget, 
your staff, and the Majority staff, that the provision provides 
authority only for an access preference. It does not provide Interior 
with the authority or discretion to receive less than fair market value 
for the royalty gas or oil. We are still reviewing the possibility of 
implementing an access preference. No final determination has been 
made.

                      IMPLEMENTATION OF EPACT 2005

    Question 1. Please describe your actions in implementing EPACT 
2005. Can you share with us a timetable for implementation of the 
provisions for which the Department has responsibility?
    Answer. The Department has taken several actions in implementing 
the Energy Policy Act of 2005.
    Section 210--Biomass: BLM updated the Biomass Utilization Strategy 
in July 2005 and completed a Biomass joint work plan with the Forest 
Service on September 23, 2005. A Biomass Use Grant Application Form has 
also been jointly developed with the Forest Service.
    Section 221-237--Geothermal: BLM issued interim guidance on October 
7,2005 (1M 2006-009) for processing geothermal lease nominations 
received prior to enactment of the Act and prior to the completion of 
new geothermal rulemaking. MMS is developing regulations to comply with 
statutory requirements changing the methodology for geothermal 
valuation and simplifying the valuation calculations, both for direct 
use and electricity generation. A Geothermal Workshop was held on 
October 17-19, 2005 in Reno, Nevada to address geothermal issues and 
establish assignments for the rulemaking effort.
    Section 331--Naval Petroleum Reserve No.2 Transfer to DOI: The 
transfer of jurisdiction of NPR-2 (California) from DOE to BLM was 
effective the date of enactment of the Act and a BLM News Release was 
issued on August 10, 2005 regarding the transfer. A Notice to all 
lessees and permittees was mailed on September 15, 2005. Federal 
Register Notice of Intent to amend the BLM land use plan for the 
National Petroleum Reserve Number 2 transfer was published on September 
26, 2005. MMS has obtained copies of all of the leases to be 
transferred from the Department of Energy to DOI, contacted all of the 
current oil and gas companies to inform them of the reporting and 
payment requirements, and begun the process of collecting, accounting 
for, and disbursing the revenues from these leases.
    Section 343--Marginal property production incentives: MMS is 
working on a proposed rule prescribing specific categorical standards 
and requirements for, and the extent of royalty relief for, marginal 
properties on the Outer Continental Shelf.
    Section 344--Deep gas production incentives: MMS is drafting a 
proposed rule that would create a royalty suspension volume of 35 BCF 
for gas production from ultra deep (more than 20,000 feet subsea) wells 
on shallow water leases in the Gulf. By statute, regulations issued 
will be retroactive to the date of the proposed rulemaking.
    Section 345--Deep water royalty relief: The relief specified in the 
Act has been and will be included in lease documents for lease sales in 
the Gulf of Mexico occurring during the 5-year period beginning the 
date of enactment of the Act.
    Section 346--Alaska Offshore Royalty Suspension: MMS is drafting a 
proposed rule that would adopt for eligible leases offshore Alaska the 
existing evaluation structure used for making pre-production royalty 
relief determinations on deep water leases in the Gulf of Mexico to 
promote development and increase production.
    Section 348--North Slope Science Initiative: The Charter for the 
North Slope Science Technical Advisory Panel was approved by the 
Secretary on September 2, 2005 and a Federal Register Notice calling 
for nominations to the Advisory Panel was published on September 12, 
2005. The call for nominations closed on October 27, 2005.
    Section 350--Tar Sand Rule: The Tar Sand Rule was published in the 
Federal Register on October 7, 2005. The Interim Final Rule will 
provide for separate tar sand leases and oil and gas leases in special 
combined hydrocarbon leasing areas.
    Sections 353--Gas hydrate production incentives: MMS is developing 
a proposed rule that would allow the Secretary to grant royalty relief 
on a case specific basis if the Secretary determines that such royalty 
relief would encourage production of natural gas from gas hydrates on 
an eligible lease.
    Section 357--Outer Continental Shelf Inventory: MMS is conducting 
an inventory and analysis of the oil and gas resources beneath the 
waters of the OCS.
    Section 365--Oil and Gas Pilot Offices: BLM is implementing a pilot 
project to better coordinate APD processing. The BLM has entered into a 
Memorandum of Understanding with the Fish and Wildlife Service, Bureau 
of Indian Affairs, Army Corps of Engineers, Environmental Protection 
Agency, and United States Forest Service to provide staff and expertise 
to better coordinate activities in order to improve efficiency while 
maintaining environmental protection. The pilot offices will be 
aggressive and innovative in finding better and more efficient ways to 
manage the oil and gas program and within 18 months, we will have 
identified best management practices that can be implemented bureau 
wide. New money from rental revenue in FY 2006 and FY 2007 will help 
BLM accomplish this task. With more efficient processes and additional 
funds, we anticipate BLM could process more than 10,326 permits in FY 
06 and 12,150 permits in FY 07.
    Section 366--APD Processing Timeframes: BLM issued interim guidance 
(IM 2005-235) on September 15, 2005 regarding the APD processing 
timeframes required by the Act. These processing timeframes will be 
incorporated into a reissuance of Oil and Gas Onshore Order # 1. 
Onshore Order # 1 will be published as a Further Proposed Rule in the 
Federal Register in the near future.
    Section 368--Joint Designation of Corridors: The Department of 
Energy, the Department of the Interior's Bureau of Land Management, and 
the Department of Agriculture's Forest Service (the Agencies) will 
prepare a Programmatic Environmental Impact Statement (PETS) to 
evaluate issues associated with designation of energy corridors on 
federal lands in eleven Western states. The public scoping period 
started with the publication of a Notice of Intent in the Federal 
Register on September 28, 2005 and will continue for 60 days after 
publication in the Federal Register. Public scoping meetings were held 
in each of the eleven Western States beginning on October 25, 2005 and 
completed on November 4, 2005. A website has been established for this 
Programmatic EIS at www.corridoreis.anl.gov.
    Section 369--Oil Shale R&D: BLM received 20 nominations for oil 
shale Research and Development leases and issued a News Release on 
September 20, 2005 regarding the nominations received in Colorado, Utah 
and Wyoming. A Review Team has been designated to review the 
nominations and provide recommendations for oil shale R&D leases.
    Section 384--Coastal Impact Assistance Program: MMS is working on 
guidelines, and developing the organizational capabilities required to 
effectively and efficiently administer the Coastal Impact Assistance 
Program, including the methodology to determine the share of funds 
allocated to each state and coastal political subdivision.
    Section 388--Alternate energy-related uses on the Outer Continental 
Shelf: The program required to implement the statutory provisions is 
under development. As the lead Federal licensing agency for the Cape 
Wind Energy project, MMS is reviewing the Project's application and 
environmental documentation for completeness in light of our broader 
responsibility to regulate the Project's full spectrum of activities 
(e.g., construction, operations, and decommissioning). Additionally, 
MMS is working with the State of Massachusetts and other cooperating 
agencies (such as the U.S. Army Corps of Engineers, Environmental 
Protection Agency, Coast Guard) to ensure that their permitting needs 
are being adequately addressed. Also included in this Section is the 
requirement to coordinate a digital mapping initiative for the OCS. MMS 
has drafted a preliminary implementation plan and is working with 
appropriate member agencies of the Federal Geographic Data Committee. 
MMS is building a full business plan in order to effectively implement 
the statutory requirements.
    Section 390--Oil and Gas NEPA Review (Categorical Exclusions): The 
BLM issued interim guidance (IM 2005-247) on September 30, 2005 to BLM 
Field Offices for implementation of the NEPA rebuttable presumption 
categorical exclusion provisions of Section 390 of the Energy Policy 
Act of 2005. The IM also provides guidance for improved NEPA compliance 
for oil and gas activities.
    Section 432--Repeal of the 160-Acre Limitation for Coal Leases: 
Interim guidance was issued to BLM Field Offices on coal lease 
modifications on September 30, 2005 (IM 2006-004) which increases the 
limitation for coal lease modifications from 160 acres to 960 acres.

                     ONSHORE OIL AND GAS PRODUCTION

    Question 1. How many APD's have been granted during fiscal year 
2005? Please provide this information by month and by state, if 
possible. On how many of these APD's has drilling occurred? If drilling 
has not occurred, why not, and can you recommend actions that can be 
taken to facilitate this production?
    Answer. In FY 2005, the BLM processed approximately 7,736 APDs and 
approved 7,018.

                                                     FY 2005
----------------------------------------------------------------------------------------------------------------
                                                   APDs       APDs       APDs       APDs    New Wells  New Wells
                     State                       Received   Approved   Rejected  Processed   Spudded   Completed
----------------------------------------------------------------------------------------------------------------
AK............................................        8          8          0          8          3          3
CA............................................      235        232          3        235        220         69
CO............................................      605        608         30        638        334        260
ES............................................      136        110          8        118         58         45
MT............................................      451        425         29        454        226        229
NV............................................        9         10          2         12         10          3
NM............................................    1,619      1,475         95      1,570        975      1,003
UT............................................    1,245        770         16        786        553        455
WY............................................    4,043      3,380        535      3,915      2,303      1,075
                                               -----------------------------------------------------------------
    Total.....................................    8,351      7,018        718      7,736      4,682      3,142
----------------------------------------------------------------------------------------------------------------

    The BLM is not always aware of why an applicant requests a permit 
and then does not drill.
    Question 2. I understand some onshore oil and gas leases have 
stipulations that restrict certain activities on a seasonal basis. Can 
you please characterize these stipulations and explain the need for 
seasonal closures? Is there a process for obtaining an exception from 
these stipulations? If so, please describe. How often are such 
exceptions granted? Can you please provide the Committee data for each 
of the past five years from selected BLM field offices (such as 
Pinedale, Wyoming, and Farmington, New Mexico) regarding the number of 
exceptions requested and the number of exceptions that were granted or 
denied?
    Answer. Many of the BLM's Resource Management Plans have identified 
environmental protection requirements that are attached to leases 
before the leases are issued. These lease stipulations are major or 
moderate limitations placed on the lease in order to protect important 
resource values such as winter habitat for wildlife species, steep 
slopes that cannot be reclaimed, and fragile wetlands. A typical lease 
stipulation may require that an operator not drill a new well from 
November 15 to March 15 in order to protect critical sage-grouse winter 
habitat.
    The BLM regulations in 43 CFR 3101.1-4 outline the general process 
for obtaining an exception, waiver, or modification of lease 
stipulations. Individual land use plans identify the criteria for 
granting exceptions, waivers, or modifications to lease stipulations. 
The Bureau typically grants exceptions to these lease stipulations when 
the protected resource is not present in the area(s) affected, or if 
the impact would be minor and not seriously affect the protected 
resource, or if additional on or off site mitigation would reduce the 
negative impacts to acceptable levels. The number of exceptions, 
waivers, and modifications approved each year by the Bureau is not 
tracked and is not known. The BLM will research this information and 
provide an approximate number to the Committee once available.
    Question 3. What actions are you taking to ensure that while you 
are increasing activity relating to oil and gas production from public 
lands, other important aspects of BLM's mission to administer public 
lands for multiple-uses (grazing, recreation, fish and wildlife, etc.) 
are not being adversely impacted?
    Answer. The BLM endeavors to balance the energy needs of the nation 
while sustaining the health, diversity, and productivity of the public 
lands. BLM has recently taken specific actions to help ensure increased 
oil and gas activity does not adversely impact the other resources BLM 
manages as part of its multiple use mission. BLM has identified many 
environmental Best Management Practices (BMP) for conducting oil and 
gas operations in an environmentally responsible manner. BLM policy 
requires that field offices consider appropriate BMPs in every drilling 
permit approval. BLM has also produced a new handbook for the oil and 
gas operator, referred to as the Gold Book. The Gold Book provides 
instructions for implementing many of these environmentally improved 
practices. Both the BMPs and the Gold Book can be found on BLM's BMP 
website at www.blm.gov.bmp.

                      Questions From Senator Akaka

    Question 1. In your testimony you reported that there were no lives 
lost and no major oil spills from oil rigs on the Outer Continental 
Shelf. This is very good, given the Category 5 status of the 
hurricanes, but it is also important--for us to learn how to protect 
our workers and infrastructure in the future.
    What are your ``lessons learned'' for secure oil and gas drilling 
platforms in the Gulf? What percentage were damaged enough to stop 
production? Assuming we are looking toward ultra-deep drilling, are 
there additional safety or structural standards you would suggest for 
the future? To what do you attribute the success on personal safety and 
oil platform stability?
    Answer. It was confirmed that the offshore oil and gas industry 
produces environmentally safe energy for America. All subsurface safety 
valves held on the OCS resulting in no significant spill from 
production. We learned that facilities constructed to meet MMS's 1988 
updated design standards fared much better than their older 
counterparts. Only one deep water platform (Typhoon) and four platforms 
in shallow water built under the 1988 standards for manned platforms 
were destroyed. The Typhoon incident is under investigation to 
determine the circumstances of its destruction.
    Post Hurricane Ivan, the Department recognized that Mobile Offshore 
Drilling Units (MODUs) were vulnerable to breaking loose of their 
moorings in extreme hurricane conditions and therefore, began to study 
how best to remedy this issue. Post Hurricane Rita it was reported that 
nineteen MODUs broke loose from their moorings and were set adrift 
damaging pipelines as anchors dragged along the ocean floor. To address 
this issue, the Secretary has called for a conference on MODUs to be 
held at the Department on November 17, 2005.
    In preparation of the approaching hurricanes, production was shut 
in and personnel were evacuated. At the peak of Hurricane Katrina, 95 
percent of Gulf of Mexico oil and 88 percent of natural gas was shut 
in. Hurricane Katrina destroyed 47 platforms and 4 drilling rigs; 
extensively damaged 20 platforms and 9 drilling rigs. At the peak of 
Hurricane Rita, 100 percent of daily oil and 80 percent of daily gas 
production was shut in. Hurricane Rita destroyed an additional 66 
platforms and 4 drilling rigs; extensively damaged 32 platforms and 10 
drilling rigs. As of November 3, 2005, 52.7 percent of daily oil 
production and 47.27 percent of the daily gas production in the Gulf 
remain shut in; 25.27 percent (207) of manned platforms remain 
evacuated. Industry continues to assess damage and make repairs to 
offshore facilities.
    Question 2. Does the Minerals Management Service set standards for 
oil rigs on the Outer Continental Shelf, or does industry set the 
standards?
    Answer. Ninety-five industry standards are incorporated by 
reference into the OCS operating regulations. These standards are 
supplemented with additional regulations which are drafted and 
promulgated by MMS. The 1996 National Technology Transfer and 
Advancement Act (NTTAA) directed Federal agencies to achieve greater 
reliance on voluntary standards and standards-developing organizations 
by participating in developing voluntary standards. Operators must 
comply with all industry standards that are incorporated into MMS 
regulations and any additional requirements promulgated by MMS. 
Operators also have the option to use alternative standards or 
procedures if they can demonstrate to MMS that such practices provide a 
level of safety and environmental protection that is equivalent to or 
greater than that provided by complying with MMS regulations.

                     Questions From Senator Corzine

    Question 1. As you know, this committee just passed its portion of 
the reconciliation bill, which opens the Arctic National Wildlife 
Refuge to drilling. I am strongly opposed to drilling in ANWR, but what 
concerns me most about the language is that it does not even afford 
ANWR the same environmental protections afforded to every other 
wildlife refuge or public land that is currently open to oil and gas 
development.
    If we are to open ANWR, a controversial policy decision to begin 
with, doesn't it make sense to at least ensure that it is protected 
with the same laws that protect other wildlife refuges?
    Answer. This Administration is committed to stringent regulation of 
oil and gas development in ANWR. We will require the best available 
commercial technology for oil and gas exploration, development, and 
production in the 1002 Area. We are also committed to the standard that 
oil and gas exploration, development, and production activities in the 
1002 Area will result in no significant adverse effect on fish, 
wildlife or their habitat, subsistence resources, and the environment. 
We will ensure that this standard is met, or no development will take 
place. Finally, we will also require that lessees restore the area, 
both as activities proceed and when production is finally shut down.
    Question 2. Some have proposed opening the OCS to natural-gas-only 
leasing. Such proposals ignore the regional nature of routine marine 
discharges and other impacts resulting from normal exploratory drilling 
for oil or gas, and from day-to-day discharges from production 
platforms. Do you think that opening the OCS to natural-gas-only 
leasing is a good policy?
    Answer. The Department has begun its two year process of developing 
the 2007-2012 leasing program. Natural gas only leasing is an issue the 
Department sought comments on in its initial request for information. 
The public comment period for the leasing program has closed. We will 
consider all comments received during the development of the draft 
proposed 5-year leasing program.
    Question 3. Can you guarantee that if drilling were allowed on the 
Outer Continental Shelf areas currently under moratoria, these areas 
would be 100 percent safe from oil spills? Is the current technology 
foolproof?
    Answer. Hurricanes Katrina and Rita confirmed that our offshore oil 
and gas industry produces environmentally safe energy for America. Even 
in the face of two back-to-back major hurricanes, all subsurface safety 
valves held on the OCS and there was no significant spill from 
production.
    Question 4. I am disappointed that the House Resources Committee's 
portion of the House reconciliation bill includes not only drilling in 
ANWR, but also includes a provision allowing states to opt out of the 
decades-old federal moratorium on new offshore drilling. If a state 
such as Virginia decides to opt out of the moratoria, how do you 
propose that we protect the coastlines of nearby states, such as New 
Jersey, should an accident occur?
    Answer. The Oil Pollution Act of 1990 provides resources for 
response teams and equipment should an incident occur. From an 
environmental standpoint, OCS natural gas production ranks favorably in 
comparison, say, to imported oil, which increases tanker traffic into 
U.S. waters and often comes from countries with less stringent 
environmental requirements. As to OCS oil production, the record 
reveals that the risk of an oil spill has decreased over each of the 
past three decades and is about 6 or 7 times less than the risk posed 
by tankered imports. Although the trend is improving for both sources, 
based upon the data for the period 1985--2001, for every billion 
barrels transported, worldwide tankers spill about 53,000 barrels, 
whereas OCS production loses about 8,000 barrels for every billion 
barrels produced. For the most recent decade the OCS rate was down to 
6,500 per billion barrels. Of note, according to a recent National 
Academy report, natural seeps of oil from underground accumulations 
emit 150 times more oil into the North American ocean environment than 
U.S. OCS production.

                     Questions From Senator Salazar

    Question 1. If Congress and DOI opened up the Arctic National 
Wildlife Refuge and lease area 181 to production tomorrow, we would 
still be years away from that oil and gas hitting the market. While I 
am not opposed to working on the supply side of the equation, I believe 
that now is the time to address the demand side of the equation. Energy 
efficiency and conservation are the options that have the ability to 
offer some measure of relief to Americans in the near term.
    What has been the time line in the past for getting production up 
and running once an offshore area has been leased? Assuming lease area 
181 is fully leased by the end of FY07, when would the additional 
supply of natural gas reach the market? And how would it affect price?
    Answer. It takes an average of five years for production to come on 
line in areas where infrastructure exists.
    Question 2. The Energy Policy Act (Section 342(J)) provides the 
federal government with a new opportunity to help low-income energy 
consumers. The section authorizes you to provide royalty natural gas to 
low-income consumers at a reduced price and is intended to supplement 
the LIHEAP program. You were given significant discretion in 
implementing this royalty gas program. On September 12th I sent you a 
letter requesting you to establish a pilot program in Colorado based on 
this provision. Have you developed a plan that can help low-income 
consumers this winter? Are you consulting with consumer representatives 
and the state agencies that implement the LIHEAP program?
    Answer. Immediately following enactment of the 2005 Energy Policy 
Act, the Minerals Management Service began exploring ways to implement 
section 342(j) of the Act. The Department's Office of the Solicitor 
determined, after discussions with the Office of Management and Budget, 
the Majority staff, and the Minority staff, that the provision provides 
authority only for an access preference. It does not provide Interior 
with the authority or discretion to receive less than fair market value 
for the royalty gas or oil. We are still reviewing the possibility of 
implementing an access preference. No final determination has been 
made.
                                 ______
                                 
                              Department of Energy,
               Congressional and Intergovernmental Affairs,
                                  Washington, DC, January 25, 2005.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: On October 27, 2005, Samuel Bodman, Secretary, 
testified regarding hurricane recovery efforts related to energy and to 
discuss energy policy.
    Enclosed are the answers to 93 questions that were submitted by 
you, Senators Talent, Bunning, Bingaman, Akaka, Cantwell, Corzine, and 
Salazar to complete the hearing record.
    If we can be of further assistance, please have your staff contact 
our Congressional Hearing Coordinator, Lillian Owen, at (202) 586-2031.
            Sincerely,
                                             Jill L. Sigal,
                                               Assistant Secretary.
[Enclosures.]

                    Questions From Senator Domenici

    Question 1. Some have argued that Strategic Natural Gas Reserve 
should be considered a potential policy solution. Given the current 
high prices for natural gas and tight market for supplies, what do you 
think of such a policy? Likewise, what are the Administration's 
thoughts about a Strategic Refined Products reserve?
    Answer. There are significant complex issues associated with the 
establishment of a Strategic Natural Gas Reserve. All of these issues 
are being carefully considered by the Administration.
    Question 2. What is the Administration's position on a windfall 
profit tax?
    Answer. The Administration would oppose imposition of a windfall 
profit tax. The nation's last experience with a windfall profit tax 
proved to be counterproductive. The tax discouraged investment in 
domestic oil production and distorted oil markets. If we were to re-
establish a windfall profit tax, the U.S. would not be competitive in 
the world's energy markets and needed energy infrastructure investment 
would be discouraged. As a result the U.S. would experience reduced 
energy supplies, higher energy prices and lower economic growth. It 
would represent an about-face from the Energy Policy Act of 2005 that 
established policies to encourage development of domestic energy 
resources and ensure adequate and reliable supplies of energy.
    Question 3. Yesterday [October 26], the Environment and Public 
Works Committee had a tied 9 to 9 vote on the Inhofe Refinery Bill [S. 
1772]. The Inhofe bill was a more modest approach to refiner expansion 
than the Barton bill [H.R. 3893]. What do you think of the two 
approaches and what do you think if will take to get refinery expansion 
in the U.S.?
    Answer. The Administration understands the need to expand refinery 
capacity in this country. We supported House passage of H.R. 3893 and 
commended the House for proposing steps to address the Nation's 
critical need for additional refining capacity and fuel supply. While 
the Administration has not developed a Statement of Administration 
Policy for Senator Inhofe's legislation, EPA did state in testimony 
before the Committee on Environmental and Public Works that ``We 
believe S. 1772 takes several important steps in the right direction by 
including provisions to streamline refinery permitting requirements and 
expand refinery capacity in the U.S.'' EPA further said that the 
Administration looked forward to working with Congress as it considers 
the bill.
    We should be encouraged by several refinery expansions that have 
been announced by industry including those by Marathon, Exxon, Valero, 
Sunoco and other U.S. refiners.
    Question 4(a). In 2000, the Northeast Home Heating Oil Reserve was 
established and today it holds 2 million barrels of heating oil. Last 
week, there was what is defined in the Energy Policy and Conservation 
Act as a ``dislocation in the heating oil market'' and there were calls 
for release from the Heating Oil Reserve.
    Do you think the present situation calls for this kind of action? 
Are storage numbers so inadequate that we need to turn to our emergency 
supplies right now?
    Answer. The Northeast Home Heating Oil Reserve (NEHHOR) was created 
to provide a short-term supplement to the Northeast systems of private 
supply of heating oil in the event of an actual or imminent severe 
regional supply interruption.
    Although prices are high and the price differential that is an 
indicator of an anomaly in the markets for crude and heating oil and 
crude oil was reached, the President must use his discretion to 
determine whether conditions--i.e. a supply disruption--warrant 
drawdown of the Reserve. The heating season has just begun and there is 
adequate supply available.
    Administration policy is to preserve the inventory of the NEHHOR 
until an event is likely to or does interrupt supply, thereby causing a 
supply disruption.
    Question 4(b). What can we expect of prices later in the winter if 
the heating oil reserve is tapped now?
    Answer. The NEHOR was designed to address an imminent or actual 
supply disruption, not to manage prices. It is impossible to tell what 
may happen to prices later in the winter, since this is largely 
dependent on the weather. No supply shortage exists now.
    Question 5(a). Section 1221 of the Energy Bill, Siting of 
Interstate Electric Transmission Facilities, requires the Secretary of 
Energy to complete a study within one year of enactment of EPAct 2005, 
that designates geographic areas experiencing electric energy 
transmission capacity constraints or congestion that adversely affects 
consumers as a ``national interest electric transmission corridor.'' My 
understanding is that once a ``national interest electric transmission 
corridor'' is designated, Federal backstop siting authority becomes 
available to facilitate construction of transmission in those 
corridors. I'm interested in hearing your approach toward implementing 
this important section of the Energy Bill.
    Do you anticipate that DOE will designate these corridors as wide 
as possible in order to relieve as much congestion and save consumers 
as much money as soon as practicable?
    Answer. In most cases, there are several alternative ways to 
mitigate transmission congestion. Choosing which option to pursue 
primarily is a business decision. We believe that the Energy Policy Act 
of 2005 provides a vehicle to designate corridors in a balanced manner 
without predetermining such business decisions.
    Question 5(b). Do you anticipate that DOE will phase its findings 
to designated easily identified corridors as quickly as possible and 
fine tune the analysis as the year progresses?
    Answer. The basis for designating an area as a corridor will have 
to be technically strong, and the process for evaluating and selecting 
such areas should provide many opportunities for dialogue with affected 
parties. It will be important to do this with some care, so that 
states, local governments, industry, and stakeholders have ample 
opportunities to participate in the process.
    Question 5(c). Do you anticipated needing additional support or 
help from others to implement and complete this directive as quickly as 
possible?
    Answer. We intend to work cooperatively with industry, appropriate 
State agencies, and others to implement this work.
    Question 6. As of October 14, the EIA reported that natural gas 
storage was a little over 3 trillion cubic feet. This represents a net 
increase of 75 billion cubic feet from the previous week and an 
increase of 53 billion cubic feet above the 5-year average. Despite the 
weekly increases and above average storage numbers, we are seeing 
record high natural gas prices. What do you think it will take to cool 
these prices and what is the level of protection that this level of 
storage provides compared to other years?
    Answer. The most productive steps to increase natural gas supplies 
for the coming heating season are to facilitate the prompt return to 
operation of storm-damaged production facilities, including production 
platforms, gathering pipe networks, gas processing facilities, and gas 
transmission lines. All of this work has been started and some of it 
has been completed. For example, we anticipate that a new gas pipeline 
by Duke Energy Gas Transmission will by-pass a gas processing plant 
severely damaged in the Gulf storms and route production to an 
operational gas processing plant. This new segment, scheduled for 
operation before December 1, and gains by other producers, will add 700 
million cubic feet of gas per day. The relatively high-levels of 
natural gas in storage also provides assurance that the winter-heating 
market will be served. However, we expect that prices will be 
significantly higher than normal. EIA projects that the average U.S. 
household will spend about $350, or 48%, more this winter if they use 
natural gas.
    In order to bring down prices in future winter seasons we need to 
increase domestic gas production and increase the efficiency of gas use 
(increased use of condensing gas furnaces, improved building insulation 
and improved industrial efficiency are prominent ways to do this). 
Increased gas production could be accomplished by providing new access 
to areas of the Outer Continental Shelf currently off limits due to 
prior Presidential withdrawal and Congressional moratoria on those 
parts of the OCS. We can also increase imports of natural gas by 
helping to foster the emerging global trade in LNG, and by facilitating 
construction of the Alaska natural gas pipeline to bring that stranded 
gas to market.
    Question 7. Can you please give us a report of the progress to date 
by Energy, Interior, Agriculture and CEQ on the report required at the 
end Section 1221 transmission corridors on federal Lands? The report is 
due to Congress by November 6.
    Answer. The Bureau of Land Management and the Forest Service 
requested their field offices to provide the data needed to prepare 
this report. That data has been delivered and the report is in 
preparation. We expect to deliver the report no later than November 21, 
2005.
    Question 8. What can we expect to see in DOE'S Economic Dispatch 
report required under Section 1234 of the Energy Bill? Will DOE provide 
recommendations to Congress and the States for legislative or 
regulatory changes?
    Answer. The report will provide useful information about procedures 
currently used by electric utilities to perform economic dispatch in 
different sectors of the U.S. electricity industry and identify 
possible revisions to these procedures.
    Question 9. If Congress appropriates funds to the rebuilding of 
transmission in the Hurricane impacted regions, should non-
discriminatory access to the grid be required to assure that ratepayers 
are best served by available resources?
    Answer. Administration policy generally supports efforts to provide 
open access to the interstate transmission grid for all entities 
seeking transmission service. In this regard, portions of those systems 
in hurricane impacted regions subject to FERC regulation are required 
by the Federal Power Act to provide open access to the grid.
    Question 10. Considering the recent spikes in natural gas prices 
which were magnified by the hurricanes, what can the DOE do to 
encourage the most economic and efficient use of natural gas plants are 
used in dispatch systems?
    Answer. The economic dispatch study will give useful information to 
FERC and the States for use by the four joint boards on economic 
dispatch created under Section 1298 of the Energy Policy Act. In 
general terms, improving current practices with respect to economic 
dispatch will result in savings from the substitution of lower-cost 
fuel and the substitution of more efficient generation.
    Question 11. On the subject of hurricane recovery, I would like to 
know if the Department is providing any building efficiency assistance 
or advice to state and local authorities so that residential and 
commercial building stocks can be replaced with buildings of much 
higher efficiency both in terms of construction and heating and air 
conditioning.
    Answer. As the communities devastated by Hurricanes begin to 
rebuild, the U.S. Department of Energy is working to encourage cost-
effective, durable, and energy-efficient building reconstruction. The 
Office of Energy Efficiency and Renewable Energy is partnering with the 
State Energy Offices in the affected States to encourage a broad 
regional exchange of information and best practices on building 
technologies. The Department and the States are also partnering with 
the National Association of State Universities and Land Grant Colleges 
which includes local universities and local extension services.
    The Department is also working with its ENERGY STAR retail, 
manufacturer, utility, and State partners to reach out to homeowners 
and building contractors through training workshops. In addition to 
promotion of ENERGY STAR for New Homes, we are working with ENERGY STAR 
partners to expand and market their training programs to include DOE's 
state-of-the-art information.
    Question 12. Title XVII, the Incentives Title, is intended to 
encourage the development and Deployment of highly innovative energy 
technologies. Congress has given the Department significant 
responsibility in the selection of technologies for support under Title 
XVII. Can you please tell the Committee how you intend to develop a 
program to implement the Title and how long that might take?
    Answer. Title XVII of the Energy Policy Act of 2005 authorizes DOE 
to provide loan guarantees for renewable energy systems, advanced 
nuclear facilities, coal gasification, carbon sequestration, 
refineries, energy efficiency, and many other types of projects that 
use improved technologies in commercial projects that enhance energy 
economy and reduce emissions of pollution and greenhouse gases. The 
Department is assessing procedures needed to comply fully with the 
provisions of the Federal Credit Reform Act and OMB Circular A-129 The 
Department's Chief Financial Officer is heading up our efforts in 
consultation with the energy and science program offices, the Office of 
the General Counsel, the Office of Policy and International Affairs, 
and others. The Department has not developed a specific timetable for 
completing these activities.
    Question 13. The Energy Bill codified a number of new efficiency 
standards for commercial and consumer products. However, there are also 
a large number of efficiency standards under development at the 
department, some of which have fallen well short of the intended 
implementation dates. Can you tell the Committee what you intend to do 
to move this process forward?
    Answer. The Department is reviewing and implementing process 
improvements to its appliance standards program that are already 
contributing to increased productivity. Even as the Department moves 
quickly to implement the new requirements of EPACT 2005, we are 
committed to bringing all appliance standards activities into 
compliance. Recent results include the publication of a final rule in 
the Federal Register on October 18, 2005, and codifying the standards 
in the Energy Policy Act of 2005 in the Code of Federal Regulations. On 
November 15, 2005, DOE will hold a public meeting to receive public 
comment on appliance standards scheduling issues. After receipt of 
those comments, the Department will draft its appliance standards 
scheduling plan and provide this plan, including process improvements, 
to the Congress. The initial report, required by section 141 of the 
Energy Policy Act of 2005, is expected to be submitted to Congress in 
February 2006.
    Question 14. DOE has been trying to facilitate discussions among 
industry stakeholders and other interested parties regarding 
electricity infrastructure rebuilding for hurricane damaged areas. Can 
you tell us about those meetings? Also, how do you think any funds 
allocated by Congress to these areas for energy infrastructure should 
be monitored to ensure ratepayers as well as taxpayers are best served? 
I have seen letters from transmission dependent utilities, like the 
Lafayette Utilities System, that have suggested they and other 
transmission dependent utilities would be interested in investing on 
the Entergy system rebuilding efforts. How do you think such private 
funding for rebuilding efforts should be treated?
    Answer. At the request of Entergy Corporation, DOE has facilitated 
discussions among experts from the national laboratories, universities, 
and utilities to share insights and experiences regarding the 
restoration of electricity delivery systems. These discussions are 
intended to: (1) assemble technical information about the impact of 
recent hurricanes on the Gulf Coast; (2) identify ways that advanced 
technologies could be deployed in a cost effective manner to improve 
the reliability of the system, mitigate future disruption, and improve 
restoration time; and (3) build channels for effective coordination and 
communication between the affected utilities and various experts.
    Administration policy generally supports efforts to provide open 
access to the interstate transmission grid for all entities requiring 
transmission service.

                     Questions From Senator Talent

    Question 1. Secretary Bodman, EIA data show U.S. natural gas 
production increasing from 19.2 trillion cubic feet in 2000 to 21.8 Tcf 
in 2025, but demand growing much faster, from 21.5 Tcf to 30.7 Tcf over 
the same time period. So we need to make up nearly 9 Tcf of natural gas 
over the next 20 years. It seems to me that it will be difficult to 
make up that difference even with a dramatic increase in LNG imports. 
a) Can you update me on the status of adding LNG facilities and the 
number that would be needed to meet the projected demand growth? b) Is 
this likely to be achievable through LNG alone? c) If not, that means 
we would need to tap into North American supplies, correct? d) What 
areas, onshore or offshore, hold the most promise, and which of those 
areas are the easiest to access, both in terms of readily available 
pipeline and processing infrastructure and in terms of the ease of 
overcoming any legal impediments to exploration and development?
    Answer. Currently there are five LNG regasification terminals in 
the U.S. with a combined capacity of 1.5 Tcf/yr. An additional 5.8 Tcf/
yr of capacity has been approved by FERC or the Coast Guard at 12 
terminals, although it is not clear that all of the projects will 
ultimately be constructed. Together, Canada and Mexico have approved 
five terminals, with combined capacity of 1.9 Tcf/yr, some of which 
could supply U.S. needs. Proposals for 20 additional terminals/
expansions with an aggregate 9.6 Tcf of regasification capacity are 
before FERC and the Coast Guard.
    Depending on the utilization rates, the LNG imports projected in 
the reference case of the Annual Energy Outlook 2005 (AEO2005) by 2025 
could be accommodated with the addition of the 12 approved projects. In 
addition, net imports from Canada and Mexico are projected to satisfy 2 
Tcf of consumption in 2025. While there are abundant natural gas 
resources in the world, LNG imports into the United States would be 
limited by the ability to site regasification terminals, the level of 
world liquefaction capacity, and competition with other potential 
consumers, particularly if world oil prices remain relatively high.
    Lower import levels would be expected to result in higher natural 
gas prices, lower consumption (largely as electric generators choose 
more coal over gas), and increased domestic drilling activity and 
production, particularly onshore and from unconventional sources 
(coalbed methane, tight sands, and gas shales). Under current laws and 
regulations, unconventional sources represent about 50 percent of the 
lower-48 technically recoverable resource levels and are mainly located 
in the Rocky Mountain region. A significant portion of the total 
unconventional technically recoverable resources in the region are 
either off limits to exploration and development or subject to Federal 
lease stipulations (e.g., to protect identified resources) or 
environmental restrictions when production is allowed. While processing 
of this relatively dry gas is less of an issue, additional pipeline 
infrastructure has been added, and will continue to be needed, to bring 
the growing Rocky Mountain production volumes to market. A significant 
amount of unconventional gas resources also exist in other areas that 
are more accessible and closer to existing infrastructure.
    The National Petroleum Council (NPC) in its 2003 report on Natural 
Gas identified the Rocky Mountain and offshore Gulf of Mexico as 
containing the largest volumes of technically recoverable natural gas 
resources. The Rocky Mountain region contains an estimated 284 trillion 
cubic feet (tcf) and the Gulf of Mexico an estimated 329 tcf. Together 
these areas represent more than half of US resources outside Alaska. 
Both these producing regions contain extensive production, processing 
and transportation infrastructure that would facilitate production 
growth. A negative factor for development in both these areas is that 
production from both areas is limited by access restrictions: NPC 
estimates that 69 tcf in the Rocky Mountains and 25 tcf in the eastern 
Gulf of Mexico are off limits to production.
    Question 2. Secretary Bodman, can you tell me how the natural gas 
supply and price forecast might change over the next 3 to 5, or even 
10, years if we were to provide the coal industry with certainty 
regarding emissions, say along the lines of the Clear Skies proposal? 
Under this scenario, we'd be producing electricity through clean coal 
gasification technology as well as diesel and other transportation 
fuels using the most abundant energy resource this nation has.
    Answer. Flexibility of compliance choices, maintenance of fuel 
diversity, and the cost savings passed on to consumers through low 
electricity prices are the benefits of the approach taken in Clear 
Skies, particularly when compared with the other proposals that support 
more stringent targets, shorter compliance periods, or command and 
control regulatory approaches. Legislative enactment of Clear Skies 
will provide the certainty utilities need to build large new clean coal 
plants and incentivize efficiency at existing units, significantly 
reducing the potential for increased utility use of natural gas to meet 
demand and new air quality requirements.
    The minimal impact the Clear Skies cap-and-trade program will have 
on natural gas, coal and electricity prices will drive investment in 
clean coal generation ensuring much less competition for natural gas 
supplies between the power sector and manufacturers compared to other 
alternatives. EIA's May 2004 analysis of the Clear Skies proposal found 
that power companies would reduce their emissions by adding emissions 
control equipment to existing generators. Fuel switching from coal to 
natural gas was projected to play a relatively small role in their 
compliance strategies; coal generation is maintained under Clear Skies 
and low electricity prices are maintained.
    In addition, Clear Skies will eliminate or reduce the need to 
require further costly reductions from other industrial sectors because 
Clear Skies, coupled with EPA's proposed rule to decrease emissions 
from heavy-duty non-road diesel engines, and other existing state and 
federal control programs, will bring most of the country into 
attainment with the new air quality standards for ozone and fine 
particulate matter.
    Question 3. The energy legislation that we passed this summer 
established procedures for the Department of Energy to review our 
electricity infrastructure and to establish national interest corridors 
based on where we have the greatest need for transmission. Can you 
provide an update on the approach, progress, expectations, and 
obstacles, to establishing those corridors, as well as reactions to 
your efforts from the States and various industry sectors?
    Answer. We are in the early stages of implementing the transmission 
congestion study required by section 1221 of the Energy Policy Act of 
2005. Identifying areas of the Nation where transmission expansion 
would be of great value to the various grid systems throughout the 
Nation is a primary focus of the study. DOE expects that bringing 
attention to these areas and discussing options with the States on how 
to ease the particular problems will be of great value, even if many of 
these areas are not designated as national interest electric 
transmission corridors.
    Question 4. Curt Hebert of Entergy testified before this committee 
just a few weeks ago. He described the widespread damage to his 
company's transmission system as a result of the hurricanes. He also 
requested quite a bit of financial assistance to help rebuild the 
Entergy system. I understand there to be quite a few highly efficient 
natural gas generating units in Louisiana that, for one reason or 
another, have insufficient transmission access to allow them to be 
fully utilized. Should Entergy seek federal assistance, to what extent 
will resolving existing transmission constraints in Louisiana and 
Mississippi, rather than simply building back into the system existing 
problems, be a requirement to receive federal funding?
    Answer. Administration policy generally supports efforts to provide 
open access to the interstate transmission grid for all entities 
requiring transmission service.

                     Questions From Senator Bunning

    Question 1. I just learned of a potential hazardous condition 
regarding possible gas in the DUF6 cylinders at the Paducah plant. DOE 
claims the cylinders have been cleaned and pose no threat to the plant 
and the surrounding community. What is the DOE doing to ensure the 
safety of the Paducah plant workers and the community?
    Answer. To date, the Department has found no evidence that phosgene 
exists in these cylinders. In response to the September 30, 2005, 
Office of Inspector General's (IG) Management Alert, safety evaluations 
that consist of safety experts analysis, review of cylinder 
modification data, review of routine inspection reports, review of 
ultrasonic inspections, process knowledge, and historic process 
documentation have been completed at Portsmouth, Paducah and Oak Ridge. 
The Department's evaluation has gone so far as to explore what actions 
would need to be taken if phosgene was present. The Department has also 
performed archived document reviews to confirm whether past operational 
practices eliminated the phosgene in Model 30A Uranium Hexafluoride 
cylinders at Portsmouth, Paducah and Oak Ridge. Through the evaluation 
process, the Department has identified 43 of the 2,500 total suspect 
cylinders that do not meet all the criteria necessary to rule out the 
presence of phosgene. The Department is finalizing the disposition path 
for these 43 cylinders. The cylinders have been and will continue to 
undergo a prescriptive and rigorous monitoring and surveillance 
program.
    Question 2. I also want to thank you for continuing the former 
workers medical screening program. This is an important program for 
Paducah workers because it has saved many lives. I have had to fight 
the DOE in the past to keep this program in existence. Can I expect the 
DOE to continue this medical screening program for former workers who 
faced serious hazards from their service to their country during the 
Cold War?
    Answer. Yes. The Department of Energy (DOE) is committed to funding 
all existing regional medical screening programs, including Paducah.
    Question 3. As you know, EIA forecasts an almost 50% average 
increase in residential natural gas heating costs this winter. This 
will affect almost two million Kentucky residents who heat their homes 
with natural gas this winter. This will have a tremendous effect on 
Kentuckians' pocketbooks, particularly low-income residents who may 
have to choose between heating their homes and buying other 
necessities. What are some of the actions that could be taken 
immediately that will increase our supply of natural gas?
    Answer. Perhaps the single biggest cause of the high natural gas 
prices we are seeing today is the damage Hurricanes Katrina and Rita 
did to the crude oil and natural gas supplies coming out of the Gulf of 
Mexico. This damage is so extensive that today, more than 5 weeks after 
Hurricane Rita, natural gas supplies from the Gulf are still only about 
50 percent of what they were before the hurricanes.
    Getting these supplies of natural gas from the Gulf of Mexico back 
on-line as quickly as possible and delivered to consumers is the best 
way to increase our supply of natural gas, and moderate the high prices 
we are seeing today. This is exactly what the Administration is working 
to do. The Department of Energy is working with the Department of the 
Interior and the Federal Energy Regulatory Commission to continue our 
assessments on the extent of the damages, highlight the critical choke 
points to producing and delivering natural gas supplies, and facilitate 
repairs wherever possible. These agencies are in daily contact with 
producers, pipeline companies, and gas processing plants to track the 
progress of repairs, and to look for ways to get around those choke 
points to get natural gas moving to consumers as quickly as possible. 
For example, we anticipate that a new gas pipeline by Duke Energy Gas 
Transmission will by-pass a gas processing plant severely damaged in 
the Gulf storms and route production to an operational gas processing 
plant. This new segment, scheduled for operation before December 1, and 
gains by other producers, will add 700 million cubic feet of gas per 
day.
    Question 4. Every sector of business is feeling some crunch in 
their bottom-line from high energy prices. Many businesses are looking 
to invest more heavily in energy efficient technologies in order to 
keep their doors open in the future. Is DOE examining ways to further 
partnerships with industry to accelerate research on energy efficient 
technologies?
    Answer. The Industrial Technologies Program (ITP) is always 
adapting its research agenda to respond to evolving economic and 
business conditions. ITP performs regular peer reviews of the 
subprogram portfolios with our industrial partners, and, as a result of 
high energy prices, ITP is currently reviewing its internal research 
portfolio to better serve its stakeholders. This review includes:

          (a) Refocusing the existing portfolio toward projects which 
        will deliver more sizable energy benefits;
          (b) Reducing our investments in projects that do not 
        contribute to energy efficiency in the shorter run; and
          (c) Exploring with our partners the opportunity to expand our 
        scope to include critical industrial needs such as fuel 
        flexibility.

    Question 5. Due to the high gas prices, many other energy sources, 
such as coal, have risen in price as well due in part to high 
transportation costs. Is the Department of Energy looking into ways to 
deal with high cost transportation issues?
    Answer. Gas prices do not have a major impact on coal transport 
costs. However, transportation costs do account for a significant 
portion of the delivered price of coal. For example, 60% of the cost of 
coal that southern utilities purchase from the Powder River Basin in 
Wyoming is due to transport. For the coal they purchase from eastern 
locations such as West Virginia, the transport cost might be about 20%, 
still a significant figure. None the less, it is important to conserve 
petroleum in all uses.
    Question 6. Most of our oil and natural gas sources are situated in 
the Gulf Coast. Since Hurricanes Katrina, Rita and now Wilma, has the 
Administration looked at our need to diversify the location of our 
domestic supply? Have you seen any reluctance by businesses to continue 
their drilling operations in the Gulf Coast?
    Answer. While the Gulf of Mexico holds very significant undeveloped 
oil and gas resources, significant resources also exist in Alaska, the 
Rocky Mountain region and other off-shore areas. The Administration 
supports development of U.S. oil and gas resources in these and other 
parts of the country.
    We believe there has been no evidence of lessening industry 
interest to develop Gulf Coast oil and gas resources. While we defer to 
the Department of the Interior, we understand that industry has 
expressed great interest in recent federal lease sales as well as 
exploration, especially in deep-water areas where significant 
undeveloped resources most likely exist.

                    Questions From Senator Bingaman

    Question 1. Public Education: The Energy Information Administration 
has told us that consumers will see substantial increases their heating 
bills this winter--with natural gas consumers experiencing the worst 
increases. Over the past several weeks you have heard from me and many 
others about the importance of helping consumers to prepare for the 
winter heating costs and the need to assist those families who cannot 
afford to pay their bills. I appreciate the efforts the Department has 
made in partnership with the Alliance to Save Energy, the states and 
many corporations. Many energy companies and associations are also 
providing energy savings tips. However, as we discussed at the hearing, 
I believe we need a more aggressive and comprehensive Public Education 
campaign that includes public service ads on prime time television 
shows. The Energy Policy Act of 2005 authorizes $90 million for an 
aggressive Energy Efficiency Public Information Campaign based on the 
successful campaign used in California to reduce peak demand in 
electricity in 2001.
    While I understand that there has not yet been new funding provided 
for this program, given the increased importance of providing 
information on energy efficiency to the public, what are you doing to 
get this program up and running? What resources would you need from 
Congress in order to initiate such a campaign?
    Answer. DOE is taking a comprehensive approach to providing the 
public with information on energy efficiency and conservation to 
consumers, businesses, and government. Outreach activities utilize a 
number of distribution channels including radio, television, print 
materials, and new media avenues such as web marketing.
    Our public education campaign includes a number of efforts to 
promote efficiency through educating the public on energy efficiency 
measures. On October 3, 2005, Secretary Bodman highlighted these 
efforts by announcing Easy Ways to Save Energy which included an 
education and awareness PSA campaign partnership with the Alliance to 
Save Energy providing consumers with tools to make smart energy 
choices. The campaign also includes Phase II of the Energy Hog, an 
aggressive public education effort launched in 2004 including online, 
print, radio and television ads featuring the ``Energy Hog'', a 
character similar to McGruff the Crime Dog and Smokey the Bear. In 
addition to these consumers' efforts, DOE is helping the Federal and 
industrial sectors save energy through the assessments and 
recommendations of its energy saving expert teams.
    As the FY07 budget is developed, we are evaluating ways to continue 
to provide information on energy efficiency and conservation to the 
public, and the funds that the Department will request to do so. The 
President's FY 2007 Budget will be presented to Congress in early 2006.
    Question 2. Weatherization: DOE'S low income weatherization program 
has been an Administration priority. Like the Low Income Home Energy 
Assistance Program (LIHEAP) it targets low income consumers. But unlike 
LIHEAP, weatherization helps them save energy over the long term. The 
average reduction in energy use for a weatherized home is 25%. EPACT 
authorizes $500 million for weatherization this year but it is funded 
at less than half that level--$227 million. Shouldn't we ramp up our 
weatherization efforts now during this period of extremely high home 
energy cost? Can we expect an increase in funding for this program in 
the next supplemental--or in the FY07 budget?
    Answer. DOE cannot comment on the FY07 budget because it is still 
in development and will be presented by the President in February 2006.
    Question 3. Tax Credits: EPACT provides tax incentives for hybrid 
vehicles to reduce gasoline consumption and tax credits for energy 
efficiency improvements in existing homes, efficient new home 
construction and efficient commercial buildings will help home owners 
and businesses save natural gas and electricity. DOE and Treasury 
should be completing the guidelines for these tax incentives before 
their January 1 effective date so that consumers can take advantage of 
them this winter. I understand that DOE must prepare much of the 
analysis for Treasury to establish the rules that would give taxpayers 
the guidance to take the EE tax credits. What is the status of your 
work in this area?
    Answer. The U.S. Department of the Treasury has not yet requested 
our assistance in regard to tax incentives provided for hybrid vehicles 
in the Energy Policy Act of 2005. The Department is ready to assist 
Treasury as needed.
    In regard to tax credits for energy efficiency improvements in 
existing homes, efficient new home construction and efficient 
commercial buildings, the Department has been requested to assist, and 
is working closely with, Treasury. It is our understanding that the 
issuance of these regulations is on schedule.
    Question 4. Federal Efforts: On September 26, the President 
directed the federal government to conserve natural gas, electricity, 
gasoline, and diesel fuel to the maximum extent possible. He requested 
a report from agencies within 30 days on the fuel conservation actions 
taken--i.e. yesterday. The reports are to go through you to the 
President. What can you tell us about the federal government's efforts 
to date (or at least the Department's)? How has the effort been 
coordinated with the requirements for federal energy management that 
were updated in EPACT 2005?
    Answer. As directed by the President's September 26, 2005 
memorandum, Federal agencies were asked to review their existing 
operating processes and energy efficiency programs and identify and 
implement additional ways to reduce overall energy use. Thirty-eight 
agencies reported on a wide range of additional energy management 
activities which are estimated to provide a 6-month savings of 5.4 
trillion Btu--equivalent to 1.2 percent of these agencies energy annual 
consumption last year. The energy efficiency savings achieved in these 
initiatives will contribute to the broader goals established in EPACT 
2005.
    The Department of Energy (DOE) has provided support through a 
variety of means, including Energy Savings Expert Teams (ESETs) to 
target Federal facilities experiencing natural gas price volatility and 
potential supply shortages. ESETs are working with Federal sites across 
the country to reduce natural gas consumption in buildings and to 
improve operating efficiencies of central plant and steam distribution 
systems.
    Question 5. Federal Energy Management Program: The National Energy 
Conservation Policy Act requires federal agencies to reduce the amount 
of energy federal buildings consume. The 2005 Act updates these 
requirements and calls for a 4 percent reduction by FY 2007 with annual 
reductions up to a 20 percent reduction by 2015. What is the Department 
of Energy doing to provide leadership within the federal government on 
saving energy and to ensure that agencies comply with these new energy 
management requirements?
    Answer. The Department is developing guidelines for Federal 
agencies to assist them in meeting the new energy management goals set 
forth in EPACT 2005 and will report on agency progress in meeting these 
goals to the President and Congress. The Federal Energy Management 
Program (FEMP) provides leadership within the Federal government by 
providing technical guidance, assistance, and training for all 
agencies, as well as providing the DOE Super Energy Savings Contract, 
which is the leading alternative finance vehicle used in the Federal 
government for energy efficiency. DOE recently signed a Memorandum of 
Understanding with the non-profit, Energy Solutions Center to provide 
training for Federal energy managers on new technologies. These 
services are used by all of the top Federal energy using agencies in 
their efforts to meet Federal energy management requirements.
    FEMP will also reinforce the EPACT 2005 goals through its 
interagency working groups and through its compilation of data and 
assessment of agency performance on energy management goals.
    Question 6. Energy Savings Performance Contracts: Many agencies 
depend on Energy Savings Performance Contracts (ESPCs) to help them 
meet their federal energy management goals. The ESPC program suffered a 
set back when the authority lapsed in 2003. What is the status of the 
ESPC program now that it has been extended?
    Answer. After the lapse in legal authority for ESPCs during FY 
2004, the ESPC program is regaining its momentum. During the second 
half of FY 2005, the Department facilitated awards of $72 million in 
contracts that will save 10 trillion btus and a net $447,000 over the 
contract lives, which range from 13 to 24 years. The Department expects 
that it will facilitate awards of $80 and $120 million in ESPC 
contracts in FY 2006 that will save 14 and 20 trillion btus. The 
Department continues to focus on ensuring each contract provides the 
best deal for the taxpayer, maximizing energy savings and energy cost 
savings for each private sector dollar invested, which the government 
must repay with interest. Because the authority was established for 10 
years, the long-term prospects for the ESPC program are excellent.
    Question 7. Role of DOE in energy infrastructure improvement: The 
mission of the Office of Electricity Delivery and Energy Reliability is 
``to lead national efforts to modernize the electric grid; enhance 
security and reliability of the energy infrastructure, and facilitate 
recovery from disruptions to energy supply.'' The damage to the 
electricity transmission infrastructure in the Gulf Coast presents an 
opportunity that appears to be tailor-made for this Office with the 
assistance of other departmental programs. What can DOE do to lead 
efforts to modernize the electric grid; enhance security and 
reliability of the energy infrastructure, and facilitate recovery from 
disruptions to energy supply in the states affected by the hurricanes? 
What is DOE planning to do?
    Answer. DOE has facilitated discussions among experts from the 
national laboratories, universities, and utilities to share insights 
and experiences regarding the restoration of electricity delivery 
systems. These discussions are intended to: (1) assemble technical 
information about the impact of recent hurricanes on the Gulf Coast; 
(2) identify ways that advanced technologies could be deployed in a 
cost effective manner to improve the reliability of the system, 
mitigate future disruption, and improve restoration time; and (3) build 
channels for effective coordination and communication between the 
affected utilities and various experts.
    Question 8. Utility Energy Efficiency Study and Pilot programs: The 
Energy Policy Act of 2005 recognized that electric and natural gas 
utility programs for demand reduction and energy efficiency can be a 
very effective way to save energy and potentially reduce consumer's 
energy bills. The legislation calls for a study of state programs that 
are being carried out by utilities and identification of best 
practices. It also authorizes funding for DOE to support pilot programs 
in selected states. What has DOE done to date on the study or the pilot 
program?
    Answer. The Department is working diligently to address the many 
requirements of the Energy Policy Act of 2005. We have given priority 
to directly addressing those sections due within 60 and 90 days and we 
are preparing the steps necessary to address the Sections whose 
deliverables are of a somewhat longer term. In that regard, we have 
initiated planning for the studies directed in Sections 139 and 140 of 
the Act. The respective programs have begun assembling the resources 
and consulting experts.
    Question 9. ``Energy Smart'' Rebuilding: The DOE Building program 
provides leadership in innovative new technologies, better building 
practices and better building codes. The destruction caused by 
Hurricanes Katrina, Rita and Wilma presents the affected states with a 
golden opportunity to make smart energy choices in the rebuilding 
effort. A recent ICF Consulting analysis indicates that investments in 
energy efficiency for reconstructing the hundreds of thousands of homes 
destroyed by the Hurricanes would result in significant energy savings 
compared to a mass reconstruction built to minimum building codes. For 
example rebuilding 310,000 homes to the 2006 ENERGY STAR guidelines 
would have a 7.5 year payback and save nearly $20 billion in the 
following 20 years if energy prices remain constant. What is DOE doing 
to proactively share its energy efficient buildings expertise with the 
entities that are funding or supervising these reconstruction efforts?
    Answer. As the communities devastated by Hurricanes begin to 
rebuild, the U.S. Department of Energy is working to encourage cost-
effective, durable, and energy-efficient building reconstruction. The 
Department is partnering with the State Energy Offices (SEOs) in the 
affected States to encourage a broad regional exchange of information 
and best practices on building technologies. The Department and the 
States are also partnering with the National Association of State 
Universities and Land Grant Colleges (NASULGC) which includes local 
universities and local extension services. Grants were recently awarded 
to Louisiana, Alabama, and Mississippi to encourage the application of 
energy efficiency in their rebuilding efforts. A similar grant is 
currently being finalized with the Texas State Energy Office. These 
seed grants will support capacity building, training seminars for 
residential and commercial consumers, public service announcements, and 
design forums.
    The Department is also working with its ENERGY STAR retail, 
manufacturer, utility, and State partners to reach out to homeowners 
and building contractors through training workshops. In addition to 
promotion of ENERGY STAR for New Homes, we are working with ENERGY STAR 
partners, such as Home Depot and Lowes, to expand and market their 
training programs to include DOE's state-of-the-art information. The 
retailers and manufacturers will also be hosting web sites that are 
accessible to their customers.
    Question 10. State Building Codes: There are a number of programs 
authorized by the Energy Policy Act of 2005 that would build and 
bolster state energy programs. Many would not only help the nation deal 
with rising energy costs, but could also be extremely helpful if 
targeted to the Gulf States. Among these programs is an important 
measure on state building codes that would help states implement a plan 
to achieve and document a 90 percent rate of compliance with commercial 
building energy efficiency codes.

   What is the Department of Energy doing right now to help 
        states comply with their state energy code and to promote more 
        efficient building codes?
   What is the Department of Energy doing to ensure that the 
        rebuilding efforts in the wake of the hurricanes take into 
        account high energy efficiency building codes?

    Answer. The Department of Energy awarded $2 million in financial 
assistance to states in FY 2005 to update, implement, and enforce their 
building energy codes, and hosts a national state building workshop 
annually on state building energy codes. The Department has also 
provided a wide range of technical assistance to States, including 
software compliance tools, training materials, code notes, how to 
videos, and code impact analyses on its web site at http://
www.energycodes.gov/.
    At the request of States affected by recent hurricanes, the 
Department has initiated several activities to provide technical 
assistance on energy efficient building codes. The Department has 
recently granted a technical assistance request from Louisiana to 
assist them in holding five web based energy code training sessions 
starting December 13, 2005. This will be done in cooperation with 
Louisiana State University. Hurricane related code issues for 
commercial buildings will be addressed and information will be drawn 
from recent experience with the Florida code.
    Question 11. Appliance Rebates: The Energy Policy Act of 2005 
authorizes $50 million per year for qualified energy efficient 
appliance rebate programs at the state level. The programs would 
provide rebates to residential consumers for the purchase of Energy 
Star rated products that replace used appliances of the same type. New 
York State implemented a similar program and saved participating 
consumers $3.5 million in the first year. What is the Department of 
Energy doing now to assist states in implementing energy savings 
programs like the appliance rebate program? Will funds for this program 
be included in the Administration's budget next year?
    Answer. The Department of Energy currently manages two programs 
which support States in implementing energy savings programs like the 
appliance rebate program: the State Energy Program and the Energy Star 
Program, a jointly managed effort with the Environmental Protection 
Agency. The State Energy Program provides formula grants to each State 
to support a variety of energy efficiency and renewable energy programs 
and projects as determined by each State to best fit their needs and 
priorities. The Department's Energy Star Program establishes energy 
efficiency levels for home appliances, compact fluorescent light bulbs, 
and windows and provides education and outreach to consumers, 
retailers, and manufacturers. The program works closely with States as 
partners to educate consumers and promote Energy Star products.
    DOE cannot comment on the FY07 budget, as it is still in 
development and will be presented by the President in early 2006.
    Question 12. Appliance Standards program: In EPACT 2005, Congress 
wrote into law minimum efficiency standards for several energy-using 
products. The standards were the result of negotiations between 
manufacturers, efficiency advocates, consumer groups and states. We 
were pleased to enact these consensus standards; however, Congress 
intended for the DOE to develop appliance efficiency standards in a 
rulemaking process. That process has bogged down and many required 
standards are delayed several years past their statutory deadlines. DOE 
is required to report to Congress with a plan to address these program 
delays by February 2006. What have you accomplished to date?
    Answer. The Department is reviewing and implementing process 
improvements to its appliance standards program that are already 
contributing to increased productivity. Even as the Department moves 
quickly to implement the new requirements of EPACT 2005, we are 
committed to bringing all appliance standards activities into 
compliance with statutory requirements. Recent results include the 
publication of a final rule in the Federal Register on October 18, 
2005, codifying the standards in the Energy Policy Act of 2005 in the 
Code of Federal Regulations. On November 15, 2005, DOE will hold a 
public meeting to receive public comment on appliance standards 
scheduling issues. After receipt of those comments, the Department will 
draft its appliance standards scheduling plan and provide this plan, 
including process improvements, in a report to Congress. The initial 
report, required by section 141 of the Energy Policy Act of 2005, is 
expected to be submitted to Congress in February 2006.
    Question 13. Regional energy offices: During your announcement of 
the new public information campaign two weeks ago you were asked why 
the Department was closing its 6 regional offices. You answered that 
you had no such plans, although the Department has requested exactly 
that from the Congress. As we are dealing with an energy emergency, 
where regional and local knowledge will be especially important, do 
these closings make any sense?
    Answer. The primary driver behind the FY 2006 move to consolidate 
the functions of the six Office of Energy Efficiency and Renewable 
Energy (EERE) Regional Offices is included in the report language from 
the Senate Appropriations Energy and Water Development Subcommittee 
issued on June 13, 2005.
    The Administration has not put forth a formal plan to consolidate 
the regional offices. However, during staff level discussions between 
the Senate Appropriations Committee and the Department of Energy, the 
possibility of consolidating the functions of the six EERE ROs into 
EERE's Project Management Center (PMC) sites was brought up as a means 
to save money.
    The result of the consolidation will be an efficient and effective 
State-friendly organization that continues the high level of service 
delivery currently provided to the States and other partners.
    All employees currently located in the six Regional Offices will be 
offered comparable positions at the two PMC locations located at NETL 
and GFO. Thus regional and local knowledge bases, including established 
contacts with the individual State Energy Offices, will be maintained.
    Question 14. Implementation of EPAct 2005: Please describe your 
actions in implementing EPACT 2005. Can you share with us a timetable 
for implementation of the provisions for which the Department has 
responsibility?
    Answer. The Department has a mechanism in place to manage the 
implementation of the EPAct ``action items'' in a responsible manner. 
We are currently tracking 371 action items, including 56 rulemakings 
and 124 reports. We intend to comply with as many of the due dates in 
the Act as possible, but the effective implementation of many action 
items require appropriations that have not been made, or may not be 
made prior to the due date. When we miss or expect to miss a deadline 
imposed by the Act, the Chairman and Ranking Member of the Committee 
will receive written notice from the appropriate Under Secretary, 
Assistant Secretary, or Office Director, describing the action item 
that is late and, when possible, estimating when the action item will 
be completed. You have already received such letters from the 
Department.
    Question 15. I understand that your department is in the process of 
concluding the study on efficient dispatch of natural gas plants, which 
is due on 8 November. I would anticipate that the following questions 
will be addressed in that study. To the extent that it is possible 
before the report is issued we would like to have information to answer 
the following questions. To the extent that these questions are not 
addressed in the report could we have your help in answering them?
    Some witnesses at last week's hearing suggested that requiring 
consideration of the efficiency of natural gas plants in the systems 
for determining which power plants are dispatched to serve customers' 
loads would provide enormous savings the use of natural gas for the 
generation of electricity. Do you have information as to how many 
older, less efficient plants-steam generations plants with high heat 
rates--are currently in use?
    Answer. During the recent winter period December 2004 through March 
2005, the Department's Energy Information Administration estimates that 
about 244 steam-electric plants using natural gas as a fuel were in 
operation. Combined cycle plants provide greater efficiencies than 
steam-electric natural gas plants. Typically, the efficiency of power 
plants is measured by the ``heat rate,'' which is the quantity of fuel 
(expressed in British thermal units, or Btu) needed to produce one 
kilowatt-hour of electricity. Steam-electric gas plants will typically 
have heat rates in the range of 10,000 to 15,000 Btu per kilowatt-hour 
while a modern combined-cycle plant will have a heat rate in the range 
of about 7,000 to 8,000 Btu per kilowatt-hour.
    Question 16. How many of those plants could be displaced by newer, 
more efficient combustion turbines or combined cycle plants?
    Answer. Significant amounts of steam-electric generating capacity 
were used during the past winter even though, in the aggregate, there 
are enough underutilized combined cycle plants available to replace 
this generation using significantly less gas. In theory, there are 
enough underutilized combined-cycle plants to replace all of this 
generation. In practice, not all of the steam-electric generation could 
be replaced by electricity from underutilized combined-cycle plants. 
This is because of operational factors that limit the potential for 
displacement of steam-electric plants. The two most important factors 
are transmission systems capacity constraints and the related issue of 
units which have ``reliability must run'' (RMR) status. The operation 
of RMR units is mandatory at times to maintain the reliability of the 
transmission grid and to protect against the possibility of blackouts. 
However, the Department's Energy Information Administration does not 
collect information that identifies RMR plants. Thus, we are unable to 
provide specific information about which gas-fired steam plants can be 
displaced to save natural gas without impacting the reliability of the 
transmission system.
    Question 17. If these newer, more efficient plants were dispatched, 
how much natural gas could be saved?
    Answer. As implied by the response to Question 16, transmission 
constraints and power plant operating characteristics restrict the 
degree to which steam electric plants can be economically replaced by 
existing combined cycle units. That said, the 244 gas-fired steam-
electric plants noted in the answer to Question 15 generated about 20 
billion kilowatt-hours of electricity during the period December 2004 
through March 2005, and consumed about 225 billion cubic feet (bcf) of 
natural gas. During this four month period, if combined-cycle 
generation replaced less efficient steam-electric generation, the 
nation would have saved approximately 70 bcf of natural gas depending 
on weather conditions. However, the 70 bcf savings is a technical 
maximum, and in practice would be less than that due to a number of 
factors, including transmission constraints, which limit the ability of 
operators to move electricity across systems; and the need for 
``reliability must-run'' units to maintain security and stability of 
the transmission grid.
    Question 18. Over the long term, how much effect could these 
savings have on the price of natural gas?
    Answer. Even assuming that the entire 70 bcf of natural gas that 
was identified in Question 17 could be saved in future quarters, the 
impact on the price of natural gas would likely be modest. This is 
because 70 bcf of natural gas is a small portion of total gas demand 
during the winter. For example, during the period December 2004 through 
March 2005, residential gas demand was 3,047 bcf and total gas demand 
from all consuming sectors was 9,408 bcf.
    Question 19. We have heard some witnesses that for the most part 
gas plants are dispatched in the most cost effective manner, given 
transmission constraints and the need to provide power to support the 
transmission system. Do you have information that could help us 
understand how many plants that are older and less efficient are in 
areas where they must be run in order to provide reliability for the 
transmission system?
    Answer. The Department's Energy Information Administration does not 
collect information that identifies plants, known as ``Reliability 
Must-Run (RMR),'' that must be run for reliability of the transmission 
system. This is because the conditions upon which these plants are 
called is system specific. The regional reliability councils, 
transmission operators, and their members would have this information.
    Question 20. How many more efficient plants could be dispatched 
today without reconfiguring the transmission system?
    Answer. The Department does not collect information on the 
transmission grid's constraints on generating plants that would allow 
it to conduct the extensive modeling and analysis needed to answer this 
question.
    Question 21. How many could be dispatched with only minor 
modifications to the transmission system?
    Answer. The Department does not collect information on the 
transmission grid's constraints on generating plants that would allow 
it to conduct the extensive modeling and analysis needed to answer this 
question. This information is possessed by the regional reliability 
councils, transmission operators, and their members.
    Question 22. To what extent do the answers to questions 19, 20 and 
21 (5, 6 and 7 [sic]) affect the answers to questions 15, 16, 17 and 18 
(1, 2, 3 and 4 [sic])?
    Answer. If DOE had the data to determine the answers to these 
questions, then the answers to questions 19, 20, and 21 would be 
elaborations/clarifications on questions 15, 16, 17 and 18. The data we 
do have indicates that:

          a) There is significant room for improvement in gas 
        efficiency factors.
          b) Improving efficiency factors is not a simple matter of 
        turning off a steam/electric generator and turning on a 
        combined cycle plant. One needs to resolve transmission 
        constraints and/or construct more efficient plants closer to 
        load in order to raise the efficiency of gas generators 
        dispatched.
          c) A complete replacement of steam electric generators with 
        combined cycle generators could theoretically save about 70 bcf 
        of gas per quarter, or about 0.7% of current winter gas 
        consumption. However, due to a number of limiting factors, the 
        actual savings would be less.
          d) Such a switch would likely have only a modest impact on 
        price.

    Question 23. Some observers have called Entergy's transmission 
system ``archaic'' and indicated that it is not configured to dispatch 
the most efficient generation resources in the region. How can we be 
sure any federal dollars that we might give to the region will be used 
not merely to repair this old system but to rebuild the system with 
newer, state of the art smart-grid technologies and with a 
configuration that will allow customers to take advantage of the most 
efficient resources in the region?
    Answer. Administration policy generally supports efforts to provide 
open access to the interstate transmission grid for all entities 
requiring transmission service.

    [Note: Questions 24-28 were duplicates of Questions 19-23.]

    Question 29. Energy prices were high before the onset of Hurricanes 
Katrina and Rita. This was due in part to a large number of refineries 
that were in shutdown in July. Presently the department, though it is 
charged with overseeing our energy supplies, does not regulate the 
shutdowns of domestic refineries. At the October 6 hearing on hurricane 
recovery, I raised the issue of the possible need for government 
oversight of refinery shutdowns. Administrator Caruso indicated the 
issue should be looked into. I wonder how you feel about this. Might we 
first ask EIA to study the issue and provide a look at what the impact 
of refinery shutdowns has been on petroleum product prices, as we look 
at the right policy decision here? Would you support such a study and 
ensure that it was given necessary priority?
    Answer. DOE has little reason to believe that planned shutdowns of 
domestic refineries have an adverse impact on prices. Generally, 
refiners will try to delay shutdowns when prices and product margins 
are high. However, eventually refiners must perform required 
maintenance. More analysis would be necessary before any conclusions 
can be made, especially before policies to regulate the shutdown of 
domestic refineries are considered.
    Question 30. The hurricanes have only served to highlight the need 
for refiners and pipelines to hold more petroleum product inventories. 
The just-in-time inventory framework may work for Dell computers, but 
it is not the ideal method for promoting stability in oil markets when 
there is a supply disruption. European and Asian countries mandate that 
companies hold set amounts of transportation fuels in inventory. (There 
is no question that the U.S. benefited from the decision by the TEA to 
release some of these inventories.) Have you given any thought to 
mandatory product inventories for companies and pipelines? As the 
Department looks to expand the SPR to its new 1 billion barrels 
capacity, has there been any thought given to establishing part of the 
new capacity in the form of a product reserve? And, should these 
reserves be geographically diverse? (i.e. located near population 
centers? Key pipelines?)?
    Answer. The Administration recognizes that the supply of petroleum 
products was seriously curtailed by the two hurricanes that caused 
significant U.S. refinery closures and damage.
    We understand the need for an increase in our overall refining 
capacity. Were we to have a marked increase in refining capacity in the 
U.S., it would address some of the same concerns that have lead some to 
consider the creation of product stocks.
    The Administration is taking a comprehensive look at the petroleum 
supply situation and various options to address the supply issues 
highlighted by the effects of the hurricanes.
    Question 31. Some experts are saying that the high prices that we 
have sustained in the aftermath of the hurricanes have helped to reduce 
demand for transportation fuels (such as gasoline). Others say that the 
dip in demand is only temporary. They point to the difference in 
consumption growth trends between OECD and non-OECD countries. Demand 
dips seasonally in OECD countries, allowing producers (refiners) to 
build product in certain seasons in anticipation of high demand. 
However, non-OECD demand tends not to have such dips. Given the amount 
of refinery capacity that was taken down by the hurricanes (still more 
than a million barrels per day), there was a gap between supply and 
demand and no time to build inventories. Ultimately hurricanes Ivan, 
Katrina, and Rita have done more to disrupt supply that any political 
uncertainty (Venezuela, strikes in Norway, African unrest . . . ). What 
does this all mean for the future? What can we do to ensure that future 
price spikes are minimized?
    Answer. We agree that high prices helped to reduce demand for 
transportation fuels so the remaining supplies would sustain personal 
mobility and commercial needs. We also believe that the President's 
call for conservation and the American public's awareness of the 
seriousness of the situation helped to reduce demand. The dip in demand 
will be temporary as refineries come back on line, supplies increase 
and prices ease. We are already seeing significantly higher supplies 
and lower prices.
    However, as long as world-oil prices remain high, fuel prices will 
be higher than the prices Americans have been used to in prior years. 
These higher prices will have two important long-term effects. First, 
the efficiency of the vehicle fleet will increase over time. We are 
already witnessing decreased sales for large SUVs and increased demand 
for efficient vehicles, especially hybrids. Second, while improved 
efficiency will reduce demand from previous trends, U.S. economic and 
population growth will still require increased fuel supplies. We expect 
that industry will respond. For example, Sunoco recently announced 
plans to increase their refinery capacity by 100,000 barrels per day. 
Most refiners are reviewing opportunities to expand capacity to meet 
growing demand and many more projects will no doubt emerge in the 
coming months and years. Again, the role of price is critical since 
industry will only undertake these investments if they expect them to 
be profitable over the longer term. Consumers and industry both benefit 
from relatively stable fuel prices that meet consumers' needs for 
mobility at a reasonable cost and industry's need to recover investment 
costs over the long term.
    Question 32. China has formed several new alliances with countries 
such as Iran and Russia. What does this mean for the US? Should China's 
growing import dependence be a concern? Do we need a new definition of 
energy security?
    Answer. As recently as 1996 China imported about 70% of its oil 
from only three countries--Oman, Indonesia, and Yemen. By 2003, China 
had developed significantly more diverse import sources, including 
Saudi Arabia (16.8% of total imports), Iran (13.8%), Angola (11.2%), 
Oman (10.3%), and Yemen (7.7%), but with a strong reliance on the 
Middle East. During this period, China's net oil imports (crude and 
products) increased from approximately 0.3 million barrels per day 
(mmb/d) to 2.1 mmb/d. As part of its efforts to increase energy 
security, Chinese state-owned oil companies have significantly 
increased the number and geographic distribution of energy assets and 
investments in recent years. They have invested in oil ventures in more 
than 20 countries with bids for oilfield development contracts, 
pipeline contracts (e.g., Russia), and refinery projects (e.g., Iran).
    The total equity oil secured mainly by Chinese state-owned oil 
companies is around 400 thousand b/d at present, equivalent to roughly 
15% of China's total crude imports, 11% of China's domestic oil 
production, and 6% of China's current oil consumption. By comparison, 
the overseas equity oil of the three largest US companies is 3.9 mmb/d, 
35% of total US imports, and 71% of their total liquid production.
    Following a supply diversification strategy is a sound part of a 
balanced energy policy. However, Chinese ``alliances'' can be of 
concern if they do not comport with international norms of commercial 
behavior or if they support behavior in host countries that violate 
international human rights or other agreed standards. Recognizing China 
as an increasingly important player in the global economy and the 
international energy market, the U.S. Government has been discouraging 
China from viewing energy security as a zero-sum game and encouraging 
China to see benefits of playing by international norms and principles. 
In the area of energy security, the USG has been encouraging China's 
greater involvement in discussions at international energy fora like 
the Asia-Pacific Economic Cooperation and the International Energy 
Agency. In bilateral exchanges, such as the US-China Energy Policy 
Dialogue, the Economic and Development Forum, and US-China Oil and Gas 
Industry Forum, the USG continues to encourage greater transparency in 
China's economic decision-making, energy policy planning, and 
contractual activities by their state-owned enterprises. Specific, 
recurring themes have included how the equity stake abroad does not 
guarantee one with the increased crude supply. Our messages to China 
through energy consultations are consistent with a broader message to 
China by the Administration that urges them to become a ``responsible 
stakeholder'' and to recognize the international impact of their 
domestic policy decisions. We encourage like-minded countries to join 
in our call for a more responsible China. This will increase both 
China's and our economic growth and energy security.
    Question 33. Some ETA's Annual Energy Outlook forecasts energy 
demand through 2025. In part, the model assumes the supply will ``be 
there'' to meet demand. What if it isn't? What will happen if key non-
OECD countries, and even OPEC countries, delay the necessary investment 
in energy projects? To have any success in hitting the production 
numbers out in 2012 and 2105, that investment has to start now and 
continue on schedule. As I understand, for many projects, 2006 is a key 
year for investment in order for production that we are showing coming 
online in 2012 to happen on time. But that may not all happen on time. 
What is Plan B?
    Answer. ETA's projections do not constitute national energy goals. 
They represent the EIA's estimate of plausible scenarios for the 
evolution of energy markets based on past data and EIA's modeling 
methodologies. Also, the EIA generally produces multiple scenarios with 
different underlying assumptions. ETA's projections, along with others, 
such as those from the International Energy Agency and private 
industry, are useful to provide insights to government and industry as 
to what U.S. and global energy markets might look like over the long 
term. They also help industry to evaluate the profitability of energy 
investments. Nonetheless, there is no guarantee that the future will 
confirm the accuracy of these forecasts. Looking back on past 
forecasts, we have many examples where the expected and actual results 
differed by substantial amounts.
    We believe that the combination of market forces combined with the 
Administration's energy policy will provide enough energy supplies to 
enable continued economic growth and prosperity. We can not predict 
with certainty whether there will be enough expansion of world oil 
supply relative to growing world demand to return oil prices to the 
levels we have seen in prior years. If prices remain high, we expect 
that many non-conventional resources will be developed and we also 
expect that more advanced energy efficiency technologies will enter the 
market. For example, we already see a heightened interest in coal-to-
liquids and other advanced energy supply technologies. Likewise, 
manufacturers plan to produce more hybrid vehicles in response to a 
heightened consumer interest in fuel efficiency. Therefore, alternative 
energy technology is America's ``Plan B''. ``Plan B'' will be 
implemented primarily by market forces, but the government also plays 
an important role.
    Question 34. It would appear that Plan B should have to address 
demand at some level. What is DOE doing now to improve fuel economy, 
promote renewable fuels and get some of the new technologies that 
experts such as Amory Lovins (ultralight, ultra-sound materials) have 
suggested?
    Answer. The Department's Office of Energy Efficiency and Renewable 
Energy (EERE) has a balanced and focused portfolio of research, 
development, demonstration and outreach programs aimed at improving the 
energy efficiency of our economy and increasing the productive use of 
domestic renewable energy resources.
    One of EERE's primary areas of strategic focus is reducing our 
dependence on foreign oil. The Department's Vehicles Technologies 
program seeks to develop more energy efficient and environmentally 
friendly highway transportation technologies that will enable America 
to use significantly less petroleum. Additionally, through partnerships 
with industry, government and technology programs the President's 
Hydrogen Fuel Initiative works to develop the technologies and 
infrastructure needed to produce, store, and distribute hydrogen, and 
to use it in stationary, portable, and vehicular applications. The 
Biomass Program is working with industry to develop biorefineries that 
can use a variety of feedstocks to produce transportation fuels and 
high-value products that will substitute for oil. Taken as a whole, 
these programs will put more vehicles on the road that are energy 
efficient and run on alternative energy sources, thereby lessening our 
dependence on foreign energy sources.
    The Department also has an aggressive effort to promote the 
acceptance and use of renewable and efficient technologies by the 
public, industry, and the Federal Government.
    Question 35. EIA projects a 50 percent increase in our demand for 
petroleum products by 2020. This will place enormous strains on our 
existing infrastructure. Is that what we want? What are we doing now to 
ensure that the crisis we are already in doesn't worsen? What can we do 
to incentivize more investment in necessary infrastructure? Are there 
better solutions? What are you and your staff doing to monitor this?
    Answer. It is worth noting that ETA's projections are plausible 
scenarios for the evolution of energy markets based on past data and 
ETA's modeling methodologies. Also, the EIA generally produces multiple 
scenarios with different underlying assumptions. ETA's projections, 
along with others, such as those from the International Energy Agency 
and private industry, are useful to provide insights to government and 
industry as to what U.S. and global energy markets might look like over 
the long term. We therefore must be prudent and anticipate that 
petroleum product demand could be 50% higher by 2020. We can not 
predict with certainty whether there will be enough expansion of world 
oil supply relative to growing world demand to return oil prices to the 
levels we have seen in prior years. If prices remain high, we expect 
that many non-conventional resources will be developed and we also 
expect that more advanced energy efficiency technologies will enter the 
market. For example, we already see a heightened interest in coal-to-
liquids and other advanced energy supply technologies. Likewise, 
manufacturers plan to produce more hybrid vehicles in response to a 
heightened consumer interest in fuel efficiency.
    Our goals have been and will continue to be to ensure a reliable, 
affordable, and environmentally sound energy for America's future. DOE 
is developing technologies to expand energy supplies and reduce energy 
demand, implementing programs to encourage or require increases in 
energy efficiency, working in collaboration with industry to deploy 
advanced energy technologies and providing a wide variety of other 
services including assessments of new energy policies.

                      Question From Senator Akaka

    Question 1. Next year, several fuel regulations, beginning in 
January with implementation of the Renewable Fuels Standard, will go 
into effect. This will include a normal transition to summer grade 
fuels, further phase out of MTBE, and the transition to ultra-low 
sulfur diesel. The implementation of all these regulations could 
disrupt our supply of refined products significantly.
    Because Hawaii has long had the highest gasoline prices in the 
nations, I want to be sure that the implementation and transition go 
smoothly, so we don't become vulnerable yet again to price spikes. What 
is the Department of Energy doing to ensure that these transitions go 
smoothly and don't cause prices to spike once again?
    Answer. The gasoline programs mentioned in your question are 
administered by the U.S. Environmental Protection Agency (EPA). 
However, the Department of Energy has provided advice to EPA to ensure 
that implementation strategies do not inadvertently constrain fuel 
supplies. The Department has, since the Clean Air Act Amendments of 
1990, provided important assistance to EPA's many fuel programs, 
starting with the Reformulated Gasoline Program. Implementation of the 
ultra-low sulfur diesel program has been in progress for over four 
years and we have monitored the refinery industry's progress and have 
every reason to believe that they will be able to meet these 
requirements. We are currently working with EPA to implement the 
Renewable Fuels Standard (RFS). As required by the Energy Policy Act of 
2005, the Department will assess whether the RFS would cause 
significant adverse impacts on consumers or be a burden on small 
refiners. If needed, a waiver of the first year of the program in whole 
or part can be provided.

                    Questions From Senator Cantwell

    Question 1. During our hearing on October 27, you said that the 
Department knew it would miss Tri-Party Agreement milestones. Can you 
please list all milestones that the Department knows it will miss? Can 
you please list the milestones that the Department believes it could 
miss?
    Answer. The Department remains committed to the Tri-Party Agreement 
and to meeting all objectives for completing the cleanup of tank waste 
and closing tanks at Hanford. However, because of difficulties, such as 
sludge removal issues at the K Basins and Waste Treatment Plant (WTP) 
issues, some of these milestones are not achievable. The Department 
informed the State of Washington, members of the Washington 
Congressional delegation, and committees of jurisdiction, including the 
Senate Energy and Natural Resources Committee, on October 6, 2005 when 
it knew that milestones would be missed. In that notification, the 
Department stated its belief that three near-term interim TPA 
milestones, one for the WTP and two for K Basins, are not achievable:

   Complete WTP hot commissioning by January 31, 2011 (M-62-
        10),
   K East sludge removal complete, by January 31, 2006 (M-34-
        34), and
   Containerize K West Sludge, by June 30, 2006 (M-34-35).

    The Department also believes three near-term milestones associated 
with the commissioning of the WTP, the treatment of tank waste, and 
certain tank retrieval related activities are in jeopardy:

   Complete four limited retrieval demonstrations and retrieve 
        waste from all tanks in Waste Management Area-C (WMA-C) in 
        accordance with the TPA retrieval criteria by September 30, 
        2006 (M-45-OOB),
   Submit supplemental treatment technologies report, by June 
        30, 2006 (M-62-08), and,
   Submit final waste treatment baseline by June 30, 2007 (M-
        62-11).

    The Department will notify Congress and the State of Washington 
should other milestones be in jeopardy.
    Question 2. Will you acknowledge today that the Department will 
miss the TPA milestone (M-45-OOB) related to completing retrievals from 
the C-Tanks by September, 2006?
    Answer. The M-45-00B milestone is complex with multiple sub-
elements ranging from retrievals and technology demonstrations to the 
submittal of Tank Waste Retrieval Work Plans and Integration Plans. A 
number of those sub-elements have been successfully completed and 
progress is being made on the remaining sub-elements. The Department 
does not know at this time whether all elements of this complex 
milestone will be completed by September 30, 2006, and, therefore, 
appropriately informed the State of Washington congressional 
delegation, and committees of jurisdiction, including the Senate Energy 
and Natural Resources Committee, that some elements of the M-45-00B 
milestone are in jeopardy of being missed.
    Question 3. If you believe you still can meet the M-45-00B 
milestone, can you please inform me how the DOE-Inspector General's 
audit ``Accelerated Tank Waste Retrieval Activities at the Hanford 
Site,'' report IG-706, was wrong in its investigation or findings?
    Answer. As was discussed with the Washington Congressional 
delegation, and committees of jurisdiction, including the Senate Energy 
and Natural Resources Committee on October 6, 2005, some elements 
within this milestone are in jeopardy. IG-706 looked at one element 
within the M-45-00B milestone, i.e., completing the retrieval of all 16 
tanks within C Farm by September 30, 2006. That element of M-45-00B is 
in jeopardy, yet the Department continues to strive to complete that 
element in full compliance with the M-45 retrieval criteria despite the 
challenges encountered in retrieving the C farm tanks. The three tanks 
retrieved to date have been retrieved in compliance with established 
Tri-Party Agreement (TPA) standards. As noted in any accompanying 
response, M-45-00B contains multiple elements, some which have already 
been met and others that are underway. The Department does not know at 
this time whether all elements of this complex milestone will be met by 
the date specified in the TPA.
    Question 4. If you do believe the IG-706 audit was correct in 
estimating that you will miss the M-45-00B milestone, what specifically 
is your plan to ensure that the funding is available to get tank 
cleanup back on track?
    Answer. We consider the M-45-00B milestone to be in jeopardy, but 
are making every effort in an attempt to achieve the June 30, 2006, 
date. The challenges related to this milestone are of a technical 
nature and are not related to funding. Nonetheless, the Department will 
request the necessary funds for safe tank retrieval.
    Question 5. The IG found a number of factors responsible for the 
delay including the fact that DOE did not base its retrieval schedules 
on ``cost estimates and prior experience,'' among other factors. 
Further, the IG noted that the cost of meeting the M-45-00B milestone 
will more than double. Can you commit to me that the Department will 
inform the appointed conferees for the Energy and Water Appropriations 
Bill that it supports an increase in funding over the administration's 
FY '06 request for ``Radioactive Liquid Tank Waste Stabilization and 
Disposition'' in order to address the funding shortfalls identified in 
the IG report?
    Answer. Constraints on the rates at which individual tanks can be 
retrieved are related to technical challenges, not funding. If this 
milestone becomes unachievable, the Department will work with the State 
of Washington on a revised strategy to complete the milestone. The 
Department will request the necessary funds for safe tank waste 
retrieval.
    Question 6. Can you commit to me that the FY '07 request from DOE 
as it relates to ``Radioactive Liquid Tank Waste Stabilization and 
Disposition'' will be adequate to get the C-Tank retrieval program back 
on track?
    Answer. The Department will request the necessary funds for safe 
tank waste retrieval.
    Question 7. Are you still committed to the funding level of 
$625,893,000 for ``Major Construction-Waste Treatment Plant'' in the 
administration's FY 2006 request?
    Answer. The Department remained committed to the Administration's 
FY 2006 request of $625,893,000 for ``Major Construction-Waste 
Treatment Plant''. Congress has since voted to fund the Waste Treatment 
Plant at a reduced level.
    Question 8. The Department has said that it won't release 
information related to the revised cost and construction schedule for 
the vitrification plant until next summer. I understand that some of 
the preliminary work done by the Army Corps of Engineers is available 
right now. Can you share that information with me or this Committee?
    Answer. The preliminary U.S. Army Corps of Engineers report 
constitutes an element of the Department's current consideration of 
steps necessary for sound contract administration in the Waste 
Treatment Plant project. DOE will be using this report, and others, to 
develop contract negotiating positions, funding decisions, 
Administration decisions and other project management positions. As 
such, the Department believes public disclosure of this document would 
impair the Department's ability to carry out this responsibility. We 
will provide this information if formally requested by the Committee 
Chairman, but will request that the documents be maintained in 
confidence by the Committee.
    Question 9. Can you commit that you will make available the final 
report regarding the revised cost and schedule for the vitrification 
plant as soon as possible? Can the report be released so we can be 
knowledgeable of its contents by the time the Department submits its FY 
'07 appropriations request?
    Answer. The final report being developed by the U.S. Army Corps of 
Engineers is scheduled to be delivered to the Department in June 2006 
and, therefore, will not be available at the time the President's 
budget is delivered to the Congress in early February. However, the 
Department will provide Waste Treatment Plant information if formally 
requested by the Committee Chairman, but will request that the 
documents be maintained in confidence by the Committee.
    Question 10. As you are aware, DOE changed its RFP process for 
cleanup work. I'm particularly referring to the RFPs for work at three 
Hanford sites. Each RFP provides that DOE will only require the new 
contractor to contribute to the employees' current pension system for 
the first five years of the contract. Beyond the fifth year of the 
contract, there is no requirement for contractors to contribute to the 
site-wide pension system. It sounds to me like this change to the RFP 
process undermines worker pensions and medical benefits after the first 
five years of the contracts in an effort to produce ``savings.''
    In light of the recent debate in Congress about the future solvency 
of our private pension trust fund and more importantly, the requirement 
that companies with traditional defined benefit pension plans meet 
their funding obligations, please explain why the change in the RFP 
process not an example of an employer--in this case, the DOE--dropping 
its pension obligations to its employees? How else has DOE trimmed its 
budget and cut ``costs''?
    Answer. There is no pending DOE RFP that might extend beyond five 
years that imposes a five-year limitation on incumbent employees 
participating in a defined-benefit pension plan. DOE's policy is not to 
require termination of defined benefit-plans for incumbent employees 
after a five-year period. Most major DOE solicitations in FY 2005, 
including the ongoing recompetition of the work to dismantle the Fast 
Flux Test Facility and the River Corridor Closure Project awarded this 
year, provide that if incumbent employees are in a defined-benefit plan 
they will stay in the plan after new contract award, pursuant to plan 
eligibility requirements and consistent with applicable law and policy; 
i.e., ``if you're in, you're in.'' These procurements also provide that 
new employees hired after the award of new contracts will be offered 
market-based benefit programs competitive for the industry. This policy 
of protecting the interests of incumbent employees and requiring 
market-based pension benefits for new contractor employees will be 
reflected in future RFPs.
    Question 11. A cut in pension benefits won't attract the best 
workers--but bring in cheap labor. Instead of retaining an experienced 
workforce who understands regulations and safety procedures, cutting 
benefits inherently attracts a more transient workforce with less 
training on how to handle highly radioactive waste at Hanford. How will 
these changes impact the ability for contractors to recruit and retain 
skill workers?
    Answer. The Department's Requests for Proposals are designed to 
encourage proposals from would-be contractors to perform with 
excellence. Crafting proposals for compensation packages for new 
employees is an element to be considered, including pension plan 
packages that attract newly-hired employees likely to be able to 
fulfill performance expectations DOE would demand of new contractors. 
Requesting offerors to formulate appropriate market-based pension and 
welfare benefits for new employees is an important element of seeking 
excellence and proficiency in business practices for performance of DOE 
work.
    Question 12. Last year, there was a proposal to shut down the 
medical screening program for the Hanford workers. I was pleased to 
know that instead of closing down the center, the Department made an 
administrative decision not to discard a successful program, 
recognizing that there are many major health problems that exist at 
Hanford. I trust that DOE will continue to stay on this path, to help 
workers better understand what may or may not be happening to their 
bodies. Secretary Bodman, please describe the Agency's plan for 
continuing the worker screening program at Hanford.
    Answer. The Department of Energy (DOE) is committed to funding all 
existing regional medical screening programs, including two programs at 
Hanford.
    The Former Worker Medical Surveillance Program (FWP) was initiated 
as a pilot in 1996 to date has screened over 30,000 former workers from 
a portion of the DOE defense nuclear complex. Free medical screening 
for former Hanford workers in the building trades (construction 
workers) commenced in 1997. To date, 2,850 former Hanford workers in 
the building trades have been screened by the ongoing program. The 
screening targets health problems resulting from exposures, including 
asbestos, beryllium, cadmium, chromium, lead, mercury, noise, 
radiation, silica and/or solvents. The project is being carried out by 
a large group led by The Center to Protect Workers' Rights, an applied 
occupational health research and development center of the Building and 
Construction Trades Department of the AFL-CIO, in partnership with Duke 
University Medical Center, University of Cincinnati Medical Center, and 
Zenith Administrators. Free medical screening for former Hanford 
production workers (non-construction workers) also commenced in 1997. 
To date, 2,306 former Hanford production workers have been screened by 
the ongoing program. This project screens for asbestos, beryllium and 
noise. Medical examinations take place in the Tri-Cities area, Spokane, 
Seattle, or Portland. It is being carried out by the University of 
Washington.
    Question 13. We've recently learned that the Hanford Employee 
Welfare Trust (HEWT) is reducing life insurance benefits for 1,800 
Hanford Retirees. Currently, retirees 65 years of age and older receive 
life insurance equal to half of the salary at which they retired. Under 
the new plan, they'd receive no more than $20,000 in September 2005 and 
that would drop to $15,000 in September 2006. What role does the DOE 
play in the decisions of contractors to change benefit packages for 
retirees? How much does DOE stands to save by reducing life insurance 
benefits for 1,800 retirees? What can we do to ensure that the benefit 
package they were promised were honored?
    Answer. The Hanford Employee Welfare Trust (HEWT) was established 
by 12 participating contractors to administer a common set of benefits 
on their behalf. These benefits include life insurance, medical, 
dental, vision and disability. The HEWT administers these benefits 
through a Board of Trustees, who have the authority and responsibility 
to manage the trust.
    The Department of Energy (DOE) is not a party to, nor does it 
control, the HEWT medical and life insurance program. DOE policy 
precludes the Department from undertaking sponsorship, administrative, 
or fiduciary responsibilities for benefit programs for contractor 
employees, retirees and their beneficiaries. DOE's involvement 
regarding contractor benefit programs is limited to reimbursing its 
contractors for the allowable costs of those benefits and performing 
oversight responsibilities required by the Federal Acquisition 
Regulation, the Department of Energy Acquisition Regulation, and 
applicable oversight regarding contractor compliance with the Employee 
Retirement Income Security Act and Internal Revenue Code.
    DOE policy requires its contractors to conduct a periodic 
assessment of their benefit programs and to submit a corrective action 
plan when the total value of benefits provided by a contractor exceeds 
benefits offered by similar companies by more than five percent. A 
benefit value study for active and retired employees participating in 
the HEWT and the Hanford Multi-Employer Pension Plan, which was 
prepared in 2005 by Hewitt Associates, LLC., demonstrated that the 
total value of benefits provided to those employees exceeded 105% of 
the total value of benefits provided by similar companies. The study 
further indicated that the value of the HEWT post-retirement life 
insurance benefit is nearly 100 times that of comparable companies. In 
light of these findings, the Board of Trustees of the HEWT 
significantly reduced the retiree life insurance benefits offered under 
the HEWT, although those benefits remain above the market value of 
retiree life insurance benefits offered by similar companies. It is 
estimated that these changes in retiree life insurance benefits will 
save DOE approximately $3 million during calendar years 2005 to 2007.
    Question 14. Secretary Bodman, according to a White House press 
release on March 9, 2005, you stated that ``we have implemented 95 
percent of [the Administration's energy policy]''. Are you referring to 
completion of the 105 recommendation[s] in the President's May 2001 
energy plan? Could you provide me with specific correlation between 
each recommendation and the actions of this Administration?
    Answer. Yes, my statement referred to the progress the 
Administration has been making on implementing the 105 recommendations 
made in the National Energy Policy (NEP) report adopted by the 
President in May 2001, which can be viewed in its entirety at: 
www.pi.energy.gov/pdf/library/NEPImplementation Report012505.pdf.
    Question 15. Secretary Bodman, the President stated ``there's ways 
for the federal government to lead when it comes to conservation'' and 
you testified about some current Administration efforts. When was the 
Energy Savers booklet first written and what updates did the Energy 
Department make if any to it recently? Please describe the Department's 
efforts to reach out to energy intensive industries. Is this a new 
effort, or part of ongoing efforts by EERE's Industrial Technologies 
Program?
    Answer. The Energy Savers booklet provides homeowners with tips for 
saving energy and money at home and on the road. It was first developed 
in the Summer of 1998, and the most recent revisions of September, 
2005, include the updating of all relevant energy use statistics in 
addition to adding a home office section, driving and car maintenance 
section, and including a short primer about renewable energy. It is 
available in English and Spanish and our website at 
www.energysavers.gov.
    The Industrial Technology Program (ITP) is sending teams of energy 
experts to conduct 200 targeted assessments of the nation's most 
energy-intensive industrial plants. ITP will also deliver an outreach 
program to staff at more than 50,000 plants by providing tools and 
materials to help plants reduce natural gas and electricity use. 
Current efforts continue ongoing activities funded through the 
Industrial Technologies Program's Best Practices and Industrial 
Assessment Center activities.
    Question 17. Secretary Bodman, the President's budget requests have 
consistently called for a reduction in funding for EERE's Industrial 
Technologies Program. If those cuts had been accepted by Congress, what 
change in national energy use would we have seen?
    Answer. Over the past 30 years, industry has shown a remarkable 
ability to improve energy efficiency, greatly increasing economic 
output without a corresponding increase in energy use. From 1973 to 
2003, industrial output as measured by the industrial production index 
of the Board of Governors of the Federal Reserve System almost doubled, 
increasing from 56.2 (where the 1997 level is 100) to 110.9. Over the 
same period, industrial energy use remained virtually the same, 
decreasing from 32.653 quadrillion BTUs to 32.608. Most of these 
improvements were the result of general improvement and efficiency 
decisions, such as the routine replacements of older capital with more 
efficient units. Industry has been increasing energy efficiency, and we 
expect them to continue to do so. While the Department's efforts also 
contributed to some improvements in industrial energy efficiency, it is 
difficult to speculate on what impact hypothetically lower funding in 
recent years would have had.
    Congress has provided for our request to reallocate some funding 
for the Industrial Technologies Program to higher priority programs. 
The program continues to focus its collaborative R&D on projects with 
the biggest potential for energy savings.
    Question 18. Secretary Bodman, given the growing demand for oil in 
Asia, do you believe that oil derived from the Arctic National Wildlife 
Refuge (ANWR) could be diverted to supply Asian markets? If drilling in 
the Arctic National Wildlife Refuge is authorized this year, when will 
it begin to have an impact on gasoline prices? What do you believe that 
effect will be?
    Answer. Whether oil produced in ANWR is exported to Asia or 
consumed domestically depends on a multitude of factors, among them 
West Coast refining capacity, other domestic and foreign crude oil 
production, petroleum product consumption, and relative crude and 
product prices.
    The specific characteristics of ANWR oil production relative to 
domestic and world refining capacity will be a factor in determining 
whether ANWR oil is exported; namely, whether ANWR oil production is 
light or heavy, sweet or sour. Asian refineries are not currently 
configured to process heavy sour crude oils, whereas the U.S. West 
Coast refineries are. If ANWR crude oil production is light and sweet, 
then it is more likely to be exported to Asia, than if it is heavy and 
sour.
    ANWR oil production is likely to displace West Coast crude imports 
of foreign oil, but some factors might make it advantageous to both 
consumers and producers for crude oil produced from ANWR to be 
exported. Oil, like any other commodity, moves to that market which 
places the highest value on its qualities. If ANWR crude is permitted 
to move to that regional world market which values it the most, then 
the U.S. trade deficit is minimized and the exportation of ANWR crude 
oil would offset any importation of foreign crude and petroleum 
products of equal value.
    Because of the Arctic weather limits the pace of exploration and 
development on the Alaska North Slope, it would take between 8 to 12 
years between the opening of ANWR to petroleum development and the 
commencement of ANWR oil production. The last major Alaska North Slope 
oil field to have been brought into production is the Badami oil field, 
which is located near the western border of ANWR. The Badami field was 
discovered in 1990 and went into production in 1998. This 8-year 
development period does not include the additional 2 to 4 years that 
would be required to set up a Federal leasing program for ANWR and to 
collect and process ANWR seismic data.
    Question 19. Secretary Bodman, do you support more transparency in 
the oil and gas markets, as would be provided in my bill S. 1735?
    Answer. The Administration has not yet taken a position on the 
specific bill you refer to. However, we are supporting current efforts 
to improve oil and gas market data collection and transparency. We 
support more transparency in the oil and natural gas markets, 
especially to acquire improved world-wide oil and gas data. We have 
worked with the International Energy Agency and other organizations to 
improve near-term market assessments, especially since the proper 
functioning of futures markets requires reliable and consistent data.
    Question 20. Secretary Bodman, I understand that the Department of 
Energy has a gas price hotline, but can't do anything about the 
complaints it receives except forward them on to other agencies. Can 
you tell me how many complaints the Department has received this year 
and what, if any thing, the Administration has done about them?
    Answer. The Department of Energy maintains a toll-free telephone 
number (1-800-244-3301) and a web site (www.energy.gov) where Americans 
can register a complaint if they suspect they are a victim of gas price 
gouging. Because the Department of Energy has neither the legal 
jurisdiction to investigate these complaints, nor the authority to 
prosecute suspected gougers, our role has been to collect, collate and 
transmit this information to the appropriate authorities; for example, 
the Federal Trade Commission (FTC), or, the appropriate State Attorney 
General. Between January 1, 2005--November 9, 2005 the Department of 
Energy has logged a total of 32,348 complaints. 8,100 of these 
complaints have been received since September 5th, just after Hurricane 
Katrina hit. This information is transmitted to the relevant State and 
Federal agencies on a weekly basis.
    Question 21. Secretary Bodman, I believe harnessing the ocean's 
abundant natural energy holds considerable long-term promise as a 
clean, distributed, and renewable energy resource. Can you tell me if 
the Department has conducted any R&D into wave energy? How does our 
national effort compare to those of other countries?
    Answer. The Department is currently supporting a wave energy R&D 
project via our Small Business Technology Transfer program. We are 
participating in a collaborative effort led by the Electric Power 
Research Institute to study wave energy's status, and potential 
demonstration sites in the United States. The U.S. Navy has also 
invested in wave technology R&D and is operating a small pilot project 
near a Marine base in Hawaii. The Department is closely following 
worldwide developments in the technology by becoming a member of the 
International Energy Agency (IEA) Implementing Agreement on Ocean 
Energy Systems to better understand the status and potential of ocean 
energy technologies. Participating members in this agreement include 
Canada, Denmark, the European Commission, Ireland, Japan, Portugal and 
the United Kingdom. The United Kingdom supports the most extensive R&D 
program for wave and ocean current energy technology.
    Question 22. Secretary Bodman, can you provide me an update to the 
Department's R&D efforts on lightweight materials for vehicles? What is 
the prognosis for these technologies? Do you believe carbon-fiber shows 
promise in vehicle applications?
    Answer. The Department's R&D that is aimed at developing 
lightweight materials for vehicles is progressing well. Progress was 
made this year in a number of technical areas including magnesium 
casting, carbon fiber production, and design data development. Recent 
fuel price volatility has stimulated interest in these technologies. We 
believe carbon fiber shows great promise and we're continuing to 
develop the tools and processes that can help make it a cost effective 
alternative to lightweight materials such as aluminum and magnesium.
    Question 23. Secretary Bodman, how has the last 3 years of 
escalating gasoline prices affected demand by American drivers? Have we 
seen a correlation between a certain level of price increase and less 
demand by American drivers? What is the actual level of reduced today 
compared to 3 years ago (please respond in the context of a doubling of 
retail gasoline prices)?
    Answer. The U.S. average retail price for regular gasoline has 
increased from about $1.40 per gallon in August and September 2002 to 
$2.90 per gallon in September 2005. However, even during this period 
while gasoline prices more than doubled at the pump, gasoline demand 
has continued to increase steadily. Gasoline demand is relatively 
inelastic, meaning it does not respond readily to changes in price. 
This is because so many people depend on gasoline for daily, non-
discretionary travel, and there is no readily available substitute.
    Looking at the graph,* we can see the linear trendline for finished 
gasoline product supplied is positively sloped, depicting the overall 
upward trend in gasoline demand as it has increased from 9.3 million 
barrels per day in August 2002 to 9.5 million barrels per day in August 
2005. While it is likely that gasoline demand would be even higher now 
if retail prices had remained under $1.50 per gallon, as people have 
curbed some discretionary driving due to higher prices, higher prices 
have not stopped demand growth.
---------------------------------------------------------------------------
    * Retained in committee files.
---------------------------------------------------------------------------
    Question 24. Secretary Bodman, what are the crude oil extraction 
costs for major oil producing countries, including our own? How does 
that compare with oil derived from shale or coal?
    Answer. Given the absence of total cost data for conventional oil 
production in the United States and the world, and given the accounting 
issues of defining what costs are included and how joint costs are 
allocated among oil fields, one has to rely on indirect indicators of 
the relative cost of conventional oil production among the world's 
petroleum provinces. Generally, there are three metrics for indirectly 
measuring an oil field's production cost, which are presented in the 
following order of relative importance: 1) the size of the field (i.e., 
the original oil in-place), 2) the percentage of original oil in-place 
that has been produced, and 3) the quality of the oil (i.e., its API 
gravity). Because most giant fields that are the target of significant 
exploration activity produce middle gravity oil, our analysis below 
focuses on the first two metrics.
    These two metrics can be applied using two different perspectives. 
One focuses on the relative size and age of conventional oil fields 
operating in the United States relative to the rest of the world. The 
other focuses on the ``frontier'' for finding new giant oil fields,\1\ 
with the understanding that these new fields will generally be the 
lowest cost opportunities for an incremental conventional oil 
production.
---------------------------------------------------------------------------
    \1\ In the petroleum industry, a ``giant'' oil field is defined as 
having 500 million or more barrels of oil that can be produced over the 
life of the field.
---------------------------------------------------------------------------
    From the first perspective, all of the giant U.S. onshore lower-48 
oil fields were found between the late 1800s and 1940. Most of these 
fields have produced most of the recoverable oil in-place, and, in all 
cases, these giant oil fields are now producing oil using tertiary 
production methods (i.e., the injection of steam or carbon dioxide to 
produce oil), which is the most expensive means of producing oil.\2\ In 
contrast, Alaska oil production should be somewhat less expensive to 
produce than onshore lower-48 production because most of the giant 
fields found on the North Slope were discovered in the late 1960s and 
early 1970s, and because they haven't produced as much of the original 
oil in-place (because they have not been in production anywhere near as 
long as the giant onshore lower-48 fields).
---------------------------------------------------------------------------
    \2\ ``Primary'' production refers to oil that is produced without 
injecting water, steam, or carbon dioxide. ``Secondary'' production 
refers to oil produced with the assistance of water injection.
---------------------------------------------------------------------------
    In contrast to the U.S. onshore lower-48, most of the giant fields 
producing overseas were discovered much later so they have not produced 
as much of their original oil in-place, both because of their relative 
age and because of OPEC production constraints. In the Middle East, 
most of the giant oil fields were discovered in the late 1940s through 
the 1970s, and the average giant field size is much larger than the 
giants fields found in the U.S. onshore lower-48. Most of the giant 
Russian oil fields were also discovered in the late 1940s through 1970s 
time frame, but the production costs should be higher than in the 
Middle East both because the average field size is smaller and because 
a larger percentage of the original oil in-place has been produced.
    From the ``frontier'' perspective, exploration companies are 
primarily searching for and finding giant oil fields located in the 
offshore deepwater regions of the Gulf of Mexico, West Africa, Brazil, 
Northwest Australia, and Malaysia/Indonesia. So generally one would 
expect these to be the incremental oil fields with the lowest 
production cost.
    The production costs of most non-conventional liquids are typically 
higher than the production costs from conventional sources. For 
example, the production costs are: $10 to $15 per barrel for ultra-
heavy oil, $10 to $20 per barrel for oil sands, and $25 to $30 per 
barrel for gas-to-liquids. The range of production costs for coal-to-
liquids and shale oil are likely to be higher than those for the other 
non-conventional liquids production costs cited above.
    Because investments in oil shale and coal-to-liquids are capital-
intensive, investors would need to expect a long period of consistently 
high crude oil prices before they could expect to earn a return on 
their investment. A recent study by Mitertek (2003) estimated that a 
flat world oil price of $42 per barrel (2004 dollars) would make 
current coal-to-liquids technology economic. Allowing for the revenues 
associated with cogenerated electricity could lower the required price.
    Based on data obtained from the Federally-funded oil shale 
demonstration plants of the 1970s, capital investment in shale oil 
processing becomes economic with current technologies when world oil 
prices exceed about $70 per barrel (2004 dollars).
    Of course, technological breakthroughs could alter the economics 
and the likelihood of production from non-conventional sources. For 
example, Shell Oil is currently testing an in-situ oil shale process in 
the Rocky Mountains that it hopes will be profitable at about $30 per 
barrel of petroleum liquids. The Shell process, however, is still in 
the experimental stage, so there is considerable uncertainty whether 
this process will prove to be technically and economically feasible.
                     Questions From Senator Corzine
    Question 1. Can you report on the status of the implementation of 
the energy efficiency tax Incentives included in the Energy Policy Act 
of 2005?
    Answer. The Department of Energy is working in partnership with the 
Department of Treasury to provide technical expertise as they write 
regulations for the energy efficiency tax incentives. We expect that 
these regulations will be completed by deadline.
    Question 2. What kind of Steps has the Department of Energy taken 
to encourage Americans to conserve? Do you think the steps are working?
    Answer. DOE has launched an expansive campaign to educate and 
encourage consumers on energy efficiency and ways to conserve. The Easy 
Ways to Save Energy Campaign announced by Secretary Bodman in October 
highlights the Department's efforts, in partnership with the Alliance 
to Save Energy, the Department of Housing and Urban Development and the 
Environmental Protection Agency.
    This campaign includes:

   Visits by Senior DOE Officials around the country to 
        encourage energy conservation.
   Energy Savers, a booklet providing comprehensive efficiency 
        and conservation tips to save energy and money at home. The 
        booklet is also paired with www.energysavers.gov, a web 
        resource for consumers and businesses looking for ways to save 
        energy. Highlighting the EnergyStar label for consumers is a 
        key ingredient.
   Energy Saving Expert Teams, an effort to provide guidance to 
        both federal facilities and America's most energy intensive 
        factories, DOE is sending teams of experts around the country 
        to give assessments, analysis and evaluation of sites and 
        feedback on how to save energy.

    These among other efforts express DOE's commitment to promoting 
energy efficiency and conservation. We have seen a significant increase 
in visits to DOE web resources, expansive national distribution of 
materials, and expanding partnerships with efficiency advocate groups. 
The impacts of outreach efforts are difficult to measure, however, we 
believe that we are providing Americans with resources they can use to 
make energy efficiency and conservation a priority.
    Question 3. Does it make sense to ask oil companies who have 
reported record profits this quarter even in the wake of hurricanes 
Rita and Katrina, to invest in increasing our refinery capacity?
    Answer. Refinery investments, like any other, must reflect longer-
term expectations of profitability. Until recently, the rate of return 
on refinery investments has been lower than investment in other sectors 
of the industry. In addition we should acknowledge that there has not 
been a favorable regulatory climate for energy infrastructure 
investments, especially refineries. Recently, the returns on refinery 
investments have increased, and industry is responding by announcing 
additional refinery investments. Marathon, Exxon, Valero, Sunoco and 
other U.S. refiners have recently announced plans to increase their 
refinery capacities. Most refiners are reviewing opportunities to 
expand capacity to meet growing demand and many more projects will no 
doubt emerge in the coming months and years. Also, by streamlining the 
environmental permitting provisions, as in Energy Policy Act of 2005, 
the regulatory barriers to refinery investments will be reduced.

                     Questions From Senator Salzar

    Question 1. I want to ask you about the schedule for loan 
guarantees as provided for in the Energy Policy Act of 2005. While 
these new programs will not solve the near term problems of this 
winter, funding these loan guarantees will provide a stepping stone for 
America's energy future. Title 17 of the Energy Policy Act instructs 
the Department of Energy to establish a program to provide federal loan 
guarantees for coal gasification, renewable energy and other 
technologies that will be vital for promoting U.S. energy security and 
independence. These technologies are very important to me and to 
Colorado. I would appreciate if you could comment on the Department's 
implementation plans for these loan guarantees and provide this 
Committee with a short summary of your implementation plan and 
implementation schedule.
    Answer. Title XVII of the Energy Policy Act of 2005 authorizes DOE 
to provide loan guarantees for renewable energy systems, advanced 
nuclear facilities, coal gasification, carbon sequestration, 
refineries, energy efficiency, and many other types of projects that 
use improved technologies in commercial projects that enhance energy 
economy and reduce emissions of pollution and greenhouse gases. The 
Department is assessing procedures to comply fully with the provisions 
of the Federal Credit Reform Act and OMB Circular A-129. The 
Department's Chief Financial Officer is heading up our efforts in 
consultation with the energy and science program offices, the Office of 
the General Counsel, the Office of Policy and International Affairs, 
and others. The Department has not developed a timetable for completing 
these activities.
    Question 2. Section 133 of the Energy Policy Act requires you to 
convene an organizational conference to establish an ongoing, self-
sustaining national public energy education program. Under the law, you 
have 180 days after enactment of the bill to get this ball rolling. 
Even though that 180 day limit gives you until February, I can't help 
but think that the country would be better served if this got started 
now, not at the last possible moment some 4 months into the future. 
What is the status of developing this energy education program?
    Answer. We have plans underway to convene such a conference in 
January.
    Question 3. What is the status and timeline for both LNG terminal 
construction and for the Alaska pipeline? Is $14 gas making these 
projects more feasible? When will these gas streams begin entering the 
market in significant quantities, and how will they affect gas prices?
    Answer. Ten U.S. LNG import terminals (eight onshore and two 
offshore) have been approved and another sixteen (nine onshore and 
seven offshore) are currently undergoing regulatory review. Three of 
the ten approved terminals have broken ground for construction and are 
anticipated to be in operation sometime during 2008. Additionally, two 
approved Canadian LNG import terminals which intend to provide pipeline 
natural gas to the U.S. have broken ground and are also scheduled to be 
operational in 2008.
    The commencement of operations at any new LNG import terminals will 
increase the supply of natural gas and help mitigate the natural gas 
supply shortfall in the U.S. LNG has become a global commodity, with 
prices strongly influenced by global supply and demand. Consequently, 
the price of natural gas in the U.S. will be impacted by many factors 
affecting the global supply and demand of natural gas, such as the 
discovery of new sources of natural gas and the cost and availability 
of alternative sources of energy to natural gas.
    The Alaska Natural Gas pipeline negotiations continue between 
project proponents and the State of Alaska. Once a commercial project 
emerges, the Federal Government is ready to expedite the permitting and 
construction of the pipeline. The three major producers filed a success 
case project timeline with their State Stranded Gas Act application, 
which estimated that first gas would flow at 10 years from the date 
when all government frameworks including Federal legislation and fiscal 
certainty in Alaska were in place. After the State of Alaska agrees to 
a contract with a project proponent, that contract is required to be 
sent to their State Legislature for ratification after a 30 day public 
comment period.
    The current high natural gas prices for this winter's delivery 
would not be expected to remain at their current level over the 30 year 
planning period of an Alaska natural gas pipeline. The investment 
decision will be based on long term price forecasts, not on the short 
term spot prices; however, a trend of higher prices would encourage 
prospective investors.
    Question 4. Secretary Bodman, is it time for EIA to conduct a 
thorough review of its long-term demand projections for natural gas? 
Gas demand seems to be stable, with no signs of heading up to the 
levels projected by EIA. If we better understand long run demand 
trends, won't we have a better understanding of policy initiatives 
needed in the short, medium, and long term?
    Answer. EIA conducts a review of the natural gas demand projections 
each year as part of producing the Annual Energy Outlook (AEO). The 
projections are reviewed for consistency with the underlying factors 
that influence natural gas demand (e.g., energy prices, population, 
industrial production, disposable income, technology) and compared with 
other contemporary forecasts, including those from Global Insights, 
Energy and Environmental Analysis, Energy Ventures Associates, and PIRA 
Energy Group, among others. The comparison with other forecasts 
revealed that projected natural gas consumption levels in 2015 in the 
2005 Annual Energy Outlook (AEO2005) was relatively consistent with the 
other forecasts, lower then those produced by Energy and Environmental 
Analysis and Energy Ventures Associates and higher then those produced 
by Global Insights and PIRA Energy Group, but all were in a fairly 
narrow range.
    The AEO natural gas demand forecast does not follow short-term 
fluctuations in demand, even those that may last for a number of years, 
but is based more on the fundamental long-term drivers of energy 
markets. EIA does not believe that recent relatively constant natural 
gas demand levels can persist in the face of growth in the underlying 
factors that influence natural gas demand. EIA also believes that given 
current laws and regulations it is unlikely that improved energy 
efficiency or switching to alternative fuels could offset all of the 
expected growth in natural gas demand. Nonetheless, EIA recognizes that 
there is uncertainty about change in the underlying factors that 
influence natural gas demand levels. For example, there is uncertainty 
about projected economic growth, technology change, and energy prices. 
EIA produced multiple scenarios as part of AEO2005 to examine the 
impact of uncertainty in these factors. The level of natural gas demand 
in 2025 varies in these scenarios from a low of 28.6 trillion cubic 
feet to a high of 31.7 trillion cubic feet. EIA believes that this is a 
reasonable range for future natural gas demand given current laws and 
regulations and potential variation in the factors that influence 
natural gas demand.
    Question 5. With oil prices high--and the need to bring down the 
high price of fuel, we need Alternatives. In the aftermath of Hurricane 
Katrina, we faced a substantial threat to our refinery capacity by 
having a significant portion of our nation's refineries concentrated in 
one region. The spread throughout the nation would help provide cost-
effective alternatives to gasoline and would help protect against 
future threats both of price spikes and supply shortages by 
diversifying our fuel supply and infrastructure.
    There are provisions in the Energy Policy Act of 2005 to diversify 
our fuel supply and infrastructure through crops we can grow here at 
home and by converting agricultural and forestry residue into energy.
    How long does the Department of Energy anticipate it will take to 
get the first cellulosic ethanol demonstration plant up and running?
    Answer. The Department cannot predict with certainty when the first 
cellulosic ethanol plant will be up and running. There are several 
companies that believe they have reduced technical risks to the point 
that at least niche opportunities exist. Other companies have indicated 
that they could expand their existing facilities to incorporate 
cellulosic ethanol. Although it is possible that these ventures could 
occur in the near term, it may well be 2012 or later before the first 
cellulosic ethanol demonstration plant is up and running.
    Question 6. Secretary Bodman, I'd like to discuss the status of the 
U.S. Program to produce domestic synfuels from coal and biomass. This 
type of production represents a tremendous opportunity for decreasing 
America's reliance on imported fuel. It also opens the door for cost-
effective carbon dioxide separation and storage, by linking coal 
gasification plants to enhanced oil recovery opportunities. How is the 
Department of Energy working to speed this desirable development?
    Answer. The Department of Energy has worked for many years on the 
development of technology/processes for the production of clean liquid 
fuels and syngas from coal. More recently, the Department has focused 
its research program on coal to clean hydrogen and coal to syngas. 
Hydrogen could be used as transportation fuel and thus reduce America's 
reliance on imported fuel. Domestic production of syngas from coal 
could reduce natural gas imports.
    Three important examples of the Department's work in hydrogen and 
syngas production from coal are Fuels, Sequestration, and FutureGen. 
The Fuels program conducts research to promote the transition to a 
hydrogen economy. Research is targeting reducing costs and increasing 
efficiency of deriving hydrogen from coal feedstocks as part of the 
President's Hydrogen Fuel Initiative. When gasification technology is 
used for hydrogen production, a concentrated carbon dioxide by-product 
stream can be produced which can be captured and either used for the 
production of crude oil by use of FOR technology or it could be 
permanently sequestered. The Department has a large, on-going research 
and development program in carbon capture and storage including the 
support of regional partnerships with goals to identify potential 
storage opportunities that includes containment in geological 
formations such as caverns and brine aquifers. The FutureGen project 
will integrate subsystems and components currently being developed 
through the Department's research and development programs, including 
gasification of coal, production of hydrogen, and low cost 
CO2 capture and storage technology. FutureGen is aimed at 
establishing the technical capability and potential economic 
feasibility of co-producing electricity and hydrogen from coal with 
near-zero atmospheric emissions.
    Liquid fuels from coal is a mature but evolving technology, with 
costs in the range of $35 per barrel for mature plants, but no 
commercial U.S. plants have been built. The primary barrier to 
commercial introduction of the technology has been the volatility and 
uncertainty of world oil prices.