U.S. GOVERNMENT PRINTING OFFICE

73–241 PS WASHINGTON : 2001

REAUTHORIZATION OF THE

DEFENSE PRODUCTION ACT OF 1950

HEARING

BEFORE THE

SUBCOMMITTEE ON

DOMESTIC MONETARY POLICY, TECHNOLOGY,

AND ECONOMIC GROWTH

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

JUNE 13, 2001

Printed for the use of the Committee on Financial Services

Serial No. 107–24

(

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: (202) 512–1800 Fax: (202) 512–2550

Mail: Stop SSOP, Washington DC 20402–0001

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa

MARGE ROUKEMA, New Jersey, Vice Chair

DOUG BEREUTER, Nebraska

RICHARD H. BAKER, Louisiana

SPENCER BACHUS, Alabama

MICHAEL N. CASTLE, Delaware

PETER T. KING, New York

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

ROBERT W. NEY, Ohio

BOB BARR, Georgia

SUE W. KELLY, New York

RON PAUL, Texas

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

DAVE WELDON, Florida

JIM RYUN, Kansas

BOB RILEY, Alabama

STEVEN C. LATOURETTE, Ohio

DONALD A. MANZULLO, Illinois

WALTER B. JONES, North Carolina

DOUG OSE, California

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

GARY G. MILLER, California

ERIC CANTOR, Virginia

FELIX J. GRUCCI, JR., New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

PATRICK J. TIBERI, Ohio

JOHN J. LAFALCE, New York

BARNEY FRANK, Massachusetts

PAUL E. KANJORSKI, Pennsylvania

MAXINE WATERS, California

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

NYDIA M. VELA ́ ZQUEZ, New York

MELVIN L. WATT, North Carolina

GARY L. ACKERMAN, New York

KEN BENTSEN, Texas

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

JULIA CARSON, Indiana

BRAD SHERMAN, California

MAX SANDLIN, Texas

GREGORY W. MEEKS, New York

BARBARA LEE, California

FRANK MASCARA, Pennsylvania

JAY INSLEE, Washington

JANICE D. SCHAKOWSKY, Illinois

DENNIS MOORE, Kansas

CHARLES A. GONZALEZ, Texas

STEPHANIE TUBBS JONES, Ohio

MICHAEL E. CAPUANO, Massachusetts

HAROLD E. FORD JR., Tennessee

RUBE ́ N HINOJOSA, Texas

KEN LUCAS, Kentucky

RONNIE SHOWS, Mississippi

JOSEPH CROWLEY, New York

WILLIAM LACY CLAY, Missouri

STEVE ISRAEL, New York

MIKE ROSS, Arizona

BERNARD SANDERS, Vermont

Terry Haines, Chief Counsel and Staff Director

SUBCOMMITTEE ON DOMESTIC MONETARY POLICY, TECHNOLOGY, AND ECONOMIC GROWTH

PETER T. KING, New York, Chairman

JAMES A. LEACH, Iowa, Vice Chairman

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

RON PAUL, Texas

STEPHEN C. LATOURETTE, Ohio

DOUG OSE, California

MARK GREEN, Wisconsin

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

FELIX J. GRUCCI, JR., New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

CAROLYN B. MALONEY, New York

BARNEY FRANK, Massachusetts

GREGORY W. MEEKS, New York

BERNARD SANDERS, Vermont

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

MAX SANDLIN, Texas

CHARLES A. GONZALEZ, Texas

MICHAEL E. CAPUANO, Massachusetts

RUBE ́ N HINOJOSA, Texas

WILLIAM LACY CLAY, Missouri

MIKE ROSS, Arizona

(III)

C O N T E N T S

Page

Hearing held on:

June 13, 2001 .................................................................................................... 1

Appendix

June 13, 2001 .................................................................................................... 11

WITNESSES

WEDNESDAY, JUNE 13, 2001

Brown, Michael D., General Counsel, Federal Emergency Management

Agency ................................................................................................................... 5

Fygi, Eric J., Deputy General Counsel, Department of Energy ........................... 4

Juster, Kenneth I., Under Secretary for Export Administration, Department

of Commerce ......................................................................................................... 3

Oliver, David R. Jr., Principal Deputy Under Secretary for Acquisition,

Technology and Logistics, Department of Defense ............................................ 2

APPENDIX

Prepared statements:

Brown, Michael D. ............................................................................................ 38

Fygi, Eric J. ....................................................................................................... 26

Juster, Kenneth I. ............................................................................................ 21

Oliver, David R. Jr. .......................................................................................... 12

(1)

REAUTHORIZATION OF THE DEFENSE

PRODUCTION ACT OF 1950

WEDNESDAY, JUNE 13, 2001,

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC MONETARY POLICY,

TECHNOLOGY, AND ECONOMIC GROWTH,

COMMITTEE ON FINANCIAL SERVICES,

Washington, DC.

The subcommittee met, pursuant to call, at 3:00 p.m., in room

2220, Rayburn House Office Building, Hon. Peter T. King,

[chairman of the subcommittee], presiding.

Present: Chairman King; Representatives Grucci, Capito, C.

Maloney of New York, J. Maloney of Connecticut, and Capuano.

Chairman KING. The hearing will come to order.

I’ve been advised that Mrs. Maloney will be arriving in a few

minutes. She has no objection to starting this meeting.

The subcommittee is meeting to consider reauthorization of the

Defense Production Act of 1950. I will make a brief statement and

then I will ask each of the witnesses to testify. Hopefully there will

be no major incidents at the subcommittee hearing and we can

move forward.

The Defense Production Act is a little-known bill of great national significance. It has provided vital support to the United

States military in every conflict since it was enacted in 1950 during

the Korean War. It also holds the promise of helping to mitigate

civil emergencies during peacetime.

DPA gives the President a vital set of tools to insure the constant

readiness of those portions of our industrial base that support national security. The tools include production priorities and financial

incentives, but also extend to monitoring the increasing effects of

globalization on the defense base. It falls under the jurisdiction of

this subcommittee, and I should say that to date the subcommittee

is unaware of any significant adverse impact on the economy

caused by DPA. All Administrations since President Truman have

used it carefully and prudently.

It’s important to note that in the reauthorizing of DPA and monitoring, this subcommittee makes no judgments about particular defense programs. Those decisions are left to the President, who has

delegated the job to the appropriate departments: chiefly the Defense Department, of course, but where appropriate the Departments of Commerce, Energy, Transportation, Agriculture and so

forth, under the administration of the National Security Council

and FEMA.

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At this stage I believe the DPA should be reauthorized virtually

unchanged from its current form. Through a mishap of timing, the

legislation did lapse briefly in 1990 during the buildup to Desert

Storm. That was quickly corrected, however, as the Defense Department used the production priorities extensively to acquire

items as diverse as computers and communications equipment, satellite-based mapping systems and materials to help protect our

troops against chemical weapons.

Fortunately, we do not appear to be in that situation now, but

geopolitical situations can change quickly. Also, civil emergencies

are particularly hard to predict. For those reasons, I expect a

speedy and non-controversial reauthorization process for this year,

and that can be almost guaranteed if we finish this hearing before

anybody else arrives.

[Laughter.]

Chairman KING. It is my hope the subcommittee will see a legislative proposal from the Administration soon. Given the short number of legislative days left in the fiscal year, I would start moving

the bill before midsummer.

I thank all the witnesses for appearing. I will now recognize Mrs.

Maloney, who is not here, as soon as she comes to make a statement or insert a statement in the record.

I will now ask the witnesses to testify. We have copies of all your

statements, so I would strongly suggest that you keep your statements under 5 minutes. There is a vote on the House floor probably

in about 45 minutes. It will be in everyone’s interest, primarily the

interest of making sure that ultimately this legislation is reauthorized, to keep your statements under 5 minutes. Your statements

will be inserted in the record and considered as read.

With that, I would call the first witness, the Honorable David R.

Oliver, Jr., the Principal Deputy Undersecretary of Defense for Acquisition, Technology and Logistics. Mr. Oliver.

STATEMENT OF HON. DAVID R. OLIVER, JR., PRINCIPAL DEPUTY UNDER SECRETARY FOR ACQUISITION, TECHNOLOGY

AND LOGISTICS, DEPARTMENT OF DEFENSE

Mr. OLIVER. Mr. Chairman, I appreciate the opportunity.

We’d like to see it reauthorized for 3 years, if possible. The key

issue has to do with, under no other legislation are we able to

maintain an assured supply for our allies when they buy our equipment and we want them to operate with us. And there are other

problems that exist.

But what I would like to share with you is the Kosovo incident.

When we needed to reprioritize some suppliers for various precision

weapons, and it was really important to do so, the Act enabled me

to get the contractors’ attention. Without that authority, we might

have been able to work it out, but it was much more effective to

have their attention right from the beginning.

There are other issues that I’ve looked at in the last 3 years that

are directly affected by the Act, but this is a significant facilitator,

and we ask that it be reauthorized.

Chairman KING. How about Bosnia?

Mr. OLIVER. The same thing, sir. In both cases, within a few days

after we started hostilities, we were finding areas that we needed

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the Act’s legislation in order to take immediate action. We even

went with flat panel displays—I’m not sure the Chairman is aware

of that problem over the last few years.

But essentially, small key businesses and key technologies I don’t

think about 2 years in advance. And then something comes up in

terms of a problem, and it is a very small area, but it’s terribly important to the military, and the Act permits us to take action.

Thank you, sir.

[The prepared statement of Hon. David R. Oliver can be found

on page 12 in the appendix.]

Chairman KING. The Under Secretary for Export Administration

in the Department of Commerce and a fellow New Yorker, Ken

Juster.

STATEMENT OF HON. KENNETH I. JUSTER, UNDER SECRETARY FOR EXPORT ADMINISTRATION, DEPARTMENT OF

COMMERCE

Mr. JUSTER. Mr. Chairman, I appreciate the opportunity to be

here today to testify on reauthorization of the Defense Production

Act. As with Mr. Oliver, we too would like to see the DPA reauthorized for at least a 3-year period.

Let me briefly discuss the aspects of the DPA that are relevant

to the Department of Commerce. We really have four areas that

are relevant to us.

First, under Title I of the DPA, we administer the defense priorities and allocation system. Second, under Title III, the Department

reports on defense trade offsets. Third, under Title VII, the Department analyzes the health of U.S. industrial base sectors. Also

under Title VII, the Department plays a significant role in analyzing the impact of foreign investments on the national security

of the United States. I cover these areas in my written statement.

Briefly touching on each of these points for a minute or two, the

Defense Priorities and Allocation System, which is known as

DPAS, has two primary purposes. First, it ensures the timely availability of products, materials and services that are needed to meet

current national defense and emergency preparedness requirements with minimal interference to the conduct of normal business

activity. Second, it provides an operating structure to support a

timely and comprehensive response by U.S. industry in a national

emergency situation.

The Commerce Department administers the system in accordance with the priorities and allocations provisions of the DPA.

Those provisions provide authority for requiring U.S. companies to

accept and perform contracts or orders necessary to meet national

defense and civil emergency needs. They also provide authority for

managing the distribution of scarce and critical materials in time

of emergency.

The second area is the defense trade offsets. The Department

provides Congress with an annual report on the impact of offsets

in defense trade. The defense trade offsets are industrial compensation practices required as a condition of purchase in either government-to-government or commercial sales of defense articles or services.

4

We believe that offsets generally are not efficient economically,

because the foreign customer bases the purchase decision on something other than the quality of the product or service being provided.

The third area applies to the Department of Commerce’s defense

industrial base studies under Section 705 of the DPA. The Department of Commerce conducts analyses and prepares reports on individual sectors of the defense industry. These studies provide a comprehensive review of specific sectors within the U.S. defense industrial base, and they analyze the current capabilities of these sectors

to provide defense items for the U.S. military services.

The final area that’s relevant to the Commerce Department is

the Committee on Foreign Investment in the United States, known

as CFIUS, which was originally established by executive order in

1975. The Department of Commerce is a member of the CFIUS

process chaired by the Department of the Treasury.

The provision that provides for CFIUS relates to a national security review of foreign mergers or acquisitions of U.S. companies.

The intent of the provision is to provide a mechanism to review

and, if the President finds it necessary, to suspend or prohibit a

foreign direct investment that threatens the national security, but

not to otherwise discourage foreign direct investment. The Department of Commerce’s contribution to the CFIUS process includes

providing a defense industrial base perspective as well as export

control perspective.

In sum, we believe all of these are very important authorities to

the Department in terms of the programs we carry out. And as I

mentioned at the outset, we fully support reauthorization of the

Defense Production Act for at least a period of 3 years.

Thank you.

[The prepared statement of Hon. Kennith I. Juster can be found

on page 21 in the appendix.]

Chairman KING. Thank you, Mr. Secretary.

We’ve been joined by Ranking Member, Mrs. Maloney. Do you

want to make an opening statement at this time?

Mrs. MALONEY. In the interest of time—and I want to hear from

the panelists—I request permission to put my opening statement

in the record.

Chairman KING. Without objection.

Chairman KING. I call on the Honorable Eric Fygi, Deputy General Counsel for the Department of Energy.

STATEMENT OF HON. ERIC J. FYGI, DEPUTY GENERAL

COUNSEL, DEPARTMENT OF ENERGY

Mr. FYGI. Thank you, Mr. Chairman, and Congresswoman

Maloney.

As you suggested, I will summarize very briefly the prepared

statement which responded to particular elements of the subcommittee’s invitation to address the Energy-related experiences of

the Defense Production Act. Most prominent of these recent events,

of course, was our use—that is to say, the President’s use—of the

Defense Production Act in January of this year to avoid a very serious breakdown in the northern California natural gas distribution

system that was prompted by the insolvency of the combined gas

5

and electricity utility that services that part of the state. Those

particulars are described thoroughly in the prepared statement,

and I will not now repeat them here.

But, I think it’s fair to note that there were two particularly controversial aspects of our use of the Defense Production Act authority in that setting. The common thread of them was that the authority is being used to compensate for financial breakdown rather

than a shortage, and because the authority was used in a novel

way that placed at risk the economic circumstances of the natural

gas providers who were ordered to continue making their deliveries

to Pacific Gas & Electric.

In the event, however, I am pleased to report that the apprehensions about the gas producers—and even more significantly on a

volumetric basis, the natural gas resellers, which included some

major financial institutions— proved ill-founded. The overall approach that was hammered out to deal with that emergency resulted in each natural gas supplier being paid in full within the

normal business cycle that hitherto had obtained for all of PG&E’s

natural gas purchases.

In terms of other prior instances in which the Energy Department has employed this scheme set forth in Sections 101(a) and (c)

of the Defense Production Act, this has been sporadic with respect

to our organization, in contrast to for example the Defense Department. These authorities were used from time to time during the

nuclear weapons buildup and production acceleration period in the

early 1980’s, and likewise were used in the early 1980’s to accelerate development of Alaska North Slope energy reserves, particularly natural gas reserves.

In conclusion, as the chair observed a moment ago, we regard the

Defense Production Act as an extremely important element of the

toolbox that’s available for utilization by the President, in addition

to being the foundation for the priorities and allocation systems

that were described a moment ago. And therefore we wholeheartedly join in the recommendation that the statute be extended

for a period of 3 years.

Thank you very much.

[The prepared statement of Hon. Eric J. Fygi can be found on

page 26 in the appendix.]

Chairman KING. Thank you very much, Mr. Fygi.

Mr. Michael Brown, General Counsel to FEMA.

STATEMENT OF MICHAEL D. BROWN, GENERAL COUNSEL,

FEDERAL EMERGENCY MANAGEMENT AGENCY

Mr. BROWN. Thank you, Mr. Chairman, Congresswoman

Maloney.

I’m honored to be here today and appreciate the opportunity to

testify today on behalf of Director Allbaugh, the new director of the

Federal Emergency Management Agency, and to tell you I’m a little intimidated and overwhelmed by the expertise in this room regarding DPA.

I’ve learned all that I can in the past 120 days in coming on with

Director Allbaugh, and find out that I have much, much more to

learn. They’ve tasked me well and they’ve advised me well.

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Rather than go through my prepared statement, I’d like to just

make a few comments that I think reflect the views of the Administration and Director Allbaugh.

We also request a 3-year extension of the Act, reauthorization of

the Act. We believe it is important to carry out the duties and obligations of FEMA as the lead coordinating agency for consequence

management in the United States. We are prepared to carry out

our responsibilities under Executive Order 12919, which indeed involve such things as coordinations.

We are a coordinating agency. We think we do that job very well.

The expiration of the Act would hinder us in our full capacity to

do that type of activity.

The DPA itself gives us the additional tools we need in the event

of a catastrophic event that goes beyond the Stafford Act and goes

beyond the capability of FEMA to react properly. Therefore, we believe that its expiration will have dire consequences for us.

In addition, you may recall that the President has tasked the Office of National Preparedness, and we believe the reauthorization

of the DPA is important to the continued function of that particular

office. We may be looking to authorities under the DPA to respond

to the consequences of weapons of mass destruction or other terrorist attacks on the United States, and believe that these authorities are vital to our coordinating function in that consequence management role.

On behalf of the Administration, we would ask for reauthorization for 3 years. Thank you, Mr. Chairman.

[The prepared statement of Michael L. Brown can be found on

page 38 in the appendix.]

Chairman KING. We’re joined by Mr. Maloney from Connecticut.

Do you have any opening statement?

Mr. MALONEY. No, sir.

Chairman KING. I have a series of questions, but in the interest

of speed, I will submit these questions to you in writing.

I have one question I would ask each of the four of you. Just turn

this around and ask you, what would be the situation if this Act

were not reauthorized?

Mr. Oliver.

Mr. OLIVER. We have certain authorities that we don’t have in

any other way, Mr. Chairman. We do not have something that applies to service contracts. We don’t have something that applies to

maintaining continuity or surety of supply. Or, let’s say I’ve sold

England U.S. helicopters, which gives us a significant interoperability. It gives us significant military capability in addition to

maintaining the defense industrial base. I have to be able to then

make sure they have the parts, particularly if I’m going to ask

them to do something.

Take, for example, the Australians in East Timor, where it’s in

the United States’ best interest for them to go do something essentially all by themselves, although they used equipment they had

bought from the United States, which was essential. If they have

a problem with supply, it’s in our best interest to be able to divert

support for that, and I don’t have that capability without this Act.

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In addition, there’s a legal problem if they’re not provided complete liability coverage to the contractors if I ask them to divert

from one source to another.

The other thing that’s terribly important to me is that, when we

have issues come up, for example—flat panel displays or radiationhardened chips for these satellites coming in—when a problem

comes up, I don’t have authority without this Act to take the necessary quick action to get industry’s attention and keep them alive

until such time as I can consult.

Mr. JUSTER. Let me just reiterate what Mr. Oliver has said.

The loss of the Defense Production Act would significantly weaken our ability to support national defense programs and civil emergency preparedness, and our overall industrial base capability. I

think as you had mentioned earlier, without the DPA, we’d still

have some authority under the Selective Service Act of 1948, but

it is very limited. And in addition to what Mr. Oliver mentioned,

we would have no allocation authority for possible use in a national

security emergency without the Defense Production Act.

Also, there would be no civil emergency preparedness programs

that we could draw upon, or defense-related programs for agencies

such as the FBI or the National Security Agency.

In addition, from the perspective of the Department of Commerce, we would not have the authority that we need to collect the

necessary data for our analyses of industrial base sectors or defense offsets. So again, we regard the DPA as a very critical authority that’s essential to our programs.

Chairman KING. Mr. Fygi.

Mr. FYGI. Well, I don’t expect us to confront in the near future

an event, a set of circumstances as peculiar as the earlier emergency in California. But there are other instances that our experience indicates are very plausible, in which these authorities would

be of crucial importance.

Let us suppose, for example, that world circumstances were such

that we had to draw down the Strategic Petroleum Reserve, and

coincident with that realization, directions from the President to

take that action. Then there’s a significant equipment breakdown

in the facility on that installation.

That would be the type of circumstance, if it were urgent to replace scarce and backlogged specialized pumps and other apparatus, where we rely upon the Defense Production Act to bring the

facility back on line in an operational sense as promptly as we

could. And absent the Defense Production Act, it would be exceedingly difficult, as has been pointed out by the prior witnesses, to

persuade vendors to let our order come to the head of the line for

fear of the third-party contract liability that they might otherwise

expose themselves to, even if they were willing to cooperate with

us in the interests of the country.

So that’s one example that occurs to me.

Chairman KING. Mr. Brown.

Mr. BROWN. Mr. Chairman, Members of the subcommittee, from

FEMA’s point of view, if we were to experience a truly catastrophic

event, something beyond the magnitude of the Northridge Earthquake or Hurricane Hugo—a Northridge expanded all the way from

San Diego to Seattle and truly devastated the West Coast—a terVerDate 11-MAY-2000 09:14 Sep 25, 2001 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 73241.TXT HBANK1 PsN: HBANK1
8

rorist attack, a truly frightening situation like the WMD situation,

it would limit our ability to really coordinate and provide the kinds

of coordinating responses that we could in terms of consequence

management. It is a piece of legislation that allows us to do what

we need to do to respond appropriately.

I can’t imagine an event—I don’t want to imagine an event—of

that size. But if an event of that size were to occur, the DPA is necessary for us to make that type of coordinating effort beyond the

Stafford Act to do what we need to do to respond appropriately.

Chairman KING. Thank you, Mr. Brown.

I have no further questions today. As I say, I will be submitting

questions to you, and I’d appreciate your response to them.

Mrs. Maloney.

Mrs. MALONEY. Thank you, Mr. Chairman. Here’s my opening

statement.

I would just like to state that I am supporting this bill, and I

support the 3-year reauthorization. But there are some Members of

Congress who don’t support it, most notably Senator Gramm. He

objected publicly.

I understand he’s held public hearings on it, and he expressed

concern apart from the crisis about, and I quote, ‘‘expansive reach

of the statute.’’ And he announced that he is going to continue to

look at it.

I would like to know your responses to his concern. He’s a serious leader in our legislature.

Mr. FYGI. Perhaps I can begin, because I spent several hours

with Senator Gramm having an interesting conversation on this

point on the 9th of February.

His concerns were directed to the use of the Defense Production

Act to deal with the California emergency that I have described extensively in our prepared statement. His concerns seemed directed

primarily to the prospect that some of the gas vendors assumed a

risk of uncompensated losses of property by reason of the orders.

As I indicated earlier in a summary of my statement, those risks

proved unfounded in that all vendors were, in fact, paid by Pacific

Gas & Electric.

I think it fair to say that his descriptions during that hearing indicated a philosophical view that was broader than just those sorts

of adverse consequences, in which he felt it an inappropriate power

for the Government to retain—to direct individual participants in

the private marketplace to contract with others in the private marketplace.

Mrs. MALONEY. I guess another part of it is, it’s very clear that

he thought it was an inappropriate time to use the DPA. But why

did the situation in California warrant the use of the DPA by the

Clinton and Bush Administrations?

Mr. FYGI. Those circumstances were described, as I said, extensively in our prepared statement.

Briefly summarized, they included the unique coincidence of a

major investor-owned utility on the brink of insolvency, which investor-owned utility was a combined gas and electric utility; and

that even though, unlike its electricity sales, it was guaranteed reimbursement for its natural gas acquisition costs. Noneless, its otherwise parlous financial situation resulted in its natural gas venVerDate 11-MAY-2000 09:14 Sep 25, 2001 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 73241.TXT HBANK1 PsN: HBANK1
9

dors threatening and beginning to curtail service to PG&E, which

culminated on the 19th of January.

The prospect of curtailments of all deliveries to PG&E presented

the real likelihood that the electricity crisis in California would further be exacerbated, because under California law, if PG&E experienced a significant shortfall in its natural gas supplies, it— PG&E—would have to seize natural gas supplies not owned by

PG&E, but owned by others, but being delivered to industrial facilities through PG&E’s system. That in turn would have provoked a

cutoff of those continued industrial supplies, which in turn would

have provoked the cessation of substantial amounts of electricity

generation in the entire northern California area.

Never before had we in this country confronted such a circumstance, which also had dire immediate prospects for public

health and safety throughout the entirety of northern California.

Mrs. MALONEY. I’d like to ask Mr. Brown, and then Mr. Oliver— unfortunately, the State that I live in and the city that I live in,

New York City, has been a target repeatedly of major terrorist attacks in recent years. Could you provide an example of how the

DPA could be used in the event of such an attack, or a major natural disaster?

Mr. BROWN. The primary example I can think of is, if it was devastating to Manhattan—just destroys all of Manhattan—and we

need to make sure, in terms of consequence management, we’re

going to get food, water, electricity, everything we need to get in

to a population of that size and magnitude, where we cannot draw

upon ordinary suppliers, ordinary contractual agreements, ordinary

arrangements of the staff, DPA would allow us to do that.

That’s the kind of event that we think, in terms of a catastrophic

event, the DPA may come into play. To take it down to a slightly

lower level, I’ve heard examples of where Hurricane Hugo has been

utilized to that purpose. We just could not get enough tarps to prevent further damage, which would further exacerbate the problem.

DPA could be utilized in that type of situation.

We would want to be prudent and very conservative in our approach and use. That’s why I keep throughout this hearing using

the term, a truly catastrophic event, which is the type of situation

we would utilize it.

Mr. OLIVER. I have nothing to add to Mr. Brown.

Mrs. MALONEY. Just finally, very briefly, Mr. Brown: In 1997,

FEMA produced a report recommending modernization of DPA.

One of the report’s recommendations was to change the Act to reflect economic globalization and not to leave the term ‘‘domestic’’ as

the sole focus of defense industrial capabilities.

Would you like to comment on that? Do you think we should expand the definition?

Mr. BROWN. I would like to comment to this extent. I will go back

and ask the staff to give me this report, and I will look at it and

see what it says.

Mrs. MALONEY. Get back to us in writing.

I have other questions, but I’ll place them in writing. Thank you,

Mr. Chairman.

Chairman KING. Thank you, Mrs. Maloney.

Mr. Grucci.

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Mr. GRUCCI. I have no questions at this time, Mr. Chairman.

Chairman KING. Mrs. Capito.

Mrs. CAPITO. I have no questions at this time.

Chairman KING. The distinguished gentleman from Massachusetts, Mr. Capuano.

Mr. CAPUANO. I never have any questions, Mr. Chairman.

[Laughter.]

Chairman KING. Again, I want to thank the panel for your testimony today. I believe there is consensus for reauthorization. As

Mrs. Maloney mentioned, there have been questions raised by some

Members and some Senators, but mostly there is strong bipartisan

consensus for reauthorization.

With that, I would thank you for your testimony today. Members

may have additional questions for the panel, which they may wish

to submit in writing. Without objection, the hearing record will remain open for 30 days for those Members to submit written questions to the witnesses and place their responses in the record.

The hearing is adjourned.

[Whereupon, at 3:30 p.m., the hearing adjourned.]

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A P P E N D I X

June 13, 2001

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