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36–366 2007

REVIEW THE FINANCIAL STRUCTURE OF 

RENEWABLE ENERGY SOURCES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONSERVATION, CREDIT, 

ENERGY, AND RESEARCH 

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

MARCH 7, 2007 

Serial No. 110–03 

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

( 


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COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

BOB ETHERIDGE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH, 

South Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

JOHN T. SALAZAR, Colorado 

BRAD ELLSWORTH, Indiana 

NANCY E. BOYDA, Kansas 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

KIRSTEN E. GILLIBRAND, New York 

STEVE KAGEN, Wisconsin 

EARL POMEROY, North Dakota 

LINCOLN DAVIS, Tennessee 

JOHN BARROW, Georgia 

NICK LAMPSON, Texas 

JOE DONNELLY, Indiana 

TIM MAHONEY, Florida 

BOB GOODLATTE, Virginia 

Ranking Minority Member 

TERRY EVERETT, Alabama 

FRANK D. LUCAS, Oklahoma 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

MARILYN N. MUSGRAVE, Colorado 

RANDY NEUGEBAUER, Texas 

CHARLES W. BOUSTANY, JR., Louisiana 

JOHN R. ‘‘RANDY’’ KUHL, JR., New York 

VIRGINIA FOXX, North Carolina 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

KEVIN MCCARTHY, California 

TIM WALBERG, Michigan 

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

WILLIAM E. O’CONNER, JR., Minority Staff Director 

SUBCOMMITTEE ON CONSERVATION, CREDIT, ENERGY, AND RESEARCH

TIM HOLDEN, Pennsylvania, Chairman 

STEPHANIE HERSETH, 

South Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

BRAD ELLSWORTH, Indiana 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

DAVID SCOTT, Georgia 

JOHN T. SALAZAR, Colorado 

NANCY E. BOYDA, Kansas 

KIRSTEN E. GILLIBRAND, New York 

DENNIS A. CARDOZA, California 

STEVE KAGEN, Wisconsin 

JOE DONNELLY, Indiana 

FRANK D. LUCAS Oklahoma, 

Ranking Minority Member 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

TIM WALBERG, Michigan 

TERRY EVERETT, Alabama 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MARILYN N. MUSGRAVE, Colorado 

NONA DARRELL, Subcommittee Staff Director 


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C O N T E N T S 

Page 

Holden, Hon. Tim, a Representative in Congress from the State of Pennsylvania, opening statement .................................................................................... 1 

Lucas, Hon. Frank D., a Representative in Congress from the State of Oklahoma, opening statement .................................................................................... 2 

Goodlatte, Hon. Bob, a Representative in Congress from the State of Virginia, 

opening statement ................................................................................................ 3 

Peterson, Hon. Collin C., a Representative in Congress from the State of 

Minnesota, prepared statement .......................................................................... 5 

Walz, Hon. Timothy J., a Representative in Congress from the State of 

Minnesota, prepared statement .......................................................................... 9 

WITNESSES 

Dorr, Hon. Thomas C., Undersecretary for Rural Development, U.S. Department of Agriculture, oral statement ................................................................... 10 

Prepared statement .......................................................................................... 62 

Karsner, Hon. Alexander, Assistant Secretary, U.S. Department of Energy, 

oral statement ...................................................................................................... 11 

Prepared statement .......................................................................................... 76 

McGinty, Hon. Kathleen A., Secretary, Pennsylvania Department of Environmental Protection, oral statement ...................................................................... 13 

Prepared statement .......................................................................................... 81 

Denniston, John, Partner, Kleiner Perkins Caufield & Byers, Menlo Park, 

California, oral statement ................................................................................... 36 

Prepared statement .......................................................................................... 89 

Book, Kevin, Senior Vice President, Friedman, Billings, Ramsey, & Company, 

Inc., Arlington, Virginia, oral statement ............................................................ 38 

Prepared statement .......................................................................................... 97 

Ward, Larry, Vice President Project Development, Broin Companies, Sioux 

Falls, South Dakota, oral statement .................................................................. 39 

Prepared statement .......................................................................................... 104 

Barker, Tim, Executive Vice President, Orion Ethanol, Pratt, Kansas, oral 

statement .............................................................................................................. 42 

Prepared statement .......................................................................................... 119 

Stark, Doug, President, Farm Credit Services of America, Omaha, Nebraska, 

oral statement ...................................................................................................... 44 

Prepared statement .......................................................................................... 123 

Reyher, Dave, President, Colorado East Bank & Trust, Lamar, Colorado, 

oral statement ...................................................................................................... 46 

Prepared statement .......................................................................................... 127 

SUBMITTED MATERIAL 

Holden, Hon. Tim, Fortenberry, Hon. Jeff, and Costa, Hon. Jim, letter ............ 60 

Dorr, Hon. Thomas C., Undersecretary for Rural Development, U.S. Department of Agriculture, questions ............................................................................ 138 


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HEARING TO REVIEW THE FINANCIAL STRUCTURE OF RENEWABLE ENERGY SOURCES 

WEDNESDAY, MARCH 7, 2007 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CONSERVATION, CREDIT, 

ENERGY, AND RESEARCH, 

COMMITTEE ON AGRICULTURE, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 1:05 p.m., in room 

1302 of the Longworth House Office Building, Hon. Tim Holden 

(chairman of the subcommittee) presiding. 

Present: Representatives Holden, Herseth, Cuellar, Costa, Ellsworth, Space, Walz, Scott, Salazar, Boyda, Gillibrand, Cardoza, 

Boswell, Lucas, Rogers, Fortenberry, Schmidt, Walberg, Everett, 

Moran, Graves, Musgrave, and Goodlatte (ex officio). 

Staff Present: Nona Darrell, Scott Kuschmider, Rob Larew, John 

Riley, Sharon Rusnak, Anne Simmons, Debbie Smith, Bryan 

Dierlam, Josh Maxwell, Pelham Straughn, and Jamie Weyer. 

STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF PENNSYLVANIA 

Mr. HOLDEN. I would like to welcome everyone this afternoon, 

and I hope that this hearing will provide a good perspective on how 

we can improve the Federal role in supporting the renewable fuels 

market. 

Today, we asked a question: what approach should we take on 

renewable energy policy? We are going to look at the current structure of investment in renewable energy sources. At a recent Energy 

and Commerce Committee hearing, our friends in that committee 

talked about energy’s role in agriculture, so today, we will talk 

about agriculture’s role in energy. 

In the 2005 Energy Bill, Congress authorized a program to provide loan guarantees for renewable fuels and other energy projects. 

However, the Department of Energy has absolutely dragged its feet 

on implementing the Loan Guarantee Program. I am puzzled by 

the length of time it has taken to develop the program, and I am 

not sure if the Department of Energy should be taking over the renewable fuel portfolio. 

The Department of Agriculture has had a successful history in 

providing support for programs that could help drive our renewable 

fuels industry. They are already successfully administering very effective loan guarantee programs, so it is hard for me to understand 

why the Department of Energy is having so much difficulty. 


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Over the past few decades, we have seen an expanding list of 

Federal, State, and local incentives, regulations, and programs. 

These initiatives have helped encourage renewable energy production and use. The biofuels market is rapidly growing and changing. 

This hearing today will review the current state of government programs and industry investment in preparation for the reauthorization of the farm bill. I think we can do more to increase our use 

of renewable agriculture fuels, and become more energy-independent. 

I look forward to hearing from the witnesses. I ask all members 

to submit their opening statements for the record, so we have more 

time for questioning, with up to three exceptions, but one right 

now, Mr. Lucas, the Ranking Member from Oklahoma. 

STATEMENT OF HON. FRANK D. LUCAS, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF OKLAHOMA 

Mr. LUCAS. Thank you, Mr. Chairman, and I believe this is the 

first time we have an opportunity to do a hearing since you have 

become the chairman, so I would like to note that having served 

loyally with me as my ranking member for 51⁄2 years, you were an 

outstanding force in previous legislation, and I hope, perhaps, to 

duplicate your role in my position as Ranking Member under your 

Chairmanship, and I would be less than candid to admit that, you 

know, some day, I wouldn’t mind reversing those roles again, but 

you will be a fine chairman. 

Mr. HOLDEN. Well, we will have to live by these rules for now, 

then. 

Mr. LUCAS. Yes, sir. That is exactly right. 

After years of skepticism, the business sector is giving the ethanol industry a second look. Higher petroleum prices and technology advances have made renewable fuels a more viable business 

model. But now the question is how we help these fuels in their 

move from a potential fuel alternative to a successful business 

plan. 

The science is in on renewable fuels. More than five billion gallons of ethanol, and more than 225 million gallons of biodiesel are 

currently in production. The question now is how can the government present the best possible business environment for current 

production to succeed, and for additional biofuel plants to begin 

production. 

The Federal government has played a big part in the early successes of renewable fuels. The ethanol tax credit is $0.51 per gallon; the biodiesel tax credit is $1 per gallon. The tariff on imported 

ethanol is $0.54 per gallon. The current Renewable Fuel Standard 

is 7.5 billion gallons by 2012. Total Federal and State biofuel subsidies have been estimated in the range of $5.5 to nearly $7 billion 

per year, and the research has also shown that cellulosic ethanol 

also has shown real promise. This form of ethanol, created from 

products such as switchgrass, that could be grown abundantly, it 

just so happens, in Oklahoma, scientists say switchgrass can 

produce more ethanol on less usable soil than traditional crops, but 

there is no commercial production currently online. The newest 

challenge is getting that technology from the lab to the open market. 


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Producers have heard for years that ethanol would provide an 

additional market for their crops, but it is only now that they are 

seeing the results of that promise. Renewable fuel production creates jobs, and brings economic development to rural communities. 

I look forward to the discussion today, and hearing from these 

witnesses on their real world challenges they face every day. 

Thank you, Mr. Chairman. 

Mr. HOLDEN. I thank the Ranking Member, and I want to recognize the Ranking Member of the Full Committee, Mr. Goodlatte. 

STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF VIRGINIA 

Mr. GOODLATTE. Thank you, Mr. Chairman. I would like to 

thank you for calling today’s hearing. 

A few years ago, not many people outside of agriculture took notice of issues related to renewable fuels. Today, ethanol and biodiesel are at the forefront of energy policy discussion. 

In 2002, the Congress passed a farm bill that included its own 

energy title for the first time. More recently, Congress mandated 

a Renewable Fuels Standard in the Energy Policy Act of 2005, 

along with several production and tax credits for ethanol and biodiesel. These policies have created incentives for private investors 

and entrepreneurs to develop more than 100 biorefineries across 

the country. Because of the increased demand for renewables, producers have found new markets for their products, and are helping 

to reduce our dependency on foreign sources of energy. Additionally, the renewable fuels market is creating new jobs in the agriculture sector, and generating more income for local economies. 

Today, I look forward to hearing how the U.S. Department of Agriculture and the U.S. Department of Energy are working together 

to fund the research and production of biofuels, and how the private sector is investing in the renewable energy sector. 

I am also very interested in hearing input from our witnesses on 

how we should shape future renewable energy programs. To meet 

the needs of our energy consumption, and to open more markets for 

our agriculture producers, it is essential that we develop commercially viable cellulosic ethanol plants. I am encouraged by the Department of Energy’s recent announcement of competitive grant 

awards of up to $385 million to help finance six cellulosic ethanol 

plants. 

The development of cellulosic technology has enormous potential 

to bolster the renewable fuel market outside the corn belt. Products 

such as forest biomass are plentiful and available in many states. 

Almost 2⁄3 of the Commonwealth of Virginia is forested, as is much 

of the Southeastern United States. Trees are an abundant resource, and are available for conversion into both paper and 

biofuels year-round. Let me also add that like forestry biomass, 

other agricultural by-products, such as plant and animal waste, as 

well as other commodities, can be tapped as plentiful, sustainable 

renewable fuel resources. 

Again, Mr. Chairman, I welcome you as Chairman of this Subcommittee, and I look forward to this hearing, and I thank you for 

holding it. 


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Mr. HOLDEN. Well, I thank the Ranking Member, and we welcome our first panel: the Honorable Thomas C. Dorr, Under Secretary for Rural Development, United States Department of Agriculture; the Honorable Alexander Karsner, Assistant Secretary, 

United States Department of Energy; the Honorable Kathleen 

‘‘Katie’’ McGinty, Secretary of the Pennsylvania Department of Environmental Protection. 

Our witnesses have submitted their written testimony, so I ask 

them to keep their remarks as close to five minutes as possible. 

And Secretary Dorr, you may begin when you are ready. 


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STATEMENT OF HON. THOMAS C. DORR, UNDER SECRETARY 

FOR RURAL DEVELOPMENT, UNITED STATES DEPARTMENT 

OF AGRICULTURE 

Mr. DORR. Thank you, Mr. Chairman. Mr. Chairman and members of the subcommittee, it is a distinct pleasure for me to appear 

today to discuss USDA Rural Development’s renewable energy and 

energy efficiency programs and activities. 

You have asked me to focus this afternoon on our role in financing renewable energy investments. Let me begin by saying that reducing America’s dependence on imported oil is a national and economic security issue. It is an important environmental issue. And 

for American agriculture and rural America, it is also an enormous 

opportunity, probably the greatest opportunity for wealth creation 

in rural America in our lifetimes. 

I want to acknowledge at the outset that conservation is also an 

important objective. A kilowatt saved is as important as a kilowatt 

produced, and my written testimony discusses a number of energy 

efficiency initiatives by our housing, utilities, and business programs, and I would invite your questions on those issues as well. 

With regard to our renewable energy financing strategies, the 

first point to make is that renewable energy is, in fact, already taking off. We are in the very early stages of a long build-out, but we 

are no longer standing at the starting line. The record in this decade is dramatic. Installed wind capacity has quadrupled since 

2000. Ethanol production has more than tripled, and it will more 

than double again when the capacity now under construction comes 

on line. Biodiesel production is up from two million gallons in 2000 

to 245 million gallons last year, with 50 percent growth projected 

for this year. Cellulosic ethanol is now moving out of the labs and 

into production. 

The growth is driven by two things. First is the increase in world 

oil and natural gas prices. One of the things that markets are good 

at is converting problems into opportunities, $20 oil priced most renewables off the market, $60 oil, painful though it is, is now calling 

new resources into production. 

At the same time, policy in this decade has strongly supported 

the development of renewables. President Bush made a comprehensive energy strategy, including renewables, a first order of business 

in 2001. Since then, we have had the Energy Title of the 2002 

Farm Bill, the Energy Policy Act of 2005, a series of pro-renewable 

energy tax incentives, the Advanced Energy Initiative, the Twenty 

in Ten Initiative this year, and the important new proposals in the 

President’s Farm Bill rollout announced about a month ago. These 

are now paying off. Again, it is early in the game. Coming into the 

decade, the renewable energy baseline was still very low. The explosive growth that we have begun to achieve has just started to 

move the needle. 

That said, however, wind, conventional ethanol, and biodiesel are 

currently building out very, very rapidly, and research is accelerating across the spectrum. It is becoming very clear that 10 or 

20 years down the road, we will look at the beginning of this decade as the point of inflection when renewables really became of 

age. 


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So where do we go from here? Rural Development, of course, is 

heavily involved, because the leading wave of renewable energy 

technologies are agriculture or rural-based. We have supported and 

will continue to support renewable energy and energy efficiency investments across the full range of rural development programs. 

From 2001 through 2006, our business utility programs invested 

over $480 million in 1,134 renewable energy and energy efficiency 

projects. Ten separate programs contributed to this total. I therefore caution you not to think that this is limited to the 9006 Program or the Business and Industry Program, or any other individual platform, because the commitment is across the board. 

Furthermore, our investments were just the tips of the iceberg. The $480 million leveraged over $1.5 billion in private funding, and 

our ability to leverage is crucial going forward. Private equity is beginning to move into renewable energy in a big way. The issue for 

us, therefore, is not limited to developing new energy resources. 

That will happen. It is happening, regardless of who owns the 

plants. 

From our perspective, however, an equally important question is 

how will rural America participate in this build-out? Among the 

things we are exploring are investment and business models intended to facilitate the aggregation of local capital, as well as to enable farmers and other rural investors to engage. 

An example I have often used is that the America’s Farm Balance Sheet, as calculated by Keith Collins and his crew at USDA’s 

economic shop, showed total farm assets of farmer and rancherowned ranch, forest, and farmland at over $1.9 trillion, and a net 

farm equity of $1.7 trillion. $1.9 trillion is over 1,000 times our 

total budget at USDA Rural Development. If we can use our resources to get farmers and other rural investors in the game, we 

can, in fact, multiply the benefits to rural America many times 

over. 

Finally, Mr. Chairman, I want to emphasize that financing is 

just one part of the puzzle. We need to be looking at the regulatory 

and logistical impediments to the rapid build-out of these new industries. We need to be providing technical assistance to local governments and potential investors. There are going to be issues of 

market access as biofuels begin to be traded internationally, and 

there is going to be an open-ended technology race as feedstocks 

and conversion technologies continue to improve. This may lead to 

serious intellectual property and technology transfer issues. The 

money is important, but it is not the only thing or even, perhaps, 

the primary thing that we need to be concerned about today. 

This is an exciting prospect. We are glad to be part of it, and I 

will be happy to address any questions you may have. Thank you. 

[The prepared statement of Mr. Dorr appears at the conclusion 

of the hearing.] 

Mr. HOLDEN. Thank you, Mr. Secretary. Secretary Karsner. 

STATEMENT OF HON. ALEXANDER KARSNER, ASSISTANT 

SECRETARY, UNITED STATES DEPARTMENT OF AGRICULTURE 

Mr. KARSNER. Mr. Chairman, thank you for the opportunity to 

participate in this hearing on the financing structure of renewable 

energy sources. I will discuss initiatives underway in the Office of 


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Energy Efficiency and Renewable Energy at the Department of Energy, and focus on the activities within our Biomass and Biorefinery Systems Program, that provide incentives and financing 

for ethanol production in particular, and support the development 

of biofuels. 

I would like to say, at the outset, that the Department of Energy 

shares an excellent working relationship with the U.S. Department 

of Agriculture. Under Secretary Dorr and I collaborate on a variety 

of renewable energy issues, each bringing unique perspectives of 

our agencies to the table, in order to achieve the goal of enhancing 

greater energy security, economic competitiveness, and environmental stewardship. 

This committee has the weighty charge of reauthorizing the farm 

bill this year, and there appears to be a strong consensus that a 

robust Energy Title is essential. America’s farmers and ranchers 

have the opportunity to play an historic role in shaping domestic 

energy policy while creating new jobs and stimulating economic 

growth in rural America. I look forward to collaborating continuously with USDA, as we work with Congress on these efforts. 

In the 2007 State of the Union Address, President Bush challenged our country to reduce gasoline consumption by 20 percent 

within the decade, our Twenty in Ten plan. In that plan, the President called for new mandatory fuel standards, requiring the equivalent of 35 billion gallons of renewable and alternative fuels by 

2017, nearly five times the target now in law. Expanding the current Renewable Fuel Standard established by the Energy Policy 

Act of 2005 creates a tremendous incentive for research, development, and private investment into alternatives to oil. 

The Department of Energy is dedicated to helping our Nation develop a full portfolio of renewable and alternative fuels technologies. Over the next two years, the Department, together with 

a number of our key strategic partners in Government, including 

USDA, will undertake key activities to accelerate the development, 

production, and deployment of cellulosic ethanol. Ethanol is currently the liquid renewable fuel having the greatest success in the 

market, with potential for both near and long-term displacement of 

gasoline. The focus of DOE’s Biomass Program is to make cellulosic 

ethanol cost-competitive by 2012, a target put forth in the President’s 2006 Advanced Energy Initiative. 

Under Section 932 of the Energy Policy Act of 2005, the Department recently announced six selectees for up to $385 million in 

grants for commercial-scale biorefineries. While these first of a 

kind facilities will likely have higher costs of production than subsequent cellulosic biorefineries, they will initially help us to identify the issues of commercial scaling to enable market penetration 

of cellulosic ethanol. 

EPAct 2005 created the Title XVII Loan Guarantee Program. 

This program seeks to facilitate financing for commercial projects 

that avoid, reduce, or sequester air pollutants or anthropogenic 

emissions of greenhouse gases, while employing advanced technologies. Renewable energy systems such as advanced biofuels 

projects are eligible for the Title XVII loan guarantees. 

DOE is also implementing Section 942 of the Energy Policy Act, 

which directs establishment of a reverse auction incentive program 


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in consultation with USDA, EPA, and the Department of Defense, 

for the production of domestic cellulosic biofuels. On the research side, DOE’s Office of Science is investing $375 

million over the next five years to support the establishment and 

operation of three bioenergy research centers. The centers focus on 

accelerating transformational scientific breakthroughs for cost-effective production of biofuels and bioenergy. To address biomass resource availability and feedstock infrastructure, DOE will continue 

to support the Regional Biomass Energy Feedstock Partnerships 

with the Department of Agriculture, to identify regional biomass 

supply, growth, and biorefinery development opportunities across 

the country. 

The Department is also working to encourage the development 

and deployment of the distribution and delivery infrastructure. 

DOE’s Biofuels Infrastructure Team, comprised of staff from our 

Vehicle Technologies and Clean Cities Programs and the Biomass 

Program, works to resolve fueling issues and encourage auto manufacturers to significantly increase the production of flexible fuel vehicles. 

My written statement, of course, includes far greater detail on 

these and other activities, but this concludes my opening remarks, 

and I would be happy to answer any question the members of the 

committee may have. 

[The prepared statement of Mr. Karsner appears at the conclusion of the hearing.] 

Mr. HOLDEN. Thank you, Secretary. Secretary McGinty. 

STATEMENT OF HON. KATHLEEN A. MCGINTY, SECRETARY, 

PENNSYLVANIA DEPARTMENT OF ENVIRONMENTAL PROTECTION 

Secretary MCGINTY. Thank you very much, Mr. Chairman, and 

members of the committee. And I wanted to share three or four 

specific points, but start at a place that might not be immediately 

obvious, and that is how an industrial state, like Pennsylvania, 

here to speak to you about renewable energy and agriculture? 

As the chairman well knows, we are the third leading state in 

agricultural production in the country, and we, while 31⁄2 years 

ago, not on the map at all with respect to renewable energy, I 

wanted to share our experience, because today, we are among the 

leading states in the East in wind energy. We are second now in 

the country, in terms of solar energy, and the breadth of our program related to solar. We are becoming a strong contender with respect to ethanol, and in the next two years, could be one of the 

leading, if not the leading states in the Nation in the production 

of biodiesel. 

While we have achieved that, it is the tip of the iceberg, but I 

want to share, in support of the thesis of this hearing, that there 

is opportunity in terms of economic development in renewable energy. That effort has won for us the most profitable wind energy 

company in the world coming to Pennsylvania, 1,000 manufacturing jobs created, and $100 million investment in our economy. 

We also have brought the world’s largest solar integration company 

to Pennsylvania, a German company. There, too, another $100 million investment in our economy. In biofuels, we have one of the bigVerDate Aug 31 2005 07:34 Oct 05, 2007 Jkt 036366 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 E:\HR\OC\A366.XXX A366

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gest plants in the country coming online in ethanol, a 400 million 

gallon plant, and we have started by attracting the Russian oil 

giant Lukoil to come and build their flagship plant in Pennsylvania, that one plant is a $250 million investment in our economy. 

So, this is a winning strategy for us, but there is more that we 

can do. We have succeeded through a combination of smart policies 

that help create the market and the demand for renewable energy, 

and strategic, although much more limited than we would like, investment of dollars to help close the financing on these major investments and projects. 

To build on that, the state is next doing two things. One, we have announced a nearly $1 billion new fund to help support the 

financing of both renewable electricity and renewable fuels projects 

in the State, and second, building on President Bush’s lead, we 

have announced our PennSecurity Fuels Initiative, where we will 

require the growth, manufacture, and use in our state of a volume 

of biofuels equal to that which Pennsylvania imports from the Persian Gulf. That would be a billion gallons of biofuel that we would 

be sourcing and using in our State. 

The specific ideas that I wanted to share, in terms of going forward, for the committee’s consideration, derive from the nature of 

energy and the risk associated with energy projects. I think this 

committee is specifically well-suited to handle these risks, because 

agriculture understands commodities and commodity markets. Energy is a commodity, which means there is a boom and bust risk 

inherent in the development of energy resources. 

The three types of risk specifically to consider are the following: 

risk with respect to feedstock, risk with respect to the technology, 

and risk with respect to the market for offtake. With respect to 

feedstock, four ideas for your consideration, I will start with the 

least popular, which would be to consider a price floor for oil, $40 

a barrel, the experts say, at that price, renewable fuels can compete. 

A second, maybe more popular idea, would be a continuation and 

expansion of the loans and grant programs that are aimed at the 

production of feedstocks, as well as research to find higher BTU 

value feedstocks. A third idea is a grant expanding the production 

grant that today is very helpful, but is being outpaced by the market, where commodity speculation is driving up the price of soy and 

corn, and making renewable fuels sometimes un-cost-effective, or 

the cost-effectiveness being impaired. 

Finally, with respect to feedstock risk, and this is more with respect to electricity than fuels, to consider making permanent the 

production tax credit and the investment tax credits that have been 

so essential to wind and solar resource development. Second is 

technology risk. There, it is about loan guarantees to absorb the 

risk of new cutting edge technologies. Here, Pennsylvania’s experience has not been positive. We were to be on the receiving end of 

a loan guarantee with respect to a coal to liquids plant. That has 

been delayed. That has meant that the Chinese have gobbled up 

the technology we otherwise were going to deploy, and it has increased the cost of the project. 

Finally, risk with respect to off-take. The two ideas I would share 

there: first, put the power of the Federal purchasing power to work, 


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to buy domestically produced renewable fuels; and second, to copy 

the success of the portfolio standard in biofuels with a Federal 

portfolio standard with respect to renewable electricity, as well. 

Mr. Chairman, Members of the Committee, thank you for your 

attention. 

[The prepared statement of Ms. McGinty appears at the conclusion of the hearing.] 

Mr. HOLDEN. Thank you, Secretary McGinty. 

Secretary Karsner, I imagine you could tell by my opening statement that I am a little frustrated about the implementation process here for the Loan Guarantee Program. Secretary McGinty just 

mentioned an Alternative Fuel Project, which I know we are not 

here to talk about, that you know, almost cost us $100 million in 

CCPI, and we are concerned about what is going to happen with 

the Loan Guarantee Program. The Iogen cellulosic plant in Idaho, 

that just received about $80 million funding in the Secretary’s announcement also was waiting on a loan guarantee, and it is just 

a little frustrating when you think the Energy Bill was 2005, and 

the Loan Guarantee Program is not in place yet. 

And I really don’t want you to elaborate on what has taken so 

long, though you are welcome to. I really want to know when is it 

going to be in place, and when are we actually going to see these 

plants being financed and being guaranteed? 

Mr. KARSNER. Well, let me take that piece by piece. 

First, let us work backwards from some of the projects that Secretary McGinty and yourself just mentioned. You mentioned these 

projects are waiting on their loan guarantee. I would emphasize 

that the Loan Guarantee Program is a competitive program, so nobody ought to be waiting on them. They ought to be making applications that are going to be competing for them. It is not a grant 

program. It is a loan guarantee to handle the debt portion of a 

project that has sufficient maturity in its project financing package, 

but needs something to address the debt situation. 

Mr. HOLDEN. Okay, that is understand. But they have applied, 

and they haven’t been vetted. 

Mr. KARSNER. Now, let me get onto your frustration with standing it up. I share your frustration. I think many people at the Department do, and not least of which would be Secretary Sam 

Bodman. Having said that, I think it is very important to make 

clear for the record that there is a very important and compelling 

reason as to why it has not been stood up at the rate originally anticipated, and that is that Congress has not funded it until February 15 in the Continuing Resolution, and so, the Department, in 

fact, had its hands tied with an inability to stand up a program 

that did not have its funding request met for that program. Now that the funding request has been put in place, for $7 million, to stand up the Loan Guarantee Office, there are specific 

timelines and metrics in place, and so, we must get out the rule, 

the final rule that will ultimately enable the disbursement of those 

loan guarantees, but realize that on the other end, the Department 

has been widely criticized by General Accounting Office for going 

ahead very aggressively, despite the fact that we were not funded 

by the Congress to do so. So, we did put a solicitation on the street, 

even without a Loan Guarantee Office being funded. That solicitaVerDate Aug 31 2005 07:34 Oct 05, 2007 Jkt 036366 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 E:\HR\OC\A366.XXX A366

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tion was responded to very robustly by 143 applicants. Those applicants are currently having those applications analyzed and put out 

to the programs for technical review, and that will be happening 

in parallel process as the newly funded Office is stood up to administer that Loan Guarantee Program. 

Mr. HOLDEN. When do you believe that we will have the first 

guarantees awarded? 

Mr. KARSNER. It will be a condition precedent for disbursement 

of a loan guarantee that the final rule be put in place, and when 

the final rule is put in place, I am cautiously optimistic we could 

say that we hope to have it before the end of the year. 

Mr. HOLDEN. Before the end of the year. You think you possibly 

could have an award before the end of the year. 

How about projects that have received funding, such as the plant in Idaho, who just received $80 million. Would they be eligible for 

the loan guarantee as well? 

Mr. KARSNER. It is my understanding that those that have received grants from other sources of the Federal Government or 

other pools of money are not precluded from—— 

Mr. HOLDEN. Not precluded. 

Mr. KARSNER [continuing]. But not precluded from being eligible, 

but that those other sources of money, and the quantity of their 

disbursement, or the characterization, whether they are off-take 

contracts or grants, will be factored into account in their applications. 

Mr. HOLDEN. Okay. I know we are not here to talk about alternative fuels, but I would assume that you would think it would be 

the same way for alternative fuels as well as renewable? 

Mr. KARSNER. What I just said applies to everything that is eligible under Title XVII. 

Mr. HOLDEN. Okay. Thank you, Secretary. 

Secretary Dorr, you administer a program that has been very 

successful all across the country, I believe, the Business and Industry Guaranteed Loan Program. Been very successful in Pennsylvania and in my district. How big is USDA’s portfolio in energy 

now? 

Mr. DORR. Well, it kind of depends on how you bifurcate it. The entire USDA Rural Development portfolio is approximately $95 billion. We have approximately $46 or $47 billion in traditional and 

some nontraditional power and energy loans in the Rural Electrification Administration. On top of that, since the development of 

the Renewable Energy portfolio, we have directly made loans in excess of $475 million to over 1,100 and some projects. These involve 

funds from both the BNI program, out of the Value Added Development Grant Program, and out of the Energy Title 9006 Loan and 

Grant Program. 

Mr. HOLDEN. These renewable plants are going to be in the hundreds of millions of dollars. USDA, what is the largest, on a single 

project, guarantee you have out there? 

Mr. DORR. I am aware of one that I believe we have upwards of, I think $35 million that has a guarantee underneath it. 

Mr. HOLDEN. So $35 million, we are really looking at needing 

hundreds of millions of guarantees here. 

Mr. DORR. Correct. 


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Mr. HOLDEN. All right. Secretary McGinty, you told us all about 

the good things that you have done in Pennsylvania, but what is 

the biggest problem you encounter in trying to leverage large-scale 

renewable projects, and what can we do at the Federal Government 

to help? 

Secretary MCGINTY. Well, again, if it is a cutting-edge or new 

technology, then the area of loan guarantees is critically important. 

If it is not a new technology then we have, and having said we 

have not had good experience with the Loan Guarantee Program, 

let me underscore that the State Energy Plan dollars that DOE implements is a very effective model. There, the dollars aren’t great, 

but enables a state specifically to use dollars to provide the last increment of financing. 

To give you an example, we had a project that involved a Euro- pean company coming to the State, ready to invest $1 million discrepancy because of a currency exchange risk. When we invest 

those dollars strategically but with flexibility, it enables some very 

good and important projects to come together. 

Mr. HOLDEN. Thank you. The gentleman from Oklahoma. 

Mr. LUCAS. Thank you, Mr. Chairman, and Secretary Dorr and 

Karsner. First, an observation, then a question. 

Within the challenges of renewable fuel out there, I ask that you 

be very open-minded and very flexible, because while switchgrass 

and the more traditional things like corn have caught a lot of discussion and attention about sources of ethanol, clearly there are regions of the country where, due to the climate and the soil type, 

things like grain sorghum and a variety of other potential crops 

can be very big players, and very efficiently use the resources that 

are out there to generate the feedstock to run these kinds of plants. 

So, bear that in mind, and I know Secretary Dorr being a farmer, 

understands fully all of the diversity out there. 

To both of you, I ask the following question. I suspect we are 

going to hear in this next panel what I have heard from my constituents working on these projects back in Oklahoma, renewable 

energy facilities, ethanol plants, that the cost of construction and 

operation has increased dramatically over the last year so. 

Does the current structure of the Guaranteed Loan Programs, do 

they meet the needs of the investors? Can they accommodate for 

that kind of a thing? 

Mr. KARSNER. Well, I would say on the face of it, yes, in the 

sense that there are no specific parameters as to the project’s size 

that is submitted by the applicants. One of the applicants was already mentioned here today, and it was also one of the applicants 

that was a winner in our cost-share solicitation. 

Well, in the cost-share that we had just given out up to $385 million, we had a wide variety. In fact, we had pursued this principle 

that you are advocating, a wider variety and diversity of feedstocks, and because of that, we had a wide variety and diversity 

of technologies, including the installed costs or the capital costs upfront. 

So, we don’t make a distinction by size parameter to exclude on 

the high side or the low side, what those installed and capital costs 

are. It is up to the applicant to make the business case for their 

projects. 


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Mr. DORR. I think Mr. Karsner has addressed it fairly effectively. 

I think it is important to understand at this point that this is an 

industry that is clearly a brand new industry. The carbohydrate/renewable energy industry is one in which there are no regulations. 

There are no policies. There are no taxes, there are no infrastructures that are inherently in place on this. 

Part of the problem, as a result, is that because it is in its infancy, and there is a great demand for this, we are going to go 

through some bumps. Right now, we know that the costs of a traditional dry mill have gone up quite considerably, due to labor and 

materials cost issues. There is going to be the need to develop solid 

financing parameters around these arbitrage strategies on both 

ends of it. And to the extent that those business models are fully 

developed, I think that our loan guarantee programs within the 

constraints of the regulations that we presently have can deal with 

them. 

Mr. LUCAS. Secretary McGinty, representing a district in Oklahoma, we are a mature energy producer, much like Pennsylvania. 

Secretary MCGINTY. Right. 

Mr. LUCAS. Oil and gas, we are into wind energy, we are attempting hard to get into the ethanol business. You made a fascinating comment about the need to provide some sense of certainty for these folks, and you used the phrase, I think, something 

like a $40 a barrel—— 

Secretary MCGINTY. Price floor. 

Mr. LUCAS [continuing]. Floor. Would you expand on that for just 

a moment, because that is a topic that sometimes is a little difficult 

for folks not from the energy producing areas—— 

Secretary MCGINTY. Right. 

Mr. LUCAS [continuing]. To understand why it matters that we 

not have these giant gyrations in price. 

Secretary MCGINTY. Thank you, yes. The energy commodities, 

maybe even more than other commodities, have gone through many 

boom and bust cycles. We have certainly seen that with respect to 

renewable energy in the ’70s, where we were in a very strong investment period, took our eye of the ball as oil prices went down, 

rendering those alternative technologies less cost-competitive, and 

the United States lost huge advantage in those technologies. 

If I had to choose one policy that I think most effectively could 

reduce the risk that Wall Street sees, so that we could better mobilize private sector dollars, it would be to ensure that there is a 

level of price with respect to traditional energy commodities, such 

that the alternatives would have a chance to compete in a way that 

they could stick and stay, rather than be hot today and of no interest tomorrow. 

Mr. LUCAS. And that $40 figure, Secretary, just an off the cuff 

comment, or something you have really thought about? 

Secretary MCGINTY. No, that is derived by some of the projects 

that we have been involved in, using some of the USDA and Department of Energy dollars. That does seem to be the breakpoint 

above which both renewable transportation fuel projects can compete, as well as, although there is not a direct relationship, it affects the price of alternative electricity projects as well. 

Mr. LUCAS. Thank you for your observation. 


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Secretary MCGINTY. Thank you. 

Mr. LUCAS. And few officials, elected or appointed, are generally 

willing to step up and make those to the point comments. Thank 

you. 

Mr. HOLDEN. I thank the gentleman. The chair will recognize 

members in order of seniority if they were here at the time the 

hearing began. If not, it will be order of arrival. Ms. Herseth. 

Ms. HERSETH. Well, thank you, Mr. Chairman. Thank you very 

much for having this hearing, and I want to thank all three of our 

panelists today for their helpful testimony. 

I would have many questions in the area of biofuels, as I often 

do, but I would like to talk a little bit about wind, since that was 

raised, and Under Secretary Dorr, you had mentioned in your testimony, you know, the question for your Department in particular, 

how is rural America going to participate? And what we have seen 

in biofuels is the opportunities for individual investors, whether 

they are farmers or ranchers or rural citizens, invest in many of 

these ethanol plants. 

In wind, I have some concerns about barriers that exist to individual investment, to community investment, and I also know that 

you mentioned sort of the rural electric cooperatives and this evolving rural infrastructure, and rural electric cooperatives have been 

instrumental, in a number of instances, in the financing strategies 

as they have been implemented, for biofuels. And I think there is 

clearly a role for them to continue to play in wind, as it relates to 

that individual and community investment. 

Could you share some of your ideas on how we facilitate that? 

Do we need some changes in the law, whether that be tax provisions and elsewhere, and then, if both you and Assistant Secretary 

Karsner could talk about your agencies’ role in addressing the 

transmission issues, particularly those that we have in South Dakota, unlike how well situated Pennsylvania is to market that a little bit easier. 

Mr. DORR. Well, this is an interesting opportunity, and it obviously is a challenge. It is more of a challenge in some States than 

other States. I think what you have, relative to wind, is that you 

have a plethora of regulatory regimens. You have those regulatory 

issues that are directed at the Federal level, but then you have, 

within each state, a regulatory structure that has to be dealt with. 

I think in a broader sense, what we need to appreciate is the fact 

that the traditional generation, transmission, distribution system, 

particularly as it pertained to rural America, was predicated on an 

environment in which there were no competitors, and in fact, those 

that were given the approval and the funding to do this were done 

so in a monopolistic environment, with a guaranteed set of repayment structures, that made it a doable project, if you may. 

What happens now, when you get small distributed wind 

projects, which I happen to think have a great deal of potential for 

rural Americans and rural citizens, is that you have to somehow, 

and I think you have probably heard me mention this before, but 

you have to figure out how you get these distributed production 

systems integrated into these legacy systems. 

In some cases, there are some states who have been, perhaps, 

more effective or more aggressive about doing that than others. I 


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think it is important, probably, at the outset, to get people to sit 

down at the table and say okay, we acknowledge that there are 

these legacy contracts. There are these legacy providers, but yet, 

the distributed power that we have in production out here is going 

to be cost-effective, and it ultimately has to be integrated. We are 

in the process of completing a research study that we have not released yet—it is in draft form—that looks at the specific issue, with 

the intent not so much as providing more solutions, but at least addressing more effectively the right questions to ask in the future. 

So, hopefully, if we can get that thing available and out here 

within the next 30 to 60 days, that should give us a better insight 

into how we address that issue. 

Ms. HERSETH. And Mr. Karsner, did you want to comment briefly 

just on DOE’s role in addressing transmission, broader transmission issues? 

Mr. KARSNER. Sure. I would be happy to. The first thing to note 

is that the President had made clear, after the State of the Union 

last year, that wind had the capacity to potentially be up to 20 percent of our national generation portfolio. And to do that, we need 

to look inward to the heartland, and into the Dakotas, and into the 

great Western spaces, and the places where our resource is so 

grand. In South Dakota, we have more wind capacity potentially 

than all of Europe combined, and at a much, much lower cost. The 

challenge is getting out and through transmission bottlenecks. 

So, together with my colleague, Kevin Kolevar, who runs the Office of Electricity, we have together jointly programmed something 

we call renewable grid integration, and so that we might begin to 

look at the pathways for clean energy superhighways, not just for 

wind, but for concentrated solar power in the Southwest, geothermal out in the West, and maximizing and unlocking these 

great natural resources we have, bringing them to market efficiently, and lowering their cost for the end user. 

No State has done better, east of the Appalachians, than Pennsylvania. Although it does not have that kind of great wind resource, it has managed to say this is where the wind is, and this 

is how we will bring it to market. And that is fundamentally our 

challenge, focusing on siting, permitting, and transmission. 

Ms. HERSETH. Thank you. Mr. Chairman, I see my time has expired, but I would like to submit a question for the record to both 

Mr. Dorr and Mr. Karsner regarding the regulatory environment, 

as it relates to the President’s proposal to expand the Renewable 

Fuel Standard, what their role has been in working with the EPA 

in developing the rules for that RFS from 2005, and how they envision their agencies’ role in expanding it. 

And then finally, I would just commend to you, Mr. Chairman, 

and the other members of the subcommittee, because I have to go 

chair another subcommittee at two o’clock, the testimony of one of 

my constituents, Mr. Larry Ward, on the second. He is Vice President for Project Development with Broin Companies, which one of 

its projects received a grant from DOE just last week to advance 

cellulosic ethanol production at one of its plants across the border 

in Iowa, and in particular, Mr. Ward’s testimony does an exceptional job of addressing your concerns and mine and others, about 

a Loan Guarantee Program, whether it is administered by DOE or 


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USDA, to help meet the needs of private industry, as well as incentives that farmer-producers may need, as partners in developing 

the feedstocks for that technology. 

Thank you, Mr. Chairman. 

Mr. HOLDEN. I thank the gentlewoman, and members are encouraged to submit additional comments and questions. 

Mr. Moran. 

Mr. MORAN. Mr. Chairman, thank you very much. The topic generally that we are about today, I think, is one of the most important that Congress will address this year and into the future, and 

I commend you for holding this hearing. 

And I have become reasonably well acquainted with Secretary 

Dorr, and I don’t know Secretary Karsner, but I appreciate the efforts at both Departments. Mr. Karsner, we are very delighted of 

Abengoa Bioeenergy’s selection last week in the cellulosic efforts. 

And Secretary Dorr, I know you to be a champion of renewable 

fuels. My complaint, perhaps, with the Administration and with 

Congress is a lack of urgency, a lack of—we need to move this 

agenda much more quickly than we are. The American people, Congress, the Administration, all need to see, in my opinion, the significance, importance, that comes with moving us toward, this 

country toward renewable fuels, and the time is now. It is not 

later. So, anything that you can do to light the fire within the Department of Energy, at the Department of Agriculture, here in Congress, with the American people, I encourage you to do. 

I started out as a renewable fuel supporter, an ethanol supporter, because of the price differential it would bring to farmers 

in Kansas. But that has been a long process in my education, and 

it is now, to me, one of the most important issues we face, as far 

as international security. It has come a long way from trying to 

raise the price of corn, to recognizing the threat that our dollars, 

utilized by terrorists, and our dependence upon foreign oil, mean 

to our economy and to our security. So please champion these 

issues with all due haste. 

My questions are several, and I will ask them before the red 

light comes on, so that you are impeding upon other people’s time, 

not mine, but a couple of questions. 

It seems to me that there is an issue here of, and perhaps you 

know what states are doing, or what your theory or thoughts are 

in regard to what the Federal government should do. Ought our 

focus be on increasing the supply, or increasing the demand, or are 

those two things mutually exclusive, or are they obviously, I assume, go hand in hand, but that suggests to me that there is a different policy. If we are trying to increase the supply, we very well 

may be utilizing tax incentives to do so. If we are trying to increase 

the demand, it may be Renewable Fuel Standards. Different outcomes based upon different policies. 

And that relates to my question, as we talk about the next farm 

bill, we are often quoted. I find myself quoted as this will be an 

energy-oriented farm bill. Renewable fuels is the buzzword. I often 

smile at the number of times I hear the word switchgrass in Congress. I don’t know whether a Member of Congress knows what 

switchgrass is, but we talk about it constantly. My question is in 

the next farm bill that is going to be so energy, renewable fuel-oriVerDate Aug 31 2005 07:34 Oct 05, 2007 Jkt 036366 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 E:\HR\OC\A366.XXX A366

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ented, what are your specific suggestions? When we say that, what 

should we mean? And again, that, in part, goes back to my question about is the policy designed to increase the supply or to increase the demand? 

And then in regard specifically to financing, are we to the point 

in which the small investor is a thing of the past? Has ethanol and 

renewable fuels, when we talk about trying to raise the capital to 

create a new plant, to create additional production, are we really 

trying to appeal to Wall Street and to the hedge funds, or is this 

still about farmers and neighbors coming together and pooling their 

$5,000 investment to see that there is an ethanol plant or a biodiesel plant in their neighborhood? 

And finally, Madam Secretary, if you would take the opportunity 

to explain to me why the Department of Environmental Protection 

apparently is a lead agency—— 

Secretary MCGINTY. Yes. 

Mr. MORAN [continuing]. In renewable fuels in Pennsylvania. I 

try not to ask questions that I don’t necessarily know the answer, 

but I assume that you will give us ammunition to why this is an 

important issue from an environmental perspective, as compared to 

an economic perspective that many of us, coming from traditional 

farm states. I thank you all. 

Mr. DORR. Well, I will start, and try not to impinge on too many 

other Members’ time. 

Mr. HOLDEN. Secretary, if I could just interrupt for a moment. 

Mr. DORR. Yes. 

Mr. HOLDEN. I will just remind my friend from Kansas that answers are part of the member’s time as well, but please proceed. 

Mr. DORR. Well—— 

Mr. MORAN. I started to ask Mr. Chairman if you are on my subcommittee, and then I realize I no longer chair one. I am sorry. 

Mr. DORR. What I would point out is the President’s Farm Bill 

proposal does propose some level of haste in this, I believe, relative 

to what the farm bill lays out. One particular component is the $2.17 billion proposed cellulosic loan guarantee authority. That will take about $210 million of 

budget authority. We will need some statutory language allowing 

us to bridge the valley of death sorts of cellulosic loans. In our 

view, we have the back office, the origination, and the field organization to facilitate this fairly quickly. We would then immediately 

turn to Department of Energy to provide us with the kind of technical assistance to make sure that we were analyzing these projects 

appropriately. 

On the supply versus demand side of this equation, we know that 

we can easily incorporate up to an E10 into the demand side of the 

industry throughout the country. I think it is a double-edged 

sword. I think we have to focus on both increasing supply, as well 

as increasing demand, because if we don’t do both, at some point, 

we will run into a stone wall, and create some probably market dislocations that will not be particularly pleasant at the time we find 

out we have a surplus of ethanol, or a shortfall of product relative 

to the demand. 

And that is going to be a bit of a difficult challenge. I mean, we 

are in the infancy of a brand new industry. We have to build out 


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the infrastructure. We have to build out the supply, the demand of 

this. When I talked earlier about specifications, international 

standards, for example. That is an issue that I think is going to 

be incumbent upon the automobile industry to be heavily involved, 

so that we are producing either ethanol or biodiesel fuels that work 

in engines that will transfer throughout an international market. 

And so, these are all very complex things that we have a lot of 

work to do, and we at USDA are perpetually reaching out through 

our Energy Council, that the Secretary set up over a year ago, to 

work with other Federal agencies across the spectrum, in order to 

begin dealing with these, and hopefully, we can run fast enough to 

stay ahead of it. 

On the financing side of this, I think there is a terrific opportunity for rural America to have ownership in this, but it is a very 

different sort of an approach than it has been to financing a commodity and a food and fiber market that was generally 20 percent 

in surplus supply. With energy in the spectrum, we are essentially 

producing a downstream product that has a linear growth curve 

like this, in the context of BTUs and power, versus calories for 

more normal food off-take and feed off-take. And that enables us 

to begin developing different kinds of financing approaches. 

But that is going to require all of the people that are in that mix, 

whether it is the producers, whether it is the folks financing it, or 

whatever the case might be, to sit down and seriously look at how 

we develop these strategies to do it. We are, again, in some research taking a look at this. Hopefully, we will devise some good 

questions to begin driving more research in that area. 

Mr. HOLDEN. In the interest of time, if Mr. Moran’s questions 

could be answered briefly, and then maybe elaborated on in writing, the other questions. 

Mr. MORAN. I feel sufficiently chastised, Mr. Chairman. 

Mr. HOLDEN. Secretary McGinty, I don’t know if you wanted to 

answer the Pennsylvania-specific question. 

Secretary MCGINTY. Sure. My own approach to environmental 

challenges is build the solution, put somebody to work making a 

problem into an opportunity. So, for me, whether it is air, land, or 

water pollution, building a clean energy future is the answer. It is 

the way to go. And so, rather than sitting around blaming, let us 

build, and that is what we have chosen to do. 

Since wind was mentioned, I do want to say we can’t get there 

unless we have Federal support for a Federal renewable electricity 

portfolio standard. The economics really depends on that, as it depends on making the production tax credit permanent. 

Thank you. 

Mr. HOLDEN. Mr. Costa. 

Mr. COSTA. Thank you very much, Mr. Chairman. Congratulations, and I want to commend you for holding this important hearing this afternoon. 

For the balance of my time, because I have more questions than 

we have time, I would like unanimous consent to submit the questions that I won’t be able to ask. 

Mr. HOLDEN. Without objection. 

Mr. COSTA. And in the balance of using everyone’s time as effectively as we can, Secretary McGinty, we were very pleased to hear 


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your comments about Pennsylvania. Our Chairman Holden has 

talked, I think, with great pride in the efforts that Pennsylvania 

is pursuing, and certainly, you did a good job this afternoon of explaining the aggressive efforts that are taking place within your 

state. 

I want to pursue an effort that Chairman Holden and I have 

been talking about, and other members of the committee, with our 

Under Secretary for Rural Development, Mr. Dorr, and with the 

Assistant Secretary, Mr. Karsner, as it relates to our research and 

our efforts there, because I think both the Chairman and I and others are very excited about the prospects, as I think all members of 

the Agriculture Committee are, of creating this Energy Title, and 

trying to look at the long term, and where U.S. agriculture can 

play an important role in trying to reduce our dependency on foreign sources of energy. 

But my concern, and what we are trying to do our due diligence 

on right now, is all of the grants that are taking place out there, 

Mr. Dorr and Mr. Karsner, both within the USDA, as well as with 

the Department of Energy, how well do you think you have your 

hands on the quality and the level of collaboration that is taking 

place among universities throughout the country, in terms of any 

potential reinventing of the wheel or duplication, I might say, in 

terms of timelines on when these research efforts will produce results that can be translated to industry. 

How do we, in essence, get the best bang for our buck? I mean, 

you know, we all are, I think, are supportive of our universities. 

In California, we, like Pennsylvania, have done a lot in the last two 

decades, beginning with creating an Energy Commission, to focusing on a lot of incentive-based mechanisms to promote that. And 

currently, our governor has even increased that effort, but the 

whole focus on letting the marketplace try to determine which are 

the best technologies, but with that one criterion, and that is to reduce the CO2 levels, as we look at alternative sources of energy 

that would include agricultural purposes. 

Would both of you please respond? I know we don’t have a lot 

of time. How—do you think you guys have got a good handle on 

it? Do you work together? Do you collaborate together? Do you have 

meetings? Do you share lists? 

Mr. KARSNER. Yes, yes, yes, and yes. 

We do have something that was put in law by the Congress that 

Tom and I have worked very aggressively to step up in its profile. 

It is the Interagency Biomass Research and Development Coordinating Council. 

Mr. COSTA. How often do you meet together? 

Mr. KARSNER. Since Tom and I have taken responsibility for 

these roles, we have sought to elevate the people who can attend 

that meeting to Presidential appointees, exclusively, that report to 

their Secretaries. 

Mr. COSTA. How much money do you have out there in research, 

in total, and how many different grants? Do you have that off the 

top of your head? 

Mr. DORR. Last year, we invested $17 million in grants, and the year before that, it was in the neighborhood of $20 to $25 million 

in grants. 


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Mr. COSTA. That is USDA. 

Mr. DORR. That is the combined total between the two of us. 

Mr. KARSNER. The combined of both. 

Mr. COSTA. Okay. And how many numbers, was that 10 grants, 

5 grants. 

Mr. KARSNER. I would have to—I know the dollar numbers. 

Mr. COSTA. Okay. 

Mr. KARSNER. The grants are reasonably sizable, so they would 

not be a lot of grants. 

Mr. DORR. I am sorry, Mr. Karsner. You were—— 

Mr. KARSNER. No worries. 

Mr. DORR [continuing]. I interrupted in the middle. 

Mr. KARSNER. And so, I was just going to conclude that that 

meets monthly. With regard to the science, of course, the Department of Energy is the second largest funder of science after NASA. 

We have an applied science research and development portfolio, 

that is my program, and the basic science, and they connect together, hopefully, seamlessly. One focus is going outward to the 

market, one focus is on the study of phenomena. About half, or approximately more than half, just slightly, go to universities through 

these research and development grants, and we coordinate this 

very systematically and methodically moving through that pipeline 

in time. 

And so, through our solicitations, most major universities engaged in this work have some affiliation or nexus to Department 

of Energy programs, with regard to biomass and biorefinery R&D. 

Mr. COSTA. Time is fleeting, Mr. Chairman, but what I would 

like to do is to continue to suggest that we work with both of these 

Departments and our subcommittee, to try to get a better handle 

on this, as we look at writing the Energy Title in this year’s farm 

bill. 

It seems to me that we all, I think, have a similar view of the 

goal that we want to reach, but what I think really needs to be 

done is to figure out what kind of meaningful oversight we can provide to ensure that we are getting the best bang for taxpayers’ dollars, and we have timelines, and we are trying to make sure that 

these grants are working in collaboration with one another. 

Mr. HOLDEN. I thank the gentleman and appreciate his leadership. 

Mr. COSTA. Thank you very much, and I will submit the balance 

of my questions. 

Mr. HOLDEN. Thank you. The gentlewoman from Ohio, Ms. 

Schmidt. 

Ms. SCHMIDT. Thank you, Mr. Chairman. My question is for Assistant Secretary Karsner. I am going to be very brief. Could you 

please tell me what the Department of Energy is doing to encourage private sector investment in renewable energy? 

Mr. KARSNER. Not briefly, though. Yeah. There is—— 

Ms. SCHMIDT. I didn’t mean for your answer to be brief. My question was brief. 

Mr. KARSNER. Right, right, right. We are doing a great deal. In 

fact, as I said, we are in the applied science portfolio, and the more 

that these technologies in our portfolio, for both generation and 

transportation efficiency mature, the more need there is for ever 


bajohnson on PROD1PC71 with HEARING
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greater interaction with the private sector. So, we are sort of evolving out of a phase where we used to say when it reaches the end 

of the pipeline, there is a technology transfer window, the market 

accepts it, and everything worse, to being more proactively engaged. In fact, even in the course of this hearing, I see that several 

members of the venture capital hedge fund communities and the 

capital markets are present in this room, because there is such a 

proactive engagement with different departmental programs, pairing with VC funding to catalyze new investments in new industries, and of course, ultimately addressing the debt deficiencies in 

the loan markets that will enable new technology development for 

private sector developers, so that they can have replicable commercial models. That is really the endgame for us, as they mature. 

A good example of that that we have talked about today is wind 

power, which is commercially available and ready and competitive 

technology. But the government still has an indispensable role in 

facilitating that industry to greater rates of market penetration, 

and to breaking through bottlenecks in siting and transmission, 

and to, again, working with USDA so that we can figure out ways 

that our rural communities get greater benefit of dividends and 

royalties from these industries as they emerge and grow. 

Ms. SCHMIDT. Thank you. 

Mr. HOLDEN. The gentleman from Minnesota, Mr. Walz. 

Mr. WALZ. Thank you, Mr. Chairman, and I congratulate you for 

being the chair at such an auspicious time in history here, and I 

thank our panelists for being so candid. I would associate myself 

with my colleague from Oklahoma. I appreciate your optimism, I 

appreciate your foresight, and it is very encouraging. I say that because I am getting ready to leave to a Veterans Affairs Subcommittee on Investigations. It is not quite so optimistic, so thank 

you for that. 

Many of the questions I have have already been answered. You 

have done a great job. I would like to say that I am from the district in Southern Minnesota that receives more of the 9006 money 

than anybody else in the country. It has been absolutely instrumental in the growth of our wind energy, and it has been very well 

received. Our industry there is maturing. We are, of course, running into many of the issues you are talking about, transmission 

and those things, but they are seen as challenges. They are not 

seen as obstacles or problems. They are seen as challenges in the 

infancy of this industry. 

Again, Secretary McGinty, this is more of a question to you. I 

think you probably answered it, and maybe I will get you to sum 

it up on this, and I would echo your concern on the production tax 

credit. 

Secretary MCGINTY. Yes. 

Mr. WALZ. Something we are starting to push, and we would love 

to make sure that gets done. I wouldn’t have thought a year ago 

that I would have heard so much about that issue, but a day does 

not go by that I do not hear it out in Southern Minnesota, so I 

thank you for that. 

My question to you is, Ms. Secretary, you have worked on the 

local level. You have worked on the State level, where our plans 

actually get enacted. 


bajohnson on PROD1PC71 with HEARING
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Secretary MCGINTY. Right. 

Mr. WALZ. And I would just ask you, in promoting the development of renewables, as we are doing, what programs do you really 

champion, or what programs do you think have really been effective that can work as models for others? 

Secretary MCGINTY. Well, I would say one thing that is related 

to your comment, your question and others. Wall Street and the 

markets don’t believe if you build it, they will come. They need to 

know that there is going to be certainty of off-take, that there will 

be demand for the product once built, and that comes down to two 

or three things. 

One is those portfolio standards, that says to the private sector, 

in the energy business, you must buy that renewable alternative. 

The second is the certainty of those tax credits to ensure that there 

isn’t that boom and bust in the investment that is needed. These 

plants are hundreds of millions of dollars, and cannot be sustained 

on the basis of treating the PTC like a light switch. 

And the third, which is related specifically to wind and solar and 

other distributed electricity resources, net metering has not been 

mentioned, but if those resources are going to be economically viable on smaller scale, the idea that if you build it and generate more 

electricity than you use, that you have the right to sell that electricity to the grid, and get a fair market price for it, is absolutely 

essentially also to the economic viability of these projects. 

Thank you. 

Mr. HOLDEN. Thank the gentleman. Mr. Fortenberry. 

Mr. FORTENBERRY. Thank you, Mr. Chairman. I have several layers of questions, so I will just get it on the table, and then, we can 

unpack it. 

First, Secretary Dorr, I hope you enjoyed the visit to Nebraska 

recently. We appreciated having you there, and thank you all for 

joining us. I didn’t have the benefit of your full testimony earlier, 

so I apologize if this is a little bit redundant. 

Regarding distributed generation, thank you for bringing up the 

net metering issue. I think this is very important. Some of the 

members of the committee actually have met a farmer in my district who has 8,000 head of hog, takes the manure, turns it into 

methane, and generates electricity right there, and he is constantly 

telling me, Jeff, I need more money for the power that I produce. 

And now, Nebraska is a public power state. So, the point is, Secretary Dorr, as well, as you are working on this report regarding 

wind energy and how we integrate distributed generation of wind 

into the legacy providers of the grid, would you create a subchapter 

as well on how public power districts also do that without changing 

them to the private sector, because it has served us very well? That 

is one point. 

The second point follows up on Mr. Costa’s comments, which I 

think were very astute. It would be helpful, I think, to a lot of us, 

to have a better handle on all of the various components of renewable energy projects that are directly funded by the government or 

indirectly funded. And this goes to the heart of our Research Title 

in the USDA. It goes to the heart of what is a creative tension 

right now between the Department of Energy and the Department 


bajohnson on PROD1PC71 with HEARING
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of Agriculture as to who is going to basically carry the mantle, particularly of ag-based renewable energy projects. 

So, some type of matrix that lays out clearly all of the Federal 

involvement directly or indirectly through grants, through land 

grant institutions, and to the degree we can, other special projects 

that are out there that receive Federal funding, so we get in front 

of this real well without creating unnecessary duplication, and leverage our limited resources as best we can. 

And if you care to comment on either of those two, I would appreciate any comments. 

Mr. DORR. I would simply suggest that I think you’re spot-on in 

your observation that we need to inventory the research that is 

going on, both within our own agencies and across the government, 

as well as inventory the business development strategies, the tax, 

and the regulatory issues as well. 

The Energy Council at USDA has embarked upon the development of a matrix for the purpose of identifying the research and 

the business development strategies. We have also jointly invited 

the attendance at these series of meetings with DOE, Transportation, EPA, a host of agencies across the government, and to the 

extent that we get this far enough along in our own house to make 

sure we know what we are talking about, it would seem to me to 

be very practical to expand this, and I suspect that other agencies 

are doing it as well, and we could probably link them together in 

the long run, but it does need to be done. 

Mr. FORTENBERRY. If I could interrupt, if anyone—Mr. Chairman, would that be a suitable request to come from the chair of 

the committee? Perhaps a letter to the two departments asking for 

such a thing, if we could, if the Department of Energy would be 

willing to integrate what Secretary Dorr has suggested is coming 

from the Department of Agriculture in the near future. I think that 

would be helpful to all of us, to again, get in front of the question 

before we are too spread out. We are not leveraging the limited resources we have for this very, very important goal of facilitating renewable energy in the country. 

Mr. DORR. Let me, in a bit of a CYA approach, say that I am 

not sure how quickly this can come. I mean, there are a lot of programs going on and research around the country, and so, for us to 

wrap our arms around this is a bit of a task, and we are going to 

do it post-haste, but I am not comfortable in giving you a time 

when I think we would have it done. Obviously, it will be done before the end of the year, in my view, but I don’t know how long 

this will take. 

Mr. KARSNER. Let me just comment on that and characterize it 

a little bit. I think that that is obviously useful, and it is something 

that Tom and I have talked about extensively before, and would 

like to run through this Biomass Research and Development Coordinating Council. I think we have already commenced an inventory count. 

But you have to recognize that these research and development 

grants that you are referring to are not really a portion of what the 

Department of Energy does. It is predominantly what the Department of Energy does. We are a research and development institution at our core, and so, almost all of the programming that comes 


bajohnson on PROD1PC71 with HEARING
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through the applied science portfolio, or Dr. Ray Orbach’s basic 

science portfolio, or the other applied programs in nuclear or fossil, 

are almost exclusively managing these research and development 

grants. So, it is very almost instructive or prescriptive, if you go 

through our budget, there is a minority of activities that are not 

research and development grants. 

Mr. FORTENBERRY. Okay. Well, Mr. Chairman, if I can make a 

suggestion. This is an important point, and if I could work with the 

Chair—— 

Mr. HOLDEN. Absolutely. I look forward to working with the gentleman, and again, appreciate his leadership. 

The gentleman yields back? 

The gentlewoman from Kansas, Ms. Boyda. 

Ms. BOYDA. Thank you, Chairman. I certainly appreciate it, and 

let me just say that I have the good fortune of serving in Kansas 

with Jerry Moran, and gosh, Jerry, I think you summed up most 

of it for us, so that was good. 

But I would—— 

Mr. MORAN. I appreciate your use of the words ‘‘summed up.’’ 

Ms. BOYDA. But I would reiterate that sense of energy that I 

have. I also represent a very rural part of Kansas, and so, the 

whole bio-aspect of this energy policy are very important. But I 

have any number of people who come to me and—from environmental, from climate change, no matter what, there is very much 

of a pending sense of urgency with this. 

But I do represent a rural district, and the question that I have 

to come to me, is what is this energy market going to look like in 

10 years? Is it going to be regional? Are we going to end up with 

four or five big huge energy companies? What is going to happen 

in Woodson County, Kansas, and how are we going to keep wealth 

in that particular county, or at least regionally? 

So, I just ask what are our plans for keeping the market as regional as possible? Maybe I should state it again. Are there any 

plans for trying to keep those markets as local and as regional as 

possible? What can we do, and how can we—once this is out of the 

bag, we will never get it back, but with wind, with biofuels, with 

so many things, we really have an opportunity to reenergize and 

keep that money within our communities, instead of sending it out 

of our communities? How aggressive are we being with that? 

Secretary MCGINTY. I welcome the opportunity just to offer a 

thought, and some of what we are beginning to do in Pennsylvania. 

I think the trend in the industry is towards concentration, towards 

aggregation of investment, and towards expansion of centralized 

production capability. Now, you usually would see that as an advantage from the point of view that there are economies of scale 

that could be achieved, and the price points of these fuels could be 

brought down. But it is not necessarily the case with respect to renewable transportation fuels, and it could be a more distributed approach that benefits rural communities and could be more cost effective because, since renewable fuels, unlike conventional fuels, 

cannot be moved, roughly, cannot be moved through pipelines, delivering the fuel requires billions of dollars of new rail and truck 

infrastructure. Those costs could be avoided if we were producing 

close to the off-taker. 


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I would suggest a place to start is with that government purchasing power. If there are State or Federal enterprises who could 

be called upon to buy fuel produced locally, that would be the opportunity for rural and smaller communities to stay in the game, 

and I think they could do it cost-effectively. 

Ms. BOYDA. Thank you. 

Mr. KARSNER. I won’t be redundant. I am largely in agreement 

with those remarks. But let me do address the issue of urgency, because it has been mentioned a few times here, and knowing both 

my co-panelists, I know that we also feel a sense of urgency. And 

we have been calling for a sense of urgency for the better part of 

3 decades, and so, at some point, we have to say that if what we 

truly want in this country is disruptive technology to disrupt the 

way we do things, then we also need disruptive policies and disruptive institutions that manage those policies. 

There are systemic failures. We talked about them today with regard to Appliance Standards Regulatory program. But there are 

systemic limitations in government that need to be addressed. To 

your question about what we might consider in the farm bill and 

other legislative vehicles go forward, that would get to disruptive 

thinking. 

And so, we need to get out of the box. One reason we work so 

well with the State energy programs that we have is because the 

States are, in fact, more agile than the Federal government, and 

so, the Federal government has to review the way we do business. 

Its urgency has been inserted in the top line mission by Secretary 

Bodman of the Department of Energy, and in 22 months, when we 

leave government, there will be a year to get new leaders in place, 

and probably six or eight or 10 months to get that person up to 

snuff on the portfolio, if they are not from this area, and we have 

these cycles, and have had them for 30 years, and we have to address some very real institutional barriers we have and policy barriers we have for access to market, transmission, pipeline, rail, 

whatever is necessary to bring these goods to market, and access 

the capital, and lower cost to fund for our producers regionally and 

out in these distributed areas of the country. 

Ms. BOYDA. Thank you. Mr. Chairman, I would come back to say 

again that I think, and I appreciate your remarks, that we need 

to be on the front end of this, and looking to say what do we expect 

this market to look like in 10 years, and now would be the time 

to set policies and set incentives that any kind of policy that can 

keep regional markets as strong as possible. 

Mr. HOLDEN. I agree with the gentlewoman. 

Ms. BOYDA. Thank you. 

Mr. HOLDEN. The gentleman from Michigan, Mr. Walberg. 

Mr. WALBERG. Thank you, Mr. Chairman. I apologize for being 

late, and because of that, questions that I might ask, I think I will 

refrain from. They have probably been asked already. 

But I have one question that I would ask in a parochial way, and 

that is that Michigan is a state that has a requirement that our 

gas at the pumps contain 10 percent ethanol. The question is 

should the Department of Energy, Mr. Karsner, should the Department of Energy be responsible for and be in the process of pushing 

for a Federal standard to follow in line with states like Michigan 


bajohnson on PROD1PC71 with HEARING
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that are promoting ethanol and alternative fuels in their petroleum 

fuels? That would be my one basic question. 

Mr. KARSNER. Yes. The answer is an unequivocal yes. The President’s Twenty in Ten plan does, in fact, seek to do that with the 

ethanol equivalent of 35 billion gallons, or 15 percent of our gasoline consumption, by 2017. It is exactly that, a Federal Alternative 

Fuel Standard that raises the bar and the stakes at the national 

level, so that we would, in fact, see E10 realized nationally quicker, 

and then go beyond that threshold. 

Mr. HOLDEN. Thank the gentleman. The gentlewoman from Colorado, Ms. Musgrave. 

Ms. MUSGRAVE. Thank you, Mr. Chairman, very much, for holding this hearing today. 

Today, I have been meeting with some of the county commissioners from the fourth District of Colorado, and many of those are 

from very rural counties, and I look back to the time when I ran 

for the House in Colorado in 1994, and it is amazing to go into 

those communities today, and see how much they have suffered, 

quite frankly. A lot of businesses boarded up on Main Street, and 

in those communities, Main Street is still the heart of the community, and it is really a good barometer to look at to see how things 

are going. 

As I talked to those commissioners and my constituents, we are 

looking for certainty. We are looking for a future for agriculture. 

We are looking at counties where there are declining populations. 

We are looking at young people who would like to come back after 

school, but quite frankly, there aren’t very many opportunities for 

them. 

So, as I think about renewables and all that we want to do and 

we want to do it quickly, I think of the regulatory burdens that are 

there, and just logistical things. And how do we start knocking 

those down? Help me out with that. 

Mr. DORR. Well, I think the previous two comments from Mr. 

Karsner and Ms. McGinty are pretty much spot-on. We do need to 

think disruptively within Government in everything that we are 

doing. I would suggest that there has been a sense of urgency for 

the last six years. President Bush has been involved in sponsoring 

seven major initiatives to advance the renewable energy portfolio 

in a way that we haven’t seen the likes of for, as Mr. Karsner said, 

in 30 years. And it has been because there has been pricing structures and energy and national security issues that have driven us. 

It is a terrific opportunity. 

The underlying theme in all of this, in my view, is that what has 

really made it possible beside the high price of energy is distributed computing. If you have deployment of broadband technology, 

you can actually control processes, you can control technologies, 

you can control almost anything you want that is involved in these 

distributed productions of energy, and that means that they can be 

locally owned to a much greater extent than they have ever been 

able to before. 

But on top of all of that, we do have to build out the new infrastructure, we do have to build out the new regulatory regimes. We 

do have to define the new tax structures. We do have to define all 

of the things that typically pervade underneath a stream of fossil 


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fuel and hydrocarbon products, and we don’t have any of that in 

place today. 

So, the things that we do, although we at Rural Development, 

and I want to—I think this is important to clarify this for the 

record, are essentially not a research agency. We are a commercial 

development. We are a rural development and a financing agency. 

We have a small component of research perhaps in our 9006 effort. 

However, with what Department of Energy is doing, and with what is being proposed in the farm bill, with an additional $0.5 billion for bioenergy and alternative fuel research, the Department 

will have and does have a fairly major stake in it. 

But it does and will require all of us to think differently, out of 

the box, because we are, in fact, building a brand new industry 

that has not been here before. 

Ms. MUSGRAVE. Thank you very much. I would just like to add 

my voice to the urgency. As I look at those rural communities that 

I serve, there isn’t a whole lot longer some of them are going to 

be able to hang on, so we are wanting to grab a hold of this. We 

do want a future for rural America, and quite frankly, there are 

very many communities that are just on the edge. 

So, I will add my voice to the urgency, and I thank you. Did 

you—yes. 

Secretary MCGINTY. Yes. I just wanted to add a comment about, 

you talked about regulatory burdens, and an area that hasn’t been 

talked about precisely here is where we currently have things that 

are challenges for farmers, but could be assets and opportunities. 

And to just give you two examples, we have a lot of livestock agriculture in Pennsylvania. That is mostly good. It leaves behind 

some droppings that can become mountains of droppings and a 

problem to manage. We have been trying to use that material, 

then, for example, to co-fire and power plants becomes very difficult from an air quality permitting point of view. Some flexibility 

in the Clean Air Act to encourage that would be very useful. 

Another example, some of that manure winds up in the stream 

as a water quality issue. If, instead of saying to sewage treatment 

plants, you have to install billions of dollars of technology to upgrade your plant, what about allowing that plant to pay the farmer 

to keep the cows out of the stream, and the sewage treatment plant 

get the credit for the pollution reduction in the stream. Much more 

cost-effective, an opportunity for the farmer, and an overall environmental and economic win, but the regulations need to be flexible to allow that innovation. 

Ms. MUSGRAVE. Well said. Thank you, Mr. Chairman. 

Mr. HOLDEN. I thank the gentlewoman, and recognize the gentlewoman from New York, Ms. Gillibrand. 

Ms. GILLIBRAND. Thank you. Thank you, Mr. Chairman. 

My question is this. We are all very concerned about becoming 

energy independent of Middle Eastern oil in the next decade, and 

I think a lot of your proposals are very helpful. Last week, the Department of Energy awarded $385 million in 

funding for six cellulosic ethanol pilot plants. My concern is none 

of those plants was in the Northeast, and I really believe that 

when we look at this issue of energy independence, we need to 

make sure that we have a regional approach, because from a naVerDate Aug 31 2005 07:34 Oct 05, 2007 Jkt 036366 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HR\OC\A366.XXX A366

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tional security perspective, but also from an economic security perspective. 

What was your consideration with regard to your decision making for the Northeast, and can there be some kind of further funding available for a Northeast plant? 

Mr. KARSNER. The answer to the latter is that there will be further solicitations. There is a solicitation we expect to come out this 

year on a 10 percent scaling cellulosic biorefinery that will have 

multiple facility selectees, in the end, just as this one did. 

In this first round, geographical considerations were not a mover. 

To a large extent, we ended up with a broad geographical diversity 

because of feedstock diversity, and so, it is feedstock that ultimately, and the diversity of feedstock that ultimately ended up in 

the variation of regions of the selectees awarded, and they represent a broad range of regions. 

In addition, we could follow up, to the extent that it is not procurement-sensitive, on the precise numbers, but it is my impression 

that there were very few applicants from the Northeast of the overall pool, to begin with. But I would remind the gentlelady that fundamentally, these technologies that we are seeking to prove out 

with the criteria that they become commercial and scaled and 

replicable are exactly that. They are replicable and, in fact, they 

are portable, and so, the technology is portable, and the capital is 

portable, and we will need thousands of installed cellulosic commercial biorefineries to meet our national objectives. 

So, I am not concerned that the Northeast would end up to be 

a region devoid of cellulosic biorefineries. In fact, I know that many 

of the States have been very proactive in their programming, and 

we support the States through our State energy programs, and 

other grants, so that NYSERDA, for example, in New York, has 

had a specific solicitation, I think for up to two cellulosic biorefineries that we have collaborated on. 

So, there will be a continuum of opportunities, and if you would 

like us to follow up, to the extent we can, on procurement-sensitive 

rules, we will get to you precise numbers. 

Ms. GILLIBRAND. Thank you. And my second question is about 

wind energy. I have a concern right now that is developing. There 

are a number of investment banks that have come up to my district, because of the tax credits available, to put wind farms in 

counties like Delaware County, where it is a good location to put 

them, but what is happening is they are offering farmers a certain 

dollar amount as a rental fee, maybe $3,000 a month, $5,000 a 

month, to put these windmills on their land. 

I would like to begin to develop an analytical framework where 

there is an incentive to make sure that if you do come to a small 

community, that the small community is going to benefit, meaning 

that they will either receive low cost energy, that 1 of the windmills will be given to the town or community over time, or there 

is some ownership interest. And I would like to work on a legislative framework to begin to consider that, because I do think these 

small towns are being rolled over, and many of them are not interested in having large windmills ruining their landscape, or ruining 

the rural character of their community, but they may have an interest if windmills are put in industrial sites, or are part of the 


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community, for example, two windmills dedicated for their energy 

use over the next 10 years, to make sure that that community receives low cost energy, no matter what, so that it is not just going 

back to the grid. 

Have you done any consideration or thought about those issues, 

as a way to make sure that we don’t begin with a spate of lawsuits, 

where you have a town suing these investment banks coming in, 

because they have no voice? Have you given any consideration to 

how you can have community investment, so that people are all in 

this together and all committed to the same course of conduct? 

Mr. KARSNER. I think you have hit on a very important point. I 

say that as a former wind power developer. And I think that it is 

quite important that when you arrange a 25 year marriage between a developer and a community that that marriage be on equitable and good and long-lasting and durable terms. And it is, perhaps, a consideration, that we should figure out if there is anything 

in the characteristics of the Tax Code that need to be looked at. We 

are opening a discussion with the Department of Treasury on that 

very subject. 

By way of example, there are comparable mechanisms in gas exploitation, for master limited partnerships, and other vehicles in 

the Tax Code that would give smaller investors a greater play, a 

greater financial stake. Right now, the production tax credit is 

aimed almost exclusively at Class C corporations, and the equity 

is held in those corporations, and then it is monetized in a way 

that sort of favors the larger big money. 

Beyond that, we are also ramping up our production and our 

wind power budget for a small and community wind program that 

touches on precisely some of these objectives, and we would be 

happy to follow up with your office on that. 

Ms. GILLIBRAND. Would you do that? 

Mr. KARSNER. You bet. 

Ms. GILLIBRAND. And would you agree to stay informed with my 

office? 

Mr. KARSNER. Sure. 

Ms. GILLIBRAND. So that I can watch the legislative framework 

being developed, and your policy being developed, because I really 

think this is something we need to be very cognizant of, because 

what will happen is the communities will have no voice in this 

process. And they should be feeling good about it, and they should 

have control about where the wind farms are placed, because there 

are places where it makes an enormous amount of sense. 

Mr. DORR. I would just make the observation that it is, I think, 

as Secretary Karsner has indicated, as much a Tax Code issue as 

it is a pricing issue. Tax Code and ownership, in the long run, 

there are some very interesting things going on right now with 

small developers. John Deere is doing an outstanding job of 

marrying small wind farms with local ownership and local maintenance and operation of those, in a very cost-effective way. 

And so, I don’t think this is something that can’t be dealt with, 

but I think you have to look at the real basis of the issue, rather 

than trying to structure a pricing deal for a community, simply because that makes it less onerous, perhaps. I think more than anyVerDate Aug 31 2005 07:34 Oct 05, 2007 Jkt 036366 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 E:\HR\OC\A366.XXX A366

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thing else, there are just some basic issues that have to be dealt 

with. 

Secretary MCGINTY. May I add, just very barely, I agree that 

there are some Federal and macro issues, but the issues you point 

to start with the most basic thing, which is, does that community 

have a zoning ordinance in place? 

Ms. GILLIBRAND. There is no zoning in rural America. I 

mean—— 

Secretary MCGINTY. If it does not—— 

Ms. GILLIBRAND [continuing]. Most of rural America does not 

want zoning, because they are not comfortable with it. They 

haven’t needed it in their own history, and I just went to—Chairman, is it okay if I continue, because my red light’s on? 

Mr. HOLDEN. Continue. 

Ms. GILLIBRAND. Thank you, sir. In my community, I met with 

10 supervisors in Delaware County, and I said who in this, of you 

would like a wind farm? Five said yes, five said no. 

Secretary MCGINTY. Right. 

Ms. GILLIBRAND. So there is not agreement, and there are places 

where these communities would like to have them. None of them 

have zoning. And I said you may have to begin to talk about zoning 

now, because of this issue. But they may—— 

Secretary MCGINTY. They have a seat at the table. If they don’t 

have zoning, they don’t. One thing I would offer to share with you. 

We wrestled with this issue, and with every instrument of local 

government in Pennsylvania, which are a lot of instruments of local 

government, we have put together a model ordinance that they all 

have now adopted, and I would be happy to share that with you, 

because it hits all of the points that you have highlighted. But 

again, if you have zoning, then the developer, no matter what the 

project, wind or a mini-mall, then they have to deal with you. If 

you don’t have zoning, they don’t have to deal with you. 

Ms. GILLIBRAND. Thank you. 

Mr. HOLDEN. I thank the gentlewoman for her comments and her 

questions, and it is good to have someone from the Northeast on 

the committee. It has been lonely around here at times, Mr. Lucas. 

At times, it has been lonely around here, being from Pennsylvania. 

The ranking member has one final comment. 

Mr. LUCAS. We appreciate all of you, wherever you come from, 

Mr. Chairman. 

Just an observation about the wind energy for a moment. We 

have four of these substantial wind farms in my district in Oklahoma, potentially two or three more underway. If we can pass the 

bill that Mr. Pomeroy and I are working on, to extend the $.019 

per kilowatt tax credit from a year or two at a time to five, so definitive planning can be made by those people investing the money, 

I think we will see a substantial growth across the country. In my area, I observe that those mills are about $2 million 

apiece, and to get the kind of efficiency to move the power substantial distances, the farms and, there again in my area, which I don’t 

say they are typical, but they just happen to be in the third District of Oklahoma, range anywhere from $50 to $75 to $100 mil, 

so you are talking a $200 million capital investment, a huge 

amount of money. 


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And I would note on all these kind of issues, and everything varies from State to State, but so much of this goes back, I think, to 

our friends in the State legislature, where I spent 51⁄2 years before 

I came to Congress. We have had laws since the 1920s dealing with 

oil and gas, royalty rights, and responsibilities for old wells, and all 

those sort of things. Our friends at the State level, whether it is 

zoning issues or electric royalty payment issues, land use issues, 

our friends at the State level need to work with us, too, in that traditional division between Federal and State government. 

But it is a wonderful industry with tremendous opportunity, and 

that is where rural America wants to be, is right there helping 

meet our energy needs. 

Thank you, Mr. Chairman, for this first panel. 

Mr. HOLDEN. Thank you. Mr. Lucas and I would like to thank 

the witnesses for their excellent testimony today. Thank you. 

We now invite our second panel to the table: Mr. John 

Denniston, Partner with Kleiner Perkins Caufield & Byers, from 

Menlo, California; Mr. Kevin Book, Senior Vice President, Friedman Billings Ramsey & Company, Arlington, Virginia; Mr. Larry 

Ward, Vice President of Project Development, Broin Companies, 

Sioux Falls, South Dakota; Mr. Tim Barker, Executive Vice President, Orion Ethanol, Pratt, Kansas; Mr. Doug Stark, President of 

Farm Credit Services of Omaha, Nebraska; and Mr. Dave Reyher, 

President of Colorado East Bank & Trust, Lamar, Colorado. 

And we will begin momentarily. 

Mr. Denniston, you may begin. 

STATEMENT OF JOHN DENNISTON, PARTNER, KLEINER 

PERKINS CAUFIELD & BYERS, MENLO PARK, CA 

Mr. DENNISTON. Absolutely. Good afternoon, Chairman Holden, 

Ranking Member Lucas, and members of the committee. My name 

is John Denniston. I am a partner with the venture capital firm 

Kleiner Perkins Caufield & Byers, in Silicon Valley. It is my privilege to be before the subcommittee today. 

Venture capital firms invest in very young technology companies, 

and counsel them as they grow. Our job is to identify the most 

promising trends in technology, and we are proud of the role that 

we played in encouraging such vital industries as information technology and biotechnology. 

Kleiner Perkins gave some of the earliest support to companies 

including Genentech, Amazon.com, and Google. Several years ago, 

we turned our attention to how we can foster innovation within the 

energy sector, specifically on a new field we call greentech, which 

encompasses clean power, transportation, and water. 

I will focus my brief remarks today on one particular sector that 

has been the topic of your discussions in this hearing so far, 

biofuels, and how a powerful combination between agriculture and 

technology, with appropriate government support, could help rid 

our country of its oil dependence. 

We have many energy challenges in front of us, but there is 

ample reason to be optimistic. The greentech sector is growing so 

rapidly it brings to mind a tenet of the technology industry known 

as Moore’s Law. That is the idea that semiconductor performance 

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markable phenomenon, and it is that phenomenon, almost singlehandedly, that explains the transition that we have seen, in a relatively short period of time, from an era where information technology was governed by centralized, big, mainframe computers, 

costing tens of millions of dollars each, that were only owned by 

the largest corporations in America, to today, where we can read 

the morning’s headlines on our cell phones. 

What I am here to tell you today is a similar wave of innovation 

and accelerating performance is happening right now in the 

biofuels field, solving problems at a rate few of us could have imagined. Let me give you an example. Ethanol production has become 

dramatically more efficient over the past 20 years. Compared to the 

1980s, we can today produce a gallon of ethanol twice as efficiently 

as we could 20 years ago, using nearly half as much energy. On 

top of that, American farmers have succeeded in dramatically improving crop yields decade after decade, which has also contributed 

to lower ethanol costs. 

Cellulosic ethanol, which you discussed on the prior panel, made 

from non-edible plants including switchgrass and miscanthus and 

others, now holds the promise of letting us produce large volumes 

of biofuels, reducing our carbon emissions, and greatly benefiting 

the agricultural community. Scientists and engineers are working 

right now on ways to do so at prices competitive with gasoline. 

The current biofuels market is facing some challenges, however, 

including the need to diversify into non-edible feedstocks. Market 

fluctuations resulting from volatile commodity prices represent yet 

another challenge. American farmers, engineers, and 

businesspeople can confront these challenges, and achieve the goal 

of producing our transportation fuels here in the United States. 

But we won’t be able to get there any time soon without supportive 

public policy that accelerates innovation and market opportunities, 

and protects our young and growing biofuels industry. 

So, how might Federal policy help accelerate the biofuels industry? I would like to respectfully offer these suggestions. There are 

some others in my written testimony. First, increase the Renewable Fuel Standard requirements to spur the emerging market. 

Second, modify the blender’s credit to create a safety net for the 

biofuels industry, so that the credit rises when ethanol prices are 

low, and falls when they are high. This subsidy, by the way, should 

be directed at ethanol producers, not gasoline distributors. In addition, provide special incentives for biofuels made from cellulosic 

feedstock, because they are more costly today. Third, mandate a 

gradual increase in production of flex fuel vehicles and E85 high 

percentage ethanol pumps at gas stations. Fourth, create fast track 

regulatory approval for non-edible energy crops. And finally, fifth, 

lead by example. The Federal government should be the early 

adopter by becoming the Nation’s single largest biofuel consumer. 

Once again, I would like to thank the subcommittee for inviting 

me here today. I am confident the combination of wise public policy, along with American farming and entrepreneurial talent, will 

allow us to overcome our energy challenges. Doing so would provide 

a powerful boost to the American agricultural industry. 

[The prepared statement of Mr. Denniston appears at the conclusion of the hearing.] 


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Mr. HOLDEN. Thank you, Mr. Denniston. Mr. Book. 

STATEMENT OF KEVIN BOOK, SENIOR VICE PRESIDENT, 

FRIEDMAN, BILLINGS, RAMSEY, & COMPANY, INC., ARLINGTON, VA 

Mr. BOOK. Thank you, Chairman Holden, Ranking Member 

Lucas, and distinguished members of the subcommittee. Thanks for 

the privilege of participating in this important discussion. The 

opinions I share are my own, and do not represent the views of my 

employer, Friedman, Billings, Ramsey & Company. 

In my role as an energy policy analyst for Wall Street institutional clients, I have met with several hundred asset managers in 

the last 18 months to talk about ethanol and biofuels. I also 

worked on two ethanol transactions and conducted the due diligence for about a half dozen more. My testimony today is really 

about the capital market’s financing of biofuels production, and my 

assessment of how institutional investors may respond to future 

opportunities. 

Until very recently, few new biofuels producers were likely to 

meet Wall Street’s requirements for investment size, production 

scale, demand stability, and projected revenue growth. The RFS 

provided a stable and growing market for ethanol and other 

biofuels, but several other events helped generate interest, too, including rising crude oil prices, hurricane-related refinery capacity 

constraints, State level bans of MTBE and, of course, the President’s emphasis on biofuels for energy security. In addition, growth 

in the hedge fund asset class meant more dollars were available to 

invest. 

Even so, investors expressed a number of concerns. Investors 

worried that industry barriers to entry were so low that ethanol 

production might outstrip demand. Investors harbored doubts regarding ethanol’s suitability as an MTBE replacement, because of 

its water-attracting properties and blending characteristics. Some 

investors wondered how RFS credit trading would work, especially 

whether refiners could meet their compliance obligations by using 

another renewable fuel. 

Virtually all investors recognized that ethanol profitability could 

be influenced by a lapse of the blender’s credit and the secondary 

tariff on fuel ethanol imports. Wall Street enthusiasm built rapidly 

in March 2006, when it appeared that without MTBE, the Nation 

might be short of octane, oxygen, and gasoline. Spot market prices 

that were 250 percent above production costs set the stage for several equity offerings on favorable terms for the issuers, even 

though spot markets represented a minority of sales. 

By the beginning of the fourth calendar quarter, however, oil 

prices had fallen, and gasoline, ethanol, and shipping markets had 

started to correct. During the year, the price of building new ethanol capacity had risen markedly, and the doubling of corn prices 

further thinned producers’ margins. Listed equity securities of 

biofuels producers declined substantially, and several would-be 

issuers delayed, or in some cases, withdrew their public offerings. 

Although it may be a long-term policy goal to decouple the price 

of biofuels from the price of oil, oil prices remain investors’ first 

consideration today. 2007 began with corn prices at 10 year highs 


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and oil prices at 20 month lows. Investors with expectations of $60 

oil and $2.50 a bushel corn may have been somewhat reluctant to 

buy stock in biofuels companies at $50 oil and $4 corn. This might 

have been good news for bargain hunters with a long view, but for 

hedge funds, where investment performance is evaluated on a 

monthly basis, it could have been a reason to exit the sector. 

High corn prices now have investors looking again at biofuels 

from cellulosic biomass, and to a limited extent, biodiesel. Investors 

are also curious whether new technologies will enable existing ethanol facilities to produce butanol from corn, sugar, or sorghum. 

Many of these assets managers possess the requisite conviction 

that coming oil scarcity will support biofuels demand. Many are 

also willing and able to commit capital. However, investors in public securities tend to avoid untested technologies. 

It is my view that most asset managers who invest in the U.S. 

capital markets will require either a production scale demonstration of cellulosic technologies, or the untoward event of a major and 

sustained oil supply disruption, before they will seriously consider 

new stock and debt issues to develop second generation biofuels. 

This means there are important roles to be played by Government, commercial lenders, and early stage corporate and venture 

finance enterprises. Pre-competitive R&D funding may lead researchers closer to affordably decomposing wood pulp and plant 

waste into fermentable sugars. Likewise, the stewardship of top 

venture capitalists will encourage healthy interplay between nascent technologies and future markets. 

Loan guarantees will be important, too, particularly as project 

capital costs of cellulosic ethanol plants may be three or four times 

as much as building a dry mill, and demonstration projects are 

likely to operate at lower volumes than commercial scale ethanol 

plants. The combination of higher upfront costs and lower volumes 

means longer payback periods for investors and higher financing 

costs. 

In addition, commercial lenders, in partnership with Federal 

guarantors, may play critical roles in helping smaller corn-based 

producers source the capital necessary to retrofit their plants for 

any second generation technology that may emerge. 

This concludes my prepared testimony. I will look forward to any 

questions. 

[The prepared statement of Mr. Book appears at the conclusion 

of the hearing.] 

Mr. HOLDEN. Thank you, sir. Mr. Ward. 

STATEMENT OF LARRY WARD, VICE PRESIDENT PROJECT 

DEVELOPMENT, BROIN COMPANIES, SIOUX FALLS, SD 

Mr. WARD. Mr. Chairman, distinguished committee members, 

thank you for the opportunity to visit with you today. My name is 

Larry Ward. I am Vice President of Project Development for Broin 

Companies, and I would like to talk to you today about the financing challenges of the cellulosic ethanol industry. 

Broin Companies, headquartered in Sioux Falls, South Dakota, is 

the largest dry mill ethanol producer in the United States. Broin 

Companies is an established leader in the biorefining industry, 

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opment, plant management, ownership, and product marketing. 

The 20 year-old company built 25 ethanol production facilities, and 

currently manages 19 across the United States, while marketing 

more than one billion gallons of ethanol annually. 

The Broin Companies development model is unique. It started on 

the Broin family farm in Minnesota, and has spurred the investment of thousands of individual farmers and individual main street 

investors surrounding the plants. Each plant is a local, independent, limited liability company, and the Broin Companies has 

a Board of Directors representation at each plant. 

Broin Companies last week became the recipient of the DOE Integrated Biorefinery Commercial Demonstration Grant, in which a 

50 million gallons per year traditional corn to ethanol plant will be 

converted to a 125 million gallon per year cellulosic biorefinery. 

Broin is honored to be a recipient, called Project Liberty, the full 

project pot is over $200 million. DOE’s contribution is up to $80 

million of that project. This level of support is essential if commercialization is going to advance quickly. 

To give some perspective, in the ethanol industry, on the cost of 

construction. Just 10 years ago, most ethanol plants were 10 to 50 

million gallons per year in size. Broin’s first plant was literally one 

million gallons, and that was a large plant at the time. Traditional 

ethanol plants were built in farm-producing States, which put incentives in place to stimulate investment by farmers and other 

local main street investors. 

The cost per gallon to build and find the working capital for 

these plants was approximately $1.75 per gallon at that time, 

which amounted to about $20 to $25 million total project costs. 

Those plants today are very small by today’s standards. Most dry 

mill ethanol facilities are now designed in between 50 million gallons and 125 million gallons per year production capacity, and the 

cost of an ethanol plant project just five years ago was $1.20 per 

gallon capacity. Today, the design and construction costs exceed $2 

per gallon, reaching upwards of 250 to 300 million gallons to deliver a completed project. The significant increase is due primarily 

to inflation of construction materials, utility infrastructure, as well 

as skilled labor. 

Construction of cellulosic facilities is even higher, due to the additional storage, feedstock handling, and pre-treatment equipment, 

the cost to expand an existing facility to a cellulosic facility is approximately 100 percent greater than a traditional corn to ethanol 

facility. Expansion costs to a facility are projected to range in approximately $4 per gallon. A cellulosic facility designed on a Greenfield plant, and not an expanded ethanol plant, will be even greater, due to additional infrastructure, storage, and handling facilities. 

However, as technology develops, and the cellulosic industry matures, the cost of construction is predicted to go down, provided 

that the cost of the inflationary influence on materials isn’t increasing at a greater rate. In terms of project financing, historically, a 

majority of the financing for ethanol plant construction has been 

accomplished using local, individual investment, and bank debt financing, provided through the Farm Credit System, and a few 

other Midwestern groups. 


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All of the Broin Companies’ products have a very strong individual farmer investment component, as well as main street local 

investment, promoting local ownership in each rural community. 

Financing structures historically have ranged between 40 to 55 

percent equity, with the rest being contributed by debt. 

Certainly, in the last couple of years, public financing and venture capital began emerging with interest in the industry, and will 

play a role in the future, alongside the traditional financing roles. 

Rapid development of the cellulosic ethanol industry will be difficult, if not impossible, without the support of government policy 

and programs to stimulate investment at the company level and at 

the farmer level. Just as certain grants and loan guarantee programs have been successful in the past, we believe new policies, 

programs, and structures tailored to the bioenergy industry will be 

imperative to reach the rapid growth in technology and biofuels 

production. 

The Federal Loan Guarantee Programs have an opportunity to 

play a significant role. Our company has looked at several types of 

USDA and DOE loan guarantee programs in the past. Our company has not utilized any of the programs, due to their structure, 

requirements, and the fact that they do not provide the credit security, or have program rules in place that do not hit the objective. 

I would like to move the comments toward some suggestions on 

moving the cellulosic financing forward. The most significant economic challenges facing the developing cellulosic industry include 

biomass collection and logistics, economical production processes, 

and the costs of construction, utility, and rural development infrastructure. Until biomass collection processes and cellulosic technology are proven, Government support will be crucial to launch 

this part of the industry. 

We have two primary recommendations I would like to touch 

base on. One is certainly to help address the biomass collection and 

logistics of cellulosic biomass, put in place specifically to reward the 

farmers during the early years. Number one is we would suggest 

that an incentive be put in place to the producer of $50 per dry ton 

of biomass delivered to the cellulosic ethanol plant, again, 

incentivize the farmer, change the way that farming practices are 

done during the times of year when cellulose needs to be collected, 

stored, handled, and brought to a plant. 

In addition, the plant would be making a payment to the farmerproducer, to help incentivize the delivery of cellulose the plant. And 

thirdly, we would suggest this incentive payment be temporary in 

nature, and terminated after the industry has proven that the technology has gained efficiency, and gained some critical mass. 

Our other comments to dealing with the Loan Guarantee Program, and to terminate the discussion here, really center around 

changing the rules of the program to make sure that they provide 

the credit, security enhancement for the lender, in advance, and 

sharing the risk alongside with the producer, sharing the risk 

alongside with the government programs, to make sure that they 

are usable projects, usable lending structures, so that the financing 

can get secured on a commercial lending basis. 


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We encourage your staff and you to review the examples, questions, and comments included in the written testimony, as you continue your work on the 2007 Farm Bill. 

Broin Companies is honored to testify to the Agriculture Subcommittee for Conservation, Credit, and Energy. Mr. Chairman, 

committee members, thank you. 

[The prepared statement of Mr. Ward appears at the conclusion 

of the hearing.] 

Mr. HOLDEN. Thank you, Mr. Ward. Mr. Barker. 

STATEMENT OF TIM BARKER, EXECUTIVE VICE PRESIDENT, 

ORION ETHANOL, PRATT, KS 

Mr. BARKER. Thank you, Mr. Chairman, Ranking Member Lucas, 

Congressman Moran, distinguished committee members. Thank 

you for the opportunity to address you today regarding one of the 

most exciting and rapidly changing industries in the United States, 

our domestic ethanol policy. 

My name is Tim Barker. My title is the Executive Vice President 

of Development for Orion Ethanol, an ethanol company based in 

Pratt, Kansas. Pratt is a community of 7,000 people, west of Wichita, in Western rural Kansas, in the first District of Kansas. 

Our story is not unlike many other ethanol companies. We are 

just like the other 80 ethanol companies in the United States. We 

were started by a local group of investors wanting and dreaming 

of spurring local rural development in our home economy. And in 

furtherance of that pursuit, we attracted a large Wall Street investment. We were one of the first to do so in the spring of 2004. This 

investor came in and promised the local group there in Pratt to 

take the remainder of the financing obligations, senior debt, equity 

components, and manage that facility; $7 million into that project, 

the price of ethanol decoupled from the price of gasoline, and Wall 

Street, this particular hedge fund, recognize that this was a dual 

commodity structure, and that no financial derivative existed to 

link, to establish a link between our feedstock and our end products. This scared their investment our, and in the middle of their 

construction with many people on the Greenfield, they called and 

sent the trucks home. They pulled their investment totally from us. 

The local group spent the next 12 months putting that project back 

together, and we were successful, and financially closed that 

project, with the assistance of some large corporations and enormous local support in the spring of 2005. Our first facility will 

come online in July of this year, and through that process, we developed relationships in Western Oklahoma, and additional relationships in Western Kansas, and began pursuing additional 

projects in those sites. 

Our company has grown in management and skill, and we are 

now listed on the NASDAQ over the counter bulletin board as a 

publicly traded company with management that has decades of experience running publicly traded companies listed on the New York 

Stock Exchange, and has raised literally billions of dollars in capital. With this team that we have assembled, along with first tier 

investment banks, we ventured back to Wall Street for a second 

round at trying to raise the equity to build the five projects that 


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we have under development, and to inject approximately $1 billion 

of capital into Western Kansas and Western Oklahoma. 

My purpose here today is to communicate to you the message 

that Wall Street sent home with us through that endeavor, and to 

offer some suggestions that they sent to us, that would help us 

achieve our goal of building this capacity. During our pursuit, we 

talked to over $200 billion of equity capital, representing 100 different hedge funds on Wall Street. The response was unanimous. 

The management team of Orion Ethanol is superb. The business 

plan is well thought out, and when these plants come online, our 

projects will be one of the lowest cost producers in the country, and 

have economic advantages above our competitors. 

However, at this time, and this was just last fall, Congressman, 

Wall Street told us this isn’t the time for us to invest in ethanol. 

We are unsecure investing in additional and new ethanol capacity 

in rural America. We believe that the Congressional support for the 

tax credits is wavering. We believe that with the current 

headwinds the industry is facing, namely, near record high corn 

prices, skyrocketing capital costs, and as the gentleman before me 

said, 20 month low oil prices, all these different things have 

spooked the investment community, and they are going to wait for 

something to turn around. 

I believe what this is telling us is very simple. This is telling us 

that the RFS worked to expand capacity. However, the investment 

community, it received the message that you will support those investments and protect that capital. The investment community is 

waiting for a reconfirmation of that message. 

Because of our dual commodity structure, and the inherent risks 

in our business, it is the role of government to step in and assist 

to mitigate those risks, until the free market can take over, and financial derivatives exist to accurately hedge our risk, and provide 

the Wall Street group the comfort that they can lock in profits, and 

generate returns for their shareholders that they have come to expect. 

Some of the things that I believe could be public policy changes 

that could help us are revisiting our Conservation Reserve Program. I believe that rural America needs to be unleashed to 

produce and prove to the world that it can meet our energy and 

our food needs. We believe at Orion Ethanol, also, that we need to 

work to include, especially in Western Kansas, Western Oklahoma, 

and the panhandles of Texas and Oklahoma, we need to work to 

encourage the feed yards to implement the byproduct feeding into 

their system, and make the capital improvements that it is going 

to take to feed that byproduct on a wet basis. 

With those thoughts in mind, we would absolutely welcome any 

questions that you may have, and we thank you very much for the 

opportunity to come and visit with you today. 

[The prepared statement of Mr. Barker appears at the conclusion 

of the hearing.] 

Mr. HOLDEN. Thank you, Mr. Barker. Mr. Stark. 


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STATEMENT OF DOUG STARK, PRESIDENT, FARM CREDIT 

SERVICES OF AMERICA, OMAHA, NE 

Mr. STARK. Mr. Chairman and members of the committee, thank 

you very much for the opportunity to appear before you this afternoon. My name is Doug Stark, and I am President and CEO of 

Farm Credit Services of America. We are one of 100 institutions 

that comprise the Farm Credit System. 

Farm Credit Services of America serves the States of Iowa, Nebraska, South Dakota, and Wyoming, areas where there is a high 

concentration of ethanol facilities. We have more than $10 billion 

in loans outstanding at this point in time, to over 65,000 customers 

in that four State territory who borrow from us. As you know, we 

are a cooperative, and I am proud to say that over the last three 

years, as such, our institution has returned $150 million to our customer owners in cash. 

System institutions have been leaders in financing the growth of 

the ethanol industry. We have played a unique role in support of 

that industry as it has developed. Not only have we financed the 

construction of these plants, as Mr. Ward has indicated, and provided them operating credit, but we have also provided farmers the 

opportunity to unlock the equity that has been referred to as well 

here today, so they can invest in ethanol facilities. 

At the end of 2006, the Farm Credit System institutions reported 

loans outstanding and commitments to bio-based energy operations 

of over $2.8 billion. Since that is a point in time number, it really 

understates the total financing we have provided the industry over 

the last 15 years, including the very first ethanol plant, in South 

Dakota. It also does not include the total financing we have outstanding with farmers that have invested in these facilities. 

As you consider the future direction of the ethanol industry, and 

looking ahead to a transition to cellulosic ethanol, biodiesel, and 

other forms of bio-based energy, I would like to share with you at 

least how we approach a potential investment in these forms of energy. In general, when we look at a proposed deal, we undertake 

a comprehensive due diligence underwriting approach. We consider, obviously, the economics of the proposal, but we also look at 

the plants, including the plants’ sensitivity to fluctuation of price 

of key inputs. We look closely at who will be doing the engineering 

and design of the plant. We consider logistics, such as transportation in the area. And also critical to our financing decision is our 

understanding of the types of marketing relationships. 

In addition, we constantly monitor the status of governmental 

policy as itrelates to the industry. Is tax or import policy changing? 

Are there unresolved environmental or regulatory issues involving 

the plant siting, and what risks are associated with potential shifts 

in policy? 

We then, of course, structure the loan so it will best meet the 

needs of the ethanol production facility and its owners. Most often, 

we put together a lending syndicate, because of the size of these 

credit facilities, to provide that financing. This can take many 

forms, including a syndicate that involves a Farm Credit institution as a lead lender, combined with other System institutions and 

commercial banks. 


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Favorable government policies have been absolutely essential for 

the success of this developing industry. Renewable Fuel Standards, 

both at the Federal and State level, have served to ensure a market for the product. It is critical that the government policy encourages an adequate marketplace for the end product. 

Aside from mandates for ethanol use, we also believe that the 

current level of tax support at the pump is also important to the 

continued vitality of the industry. While our industry continues in 

its development stage, tariff support continues to be important, so 

the industry is not disrupted by imports. In our case, predictability 

is an important issue as we look at future projects. 

We strongly support efforts to develop a cellulosic ethanol industry along the existing corn-based industry that we see today, but 

we caution that policies not be adopted that might result in the 

government picking winners and losers of the development of various types of ethanol. While we caution against tipping these scales 

to one form of ethanol over another, the practical reality is that cellulosic ethanol industry needs support in order for it to take hold. 

New technologies involve heightened risk, and this has been recognized in the Loan Guarantee Programs that have already been put 

in place and those that are being proposed. 

We strongly support these efforts, but offer two suggestions for 

your consideration. First, our view is that the USDA has a proven 

track record of success in running guaranteed loan programs in 

rural America for business development. We agree with your approach there, and we believe that the USDA should be the lead 

agency for loan guarantees for cellulosic ethanol production. 

Second, the form of guarantees should also be reconsidered to 

make available last dollar guarantees, instead of a percent of loss 

sharing guarantees. We do not view the loss sharing guarantees as 

a best inducement to lend. An effective Loan Guarantee Program 

is important as Farm Credit puts stockholder equity at risk to continue to support the growth of this industry. 

Finally, we are seeing the beginnings of a challenge in finding 

sufficient interest from other lenders to fill out the projects that 

Farm Credit is leading. Several early entrant lenders to the industry have reached, or are close to reaching their lending capacity for 

ethanol, which imposes a problem for future plants. 

Mr. Chairman, American farmers are the most efficient and productive in the world, and energy is a critical backbone of our modern economy. The Farm Credit System stands ready to work with 

the committee as you consider policy options, continue the growth 

of renewable fuels in meeting these demands. We are currently 

working in all areas, from supporting ethanol, biodiesel, wind turbines, to the conversion of manure to methane for electricity production. 

Would certainly be happy to answer any questions you might 

have. 

[The prepared statement of Mr. Stark appears at the conclusion 

of the hearing.] 

Mr. HOLDEN. Thank you, Mr. Stark. Mr. Reyher. 


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STATEMENT OF DAVE REYHER, PRESIDENT, COLORADO EAST 

BANK & TRUST, LAMAR, CO 

Mr. REYHER. Good afternoon, Chairman Holden, Ranking Member Lucas, members of the subcommittee. I appreciate being invited 

to testify on the important topic of financing renewable energy 

sources. It is an honor to be here today representing the independent community bankers of America. 

My name is Dave Reyher. I currently serve as President of an 

independent community bank, Colorado East Bank & Trust, with 

headquarters in Lamar, Colorado. Colorado East Bank & Trust has 

assets of nearly $500 million, and currently has 12 branches scattered throughout Eastern Colorado and Western Kansas. Eight of 

these branches are located in and serve smaller rural communities 

where agriculture is the center of the economy. I have over 25 

years of banking experience, primarily in agriculture and community lending. I have served on our local economic development committee for the past eight years. 

Because they understand the importance of renewable fuels to 

the economy of rural America, the environment, and the Nation’s 

energy security, ICBA and its member banks are strong supporters 

of renewable fuels, and are partners in the 25×25 Alliance, which 

promotes the goal of producing 25 percent of the Nation’s energy 

from renewable sources by 2025. Community bankers play an active and important role in financing renewable fuel facilities. They 

finance the construction of plants, and provide working capital 

loans to renewable fuel facilities. Community banks also lend 

money to their farm customers to buy shares in ethanol and other 

renewable fuel companies. 

Nearly 80 percent of respondents in a recent survey of community bankers said that they are actively involved in financing ethanol facilities, or desired to become involved. My own bank first became involved in the financing of renewable energy sources 

through a project with a large earthmoving company that was interested in locating a biodiesel plant in our area. We could see that 

the project would have many benefits, cost savings for the company, cleaner emissions for the area, and a future alliance with the 

local producers of oilseed plants, from which the oil is extracted to 

manufacture biodiesel. 

Our customer has started small, and is manufacturing biodiesel 

for their own use. We now are in the process of working with them 

on an expansion project that would allow them to produce biodiesel 

on a commercial basis. 

We also joined with other community bankers from the area, and 

becameinvolved in financing a large ethanol plant located in a 

small community in central Kansas. This relationship was developed through an alliance that we and other community bankers 

have developed with an underwriting originator and placement 

agent. Our bank is working on an economic development effort currently that would locate an ethanol facility next to a feedlot in our 

area. The feedlot owner and ethanol company would work together 

to produce ethanol and ethanol production byproducts to be utilized 

as livestock feed for a feedlot. This project would create additional 

jobs for our community, as well as provide another much-needed 

market for farm products for local growers. 


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Community banks have formed a variety of alliances that enable 

us to easily finance ethanol projects, even though the cost of these 

projects are often enormous, and could exceed the lending limits of 

smaller community banks located in areas where the projects seek 

to locate. 

Early in my testimony, I mentioned the alliance that we have 

reached with the placement agent for community banks. The placement agent will underwrite, for a large project, for a renewable fuel 

facility, bring community bankers together, to finance it, allowing 

each participating bank to have a share of the overall loan package. In addition, community banks come together on their own to 

finance these projects, through informal networks, and they also 

use alliances with regional bankers’ banks, and large correspondent 

banks as well. 

The economic development opportunities afforded rural America 

by alternative energy projects financed by community banks are 

substantial. As our survey revealed, community banks are ready, 

able, and willing to finance all aspects of ethanol production. These 

projects provide exciting new markets through value added products that will help enhance the overall economic health of our communities. Policymakers should encourage the continued participation of community banks in financing the alternative fuel sector. 

Again, I thank you for the opportunity to testify, and would be 

happy to answer any questions. 

[Prepared statement of Mr. Reyher appears at the conclusion of 

the hearing.] 

Mr. HOLDEN. Thank you. Thank all of the witnesses for their testimony. 

Mr. Ward, you mentioned that Broin received one of the awards last week from the Secretary, a $380 million award. Is that correct? 

Mr. WARD. That is correct. 

Mr. HOLDEN. How much was the award for, and can you repeat 

againwhat that will allow you to do? 

Mr. WARD. Yeah, the award is part of a project where we are 

converting a conventional cornstarch ethanol plant to a cellulosic 

biorefinery. The scope of the project increases the production from 

50 million gallons per year up to a total of 125 million gallons per 

year. 

Mr. HOLDEN. More than double. Okay. 

Mr. WARD. Yeah, more than doubling. The total cost of the 

project and investment is over $200 million. The amount of grant 

is up to $80 million of that effort. 

Mr. HOLDEN. And how long ago did the company apply for it? 

Mr. WARD. The application was submitted back, I believe, in September, which was the timeframe for the application for the DOE 

grant. 

Mr. HOLDEN. Okay. And there were six—you might not know 

this. I should have asked the Under Secretary, but there were six 

awards, but you don’t have any idea how many have applied. 

Mr. WARD. I wouldn’t—— 

Mr. HOLDEN. I should have asked the Under Secretary. I apologize. You heard, during the last panel the discussion about research, and how we do not want to be redundant, and we also want 

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pate in what we see as a very positive opportunity here to move 

away from dependence upon foreign energy, and use renewable 

fuels. 

We are about to make an investment in increasing research, but 

since you already put your money where your mouth is, you might 

have some comments to tell us what works in different regions of 

the country, and what doesn’t. You know, Secretary McGinty 

talked about Pennsylvania having the largest ethanol plant east of 

the Mississippi, I believe she said, but we could never be competitive with the Midwest and the upper Midwest on traditional ethanol, but we do have an abundance of soybeans. 

Ranking Member Goodlatte talked about the opportunities with 

timber in hisdistrict in Virginia, so we all know that there are opportunities out there, but since you are making the investments, 

you are making the loans, you might want to make a comment to 

the subcommittee of what you think works in different regions of 

the country already, so we don’t have to be redundant. 

Mr. WARD. Mr. Chairman, I would make 1 comment in regards 

to the stimulation of science and research, and we couldn’t be 

happier that the Department of Energy and others are focusing on 

the science and focusing on the research. It has the ability to extend to every area across the United States, and we believe those 

programs have continued to be targeted to facilitate some of the incubating technologies that can be done along with private industry, 

who already has much of the science and technology beginning to 

be developed, leveraging the grants and the opportunities through 

the Department of Energy, as well as aligning them with the universities that are in play in those States all across the country, to 

help facilitate that research. And so, we would just encourage continued vision to clarify the opportunities that make the best sense 

for the different regions. Thank you. 

Mr. DENNISTON. Mr. Chairman, I would second Mr. Ward’s comments. From the venture capital perspective, we see a lot of exciting ideas on new technologies for cellulosic research. Some of these 

are in the basic research stage, and so, there are a lot of venture— 

basic research is it is not proven. There is high technology risk. So, 

if you think back in the 1960s, 1970s, the NIH did early funding 

of genetics that became the biotech industry, and DARPA funded 

communications projects that became the Internet. 

Now, DARPA and NIH didn’t know what would become of their 

funding, but huge industries that have become very important in 

the United States came from that. And my own personal opinion 

is the level of research funding today for cellulosic research form 

the Federal government is too low by a lot, and so, the venture capital industry last year invested $2.5 billion in all the green technologies. Most of that was to build, $1 billion of it was to build ethanol production facilities. So, just a very small portion of that is in 

the basic research part. 

That is historically where the Federal government has made an 

enormous difference, and one thought that I would love to leave 

with you today is that other countries around the world are moving 

forward on basic research for cellulosic ethanol and other forms of 

biofuels, and in my opinion, I think the United States is behind, 

in terms of Government support for that basic research. 


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Mr. HOLDEN. Anybody else care to comment? Investment in 

agrodiesel lagging behind cellulosic investment? 

Mr. DENNISTON. Mr. Chairman, I would love to see the figures, 

because I don’t have them, of what the Federal funding is for ethanol, biodiesel, other forms of biofuels. I don’t know the answer to 

that. My belief is that it is small in the aggregate. 

Mr. HOLDEN. Mr. Lucas. 

Mr. LUCAS. Thank you, Mr. Chairman. Mr. Stark, you mentioned 

in your testimony Farm Credit has loans outstanding or commitments to the bioenergy industry of, in the range of $2.8 billion. 

That is a substantial amount of money. 

Could you describe in a little more detail the number and kind of projects that that $2.8 billion entails around the country? 

Mr. STARK. Thank you for the question. 

I can’t speak to the number of projects in total that the Farm 

Credit System is involved in. We roll these numbers up on a national basis. If I just use some swag numbers, if you look at about 

$1 per gallon investment, debt investment, at $2.8 billion, that is 

about 2.8 billion of the production of five billion gallons that is in 

production today, that would be well over half that is in production, 

and we are still involved in plants as they move forward. So, it is 

a significant investment in the industry today. 

Mr. LUCAS. What do you think is the most important issue in affecting the systems capacity to tolerate the risk that is involved in 

this? 

Mr. STARK. Well, I think the issue that we are facing today, one 

of the most critical issues, as new plants are developing interest in 

continuing and/or expanding, we are finding it more difficult to find 

partners that are willing to step up, primarily as a result of the 

fact that many of the early entrant lenders, as I mentioned, are filling up on their capacity. 

Many of the lenders have established in-house hold positions in 

total for this and that capacity is filling, combined with the issues 

that Mr. Book mentioned, when you look at the economic issues 

with the price of fuel, the inputs, and the fact that with the current 

plants that are under construction right now, of about six billion 

that will come online in the next 18 months or so, combined with 

the five billion there, puts us at 11 billion roughly, in terms of total 

production. There is a real concern by lending institutions about 

the economic viability of the plants in the near term, and so, that 

is a concern that, as Mr. Books indicated, that investors as well as 

lenders are watching very closely. 

Mr. LUCAS. Mr. Reyher, what is the biggest challenge that community bankers face in financing local owned biorefineries? 

Mr. REYHER. Mr. Lucas, really, the—in our bank’s opinion, the 

local community banks are so interested in seeing that economic 

development come to their communities that we really don’t face 

many of the problems that I can see. 

We mentioned the alliance that we have with the placement 

agent, and we have had an opportunity to look at financing some 

ethanol facilities, and quite frankly, if we don’t get in there, we 

don’t get a piece of it. And we mentioned the project that we have 

going on in our area right now. We actually contract with the agent 

to do the underwriting. In the county where I am located, we have 


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four community banks, and each one of them wanted a piece of it. 

We have taken the lead, and are actually working with the placement agent. Each bank will then take a part of that, and we will 

then be able to participate in the economic viability of the community. 

I was particularly sensitive to Ms. Musgrave’s remarks, in that 

we are located in her Congressional district in Colorado, and she 

is right, and we are looking for ways to enhance our economic viability of our local economy, but we are regulated by the FDIC and 

all the other bank regulators from a risk standpoint. One thing 

that we found lately is a lot of these projects are coming in with 

over 50 percent equity in them. There is not a lot of risk in a deal 

like that, where companies such as Broin are coming in with their 

own money, and they are looking to finance the equity at 50 percent. There is not a lot of risk in those projects, quite frankly. 

Mr. LUCAS. Mr. Chairman, if you would indulge me for 1 more 

question to Mr. Barker. 

Coming from a part of the country where there is a mature oil 

and gas industry, and there is a huge amount of infrastructure 

that goes to making that work, I notice in your testimony, you comment about the challenges of trying to establish an ethanol pipeline 

to move your product around. Could you expand for a moment on 

those kind of technical challenges, and it is more than just building 

the plant at a particular point. It is more than financing that, more 

than having so many months worth of stock and a contract to sell 

your product. You have got infrastructure issues, too. 

Mr. BARKER. Absolutely right. I appreciate the question. 

One of the more rapidly developing and largest challenges that 

our industry faces, in addition to technology, is the infrastructure. 

As this industry grows, it is very analogous to oil and gas. As our 

senior management has decades of oil and gas experience, and in 

its infancy, the oil and gas market moved its product by rail and 

truck, just like the ethanol industry moves by rail and truck today. 

Mr. LUCAS. True. 

Mr. BARKER. However, today, the oil and gas industry moves its 

products primarily by pipeline and barge. As the ethanol industry 

grows and matures, the same advancement is going to take place. 

It is going to take enormous amounts of capital investments to replace existing pipelines, old, abandoned pipelines that are eroding 

and environmentally unsafe can be replaced. It is cheaper than 

building a new pipeline outright. 

Western Kansas and Western Oklahoma are perfect places to 

that, and aggregate the supply, and take advantage of existing 

pipeline infrastructure to get the new product into where the demand is. 

Mr. LUCAS. Thank you. Thank you, Mr. Chairman. 

Mr. HOLDEN. Thank the ranking member. I recognize the gentleman from Kansas, Mr. Moran. 

Mr. MORAN. Mr. Chairman, thank you very much. 

Mr. Denniston, perhaps what you were saying more eloquently 

than I is this urgency, it is—you specifically talked about the research, and particularly, cellulosic research, but it is that kind of 

I don’t know, Manhattan type project that I think this country 

should be engaged in, and I just wanted to give you the opportunity 


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to agree with me, or disagree with me, but to make that compelling 

point that there is a lot of benefit to be gained here about the future of our country’s economy, our national security, and it requires 

that basic investment in research that we made in other circumstances, that we apparently are not yet making today. Accurate? 

Mr. DENNISTON. Completely, Congressman. I would love to elaborate, if you would allow me to do so. 

Mr. MORAN. Please. 

Mr. DENNISTON. So—— 

Mr. MORAN. The chairman may give me a bit more time this 

time. 

Mr. HOLDEN. No one’s in line, Mr. Gentleman. You can take your 

time. 

Mr. DENNISTON. Okay. I think it is important for us to step back 

and the question what is it that we are trying to solve. And so, one 

issue that is clearly on the agenda is a boost to rural and agricultural communities in the U.S., no question about that. 

Second is to reduce our dependence on foreign, imported oil. No 

debate. Third is to propel American competitiveness in new technologies. In my mind, there is no question but new energy technologies will be a very large wave of innovation in this forthcoming 

century. 

And fourth is climate change. And I think all four of those are 

issues that we are trying to solve for. We are in a flat world. In 

this last year, I traveled to Asia, to Europe on business. They are 

moving forward on the energy front, propelled by Government policy, incentives, research incentives, production incentives, purchasing incentives, we are behind the curve. And as a result, the 

companies in those countries have an advantage for the moment 

over our domestic companies, because the public policy, with all 

due respect, in some of those countries overseas, is a little bit 

ahead of where we are. 

And so, I couldn’t agree with you more that where this all starts 

is with research. There will be innovation, and I am very hopeful 

and confident that the innovation will come from America, and will 

lead to great prosperity in all regions of the country, including agricultural areas. 

Mr. MORAN. I never thought that I would agree with a statement 

that I heard former President Clinton say in Kansas last week, but 

his point was that in the ’90s, we had job growth in the United 

States, due to the Silicon Valley revolution, and the job creation 

that resulted from that basic change in our economy. And his point 

was the same can occur in regard to biofuels, in regard to new energy sources, and that he cited growing economies in European 

countries, based upon job creation, based upon energy development, 

nontraditional, at least nontraditional to date, energy development. 

And I really took his comments with great skepticism. I thought 

this is kind of pie in the sky, easy thing to say, but what I am 

hearing you say is that there may be significant opportunities to 

alter the entire economy, not just the energy sector, not just rural 

America, but a significant change in opportunity in the United 

States, and a growing economy based upon a change that can occur 

in the energy sector. 


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Mr. DENNISTON. I agree with that, and let me take half a minute 

just to paint the picture of why now, why not 10 years ago, why 

not 20 years ago? What is happening now? 

First is energy prices are up 3X over where they were five years 

ago, oil prices at least. At our venture capital firm and other firms, 

we are seeing innovation in different technical areas, material 

science, physics, electrical engineering, synthetic biology, synthetic 

chemistry, and all of that is coming together that now, for the first 

time in a very long time, I think permits these alternative energy 

sources to have a chance to compete on price with the incumbent 

sources of energy. And we have not really seen that before, and so, 

given the confluence of technology that we haven’t had before, 

higher energy prices, and I think a sense of public opinion that the 

problems I identified before, that everybody on this subcommittee 

has talked about, are real problems that are at the very highest 

level of priority for the country. I think this will be a large wave. 

Mr. MORAN. Well, it concerns me that—I mean, I am pleased at 

the price that we pay at the pump is less than it was some time 

ago, but I think it has an unfortunate consequence upon public policy, because our focus shifts. We are interested in ‘‘solving the problem’’ when our constituents are telling us how desperate they 

would like to see, you know, gas prices to come down, and when 

they come down even to the degree that they have, which is much 

less than where they used to be, they are much higher than they 

used to be, our focus shifts, or the consumer’s mindset changes, 

and we don’t seem to have the, perhaps, crisis mentality, or at 

least, the intensity, to focus on these energy issues that I wish we 

had. 

Mr. Chairman, do you anticipate a second round of questioning, 

or—— 

Mr. HOLDEN. The gentleman may proceed. 

Mr. MORAN. Thank you, sir. 

I wanted to—Mr. Barker talked about inability to finance with 

Wall Street, and it has been said that there was concern about the 

tax credit, the uncertainty of Congress’ commitment to renewable 

fuels. What are the factors that—what is the uncertainty that we 

place here in Washington, D.C., that is read by the financial markets, that then has a consequence for those people who are out 

there trying to raise capital, in order to build an ethanol plant? 

And, you know, I assume it is the tax credit, or they talk about the 

tariff. I assume that generates interest in the financial markets. 

The price of oil, I assume, is a significant determining factor into 

whether anybody wants to loan money. Is there more to it than 

those things, or what is the role those play? 

Mr. DENNISTON. Congressman, the risk aversion of the people 

who manage America’s money would probably please you. There is 

a very different risk profile in institutional investors. The venture 

capital community is not only innovators and operating managers, 

they are also investors. So, they bring some skin to the game. They 

control things a lot better. A small equity stake in a public company is something you don’t typically control until you research it 

very carefully, and you look through a litany of risk disclosures any 

time you look at an offering memorandum, and you say gosh, why 

would I ever do this? 


bajohnson on PROD1PC71 with HEARING
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And the answer is because of opportunity. And the growth rate 

the Renewable Fuel Standard provided was one of the principal 

selling points of ethanol transactions. The idea was that all other 

things being equal, the demand was going to effectively double in 

the United States by mandate. The concern was that supply was 

growing even faster. And so, one of the fundamental economic 

questions that has been asked of me, in trying to parse this town 

for those guys, is basically when are they going to raise the demand levels at a Federal level? Because that is a principal concern. 

There is certainly ethanol supply, every hydrocarbon-importing nation in the world is facing the same basic challenge. Oil is up. Agriculture resources can be an answer. 

What happens when all the refined product gets out there into 

the world? Suddenly, you have a significant oversupply, potentially 

not just here in the U.S. Add in refinery capacity. It would amaze 

you, I think, how far to the nth degree the folks who manage 

money look at risk. But that deters them, because in the end, what 

they are motivated by is rate of return, and they adjust their rate 

of return by an expected value of risk, and if they have a high risk 

coefficient, then the project has to return far more to reach their 

hurdle rate, and they will just move their money, your money, into 

something else. 

Mr. MORAN. So the Renewable Fuel Standard is the motivating 

factor for the movement of capital into this industry? 

Mr. DENNISTON. The risk of oversupply is the first—on every 

meeting I have had, that has been the number 1 thing. The tariff, 

the political factors that keep the tariff in place, given that it is 

paired with the excise tax credit, seem less unstable. We are unlikely, I believe, Wall Street believes we are unlikely to subsidize 

our nations’ production. 

Mr. MORAN. You are better able to answer the questions than I 

get regularly at home, which is what is Congress going to do about 

X, Y, and Z? You do this for a living, I guess, is predict what we 

are going to do. 

Mr. DENNISTON. Well, I think that is going to be interesting to 

watch. I am here to learn, Congressman. 

Mr. MORAN. My final question, Mr. Chairman, thank you for 

your indulgence—and from our lenders or others, are there examples of where banks, lending institutions, investors have lost significant sums in investing in these plants? Is there the disaster 

that has occurred that also sends a signal out there? 

Mr. DENNISTON. I can only speak from my own experience and 

our company, Congressman, and really, the answer is that has not 

occurred at this point in time. Given the economics of the industry 

over the last few years, the plants that got into production very 

early on, as was stated here earlier, with lower cost production, 

and very reasonable breakevens, have really made outstanding revenues at this point in time. So, they have returned an extremely 

attractive returns to their owners and their investors initially. So, 

that has not occurred at this point. 

Mr. MORAN. Finally, my last question, Mr. Chairman. 

My question was asked earlier of the first panel, and I am not 

certain it was answered in a way that I understood it. Are we to 

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ting in $5,000, pooling that money with his or her neighbors, are 

those days gone, and it really is about hedge funds and venture 

capitalists? 

Mr. REYHER. Congressman, I will take a shot at that. I don’t believe so. We have a great interest of local individuals who are willing to pool their money. We mentioned the 50 percent into these 

ethanol plants, these $100 million projects. That is $50 million in 

equity or cash that is going into these things, and there is money 

out there, and they are more than willing to put it in. And so, I 

don’t believe that we have reached that break-over point at all. I 

believe that there is still room for the small time cooperative investors to pool their resources, to create these marketing co-ops that 

help them streamline their risk, and eliminate some of the risk 

that they have, and just putting a seed in the ground and growing 

it for a price that you hope to get. This offers them a lot more diversity, and some different avenues that they have, in marketing 

their products. So—— 

Mr. MORAN. Thank you for your answer. That is very pleasing 

to me, particularly in light of the weather patterns that your customers and my constituents have encountered over the last 4 or 5 

years, that there is still capital that can be raised in Western Kansas and Eastern Colorado. 

Thank you, Mr. Chairman. 

Mr. HOLDEN. Thank the gentleman. And I thank the panel for 

their testimony and for their comments. 

Under the rules of the committee, the record of today’s hearing 

will remain open for 10 days to receive additional material and 

supplementary written responses from witnesses to any question 

posed by a member of the panel. 

This hearing of the Subcommittee on Conservation, Credit, Energy, and Research is adjourned. 

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


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