***[Introduction]{.underline}***

On August 8, 2005, President George W. Bush signed into law the Energy
Policy Act of 2005. This bipartisan bill was the first comprehensive
energy bill passed by Congress in 13 years.

Senator Pete V. Domenici spearheaded the effort to pass the bill in the
U.S. Senate. When he became chairman of the Senate Energy & Natural
Resources Committee in January, 2003, Domenici announced that a new
energy policy act for America was his top priority and worked tirelessly
for 2 ½ years to write a bill and get it through the Senate.

Domenici said he wanted a bill that would increase both energy
production and conservation as well as diversify U.S. energy sources. He
wanted a bill that invested in new technologies and new energy sources,
and he placed a high priority on encouraging the production of energy
from sources that would protect the environment, particularly nuclear
power.

He worked closely with Senate Energy & Natural Resources Ranking Member
Jeff Bingaman and House Energy and Commerce Chairman Joe Barton and
Ranking Member John Dingell to draft and pass a bill that, after only a
year, has begun to achieve the far-reaching goals he identified in
January, 2003.

For example, EPAct05 includes nuclear incentives that have prompted
plans to build as many as 25 new nuclear power plants over the next 15
to 20 years, creating a nuclear power renaissance in America toward
which Domenici has been working for 20 years.

EPAct05 includes an ethanol provision that has resulted in cleaner
gasoline and is revitalizing rural America by giving farmers an expanded
market for their commodities. The ethanol provision alone is expected to
create nearly 235,000 jobs.

The Senate Energy & Natural Resource Committee this year held nearly two
dozen hearings examining the effect EPAct05 is having on all aspects of
energy research, development, production and use. The hearings also
focused on the anticipated impact of the bill over the next several
years.

On this, the one-year anniversary of EPAct05, the Committee has released
a report examining the effect of the law now as well as the anticipated
impact of the legislation in the near future. What follows is a brief
summary of EPAct05, "By the Numbers" prepared in conjunction with the
House Energy & Commerce Committee; a series of highlights of the bill's
impact prepared by the Senate Energy and Natural Resources Committee,
and an exploration of several issues in depth as a result of the Energy
& Natural Resources Committee's oversight hearings this year.

***[THE ENERGY POLICY ACT OF 2005]{.underline}***

***[ONE YEAR LATER...]{.underline}***

*[**By the Numbers**:]{.underline}*

**Because Congress passed the Energy Policy Act last July:**

**27** New ethanol plants that have broken ground

**500 million** Gallons of new annual ethanol production online

**1.4 billion** Gallons of annual ethanol production online by end of
2006

**401** E-85 pumps installed

**25** New nuclear reactors planned

**25,000** Megawatts of electricity will be generated by 2020 if all 25
plants are built

**15** **million** Households can be powered by the electricity from the
25 plants

**0** Airborne emissions will be generated by the 25 plants

**116,871** New hybrid vehicles purchased since Jan. 1, 2006

**1.34** Billion cubic feet/day of new Liquified Natural Gas (LNG)
capacity online

**9.7** Billion cubic feet/day of new LNG capacity approved by FERC

**5** New LNG terminals or terminal expansions approved by FERC

**30** Emergency fuel waivers granted following Hurricane Katrina

**2,000** Megawatts of new wind power online

**493,000** Homes that can be powered by new wind power

**3 billion** Dollars in economic activity spurred by new wind power
production

**7 billion** Pounds of CO~2~ emissions avoided by new wind power
production

**4,200** Megawatts of new wind power slated to be online by end of 2006

**1 million** Homes that can be powered by new wind power by end of 2006

**100** Percent increase in CA and NJ applications for photovoltaic
systems

**2,000** Megawatts of new geothermal power under development

**30** Percent increase nationwide of solar thermal collectors
installations

**15** New efficiency standards implemented for large appliances

**50,000** Megawatts of energy saved by 2020 because of the 15 new
efficiency standards

**80** 600-watt power plants won't be needed because of the new
efficiency standards

**120** New coal-based facilities in various stages of planning

**2 million** Barrels of oil daily that can be replaced by clean,
synthetic fuel from coal by 2025

**5 trillion** Cubic feet of natural gas that can be replaced by coal
fuels by 2025

**55,000** Coal miners expected to join workforce over next five years

***[Highlights]{.underline}:***

**ETHANOL**

-   **Economic Gains:** Rural economies across the country are being
    revitalized through investment in ethanol production thanks to the
    ethanol requirement in the energy bill. Over the next six years
    alone, ethanol use will displace 2 billion barrels of foreign oil,
    create 234,840 new jobs, and boost American household incomes by
    \$43 billion.

-   **New Ethanol Plants:** Because of the ethanol provision, 34 new
    ethanol plants are under construction, eight existing plants are
    being expanded and more than 150 plants are in the works. Each plant
    employs between 40 and 50 people and is expected to create hundreds
    of jobs throughout the local economy. These new plants will add more
    than 2 billion gallons of ethanol to the nation's fuel supply by
    2007, a 50 percent growth in ethanol production capacity.

-   **Creation of New Jobs:** In 2005, the U.S. ethanol industry
    supported the creation of 153,725 new jobs in all sectors of the
    economy, including more than 19,000 jobs in America's manufacturing
    sector. Ethanol added \$5.7 billion to the bottom lines of American
    families and resulted in more than \$1.6 billion in state and local
    tax revenue that can be used to build schools, hire first responders
    and improve roadways. Thanks to the ethanol requirement in the
    energy bill, these numbers will only continue to improve.

**NUCLEAR**

♦      **New Nuclear Plants:** Because of the provisions in the energy
bill, including the loan guarantee authority, the production tax
credits, and the insurance protection against licensing delays and
litigation, electricity generating companies and consortiums across the
United States are preparing applications for permission to build up to
25 new nuclear power plants.

♦      **Increased Generation:** If all 25 are built, they would
generate between 20,000-25,000 megawatts of new electricity enough to
power 15 million households.

♦      **Creation of New Jobs:** Those plants would also create between
40,000 and 45,000 construction jobs and approximately 10,000 high
paying, high-tech plant operation jobs.

♦      **For more information,** see "Selected Issues in Depth", below.

**ENERGY EFFICIENCY**

-   **New Federal Efficiency Standards:** The energy bill implemented
    new efficiency standards for 15 large commercial and residential
    appliances that have, in the past, consumed a great deal of energy,
    such as commercial washer, refrigerators, freezers, air conditions
    and ice makers. In response to that mandate, the Department of
    Energy last month codified 15 new efficiency standards.

-   **Energy Savings:** Because of these new standards alone, we will
    save 50,000 megawatts of off-peak electricity use by 2020 -- which
    is an energy savings equal to more than 80 600-megawatt power
    plants.

-   **Helps consumers save energy:** The energy bill encourages
    consumers to make their homes more energy efficient by giving them a
    10-percent personal tax credit for energy efficient improvements.
    The maximum credit is \$500 (\$300 for windows). Expires after
    December 31, 2007.

-   **Helps builders build more energy efficient homes:** Home builders
    get a business tax credit for the construction of new homes that
    meet a 30 percent energy reduction standard. The tax credit expires
    after December 31, 2007.

-   **Helps businesses save energy:** The bill provides a deduction for
    energy efficient commercial buildings meeting a 50 percent energy
    reduction standard. The maximum deduction is \$1.80 per square foot
    of the building. Expires after December 31, 2007.

-   **Helps manufacturers build more energy-efficient home products**:
    The bill provides a manufacturers' tax credit for energy efficient
    dishwashers, clothes washers, and refrigerators manufactured in 2006
    and 2007.

**WIND**

-   **Encourages new wind production:** The energy bill extended until
    2007 a 1.8 cent per kilowatt production tax credit for new wind
    energy. This will strongly encourage utilities to build more clean
    and renewable wind power.

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-   **Increased Capacity:** 4,200 megawatts (MW) of new wind power,
    enough energy for the annual needs of 1 million households, will be
    installed by the end of 2006 due in part to the extension of
    production tax credits in the energy bill. A total of more than
    15,600 MW of wind energy could be online by the end of 2007, when
    the tax credits expire, which is enough energy to power roughly five
    million homes for one year.

-   **Improving the environment:** This new power alone will offset the
    emission of approximately 7.5 billion pounds of carbon dioxide,
    equivalent to keeping nearly 529,000 SUVs off the road, according to
    the American Wind Energy Association.

**SOLAR**

-   **Encourages generation of more solar energy:** The energy bill
    gives a comparable tax incentive to the solar industry until 2007 to
    encourage the electricity industry to build more clean and renewable
    solar power.

-   **Encourages consumers to produce their own solar energy:** The bill
    creates a 30-percent tax credit for the purchase of residential
    solar water heating, photovoltaic equipment, and fuel cell property.
    The maximum credit is \$2,000 for solar equipment and \$500 for each
    kilowatt of capacity (for fuel cells). Expires after 12/31/2007.

**GEOTHERMAL ENERGY**

-   **Encourages new geothermal production:** The energy bill expanded
    the tax incentive placing new geothermal facilities on the same
    footing as new wind and solar facilities and extending the placed in
    service deadline through 12/31/2007.

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-   **Increased Capacity:** As of August 2006, 2,000 megawatts of new
    geothermal power are under development, equivalent to the
    electricity necessary to meet the needs of 2 million homes for one
    year.

**ELECTRICITY**

-   **Electric Reliability:** The Federal Energy Regulatory Commission
    (FERC) has certified an Electric Reliability Organization and is
    developing new mandatory rules to ensure consumers a reliable supply
    of electricity and help prevent future blackouts. For more
    information, see "Selected Issues in Depth," below.

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-   **Market Manipulation:** The energy bill grants FERC the authority
    to facilitate energy price transparency and strengthens existing
    protections against market manipulation of energy prices. These
    provisions were designed to prevent future market abuses such as
    those in California, Washington and Oregon in 1999 through 2001.

-   **PUHCA Repeal:** The energy bill repealed the Public Utilities
    Holding Company Act (PUHCA) of 1935 and passed PUHCA 2005, a
    streamlined version of the law which opens the electricity and
    natural gas sectors to new sources of investment for necessary
    energy infrastructure development. This will have the effect of
    encouraging the construction of power lines, pipelines and
    underground bundled cables to meet America's future energy needs.

-   **Mergers**: The energy bill protects consumers from unnecessarily
    high electricity prices by requiring FERC to determine whether or
    not a proposed utilities merger will harm consumers. FERC is also
    directed to expedite certain mergers in order to encourage more
    electricity generation and better delivery of electricity to
    consumers.

-   **Transmission Investment**: Pursuant to the energy bill, FERC has
    finalized rules to increase investment in the nation's transmission
    infrastructure which will reduce transmission congestion, thereby
    promoting electric power reliability.

-   **Gas Storage Pricing:** The energy bill requires the expansion of
    natural gas storage capacity in order to protect consumers from
    price spikes due to tight supply.

**CLEAN FUELS AND VEHICLES**

-   **Protecting the environment:** The energy bill removes the
    oxygenate standard from law, and, as a result, the MTBE fuel
    additive, which has been leaking out of gas tanks into surrounding
    soil in some states, will no longer be used. Some claim MTBE harms
    the environment and many states face costly cleanup. As of February
    2006, gasoline will instead include ethanol, a clean and renewable
    fuel made from plants.

-   **Lowering prices for consumers:** The energy bill limits the number
    of boutique fuels in the marketplace. In doing so, the number of
    special fuels that have to be mixed at refineries is capped and the
    cost of gasoline is effectively reduced.

-   **Hybrid Cars Tax Credit:** Effective January 2006, the energy bill
    replaces the tax deduction for buying hybrid cars with a much more
    generous tax credit, giving consumers a greater incentive to buy
    fuel-efficient cars.

-   **Hydrogen Fuel Cells:** The energy bill contains a variety of
    initiatives designed to accelerate the commercialization of fuel
    cell technology. The development and widespread use of hydrogen fuel
    cells can contribute to an abundant, reliable, and affordable supply
    of clean energy, and, as a transportation fuel, hydrogen can result
    in zero criteria pollutant or carbon emissions from vehicle
    tailpipes.

-   **Lowering barriers for hydrogen use:** In FY 2007, as a result of
    the energy bill, the Department of Energy will initiate projects in
    several areas, including improved fuel cell membranes, cold-weather
    start-up and operation, advanced cathode catalysts and supports,
    innovative concepts, and the effects of impurities on fuel cells.
    Already, DOE has been successful in reducing the cost of producing
    hydrogen from natural gas --from \$5.00/gallon gasoline equivalent
    (gge) to \$3.00/gge.

**OIL**

-   **Increased domestic oil production from approved sites:** The
    energy bill includes several provisions to help America get more oil
    for existing development.

-   **Increasing western states production**: A western states pilot
    program streamlines the permitting process to cut out months and
    years of unnecessary delays and bring oil the market sooner.

-   **Developing innovative technologies to protect the environment and
    produce more oil.** One such innovation in the bill drives
    previously unreachable oil to the surface by forcing carbon dioxide
    into old wells. This technique has doubled oil production at DOE's
    Weyburn oil development site, a mature oil field. Carbon
    sequestration at this one site alone could produce an additional 130
    million barrels of oil and sequester as much 30 million tons of C02.

**NATURAL GAS**

-   **Developing more natural gas faster:** The energy bill creates a
    western-states pilot program that will help bring 7 trillion cubic
    feet (almost half the annual U.S. consumption) of new gas to market
    in the next 15 years. The new program eliminates months and years of
    bureaucratic delays in issuing drilling permits in approved areas.

**COAL**

-   **Encourages utilities to invest in clean coal generation:** The
    bill establishes three tax credits for investments in clean coal
    facilities producing electricity: (1) 20 percent credit for
    industrial gasification projects, (2) 20 percent credit for
    integrated gasification combined cycle (IGCC) projects, and (3) 15
    percent credit for other advanced coal-based projects that produce
    electricity.

-   **How IGCC works**: Rather than burn coal directly, the IGCC process
    breaks it down into its chemical constituents and collects each
    byproduct \-- carbon dioxide, sulfur dioxide, nitrogen oxide, trace
    metals and particulates \-- for filtering or treatment before
    combustion. In its broadest application, IGCC technology could be a
    stepping stone toward industrial-scale carbon sequestration \-- the
    process of capturing CO2 and storing it in underground geologic
    formations.

-   **Utilities Respond by Planning Clean Coal Facilities:**
    Approximately 120 new coal-based facilities are in various stages of
    proposal, according to the National Energy Technology Laboratory.
    Many will utilize the investment incentives provided in the energy
    bill.

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-   1/09/06 NRG Energy Inc. announced plans to repower one of its four
    Connecticut power plants with CCT, specifically IGCC.

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-   2/22/06 Southern Company announced signing of cooperative agreement
    with DOE to launch design and construction of an advanced
    285-megawatt IGCC facility in central Florida.

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-   5/13/06 American Electric Power announced two potential sites for
    new coal-or lignite-fueled plant (Hallsville, Texas and Hempstead
    County, Ark.) --will require new IGCC technology based on type of
    coal used.

-   The CEO of General Electric expects \$5 billion in IGCC orders by
    2010

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-   **Transportation Fuel from Coal:** The bill authorizes \$1 billion
    over three years for technologies to create fuels from coal such as
    clean, zero sulfur synthetic oil. This oil is expected to cost only
    \$35 to \$40 per barrel to produce.

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-   3/30/06 DOE awarded \$4.3 million for Syntroleum liquid fuels from
    coal project

-   Great River Energy announced plans for construction of coal to
    liquids facility in North Dakota.

-   Announcements have been made by governors of West Virginia,
    Pennsylvania, Wyoming and Montana for coal-to-liquids plants.

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-   **Reducing Our Reliance on Foreign Oil and Gas:** By 2025, fuels
    from coal could replace as much as 2 million barrels per day of oil
    and 5 trillion cubic feet of natural gas per day, according to the
    National Mining Association.

-   **Creating New Jobs:** The new technologies will help coal remain a
    driver in our national economy. By 2025, coal is expected to
    generate as much as 54 percent of our electricity. Over the next 5
    years, 55,000 new coal miners will be hired to replace existing
    workforce.

-   **For more information,** see "Selected Issues in Depth", below.

**HYDROPOWER**

-   **Relicensing Reforms**: The energy bill implemented hydropower
    licensing reforms, allowing all stakeholders an opportunity to
    ensure environmental protections while producing power from this
    renewable resource.

-   **Ensures affordable electricity:** Hydropower is America's cheapest
    source of electricity. Relicensing these dams ensures that consumers
    will continue to get affordable power.

-   **For more information,** see "Selected Issues in Depth", below.

**LOAN GUARANTEES**

**Encourages deployment of new technologies:** The energy bill created a
new loan guarantee program designed to encourage the deployment of
emerging technologies by federally guaranteeing a percentage of the
corporate debt incurred to build new projects.

-   **Allows energy developers to cover risk of default:** Other federal
    loan guarantee programs require a federal appropriation equal to the
    "costs" to the federal government as assessed by OMB in consultation
    with the Congressional Budget Office. This program retains that
    component but also offers a new option: DOE may require the company
    seeking the guarantee to place into the U.S. treasury a sum equal to
    the assessed cost.

-   **Covers all innovative technologies:** The guarantee program might
    be used for some of the 25 new-design nuclear power plants currently
    being considered as well as the half dozen IGCC plants proposed. It
    can also be used for renewable energy projects, hydrogen fuel cell
    technology, carbon capture and sequestration projects, the
    construction of refineries for gasoline, ethanol and biodiesel and
    the efficient generation, transmission and distribution of
    electricity.

-   **New DOE Office:** The Department of Energy last month announced
    its intent to transfer \$2.7 million dollars of appropriated FY06
    funds for the creation of the Loan Guarantee Office called for in
    the Energy Policy Act of 2005. The funds will be used to create and
    staff the office and devise the regulatory framework for the
    Innovative Technologies Loan Guarantee Program.

-   **Will produce clean energy from a range of sources:** The new
    office will review loan applications and award and administer loan
    guarantees for innovative technologies designed to produce clean
    energy in America from a variety of sources, including coal plants
    using clean coal technologies and advanced nuclear reactors. The
    loans can also be used for innovative energy conservation efforts
    such as the retooling of auto manufacturing plants for hybrid
    vehicles.

***[Selected Issues In Depth:]{.underline}***

**[Renewable Fuel Standard]{.underline}**

Today's ethanol industry consists of 101 biorefineries with the capacity
to process 1.7 billion bushels of grain into nearly 4.7 billion gallons
of motor fuel. Ethanol is blended into more than 40% of the nation's
fuel supply, and is sold coast to coast. The Energy Information
Administration, in its Annual Energy Outlook 2006, estimates that in
2030 ethanol blending into gasoline could be as much as nine percent of
total gasoline demand.

The Energy Policy Act of 2005 contains a number of policies and
incentives to further enhance and encourage the development and
production of biofuels, including ethanol. Title XV contains a renewable
fuel standard (RFS) which establishes the requirement that a percentage
of the gasoline market in the U.S. contain renewable fuel. Starting in
calendar year 2006 the applicable volume of renewable fuel in the
gasoline market must be at least 4 billion gallons. By 2012, the
applicable volume must be at least 7.5 billion gallons. The EPA
promulgated a direct final rule in December 2005 that required refiners,
importers, and gasoline blenders to collectively ensure the amount of
renewable fuel volume to be at least 2.78 percent of total gasoline
consumption. They expect that much greater than 4.0 billion gallons of
renewable fuels to be used in 2006.

There are currently 32 biorefinery plants under construction; 21 of
which have broken ground just since the passage of EPAct. With existing
biorefineries expanding, the industry expects more than 2 billion
gallons of new production capacity to be in operation within the next 12
to 18 months.

The Act also directs the EPA Administrator to create a credit and
trading mechanism to take into account the availability of renewable
fuels. EPA plans to propose a rule in September 2006 that will implement
this provision and hopes to complete the rulemaking early in 2007.

Some of these provisions have already been implemented by the
Administration, such as removal of the oxygen standard for the federal
reformulated gasoline program, proposal of new gasoline benzene content
standards, and the proposed listing of boutique fuels.

Abengoa Bioenergy, an ethanol producer, recently doubled the size of
their New Mexico plant. They are also developing at least two additional
U.S. ethanol facilities which will triple their current capacity in
direct response to the passage of the RFS.

As required by the Act, in 2012 at least 250 million gallons of the 7.5
billion gallons of renewable fuel must be from cellulosic biomass.
Abengoa, like many other ethanol companies, is working to commercialize
cellulosic ethanol production. They plan to have their first commercial
operating facility online by 2011.

**[New Nuclear Plant Development and the Next Generation Nuclear Plant
(NGNP) Project]{.underline}**

Electricity production from U.S. nuclear power plants is greater than
that from oil, natural gas, and hydropower, and behind only coal, which
accounts for more than half of U.S. electricity generation. Nuclear
plants generate more than half the electricity in six states. The
near-record 818 billion kilowatt-hours of nuclear electricity generated
in the United States during 2005 was more than the nation's entire
electrical output in the early 1960s, when the first large-scale
commercial reactors were being ordered.

High construction costs, coupled with uncertainties regarding the length
of time required to complete construction on a plant and obtain
regulatory permission to operate it, are perhaps the most serious
obstacle to nuclear power expansion. Construction costs for reactors
completed since the mid 1980s ranged from \$2-\$6 billion, averaging
more than \$3,000 per kilowatt of electric generating capacity (in 1997
dollars).

Section 638 of the energy bill offers new plant investment protection in
the form of "standby support" or risk assurance to offset the financial
impact of delays beyond industry's control that may occur during
construction and during the initial phases of plant startup for the
first six new reactors. It provides for 100 percent coverage of the cost
of delays for the first two new plants for up to \$500 million each, and
50 percent of the cost of delays for up to \$250 million each, for
plants three through six. On May 6, 2006, the Department issued an
interim final rule establishing the requirements for this risk assurance
program.

Title VI, Subtitle A extends the Price-Anderson Act for 20 years. The
act provides the framework for immediate, no-fault insurance coverage
for the public in the event of a nuclear reactor accident. With the
expiration of Price-Anderson, new nuclear plants would not have
available this coverage crucial to the public welfare. These provisions
rectify this problem and create a nuclear friendly business environment.

Title XVII authorizes the Secretary of Energy to provide loan guarantees
to support the development of innovative energy technologies "that
avoid, reduce or sequester air pollutants or anthropogenic emissions of
greenhouse gases." Nuclear energy is an important source of clean,
base-load power. Last year, the operation of U.S. nuclear power plants
displaced 681.9 million metric tons of carbon emissions, which is almost
as much carbon as released from all passenger cars combined. The loan
guarantee can be up to 80 percent of the project cost.

Section 1306 provides a production tax credit of 1.8 cents per
kilowatt-hour for 6,000 megawatts (MW) of capacity from new nuclear
power plants for the first eight years of operation. The production tax
credit places nuclear energy on equal footing with other sources of
emission-free power, including wind and closed-loop biomass. These other
sources have received a production tax credit since 1992.

The Internal Revenue Service issued a bulletin on May 1, 2006, regarding
the allocation of the production tax credit for new nuclear plants. This
has the effect of encouraging the early filing of combined operating
license (COL) applications before 2009, but of allocating the available
tax credits proportionately among all of the plants that begin
construction by 2014.

In response to these provisions, the NRC is preparing to receive up to
25 Combined and Construction License (COLs), the expected to be filed in
late 2007. Three companies, Exelon, Dominion Resources, and Entergy,
have filed applications with the NRC for early site permits. Taken
together, the industry is now investing more than \$1.5 billion in the
engineering, design, license preparation, and long-lead time procurement
activities needed to support these applications. It is possible that a
utility decision to build a new plant could be announced as early as
2008 with construction starting in 2010 and a new plant operational by
2014.

Sections 641 through 645 authorize \$1.25 billion for the design and
construction of a prototype NGNP project at the Idaho National
Laboratory (INL) and also provides that the NGNP be built by no later
than 2021. The NGNP is foreseen to generate emission-free electricity,
as well as process heat that can be used principally for hydrogen
production. The use of high temperatures (850 C) is sufficient to
economically generate hydrogen directly from the breakdown of water. The
decomposition of water to produce hydrogen is costly because of the
massive amounts of electricity needed for electrolysis. Current
commercial nuclear power reactors generate temperatures of about 350 C,
below the temperatures needed for economical generation of hydrogen.

The NGNP is more efficient than either today's nuclear or coal-fired
power plants, with an efficiency rate of 48 percent, a 50% improvement
over today's power plants. It can be used to provide environmentally
friendly process heat for a broad range of applications, including
syngas production, coal-to-liquid petroleum conversion, and hydrogen
production. In February 2006, a successful bench-scale test produced
over 100 liters per hour of hydrogen for 1,000 hours. Efforts to develop
nuclear fuel and plant design are ongoing and expected to be concluded
by 2011. The NGNP would be a new generation reactor that could be built
underground, is resistant to terrorist attack, and is extremely safe.

 

**[Renewable Energies on Federal Lands]{.underline}**

EPAct not only addressed important issues surrounding conventional
energy sources but also encouraged the development of renewable energy,
including geothermal energy, biomass, wind energy, and solar energy.

Number range CHAPTERThe development of geothermal resources on public
lands and National Forest System lands is governed by the Geothermal
Steam Act of 1970, as amended by Subtitle B of Title 11 of EPAct 2005.
The Bureau of Land Management has the responsibility of managing the
geothermal leasing program on lands under the jurisdiction of the
Department of the Interior and the Forest Service with the involvement
of the Forest Service on National Forest System lands. In order to
explore and develop geothermal resources on such lands, the developer
must obtain a lease from the Bureau of Land Management (BLM). EPAct
amended the Geothermal Steam Act of 1970 to modify leasing requirements
so that all eligible lands are first subject to competitive leasing and,
if no bids are received, then the lands are made available on a
non-competitive basis for two years. EPAct 2005 also changed the royalty
requirements, providing that royalties be calculated based on gross
proceeds from geothermal electricity sales and that royalties for direct
use of geothermal energy be paid based on a schedule of fees.

Generally, geothermal energy is used to generate electricity and to
supply heat through such means as district heating systems, greenhouses,
resorts and heat pumps. Currently, geothermal resources generate
approximately 0.3 percent of the annual electricity in the United
States, enough energy to supply 2.5 million homes. These resources also
supply heat and hot water to about 2,300 businesses and organizations.
In 2005, the United Stated had 2,828 MW of geothermal capacity on-line.
According to a recent GEA survey, since the enactment of EPAct,
geothermal power projects in the United States have surged with 45 new
projects under development. These projects could nearly double the
nation's geothermal output to total capacity of roughly 5,000 MW. New
projects in roughly nine states could provide between 1,778 -- 2,055 MW
of new electric power when fully developed. The Nevada BLM alone has
issued 25 geothermal leases since the enactment of EPAct. Furthermore,
it is estimated that, with continued support, geothermal resources could
be providing between 8 and 15 Gigawatts of electric power.

Another notable source of renewable energy addressed by EPAct 2005 is
biomass. Biomass is the use of organic matter to provide heat, make
fuel, and generate electricity. Section 201 of EPAct creates a grant
program to subsidize purchases of pre-commercial thinning material and
other non-commercial forest biomass from federal and Indian lands for
use in energy production facilities.

The Department of the Interior's use of biomass has increased
significantly since the enactment of EPAct. In 2004, BLM offered only
30,000 tons of biomass. Within the one year that EPAct was passed, BLM
increased their biomass supply by nearly 100% to 71,000 tons of wood
byproducts. Furthermore, BLM plans to offer 10% of BLM's mechanical
fuels treatment projects as biomass (estimated to be 60,000 tons) in
2006 and increase this amount to 50% in 2008.

Since EPAct, BLM has also established six generation sites of biomass
with the potential generation capability of 66 megawatts. The agency has
also adopted a standard contract provision that allows for the removal
of biomass as part of all forest and rangeland thinning projects or any
other contracts that cut vegetation. Notably, in a Memorandum of
Understanding (MOU) with the Confederated Tribes of Warm Springs, the
BLM and the Forest Service in central Oregon agreed to annually offer
80,000 dry tons of woody biomass material with competitive offerings
available beginning in 2008. Based on this MOU, the tribe is now seeking
a power purchase agreement and bank financing to develop a 15.5 megawatt
cogeneration plant complete with a Declaration of Cooperation signed by
22 signatories in January 2006 in support of the project (with the BLM
Lakeview District as one of the signers).

The Bureau of Land Management has also made significant strides in
developing wind energy projects on federal land. Currently, wind energy
accounts for 6 percent of renewable energy production and 0.1 percent of
total energy supply. Section 211 of EPAct set a goal for the Secretary
of the Interior of having 10,000 megawatts of non-hydropower renewable
energy generation capacity installed on public lands within 10 years
from the date of enactment. Reaching toward this goal, BLM completed a
Programmatic Environmental Impact Statement (PEIS) on a Comprehensive
Wind Energy Development Program in 11 western states in December 2005.
This program includes best management practices and minimum mitigation
requirements and is expected to expedite project approvals capable of
authorizing more than 3,200 megawatts of wind energy, enough to meet the
energy needs of approximately 2.5 million homes. Also, MMS is currently
working on the Renewable Energy and Alternate Use Programmatic EIS as a
foundation for the new alternative energy program and plans to complete
the programmatic EIS and rulemaking process by November 2007.

Finally, Section 1301 of EPAct 2005, the most notable provision of EPAct
regarding renewable energy on federal lands, extended for ten years the
tax credit period for the production of electricity from geothermal and
other renewable resources for all qualifying facilities placed in
service after the date of enactment. Several private sector projects
have stemmed from this production tax credit. For example, executives
for the ORMAT Richard Burdette Project, a 20 megawatt geothermal project
that qualified for the production tax credit under EPAct, estimate that
their credit can effectively lower the price of geothermal energy by
1.9c/KWh, making geothermal energy cost competitive with fossil fuels
and enabling the development of the potential 5,600 megawatts capacity
available in geothermal energy over the next decade.

Furthermore, Horizon Wind Energy invested nearly \$2 billion in 2006 and
2007 alone to generate over 700 megawatts of wind projects currently
under construction in four states and expect to construct another 600
megawatts in wind energy in 2007. Executives for Horizon Wind Energy
testified before Congress that the EPAct 2005 production tax credit
provision "has fueled the continued rapid growth of the wind industry
and is expected to lead to record levels of new wind plant construction
in 2006 and 2007."

Lastly, the production tax credit has enabled such companies as Stirling
Energy Systems to contract out approximately 1,750 megawatts of peak
power generation capacity over the next 20 years through solar energy.
The company plans to construct 70,000 dishes 35 feet in diameter over 11
to 13 square miles of desert land in California. To put this into
perspective, a solar dish far covering about 11 square miles of land in
the solar-right Southwest U.S. can generate as much energy each year as
the Hoover Dam, which requires 247 square miles of Lake Mead.

**[Electricity Reliability]{.underline}**

Title XII of the Energy Policy Act of 2005 seeks to ensure the
reliability and security of the nation's bulk-power system. These
provisions provide for the transition from the long-standing system of
voluntary but unenforceable compliance with industry-developed
reliability requirements, to a mandatory compliance regime. EPAct
authorized the Commission to certify a single Electric Reliability
Organization (ERO) with the authority to establish and enforce mandatory
electric reliability standards.

In compliance with EPAct, FERC published final rules for the ERO's
certification, as well as procedures for the establishment, approval and
enforcement of mandatory electric reliability standards. On July 20,
2006, FERC issued an order certifying the North American Electric
Reliability Council (NERC) as the nation's ERO. NERC is also seeking
approvals from Canada and Mexico. The Commission is now considering the
102 reliability standards proposed by NERC for approval by the
Commission, in accordance with EPAct.

Additionally, Title XII greatly expands FERC's jurisdiction over users,
owners and operators of bulk power system facilities. It requires the
ERO to be independent of owners, operators and users of the bulk-power
system, while also ensuring fair representation and balanced
decision-making. EPAct further requires all owners, operators and users
of the bulk-power system, to comply with the ERO's FERC-approved
reliability standards, and allows the ERO to delegate authority to
regional entities for purposes of proposing and enforcing reliability
standards. In accordance with the energy bill, FERC has already granted
a petition by the governors of Arizona, California, Colorado, Montana,
Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming to establish
the Western Interconnection Regional Advisory Board to advise both FERC
and the ERO on western reliability issues.

FERC is provided with the authority to impose financial penalties on
users, owners, and operators of the bulk power system for non-compliance
and to publicly disclose that such violations have taken place. This
should serve as an effective deterrent against violations.

**[Hydrogen]{.underline}**

Hydrogen is an important part of our Nation's strategy for long-term
energy and environmental security because it can be made from a variety
of domestic resources and, as a transportation fuel, it can result in
zero criteria pollutant or carbon emissions from vehicle tailpipes.

Launched in 2003, the President's Hydrogen Fuel Initiative commits \$1.2
billion over five years to accelerate the research, development, and
demonstration of hydrogen and fuel cell technologies. The development
and widespread use of hydrogen can contribute to an abundant, reliable,
and affordable supply of clean energy to maintain our nation's
prosperity through the 21st century and beyond.

The Energy Policy Act of 2005 contains a variety of initiatives designed
to accelerate the commercialization of fuel cell technology. The
legislation supports new funding for research and development, and calls
for increased technology validation and establishment of a modest market
transition program. This strategy will help deliver the key technologies
that must be developed to meet the deployment timelines set forth by the
Congress. Already, most of the U.S.-based companies in the portable
power arena are working with foreign partners that will have prototypes
available within the next 12 to 24 months.

Title VIII of the Energy Policy Act of 2005 includes important
provisions, which have been implemented, for coordinating across the
Federal Government and for obtaining independent advice on hydrogen
efforts from outside the Department of Energy. The Interagency Hydrogen
and Fuel Cell Technical Task Force meets monthly and Secretary Bodman
announced the selected members of the Hydrogen Technical Advisory
Committee on June 20, 2006.

EPACT 2005 requires a number of studies and reports to determine the
impact of hydrogen and fuel cell technology deployment. Section 1812
mandated a report, the Solar and Wind Technologies for Hydrogen
Production Report to Congress, which was published in December 2005,
that provides information on solar and wind hydrogen projects and
recommendations for promoting the availability of solar and wind
technologies for production of hydrogen. Section 804 mandates submission
of a coordinated five-year plan for the programs authorized under Title
VIII. This report is currently under review and will be submitted to
Congress shortly. Section 1820 requires a report of the likely effects
of a transition to a hydrogen economy on overall employment in the U.S.
DOE recently made an award for the completion of this study.

In FY 2007, DOE will initiate projects in several areas, including
improved fuel cell membranes, cold-weather start-up and operation,
advanced cathode catalysts and supports, innovative concepts, and the
effects of impurities on fuel cells. Already, the Department has been
successful in reducing the cost of producing hydrogen from natural gas
--from \$5.00/gallon gasoline equivalent (gge) to \$3.00/gge.
Separately, the Department has received industry proposals to conduct a
feasibility study of how to produce hydrogen using small-scale equipment
at existing nuclear reactors.

**[Oil Shale]{.underline}**

North America's 3.7 trillion barrel resource of unconventional fuels
exceeds by nearly 40% the entire world's known remaining conventional
oil supplies. The United States' oil shale resources alone exceed 2
trillion barrels of potential supply. In March 2004, DOE released a two
volume report on the feasibility of various options to accelerate the
development of U.S. oil shale given the enormous size of this domestic
resource. The DOE report, entitled \"Strategic Significance of
America\'s Oil Shale Resource\", points out that, while oil shale is
located in many countries throughout the world, the Green River Basin of
northwestern Colorado, eastern Utah, and southwestern Wyoming contains
the largest, most concentrated quantities of potentially recoverable oil
shale in the world. The report reveals that the basin may have as much
as 1.7 trillion barrels of oil in place, of which an estimated 1
trillion barrels ultimately may be recoverable using various recovery
technologies. This latter number is roughly equivalent to all the
combined proven conventional oil reserves in the world today.

Through the Bureau of Land Management (BLM), the Department of the
Interior currently owns and manages approximately 80% of the richest and
most attractive oil shale resources in the world, but the BLM has no
comprehensive program to lease federally owned oil shale. The BLM has
authority to lease oil shale under the Mineral Leasing Act but has never
completed a rulemaking process. In addition, prior to any leasing
program, the BLM would need to complete land use plan amendments and an
environmental impact statement to address oil shale development.

Section 369 of the Energy Policy Act of 2005 established a national
policy and directed specific programs to further development of oil
shale and oil sands. The BLM has received proposals to lease small oil
shale bearing tracts for research and development testing purposes. Each
would include a preferential right to later convert the R&D lease to a
larger commercial lease, provided that the lessee has developed a
commercially viable approach and made various demonstrations of diligent
development. BLM was also directed to initiate a programmatic
environmental impact assessment that will lead to a rulemaking and a
full scale leasing program.

Since the enactment of EPAct, several exciting projects have accelerated
within the Rocky Mountain Region of the Western United States. For
example, the Shell Production Company began laboratory and field
research on an oil shale ground conversion and recovery process on its
privately owned Mahogany property in Rio Blanco County, Colorado in
1982. Since 1996, Shell has successfully carried out five small field
tests with the most recent test conducted in 2004 and 2005 producing
more than 1,500 barrels of light oil plus associated gas. Currently,
Shell is working on the first of two final tests needed to prove the
technology commercially viable.

**[Oil & Gas Production on Federal Lands]{.underline}**

Over the next decade, demand for natural gas is anticipated to increase
by more than 25 percent. Currently, public lands and the BLM provide 18
percent of the nation's natural gas production. Furthermore, according
to the "Inventory of Onshore Federal Lands Oil and Gas Resources"
released in 2003, the Rocky Mountain Region of the United States is
considered to have the largest untapped onshore natural gas reserves in
the country. The study estimates the existence of 138 tcf of natural gas
on federal lands in the interior West. This 138 tcf is sufficient to
heat all of the 55 million homes that use natural gas in the United
States for 39 years. In fact, in the Pinedale area of Wyoming alone,
industry expects to produce 15 tcf of natural gas over the life of the
field, supplying nearly 10 million homes for 20 years.

Over the last several years, the BLM, as the representative of over 500
million acres of the federal mineral estate, has been unable to keep
pace with demand for drilling permits for oil and natural gas and has
carried a significant backlog in applications for these permits. Other
issues affecting drilling and new production have been special
stipulations intended to provide for wildlife concerns, such as critical
winter habitat, and protection of historical and cultural sites. In
2004, the BLM administered over 54,000 oil and gas leases of which only
22,000 leases are producing from over 94,000 federal oil and gas wells.

Title III, Subtitle C of the Energy Policy Act of 2005 includes several
provisions affecting access to federal lands to address concerns over
delays in the permitting process for oil and gas development on these
lands. Notably, Section 365 of the EPAct established federal permit
streamlining pilot projects in seven BLM Field Offices in five western
states. This section also established a BLM Permit Processing
Improvement Fund where 50% of rental revenue for oil and gas leases on
federal lands will be deposited and made available to the pilot project
without further appropriation.

Since the enactment of EPAct, the BLM was able to process a record
number of applications for permit to drill (APDs) in 2005, processing a
total of 7,736 APDs. The BLM has solicited significant interagency as
well as state coordination to implement the pilot project. Furthermore,
the BLM has been working to meet the staffing needs for the Pilot
Project Offices. To date, a total of 99 BLM Pilot Project Office
positions (out of 105 identified) have been filled, including a total of
19 petroleum engineering technicians and 21 natural resource specialists
for the Pilot Project Offices as well as other subject matter experts
and the necessary support staff to the meet the goals of the project.
Finally, the BLM has hired an independent contractor to assist in the
review and reporting of implementation and performance of the Pilot
Project streamlining efforts over the next three-year period.

Overall, natural gas production in the Western United States has
increased 48% since 1996. Correspondingly, the market for drilling rigs
has increased 200% since 2000 in order to meet the demand for natural
gas. Much of this is due to the enactment of EPAct. In fact, Advanced
Resources International, Inc., a company asked by the Secretary of the
Interior to perform an analysis of the impacts for processing
outstanding APDs from the pilot offices, estimated that the backlog of
APDs present in the pilot offices would be eliminated in 2 years and
would bring increases in production (up to over 1,000 billion cubic
feet-equivalent per year) and reserves, provide significant incremental
economic value (of up to \$20.4 billion) and greater royalties, and
increased jobs.

**[Coal to Liquids and Industrial Gasification]{.underline}**

U.S. coal production has remained near 1.1 billion short tons annually
since 1996. The Energy Information Administration (EIA) in its Annual
Energy Outlook (AEO) projects U.S. coal production to increase (on
average) 1.1 percent per year from 2004 to 2015; by 2015 U.S. coal
production is forecast to reach 1.27 billion short tons. From 2015 to
2030, EIA projects that growth in U.S. coal demand will average 2
percent per year with coal production approaching 1.7 billion short tons
annually by 2030.

The use of coal in industrial gasification and coal-to-liquids (CTL)
technologies is also projected to increase significantly during the
forecast period. The EIA estimates that by 2030, 180 million tons of
coal will be used to produce high quality liquid fuels. Current
technology yields approximately 1 barrel of liquid from .7 to .9 tons of
coal. The AEO2006 forecast projects 800,000 barrels per day of domestic
CTL production in the reference case and 1.7 million barrels be day in
the high (oil) price case by 2030. This activity is initially
concentrated in the Midwest in coal producing regions. These figures
represent nearly one half of forecast worldwide CTL production in 2030.

A gasification plant transforms coal, coke and other materials into
concentrated streams of various gases including hydrogen, carbon
monoxide, carbon dioxide and other gases. At the same time sulfur,
nitrogen and mercury present in those materials can be removed in the
process. The sulfur and nitrogen can be sold commercially. The gases can
then be made into liquid fuels such as diesel and jet fuel after passing
through a Fischer-Tropsch synthesis process. Gases produced also may be
refined through a synthesis process to produce feedstock for chemical
manufacture or fuel gas. Or, the gas streams can be used to fire a gas
turbine to generate electricity with waste heat from the turbine used to
make steam to turn a steam turbine (which is know as Industrial
Gasification Combined Cycle or IGCC).

Construction of CTL plants is highly dependent on relative fuel prices
and the presence of adequate reserves, which includes geographic
proximity. According to EIA, CTL is economically competitive at an oil
price in the low to mid-\$40 per barrel range and a coal cost in the
range of \$1 to \$2 per million Btu, (depending on the coal quality and
location).

Although EIA does not address the economics of an industrial
gasification facility it does note that construction of a CTL plant
requires several decades of coal reserves. (The EIA report assumes that
gasification is the first step in a CTL process) Construction of a
commercial scale CTL plant of 70 -- 80,000 bbls per day would require 2
-- 4 billion tons of coal reserves to be employed over the course of its
useful life. Capital expenses for such a plant are estimated to be in
the range of \$50,000 -- 70,000 (2004 dollars) per barrel of daily
capacity.

Title XVII of the Energy Policy Act of 2005 established a loan guarantee
program to help develop and deploy coal-to-liquids (CTL) and
gasification technology. Loan guarantees may be granted for projects
that avoid, reduce, or sequester emission of greenhouse gases and employ
new or significantly improved technologies. Provisions seek to increase
the use of coal, which has both economic and energy security benefits
for the United States. The United States has been heralded the "Saudi
Arabia of coal" with Illinois' coal reserves alone containing a greater
BTU content than all the oil in Iran, Iraq, Kuwait and Saudi Arabia.

As a direct result of the industrial gasification investment tax credit
(Sec. 411), Rentech, Inc. plans to have a fully commercial, fully
operational CTL plant up and running by 2010 in East Dubuque, Illinois,
which will displace approximately 2,000 b/d and reduce regulated
pollutant emissions, such as carbon dioxide, sulfur and mercury, by
about 33 percent. Additionally, they are planning a second plant in
Natchez, MI that would produce 11,000 b/d and store 100% of carbon
emissions. This is the first large scale U.S. commercial capture and
storage of man-made carbon emissions.

Section 417, which authorized funding for the development of a CTL
facility from Illinois basin coal, has lead to a MOU being signed by the
universities of Purdue, Southern Illinois, and Kentucky. The first step
will be to establish a ½ b/d facility to test various technological
options for the production of transportation fuels. Although details
have not been finalized, plans have begun to take shape for the test
facility prescribed in this section.

With the assistance of a loan guarantee, BRI Energy, using technology
intended to produce ethanol from coal syngas, will have a 7 million
gallon per year coal to ethanol facility constructed and operational
within 15 to 18 months.

**[Hydropower]{.underline}**

Hydropower contributes almost seven percent of the nation's electrical
generation. In the Pacific Northwest, approximately 65 percent of
electricity is generated from hydropower facilities. FERC is responsible
for issuing licenses for non-federal hydroelectric facilities. Over the
next decade, 218 hydropower projects are slated to be relicensed. These
facilities represent approximately 20 percent or 22 gigawatts of the
nation's hydropower capacity.

The Commission's integrated licensing process to relicense these
hydroelectric facilities takes approximately 7-7½ years to complete.
Once issued, the licenses are valid for a period of 30-50 years.

The Departments of the Interior, Commerce, and Agriculture play a major
role in the relicensing of hydropower projects that are located on
federal lands. Pursuant to the Federal Power Act, any environmental
conditions or fishways prescribed by a resource agency must be included
in the final hydropower license.

Prior to enactment of the Energy Policy Act of 2005, the validity of the
resource agencies' mandatory conditions and fishway prescriptions could
only be challenged at the appellate court level once the final license
was issued. FERC had no authority to modify or reject an agency's
mandatory requirement, even if the condition or prescription rendered
the project uneconomic. Section 241 reforms the hydropower licensing
process. All parties to the license proceeding now have equal
participation in the new procedures, which include: a trial-type hearing
and alternative conditions or prescriptions.

All parties to a license proceeding may request an expedited agency
trial-type hearing to examine any disputed issues of material fact
relating to mandatory conditions or prescriptions. This provision
provides the opportunity to test whether the agency's requirements are
supported by facts.

Any party to the proceeding may offer alternative conditions or
prescriptions. The resource agency is required to adopt an alternative
proposal if the alternative protects the resource and costs
significantly less to implement than the agency's initial requirement or
results in improved project operations.

A number of positive outcomes have resulted from Section 241. At the
Priest Rapids Project No. 2114, the licensee challenged the Bureau of
Reclamation's conditions. Subsequently, the Bureau withdrew these
mandatory conditions and refilled them as recommendations. At the Rocky
Reach Project No. 2145, the licensee submitted alternatives to the
Department of Interior's fishway prescriptions that lead to a
comprehensive settlement agreement addressing fish passage concerns.

>  

Section 1301 expanded the definition under the Section 45 production tax
credit to recognize certain new hydropower projects as eligible
renewable resources. Currently, FERC has received three requests from
licensees to certify incremental hydropower for eligibility, which will
result in a 2.6, 6.4, and 2.4 percent increase respectively in
generation for those projects. Additionally, FERC has received nine
license amendment applications for 124 megawatts of additional capacity
which may qualify for the credit.