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[Senate Hearing 109-703]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 109-703
 
                THE REFINERY PERMIT PROCESS SCHEDULE ACT

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

                               H.R. 5254

    TO SET SCHEDULES FOR THE CONSIDERATION OF PERMITS FOR REFINERIES

                               __________

                             JULY 13, 2006

                       Printed for the use of the
               Committee on Energy and Natural Resources

                    U.S. GOVERNMENT PRINTING OFFICE

31-099 PDF                  WASHINGTON : 2006
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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               KEN SALAZAR, Colorado
GORDON SMITH, Oregon                 ROBERT MENENDEZ, New Jersey
JIM BUNNING, Kentucky

                     Bruce M. Evans, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
                 John Peshke, Professional Staff Member
                   Deborah Estes, Democratic Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Allen, Hon. George, U.S. Senator from Virginia...................     2
Becker, S. William, Executive Director, STAPPA and ALAPCO........    22
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     4
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Feinstein, Hon. Dianne, U.S. Senator from California.............    52
McGinnis, Glenn, CEO, Arizona Clean Fuels Yuma, Phoenix, AZ......    15
Meyers, Robert J., Associate Assistant Administrator, Office of 
  Air and Radiation, Environmental Protection Agency.............     6
Natchees, Maxine, Chairman, Business Committee, The Ute Indian 
  Tribe of the Uintah and Ouray Reservation......................    53
Pirog, Robert, Specialist in Energy Economics and Policy, 
  Resources, Science and Energy Division, Congressional Research 
  Service........................................................    46
Salazar, Hon. Ken, U.S. Senator from Colorado....................     5
Slaughter, Bob, President, National Petrochemical and Refineries 
  Association....................................................    26

                                APPENDIX

Responses to additional questions................................    57

                THE REFINERY PERMIT PROCESS SCHEDULE ACT

                              ----------                              

                        THURSDAY, JULY 13, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:14 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. Good morning, everyone. Welcome. Senator 
Allen, welcome to you. This morning we're going to receive some 
testimony and do some discussing on H.R. 5254, the Refinery 
Permit Processing Schedule Act. We have four witnesses 
scheduled.
    At the outset, let me say that I believe one of the most 
constructive things that Congress could do to ease some of our 
energy woes would be to facilitate the construction of new 
refineries and additions to capacity at existing refineries. 
Now, quietly and unobtrusively, additions to capacity are 
taking place, but clearly not in its totality the kind of 
things America needs for our future. No new refinery has been 
constructed in the United States since 1976.
    In 1981 there were 324 operating refineries in the United 
States. Today there are 149. While the number of refineries has 
dwindled, we have maintained much of the domestic refining 
capacity needed to meet our demand through efficiency 
improvements and capacity additions at existing refineries. 
There is no limit to how much we can accomplish in this manner, 
and that continues year-by-year.
    We are now on a path that means greater dependence on 
imports of finished petroleum products like gasoline, diesel 
fuel, and lubricating oil. The EIA estimates that refined 
petroleum products are projected to grow from 7.9 percent of 
total demand today to 10.7 percent of the total demand by 2025.
    Furthermore, about 47 percent of the U.S. refining capacity 
and 28 percent of our crude oil production is concentrated in 
the Gulf of Mexico, which we have already experienced in terms 
of how imprudent it is for that concentration to exist with us 
doing nothing about it. Hurricanes Katrina and Rita 
demonstrated how an act of God can cripple our ability to 
produce fuels needed for our economy, at least in part because 
of the way in which our basic infrastructure has been built.
    Finally, increasing demand worldwide for finished products, 
petroleum products, coupled with insufficient domestic refining 
capacity, means that the United States must compete with 
finished product on the world market.
    Today we will have before us a bill that seeks to 
streamline and accelerate our ability to site and build new 
refineries. The committee is interested in the views of our 
witnesses on H.R. 5254, as well as suggestions for addressing 
this problem through this bill or similar legislation, or we 
are interested in similar ideas that might be implemented in 
one way or another.
    Senator Bingaman will be here shortly, and has suggested 
that we proceed in his absence because he too was delayed 
because of Senate business here on the Hill.
    With that, I would now yield to you, Senator, for opening 
remarks or observations before we go to Mr. Meyers for his 
testimony.

         STATEMENT OF HON. GEORGE ALLEN, U.S. SENATOR 
                         FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman. I very much commend 
and appreciate your leadership on so many issues that are 
important for the energy security of this country. This measure 
here before us is one we need to move forward on.
    I have introduced a measure, we call it ``Bolster Energy 
Security for Tomorrow''--it's very similar--working with 
Congressman Boucher as well as Congressman Barton. Senator 
Inhofe has a measure over in his committee. I thought we ought 
to have one as well. It's very similar in its purpose. There is 
one difference, that as we move forward on this--if it is to 
move forward--the request would come from a Governor. Having 
been a Governor, I think it's important that you take into 
consideration the views and the sentiments of the people in 
communities.
    And all the facts that you stated, Mr. Chairman, at the 
outset are true. The overall situation, why we have high gas 
prices, part is supply. We need a greater supply of petroleum 
products. We need to develop more oil and natural gas in this 
country. But even if you look at the increased supply of oil 
worldwide, whether it's from Kazakhstan, Russia, countries in 
Africa, South America and elsewhere, there is an increasing 
supply. The demand is of course increasing, particularly with 
free people in Central Europe and expanding economies in India 
and China.
    Our problem in this country, as you stated, is when 
Hurricanes Katrina and Rita hit, they hit a concentrated area 
of our refineries. Our refinery capacity is at its maximum. 
It's stressed out. Every spring we see prices go up because 
they're switching from winter fuel blends to the summer fuel 
blends, and that affects the pipelines and refineries, and so 
there's a restricted supply for the demand. And even though the 
demand stayed high, as it did after Katrina and Rita, even with 
the refineries back in line, we still have high prices.
    So what's the solution? We need more refinery capacity in 
this country. It's absolutely necessary. Everyone agrees that 
this is essential. It will help reduce the price of gasoline, 
which is so important for individuals, for families, for 
businesses, for their trucks, their equipment, and their motor 
vehicles.
    There are going to be military bases being shut down. Why 
not use those closed military bases, if it is the desire of the 
people in those communities for refineries? So my measure, as 
well as the one we're going to consider here, says that--and 
the way my bill is, if the Governor petitions to the 
facilitator that they would like that assistance for building a 
refinery on that closed military base, that's the way that that 
would be done. There would be three of them built: One would be 
a biomass facility and two of them would be for petroleum 
refining.
    I could foresee certain jurisdictions, in places where a 
military base has been closed because of the BRAC process, that 
would say, ``Hey, this is a way to get in some investment, some 
more jobs, some more vitality and opportunity in our 
communities.'' And while we have a strategic petroleum reserve, 
Mr. Chairman, America also needs to have a strategic refinery 
capacity policy for our country. So I look forward to the 
testimony of our witnesses here.
    This is a measure that just makes a great deal of sense, 
and I'm very hopeful that we can get this. Whether it's done as 
a single bill or adopted with others, I think this is 
absolutely essential for Americans, so that we have more energy 
being refined here in this country for American jobs, American 
competitiveness, and ultimately, of course, American security.
    So I thank you for holding this hearing, for our witnesses, 
and I hope that we can work on a bipartisan, bicameral basis to 
get the job done for the American people. Thank you.
    [The prepared statements of Senators Allen, Bingaman and 
Salazar follow:]
  Prepared Statement of Hon. George Allen, U.S. Senator From Virginia
    Thank you, Mr. Chairman. I appreciate that the Chairman and Ranking 
Member convened this hearing to consider this important issue. I very 
much look forward to hearing the testimony of the witnesses today. I 
strongly support this legislation because it addresses one of the 
crucial bottlenecks in the domestic transportation fuel supply system 
that has contributed to high gasoline prices in the last year: refining 
capacity.
    In the wake of Hurricanes Katrina and Rita people across the 
country experienced the tight marginal capacity of the refining 
industry within the United States. Because of the limited capacity of 
the 150 or so\1\ domestic refineries, when many of the Gulf coast 
refineries were knocked offline by the storms the remaining refineries 
were unable to adequately increase production which resulted in an 
insufficient supply of gasoline for the demand of Americans, for their 
cars, trucks and equipment. Certainly it is understandable that two 
significant natural disasters would increase the price of gasoline 
regardless of the refining capacity in the country, but at some point 
the price should stabilize and return to a reasonable level. We just 
have not seen that yet.
---------------------------------------------------------------------------
    \1\ As of 2003 there were 149 refineries operating in the U.S. 
(Petroleum Refining: Economic Performance and Challenges for the 
Future, CRS Report, page 11).
---------------------------------------------------------------------------
    This isn't just a problem that threatens national security and 
competitiveness when Mother Nature throws two enormous hurricanes into 
the wheelhouse of our oil and natural production in America. The Energy 
Information Agency (EIA) forecasts ``that refined products supplied 
will increase from 19.6 million barrels per day in 2001 to 26.4 million 
barrels per day in 2020 and 28.3 barrels per day in 2025.'' If those 
projections are going to be met by domestic refineries we would need to 
construct additional capacity of approximately 400,000 barrels per day, 
per year.\2\ That means that every year the industry would have to 
build a new refinery equal to the size of largest refineries currently 
operating in the country. A new refinery of significant capacity 
(200,000 barrels per day) has not been constructed in the United States 
since 1977.\3\ The only viable alternative to meet this demand is the 
increased importation of refined product from overseas, a solution that 
makes the country even more dependant on the whims of foreign 
governments.
---------------------------------------------------------------------------
    \2\ Petroleum Refining: Economic Performance and Challenges for the 
Future, CRS Report, page 21
    \3\ This was the Marathon refinery in Garyville, Louisiana. In 
1993, a refinery with 38,000 barrels per day capacity was opened in 
Valdez, Alaska by Petro Star.
---------------------------------------------------------------------------
    If the refining industry fails to meet increased domestic demand 
the price of gasoline, jet fuel and other refined products are destined 
to rise. Runaway fuel costs will stifle our domestic economy and 
destroy the ability of American industries to compete on the world 
market. High gasoline prices will force American's especially those who 
live in rural areas and those with low to middle incomes, to make 
choices between driving to work and being able to fully provide for 
their families. As the country makes efforts to reduce our dependence 
on foreign oil through clean coal technologies, biodiesel, corn-based 
and cellulosic ethanol, advanced nuclear, nano-tech enabled lithium-ion 
batteries and solar photovoltaics, Congress must do its part to ensure 
that companies interested in increasing refining capacity can enter the 
permitting process with certainty that their applications will be heard 
and resolved in a timely fashion. Gasoline is already expensive enough 
without the government limiting the amount a new capacity coming into 
the market.
    I have been working with my colleagues in the House to address this 
very problem. I have introduced a bill similar (S. 3649) to Congressman 
Bass' (H.R. 5254) that directs the President to appoint a federal 
coordinator to facilitate the authorization of new refineries and 
increased refinery capacity. Governors from interested States will be 
able to request financial assistance to hire additional personnel to 
assist the State with expertise in fields relevant to consideration of 
federal refinery authorizations from the Administrator of the 
Environmental Protection Agency (EPA). The legislation maintains all 
existing environmental protection laws and is not a means of 
circumventing any statutorily established review.
    These refineries will not be limited to processing petroleum and 
petroleum derivatives. This legislation includes biomass refineries, 
coal to liquids refineries, as well as traditional refineries. These 
advanced technologies are crucial to ending our dependence on foreign 
energy sources. In my view diversity of supply is security of supply. 
This must include increased domestic energy production both on private 
and public lands--including American oil, and American coal (America is 
the Saudi Arabia of the world in coal). We need energy produced and 
refined IN America FOR Americans, American jobs, American 
competitiveness and American security.
    The legislation also instructs the President to designate at least 
three closed military installations as potentially suitable sites for 
the construction of a refinery. At least one of these sites must be 
designated as potentially suitable for development of biomass refinery 
aimed at producing biofuel. There is an opportunity--with the BRAC 
mandated closing of military bases--to turn economically--depressed 
areas into potential refinery areas if the local citizens support such 
an initiative.
    I again thank the Chairman for holding this important hearing and 
the witnesses for taking their time to speak to us today. I look 
forward to hearing your thoughts on this issue. I also look forward to 
working with my colleagues on the Energy Committee to address the lack 
of domestic refining capacity.
                                 ______
                                 
 Prepared Statement of Hon. Jeff Bingaman, U.S. Senator From New Mexico
    Good Morning. Thank you, Mr. Chairman, for holding this hearing 
which enables us to talk about (a bill that lies before us on) the 
topic of refining. I understand that the authors of H.R. 5254 are 
seeking to increase refining capacity by way of their bill. I believe 
there may be some reason to believe that it will not do exactly that 
however.
    Contrary to what we may hear here today, refiners do not appear to 
be eager to build new Greenfield refineries in the U.S. I have not been 
informed by any state permitting authority that they have received a 
request for a permit to build a new refinery. As far as I know, the 
most recent application is that of the Arizona Clean Fuels Yuma company 
in Arizona.
    We have heard from several experts that the reason we are facing 
high prices at the pump stems from underlying supply issues. The amount 
of global excess capacity to produce oil has declined. Experts claim 
that it has entered `the red zone' and coupled with other threats to 
energy output (Nigeria, Venezuela, Iraq and Iran), a `perfect storm' 
has been created.
    Certainly we saw the kind of an effect storms can have on our own 
ability to refine oil last year with the damage sustained from 
Hurricanes Katrina and Rita. Refineries were shutdown last year in July 
as you may recall, adding pressure to supply and prices just before the 
hurricanes hit.
    In light of the effect that our already constrained domestic 
refining system was under, and given the shutdowns with the hurricanes 
(and potentially more such incidents this year), I think that it makes 
sense to ask the Secretary to ask the EIA Administrator to conduct a 
study of the impact refinery shutdowns have on the price of oil and 
gasoline. I will ask the Secretary for this today.
    While there are many problems (objectionable matters) with the bill 
before us, I do not think that creating a special coordinator housed 
within the administration with direct links to the President makes 
sense at this time. The Department of Energy if anyone has a role to 
play here in helping to oversee the supply of motor fuels. Thank you 
Mr. Chairman. I look forward to what the witnesses here have to say.
                                 ______
                                 
   Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
    Thank you, Mr. Chairman and Ranking Member Bingaman. I appreciate 
you holding this hearing today.
    We have two refineries in Colorado, both in Commerce City, near 
Denver, and they produce around 87,000 barrels of oil per day, some of 
which is from Canadian oil sands, believe it or not.
    I am pleased that we have this opportunity to explore what effect 
the shortfall in refining capacity is having on gas prices. Hurricane 
Katrina laid bare the vulnerabilities of our energy infrastructure when 
it took 29% of our refining capacity off-line, pinching supplies for 
months. Our refining infrastructure is still recovering from that 
disaster.
    But even when there are no disruptions from weather, American 
refining capacity is 4 million barrels a day short of demand. This is 
problematic because it leaves us vulnerable to future disruptions to 
our refining infrastructure, and it can inflate prices at the pump.
    I wish I could say that immediate investments in refining 
infrastructure will help bring gas prices down right away, but, 
realistically, it will take several years to expand domestic refinery 
production. Expanding our refinery capacity is clearly not, as the 
President claimed last week, a short-term solution.
    Economists will tell you that the refining market will likely 
respond on its own to the current high profits in the oil business, but 
that it will respond slowly. Economists will also report that to really 
lower gas prices in the short term, we need to be addressing the demand 
side, not just the supply side, of the refining issue. An analyst with 
Deutsche Bank recently testified in the House that, from a policy 
standpoint: ``it would be better to address demand, which, if it could 
be reduced, would alleviate the problems of U.S. refining.''
    If we were to take some simple steps to reduce our oil 
consumption--by driving less, by encouraging more fuel efficient 
vehicles, by increasing biofuel production and use--American demand 
would come back in line with refinery capacity, and gas prices would 
come back under control. We need the President's leadership on energy 
conservation, and we need the commitment of all Americans.
    Nonetheless, over the long term, our refinery infrastructure will 
need to grow and modernize. I am heartened to hear that energy 
companies are promising significant investments in refinery 
infrastructure and that new capacity will come on line within the next 
2-3 years.
    Congress, too, can play a role in assisting with refinery 
expansion. Mr. Chairman, I think we took a positive step last summer in 
the Energy Policy Act when we created a mechanism to improve 
coordination among federal, state, and local permitting processes. We 
lowered barriers for refinery expansion in a balanced way that upholds 
environmental protections, the rights of states and local governments, 
and the public's opportunity for comment.
    The bill before us today, H.R. 5254, would abandon this section of 
the Energy Policy Act. This seems hasty to me. Have we given the 
refinery provisions in the Energy Policy Act enough time to yield 
benefits? Has this section of the Energy Policy Act even been 
implemented yet?
    I agree that we should be coordinating local, state, and federal 
permitting processes--but we should not do so at the expense of state 
and local permitting authorities. Furthermore, I have questions about 
the citing of new refineries at realigned military bases. Is this an 
economically sensible approach, and will the local communities who may 
be affected have a role in deciding whether a refinery should be built?
    We should remember that expanding our refinery capacity is a long-
term, not short-term, goal, and we should be very wary of knee jerk 
solutions that compromise environmental protections and the health of 
local communities.
    I think the Energy Policy Act includes some well-written and 
balanced provisions that, when properly implemented, will streamline 
and simplify the permit process. I am hesitant to abandon our good, 
bipartisan work from last summer.
    Thank you again, Mr. Chairman, for holding this hearing. I look 
forward to hearing the testimony of the witnesses.

    The Chairman. Thank you, Senator.
    Now, Mr. Meyers, we are all aware of your expertise and 
your role in government. Would you please give us your 
testimony? Your remarks will be made a part of the record as if 
you read them, and you use your own good judgment on how much 
of them you want to use orally for the committee.

      STATEMENT OF ROBERT J. MEYERS, ASSOCIATE ASSISTANT 
   ADMINISTRATOR, OFFICE OF AIR AND RADIATION, ENVIRONMENTAL 
                       PROTECTION AGENCY

    Mr. Meyers. Thank you, Mr. Chairman. I will try to keep 
things brief. I appreciate the opportunity to appear before the 
committee today to present testimony concerning H.R. 5254.
    The Bush administration strongly supports efforts to speed 
up the process for refinery construction and expansion. Our 
country now imports about a million barrels of gasoline every 
day, and this means that about one out of every ten gallons of 
gas that Americans buy at the pump is refined in a foreign 
country.
    In addition, as Senator Allen mentioned and the chairman 
mentioned, following Hurricanes Katrina and Rita about a 
quarter of our Nation's refinery capacity was shut down for a 
period of several days, and even today part of our Nation's 
production refining infrastructure is still being restored. 
Therefore, there is a continuing need to think strategically 
about our long-term refining needs, and the Bush administration 
is committed to expanding domestic refinery capacity and stands 
ready to work with Congress on this vital matter.
    This issue is hardly new, as has been noted. It has been 
repeatedly noted that the refinery construction of new 
facilities has not occurred in over three decades. But 
conditions in 2006 are a little bit different than those faced 
in earlier years, as mentioned, with the global demand for 
refinery oil products having grown, and with many refineries 
operating at very high capacity levels right now. In layman's 
terms, at this point in time, even though there are some 
projects in the works, there is not much slack in the system.
    So these conditions have naturally turned a focus to the 
process requirements that are applicable to construction of 
refineries. I won't go through all the detailed permitting 
requirements, that would take a considerable amount of time, 
but to summarize, in order to build a refinery right now, 
requirements and permitting actions may be required under the 
Clean Air Act, the Clean Water Act, the Resource Conservation 
Recovery Act, and depending on circumstances, the National 
Environmental Policy Act. In addition, States and localities 
have their own authorities that are applicable in these 
situations and may define substantive procedural requirements 
applicable to refinery construction and modification.
    In terms of the Clean Air Act, in terms of major programs 
that would affect refineries, we have new source review permit 
requirements, title V operating permit requirements, new source 
performance standards, emission standards for hazardous 
pollutants, and compliance assurance monitoring requirements.
    With regard to the Clean Water Act, refineries, like other 
facilities, may need to obtain a national pollution discharge 
elimination system permit, and under RCRA, refineries can be 
subject to other regulations depending on generation of 
hazardous waste and maintenance onsite.
    In most cases, the Federal environmental requirements have 
been delegated to the States and implemented at the State 
level. And as I mentioned, too, apart from just environmental 
requirements, you can run into other local issues: conditional 
use permits; local fire, building, and plumbing codes; 
connections to sewer systems; and construction approvals that 
are necessary, if you're going to build a facility that has the 
magnitude of a refinery.
    So, getting to the act that's before you, this bill sets 
forth a number of provisions that are intended to coordinate 
and expedite the refinery permitting process. My written 
statement contains more detail in this regard, so I'll just 
center on a few points.
    Probably one of the major points of the bill is the 
appointment of a Federal coordinator. The legislation specifies 
on the request of an applicant seeking a refinery 
authorization, the Federal coordinator must convene a meeting 
of the relevant Federal and State agencies in order to 
establish a memorandum of understanding setting forth the most 
expeditious coordinated schedule possible. This MOU is then 
established and the Federal coordinators ensure that the 
parties carry out the MOU in good faith.
    The legislation also specifies venue, standing review, the 
remedy for civil actions brought under the terms of the 
legislation, and the district court in which the refinery is 
located.
    In summarizing--and ending here, so we can get to any 
questions the committee might have--I would say three things: 
First, the President has repeatedly called on Congress to 
simplify and speed up the refinery permitting process and to 
reform the new source review regulations; second, the 
administration has supported House passage of H.R. 5254, and is 
also encouraging the Senate to act on refinery legislation; 
and, third, the administration, as I said at the beginning, 
stands ready to assist this committee and the Congress with 
this legislation or other legislative efforts to provide 
appropriate technical assistance.
    [The prepared statement of Mr. Meyers follows:]
      Prepared Statement of Robert J. Meyers, Associate Assistant 
 Administrator, Office of Air and Radiation, Environmental Protection 
                                 Agency
    Mr. Chairman, members of the Committee, I appreciate the 
opportunity to appear before you today and to testify on H.R. 5254, the 
``Refinery Permit Process Schedule Act.'' I am pleased to be here 
representing the Environmental Protection Agency. My testimony will 
address EPA's statutory responsibilities affecting refinery 
construction and expansion, some of the Agency's ongoing efforts to 
streamline the refinery permitting process, and the legislation being 
considered by the Committee.
    It is self-evident that domestic refineries are a vital part of the 
nation's energy infrastructure and a powerful contributor to the U.S. 
economy. As last year's hurricanes demonstrate, however, the nation 
needs to expand and diversify its modern refining capacity. Following 
Hurricanes Katrina and Rita, about a quarter of our nation's refinery 
capacity was shut down for a period of several days, and even today, 
parts of our nation's production and refining infrastructure are still 
being restored. The entire country felt the impact of the hurricanes on 
retail gas prices. There were short-term shortages of fuel. Some 
facilities received millions of dollars in damage. Although we have 
largely been able to recover from these exceptional natural disasters, 
the need remains to think strategically about our long-term refining 
needs. One component of our approach should be investigating ways to 
streamline the process for permitting construction of new refineries 
and expansion of existing facilities.
    The issue of domestic refinery construction, overall capacity and 
the refinery permitting process is hardly new. Conditions in 2006, 
however, are different from those faced in earlier years, as global 
demand for refined oil products has grown as a result of increases in 
both domestic and international demand. Many refineries are also 
operating at such high capacity levels that additional disruptions 
could lead to a rapid impact on consumer and industrial access to 
affordable energy. New refining capacity would help alleviate the 
strain on our current fuel system. While overall refinery capacity has 
increased through facility modifications, as the Committee well knows, 
no new refinery has been constructed in the United States in over 30 
years.
    As indicated above, domestic refining capacity has increased 
through steady expansion of operations at existing refineries, even as 
smaller, less efficient refineries have closed. Today, there are 149 
refineries compared with 205 refineries in 1990. Total capacity over 
this same period of time, however, has increased from 16.5 million 
barrels per day to 17.3 million barrels per day.
                          refinery permitting
    Because most permits are issued by state and local authorities, EPA 
does not routinely track permitting activities for refineries and 
cannot provide precise numbers concerning such activity. However, based 
on information we currently have in technology clearinghouses and a 
recent survey of refinery activities, we estimate that approximately 
100 permits have been issued to refineries since 2000. Many of these 
permits involved upgrades in order to comply with new EPA regulations 
such as those requiring new sulfur limits for gasoline and diesel--
approximately 60 of the permit applications in 2000-2003 involved 
projects to comply with Tier 2 gasoline requirements. Many of the 
projects, however, also added to increased capacity, whether or not the 
project was initiated or primarily designed to meet new fuel standards.
    A broad scope of environmental issues may be present in siting a 
new facility or expanding the capacity of an existing one. Such an 
action may trigger requirements or permitting actions under authority 
of the Clean Air Act, the Clean Water Act, the Resource Conservation 
and Recovery Act, the National Environmental Policy Act and other 
federal, state and local environmental laws. Substantial ``up front'' 
work is also required regarding site and design factors prior to the 
submission of an application for a new refinery. In addition, the 
various approval processes usually are not coordinated, and often do 
not occur at the same time, which adds to the overall time. While many 
refinery permits can and have been issued in a matter of months, 
depending on the complexity of the refinery and the issues involved in 
siting, the permitting process can take between one and two years after 
a complete application is filed. Not all of this time is consumed due 
to requirements imposed by EPA or the states--those seeking to 
construct refineries may revise their applications after they have been 
submitted engendering some additional delays in the permitting process. 
However, it is also apparent that administrative appeals during the 
permitting process and judicial review of permitting decisions can add 
substantially to the time before construction or expansion can begin.
    States may also impose separate or additional requirements on 
refineries that can be more stringent than those required for 
compliance with federal law and regulations. Apart from the 
requirements of federal environmental law, state and local decision-
making with respect to refineries and other large industrial and 
commercial facilities can frequently involve land use and other local 
issues, such as conditional use permits, local fire, building and 
plumbing codes, connections to sewer systems and construction 
approvals. Thorough and appropriate review of these matters obviously 
can add to the complexity of the permitting process and has the 
potential to involve further commitments of time on the part of the 
applicant, relevant approval bodies and stakeholders.
                             clean air act
    Currently, a number of Clean Air Act permitting requirements apply 
to construction of a new refinery or major expansion of an existing 
refinery, though most of these provisions are delegated to the States 
and therefore implemented at the State level. For example, a New Source 
Review (NSR) permit must be obtained before construction starts. States 
typically take 12-18 months to issue NSR permits for large facilities, 
although this time period can vary significantly and does not include 
the additional time needed if an administrative appeal is filed. 
Depending on the location of a refinery, the 12-18 month NSR permitting 
process may include obtaining emission ``offsets'' based on the 
facility's emissions.
    A Title V ``operating permit'' is also required for a refinery that 
constitutes a major source. This program was added to the Clean Air Act 
in the 1990 amendments to consolidate in a single document all federal 
and state regulations applicable to the source, but the program does 
not create any new substantive requirements. Once it submits a complete 
application, the facility can operate under an ``application shield'' 
while the Title V permit is being processed. States must take final 
action on the permit application within 18 months. If the permit 
applicant or an interested stakeholder disagrees with the permit terms 
or conditions, they may file an administrative appeal or petition. This 
adds additional time to the process, although the facility can continue 
to operate during the appeals process.
    Applicants for a new refinery would also need to comply with other 
Clean Air Act regulations including New Source Performance Standards, 
emission standards for hazardous air pollutants and Compliance 
Assurance Monitoring Requirements. New Source Performance Standards, or 
NSPS, set a minimum level of control for new or modified sources of air 
pollution, and various process units within a refinery, including 
sulfur recovery units, fuel gas combustion devices, or catalyst 
regenerators, are subject to such standards. Another set of regulations 
requires petroleum refineries, which are sources of toxic air 
pollutants, to meet emission standards reflecting application of the 
maximum achievable control technology, or MACT, for a given source. 
Overall, air emissions from refineries have declined in recent decades.
    It should be mentioned at this juncture that while EPA has taken 
steps intended to help streamline the permitting process for refineries 
and other industrial sectors, certain legislative measures would have a 
more significant and beneficial effect in the long run. The President's 
Clear Skies cap and trade approach to reducing air emissions from 
electric generating utilities would give our states a powerful, 
efficient and proven tool for meeting health-based air quality 
standards for fine particles and ozone.
    EPA has projected that Clear Skies, in conjunction-with Bush 
Administration rules cutting diesel engine pollution by more than 90 
percent and other Clean Air Act programs, would bring most of the more 
than 500 nonattainment counties into attainment with the new standards 
without having to take any new local measures beyond Clear Skies. Thus, 
to the extent Clear Skies provided for attainment of Clean Air Act 
health-based standards, states and local governments would have a 
lighter burden in putting together their local control strategies to 
attain the National Ambient Air Quality Standards (NAAQS). This could 
result in an increased ability at the state and local level to 
accommodate new or expanded manufacturing or refining activities within 
plans to meet the NAAQS.
                            clean water act
    Refineries, like other facilities, are required to obtain a 
National Pollutant Discharge Elimination System (NPDES) permit if they 
discharge pollutants from a point source into waters of the U.S. 
Similar to our Clean Air Act programs, EPA has authorized states to 
issue NPDES permits with a few exceptions. The state programs closely 
mirror the federal program, but some have additional requirements such 
as public notice and comment periods or technical requirements that go 
beyond the federal requirements. The federal program provides a number 
of permitting flexibilities.
    Last year, EPA finalized the pretreatment streamlining rule, which 
amends certain provisions of the General Pretreatment Regulations 
regarding oversight of industrial users that discharge to Publicly 
Owned Treatment Works (POTWs). The pretreatment streamlining rule. will 
reduce the regulatory burden on both indirect industrial dischargers as 
well as POTW Control Authorities without adversely affecting 
environmental protection. It will also allow POTW Control Authorities 
to better focus oversight resources on industrial users with the 
greatest potential for affecting POTW operations or the environment. 
The reduction in regulatory burden is applicable to both existing 
industrial users and to any new Industrial Users, including any new 
refineries which choose to discharge pollutants to a POTW, rather than 
directly to surface waters via a NPDES permit. One change to the 
regulations specifically benefits refineries and organic chemical 
manufacturers. POTWs are allowed to use concentration-based standards 
rather than calculate mass limits based on a facility's wastewater 
discharge. This revision will make it easier for POTWs to implement the 
standards and for facilities to monitor their own performance.
    The changes EPA recently adopted also provide another type of 
flexibility to POTWs by authorizing them to use general permits instead 
of an individual permit in certain circumstances. General permits cover 
multiple facilities within a specific category. This type of permit 
provides a cost-effective option for POTWs and permitting agencies 
because of the large number of facilities that can be covered under a 
single permit. For example, a large number of facilities that have 
certain elements in common may be covered under a general permit 
without expending the time and money necessary to issue an individual 
permit to each. of these facilities. In addition, using a general 
permit ensures consistency of permit conditions for specific 
facilities.
                 resource conservation and recovery act
    Refineries and other regulated entities that generate hazardous 
waste are subject to waste accumulation, manifesting, and record-
keeping standards. Facilities that treat, store, or dispose of 
hazardous waste must obtain a permit either from EPA or, more likely, 
from a state agency that EPA has authorized to implement the permitting 
program. States may have more stringent requirements than the federal 
Resource Conservation and Recovery Act (RCRA) program.
    It has been the EPA's experience that more recent petroleum 
refineries generally are designed to only store materials in secure 
containers and tanks for less than 90 days, so that they are most often 
classified as generators only, and thus are not subject to RCRA 
permitting. However, a few petroleum refineries do have RCRA permits 
and in circumstances where a refinery expansion results in a change in 
hazardous waste management, a permit modification may be required. The 
modification process depends on the significance of the modification 
and obtaining a permit can take 1-2 years, depending on complexity. A 
temporary authorization (to start constructing the changes while 
awaiting the modification approval) may be allowable in certain 
circumstances.
    The Agency has already taken steps to streamline the RCRA 
permitting process. Specifically, in September of last year, EPA issued 
the RCRA standardized permit rule, which allows certain waste 
facilities to submit an abbreviated permit application. These newly 
streamlined permitting requirements result in a shorter permitting time 
line and shorter time lines for any subsequent permit modifications. It 
is estimated that the standardized permitting process will save the 
states and industry more than three million dollars a year.
          h.r. 5254, the refinery permit process schedule, act
    The Refinery Permit Process Schedule Act sets forth a number of 
provisions intended to coordinate and expedite the refinery permitting 
process. Section 2 of the legislation, the definitional section, helps 
to define the scope of the law. The bill defines a ``federal refinery 
authorization'' to include any authorization required under Federal law 
relating to the siting, construction, expansion, or operation of a 
refinery and includes all permits, licenses, and other relevant 
official approvals. ``Refineries'' are defined to include facilities 
involved in the production, storage, and transportation of crude oil, 
coal, and biomass to the extent they are used to make gasoline, diesel, 
or biofuel.
    Section 3 of the bill authorizes the EPA Administrator, upon the 
request of a Governor, to provide financial assistance to hire 
personnel with technical, legal, or other expertise relating to the 
permitting process under a federal refinery authorization. The section 
also provides that upon a Governor's request, a federal official with 
responsibility for such processes shall assist the State with its 
consideration of the refinery authorization.
    Section 4 of H.R. 5254 requires the appointment of a ``Federal 
coordinator'' who is then made responsible to carry out certain duties 
associated with refinery permitting. First, the Federal Coordinator--at 
the request of a party seeking approval of a refinery--is required to 
convene a meeting of relevant federal and state agencies responsible 
for permitting or otherwise approving the refinery project.\1\ Second, 
the Federal coordinator, with the participants at the meeting, is to 
establish a Memorandum of Agreement (MOU) setting forth the ``most 
expeditious coordinated schedule possible'' for completing refinery 
authorizations. Third, if a state or federal agency is not represented 
at the coordination meeting, the Federal coordinator is to ensure that 
the MOU schedule accommodates the necessary Federal authorizations. 
Fourth, the Federal coordinator is to ensure that all parties carry out 
the MOU in ``good faith.'' Finally, the Federal coordinator is required 
to undertake certain administrative duties to include publishing the 
MOU in the Federal Register and maintaining a consolidated record of 
all decisions.
---------------------------------------------------------------------------
    \1\ Federal and state officials are required to cooperate with the 
Federal coordinator, however, section 4 (b)(2) contemplates the 
possibility that not all such officials may participate in the 
coordination meeting.
---------------------------------------------------------------------------
    Section 4 also authorizes the refinery applicant or a party to the 
MOU to bring a civil action in federal district court if a federal or 
state agency fails to act on a Federal refinery authorization in 
accordance with the schedule in the MOU where that failure would 
jeopardize timely completion of the entire schedule. If, after 
reviewing the actions of the parties, the Court finds such a failure, 
the section provides that the Court may establish a new schedule for 
completion of the permitting process, ``consistent with the full 
substantive and procedural review required by Federal law.'' The. bill 
requires expedited review of any such civil action.
    Section 5 of the bill instructs the President to designate at least 
3 military installations as potentially suitable for construction of a 
refinery, and requires that at least one of the sites be specifically 
designated for development of a refinery that processes biomass into 
biofuel. Section 6 of the legislation provides that nothing within H.R. 
5254, if enacted, affects the application of any environmental statute 
or other law or bars the commencement of litigation under any 
environmental statute or other law. Section 7 provides that H.R. 5254 
serves to repeal the refinery revitalization subtitle approved as part 
of the Energy Policy Act of 2005.
                               conclusion
    The Administration supports House passage of H.R. 5254. As part of 
his four-part plan to confront high gasoline prices, the President has, 
called on Congress to simplify and speed up the permitting process for 
refinery construction and expansion. H.R. 5254 includes measures to 
simplify and expedite the refinery permitting process while maintaining 
strong environmental standards, although the Administration notes that 
the bill does not include codification of New Source Review rules that 
would enable accelerated investments in efficiency at refineries. The 
Administration encourages Congress to continue moving forward on 
refinery legislation, and EPA stands ready to assist the Committee and 
its Members in its review.

    The Chairman. Right, Mr. Meyers. Just back up and talk to 
the committee just a minute. Now, what does this bill--how does 
this bill work? Outline for us what happens.
    Mr. Meyers. Essentially, under the bill, if an applicant is 
seeking a Federal refinery authorization, which is defined 
within the act, there are several mandatory measures that flow 
from that. The Federal coordinator is required first to convene 
a meeting of representatives from Federal and State agencies 
who are responsible for the refinery authorization, and then at 
the meeting they shall establish a memorandum of agreement 
which is to set forth the schedule. And then, after that, this 
memorandum is published in the Federal Register and a 
coordinator ensures that the parties working under the 
agreement operate in good faith.
    So what's really, I think, intended by the legislation is 
that you have a central focus for permitting. You have a 
Federal official who--as I mentioned, we have a number of 
multimedia requirements that are applicable to refinery 
permitting and construction, so it gives us a central locus at 
the Federal level for consideration of those permit 
requirements and establishment of a coordinated schedule for 
all those requirements, which should hold. And if it doesn't 
hold, then there is a court remedy to seek enforcement of that.
    The Chairman. Now, is the court remedy the part of it that 
is contentious, because it's Federal court?
    Mr. Meyers. It may be contentious, depending on your view 
of the proper venue. I think it should be seen most probably as 
a contingency measure. Theoretically there is no need to resort 
to court if the Federal coordinator establishes a schedule and 
everything goes as planned. It happens in cases where the 
schedule is not being adhered to, that's what gets you into 
court.
    The Chairman. In your own view, would this have a real 
potential for getting this job done?
    Mr. Meyers. I think the administration has supported any 
effort which would help coordinate the process and simplify the 
process, so we support this bill and we think it would be a 
helpful addition to the current state of affairs regarding 
permitting.
    The Chairman. Are any laws protecting health waived under 
this act?
    Mr. Meyers. The statute contains a savings clause in this 
regard, to provide that they are not affected by the passage of 
the legislation.
    The Chairman. I didn't hear that.
    Mr. Meyers. There is a savings clause, I think, under the--
section 6 of the bill says ``nothing in the act shall be 
construed to affect the application of any environmental or 
other law.'' So essentially I think that's an attempt to 
preserve the vibrancy of the Federal environmental statutes.
    The Chairman. So the answer to my question is, there is no 
obvious intent to violate, vitiate, or alter substantially any 
Federal laws?
    Mr. Meyers. No, no. The entirety of the legislation does 
not amend any black-letter Federal law. It doesn't amend the 
Clean Air Act, it doesn't amend RCRA, it doesn't amend the 
Federal water act, so it has no direct amendment. And in 
addition to that, it contains a savings clause saying that it 
should not be construed to--
    The Chairman. Got you. Now, based on that conclusion right 
up front, do you believe that time will be saved if this is 
done, as compared with following the existing law?
    Mr. Meyers. Yes, we are supportive. We believe it could 
allow for expedited consideration of permitting actions. We're 
talking about a very complicated process. Since we haven't had 
a green field or a new refinery application before us--there is 
an exception to that in Arizona, obviously, and you will hear 
testimony on that.
    The Chairman. Yes.
    Mr. Meyer. But it's not like we have years of experience on 
how long it takes to permit a new refinery. However, we do know 
that major modification and NSR permits can take on the order 
of 12 or 18 months. They can be shorter and they can be longer 
than that period.
    Senator Allen. Say again?
    Mr. Meyers. A major Clean Air Act NSR permit for a major 
industrial facility generally takes 12 to 18 months. Now, they 
can happen shorter than that, and many do, and in some cases 
they can happen after that, but the thing to understand is, 
that's after the complete application is submitted, and in the 
case of several facilities, the time period--the pre-
application process is very important. A lot of work goes on 
before the application is even submitted.
    So I guess my point would be this: One shouldn't judge how 
long it takes to permit a refinery from the time at which a 
complete application is received. You have to consider the 
entirety of the period and the burden that's put on the 
applicant from day one when they're seeking to comply.
    The Chairman. Right. Now, Senator, you mentioned in your 
remarks and observations that as an ex-Governor you felt a 
favor toward the Governor being a kind of a representative, 
seeing to it that the application's made, that he's the leader 
in the application. Now, that's not a fact present in the House 
bill that's before us, correct?
    Senator Allen. That is correct, Mr. Chairman.
    The Chairman. You would rather have us change that, I take 
it?
    Senator Allen. I think it's an added precaution to make 
sure that you are--clearly whenever a base is closed down, what 
usually happens is there is a redevelopment authority and 
they'll have all sorts of different ideas as to what to do. 
Generally the communities are devastated because they're losing 
a lot of jobs.
    The Chairman. Correct.
    Senator Allen. But I think it's very important, since we 
will be dealing with State agencies also, and sometimes working 
with Federal agencies, and as you said, you defer to the States 
or the States to actually enforce Federal laws, so I think if 
the Governor is in favor of it and makes that petition, that 
ensures that the Federal Government is not coming in and 
running over or supplanting its will over the will of the 
people in that State.
    The Chairman. Let us make sure, Senator, for the record 
here, that the bill before us, as contrasted with yours, is not 
a bill that is primarily devoted to former military bases, so 
we would have a merging of things here. We could have a 
military base location, as per your desires, as one aspect of 
this bill, and then we could have a general one which is not 
military sites, but rather just locating a site, which is what 
this bill is; correct, Mr. Meyers?
    Mr. Meyers. This bill actually has both elements. It does 
have provisions with respect to identification of military 
bases.
    The Chairman. But not exclusively?
    Mr. Meyers. No, it's not exclusive. It has section 4, which 
I have mentioned before. In terms of the Federal coordinator, 
it is apart from the Federal military base provisions of the 
bill.
    The Chairman. In any event, Senator, if we got around to 
this, we could accommodate your wishes, too, I would believe, 
if that's what the committee wanted.
    Senator Allen. I believe so, yes.
    The Chairman. I now yield to you, Senator, if you have any 
further questions of Mr. Meyers.
    Senator Allen. Yes. Mr. Meyers, the chairman asked most of 
the questions that I was going to ask; however, let me just 
follow up on some of them.
    This legislation--and you haven't probably had a chance to 
read mine, but regardless, this legislation does not circumvent 
or weaken any existing Federal environmental protections with 
regard to refinery permitting or regulation; is that correct?
    Mr. Meyers. H.R. 5254, yes, it doesn't directly amend, and 
it has a savings clause.
    Senator Allen. All right. On permitting and the promptness 
of permitting and air permits--this is again as Governor, Mr. 
Chairman--we were able to get and recruit a semiconductor 
fabrication facility, billions of dollars of investment, into 
Virginia. They needed to get an air permit. We were able to get 
it done in 28 days. That mattered to them. If somebody has 
billions of dollars to invest, to be waiting a long time--they 
said the best they had seen before was 90 days in Texas, and 
they said if we were in California it would have taken a year 
and a half, maybe, to do so.
    Now, one of the ways to reduce the permitting time--you 
were talking about how it all is done sequentially, would you 
envision, with this memorandum of understanding--let's assume 
this is on a closed base and the community said, ``We would 
like to have a refinery here.'' And the refinery, by the way, 
would not be paid for by the Federal Government. The Federal 
Government would not be running a refinery. The Federal 
Government has no expertise or competence in running 
refineries. It would be a private company that would invest on 
that site, run the refinery, and there might be several 
applications.
    However, would you envision, as opposed to the sequential 
way that a lot of permitting is done, that you could have a lot 
of the permitting and decisions being made concurrently, as a 
way of reducing the length of time for a permit while complying 
with all environmental and health laws and regulations?
    Mr. Meyers. In terms of H.R. 5254, I clearly think that's 
the intent, is to have a coordinated schedule. I would say that 
there is coordination now, depending, project by project, and 
there is a more informal process. This sets up a specific 
process with one locus, the Federal coordinator, to run that 
process.
    Senator Allen. I think, Mr. Chairman, as a practical 
matter, if we get this passed and in effect, what you'll have 
out of the regulatory agencies, State and Federal, working 
together, rather than a--sometimes permitting processes are a 
``gotcha'' approach. Somebody makes a proposal and they say, 
``No, that doesn't make it.'' There will be more collaboration, 
saying, ``To meet this requirement, you will need to do this,'' 
so that when their permits are done and the different 
requirements are done in a concurrent manner, that really does 
reduce the time for approval of a permit. As opposed to just a 
hit-and-miss approach, this would be one where there is more of 
a concerted effort.
    In your written testimony, Mr. Meyers, you mention that 
most permits for refineries are issued by State and local 
authorities. In your opinion, does EPA have the resources that, 
if shared with the States and localities, could significantly 
expedite the technical aspects of the permitting process?
    Mr. Meyers. A lot of the permitting actions obviously are 
coordinated at EPA at the regional level. The regional offices 
which are down in the area, you know, region 6, region 4, that 
have a lot of the petrochemical facilities, have staff and 
experience in that regard, and they currently work in 
cooperation with the State agencies.
    We don't have--since they're down at the regional level, we 
don't have a full list to give you of all the permitting 
actions. Our estimate in the last 5 years is about 100 permit 
actions with respect to refineries that have occurred, and they 
have occurred in cooperation at the State and regional level.
    Senator Allen. Well, let's assume this happens. Does EPA 
have the resources to assist?
    Mr. Meyers. I guess I should have been more specific. We 
have been able to address the workload of about 100 permit 
applications in the last 5 years, so I would anticipate we 
would be able to handle, on an ongoing basis, that workload in 
the future.
    Senator Allen. Thank you, Mr. Meyers.
    Thank you, Mr. Chairman.
    The Chairman. Mr. Meyers, we're finished with your 
testimony. You are excused, and we thank you very much. We may 
be looking to you for further advice as we move along.
    Mr. Meyers. And, as I said, the administration stands ready 
and would be happy to provide any technical assistance to the 
committee.
    The Chairman. We thank you.
    Senator, let me just suggest to you that it's obvious to me 
that your notion of more Governor involvement fits nicely in 
this, and it's not in it now. Need not I talk about what you 
should do, but clearly to me you ought to be prepared to 
suggest how that might better fit if that's what you think the 
bill ought to be. It makes pretty good sense to me. I'm willing 
to listen, so right off, let me tell you that would be--to me 
it seems like to have a Governor in it right up front in some 
strong capacity would be good. That's what you're saying, 
right?
    Senator Allen. Exactly, exactly. I think that the request 
would come from the Governor. Seeing how as these are State 
agencies that have the responsibility, I think that would make 
a stronger memorandum of understanding as well.
    The Chairman. OK. Now we're going to go on to the next 
witnesses. Again, I want to thank the witness from the Federal 
Government who just left us, and go on to panel two: Glenn 
McGinnis, CEO of the Arizona Clean Fuel Yuma, Phoenix, AZ; S. 
William Becker, executive director of STAPPA/ALA--how do we say 
that?
    Mr. Becker. ALAPCO.
    The Chairman. ALAPCO, Washington, DC. Mr. Becker, welcome. 
And Bob Slaughter, president, National Petrochemical and 
Refineries Association. Thank you, all three.
    First, I want to welcome the very broad-shouldered Mr. 
McGinnis. Not really, but I say it figuratively, right? You're 
the one who has been trying to build some new facilities, and 
that makes us happy. Whether you succeeded yet or not is 
another question, but we're going to listen to you today about 
the bills and about the problems out there. So you're first.
    Let's be as brief as we can, so we can talk a little. We'll 
start with you, Mr. McGinnis, and then we're going to go right 
on to you, Mr. Becker, and then to you, Mr. Slaughter, from the 
National Petrochemical and Refineries Association.
    Mr. McGinnis.

  STATEMENT OF GLENN McGINNIS, CEO, ARIZONA CLEAN FUELS YUMA, 
                          PHOENIX, AZ

    Mr. McGinnis. Thank you very much, Mr. Chairman. First of 
all, I'd like to thank the committee for providing the 
opportunity to provide both written testimony and the 
opportunity to address the committee and clarify my company's 
position on two issues: First, on the chronology of events 
related to the issuance, in April 2005, of the air permit for 
our proposed refinery; and, second, on the key points addressed 
by H.R. 5254, which is the subject of the committee's 
deliberations today.
    In my written testimony I address the critical issues 
related to the development and approval of a new oil refinery 
project, those being economics, technology choices, public 
acceptance, and the permitting process. I will address only one 
of these: namely, the process of permit review and approval 
today.
    First, let me address the chronology of the air permit for 
our project, since I understand that there has been some 
confusion on this item. A predecessor company of Arizona Clean 
Fuels Yuma, the Maricopa Refining Company, developed a project 
in the late 1980's and was issued an air permit for a small oil 
refinery near Phoenix, AZ, in January 1992. For various 
reasons, including changing fuel product standards, crude oil 
pipeline supply issues, demand growth increases, and market 
uncertainty, this permit was allowed to lapse.
    During the mid and late 1990's a different and larger scope 
project was developed for a site near Mobile, AZ. Discussions 
with the Arizona Department of Environmental Quality began in 
1998, and culminated in the submission of the initial permit 
application in December 1999. This is the event that triggered 
the extensive technical reviews and negotiations involved in 
the development of the permit.
    Identification of best available control technology for 
each potential emission source, modeling of the ambient air 
impacts of these potential emissions, and agreement on the 
level of each identified pollutant is a lengthy process for a 
facility with many potential emission sources, including large 
furnaces, compressors, storage tanks, pumps, and even every 
valve in some specific services. This process took until 
September 2002, when the Arizona Department of Environmental 
Quality deemed the permit to be administratively complete.
    In the summer of 2003, the ADEQ advised the company that a 
draft permit was nearing completion and would be issued 
shortly. During this period, the extent of the ozone 
nonattainment area for the Phoenix metropolitan region was 
under review, and in the late summer of 2003 the Environmental 
Protection Agency and the Arizona Department of Environmental 
Quality expanded it to include large portions of Maricopa 
County, including the proposed refinery site. This decision, 
coupled with the growth of population in and around the town of 
Maricopa, led the company to look at alternative locations for 
the refinery.
    In late 2003 the company proposed an alternative site and 
agreed with the Arizona department to relocate the refinery to 
Yuma County. The ADEQ agreed to transfer the bulk of the permit 
work to date to the new site, and the company updated all of 
its air modeling and airshed impacts for the new proposed site.
    In April 2004 the company granted an extension in the 
permitting time to ADEQ, who again deemed the technical 
revisions and data complete. The company then documented all of 
the final agreed-upon bases in the final permit application. 
The draft permit was issued in September 2004, public meetings 
and hearings held during the fall, and the Class I operating 
permit issued in April 2005.
    As I hope this demonstrates, there are several stages to 
the application and permit development process that require 
extensive technical reviews and negotiations among all of the 
parties involved. The resulting permit is a complex document of 
specifications, controls, monitoring requirements, and 
reporting and compliance obligations. Throughout this entire 
process, the ADEQ consults with many other Federal and State 
agencies for input, reviews, and approval of the permit 
requirements.
    The Arizona Clean Fuels Yuma permit process was lengthy and 
complex, but to be fair to those involved, it was extended by 
mutual agreement between the company and the ADEQ due to the 
relocation of the refinery site.
    The second issue I would like to address briefly is the 
content of the proposed bill, H.R. 5254.
    During the development and finalization of our air permit, 
the ADEQ consulted with and requested comment and approval from 
many other agencies, Federal, State, and local. These agencies 
also have full-time activities related to day-to-day 
requirements, and review of a permit as complex and lengthy as 
a new refinery air permit does not necessarily receive the 
highest priority. Although the ADEQ attempted to coordinate 
these inputs and reviews in a timely manner, many were delayed.
    Also, the ADEQ's prime mandate is one of permit content. 
That is, they must ensure compliance with all of the 
requirements of the Clean Air Act, and local and State statutes 
and considerations. Focus on the schedule of permit development 
is not the primary function of any agency at this time.
    As in any complex work process, having an individual 
responsible for the process, its scheduling and resourcing, is 
critical to success. The proposal within this bill to provide 
this schedule focus through appointment of a Federal 
coordinator and mandating a 90-day period for agreement to a 
schedule will substantially improve the process of developing 
and issuing permits. Certainly, although it is not spelled out 
in the bill, it is assumed that the permit applicant and its 
consultants are a party to the commitment to the schedule and 
also carry obligations to meet these commitments.
    The second key issue addressed in the bill is the need for 
establishing and providing the resourcing required at the State 
level. This provision of either funding or direct capability 
will significantly help State agencies deal with conflicting 
priorities when their staff time and experience are limited, 
and will improve the State's ability to meet its schedule 
obligations.
    Finally, the provisions for enforcement when the schedule 
and therefore the project are in jeopardy should provide 
accountability to the process.
    This proposed bill, H.R. 5254, includes these key 
provisions which will improve the processes used to develop and 
issue Federal permits related to new refinery projects in the 
United States, and our company, Arizona Clean Fuels Yuma, 
strongly endorses these provisions. Thank you.
    [The prepared statement of Mr. McGinnis follows:]
 Prepared Statement of Glenn McGinnis, CEO, Arizona Clean Fuels Yuma, 
                              Phoenix, AZ
       new refinery project permitting considerations and issues
    The objective of this paper is to briefly highlight the key 
considerations and issues involved in the corporate, government and 
public decisions that must be made prior to the implementation of a new 
oil refinery project in the U.S. and will focus on the process for the 
development and issuing of Permits. Arizona Clean Fuels Yuma strongly 
endorses the proposals in the Bill H.R. 5254, specifically:

          1. The appointment of a Federal Coordinator who will act as 
        ``Project Manager'' during the permitting process.
          2. A mandated period of 90 days for establishment of a 
        schedule for the permit development work involving all agencies 
        with the Federal Coordinator ensuring compliance to this 
        schedule.
          3. Analysis of the resources required by both Federal and 
        State Agencies to perform the required development and reviews 
        within the schedule--and the provision of Federal financial 
        support for agencies to meet their schedule obligations.

Background
    The refining industry has successfully gone through a major effort 
over the past decade to respond to changes in product fuel quality 
mandated by Clean Fuels requirements. During this time, the industry 
has met the growing domestic demand for petroleum products by limited 
capacity expansions of existing refineries, and by imports. No new 
major refineries have been built in the U.S. in over thirty years and 
product imports have reached over 3.5 million barrels per day. Economic 
growth in other countries has reduced the availability of products to 
U.S. consumers and increased competition for imports. Major natural 
disasters, such as Hurricanes Katrina and Rita of late summer 2005, can 
have a major impact on the domestic supply and distribution of products 
resulting in both shortages and price increases. Recent petroleum 
product prices have reached and sustained record highs, driven by a 
growing world-wide shortfall in petroleum products supply. There are a 
number of reasons that this shortfall is a major concern for the U.S., 
most of which have been documented in abundance recently in the press. 
It is perhaps sufficient to state that shortfalls create economic 
hardship and slow the economy. It is also a strategic issue for the 
U.S. as the growth in imports increases the threat of shortages and 
embargos.
    One of the major solutions to this growing shortfall is to provide 
additional domestic refining capacity. The Energy Policy Act of 2005 
provided economic incentives for domestic refiners to both expand 
existing refineries and to develop new refineries. The Bill under 
consideration by the Senate Committee on Energy and Natural Resources 
(H.R. 5254) addresses the key issue of permit development and approval 
which will assist in the advancement of new projects.
    The problems and impediments preventing the growth and investment 
for new refining capacity in the U.S. are significant and will be 
discussed briefly below with particular focus on permitting and the 
current proposed Bill. Despite this, a new refinery project, the 
Arizona Clean Fuels Yuma (ACFY) project, has been under development for 
many years and is currently finalizing engineering design consistent 
with the final Air Quality Class I Permit issued by the Arizona 
Department of Environmental Quality in April of 2005. This project will 
be used below to highlight specific costs and permitting requirements.
New Refinery Construction Considerations
    There are four general areas of consideration that drive the 
feasibility and timing of new refining projects:

          1. Overall Project economics driven by product values, 
        feedstock costs, operating costs, and the uncertainties 
        introduced by long lead times for engineering, permitting and 
        construction,
          2. Technology choices driven by crude slate, target product 
        mix, legislated and target product quality requirements (and 
        projected changes)--a lengthy process of project development, 
        engineering and construction,
          3. Public Acceptance--significant reluctance in most areas of 
        the U.S. to allow a new refinery ``in my back yard''. Public 
        communication and hearings processes are lengthy and often 
        confrontational,
          4. Permitting processes for environmental permits, access 
        permits, construction permits and zoning, etc.--driven by 
        federal, state, and local legislation and zoning.

Refining Economics
    Long term historical refining margins in the U.S. have, on average 
and in general, not been adequate to support new refinery construction. 
Returns on Capital Employed have been in the 5% to 7% range. Capacity 
expansions and modifications have been economic due to leverage on base 
infrastructure and facility investments. Recent refining margins 2 have 
been significantly above the long term averages with the impacts of the 
hurricanes of 2005, but especially because of the world-wide 
competition for refined products. Current and proposed projects in the 
U.S. and world-wide are expected to increase supply and may reduce 
refining margins in certain areas in the medium to long term.
    Refineries are, by their nature, very costly facilities which 
require long lead times for engineering, permitting and construction. 
The uncertainties of timing and cost, the major investments in planning 
and early engineering, and concerns over protracted permitting process 
and public opposition have deterred most companies from considering new 
refinery projects.
    The proposed Arizona Clean Fuels Yuma refinery which will produce 
about 150,000 barrels per day of gasoline, diesel, and jet fuel 
products, will cost over $2.5 billion with an additional $600 million 
required for crude oil and product pipelines. Rapidly growing demand 
for petroleum products in the southwestern U.S. and limited supply 
alternatives make this project economic.
Technology Choices
    The refining industry is not traditionally viewed as ``high tech''. 
However, the need for high quality products and significant flexibility 
to process wide ranges of crude oils, and the need to implement state-
of-the-art environmental controls, has led to the development of very 
sophisticated processes. There are several process licensors and 
choices for each type of facility that a refiner needs. Also, due to 
the high cost of each process facility, extensive studies and 
comparisons are required to match a refiner's products and processing 
objectives.
    One area where the industry has led in major technology 
developments is in the ``Best Available Control Technology'' for 
emissions as defined in and required by the Clean Air Act. Every 
refinery modification and new process unit has required the development 
and application of specific control technology.
    The development of the Arizona Clean Fuels Yuma project included an 
extensive analysis of emission sources and inclusion of the Best 
Available Control Technology. This will be the first refinery where all 
sources will be addressed at the same time in this manner.
Public Acceptance
    A major hurdle to the construction of a new oil refinery is to 
overcome the historic negative public perceptions of oil refineries and 
to obtain public acceptance. Generally, the public has a ``not in my 
back yard'' attitude to facilities such as oil refineries. Certainly, 
refineries of the past have, to some extent, earned this reaction from 
the public. Modern facilities have overcome the shortcomings of these 
previous refineries. The refining industry has developed and 
implemented emissions controls, operating practices, and outreach 
programs to address the concerns of both government agencies and the 
public. Certainly these programs and projects have increased costs, but 
have been viewed by the industry as necessary.
    Refineries have significant benefit to the public by generation of 
both direct and indirect jobs and economic activity. Local communities 
can benefit significantly from the operation of a refinery.
    A new refinery, such as the Arizona Clean Fuels Yuma project, with 
the control and monitoring required by current regulations will have 
minimal impact on the surrounding environment with permitted emissions 
less than half those of the best current refinery in the U.S. The 
proposed location in Yuma County, Arizona, is remote from population 
concentrations. The project has gained support from local and state 
politicians and business leaders.
Permitting Processes
    Certainly the most-often noted issue in new refinery construction 
is that of the extensive permitting that is required. Generally, 
permits are required from multiple agencies at the federal, state and 
local levels. Also permits are required not only for the refinery but 
also for pipeline and utility services to and from the site. The 
permitting processes are lengthy and costly. Project developers are 
also not in control of the pace and timing of permit review and issue 
and this uncertainty can lead to project delays, cost escalation, and 
uncertainties in financing.
    The most extensive and important permit is often the ``Air Permit'' 
that is usually issued by the relevant state agency and outlines all 
requirements for compliance to the Clean Air Act and New Source 
Performance Standards with emission levels, reporting and Best 
Available Control Technology requirements. The extensive scope of this 
permit requires detailed air modeling, technical review of all 
facilities, and agreement on the Best Available Control Technology. For 
example, the Arizona Clean Fuels Yuma permit application was submitted 
to the Arizona Department of Environmental Quality on December 22, 
1999, and the Final Permit issued on April 14, 2005--a time period of 
over five years. This period was protracted by both the extensive 
reviews and negotiations for the permit and by a relocation of the 
project site. The following timeline demonstrates the complexity of 
both the siting decisions and permit reviews that were involved.
Timeline of the Arizona refinery project:

    Summer 1998: work began on a Class 1/Title V air permit for a large 
oil refinery to be located near the community of Mobile, Arizona. The 
Arizona Department of Environmental Quality (ADEQ) was advised of the 
work and negotiations began.
    December 23, 1999: Arizona Clean Fuels Yuma submitted the initial 
air permit application to ADEQ.
    1999-2002: Negotiations on all the technical details of the 
application (e.g. Best Available Control Technology, emission modeling 
basis and requirements, performance monitoring and reporting) occurred 
between Arizona Clean Fuels Yuma and ADEQ and their consultants.
    September 4, 2002: ADEQ deemed the application to be 
``administratively complete.''
    Summer 2003: ADEQ advised Arizona Clean Fuels Yuma that work on the 
application and a Draft Permit was nearing completion.
    Fall/Winter 2003: State of Arizona expanded the ozone non-
attainment area for metropolitan Phoenix and included the area of 
Mobile and the proposed refinery site in the expansion. As a result of 
the expansion and new population growth, Arizona Clean Fuels Yuma 
agreed with ADEQ to relocate the proposed refinery to a new site in 
Yuma County, Arizona and transfer the bulk of the permit work that was 
begun in 1999.
    April 6, 2004: Arizona Clean Fuels Yuma agreed with ADEQ to extend 
its permitting process and that the technical revisions and new data 
for the Yuma site were complete. The company submitted the Final Permit 
Application documenting all of the technical basis, air quality 
monitoring results, and control technology as agreed with ADEQ.
    September 14, 2004: ADEQ issued a draft permit and began a public 
hearing and review process. Meetings and Hearings were held in Phoenix, 
Yuma and Tacna, Arizona during the October to December, 2004 period.
    April 14, 2005: ADEQ issued the final permit.

    As the above demonstrates, the process of preparing such an 
extensive permit as that required for a major oil refinery is lengthy. 
Also there were factors involved with this specific project that 
extended the time period even further.
    One of the key issues in the development and finalization of an Air 
Permit for a major facility is the review of the proposed project 
emissions, controls, and impacts by other federal and state agencies. 
For example the EPA, the U.S. Forest Service, the National Park 
Service, the Bureau of Land Management, and the Arizona State 
Department of Historical Preservation were consulted by ADEQ. 
Fortunately many of these federal and state agencies review and comment 
on the permit and project coincident with the preparation of the Final 
Air Permit. However, all of these agencies have seen increased demands 
on their time and reviews don't always meet the expected timeframes 
thereby extending the permitting schedule.
    In the western United States, for example, EPA Region IX 
encompasses the most dramatic growth seen anywhere in the country. 
However, large projects that would support and provide jobs and energy 
supplies for that growing population can be held up for years by the 
air permitting process alone. This Regional EPA office has a limited 
number of technical staff members who must review and approve the air 
permits for every project in California, Nevada, Arizona, Hawaii, and 
Guam. Similarly, the National Park Service, Bureau of Land Management, 
and U.S. Forest Service must compete for the services of only a few 
federal staff members who have the technical expertise and 
responsibility to review all proposed major source air permits for 
projects across the entire western half of the country. This coupled 
with the lack of regulated or recommended timing requirements for 
permit issue leads to significant delays.
    Finally, although industry recognizes the statutory requirement for 
these agencies to ensure compliance with all regulations, there often 
appears to be more attention paid to the concerns of a small minority 
of constituents rather than a balanced review.
    Although the Air Permit is one of the most important permits for 
any project, there are many other rigorous permits that must be 
obtained for both refinery and pipeline projects from a multitude of 
agencies. For example:

   NEPA Compliance from a controlling agency such as the Bureau 
        of Land Management
   Land Use Permits from controlling agencies and jurisdictions
   National Historic Preservation Act Compliance with reviews 
        by the State and related tribes
   Access permits from Bureau of Land Management, U.S. Army 
        Corps of Engineers, and State Land Commissions as well as 
        private land owners.
   Military Agency approvals if military facilities involved.

    A listing of permits required by the Arizona Clean Fuels Yuma 
refinery and pipeline projects shows about thirty permits required 
excluding local zoning, access and construction permits. The majority 
of these permits are not initiated until the Air Permit is issued, 
since this permit finalizes the basis for the project. The timing of 
these can be extensive and is estimated to be about eighteen to twenty-
four months. Although design engineering can be done in parallel to 
these permitting activities, no significant construction can begin 
until they are in place. Construction of a large refinery such as ACFY 
proposes takes about three years. This sequential process results in 
long lead times for project development and completion.
Specific Observations on H.R. 5254
    With the above as background, the key observation is that the 
permitting processes are extensive and involve multiple agencies at 
various government levels. Several critical issues have been addressed 
by the proposed bill and Arizona Clean Fuels Yuma strongly endorses the 
following:

          4. The appointment of a Federal Coordinator who will act as 
        ``Project Manager'' during the permitting process.
          5. A mandated period of 90 days for establishment of a 
        schedule for the permit development work involving all agencies 
        with the Federal Coordinator ensuring compliance to this 
        schedule.
          6. Analysis of the resources required by both Federal and 
        State Agencies to perform the required development and reviews 
        within the schedule timeframe--and the provision of Federal 
        financial support for agencies to meet their schedule 
        obligations.

Conclusions
    The refining industry in the U.S. has not constructed a new grass 
roots refinery for over thirty years. Refining economics have generally 
not supported new refinery costs and the industry has focused on 
expansions of existing refineries. Major investments in Clean Fuels 
production and regulatory programs have also absorbed much of the 
industry capital. The total capital cost of an economically-sized 
facility of about 150,000 barrels per day is approaching $3 billion.
    The complexity of the refining processes and technology choices 
results in lengthy project development times which can be one to two 
years. Following this project definition, corporate strategic 
decisions, public reviews, local government discussions, and multi-
level permitting process typically take four to five years before a 
final ``go-decision'' can be made. Expediting these permit processes by 
ensuring timely development and review is critical to progressing these 
final decisions to meet the growing energy needs of the U.S. The 
proposed Bill, H.R. 5254 will provide a focus on the schedule and 
resource requirements to ensure timely completion of Federal permits.

    The Chairman. Thank you very much, Mr. McGinnis. I'm having 
a little bit of difficulty following you.
    Mr. McGinnis. Sorry.
    The Chairman. I don't know why that is. It's probably my 
fault.
    Now, Mr. Becker, will you talk into the machine and talk as 
loud as you could, please?

STATEMENT OF S. WILLIAM BECKER, EXECUTIVE DIRECTOR, STAPPA AND 
                             ALAPCO

    Mr. Becker. Good morning, Mr. Chairman, Senator Allen. I am 
Bill Becker, executive director of STAPPA and ALAPCO. These are 
two national associations of clean air agencies in 54 States 
and Territories and over 165 major metropolitan areas across 
the country. We are very pleased you're having this hearing 
today on H.R. 5254, since this marks the first time that 
Congress will hear stakeholders' views on this bill, especially 
from State and local governmental agencies responsible for 
issuing permits to refineries.
    While our associations understand the Congress's desire to 
take swift action of some kind to address high fuel prices in 
this country, we strongly believe that environmental permitting 
requirements have been wrongly targeted.
    The Chairman. Have been what?
    Mr. Becker. Have been wrongly targeted.
    The Chairman. In this bill?
    Mr. Becker. In this bill. Not only is new legislation not 
needed for expediting the permitting of refineries, we are very 
concerned that the bill could have the opposite result and 
delay the issuance of permits, as well as present other serious 
consequences. Accordingly, Mr. Chairman, we oppose its passage.
    Before addressing our specific concerns with H.R. 5254, we 
wish to make two observations. First, we must challenge the 
premise of this bill: namely, that State or local air pollution 
permitting requirements are preventing new refineries from 
being built or existing refineries from expanding. We believe 
the facts prove otherwise.
    According to the results of a recent survey, no State or 
local agency has received a major air permit application for a 
new refinery in the last 10 years, and according to EPA, only 
one refinery has sought an air pollution permit in the last 30 
years, and we've heard a little about that. With respect to 
existing refineries, the survey found that once agencies 
received complete applications, all but two of the major permit 
actions for refinery expansions were completed within 1 year, 
and half were completed within just 7 months.
    These findings are consistent with those of the 
Environmental Council of the States, which stated recently--and 
I'm quoting--it was ``unaware of any credible report that 
concludes that the time States take to review environmental 
permits has been, or is, a significant impediment to the 
issuance of refinery permits. We do not believe such 
documentation exists.'' And even the refinery industry has 
testified that environmental regulations are not interfering 
with the construction of new, or the expansion of existing 
refineries, and I have cited examples in my written testimony.
    What the evidence appears to substantiate is that the 
reason that new refineries are not being built in this country 
is because of economic considerations, not environmental 
permitting processes. In fact, the industry's preferred choice 
for increasing refinery capacity is to expand existing 
refineries, and as noted above, State and local agencies are 
issuing permits for expansions in a matter of months, not 
years.
    Our second observation, Mr. Chairman, is that Congress just 
11 months ago took steps to address perceived refinery 
permitting issues in title II of the Energy Policy Act. Yet 
rather than allow this new program the chance to work, H.R. 
5254 repeals most of its provisions.
    I'd like now to offer some of our specific comments on the 
bill. First, we are deeply troubled by the bill's new layer of 
permitting bureaucracy under section 4, and believe it could 
undermine the State and local permitting process and delay our 
review and approval of refinery permits, perhaps by many 
months.
    For example, the bill requires the President to appoint a 
Federal coordinator who is allowed to take up to 3 months just 
to negotiate a schedule for issuing a permit. And because the 
schedule is judicially enforceable, State and local agencies 
will need to devote many more staff and involve several other 
offices, including the attorney general, in developing an 
appropriate timeline, which could further delay permit 
issuance.
    In addition, if a party misses one of the judicially 
enforceable milestones in the agreement, rather than working 
the issue out cooperatively, as is typically done at the State 
and local level, the bill encourages a cause of action to be 
filed before the U.S. District Court, leading to a new court-
ordered schedule. This will undoubtedly create an adversarial 
environment and lead to more delay and uncertainty.
    All of these unnecessary procedural requirements will take 
away time that refinery and agency staff could otherwise be 
spending on the substantive issues of the refinery permit.
    Second, we are very concerned that the bill preempts State 
and local authorities, particularly providing the Federal 
district courts, rather than the more appropriate State courts, 
with exclusive jurisdiction over civil actions for failure to 
meet a schedule.
    Section 5 of the bill, which authorizes the President to 
designate at least three closed military bases as potential 
sites for constructing a refinery, also presents significant 
problems. At issue is the extent to which the bill allows the 
Federal Government, in this case the Secretary of Defense, to 
force communities to accept construction of a refinery when the 
community objects. We believe the decision to place an oil 
refinery must be determined by the community, not the Federal 
Government.
    In conclusion, H.R. 5254 is unnecessary, will delay the 
issuance of refinery permits, preempts State and local 
authorities, and forces new refineries in communities that may 
not want them. We oppose this bill, and urge you to do so as 
well.
    Thank you. I will be happy to answer your questions.
    [The prepared statement of Mr. Becker follows:]
Prepared Statement of S. William Becker, Executive Director, State and 
Territorial Air Pollution Program Administrators and the Association of 
                 Local Air Pollution Control Officials
    Good morning, Mr. Chairman and members of the Committee. I am Bill 
Becker, Executive Director of STAPPA--the State and Territorial Air 
Pollution Program Administrators--and ALAPCO--the Association of Local 
Air Pollution Control Officials--the two national associations of clean 
air agencies in 54 states and territories and over 165 major 
metropolitan areas across the United States. Our associations' members 
are responsible for achieving and sustaining clean, healthful air 
throughout the country and hold primary responsibility under the Clean 
Air Act for implementing our nation's air pollution control laws and 
regulations.
    STAPPA and ALAPCO commend you for convening this hearing to examine 
H.R. 5254, the ``Refinery Permit Process Schedule Act,'' recently 
passed by the House of Representatives. We are pleased you are having 
this hearing since this marks the first time that Congress will hear 
stakeholders' views on this bill, especially from state and local 
governmental agencies responsible for issuing permits to refineries. As 
you know, the House passed this bill without holding public hearings on 
this issue.
    While our associations understand the Congress' desire to take 
swift action of some kind to address high fuel prices, we strongly 
believe environmental permitting requirements have been wrongly 
targeted. Not only is new legislation not needed for expediting the 
permitting of refineries, we are concerned that H.R. 5254 could have 
the opposite result, and delay the issuance of permits, as well as 
present other serious consequences. Accordingly, we oppose its passage.
    Before addressing our specific problems with H.R. 5254, we wish to 
make two observations.
    First, we must challenge the premise of this bill, namely that 
state or local permitting requirements are preventing new refineries 
from being built or existing refineries from expanding. We believe the 
facts prove otherwise.
    According to the results of a recent survey (June 1, 2006) of state 
and local air pollution control agencies conducted by Congressman John 
Dingell, Ranking Member of the House Energy and Commerce Committee, 
``the environmental permitting process is not preventing new refineries 
from being built or existing refineries from being expanded.'' Based 
upon responses from 20 states, representing 77 refineries--or about 
half of those in the United States--the survey summary revealed that:

          None of the State and local agencies . . . had received a 
        major air permit application for a new refinery in the last 10 
        years. This is consistent with previous information from EPA. 
        EPA previously said that they were aware of only one proposed 
        refinery seeking an air permit in the last 25 years. According 
        to information from the Arizona Department of Environmental 
        Quality, two air permits have been issued for this proposed 
        facility. The State issued the initial air permit in 1992, but 
        the applicant let it lapse when financing could not be 
        obtained. The State issued a new air permit in April 2005, nine 
        months after a complete application was filed for the refinery 
        at a new location in Yuma, Arizona.

    With respect to existing refineries, 12 of the 20 states reported 
receiving requests for approximately 35 major New Source Review permits 
for expansions to their refineries in the past 10 years. Once the 
agencies received complete applications, ``all but two of the major 
permit actions for refinery expansions were completed within one year . 
. . and half were completed within seven months.'' This is also 
consistent with previous EPA testimony (House Government Reform 
hearings, September, 2000) that half of major permit modifications for 
refineries were issued within five months and most others within a 
year.
    The Environmental Council of the States has reached similar 
conclusions. In a letter (May 9, 2006) to Chairman Barton of the House 
Energy and Commerce Committee, ECOS indicated it is ``unaware of any 
credible report that concludes that the time States take to review 
environmental permits has been, or is, a significant impediment to the 
issuance of refinery permits. We do not believe such documentation 
exists'' (May 9, 2006).
    Even the refinery industry has testified that environmental 
regulations are not interfering with the construction of new or the 
expansion of existing refineries. In Senate testimony before the 
Congress (November, 2005), the Chief Executive Officer of Shell stated, 
``We are not aware of any environmental regulations that have prevented 
us from expanding refinery capacity or siting a new refinery.'' In 
addition, Conoco's CEO testified, ``At this time, we are not aware of 
any projects that have been directly prevented as a result of any 
specific Federal or State regulation.'' Finally, BP's CEO-concluded 
``it does not believe that any Federal or state environmental 
regulations have `prevented us' from expanding refinery capacity or 
siting a new refinery.''
    We believe the reason that new refineries are not being built in 
this country is because of economic considerations, not environmental 
permitting processes. In fact, the industry's preferred choice to 
increase refinery capacity is to expand existing refineries, and as 
noted above, state and local agencies are issuing these permits in a 
matter of months, not years.
    The second observation is that Congress, just ten months ago, took 
steps to address this issue. Subtitle H of Title III (Refinery 
Revitalization) of the Energy Policy Act authorizes the EPA 
Administrator, at the request of a Governor, to enter into a refinery 
permitting cooperative agreement with the state. Each party would be 
responsible for identifying steps, including timelines, which it will 
take to streamline the consideration of Federal and state environmental 
permits for a new refinery. The new law allows the Administrator to 1) 
accept from a refiner ``a consolidated application for all [EPA] 
permits,'' 2) enter into agreements with other federal agencies to 
consolidate refinery permits, and 3) enter into an agreement with a 
state under which federal and state review of refinery permit 
applications will be coordinated and concurrently considered. According 
to Energy Secretary Bodman, (World Energy, Volume 8, No. 3) this new 
Title of EPAct ``eases the constraints that have strangled new refinery 
construction.'' Yet, rather than allow this Subtitle the chance to 
work, H.R. 5254 repeals most of its provisions.
    Now I will turn to H.R. 5254.
    Section 4 of the bill appoints a ``Federal coordinator'' for 
refiner permitting. This person is responsible for convening a meeting 
of all federal and state agencies responsible for a refinery permit and 
establishing a schedule for reviewing and taking final action on the 
refiner's permit application, whether it is for a new refinery or a 
modification to an existing one. The bill also requires the Federal 
coordinator to maintain a complete consolidated record of all decisions 
made with respect to the refinery. The bill provides the federal 
district court in which the proposed refinery is located ``exclusive 
jurisdiction'' over any civil action resulting from failure to meet a 
deadline within the prescribed schedule.
    STAPPA and ALAPCO have several concerns with this section of the 
bill.
    First, we are deeply troubled by the bill's new layer of permitting 
bureaucracy and believe it could undermine the state and local 
permitting process and delay our review and approval of refinery 
permits, perhaps by many months. For example, Section 4 requires the 
President to appoint a Federal coordinator who is allowed to take up to 
three months just to negotiate a schedule for issuing the permit. And 
because the schedule is judicially enforceable, state and local 
agencies will need to devote many more staff and involve several other 
offices (e.g., attorney general) in developing an appropriate timeline, 
which will cause additional and substantial delay to the issuance of 
permits. Furthermore, if a party misses one of the judicially 
enforceable milestones in the agreement, rather than working the issue 
out cooperatively--as is typically done at the state or local level--
the bill encourages a ``cause of action'' to be filed before the U.S. 
District Court, leading to a new court-ordered schedule. This will 
undoubtedly create an adversarial environment and lead to more delay 
and uncertainty. All of these procedural requirements will take away 
valuable time that refinery and agency staff--managers, professional 
and legal--could otherwise be spending on the substantive issues of the 
refinery permit.
    Second, we and other state and local organizations are very 
concerned with the preemptive elements of this bill. Last fall, for 
example, six groups--the National Conference of State Legislatures, the 
National Association of Counties, the National League of Cities, the 
U.S. Conference of Mayors, the Council of State Governments, and the 
International City/County Management Association--wrote the House 
Energy and Commerce Committee asking that ``any proposed energy 
legislation exclude provisions that would preempt state and local 
governments' permitting processes for energy facilities and related 
infrastructure, including refineries.''
    Unfortunately, H.R. 5254 preempts state and local governments in at 
least two areas. First, as described above, the bill provides the 
Federal district courts, rather than the more appropriate state and 
local courts, with ``exclusive jurisdiction'' over civil actions for 
failure to meet a schedule. In addition, the bill preempts state and 
local governments by establishing that memoranda of agreements setting 
forth the coordinated schedule be ``consistent with the full 
substantive and procedural review required by Federal law,'' 
irrespective of state or local procedures. If, for example, an existing 
state or local law or regulation provides for a slightly longer public 
comment period than the Federal coordinator deems appropriate (e.g., 60 
days vs. 30 days), the state or local requirement would be preempted.
    We are also concerned with Section 5 of H.R. 5254, which authorizes 
the President to designate at least three closed military bases as 
potential sites for constructing a refinery, and requires the local 
redevelopment authorities to consider the feasibility and 
practicability of siting a refinery on the installation. At issue is 
the extent to which this bill allows the federal government--in this 
case the Secretary of Defense--to force communities to accept 
construction of a refinery when the community objects. We support the 
statement of the Association of Defense Communities (May 25, 2006) that 
H.R. 5254 ``does not give deference to the community's choice. H.R. 
5254 makes no distinction between communities that would like an oil 
refinery and those that don't. The decision to place an oil refinery 
must be determined by the community, not the federal government.''
    In conclusion, STAPPA and ALAPCO believe that environmental 
permitting requirements have been wrongly blamed for preventing new 
refineries from being built or existing refineries from expanding. 
Congress just recently enacted provisions under EPAct to help expedite 
the permitting of refineries and should give the new law a chance to 
work. Our associations oppose the passage of H.R. 5254 because it is 
not necessary, will delay the issuance of refinery permits, preempts 
state and local authorities, and forces new refineries in communities 
that may not want them.
    Thank you for this opportunity to testify and I will be happy to 
answer your questions.

    The Chairman. Thank you, Mr. Becker.
    We have about 5 minutes or 6 minutes before we have to 
vote, before the votes close, but we're going to see if we can 
get you in, Mr. Slaughter, before we recess and come back and 
then inquire of all three of you. So would you proceed, please.

 STATEMENT OF BOB SLAUGHTER, PRESIDENT, NATIONAL PETROCHEMICAL 
                   AND REFINERIES ASSOCIATION

    Mr. Slaughter. Sure, I will. And thank you, Mr. Chairman, 
for the opportunity to be here today. Senator Allen, Senator 
Salazar. NPRA is a trade association of the Nation's refiners. 
Our members are basically all U.S. refiners, plus petrochemical 
manufacturers.
    We support this bill. We agree with you that the Nation 
needs more refining capacity. We believe that the committee 
should approve this bill. It's a modest but significant step 
toward increased U.S. refining capacity.
    I would just point out that the industry has had a lot on 
its plate. We have redesigned all of our fuels. We have spent 
billions of dollars for environmental improvements. At the same 
time, although no new refinery has been built, we have added a 
significant amount of U.S. refining capacity in the last 10 
years. We have added 1.4 million barrels per day. It's the 
equivalent of adding 10 average-size refineries over that 
period. That has been added as expansions at existing sites 
because you can do that more cheaply and economically and have 
the product available earlier than you can with a new refinery.
    We believe that the Government should do everything 
possible to encourage people who want to take the risk to build 
new refineries, and we're very happy that Mr. McGinnis and his 
company are proceeding to do just that. One of the things I 
will just say is there has been a lot of controversy about 
issues affecting the refining industry this year. I have 
testified at many hearings. But there is a general consensus on 
the point that we need new refining capacity, which is what 
this bill directly addresses.
    I know you know as well, Mr. Chairman and others, that the 
industry has already announced plans to bring on 1.8 million 
barrels of additional capacity in the United States. Some say 
it will be as many as 2 million barrels. Those are the plans at 
this time. That will be a 12 percent increase, at the highest 
number, of our U.S. refining capacity. Those additions at 
existing sites will have to be permitted.
    It seems prudent to us that reasonable action be taken to 
discourage unnecessary delays in permitting new capacity 
additions. This will encourage investment and speed its 
completion. We think the important point isn't to debate 
whether permitting delays have actually stopped projects. They 
have slowed them.
    The important thing is that there is room for improvement 
in this business of granting permits, as there is in any 
business, and it would be very helpful to have a statement from 
the Congress that the national interest really requires 
additional refining capacity, and there should be encouragement 
for efficiency and timeliness in granting permits. That's 
essentially what we're for. Several of our members have told us 
of times in which they were trying to do things to expand 
capacity, even put in an ethanol tank to comply with the 
mandates now in reformulated gasoline, and faced significant 
delays.
    The good thing, as you have pointed out, is this bill does 
not override State authority and does not change existing 
environmental requirements. It is an optional procedure. If a 
person trying to build a refinery or add capacity does not 
choose to trigger this mechanism, it will not be triggered. 
It's optional.
    Two other points I would just mention very quickly. One, 
the Governor certainly has to be involved, but I would ask you 
to question whether Governors should have an outright veto 
authority over use of this. They should be major participants, 
particularly over the siting on military bases, but somewhere 
the Federal interest in having additional refineries needs to 
be placed before the States, and there has to be something done 
to push that process along.
    I look forward to your questions, Mr. Chairman.
    [The prepared statement of Mr. Slaughter follows:]
Prepared Statement of Bob Slaughter, President, National Petrochemical 
                         & Refiners Association
    Chairman Domenici, Senator Bingaman and other members of the 
Committee, NPRA, the National Petrochemical & Refiners Association, 
thanks you for the opportunity to appear today to express our support 
for H.R. 5254, the Refinery Permit Process Schedule Act. I am Bob 
Slaughter, NPRA's President. The Association's members include 
virtually all U.S. refiners and petrochemical manufacturers. As you 
know, H.R. 5254 passed the House of Representatives on June 7, 2006, by 
a bipartisan vote of 238-179 and has been referred to this committee. 
NPRA believes that this committee should approve the bill, which takes 
a modest but still significant step towards increased domestic refining 
capacity.
    NPRA also appreciates the bipartisan efforts of the Committee to 
enact S. 2253, legislation that instructs the Department of the 
Interior to sell oil and gas leases in Lease Area 181. Lying 100 miles 
off the Florida coast and comprising 2.9 million acres, this area is 
anticipated to provide the addition of much-needed domestic petroleum 
and natural gas production. The nation's refiners and petrochemical 
producers rely on predictable supplies of oil and gas to carry out 
their operations, and increased supplies of domestic energy will help 
provide natural has for use in refineries as fuel and in petrochemical 
plants as feedstock. NPRA believes the Committee has approved a 
sensible approach to offshore leasing that will increase domestic 
supplies of oil and gas for the benefit of all the nation's consumers.
                        a recap of recent events
    During the past few years the refining industry has been the focus 
of much greater attention than ever before from federal, state and 
local policymakers, as well as the media and general public. Most of 
the public seems to be aware of the fact that our nation's demand for 
refined petroleum products has grown considerably as a result of the 
widespread economic expansion that has characterized our economy for 
more than a decade. The fact that the nation's ability to meet this 
increased demand from domestic resources has declined is also well 
appreciated. Many congressional hearings have heard testimony from 
various stakeholders discussing the reasons for the resulting tight 
supply/demand balance in fuels market. Those who testified have also 
recommended various policy changes that might address public concerns 
about refined product supplies and prices.
    At the same time, a multitude of state and federal investigations 
have exhaustively reviewed gasoline market activities, either in whole 
or in part, to ascertain whether any relevant price and supply concerns 
can be attributed to illegal industry practices. They have found no 
such behavior. The results of these studies have been controversial, 
and policymakers have mostly taken sides according to their preexisting 
views of the petroleum industry. Policymakers' views about the wisdom 
of continued reliance on market mechanisms to assure sufficient energy 
supplies have greatly affected their reaction to the investigative 
findings.
    Today marks the twelfth time that NPRA has appeared at 
congressional hearings regarding fuels market in the past year and one-
half. We have also participated in many media and third-party 
discussions of the nation's energy problems. Based on that experience, 
I would like to share on behalf of the association a few observations 
about fuels issues. They seem highly relevant to your consideration of 
H.R. 5254.
                         market forces at work
    First, the overwhelming number of federal and state investigations 
into gasoline market activities at various times and in various places 
over the past few years have reached the same conclusion: adverse 
market conditions result from situations beyond industry's control. 
Most often, price movements and supply concerns have been attributed to 
(1) the impact of the international oil market on crude supply and 
prices, (2) refinery equipment or pipeline outages, or (3) acts of 
nature such as last year's two destructive hurricanes. Sometimes one 
factor has been identified, often several. But these studies and 
investigations have unanimously found that industry engaged in no 
illegal activity. Exceptions are extremely rare and usually involve 
isolated behavior by individuals at the retail level.
                     industry faces many challenges
    Second, thorough consideration of the role of the refining industry 
in these hearings and investigations has led to a general understanding 
that the industry has greatly exerted itself to manufacture vast 
quantities of refined products such as gasoline and diesel for the 
domestic market while facing many challenges. What are these 
challenges? For example, strong economic growth in this country over 
the past decade and one-half has led to significantly increased demand 
for transportation fuels and continues to do so. At the same time, the 
industry faced a need for massive capital investment to meet 
environmental regulations requiring emission reductions at our 
facilities. The industry also had to launch the equivalent of a modern 
Manhattan Project to redesign the entire fuel slate, resulting in 
significantly cleaner fuels with sharply reduced emissions.
    Many tens of billions of dollars have been invested in the U.S. 
refining industry in the past two decades to meet increased demand and 
achieve these important environmental objectives. Especially in the 
decade of the 1990s, massive investments were made despite the fact 
that the expected return on investment was only 5 to 6% at best, with 
even less or no return on many environmental expenditures to meet 
environmental requirements. New environmental specifications also 
result in reduced volumes of products and higher refining and crude 
costs.
    As indicated on the attached charts, the industry still faces a 
``regulatory blizzard'' of significant proportions in this decade as it 
continues its contribution to environmental progress. NPRA estimates 
that the industry will spend at least $21 billion this decade to meet 
the environmental requirements on these charts. (Attachments 1 and 2)*
---------------------------------------------------------------------------
    * All attachments have been retained in committee files.
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            industry has added significant refining capacity
    Despite these challenges, and very slim returns on investment 
compared with other industries, U.S. refiners added significant 
capacity in the past decade. Between 1996 ands 2005, U.S. refining 
capacity increased by 1.4 million barrels per day, the equivalent of 
adding 10 average-sized refineries over that period. This capacity was 
added in the form of capacity expansions at existing sites, which can 
be constructed with much greater certainty and in a shorter period of 
time than a new grassroots refinery. The latter requires many more 
years to obtain necessary regulatory approvals, and investors must be 
able to count on a much higher rate of return to offset the regulatory 
uncertainties and delays that face such a project. The experience of 
Arizona Clean Fuels (ACF) in this regard will be extensively discussed 
by Glenn McGinnis at this hearing.
    ACF is the only current new refinery project in the United States. 
NPRA believes that public policy should help, not hinder, the efforts 
of any entrepreneur who assumes considerable risk in seeking to build a 
new refinery. But it is also necessary to recognize that capacity 
additions at existing facilities offer a more predictable method to 
provide greater supplies of transportation fuels in a reasonable time 
frame.
               increased demand resulted in higher prices
    In recent years explosive economic growth in much of the world, 
particularly Asia, has led to sharply increased demand for crude oil, 
resulting in tighter worldwide supply and near-elimination of excess 
crude production capacity. This factor, together with geopolitical 
uncertainties affecting many producing countries, has resulted in 
sharply higher crude prices over the past year.
    Because the price of crude is responsible for roughly 55-60% of the 
cost of making gasoline, the rise in crude prices has led to 
significantly higher prices for gasoline as well. This fact, combined 
with continuing strong demand for gasoline and other fuels in the 
United States, has resulted in a tight U.S. gasoline market and a 
higher price level for gasoline and diesel than has been the case in 
recent years. The U.S. market has also been affected by logistic al 
difficulties involved with the replacement of MTBE by ethanol in most 
reformulated gasoline areas; ethanol prices that are significantly 
higher than projected, and in the case of diesel, uncertainties about 
the smoothness of the transition to new ultra low sulfur diesel (ULSD) 
that began June 1. (Attachment 3)
    The domestic refining industry confronting these challenges is one 
that is still recovering from the effects of hurricanes Katrina and 
Rita on the Gulf Coast heartland of our industry. Those storms 
adversely affected operation of nearly one-third of the U.S. refining 
capacity over the past year. As of January 1 of this year, 800,000 
barrels of capacity were still idle due to the impacts of the 
hurricanes. Some of the damage remains to be totally repaired, although 
the industry has been largely successful through Herculean efforts to 
return refining operations to normal.
                         profits in perspective
    Higher product prices have resulted in significantly increased 
profits for refiners in 2005 and 2006. Transportation fuel demand is 
relatively inelastic, meaning that it is difficult for consumers to 
reduce demand or find substitutes for those products, even when prices 
increase. Studies show that consumers will eventually reduce demand in 
response to higher prices, but it takes some time for this response to 
kick-in. Analysts disagree as to how much, if any, reduction in demand 
for transportation fuels we are seeing now or will see as a result of 
current price levels. But given the size of the U.S. gasoline market, 
the most important result is that transportation fuel demand has 
remained quite strong and may remain so.
    Higher profits for refiners and other sectors of the petroleum 
industry have met with a firestorm of controversy, they do not appear 
to be a subject of this hearing. Suffice it to say that NPRA believes 
that the increased profitability of the refining sector in the past two 
years will encourage new domestic capacity additions and help the 
industry maintain its role as a major contributor to environmental 
progress. This will involve highly desirable, but expensive, refinery 
upgrades and expected fuel reformulations.
        a consensus of opinion supports u.s. refinery expansions
    Given these events, which have generated considerable controversy 
and interest among policymakers and the public, it has been difficult 
to identify a consensus of opinion on any issue--with one significant 
exception. NPRA believes that there is a widespread consensus that the 
U.S. needs more refining capacity, and that public policy should 
encourage capacity additions. The remainder of our testimony 
concentrates on that subject
                   increasing u.s. refining capacity
    The refining industry is responding to the current supply situation 
as well as significantly improved industry economics during 2005 and 
2006. Refining companies have announced plans to add considerable 
additional capacity to U.S. refineries in the near future. Secretary of 
Energy Bodman recently stated that he expects at least 2 million 
barrels per day of new capacity to be added to U.S. refineries. 
Industry estimates are currently closer to 1.8 million barrels per day, 
still a very significant number. This clearly indicates a likely 
increase in U.S. capacity of between 8 and 12%, the latter of which 
would bring total U.S. refining capacity to 18.6 million b/d. Much of 
this capacity could be on line by the end of 2010. (NPRA has attached a 
chart showing projected capacity increases and a list of announced 
capacity additions. See Attachment 4
    Interestingly, 18.6 million b/d was the total U.S. refining 
capacity in 1981, when 341 refineries operated here, compared to 148 
today. (Attachment 5) Don't be fooled by the higher 1981 numbers, 
however. Most of the refineries that have closed since that time were 
inefficient, unsophisticated facilities. Many of the small refineries 
operating in 1981 were unable to produce any significant supplies of 
gasoline because they lacked more sophisticated units needed for this 
purpose. These facilities continued to operate only so long as the 
1970's crude oil allocation and price control system was in effect. The 
U.S. abandoned that program in 1981. The modern refining industry has 
undergone extensive renewal since that time, fueled by billions of 
dollars in new investment. And the current average refinery size is 
roughly 115,000 b/d, compared to an average refinery size of about 
55,000 in 1981.
    In addition to new investment in capacity expansions, refining 
investments also enable other significant projects. Some of these allow 
facilities to handle sour and heavy crudes. These feedstocks are more 
prevalent than light, sweet crude in today's market and result in cost 
savings that can be reflected in product markets. Other investment in 
processing units increases the yield of highly desirable products like 
gasoline, jet fuel and diesel from each crude barrel
     the domestic refining industry is committed to adding capacity
    The high level of refining investment in the past decade and 
planned refinery expansion projects demonstrate the commitment of the 
U.S. refining industry to serving American consumers. Given this fact, 
it is strange that some have accused the refining industry of a lack of 
commitment to industry expansion. The truth is that the companies that 
own U.S. refineries have spent and will continue to spend many billions 
of dollars to expand their ability to use those facilities to provide 
an adequate supply of transportation fuels to consumers at reasonable, 
market-based prices.
    Given the demonstrated commitment of the industry to expansion of 
U.S. facilities and the consensus that exists regarding the need for 
increased capacity as soon as possible, the question remains whether 
anything can be done to further those objectives. Modest encouragement 
for increased expansion and other investment, even perhaps in new 
refineries, is clearly in the national interest. Additional U.S. 
capacity, whatever form it takes, increases the supply of secure, 
domestically-produced products to the American consumer.
    Although product markets are increasingly global in nature, there 
is a high probability that domestically-produced gasoline and other 
fuels will be used in the United States. Currently only about 2 million 
of the 20.5 million barrels of product consumed daily in the U.S. comes 
from imports. The current points of origin for most of these are the 
Caribbean, South America and Western Europe. These are relatively 
secure sources of supply. In the years to come, however, many countries 
around the world will experience higher rates of demand growth for 
petroleum products than the United States. This will put considerable 
pressure on the world market for petroleum products, leading to a 
situation similar to that we face in today's crude market, where the 
U.S. faces vigorous competition from China, India, and others for a 
limited supply of available crude.
    In the future, the U.S. will rely at least partially on imports of 
gasoline and other refined products from the Middle East, particularly 
Saudi Arabia, to meet demand. That country is currently planning to 
construct two 400,000 b/d refineries, at least some of the output of 
which will be sent to Europe and the United States. Obviously, Saudi 
Arabia could easily decide to sell its products elsewhere, since it is 
also well located to serve Asian markets. This possibility is just one 
illustration of why it makes sense to retain a significant amount of 
refining capacity in the United States, limiting our need for gasoline 
and diesel imports. It is probably not necessary or advisable to meet 
all U.S. product demand from U.S. refineries. But maintaining U.S. 
refinery production adequate to meet between 80-90% of U.S. product 
demand could prove a challenge in coming years, depending on the rate 
of growth in demand for gasoline, diesel and jet fuel.
         action is needed to streamline the permitting process
    Given these considerations, it seems prudent that reasonable action 
be taken to discourage unnecessary delays in permitting new capacity 
additions or refineries. This will both encourage investment in new 
capacity and speed its completion. Current uncertainties about the time 
it takes to permit and actually construct refinery additions do affect 
investment decisions.
    Some steps have already been taken to eliminate uncertainties about 
New Source Review (NSR) requirements that have had a chilling effect on 
U.S. refinery investment in the past. EPA's 2002-2003 reform package 
offered significant relief to refining projects with no increase in 
actual emissions. Plant-wide applicable limits (bubbling), appropriate 
treatment of repair and maintenance projects and adoption of a more 
realistic test for measuring emissions impacts are important components 
of that NSR package.
                  nsr reforms could help add capacity
    Unfortunately, the se provisions are still subject to judicial 
challenge, limiting their positive impact to date. Concern about NSR 
interpretation still has an adverse impact on energy supply. For 
example, opportunities to increase gasoline supply are lost because the 
12-18 month NSR permitting timeframe is too long to allow companies to 
take advantage of opportunities that arise to construct additional 
product units during turnarounds. A major refinery in a non-attainment 
area will have to seek approximately 2-4 major NSR permits a year. 
These permits are necessary for preventative maintenance projects such 
as replacing a tank or a pump, and may take 3 to 9 months to obtain. 
More significant projects such as process debottlenecking and major 
unit upgrades can take 2 years or longer to obtain the necessary 
permit. Thus, a continuing commitment to NSR reform is necessary to 
facilitate and encourage refinery expansions and other improvements.
                a timely permitting process is essential
    Considerable discussion and debate has taken place regarding the 
importance of timely permitting to the refining industry and whether or 
not precious time is lost due to bureaucratic delays during the 
permitting process. Obtaining permits on a timely basis is essential to 
the business of running a refinery, as it is to making improvements or 
expansions or even building new facilities. The important point is not 
to debate whether permitting delays have actually prevented completion 
of certain projects. There is obvious room for improvement in the 
permitting process, as in many government activities. The time required 
to obtain a permit greatly impacts the cost of a project, first when 
the project is under consideration by the company and later after the 
decision to go forward has been made and the permitting process 
actually unfolds.
    It would be very useful to insert into the permitting process a 
recognition of the fact that it is in the national interest to enable 
refinery expansions and other projects to be implemented on a 
reasonably expedited basis. Encouraging an efficient process makes 
sense, especially when it can be done without changing any existing 
environmental requirements and with due respect to the rights of state 
and local government, as in H.R. 5254.
    In our opinion, H.R. 5254 strikes the appropriate balance between 
respect for federalism and encouraging efficiency in handling 
permitting applications. Under this legislation anyone who has decided 
to move forward with a refinery expansion project or even a new 
refinery project may decide to take advantage of the federal 
coordinator's help--or not to do so, as he or she chooses. The 
coordinator merely acts as an expediter, establishing a reasonable and 
coherent schedule for handling federal, state and local permitting 
requirements for that project if asked.
    States and localities cannot be forced to participate if they 
choose not to do so. The coordinator cannot force any regulator to 
decide whether or not a permit should be issued.
    The coordinator also maintains a consolidated record to facilitate 
judicial review of the activities undertaken pursuant to the agreed-
upon schedule. If a complaint pertaining to a particular schedule is 
brought in federal district court, the behavior of all parties to the 
MOU come under review, including that of the applicant. The court can 
do no more than establish a new schedule if it agrees with the 
complaint after reviewing the consolidated record.
                    a final note--please do no harm
    As previously stated, the refining industry is striving to add 
significant capacity in efforts to meet the ever-increasing consumer 
demand for refined products, and this body is contemplating legislation 
to perhaps streamline those and similar efforts. It must be noted, 
however, that any additional costly and unnecessary burdens placed on 
the refining industry will negate any benefits from permit 
streamlining. More specifically, attempts to either increase the volume 
of the renewable fuel standard (RFS) or accelerate the time frames for 
compliance as enacted in the Energy Policy Act of 2005 would create 
more uncertainty in an already volatile marketplace. Blending 7.5 
billion gallons of renewables into the gasoline supply requires 
considerable modification of the nation's supply, transportation and 
distribution structure. The refining industry has already committed 
significant resources and efforts into compliance with the government 
mandate, and much more needs to be accomplished in the very near 
future. Moving the goal posts and/or shortening the time periods is 
neither sound policy nor fair.
    In addition, requiring inclusion of E-85 pumps throughout the 
nation's retail gasoline centers through legislative mandate as some 
have suggested is simply bad public policy. The limited supply of 
ethanol in today's market has resulted in rapid and significant 
escalation of ethanol prices. See attached chart. When combined with 
the many logistical and technical concerns of E-85 that must be 
addressed before any widespread use is feasible, NPRA urges the 
Committee to use extreme caution before requiring such a sweeping 
policy change.
         h.r. 5254 helps ensure a reasonable permitting process
    To summarize, the process established by this bill appears quite 
reasonable to us. It may well be the irreducible minimum that can be 
done if Congress is to take any action to demonstrate concern about and 
support for additions to domestic refining capacity. We note as well 
that a portion of the House bill would require the President to 
designate three closed base sites as possible locations for new 
refineries (including one biorefinery). The Local Redevelopment Agency 
in question is required to do a feasibility study of having such a 
refinery on the site, but the clear intention of the legislation is not 
to force refineries on areas that do not really want them.
    It is unlikely in any case that a refinery owner would want to 
locate a facility worth several billion dollars in an area in which the 
facility is unwelcome. NPRA does not view this provision of the bill as 
troublesome. Rather, it appears merely to emphasize the importance to 
the nation of an increased supply of domestically-produced petroleum 
products. In NPRA's opinion, the House-approved bill requires no one to 
perform an action that either faces significant opposition or makes no 
economic sense.
    The nation's energy security can be advanced by encouraging 
timeliness in decisions affecting refinery permits, even at the local 
level. One NPRA member waited 14 months to obtain city approval of an 
ethanol tank that was needed for a new fuels project. The process 
required 5 public hearings, 3 of which were appeals. And the use of 
ethanol in this instance was required by federal law, clearly 
necessitating the ethanol tank. This is but one situation clearly 
demonstrating that polite and respectful encouragement of responsible 
and timely permitting could pay important dividends in the form of 
increased energy supply. Accordingly, NPRA recommends and hopes that 
this Committee will approve legislation similar to that recently passed 
by the House.
    I look forward to answering your questions.

    The Chairman. Yes. Senator, did you want to ask a question 
now, before we recess?
    Senator Salazar. I think I had better go vote.
    The Chairman. All right. We're going to do that. I think 
Senator Allen will return before we do because of the way he 
has planned it. If he does, he has permission to get started. 
It may take us a little longer. In my case, I must attend an 
off-the-floor meeting to vote, but I will return. In case I 
don't and you come, you proceed. Is that all right with you?
    Senator Salazar. Yes, Mr. Chairman.
    The Chairman. All right. Thank you all, and please stay 
here because we have to finish out our record with a few 
questions. Thanks very much.
    [Recess.]
    Senator Thomas [presiding]. We will try and get started 
again. As you know, we're being interrupted by this voting 
business. I can't imagine why. In any event, why don't we go 
ahead. Senator Allen has been here, so why doesn't he go ahead 
with his questions, and then we'll move forward.
    Senator Allen. Thank you, Mr. Chairman.
    Mr. McGinnis, in your testimony you were giving the 
perspective of a business investor, and I know you are 
supportive of the legislation. If you, from your perspective, 
and not all business investors think alike, but if this were 
signed into law, this measure or something close to it, do you 
think that potential industry investors would be more likely to 
construct new domestic refining facilities?
    Mr. McGinnis. I think it would help remove the 
uncertainties. Mr. Meyers from the EPA mentioned earlier, one 
of the key issues has always been the economics, and the 
economics are driven by not only the marketplace as it exists 
today but also people's perception of what it would be in the 
future when they get their facility completed. And these 
facilities take a long time to engineer, develop, construct, et 
cetera, and the permitting process as it becomes protracted can 
extend that period, and just increases the uncertainty.
    So the more that can be done to reduce the time period 
between the decision to actually consider a refinery project 
and complete it, the less the uncertainty, the more probable 
that someone, a business organization or person, is going to 
consider actually spending the billions of dollars required to 
put in these facilities. So it's not the onerous task of 
developing the permit, it's the uncertainty around the time 
it's going to take to reach a conclusion on the permit and 
actually be able to progress to the next step.
    Senator Allen. Mr. McGinnis, one of the other reasons 
undoubtedly, and I think you have kind of mentioned it, was one 
of the four factors to deter construction of a new refinery 
project was people simply didn't want them near where they 
live. To put a refinery near a residential area, people are not 
going to want to have a refinery near a residential area. They 
are probably more likely to be accepted in a place where it's 
not residential or it's not developed.
    The measure that I have introduced focuses on designating 
military bases that are closed through the BRAC process, and 
with the Governor applying and so forth, and one of the things 
about the sites of military bases--not all military bases, but 
many of them usually have the roads in place, they have 
infrastructure to facilitate the base. The redevelopment 
authority for a closed military base may want to negotiate a 
long-term lease. They may want to maybe even deed the land 
over. But some of the costs would be less.
    And in some cases, not all, where the military bases have 
been closed, the military base, particularly in some cases that 
was a major economic factor and impact in a community that has 
supported the base, and now they're concerned--what is this 
going to do to jobs in their area? It can affect everything 
from stores to restaurants to everyone in the whole community.
    Do you think that if a BRAC community received a 
designation as a potential site from the President, again in 
accordance and agreement with the Governor that they really 
wanted to have that there, a well-managed, environmentally-
responsible refinery, do you think that that sort of an 
approach would draw interest from investors to say, well, here 
is a facility in whatever the town is, a nearby town in such-
and-such a State--do you think that that would draw interest 
from investors?
    Mr. McGinnis. I think it would. I mean, to me the decision 
to site a refinery in a specific location is not based on the 
price of the property or whether it's available or not. Usually 
it's based on a lot of other criteria, one of which is 
obviously the impact on the local community and acceptance.
    Military bases tend to be large facilities, so that the 
actual property near a refinery on that kind of facility can be 
controlled in terms of not having people build right next to 
refineries, which from personal experience they do, and then 
they complain about the refinery being there. So having some 
control over the local property around the facilities is 
worthwhile.
    The economic impact is obviously very beneficial. If people 
have lost a significant economic opportunity through that, from 
my point of view, they could or should perceive that there is 
an economic opportunity in this.
    Certainly the technology exists today to build a very, very 
environmentally acceptable refinery. We have one of those 
permitted in the permit here. It's a very low emission facility 
and is very acceptable.
    The key concern or the key issue that comes up with 
military sites is, the decision to locate a refinery is based 
on logistics and market accessibility, not land being 
available. It needs pipeline access, it needs rail access, it 
needs the ability to acquire and house skilled people to 
operate the facility, et cetera. It's more the logistics and 
the accessibility to marketplace that drives the location.
    Certainly there are many, many military establishments in 
this country. There must be some that meet those kinds of 
criteria, and when they are found, I think they should be 
identified and investors given the opportunity to do that.
    Senator Allen. Thank you, Mr. McGinnis.
    Mr. Slaughter, let me ask you the same question I did Mr. 
McGinnis. In your opinion as a representative of the refining 
industry, will this legislation, if it were signed into law, or 
something close to it, make current refiners and potential 
industry investors more likely to construct new domestic 
refinery capacity?
    Mr. Slaughter. Yes, I believe it will, Senator. It removes 
some uncertainties in the process. The problem now is that you 
undertake tremendous risks if you want to build a new refinery. 
You don't know--you get your investors together, there are up-
front things you have to do with your money, and you don't know 
whether you are going to get a permit and be able to have a 
refinery built for 10 years or more. And the schedule that is 
put together under this process will eliminate some of the 
uncertainties, and should be an encouragement.
    Senator Allen. Now let me refer back to the--
    Senator Thomas. Your time has expired.
    Senator Allen. My time has expired? All right. Well, on the 
second round, then, I guess.
    The Chairman. Senator Thomas?
    Senator Thomas. Thank you. Mr. Slaughter, I have a couple 
of questions for you. You discussed the successful efforts of 
increasing the capacity despite closing a quarter of the 
refining facilities; do we run into a diminishing return at 
some point? What are the upper limits of what we can do with 
the current operational sites?
    Mr. Slaughter. Well, you know, technological change is a 
marvelous thing, and some folks in the industry think there's 
almost an unlimited amount of things you can do in an existing 
site, but obviously I think you would have to say it is limited 
at some point.
    But the difficulty with getting new sites for new 
refineries has been significant. One of the things that I 
mention in my testimony is, a new refinery you know is going to 
be worth $3 to $5 billion. It's very difficult to put something 
like that somewhere where the public doesn't want it.
    So a lot of these things have to be taken into account. But 
I do point out in my testimony, Senator Thomas, that the 
refineries we have today, albeit fewer in number than we had in 
1981, are far more sophisticated, the most sophisticated 
refining industry in the world. But we think also that you 
should be able to build refineries in the United States if 
you're willing to take the risk and do so, as Mr. McGinnis has 
been willing to do that, and we think public policy should 
encourage it.
    Senator Thomas. Good. Well, I hope so. I think the fact is 
that, according to one of these charts, the capacity in 1981 
was greater than it is now.
    Mr. Slaughter. That's correct.
    Senator Thomas. And the demand is much higher, and it's 
having some impact, for instance in Wyoming, selfishly. It's 
having something to do with the cost of producing and selling 
the oil that we have available. And part of it is the capacity 
of pipelines, part of it is the capacity of refineries.
    Mr. Slaughter. Yes. You know, the industry, as I mentioned 
in my testimony, has announced about 1.8 million barrels a day 
in new capacity that they plan to bring on. That will take us 
right back up to that 18.6 million barrels per day capacity 
that we had in 1981. We had a lot of spare capacity then 
because our demand wasn't nearly that high. And that was a less 
sophisticated industry and wasn't able to do what our 
refineries can do today. But clearly I think it shows that we 
do need additional refining capacity, whatever form it takes.
    Senator Thomas. Right. I think so. I think in his testimony 
Mr. Becker cites the lack of applications for new refining 
construction. Do you believe that's an accurate measure of the 
desire to build these facilities?
    Mr. Slaughter. I don't think it is. I think that if there 
were a feeling that there was a process that was more 
responsive to the needs of someone who wanted to take that 
risk, some more applications would be filed. I've been around a 
long time. I remember people were trying to build a Hampton 
Roads refinery in the 1970's. Public opposition killed that, 
really. And then there was a long hiatus because it's just--I 
mean, the feeling has been that it is impossible to site large 
industrial facilities in much of the United States.
    Senator Thomas. Yes. My understanding is part of it was 
that there were less environmental restrictions on expanding 
than there was on a new plant.
    Mr. Slaughter. That might be true in some cases, but most 
of the expansions are going to have the best available control 
technologies. A new plant, certainly like Mr. McGinnis's, will 
be completely modern, the very latest.
    Senator Thomas. Sure.
    Mr. Slaughter. But the industry takes very seriously the 
responsibility to have the latest controls on the capacity 
expansions.
    Senator Thomas. Are there opportunities to stimulate 
construction, perhaps, that are not included in today's 
legislation? Can you give us some examples of regulatory or tax 
or financially related measures that would be more conducive to 
refinery building?
    Mr. Slaughter. Well, one of the big problems has been what 
do you do that is in keeping with federalism requirements and 
also environmental restrictions. I mean, we have suggested 
other things. People have always said we don't want 
environmental restrictions to be waived, and we want the role 
of the States to be taken into account. That limits you in what 
you can do, and perhaps this legislation is as much as you can 
do in that regard.
    Now, as part of the Energy Act of 2005, there was a 
provision in that that allows expensing of investments in 
refining for a limited period, which is very helpful.
    Senator Thomas. Yes.
    Mr. Slaughter. And that, with this provision, should do a 
lot of good.
    Senator Thomas. You know, one of the frustrating things for 
some of us is we hear, and properly, about the cost of energy 
and the cost of oil, but the fact is we have some oil being 
produced, we have oil that can be produced at less expense than 
what we're seeing on the marketplace, and it's because of 
restrictions on pipeline capacity and refining capacity. We're 
able to produce more, and much of it in our State is selling 
for much less than that market price that you see because 
there's not a process for doing it. So that's kind of a 
challenge, it seems to me. If we look at what's causing the 
price to be as high as it is, you have to consider that some of 
it is the operations between production and retail.
    Mr. Slaughter. Yes, sir, and I think the point you made 
earlier, that the fact that no permit applications have been 
made for a new refinery really doesn't indicate that one would 
not be if there were a better environment for them.
    Senator Thomas. For the permitting.
    Mr. Slaughter. Regulatorily. Yes, for the permitting. 
Because, for instance, Motiva, one of our members, is going to 
add 325,000 barrels a day at its existing facility in Port 
Arthur, TX. That is the biggest of all the capacity additions. 
It's the equivalent of building a whole new refinery.
    And just this week, three environmental groups in that area 
announced that they were going to challenge the petition. The 
fellow behind it, his quote is, ``Permit approval is quite a 
long process without a challenge. With a challenge, the permit 
just goes to the bottom of the pile and stays there for a long 
time.''
    Senator Thomas. Yes, understood.
    Mr. Slaughter. I think that speaks volumes.
    Senator Thomas. It does. Thank you, sir. Thank you, Mr. 
Chairman.
    The Chairman. It looked like you wanted to comment, Mr. 
Becker.
    Mr. Becker. Thank you, Mr. Chairman. I can't let this 
conversation end without addressing this issue of uncertainty.
    The Chairman. Of what?
    Mr. Becker. Of uncertainty, as Mr. McGinnis and Mr. 
Slaughter have mentioned. There is an uncertainty with refinery 
expansion and construction concerning public health, and it's 
incumbent upon government, not just the Federal Government but 
State and local governments, to ensure that the air that the 
public breathes is safe. That is why you all passed an 
incredibly successful Clean Air Act in 1970 and in 1977 and 
1990, and included in it a process that required industries, 
only if they increased pollution significantly--only if they 
increased pollution significantly--to go through a process that 
the data--not rhetoric, but the data--shows takes months, not 
years.
    The reason that the Yuma facility did not go forward was 
not because the agency didn't act promptly on the permit, it's 
because the industry yanked the permit. It's because the 
industry didn't have an appropriate air quality analysis. And 
once the State received all the appropriate information 
required under the Clean Air Act, the State proceeded very 
quickly.
    And if I can just quote one article, a newspaper article, 
Mr. McGinnis was quoted as saying in the newspaper article in 
Arizona that the Arizona Department of Environmental Quality 
``has been very cooperative in working with us to make sure the 
project does proceed,'' and the article quoted Mr. McGinnis as 
saying, ``The biggest delay has been securing title to the 
land.'' And so it's really not fair to say that there is 
evidence that permitting new refineries or permitting 
expansions is interfering with this industry's expansions.
    One final point, if I may. The biodiesel industry hasn't 
had the problems that the refining industry here has had. They 
have built. They have permitted 18 new expansions in the last 2 
years. They have gone through the same process that the 
industry would go through, and they were successful because 
they came in with the appropriate applications and the States 
responded accordingly.
    The Chairman. Now, Mr. McGinnis, in your testimony you 
indicate that the long-term historical refining margins in the 
United States have, on average and in general, not been 
adequate to support new refining construction. We all 
understand that. That had been the case for a long, long time. 
That has also been the case in many other aspects of the 
industry on the down side, but that has changed. That condition 
is changing, is it not?
    Mr. McGinnis. Yes. Current margins--
    The Chairman. Are economic conditions more favorable now to 
the investment in new refineries?
    Mr. McGinnis. Very much so, yes.
    The Chairman. So that's no longer--for those who say--as we 
look for some reasons to expedite, that's no longer an excuse, 
that we don't need them or that the economics aren't there. 
That's gone, so we're now looking head-on to what is holding 
them up aside from that; right?
    Mr. McGinnis. Well, the fundamental issue is, margins are 
good today. They were not good 10 years ago, and they may not 
be good 10 years from now when the facilities startup. I mean, 
it's again the timing risk associated with the uncertainty of 
what will be the future.
    The Chairman. All right. Now, in your discussion of 
``public acceptance''--public acceptance, which is the whole 
issue--you state that your project has gained support from 
State and local politicians and business leaders. Do you 
believe that you also have the support of the general public? 
And if so, how did you go about achieving that so-called 
acceptance which is so necessary?
    Mr. McGinnis. Well, we have had a lot of public meetings in 
Yuma County. The local community worked with the business 
leaders, worked with the local farm community, et cetera. When 
we held public meetings, people came to the meetings wearing 
buttons that said ``I support the refinery.'' The majority of 
speakers speak in favor of the refinery.
    We have pointed out very clearly the economic benefits. We 
have also pointed out the fact that this is the cleanest 
refinery ever designed. We have stated very clearly we accept 
the responsibility to build it in compliance with the permit 
and to operate it in compliance with the permit.
    We have, with the ADEQ, done a complete analysis of the 
impacts of our facility and its potential emissions on the 
local agricultural community, which is one of the big concerns 
they have there. We have addressed the public concerns very, 
very openly, at all of the public meetings that we have had.
    That doesn't mean everyone stands up and cheers. There are 
people who are against having an oil refinery in that area, but 
the majority of people speak in favor of our project.
    The Chairman. So, through a process of getting the facts 
out as to what's going on, you have convinced what you think to 
be the majority of the people that this is a good economic add-
on, just like any other growth adds to the economic environment 
of that area; is that correct?
    Mr. McGinnis. That's correct.
    The Chairman. Now, how are you proceeding at this point? 
Can you report to the committee how things are going?
    Mr. McGinnis. Yes. The air permit that was issued last year 
is being reissued by the Arizona Department of Environmental 
Quality.
    The quote that Mr. Becker said that I made around the land 
is true, but that was a quote of several months ago related to 
a situation that developed after the permit was issued. We have 
been unable to secure the property because of a delay in its 
transfer from the Federal Government to the local irrigation 
district. That is still not completed, and it should have been 
completed many years ago.
    The DEQ has been very cooperative with us in reviewing the 
permit. It has been completely rewritten, gone through again, 
all of the requirements have been resubstantiated, and it will 
be reissued hopefully by the end of September. We had a public 
hearing in the local community last week. The majority of 
people spoke in favor of the permit renewal at that point in 
time. So that process is underway.
    We are currently in negotiations, discussions with several 
groups to fund the project. We've completed our technical 
updates, and we're proceeding toward engineering next year and 
start-up in 2011.
    The Chairman. Doesn't it seem like an awful lengthy, long, 
extended process at best, sir?
    Mr. McGinnis. It is a major undertaking. I've had the 
opportunity to do something similar to this, previously. I 
rebuilt a refinery in Louisiana, a project where we completely 
refurbished and restarted a facility in the late 1990's. It's a 
major undertaking. We had the finance community behind us, and 
we had the local community behind us. We were able to secure 
the kind of people we needed to execute the project and build 
it, and today that's a highly successful refinery. So it is a 
very lengthy and extensive undertaking.
    The Chairman. Are you confident you're going to get there, 
sir?
    Mr. McGinnis. I am, yes.
    The Chairman. Nonetheless, can you, as an experienced hand, 
look at the proposed new law and suggest to us whether it might 
be helpful if we had this new law in existence instead of the 
one you had to operate under?
    Mr. McGinnis. Well, as I said, to me the key issue is 
commitment to the schedule.
    The Chairman. Commitment of what?
    Mr. McGinnis. Commitment to a schedule for the issuing of a 
permit. There are a lot of obligations in the Clean Air Act and 
all the other acts that need to be reviewed for permits that 
need to be issued. And what's critical to industry, and I 
believe critical to government agencies, is ensuring that there 
is certainty around what's going to happen, who is going to do 
it, and when.
    To me, that is a failing of the process today, that there 
is nobody who acts as project director, project manager, who 
drives the schedule. That doesn't mean compromises will be made 
in the requirements. That's not the intent behind the law. 
That's not the intent behind my support, our industry's support 
for this bill. It's very clearly support that we believe that 
someone needs to be accountable for driving the process to 
ensure that it's done in a timely manner.
    The Chairman. Now, having heard that, Mr. Becker, why would 
you oppose that?
    Mr. Becker. Because Mr. McGinnis--and I don't think he's 
doing this intentionally--seems to be suggesting, or one might 
infer that this uncertain process is almost totally due to 
State and local permitting uncertainty.
    And if I may, Mr. Chairman, I would like to submit a 
chronology. I'm not an expert on his refinery, or I hadn't been 
until the last 6 weeks, but I now have a chronology of events 
from the very beginning until now that not only documents the 
amount of time that the permitting authorities have spent on 
this permit, but it also documents the amount of time that the 
refinery--for very good reasons, for securing financing, for 
securing land, for doing things that have nothing to do with 
your bill--have spent on this.
    And I know Mr. McGinnis isn't directly suggesting that 
these delays are entirely on the shoulders of permitting 
authorities, but we don't need Federal legislation to deal with 
the kinds of permitting issues--not land or other issues, but 
environmental permitting issues--that this does.
    So, if I may, I would like to submit this for the record, 
because I think it really is helpful in understanding where the 
delays are actually occurring.
    The Chairman. Of course.
    [The information referred to follows:]

    CHRONOLOGY OF DOCUMENTS FOR ARIZONA CLEAN FUELS (A.K.A. MARICOPA
                            REFINING COMPANY)
------------------------------------------------------------------------
              Document Title                        Issuance Date
------------------------------------------------------------------------
Air Quality Installation Permit Number      January 16, 1992
 1228.
    Synopsis: Permit issued to Maricopa
     Refining Co. (a.k.a. Arizona Clean
     Fuels) allowing construction and
     installation of equipment.
Class I Permit Application Cover Letter...  December 23, 1999
    Synopsis: Cover letter from Dames and
     Moore (now URS Corporation,
     a.k.a.Arizona Clean Fuels'
     contractor, applying for a new air
     quality installation and operating
     permit.
Permit Application Incompleteness Letter..  January 31, 2000
    Synopsis: Letter from Arizona           ADEQ time: 39 days
     Department of Environmental Quality
     (ADEQ) to Arizona Clean Fuels
     requesting additional information in
     support of the December 23, 1999,
     permit application.
Memorandum Regarding Preliminary BACT       March 17, 2000
 Review.
    Synopsis: Comments from RIP             ACF time: 46 days
     Environmental Associates TP), ADEQ's   ADEQ time: 46 days
     contractor, to ADEQ, Arizona Clean
     Fuels and URS regarding the Best
     Available Control Technology (BACT)
     review performed in the December 23,
     1999, permit application.
Revised Sections of Permit Application      June 29, 2001
 Cover Letter.
    Synopsis: Letter from URS to Arizona    ACF time: 469 days
     Clean Fuels and ADEQ responding to
     some of the comments in RTP's March
     17, 2000, memorandum.
Memorandum Regarding Preliminary BACT       August 2, 2001
 Review.
    Synopsis: Additional comments from RTP  ADEQ time: 39 days
     to ADEQ, Arizona Clean Fuels, and URS
     responding to IRS's June 29, 2001,
     submittal.
Permit Application Addendum Cover Letter..  October 31, 2001
    Synopsis: Cover letter for a new        ACF time: 90 days
     application addendum submitted by      (639 days since
     URS, containing some responses to      1/31/00)
     RTP's August 2, 2001, comments, as
     well as some information requested in
     ADEQ's January 31, 2000,
     incompleteness letter.
Permit Application Addendum Cover Letter..  November 16, 2001
    Synopsis: Cover letter for a new        ADEQ time: 116 days
     application addendum submitted by
     URS, containing additional responses
     to RTP's August 2, 2001, request for
     information.
Permit Application Addendum Cover Letter..  March 14, 2002
    Synopsis: Cover letter for a new        ACF time: 118 days
     application addendum submitted byMIS,  (773 days since
     containing additional responses to     1/31/00)
     RTP's comments, as well as some
     information requested in ADEQ's
     January 31, 2000, incompleteness
     letter.
Response to Comments Letter...............  April 24, 2002
    Synopsis: Letter from URS to RTP        ACF time: 41 days
     supplementing the October 2001,
     November 2001 and March 2002 permit
     application addendums.
Permit Application Completeness Letter....  September 4, 2002
    Synopsis: Letter from ADEQ to Arizona   ADEQ time: 133 days
     Clean Fuels, indicating that, based
     on all the information received on or
     before August 23, 2002, the
     application was deemed complete.
Letter Regarding Predicted Impacts on       September 5, 2003
 Nearby Community.
    Synopsis: Letter from Gallagher and     ADEQ time: 366 days
     Kennedy, Arizona Clean Fuels'          Work stops at ACF's request
     attorneys, explaining the company's
     willingness to relocate a local
     school and community center in order
     to minimize predicted impacts on the
     nearby community.
Draft Permit ready for proposal by ADEQ...  September 5, 2003
Letter Regarding Relocation of Proposed     October 30, 2003
 Refinery.
    Synopsis: Letter from Gallagher and     ACF time: 55 days
     Kennedy to ADEQ explaining Arizona
     Clean Fuels intent to relocate the
     proposed project to Yuma, Arizona,
     and that a new, site-specific permit
     application would be resubmitted in
     the future.
Letters Regarding Licensing Time Frames...  April 5-6, 2004
    Synopsis: Letters between ADM Arizona   ACF time: 159 days
     Clean Fuels, Office of the Attorney
     General, and Gallagher and Kennedy,
     agreeing to restart the permitting
     timeframes upon receipt of a new
     permit application.
New Application Cover Letter..............  July 14, 2004
    Synopsis: Cover letter from URS         ACF time: 99 days
     Corporation on behalf of Arizona
     Clean Fuels, submitting a new
     application for an air quality
     installation and operating permit.
Letter Regarding Public Notice of Proposed  September 10, 2004
 Permit.
    Synopsis: Letter from ADEQ to ACF       ADEQ time: 58 days
     notifying the company that the start
     date of public notice would be
     September 14, 2004. The letter
     indicates that the end of the public
     notice would be November 29, 2004. In
     response to public request, the
     public notice period was subsequently
     extended to January 10, 2005.
E-mail Transmitting Proposed Permit to EPA  February 4, 2005
    Synopsis: E-mail transmitting the       ADEQ time: 25 days
     permit and supporting documentation    Public Notice: 118 days
     to EPA for the 45-day review period.
Commitments for ACF Air Quality Permit      March 18, 2005
 Number 1001205.
    Synopsis: Letter from ADEQ to EPA       EPA time: 45 days
     Region IX committing to make changes
     the permit as discussed during the 45-
     day review period.
Letter Regarding Issuance of Permit.......  April 14, 2005
    Synopsis; Letter from ADEQ to ACE       ADEQ time: 27 days
     notifying the-company that the permit
     has been approved.
------------------------------------------------------------------------

    The Chairman. Well, Mr. McGinnis, you make a very good 
point. In fact, you win the day when you suggest that even 
though you have been able to proceed, that the value you see is 
that we need somebody in charge of scheduling and seeing to it 
that we will meet the schedule.
    And obviously when we say that, nobody is suggesting that 
the schedule cannot be changed even under those kinds of 
circumstances when required by the facts. It's just that you 
have the reverse of what you have now. The facts are not, 
obviously, there to be changed. The schedule is there to be 
met. And that's what you're saying, maybe that would be 
helpful, and maybe that's what is missing, if I read into your 
testimony. Am I reading you correctly?
    Mr. McGinnis. Yes, I think that is correct. I would agree 
with Mr. Becker, there are a lot of other issues that come up 
in developing something this complex.
    The Chairman. Sure.
    Mr. McGinnis. This is only one of them. But this needs to 
be addressed, and the others need to be addressed as well.
    Mr. Becker. And just a quick comment. I hadn't thought of 
this until we sent the bill out to one of our members, a 
Western conservative member, and the comment on the coordinator 
and the timing negotiation came back as: ``Why in the world 
would the industry want this? Because it's going to force us, 
the State, to hire attorneys. If we are going to be engaged in 
a judicially enforceable schedule and be sanctioned, if somehow 
a deadline is delayed, why would we do this? Why would the 
industry want this? We're going to have to build extra time 
into this just to cover ourselves. We're going to have to hire 
more attorneys. It's going to be passed on to the permitting 
fees of the industry. And things are working pretty darn well 
now. We don't need it.''
    And this came from a very conservative Western State. And I 
thought, good question. Why is it necessary, when it seems to 
be working now? The data, the evidence shows that it's being 
done in a matter of months, not years.
    The Chairman. Senator, do you have anything further?
    Senator Allen. Yes, I do, Mr. Chairman.
    The Chairman. Please proceed.
    Senator Allen. Let me follow up with Mr. Becker there. This 
was from a--who was the source of this commentary?
    Mr. Becker. It was one of our Western State permitting 
agencies.
    Senator Allen. OK. Let me ask you this, then, Mr. 
Slaughter. In the event that our domestic industry, refining 
industry, does not increase capacity to meet the demands in 
this country, and Senator Thomas and Senator Domenici and all 
of us recognize that the refining capacity is presently not 
meeting demand, what will happen to the price of gasoline? 
Let's just get to, instead of all this process, what's going to 
happen to the price of gasoline and other refined products. 
Where are we going to get it from, if things stay the way they 
are right now?
    Mr. Slaughter. We don't like to make price projections, but 
let me just say that you----
    Senator Allen. I'm asking you, what's going to be the 
impact?
    Mr. Slaughter. What happens is--the impact is, we become 
more and more dependent on products that have been refined 
somewhere else.
    Senator Allen. And how much more is that than if it's 
refined domestically?
    Mr. Slaughter. Well, you are subject to the vagaries of the 
world market. And the illustration, I think, Senator Allen, is 
what has happened in the crude oil market today, where we face 
intense pressures from folks like India and China, people who 
are developing their economy. Imports in China--we saw numbers 
today--went up 15 percent.
    We're having to compete voraciously against these other 
people for crude in today's market. We will be doing the same 
thing for gasoline and diesel in the future if we don't build 
more domestic capacity. A lot of the other areas in the world, 
for instance, their demand for gasoline, particularly diesel, 
is going to increase much more than the United States. They're 
going to be bidding for the same products in that international 
market that we will, and that obviously has an impact on price.
    Senator Allen. Higher prices, right?
    Mr. Slaughter. Your words, not mine, Senator.
    Senator Allen. Well, you're the witness here. In the event 
that we continue the path that we're going in this country--and 
it's not just presently, we've seen it for the last several 
decades--will that not result in higher prices for gasoline? 
Since we do not have the refining capacity to meet the demand 
of this country, much less process the crude that we get from 
overseas, which is increasingly from another country other than 
here, would that not just--it's just basic economics that the 
price of gasoline will be higher.
    Mr. Slaughter. Because we will be competing against other 
countries for a set supply of crude, of products, you would 
assume that prices would go up, yes, Senator.
    Senator Allen. All right. Now, Mr. McGinnis, in your quest 
to build this refinery, you say that the land title issue has 
been solved. One thing on a military base--not that you are 
always going to have those titles on a military base set, but 
generally the Federal Government has been on that, whether it 
has been the Army or the Marines or the Air Force on a base, 
and possibly a naval facility would be closed as well--you 
would end up with the title probably being easier to solve on 
such a matter, but not always the case.
    Generally speaking, the military bases are very big. 
They're thousands of acres in many cases. What is the 
footprint--if we were going to get a significant refinery 
sited, what is the footprint of a 200,000-barrels-per-day-or-
more refinery? Can you state it in acres, what you need, not 
just for it, but what you need for all the peripheral aspects 
of it, and also the added need for security, and what 
infrastructure would be important, whether it's roads, rail, 
pipelines, or security? I'm trying to just get an idea of what 
the requirements would be. I know you're not building on a 
military base, but that's one of the options for siting that 
we'd like to be advocating.
    Mr. McGinnis. A 200,000-barrel-a-day refinery would require 
750 acres, something like that, for the facilities, plus the 
tankage, tank farms, blending facilities, et cetera, required, 
the buildings and all of those kinds of facilities. You 
obviously need road access for people and goods and materials 
to come in. You would need pipeline access for crude oil to 
come in and products to go out. There is no other economic way 
to move finished products than by pipeline.
    You need electrical supply systems which use a lot of 
electricity, so you have high voltage supply lines which bring 
with them their own siting and environmental concerns as they 
get sited. You need rail access for some of the goods or some 
of the materials that come and go. You need to really think 
through all of the logistics of those kinds of things.
    The security, I think today there is expanded security 
attention at all facilities, existing refineries. A new 
facility would be laid out, I would suggest today, a little 
differently than the facilities that were laid out 30 or 40 
years ago when security was much less of an issue in terms of 
who could enter what areas and how controlled environments 
would be established and regulated and controlled, which would 
dictate some of how the rail and road access works, et cetera.
    Senator Allen. Thank you. All of those will be important as 
we are talking about it. Some facilities may or may not meet 
all those criteria. In others, pipelines could be added to it, 
or electricity. Security generally is pretty good at military 
bases, so that would be a saving. So I could imagine some base 
having a refinery in it, and planting white pines or trees all 
around it so you actually would have it fenced off with more 
land in residue.
    Mr. Becker, I very much respect the rights and prerogatives 
of the people in the States, and you also have obviously become 
conversant and you are knowledgeable about this issue. In your 
judgment, are the new refineries that are being--there aren't 
any new refineries being built. Mr. McGinnis is going through 
his very long procedures. But as far as new refineries compared 
to refineries when they were last built--what was it the 
chairman said, 30 years ago?--and even the additions that are 
being put on, are the technologies that are now being 
incorporated and utilized cleaner than the old methods of 
refining petroleum?
    Mr. Becker. Yes, and that's because the Clean Air Act 
demands it, and it's because of the permitting processes and 
the air quality analyses that are required of it. So yes, they 
generally are much cleaner than they were 30 years ago.
    Senator Allen. All right. Just a final question to you, Mr. 
Becker. It seems that one of the essential or paramount--you 
have several concerns, but one of the essential ones--these are 
just jurisdictional issues or concerns that you have, and that 
of your association--is that the legislation, that the House 
measure preempts State and local governments.
    And I know you haven't had a chance to read the legislation 
I have just introduced having to do with refineries, but would 
some of your concerns be addressed if the Federal coordinator 
that is proposed in all this legislation would only become 
involved at the request of a Governor of a State? Would that 
not mean that the Governor who was elected by the people of 
that State says, ``We want to go through this process. We want 
to have this opportunity in our State or our Commonwealth.''?
    Mr. Becker. It would be an improvement, but I was listening 
carefully to your justification in your bill, which I had not 
read, as to why you thought it was inappropriate for the 
Federal Government to intrude into State jurisdiction with 
regard to locating a refinery at a military base, and I 
thought, ``What about that poor community who had the same 
concerns about the Governor making that unilateral decision and 
not consulting, perhaps, with the local community?''
    Senator Allen. Well, you would have to. Just so you 
understand, you would still work with the local redevelopment 
authority. When a base is closed, what is created is a local 
redevelopment authority, and those people are very important. 
But since you're going to be dealing with the State, and maybe 
the State will deal with local, but for the most part you're 
dealing with a department of environmental quality for an 
entire State, and they may have regional folks in different 
parts of the State.
    But if the Governor agrees--you were talking about all the 
litigation, some of this--if the Governor signs off, and it's 
only done with the Governor petitioning or agreeing or making 
the request, it would seem that at least, you said, there would 
be an improvement. I think that that would cure some of those 
jurisdictional concerns that you have.
    And of course you could say, ``Gosh, these are 
controversial,'' and public servants, elected leaders, are 
elected to make tough decisions and determine what's in the 
best interests of the people of their State or their 
communities, but I think having an elected person doing it, a 
Governor of a State, would be, from my perspective, an 
appropriate respect for the rights and prerogatives of the 
people in the States and the State agencies that serve in that 
administration.
    Mr. Becker. I direct an association of not only the State 
permitting authorities but the local permitting authorities, 
and I know a number of them who may not agree if the Governor 
requested the coordinator, because they would lose the 
jurisdiction of issuing a permit themselves. So it's an 
improvement, but it's still not necessary.
    Senator Allen. Not enough to get you on board?
    Mr. Becker. It's not necessary.
    Senator Allen. Well, at least you said it was an 
improvement, and I appreciate that.
    And I appreciate this hearing and all our witnesses, and I 
look forward, Mr. Chairman, to working with you and our 
colleagues to get this improvement made.
    The Chairman. Thank you. We'll do something in this area.
    Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Thank you for coming, Senator. We're glad to 
have you.
    Senator Wyden. I thank you for your thoughtfulness, Mr. 
Chairman. This is just, even by Senate standards, a hectic day 
with all of the committees. I thank you, and my apologies to 
the witnesses for being tardy.
    I wanted to start, if I could, with you, Mr. Slaughter. 
First, I think it's all understood that we need more refinery 
capacity. Nobody questions that. The folks at Arizona Clean 
Fuels deserve a lot of credit in terms of being able to 
expedite things through their process, I gather, in 9 months.
    I think what I would like to do with you, Mr. Slaughter, is 
begin through a new report that the Congressional Research 
Service gave me this Monday, because I think it relates to some 
of the comments that you have made in the past. And what I 
asked the Congressional Research Service to do is essentially 
tell me where they think the industry is putting this big 
gusher of money that has come in in the last few years.
    And what the Congressional Research Service found is that 
the return on equity of the major oil companies has gone up 
about six times in the last few years. The amount of cash 
reserves at the major companies have gone up, over the same 
period of time, six times. But the amount of money that has 
been devoted to exploration and capital investment has only 
doubled. So what you have is equity up six, cash reserves up 
six, and essentially exploration only up a third of that.
    Now, you wrote us on September 9 that--I will just quote 
here--``The refineries have made and will make significant 
investments in expanding capacity at existing refineries.'' 
Given what the Congressional Research Service found Monday, 
that the industry is only putting a fraction of this big gusher 
of money that has come in, do you want to make a change in that 
September 9 statement? Because it certainly doesn't seem to me 
to square with what the Congressional Research Service has 
said.
    Mr. Slaughter. Thank you for the question, Senator Wyden. 
As I mentioned in the testimony and earlier in my remarks, the 
industry has announced roughly 1.8 million barrels a day in 
additional refining capacity in the United States that it 
intends to add over the next several years. That represents a 
significant commitment of investment dollars.
    At the same time, many participants in the refining 
industry also are participants in exploration and production 
and other parts of the business. They basically have got to 
make allocation decisions for their investments, as to what the 
investment is that makes the most sense at that time. Many of 
the exploration and production investments, for instance, may 
take years to mature.
    And you know the other thing that corporations do with 
money: some money has been returned to stockholders. I know 
that the ExxonMobile Corporation has returned I think $55 
billion to stockholders in the last 2 to 3 years. A similar 
number is probably true of a number of the other bigger players 
in the industry.
    So it's difficult, I think--I understand your point and I 
appreciate it, but I think it's difficult to take any snapshot 
in time and say that this indicates what the industry is going 
to do, when our projects are long-term projects that take many 
years to plan and to implement.
    Senator Wyden. I would just ask, Mr. Chairman, if the 
Congressional Research Service report to me that looked at 
equity and cash reserves over the last 6 years could be made a 
part of the record.
    The Chairman. Absolutely.
    Senator Wyden. I thank you, Mr. Chairman.
    [The information referred to follows;]
Congressional Research Service Memorandum From Robert Pirog, Specialist 
    in Energy Economics and Policy, Resources, Science and Industry 
                                Division
    This memorandum is written in response to your request for 
financial data for selected oil companies for the period 1999 to 2005. 
The companies for which you requested data are ExxonMobil, BP, Shell, 
Valero, Chevron, ConocoPhillips, Sunoco, and Total SA. The analysis is 
complicated by reason of mergers and acquisitions among the selected 
firms, differences in U.S. and international accounting standards, 
currency exchange rates, differences in the size of the selected 
companies, and differences in the extent to which the selected 
companies participate in all aspects of the oil business.\1\ The likely 
effects of these factors will be noted in the appropriate sections of 
this memorandum.
---------------------------------------------------------------------------
    \1\ Total SA reports its current and historical financial data in 
Euros. For this memorandum, the Euro/dollar exchange rate of 1.28 
dollars per Euro, observed on July 3, 2006 was used.
---------------------------------------------------------------------------
                              profit rates
    Profit rates are usually expressed as net income as a percentage of 
a relevant base; usually revenue, shareholder equity, or assets. Each 
profit rate provides a different measure of the success of the firm. 
Profit relative to revenue shows how well the firm translates revenue 
into net income. Profit relative to shareholder equity shows how 
effective the firm is in utilizing the capital invested in the firm by 
its owners, the shareholders. Profit relative to assets shows how 
effective the firm is in utilizing its total asset base to generate net 
income.
    Table 1 shows the average return on revenue and the return on 
equity for the eight selected oil companies. The averages are simple 
averages; they do not assign weights to account for the different sizes 
of the firms in the group. ExxonMobil, the largest company in the 
group, has total revenues over ten times as large as Sunoco, the 
smallest company in the group. However, a weighted average would still 
not account for the fact that the sample of eight companies is only a 
fraction of the industry. For example, the Oil and Gas Journal includes 
over 130 companies in its oil and gas firms' earning report.\2\
---------------------------------------------------------------------------
    \2\ Radler, Marilyn, and Bell, Laura, ``Price, Production Increases 
Boost First-Quarter Earnings,'' Oil and Gas Journal, Vol. 104.23, June 
19, 2006, p.19.

          Table 1.--RATES OF RETURN FOR SELECTED OIL COMPANIES
                              [Percentages]
------------------------------------------------------------------------
                                                   % Return    % Return
                      Year                        on Revenue   on Equity
------------------------------------------------------------------------
1999............................................      2.88        4.64
2000............................................      5.79       24.85
2001............................................      5.36       16.67
2002............................................      3.89        8.11
2003............................................      5.23       18.47
2004............................................      6.45       26.18
2005............................................      7.10       29.38
------------------------------------------------------------------------
Source: Security and Exchange Commission Forms 10-K and 20-F, Company
  Financial Reports.

    Over the seven year period, the average return on revenue was 
5.24%, while the average return on equity was 18.32%. Both profit 
measures increased when the recent increases in the price of oil began 
in 2003. Two of the companies in the data set, Valero and Sunoco, are 
refiners and marketers with no crude oil production. These two firms 
were not, therefore, positioned to benefit directly from increases in 
the price of crude oil.
                             cash reserves
    Companies might accumulate cash reserves in anticipation of a major 
merger or acquisition, before a share re-purchase, or before a capital 
investment expenditure. In the case of the selected oil companies, 
these reasons might be augmented by the rapid expansion of sales 
revenues associated with the increases in the prices of crude oil and 
products from 2003 through 2005. Large investment projects take time to 
plan and execute, and it may be that the rapidly increasing revenues 
these firms realized could not be efficiently allocated in the 
available time.
    Both upstream (exploration and production) and downstream (refining 
and marketing) investments in the oil industry tend to cost billions of 
dollars and take years to plan, complete, and realize returns from. 
Investment decisions are based on company estimates of the long-term, 
expected, price of oil. It may not be that the current market price of 
oil is equivalent to the companies' long-term expected price of oil. If 
the long-term planning price of oil is significantly lower than the 
current market price, it might appear that the companies have not 
increased investment in capacity to a degree commensurate with 
increased market prices.

            Table 2.--CASH RESERVES OF SELECTED OIL COMPANIES
                          [Millions of dollars]
------------------------------------------------------------------------
                                                                 Cash
                            Year                               Reserves
------------------------------------------------------------------------
1999........................................................    9,495
2000........................................................   27,185
2001........................................................   23,875
2002........................................................   20,908
2003........................................................   24,764
2004........................................................   41,323
2005........................................................   57,828
------------------------------------------------------------------------
Source: Security and Exchange Commission Forms 10-K and 20-F, Company
  Financial Reports. Note: Shell, Valero, and ConocoPhillips data could
  not be obtained for 1999. Shell data could not be obtained for 2000.

    Table 2 shows that the cash reserves of the selected oil companies 
have more than doubled from 2001 to 2005, the period of complete data. 
In 2005, three companies, ExxonMobil, Shell, and Chevron accounted for 
over 87 % of the total cash reserves.
                   exploration and capital investment
    Exploration expenses are undertaken to locate and develop new 
commercially viable deposits of crude oil and natural gas. Two of the 
eight companies in the data set, Valero and Sunoco, have no exploration 
expenses since they operate only in the downstream portion of the 
industry. Since oil fields deplete over time and production tends to 
decline, oil producers must carry out a successful exploration program 
to keep their reserve and production positions constant. However, it 
cannot be determined from financial data which exploration expenses are 
``net'' in the sense of increasing production and reserves, and which 
are ``gross'', including depletion replacement. As a result, increasing 
exploration expenses are not necessarily tied to increased production 
capability or reserves. Most of the firms also report dry hole expenses 
in exploration. Dry holes do not add to either production capacity or 
reserves.
    Capital investment expenditures were drawn from the companies cash 
flow statements. These values represent actual outlays made during the 
year. As a result, the values for capital investment reported in Table 
3 represent gross investment, rather than investment net of 
depreciation. In the current economic environment, it is likely that 
all investments, new, as well as those that replace depreciated assets, 
must pass a profitability test to be undertaken. As a result, gross 
investment is likely to represent well the companies investment 
decisions.

  Table 3.--EXPLORATION AND CAPITAL INVESTMENT EXPENDITURES OF SELECTED
                              OIL COMPANIES
                          [Millions of dollars]
------------------------------------------------------------------------
                                                 Exploration    Capital
                      Year                         Expense    Investment
------------------------------------------------------------------------
1999...........................................     1,794      32,835
2000...........................................     3,114      36,417
2001...........................................     3,843      52,798
2002...........................................     4,231      55,577
2003...........................................     5,018      56,558
2004...........................................     5,318      58,304
2005...........................................     4,704      68,884
------------------------------------------------------------------------
Source: Security and Exchange Commission Forms 10-K and 20-F, Company
  Financial Reports. Note: Shell and ConocoPhillips exploration data was
  not available for 1999. ConocoPhillips capital investment data was not
  available for 1999.

                               conclusion
    The oil industry operates in a volatile, short run market in which 
many decisions have long term implications. The upstream portion of the 
market is increasingly controlled by national oil companies, not 
private firms. The market is also affected by political forces.
    The private oil companies have the responsibility of making 
decisions in the best interests of their shareholders. However, because 
their products are important to the functioning of national economies, 
their decisions are also of interest to the public. This dual 
responsibility must be balanced by the companies.

    Senator Wyden. Mr. Slaughter, I think that's a fair 
comment. I will just tell you that when there is that kind of 
spread between equity, reserves, and investment, it certainly 
is going to cause our constituents to say, ``Look, we're 
getting clobbered by these prices. Is the money going back into 
development?'' And the Congressional Research Service report 
certainly raises a troubling question in my mind about whether 
it's going back into the development that's necessary.
    Let me also ask you about the--
    The Chairman. Senator, might I ask--I mean, it's obvious 
that those facts are very big, important facts. What was the 
relationship here, since we're talking about investing in 
refineries? You're trying to make the point that they're not 
investing enough in refineries?
    Senator Wyden. What happened, Mr. Chairman--and I think Mr. 
Slaughter's point is a fair one as well. It's a snapshot in 
time. It's over a 6-year period, so I think Mr. Slaughter's 
point is a fair one as well.
    The Chairman. OK.
    Senator Wyden. But what the Congressional Research Service 
found is that cash reserves over the 6-year period went up six 
times, return on equity went up six times, but development and 
exploration only went up twice. So it is correct, as Mr. 
Slaughter said, it's a snapshot in time, but I think that's the 
kind of thing that concerns our constituents and that's why I 
go into it.
    Mr. Slaughter, one other question. On the timetable for 
getting a new refinery on line, as I understand what happened 
in Arizona, they spent about 4 years kind of traipsing around 
looking at a place to put it, but once they made a decision to 
do it, they got it in 9 months. Now, we're talking about a 
whole new operation and the like, and I just wonder why we 
can't essentially pick up on what was done in Arizona rather 
than all of what is being proposed at the Federal level, which 
strikes me as pretty hard to follow, pretty confusing, pretty 
convoluted.
    We all want a win-win situation. We want refineries. We 
want them to be out there as quickly as possible, sensitive to 
environmental laws. I suspect if we don't do this carefully 
here in Washington, we're going to lose-lose. We won't get the 
refineries. We won't get the help for the consumers and all the 
rest. Why can't we just duplicate the Arizona model?
    Mr. Slaughter. First of all, I think it's a very good 
point. We don't want to make things worse.
    Senator Wyden. I'm sorry?
    Mr. Slaughter. I think you have a very good point, that we 
don't want to make things worse. We want to make things better. 
And everyone agrees we need more refining capacity.
    Mr. McGinnis has gone into the history of that project in 
some detail. It's been going on for a number of years. The 
project has been moved once. There was a lot of work that was 
done, I think, before the final permit--they actually filed it, 
so there was a lot of work that was already in the ground, so 
to speak, there that you might not have with other 
applications.
    I think the clear intent of this legislation is not to 
overrule Federal environmental statutes, but merely to say that 
there is a Federal interest, to inject into the process that 
there is a Federal interest in having new refineries, and 
certainly not overruling States. I do have a bit of a concern 
about giving a Governor a veto over the application process. 
They should clearly be involved. But the way I read it now, 
it's optional on the part of the person who is trying to build 
a refinery. Some may elect not even to trigger this program. 
But we think the clear intent--you know, the Arizona situation 
is unique. It has gone on for several years. My members tell me 
that if they're trying to get a new source review permit for a 
major project, that that can take 2 to 4 years. So I think 
there is a reason for some additional transparency here on the 
permitting process, and I think that's all that this bill 
intends to do, sir.
    Senator Wyden. One last question, if I might, Mr. Chairman. 
You have been very--
    The Chairman. Senator, before you do that, might I just say 
before you arrived--and again, no aspersions, delighted to have 
you, and very important, the point you're going to make--but 
Mr. McGinnis on the left here is the actual gentleman who has 
gone through the misery of finally locating a refinery in the 
State of Arizona, and has talked with us here today about it. 
And while he would come along with you in your last remarks, he 
would conclude nonetheless that he sees no reason why we 
shouldn't be interested in having somebody that is in charge of 
seeing that the schedule is followed, other than the applicant 
themselves.
    That's the issue. It has almost boiled down to that. Should 
we have a bill that nationally says there will be a scheduler 
established under this statute, and that scheduler will set the 
schedule with all the participants and then will be the one 
that says let's stick to it, and when it falls behind, have 
some rights. And even though he is finally going to get a 
refinery without this, having gone through 4 years of whatever 
one might call it--I would call it hell, but he might call it 
learning, I don't know--that's about where we ended up before 
you arrived.
    And I wanted to just put that on the table and make sure 
that you knew that we have a businessman. We thank him, don't 
we, for coming up here and spending the whole day with us?
    Senator Wyden. Unquestionably so.
    The Chairman. Thank you very much, Senator.
    Senator Wyden. And I think, Mr. Chairman, as usual, you 
make a thoughtful point, and it really leads into my next 
question. Because I think I sort of pummeled this question of, 
if a little guy in Arizona can do it in 9 months, what are we 
talking about with respect to the major companies? Chairman 
Domenici has raised the point with respect to, why not have a 
Federal coordinator and somebody who could be on the ground, 
and I wanted to ask you a point on that question specifically, 
Mr. McGinnis.
    From your testimony, which I read, you basically indicated 
that one of the biggest problems out there is the ``not in my 
back yard'' kind of proposition, that it's the NIMBY. You know, 
somebody else can do it, and let somebody else pick it up. My 
understanding of NIMBY, though, ``not in my back yard,'' is 
that it's primarily a local issue. I mean, it automatically 
says, ``I don't know what they're up to in Washington, DC. I'm 
caring about my neighborhood.''
    How do you foresee somebody coming in at the Federal level, 
which is often what people are objecting to, and now suddenly 
getting around what you have said in your testimony is one of 
the great hurdles, that the local opposition is a big part of 
the problem? I would like to hear your thoughts, how you would 
deal with those and reconcile the two.
    Mr. McGinnis. It's a good question, Senator. The NIMBY 
issue is alive and well pretty well everywhere. It is a very, 
very local issue, as you point out. There are processes that 
are available to deal with that. There are hearing processes, 
public meeting processes, as part of the permit approval and 
review, public comment, the responsiveness documents to public 
comment. There are a lot of processes that exist today to 
identify those issues, to deal with those issues, to air those 
issues in public and in the general forum.
    The intent of this bill is not to put someone, the Federal 
coordinator, in charge of the content of what's going on within 
the processes. In other words, they don't mandate or change or 
dictate anything relative to Clean Air Act requirements, new 
source process requirements, or the hearing obligations or the 
public responsiveness obligations, et cetera.
    What they are responsible for, as I understand it, is 
having the agencies, and I would include the company and their 
consultants, et cetera, all in this process as well, having 
that group of people who have a stake in the permit mutually 
discuss and agree on a schedule, what has to be done, who needs 
to review and have input, and what's a reasonable time to 
complete that work in.
    And then that individual takes away a responsibility to not 
only ensure commitment or drive commitment to that schedule, 
but also to ensure the resources are available in the agencies 
to meet those schedule obligations where they may not be 
available. For example, the Arizona Department of Environmental 
Quality has worked with us very, very closely on this permit 
for many, many years. This was obviously their first look at, 
or review of, a complex oil refinery permit. They have none 
operating.
    And those individuals are--they're very competent people 
and they're very committed people, but they really needed a lot 
of outside resources to help them understand all of the 
implications of generating a permit for an oil refinery. This 
bill would help that organization get those resources to be 
able to do that in an expeditious manner.
    Senator Wyden. Well, you all have been an excellent panel, 
and obviously this whole question of refinery capacity, after 
you start with the basic proposition that we need more of it 
and that is not a matter for dispute, gets much more 
complicated. And you get it down into the real world and it 
does intertwine national considerations and regional issues and 
local ones.
    I was very concerned, as were a number of other elected 
officials from the West Coast, about Shell's proposal to 
essentially close the Bakersfield refinery, which could have 
just clobbered all of us on the West Coast. They said they 
really couldn't make a go of it, and the next people came in 
and they did, which essentially contradicted what Shell had 
been saying all those many months, but that was a combination 
of Federal and local kind of considerations.
    You all have been an excellent panel, and laid out the fact 
that there are matters that we need to take up at various 
levels of government.
    And I think everybody here knows that I have enormous 
respect for my chairman, Senator Domenici. We have fairly 
spirited discussions about these matters from time to time, and 
I know we will----
    The Chairman. This one could be close.
    Senator Wyden. The chairman knows that I am always anxious 
to work with him and I will continue to do it. I think this has 
been a good panel, Mr. Chairman, and good witnesses, and I 
appreciate your letting me come in late and making the new CRS 
report a part of the record. And we'll continue the 
discussions.
    The Chairman. I wanted to say, in closing, that I have here 
before me, from Senator Feinstein, the issuance of an internal 
communication that she puts out to the public. Senator 
Feinstein asked Governor Schwarzenegger to streamline the 
permits for oil refineries to bring down gas prices. And we 
have a good, solid Democratic member of our committee 
recognizing that the State should get its house in order and 
streamline the permitting for oil refineries, because the 
current process, which is the opposite of streamlined, is 
causing prices to be high.
    I would like to put that in the record. I know that my good 
friend, Mr. Becker, would find some way of explaining that away 
too. I don't have time to wait, but you are free to do that at 
your leisure.
    [The information referred to follows:]
 Press Release From Hon. Dianne Feinstein, U.S. Senator From California
 senator feinstein asks governor schwarzenegger to streamline permits 
               for oil refiners to bring down gas prices
    Washington, DC--U.S. Senator Dianne Feinstein (D-Calif.) today 
urged California Governor Arnold Schwarzenegger to help streamline the 
refinery permitting process in an effort to relieve gas prices in the 
State which have climbed to record levels, partly due to the shortage 
of refining capacity. Following is the text of the letter sent 
Thursday:
    ``I am writing to ask for your attention to the permitting problems 
associated with petroleum infrastructure projects. As you know, the 
Energy Information Administration reported that on Monday, May 10, 
2004, gas prices in California averaged $2.27. There are several causes 
of this price spike, including rising global demand for crude oil, the 
federal oxygenate requirement and the boutique fuel problem, and 
limited refining capacity. It is my hope that we can work together to 
increase California's energy production while protecting the 
environment.
    I have spoken with both Shell and ChevronTexaco regarding refining 
capacity. Both companies have told me that one step California could 
take to help the gasoline supply situation is to streamline the 
permitting process for refinery upgrades and expansions. I understand 
you met with the Chief Executive Officer of ChevronTexaco, Dave 
O'Reilly, who spoke with you about this as well. When I met with him 
last week, he shared with me how difficult it is to get permits for 
expansion and upgrade projects. He also talked about project delays 
caused by overlapping and conflicting agency and local authorities. I 
can see where a cumbersome permitting process, with uncertain outcomes, 
would make it difficult to plan and implement projects.
    In your California Performance Review, you have asked state 
agencies to look for ways to make California run more efficiently, to 
be more supportive of businesses, and still protect the environment. I 
encourage you to improve the speed and predictability of the permitting 
process, and believe that this will allow business and government to 
focus their limited resources on actions that most benefit the 
environment.
    Please let me know if there are things at the Federal level that I 
can do to help. I look forward to working with you.''

    The Chairman. In any event, I think the round-up by the 
Senator was right. You have been a good panel. I was just 
thinking that with the Senate doing voting on the floor, every 
committee in the Senate having hearings, we've had five 
Senators, and that's pretty good. Senator Bingaman could not 
make it, but he knows what's going on. He has had his staff 
here.
    I think the reason that Senator Bingaman is not here is 
because the question of what we're going to do, if anything, in 
this area is still up in the air. I mean, if I were saying, 
``We're going to do this bill, along with five others,'' he 
would be here, because that would be very important. But I 
haven't made that decision yet. I don't know if we're going to 
do this this year or not.
    I understand the issue much better because of the three of 
you. Mr. McGinnis, I do hope you succeed. And as a total 
outsider, but a neighbor, put me on the invitation list. I 
might just come to the opening. I might. Would you welcome me 
there?
    Mr. McGinnis. Consider it done.
    The Chairman. I'll join you there, and when you cut the 
ribbon, I'll be over on the side applauding you, saying you are 
a gutsy guy. I didn't ask you, or I forgot, what's the capacity 
of your refinery going to be?
    Mr. McGinnis. 150,000 barrels a day.
    The Chairman. Tell us what that means. Is that--that's a 
little refinery?
    Mr. McGinnis. On a world scale, it's on the small side, but 
it's a world-scale facility. It's big enough to capture the 
economies of scale, but it will make a very small dent in the 
imports into this country and a lot more is required.
    The Chairman. You've got it.
    Senator Wyden. I want to join you as well, Mr. Chairman, if 
I can get an invitation. I don't know if I will make it, but I 
want to be associated with your comments.
    The Chairman. Good. If I go and you go, we will be Mutt and 
Jeff; right?
    Senator Wyden. A team.
    The Chairman. A team. Thanks, everybody. We stand in recess 
until the call of the chair.
    [Whereupon, at 12:15 p.m., the hearing was adjourned.]

    [The following statement was received for the record:]
      Statement of Maxine Natchees, Chairman, Business Committee, 
        The Ute Indian Tribe of the Uintah and Ouray Reservation
    The the Indian Tribe of the Uintah and Ouray Reservation (the 
``Tribe'') appreciates the opportunity to submit testimony before this 
Senate Energy and Natural Resources Committee in support of H.R. 5254, 
the Refinery Permit Process Schedule Act. The Tribe urges prompt 
passage of H.R. 5254, as amended by the proposed amendment described 
below extending the benefit of the bill to Indian Tribes. The recent 
weather-related disruptions to the Nation's refinery capacity on the 
Gulf Coast, and limitations on refinery capacity elsewhere in the U.S. 
highlight the constraints on the ability of the oil and gas industry to 
refine the products of increased domestic oil production. The topic of 
this hearing is thus timely and of immense importance to the Tribe and 
the Nation as a whole.
    Our Tribe, like all other Indian Tribes in the United States, faces 
a very difficult and unique challenge of being a government, and 
providing all of the essential services associated with being a 
government, without a significant tax base. Without a tax base, our 
Tribe must generate its own revenue base in order to provide for the 
health, safety and welfare of its members. Recognizing the difficulties 
posed by this unique situation, the Tribe decided to take an active 
part in determining its financial destiny and furthering its self-
determination and sovereignty. In 2000, by tribal ordinance and by a 
referendum of the Tribal membership binding on its leaders, the Tribe 
adopted a Financial Plan designed to enable us to achieve our goals of 
self-determination and financial independence. The Financial Plan is 
based on a proven strategy of controlling expenses and enhancing 
revenues through proactive financial management including investment 
and reinvestment of our existing capital to ensure financial growth in 
perpetuity, and active development of our natural resources.
    Our Reservation is located in northeastern Utah in the middle of 
the Uintah oil and gas basin. We have been leasing out oil and gas 
resources for many years. Energy resources are the cornerstone of our 
Tribal resource base and moving from passive to active participation in 
the development of these resources is a key part of our Financial Plan. 
To that end, instead of just leasing our lands to outside companies, we 
have begun to partner with such companies to take an active position in 
the exploration and development of our resources.
    One of the emerging impediments to fully developing our resources 
is inadequate refining capacity to handle production from Tribal oil 
assets. A large portion of the crude oil produced on the reservation is 
``black wax'' crude oil. There are two main constraints that complicate 
obtaining refining capacity sufficient to enable the Tribe and other 
operators on the Reservation to move this significant resource to 
market, each based on certain unique characteristics of black wax 
crude. First, because of these characteristics, the four refineries are 
operationally limited in the amount of black wax etude they can refine 
at any one time without expending significant capital investment on new 
facilities. These same refineries have access to Canadian crude 
delivered via pipeline that is easier for them to refine. Canadian 
crude oil is increasingly displacing domestic production from the 
Uintah basin and deprives the refineries of any economic incentive to 
make the capital investment necessary to process greater portions of 
Uintah basin black wax crude. Second, the characteristics of black wax 
crude make it impossible to transport via pipeline and uneconomic to 
transport long distances to refineries capable of handling larger 
volumes of black wax crude in Wyoming, New Mexico or California.
    The intersection of these factors could result in a shut down of 
production of the Tribe's significant oil resources at a time when the 
Nation needs to increase its domestic oil production. This would be 
devastating to the Tribe as royalty and other oil and gas proceeds are 
the main source of revenues for the Tribe's essential government 
services, including health and safety services to the Tribe's most 
vulnerable members: our children and our elders. Shut down would also 
have adverse effects on the State of Utah and area county and local 
governments, as they also derive significant revenues from oil 
production in the Uintah Basin. The only way to prevent stranding this 
major energy source is to build new refining capacity in the Uintah 
basin that is capable of handling black wax crude oil.
    To that end, the Tribe seeks to amend H.R. 5254 to make available 
to Indian tribes the same federal assistance with refinery permitting 
as would be available to States under the existing bill. The Tribe's 
Reservation is strategically located for refining purposes because of 
its close proximity to oil and gas resources. The Tribe and the other 
energy Tribes, as sovereign entities with substantial land bases close 
to oil production, are in a unique position to address the shortage in 
refinery capacity, In addition, refining capacity on tribal lands 
should also aid the potential development of unconventional hydrocarbon 
sources in the Rocky Mountain west, such as oil shale and tar sands. 
Our proposed amendment would increase the effectiveness of H.R. 5254 in 
increasing refinery capacity while furthering the dual aims of Title V 
of the Energy Policy Act of 2005: (1) encouraging the efficient 
development of energy minerals on Tribal lands and (2) promoting Tribal 
self-determination. In fact, Title V of the Energy Policy Act of 2005 
explicitly contemplates construction of refineries on Tribal land. 
Amending H.R. 5254 as we have proposed would result in the following 
five benefits to Indian Tribes and the Nation as a whole: (1) provide 
Indian Tribes with access to the same federal assistance as States to 
implement the aims of the Energy Policy Act; (2) enable Tribes to 
better navigate the refinery permitting process; (3) enhance revenue 
and prevent economic hardship for both State and Tribal governments; 
(4) increase refining capacity; (5) strengthen the nation's long-term 
energy security by locating refining capacity outside of the weather-
threatened Gulf Coast region.
    The text of the Tribe's proposed amendment reads as follows:

          ``Insert within Section 2 of the Bill the following two 
        definitions and replace Section 3 of the Bill in its entirety:

                  (5) the term ``Indian Tribe'' has the meaning given 
                the term in Section 4 of the Indian Self-Determination 
                and Education Assistance Act (25 U.S.C. 450b);
                  (8) the term ``Tribal Organization'' has the meaning 
                given the term in Section 4 of the Indian Self-
                Determination and Education Assistance Act (25 U.S.C. 
                450b).

        Sec. 3. State and Tribal Organization Assistance
          (a) Financial Assistance--At the request of a Governor of a 
        State, or at the request of a Tribal Organization, the 
        Administrator is authorized to provide financial assistance to 
        that State or Indian Tribe to facilitate the hiring of 
        additional personnel to assist the State or Indian Tribe with 
        expertise in fields relevant to consideration of Federal 
        refinery authorizations.
          (b) Other Assistance--At the request of a Governor of a 
        State, or at the request of a Tribal Organization, a Federal 
        agency responsible for a Federal refinery authorization shall 
        provide technical, legal, or other nonfinancial assistance to 
        that State or Indian Tribe to facilitate its consideration of 
        Federal refinery authorizations.

    The Tribe looks forward to working with you on these very important 
issues, and asks that you seriously consider the attached proposed 
amendment to H.R. 5254, and promptly pass the bill as amended.

                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

    Responses of Robert J. Meyers to Questions From Senator Domenici
    Question 1. Is it fair to say that the bulk of investment in 
refineries over the last several decades has been for the purpose of 
capacity expansion and for the purpose of producing cleaner fuels 
required by both law and new regulations?
    Answer. The U.S. Environmental protection Agency (EPA) does not 
track investment patterns of refineries and it is therefore difficult 
to state definitely whether the bulk of such investment over the last 
several decades has indeed been for the purposes cited in your 
question. Information published by the Energy Information 
Administration indicates that domestic refineries, which have decreased 
in number over the past twenty-five years, have simultaneously 
increased overall capacity levels. At the same time, EPA recognizes 
that many operators have also made investments in their refineries for 
the purpose of producing cleaner fuels, as required by laws and new 
regulations enacted at the federal or state level. EPA has detailed 
such costs in its Regulatory Impact Assessments for these rules.
    Question 2. You note in your testimony that this bill does not 
include codification of ``New Source Review Rules that would enable 
accelerated investments in efficiency at refineries.'' While 
modification of the New Source Review Rules is not within the 
jurisdiction of this Committee, I am interested in knowing precisely 
how EPA believes those rules should be altered and how such alteration 
might speed investment in refinery capacity.
    Answer. Since the early 1990s, numerous parties have called for 
improvement and simplification of the New Source Review (NSR) program, 
particularly as it applies to existing facilities. In 2002, EPA 
completed a review of the NST program that concluded that improvements 
were warranted. In particular, it concluded that the program has an 
adverse impact on the willingness and ability of owner/operators (e.g., 
of refineries) to invest in equipment and technologies that will expand 
and preserve capacity, or improve energy efficiency.
    Refiners seeking to expand capacity or ensure reliability through 
additional investment are hindered by a number of NSR-related factors, 
including: (1) regulatory uncertainty resulting from confusion about 
the NSR program's requirements; (2) the added costs and delays imposed 
by the NSR process; and (3) the possibility that activities necessary 
to assure the safety, reliability and efficiency of a plant may not be 
able to be undertaken without an NSR permit.
    EPA has sought to reform the current NSR process and address these 
concerns by reducing regulatory complexity and providing proper 
incentives for reducing air pollution. Providing increased clarity 
regarding NSR would ultimately expedite the process for those refiners 
hoping to increase capacity or make improvements in reliability or 
energy efficiency.
    EPA has issued a number of rules that make specific changes to NSR 
to achieve these goals, but some of these rules have been halted by 
litigation. This Administration has called on Congress to codify EPA's 
December 2002 changes to the NSR program, and we believe the regulator 
certainty offered by legislating these changes would expedite 
investment in refinery capacity.
    Question 3. Are there other legislative vehicles or administrative 
measures that could be useful in encouraging the siting of new 
refineries or expansion at existing facilities?
    Answer. This Administration supports efforts to simplify and 
expedite the permitting process for construction of new refineries and 
expansion of existing refining facilities and believes such steps could 
help strengthen the nation's energy infrastructure. Given the broad 
scope of economic, land-use, and environmental issues involved in the 
siting of new refineries or expansion of existing facilities, there are 
potentially multiple legislative or administrative vehicles by which 
such processes could be improved. The Administration supports enactment 
of H.R. 5254 and also stands ready to work with the Senate and Congress 
on additional legislative vehicles.
    EPA's Office of Air and Radiation has taken regulatory steps to 
help streamline the permitting process for refineries and other 
industrial sectors; perhaps the most important of these have been our 
NSR reform rules, as mentioned in the response to you r previous 
question. In addition to codification of NSR reforms, there are other 
legislative measures that would also have a significant and beneficial 
effect in the long run. The President's Clear Skies cap and trade 
approach to reducing air emissions from power plants gives our states a 
powerful, efficient and proven tool to help meet air quality standards 
for fine particles and ozone. To the extent the Clear Skies emission 
reduction requirements for the power sector can help provide emissions 
reductions towards attainment or partial attainment of Clean Air Act 
health-based standards, states and local governments will have a 
lighter burden in putting together their local emission control 
strategies to attain the National Ambient Air Quality Standards 
(NAAQS). This may result in an ability at the state and local level to 
accommodate new or expanded manufacturing or refining activities within 
plans to meet the NAAQS.
     Responses of Robert J. Meyers to Questions From Senator Thomas
    Question 1. In Wyoming, many refineries have stopped producing 
asphaltic oil because of policies put in place to reduce sulfur 
emissions. This has resulted in a significantly reduced supply of this 
product for companies in the paving business. Are you aware of the 
consequences that this otherwise desirable environmental improvement 
has had on the construction industry? Did the Environmental Protection 
Agency look into what the more peripheral consequences of changing that 
standard would be prior to implementing the regulatory change?
    Answer. As part of the Ultra Low-Sulfur Diesel (ULSD) rulemaking, 
PEA analyzed, the impact of desulphurizing the diesel stream and the 
associated changes in refinery operations. In general, in normal 
refinery operation, product used for asphalt production is removed 
during the initial stages of processing crude before the bulk of LSD 
and ULSD diesel processing occurs. Thus, producing low-sulfur diesel 
(LSD) and ULSD production should have little or no direct impact on 
asphalt production.
    There are many indirect factors, however, that influence refiner 
decisions with respect to the products produced, including hardware, 
crude inputs, demand for specific product slates, economics and 
environmental requirements. Any overall noticeable impact on production 
of asphalt could result from such factors and would vary from refinery 
to refinery, with some decisions tending to increase asphalt and others 
to decrease it. To meet the ULSD quality standards, some refineries may 
be shifting the most difficult inputs to process streams out of diesel 
production, which could increase heavier product streams, including 
asphalt volumes. However, other refineries may switch to a lighter, 
sweeter crude, which may result in a decrease in asphalt output.
    In addition, it is likely that the biggest driver currently 
impacting asphalt production is the overall economic situation 
affecting all refined products, rather than any direct or indirect 
impact of ULSD production. Quite simply, with diesel fuels and gasoline 
prices at record and near-record levels, refineries are finding it 
economically attractive to upgrade the heavier product streams into 
gasoline and diesel fuel. This results in relatively less production of 
asphalt.
    Question 2. Under Section 392 of the Energy Policy Act a Governor 
could request assistance with the refinery permitting process. This 
bill would repeal those provisions and replace them with a new set of 
guidelines for permit streamlining. Aside from the inclusion of closed 
military installations as possible refinery sites, can you discuss in 
greater detail what EPA interprets as the most significant differences 
between the EPACT language and the bill we are discussing today?
    Answer. There are several significant differences between the 
refinery provisions of Energy Policy Act (EPAct) and the refinery bill 
under consideration (H.R. 5254). In general, the legislation is 
considerably more detailed than section 392 of the Energy Policy Act 
and extends to environmental permits required ``under Federal law, 
whether administered by a Federal or State administrative agency or 
official'' as opposed to section 392's references to ``permits required 
from the Environmental Protection Agency.''
    Other significant differences between section 392 and H.R. 5254 
include the following: (1) The streamlined permitting process 
authorized by EPAct is triggered by a request from a Governor, while 
under H.R. 5254, the streamlined permit process review may be initiated 
by the applicant for a refinery permit. (2) H.R. 5254 directs the 
President to appoint a ``Federal Coordinator'' to facilitate the 
permitting process, while EPAct indicates that the Administrator of EPA 
is authorized to accept a consolidated refinery permit application. (3) 
H.R. 5254 requires the federal coordinator and relevant agencies to 
take several specified actions, including the convening of a meeting on 
the refinery authorization, the establishment of a memorandum of 
agreement (MOA) that sets forth the most expeditious coordinated 
schedule possible for completion of all federal refinery authorizations 
and the maintenance of a consolidated record. EPAct does not contain 
this level of detail, but rather authorizes the EPA Administrator to 
enter MOUs with other federal agencies and with a state. (4) In 
addition to the procedural requirements, H.R. 5254 additionally assigns 
duties to the Federal Coordinator including ensuring good faith 
cooperation of the MOU participants and ensuring that a refinery 
schedule accommodates relevant authorizations. Section 392 of EPAct 
contains no similar duties. (5) H.R. 5254 also specifically authorizes 
court actions to be brought in U.S. District Courts to establish an 
enforceable schedule for completing the permit process if the court 
finds that a failure to act by a government agency jeopardizes the 
schedule set forth in the MOA. Section 392 of EPAct does not contain 
any similar provision.
    Question 3. Without naming particular states, can you share with 
the Committee if any Governors have approached the Environmental 
Protection Agency, preliminarily or in a more official capacity, to 
request assistance with the construction of a refinery under the 
authorities established in the Energy Policy Act of 2005?
    Answer. To date, EPA has received an official request from the 
Governor of Oklahoma to negotiate a refinery permitting cooperative 
agreement with the state under the relevant provisions of the Energy 
Policy Act of 2005. THe Agency is responding to the Governor and 
developing a process for negotiating a cooperative agreement.
    Question 4. Section 1838 of the Energy Policy Act required an 
investigation of recycling used oil products into the refining process 
and improving the ability to collect those materials for further use. 
Where does that study stand and do you have any preliminary findings to 
report on the potential for greater utilization of these oil products?
    Answer. Section 1838 of the Energy Policy Act directs the Secretary 
of the Department of Energy (DOE), in consultation with the 
Administrator of the EPA, to conduct the study cited in the question. 
EPA's Office of Solid Waste and Emergency Response has worked with DOE 
on that study, and I understand that a final report on the study has 
been sent to Congress.
    Responses of Robert J. Meyers to Questions From Senator Bingaman
    Question 1. Last year, in Subtitle H of the Energy Policy Act of 
2005 (EPAct 05), Congress streamlined the permitting procedures for 
refineries. These provisions are similar to those that are included in 
the proposed legislation, yet they would not create any conflicts with 
existing environmental laws. Additionally, the proposed legislation 
would repeal subtitle H. Acting Assistant Administrator Wehrum 
testified before the Environment and Public Works Committee in October 
2005 that EPA was reviewing its new authority under that law. What is 
EPA now doing to implement these provisions? Is there any factual 
record that shows that we should change these provisions less than a 
year after they were passed? Has anyone even sought to use them yet?
    Answer. EPA staff from various regional offices, the Office of Air 
and Radiation, Office of general Counsel, and Office of Federal 
Activities have met on a number of occasions to review and analyze the 
requirements of Subtitle H. As a result of these efforts, EPA stands 
ready to cooperate with states and our sister federal agencies to 
implement the permitting process for new refineries under Section 392. 
To date, EPA has received an official request from the Governor of 
Oklahoma to negotiate a refinery permitting cooperative agreement with 
the state under Section 392. The Agency is responding to the Governor 
and developing a process for negotiating a cooperative agreement.
    EPA believes that H.R. 5254 would offer several improvements to the 
EPAct provisions that have already been approved by Congress. The 
legislation provides more detailed procedural and substantive 
requirements than EPAct and includes specific measures for enforcement 
of permitting timetables. There, EPA believes this legislation could 
act to further encourage private sector investments geared towards 
expanding domestic refining capacity. As indicated during the Energy 
and Natural Resources Committee hearing, EPA stands ready to work with 
the committee and Congress on this matter.
    Question 2. In your testimony, you state that approximately 100 
permits have been issued to refineries since 2000--many for upgrades to 
comply with new EPA regulations and many which have added to increased 
capacity not related to new fuel standards. This would suggest that a 
considerable number of permits were issued in a relatively short amount 
of time. How do you see the proposed legislation facilitating this 
process?
    Answer. It is important to note that, with the exception of one 
permitting action for a new refinery, the 100 permits referenced in my 
testimony have been with respect to New Source review air permits 
issued for expansions or upgrades of existing facilities. Therefore, 
the scope of the permits varied considerably. Many ``narrow'' NSR 
permits can be evaluated and approved within a matter of months. 
However, NSR permits for new refineries or major modifications to 
existing facilities can take considerably longer.
    Furthermore, Clean Air Act permits comprise just one part of all 
the state and federal permits that are typically necessary for 
refineries. As indicated in my testimony, when refinery construction is 
involved, permits may be required under the Clean Water Act, the 
Resource Conservation and Recovery Act, and other federal, state and 
local environmental laws.
    EPA believes it is logical to work together to identify potential 
efficiencies that could be achieved by coordinating the permitting 
process. The legislation provides for this coordination and provides 
specific direction with respect to the process for developing 
enforceable MOUs. The Agency believes that the legislation could 
therefore provide additional incentives for the expansion of domestic 
refinery capacity.
    Question 3. Has EPA issued any regulations or taken any action to 
implement Subtitle H? If yes, how would passage of this bill affect 
that process? If no, when do you anticipate you will begin and how long 
will it take?
    Answer. Subtitle H of Title III of EPA (``Subtitle H'') does not 
specifically require that EPA issue regulations in order to implement 
the authority conveyed by the subtitle and, to date, EPA has not taken 
any action to promulgate such regulations. With respect to your second 
question, since H.R. 5254 acts to repeal Subtitle H, its enactment 
would remove the legal basis for regulations based on the subtitle. 
With respect to your third question, EPA does not presently have plans 
to propose regulations implementing Subtitle H. EPA has experience in 
cooperative permitting frameworks, however, and we anticipate that we 
can draw on this experience quickly to assist a state and other 
stakeholders in effectively implementing the provisions of Subtitle H.
     Responses of Robert J. Meyers to Questions From Senator Wyden
    Question 1. Most states fund their air quality permitting programs 
from a combination of state general funds and fees. If H.R. 5254 was 
enacted and a Governor requested additional EPA or other federal agency 
assistance in obtaining a federal refinery authorization would the 
project applicant reimburse the federal government for their additional 
assistance? Does H.R. 5254 give applicants an incentive to request 
federal assistance in lieu of having to pay state permitting fees?
    Answer. We do not anticipate that project applicants, such as 
refineries, would reimburse the federal government for federal 
assistance provided under H.R. 5254, since there are no provisions in 
the bill that provide for such a mechanism. With regard to the 
possibility that H.R. 5254 would provide an incentive for applicants to 
request federal assistance in lieu of having to pay state permitting 
fees, the proposed legislation neither authorizes an applicant to make 
such a request nor alters the state permit fees structure. Under the 
legislation, only the Governor of a state may request federal 
assistance.
    Question 2. Does H.R. 5254 create a bad precedent in that petroleum 
and other fuel refining and production facilities are given 
preferential, expedited permitting and project reviews while other 
energy production facilities (that could also dampen demand for 
additional fuel or energy supplies) continue to be permitted in a 
``business as usual'' way? Shouldn't all energy production facilities 
such as wind farms, geothermal, solar and wave energy be eligible for 
the same fast-track treatment as long as they help to meet national 
energy supply goals and reduce the cost of energy or fuel to consumers?
    Answer. The Administration is committed to securing the production 
of reliable energy from all practical sources. EPA does not generally 
issue permits associated with renewable sources such as wind, 
geothermal, solar and wave energy. H.R. 5254 specifically addresses 
petroleum and other fuel refining and production facilities that fall 
under the jurisdiction of several environmental statutes administered 
by EPA.
    Responses of Robert J. Meyers to Questions From Senator Salazar
    Question 1. The Energy Policy Act addressed this same issue of 
expediting the oil refinery permit process. Sections 391 and 392 
include a balanced, straightforward way to speed up review of refinery 
permits: they allow for the federal government to enter into 
cooperative agreements with states on refinery permitting, enable the 
Administrator to provide financial assistance to states in reviewing 
refinery permits, and empower the Administrator to accept consolidated 
permit applications to speed up the process. H.R. 5254 would eliminate 
these sections.
    Have these sections of the Energy Policy Act been proven to be 
inadequate improvements to the refinery permitting process? Or is it 
possible that we have not give the provisions in EPAct enough time to 
take hold?
    Answer. EPA is currently implementing Subtitle H of Title III of 
EPAct in response to a request from the Governor of Oklahoma to enter 
into a refinery permitting cooperative agreement. EPA believes, 
however, that H.R. 5254 offers additional authority and additional 
ability for the federal government to streamline the refinery 
permitting process. As indicated during the hearing, EPA stands ready 
to assist Congress in its consideration of H.R. 5254 or other refinery 
streamlining legislation. The Agency would certainly offer any 
requested technical assistance in order to resolve implementation 
issues between the existing provisions of Subtitle H and any new 
legislative authority.
    Question 2. H.R. 5254 gives a considerable amount of responsibility 
to the ``Federal Coordinator'' to expedite and coordinate the permit 
process.
    Is this not adding another level of bureaucracy that may slow 
permitting down?
    How much weight will the state agencies be given in the process?
    Answer. Because refinery construction is subject to permitting by 
multiple agencies for multiple purposes, it only makes sense that the 
relevant permitting agencies work together to identify potential 
efficiencies that could be achieved by coordinating the permitting 
process. State agencies are in many, if not most, cases the primary 
permitting agency for refineries, and as such EPA expects they would 
play a substantial role in the process laid out in the bill.
    Question 3. Section 5 of H.R. 5254 allows for closed military 
installments or portions of closed military installments to be used as 
refinery sites.
    Does this mean that any closed military installation including, for 
example, Lowry Air Force Base in Denver, could be designated a refinery 
site?
    Answer. Section 5 of the bill would authorize the President to 
designate closed military installations as ``potentially suitable'' for 
construction of a refinery (emphasis added). Following designation, the 
redevelopment authority for each designated installation would be 
required to consider ``the feasibility and practicability of siting a 
refinery on the installation.'' The Secretary of Defense would then be 
required to ``give substantial deference to the recommendations of the 
redevelopment authority . . . regarding the siting of a refinery on the 
installation.'' In sum, the bill would provide a mechanism for 
identifying and considering closed military bases for use as a refinery 
site, but it would not explicitly mandate that a closed base be used 
for that purpose.
    Question 4. In considering new sites at closed military 
installments, the redevelopment authority is instructed to consider the 
``feasibility ad practicability'' of the site prior to the development.
    What does feasibility and practicability entail under this bill?
    Does it include consideration of surrounding communities?
    What opportunity will the public have to comment on this process?
    Answer. Under the bill, the President and Secretary of Defense 
would exercise the authority to designate closed military bases for 
consideration as potential refinery sites. Accordingly, the 
Environmental Protection Agency is not in a position to speak 
authoritatively to the appropriate interpretation or application of 
this section of the bill or the process that would be used to implement 
it.
    Question 5a. Section 4 of H.R. 5254 allows an applicant for a 
permit, or a party to a memorandum of agreement on permitting, to bring 
a cause of action if a party does not take prompt action on a permit.
    Does this mean that the federal government could take a state or 
local government to court if a permit review is not completed within 
the timeframe approved by the federal government?
    Answer. The language of the bill would appear to authorize such a 
suit, but the principles of federalism embodied in the U.S. 
Constitution and the federal-state relationship created by the relevant 
federal permitting statutes would counsel against it. Under federal 
environmental laws, state and local governments agree to implement 
federal permitting requirements at their discretion, and they remain 
free to return those responsibilities to the federal government. 
Federal agencies have a strong interest in states taking a leading role 
in the implementation of many environmental programs, including 
permitting, and so ave a strong incentive to work cooperatively with 
state programs to implement federal requirements. In this regard, as 
indicated in my testimony, we would be happy to work with Congress 
prior to any final action on H.R. 5254, to address any concerns 
regarding the proper balance to be struck between federal and state 
programs.
    Question 5b. Will this bill not erode the authority of state and 
local governments to review proposed refinery projects?
    Answer. The bill addresses federal refinery authorizations, which 
are defined as those authorizations required under federal law. It 
specifically provides that any schedule developed under its provisions 
be ``the most expeditious coordinated schedule possible for completion 
of all federal refinery authorizations with respect to the refinery, 
consistent with the full substantive and procedural review with respect 
to the refinery, consistent with the full substantive and procedural 
review required by Federal law.'' The legislation does not contain an 
explicit provision with respect to non-federal laws and requirements. 
In addition, the legislation contains a savings clause. Section 6 of 
H.R. 5254, which provides that nothing in the legislation ``shall be 
construed to affect the application of any environmental or other law . 
. .''
                                 ______
                                 
     Responses of Glenn McGinnis to Questions From Senator Domenici
    Question 1. In your testimony you state that ``long term historical 
refining margins in the U.S. have, on average and in general, not been 
adequate to support new refinery construction.'' Is that condition 
changing in your view? Are economic conditions more favorable now to 
investment in new refineries? If so, do you expect those conditions to 
be sustained for the foreseeable future?
    Answer. During the period from the mid 1980's until early 2004, 
average refining margins in the U.S. were in the 5-6% range and below 
the cost-of-capital for the industry. Product pricing was driven by 
imports from surplus refining capacity in the Caribbean, Europe, and 
the Far East. Over the past two years economic activity overseas has 
removed the surplus capacity increasing competition and raising prices 
for refined products. This shift has led to higher margins for U.S. 
refiners and is now adequate to support significant expansions--both 
grass roots and at existing refineries. Most industry observers expect 
the current higher margins to be sustained for an extended period (at 
least 5 years) due to the time required to permit, engineer and build 
refineries, both in the U.S. and overseas. Many projects are in the 
planning stages, however, rapid economic growth is likely to continue 
to put upward pressure on margins.
    Question 2. How many jobs will the construction and operation of 
your refinery bring to Arizona?
    Answer. The ACFY refinery will generate many high skilled jobs in 
the Yuma County area. During construction it is expected that about 
3000 people will be required for a 3 year period. Ongoing operation 
will require about 600 people including local contract support. These 
jobs will all be in Yuma County with professional and highly skilled 
operations and maintenance positions.
    Question 3. You state in your testimony that the Yuma project has 
modern control and monitoring equipment as required by current 
regulations and allows the plant to have ``minimal impact on the 
surrounding environment'' and thus helps siting and public acceptance 
of the project. You also state that ``the industry has led in major 
technology developments'' in Best Available Control Technology for 
emissions as required by the Clean Air Act. Would you agree that in 
this case environmental requirements have actually been beneficial to 
the project?
    Answer. Processing technology and process control have reached a 
high level of sophistication as have measuring and monitoring. The 
sophisticated controls required by the permit will aid in optimization 
and both minimizing losses and maximizing product values. The controls 
on ``fugitive emissions'' are very beneficial as they permit recovery 
and minimization of losses of very expensive hydrocarbons. As the 
operational management practices are developed and implemented they 
will include a critical focus on all environmental requirements and 
will also improve operational monitoring and incident reduction. Yes--
the critical focus on environmental controls and requirements will 
assist the operations in other areas and be beneficial to the refinery.

    [Responses to the following questions were not received at 
the time the hearing went to press:]

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                     Washington, DC, July 20, 2006.
Mr. S. William Becker,
Executive Director, STAPPA/ALAPCO, Washington, DC.
    Dear Mr. Becker: I would like to take this opportunity to thank you 
for appearing before the Senate Committee on Energy and Natural 
Resources on Thursday, July 13, 2006 to give testimony regarding H.R. 
5254, the Refinery Permit Process Schedule Act.
    Enclosed herewith please find a list of questions which have been 
submitted for the record. If possible, I would like to have your 
response to these questions by Friday, August 4, 2006. Thank you in 
advance for your prompt consideration.
            Sincerely,
                                          Pete V. Domenici,
                                                          Chairman.
[Enclosure.]
                    Questions From Senator Domenici
    Question 1. I too am concerned that efforts to speed refinery 
construction not interfere with state authorities and procedures. But I 
also am concerned about finding ways of meeting the nation's need for 
refined products. Please summarize for the committee why your 
organization favors the approach contained in Subtitle H of Title III 
of the Energy Policy Act of 2005 over the approach contained in H.R. 
5254.
    Question 2. In your testimony you suggest, as does Mr. McGinnis, 
that the primary reason for the lack of new refinery construction has 
been due to the economics of the reining industry. Do you see those 
conditions changing with new domestic requirements for the production 
of cleaner fuels and with the tremendous growth in world wide demand 
for finished petroleum products-especially for diesel and motor 
gasoline?
    Question 3. Are not environmental compliance matters a ``cost'' 
issue? Don't the length, uncertainty, and cost of the permit process 
act as a deterrent to new refinery construction?
                    Questions From Senator Bingaman
    Question 1. What do you think the effect of Section 4 will be of 
changing the court of jurisdiction?
    Question 2. In your testimony, you express concerns about how H.R. 
5254 would preempt states' rights in several areas: 1) providing 
exclusive jurisdiction to Federal district courts rather than state and 
local courts over civil actions for failure to meet a schedule, 2) 
setting the coordinated schedule to be consistent with procedural 
review required by Federal law irrespective of state or local 
procedures and 3) allowing the federal government to make communities 
accept construction of a refinery. Do you think that this proposed 
legislation would have a negative impact on the ability of states to 
handle important environmental issues at the local level?
    Question 3. Can you expound on why you believe it would be 
preferential for industry to increase refinery capacity by expanding 
existing refineries rather than building new ones?
    Question 4. It has been said that the bill does not alter the 
substantive environmental requirements of federal and state law. The 
bill does establish permitting deadlines and new judicial review 
requirements for participating states, would you agree that those 
changes, at a minimum, do result in a substantive change in the 
procedural requirements of federal and state law?
                      Questions From Senator Wyden
    Question 1. Most states fund their air quality permitting programs 
from a combination of state general funds and fees. If H.R. 5254 was 
enacted and a Governor requested additional EPA or other federal agency 
assistance in obtaining a federal refinery authorization would the 
project applicant reimburse the federal government for their additional 
assistance? Does H.R. 5254 give applicants an incentive to request 
federal assistance in lieu of having to pay state permitting fees?
    Question 2. Does H.R. 5254 create a bad precedent in that petroleum 
and other fuel refining and production facilities are given 
preferential, expedited permitting and project reviews while other 
energy production facilities (that could also dampen demand for 
additional fuel or energy supplies) continue to be permitted in a 
``business as usual'' way? Shouldn't all energy production facilities 
such as wind farms, geothermal, solar and wave energy be eligible for 
the same fast-track treatment as long as they help to meet national 
energy supply goals and reduce the cost of energy or fuel to consumers?
                                 ______
                                 
                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                     Washington, DC, July 20, 2006.
Mr. Bob Slaughter,
President, National Petrochemical and Refineries Association, 
        Washington, DC.
    Dear Mr. Slaughter: I would like to take this opportunity to thank 
you for appearing before the Senate Committee on Energy and Natural 
Resources on Thursday, July 13, 2006 to give testimony regarding H.R. 
5254, the Refinery Permit Process Schedule Act.
    Enclosed herewith please find a list of questions which have been 
submitted for the record. If possible, I would like to have your 
response to these questions by Friday, August 4, 2006. Thank you in 
advance for your prompt consideration.
            Sincerely,
                                          Pete V. Domenici,
                                                          Chairman.
[Enclosure.]
                    Questions From Senator Domenici
    Question 1. You testified that establishing and optional federal 
coordinator for permitting might bring some of the announced refinery 
capacity additions on line more quickly. Do you know of any attempts at 
this time to delay any of those needed refinery expansions?
    Question 2. In 2005, ICF Consulting produced a report on worldwide 
refining capacity which concluded that growth in new refining capacity 
will be insufficient to meet world wide demand for finished petroleum 
products, especially for new cleaner gasoline and diesel fuel. Are you 
aware of that report? Do you agree generally with the report's 
conclusions? If so, what does the projected worldwide shortage in 
refinery capacity mean for fuel availability and for fuel prices in the 
U.S. if we are unable to enhance our refining capacity?
    Question 3. Is it possible that domestic requirements for cleaner 
and cleaner fuels could reduce this country's ability to obtain such 
fuels from foreign sources? Or is it likely that foreign refiners will 
adjust their production to accommodate U.S. demand for fuels?
    Question 4. Over the past several years we have heard from a number 
of different sources that the domestic petroleum industry's 
infrastructure is such that even minor outages at product pipelines, 
crude and product storage facilities, crude oil delivery facilities at 
our ports, and, of course refineries, can result in very serious 
consequences for domestic fuel markets. Would you take a few minutes to 
provide the committee with your thoughts on how we might be able to 
alleviate these infrastructure problems?
    Question 5. Are not environmental compliance matters a ``cost'' 
issue? Don't the length, uncertainty, and cost of the permit process 
act as a deterrent to new refinery construction?
    Question 6. There is much interest in building new biomass to 
ethanol plants and coal to liquids plants to produce more 
transportation fuels. Do we need to include these facilities in an 
effort to improve the permitting process?
    Question 7. Tesoro reports that it is scrapping a coker project at 
its Washington refinery due to ``higher than expected costs.'' Can you 
shed any light on what ``higher than expected costs'' means?
                    Questions From Senator Bingaman
    Question 1. How many jobs would be created in the United States if 
we built (and operated) an additional 3 million barrels per day of 
refining capacity to try to offset the imports of petroleum products 
that we receive each day into this country?
    Question 2. What is the average level of compensation for an 
average worker in the refining industry?
    Question 3. The refining industry has testified that environmental 
regulations are not interfering with the construction of existing or 
the expansion of new (Greenfield) refineries. CEOs have noted the 
steady capacity increases historically from expansions at existing 
refineries and in your testimony today you provide a list of announced 
expansions for the future. Today's Oil Daily reports that Tesoro will 
not go forward with a 25,000 bpd expansion at its Anacordes refinery 
due to an ``increase in costs.'' Do the projects on the list that you 
provide, totaling some 1.8 million bpd, also face such potential 
impacts? Please explain.
    Question 4. Does your organization represent all of the refining 
companies in the U.S.? If not, who (which refiners) is not a member? Do 
you have reason to believe that these non-members have opinions 
different than that which you presented today?
    Question 5. Based on your testimony about the proposed legislation, 
is it NPRA's view that, under Section 4(b)(2) the designated federal 
coordinator has the authority to establish a schedule governing 
federal, state and local permitting actions, even when relevant 
permitting agencies do not participate in meetings called by the 
coordinator? If not, does NPRA support modifications to the bill's 
language to ensure all permitting requirements, federal, state, and 
local, are included in a Memorandum of Agreement (MQA).
    Question 6. The proposed legislation would authorize the refinery 
applicant or a party to the MOA to bring a civil action in federal 
district court if a federal or state agency jeopardizes the timely 
completion of the schedule. It appears the bill's judicial review 
standard does not provide for expedited review in the event of 
disagreement over substantive issues such as compliance with 
environmental standards. Why is such a distinction beneficial in NPRA's 
view?
    Question 7. For Memoranda of Agreement reached under this bill, 
there would also be a required change to the venue in which cases 
involving the MOA's permit processing schedule are litigated under 
federal and state environmental law. Under this bill, cases would now 
have to go to the federal district court in which the refinery is 
located or proposed to be located. Litigated outcomes are always 
difficult for companies to predict, isn't there some benefit to 
companies to staying within the current judicial forums, rather than 
changing them, because of judicial precedent?
    Question 8. In your testimony, you state that U.S. refining 
companies will add considerable additional capacity by 2010--
approximately 1.8 million barrels per day. In addition, you state that 
there is 800,000 barrels per day of capacity still idle as a result of 
hurricanes. How much additional capacity do you project will be needed 
to meet U.S. demand? Why not continue to expand existing refineries in 
order to increase capacity rather than build new ones, given that the 
permitting is faster, and the economics are preferable?
    Question 9. Last year, in Subtitle H of the Energy Policy Act of 
2005 (EPAct 05) Congress streamlined the permitting procedures for 
refineries. These provisions are similar to those that are included in 
the proposed legislation, yet they would not create any conflicts with 
existing environmental laws. Does NPRA support Subtitle H of EPAct 05?
                      Questions From Senator Wyden
    Question 1. Refining capacity may not increase as much as your 
chart shows . . . . NPRA's testimony contains a chart showing that the 
Tesoro company plans to increase their refining capacity by 223,000 
barrels/day. Oil Daily however, reports that the company will not 
proceed with their plant expansion due to higher costs. What does this 
mean for the rest of the projected capacity shown in the NPRA chart? 
Are there other planned expansion projects that will not pan out?
    Question 2. Your chart claims that an additional 1.8 million 
barrels/day capacity is due to be on-line by 2011. Would any additional 
capacity be brought on-line with the passage and enactment of H.R. 
5254? If yes, how much additional fuel supply would be added and how 
much faster would it be added?
    Question 3. Your testimony projects that an additional 1.8 million 
barrels/day of refined oil products would be added to our national 
supplies by 2011. Yet, the Department of Energy's, Energy Information 
Administration projects that the demand for petroleum fuels will 
continue to grow by 1.2%-1.9% annually from now until then. How much 
additional petroleum will be needed to meet or exceed demand by 2011? 
What effect will this have on gas prices at the pump? If current 
domestic refining capacity does not help to satisfy projected demand in 
2011, how much additional supply or imports will we need to have 
available before prices will decline? Do we really have to wait five 
years before seeing a decline in gas prices?
                     Questions From Senator Salazar
    Question 1. People often cite the statistic that no new refineries 
have been built in the U.S. since 1976 as evidence that environmental 
protections and the permitting process has caused the industry's growth 
to remain stagnant.
    Is it true that refiners have not been adding capacity? According 
to your own testimony before the House, Valero recently announced that 
it will be investing $5 billion dollars in refinery expansion, 
resulting in over 400,000 barrels per day of new capacity. ExxonMobil's 
Baytown refinery is currently under expansion of 75,000 barrels per 
day, and Marathon Ashland Petroleum has also plans to expand.
    Question 2. Furthermore, major refiners have been consolidating and 
closing refineries to increase their margins over the last several 
years, resulting in greater profits and more capital on-hand. Is this 
legislation even necessary, if refining companies have the resources 
and means to invest in added refinery infrastructure?
    Question 3. What other economic forces affect the growth of 
refinery capacity in the U.S.?
    Question 4. Under the current regulatory framework and the 
provisions passed in last summer's Energy Policy Act, how much new 
refinery capacity will be added in the U.S. within the next five years?
    Question 5. Have you found the sections of the Energy Policy Act 
that pertain to refinery permitting to be inadequate improvements to 
the regulatory process? Or is it possible that we have not given the 
provisions in EPAct enough time to take hold?

                                    

      
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