***Narrative Summary of Natural Gas Price Reduction Act of 2005 --***

***Key Provisions***

**[Statement of Senator Lamar Alexander:]{.underline}**

"As Chairman of the Senate Energy Subcommittee on Energy, I know that
low natural gas prices help to keep our economy competitive and our jobs
here in the United States.

In March 2002, Secretary of Energy Abraham requested that the National
Petroleum Council undertake an extensive study on the natural gas
crisis. The National Petroleum Council, a federal advisory committee to
the Secretary of Energy, produced in late 2003 one of the most extensive
policy studies and recommendations on the natural gas crisis to date.
Since that time, numerous other prominent groups, such as the National
Commission on Energy Policy, Natural Resources Defense Council, and
American Council for An Energy-Efficient America, have also produced
extensive studies on the natural gas crisis. Alan Greenspan, Chairman of
the Federal Reserve, has told the Senate Energy Committee that low
energy prices are vital to keeping our economic recovery.

In October 2004, I held a roundtable on the impact of soaring natural
gas prices on Tennessee farmers and jobs. At this Nashville roundtable,
750,000 Tennessee jobs and Tennessee's largest employers were
represented. The Senate Energy Committee has held numerous hearings over
the last two years and held an extensive Natural Gas Roundtable on the
subject on January 24, 2005. Over 100 proposals were submitted to the
Senate Energy Committee on natural gas issues.

The conclusion of all of these forums has been clear:

-   High natural gas prices are threatening our country's economic
    competitiveness and costing us jobs. For example, high natural gas
    prices have been the equivalent of a 10% pay cut to American
    farmers.

-   The situation is urgent.

-   There are no silver bullets. We can not conserve our way out of this
    problem, but nor can we drill our way out of this problem. We will
    need to be aggressive on all fronts in order to keep our industries
    competitive.

-   High natural gas costs are also tied to high oil prices. We need to
    address both natural gas and oil prices in order to lower natural
    gas costs.

-   Our country has contradictory policies on natural gas -- on one
    front, we encourage its use. On the other front, we limit access to
    its supply. I will continue to support stronger clean air standards,
    but we must amend our country's contradictory policy on natural gas
    access, as well as promote energy efficiency.

This 250-page legislation is an attempt to start a very difficult, but
balanced, legislative discussion in the United States Senate on natural
gas prices. I have taken the best ideas I have heard and translated it
into legislation. My staff and I have met with hundreds of people in the
past two years discussing natural gas prices. The approach on natural
gas needs to be comprehensive, because there is no silver bullet. This
legislation is an attempt to be more aggressive on all three areas
impacting natural gas prices -- energy efficiency and fuel diversity,
natural gas supply, and improved energy infrastructure. We are going to
need serious progress in all of these areas and all must be discussed in
the context of a comprehensive natural gas solution.

I supported H.R. 6 in the last Congress. However, my greatest concern
with H.R. 6 was that it did not address high natural gas prices
adequately. Now that an energy bill is coming for discussion again, it
is time to strengthen the energy bill with bolder and stronger natural
gas provisions. A comprehensive energy bill typically only passes once
every 10 to 15 years. It is important to get this issue right.

The bill raises significant government revenues and should provide \$4
to \$6 billion to pay for the initiatives outlined in this proposal.

I look forward to working with Senator Domenici, Senator Bingaman, and
Senator Dorgan and the rest of the Energy Committee in the days ahead in
tackling these difficult issues in a balanced manner."

**Pillar One: Conservation and Energy Efficiency**

A comprehensive natural gas approach must address natural gas demand by
all sectors that use natural gas -- residential customers, electric
generation, commercial users (small users) and industrial users.

**[Section 101: Reducing Residential Demand: Consumer
Education]{.underline}**
![](media/image1.jpeg){width="3.8965277777777776in"
height="2.6645833333333333in"}

Research results have shown that energy efficiency and conservation is
the most viable near-term strategy for moderating natural gas prices,
and is vital for stabilizing longer-term gas markets. The ultimate
efficiency, fuel diversity, and supply solutions will take time to
implement.

In the near-term, it is both the high gas price level and gas price
volatility that is damaging our manufacturing sector. Residential demand
for natural gas tends to be the most volatile component of natural gas
demand. Reducing residential demand, especially during peak demand
times, is essential in reducing the volatility in our natural gas prices
in the near term.

Therefore, the importance of educating the residential customer in the
short-term can not be understated. In the aftermath of the California
energy crisis, the state of California launched an unprecedented public
education campaign on practical ways to reduce natural gas demand. The
impact of the California program was a 10% cut in peak demand in the
Summer of 2001 (or the equivalent of 5,500 MW).

The natural gas legislation authorizes \$90 million per year for each of
the fiscal years 2007 through 2010. The proposed public education
program, replicated after many aspects of the successful California
education program, would focus on practicable, actionable measures that
consumers can carry out to reduce the demand for natural gas, oil and
electricity. Examples of strategic methods of reducing energy demand
include maintaining and repairing heating and cooling ducts and
equipments, weatherization technologies, proper tire maintenance, and
energy smart purchases. The program will terminate on December 31, 2010.

**[Section 102: Reducing Residential and Commercial Demand: Appliance
and Equipment Efficiency Standards:]{.underline}**

Appliance standards are codified for six products that were included in
the previous energy bill (H.R. 6) and for six additional products for
which manufacturers and the public interest community have reached
consensus:

  ---------------------------------- ------------------------------------
  **Specific Standards in H.R. 6**   **Additional Consensus Agreements
                                     Reached**

  Exit signs                         Commercial refrigerators and
                                     freezers

  Traffic signals                    Commercial packaged air conditioners

  Torchiere lighting fixtures        Residential ceiling fans

  Distribution transformers          Residential dehumidifiers

  Compact fluorescent lamps          Pre-rinse spray valves

  Commercial unit heaters            Pedestrian signals
  ---------------------------------- ------------------------------------

The bill also includes a section from H.R. 6 directing DOE to set
standards on three products (vending machines, battery chargers, and
external power supplies).

In addition, this section will set new efficiency standards for the
following new appliances, effective 1-1/2 years to 4 years from passage
(varying by product):

-   Residential gas- and oil-fired furnaces and boilers

-   Gas-fired commercial furnaces and boilers

-   Digital Television Adapters

-   Mercury vapor ballasts.

Setting standards in this way will accelerate the new standards by about
4 years, allowing substantial amounts of gas to be saved over the next 5
to 10 years when savings are most needed.

American Council for an Energy-Efficient Economy estimates that these
standards will reduce natural gas use by about 155 BCF in 2010 and 525
BCF in 2020. In addition *these standards will reduce peak electric
demand by about 24,000 MW in 2020 (equivalent to 48 gas power plants of
500 MW each) and will save consumers and businesses more than \$65
billion (net present value for products sold through 2030).*

The natural gas legislation also provides energy efficiency tax
incentives similar to incentives in HR 6 Energy Conference Report.

**[Section 103: Reducing Commercial and Residential Demand in the
Future: Deployment for distributed generation, solar energy
technologies, and biomass.]{.underline}**

Authorizes appropriations for deployment for the following promising
areas: distributed generation (this is typically small 5-megawatt (or
less) generation at hospitals, offices, or homes), solar energy
technologies, and biomass.

The Secretary of Energy shall conduct a program for DOE to make federal
grants to State governments to demonstrate and commercialize the use of
advanced photovoltaic, solar water heating, and hybrid solar lighting
technologies to generate and displace electricity.

The Secretary shall carry out an extensive demonstration and deployment
program for biofuels and biomass to potentially substitute for
petroleum-based feedstocks and products.

**[Section 104: Reducing Demand in the Future- the Ultimate Answer:
Hydrogen and Fuel Cell Initiative]{.underline}**

Senator Alexander introduced President Bush's Hydrogen Fuel Initiative
in 2003. This title reintroduces the Hydrogen Initiative as included in
the Energy Conference Report, HR 6. This section authorizes \$2.15
billion over five years for DOE to support production, storage,
delivery, infrastructure development, and commercial use of hydrogen for
fuel cell vehicles.

Hydrogen is a long-term solution to reducing our oil demand. Lower oil
prices will lower natural gas prices.

**[Section 105, 106, and Section 110: Reducing Industrial and Commercial
Demand of Natural Gas: Encouraging Cogeneration]{.underline}**

Large industrials, such as International Paper, Alcoa and Eastman
Chemical Company, all use cogeneration in their manufacturing processes.

Combined heat and power, (CHP), also known as cogeneration, is an
efficient, clean, and reliable approach to generating power and steam
from a single [fuel
source](http://www.epa.gov/chp/definitions.htm#fuelsource). CHP is not a
specific technology but an application of technologies to meet energy
user's needs. CHP systems achieve typical [effective electric
efficiencies](http://www.epa.gov/chp/definitions.htm) of 50% to 70% ---
a dramatic improvement over the average efficiency of generating
separate steam and power. Since CHP is highly efficient, it reduces
traditional air pollutants and carbon dioxide, the leading greenhouse
gas associated with climate change, as well. A CHP system can produce
the same electrical and thermal output at 75% fuel conversion efficiency
as compared to 49% for separate steam and power. This is a 50% gain in
overall efficiency, resulting in a 35% fuel savings.

The provisions in the bill contain:

-   Alexander-Landrieu-Carper-Collins language from HR 6 Energy
    Conference Report. It protects the current contracts (so-called
    "PURPA" contracts) that the manufacturing sector has with some
    utilities. The current contracts will be phased out when and if
    competitive electricity markets emerge.

-   Encourages New Cogeneration Projects, Especially Smaller
    Cogeneration Projects. The legislation a) clarifies the process that
    a manufacturer goes through to connect to the transmission grid; b)
    exempts the co-generators from the participant funding language in
    HR 6 Energy Conference Report, as co-generators are not participants
    in the marketplace; and c) provides a 10% investment tax credit to
    new, small co-generators.

**[Section 107: Reducing Demand from the Utilities: Efficient Dispatch
of Natural Gas Plants]{.underline}**

Over 90% of new power plants that have been built in the last decade are
natural gas plants. Half of our nation's increase in the last decade in
natural gas demand has come from the power sector.
![](media/image1.jpeg){width="3.8965277777777776in"
height="2.6645833333333333in"}

There is a significant difference in the efficiency of an older natural
gas plant and a newer natural gas plant. A new, combined cycle plant can
use half the amount of natural gas that an older natural gas plant uses
to produce the same megawatt of electricity.

A meaningful efficiency proposal must address the utility sector as
well. Legislation calls for States to implement a policy for electricity
from natural gas-fired plants to be generated in the most efficient
manner possible. Over the past decade our nation's national gas demand
has grown by 7 trillion cubic feet/yr. It is estimated that efficient
dispatch could result in almost .7 trillion cubic feet/yr of natural gas
demand savings by 2010 (10% of our growth in natural gas demand),
largely in the medium term.

![](media/image2.wmf){width="5.992361111111111in"
height="3.1395833333333334in"}*Source: American Council for an
Energy-Efficient Economy*

**[Section 111: Reducing Natural Gas Prices is Linked Reducing Oil
Prices.]{.underline}**

As the price of oil remains over \$50/barrel, it is important to note
that there is a limit to which we can conserve or drill our way out of
high natural gas prices. Oil and gas are usually produced together;
therefore, there is a strong correlation between the price of gasoline
and natural gas. Typically, there is a 6:1 ratio between natural gas and
oil prices (\$50/barrel); today, natural gas prices are over \$7/mmbtu.

Our foreign reliance on Middle East oil is the silent elephant in the
room on high natural gas prices. Section 111 requires that the President
submit to Congress annually efforts to reduce U.S. dependence on
imported petroleum by 1.75 million barrels a day from projected 2015
levels (almost twice the size of projected ANWR production). Imported
petroleum sets the price of U.S. oil; it impacts U.S. natural gas
prices. The Oil Savings Amendment, which previously passed the Senate,
called for a reduction of 1.0 million barrels a day from 2013 levels.
This proposal calls for a more aggressive target of 1.75 million barrels
a day.

**Pillar Two: Fuel Diversity -- Aggressively Promote Coal, Nuclear, and
Solar Energy. Research How to Sequester Carbon from Coal Production More
Efficiently.**

The use of other fuel types will reduce natural gas in both the
short-term and long-term.

**[National Coal Gasification Strategy (Section 112, 113, and 114)
:]{.underline}**

-   **[National Coal Gasification Strategy for Power
    Sector:]{.underline}** Coal Gasification has been successfully
    demonstrated in the United States. Eastman Chemical in Kingsport,
    Tennessee has been using coal gasification with a 95% availability
    factor for the past 20 years. Tampa Electric has successfully
    demonstrated large-scale coal gasification. Coal gasification is
    clean and prepares the coal industry for the reality of moving
    toward a carbon-constrained world over the next decade.

> It is believed that 6 large-scale (500 MW) plants need to be built or
> converted to fully commercialize coal gasification. The goal of the
> National Coal Gasification Strategy is to move coal gasification to
> the stage of commercial acceptance in the marketplace.
>
> Senator Alexander's coal gasification strategy proposes 6 IGCC power
> plants constructed by 2013. Four shall be owned either by
> investor-owned utilities or independent power producers. Two shall be
> owned either by public power (such TVA) or rural cooperatives. The
> Federal government will pay for the construction costs of 40% of the
> first three plants built and for the construction costs of 30% of the
> last three plants built. Plants are not required to sequester carbon;
> however, they shall be built to be "carbon capture ready" and
> technically able to add the technology.
>
> Cost of program is roughly \$2 billion. [As an alternative for
> investors, Alexander proposes tax incentives for coal
> gasification.]{.underline}
>
> In addition, Senator Alexander's proposal calls for streamlined
> permitting of coal gasification facilities, including existing natural
> gas facilities that wish to convert to IGCC and industrial facilities.
>
> **[National Coal Gasification Strategy for Industrial
> Sector:]{.underline}** Today, over 90% of the coal consumed in the
> United States is used in the production of power. 50 years ago, the
> coal was widely used in the industrial sector. Eastman Chemical's coal
> gasification facility is unique. This proposal calls for a return to
> industrial uses for clean coal. The proposal directs (and authorizes
> appropriations and tax incentives) DOE and Treasury to establish an
> industrial gasification deployment program, pursuant to which the
> federal government will provide up to \$2 billion in financial
> assistance to industrial gasification projects over a 5-year period.
> At least one project shall be in the chemical industry and utilize
> coal or petroleum coke, and one shall utilize biomass, including spent
> pulping liquor, as a fuel. Financial assistance provided by DOE may be
> in the form of loan guarantees, tax incentives, or commodity support
> payments; depending upon the needs of the specific project, but shall
> not exceed 20% of the value of the project. Federal financial
> demonstration and deployment assistance to any one project shall be
> limited to a "scored" value of \$200 million. The program terminates
> in 2013, similar to the National Gasification Strategy for Power
> Sector.
>
> The purpose of this program is to significantly accelerate the
> deployment of gasification for industrial application to reduce
> natural gas demand by 1 TCF annually.

Cost of program is roughly \$2 billion.

-   **Research on Carbon Sequestration.** Legislation proposes that
    Department of Energy focus research dollars on how to improve energy
    efficiency in sequestering carbon at coal-fired power plants.

**[Promote Solar Energy:]{.underline}**

Proposal for aggressive deployment of solar energy over the next five
years. Program expires in 5 years. Solar deployment could reduce some
gas demand during peak times.

**Pillar Three: Production of Natural Gas**

The United States has plenty of natural gas. We just don't have balanced
access to it. Aggressive conservation and fuel diversification is one
part of the solution. However, greater domestic supply is an important
part of the solution. Alexander's legislation has provisions addressing
the access issues in the Outer Continental Shelf, the Rockies, and Deep
Water Production in Louisiana.

**Outer Continental Shelf**

Today, there are two moratoria on our outer continental shelf - a
Congressional moratoria and Presidential moratoria.

![](media/image3.wmf){width="5.747916666666667in"
height="3.740972222222222in"}

Today, when production is greater than 9 miles offshore, a state that
has oil and gas production gets zero percent of the qualified production
revenues. This is radically different than on-shore production; on
federal lands, states get 50% of the production revenues. Alaska gets
90% of the production revenues. In order to have a constructive dialogue
on OCS production, the right framework needs to be established to have
such a discussion with the states. Today, no such framework exists.

The Virginia state legislature has passed legislation asking for
production to occur off Virginia's coasts if they can get a part of the
revenue. Governor Warner recently vetoed this legislation, siting the
absence of federally proposed legislation.

The Eastern Gulf of Mexico is particularly rich in gas and oil reserves.
It is believed that if Lease 181 were fully developed, then Lease 181
might represent 20% of the entire Gulf of Mexico's gas production for
the next six years. It is huge source of potential gas supply for the
United States. It is also an **immediate** source of gas supply, as the
pipeline infrastructure already exists in this part of the Gulf of
Mexico today. It is one of the most immediate and promising source of
new gas supply we have offshore.

There has been an ongoing discussion on Lease 181. Alabama drills off
its coast and Florida does not. Different states have different views.

The difficult issue of Lease 181 must be discussed, simply because it is
too much gas.

In order to have a constructive dialogue on OCS production, the right
framework needs to be established to have such a discussion with the
states on OCS. Today, no such framework exists. Alexander's legislation
proposes to establish the appropriate framework in three major ways
(Section 201-203):

-   **[First:]{.underline}** Today the Department of Interior only has
    the ability to issue "oil and gas" leases. Language gives Department
    of Interior the ability to issue "natural gas-only" leases. Several
    states have expressed interest in exploring "natural gas-only"
    leasing. The Secretary shall develop regulations defining such areas
    and how the leases and resulting production will be managed,
    particularly with regard to potential oil discoveries.

-   **[Second:]{.underline}** Instructs the Secretary of Interior to
    draw the state boundary between Alabama and Florida regarding
    Lease 181. The boundaries shall be drawn using established
    international law. Portions of Lease 181, which are not in the state
    of Florida and greater than 20 miles off of the coast of Alabama and
    Florida, shall be leased by December 31, 2007. However, if Lease 181
    is in the State of Florida, then the State of Florida may keep the
    moratoria or exercise its rights under the Method Three below.
    Leasing shall not be allowed to interfere with the US Military
    operations in the Gulf Coast.

-   **[Third:]{.underline}** The Governor, who is acting on behalf of
    his or her state, of a state under an OCS moratoria may request the
    Secretary of Interior to provide an estimate of gas-only, or oil and
    gas, resources lying seaward of the state. The Governor can request
    to understand the offshore resources for the entire state, or just
    selected areas. Within 125 days of such request, the Secretary of
    Interior shall provide to the Governor:

    -   The state boundaries to the Economic Zone of the United States

    -   A current inventory of the selected resources

    -   An explanation of the planning process that could lead to
        leasing.

> Upon consideration of the information received, a Governor may notify
> to the Secretary and President that the Presidential and Congressional
> moratoria is lifted for the entire state area, or areas designated by
> the Governor within his state. The Governor shall not have the
> authority to lift the moratoria at National Marine Sanctuaries or
> National Wildlife Refuge Areas.
>
> If the area identified is more than 20 miles offshore (outside the
> visibility view shed), then an adjacent state can not say development
> is inconsistent with their development plan under the Coastal Zone
> Management Act. However, if development is less than 20 miles
> offshore, the adjacent state could determine that development is
> inconsistent with their plan and the Secretary of Commerce would have
> to override the decision.
>
> A producing state would receive: 100% of the bonus bids for first 5
> years after first lease sale or start of production. A producing state
> would receive 12.5% of qualified production revenues. A conservation
> royalty of 12.5% of production revenues would also be established. The
> conservation royalty would be shared equally by the Federal land and
> water conservation fund, state land and water conservation fund and
> wildlife grants. None of these payments would be subject to
> appropriations.
>
> This proposal does not grant a State sovereignty over federal lands. 
> The President or Congress can still lift the moratoria.  This is a
> third way to lift the moratoria.

**[Other Key Supply Benefits Incorporated from H.R. 6]{.underline}**

-   Royalty Relief for Deep Water Production

-   Coastal Impact Assistance to Producing States Such as Louisiana and
    Texas

-   Efficient Processing of Government Application Provisions and Better
    Coordination of Permit Applications

-   Rocky Mountain Production Incentives such as Hydraulic Fracturing
    Clarifications

    -   A critical tool for producers to maximize their production in
        the Rocky Mountains is to inject fluids into fracture seams and
        increase the flow of natural gas or oil. These activities are
        regulated by the States. Legal questions arise on whether such
        activity should fall within the regimes of the Federal Safe
        Drinking Water Act. This provision clarifies that hydraulic
        fracturing is left to the State regulatory agencies.

**[Gas Methanes Research (Section 209)]{.underline}**

Methane hydrates hold **[tremendous]{.underline}** potential to provide
abundant supplies of natural gas. Hydrates are ice-like solid structures
consisting of water and gases (mainly methane) compressed to greater
than normal densities. Coastal U.S. areas are rich in gas methanes
hydrates. Estimates indicate a U.S. resource base containing 200,000 TCF
of methane, or one-quarter of the world's supply. US Gas Demand is 26
TCF per year.

Cost effective means to recover gas methanes do not exist today. This
section authorizes \$50 million per year from 2006 to 2009 for gas
methanes research. \$50 million is consistent with recommendations from
the National Commission on Energy Policy.

**[Alaska Gas Pipeline (Section 208)]{.underline}**

Legislation in 2004 authorized the important Alaska Natural Gas
Pipeline. Monitoring the development of this pipeline is critical.
Alexander's legislation creates a process for bringing to the attention
of Congress the development progress of this pipeline every 6 months. It
also would consolidate judicial review of certain permits,
authorizations, or authorizations in the U.S. Court of Appeals for the
District of Columbia Circuits, similar to other enactments designed to
make judicial review as efficient as possible.

**Pillar Three: Energy Infrastructure**

**[LNG and Pipelines (Section 301 and 303)]{.underline}**

One of the only immediate supply solutions to the natural gas crisis is
more liquefied natural gas (LNG) -- and quickly. There are four LNG
facilities existing in the U.S. and 31 more have been proposed. Some of
the existing LNG facilities would like to see expansion. It appears that
most of these projects -- which are our best short-term supply
solution - have considerable litigation and controversy surrounding
them, especially at a local and state level. Many states and locals do
not want these important projects that are in the national security
interest.

Alexander's legislation weighs in on this important issue. Some may say
that Alexander does not go far enough on this. However, it is
Alexander's view, as a former governor, that states' rights are
important aspects of energy development. The new provisions in this
section are not to be construed as affecting a state's rights under the
Coastal Zone Management Act of 1972, the Clean Air Act, or section 401
of the Federal Water Pollution Control Act.

Alexander's legislation amends the Natural Gas Act to clarify the
situation regarding the granting of applications for construction and
operating permits for facilities needed to import or export natural gas
located within a state or state waters. The bill would grant sole
authority to FERC, as lead agency compiling a single administrative
record, which must grant or deny an application within one year of
receiving a complete application. FERC is also directed to establish a
schedule of all federal and state administrative proceeding that needs
to be completed to issue a LNG permit. If a federal or state action
fails to meet the time schedule, it is "conclusively presumed" to be
granted, and the permitting process shall proceed without further
condition. The bill would not provide FERC additional authority to grant
eminent domain. FERC can not trump the Coastal Zone Management Act of
1972, the Clean Air Act, or section 401 of the Federal Water Pollution
Control Act.

Regulatory certainty is also important in siting LNG. An important
regulatory decision known as the "Hackberry" Decision is codified in the
Alexander legislation. This legislation would provide regulatory
certainty that commercial transactions between the LNG terminal and LNG
supplier would not be subject to FERC cost-of-service regulation. This
Hackberry Decision is critical to providing investment certainty for LNG
terminals.

Alexander's legislation also puts natural gas pipelines on the same
one-year schedule as LNG projects. The legislation directs exclusive and
original court review regarding civil action of FERC Orders be granted
to the United States Court of Appeals for the District of Columbia. This
would include disputes challenging a decision made under this bill.

**[Offshore Facilities (Section 302)]{.underline}**

Today, the Coast Guard has jurisdiction over Offshore LNG facilities.
The siting of these facilities is going fairly well, given that the
Coast Guard has expedited one-year and exclusive authority for offshore
facilities under the Deepwater Act Amended in 2002.

The Alexander legislation amends the Deepwater Port Act of 1974,
directing the Secretary of Transportation and the FERC to establish a
procedure for coordinating the permitting of pipeline construction used
to service an offshore gas facility within FERC's jurisdiction. The
legislation calls for FERC to approve or deny permits within the
one-year time line established by Section 301. The legislation prohibits
ancillary conditions to permits adversely impacting project construction
or operation.

The Alexander legislation preserves the ability of an adjacent state to
veto an offshore LNG project, unless the offshore project is greater
than 20 miles off of the coast of a state.

**[Encouraging Natural Gas Storage Projects (Section 304)]{.underline}**

Natural gas storage is not expensive and can be quickly built in the
short-term (within 1-1/2 years normally). It could provide an important
buffer to reduce gas price volatility in the short-term.

Alexander's legislation provides that a gas storage facility may use
market-based rates even if FERC determines that the facility may have
the ability to exercise market power. The legislation allows FERC to
condition such rates on use of an "open and transparent auction" for
sale of storage services. FERC is directed to periodically review such
situations.

**[Encouraging Backup Fuel Capability (Section 305)]{.underline}**

Gas-fired power generation and other large industrial facilities
sometimes have alternative fuel flexibility such that, were gas supply
to be unavailable or need to be directed to other users, the facility
could be operated using another clean fuel.

Section 305 directs the Secretary of Energy to study the feasibility and
cost-effectiveness of requiring alternative fuel capability. Also called
for is study of state effects of such a measure, and what changes to the
Clean Air Act might be called for "to allow natural gas generators to
add clean backup fuel capabilities." Within one year of enactment, the
Secretary is directed to submit a report to Congress on the results of
the study, including recommendations regarding further federal activity
on the fuel backup situation.