AMERICAN STATISTICAL ASSOCIATION (ASA)

                                    MEETING OF

                        THE AMERICAN STATISTICAL ASSOCIATION

                           COMMITTEE ON ENERGY STATISTICS

                                      WITH THE

                      ENERGY INFORMATION ADMINISTRATION (EIA)

                                      DAY ONE

                                  Washington, D.C.

                             Thursday, October 5, 2006


                                                          2

           1                   P R O C E E D I N G S

           2                                             (8:40 a.m.)

           3              MR. HENGARTNER:  Good morning, all.

           4    It seems I need a gavel here to call us to

           5    order.  Of course, I don't have it.

           6              Good morning.  Welcome all.  This

           7    is a -- I'd like to open the meeting.  And I

           8    want to do that by reminding you that this is

           9    an ASA and not an EIA committee, and it meets

          10    periodically to provide input and guidance

          11    and advice to EIA.

          12              This meeting is open to the public.

          13    I hope there is someone here.  And public

          14    comments, of course, are welcome.  There's

          15    time set aside for public comments at the end

          16    of each day as well as the opportunity to

          17    submit written comments either at the end of

          18    the meeting or throughout the year.  Your

          19    comments can be sent either to the ASA or the

          20    EIA.

          21              All attendees, including guests and

          22    EIA employees, should sign in at the register

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          3

           1    in the hall and include your e-mail address.

           2              Restrooms are at the end of the

           3    hall.  You go out that way or this other way,

           4    and you know where they are.  If not, I'll

           5    show you.

           6              There's a telephone in this room.

           7    It is a shared number.  Let me give you that

           8    number in case you need to be reached.  It's

           9    (202) 586-6273.  Again, (202) 586-6273.

          10              Kathleen Wert and Donna Renee

          11    Arrington are with the ASA committee.  Are

          12    they here?  No, they're outside manning the

          13    table.  And if you have any questions about

          14    expenses or travel reimbursements or so

          15    forth, please address those questions to

          16    them.  They will be glad to help you.

          17              In the past, we had someone writing

          18    a transcript.  We are still doing this, so I

          19    please ask you to speak up, and if you talk

          20    from the seats in the back, go to the

          21    microphone.  That will help us all to get the

          22    transcript.  There was an indication how to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          4

           1    use a microphone.  I will skip this, but I

           2    will keep the opportunity to remind you that

           3    if you don't do it right, I'll go and read

           4    this explicitly.

           5              Finally, I'd like to

           6    announce -- before we start, I'd like all of

           7    us to go around the table and introduce

           8    ourselves as well as the members of the

           9    audience, and I will start with myself.

          10    Again, please use the microphone.

          11              So, my name is Nick Hengartner and

          12    I'm from Los Alamos and the chair of this

          13    committee.

          14              MS. KIRKENDALL:  I'm Nancy

          15    Kirkendall.  I'm director of the Office of

          16    Statistics and Methods Group, whatever office

          17    I'm in.

          18              MR. CARUSO:  Guy Caruso,

          19    administrator of the EIA.

          20              MS. KHANNA:  Neha Khanna, State

          21    University of New York at Binghamton.

          22              MR. BURTON:  I'm Mark Burton,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          5

           1    University of Tennessee.

           2              MR. SINGPURWALLA:  Darius

           3    Singpurwalla, I'm at Klemm Analysis.  I got a

           4    new job.

           5              MS. SEREIKA:  Susan Sereika,

           6    University of Pittsburgh.

           7              MR. NEERCHAL:  Nagaraj Neerchal,

           8    UMBC.

           9              MR. CLEVELAND:  Cutler Cleveland,

          10    Boston University.

          11              MR. EDMONDS:  I'm Jae Edmonds at

          12    the Joint Global Change Research Institute

          13    and Pacific Northwest National Laboratory.

          14              MR. FEDER:  Moshe Feder, RTI.

          15              MS. FORSYTH:  Barb Forsyth, WESTAT.

          16              MR. HILL:  Walter Hill, St. Mary's

          17    College of Maryland.

          18              MR. McDOWNEY:  Preston McDowney,

          19    Statistics and Methods Group.

          20              MR. HENGARTNER:  And the audience,

          21    if you want to please walk to --

          22              MR. HELKIE:  Bill Helkie, senior

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          6

           1    advisor at EIA.

           2              MS. HOJJATI:  Behjat Hojjati, EIA.

           3              MR. TSENG:  Phillip Tseng, EIA.

           4              MS. MILLER:  Renee Miller, EIA.

           5              MS. WAUGH:  Shawna Waugh,

           6    Statistics and Methods --

           7              MS. BLOMBERG:  Carol Blumberg,

           8    Office of Oil and Gas, EIA.

           9              MS. WAUGH:  Shawna Waugh,

          10    Statistics and Methods Group, EIA.

          11              MS. JENNINGS:  Alethea Jennings,

          12    EIA.

          13              MR. BROON:  Tom Broon, SMG at EIA.

          14              MR. BRADSHER-FREDERICK:  Howard

          15    Bradsher-Frederick, EIA.

          16              MS. SWEENEY:  Amy Sweeney, EIA.

          17              MR. STROUD:  Lawrence Stroud,

          18    Statistics and Methods Group, EIA.

          19              MR. RASMUSSEN:  Eric Rasmussen,

          20    EIA.

          21              MR. RUTCHIK:  Bob Rutchik, EIA.

          22              MR. WEINIG:  Bill Weinig, EIA.  I'd

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          7

           1    like to mention that we have a constant

           2    ringing in the room.  We know about it.  It's

           3    not reparable and I'm sorry for the

           4    inconvenience.  It's with the air

           5    conditioning system, so I think we're going

           6    to have to suffer through it.  I'm sorry, but

           7    that's just reality.

           8              MR. HENGARTNER:  Okay.  Thank you

           9    very much, everybody.  I'd like to inform you

          10    that under the terms of the DOE grant to the

          11    ASA, Nancy Kirkendall may chair, but must

          12    attend each meeting.

          13              And she's authorized to adjourn

          14    this meeting if she determines this to be in

          15    the best public interest.  Must approve all

          16    meetings of the advisory committee and every

          17    agenda.  She may also designate a substitute

          18    in her absence.

          19              Overall, I think we're going to

          20    have a very good meeting again.  This meeting

          21    seems to be -- I mean, I looked at the

          22    agenda.  I was interested by seeing what's

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          8

           1    going to be on the plate.  There seems that

           2    there's a lot of room for discussion this

           3    time around, and I hope that we will all feel

           4    free to comment and elaborate on the points

           5    that are brought forward to us.  So just to

           6    let you know, I think it's going to be good.

           7              The first session this morning is

           8    going to be by the EIA administrator, Guy

           9    Caruso, who is going to tell us about the

          10    general affairs at the EIA.

          11              Welcome, Guy.

          12              MR. CARUSO:  Thank you, Nick.  Good

          13    morning.  Thanks again, Nick.  I always start

          14    my remarks by saying how much we really

          15    appreciate the ASA committee's work.  And I

          16    think it's -- you know, my -- this is I guess

          17    about the eighth meeting for me, and every

          18    time, I feel as though that EIA is a

          19    significant beneficiary of this committee's

          20    work and the advice you've given us.

          21              And as you point out, Nick, the

          22    agenda for this meeting is no exception in

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          9

           1    that it lays out a number of areas where we

           2    can really seek the advice of this committee

           3    and the membership and goes beyond just this

           4    meeting.  Clearly we're going to hear a lot

           5    from your members in the sessions themselves,

           6    but I also want to thank you and the members

           7    for the continuing relationship we have with

           8    you outside the formal meetings, and that we

           9    continue to seek the advice of the committee

          10    and the membership.  So thanks very much.

          11              Good news I think for bringing you

          12    all up to date as to what's been happening at

          13    EIA is that we're a lot less -- it's been a

          14    much calmer six months this October than when

          15    I stood here last October right after the

          16    aftermath of Katrina and Rita, which so

          17    dominated our own work and the Congress' and

          18    the Administration's demands on EIA, and that

          19    tended to overshadow a lot of the ongoing

          20    core activities.

          21              The last six months, we've I think

          22    been able to get back to doing the things

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          10

           1    that we need to do to follow up on many of

           2    the suggestions that we've heard from you.

           3              And you're going to hear

           4    immediately after my remarks, and Nancy

           5    brings you up to date with the activities,

           6    where we are on probably the most exciting

           7    new development in EIA on the forecasting

           8    side in a couple decades.  And that is we

           9    have received the approval and support of DOE

          10    management to do a complete redesign of the

          11    National Energy Modeling System.

          12              And of course, budgets being what

          13    they are, this is highly dependent on our

          14    getting the monies that we've asked for, but

          15    we're optimistic.  And I'll talk a little bit

          16    about specifically on the budget, but I

          17    mentioned this the last time, but we are six

          18    months closer to actually implementing the

          19    redesign.  And Susan Holte will go into a lot

          20    more detail about that.  And I think it's

          21    very much an activity which we can benefit

          22    from, this committee and your membership, so

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          11

           1    we're real excited about that.

           2              We've been talking about the

           3    reporting on greenhouse gases for a number of

           4    meetings now, and the redesign of the

           5    voluntary reporting survey is well underway

           6    now and we're hoping to implement that in

           7    '07.  And as you know, it's been about a

           8    two-year process, and again, benefiting from

           9    your advice.

          10              And then there is always the

          11    ongoing energy markets and how they impact

          12    what EIA does.  And just a couple of

          13    activities, a couple of events that highlight

          14    the effect on our work, and that is

          15    the -- we've been involved to some extent in

          16    this whole debate about peak oil that's been

          17    underway in the analytical community now for

          18    several years.

          19              And we at EIA, as I think you've

          20    heard from John Wood and others of John

          21    Wood's staff in Dallas, are of the view that

          22    the resource base, whether it be oil or

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          12

           1    natural gas, is sufficient to meet the

           2    demands that our forecasting models indicate

           3    will be there, whether it be domestically or

           4    internationally.

           5              And of course, we follow new

           6    developments.  And the most recent one on the

           7    upstream side has been this very deepwater

           8    discovery and the lower tertiary trend in the

           9    Gulf of Mexico, the so-called Jack 2 well

          10    operated by Chevron.  And our models have had

          11    the reserves from that lower tertiary trend

          12    in our long-term outlook for some time now.

          13    So in a way, it kind of supports our view,

          14    which doesn't necessarily mean it's

          15    ultimately where it's going to come out.

          16              And then going to the other extreme

          17    of the spectrum on oil is the downstream.

          18    Not only have we had this transition from

          19    MTBE to ethanol, which is significant for EIA

          20    because of the data quality issues with

          21    respect to collecting and understanding

          22    what's going on with blending of ethanol, and

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          13

           1    that we certainly did not have in our system

           2    when EIA was founded -- so that's been an

           3    issue; we'll talk about that -- but other

           4    things like the lower sulfur gasoline, the

           5    ultra-low-sulfur diesel, and then the

           6    increased emphasis on flexible-fuel vehicles,

           7    such as biodiesel, all have important

           8    implications of the work of EIA and

           9    particularly the data quality on, in this

          10    case, oil.

          11              I'll also mention where we are on

          12    the FY 2007 budget, which is, unfortunately,

          13    Congress went out without passing an '07

          14    budget for energy and water, where our budget

          15    resides.  So we have to live with the

          16    continuing resolution at least through

          17    mid-November, but the smart money in

          18    Congress -- insiders are saying it won't be

          19    until the new Congress in January before they

          20    act on an '07 budget, which is difficult for

          21    an organization that has as its core function

          22    collecting data, which uses about 50 percent

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          14

           1    of the budget.  And we can't stop doing that

           2    or even diminish it, so it means other things

           3    really get squeezed.

           4              We talked about the external study

           5    team that was headed by Denny Ellerman.  We

           6    have, since our last meeting, gotten the

           7    formal report, and those reports are I think

           8    available if you haven't gotten one.  And

           9    we'll talk a little bit more about the

          10    recommendations they've made, some of which

          11    we'd like your advice on about how to

          12    implement that most effectively.

          13              And we are beginning, believe it or

          14    not, another five-year strategic plan.  That

          15    means that I've been here almost five years,

          16    because I was here when we started the last

          17    one.

          18              You know, Susan's going to go into

          19    a lot more detail about the NEMS system, the

          20    redevelopment or redesign.  And some of you

          21    were around and remember when this current

          22    version was started in 1991.  And you think

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          15

           1    about what's happened in the energy markets

           2    since '91, there's been an enormous amount of

           3    change, restructuring, deregulation.  And as

           4    I mentioned, in oil and gas, there were

           5    virtually no biofuels in 1991.  It didn't

           6    exist in our database.

           7              On the gas side, there's been an

           8    enormous change.  In 1991, coal bed methane

           9    was less than 1 percent of our gas supply;

          10    it's 10 percent today.  Other unconventional

          11    gases, if our model is correct, will

          12    represent 40 percent of our gas by 2030.

          13              So clearly, you try to keep up with

          14    these changes by making adjustments in the

          15    algorithms and add-ons, but oftentimes when

          16    you do that in an existing large-scale

          17    mathematical model, as many of you know much

          18    better than I do, it creates a lot of

          19    unintended consequences and you come out with

          20    results that, quite frankly, don't make any

          21    sense unless you go back and relook at the

          22    whole system.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          16

           1              And a few of us were at the energy

           2    economists meeting in Detroit, and Bill Hogan

           3    made an excellent luncheon talk.  And he made

           4    some of these points about how energy

           5    modeling can be useful, but clearly, in his

           6    case, he related it to electricity

           7    deregulation, there are a number of things

           8    that we need to do in that area to bring NEMS

           9    up to date, and many others, as I've talked

          10    about.

          11              Where we are now is Susan Holte,

          12    who will speak to you at 9:30, is heading up

          13    our internal design and planning team for the

          14    redesign of NEMS.  And we've sent letters out

          15    to key stakeholders who are interested in

          16    NEMS, and asked for their input.  And

          17    obviously by virtue of this meeting, we're

          18    asking for yours.  And we think it's probably

          19    about a three-year project.  We're hoping

          20    that if all goes well by maybe the 2010

          21    Annual Energy Outlook, the new NEMS would be

          22    up and running.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          17

           1              Something that's very near and dear

           2    to the heart of Jae on this committee, the

           3    voluntary reporting on greenhouse gases is

           4    underway and been redesigned.  And I think if

           5    all goes well, that will begin collecting

           6    that data in '07.  And thank you all for your

           7    help in the work leading up to this.

           8              I already mentioned the deepwater

           9    discoveries.  And I think these are events

          10    that we have to respond to, whether it be

          11    because we're asked to analyze what does it

          12    mean for energy markets -- but in the case of

          13    the deepwater discovery, it brings up another

          14    point which is directly related to the

          15    redesign of NEMS, and more specifically, to

          16    forecasting in general, and that is

          17    technological change.

          18              Now we try to do our best in

          19    capturing technological change in every

          20    aspect of the industry, and we have utilized

          21    independent expert groups to come in and say

          22    are we doing the right thing in trying to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          18

           1    capture what's going on in whatever sector it

           2    happens to be.  But I don't think anyone

           3    could have anticipated the drilling in 12,000

           4    feet of water and producing from the lower

           5    tertiary trend in 1991, when NEMS was

           6    designed.

           7              So it's that kind of thing that

           8    we'll be looking to all of the -- not only to

           9    this committee, but to all of those I

          10    mentioned that we've sent letters out to

          11    asking for input how best to capture

          12    technological change.  I mean, we've been

          13    using I think a reasonable system to do that

          14    in terms of recent trends, what's going on in

          15    each sector, but we'll certainly be looking

          16    for outside advice on that as well as in the

          17    downstream sector.

          18              You know, we talked about the

          19    Energy Policy Act of last year, and some of

          20    the implications that has had for a number of

          21    things.  I mean, certainly, the one you hear

          22    the most about is biofuels and things like

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          19

           1    particularly ethanol and the subsidies and

           2    incentives for renewables, and we certainly

           3    will capture all of that in our Annual Energy

           4    Outlook 2007.  But many of these items that

           5    were in the EPAct 2005 were authorization

           6    language, but no appropriations.  So indeed,

           7    many of the things that we think are going to

           8    occur, we can't really model without knowing

           9    what the actual budgets and appropriations

          10    will be.

          11              But we are working with others

          12    within the federal government, such as

          13    Agriculture, to try to understand better

          14    what's going on in the production of biofuels

          15    and what it means for our projections.  For

          16    example, we don't collect on a regular basis

          17    the ethanol production, but Agriculture has

          18    some collections on their system, so we're

          19    working with them on that.

          20              And clearly we need to improve

          21    that, since ethanol, we think, will represent

          22    about 8 percent of total gasoline demand in

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          20

           1    our long-term forecast.  So it's extremely

           2    important that we get the -- we capture all

           3    that blending that's going on outside of

           4    refineries.  Our systems were designed to

           5    capture data at the refinery, at bulk

           6    terminals, but we never anticipated -- you

           7    know, I think there's about 2,500 blenders at

           8    last count that are not in our -- that are

           9    increasingly -- we're trying to capture that

          10    data, but it's increasingly important and

          11    necessary.

          12              So clearly, our intention is to

          13    improve both the oil and gas data quality in

          14    both the areas of ethanol and biodiesel.  We

          15    are proposing in the '08 budget, which is now

          16    at OMB, a system to collect the biodiesel

          17    data, beginning with the '08 budget.

          18              Bringing you up to date, as I

          19    mentioned, Congress left town without having

          20    voted on the energy and water budget, and our

          21    request was about $90 million.  The Senate

          22    actually added $3 million to that in their

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          21

           1    subcommittee.  The House approved the $89.8,

           2    so we're hoping the Senate prevails when they

           3    come back and they get in conference

           4    committee.

           5              One of the issues that came up

           6    during the budget process was that at that

           7    roughly $90 million budget, we said that we

           8    couldn't keep doing everything and keep our

           9    quality up, as we've talked about before this

          10    committee previously.

          11              So we proposed the dropping of

          12    three surveys, petroleum marketing surveys

          13    mainly affecting the price or the pricing of

          14    both the first purchases of crude oil in the

          15    domestic market and imported prices for

          16    crude, as well as electricity Form 767.

          17    Interestingly enough, even though those three

          18    forms are relatively small in terms of the

          19    total budget, we estimate about $1 million to

          20    do those three.

          21              It kicked off kind of I think a

          22    reasonably strong pushback from users of that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          22

           1    data, including some within the federal

           2    government, such as IRS, which uses the

           3    pricing data; EPA, which objected to

           4    the -- they use the data from the electricity

           5    survey.  So we got some pretty strong support

           6    for keeping these surveys.  And indeed, that

           7    was one of the reasons the Senate added

           8    $3 million in addition to it.  The two

           9    reasons the Senate gave the Senate Budget

          10    Subcommittee on Energy and Water for adding

          11    $3 million was to restore these three surveys

          12    and to add collection data on ethanol and

          13    biofuels.

          14              So we're hopeful, again, that that

          15    works out, because as you know, the trend in

          16    the EIA's budget that we've talked about for

          17    a number of meetings here has not been

          18    favorable, but we hope this is the beginning

          19    of the turnaround and the increase that we

          20    hope that will come to be passed for the '07

          21    budget.  And we have reason for optimism for

          22    '08 as well.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          23

           1              We've talked about that external

           2    study team, which -- the design of that team

           3    actually was very much influenced by your

           4    advice in that we model it after kind of a

           5    visiting -- outside visitors kind of program,

           6    as they do in many of your universities.

           7              And Denny Ellerman, heading that up

           8    from MIT, and then an excellent supporting

           9    cast that we talked about previously, I think

          10    it really worked really well, in our view,

          11    because it forced us to pull together the

          12    information they needed to do their

          13    assessment or their study and kind of forced

          14    us to do almost an internal review before we

          15    could prepare for the external review.  And

          16    there are three main recommendations that

          17    come out of the study.

          18              And again, the first one is that we

          19    should do more analysis.  And they said that

          20    it was obvious when you look at that, what

          21    suffered in that long downward trend in real

          22    prices was less analysis.  We had to focus

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          24

           1    obviously on the core data collection.  And

           2    up until recently, we haven't dropped any

           3    surveys, and as I mentioned, we decided that

           4    couldn't continue.  We had to either drop

           5    some things or the quality would continue to

           6    decline.  What they're saying is that there's

           7    a linkage between the data collection and the

           8    analysis.  And if you kind of shortchange the

           9    analysis, you actually don't keep up with

          10    what data you need to keep the analytical

          11    function current.  So that was one

          12    recommendation.

          13              And then the IT recommendation was

          14    in response to a trend in at least the

          15    federal government that there be a

          16    consolidation of IT functions within each

          17    department under one CIO, chief information

          18    officer.  And they thought in EIA's case that

          19    didn't really work well because we needed to

          20    maintain that independence, and we certainly

          21    agreed with that.

          22              And then the one where I think we

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          25

           1    may be asking -- I think for sure we'll be

           2    asking you advice in this:  Making greater

           3    use of the external market information.  And

           4    the team thought that one of the areas where

           5    EIA may not have kept up to date as well as

           6    we could have is taking advantage of the

           7    information that's out there in the

           8    marketplace and using that in our analysis.

           9              And we think we have some

          10    ideas -- and they gave us some on how we

          11    might do that, but it's an area where we

          12    certainly will seek your advice, among the

          13    many other areas that we'll be talking to you

          14    about these two days and in future meetings.

          15              And finally, we are launching -- I

          16    think in two weeks, we'll have our first

          17    meeting to begin our next five-year strategic

          18    plan.  And again, we're trying to use this as

          19    a way of, one, implementing some of the ideas

          20    that have come out of advice from groups like

          21    yours and from the external study committee,

          22    as well as the recognition and need to keep

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          26

           1    up with the change that is always underway

           2    with respect to what EIA does.

           3              So again, I want to close by

           4    thanking you all for holding this meeting and

           5    being willing to spend some time in advising

           6    us.  And we looking forward to the next day

           7    and a half.  Nick, again, thank you.  And I'm

           8    certainly available for questions now or over

           9    the next two days.

          10              MR. HENGARTNER:  Any questions?

          11    Jae?

          12              MR. EDMONDS:  Yes.  Guy, I was

          13    wondering if you'd take a couple minutes and

          14    elaborate a little bit more on the Ellerman

          15    committee findings.

          16              I think the first and the last

          17    intrigued me.  The first was do more

          18    analysis.  And what does that mean?

          19              And then the third one was use

          20    external data sources more, and I'm not quite

          21    sure what that means.  So if you could

          22    elaborate a little bit on what the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          27

           1    implications for EIA are, I'm sure that Denny

           2    put a few more pages than that on the topics.

           3              MR. CARUSO:  Yes, and I think the

           4    full report's available, yes, to everyone

           5    here.  What they were reacting to is that

           6    when they looked back on the last -- well,

           7    especially the last 10 years, they saw that

           8    the EIA used to publish a lot of standalone

           9    analyses as either working papers or, up

          10    front in many of our publications, there used

          11    to be an opportunity for EIA staff to publish

          12    analytical work on that particular -- like,

          13    for example, in the Petroleum Supply Monthly,

          14    you might have an article on deepwater

          15    drilling or, on the other extreme, we'd have

          16    things on the refinery sector, individual

          17    analytical pieces that could either be part

          18    of a statistical publication or a standalone.

          19    And there had been a significant decline in

          20    that.  That's what they meant.

          21              MR. EDMONDS:  And these were issues

          22    that EIA was taking on itself as opposed to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          28

           1    Congress asking EIA do a special study on X?

           2              MR. CARUSO:  Yes, exactly.  Yes, I

           3    should have mentioned that, Jae.  It was

           4    self-initiated analytical work as opposed to

           5    Sen. X saying please do a study on carbon

           6    restrictions or on the NCEP.

           7              The third recommendation about

           8    using information that's out there in the

           9    marketplace, they felt that maybe that's one

          10    area where EIA has not kept up as well as we

          11    might have.  And that is because so much

          12    information's available now out -- and they

          13    were specifically -- and the examples that

          14    came up during the study team were things

          15    like futures and forwards markets options,

          16    and whether or not we're capturing -- when we

          17    do our short-term energy outlook, whether

          18    we're really making use of that kind of

          19    information in trying to project, in this

          20    case, particularly oil, oil prices.

          21              And we're saying, yes, it's a great

          22    idea, but we're not sure how to do that.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          29

           1    That's why I said we'll be looking for

           2    advice, and what's the implications of hedge

           3    fund activity and the commodity price index

           4    funds.  We all talk about it, but no one

           5    really knows how to incorporate that into our

           6    projections.

           7              MR. CLEVELAND:  Guy, just to follow

           8    up on the first point, I feel like the

           9    decline in discretionary analysis is a real

          10    loss, I thought, for oil and gas in

          11    particular.  And what we only get now is

          12    whatever's blowing in the current political

          13    winds oftentimes.  And whereas there used to

          14    be -- in the oil and gas supply module, for

          15    example, you'd often -- it was a way to get

          16    into the guts of NEMS when someone working on

          17    it would think about, well, how do you model

          18    tautological change?  And so there might be a

          19    paper on that or what are the trend and find

          20    development costs?  That'd be a way of not

          21    having to get into the code of NEMS, but to

          22    start -- a way of users, at least some of us,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          30

           1    thinking about some of the issues that we

           2    struggle with in building these models.  And

           3    I think that's a significant loss, and I'm

           4    sure it's true across every sector of NEMS.

           5              MR. CARUSO:  Well, I think Denny

           6    and Paul Joskow, I think they're the two that

           7    felt the most strongly about exactly what you

           8    just said.  And at least in my experience of

           9    four years here is that it was -- we had a

          10    choice between continuing to try to put the

          11    resources on the core data collection and do

          12    as much of the analysis as possible, and that

          13    always was the discretionary analysis, to

          14    follow up on Jae's point, that suffered.  And

          15    I agree.  And then we certainly -- if we get

          16    additional money, we'd certainly like to

          17    spend more resources on that.

          18              MR. HENGARTNER:  Susan?

          19              MS. SEREIKA:  On the work that you

          20    did here or the work that the external team

          21    do, did any of this come through your request

          22    for funds for next year?  Like, for example,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          31

           1    that first point.

           2              MR. CARUSO:  Well, yes, I think

           3    if -- particularly for in '08, in the

           4    budgetary request that we submitted, if

           5    everything goes as requested, we would

           6    definitely have more money for analysis in

           7    addition to a redesign of NEMS, and the third

           8    area where a lot of that additional funding

           9    would be expended would be improving data

          10    quality, particularly on oil, where as I

          11    mentioned, things like biofuels and other

          12    changes really were not captured in our

          13    system.

          14              MR. NEERCHAL:  Coming from an

          15    economic background, our department, for

          16    example, is going to go through one of these

          17    external reviews this year.

          18              And it went through one of those

          19    seven years ago.  Usually the reports usually

          20    sit on a shelf somewhere.  So I was wondering

          21    what is the next steps for this report and

          22    who is the audience?  Who is going to get it?

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          32

           1    And if we feel that we need to support some

           2    of these points, how do we forward our

           3    support to those points?

           4              MR. CARUSO:  There are two things

           5    very specific.  One is that we have, as I

           6    said, at least a little -- some effect

           7    already is in our request for the '08 budget.

           8    Secondly, the strategic plan that we're

           9    launching in the next couple weeks will use

          10    some of the recommendations in there to guide

          11    us in that.

          12              But there are a couple of other

          13    things that they recommended.  One is there

          14    were a couple of areas that they felt that

          15    really weren't essential to EIA's mission.

          16    One was the financial reporting system, and

          17    they recommended that we drop that.  I didn't

          18    include that in these highlights, but that

          19    has been a controversial program, for

          20    example.  And I think there have been three

          21    attempts to drop that since it was in the

          22    authorizing legislation of 1977, and all

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          33

           1    three met stiff resistance from Congress.

           2    And we thought that if we were to propose

           3    that, let's say in our FY '08 budget, to drop

           4    financial reporting of energy companies at a

           5    time when we're not too far removed from

           6    Enron and other activities, that it really

           7    wasn't politically feasible.

           8              And then the collection of the

           9    renewable transportation --

          10              MS. KIRKENDALL:  Alternative-fuel

          11    vehicles --

          12              MR. CARUSO:  Alternative fuel.

          13    There was another form -- alternatively

          14    fueled vehicle form.  They said that that

          15    really probably belonged in EPA or was not

          16    really an EIA function, not in energy.  But

          17    again, at this time when so much emphasis on

          18    biofuels and renewables that's probably not

          19    in the cards.  So we aren't necessarily

          20    following up on -- implementing -- planning

          21    to implement everything.

          22              MR. SINGPURWALLA:  Did they give

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          34

           1    any tips on implementing the stuff or was it

           2    just recommendations?

           3              MR. CARUSO:  It was mostly

           4    recommendations.  You know, I mean, we had

           5    more in the offline conversations with Denny

           6    and Paul and Jay.  Jay Hakes, the former

           7    administrator, of course, has been through

           8    this and understands the difficulties, but

           9    was extremely valuable to have him there.

          10    And they all said that they would be happy to

          11    continue discussing this.

          12              MR. SINGPURWALLA:  Do you think

          13    it's primarily a manpower issue?  I was

          14    looking at the top point again specifically.

          15              MR. CARUSO:  That one is, yes.

          16    Yes, I think it's a combination of having

          17    enough people and then the right people.  And

          18    as we've talked about in this group

          19    previously, there is a significant turnover

          20    of people with -- about one-third of our

          21    staff at the senior level turning over in

          22    '06, '07, '08.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          35

           1              MS. KHANNA:  Well, yes, sort of

           2    related to that, which is does this affect in

           3    any way the hiring priorities?

           4              MR. HENGARTNER:  You stole my

           5    question.

           6              MS. KHANNA:  I mean, if you talk

           7    about analysis, you're talking about a

           8    different kind of group as opposed to people

           9    who are really good at collecting data or

          10    collating data.

          11              MR. CARUSO:  I think so.  I think

          12    we would hope to be able to get more

          13    analytical positions, particularly I think

          14    where it's -- if you look at -- and I don't

          15    want to -- since there's a lot of staff here

          16    I don't want to single out, but it's fair to

          17    say that the office that suffered the most is

          18    the oil and gas office in terms of the

          19    analytical -- the personnel available to do

          20    analysis.  I think they're about one-half of

          21    where they were -- certainly from '96.  So in

          22    a 10-year period, they're about one-half.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          36

           1              MR. HENGARTNER:  Related to hiring,

           2    the one thing I didn't see in your

           3    presentation is actually something that came

           4    up several times in the last six years is the

           5    turnover, a lot of people retiring and

           6    getting new people into EIA.  And I was

           7    curious to see if we made progress or, if

           8    not, if that is something that one should

           9    focus in the next five-year plan?

          10              MR. CARUSO:  Oh, definitely, that's

          11    critically important.  The workforce planning

          12    is the buzzword, but we lost 16 senior people

          13    in '05.  We're probably looking at around 20

          14    in '06; a similar number, maybe a little more

          15    in '07.  And we have been I think reasonably

          16    successful in attracting high-quality

          17    applicants in the new -- so we have this

          18    bimodal demographic distribution developing

          19    now in EIA.  We actually have some people in

          20    their twenties again, and then a large group

          21    in the fifties and even in their early

          22    sixties.  And so what we want to do is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          37

           1    continue to attract good young people with

           2    analytical skills, obviously

           3    statisticians -- that we've talked about in

           4    this group about how difficult it is to get

           5    math stat -- high quality, qualified

           6    applicants.

           7              And then to the extent that people

           8    who are eligible for retirement would stay a

           9    bit longer, that would help, too.  So it's a

          10    combination of making it -- retaining people

          11    a bit longer and attracting young people, and

          12    then the mentoring end activities of

          13    transferring that knowledge to the new

          14    people.

          15              We had a very active intern program

          16    this summer, the most active -- I think it's

          17    got to be -- in EIA history.  We had more

          18    than 20 interns in the summer of '06, and we

          19    think it was very successful.

          20              How many of the interns would

          21    ultimately come to work for EIA?  Hard to

          22    say, but it's useful in recruiting as well

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          38

           1    because some of them go back to their

           2    universities and say we had a good time

           3    working there, they gave us some interesting

           4    work.  It's not a bad place, you know?  All

           5    those old people aren't so bad after all.

           6              So yes, I definitely should have

           7    mentioned that because that's one of our

           8    great challenges.  As I said, probably a

           9    significant -- at least one-third turnover in

          10    three years.  Nancy?

          11              MS. KIRKENDALL:  You might talk

          12    about we've got the big recruiting -- they're

          13    doing a lot of work right now.  We have a

          14    contractor helping us to improve our

          15    materials for recruiting on the web, because

          16    it's awful.

          17              MR. CARUSO:  Yes.

          18              MS. KIRKENDALL:  It has been awful,

          19    and they're trying to put together better

          20    descriptions of the jobs we have.  They're

          21    trying to make it sound like it's more

          22    interesting.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          39

           1              MS. FORSYTH:  Potential for

           2    analysis.

           3              MS. KIRKENDALL:  So there is an

           4    effort and I think they've made some

           5    progress.  At least the things I've seen look

           6    pretty promising.  So you might occasionally

           7    check the web and see if you think it looks

           8    any better.

           9              MR. CARUSO:  Yes, we have hired a

          10    recruitment coordinator.  When you think

          11    about it, 10 years ago, EIA was in decline.

          12    So we hadn't hired -- there was a long period

          13    there where there was a hiring freeze.  And

          14    to go from that to someone who actually

          15    that's what they do full-time is -- and it

          16    came out of our strategic plan and it

          17    certainly will be an important part of the

          18    next five-year plan.

          19              MS. KHANNA:  Actually, follow-up to

          20    Nancy.  The one thing I noticed, occasionally

          21    either from you or from Bill, we'll get an

          22    e-mail saying, hey, we have a job available

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          40

           1    and please advertise it to some of your

           2    colleagues and students.  But at least for

           3    economists, I mean, if I'm looking for a job,

           4    I go to the central marketplace for

           5    economists, which is job openings for

           6    economists.

           7              If you are trying to recruit,

           8    recruit at least economists, that would be

           9    the place to create a link to, because people

          10    don't go anywhere else, literally.  I mean,

          11    if you're looking for an academic or a

          12    federal government-type job or even private

          13    jobs with an analytical component.  And it

          14    could be I think really important to get

          15    hooked up to that.

          16              SPEAKER:  Get the advertisement in

          17    the right spot.

          18              MS. KHANNA:  It comes out five or

          19    six times a year and it's really the central

          20    marketplace.

          21              MR. CARUSO:  Thank you.

          22              Susan?

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          41

           1              MS. SEREIKA:  For the

           2    statisticians, you should go to the joint

           3    statistical meetings, because they have lots

           4    of opportunities for recruitment there.

           5    That's where more statisticians will go.

           6              MR. CARUSO:  I know we always have

           7    at least several people attending those.

           8              MS. SEREIKA:  Do you?

           9              MS. KIRKENDALL:  We don't always

          10    recruit them, so that's a good point.

          11              MS. SEREIKA:  Yes, a lot of

          12    students go there for recruitment.  And those

          13    interns, where are they in terms of their

          14    training?  Are they toward the end of their

          15    training for their degree or are they

          16    mid-way?

          17              MR. CARUSO:  They range from

          18    juniors in college to some that were in

          19    graduate school, and at least two of them

          20    were the JPSM, right, Nancy, from the

          21    University of Maryland's Joint Program of

          22    Statistical Method?

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          42

           1              MS. KIRKENDALL:  Yes.

           2              MS. SEREIKA:  Because I would

           3    imagine if you caught them in their last

           4    year, that's probably ideal.  Because they're

           5    right at that point where they're starting to

           6    think about where they want to go next.  And

           7    if you give them that wonderful opportunity

           8    to do the internship, that they might -- you

           9    know, might capture them.  I know that like

          10    in engineering, when they do their

          11    cooperative experience, it's in that last

          12    year and a lot of people transition right

          13    into that job.

          14              MR. NEERCHAL:  I think the issue

          15    here I think is that you are competing with

          16    many other recruiters, also.

          17              MS. SEREIKA:  That's true.

          18              MR. NEERCHAL:  I think we sent one,

          19    Katherine (?), and she had a wonderful time

          20    and she gave a very good report, but she

          21    wants to do her Ph.D. in Iowa, so that's --

          22              MS. KIRKENDALL:  That's what

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          43

           1    happens when you get good ones.

           2              MR. NEERCHAL:  Yes.  So I think

           3    this is about competition.  So I think going

           4    to JSM and putting a recruiting booth is a

           5    good idea, even when you have one opening,

           6    but you kind of make your presence felt there

           7    because then you know the recruiters from

           8    year to year to year, the EIA's (inaudible)

           9    recruiter.

          10              MR. CARUSO:  Thanks.

          11              MR. WEINIG:  I might mention to the

          12    committee that at 3:40 this afternoon, we do

          13    have a discussion chaired by the deputy

          14    administrator, Howard Gruenspecht, on the

          15    external study team.  It will not be -- it's

          16    a pretty bulky report, but we are printing

          17    copies of that so that you'll be able to see

          18    it later today.

          19              MR. CARUSO:  Thanks, Bill.  I

          20    should have mentioned that in response to

          21    Jae's question.  There will be an opportunity

          22    to really dig into that a bit more.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          44

           1              MR. HENGARTNER:  Okay, thank you

           2    very much for your patience with us.

           3              MR. CARUSO:  Thank you, Nick.

           4    Thank you, everyone.

           5              MR. HENGARTNER:  Next, I'd like to

           6    invite Nancy Kirkendall as the director of

           7    the EIA's Statistics and Methods Group to

           8    tell us what is happening to the advice and

           9    input we provided to her over the last year

          10    or so.

          11              MS. KIRKENDALL:  Actually, what

          12    we're going to do is give out our thank yous

          13    for our departing committee members, and then

          14    I'll go.

          15              The first one is for Susan Sereika.

          16    Susan has been a member of the committee for

          17    the last three years, and we'd like to thank

          18    you for your advice.

          19              MS. SEREIKA:  Well, thank you for

          20    having me.

          21              SPEAKER:  And a couple of things,

          22    Susan.  The certificate and the letter from

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          45

           1    Sec. Bodman.

           2              MS. SEREIKA:  Well, thank you very

           3    much.

           4              MS. KIRKENDALL:  A certificate and

           5    a letter from Sec. Bodman.  Okay, our next

           6    one is Mark Burton.  Mark has been a member

           7    of the committee for six years.

           8              SPEAKER:  Forever.

           9              MS. KIRKENDALL:  Forever, yes, it

          10    seems like.  We've seen him through two jobs.

          11              SPEAKER:  Nancy, how about giving

          12    him a (inaudible)?

          13              SPEAKER:  Sell it fast.

          14              SPEAKER:  I'd rather take 60 bucks.

          15              SPEAKER:  You're becoming an

          16    economist.

          17              MS. KIRKENDALL:  Finally, Nick

          18    Hengartner, who has also been a member of the

          19    committee for six years and has served ably

          20    as our chair for the last two years, and has

          21    kept us entertained.

          22              MR. HENGARTNER:  Thank you, Nancy.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          46

           1    This is the end of the era.

           2              SPEAKER:  And the beginning of a

           3    better one.

           4              MR. HENGARTNER:  Thank you so much.

           5              SPEAKER:  Right, now we can do some

           6    analysis.

           7              MS. KIRKENDALL:  All right, this is

           8    just a little summary of what's happened

           9    since the last meeting in terms of some of

          10    the suggestions you gave us.

          11              We had a session, just a

          12    wide-ranging discussion about how modeling

          13    could suggest data needs.  And the intention

          14    on this was to try to get some advice

          15    on -- since EIA sort of uniquely have data

          16    users as well as our data providers in-house,

          17    so we thought maybe we could get some ideas

          18    on how to establish better communications

          19    between those two groups.  Because the

          20    modelers sit over here and complain about the

          21    data side, but we don't -- you know, and this

          22    is an oversimplification.  We do talk to each

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          47

           1    other.  It's just -- it could benefit from

           2    being more formal.

           3              But the discussion ended up being a

           4    little bit more trying to bring in outside

           5    ideas on data needs, which is probably

           6    useful, too, because we haven't really done

           7    enough of that.  So some of the ideas that

           8    came up were engaging the energy modeling

           9    forum in some kind of a formal way, perhaps

          10    special issues in the energy journal, and

          11    then outreach efforts.

          12              One of the things that senior staff

          13    has actually talked about -- we've had our

          14    NEMS conference every year for a number of

          15    years trying to get input from users, and

          16    that's worked pretty well.  The

          17    recommendation is, well, why don't we have

          18    EIA Week or something, just expand that

          19    conference to a couple days to bring in the

          20    data side, too?  In recent years, it's been

          21    more than just a NEMS conference.  They've

          22    brought in STEO issues.  So it has been

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          48

           1    expanding, and I think that that's something

           2    that senior staff seems to be interested in

           3    doing, too.  So I think you will see more on

           4    the user conference idea as we go forward.

           5    That'll show up in strategic planning, I'm

           6    sure.

           7              We had a session on the new

           8    representation for the SAGE Model, and you

           9    had some suggestions.  You're going to hear a

          10    talk by our contractor tomorrow at 8:30, so

          11    you'll hear more about what we have learned

          12    on that.  This is all work-in-progress, so

          13    you're going to be hearing things as we go

          14    forward.  It's one thing about giving you

          15    information -- we try to pressure people into

          16    talking to you before they're really ready

          17    to, but at least that way we are more

          18    interested in listening to advice.

          19              And on the SAGE Model, the

          20    committee commented the model was too complex

          21    and we're still working on a more empirical

          22    approach.  And hopefully, that'll come back

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          49

           1    at a future meeting.

           2              The 2006 manufacturing energy

           3    consumption survey, you had some good

           4    suggestions.  As you know, the Census Bureau

           5    is our data collection agent on that, and we

           6    work very carefully with them so that we're

           7    working through considering inexpensive

           8    alternatives for incentives.  They're

           9    examining non-response follow-up letters.

          10    They're trying to improve things in general.

          11              We had a session on respondent

          12    cutoff dates for electricity data

          13    collections, and a very good discussion.  And

          14    what that has turned into now is you're going

          15    to be hearing about Electricity 2008.  That's

          16    the proposals for going forward with the

          17    electricity surveys, and the piece of that

          18    that relates to this session is that now

          19    they're talking about doing a sample of the

          20    smaller respondents.

          21              The 860 and the 861 are Census

          22    surveys.  They've been run every year.  And

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          50

           1    so what they're talking about doing is taking

           2    the smaller respondents and putting them on a

           3    three-year cycle instead of having it be

           4    annual.  So in the course of three years,

           5    you'd have a census, but you'd have -- every

           6    year, you'd do a sample of about a third of

           7    them.  And so that's the idea that's related

           8    to this cutoff date thing, to try to reduce

           9    the burden on getting in late response,

          10    non-response for all these little tiny

          11    companies.

          12              The IDC.  We had a good discussion

          13    on the IDC, the functional requirements

          14    document.  They tell me they are very close

          15    to having it done.  They've incorporated a

          16    lot of recommendations.  This has actually

          17    been a really good effort in EIA.  I think

          18    everybody is serious about trying to make it

          19    happen and moving to a common way of doing

          20    Internet data collections.

          21              We are going to be implementing the

          22    greenhouse gas program in this new IDC

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          51

           1    system.  And the only little challenge we

           2    have to work through is that we have legacy

           3    Internet data collection systems, and we have

           4    to figure out how do we bring them along and

           5    move them into the new system.  So there's

           6    still some things we have to work through to

           7    try to actually end up with a good,

           8    consistent IDC technology.

           9              MR. EDMONDS:  Nancy, what is the

          10    greenhouse gas program?

          11              MS. KIRKENDALL:  What is it?

          12              MR. EDMONDS:  Yes.

          13              MS. KIRKENDALL:  It's the voluntary

          14    survey of greenhouse gases that they're going

          15    to put in this IDC.

          16              MR. EDMONDS:  Okay.

          17              MS. KIRKENDALL:  And then finally,

          18    this was a study, a co-integration analysis

          19    between crude oil and natural gas prices, and

          20    you recommended that we continue to do

          21    similar analysis.  We have published the work

          22    you saw.  The authors, Jose and Fred, do plan

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          52

           1    to look at that trend term.  They haven't

           2    managed to do that yet.

           3              However, that study did generate

           4    further interest in EIA.  Andy Kydes has had

           5    an intern work on it over the summer.  They

           6    did an analysis of crude oil, natural gas,

           7    and coal prices, and trying to figure out

           8    what does the model tell you and what doesn't

           9    it tell you and what can you learn from it.

          10              So we're interested in the

          11    technology and trying to figure out how to

          12    use it.  And so it's always slow trying to

          13    figure out how to do something new.  You have

          14    to bring it in and use it and work through

          15    all the details.

          16              So that is what I have.  Any

          17    questions?

          18              MS. KHANNA:  This may be a question

          19    that needs discussion separately, but I was

          20    just curious why is the EIA collecting the

          21    greenhouse gas data as opposed to, say, the

          22    EPA?

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          53

           1              MS. KIRKENDALL:  Well, that was

           2    sort of what the external study team asked.

           3    I don't really know how we got tapped with

           4    it, but Congress decided that we should do

           5    it.  Maybe they trust us.

           6              MR. CLEVELAND:  Well, I mean, it's

           7    not that unreasonable, I mean, given that

           8    it's intimately tied to energy production and

           9    consumption.

          10              MS. KHANNA:  But there's plenty of

          11    stuff that the EIA -- the EPA does.  I mean,

          12    it's just at a time when budgets are

          13    declining and we're having to turn off

          14    service, which only the EIA can probably

          15    provide.

          16              MR. CLEVELAND:  Right.

          17              MS. KIRKENDALL:  Well, the other

          18    thing is it's a voluntary survey.  It doesn't

          19    represent anything.  Whoever wants to send in

          20    stuff can send it to you.

          21              MS. KHANNA:  Thank you.

          22              MS. KIRKENDALL:  You know, so what

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          54

           1    does it really mean?  You know, it's a way

           2    for somebody to get on record of having done

           3    something.

           4              MS. KHANNA:  Well, that's even more

           5    reason the EPA should be doing it, because

           6    they have a huge voluntary emissions database

           7    which has variable quality.

           8              SPEAKER:  That was charitable.

           9              MR. NEERCHAL:  Yes, that's what I

          10    was going to say, have you seen the data EPA

          11    collected?  I think that in fact, most of

          12    EPA's data is self-reported I think one way

          13    or the other.  I think part of (inaudible)

          14    compliance and things like that, I think they

          15    really do not do service like you do.  I

          16    think that maybe --

          17              MS. KIRKENDALL:  They may do some,

          18    but, yes.

          19              MR. NEERCHAL:  But I want to just

          20    ask and make a comment.  You mentioned the

          21    legacy system.  One of the things I think

          22    sometimes people don't talk about -- what

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          55

           1    you're building right now is going to be

           2    legacy some day.  And I think that dealing

           3    with a past legacy, many times you are

           4    dealing with the paper information that you

           5    are trying to put up, and I think it's like a

           6    one-time something you have to deal with.

           7    But it's even more important to really look

           8    at the system you're building right now and

           9    be aware that one day, the technology is

          10    going to change, and make sure that it does

          11    not become as much of a burden as the legacy

          12    of today.

          13              MS. KIRKENDALL:  Right.

          14              MR. NEERCHAL:  I think

          15    that's -- you know, it is kind of one of

          16    those megatrend kind of an issue and I think

          17    it's very important to keep in mind.

          18              MR. FEDER:  Nancy, I just wanted to

          19    comment that even voluntary service can be

          20    made representative by use of some weighting,

          21    such as propensity scores and things like

          22    that.  People do that with web-based surveys

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          56

           1    where you have -- I mean, which are also

           2    voluntary.  I know Harris Interactive is

           3    doing it with their surveys.

           4              MR. EDMONDS:  Yes, but these data

           5    are just public relations.  Let's face it.

           6              SPEAKER:  That's right.

           7              SPEAKER:  They're biased.

           8              SPEAKER:  Which is probably why

           9    it's Energy and not EPA.

          10              MR. EDMONDS:  I was there, I was

          11    involved with the original creation of this

          12    stuff and it is -- there's just -- I mean, it

          13    has no content.

          14              MR. FEDER:  But Jae, do you think

          15    that the greenhouse emissions survey can be

          16    made representative using propensity scores?

          17    If you post-stratify by industry type and

          18    things like that, you can at least improve

          19    the --

          20              MR. EDMONDS:  See, it's not -- see,

          21    it's about emissions reductions, not about

          22    emissions.  And so it's a delta based on

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          57

           1    heaven knows what.

           2              MR. NEERCHAL:  Estimates.

           3              MR. EDMONDS:  Right.  And then how

           4    does that fit into the larger accounting?  I

           5    mean, that's why I sense some frustration is

           6    that it doesn't -- I mean, I can't think of

           7    any way you could use it even if it were

           8    totally accurate.

           9              MS. KIRKENDALL:  The only thing

          10    that might be interesting, I understand many

          11    electric companies report on it and we could

          12    match to our electric power data, so you

          13    might be able to do something interesting

          14    with that, but other than the electric power

          15    industry, I don't think that you have enough

          16    to do anything with.

          17              MR. FEDER:  That's a weighting

          18    technique which we commonly use in service by

          19    using auxiliary data, so yes.

          20              MR. HENGARTNER:  Well, thank you

          21    very much.  It's nice to see that our advice

          22    is taken seriously.  Thank you, Nancy.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          58

           1              I think we are -- unfortunately,

           2    we're half an hour behind schedule.  This

           3    doesn't mean -- that's all right, I think

           4    it's good to have those discussions.

           5              I'd like to segue into our first

           6    presentation, which is done by Susan Holte,

           7    which is one of the technical advisors to the

           8    EIA.  And she's going to talk to us about

           9    energy modeling systems.  And I think this is

          10    one of those issues that I hope will generate

          11    discussion within the committee.  And so, if

          12    need be, we'll just stretch out this session

          13    until we're all talked out.

          14              MS. HOLTE:  Does that mean I blow

          15    off my 10:30 meeting?

          16              MR. HENGARTNER:  Oh, you have a

          17    hard (inaudible).

          18              MS. HOLTE:  Well, that I can do,

          19    but I think I do have to be out of here at

          20    11:00.

          21              MR. HENGARTNER:  Okay, thank you

          22    very much.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          59

           1              MS. HOLTE:  I'm sorry.  This is

           2    late.  Anyway, thank you.  Is this coming

           3    through okay?  Okay.

           4              I've been asked to head a small

           5    team of modelers and analysts who consider

           6    the future development of the National Energy

           7    Modeling System, and this effort has been

           8    underway for about six months.  We are

           9    seeking to get input from interested

          10    stakeholders on modeling and analytical

          11    issues.  Given that input, our own

          12    assessments and those of the NEMS analysts,

          13    we will prioritize (inaudible) development

          14    projects for the next two fiscal year budget

          15    cycles and beyond.  And we may also initiate

          16    some research projects on our own.

          17              In addition to me, the team members

          18    are:  Bill Helkie, who joined EIA this year

          19    from the Federal Reserve Board; Jeff Jones,

          20    who's a lead modeler for electricity markets

          21    in NEMS, and he has more than 25 years'

          22    experience in EIA modeling and analyzing

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          60

           1    electricity markets; Andy Kydes is the senior

           2    technical advisor for the Office of

           3    Integrated Analysis and Forecasting, and he

           4    has nearly 30 years of experience in energy

           5    analysis and modeling, with some private

           6    sector experience in natural gas markets; and

           7    Dan Skelly has worked with EIA both as a

           8    contractor and as a federal employee for more

           9    than 25 years in a number of areas, and more

          10    recently has done work with the industrial

          11    and transportation modules of NEMS, and he's

          12    responsible for the overall system

          13    configuration of the model as well as the

          14    greenhouse gas emissions and analysis.

          15              Personally, I've worked on the

          16    design and development of all the major

          17    integrated models in EIA and its predecessor

          18    organizations going back to Project

          19    Independence, which has everybody under 35

          20    saying why are you still here?  Referring to

          21    the demographic issues.

          22              Anyway, NEMS was developed in the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          61

           1    early 1990s, and the call for NEMS arose from

           2    the National Energy Strategy, which was

           3    released in 1991.  The model that EIA used at

           4    the time was largely econometric and was

           5    deemed inadequate to analyze many potential

           6    energy policies.

           7              As a result, there was a lot of

           8    publicity about a new, biggest and best

           9    energy model that EIA was going to build with

          10    public statements by the Secretary and the

          11    Deputy Secretary.  The Office of Policy,

          12    Planning, and Analysis in DOE commissioned a

          13    National Academy of Sciences study to provide

          14    recommendations on a model.  And there was

          15    some activity by the Secretary of Energy

          16    Advisory Board.

          17              Finally, the administrator, Calvin

          18    Kent, decided to create a NEMS project office

          19    in late 1990.  And this consisted of the

          20    then-technical assistant, Bill Skinner; John

          21    Conte, who is now head of the Office of

          22    Integrated Analysis and Forecasting; me under

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          62

           1    a different name; and John Holte, if you get

           2    the connection there.

           3              The mission of the project office

           4    was to research models and methodologies and

           5    plan the design of NEMS.  And the mission

           6    also included representing the project in the

           7    National Academy and other organizations, and

           8    make some budget and organizational

           9    recommendations.

          10              Then, EIA created the Office of

          11    Integrated Analysis and Forecasting in

          12    October of 1991, with a mission of developing

          13    NEMS, producing the Annual Energy Outlook and

          14    the International Energy Outlook, but leaving

          15    the short-term energy outlook out of that

          16    office's mission.  OIAF developed various

          17    design papers, including very detailed

          18    component design reports on each of the

          19    modules and submodules of NEMS, which were

          20    circulated for review, both in and outside of

          21    the department.

          22              And OIAF also started working group

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          63

           1    meetings in each subject area so there would

           2    be periodic interaction with interested

           3    people in the department, the national

           4    laboratories, and some outside organizations,

           5    and this practice continues today.

           6              We're undertaking the project a bit

           7    differently this time, for several reasons.

           8    First, we have an office in EIA with the

           9    central responsibility for midterm energy

          10    modeling and analysis, and that was not the

          11    case 15 years ago.  We didn't have a

          12    centralized organization.

          13              Second, we believe that EIA has a

          14    functional model for many analytical

          15    requirements, although more functionality is

          16    required.

          17              Finally, it seemed unnecessary and

          18    impractical to start from scratch.  In an era

          19    of tight budgets and many requirements upon

          20    EIA, the cost would be very high.  So we do

          21    not have a separate formal project officer at

          22    this time.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          64

           1              Much has been made of NEMS being 15

           2    years old, but the model has been extensively

           3    developed and adapted to maintain relevancy

           4    beyond just the simple updates and periodic

           5    extensions of the forecast horizon.  As

           6    background information, we asked the NEMS

           7    analysts for a list of the model changes that

           8    have been made since the first incarnation of

           9    the model, and received a very long list of

          10    projects.

          11              And I've listed a few here:

          12    Restructuring of the electricity and natural

          13    gas markets, mercury emissions, greenhouse

          14    gas, the ability to put limits or prices on

          15    greenhouse gases, technology learning,

          16    additional standards and regulations, more

          17    technological detail, integration of the

          18    entire macroeconomic model within NEMS.  So

          19    these are just a few, but the model has

          20    certainly been extensively adapted over the

          21    15-year period.

          22              At this time, the team has had

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          65

           1    meetings with interested parties in the

           2    department to ask for their comments and

           3    suggestions on NEMS.  I should note that many

           4    people in the department are far more

           5    interested in NEMS now than they were 15

           6    years ago.

           7              And this is largely due to the

           8    Government Performance and Results Act of

           9    1993.  As part of their budget submissions,

          10    many department programs are required to show

          11    the expected outcome of their programs on

          12    energy markets by analyzing the program

          13    impacts through NEMS.  So there's a very good

          14    reason for them to be interested.

          15              Inquiries were also sent to

          16    relevant congressional staffers.  Not

          17    surprisingly, we have received no comments.

          18    They use our analysis and our data, but would

          19    not typically be interested in modeling down

          20    at this level.  Guy Caruso's also sent

          21    letters to a variety of energy trade and

          22    research organizations, and inquiries are

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          66

           1    going out about now to some of the national

           2    laboratories.

           3              We have also asked for suggestions

           4    from the modelers within OIAF looking for

           5    projects that may be beyond their ongoing

           6    model development.  So interest does vary

           7    widely, and suggestions do vary widely

           8    throughout the department.

           9              After meeting with us, the Office

          10    of Energy Efficiency and Renewable Energy

          11    provided a 15-page paper of suggestions

          12    ranging from outreach and communication to

          13    broad topics of consumer behavior modeling

          14    and technological change to some very

          15    module-specific recommendations.

          16              Fossil Energy was also very

          17    interested with a list of recommendations,

          18    including improved representation of all

          19    alternative liquid fuels, improve our

          20    representation of oil and natural gas

          21    production technologies and distributed

          22    generation, and transportation advances in

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          67

           1    vehicle designs.

           2              The Office of Electricity Delivery

           3    and Energy Reliability has a more narrow

           4    focus.  Their issues are basically related to

           5    the difficulty that they have in representing

           6    their programs within NEMS, such as

           7    transmission reliability, load shifting, and

           8    storage.  Some of their concerns may be

           9    nearly impossible to address in the absence

          10    of a transmission model.  Many of their

          11    metrics for their benefits analysis concern

          12    congestion pricing and the cost of electric

          13    outages.  Nuclear Energy is primarily

          14    interested in expanding the number of nuclear

          15    technologies represented and the uranium fuel

          16    cycle from supply to reprocessing and

          17    storage.

          18              Policy really didn't provide us

          19    with much feedback.  As a somewhat different

          20    suggestion, they appeared more interested in

          21    some scenarios in the three-to-six time frame

          22    for which NEMS is really not suited.  And the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          68

           1    Office of Science is not interested in

           2    weighing in, but wanted more information on

           3    NEMS for some new staffers.

           4              I'm not going to really dwell on

           5    this slide, but just point out that the

           6    combined vision for NEMS is always rather

           7    lofty:  Do everything, have all sorts of

           8    diagnostics and uncertainty and everything,

           9    and, oh, by the way, solve it in a wink of an

          10    eye.  But working from that lofty vision,

          11    there are some overarching topics that we

          12    must consider.

          13              EERE and Fossil Energy are very

          14    interested in extending the model horizon.

          15    Even if we have no desire to extend the

          16    projections in the Annual Energy Outlook, we

          17    could -- and I repeat that is a big

          18    "could" -- consider doing this to service the

          19    needs of the department.  Currently, a

          20    contractor does that for them for their

          21    benefits analysis.

          22              Extending the model horizon raises

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          69

           1    many issues.  Obviously, one that always

           2    comes to people's minds first is resource

           3    depletion, but there's also the question of

           4    how to represent technologies in such an

           5    extended time frame.  Generic technologies,

           6    which is always sort of a fallback in

           7    longer-term models, generic technologies may

           8    not be very useful for the department

           9    programs because they have to analyze very

          10    specific programs.  There's also a question

          11    of how relevant a lot of the detail in NEMS

          12    becomes as you stretch the forecast horizon

          13    further out.

          14              There were several issues raised by

          15    people within the department about improving

          16    the feedback between the energy and

          17    macroeconomic models.  There were a wide

          18    range of infrastructure issues that are of

          19    interest to the department, including

          20    transmission, pipelines, G terminals, and

          21    water use, which was of particular interest

          22    to Fossil Energy.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          70

           1              Technological choice and

           2    technological improvement are topics of

           3    continuing interest to us and to the

           4    department, and how consumers choose

           5    technology and the related topic of foresight

           6    are paramount.

           7              In addition to these broad issues,

           8    there are some very specific model

           9    improvements that are potentially of interest

          10    to us and others.  EERE is sponsoring the

          11    development of a hydrogen market module for

          12    NEMS.  EIA is part of that process, so that

          13    it is done within our modeling structure.

          14    The process for adopting that model into our

          15    baseline version of NEMS has yet to be

          16    determined.

          17              We would like to consider improving

          18    representation of world energy markets, one

          19    goal being to represent the competition among

          20    energy sources and energy uses outside the

          21    United States to better improve our domestic

          22    projections.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          71

           1              Not to pick on any one area, but

           2    offshore wind is another technology we're not

           3    currently representing in NEMS.  There are

           4    sure to be many others, such as gas hydrates.

           5              I think there is a serious question

           6    about whether we can capture some of the

           7    important points about electricity

           8    transmission, reliability, and congestion

           9    without incorporating a transmission model.

          10              Also, the solution time of NEMS has

          11    become a problem.  This is actively being

          12    addressed through some algorithm changes.

          13              There were other topics related to

          14    NEMS and NEMS analyses that we do not view as

          15    strictly modeling issues.  In our meeting,

          16    several people raised the issue of

          17    transparency.  This can run the gamut from

          18    diagnostic tools to documentation in order to

          19    understand the model, and how changes in

          20    assumptions filters through to the results.

          21    However, when pressed for further

          22    information, nobody in the department came

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          72

           1    back with any really specific ideas.

           2              Our discussions with both EERE and

           3    Fossil Energy would indicate that some real

           4    investment on their part in learning the

           5    model is really necessary.

           6              NEMS relies on information about

           7    technology characteristics from external

           8    experts in various areas.  An issue raised by

           9    several people concerns the equitable

          10    treatment of technologies, the so-called

          11    level playing field.  There is a real

          12    question about whether all the experts are

          13    evaluating the technologies with the same

          14    level of optimism, and that technology

          15    evaluation may be a tradeoff between

          16    consistency and expertise.

          17              So I guess that leaves a question

          18    about whether there are guidelines that can

          19    be offered in order to solicit this input

          20    that's very necessary for the modeling.

          21              There are various policies and

          22    programs that cannot be treated now in NEMS.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          73

           1    Local policies and deployment programs are

           2    two examples.

           3              Further outreach was also

           4    recommended as a two-way street:  Us

           5    providing more information about the model

           6    and the results, and us contacting more

           7    experts to solicit input.  Similar to many

           8    recommendations, this is subject to available

           9    resources, money, and sometimes even more

          10    scarce, time.

          11              So next steps?  We will have

          12    further discussions with stakeholders, and

          13    the team will be looking at all the proposed

          14    projects, reviewing and prioritizing them, by

          15    very early next spring.

          16              There are several major design

          17    projects underway within OIAF.  The oil and

          18    gas supply module has been redesigned, and

          19    the design addresses some of Fossil Energy's

          20    recommendations.  The peer review of that is

          21    scheduled for early December.

          22              A redesign of the petroleum market

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          74

           1    module, that's our refining portion, has been

           2    initiated.  And there's some talk of doing

           3    similar for the natural gas transmission and

           4    distribution module.

           5              A workshop on consumer

           6    decision-making is in the planning stages.

           7    Additional module reviews may be conducted.

           8    And addressing a solution time, we've

           9    initiated testing of another optimization

          10    package.

          11              Thank you.

          12              MR. HENGARTNER:  Well, Cutler?

          13              MR. CLEVELAND:  Thanks, Susan.

          14    It's an enormous, daunting task given the

          15    complexity of the model and the way it's

          16    been.  It's like the air conditioning system

          17    in my building.  It's been renovated and

          18    re-renovated about 15 times the last 20

          19    years.  And every time they do it, some new

          20    contractor comes in and puts in a new switch

          21    or a blower or something.  And when you call

          22    when it doesn't work right, which is pretty

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          75

           1    much all the time -- that's not true with

           2    NEMS -- but when it doesn't work right, you

           3    call the VU (?) staff that come in and no one

           4    knows how the whole system works; they know

           5    their little blower part.  And I know it's a

           6    daunting task, but I'm glad you're doing it.

           7              I think the transparency, from the

           8    user's side, the transparency in

           9    documentation is I think the really important

          10    issue.  It's really hard to find out a lot

          11    about the details of most models.  You either

          12    have kind of the report for the public that

          13    you all produce and then some PDF buried

          14    somewhere written in contractorese.

          15              And there has to be some way to

          16    present to users in some kind of

          17    understandable, digestible way a little bit

          18    more of the details than what you see in the

          19    annual outlook or whatever the publication

          20    is.  And I think that would go a long way to

          21    improving the transparency issue, which I

          22    know always dogs you.  And the users can help

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          76

           1    do that because we know what we want and what

           2    would help them.

           3              One of the things that I didn't see

           4    up there in terms of some of the big issues

           5    was the connection to international markets.

           6    And I'm wondering -- was it up there?

           7              MS. HOLTE:  No, I did mention that,

           8    yes.

           9              MR. CLEVELAND:  Okay.  I must have

          10    been writing or not paying attention.

          11              MS. HOLTE:  Yes, that is really a

          12    big issue.  I'd like to enhance that.  Right

          13    now, the various import-export markets are

          14    handled in a very -- you know, sort of

          15    independently by fuel -- coal exports,

          16    natural gas imports, oil, you know?  But as

          17    you go out -- especially as you go out

          18    further in the time horizon, we anticipate

          19    more need to consider the competition among

          20    those fuels out there as it relates to it.

          21              MR. CLEVELAND:  Who wants to go

          22    past 2050?

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          77

           1              MS. HOLTE:  What?

           2              MR. CLEVELAND:  Who's pushing for

           3    the really long forecast?

           4              MS. HOLTE:  Well, right now, NEMS

           5    goes to 2030.

           6              MR. CLEVELAND:  Right.

           7              MS. HOLTE:  So even 2050 is an

           8    extension.

           9              MR. CLEVELAND:  But who wants it?

          10              MS. HOLTE:  Basically EERE and

          11    Fossil Energy.  They have -- some of their

          12    programs, they view as -- well, definitely in

          13    2030, just sort of on the edge or even beyond

          14    2030.  So when they're asked to do the

          15    program benefits, they're sort of out of

          16    luck.  The contractor, as I said, does extend

          17    the model, extend NEMS to 2050 in order to do

          18    that analysis for them.

          19              MR. CLEVELAND:  Two other quick

          20    points.  One, you mentioned a lot and I just

          21    wanted to reiterate how important I think it

          22    is, modeling technological change.  I think

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          78

           1    you quite clearly understand that.  I think

           2    it's represented in a pretty ad hoc way

           3    across many of the different NEMS models.

           4              And I think there's a large

           5    literature out there in the economics world.

           6    In fact, this month's issue of Energy Policy

           7    has a whole special issue related to how do

           8    you represent technological change in carbon

           9    abatement.  And then you have the whole

          10    engineering literature of learning curves and

          11    experience curves.  And it would be good if

          12    you guys could somehow address this issue in

          13    a more systemic and consistent way, not

          14    necessarily that every module is going to be

          15    represented the same, but it's pretty ad hoc.

          16              And it would be good -- it would

          17    give users more confidence if the

          18    rationale/discussion of how technological

          19    change is represented, for example, in oil

          20    and gas finding costs, if that was connected

          21    to this ongoing debate in the literature

          22    amongst economists and engineers and between

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          79

           1    the two groups on how best to do this.  It's

           2    not easy, I know, but I think you could do

           3    better in that area.

           4              And the other issue is statistical

           5    methods used in some of these things.  I

           6    think, again, you need to make sure, as I

           7    think you try to do with varying degrees of

           8    success, stay up to speed with what's

           9    happening in terms of the latest statistical

          10    techniques, particularly when you're dealing

          11    with forecasting issues, time series data,

          12    just to make sure that you're up to speed on

          13    what's happening out there in the forefront

          14    of forecasting.

          15              MS. HOLTE:  Did you want to weigh

          16    in, Andy, on technological change or not?

          17    I'm not trying to put you on the spot.

          18              MR. KYDES:  Where we have

          19    technological --

          20              MR. HENGARTNER:  Sir, could you go

          21    to the microphone, please?  Thank you.

          22              MS. HOLTE:  We do have several of

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          80

           1    the NEMS analysts here in the audience if

           2    they want to weigh in.

           3              MR. KYDES:  Can you hear me?

           4              MS. HOLTE:  Yes.

           5              MR. KYDES:  Yes.  The model

           6    actually is not a single framework.  We try

           7    and build the model in each area -- the

           8    decision-making -- based on what we think how

           9    the market responds, and also all the

          10    available data that's available to us.  In

          11    the electricity markets, they're lumpy

          12    investments.  They're easy to identify.

          13    There's a collection that we can do.

          14              And I've been doing technology

          15    learning since I guess about 20 years now, so

          16    I'm aware of the literature you're talking

          17    about.  And it is the thing that we

          18    incorporate within a market where we can

          19    identify significant investments of that

          20    kind, lumpy and large.

          21              In the area of, say, buildings, the

          22    technologies are a little more muddy.  There

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          81

           1    are about 90 million, for example,

           2    heaters -- space heaters, I mean, gas-fired

           3    heaters -- and so the technology learning

           4    curve in terms of learning by doing in some

           5    of those things, it really kind of flattens

           6    out.  What you're really seeing is the

           7    incorporation of new features:  Dual fans,

           8    dual speed, that kind of stuff.  And that's

           9    what's really playing, and so we do try and

          10    incorporate that where it is a new

          11    technology.

          12              Now, in the area you're interested

          13    in, I know oil and gas, the problem there is

          14    that we don't have explicit technologies

          15    there represented.  And so in that area, we

          16    haven't figured out how to incorporate tech

          17    learning except as changes to the parameters

          18    that relate to finding rates, for example,

          19    cost per unit, and so on.  So we're still

          20    studying it, but if you have ideas, we'd like

          21    to hear them.

          22              MR. CLEVELAND:  Well, I guess

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          82

           1    there's this very interesting debate, you

           2    know.  You use learning curves, for example,

           3    with these new technologies.  And of course,

           4    the engineers love learning curves, but the

           5    economists have a very different way of

           6    looking at it and would suggest different

           7    ways of trying to model technological change.

           8              So it might be worth kind of

           9    engaging some of those folks and talking

          10    about how best to represent technological

          11    change.  I'm not necessarily endorsing how

          12    they do it, but for example, if you look at

          13    this latest issue of Energy Policy, which are

          14    mostly economists, they would approach how do

          15    we forecast the impacts of new technologies,

          16    like wind or something, on carbon abatement

          17    from a very different perspective than the

          18    learning curve perspective.  Just something

          19    to be aware of.

          20              MR. EDMONDS:  Is this the Michael

          21    Grubb special issue?

          22              MR. CLEVELAND:  I don't know if it

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          83

           1    is or not.  I'm not sure.

           2              MR. EDMONDS:  I reviewed some of

           3    those papers and they're scary.  Yes, what's

           4    in some of those models is just scary stuff.

           5              And I think Andy's right in the

           6    sense that it does require sort of a

           7    fairly -- you really need to get some

           8    perspective on technology, because learning

           9    is a real phenomena.  I mean, it's been

          10    reproduced in study after study.  But there's

          11    a really nice paper, and I don't know if

          12    you've seen it or not, but it's by Clark (?)

          13    and Wye (?), which kind of goes through how

          14    the models do -- and then Clark has a new

          15    paper coming out where he goes through all

          16    the different approaches and then goes

          17    through the economic literature on it.

          18              And what it boils down to is that

          19    it's a really tough problem.  I mean,

          20    particularly as you're trying to take on the

          21    whole energy system, as EIA is, because

          22    technological change comes in through so many

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          84

           1    different pathways.  Particularly as you're

           2    starting to go out toward 2050, what you find

           3    is that the spillover effects become

           4    increasingly dominant; that is, if you sort

           5    of look at some of the big things that have

           6    happened in energy.  You look at, for

           7    example, in production of oil, this

           8    combination of 3-D seismic imaging with

           9    directional drilling, and they've really

          10    expanded that.

          11              And sort of it you trace that back

          12    and that comes through medicine where you've

          13    got these CAT scans and then that came over

          14    into the production side, and that, in turn,

          15    was made possible all this computational

          16    science.

          17              And so you get all of this very

          18    complicated set of interactions that are

          19    going on.  And that's going to be really

          20    tough to model explicitly, and you may -- you

          21    know, I wouldn't try to package

          22    everything -- the vogue is to package

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          85

           1    everything up into a learning curve and to

           2    say that this relationship between a

           3    declining price and cumulative deployment is

           4    the whole story, and that the causality was

           5    cumulative deployment led to the lower price.

           6    You know, there's another hypothesis that

           7    lower prices lead to greater deployment.

           8    It's probably a much more complicated story,

           9    and I think it is a much more complicated

          10    story.

          11              So I guess my advice is, yes, and I

          12    think you probably are on top of the

          13    literature, but that literature is

          14    sophisticated.  And probably, in the final

          15    analysis, going through and just thinking

          16    through the what-ifs may be as important a

          17    contribution as you can make.

          18              Trying to mechanize it so that you

          19    actually are going to predict technological

          20    change, I don't know that I would necessarily

          21    recommend that you go fully down that path.

          22    You know, it's just my two cents.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          86

           1              MR. KYDES:  Just two points.  I'm

           2    essentially confirming your point.  The

           3    spillover effects, I mean, who would have

           4    thought, for example, that the PC, it's

           5    accelerated development in the '80s and '90s

           6    would lead to basically such great abilities

           7    to do analysis of data that you previously

           8    had to spend enormous amounts of money for?

           9              MR. EDMONDS:  Sure.

          10              MR. KYDES:  So there's no effect

          11    that maybe might have been hard to anticipate

          12    in advance, and just a point I think that

          13    confirms your point.

          14              The other area that learning -- and

          15    we've looked at, is learning through R&D,

          16    which the Europeans are heavily into.  The

          17    fundamental problem as far as I can tell is

          18    that you kind of have to assume the parameter

          19    or the success of what are the parameters are

          20    to get significance on the other.

          21              So in order to get -- if you put

          22    them both in the experience portion and then

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          87

           1    the R&D portion simultaneously, you don't get

           2    a good fit.  But if you, on the other hand,

           3    sort of fix the learning through experience

           4    of cumulative builds, and then estimate the

           5    R&D component, you got a significant

           6    (inaudible).

           7              MS. HOLTE:  Let me just comment on

           8    one thing Andy said very early on about the

           9    different parts of the model being handled a

          10    bit differently in terms of technology.  One

          11    of the suggestions that we received, I

          12    believe from EERE, had to do with

          13    standardizing consumer behavior across the

          14    model.  Well, we think that's exactly the

          15    wrong thing to do.  We don't think that the

          16    residential homeowner uses the same process

          17    in making some decision about energy-using

          18    equipment as does the person who's making it

          19    for a big hospital complex as does an

          20    electric utility.  So we think that

          21    standardizing in that way is exactly the

          22    wrong thing to do.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          88

           1              MR. HENGARTNER:  Jae?

           2              MR. EDMONDS:  Let me also just

           3    reiterate what Cutler said.  I think it's

           4    really great that you're doing the sort of

           5    stepping back and thinking about what is it

           6    you're doing and where you're going and just

           7    how does this all fit together.  I really

           8    think that's a wonderful thing that you're

           9    doing.

          10              I think in doing that, one of the

          11    things that I didn't hear, and presumably

          12    it's because you don't have enough time to go

          13    through all this stuff, but what you

          14    obviously want to do is go back and ask

          15    yourself the questions of what is it that I'm

          16    trying to do here.  Who are my customers?

          17    What are the questions that I really need to

          18    answer?  And what is it that this model is

          19    really going to have to do?

          20              Because I'm sure that you're going

          21    to get requests from congressional districts,

          22    I would like to know what in 2043 the gas

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          89

           1    supply to my district will be, and what's the

           2    price, by the way?

           3              MS. HOLTE:  We got that just sort

           4    of comment from EERE.

           5              MR. EDMONDS:  Exactly.

           6              MS. KIRKENDALL:  They would love to

           7    do congressional districts.

           8              MR. EDMONDS:  You know, just sort

           9    of sorting through exactly what is it that

          10    you're going to -- you know, what issues are

          11    you going to take on and which ones aren't

          12    you going to take on?  I think those are

          13    important things.

          14              MS. HOLTE:  That's why we're

          15    getting this input from the people around the

          16    department about what is it that you would

          17    like to address.

          18              And we've got other input that

          19    we're soliciting from outside.

          20              MR. EDMONDS:  Okay.

          21              MS. HOLTE:  I'm not the

          22    decision-maker, but I think it's unlikely

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          90

           1    that we're going to spill over into health

           2    impacts of energy and emissions, you know?

           3    That's not an area that we have expertise in.

           4    EIA does not.  So there has to be boundaries

           5    like that drawn.

           6              MR. EDMONDS:  And I'm curious about

           7    this equitable treatment of technology issue

           8    that you raised.

           9              MS. HOLTE:  Yes.

          10              MR. EDMONDS:  What on earth is

          11    that?

          12              SPEAKER:  Oh, come on, you know

          13    what that is.

          14              MS. HOLTE:  Are you treating my

          15    technology as fairly as you're treating your

          16    technology?

          17              MR. EDMONDS:  Did you assume it got

          18    as good as I'd like it to get?  Is that what

          19    the question is?

          20              MS. HOLTE:  Oh, of course.  What

          21    they're really after is my technology isn't

          22    grabbing --

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          91

           1              MR. EDMONDS:  Enough of market.

           2              MS. HOLTE:  As big a part of the

           3    pie as I want.  But -- so that's always an

           4    issue that arises.  Are we treating all

           5    technologies with the proverbial level

           6    playing field?  And as I said, EIA goes out

           7    to experts in the individual areas.  And I

           8    think it's a very real question.  Is

           9    everything being treated -- you know, when we

          10    get back, our contractor reports on these

          11    technology characteristics, the cost and

          12    efficiencies and how they're going to change

          13    in the future.  Is that being done with the

          14    same degree of optimism?  I think that's very

          15    important.

          16              I don't view that really as

          17    modeling.  That's the input information that

          18    goes into the model.

          19              MR. EDMONDS:  Right.

          20              MS. HOLTE:  And it is a very

          21    serious concern.

          22              MS. FORSYTH:  Right.  So my

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          92

           1    follow-up question is I presume there are

           2    standard protocols for collecting those

           3    expert inputs.

           4              MR. CLEVELAND:  Guy's Rolodex.

           5              MS. FORSYTH:  That would be one way

           6    of ensuring that they're treated fairly is by

           7    standardizing -- it's really data, it's the

           8    data collection.

           9              SPEAKER:  Well, when somebody --

          10              MS. FORSYTH:  It's not --

          11              MS. HOLTE:  It's opinion.  It's

          12    opinion.

          13              MS. FORSYTH:  Am I misunderstanding

          14    how it's used in the model?

          15              MS. HOLTE:  It really isn't data.

          16              SPEAKER:  It's in the future how

          17    good do you assume the technology becomes?

          18    So that's the question -- I think that's the

          19    question on the table and how big a share of

          20    the market does it get.

          21              MR. CLEVELAND:  But wouldn't people

          22    look at NEMS and they see (inaudible) this

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          93

           1    tiny little thing 20 years out and they go

           2    what do you mean?  We're going like

           3    gangbusters.

           4              MS. FORSYTH:  Oh, okay, I

           5    misunderstood.

           6              MR. CLEVELAND:  We're going to take

           7    over the world.

           8              MS. FORSYTH:  It's not input to the

           9    model, right?

          10              MR. EDMONDS:  It is an input, but

          11    it's a future state.

          12              MS. FORSYTH:  Yes, okay.

          13              MS. HOLTE:  You know, it's the

          14    future efficiencies, the capacity packages,

          15    all the costs that are involved, and these

          16    are the things that go into the technological

          17    choice within the model.  So it's really not

          18    data.

          19              MS. KHANNA:  And I have two

          20    comments, one of which got stolen, but I'll

          21    just reword it.  I think this question of

          22    equitable treatment of technologies is really

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          94

           1    important.  I don't know what you mean by

           2    "level playing field" in terms of a

           3    technology treatment within a model.

           4    However -- however you resolve this issue,

           5    you should be really aware that things like

           6    NEMS assumptions have much better effect

           7    across the policy arena.

           8              For example, the Asian Development

           9    Bank, the World Bank, various think tanks

          10    across the world look at what are the

          11    assumptions incorporated in NEMS.  And then

          12    those pick up the same assumptions that go

          13    into the Kenya Energy Study for Greenhouse

          14    Gas Abatement, exactly the same numerical

          15    parameter values.  Unfortunately, that's the

          16    reality.

          17              So it is actually a broader

          18    implication, and I think stating up front how

          19    you actually treat technologies and what are

          20    the assumptions or what are the impacts of

          21    the oil technologies assumptions on NEMS

          22    results is going to become really key.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          95

           1    That's my first comment.

           2              The second was a question and a

           3    comment.  You talked about extending the

           4    horizon to 2050.  And you said -- or at least

           5    there's a desire to extend the horizon to

           6    2050.  And I'm wondering how much that desire

           7    is linked to galloping or what were galloping

           8    oil prices.

           9              MS. HOLTE:  How much it's linked?

          10              MS. KHANNA:  Well, I'm --

          11              SPEAKER:  Motivated.

          12              MS. KHANNA:  Yes, I mean, if oil

          13    prices do come back to the 40- to $45 ranges

          14    EIA predicts, will that pressure to in fact

          15    extend the horizon to 2050 decline with that?

          16              MS. HOLTE:  I don't think so.

          17              MS. KHANNA:  Okay.

          18              MS. HOLTE:  No, because --

          19              MS. KHANNA:  So then what's the key

          20    reason for wanting to extend the model?

          21              MS. HOLTE:  Because the two

          22    departmental elements that really brought it

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          96

           1    up, Energy Efficiency and Renewable Energy

           2    and the Office of Fossil Energy, they have

           3    the benefits analysis that they have to do.

           4    They've got some programs and technologies

           5    that -- you take our 2030 version in the

           6    model right now -- and those things are just

           7    starting to become market players by the end

           8    of that 2030 horizon.

           9              And they -- for example, hydrogen

          10    is one.  And they're trying to say, yes, fund

          11    my program, you're going to get results, and

          12    you just see this teeny, little blip out

          13    around 2028 or 2029 when they do their

          14    benefits results.  So that's where the

          15    motivation is.

          16              MR. HENGARTNER:  Going out to 2050

          17    is very interesting, but one always has to

          18    ask ourselves the question how much

          19    uncertainty do we have in those predictions?

          20    And as you're talking to a bunch of

          21    statisticians here who, of course, say, well,

          22    it's just a point estimate without some

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          97

           1    measures of uncertainty may be a little bit

           2    misleading.  And so maybe putting in some

           3    thought on actually how to model and bring

           4    out those uncertainties and being up front,

           5    we talk about how technology changes and how

           6    that's impacted.

           7              But in fact, including the

           8    uncertainties, oh, this one might work or

           9    this might and so forth, there's a framework

          10    I think.  I don't want to (inaudible)

          11    statistics, but there's a whole edifice that

          12    allows, in a principled fashion, to actually

          13    go and pick experts and get their opinion and

          14    form something like a informed or relevant

          15    prior and then that goes in.

          16              I mean, there are actually ways

          17    that I think we can bring to the table some

          18    tools that may be useful at this particular

          19    endeavor.  So that's just a statistician's

          20    point of view.

          21              And last but not least, I'm looking

          22    at the stakeholders.  And I saw you mentioned

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          98

           1    Dashiell (?) Labs, and I want to reiterate

           2    that indeed, we talked a lot about energy

           3    security.  That is a big issue.  And we

           4    actually would like to have actually

           5    international models for energy because we

           6    think it's related to homeland security.

           7              We think that understanding our

           8    energy security is fundamental to ensuring

           9    the prosperity of our country.  And so you

          10    have maybe a much broader set of stakeholders

          11    that -- or maybe you are aware, but then just

          12    reiterating the fact that there are many

          13    people interested in the outcome of these

          14    models as input to other things they want to

          15    do.

          16              Thank you.

          17              MS. HOLTE:  I'm in trouble now.

          18              Howard?

          19              MR. GRUENSPECHT:  I just want to

          20    say a couple things from those things you

          21    raised.  I mean, there are -- like, first of

          22    all, we did just find out about your letters

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          99

           1    to the labs at various levels, so we are very

           2    interested in that interaction.

           3              You know, your point about the

           4    uncertainty, 100 percent agree with it.  It's

           5    a big -- you know, there's an issue I think

           6    of modeling and there's an issue of

           7    presentation, and those are related, but

           8    they're -- you know, Washington,

           9    unfortunately, the bandwidth is so narrow

          10    that even to get one number is like a

          11    big -- I think about that old system they had

          12    to communicate with submerged submarines to

          13    launch missiles, and I think the state of

          14    Wisconsin was the antenna.  Like four

          15    characters was I guess all they needed

          16    because that was the signal for the end of

          17    the world.

          18              But there really is a bandwidth

          19    problem, even if technically you can do it.

          20    For some reason, people want very simple, and

          21    wrong, things to work with.  And we try

          22    to -- you know, Jae mentioned this point

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          100

           1    about trying to do alternative -- you know,

           2    certainly (inaudible) we don't know why.  The

           3    bottom line is -- who knows what the state of

           4    technology is going to be in the future.  And

           5    one of the things we've done in some studies

           6    is looked at the outcomes under alternative

           7    states of technology, not trying to link the

           8    policies.

           9              You know, people like to link their

          10    policies to driving technology.  We have a

          11    hard time doing that, frankly, and we don't

          12    say that, but we do say, well, we can look if

          13    technology was different, you know?  We're

          14    not going to say that because you enacted the

          15    Energy Policy Act of 2005, technology is

          16    different.  But we'll say if technology is

          17    different for whatever reason, this is what

          18    it would -- you know, so there are ways we

          19    try to do stuff.

          20              But there's always this question of

          21    presentation of bandwidth, that even if

          22    there's a way to do it, even communicating

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          101

           1    the simplest concept -- I mean, that a gallon

           2    of ethanol and a gallon of gasoline have

           3    different energy content -- I mean, you would

           4    think that that would be like -- but I swear,

           5    people talk about them interchangeably, you

           6    know.

           7              We're going to have about 5 million

           8    gallons of -- you know, barrels a day of

           9    ethanol.  Well, that isn't the same as

          10    5 million barrels a day of gasoline, but

          11    you'd be surprised how many -- you know, so

          12    it's almost daunting intellectual stuff, and

          13    then there's this -- even after -- if you

          14    could even win on that -- if it would be

          15    smart enough to -- I mean, it doesn't say we

          16    shouldn't try to do better.  That's the whole

          17    purpose of the project is to try to do a lot

          18    better.

          19              But it's also frustrating that you

          20    could -- if what you bring forward is too

          21    rich, then you run into an issue of how you

          22    get it through this pipeline that's real

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          102

           1    skinny.  I mean, part of that is not the

           2    model.  I mean, part of that we're trying to

           3    do already I think.  Hopefully, our reports

           4    are better than they have been historically

           5    in making clear some of the uncertainties,

           6    that we say this is the effect of the bill.

           7    We don't mean the whole bill, we mean the

           8    parts of the bill we thought we could model,

           9    or showing how -- you know, and try and

          10    emphasize that the referenced case in the

          11    Annual Energy Outlook is not our forecast.

          12    It is a reference, you know?

          13              And we used to talk about forecast

          14    error.  And this year's thing on our web site

          15    on performance -- because sometimes it's not

          16    a forecast because supposedly we don't

          17    consider changes to policy.  You know, for

          18    one thing, we know policy's going to change,

          19    and there's probably some probability of

          20    policies changing that we would incorporate

          21    if we were trying to do a forecast, but we

          22    don't even try to.  So there are all kinds of

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          103

           1    things.

           2              And I think making -- part of it is

           3    how we -- I mean, we have to work on making

           4    the framework better, more modern -- you

           5    know, all the things that Susan raised.  But

           6    part of it, there's this whole parallel track

           7    of how you deal with the people who are

           8    looking for this information.

           9              MR. BURTON:  To what extent does

          10    EIA have a responsibility for not pushing

          11    this beyond the place where you're confident

          12    that this is usable?  I mean, there's

          13    reliable, there's crazy, and there's some

          14    borderline in between.  What responsibility

          15    is there for making sure that you stay on

          16    this side of crazy?

          17              MS. HOLTE:  Have we done that?  I

          18    don't know really how to answer that.

          19              MR. GRUENSPECHT:  I think, you

          20    know --

          21              MS. HOLTE:  You have to look

          22    at -- consider available data.  And certainly

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          104

           1    there's a lot of things people would like to

           2    do, but the data are not there to support a

           3    credible effort.

           4              MR. GRUENSPECHT:  Right, the idea

           5    of soliciting people's requirements is not

           6    because we're going to concatenate them and

           7    try to satisfy them.

           8              MS. HOLTE:  Oh, no.

           9              SPEAKER:  It'd be awfully

          10    interesting (inaudible).

          11              MR. GRUENSPECHT:  I mean that would

          12    be very much of a null set exercise when you

          13    concatenated them.  I mean, on the other

          14    hand, people care about -- pick one.  I don't

          15    know, it said only pick one example.

          16              A lot of people are -- the

          17    transportation thing in the current National

          18    Energy Model is sort of implemented on a

          19    nationwide side, the demand side for motor

          20    fuels for light-duty vehicles.  In fact, if

          21    there would be significant use of ethanol,

          22    whether one thinks that's likely or not, my

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          105

           1    guess is that might be regionally

           2    distributed.  There may be -- in terms of the

           3    infrastructure, there may be reasons to use

           4    ethanol disproportionately in certain

           5    regions.  So if what you have is sort of an

           6    assumption that that comes out of motor

           7    vehicles being fueled by petroleum products

           8    and sort of petroleum products or generated

           9    through the same processes in all regions,

          10    and that there is some regionalization by the

          11    West Coast is a little different, but

          12    fundamentally it's sort of treated -- the

          13    trends in fuel economy, the types of

          14    vehicles, sort of you have a national fleet,

          15    looking forward to a world in which a lot of

          16    questions are being posed about biofuels.

          17              You know, maybe that national

          18    structure of the demand side of light-vehicle

          19    transportation is not something that's -- it

          20    isn't just a question of changing a parameter

          21    of how much a (inaudible) ethanol plant

          22    costs.  I mean, parameter changes you can

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          106

           1    always do.  You know, you can fight with the

           2    nuclear people over what's the overnight cost

           3    of a nuclear plant.

           4              And they want to say it's this, and

           5    some expert will say it's that and people

           6    have these views all over the place.  But on

           7    this transportation side, it isn't really a

           8    question of what's the cost of an ethanol

           9    plant, which is sort of a number that you

          10    can -- but structurally, the question is do

          11    you have a national representation of the

          12    demand for light-vehicle travel, or do you

          13    have a regional representation -- if there

          14    are going to be region-specific kind of

          15    developments?

          16              And that's -- I mean, the parameter

          17    things will always be a discussion, but the

          18    structural things I think are what we,

          19    certainly in this round, want to address.

          20    But it's not that because people want to do

          21    stuff, we're going to do it.  I mean -- but

          22    we think it is important to ask people.  And

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          107

           1    this is not about changing parameters.  It's

           2    more about trying to deal with structural

           3    issues.  I don't know if that helps, but --

           4              MR. CLEVELAND:  I think a lot of

           5    the issues -- I actually think NEMS does a

           6    pretty good job of dealing with uncertainty

           7    and it's not true on sorting the statistical

           8    set.  There's really -- we have no idea, so

           9    we're going to run -- do the scenario

          10    analysis.  And I think that in general, NEMS

          11    does a pretty good job at trying to bound

          12    the -- not get out of the crazy mode.

          13              I think the issue -- a lot of what

          14    we're talking about is transparency.  And the

          15    problem is you are trying to be transparent

          16    to a staffer and the Hill is never then

          17    transparent to me.

          18              And so from my perspective, which

          19    is a difficult task that you face, from my

          20    perspective, I would like to see more

          21    explicit -- it's either -- for me it seems

          22    like it's either -- it's bimodal.  You either

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          108

           1    have the Annual Energy Outlook or some

           2    85-page PDF document that was written by a

           3    contractor that describes the model.  And

           4    something in between which deals with these

           5    assumptions about learning curves or

           6    technology choice to a different set of users

           7    where it doesn't have to be quite as

           8    distilled would help a lot, at least in some

           9    user communities.  But I know that takes

          10    resources to produce that extra

          11    documentation.

          12              MR. GRUENSPECHT:  I mean, one of

          13    the issues -- it's interesting, there's an

          14    issue in EIA that's been discussed a lot,

          15    which is like the web site.  You know, we've

          16    hired -- it sounds like an odd thing.  But

          17    like the Annual Energy Outlook has some

          18    examples, like pieces in it -- I don't know

          19    if people are familiar with it, but like

          20    issues -- you know, there are the numbers

          21    that people -- oh, they say it's going to be

          22    45 this year or not, you know.  For a long

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          109

           1    run 45, not 70 or whatever, and a lot of

           2    people focus on that, but there are these

           3    issues in focus articles.

           4              Now, it's interesting because I

           5    think many people would find those useful,

           6    but they're now buried in PDF of the entire

           7    Annual Energy Outlook.  And there are many

           8    people who don't want to read the entire

           9    Annual Energy Outlook who may care about

          10    those issue discussions, like something about

          11    the greenhouse gas -- you know, how you deal

          12    with the regional policies for greenhouse

          13    gases or how you're dealing with -- there are

          14    different ones each year.

          15              And one option that we're thinking

          16    of is kind of taking some of those

          17    discussions, still including them in the AEO,

          18    but also having them -- have, like, places on

          19    the web page where people who are looking for

          20    discussions of those issues instead of

          21    knowing, oh, there are five-page discussions

          22    of seven issues in this AEO this year, that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          110

           1    no one who is not -- someone might be

           2    interested in those issues and not interested

           3    in the AEO.  And so taking those articles and

           4    kind of making them accessible in a different

           5    way and writing other articles like

           6    that -- but there is -- it's a real -- you

           7    know, some of it I think is I don't want to

           8    say repackaging, but I think there is a lot

           9    of stuff that is buried in places where some

          10    piece of a PDF taken out and made available

          11    more directly for someone searching on that

          12    issue might be a more valuable thing.

          13              MR. CLEVELAND:  I think that would

          14    be very useful.  It would get a lot of -- a

          15    lot of people would read those things that

          16    don't read them because they're very -- and I

          17    don't think you were here this morning.  We

          18    were talking about the external committee's

          19    report.  And one of the big things was this

          20    decline in sort of independent analysis by

          21    EIA as a real sad outcome of the decline in

          22    funding, and then the need to cut that to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          111

           1    deal with the core mission of data.  And this

           2    would go a long ways, given what you

           3    currently have, of trying to meet some of

           4    that need.

           5              MR. HENGARTNER:  I'd like to have

           6    our speaker go to her 10:30.  And so I'll

           7    take the last question for Walter.  He's been

           8    so patient here.

           9              MR. HILL:  Okay, thank you.  I have

          10    two points.  I'll try to be quick.  One of

          11    them -- the long time frame.  I've seen

          12    academic papers, maybe we all have seen them.

          13    We have a 50-year time horizon, with claims

          14    like we believe the oil data for the first 30

          15    years, but if you go out another 10 years,

          16    something else comes online and a couple

          17    scenarios.  If there's a lot of oil, this

          18    happens.  If there's no oil, this happens.

          19              So in some sense, it's not

          20    unreasonable that you might be interested in

          21    that, although it might not be appropriate

          22    for this group to look at it.  So that's item

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          112

           1    one.

           2              The second one is on Cutler's early

           3    statement about the international issues.

           4    That may have been the early slide that you

           5    saw about the policy -- international policy

           6    people being relatively uninterested.  And

           7    maybe what's going on is the experts in the

           8    senior caucuses, people who are experts in

           9    the caucuses turn out to be econometricians.

          10    So maybe that's why you're not getting

          11    responses.  I assume what the group does is

          12    you look at a couple scenarios to see whether

          13    or not there's a supply disruption someplace,

          14    or whether that has an effect on the model.

          15    In a sense, you get point estimates and you

          16    want spreads within the model.  Maybe that's

          17    how you compensate for lack of information

          18    from the international specialists.

          19              MR. HENGARTNER:  Okay, well, thank

          20    you very much.

          21              MS. HOLTE:  Thank you very much.

          22              MR. HENGARTNER:  Before we break

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          113

           1    for a fast coffee and then for the breakout

           2    session, I'd like the members in the room who

           3    have not introduced themselves this morning

           4    to state who they are.

           5              MR. RUTHERFORD:  Tom Rutherford,

           6    I'm a member of the committee.

           7              MR. HENGARTNER:  Okay, off to the

           8    breakout session.

           9                   (Recess)

          10              MR. HILL:  I was deputized to run

          11    this session.  We are to go to about 50

          12    minutes past.  We're running a bit behind, so

          13    that'll be the target time.  We might not

          14    need that.  We'll see how it goes.  And I

          15    believe --

          16              MR. FRENCH:  Maybe I shouldn't say

          17    that because I'm known for talking on at

          18    length, so who knows how long this session

          19    might go.  Can everybody hear?  Everybody

          20    ordinarily can.  More?

          21              SPEAKER:  More.

          22              MR. FRENCH:  Something wrong with

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          114

           1    this microphone?  Is it deadening the sound?

           2              SPEAKER:  There's a ringing.

           3              MR. FRENCH:  Must a result of the

           4    recent renovations.  Should I begin now?

           5              MR. HILL:  Go ahead, yes.  I'm

           6    sorry.

           7              MR. FRENCH:  Good morning.  And I

           8    want to thank the committee for putting up

           9    with me once again.  My name is Dwight

          10    French, and I do direct the Energy

          11    Consumption Division of EIA.  I have been in

          12    front of this committee, I don't know, six,

          13    seven, eight times in the past.

          14              This will be my final time.  I'm

          15    going to be leaving federal service in the

          16    very near future, before the next committee

          17    meeting, and so in this occasion, I probably

          18    am going to do something a little bit

          19    different than I've done in previous times.

          20    I've been before the committee before talking

          21    about a variety of statistical methodology

          22    and operational methodology issues regarding

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          115

           1    the consumption area.  I'm going to be a

           2    little bit more philosophical this time.  And

           3    I certainly do want to thank the committee

           4    for their efforts on our behalf over the

           5    years.

           6              For those of you who have gotten

           7    the background information, may have had a

           8    chance to go through it, you might be

           9    puzzling what in the world is this Chapter 3,

          10    Chapter 16 business?  For the last two years,

          11    I have been involved in the process of

          12    writing a history of the consumption area of

          13    EIA.

          14              And these two chapters I thought

          15    might add something to the discussion I'm

          16    going to bring here.

          17              And it was interesting -- the

          18    discussion about a midpoint between a very

          19    superficial discussion of things and a very

          20    detailed discussion of things coming up about

          21    10 minutes ago at the end of the NEMS

          22    discussion.  That really is the purpose of

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          116

           1    what I am writing in the history.  It's to

           2    try to have a concise discussion of the

           3    origins and some of the early decisions and

           4    so forth that were made in the consumption

           5    area of EIA, as a help maybe to some people

           6    when they come on board later on and perhaps

           7    for some users that would be able to look at

           8    things in 5 pages rather than look at 1,000

           9    pages of technical documentation somewhere.

          10              But anyway, onward.  If I can work

          11    the machine here.  First of all, the

          12    necessary disclaimer, and you've seen it

          13    before, so I won't dwell on that.

          14              When I'm talking about history,

          15    let's take just a little brief look at the

          16    consumption area of EIA.  Our responsibility

          17    is to deal with the demand side of the energy

          18    throughput in U.S. society.  You can do that,

          19    to some extent, on supply side surveys based

          20    on delivery statistics, but of course, when

          21    you do that, you tend to get sectoral totals,

          22    you don't get any description of sector.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          117

           1              And so the real purpose -- core

           2    purpose of the consumption area is to provide

           3    information and analysis on the areas of

           4    energy consumption in the various sectors of

           5    the country, along with a description of the

           6    characteristics of the users so that you

           7    have, instead of simply an accounting, an

           8    understanding of what is going on.

           9              If I had to characterize this

          10    presentation, I would say it would be

          11    characterized as if you can't do everything,

          12    what can and should you do and why?  And what

          13    I'd like to do maybe is have you folks here

          14    put yourselves in a position sort of like the

          15    external review team when they were thinking

          16    about EIA's responsibilities.  And I'll talk

          17    about the consumption area, but some of the

          18    things I have to say really have a wider

          19    application than just the consumption area.

          20              Obviously, we have a responsibility

          21    to cover the demand side of the equation in

          22    EIA.  But like other parts of EIA, we don't

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          118

           1    do it all.  We've never done it all.  We

           2    don't have the money, we don't have the

           3    resources to do it all.  Our data

           4    collections, because of the nature of

           5    consumers, are separated by

           6    sector -- residential, commercial,

           7    transportation, pieces of industrial -- and

           8    across energy sources, whereas your supply

           9    surveys are generally across sectors but

          10    within individual energy sources.  When

          11    you're surveying consumers, it's a different

          12    story.

          13              However, we don't do all sectors.

          14    We don't do all energy sources.  And although

          15    we collect a wide variety of characteristics

          16    about the consuming entities, we don't

          17    collect everything by any means.  It would be

          18    impossible to do so.

          19              Thinking about limited sectors for

          20    a moment, what do we cover?  Households,

          21    commercial buildings, manufacturers basically

          22    with our own surveys.  We used to have a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          119

           1    survey of household vehicles.  However, it

           2    was discontinued after 1994, and our latest

           3    effort in dealing with household

           4    transportation energy use is a derived data

           5    set based on the Department of

           6    Transportation's National Household Travel

           7    Survey conducted in 2001 and 2002.

           8              The sectors we don't cover are:

           9    Transportation other than household vehicles,

          10    although I will tell you that at present we

          11    are investigating the possibility of using

          12    the 2002 VIUS, Vehicle Inventory and Use

          13    Survey, to strip out the -- it's actually a

          14    truck database, strip out the residential

          15    vehicles out of that and have a complementary

          16    non-household highway energy data set.

          17              The sectors we don't cover:

          18    Transportation other than household vehicles,

          19    as I said, except for VIUS.

          20              In industry, we cover

          21    manufacturing; we do not cover agriculture,

          22    mining, and construction.  In the commercial

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          120

           1    area, we cover buildings; we do not cover

           2    non-building service activity, things like

           3    streetlights, parking lights, plug load in

           4    parks and that sort of thing, billboards,

           5    pumps, drawbridges, all those types of

           6    non-building service activity.

           7              And of course, even within the

           8    sectors we cover, we have a myriad of

           9    exclusions:  Commercial buildings less than

          10    1,000 square feet; buildings and households

          11    on military bases that we can't access;

          12    vacant and seasonal households; manufacturers

          13    that are very small and not on the Census of

          14    Manufacturers mail file.  Our Manufacturing

          15    Energy Consumption Survey only covers those

          16    on the CM mail file, which is about

          17    two-thirds of manufacturing establishments or

          18    so, certainly greater than 95 percent of

          19    manufacturing energy consumption.  And we

          20    don't cover things like motorcycles, motor

          21    homes, and other types of exotic riding

          22    equipment in household transportation.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          121

           1              MS. KHANNA:  Can I ask a really

           2    quick question?

           3              MR. FRENCH:  Sure.

           4              MS. KHANNA:  Sorry to interrupt.

           5              MR. FRENCH:  No, that's quite all

           6    right.  Interrupt at any point.

           7              MS. KHANNA:  Do you cover use of

           8    energy by military at all?

           9              MR. FRENCH:  No.

          10              MR. FEDER:  In transportation, what

          11    about aircraft?  I mean, all the commercial

          12    airlines.

          13              MR. FRENCH:  All of the

          14    non-highway, no, we do not cover it, never

          15    have.

          16              MS. FORSYTH:  Only residential

          17    airplanes.

          18              MR. FRENCH:  Only -- no, no

          19    residential airplanes either.

          20              MR. FEDER:  My helicopter does not

          21    count?

          22              MR. FRENCH:  No boats, no

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          122

           1    recreational boating, no nothing.  If you

           2    want information on that, the best place to

           3    go is the Transportation Data Book, which

           4    some of you may be familiar with.

           5              On the energy side, we're limited

           6    also.  With households, we collect

           7    electricity, natural gas, fuel oil and

           8    kerosene, LPG, and we do get some wood

           9    information.  We don't do coal, gasoline, or

          10    propane for grills or anything like that or

          11    other exotic fuels.

          12              In commercial buildings, you see

          13    what we cover.  District heat is an

          14    interesting one.  It represents steam, hot

          15    water, chilled water that is brought to

          16    individual building sites either from offsite

          17    or maybe from a central plant in some types

          18    of commercial facilities.  But we do not

          19    cover LPG, coal, or other exotics.

          20              And we'll get to why we're not

          21    doing this in a minute, by the way.  I'm just

          22    showing you the limits right now.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          123

           1              For manufacturers, we cover

           2    virtually everything because a manufacturer,

           3    if they think it's an energy source, they can

           4    fill it in and account for it.

           5              On household vehicles, we cover

           6    basically gasoline and diesel, which accounts

           7    for virtually everything now.

           8              On the characteristics side, sure,

           9    we're limited.  We have a lot that's not

          10    known about the engineering of housing units

          11    that affects energy use, a lot on technical

          12    characteristics of systems and equipment.  We

          13    have some information on use of particular

          14    types of equipment, number of loads of

          15    laundry done in a week, number of showers

          16    taken in a week, and so forth, but there's a

          17    lot more potentially we could do.

          18              On commercial buildings, we do not

          19    know a lot about the engineering of the

          20    building structure.

          21              We try to get what we can.  We

          22    don't know a lot of things about number and

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          124

           1    type as well as technical characteristics of

           2    systems and equipment, and especially, we

           3    have a shortage of information about

           4    equipment that contributes to commercial

           5    building plug load.  For example, in this

           6    building, there are who knows how many

           7    refrigerators sopping up energy, but we don't

           8    know, and generally, we don't know.

           9              Currently, with household vehicles,

          10    what do we know about the vehicles

          11    themselves?  Given what NTHS does, we know

          12    nothing other than make, model, and year of

          13    the vehicle.  We know a lot about the travel,

          14    the trips associated with that vehicle, but

          15    we don't know about the physical

          16    characteristics of the vehicle.  Why?

          17    Because the Department of Transportation

          18    collects the survey for trip purposes and us

          19    borrowing that survey means we take what they

          20    do for their purposes.

          21              Now, why do we have limited

          22    sectors?  Well, you're going to see cost on

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          125

           1    every one of the following slides, so you

           2    might as well realize that that's the case.

           3              Other sectors are not explicitly

           4    required in law.  And frankly, one of the

           5    reasons that we were able to discontinue the

           6    Residential Transportation Energy Consumption

           7    Survey is that it's not explicitly required

           8    in law either.  EIA, of course, has enabling

           9    legislation that specifies, directs the

          10    administrator to collect information on

          11    supply and storage and imports and exports

          12    and transmission and so forth, and

          13    consumption is in there.  But as far as

          14    explicitly requiring a particular survey,

          15    RECS, CBECS, MECS, the manufacturing,

          16    commercial buildings, and household surveys

          17    are the ones that have been explicitly

          18    pointed out in law as being necessary to run;

          19    others are not.

          20              There is perhaps a perception of at

          21    least relative unimportance of some of the

          22    other sectors.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          126

           1              The United States consumes about

           2    100 quads of energy.  If you look at

           3    households, commercial buildings, and

           4    manufacturers, together they represent about

           5    55 percent of that total consumption.  If you

           6    add in residential transportation, you're up

           7    to 70 percent or maybe slightly more.  That

           8    is what we historically have covered.  The

           9    big hole, obviously, is non-residential

          10    transportation.  It would be a very complex

          11    and enormously difficult and costly hole to

          12    cover if we were to ever try to do it.

          13              And that gets me down to the final

          14    point of this slide, which is difficulty in

          15    accessing the sector.  In addition to

          16    non-residential transportation, obviously

          17    things like construction would be very

          18    difficult to access also, because the energy

          19    use takes place in disparate places over

          20    perhaps relatively short time periods,

          21    especially in the circumstance of residential

          22    construction, and perhaps in ways that aren't

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          127

           1    very collectible by field workers.

           2              Why don't we get all the energy

           3    sources?  Well, there's cost again.  It is

           4    difficult to obtain the information for some

           5    of the exotic fuels, because a lot of them

           6    are cash-and-carry or their delivery by

           7    people and organizations that maybe don't

           8    maintain their records all that well.  We

           9    struggle with fuel oil and kerosene when we

          10    get information about it.

          11              And in addition, some of these

          12    fuels are not used very much.  Our sample

          13    sizes are fairly small, and so the sample

          14    sizes for our surveys don't support quality

          15    measurement of these rarer energy sources.

          16    And let's face it, these sources don't amount

          17    to much relative to the major ones.  When you

          18    are putting together a program, you always

          19    have this balancing act.  What do you

          20    include?  What do you exclude?  You want to

          21    try to exclude the things that are most

          22    inconvenient for you but at the same time

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          128

           1    have minimal impact on the core information

           2    you're trying to collect, which in our case,

           3    of course, is energy consumption and

           4    expenditures.

           5              What about limited characteristics?

           6    Well, I put cost down here, but actually

           7    that's somewhat of a red herring.  In and of

           8    itself, collecting more detailed

           9    characteristics of consumers would not be all

          10    that expensive because our field work, most

          11    of those costs is getting to the respondent.

          12    Adding some more to the questionnaire really

          13    cost-wise is not that big a deal.  And with

          14    the processing advances that have come about

          15    in the past 10, 15, 20 years, processing

          16    additional information is not the incremental

          17    cost that it used to be either.  But we do

          18    have issues of burden control.

          19              We certainly have issues of

          20    respondents not being able to answer the

          21    questions because they're ignorant of

          22    technical issues -- and this is not a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          129

           1    criticism of the respondents; they just don't

           2    know -- or because data are simply not

           3    readily available.  And even if we had more

           4    information, relating it to energy use

           5    sometimes is a demanding derivation or

           6    modeling exercise, and sometimes things don't

           7    work out all that well.

           8              We have someone who just left our

           9    division this past week, Robert Latta, who

          10    did a lot of end-use modeling for our

          11    division and was a right-hand person to me

          12    for the past 26 years in EIA.  He would add

          13    things, for example, to the Residential

          14    Energy Consumption Survey questionnaire

          15    because he was modeling end-use for

          16    residential households:  The heating, the

          17    water heating, the air conditioning,

          18    appliance load, and so forth.  And sometimes

          19    variables that we would add in would add to

          20    the model, sometimes they wouldn't.  Anyway,

          21    sometimes our information is self-limiting in

          22    that way.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          130

           1              Okay.  So we have all of these

           2    limits on what we can do and what we do do.

           3    And we're continually, in our own minds,

           4    asking ourselves do we want to take the next

           5    step?  Do we want to consider new

           6    initiatives?  Do we want to expand

           7    questionnaires?  Do we want to collect

           8    different information?

           9              Certainly we do have initiatives

          10    that change in response to new technologies,

          11    new issues of the day, and so forth.  But we

          12    always have this underlying we can't do it

          13    all, and we're thinking about should we do

          14    things differently.  Should we do things in

          15    addition to what we're doing?  Do we need to

          16    cut out some things in order to change what

          17    we're doing?

          18              Now, how could we address the

          19    limitations that I talked about?  Well,

          20    obviously, you could think about something

          21    like a new household transportation survey, a

          22    non-residential transportation survey, a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          131

           1    survey of construction, a survey of mining,

           2    et cetera, et cetera.

           3              You could think about new questions

           4    on existing surveys.  In fact, we do, all the

           5    time.

           6              You could conduct research studies

           7    and engineering assessments and try to

           8    incorporate that type of information, which

           9    might be able to get you some more technical

          10    characteristics information, along with the

          11    more standard-type data that we collect in

          12    our surveys.  And in fact, we have done that

          13    in the very distant past.  The problem, of

          14    course, there is cost because engineering

          15    assessments or other types of technical

          16    assessments, case-for-case, tend to be pretty

          17    expensive.  So you're really in a

          18    circumstance where you have to do a limited

          19    number of cases and try to model out effects

          20    of what you might get from that information.

          21              We certainly can collect and

          22    compile pertinent information from other

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          132

           1    studies and do derivation.  And that's what

           2    Mark Schipper, who's eating a bagel back

           3    there, did in the residential

           4    transportation -- I'm sorry to embarrass you,

           5    Mark -- did in the transportation area and is

           6    one of our newest products up on the web

           7    right now.  There's some dirty laundry

           8    involved with that, by the way, and you

           9    can -- we try to be relatively transparent

          10    about the dirty laundry along with the

          11    information that we give.

          12              We can do specialized derivations

          13    and assessments for energy measures.  And all

          14    of these types of things have some sort of

          15    resource requirements, from relatively small

          16    to humongous.  And when I say "humongous,"

          17    I'm talking multimillion dollars, which is a

          18    big chunk of change for an agency whose

          19    budget is $80- or $90 million a year, as

          20    EIA's budget level is at this point.

          21              So now I turn it over to you folks.

          22    What do you think?  You've heard about some

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          133

           1    of the things that we collect and what we

           2    don't collect.  What do you think are the

           3    most important areas for the consumption area

           4    to collect and publish?  Are we really

           5    missing something?  Is it important enough to

           6    try to expand in other areas that we back off

           7    in some areas that we are in now?  Given that

           8    we have no real reason to expect much

           9    additional funding in the relatively near

          10    future, you have to think of those

          11    limitations as well.

          12              Now, before I go any further, I

          13    need to thank Howard Gruenspecht for a

          14    moment, because a few years ago, the

          15    consumption area was headed for a wall

          16    financially.  Our appropriations were not

          17    what they needed to be to continue even the

          18    program that we had.  And I had told people

          19    that we were headed for a brick wall, and the

          20    beginning of calendar year 2006 was the time

          21    to make some decisions.  And Howard and the

          22    EIA management saw fit to add some money to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          134

           1    our appropriations so that we can continue

           2    the program through the next cycle of surveys

           3    in manufacturing, households, and buildings

           4    that we have scheduled.

           5              And now the tough nut to crack.

           6    I'm not asking for money at the expense of

           7    other places in the EIA.  That wouldn't be

           8    fair.  But what I would ask the committee is

           9    this:  If EIA as a whole is going to make

          10    choices in the future regarding its programs,

          11    what do you think should be the criteria that

          12    EIA should use to set its priorities as the

          13    future unfolds among survey programs, among

          14    data programs, among analysis programs?

          15              You've heard a little bit earlier

          16    this morning about how EIA will be shifting

          17    its focus a little bit toward the analysis

          18    side.  And we heard some comments from the

          19    committee about analysis may be taking a hit

          20    over time a little bit, and EIA is going to

          21    attempt to bring that back somewhat, and it's

          22    probably overdue for something like that.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          135

           1    But other than that, put yourself in the

           2    position of an external review team, not

           3    saying what EIA should do necessarily at this

           4    point, but what are the criteria that EIA

           5    should use in order to determine what its

           6    priorities should be.

           7              I leave you with those questions.

           8    And I'll be willing to entertain any

           9    questions and discussion you have, and let's

          10    see what happens.

          11              MS. FORSYTH:  I have a question for

          12    clarification.

          13              MR. FRENCH:  Sure.

          14              MS. FORSYTH:  When you talk about

          15    programs, are they different -- like is

          16    consumption a program?  So you're talking

          17    about competing interests at that level, or

          18    are you talking within consumption competing

          19    surveys?

          20              MR. FRENCH:  I would say both,

          21    okay?

          22              MS. FORSYTH:  Okay.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          136

           1              MR. FRENCH:  You heard what we do

           2    and what we don't do.  In the consumption

           3    area, it may be a time for shifting of

           4    priorities within the consumption area, given

           5    a fixed amount of resources.

           6              I'm not asking about is it time for

           7    program reassessment across programs in EIA,

           8    but what criteria should EIA be using to make

           9    such an assessment either within programs or

          10    across programs in the organization?

          11              And yes, I think the consumption

          12    area is a self-contained division.  I think

          13    of it as a program area within EIA.  Now,

          14    others may not exactly think of it that way,

          15    but that's the way I think of it.

          16              MR. HILL:  All right.  Thank you

          17    very much.

          18              MR. FRENCH:  Any comments or

          19    suggestions about what the division should be

          20    looking at in the future relative to what

          21    it's looking at right now?

          22              MR. HILL:  We're supposed to take

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          137

           1    questions.  Go right ahead, questions from

           2    both the panel and the audience.  Go ahead,

           3    you're on.

           4              MR. FEDER:  Sorry.  My main

           5    statistical interest is usually in measuring

           6    change rather than measuring level.  What I

           7    would like to say here is if there are

           8    certain things that are more likely to be

           9    changing in the future, I would put more

          10    emphasis there rather than on just estimation

          11    of how much energy is consumed.  If some

          12    things are a given and are not going to

          13    change, I think they're of less interest

          14    sometimes with things that are going to be

          15    changing because of new technologies or

          16    because of the changes in the market.

          17              Now, another consideration would be

          18    where it's cheaper to collect data, certain

          19    things, like if you can get data from

          20    producers.  But I guess that's on the supply

          21    side, so, yeah.

          22              MR. FRENCH:  It is on the supply

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          138

           1    side.  Again, there are sectoral totals based

           2    on supply information, but you don't have the

           3    sectoral detail.

           4              With regard to the comment about

           5    what's changing most rapidly, what would you

           6    think would be changing most rapidly over the

           7    next 5, 10, 15 years, if you had to guess?

           8    You're the external review team now.

           9              MR. FEDER:  But I'm not an energy

          10    expert, so I would yield to those who

          11    probably know more.  But just as a consumer,

          12    I would -- I don't know.  Actually, I thought

          13    I knew until about a week ago, when I heard

          14    that, in fact, people are going back to SUVs,

          15    so I don't even know that.  I don't know.

          16    Neha, maybe you know.

          17              MS. KHANNA:  I don't know.  I can

          18    only guess.

          19              SPEAKER:  Well, you get to go

          20    beyond 2050.

          21              MS. KHANNA:  Oh, so much easier.

          22              MR. FRENCH:  Therein lies the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          139

           1    difficulty, you see, to know exactly what

           2    change is going to be occurring.  I think

           3    there's probably -- we seem to be on some

           4    cusp of change in the transportation area,

           5    but how it develops depends on how supply

           6    versus demand develops.

           7              MS. KHANNA:  See, a part of it,

           8    though, wouldn't it be determined by the

           9    policy initiatives that are coming through?

          10    Because if there is a push, for example, on

          11    the renewable energy portfolio, then it means

          12    that at an institutional level, there's going

          13    to be an increased push at that end, and so

          14    that should be something that -- and even on

          15    the consumption side, perhaps we need to

          16    focus on it.

          17              So that would, for me, be one

          18    criteria is to look at where the policy is

          19    headed now.  Of course, you can't project

          20    policy beyond -- the direction which policy

          21    might go beyond a shorter time frame because

          22    as administrations change, policies might

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          140

           1    change.  But perhaps as an expectation that

           2    renewables is a reasonable thing to expect to

           3    be on the radar screen.

           4              MR. FRENCH:  And of course, the

           5    problem with something like covering

           6    renewables and consumption is that they start

           7    out at a low level and our limited sample

           8    sizes give us difficulty.

           9              MS. KHANNA:  Right.

          10              MR. FRENCH:  Not everything

          11    penetrates, and not everything is the success

          12    story that, let's say, microwave ovens were

          13    in the 1980s, where the Residential Energy

          14    Consumption Survey measured the penetration

          15    of microwave ovens from -- over a decade

          16    essentially about 1 percent of the households

          17    in the country to 85 percent of the

          18    households in the country.

          19              Now, if you knew that something was

          20    taking over a significant share of the

          21    vehicle fuel market or the vehicle technology

          22    market over the next 10 or 15 years, you

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          141

           1    could put it in.  The first or second time

           2    around, you wouldn't get a lot and you

           3    wouldn't be able to say a lot, but at the

           4    end, if something really penetrated, you'd

           5    have something.

           6              But it's an interesting guessing

           7    game to play, especially in transportation,

           8    where we're literally talking about half a

           9    dozen fuel/technology options or more that

          10    are on the table with nobody really playing

          11    out and saying, well, we're going to pick a

          12    winner now or whatever.  The argument at this

          13    point is let the market pick a winner rather

          14    than let somebody pick a winner.

          15              MS. KHANNA:  And they will.  The

          16    market picks -- they just -- several

          17    technologies co-exist.  It just may not be

          18    that you get one big winner.  Then what would

          19    we do?

          20              MR. FRENCH:  An interesting

          21    question in an arena where we don't have

          22    large sample sizes.  But actually, this is an

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          142

           1    interesting issue for transportation in

           2    particular, because when Mark did his work

           3    with the National Household Travel Survey,

           4    yes, we don't have the technical information

           5    about vehicles we used to have.  And that

           6    really hurt us in deriving the energy

           7    consumption and expenditures information for

           8    technical reasons which I don't have time to

           9    explain here.

          10              But what it did give us in exchange

          11    is a much larger sample size, because the

          12    NHTS goes out to about 25,000, 24,000

          13    households, whatever it is, nationwide,

          14    whereas the old RTEC Survey went out to 3,000

          15    households, 6,000 vehicles.

          16              So you're talking about a sample

          17    size eight times of what you used to have.

          18              That sample size might be enough if

          19    we were to attach, in the future, to the

          20    survey and try to get more information built

          21    into NHTS relevant to our needs.  We could

          22    borrow that sample size and maybe get more

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          143

           1    information about emerging technologies as

           2    they occur.

           3              However, I'll get Howard stirred up

           4    again.  We've got the DOT folks talking to us

           5    about supporting the next NHTS.  And we'd

           6    like to get VIN numbers from the vehicles and

           7    other types of things.

           8              And they're willing to do it for

           9    seven figures, and so there you are.

          10              SPEAKER:  That's about how long a

          11    VIN number is, right?

          12              MR. FRENCH:  So any other comments,

          13    questions?

          14              MR. EDMONDS:  I'll just for a

          15    response to your questions that I guess as a

          16    general principle, as a user of data, I'd

          17    like to be able to work from kind of these

          18    macro aggregate statistics back down through

          19    the services to technologies to as great a

          20    degree as possible.  So that in some sense is

          21    the guiding principle that I would offer up

          22    to the degree possible.  You know, for

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          144

           1    example, in the building sector, you'd like

           2    to have shell characteristics, you'd like to

           3    know how much is going into the HVAC systems,

           4    and how much of it is heating, how much of it

           5    is cooling?  How much is lighting?  How much

           6    is cooking the usual suspects?

           7              And I think your point about it, it

           8    is difficult, but my recollection is that the

           9    biggest, fastest -- the fastest-growing

          10    component is "other."  And your "other" is

          11    growing like gangbusters, but it's not -- you

          12    know, it's a whole package of these things

          13    like microwaves, like the fact that people

          14    will plug in their little recharger units and

          15    leave them going day and night.

          16              MR. FRENCH:  Coffee makers.

          17              MR. EDMONDS:  The coffee makers,

          18    all these little odds and ends that are

          19    growing very rapidly.  It's not one thing,

          20    but it is a -- you know, it turns out to be a

          21    big deal.

          22              Over there in the industrial

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          145

           1    sector, you'd kind of like to know how much

           2    is going to raise steam, how much is -- you

           3    know, is it process heat?  You know, how much

           4    is in motors?  How much is in specialized

           5    services like direct reduction?

           6              And then in transportation, just

           7    like you were saying, you'd like to be able

           8    to trace back to what's the vehicle fleet and

           9    what's the character of that vehicle fleet?

          10    Because I think you're absolutely right, you

          11    know?  We haven't been in this spot for 100

          12    years, where it isn't clear exactly what

          13    technologies are going to dominate 30 years

          14    from now.  And I think that -- you know, it

          15    is an exciting time in the transportation

          16    area, where there's a lot of potential that's

          17    out there that people are thinking about.

          18              So that's my two cents.

          19              MR. FRENCH:  Okay.  In fact, we do

          20    model end uses in residential.  And I'll say

          21    loosely we model end uses in the commercial

          22    area.  However, the engineering-based model

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          146

           1    that we used to have to model in the

           2    commercial area is no longer supported and is

           3    really out of date and out of commission.

           4    And we're in the process of thinking about

           5    approaches for developing a new

           6    engineering-based model so that we can try to

           7    deal with commercial end uses.  But that's

           8    something that's -- hopefully will be coming

           9    in the relatively near future.  We've got to

          10    get that restarted, because you're right,

          11    this is something that people are interested

          12    in.

          13              By the way, manufacturers supply

          14    their own end uses:  The processed heat

          15    versus the steam versus the machine drive, et

          16    cetera, et cetera.  So we get that from the

          17    manufacturers because they can estimate it

          18    far better than we could ever measure it,

          19    model it, or approximate it in any other way.

          20    So yeah, we do have concerns.

          21              Other than the consumption and

          22    expenditures themselves, I would say the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          147

           1    end-use breakdowns are probably the most

           2    important energy-related statistics that we

           3    put out, and have a great deal of call for

           4    them.

           5              SPEAKER:  Go ahead.

           6              MS. COX:  Dwight?

           7              MR. FRENCH:  Yes.

           8              MS. COX:  I would say the hardest

           9    thing for you is that what you really need is

          10    a crystal ball, so that you could look ahead

          11    in the next 5 or 10 years and say, okay, what

          12    are going to be our pressing policy issues?

          13    You know, what is there right now that might

          14    suggest is coming out?  And it may be more

          15    than just levels of consumption, which is a

          16    lot of what's focused on.  It might be how

          17    can we shift consumption from one energy

          18    source to another, or from energy sources

          19    that are less moving to energy sources

          20    that -- in other words, how can we change

          21    behavior?  Not so much, yes, measuring

          22    consumption, but also saying how can we

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          148

           1    affect consumption?

           2              MR. FRENCH:  Interesting that you

           3    mention a crystal ball.  Part of our

           4    difficulty in dealing with activities and

           5    technologies and so forth as they change is

           6    that we only run our surveys once every four

           7    years.  And so if we miss the mark or

           8    something happens a couple of years later, we

           9    can't catch up to it until sometime down the

          10    road.

          11              MS. COX:  Five years is a long

          12    time.

          13              MR. FRENCH:  Sometimes it isn't.

          14    Sometimes things don't change that rapidly.

          15    But you're right, there are times when things

          16    do change rapidly.  And for example,

          17    transportation could change rapidly over the

          18    next 5 to 10 years.  Could.

          19              Who knows really?

          20              MR. HILL:  (inaudible) Census data

          21    with the "other" category and over time, the

          22    "other" category becomes something more

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          149

           1    specific.

           2              MR. FRENCH:  Yes.

           3              MR. HILL:  Race data is black,

           4    white, other and now the Hispanic is now a

           5    significant feature.  You don't know in 1960

           6    to sample -- to break Hispanics out of that

           7    category.

           8              MR. FRENCH:  Yes.  You mean --

           9              MR. HILL:  But in some --

          10              MR. FRENCH:  You mean a race/ethnic

          11    background designation in our variable?

          12              MR. HILL:  Oh, no.  Is "other"

          13    growing as a portion?  Is "other" becoming

          14    more important over time in your residential

          15    consumption data?

          16              MR. FRENCH:  Residential,

          17    commercial, yes.  Manufacturing, not so much

          18    because it's always been process-dominated.

          19    And there's some left over for the building

          20    environment in some industries, but not all

          21    that much.

          22              But yes, "other" is becoming -- and

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          150

           1    we have, especially in the residential area,

           2    tried to give increasing information about

           3    some of the components of that, maybe not by

           4    modeling out specific pieces, but by

           5    presenting in conjunction with our end-use

           6    estimation information about different

           7    appliances and from other engineering sources

           8    how much the average appliance can consume,

           9    so that analysts can start speculating and

          10    modeling out the potential breakdowns within

          11    that "other" category.

          12              And perhaps that's something that

          13    if we had more resources, we might want to

          14    take a crack at, too, but there's limits to

          15    everything.

          16              MS. KHANNA:  An overall question.

          17    You said that household energy consumption

          18    and transportation together account for about

          19    70 to 75 percent of total U.S. energy

          20    consumption.

          21              MR. FRENCH:  No, household,

          22    commercial building, manufacturing, and

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          151

           1    household transportation.

           2              MS. KHANNA:  Thank you.

           3              MR. FRENCH:  Together account for

           4    70 percent or so.

           5              MS. KHANNA:  Okay.  Is that share

           6    over time changing, that combined aggregate

           7    share, or does it stay roughly at about

           8    70 percent?

           9              MR. FRENCH:  It's not changed that

          10    much.

          11              MS. KHANNA:  Okay.

          12              MR. FRENCH:  Perhaps you have a

          13    little relative loss in manufacturing and a

          14    little relative pick up in commercial.

          15    Transportation has stayed remarkably stable

          16    even though the number of vehicles has

          17    increased.  Our transportation energy use

          18    hasn't gone up that much, because efficiency

          19    gains have sort of offset increased usage and

          20    some structural shifts, as it were, so that

          21    we're really pretty stable in that.

          22              And household is the same way, by

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          152

           1    the way.  Household energy use has been

           2    really remarkably stable considering you've

           3    got 30 million additional housing units

           4    relative to a quarter of a century ago, and

           5    all these appliances that everybody's

           6    complaining about that drain electricity and

           7    so forth.  But the building shell and better

           8    windows and more efficient furnaces, et

           9    cetera, have helped to mostly counteract

          10    that.

          11              MS. WAUGH:  One of the issues you

          12    raised is that cost is important.  And I

          13    think (inaudible) a three-year cycle to a

          14    four-year cycle --

          15              MR. FRENCH:  Back in the mid-'90s,

          16    yes.

          17              MS. WAUGH:  Is there any

          18    possibility of either going to a five- or

          19    six-year cycle and having some kind of

          20    mini-survey in between?  For example, on the

          21    MECS, you might just do this mini-survey of

          22    the NAICS codes that are energy-intensive

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          153

           1    consumers.

           2              MR. FRENCH:  Yes, this is another

           3    way of expanding yourself by limiting

           4    yourself, as it were.

           5              And it -- there's been some slight

           6    thought given to it.  There -- anytime you

           7    think about doing this, it's not just

           8    aggregate dollars, it is when the resources

           9    are required to do something like this -- and

          10    do you back up something first and then use

          11    those resources to create something in the

          12    middle, or do you try to get extra money to

          13    do something in the middle first and then

          14    back up later?  Because you see, it takes a

          15    while.  We don't operate anymore on funding

          16    our surveys by the time that the survey is

          17    actually out in the field.  We are much

          18    closer to just-in-time funding.

          19              And so if you were to try to insert

          20    something between a MECS survey -- and this

          21    is the place where it's been discussed more

          22    than any other place -- mini-MECS, as it

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          154

           1    might be called.

           2              SPEAKER:  I think of Austin Powers.

           3              MR. FRENCH:  If you did something

           4    two years from now, I wouldn't necessarily

           5    have the money to do it.  But if I delayed

           6    the next MECS a little bit and then did a

           7    mini-MECS after that, the money that I saved,

           8    I might have money to do something.

           9              MS. WAUGH:  And if you did try that

          10    and it was successful, you might actually

          11    consider it as a model for the other two if

          12    it also shows to be more cost-effective and

          13    useful.

          14              MR. FRENCH:  Yes, and I guess the

          15    appropriate thing then would be that we would

          16    only go to the millionaires' houses in the

          17    mini-RECS or the federal office buildings who

          18    are obviously the biggest energy hogs

          19    among -- actually that's not true, of course.

          20    The biggest users among commercial buildings,

          21    per floor space, are hospitals and

          22    supermarkets and restaurants, all for their

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          155

           1    own reasons.

           2              MS. WAUGH:  Well, maybe another way

           3    to look at this is which data in the

           4    publications the users are the most

           5    interested in as opposed to which ones are

           6    the most energy --

           7              MR. FRENCH:  An interesting

           8    philosophy, but if you are interested in

           9    collecting just certain pieces of information

          10    because those are the data that you're

          11    interested in, but you don't limit your

          12    population that you're trying to cover, that

          13    has implications for sample and it has

          14    implications for overall costs.  The beauty

          15    of doing a mini-MECS in certain industries is

          16    that you can limit your sample size and you

          17    can limit then perhaps your cost to some

          18    great extent; much more difficult to do in

          19    the residential or commercial areas.

          20              There also has been a suggestion to

          21    go to continuous sampling, which could be a

          22    consideration in the residential and/or

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          156

           1    commercial sectors.

           2              SPEAKER:  That would be

           3    interesting.

           4              MR. FRENCH:  Well, it's

           5    interesting, but there are a lot of

           6    logistical challenges to that.

           7              MS. WAUGH:  I have --

           8              MR. FRENCH:  Yes, I know, and she's

           9    just itching for something like that.

          10              MS. WAUGH:  Oh, I'd love that.  No,

          11    I was thinking they do that for the

          12    government.

          13              MR. FEDER:  How would you do it

          14    continuously?  Would you move the geographic

          15    focus over time?

          16              MR. FRENCH:  Well, that's the

          17    question, because our surveys are area-based

          18    in residential and commercial.  So do you do

          19    one area of the country each year, in which

          20    case you may have a problem with time biases

          21    correlated with regional emphases from year

          22    to year, or do you do a national subsample

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          157

           1    every year, which of course then inflates

           2    your field costs because you're covering the

           3    whole country every year even though it's a

           4    smaller number of observations?

           5              MR. FEDER:  Well, there's two

           6    issues.  I know the French are moving towards

           7    a rotating census of population, but it

           8    depends on the granularity of your geographic

           9    aggregation.  You can still move your sample

          10    around, but do it in a way that you cover at

          11    least the regions every time.

          12              MR. FRENCH:  When you say "the

          13    regions," you mean like the four Census

          14    regions?

          15              MR. FEDER:  The U.S. is divided

          16    into nine regions or four regions, depending

          17    on how you disaggregate the country.  So you

          18    cover the Atlantic Coast, Pacific Coast, the

          19    mountains, but not necessarily every state

          20    every year.

          21              MR. FRENCH:  And of course, we only

          22    go down -- except for some estimates for the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          158

           1    four largest states for RECS, we only go down

           2    to the Census Division level on any of our

           3    data now.  So I mean, we could think about

           4    going to the regional level or even just

           5    doing national estimates from year to year.

           6              MR. FEDER:  Then you would have

           7    this confounding between original changes

           8    and --

           9              MR. FRENCH:  Well, if you're saying

          10    stick to particular regions in a year.  I was

          11    thinking what you meant was slim down your

          12    number of primary sampling units, which is

          13    what we use.  We use an area sampling

          14    approach as the basis for our surveys in

          15    residential and commercial.  Slim down the

          16    primary units so you have less accuracy, but

          17    you offset that by not estimating it as low a

          18    final level of geographic detail.

          19              MR. FEDER:  I was thinking of an

          20    approach where each year, you sample like a

          21    high level of aggregation from different

          22    areas, but you move it around from year to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          159

           1    year, so hopefully, you break some of the

           2    potential confounding between your sampling

           3    design and changes in trends that are

           4    regional.

           5              MS. COX:  That's an interesting

           6    idea.  One of the things that the consumption

           7    survey faces is that there's this

           8    extraordinary variation due to -- it's not

           9    really geography so much as climate

          10    conditions and things like that.  But you

          11    need such penetration to get a full

          12    understanding, and RECS kind of pushes it to

          13    the limit.  By that I mean --

          14              MR. FRENCH:  4000 to 5,000

          15    households isn't enough to --

          16              MS. COX:  Yes, that's kind of what

          17    I was going to -- you really -- but you kind

          18    of understand why.  Because you have this

          19    real need for this fine level, and that's

          20    expensive for a household survey.  But the

          21    way -- a continuous survey sounds interesting

          22    to me, you would -- to make it feasible, what

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          160

           1    you would have to -- it would have to be

           2    whole PSUs that were being rotated.  In other

           3    words, the expense is more attached to the

           4    PSU, so it's an interesting thought of having

           5    a survey that in order to do your fine level

           6    of detail, you might have to combine over

           7    three years.

           8              MR. FRENCH:  Yes, there is this

           9    idea that if you could get a continuous

          10    measurement approach started, what you would

          11    end up with is an average over four years

          12    that you would start publishing after four

          13    years, if it were on a four-year rotating

          14    cycle.  And you would then have a rotating

          15    measure every year rather than a snapshot

          16    every four years, which is what we do now.

          17              There are, as I say, logistics

          18    issues to be considered.  There are money

          19    issues to be considered.  When do you start

          20    this?  You know, if we were really going to

          21    start something like this, for example, in

          22    RECS, we couldn't really start it until the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          161

           1    year before we would start a RECS anyway,

           2    because it would take that much time for us

           3    to collect enough money to do that.  So we

           4    would not have a full RECS comparable

           5    estimate for seven years, until you build up

           6    four years' worth of data and you can

           7    estimate.

           8              MS. FORSYTH:  I'm not sure of the

           9    sources of the cost savings from a continuous

          10    sample as opposed to every seven years.

          11              MR. FRENCH:  Every four years.

          12              MS. FORSYTH:  Is it because you

          13    could use -- I mean, I'm sorry, already I'm

          14    pushing it out.  Is it because you have a

          15    constantly trained staff so you don't have to

          16    worry about those, like, ramp-up costs?  Or

          17    what are the efficiencies?

          18              MS. COX:  Well, I wasn't pushing it

          19    for cost savings.

          20              MS. FORSYTH:  Precision.

          21              SPEAKER:  No, like information --

          22              MS. FORSYTH:  Right, okay.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          162

           1              MR. FRENCH:  I don't necessarily

           2    know that you would have a cost savings when

           3    you look at a per four-year, per current

           4    cycle basis.  What I'm trying to do is figure

           5    out how you can keep the costs down to the

           6    per four-year cycle basis and not have more

           7    because of the need to train interviewers in

           8    all parts of the country every year.

           9              MS. FORSYTH:  Right, right.

          10              MR. FRENCH:  Perhaps you can save

          11    some on training costs if you do have year

          12    after year and you have some overlap of

          13    interviewers.  As long as your questionnaire

          14    doesn't change all that much from year to

          15    year, you can get by with a minimum of

          16    training for interviewers and maybe save some

          17    money that way.

          18              MS. FORSYTH:  Well, there are lots

          19    of other ramping up kinds of costs.

          20              MR. FRENCH:  Yes.

          21              MS. COX:  The in-house cost, I

          22    would think that at some point, you would

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          163

           1    reach a deduction level.  In other words, the

           2    next year, you're just repeating what you did

           3    the previous year, so that there would be a

           4    cost savings from that extent.

           5              MS. FORSYTH:  But it's also a

           6    constraint.  You can't address emerging

           7    things very well except in the off years.

           8              MS. COX:  Well, you can't address

           9    emerging things very well --

          10              MS. FORSYTH:  Anyway.

          11              MS. COX:  Every four years if they

          12    emerge the previous three years.  So in a

          13    way, it does give you more of a sense of

          14    emerging things, because you would

          15    have -- emerging things often just don't

          16    happen this year -- sometimes they do -- but

          17    a lot of times they kind of creep up on you

          18    and all of a sudden you realize we got a

          19    problem.

          20              MR. FRENCH:  I'm behind the 8-ball,

          21    yes.

          22              MR. FEDER:  I'd like to give an

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          164

           1    example from my Canadian experience with an

           2    entire different survey.  It was the

           3    International Travel Survey.  And what we

           4    wanted to do, we sampled from different ports

           5    of entry and sampled in practically every

           6    time of the year.

           7              So what do you do?  You cannot

           8    sample in every port of entry every day, so

           9    it was staggered across time and across

          10    ports.  So every month or so, there was some

          11    sampling in some port, but it was done using

          12    some way so you had a good distribution

          13    across ports and across months, but not

          14    combined, because that was too much.

          15              So you had a good way to capture

          16    the seasonality in travel and to capture the

          17    variation across ports, but of course, there

          18    was the odd chance that maybe people somehow

          19    tricked you and entered through ports when

          20    you were not sampling, but that's not likely

          21    right.  So that was the approach.

          22              And maybe it's the same idea behind

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          165

           1    continuous sampling here is to have a good

           2    idea about changes across time without having

           3    to sample everybody every year.

           4              MR. FRENCH:  We're about at 10 of

           5    12:00, and I know that was what you were

           6    aiming for.

           7              MR. HILL:  Yes, it looks like some

           8    of our colleagues are drifting in, so maybe

           9    the other group also has finished.  Is there

          10    a last question out there?  And in fact, we

          11    haven't had anything from the audience.

          12              Go ahead.

          13              MR. FRENCH:  By the way, this is

          14    our relatively new manager of the Residential

          15    Energy Consumption Survey, Eileen, Eileen

          16    O'Brien.

          17              MS. O'BRIEN:  I'm fairly ignorant

          18    on energy topics, but I did attend the recent

          19    ACEEE conference.  And what I heard there was

          20    a lot of interest in barriers to adoption of

          21    new emerging technologies.  We measure

          22    characteristics of the households, some

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          166

           1    behavioral questions.  We don't measure

           2    attitudes which are impediments.  Do you see

           3    any role for measuring attitudes which shape

           4    shifts in transportation choices or household

           5    technologies and so on?

           6              MR. FRENCH:  Are you asking the

           7    committee or are you asking me?

           8              MS. O'BRIEN:  I'm asking the

           9    committee because -- I mean, I don't know if

          10    this would be something we would throw on a

          11    survey if it weren't going to help in the

          12    modeling of end uses or address some of the

          13    adoption issues that seem to be of interest

          14    to the energy sector.

          15              MR. HILL:  Go ahead.

          16              MS. KHANNA:  Just a reaction to

          17    that.  I think trying to elicit data on

          18    attitudes is a whole different ballgame than

          19    trying to elicit data on actions.  And the

          20    kind of data that I think EIA traditionally

          21    collects is what do you do, and that's the

          22    question.  That's looking at just -- it's

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          167

           1    actually reporting fact, whereas reporting

           2    attitude is try to figure out what would you

           3    do or why don't you do it, but that's a

           4    completely different kind of survey issues, a

           5    completely different kind of data collection

           6    issue.  And I'm not sure you want to actually

           7    combine the two.  I think attitude is one of

           8    those places where maybe what the Review

           9    Committee said looking at market information

          10    or others' data that are available out there,

          11    that may be something that EIA could draw on.

          12              MR. GRUENSPECHT:  Sort of following

          13    on this and maybe a little bit on that, I'm

          14    sort of curious.  In lighting, do we go in

          15    and ask people if they have compact

          16    fluorescent lights?  I don't know if most

          17    people know what they were, but you could

          18    imagine you could bring a regular one and

          19    whatever, and say do you have any of these in

          20    your house, you know?

          21              SPEAKER:  Yes, there's one.

          22              MR. FRENCH:  Yes, there is some

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          168

           1    information collected on --

           2              MR. GRUENSPECHT:  There is on that.

           3              MR. FRENCH:  Right.

           4              MR. GRUENSPECHT:  So you're trying

           5    on penetration and trying to figure out, you

           6    know --

           7              MR. FRENCH:  Well, not a whole lot

           8    on how many do you have or what proportion of

           9    your lighting is in --

          10              MR. GRUENSPECHT:  No one would know

          11    that, what portion of the bill, right.

          12              MR. FRENCH:  Well, but that -- I

          13    mean, if you really want to figure out what

          14    the penetration is, it isn't just the number

          15    of bulbs.  I have quite a few bulbs in my

          16    house that are compact fluorescent.  A lot of

          17    them are in my basement.  You know how often

          18    I turn the lights on in my basement?

          19              Oh, I'm getting older --

          20              MR. GRUENSPECHT:  It's exactly the

          21    opposite.  The economics says you put them in

          22    the ones that you use most frequently.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          169

           1              MR. FRENCH:  Ah, but --

           2              MR. GRUENSPECHT:  And in your

           3    closet, you add a closet, you leave the

           4    incandescent bulb because you don't turn that

           5    one on, so it's good to know that you are

           6    balancing out --

           7              MR. FRENCH:  As a consumer, I will

           8    tell you that I don't think that

           9    understanding is correct.

          10              MR. GRUENSPECHT:  All right.

          11              MR. FRENCH:  I think that one of

          12    the big reasons that people use compact

          13    fluorescent bulbs --

          14              MR. GRUENSPECHT:  Is they don't

          15    want to change them.

          16              MR. FRENCH:  They don't want to

          17    change them and they put them in applications

          18    where access is --

          19              MR. GRUENSPECHT:  Where they don't

          20    care about the quality of light, okay.  All

          21    right.  I'm going to start this again.  But,

          22    I mean, these kinds of issues I think are,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          170

           1    you know -- I mean, whether you actually ask

           2    people their attitude toward new technologies

           3    or --

           4              MR. FRENCH:  And by the way, that's

           5    where attitude intersects with behavior.

           6              MS. KHANNA:  Right.

           7              MR. FRENCH:  In something like

           8    that, which is an interesting --

           9              MS. FORSYTH:  And it's all

          10    self-reported; right?

          11              SPEAKER:  I'm sorry, Barbara?

          12              MS. FORSYTH:  Well, I was going to

          13    say it's all self-report.

          14              SPEAKER:  Yes, essentially.

          15              MS. FORSYTH:  So the differences

          16    between attitude and behavior are less in a

          17    self-report survey than they are when you

          18    have records that you go to.  They all have

          19    the same kinds of errors.

          20              MS. KHANNA:  But I mean, as

          21    economists, we can sort of elicit attitudes

          22    from market behavior.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          171

           1              MS. FORSYTH:  Right, right.

           2              MS. KHANNA:  Why do we need to go

           3    out and actually ask about attitudes?

           4              MR. CLEVELAND:  Oh, you sound like

           5    an economist.

           6              MS. FORSYTH:  Yes.

           7              MS. KHANNA:  I rest my case.

           8              MR. HILL:  Yes, we're getting hints

           9    that we should stop at this point even though

          10    the discussion --

          11              MR. FRENCH:  Again, my thanks to

          12    the committee for all their work with me over

          13    the years.

          14              MR. HILL:  Let me adjourn for five

          15    minutes or so.

          16              MR. FRENCH:  You don't have to put

          17    up with me anymore I guess is the statement.

          18              SPEAKER:  Won't have Dwight French

          19    to kick around anymore.

          20              MR. FRENCH:  Kick around anymore,

          21    that's right.  Thank you.

          22              MR. HILL:  Thank you.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          172

           1              SPEAKER:  Are you a crook?

           2                   (Recess)

           3              MR. HENGARTNER:  Okay.  I know we

           4    still have a few people missing out there

           5    grabbing coffee.

           6              My experience is I can be late for

           7    any session except for lunch.

           8              SPEAKER:  So we're done.

           9              SPEAKER:  That's my kind of leader.

          10              MR. HENGARTNER:  So we'll try to

          11    wrap it up and we have a deadline for 12:15,

          12    if we can.  If we're five minutes late, so be

          13    it, but we're going to get there.

          14              So I'd like to invite the comments

          15    and more or less summaries from the different

          16    breakout sessions.  And I'm going to do it in

          17    reverse order and I'm going to ask first for

          18    Mark Burton to talk to us, what we heard

          19    downstairs in the Using Models to Detect

          20    Outliers in Refinery Data.  Mark.

          21              MR. BURTON:  Okay, I have, like,

          22    two pages' worth of notes that go about 15

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          173

           1    different directions, and thank you for

           2    giving me the chance to look really silly

           3    first.

           4              MS. FORSYTH:  Don't worry, I'll

           5    make up for it.

           6              MR. BURTON:  Sort of the basis for

           7    the work, and I think that this is something

           8    that is really, really important, and Phillip

           9    did a very good job of saying it, and that is

          10    that the work that EIA does matters.  People

          11    pay attention to it.

          12              They look at the various products,

          13    particularly the short-earned (?) products,

          14    and those are very influential in terms of

          15    behavior.  So for them to understand the data

          16    as well as they can possibly understand them

          17    is a very important thing.  And I think I

          18    heard Nancy say that, too.  It really -- it

          19    matters.  They need to understand the data.

          20              The exercise then that they

          21    described was an attempt to do that.  And

          22    specifically, it was an attempt to identify

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          174

           1    outliers in refinery gain measures and in

           2    gasoline production measures.  And it was

           3    based on some regression equations, and they

           4    sort of parsed the data three different ways

           5    in a temporal sense to try and see whether or

           6    not that yielded any substantial differences

           7    in the regression results.

           8              Frankly, and a number of us said it

           9    a number of different ways, there are things

          10    going on that are affecting those data that

          11    are not currently part of the model

          12    specification.  There are I think clearly

          13    some specification issues, particularly in

          14    the refinery gain equation, that have to be

          15    addressed.

          16              That having been said, I mean, you

          17    have to start someplace, and I wish I had a

          18    dollar for every time I have gone through and

          19    gone through the painful process of looking

          20    at something and going, ew, that's -- just

          21    something's -- they had some co-efficient

          22    signs that were reverse of what they should

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          175

           1    have been.  That probably, given the way the

           2    models were specified, that probably is an

           3    indication, as Nick said, of

           4    multi-planarity (?) as opposed to any sort of

           5    real causal anomaly, so that there are

           6    specification issues.  There are probably

           7    problems with multi-planarity.  Also, just

           8    looking at the residuals, there are signs of

           9    auto-correlation that has not been treated.

          10              So basically what they're trying to

          11    do is something that is very useful.  It's

          12    the sort of thing that EIA should be doing.

          13    They've taken a couple of steps down what is

          14    likely to be a very -- considerably longer

          15    road.

          16              They asked the committee really a

          17    couple of questions, but the most essential

          18    one was:  Is this something that we can do

          19    with these data?  And, I mean, we all

          20    probably as a group have somewhat differing

          21    opinions on it.  For my part, keep after it.

          22    You know, maybe it's there, it's just not

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          176

           1    there yet.

           2              Are there other committee -- people

           3    that were downstairs in the breakout have

           4    things they want to add to that?

           5              MR. HENGARTNER:  Okay, thank you

           6    very much, Mark.  I'd like now to invite

           7    Barbara Forsyth to report on the Needs and

           8    Priorities for Consumption Information in the

           9    Future.

          10              MS. FORSYTH:  Being a big energy

          11    user myself, well, what we got was a

          12    presentation of the consumption area surveys,

          13    kind of the dimensions around which the

          14    surveys are organized and the kinds of areas

          15    they are able to cover and the kinds of areas

          16    they are unable to cover, and some of the

          17    reasons for the constraints in the current

          18    programs.

          19              And the questions for the committee

          20    were:  Which areas seem most important?

          21    Could we give guidance on where to make

          22    tradeoffs?  Where, if we want to build data

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          177

           1    collection or enhance data collection, would

           2    we trade off reduced data collection?  And

           3    how to meet program priorities making those

           4    trade offs.  So those are two questions.

           5              And then the third was, can we

           6    begin to articulate or help them articulate

           7    some criteria for choices, making choices

           8    among programs, either within the consumption

           9    area or possibly across -- I guess program

          10    areas in EIA?

          11              And so we kind of talked around all

          12    of those things.  I think we started off

          13    talking about criteria for making trade offs.

          14    And again, if I missed something, someone

          15    will add to it, I hope.  But I think some of

          16    the criteria we identified were focusing on

          17    areas where there's big potential for change

          18    and identifying predictors of change, like

          19    policy issues or likely policy issues or

          20    emerging policy issues.  And we identified

          21    some specific areas where there is potential

          22    for change.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          178

           1              In the residential sector, I think

           2    we said that "other" is the biggest source of

           3    change.  And we're not sure what that other

           4    is, but there's lots of change there, there's

           5    lots of growth there.  And transportation is

           6    another because of the potential for change

           7    in the, I guess, relatively near-term.

           8              So I think those are some criteria

           9    we identified for prioritizing areas, areas

          10    to cover.  I don't think we identified any

          11    criteria for areas not to cover.

          12              In terms of -- let's see, making

          13    trade offs, one thing we talked about was

          14    trading off the time between data collections

          15    with the nature of the data collections.  So

          16    if we could expand the time between data

          17    collections, we might be able to plunk in a

          18    special study that might be able to address

          19    some of these -- where are the areas for

          20    change or where are the policy issues likely

          21    to emerge.  So there might be some chance for

          22    trading off, for a fixed monetary amount,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          179

           1    long-term data collections versus specialized

           2    short-term data collections.  So that's one

           3    place where there might be a potential for

           4    trading off.

           5              And a different kind of trade off

           6    we talked about was perhaps drawing on

           7    continuous samples rather than one-time

           8    longitudinal -- I mean --

           9              MR. FEDER:  Periodic.

          10              MS. FORSYTH:  Yes, periodic

          11    samples.  And that way, we could get seasonal

          12    changes or perhaps more detail about regional

          13    variations -- not more detail -- but I guess

          14    more specific information, maybe less

          15    precise, but more specific information about

          16    regional variations as well.  And over a

          17    longer time frame, maybe instead of four

          18    years, maybe seven years, we could get a

          19    total representation as well.  So that's one

          20    kind of trade off, the detailed information

          21    versus the time.

          22              And I guess related to those

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          180

           1    mini-surveys that we talked about planting in

           2    between, perhaps extended periods between

           3    surveys, that using that as a model perhaps

           4    in one sector to see how successful it was

           5    might provide impetus for moving it across

           6    sectors or perhaps across -- not sectors, but

           7    energy sources.  I guess we already gather

           8    across energy sources -- so perhaps testing

           9    it in a small area and then expanding it

          10    after proving or -- I guess after proving its

          11    worth would be a way of doing it perhaps in a

          12    relatively low-cost way, doing some

          13    experiments early on.

          14              I think that's what I heard, but, I

          15    mean, I don't know anything about energy and

          16    I'm not really a statistician either, so.

          17              MR. HENGARTNER:  Oh, I see, so

          18    you're just goofing around.

          19              MS. FORSYTH:  I meant it.  I really

          20    meant it.

          21              MR. HENGARTNER:  Anybody else wants

          22    to add to either this discussion that Barbara

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          181

           1    just summarized or the previous one?  Good.

           2    I'm taking up your time, I'm sorry.  I'm

           3    blamed.

           4              At this time, I'd like to invite

           5    comments from the general audience and

           6    questions, if any there are.  Good.

           7              MR. CLEVELAND:  Now we're going to

           8    finish early.

           9              MR. HENGARTNER:  No, you guys,

          10    that's what they call efficiency.  Before we

          11    break, though, we have very important

          12    business.  Namely, we have to decide who's

          13    going for dinner, right?  So I'd like to have

          14    a show of hands so that Bill can make

          15    reservations for tonight.

          16              Where are we going, Bill?

          17              MR. WEINIG:  We're going to the Old

          18    Ebbitt on 15th Street, a very nice place.

          19              SPEAKER:  Very fancy place.

          20              MR. HENGARTNER:  The Old Abbey.

          21              SPEAKER:  Ebbitt.

          22              MR. HENGARTNER:  Ebbitt.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          182

           1              SPEAKER:  Old Ebbitt Grill.

           2              SPEAKER:  It's a good restaurant.

           3              SPEAKER:  It's very good.

           4              SPEAKER:  Yea.

           5              MR. HENGARTNER:  Okay, thank you

           6    very much.

           7              MR. WEINIG:  Reservations at 6:00

           8    at the Old Ebbitt in the atrium, which is

           9    noted to be a less noisy place.

          10              SPEAKER:  (inaudible) we get loud.

          11              MR. HENGARTNER:  And will we have

          12    directions on how to go there?

          13              MR. WEINIG:  Yes.  I would

          14    recommend either the Metro Center and exit

          15    west.

          16              SPEAKER:  On 13th Street.

          17              MR. WEINIG:  On 13th and then walk

          18    two blocks to 15th and one block down to 675

          19    on 15th Street.

          20              SPEAKER:  It's right across from

          21    Treasury.

          22              MR. WEINIG:  For those of you who

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          183

           1    know Washington well, it's right across the

           2    street -- on the other side of 15th Street is

           3    the Treasury Building.  And this is where

           4    Pennsylvania Avenue does its dog leg to go

           5    from the Marriott Hotel up to the White

           6    House, depending on who's in favor in town.

           7              MR. HENGARTNER:  Okay, thank you

           8    very much.  And I just want to remind you

           9    that this is the only vote the committee does

          10    every year or every meeting.  Good.  So if

          11    there's no more comments or discussions, I'd

          12    like to adjourn for lunch.  The committee has

          13    lunch downstairs on the first floor.  I think

          14    we all know where it is.

          15              SPEAKER:  Yes, we do.

          16              SPEAKER:  Same place.

          17              MR. HENGARTNER:  Same place as

          18    usual.  And we will reconvene in this room

          19    for further proceedings at 1:15.

          20              Thank you very much.

          21                   (Whereupon, at 12:10 p.m., a

          22                   luncheon recess was taken.)

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          184

           1            A F T E R N O O N     S E S S I O N

           2                                             (1:25 p.m.)

           3              MR. HENGARTNER:  Let's start to

           4    resume our proceedings.  I'd like to

           5    introduce to you Robert Schnapp.  Make sure I

           6    pronounce it right.  I apologize if I messed

           7    it up.

           8              He's going to be talking to us

           9    about the electricity and 2008, and in

          10    particular about what the broad plans are for

          11    the electricity review.  So welcome, Robert.

          12              MR. SCHNAPP:  Thank you, I

          13    appreciate it.  Lawrence, do you want to put

          14    the slides up there?

          15              All right, thank you very much.  My

          16    name is Bob Schnapp.  I'm the director of the

          17    Electric Power Division in the Energy

          18    Information Administration.  And today I'd

          19    like to talk to you about our project for

          20    renewing our electric power data collection

          21    forms.

          22              Every three years, all the surveys

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          185

           1    have to be sent to the Office of Management

           2    and Budget for review and clearance.  On the

           3    electric side, we have taken a very stringent

           4    view of our forms because of the many changes

           5    that have occurred in the industry over the

           6    past 10 years.

           7              And so we started a project, first

           8    of all, Electricity 2002, where we literally

           9    threw away all of our forms, all of our

          10    surveys, all of our publications, and all of

          11    our processing systems, and started from

          12    scratch.  And so for January 1 of 2002, we

          13    had all new systems and all new forms.

          14              Then we had a projected called

          15    Electricity 2005, where we kind of changed

          16    the surveys a little bit around the edges and

          17    instructions and the confidentiality policy.

          18    And this year, we now have Electricity 2008.

          19    And what we plan to do here is to merge some

          20    forms.  So I'll go into this in a little more

          21    detail now.

          22              So this is a broad overview of what

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          186

           1    our project is.  I'll just -- I'll talk loud.

           2    The first phase is data requirements.  We

           3    have to take a look at the forms and see what

           4    issues we need to evaluate, and I'll go over

           5    those in another slide here.

           6              Then we want to talk with all of

           7    our stakeholders and figure out are there

           8    things that we need to change for them?  Are

           9    there comments that they have?  So we talk

          10    with the electric power industry, combined

          11    heat and power plant industry, consumer

          12    groups, environmental groups, other federal

          13    government agencies to see what's required.

          14              Then we're also going to take a

          15    look at our confidentiality policy and have a

          16    couple slides on that.  And then we would

          17    issue a Federal Register notice in February

          18    of 2007 that would be our proposed changes,

          19    and that's out for 60 days for comment.

          20              Phase 2 is the forms design, and

          21    this is actually going along at the same time

          22    as Phase 1 is.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          187

           1              And that's where we would take a

           2    look at the forms and see what we need to

           3    consolidate, what revisions we need to make.

           4    And then when we come up with those

           5    decisions, we would do some pilot testing out

           6    in the field and see if these forms are going

           7    to work.

           8              And then after all that's done and

           9    we would evaluate the comments we got on the

          10    first Federal Register notice, we would then

          11    go to the Office of Management and Budget in

          12    September of 2007 to get approval from them

          13    by November of 2007.

          14              Other things that we have to do

          15    along the way is in Phase 3, which is

          16    collecting and processing.  And so we will

          17    have to modify our imputation procedures, and

          18    Bob Rutchik actually will talk a little bit

          19    more about that.  We'll have to modify our

          20    data processing systems obviously to accept

          21    different data, and then our Internet data

          22    collection system, and I'll talk a little bit

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          188

           1    more about that as well.  And the idea here

           2    is that we would have everything operational

           3    by the end of December 2007, so that

           4    January 1 of 2008, we would be ready.  Hence

           5    the name of the project, Electricity 2008.

           6              Phase 4, again, work on this will

           7    be going on while we're in the other phases,

           8    but we would be modifying our

           9    publications -- well, we don't have

          10    publications anymore, dissemination products.

          11    So we have an Electric Power Annual, Electric

          12    Power Monthly.

          13              We have detailed Excel spreadsheets

          14    that we put out on the Internet that are at

          15    the state level with lots of cuts by fuel

          16    type and producer and owners.  And then we

          17    have the detailed databases, which is the

          18    actual data that we collect that we're

          19    allowed to give out to the public, so it's at

          20    the individual facility level.

          21              And then we have a couple of other

          22    products, State Electricity Profiles.  This

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          189

           1    is nine tables that are about each individual

           2    state that we have on the Internet.  And then

           3    Cost and Quality, which is -- particularly

           4    hones in on two of the forms, the FERC-423

           5    and the EIA-423 forms.  And we would have to

           6    have all this done by June of 2008, so that

           7    we would be ready to put our reports out.

           8    Some of them actually have to be done before

           9    June 2008, but that's kind of the end date

          10    really.

          11              And so the key areas that we are

          12    focusing on this year, the first one is

          13    merging the EIA-906, 920, and EIA-423.  Just

          14    to summarize, the 906 collects information

          15    from utilities and IPPs, or independent power

          16    producers, that are not combined heat and

          17    power plants, and so that collects

          18    information on fuel consumption, generation,

          19    and stocks.

          20              The EIA-423 collects information on

          21    fuel receipts from the non-utilities.  There

          22    actually is another form that the Federal

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          190

           1    Energy Regulatory Commission has, the

           2    FERC-423, that's very similar to our EIA-423,

           3    and they collect the same information from

           4    utilities.  And the EIA-920 actually also

           5    collects the same thing as the 906, but

           6    that's from combined heat and power plants.

           7              So we're talking about merging all

           8    those forms together so that we would have

           9    information on ending stocks, receipts,

          10    consumption, and then stocks at the end of

          11    that period.  And Bob -- I don't want to talk

          12    too much about that.  Bob will get into more

          13    of the details on that.  But we think that we

          14    might be able to combine all these forms.

          15              And last week, we understand that

          16    FERC issued a Federal Register notice asking

          17    for their FERC-423 form to be renewed for

          18    three years, and they were asking comments on

          19    it.  And two of the questions they asked in

          20    there was what if EIA takes over this form?

          21    What would be the impact on you?

          22              So we have been talking with them

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          191

           1    about the possibility of that, but it's

           2    certainly not written in stone at this point.

           3    We don't know where we're going.  From our

           4    point of view, we think it'd be really good

           5    because we then merge all the utilities and

           6    the non-utilities into one form, and we think

           7    that it would really save us resources and

           8    improve the quality of the data.

           9              But one of the things that we're

          10    considering is the combined heat and power

          11    plants, the industrial and commercial plants,

          12    account for 5 percent of generation and they

          13    take up 1/3 of the resources because most of

          14    them are small.  So we're thinking about not

          15    collecting any monthly data from them, but

          16    collecting it from their annual data once.

          17              And as we go through the year, we

          18    would impute for them, so we think that would

          19    save a lot of money as well.

          20              The second major issue that we're

          21    talking about is merging the EIA-860, which

          22    collects characteristics of a fuel plant.  In

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          192

           1    other words, what's their capacity, the type

           2    of fuel that they would be using, what their

           3    plans are for the next five years in building

           4    or changing their facilities, combining that

           5    with the static information on the EIA-767.

           6              The 767 collects environmental

           7    information.  So if we pick up what

           8    type -- what are your scrubbers, what are

           9    their capacity, where are they located, we

          10    could put that onto the 860 and possibly drop

          11    the operational information.  That's

          12    something that we're still trying to figure

          13    out if we should do from the user point of

          14    view.  We understand there's a lot of people

          15    that use the 767, but we're trying to kind of

          16    gauge what that is.

          17              Also, and another way of saving

          18    resources, we think that we might be able to

          19    save a lot of resources by looking at the

          20    sample.  Right now, the 860 goes to -- I

          21    think it's 2,800 respondents.  About 700 or

          22    so of them account for over 90 percent of the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          193

           1    capacity.  So if we took the remaining 2,100

           2    and split them up into three years, we would

           3    then have 1,400 respondents each year for

           4    each three years, and we would go to all of

           5    them at least once over that time.  There

           6    would be certain little variations on who we

           7    would pick each time, but we think we could

           8    do that and save money as well.  And then

           9    we'd also actually have kind of a constant

          10    burden on the contractor over time as well,

          11    so it wouldn't be going up and down.

          12              Then we'd have to go and clarify

          13    our instructions.  We've been having many

          14    meetings going over each individual form,

          15    whether we need to change the instructions or

          16    modify the question a little bit.  We would

          17    assess our confidentiality policy, and then

          18    we would have to go and improve our online

          19    edits and quality assurance reports.

          20              And in doing this, we have support,

          21    particularly from the Statistics and Methods

          22    Group, who are helping us a lot this year

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          194

           1    around hiring a contractor.  They have a lot

           2    of folks that are going to be able to help

           3    us.  And so they are the ones that are

           4    designing the merged forms, and they're going

           5    to be presenting to us what -- draft copies

           6    of the hard copy forms and then what they

           7    might look on the Internet.  Right now our

           8    hard copy forms and our Internet forms look

           9    the same.  What I think they may be doing is

          10    moving more toward kind of a tax return way,

          11    where you're asked questions and it fills the

          12    data in for you and moves it wherever it has

          13    to go.  So we'll be seeing some of those

          14    designs in the next few weeks here.

          15              They'll also be going out and

          16    testing those forms in the field for us.  And

          17    they're also providing the funding and the

          18    oversight for -- I believe it's five

          19    independent expert reviews.  And what they're

          20    reviewing is there's a set of data that we do

          21    not publish in any summary form in any of our

          22    publications, but we do release the data at

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          195

           1    the individual facility level.  So we're

           2    asking them is there other data that we don't

           3    publish at the summary level that we should

           4    be publishing and how would we do that?

           5    They're also going to be giving us feedback

           6    on what the merged forms might look like.

           7              And the last thing is the combined

           8    heat and power methodology.  We've briefed

           9    the committee here several times on the

          10    problem of splitting the fuel that's used by

          11    combined heat and power plants between fuel

          12    for electricity generation and fuel for use

          13    of thermal output.  And we've redesigned the

          14    form.  The form hasn't been as successful as

          15    we had hoped, so we're asking some experts

          16    for what their opinion is on how to proceed

          17    from here.

          18              So actually, we've gotten two of

          19    the reports so far and we're having a meeting

          20    with them onsite on Tuesday next week, so

          21    we're looking forward to the rest of that

          22    input.  Anyways, the excellent Statistics and

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          196

           1    Methods Group is providing support for us on

           2    that.

           3              Where is Stan?  He told me to say

           4    that?  You'll tell him I said that, right?

           5              MS. KIRKENDALL:  I'll tell him.

           6              MR. SCHNAPP:  Okay.  On

           7    confidential data, right now, we have really

           8    a very limited amount of data that we hold

           9    confidential as opposed to most of the rest

          10    of the EIA whose data is confidential.  Most

          11    of this is on the price side, not all of it,

          12    but a good portion of it is.

          13              The first is the fuel costs of fuel

          14    delivered to non-utilities.  Then there's the

          15    fuel stocks on the 906.  Actually on the 920,

          16    also.  Monthly data for the energy service

          17    providers, only we would hold their retail

          18    sales, revenue, and number of customers.  But

          19    what's interesting is that at the

          20    annual -- for an annual report from these

          21    same respondents, that information is not

          22    confidential, and I'll address that in just a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          197

           1    minute here.

           2              Latitude and longitude, which is of

           3    the facility and then of the scrubbers on our

           4    two forms, that's confidential, and then the

           5    maximum tested heat under full load

           6    conditions.

           7              MR. RUTHERFORD:  You give the

           8    county location in the EIA-860.  Doesn't it

           9    tell the county that the plant's located in?

          10              MR. SCHNAPP:  Yes, yes.  So what

          11    we're talking about is, dropping down to the

          12    bottom, is to remove the confidentiality on

          13    latitude and longitude.  That information's

          14    in the public domain.

          15              SPEAKER:  Yes.

          16              MR. SCHNAPP:  We had withheld it.

          17    We started withholding it about 2000.  And

          18    when we -- for our Electricity 2002 project,

          19    we submitted our proposal to the Office of

          20    Management and Budget that would have that

          21    not confidential on September 11, 2001.  And

          22    so we called them on I think it was September

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          198

           1    13th or 14th, and said do you want us to make

           2    that confidential?  And they called back and

           3    said yes.  So we made that confidential then.

           4              For Electricity 2005, we thought we

           5    would continue to hold it confidential since

           6    we didn't want to give a convenient list to

           7    terrorists to find all the information.  But

           8    at this point the information is just so out

           9    there that we just decided there was no

          10    reason to withhold it.  So that will probably

          11    be one of our recommendations.

          12              SPEAKER:  Perhaps they'll Google

          13    it.

          14              MR. SCHNAPP:  We're proposing,

          15    though, for most of the other items, the

          16    three out of the four remaining items, that

          17    we would release that data nine months after

          18    the end of the reporting year.  We had

          19    proposed that actually to OMB for Electricity

          20    2005 and they turned us down, so we're going

          21    to try and make a stronger case this year.

          22              MR. HILL:  Was anybody worried

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          199

           1    about that confidentiality issue?

           2              MR. SCHNAPP:  Yes.  Oh, yes, there

           3    are people --

           4              MR. HILL:  It seems to be a big

           5    deal.

           6              MR. SCHNAPP:  Yes, definitely, yes.

           7    I mean, companies feel that it would --

           8              MR. HILL:  That nine-month window

           9    wasn't long enough.

          10              MR. SCHNAPP:  Affect their ability

          11    to compete.

          12              MR. HILL:  The nine-month window

          13    was too short.

          14              MR. SCHNAPP:  After the reporting.

          15              MR. HILL:  It was too short for

          16    them.

          17              MR. SCHNAPP:  Well, no, they don't

          18    ever want it out in the public domain.

          19              MR. CLEVELAND:  So who makes that

          20    call, the nine-month call?

          21              MR. SCHNAPP:  Well, as we did last

          22    time, if that's what we decide, we would

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          200

           1    propose that to the Office of Management and

           2    Budget.  We make no decisions.  The Office of

           3    Management and Budget makes the decision

           4    whether we can do it or not.

           5              MR. CLEVELAND:  You make the

           6    recommendations.

           7              MR. SCHNAPP:  Yes.  Actually when

           8    our proposal goes to them, there's another

           9    Federal Register notice issued for another

          10    30-day comment period.  And if people have

          11    problems or comments, they send them right to

          12    the Office of Management and Budget.

          13              MS. KIRKENDALL:  Typically, that

          14    Federal Register notice will get comments by

          15    anybody who really disagrees with what we're

          16    proposing, and so that's what OMB looks at,

          17    the comments they get in response to the

          18    Federal Register notice.  And if you get lots

          19    of people saying no, no, no, then they say

          20    no.

          21              MS. SEREIKA:  So you have these

          22    data, it's just that they're not published,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          201

           1    right?

           2              MR. SCHNAPP:  We don't put them out

           3    in our detailed database.

           4              MS. SEREIKA:  You don't have like

           5    an honest broker who is holding them?

           6              MR. SCHNAPP:  No.

           7              MS. SEREIKA:  You actually have

           8    them, it's just they're not being published

           9    or used.

          10              MR. SCHNAPP:  Right, right.  No, we

          11    maintain ourselves, yes.

          12              Okay.  And so I was talking in the

          13    beginning about our Internet data collection

          14    system.

          15              I'll just tell you real quickly

          16    about it.  I know, again, we have briefed

          17    your committee, but I know there's some new

          18    faces here.

          19              We collect -- we established our

          20    Internet data collection system for

          21    Electricity 2002.  We now send out all of our

          22    requests for data using e-mail.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          202

           1              We established the Help Center to

           2    field inquiries.  This year we got 3,500

           3    e-mails and 1,000 phone calls.  And out of

           4    the about 36,000, 37,000 forms that we

           5    process a year, 85 percent of them, or over

           6    30,000, came in on the Internet.  The monthly

           7    forms, 70 percent of them came in, and

           8    80 percent of the annual forms.

           9              And what this has in it is that

          10    when they enter the data, they press an Edit

          11    button and it gives them a little report on a

          12    comparison.  It compares their current data

          13    with, say, last month's data.  And if it's

          14    outside of a range or if it doesn't add up

          15    properly or if it it's used in the

          16    calculations, they make a heat rate that

          17    doesn't make sense, there's an error that

          18    shows up.

          19              They have to clear up all those

          20    edits or press the Override button and

          21    explain why the data's correct or it can't be

          22    submitted.  So that tells you that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          203

           1    85 percent, 30,000 forms, came in that passed

           2    all those edits.  So we don't have to key it

           3    in.  Most of those edits that they overrode,

           4    we talked with them and so some of them were

           5    accepted, some of them they had to change.

           6    But really only 15 percent of these forms now

           7    we key in for them, and we're hoping to get

           8    that up even higher.

           9              And so the savings that we've seen

          10    from the Internet data collection is that our

          11    Electric Power Monthly, which had taken us

          12    161 days to put out -- that's 161 days from

          13    the end of the reporting month, not 161 days

          14    after the date it was due, which is usually

          15    30 days later.  We -- actually I have to

          16    update this.  We put it out in 63 days the

          17    last report.  So we have literally saved 100

          18    days in putting out Electric Power Monthly.

          19              So that's due to the Internet data

          20    collection system, our imputation process

          21    that's been modernized, and really hard work

          22    of our staff.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          204

           1              MR. HENGARTNER:  How many FTEs do

           2    you save with this?

           3              MR. SCHNAPP:  How much what?

           4              MR. HENGARTNER:  FTEs.

           5              MR. SCHNAPP:  Well, I'll show you

           6    here what we're saving.  We've invested it.

           7    We've reinvested it.

           8              MR. HENGARTNER:  It's hard.

           9              MR. SCHNAPP:  Electric Power

          10    Annual, which took 470 days to produce, is

          11    now produced -- again, Friday it came out.

          12    It was produced in 272 days.  Two hundred

          13    days in savings.

          14              Because of that, we caught up on

          15    our State Electricity Profiles.  We put out

          16    two editions, the 2003 and the 2004 edition,

          17    this year.  We put out two editions of the

          18    Cost and Quality of Fuels, 2003 and 2004

          19    editions.  And we created a brand new monthly

          20    report, Monthly Flash Estimates of Electric

          21    Power Data, which has national-level data for

          22    the most part.  That comes out just 50 days

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          205

           1    after the end of the reporting month.

           2              So there's a lot of savings that

           3    we've plowed back in and caught up this year.

           4    And next week, we'll be having a party on

           5    that.  And that's the comments I have.

           6              I'd be glad to take comments now or

           7    questions or we can wait until after Bob

           8    Rutchik will be making his comments on the

           9    proposed mergers forms.

          10              MR. RUTHERFORD:  I just have a

          11    newbie question.

          12              SPEAKER:  Newbie?

          13              MR. RUTHERFORD:  I've looked at the

          14    860.  I think it's a great -- really great

          15    database.  I really like it.

          16              But I was curious, do you guys

          17    produce any information about the

          18    distribution network that goes along with the

          19    plants?

          20              MR. SCHNAPP:  No.

          21              MR. RUTHERFORD:  So we know the

          22    exact locations, but we don't know how

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          206

           1    they're connected.

           2              MR. SCHNAPP:  Well, we know what

           3    they're connected.  We know what service

           4    areas.

           5              MR. RUTHERFORD:  But you don't know

           6    what the path is for --

           7              MR. SCHNAPP:  No, no.

           8              MR. RUTHERFORD:  Does FERC produce

           9    that information?

          10              MR. SCHNAPP:  I don't know.  Alan,

          11    do you think they -- I don't think they --

          12              MR. BEAMON:  Yes, they have forms

          13    that collect that sort of information.

          14              MR. SCHNAPP:  Is that the 714 or

          15    715?

          16              MR. BEAMON:  The 715 that they

          17    collect that --

          18              SPEAKER:  Alan, for your comment,

          19    would you come to the mike so that we can get

          20    on the recording?

          21              MR. BEAMON:  Say yes again?  I said

          22    FERC collects the line information, the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          207

           1    transmission line information, on the 714,

           2    715.  I don't know how detailed it gets down

           3    to individual plants and levels, and there's

           4    issues with it, I can tell you that.

           5              MR. SCHNAPP:  When you said

           6    "distribution," I thought you meant

           7    distribution as opposed to transmission line.

           8              MR. RUTHERFORD:  Well, I meant

           9    transmission line.

          10              MR. BEAMON:  Transmission.

          11              MR. SCHNAPP:  Okay.  So I'll turn

          12    it over to Bob.

          13              MR. RUTCHIK:  Thank you, Bob.  Let

          14    Bob come up here and hit for the Boston Red

          15    Sox.

          16              Good afternoon.  I'm Bob Rutchik of

          17    Statistics and Methods Group of EIA.  And the

          18    purpose of my presentation is to outline

          19    issues that have arisen for merging the five

          20    EIA survey forms into two new surveys.  The

          21    five surveys, again, are in Bob Schnapp's

          22    outline.  The three monthly surveys that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          208

           1    would be merged into one new form, Form

           2    EIA-423, Monthly Cost and Quality of Fuels

           3    for Electric Plants Report; EIA-906, Power

           4    Plant Report; and EIA- 920, Combined Heat and

           5    Power Plant Report.

           6              As kind of a refresher, the

           7    combined heat and power plant produces both

           8    heat and electricity from a single heat

           9    source.  These are commercial and industrial

          10    co-generators, such as paper mills and oil

          11    refineries.  The second merger will involve

          12    the two annual forms that Bob mentioned, the

          13    EIA-860, Annual Electric Generator Report,

          14    and parts of the EIA-767, Steam, Electric,

          15    and Plant Operation and Design Report.

          16              The issues that we'd like the

          17    committee to think about and on which we'd

          18    like to get your comments are the data

          19    requirements for both surveys.

          20              Is EIA collecting the correct data?

          21    Two, combined heat and power plant monthly

          22    imputation methodologies.  Bob mentioned that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          209

           1    we had proposed to discontinue collecting

           2    monthly data from the EIA-920 from industrial

           3    and commercial combined heat and power

           4    plants, but continue to collect annual data.

           5              The third issue will be the new

           6    sampling cutoffs for both surveys.  And I'll

           7    get into a little bit more detail on that

           8    later.

           9              Now, I want to talk about the

          10    monthly survey.  And on the monthly survey

          11    there are about three categories of data.

          12    One is plant level data.

          13              The second is prime mover level of

          14    data, and the prime mover is the engine,

          15    turbine, waterwheel, or similar machine that

          16    drives an electric generator.  And the third

          17    category of data is the annual data on

          18    sources and disposition of electricity.

          19              These are the plant level data that

          20    we propose to collect on the merged form for

          21    the 423, 906, and 920.  The left-hand column,

          22    that's the information that EIA currently

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          210

           1    collects that we want to carry over to the

           2    merged form.  The first one is quantity of

           3    receipt, how much coal or how much gas came

           4    to the plant.  The second is the quality of

           5    the receipts, the heat content and sulfur and

           6    ash content.  Sulfur and ash content applies

           7    basically to coal and to the oils, like

           8    displate (?) oil and residual fuel oil.  And

           9    the third one -- variable is end-of-month

          10    starts of coal, residual, and displate fuel

          11    oil, jet fuel oil, and kerosene.

          12              The right-hand column lists the new

          13    data that EIA proposes to collect on the

          14    survey.  The purpose of these data in general

          15    are to fill in EIA's published data gaps and

          16    gaps also in its forecast.  In other words,

          17    help make more accurate forecasts.

          18              The first variable is cost.  There

          19    are cost indices in the trade press, and this

          20    is something that was talked about a little

          21    bit this morning in general terms, but we're

          22    not sure of the quality.  And sometimes when

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          211

           1    EIA tries to get private data sets, you just

           2    can't get them.  They won't let EIA have

           3    them.  And we also know that there are no

           4    official government sources on the price of

           5    fuel, so that's one reason we wanted to

           6    collect our own.

           7              In the cost, we're going to have

           8    two components.  One is delivered cost, and

           9    that will be for all the fuels.  Delivered

          10    cost is basically a bundled number of all the

          11    costs that are involved the invoiced cost of

          12    the fuel, the transportation charges, taxes,

          13    commissions, and so on.  That, again, we're

          14    going to collect for all fuels.  For coal and

          15    for natural gas we want to collect the

          16    commodity cost.  That's just the price for

          17    the lump of coal or the molecule of natural

          18    gas.

          19              The second variable is

          20    transportation mode.  And this is really not

          21    a new variable for EIA.  We -- what we do

          22    plan to do is propose to move the coal

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          212

           1    transportation mode question on the EIA-6,

           2    the Coal Distribution Report Annual, to the

           3    merged survey.  That question asks for

           4    primary and secondary, if there is more than

           5    one transportation mode used, of

           6    transportation.

           7              To give you a simple example of how

           8    this works, let's say the electric plant is

           9    1,000 miles from the coal mine that supplies

          10    it with coal.  The first 600 or 700 miles,

          11    the coal travels, let's say, by rail or

          12    that's the primary mode of transportation.

          13    The next, let's say, 390 miles, it's unloaded

          14    from the railroad cars onto a barge and goes

          15    on a barge down river, up river, or wherever,

          16    to -- let's say, 10 miles from the electric

          17    plant.  That's 390 miles in the barge as the

          18    secondary mode.

          19              And the last 10 miles, it moves by

          20    truck.  We're really not interested in the

          21    third and final 10-mile leg, the truck data.

          22    But you are interested in -- to be able to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          213

           1    trace the fuel in the primary and secondary

           2    transportation modes.

           3              The third new variable is Mine

           4    Safety Health Administration, or MSHA, Mine

           5    Identification Number.  Again, this is just

           6    to help us plot out a more complete path and

           7    give us a fuller picture of the industry.

           8              Bob touched on this a little bit.

           9    And the third one is really an adjustment

          10    factor or balancing factor, where the ending

          11    starts equal the previous month's starts plus

          12    receipts minus consumption plus or minus an

          13    adjustment.  And the balancing check, and

          14    most of the EIA data has this, is important

          15    to ensure the integrity of the data.

          16              Now, currently, there are three

          17    separate systems:  906, 924, 923.  And to

          18    balance all these three systems that has to

          19    be done outside the IDC system, and this is

          20    very inefficient.  It takes up a lot of

          21    resources.  So one advantage of the

          22    consolidated form would be to have the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          214

           1    balance done in one system, the merged

           2    system, and have it done before the forms are

           3    submitted to EIA.

           4              So if the numbers don't equate, the

           5    left side doesn't equal the right side, the

           6    respondent can do one of two things.  Go back

           7    and recheck its consumption and receipt data,

           8    see if they're correct.  And if they are

           9    correct and still not -- both sides of the

          10    equations are different, explain why they're

          11    different.  An example would be a pile of

          12    coal.  You have a pile.  We thought it was

          13    20,000 tons.  We inventoried it.  It was

          14    25,000 tons.

          15              And that's basically what the

          16    adjustment factor is.  It's not so much a

          17    mathematical factor, but really a discrepancy

          18    explanation of why the two sides of the

          19    equation do not balance.  So you could see

          20    this would make data editing a lot easier and

          21    a lot better.  The data would improve EIA's

          22    data editing and improve the data.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          215

           1              Okay, the next category of data is

           2    prime mover level data, and these are data

           3    that we already area collecting.  It should

           4    be net and gross generation for all electric

           5    plants, gross generation for combined heat

           6    and power plants, total consumption for all

           7    purposes, again, "all purposes" being heat

           8    and steam and electricity combined,

           9    particularly for CHP plants.  And that would

          10    be by fuel type and heat content by fuel

          11    type.  Heat content can be different from

          12    receipts when it's consumed.

          13              Again, the coal sticking out, being

          14    out there in a pile could get moisture and

          15    that would lower the heat content.

          16              You noticed again, and, again, this

          17    is something that Bob touched upon, there's

          18    no fuel used to generate electricity.  You

          19    know, we're proposing to drop it and we have

          20    the IERs (?) out there looking for a

          21    surrogate, if there is one.

          22              This, again, is another adjustment

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          216

           1    or balancing check.  And this is determined

           2    annually both on the 906 and the 920 with the

           3    two (inaudible) differences.  Basically,

           4    again, you want the source to equal the

           5    disposition.  What comes in, what's

           6    generated, what a plant gets from another

           7    source equal what it sends out either through

           8    the grid, either through itself, or sells.

           9    Again, (inaudible) want these two sides to

          10    (inaudible) and the disposition equal itself.

          11    It's, again, a check.  And so that'll be the

          12    third part of the merged form.

          13              Okay, here we go, the monthly

          14    surveys.  And I want to go over the current

          15    sampling schemes for a reason because they

          16    are directly related in my opinion to

          17    understanding EIA's proposed new

          18    methodologies for -- sampling methodologies

          19    for the merged survey and, also, later on for

          20    the annual survey, which I'll discuss.

          21              The first one is a 423.  It really

          22    doesn't use a sampling scheme.  It just goes

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          217

           1    to the approximately 740 non-utility electric

           2    plants, or CHPs, whose total fossil fuel

           3    nameplate generating capacity is 50 megawatts

           4    or greater.

           5              The EIA-906 and 920 do use a

           6    sampling scheme.  And the 906 goes

           7    to -- collects data monthly from a

           8    statistical sample of approximately 1,400

           9    plants based on fuel consumed and generating

          10    capacity criteria.  For example, let's say we

          11    have all plants that use coal, natural gas,

          12    or displate residual fuel oil, or a

          13    combination of the three, which would be most

          14    of the plants, who have a nameplate generator

          15    capacity of 200 megawatts or greater.  They

          16    would be include in that 1,400 monthly

          17    sample.  And those others, we'd collect

          18    annually from approximately 3,000 other

          19    plants that do not file the EIA-906 monthly.

          20              Now, for the 920, it, too, collects

          21    monthly data from a sample of approximately

          22    300 plants in this case and uses the same

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          218

           1    criteria of fuel and generation capacity as

           2    the 906.  And it also collects data annually

           3    from the approximately 700 plants in this

           4    case that do not file monthly.

           5              Now to get to some of the issues

           6    that I mentioned.  EIA has not formulated a

           7    cutoff yet for the merged form, but the

           8    principle will be that it'll be -- generation

           9    capacity will determine the cutoff between

          10    monthly and annual respondents.  And the goal

          11    is, and Bob I think intimated at this

          12    earlier, is to minimize the monthly

          13    respondents.  More specifically, minimizing

          14    monthly respondents in great part means not

          15    having respondents provide data that they had

          16    not provided before on the three separate

          17    forms.  This is where a discussion of current

          18    sampling cut off supplies.

          19              For example, the current cutoff for

          20    the EIA-423, as I mentioned, is 50 megawatts

          21    or greater -- capacity or greater.  If EIA

          22    asked on the merged form CHPs and electric

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          219

           1    plants that are below the 50 megawatts to

           2    complete the merged form, EIA will be

           3    increasing the number of monthly respondents

           4    and using more resources, not less.  This is

           5    self-defeating the purpose of Electricity

           6    2008.  And this is also I think one factor in

           7    having the CHPs respond annually.

           8              Next is some of the ideas that we

           9    had brought up in our brainstorming sessions

          10    on the imputation strategies for imputing

          11    monthly numbers for the CHPs and on which we

          12    would like the committee's views.  And these

          13    main ideas that we brought up and talked

          14    about is, one, benchmark data from

          15    independent power producers.

          16              Most independent power producers

          17    produce electricity, but some of them I

          18    believe may produce 5 or 10 percent heat and

          19    steam and ship it next door to a paper plant,

          20    and I've seen this type of operation.  So

          21    that would be one benchmark.

          22              The other that we talked about is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          220

           1    maybe, possibly collect monthly data from a

           2    small sample of the larger CHPs.

           3              Okay, now I want to move -- switch

           4    gears a little bit and talk about what we

           5    call the new EIA- 860.  Guy Caruso mentioned

           6    this morning, and Bob also reiterated that

           7    EIA's fiscal 2007 budget does not have any

           8    funds for the EIA-767.  So this is how -- our

           9    plan to deal with that is that, one, there

          10    will be no changes to the EIA-860.  That form

          11    will stay just as it is.  And two, we will

          12    merge from it -- from the EIA-767 to it

          13    static data on power plant characteristics

          14    from the EIA-767.

          15              These are things like design or

          16    physical characteristics data.  Your

          17    nameplate generating capacity is one.  The

          18    capacity of -- design capacity of your

          19    various pieces of equipment is another

          20    general example.  So we'd keep that data and

          21    delete the operational data from the EIA-767.

          22    This is the data that changes year to year,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          221

           1    like, let me think of a real esoteric

           2    example, the chlorine you put in your cooling

           3    water for a cooling system.

           4              And again, a simple example of how

           5    this would work is Schedule 6.  If you had a

           6    copy of the EIA-767 in front of you,

           7    Schedule 6 is cooling system information.

           8    There are two parts to it.  Part A, annual

           9    operations.  That would be merged to the

          10    EIA-860.  And Part B -- I mean, annual

          11    operations would go, believe it, because

          12    that's the data that's variable year to year.

          13    And Part B is design parameters, the static

          14    information, and that would stay.

          15              Now I want to go to the current

          16    annual cutoffs for the EIA-860.  The EIA-860,

          17    again, goes to existing and planned electric

          18    generating facilities in the United States

          19    with a current total generating nameplate

          20    capacity of one or more megawatts.  Again, it

          21    collects generator-level data from

          22    approximately 2,700 companies that operate

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          222

           1    5,700 plants, spanning over 16,000

           2    generators.  The data collected are

           3    generator-level data again.

           4              The 767 goes to organic fuels or

           5    combustible and renewable steam electric

           6    generating plants with nameplate generating

           7    capacity, 10 or more megawatts.  And it

           8    collects boiler-level data from about 1,400

           9    plants.  So that's where we currently are.

          10              And for what we propose for the

          11    merged survey is, again, generating capacity

          12    will determine the cutoff.  And the goal is

          13    to have about 10 percent of plants that have

          14    90 percent of generation respond each year.

          15    And that would be -- and we have a proposal

          16    out that this would include most plants

          17    between 500 and 600 megawatts and above.

          18    They would be surveyed annually.

          19              And to follow up on a point that

          20    Nancy made this morning, EIA plans to do a

          21    census for the remaining plants, the

          22    so-called small guys.  One-third would be

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          223

           1    sampled one year, the second third the second

           2    year, and the remaining third the third year,

           3    so we'd have a complete census every third

           4    year.  And the next year, the cycle would

           5    just start again.

           6              Now, I'm going to get to the

           7    specific questions which we have for the

           8    committee.  Do we have the correct data on

           9    the EIA-423, 906, and 920 combined form?

          10              Second, what should EIA be aware of

          11    in formulating an imputation -- I always have

          12    problems with the word -- imputation

          13    methodology for CHP plants?

          14              Third, do we have the correct data

          15    on the combined EIA-860 and 767?

          16              And finally, what does the

          17    committee think of the cutoff methodologies

          18    for both surveys?

          19              And I don't have a thank-you slide

          20    and I should have, but thank you very, very

          21    much.

          22              MR. HENGARTNER:  Okay.  Questions?

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          224

           1              MR. BURTON:  I've got a couple of

           2    questions and a comment or two.  On the 920,

           3    is the distinction between the primary and

           4    secondary mode, transport mode, going to be

           5    just distance?

           6              MR. RUTCHIK:  As far as I

           7    understand it, yes.

           8              MR. BURTON:  I do a lot of

           9    transportation economics.  Is there any

          10    chance that you could go ahead and get every

          11    mode that they're using even if it seems

          12    inconsequential?  More is better.

          13              And finally, on the 920, I think

          14    you're going to run into situations where the

          15    respondents are going to have a hard time

          16    telling you what their costs are.  I mean,

          17    more information is better than less, but I

          18    would worry somewhat about the reliability of

          19    that because there are all sorts of different

          20    transportation arrangements.  Sometimes

          21    they're going to know what transport costs

          22    are, sometimes all they're going to know is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          225

           1    what the delivered price is.  There are

           2    common facilities and you've got to figure

           3    out how to cost those out, so that they get

           4    included.  I mean, collecting it's fine, but

           5    I would worry about relying on it too

           6    heavily.

           7              And finally, on the imputation

           8    matter for the -- if you look simply at the

           9    larger CHPs, I would want to know one piece

          10    of information first and that is whether the

          11    economics for the smaller ones that you're

          12    not looking at are similar or dissimilar from

          13    the larger ones where you are collecting

          14    information.  If the smaller ones are

          15    different, then I would probably look for a

          16    different method.

          17              MR. HENGARTNER:  Thank you very

          18    much.  Before we go around the table,

          19    actually, I realized we actually had prepared

          20    statements by Nagaraj and Jae, and maybe we

          21    should get them on the record before the rest

          22    of us talk.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          226

           1              SPEAKER:  Oh, well.

           2              MR. HENGARTNER:  Oh, well.  It was

           3    my mistake.

           4              MR. RUTCHIK:  Thank you, Mark, for

           5    your comments.

           6              MR. HENGARTNER:  So Jae, do you

           7    want to start?

           8              MR. EDMONDS:  Yes.  Actually, I had

           9    down here it was Johnny Blair, and so my

          10    comment was I was going to agree with him.

          11    Before the fact.  You have my agreement.

          12              MR. NEERCHAL:  We'll let him know.

          13              MR. EDMONDS:  So, yes, this was

          14    actually helpful.  I went through the

          15    presentations before I came here and I think

          16    it is much more helpful to hear this in

          17    person.  I guess I have three reactions.

          18              You know, the first is I guess the

          19    one to just start off with is that the whole

          20    notion of going back and rethinking the data

          21    collection with an eye toward merging and

          22    consolidating, automating, and, in some

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          227

           1    instances, expanding the data collection

           2    seems like a good idea.  And just looking at

           3    the plan of attack to get to 2008, that looks

           4    like a very rational and well thought out

           5    plan.  And so all of that seems to be to the

           6    good.

           7              There's this discussion in

           8    the -- the second point is that there's all

           9    this discussion about minimizing the number

          10    of monthly respondents.

          11              And of course, that, you know -- a

          12    minimum, of course, is zero.  So the question

          13    is minimizing subject to what?

          14              I presume it's a constrained

          15    optimization, and so my presumption is that

          16    it's budget.  But I'm -- no one said that and

          17    I'm guessing that the cutoff numbers are

          18    given the budget we have, these are the

          19    numbers that emerge from trying to fit the

          20    form into budget.  And then the question is

          21    is that the right budget?

          22              And there it comes down to asking

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          228

           1    yourselves questions like Mark was asking,

           2    which is the guys that are getting sampled

           3    less how do they look compared to the ones

           4    that are being sampled more?  Obviously

           5    they're small.  Therefore, there's a

           6    fundamental difference in the engineering of

           7    these small units relative to the big ones

           8    and often in the way they're operated.  And

           9    so the question is what are you losing when

          10    you cut down the respondents?

          11              So on the one hand, consolidation

          12    and adding new information seems to be

          13    increasing the quality of the product the EIA

          14    is producing, but minimizing the number of

          15    monthly respondents seems to be, in fact,

          16    moving in the opposite direction.  And so you

          17    have to ask what am I giving up and what am

          18    I -- and why am I giving that up?  And I

          19    don't know that I have the answer to that,

          20    but I just put that on the table.

          21              And then the third point that I

          22    have, it's perhaps a small point, but this is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          229

           1    the second time this notion of CHP and the

           2    disaggregation.  You know, with combined heat

           3    and power you're producing a joint product.

           4    You're producing processed heat and you're

           5    producing electricity, and you've got an

           6    input into that process.

           7              And then there's this desire to

           8    say, well, a certain fraction of that

           9    actually went to raising the steam and a

          10    certain fraction of the fuel input went to

          11    producing electricity.  But to my mind it's

          12    like why are you going to pretend like

          13    they're two separate activities when, in

          14    fact, they're a joint product?  You know,

          15    you're actually -- I mean, presumably,

          16    there's some gains to conducting it as a

          17    joint product relative to conducting this

          18    activity as two separate activities, that

          19    there's actually some efficiency gains in

          20    doing combined heat and power.

          21              And of course, if you go over to

          22    EIA that's why they want to encourage CHP is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          230

           1    that there are efficiency gains in the

           2    process.

           3              So trying to go back and act as if

           4    they're two separate activities never -- you

           5    know, I never understood that.  And so why is

           6    the question that occurs to me.  So those are

           7    my thoughts.

           8              MR. HENGARTNER:  Thank you very

           9    much.  Nagaraj?  Are you going to agree with

          10    Jae?

          11              MR. NEERCHAL:  I think pretty much.

          12              MR. EDMONDS:  No, you're going to

          13    agree with Johnny.

          14              MR. NEERCHAL:  Yes, I think we had

          15    two Bobs speaking.  I think Nick was looking

          16    for a Bob from the committee and he didn't

          17    find one, so I said (inaudible) I'm Bob for

          18    this talk, I think, these comments.  You

          19    know, I agree with Jae I think.

          20              No, a couple of comments.  I think

          21    one thing.  The talk from Bob Schnapp, I

          22    think he -- the improvement using Internet

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          231

           1    data collection's just remarkable.  I think

           2    that's a slide to be remembered forever I

           3    think.  It's fantastic.  And I was just

           4    wondering just being a statistician I'm

           5    supposed to ask some negative questions, is

           6    there any downside to it?

           7              You know, for example, are there

           8    some people who say I don't have access to

           9    the Internet, so I can't send you data, for

          10    example?  So there's some response rate, you

          11    know -- are there any downsides to it?  Are

          12    you improving it so much that I think we can

          13    tolerate a lot of disadvantages for those

          14    kind of advantages?  But I was kind of

          15    wondering here are there any disadvantages at

          16    all?

          17              A couple of other things that kind

          18    of got to me.  I think on the cutoff,

          19    determining cutoff, I think you're really

          20    using the generation capacity for the cutoff.

          21    I think that one of the questions I had in my

          22    mind here, and I think Bob answered that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          232

           1    question, but something about 90 percent of

           2    the total is accounted by 10 percent of the

           3    people or some number like that.

           4              But what about some other

           5    co-variates?  Perhaps maybe if you ordered

           6    this universe or this population by some

           7    other co-variates and used, like, some other

           8    size measure.  I don't know, it would be

           9    total sales, I don't know, whatever it could

          10    be, number of employees, something else,

          11    whether that could be more useful for

          12    imputation, for example.

          13              And then again, I had that question

          14    that Jae had, that's why I agree with him.  I

          15    think that -- I remembered the CHP issue from

          16    a couple of meetings ago.  And it's a very

          17    difficult thing to do.  And when you're

          18    trying to do something very difficult, you

          19    want to make sure that it is useful.  So I

          20    think that will be a very interesting

          21    question.

          22              And finally, I think that every

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          233

           1    third year, I think, once again, it's a

           2    really very cute idea.  But I was wondering,

           3    every third who are being surveyed this year,

           4    is it possible to ask them to give data from

           5    the previous two years, for example, without

           6    burdening them too much?  You know, what do

           7    you remember from last year?  And even though

           8    that may not be very reliable information,

           9    that could be useful.  That way, you

          10    know -- I don't know, that's -- I don't know

          11    the real parameters of burden reduction here

          12    now.

          13              I think EPA is going through this

          14    discussion on TRI right now.  They're talking

          15    about burden reduction.  They're not thinking

          16    about EPA.  The burden reduction on the

          17    respondents, which is a totally different

          18    burden reduction.  So is it possible to have

          19    them give us data from last year, for

          20    example?  Will that be reliable information?

          21              And those are the couple of things

          22    I had jotted down which was not covered by

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          234

           1    either Mark or (inaudible).

           2              MR. HENGARTNER:  Thank you very

           3    much.  I did cut off Neha previously, so

           4    please fill us in.

           5              SPEAKER:  She agrees.

           6              MS. KHANNA:  Okay.  I have I think

           7    three comments.

           8              One, the initial one goes to both

           9    Bobs, but maybe Bob S. can answer it.  You

          10    mentioned that you're able to move from

          11    monthly to annual data collection with CHPs.

          12    And at least the two reasons that you

          13    mentioned in your presentation were they're

          14    only 5 percent of the total and savings in

          15    costs.  But if I understand it correctly,

          16    CHPs (inaudible) a lot of promise for the

          17    future.  We expect it to be a pro sector (?)

          18              So that will be something -- I'm

          19    not sure, I mean, savings in cost is a great

          20    thing, but if it's going to be (inaudible)

          21    going to have greater penetration we don't

          22    really want to go there, you know.  Cutting

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          235

           1    off something is easy.  Getting it back

           2    online is harder.  So that's just a question

           3    to throw out there.  You probably have a good

           4    sense of constraints, but I want to throw

           5    that into the mix.

           6              Two other comments.  One, I'd like

           7    to follow up on what Mark said, total

           8    transportation.  It seems like it's important

           9    not only for this sector, but in the morning

          10    we had a discussion on the consumption side

          11    and one of the big areas they don't cover is

          12    non-residential transportation.  And it seems

          13    like there is a scope here for collaboration

          14    across different groups.  Maybe they'd be

          15    interested in having those data as well or

          16    access to those data or working in trying to

          17    collect those data.  So that seems like

          18    something to do.

          19              And the last comment is a reaction

          20    to what Nagaraj said about asking those

          21    two-thirds that don't get interviewed or

          22    surveyed every year.  I would worry very much

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          236

           1    about combining those data with actual

           2    annual -- you know, the Europe survey data

           3    because of recall issues.  And in developing

           4    economics we have a huge issue about recall

           5    (inaudible).  If we do go down that road it

           6    has to be very clear which one is recall and

           7    how much is the recall period, because that

           8    can affect the quality and variability of the

           9    data.

          10              MR. HENGARTNER:  Thank you.  I

          11    actually have a question for Barbara on this

          12    one-third.  She's our sampling expert.

          13              MS. FORSYTH:  Yes, and on

          14    everything else.

          15              MR. HENGARTNER:  Yes.

          16              MS. KHANNA:  And actually, I don't

          17    want to undermine your authority, but I think

          18    somebody wanted to react to you.  I heard a

          19    mumble from (inaudible).

          20              MR. HENGARTNER:  Did I see his tent

          21    go up?

          22              MS. KHANNA:  He doesn't have a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          237

           1    tent.

           2              SPEAKER:  He doesn't have a tent.

           3              MR. HENGARTNER:  Oh, oh, oh, sorry.

           4              MR. RUTCHIK:  Let me use the

           5    microphone before Bill gets really mad.  On

           6    the -- you talked about his idea of possibly

           7    when we ask every third year getting the

           8    other two years, and you talked about recall.

           9    These are establishments.  Would there also

          10    maybe be a problem that the records for those

          11    prior two years might not be that good?

          12    Because when I think of recall I think more

          13    of household surveys than establishment

          14    surveys.

          15              MS. KHANNA:  But this is

          16    information they're regularly keeping anyway.

          17              MR. RUTCHIK:  Yes, so I'm just

          18    wondering if the data would maybe degrade

          19    over time a little bit.

          20              MS. KIRKENDALL:  Maybe that'd be

          21    something to ask about when you do your

          22    number.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          238

           1              MS. FORSYTH:  It's all empirical.

           2    It's all empirical.  I mean, that's something

           3    you can evaluate as you set up the program.

           4    And in fact, I'd recommend it for just the

           5    reasons.

           6              MR. HENGARTNER:  I mean, my

           7    reaction to the one-third, and that was the

           8    question to Barbara, is the following, is

           9    that you are thinking or you're in the mode

          10    of thinking that by cutting it in one-third,

          11    the first year one-third, the second

          12    one-third, the third year you're going to get

          13    the census every three years.  And that's

          14    correct if the frame is constant.

          15    Unfortunately --

          16              MS. FORSYTH:  Right, and response

          17    is perfect.

          18              MR. HENGARTNER:  Right.  Now, of

          19    course, the frame is moving over time and the

          20    question I have is how much does the fact

          21    that the frame is not constant over the

          22    three-year period impact their ability to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          239

           1    actually carry through this strategy?  And

           2    it's a question, not a comment.  Yes, Bob?

           3              SPEAKER:  (inaudible)?

           4              MR. HENGARTNER:  Yes.

           5              SPEAKER:  Or do we wait 'til the

           6    end?

           7              SPEAKER:  No, go ahead.

           8              MR. HENGARTNER:  No.

           9              MR. HILL:  No, I sort of have an

          10    answer.  Maybe he's got it, too.  I remember

          11    some of the discussion last time on this

          12    cutoff.  I'm actually glad to see you're

          13    going to a sample.  I remember that was part

          14    of our discussion.

          15              I think the unstated issue is that

          16    the response -- the number of responses from

          17    the smaller producers is less likely, so that

          18    you're getting good responses from the large

          19    producers, but fewer responses from the

          20    smaller group.  Yes, so by cutting it in

          21    thirds you're getting -- of the group that's

          22    less reliable, you're getting less data from

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          240

           1    that group.

           2              MS. FORSYTH:  Per year.

           3              SPEAKER:  Working harder to collect

           4    that data.

           5              MR. HILL:  Per year.  Per year.

           6              SPEAKER:  Yes.

           7              SPEAKER:  But you're getting better

           8    data.

           9              MR. HILL:  Yes, there might be some

          10    sort of optimal way of trying to predict

          11    where that cutoff occurs, if there's an

          12    associated cost or a benefit to the surveys.

          13    And I don't know if you can do that or not.

          14    And you may be able to come up with an

          15    optimal -- I guess that's part of your

          16    comment, that there is I guess zero if you

          17    don't want to do as few as possible, zero is

          18    the (inaudible) as few as possible under some

          19    sort of constraints.  So the question is what

          20    sort of constraint can you find that'll give

          21    you an optimal?

          22              MR. SCHNAPP:  As I say on my stamp,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          241

           1    I'm not a statistician, I'm just a poor

           2    economist, so I kind of look at things a

           3    little bit differently than everybody else

           4    does.  But let's see, starting at the top

           5    here, merging is a good idea, very good.

           6    Okay.

           7              Is the budget an issue?  I mean,

           8    certainly it's always an issue, but the idea

           9    is we want to be able to get back to doing

          10    analysis.  Our group really hasn't done any

          11    serious analysis, feature articles, analysis

          12    reports, in about five years.  And that's

          13    because we have to move -- because we

          14    increased the amount of data that we were

          15    collecting, we lost resources, and so

          16    everyone was moved over to the data side and

          17    we're trying to carve back out resources to

          18    do analysis.  So whatever we can save

          19    anyplace will really be a plus we think to

          20    all of EIA because we'll be able to do those

          21    kinds of independent analyses again.

          22              Why separate out the fuel and the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          242

           1    CHP plants?

           2              Because when we get asked the

           3    question by Congress how much -- among

           4    anybody else, how much fuel do you

           5    use -- does the United States use to produce

           6    electricity, we feel we need to split out the

           7    amount of fuel for electricity and the amount

           8    for use of thermal output.  Is it elegant?

           9    No, but we think that we need to do that in

          10    order to be as accurate as we can to explain

          11    how much fuel is used for electricity

          12    generation.  Our efficiency's gone up when

          13    you're a CHP plant versus just an electric

          14    power plant obviously, and that gets shown in

          15    the data.  It's certainly there.  But we

          16    think we need to split out those fuels into

          17    the two subcategories.

          18              Let's see here.  Okay, the downside

          19    of the Internet data collection system.  It's

          20    not quite as easy as it might sound.  We used

          21    to stuff 35,000 envelopes.  And now you press

          22    a button and you send out 35,000 e-mails,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          243

           1    except that e-mail -- when you sent out that

           2    form, if it didn't go to the right person,

           3    that hard copy piece of paper would bounce

           4    around from office to office and finally find

           5    a home.  Okay.  We need to know the exact

           6    e-mail address.  If you're off by one letter

           7    or it goes to somebody that doesn't work

           8    there anymore and they don't have this

           9    bounce-back because some them don't they

          10    don't do away with the e-mail, they just

          11    leave it there, it's out in cyberspace.  And

          12    so that has been a problem for us.

          13              MR. HENGARTNER:  How many did

          14    bounce back from your 35,000?

          15              MR. SCHNAPP:  Well what we're told

          16    is that about 20 percent of the respondents

          17    typically change over a year, and that's

          18    about what we had.  But we're trying to do a

          19    better job of that this year, contacting them

          20    earlier.  We had some other problems as well

          21    going along, but that certainly is a problem

          22    keeping those e-mail addresses up to date.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          244

           1              MR. NEERCHAL:  And following up on

           2    those bounce-back.

           3              MR. SCHNAPP:  Right, yes.  And we

           4    call them back and we can get a phone number

           5    into the organization and find out who it is.

           6    But we'll say that our response rate, and

           7    this kind of goes to a question by Mr. Hill

           8    before, which was that the nonresponse rate

           9    for all of our forms put together is

          10    certainly less than 1 percent.

          11              I mean, on the 860, I think we had

          12    less than 40 non-respondents out of 2,700.

          13    On the 861, sales and revenue, out of 3,200,

          14    I think we're missing 19.  On 906 and 920,

          15    which had a total of 3,200 respondents, I

          16    think we're missing 20 or 25.  Yes.

          17              SPEAKER:  You put the fear of

          18    (inaudible)?

          19              MR. SCHNAPP:  Yes.

          20              MS. FORSYTH:  Does that include the

          21    things --

          22              MR. SCHNAPP:  And I'll explain that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          245

           1    in a moment, yes.

           2              MS. FORSYTH:  Does that include the

           3    ones that are, like, lost?

           4              MR. SCHNAPP:  This is everybody.

           5    Everybody that's in the frame.

           6              MS. FORSYTH:  (inaudible) answer?

           7              MR. SCHNAPP:  Yes, yes, yes.  Well,

           8    we have -- well, we're trying to get down our

           9    nonresponse strategies.  So we send them an

          10    e-mail and then, two weeks before the form is

          11    due, we send them another e-mail saying, hey,

          12    don't forget us.  The day after it was due we

          13    send them you forgot us, you need to get it

          14    in.  Two weeks later, we send an e-mail from

          15    me to a higher level person saying that your

          16    data was due and for every day it doesn't

          17    come in, you're liable to incur a fine of

          18    $2,750.

          19              Four weeks later, we send a letter

          20    from my supervisor to that last person's

          21    supervisor, so now we're up about the vice

          22    president, general counsel, or president,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          246

           1    sometimes mayor of the city, telling them the

           2    same thing, that there could be a fine.  And

           3    I've got to tell you, you get response when

           4    you say that.  We don't make up those words.

           5    It's on the front of every form that we have,

           6    EIA has.

           7              And plus, on top of that, the

           8    contract staff and the federal staff are just

           9    tenacious.  They will not let go, so they

          10    continue to follow up.

          11              Let's see.  Sure.

          12              MR. SINGPURWALLA:  Do you send them

          13    a link to like a web site that they put the

          14    answers in and then push the button?

          15              MR. SCHNAPP:  Yes.

          16              MR. SINGPURWALLA:  Push them

          17    (inaudible).

          18              MR. SCHNAPP:  Right, right, yes.

          19    Let's see here.  So there is a lot of cost

          20    anyway on the other side, on Internet.  It

          21    really is, it is.  And then you have to

          22    modify your edits and keep them up and, I

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          247

           1    mean, there's a lot of stuff going on there.

           2    But there's still a lot of payoff then

           3    because you can evaluate the edits

           4    electronically and figure out what to change,

           5    which particular 861 staff didn't, so they

           6    saw that there were a lot of failures of an

           7    edit because the number of customers changed

           8    by more than 20 percent.

           9              Well, they investigated it and saw

          10    that these were mostly the small distributors

          11    of electricity.  And so if they had 10

          12    customers and now they had 13 customers, that

          13    was outside the 20 percent ban.  So we went

          14    back and we changed that to have -- so that

          15    if you were -- you know, we defined what

          16    "small" was.  If it was small, it could

          17    change by 100 percent.  If you were medium,

          18    it could change by 50 percent, and then a

          19    large one by 20.  So that cut down on a whole

          20    host of edits that were failed and that they

          21    overrode.

          22              MR. NEERCHAL:  And most importantly

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          248

           1    I think, you're using the data entry type of

           2    labor into improving quality of data.

           3              MR. SCHNAPP:  Right, right,

           4    exactly.  Right, because we don't have to key

           5    it in.

           6              MR. NEERCHAL:  Yes.

           7              MR. SCHNAPP:  And the quality then

           8    with it coming in means it's higher.  I tell

           9    them that my goal, when I do talk with

          10    someone and they call to either complain or

          11    they call to say, hey, I like this, I tell

          12    them our goal is never to speak to you again.

          13    We want to send you an e-mail.  We want you

          14    to send me the data, press that button, pass

          15    all the edits, we're done.  We don't ever

          16    have to speak again.

          17              Let's see, the next item was, well,

          18    there are different kinds of imputation we're

          19    talking about here.  One's on the 860, which

          20    is the three-year thing we're talking about,

          21    and the other is the 906, 924, 23, we're

          22    talking about doing away with the CHPs.  So

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          249

           1    let me address each one of them.

           2              One the -- by doing the three-year

           3    process, processing on the 860, we're talking

           4    about static data.  I mean, they don't have

           5    to remember anything.  We're talking about

           6    capacity.  Their nameplate capacity probably

           7    hasn't changed over the past three years.

           8    Even if it changed by a little bit, it's

           9    really not going to affect our data much and

          10    it's not going to affect any of your uses of

          11    the data much.  Again, we're talking about a

          12    third -- you know, we'd be doing that for

          13    two-thirds of the respondents, so by

          14    imputation -- you know, it's the poor man's

          15    imputation.  I look back at last year's

          16    number.  That's all that we would be doing.

          17              It's actually the imputation

          18    process we put in this year for the 40 that

          19    didn't respond; we looked back at last year's

          20    number.  How far could we be wrong?  I mean,

          21    they accounted for.00001 percent of capacity.

          22    So that's why we don't think that that's such

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          250

           1    a bad idea.

           2              On the CHP side, by not going to

           3    the -- you know, again, so these are small

           4    generators.  We just don't think we're going

           5    to be losing that much.

           6              It's not that we're not going to

           7    collect it from them.  We would collect it

           8    from them on an annual basis, so we'd still

           9    have their data.  And even if there's a

          10    growth over time, we would capture that.

          11    Again, in three years we could revisit

          12    whether we would go to them on a monthly

          13    basis.  But now, they really -- and I got to

          14    tell you, their growth has been 0 over 10

          15    years.  So we don't think it's such a bad

          16    idea, but I mean, certainly something --

          17              MS. KIRKENDALL:  But how are you

          18    going to pick up seasonal patterns?  Because

          19    some of them do have some seasonality, don't

          20    they?

          21              MR. SCHNAPP:  Well, they account

          22    for 5 percent of generation, you know.  I

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          251

           1    mean, if we're off by -- what imputation does

           2    is it figures out what the -- again, in an

           3    economist's term, my little terms here, okay,

           4    the growth rate is 4 percent.  Okay, so 4

           5    percent growth on 5 percent is .02, something

           6    like that.  Okay.  If we're off by

           7    50 percent, I mean, how much is it going to

           8    change -- how much off on generation are we

           9    going to be in the whole scheme of things for

          10    that month?  Now, that's why we're not too

          11    worried about it, only because they're such a

          12    small part of the frame, you know.

          13              Jim Knaub's imputation process does

          14    account for seasonality.  I mean, we do

          15    include that and look at the others.

          16              MS. KIRKENDALL:  Well, you do, but

          17    now you have data from guys who are in the

          18    same industry and you could say that maybe

          19    the seasonality is the same for guys in the

          20    same industry.  And now you're going to get

          21    rid of monthly data from people in the same

          22    industry, so you won't have any information

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          252

           1    of the seasonality for the same industries.

           2              MR. SCHNAPP:  Right, right.  Well,

           3    it's something that --

           4              MS. KIRKENDALL:  So you really have

           5    a lot less information to be making estimates

           6    from.

           7              MR. SCHNAPP:  Right.  We're

           8    still -- it's still an issue that we're

           9    discussing, and I might be a majority of one

          10    at the moment in that group.  We're still

          11    discussing that one.  I think that answers

          12    most of the questions.  I kind of cut across

          13    everybody there.  I'd be glad to answer any

          14    others.

          15              MR. HENGARTNER:  Thank you very

          16    much.

          17              MS. SEREIKA:  But the seasonality

          18    part, what if the -- this, again, this is the

          19    one-third that we're talking about that's

          20    sampled every --

          21              MR. SCHNAPP:  No, no.

          22              MS. KIRKENDALL:  No, actually

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          253

           1    that's --

           2              MR. SCHNAPP:  That's the CHPs.

           3              MS. SEREIKA:  Oh, CHPs.

           4              MS. KIRKENDALL:  These are the

           5    5 percent of total generation.

           6              MS. SEREIKA:  I mean, I would

           7    imagine if you sampled different people at

           8    different times of the year you might capture

           9    it, but not that same group every month, you

          10    might capture some of that seasonality.

          11              MR. SCHNAPP:  Well, I think that we

          12    would have to -- we would want somebody to be

          13    in the sample as opposed to coming in and out

          14    of the sample during the year.  It's really

          15    difficult enough just to follow them, but

          16    coming in and out is really unbearable.

          17              MS. SEREIKA:  Okay.

          18              MR. BURTON:  Can I beat a dead

          19    horse?  The point that Jae originally brought

          20    up about allocating --

          21              MR. HENGARTNER:  Mark, can you

          22    speak in the -- I can read you the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          254

           1    instruction for the microphone if you want.

           2              MR. BURTON:  After the break.  Just

           3    to go back to the point that Jae brought up

           4    originally about allocating out across the

           5    different products of the CHPs.  Not only

           6    do -- I'm not sure that I completely accept

           7    the purpose for it because these guys are so

           8    little, then it really shouldn't matter that

           9    much to the total fuel consumption.  But I

          10    can't -- it's just like any other case of a

          11    common cost in economics.  You can bound

          12    where the volumes might be by the incremental

          13    cost of conducting each activity separately,

          14    but there is absolutely no logical way to

          15    refine that allocation beyond those two

          16    boundaries.  So, I mean, in a sense, there's

          17    no way to do it right.

          18              MR. SCHNAPP:  We agree.

          19              MR. BURTON:  Okay.

          20              MR. SCHNAPP:  And (inaudible) a

          21    hard time.

          22              MR. BURTON:  Well, the truth is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          255

           1    probably right now the volumes are so small

           2    that it doesn't really matter, but if this

           3    does become a big deal in subsequent decades,

           4    then this is a problem that's really going to

           5    be pretty vexing.

           6              MR. SCHNAPP:  Yes, yes.

           7              MR. BURTON:  Was that okay?

           8              MR. HENGARTNER:  Thank you very

           9    much, Mr. Burton.  Excellent.  Any more

          10    questions?  Yes?

          11              MR. KNAUB:  Well, what about in the

          12    case of a few of the states where CHPs

          13    may -- yes?

          14              SPEAKER:  Please identify yourself.

          15              MR. KNAUB:  Thank you, sorry.  Jim

          16    Knaub, CNEAF.  What about in the case of a

          17    few of the states where some of the CHPs

          18    might be more important if we just estimate

          19    it for a few of the more -- of the few

          20    selected states where they were more

          21    important?  That maybe that would give

          22    us -- keep a foot in the door and still not

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          256

           1    very much burden, as an example.

           2              MR. HENGARTNER:  A good point.

           3    Okay, thank you very much.  I'd like to move

           4    on to our next --

           5              MS. FORSYTH:  Yes.  Actually I

           6    might be able to respond to that.

           7              MR. HENGARTNER:  Okay, sorry.

           8              MS. FORSYTH:  In a completely

           9    different context, we were doing work for the

          10    IRS that focused on specific localities,

          11    doing extra data collection in those

          12    localities.  And the localities reacted very

          13    strongly against the extra data collection

          14    being focused on them.  So there might be

          15    local political reasons to avoid that kind of

          16    strategy.  It did impact at least some

          17    aspects of the data quality.

          18              MR. CLEVELAND:  One minor point on

          19    the joint product issue.  It's not going to

          20    go away for a lot of political reasons.  We

          21    went through this in the -- there is no

          22    common -- there's no right way to do it.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          257

           1    It's completely arbitrary.  But in the '60s,

           2    when the federal government was heavily

           3    regulating interstate gas regulation and they

           4    were trying to determine how to cost

           5    interstate versus intrastate, they wanted to

           6    do it on a cost basis.  So the federal

           7    government had years of meetings where they

           8    brought people in and said, well, we need to

           9    know the different -- the cost of producing a

          10    cubic foot of gas.  Well, of course, a lot of

          11    gases produce jointly with oil.  You drill a

          12    well, out comes both.

          13              Again, it's completely arbitrary.

          14    Yet, they had to, so everyone went through

          15    back handsprings to come up with what it

          16    would cost to produce the gas.

          17              And they had lots of fights over

          18    what the right way was to do it.  But if it

          19    does become increasingly important, which it

          20    will, you're going to be stuck with having to

          21    grapple with these issues.

          22              MR. EDMONDS:  Well, just -- you

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          258

           1    know, you might just leave it as a separate

           2    category.  In a sense it's a CHP and, in one

           3    sense, you're not going to get any

           4    electricity unless you raise heat.  So in a

           5    sense it's a one-for-one.  I mean, it's all

           6    going -- you know, in a sense, it's all going

           7    to electricity in one sense.  In another

           8    sense, I'm raising the heat so it's all the

           9    electricity is free.  So you might just want

          10    to keep it as a separate category.

          11              Right now it isn't a big deal, but

          12    I think once you begin to get into these

          13    arbitrary distinctions, you may or may not,

          14    in fact, be doing full service, but if you

          15    keep it separated out and you always have a

          16    star by it, then at least you've been honest

          17    with them it's not straight up.

          18              MR. HENGARTNER:  Good.  Can I go

          19    now?  Thank you very much.  I'm sorry to have

          20    cut you off.

          21              I'm trying to keep on time.  So our

          22    next presentation is on emerging

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          259

           1    technologies, data, and NEM modeling by Fred

           2    Mayes from CNEAF and Chris Namovicz.

           3              MR. NAMOVICZ:  Okay, I guess I'll

           4    go ahead and get started here.  Bill told me

           5    that you guys were interested in learning a

           6    little bit about the renewable energy data

           7    needs that we have in NEMS, in particular the

           8    wind energy area.  So that's what I'm going

           9    to focus on today.  I'll spend a very brief

          10    amount of time talking about the wind energy

          11    market projections that come out of NEMS and

          12    sort of the importance of why wind is

          13    something worth looking at.  And then I'll

          14    spend the bulk of the presentation talking

          15    about our key assumptions and the data needs

          16    behind those.

          17              You can see the blue line, the dark

          18    blue line there is the history and the

          19    reference case, AEO projection from AEO 2006.

          20    The wind industry has seen a lot of growth in

          21    the last 5 to 10 years, going from about

          22    1,200 megawatts in the late '90s, to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          260

           1    approaching 10 megawatts today, and by the

           2    end of next year probably closer to 1,500

           3    megawatts.  However, you see that after 2007,

           4    we show in the reference case subsiding

           5    substantially and flattening off.  That's

           6    primarily due to the expiration of the

           7    federal production tax credit, which has

           8    really been a key driver behind most of the

           9    growth that we've seen in the last 5 to 10

          10    years for the wind industry.

          11              You can see the red line -- the red

          12    line shows a case that we ran on last year's

          13    AEO assuming a 10-year extension of the

          14    production tax credit.  And you can see

          15    throughout that 10-year extension period that

          16    the growth pretty much continues on the same

          17    trajectory that it is seeing today.

          18              A similar growth pattern is seen if

          19    the Congress would -- if there were a

          20    national cap on greenhouse gas emissions of

          21    some significance.  We've done several

          22    analyses of these over the last several

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          261

           1    years.  This one particular one that we did

           2    for Sen. Salazar last year, and you can see

           3    that it's a pretty significant cap.  And the

           4    contribution of wind to meeting that carbon

           5    reduction goal produces a similar growth

           6    trajectory as if you extended the production

           7    tax credit for another 10 years.

           8              I take from -- I sat in on Susan's

           9    session this morning, so most of you are, I

          10    take it, fairly familiar with NEMS.  The main

          11    thing I want to point out for how we do these

          12    projections is wind energy.

          13              Wind is an electricity resource.

          14    It's modeled within our electricity capacity

          15    expansion model.  It competes against all

          16    other forms of generation -- nuclear, coal,

          17    natural gas, whatever -- for growth and to

          18    meet growing load in the electricity market.

          19              And it's based on the 13 regions

          20    that are loosely based on the NERC regions.

          21              Like I said, that was going to be

          22    brief.  Now I'm going to spend the rest of my

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          262

           1    time talking about our key assumptions in

           2    particular.  I'll divide it into two parts:

           3    The technology assumptions, which manifest

           4    themselves within the model in terms of

           5    technology costs and technology performance,

           6    but there's also particular to wind, because

           7    of its unique operating characteristics and

           8    grid interaction assumptions that I'll also

           9    be talking about as well as some of the

          10    resource limits, the resource assumptions

          11    that go into NEMS.

          12              Now, these also manifest themselves

          13    in terms of the performance and cost data

          14    within the model, but they're trying to get

          15    at a slightly different aspect of the

          16    technology or the resource.

          17              The current costs that we're

          18    modeling for wind energy and NEMS is based on

          19    an analysis I did a couple years ago, the

          20    average cost from, say, the late '90s to the

          21    early 2000s.  It turns out to be about $1,100

          22    to $1,200 a kilowatt.  There is, however,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          263

           1    significant anecdotal evidence since 2003

           2    that costs have gone up substantially,

           3    perhaps as much as 25 percent.  Reports now

           4    are somewhere around the $1,500 to $1,600 a

           5    kilowatt range.

           6              There's not very strong agreement

           7    on why that very short-term increase

           8    has -- or why that big increase has occurred

           9    over such a short period of time.  There's a

          10    lot of people posing their own pet theories.

          11    It's increased materials cost; foreign

          12    exchange rates most -- when technology is

          13    manufactured in Europe or outside the United

          14    States, and the market is, in fact, a very

          15    international market even beyond where the

          16    technology is manufactured; supply chain

          17    bottlenecks, both in the United States and

          18    the world, but industry has been growing

          19    quite substantially and it's up.

          20              MR. FEDER:  Chris, that's a

          21    one-time expense?

          22              MR. NAMOVICZ:  This is the capital

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          264

           1    cost, the initial investment cost, yes.

           2              So because the industry's been

           3    growing so fast, it's been difficult perhaps

           4    for the industry to maintain manufacturing

           5    production capacity to meet the level of

           6    growth.  And part of that may be due to

           7    subsidy policy, both because the subsidies

           8    are propelling such fast industry growth, but

           9    also because of perhaps the structure of some

          10    of the subsidies, especially in the European

          11    market, might not encourage cost reduction or

          12    at least price reduction.  And then there's

          13    also some people, especially the developers,

          14    complaining about price gouging by the

          15    manufacturers to take advantage of all these

          16    factors.

          17              My own sense is that there's

          18    probably some truth in all of these and there

          19    may even be some factors that I don't know

          20    about or that haven't really been widely

          21    explored in the literature that are causing

          22    this.  The bottom line, though, is that we

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          265

           1    are assuming that these costs, that this

           2    25 percent cost increase is transient, and

           3    especially given the context over model where

           4    the PTC goes away and growth goes back down.

           5    We're assuming that by that time period, 2008

           6    or so, the cost will return to something

           7    closer to their long-term average of $1,100

           8    or $1,200 a kilowatt.

           9              I'll talk a little bit about how I

          10    got that number.  Starting in about 2001, we

          11    started to do the Form 412 survey, which is

          12    capacity cost essentially, what we had been

          13    sending I guess just to the public power

          14    folks, to what are called the independent

          15    power producers.  And most of -- about 90+

          16    percent of the wind industry are represented

          17    by independent power producers, so suddenly

          18    we actually had real installation cost data

          19    from this population that previously we had

          20    relied on sort of anecdotal industry reports

          21    project announcements to kind of glean a

          22    sense of where capital costs were.  We now

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          266

           1    had actual data.

           2              There are some limitations to the

           3    analysis.

           4              We had -- within the wind industry,

           5    and I don't know about the survey frame at

           6    large, but within the wind industry there's a

           7    pretty poor response rate for many years

           8    until last year.  2001 was the year of record

           9    for when the power installations and for

          10    plants in that vintage coming online.  That

          11    year, we had 1 respond representing about 80

          12    megawatts out of 1,700 megawatts installed in

          13    that year.  So obviously not only could you

          14    not get statistics from a sample of one, but

          15    you can't even report costs because then

          16    there's confidentiality in the response and

          17    you can't report a single guy if you've got

          18    to keep his identity secret.

          19              The other problem is the questions

          20    were really designed for the conventional

          21    industry, the steam plants, the combustion

          22    turbines.  And in some cases, it doesn't

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          267

           1    matter, but there are -- especially for the

           2    operations and maintenance costs and things

           3    like that.  It was very clear when I started

           4    looking at the data that there was no

           5    consensus within the respondents of what the

           6    question meant because the data was just all

           7    over the place.  And essentially it was

           8    useless because it was clear that -- and

           9    after reading the question carefully it was

          10    pretty clear that if I were a wind power

          11    operator, the only one I know about wind

          12    plant operations, I'd have trouble knowing

          13    what to put in that field as well.

          14              The biggest problem with the Form

          15    412 is that it's -- we don't do it anymore.

          16    So I'd love to deal with these other two

          17    problems in more depth, but right now I can't

          18    deal with any of them.

          19              So the other thing we were able to

          20    get, fortunately, the way the Form 412 is

          21    taken, we were able to get essentially

          22    retroactive installation cost data, more or

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          268

           1    less, so that we could get a historical cost

           2    pattern for the wind industry, which feeds

           3    into our learning curve assumptions model

           4    that we have in NEMS.  You can see from the

           5    dark blue diamonds going down here our

           6    learning curve that I developed off of our

           7    412 data.  As the wind industry frequently

           8    touts, they had, in fact, had a very

           9    substantial cost decline from the early '80s

          10    when they were a new industry.  You can see

          11    over the first 1,200 megawatts or so capacity

          12    quite a substantial cost decline.

          13              However, the other trend that they

          14    don't talk about a whole lot is really since

          15    the late '80s, when the current boom started,

          16    capital costs, at least installation costs,

          17    have been very flat, if not somewhat

          18    increasing.  You can see the sort of upward

          19    end of the hockey stick if you just look at

          20    the diamonds and not look at the best fit

          21    line there.  And that, keep in mind, does not

          22    include the data post-2003, when there are

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          269

           1    substantial anecdotal evidence that costs

           2    have gone up even further than that.

           3              As far as NEMS is concerned, for

           4    the wind industry based largely on this

           5    analysis we're assuming that wind capital

           6    costs declined by about 1 percent for every

           7    doubling of installed capacity.  However,

           8    capital costs doesn't really tell the

           9    complete story for wind, and I'm going to

          10    talk about -- spend a couple slides talking

          11    about performance, which we model in terms of

          12    wind plant capacity factor.

          13              MR. CLEVELAND:  Chris, before you

          14    go on, can I just ask a quick question.  One,

          15    have you seen -- I mean, why not just use

          16    European data where they've got a rich data

          17    set on learning curves for Spain, Denmark,

          18    and Germany?

          19              MR. NAMOVICZ:  Well,

          20    that's -- before I was able to get the 412

          21    data, I was relying on European data, which

          22    essentially because the 412 data was in

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          270

           1    pretty close agreement with what -- the

           2    trends I was seeing in Europe --

           3              MR. CLEVELAND:  Yes, I think they

           4    have progress ratios of like 85 to

           5    90 percent.

           6              MR. NAMOVICZ:  Right, but they have

           7    the same hockey stick where starting in the

           8    late '90s things started to --

           9              MR. CLEVELAND:  Right, that's why I

          10    asked the question.  So they see the same

          11    leveling off?

          12              MR. NAMOVICZ:  That's why I say

          13    leveling off and not just going up because

          14    the German data is going up, the Danish data

          15    was leveling off, the Spanish data when I

          16    looked at it wasn't complete enough to get a

          17    sense since their industry really didn't pick

          18    up until the early 2000s.  But looking at

          19    Germany and Denmark, which were kind of the

          20    center of the industry for most of the '90s

          21    and early 2000s, it's a very consistent story

          22    up through about '97, '98, costs going way

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          271

           1    down and then hit the wall and have either

           2    stayed the same or started to go up.

           3              So from a developer's perspective,

           4    the end user customer for the wind turbine,

           5    they're not only interested in how much it

           6    costs, they're interested in how many

           7    kilowatt hours they can amortize the cost of

           8    that plant over, which is primarily a

           9    function of the capacity -- annual average

          10    capacity factor for the plant.

          11              This, of course, varies greatly

          12    from site to site.  There are a lot of

          13    factors that go into it.  There's the brand

          14    of turbine that you use.  Even within a

          15    brand, there are a dozen different models

          16    made by GE, Vestas, the two largest

          17    manufacturers, have models that are designed

          18    for particular sites.

          19              And how you arrange the turbines

          20    within the site affects the capacity factor.

          21    Obviously the climate of the region as well

          22    as the interannual variation in weather, how

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          272

           1    the climate actually plays out, makes a big

           2    difference.

           3              We're able to use the Form 906 to

           4    actually get a good sense for the U.S.

           5    capacity, what kind of -- the range, the bulk

           6    range of capacity factors, which shows a

           7    range, even for newer plants built within the

           8    last couple of years, annual averages from

           9    under 20 percent to over 40 percent, with a

          10    pretty high concentration between, say, 25

          11    and 35 with a significant number in the 35 to

          12    45 range.

          13              The main problem we have is we have

          14    a good theoretical model of what the wind

          15    resources look like and engineering estimates

          16    of what capacity factors we can expect out of

          17    particular resource areas.  But we don't yet

          18    have a good way of matching individual sites

          19    to our theoretical model to say, oh, well, a

          20    plant in what we call a Class 4 really gets

          21    in this range and a plant in Class 5 really

          22    gets in that range.  So that's an area that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          273

           1    there's probably data available to do this if

           2    we could afford to -- you know, if somebody

           3    wanted to go out and actually do it, and it'd

           4    be useful to do.

           5              The capacity factor, however, also

           6    changes over time.  Many people wonder if

           7    capacity factor is just a function of wind

           8    resource, how is it possible that capacity

           9    factors are really improving over time?  And

          10    in fact, capacity factor is a design

          11    parameter, an engineering function.  The only

          12    real hard theoretical limit is you can't have

          13    more than 100 percent capacity factor.

          14              But in theory, if you took, say, a

          15    blade off of a 2-megawatt machine, which is a

          16    pretty standard machine nowadays, but

          17    attached it to a 1-kilowatt turbine, any

          18    slight movement of that blade is going to

          19    fully load that 1-kilowatt generator.  And if

          20    you made the blade light enough and the

          21    gearbox light enough, you could get the blade

          22    to move in any slight wind and you could

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          274

           1    easily see where you could be getting a 90 or

           2    a 95 percent capacity factor out of a

           3    theoretical situation.  Obviously, though,

           4    it's highly uneconomic to be spending so much

           5    money on a blade and a gearbox to get such a

           6    small amount of electricity production.  So

           7    that's why the economic balance tends to be

           8    in the 35 to 45 percent range.

           9              However, we do model capacity

          10    factor growth as a function of the capacity

          11    installment, similar to the way we model

          12    capital cost declines.  So we're trying to

          13    capture this as well.  What we don't have a

          14    good model of and would be a nice data

          15    analysis to try and do, and something I've

          16    thought about a lot in the last couple years,

          17    is there's this internal -- trying to model

          18    the internal economic trade off that goes

          19    into determining whether you take an

          20    improvement in blade technology and you pass

          21    along the savings in terms of reduced capital

          22    costs or you pass along the savings in terms

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          275

           1    of improved performance, which really seems

           2    to be the way the industry has gone in the

           3    last few years.

           4              The final set of technology

           5    characterizations I'll go into is how the

           6    technology interacts with the grid.  A lot of

           7    people use the term "intermittent resource"

           8    to talk about wind power.  The wind industry

           9    doesn't like the term "intermittent" anymore.

          10    They want to use the term "variable."  All

          11    capacity is variable and all capacity is

          12    intermittent for that matter.  The key here

          13    is that it's not -- unlike the intermittency

          14    and variability of a natural gas-fired

          15    combustion turbine, this is not under

          16    operator control.  It's based on the weather

          17    obviously.

          18              We model three main system impacts.

          19    The other thing that people like to talk

          20    about is the cost of intermittency.  And

          21    these impacts are not really what you'd think

          22    of as costs.  They can manifest themselves as

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          276

           1    costs only to the extent that you're willing

           2    to pay to bring the value of your product to

           3    be comparable with the value of a

           4    dispatchable commodity.  Really what they are

           5    is reductions in value of your electricity

           6    relative to the value of other generated

           7    electricity.

           8              MR. CLEVELAND:  So Chris, can I

           9    just stop you there?  So then you're not in

          10    the business of trying to estimate what these

          11    ancillary -- I mean, there's a lot of people

          12    who are trying to actually measure all those

          13    ancillary costs.

          14              MR. NAMOVICZ:  The bottom line is

          15    that it's a reduction in value.  The only way

          16    you have a cost is when you try and make the

          17    assumption that you have to make the value of

          18    the wind the same as the value of everybody

          19    else, and in the real world that hasn't been

          20    the case.  There are some things that are

          21    sort of, okay, well, if you need to have

          22    more -- and I'll talk about them a little

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          277

           1    bit, a little bit, regulating reserves, maybe

           2    there's a cost.  Those actual costs in the

           3    sense of how you would have to necessarily

           4    reconfigure system operations the literature

           5    shows are fairly small.  But the big picture

           6    things that really have an impact on how you

           7    model wind are really value.  And that's, in

           8    essence, how we model them, as impacts on the

           9    value of wind.  You know, reduced relative to

          10    the value of dispatchable generation.

          11              Now, all of these impacts sort of

          12    increase in magnitude as the wind gets higher

          13    and higher penetration on the grid.  The

          14    first one I'll talk about is the reduced

          15    value of energy.  This is really I think the

          16    biggest impact of all and it's probably one

          17    that's talked about least, but it's also,

          18    fortunately, the one that's probably modeled

          19    the best and we have the best data on.

          20              For those of you who are not

          21    familiar -- oh, and by the way, the reduction

          22    in value of energy is due to the fact that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          278

           1    the wind isn't always blowing when there's

           2    demand for power.

           3              For those of you who are not

           4    familiar with the load duration curve, that's

           5    essentially what I've established here based

           6    on a model run of several years ago.  The

           7    idea with the load duration curve is if you

           8    take the hourly load from every hour of the

           9    year and then sort of the X axis, instead of

          10    it being time-wise, to be sorted from highest

          11    load to lowest load.  You get something that

          12    looks like that.  And I superimposed that for

          13    each hour that we model, essentially the

          14    dispatch stack, which shows from lowest value

          15    to highest value or lowest cost to highest

          16    cost, the types of capacity that might be

          17    dispatched to meet that demand.

          18              And you can see the big gray blob

          19    in the middle is coal.  The very light green

          20    at the very bottom is wind.  Most of the wind

          21    power, and this is really where I want this

          22    to work, is if you look from about 50 percent

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          279

           1    to 100 percent of the hours, that's where

           2    most of the wind power is being generated in

           3    this year.  And that's all coal setting the

           4    value.  Coal has a very low fuel cost, which

           5    is really the value going to the wind is the

           6    fuel cost of what's being dispatched.

           7              There's a significant amount of

           8    wind being dispatched with this natural gas.

           9    But the other thing you notice, if you

          10    imagine doubling the magnitude of that green

          11    bar at the bottom, the light green bar,

          12    you're going to displace what's at the top.

          13    And so this area's sort of -- towards the

          14    left, but not at the very left, that light

          15    pink area is going to go away when you double

          16    the wind value.

          17              So all of a sudden, you have even

          18    less of the value going to wind being

          19    determined by natural gas fuel as you

          20    increase penetration.  And that's what I mean

          21    by not only does wind have less value than

          22    other dispatchable fuels because it's not

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          280

           1    blowing when you want it to, but as you

           2    increase penetration on the grid you're

           3    further reducing the energy value of wind on

           4    the grid.

           5              The next one I'm going to talk

           6    about is contribution to reserves.  This is

           7    frequently capacity credit.  People often

           8    wonder, well, if wind is an under-operator

           9    control, how can you say that it has any

          10    contribution to grid reliability operations?

          11    And the bottom line is no type of capacity

          12    has perfect reliability.  Combustion turbine

          13    might be available 95 percent of the time,

          14    which means that 5 percent of the time when

          15    the grid operator calls the plant operator up

          16    and says, okay, we want you to turn on, he'll

          17    say, sorry, we've got a problem and we can't

          18    turn on.  Wind, it just so happens, instead

          19    of being 5 or 10 or 15 percent of the time,

          20    it's 50 or 60 percent of the time.  But

          21    still, that means that there's 40 or 50

          22    percent of the time that wind is available

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          281

           1    when it's needed.

           2              The problem with wind is as you

           3    increase wind penetration on the grid, you

           4    sort of are decreasing that value.  These

           5    normal distributions that I've put in order

           6    show sort of the total system availability

           7    distribution curve for the total system of

           8    this, you know, not-so-imaginary region as we

           9    model it in NEMS.  And you can see with no

          10    wind, the dark blue curve on the left, you

          11    know, has maybe a 48 gigawatts of average

          12    availability for the system.

          13              And as you increase wind, you know,

          14    2.5 percent of capacity, et cetera, you're

          15    essentially proportionally increasing the

          16    peak of that curve.  But the grid operator

          17    from a reliability perspective doesn't care

          18    about the peak.  They don't want the lights

          19    to be on 50 percent of the time when you flip

          20    the switch.  They want the lights to be on

          21    99.999 percent of the time when you flip the

          22    switch.  So what they're really interested is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          282

           1    this far left tail.

           2              And you can see as you go from the

           3    blue dotted line to the green dotted line to

           4    the orange and red dotted line, which are

           5    almost essentially indistinguishable because

           6    they're so close to each other on that, those

           7    get compressed as you get more and more wind

           8    penetration.  That's because these

           9    distributions are getting flatter and

          10    flatter.

          11              And the reason for that is because

          12    the first two wind plants on the system can

          13    be as far away from each other as they can

          14    within this region, and there's not much

          15    chance that they're going to see the same

          16    weather front pass by these two plants at the

          17    same time or within a time frame of interest,

          18    say within two or three hours of each other.

          19    You put the third plant in, well, it's

          20    necessarily going to be closer to either one

          21    of those two.  And as you get more and more

          22    plants, they're necessarily going to be

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          283

           1    spaced closer and closer together, increasing

           2    the odds that within a time frame of interest

           3    you have a weather front passing over two or

           4    more plants at the same time, thus creating,

           5    you know, outages and increases at the same

           6    time.  And your standard deviation goes up

           7    and you flatten out your distribution.

           8              We have a decent model for this.

           9    What we need is better data.  We're kind of

          10    basing our data on the spatial-temporal

          11    relationship on, you know, some wind that was

          12    collected for one state.  It'd be nice to get

          13    it for 50 states.

          14              The flip side to the peak load

          15    reliability issues are the off-peak liability

          16    issues.  This is what I call surplus wind

          17    curtailment.  This is actually an issue that

          18    pops up in Denmark, which is sort of the

          19    leading country from penetration of wind or

          20    at least was a couple of years ago.  I think

          21    it still is in terms of the utility control

          22    area.  In Denmark, they actually have a lot

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          284

           1    of wind and they have a lot of CHP units that

           2    are providing district heat at their local

           3    villages.  So on a cold, windy night you have

           4    these CHP units running full blast because

           5    everyone wants to keep warm, but other than

           6    that you don't have much electrical load.

           7              And then if you have the wind pick

           8    up, all of a sudden you have a lot more

           9    electricity on the system than you need.

          10    What they do in Denmark is they're tightly

          11    integrated with the Scandinavian grid and

          12    they just back down the hydro plants

          13    operating in Norway and everything's

          14    hunky-dory.

          15              But in the U.S., or at least as far

          16    as NEMS is concerned, we're modeling more

          17    self-contained electricity markets, where

          18    there might be limited opportunities for this

          19    kind of exchange.  But in the U.S., you don't

          20    have a lot of the CHP units, but you do have

          21    a lot of steam units and coal and nuclear

          22    plants that, you know, can't operate below a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          285

           1    certain operating threshold, and you don't

           2    want to shut them off very quickly because

           3    then they take forever to turn back on.  And,

           4    you know, to accommodate a 3-hour surge in

           5    wind you have to take a steam plant offline

           6    for 12 hours.  It's probably not such a good

           7    idea.

           8              What we're modeling is the decision

           9    the operator's going to make is to flip the

          10    switch on the wind.  It's no big deal to flip

          11    the breaker on the wind plant and take, you

          12    know, this turbine offline or that whole

          13    plant offline for two or three hours, then

          14    you switch it back on and they can operate

          15    again.  The cost to the system is really the

          16    cost to the wind operator and the opportunity

          17    cost.

          18              He's got all this potential to be

          19    generating this power and can't put it

          20    anywhere.  And so we use essentially the same

          21    spatial-temporal data that we use for the

          22    reliability model to model this aspect as

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          286

           1    well.

           2              There are a couple of other

           3    grid-related issues that we don't model

           4    explicitly in NEMS at least.  The one that

           5    people talk about is power quality.  This is

           6    something that's really being addressed by

           7    the technology that's available and has been

           8    available for the last five or more years.

           9    So, in effect, we're implicitly including the

          10    solution to this problem in it since we're

          11    using actual historic cost data for wind

          12    power.  It's assumed that, you know, the

          13    technology that will address this is included

          14    in the cost at the wind plants.

          15              The issue that was raised here,

          16    regulating reserves, the idea that you're

          17    going to have to change the real-time

          18    operations.  Unfortunately, that's at a time

          19    scale that we're not really equipped to model

          20    within NEMS.  The studies that have been done

          21    that I've seen suggest that at least moderate

          22    or even significant penetration, the costs

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          287

           1    are modest enough that I would still

           2    ultimately like to get some model in here,

           3    but that's not one of my higher priorities,

           4    you know, in terms of modeling.

           5              Now I'm going to focus some more on

           6    wind resources.  I like to call them the

           7    three Rs of wind resources are remoteness,

           8    roughness, and restriction.  The upper map

           9    here shows the sort of original wind resource

          10    model that was developed by DOE maybe 20

          11    years ago.  They've since updated that.

          12              We're using most of their updated

          13    data, but that gives you a good idea of sort

          14    of how it looks.  It hasn't changed except

          15    it's more detailed than that.

          16              And then the bottom one is the

          17    transmission data that we use, and I'll talk

          18    about that on the next slide because that's

          19    related to the remoteness of wind.

          20              With coal or nuclear or natural

          21    gas, not only can you bring the fuel to the

          22    plant, but you can also bring the plant to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          288

           1    the load if you need to, if that's what's

           2    cost-effective.  There are certainly plenty

           3    of mine-mouth coal plants that, you know,

           4    they bring the electricity from the plant to

           5    the load or from the mine to the load, but

           6    there are also plenty of coal plants and

           7    other plants that they bring the fuel to the

           8    load for when you don't have a choice.  You

           9    can't decide what's economic to do.  You've

          10    got to generate the electricity where the

          11    wind is.

          12              That's going to require a couple of

          13    things.  One, it's going to require that you

          14    need to built a new transmission line to get

          15    from wherever your ridge with the wind is to

          16    the existing transmission.  And then there

          17    may be spare capacity in that existing

          18    transmission line, but there's not unlimited

          19    spare capacity.  At some point you're going

          20    to saturate that.  You're going to have to

          21    build more long-distance transmission to get

          22    from that existing line to the load.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          289

           1              We have a pretty good handle on

           2    modeling this first step of getting to the

           3    transmission line.

           4              And right now we've sort of just

           5    started a study this summer with a contractor

           6    to try and use some work that the National

           7    Renewable Energy Laboratory has done to model

           8    this long-distance transmission issue.  So

           9    I'd like to say we have a good handle on it.

          10    It's probably more accurate to say we're

          11    trying to get a better handle on it right

          12    now, but the work isn't done yet.

          13              The roughness issue, you can see

          14    this picture of myself and some of my

          15    colleagues at a site in West Virginia.

          16    Hopefully, it helps to illustrate some of the

          17    roughness ideas.  The best wind sites tend to

          18    be on mountain ridges, hills, slopey land.

          19    It's difficult and expensive to bring heavy

          20    construction equipment up to these areas, set

          21    them up so that they're level and stable, and

          22    build your plant.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          290

           1              The other issue is simply that, you

           2    know, it's one thing -- the blades on modern

           3    machines are literally as big as the fuselage

           4    of a 747, and they're only getting bigger

           5    soon.  You know, a couple years ago, it was,

           6    well, one blade was as big as the wing on a

           7    747, now it's they're as big as the body, and

           8    soon it'll be one blade is as big as the

           9    wingspan of a 747.  And they're not modular.

          10    The blade has to be manufactured and

          11    transported whole.

          12              And I actually saw one of these

          13    parked along the side of an interstate once.

          14    They're bulky to transport even on an

          15    interstate, but you get on a small mountain

          16    road, especially a small town that you might

          17    have to turn a corner in, and suddenly you've

          18    got to worry about moving all the

          19    streetlights back 100 feet from the side of

          20    the road temporarily so you can turn the

          21    corner and then paying to move them back.

          22              And you have 50-ton equipment,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          291

           1    50-ton cells, which is where the generator is

           2    located, that have to be transported across

           3    these one-lane rural bridges, so you might

           4    have to actually pay to put in a new bridge

           5    to accommodate your -- you know, heavy load.

           6              There's not a lot of analysis that

           7    have been done on this, at least that's

           8    useful, in terms of NEMS modeling, but it's

           9    something theoretical.  I think there might

          10    be data available.  It might just be a

          11    question of sort of going out and trying to

          12    find the best available data, you know, and a

          13    good analytic technique to make it useful to

          14    NEMS.

          15              The final R I'll talk about is

          16    restrictions.  There are a number of legal or

          17    technical restrictions that we model

          18    explicitly in NEMS by excluding certain

          19    lands, including, like, national parks, areas

          20    near airports, urban areas, highly sloping

          21    lands, like 20 percent grade lands.  They're

          22    just outright excluded from our land resource

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          292

           1    database.  However, there's plenty of other

           2    remaining land that doesn't fall under one of

           3    these legal or technical exclusions.

           4              And our working assumption is that

           5    it's not going to be the same cost.  There's

           6    not a uniform cost to exploit all the

           7    remainder of this land.  You know, anecdotal

           8    evidence has shown that there's a

           9    regional -- in some places there's a regional

          10    economic pull to get wind power in a region.

          11    These tend to be rural areas with depressed

          12    economies or, you know, not-growing economies

          13    that they really want to have a good, you

          14    know, steady -- the farmers want to have a

          15    good steady income stream.  They want to have

          16    some jobs in their community.

          17              There are also some, you know,

          18    regions that have shown a significant

          19    economic push.  These tend to be what I'll

          20    call the exurban areas, where you get a lot

          21    people that just moved out from the cities or

          22    the near-in suburbs and wanted to enjoy the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          293

           1    nice bucolic setting and don't really

           2    appreciate having these industrial-grade, you

           3    know, 100-meter tall towers looking out their

           4    back window.

           5              And related to that there are also

           6    the areas, like the one on the previous page,

           7    near West Virginia, which is near a touristy

           8    area that people go to commune with nature or

           9    whatnot.

          10              And once again, there's some

          11    question as to whether it's good for the

          12    tourist industry to have these big

          13    industrial, you know, very prominent machines

          14    out there, whether that's going to attract or

          15    repel tourists.  There are some people that

          16    in fact claim that these wind farming areas

          17    have turned into tourist traps.  People come

          18    out to see them.  Of course one wonders also

          19    what the saturation point on that is.  You

          20    know, if we have a 100 gigawatts of wind in

          21    the United States and they're everywhere,

          22    there's not going to be much tourist value in

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          294

           1    a wind plant in your backyard.

           2              The other thing that gets a lot of

           3    attention is noise and bird kills.  These are

           4    more site-specific issues.  The bird and bat

           5    issue is something that has popped up in a

           6    few prominent places, but given the almost 10

           7    gigawatts of wind power that's out there in

           8    America, it might be an issue affecting maybe

           9    500 megawatts of capacity.

          10              Noise is something that there are

          11    rare instances where people have complained.

          12    If you've been to a modern wind farm, they're

          13    not noisy, but I could certainly not argue

          14    with somebody that lived nearby.  And even a

          15    very faint, whoosh, whoosh, whoosh

          16    constantly, day and night, might be a little

          17    bit annoying.

          18              There have been actually quite a

          19    number of studies on a lot of these, but they

          20    don't provide a lot of good statistical

          21    basis.  They don't really look at costs, per

          22    se, and that's what we really need to put in

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          295

           1    our model is cost.

           2              So how do we model these Rs?  Well,

           3    like I said, there are a couple of them, like

           4    the distance to grid, some of the legal or

           5    technical restrictions that we have a pretty

           6    good handle on modeling explicitly.  The

           7    remainder we have this sort of catch-all

           8    thing called a long-term cost adjustment

           9    factor.  These are based on some 10-,

          10    15-year-old studies that really are just

          11    designed by some region or state to get a

          12    general idea of what the economic potential

          13    of their state was.  And we kind of

          14    guesstimated from that.  Okay, well, this

          15    must be -- if they're not economic, what are

          16    the reasons why and what does the

          17    non-economic supply look like?

          18              Right now we're trying to get a

          19    real good handle, like I say, on these

          20    long-distance transmission costs because we

          21    feel that of this sort of implied supply

          22    curve that represents the low-end cost that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          296

           1    will really be coming into play with the next

           2    10 or 20 gigawatts of wind capacity.

           3              And it's also, fortunately, the

           4    area where there's existing data and

           5    analytical techniques that we're able to take

           6    advantage of.  But in some of these carbon

           7    constraint scenarios we might be getting into

           8    areas of the curve where we're concerned

           9    about some of these other factors such as the

          10    roughness or the restrictions, the non-hard

          11    restrictions that it'd be nice to get some

          12    good data on.

          13              So that's about all I have to say.

          14    The bottom line is wind power isn't very big

          15    now.  It's been growing a lot.  We don't show

          16    a lot of growth in the reference case,

          17    primarily because of policy, but we do have a

          18    lot of policy cases that we have run or are

          19    asked to run where wind is a significant

          20    player.  So it's important that we try and

          21    get a better handle on some of these cost

          22    impacts.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          297

           1              Unfortunately, some of the things,

           2    like the NIMBY factor, it might be impossible

           3    to get data on until after the fact.  You

           4    don't really know that a community's going to

           5    want or not want a wind plant until you go

           6    out and propose one.

           7              And so until you have a good sample

           8    of not only hundreds, thousands of proposals

           9    and rejections or acceptances, but somehow

          10    have been able to track all of these and sort

          11    of figure out even for the ones that are

          12    accepted what cost did they have to give to

          13    the community to mitigate their impacts.

          14    Those are the kinds of things that are real

          15    difficult data challenges.

          16              And so I thank you for listening to

          17    me and look forward to any input you can

          18    provide on helping me get a better handle on

          19    some of the data issues.  You know, take your

          20    pick, there's a lot to choose from.

          21              MR. HENGARTNER:  Thank you very

          22    much, Chris.  We have two ASA discussants,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          298

           1    Walter Hill and Neha Khanna.  Walter, you

           2    want to go?

           3              MR. HILL:  Yes, although I don't

           4    have -- it turns out I have very little to

           5    say from the paper.  There were a couple of

           6    times you have comments that there's not

           7    enough data, so you have to collect more data

           8    and then the presentation I think that's come

           9    out, pick one or two times when I've noted

          10    that.

          11              You mentioned (inaudible) doing

          12    performance standards, you're looking for

          13    more data.

          14              If it comes, that's good.  Well, if

          15    it doesn't come, that's bad.  Yes, if it

          16    comes, that's good.

          17              You also note points of generation.

          18    And actually maybe you did mention it in the

          19    talk, wind plants in Texas.  You're looking

          20    for data there.  You're not sure what works

          21    or what doesn't work.  If you get a better

          22    model, that's fine.  If you have a better

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          299

           1    example, that's fine, too.  So you're looking

           2    for data at that point?

           3              MR. NAMOVICZ:  Yes.

           4              MR. HILL:  And the third --

           5              MR. NAMOVICZ:  We're looking for

           6    lots of data.

           7              MR. HILL:  Yes.  And similarly,

           8    you've mentioned it here whether or

           9    not -- you put up a wind farm at one point.

          10    Maybe people like that, maybe they don't, so

          11    you mentioned maybe it's a tourist

          12    attraction, which means that some people like

          13    it.  Maybe it's a NIMBY, which means some

          14    people don't like it.  You won't know one way

          15    or the other until you start having the farms

          16    up there.

          17              MR. NAMOVICZ:  Right.

          18              MR. HILL:  I can even imagine in

          19    some of the local areas, in the local

          20    counties, that you might want -- having the

          21    plants there would prevent or reduce the

          22    amount of other development there, so it

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          300

           1    might be preferred over condominiums and --

           2              SPEAKER:  Jails.

           3              MR. NAMOVICZ:  Yes, that's

           4    certainly, you know --

           5              MR. HILL:  Or jails.  Yes, jails if

           6    you're --

           7              MR. NAMOVICZ:  Which sort of

           8    reinforces this trend of sort of the rural

           9    areas have the pull and the exurban areas

          10    have the pleasure because the exurban areas

          11    have a large population that want to see more

          12    development like they came to enjoy, which

          13    are sprawling suburban estates.  And they're

          14    not -- wind farms are not compatible just

          15    because you need sort of minimum setbacks for

          16    occupied structures and roads from the

          17    turbines to avoid ice throw and stuff like

          18    that.

          19              MR. HILL:  But those numbers might

          20    be good.

          21              MR. NAMOVICZ:  Yes.

          22              MR. HILL:  You might actually want

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          301

           1    the --

           2              MR. NAMOVICZ:  Oh, yes, and there

           3    are certainly a lot of areas, especially

           4    you've got all the wind plants that are out

           5    there.  And go on a site visit and talk with

           6    the people that work there, the locals in the

           7    community, and they like it, but then it's

           8    essentially by example because they already

           9    accepted the plant in their community.

          10              MR. HENGARTNER:  Thank you, Walter.

          11    Our other discussant is Neha Khanna.

          12              MS. KHANNA:  Well, let me say you

          13    have a tough nut to crack because essentially

          14    what you're doing is you're trying to model

          15    something for which there is almost no data.

          16              MR. NAMOVICZ:  Right.

          17              MS. KHANNA:  At least not in the

          18    United States.  My sincere apologies.

          19              MR. HENGARTNER:  Let me find

          20    this --

          21              SPEAKER:  When you see him walking

          22    toward you, you know you're in trouble.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          302

           1              MR. HENGARTNER:  How to use the

           2    microphone.

           3              MS. KHANNA:  So to me it seems that

           4    there are two -- well, three big issues that

           5    I don't have any solution for, I just have

           6    recommendations for you to probably keep your

           7    finger on.  And honestly, it's not going to

           8    solve your immediate problem.  And I'm sorry,

           9    but your problem is here to stay for now.

          10              But the one thing that I thought

          11    was very interesting actually was your

          12    increase in the capital costs since

          13    post-2002, 2003.  And what was even more

          14    interesting, which I didn't realize when I

          15    read the paper, but I realized when you

          16    presented it, that this is not unique to the

          17    United States.  It seems to be --

          18              MR. NAMOVICZ:  Right, it's a global

          19    industry.

          20              MS. KHANNA:  To a greater degree or

          21    a lesser degree it's there in Europe as well,

          22    which tells me this is -- even if this is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          303

           1    just a transient phase for now and your

           2    presumption is correct within NEMS, it may be

           3    a really important thing to keep track of.

           4    Because if it's just material costs that are

           5    driving this up, this could always come back

           6    again.  So we really want to know, try and

           7    find out, what was it that caused this

           8    increase in cost in terms of future upgrades

           9    to your module within NEMS because that's

          10    going to be important.  Let's not forget it

          11    even if it just goes away.  Because, like I

          12    say, it may come back, especially as wind

          13    penetration increases.  So that's just --

          14    like I say, it's not solving your problem,

          15    it's a recommendation.

          16              The only source of data it seems

          17    right now that you may have is the

          18    international market.  You know, you've got

          19    some historical evidence from Denmark,

          20    Germany, Spain.  Suddenly India is becoming

          21    another place where production of wind

          22    turbines is actually a big -- it's becoming

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          304

           1    one of the biggest leaders in manufacturing

           2    wind turbines.  They've got a plant now, an

           3    Indian company in Minnesota, and the

           4    manufacturing plants for China.  It may be

           5    something worth keeping track of.  I mean,

           6    what's going on there?

           7              In India, I don't know China as

           8    well, I can say a little bit about India,

           9    what makes wind competitive is that it goes

          10    where -- it actually is like a point

          11    generator.  It's off-grid and they sort of

          12    create a small local grid for a community and

          13    hurray, we've got electricity where we never

          14    had it before.

          15              MR. NAMOVICZ:  Yes, that's sort of

          16    on the tangent.  It's a probably that we have

          17    in NEMS in general, but it's particularly

          18    problematic in wind is that it's such an

          19    international industry, both in terms of

          20    supply.  As you pointed out, not only are

          21    Denmark and Germany supplying a lot of

          22    turbines; Spain and now India and potentially

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          305

           1    China are all potential suppliers.  But in

           2    terms of demand the U.S. is a significant

           3    player in the world, but it's by no means the

           4    biggest demand center in the world.

           5              MS. KHANNA:  Right.

           6              MR. NAMOVICZ:  And so --

           7              MS. KHANNA:  So maybe the growth

           8    may be coming from what are currently small

           9    demand centers, but it may be worth watching

          10    what happens to the technology in those

          11    sectors to see how you could incorporate some

          12    of those trends in NEMS as a predictor for

          13    what might happen in the United States.

          14    Again, given the fact that you're dealing

          15    with something for which you really don't

          16    have much information.

          17              The third issue, which I think

          18    actually may be really important in the

          19    United States, is the issue of land

          20    valuation, agricultural communities and

          21    aesthetic valuations.  And I'm going to have

          22    to resort to anecdotal evidence here for now,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          306

           1    which is the town where I lived there was

           2    talk of them.  There was -- the university

           3    wanted to set up a small wind (inaudible).

           4    The Kyoto (inaudible) Group on campus was

           5    very active and the president had reached an

           6    agreement with the students and they were

           7    going to -- Cornell was going to try and meet

           8    the Kyoto commitments and so on.  And so one

           9    of the things they wanted to do was set up a

          10    small wind farm.  And the community turned

          11    out in hordes against it.

          12              The main reason?  Aesthetic.  The

          13    biggest thing was aesthetic.

          14              The second one was bat and avian

          15    issues, which I don't know actually

          16    applicable to this particular site, but in

          17    general it's a big thing.  And the Audubon

          18    Society has made big statements about it, so

          19    everyone latches onto that.

          20              And the third thing, which maybe

          21    because this was a university town with lots

          22    of people with advanced degrees and ways to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          307

           1    spend those degrees, was subaudible noise.

           2    They had all kinds of research on how

           3    subaudible noise is very detrimental to human

           4    health, potentially.  And voom, Cornell

           5    immediately cut back on its study -- on its

           6    proposal.

           7              It's anecdotal evidence, but I

           8    think actually, in the United States, these

           9    might become big issues.

          10              MR. NAMOVICZ:  Yes.

          11              MS. KHANNA:  And it may be worth

          12    tracking.

          13              MR. NAMOVICZ:  Yes, I've been

          14    tracking the Ithaca one when I heard there

          15    was some movement there.  But there

          16    is -- when we first started working on this,

          17    there was a whole web site by this woman in

          18    Wisconsin that was just livid about the

          19    proposal to put in some wind turbines near

          20    her house and they raise all the same sort of

          21    issues.

          22              MR. CLEVELAND:  Well, the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          308

           1    penultimate example is the Cape Wind farm in

           2    Massachusetts, which is -- you know, I've

           3    been following closely because it's in my

           4    backyard.  So this is 130 turbines, first

           5    major offshore wind farm in the United

           6    States, private developers.

           7              MR. NAMOVICZ:  It won't be the

           8    first.

           9              MR. CLEVELAND:  What?

          10              MR. NAMOVICZ:  It won't be the

          11    first when it happens, if it happens.

          12              MR. CLEVELAND:  That's right.

          13              MR. NAMOVICZ:  There'll be a couple

          14    ahead of it I think.

          15              MR. CLEVELAND:  You know, and you

          16    have a state where you have the two senators

          17    who have about the best environmental voting

          18    records in the Senate, one who came out

          19    opposed to it, adamantly -- Kennedy -- and

          20    the other guy who's running for president,

          21    who waffled his way through the whole

          22    campaign about it.  Because the fact that,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          309

           1    you know -- I mean, Teresa Heinz has a house

           2    in Nantucket Harbor, you know.  So they'd be

           3    sitting out there looking at these turbines,

           4    and it's all about aesthetics and sighting.

           5    And in the United States, that's going to be

           6    the issue, the sighting issue.

           7              MS. KHANNA:  Right, and just a last

           8    thing and I'll end my comments.  What was

           9    interesting about the Ithaca -- the episode

          10    was Tompkins County now has on its

          11    legislature a wind ordinance about all the

          12    things that a commercial developer -- they

          13    defined "commercial" as anyone who serves.

          14    If I set up a little turbine in my backyard

          15    and sell a little bit of my electricity to my

          16    neighbor, I become a commercial developer, or

          17    I could have more than I think 5 megawatts

          18    and I'd just be using (inaudible) for the

          19    university, so I'm not selling it to anyone.

          20              But there's a whole ordinance now

          21    about what you must do, all the hoops you

          22    must jump through in order to set up a wind

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          310

           1    farm, including view sheds, affecting view

           2    sheds, including informing neighbors about

           3    potential health hazards, including -- I

           4    mean, it's just this huge -- very ad hoc, I

           5    might add.  But they're actually promoting

           6    that ordinance to other counties within New

           7    York state because of the renewable energy

           8    portfolios and the push for wind in New York.

           9              But these are issues are that are

          10    going to affect you, which you're going to

          11    have to keep track of somehow, and then

          12    change things in NEMS.  But I think, again, I

          13    think the international market might be the

          14    way to start off right now to see what the

          15    experience was, but keeping in mind that

          16    preferences do vary spatially, and especially

          17    Scandinavia I think tends to be quite

          18    different in terms of its preferences than

          19    United States.

          20              MR. CLEVELAND:  But it strikes me,

          21    looking at their graphic, the economics and

          22    the technology is interesting, but this is

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          311

           1    all about policy.  Without the subsidy to the

           2    federal government, this industry would be

           3    dead in the water.  Without the feed-in

           4    tariffs in Germany and Denmark, those

           5    industries would be tiny.  And you show that

           6    in your graph, right.  Your model shows once

           7    the subsidy goes away, it essentially goes

           8    into stasis.  It actually declines and is the

           9    fraction of the total generation, right.

          10              MR. NAMOVICZ:  Yes.

          11              MS. KHANNA:  But that's in the

          12    absence of a price of carbon.

          13              SPEAKER:  Right.

          14              MR. CLEVELAND:  That's what I mean.

          15    That's what I'm saying, the real interesting

          16    story here is not so much in the technology

          17    and the economics.  It's on the policy

          18    instruments and the effect that that's going

          19    to have.

          20              And this guy, Jim Gordon, who was

          21    trying to build this wind farm in

          22    Massachusetts, he spent $20 million of his

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          312

           1    own dollars.  I had him up to BU last year to

           2    give a talk and the last question of the

           3    thing was, well, if it weren't for this

           4    1-1/2-cent a kilowatt hour subsidy would you

           5    be trying to do this?  He said, oh, of course

           6    not.

           7              MR. BURTON:  From a NEMS

           8    standpoint, do capital costs capture the land

           9    acquisitions costs as well?

          10              MR. NAMOVICZ:  No.

          11              MR. BURTON:  No?

          12              MR. NAMOVICZ:  Because -- I think

          13    at one point we said that it did, but if you

          14    look at this Form 412, as much as I could

          15    figure out, and this is one of the big

          16    questions about it not being designed for the

          17    wind industry, it's not clear on the 412 how

          18    they want wind guys to -- because they don't

          19    buy their land typically.  They lease their

          20    land and they either lease on a royalty basis

          21    or they lease it on an absolute annual

          22    payment basis, and none of that is accounted

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          313

           1    for in the 412.

           2              But the costs that we're basing it

           3    off the 412 does not seem to include land

           4    costs.  So I'll say that no, we don't include

           5    that in the capital costs.

           6              MR. BURTON:  Let me ask a follow-up

           7    question then.  As there are more of these

           8    facilities, as available lands for them

           9    become fewer and fewer, and as people have to

          10    be induced to put up with the aesthetic or

          11    health or whatever, is it foreseeable that

          12    over the next generation that land

          13    acquisition costs for the purpose of wind

          14    generation are going to escalate measurably?

          15              MR. NAMOVICZ:  Yes, and one would

          16    assume that that's sort of the biggest way

          17    that financially at least these -- you know,

          18    the cost of these alternative land value uses

          19    will come into play.  You got to assume that

          20    the guys buying land right now are getting

          21    the cheapest sites first and will get the

          22    more expensive sites later on.  But the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          314

           1    question is what goes into the cost as the

           2    costs go up.  There's the absolute market

           3    value of the land, just a farmer values it

           4    because he can produce so many acres of corn

           5    on it or whatever.

           6              MR. BURTON:  Right.

           7              MR. NAMOVICZ:  But then there's

           8    also the sort of non-economic value of -- the

           9    farmer might only give it that value, but his

          10    neighbors down the hill value having that

          11    pretty bucolic view, and that's not in the

          12    market captured in the cost that the -- you

          13    know, they're paying it for their lease.

          14              SPEAKER:  It's a positive

          15    extra (inaudible).

          16              MR. NAMOVICZ:  But it's at some

          17    point going to be captured either as a delay

          18    in sighting or as a lack of being able to

          19    sighting or as a payment that you make to the

          20    town in lieu of taxes or in addition to taxes

          21    hush money if you want to call it.  And

          22    that's been known to happen.  In fact,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          315

           1    there's issues with TV reception.  There was

           2    this other plant in Wisconsin where they

           3    actually had to pay for some houses nearby to

           4    get cable because the rotation of the blades

           5    was interfering, ghosting their TV reception.

           6              SPEAKER:  That's terrible.

           7              MR. NAMOVICZ:  There are all kinds

           8    of costs that can come up that are hard to

           9    even imagine how you capture that on a sort

          10    of national scale.

          11              MR. NEERCHAL:  I think your comment

          12    about the wind turbines being tourist

          13    attractions is probably on target.  There are

          14    more than 100 dams on the Columbia River, and

          15    I have actually gone to more than 15 of them.

          16    Other than Grand Coulee, none of the others

          17    are really attracting any significant

          18    tourists, I can guarantee that.  I think

          19    there are 150 dams I believe down the

          20    Columbia River.  And I think Grand Coulee is

          21    the only that is a significant tourist

          22    attraction.  And I don't know the numbers,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          316

           1    but I think there aren't as many people there

           2    as there are at Niagara Falls, I can tell

           3    you.

           4              MR. HENGARTNER:  Okay.  Two more

           5    comments.  Jae?

           6              MR. EDMONDS:  Just two points.

           7    One, storage units seem to be an issue and

           8    I'm presuming that you didn't have time to

           9    cover it.  But there's a -- one way to deal

          10    with a variance is storage.  And so you've

          11    got pump storage.  You've got -- you know,

          12    you've got a variety of different mechanisms

          13    for storage.  And so I'm going to presume

          14    that you've dealt with that.

          15              But I have a question that there is

          16    this winds model that Walter Short has put

          17    together.

          18              MR. NAMOVICZ:  Right.

          19              MR. EDMONDS:  And I was just

          20    wondering how the NEMS component, wind

          21    component, compares with the winds model.

          22              MR. NAMOVICZ:  Well, what Walter

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          317

           1    has done is a transmission model that he

           2    superimposed wind on.  And we don't, as Susan

           3    mentioned this morning, we don't have a

           4    transmission model.  And I think it's an open

           5    question, but I'm skeptical of that because

           6    of the run time it takes just to do Walter's

           7    simple transmission model.  I understand it

           8    takes several hours.  You know if we tried to

           9    iterate that over all of our --

          10              MR. EDMONDS:  No, no, I wasn't

          11    thinking of it of just dropping it in, but

          12    rather to look in terms of --

          13              MR. NAMOVICZ:  That's essentially

          14    what we're, hopefully, going to do if we can

          15    get buyoff from EE and NREL.  You know, we've

          16    got buyoff from NREL.  It's now a question of

          17    getting buyoff from EE.  Our contractor's

          18    going to work with Walter to kind of figure

          19    out how we can sort of parameterize some of

          20    his model costs and substitute them in for

          21    our long-term costs, multipliers at least as

          22    related to the transmission.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          318

           1              There are other aspects of his

           2    model that we sort of at the same time, in

           3    parallel, but not really working together

           4    came up very similar solutions to, like, the

           5    capacity credit.  And he models it probably,

           6    at least spatially, at a much finer detail

           7    than we do.  Temporally I think we both have

           8    the same problem, that we're dealing with

           9    very big chunks of the year and we'd like to

          10    be dealing with much finer chunks of the

          11    year.

          12              MR. EDMONDS:  Because if you do

          13    that comparison, that goes a long way in

          14    addressing the question do you have a level

          15    playing field?

          16              MR. NAMOVICZ:  Perhaps.  The

          17    comment I get in terms of the level playing

          18    field is not so much that we're doing too

          19    much to model wind, it's that the other guys

          20    aren't doing enough to model the other

          21    things.  Since I don't model the other things

          22    I won't say that that's true or false, but,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          319

           1    as Susan points out, it's sort of a question

           2    of working with what's there.  And maybe I

           3    just have -- despite the fact that I don't

           4    have a lot of data, I have a lot of

           5    analytical tools that I've been able to

           6    deduce and put into the model.  And I don't

           7    know that it's not fair -- is it a question

           8    of equity to say that if these tools aren't

           9    available for other technologies, of course,

          10    they're not using them.

          11              And the other -- nuclear doesn't

          12    have a winds model.  There's not a nukes

          13    model that I'm aware of.  Maybe there is, but

          14    the issues are different with nuclear anyway,

          15    so.  Some of them are.

          16              MR. HENGARTNER:  Last comment?

          17    Tom?

          18              MR. RUTHERFORD:  Yes, I mean, this

          19    is just a question.  Maybe I've learned that

          20    I should go and have a look at this winds

          21    model because I'm kind of curious.  If you

          22    subsidize a lot of copper to go out to where

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          320

           1    the wind fields are, which looks like the

           2    upper plains, do you have to regulate that

           3    you're not going to permit coal producers to

           4    ship electrons along those wires?  I mean,

           5    because if you only have 25 or 30 percent

           6    capacity utilization on the wind, you're just

           7    going to let the copper sit there and not do

           8    anything.

           9              MR. NAMOVICZ:  That's a good

          10    question.  The winds model does model the

          11    electric sector, so they model the trade off

          12    that coal guys are going to want to use the

          13    tower lines as well, if that's economic.  You

          14    know, somehow the wind -- the EE program

          15    people are always saying, oh, well, we'll

          16    just go in with the coal guys to build these

          17    transmissions.  I give them the same thing.

          18    I'm like, well, is the coal guy really going

          19    to want to pay for a line that he's only

          20    going to get to use 60 percent of the time?

          21    He's got to use that line 80 percent of the

          22    time to make his money back.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          321

           1              MR. RUTHERFORD:  The question is

           2    what the instrument is.  I mean, one thing is

           3    you can subsidize construction of the line,

           4    but then you also have to regulate access to

           5    the line afterwards, which is a different

           6    game then.  Other than building the line and

           7    then selling it to the highest bidder, I

           8    can't imagine that the coal guy wouldn't be

           9    the highest bidder.

          10              MR. NAMOVICZ:  Well, yes and no.

          11    The coal guy can certainly bid higher if he's

          12    able to produce when the value is high, but

          13    the wind guy, when he's producing, presumably

          14    will be able to outbid the coal guy any day

          15    because he's got a lower marginal cost.  And

          16    that means that the coal guy isn't going to

          17    want to pay for a significant part of that

          18    line that he's not going to have guaranteed

          19    access to because he's going to want

          20    all-the-time access whereas the wind guy's

          21    going to want to be able to knock the coal

          22    guy off whenever the wind is blowing.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          322

           1              MR. HENGARTNER:  Thank you very

           2    much.  Very interesting talk.  We're

           3    fortunate we still have something like a

           4    10-minute break, so please help yourself to

           5    coffee and sweets.  Thank you.  We'll

           6    reconvene at --

           7              SPEAKER:  We have sweets?

           8              MR. HENGARTNER:  I hope.

           9                   (Recess)

          10              MR. WEINIG:  Ladies and gentlemen,

          11    for the last session today we're going to get

          12    started with a moment with our fearless

          13    leader and then on to other things.

          14              MR. HENGARTNER:  Thank you, thank

          15    you.  I was saying I needed a drum roll to

          16    get our attention.  Thank you, Bill.

          17              The last session of the day we have

          18    the honor of having Howard Gruenspecht, the

          19    deputy administrator of the EIA, giving us a

          20    talk on suggestions -- or rather a report on

          21    the external study team that I think we're

          22    all looking forward.  And essentially, I hope

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          323

           1    that there's going to be some lively debate

           2    and discussion of the recommendations and the

           3    results of that study team.

           4              If anything is an indication, this

           5    morning's talk from Guy Caruso should show us

           6    that indeed there's an interest for this

           7    committee to hear that report.

           8              So welcome, Howard.

           9              MR. GRUENSPECHT:  Thank you, glad

          10    to be here.  We didn't coordinate, Guy and I,

          11    so I hope we're telling you the same story.

          12              But this is the report of the

          13    external study team, which I think was

          14    distributed to you.  Are there members of the

          15    public here?  Important question.

          16              I think people in this group kind

          17    of know a little bit about this report,

          18    probably a little background.  There was a

          19    program, this program rating assessment tool

          20    that OMB uses.  And one -- when EIA did this

          21    for the first time, I think back in 2005, one

          22    thing that OMB came up with is you have a lot

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          324

           1    of independent expert review of particular

           2    reports you work on or particular -- you

           3    know, using the right statistical technique

           4    here or using the right -- but no one's

           5    really, in a long time, looked at are you

           6    doing the right things?  And that was

           7    something they thought was necessary.  And,

           8    frankly, although I think a lot of the times

           9    we get things from OMB you kind of think,

          10    well, we have to do this because OMB requires

          11    it, I think we thought about this internally

          12    about how to do it.

          13              And you always have a choice, I

          14    guess, as to whether you answer the mail.

          15    And there are definitely things where you

          16    just do it in some kind of very perfunctory

          17    way and answer the mail and meet the

          18    requirement.  And they have a lot of red

          19    light, yellow light, green light scoring

          20    things.

          21              And you can try to get the green by

          22    answering the mail or you can try and say,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          325

           1    well, maybe this would really be a useful

           2    thing to do or we could get a lot out of it,

           3    in addition to satisfying OMB.

           4              And in the case of this

           5    external -- or the notion that we hadn't had

           6    external review, the question was how do

           7    you -- you know, do we want to just arrange

           8    something that meets the OMB requirement or

           9    do we really want to have a very serious look

          10    at it or have someone take a serious look at

          11    it real people that we respect, and have, you

          12    know -- and roll the dice, you know?  Not

          13    just go out for the -- sometimes when I read

          14    the literature, there was a description of

          15    this edition of Energy Policy coming out and

          16    it sounded -- someone said, oh, is that the

          17    Michael Grubb issue?

          18              And I always think, like, they

          19    ought to have journals in academia called the

          20    Journal of Sycophantic Results where people

          21    who believe the same thing review each

          22    other's work and publish it.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          326

           1              MR. CLEVELAND:  Well, that happens

           2    a lot, believe me.

           3              MR. GRUENSPECHT:  I know that.  My

           4    shot at academics, having been one, but then

           5    they say it's peer reviewed, you know.  Peer

           6    reviewed does not equal good.  And could

           7    easily have gotten the review of EIA that one

           8    could have been assured what the results

           9    would be, but I don't think it would have

          10    been particularly useful, you know.  So the

          11    decision was made.

          12              Now, we really want a real peer

          13    review.  We're willing to roll the dice, so

          14    to speak, not the (inaudible) house model,

          15    the other dice.

          16              And so came up with this idea,

          17    well, how do we do this?  And obviously one

          18    thing, well, go to the National Academy.  And

          19    the answer to that was no.  One, too

          20    expensive.  EIA's much too cheap even though

          21    we give you cookies.

          22              Two, I'm not convinced the National

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          327

           1    Academy stuff is very good.  Anyone on

           2    National Academy here?  Anyone else I can

           3    offend?

           4              But really, so we thought -- but we

           5    didn't want to pick out our own reviewers

           6    because that seemed like a bad idea because

           7    that seems kind of silly.  That's like the

           8    Journal of Sycophantic Results.

           9              So we came up with the notion that

          10    we'd find someone -- we'd pick a chair.  You

          11    know, you needed a prime mover, but we

          12    wouldn't pick the committee.  We'd let the

          13    chair pick the committee and create this

          14    external study team, give them a really broad

          15    charter, try to have a person who would --

          16    again, it wasn't like we were looking for

          17    modeling experts to tell us we're

          18    doing -- you know, that this -- in the next

          19    thing we're looking for modeling experts, but

          20    in this thing it wasn't like you're doing

          21    your model right or wrong or you're doing

          22    this -- this survey is done right or wrong.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          328

           1    It was more like is the breadth of the

           2    program the right stuff?

           3              And we thought we needed people,

           4    you know -- ideally we talked with -- by the

           5    way, I asked -- I approached Denny Ellerman

           6    at MIT to do this and he said no to me.  But

           7    then this is the advantage of -- Guy, of

           8    course, is more persuasive than me.  So he

           9    approached Denny Ellerman and Denny Ellerman

          10    said yes, he would chair it.  So

          11    that's -- which was great.  And that actually

          12    turned out to be a very inspired choice

          13    because Denny --

          14              MR. FEDER:  It could be the order

          15    effect, too.

          16              MR. GRUENSPECHT:  Huh?

          17              MR. FEDER:  The order effect, too.

          18              MR. GRUENSPECHT:  The older effect?

          19              MR. FEDER:  Order, order.

          20              MR. GRUENSPECHT:  Oh, odor.

          21              MR. FEDER:  Maybe if you had a

          22    second, maybe it would agree to you.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          329

           1              MR. GRUENSPECHT:  Oh, the order,

           2    not the odor, okay.  I thought, hey, maybe

           3    they're telling me something here, you know.

           4              But anyway, Denny agreed to do

           5    this, which was very good, I thought.  And he

           6    picked -- you know, we said -- again, we

           7    wanted to get people who had experience in

           8    using our stuff.  You know, we definitely

           9    didn't want people who just used the

          10    modeling, didn't want people who just used

          11    the data, didn't want people who had some

          12    government experience, people who had some

          13    energy industry experience.

          14              You go find people who'll do this,

          15    who will do this for -- you know, we'll

          16    provide them sort of a minimal honorarium

          17    because, again, oh, we're not going to do

          18    that at the -- NAS is like cheapest thing in

          19    the store is half a million dollars half a

          20    million and up for the National Academy.  And

          21    we just were not in that league.  We were

          22    more in the 100,000 and under league for the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          330

           1    whole deal.

           2              And so we kind of said find -- and

           3    he fought the committee and persuaded

           4    his -- the members he got were Paul Joskow

           5    from his institution.  He got Phil Sharp, who

           6    had been chairman of the Energy and Commerce

           7    Committee, Subcommittee on Energy and Power,

           8    back in the '80s, now the chairman of

           9    Resources for the Future, who was at the time

          10    at Harvard.  And he agreed to do this, also.

          11    Kathy Cooper, who was the undersecretary of

          12    commerce for economics and statistics,

          13    basically in charge of the Census Bureau, the

          14    Bureau of Economic Analysis, also had worked

          15    for ExxonMobil, so had industry experience;

          16    and Jay Hakes, ex-administrator of EIA, who

          17    had long experience in government, at state

          18    government, and a whole lot of -- so I

          19    couldn't even imagine that he could get these

          20    people and persuade them to do this.  And he

          21    did and it was great.  And they put a

          22    tremendous amount of time into it.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          331

           1              Again, the National Academy,

           2    sometimes I feel like the report is written

           3    by the academy staff, not by the members.

           4    No, I keep on insulting the National Academy

           5    and he's not here.

           6              But in any event, it was sort of

           7    like we thought it would be significantly

           8    cheaper than National Academy, and it was,

           9    and we'd get more real value out of it, and

          10    we did.  The members took it really seriously

          11    and they came up with this report, and that's

          12    the report that you have.

          13              And we shared it with OMB and we

          14    shared it with the department.  We shared it

          15    with our appropriations committees.  And I

          16    guess -- I mean, I'd really be here a long

          17    time, but I'll just focus a little bit on

          18    the -- you know, a summary.  You have these

          19    seven which is really written as a very tight

          20    Executive Summary, I guess; has these I guess

          21    seven recommendations or seven points.

          22              And I guess in terms of other than,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          332

           1    you know -- we're gratified that they

           2    concluded that EIA does a lot of good things

           3    and that we have a lot of authority in terms

           4    of what we do within the broad area because

           5    we really operate under this quite

           6    extraordinary general authority.  And they

           7    felt that given the resources that the

           8    selection of the "what" is they thought quite

           9    reasonable.  And that was gratifying because,

          10    again, given who these people were we thought

          11    that was -- I was pleased to get that.

          12              A real interesting question came up

          13    about our analysis -- our involvement in

          14    policy analysis and forecasting, and that's

          15    some of what you've been discussing today.

          16    And frankly, my sense is that some of

          17    the -- like, someone like a Kathy Cooper, who

          18    ran a statistical agency at commerce, you

          19    know -- what's interesting, I mean, EIA is

          20    part of the statistical -- yes, we're part of

          21    the Interagency Council on Statistical

          22    Policy, so we go to their meetings.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          333

           1              You know, there are 13 federal

           2    statistical agencies.  You know, obviously

           3    Census, but then there's the Bureau of

           4    Justice Statistics and the Bureau of Health

           5    Statistics and lots of national -- NASS, the

           6    National Agricultural Statistics Service.

           7    And what's interesting is most of them, they

           8    really -- BLS, Bureau of Labor Statistics,

           9    they just do statistics.  You know, they do

          10    some maybe analysis, but they certainly don't

          11    a lot of forward-looking projections, and EIA

          12    is set up to do that.  And the group had a

          13    rather spirited discussion of that.

          14              And the second, I guess, point was

          15    they concluded the involvement in policy

          16    analysis and forecasting is appropriate even

          17    though unusual among federal statistical

          18    agencies.  And it is unusual, frankly.  But

          19    it was -- you know, again, I thought that was

          20    an interesting discussion.  And part of that

          21    feeds into our desire to pursue the -- if

          22    they think we should say involved in it -- in

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          334

           1    other words, if you own a tractor and you're

           2    getting out of farming and the tractor's real

           3    old and kind of creaky maybe you'll just put

           4    up with it.  But if you decide that you're

           5    supposed to be in farming, then maybe you

           6    need a new tractor.  And so, in some sense,

           7    some of the discussion you've had earlier

           8    today about work on modeling sort of -- they

           9    think we should stay in this business and so

          10    we're staying in the business.

          11              And then on the general discretion

          12    they were pretty happy, on the EIA.  We're

          13    doing the right things.  But then, since this

          14    wasn't the review of sycophantic reviewers,

          15    they said there were three EIA products that

          16    have been specifically mandated by

          17    Congress -- financial reporting system,

          18    voluntary reporting of greenhouse gases

          19    survey, and the alternative-fuels vehicle

          20    survey -- that they thought should either be

          21    discontinued or transferred out of EIA.  And

          22    they think they're inappropriate activities

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          335

           1    for EIA and they divert resources from higher

           2    priority activities.

           3              And it's interesting because I

           4    guess the mental model of that is that you

           5    have a pool of resources and you can identify

           6    things that you're spending that pool of

           7    resources on that might be low priority, and

           8    you could then take those items off the table

           9    and you could then divert those resources to

          10    a higher priority activity.  But often

          11    sometimes the resources are actually tied to

          12    the particular activity.

          13              Now, I saw what this group was

          14    doing, but something like the

          15    voluntary -- I'll just give one example.  The

          16    voluntary reporting of greenhouse gases

          17    survey, that is an unusual survey for us.

          18    That's where companies take actions that they

          19    claim reduce emissions below what they would

          20    otherwise be and file reports with EIA.  And

          21    it's a program that the administration has

          22    put a great deal of weight on.  And the way

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          336

           1    the program is set up, the department's

           2    policy function writes the guidelines for

           3    this reporting program, but we're the

           4    implementing agency to receive these reports.

           5    And they kind of said, gee, this isn't like

           6    either running NEMS or it's not like

           7    collecting oil or electricity data.

           8              And they're right, but the issue of

           9    that comes up.  And when they were wrestling

          10    with it, it's not clear -- it's clear to us

          11    that the administration wants this thing to

          12    continue, that they value it pretty highly,

          13    that if it were to be moved the money to

          14    carry it out would move with it, so it isn't

          15    like you'd be able to divert the resources to

          16    higher level things.  So, again, this is not

          17    taking issue with the recommendations.  But

          18    one of the interesting things, when you get

          19    recommendations you have to think about what,

          20    you know -- that it's not just, first, we

          21    determine the level of resources and then we

          22    determine the level of resource allocation.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          337

           1    So we are struggling with some of these

           2    recommendations, but we're taking them all

           3    very seriously I think.

           4              MR. CLEVELAND:  On that point.  So

           5    would EIA be worse off if we dumped the

           6    greenhouse gas thing and the money that went

           7    with it?

           8              MR. GRUENSPECHT:  I don't know,

           9    that's an interesting question.  I mean,

          10    that's why I asked about -- I mean --

          11              SPEAKER:  You can't (inaudible)

          12    been mandated.

          13              MR. GRUENSPECHT:  That's right,

          14    it's sort of been mandated.  It's sort of ---

          15              MR. CLEVELAND:  Well, let's

          16    say -- but if you pushed hard and got it

          17    shifted to some other agency, I mean, would

          18    you be worse off for it?  I mean, no one

          19    likes to have a lower budget.

          20              MR. GRUENSPECHT:  But we were not

          21    be worse off if it were shifted.  I mean,

          22    this is like stepping out of the EIA hat, but

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          338

           1    I can be on the record.  I mean, if it were

           2    shifted out of the department -- the

           3    reason -- I happen to know why it was put in

           4    EIA.  It was before I was in EIA.  It was in

           5    1992, when they passed the Energy Policy Act.

           6              And there was a jurisdictional

           7    fight between the Senate Energy and Natural

           8    Resource Committee which wanted authority

           9    over climate issue, which is not exclusively

          10    an energy issue, but it's clearly very tied

          11    in terms of greenhouse gas emissions to

          12    energy -- although, again, there are other

          13    greenhouse gases that come from other

          14    sectors -- and the Environment of Public

          15    Works Committee, which has the jurisdictional

          16    authority over the Clean Air Act and other

          17    things.

          18              At that time, it was perceived by

          19    people in the energy industry and people in

          20    the Energy Department and people in the Bush

          21    41 administration that given their

          22    perspective they would be happier if

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          339

           1    jurisdiction or some jurisdiction over

           2    climate was in the Energy Committee.  So in

           3    the Energy Policy Act of 1992, this Title 16,

           4    which deals with climate change, was put in.

           5              Now, that committee, when they

           6    write legislation, it has to be about the

           7    Department of Energy.  When the other

           8    committee writes legislation, they write

           9    about EPA.

          10              Now, interestingly enough, the

          11    renewable fuels program is in EPA even though

          12    that's an energy thing, sort of like the same

          13    thing in reverse.  That thing was attached to

          14    the Clean Air Act the requirement to put

          15    oxygenate in fuel, which was the original way

          16    that ethanol was put into fuel.  So there's a

          17    lot of, like, stuff that doesn't make any

          18    sense, but it's hard to move stuff and it

          19    would be giving up jurisdiction that some

          20    people want energy, of which EIA is a part,

          21    to have.

          22              So that's all beyond I think my pay

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          340

           1    grade, but it's sort of a non-answer I guess

           2    to your question.  But it's awkward, you

           3    know.  It's an awkward thing and we have to

           4    deal with it somehow.  But for now, we still

           5    have it.  You know, it was in our budget.

           6              The alternative-fuels vehicles

           7    thing, I mean, the question there -- their

           8    thought there in more detail, and there's not

           9    a lot of detail in this, but you could spend

          10    a whole day discussing this report, was that,

          11    gee, most of your other programs you collect

          12    information on fuels, not on energy, not on

          13    the capital -- you know, we don't have

          14    a -- although we have consumption surveys we

          15    don't take a census of refrigerators or, you

          16    know -- the issue is not how many fuels are

          17    out there that can burn ethanol.  I mean, we

          18    know from listening to the radio commercials.

          19              I don't know if they run these

          20    commercials only in Washington or elsewhere

          21    in the country, but GM is running some set of

          22    commercials talking -- you know, classifying

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          341

           1    vehicles that can burn gasoline or ethanol,

           2    which a lot of them were built because they

           3    got extra-special credits under the CAFE

           4    requirements, but they're now classifying

           5    those as alternative-fuel vehicles.  But

           6    counting up all these vehicles as vehicles

           7    that can burn ethanol, even though none of

           8    them do their point was why are you wasting

           9    your time with this vehicle census?  Why

          10    don't you try to figure out more about

          11    renewable fuels?

          12              And I think that is actually

          13    compelling.  And unlike the greenhouse gas

          14    one, I'm probably really hanging myself here

          15    we might be able to -- all I want to say is

          16    this.  All these recommendations are very

          17    thoughtful.  We have to think about which

          18    ones we can kind of do on these three

          19    specific recommendations.

          20              Then there were more general

          21    recommendations about performing

          22    discretionary analysis and greater

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          342

           1    interaction with the broader energy research

           2    community is also recommended.  And I think

           3    that's something that's come up in this group

           4    a fair amount.  And making more of our data

           5    available for academic researchers, and

           6    that's something that I think we will be able

           7    to do and we need to do.

           8              MR. FEDER:  I have a question.  I

           9    just --

          10              MR. GRUENSPECHT:  I'm

          11    filibustering, but you can have the floor

          12    anyway.

          13              MR. FEDER:  How many hours do

          14    people put into this?  I mean, how much work

          15    has gone into preparation of this?

          16              MR. GRUENSPECHT:  A lot of work

          17    went it, amazingly much.  I mean, this is,

          18    like, to me -- I think they came in for sort

          19    of an organizational meeting.  This was the

          20    year, by the way, that Denny Ellerman

          21    was -- he had one semester in Oxford and one

          22    semester at the Sorbonne, but this was his,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          343

           1    like, reward from MIT for having been the

           2    director of their Energy and Environment

           3    Policy Center and the joint -- he also was

           4    director of the Joint Center on the Economics

           5    and Science of Climate Change.  He was

           6    director of both those centers, executive

           7    director of both those centers for, like, 12

           8    years or something.  Something like that.  I

           9    remember since the early '90s.  And he's

          10    still associated with them, but he -- they've

          11    now brought in someone else to do that.

          12              And he came in and they had an

          13    organizational meeting, like a day's worth of

          14    meetings, kind of made assignment among

          15    themselves.

          16              SPEAKER:  I think it was in July.

          17              MR. GRUENSPECHT:  In July.  And

          18    then they did obviously a lot of e-mailing

          19    back and forth.  And then they came in for a

          20    two-day meeting before Thanksgiving and did

          21    that and had pretty intensive discussions

          22    among themselves.  And then again, were

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          344

           1    constantly communicating and working on the

           2    report.  So there's been a lot of effort.

           3              MR. FEDER:  But that's just Denny,

           4    right?  What about --

           5              MR. GRUENSPECHT:  No, the others.

           6              MR. FEDER:  Oh, the others.

           7              MR. GRUENSPECHT:  No, no, they

           8    didn't come in to meet with us.  They -- we

           9    provided space for them to meet with each

          10    other.  This was not our committee.  And,

          11    frankly, some of the meetings they invited us

          12    into to ask us questions, but it was their

          13    meeting, not our meeting.  It wasn't like we

          14    were meeting with our consultants.  It was --

          15    Denny set the --

          16              MS. KIRKENDALL:  Denny set the

          17    agenda (inaudible).

          18              MR. GRUENSPECHT:  The agenda, when,

          19    who should -- you know, if they wanted us to

          20    be there so that we could -- it was a meeting

          21    among them.  In some cases, they wanted us

          22    various EIA people in there to ask us

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          345

           1    questions.  But it wasn't our meeting, it was

           2    their structure.  And Denny, I guess, worked

           3    with his fellow committee members to --

           4              MS. KIRKENDALL:  His fellow

           5    committee members didn't do as much, but

           6    Denny did a lot.  Denny really worked hard.

           7    We had an EIA support team that provided

           8    anything they wanted and we did draft the

           9    first report, but he totally rewrote it.  He

          10    did not take our words at all; he wrote it

          11    himself.  I mean and we tried to do it

          12    according to his outline, but those are his

          13    words.  He did it.

          14              MR. GRUENSPECHT:  No, it's

          15    really -- it's a very -- I thought he really

          16    put a lot into it.  And so on this --

          17              MR. CLEVELAND:  So what bad stuff

          18    did they say?

          19              MR. GRUENSPECHT:  Well, I mean,

          20    they didn't like these three surveys.  They

          21    feel like on the -- they thought the analysis

          22    was being underdone.  They thought that the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          346

           1    interactions with the outside community with

           2    the data were underdone.

           3              And that the quality of the -- this

           4    notion that the analysis -- more analysis

           5    kind of helps you, it's not just analysis

           6    being -- I don't know how to explain this.

           7              My sense of EIA, I've only been

           8    here for three years, but my sense is that

           9    some people associate the modeling with the

          10    analysis, and then the data programs as not

          11    having any analysis.  And their view was the

          12    people involved in the survey collection and

          13    survey collection of data ought to be -- even

          14    if they're not making 30-year forecasts, they

          15    need to be -- you don't understand the issues

          16    unless you're --

          17              MR. CLEVELAND:  I mean, the people

          18    who are using the data -- or collecting the

          19    data are cohabitating and working with the

          20    people who are also using it for analysis.

          21              MR. GRUENSPECHT:  Right.

          22              MR. CLEVELAND:  It's just a much

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          347

           1    richer environment.

           2              MR. GRUENSPECHT:  Right.

           3              MR. CLEVELAND:  And the two feed

           4    off each other and you get a much better

           5    product.

           6              MS. KIRKENDALL:  Yes, and they said

           7    that you shouldn't be hiring contractors to

           8    do the research.  You have your staff do it

           9    because you want to train your staff and get

          10    them to -- and build capacity in your staff.

          11              MR. CLEVELAND:  I think that's a

          12    big -- I think that's a real issue for you

          13    guys.  And I know you've -- you know, a lot

          14    of it's been budgetary, but --

          15              MR. GRUENSPECHT:  And part of it's

          16    been a resource issue.  And then the question

          17    is what do you do?

          18              MR. CLEVELAND:  The use of

          19    contractors really detracts from sort of the

          20    cohesiveness of the product envisioned.  I

          21    see that in the oil and gas thing which I've

          22    followed for 15 years.  It's become, I

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          348

           1    think -- it's been -- the quality of the

           2    work, while still very high I think has been

           3    diminished over time by the increased

           4    reliance on outside contractors.

           5              MR. GRUENSPECHT:  Right.

           6              MS. KHANNA:  If I can just further

           7    that.  I think the point of doing more of

           8    this work in- house now, the timing is really

           9    good because of the turnover coming up.

          10              MS. KIRKENDALL:  That's right.

          11              MS. KHANNA:  You're going to get a

          12    bunch of young, new people.  If they get

          13    trained around this you've got a long-term

          14    payback.

          15              MR. GRUENSPECHT:  Although, I mean,

          16    I agree with that.  I mean, and the issue is

          17    I don't think we'll keep the -- the people

          18    who come in will not have the same careers in

          19    terms of we have an incredible number of

          20    people who have been here 30 years 35 years.

          21    That's never going to happen.  I still think

          22    we should do more research, but it isn't, you

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          349

           1    know -- I mean, in that regard I don't think

           2    the people are going to be as attached to

           3    EIA, but that's no reason not to do it.  So

           4    that was a place there where I

           5    think -- although they put it in a positive

           6    way, that was a place where I think they

           7    don't think the status quo is very good.

           8    And, again, this --

           9              MR. RUTHERFORD:  Why aren't people

          10    going to make careers at EIA?

          11              MR. GRUENSPECHT:  I just think the

          12    nature of the federal employment system, in

          13    the old system in 30 years you'd get

          14    60 -- you know, the -- once you were here 15

          15    years or something, there's a very strong

          16    financial incentive to stay the rest of your

          17    career here.  I just don't think people's

          18    work lives -- it's not an EIA thing.  It's

          19    not EIA.

          20              It's just the federal pension

          21    system has changed, so it's much more of a

          22    defined contribution -- much larger defined

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          350

           1    contribution element, like a 401(k) type

           2    element, and it's much more significant than

           3    it has been in the past when the defined

           4    benefit element was a whole thing.  And I

           5    think the defined benefit element, after

           6    you've been here 10 or 12 years, you've

           7    really got a strong incentive to stay with

           8    the federal government that the people coming

           9    on now will not have.  But that's specific to

          10    the federal government.

          11              I also think throughout the economy

          12    generally, but just as a personal impression,

          13    the notion of I'll go work for IBM straight

          14    out of college and I'll retire from IBM or

          15    I'll go to work with GM straight out of

          16    college and retire from that, that just

          17    doesn't happen anymore.  People are -- so

          18    that's -- it's a combination of the specifics

          19    of the federal -- you know, now maybe EIA

          20    could be a uniquely attractive place in some

          21    ways.

          22              MR. CLEVELAND:  Well, that's the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          351

           1    whole point.  I don't think --

           2              MR. GRUENSPECHT:  And we're trying

           3    to make it as -- right.

           4              MR. CLEVELAND:  You don't need to

           5    have this longevity to -- if EIA became known

           6    as a place where this kind interesting

           7    analytical work was done --

           8              MR. GRUENSPECHT:  Right.

           9              MR. CLEVELAND:  Even if people only

          10    stayed for 5 or 10 years, you would still

          11    attract the sort of person that you want.

          12              MR. GRUENSPECHT:  Oh, absolutely

          13    and that's what we're trying to do, right.

          14              MR. CLEVELAND:  We don't --

          15              MR. GRUENSPECHT:  Right, right.

          16    And I think that's right.  And, again, part

          17    of it is a -- not a game, of convincing

          18    people -- I mean, a lot of -- it's

          19    interesting, a lot of people want to

          20    work -- young people out of college, they

          21    want to work in policy.  And I -- not the

          22    policy office, but they want to work in a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          352

           1    place that does policy.

           2              I think what a lot of times people

           3    don't understand is that if you go to work as

           4    a young person in the place that supposedly

           5    does policy, you don't do policy, you know.

           6    You carry someone else's briefcase for

           7    a -- whereas if you come to a place like EIA,

           8    I think a lot of our -- we find a lot of our

           9    younger people who really get immersed in the

          10    nitty-gritty of the oil and natural gas thing

          11    or -- they have incredible opportunities,

          12    that coming here for 5 to 10 years is

          13    actually a smarter proposition than going to

          14    do policy where you're not going to policy

          15    for 5 or 10 years.  And sort of be more of

          16    a -- perhaps more of a dilettante's

          17    credentials than a -- so I think

          18    substantively that's right.  I mean, it's in

          19    EIA's interest to make that case.  I also

          20    personally believe that it's true.

          21              And the other thing that's very

          22    frustrating is oftentimes working in other

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          353

           1    types of functions you do -- can do very good

           2    work that ends up going nowhere because the

           3    flavor of the month changes monthly.  You

           4    know, that's why it's the flavor of the month

           5    in terms of, well, politically it doesn't

           6    work sorry.  Whereas our stuff, it gets out,

           7    you know.  And that's a very positive thing.

           8    I think there are very strong things to

           9    attract good people, but we need to do that

          10    more.

          11              But anyway, this -- and then the

          12    interaction with the broader energy research

          13    community is recommended, and we plan to do

          14    that I think.  Some of this does tie to

          15    resources.  And we've talked before about the

          16    trade offs between the number of things we do

          17    versus how we do them when you want to -- but

          18    I think the prospects are much better.

          19              The -- if Congress ever acts on the

          20    FY 2007 budget, there's a -- the

          21    administration request was for a -- which

          22    started a couple days ago, the administration

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          354

           1    request was for, like, a $5 million increase

           2    for EIA, which I think is unusually large for

           3    EIA, going from, like, 85 to 90.  The House

           4    went along with the administration request.

           5    The Senate hasn't done a bill yet, but the

           6    Senate committee markup, they went for $8

           7    million above the 2006.  They added another

           8    $3 million on top of that.

           9              So the two -- the House and Senate

          10    positions on the '07 is a $5 million increase

          11    on the one hand and an $8 million increase on

          12    the other hand.

          13              The 2008 thing is just getting

          14    going, but I think there's a potential for

          15    quite a -- for the administration to suggest

          16    a further very significant increase in EIA

          17    funding.  And that will make some of the

          18    things possible, I think.

          19              Some of it will be to deliver new

          20    things.  And oftentimes, when you're trying

          21    to get resources, you have to say you can get

          22    this.  It's like if you had a house or

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          355

           1    something, you know.  If you said, gee it

           2    needs to be cleaned up or something, or the

           3    floors need to be scraped or something,

           4    that's not very, I don't know, I'll use the

           5    word sexy in some ways.  So it's hard to sell

           6    that within the process.  If you say, oh, we

           7    can give you this great new thing that's

           8    easier to sell sometimes.

           9              But I think a lot of what we need

          10    to do is actually work on the core.  So we

          11    ask for more money not because we're going to

          12    do five more surveys or because we're going

          13    to do -- but we're going to do more analysis;

          14    the same number of surveys.  We're going to

          15    work with the broader academic community,

          16    which means we've got to find a way to put

          17    our data out in data centers where the

          18    academic community can work with it those

          19    types of things.  I think there has been a

          20    receptivity to that, so the resources are

          21    coming.

          22              MR. FEDER:  So if you get another

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          356

           1    10 percent, you won't only have problems with

           2    retention, you'll need to hire quickly a lot

           3    of people to do those programs.

           4              MR. GRUENSPECHT:  We will need to

           5    hire some people.  We are hiring.  We

           6    hired -- in the last year, we probably hired

           7    close to 30, I'd say.  We are hiring them and

           8    we've actually put money in -- frankly, we've

           9    actually put money into recruitment in a way

          10    that we never had before.  I guess our view

          11    has been that the announcements you have to

          12    write these federal job announcements, I

          13    mean, those can't be used as the documents to

          14    get people interested.  Ultimately, someone

          15    who is interested will have to complete one

          16    of those -- read and complete the federal

          17    application.  But we have to prepare sort of

          18    an alternative set of recruitment materials.

          19    We actually have brought someone on to do

          20    that and are doing that and are much more

          21    active in that regard.

          22              We're recruiting our entry

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          357

           1    level -- I mean, this is really off the field

           2    of this, but it used to be that each office

           3    when they had an entry level job, which we

           4    define as, I don't know, the job set -- for

           5    those of you who know the federal government,

           6    like Grade 7 to Grade 12.  Those would be the

           7    entry level jobs.  Each office, when they had

           8    one, they put in a request to recruit for it.

           9              Now we recruit three times a year,

          10    which turned out to be the max you can do.

          11    You know, put out announcements for

          12    economists, survey statisticians,

          13    mathematical statisticians, and operations

          14    research analysts at GS-7 through 12 levels.

          15    And our thought is that when we're looking

          16    for a GS-7 through GS-12 survey statistician,

          17    we're not looking for the electricity office

          18    for someone who knows a lot about

          19    electricity, you know.  At those levels,

          20    we'll teach them about electricity.  Or the

          21    gas office, they don't need someone who knows

          22    about gas.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          358

           1              So the notion is we put out those

           2    announcements as a regular release.  We get

           3    all the responses in.  All the offices look

           4    at those certs, which are the lists of people

           5    you can hire off of, and we're finding that

           6    to be fairly effective.  And that justifies

           7    this recruitment strategy that we have in

           8    mind.

           9              So we open the announcements in

          10    October for a full month.  And then we have

          11    to close it for 30 days, because if you don't

          12    close it -- no, they're closed for 90 days.

          13    But if you don't close it for 90 days, all

          14    the people who were on the list before are

          15    automatically on the list again.  So if you

          16    want the system to flush, you have to -- so

          17    because of that requirement we can only do it

          18    three times a year.  So we do it in October,

          19    we do it in February, we do it in June.

          20              And that's the -- so there's really

          21    a plan, you know.  It's like madness and I

          22    never thought that I'd be involved in

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          359

           1    anything like this in my life, but we really

           2    are trying to do that.

           3              MR. NEERCHAL:  I think a couple of

           4    ideas generated earlier by the committee in

           5    this regard is to go to the, for example,

           6    American Statistical Association conference.

           7              MR. GRUENSPECHT:  Right.

           8              MR. NEERCHAL:  And put up a

           9    recruitment booth there or, similarly, where

          10    the -- you know, the national level meetings

          11    in economics and energy.

          12              MR. GRUENSPECHT:  Right.

          13              MR. NEERCHAL:  And find places

          14    there and put -- you know, make your presence

          15    felt year after year after year as a very

          16    good --

          17              MR. GRUENSPECHT:  Yes, and we are

          18    headed that way.  We are headed that way.

          19    But anyway, so that's that.

          20              There was an issue about IT, about

          21    remaining separate from that of the

          22    department.  That was a battle, sort of a big

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          360

           1    battle over the last few years, but that

           2    actually seems to have worked out the way

           3    that these guys would prefer it anyway, that

           4    it remains separate.

           5              And then this notion of integrating

           6    data that isn't our own data into our work.

           7    Again, that's an area where they feel we

           8    haven't done enough, that EIA could be -- an

           9    example might be the data that the

          10    independent system operators have on

          11    electricity.  Not necessarily that we bring

          12    it in, but that somebody who hits the EIA web

          13    site we should have links to the data on

          14    energy that we don't collect that is relevant

          15    to someone interested in energy data.  So the

          16    web site would become the clearinghouse not

          17    only for our own energy -- the energy data

          18    that we collect, but would also point to

          19    other sources of -- which, again, we think is

          20    a good idea and I think we will --

          21              MR. HENGARTNER:  But there is a

          22    danger in this because if you put a link on

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          361

           1    your web page, you are endorsing that --

           2              MR. GRUENSPECHT:  Right.  Well,

           3    there's a whole OMB thing --

           4              SPEAKER:  The link to the NYNEX

           5    page is not -- I mean, which is another big

           6    source of data, which you don't use, which is

           7    out there.

           8              MR. GRUENSPECHT:  Right.

           9              SPEAKER:  It's not -- you know --

          10              MR. GRUENSPECHT:  It's tricky.  No,

          11    but you're raising a good point.

          12              MR. HENGARTNER:  It's highly

          13    controversial.

          14              MR. GRUENSPECHT:  I mean, you can

          15    tell someone who's in government versus

          16    someone who's not in government.  I mean,

          17    because really there's always -- and --

          18              MR. HENGARTNER:  There's liability

          19    here, yes.

          20              MR. GRUENSPECHT:  And Nancy has sat

          21    in on these discussions with OMB about

          22    these -- you know, there are these guidelines

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          362

           1    that they put out for when you can link to a

           2    web site and when you can't and all that.

           3    But, again, I'm talking about -- these are

           4    the committee's recommendations, not ours and

           5    so there are some issues.

           6              But so I think we're at the stage

           7    where I think the report has been widely

           8    disseminated.  I think given the nature of

           9    the people involved and their experience, I

          10    think it's having some traction.  I think

          11    there's some receptivity out -- it's hard,

          12    you talk about how to separate the effects of

          13    different things.  I mean, there's more

          14    interest in what EIA does I think in part

          15    because of this maybe or in part because

          16    energy prices have been a little high how to

          17    separate the effects of what's what or making

          18    people think this is more important.  I can't

          19    say what has played what role, but I think

          20    there are lots of good things in here.

          21              I mean, maybe Guy should speak to

          22    what he thinks.  And we don't feel like we

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          363

           1    have to slavishly do each one, you know.  But

           2    I think we are -- I think they gave us a lot

           3    of food for thought just like you guys give

           4    us a lot of food for thought.

           5              MR. NEERCHAL:  Could I ask you to

           6    comment on the -- point number two, they're

           7    talking about increasing market sensitivity

           8    of EIA's data releases and the principle

           9    economic indicator status for some of the

          10    data.  Could you comment on it?

          11              MR. GRUENSPECHT:  Yes, I mean,

          12    they're talking about things like -- I mean,

          13    energy was pretty much a -- I guess when EIA

          14    got started in the mid-'70s or late '70s they

          15    really, I mean, weren't big -- there weren't

          16    giant futures markets in oil.  It was all --

          17    I mean, Bill Helkie knows a lot about this.

          18    It was all like, you know --

          19              MR. CLEVELAND:  It was just a daisy

          20    chain market.

          21              MR. GRUENSPECHT:  A daisy chain

          22    market.  There was no -- not a lot of

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          364

           1    organized markets.  All of the electricity

           2    and gas were fully regulated.  So you put out

           3    data on prices, you were really putting out

           4    data on regulated rates, which are no -- I

           5    mean, it's important to know how -- what

           6    people are paying in State 1 compared to

           7    State 2, but there wasn't anything riding on

           8    it, you know.  I mean, now, for instance, we

           9    do -- our weekly numbers on oil come out

          10    every Wednesday morning and our weekly

          11    natural gas storage numbers, which is not

          12    something we even did when EIA was created.

          13    And that's really the only data -- on the gas

          14    side, that's really the only data there is on

          15    sort of the balance in natural gas.

          16              You know, you can look at the

          17    storage inventory as the level of the

          18    reservoir.  And so, like, you can't, on a

          19    weekly basis, check how much water people are

          20    drinking and you can't, on a weekly basis,

          21    check how well the streams are running.  So

          22    you just go look at this reservoir every week

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          365

           1    and see how high it is and try to make some

           2    judgment about gas prices.

           3              And, for instance, natural gas

           4    prices it's for $14 a million BTU in

           5    December, I guess they're now like $4 a

           6    million BTU, and part of that is because of

           7    high level of gas storage.  So when this

           8    report comes out, if the consensus thinking

           9    is that it was going to add 90 billion cubic

          10    feet, but you add 108 billion cubic feet, and

          11    it's happened at a time when storage is

          12    already really high, this happened like 2 or

          13    3 weeks ago you can see -- you can watch the

          14    NYNEX thing and you can see at 10:30 blink

          15    it'll drop or it'll go up.

          16              And obviously you all read the

          17    different parts of the paper, but this whole

          18    Amaranth capital hedge fund, which collapsed,

          19    I mean, although it wasn't our goal we did

          20    it, you know.  So, I mean, that's a sense in

          21    which in the '70s there was nothing we

          22    released that had that kind of an impact

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          366

           1    because of markets.  Either they were

           2    regulated markets or no markets.  And now

           3    they're really -- you know, the amount of --

           4    but what I find interesting is you can go to

           5    the national -- I don't want to -- go across

           6    the street to NASS and they have what they

           7    call -- National Agricultural, and they have

           8    the lockup, which is like a $20 million

           9    facility.

          10              It's like a vault where they lock

          11    the people in when they're releasing the pork

          12    bellies or the wheat or the -- you know, they

          13    have what they call critical releases.  And

          14    they literally lock the people in overnight

          15    and they have, like, armed guards on both

          16    ends.

          17              And they have their own

          18    telecommunications switch independent from

          19    the Department of Energy.  And they let the

          20    reporters come into this thing so they can

          21    read the thing before the release time, but

          22    they have the telecommunications switches

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          367

           1    disconnected.  And so they can write their

           2    stories and then at 10:30, or whatever time

           3    they allow these people to -- and, like,

           4    these markets -- you know, this market for

           5    cotton is like this, whereas every week we're

           6    putting out numbers on natural gas and oil

           7    and the market is like that in terms of how

           8    many dollars are in the market.

           9              SPEAKER:  What about cell phones?

          10              MS. KIRKENDALL:  However,

          11    agricultures are called principle economic

          12    indicators and ours aren't.

          13              MR. GRUENSPECHT:  They take them

          14    away.

          15              SPEAKER:  Oh, okay.

          16              SPEAKER:  They take it away.

          17              MR. GRUENSPECHT:  Right.

          18              MS. KIRKENDALL:  So the

          19    recommendation was that we should make ours

          20    principle economic indicators.

          21              MR. GRUENSPECHT:  So the

          22    recommendation is we should treat them that

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          368

           1    way.  One of the problems is we're not --

           2    infrastructure-wise, we're not really set up

           3    to --

           4              MS. KIRKENDALL:  Well, actually we

           5    are for --

           6              SPEAKER:  This sure would be a good

           7    situation to put in your --

           8              MS. KIRKENDALL:  But we are for

           9    natural gas.  We're doing it --

          10              MR. GRUENSPECHT:  We are.  We are

          11    for natural -- for natural gas, we --

          12              MR. BURTON:  Does Congress have to

          13    make that?

          14              MR. GRUENSPECHT:  Congress has to

          15    make that.  There's a lot of history.  Again,

          16    like the story of the committee and the wrong

          17    committee, I mean NASS's --

          18              MS. KIRKENDALL:  No, OMB decides

          19    what's a principal economic indicator.

          20              MR. GRUENSPECHT:  Right, OMB

          21    decides what's a principal economic

          22    indicator, but what kind of funding you're

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          369

           1    going to get for security and the like, it's

           2    Congress, you know.

           3              MS. KIRKENDALL:  That's Congress.

           4              MR. GRUENSPECHT:  So, I don't know,

           5    but that involves that.  But effectively,

           6    these are some of the most market-sensitive

           7    numbers.

           8              MS. KIRKENDALL:  We have actually

           9    requested OMB to make our weekly natural gas

          10    storage report (inaudible) a principal

          11    economic indicator.  It's sitting on Cathy

          12    Wallman's desk now.  It probably won't happen

          13    this year.  It might happen in a year.  They

          14    haven't given that status to very many new

          15    series, so this is something they haven't

          16    done for a long time either.  I don't see any

          17    reason why they won't for that one.

          18              MR. GRUENSPECHT:  But this is an

          19    example of something that EIA didn't do at

          20    all.  We didn't collect that storage data

          21    until four years ago.  And the committee

          22    generally felt that we're doing the right

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          370

           1    thing here, but they said you should

           2    actually, given the importance of this stuff,

           3    you should actually seek the formal

           4    designation.  That is what the --

           5              MS. KHANNA:  One question.  One of

           6    the things we've talked about in the past

           7    when it comes to the market sensitivity of

           8    some your data was some of these data, I

           9    mean, there are people waiting.  There are

          10    big financial decisions that are made based

          11    on your data.  We've at least -- I don't know

          12    if we formally recommended or we talked about

          13    charging for those data.  And saying after,

          14    let's say, a 12-hour lag when the financial

          15    values data are no longer great because then

          16    they're open and available to the public, but

          17    for that instantaneous access -- about let

          18    the people who value it most pay for it.  Did

          19    the committee at all bring that up?

          20              MR. GRUENSPECHT:  No, they -- I

          21    mean, it's a lot of -- you know, obviously

          22    you raise issues.  You know, the economics of

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          371

           1    information is a very tricky thing because, I

           2    mean, if -- you know, this is always the

           3    issue with secondary dissemination of

           4    consultant reports, like if Reuters values it

           5    the most one nanosecond after Reuters gets it

           6    it's value is zero then.  It has to do with

           7    the issue of intellectual property and the

           8    economics of information.  And I think there

           9    are a lot of interesting questions, but the

          10    thought has been nobody -- OMB has sometimes

          11    raised that issue, but the committee, I don't

          12    think, raised that issue.  I guess they kind

          13    of took the approach more of the Boskin

          14    Commission or something.  There was a

          15    commission on statistics a while back, I

          16    guess in the mid-1990s, suggesting that

          17    federal investment in statistics was -- I

          18    guess the other -- I don't know.  I mean, the

          19    answer is no, I think, they did not raise it

          20    about selling it to the highest bidder.  It's

          21    worth a lot, though.

          22              MR. RUTHERFORD:  Well, I have a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          372

           1    question about the -- I think that the idea

           2    of trying to develop better sort of analytic

           3    passing a match, this survey work that's done

           4    is really a good idea.  But I can see three

           5    activities that are really useful and

           6    worthwhile activities.  I basically agree

           7    with Denny's assessment, that you're

           8    collecting data to make markets work better.

           9    You're attempting to provide information

          10    about forecasts that statistical -- what can

          11    be statistically based forecasts.  And you're

          12    also trying to produce structural tools for

          13    assessing policy questions, which is quite

          14    different from statistical forecasts.

          15              MR. GRUENSPECHT:  Right.

          16              MR. RUTHERFORD:  And that's one of

          17    the challenges I think here is distinguishing

          18    one from the other.  We have statistical

          19    bands.  You know, we have these -- we have

          20    degrees of uncertainty about forecasts, but

          21    then structural analysis for policy is really

          22    a matter of -- it's a necessary condition for

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          373

           1    a policy argument is that you can produce the

           2    model that produces that result and then go

           3    for it from there.

           4              But just in general about how to

           5    return to the days of Hogan the sort of

           6    notion of a mission that we're going

           7    to -- sort of the Department of Energy's

           8    going to help assess the things that matter

           9    to the country.  I think it's really a

          10    good -- that'd be a really good sort of

          11    direction to try to move and I think you have

          12    resources to do that.

          13              The only sort of modest suggestion

          14    I might have on that direction is I've

          15    been -- Alex Miros (?) turned me on to this

          16    book from the 1960s called The Mythical

          17    Man-Month.  It's about the development of the

          18    IBM 360.  And it makes this -- it's one of

          19    these things that makes these cogent

          20    observations, like if a software project is

          21    behind, adding more persons to the project

          22    will probably just make it go on longer,

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          374

           1    right?  So I think you have to be a little

           2    bit careful about just hiring more people.

           3    And there's other ways that you can use

           4    resources that might improve the profile and

           5    indeed attract -- you know, there's a high

           6    degree of unevenness of productivity across

           7    people.  You want to try to create an

           8    environment to attract people.

           9              But I think, like, having a seminar

          10    series or having regular colloquia focused on

          11    issues that are of interest, both to

          12    academics and to policymakers in Washington,

          13    to provide a forum for interaction between

          14    the different groups like that might be a

          15    real productive way to use some of the

          16    resources.

          17              MR. GRUENSPECHT:  Right.

          18              MR. RUTHERFORD:  Because you want

          19    to try to create an environment where young

          20    people coming out with Ph.D.s say I want to

          21    go there because I know it'll be in the

          22    limelight.  I want to go work on the issues

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          375

           1    that matter.

           2              I mean, clearly, I don't think that

           3    you'd have to work very hard to make them

           4    interesting questions.  I mean, you're

           5    surrounded by them.  But the main thing is

           6    just to increase your profile.  And rather

           7    than try to sell yourself better to the job

           8    markets, it's better just to have them coming

           9    knocking on your door than trying to

          10    advertise.

          11              MR. BURTON:  The FCC does that with

          12    telecom issues on a very regular basis and

          13    they are highly regarded.

          14              MR. RUTHERFORD:  Just my modest

          15    opinion.

          16              MR. GRUENSPECHT:  No, it's a good

          17    idea.  I mean, we have been talking in a

          18    preliminary way.  You know, on NEMS, we have

          19    an annual NEMS -- you know, a day-long

          20    conference set up so that people could really

          21    fly in and fly out the same day.  But CERA,

          22    which is a large energy consultancy, has

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          376

           1    something called CERA Week each year in

           2    Houston.  And it's quite a big gathering, if

           3    you will, of people.

           4              And we have thought -- not

           5    necessarily want to do EIA Week, but the

           6    thought is some of the data programs and some

           7    of the issues and analyses that aren't about

           8    NEMS and stuff, the thought is we really

           9    could possibly have a two- or three-day sort

          10    of EIA Week that went beyond NEMS and looked

          11    at a lot of these other types of issues and

          12    had different groups looking at different

          13    things.

          14              MR. RUTHERFORD:  I mean, the real

          15    challenge I see for EIA is that if you're

          16    building a policy relevance or a structural

          17    model to make a point, it's always better to

          18    work backwards.  John Whalley taught me that

          19    you first draw the figures you want to have

          20    your model produce, then write the tables and

          21    put the numbers in the tables.  When I first

          22    learned this from John, I was appalled.  But

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          377

           1    I've learned afterwards that this is really a

           2    good way to work.

           3              You begin back from the story you

           4    want to tell, write down the numbers you

           5    think are going to come out, and you build

           6    the model to see if you can produce those

           7    numbers.  And then you learn something

           8    because you learn your ex ante assessment was

           9    different from what actually comes from the

          10    numbers.  And then --

          11              MR. GRUENSPECHT:  Right, but then

          12    the question is if you're a consultant, then

          13    the answer is that you have to change

          14    whatever you came up with to meet the

          15    numbers --

          16              MR. RUTHERFORD:  Well, then the

          17    game is --

          18              MR. GRUENSPECHT:  You know, in our

          19    case I'd like to think that we don't have any

          20    particular place we want to come out because

          21    we're not for or against.

          22              MR. RUTHERFORD:  Yes, that's the

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          378

           1    point I'm making.

           2              MR. GRUENSPECHT:  Right.

           3              MR. RUTHERFORD:  It's just that

           4    you're in a much tougher environment because

           5    you don't have an argument you're producing.

           6    You're trying to produce tools that will be

           7    used generally.

           8              MR. GRUENSPECHT:  Right.

           9              MR. RUTHERFORD:  But I think you

          10    have to be thinking ahead to what the

          11    questions are going to be asked.

          12              MR. GRUENSPECHT:  That's right,

          13    exactly.  And that's why in this NEMS context

          14    we're going out to -- you know, we went to

          15    the -- as Susan described earlier, we went to

          16    the program officers because they're one of

          17    the groups that ask questions.  And we went

          18    to the -- I think we -- Guy has sent letters

          19    to?

          20              MR. CARUSO:  The associations.

          21              MR. GRUENSPECHT:  A lot of

          22    associations.  We're going out to the labs.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          379

           1    I've sent letters out to the labs just in

           2    this last week.  So -- but, again, I don't

           3    think we're going to come up -- I remember

           4    the Roald Dahl story, I don't know, "The

           5    Rocking-Horse Winner," I think. No, not that

           6    one.  "The Great Automatic Grammatizator."

           7    This, like, machine that could write any

           8    story and put all the authors out of

           9    business.

          10              I don't think we're

          11    not -- definitely not going to develop a tool

          12    that'll answer all the questions, so some of

          13    it will fall off.  You can't just concatenate

          14    what everyone's -- but I agree that we

          15    have -- where we choose to design the tool

          16    it's certainly relevant what that space of

          17    what people want to look at looks like,

          18    although I don't think we're obligated to

          19    cover the whole space because I don't think

          20    we can.

          21              MR. EDMONDS:  Yes, I just want to

          22    follow up on what Tom was just saying.  I

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          380

           1    think -- he was talking about the EIA as an

           2    exciting place to be because it really does

           3    get those really interesting questions and it

           4    gets them in a way that there's a direct line

           5    to Congress.  I mean, there's a special

           6    relationship with Congress that EIA has that

           7    the rest of the Department of Energy does

           8    not.

           9              And in a sense of making that a

          10    more visible and more present sense, one

          11    thing you could do is not just -- if you do

          12    EIA Week, don't just do EIA.  Actually create

          13    a convening power that EIA would have.  And

          14    so bring in everybody else who is important

          15    or has important things to say.

          16              And that, in a sense, actually

          17    gives you leverage and sort of a greater

          18    spotlight because then EIA is the convener

          19    and everyone does come to EIA.

          20              I guess the other thing that Tom

          21    said, which I also think is useful, is that

          22    really the models are our story.  They're our

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          381

           1    story of how things fit together.  They're a

           2    story of relations and you drop -- I mean the

           3    EIA -- even the NEMS model doesn't have

           4    everything in the whole world in it.  Close,

           5    but you don't have it all.  And you've

           6    dropped things off and you actually do have a

           7    set of relations.

           8              So I think that's, in a sense,

           9    the -- you know, that may be one way of

          10    telling the story, that is the graphics.

          11    But, in a sense, you really have this story.

          12    And thinking through the story of the

          13    relationships I think is a very useful thing

          14    to do.

          15              And starting from this logic, and

          16    then actually as you build the model and

          17    introduce the data, you learn that that logic

          18    was flawed because there are

          19    interrelationships that have very powerful

          20    influences that you didn't realize when you

          21    started off and you change the story.  And

          22    that's I think your true -- you know, sort of

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          382

           1    your unbiased -- you don't change the model

           2    to get the story you started off with, you

           3    changed the story because the model told you

           4    things you didn't know when you started.

           5              MR. GRUENSPECHT:  Unfortunately, if

           6    only unbiased would equal correct, but those

           7    two things are very different from each

           8    other, as we often find out.

           9              SPEAKER:  Let's not get too

          10    esoteric here.

          11              MR. GRUENSPECHT:  I don't know.  So

          12    I'll tell you what, we thought it was

          13    really -- we thought we got a lot more than

          14    our money's worth out of these folks.  It was

          15    a very -- I think it was a very positive

          16    overall experience.

          17              MR. CARUSO:  And that's the only

          18    thing I would add is that it's not so much

          19    what we got out of them, it's

          20    having -- forcing us to go through this

          21    process of -- especially Nancy, who headed up

          22    the support team, had to do a lot of work to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          383

           1    pull things together.  Because they

           2    asked -- you can imagine just looking at that

           3    list that they asked tough questions.  And we

           4    find that the process was very useful.

           5              MR. GRUENSPECHT:  I mean, these

           6    kind of tables that they asked about, like

           7    percent for this and that typically in our

           8    budget process, frankly, we don't do that,

           9    you know.  Maybe we should.  I might -- they

          10    didn't criticize us for not doing it, but

          11    implicitly, when they asked for this, we had

          12    to try to put it together the way that I

          13    think it makes -- you learn a lot from

          14    looking at this.  We learn a lot from looking

          15    at it.  They needed to look at it they felt

          16    to do their work, so we had to do it.

          17              MR. NEERCHAL:  Did you keep track

          18    of this before or because of the committee

          19    you started doing this, this news media,

          20    Appendix B?

          21              MR. GRUENSPECHT:  No.

          22              MS. KIRKENDALL:  NAIC keeps tabs on

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          384

           1    that.

           2              MR. GRUENSPECHT:  We do keep tabs.

           3              MS. KIRKENDALL:  They keep tabs on

           4    the news media who call in.

           5              MR. CLEVELAND:  It's really

           6    shocking how little is done on analysis in

           7    total budget.  I'm looking at page 17.

           8              MS. KIRKENDALL:  Well, that was cut

           9    considerably.  You know, we used to have an

          10    analysis review board and we had planned

          11    analysis and collaborated on it, then that

          12    went away.

          13              MR. CLEVELAND:  How do you get --

          14              MS. KIRKENDALL:  (inaudible).

          15              MR. GRUENSPECHT:  I don't want to

          16    speak for the other people who were here

          17    then.  Nancy can, but I guess my sense is

          18    there's always a concern with data that once

          19    you don't collect it you could not go back to

          20    people and say, well, what was your

          21    generation of coal-fired electricity three

          22    years ago or something.  So there's been this

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          385

           1    reluctance to -- that somehow data is like

           2    the vital organs and that analysis is like

           3    the appendix.

           4              You know, if something has to go

           5    cut out the appendix, don't cut out your

           6    liver or something.  But in some ways I think

           7    the committee said maybe this analysis is

           8    more like your liver than like your appendix.

           9    And maybe you won't drop dead instantly, but,

          10    over time, if you don't do more analysis,

          11    you're going to -- your data will suffer, you

          12    know.

          13              So I guess what they would be

          14    arguing is if -- even if the budget were

          15    constrained at some fixed level I guess

          16    implicitly they're saying they would do less.

          17    They'd probably shrink the program a little

          18    bit and do more analysis in the part of that

          19    was retained.  But the philosophy, I think,

          20    before Guy's arrival was more that the last

          21    thing you give up is a data series because

          22    you can never recover that.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          386

           1              MR. CLEVELAND:  Well, that's also

           2    part of the culture, at least in the past,

           3    part of the culture of EIA, too, which is

           4    this is my report and my data and so

           5    you -- internally I think you'd fight like

           6    hell, regardless of whether it was useful to

           7    have or not, to fight to retain to that.

           8              MR. GRUENSPECHT:  Well, as you

           9    know, we've dropped a couple of things in the

          10    recent years and we tried to drop a couple of

          11    things.  You know, we have a letter

          12    from -- interestingly, this fall, I mean,

          13    this is not on the agenda, but we had said we

          14    would drop a couple of petroleum things.  And

          15    we got a letter signed by, like, I don't

          16    know, wow, like 22 senators or something, you

          17    know.  It was horrible, you know.  I mean, it

          18    was good but it was -- but, I mean, one of

          19    the problems is, you know -- it's horrible

          20    and it was good because it kind of felt like

          21    we couldn't drop it.

          22              And then we said, well, if they're

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          387

           1    really going to give us this money in

           2    '07 -- but then, of course, the '07 thing is

           3    completely hung up.  So the question is what

           4    do you do?  Because, literally, if you stop

           5    it and then try to start it again, that has

           6    huge -- you know, you get people who are

           7    like -- kind of like galley slaves, you know.

           8    They're used to the beating and pulling the

           9    oars.  And then you just don't hit the drum

          10    for a couple of months, and then you say, oh,

          11    we want to start up again that's really hard,

          12    you know.  They're not going to get stuff in

          13    on time.

          14              MR. CLEVELAND:  You sound like a

          15    great boss.

          16              MR. GRUENSPECHT:  No, I meant the

          17    respondents.  I meant the respondents.  I'm

          18    not worried about the staff.  The staff is

          19    very dedicated.  But you're dealing with the

          20    respondents.  You tell them, hey, I don't

          21    have to -- you know, if they told you you

          22    didn't have to file some form you had to file

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          388

           1    every month, and they said, oh, you don't

           2    have to file it anymore, and then you try a

           3    couple months later, oh, we were wrong, you

           4    have to file it again, it isn't like people

           5    are going to start filing it at the same rate

           6    that they were filing it before you let them

           7    off the hook.  So if we're going to continue,

           8    we definitely don't want to have a break.

           9              I mean, again -- and I -- that's

          10    part of the logic that we're talking about

          11    that we -- sort of I guess you were

          12    suggesting was wrong.  But in this case if

          13    you're going to -- you know, maybe you should

          14    stop things if you can't -- but in this case

          15    if you're going to start it again, then I

          16    think there really is a reason not to stop

          17    it.

          18              MR. CLEVELAND:  Well, sure, if you

          19    know you want to do that.  The point is there

          20    are probably some things that should be

          21    dumped.

          22              MR. GRUENSPECHT:  No, and that's

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          389

           1    really what this committee said.  I mean,

           2    they said three things should be dumped.

           3              MR. CLEVELAND:  Right.

           4              MR. GRUENSPECHT:  And I think there

           5    are -- you know, try to deal with this at

           6    a -- although I guess technically anyone

           7    could hear these comments.

           8              I mean, a good example of something

           9    they said should be dumped, I can't disagree.

          10    I picked the voluntary greenhouse one of all

          11    things, but the reality of it is it's -- it

          12    isn't like you're going to dump it and then

          13    use the money for something else, you know.

          14              MR. CLEVELAND:  Right.

          15              MR. GRUENSPECHT:  That sure ain't

          16    going to happen.  And so, again, it's -- I

          17    think we're taking this all very seriously

          18    and I think you'll see changes in the program

          19    that reflect a lot of what's in here.  Is

          20    everything in there going to happen?  I'm not

          21    sure.  I mean, people are aware of this.

          22    This is not, you know -- I mean, we're not

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          390

           1    hiding this.  We're not --

           2              MR. FEDER:  Maybe you should repeat

           3    it every few years.

           4              MR. GRUENSPECHT:  Well, that's a

           5    good --

           6              MR. CLEVELAND:  Is it up on your

           7    home page?

           8              MR. GRUENSPECHT:  It's on

           9    our -- no, but if you ask for it, we'll send

          10    it to you.

          11              MS. KIRKENDALL:  It's on the ASA

          12    web site, on our home page.  You can get to

          13    it that way.

          14              MR. CLEVELAND:  So it's not on your

          15    web site.

          16              MS. KIRKENDALL:  Well, it is on our

          17    web site if you happen to know where it is.

          18              MR. CLEVELAND:  One of those

          19    products.

          20              MR. GRUENSPECHT:  Look, I mean, I

          21    don't know what the answer is, you know.

          22    Now, if you want -- if we had produced a

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          391

           1    sycophantic report then you'd go out -- I

           2    mean, I don't know what you're really going

           3    to use that's not going to say --

           4              MR. CLEVELAND:  I'm just giving you

           5    a hard time.

           6              MR. GRUENSPECHT:  No, but it's --

           7              MS. KIRKENDALL:  In the budget.

           8              SPEAKER:  Program review is very

           9    important.  In an academic department those

          10    things are really crucial.

          11              MR. GRUENSPECHT:  I mean, the real

          12    question is -- I mean, another example, I

          13    mean, (inaudible) this too long, but another

          14    example is, look, we know there are lots of

          15    flaws in our program, right?  You know, so

          16    we're sailing the ship, sailing the ship S.S.

          17    EIA, and we're going through the oceans.  And

          18    it's a rough and stormy ocean and we know our

          19    ship is not perfect.

          20              MS. KIRKENDALL:  Right.

          21              MR. GRUENSPECHT:  And there are

          22    other people who, for some good reasons, but

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          392

           1    some venal reasons, what to take shots at us,

           2    you know.  Now, frankly, I could probably

           3    take shots at us better than they could but

           4    the question is should I help them out by,

           5    like, pointing my cannon down at the

           6    waterline and blowing it?  You know, I don't

           7    know what the answer is.

           8              MR. FEDER:  What kind of energy is

           9    the S.S. EIA using?

          10              MR. GRUENSPECHT:  What?

          11              MR. FEDER:  What kind of energy is

          12    the S.S. EIA using?

          13              MR. GRUENSPECHT:  A sailing ship, I

          14    envision this.  I think of this as Russell

          15    Crowe -- I think of Guy as Russell Crowe in

          16    "Master and Commander."

          17              SPEAKER:  He's a little young,

          18    though.

          19              MR. HENGARTNER:  But, Howard, this

          20    report is very useful to the five-year

          21    planning you're going to be doing.

          22              MR. GRUENSPECHT:  Yes, it is and

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          393

           1    that's what feeds into it.

           2              MR. HENGARTNER:  I mean, I see so

           3    much value to actually go through this.  And

           4    maybe every five years is much.  I mean,

           5    academic departments every seven years they

           6    make a review.

           7              MR. GRUENSPECHT:  Right.

           8              MR. HENGARTNER:  But having first

           9    some outside input before you're doing your

          10    five-year planning is probably beneficial.

          11    And I don't know what the outcome of that

          12    planning is going to be.  You're probably

          13    going to tell me next year, you know what,

          14    that was a good thing or it didn't work at

          15    all.

          16              MR. GRUENSPECHT:  Oh, I think

          17    (inaudible).  But, I mean, the real issue is

          18    I think do you want to go to people who you

          19    know or not, you know?  Denny Ellerman, Phil

          20    Sharp, Kathleen Cooper they don't dance on

          21    Guy's string or my string, you know.  They're

          22    going to say what they want to say and that's

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          394

           1    what -- if you want other people, you can get

           2    people who will say tell me what you want to

           3    hear and I'll tell you, you know.  And in

           4    this case I felt, you know -- Guy felt that

           5    it was worth, you know --

           6              MR. EDMONDS:  Have you discussed

           7    this with the Hill?

           8              MR. CARUSO:  We've certainly given

           9    it to them.

          10              MR. GRUENSPECHT:  I'm sure it'll

          11    come up.

          12              MR. EDMONDS:  I mean, this is

          13    obviously something now that you've created

          14    it, that needs to be discussed with the

          15    relevant committees.

          16              MR. RUTHERFORD:  You could maybe

          17    arrange a swap.  You could swap them the

          18    voluntary greenhouse abatement for the

          19    biofuels, right?

          20              MR. GRUENSPECHT:  Oh, they want the

          21    biofuels.  They don't want the biofuels.

          22              MR. RUTHERFORD:  They don't want to

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          395

           1    give it back.

           2              MR. GRUENSPECHT:  No, the Hill

           3    wants the -- the Hill wants us to do

           4    biofuels, but not --

           5              MR. RUTHERFORD:  No, but you said

           6    the EPA has this --

           7              MR. GRUENSPECHT:  Right, right.  I

           8    mean, in terms of the government?  Yes, that

           9    would be interesting.  We're going to do the

          10    biofuels.

          11              Anyway, no, I really appreciate

          12    your -- I think a lot of the input was very

          13    thoughtful.

          14              MR. HENGARTNER:  Okay, thank you

          15    very much.  Any more questions?  We're

          16    running 15 minutes over, but I think it was

          17    well worth it.  Thank you very much, Howard.

          18              MR. GRUENSPECHT:  Thank you.

          19    You're the ones who deserve the thanks.

          20              MR. HENGARTNER:  At this time, we

          21    want to invite any member of the public to

          22    make general comments.

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382


                                                          396

           1              Okay, then let us adjourn this

           2    meeting until tomorrow morning at 8:30.

           3                   (Whereupon, at approximately 4:49

           4                   p.m., the MEETING was were

           5                   continued.)

           6                       *  *  *  *  *

           7

           8

           9

          10

          11

          12

          13

          14

          15

          16

          17

          18

          19

          20

          21

          22

                                BETA COURT REPORTING
                                www.betareporting.com
                    202-464-2400                     800-522-2382