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S. HRG. 109–279

HURRICANES KATRINA AND RITA

HEARINGS

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

TO

RECEIVE AN UPDATE ON HURRICANES KATRINA AND RITA’S EFFECTS 

ON ENERGY INFRASTRUCTURE AND THE STATUS OF RECOVERY EFFORTS IN THE GULF COAST REGION

OCTOBER 6, 2005

OCTOBER 27, 2005

(

Printed for the use of the 

Committee on Energy and Natural Resources 

(II)

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

PETE V. DOMENICI, New Mexico, Chairman 

LARRY E. CRAIG, Idaho 

CRAIG THOMAS, Wyoming 

LAMAR ALEXANDER, Tennessee 

LISA MURKOWSKI, Alaska 

RICHARD M. BURR, North Carolina, 

MEL MARTINEZ, Florida 

JAMES M. TALENT, Missouri 

CONRAD BURNS, Montana 

GEORGE ALLEN, Virginia 

GORDON SMITH, Oregon 

JIM BUNNING, Kentucky 

JEFF BINGAMAN, New Mexico 

DANIEL K. AKAKA, Hawaii 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

DIANNE FEINSTEIN, California 

MARIA CANTWELL, Washington 

JON S. CORZINE, New Jersey 

KEN SALAZAR, Colorado

ALEX FLINT, Staff Director 

JUDITH K. PENSABENE, Chief Counsel 

BOB SIMON, Democratic Staff Director 

SAM FOWLER, Democratic Chief Counsel 

LISA EPIFANI, Counsel 

JENNIFER MICHAEL, Democratic Professional Staff Member 

DEBORAH ESTES, Democratic Counsel 

(III)

C O N T E N T S 

Hearings: 

October 6, 2005 ................................................................................................. 1

October 27, 2005 ............................................................................................... 83

STATEMENTS 

Page

OCTOBER 6, 2005

Akaka, Hon. Daniel K., U.S. Senator from Hawaii .............................................. 6

Bingaman, Hon. Jeff, U.S. Senator from New Mexico .......................................... 5

Burns, Hon. Conrad, U.S. Senator from Montana ................................................ 7

Cavaney, Red, President and CEO, American Petroleum Institute .................... 8

Corzine, Hon. Jon S., U.S. Senator from New Jersey ........................................... 3

Curtis, Kevin S., Senior Vice President for Programs, National Environmental 

Trust ...................................................................................................................... 25

Domenici, Hon. Pete V., U.S. Senator from New Mexico ..................................... 1

Feinstein, Hon. Dianne, U.S. Senator from California ......................................... 4

He ́bert, Curtis, Executive Vice President, External Affairs, Entergy, New 

Orleans, LA ........................................................................................................... 43

Helms, Christopher A., President, Pipeline Group, NiSource, Inc., on behalf 

of the Interstate Natural Gas Association of America, Merrillville, IN .......... 37

Liveris, Andrew, President and CEO, Dow Chemical Company, Midland, MI .. 30

Smith, Hon. Gordon, U.S. Senator from Oregon ................................................... 6

OCTOBER 27, 2005

Akaka, Hon. Daniel K., U.S. Senator from Hawaii .............................................. 114

Bingaman, Hon. Jeff, U.S. Senator from New Mexico .......................................... 88

Bodman, Samuel W., Secretary, Department of Energy ...................................... 99

Bunning, Hon. Jim, U.S. Senator from Kentucky ................................................. 84

Corzine, Hon. Jon S., U.S. Senator from New Jersey ........................................... 85

Craig, Hon. Larry E., U.S. Senator from Idaho .................................................... 103

Domenici, Hon. Pete V., U.S. Senator from New Mexico ..................................... 83

Norton, Gale A., Secretary, Department of the Interior ....................................... 88

Salazar, Hon. Ken, U.S. Senator from Colorado ................................................... 86

Talent, Hon. James M., U.S. Senator from Missouri ............................................ 87

APPENDIX 

Responses to additional questions .......................................................................... 131

(1)

HURRICANES KATRINA AND RITA 

THURSDAY, OCTOBER 6, 2005

U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The committee met, pursuant to notice, at 10 a.m., in room SD–

366, Dirksen Senate Office Building, Hon. Pete V. Domenici, chairman, presiding. 

OPENING STATEMENT OF HON. PETE V. DOMENICI,

U.S. SENATOR FROM NEW MEXICO 

The CHAIRMAN. Let us get started. 

First, thank you, everyone, for coming, in particular the Senators 

who are here, and I assume there will be a few more. 

I would like to take a few moments to make a few observations 

and then yield to Senator Bingaman and to any of you Senators 

who would like to comment. 

Yesterday Senator Bingaman, Senator Akaka, and I returned 

from Baton Rouge. We went down there to see and hear and, firsthand, to review the hurricane Katrina and Rita damages to the energy infrastructure and whatever else came to our attention that 

might be relevant to us either in this assignment or as Senators 

when we begin to address the problems that have come. 

We spent time at Exxon Mobil’s Baton Rouge refinery, the second 

largest in the country, with the capacity of 500,000 barrels a day. 

Although that refinery did not sustain major damage in the storms, 

its access to oil and its ability to move products was severely 

harmed. In addition to loss of electricity that set the refinery back, 

many times throughout the trip we heard about the need to ensure 

some kind of redundant and robust power grid if possible. 

We met with Colonial Pipeline, which is a 5,500-mile interstate 

pipeline, that originates in Houston and terminates in New York, 

and delivers millions of gallons of gasoline, home heating oil, and 

aviation fuel and other refined products over that distance and that 

geography of the United States. Right now Colonial is operating at 

about 70 percent of its normal mainline capacity from Houston. 

Lack of supply and lack of commercial power, due to both the 

storms, are major impediments to getting that pipeline back to 100 

percent. 

We went to Dow’s St. Charles petrochemical complex and talked 

to them about the high cost of natural gas prices after we had discussed the disaster and how they responded, which was really 

something to hear in terms of how they responded. But the interesting thing was a discussion with this industry which is so vital 

2

to America because it is good jobs, it is products that they can compete in and technology that is American, that is modern and has 

great workers. 

With all of that, they are implicitly tied to the price of natural 

gas such that, for instance, every $1 increase of cost of natural gas 

for this plant means an additional $35 million in fuel costs per 

year. Senator Alexander, you have been working on this. Now, add 

it all up and they say how far it goes up could be the difference 

between whether they can stay there or not. It is rather frightening. Obviously, natural gas should be used there. No question. 

But will it? Maybe not. 

At each of these energy facilities, I believe we were universally 

impressed by the employees’ dedication and the company’s concern 

for the well-being of their employees and the extraordinary efforts 

and extraordinary competence that they put into preparing for the 

storm and afterwards. 

There is a great deal of work to be done and there is a great deal 

of courage and confidence that it can be done, which was rather 

surprising. I do not think it should have been because Americans 

generally are that way, but this was so devastating I wondered. 

Nonetheless it is there. The ‘‘can do,’’ ‘‘we will do,’’ the hope is 

there. 

Hurricanes Katrina and Rita did not just hit the gulf coast region. Those natural disasters impacted our entire energy chain in 

all regions of the economy. As we prepare to help, we have to understand it is not just helping the coastal regions. It is helping to 

maximize the positive impact of the great energy base that is there 

and the facilities that make it usable. We need to have realistic expectations about how long we should expect high prices of natural 

gas and related products, and we need to prepare for the potential 

for shortages. I hate to say that. I hate to say both of those statements, but I think it is important to us that we get the facts out 

and that we attempt to produce facts that indicate what I just said 

is a reality. And I will repeat it. We need to have realistic expectations about how long we should expect high prices and, I might 

add, ever-increasing prices, and we need to prepare for potential 

shortages. 

Earlier this week Secretary Norton said that substantial portions 

of the oil and gas production in the gulf coast affected by the hurricanes could take several months to resume, with major repairs extending into next year. She also noted that some of the hurricanes’ 

most significant energy impacts were to onshore natural gas processing facilities. Natural gas prices closed above $14 yesterday, and 

uncertainty about the supplies may keep those prices painfully 

high. I do not believe just a few months ago anybody believed that 

was possible. I believe there is genuine concern that that not only 

is possible but probable, and rising is probable also. 

The storm impacts have also affected our inventories. Yesterday 

the EIA reported that total motor gasoline inventories fell by 4.3 

million barrels last week and distillate fuels like diesel fell by 5.6 

million barrels last week. Although our inventories are still within 

the range for this time last year, these kinds of drops cause serious 

concern and most probably cannot be sustained. 

3

Our purpose today is to hear from some of the industries that 

have been impacted by the hurricanes. They will tell us about the 

damage assessments and the recovery efforts. We know we have a 

number of experts and we have a number of Senators interested. 

So while we are going to listen, we would very much like to be as 

brief as possible and leave us as much information as you can. 

In addition to learning about the physical damage, this committee will hold hearings on economic effects of the hurricanes and 

the price expectations for consumers this winter. I have alluded to 

that in general terms, but we will have hearings on that subject. 

We are also planning to convene a hearing where we can hear 

from the administration witnesses, DOE and Interior as examples, 

about emergency preparations and response, as well as steps that 

can be taken to improve the supply/demand picture. I am impressed with Secretary Bodman’s efforts that he has launched, especially in the campaign to highlight how American families, business, and the Federal Government can save energy in response to 

rising winter costs. I know for some, they still do not think that 

is necessary, but I for one think it is absolutely vital, and I commend them for it and hope they will do more and do it better. 

The President has made it clear that conservation is going to be 

one of our most effective tools in this crisis. I agree with that and 

hope we can continue on a bipartisan effort to strengthen conservation in the short term. 

I thank the witnesses in advance for today. Senators, we have 

Mr. Red Cavaney, CEO of American Petroleum; Mr. Christopher 

Helms, president of Pipeline Group, NiSource, Inc., on behalf of the 

Interstate Natural Gas Association of America; Mr. Andrew 

Liveris, president and CEO of Dow Chemical. We thank you for the 

visit to your plant yesterday. We have Kevin Curtis, senior vice 

president for programs, National Environmental Trust; and we 

have Mr. Curtis He ́bert, executive vice president of external affairs 

for Entergy. 

Now, with that, I will yield to Senator Bingaman. Senator Bingaman, thank you for going with me and accompanying me on the 

trip. I think it was very good for all of us and I hope it will help 

us in our efforts. 

[The prepared statements of Senators Corzine and Feinstein follow:]

PREPARED STATEMENT OF HON. JON S. CORZINE, U.S. SENATOR FROM NEW JERSEY

I would first like to thank Senators Domenici and Bingaman for holding this hearing. Our nation has been dealt a substantial blow by Hurricanes Katrina and Rita 

and we have an enormous undertaking ahead of us. First and foremost, we must 

take care of the immediate needs of the victims of these terrible tragedies. 

In addition to the lives lost and the devastation that so many Gulf Coast residents 

have experienced, the storms greatly impacted our energy infrastructure. Our offshore production and refining capacity were severely disrupted and we must take 

deliberate yet careful steps to get our supply back on-line. 

Mr. Chairman, we must make every effort to repair the devastated Gulf Coast as 

quickly as possible and mitigate the immediate effects of the hurricane on our energy system and gas prices. We must be careful, however, not to trade effective longterm policies for damaging short-term policies. 

First of all, we absolutely cannot take the route of drilling for more oil. Many of 

my colleagues have cited the events in the Gulf as a reason to open the Outer Continental Shelf and ANWR to drilling. I wholeheartedly disagree—the interruption to 

4

our energy supply is not a reason to drill for more oil. Instead, it is a wake up call 

underscoring the need to reduce U.S. dependence on oil. 

Secondly, many of my colleagues have already made proposals that will do nothing to address the vulnerabilities in our energy system. Instead, proposals that 

would provide the President or the EPA Administrator with the blanket authority 

to waive or modify federal, state, or local statutes or regulations will only prove to 

be harmful in the long-run. I urge my colleagues to reject these short-sighted policies that undermine existing environmental and public health protections. 

Mr. Chairman, Hurricanes Katrina and Rita exposed the fragility of our energy 

infrastructure and highlighted the inadequacies in the energy bill passed by Congress this summer. The Senate had a chance to increase fuel efficiency in the energy 

bill, but unfortunately my colleagues voted the CAFE amendment down. This was 

a blatant missed opportunity to create a policy that will reduce this nation’s reliance 

on oil. In addition, it is frustrating that the final energy bill did not include an oil 

savings provision. Mr. Chairman, it would take savings of at least three to five million barrels per day to truly reduce our energy dependence. Therefore, I supported 

an amendment on the floor of the Senate that would reduce imports of foreign oil 

by 40 percent over the next 20 years, but unfortunately most of my Senate colleagues did not—again another missed opportunity. It is my hope that we no longer 

ignore such obvious ways to increase our energy independence. 

Mr. Chairman, while I am pleased that President Bush has asked the American 

people to focus on conservation, I am frustrated that it took the devastation of Hurricanes Katrina and Rita for this Administration to realize that conservation is key 

to weaning this country off its unhealthy dependence on oil. It is essential that the 

federal government take the lead in this regard and set an example for the rest of 

the country. In fact, I joined many of my colleagues in signing a letter to President 

Bush urging him to require a 40 percent commitment to federal petroleum savings 

by 2020. We must take these types of steps to ensure that we are prepared for similar disasters of this magnitude in the future. 

Again, I thank the Chairman for holding this hearing and I thank the witnesses 

for being here. I look forward to hearing the testimonies today. It is my hope that 

we learn from the terrible tragedies that have happened in the Gulf Coast to create 

an energy system that will make us less vulnerable to these tragedies in the future. 

PREPARED STATEMENT OF HON. DIANNE FEINSTEIN, U.S. SENATOR FROM CALIFORNIA

Mr. Chairman, thank you for holding this timely hearing. 

The one-two punch of Hurricanes Katrina and Rita showed us how dependent we 

are on the Gulf Coast for our energy supplies. I would like to thank the witnesses 

for being here today to give us a status report on the energy infrastructure in the 

Gulf. 

While I know that natural gas prices are going to soar because of the damage to 

the energy infrastructure, I think it is important to note that prices were rising 

even before the hurricanes hit. 

In California, PG&E expects that utility bills in their service territory will rise 

40 to 50 percent this winter compared with last winter. In other words, average residential gas bill in January will likely rise to $154 from $108 last year. 

Southern California Edison expects those rates to rise between 30 and 40 percent, 

or the average bill will rise from $83 to $110 or more. 

Higher energy prices means less money for consumers to buy food, rent, or other 

necessities. 

I know that most of the witnesses today will be talking about supply side solutions, but I want to take a few minutes to point out that drilling will not help us 

get through the price spikes this winter. What will help us in the near-term are 

two things: energy efficiency and diversifying our fuel mix. 

While the rest of the nation’s per capita energy consumption has risen by nearly 

50% over the past 50 years, California has kept the per capita average flat. 

The State has successfully curbed electricity usage by implementing:

• cost-effective building and appliance standards; 

• effective energy efficiency programs, including aggressive energy savings targets 

for both electricity and natural gas; and 

• public education programs about the importance of energy efficiency.

In addition, the State has the most aggressive renewable portfolio standard in the 

nation—requiring that 20% of California’s electricity come from renewable resources—not including large hydropower—by 2010. 

5

Further, the Governor has endorsed increasing the renewable standard to 33% by 

2020. 

I do not disagree that we need new supply. That was why we included federal 

loan guarantees for the Alaska Natural Gas Pipeline as part of the Fiscal Year 2005 

Military Construction Appropriations Bill. 

The Alaska pipeline would provide 4.5 billion cubic feet of natural gas a day, or 

about 7 percent of current consumption. Yet the pipeline project sponsors have not 

even been selected, further delaying the construction of the pipeline. 

It seems to me that we can reduce demand for natural gas if we:

• bring to market natural gas from areas where we already drill for oil, namely 

Alaska; 

• fully implement the energy efficiency standards and tax incentives in the energy bill, and extend those incentives for another three years; 

• and implement a national renewable portfolio standard.

I look forward to hearing from the witnesses. Thank you, Mr. Chairman.

STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR

FROM NEW MEXICO 

Senator BINGAMAN. Well, thank you very much, Mr. Chairman, 

and thank you for having this hearing. I thought the trip that you 

and Senator Akaka and I took to this area was very informative, 

and thank you and your staff for organizing it. 

Obviously, we did see a lot of heroic effort going on there by 

many companies trying to recover from the damage that was 

caused by these two hurricanes, and a lot of employees who were 

working very long hours trying to restore service and get the situation back to one of normalcy. 

What I am interested in—I think all of us are—is wanting to 

know, are there things that we in Congress could be doing to assist 

with the recovery that we are not engaged in right now? Second, 

are there ways that we could be helping with the mitigation of the 

effects of these hurricanes on people in the region, consumers of 

various kinds in the region, and also nationwide mitigation of the 

high prices? And third, are there ways to mitigate damage from future hurricanes? Are there things that we can do to be smarter in 

this rebuilding, in this recovery, which will lessen the extent of the 

damage and the extent of the disruption that we will encounter in 

the future? Those are issues that I think I am anxious to learn 

more about. 

I welcome all the witnesses. Thank you for having the hearing. 

The CHAIRMAN. Thank you very much, Senator. 

Mr. He ́bert, I had difficulty with your French name and I apologize. 

Mr. HE ́ BERT. I understand that. 

The CHAIRMAN. If it helps, it took them 10 years to say Domenici. 

[Laughter.] 

The CHAIRMAN. Anyway, I am not going to say it. I am going to 

call you Curt because I am still going to mess it up. I am not that 

familiar with you, so excuse me. 

Does any other Senator desire to comment? 

Senator Akaka, you were on the trip and I thank you for coming 

on the visit. 

6

STATEMENT OF HON. DANIEL K. AKAKA, U.S. SENATOR

FROM HAWAII 

Senator AKAKA. Mr. Chairman, thank you very much for giving 

me this opportunity to make a very brief statement and for holding 

this hearing today. I just came from a Homeland Security hearing 

with FEMA, and I will be returning to that after this hearing. We 

are also investigating Katrina and Rita. 

I thank you, Mr. Chairman, for organizing the committee tour of 

the damages and challenges to the Nation’s and gulf coast’s energy 

infrastructure. 

Mr. Chairman, my immediate impression is that we have a national crisis on our hands in the aftermath of Katrina and Rita and 

that the needs are complex. More than 30 percent of the Nation’s 

domestic oil comes from the gulf. 10 percent of our refining capacity has been knocked out. Entergy’s New Orleans subsidiary filed 

for bankruptcy on September 21. Natural gas pipeline companies 

were severely challenged to keep their supplies going throughout 

the South and up to the Northeast, fueling the likelihood of even 

higher natural gas prices. 

For 2 days, we visited energy and chemical companies in the 

gulf. I was really impressed and moved by the heroic untold stories 

of humanitarian actions by company employees. Companies deployed their own resources, both personnel and supplies, to save 

people from flooding homes, all this as they were fighting to save 

the energy infrastructure so vital to our Nation. 

The first phase in this national disaster was to assist the victims 

with their immediate needs. As we continue to assist the people 

displaced by hurricanes, we must also move to the second phase, 

which we are doing now, of rebuilding the energy infrastructure 

which underlies the economy of the Nation and the region. 

Mr. Chairman, I thank you for setting up that trip. It was enlightening for me, and I can now tell you that we need to really 

focus on restructuring and moving our Nation forward with respect 

to energy infrastructure. Thank you very much. 

The CHAIRMAN. Thank you very much. 

Would any other Senator like to comment? 

Senator Smith. 

STATEMENT OF HON. GORDON SMITH, U.S. SENATOR

FROM OREGON 

Senator SMITH. Mr. Chairman, I would like to put a statement 

in the record and indicate to my colleagues my concern about not 

just these refineries, but also natural gas prices that are affecting 

so many industries, and obviously refineries for home heating oil. 

It poses a very real problem for us in this coming winter. 

I appreciate your holding this hearing. 

[The prepared statement of Senator Smith follows:]

PREPARED STATEMENT OF HON. GORDON SMITH, U.S. SENATOR FROM OREGON

Mr. Chairman, I appreciate your convening this hearing to examine further the 

impacts of Hurricanes Katrina and Rita on the nation’s energy infrastructure. While 

we must continue to aid those directly affected by these disastrous storms, we must 

not forget that every family and business in America feels the effects of these 

storms. Gasoline and natural gas are at historically high prices, and those prices 

are expected to continue into the foreseeable future. 

7

The most recent report is that almost 90 percent of the oil production in the Gulf 

of Mexico remains shut in, and 70 percent of the region’s natural gas production 

remains off-line. The damage is more extensive than originally estimated. The Interior Department projects it will take several months and billions of dollars to restore 

damaged refineries, transmission lines and pipelines in the region. 

While we will hear today about the impact on the Gulf, I am hearing from constituents who are concerned about their family budgets and livelihoods. 

My agricultural constituents, particularly in eastern Oregon, are facing lower 

commodity prices, higher transportation costs, and higher fertilizer costs. Families 

that have farmed for generations are getting out of the business, and selling their 

land. High energy costs will not help us revitalize rural America. 

Because natural gas is such an important feedstock for the fertilizer and petrochemical industries, those industries are being decimated by natural gas prices that 

are now seven times higher than they were a few years ago. 

The United States has the highest natural gas prices of any industrialized nation, 

and industries that rely on natural gas are finding it increasingly difficult to remain 

competitive in a global economy. 

As we head into the winter heating months, high natural gas prices will also affect the 55 percent of American households that heat their homes with natural gas. 

It is estimated that the average household can expect to spend $700 to $1200 more 

to heat a home this coming winter. 

I am pleased that the Administration is urging Americans to conserve energy, and 

requiring federal agencies to conserve. 

However, the federal government is also a major producer of electricity. I urge the 

Energy Department to examine the operation of all federal generation assets to see 

if those assets can produce more electricity this winter, so that less natural gas will 

be needed. 

I firmly believe that the recently enacted Energy Policy Act will enhance our nation’s energy security over time. The Act provides numerous incentives for the development of renewable energy and cleaner, more fuel-efficient vehicles, as well as incentives for new electric transmission and natural gas infrastructure. 

These incentives are even more critical as we seek to rebuild the Gulf Coast region. 

The Energy Policy Act will not, however, see us through the tight energy supplies 

we are facing today. I am committed to working with you, Mr. Chairman, to examine options to meet our nation’s current energy demands in an environmentally responsible manner. 

I want to thank each of the witnesses who have agreed to testify here today, and 

I look forward to your statements.

Senator BURNS. Mr. Chairman? 

The CHAIRMAN. Yes, indeed. 

STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR

FROM MONTANA 

Senator BURNS. I do not know whether I am going to get down 

to my turn or not. I wanted to hear the testimony this morning. 

We are having problems getting to our supplies of natural gas, 

as you well know. We have billions and billions of cubic feet of natural gas in this country that we are unable to access right now. 

I will be holding a hearing on October 25, oversight on Interior 

Appropriations on Public Lands and the impediments that we are 

running into in accessing and permitting on Federal lands. I think 

it is long overdue. When we look at the staggering figures that we 

have in front of us, I think it is time that we took a common sense 

approach on access to natural gas. 

I represent a large agricultural sector. Not only are we impacted 

by transportation and transportation fuels, we are impacted in fertilizer and the operation of our ranches. I want to tell you the 

squeeze that we are in real quickly, and this illustrates. 

The other day a young farmer walked up to me and had the scale 

tickets from his father’s wheat in 1948. Today it is the same price. 

8

Now, there is not anybody in this room that is not making more 

money or getting more for their produce and their production personally or in goods, even at the basic level, today than American 

agriculture is. 

We are in a bind, and I want to talk about the basics. It is the 

way we feed our country. That is the second thing we do every 

morning when we get up. Now, with the first thing you do, you 

have got lots of options, but the second thing you do is eat. I will 

tell you we are in a bind. 

So this is a very important hearing. I think it is a very important 

thing not only to venture into new technologies. I was one of the 

first ones that appropriated money for fuel cell development because I knew 1 day we are going to need them. It was inevitable. 

But I think this acute problem that we have right now, Mr. 

Chairman, I think has to be addressed in a very realistic and common-sensical way, and we are going to do that on October 25 for 

the folks who will be interested in giving input into that hearing 

on oversight on our access to our energy sources. Thank you very 

much. 

The CHAIRMAN. Thank you, Senator. 

All right. With that, we are going to proceed. The first witness 

is president and CEO of the American Petroleum Institute. Please 

proceed. 

STATEMENT OF RED CAVANEY, PRESIDENT AND CEO, 

AMERICAN PETROLEUM INSTITUTE 

Mr. CAVANEY. Thank you, Mr. Chairman, members of the committee. 

The U.S. oil and natural gas industry recognizes the catastrophic 

impact of hurricanes Katrina and Rita on millions of Americans. 

The gulf coast is the very heartland of our industry, as you have 

indicated, and we are not just responding to this disaster, we are 

actually living it. Thousands of our workers are suffering hardships 

of living in this devastated region they call home, many now without their own homes. In concert with fire and police, friends and 

neighbors, suppliers, government officials, our employees are restoring production, bringing refineries back on line and restarting 

the pipelines. 

Our companies have made much progress in recovering from the 

hurricanes, but let us be frank. Much remains to be done. Let us 

remember this was a once-in-a-century natural disaster of monumental impact. It has been 90 years since two hurricanes of this 

magnitude struck the gulf coast in the same year, and Katrina and 

Rita came within 1 month of one another. If you look at the chart 

to my right, what you will see is the impact was literally side by 

side, affecting directly 99 percent of the gulf facilities, quite an extraordinary occurrence. 

So while many refineries, pipelines, and other facilities are back 

in operation, some facilities are still out of service, either because 

of the lack of electricity or because of damage. Fuels are flowing 

to consumers nationwide, but below normal levels in some areas. 

At this time, energy conservation and energy efficiency are critically important. We support the recent calls to conserve energy by 

President Bush, by the Alliance to Save Energy, and others. API 

9

has run full-page ads in major metropolitan newspapers across the 

Nation urging consumers to use available supplies efficiently. We 

have urged them to use such things as common sense steps in 

planning trips carefully, properly maintaining their cars, driving 

efficiently, and using energy wisely in their homes. 

Access to crude oil from the Strategic Petroleum Reserve and 

various government waivers to expedite the flow of fuels, particularly to emergency responders, have been vital in speeding this recovery. 

The gulf region includes some 4,000 offshore platforms in Federal 

waters, two dozen refineries, and hundreds of production, transportation, and marketing facilities. These Federal waters account for 

nearly 30 percent of our Nation’s crude oil production and approximately 20 percent of our Nation’s natural gas production. 

There is a reason for this geographic concentration in a high-risk 

weather area. Government policies have largely limited offshore exploration and production to the central and western gulf, and our 

onshore facilities, including refineries, have been welcomed by the 

communities in the region. Unfortunately, offshore oil and natural 

gas development has been barred elsewhere, specifically the eastern half of the gulf, and the entire Atlantic and Pacific coasts. 

In my written testimony, I provided you with the latest detailed 

information, along with lessons we have learned. The situation can 

change markedly from day to day. 

In summary, here is where we stand today. Offshore shut-in oil 

production is 1.3 million barrels per day, or 86.7 percent of the 

daily Gulf of Mexico production, which is down from 100 percent 

a week ago. Shut-in natural gas production is 6.9 billion cubic feet 

per day, which is 69 percent of the daily gulf production, also down 

from 80.4 percent last week. Companies continue to assess damage 

to offshore platforms, on rigs, and throughout the infrastructure. 

Of the Nation’s refining capacity, 20 percent remains offline or is 

in the process of restarting in the aftermath of both Katrina and 

Rita. Eight of those refineries are down due to Rita and four of 

them remain down due to Katrina. The restoration of electricity 

services is a priority for getting refineries back up and running. 

Many pipelines have recovered rapidly with only limited damage 

to those pipelines. The double hit of Katrina and Rita has negatively impacted several key pipelines that are currently closed or 

operating partially. I am pleased to announce that Colonial this 

morning has indicated they have gone from 70 up to 90 percent of 

capacity, which is very, very helpful to us all. 

We know that the hurricanes have had a huge nationwide impact 

through skyrocketing prices for gasoline and other fuels. We understand the concerns consumers have expressed, and our companies 

are doing everything in their power and are working 24/7 to restore 

operations and to get supply back to normal levels. This work, wise 

energy use by consumers, and a ‘‘do no harm’’ approach by government officials provide the quickest path to consumer relief from 

tight supplies. 

In conclusion, we remain very focused on the serious work needed to ensure Americans continue to get the fuels that they need, 

and we look forward to working with the committee in this regard. 

Thank you, Mr. Chairman. 

10

[The prepared statement of Mr. Cavaney follows:]

PREPARED STATEMENT OF RED CAVANEY, PRESIDENT AND CEO,

AMERICAN PETROLEUM INSTITUTE

I am Red Cavaney, President and CEO of the American Petroleum Institute—the 

national trade association for the U.S. oil and natural gas industry, representing all 

sectors of the industry, including companies that make, transport, and market gasoline. 

I. INTRODUCTION

The oil and natural gas industry recognizes the catastrophic impact of Hurricanes 

Katrina and Rita on millions of Americans, and our industry has been working 

around the clock with all levels of government and the private sector to restore operations and ensure that consumers have adequate fuel supplies. 

As I will explain, our companies have made much progress in recovering from the 

hurricanes, but much remains to be done. While many refineries, pipelines, and 

other facilities are back in operation, or are about to be, some facilities remain damaged and out of service. Fuels are flowing to consumers nationwide, but not at the 

normal levels. Thus, our companies are facing a more difficult challenge in keeping 

up with demand for gasoline and other products. We are facing tight supplies, making it all the more important to heed the President’s recent call for consumers to 

use energy wisely. 

Energy conservation and efficiency in this time of tight supply are crucial—as important as our efforts to bolster supply. Companies are working 24/7 to get fuels to 

where they are needed in the quantities they are needed. And they are 

supplementing domestic production with increased imports of gasoline to help alleviate tight supplies. 

API has run full page ads in major metropolitan newspapers across the nation 

urging industry and consumers to use available supplies wisely. We have urged 

these steps:

• Plan trips carefully. Combine multiple trips into one to do your errands. Minimize stop-and-go driving by avoiding rush hours. Consider car pooling. • Maintain your car. Under-inflated tires can rob up to one mile per gallon from 

fuel economy. • Drive efficiently. Unnecessary speedups and slowdowns can decrease fuel economy by up to two miles per gallon. Accelerate slowly and avoid engine idling. • Slow down. Typically the faster you drive, the more fuel you use. • Use energy wisely at home. Turn down thermostats, seal window and door 

leaks, clean furnace filters and replace less-efficient furnaces and hot water 

heaters.

The Gulf Coast is the very heartland of our industry. We are not just responding 

to this disaster, we are living it. Thousands of our employees and their families and 

friends are also suffering the hardships of living in this devastated region they call 

home. In concert with fire and police officials, neighbors, suppliers, and government 

authorities, our companies are restoring the production, bringing the refineries back 

online, and restarting the pipelines—while at the same time grieving over the loss 

of homes, neighborhoods, and even loved ones. 

The Gulf Coast region includes some 4,000 offshore platforms in federal waters, 

dozens of refineries, and hundreds of production, transportation and marketing facilities. These federal waters account for nearly 30 percent of the nation’s crude oil 

production and approximately 20 percent of the natural gas production. There is a 

reason for this geographic concentration in a high-risk weather area. Government 

policies have largely limited offshore exploration and production to the Central and 

Western Gulf—and our onshore facilities, including refineries, have been welcomed 

in communities in the region. Unfortunately, offshore oil and natural gas development has been barred elsewhere—including the eastern half of the Gulf and the entire Atlantic and Pacific Coasts. Onshore construction has been held back by government restrictions, permitting delays, and not-in-my-backyard (NIMBY) sentiments. 

It is ironic that we talk so much about diversifying the sources of our energy supplies from abroad, yet we have done so little to geographically diversify our oil and 

natural gas industry here at home. 

An area of much recent concern is the need to bring additional clean-burning natural gas to industries and consumers nationwide. Yet, efforts to increase domestic 

natural gas production, both in the Rocky Mountain West and offshore, have been 

stymied—and efforts to build more terminals outside the Gulf region to permit increased imports of liquefied natural gas (LNG) have also been largely blocked. 

11

II. THE IMPACT OF HURRICANES KATRINA AND RITA ON THE

U.S. OIL AND NATURAL GAS INDUSTRY

I know that I speak for every one of our member companies when I say that our 

first concern—from the moment it becomes evident that a hurricane is approaching 

the Gulf—is for the well-being and safety of the thousands of men and women from 

across the country who work on offshore facilities, on the vessels that serve them, 

and in the refineries, distribution networks, and retail outlets around the Gulf coast. 

Equally as important is the welfare and recovery of the communities in the Gulf 

region. Millions of people in the area are experiencing firsthand the physical and 

emotional hardship of the death and devastation caused by these two hurricanes, 

and our hearts and our prayers are with them. 

API is working with the American Red Cross to facilitate U.S. oil and natural gas 

industry efforts to help people throughout the Gulf region. Our member companies 

are helping relief efforts through corporate contributions and by encouraging customer and employee contributions. 

The companies are donating millions of dollars to humanitarian relief efforts to 

assist evacuees and help rebuild lives and communities. They are supporting national, state and local initiatives in recovery and relief through contributions of 

products, services, and technology. API and its members, in conjunction with the 

Gulf Coast Workforce Board and the U.S. Department of Labor, are working with 

employers in Texas and the surrounding states to help people displaced by the hurricanes to find new jobs. 

We want to thank President Bush for making available more than 24 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) to help offset supply 

shortfalls after Katrina and Rita—truly a circumstance for which the SPR was intended—and we appreciate the International Energy Agency (IEA) member nations’ 

contributions of additional strategic reserves. We are also grateful that the Environmental Protection Agency (EPA) and the Department of Transportation, in conjunction with the involved states, have granted waivers to expedite the flow of fuels, 

particularly to emergency responders—an action that is very helpful at a time when 

logistics and distribution of fuels are extremely difficult and critical. 

In addition, the Department of Homeland Security’s waivers of the Jones Act have 

helped to provide fuel supplies by enabling foreign as well as U.S. vessels to transport crude oil and refined petroleum products between domestic ports. And, through 

both hurricanes, the Department of Energy has played a central and invaluable role 

in leading and coordinating overall efforts by all levels of government to respond to 

the energy impacts of Katrina and Rita. 

These and other positive steps by government are most helpful in dealing with 

this catastrophe. We also believe it is particularly important for government officials 

at the federal, state and local levels to urge citizens nationwide to use energy wisely, particularly in terms of not hoarding gasoline and not ‘‘topping off’ their vehicle 

tanks. We welcomed the President’s recent comments on the need to use fuel wisely 

and avoid unnecessary travel. 

In attempting to meet the challenges we face, it is also most important to do no 

harm. The worst thing Congress could do in these challenging times would be to 

repeat the mistakes of some past energy policies by overriding the structures of the 

free marketplace. Imposing new controls, allocation schemes, new taxes on industry, 

or other obstacles will only serve to make the situation much worse—for the very 

individuals who are being relied upon to bring our energy systems back to full operating order. 

Effects of Hurricanes Katrina and Rita on Industry Facilities 

While our companies are still assessing the full effects of the hurricanes on production, refining, and pipeline facilities in the Gulf region, the storms clearly had 

a significant and widespread impact on our operations. Thanks to the around-theclock work of company employees and contractors, facilities are coming back online 

and fuel is flowing from refineries through pipelines to consumers. 

While I will attempt to provide you with the latest information we have, I would 

caution you that the situation can change markedly from day to day, from the 

standpoint of what we know and what actual progress has been made. 

Our latest information from the Department of Energy (DOE), the Minerals Management Service (MMS), the Association of Oil Pipe Lines (AOPL), and member 

companies on the status of our industry and its facilities is as follows: 

12

OFFSHORE PRODUCTION

Summary of Impact of Hurricanes Katrina and Rita 

Recent hurricanes have reinforced the important role domestic energy supplies 

play in our economy. Shut-in oil and natural gas production from Hurricanes Ivan 

(2004) and Katrina and Rita this year, combined with growing demand for petroleum products and natural gas, have increased costs for all energy consumers. And, 

the tight supply/demand balance has made energy markets more volatile. 

It had taken almost a year for the last of the offshore facilities to near recovery 

from Hurricane Ivan, when Katrina struck. Cumulative shut-in production from 

Ivan was 40 million barrels of oil and 160 billion cubic feet of natural gas. Ironically, API, along with the Minerals Management Service and Coast Guard, had just 

convened a workshop at the end of July to evaluate the experiences of Hurricane 

Ivan and examine whether new policies/practices should be considered. 

Hurricane Katrina initially shut in virtually all oil production (about 1.5 million 

barrels per day) from the Gulf of Mexico (GOM) and 88 percent (about 8.8 billion 

cubic feet per day) of the Gulf’s natural gas production. Just prior to Hurricane 

Rita’s entry into the region, oil production had recovered with about 55.8 percent 

(837.6 MMB/D) still shut in and about 33.7 percent of GOM natural gas shut in 

(3.375 billion cubic feet per day). 

The advent of Hurricane Rita forced offshore facilities to shut down again to protect employees. It has been estimated that about 75 percent of the offshore facilities 

in the Gulf were in the path of Hurricane Rita. Once again, as of 9/30/05, virtually 

all (97.8 percent) GOM oil production was offline (1.47 million barrels per day) and 

about 80 percent of the natural gas (7.9 billion cubic feet per day). This situation 

has begun to improve slowly. As of 10/3, shut-in oil production was equivalent to 

92.8 percent (1.39 MMB/D) of daily Gulf production and almost 75 percent (about 

7.5 billion cubic feet per day) of natural gas production. The cumulative production 

shut-in from both Katrina and Rita (8/26/05—10/3/05) is 45.1 million barrels of oil 

(about 8.2 percent of yearly GOM production and almost 219.6 billion cubic feet of 

natural gas, which is about 6 percent of yearly production. 

At present, this situation continues as companies diligently assess their platforms 

and subsea production and delivery systems to assess damage and ensure that it 

is safe for employees to return to offshore structures and that production can resume without any environmental impacts. Considering the magnitude of the hurricane and its path, damage to offshore platforms seems less than anticipated. However, while damage reports are still being collected, we do know that Chevron’s Typhoon platform was severed from its moorings and suffered severe damage. According to news reports, Typhoon produced about 40 MB/D of oil and 600 million cubic 

feet per day of natural gas. 

Recovery from Hurricane Rita in terms of offshore oil and gas production will be 

dependent on the other vital parts of the supply chain downstream of the production 

site. Subsea gathering pipelines and delivery systems must be operable. For natural 

gas, onshore processing plants must be up and running before that gas can be 

placed in pipelines for delivery to consumers. For crude oil, pipelines and terminals 

associated with shipping the oil must be working—not to mention the refineries that 

will transform the oil into products like gasoline, heating oil and jet fuel as well 

as the pipelines that will deliver those products to consumers. 

It may seem self-evident, but it is worth remembering that every hurricane is 

unique and their impacts can differ substantially. Last year, Hurricane Ivan’s impacts were most notable on the seafloor, as it triggered undersea mudslides. Hurricane Katrina seemed to have its greatest impacts onshore, although it did damage 

deepwater facilities serving the Mars, Ursa, Cognac and West Delta 143 fields. Shell 

had indicated that production from these fields may not be feasible the rest of this 

year. According to Bloomberg News, Mars produced 220 MB/D of oil and 220 million 

cubic feet per day of natural gas. Prior to Hurricane Rita, Shell had indicated that 

about 60 percent of total production would be restored to pre-Katrina level within 

the fourth quarter. 

Katrina’s impact was also notable in terms of damage to older facilities operating 

in shallower waters. These were mostly low-volume producing wells. Overall, 

Katrina destroyed about 45 producing structures and 20 structures incurred extensive damage. 

While the industry is working around the clock to restore production, damage 

from Hurricane Rita is still being assessed. And, damage to the drilling fleet and 

platforms may turn out to be somewhat greater than initially thought. 

In all of the hurricanes, drilling rigs were impacted—often photographs of drifting 

rigs were the most visible impact in terms of news coverage. Putting this in perspective, during Ivan, five rigs went adrift; six during Katrina; and eight during Rita. 

13

In terms of damage, Katrina destroyed four drilling rigs, while nine incurred extensive damage. Based on preliminary reports, Rita inflicted major damage on five 

drilling rigs and minor damage on 10. [Source: Reports from Rigzone.com] 

Offshore Production Observations/Lessons Learned 

It is important to remember that the offshore infrastructure (4,000 platforms and 

33,000 miles of pipeline) is sturdy and has weathered three powerful storms in the 

last 13 months without widespread major damage or environmental pollution. The 

majority of structures damaged by these hurricanes were older, lower volume producing facilities in shallower waters. 

Not only is resumption of production dependent on the downstream oil and gas 

supply chain, all parts of our infrastructure depend on other critical links such as 

electrical power. We must continue to make recovery of all parts of this critical infrastructure a primary priority. 

Additional attention should be placed on securing and tracking drilling rigs. We 

will incorporate the lessons of Katrina and Rita in our ongoing work initiated to assess and learn from Ivan. We will continue to work cooperatively with government 

to find ways to improve performance. 

Communication and coordination between government at all levels and industry 

is vital to recovery. Prompt actions by government to, where necessary, temporarily 

remove regulatory obstacles have proved essential. 

As a nation, we also must confront our energy needs and take the necessary steps 

to enhance domestic production of oil and natural gas. We can no longer afford to 

place ‘‘off limits’’ vast areas of the Eastern Gulf of Mexico, off the Atlantic and Pacific coasts, and offshore Alaska. Similarly, we cannot afford to deny Americans consumers the benefits that will come from opening the Arctic National Wildlife Refuge 

and from improving and expediting approval processed for developing the substantial resources on federal, multi-use lands in the West. 

For example, there are about 300 trillion cubic feet of natural gas and 50 billion 

barrels of oil (technically recoverable resources) on the federal Outer Continental 

Shelf (OCS) off the lower 48 states with additional resources on the Alaskan OCS 

of 122 TCF of natural gas and 25 billion barrels of oil. Thus, the total recoverable 

with today’s technology is equivalent to the oil resources of Canada and Mexico combined and nearly three times the natural gas resources of these two countries. Yet, 

these estimates may be conservative since these areas are largely unexplored. Generally, the more an area is explored, the more its resource estimates grow. For example, the U.S. Geological Survey (USGS) estimates of undiscovered oil resources 

in the Central and Western Gulf of Mexico increased from 6.32 billion barrels of oil 

in 1995 to 33.39 billion barrels in 2003—an increase of more than 400 percent. And, 

USGS estimates of undiscovered natural gas resources in those same areas increased from 88.1 TCF to 180.2 TCF over the same time period—an increase of 

more than 100 percent. 

Natural Gas 

The natural gas situation deserves special attention due to its key role in so many 

sectors of our economy and especially given its importance in heating homes 

throughout the nation. More than 60 million homes rely on natural gas. On September 29, natural gas prices set a record. Although they have settled down a bit 

($14.017 per MMbtu on October 4—down 28.4 cents from the record), natural gas 

prices are more than double what they were this time last year—$7.15 above last 

year. And, winter has yet to arrive. 

Unlike petroleum products where increased imports can help enhance available 

supplies, the ability to do that for natural gas is limited. Hurricanes Katrina and 

Rita have not only shut in a significant portion of the nation’s natural gas supplies, 

the hurricanes have damaged natural gas processing plants which must be restored. 

Major issues affecting repairs and start-up of these plants include: access to facilities (standing water remains; some roads are not open); access to materials needed 

for repairs; and manpower issues. 

Facilities in and near Houston do not appear to have sustained much damage. 

The Mont Belvieu area (about 25 miles east of Houston) is in the process of restarting. Natural gas liquid import/export facilities around the Houston Ship Channel 

have returned to service. Overall, Texas natural gas processing plants seem to have 

incurred little damage although some remain closed due to lack of electricity. 

The area most impacted from a gas processing standpoint is Louisiana. A number 

of these plants were just recovering from damage due to Hurricane Katrina when 

Rita approached. Even those that did not sustain additional damage have been affected by the mandatory evacuations and other issues (e.g., access to Cameron Parish) related to Hurricane Rita. Repairs are resuming as conditions allow workers to 

14

return. In Alabama and Mississippi, plants in Mobile Bay and Pascagoula have been 

at heavily reduced recovery levels since the Tri-States pipeline has been out of service since Hurricane Katrina. This line crosses Lake Pontchartrain and many problems have been encountered in trying to return this line to service. 

REFINERIES

Summary of Impact of Hurricanes Katrina and Rita 

Based on the latest assessments (as of 10/4), 24.4 percent of U.S. refining capacity 

remains off-line or is restarting in the aftermath of Hurricanes Katrina and Rita. 

This includes 5 percent of U.S. refining capacity that remains off-line because of 

damage caused by Katrina in Louisiana and Mississippi. Refineries with approximately 6.8 percent of U.S. refining capacity are in the process of restarting operations, while refineries with approximately 12.6 percent of U.S. refining capacity are 

still awaiting power, continuing to assess damages, or making necessary repairs. 

The following is the latest information we have on Texas/Louisiana refineries:

Houston area (2,291,850 barrel/day capacity)

BP/Texas City ................................ 437,000 Shutdown; no restart date estimate 

Marathon/Texas City .................... 72,000 Normal operations 

Valero/Texas City .......................... 209,950 Reduced runs to 203,000 b/d 

Pasadena Refining/Pasadena ....... 100,000 Normal operations 

Valero/Houston .............................. 83,000 Normal operations 

Lyondell-Citgo/Houston ................ 270,200 Restarting 

Shell/Deer Park ............................. 333,700 Restarting 

ExxonMobil/Baytown .................... 557,000 Restarting 

ConocoPhillips/Sweeney ................ 229,000 Normal operations.

Beaumont/Port Arthur (1,122,000 barrel/day capacity)

Total Petrochemical ...................... 233,500 Shutdown 

Motiva ............................................ 285,000 Shutdown; no restart date estimate 

Valero ............................................. 255,000 Shutdown; estimate restart within 1 month 

ExxonMobil .................................... 348,500 Shutdown; no restart date estimate

Lake Charles (593,800 barrel/day capacity)

Citgo ............................................... 324,300 Shutdown; no restart date estimate 

ConocoPhillips ............................... 239,400 Shutdown; estimate restart in 

mid-October 

Calcasieu Refining ........................ 30,000 Shutdown

Total ........................................ 4,007,550

Refinery Observations/Lessons Learned 

Refineries are complex. It takes more than a flip of a switch to get a refinery back 

up and running. In a normal situation, once the decision has been made that it is 

safe to start-up the refinery, it can take several days before the facility is back to 

full operating levels. This is because the process units and the associated equipment 

must be returned to operations in a staged manner to ensure a safe and successful 

start-up. 

Once a hurricane leaves the region, refinery managers assess what impact the 

hurricane had on their facilities. If any damage has occurred, repairs will need to 

be made before the refinery can be brought back online. Also, any flooding—a potentially significant problem—that has occurred will need to be dealt with before restarting the refinery. 

In the case of a start-up following a hurricane, other factors could cause further 

delay. These factors include the availability of crude oil, electricity to run the plant, 

and water used for cooling the process units. A refinery requires electricity to operate; if it is flooded, it cannot use electricity and cannot restart. 

Refineries have been prepared with hurricane preparedness and response plans 

for a very long time. Safety for neighboring communities and employees is a top priority. It takes a few days to shut down a refinery, and the better job done at shutdown, the more likely will be a smooth and safe startup. 

15

Most damage to refineries requires minor repairs, but it may take some time to 

completely assess and finish those repairs. Some refineries have been harder hit and 

are still awaiting power or repairing floor damage, and it will take more time to 

enable them to safely restart. 

Employees have shown incredible dedication, working on bringing the refineries 

back online. Some have lost their homes and are still focused on getting their refineries back up and running. Our member companies are proud of these efforts and 

are dedicated to finding employees temporary housing in cases where homes are 

lost. 

For example, ConocoPhillips’ Alliance Refinery brought in two vessels to support 

operations. One sleeps 700. The company is operating the refinery like an offshore 

platform and sharing the vessel with some National Guardsmen to provide them 

shelter as well. 

Another example is at Shell’s Deer Park refinery, where the company gave one 

operator an emergency vehicle to join his distraught wife who had already evacuated the area. The company filled the vehicle with extra gasoline so he could help 

those whom he passed who had run out of gasoline. 

At ExxonMobil’s Baton Rouge refinery, managers relied on creativity and improvisation to keep the facility functioning during and after Katrina. For example, loss 

of electric power shut off imports, particularly those coming through the Louisiana 

Offshore Oil Port (LOOP), which are vital to the refinery. As a stopgap, company 

officials located a foreign tanker full of oil that had ridden out the storm south of 

Baton Rouge and brought it to the refinery—after quickly obtaining a waiver from 

the Jones Act that prohibits a foreign-flagged vessel from traveling between two 

U.S. ports. The company also created a ferry system using company barges to bring 

Strategic Petroleum Reserve (SPR) oil across the river from a Port Allen, Louisiana, 

refinery, which was the nearest location to which a pipeline could bring the SPR 

oil. 

PIPELINES

Summary of Impact of Hurricanes Katrina and Rita 

Despite the severe conditions caused by Hurricanes Katrina and Rita, most pipelines recovered rapidly, with only limited damage done to the pipeline system—indicating that this is a robust, durable system capable of withstanding considerable 

stress. After Hurricane Katrina, the industry worked around the clock to restore full 

operations at all major crude oil and petroleum product pipelines. However, Hurricane Rita impacted many of these pipelines again, and several key pipelines currently are closed or operating at partial capacity. 

The following is the status of hazardous liquids pipelines as reported by the Association of Oil Pipe Lines (as of 9/27):

• Capline, a major crude oil pipeline from the Gulf region to the Midwest, is operating at 80 percent capacity. 

• Centennial Pipeline, which transports refined products from Beaumont, Texas 

to the Midwest, is closed; 

• Colonial Pipeline is operating at full capacity from Krotz Springs, Louisiana 

eastward, but operations are limited in its origin pipeline segments in Houston 

and Pasadena, Texas; 

• Dixie Pipeline, a 1,300-mile propane pipeline originating in Mont Belvieu, Texas 

to eastern transmission points in North Carolina and Georgia, is operating. 

• Explorer Pipeline, which ships refined products from the Houston area to the 

Midwest, is now undertaking partial operations; 

• Longhorn Pipeline is open; a 700-mile common-carrier pipeline, it can transport 

up to 72,000 barrels per day of refined products. 

• LOOP, the Louisiana Offshore Oil Port, has stopped offloading tankers, but is 

continuing to deliver crude oil to customers. The port facility is located in the 

Gulf of Mexico, 18 miles south of Grand Isle, Louisiana, in 110 feet of water. 

LOOP is the only port in the U.S. capable of offloading deep draft tankers. 

• Magellan Pipeline is fully operational. Magellan is a refined products system 

consisting of 8,500 miles of pipelines supplying 13 Midwestern states. 

• Marathon Pipeline has portions closed; the Texas City to Pasadena system is 

shut down. 

• Plantation Pipeline, a 3,100-mile pipeline from Baton Rouge, Louisiana to the 

Washington, D.C. area, is operating. 

• Seaway Pipeline, from the Texas Gulf Coast to Cushing, Oklahoma is operating. 

• TEPPCO Pipeline, which moves petroleum products from Beaumont, Texas to 

New York, is operating at limited capacity.

16

API has been provided with the following additional information:

Colonial Pipeline: Colonial was able to restore service at reduced rates on its lines 

from the Gulf Coast after a two-day interruption. Colonial is currently (9/29) pumping at an average rate of 65 percent of its normal volumes on these lines from the 

Gulf Coast. The constraint on Colonial is not its capacity but the availability of 

product to lift from Gulf Coast refineries and origin terminals. At present, Colonial 

is without commercial power at five consecutive pumping stations in the Beaumont, 

Texas-Lake Charles, Louisiana area. Commercial power will likely not be available 

at some of these pumping stations for at least two weeks. 

Explorer Pipeline: The main line from Houston/Pasadena has been ready to run 

at the full rate since 9/26. Explorer is currently (9/29) running at about half of its 

capacity due to lack of availability of product. The Port Arthur to Houston segment 

is still not operating. 

Shell Pipeline Company LP: In Texas (as of 9/29), onshore crude oil and product 

pipelines, stations and terminals in the Port Arthur area are flooded and without 

power and onshore crude oil. Onshore crude oil pipelines, stations and terminals in 

the Port Neches area are flooded and without power. In Louisiana (as of 9/29), onshore crude oil pipelines, stations and terminals in the Houma and Erath areas are 

flooded and without power. The offshore central crude gathering system sustained 

platform damage. Offshore crude systems in Eastern, Central, and Western corridors are being assessed for damage. Some chemical systems and delivery points 

in Lake Charles are without power. 

Marathon Pipe Line LLC 

Hurricane Katrina 

Garyville-Zachary 20′′ System was shut down on 8/29/05; on 8/30/05, power out 

at Zachary facility; house power only at Garyville facility; helicopter over-flight of 

system showed no damage. On 8/31/05, power and SCADA communications restored 

at Garyville, Plantation Junction and Zachary; restarted 9/1/05. 

St. James-Garyville 30′′ System was shut down on 8/28/05; on 8/29/05, power out 

at St. James and Garyville; on 8/30/05, house power restored at Garyville; helicopter 

over-flights showed no damage. On 8/31/05, system remained shutdown. Power and 

SCADA communication restored at St. James. Waiting on LOCAP and Garyville; restarted 9/4/05. 

Offshore Gulf of Mexico Crude System was shut down on 8/28/05; on 8/30/05, helicopter over-flight of system showed damage at West Delta Receiving Station. On 9/

3/05, MPL Assessment Team traveled via boat and completed a preliminary assessment on the West Delta Receiving Station; platform and all station equipment submerged; no mechanical damage; electrical gear and instrumentation destroyed; security fence destroyed; on 9/30/05, South Pass West Delta System remains down. 

Midwest Crude System, on 8/29/05, crude lines from Patola, Illinois, terminating 

at Robinson, Illinois, Cattlesburg, Kentucky, and Lima, Ohio, slowed down as a result of refinery slowdowns due to uncertainty of crude supply. By 9/4/05, those systems were resuming normal operations. 

Hurricane Rita 

Texas City-Pasadena 16′′ System shut down on 9/21/05; on 9/26/05, preliminary 

assessments made to Texas City and Pasadena facilities noted no damage; restarted 

9/26/05. 

Centennial 28′′ System (Marathon operator) shut down on 9/22/05; on 9/27/05, 

commercial power out with 2-6 weeks repair time; preliminary assessments indicated little or no damage at all sites; on 9/30/05, four temporary generators in place; 

Entergy reports that electrical service (at reduced levels) may return in the next few 

days to the Beaumont area; on 9/30/05, remains shut down. 

Offshore Gulf of Mexico Crude (operated by Marathon). 

East Cameron Lateral shut down on 9/20/05; on 9/27/05, initial reports indicated 

significant damage to platform facilities with potential for involvement of underwater pipelines; undersea and riser inspection will be required; as of 9/30/05, remains shut down. 

Eugene Island Lateral shut down on 9/20/05; on 9/27/05, some platform damage 

has been noted from initial aerial inspection; undersea and riser inspections will be 

required; as of 9/30/05, remains shut down. 

Vermillion Lateral shut down on 9/20/05; on 9/27/05, some platform damage has 

been noted from initial aerial inspection; undersea and riser inspections will be required; as of 9/30/05, remains shut down. 

17

Pipeline Observations/Lessons Learned 

Electricity. Commercial power availability is essential to pipeline operation. The 

ability of emergency response officials at the federal, state and local levels to facilitate, coordinate and prioritize the response of electric power utilities is essential. Inplace backup generation equipment would be just as vulnerable as the local utility 

to major storm or attack, costly and difficult to accommodate in pipeline facilities. 

Communications. The lack of reliable telecommunications was a major issue in 

slowing response to the storms. In many cases land lines were out and cell coverage 

was spotty at best. Even when land lines were available, A/C-powered phones were 

useless. Satellite communication worked well, but the number of units available was 

limited. Loss of computing services removed email as a viable communications tool, 

except in some instances where personal data assistants (blackberries, etc.) allowed 

personnel to keep in touch. More clearly delineated contact points within the federal 

government made Rita response easier than Katrina response—there were fewer duplicate requests for updates and better use of designated contacts. This also made 

it easier to get federal help when needed as we had much improved channels into 

the government. 

Physical Security. Personnel and critical infrastructure assets must be protected—

generators and fuel supplies (to name only two) become valuable in a natural disaster. 

Aerial Reconnaissance. Many operators had difficulty getting clearance to conduct 

flyovers of their facilities to assess damage and stage repairs. It would be helpful 

if FAA could determine priorities and inform companies of what they are. 

Federal Fuel Waivers. The use of fuel quality waivers to allow the allocation of 

available fuels appeared to be helpful. 

Effects Extend Beyond Regional. Impacts can be wide ranging 

Operations. A backup control center in a different building in the same city may 

be suitable in the event of terrorist attack (especially with backup generation capability), but not when dealing with a major area-wide event like a hurricane. The 

New Orleans pipelines that had a backup control center outside of the area and 

Houston pipelines with the same did not experience the same upset / contingency 

planning problems as did pipelines that had their backup centers in the same city. 

Government-related Issues 

In the aftermath of Hurricanes Katrina and Rita, consideration should be given 

to:

• Improve telecommunications and electric power contingency operations for 

crude and petroleum product lines and establish protocols for continued service 

and prioritized restoration of service in emergencies. 

• Governments should be prepared to provide security around critical infrastructure and military or police escorts for response personnel, critical equipment 

transport, and fuel delivery. 

• Short-term relaxation of federal, state and local regulatory and permit requirements in the event of natural disasters to expedite recovery of pipeline service. 

• Permit streamlining with DOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) as the lead coordinating agency for oil pipelines, would 

be helpful in speeding repairs and making capacity expansion projects more attractive. 

• Support for industry recommendations on FERC oil pipeline rates. 

• Designation of National Energy Corridors for rights-of-way would encourage increased pipeline and electrical capacity. 

• FAA should determine priorities and request procedures for flyovers to aid in 

assessment and repair of critical infrastructure and better communicate those 

priorities. 

• Expedite and streamline deployment of housing for emergency responders. 

• Develop an integrated refueling strategy for emergency responders (FEMA, National Guard, state and local authorities) and stranded motorists to minimize 

conflicting priorities, prioritize short-term emergency (re)supply focus, and ensure emergency responder refueling equipment is compatible with industry safety standards. 

• Deployment of government-owned power generation and pump units. 

MARINE TRANSPORTATION

Impact of Hurricanes Katrina and Rita 

The Houston Ship Channel and Texas City Channel have reopened for 24-hour 

navigation. 

18

The Gulf Intercoastal Waterway is fully open as a result of the operational agreements reached with the Corps of Engineers. The flooding in the Texas/Louisiana 

border area temporarily shut down the Calcasieu Locks in Calcasieu Parish, Louisiana, and the Leland Bowman Locks in Vermillion Parish. The Gulf Intercoastal 

Waterway is a critically important artery for both the oil and chemical industries. 

API worked with various government entities to ensure top priority for returning 

these locks to normal operations. 

Marine Transportation Observations/Lessons Learned 

In responding to the hurricanes, the industry has worked in close cooperation 

with the U.S. Coast Guard, the Department of Energy, and the Maritime Administration to address marine transportation concerns. It has built on strong relationships that already existed between the industry and government in this area. 

Government-related Issues 

It was helpful to the industry’s efforts that the President directed Homeland Security Secretary Chertoff to waive the Jones Act to facilitate transportation of materials from the Gulf Coast in the aftermath of Hurricanes Katrina and Rita. The 

Jones Act requires that all vessels used to transport cargo and passengers between 

U.S. ports be owned by U.S. citizens, built in U.S., shipyards, and manned by U.S. 

citizen crews. The original Hurricane Katrina waiver was through September 19; 

following Hurricane Rita, the waiver was extended until October 24 for both crude 

oil and products. 

It was also helpful that the Coast Guard gave port captains permission to waive 

requirements related to Oil Spill Response Operator requirements in the Gulf. Shippers were faced with possibly being out of compliance with their Vessel Response 

Plans because of the widespread commitment of response equipment for hurricane 

clean-up operations. 

INDUSTRY SECURITY/EMERGENCY RESPONSE

Impact of Hurricanes Katrina and Rita 

Providing security in the aftermath of a hurricane is particularly important and 

difficult. In the aftermath of Katrina and Rita, the ranks of local law enforcement 

were significantly depleted as officers elected to look after their families, which in 

many instances meant leaving the area. There are, of course, a great number of 

other interests competing with the need to protect critical infrastructure. Nevertheless, refineries and other similar infrastructure are at an elevated risk during a hurricane emergency and require protection by local law enforcement, state police, National Guard, or other entities that can fill the void. 

In the aftermath of a hurricane, companies’ priorities are to gain access to the 

facility to conduct an assessment of the damage, provide security and control access 

to the site, facilitate any immediate safety and/or environmental remediation, undertake cleanup, make repairs of critical operating elements, and initiate restart of 

the facility. 

The first requirement is to conduct an assessment of the site. This necessitates 

access by personnel to the site. In some instances, public sector personnel attempt 

to restrict access based upon the need to maintain law and order. In the aftermath 

of Katrina and Rita, roadblocks and other impediments were established to ensure 

that only first responders were provided access. 

However, it did pose some challenges for companies attempting to transport necessary supplies via ground transport. Generally, these challenges involved coordinating with law enforcement officials to obtain permits authorizing access into affected areas. 

One concern was that emergency electrical generators, gas, food, and other necessities that companies were attempting to deliver to their locations would be seized 

by local agencies. Companies made special arrangements for materials to be carried 

in convoys comprising several vehicles and escorted by local law enforcement 

Industry Security/Emergency Response Lessons Learned 

Housing for rescue, response and facility and infrastructure repair personnel in 

the storm-affected areas can be a major bottleneck to beginning recovery operations. 

Development of a formal communications channel into governmental response organizations/departments would be helpful. 

Development of an established process to expedite access to those areas shut down 

after a major disaster to begin rebuilding of critical industries is needed. 

19

Additional Industry Security/Emergency Response Observations 

Companies report that the U.S. Coast Guard did an outstanding job in every area 

and on every level in responding to Hurricanes Katrina and Rita. Considering its 

diverse and demanding portfolio, which includes search and rescue, safety and security of ports and waterways, vessel inspections and response plans, the Coast Guard 

continues to provide the necessary leadership for a comprehensive and effective response. 

Companies provided their own officers for their facilities’ protection in the affected 

areas and in support of their relief efforts; local law enforcement priority was public 

health and safety. 

Companies provided humanitarian response for their employees and contractors 

in the high impact areas due to lack of other support and response. Support was 

also provided to some police and other emergency responders from company distribution sites. 

ConocoPhillips provided fuel to National Guard and local government (including 

police) in storm-affected areas. The company is working with local hotels in stormaffected areas, providing generator power to allow them to open up prior to the 

power grid being restored. The hotels are being used to lodge response and repair 

crews. 

ConocoPhillips has been operating a toll-free phone number for employees since 

before Hurricane Rita. Employees are encouraged to call the toll-free number to update the company on their welfare and status. The company is offering financial assistance to employees displaced by Rita. 

Government-related Issues 

In general, need more coordination and more timely issue of information about 

the situation on the ground. 

Companies need assurances that materials intended for production and delivery 

of gasoline, diesel, and other fuels necessary for operation of emergency generators 

and vehicles would not be diverted from their intended purpose. 

Difficulty was experienced in getting air restrictions lifted in a timely manner to 

fly over affected areas and operations to assess damage to our facilities, although 

government agencies were requesting information. 

III. GASOLINE PRICES AND RELATED ISSUES

Impact of Hurricanes on Gasoline Prices 

We know that the effects of Hurricanes Katrina and Rita on our industry are having a nationwide impact. We understand how Americans throughout the country 

have faced increased prices for gasoline and other fuels. However, we believe the 

market is working, as prices have moderated in recent weeks and are now well 

under the post-Katrina highs. What follows is background on two key components 

of the price of gasoline: crude oil price and taxes. 

Crude Oil Price. Before Hurricanes Katrina and Rita struck, the price of gasoline 

was rising primarily because U.S. refiners are paying more for crude oil, the principal cost component of a gallon of gasoline. In fact, the Federal Trade Commission 

noted this exact point in a report this July: ‘‘To understand U.S. gasoline prices over 

the past three decades, including why gasoline prices rose so high and sharply in 

2004 and 2005, we must begin with crude oil. The world price of crude oil is the 

most important factor in the price of gasoline. Over the last 20 years, changes in 

crude oil prices have explained 85 percent of the changes in the price of gasoline 

in the U.S.’’ The crude oil price is set in the international oil marketplace by the 

forces of supply and demand for oil worldwide. 

Tax Component. While more than half the cost of gasoline is for crude oil, every 

time a motorist pulls up at the pump, he or she pays 46 cents in federal and state 

taxes per gallon of gasoline. The remainder is the cost to refine and market the gasoline. The average price of a gallon of regular gasoline reached $2.81 on September 

27, according to AAA. When the price of a barrel of crude oil is $66, as it was at 

the end of September, a refiner paid about $1.57 per gallon for the crude oil in order 

to make a single gallon of gasoline. As noted above, taxes average 46 cents per gallon nationwide. The remaining 78 cents per gallon includes the cost of running refineries, transporting the finished gasoline to markets via pipelines and tank trucks, 

and operating retail outlets. The cost to refine, market and distribute gasoline has 

been trending downward for many years. The recent price spikes are a direct conVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00023 Fmt 6633 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
20

* The chart has been retained in committee files. 

sequence of disruptions in crude oil and gasoline supplies. (Attached is a chart 

showing combined federal, state and local gasoline taxes for each state.)* 

Our industry has never experienced back-to-back events like Hurricanes Katrina 

and Rita and their brutal aftermath. The hurricanes hit an industry that was already stretched to its limit by an extraordinarily tight global supply and demand 

balance. As the U.S. Energy Information Administration (EIA) noted in its September Short-Term Energy Outlook, ‘‘Continued high crude oil prices were expected 

prior to Hurricane Katrina.’’ Even before Rita hit the industry, EIA anticipated 

crude oil prices to average between $67 and $69 per barrel during the fourth quarter, depending on the pace at which damaged facilities are restarted. The damage 

wrought by Katrina and Rita has clearly exacerbated the very market conditions 

that have led to today’s higher prices. 

Oil and gasoline prices jumped immediately after Katrina due to the widespread 

damage to energy infrastructure, but have moderated slightly as the industry restores operations. Oil prices rose to nearly $70 per barrel, but have moderated somewhat to around $66 per barrel. Similarly, the average price for gasoline nationwide 

jumped 46 cents per gallon in the week after Katrina hit, rising from $2.65 to $3.11 

per gallon. However, as companies restarted some affected refineries and pipelines 

and the damage from Rita appeared less severe than expected, gasoline prices moderated. As of September 27, nationwide gasoline prices averaged $2.81 per gallon. 

Over the past week the average price of gasoline has increased 12 cents per gallon 

to $2.97 per gallon. 

Zero Tolerance for Price Gouging 

In the aftermath of Hurricanes Katrina and Rita and their effects on gasoline 

prices, some accused the oil and natural gas industry of price gouging. Let me be 

clear and direct: the American Petroleum Institute and its member companies condemn price gouging. There is zero tolerance for those who break the law. 

History provides an important guide here. Our industry has been repeatedly investigated over many decades by the Federal Trade Commission, other federal agencies, and state attorneys-general. None has ever found evidence that our companies 

have engaged in any anti-competitive behavior to drive up fuel prices. 

The gasoline marketing system has the complexity and flexibility required to meet 

the varying needs of both companies and consumers. Companies have three basic 

types of outlet options and may employ any and all in their marketing strategies 

to maximize efficiencies and compete in the marketplace. First, they can own and 

operate the retail outlets themselves (company owned and operated outlets). The 

second option is to franchise the outlet to an independent dealer and directly supply 

it with gasoline. This option may have three different forms of property ownership: 

The operator can lease from the refiner, lease from a third party, or own the outlet 

outright. The third option is to utilize a ‘‘jobber,’’ who gains the right to franchise 

the brand in a particular area. Jobbers can choose to operate some of their outlets 

with their own employees and franchise other outlets to dealers. The mix of distribution methods varies widely across firms. Different refiners, depending on which 

type is perceived as most efficient, use different types of outlets. 

Retailers are typically categorized as branded and unbranded sellers of fuel. 

Those who are retailers of unbranded gasoline generally pay lower wholesale prices 

for gasoline and they attract customers with generally lower retail prices. These retailers price gasoline at retail based on an unbranded ‘‘rack’’ price. They typically 

shop around in the marketplace, without any binding long-term contracts, in order 

to obtain the best price. Understanding up-front that there is a certain degree of 

supply and price risk associated with this method of petroleum retailing, gasoline 

purchased by an unbranded retailer and priced off an unbranded rack price thus 

entails no long-term relationship or security of supply between buyer and seller. 

Most importantly, unbranded purchases do not typically allow the purchaser the use 

of the supplier’s brand name. 

In contrast, a branded retailer is obligated by a contract to buy branded gasoline 

and pay a ‘‘dealer tank wagon’’ (DTW) price, which is generally higher than the rack 

price. Branded product is typically priced somewhat higher because it offers the 

dealer greater security of supply and the right to use the supplier’s brand name. 

This makes sense when one considers the investment in the brand name and the 

importance to both the supplier and retailer of assuring reliable and uninterrupted 

supply to customers. 

In periods of market tightness, however, when a supplier may not have enough 

product to supply all branded dealers plus the unaffiliated, unbranded buyers, the 

unbranded retailers, without supply contracts, may pay higher wholesale prices 

21

than name-brand retailers. This typically occurs when there is a supply disruption 

caused by a pipeline or refinery breakdown—such as was caused by the two recent 

hurricanes. 

Gasoline Prices and the World Oil Market 

As noted above, prices are rising because of the forces of supply and demand in 

the global crude oil market. Supply and demand is in a razor-thin balance in the 

global market. Small changes in this market have a big impact. 

World oil demand reached unprecedented levels in 2004 and continues to grow. 

Strong economic growth, particularly in China and the United States, is fueling a 

surge in oil demand. The U.S. Energy Information Administration (EIA) reports 

that global oil demand in 2004 grew by 3.2 percent—the strongest growth since 

1978—and projects growth to increase by about 2.1 percent this year and next. By 

comparison, world demand between 1993 and 2003 grew at an average rate of 1.6 

percent. 

At the same time, world oil spare production capacity—crude that can be brought 

online quickly during a supply emergency or during surges in demand—is at its lowest level in 30 years. Current spare capacity is equal to about 1 percent of world 

demand. EIA projects spare capacity for 2005 at just over 1 million barrels a day. 

Thus, the world’s oil production has lagged, forcing suppliers to struggle to keep up 

with the strong growth in demand. 

The delicate supply/demand balance in the global crude oil market makes this 

market extremely sensitive to political and economic uncertainty, unusual weather 

conditions, and other factors. Over the past several years, we have seen how the 

market has reacted to such diverse developments as dollar depreciation, cold winters, the post-war insurgency in Iraq, hurricanes in the Gulf of Mexico, the Venezuelan oil workers’ strike in 2002-2003, uncertainty in the Russian oil patch, ongoing ethnic and civil strife in Nigeria’s key oil producing region, and decisions by 

OPEC. 

While consumer concern about high gasoline prices is very understandable, we 

must recognize that gasoline prices mirror crude oil prices. Crude oil costs make up 

more than 50 percent of the cost of gasoline. Retail gasoline prices and crude oil 

prices have historically tracked, rising and falling together. When supply is abundant and demand is low, we see the opposite of today’s situation: only six years ago, 

crude oil was selling at $10 per barrel—and gasoline was selling for less than $1.00 

a gallon. 

We currently import more than 60 percent of the crude oil and petroleum products 

we consume. American refiners pay the world price for crude and distributors pay 

the world price for imported petroleum products. U.S. oil companies don’t set crude 

oil prices. The world market does. Whether a barrel is produced in Texas or Saudi 

Arabia, it is sold on the world market, which is comprised of hundreds of thousands 

of buyers and sellers of crude oil from around the world. 

Earnings 

There is considerable misunderstanding about the oil and natural gas industry’s 

earnings and how they compare with other industries. The oil and natural gas industry is among the world’s largest industries. Its revenues are large, but so are 

its costs of providing consumers with the energy they need. Included are the costs 

of finding and producing oil and natural gas and the costs of refining, distributing 

and marketing it. 

The energy Americans consume today is brought to us by investments made years 

or even decades ago. Today’s oil and natural gas industry earnings are invested in 

new technology, new production, and environmental and product quality improvements to meet tomorrow’s energy needs. Oil & Gas Journal estimates that the industry’s total U.S. spending this year will be $85.7 billion, compared with $80.7 billion in 2004 and $75.5 billion in 2003. It also estimates that exploration and production spending in the U.S. will grow 6 percent this year and that total upstream oil 

and gas spending in the U.S. will reach nearly $66 billion. 

The industry’s earnings are very much in line with other industries and often 

they are lower. This fact is not well understood, in part, because the reports typically focus on only half the story—the total earnings reported. Earnings reflect the 

size of an industry, but they’re not necessarily a good reflection of financial performance. Earnings per dollar of sales (measured as net income divided by sales) provide 

a more relevant and accurate measure of a company’s or an industry’s health, and 

also provide a useful way of comparing financial performance between industries, 

large and small. 

22

1 Earnings equal profits divided by sales calculated from ‘‘Corporate Scorecard,’’ Business 

Week, August 22/29, 2005; and from company financial reports for oil and natural gas figures. 

For the second quarter of 2005, the oil and natural gas industry earned 7.7 cents 

for every dollar of sales compared to an average of 7.9 cents for all U.S. industry.1

Many industries earned better returns in the second quarter than the oil and natural gas industry. For example, banks realized earnings of 19.6 cents on the dollar. 

Pharmaceuticals reached 18.6 cents, software and services averaged 17 cents, consumer services earned 10.9 cents and insurance saw 10.7 cents for every dollar of 

sales. Last year, the oil and natural gas industry realized earnings of 7 percent compared to an average of 7.2 percent for all U.S. industry. Over the last five years, 

the oil and natural gas industry’s earnings averaged 5.7 cents compared to an average for all U.S. industry of 5.5 cents for every dollar of sales. 

Some are calling for reinstatement of a windfall profits tax as a response to the 

nation’s energy challenges. However, our industry’s earnings are hardly a ‘‘windfall.’’ Strong earnings enable our industry to remain competitive globally, benefit 

millions of shareholders and enable the industry to invest in innovative technologies 

that improve our environment and increase energy production to provide for America’s future energy needs. Levying new taxes would likely end up harming consumers. As The Wall Street Journal editorialized recently, (‘‘China Does 

Carternomics,’’ August 19), ‘‘A windfall profits tax only discourages increases in supply by disincentivizing further production.’’

According to the Congressional Research Service (CRS), the windfall profits tax drained $79 billion in industry revenues during the 1980s that could have been used 

to invest in new oil and natural gas production. In fact, 1.6 billion fewer barrels 

of oil were produced domestically due to the windfall profits tax—barrels that instead had to be secured from foreign sources. CRS found that the tax reduced domestic oil production from between 3 and 6 percent, and increased oil imports from 

between 8 and 16 percent. 

Gasoline Prices: What Can Be Done? 

The solution to high gasoline prices is more supply of crude oil and gasoline and 

less demand, but there is no simple strategy to make that happen. The United 

States is at a critical turning point in shaping its future energy policy. The legislation signed by the President signals a first step in a much-needed effort to enhance 

energy security and ensure the reliable delivery of affordable energy to consumers. 

But much remains to be done. 

The problems we face are very real: growing world demand for energy at a time 

when many oil-producing countries around the world are increasingly limiting or restricting our industry’s access to new resources; a lack of national commitment to 

develop our abundant domestic energy resources and critical infrastructure; and 

scant attention to energy efficiency. These factors have resulted in a tight supply/

demand balance for U.S. consumers, causing recurring price spikes, greater market 

volatility, and overall strain on the nation’s energy production and delivery systems. 

Energy demand continues to grow. The Energy Information Administration (EIA) 

forecast that by 2025, U.S. energy consumption will increase by 35 percent, with petroleum demand up by 39 percent and natural gas up by 34 percent. These demand 

increases occur despite expected energy efficiency improvements of 33 percent and 

renewable energy supply increases of 41 percent. 

Additional EIA forecasts point out our basic problem: Domestic energy supplies 

are not keeping up with increased demand; and we are relying more and more heavily on imports to meet our energy needs. EIA projects that U.S. crude oil production 

will fall by 17 percent by 2025 (assuming no production from ANWR), while crude 

oil imports will increase by 67 percent, and net petroleum product imports increase 

by 90 percent. Given these trends, it comes as no surprise that EIA forecasts that 

our nation’s dependency on foreign sources of petroleum will rise from 59 percent 

today to 68 percent in 2025. 

This increase, to the extent that it reflects import costs lower than domestic supply costs, would represent a gain from trade which should be encouraged. However, 

when we have resources that can be developed at prices competitive to imports, and 

we choose not to do so, we place a wasteful and unnecessary burden on our own 

consumers. 

In fact, we do have an abundance of competitive domestic oil and gas resources 

in the U.S. According to the latest published estimates, there are more than 131 

billion barrels of oil and more than 1000 TCF of natural gas remaining to be discovered in the U.S. 

However, 78 percent of this oil and 62 percent of this gas are expected to be found 

beneath federal lands and coastal waters. 

23

Federal restrictions on leasing put significant volumes of these resources off limits, while post-lease restrictions on operations effectively preclude development of 

both federal and non-federal resources. The most comprehensive study of the effects 

of such constraints was the 2003 National Petroleum Council study of natural gas, 

which included an analysis of federal constraints on U.S. gas supply in two key 

areas—the Outer Continental Shelf (OCS) and the Rockies. The study found that 

in key areas of greatest supply potential, federal policy precludes or seriously constrains development. For instance, of the 209 TCF of estimated undiscovered gas in 

the Rockies, 69 TCF is completely off limits, while another 56 TCF is seriously constrained by federal policy. On the OCS, the entire Atlantic, Pacific, and most of the 

Eastern Gulf of Mexico are off limits to development. Furthermore, the study found 

that sustaining these constraints over the next 20 years would cost U.S. consumers 

more than $300 billion in increased energy costs. 

We are aware that opponents of oil and natural gas development still raise environmental concerns. However, we would point out that history provides overwhelming evidence that our industry can find and develop oil and natural gas resources safely and with full protection of the environment, both on land and offshore. For example, according to the U.S. Coast Guard, for the 1980-1999 period, 

7.4 billion barrels of oil were produced in federal offshore waters, with less than 

0.001 percent spilled. That’s a 99.999 percent record for clean operations—a statistic 

few others can likely match or best, and far less than the volumes of natural seeps 

that occur on ocean and gulf floors. The industry’s leak prevention performance in 

offshore production during Hurricanes Ivan, Katrina and Rita continues this remarkable environmental record. 

Using advanced technology and sound operational practices, our industry has 

steadily reduced the environmental impact of oil and gas development, both onshore 

and offshore. The surface presence for exploration and development wells has 

shrunk significantly. For example, a drilling pad the size of Capitol Hill is all that 

is needed to access any oil reserves that might exist in the entire 68.2 square mile 

District of Columbia. Horizontal and directional drilling now enables our industry 

to drill multiple underground wells from a single pad, sometimes reaching sites as 

far away as 10 miles from the drilling pad. 

Additionally, the U.S. oil and natural gas industry is among the most heavily regulated industries in our country. Every lease contains a standard stipulation to protect air, water, wildlife and historic and cultural resources, but leases may also include any number of additional stipulations to further protect resources. 

The recently enacted energy legislation takes a positive step by requiring an inventory of OCS oil and natural gas resources. It will not, by itself, result in new 

energy supplies. 

We need to build on the energy legislation by encouraging the flow of more natural gas and oil to the marketplace. And, while we must focus on producing more 

energy here at home, we do not have the luxury of ignoring the global energy situation. In the world of energy, the U.S. operates in a global marketplace. What others 

do in that market matters greatly. 

For the U.S. to secure energy for our economy, government policies must create 

a level playing field for U.S. companies to ensure international supply competitiveness. With the net effect of current U.S. policy serving to decrease U.S. oil and gas 

production and to increase our reliance on imports, this international competitiveness point is vital. In fact, it is a matter of national security. 

We can no longer wait 12 years, as we just did, to address our nation’s energy 

policy. The energy legislation is a foundation, but it must be built upon. More needs 

to be done and more quickly, particularly increasing access to offshore resources. We 

have the ingenuity, the technology, and environmental protections. If enactment of 

the energy legislation means we have a commitment to continued action, then it will 

truly be a turning point in reshaping U.S. energy policy. 

Refineries 

We cannot understand or deal with high gasoline prices if we do not consider the 

state of refineries in the United States. During the 1980s-90s, the oil industry 

earned relatively poor rates of return on their investments. This was especially true 

in the refining sector, which was hard hit with the need for new investment in technology and equipment to produce cleaner burning fuels to meet clean air standards 

set by the Clean Air Act of 1990. The Act had a major impact on the operation of 

refineries in the U.S. and the return on investment realized at the time. 

From 1994 to 2003, the industry spent $47.4 billion to bring refineries into compliance with environmental regulations. That included $15.9 billion in capital costs 

and $31.4 billion in operations and maintenance costs to comply with regulations 

covering air, water and waste rules. Moreover, by 2010, the U.S. refining industry 

24

will have invested upwards of $20 billion to comply with new clean fuel regulations. 

This is an addition to the cost of compliance with many dozens of other environmental, health, safety and security regulations. All this investment severely reduces 

the funds available for discretionary capacity expansion projects. 

Technological advancements have helped refineries produce more from existing facilities than they did in the past. Refineries are doing a better job of bringing product to market for less—and the consumer has benefited. Even though a new refinery 

has not been built from scratch in 30 years, existing refineries are continually being 

upgraded and reworked to improve efficiency. Inefficient process units are replaced 

and new units are built to provide more fuel processing flexibility. 

We can see this in the decline in the refiner/market margin (measured as the difference between the retail price of gasoline minus taxes and minus the refiner’s 

composite crude oil price). Back in 1980, the cost to refine and market and distribute gasoline averaged about 95 cents per gallon (in inflation-adjusted terms). By 

1990, it averaged more than 61 cents per gallon, and, by 2000, it was 52 cents per 

gallon, which is about where it has averaged over the last five years. Multiplying 

these reductions by the 330 billion gallons of petroleum products consumed translates into billions of dollars of savings for consumers. We all benefit every day from 

these improvements and efficiency gains. 

The Need to Remove Refinery Capacity Constraints 

The record-high gasoline prices, while primarily caused by increased crude oil 

prices and exacerbated by Hurricanes Katrina and Rita, have underscored the fact 

that U.S. demand for petroleum products has been growing faster than—and even 

exceeds—domestic refining capacity. While refiners have increased the efficiency, 

utilization and capacity of existing refineries, these efforts have not enabled the U.S. 

refining industry to keep up with growing demand. 

The fact is that—faced with increasingly more challenging fuels regulations—only 

major refineries have the resources needed to expand their capacity. Smaller refineries are increasingly unable to afford to expand. Moreover, local opposition and not 

in my backyard (NIMBY) attitudes persist and prevent new refineries from being 

constructed. 

The U.S. refining industry has been expanding at a rate of approximately 1 percent over the past decade—the equivalent of a mid-size refinery. In order to create 

the opportunity for increasing the growth of U.S. refinery capacity, government policies are needed to create a climate conducive to investments to expand domestic refining capacity. 

In addition, many of the steps the federal government could take to help the refinery capacity situation are covered in the December 2004 National Petroleum Council 

(NPC) study, Observations on Petroleum Product Supply—A Supplement to the NPC 

Reports ‘‘U S. Petroleum Product Supply—Inventory Dynamics, 1998’’ and ‘‘U.S. Petroleum Refining—Assuring the Adequacy and Affordability of Cleaner Fuels, 2000.’’

For example, that NPC study suggested that the federal government should take 

steps to streamline the permitting process to ensure the timely review of federal, 

state and local permits to expand capacity at existing refineries. 

New source review regulations could be reformed to clarify what triggers these reviews. Some refineries may be able to increase capacity with relatively minor adjustments, but are unsure if the entire facility’s permit review would be triggered—a 

burdensome and time-consuming process. 

In addition to the myriad of other issues deterring new refining capacity investments, there are financial constraints as well. Attracting capital for new refinery capacity has been difficult with refining rates of return historically averaging well 

below the average for S&P Industrials. Over the 10-year 1994-2003 period, the return on investment for the refining and marketing sector was 6.2 percent or less 

than half as much as the 13.5 percent for S&P Industrials. In only one year between 

1977 and 2003 did the average return of refiners exceed the average for the S&P 

Industrials. 

It is important to remember that the oil and natural gas industry operates in a 

global marketplace. Many oil and gas companies are global companies, whose U.S. 

investment decisions compete not only with decisions as to how to allocate capital 

investments in the U.S. among various sectors of the industry, but also with competing demands and investment needs overseas. In a global marketplace, companies 

will make the best economic investment decisions in order to bring affordable petroleum products to consumers. Imports may be the more economical option than new 

U.S. refineries, but that is a decision to be left to the global marketplace. Government policies must encourage, not interfere with, the global marketplace. 

25

Conclusion 

The U.S. oil and natural gas industry recognizes the catastrophic impact that 

Hurricanes Katrina and Rita have had on millions of Americans and our industry 

is working with government and others in the private sector to do all we can to alleviate their suffering. 

If we all do our part—industry providing supplies and repairs as expeditiously as 

possible, government facilitating needed approvals, and consumers adjusting their 

driving habits to consume less fuel—Americans can overcome this challenge as we 

have others in our nation’s history.

The CHAIRMAN. Thank you very much. 

Let us proceed then to senior vice president of programs, National Environmental Trust, Kevin Curtis. Thank you for coming. 

STATEMENT OF KEVIN S. CURTIS, SENIOR VICE PRESIDENT 

FOR PROGRAMS, NATIONAL ENVIRONMENTAL TRUST 

Mr. CURTIS. Thank you very much for having me here. I have 

had the pleasure of working with this committee for 25 years, my 

entire career in Washington, and it is truly an honor to be here testifying. It is also a terrible shame that the topic of the hearing is 

the impact of hurricanes Katrina and Rita. 

In my testimony, I will try to touch on a couple of points related 

to the environmental and public health impacts of the hurricanes 

and then three policy points as it relates to energy policy. I will not 

even try and describe the devastation that you have seen and that 

these gentlemen whose companies are working on. They are doing 

a terrific job. We thank them. It needs to be dealt with. Again, I 

just cannot put words to it. 

What I can try to touch on, though, is from an environmental 

and public health perspective, the biggest threat facing people is 

from the toxics and pollutants that they will be dealing with as 

they move back into the area, both the first move back, then cleanup, and then get on with their lives. Those pollutants will be in the 

air, the soil, the water, and the fact is we simply do not know 

where they are yet. So I think the appropriate governmental response in such a situation is to go overboard in terms of providing 

testing and information to people about what you know and about 

what you do not know is in the air. 

Fortunately, the Government has a lot of experience in this area 

from Superfund, from Brown Fields, from some of the DOE cleanup 

efforts that this committee has overseen over the years, and I think 

those lessons should be learned from and applied to government efforts to fund the cleanup and convince people that it’s safe to live 

there—not convince them, but be assured that it is safe. 

The second point I would like to make related to the cleanup effort is there is an opportunity here. There is an opportunity to rebuild using the best lessons learned for energy efficiency, building 

smarter, and many of the other topics that fall under the heading 

of sustainable development. NET and the rest of the environmental 

community would strongly encourage Congress to direct and mandate that the rebuilding efforts incorporate these lessons so that 

the rebuilt gulf region can become a model for the future rather 

than an example of the many problems associated with industrial 

and energy development from the past. 

Now my policy recommendations. 

26

Energy policy. This is the golden moment, if you will, for energy 

efficiency and conservation. I have watched the debates for 25-plus 

years, and I cannot remember an occasion when industry, government, both Congress and the administration, and the environmental groups are all in massive agreement about the role of energy efficiency and conservation. It is the only short-term tool we 

have available to us to help this Nation get through this crisis. 

So I think the challenge to this committee and to others, including the environmental community, is to seize this moment and not 

let it pass by, not let it simply be a 2-week PR effort by the administration or others. The ads are great, but the ads have to be followed up by action. They have to be followed up by full funding of 

the energy conservation and renewables efforts laid out in the act 

you passed a couple months ago. We need to monitor it and this 

committee needs to hold the Department of Energy accountable. 

Again, it is more than just PR. It is a good start, but there are appliance efficiency standards that need to be met. There are people 

that need to be hired. That needs to happen. 

For the long term, I would not be doing my job as an environmentalist if I did not say this committee, which does not have the 

jurisdiction, can lead the way in Congress to deal with the issue 

of automobile fuel efficiency. 70 percent of our Nation’s oil goes to 

the transportation sector. It is just an embarrassment to this country that we do not have a policy in place that will mandate significantly higher levels of fuel efficiency for our Nation’s consumers 

and businesses. They will help the farmers in Montana. They will 

help everybody. 

The second policy point is over in the House of Representatives, 

there is currently an effort to address the refinery issue by rolling 

back many of the clean air laws. We simply do not believe that is 

the appropriate response. This Nation clearly does need more refinery capacity, but I think by no means are environmental laws the 

reason we have not had an increase in refinery capacity. In fact, 

I think business and industry should be commended for having 

taken the rational economic steps in the last 10-15 years by consolidating operations, by becoming more efficient, by getting more 

production out of a fewer number of refineries. That is terrific. 

That was the right thing to do. 

It is now time to build more refineries. A silver lining for industry, if you will, out of the last 2 years is profits are high. There 

is lots of money in the system. There is no reason, I believe from 

an environmental group perspective, that refineries cannot be built 

and should not be built, but they should meet all existing laws and 

they should actually stand out as a model for the future, involving 

the best technologies and really be built with the state-of-the-art 

technology mind set. 

Finally, let me just conclude by asking this committee to be 

thoughtful and careful, as you always are, in your deliberations. 

There is an old maxim that to go fast, you must go slow. This is 

that time. Just 2 months ago, this committee and its members participated in the signing ceremony for an energy bill that took 5 

years to pass. Two months later, many people are talking about energy bill two. Now is not the time to do that. Now is the time to 

27

implement that energy bill and find some short-term efforts to 

work on, the one place being energy efficiency and conservation. 

Let me stop with that. Thank you. 

[The prepared statement of Mr. Curtis follows:]

PREPARED STATEMENT OF KEVIN S. CURTIS, SENIOR VICE PRESIDENT FOR PROGRAMS, NATIONAL ENVIRONMENTAL TRUST

Thank you very much for the opportunity to testify in front of this committee. I 

first worked with this committee in the mid-1970’s when I was a very young political appointee at the newly created Department of Energy representing the Carter 

administration to Congress during the debate over the Synfuels Corporation, Windfall Profits Tax Act, Energy Mobilization Board and the various other titles of that 

decade’s comprehensive energy package. Every decade since then, I have observed 

and/or participated in the renewed efforts at setting national energy policy by the 

administration and Congress. I have drawn as much from that experience as from 

my current position with the National Environmental Trust for this testimony. 

The National Environmental Trust is a non-profit, non-partisan organization established in 1994 to inform citizens about environmental problems and how they affect our health and quality of life. NET’s public education campaigns use modern 

communication techniques and the latest scientific studies to translate complex environmental issues for citizens. Furthermore, NET works in states across the country to localize the impacts of national problems, as well as to highlight opportunities 

for Americans to engage in the policymaking process. Energy policy has been an important area of focus for NET since its inception because of its far reaching implications for the environment. 

Katrina is certainly among the worst environmental catastrophes to befall our 

country and its citizens. The human toll is tremendous and the physical damage is 

only now starting to be truly catalogued and understood. In other words, it is much 

too early to make definitive statements about the ultimate scope of this disaster. 

That said, part of my charge for this testimony was to address the environmental 

impacts of the storm, which I have tried to do below with an eye towards our nation’s energy infrastructure and policies. 

I would also like to make three energy policy points in my testimony today. First, 

a focused commitment to energy efficiency and conservation is the most effective 

and least utilized option available to this country to deal with the short and long 

term energy issues facing us. Second, waivers of existing law, including environmental statutes, are not a trivial exercise. The cacophony of waivers being proposed 

for post-Katrina energy infrastructure building and rebuilding efforts are neither 

necessary nor justified. Third, don’t jump on the ‘‘Energy Bill II’’ mentality that 

seems to be driving much of the current debate in the House of Representatives. 

BRIEF SUMMARY OF THE ENVIRONMENTAL IMPACT OF THE HURRICANES

As noted above, Katrina ranks as one of the nation’s largest environmental catastrophes due to natural disasters. I have listed below a few statistics and anecdotes 

designed to help convey the scale of its impact:

• At least seven million gallons of oil were spilled from known, identifiable 

sources. Estimates add another one to three million gallons from disparate 

sources. By way of comparison, the Exxon Valdez spill released 11 million gallons. 

• Early estimates of the amount of debris to be disposed of range up to 100 million cubic yards. Such an amount would be enough to cover 1,000 football fields 

50-feet deep in waste. 

• Up to 350,000 automobiles are estimated to have been ruined due to the flooding.

In the flood’s aftermath, the primary threats to public health are posed by exposure to pollutants and toxic materials in the air, soil, water as well as the general 

muck being cleaned up. These pollutants come from a wide variety of sources, including energy production, refining and infrastructure facilities. 

Another potentially major source of pollution seems to be the sediments from the 

bottom of various lakes, canals, and other waterways that were stirred up and distributed by the flood waters. A considerable amount of pollutants appears to have 

been stored in these sediments. 

A future potential source of pollutants and toxics is likely to arise from the ultimate disposal of the debris from the storm. Early estimates of this waste are simply 

mind-boggling. Whether it is burned or buried, there are major environmental and 

28

public health implications and concerns that must be factored into the upcoming 

disposal decisions. 

Given this tremendous amount of uncertainty, it strikes me that the most prudent 

course of action by the government is to spend a considerable amount of time and 

resources sampling and monitoring the environment in New Orleans and the rest 

of the impacted Gulf region. Furthermore, there is clearly a need for this monitoring 

to be done in as transparent and inclusive a manner as possible, so that all the citizens of the region can feel comfortable with the conclusions. The EPA and CDC 

have considerable experience through the Superfund and other programs in involving impacted citizens and communities in the monitoring of their immediate environment for toxic and chemical pollutants. Such a monitoring effort must also take 

into account the environmental justice concerns due to the demographics of those 

left most vulnerable by the region’s prior chemical and petroleum industry development. 

ENVIRONMENTAL OR ECOLOGICAL ISSUES

In addition to the storm’s well publicized impact on wetlands and the general consensus that rebuilding and restoring the wetlands is an important part of preparing 

for the future, the impact on the region’s fisheries is also starting to emerge. Just 

this week, NOAA’s Fisheries Service declared a fishery failure for Texas and Louisiana following Hurricane Rita, with a similar declaration made in the wake of 

Hurricane Katrina extending from Pensacola, Florida to the Texas/Louisiana border. 

This disaster declaration authorizes assistance to assess the impacts and assist fishermen, but we have yet to determine the extent of the storms’ impacts on the marine ecology of the Gulf. 

There are high levels of bacteria present in the water, and testing continues to 

determine the extent to which oil and other toxics may be impacting Gulf fisheries. 

Because some pollutants accumulate in sediments or are persistent and tend to 

build up over time, it may be months before we are aware of the full impact on the 

marine species in the region. 

Only extensive long-term monitoring will ensure that we have the most accurate 

assessments, and it is critical that Congress considers the cost of monitoring and 

assessment programs on NOAA’s budget, particularly in light of the budget cuts 

proposed for NOAA in the House version of the fiscal 2006 appropriations bill. 

THE PROMISE AND POTENTIAL OF ENERGY EFFICIENCY AND CONSERVATION

I will not attempt to recreate in my testimony all the information, arguments and 

policy proposals in support of energy efficiency and conservation that have been provided to this committee during the past five years of congressional debate on energy. 

(Instead, please find attached a reasonably thorough review of recent recommendations by a variety of groups focused on energy efficiency and the environment.) 

Rather, I would like to underscore the rather remarkable political situation we find 

ourselves in today, where the entire range of stakeholders in energy policy seems 

to be in agreement about the need for conservation and an increased focus on energy 

efficiency. Just this week, the nation’s leading newspapers printed full page advertisements from the American Petroleum Institute, Chevron Oil Company and other 

major players in the oil and gas industry extolling the virtues of conservation. On 

Tuesday, a headline in the Washington Post business section announced, ‘‘White 

House Renews Call for Conservation.’’ Senators Domenici, Bingaman and others on 

this committee have all issued public statements over the past month noting the importance of energy efficiency and conservation. This is the moment in time to actually turn the promise of energy efficiency and conservation into reality. 

Beginning today, you can accomplish this by using the authority of this committee 

to educate the rest of Congress, the press and the public about the immediate gains 

available from increased efficiency and conservation. For the longer term, you can 

pursue and build the legislative record and political support necessary to establish 

additional incentives for the adoption of energy efficiency and conservation policies. 

As you well know, the most fundamental challenge facing efficiency and conservation is that the powerful array of energy suppliers tend to view energy efficiency 

as a revenue loser even though our nation’s consumers and businesses would benefit 

from it. And while I certainly appreciate and applaud the fact that oil companies 

and their trade association are preaching conservation, I would not expect their 

shareholders to encourage them to stay with that position for an extended period 

of time. After all, they are in the business of producing and selling oil and natural 

gas. 

A very concrete way in which this committee can help promote energy efficiency 

is to hold the US Department of Energy accountable for it’s track record on energy 

29

efficiency. Recent PR efforts notwithstanding, the department’s track record is rather poor in this area. Examples include: 1) the department has so lagged in implementing the appliance efficiency standards that it’s being sued, 2) just last week, 

the DOE supported rolling back energy efficiency standards for new building construction and 3) the department was stopped from rolling back efficiency standards 

for air conditioners only by court order. I would be much more optimistic about its 

recent commitment to energy efficiency if its leadership were to announce a large 

scale public education campaign at the funding levels authorized by the energy bill 

and it planned to hire the additional staff necessary to finalize the pending appliance efficiency rules. 

It is one thing for the administration to opposed regulations for energy efficiency 

on philosophical grounds. Yet its record on energy efficiency technology R&D is also 

disappointing. EOS’s FY 2006 budget request for spending is significantly lower 

than the amount authorized by the new energy bill. In order to take advantage of 

the unique political opportunity facing them, congress and the administration must 

pursue an aggressive agenda to expand the pipeline for new energy technologies 

that represent the real and long-term solutions to our energy problems. 

Finally, I would be remiss if I did not mention the need for increased efficiency 

from our automobile and truck fleets. Transportation accounts for approximately 

70% of our nation’s oil use, and it is a national embarrassment that we have not 

significantly adjusted CAFE standards for close to 20 years. Not only will adopting 

significantly higher fuel efficiency standards help consumers at the gasoline pump, 

but it will contribute to our national security by reducing our reliance on imported 

oil. Moreover, there is ample evidence to suggest that adopting these technologies 

is also key to the survival of the U.S. auto industry. I have attached a recent NETsponsored study documenting the potential employment gains available to the domestic industry by producing more fuel efficient vehicles. Now is the time for Congress to exert leadership on this issue. 

CONCERNS ABOUT H.R. 3893 AND THE LARGER ISSUE OF ENVIRONMENTAL WAIVERS

The House of Representatives is scheduled to consider this coming Friday, a bill, 

H.R. 3983, that passed out of the Energy and Commerce Committee last week. This 

bill, and its companion from the House Resources Committee, represent a blatant 

attempt by the chairmen of those committees to exploit the genuine public concerns 

about high gasoline prices following Hurricanes Katrina and Rita to pursue legislative goals that were rejected just months ago in the House-Senate energy conference 

committee process. 

Fortunately, the Resources Committee bill has already run into political difficulties in the House, as 25 of the 27 members of the Florida delegation objected to the 

offshore drilling provisions contained in the legislation. Unfortunately, H.R. 3893 

appears to be moving ahead. While I have attached a detailed critique of the legislation by the environmental community for your review, I would like to touch upon 

a few of the more objectionable aspects of this legislation in hopes of convincing the 

Senate to avoid its pitfalls. 

KEY CRITICISMS OF H.R. 3983

1. Backers of the bill often suggest that environmental regulations are to blame 

for our current shortfall in refining capacity. This premise is flawed. The U.S. is facing limits on its refining capacity largely because over the past few decades the refining industry has been a mature, low profit-margin business. Consequently, it was 

significantly more profitable to consolidate operations and increase the output at existing refineries than to build new refineries. The attached fact sheet documents the 

industry’s success at increasing production while at the same time reducing the 

number of refineries. It is clearly time for industry to build new refineries, and 

there is no doubt that oil companies have the financial resources to build new, stateof-the art facilities while complying with all applicable laws. 

2. The environmental waivers contained in the bill are too broad and pose a significant public health risk. For example, the delays contained in Section 109 (Attainment Dates for Downwind Ozone Non-attainment Areas) will result in the following 

additional public health problems, according to Abt Associates, EPA’s leading air 

pollution consulting firm. For each year of delay, the nation will experience an additional:

• 387,000 or more asthma attacks 

• Almost 4,900 hospitalizations due to respiratory distress 

• 573,000 missed school days

30

* All attachments have been retained in committee files.

3. The legislation would also essentially eliminate the New Source Review program for up to 20,000 facilities (Sec. 106); undermine the diesel rule that was successfully negotiated between the Bush administration, diesel engine manufacturers 

and the environmental community several years ago (Sec. 108); and arbitrarily limit 

the number of cleaner burning, boutique fuels to six (Sec. 108). 

CONGRESS SHOULD NOT RUSH INTO A ‘‘NATIONAL ENERGY POLICY II’’

Less than three months ago the President signed the National Energy Policy Act 

of 2005 into law. This legislation took over five years to pass and contains a wide 

range of provisions designed to promote the oil, gas, coal and nuclear power industries. It also contains a major new initiative for biofuels, but provides far less support for renewables and energy conservation. According to a recent report I read, 

the legislation contains over 500 congressionally mandated deadlines for everything 

ranging from studies to regulations. Nothing in these 500 directives or the legislation as a whole, however, would meaningfully increase in fuel efficiency standards 

for cars and trucks, establish a renewable portfolio standard or address global 

warming. I raise this not to cover old ground but rather to point out a new opportunity. The ink is not even dry on the latest national energy plan and nothing I 

have seen indicates that the political dynamic has changed for the very important 

but politically difficult issues that did not make it into the national energy plan, 

with one key exception—energy efficiency and conservation. 

CONCLUSION

Energy efficiency and conservation are now ‘‘in.’’ It would be a major contribution 

by this committee to our nation’s future if you were to focus your prestige and political strength on ensuring that this attention is not fleeting and that meaningful 

commitments to energy efficiency are actually adopted. 

Thank you. 

ATTACHMENTS* 

The CHAIRMAN. Thank you very much. 

The president and CEO of Dow Chemical. Let me repeat we had 

a very good visit. We were sorry we could not spend more time. We 

want to publicly commend your company for all the work that was 

done to preserve life, to take care of your workers, and to do everything possible to maintain the facility in a method and manner 

that it could be opened as soon as possible. It was also a pleasure 

to see the modern facilities. Many think that the kinds of things 

you do are very risky and dangerous and have heavy pollutants. 

What we saw were very, very modern facilities with all the pollution controls you could imagine. We are very worried that with all 

that, you are now as good as there is in the world, but the price 

of natural gas may be the negative trump card over all those good 

things. We welcome your testimony here today. 

STATEMENT OF ANDREW LIVERIS, PRESIDENT AND CEO,

DOW CHEMICAL COMPANY, MIDLAND, MI 

Mr. LIVERIS. Thank you, Chairman Domenici. I burst with pride 

at your words and I will transmit them to our people. Thank you 

for your visit with Senator Bingaman and Senator Akaka yesterday. 

As you say, I am Andrew Liveris, CEO of the Dow Chemical 

Company. Dow has been in business since 1897 and is the world’s 

leading manufacturer of chemicals and plastics around the world. 

I thank you for the opportunity to testify here on behalf of our company, but also the American Chemistry Council which employs 

31

900,000 people and is responsible for $500 billion of value-add in 

our economy here in the United States. We are also here testifying 

on behalf of the Consumers Alliance for Affordable Energy and 

Natural Gas. 

Let me start by saying, where the chairman left off, that my 

heart and the hearts of all our people in our industry go to the victims of Katrina and Rita. The devastation was first a human tragedy and, second, an economic challenge for this great Nation. 

Our priorities have been to help our employees and our communities recover and to ensure that our facilities return to safe and 

normal operations. Texas and Louisiana are home to 81 percent of 

Dow Chemical’s production in the United States, and 11,500 of our 

people reside there, over half of our employee base in the country. 

The hurricanes’ disruptions will be, indeed, short-term. Our company will recover. Our communities will rebuild. The American 

spirit is alive and well. Our industry will continue to produce the 

products that are essential to the quality of our lives. And a far 

greater threat, as the chairman has noted, to the U.S. chemical industry and to the entire U.S. manufacturing sector is the serious 

vulnerability that this has posed to the Nation’s energy supply. 

We say it unequivocally, the United States is in a natural gas 

crisis. The hurricanes have dramatically underscored the problem, 

but they did not cause it. Dow, the ACC, and others have spoken 

repeatedly of the supply/demand imbalance that is at the root of 

this crisis, actually since the year 2000. The price of natural gas, 

once $2 per million Btu, as noted, closed yesterday at $14. If that 

was put in gasoline terms, the gasoline price at the pump would 

be $7 a gallon right this minute, and we are all alarmed at $3, as 

you well know. This price of $14, simply put, renders the entire 

U.S. chemical industry uncompetitive. And why? Because we not 

only use it as a fuel, we use it as a raw material. We simply cannot 

compete with the rest of the world at these prices. It undermines 

all U.S. manufacturing because we supply all of U.S. manufacturing. 

Today energy and raw materials in my company constitute 50 

percent of my costs, the highest in our history. Even though we 

have improved our energy efficiency by 42 percent since 1990, we 

have raised our prices. We have shut down 23 inefficient plants in 

North America since 2002. We and others are now investing in 

China and the Middle East where energy is much cheaper to our 

incredulity. In short, in a very short time, we know we will rehabilitate. Our company, our industry will continue to grow. It is simply a question of where we will grow. 

Two weeks ago, I went to Louisiana to survey our sites. I met 

with our people there. Many of them lost their homes and more to 

Katrina. They came back to work. They kept our plants safe. They 

worked around the clock to bring them back on line. They did the 

heroics. They made the products that are essential to restore the 

communities and to the rebuilding of the area. These are hardworking people. They earn wages and salaries far higher than in 

any other industry, $70,000 a year on average for every worker. 

They are counting on me to secure their jobs and to retain our 

strong presence in this country. As their leader, I am going to do 

everything in my power to make that happen. Yet, when faced with 

32

a choice of investing in the United States at $14 gas versus $2 to 

$3 elsewhere, how can I recommend investing here? 

Dow does not face this decision alone. There are 120 world-scale 

chemical plants being built around the world with price tags of $1 

billion or more, only one in this country. China alone has 50. 

Congress can make America competitive again. The Energy Policy Act of 2005 was a great start. I commend you all for it, but 

more can be done. 

And our policy recommendations. Four of them. 

Promote environmentally responsible production in the Outer 

Continental Shelf, giving coastal States a greater role, and sharing 

new production revenues with them. 

Two, expedite development in Sale Lease 181, at least for areas 

greater than 100 miles off the Florida coast. 

Three, declare a national emergency, as the Energy Secretary did 

and the President did this week, that mobilizes every American to 

save energy. 

And four, assure that the most efficiently generated energy is 

dispatched to the power grid first. 

Our written testimony has many more things. 

Let me say in closing that everywhere I go, the Middle East, 

Asia, the government wants our industry. They want the investments. They want the high-paying jobs that go with it. They want 

the science graduates. They want the living standards. Everywhere 

I go except here. This cannot be the case. 

Tomorrow I am leaving for China where they have put in place 

a sound energy policy. I urge us all to take the next step and build 

on the great Energy Act of 2005 so we can keep investing in this 

great Nation. Thank you, sir. 

[The prepared statement of Mr. Liveris follows:]

PREPARED STATEMENT OF DOW CHEMICAL COMPANY

SECTION I—INTRODUCTION AND EXECUTIVE SUMMARY

‘‘After Katrina we got a call from a bottled water company in the South 

scrambling to get some HDPE (high density polyethylene plastic). His regular 

supplier curtailed him. He needed the plastic to make bottles so he could supply 

bottled water to FEMA. Our Louisiana plants were still restarting, gas supply 

was curtailed and we were closing our TX plants in anticipation of Rita. We 

couldn’t help him.’’

—Chemical Company Executive Located in Hurricane Zone

The Dow Chemical Company and the American Chemistry Council welcome the 

opportunity to provide the Committee with an update on Hurricanes Katrina and 

Rita’s effects on energy infrastructure and the status of recovery efforts in the Gulf 

Coast region. 

This topic is of acute interest to the US chemical industry because the Gulf Coast 

is home to the world’s largest concentration of chemical manufacturing capacity. 

The Gulf is to chemical manufacturing as Wall Street is to finance. 

The chemical industry has been operating in the Gulf for more than seven decades. Our engineers and operators are experts in hurricane preparedness. Plants 

are designed and built to withstand Category Five storms. All members of the 

American Chemistry Council (ACC), under our trademark health, safety, environment and security program, Responsible Care, have long-established hurricane 

plans that operate before, during and after storms. Facilities cooperate with local, 

state and national authorities, other businesses and transportation systems, along 

the path of the storms and through recovery. Companies will evaluate and enhance 

those plans to incorporate learnings from Katrina and Rita as part of their ongoing 

performance improvement process. 

33

Typically, these emergency plans include the safe shutdown and lockdown of facilities, removal of vehicles and other equipment, evacuation and accounting of employees, and placement of emergency ‘‘ride-out’’ crews on-site, when feasible. We 

then carefully assess post-storm conditions to allow facilities to resume operations 

safely. 

Having said that, our industry has also been severely damaged by the hurricanes. 

Not by the high winds and not by the storm surges and floodwaters, but by the high 

cost and limited availability of natural gas. 

Natural gas is of vital importance to our industry. It heats and powers our facilities, but it is also our most important raw material. We process natural gas molecules into thousands of products that can be found everywhere in the economy. 

Today, most chemical plants in the Gulf Coast are closed or are operating at reduced rates. For some, it is because they are without power. For others, they have 

been cut off from their gas supply or they are choosing not to pay today’s prices. 

Soon the loss of chemical manufacturing in the Gulf will ripple through the economy 

in the form of shortages and higher prices. 

The industry faces hard choices on how and where it will base its operations in 

the future. On September 30, 2005 the wholesale spot price of natural gas was 

$14.50 per MMBtu. In Europe natural gas costs about $7.00. In China, it’s less than 

$5.00. In Saudi Arabia, it’s less than $1.00. US manufacturers must compete in 

global markets. Companies must decide where to locate production, where to locate 

jobs, where to pay taxes and support communities. When US production costs two 

to twenty times more than it does in the rest of the world, it is hard to justify investing in America. 

Public policy makers will exert enormous influence on how those decisions are 

made. It is well documented how certain policies bid up demand for natural gas to 

make electricity in the US and other policies restrict access to supply. What is not 

as well known is that the manufacturing sector pays the price for those policy decisions. In the recent past, policy decisions costs the US chemical industry dearly. Policy induced price gyrations between 2000 and 2005 handed overseas chemical operations a huge competitive advantage: The US chemical industry went from posting 

the largest trade surpluses in the nation’s history in the late 1990’s to becoming a 

net importer. In that time, the industry lost more than $50 billion in business to 

overseas operations and more than 100,000 good-paying jobs in our industry have 

disappeared. The National Association of Manufacturers reports that 2.9 million 

American manufacturing jobs disappeared in that time. 

Policy makers are again in a position to influence the US manufacturing environment. The short-term outlook for natural gas consumers is grim. Until very recently, 

government officials had severely underestimated the combined impact of the two 

hurricanes (especially Rita) on the nation’s energy infrastructure. As of this writing, 

nearly 100 percent of the Gulf of Mexico oil production and 80 percent of natural 

gas output remain shut in. More than 20 natural gas processing plants on shore are 

closed, some are damaged, some have no power. Pipelines are not fully operational. 

Eight refineries remained closed and eight are restarting. Power remains out in the 

Beaumont-Port Arthur-Lake Charles area. 

ACC is doubtful that the Gulf’s energy infrastructure will be fully restored before 

the winter heating season starts. There is no surplus natural gas production capacity available to fill the void. There is not a ‘‘Strategic Natural Gas Reserve’’ available to make up for supply disruptions. Natural Gas will be in short supply this 

winter. 

Natural Gas consumers will be competing for a scarce commodity. Policy makers 

can cushion the blow, if swift action is taken to stretch the supply and curb consumption. We recommend the following:

1. Send a powerful message to the markets by eliminating barriers to energy 

production in the Outer Continental Shelf (OCS) and share revenues on new 

production with states. 

2. Expedite leasing in the area of the eastern Gulf of Mexico known as Lease 

Sale 181, at least for areas greater than 100 miles from the coast of Florida. 

3. Declare a national emergency before winter, shock national awareness of 

supply problem and mobilize federal resources 

4. Give priority to dispatching highly efficient CHP and Natural Gas Combined Cycle generating capacity to the grid. 

5. Restore service to damaged natural gas processing plants on the Louisiana 

coast.

More detailed policy recommendations are contained in Section V. 

If the right responses are put in place right away, tensions in the market can be 

eased and gas consumers can weather the current crisis. If prices remain at or near 

34

current levels, manufacturers will be driven out of the market and many may not 

return. 

SECTION II—THE US CHEMICAL INDUSTRY AT A GLANCE

The chemical industry fuels the American economy.

• The chemical industry is the leading American export industry accounting for 

10% of all U.S. exports. 

• We generate more than half a trillion dollars to the U.S. economy each year. 

• The chemical industry has created a $154 billion trade surplus over the past 

ten years. 

• The industry directly employs more than 885,000 people, a figure larger than 

the combined populations of Boston and Buffalo. 

• Chemistry dependent industries account for nearly 37 million jobs or 26.6% of 

the entire workforce.

The chemical industry improves our health and keeps our families safe.

• New drugs and medicines made possible by chemistry have increased life expectancy in the US by more than 30-years over the past century. 

• A plastic bicycle helmet, one of the chemistry industry’s most popular innovations, can reduce a child’s risk of head injury by 85% according to Safe Kids 

USA. 

• 98% of all U.S. public drinking water is safe to use because of chemistry. 

• According to the National Highway Traffic Safety Administration, more than 

14,000 lives have been saved thanks to airbags, a product of chemistry.

Chemistry is essential to U.S. business and industry.

• The chemical industry supplies the raw materials used by virtually every industry from aircraft construction to zoo management. 

• More than 80% of the materials used to formulate all medicine come from the 

chemistry industry. 

• The chemical industry is America’s second largest rail shipper. 

• The major innovations over the past century that have increased productivity 

from the phone, computer and Blackberry exist because of chemistry.

Chemistry is at the heart of innovation, helping to make our lives better, 

healthier and safer.

• The chemical industry invests more than $22 billion a year in research and development—the most of any single industry outside of national defense. 

• One out of every eight new patents is awarded to the chemistry industry. 

• The American chemical industry employs the highest percentage of knowledge 

workers of any industry and employs more than 80,000 chemists, scientists and 

engineers. 

SECTION III—HURRICANE KATRINA & RITA: RIPPLE EFFECTS FROM SHORTAGES

Potential Product Shortages Following Hurricanes Katrina and Rita 

Some of the most commonly used consumer and industrial products may be in 

short supply in coming months due to North American chemical capacity shut-ins 

following the hurricanes in the Gulf of Mexico. Following are some examples of 

products for which there may be shortages.

• Tires, radiator and other hoses, fan belts, and bumpers; seals and gaskets; automotive belts and hoses, asphalt binder and roofing. (62 percent of North American butadiene capacity, used to make these products, is down) 

• Oil, milk, detergent bottles; gasoline tanks; corrugated and drainage pipe. (55 

percent of North American high density polyethylene capacity, used to make 

these products, is down.) 

• Syringes, medical fabrics, automotive battery cases, dairy containers, diaper 

coverstock, and food packaging. (55 percent of North American polypropylene 

capacity used to make these products, is down). 

• Diaper liners, shrink film and bread bags. (46 percent of North American low 

density polyethylene capacity, used to make these products, is down). 

• Plastic resins, films and bottles; automobile antifreeze blends, including those 

for military vehicles, and for de-icing runways and aircraft; fire extinguishers 

and sprinkler systems. (39 percent of North American ethylene glycol capacity, 

used to make these products, is down)

Source: CMAI, petrochemicals consultant (www.cmaiglobal.com) 

35

SECTION IV—BACKGROUND: THE IMPORTANCE OF AFFORDABLE ENERGY TO THE U.S. 

CHEMICAL INDUSTRY, HOW THE NATURAL GAS CRISIS DEVELOPED, AND WHAT THE ENERGY POLICY ACT OF 2005 ACCOMPLISHES

America’s chemical industry is the nation’s largest energy consumer. We use energy—especially natural gas—to heat and power our facilities, and as a raw material to make thousands of products consumers use every day. Chemical companies 

use more natural gas than California and more electricity than the state of New 

York. The chemical industry consumes enough natural gas to heat 30 million homes 

a year—almost half of the nation’s home heating needs 

Natural gas can do amazing things. It can be used to heat and cool a home, to 

make electricity and as a key ingredient in products—lots and lots of products. 

These include medicines, medical equipment, packaged goods, military applications 

and others. Numerous ‘‘downstream’’ industries rely on natural gas-produced chemistry products, including agriculture, steel, aluminum, and cement. 

Advances in Energy Efficiency 

Fortunately, the chemical industry has made great strides in energy efficiency. 

For example, we can make a pound of product with half as much energy as it took 

a generation ago. But even with these efficiency improvements, an immense amount 

of energy is still required for chemical manufacturing. Chemical makers need more 

energy than the entire country of Mexico, and roughly the same amount as Brazil. 

Many chemistry products that are made with natural gas help make other parts 

of the economy more energy efficient. Energy-saving products such as insulation, 

lightweight vehicle parts, advanced window systems and reflective coatings are all 

made from chemicals made from natural gas. 

Supply/Demand Imbalance Leads to Skyrocketing Natural Gas Costs 

The problem is, America is using more and more natural gas and producing less 

and less. As a result, the price of natural gas has increased by 700 percent since 

the late 1990’s. If the same thing happened to gasoline, prices at the pump would 

be more than $7.00 a gallon. 

For industries like ours, those high prices hurt. In 1999, the chemical industry 

paid about $25 billion for all of its energy inputs—fuel, power and feedstocks such 

as natural gas. Last year, the tab topped $52 billion. Beginning in 2000, the industry has shelled out $80 billion more for energy than it was paying in the 1990’s. 

The effect of those additional costs—think of it as a huge energy tax—has been 

severe. We’ve seen a 20 percent decline in natural gas consumption in the chemical 

industry. Call it demand destruction. Dozens of plants around the country have 

closed their doors and gone away—and are never coming back. 

U.S. chemical industry domestic operations lost $50 billion in business to overseas 

operations since 2000. We went from posting trade surpluses in excess of $20 billion—the most successful export industry in the history of this nation—to becoming 

a net importer of chemicals. More than 100,000 American jobs have been displaced, 

in large part due to the hidden ‘‘energy tax.’’

Not long ago, Business Week noted that of the 120 large-scale chemical plants 

under construction around the globe, only one is being built in the United States. 

The plants under construction are located in places where natural gas supply is 

abundant, reliable and affordable. 

Unlike oil, natural gas is a regional commodity, not a global one. And US natural 

gas prices are the highest in the world—at the moment, US gas prices are 20 times 

higher than in Saudi Arabia. 

Impact of Government Policies on Natural Gas Supply, Price 

In the 1990’s, new government regulations began driving electric utilities to reduce air emissions by burning natural gas to make power. An enormous amount of 

gas-fired power generation capacity came on line in the past decade. Utility consumption of natural gas grew by 31 percent in a few short years. 

The nation’s appetite for electricity is rapidly growing and is expected to increase 

by as much as 50 percent in the next 20 years. Natural gas supply cannot meet incremental demand. The government says that new supplies of domestically produced 

natural gas will only meet 30 percent of future demand growth. Quite simply, 

there’s not enough gas to go around. To meet this challenge, the U.S. must meet 

its growing energy needs by investing in new technologies that produce power from 

renewables (for example wind and solar), non-polluting nuclear, agricultural sources 

of energy (sometimes called biomass) and low-polluting coal power. 

36

Energy Policy Act of 2005

In August of 2005, the president signed into law a sweeping new energy bill called 

the Energy Policy Act of 2005. On balance, it is a very good policy and, over the 

long haul, it can change the way the nation makes and uses power. The legislation 

breaks new ground in the area of energy efficiency: We will see new standards of 

performance for appliances, homes and buildings as a result of the legislation’s efficiency measures. 

It also makes a serious effort to diversify the energy supply—to move away from 

the natural gas-is-the-answer-to-everything mentality that dominates current policy. 

The legislation will launch a new generation of technologies used to make power, 

including coal gasification, renewable energy and nuclear power. 

The nation’s energy infrastructure will get a much-needed facelift. The legislation 

will lead to new investment in gas pipelines and storage facilities and will result 

in new LNG terminals. 

SECTION V—UNFINISHED BUSINESS. NEW POLICIES NEEDED IN THE

POST-HURRICANE PERIOD

Expand natural gas supplies and reduce concentration of nation’s energy infrastructure in three ways:

• eliminate barriers to energy production in OCS and share revenues on new production with states. MMS estimates that OCS contains 406 TCF of recoverable 

natural gas. More than 85 percent of OCS is off-limits to use as a result of federal policies set in place 25 years ago when NG was cheap and plentiful; 

• increase gas production on shore by removing red tape and seasonal restrictions; 

• accelerate and increase tax credits and guarantees for investing in gasification 

technologies for the production of fuels and feedstocks; 

• expedite leasing in the area of the eastern Gulf of Mexico known as Lease Sale 

181, at least for areas greater than 100 miles from the coast of Florida. 

• Site new LNG terminals, especially on Atlantic and Pacific coasts. Set a goal 

of four new terminals (not all on Gulf Coast) by 2010.

Restore lost gas and oil production. The government should use its authority to 

speed emergency reconstruction of damaged pipelines (Emergency Reconstruction of 

Interstate Pipeline ruling of 2003) and implement other red-tape cutting measures 

to restore damaged drilling rigs and production platforms. The government should 

also employ the Coast Guard, Army Corps of Engineer and other federal assets as 

needed to speed repairs of damaged production sites and infrastructure. Priority 

should be given to restoring service to damaged natural gas processing plants on the 

Louisiana coast. In addition to removing sulfur and other impurities, these plants 

also remove natural gas liquids, such as ethane and propane, primary chemical 

feedstocks. Three of those damaged plants process the equivalent of three LNG terminals. Help is needed to transport and house repair crews, pump out the plants, 

restore power, repair damages and resume operations. 

Encourage Efficient Consumption. To avert shortages this winter and in future 

years, actions are needed now to ease the strain on natural gas markets. In the 

short term emphasis should be placed on reducing gas demand through conservation 

and efficiency measures. These immediate actions are needed:

• Declare a national emergency before winter, shock national awareness of supply 

problem and mobilize federal resources, including . . . 

• Fund in 05 the national public education campaign authorized in Title I of 

EPACT05. Doing so will harness the American people’s strong desire to ‘‘do 

something’’ to help recovery efforts. Little actions can achieve big results. If all 

Americans turned down their thermostats by 2 degree this winter, it would free 

up 3 BCF of gas per day. 

• Move up to Oct. 1, 2005 effective date for tax credits authorized in EPACT05 

for homeowners, builders and commercial building owners for investment in energy efficiency. 

• Require up-to-date building codes in states using federal funds to recover from 

the hurricanes and encourage all states to use most current codes. 

• Accelerate completion of tardy appliance codes and development of new codes 

authorized in the energy bill. 

• Expand and spotlight The Partnership for Home Energy Efficiency (DOE, HUD, 

EPA). 

• Expand funding for weatherization programs and dispatch crews to go into 

homes, audit energy consumption, and install weatherization materials and 

equipment as needed.

37

Encourage Efficient Generation: In many parts of the country inefficient natural 

gas power generators supply baseload power and highly efficient generation is reserved for peak demand. To make power generation more efficient, the following actions are needed:

• Build new and efficient transmission capacity in order to remove system constraints. 

• Retire or put in reserve inefficient single-cycle generation capacity. 

• Give priority to dispatching CHP and Natural Gas Combined Cycle 

capacity... restore CHP tax incentives.

Diversify Fuel Supplies. The large build up of natural gas fired power generation 

in recent years is putting an unsustainable strain on natural gas supplies. Gas consumption for power generation increased by 25 percent this summer, driving prices 

up from $6.00 to nearly $10.00 per million BTU. Utilities should be encouraged to 

make power from other fuel sources, by:

• Accelerating coal and biomass gasification. The US has the world’s largest reserves of coal and (potentially) biomass. Gasification technology is ready for deployment and the government should help speed up commercial use by utilities. 

• Site new nuclear power. Nuclear answers environmental and energy questions. 

The government should consider building new reactors on federal lands.

Distribute energy supply and power generation. The Hurricanes proved that the 

entire nation can be affected by regional disruptions and the energy infrastructure 

is highly reliant on the integrity of the electrical grid. To reduce economic and national security vulnerabilities government should:

• Create incentives for refineries, pipelines and large energy using industrial, institutional and commercial facilities to produce heat and power on site 

• Encourage all states to implement ‘‘efficient portfolio standards’’ defined to include renewables, CHP, gasification and other low-polluting means.

Increase Natural Gas storage capacity to make the natural gas system more resilient. The Strategic Petroleum Reserve did its job and restored calm to jittery oil 

markets. Natural gas does not have adequate reserve capacity and that contributes 

to price volatility. Additional storage capacity would help the market adjust to temporary supply shortages. 

[Note: The following attachments have been retained in committee files: Hurricane Katrina & Rita: Ripple Effects From Shortages (Source: CMAI and ACC); Notable Quotes; and the Dow Chemical Company and the U.S. Natural Gas Crisis: Update on Actions Taken to Remain Globally Competitive.]

The CHAIRMAN. Christopher Helms, president of the Pipeline 

Group, testifying on behalf of the Interstate Natural Gas Association of Merrillville. Where are you from, Merrillville? 

STATEMENT OF CHRISTOPHER A. HELMS, PRESIDENT, PIPELINE GROUP, NiSOURCE INC., ON BEHALF OF THE INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA, 

MERRILLVILLE, IN 

Mr. HELMS. Merrillville, Indiana, Senator, the Heartland of the 

United States. 

I want to thank you, Mr. Chairman and the members of the committee, for giving us an opportunity to visit with you this morning. 

The company that I am privileged to be with has significant Gulf 

of Mexico pipelines, but more importantly, we transport that gas to 

middle America, to the Mid-Atlantic States, to the Northeast. We 

are the third largest underground storage operator in the United 

States. We have over 16,000 miles of pipelines. 

Like my colleagues to the right, I had the opportunity to go to 

Louisiana last Friday and meet with the employees, many of whom 

have lost their homes, whose parents have lost their homes, whose 

brothers and sisters have lost their homes, and they showed up to 

work the next morning. And they are working to get this vital energy infrastructure back into place. I really want to commend them 

38

for doing that. There are a number of challenges that we have seen 

in getting the infrastructure back into place. 

We appreciate the opportunity to be here with you this morning. 

I am also representing the Interstate Natural Gas Association of 

America, which is the association that represents, if you will, the 

middle link of the energy chain. In our association are those pipeline and storage operators that are federally regulated. Our opportunity is to move the gas from the point where it is produced, 

through the processors, and then downstream ultimately to the 

consumers. 

We have filed our testimony and rather than go ahead and refer 

to it, I would like to make a couple points, if I can. 

The first point is I believe we are going to face some very serious 

challenges this winter. Now, of course, the thing that could cooperate the most for us is that we have a mild winter, and a mild winter will really solve some of the near-term issues we have. If we 

have a normal to colder winter, however, I think we have to be prepared for a number of significant operational challenges, which I 

am more than happy to discuss this morning. 

One of the other things I would like to make in my presentation 

this morning is the point that the natural gas industry is not a 

vertically integrated industry. We provide but one link in the energy chain getting to the ultimate consumer. Upstream of us are 

the gas processors and the producers, and the reality is all three 

of us are competing for limited resources of crews, supply boats, 

helicopters, generating capability to get our infrastructure on line. 

But the reality is we cannot put all of the focus on fixing but one 

chain of the energy supply. If we do not have producers bringing 

production back on line, if we do not do something to process the 

gas when the gas gets to the beach, if we do not do something to 

put the pipelines back in shape, we are not going to be getting molecules to our customers and our consumers. And we have got to be 

working together. 

The issue today is we cannot afford to lose natural gas supply, 

and our industry is doing everything we can to bring it back in. We 

are in recovery mode, and that is really where we are focusing 

right now. 

The supply/demand balance is very tenuous, and we have seen 

that. Today, as Mr. Cavaney pointed out, we are probably about 7 

billion cubic feet short of the supply that we had pre Katrina and 

pre Rita. What does that mean? What that means is we are going 

to lose a certain amount of that production this winter when we 

need it. The way our system works is about 65 percent of the peakday demand is met by storage and 35 percent is met by flowing 

pipeline gas. We believe that although everybody along the chain 

is working very diligently to get the production back on line, we 

may be facing this winter with a significant amount of supply from 

the Gulf of Mexico not flowing in the pipelines. 

So what does that mean? What it means is we are going to have 

a greater reliance on storage. Storage is going to have to meet 

those daily demands and the real challenge is going to be in the 

late winter when storage deliverability is declining and we do not 

have the same amount of gas flowing. 

39

One of the things that I think we really have to recognize is that 

natural gas processing is so critical to the chain. The natural gas 

that is produced offshore of Louisiana and Texas and Alabama and 

Mississippi is not of what is called pipeline quality. We cannot pipe 

that gas directly from a well into a person’s home. It just will not 

burn. There are heavy liquids in the gas. There is CO2. There is 

sulfur. The gas has to be processed. 

And I want to at least alert this committee to the issue of this 

winter, if people start saying, well, those natural gas pipelines are 

not taking gas that is available, we really have to point to the fact 

that we have to get the gas processing infrastructure up and running. It is not that we do not want production on. We have no interest in keeping production off the market. We are federally regulated. Our rates are reviewed by the FERC. Our job is to get the 

gas from those processing plants to the ultimate consumer. So 

those are the things that we really have to realize, that there are 

physical, chemical reasons why we cannot take that gas. 

As we bring the pipes back into supply, there are a couple of 

things we need. One, we need some Federal coordination, quite 

frankly, because we are so disaggregated, if you will. We need an 

agency like DOE to be a clearinghouse for us. We really need to 

start talking about where we can prioritize, repair equipment, lay 

barges, those sorts of things to get our industry back in shape. We 

think there are things, obviously, you can do. 

Mid-term conservation is very important to us. 

We think funding for LIHEAP is going to be a very challenging 

year for our fellow Americans that have low income issues going 

forward. 

I think as Andrew had mentioned to my right, I think access is 

a real issue. We cannot ignore it. It is the elephant in the room. 

We really do need to have public policies that allow us to have access to reserves we have in this country. We are not running out 

of natural gas. We are running out of the capability to find and to 

develop the reserves that are in areas that can be environmentally 

and economically developed. 

Mr. Chairman, thank you, and I look forward to answering questions from the committee. 

[The prepared statement of Mr. Helms follows:]

PREPARED STATEMENT OF CHRISTOPHER A. HELMS, PRESIDENT, PIPELINE GROUP, NISOURCE, INC., ON BEHALF OF THE INTERSTATE NATURAL GAS ASSOCIATION OF

AMERICA

Mr. Chairman and Members of the Committee: Thank you for the opportunity to 

testify on this important topic. My name is Chris Helms, and I am President of the 

NiSource Inc. Pipeline Group. NiSource Inc. is a fully integrated energy company 

engaged in natural gas transmission, storage and distribution, as well as electric 

generation, transmission and distribution. Our operating companies deliver energy 

to 3.7 million customers located within the high demand energy corridor that runs 

from the Gulf Coast through the Midwest to New England. One of our pipelines, 

the Columbia Gulf Transmission Pipeline, operates in the central Gulf of Mexico 

and brings natural gas on-shore in central Louisiana. 

I am here today on behalf of the Interstate Natural Gas Association of America 

(INGAA). INGAA is a trade organization that represents virtually all of the interstate natural gas transmission pipeline companies operating in the U.S., as well as 

comparable companies in Canada and Mexico. Its members transport over 95 percent of the nation’s natural gas through a network of 180,000 miles of pipelines. 

Many of these pipeline systems operate in the Gulf region—either off-shore or along 

the coastal area that includes Texas, Louisiana, Mississippi and Alabama. 

40

Before discussing the recent hurricanes and their effects on our industry, I first 

want to make a few points about the structure of the natural gas industry. The natural gas industry has never been as vertically integrated as the oil and electric 

power industries. Put differently, it is the exception and not the rule for a single 

company to be significantly involved in all segments of the industry. These segments 

can generally be broken down into the following categories: production, gathering 

and processing (also known as midstream services), interstate pipelines, marketing, 

and local distribution. Some of these segments are subject to economic (i.e., rate) 

regulation at the federal or state level, while others are not subject to any rate regulation. 

INGAA represents the interstate pipeline segment, which is regulated economically by the Federal Energy Regulatory Commission (FERC). As part of the natural 

gas industry restructuring that occurred during the 1980s and early 1990s, the 

interstate pipeline industry gave up its merchant role as the provider of bundled 

wholesale natural gas services. Under the current industry structure, interstate 

pipelines transport and store natural gas, but do not produce, purchase or sell the 

commodity itself. We are analogous to a trucking company that provides both transportation and warehousing services for goods, but does not take title to the goods 

themselves. The maximum rate an interstate pipeline may charge for transportation 

and storage is set on a pipeline-by-pipeline basis by the FERC, based upon the costs 

incurred by that pipeline to provide those services. 

Despite the disaggregated structure of the natural gas industry, significant interdependencies remain. This is especially true for off-shore production in the Gulf. 

Generally speaking, the chain of delivery is as follows: Natural gas is first produced 

at off-shore platform or wellhead facilities; it is then gathered and transported 

through smaller diameter gathering pipelines for redelivery to FERC-regulated 

transmission pipelines for transportation to onshore processing plants. There, the 

natural gas is processed to remove hydrocarbon liquids, such as propane and ethane. Those liquids must be transported, via dedicated pipeline, barge or truck, to 

markets for those products, such as refineries and petrochemical facilities. Once the 

liquids are removed, the natural gas is fit for consumption and is delivered into the 

interstate pipeline network where it is transported to end-use customers. All of 

these systems must work together in order for natural gas to flow onshore, and from 

there to the millions of customers downstream. If any link in this delivery chain is 

disrupted, the remaining links in the chain will be affected in some way. 

I point this out to emphasize that Hurricanes Katrina and Rita have highlighted 

these interdependencies. Links in the delivery chain have sustained major damage. 

In cases where multiple links have been damaged, we cannot repair just a single 

link and expect natural gas supplies to return to pre-hurricane levels. All of the 

links must be working in order to achieve that result. 

Mr. Chairman, I think it is safe to say that two major hurricanes striking backto-back at the heart of our nation’s energy system have caused an unprecedented 

disruption in our Gulf-based natural gas infrastructure. As many of you know, the 

federal waters in the Gulf of Mexico account for about 10 billion cubic feet (bcf) per 

day of natural gas production, which is about 20 percent of total U.S. demand. As 

of early this week, about 72 percent of this daily production, about 7.5 bcf per day, 

remained ‘‘shut-in’’ due to the storms. To place this number in some perspective, the 

United States typically consumes on average 61 bcf per day nationwide. Given the 

tight supply/demand situation we were already facing before the hurricanes, this 

loss of supply—even temporarily—is cause for concern as we approach the winter 

heating season. 

The media, and indeed most Americans, have focused on how the twin hurricanes 

have affected the price and supply of gasoline. Gulf Coast oil production and refineries are a critical part of the nation’s infrastructure for obtaining supplies of gasoline, jet fuel and fuel oil. Nonetheless, the United States imports almost 60 percent 

of our petroleum supplies from overseas. This means that a short-term increase in 

imports can mitigate some portion of the impact of the hurricanes on petroleum supplies. However, when it comes to natural gas, the United States still produces 85 

percent of the total supplies needed to meet domestic demand, while most of the 

remaining supply needed to meet demand comes from Canada. Our ability to import 

natural gas from outside North America is far more limited than with petroleum, 

given the limited number (5) of operational liquefied natural gas (LNG) import terminals in the U.S. Therefore, even as the country continues to be focused on gasoline prices, we believe the hurricanes will have a greater and more protracted impact on natural gas prices and supplies. 

I also want to challenge the notion that Hurricane Rita produced far less damage 

to energy infrastructure than did Hurricane Katrina. While this might be true with 

respect to the oil refinery complex in the Gulf region, it is not the case with natural 

41

gas. In fact, for operations in the Western Gulf including my company’s pipeline, 

the Columbia Gulf Transmission Pipeline, Rita had more impact than Katrina. For 

example, our offshore system was able to redirect some natural gas produced in the 

central Gulf that was not able to reach the shore due to damage from Katrina. This 

worked well for a few weeks, but the impacts of Rita only compounded the difficulties associated with bringing more gas production back on line. The ‘‘one-two punch’’ 

nature of these storms means that repairs will take longer than normal, because 

the limited manpower and equipment resources for assessing damage and making 

repairs are being stretched far beyond normal capacity. Damage sustained during 

Rita that, for example, normally might take a week or two to repair is taking much 

longer, due to the limited availability of crews, boats and equipment that were already working on Katrina-related damage. 

I want to assure the Committee that we are doing all we can. The dedication of 

our employees, in the face of losing their homes and possessions and having their 

families uprooted, has been phenomenal. Across the industry, people are showing 

up to work long hours even as they have no place to go home to. Finding temporary 

housing within the region so our employees can continue to repair critical energy 

facilities is crucial to speeding the pace at which natural gas supplies in the Gulf 

can be brought back online. 

Let me now turn to our outlook for the winter heating season. While assessments 

are continuing, there can be no doubt that, compared to last winter, there will be 

less natural gas delivered from the Gulf of Mexico region this winter. The damage 

is too widespread, and the amount of repair work too great, for everything to be 

made right within a month or two. The fundamentals of supply and demand in the 

North American natural gas market already were tight before hurricanes Katrina 

and Rita. Consequently, any loss of supply—even a relatively small one—can have 

a disproportionate impact on natural gas prices over the winter. All of this puts an 

extra emphasis on natural gas storage levels. 

While it is largely invisible to the public, the United States has a significant 

amount of natural gas storage scattered throughout the country. These storage facilities, typically located in depleted oil and gas fields, are usually filled during the 

warmer months of the year when there is excess natural gas supply and pipeline 

capacity to move it. Storage fills are generally completed by November 1, which is 

the beginning of the winter heating season. During the coldest winter days which 

typically are the days of peak natural gas demand, storage withdrawals can meet 

more than 50 percent of the daily natural gas load. 

Prior to the hurricanes, storage fills were proceeding at total volumes above the 

five year average. The hurricanes have slowed storage fills somewhat, but volumes 

still remain ahead of the five-year average. 

Still, storage is a supplement to—not a replacement for—natural gas flowing 

through the interstate pipeline network. Many of the pipelines serving the Midwest, 

Northeast and Southeast draw their primary supplies from the Gulf region. If pipelines are not flowing their full volumes of natural gas, and the winter is normal to 

colder-than-normal, greater volumes of natural gas are likely to be withdrawn from 

storage earlier in the winter season than is the norm. Should this occur, storage 

would be depleted more quickly and there could be an even greater dependence on 

flowing pipeline gas to make up the difference. This could create significant operational challenges for pipelines in late winter, particularly if cold weather, limited 

supply availability, and low storage drive customers to attempt to take more natural 

gas off a given pipeline than is available. 

I should also mention the importance of returning damaged natural gas processing facilities to service. As mentioned previously, natural gas processing plants 

remove the heavier hydrocarbons entrained within produced natural gas. These 

‘‘natural gas liquids’’ include propane, ethane and butane. Once removed, there is 

a separate market for these liquids, principally in the petrochemical industry. Just 

as with oil refineries in the Gulf region, however, a number of natural gas processing plants were damaged by the hurricanes. Several of these facilities may be 

out of operation during most, if not all, of the winter. 

This presents another operational challenge for pipelines. A certain amount of unprocessed natural gas can be accepted into the natural gas pipeline network. If the 

quantity of heavier hydrocarbons in the gas stream becomes too high, these substances can ‘‘drop out’’ of the natural gas stream as liquids and collect in pipelines 

and end-use equipment. This is a particular concern during the winter heating season when the lower ambient temperatures cause the temperature of the flowing gas 

to drop, increasing the amount of heavy hydrocarbons that will convert to liquids. 

This phenomenon can cause safety and operational problems as slugs of liquids 

work their way through sensitive equipment. Therefore, as off-shore production facilities come back on line, it is also important to bring corresponding processing caVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00045 Fmt 6633 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
42

pacity back on line as well; otherwise, pipelines may be compelled to limit the volumes of unprocessed natural gas that can be accepted during the winter heating 

season in order to preserve the operational integrity of the transmission and distribution pipelines and in order to protect end-users. 

How high will natural gas prices go this winter? While a number of factors will 

affect the answer to this question, the most important factor is completely outside 

of our control. It is the weather. The single most significant factor in determining 

natural gas demand, and therefore prices, will be the weather. Peak winter demand 

is driven by space heating needs. If it is a mild winter, there will be less demand 

for natural gas and prices will almost certainly moderate, even with the effect of 

the hurricanes. Conversely, if the winter is normal or colder-than-normal, then the 

supply disruptions caused by the hurricanes will be reflected in higher natural gas 

prices. 

Another factor affecting the ultimate price level will be the rate at which demand 

is reduced in response to higher prices. Price allocates supply in a demand-constrained market. At what price will a consumer choose to conserve and reduce use 

of natural gas? The industrial sector is the most price sensitive consumer of natural 

gas; and at a certain price level, it can be anticipated that industrial gas consumers 

will choose either to curtail production or to switch to an alternative fuel rather 

than purchase natural gas. The market clearing price for natural gas will be driven 

by how much a customer is willing to pay for the last molecule of natural gas available. My colleague from Dow Chemical, who is already facing some of these challenges, can explain this better than any of the other witnesses at the table today. 

For most residential and commercial consumers the price paid for natural gas this 

winter will depend on the purchasing strategy employed by the local natural gas 

distribution company (LDC) that serves their community. For example, to what degree has the LDC hedged the price of its natural gas purchases using either longterm purchase contracts or financial instruments? How much natural gas does the 

LDC have in storage, and at what price was that gas purchased before it was placed 

into storage? The price paid by the average consumer will be a blended price, taking 

into account these factors, and not just the spot price for natural gas on a given 

day. 

The ripple effects of higher natural gas prices will be felt across the economy. All 

of us expect to pay more for natural gas this winter to heat homes and businesses. 

Electricity prices also will be affected, particularly in regions where gas-fired power 

plants make up a significant part of the generating fleet. And, as I mentioned, higher natural gas prices will affect the cost of manufactured products. 

What can be done? The short-term imperative is repairing the infrastructure as 

quickly as possible. That means expediting permitting and approvals for repair 

work. It also means the various levels of government should consider the value of 

granting individual companies some forbearance from legal restrictions that might 

frustrate their ability to coordinate assessment and repair activities. The twin hurricanes have resulted in extraordinary damage, and extraordinary measures are needed to get systems repaired on a timely basis 

Also in the short-term, both the energy industry and the government must educate consumers in advance so they are prepared for higher bills and have the ability 

to implement strategies for conserving energy. This is important, because unlike the 

gasoline price that is posted at the local gas station, the consumer sees the price 

of natural gas after the fact when he or she receives a bill for the previous month’s 

consumption. Many of you are already familiar with some of these measures, including weatherization of homes, regular inspections of furnaces and changing of filters, 

installing programmable thermostats and setting them a couple of degrees cooler. 

The funding of the Low Income Heating Energy Assistance (LIHEAP) program is 

also critical in helping needy families cope with rising heating costs. 

In the long-term, Mr. Chairman, we agree that more needs to be done to diversify 

our supplies of natural gas. Katrina and Rita have clearly demonstrated the high 

degree of our reliance as a nation on the Gulf region to supply our energy needs. 

Other regions of the country can and should be a part of our overall energy resource 

development. Yes, many groups have complained about the environmental risks associated with expanding offshore energy to include waters outside the western Gulf 

of Mexico. After three significant hurricanes in two years, it is time to concede that 

apprehensions about the environmental consequences of offshore energy development are greatly overstated. The fact that we have not had significant environmental incidents after Ivan, Katrina and Rita must stand for something! Our national energy policy should not be premised on hypothetical problems or on assumptions based on incidents from 40 years ago. 

In addition, the United States will need to build new liquefied natural gas import 

terminals to keep pace with our demand for this fuel. Most of the new terminals 

43

that have been approved by the FERC in recent years have been located in the Gulf 

of Mexico. There are good reasons why the Gulf is attractive, such as access to an 

extensive pipeline network, but it is also true that the Gulf has been the ‘‘path of 

least resistance’’ in terms of NIMBY-type opposition. Perhaps the hurricanes, and 

the effects this winter on natural gas prices and the larger economy, will finally convince other regions of the country of the importance of having a geographically diverse mix of these facilities. 

Finally, it is worth examining the factors that have precluded electric generators 

from installing dual-fuel capability when building a gas-fired power plant. Over the 

last decade, dual-fueled facilities—facilities that can operate on both natural gas 

and fuel oil—have been discouraged by emissions limits and by the difficulty in 

siting oil storage facilities on site. Also, the rules in some electric power markets 

provide such generators no assurances that the additional capital cost of such facilities can be recovered in the price received for electricity. These factors have compelled developers to build power plants totally dependent on natural gas. Should 

natural gas supplies remain tight this winter, these facilities will face the choice of 

either paying huge fuel charges, or not running at all. 

Before I conclude, I want to suggest some responses that should not be undertaken. During times of crisis, it is easy to overreact in ways that are ultimately 

counterproductive. The first suggestion I would like to leave you with is this: please 

do not try to regulate commodity prices. This country actually did regulate natural 

gas prices for many years, resulting in artificial supply shortages and a 

misallocation of resources. Similarly, the government should not attempt to pick 

winners and losers in allocating scarce supplies among end-users. Some debate has 

surrounded the notion of limiting the use of natural gas for generation. Mr. Chairman, you and Senator Bingaman were present when Congress debated the deregulation of wellhead natural gas prices and the Fuel Use Act, so you remember the problems that existed at the time. While it can be painful in the short run, the market 

really does the best job of efficiently allocating scare resources and sending the right 

price signals that will solve supply problems. 

Mr. Chairman and Member of the Committee, I thank you once again for the opportunity to testify, and I will be happy to answer your questions.

The CHAIRMAN. Thank you very much. 

Mr. He ́bert, I know that you have been chairman of the FERC 

in your earlier life. I had an opportunity for the first time to talk 

to you about some of these problems on this visit. I very much appreciate your helping us today. I know you wear an industry hat, 

but frankly, we need good ideas. We need to understand our problems, and from my standpoint, I am appreciative of your thoughtfulness. Thank you for coming today. We will probably be talking 

to you more in the future. Thank you. 

STATEMENT OF CURT HE ́ BERT, JR., EXECUTIVE VICE PRESIDENT, EXTERNAL AFFAIRS, ENTERGY, NEW ORLEANS, LA 

Mr. HE ́ BERT. Thank you, Mr. Chairman. I am always glad to be 

here and have always been happy to be at the committee’s disposal. 

I also want to thank this committee and your leadership as well 

for the vision with the Energy Policy Act of 2005. I hate to think 

of where we believe we would be in the future but for that step forward, and it is a step forward. 

But one of my colleagues put it best in the very beginning: ‘‘once 

in a century.’’ I think that is what this has to be about, and I am 

going to wear a customer hat, if I can, today for a little while. I 

am glad to answer any questions about natural gas and where we 

think that may be going, why it is where it is, what levers we can 

pull to aid and assist, but for 5 minutes I would like to be here for 

Entergy Corporation, our CEO, Wayne Leonard, and our customers. 

44

We have had a once-in-a-century event. That event was actually 

three events almost. It was hurricane Katrina. It was the levee 

that broke, and it was hurricane Rita. 

As you know, Entergy Corporation has several different operating companies. We have Entergy-New Orleans, Entergy-Louisiana, Entergy-Mississippi, Entergy-Arkansas. We have Texas. We 

also operate in New York, Vermont, Massachusetts, and Nebraska. 

So we are spread out. We have 14,000 employees. We had 1,400 basically displaced through the storm as we tried to put it back together in the gulf south region. 

What Katrina did was it basically took the center to the east side 

of our service territories and it tore them apart, leaving nothing in 

New Orleans, no revenues, no customers, very little infrastructure, 

certainly no lights, and much less even in other areas right outside 

of that in Mississippi and Louisiana. 

Rita came and it took the west side of those service territories, 

hitting the areas in Beaumont and Lake Charles, knocking them 

out as well. 

I do not have to tell you—it has already been covered—how 

many refineries, how many platforms that we provide energy for 

that have to be a priority. 

But I do want to tell you this. We, like everyone else here, put 

our folks on the ground. Our folks were committed. We made an 

early decision at Entergy to tell all 14,000 employees you have a 

job. You are going to be paid. And as important, if you have been 

displaced, if you lost your home, you are going to have something 

over your head and we are going to pay for it. So do not worry 

about it because what is important is that we take care of the gulf 

south region. What is important is that we take care of America 

because this is an American problem once in a century. 

We need help for the consumers and the customers because we 

lost cumulatively 1.8 million customers through those storms and 

disasters. We lost 1.1 million with Katrina. We lost over 700,000 

with Rita, and we leave a city called New Orleans something less 

than a city. 

I have a couple of exhibits up here. The first one, the out of service, tells you what the numbers are. I am not going to spend a lot 

of time on them. You can see them and I have exhibits for you. 

I am not going to read through this, Mr. Chairman. There is a 

lot in here. I know how much you have to read, all these members. 

I know how much is put in front of you. If you do not read anything 

else this year, I hope you read this because it will tell you what 

has happened and it will tell you the need that is there. 

If you look at the transmission piece, which I think is over here, 

520 transmission lines down, 6,700 miles of transmission that had 

to be brought back up. The distribution I think he is putting up 

now. 25,000 poles. If we could think of you as our bosses, and telling this group of business people, what I need you to do in the next 

3 to 4 weeks is put up 25,000 utility poles, can you do that for me, 

I think we would all get our heads together and, with all due respect, we would tell you we think you had lost your mind. It cannot 

be done. It is impossible. And then, Mr. Chairman, you would have 

to come back. You would say, well, now, Curt, what I need you to 

do is understand it is not just about 25,000 poles, but where those 

45

poles go, there are poles already there and there is line wrapped 

around it and there are trees on top of it and there are flooded waters above that. And I need you to do it in 3 to 4 weeks’ time. And, 

oh, and by the way, can you put the wires back up when you are 

done? And by the way, can you do it safely? And by the way, when 

you are done, can it be reliable so that when people flip their 

switch, the light comes on? And I would have to tell you, Mr. 

Chairman, I am not sure that can be done. But it has been done. 

It is incredible to see what these people do, how they can be focused and how they can get it done when their house is under 

water, when their aunts and uncles have died, their parents. But 

they do it. We are focused on restoration and we will rebuild the 

gulf south, my home. The cost of that restoration is going to be as much as $1.6 billion. $1.6 billion. Just in New Orleans alone, it could be as much as almost $500 million for the restoration costs. 

The CHAIRMAN. You said in New Orleans? 

Mr. HE ́ BERT. Just in New Orleans, that operating company 

alone. 

The bulk of our costs is transmission and distribution. We do 

have some generation costs. Some of those are insurable. Obviously, we would attempt to recover that. But we are not certain 

about those numbers yet, but it could be as much as $1.6 billion. 

Having said that, I know you have to ask yourself why do you 

come to the Federal Government and why does the Federal Government owe these people in New Orleans, why do they owe the people 

in the gulf south, and why should they come and take care of their 

needs. 

Well, we are trying to do some of that ourselves, Mr. Chairman. 

At Entergy-New Orleans, that operating company right there, as 

you know, we had to file bankruptcy, and we had to file bankruptcy 

for several reasons. One, you understand that the SEC has borrowing limits from a short-term perspective. We were downgraded 

on our credit ratings. So accessing the capital markets was something that was very tough on us. So we filed for bankruptcy protection, and Entergy Corporation was obligated to spend $100 million 

there. We have already spent $60 million of that in debtor-in-possession financing. 

We are going to do everything we can—and that is what the 

bankruptcy is all about—to make certain that the restoration continues and that we do have electricity there so that all these people 

here can do their job and so that we can do what we can to not 

only take that crude, but refine it and make certain there is as 

much in America as possible. 

Senator Burns is right. Let me tell you when we hurt a farmer, 

we hurt America. My grandmother and grandfather were farmers. 

You know those farmers in the Midwest—what they do, Senator 

Burns—and you know this as well as anybody—is they take these 

barges and they fill them with grain and they fill them with corn 

and they ship it down the Mississippi River and they ship it to that 

port down in New Orleans and they put it on ships and they send 

it out everywhere. That is going to be tough to do right now. 

Senator BURNS. They send fertilizer back up. 

Mr. HE ́ BERT. Absolutely. It goes both ways, does it not? 

46

My point is it is an American problem. It is not just a New Orleans problem. It is not just a Mississippi problem. It is not just a 

Louisiana problem. 

But as a regulated utility, what we at Entergy have to do is have 

all these restoration costs go into the rate base, and if that is done 

in New Orleans without assistance from the Federal Government, 

their rates will double. 

When we talk about these people and we look at these customers—and I tell you that there are 1.8 million customers that 

lost service during our storms—I know you think of that as people, 

but I want you to think of it as meters. I want you to think of it 

as maybe 4 million or 5 million people. As we look at Entergy-New 

Orleans and we look at rate increases, which by the way, double, 

they not only double on Boudreaux down in the parish, but they 

double on small business, they double on industry, which right now 

has rates they cannot afford and be competitive in the American 

economy, much less a world economy. 

So we need your help. America needs your help. We need the direct assistance and we need the indirect assistance. But most importantly, we need it as quickly as we can get it. 

There are several different options here, and then I will close 

out, Mr. Chairman, and answer any questions. 

One, there is what is called the Airline Stabilization Act, which 

was used after 9/11, and that has been recrafted into a bill put 

forth by Senator Landrieu, who I know right now is on the floor 

arguing for Louisiana and the gulf south region, and Senator 

Vitter. It is called the Utilities Stabilization Act, but it is modeled 

on what was done after 9/11 for the airlines. There are moneys that 

would be put in there for direct costs and for indirect costs. We 

think that is one vehicle, and we think it is a useful vehicle. It 

would get us money quickly if that legislation were passed. 

Another option is the Stafford Act. I know you are all familiar 

with the Stafford Act. But the problem with the Stafford Act is the 

folks that I live around and the folks that I work with, quite frankly, down in New Orleans and in parts of Mississippi and Louisiana 

and Texas do not get help from FEMA due to the Stafford Act because when the Stafford Act was put together, since our customers 

are investor-owned customers, the Stafford Act said we will give to 

co-ops and municipals and public power, but we will not give to investor-owned. 

And I did not understand that. I had quite an education as I 

went through this process. What I learned from meeting with folks 

like yourself on the Hill and your staffs, which work so hard, is 

that the Stafford Act was made that way for a reason because they 

said investor-owned can get insurance. And that makes sense to 

me. All of a sudden, I said, well, that makes sense. That is fair. 

But what we did not understand at that time was two things. 

One, you cannot get insurance, after hurricane Andrew in 1992, on 

transmission and distribution. So it does not apply there. And how 

important is our transmission and distribution? And for the folks 

I have shared it with, they said, well, that makes sense. We ought 

to be treating them the same. How do we say one customer who 

lives in a rural community or lives somewhere served by a co-op 

or a municipal or a public power system gets to keep their rates 

47

low, but another customer does not keep their rates low because 

they have to absorb these costs? That is not fair. And I agree, that 

is not fair. 

And the other side of that is this. So many of these public power 

systems, certainly the co-ops and the municipals, are transmissiondependent on investor-owned utilities like Entergy, like CLECO, 

like Southern. So it does not matter how much Federal money we 

give to these co-ops and municipals in some circumstances. If they 

rebuild their systems, it would not matter if they gold-plated them. 

And I am not saying they do that. They certainly do not. But if our 

transmission line is down because we do not get it up because our 

customers cannot afford it and we cannot do it quickly enough, you 

cannot light the first light bulb in those areas. 

So it is important that we rethink that. A waiver of the Stafford 

Act for a necessary element of our economy, like electricity and gas, 

is something that I think you should entertain. And I know you are 

going to say, once we waive it, how do we waive it for anybody? 

Where do we draw the line? I think you have to draw the line on 

energy. 

I will tell you I have friends and family that are in the medical 

business. Hospitals are important. They are important. Telephone 

companies are important. They are very important. Refineries, very 

important. But you do not pump through pumping stations that are 

electric crude. You do not light up hospitals, much less make them 

run, and you do not make telephones ring unless you have electricity first. If you do not get that right and if you do not keep that 

competitive and if you tell the folks in New Orleans that their 

rates are going to be doubled because they are treated differently, 

you are not going to rebuild that economy. You are not going to get 

people to go back in there. 

There is a third alternative: community development block 

grants. 

The CHAIRMAN. Can I just remind you your time has expired and 

would you wrap it up please? 

Mr. HE ́ BERT. I will wrap up with this, Mr. Chairman. I apologize. 

Community development block grants were used after 9/11. ConEd—there was a block of money put in, about $250 million, of 

which, let me say, they have only collected, $93 million, for customers there in that region. I do not mean to compare 9/11 and 

Katrina and Rita. They are certainly different events. But for a 

cost analysis, I want to draw this comparison. If you look at 

ConEd, that was less than 1 percent of their revenues. It was 

around 12,000 customers. I have told you how many customers we 

are talking about here. We would like to look at the same opportunity for our customers. We think that is a great way to do it. 

Immediate waiver of Stafford or the Utility Stabilization or the 

community development block grants would all be a way to do it. 

This is a destitute city. It is empty and we are doing everything 

that we can to rebuild it, but we cannot rebuild it on the backs of 

folks who can least afford it. And we cannot rebuild it on an economy that sends its crude and its refined product everywhere 

throughout the United States and expect them to absorb that cost. 

Once in a century, Mr. Chairman. Thank you. 

[The prepared statement of Mr. He ́bert follows:]

48

PREPARED STATEMENT OF CURT HE ́ BERT, JR., EXECUTIVE VICE PRESIDENT,

ENTERGY CORPORATION

Good morning. I am Curt He ́bert, Jr., Executive Vice President of Entergy Corporation, and I appreciate the opportunity to appear this morning on behalf of 

Entergy, its CEO Wayne Leonard, and the thousands of Entergy employees who 

have been working tirelessly since late August to respond to the destruction 

wrought by hurricanes Katrina and Rita. I’ve never been more proud to represent 

Entergy than I am today. As I sit before you, thousands of dedicated Entergy employees are basically working non-stop to restore service to the more than 1.8 million of our customers whose lives have been disrupted, many permanently, by 

Katrina and Rita. Entergy’s employees have been joined by thousands of other, 

equally committed personnel from our sister utilities throughout the region and the 

nation. We have come together on a scale unprecedented in American history—as 

a company and as an industry—to meet this challenge. 

The purpose of my testimony is three-fold. First, I summarize the devastating effect of these catastrophic storms on our infrastructure. Second, I summarize our efforts to date in restoring service and the unique challenges being faced by the City 

of New Orleans. Finally, I discuss what federal financial assistance is needed so 

that our restoration efforts can be completed successfully. 

THE EFFECTS OF THE STORMS

The two hurricanes and the flooding that resulted when the levees in southeastern Louisiana failed were more devastating than any natural disaster previously experienced in this country. The effects on the energy industry and upon the 

utilities in the area, whose customers are severely burdened by the loss of their jobs, 

homes, and property, have been unusually severe. This emotional and financial 

stress will have a damaging and long lasting effect upon the economy of the Gulf 

South region, including particularly the City of New Orleans. 

These unprecedented events require an immediate federal response so that utilities such as Entergy can promptly and efficiently address the massive damage and 

destruction that has occurred. This assistance must take the form of federal legislation that provides immediate financial aid to the electric and gas utilities affected 

by Katrina and Rita in order to ensure that storm restoration and recovery occur 

timely and without imposing additional financial burdens on the citizens of these 

areas. 

By any measure, Hurricane Katrina is the most costly and one of the most deadly 

hurricanes to strike the United States in recorded history. Hurricane Andrew, the 

previous benchmark, carved a much narrower path of destruction across south Florida in 1992. During Andrew, one of the hardest hit areas was Homestead, Florida. 

Of 26,000 homes in Homestead, 7,500 were destroyed completely. By comparison 

(and without minimizing the impact on the good people of Homestead), all 26,000 

homes in St. Bernard Parish, Louisiana have been lost, along with the destruction 

of much of the housing stock of the City of New Orleans and large segments of the 

Mississippi Gulf Coast. In the area of southeast Louisiana that Entergy serves, 

nearly 170,000 homes or businesses were damaged so badly that those structures 

will not be able to accept electric service for an extended period of time. This will 

severely restrict the long-term recovery and economic prosperity of the region. 

The effect of these hurricanes on the energy industry is a matter of national importance that can be measured by economic barometers. In contrast, the effect of 

the storms on the citizens of the Gulf Coast region will be measured by their suffering and the loss of their families, their belongings, their homes, their businesses, 

and their jobs. Helping the people of this region rebuild must be our main focus at 

this time, and I am here today to request your support of our efforts. 

Katrina devastated the electric utility infrastructure across much of the Gulf 

Coast region. Katrina was so large that it affected about 90,000 square miles—an 

area equal to the size of Great Britain. At the height of the service outages due to 

Katrina, Entergy lost:

• 1.1 million customers in Louisiana and Mississippi (previous Entergy customer 

outage record was 290,000) 

• Virtually all generation in southeast Louisiana was lost or had to be isolated 

from the grid to protect the ability of the equipment to return to service; 

• Approximately 3,000 miles of transmission lines; 

• 30,000 miles of distribution lines; 

• 263 substations; 

• 1,560 feeder lines were damaged; and 

• 14,500 poles were damaged or broken.

49

One distinguishing characteristic of Katrina was the flooding of mammoth proportion. Although hurricanes frequently result in high winds and heavy rain, Katrina 

left many areas of southeast Louisiana flooded with several feet of water for several 

weeks when the levee system failed. Although other areas of the United States are 

susceptible to flooding, in the case of Katrina, the impacted area in southeast Louisiana became an extension of the gulf for nearly a month, a condition that has not 

occurred elsewhere in the U.S. during modern times. 

On the heels of the destruction and flooding of Katrina, a strong category four 

storm, Hurricane Rita, a strong category three storm, inflicted significant additional 

damage to the Gulf Coast region, a critically important natural gas producing region. At the height of the service outages due to Rita,

• An additional 766,400 customers experienced power outages in Texas and Louisiana: • Another 3,400 MW of generation was damaged or had to be taken out of service 

to protect vital equipment; • Over 3,800 miles of transmission lines were lost; • 344 substations were damaged; and • 11,500 utility poles were damaged or broken.

In responding to both storms, utility restoration efforts were swift, well-planned 

and of a scope that is unprecedented—just as two severe hurricanes hitting roughly 

the same area of the Gulf Coast region within weeks of one another is unprecedented—just as the pervasive submersion of large segments of southeast Louisiana 

for weeks at a time is unprecedented. In response, Entergy mobilized more than 

13,000 utility lineman and other workers and hundreds of millions of dollars have 

and will be spent to get the lights back on as safely and quickly as possible. 

While responding to the storms, Entergy remained in daily contact with the Department of Energy, providing daily reports and briefings. As a result of these communications, situation reports were posted by the U.S. Department of Energy, Office 

of Electricity Delivery & Energy Reliability under Energy Emergencies: Hurricane 

on its website at: www.electricity.doe.gov/program/electricloat.cfm?section= 

divisions&level2=home.

While much work remains to be done, restoration efforts have been quite successful outside of the flood zone. Many of the customers who have lost service as a result 

of Katrina and who are capable of receiving service have been restored, and more 

than 75 percent of the customers who lost service as a result of Rita have been reenergized. However, it is slow and difficult going in New Orleans and the other 

hardest hit areas of the Gulf Coast, such as Beaumont and Port Arthur, Texas, and 

Lake Charles, Louisiana. 

Entergy has spent considerable resources to restore service to ten refineries that 

it serves in the Beaumont/Port Arthur, Lake Charles and New Orleans area. Many 

of these refineries suffered significant damage to their facilities and the transmission lines and substations that serve these facilities fared no better. However, 

as of early this week, transmission paths were established to seven of these facilities 

and at least one substation was energized at each of these refineries, enabling them 

to take clean up/restoration power. Entergy is in constant contact with each of these 

customers and stands ready to provide power to meet site specific start-up schedules. These refineries have an aggregate refining capacity of 2.27 million barrels of 

crude per day and therefore are very important nationally as well as regionally. 

Rita also caused interruption at two DOE Strategic Petroleum Reserve sites that 

we successfully restored several days ago. Similarly, Entergy quickly restored service following Katrina to critical shipping ports, including the Port of New Orleans. 

In fact, the City’s Command Center in the Hyatt Hotel and the Port of New Orleans 

were among the first facilities to receive power following that storm’s landfall. 

As a final example, Katrina halted activity at a fuel depot in Collins, Mississippi, 

which is outside of the Entergy service territory. Because of its critical importance 

to the energy industry in the region, Entergy provided immediate assistance to restore electricity to this facility. Attached is a summary of those events which highlight the exceptional service of the men and women on the frontlines of the restoration battle. 

Entergy’s emergency response and operational restoration efforts in the devastated region have been vital to the recovery effort. It has given confidence and 

hope to citizens throughout the region that we can rebuild. It is clear to me from 

seeing firsthand the commitment of the hearts, minds and souls of these men and 

women directly involved in the restoration, that our employees will do anything to 

help our customers and our neighbors. The cost of these efforts has been staggering. 

Entergy estimates that storm related and business continuity costs from Katrina at 

between $750 million and $1.1 billion. Estimates of restoration costs for repair or 

50

replacement of Entergy’s electric system damaged by Rita are in the range of $400 

to $550 million. 

THE UNIQUE CHALLENGES FACED BY NEW ORLEANS

Katrina not only presented the problems attendant to a hurricane; its rain and 

wind, combined with the failure of the levee system in southeast Louisiana, damaged as many as 170,000 homes and businesses in the area so severely that they 

cannot be re-energized until some combination of demolition, reconstruction, and inspection occurs—a process which may take many months. The utility subsidiary 

that serves New Orleans, Entergy New Orleans (‘‘ENO’’), has been especially hard 

hit:

• From an infrastructure perspective, ENO’s electric and gas system sustained 

massive damage. 

• From a customer perspective, due to the unprecedented flooding, many tens of 

thousands of homes and businesses in the City have been underwater for 

weeks. These structures cannot simply be repaired after being submerged for 

so long. As a result, the City has lost a large segment of its housing stock, and 

ENO has lost the vast majority of its customer base. 

• From a financial perspective, current estimates of the cost to restore ENO’s system for gas and electric service range from $325 million to $475 million—an 

amount that exceeds the total amount invested to provide those utility services 

in New Orleans on the day before Katrina came ashore.

Clearly, the confluence of events following Katrina caused an immediate and severe deterioration in ENO’s financial condition in the days following Katrina. ENO’s 

revenues, the continuity of which is vital to pay timely fuel, purchased power, and 

restoration costs, disappeared overnight. And because of ENO’s relatively small size, 

it quickly hit short-term borrowing limits pursuant to SEC orders, and its debt was 

downgraded by rating agencies to below investment grade. 

Also, ENO was unable to access capital markets to raise new debt, because simple 

steps, like due diligence could not be completed timely, ENO is unable to provide 

revenue projections assure a revenue source sufficient to demonstrate its ability to 

service new debt given the uncertainty surrounding the timing and size of the return of its customer base. 

Faced with a severe and immediate need for cash to continue its restoration efforts, ENO filed and obtained Chapter 11 bankruptcy protection on September 23, 

2005. This filing allowed Entergy Corporation, ENO’s parent, to provide up to $100 

million in short-term, debtor-in-possession financing so that ENO can make currently due payments while continuing to restore service as areas of New Orleans 

rebuild and recover. 

But this is only a temporary stop-gap measure. It will take many times this 

amount to reconstitute ENO in a manner that is able to provide reliable service to 

its customers. To understand this, consider the following comparative data:

Table 1.—ENTERGY NEW ORLEANS COMPARATIVE DATA 

[All Amounts Approximate] 

Pre Katrina Post Katrina % Change 

Electric Customers ................ 190,0001 60,000-75,0002 (68)%-(60)%

Annual Non-Fuel Electric 

Revenues ............................ $316M1 $90-120M2 (72)%-(62)% 

Average Annual Storm Restoration Cost ...................... $2M3 $325-475M 1+16,000%-

+24,000%

Average Annual Storm Restoration Cost per Customer .................................. $113 $4,300-$7,9004 +39,000%-

+72,000% 

1based on 2004 actuals 

2estimated based on 115,000-130,000 customers unable to take service for extended period of 

time per September 30, 2005 press release [A process that could take many months or years] 3cost estimated based on last 5 years; average per customer based on 2004 customer count 

4cost estimated based on Katrina restoration; average per customer based on post Katrina 

customer count 

51

As a regulated utility that has devoted its property to public use, Entergy operates under a cost-of-service regime. As such, ENO is not entitled to unregulated 

profits, but it is entitled under well-established law to the opportunity to recover 

from its customers all of its costs, including its storm restoration costs. This traditional cost recovery approach has been used in response to past hurricanes and ice 

storms and has raised customer bills. But the magnitude of those cost increases was 

manageable. That would not be the case for the level of destruction caused by 

Katrina and Rita. 

These storms, coming as they did one after the other, and accompanied by massive, long-term flooding, require a different approach. Even under the best of circumstances, it is difficult to see how these customers, many of whom live in some 

of this nation’s poorest neighborhoods, could bear the loss of their belongings, 

homes, and jobs, and also bear the cost of the restoration of the utility system. This 

problem is particularly acute given the extent of the devastation to hundreds of 

thousands of homes and businesses throughout the Gulf Coast region. In addition 

to bearing that cost, the cost of restoration will also be unprecedented. 

Entergy estimates that electric rates in New Orleans would have to more than 

double to keep ENO operating during the period 2006 to 2008. This is due to a combination of the extraordinarily high restoration costs in absolute terms (+16,000%—

+24,000% higher than average for that company over the last five years) and the 

fact that the customer base among which restoration costs would be spread is significantly lower. On a per customer basis, the cost of Katrina would be $4,300 to 

$7,900, a level that is unaffordable given the below-national-average income of citizens in New Orleans’ citizens before the storms. Clearly, the federal government 

must provide alternative means of funding the restoration and the cost of rebuilding 

one of the exceptional areas in the United States, the City of New Orleans and the 

Gulf Coast region. 

Some may ask, ‘‘Why should the federal government take a role different from the 

one it has taken for years through its well-established programs for natural disaster 

and emergency management?’’ The answer, I believe, is four-fold:

1. Unprecedented levels of damage and destruction caused by Hurricanes 

Katrina and Rita; 

2. Unprecedented flooding for an unprecedented period of time resulted from 

levee failures in and around the New Orleans area; 

3. Unprecedented displacement of a large number of people for an indeterminate period of time. This includes a very significant portion of the population 

of the City of New Orleans and virtually the entire population of St. Bernard 

Parish. 

4. The extraordinary level of poverty among large segments of the population 

of the region—citizens who would be required to pay the cost of restoration 

through regulated utility rates if federal assistance is not provided to protect 

them from this unaffordable burden.

In short, the potential rate effects of the enormous restoration costs and the loss 

of customer base will stifle any form of economic development—much less full recovery—if the federal government does not intervene. In such a scenario, the rates for 

power services—electricity and gas—will be so abnormally high that no industry 

will locate here or bring new jobs that are the engine of economic recovery and 

growth. 

We cannot let that happen. The City of New Orleans and the Mississippi Gulf 

Coast have too much economic, social, and cultural importance to the nation. We 

urge you at the federal level to do everything that can be done to reduce the burden 

on customers who already have lost so much, and to restore safe and reliable utility 

service. 

THE NEED FOR FEDERAL ASSISTANCE

We must put in place immediate, direct federal assistance for utilities serving the 

Gulf Coast region, particularly ENO, which, unlike municipal utilities or cooperatives, are not eligible under the Stafford Act for emergency financial assistance to 

pay for restoration and rebuilding costs under existing federal law. There are several ways in which the Congress can help those who were hardest hit by Katrina 

and Rita. 

For example, enactment of the Privately Owned Utility System Restoration Act 

of 2005 (modeled after the post-9/11 Relief Act provided for the Airline industry) 

would provide financial compensation to electric and gas utilities to recover the direct costs resulting from Hurricanes Katrina and Rita for plant, equipment and restoration costs, as well as providing financial compensation through 2007 to cover the 

incremental losses for those companies which have significant and sustained loss of 

52

customers. A provision providing compensation for direct and incremental costs is 

included in the Landrieu/Vitter ‘‘Pelican Bill’’ (S. 1765 & S. 1766), which was introduced in the Senate on September 22, 2005 and referred to the Senate Committee 

on Finance. 

We would also urge the Congress to consider other federal legislative efforts to 

provide financial relief to help utilities such as Entergy and Entergy New Orleans 

rebuild the Gulf Coast region. 

Another approach to providing financial assistance is through the Department of 

Housing and Urban Development under the Community Development Block Grant 

(CDBG) program. Community Development Block Grants appear to be a viable approach to providing direct federal assistance to utilities. Congress used CDBG funds 

to provide direct assistance to Consolidated Edison (and other utilities) following the 

September 11, 2001 terrorist attacks. 

These grants, if funded and dispersed on a timely basis, can significantly mitigate 

costs that would otherwise be passed through to utility customers. Entergy strongly 

recommends that the CDBG program be modified to fit the extraordinary circumstances resulting from Katrina and Rita. For instance, Entergy is recommending to Congress that the CDBG program and funds by tailoring language to 

directly target electric and gas utility companies so that there is no ‘‘battle’’ among 

other service providers (phone, cable, etc.) for such grants. Funding for these other 

entities should be done separately so as to not impede financial assistance to electric 

and gas companies. Restoring electric and gas service is simply too important to the 

City, region and the national economy. 

Additionally, Congress must streamline the CDBG fund distribution process. 

Entergy recommends that Congress itself must set specific statutory timetables and 

periods during which the CDBG funds must be distributed. 

Finally, Congress must recognize the special and unique circumstances of New 

Orleans generally, and ENO specifically. As noted earlier, New Orleans is home to 

some of the poorest citizens in the country. This has always presented special challenges for ENO. That challenge has become exponentially more difficult as a result 

of the significant and perhaps sustained loss of ENO’s customer base as a result 

of hurricane Katrina and Rita, and the associated flooding. Simply put, increasing 

electric rates to cover storm and on-going costs would place far too great a burden 

on those customers remaining or returning to the City, and is therefore not a viable 

alternative. 

Thus, in order to recognize these unprecedented conditions, Entergy recommends 

that Congress implement a means of direct federal assistance, perhaps through 

CDBG funds, that can be used for those electric and gas companies that have and 

will continue to suffer as result of this dramatic and potentially sustained loss of 

customers. 

To ensure that only those utility companies in such dire straights are eligible for 

such relief, Congress must also establish specific eligibility requirements for such 

federal compensation. One approach would be to limit this relief to a company that 

has seen its customer level return to no more than 80% of its pre-Katrina/Rita levels. 

A third alternative for providing federal relief is through a waiver of the Stafford 

Act. The Federal government has intervened with immediate financial assistance to 

utilities on the north shore of Lake Pontchartrain (electric cooperatives) that were 

impacted by hurricane Katrina, but has not and cannot do so for the privatelyowned utilities on the south shore of the lake without Congressional intervention. 

Who can seriously claim that customers of utilities on the north shore deserve aid 

and protection against crippling rate effects, but those on the south shore—many 

of whom have been commanded not to return to their homes for the last month due 

to flooding—do not? In this time of need, such disparate treatment cannot be justified. 

This disparate treatment stems from the fact that privately-owned utilities are 

not eligible to receive financial assistance from the Federal Emergency Management 

Agency due to a statutory prohibition on such funding in the Robert T. Stafford Disaster Relief and Emergency Assistance Act. A waiver of this provision was included 

in the ‘‘Pelican Bill’’ (S. 1765 & S. 1766), and the need and basis for such a waiver 

of the Stafford Act is clear in my view. This type of waiver would provide direct 

assistance for infrastructure restoration of a critical national interest and for immediate and permanent relief of these customers who are beset with massive losses 

due to these storms. The rates, terms and conditions of service to customers are 

heavily regulated by state and local regulatory authorities (i.e., the Mississippi Public Service Commission, the Louisiana Public Service Commission and the Council 

of the City of New Orleans). One of the key features of utility regulation is that 

the utility and its shareholders are entitled to charge only the rates set by the govVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00056 Fmt 6633 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
53

ernment, in exchange for which they are given the opportunity to recover all of their 

costs of doing business—including their cost of capital. Without assurance that investors will obtain a return on their investments, the investors will not provide the 

funds necessary to finance the restoration. 

Without direct federal assistance, the customers remaining on the utilities’ systems will face enormous rate increases. This would cripple any hope of economic recovery for the region and discourage people from returning as utility rates in those 

areas would be unacceptably high. Such rates would initiate a regulatory ‘‘death spiral,’’ from which there is no means of recovery. For the City of New Orleans, this 

is a potential doomsday scenario. Even if there were a foreseeable and significant 

customer base for ENO, something that no reasonable person could confidently predict will occur even in three to ten years, the rate increases to the remaining and 

returning customers would be unsustainable. Without federal intervention, these 

costs will cripple the City’s and the region’s economy for decades and render the 

local utility unable to restore this vital infrastructure. We strongly urge that Congress pass such a waiver immediately. President Bush committed the country to rebuild the City of New Orleans in his September 15th speech from historic Jackson 

Square. The ultimate economic and social recovery of the City will be difficult and 

made even harder if there is not a commercially viable local electric and gas utility. 

Yet without direct federal aid, a company such as ENO that has sustained such a 

significant erosion of its customer base cannot maintain safe and reliable on-going 

operations and provide the necessary foundation for the City’s economic restoration 

and growth. 

You have seen the pictures of the devastation, but this isn’t about pictures or devastation; it is about the recovery, about the future and about hope. The City of New 

Orleans can only have a future if it can obtain the federal financial assistance necessary to rebuild its infrastructure. Obviously, that infrastructure includes that of 

the electric and gas utility that serves the City and its citizens. 

We ask for your assistance so that we can continue to help one of this country’s 

great Cities get back on its feet. 

COLLINS, MS FUEL DEPOT EVENT SUMMARY

Hurricane Katrina knocked power out to millions of customers in MS and LA. The 

outages impacted all classes of customers especially energy sector facilities such as 

refineries, pipelines and fuel depots. This led to a gasoline crisis in the midst of restoration efforts. One such facility was a fuel depot located in Collins, MS in the Mississippi Power Company (MPCo) service area. A portion of that facility is served 

from the west by South Mississippi Electric Power Association (SMEPA), but an 

overwhelming majority of the facility is served by MPCo from the South. SMEPA 

was able to reenergize its portion a day after the storm, but this only supplied 

power to a few of the facilities in this large complex. 

Mississippi Power Company’s distribution facilities were brought up in quick time, 

but transmission facilities that served this facility from the South were badly damaged. MPCo, recognizing the importance of this facility, considered providing power 

from a different route from the east and immediately began work to provide this 

interim fix. 

Four days after the storm on Friday, September 2nd, Entergy’s Transmission 

group received a call from Southern Company’s transmission group requesting assistance. The damage to MPCo’s transmission facilities were much worse than originally thought and it became apparent that it would take too much time to rebuild 

their transmission facilities to serve the fuel depot in Collins. While surveying the 

area by helicopter the Southern Transmission group assessed a 230 kV transmission 

interconnection segment south of the Mississippi border in Louisiana just north of 

Bogalusa, LA that belonged to Entergy Louisiana. Southern believed it would be 

quicker to repair this damaged transmission tie and feed power into the Collins Fuel 

Depot by tying into the Southern/MPCo transmission system that ran from the MS/

LA border through Hattiesburg, MS North to Collins. 

In addition, EMI had received calls from MEMA, FEMA and DoE asking if there 

was anyway they could help with restoring power to the fuel depot in Collins. They 

identified this as a high priority in helping to resolve the fuel crisis that was mounting in the area. 

Entergy had previously assessed this transmission tie and given it a low priority 

to repair since it was only an interconnection tie and was not used to directly serve 

any Entergy customers. After receiving the call Entergy recognized the importance 

the Collins fuel depot meant to the growing fuel crisis and immediately began diVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00057 Fmt 6633 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
54

verting resources working on restoration in Mississippi to this very isolated transmission tie located in Louisiana marshlands. 

While the damage to these transmission facilities were less than those experienced by MPCo, they were still significant. The transmission line in question ran 

some 20 miles north of Bogalusa, LA to the MS border. The assessment identified 

a dozen broken arms, three spans of transmission lines downed and three transmission structures along a 4 mile stretch of marshlands. Furthermore, the location 

of the downed structures were in an in accessible area and after discussion with surrounding landowners, Entergy soon realized that a two mile road would have to be 

cut through dense forest to the damaged structures. Workers also soon learned that 

the structures were so badly damaged it would take weeks to reconstruct the towers 

so engineers began looking for alternatives. The plan they came up with, airlift 

three transmission structures from existing transmission facilities on dry ground 

into the marshlands. 

Work got underway on Saturday, September 3rd, first priority cutting the two 

mile long road through dense forest. The next challenges involved locating existing 

transmission structures and a helicopter capable of lifting 7,000 lbs. A sky crane 

was located in Oregon, but it would be a week before it was available. A call was 

placed to the Mississippi National Guard who gladly provided a Chinook, capable 

of lifting 10,000 lbs, to assist with the restoration. 

After working through numerous resource and environmental challenges, this 

team of 120 Entergy personnel and contractors completed restoration by Saturday, 

September 10. An event that should have taken weeks to complete was completed 

in days. Through the use of ingenuity and creativity these individuals helped resolve 

a fuel supply crisis that was hampering restoration efforts in Mississippi.

The CHAIRMAN. Thank you very much. 

Senators, normally we would just proceed to Senator Bingaman 

and move around, but with his permission—you have time, do you 

not? I am going to waive. Is there any Senator who has an absolutely urgent appointment somewhere else who would like to ask, 

or they cannot stay? I do not want to do that always, but it has 

been a very, very important hearing. Is there anybody who must 

ask a few questions or they will not be here? You are all very generous if you do not. 

Senator TALENT. You are tempting us all. 

[Laughter.] 

The CHAIRMAN. But you are all being very, very understanding 

that I am being generous and you are not accepting it. So, Senator 

Bingaman, you are first. 

Senator BINGAMAN. Thank you very much, Mr. Chairman. I 

thank all the witnesses for your excellent testimony. 

One issue I wanted to get into relates to an amendment that 

Senator Alexander offered during the markup on the energy bill, 

an amendment to require efficient dispatch, as I recall it. I supported the amendment. I thought it made sense, essentially saying 

that we should use our most efficient power generation plants first 

to meet our demand and our less efficient ones should be left until 

they are absolutely needed. 

As we are urging Americans to save and to be efficient in their 

use of energy and to cut down their use of natural gas, it seems 

to me eminently reasonable that we do the same thing with regard 

to the electric utility industry. I am under the impression that 23 

percent of our natural gas consumption today is essentially natural 

gas that is consumed by the power industry to produce electricity. 

And requiring them to go ahead and produce that from the most 

efficient plants that they have available seems to me to make absolute sense. I believe, Mr. Liveris, you had this in one of your recommendations. 

55

I wanted to ask Mr. He ́bert. One of the concerns that I have had 

is that in the rebuilding that you folks undoubtedly have to accomplish, and we want to see you accomplish, there has been criticism 

of your company by the Louisiana Public Service Commission saying that there is too much use by Entergy of old and inefficient natural gas units and that there are more efficient units that could be 

used, but your transmission system has not been configured to take 

advantage of those. I would be interested in whether you think 

that is a valid criticism. Is this an opportunity? 

I know all of the catastrophe that we have and that you are faced 

with, and I am sympathetic to that. But if you are going to rebuild 

that transmission system, is it possible for you to reconfigure that 

so as to use the most efficient power generation assets available in 

your region, even if those do not belong to Entergy, even if those 

belong to independent power producers? Because my understanding 

is that there are some very new, more efficient plants that are not 

able to sell into your system because you are just not configured 

to accept their power. Any reaction you would have to that I would 

be interested in. 

Mr. HE ́ BERT. I have a huge reaction. Senator Bingaman, you and 

I have been working toward this end for a long time, and you know 

I am very vocal about my opinions and certainly I will do that here. 

First, let me say that we do have a pending matter before the 

FERC with regard to what you are talking about, so I will be a bit 

careful. But also let me suggest to you several things. 

We have been working with many different facets of the Federal 

Government: the Nuclear Regulatory Commission, the Federal Energy Regulatory Commission, and the Department of Energy. As 

recent as last week, we had Gil Benderhal—I believe is how you 

say his last name. I will apologize to him if I say that incorrectly. 

But he is, I think, with the Office of Electricity Delivery and Energy Reliability. We had them down, and we are working in concert 

with the DOE and they are helping us and providing us with some 

information. But they came down and actually assessed our approach of restoration and assessed our restoration in infrastructure. 

So, having said that, I think that would be evidence to you that 

we are doing anything and everything that we can to make certain 

that the system that we rebuild is an operational system that functions reliably and, yes, certainly as efficiently as possible. 

But since I have laid that foundation for you, I think there are 

several other important pieces of information that this committee 

needs to know about. 

When you look at a generating station—and it does not matter 

what kind of generating station it is, but what does matter about 

it is something sometimes other than efficiency. Efficiency is a 

small factor when it comes to us looking at and deciding whether 

or not we use that facility. It is probably important, if you need 

load following, to use load following and combine that with efficiency. It is probably important if you need voltage support. In 

other words, you have a system here but you have got to get power 

over here, and if this system is not running, you lose the voltage 

support. So from a physics and engineering standpoint, you lose 

56

your ability to transmit power. It is probably important to look at 

something other than just efficiency. 

Having said that, I do not want you to think that efficiency is 

not on the tops of our minds. I do not have to tell you how much 

we worked toward that in Entergy. You know that. But you have 

to look at all the factors. 

Having said that, when I was at FERC—I believe it was in 1997, 

and I have told this story 100 times, but I want you to know it because I do not think I have told you and I think you need to know 

it. I had a meeting with a group of merchants when I was a FERC 

commissioner, and I know Mississippi and Louisiana like the back 

of my hand because that is my home. I have spent my adult life 

in the energy industry. I started in natural gas, but then ended up 

in electricity. And I told the merchants at that time, do not site 

here. It is not where the constraint is. It is not where the bottleneck is. It is not where the congestion is. Do not site there. It is 

going to cost you a lot when you do it. The upgrades are going to 

be horrific. Why would you do that? 

But you have got to remember in 1997, as we talked about gas 

prices, it was a very different day. In 1997, what they were telling 

me is we are going to make enough money. We are going to pay 

for that interconnection. Do not worry about that. So much so that 

they contracted with utilities to do that very thing. 

I told them they were putting them in the wrong places. It is 

going to be expensive to fix that sometimes. 

But I will close with this, and I think this is significant. Our energy needs in 2004—34 percent of the energy we purchased from 

non-affiliate merchants. I think that is very significant. 

But we always look at efficiency, and I appreciate your question. 

The CHAIRMAN. Senator Bingaman, you had a number of questions, but you do not have any time left. 

Senator BINGAMAN. I know that. 

[Laughter.] 

The CHAIRMAN. I am going to start. When we give you a question, we are going to set a limit on how long you can take to answer it. 

[Laughter.] 

Mr. HE ́ BERT. It was a difficult question, Mr. Chairman, but it 

was an important question. 

The CHAIRMAN. Well, it was one that seemed to stir you up for 

some reason. 

[Laughter.] 

The CHAIRMAN. In any event, on this side we are going with the 

next Senator. I think that is Senator Alexander. Senator Thomas, 

you are next on this side, Senator Akaka on that side. 

Senator ALEXANDER. Thank you, Mr. Chairman. Thanks to all of 

you for very helpful testimony. I am going to ask several questions 

and if you could give me short answers, I can get more questions 

in because this is a learning experience for all of us. 

I greatly appreciate Senator Bingaman’s question about the efficient dispatch of natural gas. We have lots of old inefficient gas 

plants around and we have lots of new gas plants around. The 

principal driver for demand of natural gas is the fact that in the 

1990’s almost all of our new plants for electricity were natural gas. 

57

So, Mr. Liveris, what should we do about the efficient dispatch 

of natural gas, and how much would that help in terms of stabilizing the price of natural gas? 

Mr. LIVERIS. Thank you, Senator Alexander. 

There is no question that combined heat and power, co-gen, facilities are the most efficient, technically proven, and they should 

be given priority to dispatch into the grid. There are also combined 

cycle power stations that we could actually put in front of single 

fire-powered stations. So what I am really saying is that there is 

a priority. There is a tier. 

To be very brief, this could free up 644 bcf of gas. 

Senator ALEXANDER. How much gas is that? Can you give us 

some way to imagine it? Is that a little bit or is that a whole lot? 

Mr. LIVERIS. Well, it is a lot. I totally agree with the comment 

that this is a complex solution, and this is one part of it. So it will 

not solve everything. The studies we did when we brought this into 

the componency, LNG, more OCS gas, when we put all that together, we can solve the problem. But some will be 2 years. Some 

will be 5 years. Some will be 10 years. 

Senator ALEXANDER. What is the timeframe for us to deal with 

the issue of automobile fuel efficiency? 

Mr. LIVERIS. A 0-to-2-year timeframe. It will not solve the probably immediately. Natural gas prices will stay up high for a while, 

but the futures markets will start to see that we have taken action 

to actually be more efficient and increase——

Senator ALEXANDER. But there are not very many things that are 

in the 0-to-2-year timeframe that make much difference. Is that not 

correct? 

Mr. LIVERIS. There are not. Correct. But your action—your action—will signal to the futures markets. Why did it go up instantaneously? It was basically demand destruction that is going on. Fundamentally it is saying, go away at $14, because it will not get any 

more supply anytime soon. If we work on OCS today and we get 

gas in the 2-to-5-year timeframe, the futures market will bring that 

price down. 

Senator ALEXANDER. You said the cost of raw material, natural 

gas, was 50 percent of your cost of production today. What was it 

5 years ago? 

Mr. LIVERIS. Twenty-five percent. It has doubled. 

Senator ALEXANDER. May I move to Mr. Cavaney with a different 

point? Senator Johnson and I introduced a bill called the Natural 

Gas Price Reduction Act. Senator Domenici and Senator Bingaman 

and others took parts of that and added many ideas of their own. 

In a way you could say that the energy bill that we passed 2 

months ago was a natural gas price reduction act because it was 

conservation and then alternative energy and then new supplies, as 

well as other things. Now I think we need to have more aggressive 

conservation, more aggressive new supplies. 

Let me ask you very specifically about one idea: Lease 181. Lease 

181 is basically a line, I believe, that could be drawn in the Gulf 

of Mexico between Florida and Alabama. Is that correct? 

Mr. CAVANEY. Essentially, with a few variations, yes. 

Senator ALEXANDER. Does the President today have the authority 

to draw that line? 

58

Mr. CAVANEY. In concert and consultation with you all, yes, he 

could do that. 

Senator ALEXANDER. So, does he need any new legislation in 

order to draw that line? 

Mr. CAVANEY. I would have to check and get back with you. I am 

not exactly sure it is precise in terms of how you interpret it. You 

would have to talk to the legislative counsel here, as well as at the 

White House. 

Senator ALEXANDER. Well, would you let me know what your 

opinion is? 

Mr. CAVANEY. I will. 

Senator ALEXANDER. Because my opinion is that the administration could draw the line. 

Mr. CAVANEY. It is our understanding it can be lifted, yes. 

Senator ALEXANDER. If the line were drawn and if it were 100 

miles away from Florida, which is further away from Florida than 

Cuba is, for example, how much natural gas might be found on the 

Alabama side of the line? 

Mr. CAVANEY. We cannot be exactly that precise, but it is known 

and there is enough exploration that has been done that the eastern part of the gulf, the area you are talking about generally, is 

considered to be the most gas-rich part of the gulf. Therefore, there 

are some very, very rich, almost exclusively dry gas deposits of significant size, closer in, but that also indicates to the point—as I 

said, everything over there in that area—you are talking about 

181, which is why it was so attractive when we were attempting 

to get it. 

Senator ALEXANDER. Can you give me any rough idea of the dollar value or of the amount of gas? Mr. Liveris was trying to estimate how much natural gas efficient dispatch might save. Could 

you either later or now——

Mr. CAVANEY. Yes. We can get that to you. We could tell you 

about various elements. The closer-in gas is more significant, but 

out beyond 100 miles, we can break that out. 

Senator ALEXANDER. Well, my sense is it is a huge amount of 

gas. 

Mr. CAVANEY. A huge amount of gas. 

Senator ALEXANDER. Is it probably the first place to go to get the 

largest amount of new natural gas most quickly? 

Mr. CAVANEY. Yes, it is because it is also closest to some of the 

most attractive and needful markets. 

Senator ALEXANDER. How long would it take? This is my last 

question, Mr. Chairman. How long would it take if the President 

drew the line for the gas to be drilled and be into the market and 

would that not have some effect on the futures market and begin 

to help stabilize gas if the market knew that that gas was coming? 

Mr. CAVANEY. There is no question it would send a very powerful 

signal. I want to associate myself with the comments before. The 

signal that is being sent by public policymakers in America is natural gas is not something you should count on at $14. And if we 

do not turn this around, you are going to have demand destruction, 

the likes of which we will not even to be able to calculate. Once 

you move those people away, they will not be here. 

59

I did want to tell you that the President does have the authority 

to move that through MMS. They would have to go through their 

lease sale. There are already some leases along those areas that 

could be used, but it is very, very important to reinstitute that part 

of the lease sale. Then you could do it and they could be up within 

probably 5 to 7 years. 

Senator ALEXANDER. So, Mr. Chairman, as I hear him, in plain 

English, we do not have to pass a law for the President to draw 

a line on 181, which would produce a huge amount of natural gas 

and send a signal to the market. 

The CHAIRMAN. I heard it. 

Senator Smith had an observation. 

But let me just say you asked them to give us the estimates of 

what we could count on if this occurred. We can also get that from 

the Federal Government. I think as an aftermath we should do 

that. We should have that in here. 

Yes, Senator Smith. 

Senator SMITH. Mr. Chairman, I wonder if I could ask my colleagues—I know I am not next—if I could ask one question to 

throw in the mix of this because I do have to leave now. 

The CHAIRMAN. Senator Akaka, is that all right with you? 

Senator AKAKA. Fine. 

The CHAIRMAN. All right, Senator Smith. We are going to hold 

you to one question. 

Senator SMITH. Thank you, Senator Akaka. 

Gentlemen, we talked a lot about natural gas and the problem 

and how it is being used to create electricity, frankly, rather inefficiently. But that has all been driven, in part, by Government policy 

to meet the Clean Air Act. But the Government owns many assets 

that are non-polluting, non-global warming, if you will, nuclear, 

and specifically hydro. These are assets that run at half speed at 

best. 

Are any of you aware of the administration taking any efforts to 

utilize these power assets to get us through this, at least in a brief 

period of time? 

[No response.] 

Senator SMITH. Thanks, Mr. Chairman. 

The CHAIRMAN. Senator, what public assets are you talking 

about? 

Senator SMITH. Well, Mr. Chairman, obviously we have capacity 

in hydroelectric that is limping because of environmental restraints 

on it. We could light up most of the country if these assets were 

utilized. I just wanted to make that point. We are in an emergency 

and maybe there is a brief period of time we ought to use what we 

already have to help the American people get through this crisis. 

The CHAIRMAN. As we ask questions, you might ask Mr. Curtis 

what he thinks about that. That would give us an idea. We will ask 

you in a while. 

Mr. CURTIS. At the risk of feeling like the skunk at the party 

here, I——

The CHAIRMAN. Wait a second. 

Mr. CURTIS. I am sorry. I will wait my turn. 

60

The CHAIRMAN. I was not going to ask you to comment now because that is not his question. Let us go on here. That is a question 

somebody is going to ask you. 

Senator Akaka. 

Senator AKAKA. Thank you very much, Mr. Chairman. 

Since we are talking about natural gas, let me ask an easy question to Mr. Helms. Some industry analysts have posed the idea of 

a strategic natural gas reserve that could be used in times of supply emergency, as we have now, and similar to the SPR, Strategic 

Petroleum Reserve. What are your pros and cons of this idea? 

Mr. HELMS. Senator, I think it is very important for this country 

to have a robust storage backbone, if you will. The challenges for 

our industry to develop that storage is the same thing as my colleague to the right said, that it takes a certain amount of base gas 

to provide the pressure to produce the gas that you put into storage, and at $14, there are no economics in the world that will permit you to do that. It takes storage development from inception, 

through permitting and construction, between 2 to 3 years to be 

able to get there. 

The industry has gone through a period of deregulation over the 

last 15 years where the interstate gas transmission companies used 

to be the supplier of the natural gas to the market. Today that is 

not the case. So the storage is held by others, local distribution 

companies, and users like Dow, and also trading and marketing 

companies. 

So I think the issue really gets to where do you want to have the 

storage, who is going to go ahead and buy the gas to put it in storage, and then in those periods of time that you need to allocate or 

withdraw from storage, what is the mechanism or the processes 

and procedures to do that. And we do have a very competitive market today. 

Senator AKAKA. Mr. Liveris, would you have a comment on this? 

Mr. LIVERIS. I would just reinforce what Mr. Helms said. There 

is no question it will be a powerful signal. More storage will reduce 

volatility. But the issue is the $14 number, which is why the 181 

question and why the whole notion of releasing OCS becomes so 

powerful. Increased supply will lower price in the futures. Then 

you can start working on storage as a check against future vulnerability, which is really the key. You will never ever get there the 

way we have with petroleum, though. 

Senator AKAKA. Thank you. 

Mr. He ́bert, as you know, I have just returned with my colleagues from New Orleans and Baton Rouge and was struck by the 

contributions of Entergy employees during the hurricanes and the 

needs and challenges facing the company to rebuild and provide reliable electricity to the region. You have eloquently mentioned that. 

With respect to Federal assistance, can you expand more about 

the unique circumstances in your case and why Entergy in New 

Orleans should receive Federal financial assistance? Are you suggesting this kind of financial assistance be available for any utility 

that suffered a severe natural disaster, or do you see this need limited particularly to New Orleans’ case? 

Also, you mentioned in your testimony using community development block grants as a way to provide Federal assistance to utiliVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00064 Fmt 6633 Sfmt 6602 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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ties, citing assistance to Consolidated Edison and other utilities as 

a precedent, and provided suggestions on how to improve the block 

grant process. Even without a streamlined distribution process and 

targeting language would financial assistance through block grants 

still be a helpful form of assistance or are other options needed? 

Finally, do you have further ideas on additional mechanisms for 

Federal financial assistance? 

I know I have many questions here. If you choose to, you can answer some of it because of time, and you can provide responses for 

the record. 

Mr. HE ́ BERT. Senator Akaka, thank you. What I will do, at the 

committee’s request, is answer a couple in about a minute and then 

provide for the record a more detailed answer because that is the 

crux of why I am here. 

I think fundamentally it is an equity argument. As we look at 

this—and now we understand that transmission and distribution is 

something that is not insurable within any reasonable means after 

hurricane Andrew—is it fair to continue to distinguish between 

customers and say that customers of one group, if you live in one 

area, your rates get to stay low because you get Federal assistance; 

if you live in another area, you do not? I think that should be 

changed. So having said that, I think that answers the simple and 

easy question. 

As far as Entergy-New Orleans itself, the reason it is different 

is that for the first time in American history, an American city, an 

entire city, an entire utility operating company, has been taken off 

the map. We have no revenues. We have nothing. We need immediate assistance there, and that is why something like waiver of 

Stafford or quick legislation, something to give an immediate cash 

infusion of, say, $475 million or somewhere close to that, would be 

sufficient. 

The community development block grants would be more in line 

with doing similar to what you did for ConEd after 9/11, understanding that we do not want to raise their rates either. So spread 

that among the other investor-owned utilities. I think that would 

be the fair approach. 

But I will give you a much more detailed answer. But I think the 

bottom line is, should not all customers be treated the same? 

Senator AKAKA. Thank you for your response. 

The CHAIRMAN. Senator Akaka, would you yield? 

Senator AKAKA. Yes. 

The CHAIRMAN. I do not want you to answer, Mr. He ́bert, but I 

just want to make an observation. I understand clearly the unfairness or the lack of equity and have great empathy. But I think 

when you tell us you have no customers, the issue then comes, are 

not some of them never going to be customers? Have they not 

stopped being customers in the future because of what has been destroyed? That would have to be taken into consideration as part of 

some plan. I saw it and all those houses that are not customers 

now—and that is well over two-thirds of the customers, not twothirds of the use—many of those are never coming back as users. 

I do not know what other people think. 

Mr. HE ́ BERT. Yes, sir, Mr. Chairman. The people of New Orleans 

would never ask you to give them money for something they did 

62

not do. If we do not restore an area, we certainly would not have 

costs. 

The CHAIRMAN. I understand, but it might lower the price too because you might not have to do all of it. 

Mr. HE ́ BERT. Let us hope so. 

Senator AKAKA. Mr. Chairman, my time has expired. 

The CHAIRMAN. The next Senator is Senator Thomas. 

Senator THOMAS. Thank you, Mr. Chairman. 

Mr. Cavaney, we hear from the industry that there will be an 

adequate supply of natural gas for the winter. Is that a valid statement? 

Mr. CAVANEY. As best we can tell—and obviously, the biggest 

variable is always the weather. If you get an extremely harsh winter, there will be strains on the fuel supply that will be exceptional. 

But if we have a normal winter or just moderately colder than normal, we think that there is going to be enough fuel available, natural gas, home heating oil and the like, that we will be able to 

work our way through that. 

Basically it has already been announced by EIA that the cost of 

those fuels is also going to be very high, about 40 percent higher 

than normal. So at least the way it is right now, we are hoping 

that the availability will continue. The cost will be high. 

Senator THOMAS. Well, is that the relationship? Because the 

availability is there, you would not—what was the cost 3 months 

ago? 

Mr. CAVANEY. This projection was pretty much—you could see 

this getting——

Senator THOMAS. What was the cost 3 months ago? 

Mr. CAVANEY. I do not know exactly. I can find out for you. 

Senator THOMAS. It was not $14. 

Mr. CAVANEY. No, it was not. But natural gas also interacts with 

home heating oil and with propane. There is a mixture and they 

all interplay with one another. So one price does not make one 

market. 

Senator THOMAS. Well, I guess you cannot help but wonder sometimes if there is enough of a product, why is there that much of 

an increase. It begins to make you wonder a little. 

Mr. Helms, maybe it has something to do with transportation. 

Now, you are in the transportation business, so obviously you want 

to use gas as much as possible. 

Mr. HELMS. We certainly want to transport it, and I will tell you, 

Senator, that our people are doing everything they possibly can to 

get it in. 

Senator THOMAS. What is the capacity to do it? 

Mr. HELMS. We can do it, but if we do not get the gas processing 

plants at Venice, at Toka, and Wyclosky, Louisiana, for three examples, back online, we cannot transport the gas. So my colleagues 

upstream can do everything they want to get the gas flowing, but 

if it is not processed, it cannot go downstream. 

Senator THOMAS. But he said there is going to be enough, I believe. It means it is already processed. Now, there is some confusion here as to whether we are short of a product or whether there 

is a product there. And then you say, well, how come the price has 

gone up quite as much as it has. 

63

Mr. HELMS. Sure. Senator, first, let me tell you we have no direct 

economic interest in the price of the commodity. We do not own it. 

We do not take title to it. 

Senator THOMAS. But your ability to transport it has something 

to do with it. I am from the West where there is production, and 

some of the reasons why more production is not there is because 

we do not have the transportation to get it out. 

Mr. HELMS. Right. We have the infrastructure in place. Our infrastructure has been damaged significantly. 

Senator THOMAS. Not in the West it has not. 

Mr. HELMS. We are working hard to put the pipes back in the 

ground. The problem we have is we cannot find lay barges. I cannot get a dive boat out to my Vermillion 245 platform because 

those dive boats are being used in other sectors of the industry. 

Senator THOMAS. One of the things we have to be looking at is 

the future a little bit. I know, first of all, we have an impact immediately, obviously. For instance, you talk about the generation. You 

know there are some other ways to generate electricity besides gas. 

Indeed, given the whole market, there is probably a better reason 

to be using coal than there is gas. We have more availability of 

coal. So that is one of the things we need to be doing, making some 

differentials between the use of the available energy. 

So I hope that we are thinking a little bit about the future in 

terms of how Dow has to have gas for some of their manufacturing. 

You mentioned we have not had generation plants built recently. 

We have not. And the ones that have been have been smaller ones 

close to the market because we have not had the transportation to 

get them there. So I guess what I am saying is we have some obligations to look at in the future, not just talk about gas, but the use 

of gas, and so on. 

Yes, sir. 

Mr. LIVERIS. If I may, Senator. 69 percent of the gas processing 

capacity is down. So there is not enough gas to be provided. So 

what happens is even if you say that the rigs can pump the gas 

out, he cannot get the extracted gas to us. What that means then 

is demand destruction. The price 3 months ago was $8 in the futures market. Today it is $14. People were thinking already with 

the cold winter, followed by a hot summer, there would not be 

enough gas to supply through these processing plants. Period. So 

there is true shortage upstream. There is processing capacity down, 

and at $14 people are shutting down. The plant you saw at St. 

Charles yesterday is going to be kept down for 4 months through 

the winter. We have no choice. I cannot get the gas. 

Senator THOMAS. And there is not enough gas available, which 

is what we hear. 

Mr. LIVERIS. At $14 I cannot run economically, so I have got demand destruction. That is really the answer. 

Senator THOMAS. I am not talking about the price. I am talking 

about the availability of the product. 

Mr. HELMS. Senator, 7 billion cubic feet are shut in today as a 

result of the storm. It is not flowing. We cannot get our liquid separation plant operable for another 5 weeks. It had 8 feet of salt 

water under it—every pump, every motor, every electrical piece of 

equipment. And we are not alone. The refineries, Entergy, my colVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00067 Fmt 6633 Sfmt 6602 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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leagues on both sides have the same demands for the electricians——

Senator THOMAS. What is the total demand in the country? 

Mr. HELMS. About 60 billion cubic feet. 

Senator THOMAS. Yours is 7. Yours is 10 percent that is shut 

down for a while. 

Mr. HELMS. We will get some of that back on by November and 

by December and January, but I would not be honest with you if 

I said we will have all seven back on by November 1. 

Senator THOMAS. I guess I am just trying to really get a determination as to whether this kind of a price increase is relative to 

the amount of gas that is available. Frankly, I guess that is a hard 

question, but we need to talk about it some more. 

Mr. HELMS. It is that marginal supply. It is the incremental supply that sets the price for the balance. Our local distribution companies have gas in storage and they have continued to buy at $7, 

$8, $9, $10, $14 to make sure that consumers have gas this winter. 

Senator THOMAS. I see. Thank you. 

Senator ALLEN. Mr. Chairman, I have conferred with Senators 

Burr and Martinez. I have to be on the floor to argue on an amendment very shortly. I thought this would move more quickly. If I 

may, if I could pose my questions now. 

The CHAIRMAN. Sure, you are next. 

Senator ALLEN. All right. Thank you to my colleagues from 

North Carolina and Florida. 

Several things. Gentlemen, thank you all for your testimony. It 

was very probative and I think very helpful, and I think we need 

to move forward on a variety of these fronts. 

One thing Senator Burr and I are working on has to do with gasoline. I am going to talk about gasoline and then natural gas. 

The Government Accountability Office did a study on all the different fuel blends we have in this country, over 100 fuel blends. 

What Senator Burr—and I am sure he will talk about this—and I 

are looking to do is reduce it to the, say, three to five cleanestburning fuels, formularies. Non-attainment areas pick from those 

fuels as opposed to having 100 different ones. 

Indeed, all of this was predictable. In June 2005, the Government Accountability Office said because of the inflated number of 

fuels that we have in this country, it adds complexity and costs at 

refineries. Shipping more special gasoline blends reduces pipeline 

capacity and raises costs. The special gasoline blends contribute to 

higher and more volatile prices. Gasoline prices are higher now 

than they would be if gasoline were closer to a single commodity. 

This is something I think we need to work on. It will be good for 

consumers, but it also makes sure that in non-attainment areas 

they have clean-burning fuels, working with those communities 

where they have non-attainment areas. 

Second, natural gas. Listening to Mr. Liveris, you are saying the 

same thing I say all the time. We are losing jobs every month in 

this country for people who manufacture tires, chemicals, fertilizers, masonry products, and other important products. Natural 

gas permitting, as was said earlier by one of the other questioners, 

in my view, needs to be used for homes and for manufacturing. We 

need to be generating electricity maybe out in the West with hydro. 

65

But we are the Saudi Arabia of the world in coal, and we ought 

to be using clean coal technology. We also need advanced nuclear, 

and we also ought to learn from what the French are doing in reprocessing that spent fuel so it is less dangerous, safer, and more 

efficient. 

In my view, if we were able to do this, there would be less of a 

demand for natural gas for electricity generation and more available for manufacturing, so that companies are not going overseas 

where they have lower prices and a more reliable and more affordable approach. And if they leave, these chemical and fertilizer and 

tire manufacturers, they are not going to come back in here. 

I know this is a controversial issue. I was Governor of Virginia 

at one time and certainly respect the rights and prerogatives of the 

people in the States. The fact of the matter is on the east coast of 

the United States, there may be good supplies of natural gas. It is 

being explored in the Bahamas and in Nova Scotia and possibly 

also Cuba. Florida does not want exploration off their coast. I support Senator Martinez and the will of the people of Florida. However, the people of Virginia, through their representatives, in a bipartisan coalition would like to have exploration far off their 

coasts. If Virginia or another State would like to do so, I do not 

think they should be precluded. 

I also believe that it is very important that we, the Federal Government, share it with the States. My proposal is that they use it 

for reducing college tuition, use it for transportation infrastructure, 

and either beach replenishment or shoreline erosion in Virginia. 

I think that this crisis, as Mr. He ́bert said once in 100 years, recognizes that a lot of progress was made in our energy bill. More 

needs to be done. We have the platform there, but if something is 

not done quickly on some of these fuels that Senator Burr and I 

are working on and I think also increasing the supply of natural 

gas, we are going to be hurting our economy and jobs. We are going 

to clearly continue to allow our companies to be at a less competitive advantage or have less of a level playing field. Ladies and gentlemen, this is a national security issue as well as jobs in our economy and competitiveness. 

So if any of you all have any comments on these ideas, I would 

like to hear from you all. 

Mr. CAVANEY. Senator, speaking on behalf of the refiners and the 

American Petroleum Institute, we have mentioned this and talked 

with Senator Burr on a number of occasions. We strongly support 

a significant reduction in the number of boutique fuels. We think 

that will add great fungibility to the system. It will make fuels 

more readily available. We would love to be at the table when there 

are discussions about this and work in a positive way to continue 

to make the environmental gains we have made with cleaner air, 

but also to get the number of fuels down. We do not know what 

the magic number is, but it is somewhere down in the mid single 

digits. Probably realistically you can satisfy most of the individual 

State needs and still get those numbers reduced. 

I would like to say another thing. We support the opt out sort 

of opportunities that have been promoted by some for States that 

do not want to be a part of the moratoria and would like to participate. I would like to just make one warning. We represent the peoVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00069 Fmt 6633 Sfmt 6602 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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ple who explore and actually produce natural gas and the crude oil. 

In order to permit, obtain everything, get the necessary stuff to do 

the exploratory after the seismic, and determine whether or not 

you have got something that you actually could produce on, as a 

company, you are probably going to spend somewhere between $60 

million to $80 million. Technology today does not allow you, in the 

exploratory process through seismic, to be able to determine whether you are going to go in gas only or whether you are going to pick 

up some crude oil or gas liquids or other things. 

So we just want to make sure that the people who are promoting 

gas only understand that there may be a bit of a false promise 

there. You could win and opt in, but with that provision, it may 

be far, far too expensive and too high a risk to have anybody to go 

out there and dig rigs. 

What I would like to just point out is if you look at this 100-year 

experience that we had in the gulf here, there has not been one single leak of crude oil into the gulf from production, let alone natural 

gas. So I think we have more than proved that we can operate in 

a safe kind of environment, and we hope that we will be able to 

work together on this opportunity for States that do want to opt 

out and have some production off their coasts. 

The CHAIRMAN. Senator Allen, I am going to let you go first this 

time. 

Senator ALLEN. All right. Mr. Curtis and Mr. He ́bert. 

Mr. CURTIS. I would just like to touch on a couple of points. 

The CHAIRMAN. Let us make sure I understand. 

Senator ALLEN. They are answering my questions. 

The CHAIRMAN. Yes. Is Mr. Curtis to answer your question? 

Senator ALLEN. Yes, and then Mr. He ́bert. 

The CHAIRMAN. Fine. Go ahead, Mr. Curtis. 

Mr. CURTIS. I will be very brief. 

I made my comments at the beginning and I would like to repeat 

them now. Everyone supports the notion of a balanced energy plan. 

We talked about energy conservation, and then for the last 45 minutes of questions, it has all been about more production. I would 

like to bring you back to the immediate gains available from energy 

efficiency and conservation and just remind people that we need to 

do that. 

I think one of the challenges I would like to extend to the committee is that I think one of the reasons you are hearing this is 

there are no economic actors at this table who stand to benefit from 

promoting energy efficiency. All these gentlemen represent great 

companies that make lots of good money and do lots of good stuff, 

but they do it by producing energy. There is nobody here that 

makes money by producing energy efficiency or renewables. 

The CHAIRMAN. Mr. Curtis, we are so pleased that we started off 

by saying we are together for a change, and we want to stay together. Okay? 

Mr. CURTIS. I do too. 

The CHAIRMAN. So if we do not have the right people here, it 

does not mean that we do not want to get the best information. So 

if we need to have a different array of people with you to tell us 

about this, we want them. 

67

Mr. CURTIS. That is terrific, and I look forward to working with 

you and your staff to try to give you some suggestions. 

The CHAIRMAN. Because we need them. 

Mr. CURTIS. I agree. 

The CHAIRMAN. Okay. 

Mr. CURTIS. Let me just stop there. 

Mr. HE ́ BERT. I will just jump in quickly. To answer Senator Allen’s question, I think Mr. Curtis has got some real good merit 

there, and so does Red, obviously, but I think it is a combination 

of all of that. 

I apologize for getting a little emotional earlier, but it is my family, it is my friends, and I am down there in the middle of all of 

this, and it is a tough time. But we have kind of learned to be gatherers again. At night you go out and you make sure you have 

enough gasoline for the next day, enough water, and enough ice, 

and it really makes you focus kind of on pure economics again. As 

we know, the economics of price have everything to do with the 

functions of supply and demand, and you hit on that. And you are 

right. 

But there are some easy-to-grab fruit out there for us. Senator 

Burr and I have had this conversation. I had it with Senator 

Domenici as well. At the Nuclear Regulatory Commission right 

now, if you want to ease some burden on natural gas—like our 

Vermont Yankee plant right now. We have already reconfigured 

our fuel. We have 95 megawatts of up-rate capacity that within 3 

or 4 days I could have flipped on. You could relieve that pressure 

on some of these gas systems. I do not know how much is at the 

NRC now. I told, I think, Senator Burr the other day around 500. 

Some think there could be as many as 1,000 megawatts of up-rate 

capacity at the NRC, and as long as that is done safely and securely—I have every reason to believe it is—that is something that 

we could get out there quickly and could help us on these gas 

prices. So I would submit that to you. 

[The following was submitted for the record:]

In the question and answer session at the end of the hearing, the discussion shifted to higher natural gas prices and the importance of nuclear energy in providing 

an alternative to natural gas in the future. I mentioned the reactor upgrades pending at the Nuclear Regulatory Commission and the hope that those upgrades would 

be approved in a timely manner to help deal with high natural gas prices, particularly in the Northeast. I am happy to report to you that the NRC has approved a 

20% upgrade in the operating capacity at our Vermont Yankee Plant, saving approximately 7 million MMbtu’s of natural gas a year. This will save the Vermont 

consumers over $70 million a year.

Senator ALLEN. Thank you. 

The CHAIRMAN. What we need to do is we need something from 

you. That may not be something for us. It may be something for 

somebody else who is holding it up, the States or something. We 

need to know whether we should be involved. So would you let us 

know? 

Mr. HE ́ BERT. Yes, sir. I am certainly not blaming the NRC. I 

think it is resource agencies and things of that sort. 

The CHAIRMAN. But if it is so, this is not the time to have that. 

Mr. HE ́ BERT. Correct. 

Mr. LIVERIS. Mr. Chairman, if I can. Senator Allen, I think you 

did a great job summarizing all the components of a multi-dimenVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00071 Fmt 6633 Sfmt 6602 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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sional energy plan on top of the energy act that was passed 2-3 

months ago. If I add support—and I think we are together, Mr. 

Chairman—to Mr. Curtis’s conservation point, which is a here and 

now, I think you have all the components we need. What you said 

plus conservation, we will get a solution for America’s problems 

and keep jobs here. 

Senator ALLEN. Thank you, sir. Thank you all. 

The CHAIRMAN. I have been at this hearing for all the time, but 

I stepped out and I did not hear the distinguished Senator. So he 

just discussed the solutions. 

[Laughter.] 

The CHAIRMAN. I am very sorry. I am not part of the solution. 

Right? 

[Laughter.] 

Senator ALLEN. Mr. Chairman, we cannot do it without you. 

The CHAIRMAN. I know that. I am quite sure that we cannot have 

a meeting without me, but that is the only reason I am important. 

[Laughter.] 

The CHAIRMAN. In any event, let us move along here. Who is 

next? Senator Salazar is not here, so we have Senator Burr. 

Senator BURR. Thank you, Mr. Chairman. 

So much has already been said, but I think all of you alluded to 

the fact that predictability is the No. 1 challenge for us. I take us 

backward just a little bit to remind you that we did pass an energy 

bill, and I think the focus of that energy bill was to make the future short-term more predictable for business, for producers, for environmentalists. My belief is that we can move forward. We can 

move forward with conservation. We can move forward with new 

supply. And both can be done in a complementary way. We can live 

by the rules that are out there. The only thing it needs is coordination. I think, in its own weird way, disasters bring people together 

where we communicate for once versus all staying in our little 

holes. 

Mr. Cavaney, I appreciate the comments on the boutique fuel 

issue, and we will continue to work with you to try to refine that. 

I received an email this week that disturbed me from one of my 

gasoline retailers in Winston-Salem. He is considered an 

unbranded retailer. In his email, he described to me a scenario 

where we have gone through a period of time where unbranded retailers have paid as much as 50 cents a gallon more for gas than 

branded retailers. I think you referred to that in your testimony as 

price inversion. 

I guess my question is quite simple. Can you explain to us why 

price inversion occurs? Describe for me, if a supplier supplies their 

name stations 50 cents cheaper than they supply a station that 

does not have their name on it, why that is not price gouging? 

Mr. CAVANEY. But you have to look at each circumstance. The 

first question you have to ask is usually—usually, not always—

what happens is the branded stations operate under a contract. 

They have a contract, which means at a certain price, which is 

flexible to some metric that they have set. They can be pretty assured of having a supply. Many unbranded do not operate under 

contract. They work off the spot market, and when there is plenty 

of fuel available, they actually have a good deal and they can go 

69

many, many years actually being able to purchase gasoline at a 

lower cost than somebody who is under contract often, and that is 

their competitive advantage. 

But it works the other way when prices invert and they go high, 

and it is economics 101. What you are now talking about is you are 

getting sparse supply, and therefore the price to bid up that incremental gallon of gasoline can go literally through the roof. 

So we try and point out—and I have testified to this effect—just 

because two gas stations are across the street from one another 

and one guy’s price is 60 cents per gallon higher than another does 

not automatically mean that that person is gouging. He may well 

be trying to collect just as much overhead as the other person and 

being able to try to recover his costs. So it is a function of what 

choice the independent businessman or woman actually makes. 

The owned and operated, which means by the refineries, we own 

the station and we operate them, are well less than 10 percent. So 

over 90 percent of the decisions that are made on how I want to 

purchase my gas and under what terms is made by independent 

businessmen and women. So you cannot generalize on this, but this 

covers I think, Senator, most of the cases. 

Senator BURR. I hope you understand the purpose of asking the 

question. I think if this were 10 cents or 12 cents—50 cents is 

huge. I think this retailer has a reason to question it. I think the 

American public has a reason, when there is a 50 cent difference 

from one station to another, to pick up the phone, call their attorney general, and say there is a guy here up on the corner that is 

price gouging. Our job is to try to make sure that, in fact, that is 

not happening. 

Again, I think everybody alluded. This is a once-in-a-century type 

of deal. We have certainly had some shortages before. We did not 

see that drastic a move, and clearly we did not see it as fast. If 

there is a better way for the system to set up—I am not sure that 

it is necessarily responding to the market. It is responding to whatever contracts existed before. We had the reverse of that in California as it related to an electricity shortage, and it was not existing contracts. It was the one that California went out and negotiated in the midst, and it caused a back-end problem. 

But I thank you and I appreciate your willingness to look into 

that. 

Let me make a comment, if I could, in the time that I have left 

about the rigs in the gulf. It was, I think, a pleasant thing for all 

of us to see, that the technology that we have been told about 

worked, that the rigs themselves did not leak at the platform or at 

the wellhead. I think this is something that has not gotten enough 

press on. As a matter of fact, I have seen some press accounts of 

a certain number of gallons having polluted with no explanation 

that that came from onshore storage and not from platform destruction. I hope the industry will get that word out there. 

Mr. CAVANEY. Yes, sir, Senator. There are over 33,000 miles of 

pipeline on the seabed of the Gulf of Mexico, and every bit of it 

held together. So that is even more important. 

I think one of the things we will be finding, though, is already 

several companies have talked about absorbing huge amounts of 

write-offs that they are going to have to do to replace all this and 

70

the costs. So we are just beginning the exploratory process of finding out the cost side of what all this has done. We are not asking 

for the Government to help fund or do anything. This is our stuff. 

We are going to pay for it. We took the risk with our insurance 

companies. 

So it is a great story and hopefully it will give comfort to these 

opportunities to look to other areas on OCS and elsewhere we 

think we can operate in an environmentally responsible way. 

Senator BURR. I thank all of you. 

The CHAIRMAN. Now, with the Senators’ permission and consent, 

I passed over myself, so I am going to use a couple of minutes, and 

then I will get back to the next Senator, which I think is Senator 

Martinez. 

But I will first say, Senator Martinez, there has been a lot of discussion about things very dear to you here today. We welcome you 

on the committee so you can be a voice, but we think we have 

heard that we have got to do something about offshore drilling. We 

will share what we plan to do with you, obviously. But there is no 

question that things are at a crisis and something must be done. 

Now, let me make first an observation. Mr. Liveris, I am so both 

impressed and frightened about your testimony that I can only 

wish, which is only going to be a wish, that somehow opinion makers could hear what you had to say. We are a small group of opinion makers. We speak so much in this country about losing jobs in 

the past and in the future because of competition overseas, and 

here we have right in front of us one of the huge remaining industries that hire and pay people big wages that is dependent upon 

natural gas that cannot save any more. We speak of conservation. 

Mr. Curtis has told us, and he is right. But in your statement, you 

said you have already increased efficiency to the tune of 40 percent, 

and the problems remain as you discussed them. Right? 

Now, frankly, I am very, very worried because I do not know, 

first, whether our country understands. I do not know what we can 

do about it, and I am not sure that when we try that we are going 

to get it done. 

So could I ask you to recap one more time? And then I will move 

right along. You gave us four suggestions. Would you make them 

again please? 

Mr. LIVERIS. Thank you, Mr. Chairman. You said in your statement there something that I did want to actually make sure that 

it was understood. We profit from efficiency. 

The CHAIRMAN. Oh, I understand. 

Mr. LIVERIS. The 42 percent of savings that we have generated 

is through efficiency. We have done what we can. 

So the four things we are suggesting that should be done, which 

are really very, very key here, is that we absolutely, totally find a 

way to increase natural gas supply. 

The CHAIRMAN. Right. 

Mr. LIVERIS. And the Outer Continental Shelf—Senator Alexander and others have spoken very eloquently. State rights is the 

way to do it, and it allows Florida and elsewhere to get what they 

need to get for their constituencies. It is very critical. The redrawing of Sale Lease 181 we believe can be done without legislation. 

71

We think it can be done through Presidential intervention, and I 

think it is something that is within your hands. 

We have got some numbers. We can share them with you later. 

It is in our testimony. But if we released the area that is available 

and that is known, it will power 25 million homes for 15 years. 

Available today. 

The third is conservation and we need to declare a national crisis. We need to do it. I think the start has happened in the Energy 

Act. The President, Secretary Bodman, all of us. It is serious. Two 

degrees down on the thermostat, three LNG terminals. We talk 

about permitting LNG terminals and how long it will take. two degrees down on the thermostat for every American this winter, three 

LNG terminals saved or not needed to be constructed in the timeframe they need to be constructed. That is the 0 to 2 years impact 

of conservation. Very, very key. 

And then the efficient dispatch of electricity, which was referenced by Senator Bingaman. I think that needs a lot of investigation. I think our friends from the utility sector have a lot to say 

about it. I think we need deep drills—forgive the pun—to understand tier one of efficiency on the combined heat and power cycle, 

followed by tier two, followed by tier three. Those four things. 

The CHAIRMAN. Now, Mr. Curtis, the suggestion by Senator 

Smith about hydro. A brief answer, if you can. What would you 

think about it and what is right or wrong about it? 

Mr. CURTIS. The brief answer is I do not know enough about 

what he proposed to give an informed answer, so I will get back 

to you. So let me just stop there. 

The CHAIRMAN. I am not being facetious. Can we expect the 

same real open-mindedness that you have given us here today? We 

need to know that this is an emergency. 

Mr. CURTIS. It is an emergency. You will not get a knee-jerk environmental response. You will get a thoughtful one. 

The CHAIRMAN. That is terrific. 

Mr. CURTIS. Sometimes they are the same. 

[Laughter.] 

The CHAIRMAN. Look, you are so good at it that we are not going 

to know the difference. 

[Laughter.] 

The CHAIRMAN. Mr. Helms, in your remarks you suggested, I 

think, better ‘‘coordination,’’ which was the word you used, is needed in the restoration of gas production to help ensure adequate 

supplies this winter. Could you tell us how this coordination can 

be improved? We would like to help with that. How is it to be done? 

Mr. HELMS. I think really at this point, Mr. Chairman, there is 

a question about the interaction and sharing of information and 

prioritization of equipment between the upstream producers, the 

gatherers, processors, and the interstate transmission companies. 

Under the legislation which was passed, which was landmark and 

I think is good for this country, there was the imposition of civil 

penalties of up to $1 million a day for violation of the Natural Gas 

Act. I can assure you there are people in my organization that are 

very sensitive to that issue, and quite frankly, that has acted as 

an impediment in the short term for people sharing information. 

They are worried that they are violating the FERC regulations, 

72

and we had the opportunity to visit with the chairman of the FERC 

last week and raised that issue. We are beginning to get that dialog going. 

What we are finding is the producers cannot, for antitrust reasons, sit in the same room with each other to start talking about, 

well, where is my production, how long will it take to get my production in. And I think quite frankly, 4 weeks now after both of 

the hurricanes, we are beginning to hear some of the major producers disclose what production is shut in. It is very difficult at 

this point without having, if you will, a Federal agency as a clearinghouse to allow us to get in the room and say, I need a lay barge 

at Vermillion 245. That will get 400 million cubic feet of gas back 

into the system in 4 weeks. One of the things we need to do. 

Senator, I would be remiss if I did not raise this one point. One 

of my members, who is a western company, mentioned to me yesterday that if there was a relaxation on the drilling moratorium in 

the Rockies from November through March, that the industry could 

probably provide a billion cubic feet of deliverability by March of 

next year. That is an issue that I think needs to be raised and I 

think we need to take a look at it. That is something that can be 

done I believe administratively. 

The CHAIRMAN. Okay, if the staff can get that comment. Why is 

there a moratorium? Environmentally? 

Mr. HELMS. It is environmental issues, Senator. 

The CHAIRMAN. So we ought to take that up with the environmental community also in terms of no knee-jerk response. Do you 

want to answer right quick? 

Mr. CURTIS. No, I do not. 

[Laughter.] 

The CHAIRMAN. You are being tremendous today. Thank you. 

[Laughter.] 

The CHAIRMAN. Let me just ask any of you. We discussed this 

issue of economic dispatch. Is there not a problem with that, that 

the State PUC’s, public utility commissions, have been the ones 

principally involved in that and we would have to in some way 

overtake them or take authority from them? Does somebody know 

the answer? Quickly. I do not want a long discussion. 

Mr. He ́bert. 

Mr. HE ́ BERT. Mr. Chairman, that is part of the answer. Obviously, there are things such as regional transmission organizations 

are filing to basically do the same through our independent coordinator of transmission, which is before the FERC right now, that we 

would hope we would get final approval of pretty soon, and we 

have every reason to believe we are going to do that. It is going 

to make for more opportunities through the bidding process to try 

to get them to bid more into the system. So that is part of the answer, yes, sir. 

The CHAIRMAN. One last question. You know that chart you had 

up there with all the drilling activities out there in that area with 

two circles. 

Mr. CAVANEY. Yes, sir. 

The CHAIRMAN. Can you put that up there? I want to ask you 

just a dumb favor. Maybe your people have the technical skills. If 

not, maybe you could go to one of the laboratories, Sandia or Los 

73

Alamos. But I wonder if you could have somebody produce a new 

one and assume today’s drilling technology and tell us what that 

would look like with today’s technology. 

Mr. CAVANEY. Okay. 

The CHAIRMAN. I think it is possible and I think it would be terrific to be able to show that when we go to these other States, this 

is not going to be the case because it cannot be. One of those holes 

is going to take 20 wells and 30 wells. Can you do that? 

Mr. CAVANEY. We can. We will. 

The CHAIRMAN. If you have to spend a little money, spend it. I 

think we should see that. You have got a lot of money to spend. 

That is what it is for. Do not come up here and ask us. 

[Laughter.] 

Mr. CAVANEY. We will do it. 

The CHAIRMAN. Now we are going to go to the next Senator here, 

Senator Martinez. 

Senator MARTINEZ. Mr. Chairman, thank you very much. You are 

so perceptive because that is exactly the picture I have been focusing on. I must tell you that to see that off the coast of Florida and 

the eastern gulf scares me to death. I think it scares Floridians to 

death. If a picture in today’s technology would look dramatically 

different from that, I think that would be instructive and interesting and good to know. 

Let me just make a couple of comments and then I will have a 

question or two. But, Mr. He ́bert, I want to just tell you how much 

I appreciate that dramatic picture you have of those linemen getting people back in service. I very much appreciate the work that 

those people do, that they have done over the years oftentimes in 

the middle of the night with a spotlight trying to get service back, 

not in dramatic circumstances like Katrina, but just in everyday 

Florida thunderstorms in the afternoon or evening. A tree limb 

falls and there they are, and folks never even know, except for the 

blinking light on their alarm clocks, that the lights were out for a 

period of time while they were out there working. It is a dramatic 

thing to see how many people were out of power. 

Something I will point out is that I believe last year during the 

horrible series of hurricanes that we had in Florida, there were 

more customers out in Florida last year than there were this year 

as a result of Katrina and Rita. I think that is very telling that, 

again, with the cooperation and the help of linemen from South 

Carolina, from Georgia, from North Carolina, from Texas, from everywhere, and probably Louisiana as well, they responded to Florida and helped us get through our crises. I know the favor has been 

returned. It is a fraternity that works together and it is a very impressive thing to see. I can not only understand but appreciate 

your emotion as you talk about that. 

I had a question for you, Mr. Curtis. You mentioned in your testimony there were 7 million gallons of oil spilled as a result of the 

storms. Then I heard the chairman’s questions on the rigs, and I 

understand that they were not impacted by any spills. Please state 

clearly today where those spills occurred, how did they occur, and 

whether you can tell us too how it might be avoided in the future. 

It is a pretty dramatic amount of spillage. 

74

Mr. CURTIS. It is a lot of oil that was spilled, and I think by point 

of reference, I think the Valdez was 11 million and this was 7 million. It is my understanding—and I will double check it and provide it back for the record—it came from about 11 different major 

identified sites. It was storage on the land, and I think it happened 

at a bunch of different places. 

Senator MARTINEZ. I think the other point to talk about, though, 

is I heard you describe that there was not one leakage from the 

OCS. I have never heard that before. They are honest, but it is 

skeptical. I would like to go take a look. But there are lots of leakages that occur as a result of energy production, and it is not just 

at the well. It is through the whole infrastructure. I think as people talk about exploring in other parts of the Outer Continental 

Shelf or elsewhere, you have to look at the whole thing, not just 

the drilling. It is the transport. It is the storage and all that. That 

is where I believe a lot of the leakage came from. 

Mr. CAVANEY. I can comment on both parts of that. To speak to 

the latter, using government figures, the amount of leaks in the aggregate over about a 12-year period is less from the industry than 

the natural seeps in the gulf area. So it is fairly insignificant. 

The leaks that occurred were all onshore. Essentially what they 

were, they were tanks that were hit or punctured, whatever the 

case may be, and the leakage occurred in what are called secondary 

storage, all in the facility. So there are large berms that captured 

all of this. What happened was with the amount of water, storm 

surge rising and all that, it was so much, it came over these berms 

and actually displaced the oil and pushed it out into other facilities. 

Obviously, we can see this and we have been cleaning it up since 

them. But it does require us to take a look at and work with the 

Government on new approaches to this because the old system, 

even though it was once in a hundred years—we have never seen 

this happen before—it did happen here, and we do not like that 

kind of experience any more than the next person. 

So as we did with Ivan, which was the fierce storm of last year 

that you had mentioned happened down in Florida, we worked together with the MMS part of the DOI and the Government to have 

a lessons learned conference, and we will make available to the 

committee, if you would like, all the things we were trying to implement. Our problem was that Katrina and Rita came within 

about 60 days of that conference, and so there was little you could 

do. 

But one of the take-aways here is very clearly we need to look 

at the secondary berms and how we are going to be able to protect 

against this problem if we have another experience like this. 

Senator MARTINEZ. Mr. Curtis, then Mr. Helms. 

Mr. HELMS. Senator Martinez, thank you. I would like to make 

two observations. The first is the chart that you have referred to. 

That is a record of 50 years of offshore development and production 

off the coast of Louisiana, and the technologies have changed dramatically. 

My second observation is the network of gas pipelines, particularly the natural gas transmission lines, have had an exemplary 

environmental record. Quite frankly, I would like to see the facts 

and the figures and the empirical evidence that there has been an 

75

environmental failure of those pipelines and those plants in south 

Louisiana by either hurricane Ivan last year or Katrina or Rita. I 

think the facts will speak for themselves. 

Senator MARTINEZ. Mr. Curtis, do you have something else? 

Mr. CURTIS. One point I want to make is kind of the assumptions 

everybody is making in listening to this testimony, that it is a 

once-upon-a-century occurrence. It will not happen again for another 100 years is the implication. I sure hope so, but we cannot 

count on that. We cannot count on that at all. Industry should not 

plan on that. Government should not allow industry to plan on 

that. 

Whatever you believe about global warming—and this is not a 

global warming hearing—there is a lot of evidence from scientists 

and people that the ocean waters are warmer, storms will be more 

severe. There is a natural 20- to 40-year cycle going on. That may 

be very well compounded—I believe, but others can disagree—and 

exaggerated by global warming. All that is happening. 

Senator MARTINEZ. The science does not agree with you on that 

one. I am with you, but the science does not agree. I do not think 

we should link the two. 

Mr. CURTIS. But as we plan for the future, that should be, I 

think, one of the assumptions people look at. 

Senator MARTINEZ. I agree with the underlying premise. I just do 

not think that we can——

Mr. CURTIS. I agree. I am not trying to take you there. 

Senator MARTINEZ. Mr. Chairman, may I have just one brief final 

question? 

I would like to ask you, Mr. Cavaney, and maybe the others. Feel 

free to chime in. I have heard you allude to the crisis of the moment. Katrina was the trigger point of this. The part I do not understand is how drilling in the Outer Continental Shelf for either 

gas or oil relates to the current problem, which seems to deal with 

refinery capacity and transmission issues. I do not know how the 

people that are under salt water and are being replaced have a 

whole lot to do with what we do in the Outer Continental Shelf to 

avoid the crisis of the moment. When someone goes to a gas station 

tomorrow and they are paying $3 a gallon, the fact is—and I would 

like for you to agree or disagree—that that will not be impacted for 

any period of time in the foreseeable future by any exploration in 

the OCS. 

Mr. CAVANEY. Senator, we have fully agreed. Energy is very 

long-lived and has a long planning cycle in order for anything to 

happen. So there is almost without exception very, very little that 

can be done in the near term to change the dynamic. It will not, 

in and of itself, change the price at the pump or whatever. 

Now, what it will do is there is a lot of activity in what we call 

the futures market, in other words people hedging, speculation, 

looking at various kinds of things, and they try to factor in all the 

future risks and back that into a price in today’s market. 

What we have done as a country is we have basically taken off 

the table all the attractive places where natural gas can be gained 

within our country. So the signal we are sending is that we do not 

want natural gas. So as a result, people who are factoring in risk 

76

run up the price, particularly when you run into short-term problems like this. 

So my point that I wanted to make is we need to begin planning 

today so that if a circumstance similar to this occurs in the future, 

we will at least have in place more tools to deal with it and more 

flexibility than we have today. 

Senator MARTINEZ. But we could all agree that OCS drilling will 

not impact the current crisis we are in and, further, that conservation measures, as frankly we have already seen over the last several days, could in fact impact immediately what is taking place in 

the marketplace. 

Mr. CAVANEY. Absolutely. The most powerful thing we could do 

today is to have everyone ramp up their efforts at conservation and 

energy efficiency. No question. 

Senator MARTINEZ. So our focus for the immediate crisis ought 

to be at conservation, not OCS drilling. 

Mr. CAVANEY. We should have the discussion on OCS drilling because if we never talk about it——

Senator MARTINEZ. I understand that. But my question is simple. 

The current crisis is more easily resolved by conservation than 

drilling on the OCS. 

Mr. CAVANEY. To affect today, conservation is the quickest thing 

we can do. 

Senator MARTINEZ. We are here on Katrina, and if we are dealing with Katrina, the issues relating to Katrina really can much 

better be solved by conservation. 

Mr. CAVANEY. Absolutely. 

Senator MARTINEZ. Thank you. 

The CHAIRMAN. Mr. Liveris. 

Mr. LIVERIS. Demand destruction is part of conservation, Senator, and I think the answer to that question on the short term. 

Katrina just showed the issue that has been around for 5 to 7 

years. 

Senator MARTINEZ. I understand there are some underlying problems in our energy supply, in the refinery capacity, frankly in longterm conservation, diversification of fuels. There are lots of problems in the energy front. When we talk about Katrina, we can limit 

the discussion to the issues that will impact and resolve Katrina 

issues. 

Mr. LIVERIS. It is very unfortunate that a hurricane showed the 

shortfall of the Energy Policy Act of 2005, which I am a big fan of. 

But frankly, the OCS supply issue should have been tagged onto 

that bill, as I think the chairman was trying to do and others were 

trying to do. Available gas in this country is there. There are 406 

tcf gas available. Why are we importing it from the Middle East? 

The CHAIRMAN. I do not think this is the place for me to engage 

in a debate predicated by the questions asked by my good friend 

from the State of Florida. But you cannot isolate Katrina and say 

we are here to solve Katrina. We are hearing testimony here today 

about the short-term impact of natural gas shortages on Dow 

Chemical. That is not 5 years from now. You may be in trouble 

during the recovery and you are certainly in trouble after the recovery if we do not have some solutions to this problem. Am I correct in that statement? 

77

Mr. LIVERIS. Yes, Mr. Chairman, you are very correct. 

The CHAIRMAN. Now, having said that, I want to get to Senator 

Talent and then Senator Murkowski. 

Senator TALENT. Thank you, Mr. Chairman. You took the words 

out of my mouth, Mr. Chairman. If this were just the hurricane 

and a crisis induced by that, of course, that would be bad enough, 

but what the hurricane did was exacerbate conditions already in 

place. If this crisis has done nothing else, it has concentrated energy and attention on this issue, and that at least is a good thing. 

Most of my questions have been asked. Mr. Liveris, let me just 

ask you specifically. In your judgment, to keep Dow and other industries in the United States, what do we need to do legislatively 

to increase the natural gas supply? Can you give us an idea of 

what price of natural gas you would like to see long term? Obviously, as low as possible, but give us some sense. 

I think you discussed this some before, but what would be the 

effect of just an announcement that we were going to open up 

Lease 181? Would that be sufficient by itself? You are probably 

going to say no. It is terrible when you answer the questions at the 

same time you are asking them, is it not? 

[Laughter.] 

Senator TALENT. But it would be a big deal, would it not? Just 

comment on these questions. 

Mr. LIVERIS. I think that is a great way to phrase the question. 

Your answers are actually not correct. I would say they would be 

a stabilization factor. I think we have heard the uncertainty point. 

The volatility point is our greatest enemy as much as the absolute 

supply. The two are working together. 

Senator TALENT. Because the price today reflects not only supply 

today and demand today, but the market’s estimation of unpredictability in the future. 

Mr. LIVERIS. Correct, Senator. 

Senator TALENT. So when you take that unpredictability out or 

you lower that risk, it affects price. 

Mr. LIVERIS. Absolutely. If you couple that with a conservation 

message, the two things together will stabilize a lot of the volatility. 

Now, the other question you asked. The well price of LNG, which 

has not yet appeared—LNG or gas is still a very regional business. 

LNG trade around the world is long-term contracts. They are to 

support the huge capital infrastructure that has to be put in place, 

including the ships. It sits between $4 and $5, depending on where 

it comes from, landed somewhere. Although China did a deal with 

my home country of Australia that lands natural gas from remote 

Australia to China at $3.20. 

So we used to have $2 here in this country. Obviously, ‘‘as low 

as possible’’ is the right answer, but I am a realist. All we need is 

the certainty of supply, i.e., lack of volatility, and a world price or 

less that enables me to serve the domestic sector. It would be great 

if the American chemical industry can once again be an exporter. 

We used to export over $20 billion a year, second only to aviation. 

$154 billion of trade surplus over the last 10 years gone. All that 

has disappeared on us because we no longer have the $2 price. If 

78

we can get the world price, we can at least compete against foreigners importing into this country. 

Senator TALENT. Sure, because before the hurricane, you were 

paying prices elevated compared to your competitors. 

Mr. LIVERIS. Since 2000-2001, we have been living with prices 

bouncing around. It is unbelievable that a technology-rich industry 

like ours, with college graduates as our primary work force, suffers 

because of the weather. We go by hot summers and cold winters, 

or the other way around, and that is our input cost. So we live and 

die by the weather. It is unbelievable that chemical engineers and 

scientists and Ph.D.’s and people do not have jobs because of the 

weather forecast. It is incomprehensible. 

Senator TALENT. Mr. Chairman, there is a win-win that you and 

I have talked about with all this. An adequate and diverse energy 

supply with lower prices means much stronger economic growth 

and risk taken out of the economy. And economic growth, because 

of the marvelous productivity of the American people, produces 

wealth on the basis of which we can enhance technology, enhance 

conservation efforts, improve the environment, take care of our 

coasts. So we end up with the growth, the jobs, the industry, the 

exports, and a better environment and a better community all at 

the same time, and we do it by having faith and confidence in the 

productivity and the decent instincts of the American people. That 

is what you are saying. 

We have seen those instincts on display in response, just an immediate, gut-level response to this crisis, and we will see it again. 

Really all they need us to do is to unshackle them a little bit, and 

they will go out and get us out of this. I really believe it. 

I thank you all. This has been a very good hearing. The chairman walked over to me before and said that, and I think he is 

right. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Murkowski, there is a vote up but you have time for 

your questions. 

Senator MURKOWSKI. Thank you, Mr. Chairman, and thank you 

to the members of the panel. I am sorry that I missed most of your 

testimony. I was presiding and I was listening to the comments of 

Senator Landrieu from Louisiana who was speaking to the devastation in her region and spent a great deal of time talking about how 

the gulf region is the area of commerce not just for the region, but 

truly for the whole world. We recognize and appreciate the contributions offshore and onshore that the region has made and continues to make and will continue to make to the energy needs of 

this country. 

I sit so frustrated and we all know why. It is the whole access 

issue. We have got the resources and we have it so many times 

over and whether it is off of our shores or whether it is up in Alaska, we have it. We just do not allow ourselves to go there. In the 

meantime, what happens is our companies, our businesses are suffering. I was just commenting to the chairman here. We are no different than the times back in the age of Mesopotamia when the rivers flooded and everybody had to move. You would like to think 

that our technology gets us beyond being controlled by the weather, 

79

but it should serve to be a very humbling reminder to all of us that 

we are not in charge. 

So what is it that we can do? I am real concerned about my constituents up home who are panicked about home heating costs this 

winter. They are already looking to how they are going to make it 

financially through the winter and pay their bills and keep their 

homes warm. I do not know how they are going to do it, quite honestly. 

A couple different questions for probably you, Mr. Cavaney, on 

the prices that we are seeing now with natural gas and the doubling that we have seen just from last year. We recognize this onein-a-100-year crisis that we have been hit with. Where do you see 

the price of natural gas going? 

Mr. CAVANEY. Senator, we had the problem with natural gas 

really before the hurricanes. All the hurricanes did was just draw 

undue attention and take it up to the next level. For a number of 

years, really about the last 15 to 20 years, our growth here in the 

United States was supported by Canadian gas that we imported, 

and they kept growing sufficiently. As they have developed their oil 

sands up in Alberta, what has happened is they had to re-route 

their gas growth in order to make the oil up there. So we have lost 

that growth capacity. 

What that did several years ago was underscore the fact that we 

were not producing enough here to make up for the very steep declines in the U.S. fields because we were not getting the access to 

the attractive new fields where you could go. 

So again to complement Mr. Liveris, back in the year 2000, this 

started to become very much in evidence and it is just regrettable 

that it took this long for people to understand. I applaud the committee and particularly Senator Alexander for drawing attention to 

natural gas. Because it is a regional fuel and not a global fuel like 

crude oil, we do not have the options of trying to bring in substitutes when we run into periods like we are right now. 

Senator MURKOWSKI. So where do you see it going? We are at 

$14. 

Mr. CAVANEY. Well, I think the most important thing is we need 

to get a signal from the policymakers that you recognize the problem is here and we are going to do something about it. I agree, I 

think the markets will show some relief and that may well be the 

point where you start to see the corner being turned. 

Senator MURKOWSKI. Let us talk about the Alaska project for 

just a second here. We are trying our darnedest to make that 

project come to fruition. And it is so frustrating that for years the 

price has not been there, and then boom, the price takes off like 

that. The fact of the matter is it takes 7-8 years to bring that gas 

down and to supplant what we have been getting from Canada. So 

if we move forward with that project, even though it is 8 years 

down the road, recognizing the incredible potential that we have up 

there in supplying this country, is that enough of a signal to the 

market, even though it is years off, to provide some assistance? 

Mr. CAVANEY. It is definitely going to help. These people look at 

future risks and then they factor it in in prices today. So anything 

that sends signals about the opportunity for more natural gas or 

80

a more positive environment for people to take risks I think is 

going to have to help in today’s market. 

Senator MURKOWSKI. So we need to have a flow chart or a time 

line saying Alaska gas comes on here. In the interim, we can loosen 

some restrictions in the Rockies. 

Mr. CAVANEY. LNG is a very important intermediate help. Access 

and LNG, Senator, are the two things that will help us significantly fill the gap, along with conservation again I want to underscore. Those three things will help us get there until the northern 

gas can get in here and take its place. 

Senator MURKOWSKI. But we have got to have the northern gas. 

Mr. CAVANEY. Yes. 

Senator MURKOWSKI. And this is the point that I want to bring 

home to everybody. Right now we do not have that northern gas. 

We do not have those producers signed onto a deal. If they think 

that they need more subsidies than they are getting now, it is 

wrong, wrong, wrong. 

Mr. CAVANEY. I understand that this is a commercial venture, 

but that is not what their problem is. They are just trying to go 

through the process of ensuring that they can get the supplies and 

they work with the State. We are very pleased to see that the State 

of Alaska has shown an interest in becoming an equity partner, 

and I think that makes for a good partnership. 

Senator MURKOWSKI. We want to be able to supply it. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator, you wanted to comment. 

Senator ALEXANDER. I just wanted to express my thanks to Mr. 

He ́bert for the people of Tennessee for the extra efforts your company made to get the electricity back on so the Colonial pipeline 

would work. That helped us avoid a very severe shortage. 

And I wanted to invite you and anyone else who wants to suggest 

to the chairman and Senator Bingaman and me ways to make efficient dispatch work. We would like to have them in the next few 

days. 

The CHAIRMAN. All right. We know we have to go, but they are 

going to hold up for us for a minute. I want to just say once again 

thanks to all of you. It was terrific. I am just sorry that more people do not get a chance to hear what was said. That is not possible. 

We have to do a better job. 

Mr. Curtis, I want to say we clearly did not intend to outnumber 

you. 

[Laughter.] 

The CHAIRMAN. But we are very pleased. I think the issue I want 

to place before you is we have always been versus the environmental and conservation community—we have been faced with the 

proposition that they want conservation and savings and others 

want production. Therefore, a stalemate occurs because those who 

want efficiency saying we are not on with the business of efficiency, 

so we do not want more production. Production is saying we want 

more production. 

Now, we are saying we want both. But the problem is how do we 

get them to work in tandem with credibility. Most of the time you 

can put two eggs and two eggs and you have got credibility. It is 

two and two, and when you add one, you have three and three. But 

81

one is very intangible and the other one is very tangible. We have 

to find some modus operandi where when we start efficiencies, they 

are credible so they are not saying you are not doing efficiency, so 

we do not support supply. We have to find some way to measure 

that, and I hope we can. 

Mr. CURTIS. I completely agree, and I look forward to working 

with you and whomever to try to help make that happen. 

The CHAIRMAN. Last, we did not ask any of you, but let me see 

if I can summarize. Those from the coast, from the area affected, 

told us that the Federal Government, in terms of their agencies 

and Secretaries, had been terrific in their response to requests for 

assistance, modification of rules, expeditious handling from DOE to 

EPA to Commerce. Is that a correct statement? Was the Federal 

Government responsive? Quickly, could we just say, Mr. He ́bert? 

Mr. HE ́ BERT. Very favored. NRC, FERC, and DOE were great for 

us to work with and helped us restore quickly. Absolutely. 

The CHAIRMAN. Mr. Helms? 

Mr. HELMS. We found it all the way through, Senator. We have 

had tremendous cooperation. 

The CHAIRMAN. Mr. Liveris? 

Mr. LIVERIS. Absolutely, yes. 

Mr. CAVANEY. Absolutely. It could not have been better. 

The CHAIRMAN. Now, Mr. Curtis. 

Mr. CURTIS. From the community groups we work with and 

interact down in the gulf, EPA and the other agencies were fabulous. 

The CHAIRMAN. Okay. It looks, for once, we had something on 

our side go right. 

[Laughter.] 

The CHAIRMAN. Everybody says everything was right except 

something happened that was not. Maybe it was just the storm. 

I wanted to say, Mr. Curtis, with reference to the pollution in the 

ecosystem and water, we were amazed yesterday to hear from the 

Corps of Engineers at the top level that they are in the business 

of measuring pollution all the time everywhere very scientifically. 

They said that there was not any. Do you believe it? There had 

been no big, serious bacteria in the environment that was dangerous. Now, that does not mean anything yet. I mean, I could not 

believe it. I said, are you kidding? And they said, no, no, not so. 

So I do not know what it means. But somebody is going to do 

it right. But it may be that there is some kind of a cleansing mechanism that we do not know about in terms of water-related products. But I just wanted that in the record. I know you are looking 

at me with furrows in your brow. 

[Laughter.] 

The CHAIRMAN. I am only repeating what they told me. I do not 

believe it either. 

[Laughter.] 

The CHAIRMAN. But I thought we should say it here. 

We need you to go with me somewhere, Mr. Chairman, Mr. 

President. Which do they call you in your company? 

Mr. LIVERIS. Andrew. 

[Laughter.] 

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The CHAIRMAN. Okay. If you will join me outside, I need to use 

you for something. 

Thank you, everybody. 

[Whereupon, at 12:25 p.m., the hearing was recessed, to be reconvened on October 27, 2005.] 

(83)

HURRICANES KATRINA AND RITA 

THURSDAY, OCTOBER 27, 2005

U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The committee met, pursuant to notice, at 10:35 a.m. in room 

SH–216, Hart Senate Office Building, Hon. Pete V. Domenici, 

chairman, presiding. 

OPENING STATEMENT OF HON. PETE V. DOMENICI,

U.S. SENATOR FROM NEW MEXICO 

The CHAIRMAN. Good morning. First of all, to our distinguished 

witnesses, I want to apologize for the lateness of the event. But the 

Senate doesn’t ask the committees when the Senate will vote; they 

tell us. 

First, for the Senators and the witnesses, there is a Senate resolution which authorizes the Senate chambers and the Senate office 

buildings be filmed for use in the Capitol Visitor Center. Members 

should know that that production company might—will spend a 

few minutes during this hearing obtaining footage for the educational video to be shown in the Capitol Visitor Center. So, if you 

want to make sure you’re at your prettiest, be aware. 

First, I want to thank both Secretaries for being with us today. 

This hearing is the fourth hearing that we’ve had to discuss the impacts of the devastating hurricanes in the gulf and the general energy state of the country. The people of Florida have suffered 

again, just this week, with Hurricane Wilma. It’s been a very difficult season. I hope it’s over, but—who knows? There’s a level of 

frustration with the energy industry, due to high prices, record 

profits, and perceived lack of investment, that has taken center 

stage in the public arena. There is also a level of fear about the 

energy supply, possible transportation bottlenecks and shortages 

that will make the winter particularly hard, especially if it’s a cold 

winter. 

Over and over, the experts that this committee has invited have 

told us that there are no quick fixes to our energy challenges. All 

have stressed the need for conservation as our most effective shortterm tool to deal with this crisis, especially the crisis in natural 

gas, which is, sort of, the unseen crisis at this point. 

We’re all advocating that Americans encourage—and encouraging Americans—in trying to persuade them to take conscious 

steps to reduce energy consumption. So are you, particularly Secretary Bodman, and I want to thank you and indicate that I think 

you’re on the right track with some of the things you’re doing in 

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that regard. I wish that program, nationally, could get bigger and 

more persuasive, but that’s not all in your hands. 

The list of saving tips with multiple resources, like local utilities 

companies are talking about, big oil companies are beginning to advertise about, they’re showing some significant interest, and the 

public is, I believe, getting the message. I think everybody knows 

that the lighting of our homes, as Senator Bingaman has been talking about for some time, can represent 20 percent of the home electricity bills, and there are some real areas of savings that can occur 

there. If the public were to change a light to an ENERGY STAR 

one, together we’d save enough energy to light seven million 

homes. That’s up to the people of the country, not up to us, but, 

still, we’d better talk about it. Same thing applies to light fixtures. 

There are models of ENERGY STAR for energy efficiency that 

could save substantial amounts. 

On the transportation front, consumers can take a number of 

steps. We know about them. Perhaps we can ask you about them, 

Mr. Secretary, or you, Madam Secretary. So, as part of this hearing 

we’re encouraging consumers to take action—drive less, when possible, replace an old furnace, keep your tires inflated properly, 

change light bulbs, all those things we’ve been talking about. 

So, I think conservation is like a diet on our demand, but without 

sufficient supply our economy will end up very skinny, in any 

event. So, I know that supply is one of the topics that several members want to talk about here today, and I would say to both of you, 

while it might not be the subject matter of Katrina and Rita, Lease 

Sale 181 will be brought up and discussed, I’m sure. I’m going to 

save for the questions a discussion of Lease 181, other than to say 

it is a very, very energy-laden lease, and to discuss the fact that 

it is not really subject to a moratorium. And we will proceed from 

that point on with asking the Secretary of the Interior, in particular, about that issue. 

Senator Bingaman. 

[The prepared statements of Senators Bunning, Corzine, Salazar, 

and Talent follow:]

PREPARED STATEMENT OF HON. JIM BUNNING, U.S. SENATOR FROM KENTUCKY

Even though my home state of Kentucky is situated far enough away from the 

gulf coast to avoid the brunt of these recent storms, Hurricanes Katrina and Rita 

really hurt us, and the rest of America, at the gas pump. These natural disasters 

have shown that in many ways, the federal government has been sleeping at the 

switch. But perhaps Katrina and Rita’s biggest wake up call goes to the energy industry which has failed to diversify. 

Katrina and Rita were able to cause such a large disruption because so much of 

our production and refining capabilities are concentrated in the Gulf of Mexico. We 

must diversify this capability. Right now we are working to open up ANWR, which 

will finally allow us to tap a vast oil resource in Alaska. But there is more we can 

do—with Kentucky coal, Western natural gas and offshore drilling. We will remain 

vulnerable to continued price spikes unless we explore new areas domestically to 

produce and process fuel. 

We have also seen ineffective regional energy markets that, when faced with disaster, are unable to quickly shift resources and capabilities to areas in need. Much 

of this inability is caused by overly-complicated federal regulations. For example, 

government policies have been a roadblock to oil refinery construction. It has been 

nearly 30 years since the last one was built. We must take a hard look at federal 

regulations and ensure that they are not needlessly constraining the energy marketplace. 

85

Even after addressing these issues, at the end of the day we need to diversify our 

sources of energy beyond oil. I have long talked about the benefits of coal, particularly new clean coal technologies, and how coal can replace more expensive oil and 

natural gas electric plants. From synthetic fuel production to FutureGen, coal can 

and will play a more important role in America’s energy future. I also believe we 

can displace gasoline demand with biofuels made from corn, soybeans and even recycled cooking grease. We have many new technologies under development and we 

should encourage this continued fuel source diversification. 

I am hopeful that today’s hearing will explore the potential impact of the recently 

passed Energy Bill, what additional government policies are needed to stimulate diversification and what lessons we have learned from this tragedy. Secretary Norton, 

I would like to hear from you how we can best access the untapped sources of oil, 

coal and natural gas here in America. And Secretary Bodman, I look forward to 

hearing from you how we can better stimulate the energy industry to diversify and 

use new technologies so we can achieve lower prices and energy independence. 

Thank you for your testimony before the Committee today. 

PREPARED STATEMENT OF HON. JON S. CORZINE, U.S. SENATOR FROM NEW JERSEY

I would like to thank Senator Domenici and Senator Bingaman for calling this 

hearing to address the Hurricane Recovery Efforts. Hurricane Wilma once again 

highlighted our nation’s vulnerability to the devastation that can be caused by hurricanes and my thoughts and prayers are with those who now have to rebuild their 

lives. 

I would also like to thank Secretary Norton and Secretary Bodman for being here 

today to testify. In order to establish a comprehensive recovery plan that will restore our full energy system, as well as make improvements that will reduce the 

damage that hurricanes and other natural disasters have on our energy infrastructure, efforts must be coordinated among all of our government agencies. These ongoing discussions on hurricane recovery efforts are vital not only to the short term revitalization of our energy system and the mitigation of the burden on consumers, 

but also to our nation’s future energy security. 

Mr. Chairman, one of the most immediate ways to help Americans dealing with 

the high energy costs is the Low Income Home Energy Assistance Program 

(LIHEAP). I am deeply disappointed that the Senate continues to underfund this 

vital program. Energy costs place a severe and continuing burden on household 

budgets. In many cases, families are forced to choose which bills to pay and which 

necessities to survive without. 

Of course, Mr. Chairman, it is not just low-income families that will be affected. 

In fact, the Department of Energy estimates that Americans will spend over $200 

billion more on energy this year than they did last year. 

Meanwhile, big oil companies are making record profits. In fact, the combined 

total quarterly profits for the top five oil companies are $32.88 billion. I implore the 

oil companies to do their part to ease the energy cost burden on consumers. How 

can oil companies sit back while their profits, even in the wake of the hurricanes, 

are increasing at such astronomical rates—all while American families are being 

squeezed by skyrocketing home heating costs and gasoline prices? 

Yet, instead of dipping into their own profits, these oil companies are calling for 

the expansion of drilling in the Arctic National Wildlife Refuge (ANWR) and off our 

shores, claiming that this will ease prices. I’m disappointed that some of my colleagues are giving in to them. I have been clear about my opposition to such proposals and am deeply disappointed that this Committee included opening ANWR in 

its portion of the reconciliation bill. In addition, I am greatly concerned that the 

House Resources Committee just approved legislation that not only opens ANWR to 

drilling, but also allows states to opt out of the decades-old Congressional moratoria 

on oil and gas leasing in the Outer Continental Shelf—which will damage my 

State’s economy, as well the economies of other states that depend so heavily on the 

cleanliness of their beaches and oceans. 

I urge my colleagues to avoid this knee-jerk reaction. We should instead be discussing more effective policies to reducing our dependence on oil and strengthening 

our energy security such as reducing CAFE standards and investing in renewable 

energy. 

Again, I thank the witnesses for being here today and I look forward to hearing 

about the status of hurricane recovery efforts at the Department of the Interior and 

the Department of Energy. I hope that both Secretaries offer recommendations for 

the short and long term and make progress toward fortifying our energy system and 

86

reducing the damage that hurricanes and other natural disasters have on our energy infrastructure. 

PREPARED STATEMENT OF HON. KEN SALAZAR, U.S. SENATOR FROM COLORADO

Good morning. Thank you, Mr. Chairman, for holding this hearing. During the 

August recess I began a tour of Colorado that took me to all 64 counties. I just finished this tour last week and I can report that in every county the biggest concern 

was high energy prices. It is important to note that I began the tour before the hurricanes came through the Gulf of Mexico and hit the gulf coast where much of our 

energy production is based. High energy prices were the greatest concern even before the hurricanes. The hurricanes ramped up already high prices as well as increased the frustration Coloradans are feeling. 

Mr. Chairman, I share that frustration. I know I am new to this body. While I 

am proud that I had some small hand as helping to craft our nation’s long-term Energy policy this past summer, I nevertheless feel we are missing an opportunity—

actually, failing in our obligation, to take immediate steps to address our near-term 

energy crisis. Since we returned to Washington immediately following Katrina, the 

Senate has failed. The Senate has failed to take action to address high energy 

prices, period. 

I have offered 5 bills to address the problems the country faces regarding high 

energy prices. I would like to talk briefly about each one. 

ACCELERATING EFFICIENCY CREDITS

The first bill I have offered is S. 1850, the Rapid Efficiency Credit Act of 2005. 

Under the energy bill signed into law in August, tax credits are available to consumers and businesses for purchases of energy efficient products (such as energy efficient windows, air conditioners and furnaces, solar power collectors, fuel cells and 

hybrid vehicles), as well as expanded ethanol fuel refueling facilities. 

But these tax credits do not go into effect until January 1, 2006. People in Colorado and across America want to know what they can do now in order to prepare 

for high heating and electricity costs this winter. These tax credits would have a 

positive impact if they went into effect now. Why are we waiting? 

In an effort to promote energy efficiency in vehicles and buildings sooner, my legislation would accelerate some of those credits to become effective upon enactment 

of this legislation. 

This legislation also adds a new provision for energy efficiency. Consumers will 

be eligible for a 30% tax credit for the purchase of compact fluorescent bulbs, which 

take the place of traditional incandescent bulbs, save significant amounts of energy, 

and save consumers real money. 

TIRE EFFICIENCY

My second bill has to deal with vehicle tire efficiency. S. 1851 would require replacement tires to meet the same standards as new vehicle tires, including fuel 

economy requirements. If you go to buy new tires today, you can’t find out how 

those tires will affect your gas mileage. 

But the truth is that replacement tires are in general between two and four percent less efficient than the original tires that come with the vehicle. Two percent 

may not seem like much, but it ends up costing the buyer as much as $150 over 

the life of the tires. And it also means we use more foreign oil as a nation. 

GAS GUZZLERS TAX LOOPHOLE

My next bill, S. 1852, addresses a specific tax loophole that encourages gas guzzling. Currently the tax code effectively punishes, through smaller deductions, those 

small businesses that purchase vehicles that get good gas mileage. At the same 

time, the current tax code actually rewards small businesses that purchase bigger, 

heavier vehicles—those over 6,000 pounds. 

Businesses purchasing vehicles that consume more fuel are rewarded with markedly larger and accelerated deductions. 

I am not saying that we should tell small businesses to purchase one class of vehicle or another. What I am saying is that the playing field must be level for all vehicles, so small businesses can purchase the vehicles of their choice without being unnecessarily pushed into bigger, heavier vehicles. That is what my bill does: it levels 

the playing field. 

87

FEDERAL GOVERNMENT FUEL SAVINGS

To address saving energy used by the federal government, I have introduced bill 

S. 1853, the ‘‘Reduce Government Fuel Consumption Act.’’ This bill directs federal 

agencies to try to achieve a target of 10% reduction in fuel consumption over the 

next year. For obvious reasons, it specifically excludes any fuel consumed for military use. However, it is important that the federal government practice what it 

preaches. 

PRICE GOUGING

Finally, Mr. President, I have offered a bill that addresses price gouging. It may 

come as a surprise or even a shock to most Americans, but there is no federal law 

against price gouging. My proposal, S. 1854, changes that by establishing a law stating that price gouging may exist when prices rise by ten percent as a result of an 

emergency compared to the same point one month before. 

My bill allows for both the U.S. Attorney General as well as the state Attorneys 

General to file a price gouging lawsuit in state or federal court. My bill requires the 

U.S. Department of Justice to cooperate with states on anti-gouging efforts. 

I am sure there are other measures that would provide small doses of relief, but 

we have not advanced them. 

So, there it is, I am frustrated at the Senate’s inaction. Today, I am sure that 

we will discuss policies that may provide relief in 2-20 years, but I am more concerned about this winter. Many of America’s families, farmers, ranchers, and small 

businesses are on a financial cliff, and they need action to pull them back from that 

edge. 

PREPARED STATEMENT OF HON. JAMES M. TALENT, U.S. SENATOR FROM MISSOURI

Mr. Chairman, we’ve spent over four years working to get an energy bill, and even 

after passing that bill into law, we find ourselves facing a fundamental problem—

energy prices are too high because supply is not keeping pace with demand. 

We’ve tried for years to work around these fundamentals, but now we are to the 

point where, if we do nothing, the problem will solve itself in a way we cannot afford: energy prices will chase industry and jobs away to countries where prices are 

more reasonable. That’s no solution; it is a disaster, it is real, and it is coming unless we do something soon. 

Dow Chemical CEO Andrew Liveris provided just one example of a business that 

no longer finds it economic to produce in the United States. 

He noted the huge disparity in natural gas costs that existed even pre-Katrina 

and will be a problem even after the gulf recovers from the hurricanes, unless we 

do something. 

Natural gas prices set a record of $14.50 per MMBtu last month (9/30/95), double 

the already high $7 per MMbtu price from last year at this time. (API) In Europe, 

it’s about $7.00 today, China less than $5.00 and in Saudi Arabia it’s less than 

$1.00. This is largely the reason that, between 2000 and 2005, more than 2.9 million 

American manufacturing jobs disappeared. (Dow Chemical) I think that we can all 

agree that this cannot continue. 

Likewise, gasoline prices, while largely down from their post-Katrina peak over 

$3.00 per gallon, are still almost a dollar higher than a year ago, and even then 

it wasn’t cheap. Our airlines are teetering on the brink of bankruptcy, in part due 

to the high cost of jet fuel. 

What will bring these prices down to sustainable levels? Not conservation alone. 

Certainly not new taxes on oil companies or regulations on industry. 

Mr. Chairman, a first year economics student could tell you the answer—when 

demand is increasing, supply must increase as much or more to keep prices down. 

And we’ve got the supply. The untapped portion of Lease 181 in the Gulf of Mexico, 

100 miles offshore, has enough natural gas to heat 6 million homes for 15 years. 

Alaska and the Western Mountains have an estimated 1,450 trillion cubic feet of 

natural gas, enough to meet current U.S. demand for more than 60 years, according 

to the Natural Gas Supply Association. 

ANWR has enough oil to produce 900,000 barrels per day, or 4.5 percent of current U.S. consumption, for thirty years. 

This is an important hearing on rebuilding our nation’s infrastructure and planning for our energy future. I am hopeful that our witnesses will discuss how we are 

working together to find ways to overcome obstacles and tap into these vital resources that drive economic growth in this nation. 

88

To that end, I sponsored a letter, signed by 11 of my colleagues, to President Bush 

asking that he direct Secretary Norton to include the remaining portion of the Lease 

Sale 181 area in the 2007-2012 five year leasing plan on the Outer Continental 

Shelf. 

Thank you.

STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR

FROM NEW MEXICO 

Senator BINGAMAN. Thank you very much. Thank you, Mr. 

Chairman, for having this hearing. And, as you point out, it’s one 

of a series of hearings that we’ve had. 

The two issues that I hope we can explore are what the two Departments see as their roles in post-Katrina reconstruction, and 

any recommendations that they have on avoiding future damage to 

the energy infrastructure and critical infrastructure in these hurricane-prone regions of our country. The second, of course, is probably the nearest to the hearts of most Americans, and that is what 

the Secretaries can tell us about how we can propose to address 

these very high energy costs and prices that we are faced with, 

what actions have been taken, and what actions may be taken. 

I have an industry alert here, put out by Deutsche Bank, dated 

yesterday, which says that the White House is close to sending a 

series of oil recommendations to the Hill for legislative action; two 

key proposals. First, a 5-day regional reserve for gasoline, diesel, 

and jet fuel, and, second, a tax on the oil industry to fund the Low 

Income Home Energy Assistance Program. It goes on to say that, 

while at first glance, this looks—this 5 percent profit haircut that 

these proposals represent are arguably bullish in the view of Deutsche Bank, they’re arguably bullish for the industry, because they 

would reduce the pressure from more severe and troublesome windfall profits taxes, and, second, they can be passed along to the consumer. That doesn’t sound like a very good arrangement, the way 

I’m generally thinking of it. 

So, at any rate, those are issues I would like very much to explore when we get into the questions. 

Thank you very much, Mr. Chairman. 

The CHAIRMAN. Thank you very much, Senator. 

Now we’re going to proceed. We’re going to start with our witnesses, and we’re going to take Secretary Norton first, and then 

Secretary Bodman. 

Would you please proceed, Madam Secretary? 

STATEMENT OF HON. GALE A. NORTON, SECRETARY,

DEPARTMENT OF THE INTERIOR 

Secretary NORTON. Thank you. 

Good morning, Mr. Chairman and members of the committee. I 

appreciate the opportunity to be here today to share with you our 

experiences from the hurricanes and what we can learn from those. 

Hurricanes Katrina and Rita clearly demonstrated the need for 

diversification of our energy supply. President Bush recognized, in 

his national energy policy, that we need to increase our energy supply and invest in our energy infrastructure. Diversification is a key 

goal for this administration and must remain a top priority for our 

Nation’s economic and national security. 

89

Achieving a goal of secure, affordable, and environmentally 

sound energy will require diligent, concerted efforts on both the 

supply and demand sides of the energy equation. 

I’m pleased to be here today with Secretary Bodman. One of the 

things that we have learned very dramatically during this experience is how interconnected our energy supply is, how much offshore 

production depends on onshore facilities. We have had the opportunity to work together very closely, and even to visit the gulf region together to see the impacts. 

Now, let me begin by explaining what happened to our offshore 

energy infrastructure as the hurricanes came through. This map—

and you have been provided with copies of that—the map in your 

packets—the map shows the path of the two hurricanes. The key 

point is that three-fourths of our offshore platforms were in the 

path of one or another of the hurricanes. Of 4,000 platforms, 2,900 

were in the path. One platform reportedly clocked sustained winds 

of 170 miles an hour for 5 to 6 hours, with gusts over 200 miles 

an hour during Katrina. As Hurricane Rita came through, although, fortunately, it had subsided by the time it reached ground, 

it was still category 4 as it hit some of our offshore platforms. Coming so close together, these storms created an unprecedented challenge for offshore production. 

We have a few charts that show both gas production and oil production from the hurricanes, and the top green line on each of 

these goes back to last year. That is the pattern that we saw for 

Hurricane Ivan in 2004. What you can see from Hurricane Ivan, 

which, similarly, had a significant effect offshore, is a fairly quick 

recovery. We see stages of recovery. Essentially, the first stage is 

checking to see if there is damage to facilities. If there’s no damage, restoring those quickly, getting people back on the platforms. 

The next phase is dealing with minor damage, and restoring those 

things. And then you have a longer time of restoring the more significant damage, and that results in a—more gradual parts of the 

recovery process. When you look at the bottom blue line on each 

of these charts—one shows oil, one shows gas, but the pattern is 

basically the same—the blue line shows what happened with 

Katrina, and then with Rita. After Katrina, we had a slower path 

of recovery than we had with Ivan, because the damage was more 

severe. And then, with Hurricane Rita, we have seen an even slower path of recovery. 

All together, between Hurricanes Rita and Katrina, we had over 

a hundred offshore platforms destroyed. Many of those were small, 

old platforms, but those were destroyed. In the recovery, we have 

now seen getting back to about two-thirds of our oil production continuing to be shut in. And that’s our current situation. Wilma 

caused a brief blip on that, but essentially caused no additional 

damage. But we remain with two-thirds of our gulf oil production 

not producing, and 53 percent of natural gas production shut-in. 

The Department of the Interior has been taking active measures 

to help get production back online. We tried to cut through red tape 

and be practical in our application whenever possible. We’ve been 

streamlining the processes for various permit approvals to resume 

production. We’ve expedited the reviews of requests for temporary 

90

barging of oil until pipelines could be repaired. We’ve accelerated 

the process to approve pipeline repairs. 

One of the key things that we have seen in this whole experience 

is the effect of our environmental protection measures. As we saw 

these two huge hurricanes roll through with so much of an impact, 

one might have expected the entire Gulf of Mexico to be blackened 

by oil spills. The reality is that even with over a hundred platforms 

destroyed, there were no significant spills from any of our wells. 

What we see in these two charts are the valves that protect the 

wellheads. And the—Tom, if you could point to where the wellhead 

shutoff valves would be, they are 100 feet below the sea-floor level, 

which means that each well is protected by a valve that will prevent that well from leaking into the water, even if the entire platform is destroyed. What we found was that, in each and every case, 

those valves operated correctly. We had no spill from any of our 

wells. The National Oceanic and Atmospheric Administration recently announced the results of a study they did with samples from 

fish and other marine life, and found that there were no elevated 

levels of hydrocarbon contaminants in those fish populations, which 

indicates that—again, that our oil-spill prevention measures 

worked. 

There is no official estimate, but the damages in repair costs will 

be in the billions of dollars. We recognize that this is a complex 

system, companies need to be checking platforms, they need to be 

dealing with pipeline damage, with onshore facility damage. We’ve 

had to respond in a variety of ways. We’re working closely with the 

Department of Energy and with the Coast Guard in the Department of Homeland Security on our recovery efforts. 

Some of the reasons for slow recovery include limited amounts of 

repair equipment and skilled personnel that have to be divided in 

many more directions than has been the case in the past as a result of past hurricanes. So, know that our employees are working 

hard. The industry is working hard, and there is a lot of repair 

work that needs to be done. That’s going to take many more 

months before we see a full recovery. 

Let me run through a few of the lessons that we have learned 

from this. 

First of all, we learned that our upgraded design standards for 

platforms worked well. Of all of the platforms that were destroyed, 

only one was built after 1988. And so—certainly, at least, of any 

significant platform—our current standards worked very well. The 

one exception is shown in this set of charts, the chart that is headed ‘‘Mini-Tension Leg Platform’’ shows the typhoon facility owned 

by Chevron. It was one of the newest facilities in the Gulf of Mexico and was producing 28,000 barrels of oil a day. We are investigating the cause of this, but there may have been a collision between this facility and another—possibly drilling units—in the 

midst of the hurricane. But, unfortunately, the after-photo is what 

you see over there. That is the upside-down version of the platform—view of the platform. We found it floating about 30 miles 

away from where it was supposed to be located. Other than that, 

perhaps collision causing damage, all of our other major platforms 

performed fairly well. There were some areas of damage on the 

platforms, but the overall structures survived. 

91

One area that we did find where our standards need to be reviewed is on mobile offshore drilling units. And this is an example 

of one of those units. Those are moored in place, and we found, unfortunately, those moorings did not hold. We found some of that 

with Hurricane Ivan, and the Minerals Management Service had 

already initiated a study to see how those should be strengthened. 

We found that 19 of these drilling rigs were knocked loose from 

their moorings during the hurricanes, and some of them dragged 

anchors. That caused pipeline damage. And so, we have learned 

that is an area we need to focus on. 

I have called for a conference with the energy industry on November 17, to discuss what we need to do to strengthen those 

moorings and where we need to go in a future regulatory stance. 

The hurricanes have shown us the importance of diversifying our 

energy supply. We have been working on that issue in a number 

of ways. The Minerals Management Service is looking at its 5-year 

plan for the leasing of offshore areas from 2007 to 2012. We have 

had the first round of public comment on that, and we will then 

be doing environmental impact reviews. 

Of all the comments received to date on the 5-year plan, there 

were 8,998 comments in support of opening additional areas, and 

2,276 against. 

The House——

The CHAIRMAN. Would you repeat that one? 

Secretary NORTON. Yes. We had close to 9,000 comments——

The CHAIRMAN. What was the issue? 

Secretary NORTON. This is on the areas that should be opened for 

leasing, between 2007 and 2012, in the Outer Continental Shelf. 

The CHAIRMAN. Thank you. 

Secretary NORTON. It was 8,998 for, 2,276 against. 

The House, last night, as you’re probably aware, included an 

OCS provision in its budget reconciliation. We’re still reviewing 

that. We do not have an official position yet. We’re pleased that 

Chairman Pombo has worked with Governor Bush to try to resolve 

some of the issues of concern to Florida especially. 

Very briefly, we are looking at other areas. ANWR is one that 

I have talked with this committee about before. We continue to 

consider that an important part of our energy plan and our diversification. We’ve been working onshore, through the Bureau of 

Land Management, to process applications for permits to drill. And, 

as a result of the provisions in the energy bill that you all recently 

passed, we have additional funding to process APDs, and we’re 

moving quickly to get additional personnel in place. You have also 

passed some categorical exclusions from NEPA that do very 

straightforward things, like saying if you drill two wells from the 

same drilling pad, you don’t need to go through the whole process 

for the second well being placed on the same pad. Those kinds of 

things are very helpful to us, and we anticipate being able to move 

more quickly as a result of those things. 

I will stop at this point, but thank you very much for your attention. 

[The prepared statement of Secretary Norton follows:]

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* All attachments have been retained in committee files. 

PREPARED STATEMENT OF HON. GALE A. NORTON, SECRETARY,

DEPARTMENT OF THE INTERIOR

Mr. Chairman and Members of the Committee, thank you for the opportunity to 

appear today to discuss energy policy and hurricane recovery, especially the Department of the Interior’s activities and responsibilities in bringing the offshore oil and 

gas production in the Gulf of Mexico back on line. 

Hurricanes Katrina and Rita clearly demonstrated we have no margin to mitigate 

the impacts of natural disasters on our energy supply. The wake-up call being 

sounded for the past decade has reached the point where it must be heard. The 

President recognized, in his National Energy Policy, that we need to increase our 

energy supply and invest in our energy infrastructure. The President’s National Energy Policy report envisioned a long-term energy strategy. As the report stated 

‘‘America’s energy challenge begins with our expanding economy, growing population, and rising standard of living. Our prosperity and way of life are sustained 

by energy use. America has the technological know-how and environmentally sound 

21st century technologies needed to meet the principal energy challenges we face: 

promoting energy conservation, repairing and modernizing our energy infrastructure, and increasing our energy supplies in ways that protect and improve the environment. Meeting each of these challenges is critical to expanding our economy, 

meeting the needs of a growing population, and raising the American standard of 

living.’’ In fact, in recent testimony presented to the Senate Interior Appropriations 

Subcommittee by the Industrial Energy Consumers of America stated that ‘‘[s]ince 

2001, natural gas prices have significantly contributed to the loss of 3.0 million 

manufacturing jobs and the shifting of future investment overseas.’’

Therefore, we must not lose sight of this fact: Diversification of our Nation’s energy supply is a key goal for this Administration and must remain a top priority 

for our Nation’s economic and national security. Achieving the goal of secure, affordable and environmentally sound energy will require diligent, concerted efforts on 

many fronts on both the supply and demand sides of the energy equation. 

HURRICANE KATRINA AND RITA RECOVERY

The oil and gas produced from the Gulf of Mexico are vital to the American economy and way of life. Production from the Gulf of Mexico provides 27% of oil and 

20% of natural gas produced domestically. However, it took two major hurricanes 

back-to-back to drive home the importance of this region to our Nation’s energy security. As a country we face tightening oil and gas supplies and higher prices. It 

is time to take a closer look at the full impact of Hurricanes Katrina and Rita. 

The attached map* shows that Hurricanes Katrina and Rita moved through a 

core area of offshore operations. Of the approximately 4,000 platforms, 2,900 were 

in the path of Katrina and Rita. One platform in the path of Katrina clocked sustained winds of 170 mph for 5-6 hours with gusts of over 200 mph. At Rita’s peak 

on September 25, 100% of daily oil production and 80% of daily gas production in 

the Gulf was shut-in. Prior to Hurricane Katrina, the Gulf of Mexico produced approximately 1.5 million barrels of oil per day, and 10 billion cubic feet of natural 

gas per day. In the wake of these two devastating hurricanes, a significant portion 

of our Gulf production has been curtailed: as of October 21, 2005, some 65 million 

barrels of oil and 327 billion cubic feet of natural gas have not been produced due 

to shut-in wells. We do, however, want to note that additional facilities were shutin due to Hurricane Wilma, resulting in an approximately four percent increase in 

shut-in production. These facilities did not sustain any damage and therefore, are 

expected to come back on line in the next few days. 

There is good news regarding offshore operations. Katrina and Rita—both reaching Category 5 strength as they spun through the Gulf and the heart of the offshore 

energy production—caused no loss of life among offshore industry personnel or significant spills from any offshore wells on the Outer Continental Shelf (OCS). This 

bears repeating: We faced down two of the most devastating hurricanes ever to hit 

the Gulf of Mexico without one significant spill from any offshore well on the Outer 

Continental Shelf. Although there were some minor pollution events from lines or 

equipment, all subsurface safety valves installed beneath the seafloor successfully 

prevented uncontrolled releases of hydrocarbons into the Gulf of Mexico. 

The Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) has been collecting fish samples in the aftermath of the hurricanes to 

determine exposure to contaminates resulting from the storms. On September 29, 

2005, NOAA announced the results of the first sample tests of Gulf of Mexico fish 

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two weeks after Hurricane Katrina. The latest tests found no elevated exposure to 

hydrocarbon contaminants, which can be present at elevated levels in marine life 

after exposure to oil spills. The first round of samples were from Pensacola, Florida, 

along the coastlines of Alabama and Mississippi and then around the southern tip 

of Louisiana at the mouth of the Mississippi River and back. NOAA has advised 

that samples from two subsequent cruises are currently being analyzed and NOAA 

will continue to assess impacts throughout the year. The Department’s Minerals 

Management Service (MMS) regulates all exploration, development and production 

activities on over 8,000 leases in the Gulf of Mexico alone. Since human and environmental safety are two of MMS’s major goals, we are very pleased with this result. 

At the same time, significant damage has been reported regarding facilities in the 

OCS. Katrina destroyed 47 platforms and 4 drilling rigs; extensively damaged 20 

platforms and 9 drilling rigs; and shut in 95% of Gulf oil production and 88% of 

Gulf natural gas production. Production had not fully recovered post Katrina when 

Rita hit the Gulf. Rita destroyed an additional 66 platforms and 4 drilling rigs; extensively damaged 32 platforms and 10 drilling rigs; and shut in 100% of Gulf oil 

production and 80% of Gulf natural gas production. 

Today, we are seeing incremental progress in the Gulf oil and gas production. As 

of October 21, 2005 shut-in numbers are 66% of the oil and 53% of the natural gas 

production. Again, these percentages are slightly higher post Hurricane Wilma but 

we expect that portion of production to resume quickly. It is fair to say, however, 

that oil production in the Gulf of Mexico will not be back to 100% for many months. 

Recovery is dependent on repairs to onshore facilities, offshore and onshore pipelines transportation systems, and offshore platforms. Generally Industry must conduct the necessary inspections of these networks, determine the repairs required, 

and then perform any necessary repairs. It is evident from reports received from Industry to date that this work will take approximately several months to a year. For 

example, we estimate, based on Industry reports, that approximately 30 percent of 

pipelines have not been leak tested and approximately 60 percent of underwater/

riser inspections have not been completed. 

Industry has reported billions of dollars in damage and we expect the figure to 

grow as inspections are complete. The oil and gas industry continues to use all 

available resources to board, assess damage, re-man and begin repair of OCS facilities, concentrating on the high-producing operations first. Even as production repairs are made, however, problems with dislocated employees, onshore support facilities, terminals, refineries and pipelines could delay the resumption of supply to 

market. 

The industry is exploring various alternatives to restore transmission of oil and 

gas from the OCS while repairs are being carried out on pipelines and onshore facilities. Concerning pipelines in the area impacted by Katrina and Rita, we estimate 

that 45 percent of the pipelines are operational, 30 percent need repair, and 25 percent are undamaged but cannot flow due to downstream problems. In some cases, 

oil is being barged to shore until pipelines and other facilities can be repaired, inspected and judged safe for operation. The MMS, along with the U.S. Coast Guard, 

has approved these requests resulting in 33,000 barrels of oil per day being brought 

back online that had been shut in due to downstream refinery problems. The MMS 

is evaluating such applications on a case by case basis. 

Both onshore natural gas processing facilities and oil refineries suffered extensive 

damage from the storms. In fact, some onshore production in the states of New Mexico and Texas was also shut-in due to the lack of refining capacity. Following 

Katrina, the Mont Belvieu plant could not accommodate any refinery product from 

the Dukes plant in New Mexico, where some of the natural gas produced from federal oil and gas leases in New Mexico is sent for processing. Consequently, the 

Dukes plant could not accommodate any raw product for approximately 24 hours resulting in some production having to be shut in. This example serves as an illustration of the ripple effect that occurred oil and gas production and refining. It will 

take multiple months to repair processing plants. 

A number of variables are impacting this restoration process. Industry personnel, 

for both offshore and onshore operations, have been and continue to be affected by 

the storms and must ensure their families’ well-being and safety first. Onshore infrastructures suffered significant damage. For example, 16 natural gas processing 

plants in Louisiana and Texas are inoperable due damaged from the hurricanes. 

MMS Actions 

As directed by the MMS’s Continuity of Operations Plan (COOP), the Gulf of Mexico Regional Office, which is located in the New Orleans area moved its COOP team 

to Houston, Texas, in advance of the evacuation triggered by Katrina. As Hurricane 

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Rita bore down on Houston, the COOP team evacuated once more to the MMS’s offices in Herndon, Virginia, and continued collecting and evaluating data on the status of operations in the Gulf. In addition, the MMS also moved its Lake Charles 

District Office operations to other district office sites in the region. 

In September Johnnie Burton, the Director of the Minerals Management Service, 

and I visited our New Orleans staff recently relocated to Houston where we witnessed the dedicated employees hard at work to bring facilities back on line and resume normal operations. The dedication of these public servants—many of whom 

had their homes destroyed or severely damaged—is beyond words. 

The MMS has notified all 530 MMS Region employees that they will be back to 

work on October 31, 2005, at one of four office sites, three in the New Orleans area 

and one in Houston. The top five floors of the Region’s headquarters building were 

severely damaged and are being renovated. The bottom five floors are habitable and 

employees will be using this space as of October 31, 2005. All administrative and 

health procedures have been put in place to ensure our employees will be working 

in a safe and healthy environment. 

The Department is also taking other actions to help bring production back online. 

After Katrina, it was apparent that there was massive disruption to not only the 

producing, transporting and processing infrastructure, but also the supporting infrastructure including the companies’ land-based operations essential to repairing damage. Hurricane Rita amplified this impact by disrupting operations which had been 

recently reconstituted after Katrina and significantly expanded the coastal area that 

was disrupted. The culmination of the two storms created Herculean challenges for 

the industry and based on prior experience, the MMS immediately began the following:

1) streamlining processes for various permit approvals to resume production, 

2) expediting reviews of requests for the temporary barging of oil until pipelines are repaired, and 

3) accelerating the process to approve pipeline repairs.

MMS is also providing regulatory relief to those companies hardest hit by Hurricanes Katrina and Rita. This relief eliminates undue burdens on companies at a 

time when the focus must be maintained on repairing and restoring infrastructure. 

For example, MMS extended the time to report and pay royalties for companies that 

certify that they cannot report or pay due to the hurricanes’ impact on their offices 

and staff. Finally, the effective dates for two regulations have been extended in 

order that we do not place additional burdens on industry at this time. 

Gulf oil and gas operations account for a significant portion of our domestic production and the Department is determined to bring production back on line as 

quickly as possible. This is truly a vital issue, which we are pursuing every day. 

MMS is always striving to ensure that appropriate technology is used in the design 

and operation of offshore facilities and MMS assesses all potential improvements for 

withstanding hurricane-force wind and waves. I have been working closely with Energy Secretary Bodman and Transportation Secretary Mineta on these important 

issues. 

Lessons Learned 

Damage reports post-Rita have highlighted a problem with Mobile Offshore Drilling Units (MODU). Nineteen MODU’s broke loose from their moorings and were set 

adrift; some causing damage to pipelines as anchors dragged along the ocean floor. 

To address this issue, I have called for a Conference on Mobile Offshore Drilling 

Units to be held at the Department, here in Washington, D.C. on November 17, 

2005. During this conference we will assess lessons learned and we will define a 

path forward. 

What lessons have we learned from the past month? Major new facilities, constructed to meet MMS’s 1988 updated design standards, fared much better than 

their older counterparts. Typhoon was the only platform built under the 1988 standards that was destroyed. I have asked MMS to work together with the U.S. Coast 

Guard to investigate the destruction of the Typhoon tension leg platform. The MMS 

has commissioned studies that are assessing the actual wind, wave and current 

forces that were present in Hurricane Ivan, analyzing the consequential damage to 

structures and pipelines, determining the effectiveness of current design standards 

and pollution-prevention systems and developing recommendations for changes to 

industry standards and MMS regulations. If funding permits and it is practical to 

do so, these studies will be expanded to include information from Hurricanes 

Katrina and Rita. 

Hurricanes Katrina and Rita confirmed that our offshore oil and gas industry produces environmentally safe energy for America. Even in the face of two back-to-back 

95

major hurricanes, all subsurface safety valves held on the OCS and there was no 

significant spill from production. The small amounts of oil observed in the water 

surrounding platforms may have come from damaged pipelines or petroleum supplies for running platform machinery, but, as stated, it did not come from OCS production wells. 

In addition, the Katrina/Rita scenario has confirmed that our domestic offshore 

oil and gas resources are key components in the energy mix which provide some of 

the basic necessities Americans have come to expect—gasoline for our cars, heating 

fuel for our homes, natural gas to cook our meals, to power our factories, and to 

generate the electricity that is critical to our way of life and critical to powering our 

advanced economy. At present, more than 25% of America’s total domestic oil and 

natural gas production comes from only 10% of the total OCS acreage. 

ENERGY DEVELOPMENT AND DIVERSIFICATION

ANWR 

President Bush’s National Energy Policy report laid out a comprehensive, longterm energy strategy for securing America’s energy future. That strategy recognized 

that to reduce our rising dependence on imported oil and gas, we must also increase 

domestic production while pursuing conservation and development of alternative 

and renewable energy sources. The President proposes to open a small portion of 

the Arctic National Wildlife Refuge (ANWR) to environmentally responsible oil and 

gas exploration using newly available, environmentally friendly technology. ANWR 

is by far the largest potential untapped source of onshore resources in the country. 

Had ANWR been opened in 1995, it is possible that today we could have oil from 

the area, which may have helped mitigate the effects of the hurricanes. I would like 

to thank you and the rest of the Congress for taking up this important issue as we 

continue to try to provide additional energy resources in an environmentally responsible way. 

OCS 5-year plan 

Under the OCS Lands Act, the MMS is required to prepare a new 5-year leasing 

plan that specifies the size, timing and location of areas to be considered for Federal 

offshore natural gas and oil leasing. The 5-year planning process provides several 

opportunities for MMS to work with stakeholders, including Federal and State agencies, local communities, private industry, and the general public to develop a program that offers access in an environmentally responsible manner to those areas 

with potential for discovery of natural gas and oil. Not every area analyzed in a 5-

year plan is recommended for leasing consideration. In addition, public participation 

through input and comments is an integral part of preparing the environmental impact statement (EIS) in conjunction with the 5-year program, and there are multiple 

opportunities for public comment during the EIS process as well. 

The MMS announced in late August that it is seeking initial public comment on 

the development of its 2007-2012 five-year leasing plan for energy development on 

the Outer Continental Shelf (OCS) and accompanying environmental impact statement. 

In seeking public comment, MMS asked the public to comment specifically on 

whether the existing withdrawals or moratoria should be modified or expanded to 

include other areas in the OCS; and whether the Interior Department should work 

with Congress to develop gas-only leases. Throughout the process of developing a 

new 5-year program, MMS requests comments from states, local and tribal governments, American Indian and Native Alaskan organizations, the oil and gas industry, 

Federal agencies, environmental and other interest organizations, as well as the 

general public. Consultation with affected parties also occurs at the local level 

through MMS regional offices. Of all of the comments received to date on the 5-year 

plan, MMS has received 8,998 comments for opening additional areas of the OCS 

and 2,276 against. 

We have received several letters from senior citizens expressing their ‘‘strong support’’ for opening additional areas of the OCS. One senior citizen wrote ‘‘I’m writing 

to express my strong support for developing more domestic oil and natural gas resources off our coasts—in the country’s Outer Continental Shelf (OCS)—by providing for more acreage for lease in the government’s next five-year leasing program 

for 2007-2012... Higher energy prices of the past two years have forced me to 

make hard choices. And I worry that high energy prices will harm our economy affecting the value of pensions and making it more difficult for Social Security to help 

make ends meet.’’

We have also received several letters from Chambers of Commerce throughout the 

country. The Indiana Chamber of Commerce wrote ‘‘The Indiana Chamber of ComVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00099 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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merce and our members are experiencing high energy costs, resulting in a negative 

impact on production and transportation in Indiana.’’ The Arkansas Chamber of 

Commerce stated ‘‘Over the last five years the price of natural gas has risen 140%. 

There is no doubt this increase has played a role in the reduction of manufacturing 

jobs available to Arkansans.’’

Onshore Mineral Development 

The Bureau of Land Management (BLM), an agency within the U.S. Department 

of the Interior, administers 261 million surface acres of public lands, located primarily in 12 Western States. The BLM sustains the health, diversity, and productivity of the public lands for the use and enjoyment of present and future generations. The BLM continues to balance the energy needs of the country while working 

within its multiple use framework and is mindful of alternative uses of the land it 

manages. 

Within areas designated for appropriate mineral development, the BLM has been 

making a concerted effort to help bring additional oil and gas supplies to the market. Domestic production of natural gas has been increasing over the last three 

years. In Fiscal Year 2002, 2.1 trillion cubic feet (Tcf) of natural gas and 107.5 million barrels of oil (bbl) were produced from Federal (non-Indian) lands. In Fiscal 

Years 2003 and 2004, 2.2 Tcf and 3.1 Tcf and 101 million bbl and 98.2 million bbl, 

respectively, were produced. In addition to the Federal onshore leases, the BLM supervises the operational activities of 3,700 producing Indian oil and gas leases. 

Permitting and Leasing 

Processing Applications for Permits to Drill (APDs) and operating an efficient federal oil and gas leasing program continues to be a major priority for the BLM. Increased funding provided by Congress and management improvements have enabled 

the BLM to make significant progress in responding to the greatly increased number of APDs being submitted by industry. In FY 2004, the BLM processed 7,351 

APDs, approving 6,452 (on both Federal and Indian lands). In FY 2005, the BLM 

had processed approximately 7,736 APDs (about 400 ahead of FY-2004’s pace), approved 7,018 APDs (about 600 ahead of FY-2004’s pace). 

Also, as directed by the Energy Policy Act of 2005, BLM is implementing a pilot 

project to better coordinate APD processing. The BLM has entered into a Memorandum of Understanding with the Fish and Wildlife Service, Bureau of Indian Affairs, Army Corps of Engineers, Environmental Protection Agency, and United 

States Forest Service to provide staff and expertise to better coordinate activities 

in order to improve efficiency while maintaining environmental protection. The pilot 

offices will be aggressive and innovative in finding better and more efficient ways 

to manage the oil and gas program and within 18 months, we will have identified 

best management practices that can be implemented bureau wide. New money from 

rental revenue will help BLM accomplish this task. With more efficient processes 

and additional funds, we anticipate BLM could process more than 9,600 permits in 

FY 06 and 11,400 permits in FY 07. 

The Energy Policy Act of 2005 also gives us a valuable tool for improving our 

NEPA compliance related to the exploration or development of oil and gas by providing a legislative determination that a set of defined and very minor development 

activities do not need further site specific NEPA review and if proposals meet certain conditions, they should be deemed to be categorically excluded from further 

NEPA review. 

It is important to note the dramatic increase in the number of protests that the 

BLM has experienced in recent years, which create processing delays. For example, 

in 1999, approximately 4.5 percent of leases offered were protested; BLM received 

approximately 166 protests on 3,628 leases offered. In 2005, 50 percent were protested; 1,291 protests on 2,342 leases offered. The State of Utah provides a clear 

illustration of the impact of protests on the oil and gas program. In 2004, every 

lease sold in Utah was protested resulting in delays in issuing them of up to 18 

months. The real challenge for BLM is that the same personnel who process protests also process APDs, conduct leasing, inspection and enforcement, land use planning, and a range of other activities. 

National Petroleum Reserve Alaska (NPR-A) 

BLM is also working to make oil and gas resources in Alaska available through 

its leasing, exploration and development activities in the NPR-A, an area covering 

more than 23 million acres in the northwest corner of the state. Development of 

these oil and gas resources is an important component of the President’s National 

Energy Policy. It is estimated that NPR-A contains 10.6 bbl and 61.4 Tcf undiscovered resources for the entire assessment area. The first significant commercial 

production from the NPR-A is expected as early as 2008. 

97

Oil Shale 

The United States holds significant oil shale resources underlying a total area of 

16,000 square miles. This represents the largest known concentration of oil shale 

in the world and could contain the equivalent of 2.6 trillion barrels of oil. More than 

70 percent of American oil shale is on Federal land, primarily in Colorado, Utah, 

and Wyoming. The Energy Policy Act directs that public lands in these three States 

be made available for research, development, and demonstration (RD&D) leasing 

within six months of the measure becoming law. In response to its announcement 

of an oil shale RD&D program, the BLM has received 20 nominations for parcels 

of public land to be leased in Colorado, Utah, and Wyoming. BLM intends to offer 

RD&D leases for the viable nominations early in 2006. BLM will also be conducting 

a programmatic Environmental Impact Statement and will develop a commercial 

leasing program by mid 2007. 

Coal 

The BLM is doing its part to ensure that the Nation has an efficient, affordable, 

and reliable domestic energy supply of coal. Bonus bids are up 177%; existing lease 

production is up nearly 24%; and the royalty and estimated rent income is up nearly 

33%. During this time period, 2001-2004, nearly 1.8 billion tons of coal were produced from Federal leases. In addition, the Energy Policy Act of 2005 gives the Department the authority to increase the number of acres per lease, which we are 

working on implementing. 

The Office of Surface Mining Regulation and Enforcement (OSM) works with coal 

operators to ensure that land that has been mined is restored to its previous condition. OSM has a successful working relationship with the States and mining industry to ensure sites are properly reclaimed. OSM brings a level of regulatory stability 

to the benefit of all stakeholders. 

Conservation and Renewable Energy 

Fossil fuel development is only apart of the solution to our Nation’s energy issues. 

We also must increase energy conservation and the use of alternative and renewable 

resources. The Department echoes Secretary Bodman’s call for an increase in conservation measures. Most media coverage of the President’s National Energy Policy 

and the recently enacted Energy Policy Act of 2005 focused on the parts dealing 

with production of traditional energy. However, both call for increased energy conservation and alternative and renewable sources as critical components to a balanced energy program. Good stewardship of resources dictates that we use energy 

efficiently and conserve resources. Americans have already made great strides in 

using energy more efficiently. Since 1973, the United States economy has grown 

nearly three times faster than energy use, in part due to more efficient use of energy. Efforts over the past 20 years have proven that simple conservation actions 

by individuals and businesses can yield impressive results in demand reduction. 

Alternative and renewable sources of energy can also play an important role in 

helping meet our increased energy needs. To this end, the President and the Energy 

Policy Act of 2005 encourage development of a cleaner, more diverse portfolio of domestic energy supplies, and include measures to aid in the development and expansion of renewable energy technologies in use today, including geothermal, wind, 

solar, and biomass, as well as continued research into using hydrogen as an alternative energy carrier. Such diversity helps to ensure that Americans will continue 

to have access to the energy they need. 

With that in mind, the Department has been working hard to establish conditions 

that will permit the development of renewable sources both on and offshore. We are 

proud of our record of results. We are increasing permitting, improving land use 

planning, and establishing policies that emphasize the use of renewables. In fact, 

since 2000, we have approved 200 geothermal leases and 92 wind energy permits. 

To further encourage wind energy development, the BLM has prepared a national 

EIS, which will assist the BLM in expediting wind energy permitting across our 

public lands. In addition, offshore we are developing a process to implement new 

authority provided for in the Energy Policy Act of 2005 that allows MMS to permit 

alternative energy-related uses such as wind, current, and wave technology on the 

OCS. 

Hydropower is also a key renewable energy source. The Bureau of Reclamation’s 

58 power plants make it the 10th largest producer of electricity in the Nation. Those 

plants have an exemplary record of reliability, with a forced outage rate of about 

one-half of the industry standard. We are continually expanding generation at our 

facilities by upgrading turbines. In addition, the Fish and Wildlife Service is involved with Federal Energy Regulatory Commission licensing of private hydroVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00101 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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electric facilities. We are working to make that process more streamlined, predictable and effective. 

For solar energy, last fall the BLM issued a solar energy development policy, 

which, among other things, establishes the authority and procedures for BLM field 

offices to use when processing applications for solar projects. It helps establish solar 

markets by encouraging BLM field offices to consider the use of solar power for 

BLM facilities and field stations. More than 650 facilities owned and operated by 

the Department are equipped with solar systems. These include office buildings and 

remote systems such as weather stations and water pumps. Many other Federal 

agencies often use solar for power at isolated facilities as well. 

Finally, the Department of the Interior continues to explore ways to encourage the 

use of wood biomass created as a result of wildfire prevention and healthy forest 

treatments. Most people think of ethanol from corn when they think of bioenergy, 

but wood is the source for 72 percent of all U.S. bioenergy production. Two Presidential initiatives, one to prevent catastrophic wildfires and the other to restore 

rangeland and forest health, encourage the removal of excess or diseased wood debris from forests and rangelands. This wood debris can be used as a renewable 

source of biomass energy. 

The Department is working to reduce regulatory barriers and encourage the development of markets for the material produced from biomass and are actively 

working with other stakeholders on ways to use this resource. For instance, we will 

be hosting, along with the Departments of Agriculture and Energy, a conference on 

bioenergy. The Department will also provide training to local communities in biomass utilization. 

CONCLUSION

Hurricanes Katrina and Rita brought devastation and destruction to a wide area 

of our Nation. The road to recovery after these storms will be long and, at times, 

very difficult. However, it is in these instances more than ever that humanity comes 

together as one to begin the journey toward recovery, rebuilding, and restoration. 

I am proud of the commitment and dedication shown by the employees of the Department of the Interior during this difficult period. Our resolve to assist in recovery 

and restoration activities remains strong. We will do all that we can to assist those 

affected by these storms as they begin the process of rebuilding. Our agency is not 

alone in this endeavor. We are working shoulder to shoulder with other Federal, 

State, local agencies, and industry in these efforts. 

The disruption to our energy production in the Gulf is significant but we have 

learned lessons that will serve us well into the future. Most importantly, we have 

learned that the systems in place have worked. Modern oil and gas production techniques are effective and environmentally sound even in the most challenging and 

unpredictable of environments. 

Thank you for the opportunity to be here today to discuss the Department’s role 

in hurricane recovery and energy development. I will be happy to answer any questions members of the Committee may have for me.

The CHAIRMAN. Thank you, Secretary Norton. 

I would note, just in passing, for you and for the record, that I’m 

working very hard to get Lynn Scarlett released here in the Senate. And I commented last night, and I did talk to the leader and 

the Democratic leader about it. I know you need every additional 

expert in your staff that you can get, and I’m trying my very best. 

Secretary NORTON. I’d greatly appreciate that. 

The CHAIRMAN. I will soon solicit the help of Senator Bingaman 

on that. I haven’t asked him yet, but I think he won’t object to 

helping me. 

Senator BINGAMAN. I’d be glad to help. 

The CHAIRMAN. We don’t even know who’s holding her up. It’s 

not my side now, but it took me 6 months for my side, so it’s not—

I’m not complaining. 

Secretary. 

99

STATEMENT OF HON. SAMUEL W. BODMAN, SECRETARY,

DEPARTMENT OF ENERGY 

Secretary BODMAN. Mr. Chairman, Senator Bingaman, members 

of the committee, I’m very pleased to have the opportunity of being 

here. I’m particularly pleased to be here with Secretary Norton, 

with whom I have been working even more closely than before, following these hurricanes. 

The Department of Energy’s Office of Electricity Delivery and 

Energy Reliability has been the center point of much of what we 

have done as a consequence of these hurricanes. They have put together a very succinct chronology of every action that was taken by 

the Department with respect to the hurricanes. This timeline covers a 2-month period from when Katrina first struck south Florida, 

as a matter of fact, on August 25, and that chronology is up 

through this current week. It notes actions that were taken not 

just by the Energy Department, but by the White House, the Department of Homeland Security, Department of the Interior, Transportation, EPA, Coast Guard, and the International Energy Agency, among others. So, it’s fairly comprehensive. 

I would like to ask, Mr. Chairman, that that be included in the 

record. 

The CHAIRMAN. Yes. 

Secretary BODMAN. And I would refer all of you to this document, 

as well as to the daily situation reports, which have been sent to 

congressional offices from the Department since Hurricane Katrina 

made landfall. 

Let me just highlight a couple of the points that are spelled out 

in that chronology. 

Hurricane Katrina struck the gulf coast on August 29, several 

days after first landing in south Florida. It left an unprecedented 

amount of destruction and an area that totaled 90,000 square 

miles. A total of 2.7 million people lost their electricity, 11 petroleum refineries were shut down, which represented 21⁄2 million barrels a day of capacity, or nearly one-sixth of our refining capacity. 

With Katrina, more than a quarter of U.S. crude oil production, 

1.4 million barrels a day, was shut in. Nearly nine million cubic 

feet a day of natural gas production, as is shown on the charts the 

Secretary just showed you, was shut in, representing 17 percent of 

U.S. gas production. There were additional production losses occurring in areas on land in Louisiana. 

Louisiana Offshore Oil Port was shut down, as were a number 

of major oil and gas pipelines. As a consequence, pipeline deliveries 

of gasoline, diesel, jet fuel, and propane supplies to the east coast 

and Southeastern United States were halted in their entirety. 

The administration responded quite well, in my judgment, and 

took several critical actions. Prior to the storms’ landfall, our Department dispatched employees to the Emergency Response Centers in the Southeastern United States, where they assisted utilities and coordinated with the power restoration efforts. Our job is 

really a matter of collecting the information and trying to provide 

coordination and getting barriers out of the way. We worked closely 

with State and local officials, first-responders, and power companies to assist in coordinating their efforts to begin restoring power 

and fuel supplies as quickly as possible. 

100

We engaged with Entergy, the local utility, electric utility and 

other utilities, to help coordinate the work of over 13,000 utility 

crew personnel from all over the United States and Canada to restore electric power. We arranged for a shipment of fuel to two 

companies that manufactured electricity poles, a move which was 

absolutely critical in order to get their production going. 

These efforts were very successful in reestablishing and helping 

to reestablish electricity throughout the affected areas. Within 2 

weeks, the number of customers without electricity fell from 2.7 

million to under a half a million. 

We also took a number of crucial measures to minimize the impact of the storm on the Nation’s energy supply. We worked to get 

power to the interstate pipelines. That was essential to ensuring 

adequate supply of refined products to the Southeast and east 

coast. We authorized loans from the Strategic Petroleum Reserve 

to refiners in the gulf region and the Midwest whose scheduled deliveries had been disrupted by the storm. 

The President authorized the sale of oil from the Strategic Petroleum Reserve to help keep markets well supplied at a time when 

there were widespread fears of looming shortages. We reached an 

agreement with the International Energy Agency, which is located 

in Paris, for its membership to release an additional 30 million barrels of crude oil and refined products to world markets. The EPA 

provided temporary waivers, allowing the early use of winter-blend 

gasoline. The Department of Homeland Security rescinded legal restrictions on tanker transportation of fuel supplies. The Department of the Interior’s Minerals Management Service immediately 

began to streamline processes for various permit approvals to resume production and expedited reviews of requests for temporary 

barging of oil until pipelines could be repaired. 

The Treasury Department increased the supply of diesel fuel 

available for use on the highway by waiving penalties for the highway use of so-called ‘‘dyed’’ diesel fuel. The Navy and Coast Guard 

worked to clear shipping channels. We worked with our European 

allies to provide extra cargo tankers, as well as refined product, to 

help supply the American gasoline market. These steps had a very 

positive effect and helped calm the markets. 

And then came Rita. That storm made landfall on September 24 

and did even greater harm to our Nation’s energy markets than 

Katrina. After Rita, 19 refineries were shut down, representing a 

third of the U.S. refining capacity. In the Federal Gulf of Mexico, 

virtually all crude production and 80 percent of natural gas production was shut in. Twenty-seven natural gas processing facilities 

were shuttered, representing half the gulf coast natural gas processing capability. Offshore rigs and platforms suffered great damage, as you just heard about. The LOOP facility, the offshore oil 

port, was shut down once again, along with a number of major 

pipelines. 

An extraordinary situation was brought on by the one-two punch 

of Katrina and Rita. Energy markets have taken a big hit, and consumers will continue to face high prices for gasoline, natural gas, 

and home heating materials this winter. However, many of the 

steps which we took after Katrina have helped us deal with the 

101

* The chronology has been retained in committee files. 

supply crunch caused by Rita, such as making crude oil from the 

Strategic Petroleum Reserve available to the market. 

The administration has launched an energy efficiency and conservation campaign that the chairman took note of. That is aimed 

at educating consumers on steps that they can take to reduce their 

utility bills. This is the major effort that I think will be effective 

in dealing with this forthcoming winter. There is a copy of the Energy Saver’s Guide, that we’ve provided for each of you, that we 

have been distributing throughout the country. 

I have been traveling, along with senior Department officials, encouraging these conservation efforts. We’re also working with energy intensive businesses and industries on ways to conserve. The 

President has called on the Federal Government to lead by example and conserve its own energy use, and we’re working on that, 

as well. 

Both the President and I have encouraged Federal agencies and 

employees to use these reference guides in their daily activities. 

Many members have requested copies for their constituents, and an 

online version has been mailed to each of your offices. 

Mr. Chairman, Senator Bingaman, this concludes my statement. 

I’d be happy to take questions. 

[The prepared statement of Secretary Bodman follows:]

PREPARED STATEMENT OF HON. SAMUEL W. BODMAN, SECRETARY,

DEPARTMENT OF ENERGY

Chairman Domenici... Senator Bingaman... members of the 

Committee . . . I want to thank you for the invitation to appear today. I am 

pleased to be joined by Secretary Norton and appreciate the opportunity to talk with 

you about the Administration’s response to Hurricanes Katrina and Rita. 

The Department of Energy’s Office of Electricity Delivery and Energy Reliability 

has put together a very succinct chronology of every action taken in this regard.* 

This timeline covers the two month period from when Hurricane Katrina first 

struck south Florida, on August 25, up to the present week. It notes actions taken 

not just by my Department, but by the White House, the Department of Homeland 

Security, the Department of the Interior, the Department of Transportation, the Environmental Protection Agency, the U.S. Coast Guard, the International Energy 

Agency and others. 

I ask that this be included in the record, and refer Senators to this document as 

well as the daily situation reports which have been sent to Congressional offices 

from the Department since Hurricane Katrina made landfall. 

Mr. Chairman, I would like to highlight just a few of the points spelled out in 

that chronology. 

Hurricane Katrina struck the Gulf Coast on August 29, several days after first 

landing in south Florida. It left an unprecedented amount of destruction in an area 

totaling 90,000 square miles. 

A total of 2.7 million electricity customers lost power. 

Eleven petroleum refineries were shut down, representing 2.5 million barrels per 

day—or nearly one-sixth—of U.S. refining capacity. 

With Katrina, more than a quarter of U.S. crude oil production—1.4 million barrels per day—was shut in. 

Nearly 9 billion cubic feet per day of natural gas production in the federal Gulf 

of Mexico was shut in, representing 17 percent of U.S. gas production with additional production losses occurring in areas under Louisiana’s jurisdiction. 

The Louisiana Offshore Oil Port (LOOP) was shut down, as were a number of 

major oil and gas pipelines. As a consequence, pipeline deliveries of gasoline, diesel, 

jet fuel, and propane supplies to the east coast and southeastern states were halted. 

The Administration responded immediately by taking several critical actions. 

102

Prior to the storm’s landfall, the Department of Energy dispatched employees to 

emergency response centers throughout the southeastern United States to assist 

utilities as they coordinated power restoration efforts. 

We worked closely with state and local officials, first responders, and power companies to assist in coordinating their efforts to begin restoring power and fuel supplies as quickly as possible, wherever possible. 

We engaged with Entergy and other utilities to help coordinate the work of over 

13,000 utility crew personnel from all over the U.S. and Canada to restore power. 

We arranged for a shipment of fuel to two companies that manufactured electricity poles, a move which was absolutely critical to efforts to restore power 

throughout the region. 

Those efforts were very successful in re-establishing electricity throughout tie affected areas. Within 2 weeks, the number of customers without electricity fell from 

2.7 million to under half a million. 

We also took a number of crucial measures to minimize the impact of the storm 

on the nation’s energy supply. 

We worked to get power to the interstate pipelines that were essential to ensuring 

adequate supplies of refined products to the southeast and east coast. 

We authorized loans from the Strategic Petroleum Reserve to refiners in the Gulf 

region and the Midwest whose scheduled deliveries had been disrupted. 

The President authorized the sale of oil from the Strategic Petroleum Reserve to 

help keep markets well supplied at a time when there were widespread fears of 

looming shortages. 

We reached an agreement with the International Energy Agency for its members 

to release an additional 30 million barrels of crude oil and refined products to world 

markets. 

The Environmental Protection Agency provided temporary waivers allowing the 

early use of winter blend gasoline. 

The Department of Homeland Security rescinded legal restrictions on tanker 

transportation of fuel supplies. 

The Department of the Interior’s Minerals Management Service immediately 

began to streamline processes for various permit approvals to resume production 

and expedited reviews of requests for temporary barging of oil until pipelines could 

be repaired. 

The Treasury Department increased the supply of diesel fuel available for use on 

the highway by waiving penalties for highway use of ‘‘dyed’’ diesel fuel. 

The Navy and Coast Guard worked to clear shipping channels in the Gulf and 

the Lower Mississippi River. 

And we worked with European allies to provide extra cargo tankers, as well as 

refined product to help supply the American gasoline market. 

These steps had a positive effect and helped calm the markets. Though gasoline 

prices spiked in the immediate aftermath of Katrina, they quickly eased in the 

weeks following. 

And then came Rita. 

That storm made landfall on September 24, and did even greater harm to our nation’s energy markets than Katrina. After Hurricane Rita, 19 refineries were shut 

down, representing nearly a third of U.S. refining capacity. In the federal Gulf of 

Mexico, virtually all crude production and eighty percent of natural gas production 

was shut in. 27 natural gas processing facilities were shuttered—representing half 

of Gulf Coast natural gas processing capability. Offshore rigs and platforms suffered 

damage. The LOOP was shut down once again, along with a number of major pipelines. 

An extraordinary situation was brought on by the one-two punch of Katrina and 

Rita. Energy markets have taken a big hit and consumers will continue to face high 

prices for gasoline, natural gas, and home heating oil this winter. However, many 

of the steps we took after Hurricane Katrina have helped us deal with the supply 

crunch caused by Hurricane Rita, such as making crude oil from the Strategic Petroleum Reserve available to the market. 

The Administration has launched an energy efficiency and conservation campaign 

aimed at educating consumers on steps they can take to reduce their utility bills. 

I have been traveling the country, along with other senior Department officials, encouraging consumer conservation efforts. We are also working with energy-intensive 

businesses and industries on ways to conserve. And the President has called on the 

Federal government to lead by example and conserve its own energy use. 

Additionally, in front of you, please find a copy of the Department’s Energy 

Saver$ booklet; an informative guide for your constituents with helpful tips on saving energy and money at home. Both the President and I have encouraged Federal 

agencies and employees to use these reference guides in their daily activities. Many 

103

Members have requested copies for their constituents and an on-line version has 

been emailed to your offices. 

Mr. Chairman... Senator Bingaman... this concludes my statement. I’ll be 

happy to answer your questions.

The CHAIRMAN. Thank you very much. 

I’m aware that a lot of Senators come to these hearings, and I 

know they all want to ask questions. I know witnesses think we’re 

all here to hear them. We are. But many of you want to get your 

questions in. I have many, but I’m going to start another way and 

see if I can come along a little later. 

So, Senator Bingaman, with your permission, I’m going to go to 

Senator Craig, then to you and—Senator Craig, you take my position, at this point. 

STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR

FROM IDAHO 

Senator CRAIG. Well, thank you, Mr. Chairman. And to both Secretaries, thank you for your overview and your summary. And I 

think no one understands the magnitude yet of the damage, except 

those of us who look at it and those of you who deal with it and 

what you’ve had to do, in an extraordinary way. And, as you said, 

Secretary Bodman, the one-two punch almost took us down. And 

so, that’s a reality that is being faced at the moment. And thank 

goodness gas at the pump is dropping again now. But natural gas, 

of course, remains extremely high. Diesel is high, hasn’t moved. 

There’s irregularities in the market there. And it’s terribly frustrating. 

Having said that, let me move on. That was then, this is now. 

And the national media is reporting, this morning, ‘‘gushing profits’’ from the major oil companies. And I believe the consumer is 

increasingly feeling that they’ve been taken for a ride, or very frustrated about their inability to do something about it. And what is 

now important is for us to focus on what we can do in the short 

term while we’re doing things in the long term to resolve and get 

us through this period of time. Obviously, what you’ve said here is 

important. Can it get into the hands of every consumer? Probably 

not. Should it? Yes. Can it be presented in a different, less comprehensive, more detailed way, or action way? Probably can. You’ve 

asked for $10 million more. We ought to provide it. You need to be 

on television, you need to be talking about it. I suggested maybe 

we could put the President in a sweater and put him on television. 

And then somebody said, ‘‘But remember, Jimmy Carter did that?’’ 

And yet, in a hearing last week, we know that if the American consumer turns their thermostat down two degrees with the demand 

destruction that’s going on in the petrochemical industry and the 

less of use of high gas there, we can get through the winter and 

gas prices could fall if that were to happen. But that needs to be 

communicated, and how you do that, in ways that it’s capable of 

doing. 

So, we ought to help you there. You ought to be very vocal to us 

where you need any additional resource. We’re also going to track 

very closely with you, especially Secretary Bodman, but also with 

Department of the Interior. Now that you’ve got an energy bill in 

your hands, don’t take 3 years to write the regs. I hope this comVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00107 Fmt 6601 Sfmt 6602 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
104

mittee comes back to you on a quarterly basis. We’re going to mark 

you and move you along the chart. You were here, now you’re here. 

How long is it going to take you to get here? How much can we 

move into the market very quickly to get things happening out 

there? 

Having said that—and I’m cognizant of the time—this week, we 

had Kathleen Clarke before the Subcommittee on Energy, in 

Approps, and I made a misstatement, but it was a misstatement 

that I want to bring into context, because it’s an important context 

for us to understand and maybe for you to do things. I referred to 

less APDs or drilling permits versus leases, and I compared it with 

Clinton, and I was wrong. Clinton released—Clinton leased more 

acres, but you have, on a large factor, 70 percent more—gotten 

more drilling permits out to the field, in the overthrust especially, 

and in the West. And those are very interesting and important figures, because we’ve incentivized you through the bill. I know you’re 

doing those pilot programs out there now to see how we can expedite the process of leasing to get out to where the gas is. There’s 

a trillion cubic feet out there inside the infrastructure today, if we 

can get to it. But we are restricted. The thing that is most interesting to me is that while you have accelerated dramatically the effort and need—and more needs to be done, comparatively speaking, 

with leases, there are now 664 percent more protests and lawsuits 

filed against the effort to lease gas in the Bush years than in the 

Clinton years. And so, those who still don’t want us to produce are 

out there fighting us. And somehow we need to work with them to 

get through this process. And that’s going to be important. 

Also, the automatic shutdown in the middle of the winter. We did 

these land-use plans 10 or 15 years ago, and it was an easy way 

to get around the wildlife problem, just say we won’t drill during 

the winter. But we do know we can drill during the winter, and we 

don’t hurt wildlife, and we ought to revisit that. The idea of this 

fits-and-starts, stops-and-starts kind of things where you drill for 

a little while and you pull your rig out because the snow is falling, 

and you don’t go back until midsummer—we can bring capacity online very, very quickly. We need to help you there. When you ask 

us how to help. Thank you for doing what you’ve done. We’re going 

to track you very closely. There is no reason for the bureaucracy 

to grind on at the moment of a crisis. We ought to expedite everywhere we can, as quickly as we can. As fast as you’ve all worked 

with Katrina and Rita, we ought to be doing the same thing for the 

next 3 to 5 years to get us out from under this problem. 

We’ll work with you. We’ll monitor you closely. You’ve got to be 

held accountable. We need to be held accountable. And we can get 

through this. 

Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Larry. Thank you, Senator Craig. 

Senator Bingaman. 

Senator BINGAMAN. Thank you very much. 

Let me ask Secretary Norton about Lease Sale 181. That area 

was put off limits to energy development earlier in this administration. Is there a reconsideration of that going on in the administraVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00108 Fmt 6601 Sfmt 6602 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
105

tion right now? Is there a possibility that that will be open to 

lease? What is your position on that? 

Secretary NORTON. We are actively, in our preparation of our 5-

year plan, looking at the Lease Sale 181 area, and that is an area, 

as we know, is not subject to moratoria or to withdrawal. And so, 

that is an area we are seeking comment on as we move forward 

with that. It does not include the area within a hundred miles of 

the Florida coastline. 

Senator BINGAMAN. Well, I certainly encourage you in that regard. And I know that most—probably many members, at least of 

this committee, and of the Senate—agree with that. I know that 

there have been letters sent to you. And I believe I’m sending a letter along those same lines in the very near future. So, I encourage 

you—I think when you look at where the potential is for substantial increases in natural gas production, that seems to be No. 1 on 

the list, as far as I am informed. I mean, a lot of other ideas are 

out there, but they are more speculative than 181 is, as I understand it. 

The CHAIRMAN. Senator, would you yield? 

Senator BINGAMAN. Certainly. 

The CHAIRMAN. I think that, Madam Secretary, Senator Bingaman is being very mild on this issue. I believe 181 has to be done. 

And I don’t believe 5-year plans and all of that business are very 

important. We’ve been told that it is the single most significant act 

that can be taken to stabilize and/or possibly reduce the cost of the 

price of natural gas. You’re aware of that, right? 

Secretary NORTON. I’m aware it is an area with very significant—especially natural gas reserves——

The CHAIRMAN. Yes. I said natural gas. I didn’t say crude oil. 

Secretary NORTON. Right. 

The CHAIRMAN. Well, we have actually had an expert witness, 

more than one, tell us what I just said, that it—because it is so 

big and so timely, that it might be seen as an actual addition to 

available reserves, and that would have an impact. So, I’d not only 

join—I’ve been telling you all, and I don’t know how to get through 

any more—that this shouldn’t be delayed. And you don’t need anything from us. You keep talking about us. You don’t need anything 

from us. 

Secretary NORTON. Well, actually, Mr. Chairman, under the process set up under the Outer Continental Shelf Lands Act, that is operated on a 5-year program. And clearly, we know a lot today that 

we did not know when we made the decisions for the program 2002 

to 2007. For one thing, we have now seen the toughest test of our 

offshore safety, and we know that we can do a lot to alleviate any 

concerns about oil spills, and that has been proven today. That was 

not proven at the time we made the first round of decisions. But 

in order to move ahead, we’d need to go through all of the environmental planning and so forth, which really, under our administrative capabilities, puts us on the schedule of completing our 5-year 

plan and looking at 2007, the latter half of 2007, before a lease sale 

would take place. 

The CHAIRMAN. All right. 

Senator Bingaman, I apologize. 

Senator BINGAMAN. No, that’s fine. 

106

Let me just follow up. Tell me if this is wrong, but my understanding is that Lease Sale 181 was part of the 5-year plan adopted by the Clinton administration for the years 1997 through 2002. 

And then a judgment was made early in this administration that 

it would not be permitted to be drilled, or that parts of it would 

not be. And so, now we’re talking about a 5-year plan for 2007 

through 2012. So, we’ve essentially lost a decade, as I understand 

the numbers. Am I right about that? 

Secretary NORTON. It is correct that that area was approved by 

the Clinton administration as an area to be leased, and that this 

administration made a determination to reduce the area of the 

sale. We anticipate that if the area were subject to sale, it would 

take about 5 years for production to actually commence in that 

area. 

Senator BINGAMAN. Let me ask Secretary Bodman just a question about this item I referred to in my opening statement, the suggestion that the administration may urge Congress to adopt a tax 

on the oil industry to fund the Low Income Home Energy Assistance Program, or LIHEAP. I’d be interested in any insight you 

could give us about that, but also the suggestion that this is—

would be somewhat welcome by the industry, because these are 

costs that could then be passed on to the consumer. I mean, are 

we in a circumstance here where we’re going to pay for low income 

home energy assistance—largely natural gas, I would think, and 

home heating oil—by adding a price to what people have to pay at 

the pump? Is that the suggestion? 

Secretary BODMAN. I don’t know what the suggestion is. I’m unfamiliar with the suggestion. If your question, Senator, is directed 

at what my feelings are about having the oil companies pay for 

LIHEAP, that is not something that I would be in favor of. It is 

the equivalent of a windfall profits tax, it strikes me, and we have 

proven, I thought, to our general satisfaction, back in the 1970’s 

and 1980’s, that that didn’t work when we last had a windfall profits tax. I should also mention that the LIHEAP program does not 

reside in the Energy Department or in the Interior Department, 

but is in HHS, and so that questions about how that is funded and 

what the initiatives are should be directed to Secretary Leavitt. 

But my own views, however, are as they are. 

I can tell you that the LIHEAP program is one of a number of 

initiatives that is being discussed at the current time by the White 

House, and Secretary Norton and I have joined in and made our 

views known on it. And I would expect their views and proposals, 

if any, to be coming forward in the relatively near future. 

Senator BINGAMAN. Let me just ask one other question. On this 

public campaign for conservation, I commend you on it. I think it’s 

a good thing. I think it’s something we should have been doing 

each year for a long time, but it’s good that we’re doing it now. 

How much additional funding should we be providing to you? I 

keep thinking that if we were spending about a third as much on 

this as is spent every year on promoting use of Viagra or something, we would really solve this energy problem. Do you have a 

figure you could tell us? 

Secretary BODMAN. No, sir. 

107

Senator BINGAMAN. I fear that this is terribly underfunded. It’s 

a nice gesture. It’s nice to get these brochures. I mean, I think all 

of us who hang around inside the Beltway are well aware of it. But 

I don’t know that the people in my State are that focused on this 

campaign to encourage conservation. 

Secretary BODMAN. We have made every effort of the senior leadership of the Department to get out to, largely, the States that are 

most affected by the winter fuel issues. All States will be, to one 

degree or another, but we’re particularly concerned about the 

Northeast and the Midwest. And so, we have covered—we’ve been 

in 11 States, and——

Senator BINGAMAN. But you need to be on television, right? That 

costs money. 

Secretary BODMAN. I can’t speak to that, other than we’re doing, 

I think, an effective job, given the resources that we have. We have 

not put together a budget for any expansion, and we would be 

happy to work with you and your staff to develop what ideas we 

think—and to make a determination of how much additional funding we could effectively put to use. We simply haven’t done the 

work on that. 

Senator BINGAMAN. That would be a very useful thing, from my 

perspective. Thank you. 

Senator CRAIG [presiding]. Thank you very much. 

Senator Alexander. 

Senator ALEXANDER. Thank you, Mr. Chairman. 

Following Senator Bingaman’s line of questioning, I notice that 

the beer companies over the years, who are very good at advertising, now spend a lot of money encouraging people not to drink 

when they drive, and to drink moderately. I wonder if a good use 

of all of these big oil profits might not be to let the American people know that if we actually turn down our thermostats two degrees, that we could get through the winter with a lot less hardship. That might be a good use of those profits, without the Government having to require a single thing. It might be a good corporate gesture by companies that are making a whole lot of money 

at a time when a lot of people are hurting. 

Secretary BODMAN. Is that a question, sir? 

[Laughter.] 

Senator ALEXANDER. Well, I was hoping to elicit a comment. 

Secretary BODMAN. My comment would be that the oil companies 

seem to be individually advertising—I see newspaper advertising—

talking about conservation. And so, I would agree with the general 

thrust of your idea, and would take note that they seem to have 

pursued it with some vigor. 

Senator ALEXANDER. Secretary Norton, back on Lease 181, just 

so we understand, this is the largest area in the Gulf of Mexico 

where drilling is not banned that could be leased for gas. Am I correct about that? 

Secretary NORTON. It’s certainly the area that is closest to infrastructure. And, of course, you know, there are areas in Alaska, but 

we have no natural gas pipeline yet, so——

Senator ALEXANDER. But within the Gulf of Mexico, it’s——

108

Secretary NORTON. It is an area that has very significant reserves and is very close to existing production; and so, could come 

online very quickly. 

Senator ALEXANDER. My information is that there is enough gas 

there, even if we stay a hundred miles away from Florida, or 125 

miles away from Florida, to heat six million homes for 15 years, 

which would be a couple of cities the size of Los Angeles and Houston. So, we’re talking about lots of gas, and enough gas—we’ve 

heard in our testimony here, that it’s so much that just the act of 

doing it might tend to stabilize the price of gas and send a signal 

that the price should come down. So, I want to pin down a comment you made. If you follow your present course, and if you were 

to conclude, after all the appropriate studies, that Lease 181 ought 

to be a part of the lease plan in the next 5-year plan, when would 

you lease 181? 

Secretary NORTON. We would anticipate that would be one that 

would come up very early in our leasing cycle. We have not made 

any decisions yet. It would be predecisional for us to say that area 

would be in, and it would be leased at a particular time. 

Senator ALEXANDER. When does the leasing cycle begin? 

Secretary NORTON. It begins in July 2007. 

Senator ALEXANDER. July 2000. So the earliest would be in the 

second half of 2007 that you could actually put it out for lease. 

Secretary NORTON. That is correct, under our administrative 

process. 

Senator ALEXANDER. And the public decision wouldn’t be made 

and announced much earlier than that, would it? Or would it? 

Secretary NORTON. That’s correct, yes. But we would take into 

account, as we make those decisions, the input on what areas had 

the most benefits the most quickly. And, obviously, what we’re 

hearing is that there is a lot of benefit quickly. 

Senator ALEXANDER. So, we’re talking about a huge amount of 

gas, and we’re in late 2005, and it would be early 2007, if you 

should decide to do this, before the markets would know that this 

big amount of gas might be coming—might be coming forward. 

Secretary NORTON. That’s generally correct. We make those decisions earlier in the calendar year of 2007. 

Senator ALEXANDER. Now, given the fact that natural gas prices, 

when we were debating the energy bill last year, or earlier this 

year, were at $4 or $5 or $6, and now they’re at $13 or $14, and 

that hundreds of thousands of jobs might move overseas as a result 

of that, wouldn’t it make sense to accelerate that? And let me be 

specific in that. Senator Johnson and I offered legislation a year 

ago, when natural gas prices were a third of what they are today, 

that would basically order the Department to lease 181 within a 

year. If the Congress were to do that today, is there any administrative reason you couldn’t get that done? If we were to order you 

to do that within a year, could you actually accomplish it? 

Secretary NORTON. Assuming the language gave us the ability do 

that, obviously we would move forward, according to that statutory 

language, to do a sale in 2006. 

Senator ALEXANDER. And, Secretary Bodman, might it not be 

possible, if I may shift to you for this, although, Secretary Norton, 

you may—and this will be my last question, Mr. Chairman—if the 

109

Congress were to decide to do that, and the President should sign 

the law, and the signal would go out that we would suddenly be 

leasing 181 within the next year, might not that be a signal to the 

markets that would help to stabilize the gas prices during this winter, rather than waiting until 2007? 

Secretary BODMAN. It certainly would be a signal. Quantitatively, 

how it would be interpreted is hard to judge, sir, but it would certainly be a signal. 

Senator ALEXANDER. Thank you. 

Senator CRAIG. Senator Landrieu. 

Senator LANDRIEU. Thank you. 

Let me begin by saying, on the record, that I was both relieved 

and felt somewhat vindicated, Secretaries, when we had minimal, 

if any, oil spills offshore, as a strong advocate of the new technologies that are available to provide more energy independence for 

the Nation. So, while there was destruction to the rigs, as you mentioned, and you were accurate in your testimony, we were relieved, 

and those of us supporting it, vindicated, in our arguments over the 

years that this could be done safely. 

However, I am aware that there were quite a few pretty disastrous spills at refineries onshore that have left some of our communities completely uninhabitable. People—thousands of people—unable to return within miles of their neighborhoods. So, what are 

you, Madam Secretary and Secretary Bodman, doing to work with 

our local governments, particularly Murphy Refinery that had the 

worst spill, and other onshore refineries, to help provide technical 

assistance and specific financial resources to help our areas recover? 

Secretary NORTON. I am aware of the Murphy Refinery spill, and 

it truly was a terrible situation for that neighborhood. But the Department of the Interior doesn’t really have the onshore jurisdiction 

to be addressing that, so I would defer to Secretary Bodman. 

Secretary BODMAN. I would think that the role of the Energy Department, as I described in my testimony, Senator, really is one of 

working with the private sector to facilitate getting things back up 

and functioning. I, too, am aware of the damage done by the Murphy Refinery, in particular. I assume that’s what you’re referring 

to, particularly. And the Department doesn’t really have the technical skill, it’s not in our skill set. I would think the EPA, that’s 

what their program would be, so I can’t speak to the financial resources that might be available. 

Senator LANDRIEU. Well, I might suggest, if we’re going to continue to promote responsible energy development, that both the 

Secretary and the Department of the Interior and the Secretary 

and the Department of Energy might come up with a coordinated 

plan with the Department of the Environment, so that when we 

promise people that we can produce energy safely and securely, 

that we can actually deliver on that promise. So, I’m going to be 

submitting some suggestions that I hope would be included in any 

legislation that promotes new development anywhere, so we can 

really be accurate in our projections and promises made to the people of this country. 

No. 2, Secretary Bodman, the—our State, which is still—of 

course, our economy has been devastated in Louisiana. We’re the 

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heart of the energy coast. And we still are devastated, with a lot 

of talk and little action. And while the independent and private 

sector is trying their best to stand up with not very much help, despite the testimony that’s been given today on the part of the Federal Government—what role and what are you proposing to stop 

the real culprit, which was the shutdown of the electric system, 

which basically shut down the refineries, despite the workers being 

there, despite the bravery of the people on the ground? We just suffered so much, not just locally, but nationally, because of the failure and collapse of the electricity system. So, what are you proposing, so that we can weather a storm better, either in terms of 

backup generators or more fuel available or—what are your recommendations? Quickly, because I’ve got one more question. 

Secretary BODMAN. Senator, there again, I don’t have specific 

recommendations. The reconstruction of the transmission lines, 

which was the major problem that caused the electricity to be lost, 

particularly in western Louisiana, when they are reconstructed, 

they will be done at higher standards, at a higher level, at higher 

codes, thereby improving things. But that, again, is not what we 

do. 

Senator LANDRIEU. Well, let me just suggest that we all start 

doing that a little bit better, because this is a very integrated system, Mr. Chairman. And what I’m suggesting here is that you can’t 

produce energy independently. It is all integrated with the environment, with coastal protection, with navigation, with electricity. And 

we found ourselves, in this Nation, quite vulnerable. So, you could 

have the most sophisticated platforms in the world, you could have 

the greatest technology in the world, and because we haven’t spent 

2 minutes thinking about how we get energy to these platforms in 

the middle of either a terrorist attack, God forbid, or another hurricane, which we most certainly will have, we will not have made 

any progress. 

My third question is this: In 1998, the Republican chairman of 

the House Energy Committee, my colleague Mr. Tauzin, and I introduced the first revenue sharing bill in 1998. It’s now 2005. This 

bill suggested that, as this country pursued more aggressive drilling policies, that we might share a portion of those revenues with 

those States that would step up and do so. That was during the 

former administration and unfortunately, nothing was done. I have 

a letter from May 2003 here. President Bush came to our State in 

2000 to campaign—and I will provide this for the record—and 

promised that he would be willing to share revenue with coastal 

producing States during the campaign. However, I’m going to submit to the record that, in May 2003. ‘‘The administration would object to any coastal impact payments such as those authorized by 

the bill. Under current law, more than one billion already 

goes . . . ’’—the one billion goes, really, to States that don’t 

produce, not to the States that do. The record will reflect that. 

In July 2004, ‘‘We recognized the importance of investing in 

coastal conservation. However, rather than establish new and complicated processes.’’ We can’t do it. 

June 2005, right before this hurricane, ‘‘We oppose significant 

new funding authorizations and diversion of OCS revenues.’’ We 

can’t do it. 

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July 15, a month before the hurricane, ‘‘The administration 

strongly opposes provisions in the House and Senate.’’

My question is: Do you two Secretaries think the administration 

will ever change their views that would allow coastal producing 

States to receive a portion of offshore oil and gas revenues? Very 

quickly, yes or no? 

Secretary NORTON. Senator, we have taken an additional look at 

that approach in one of our most—our most recent statement of administration position——

Senator LANDRIEU. What is it? 

Secretary NORTON [continuing]. Did indicate that we would be 

willing to discuss the issue of revenue-sharing. While that is, obviously, a sensitive issue, because many of those funds have already 

been spent by the Federal budget, we are interested in looking at 

the sharing of revenues with States, in an appropriate way. 

Senator LANDRIEU. And, Mr. Secretary, real quickly. 

Secretary BODMAN. Yes. 

Senator LANDRIEU. I have one final comment. 

Let me go on record to my colleagues, Republicans and Democrats, here. I have been a strong and long proponent of access of 

production. I will vigorously and aggressively oppose any opening 

of Lease Sale 181, or any new openings, unless there is a substantial and aggressive revenue-sharing provision for States based on 

the production or based on some fair share that we would establish. 

It is inconceivable to this Senator from Louisiana, having gone 

through the devastation that we are still living through—I wish we 

had thermometers to turn down. I wish we had a house to send energy to. The energy coast is flat on its back. And for this Congress 

to consider opening up new areas of production without providing 

the current States of Texas, Mississippi, Louisiana, and Alabama, 

who have borne the brunt, for 60 years, of the production for this 

Nation, to even begin to talk about that is really an insult to the 

people of my State. 

So, let me just go on record. I will vigorously oppose any opening 

unless there’s more than talk, but delivery, on a fair share of revenues to be spent appropriately, transparently, and accountably for 

the environment and for the people who happen to live there, 

digging the ditches, producing the oil, digging the channels, and 

helping this country become energy independent. 

Thank you, Mr. Chairman. 

The CHAIRMAN [presiding]. Thank you very much. 

Senator Craig. 

Senator CRAIG. No, Senator Thomas. 

The CHAIRMAN. Senator Thomas. 

Are you going to be here for a while? 

Senator LANDRIEU. I will be back. 

The CHAIRMAN. Well, Senator, would you yield for a minute? 

Let me say, Senator, I know your State’s going through a very 

difficult time, and I know how much you are fighting for it, and we 

all appreciate the circumstances you’re in. But I don’t believe that 

those of us on this committee, who have been working to help your 

State, deserve the comments you’ve just made. 

Senator LANDRIEU. I didn’t direct them at you, Mr. Chairman. 

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The CHAIRMAN. Well, we ought to direct them—you ought to be 

fair. You ought to also say a giant step has been taken. 

Senator LANDRIEU. A giant step has been taken. 

The CHAIRMAN. We gave you $350 million a year for 5 years. 

Senator LANDRIEU. You gave us a billion dollars. A billion dollars. And, Mr. Chairman——

The CHAIRMAN. How much to your State? 

Senator LANDRIEU [continuing.] And, Mr. Chairman, without 

you, it would not have happened. 

The CHAIRMAN. Well, I’m——

Senator LANDRIEU. And without Senator Bingaman, it would not 

have happened. But——

The CHAIRMAN. Yes, but I’m suggesting that to say nobody’s been 

doing anything about it. 

Senator LANDRIEU. I did not say that, Mr. Chairman. 

The CHAIRMAN. We have been. 

Senator LANDRIEU. I have been extremely grateful. I have said 

that the administration, both the previous and current——

The CHAIRMAN. Okay, now let me finish. 

Senator LANDRIEU. Thank goodness for these Senators——

The CHAIRMAN. Excuse me. 

Senator LANDRIEU [continuing]. Because we wouldn’t be anywhere without them. 

The CHAIRMAN. May I—you talked, and I want to finish. The 

Senator from Wyoming is being patient. 

We are having difficulty talking about the existing—the States 

that are producing, getting additional revenue, when we speak 

about revenues for new leases, because there’s a big budgetary difference. And I’m trying to solve that budgetary difference. And 

you’re aware of it. The new ones don’t count against the budget. 

The old ones do. So, every time we think about giving you increases, there’s a huge budgetary cost, and we can’t fit it in a bill. 

So, if we introduce a bill helping you, it does the other—it’s immediately subject to all kinds of points of order, so we just leave it 

aside. But we’re not intending to leave it aside. This Senator intends to do something about it. 

Senator LANDRIEU. And you already have, Mr. Chairman. 

The CHAIRMAN. I intend to insist that we equalize the royalties. 

If we are going to add royalties to new, then we must add royalties 

to old. Now, that’s the end of my conversation. And I don’t think 

we need any threats. We need your help. And you need our help. 

Having said that, we’ll yield to the Senator from Wyoming. 

Senator THOMAS. Thank you, sir. I wish you’d make yourself a 

little more clear about the way you feel, but——

[Laughter.] 

Senator THOMAS. If we were to, kind of, define where we are, 

which do you think was the problem that had more impact, the refining aspect or the production aspect? 

Secretary NORTON. Mr. Chairman and Senator Thomas, there 

were a number of offshore platforms that could have produced, 

were it not for the problems at the onshore facilities. And, although 

there were some others that went the other direction, from the offshore perspective we found that there were a great many onshore 

problems that prevented it. 

113

Senator THOMAS. But what we hear all the time is that generally 

the increased demand for gasoline, for example, is not a product of 

not having enough oil, it’s a refining restriction, which, in this instance, that—in the short term—and this is the second point I 

want to make, is, we’ve been working for a long time with all of 

you, and you’ve been working well, but more on a long-term energy 

policy. Now we’re looking more at a very short-term policy, and—

to try and deal with an issue. So, is it refining you think is more—

has more impact on our prices and on our capacity than—or oil? 

Secretary BODMAN. I think at least my understanding of the situation is, it depends on what the timeframe is, Senator. The refineries are expected to be back up and functioning by the end of this 

calendar year. At the current time, there are five refineries that 

are up. We expect one back this week, two at the end of November, 

two at the end of December. And, therefore, the refineries, as such, 

will be back and, under normal circumstances, will be functioning. 

My guess is that the offshore production of oil is going to take 

longer, because it’s going to—it will require construction of new 

platforms, in some instances, and that will be a longer-term thing. 

Senator THOMAS. That’s really not my question. I understand 

what you’re saying, but I’m talking about the impact on consumers. 

Which one has the more impact, the limit on——

Secretary BODMAN. I think it’s fair to say that the refineries have 

a greater impact on consumers. We’ve had crude oil available. It’s 

been made available out of the Strategic Reserve. 

Senator THOMAS. So, really, if we had to focus priorities, it really 

ought to be on getting the refining capacity back in shape. 

Secretary BODMAN. Well, the priorities—I think that’s yes, but 

it’s being done. It’s—and the refineries will be back in shape. The 

issue is expansion. I think that Speaker——

Senator THOMAS. And even putting these pack in shape doesn’t 

resolve the problem that we had before this ever happened. 

Secretary BODMAN. I agree with that. 

Senator THOMAS. I’m talking about refining capacity before this 

hurricane ever came. 

Secretary BODMAN. I agree with that. 

Senator THOMAS. And part of that has been the difficulty in the 

restrictions on expanding and developing new refineries. 

Secretary BODMAN. That is also true. 

Senator THOMAS. And so, it seems to me that’s one of the things 

that’s—and I’m really interested in this short-term/long-term thing. 

For example, Secretary Norton, offshore leases are going to take a 

while to produce. 

Secretary NORTON. Yes. 

Senator THOMAS. On the other hand, we have some availability 

of gas and oil in the West that is held up largely because of approval of permits and all those kinds of things. If you were really 

going to focus on the short-term impact, where would you get the 

most change the quickest? 

Secretary NORTON. We, obviously, have a significant impact in 

two places. One is getting the offshore capacity back up and running again. And that is being done——

Senator THOMAS. 181 leases——

Secretary NORTON [continuing]. And we’re working on that. 

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Senator THOMAS [continuing]. Don’t have anything to do with 

getting that up. 

Secretary NORTON. No, I’m sorry, the existing facilities. 

Senator THOMAS. All right. 

Secretary NORTON. But, you’re correct that onshore is very significant in the short term for getting things going again. And we 

appreciate the additional funding that was provided through the 

energy bill. And we are working very quickly to implement the provisions from that bill in our pilot offices, and we anticipate that, 

with that additional funding, we would be able to get increases of 

production up to a trillion cubic feet over the space of a year, and 

that is very significant. That is more than our current loss from the 

offshore, and that would be as the result of processing more quickly, under the current standards, the applications for permits to 

drill. 

Senator THOMAS. Just to interrupt you a little bit. I see some reports—this is, kind of, a bureaucratic thing—where you have big 

increases in some offices, and less in another. So, I would hope 

you’d take a little look at what can be done to get a little more 

oomph out of a few of those offices. 

Secretary NORTON. We’ve created an Energy Coordinating Council within the Department that allows us to look not just at what 

BLM is doing, but to make sure that moves quickly, but also to 

make sure we’ve got Fish and Wildlife Service people onboard. 

We’ve moved 2 weeks ahead of the statutory schedule to get an 

MOU signed with all of the other relevant Federal departments on 

working together on processing applications for permits to drill in 

those pilot offices. 

Senator THOMAS. Okay. Just as an observation on your last comment, as we look to the future, you talk about offshore drilling and 

all these things, and then you keep talking about—many people 

do—of the gulf. We ought to pick—does it make any difference—

if you’re going to develop offshore, should it be in hurricane—where 

the hurricanes generally come, or should we be looking somewhere 

else? 

Secretary NORTON. I think that diversity is important. We are 

hearing interest from some States—for example, Virginia—that is 

not an area where production has occurred in the past. They’re interested, if there is revenue-sharing, in looking at natural gas production. 

Senator THOMAS. I’ve heard quite a little bit, you know, about 

the concentration of energy development in this area that is subject 

to these kinds of disasters. And I should think, as we look long 

term, we ought to be giving that some attention. I’m sure you have. 

Thank you. 

Senator CRAIG [presiding]. Thank you. 

Senator Akaka. 

Senator AKAKA. Thank you very much, Mr. Chairman. 

I would like to ask that the full statement that I have be included in the record. 

Senator CRAIG. Without objection. 

[The prepared statement of Senator Akaka follows:]

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PREPARED STATEMENT OF HON. DANIEL K. AKAKA, U.S. SENATOR FROM HAWAII

Thank you, Mr. Chairman, for holding this hearing today. As you know, I also 

serve on the Homeland Security and Governmental Affairs Committee, which is conducting an investigation into the federal, state, and local government’s response to 

Hurricane Katrina. I welcome this opportunity to build upon the HSGAC investigation and review the impact of Katrina and Rita on energy infrastructure. 

On October 6th, the Energy Committee held a hearing on energy infrastructure 

and recovery. I remarked then, and continue to note, that we have a national crisis

on our hands. The repeated hammering by hurricanes has exposed significant weaknesses in the nation’s energy infrastructure and is sending us warning signs about 

our vulnerability during next year’s hurricane season. 

The price shock waves that rippled across the nation have pushed up prices on 

the mainland and in Hawaii. Gasoline prices went sky-high, but also the costs of 

materials, transportation, petrochemical products, and food prices—almost everything has been touched by the impact on our energy infrastructure. 

Climate experts predict that hurricanes will hit our coasts with greater intensity 

when they do hit, so it is critical to ensure adequate and durable infrastructure on 

our coasts. Hurricanes Katrina and Rita shut down 20 Gulf Coast refineries at one 

point and a total of 4.8 million barrels a day, or 28 percent of the U.S. refining capacity. The most recent hurricane, Wilma, will leave the east coast of Florida without electricity for days, in a much smaller repeat of the losses in New Orleans and 

the Gulf. Collectively, the hurricanes have exposed significant weaknesses in the nation’s energy infrastructure and significant effects on consumer prices across a broad 

range of goods and services. 

I look forward the testimony of the witnesses and I have some questions I would 

like to ask Secretaries Bodman and Norton about their agencies’ role in hurricane 

recovery.

Senator AKAKA. I want to add my welcome to the Secretaries 

here as we talk about this great disaster. 

Hurricanes Katrina and Rita highlighted the vulnerability of our 

energy infrastructure, particularly—and I’m so glad my fellow Senator has raised the question about refineries—and particularly in 

refining capacity and capability. After Hurricane Rita, we lost almost one-third of the U.S. refining capacity, as you noted in your 

testimony. However, even when Katrina hit our gulf coast region, 

the Nation’s refineries were already running at 98 percent capacity 

to meet demand. Yet, no new crude oil refinery has been constructed in the United States since 1976, for 30 years. And that 

was indicated. It is estimated that it could take up to 10 years to 

build a refinery in the United States. So, my question is: Why is 

it that oil companies have not taken the initiative to bring more 

refining capacity online in the United States, given the expected 

announcement of third-quarter profits of as much as $28 billion? 

Why have they not done that? And, to continue, what does the Department of Energy see as the shortfall in current policy that perpetuates the lack of domestic refineries? What policies would you 

suggest that could be initiated by the Department of Energy to correct this, beyond tax incentives? 

Secretary BODMAN. First of all, Senator, the reason that is usually given by the oil companies is that they have not found it profitable to invest in refining capacity. I think the Speaker got it about 

right yesterday, when he—I think it was yesterday—when he had 

his press conference, that these companies are turning in record 

profits, that they have a responsibility to increase refining capacity, 

that the American public expects that and should see that. And I 

believe that, that I do think that there is a—every possibility that 

we would—that we will see an expansion of capacity. But I think, 

as I said, the Speaker got it about right, until we get a sense that 

there is a concerted and broad-based effort to do that, we should 

116

continue to speak publicly about it. And I will continue to do that, 

both publicly and privately. 

You asked a second question, Senator? 

Senator AKAKA. Yes, I asked about the tax—beyond tax incentives, what policies would you suggest? 

Secretary BODMAN. Yes, what the policies are. You know, the 

issue there has really been one, I think, that you will find in talking to both the large oil companies, as well as the companies that 

specialize in refining, that we have a significant problem with respect to siting new refineries. People want the energy, but don’t 

want to have the facility that creates the energy in their backyard 

or in their neighborhood. And so, there is a difference, in terms of 

siting coordination between the Federal and State and local authorities. We did favor and support Mr. Barton’s bill, which sought 

to deal with that matter. And so I think those sorts of approaches 

of trying to improve the siting, the permit issuance, is something 

that would help materially. I think it’s also true that, with the increase in gasoline prices that we’ve seen, that the margins in the 

refining side of the business are quite strong, and very much would 

support at least increasing the capacity of the refineries that already exist, as well as creating new refining capacities, new refineries. 

Senator AKAKA. A final fast question. My time is expired. What 

is your view of the idea of a Strategic Refinery Reserve, similar to 

the Strategic Petroleum Reserve, as discussed in the Environment 

and Public Works Committee only yesterday? 

Secretary BODMAN. Right. That is one of the subjects that is 

being talked about by our colleagues at the White House, including 

the Secretary and myself, who participate in it. I will tell you that 

it’s a complicated matter. Gasoline has a limited shelf life. It starts 

to lose its performance characteristics after 2 or 3 months, typically. And so, it has to be constantly turned over. So, if you were 

to set up a reserve, you have to take that into account. We also 

have to remember that we have—I think it’s 15 different types of 

gasoline, then all the different States that have various requirements under the Clean Air Act. And, therefore, which grade are 

you going to put in the reserve, and where? So, there are issues 

there that need consideration, but there are many who are intelligent, and who observe this industry as it operates, that think a 

reserve of refined products is something that we should have. And 

it’s being looked at, as best I can tell, quite closely. 

Senator AKAKA. Thank you, Mr. Chairman. 

Senator CRAIG. Thank you, Danny. 

Senator Salazar came first, but Senator Cantwell stayed longer. 

[Laughter.] 

Senator CRAIG. Senator Cantwell. I flipped a coin. She won. 

[Laughter.] 

Senator CRAIG. All right? Thank you. Appreciate it, your courtesy. Please proceed. 

Senator CANTWELL. Thank you, Mr. Chairman. 

Senator Salazar did come back, and he has a pressing—I’m 

happy to defer to him so that he can get his question in. 

The CHAIRMAN [presiding]. Go ahead, Senator Salazar. 

117

Senator SALAZAR. Let me just ask this question, Secretary 

Bodman. One of the conversations I’ve had with Chairman Domenici and Ranking Member Bingaman and others of the committee 

has to do with your statement that the only real short-term action 

we can take for this winter is conservation. 

Secretary BODMAN. Yes. 

Senator SALAZAR. And there are two concepts that I included in 

legislation that I’ve been talking to my colleagues about, and I 

want your reaction to them. One would be to have a Federal law 

that essentially would mandate the Federal Government to reduce 

its consumption of energy by some percentage. I don’t know whether that would be 2 percent or 5 percent, but that way the Federal 

Government could lead, if you will, by example, in terms of conservation. The second concept has been to accelerate the parts of 

the energy bill, which we passed, to provide the tax credit for—tax 

credits for energy efficiency to kick in earlier than they are now 

scheduled to kick in under the bill. And my thought has been that, 

given the high prices of natural gas and heating oil and the like, 

is that you would have consumers that would be incentivized to put 

in the new furnaces or the new water heaters or the more energy 

efficient windows if we had that tax credit, that tax incentive for 

them to do it. And so, one of the ideas that I’ve thought about is 

moving that time for the implementation of those tax credits up to, 

say, December 1, as opposed to when they kick in later in the bill. 

What’s your reaction to those concepts? And, also, do you think 

that there might be something that we should be doing here in the 

Congress, and out of this committee, with respect to some kind of 

emergency conservation legislation for this year? 

Secretary BODMAN. First of all, we are working very hard—we, 

in the Energy Department, and with our colleagues throughout the 

executive branch—on energy-saving programs. We’re just pulling it 

all together and getting feedback as to what everybody’s efforts are. 

I don’t have any quantitative numbers to give you. When you start 

mandating certain energy savings, you get into the very situation 

that you mentioned: What percent, and how do you do it? Because 

some departments are much more energy intensive than others, 

and some activities are more energy intensive than others. And so, 

when one starts to mandate, one gets, I think—it may well interfere with the functioning of the very departments that you want 

functioning well. And so, we will pull together and make available 

the information that we are currently—under the current program, 

working on. 

In terms of advancing the tax incentives, I think most of those 

incentives start January 1. It’s a matter of, would there be an advantage in having it take effect December 1? I think there would 

be some. And therefore, depending on what’s involved in getting it 

done and getting it passed, I would think that that would help, in 

terms of the conservation efforts. 

I think it would be a mistake to assume that it would be a big 

effect, because you’re talking only, I think, about 30 days, because 

I think that the tax incentives for ENERGY STAR appliances and 

that sort of thing start January 1, sir, I believe. 

Senator SALAZAR. Right. Secretary Bodman, my only comment on 

that is that I do think, following up on many of the questions and 

118

comments of my colleagues, that part of it is educating the Nation, 

as a whole, about energy conservation. And if we look at this as 

the kind of crisis that we’re in, and we’re taking action, even 

though it may only—it may only help us, in terms of providing a 

30-day window in December, that it may be part of just elevating 

the consciousness of the country on conservation. 

Secretary BODMAN. It could well be. Yes, it could well be. That’s 

not my long suit, is, you know, trying to make a—you know, a public-relations sort of judgment on that. I do want to emphasize that 

this initiative goes beyond just the little booklet in working with 

consumers. We are working with consumers, and we’ve done public-service announcements, to get this information out to some, I 

think, 4,000 radio stations throughout the country. We’re also 

working with industry, as well as with the Government. We have 

teams of people that come from the energy-efficiency part of the 

Department of Energy who are working with the 200 largest energy users in industry and also are working with our colleagues in 

the Federal Government at devising methods of reducing energy 

use. 

Senator SALAZAR. Just one other quick question. In terms of the 

status of DOE’s regulations that would implement the conservation 

measures that were passed in the energy bill, including the tax 

credits, how are those coming along? 

Secretary BODMAN. We have literally hundreds of different reports and initiatives that we have been charged with doing. I think 

we’re doing well—we’re managing it in terms of the equipment—

the appliance regulations that were in the energy bill. I think there 

were some 15 or 16 different appliances. Those have already been 

done. They’ve been published and they’re in the Federal Register. We did that about a week ago. 

Senator SALAZAR. Let me just say I—I’ve often said this to Chairman Domenici—and that is that I think that the work that you 

have in your hands on energy for our country is probably the most 

important domestic agenda, and I look, very much, forward to 

working with you on these issues in the future. 

Thank you very much. 

Secretary BODMAN. Thank you, sir. 

The CHAIRMAN. Senator Cantwell. 

Senator CANTWELL. Thank you, Mr. Chairman, Secretary Norton, 

Secretary Bodman. 

Secretary Norton, it’s good to see you. Last time I saw you was 

at the U.S. Geological Office in Vancouver, Washington, when you 

were concerned about Mount St. Helens erupting. And at least we 

can say that’s one natural disaster that didn’t happen, we didn’t 

have to worry about. 

Secretary Bodman, I wanted to follow up on a couple of things 

that my colleagues brought up. I actually have two subjects I wanted to see if I could get your input on. In the energy bill, we’ve put 

in a new section dealing with the sale of electricity and transmission, that basically says, ‘‘Let’s not have any manipulative or 

deceptive conveyances or devices.’’ That was our way of getting at 

what had transpired in the electricity markets. Do you think we 

need that kind of authority, at the Federal level, to make sure that 

there isn’t price gouging going on? 

119

Secretary BODMAN. That’s a complicated question. It’s really a 

legal question, I think, Senator. My own view of it is that we have 

what I would characterize as a reasonably effective outreach for 

identifying citizens who indicate that there are gouging problems 

in their neighborhood. We’ve got both a Website and have had a 

toll-free number to identify those. We pull the information together, we make it available to the Federal Trade Commission, and 

they work with individual States. As I’m sure you know, each State 

has its own definition of just exactly what gouging is, and——

Senator CANTWELL. We don’t have any Federal authority there. 

Secretary BODMAN. No, we don’t. And when one gets to 

superceding what has traditionally been, you know, local legal authority, I would be very careful about doing that, that’s all. 

Senator CANTWELL. So, the Department doesn’t have an official 

position on way or another, at this point? 

Secretary BODMAN. It’s not something that we have sought, no. 

Senator CANTWELL. Perhaps we could send you legislation, and 

you can give us comments on that? 

Secretary BODMAN. Be happy to do that. 

Senator CANTWELL. Okay, great, thank you. 

On this strategic reserve issue, I think the Europeans have done 

something on jet fuel. Is that something we should consider? 

Secretary BODMAN. Yes, it’s—the strategic—the Strategic Reserve looks at any distilled product. I think the Europeans do that. 

And they—each country there has its own procedure. Many of them 

put the maintenance of the strategic reserve of refined products in 

the hands of industry, because industry is the one that’s constantly 

dealing with this, and that way, you overcome the question of 

maintaining the freshness of the product, where if you—a government were to get into that business, let’s say, you’re then constantly in the business of having to turn over the inventory and 

getting it moved out. 

Senator CANTWELL. But is that something you think we should 

consider? 

Secretary BODMAN. I think that it’s something that ought to be 

considered. It’s not going to help, near term, for sure, but it is 

something that needs to be considered. I just would repeat, we 

have a variety of grades of these different materials. And so, when 

you talk about refined products, you’re not talking about three or 

four things, you’re talking about 20, or some large number—I don’t 

know what the different grades are—of jet fuel, for example. But 

I’ll bet they’re—that they’ve—it varies——

Senator CANTWELL. Somehow, the Europeans have figured that 

out, right? 

Secretary BODMAN. Somehow, the Europeans have figured that 

out. And, apparently, it works there. 

Senator CANTWELL. Okay. I’m curious about your thoughts about 

whether we should do that on some of these new areas of alternative fuels that we’re looking at, but I’ll save that, because, while 

I know this hearing is about energy costs, I wanted to ask if you 

had seen the IG report on the audit of tank waste retrieval at Hanford, if you had had a chance to see that report? I think it came 

out a week or so ago. 

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Secretary BODMAN. I have not read it, Senator, but I’m generally 

aware of the contents. 

Senator CANTWELL. Are you concerned about meeting the milestones for cleanup at the Hanford site? 

Secretary BODMAN. Absolutely. As you’re well aware, we have 

looked very hard at the entire Hanford effort, and I have made a 

determination that we are going to miss some of those milestones. 

Your office, as you know, was informed. Your colleague’s office, Mr. 

Hastings, who——

Senator CANTWELL. Were we informed that they were going to be 

missed? 

Secretary BODMAN [continuing]. The Congressman from the area, 

as well as the Governor. So, everybody’s been informed. 

Senator CANTWELL. I think we were informed that they might be 

missed. And so, you’re saying that they will be missed. 

Secretary BODMAN. Best we can tell at this point in time, they’re 

going to be missed, yes, ma’am. 

Senator CANTWELL. Okay. So, what do you think we do about 

that, given that there are, you know, 67 single-shelled tanks that 

are either confirmed leaking or suspected leaking? 

Secretary BODMAN. We are very committed to the cleanup of the 

Hanford site. The issues that will—we’re going to miss milestones 

relate to the vit plant, to the so-called vit plant, and getting that 

started on time. 

Senator CANTWELL. This is about tank waste, though. This report 

is about tank waste. 

Secretary BODMAN. Okay. Well——

Senator CANTWELL. In fact, the budget is going to double. The 

original estimates by the Department were way off, and now, the 

cost is going to double. 

Secretary BODMAN. I haven’t seen it, but I’m not surprised by it. 

Senator CANTWELL. Okay. Well, we’re obviously very concerned 

about it. 

Secretary BODMAN. No, I understand. I understand. We’re very 

committed to cleaning up that site, and we’re doing our level best 

to try to accomplish that. But what I don’t want to do, and will 

refuse to do, is to—as best I am able to—is to make commitments 

we can’t keep. And that has been the case in this project in the 

past, where we have made commitments in terms of what the various cost levels were going to be. And the Government is very good 

at buying highways, buying bridges, buying things that are of that 

type, because we do it all the time. I’m a chemical engineer and 

it is very difficult, I will tell you, to accurately estimate in advance 

what things are going to cost. Everybody has to understand that 

there are very wide bands, in terms of precision, on this. And so, 

it’s a real issue. 

Senator CANTWELL. I don’t know if you remember, Secretary 

Bodman or Mr. Chairman, but before this committee, I did recommend that you become Secretary of Energy for life, or until Hanford cleaned up, because I do think it is a very, very complex 

project and it needs the oversight of somebody who understands 

that complexity. But we certainly feel that the budget shortfall 

there needs to be addressed. And so, we’ll be working with you and 

the chairman and others to try to address what has been a larger 

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projection for cost than was originally estimated. And, again, the 

fact that the tank waste is reaching toward the Columbia River has 

got all of us very concerned. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Frankly, after all the Secretary has to put up with, I’m not sure 

he wants to be Secretary for life. 

[Laughter.] 

The CHAIRMAN. But I haven’t asked him yet. 

Senator, I’m going—I haven’t asked any questions. 

Senator TALENT. Sure. Can I just say, Mr. Chairman, I might almost think of that as a life sentence, rather than life service. 

[Laughter.] 

The CHAIRMAN. Same for the Secretary of the Interior. It’s the 

same thing. 

Well, first, Secretary Bodman, I’m very sorry that the hearings 

have not quite been as extensively on the subject of the hurricanes 

as it might have been, but you can tell there’s a high, high degree 

of frustration about our inability to get our arms around this energy problem, which is bigger than Katrina and Rita, obviously. So, 

I want to ask, with reference to Katrina and Rita and the fact that 

we have so much energy—of our energy assets there, are you looking at lessons to be learned? I’m not asking that you disclose them 

all, but——

Secretary BODMAN. Yes. Yes. Yes, we are. 

The CHAIRMAN. I would think that there’s got to be some things 

that come out of that. For instance, the pipelines just told us, when 

we were down there—that one little visit of Senator Bingaman and 

Senator Akaka and I—that they’re looking very, very diligently at 

the possibility of having a dual pipeline system in an area so that 

they have an extra capacity when problems occur. That’ll come up 

later, but I would think that there ought to be some possibilities 

that we could prevent the shutdown of industries and utilities because most of it’s not coming from being destroyed, most of it’s 

coming from not having any electricity. 

Secretary BODMAN. Yes, sir. But it’s not obvious to me how putting in two lines would help. 

The CHAIRMAN. I understand. 

Secretary BODMAN. I mean, trying to put in electric power and 

have the electric power delivered with greater degree—with greater 

reliability would help. 

The CHAIRMAN. But maybe it’s some real effort at backup that’s 

targeted. I’m just saying it’s—I think it’s incumbent on the industry and your Department to really work at that. And somebody has 

to spend some resources on it. It would be resources well spent. 

Secretary BODMAN. Thank you, sir. 

The CHAIRMAN. Second, Secretary Bodman, it seems to me that 

this is a new day, in terms of the public versus energy, and that 

they will accept and go along with things that they might have not 

gone along with in the past on the side of supply. And I just urge, 

as a general proposition, that you not be bound by, you know, ideas 

about what you could and couldn’t do 5 years ago. And I don’t know 

whether that applies to you or not in any specifics, but I really 

think the public—for instance, on ANWR, the public polls show an 

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incredible change in the last 2 or 3 years, most of which has occurred in 6 months, in terms of favor/disfavor. 

And that leads me from the Secretary to you, Madam Secretary. 

First, I apologize for any pushing on you about 181. But I want to 

tell you, and state for the record, and then I’ll ask you some specifics, you know, if the United States of America, believe it or not, 

were going to put all its eggs in one basket on its natural gas future—sorry, Alaska—the eggs would be put in offshore drilling of 

natural gas. It is, all by itself, more than enough natural gas for 

all of America’s needs for as far as we can see. 

Now, part of it’s impossible, as I guess it’s impossible to do it off 

the shore of California, no matter how far out you go. But I want 

these numbers in the record. We are using 22.9 trillion cubic feet 

per year. It is now estimated, under old estimates, that the entire 

offshore has 420 trillion cubic feet of natural gas. 

Now, I understand how we have been—tied ourselves in knots 

about doing anything about it in the past, but I submit to you that 

the knots are coming apart, and we can sit by and worry about 

them, or we can decide we’re going to hurry up and take them 

apart. And it’s in that context that I urge that you look at the 

Outer Continental Shelf with a new, new vision. 

I applaud the House. They’re doing some very, very terrific 

things. In fact, the Peterson approach was thought to be, kind of, 

wild—it might get a lot of votes in the House—for us to just open 

them, instead of the opt-in/opt-out, and give them a very extensive 

and new royalty. I did not ask you what you think about it, and 

I won’t ask you, but I’m letting you—leaving you with that thought. 

Well, maybe I will. What do you think about what I’ve just said? 

[Laughter.] 

Secretary NORTON. Mr. Chairman, you are correct, there are vast 

resources offshore. I also should point out that in your own State, 

as well as the rest of the Rocky Mountain region, we do have 139 

trillion cubic feet there, as well. 

The CHAIRMAN. Right. 

Secretary NORTON. And so, we need to look both onshore and offshore. 

The one point I’ll make on the natural-gas-only leasing, which is 

the Peterson amendment, there are some technical issues as to 

that. We have asked for comments in our 5-year plan on the technical aspects of that, so we should have some additional information for you. 

The CHAIRMAN. I understand. Now, we’re going to talk about onshore for a minute, very precise and specific with you. I’ve been informed that, in just one area of Wyoming, Pinedale, we are on a 

winter no-drilling rest-of-the-year drilling. Now, for everybody listening, that sounds neat, right? But, you understand, that’s a terrific problem. Secretary Bodman, you understand, you know, you 

put a drilling rig in, and you drill, and then you’ve got to move it, 

or shut it down, and 6 months later, bring it back—I mean, that’s 

a very, very onerous—you know, but for something unusual, it’s 

rather impractical, to say the least. 

I am told that if just that area, Pinedale, were put on yearround, it would yield as much natural gas as is needed for onethird of all of Los Angeles’ needs. They’re always comparing and 

123

saying, ‘‘It doesn’t matter much.’’ I’m beginning to try to compare 

locally, so, when they say, ‘‘It doesn’t matter much, it’s only onetenth of 1 percent of America’s’’—I say, ‘‘Well, how many counties 

in New Mexico?’’ or, ‘‘How many of my major cities?’’ It turns out 

a little different. 

So, I want to ask you to do this for us. I want you to respond 

to us very precisely in writing, What is the problem—legally, administratively—with lifting, changing, or substantially altering the 

winter prohibitions? Would you do that? 

Secretary NORTON. Mr. Chairman, we’d be happy to do that. 

I will note, we have approved some winter drilling proposals in 

that area, and the ones I’m aware of total 54 billion cubic feet that 

will be brought online by allowing the winter drilling, which is a 

very significant amount. That was done with mitigation—it’s largely dealing with big game animal populations—but with mitigation 

and with some steps taken to be sure that the environment is protected at the same time. 

The CHAIRMAN. Okay. Now, on 181, I would like you to tell us, 

in writing, with your lawyers—you’re a lawyer, also—but go 

through with us exactly what is the most expeditious way, and 

what are the impediments, to proceeding with 181, in whole or in 

part, and give us—don’t do this on the basis of assuming that every 

problem is one that’s not doable. Assume, quite to the contrary, 

that, unless they’re absolutely legal, that the time has come to do 

some of them. Can you do that for us? 

Secretary NORTON. We’d be happy to look at what would need to 

be done administratively as well as what legislation might be able 

to do it. 

The CHAIRMAN. And I would really urge that you have the best 

people you can do that, and not people who are looking for every—

you know, every fly in the ointment, but, rather, that this is something very important to the American people. This could be taken 

to them very easily, in terms of, Are you worried enough about this 

or not? Especially if you do a hundred miles out. 

I would add to that the request that you do it also if we move 

a hundred miles away from the coast. Give us your analysis. 

I don’t think it’s going to be any different, because I think you 

can draw the line wherever you’d like. But I’m not sure of that. 

Secretary NORTON. Thank you, Mr. Chairman. 

The CHAIRMAN. Will you also give us the estimate of natural gas 

that we currently think would be on 181? And then what would be 

there if we start a hundred miles out. Do you know those numbers? 

Secretary NORTON. I actually can give you that, assuming we 

start a hundred miles out, so everything that’s more than a hundred miles from shore, the area that has not been leased in Lease 

Sale 181 contains 6.03 trillion cubic feet of gas, which translates 

to providing enough gas for 4.3 million households for 20 years. 

The CHAIRMAN. Now, see, this is not just a little field. This is 

pretty big stuff for America and our future. 

Now, Secretary Bodman, with reference to the energy bill——

This is my wrap-up, and I’ll go to you and—the Senator wants 

a second round. If you can stay a minute and let him do that—

okay, well, anybody that comes back, we don’t want to keep these 

Secretaries too long, they’d better get back pretty quick. 

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Secretary Bodman, you’re overwhelmed with many things, including the crisis of the hurricanes, but I think it’s really important 

that we not let a whole year go by in analyzing the energy bill in 

terms of resource needs to accomplish some of the goals, and also 

administrative needs on your part. 

Madam Secretary, there are a number of them for you, also. 

I would ask that you inform us on what kind of a timetable you 

have for getting these—you pick the most important ones. What’s 

the timeframe for you to get them done? 

And then I’m going to ask you informally—and this, you 

shouldn’t do on the record, but I’m just going to lay it before you—

I think it’s important that the administration know, as they 

produce their budget, in these times of constraints and everybody 

wanting to cut, that we really—you know, we just did a bill which 

was lauded, but if you look at it, you’ve got to do some things to 

make the praise bear fruit, right? Some of it’s not automatic. 

Secretary BODMAN. Most of it, sir, I think, is not automatic. 

The CHAIRMAN. Not. 

Secretary BODMAN. No. 

The CHAIRMAN. You know, for instance, even nuclear, we’re all 

proud of it, but you’ve got to draw some rules for the loans, right? 

Secretary BODMAN. Right. 

The CHAIRMAN. I mean, for the insurance. 

Secretary BODMAN. Right. 

The CHAIRMAN. And you’re doing that, right? 

Secretary BODMAN. Yes, we are. 

The CHAIRMAN. So, I think I would like to be helpful, in terms 

of advising the administration of five or six important funding 

areas, maybe some on your end, without which we’re not going to 

get any of the fruits, then they’ll say the bill didn’t work. So, I 

would ask both of you if you might informally share that kind of 

thing with me, if you feel comfortable. 

If it’s something you don’t think you can do, because of your relationship to OMB, then we’ll do it over a cup of coffee and nobody 

will know we did it. 

[Laughter.] 

Secretary BODMAN. We’ll find a way, sir. 

The CHAIRMAN. Now, what I’m going to do is yield to you, Senator. 

Senator TALENT. I’ll just take a minute. 

The CHAIRMAN. And then Senator Murkowski—is this your first 

round? 

Senator MURKOWSKI. Yes, sir. 

The CHAIRMAN. You go, and then Senator Akaka. And will you 

stay here for a while? 

Senator MURKOWSKI. I will. Thank you. 

The CHAIRMAN. Thank you very much, Secretaries. How about 

your time? You’re okay? 

Secretary BODMAN. Yes, sir. 

The CHAIRMAN. Other than getting hungry, I guess you’re okay. 

Thank you for your time. 

Senator TALENT. They need some fuel, too, I guess, Mr. Chairman, don’t they? 

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Thank you, Mr. Chairman. And I can be brief, in part, because 

you went into a lot of the areas I was going to go into. 

You know, I want to say that I think we have a tremendous opportunity now to move ahead, in terms of supply. And I hope you 

will both, for your portfolios, just take the attitude that any energy 

package that does not contain a substantial supply component is 

just a nonstarter. And I’m talking about supply of natural gas, oil, 

traditional fuels, which, in the short term, we’re going to need. Yes, 

then conservation, on top of that. That’s great. We should do that. 

And, of course, we should find the supply in environmentally sensitive ways. But this is the time to do supply. I think that’s what 

the people are looking for. The chairman was mentioning that, and 

I think he’s right. If we just look at natural gas, demand is going 

to increase, over the next 20 years, about three times that the projected supply is going to increase. And that’s when prices are already intolerably high. So, we have got to increase supply. 

Let me add a question to the chairman’s, and you can respond 

later on this. But I’d like to know—and I’m not sure he asked it 

exactly this way. What areas, onshore or offshore, hold the most 

promise? And which of those areas are the easiest to access, both 

in terms of readily available pipeline and processing infrastructure 

and in terms of overcoming legal impediments to get natural gas? 

In other words, Madam Secretary, I think it would be useful if you 

looked at the areas which contain reserves that you guys control, 

looked at which ones were the easiest to get at, in terms of practical impediments, which would be pipeline processing, and then 

looked at the ones that are most difficult, in terms of legal impediments, and then maybe did a cross to see which of the ones that 

are the easiest to get at practically and the easiest to get at legally 

and maybe supply us with a sense—a set of priorities on that. 

I don’t like you to have to go away with a bunch of information 

requests, but I sure would like to know what are the easiest to get 

at from both standpoints. Maybe we can remove some of those legal 

impediments. 

And then just—the chairman asked about Lease 181. I’m very interested in that, but I won’t go into that. 

Let me just ask you both to opine on one subject, and then I’ll 

yield to my colleagues. How will the natural gas supply and price 

forecast change if we were able to move ahead, let’s say, with Clear 

Skies if we were able to make coal more readily available, either 

through Clear Skies or perhaps some kind of coal gasification program, so that we could take some of the burden off of natural gas 

as an electricity-generating fuel? 

Secretary BODMAN. Why don’t I talk about that. First, neither of 

these are going to deal with this winter, sir, as you’re well aware. 

And so, that’s why our focus has really been on conservation, and 

that’s what we’re out trying to make known to the American people. Certainly, clean coal technology will make a huge difference. 

Nuclear power will make a huge difference by removing the pressure on natural gas. The natural gas situation is even more difficult than the gasoline situation today, because we don’t have any 

ready means of importing product. We have LNG, but it’s only 2 

percent or 3 percent of what our needs are. And it’s a major problem. 

126

I am very much committed to working on the clean coal technology, working on nuclear power in order to try to accomplish 

that. In order to give you a price forecast, I can’t do that off the 

top of my head, but we’d be happy to have our folks at EIA looking 

at what we might be able to accomplish. Looking long term and 

what the impact would be on natural gas, we’d be happy to make 

that available to you. 

Senator TALENT. I agree with what you’re saying about this winter. I just think the conservation medicine will go down a lot easier 

if people know that supply is on the way. 

Secretary BODMAN. Well, sure. 

Senator TALENT. And I would encourage you to link those as you 

talk about them, while making clear that the supply is not going 

to produce more in the next, you know, 3 or 4 months. 

Secretary BODMAN. Right. 

Senator TALENT. But we’ve already done a lot in the bill, and I’m 

glad you mention that, with regard to LNG. With renewables for 

oil and gas—and we’re working on ANWR, and hopeful that we can 

get that. So, I think some help is on the way. But the more that 

we can do, the better. And I would encourage you both to talk 

about it, in terms of increasing supply. The chairman is right, people are not only ready for that, they’re expecting it. 

Secretary BODMAN. Thank you. 

Secretary NORTON. And, Senator Talent, we are looking at what 

we can do in the short term, as well as in the long term, in terms 

of our access to supply. 

Senator TALENT. Thank you, Madam Secretary. 

Thank you, Madam Chairman. 

Senator MURKOWSKI [presiding]. Thank you. And it’s—you know, 

it’s great to be talking about ‘‘Help is on the way.’’ And we always 

say, ‘‘Alaska stands ready.’’ We are just itching to help you out. 

Whether it’s oil or natural gas or coal gasification or wind or geothermal or ocean energy, we’ve got it all. We just can’t get it to you. 

And this is the concern that I have. Recognizing how much potential we do have up north, and in other parts of the country that 

we just haven’t been able to get at, we, as a country, certainly 

when it comes to our oil supplies, have chosen to look overseas, 

have chosen to look abroad. And that’s why we are approaching 

about 60 percent—between 58-60 percent dependency on foreign 

sources of oil. 

I am so concerned—and I raise this at every opportunity—that 

we’re going, potentially, in the same direction when it comes to 

natural gas. We’ve all heard the statistics, we all know that the 

supply is just so far outstripping—and what we’re talking about 

are these projects that are longer term, whether it is the coal gasification—we’ve got a project in Alaska that we’re looking at that’s 

just kind of right on the edge of coming together, in terms of possibilities. We’re very excited about it, but we recognize that the window on that is years off. 

Our natural gas pipeline, I want to talk to you a little bit about 

that this morning, because there’s a great deal of frustration that 

we haven’t been able to get at least two of the three major producers to come online with a project that we, in this country, have 

said, ‘‘We want Alaska’s natural gas,’’ we, in the Congress, have 

127

said, ‘‘We want it, and we’re willing to put taxpayer dollars to help 

with incentives’’—we did that last year, and we still can’t get two 

of the three to commit. And so, we’re at that situation where, because we can’t establish to the markets that it’s here for the short 

term, it’s going to be available in the short term, we look offshore, 

we look to Indonesia, we look to Qatar, we look overseas. We sign 

these 25-year contracts. We set up the LNG siting facilities to receive it. But what are we doing here in this country? And I get very 

nervous about—in a quest to meet the short term, we’re making 

long-term commitments, without making the commitment to develop it here. 

And I want to get back to—to my—now I’ll make it a question, 

on the gas line. Press reports that the Governor and his administration have pretty much come to agreement with ConocoPhillips, 

one of the three major producers in the State, for agreement on a 

gas line. Exxon and BP have not yet come to the table, are not yet 

participating. And I am not privy to the details. The public is not. 

But we know that we can’t even discuss the issue of a natural gas 

pipeline before our legislature to approve it unless and until we’ve 

got a—producers out there that are willing to make it happen. 

Now, some of my colleagues here earlier were beating up a little 

bit on the oil companies and saying, ‘‘Look, they’re facing major 

profits this year, and it’s a growing trend, and that we expect the 

trend to continue.’’ What it is that we have to do to move this 

project further? We have, last year, as you very well know, moved 

forward with some fiscal incentives at the Federal level that we 

were told, ‘‘Boy, if we can get those, gas is coming from Alaska.’’ 

Given where we are and what you know, what can you advise? 

Secretary NORTON. Senator, I know that each of us has had conversations urging the companies to move forward with the pipeline 

and getting that constructed and emphasized the importance to the 

country of having that pipeline constructed. As you know, at this 

point it is largely in the hands of that negotiation for a proposal 

to emerge in which the Federal Government would then be taking 

action to handle that proposal. 

Senator MURKOWSKI. Secretary. 

Secretary BODMAN. I wish I had a good answer for you. I would 

certainly associate myself with what Secretary Norton just said. I 

think while you were out, Senator, I made the statement that I 

think Speaker Hastert had it about right in his press conference, 

that these companies are showing record profits, they’re doing very 

well, and it’s time for them to demonstrate to the American public 

that they’re going to be responsible in running, you know, our collective energy business, our country’s energy business. And that involves increasing refining capacity, and it involves dealing with 

this pipeline, because my information is, we’re, you know, up to 

four billion cubic feet a day of gas that can come out of this pipeline. We only use 60 or 61 billion cubic feet. It’s a massive injection 

of gas into our economy that we desperately need. And I think the 

Speaker had it about right. 

Senator MURKOWSKI. When I think whatever we can do, at a 

public level and at higher levels, to remind the companies that the 

country needs this and that it is as much an issue of energy security as economic and national security. And I think the more that 

128

we can do to impress that, it’s very important for us. So, I would 

appreciate your assistance in that. 

One very quick question. There was a comment made by Red 

Cavaney of the American Petroleum Institute. And Mr. Cavaney 

indicated that when it comes to refineries, it may not be so much 

construction of new refineries that is needed as much as expansion 

of the existing refineries that we have. I haven’t had a chance to 

speak directly with him about that to see what it is that we can 

do, at the congressional level, at the Federal level, to help facilitate 

the further expansion. Any comments or thoughts, Secretary 

Bodman? 

Secretary BODMAN. Well, I think the reason that there seems to 

be greater interest in expansion rather than building a new greenfield facility is, one, it’s easier to get it permitted, because you already have a site there; and so, therefore, getting the expansion 

done, it’s proven to be a couple of years, rather than 3 or 4 years. 

You’re looking at big differences in at least the historical timeframe. Second, by expanding, you already have available, presumably, at a refiner that already exists, crude oil supply. You have a 

way of getting crude to the facility, so you can expand that. And 

you also have customers and places you can put it, whether it’s the 

chemical industry, whether it’s retail consumers, by access to a 

pipeline that gets the product eventually. So, there are a number 

of reasons, both financial and from the standpoint of getting the 

approvals done, that encourage that. 

I think it’s useful to look at either one. I think that it’s useful 

to think about additional refining capacity. If you look at a map of 

refineries, there are a lot of refineries all over America. They’re 

scattered pretty well. They’re much less concentrated, in terms of 

individual units, than I once thought. It’s true, the larger refineries 

are down in the gulf coast and in New Jersey, New York area, as 

well as in Los Angeles. That tends to be where the concentrations 

are. So, the additional refining capacity will help. But I just think 

we also should be encouraging the greenfield or grassroots type development. 

Senator MURKOWSKI. Thank you both, Secretary Norton, Secretary Bodman. 

Senator Akaka. 

Senator AKAKA. Madam Chairman, may I ask two fast questions? 

And I didn’t want to leave without asking Secretary Norton a question. But this has to do with what we’re just discussing now, and 

that is pipelines and delivery of energy. 

Secretary Norton, under section 368 of the Energy Policy Act of 

2005, several agencies are required to identify energy corridors for 

oil, gas, and hydrogen pipelines, and electricity in 11 Western 

States. I understand that the Bureau of Land Management and 

Forest Service recently began holding public meetings to gather 

comments that will be considered in designating new energy rightof-way corridors on Federal lands across the West. One question, 

of two, is, Can you elaborate on the anticipated increase in energy 

transmission that the corridors will provide to growing areas? And 

I understand that the corridors will not cross national parks lands 

or wilderness areas. Is that correct? 

129

Secretary NORTON. Senator, yes. I’m not aware of any proposals 

that would do that. And that was not included in the legislation. 

So, we’re focusing on our multiple-use lands. 

Senator AKAKA. And what about the national monuments on Bureau of Land Management lands? And what about National Landscape Conservation Lands, which have been designated as uniquely 

important landscapes? And so, my second question is, Will the 

transmission corridors cross those lands? 

Secretary NORTON. There are some specific things that are included under the statutes. The monuments that are BLM monuments are not. One would have to look at the purposes outlined in 

the monuments’ designation. A number of those do include existing 

rights-of-way in existing corridors. We are going through a process, 

working with the Western Governors Association, to try to identify 

desirable rights-of-way. And those kinds of factors would certainly 

be considered as we would be looking at which areas make the 

most sense for having the designations. 

Senator AKAKA. Yes. And my first question was if you would 

elaborate on the anticipated increase in energy transmission that 

the corridors will provide for. 

Secretary NORTON. I’ll have to provide that for the record. 

Senator AKAKA. Fine. 

[The information follows:]

The BLM has begun its efforts to identify energy corridors pursuant to section 368 

of the Energy Policy Act of 2005. The public scoping period for the West-wide Energy Corridor Programmatic EIS began on September 28, 2005 and concluded on 

November 28, 2005. At this point in the process we are unable to quantify an anticipated increase in energy transmission capacity. We anticipate an estimate will be 

possible as we continue through the EIS process. We will be happy to update you 

as information becomes available.

Senator AKAKA. Thank you very much, Madam Chairman. 

And thank you for your responses. 

Senator MURKOWSKI. Thank you, Senator Akaka. And thank you, 

again, to both of you, for giving us as much time as you have this 

morning and for your work on behalf of the country. Appreciate it. 

And, with that, we’re adjourned. 

[Whereupon, at 12:40 p.m., the hearing was adjourned.] 

(131)

APPENDIX 

RESPONSES TO ADDITIONAL QUESTIONS

THE DOW CHEMICAL COMPANY, 

October 25, 2005. 

Hon. PETE DOMENICI, 

Chairman, Committee on Energy and Natural Resources, U.S. Senate, Washington, 

DC. 

DEAR SENATOR DOMENICI: Thank you once again for inviting me to testify before 

your committee on October 6 on the subject of the effects of the recent hurricanes 

on our nation’s energy infrastructure. Thank you as well for your words of praise 

for the people of my company that you met during your visit to Saint Charles, Louisiana. 

Enclosed per your request of October 11 are my written responses to the questions 

posed by Senators Akaka and Feinstein. Should you or your staff have any additional questions, please do not hesitate to contact me, or Dow’s Vice President of 

Government Affairs, Peter Molinaro, at 202-429-3429. 

Very truly yours, 

ANDREW N. LIVERIS, 

President and CEO. 

[Enclosure.] 

QUESTION FROM SENATOR AKAKA

Question 1. Mr. Liveris, thank you for your testimony. I appreciate all that your 

company, and other petrochemical companies, do to keep us supplied with a wide 

array of products for everyday use. I am concerned about the ripple effects that are 

being reported throughout the economy. We are seeing price spikes of key raw materials for manufacturing. How long do you expect these prices to continue, and what 

do you as an industry expect the ultimate effect will be? 

Answer. Prior to hurricanes Katrina and Rita, the chemical industry was experiencing increasing sales volumes as the inventory de-stocking activity of the 1st half 

of 2005 (the result of the soft-patch in global manufacturing) was ending and as orders improved. This was pushing operating rates (or capacity utilization) for many 

polymers up to the 91% to 94% range. Hurricanes Katrina and Rita resulted in the 

unavailability of as much as 60% of North American capacity for a number of key 

petrochemicals, petrochemical derivatives and polymers. With already tight markets, this pushed operating rates for available capacity up to 100%. Although much 

of the capacity has now returned to service, according to CMAI, a leading industry 

consultant, for example, 9% of high density polyethylene (HDPE) capacity and 6% 

of polypropylene capacity remains shut-down. The reduced polypropylene capacity is 

now running at a 100% rate Given current demand, this is placing upward pressure 

on prices. 

Most energy, industrial, and chemical products have a low price elasticity so even 

minor supply disruptions have large effects on prices paid for products in short supply. These price effects are now working their way through the supply chain. Prices 

for polymers (e.g. polyethylene) are highly correlated with monomer prices (e.g. 

ethylene), which in turn are highly related to feedstock prices (e.g. ethane), which 

in turn are highly correlated to natural gas prices. 

Chemistry accounts for a high degree of materials value of many household items 

we take for granted. The chemistry share of the materials value of a bottle of shampoo, for example, is 100%. For tires it is 62%. For semiconductors it’s 30%. Even 

for paper cups it’s 22%. Higher prices for key industrial supplies and materials will 

now begin filtering through the value chain to other manufactured goods and ultimately to the consumer. These price effects and shortages are now being witnessed 

in the most recent import price report released by the Bureau of Labor Statistics, 

132

* Where Propane appears, propane can also be derived from petroleum refining as well as from 

natural gas processing. About 45% of US propane supply is derived from natural gas. Another 

47% comes from oil refining (crude distillation, cat cracking, hydrocracking, catalytic reforming, 

and thermal processes) with the remaining 3% of propane imported. 

which indicated the largest increase in non-petroleum import prices since monthly 

publication of the report began in December 1988. The rise in non-petroleum industrial supplies and materials prices was led by a jump in natural gas prices, although 

higher prices for chemicals, building materials, and some metals were also contributing factors. This will next show up in producer prices and then the CPI. As inflationary pressures intensify, central banks will tighten, resulting in higher interest 

rates, which at some point reach a tipping point for the economy, resulting in the 

next downturn. Future economic historians may very well talk about the recession 

of 2006-7 as being engendered by higher natural gas costs as a contributing factor. 

What follows is a sampling of products that have or will rise in price or be in 

short supply because of high natural gas costs that are driving up the cost of chemicals used to make finished goods. We have already seen news accounts that tire 

companies (dependent on butadiene chemistry), carpet makers (dependent on nylon 

chemistry) and furniture companies (dependent on polyurethane chemistry) are paying far higher costs or are unable to obtain raw materials because of gas costs and 

availability. 

CONSUMER PRODUCTS

Diapers 

Natural Gas‰Propane*‰Propylene‰Acrylic acid‰acrylate esters‰super absorbent polymers 

Petroleum‰Propylene‰Polypropylene (liners) 

Natural Gas‰Propane‰Propylene‰Polypropylene (liners) 

Shampoo 

Natural Gas‰Ethylene‰polyethylene glycol‰Sorbitan Laurate (primarily baby 

shampoos) 

Natural Gas‰Ethylene-polyethylene glycol‰Ammonium Lauryl Sulfate 

Natural Gas‰Ethylene‰High-density polyethylene (HDPE) 

Lotions 

Natural Gas‰Propane‰Propylene‰Allyl Chloride‰Epichlorihyrdin‰Glycerin 

Natural Gas‰Ethane‰Ethylene‰High-density polyethylene (HDPE) packaging 

Toothpaste 

Natural Gas‰Propane‰Propylene‰Allyl Chloride‰Epichlorihyrdin‰Glycerin 

Natural Gas‰Ethane‰Ethylene‰High-density polyethylene (HDPE) packaging 

Laundry detergent 

Natural Gas‰Ethane‰Ethylene‰High-density polyethylene (HDPE) packaging 

Natural Gas‰Ethane‰Ethylene‰linear alpha olefins‰alcohol ethoxylates 

[liquid detergent raw material] 

Natural Gas‰Ethane‰Ethylene‰linear alpha olefins‰alcohol ether sulfates 

[liquid detergent raw material] 

Natural Gas‰ Ethane‰Ethylene‰linear alpha olefins‰alcohol sulfates [liquid 

detergent raw material] 

Petroleum‰benzene‰linear alkylbenzene‰linear alkylbenzene sulfonate (LAS) 

[liquid and powder detergent raw material] 

Dishwashing liquids 

Natural Gas‰Ethane‰Ethylene‰High-density polyethylene (HDPE) 

Natural Gas‰Ethane‰Ethylene‰linear alpha olefins‰alcohol ether sulfates 

[detergent raw material] 

Petroleum‰benzene‰linear alkylbenzene‰linear alkylbenzene sulfonate (LAS) 

[detergent raw material] 

Milk Jugs 

Natural Gas‰Ethane‰Ethylene‰High-density polyethylene (HDPE) 

Yogurt/Sour Cream/Cream Cheese/Margarine Containers 

Natural Gas‰Propane‰Propylene‰polypropylene 

133

Bottles for Mustard/Honey/Salad Dressing/Peanut Butter/Jelly 

Natural Gas‰Ethylene‰Low-density polyethylene (LDPE) 

Natural Gas‰Ethylene‰Polyethylene Terepthalate (PET or PETE) 

Water Bottles (5 gallon) 

Petroleum‰Benzene‰Cumene‰Phenol‰Misphenol A‰Polycarbonate 

Water/soft drink/juice bottles 

Natural Gas‰Ethylene‰Polyethylene Terepthalate (PET or PETE) 

Plastic Wrap for Food Packaging 

Vinyl chloride film—commercial use 

Vinylidene chloride—home use 

Natural Gas‰Ethane‰Ethylene‰Ethylene Dichloride‰VCM‰PVC 

Meat trays 

Expandable polystyrene packaging 

Natural Gas‰Ethane‰Ethylene‰Ethylbenzene‰Styrene‰Polystyrene 

Prepared food packaging (i.e., rotisserie chickens, sushi) 

Natural Gas‰Ethane‰Ethylene‰Ethylbenzene‰Styrene‰Oriented Polystyrene 

Bread bags 

Natural Gas‰Ethane‰Ethylene‰Low-density polyethylene (LDPE) 

Trash can liners 

Natural Gas‰Ethane‰Ethylene‰Low-density polyethylene (LDPE) 

Fast Food packaging 

Crystal polystyrene—fast food service cold drink cups, cutlery 

Expandable polystyrene packaging—hot beverage cups 

Natural Gas‰Ethane‰Ethylene‰Ethylbenzene‰Styrene‰Polystyrene 

Food/Beer cans 

Epoxy coatings on the interior of food cans to protect food from contamination 

with dissolved metal 

Petroleum‰Benzene‰Cumene‰Phenol‰Bisphenol A‰Epoxy resins 

BUILDING SUPPLIES

PVC plumbing pipe 

Natural Gas‰Ethane‰Ethylene‰Ethylene Dichloride‰VCM‰PVC 

Vinyl siding, doors, and windows 

Natural Gas‰Ethane‰Ethylene‰Ethylene Dichloride‰VCM‰PVC 

Kitchen cabinets/countertop laminates 

Natural Gas‰Methanol‰Formaldehyde‰Phenol-Formaldehyde Resins 

Architectural paint 

Natural Gas‰Ethane‰Ethylene‰Vinyl acetate‰paints 

Petroleum‰Propylene‰Acrylic acid‰paints 

Natural Gas‰Ethane‰Ethylene‰Ethyl glycol‰Ethyl acrylate‰paints 

Petroleum‰Propylene‰n-Butyl acrylate‰paints 

Natural Gas‰Methanol‰Methyl methacrylate‰exterior paints 

Carpet 

Petroleum‰Benzene‰Phenol or Cyclohexane‰Caprolactam‰Nylon 6 

Petroleum‰Benzene‰Cyclohexane‰Adipic acid‰Nylon 6,6 fibers 

Petroleum‰Propylene‰Polypropylene‰Polyether Polyols‰flexible polyurethane foam‰carpet cushion 

Petroleum‰Toluene‰Toluene diisocynate‰flexible polyurethane foam‰carpet 

cushion 

Housewrap 

Natural Gas‰Ethane‰Ethylene‰High density polyethylene fibers 

Plywood 

Natural Gas‰Methanol‰Formaldehyde‰Phenolic Formaldehyde Resins 

134

Insulation 

Natural Gas‰Ethane‰Ethylene‰Ethylbenzene‰Styrene 

Natural Gas‰Propane‰Propylene‰Polypropylene‰Polyether Polyols‰spray 

polyurethane foam insulation 

OTHER IMPORTANT GOODS

Car parts 

Gaskets, hoses, belts 

Natural Gas‰Ethylene‰Ethylbenzene‰Styrene‰Styrene-Butadiene Rubber 

(SBR) 

Petroleum‰Propylene‰Polypropylene‰Polyether Polyols‰Polyurethane 

elastomers 

Tires 

Natural Gas‰Ethylene‰Ethylbenzene‰Styrene‰Styrene-Butadiene Rubber 

(SBR) 

Petroleum‰Benzene‰Phenol or Cyclohexane‰Caprolactam‰Nylon 6 for tire 

cord 

Petroleum‰Carbon Black 

Brake fluid 

Natural Gas‰Ethylene‰Triethylene glycol monomethyl ether 

Natural Gas‰Ethylene‰Diethylene glycol monomethyl ether 

Fertilizer 

Natural Gas‰Ammonia 

Contact Lenses 

Natural Gas‰Ethylene‰Methyl Methacrylate (MMA) 

Eyeglasses 

Petroleum‰Benzene‰Cumene‰Phenol‰Bisphenol A‰Polycarbonate 

Printed circuit boards 

Petroleum‰Benzene‰Cumene‰Phenol‰Bisphenol A‰Epoxy resins 

Petroleum‰Propylene‰Epichlorihydrin‰Epoxy resins 

QUESTIONS FROM SENATOR FEINSTEIN

Question 1. I want to start of by thanking Dow Chemical for endorsing the energy 

efficiency bill that Senator Snowe and I introduced (S. 680). In light of this, I was 

disappointed when I read your testimony and found energy efficiency buried in Section V. Following along these same lines, the United States is currently paying 

twice as much for natural gas as Europe and almost 3 times as much as China. It 

seems to me that the very first step we should take as a nation to help bring down 

the cost of natural gas would be to implement energy efficiency standards and incentives. Do you agree? 

Answer. Dow continues to believe that energy efficiency is indeed the most important thing the nation can do in the near term to blunt the high cost of natural gas. 

In addition to endorsing S. 680, Dow supported the other aggressive energy efficiency measures in the Energy Policy Act of 2005, and have subsequently signed on 

to letters to Congress asking that the tax credits be accelerated, along with the 

funding for the authorized public education campaign. 

Dow has taken significant proactive steps to reduce our energy demand, improving our energy efficiency by 42% since 1990. We recently exceeded our publicly stated goal of improving energy efficiency by 20 percent by the year 2005 from 1994. 

By year-end 2004, Dow had already achieved a 21% energy intensity improvement 

vs. 1994. In 2004, alone, we reduced our energy intensity by 5.4% vs. 2003. We are 

now setting a new aggressive goal to continue our energy efficiency drive through 

2015. Within the chemical industry, Dow is a leader in efficient energy use. We use 

highly efficient cogeneration to generate 95% of the power and heat needed to run 

our processes in the U.S. and 75% of that needed globally. Cogeneration is 20-40% 

more efficient than producing power and steam separately. 

Dow has saved more than $3 Billion since 1994 through our focus on energy efficiency & conservation, 

While we agree that the nation needs to make an immediate and aggressive commitment to improved energy efficiency, we also believe that we must begin immediately as well to develop additional sources of domestic natural gas supply. Efficiency alone will not cut the price of natural gas enough to make domestic manufacVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00138 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
135

turing globally competitive again. More fuel diversity will help reduce gas demand 

as well, but the need for additional domestic natural gas supply is inescapable. 

Question 2. As you mention in your testimony, the U.S. currently does not have 

a Strategic Natural Gas Reserve, like we do for crude oil. Do you think the federal 

government should require a certain amount of natural gas to be stored at all times 

in order to mitigate supply shortages? 

Answer. The reference to there not being a strategic natural gas reserve was more 

an observation than a recommendation. It was meant to illustrate that there is no 

real safety valve like there is for petroleum supply emergencies. Rather than a strategic natural gas reserve, we need to generally increase the existing natural gas 

storage infrastructure. The nation’s current 3 TCF storage capacity has changed little since the 1970’s despite the dramatic increase in natural gas demand for power 

generation. The Energy Policy Act of 2005 provided for increased storage. More storage will reduce volatility, but we must be prudent about how and when to do it lest 

we further drive up the short term price of natural gas. Natural gas supply and demand are so out of balance that there is no gas to spare to increase storage. Additional domestic supply, and growth in storage infrastructure, go hand in hand. 

AMERICAN PETROLEUM INSTITUTE, 

Washington, DC, October 28, 2005. 

Hon. PETE V. DOMENICI, 

Chairman, Committee on Energy and Natural Resources, U.S. Senate, Washington, 

DC. 

DEAR MR. CHAIRMAN: Enclosed please find the responses to Committee member 

questions from the October 6th hearing on Hurricanes Katrina and Rita’s effects on 

energy infrastructure and the status of recovery efforts. 

Should you require additional information on the industry’s ongoing Hurricane recovery efforts, please do not hesitate to contact me. 

Sincerely, 

RED CAVANEY, 

President & CEO. 

[Enclosure.] 

QUESTIONS FROM SENATOR BUNNING

Question 1. Legislation pending in the House of Representatives would grant the 

President authority during periods of extreme fuel supply emergencies to grant 

waivers of fuel standards. Are you aware of the types of changes to fuel standards 

that producers of crude oil and refiners might seek? 

Answer. It is impossible to predict what type of waivers may be needed in the 

future; however, producers and refiners could seek waivers similar to those granted 

in the wake of Katrina and Rita. The U.S. Environmental Protection Agency 

(‘‘EPA’’) was given authority, after consultation with the Department of Energy, to 

waive fuel standards during periods of extreme fuel supply emergencies by the Energy Policy Act of 2005 (‘‘EPACT 2005’’). EPA used this new authority after Katrina 

and Rita. EPA waived certain requirements for federal gasoline volatility, federal 

reformulated gasoline, federal low sulfur diesel fuel, and specific state fuel requirements. These waivers were targeted to create a significant increase in supply with 

a minimal environmental impact. 

Gasoline volatility refers to the vapor pressure, or how quickly the gasoline will 

evaporate, as evaporated gasoline can contribute to smog in high heat summer 

months. In most areas, low vapor pressure gasoline is required for sale until September 15th, although Phoenix, Arizona and east Texas extend the requirement to 

September 30th, and California extends the requirement to October 31st. In response to Katrina and Rita, EPA allowed summertime requirements to expire early, 

allowing more volatile components, such as butane, to be blended with gasoline allowing for greater supply. 

Reformulated gasoline is required for sale in some areas to reduce levels of smog 

producing elements. Conventional gasoline was allowed for sale in a limited number 

of reformulated gasoline covered areas that the EPA recognized as facing supply disruptions. 

Individual states have created specific rules concerning the composition of gasoline blends. These vary from state to state and are commonly referred to as ‘‘boutique fuels.’’ Several of these requirements (Atlanta low sulfur gasoline and Texas 

low emission diesel) were waived to allow for more gasoline to be pooled together 

in pipelines, barges, and tanks, thus increasing the supply available to these areas. 

136

* Retained in committee files. 

EPA also waived the low sulfur requirement in diesel fuel. On-road diesel accounts for two thirds of diesel supply and has a sulfur cap of 500 ppm. The remaining one third of supply is used in such off road purposes as farm and construction 

equipment. The waiver allows for the use of these fuels interchangeably, helping to 

increase the supply available to trucks. 

These waivers were granted by the EPA to address supply problems in specific 

areas and greatly contributed in keeping supplies available and preventing shortages. 

Question 2. I have been told that certain changes in the content of automotive 

fuels (e.g., sulfur content) could degrade the emissions system and catalytic converters in automobiles. This degradation could limit the useful life and effectiveness 

of these pollution control devices. Further, it could require automobile owners to 

incur significant expenses to replace their cars emissions systems so they can pass 

their state’s emissions tests. Are you aware of whether producers of crude oil or refiners would seek or support waivers in fuel content that would allow the fuel to 

include components (e.g., sulfur) that could damage the vehicles emission system? 

Answer. Refiners and producers would not support waiving fuel requirements that 

would cause increased degradation of emissions control systems. 

The sulfur requirements that were recently waived by EPA for diesel fuel did not 

affect the current fleet of vehicles. The sulfur requirements that were waived would 

have posed a problem for emissions systems only in automobiles and trucks designed to be introduced for the 2007 model year. These vehicles will require Ultra 

Low Sulfur Diesel fuel, a new product that is being introduced in June 2006. Some 

of these vehicles have already been introduced in test fleets, but are supplied via 

a segregated distribution system, and thus were unaffected by the recent waivers. 

Once the ULSD program begins in June 2006, the trucks and vehicles designed 

to run only on ULSD will be labeled ‘‘ULSD only’’ at the gas cap. This will inform 

the owner/operator of the fueling requirement. As the years advance, these ULSDonly vehicles will gradually increase their penetration into the in-use vehicle fleet 

(‘‘fleet turnover’’). Retail and fleet pumps will also be required to label as to whether 

they are offering for sale ‘‘ULSD’’ or ‘‘low sulfur (up to 500 ppm)’’. The low sulfur 

pumps will have a notice warning not to fuel ULSD-only vehicles. All of these safeguards are intended to protect the emission control devices on the model year 2007 

and later vehicles from sulfur poisoning. In the future, waivers will not change 

these requirements. Thus ‘‘ULSD-only’’ vehicles will not be able to use any fuel 

other than ULSD, regardless of whether waivers are issued to increase the on-highway diesel fuel supply for those vehicles that do not require ULSD. 

QUESTIONS FROM SENATOR FEINSTEIN

Question 1. A Deutsche Bank study from September 16, 2005 finds that refinery 

margins have doubled on the West Coast from 2003 to 2005. Can you explain the 

reasons for these dramatic increases? 

Answer. The California Energy Commission (www.energv.ca.gov/gasoline) provides estimates of the breakdown of gasoline price prices and margin details for 

both branded and unbranded product. According to their data branded refinery cost 

and profits increased from an average of 49.6 cents per gallon in 2003 to an average 

of 55.5 cents per gallon in 2004 and 54.7 cents per gallon so far this year. 

The chart below* provides a breakdown of the component price of a gallon of regular gasoline. It shows that the price of crude oil has been the main driver in the 

increase in prices at the pump. Taken together, the cost to refine and distribute 

branded gasoline increased from 66.3 cents per gallon in 2003 to 72.7 cents per gallon in 2004, but then fell back to 66.9 cents per gallon so far this year (JanuaryOctober 24, 2005). The tax data reported by (CEC) in the chart differ from the tax 

data compiled by the American Petroleum Institute (API). According to APIs estimates the average tax on a gallon of gasoline in California increased from 50.8 cents 

per gallon in 2003 to 54.3 cents per gallon in 2004 to 60 cents per gallon in 2005. 

Question 2. In July, API met with the Minerals Management Service and the 

Coast Guard to assess the damage Hurricane Ivan caused and determine whether 

new policies or industry practices should be put in place to avert similar damage. 

What were the results of this collaboration? 

Answer. This past summer API, along with Minerals Management Service and 

the United States Coast Guard, sponsored an industry conference on hurricane preparedness and reviewed the industry’s performance during Hurricane Ivan in 2004. 

From this workshop the industry generated a number of items to explore for potential changes to standards, including revised 100-year design criteria, and revised 

137

mooring design criteria for drilling units (currently covered by API RP 2SK, Design 

and Analysis of Stationkeeping Systems for Floating Structures, 2nd Edition, December 1996.) These items are currently being reviewed and studied by industry and 

the regulatory agencies and final recommendations on proposed standard revisions 

will be forthcoming. Data generated during the two most recent hurricanes also will 

need to be evaluated before final proposals are developed. 

Question 3. The American Petroleum Institute and its member companies have 

recommended that, due to the current limited supply of oil and natural gas, American consumers modify their driving and living behaviors so that energy may be 

used as responsibly as possible. 

While supply has been limited by the hurricanes, gas prices have been rising due 

to increased global demand. Don’t you think that increasing fuel economy standards 

would help moderate gas prices even after the Gulf refineries are brought back online? 

Answer. It is not clear that increasing fuel economy standards would moderate 

gasoline prices—and it definitely would not do so in the short-run. Increasing fuel 

economy standards lowers fuel cost per unit distance traveled which may result in 

additional miles traveled and fuel consumed. In addition, even assuming that increased fuel economy standards did reduce aggregate demand for motor fuel, it 

would take years for a significant impact to be felt. The auto manufacturers need 

years of lead time to comply with more stringent standards. Even after the standards go into effect, it typically takes 10 years or more to completely turnover the 

existing fleet of passenger motor vehicles. 

At API’s web site (www.api.org) we provide plenty of tips to consumers on how 

to use fuel more wisely. In addition, consumers that are considering buying a new 

car or truck can certainly factor fuel economy into that decision, given the large 

number of fuel-efficient vehicles currently offered for sale. 

ENTERGY, 

New Orleans, LA, November 1, 2005. 

Hon. PETE DOMENICI, 

Chairman, Committee on Energy and Natural Resources, U.S. Senate, Washington, 

DC. 

DEAR CHAIRMAN DOMENICI: Enclosed are my responses on behalf of Entergy Corporation to the questions forwarded to me after the submission of my written and 

oral testimony to the Senate Energy Committee on October 6, 2005. I appreciate the 

opportunity to respond to your questions and look forward to being of further assistance. 

Sincerely, 

CURTIS HE ́ BERT, 

Executive Vice President, External Affairs. 

[Enclosure.] 

QUESTIONS FROM SENATOR DOMENICI

Questiion 1a. Your testimony states that ‘‘current estimates’’ for restoration of 

ENO’s system range from $325 million to $475 million. 

How much, if any, of these amounts would cover amounts that have already been 

spent by ENO or any other entity within Entergy Corporation? 

Answer. Since the date of the testimony, the Entergy System has refined the estimated restoration costs based on in-the-field inspections of the damages caused by 

Hurricanes Katrina and Rita, as well as detailed plans for restoration of service. 

The current estimates of restoration costs only (not including any incremental 

losses), are as follows:

138

ESTIMATED RESTORATION COSTS 

[U.S. $ in millions] 

Katrina Rita Total 

ELI ................................................... 325-375 30-40 355-415

ENO ................................................. 260-325 260-325

EGSI ................................................ 29-42 365-500 394-542

EMI .................................................. 75-90 75-90

Other ................................................ 11-18 5-10 16-28

Total .......................................... 700-850 400-550 1,100-1,400

Through September 2005, ENO had already incurred $113 million of the estimated $260—$325 million in restoration costs. Entergy’s other operating companies 

have incurred costs consistent with those estimates listed above given that restoration efforts for those operating companies are nearing completion. 

Question 1b. How much, if any, of ENO’s losses resulting from Katrina or Rita 

are covered by insurance? 

Answer. Entergy maintains insurance coverage for the Entergy System of $400 

million. However, Entergy’s insurance coverage is limited in that it only covers certain assets. Most of the transmission and distribution lines, towers, and poles are 

not covered. This is because cost-effective insurance for these types of assets have 

not been available since Hurricane Andrew devastated utility infrastructure in Florida in 1992. As a result of that event, annual premiums, for limited coverage for 

those types of assets, equal as much as 50% of the policy limit. The costs and limited nature of such insurance coverage render such policies effectively unavailable. 

The vast majority of damage incurred from Hurricanes Katrina and Rita were to 

the transmission and distribution lines, towers, and poles and thus will make up 

a majority of the estimated restoration costs. As a result, much of Entergy’s damaged facilities were uninsurable, and Entergy’s insurance claim is expected to be 

below the $400 million limit. 

Entergy cannot provide an estimate of the amounts that will be recovered by insurance; however, please see the table supplied in response to 1.c. which estimates 

the restoration costs by function and provides a description of the insurance coverage for such assets. 

Question 1c. Please provide a breakdown of exactly what these amounts would 

cover (i.e., generation, transmission, distribution, etc.). 

Answer.

ESTIMATED COST BY FUNCTION 

[U.S. $ in millions] 

Function Entergy

System ENO Insurance Coverage Description 

Distribution ... $648-$829 $78-$95 Generally covers damage to substations 

and underground wires only, subject to a 

$1 billion Katrina cap for all Oil Insurance Limited insureds. Assets not covered

by insurance include above-ground power 

lines, towers, poles, line transformers, 

etc. outside a 1000 meter radius of generating stations, switchyards and substations and any insurance proceeds discount caused by the aforementioned cap. 

Transmission $228-$283 $34-$43 Generally covers damage to substations 

and underground wires only, subject to a 

$1 billion Katrina cap for all Oil Insurance Limited insureds. Assets not covered

by insurance include above-ground power 

lines, towers, poles, line transformers, 

etc. outside a 1000 meter radius of generating stations, switchyards and substations and subject to the cap provisions 

noted above. 

Generation ..... $55-$71 $26-$33 Generation property damage losses are covered (including lost inventory), subject to 

the cap provisions noted above. 

139

ESTIMATED COST BY FUNCTION—Continued

[U.S. $ in millions] 

Function Entergy

System ENO Insurance Coverage Description 

Gas ................. $99-$124 $99-$124 Gas system property damage losses are 

covered (including lost inventory), subject 

to the cap provisions noted above. Other .............. $70-$93 $23-$30 Facilities (owned buildings and leased 

buildings where Entergy has risk of loss 

under the lease agreements) damages are 

covered (including lost inventory), subject 

to the cap provisions noted above. Other 

costs not covered by insurance include 

business continuity.

Total ........ $1,100-$1,400 $260-$325

Question 1d. Your testimony refers to the ‘‘uncertainty surrounding the timing 

and the size of the return of its [ENO’s] customer base.’’ In making estimates of the 

costs of restoring ENO’s system, what assumptions have you made regarding the 

timing of construction and the size of the customer base over time? 

Answer. Entergy estimates that as of mid-October approximately 25% of ENO’s 

customers have returned and are actually taking electric service. By the end of 

2007, Entergy estimates that approximately 51% or 96,000 customers will return. 

This level of customers is estimated to produce load of approximately 60% of the 

Pre-Katrina levels. The estimated percentage of load is higher than the estimated 

percentage of customers returning due to the assumption that a higher percentage 

of commercial and industrial customers will return resulting in relatively higher 

load. 

This estimate is consistent with previous estimates in the City of New Orleans’ 

repopulation plan but is highly uncertain and dependent on ongoing clean-up, demolition and reconstruction efforts that must occur in the severely flooded areas of the 

city. Please also see Entergy’s response to 1.f. for further details on the assumptions 

upon which this estimate is based. 

Question 1e. If you received capital today, how long do you anticipate it will take 

to rebuild the system? 

Answer. Rebuilding the ENO system is dependent on having a financially viable 

ENO during the rebuilding process. Today, ENO is not financially viable as evidenced by the necessity of having ENO file for bankruptcy protection. Absent the 

recovery of reasonable incremental losses for the period August 29, 2005 through 

December 31, 2007, it is not expected that ENO can be a financially viable entity. 

Assuming the recovery of incremental loses by ENO, it is believed that, if sufficient 

funds for restoration are made available timely, it will be able to restore the infrastructure in a timely fashion such that customers who are ready, willing and able 

to take service will have electric and gas service available. When that can occur is 

a function not only of the capital ENO has available, but also, the timing of the 

clean-up efforts and reconstruction activities in the portions of New Orleans severely damaged by flooding. 

Question 1f. What assumptions have you made regarding the type and location 

of ENO’s future load? Do your assumptions include any allowances for increased efficiency of new housing stock? 

Answer. For the period through 2007, ENO’s projections are based on a determination of what areas are capable of taking service immediately as well as those 

areas that will be capable of taking service during the period through 2007. 

Entergy’s estimates do not reflect significant portions of the anticipated future customer base resulting from completely new construction through 2007. Rather, the 

vast majority of customers anticipated to return during this period will return, primarily, to structures that were repaired or renovated as opposed to completely new 

construction. 

Regarding efficiency gains from new housing stock, ENO does anticipate that new 

construction will produce homes that are more energy efficient than the structures 

that are to be replaced. However, ENO residential customers already consume about 

20% less electric energy annually than Entergy Louisiana, Inc.’s or Entergy Gulf 

States, Inc.’s residential customers. Each of these companies is geographically similar and has similar weather; however, the housing stock in ENO’s service area is 

older and smaller. Newer homes tend to be larger than homes built decades earlier. 

The U.S. Census Bureau reported this trend toward larger homes in a report titled 

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‘‘These Old Houses,’’ released in February 2004. This trend toward larger houses 

will likely mitigate potential efficiency gains from new housing stock. 

Question 1g. ENO and/or other Entergy operating companies own generation that 

was used to serve ENO’s now-diminished load. Is this generation now being used 

to serve other customers or being sold in the wholesale market? Are you assuming 

that revenues being generated by these facilities will be used to offset the costs of 

rebuilding ENO’s system? Please compare actual revenues expected to be generated 

by these facilities post-Katrina to revenues from the equivalent amount of power 

distributed by ENO before the storm. 

Answer. Certain generating resources that were used to provide service to ENO 

customers pre-Katrina are now being used to serve ELI and EGS customers. Specifically, certain purchased power contracts of ENO have been assigned to ELI and 

EGS on a temporary basis subject to recall by ENO as it reacquires load. ENO’s 

Grand Gulf purchased power obligation either will be used to meet ENO’s load requirements or will be sold in the wholesale market pursuant to applicable regulatory requirements. 

The resale of purchased power to ELI and EGS are at actual cost, as is required 

under the applicable FERC approved tariff. The sale of Grand Gulf in the wholesale 

market pursuant to applicable regulatory requirements will mitigate the costs incurred by ENO for this resource. ENO’s estimate of incremental losses includes 

these mitigating effects. 

Question 2. Many utilities, particularly those in hurricane-prone areas, have set 

aside hurricane reserve funds to be used for system restoration. Does ENO or any 

of Entergy’s operating companies have such a fund, and how large is (are) they? 

Answer. Each Entergy Operating Company can establish a storm damage reserve 

only with the approval of its regulator. In each instance, the regulator determines 

the annual accrual to the storm damage reserve account. 

The actual annual accruals for storm damage approved by each retail regulatory 

authority are generally based on some historical average of storm damage expense. 

The average can vary from five to 15 years. The annual accruals currently approved 

by each retail regulator for each Entergy Operating Company are as follows:

[U.S. $ in millions] 

Company 

Storm

Damage

Accrual 

ENO—Electric .......................................................................................... 0.0

ENO—Gas ................................................................................................. 0.0

ELI ............................................................................................................. 20.4

EGS-Louisiana .......................................................................................... 16.2

EGS-Texas ................................................................................................. 1.7

EMI ............................................................................................................ 7.6

EAI ............................................................................................................. 4.8

Several years ago, ENO ceased collecting for storm damages in rates as a result 

of significant over funding. Since that time, the reserve has been largely depleted. 

Over time, the reserve balance can be positive (meaning that the actual cost of 

storms has been less than the accruals) or negative (meaning that the actual cost 

of storms has been more than the accruals). The current pre-Katrina and Rita storm 

damage reserves for each Operating Company are as follows:

[U.S. $ in millions] 

Company 

Storm

Damage

Reserve 

ENO—Electric .......................................................................................... 1.3

ENO—Gas ................................................................................................. 0.3

ELI ............................................................................................................. (41.7) 

EGS-Louisiana .......................................................................................... (44.6) 

EGS-Texas ................................................................................................. (12.5) 

EMI ............................................................................................................ 2.4

EAI ............................................................................................................. (29.0) 

Question 3a. Your testimony states that ‘‘on a per-customer basis, the cost of 

Katrina would be $4,300 to $7,900.’’

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Exactly what costs are included in this calculation? Is this the cost of system restoration, or are other costs included as well? Please explain in detail. 

Answer. The average Katrina cost for ENO of $4,300 to $7,900 per customer was 

based on an initial range of estimated restoration costs of between $325 million and 

$475 million and estimated post-Katrina number of customers of between 60,000 

and 75,000. Prior to Katrina, ENO had 190,000 customers. ENO estimated that, 

during 2006, approximately 30% to 40% of those customers would return. Consequently, by the end of 2006, it would have between 60,000 and 75,000 customers. 

The average per customer restoration cost would be between $325 million divided 

by 75,000 customers or $4,333 per customer and $475 million divided by 60,000 customers, or $7,917 per customer. 

The restoration costs include the total costs estimated to restore the electric and 

gas facilities to their pre-Katrina condition and do not reflect any insurance proceeds. They also do not include any incremental losses. 

As noted above, the values presented in earlier testimony were based on the initial estimates of storm damage costs. Based on in-the-field inspections of the damages caused by Hurricane Katrina as well as detailed plans for the restoration of 

service, those estimates have been refined and, as announced on October 19, 2005, 

the revised estimate for ENO is in the range of $260 million to $325 million. Furthermore, projections indicate that ENO will regain approximately 51%, approximately 96,000 of its pre-Katrina customer base by year-end 2007. This equates to 

a cost per customer of between $2,710 and $3,390 (see also Entergy’s response to 

3.d., which computes the cost per customer for ENO and the other affected operating companies.) 

The actual storm costs incurred by ENO over the past five years has averaged 

about $14 per customer or less than one-half of 1% of the Katrina per customer cost. 

In the following table are shown the five-year average actual storm costs for the 

other Entergy Operating Companies, as well as for other electric utilities prone to 

hurricanes.

ELI ............................................................................................................. $36

EGS ............................................................................................................ $30

EMI ............................................................................................................ $25

EAI ............................................................................................................. $86

During 2004, Florida endured four hurricanes. The total storm damages costs for 

all four hurricanes are computed on per customer basis in the table below. Note that 

ENO’s Katrina cost per customer of between $2,710 and $3,390 is 10 to 12 times 

the highest cost per customer rate incurred for the four hurricanes that affected 

Florida in 2004.

Florida Power & Light ............................................................................. $211

Gulf Power ................................................................................................ $274

Tampa Electric .......................................................................................... $97

Progress Energy—Florida ........................................................................ $236

Source: EEI’s ‘‘After The Disaster: Utility Restoration Cost Recovery,’’ released in February 2005 and internal analysis. 

Question 3b. You refer to a diminished ‘‘customer base among which restoration 

costs would be spread.’’ What assumptions did you make about that future customer 

base when you calculated your per customer cost? 

Answer. The original estimate of the 60,000 to 75,000 customers that would return in 2006 was preliminary, and based on an overall assessment of the extent of 

the damage due to flooding. These projections have been refined based on neighborhood-by-neighborhood and block-by-block inspections. It is now projected that, by 

the end of 2007, approximately 96,000 electric customers (51% of the pre-Katrina 

level) will be taking service from ENO. See also the response to item 3.a., above. 

Question 3c. In light of your assumptions regarding a diminished customer base, 

what assumptions have you made about changes in overhead for on-going operations 

(apart from system restoration costs)? 

Answer. Most of ENO’s non-fuel and purchased energy costs are fixed, at least 

in the short-run of one to three years. (These are generally referred to as ‘‘base rate 

costs’’). For example, the Company’s pre-Katrina indebtedness will not decline because of a loss of customers. Consequently, the interest costs are fixed. The same 

is true for depreciation, benefit costs and the like. Assuming that ENO will be able 

to emerge from bankruptcy as a viable entity, ENO will attempt to reduce certain 

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of its base rate costs such that the Company and its customer base will be better 

aligned to its reduced size. 

Question 3d. What would be the pre-customer cost if these costs were shared by 

the customers of Entergy Louisiana, all customers in Louisiana, and all customers 

of all Entergy operating companies? 

Answer. This is not a viable alternative, as it conflicts with the laws and decisions 

applicable to cost recovery in each of Entergy’s retail jurisdictions. Generally, each 

Entergy Operating Company is allowed to recover only the costs prudently-incurred 

to provide service to that Operating Company’s customers. This is a requirement established by each of the Entergy Operating Company’s regulators. Thus, the Louisiana Public Service Commission generally allows Entergy Louisiana, Inc. (‘‘ELI’’) 

to recover only costs incurred to provide service to ELI’s customers, but not the cost 

to provide service to Entergy Gulf States, Inc. (‘‘EGS’’) customers’ or to ENO’s customers. 

Based on the current estimated Katrina/Rita costs, the per customer average is 

as follows:

Company 

Estimated Restoration Costs

(U.S. $ in millions) 

Customers Cost Per Customer 

ELI ......................................... $355-$415 662,000 $540-$630

ENOI ...................................... $260-$325 96,000 $2,710-$3,390

EGSI ...................................... $394-$542 720,000 $550-$750

EMI ........................................ $75-$90 419,000 $180-$210

Question 4a. The only numbers cited in your testimony are for system restoration 

in New Orleans. However, legislation introduced in the aftermath of Katrina has 

provisions for grants of money to Entergy that are several magnitudes larger than 

the costs cited in your testimony. 

What is the total amount of assistance sought by Entergy for damages from 

Katrina and Rita? 

Answer. The proposed legislation did not apply to just Entergy. As we understand 

it, the proposed legislation applied to all electric and gas privately-owned utilities 

that suffered damage as a result of Hurricanes Katrina and Rita in the states of 

Louisiana (including the City of New Orleans), Texas, Mississippi, and Alabama. 

The legislation contained a cap of ‘‘up to $2.5 billion for all affected privately-owned 

utilities. 

With regard to the current estimate of restoration costs, see the response to 3.d, 

above. Note, however, that these values are prior to any insurance proceeds and the 

assistance requested is net of all insurance proceeds. These estimates cover generation, transmission, distribution, and related infrastructure facilities as detailed in 

response to 1.b., above. 

In addition to the net restoration costs that Entergy would seek under the proposed legislation, Entergy is seeking incremental losses for ENO. 

Question 4b. Exactly what do these amounts cover (i.e., generation, transmission, 

distribution, overhead, lost profits, etc.)? 

Answer. These amounts cover the cost of restoring the generation, transmission, 

distribution, and related infrastructure damaged by Hurricanes Katrina and Rita, 

net of insurance. In addition, they cover the incremental losses of ENO through December 31, 2007. Entergy would agree to exclude any return on the equity capital 

invested in ENO from this request. 

Question 4c. Please describe in detail the allocation of these costs, by operating 

company and by state. Also please provide a breakdown of these costs on a per-customer basis. 

Answer. The vast majority of these costs are not allocated to the Operating Companies. Rather, they are the costs of restoring the damaged facilities in the specific 

service territories of each Operating Company, such that service can be restored to 

the customers of each Operating company. The only costs that will be allocated are 

business continuity costs, which represent less than 5% of total costs. The estimated 

restoration costs per customer are detailed in response to 3.d., above. 

Question 5a. What is the total market capitalization of Entergy Corporation? 

Answer. On October 25, 2005, Entergy had approximately 207 million outstanding 

shares of common stock, and the closing market price per share was $68.64. Accordingly, Entergy’s market was approximately $14.2 billion. 

Question 5b. Why has Entergy Corporation chosen not to make a direct investment in the reconstruction of the New Orleans system? 

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Answer. Entergy has made significant contributions to the reconstruction of the 

New Orleans system by providing Debtor-in-Possession financing to Entergy New 

Orleans, Inc. ENO, as Debtor-in-Possession has been authorized to borrow up to 

$100 million under this financing, an amount that is expected to be depleted by December 2005. Entergy could provide additional amounts pending internal analysis 

and receipt of legal and regulatory approvals. Like any public company, Entergy has 

a responsibility to act in the best interests of its various stakeholders, including its 

shareholders. Entergy must evaluate the likelihood of earning a fair return on any 

funds it invests. Accordingly, Entergy’s investments in the New Orleans system 

must take into consideration factors such as long-term customer retention rates, the 

cost structure implicit in a given level of investment, the rate implications of that 

cost structure, and other such factors. Finally, ENO’s equity capital (common and 

preferred equity) as of the year ending December 31, 2004 was approximately 174.2 

million dollars. 

Question 6. What was the book value of assets destroyed by Katrina? Please provide this information for each operating company. What was the book value of assets destroyed by hurricane Rita? 

Answer. Entergy has not yet completed its identification of all assets that were 

destroyed by Hurricanes Katrina and Rita. However, for that portion of the restoration work performed and/or assessed thus far, Entergy estimates that assets with 

a total original cost of over $270 million were destroyed. This level of asset destruction is more than ten times greater than Entergy has experienced with any previous 

storm. It should be noted that this estimate only includes a small portion of the cost 

of assets destroyed in our New Orleans service territory, where damage was most 

extensive on both an absolute and a relative basis. Restoration efforts will need to 

proceed much further before all destroyed assets can be identified. Entergy has 

based these estimates on the original, historical costs of these assets that, in many 

cases, representing price levels that are several decades old. Accordingly, replacement costs for these assets will substantially higher at today’s prices, and it is this 

current cost that would be borne by customers through the ratemaking process if 

federal assistance is not obtained. 

Question 7a. Please list the total capital construction expenditures for all of the 

Entergy operating companies for each of the last ten years. 

Answer. The requested data is shown in the following table:

[$ Millions] 

Year EAI EGS ELI EMI ENO Total 

1995 .......................... 165 186 120 79 28 578

1996 .......................... 146 155 103 85 28 517

1997 .......................... 141 133 85 50 16 425

1998 .......................... 190 137 105 59 22 513

1999 .......................... 238 199 131 95 46 709

2000 .......................... 369 278 203 121 49 1,020

2001 .......................... 281 318 203 160 61 1,023

2002 .......................... 277 355 210 158 58 1,058

2003 .......................... 335 349 258 189 66 1,196

2004 .......................... 270 358 240 163 51 1,083

Question 7b. What is total capital construction budget for all Entergy operating 

companies for 2005? 

Answer. The requested data is shown in the following table:

[$ Millions] 

Year EAI EGS ELI EMI ENO Total 

2005 Budget ............. 321 275 455 147 47 1,244

Amounts budgeted for 2005 do not encompass hurricane restoration costs. 

Question 8. Your testimony cites a per-customer cost of $4,300 to $7,900 per customer for the reconstruction of ENO’s system. If these costs were securitized and 

collected over a ten year period, what would be the average charge per each residential customer per month? What would be the average cost per customer per month 

if these costs were allocated to the customers of Entergy Louisiana as well? 

Answer. As noted in response to 3, above, the revised per-customer cost is between $2,710 and $3,390 based on the restoration cost estimates of $260 to $325 

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million. These cost estimates do not include incremental loses as noted in various 

responses, above. The annual cost of a securitization for 10 years of the lower estimate of $260 million would be about $35 million. The required rate increase for residential customer would be composed of the increase necessary to recover ENO’s ongoing fixed costs over a smaller customer base plus the amount necessary to recover 

the storm restoration costs, securitized or otherwise. 

ENO’s current base rates are approximately 4.5 cents per kilowatt-hour or $45 

per month for an average residential customer consuming 1,000 kilowatt-hours each 

month. Recovering the ongoing fixed cost over a smaller customer base consisting 

of 60% of the load would require an increase of approximately $30 per month or 

roughly 67% increase in base rates for the lost customer component alone. The rate 

increase necessary to recover the $35 million associated in addition to the recovery 

of ongoing fixed cost over a smaller customer base will be approximately $39 per 

month., or a total of 87% in base rates. 

As noted in response to question 3.d., above, having the cost associated with 

ENO’s damage flow to Entergy Louisiana is not a viable alternative, as it conflicts 

with the laws and decisions applicable to cost recovery in each of Entergy’s retail 

jurisdictions. Generally, each Entergy Operating Company is allowed to recover only 

the costs prudently-incurred to provide service to that Operating Company’s customers. This is a requirement established by each of the Entergy Operating Company’s regulators. 

Question 9. Entergy has long been an outspoken opponent of the socialization of 

the costs of transmission and distribution systems, and has been a supporter of 

‘‘participant funding,’’ a system whereby those that benefit from the costs of facilities are required to pay for them. Entergy has long argued that transmission and 

distribution facilities that cannot be entirely supported by the market which they 

are intended to serve should not be built. How do you distinguish the present case, 

in which you are arguing for the socialization of the costs of rebuilding an entire 

system? 

Answer. As citizens throughout our service territory are still struggling to rebuild 

their lives and as Entergy is still working hard to restore service in the hardest hit 

areas, especially New Orleans, we do not think it is appropriate to reopen the policy 

debate on participant funding. Suffice it to say that Entergy was pleased that Congress in the EPAct of 2005 authorized participant funding and generally codified 

prior FERC orders authorizing the use of participant funding. 

Entergy’s position on participant funding was based on one simple principle: protecting our customers from bearing costs associated with facilities that they did not 

cause to be built. Our position on seeking federal relief for the costs associated with 

Katrina/ Rita is based on this exact same principle: protecting customers from bearing the costs associated with the destruction of our system—something obviously 

that neither our customers nor ENO caused to occur. The case for federal assistance 

for ENO is especially critical and warranted. But for the flooding of 80% of the City 

of New Orleans when the federal levee system failed, ENO and the citizens of New 

Orleans would not find themselves in these dire straits. Moreover, merchant plant 

developers had complete control of the business decisions they made on where to 

invest and locate their facilities on the electric grid. ( This is explained in more detail below in the answer to Senator Feinstein’s question.) That most, if not all, did 

so without considering transmission implications and potential costs is beyond dispute. Obviously ENO and the citizens of the Gulf Region are innocent victims of the 

worst natural disaster in our country’s history. 

In sum, just as we sought to protect our consumers from bearing unwarranted 

costs in advocating for participant funding, we are seeking federal assistance here 

in order to avoid massive and significant rate increases that our customers would 

otherwise bear if we were to seek cost of service rate recovery for storm related 

costs. Our positions are consistently based on seeking to protect our customers—in 

this instance to protect our customers from bearing the burden of this nation’s worst 

natural disaster. That is why participant funding is a just policy. That is why providing immediate federal relief for the costs incurred to rebuild from Katrina and 

Rita is a just policy warranting immediate Congressional action. 

QUESTION FROM SENATOR FEINSTEIN

Question 1. As we look at proposals to rebuild the Gulf Coast, I understand that 

Entergy has asked for federal money to rebuild or restore power plants damaged 

during the recent hurricanes. While all of our thoughts and prayers go out to you 

and your employees, I am wondering why Entergy is looking for federal money to 

rebuild power plants in an area where there is an oversupply of electric generation? 

145

Answer. Prior to Hurricane Katrina, Entergy New Orleans, Inc. (‘‘ENO’’) had two 

generation stations, Paterson and Michoud, both of which are located in the City 

of New Orleans and both of which were flooded. 

The Senator is right in the sense that there are a number of merchant generators 

who have built facilities in and around our service territory. However, few, if any, 

of these generators took transmission considerations into when they located their 

plants. Their location was certainly not the result of their participation in any 

Entergy or regional planning processes. In fact, for reliability purposes, it is necessary to have a certain amount of generation located in proximity to the load being 

served. This is critically important, especially for a utility like Entergy New Orleans. 

For the New Orleans area, it is necessary to have operating a minimum number 

of generating units in order to maintain voltage and provide reliable service. The 

Michoud generating unit is one of the units that serves that function. While there 

are many merchant generating facilities in the Entergy service area resulting in the 

referenced ‘‘oversupply,’’ none are physically located in the New Orleans area, and 

thus, none are available to serve the reliability needs of New Orleans’ customers. 

These other units simply do not have the same electrical characteristics for serving 

Entergy New Orleans’ customers. For that reason, it is critical that Entergy have 

available the generating facilities necessary to meet reliability needs and to have 

them available in the right place. 

RESPONSES OF CHRISTOPHER HELMS TO QUESTIONS FROM SENATOR FEINSTEIN

Question 1. How much natural gas is stored through the U.S. in the winter storage facilities? 

Answer. The five-year average (2000-2004) for natural gas in storage by November 1 is 2.95 trillion cubic feet (tcf). The current inventory for this winter, as of October 7th, is 2.99 tcf, and it is expected that storage will be filled to 3.1 tcf by the 

beginning of next month. This is in line with the five-year average at this time of 

the year. 

Question 2. Would you agree that the largest factor on the price of natural gas 

is demand? 

Answer. No, we would argue that supply and demand are equal factors in determining commodity prices, consistent with the fundamental principles of economics. 

The proximate cause of the recent run-up in natural gas commodity prices has been 

the impact from Hurricanes Katrina and Rita, which reduced natural gas supplies 

going into the winter heating season—a period of high demand. Still, even before 

the twin hurricanes, natural gas prices in the forward market were high compared 

to previous years, which signaled a tight supply and demand balance. Changes in 

either demand or supply will impact the price of natural gas. 

Question 3. If so, then would you agree that the most important step we can take 

as a nation to reduce the price of natural gas is to reduce the demand? 

Answer. High commodity prices are already reducing demand, particularly in the 

industrial sector, which has historically been the largest consumer of natural gas 

in the U.S. In the short-term, energy conservation and efficiency improvements can 

also help consumers reduce their energy costs and reduce some further demand. In 

the long-term, however, the U.S. must focus on developing additional natural gas 

supplies in North America and building the infrastructure required to take advantage of the growing global natural gas supply market. Natural gas remains a popular product given its environmental attributes. Therefore, demand will remain 

strong. Developing new supply resources will be critical to meeting future demand. 

Question 4. As you mention in your testimony, the natural gas market is not regulated and you believe that the market should continue in this manner. Do you think 

that natural gas prices are being driven up by speculators on the market? 

Answer. The natural gas commodity market was decontrolled by Congress more 

than 15 years ago. Interstate transportation of natural gas remains regulated by the 

Federal Energy Regulatory Commission (FERC), as does local distribution services 

by state public utility commissions. Further, FERC has taken an active role in ensuring that adequacy of reported price data and investigating price spikes in wholesale gas and electric markets. To that end, FERC has recently completed a Memorandum of Understanding with the Commodity Futures Trading Commission to enhance vigilance and assure the price integrity of the markets for natural gas and 

other energy products. 

The current commodity prices for natural gas reflect the fact that demand is outstripping supply. The significant supply reductions caused by the twin Gulf hurricanes temporarily have exacerbated this supply situation in a major way. We beVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00149 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
146

lieve current prices are being driven by these market fundamentals, and not by 

speculation. 

DEPARTMENT OF THE INTERIOR, 

OFFICE OF CONGRESSIONAL AND LEGISLATIVE AFFAIRS, 

Washington, DC, January 19, 2005. 

Hon. PETE V. DOMENICI, 

Chairman, Committee on Energy and Natural Resources, U.S. Senate, Washington, 

DC. 

DEAR MR. CHAIRMAN: Enclosed are responses prepared by the U. S. Department 

of the Interior to questions submitted following the October 27, 2005, hearing regarding ‘‘Hurricane Recovery Efforts. 

Thank you for the opportunity to provide this material to the Committee. 

Sincerely, 

JANE M. LYDER, 

Legislative Counsel. 

[Enclosure.] 

QUESTIONS FROM SENATOR DOMENICI

Question 1a. Texas, Louisiana, Mississippi and Alabama are major producing 

states of timber and manufactured forest products. Hurricanes Katrina and Rita 

have ripped through timber country and left substantial devastation to the natural 

resource. Forest Service damage estimates from Katrina suggest approximately 19 

billion board feet of downed timber on more than 5 million acres in Mississippi, Louisiana and Alabama. The vast majority of which is from private land. Estimates 

from Rita are still coming in, but they will no doubt add to the loss of standing timber in Louisiana and now Texas. 

Some of the debris and damaged timber that is unusable for manufacturing forest 

products could be used to produce electricity and steam at forest products manufacturing facilities in the region. Using this otherwise wasted material for energy could 

have multiple benefits including creating value for landowners and reduced natural 

gas consumption for manufacturing facilities. Since natural gas prices are now four 

times higher than they were just a few years ago, what has the Interior Department 

done since these hurricanes occurred to facilitate increased biomass utilization? 

Answer. In the immediate aftermath of Hurricane Katrina, the Department of the 

Interior organized a meeting of technical specialists, the Woody Biomass Utilization 

Group, from across the federal agencies in Washington, D.C. to help coordinate the 

response to assist the States in their recovery efforts. On September 27-28, the Department and the Department of Agriculture (Forest Service) met in Jackson, MS, 

with State foresters affected by the Hurricanes to propose the strategy to improve 

utilization of storm damaged wood. At that meeting, the agencies and States identified the following short-term focuses as most important to improving the utilization 

of storm damaged wood for forest products and biomass: coordination, inventory, 

transportation and storage, and market development. The Department and the Forest Service will continue to work closely with its federal partners in providing assistance to the States regarding biomass utilization. 

Question 1b. In some cases, current environmental laws and regulatory limitations prevent additional biomass utilization. In your view, what obstacles are limiting the use of Hurricane debris as biomass for energy production? 

Answer. Some constraints that could limit the use of hurricane debris for biomass, 

as noted above, include issues with transporting and storage of the forest debris. 

However, in many cases, the more significant limiting factors are economic, including a lack of transportation and processing infrastructure. 

Question 1c. What steps can Congress undertake to further assist in the utilization of damaged timber as an energy source? 

Answer. The Environmental Protection Agency has jurisdiction over many of the 

issues surrounding the use of damaged timber as an energy source. We would prefer 

you address this question to EPA. 

Question 2. In 1999 and 2000, the FERC undertook a rulemaking to institute reporting requirements for gas pipelines on the OCS in an effort to implement the 

open and non-discriminatory access requirement of Section 5(f) of the OCSLA. The 

MMS supported FERC’s efforts. Subsequently, however, the reporting rules were 

nullified by the D.C. Circuit, which held that FERC did not have any general rulemaking authority under Section 5(f) of the OCSLA. As a result, the regulation of 

OCS pipelines [sic] with MMS. What is the Department of Interior’s position on a 

147

clarifying amendment of the OCSLA that would clearly delegate to FERC authority 

to administer, implement and enforce Sections 5(e) and 5(f) of the OCSLA, dealing 

with open and non-discriminatory access to OCS pipelines? 

Answer. The Department of the Interior would support efforts to amend the Outer 

Continental Shelf Lands Act (OCSLA) to clarify regulatory jurisdiction over gathering pipelines and would support changes to section 1334(f) to provide FERC the 

authority for ensuring open and nondiscriminatory access to pipelines. However, we 

would want to ensure that any amendment expressly states that the Department 

of the Interior maintains authority over granting pipeline rights-of-way and operations of those pipelines. We have been working closely with FERC on these issues 

and will continue to maintain close coordination. 

Question 3. What is your interpretation of the Outer Continental Shelf Lands Act 

with respect to the question of whether the Secretary has the authority to lease the 

remaining Lease Sale 181 lands prior to the issuance of the new 5-year plan? 

Answer. Under our existing authority, the remaining Lease Sale 181 Lands would 

need to be included in a 5-year plan in order for these areas to be leased. The current 5-year plan, which ends in June 2007, would need to be amended to include 

these areas since there is no such sale scheduled in the current 5-year program. 

Some NEPA analysis of the amendment would also be required. 

In August, the Department took the first step in the two year process of developing the next 5-year program for 2007-2012. The Department asked for comments 

on all OCS areas, including the Lease Sale 181 area, for the 2007-2012 5-year leasing program. The public period has closed. 

MMS received 8,998 comments in favor of opening additional areas of the OCS 

and 2,276 against. The Department will consider all comments received when formulating the draft proposed 5-year leasing plan. 

Question 4. In 2001, Department of Interior offered a reduced portion of Lease 

Sale 181 for leasing (only 1.47 million acres of the entire 5.9 million acres). Presumably in making this decision the Department looked at a number of factors such as 

environmental concerns, proximity to state coastlines, our nation’s domestic energy 

supply, and several other considerations.

• Can you comment on whether the state of any or all of these considerations has 

changed in any significant way since the decision in 2001? 

• Have the changes in the state of these considerations led the Department to 

change its policy position in the upcoming 2007-2012 Five-Year Plan?

Answer. In 2001, the Secretary spent a considerable amount of time talking to 

and listening to officials and citizens of the affected states around the original Lease 

Sale 181 area. Based on these discussions and information available, a decision was 

made to modify the area that would be available for leasing during the 2002-2007 

Oil and Gas Leasing Program, which is the current program in effect. 

As stated above, the Department has taken the first step in a two year process 

to develop the next 5-year Oil and Gas Leasing Program for 2007-2012. In August, 

we requested comments on all OCS areas, including the Lease Sale 181 area. The 

public comment period has closed. The Department will consider all comments received when formulating the draft proposed 5-year leasing plan. 

Question 5. Would the Secretary have to go through the steps required by a five 

year plan such as a public comment period etc.... or, could the Secretary simply 

amend the current 5-year leasing plan to include the remaining non-leased 181 

areas? 

Answer. The Department is looking at what would be required if the current 5-

year plan were to be so amended. 

Question 6. If the Department were to have a lease sale in the Sale 181 area early 

next year, how long would it take before any natural gas production might be realized from that sale? Assume there are no CZMA ‘‘consistency challenges’’ or lawsuits 

against the sale itself or plans of exploration and production. 

Answer. The Department anticipates that production would occur within five 

years of the first sale. 

Question 7. Please comment on the most recent DOI resource estimates for Lease 

Sale 181. Start with the entire 181 area; then the entire non-leased portions of 181 

and then the entire non-leased portions of 181 which are more than 100 miles from 

the Florida and Alabama coastlines. 

Question 8. Could you please comment on what these numbers mean in real 

terms? In other words, how many homes could be heated for what period of time, 

and how many cars could be fueled for how long if these resources were produced? 

Answer for both 7 and 8. According to the MMS National Resource Assessment 

Update in 2003, undiscovered technically recoverable resources for the entire 181 

area is 1.87 billion barrels (bbl) of oil, which equates to enough oil to fuel 136 milVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00151 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
148

lion vehicles for one year or 6.8 million vehicles for 20 years, and 11.69 trillion cubic 

feet (Tcf) of gas, which equates to enough gas to cover current U.S. household consumption for 2.5 years or 8.3 million homes for 20 years. 

The estimate of undiscovered technically recoverable resources for the non-leased 

portions of 181 are 1.11 bbl of oil and 7.45 Tcf of gas. This is equivalent to enough 

oil to fuel 80.7 million vehicles for one year or 4 million vehicles for 20 years and 

enough gas to cover current U.S. household consumption for 1.6 years or 5.3 million 

households for 20 years. 

Most of the undiscovered technically recoverable resources in the non-lease portion of 181 are more than 100 miles from both Florida and Alabama coastlines, .93 

bbl of oil and 6.03 Tcf of gas. This would provide enough oil to fuel 67.5 million vehicles for one year or 3.4 million vehicles for 20 years and enough gas to cover U.S. 

households for 1.29 years or 4.3 million households for 20 years. 

Question 9. Please comment on the procedure that the federal government goes 

through in determining whether an area on the OCS should not be offered for leasing because it is an area that is critical for military use by the DOD. 

Answer. The Department of the Interior coordinates closely with the Department 

of Defense to determine whether an area contemplated for leasing is critical for military use. We have a Memorandum of Agreement with the Department of Defense 

on a process for resolution of such issues if a conflict does arise. This process has 

worked well and has achieved balanced decisions regarding the best uses of the OCS 

that avoid interference with military operations. 

Question 10. Can you comment on whether any determination has been made 

with respect to any portions of the Lease Sale 181 area on the question of whether 

there is a strategic military interest sufficient in that area to prohibit leasing there? 

Answer. The Department understands that the Department of Defense uses portions of the Eastern Gulf of Mexico planning area. However, since we have not developed any leasing proposal for consideration in the non-leased portions of Lease 

Area 181, it is premature to speculate as to whether there may be a conflict with 

the Department of the Defense. As stated above, we coordinate with the Department 

of Defense to determine whether an area contemplated for leasing is critical for military use. 

Question 11a. New Production: As you know we are facing a very serious energy 

situation for this winter. We received an update from BLM on the backlog of oil and 

gas permits. It’s apparent there is progress being made, but it’s not even close to 

what will be needed. After listening to testimony for years on this issue, I am of 

the opinion that we have created so many barriers and so much process that more 

funding will not be enough. 

Do you have any estimate of how much gas we are sitting on? 

Answer. The EPCA Phase I study estimated that 138 Tcf of undiscovered technically recoverable natural gas resources and proved reserves are under federal 

lands within the five basins that were assessed in the study. This is enough natural 

gas to heat 55 million homes for approximately 30 years. 

Question 11b. What will it take to actually process the 10,000 drilling applications 

anticipated next year? 

Answer. The Bureau of Land Management (BLM) has taken numerous administrative steps to ensure that applications for permits to drill (APDs) are processed 

promptly, while at the same time ensuring that environmental protections are fully 

addressed in the review. In FY 2005, the BLM processed approximately 7,736 APDs 

and approved 7,018 of those processed. This is approximately 4,000 more than BLM 

was able to process in 2000. 

The Energy Policy Act of 2005 gave the Department valuable tools for improving 

APD processing. Pursuant to section 365 of the Act, BLM is implementing a pilot 

project to improve Federal permit coordination. Section 365 also establishes a permit processing improvement fund that will provide the funds necessary to hire additional staff in the pilot offices established. We anticipate that the BLM will process 

more than 10,326 permits in FY 06 and 12,150 permits in FY 07. The new pilot 

offices handle approximately 72 percent of the current permit application activity. 

Another tool that will assist the BLM in more timely application processing is the 

improvement of our NEPA compliance related to the exploration or development of 

oil and gas. Section 390 of the Energy Policy Act of 2005 establishes a rebuttable 

presumption that a set of defined development activities do not need further site 

specific NEPA review. This will assist the BLM in processing applications in a more 

timely manner. 

Question 11c. This is an opportunity; we have companies with the money to 

spend. You have a challenge. We’ve got to find a way to make this work. 

What can be done to encourage new production right now? 

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Answer. The Department is actively implementing provisions of the Energy Policy 

Act of 2005, which provides additional authorities and resources to streamline current procedures. 

Question 11d. What can Congress do to help? 

Answer. As stated above, the Department is actively implementing provisions of 

the Energy Policy act of 2005, which provides additional authorities and resources 

to streamline current procedures. The Department will continue to evaluate its existing authorities, and if we find that additional changes are appropriate, we will 

recommend those changes to the Congress. 

Question 11e. If we were to do something with winter drilling restrictions, is it 

still possible to protect wildlife and habitat? 

Answer. Regulations at 43 CFR 3101.1-4 allow the BLM to grant exceptions, waivers, or modifications to lease stipulations when the authorized officer determines 

that the factors leading to the inclusion of the stipulation in the lease have changed 

sufficiently to make the protection provided by the stipulation ‘‘no longer justified’’ 

or if the proposed operations would not cause ‘‘unacceptable’’ impacts. Exceptions 

are granted more frequently than waivers or modifications and can involve temporary changes to seasonal or locational drilling restrictions. To ensure impacts are 

not unacceptable, BLM conducts a biological review prior to granting an exception, 

waiver, or modification. The identification and use of environmental Best Management Practices can play a significant role in reducing impacts to an acceptable level. 

Therefore, when circumstances and mitigation are appropriate, BLM believes it can 

grant seasonal and locational exceptions for energy development while protecting 

wildlife and its habitat. 

Question 12a. Pilot Project Offices: In your testimony you spoke of the BLM’s 

plans for implementing the Permit Processing Pilot Offices. 

How will this program serve to expedite permitting? 

Answer. The pilot offices will provide the BLM the ability to test new management strategies designed to further expedite the processing of APDs. These strategies include placing employees of other Federal agencies in the pilot offices to provide for improved coordination and expedited consideration of applications. The additional funds provided through the pilot fund established under section 365 of the 

Energy Policy Act of 2005, will also help BLM process APDs more expeditiously. 

Question 12b. This program comes with funding. How do you make sure the new 

funding is used to make a difference on the ground? 

Answer. Funding will be allocated to the seven BLM pilot offices identified in the 

Energy Policy Act of 2005 and it will augment base funding BLM already receives 

in order to expand its capacity for processing APDs and related activities. The BLM 

has also established an accounting structure and project codes for the pilot offices 

to monitor and track associated expenditures. 

Question 12c. What feedback have you received from State governments on participating in this effort? 

Answer. The pilot program established by the Energy Policy Act of 2005 authorizes coordinated permit processing arrangements with states. The BLM has initiated discussions with appropriate state contacts. We will also begin working with 

the states on a Memorandum of Understanding to better coordinate activities with 

those states. 

Question 12d. As a pilot program we will need regular feedback on what is working and what is not. Can you make sure, say once a quarter, to provide a regular 

report? 

Answer. The Energy Policy Act of 2005 requires the Secretary to provide a report 

to Congress on the pilot project by August 2008. The BLM will provide interim reports and briefings for Congressional staff on implementation and progress in the 

pilot offices. 

Question 13. Oil Shale and Tar Sands Program:

• Can you give us any additional information on the 20 nominations for research 

and development leases? 

• Are these real and substantive proposals?

Answer. The BLM has received 20 nominations for research, development, and 

demonstration (RD&D) proposals in Colorado, Utah, and Wyoming. These nominations include proposals to use a variety of oil shale extraction technologies. The 

nominations are currently being reviewed by an inter-disciplinary team to consider 

their merits, economic viability, and potential environmental effects. At the conclusion of the review process, recommendations for RD&D leases will be made. The 

BLM expects to issue RD&D leases for viable nominations early in 2006. 

Question 14. In the FY2006 Appropriations Congress provided a $2 million increase with specific direction from both the House and the Senate about oil shale. 

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Is BLM using this funding for this new program? 

Answer. Congress provided an increase of $3.0 million for conventional oil and gas activities and oil shale development. Of that amount, $1.0 million has been dedicated to oil shale. BLM is using the funds on the oil shale RD&D program and for 

the programmatic Environmental Impact Statement for commercial oil shale leasing. 

QUESTIONS FROM SENATOR TALENT

Question 1. Skyrocketing natural gas prices are damaging the manufacturing and 

farm economies, hurting residential bill payers and driving up inflation. They are 

not going to come down on their own, in fact EIA projects residential cost increases 

of up to 70% this winter. The Administration has taken significant portions of Lease 

181 out of the leasing program by executive action, areas that are known to be rich 

in natural gas and where existing infrastructure could bring that gas to market relatively quickly. In the face of $14 natural gas what is preventing the Administration 

acting to expand leasing in the eastern Gulf and ease the supply shortages? 

Answer. In 2001, the Secretary spent a considerable amount of time talking to 

and listening to officials and citizens of the affected states around the original Lease 

Sale 181 area. Based on these discussions and information available, a decision was 

made to modify the area that would be available for leasing during the 2002-2007 

Oil and Gas Leasing Program, which is the current program in effect. 

To expand leasing in the non moratoria areas that have been deferred from leasing in the Eastern Gulf, the Department would need to amend the current 5-year 

leasing plan, which ends in June 2007, to schedule an additional sale in the Eastern 

Gulf that would include any of these deferred areas. It would take time to go 

through the necessary procedures, including NEPA, to amend the current program. 

The Department has taken the first step in a two year process to develop the next 

5-year Oil and Gas Leasing Program for 2007-2012. In August, we requested comments on all OCS areas, including the Lease Sale 181 area. The public comment 

period has closed. MMS received 8,998 comments in favor of opening additional 

areas of the OCS and 2,276 against. We will be considering all comments received 

when formulating the proposed draft leasing 5-year plan. 

Question 2. Are there any procedural impediments from the way the Lease Sale 

181 area has been handled that could be raised that might delay the actual sale 

process for an extended time if you were to re-offer them in the near term? 

Answer. In order to lease additional lands, the current five year plan would need 

to be amended. Amending the plan requires new work under NEPA, since the EIS 

for the current 5-year program did not analyze these tracts. Other statutes, such 

as the Coastal Zone Management Act, would need to be complied with prior to the 

Secretary conducting a lease sale. 

Question 3. How does the law prioritize need or use of the Lease 181 area between 

energy production and military use? How is DOI working with DOD to resolve these 

issues so that we might access the oil and gas while not weakening our defense? 

Answer. The Department of the Interior coordinates closely with the Department 

of Defense to determine whether an area contemplated for leasing is critical for military use. We have a Memorandum of Agreement with the Department of Defense 

on a process for resolution of such issues if a conflict does arise. This process has 

worked well and has achieved balanced decisions regarding the best uses of the OCS 

that avoid interference with military operations. 

Question 4. Do I understand correctly that there were no oil or natural gas leaks 

from offshore facilities in the Gulf of Mexico as a result of the recent hurricanes? 

Answer. There were no significant spills from any offshore wells on the OCS. Although there were some minor pollution events from lines or equipment, all subsurface safety valves installed beneath the seafloor successfully prevented uncontrolled releases of hydrocarbons into the Gulf of Mexico. 

Question 5. What issues, if any, do you see if the Senate were to vote to allow 

individual coastal states to choose whether or not to allow oil and gas exploration 

in federal waters off of their coasts? 

Answer. The Department does not see any major issues with giving a state the 

right to request moratoria be lifted off its coast in order for the state to ‘‘opt-in’’ to 

an oil or gas leasing program. The Administration also supports increasing offshore 

energy production in areas where States agree to lift current offshore moratoria. 

Question 6. There have been some proposals to break the traditional oil and gas 

lease to be oil-only or gas-only in case a particular State prefers to allow only natural gas drilling, for instance. It seems to me that being forced to choose to produce 

only one or the other may present a high degree of risk to exploration companies 

who may be granted a gas-only lease, discover oil only, and be forced to abandon 

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their facilities and write off the investment. What is the likelihood of accurately 

knowing in advance whether a lease area contains just oil or just natural gas? 

Answer. The Department, either through legislation or regulations, would need 

the ability to create procedures to address situations where oil or gas is discovered 

on a lease restricted to development of one of those resources. Resource assessments, through geologic and geophysical evidence, provide an indication of what 

may be located in an area, however, the likelihood of accurately knowing in advance 

whether a lease area contains just oil or just natural gas is minimal in frontier 

areas (areas with little or no previous exploration). 

QUESTIONS FROM SENATOR BINGAMAN

ROLE OF DEPARTMENT

Question 1. What has been the role of the Interior Department in coastal wetlands 

restoration? Do you see that role changing in the aftermath of these hurricanes? 

Answer. The Fish and Wildlife Service (Service) is actively engaged in coastal wetlands restoration. The Coastal Wetlands Planning, Protection and Restoration Act 

of 1990 (CWPPRA) established a Task Force that includes the Department of the 

Interior, Corps of Engineers, Environmental Protection Agency, Department of Commerce, Department of Agriculture, and the State. The CWPPRA Task Force has approved 154 restoration projects to protect and restore more than 101,000 net acres, 

and completed the comprehensive Coast 2050 Restoration Plan. Over the past 14 

years, the Service sponsored 20 CWPPRA projects amounting to 14,600 net acres. 

The Service continues to work with partners to implement other restoration projects 

on National Wildlife Refuges and non-Federal lands. 

Question 2. What has been the impact of the hurricanes on Departmental facilities 

and on units of the National Park and National Wildlife Refuge Systems? 

Answer. Several units of the National Park and Wildlife Refuge Systems were 

damaged. The most severe damage to Park units occurred to the Mississippi District 

of the Gulf Islands National Seashore, to the units of Jean Lafitte National Historic 

Park and Preserve, and New Orleans Jazz National Historical Park. Several other 

units including Everglades National Park, Dry Tortugas National Park, Natchez 

Trace Parkway and Natchez Historical Park sustained damage from Hurricane 

Katrina. 

Gulf Islands National Seashore sustained virtually complete destruction of five 

government housing units in the Davis Bayou area, all housing and facilities on the 

islands, the interior of the visitor center and district offices, and associated docks 

and piers. Additionally, thousands of downed trees blocked roadways. All Mississippi offshore islands, Davis Bayou Campground and Visitor Center in the Mississippi District of the park remain closed. In the Florida District, the Fort Pickens 

and Santa Rosa Areas are also closed due to damage from Hurricane Ivan last September and further damage sustained from Hurricane Katrina. 

Jean Lafitte National Historical Park and Preserve’s French Quarter Visitor Center in New Orleans, Chalmette Battlefield and National Cemetery in Chalmette, 

and Barataria Preserve in Marrero will be closed until, at a minimum, early 2006. 

The park’s Acadian Cultural Center in Lafayette, Prairie Acadian Cultural Center 

in Eunice, and Wetlands Acadian Cultural Center in Thibodaux are open and programs continue as scheduled. New Orleans Jazz National Historical Park headquarters and visitor center remain closed. 

Hurricane Katrina impacted 22 national wildlife refuges (NWR) in Alabama, Mississippi, and Louisiana. The office/visitor center at Mississippi Sandhill Crane NWR 

remains closed and was damaged beyond repair. Delta NWR is closed for the foreseeable future. Access to the refuge is limited and the headquarters building was 

damaged. The Breton NWR experienced a 50 percent loss in its landmass. The facilities and levee system at the Bayou Sauvage NWR were almost completely destroyed. The Big Branch Marsh NWR lost many facilities, but remains open. Existing facilities at the Grand Bay NWR were destroyed. Bon Secour NWR also suffered 

damage and additional debris removal will have to take place. Public access at this 

station remains limited. 

Hurricane Rita impacted 22 national wildlife refuges in Louisiana and Texas. All 

facilities and infrastructure at Sabine NWR were completely destroyed. There were 

extensive damages to Anahuac NWR, Cameron Prairie NWR, Lacassine NWR, and 

McFaddin NWR. 

Hurricane Wilma impacted multiple national wildlife refuges in Florida. The Florida Keys Refuges headquarters was destroyed. The A.R.M. Loxahatchee NWR lost 

its office and experienced a great deal of damage to facilities. 

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Question 3a. What coordination is taking place between the Interior Department 

and other Federal agencies in addressing the aftermath of the hurricanes? 

What input are you having with respect to FEMA’s activities? 

Answer. The Department is actively engaged in several interagency efforts to assess the government’s response to Hurricanes Katrina and Rita. We participate in 

the ‘‘Comprehensive Review of Federal Government Response to Hurricane Katrina’’ 

that is being led by the Assistant to the President for Homeland Security. We are 

also participating in several of the Working Groups established by the White House 

Task Force on Hurricane Katrina, including Economic Recovery, Environmental Impacts and Cleanup, Transportation Network Restoration, Energy Supply, and Law 

Enforcement and Public Safety. The Department’s participation in these efforts includes input related to the activities of FEMA. 

Question 3b. What input are you having with respect to the activities of the Corps 

of Engineers? 

Answer. As noted, the Department is actively engaged in several interagency posthurricane review efforts, and our input relates in part to all of our federal partners, 

including the Corps of Engineers. The Department is a major supporting agency of 

Emergency Support Function (ESF) 3, Public Works and Engineering, for which the 

Corps of Engineers is the lead agency. At the present time, 187 Department of the 

Interior personnel are deployed under ESF-3, including personnel from the Bureau 

of Reclamation, Bureau of Land Management, Bureau of Indian Affairs, Fish and 

Wildlife Service, National Park Service, United States Geological Survey, Minerals 

Management Service, and Office of Surface Mining. 

Question 3c. Do you view the hurricane response as largely a FEMA and Corps 

effort or does the Department also have a role to play? 

Answer. FEMA is the primary federal agency responsible for responding to the 

hurricanes. The Department of the Interior has had a significant role in assisting 

that response, with every Interior bureau participating. Although The Department 

of the Interior is not a lead agency for any of the Emergency Support Functions 

under the National Response Plan (NRP), several thousand Interior employees have 

directly participated in the hurricane response efforts, primarily under the NRP 

framework. The Department of the Interior has provided substantial support to 

ESF-3 (Public Works and Engineering), ESF-4 (Firefighting), ESF-10 (Oil and Hazardous Materials Response), ESF-11 (Agriculture and Natural Resources), ESF-13 

(Public Health and Safety). While the Department of the Interior’s deployment fluctuated day-to-day, our peak deployment included over 2,300 personnel. At the 

present time, approximately 284 personnel are deployed. 

Question 4. What role is the Department playing in shaping the Administration’s 

proposed legislation relating to hurricane relief? 

Answer. The Department fully participated in the development of the reallocation 

request transmitted by the President on October 28, 2005. 

Question 5. Do you think there is any need for Federal dollars for land acquisition 

in the aftermath of Hurricane Katrina and Rita? 

Answer. At this time, the Department is not aware of a need for any land acquisition arising from the aftermath of the hurricanes. 

Question 6. The Energy Policy Act (Section 342(j)) provides the federal government with a new opportunity to help low-income energy consumers. The section authorizes you to provide royalty natural gas to low-income consumers at a reduced 

price and is intended to supplement the LIHEAP program. You have significant discretion in implementing this royalty gas program. Have you developed a plan that 

can help low-income consumers this winter? Are you consulting with consumer representatives and the state agencies that implement the LIHEAP program? 

Answer. Immediately following enactment of the 2005 Energy Policy Act, the Minerals Management Service began exploring ways to implement section 342(j) of the 

Act. The Department’s Office of the Solicitor determined, after discussions with the 

Office of Management and Budget, your staff, and the Majority staff, that the provision provides authority only for an access preference. It does not provide Interior 

with the authority or discretion to receive less than fair market value for the royalty 

gas or oil. We are still reviewing the possibility of implementing an access preference. No final determination has been made. 

IMPLEMENTATION OF EPACT 2005

Question 1. Please describe your actions in implementing EPACT 2005. Can you 

share with us a timetable for implementation of the provisions for which the Department has responsibility? 

Answer. The Department has taken several actions in implementing the Energy 

Policy Act of 2005. 

153

Section 210—Biomass: BLM updated the Biomass Utilization Strategy in July 

2005 and completed a Biomass joint work plan with the Forest Service on September 23, 2005. A Biomass Use Grant Application Form has also been jointly developed with the Forest Service. 

Section 221-237—Geothermal: BLM issued interim guidance on October 7,2005 

(1M 2006-009) for processing geothermal lease nominations received prior to enactment of the Act and prior to the completion of new geothermal rulemaking. MMS 

is developing regulations to comply with statutory requirements changing the methodology for geothermal valuation and simplifying the valuation calculations, both for 

direct use and electricity generation. A Geothermal Workshop was held on October 

17-19, 2005 in Reno, Nevada to address geothermal issues and establish assignments for the rulemaking effort. 

Section 331—Naval Petroleum Reserve No.2 Transfer to DOI: The transfer of jurisdiction of NPR-2 (California) from DOE to BLM was effective the date of enactment 

of the Act and a BLM News Release was issued on August 10, 2005 regarding the 

transfer. A Notice to all lessees and permittees was mailed on September 15, 2005. 

Federal Register Notice of Intent to amend the BLM land use plan for the National 

Petroleum Reserve Number 2 transfer was published on September 26, 2005. MMS 

has obtained copies of all of the leases to be transferred from the Department of 

Energy to DOI, contacted all of the current oil and gas companies to inform them 

of the reporting and payment requirements, and begun the process of collecting, accounting for, and disbursing the revenues from these leases. 

Section 343—Marginal property production incentives: MMS is working on a proposed rule prescribing specific categorical standards and requirements for, and the 

extent of royalty relief for, marginal properties on the Outer Continental Shelf. 

Section 344—Deep gas production incentives: MMS is drafting a proposed rule 

that would create a royalty suspension volume of 35 BCF for gas production from 

ultra deep (more than 20,000 feet subsea) wells on shallow water leases in the Gulf. 

By statute, regulations issued will be retroactive to the date of the proposed rulemaking. 

Section 345—Deep water royalty relief: The relief specified in the Act has been and 

will be included in lease documents for lease sales in the Gulf of Mexico occurring 

during the 5-year period beginning the date of enactment of the Act. 

Section 346—Alaska Offshore Royalty Suspension: MMS is drafting a proposed 

rule that would adopt for eligible leases offshore Alaska the existing evaluation 

structure used for making pre-production royalty relief determinations on deep 

water leases in the Gulf of Mexico to promote development and increase production. 

Section 348—North Slope Science Initiative: The Charter for the North Slope 

Science Technical Advisory Panel was approved by the Secretary on September 2, 

2005 and a Federal Register Notice calling for nominations to the Advisory Panel 

was published on September 12, 2005. The call for nominations closed on October 

27, 2005. 

Section 350—Tar Sand Rule: The Tar Sand Rule was published in the Federal 

Register on October 7, 2005. The Interim Final Rule will provide for separate tar 

sand leases and oil and gas leases in special combined hydrocarbon leasing areas. 

Sections 353—Gas hydrate production incentives: MMS is developing a proposed 

rule that would allow the Secretary to grant royalty relief on a case specific basis 

if the Secretary determines that such royalty relief would encourage production of 

natural gas from gas hydrates on an eligible lease. 

Section 357—Outer Continental Shelf Inventory: MMS is conducting an inventory 

and analysis of the oil and gas resources beneath the waters of the OCS. 

Section 365—Oil and Gas Pilot Offices: BLM is implementing a pilot project to 

better coordinate APD processing. The BLM has entered into a Memorandum of Understanding with the Fish and Wildlife Service, Bureau of Indian Affairs, Army 

Corps of Engineers, Environmental Protection Agency, and United States Forest 

Service to provide staff and expertise to better coordinate activities in order to improve efficiency while maintaining environmental protection. The pilot offices will 

be aggressive and innovative in finding better and more efficient ways to manage 

the oil and gas program and within 18 months, we will have identified best management practices that can be implemented bureau wide. New money from rental revenue in FY 2006 and FY 2007 will help BLM accomplish this task. With more efficient processes and additional funds, we anticipate BLM could process more than 

10,326 permits in FY 06 and 12,150 permits in FY 07. 

Section 366—APD Processing Timeframes: BLM issued interim guidance (IM 

2005-235) on September 15, 2005 regarding the APD processing timeframes required by the Act. These processing timeframes will be incorporated into a 

reissuance of Oil and Gas Onshore Order # 1. Onshore Order # 1 will be published 

as a Further Proposed Rule in the Federal Register in the near future. 

154

Section 368—Joint Designation of Corridors: The Department of Energy, the Department of the Interior’s Bureau of Land Management, and the Department of Agriculture’s Forest Service (the Agencies) will prepare a Programmatic Environmental Impact Statement (PETS) to evaluate issues associated with designation of 

energy corridors on federal lands in eleven Western states. The public scoping period started with the publication of a Notice of Intent in the Federal Register on 

September 28, 2005 and will continue for 60 days after publication in the Federal 

Register. Public scoping meetings were held in each of the eleven Western States 

beginning on October 25, 2005 and completed on November 4, 2005. A website has 

been established for this Programmatic EIS at www.corridoreis.anl.gov.

Section 369—Oil Shale R&D: BLM received 20 nominations for oil shale Research 

and Development leases and issued a News Release on September 20, 2005 regarding the nominations received in Colorado, Utah and Wyoming. A Review Team has 

been designated to review the nominations and provide recommendations for oil 

shale R&D leases. 

Section 384—Coastal Impact Assistance Program: MMS is working on guidelines, 

and developing the organizational capabilities required to effectively and efficiently 

administer the Coastal Impact Assistance Program, including the methodology to 

determine the share of funds allocated to each state and coastal political subdivision. 

Section 388—Alternate energy-related uses on the Outer Continental Shelf: The 

program required to implement the statutory provisions is under development. As 

the lead Federal licensing agency for the Cape Wind Energy project, MMS is reviewing the Project’s application and environmental documentation for completeness in 

light of our broader responsibility to regulate the Project’s full spectrum of activities 

(e.g., construction, operations, and decommissioning). Additionally, MMS is working 

with the State of Massachusetts and other cooperating agencies (such as the U.S. 

Army Corps of Engineers, Environmental Protection Agency, Coast Guard) to ensure 

that their permitting needs are being adequately addressed. Also included in this 

Section is the requirement to coordinate a digital mapping initiative for the OCS. 

MMS has drafted a preliminary implementation plan and is working with appropriate member agencies of the Federal Geographic Data Committee. MMS is building a full business plan in order to effectively implement the statutory requirements. 

Section 390—Oil and Gas NEPA Review (Categorical Exclusions): The BLM issued 

interim guidance (IM 2005-247) on September 30, 2005 to BLM Field Offices for implementation of the NEPA rebuttable presumption categorical exclusion provisions 

of Section 390 of the Energy Policy Act of 2005. The IM also provides guidance for 

improved NEPA compliance for oil and gas activities. 

Section 432—Repeal of the 160-Acre Limitation for Coal Leases: Interim guidance 

was issued to BLM Field Offices on coal lease modifications on September 30, 2005 

(IM 2006-004) which increases the limitation for coal lease modifications from 160 

acres to 960 acres. 

ONSHORE OIL AND GAS PRODUCTION

Question 1. How many APD’s have been granted during fiscal year 2005? Please 

provide this information by month and by state, if possible. On how many of these 

APD’s has drilling occurred? If drilling has not occurred, why not, and can you recommend actions that can be taken to facilitate this production? 

Answer. In FY 2005, the BLM processed approximately 7,736 APDs and approved 

7,018.

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FY 2005

State APDs

Received 

APDs

Approved 

APDs

Rejected 

APDs

Processed 

New Wells 

Spudded 

New Wells 

Completed 

AK ................. 8 8 0 8 3 3

CA ................. 235 232 3 235 220 69

CO ................. 605 608 30 638 334 260

ES ................. 136 110 8 118 58 45

MT ................ 451 425 29 454 226 229

NV ................. 9 10 2 12 10 3

NM ................ 1,619 1,475 95 1,570 975 1,003

UT ................. 1,245 770 16 786 553 455

WY ................ 4,043 3,380 535 3,915 2,303 1,075

Total ...... 8,351 7,018 718 7,736 4,682 3,142

The BLM is not always aware of why an applicant requests a permit and then 

does not drill. 

Question 2. I understand some onshore oil and gas leases have stipulations that 

restrict certain activities on a seasonal basis. Can you please characterize these stipulations and explain the need for seasonal closures? Is there a process for obtaining 

an exception from these stipulations? If so, please describe. How often are such exceptions granted? Can you please provide the Committee data for each of the past 

five years from selected BLM field offices (such as Pinedale, Wyoming, and Farmington, New Mexico) regarding the number of exceptions requested and the number 

of exceptions that were granted or denied? 

Answer. Many of the BLM’s Resource Management Plans have identified environmental protection requirements that are attached to leases before the leases are 

issued. These lease stipulations are major or moderate limitations placed on the 

lease in order to protect important resource values such as winter habitat for wildlife species, steep slopes that cannot be reclaimed, and fragile wetlands. A typical 

lease stipulation may require that an operator not drill a new well from November 

15 to March 15 in order to protect critical sage-grouse winter habitat. 

The BLM regulations in 43 CFR 3101.1-4 outline the general process for obtaining 

an exception, waiver, or modification of lease stipulations. Individual land use plans 

identify the criteria for granting exceptions, waivers, or modifications to lease stipulations. The Bureau typically grants exceptions to these lease stipulations when the 

protected resource is not present in the area(s) affected, or if the impact would be 

minor and not seriously affect the protected resource, or if additional on or off site 

mitigation would reduce the negative impacts to acceptable levels. The number of 

exceptions, waivers, and modifications approved each year by the Bureau is not 

tracked and is not known. The BLM will research this information and provide an 

approximate number to the Committee once available. 

Question 3. What actions are you taking to ensure that while you are increasing 

activity relating to oil and gas production from public lands, other important aspects 

of BLM’s mission to administer public lands for multiple-uses (grazing, recreation, 

fish and wildlife, etc.) are not being adversely impacted? 

Answer. The BLM endeavors to balance the energy needs of the nation while sustaining the health, diversity, and productivity of the public lands. BLM has recently 

taken specific actions to help ensure increased oil and gas activity does not adversely impact the other resources BLM manages as part of its multiple use mission. BLM has identified many environmental Best Management Practices (BMP) 

for conducting oil and gas operations in an environmentally responsible manner. 

BLM policy requires that field offices consider appropriate BMPs in every drilling 

permit approval. BLM has also produced a new handbook for the oil and gas operator, referred to as the Gold Book. The Gold Book provides instructions for implementing many of these environmentally improved practices. Both the BMPs and the 

Gold Book can be found on BLM’s BMP website at www.blm.gov.bmp.

QUESTIONS FROM SENATOR AKAKA

Question 1. In your testimony you reported that there were no lives lost and no 

major oil spills from oil rigs on the Outer Continental Shelf. This is very good, given 

the Category 5 status of the hurricanes, but it is also important—for us to learn 

how to protect our workers and infrastructure in the future. 

What are your ‘‘lessons learned’’ for secure oil and gas drilling platforms in the 

Gulf? What percentage were damaged enough to stop production? Assuming we are 

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looking toward ultra-deep drilling, are there additional safety or structural standards you would suggest for the future? To what do you attribute the success on personal safety and oil platform stability? 

Answer. It was confirmed that the offshore oil and gas industry produces environmentally safe energy for America. All subsurface safety valves held on the OCS resulting in no significant spill from production. We learned that facilities constructed 

to meet MMS’s 1988 updated design standards fared much better than their older 

counterparts. Only one deep water platform (Typhoon) and four platforms in shallow 

water built under the 1988 standards for manned platforms were destroyed. The Typhoon incident is under investigation to determine the circumstances of its destruction. 

Post Hurricane Ivan, the Department recognized that Mobile Offshore Drilling 

Units (MODUs) were vulnerable to breaking loose of their moorings in extreme hurricane conditions and therefore, began to study how best to remedy this issue. Post 

Hurricane Rita it was reported that nineteen MODUs broke loose from their moorings and were set adrift damaging pipelines as anchors dragged along the ocean 

floor. To address this issue, the Secretary has called for a conference on MODUs 

to be held at the Department on November 17, 2005. 

In preparation of the approaching hurricanes, production was shut in and personnel were evacuated. At the peak of Hurricane Katrina, 95 percent of Gulf of Mexico oil and 88 percent of natural gas was shut in. Hurricane Katrina destroyed 47 

platforms and 4 drilling rigs; extensively damaged 20 platforms and 9 drilling rigs. 

At the peak of Hurricane Rita, 100 percent of daily oil and 80 percent of daily gas 

production was shut in. Hurricane Rita destroyed an additional 66 platforms and 

4 drilling rigs; extensively damaged 32 platforms and 10 drilling rigs. As of November 3, 2005, 52.7 percent of daily oil production and 47.27 percent of the daily gas 

production in the Gulf remain shut in; 25.27 percent (207) of manned platforms remain evacuated. Industry continues to assess damage and make repairs to offshore 

facilities. 

Question 2. Does the Minerals Management Service set standards for oil rigs on 

the Outer Continental Shelf, or does industry set the standards? 

Answer. Ninety-five industry standards are incorporated by reference into the 

OCS operating regulations. These standards are supplemented with additional regulations which are drafted and promulgated by MMS. The 1996 National Technology 

Transfer and Advancement Act (NTTAA) directed Federal agencies to achieve greater reliance on voluntary standards and standards-developing organizations by participating in developing voluntary standards. Operators must comply with all industry standards that are incorporated into MMS regulations and any additional requirements promulgated by MMS. Operators also have the option to use alternative 

standards or procedures if they can demonstrate to MMS that such practices provide 

a level of safety and environmental protection that is equivalent to or greater than 

that provided by complying with MMS regulations. 

QUESTIONS FROM SENATOR CORZINE

Question 1. As you know, this committee just passed its portion of the reconciliation bill, which opens the Arctic National Wildlife Refuge to drilling. I am strongly 

opposed to drilling in ANWR, but what concerns me most about the language is that 

it does not even afford ANWR the same environmental protections afforded to every 

other wildlife refuge or public land that is currently open to oil and gas development. 

If we are to open ANWR, a controversial policy decision to begin with, doesn’t it 

make sense to at least ensure that it is protected with the same laws that protect 

other wildlife refuges? 

Answer. This Administration is committed to stringent regulation of oil and gas 

development in ANWR. We will require the best available commercial technology for 

oil and gas exploration, development, and production in the 1002 Area. We are also 

committed to the standard that oil and gas exploration, development, and production activities in the 1002 Area will result in no significant adverse effect on fish, 

wildlife or their habitat, subsistence resources, and the environment. We will ensure 

that this standard is met, or no development will take place. Finally, we will also 

require that lessees restore the area, both as activities proceed and when production 

is finally shut down. 

Question 2. Some have proposed opening the OCS to natural-gas-only leasing. 

Such proposals ignore the regional nature of routine marine discharges and other 

impacts resulting from normal exploratory drilling for oil or gas, and from day-today discharges from production platforms. Do you think that opening the OCS to 

natural-gas-only leasing is a good policy? 

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Answer. The Department has begun its two year process of developing the 2007-

2012 leasing program. Natural gas only leasing is an issue the Department sought 

comments on in its initial request for information. The public comment period for 

the leasing program has closed. We will consider all comments received during the 

development of the draft proposed 5-year leasing program. 

Question 3. Can you guarantee that if drilling were allowed on the Outer Continental Shelf areas currently under moratoria, these areas would be 100 percent safe 

from oil spills? Is the current technology foolproof? 

Answer. Hurricanes Katrina and Rita confirmed that our offshore oil and gas industry produces environmentally safe energy for America. Even in the face of two 

back-to-back major hurricanes, all subsurface safety valves held on the OCS and 

there was no significant spill from production. 

Question 4. I am disappointed that the House Resources Committee’s portion of 

the House reconciliation bill includes not only drilling in ANWR, but also includes 

a provision allowing states to opt out of the decades-old federal moratorium on new 

offshore drilling. If a state such as Virginia decides to opt out of the moratoria, how 

do you propose that we protect the coastlines of nearby states, such as New Jersey, 

should an accident occur? 

Answer. The Oil Pollution Act of 1990 provides resources for response teams and 

equipment should an incident occur. From an environmental standpoint, OCS natural gas production ranks favorably in comparison, say, to imported oil, which increases tanker traffic into U.S. waters and often comes from countries with less 

stringent environmental requirements. As to OCS oil production, the record reveals 

that the risk of an oil spill has decreased over each of the past three decades and 

is about 6 or 7 times less than the risk posed by tankered imports. Although the 

trend is improving for both sources, based upon the data for the period 1985—2001, 

for every billion barrels transported, worldwide tankers spill about 53,000 barrels, 

whereas OCS production loses about 8,000 barrels for every billion barrels produced. 

For the most recent decade the OCS rate was down to 6,500 per billion barrels. Of 

note, according to a recent National Academy report, natural seeps of oil from underground accumulations emit 150 times more oil into the North American ocean 

environment than U.S. OCS production. 

QUESTIONS FROM SENATOR SALAZAR

Question 1. If Congress and DOI opened up the Arctic National Wildlife Refuge 

and lease area 181 to production tomorrow, we would still be years away from that 

oil and gas hitting the market. While I am not opposed to working on the supply 

side of the equation, I believe that now is the time to address the demand side of 

the equation. Energy efficiency and conservation are the options that have the ability to offer some measure of relief to Americans in the near term. 

What has been the time line in the past for getting production up and running 

once an offshore area has been leased? Assuming lease area 181 is fully leased by 

the end of FY07, when would the additional supply of natural gas reach the market? 

And how would it affect price? 

Answer. It takes an average of five years for production to come on line in areas 

where infrastructure exists. 

Question 2. The Energy Policy Act (Section 342(J)) provides the federal government with a new opportunity to help low-income energy consumers. The section authorizes you to provide royalty natural gas to low-income consumers at a reduced 

price and is intended to supplement the LIHEAP program. You were given significant discretion in implementing this royalty gas program. On September 12th I sent 

you a letter requesting you to establish a pilot program in Colorado based on this 

provision. Have you developed a plan that can help low-income consumers this winter? Are you consulting with consumer representatives and the state agencies that 

implement the LIHEAP program? 

Answer. Immediately following enactment of the 2005 Energy Policy Act, the Minerals Management Service began exploring ways to implement section 342(j) of the 

Act. The Department’s Office of the Solicitor determined, after discussions with the 

Office of Management and Budget, the Majority staff, and the Minority staff, that 

the provision provides authority only for an access preference. It does not provide 

Interior with the authority or discretion to receive less than fair market value for 

the royalty gas or oil. We are still reviewing the possibility of implementing an access preference. No final determination has been made. 

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DEPARTMENT OF ENERGY, 

CONGRESSIONAL AND INTERGOVERNMENTAL AFFAIRS, 

Washington, DC, January 25, 2005. 

Hon. PETE V. DOMENICI, 

Chairman, Committee on Energy and Natural Resources, U.S. Senate, Washington, 

DC. 

DEAR MR. CHAIRMAN: On October 27, 2005, Samuel Bodman, Secretary, testified 

regarding hurricane recovery efforts related to energy and to discuss energy policy. 

Enclosed are the answers to 93 questions that were submitted by you, Senators 

Talent, Bunning, Bingaman, Akaka, Cantwell, Corzine, and Salazar to complete the 

hearing record. 

If we can be of further assistance, please have your staff contact our Congressional Hearing Coordinator, Lillian Owen, at (202) 586-2031. 

Sincerely, 

JILL L. SIGAL, 

Assistant Secretary. 

[Enclosures.] 

QUESTIONS FROM SENATOR DOMENICI

Question 1. Some have argued that Strategic Natural Gas Reserve should be considered a potential policy solution. Given the current high prices for natural gas and 

tight market for supplies, what do you think of such a policy? Likewise, what are 

the Administration’s thoughts about a Strategic Refined Products reserve? 

Answer. There are significant complex issues associated with the establishment 

of a Strategic Natural Gas Reserve. All of these issues are being carefully considered by the Administration. 

Question 2. What is the Administration’s position on a windfall profit tax? 

Answer. The Administration would oppose imposition of a windfall profit tax. The 

nation’s last experience with a windfall profit tax proved to be counterproductive. 

The tax discouraged investment in domestic oil production and distorted oil markets. If we were to re-establish a windfall profit tax, the U.S. would not be competitive in the world’s energy markets and needed energy infrastructure investment 

would be discouraged. As a result the U.S. would experience reduced energy supplies, higher energy prices and lower economic growth. It would represent an aboutface from the Energy Policy Act of 2005 that established policies to encourage development of domestic energy resources and ensure adequate and reliable supplies of 

energy. 

Question 3. Yesterday [October 26], the Environment and Public Works Committee had a tied 9 to 9 vote on the Inhofe Refinery Bill [S. 1772]. The Inhofe bill 

was a more modest approach to refiner expansion than the Barton bill [H.R. 3893]. 

What do you think of the two approaches and what do you think if will take to get 

refinery expansion in the U.S.? 

Answer. The Administration understands the need to expand refinery capacity in 

this country. We supported House passage of H.R. 3893 and commended the House 

for proposing steps to address the Nation’s critical need for additional refining capacity and fuel supply. While the Administration has not developed a Statement of 

Administration Policy for Senator Inhofe’s legislation, EPA did state in testimony 

before the Committee on Environmental and Public Works that ‘‘We believe S. 1772 

takes several important steps in the right direction by including provisions to 

streamline refinery permitting requirements and expand refinery capacity in the 

U.S.’’ EPA further said that the Administration looked forward to working with 

Congress as it considers the bill. 

We should be encouraged by several refinery expansions that have been announced by industry including those by Marathon, Exxon, Valero, Sunoco and other 

U.S. refiners. 

Question 4(a). In 2000, the Northeast Home Heating Oil Reserve was established 

and today it holds 2 million barrels of heating oil. Last week, there was what is 

defined in the Energy Policy and Conservation Act as a ‘‘dislocation in the heating 

oil market’’ and there were calls for release from the Heating Oil Reserve. 

Do you think the present situation calls for this kind of action? Are storage numbers so inadequate that we need to turn to our emergency supplies right now? 

Answer. The Northeast Home Heating Oil Reserve (NEHHOR) was created to provide a short-term supplement to the Northeast systems of private supply of heating 

oil in the event of an actual or imminent severe regional supply interruption. 

Although prices are high and the price differential that is an indicator of an 

anomaly in the markets for crude and heating oil and crude oil was reached, the 

159

President must use his discretion to determine whether conditions—i.e. a supply 

disruption—warrant drawdown of the Reserve. The heating season has just begun 

and there is adequate supply available. 

Administration policy is to preserve the inventory of the NEHHOR until an event 

is likely to or does interrupt supply, thereby causing a supply disruption. 

Question 4(b). What can we expect of prices later in the winter if the heating oil 

reserve is tapped now? 

Answer. The NEHOR was designed to address an imminent or actual supply disruption, not to manage prices. It is impossible to tell what may happen to prices 

later in the winter, since this is largely dependent on the weather. No supply shortage exists now. 

Question 5(a). Section 1221 of the Energy Bill, Siting of Interstate Electric Transmission Facilities, requires the Secretary of Energy to complete a study within one 

year of enactment of EPAct 2005, that designates geographic areas experiencing 

electric energy transmission capacity constraints or congestion that adversely affects 

consumers as a ‘‘national interest electric transmission corridor.’’ My understanding 

is that once a ‘‘national interest electric transmission corridor’’ is designated, Federal backstop siting authority becomes available to facilitate construction of transmission in those corridors. I’m interested in hearing your approach toward implementing this important section of the Energy Bill. 

Do you anticipate that DOE will designate these corridors as wide as possible in 

order to relieve as much congestion and save consumers as much money as soon 

as practicable? 

Answer. In most cases, there are several alternative ways to mitigate transmission congestion. Choosing which option to pursue primarily is a business decision. We believe that the Energy Policy Act of 2005 provides a vehicle to designate 

corridors in a balanced manner without predetermining such business decisions. 

Question 5(b). Do you anticipate that DOE will phase its findings to designated 

easily identified corridors as quickly as possible and fine tune the analysis as the 

year progresses? 

Answer. The basis for designating an area as a corridor will have to be technically 

strong, and the process for evaluating and selecting such areas should provide many 

opportunities for dialogue with affected parties. It will be important to do this with 

some care, so that states, local governments, industry, and stakeholders have ample 

opportunities to participate in the process. 

Question 5(c). Do you anticipated needing additional support or help from others 

to implement and complete this directive as quickly as possible? 

Answer. We intend to work cooperatively with industry, appropriate State agencies, and others to implement this work. 

Question 6. As of October 14, the EIA reported that natural gas storage was a 

little over 3 trillion cubic feet. This represents a net increase of 75 billion cubic feet 

from the previous week and an increase of 53 billion cubic feet above the 5-year average. Despite the weekly increases and above average storage numbers, we are seeing record high natural gas prices. What do you think it will take to cool these 

prices and what is the level of protection that this level of storage provides compared to other years? 

Answer. The most productive steps to increase natural gas supplies for the coming 

heating season are to facilitate the prompt return to operation of storm-damaged 

production facilities, including production platforms, gathering pipe networks, gas 

processing facilities, and gas transmission lines. All of this work has been started 

and some of it has been completed. For example, we anticipate that a new gas pipeline by Duke Energy Gas Transmission will by-pass a gas processing plant severely 

damaged in the Gulf storms and route production to an operational gas processing 

plant. This new segment, scheduled for operation before December 1, and gains by 

other producers, will add 700 million cubic feet of gas per day. The relatively highlevels of natural gas in storage also provides assurance that the winter-heating market will be served. However, we expect that prices will be significantly higher than 

normal. EIA projects that the average U.S. household will spend about $350, or 

48%, more this winter if they use natural gas. 

In order to bring down prices in future winter seasons we need to increase domestic gas production and increase the efficiency of gas use (increased use of condensing 

gas furnaces, improved building insulation and improved industrial efficiency are 

prominent ways to do this). Increased gas production could be accomplished by providing new access to areas of the Outer Continental Shelf currently off limits due 

to prior Presidential withdrawal and Congressional moratoria on those parts of the 

OCS. We can also increase imports of natural gas by helping to foster the emerging 

global trade in LNG, and by facilitating construction of the Alaska natural gas pipeline to bring that stranded gas to market. 

160

Question 7. Can you please give us a report of the progress to date by Energy, 

Interior, Agriculture and CEQ on the report required at the end Section 1221 transmission corridors on federal Lands? The report is due to Congress by November 6. 

Answer. The Bureau of Land Management and the Forest Service requested their 

field offices to provide the data needed to prepare this report. That data has been 

delivered and the report is in preparation. We expect to deliver the report no later 

than November 21, 2005. 

Question 8. What can we expect to see in DOE’S Economic Dispatch report required under Section 1234 of the Energy Bill? Will DOE provide recommendations 

to Congress and the States for legislative or regulatory changes? 

Answer. The report will provide useful information about procedures currently 

used by electric utilities to perform economic dispatch in different sectors of the U.S. 

electricity industry and identify possible revisions to these procedures. 

Question 9. If Congress appropriates funds to the rebuilding of transmission in 

the Hurricane impacted regions, should non-discriminatory access to the grid be required to assure that ratepayers are best served by available resources? 

Answer. Administration policy generally supports efforts to provide open access to 

the interstate transmission grid for all entities seeking transmission service. In this 

regard, portions of those systems in hurricane impacted regions subject to FERC 

regulation are required by the Federal Power Act to provide open access to the grid. 

Question 10. Considering the recent spikes in natural gas prices which were magnified by the hurricanes, what can the DOE do to encourage the most economic and 

efficient use of natural gas plants are used in dispatch systems? 

Answer. The economic dispatch study will give useful information to FERC and 

the States for use by the four joint boards on economic dispatch created under Section 1298 of the Energy Policy Act. In general terms, improving current practices 

with respect to economic dispatch will result in savings from the substitution of 

lower-cost fuel and the substitution of more efficient generation. 

Question 11. On the subject of hurricane recovery, I would like to know if the Department is providing any building efficiency assistance or advice to state and local 

authorities so that residential and commercial building stocks can be replaced with 

buildings of much higher efficiency both in terms of construction and heating and 

air conditioning. 

Answer. As the communities devastated by Hurricanes begin to rebuild, the U.S. 

Department of Energy is working to encourage cost-effective, durable, and energyefficient building reconstruction. The Office of Energy Efficiency and Renewable Energy is partnering with the State Energy Offices in the affected States to encourage 

a broad regional exchange of information and best practices on building technologies. The Department and the States are also partnering with the National Association of State Universities and Land Grant Colleges which includes local universities and local extension services. 

The Department is also working with its ENERGY STAR retail, manufacturer, 

utility, and State partners to reach out to homeowners and building contractors 

through training workshops. In addition to promotion of ENERGY STAR for New 

Homes, we are working with ENERGY STAR partners to expand and market their 

training programs to include DOE’s state-of-the-art information. 

Question 12. Title XVII, the Incentives Title, is intended to encourage the development and Deployment of highly innovative energy technologies. Congress has given 

the Department significant responsibility in the selection of technologies for support 

under Title XVII. Can you please tell the Committee how you intend to develop a 

program to implement the Title and how long that might take? 

Answer. Title XVII of the Energy Policy Act of 2005 authorizes DOE to provide 

loan guarantees for renewable energy systems, advanced nuclear facilities, coal gasification, carbon sequestration, refineries, energy efficiency, and many other types 

of projects that use improved technologies in commercial projects that enhance energy economy and reduce emissions of pollution and greenhouse gases. The Department is assessing procedures needed to comply fully with the provisions of the Federal Credit Reform Act and OMB Circular A-129 The Department’s Chief Financial 

Officer is heading up our efforts in consultation with the energy and science program offices, the Office of the General Counsel, the Office of Policy and International Affairs, and others. The Department has not developed a specific timetable 

for completing these activities. 

Question 13. The Energy Bill codified a number of new efficiency standards for 

commercial and consumer products. However, there are also a large number of efficiency standards under development at the department, some of which have fallen 

well short of the intended implementation dates. Can you tell the Committee what 

you intend to do to move this process forward? 

161

Answer. The Department is reviewing and implementing process improvements to 

its appliance standards program that are already contributing to increased productivity. Even as the Department moves quickly to implement the new requirements 

of EPACT 2005, we are committed to bringing all appliance standards activities into 

compliance. Recent results include the publication of a final rule in the Federal Register on October 18, 2005, and codifying the standards in the Energy Policy Act of 

2005 in the Code of Federal Regulations. On November 15, 2005, DOE will hold a 

public meeting to receive public comment on appliance standards scheduling issues. 

After receipt of those comments, the Department will draft its appliance standards 

scheduling plan and provide this plan, including process improvements, to the Congress. The initial report, required by section 141 of the Energy Policy Act of 2005, 

is expected to be submitted to Congress in February 2006. 

Question 14. DOE has been trying to facilitate discussions among industry stakeholders and other interested parties regarding electricity infrastructure rebuilding 

for hurricane damaged areas. Can you tell us about those meetings? Also, how do 

you think any funds allocated by Congress to these areas for energy infrastructure 

should be monitored to ensure ratepayers as well as taxpayers are best served? I 

have seen letters from transmission dependent utilities, like the Lafayette Utilities 

System, that have suggested they and other transmission dependent utilities would 

be interested in investing on the Entergy system rebuilding efforts. How do you 

think such private funding for rebuilding efforts should be treated? 

Answer. At the request of Entergy Corporation, DOE has facilitated discussions 

among experts from the national laboratories, universities, and utilities to share insights and experiences regarding the restoration of electricity delivery systems. 

These discussions are intended to: (1) assemble technical information about the impact of recent hurricanes on the Gulf Coast; (2) identify ways that advanced technologies could be deployed in a cost effective manner to improve the reliability of 

the system, mitigate future disruption, and improve restoration time; and (3) build 

channels for effective coordination and communication between the affected utilities 

and various experts. 

Administration policy generally supports efforts to provide open access to the 

interstate transmission grid for all entities requiring transmission service. 

QUESTIONS FROM SENATOR TALENT

Question 1. Secretary Bodman, EIA data show U.S. natural gas production increasing from 19.2 trillion cubic feet in 2000 to 21.8 Tcf in 2025, but demand growing much faster, from 21.5 Tcf to 30.7 Tcf over the same time period. So we need 

to make up nearly 9 Tcf of natural gas over the next 20 years. It seems to me that 

it will be difficult to make up that difference even with a dramatic increase in LNG 

imports. a) Can you update me on the status of adding LNG facilities and the number that would be needed to meet the projected demand growth? b) Is this likely 

to be achievable through LNG alone? c) If not, that means we would need to tap 

into North American supplies, correct? d) What areas, onshore or offshore, hold the 

most promise, and which of those areas are the easiest to access, both in terms of 

readily available pipeline and processing infrastructure and in terms of the ease of 

overcoming any legal impediments to exploration and development? 

Answer. Currently there are five LNG regasification terminals in the U.S. with 

a combined capacity of 1.5 Tcf/yr. An additional 5.8 Tcf/yr of capacity has been approved by FERC or the Coast Guard at 12 terminals, although it is not clear that 

all of the projects will ultimately be constructed. Together, Canada and Mexico have 

approved five terminals, with combined capacity of 1.9 Tcf/yr, some of which could 

supply U.S. needs. Proposals for 20 additional terminals/expansions with an aggregate 9.6 Tcf of regasification capacity are before FERC and the Coast Guard. 

Depending on the utilization rates, the LNG imports projected in the reference 

case of the Annual Energy Outlook 2005 (AEO2005) by 2025 could be accommodated 

with the addition of the 12 approved projects. In addition, net imports from Canada 

and Mexico are projected to satisfy 2 Tcf of consumption in 2025. While there are 

abundant natural gas resources in the world, LNG imports into the United States 

would be limited by the ability to site regasification terminals, the level of world 

liquefaction capacity, and competition with other potential consumers, particularly 

if world oil prices remain relatively high. 

Lower import levels would be expected to result in higher natural gas prices, 

lower consumption (largely as electric generators choose more coal over gas), and 

increased domestic drilling activity and production, particularly onshore and from 

unconventional sources (coalbed methane, tight sands, and gas shales). Under current laws and regulations, unconventional sources represent about 50 percent of the 

lower-48 technically recoverable resource levels and are mainly located in the Rocky 

162

Mountain region. A significant portion of the total unconventional technically recoverable resources in the region are either off limits to exploration and development 

or subject to Federal lease stipulations (e.g., to protect identified resources) or environmental restrictions when production is allowed. While processing of this relatively dry gas is less of an issue, additional pipeline infrastructure has been added, 

and will continue to be needed, to bring the growing Rocky Mountain production 

volumes to market. A significant amount of unconventional gas resources also exist 

in other areas that are more accessible and closer to existing infrastructure. 

The National Petroleum Council (NPC) in its 2003 report on Natural Gas identified the Rocky Mountain and offshore Gulf of Mexico as containing the largest volumes of technically recoverable natural gas resources. The Rocky Mountain region 

contains an estimated 284 trillion cubic feet (tcf) and the Gulf of Mexico an estimated 329 tcf. Together these areas represent more than half of US resources outside Alaska. Both these producing regions contain extensive production, processing 

and transportation infrastructure that would facilitate production growth. A negative factor for development in both these areas is that production from both areas 

is limited by access restrictions: NPC estimates that 69 tcf in the Rocky Mountains 

and 25 tcf in the eastern Gulf of Mexico are off limits to production. 

Question 2. Secretary Bodman, can you tell me how the natural gas supply and 

price forecast might change over the next 3 to 5, or even 10, years if we were to 

provide the coal industry with certainty regarding emissions, say along the lines of 

the Clear Skies proposal? Under this scenario, we’d be producing electricity through 

clean coal gasification technology as well as diesel and other transportation fuels 

using the most abundant energy resource this nation has. 

Answer. Flexibility of compliance choices, maintenance of fuel diversity, and the 

cost savings passed on to consumers through low electricity prices are the benefits 

of the approach taken in Clear Skies, particularly when compared with the other 

proposals that support more stringent targets, shorter compliance periods, or command and control regulatory approaches. Legislative enactment of Clear Skies will 

provide the certainty utilities need to build large new clean coal plants and 

incentivize efficiency at existing units, significantly reducing the potential for increased utility use of natural gas to meet demand and new air quality requirements. 

The minimal impact the Clear Skies cap-and-trade program will have on natural 

gas, coal and electricity prices will drive investment in clean coal generation ensuring much less competition for natural gas supplies between the power sector and 

manufacturers compared to other alternatives. EIA’s May 2004 analysis of the Clear 

Skies proposal found that power companies would reduce their emissions by adding 

emissions control equipment to existing generators. Fuel switching from coal to natural gas was projected to play a relatively small role in their compliance strategies; 

coal generation is maintained under Clear Skies and low electricity prices are maintained. 

In addition, Clear Skies will eliminate or reduce the need to require further costly 

reductions from other industrial sectors because Clear Skies, coupled with EPA’s 

proposed rule to decrease emissions from heavy-duty non-road diesel engines, and 

other existing state and federal control programs, will bring most of the country into 

attainment with the new air quality standards for ozone and fine particulate matter. 

Question 3. The energy legislation that we passed this summer established procedures for the Department of Energy to review our electricity infrastructure and to 

establish national interest corridors based on where we have the greatest need for 

transmission. Can you provide an update on the approach, progress, expectations, 

and obstacles, to establishing those corridors, as well as reactions to your efforts 

from the States and various industry sectors? 

Answer. We are in the early stages of implementing the transmission congestion 

study required by section 1221 of the Energy Policy Act of 2005. Identifying areas 

of the Nation where transmission expansion would be of great value to the various 

grid systems throughout the Nation is a primary focus of the study. DOE expects 

that bringing attention to these areas and discussing options with the States on how 

to ease the particular problems will be of great value, even if many of these areas 

are not designated as national interest electric transmission corridors. 

Question 4. Curt He ́bert of Entergy testified before this committee just a few 

weeks ago. He described the widespread damage to his company’s transmission system as a result of the hurricanes. He also requested quite a bit of financial assistance to help rebuild the Entergy system. I understand there to be quite a few highly 

efficient natural gas generating units in Louisiana that, for one reason or another, 

have insufficient transmission access to allow them to be fully utilized. Should 

Entergy seek federal assistance, to what extent will resolving existing transmission 

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constraints in Louisiana and Mississippi, rather than simply building back into the 

system existing problems, be a requirement to receive federal funding? 

Answer. Administration policy generally supports efforts to provide open access to 

the interstate transmission grid for all entities requiring transmission service. 

QUESTIONS FROM SENATOR BUNNING

Question 1. I just learned of a potential hazardous condition regarding possible 

gas in the DUF6 cylinders at the Paducah plant. DOE claims the cylinders have 

been cleaned and pose no threat to the plant and the surrounding community. What 

is the DOE doing to ensure the safety of the Paducah plant workers and the community? 

Answer. To date, the Department has found no evidence that phosgene exists in 

these cylinders. In response to the September 30, 2005, Office of Inspector General’s 

(IG) Management Alert, safety evaluations that consist of safety experts analysis, 

review of cylinder modification data, review of routine inspection reports, review of 

ultrasonic inspections, process knowledge, and historic process documentation have 

been completed at Portsmouth, Paducah and Oak Ridge. The Department’s evaluation has gone so far as to explore what actions would need to be taken if phosgene 

was present. The Department has also performed archived document reviews to confirm whether past operational practices eliminated the phosgene in Model 30A Uranium Hexafluoride cylinders at Portsmouth, Paducah and Oak Ridge. Through the 

evaluation process, the Department has identified 43 of the 2,500 total suspect cylinders that do not meet all the criteria necessary to rule out the presence of phosgene. The Department is finalizing the disposition path for these 43 cylinders. The 

cylinders have been and will continue to undergo a prescriptive and rigorous monitoring and surveillance program. 

Question 2. I also want to thank you for continuing the former workers medical 

screening program. This is an important program for Paducah workers because it 

has saved many lives. I have had to fight the DOE in the past to keep this program 

in existence. Can I expect the DOE to continue this medical screening program for 

former workers who faced serious hazards from their service to their country during 

the Cold War? 

Answer. Yes. The Department of Energy (DOE) is committed to funding all existing regional medical screening programs, including Paducah. 

Question 3. As you know, EIA forecasts an almost 50% average increase in residential natural gas heating costs this winter. This will affect almost two million 

Kentucky residents who heat their homes with natural gas this winter. This will 

have a tremendous effect on Kentuckians’ pocketbooks, particularly low-income residents who may have to choose between heating their homes and buying other necessities. What are some of the actions that could be taken immediately that will increase our supply of natural gas? 

Answer. Perhaps the single biggest cause of the high natural gas prices we are 

seeing today is the damage Hurricanes Katrina and Rita did to the crude oil and 

natural gas supplies coming out of the Gulf of Mexico. This damage is so extensive 

that today, more than 5 weeks after Hurricane Rita, natural gas supplies from the 

Gulf are still only about 50 percent of what they were before the hurricanes. 

Getting these supplies of natural gas from the Gulf of Mexico back on-line as 

quickly as possible and delivered to consumers is the best way to increase our supply of natural gas, and moderate the high prices we are seeing today. This is exactly 

what the Administration is working to do. The Department of Energy is working 

with the Department of the Interior and the Federal Energy Regulatory Commission 

to continue our assessments on the extent of the damages, highlight the critical 

choke points to producing and delivering natural gas supplies, and facilitate repairs 

wherever possible. These agencies are in daily contact with producers, pipeline companies, and gas processing plants to track the progress of repairs, and to look for 

ways to get around those choke points to get natural gas moving to consumers as 

quickly as possible. For example, we anticipate that a new gas pipeline by Duke Energy Gas Transmission will by-pass a gas processing plant severely damaged in the 

Gulf storms and route production to an operational gas processing plant. This new 

segment, scheduled for operation before December 1, and gains by other producers, 

will add 700 million cubic feet of gas per day. 

Question 4. Every sector of business is feeling some crunch in their bottom-line 

from high energy prices. Many businesses are looking to invest more heavily in energy efficient technologies in order to keep their doors open in the future. Is DOE 

examining ways to further partnerships with industry to accelerate research on energy efficient technologies? 

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Answer. The Industrial Technologies Program (ITP) is always adapting its research agenda to respond to evolving economic and business conditions. ITP performs regular peer reviews of the subprogram portfolios with our industrial partners, and, as a result of high energy prices, ITP is currently reviewing its internal 

research portfolio to better serve its stakeholders. This review includes:

(a) Refocusing the existing portfolio toward projects which will deliver more 

sizable energy benefits; 

(b) Reducing our investments in projects that do not contribute to energy efficiency in the shorter run; and 

(c) Exploring with our partners the opportunity to expand our scope to include 

critical industrial needs such as fuel flexibility.

Question 5. Due to the high gas prices, many other energy sources, such as coal, 

have risen in price as well due in part to high transportation costs. Is the Department of Energy looking into ways to deal with high cost transportation issues? 

Answer. Gas prices do not have a major impact on coal transport costs. However, 

transportation costs do account for a significant portion of the delivered price of 

coal. For example, 60% of the cost of coal that southern utilities purchase from the 

Powder River Basin in Wyoming is due to transport. For the coal they purchase 

from eastern locations such as West Virginia, the transport cost might be about 

20%, still a significant figure. None the less, it is important to conserve petroleum 

in all uses. 

Question 6. Most of our oil and natural gas sources are situated in the Gulf Coast. 

Since Hurricanes Katrina, Rita and now Wilma, has the Administration looked at 

our need to diversify the location of our domestic supply? Have you seen any reluctance by businesses to continue their drilling operations in the Gulf Coast? 

Answer. While the Gulf of Mexico holds very significant undeveloped oil and gas 

resources, significant resources also exist in Alaska, the Rocky Mountain region and 

other off-shore areas. The Administration supports development of U.S. oil and gas 

resources in these and other parts of the country. 

We believe there has been no evidence of lessening industry interest to develop 

Gulf Coast oil and gas resources. While we defer to the Department of the Interior, 

we understand that industry has expressed great interest in recent federal lease 

sales as well as exploration, especially in deep-water areas where significant undeveloped resources most likely exist. 

QUESTIONS FROM SENATOR BINGAMAN

Question 1. Public Education: The Energy Information Administration has told us 

that consumers will see substantial increases their heating bills this winter—with 

natural gas consumers experiencing the worst increases. Over the past several 

weeks you have heard from me and many others about the importance of helping 

consumers to prepare for the winter heating costs and the need to assist those families who cannot afford to pay their bills. I appreciate the efforts the Department has 

made in partnership with the Alliance to Save Energy, the states and many corporations. Many energy companies and associations are also providing energy savings 

tips. However, as we discussed at the hearing, I believe we need a more aggressive 

and comprehensive Public Education campaign that includes public service ads on 

prime time television shows. The Energy Policy Act of 2005 authorizes $90 million 

for an aggressive Energy Efficiency Public Information Campaign based on the successful campaign used in California to reduce peak demand in electricity in 2001. 

While I understand that there has not yet been new funding provided for this program, given the increased importance of providing information on energy efficiency 

to the public, what are you doing to get this program up and running? What resources would you need from Congress in order to initiate such a campaign? 

Answer. DOE is taking a comprehensive approach to providing the public with information on energy efficiency and conservation to consumers, businesses, and government. Outreach activities utilize a number of distribution channels including 

radio, television, print materials, and new media avenues such as web marketing. 

Our public education campaign includes a number of efforts to promote efficiency 

through educating the public on energy efficiency measures. On October 3, 2005, 

Secretary Bodman highlighted these efforts by announcing Easy Ways to Save Energy which included an education and awareness PSA campaign partnership with 

the Alliance to Save Energy providing consumers with tools to make smart energy 

choices. The campaign also includes Phase II of the Energy Hog, an aggressive public education effort launched in 2004 including online, print, radio and television ads 

featuring the ‘‘Energy Hog’’, a character similar to McGruff the Crime Dog and 

Smokey the Bear. In addition to these consumers’ efforts, DOE is helping the FedVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00168 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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eral and industrial sectors save energy through the assessments and recommendations of its energy saving expert teams. 

As the FY07 budget is developed, we are evaluating ways to continue to provide 

information on energy efficiency and conservation to the public, and the funds that 

the Department will request to do so. The President’s FY 2007 Budget will be presented to Congress in early 2006. 

Question 2. Weatherization: DOE’S low income weatherization program has been 

an Administration priority. Like the Low Income Home Energy Assistance Program 

(LIHEAP) it targets low income consumers. But unlike LIHEAP, weatherization 

helps them save energy over the long term. The average reduction in energy use 

for a weatherized home is 25%. EPACT authorizes $500 million for weatherization 

this year but it is funded at less than half that level—$227 million. Shouldn’t we 

ramp up our weatherization efforts now during this period of extremely high home 

energy cost? Can we expect an increase in funding for this program in the next supplemental—or in the FY07 budget? 

Answer. DOE cannot comment on the FY07 budget because it is still in development and will be presented by the President in February 2006. 

Question 3. Tax Credits: EPACT provides tax incentives for hybrid vehicles to reduce gasoline consumption and tax credits for energy efficiency improvements in existing homes, efficient new home construction and efficient commercial buildings 

will help home owners and businesses save natural gas and electricity. DOE and 

Treasury should be completing the guidelines for these tax incentives before their 

January 1 effective date so that consumers can take advantage of them this winter. 

I understand that DOE must prepare much of the analysis for Treasury to establish 

the rules that would give taxpayers the guidance to take the EE tax credits. What 

is the status of your work in this area? 

Answer. The U.S. Department of the Treasury has not yet requested our assistance in regard to tax incentives provided for hybrid vehicles in the Energy Policy 

Act of 2005. The Department is ready to assist Treasury as needed. 

In regard to tax credits for energy efficiency improvements in existing homes, efficient new home construction and efficient commercial buildings, the Department 

has been requested to assist, and is working closely with, Treasury. It is our understanding that the issuance of these regulations is on schedule. 

Question 4. Federal Efforts: On September 26, the President directed the federal 

government to conserve natural gas, electricity, gasoline, and diesel fuel to the maximum extent possible. He requested a report from agencies within 30 days on the 

fuel conservation actions taken—i.e. yesterday. The reports are to go through you 

to the President. What can you tell us about the federal government’s efforts to date 

(or at least the Department’s)? How has the effort been coordinated with the requirements for federal energy management that were updated in EPACT 2005? 

Answer. As directed by the President’s September 26, 2005 memorandum, Federal 

agencies were asked to review their existing operating processes and energy efficiency programs and identify and implement additional ways to reduce overall energy use. Thirty-eight agencies reported on a wide range of additional energy management activities which are estimated to provide a 6-month savings of 5.4 trillion 

Btu—equivalent to 1.2 percent of these agencies energy annual consumption last 

year. The energy efficiency savings achieved in these initiatives will contribute to 

the broader goals established in EPACT 2005. 

The Department of Energy (DOE) has provided support through a variety of 

means, including Energy Savings Expert Teams (ESETs) to target Federal facilities 

experiencing natural gas price volatility and potential supply shortages. ESETs are 

working with Federal sites across the country to reduce natural gas consumption 

in buildings and to improve operating efficiencies of central plant and steam distribution systems. 

Question 5. Federal Energy Management Program: The National Energy Conservation Policy Act requires federal agencies to reduce the amount of energy federal buildings consume. The 2005 Act updates these requirements and calls for a 

4 percent reduction by FY 2007 with annual reductions up to a 20 percent reduction 

by 2015. What is the Department of Energy doing to provide leadership within the 

federal government on saving energy and to ensure that agencies comply with these 

new energy management requirements? 

Answer. The Department is developing guidelines for Federal agencies to assist 

them in meeting the new energy management goals set forth in EPACT 2005 and 

will report on agency progress in meeting these goals to the President and Congress. 

The Federal Energy Management Program (FEMP) provides leadership within the 

Federal government by providing technical guidance, assistance, and training for all 

agencies, as well as providing the DOE Super Energy Savings Contract, which is 

the leading alternative finance vehicle used in the Federal government for energy 

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efficiency. DOE recently signed a Memorandum of Understanding with the non-profit, Energy Solutions Center to provide training for Federal energy managers on new 

technologies. These services are used by all of the top Federal energy using agencies 

in their efforts to meet Federal energy management requirements. 

FEMP will also reinforce the EPACT 2005 goals through its interagency working 

groups and through its compilation of data and assessment of agency performance 

on energy management goals. 

Question 6. Energy Savings Performance Contracts: Many agencies depend on Energy Savings Performance Contracts (ESPCs) to help them meet their federal energy 

management goals. The ESPC program suffered a set back when the authority 

lapsed in 2003. What is the status of the ESPC program now that it has been extended? 

Answer. After the lapse in legal authority for ESPCs during FY 2004, the ESPC 

program is regaining its momentum. During the second half of FY 2005, the Department facilitated awards of $72 million in contracts that will save 10 trillion btus 

and a net $447,000 over the contract lives, which range from 13 to 24 years. The 

Department expects that it will facilitate awards of $80 and $120 million in ESPC 

contracts in FY 2006 that will save 14 and 20 trillion btus. The Department continues to focus on ensuring each contract provides the best deal for the taxpayer, 

maximizing energy savings and energy cost savings for each private sector dollar 

invested, which the government must repay with interest. Because the authority 

was established for 10 years, the long-term prospects for the ESPC program are excellent. 

Question 7. Role of DOE in energy infrastructure improvement: The mission of the 

Office of Electricity Delivery and Energy Reliability is ‘‘to lead national efforts to 

modernize the electric grid; enhance security and reliability of the energy infrastructure, and facilitate recovery from disruptions to energy supply.’’ The damage to the 

electricity transmission infrastructure in the Gulf Coast presents an opportunity 

that appears to be tailor-made for this Office with the assistance of other departmental programs. What can DOE do to lead efforts to modernize the electric grid; 

enhance security and reliability of the energy infrastructure, and facilitate recovery 

from disruptions to energy supply in the states affected by the hurricanes? What 

is DOE planning to do? 

Answer. DOE has facilitated discussions among experts from the national laboratories, universities, and utilities to share insights and experiences regarding the restoration of electricity delivery systems. These discussions are intended to: (1) assemble technical information about the impact of recent hurricanes on the Gulf Coast; 

(2) identify ways that advanced technologies could be deployed in a cost effective 

manner to improve the reliability of the system, mitigate future disruption, and improve restoration time; and (3) build channels for effective coordination and communication between the affected utilities and various experts. 

Question 8. Utility Energy Efficiency Study and Pilot programs: The Energy Policy Act of 2005 recognized that electric and natural gas utility programs for demand 

reduction and energy efficiency can be a very effective way to save energy and potentially reduce consumer’s energy bills. The legislation calls for a study of state 

programs that are being carried out by utilities and identification of best practices. 

It also authorizes funding for DOE to support pilot programs in selected states. 

What has DOE done to date on the study or the pilot program? 

Answer. The Department is working diligently to address the many requirements 

of the Energy Policy Act of 2005. We have given priority to directly addressing those 

sections due within 60 and 90 days and we are preparing the steps necessary to 

address the Sections whose deliverables are of a somewhat longer term. In that regard, we have initiated planning for the studies directed in Sections 139 and 140 

of the Act. The respective programs have begun assembling the resources and consulting experts. 

Question 9. ‘‘Energy Smart’’ Rebuilding: The DOE Building program provides 

leadership in innovative new technologies, better building practices and better 

building codes. The destruction caused by Hurricanes Katrina, Rita and Wilma presents the affected states with a golden opportunity to make smart energy choices 

in the rebuilding effort. A recent ICF Consulting analysis indicates that investments 

in energy efficiency for reconstructing the hundreds of thousands of homes destroyed by the Hurricanes would result in significant energy savings compared to 

a mass reconstruction built to minimum building codes. For example rebuilding 

310,000 homes to the 2006 ENERGY STAR guidelines would have a 7.5 year payback and save nearly $20 billion in the following 20 years if energy prices remain 

constant. What is DOE doing to proactively share its energy efficient buildings expertise with the entities that are funding or supervising these reconstruction efforts? 

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Answer. As the communities devastated by Hurricanes begin to rebuild, the U.S. 

Department of Energy is working to encourage cost-effective, durable, and energyefficient building reconstruction. The Department is partnering with the State Energy Offices (SEOs) in the affected States to encourage a broad regional exchange 

of information and best practices on building technologies. The Department and the 

States are also partnering with the National Association of State Universities and 

Land Grant Colleges (NASULGC) which includes local universities and local extension services. Grants were recently awarded to Louisiana, Alabama, and Mississippi 

to encourage the application of energy efficiency in their rebuilding efforts. A similar 

grant is currently being finalized with the Texas State Energy Office. These seed 

grants will support capacity building, training seminars for residential and commercial consumers, public service announcements, and design forums. 

The Department is also working with its ENERGY STAR retail, manufacturer, 

utility, and State partners to reach out to homeowners and building contractors 

through training workshops. In addition to promotion of ENERGY STAR for New 

Homes, we are working with ENERGY STAR partners, such as Home Depot and 

Lowes, to expand and market their training programs to include DOE’s state-of-theart information. The retailers and manufacturers will also be hosting web sites that 

are accessible to their customers. 

Question 10. State Building Codes: There are a number of programs authorized 

by the Energy Policy Act of 2005 that would build and bolster state energy programs. Many would not only help the nation deal with rising energy costs, but could 

also be extremely helpful if targeted to the Gulf States. Among these programs is 

an important measure on state building codes that would help states implement a 

plan to achieve and document a 90 percent rate of compliance with commercial 

building energy efficiency codes.

• What is the Department of Energy doing right now to help states comply with 

their state energy code and to promote more efficient building codes? 

• What is the Department of Energy doing to ensure that the rebuilding efforts 

in the wake of the hurricanes take into account high energy efficiency building 

codes?

Answer. The Department of Energy awarded $2 million in financial assistance to 

states in FY 2005 to update, implement, and enforce their building energy codes, 

and hosts a national state building workshop annually on state building energy 

codes. The Department has also provided a wide range of technical assistance to 

States, including software compliance tools, training materials, code notes, how to 

videos, and code impact analyses on its web site at http://www.energycodes.gov/.

At the request of States affected by recent hurricanes, the Department has initiated several activities to provide technical assistance on energy efficient building 

codes. The Department has recently granted a technical assistance request from 

Louisiana to assist them in holding five web based energy code training sessions 

starting December 13, 2005. This will be done in cooperation with Louisiana State 

University. Hurricane related code issues for commercial buildings will be addressed 

and information will be drawn from recent experience with the Florida code. 

Question 11. Appliance Rebates: The Energy Policy Act of 2005 authorizes $50 

million per year for qualified energy efficient appliance rebate programs at the state 

level. The programs would provide rebates to residential consumers for the purchase 

of Energy Star rated products that replace used appliances of the same type. New 

York State implemented a similar program and saved participating consumers $3.5 

million in the first year. What is the Department of Energy doing now to assist 

states in implementing energy savings programs like the appliance rebate program? 

Will funds for this program be included in the Administration’s budget next year? 

Answer. The Department of Energy currently manages two programs which support States in implementing energy savings programs like the appliance rebate program: the State Energy Program and the Energy Star Program, a jointly managed 

effort with the Environmental Protection Agency. The State Energy Program provides formula grants to each State to support a variety of energy efficiency and renewable energy programs and projects as determined by each State to best fit their 

needs and priorities. The Department’s Energy Star Program establishes energy efficiency levels for home appliances, compact fluorescent light bulbs, and windows 

and provides education and outreach to consumers, retailers, and manufacturers. 

The program works closely with States as partners to educate consumers and promote Energy Star products. 

DOE cannot comment on the FY07 budget, as it is still in development and will 

be presented by the President in early 2006. 

Question 12. Appliance Standards program: In EPACT 2005, Congress wrote into 

law minimum efficiency standards for several energy-using products. The standards 

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were the result of negotiations between manufacturers, efficiency advocates, consumer groups and states. We were pleased to enact these consensus standards; however, Congress intended for the DOE to develop appliance efficiency standards in 

a rulemaking process. That process has bogged down and many required standards 

are delayed several years past their statutory deadlines. DOE is required to report 

to Congress with a plan to address these program delays by February 2006. What 

have you accomplished to date? 

Answer. The Department is reviewing and implementing process improvements to 

its appliance standards program that are already contributing to increased productivity. Even as the Department moves quickly to implement the new requirements 

of EPACT 2005, we are committed to bringing all appliance standards activities into 

compliance with statutory requirements. Recent results include the publication of a 

final rule in the Federal Register on October 18, 2005, codifying the standards in 

the Energy Policy Act of 2005 in the Code of Federal Regulations. On November 15, 

2005, DOE will hold a public meeting to receive public comment on appliance standards scheduling issues. After receipt of those comments, the Department will draft 

its appliance standards scheduling plan and provide this plan, including process improvements, in a report to Congress. The initial report, required by section 141 of 

the Energy Policy Act of 2005, is expected to be submitted to Congress in February 

2006. 

Question 13. Regional energy offices: During your announcement of the new public 

information campaign two weeks ago you were asked why the Department was closing its 6 regional offices. You answered that you had no such plans, although the 

Department has requested exactly that from the Congress. As we are dealing with 

an energy emergency, where regional and local knowledge will be especially important, do these closings make any sense? 

Answer. The primary driver behind the FY 2006 move to consolidate the functions 

of the six Office of Energy Efficiency and Renewable Energy (EERE) Regional Offices is included in the report language from the Senate Appropriations Energy and 

Water Development Subcommittee issued on June 13, 2005. 

The Administration has not put forth a formal plan to consolidate the regional 

offices. However, during staff level discussions between the Senate Appropriations 

Committee and the Department of Energy, the possibility of consolidating the functions of the six EERE ROs into EERE’s Project Management Center (PMC) sites 

was brought up as a means to save money. 

The result of the consolidation will be an efficient and effective State-friendly organization that continues the high level of service delivery currently provided to the 

States and other partners. 

All employees currently located in the six Regional Offices will be offered comparable positions at the two PMC locations located at NETL and GFO. Thus regional and local knowledge bases, including established contacts with the individual 

State Energy Offices, will be maintained. 

Question 14. Implementation of EPAct 2005: Please describe your actions in implementing EPACT 2005. Can you share with us a timetable for implementation of 

the provisions for which the Department has responsibility? 

Answer. The Department has a mechanism in place to manage the implementation of the EPAct ‘‘action items’’ in a responsible manner. We are currently tracking 

371 action items, including 56 rulemakings and 124 reports. We intend to comply 

with as many of the due dates in the Act as possible, but the effective implementation of many action items require appropriations that have not been made, or may 

not be made prior to the due date. When we miss or expect to miss a deadline imposed by the Act, the Chairman and Ranking Member of the Committee will receive 

written notice from the appropriate Under Secretary, Assistant Secretary, or Office 

Director, describing the action item that is late and, when possible, estimating when 

the action item will be completed. You have already received such letters from the 

Department. 

Question 15. I understand that your department is in the process of concluding 

the study on efficient dispatch of natural gas plants, which is due on 8 November. 

I would anticipate that the following questions will be addressed in that study. To 

the extent that it is possible before the report is issued we would like to have information to answer the following questions. To the extent that these questions are not 

addressed in the report could we have your help in answering them? 

Some witnesses at last week’s hearing suggested that requiring consideration of 

the efficiency of natural gas plants in the systems for determining which power 

plants are dispatched to serve customers’ loads would provide enormous savings the 

use of natural gas for the generation of electricity. Do you have information as to 

how many older, less efficient plants-steam generations plants with high heat 

rates—are currently in use? 

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Answer. During the recent winter period December 2004 through March 2005, the 

Department’s Energy Information Administration estimates that about 244 steamelectric plants using natural gas as a fuel were in operation. Combined cycle plants 

provide greater efficiencies than steam-electric natural gas plants. Typically, the efficiency of power plants is measured by the ‘‘heat rate,’’ which is the quantity of fuel 

(expressed in British thermal units, or Btu) needed to produce one kilowatt-hour of 

electricity. Steam-electric gas plants will typically have heat rates in the range of 

10,000 to 15,000 Btu per kilowatt-hour while a modern combined-cycle plant will 

have a heat rate in the range of about 7,000 to 8,000 Btu per kilowatt-hour. 

Question 16. How many of those plants could be displaced by newer, more efficient 

combustion turbines or combined cycle plants? 

Answer. Significant amounts of steam-electric generating capacity were used during the past winter even though, in the aggregate, there are enough underutilized 

combined cycle plants available to replace this generation using significantly less 

gas. In theory, there are enough underutilized combined-cycle plants to replace all 

of this generation. In practice, not all of the steam-electric generation could be replaced by electricity from underutilized combined-cycle plants. This is because of 

operational factors that limit the potential for displacement of steam-electric plants. 

The two most important factors are transmission systems capacity constraints and 

the related issue of units which have ‘‘reliability must run’’ (RMR) status. The operation of RMR units is mandatory at times to maintain the reliability of the transmission grid and to protect against the possibility of blackouts. However, the Department’s Energy Information Administration does not collect information that 

identifies RMR plants. Thus, we are unable to provide specific information about 

which gas-fired steam plants can be displaced to save natural gas without impacting 

the reliability of the transmission system. 

Question 17. If these newer, more efficient plants were dispatched, how much natural gas could be saved? 

Answer. As implied by the response to Question 16, transmission constraints and 

power plant operating characteristics restrict the degree to which steam electric 

plants can be economically replaced by existing combined cycle units. That said, the 

244 gas-fired steam-electric plants noted in the answer to Question 15 generated 

about 20 billion kilowatt-hours of electricity during the period December 2004 

through March 2005, and consumed about 225 billion cubic feet (bcf) of natural gas. 

During this four month period, if combined-cycle generation replaced less efficient 

steam-electric generation, the nation would have saved approximately 70 bcf of natural gas depending on weather conditions. However, the 70 bcf savings is a technical maximum, and in practice would be less than that due to a number of factors, 

including transmission constraints, which limit the ability of operators to move electricity across systems; and the need for ‘‘reliability must-run’’ units to maintain security and stability of the transmission grid. 

Question 18. Over the long term, how much effect could these savings have on 

the price of natural gas? 

Answer. Even assuming that the entire 70 bcf of natural gas that was identified 

in Question 17 could be saved in future quarters, the impact on the price of natural 

gas would likely be modest. This is because 70 bcf of natural gas is a small portion 

of total gas demand during the winter. For example, during the period December 

2004 through March 2005, residential gas demand was 3,047 bcf and total gas demand from all consuming sectors was 9,408 bcf. 

Question 19. We have heard some witnesses that for the most part gas plants are 

dispatched in the most cost effective manner, given transmission constraints and 

the need to provide power to support the transmission system. Do you have information that could help us understand how many plants that are older and less efficient 

are in areas where they must be run in order to provide reliability for the transmission system? 

Answer. The Department’s Energy Information Administration does not collect information that identifies plants, known as ‘‘Reliability Must-Run (RMR),’’ that must 

be run for reliability of the transmission system. This is because the conditions upon 

which these plants are called is system specific. The regional reliability councils, 

transmission operators, and their members would have this information. 

Question 20. How many more efficient plants could be dispatched today without 

reconfiguring the transmission system? 

Answer. The Department does not collect information on the transmission grid’s 

constraints on generating plants that would allow it to conduct the extensive modeling and analysis needed to answer this question. 

Question 21. How many could be dispatched with only minor modifications to the 

transmission system? 

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Answer. The Department does not collect information on the transmission grid’s 

constraints on generating plants that would allow it to conduct the extensive modeling and analysis needed to answer this question. This information is possessed by 

the regional reliability councils, transmission operators, and their members. 

Question 22. To what extent do the answers to questions 19, 20 and 21 (5, 6 and 

7 [sic]) affect the answers to questions 15, 16, 17 and 18 (1, 2, 3 and 4 [sic])? 

Answer. If DOE had the data to determine the answers to these questions, then 

the answers to questions 19, 20, and 21 would be elaborations/clarifications on questions 15, 16, 17 and 18. The data we do have indicates that:

a) There is significant room for improvement in gas efficiency factors. 

b) Improving efficiency factors is not a simple matter of turning off a steam/

electric generator and turning on a combined cycle plant. One needs to resolve 

transmission constraints and/or construct more efficient plants closer to load in 

order to raise the efficiency of gas generators dispatched. 

c) A complete replacement of steam electric generators with combined cycle 

generators could theoretically save about 70 bcf of gas per quarter, or about 

0.7% of current winter gas consumption. However, due to a number of limiting 

factors, the actual savings would be less. 

d) Such a switch would likely have only a modest impact on price.

Question 23. Some observers have called Entergy’s transmission system ‘‘archaic’’ 

and indicated that it is not configured to dispatch the most efficient generation resources in the region. How can we be sure any federal dollars that we might give 

to the region will be used not merely to repair this old system but to rebuild the 

system with newer, state of the art smart-grid technologies and with a configuration 

that will allow customers to take advantage of the most efficient resources in the 

region? 

Answer. Administration policy generally supports efforts to provide open access to 

the interstate transmission grid for all entities requiring transmission service.

[Note: Questions 24-28 were duplicates of Questions 19-23.]

Question 29. Energy prices were high before the onset of Hurricanes Katrina and 

Rita. This was due in part to a large number of refineries that were in shutdown 

in July. Presently the department, though it is charged with overseeing our energy 

supplies, does not regulate the shutdowns of domestic refineries. At the October 6 

hearing on hurricane recovery, I raised the issue of the possible need for government oversight of refinery shutdowns. Administrator Caruso indicated the issue 

should be looked into. I wonder how you feel about this. Might we first ask EIA 

to study the issue and provide a look at what the impact of refinery shutdowns has 

been on petroleum product prices, as we look at the right policy decision here? 

Would you support such a study and ensure that it was given necessary priority? 

Answer. DOE has little reason to believe that planned shutdowns of domestic refineries have an adverse impact on prices. Generally, refiners will try to delay shutdowns when prices and product margins are high. However, eventually refiners 

must perform required maintenance. More analysis would be necessary before any 

conclusions can be made, especially before policies to regulate the shutdown of domestic refineries are considered. 

Question 30. The hurricanes have only served to highlight the need for refiners 

and pipelines to hold more petroleum product inventories. The just-in-time inventory framework may work for Dell computers, but it is not the ideal method for promoting stability in oil markets when there is a supply disruption. European and 

Asian countries mandate that companies hold set amounts of transportation fuels 

in inventory. (There is no question that the U.S. benefited from the decision by the 

TEA to release some of these inventories.) Have you given any thought to mandatory product inventories for companies and pipelines? As the Department looks to 

expand the SPR to its new 1 billion barrels capacity, has there been any thought 

given to establishing part of the new capacity in the form of a product reserve? And, 

should these reserves be geographically diverse? (i.e. located near population centers? Key pipelines?)? 

Answer. The Administration recognizes that the supply of petroleum products was 

seriously curtailed by the two hurricanes that caused significant U.S. refinery closures and damage. 

We understand the need for an increase in our overall refining capacity. Were we 

to have a marked increase in refining capacity in the U.S., it would address some 

of the same concerns that have lead some to consider the creation of product stocks. 

The Administration is taking a comprehensive look at the petroleum supply situation and various options to address the supply issues highlighted by the effects of 

the hurricanes. 

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Question 31. Some experts are saying that the high prices that we have sustained 

in the aftermath of the hurricanes have helped to reduce demand for transportation 

fuels (such as gasoline). Others say that the dip in demand is only temporary. They 

point to the difference in consumption growth trends between OECD and non-OECD 

countries. Demand dips seasonally in OECD countries, allowing producers (refiners) 

to build product in certain seasons in anticipation of high demand. However, nonOECD demand tends not to have such dips. Given the amount of refinery capacity 

that was taken down by the hurricanes (still more than a million barrels per day), 

there was a gap between supply and demand and no time to build inventories. Ultimately hurricanes Ivan, Katrina, and Rita have done more to disrupt supply that 

any political uncertainty (Venezuela, strikes in Norway, African unrest . . . ). 

What does this all mean for the future? What can we do to ensure that future price 

spikes are minimized? 

Answer. We agree that high prices helped to reduce demand for transportation 

fuels so the remaining supplies would sustain personal mobility and commercial 

needs. We also believe that the President’s call for conservation and the American 

public’s awareness of the seriousness of the situation helped to reduce demand. The 

dip in demand will be temporary as refineries come back on line, supplies increase 

and prices ease. We are already seeing significantly higher supplies and lower 

prices. 

However, as long as world-oil prices remain high, fuel prices will be higher than 

the prices Americans have been used to in prior years. These higher prices will have 

two important long-term effects. First, the efficiency of the vehicle fleet will increase 

over time. We are already witnessing decreased sales for large SUVs and increased 

demand for efficient vehicles, especially hybrids. Second, while improved efficiency 

will reduce demand from previous trends, U.S. economic and population growth will 

still require increased fuel supplies. We expect that industry will respond. For example, Sunoco recently announced plans to increase their refinery capacity by 

100,000 barrels per day. Most refiners are reviewing opportunities to expand capacity to meet growing demand and many more projects will no doubt emerge in the 

coming months and years. Again, the role of price is critical since industry will only 

undertake these investments if they expect them to be profitable over the longer 

term. Consumers and industry both benefit from relatively stable fuel prices that 

meet consumers’ needs for mobility at a reasonable cost and industry’s need to recover investment costs over the long term. 

Question 32. China has formed several new alliances with countries such as Iran 

and Russia. What does this mean for the US? Should China’s growing import dependence be a concern? Do we need a new definition of energy security? 

Answer. As recently as 1996 China imported about 70% of its oil from only three 

countries—Oman, Indonesia, and Yemen. By 2003, China had developed significantly more diverse import sources, including Saudi Arabia (16.8% of total imports), 

Iran (13.8%), Angola (11.2%), Oman (10.3%), and Yemen (7.7%), but with a strong 

reliance on the Middle East. During this period, China’s net oil imports (crude and 

products) increased from approximately 0.3 million barrels per day (mmb/d) to 2.1 

mmb/d. As part of its efforts to increase energy security, Chinese state-owned oil 

companies have significantly increased the number and geographic distribution of 

energy assets and investments in recent years. They have invested in oil ventures 

in more than 20 countries with bids for oilfield development contracts, pipeline contracts (e.g., Russia), and refinery projects (e.g., Iran). 

The total equity oil secured mainly by Chinese state-owned oil companies is 

around 400 thousand b/d at present, equivalent to roughly 15% of China’s total 

crude imports, 11% of China’s domestic oil production, and 6% of China’s current 

oil consumption. By comparison, the overseas equity oil of the three largest US companies is 3.9 mmb/d, 35% of total US imports, and 71% of their total liquid production. 

Following a supply diversification strategy is a sound part of a balanced energy 

policy. However, Chinese ‘‘alliances’’ can be of concern if they do not comport with 

international norms of commercial behavior or if they support behavior in host countries that violate international human rights or other agreed standards. Recognizing 

China as an increasingly important player in the global economy and the international energy market, the U.S. Government has been discouraging China from 

viewing energy security as a zero-sum game and encouraging China to see benefits 

of playing by international norms and principles. In the area of energy security, the 

USG has been encouraging China’s greater involvement in discussions at international energy fora like the Asia-Pacific Economic Cooperation and the International Energy Agency. In bilateral exchanges, such as the US-China Energy Policy Dialogue, the Economic and Development Forum, and US-China Oil and Gas Industry Forum, the USG continues to encourage greater transparency in China’s ecoVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00175 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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nomic decision-making, energy policy planning, and contractual activities by their 

state-owned enterprises. Specific, recurring themes have included how the equity 

stake abroad does not guarantee one with the increased crude supply. Our messages 

to China through energy consultations are consistent with a broader message to 

China by the Administration that urges them to become a ‘‘responsible stakeholder’’ 

and to recognize the international impact of their domestic policy decisions. We encourage like-minded countries to join in our call for a more responsible China. This 

will increase both China’s and our economic growth and energy security. 

Question 33. Some ETA’s Annual Energy Outlook forecasts energy demand 

through 2025. In part, the model assumes the supply will ‘‘be there’’ to meet demand. What if it isn’t? What will happen if key non-OECD countries, and even 

OPEC countries, delay the necessary investment in energy projects? To have any 

success in hitting the production numbers out in 2012 and 2105, that investment 

has to start now and continue on schedule. As I understand, for many projects, 2006 

is a key year for investment in order for production that we are showing coming 

online in 2012 to happen on time. But that may not all happen on time. What is 

Plan B? 

Answer. ETA’s projections do not constitute national energy goals. They represent 

the EIA’s estimate of plausible scenarios for the evolution of energy markets based 

on past data and EIA’s modeling methodologies. Also, the EIA generally produces 

multiple scenarios with different underlying assumptions. ETA’s projections, along 

with others, such as those from the International Energy Agency and private industry, are useful to provide insights to government and industry as to what U.S. and 

global energy markets might look like over the long term. They also help industry 

to evaluate the profitability of energy investments. Nonetheless, there is no guarantee that the future will confirm the accuracy of these forecasts. Looking back on 

past forecasts, we have many examples where the expected and actual results differed by substantial amounts. 

We believe that the combination of market forces combined with the Administration’s energy policy will provide enough energy supplies to enable continued economic growth and prosperity. We can not predict with certainty whether there will 

be enough expansion of world oil supply relative to growing world demand to return 

oil prices to the levels we have seen in prior years. If prices remain high, we expect 

that many non-conventional resources will be developed and we also expect that 

more advanced energy efficiency technologies will enter the market. For example, 

we already see a heightened interest in coal-to-liquids and other advanced energy 

supply technologies. Likewise, manufacturers plan to produce more hybrid vehicles 

in response to a heightened consumer interest in fuel efficiency. Therefore, alternative energy technology is America’s ‘‘Plan B’’. ‘‘Plan B’’ will be implemented primarily by market forces, but the government also plays an important role. 

Question 34. It would appear that Plan B should have to address demand at some 

level. What is DOE doing now to improve fuel economy, promote renewable fuels 

and get some of the new technologies that experts such as Amory Lovins (ultralight, 

ultra-sound materials) have suggested? 

Answer. The Department’s Office of Energy Efficiency and Renewable Energy 

(EERE) has a balanced and focused portfolio of research, development, demonstration and outreach programs aimed at improving the energy efficiency of our economy and increasing the productive use of domestic renewable energy resources. 

One of EERE’s primary areas of strategic focus is reducing our dependence on foreign oil. The Department’s Vehicles Technologies program seeks to develop more energy efficient and environmentally friendly highway transportation technologies that 

will enable America to use significantly less petroleum. Additionally, through partnerships with industry, government and technology programs the President’s Hydrogen Fuel Initiative works to develop the technologies and infrastructure needed to 

produce, store, and distribute hydrogen, and to use it in stationary, portable, and 

vehicular applications. The Biomass Program is working with industry to develop 

biorefineries that can use a variety of feedstocks to produce transportation fuels and 

high-value products that will substitute for oil. Taken as a whole, these programs 

will put more vehicles on the road that are energy efficient and run on alternative 

energy sources, thereby lessening our dependence on foreign energy sources. 

The Department also has an aggressive effort to promote the acceptance and use 

of renewable and efficient technologies by the public, industry, and the Federal Government. 

Question 35. EIA projects a 50 percent increase in our demand for petroleum 

products by 2020. This will place enormous strains on our existing infrastructure. 

Is that what we want? What are we doing now to ensure that the crisis we are already in doesn’t worsen? What can we do to incentivize more investment in necVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00176 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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essary infrastructure? Are there better solutions? What are you and your staff doing 

to monitor this? 

Answer. It is worth noting that ETA’s projections are plausible scenarios for the 

evolution of energy markets based on past data and ETA’s modeling methodologies. 

Also, the EIA generally produces multiple scenarios with different underlying assumptions. ETA’s projections, along with others, such as those from the International Energy Agency and private industry, are useful to provide insights to government and industry as to what U.S. and global energy markets might look like 

over the long term. We therefore must be prudent and anticipate that petroleum 

product demand could be 50% higher by 2020. We can not predict with certainty 

whether there will be enough expansion of world oil supply relative to growing 

world demand to return oil prices to the levels we have seen in prior years. If prices 

remain high, we expect that many non-conventional resources will be developed and 

we also expect that more advanced energy efficiency technologies will enter the market. For example, we already see a heightened interest in coal-to-liquids and other 

advanced energy supply technologies. Likewise, manufacturers plan to produce more 

hybrid vehicles in response to a heightened consumer interest in fuel efficiency. 

Our goals have been and will continue to be to ensure a reliable, affordable, and 

environmentally sound energy for America’s future. DOE is developing technologies 

to expand energy supplies and reduce energy demand, implementing programs to 

encourage or require increases in energy efficiency, working in collaboration with industry to deploy advanced energy technologies and providing a wide variety of other 

services including assessments of new energy policies. 

QUESTION FROM SENATOR AKAKA

Question 1. Next year, several fuel regulations, beginning in January with implementation of the Renewable Fuels Standard, will go into effect. This will include a 

normal transition to summer grade fuels, further phase out of MTBE, and the transition to ultra-low sulfur diesel. The implementation of all these regulations could 

disrupt our supply of refined products significantly. 

Because Hawaii has long had the highest gasoline prices in the nations, I want 

to be sure that the implementation and transition go smoothly, so we don’t become 

vulnerable yet again to price spikes. What is the Department of Energy doing to 

ensure that these transitions go smoothly and don’t cause prices to spike once 

again? 

Answer. The gasoline programs mentioned in your question are administered by 

the U.S. Environmental Protection Agency (EPA). However, the Department of Energy has provided advice to EPA to ensure that implementation strategies do not 

inadvertently constrain fuel supplies. The Department has, since the Clean Air Act 

Amendments of 1990, provided important assistance to EPA’s many fuel programs, 

starting with the Reformulated Gasoline Program. Implementation of the ultra-low 

sulfur diesel program has been in progress for over four years and we have monitored the refinery industry’s progress and have every reason to believe that they 

will be able to meet these requirements. We are currently working with EPA to implement the Renewable Fuels Standard (RFS). As required by the Energy Policy Act 

of 2005, the Department will assess whether the RFS would cause significant adverse impacts on consumers or be a burden on small refiners. If needed, a waiver 

of the first year of the program in whole or part can be provided. 

QUESTIONS FROM SENATOR CANTWELL

Question 1. During our hearing on October 27, you said that the Department 

knew it would miss Tri-Party Agreement milestones. Can you please list all milestones that the Department knows it will miss? Can you please list the milestones 

that the Department believes it could miss? 

Answer. The Department remains committed to the Tri-Party Agreement and to 

meeting all objectives for completing the cleanup of tank waste and closing tanks 

at Hanford. However, because of difficulties, such as sludge removal issues at the 

K Basins and Waste Treatment Plant (WTP) issues, some of these milestones are 

not achievable. The Department informed the State of Washington, members of the 

Washington Congressional delegation, and committees of jurisdiction, including the 

Senate Energy and Natural Resources Committee, on October 6, 2005 when it knew 

that milestones would be missed. In that notification, the Department stated its belief that three near-term interim TPA milestones, one for the WTP and two for K 

Basins, are not achievable:

• Complete WTP hot commissioning by January 31, 2011 (M-62-10), 

• K East sludge removal complete, by January 31, 2006 (M-34-34), and 

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• Containerize K West Sludge, by June 30, 2006 (M-34-35).

The Department also believes three near-term milestones associated with the 

commissioning of the WTP, the treatment of tank waste, and certain tank retrieval 

related activities are in jeopardy:

• Complete four limited retrieval demonstrations and retrieve waste from all 

tanks in Waste Management Area-C (WMA-C) in accordance with the TPA retrieval criteria by September 30, 2006 (M-45-OOB), 

• Submit supplemental treatment technologies report, by June 30, 2006 (M-62-

08), and, 

• Submit final waste treatment baseline by June 30, 2007 (M-62-11).

The Department will notify Congress and the State of Washington should other 

milestones be in jeopardy. 

Question 2. Will you acknowledge today that the Department will miss the TPA 

milestone (M-45-OOB) related to completing retrievals from the C-Tanks by September, 2006? 

Answer. The M-45-00B milestone is complex with multiple sub-elements ranging 

from retrievals and technology demonstrations to the submittal of Tank Waste Retrieval Work Plans and Integration Plans. A number of those sub-elements have 

been successfully completed and progress is being made on the remaining sub-elements. The Department does not know at this time whether all elements of this 

complex milestone will be completed by September 30, 2006, and, therefore, appropriately informed the State of Washington congressional delegation, and committees 

of jurisdiction, including the Senate Energy and Natural Resources Committee, that 

some elements of the M-45-00B milestone are in jeopardy of being missed. 

Question 3. If you believe you still can meet the M-45-00B milestone, can you 

please inform me how the DOE-Inspector General’s audit ‘‘Accelerated Tank Waste 

Retrieval Activities at the Hanford Site,’’ report IG-706, was wrong in its investigation or findings? 

Answer. As was discussed with the Washington Congressional delegation, and 

committees of jurisdiction, including the Senate Energy and Natural Resources 

Committee on October 6, 2005, some elements within this milestone are in jeopardy. 

IG-706 looked at one element within the M-45-00B milestone, i.e., completing the 

retrieval of all 16 tanks within C Farm by September 30, 2006. That element of M45-00B is in jeopardy, yet the Department continues to strive to complete that element in full compliance with the M-45 retrieval criteria despite the challenges encountered in retrieving the C farm tanks. The three tanks retrieved to date have 

been retrieved in compliance with established Tri-Party Agreement (TPA) standards. As noted in any accompanying response, M-45-00B contains multiple elements, 

some which have already been met and others that are underway. The Department 

does not know at this time whether all elements of this complex milestone will be 

met by the date specified in the TPA. 

Question 4. If you do believe the IG-706 audit was correct in estimating that you 

will miss the M-45-00B milestone, what specifically is your plan to ensure that the 

funding is available to get tank cleanup back on track? 

Answer. We consider the M-45-00B milestone to be in jeopardy, but are making 

every effort in an attempt to achieve the June 30, 2006, date. The challenges related 

to this milestone are of a technical nature and are not related to funding. Nonetheless, the Department will request the necessary funds for safe tank retrieval. 

Question 5. The IG found a number of factors responsible for the delay including 

the fact that DOE did not base its retrieval schedules on ‘‘cost estimates and prior 

experience,’’ among other factors. Further, the IG noted that the cost of meeting the 

M-45-00B milestone will more than double. Can you commit to me that the Department will inform the appointed conferees for the Energy and Water Appropriations 

Bill that it supports an increase in funding over the administration’s FY ’06 request 

for ‘‘Radioactive Liquid Tank Waste Stabilization and Disposition’’ in order to address the funding shortfalls identified in the IG report? 

Answer. Constraints on the rates at which individual tanks can be retrieved are 

related to technical challenges, not funding. If this milestone becomes unachievable, 

the Department will work with the State of Washington on a revised strategy to 

complete the milestone. The Department will request the necessary funds for safe 

tank waste retrieval. 

Question 6. Can you commit to me that the FY ’07 request from DOE as it relates 

to ‘‘Radioactive Liquid Tank Waste Stabilization and Disposition’’ will be adequate 

to get the C-Tank retrieval program back on track? 

Answer. The Department will request the necessary funds for safe tank waste retrieval. 

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Question 7. Are you still committed to the funding level of $625,893,000 for ‘‘Major 

Construction-Waste Treatment Plant’’ in the administration’s FY 2006 request? 

Answer. The Department remained committed to the Administration’s FY 2006 request of $625,893,000 for ‘‘Major Construction-Waste Treatment Plant’’. Congress 

has since voted to fund the Waste Treatment Plant at a reduced level. 

Question 8. The Department has said that it won’t release information related to 

the revised cost and construction schedule for the vitrification plant until next summer. I understand that some of the preliminary work done by the Army Corps of 

Engineers is available right now. Can you share that information with me or this 

Committee? 

Answer. The preliminary U.S. Army Corps of Engineers report constitutes an element of the Department’s current consideration of steps necessary for sound contract administration in the Waste Treatment Plant project. DOE will be using this 

report, and others, to develop contract negotiating positions, funding decisions, Administration decisions and other project management positions. As such, the Department believes public disclosure of this document would impair the Department’s 

ability to carry out this responsibility. We will provide this information if formally 

requested by the Committee Chairman, but will request that the documents be 

maintained in confidence by the Committee. 

Question 9. Can you commit that you will make available the final report regarding the revised cost and schedule for the vitrification plant as soon as possible? Can 

the report be released so we can be knowledgeable of its contents by the time the 

Department submits its FY ’07 appropriations request? 

Answer. The final report being developed by the U.S. Army Corps of Engineers 

is scheduled to be delivered to the Department in June 2006 and, therefore, will not 

be available at the time the President’s budget is delivered to the Congress in early 

February. However, the Department will provide Waste Treatment Plant information if formally requested by the Committee Chairman, but will request that the 

documents be maintained in confidence by the Committee. 

Question 10. As you are aware, DOE changed its RFP process for cleanup work. 

I’m particularly referring to the RFPs for work at three Hanford sites. Each RFP 

provides that DOE will only require the new contractor to contribute to the employees’ current pension system for the first five years of the contract. Beyond the fifth 

year of the contract, there is no requirement for contractors to contribute to the sitewide pension system. It sounds to me like this change to the RFP process undermines worker pensions and medical benefits after the first five years of the contracts in an effort to produce ‘‘savings.’’

In light of the recent debate in Congress about the future solvency of our private 

pension trust fund and more importantly, the requirement that companies with traditional defined benefit pension plans meet their funding obligations, please explain 

why the change in the RFP process not an example of an employer—in this case, 

the DOE—dropping its pension obligations to its employees? How else has DOE 

trimmed its budget and cut ‘‘costs’’? 

Answer. There is no pending DOE RFP that might extend beyond five years that 

imposes a five-year limitation on incumbent employees participating in a definedbenefit pension plan. DOE’s policy is not to require termination of defined benefitplans for incumbent employees after a five-year period. Most major DOE solicitations in FY 2005, including the ongoing recompetition of the work to dismantle the 

Fast Flux Test Facility and the River Corridor Closure Project awarded this year, 

provide that if incumbent employees are in a defined-benefit plan they will stay in 

the plan after new contract award, pursuant to plan eligibility requirements and 

consistent with applicable law and policy; i.e., ‘‘if you’re in, you’re in.’’ These procurements also provide that new employees hired after the award of new contracts 

will be offered market-based benefit programs competitive for the industry. This policy of protecting the interests of incumbent employees and requiring market-based 

pension benefits for new contractor employees will be reflected in future RFPs. 

Question 11. A cut in pension benefits won’t attract the best workers—but bring 

in cheap labor. Instead of retaining an experienced workforce who understands regulations and safety procedures, cutting benefits inherently attracts a more transient 

workforce with less training on how to handle highly radioactive waste at Hanford. 

How will these changes impact the ability for contractors to recruit and retain skill 

workers? 

Answer. The Department’s Requests for Proposals are designed to encourage proposals from would-be contractors to perform with excellence. Crafting proposals for 

compensation packages for new employees is an element to be considered, including 

pension plan packages that attract newly-hired employees likely to be able to fulfill 

performance expectations DOE would demand of new contractors. Requesting 

offerors to formulate appropriate market-based pension and welfare benefits for new 

176

employees is an important element of seeking excellence and proficiency in business 

practices for performance of DOE work. 

Question 12. Last year, there was a proposal to shut down the medical screening 

program for the Hanford workers. I was pleased to know that instead of closing 

down the center, the Department made an administrative decision not to discard a 

successful program, recognizing that there are many major health problems that 

exist at Hanford. I trust that DOE will continue to stay on this path, to help workers better understand what may or may not be happening to their bodies. Secretary 

Bodman, please describe the Agency’s plan for continuing the worker screening program at Hanford. 

Answer. The Department of Energy (DOE) is committed to funding all existing 

regional medical screening programs, including two programs at Hanford. 

The Former Worker Medical Surveillance Program (FWP) was initiated as a pilot 

in 1996 to date has screened over 30,000 former workers from a portion of the DOE 

defense nuclear complex. Free medical screening for former Hanford workers in the 

building trades (construction workers) commenced in 1997. To date, 2,850 former 

Hanford workers in the building trades have been screened by the ongoing program. 

The screening targets health problems resulting from exposures, including asbestos, 

beryllium, cadmium, chromium, lead, mercury, noise, radiation, silica and/or solvents. The project is being carried out by a large group led by The Center to Protect 

Workers’ Rights, an applied occupational health research and development center of 

the Building and Construction Trades Department of the AFL-CIO, in partnership 

with Duke University Medical Center, University of Cincinnati Medical Center, and 

Zenith Administrators. Free medical screening for former Hanford production workers (non-construction workers) also commenced in 1997. To date, 2,306 former Hanford production workers have been screened by the ongoing program. This project 

screens for asbestos, beryllium and noise. Medical examinations take place in the 

Tri-Cities area, Spokane, Seattle, or Portland. It is being carried out by the University of Washington. 

Question 13. We’ve recently learned that the Hanford Employee Welfare Trust 

(HEWT) is reducing life insurance benefits for 1,800 Hanford Retirees. Currently, 

retirees 65 years of age and older receive life insurance equal to half of the salary 

at which they retired. Under the new plan, they’d receive no more than $20,000 in 

September 2005 and that would drop to $15,000 in September 2006. What role does 

the DOE play in the decisions of contractors to change benefit packages for retirees? 

How much does DOE stands to save by reducing life insurance benefits for 1,800 

retirees? What can we do to ensure that the benefit package they were promised 

were honored? 

Answer. The Hanford Employee Welfare Trust (HEWT) was established by 12 

participating contractors to administer a common set of benefits on their behalf. 

These benefits include life insurance, medical, dental, vision and disability. The 

HEWT administers these benefits through a Board of Trustees, who have the authority and responsibility to manage the trust. 

The Department of Energy (DOE) is not a party to, nor does it control, the HEWT 

medical and life insurance program. DOE policy precludes the Department from undertaking sponsorship, administrative, or fiduciary responsibilities for benefit programs for contractor employees, retirees and their beneficiaries. DOE’s involvement 

regarding contractor benefit programs is limited to reimbursing its contractors for 

the allowable costs of those benefits and performing oversight responsibilities required by the Federal Acquisition Regulation, the Department of Energy Acquisition 

Regulation, and applicable oversight regarding contractor compliance with the Employee Retirement Income Security Act and Internal Revenue Code. 

DOE policy requires its contractors to conduct a periodic assessment of their benefit programs and to submit a corrective action plan when the total value of benefits 

provided by a contractor exceeds benefits offered by similar companies by more than 

five percent. A benefit value study for active and retired employees participating in 

the HEWT and the Hanford Multi-Employer Pension Plan, which was prepared in 

2005 by Hewitt Associates, LLC., demonstrated that the total value of benefits provided to those employees exceeded 105% of the total value of benefits provided by 

similar companies. The study further indicated that the value of the HEWT postretirement life insurance benefit is nearly 100 times that of comparable companies. 

In light of these findings, the Board of Trustees of the HEWT significantly reduced 

the retiree life insurance benefits offered under the HEWT, although those benefits 

remain above the market value of retiree life insurance benefits offered by similar 

companies. It is estimated that these changes in retiree life insurance benefits will 

save DOE approximately $3 million during calendar years 2005 to 2007. 

Question 14. Secretary Bodman, according to a White House press release on 

March 9, 2005, you stated that ‘‘we have implemented 95 percent of [the AdminisVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00180 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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tration’s energy policy]’’. Are you referring to completion of the 105 

recommendation[s] in the President’s May 2001 energy plan? Could you provide me 

with specific correlation between each recommendation and the actions of this Administration? 

Answer. Yes, my statement referred to the progress the Administration has been 

making on implementing the 105 recommendations made in the National Energy 

Policy (NEP) report adopted by the President in May 2001, which can be viewed in 

its entirety at: www.pi.energy.gov/pdf/library/NEPImplementation 

Report012505.pdf. 

Question 15. Secretary Bodman, the President stated ‘‘there’s ways for the federal 

government to lead when it comes to conservation’’ and you testified about some 

current Administration efforts. When was the Energy Savers booklet first written 

and what updates did the Energy Department make if any to it recently? Please 

describe the Department’s efforts to reach out to energy intensive industries. Is this 

a new effort, or part of ongoing efforts by EERE’s Industrial Technologies Program? 

Answer. The Energy Savers booklet provides homeowners with tips for saving energy and money at home and on the road. It was first developed in the Summer 

of 1998, and the most recent revisions of September, 2005, include the updating of 

all relevant energy use statistics in addition to adding a home office section, driving 

and car maintenance section, and including a short primer about renewable energy. 

It is available in English and Spanish and our website at www.energysavers.gov.

The Industrial Technology Program (ITP) is sending teams of energy experts to 

conduct 200 targeted assessments of the nation’s most energy-intensive industrial 

plants. ITP will also deliver an outreach program to staff at more than 50,000 

plants by providing tools and materials to help plants reduce natural gas and electricity use. Current efforts continue ongoing activities funded through the Industrial 

Technologies Program’s Best Practices and Industrial Assessment Center activities. 

Question 17. Secretary Bodman, the President’s budget requests have consistently 

called for a reduction in funding for EERE’s Industrial Technologies Program. If 

those cuts had been accepted by Congress, what change in national energy use 

would we have seen? 

Answer. Over the past 30 years, industry has shown a remarkable ability to improve energy efficiency, greatly increasing economic output without a corresponding 

increase in energy use. From 1973 to 2003, industrial output as measured by the 

industrial production index of the Board of Governors of the Federal Reserve System 

almost doubled, increasing from 56.2 (where the 1997 level is 100) to 110.9. Over 

the same period, industrial energy use remained virtually the same, decreasing from 

32.653 quadrillion BTUs to 32.608. Most of these improvements were the result of 

general improvement and efficiency decisions, such as the routine replacements of 

older capital with more efficient units. Industry has been increasing energy efficiency, and we expect them to continue to do so. While the Department’s efforts also 

contributed to some improvements in industrial energy efficiency, it is difficult to 

speculate on what impact hypothetically lower funding in recent years would have 

had. 

Congress has provided for our request to reallocate some funding for the Industrial Technologies Program to higher priority programs. The program continues to 

focus its collaborative R&D on projects with the biggest potential for energy savings. 

Question 18. Secretary Bodman, given the growing demand for oil in Asia, do you 

believe that oil derived from the Arctic National Wildlife Refuge (ANWR) could be 

diverted to supply Asian markets? If drilling in the Arctic National Wildlife Refuge 

is authorized this year, when will it begin to have an impact on gasoline prices? 

What do you believe that effect will be? 

Answer. Whether oil produced in ANWR is exported to Asia or consumed domestically depends on a multitude of factors, among them West Coast refining capacity, 

other domestic and foreign crude oil production, petroleum product consumption, 

and relative crude and product prices. 

The specific characteristics of ANWR oil production relative to domestic and world 

refining capacity will be a factor in determining whether ANWR oil is exported; 

namely, whether ANWR oil production is light or heavy, sweet or sour. Asian refineries are not currently configured to process heavy sour crude oils, whereas the U.S. 

West Coast refineries are. If ANWR crude oil production is light and sweet, then 

it is more likely to be exported to Asia, than if it is heavy and sour. 

ANWR oil production is likely to displace West Coast crude imports of foreign oil, 

but some factors might make it advantageous to both consumers and producers for 

crude oil produced from ANWR to be exported. Oil, like any other commodity, moves 

to that market which places the highest value on its qualities. If ANWR crude is 

permitted to move to that regional world market which values it the most, then the 

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U.S. trade deficit is minimized and the exportation of ANWR crude oil would offset 

any importation of foreign crude and petroleum products of equal value. 

Because of the Arctic weather limits the pace of exploration and development on 

the Alaska North Slope, it would take between 8 to 12 years between the opening 

of ANWR to petroleum development and the commencement of ANWR oil production. The last major Alaska North Slope oil field to have been brought into production is the Badami oil field, which is located near the western border of ANWR. The 

Badami field was discovered in 1990 and went into production in 1998. This 8-year 

development period does not include the additional 2 to 4 years that would be required to set up a Federal leasing program for ANWR and to collect and process 

ANWR seismic data. 

Question 19. Secretary Bodman, do you support more transparency in the oil and 

gas markets, as would be provided in my bill S. 1735? 

Answer. The Administration has not yet taken a position on the specific bill you 

refer to. However, we are supporting current efforts to improve oil and gas market 

data collection and transparency. We support more transparency in the oil and natural gas markets, especially to acquire improved world-wide oil and gas data. We 

have worked with the International Energy Agency and other organizations to improve near-term market assessments, especially since the proper functioning of futures markets requires reliable and consistent data. 

Question 20. Secretary Bodman, I understand that the Department of Energy has 

a gas price hotline, but can’t do anything about the complaints it receives except 

forward them on to other agencies. Can you tell me how many complaints the Department has received this year and what, if any thing, the Administration has done 

about them? 

Answer. The Department of Energy maintains a toll-free telephone number (1-

800-244-3301) and a web site (www.energy.gov) where Americans can register a 

complaint if they suspect they are a victim of gas price gouging. Because the Department of Energy has neither the legal jurisdiction to investigate these complaints, nor the authority to prosecute suspected gougers, our role has been to collect, collate and transmit this information to the appropriate authorities; for example, the Federal Trade Commission (FTC), or, the appropriate State Attorney General. Between January 1, 2005—November 9, 2005 the Department of Energy has 

logged a total of 32,348 complaints. 8,100 of these complaints have been received 

since September 5th, just after Hurricane Katrina hit. This information is transmitted to the relevant State and Federal agencies on a weekly basis. 

Question 21. Secretary Bodman, I believe harnessing the ocean’s abundant natural energy holds considerable long-term promise as a clean, distributed, and renewable energy resource. Can you tell me if the Department has conducted any R&D 

into wave energy? How does our national effort compare to those of other countries? 

Answer. The Department is currently supporting a wave energy R&D project via 

our Small Business Technology Transfer program. We are participating in a collaborative effort led by the Electric Power Research Institute to study wave energy’s status, and potential demonstration sites in the United States. The U.S. Navy has also 

invested in wave technology R&D and is operating a small pilot project near a Marine base in Hawaii. The Department is closely following worldwide developments 

in the technology by becoming a member of the International Energy Agency (IEA) 

Implementing Agreement on Ocean Energy Systems to better understand the status 

and potential of ocean energy technologies. Participating members in this agreement 

include Canada, Denmark, the European Commission, Ireland, Japan, Portugal and 

the United Kingdom. The United Kingdom supports the most extensive R&D program for wave and ocean current energy technology. 

Question 22. Secretary Bodman, can you provide me an update to the Department’s R&D efforts on lightweight materials for vehicles? What is the prognosis for 

these technologies? Do you believe carbon-fiber shows promise in vehicle applications? 

Answer. The Department’s R&D that is aimed at developing lightweight materials 

for vehicles is progressing well. Progress was made this year in a number of technical areas including magnesium casting, carbon fiber production, and design data 

development. Recent fuel price volatility has stimulated interest in these technologies. We believe carbon fiber shows great promise and we’re continuing to develop the tools and processes that can help make it a cost effective alternative to 

lightweight materials such as aluminum and magnesium. 

Question 23. Secretary Bodman, how has the last 3 years of escalating gasoline 

prices affected demand by American drivers? Have we seen a correlation between 

a certain level of price increase and less demand by American drivers? What is the 

actual level of reduced today compared to 3 years ago (please respond in the context 

of a doubling of retail gasoline prices)? 

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* Retained in committee files. 

1 In the petroleum industry, a ‘‘giant’’ oil field is defined as having 500 million or more barrels 

of oil that can be produced over the life of the field. 2 ‘‘Primary’’ production refers to oil that is produced without injecting water, steam, or carbon 

dioxide. ‘‘Secondary’’ production refers to oil produced with the assistance of water injection. 

Answer. The U.S. average retail price for regular gasoline has increased from about $1.40 per gallon in August and September 2002 to $2.90 per gallon in September 2005. However, even during this period while gasoline prices more than doubled at the pump, gasoline demand has continued to increase steadily. Gasoline demand is relatively inelastic, meaning it does not respond readily to changes in price. 

This is because so many people depend on gasoline for daily, non-discretionary travel, and there is no readily available substitute. 

Looking at the graph,* we can see the linear trendline for finished gasoline product supplied is positively sloped, depicting the overall upward trend in gasoline demand as it has increased from 9.3 million barrels per day in August 2002 to 9.5 

million barrels per day in August 2005. While it is likely that gasoline demand 

would be even higher now if retail prices had remained under $1.50 per gallon, as 

people have curbed some discretionary driving due to higher prices, higher prices 

have not stopped demand growth. 

Question 24. Secretary Bodman, what are the crude oil extraction costs for major 

oil producing countries, including our own? How does that compare with oil derived 

from shale or coal? 

Answer. Given the absence of total cost data for conventional oil production in the 

United States and the world, and given the accounting issues of defining what costs 

are included and how joint costs are allocated among oil fields, one has to rely on 

indirect indicators of the relative cost of conventional oil production among the 

world’s petroleum provinces. Generally, there are three metrics for indirectly measuring an oil field’s production cost, which are presented in the following order of relative importance: 1) the size of the field (i.e., the original oil in-place), 2) the percentage of original oil in-place that has been produced, and 3) the quality of the oil 

(i.e., its API gravity). Because most giant fields that are the target of significant exploration activity produce middle gravity oil, our analysis below focuses on the first 

two metrics. 

These two metrics can be applied using two different perspectives. One focuses on 

the relative size and age of conventional oil fields operating in the United States 

relative to the rest of the world. The other focuses on the ‘‘frontier’’ for finding new 

giant oil fields,1 with the understanding that these new fields will generally be the 

lowest cost opportunities for an incremental conventional oil production. 

From the first perspective, all of the giant U.S. onshore lower-48 oil fields were 

found between the late 1800s and 1940. Most of these fields have produced most 

of the recoverable oil in-place, and, in all cases, these giant oil fields are now producing oil using tertiary production methods (i.e., the injection of steam or carbon 

dioxide to produce oil), which is the most expensive means of producing oil.2 In contrast, Alaska oil production should be somewhat less expensive to produce than onshore lower-48 production because most of the giant fields found on the North Slope 

were discovered in the late 1960s and early 1970s, and because they haven’t produced as much of the original oil in-place (because they have not been in production 

anywhere near as long as the giant onshore lower-48 fields). 

In contrast to the U.S. onshore lower-48, most of the giant fields producing overseas were discovered much later so they have not produced as much of their original 

oil in-place, both because of their relative age and because of OPEC production constraints. In the Middle East, most of the giant oil fields were discovered in the late 

1940s through the 1970s, and the average giant field size is much larger than the 

giants fields found in the U.S. onshore lower-48. Most of the giant Russian oil fields 

were also discovered in the late 1940s through 1970s time frame, but the production 

costs should be higher than in the Middle East both because the average field size 

is smaller and because a larger percentage of the original oil in-place has been produced. 

From the ‘‘frontier’’ perspective, exploration companies are primarily searching for 

and finding giant oil fields located in the offshore deepwater regions of the Gulf of 

Mexico, West Africa, Brazil, Northwest Australia, and Malaysia/Indonesia. So generally one would expect these to be the incremental oil fields with the lowest production cost. 

The production costs of most non-conventional liquids are typically higher than 

the production costs from conventional sources. For example, the production costs 

are: $10 to $15 per barrel for ultra-heavy oil, $10 to $20 per barrel for oil sands, 

and $25 to $30 per barrel for gas-to-liquids. The range of production costs for coalVerDate 0ct 09 2002 12:29 Feb 27, 2006 Jkt 109279 PO 26082 Frm 00183 Fmt 6601 Sfmt 6621 P:\DOCS\26082.TXT SENERGY2 PsN: PAULM
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to-liquids and shale oil are likely to be higher than those for the other non-conventional liquids production costs cited above. 

Because investments in oil shale and coal-to-liquids are capital-intensive, investors would need to expect a long period of consistently high crude oil prices before 

they could expect to earn a return on their investment. A recent study by Mitertek 

(2003) estimated that a flat world oil price of $42 per barrel (2004 dollars) would 

make current coal-to-liquids technology economic. Allowing for the revenues associated with cogenerated electricity could lower the required price. 

Based on data obtained from the Federally-funded oil shale demonstration plants 

of the 1970s, capital investment in shale oil processing becomes economic with current technologies when world oil prices exceed about $70 per barrel (2004 dollars). 

Of course, technological breakthroughs could alter the economics and the likelihood of production from non-conventional sources. For example, Shell Oil is currently testing an in-situ oil shale process in the Rocky Mountains that it hopes will 

be profitable at about $30 per barrel of petroleum liquids. The Shell process, however, is still in the experimental stage, so there is considerable uncertainty whether 

this process will prove to be technically and economically feasible. 

QUESTIONS FROM SENATOR CORZINE

Question 1. Can you report on the status of the implementation of the energy efficiency tax Incentives included in the Energy Policy Act of 2005? 

Answer. The Department of Energy is working in partnership with the Department of Treasury to provide technical expertise as they write regulations for the energy efficiency tax incentives. We expect that these regulations will be completed 

by deadline. 

Question 2. What kind of Steps has the Department of Energy taken to encourage 

Americans to conserve? Do you think the steps are working? 

Answer. DOE has launched an expansive campaign to educate and encourage consumers on energy efficiency and ways to conserve. The Easy Ways to Save Energy

Campaign announced by Secretary Bodman in October highlights the Department’s 

efforts, in partnership with the Alliance to Save Energy, the Department of Housing 

and Urban Development and the Environmental Protection Agency. 

This campaign includes:

• Visits by Senior DOE Officials around the country to encourage energy conservation. 

• Energy Savers, a booklet providing comprehensive efficiency and conservation 

tips to save energy and money at home. The booklet is also paired with 

www.energysavers.gov, a web resource for consumers and businesses looking for 

ways to save energy. Highlighting the EnergyStar label for consumers is a key 

ingredient. 

• Energy Saving Expert Teams, an effort to provide guidance to both federal facilities and America’s most energy intensive factories, DOE is sending teams of experts around the country to give assessments, analysis and evaluation of sites 

and feedback on how to save energy.

These among other efforts express DOE’s commitment to promoting energy efficiency and conservation. We have seen a significant increase in visits to DOE web 

resources, expansive national distribution of materials, and expanding partnerships 

with efficiency advocate groups. The impacts of outreach efforts are difficult to 

measure, however, we believe that we are providing Americans with resources they 

can use to make energy efficiency and conservation a priority. 

Question 3. Does it make sense to ask oil companies who have reported record 

profits this quarter even in the wake of hurricanes Rita and Katrina, to invest in 

increasing our refinery capacity? 

Answer. Refinery investments, like any other, must reflect longer-term expectations of profitability. Until recently, the rate of return on refinery investments has 

been lower than investment in other sectors of the industry. In addition we should 

acknowledge that there has not been a favorable regulatory climate for energy infrastructure investments, especially refineries. Recently, the returns on refinery investments have increased, and industry is responding by announcing additional refinery 

investments. Marathon, Exxon, Valero, Sunoco and other U.S. refiners have recently 

announced plans to increase their refinery capacities. Most refiners are reviewing 

opportunities to expand capacity to meet growing demand and many more projects 

will no doubt emerge in the coming months and years. Also, by streamlining the 

environmental permitting provisions, as in Energy Policy Act of 2005, the regulatory 

barriers to refinery investments will be reduced. 

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QUESTIONS FROM SENATOR SALZAR

Question 1. I want to ask you about the schedule for loan guarantees as provided 

for in the Energy Policy Act of 2005. While these new programs will not solve the 

near term problems of this winter, funding these loan guarantees will provide a 

stepping stone for America’s energy future. Title 17 of the Energy Policy Act instructs the Department of Energy to establish a program to provide federal loan 

guarantees for coal gasification, renewable energy and other technologies that will 

be vital for promoting U.S. energy security and independence. These technologies 

are very important to me and to Colorado. I would appreciate if you could comment 

on the Department’s implementation plans for these loan guarantees and provide 

this Committee with a short summary of your implementation plan and implementation schedule. 

Answer. Title XVII of the Energy Policy Act of 2005 authorizes DOE to provide 

loan guarantees for renewable energy systems, advanced nuclear facilities, coal gasification, carbon sequestration, refineries, energy efficiency, and many other types 

of projects that use improved technologies in commercial projects that enhance energy economy and reduce emissions of pollution and greenhouse gases. The Department is assessing procedures to comply fully with the provisions of the Federal 

Credit Reform Act and OMB Circular A-129. The Department’s Chief Financial Officer is heading up our efforts in consultation with the energy and science program 

offices, the Office of the General Counsel, the Office of Policy and International Affairs, and others. The Department has not developed a timetable for completing 

these activities. 

Question 2. Section 133 of the Energy Policy Act requires you to convene an organizational conference to establish an ongoing, self-sustaining national public energy 

education program. Under the law, you have 180 days after enactment of the bill 

to get this ball rolling. Even though that 180 day limit gives you until February, 

I can’t help but think that the country would be better served if this got started 

now, not at the last possible moment some 4 months into the future. What is the 

status of developing this energy education program? 

Answer. We have plans underway to convene such a conference in January. 

Question 3. What is the status and timeline for both LNG terminal construction 

and for the Alaska pipeline? Is $14 gas making these projects more feasible? When 

will these gas streams begin entering the market in significant quantities, and how 

will they affect gas prices? 

Answer. Ten U.S. LNG import terminals (eight onshore and two offshore) have 

been approved and another sixteen (nine onshore and seven offshore) are currently 

undergoing regulatory review. Three of the ten approved terminals have broken 

ground for construction and are anticipated to be in operation sometime during 

2008. Additionally, two approved Canadian LNG import terminals which intend to 

provide pipeline natural gas to the U.S. have broken ground and are also scheduled 

to be operational in 2008. 

The commencement of operations at any new LNG import terminals will increase 

the supply of natural gas and help mitigate the natural gas supply shortfall in the 

U.S. LNG has become a global commodity, with prices strongly influenced by global 

supply and demand. Consequently, the price of natural gas in the U.S. will be impacted by many factors affecting the global supply and demand of natural gas, such 

as the discovery of new sources of natural gas and the cost and availability of alternative sources of energy to natural gas. 

The Alaska Natural Gas pipeline negotiations continue between project proponents and the State of Alaska. Once a commercial project emerges, the Federal 

Government is ready to expedite the permitting and construction of the pipeline. 

The three major producers filed a success case project timeline with their State 

Stranded Gas Act application, which estimated that first gas would flow at 10 years 

from the date when all government frameworks including Federal legislation and 

fiscal certainty in Alaska were in place. After the State of Alaska agrees to a contract with a project proponent, that contract is required to be sent to their State 

Legislature for ratification after a 30 day public comment period. 

The current high natural gas prices for this winter’s delivery would not be expected to remain at their current level over the 30 year planning period of an Alaska natural gas pipeline. The investment decision will be based on long term price 

forecasts, not on the short term spot prices; however, a trend of higher prices would 

encourage prospective investors. 

Question 4. Secretary Bodman, is it time for EIA to conduct a thorough review 

of its long-term demand projections for natural gas? Gas demand seems to be stable, 

with no signs of heading up to the levels projected by EIA. If we better understand 

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long run demand trends, won’t we have a better understanding of policy initiatives 

needed in the short, medium, and long term? 

Answer. EIA conducts a review of the natural gas demand projections each year 

as part of producing the Annual Energy Outlook (AEO). The projections are reviewed for consistency with the underlying factors that influence natural gas demand (e.g., energy prices, population, industrial production, disposable income, technology) and compared with other contemporary forecasts, including those from Global Insights, Energy and Environmental Analysis, Energy Ventures Associates, and 

PIRA Energy Group, among others. The comparison with other forecasts revealed 

that projected natural gas consumption levels in 2015 in the 2005 Annual Energy 

Outlook (AEO2005) was relatively consistent with the other forecasts, lower then 

those produced by Energy and Environmental Analysis and Energy Ventures Associates and higher then those produced by Global Insights and PIRA Energy Group, 

but all were in a fairly narrow range. 

The AEO natural gas demand forecast does not follow short-term fluctuations in 

demand, even those that may last for a number of years, but is based more on the 

fundamental long-term drivers of energy markets. EIA does not believe that recent 

relatively constant natural gas demand levels can persist in the face of growth in 

the underlying factors that influence natural gas demand. EIA also believes that 

given current laws and regulations it is unlikely that improved energy efficiency or 

switching to alternative fuels could offset all of the expected growth in natural gas 

demand. Nonetheless, EIA recognizes that there is uncertainty about change in the 

underlying factors that influence natural gas demand levels. For example, there is 

uncertainty about projected economic growth, technology change, and energy prices. 

EIA produced multiple scenarios as part of AEO2005 to examine the impact of uncertainty in these factors. The level of natural gas demand in 2025 varies in these 

scenarios from a low of 28.6 trillion cubic feet to a high of 31.7 trillion cubic feet. 

EIA believes that this is a reasonable range for future natural gas demand given 

current laws and regulations and potential variation in the factors that influence 

natural gas demand. 

Question 5. With oil prices high—and the need to bring down the high price of 

fuel, we need Alternatives. In the aftermath of Hurricane Katrina, we faced a substantial threat to our refinery capacity by having a significant portion of our nation’s refineries concentrated in one region. The spread throughout the nation would 

help provide cost-effective alternatives to gasoline and would help protect against 

future threats both of price spikes and supply shortages by diversifying our fuel supply and infrastructure. 

There are provisions in the Energy Policy Act of 2005 to diversify our fuel supply 

and infrastructure through crops we can grow here at home and by converting agricultural and forestry residue into energy. 

How long does the Department of Energy anticipate it will take to get the first 

cellulosic ethanol demonstration plant up and running? 

Answer. The Department cannot predict with certainty when the first cellulosic 

ethanol plant will be up and running. There are several companies that believe they 

have reduced technical risks to the point that at least niche opportunities exist. 

Other companies have indicated that they could expand their existing facilities to 

incorporate cellulosic ethanol. Although it is possible that these ventures could occur 

in the near term, it may well be 2012 or later before the first cellulosic ethanol demonstration plant is up and running. 

Question 6. Secretary Bodman, I’d like to discuss the status of the U.S. Program 

to produce domestic synfuels from coal and biomass. This type of production represents a tremendous opportunity for decreasing America’s reliance on imported 

fuel. It also opens the door for cost-effective carbon dioxide separation and storage, 

by linking coal gasification plants to enhanced oil recovery opportunities. How is the 

Department of Energy working to speed this desirable development? 

Answer. The Department of Energy has worked for many years on the development of technology/processes for the production of clean liquid fuels and syngas from 

coal. More recently, the Department has focused its research program on coal to 

clean hydrogen and coal to syngas. Hydrogen could be used as transportation fuel 

and thus reduce America’s reliance on imported fuel. Domestic production of syngas 

from coal could reduce natural gas imports. 

Three important examples of the Department’s work in hydrogen and syngas production from coal are Fuels, Sequestration, and FutureGen. The Fuels program conducts research to promote the transition to a hydrogen economy. Research is targeting reducing costs and increasing efficiency of deriving hydrogen from coal feedstocks as part of the President’s Hydrogen Fuel Initiative. When gasification technology is used for hydrogen production, a concentrated carbon dioxide by-product 

stream can be produced which can be captured and either used for the production 

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of crude oil by use of FOR technology or it could be permanently sequestered. The 

Department has a large, on-going research and development program in carbon capture and storage including the support of regional partnerships with goals to identify potential storage opportunities that includes containment in geological formations such as caverns and brine aquifers. The FutureGen project will integrate subsystems and components currently being developed through the Department’s research and development programs, including gasification of coal, production of hydrogen, and low cost CO2 capture and storage technology. FutureGen is aimed at 

establishing the technical capability and potential economic feasibility of co-producing electricity and hydrogen from coal with near-zero atmospheric emissions. 

Liquid fuels from coal is a mature but evolving technology, with costs in the range 

of $35 per barrel for mature plants, but no commercial U.S. plants have been built. 

The primary barrier to commercial introduction of the technology has been the volatility and uncertainty of world oil prices.

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