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[Senate Hearing 109-503]
[From the U.S. Government Publishing Office]

                                                 S. Hrg. 109-503, Pt. 3
 
   IMPLEMENTATION OF THE PROVISIONS OF THE ENERGY POLICY ACT OF 2005

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

                                HEARINGS

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   on

     ENHANCING OIL AND GAS PRODUCTION; GEOTHERMAL ENERGY AND OTHER 
    RENEWABLES; AND HYDROGEN AND FUEL CELL RESEARCH AND DEVELOPMENT

                               __________

                             JUNE 27, 2006

                             JULY 11, 2006

                             JULY 17, 2006

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

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
30-004                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
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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 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               JON S. CORZINE, New Jersey
GORDON SMITH, Oregon                 KEN SALAZAR, Colorado
JIM BUNNING, Kentucky
                     Bruce M. Evans, Staff Director
                   Judith K. Pensabene, Chief Counsel
               Robert M. Simon, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
                 Dick Bouts, Professional Staff Member
                Kathryn Clay, Professional Staff Member
                Patty Beneke, Democratic Senior Counsel
                  Jonathan Epstein, Legislative Fellow

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearings:
    June 27, 2006................................................     1
    July 11, 2006................................................    45
    July 17, 2006................................................   121

                               STATEMENTS
                             June 27, 2006

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     2
Clarke, Kathleen, Director, Bureau of Land Management, Department 
  of the Interior, accompanied by Dale Hall, Director, U.S. Fish 
  and Wildlife Service...........................................     2
Craig, Hon. Larry E., U.S. Senator from Idaho....................    10
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     9
Eppink, Jeffrey, Senior Vice President, Advanced Resources 
  International, Inc., Arlington, VA.............................    19
Flanderka, Mary, State Planning Coordinator, Office of the 
  Governor, State of Wyoming.....................................    10
Martinez, Hon. Mel, U.S. Senator from Florida....................     9
Reed, Tom, Wyoming Field Organizer, Trout Unlimited, Arlington, 
  VA.............................................................    22
Salazar, Hon. Ken, U.S. Senator from Colorado....................    34
Thomas, Hon. Craig, U.S. Senator from Wyoming....................     1
Western Colorado Congress........................................    41
Zavadil, Duane, Vice President of Government and Regulatory 
  Affairs, Bill Barrett Corporation, on behalf of the Independent 
  Petroleum Association of Mountain States, Denver, CO...........    14

                             July 11, 2006

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................    45
Collins, Sally, Associate Chief, Forest Service, Department of 
  Agriculture....................................................    53
Craig, Hon. Larry E., U.S. Senator from Idaho....................    45
Geothermal Energy Association....................................   901
Karl, Bernie, Proprietor, Chena Hot Springs Resort, Fairbanks, AK   106
Linden, Robert B., Executive Vice President and General Manager, 
  Stirling Energy Systems, on behalf of the Solar Energy 
  Industries Association.........................................   101
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................    79
Scarlett, Lynn, Deputy Secretary, Department of the Interior.....    46
Snyder, Walter S., Director, Intermountain West Geothermal 
  Consortium, Boise, ID..........................................    82
Taylor, Chris, Director of Development, Horizon Wind Energy, LLC, 
  on behalf of the American Wind Energy Association..............    97
Thomas, Hon. Craig, U.S. Senator from Wyoming....................    46
Thomsen, Paul A., Public Policy Administrator, ORMAT 
  Technologies, on behalf of the Geothermal Energy Association, 
  Reno, NV.......................................................    88
Wells, Jim, Director, Natural Resources and Environment, 
  Government Accountability Office...............................    58
White, V. John, Executive Director, Genter for Energy Efficiency 
  and Renewable Technologies, Sacramento, CA.....................   110

                             July 17, 2006

Alexander, Hon. Lamar, U.S. Senator from Tennessee...............   121
Balcom, James D., President and Chief Executive Officer, 
  PolyFuel, Inc., Mountain View, CA..............................   157
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............   128
Dorgan, Hon. Byron L., U.S. Senator from North Dakota............   149
Garman, David, Under Secretary of Energy, Department of Energy...   123
Leuliette, Timothy D., President and Chief Executive Officer, 
  Metaldyne Corporation, Plymouth, MI............................   140
McCormick, J. Byron, Ph.D., Executive Director, Fuel Cell 
  Activities, General Motors Corporation, Detroit, MI............   136
Paul, Dr. Donald L., Vice President and Chief Technology Officer, 
  Chevron Corporation, San Ramon, CA.............................   149
Thomas, Hon. Craig, U.S. Senator from Wyoming....................   123
UTC Power, a United Technologies Company.........................   170

                                APPENDIX

Responses to additional questions:
    June 27, 2006................................................   175
    July 11, 2006................................................   197
    July 17, 2006................................................   210

                    ENHANCING OIL AND GAS PRODUCTION

                              ----------                              

                         TUESDAY, JUNE 27, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Craig Thomas 
presiding.

            OPENING STATEMENT OF HON. CRAIG THOMAS, 
                   U.S. SENATOR FROM WYOMING

    Senator Thomas. The meeting will come to order, please.
    The chairman, I'm sure, will be here soon. He's asked me to 
go ahead and get us started while he's completing his work with 
the appropriations.
    Let me first thank the witnesses for appearing here today. 
Kathleen and Tom, nice to see you here. It was good to sit down 
with you yesterday and discuss the topics. Mary, welcome, glad 
to have you, and thanks for making the trip from Cheyenne.
    I'm a strong supporter of oil and gas development. It's 
brought a tremendous amount of good for the State of Wyoming, 
and, obviously, to the Nation, a challenge we have in keeping 
our energy program moving and using the public lands and so on 
to be able to use those resources. I do believe we have to do 
this in a responsible way. And, of course, I know all of you do 
that. And I think the energy policy tries to establish that 
proposal, that we can do it.
    One of the most significant parts of the energy bill is the 
creation of the pilot offices to improve Federal permit 
coordination. There are two of these in Wyoming--one in Buffalo 
and the other in Rawlins. These pilot offices are not just a 
way to get more permits out the door, but to do it in a way 
that is sensitive to the needs of the areas that are producing 
energy. And, of course, as you know, in a State like ours, half 
of the State belongs to the Federal Government. Much of it is 
BLM land, of course, which is open for all kinds of 
development, and should be. Some of it is national parks, and 
some of it is national forests. So, we want to be able to use 
that energy, to the extent that we can. At the same time, we 
have to preserve those things that are fundamental to the 
future, and be making decisions now so that we'll be where we 
want to be 30 years from now, in terms of our resources and so 
on.
    I believe BLM and other agencies are doing a good job at 
this. And it's not easy to balance our needs between energy and 
the desire to protect open space in the natural resources. So, 
that's really what we're asking about here today. And we look 
forward to these hearings and to talk a little bit about how we 
can best do that to achieve the kind of energy production we 
need; and at the same time, maintain the resources that we want 
and to look forward to the kind of country we want to have in 
the future.
    Senator Bingaman.

         STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Bingaman. Thank you very much, Senator Thomas. 
Thank you for chairing the hearing. And thank you all for being 
here.
    I'll just underscore what Senator Thomas said, and that is 
about the importance of seeing the provisions in last year's 
energy bill carried out in a way that recognizes the important 
multiple-use mandate for our public lands. Obviously, oil and 
gas production is important, but we obviously also know that we 
have a lot of other uses--grazing and mining and recreation, 
and fish and wildlife, and other uses of the public lands and 
the forests that are important, as well. So, I think we're 
interested in being sure that is properly carried out.
    One other point I want to just mention, in opening here, is 
that I understand there are over 26 million acres of onshore 
Federal lands that are currently under lease but are not 
producing. In the National Petroleum Reserve Alaska, there are 
11 million acres available for leasing and 2.8 million acres 
that are currently under lease. I'm told that there was only 
one well drilled during the past drilling season. I'm sure 
there are many reasons for the fact that we have so much 
Federal land under lease that is not being drilled. I think we 
need to understand that better, and I hope we can get some 
insights into that during the course of this hearing.
    Thank you, Mr. Chairman.
    Senator Thomas. Thank you, Senator.
    Welcome, to our witnesses this morning. Kathleen Clarke, of 
course, is the Director of the Bureau of Land Management. We're 
delighted to have you here. Mr. Hall, you're not on my list--
I'm glad you're here--Director of the Fish and Wildlife 
Service. Mary Flanderka, who's the State planning coordinator 
for the State of Wyoming--delighted, of course, to have you 
here. I've been there, I believe. Tom Reed--I guess I skipped 
down there--Tom is the field organizer for Trout Unlimited. 
And, let's see, who do we have here? Duane Zavadil, vice 
president, Bill Barrett Corporation, on behalf of the 
Independent Petroleum Producers. And Jeff Eppink, vice 
president, Advanced Resources International, of Arlington, 
Virginia.
    So, we'll start with you, Kathleen, please.

    STATEMENT OF KATHLEEN CLARKE, DIRECTOR, BUREAU OF LAND 
  MANAGEMENT, DEPARTMENT OF THE INTERIOR, ACCOMPANIED BY DALE 
         HALL, DIRECTOR, U.S. FISH AND WILDLIFE SERVICE

    Ms. Clarke. Thank you very much.
    I have submitted a joint statement for the record that 
represents the thoughts of both Dale Hall and myself as it 
relates to our shared efforts, and those, really, of other 
Federal agencies and State partners, to move forward with the 
creation of the pilot offices.
    BLM is an agency that is really quite small, but with a 
huge mission. We manage over 260 million acres of Federal lands 
in the West, and over 700 million acres of subsurface land. And 
the vision that we bring to the BLM is that we should manage 
these lands to sustain and enhance the quality of life for 
Americans. And we recognize that the multiple-use mission that 
we have requires that we pay attention to many resource values 
and to all of the ways that the public relate to those lands 
and benefit from their uses. And clearly an important element 
of our mission is managing the energy resources to serve the 
needs of the public, particularly at this time.
    BLM lands produce about 18 percent of the natural gas that 
is consumed in this Nation. Our inventory of five key Western 
States tells us that we have nearly 140 trillion cubic feet of 
natural gas, which is enough to heat 55 million homes for 
nearly 40 years. So, there is a very significant natural gas 
resource that we are working in partnership with the Fish and 
Wildlife Service, Forest Service, the Corps of Engineers, with 
EPA, and with State partners to make available and provide 
access for development.
    The demand for access to oil and gas resources in the 
Rockies has certainly resulted in an increase in the request 
for applications for permits to drill, commonly known as APDs, 
coming in from industry. And there has been much discussion 
about the backlog of APDs. And we refer to that backlog as 
``pending APDs,'' those applications that have come in the door 
and have not yet been through a complete process of approvals.
    I put up a chart here so that you can see that the rate at 
which the applications are coming in is growing rapidly. Now, I 
want to show you another chart that shows you how fast we are 
increasing the processing of permits to drill, and let you see 
that we are also ramping up significantly. In fact, if you were 
to total the total number of applications for permits to drill 
that were granted between 1996 and the year 2000, it comes in 
to something a little over 12,000. It you take the next 4 years 
and measure from 2001 to 2005, BLM has approved over 24,000. We 
have actually had a 104-percent increase in our productivity in 
granting permits to drill. But, as you'll recall, we are also 
getting a huge ramp up in the applications coming in the door. 
And so, indeed, we find ourselves constantly climbing an uphill 
battle to get on top of the workload.
    Clearly, as we watch this demand increase and we all 
understand the challenges of meeting the demands of this Nation 
for energy resources, it's important that we continue to 
improve our processes and that we do everything we can to meet 
that demand. But it's equally important that we are also 
sensitive to the impacts of this ramp-up in energy production, 
and that we pay commensurate attention to the issues of 
inspection and enforcement and environmental monitoring. And 
that is one of the reasons we are very grateful for the 
partnerships that were envisioned by the Congress in the 
establishment of the energy pilot offices.
    I am very pleased today to have Dale Hall with me. When we 
took a look at the many responsibilities that were laid at 
BLM's feet in the Energy Policy Act of 2005, it was clear to us 
that one of the key provisions was the creation of the energy 
pilot offices, in section 365. And as we better understood what 
that mandate was, I was grateful that it recognized the 
partnerships that were necessary for BLM to be able to improve 
its production of APDs and improve its management of oil and 
gas development in the West. I went to Dale Hall, and invited 
Dale to join with me in a set of visits to Western pilot 
offices, to meet with the staff, to understand what their 
challenges were, to make sure that the many partners had a 
shared vision of what we were undertaking together. And I want 
to give Dale a minute here to talk about what his reactions 
were and some of the messages that he shared, both with BLM 
people and the other partners that were there.
    Mr. Hall. Thank you, Kathleen.
    In our view, these pilot officers are really, really good 
offices, with a lot of potential not only to help us move 
forward in working through oil and gas permitting, but also to 
learn how to do proper oil and gas extraction, learn through 
experimentation and working with the oil and gas industry to 
figure some of these things out. You know, good government, in 
our view, means that we work together as one government. And 
so, working with Director Clarke has been a real pleasure for 
me. And I do believe that the Fish and Wildlife Service is 
really there, and our role should be to help the BLM accomplish 
its mission, but in a way that meets the other laws and takes 
care of fish and wildlife resources. And I think that these 
offices are exemplifying that.
    Our people on the ground are really working together. And 
if I had to point out two major things that I think are the 
most critical accomplishments already of the two--of the seven 
offices that we've established, one of them is that we're 
working as a team to get the job done. And, as many of you know 
through history, where there are conflicts with Fish and 
Wildlife resources, Endangered Species Act, and other issues, 
it usually is because we're not involved from the beginning to 
help plan, to help work through the issues. Our people are 
sitting right in the office with BLM folks, and they're 
planning, from the beginning, to avoid the issues and to still 
allow the projects to move forward.
    And the second thing is, the ability to work together in 
one office to come up with means such as programmatic 
biological consultations, so that we can have overarching 
consultations, so that only minor consultation for incidental 
take may be required later.
    Those two things, in and of themselves, are extremely 
important. Working together and coming up with techniques and 
approaches that help us get the job done and protect the 
natural resources while getting oil and gas extraction out is 
really important to all of us, and I think these offices are 
outstanding. And I look forward to what they can do in the 
future in helping us learn how to do it in other areas.
    [The prepared statement of Ms. Clarke follows:]

    Prepared Statement of Kathleen Clarke, Director, Bureau of Land 
Management and H. Dale Hall, Director, U.S. Fish and Wildlife Service, 
                       Department of the Interior

    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear here today to discuss the Bureau of Land 
Management's (BLM) and U.S. Fish and Wildlife Service's (Service) 
efforts to improve oil and gas permitting pursuant to the Energy Policy 
Act of 2005 (EPAct). Our testimony today will highlight our efforts and 
achievements to date implementing the Pilot Project to Improve Federal 
Permit Coordination under Section 365 of the EPAct.

                       BUREAU OF LAND MANAGEMENT

    At the BLM, we are dedicated to ensuring that the American people--
regardless of where they live--benefit from the agency's multiple-use 
mandate. Recent natural disasters and the price of energy serve as 
reminders of the extent to which the availability of energy affects our 
quality of life. Our agency plays an important role in providing an 
appropriate mix of both renewable and conventional energy supplies from 
the public lands and, in turn, contributes to a more secure and 
reliable energy future for our Country.
    We can accomplish all that we do only by involving the public 
through partnerships and working with our cooperating agencies. Our 
track record in developing and maintaining partnerships is second to 
none and in each community across the West you will find the men and 
women of the BLM hard at work to ensure that our decisions are based on 
the principles of multiple-use.
    The BLM manages significant oil and gas resources on the public 
lands. Over the next decade, demand for natural gas is anticipated to 
increase by more than 25 percent. Public lands and the BLM play a key 
role here, as they currently provide 18 percent of the Nation's natural 
gas production. Our inventory of public lands in five key western 
basins identified nearly 140 trillion cubic feet (TCF) of natural gas, 
enough to heat more than 55 million homes for nearly 40 years. In the 
Pinedale area of Wyoming, industry expects to produce 15 TCF of gas 
over the life of the field. This would supply nearly 10 million homes 
for 20 years. Natural gas reserves of this magnitude are relatively 
rare. For example, Alaska's Prudhoe Bay field, the largest oil and gas 
field on the North American continent, contains 35 TCF of gas. Although 
much of the Nation's domestic oil production takes place offshore, oil 
production from the onshore public lands is still significant, totaling 
more than five percent of all domestic production.

                     U.S. FISH AND WILDLIFE SERVICE

    The Mission of the U.S. Fish & Wildlife Service is to work with 
others to conserve, protect, and enhance fish, wildlife, and plants and 
their habitats for the continuing benefit of the American people. The 
agency's role regarding energy development is multifaceted. For 
example, the Service facilitates the environmentally sound exploration 
and production of privately held minerals on National Wildlife Refuge 
System lands in order to minimize impacts to those resources. We work 
in partnership with oil and gas operators to streamline this process so 
that the financial and operational needs of the operator are met, while 
fulfilling our role in protecting species and ecosystems for the 
enjoyment of the American public. We also work closely with other 
entities, such as the BLM, Environmental Protection Agency, and the 
Army Corp of Engineers, in the assessment of potential impacts to 
natural resources, when the requirements of the National Environmental 
Policy Act (NEPA) apply, and we consult with state and local agencies 
to ensure their regulatory requirements are met. The Service 
participates in necessary clearances for protected resources, such as 
Endangered Species Act consultation for threatened and endangered 
species, monitoring and compliance activities, and establishing 
mitigation and reclamation standards for individual projects. The 
Service consults with the oil and gas operators on all phases of 
exploration. This has helped in establishing effective relationships 
with the oil and gas community, and has effectively reduced delays and/
or issues that may arise for either side. The Service works with 
partners to streamline regulatory processes, while fully supporting the 
conservation, protection and enhancement of wildlife and wildlife 
habitat.

                               BACKGROUND

    The demand for onshore oil and gas is reflected in the dramatic 
increase in the number of applications for permit to drill (APDs) the 
BLM receives from one year to the next. The number of APDs received by 
the BLM has increased every year since 2002, and we anticipate this 
trend to continue into 2007 and beyond. A recitation of the numbers 
illustrates this dramatic trend. The BLM received 4,585 APDs in 2002; 
5,063 in 2003; 6,979 in 2004; and 8,351 in 2005. Our current projection 
is that we will receive over 9,300 in 2006 and over 10,500 in 2007. We 
are proud of the progress we have made in response to this increasing 
demand; in 2005, we processed 7,736 APDs, a record number. However, 
despite this significant achievement, it is clear that more needs to be 
done to improve the APD process.
    By signing the EPAct into law, and again more recently in the State 
of the Union Address, President Bush declared his continuing intention 
to secure America's energy future, which includes promoting dependable, 
affordable, and environmentally-responsible domestic energy production 
while reducing U.S. dependence on foreign oil. In passing the EPAct, 
Congress also signaled that it shares the President's goal of providing 
access to reliable domestic energy supplies that are crucial to the 
economic health and security of every American household and business. 
The EPAct creates an innovative way for Federal resource management 
agencies to cooperate in meeting this challenge through the Pilot 
Project.
    In order to address the increasing demand for drilling permits, 
Section 365 of the EPAct authorized the creation of the seven Pilot 
Project Offices, where interagency coordination improvements can be 
developed and tested, along with other methods to improve permit 
processing. These Pilot Project Offices (Buffalo and Rawlins, Wyoming; 
Carlsbad and Farmington, New Mexico; Grand Junction/Glenwood Springs, 
Colorado; Miles City, Montana; and Vernal, Utah) are existing BLM 
offices within the five key western basins that have processed about 70 
percent of the APDs received by the BLM in the last three years. Their 
workload and location makes them ideal for permit processing 
innovations.
    In addition, Section 365 authorized an estimated $20 million in 
mandatory funding for these offices from the Federal share of rental 
receipts from onshore oil and gas leasing. The Treasury Account for the 
Permit Processing Improvement Fund for the Pilot Project Offices was 
established on November 1, 2005, and the authorized receipts are now 
being placed in that account.
    The track record of the BLM and the Service for cooperation will 
serve as a solid foundation for the efforts underway in the Pilot 
Project Offices. We understand that your interests today are in the 
progress made by the BLM and the Service in implementing the Pilot 
Project for improved oil and gas permitting, pursuant to Section 365 of 
the EPAct. We will now turn to discussion of the efforts underway to 
implement the Pilot Project.

                     IMPLEMENTING THE PILOT PROJECT

    Together, we recently toured the Pilot Project Offices. Key leaders 
of many of our Federal and state partnership agencies joined us on 
these tours. Based upon what we have seen we are pleased to report to 
you that the BLM and the Service are making considerable progress 
implementing the Pilot Project.
    The Pilot Project provides a vehicle to bring more resources to 
accomplish permitting, increased inspection and enforcement, foster 
innovation, test more efficient interagency processes, and try new and 
emerging technologies. The Pilot Project Offices will be laboratories 
of efficiency and environmental protection, providing one-stop 
coordination for review of oil and gas development and for conducting 
inspection and enforcement activities.

Interagency MOU
    An Interagency Memorandum of Understanding (MOU) to implement the 
oil and gas Pilot Project Offices was signed by the Administrator of 
the Environmental Protection Agency (EPA), the Secretary of 
Agriculture, the Assistant Secretary of the Army for Civil Works, and 
the Secretary of the Interior on October 24, 2005, ahead of the 90-day 
requirement in the Act. The MOU establishes the roles, 
responsibilities, and delegations of authority among the Federal 
agencies. In order to implement the terms of the MOU, BLM managers and 
their counterparts at partner agencies have been engaged in intensive 
planning and recruitment efforts to ensure that staff and support are 
in place in the Pilot Project Offices to meet the responsibilities 
outlined in the MOU and in the EPAct.
    Under the terms of the MOU, the BLM and the Forest Service will 
continue cooperating closely to administer oil and gas development on 
lands managed by the Forest Service. Particular attention will be given 
to improving communication and information-sharing and to field reviews 
and inspection and enforcement activities. Furthermore, the involvement 
of the Service will ensure increased cooperation concerning threatened 
and endangered species during project planning and implementation. 
Staff from the Forest Service and the Service will be collocated in a 
number of the BLM Pilot Project Offices.
    Together with BLM staff, they will complete environmental analysis 
required by NEPA; develop necessary clearances for threatened and 
endangered species and cultural resources; conduct monitoring and 
compliance activities; and establish mitigation and reclamation 
requirements for individual projects.
    The Service is working with the BLM at all levels to implement 
Section 365 of the EPAct. A memorandum of understanding between the BLM 
and the Service identifies six specific responsibilities that, once 
fully implemented, will allow the Service to streamline its efforts 
under the permit review process. The two agencies are customizing the 
duties of positions at collocated offices to improve permitting 
processes, while protecting of natural resources. Adaptive, 
programmatic measures will reduce the Service's permit review time 
while enhancing stewardship of endangered species and other Federal 
resources. By integrating Service personnel with BLM staff early in the 
land use planning process, the Service anticipates greater regulatory 
flexibility, fewer delays, and an overall reduction in related negative 
environmental effects.
    The Service has filled positions in five of the seven Pilot Offices 
and has assigned temporary staff to the remaining two offices that will 
remain in place until the Service can complete the hiring process for 
those positions. These staffs are supported by three full-time existing 
Service employees who will oversee the initial stages of implementation 
of the pilot program. Critical to the Service's long-term success is 
the identification and application of new and improved procedures to 
address the high volume of APD workload anticipated by the BLM, and 
increasing staff in the pilot offices (and elsewhere) as workload 
increases and additional pilot program funding become available.
    The recent increase in approved APDs will lead to increases in the 
need for inspection and enforcement activities. Accordingly, the BLM 
will work to focus appropriate resources on inspection and enforcement 
activities.

State Coordination
    We are also working with state governments to bring state wildlife, 
environmental quality, oil and gas commission, and historic 
preservation staff into the Pilot Project. This will further coordinate 
energy development activities and further ensure the protection of 
important species and cultural resources.

Staffing and Administrative Efforts
    One of the very important items for the BLM has been meeting 
staffing needs for the Pilot Project Offices. To date, a total of 99 
BLM Pilot Project Office positions (out of 105 identified) have been 
filled. The agency has hired a total of 19 Petroleum Engineering 
Technicians and 21 Natural Resource Specialists for the Pilot Project 
Offices as well as other subject matter experts and the necessary 
support staff to meet the goals of the Pilot Project.
    On February 23, 2006, the BLM transferred funds to the Forest 
Service for 6 Pilot Project Office positions, to the Fish and Wildlife 
Service for 10 Pilot Project Office positions, and to the Army Corps of 
Engineers for three and one-half Pilot Project Office positions. We 
also have transferred funds to the Bureau of Indian Affairs to add one 
position in Farmington, New Mexico, and are working with the Bureau of 
Reclamation to add one position in Carlsbad, New Mexico.
    The BLM, through the Department of the Interior National Business 
Center, has hired a contractor to assist in the review and reporting of 
implementation and performance of the Pilot Project streamlining 
efforts over the next three-year period. This independent review will 
assure an impartial analysis of our performance on the Pilot Project 
implementation.
    Additionally, the BLM has issued interim guidance for APD 
processing that incorporates the timeframes required by the EPAct. 
These processing timeframes will also be incorporated into a reissuance 
of Oil and Gas Onshore Order No. 1, which will be published in the 
Federal Register. The BLM has also issued interim guidance to implement 
the statutory categorical exclusions contained in the EPAct.

                        RESPONSIBLE DEVELOPMENT

    As we implement Section 365, it is important to bear in mind that 
the EPAct does not change the requirements of the Endangered Species 
Act, the National Historic Preservation Act, the Clean Water Act, the 
Clean Air Act, the National Wildlife Refuge Improvement Act, or Federal 
Land Policy and Management Act. The BLM looks forward to cooperating 
closely with its Pilot Project partners, such as the Service, in 
continuing to implement these important laws that protect our 
environment and cultural resources.
    One of the BLM's responsibilities is managing wildlife resources, 
which is an important aspect of our multiple-use mandate. Some have 
questioned BLM's practice of using its wildlife biologists in the 
permitting process, but doing so specifically ensures that wildlife 
needs are considered in areas slated for energy development.
    BLM wildlife biologists are involved in the permitting process from 
an early stage in order to ensure the best protection for wildlife near 
proposed well drilling sites. They work with companies to identify 
areas where there are wildlife concerns; attend onsite meetings with 
the operator at proposed drilling points; make recommendations 
regarding necessary Section 7 consultations for threatened or 
endangered species; and consult with state game and fish agencies 
concerning species of state interest. They are also an important part 
of the interdisciplinary NEPA team responsible for the preparation of 
environmental analysis and development of appropriate mitigation and 
protective measures.
    Through the EPAct, Congress directed the BLM to work on a number of 
important initiatives relating to energy development. The BLM 
continually seeks new ways to minimize, mitigate, or compensate for any 
adverse impacts from development activities.
    Innovation of the type envisioned in the Pilot Project is already 
underway at the BLM. Some examples include a pilot block survey BLM 
initiated in the Carlsbad Pilot Office to identify cultural resource 
properties in the area, and the incorporation of advanced technologies 
and environmental Best Management Practices (BMPs), such as drilling 
multiple wells from a single location, centralizing production 
facilities or relocating them offsite, minimizing road construction, 
and performing interim mitigation. In the Jonah Field, the BLM is 
evaluating an experimental drilling technique proposed by the operator 
using temporary wooden pallets for roads and well pads to determine if 
this technology reduces impacts to surface vegetation and soil.
    The BLM is also using performance-based standards to challenge 
industry to reduce emissions, minimize surface disturbance, and develop 
quick and effective reclamation techniques to improve restoration of 
disturbed areas. If on-site mitigation measures do not achieve the 
desired conditions, companies have the option of undertaking off site 
mitigation measures. For example, in March of this year, we announced 
that EnCana is contributing up to $24.5 million over ten years toward 
an office dedicated to funding offsite mitigation and monitoring in the 
Jonah Field, Wyoming. We expect that offsite mitigation will become an 
increasingly useful tool for improving habitats adjacent to natural gas 
development areas.
    In the Pinedale area of Wyoming, for example, concerns about 
impacts to wildlife have resulted in reduced surface disturbance 
compared to past development. By implementing such measures as the 
consolidation of infrastructure, such as roads, pipelines, and 
production facilities, we have achieved an overall reduction in the 
footprint of development involved in winter drilling projects in the 
Pinedale Anticline.

                               CONCLUSION

    In conclusion, Mr. Chairman, energy is vital to expanding our 
economy and enhancing Americans' quality of life. The Administration is 
proud of the progress we have made in responding to the increased 
demand for access to the Federal onshore oil and gas resources we 
manage. As noted at the beginning of our statement, over the next 
decade, demand for natural gas alone is anticipated to increase 25 
percent. The BLM and the Service plan to help meet this unprecedented 
demand by using tools provided under the EPAct, such as the Pilot 
Project, and developing and applying program innovations and process 
efficiencies that improve inter-agency coordination and effectiveness.
    The Pilot Project will further enhance our ability to respond to 
the demand for oil and natural gas, while meeting the other goals of 
our multiple-use mandate. In the 10 months that have elapsed since the 
enactment of the EPAct, we have made substantial progress in our 
ongoing efforts to respond to this demand.
    Thank you for the opportunity to testify today about the Pilot 
Project. We would be happy to answer any questions you have.

    Senator Thomas. Good. Thank you.
    The chairman has returned.
    The Chairman [presiding]. Thank you very much.
    Thank you, Mr. Hall. Thank you, Kathleen Clarke. And will 
you stay, even though you're finished?
    Ms. Clarke. Yes.
    The Chairman. Just so you might fill in for responding to 
others----
    Ms. Clarke. Absolutely.
    The Chairman [continuing]. Who are making observations. 
That would be very helpful.
    I had some opening remarks. I'll say a little bit about 
them, because I want to just put the overview, as I see it, on 
this hearing and what it's about.

       STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR 
                        FROM NEW MEXICO

    The Chairman. These hearings have been called because we 
had estimates that the inventory of oil and gas on Federal 
lands, at least in 2003 in the Rocky Mountain region, is 
considered to have the largest untapped, onshore natural 
resource reserves in the country. Estimates of 138 trillion 
cubic feet of natural gas on Federal lands in the interior West 
is sufficient to heat all the 55 million homes that use natural 
gas in the United States for 39 years.
    Obtaining access to these Federal resources is probably the 
most often cited issue affecting oil and gas production in the 
Rocky Mountain West. Among those provisions, one stands out: 
Section 365 of the Energy Policy Act of 2005, the Pilot Project 
to Improve Federal Permit Coordination. This section 
establishes Federal permit streamlining projects in seven BLM 
field offices in the State of Wyoming, Montana, Colorado, Utah, 
and New Mexico. This section also provides over $20 million of 
the new funding for these seven offices. Some assert that, with 
the volume of natural gas in this region, these provisions may 
do more to increase production than anything else in the energy 
bill.
    Today, we hope to get an update on what the progress has 
been, and how good it has been. It's been 10 months since the 
energy bill was signed, so we are still early in the process. 
Today, we will hear from five witnesses, four of whom I expect 
we will gain a clear picture as to how these programs are 
proceeding.
    So, we're going to start, as we already have, with Kathleen 
leading off, as she has. And she called on Mr. Hall, as she 
did; and then we will proceed right down the line with the 
other witness and see where we end up.
    With that, let us now proceed.
    I know that some Senators have not made a statement of any 
type. Senator Martinez, would you like to comment?
    Senator Martinez. Mr. Chairman, thank you very much for 
holding the hearing today. I would like to just submit a 
statement for the record, in the interest of time.
    Thank you very much.
    The Chairman. Thank you. That will be done.
    [The prepared statement of Senator Martinez follows:]
   Prepared Statement of Hon. Mel Martinez, U.S. Senator From Florida
    Chairman Domenici, I wanted to thank you for holding this hearing 
today on the development of oil and gas resources from our nation's 
public lands. Section 365 of the Energy Policy Act directed the Bureau 
of Land Management (BLM) and other related federal agencies to improve 
coordination of permitting for the extraction of these resources and 
ease the backlog of permits waiting for consideration.
    According to BLM, public lands provide over 18 percent of our 
country's supply of natural gas production. This trend can only be 
expected to go up with the increase in natural gas demand in the U.S.
    In 2003, an inventory of resources was conducted on the Rocky 
Mountain region which concluded that greatest untapped on-shore reserve 
of natural gas was located there. The study estimated 138 trillion 
cubic feet of natural gas resided in the region and would heat nearly 
55 million homes for almost 40 years. This is truly an astonishing 
amount of natural gas, considering that it is over 20 times as large as 
the natural gas reserves estimated to be in the Lease 181 area off the 
coast of Florida (6 trillion cubic feet).
    Because of the incredible size of reserves and the escalating price 
of natural gas, applications for permits to drill (APDs) have sky-
rocketed from 4,585 in 2002 with projects for 10,500 APDs by 2007.
    This rapid increase has concerned many not just in the 
environmental community, but in the sportsmen groups as well. As a 
Senator from an environmentally sensitive state, I well understand 
these concerns when dealing with energy development on federal 
resources. Florida has very little public land left for hunters and 
fisherman to enjoy, which is partly a result of the staggering growth 
the state has experienced.
    Economic growth, prosperity, conservation, and our nation's energy 
needs are not mutually exclusive priorities. Public lands belong to 
everyone. And what happens on these public resources--be it recreation, 
preservation, or energy development--it's still vetted and subject to 
the Endangered Species Act, the Clean Water Act, the Clean Air Act, and 
a whole host of other environmental, cultural, and historic protection 
standards.
    We also need to remember that our public lands are also our 
nation's heritage--our inheritance, if you will. The forests, 
mountains, rivers, streams, the picturesque vistas and solitary wide-
open spaces--as we move forward we need to remember that there is an 
intrinsic public value that can not be measured only in Btu's or 
kilowatts.
    I look forward today to hearing from our agency partners in the 
Administration, the energy industry, and conservation associations so 
that we can work collaborative to develop and protect our national 
public treasures.

    The Chairman. Senator Larry Craig.

        STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR 
                           FROM IDAHO

    Senator Craig. Mr. Chairman, thank you for another 
oversight hearing on this critical issue. I know that Kathleen 
has been working due-diligently for the last good many months, 
since the passage of EPAct, to accomplish what we feel can be 
effectively and responsibly accomplished out in the overthrust 
in certain of those States of the West that you've mentioned. 
So, I look forward to the balance of the comments, and I have 
some questions.
    Thank you.
    The Chairman. Thank you very much.
    Now we will proceed. I think the next witness, Senator 
Bingaman, if I am correct in order, will be Mrs. Mary 
Flanderka.
    Would you please identify yourself and proceed with your 
testimony?

STATEMENT OF MARY FLANDERKA, STATE PLANNING COORDINATOR, OFFICE 
               OF THE GOVERNOR, STATE OF WYOMING

    Ms. Flanderka. Thank you, Senator. Thank you, Mr. Chairman 
and members of the committee. It's an honor to be here.
    I work for the State Planning Office, under Governor 
Freudenthal. And our office, along with State agencies and 
local government, have been very involved with the BLM, working 
on many, many pilot projects, as well as many projects dealing 
with oil and gas development.
    And, at this time, I want to say thank you to Director 
Bennett, the State director of Wyoming, and his staff and his 
field offices. One of the goals of the Energy Policy Act was to 
create partnerships and coordination with many entities, and 
the director has done that, and he is committed to that. It is 
not easy, especially when you look at multiple organizations 
with different missions. Do we agree all the time? No. But 
there is a commitment to work together and work through these 
delicate and difficult multifaceted issues.
    There are many steps to successful development. And right 
now I'd just like to focus on the permitting, especially in the 
pilot project offices.
    They have ramped up, they have gotten people employed 
there. They're located there. They've issued, I believe, 2,900 
permits in Wyoming in 2005, and they're hoping, or expecting, 
to issue 4,500. Things are going well, but you can't put old 
heads on young shoulders, and that's going to take time, 
experience, and training to get these folks up and moving as 
efficiently as possible.
    But there are other components of successful development 
that I'd like to talk about right now. And the first one is 
planning.
    We have three field offices that have resource management 
plans that have been delayed for over 2 years. There are other 
field offices, as well, that have not begun these resource 
management plans. These plans were developed in the 1980's. 
They're outdated for the level of development we're seeing.
    The importance of these plans is, they outline the pace and 
place of development, as well as the thresholds that we expect 
to see on other resources. And part of the problem--and I don't 
want to pass blame or judgment on the BLM, because, frankly, 
they've got a lot of pressures right now, but to work through 
these RMPs and to work through these project EISs takes a skill 
set that is very specific. It just can't be a specialist that 
gets along with other people; it takes a very specific skill 
set and a project manager to complete these.
    The other aspect of development is the implementation; of 
course, development, production, reclamation, and plugging. 
Right now, Wyoming is really focused on reclamation. We're in a 
drought. With 12 inches of rain last night, I'm jealous. I wish 
that we could take some of that back. But reclamation, if it's 
improperly done, or not done, or not done timely, will affect 
air-quality issues, permittees, weed management, and habitat 
issues.
    And then, the last leg of the stool, as Director Clarke had 
mentioned, was inspection and monitoring. And the pilot offices 
are ramping up for inspection. However, what the Wyoming office 
has seen is that they've only been able to complete two-thirds 
of the required 10 percent of inspections. And with development 
going fast and furious, it's important to make sure, one, that 
the right things are being done, they're being done in the 
right way; and, if they are being done, that they're effective. 
And I don't know that we know that. As we issue more and more 
APDs, we want to make sure that the right conditions of 
approval are included in that, in new APDs, so we don't get 
into an environmental problem.
    Finally, the suggestions that have come out of our 
experience is that it's really important to complete the 
resource management plans, as well as the project EISs. If they 
drag out, we get into more and more problems, and then we drag 
out longer. We need to complete these RMPs, these EISs, get 
them done, outline the thresholds that need to be met for the 
other resources. And, although we talk about resources for BLM, 
which is needed--of course, that's money or people--there is a 
need to make sure that there is money for EPA, as they do flow-
through money for our Department of Environmental Quality, who 
also has a role and a responsibility in issuing permits to the 
industry. And then, there is also the National Historic 
Preservation Grant, which provides a block grant to States to 
do SHPO clearance. And, frankly, Wyoming is the fourth-busiest 
State dealing with APDs, and ranks 44th on the list of funding.
    And then, finally, a thought is, at the Pinedale Field 
Office, we were surprised that that was not considered a pilot 
project office, with everything going on. With deep gas that's 
going on in Pinedale Field Office, that would be worth 
considering, also, to take a look at that.
    Thank you very much.
    [The prepared statement of Ms. Flanderka follows:]

   Prepared Statement of Mary Flanderka, State Planning Coordinator, 
                Office of the Governor, State of Wyoming

    Good morning, Mr. Chairman and members of the Committee. I 
appreciate this opportunity to submit this statement as a part of 
today's hearing related to the implementation of the Energy Policy Act 
provisions on enhancing oil and gas production on federal lands in the 
Rocky Mountain region.
    In their role as cooperating agencies, the Wyoming State Planning 
Office, along with various state agencies, have been involved in Bureau 
of Land Management (BLM) oil and gas development in Wyoming as well as 
participating in the implementation of many of the 2005 Energy Policy 
Act provisions.
    For successful energy development to occur, attention needs to be 
given to these three issues: flexibility in permitting based upon site-
specific issues and appropriate available technology; speed in permit 
issuance; and accountability to ensure that the right practices are 
implemented in the right way and at the right time. The early 
implementation of the Energy Policy Act has focused on permit issuance.
    My remarks this morning will focus on the impact of the legislation 
on energy development in Wyoming regarding permitting, planning, 
monitoring/inspection and reclamation activities.
    The opportunity exists for the BLM, with appropriate funding, to 
maximize the positive impacts and minimize the negative impacts 
associated with energy development in Wyoming.
    There is no question of the need to develop Wyoming's energy 
resources. As a result of that development, the state of Wyoming 
receives significant revenue from royalties generated by mineral 
production. However, concurrently, Wyoming feels the impact of 
accelerated development through social and economic changes in local 
communities as well as impacts to wildlife, recreation and air and 
water resources.
    There is support for permit-streamlining efforts that will increase 
energy production; however, there is equal support for strengthening 
other aspects of regulating energy development. This includes effective 
and efficient planning and inspection/monitoring activities. Planning 
and monitoring require a partnership between the state of Wyoming, the 
BLM and others. Without improving planning and inspection/monitoring 
activities, permitting times could continue to languish due to social 
or even legal constraints related to impacts on other resources.
    Bottom line, an increase in permits is not the only element that 
will increase and maintain energy production. The entire development 
stream (planning, permitting, monitoring and reclamation) must be fully 
attended to if energy development is to occur efficiently and 
effectively.
    Project environmental impact statements (EIS) and resource 
management plans (RMPs) are overdue. These documents are imperative to 
successful energy development.
    Three of the four BLM time-sensitive projects identified in a June 
2004 priority list of Wyoming BLM land-use planning projects are yet to 
be finalized--two years after their initial deadlines. The staff at the 
state and local field offices find themselves multi-tasking to a 
remarkable degree and being torn between planning and permitting. 
Additional resources are needed to allow a planning team to focus on 
completing RMPs, and project EISs are needed to ensure that there is 
always a next generation of applications waiting to be processed.
    The completion of RMPs is important for reasons other than just 
permitting; there is a need to address thresholds of protection for 
other important resources. The current RMPs are outdated. At the time 
of printing the current RMPs, the current level of development had 
never been anticipated and new technology and science have since 
created additional opportunities for development. The RMP revisions 
need to identify those areas whose leasing should be deferred for the 
protection of other resources, while energy-rich areas are fully 
developed. As an example, the Pinedale Field Office had 92% of its area 
leased, with a high likelihood of full development. The 8% of remaining 
land does not seem able to protect other resource values such as sage 
grouse, mule deer, antelope or recreation opportunities.
    Even with additional personnel in the pilot offices, the permitting 
increase is occurring. The state and local BLM offices are still 
struggling under increasing workload and high turnover. This will 
change with training and experience.
    I would like, to take just a few minutes, though, to give credit to 
the state BLM office and Wyoming's field offices. The state agencies, 
local counties and BLM offices have been working on many issues, either 
as partners or via cooperating agency status. Although the process is 
always not smooth, there is a commitment by all to continue to make the 
relationships more effective and efficient. Wyoming BLM Director 
Bennett has been a leader in making sure communication continues 
regardless of impediments.
    Permitting is ramping up in Wyoming. The BLM has processed 2900 
Applications for Permit to Drill (APD) in 2005 and is anticipating 
processing 4500-5000 APDs in 2006.
    Wyoming BLM, from the state's perspective, has faced serious 
pressure to lease and permit--both of which are necessary for 
development. The Buffalo and Rawlins field offices have received almost 
all personnel to fulfill permitting goals. But throwing money and 
personnel at a problem does not necessarily make permitting go faster. 
Experience and coordination are necessary if efficient permitting is to 
happen. It is ludicrous to expect field offices with up to 20% annual 
turnover rates to be operating at full speed.
    There are currently no state agency employees actively involved in 
the permitting emphasis in the pilot projects. The state departments of 
Environmental Quality and Game and Fish see their roles evolving with 
planning or monitoring/inspection activities. And, again, both areas 
are suffering. Dialogue is occurring regarding the placement of state 
employees in these two offices.
    Monitoring is vital to validating whether or not development is 
proceeding properly.
    Although the Energy Policy Act refers to the development of best 
management practices and the need for enforcement, very little 
attention was directed to those areas during the act's development. 
Moving ahead quickly on any project is dangerous if there is no 
monitoring to make sure that the project is being done correctly. BLM 
energy development in Wyoming is headed in exactly this direction due 
to a focus on permits above all else and a lack of funding. Without the 
assurance that development is proceeding appropriately, additional 
permits could be processed with faulty information, leading to serious 
environmental problems--which could in turn lead to court injunctions.
    BLM monitoring funds have seen limited increases from the national 
monitoring funding, but that funding is spread continually thinner as 
more wells are completed. A smaller overall percentage of wells is 
actually inspected annually. Frankly, the words in the lease become 
meaningless if there is no accountability, assurance or inspection that 
the work is getting done. Numbers already indicate that field offices 
in Wyoming are having a difficult time meeting the existing inspection 
requirements. Wyoming BLM field offices in 2001 were able to complete 
93% of 1750 required environmental inspections, for a total of 15,000 
federal permitted wells. In 2005, the BLM completed only 66% of its 
required 2100 environmental well inspections of a total of 20,000 
federal permitted wells; this year, the state office anticipates that 
it will be able to conduct 66% of required well inspections. The data 
clearly indicates that an expedited well permitting process coupled 
with increased drilling applications requires that federal agencies be 
provided additional adequate resources to fulfill inspection and 
enforcement guidelines. Some may argue that there is no need, but there 
was an inspection incident in and adjacent to the Pinedale Field Office 
Jonah field in 2005, where a reporter uncovered many significant 
environmental violations. Inspection is far less expensive to industry, 
the BLM and the state than an injunction stopping additional 
development. The pilot office initiative has addressed inspection and 
enforcement capability to the Rawlins and Buffalo Field Offices but is 
only in the early stages of implementation. Similar assistance needs to 
be added to other BLM field offices.
    A Government Accounting Office (GAO) Oil and Gas Report June 2005 
identified the concern that increased permitting activity by the BLM 
has lessened the agency's ability to meet its environmental protection 
and liability responsibilities. The report indicates that field 
managers under pressure to complete permitting processes often shift 
workloads from inspection and enforcement to application processing. 
Examples from the report describe how the Buffalo, Wyoming and Vernal, 
Utah field offices, the two field offices with the largest amount of 
permitting activity, were only able to each meet their annual 
inspection goals once in the past six years. Additionally, the report 
highlights that the Buffalo Field Office was only able to achieve 27 
percent of its required environmental inspection goals during the 2004 
fiscal year. Clearly it is in the interest of the public, state 
agencies, the BLM and industry to ensure that the guidelines of leases 
and permits are being followed. The GAO recommends acquiring staff who 
would be dedicated to performing inspection and monitoring activities. 
Again, Wyoming concurs with this recommendation.
    Federal energy development in Wyoming can be accomplished in such a 
way that meets the nation's energy needs while still protecting the 
state's social, economic and natural resources. In order to do that, 
the entire development process from cradle to grave needs attention 
from planners, decision makers, permitters and inspectors.
    Suggestions for improvement:
    In an effort to improve the effectiveness and efficiency of oil and 
gas development the following suggestions are offered:

   Complete RMPs and project EISs.
   Provide performance-based objectives, rather than 
        prescriptive limitations within project and RMP final 
        decisions.
   Continue to obtain and develop the necessary staff in both 
        numbers and expertise to continue to permit.
   Continue to coordinate formally (via cooperating agency 
        status) or informally with local and state governments to 
        address site-specific social, economic and resource concerns in 
        an appropriate manner.
   Stabilize and/or increase the U.S. Environmental Protection 
        Agency's (EPA) funding to states so that existing state staffs 
        can provide equal attention to their portion of the permitting 
        process.
   Increase the funding for EPA's Underground Injection Control 
        program to the Wyoming Oil and Gas Conservation Commission.
   Maintain or increase the National Park Service funding for 
        the Historic Preservation Grant. Wyoming is the busiest state 
        in the nation for Section 106 reviews with over 400 requests 
        for comment from the BLM, but ranks 44th in funding.
   Commit funding to coordinating and procuring the most up-to-
        date resource data.
   Consider the creation of NEPA teams led by individuals with 
        project management experience to complete RMPs and project 
        EISs.
   Make the Pinedale field office a pilot office.

    Finally, there was much controversy in 2005 about whether winter 
stipulations on BLM land were a hindrance to energy development. I 
would encourage you to avoid any hasty action that would remove these 
stipulations. Generally, these stipulations provide crucial protection 
to wildlife. Our preference is to have BLM outline in advance 
opportunities to work through stipulations. With proper planning and 
good communication, more times than not, issues can be worked out 
appropriately.
    Again, thank you for this opportunity to submit my written comments 
to the record.

    The Chairman. Thank you.
    Mr. Zavadil.

 STATEMENT OF DUANE ZAVADIL, VICE PRESIDENT OF GOVERNMENT AND 
REGULATORY AFFAIRS, BILL BARRETT CORPORATION, ON BEHALF OF THE 
 INDEPENDENT PETROLEUM ASSOCIATION OF MOUNTAIN STATES, DENVER, 
                               CO

    Mr. Zavadil. Mr. Chairman, members of the committee, my 
name is Duane Zavadil. I am the vice president of the 
Independent Petroleum Association of the Mountain States. I'm 
also a vice president of government and regulatory affairs for 
Bill Barrett Corporation, an independent, Denver-based E&P 
company, exploration and production company.
    I'd like to thank the committee for holding a hearing about 
the benefits of the act. IPAMS has submitted written comments, 
and I'll be summarizing those.
    First, I'd like to thank all the members of this committee 
for their dedication and hard work in passing the Energy Policy 
Act of 2000. I want to tell you, the good news is that the 
committee's work from last summer is, in fact, making a 
difference in public land development, to help increase 
supplies from natural gas headed to consumers. Close oversight 
of the bill's implementation, or the act's implementation, 
however, is going to be necessary in order to see continued 
increases in production, going forward.
    Public lands contain the largest onshore reserves of 
natural gas in the Nation. And, as the Director pointed out, 18 
percent of our current production is from Federal lands 
onshore. The Energy Information Administration estimates that 
Intermountain West natural gas production will need to double 
over the course of the next two decades, ultimately surpassing 
the production in the Gulf of Mexico in order to keep pace with 
the Nation's demand. That doubling number is significant. I'll 
point out later that some sort of a paradigm change is going to 
be necessarily, ultimately, to accommodate that growth.
    The agency currently responsible for administering energy 
production on public lands, the Bureau of Land Management, 
faces a multitude of issues. The critical land-use plans have, 
in fact--or the completion of those critical plans has slowed 
to a crawl. Leasing has become divisive, and appeals are the 
norm. NEPA remains a source of delay and uncertainty for 
investment. Demand for drilling APDs has outpaced the agency's 
ability to process them. BLM's management of this dynamic 
combination of factors has a real effect on the market price of 
natural gas. Notwithstanding these problems, the act is 
providing, and will continue to provide, relief for those 62-
million households, by our calculation, that consume natural 
gas.
    The act contains provisions to improve the Federal 
Government's ability to develop its onshore energy resources. 
Both leasing and permitting on Federal lands were addressed in 
the legislation. For some provisions, it's really too early to 
determine whether implementation will yield substantive changes 
in public-land energy development. However, we are seeing 
tangible benefits from this legislation, in the form of 
increased production, that will reduce the impact of another 
serious supply disruption like we suffered last year.
    The act requires agencies to examine their leasing process 
to determine where improvements can be made. The act requires 
further coordination between the agencies, as was pointed out 
earlier, where there are overlapping jurisdictions within the 
Fish and Wildlife Service, the Environmental Protection Agency, 
and so forth. And we believe the pilot project offices, with 
their expanded capacity, will, in fact, aid, ultimately, the 
nomination, slash, leasing process. These measures will provide 
the basis for BLM to reduce the delays associated with 
nominating and issuing leases for energy production.
    Permitting remains the most immediate, and perhaps most 
manageable, element controlling the amount of natural gas to 
reach consumers from public lands. Commodity prices tell us 
that more wells need to be drilled. Both industry and BLM have 
responded, and drilling is up. The number of permits approved 
by the BLM, by one statistic, has increased 20 percent over the 
last 3 years. At the same time, the number of permits that we 
have submitted as an industry to the BLM has increased by 27 
percent. Field offices have, therefore, fallen further behind.
    The act created the Pilot Program to Improve Federal Permit 
Coordination, the busiest offices. We think that is a 
tremendously valuable asset. We've seen real progress in each 
of the pilot offices. The number of permits that have been 
approved, for example, in the Vernal field area office has 
dramatically improved. Of course, since we're submitting more 
APDs, the delay is still there, but the throughput has, in 
fact, increased dramatically.
    One very tangible improvement on the permitting front is 
the use of the section 390 categorical exclusions. We conducted 
an informal survey of our members, and a third of the 
respondents had suggested the use of categorical exclusions; 28 
percent of those were, in fact, adopted. They seem to be taking 
as long as the APD process, the normal APD process, but, maybe 
with a bit more certainty in the outcome.
    I have a case in point, from our own company's experience, 
that illustrates, sort of, both the good and bad. We have a 
drilling program in a field in Utah that we simply wouldn't be 
able to be going forward with at this point in time. We expect 
we'll drill on the order of 30 wells and produce 50-million 
standard cubic foot of gas by the end of this summer. That 
simply would not have been possible without the categorical 
exclusion process.
    In closing, I think it's important to recognize the efforts 
of the BLM and commend them for accommodating the growth that 
we've seen over the course of the last year or so, or the last 
several years. The growth has been dramatic. Public-land 
natural-gas development is vitally important to the Nation. The 
Government's role in the natural-gas markets today should be 
apparent, and will only increase with time. And while paradigm 
changes in the administration of the Federal permit programs 
are necessary to get to that--twice the level we are today, the 
Energy Policy Act of 2005 will, in fact, help reduce our 
dependency on foreign natural gas. We hope that the Federal 
agencies, at all levels, continue to work with industry to 
ensure that those opportunities created by the Act continue to 
increase production on Federal lands.
    Thank you.
    [The prepared statement of Mr. Zavadil follows:]

 Prepared Statement of Duane Zavadil, Vice President of Government and 
    Regulatory Affairs, Bill Barrett Corporation, on Behalf of the 
    Independent Petroleum Association of Mountain States, Denver, CO

    Mr. Chairman and members of the Committee, my name is Duane Zavadil 
and I am Vice President of the Independent Petroleum Association of 
Mountain States. I want to thank this Committee for holding a hearing 
about the benefits to the public of the Energy Policy Act of 2005. 
First, I'd like to thank all members of this Committee for their 
dedication and hard work in passing the Energy Policy Act of 2005. 
Second, I want to tell you the good news, that this Committee's hard 
work from last summer, is making a difference in public land 
development to help increase supplies of natural gas headed to 
consumers. The final point I would like to make is that close oversight 
of the Act's implementation will be necessary to see continued 
increases of energy production on federal lands in the Intermountain 
West.

              PUBLIC LAND ENERGY AND THE ENERGY POLICY ACT

    Public lands owned and managed by the federal government hold 
resources that benefit the nation in multiple ways: food, recreation, 
habitat for wildlife, and last but not least, energy. As the nation's 
appetite for energy continues to grow and production from traditional 
sources decline, public lands in the Rockies must play a significant 
role in the nation's energy security.
    The federal government is the largest owner of natural gas reserves 
in the nation by way of its surface and subsurface management of public 
lands. The Bureau of Land Management (BLM) and the Forest Service 
manage 261 million and 193 million acres of surface lands respectively. 
These lands are located overwhelmingly in the Western states. The 
federal mineral estate underneath BLM, Forest Service, other agencies 
and even some private lands, encompasses 699 million acres.
    The federal government will play a significant role in the future 
development of natural gas because demand for natural gas is not 
expected to decline significantly in the next two decades and likely 
beyond. According to the Energy Information Administration (EIA), by 
2030 U.S. consumption of natural gas will be 27 trillion cubic feet, up 
from 21.9 Tcf today. It is estimated that federal lands contain nearly 
200 trillion cubic feet of technically recoverable natural gas. Public 
lands contain the largest onshore reserves of natural gas in the nation 
and currently supply 11 percent of the nation's natural gas. The EIA 
estimates that Intermountain West natural gas production will double 
over the next two decades surpassing the Gulf of Mexico. Today, more 
than half of the natural gas from this region is produced from public 
lands.
    The current bureaucratic process for developing these lands, 
however, moves slowly and in recent years has not kept pace with the 
nation's energy demands. Last year, hurricanes Katrina and Rita 
underscored the lack of secure, excess natural gas. The agency 
currently responsible for administering energy production on public 
lands, the Bureau of Land Management faces a multitude of issues. 
Preparing critical land use plans has slowed to a crawl. Leasing has 
become divisive, spurring extended administrative processes through 
protests and appeals of federal agency decisions. NEPA remains a source 
of delay and uncertainty. Demand for drilling permits has outpaced the 
agency's ability to process them. BLM's management of this dynamic 
combination of factors has a real effect on the market price for 
natural gas. Notwithstanding these problems, the Energy Policy Act of 
2005 is providing, and will continue to provide relief to the 62 
million households that consume natural gas.
    The Act contains provisions to improve the federal government's 
ability to develop its onshore energy resources in the public interest. 
Both leasing and permitting on federal lands were addressed in the 
landmark legislation. For some provisions, it is too early to determine 
whether the implementation of this legislation will yield substantive 
changes in public land energy development. However, we are seeing 
tangible benefits of this legislation in the form of increased 
production that could reduce the impact of another serious supply 
disruption.

                    LEASING, PLANNING AND PERMITTING

Planning
    The land use planning process is critical to oil and gas 
development on public land. Both the BLM and Forest Service are 
required to prepare planning documents pursuant to federal law. These 
plans guide multiple-use activities in the areas covered by the plans. 
The importance of these plans cannot be understated. If land-use plans 
are not updated with sufficient consideration of the need for expanded 
energy production, the nation's ability to provide affordable domestic 
energy is severely limited.
    Many of the current plans are outdated and do not reflect the 
importance of public lands in meeting energy demands. Recognizing this, 
in 2001 BLM initiated an overhaul of its entire planning base with the 
goal of updating all 160 RMPs within ten years. Twenty-one ``Time 
Sensitive Plans'' (TSP) were identified as high priority because they 
address energy resource development, respond to nationally significant 
lawsuits, or have legislatively mandated time frames. With 2006 upon 
us, six TSPs critical to oil and gas development are not yet final 
(Table 2) limiting BLM's ability to effectively manage the public's 
energy resources. Furthermore, some of the plans, in their draft form, 
contain prescriptions that further limit, rather than expand, the 
potential for energy production. Simply put, many of these draft plans 
are inconsiderate of the effect that the government has on natural gas 
prices and consumers. If these plans are appropriately updated, BLM 
managers will be able to more effectively carry out many elements of 
energy program administration, elements such as leasing and permitting 
that were addressed by the Act. These plans need to be reviewed for 
their impact on consumers and completed as soon as possible.
Leasing
    Media accounts of oil and natural gas leasing lead one to believe 
that leasing is galloping along at a break neck pace. In reality, 
leasing has continued at an even pace through both the Clinton and Bush 
Administrations. For the last several years, with rising natural gas 
prices and improved technology, there has been significant interest in 
areas that were not feasible to develop in the past. As these areas 
have been nominated for oil and gas leasing by companies, conflicts 
arise with organizations who want to block all development. As a 
result, administrative challenges, called ``protests,'' of leases in 
the Intermountain West have been on the rise over the past few years.
    BLM lease sale protests have increased significantly over the past 
few years. Between 2001 and 2005, 42% of all lease parcels offered in 
the Intermountain West have been protested. In 2005, 55% of the lease 
parcels offered were protested (Table 1). Isolating Colorado and Utah, 
80% of all offered lease parcels were protested. Protests divert BLM 
personnel and funding from effectively managing the multiple uses of 
the land to fighting litigation and administrative processes. Protests 
further tie up a company's capital that could be used to produce 
energy.\1\ (See Attachments for more information about Leasing Public 
Lands).\2\
---------------------------------------------------------------------------
    \1\ Companies that successfully bid on a lease are required to pay 
the entire bonus bid (sometimes upwards of $2,000 per acre in recent 
sales) and first year's rent within 10 days of the lease sale.
    \2\ Attachments have been retained in committee files.

                      Table 1.--2005 LEASE PROTESTS
------------------------------------------------------------------------
                                          Parcels    Parcels
                 State                    offered   protested   Percent
------------------------------------------------------------------------
Colorado...............................   292        234          80%
Montana................................   442         48          11%
New Mexico.............................   314        197          63%
Utah...................................   329        264          80%
Wyoming................................   968        542          56%
------------------------------------------------------------------------

            Table 2.--APPLICATIONS FOR PERMITS TO DRILL (APD)
------------------------------------------------------------------------
                                    Q1-Q3     Q1-Q3     Q1-Q3    Average
                                    2004      2005      2006     change
------------------------------------------------------------------------
APDs received...................    4470      5769      7272      27%
APDs approved...................    3363      4296      4874      20%
------------------------------------------------------------------------

    The Energy Policy Act of 2005 has the potential to improve the 
leasing process for public lands. The Act requires agencies to examine 
their leasing processes to determine where improvements can be made. 
The Act requires further coordination between agencies where there is 
overlapping jurisdictions (wildlife, air quality, etc.). Pilot project 
offices should have expanded capacity to review nominations and offer 
parcels for leasing. These measures provide the basis for BLM to 
eliminate many of the delays associated with nominating and issuing 
leases for public land energy production.

                               PERMITTING

    Permitting remains the most immediate and perhaps manageable 
element controlling the amount of natural gas to reach consumers. 
Commodity prices tells us that more wells need to be drilled. Both 
industry and BLM have responded and drilling is up. The backlog of 
permits in BLM field offices, however, continues to grow. As Table 2 
shows, the number of permits approved by BLM has increased 20% over the 
last three years. At the same time, the number of permits received by 
BLM has increased by 27%. Field offices have fallen further behind. For 
companies juggling tight drill rig availability with seasonal 
stipulations that allow drilling only during a narrow time frame, 
permitting delays are very problematic. Approval times are 
unpredictable and often reaching six months or more. An unpredictable 
permitting process leaves drilling contractors unable to sufficiently 
respond to market conditions by moving more rigs into the region, and 
producers are threatened with increased costs by losing drilling rigs 
or paying for drill rigs that they cannot keep busy. Multiply these 
pressures by the number of rigs that are working and the need to have 
multiple permits available to execute a coordinated, flexible drilling 
program and the need for a more timely permitting process becomes 
painfully apparent. (See Attachments for more information about 
Drilling Rigs in the Rockies).
    The Energy Policy Act of 2005 created the Pilot Program to Improve 
Federal Permit Coordination in the busiest BLM field offices throughout 
the Intermountain West. The provision creating the pilot program also 
included a funding mechanism that uses one-half of the revenues 
received from lease rental payments. BLM has diligently implemented 
this section by hiring and training new personnel in the pilot offices. 
Although the program is just getting off the ground, IPAMS has great 
expectations that new personnel will quickly learn their 
responsibilities to minimize the apparent losses in efficiency that are 
inherent in any new program.
    In addition to improving coordination among the federal agencies, 
IPAMS is very pleased that the pilot program will examine the 
permitting process to see where efficiency gains are possible. IPAMS 
believes this may be the most important step toward improving the 
permitting process on federal land. A comprehensive look at the current 
process to identify where the bottlenecks occur will help this 
Committee determine potential legislative action and oversight 
opportunities. Without examining the permitting process and making 
changes to improve its efficiency, BLM will likely continue to fall 
behind in permit approvals even as the agency's role will grow more 
important in meeting the nation's energy needs.
    One tangible improvement on the permitting front is the use of 
Section 390 of the Energy Policy Act of 2005 which categorically 
excludes certain oil and gas operations from redundant analysis under 
the National Environmental Policy Act. Recently, IPAMS conducted an 
informal survey of our members regarding their experience with Section 
390 of the Energy Policy Act.
    Nearly one-third of the respondents had suggested the use of the 
categorical exclusions to the BLM and 28% were accepted. Another 
interesting result from IPAMS' survey was that Section 390 categorical 
exclusions took just as long to complete as the normal process for 
approving permits. This finding may indicate the need for closer 
oversight by this Committee to ensure the agency is carrying out the 
Congressional intent of Section 390.

                               CONCLUSION

    Public land natural gas development is vitally important to the 
nation. The government's role in the natural gas markets today should 
be apparent and will increase in over time. While paradigm changes in 
the administration of the federal minerals program are necessary to 
avoid increasing dependency on foreign natural gas, the Energy Policy 
Act of 2005 is helping to address some of the immediate barriers to 
meeting natural gas demand. IPAMS hopes that federal agencies, at all 
levels, will continue to work with industry to ensure that the 
opportunities created by the Energy Policy Act of 2005 continue to 
increase energy production on federal lands.
    Thank you for the opportunity to testify before you today, I am 
happy to answer any questions you may have.

    The Chairman. Thank you very much.
    Let's proceed to our next witness, Jeffrey Eppink.

 STATEMENT OF JEFFREY EPPINK, SENIOR VICE PRESIDENT, ADVANCED 
          RESOURCES INTERNATIONAL, INC., ARLINGTON, VA

    Mr. Eppink. Good morning, Chairman Domenici and members of 
the committee. My name is Jeffrey Eppink. I am a senior vice 
president with Advanced Resources International, an energy 
consulting firm based in Arlington, Virginia. I'd like to talk 
about the EPAct pilot offices and the potential of that 
program.
    As a result of the passage, last summer, of EPAct section 
365, the Secretary of the Interior was directed to establish a 
pilot project to improve Federal drilling permit coordination. 
The pilot comprises seven Bureau of Land Management field 
offices: Miles City, in Montana; Buffalo and Rawlins, in 
Wyoming; Verna, in Utah; Glenwood Springs, in Colorado; and 
Farmington and Carlsbad, in New Mexico. These field offices are 
the locations of some of the richest natural-gas resources in 
the lower 58 States.
    Subsequently, last fall, Advanced Resources was asked by 
the Secretary's office to perform an analysis of the impacts 
for processing outstanding applications for permits to drill--
so-called APDs--from the pilot offices. Specifically, the 
Secretary's office asked us to assess the benefits that could 
accrue from the first 5 years of incremental funding to the BLM 
pilot offices. The funding for the program is anticipated to be 
$19 million per year. At the time of the analysis, the backlog 
of APDs in process in the pilot offices stood at 3,100, upon 
which our analysis was based.
    Since last fall, in the wake of the devastation of 
Hurricane Katrina, natural-gas prices rose to record highs. 
Prices have now moderated significantly; although, on a 
historical basis, they are still quite high. As a consequence 
of these natural-gas prices, in the areas of the pilot offices, 
particularly, industry responded to the price signals and 
increased drilling applications. As a result, the number of BLM 
APDs in process has grown.
    I checked with the BLM in late May, and there were over 
4,500 APDs in process for the pilot offices, nearly a 50-
percent increase from fiscal year 2005. Of these APDs, BLM 
indicated that 1,615 are administratively complete, meaning 
that the applications are not deficient for information that 
would delay processing. I mention these increased APDs, because 
the benefits I present below would be larger if the current 
backlog were considered.
    The results from our analysis of last fall indicate that 
the benefits from the pilot program could be significant for 
the Nation, given the modest investment. The major effect of 
the assumed activities is to accelerate production, moving it 
earlier in time to capture most benefits within 15 years.
    The analyses show that there would be a number of positive 
impacts. Production would be increased up to over 1,000 
billion-cubic-feet-equivalent per year. Proved reserves would 
be increased up to 11,800 BCFe over the 5 years of drilling 
that would occur. The Federal share of royalties would be 
increased by $2.1 billion. The amount of incremental economic 
value developed as a result of the assumed activities could 
represent a net-present-value of about $20.4 billion. And jobs 
would be increased, peaking at over 14,000 per year. The cost 
of the initiatives is negligible, less than 1 cent per thousand 
cubic feet of added reserve.
    In the absence of the increased APD processing capacity by 
BLM, it is unlikely that the backlog could be worked off as 
additional APDs are generated. As I have indicated, the backlog 
has already grown significantly this past winter. Were the 
backlog to be worked off, production resulting from drilling 
would act to increase supply and moderate prices for the 
Nation. It is noteworthy that, in order to accomplish this 
increased production, land-access issues need to be considered.
    Although the results I have presented are robust, 
implementation of the pilot project will likely present 
challenges, including issues of hiring APD-knowledgeable BLM 
staff, rig availability, the politics of land access, and 
possible pipeline constraints.
    I appreciate the opportunity to present our analysis of the 
benefits of processing APDs and BLM pilot offices to you, and 
would be glad to answer any questions that you might have.
    [The prepared statement of Mr. Eppink follows:]

 Prepared Statement of Jeffrey Eppink, Senior Vice President, Advanced 
              Resources International, Inc., Arlington, VA

    Good afternoon, Chairman Domenici and members of the Committee. My 
name is Jeffrey Eppink. I am a senior vice president with Advanced 
Resources International, an energy consulting firm based in Arlington, 
Virginia.
    As a result of the passage last summer of the Energy Policy Act of 
2005 (EPAct), Section 365, the Secretary of the Interior was directed 
to establish a pilot project to improve Federal drilling permit 
coordination. The pilot comprises seven Bureau of Land Management (BLM) 
field offices: Miles City, Buffalo, Rawlins, Vernal, Glenwood Springs, 
Farmington, and Carlsbad. These field offices are the locations of some 
of the richest natural gas resources in the lower-48 states.
    Subsequently, last fall Advanced Resources was asked by the 
Secretary's office to perform an analysis * of the impacts for 
processing outstanding Applications for Permit to Drill (APDs) from the 
pilot offices. Specifically, the Secretary's Office asked us to assess 
the benefits that could accrue from the first five years of incremental 
funding to the BLM pilot field offices. The funding for the program is 
anticipated to be $19MM per year. At the time of the analysis, the 
number of APDs in-process in the pilot offices stood at 3100 (at the 
end of FY2005), upon which our analysis was based.
---------------------------------------------------------------------------
    * The analysis has been retained in committee files.
---------------------------------------------------------------------------
    Since last fall, in the wake of the devastation of Hurricane 
Katrina, natural gas prices rose to record highs. Natural gas prices 
now have moderated significantly, although on a historical basis, they 
still are quite high. As a consequence of these prices, in the areas of 
the pilot offices particularly, industry responded to the price signals 
and increased drilling applications. As a result, the number of BLM 
APDs in-process has grown. I checked with the BLM in late May and there 
were over 4500 APDs in-process for the pilot offices--nearly a 50 
percent increase from FY2005. Of these in-process APDs, BLM indicated 
that 1615 are ``administratively complete'' meaning that the 
applications are not deficient for information that would delay 
processing.
    I mention these increased in-process APDs because the benefits I 
present below could be larger if the current backlog were considered.
    The results of our analysis from last fall indicate that the 
benefits from the pilot program could be significant for the Nation 
given the modest investment. The major effect of the assumed activities 
is to accelerate production, moving it earlier in time to capture most 
benefits within 15 years. The analyses show that there would be a 
number of positive impacts:

   Production would be increased, up to over 1,000 billion 
        cubic feet-equivalent (BCFe) per year,
   Proved reserves would be increased, up to 11,800 BCFe over 
        the five years of drilling that the initiatives would affect,
   The Federal share of royalties would be increased by over 
        $2.1 billion,
   The amount of incremental economic value, developed as a 
        result of the assumed activities, would represent a net present 
        value (NPV) of $20.4 billion, and
   Jobs would be increased, peaking at over 14,000 per year.

    The costs of the initiatives are very low--less than 10 per 
thousand cubic feet (MCF) of added reserve, which is negligible 
compared to current natural gas prices of about $6 per MCF.
    In the absence of increased APD processing capacity by BLM, it is 
unlikely that the backlog could be worked off as additional APDs are 
generated--as I have indicated, the backlog has already grown 
significantly this past winter. Were the backlog to be worked off, the 
increased production resulting from drilling could act to increase 
supply and moderate prices for the Nation. It is noteworthy that, in 
order to accomplish this increased production, land access issues need 
to be considered.
    Although the results I have presented are robust, implementation of 
the pilot project will likely present challenges, including issues of 
hiring of APD-knowledgeable BLM staff, rig availability, the politics 
of land access, and possible pipeline constraints.
    I appreciate the opportunity to present our analysis of the 
benefits for processing APDs in BLM pilot offices to you and would be 
glad to answer any questions you might have.

    The Chairman. Thank you very much.
    Now, Mr. Tom Reed.

     STATEMENT OF TOM REED, WYOMING FIELD ORGANIZER, TROUT 
                    UNLIMITED, ARLINGTON, VA

    Mr. Reed. Thank you very much. My name is Tom Reed. I work 
for Trout Unlimited. I also used to work for the Wyoming Game 
and Fish Department, and I'd like to speak specifically about 
Wyoming today.
    Wyoming is more than carrying its weight for the energy 
needs of this country. Oil and gas development and exploration 
is taking place at an unprecedented rate. It is estimated that 
25 percent of the State will be impacted by oil and gas 
development to meet our Nation's demands. That's a land area 
roughly equivalent to 360 Washington D.C.'s.
    At Trout Unlimited, we feel that oil and gas development is 
appropriate in some places, and inappropriate in others. But 
even where it is appropriate, there needs to be sound science 
that protects our fisheries and wildlife, and, as an extension, 
our fishing and hunting opportunities. Wyoming truly is blessed 
with natural resources, both below and above the ground. The 
State's scenic beauty, wildlife, and fisheries are 
unparalleled. This State is known for its long vistas, its 
sagebrush deserts, high mountains, deep forests, and crashing 
rivers. To the hunter and angler, Wyoming offers some of the 
finest outdoor opportunities in the world, from its abundant 
pronghorn antelope and mule deer to its elk to its four 
subspecies of native cutthroat trout, this State sustains a 
wide variety of game and fish and enough wild country to absorb 
a lifetime of exploring. I, personally, have hunted Wyoming's 
deep spruce forests for elk, fished the high mountain lakes for 
native trout, and crawled through the sagebrush in an attempt 
to take a nice pronghorn buck. I've ridden my horse in the high 
country and floated down the wild rivers in the lower deserts. 
There are a lot of people in Wyoming just like me, they live 
there for the great outdoors and for the opportunity to hunt 
and fish and enjoy the time out there with their families.
    But these can troubling times for people like me who love 
the great outdoors. At the current rate of development, 
scientists, particularly with the Wyoming Game and Fish 
Department, are having a difficult time keeping up with much-
needed research. It is important for Congress to recognize that 
intensive impacts are occurring, and will continue to occur, as 
this region is changed from wild, empty country into 
industrialized zones. Funding for land management agencies, 
such as the Bureau of Land Management, needs to be secured 
specifically for scientists who deal with the impacts on 
wildlife and fisheries. State wildlife agencies, like the 
Wyoming Game and Fish Department, also need national funding so 
that biologists can be hired to deal solely with oil and gas. 
These biologists would collect data, monitor impacts, and 
design and implement mitigation, working closely with industry 
and land management agencies.
    There is a willingness among many in industry to move in 
this direction, but Congress also needs to step up with money 
so these agencies could take care of our fisheries and 
wildlife.
    How this development is going to impact our wildlife and 
fisheries heritage is largely unknown, because much of the 
development has taken place in the last few years. To keep 
abreast of this, we need more science, and we need more 
scientists. For example, there are only three people in the 
Game and Fish Department's Cheyenne office to deal with oil and 
gas issues. When one realizes that just one corner of Wyoming, 
the Powder River Basin, faces an estimated 60,000 coalbed 
methane wells, it is clear that this is too much too fast.
    The Department estimates that it needs staff biologists 
that deal with nothing but oil and gas development to study, 
understand, and try to mitigate impacts to crucial big game, 
sagebrush-sensitive species, and fisheries habitats.
    I mentioned earlier that there are also places where oil 
and gas development is inappropriate, and I'd like to 
personally thank our Senator, Craig Thomas, for his landmark 
stance against oil and gas drilling on our national forests. 
We, too, believe that our national forests should be off-
limits. These are our headwaters and our hunting grounds. They 
are places where Wyomingites go to recreate and relax, and to 
spend time with family and friends. The Wyoming Range, in 
western Wyoming, is just such a place. It harbors some of the 
finest mule deer, moose, and elk hunting in the State. It is 
also home to three important subspecies of native trout. People 
from all over the country come to this region to fish, hunt, 
and relax.
    Today, we are heavily developing country east of the range 
for oil and gas. Places like the Pinedale Anticline and the 
Jonah gas field are helping to fuel this Nation, but they are 
also places that have been historically used as winter range 
for our big-game herds. We are very concerned about the amount 
of development that is taking place on these winter range, but 
it is also very important to us that we save places like the 
Wyoming range.
    An example of why some places should be off limits is the 
LaBarge Creek drainage in the Wyoming range. Here is a stream 
that the Wyoming Game and Fish Department is putting Colorado 
River cutthroat back into after years of absence. This is a 
fish that has swum these waters for thousands of years. At an 
estimated cost of $2 million, the Department is revitalizing 58 
miles of stream. Yet, at the same time, there is seismic 
exploration in the headwaters.
    In conclusion, we would like to emphasize to Congress that 
more money needs to be made available for the States to study 
wildlife and fisheries. And, also, we would like to see some 
places kept off-limits.
    Thank you very much.
    [The prepared statement of Mr. Reed follows:]

    Prepared Statement of Tom Reed, Wyoming Field Organizer, Trout 
                        Unlimited, Arlington, VA

    Chairman Domenici, Senator Bingaman, and Members of the Committee, 
thank you for giving me the opportunity to speak to you today about oil 
and gas production on Federal lands in the Rocky Mountain Region.
    My name is Tom Reed. I grew up in Colorado and graduated from 
Arizona State University. I spent several years working as an 
instructor in Wyoming teaching, among other things, fly fishing and 
horse-packing. I also worked for the Wyoming Game and Fish Department. 
I currently serve as the Wyoming Field Coordinator for Trout 
Unlimited's Public Lands Initiative, the purpose of which is to develop 
sound scientific and technical information demonstrating the importance 
of public lands to coldwater fisheries, wildlife, and hunting and 
fishing opportunities as well as sharing this information with 
sportsmen across the West.
    Our public lands sustain some of the cleanest water, healthiest 
habitats, and finest fishing and hunting in North America. More than 50 
million Americans hunt and fish, however, too often their voices are 
lost in the din of controversy that has come to define public land 
management. A significant and growing concern among sportsmen is the 
impact of energy development on fish and wildlife habitat on our public 
lands.
    Wyoming is at the forefront of these energy and public land issues 
and is more than carrying its weight for the energy needs of this 
country. Oil and gas exploration and development is taking place at an 
unprecedented rate. It is estimated that 25 percent of the state will 
be impacted by oil and gas development to help meet our nation's 
demands. That's a land area the equivalent of 360 Washington DCs.
    In the Rocky Mountain West, energy development is proceeding at an 
ever increasing rate. More than 26 million acres of public land managed 
by the Bureau of Land Management (BLM) in Wyoming, New Mexico, Utah, 
Colorado, and Montana are open for leasing. In a year's time, BLM 
approved 5,700 new drilling permits in those states--a 62% increase 
over the previous year. BLM has a total of nine fisheries biologists in 
those five states. That's about 3 million acres of leased land per 
fisheries biologist. Most people agree that is an impossible 
responsibility to place on nine people.
    At Trout Unlimited, we feel that oil and gas development is 
appropriate in some places and inappropriate in others. But even where 
it is appropriate, sound science needs to be utilized to protect our 
fisheries and wildlife, and as an extension, our fishing and hunting 
opportunities. We are not side-line critics. We believe in rolling up 
our sleeves and working with industry to minimize the effects of 
development on fish, game, and water resources. For example, we are 
working in Wyoming with Dudley and Associates on the Seminoe Road 
coalbed methane project to try and develop operational protocols for 
development that minimize effects on ground and surface water and 
fisheries. Questar has similarly demonstrated a willingness to work 
with us. We believe it is important to work with companies to ensure 
that development is done right.
    In our view, however, doing development right includes 
acknowledging when it's being done wrong, and where it shouldn't be 
done at all. Wyoming truly is blessed with natural resources, both 
below and above the ground. The state's scenic beauty, wildlife and 
fisheries are unparalleled. This state is known for its long vistas, 
sagebrush deserts, high mountains, deep forests and crashing rivers. To 
the hunter and angler, Wyoming offers some of the finest outdoor 
opportunities in the world. From its abundant pronghorn antelope and 
mule deer to its elk to its four subspecies of native cutthroat trout, 
this state sustains a wide variety of game and fish and enough wild 
country to absorb a lifetime of exploring. I personally have hunted 
Wyoming's deep spruce forests for elk, fished the high mountain lakes 
for native trout, and crawled through the sagebrush in an attempt to 
take a nice pronghorn buck. I've ridden my horse in the high country, 
and floated down wild rivers in the lower deserts. There are a lot of 
people in Wyoming just like me: they live there for the great outdoors 
and for the opportunity to hunt and fish with their families.
    But these can be troubling times for people like me who love the 
great outdoors. At the current rate of oil and gas exploration, 
scientists, particularly with the Wyoming Game and Fish Department, are 
having a difficult time keeping up with the pace of development.
    It is important for Congress to recognize that intensive impacts 
are occurring and will continue to occur as this region is changed from 
wild, undeveloped country into industrial zones. Funding for land 
management agencies such as the Bureau of Land Management needs to be 
secured specifically for scientists who deal with impacts on wildlife 
and fisheries. State wildlife agencies like the Wyoming Game and Fish 
Department also need national funding so that biologists can be hired 
to deal solely with oil and gas issues.
    These biologists should collect data, monitor impacts and design 
and implement mitigation, working closely with industry and land 
management agencies. There is a willingness among many in the industry 
to move in this direction, but Congress also needs to step up with 
money for these agencies so that our wildlife and fisheries resources 
are taken care of. We believe that the scale and pace of development on 
oil and gas fields far outstrips the organizational capacities of both 
state and federal agencies responsible for managing fish and wildlife 
and the habitats they depend on.
    How this development is going to impact our wildlife and fisheries 
heritage is largely unknown because much of the development has taken 
place only in the last few years. To keep abreast of this, we need more 
science and we need more scientists. We also need to slow down and not 
allow energy production to outstrip the land's productive capacity.
    To clarify how overworked and understaffed our biologists are, 
consider: there are only three people in the Game and Fish Department's 
Cheyenne office that deal with oil and gas issues. When one realizes 
that just one corner of Wyoming the Powder River Basin--faces an 
estimated 60,000 wells, it is clear that is too much, too fast.
    The Department estimates that it needs staff biologists that deal 
with nothing but oil and gas development to study, understand and try 
to mitigate impacts to crucial big game, sage grouse, sensitive species 
and fisheries habitats. That tally is as much as $2 million per year. 
Similar expenditures will be needed in other states and for federal 
agencies.
    The purpose of this hearing is to determine the effects of the 
Energy Policy Act's provisions. The fact is that after 11 months it is 
difficult to determine the effects on fish, wildlife, and water 
resources from the acceleration of development. As a life-long hunter 
and angler, I can say with certainty, it isn't looking good for game 
and fish. A biologist within the Wyoming Game and Fish Department told 
me that wildlife and fisheries are going to lose, and the best we can 
hope for is to minimize the loss.
    Along these lines, one aspect of the Energy Policy Act that I would 
urge the Committee to look into is implementation of Section 1811 of 
the Act. That section authorized the National Academy of Sciences (NAS) 
to prepare a report on the impact of coalbed methane development on 
water. Unfortunately, because NAS is depending on funding from BLM to 
get this report together, and the BLM has not provided any money to 
them to do it, the study has not been initiated.
    Given the concern of sportsmen and communities in the West over the 
impact of rapidly expanding coal bed methane development on both water 
supplies and water quality, an NAS evaluation of the issue would be 
very helpful to states, local communities, and individual citizens in 
determining what sort of regulatory regime is appropriate for 
addressing the impacts on water quality and quantity. We urge the 
Committee to let the BLM know that it expects the agency to provide the 
funding necessary to the NAS to get on with this important study.
    I mentioned earlier that there are also places where oil and gas 
development is inappropriate and I'd like to specifically thank our 
Senator Craig Thomas for his landmark stance against oil and gas 
drilling on our national forests. We, too, believe that our national 
forests should be off-limits to oil and gas drilling. These are our 
headwaters and our hunting grounds. They are places where Wyomingites 
go to recreate and relax, to spend time with family and friends. These 
are heirloom places that should be passed down to our children and to 
their children.
    The Wyoming Range in the Bridger-Teton National Forest harbors some 
of finest mule deer, moose and elk hunting in the state. It also is 
home to three important subspecies of native trout: the Colorado River, 
Bonneville and Snake River cutthroat. People from all over the country 
come to this region to fish, hunt and relax. Today, we are heavily 
developing country east of the range for oil and gas. Places like the 
Pinedale Anticline and the Jonah gas field are helping to fuel this 
nation, but they are also places that have been historically used as 
winter range for our big game herds.
    We are very concerned about the amount of development that is 
taking place on these winter ranges. It is a virtual certainty that our 
big game resource, and as an extension, the quality of big game hunting 
in this region is going to decline. If we develop not only winter 
ranges, but migration routes and summer ranges as well, we believe it 
will spell the end of quality hunting in western Wyoming. We'd like to 
see some very special places such as the Wyoming Range set aside for 
recreation and relaxation.
    An example of why some places should be off-limits to energy 
development is the La Barge Creek drainage in the Wyoming Range. This 
stream is the site of a large restoration project being undertaken by 
the Wyoming Game and Fish Department to bring back a native trout, the 
Colorado River cutthroat. At a cost of an estimated $2 million, some 58 
miles of stream are being reclaimed and revitalized for this native, 
pure fish that has swum these waters for thousands of years. Yet even 
while fisheries biologists are hard at work with the restoration 
process, there are daily flights of helicopters doing seismic testing 
in the backcountry headwaters of La Barge Creek for potential gas field 
development.
    Oil and gas development in the headwaters would mean roads and 
roads heavily impact fish by flushing sediment into drainages and 
blocking the passage of spawning fish. These two things: native pure 
fish swimming in clear, clean water on our national forests and 
industrial development cannot make for a happy marriage.
    Our public lands sustain the last-best fish and wildlife habitat 
and hunting and fishing opportunities in the West. We only have one 
chance to develop our lands for gas and oil responsibly and all 
indications show that expedited leasing, rushed approvals for 
application to drill, and a lack of resources for meaningful studies, 
monitoring, and enforcement are spoiling that chance. Trout Unlimited 
commissioned a literature review of information describing the effects 
of energy development on coldwater fisheries. The lack of data is 
daunting. I would like to submit this report for the record.
    I want to share with you a few more examples from the field that 
help to explain why state fish and game departments, federal fish and 
wildlife biologists, and hunters and sportsmen across the Rocky 
Mountain West are so concerned about energy development.

   In the past two years on the Uinta National Forest in Utah, 
        the leasing of National Forest Lands was approved and carried 
        out, and did not take into account the important fisheries 
        restoration work that has occurred or the 2000 Range-wide 
        Conservation Agreement and Strategy for Bonneville Cutthroat 
        Trout. In at least one instance, neither the forest's fisheries 
        biologist nor District Ranger was aware that the resources they 
        are charged with managing would be facing new threats and 
        challenges resulting from leasing that occurred in the Diamond 
        Fork, a watershed that sustains a Conservation Population of 
        native Bonneville Cutthroat Trout and also in the Strawberry 
        Valley, where Utah's most popular trout fishery, Strawberry 
        Reservoir, is located.
   In April, 2006 the Forest Service leased areas of the 
        Wyoming Range. Many of these leases are part of watersheds that 
        sustain core-conservation populations of Colorado River 
        cutthroat trout, a species that is currently regarded as 
        ``sensitive'' by both State and Federal agencies. However, the 
        Bridger-Teton National Forest is lacking baseline data and 
        inventory information. In addition to other concerns such as 
        air quality, Canada Lynx habitat damage, and cumulative 
        impacts, we don't think it's prudent to lease and develop areas 
        in the absence of baseline data.
   Preliminary results of an ongoing study on mule deer impacts 
        in the Upper Green River Basin of Wyoming by Western EcoSystems 
        Technology, Inc. (WEST), BLM, the energy industry and Wyoming 
        Fish and Game show:

    --Mule deer abundance on the Mesa has declined. The Mesa's overall 
            mule deer population is down 46 percent since 2002.
    --Over-winter fawn survival rates have been slightly lower on the 
            Mesa compared to the control region for four of the five 
            years;
    --Mule deer are moving from previously ``high use'' winter habitat 
            areas into areas that previously had been of ``low use'' 
            suggesting that drilling and development has displaced mule 
            deer to less suitable habitats;
    --Sublette County's mule deer are among the most migratory in the 
            West, traveling between 60 to 100 miles between summer and 
            winter ranges. Documented migration routes, such as 
            Trapper's Point Bottleneck, remain important pathways 
            between winter range in the Upper Green and summer range in 
            the surrounding mountains.

    A complete and sound understanding through research and continued 
monitoring of the impacts to our fish, wildlife, lands, waters and air 
is only prudent before jumping head-first into lease obligations and 
expedited development.
    Thank you again for the opportunity to testify today. I will be 
happy to answer any questions you may have.

    The Chairman. Thank you very much.
    Many of us are very proud to hear you talk about the 
marvels of hunting and fishing.
    Mr. Reed. Thank you.
    The Chairman. Maybe I don't share it anymore, but I did, at 
some point in my life, and it's good to hear from you about it.
    We are finished with the witnesses. Now we're going to go 
to Senators. And I would just ask if any Senator has an 
important series of questions and is on a tough timeframe. Is 
there anybody that needs to go--if they want to ask any 
questions, if they need to do it right now--Senator, are you on 
that kind of time schedule?
    Senator Martinez. I'm going to have to move on, but I'm 
going to forego any questions at this time. I just need to go 
onto the floor to speak on another matter.
    The Chairman. Thank you very much. Thanks for coming, 
Senator.
    Senator Martinez. Thank you.
    The Chairman. All right.
    Senator Bingaman.
    Senator Bingaman. Thank you very much, Mr. Chairman, for 
having the hearing.
    Let me ask Mr. Hall, since he's here--we have this report 
from the GAO that's dated last year, June 2005, and it's called 
``Oil and Gas Development: Increased Permitting Activity Has 
Lessened BLM's Ability to Meet Its Environmental Protection 
Responsibilities.'' That's the title of the report. And then, 
it goes on at length, but it basically--I think the operative 
conclusion is that, ``BLM officials in five out of eight field 
offices GAO visited explained, as a result of the increases in 
drilling permit workloads, staff had to devote increased time 
to processing drilling permits, leaving less time for 
mitigation activities such as environmental inspections, and 
idle-well reviews.''
    This was a year ago--this was in June 2005--has this 
problem been solved? Does it continue? Is it not a problem, in 
your view? What's your thought on it? It's sort of in your 
jurisdiction, I would think.
    Mr. Hall. Well, thank you, Senator. I think that at least 
it has been lessened. And this act has really helped us there, 
because it diverted some funds. It allowed BLM to fund some 
particular positions in these offices, to focus on APDs, which 
then freed up our folks and some of the BLM folks to work on 
some of these other areas.
    Senator Bingaman. But, now, that's just in the pilot 
offices, right?
    Mr. Hall. That's just in the pilot offices.
    Senator Bingaman. Now, what about BLM-wide?
    Mr. Hall. Oh, I think, BLM-wide, they're still strapped, 
from a funding standpoint. Director Clarke could answer that 
better than I could on the workload and funding for them. But 
our impression is--we have a really good working relationship 
with the BLM folks on the ground, but a lot of them, and a lot 
of our folks, feel a little overwhelmed in some areas. But 
these pilot offices are teaching us a lot about how to get that 
job done better.
    Senator Bingaman. Let me ask Director Clarke, Do you agree 
with the basic conclusion of this GAO study, that the 
environmental protection responsibilities of BLM are being 
given short shrift because of all of the other workload that 
you have, dealing with all these permit applications?
    Ms. Clarke. I believe that the conclusion of the study was 
that biologists and other people who are on staff, with duties 
specific to the environment, were being pulled in to work on 
the oil and gas program. And that is, indeed, correct. And the 
reason we have them assigned to the oil and gas program is, we 
needed their expertise. We needed them to help us understand 
how to avoid specific wildlife conflicts. We were using the 
archeologists to make sure that we were addressing cultural 
resource issues in the siting of wells. And so, those folks are 
part of interdisciplinary teams that serve the oil and gas 
program, but that also assemble to address impacts on any of 
the permitted uses that BLM overseas. So, I do believe we are 
vigilant in maintaining our environmental controls.
    Senator Bingaman. So, you don't think that there has been a 
lessening of your ability to meet these environmental 
protection responsibilities.
    Ms. Clarke. We are working very diligently right now to 
ramp up inspections and enforcement and to make sure that we do 
not fall behind on those commitments. The workload has been 
tremendous, but, of the some-110-plus positions in the pilot 
offices that are being hired, over 50 of those are specialists 
that will assist us in the environmental inspection and 
monitoring arena.
    Our 2007 budget proposal would put additional funds into 
the non-pilot offices to make sure that we also are well 
balanced in those areas and that we can make sure that we are 
matching our commitment to development of oil and gas resources 
with a robust commitment to monitoring and inspection and 
environmental management.
    Senator Bingaman. Let me change the subject a little bit. 
We were in a discussion, Senator Domenici and I, with someone 
who has substantial background with oil and gas activity, and 
the point was made--I don't know if it's valid; I'm asking you, 
Director Clarke, if you would have an opinion on this--the 
point was made that the royalty rates the Federal Government is 
receiving on its leases on Federal land are less than those 
that private landowners are receiving normally these days, and 
less than States are receiving on State land. Do you have an 
opinion on that? Is that something you've looked into?
    Ms. Clarke. I have not looked into that, so I couldn't 
answer. You may have other folks here on the panel that would 
have some experience.
    Senator Bingaman. Mr. Zavadil, did you have a view on that?
    Mr. Zavadil. I do. The royalty rates range from--anywhere 
from 8 percent, in some sliding scales that are less, to--our 
company pays up to 18 percent for some leases on certain State 
lands. I find that the Federal royalty rate is essentially 
right in the middle of--and very close to, and consistent 
with--call it the ``traditional'' royalty rate that we see. 
But, clearly, mineral owners, mineral holders, are free to 
select, ultimately, the royalty rate and, kind of, take the 
consequences of that, that if the royalty rates are high, you 
have lesser development; royalty rates are lower, you have more 
development.
    Senator Bingaman. Let me ask about abandoned and orphaned 
wells. I'm advised that New Mexico has 4,224 abandoned wells on 
public land. That's the largest number of any State. There is a 
program, as I understand it, for remediation of abandoned and 
orphaned wells. Can you tell me the status of that, Director 
Clarke?
    Ms. Clarke. There is a very positive effort which is taking 
place in New Mexico in conjunction with industry, and they are 
working, on a voluntary basis, to take under their wing, if you 
would, some of those abandoned wells and help us in the 
remediation. And the Energy Policy Act also gives us provisions 
to offset royalties to offset the costs of them doing that work 
for us. So, I believe we're going to be able to expand our 
commitment to remediation of legacy and orphan wells. It 
certainly is an important item on our agenda, and one that we 
want to see expand.
    We've also got some significant legacy well problems in 
Alaska, so it would----
    Senator Bingaman. Is there some kind of timeframe for 
actually remediating these wells? I mean, is this something 
that has an endpoint?
    Ms. Clarke. I do believe that we have a program laid out 
which would get to an endpoint. Let me get with you and give 
you a more detailed briefing on that.
    Senator Bingaman. Thank you very much.
    Let me ask, also, about coordination on oil and gas 
activities between the BLM and the Forest Service. We've had 
complaints in New Mexico--particularly, I've heard them in the 
San Juan Basin--about how the BLM has one policy and one set of 
procedures and policies, the Forest Service had a totally 
different set. Is that problem a real one? Is it getting fixed? 
Has it been fixed?
    Ms. Clarke. Another direction we received from the Energy 
Policy Act was for us to work with the Forest Service on an MOU 
that would set forth our coordinated approach to development. 
And we have done that. The Forest Service has also been very 
forthcoming in working with us on the establishment of the 
pilot offices. Dale Bosworth made sure that we had good support 
at the visits that we made, and I think we are all committed to 
working together and having a shared commitment to the dual 
goal of improved development and solid environmental 
stewardship as we move forward. So, I want to comment the work 
of the Forest Service. They have been very responsive to the 
dictates under the Energy Policy Act and are working very 
closely with us, at this point.
    Senator Bingaman. Thank you, Mr. Chairman. Appreciate it.
    The Chairman. Thank you, Senator.
    Senator Thomas.
    Senator Thomas. Thank you, Mr. Chairman.
    Ms. Flanderka, you indicated something about the State's 
role. Would you comment on--is there a further role the States 
ought to play in these pilot projects?
    Ms. Flanderka. Senator, thank you. Yes. And through your 
office and your supportive cooperating agency, that's primarily 
the role in which we function with BLM and Forest Service, in 
front-end project EIS work. We also--the county commissioners, 
conservation districts, they're also very involved, and we each 
play a role. It's a little messy, at first, to outline our 
roles and objectives, and to make sure that we can be as 
efficient as possible, but I think that the bottom line, the 
Jonah EIS record of decision, I think, is an example. We worked 
with Questar on year-round drilling. We're also working on all 
the resource management plans. So, yes, the State and local 
governments definitely have a role, and they--I think there is 
agreement that the end decision ends up with a great product.
    Senator Thomas. That's good. I think, really, what we're 
faced with here is, there need to be a lot of decisions made 
with respect to these permittings, but there needs--it needs to 
be done in a manner in which all the interested parties can get 
together in the beginning. I think, Ms. Clarke--don't you?--
that one of the things that has extended all these is, one 
agency will make a decision, and then, after that's made, 
another agency moves in to make a decision, and so on and so 
on, so that if we can consolidate that, isn't that really the 
purpose and--of the pilot projects?
    Ms. Clarke. Absolutely. That is absolutely the purpose. I 
also appreciate Mary mentioning the cooperating agency status 
and am proud to advise the committee that BLM was the first 
Federal agency to make the cooperating agency provisions of 
NEPA a rule. And so, it is mandated that all of our field 
managers reach out, and, when they are doing any kind of a NEPA 
activity or a planning activity, they need to invite local 
counties and State governments and other elected officials to 
join us at the table. And the pilot offices allow us to take 
that a step further. And, actually, we have offered to bring 
State officials into those offices, and we have the capacity, 
with the funding that was provided, to support the salaries of 
those people. So, we actually have some DEQ people that are co-
locating with us up in our Miles City office. We are working 
with various States to get oil and gas commission 
representatives in to get the Fish and Game representatives in 
the offices with us so that we anticipate the challenges before 
we get in the middle of them. And I think it--we have seen some 
slowdown in our plans as we have gotten into this effort, 
because it does take a while to establish relationships and get 
people working together.
    Senator Thomas. Do you have the NEPA people working there, 
from the other agencies, as well?
    Ms. Clarke. They're all working on the NEPA documents 
together, they're working on planning, we're working on 
mitigation, and we're also discovering that, as we bring these 
people from different agencies with different backgrounds 
together, we're creating laboratories for innovation and 
improvement, and we're seeing new ideas that are forthcoming. 
We expect to pull some representation from all of these pilot 
offices together later in the fall to sort of pull out of them 
what they're learning. What are some of the best practices that 
are being employed, and how can we share good ideas with the 
other offices and the non-pilot offices to really advance our 
stewardship activities, as well as our development activities?
    Senator Thomas. OK. Thank you.
    Mr. Reed, you were talking about people being involved. Do 
you think you're--you represent, kind of, the other uses of 
these lands--do you feel like this process is including your 
interests, as well?
    Mr. Reed. Somewhat, Senator. We think that certainly the 
State wildlife agency could be a little bit more involved. And, 
as you know, the funding for Fish and Game, the model comes 
from sportsmen--sportsmen's dollars. So, it's not coming from 
much Federal money at all. So, what's happening there is, 
there's a shortage of manpower and money for those agencies to 
cooperate very closely.
    Senator Thomas. Well, that's great. I just think--you know, 
in Wyoming we've very concerned about our lands and the future 
and where we're going to be 30 years from now, in terms of it. 
I--that's overstated a little, one time, when I said we 
shouldn't do any forest lands. I didn't mean that, really. 
Grasslands, for example, are managed by the forest, and they 
ought to be available. Only 2 percent of the forest lands are 
being used now for production. We need to be very careful about 
them. But I do look forward to that.
    You mentioned, Mr. Eppink, the production we're having now 
in the Midwest and the West is--much more than the gulf coast?
    Mr. Eppink. It wasn't I who mentioned it, but I'm familiar 
with the situation.
    Senator Thomas. Oh.
    Mr. Eppink. The production for the Rockies will exceed the 
gulf.
    Senator Thomas. The gulf. But the fact is, the gulf has a 
lot of potential that we haven't yet reached, isn't that true?
    Mr. Zavadil. It's interesting that the gulf production has, 
in fact, been on the decline over the course of the last two 
decades. There is potential in the deep water. We are----
    Senator Thomas. We are changing some things. They're 
talking about making some changes there, however, aren't we?
    Mr. Zavadil. I hope for the Nation's sake, that we start to 
produce some of our offshore resources.
    Senator Thomas. Great. Thank you.
    Thank you, sir.
    The Chairman. Thank you.
    Senator Craig.
    Senator Craig. Thank you very much, Mr. Chairman.
    As I said briefly in my opening remarks, I'm pleased that 
we are following through with our oversight on EPAct, and this 
particular area of it, and what we effectively established 
when--in the passage of that, dominantly in the sections that 
are referring now to--I guess, section 365. But let me ask 
several questions, I think, collectively, of all of you, 
because a combination of forces are at work. We are clearly 
focused on these cooperative groups that you've put together, 
Kathleen, and it's pleasing to hear that out of that is coming 
some synergy. That oftentimes happens when you cause people to 
come together who once thought they all had to operate 
independently of each other. And you can do that, I hope, 
without compromising the concerns of Mr. Reed and other 
conservation and environmental groups that--really, putting a 
variety of agencies together to work collectively instead of 
individually oftentimes is a very productive thing to do in 
that respects--in that respect.
    At the same time, I don't think it necessary that you 
defend the Forest Service. They've got a lot to learn from you, 
when it comes to mineral management and how you utilize the 
lands. Forest Service is much defensive, I think, with less 
experience with subsurface rights and responsibilities than the 
BLM. And in most instances, I think they can learn from you.
    I say that, and I may be stepping on the toes of my Wyoming 
friend and Mr. Reed. A good number of years ago, I was 
overflighting some area of Wyoming, and stopping and looking at 
drill sites and that kind of thing. And I'll not forget--not 
far from Jackson, but in between Jackson, probably that area we 
were talking about, Craig--we landed at what was a former drill 
pad--not all react this way, environmentally, because of the--
all of the circumstances of the situation--and we couldn't find 
it. The reason was, the rehabilitation had been so effectively 
done on the part, and I believe--while I've just criticized the 
Forest Service, I have to give them a little credit--I think 
was Forest Service property. A big cow elk and her calf jumped 
up out of the tall grass and ran off as the helicopter was 
landing, and we had a hard time finding the drill pad.
    Having said that, how much trouble are you running into 
with this circumstance? In these resource management plans that 
we put together in the 1980's, when gas was less than $2, one 
of the easy ways to avoid some of the conflicts that Mr. Reed 
might have put forth was simply to say, ``During certain 
periods of time, it's off-limits, go away for 4 months or 5 
months and come back later?'' When, in fact, if gas had been 
$10, we might have worked our way through a plan that would 
have said, ``Yes, under certain mitigations and certain 
procedures, you can continue to operate, to drill, to 
discover.'' But we're stuck in the mode of the 1980's. Driven 
economically, we just avoided it. And we didn't do the hard 
work at the time to cause us to continue to explore and develop 
under circumstances and under conditions that it's possible Mr. 
Reed might have agreed with.
    How much of that are we running into now with these 
obsolete plans, or plans that are still in effect that we've 
not had time to get to, to modernize and bring online?
    Ms. Clarke. We certainly have inherited the practices and 
policies that were created in the 1980's in our plans to impose 
upon oil and gas activities, timing stipulations, and winter 
drilling limitations. And those continue. As we are dealing 
with the imperative that we expand natural gas and oil 
production, but also our very solid commitment to good 
stewardship, we are beginning to question whether those 
practices are, indeed, the best for wildlife and the best for 
energy development.
    And we have, ongoing, an activity in Wyoming, in the 
Pinedale area, that is testing out some theories that we can 
really minimize the impacts to wildlife if we do very wise 
winter year-round drilling. And we are checking the postulate, 
so to speak, to see if, indeed, that may be the case. And one 
of the benefits of really starting to develop some positive 
relationships with the Fish and Game offices from all the 
Western States and also with the Fish and Wildlife service is 
that we can benefit from their science and their wisdom as we 
really understand what are the impacts and what scenarios are 
going to be best over time.
    I also believe that industry is recognizing that they need 
to work with us and to find less invasive ways to conduct their 
business. And I've been very pleased to see that they are 
coming in with new technologies that are leaving much smaller 
footprints. We're doing interim reclamation. It is an evolving 
industry, and our science is evolving. I think we're all 
committed to the dual goal of good development activities, but 
sound stewardship, that will leave the country, that we love so 
much, for the next generation.
    Senator Craig. Mr. Chairman, I see my time is up. Let me 
make one comment and also a question of Dale and Mary.
    My guess is, the greatest dislocation for elk and 
nonpredator wildlife today in Wyoming, Idaho, and Montana are 
wolves and not oil rigs. Let me repeat that for the press: are 
wolves and not oil rigs. I believe that. While our great elk 
herds in Idaho have crashed in part because of habitat, it's 
also in part because of dramatic predation that they had 
historically not experienced that are very, very frustrating to 
me, Dale, that we cannot come in that three- to four-State area 
with a regional management plan because of the--not the 
arrogance of the law, but the absolute requirement that every 
``i'' be dotted and every ``t'' be crossed. And we've not had 
that happen yet. As a result, the wolf lives in Shangri-la and 
continues to populate at an ever-spreading rapid rate against 
predation. That's the bad news. The good news is, they're 
starting to take dogs and pets and animals of campers. And when 
that happens, the public outcry will become so loud, not in 
fear of the pet, but in fear of the child, which may be 
unrealistic, but is going to be real by character of the fear 
itself, that maybe collectively we can get our heads together 
and solve a problem that should have been solved 4 or 5 years 
ago. That's not the question.
    The question is, Dale and Mary: Is the Forest Service using 
the cooperative agency rule, or the cooperative agency status, 
as effectively as the BLM is using it, at this time?
    Mr. Hall. I think that there is a lot of work that we're 
doing with the Forest Service through their collaborative 
process and through their cooperation with us. I work with Dale 
Bosworth quite a bit, and our regional foresters on the ground 
work with our regional directors. So, I think a lot of 
coordination is taking place. To compare it to BLM, you know, I 
don't know how to do that, exactly.
    Senator Craig. Okay.
    Mr. Hall. But I can tell you that I believe the Forest 
Service leadership is really trying to work collaboratively, as 
well.
    Senator Craig. Good.
    Mary, is the Forest Service as engaging with you as the BLM 
in the State level?
    Ms. Flanderka. They are. There's two different tracks, and 
there's different issues. But, yes, they're doing a great job.
    Senator Craig. Thank you.
    Thank you all very much.
    The Chairman. Larry, let me say--you ran out of time, but 
you wouldn't have got cut off. You were right on. It took a 
long time for this hearing to get to the point. You finally got 
to it here, right here at the end, and thank you for getting to 
that issue.
    Senator Craig. Wolves.
    The Chairman. Wolves. Well, actually, the plans that 
involve predators and other things.
    Senator Craig. Mr. Chairman, thank you very much. 
Sometimes, as analytical as we like to be, we also like to show 
just a little emotion, and there's a great deal of emotion out 
there in Idaho today.
    And I just got a transcript from a young fellow who's done 
a brilliant job of training hunting dogs in Idaho, up in Idaho 
County, in Grangeville, and he took--he and his friend, as they 
normally take their dogs out to operate and train, just had 
them wiped out by a group of wolves the other day, a pack of 
wolves, and he was--you could hear him, feel him crying inside 
this transcript that he offered to my office. And, you know, 
it's those kinds of emotions that are beginning to impact 
Idahoans ever-increasingly. While we recognize the value of the 
wolf in the habitat, we don't recognize its uncontrolled 
impacts.
    The Chairman. Very good.
    Senator Salazar? You follow the wolf, here.
    [Laughter.]
    Senator Salazar. Well, I hope I don't catch him.
    The Chairman. Yes, sir.
    Senator Salazar. It could be a violation of the Endangered 
Species Act, right, Mr. Chairman?
    The Chairman. Right.
    Senator Salazar. Let me, first of all, thank you and 
Senator Bingaman for holding this oversight hearing.
    I have a fuller statement for the record that I'll submit 
for the record, and then I will just have several questions 
that I want to ask, Mr. Chairman.
    The Chairman. Please.
    [The prepared statement of Senator Salazar follows:]
   Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
    Thank you Chairman Domenici and Senator Bingaman. As always, I am 
excited about the opportunity to attend hearings on subjects that are 
critical to Colorado.
    I am especially happy to have Director Clarke of the BLM here 
today. In Colorado, the BLM is the landlord of 8.4 million surface 
acres as well as 27.3 million sub-surface acres.
    The Energy Policy Act of 2005 contained many provisions to enhance 
domestic oil and gas production. Glenwood Springs in my State of 
Colorado is home to one of the pilot project offices to increase the 
efficiency of the APD process, and I welcome that effort.
    While the timely processing of APD's is important to industry, I 
would like to focus on a related issue, leasing, that is important to 
me and our local communities.
    I think it is necessary to recognize that, as we seek to expand our 
domestic energy production, land use conflicts are increasing. The 
search for energy is taking companies to land that is closer to, or 
neighboring, local communities as well as onto lands that generations 
of westerners have grown up fishing, hunting, and recreating on. There 
are also a sizable number of split-estate situations that are affecting 
family farms and ranches across the west. These lands are essential to 
our natural heritage and must be treated accordingly.
    I am increasingly concerned about the BLM's rush to lease every 
acre of land as quickly as possible without regard to local 
communities. This rush is often at the expense of local communities 
with real, substantive concerns as to how this activity will affect 
their communities and the natural heritage of their area. I am further 
alarmed at the BLM's willingness to brush these concerns aside and the 
contentious atmosphere that is being created.
    In the west, we believe in multiple-use on our lands, but we 
realize that every use on every acre is not a sustainable approach. It 
seems, though, that the BLM has elevated energy exploration and 
development above every other use when multiple uses conflict.
    There are two good examples in Colorado I would like to talk about.
    On Colorado's Western Slope the City of Grand Junction and the Town 
of Palisade learned that mineral leases underlying their watersheds 
were to be leased. Both Grand Junction and Palisade protested the 
inclusion of these parcels in the lease sale, asking the BLM to delay 
their leasing so that the local communities could work with the BLM to 
assess the situation and to address their concerns prior to leasing. 
Along with Congressman John Salazar, who represents the district, I 
supported the local governments' protests. The BLM went ahead anyway, 
ignoring the legitimate concerns of a pro-growth and pro-development 
community who simply needed more time to work with the agency.
    Also in western Colorado is the Roan Plateau. The Roan Plateau has 
been a contentious topic as the BLM develops the resource management 
plan for the area that is highly valued by local communities and 
sportsmen in Colorado. The final EIS is likely to contain provisions 
that have not been previously addressed in the process. I asked the BLM 
to commit to re-submit the plan for further public comment, if that 
proves to be the case, only to be flatly told ``no''.
    As a United States Senator who is having difficulty working with 
the BLM is his own state, I can empathize with the local communities 
who feel that their concerns are being brushed aside in a mad rush to 
lease every acre for oil and gas exploration and development. Of 
course, none of this is meant to say that Colorado is not helping to 
address our country's energy needs. In 2005 Colorado produced over 1 
trillion cubic feet of natural gas and is a net energy provider to the 
United States, something we are very proud of.
    I thank the Chairman and Ranking Member for the opportunity to 
share my thoughts on these important issues to Colorado.

    Senator Salazar. My first questions are to Ms. Clarke. You 
know, as much as we appreciate the fact that we have abundant 
oil and gas resources in my State of Colorado, I also recognize 
that we are seeing the potential of a revolution in the West 
against oil and gas exploration and drilling activity. In 
Colorado, in 2004, there were approximately 2,000 drilling 
permits that were issued. In 2006, there were 4,800 permits 
that were issued. We had 28,944 active wells in 2005. By this 
year's end, 2006, it's projected to be at 31,000. And what I 
hear, in places like Grand Junction and Palisade and Gunnison, 
and many places around the West, is that the BLM simply is not 
taking into account the community input and the concerns that 
the community has with respect to the leasing and permitting 
decisions that the BLM is making.
    Two specific examples of that for me have been the Grand 
Junction and Palisade watershed areas, where the BLM made a 
decision to move forward with the leasing of those properties, 
against the wishes of Grand Junction and Palisade, against my 
own protests about that leasing decision and wanting the BLM to 
take more time; concerns also with respect to the drilling 
decisions--leasing decisions that have been made on top of the 
Roan Plateau, near Glenwood Springs, where I specifically asked 
the BLM to delay decisions on leasing until they had an 
opportunity to receive public input on a dramatic shift in 
approach in the leasing program on top of the Roan Plateau.
    So, my question for you is this. How do you, as Director of 
the Bureau of Land Management, take into account what affected 
communities are telling you and the people who work with you, 
prior to making your decisions on leasing or on permits that 
are issued by the BLM? How important is that community input to 
you?
    Ms. Clarke. Absolutely, we seek out community leaders and 
elected officials, and want them engaged in the processes 
involved with setting up plans and making decisions under the 
National Environmental Policy Act. And we routinely reach out 
to them.
    We have the very difficult challenge of managing lands for 
multiple use and acknowledging that there are both local issues 
to be dealt with, as well as national needs and national 
perspectives. That is a challenge. And someone told me that the 
job of the BLM director was measured by whether or not you had 
everyone equally mad at you on a given day, because it is 
difficult to please all of the different interests, because 
there are so many.
    But we have made it a policy--we've made it a rule at BLM 
that we do invite State and local officials to be with us at 
the table, and they don't just come in and comment, they can be 
behind the scenes and help us craft the alternatives, help us 
make decisions. And so, we do try to balance those perspectives 
and the desires of local communities with the national needs 
and the mandates that we have, under law, at the BLM.
    Like I say, we try to make decisions that accommodate those 
interests, and balance them. We try, always, to strive for good 
stewardship while we're accommodating uses that are 
appropriate.
    Senator Salazar. I appreciate the policy directive, Ms. 
Clarke, that you are describing there, in terms of reaching out 
to local communities. In the case of Grand Junction and 
Palisade and the watershed that could potentially be affected 
by the drilling activities in those watersheds, it's my view 
that the BLM did not take into account the concerns of the 
local communities. And when you are dealing with drilling 
within the watersheds themselves, that provide the water supply 
to these very important communities, I think the request that 
was made, that we have a delay in the leasing decision, was 
something which was a very simple, rational request that we 
were making of the BLM. And to receive what essentially was a 
flat no from the BLM is something that I think was wrong on the 
part of the BLM. Seems to me that, when you are dealing with 
something that is as critical as the water supply of a local 
community, that it is important for you to give additional 
opportunity to try to bring about the kind of buy-in that, 
perhaps with best management practices and other kinds of 
things that could be accommodated, you'd have those local 
communities in support.
    The converse has, in fact, happened there, and what we find 
ourselves now in is a situation where the local communities and 
the residents of those local communities are very, very much 
against the decisions that have been made by the BLM.
    So, on that one, I'm going to ask you, here on the record, 
Ms. Clarke, if you would take another look at the decisions 
that have been made on the ground with respect to the Palisade 
and Grand Junction watershed and the leasing decisions that 
have been made there.
    Ms. Clarke. It is my understanding that those decisions are 
under protest right now and are being reviewed at headquarters 
at the BLM. The solicitors are looking at them. So, we are 
giving those another look before those leases are issued.
    Senator Salazar. Mr. Chairman, I have several other 
questions that I want to pursue, but I see my time is up, on 
this round.
    The Chairman. Senator, if you'd like to submit them, they 
obviously will be answered.
    We're pleased that you came by. I think you see before us 
our best effort to show you, and show the Senate, how this--in 
a short time, this section of our law is working. It's not a 
miracle on the ground yet. Everybody here finds fault with it, 
obviously. The gentleman who's the independent producer, 
sitting among these others, feels sort of like a thorn in the 
midst of a patch of blueberries----
    Senator Thomas. Roses.
    The Chairman [continuing]. Roses, because he's got a 
terrible job of trying to make this program sound good, when, 
as a matter of fact, it's tough for the producer. On the other 
hand--is that not right, sir?
    Mr. Zavadil. I do see benefits in the program and in the 
act, and you've got to start somewhere.
    The Chairman. Right.
    Senator Salazar. Mr. Chairman, if there's not going to be 
another round of questioning, could I have another couple of 
minutes to----
    The Chairman. You have it right now. I'm going to close up 
here shortly, whenever you finish.
    Senator Salazar. Absolutely.
    Let me just--continuing that--and this is a question for 
Ms. Clarke and also for Mr. Zavadil. And welcome here from 
Douglas County, Colorado. It's good to see you.
    Mr. Zavadil. Good morning.
    Senator Salazar. I have a concern that part of what's 
happening is with the rush that we're seeing for oil and gas 
exploration, is that we're seeing the local communities 
standing up and taking it upon themselves to address many of 
the conflicts that occur between local land use and oil and gas 
exploration in Colorado. For example, we'll see an initiative 
on the ballot, I think, this November, that will address the 
issues of surface damage compensation. I think you're going to 
continue to see that resistance from local communities that are 
affected when you have this kind of drilling activity. In your 
testimony, Ms. Clarke, one of the things that you say in your 
testimony is that the BLM is using performance-based standards 
to challenge industry to reduce emissions, minimize surface 
damage disturbance, and develop quick and effective reclamation 
techniques to improve restoration of disturbed areas. I'd like 
you to comment on specifically what it is that you're doing on 
that; and, Mr. Zavadil, you, for the independent--IPAMS to do 
the same thing.
    To put it into context--let me just give you the context. 
When I go to Glenwood Springs, Garfield County, and I meet with 
a company by the name of Antero, they have brought the whole 
community with them--communities like Rifle and Silt, who are 
supporting--supportive of the drilling program, that has 
included consultation with the local community on the siting of 
the well sites, has included discussions on the kind of 
chemicals that are being used with respect to hydraulic 
fracking. And we have a very peaceful situation there.
    The converse is true with many of the companies that are 
operating on the Western Slope, where the communities are in an 
all-out fight with the oil and gas companies that are engaged 
in these activities.
    So, I would ask you to comment on these performance-based 
standards, Ms. Clarke, that you included in your testimony; 
and, Mr. Zavadil, for the producers, what you think that the 
companies are doing out there, in terms of trying to make sure 
that they're avoiding as many of these conflicts as they can 
with the local communities.
    Ms. Clarke. Thank you. We are moving ahead with a vision of 
sitting down with community partners, with Fish and Wildlife, 
with the State Fish and Game, EPA, and the partners identified 
in the pilot offices, but also those who come together in other 
communities, to determine what it is that we care about and 
what other resource values or uses are important in an area 
that's identified for oil and gas development, and working with 
the industry to ask them to put forth proposals that allow them 
to access and develop a resource, but finding ways to diminish 
the impacts to other resources and allow us to protect those 
resources that are of great interest and concern to communities 
and that we want to leave as a legacy for future generations.
    So, instead of just going in and saying, ``Well, here's the 
oil and gas resource, so traditionally that would mean you 
ought to have this many wells, spaced like this,'' we're 
saying, ``Get creative. If you want to extract those resources, 
we need you to figure out how to do that and--understand that 
we need to protect the sage grass while we're doing it. So, how 
are we going to do that together? Or to understand that there 
is an elk herd in this area that's very important to the 
community, and we want to maintain that.'' So, we are working 
to complement----
    Senator Salazar. Ms. Clarke, if you were to identify best 
management practices for companies that are involved in oil and 
gas exploration and drilling activities, would you have a list 
of what those best management practices would be?
    Ms. Clarke. We do have that list. I'll be happy to get a 
copy of that to you.
    Senator Salazar. If you would get that to me, I would 
appreciate it. And it may be something that we want to visit 
with you concerning whether or not there are any improvements 
that we might suggest for those best management practices.
    Ms. Clarke. We'd welcome that dialogue.
    Senator Salazar. Mr. Zavadil.
    Mr. Zavadil. Good morning.
    I'd like to say that, although not all the operators within 
IPAMS' organization have the same opportunity as Antero, in 
that their activity isn't within an incorporated municipality, 
such as the town of Silt, where IPAMS or Antero is developing, 
I think there are a number of things that operators are doing. 
I've been involved with companies that have been operating in 
the Piceance Basin for about 20 years now. And we fought, tooth 
and nail, 15 years ago, directional drilling. And now, 
essentially, 80 to 90 percent of the wells that we drill in the 
Piceance Basin are, in fact, directional, multiple well pads, 
where we're drilling six and eight well bores from one 
individual site. So, that's one thing that we can do to 
significantly reduce impacts to the surface owners.
    I think industry is working hard. We're not wildlife 
biologists, but I think we do recognize now that the American 
people want their gas, and they want their wildlife, too. And 
while we're looking for opportunities for mitigation, 
unfortunately we're not wildlife biologists, so we do have to 
develop the partnerships with wildlife organizations, such as 
Trout Unlimited, Rocky Mountain Elk Foundation and so forth. 
So, you're seeing more and more of those kinds of efforts to 
mitigate--in some cases, offsite--the impacts associated with 
oil and gas development. And IPAMS' members recognize that 
that's the reality of today, that, again, Americans want their 
energy, and they want their wildlife, at the same time.
    On split-estate issues, I think that responsible operators, 
and certainly IPAMS', position is that reasonable compensation 
in split-estate situations is necessary and part of business, 
as well. I think that you'd find a very remarkably small 
proportion of situations where there are, in fact, conflicts 
between the split-estate--in the split-estate situation.
    And, on the community front, in the case where--we 
immediately offset, for example, Antero. Our situation is 
slightly different in that we're in a rural residential 
subdivision. We're not working with a municipality, such as the 
town of Silt. So, we have to respect those individual surface 
owners and what their desires and needs are for development on 
their lands, and how we mitigate those things. But we do pull 
together the community, about every 6 months--the folks in the 
subdivisions where we work--and field questions, input, and 
modify our operations accordingly.
    It's not a very public process, but it is something that 
goes on. And I think you find other operators, on a day-to-day 
basis, doing that in those kinds of communities where you have 
a lot of individual surface owners, versus the Federal land 
type of situation where you have one owner, the Bureau of Land 
Management.
    Senator Salazar. Well, I appreciate the comments. And, just 
to close off on this point, I think some of the work that can 
go on with the communities beforehand and before the decisions 
are made could have--avoid many of the conflicts and the 
backlash that we're getting from these conflicts. I'll give you 
the example, again, back to Palisade and to Grand Junction. You 
know, it may not be that the leasing decision is one that ought 
to be reversed, but that with the kinds of management practices 
that would include siting decisions, directional drilling, you 
know, moving away from where the watersheds are located, in 
terms of where the drill sites are located, using some best 
management practices with respect to hydraulic fracking, all of 
those kinds of things might, in fact, have avoided the kind of 
conflict that we're seeing in that area right now, which I 
don't think is going to go away.
    So, my only suggestion here, Director Clarke, to you and to 
the Federal agencies that are involved, as well as to the 
companies who work on this every day, having that community 
involvement and input up front avoids major problems on down 
the road.
    Thank you very much for your testimony today.
    Ms. Clarke. Appreciate that.
    The Chairman. Thank you very much, Senator.
    Let me close this by saying to all of you that we very much 
appreciate your efforts to try to make this project work in the 
very short period of time that you've been involved.
    Dale Hall, first of all, this is my first opportunity to 
have you before us here, and at the table with your big hat on, 
and we're very proud of your new job, and we hope that you've 
enjoying it.
    Mr. Hall. I am, sir.
    The Chairman. Are you?
    Mr. Hall. Yes, sir, I am. I still feel like it's a 
privilege to be here.
    The Chairman. It's good. I wish it would last for the whole 
term. Sometimes it doesn't. But if it doesn't, you know and 
understand that's rather human, too.
    I don't know where we got you--I was just wondering, Ms. 
Clarke--but it appears to me that we're very fortunate to have 
you heading up the BLM. And I think you know that we have a 
marvelous leader in New Mexico heading up BLM there. I guess 
you know Linda.
    Ms. Clarke. I certainly do.
    The Chairman. Linda Rundell.
    Ms. Clarke. Yes.
    The Chairman. I don't think you could find a better leader.
    Ms. Clarke. She's doing a great job.
    The Chairman. And I'm glad that you said that, because it 
just confirms what I know. I hope you're not saying it just 
because of me. I hope it is true. It is true, is it not?
    Ms. Clarke. It is absolutely true.
    [Laughter.]
    The Chairman. Right. It's too bad she suffered the family 
problem of losing her husband, which I am very sorry for her. 
But she seems not to be struggling too much. She's doing her 
work well. And that's very exciting for me. And I'm proud of 
her.
    Ms. Clarke. Doing very, very well.
    The Chairman. The rest of you, well, let me just say, we 
understand this is a terribly difficult job. It varies from 
State to State. The Senator from Colorado is bringing forth the 
very difficult situations in his State. They're not quite as 
difficult in other States. But, clearly, the best of each of 
you is required as you put on your hat to try to negotiate for 
what we have really asked--Congress has asked, in that section 
of the law--that these offices be set up not to run roughshod, 
but neither to just sit down and do nothing. I mean, it's 
really an effort to get things done in a reasonable manner and 
to flush out those delays which don't make sense. And there 
certainly are plenty of delays that don't make sense, and there 
are plenty of delays that are justified. And you have a 
difficult job of finding out which they are, Ms. Clarke, as you 
put this together, with others working with you.
    The State is involved, and we're delighted. That happens 
all the time. And it looks like, in the State of Wyoming, as 
usual, you have somebody that really knows about it. I'm hoping 
the same is true nationally, as you work your way through the 
other States, Director Clarke, that you find the same in New 
Mexico, you find the same in other States, with really strong 
local representation.
    Independent involvement by independent drillers, it's 
obvious that some choose to be involved. And it seems like 
you're one, with your company. Some choose to sit on the 
sideline and complain. And I have plenty of those. And we all 
do. No offense. Nobody's going to know which one it is up there 
in the part of New Mexico where there are hundreds of them, so 
that they aren't going to guess which ones are that way. And 
the same with Mr. Reed and his interest. We have some States 
where they seem to be over-represented; and others, they seem 
to be under-represented. I won't tell you which I think is the 
case, but we're somewhere in the middle in New Mexico.
    But I think you've all shown us that by breaking down just 
the physical barrier of not being together while you're doing 
things, not being off alone, but being put in that one room 
with somebody in charge--is certainly an advantage. You would 
agree with that, would you not, Mary?
    Ms. Flanderka. Absolutely. Appreciate the participation of 
our many partners.
    The Chairman. The only thing we'd like to know, in due 
course--a couple or 3-4 more months--is if there's something we 
can add to the process--because we'll have another bill one of 
these days--is there something we can add to the process that 
would push a little more vigorously on those who are still 
slowing the process up, even though they're in this same 
operation with you? There must be something that's not quite 
working as well as you would like. And, in fact----
    Ms. Flanderka. Well, we look forward to the opportunity to 
work with the committee as we assess the effectiveness of the 
pilot offices and discover opportunities to improve our 
stewardship and our development activity.
    The Chairman. Good, that's what I'm asking, and that's the 
answer. Thank you.
    Unless any Senator has something else to say, we're in 
recess.
    Thank you all very much.
    [Whereupon, at 11:30 a.m., the hearing was recessed, to be 
reconvened on July 11, 2006.]

    [The following statement was received for the record:]
    Statement of Western Colorado Congress; Wyoming Outdoor Council 
      Earthjustice; Southern Utah Wilderness Alliance; Oil & Gas 
   Accountability Project; Western Resource Advocates Amigos Bravos; 
Sustainable Obtainable Solutions; Californians for Western Wilderness; 
Colorado Environmental Coalition; Powder River Basin Resource Council; 
 San Juan Citizens Alliance; The Wilderness Society; Coalition for the 
   Valle Vidal; Northern Plains Resource Council; Natural Resources 
       Defense Council; Western Organization of Resource Councils
    Dear Chairman Domenici and Ranking Member Bingaman: On behalf of 
our members and supporters, we submit for the record our comments on 
two specific provisions of the Energy Policy Act of 2005: (1) Section 
323--Addressing Stormwater Pollution from Oil and Gas Activities, and; 
(2) Section 322--Hydraulic Fracturing Exemption from the Safe Drinking 
Water Act.
    Our lives and communities continue to suffer damage from oil and 
gas activities. We do not oppose all exploration and drilling, but we 
want it to be done responsibly in the places where it is appropriate. 
We urge the Senate Energy and Natural Resources Committee to work with 
the Environmental Protection Agency (EPA), the Bureau of Land 
Management (BLM), as well as state and local governments, to ensure 
that pollution from oil and gas development is addressed and not simply 
ignored.

    A. DAMAGE TO WATER QUALITY--BEST MANAGEMENT PRACTICES SHOULD BE 
                               MANDATORY

    Landowners and communities across the West are suffering from 
erosion and runoff of large amounts of sediment from oil and gas 
activities. Sediment increases water-treatment costs for municipalities 
responsible for delivering drinking water to its residents. It can 
cause a loss of storage in reservoirs and increase agricultural ditch 
maintenance. It impacts recreation. It harms fish and other aquatic 
life. It decreases property values. The U.S. Environmental Protection 
Agency has determined that ``siltation is the largest cause of impaired 
water quality in rivers.'' National Pollutant Discharge Elimination 
System--Regulations for Revision of the Water Pollution Control Program 
Addressing Storm Water Discharges, 64 Fed. Reg. 68722, 68724 (Dec. 8, 
1999). We have enclosed additional evidence of the harm excessive 
erosion and sediment from energy development is causing in the West.
    Simple, inexpensive measures exist to prevent erosion and runoff of 
sediment from oil and gas sites. These include silt fences and 
revegetation. Unfortunately, EPA's recent final rule implementing 
Section 323 of the Energy Policy Act of 2005 removes the legal 
incentive for companies to put these simple best management practices 
in place. EPA's rule excuses oil and gas companies from permits for 
storm water controls even when their runoff contributes to violations 
of state water quality standards. This is inconsistent with the Clean 
Water Act and the Energy Policy Act of 2005.

 B. DAMAGE FROM TOXIC CHEMICALS--MONITORING AND DISCLOSURE IS NECESSARY

    We urge the Committee to press the Bureau of Land Management and 
Forest Service to disclose and regulate toxic chemicals used in oil and 
gas development. Where potentially toxic chemicals are used during oil 
and gas exploration and development operations, responsible agencies 
should monitor the levels and effects of these chemicals. The groups 
believe such complete disclosure and monitoring requirements are 
necessary for several reasons.
1. Toxic chemicals with known health effects are being used
    Many of the products used in the exploration, drilling, and 
production phases of the natural gas and oil industry contain toxic 
chemicals with known human health effects. A recent analysis of 
products and ingredients used in natural gas development in western 
Colorado shows that oil and gas operators are using toxic chemicals 
throughout the development process, including during hydraulic 
fracturing. Of the 192 chemicals on the list, 53 percent are toxic to 
skin and sense organs, 48 percent cause gastrointestinal and liver 
damage, and 43 percent are neurotoxins. More than 26 percent of the 
chemicals are reproductive, kidney, or cardiovascular/blood toxicants, 
and 22 percent are carcinogens.
2. Toxic chemicals are being released into the environment
    Toxic chemical products, as well as harmful hydrocarbons produced 
during oil and gas production, can and do escape into the environment 
via a number of pathways. For example, spills release chemicals into 
the air through volatilization, and spills can enter the water and 
soil. Additionally, chemicals injected into the ground may come in 
contact with drinking water aquifers; chemicals may escape from 
recovery fluids that are stored or placed in pits or tanks on the 
surface; and flammable chemicals may burn, releasing a host of toxic 
by-products into the air.
3. Disclosure of these chemicals must be required
    Despite the widespread use of toxic chemicals, emergency 
preparedness staff, state environmental staff, medical professionals, 
health departments, and people living in close proximity to oil and gas 
facilities often do not have access to complete information concerning 
what chemicals are being transported through, stored, and used in their 
communities or on their private property. Without such information, not 
only are communities and citizens kept in the dark about potential 
health impacts, but the regulatory agencies do not know what chemicals 
to sample for in the event of a spill or release.
4. No agency has comprehensive jurisdiction over disclosure and 
        monitoring of the chemicals in products used in oil and gas 
        development
    On the federal level, toxic chemicals associated with oil and gas 
operations and wastes enjoy a wide range of exemptions and exclusions 
from EPA oversight. Releases of toxic chemicals and wastes are excluded 
from reporting under the Toxics Release Inventory; wastes are exempt 
under the Resource Conservation and Recovery Act; hydraulic fracturing 
is now exempt from regulation under the Safe Drinking Water Act; and 
completion operations are exempt under the Clean Air Act.
    As a consequence of these exemptions and gaps in agency 
jurisdiction, public health in oil and gas field communities is 
increasingly at risk from chemical exposure. There is currently no 
federal or state agency that is requiring the comprehensive disclosure 
of the make-up and volumes of the chemicals in products used in oil and 
gas development or the comprehensive monitoring for levels of, and 
impacts from, these chemicals. We believe that protection of public 
health and safety requires full disclosure of the make-up and volumes 
of the chemicals in products used in oil and gas development and the 
monitoring of their use because chemicals with known human toxicity are 
being used by the oil and gas industry in the West.

                               CONCLUSION

    We urge the Committee to press the BLM and Forest Service to 
require disclosure of chemicals used during operations when federal 
lessees submit plans for federal leases. Such disclosure will provide 
federal, state, and local health officials, as well as local residents, 
an opportunity for an informed evaluation of the risks to water quality 
and human health that may accompany oil and gas activities on federal 
lands.

                 GEOTHERMAL ENERGY AND OTHER RENEWABLES

                              ----------                              

                         TUESDAY, JULY 11, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:30 p.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Larry E. 
Craig presiding.

           OPENING STATEMENT OF HON. LARRY E. CRAIG, 
                    U.S. SENATOR FROM IDAHO

    Senator Craig. Good afternoon, and welcome. We're here 
today to receive testimony on geothermal and other renewable 
energy production from our Federal lands.
    Our energy bill last summer included a number of measures 
to address renewable energy. We hope to learn how these 
provisions may be bringing about new energy production.
    The American West has become our Nation's energy 
storehouse. This applies as much for renewable energy as to 
other conventional sources, with vast amounts of geothermal, 
biomass, wind, and solar resource development opportunities.
    As is the case with oil and gas development, much of this 
energy resource is on public lands, and obtaining access to 
these Federal resources is probably the most often cited issue 
affecting new development. It's my hope that from today's 
testimony we will gain a better perspective of the current 
status of renewable energy development and what else needs to 
be done.
    I have purposely kept my testimony short so that we may 
have more time for our witnesses. Today we have two panels. 
First, we will hear from the administration and from the 
Government Accountability Office, and the second panel consists 
of representatives from industry and public-interest groups. We 
are eager to hear your perspectives and concerns.
    And before I do that, let me recognize my colleagues before 
us and the committee. Let me turn to our ranking member, 
Senator Bingaman, for any opening comments he would want to 
make.
    Senator Bingaman.

         STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Bingaman. Thank you very much, Senator Craig, for 
having this hearing. I think this is very useful. And I 
appreciate the administration being here to give us their 
perspective on the provisions related to renewable energy 
development on Federal lands. Those were provisions we spent a 
lot of time on during the drafting of that legislation.
    I agree with your comments, that energy development on 
Federal lands is a great opportunity for us, and geothermal, of 
course, and other renewable energy development, as well.
    Let me also just indicate that I appreciate very much GAO 
being here to provide their information to us. I had requested 
a GAO report on several aspects of Federal geothermal leasing 
some time ago, and that is now ready to go, and I appreciate 
them being here to tell us about it.
    With that, I will look forward to the testimony. Thank you.
    Senator Craig. Senator, thank you.
    Senator Craig Thomas.

         STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR 
                          FROM WYOMING

    Senator Thomas. Thank you, Mr. Chairman. I, too, want to 
hear from the panels. Obviously, this Energy Policy Act 
implementation is where we are. I still think we're very, you 
know, concerned about what we can do in the fairly short term 
to get volumes of energy out there. But we're also looking at 
the long term for new ways to do that. And, of course, perhaps 
there are some things here. The energy--or the wind energy on 
public lands is something of a concern that we all have, and 
how we handle that.
    So, I'm anxious to hear from the panel. Thank you.
    Senator Craig. Thank you very much.
    So, we will now turn to our first panel. With us today is 
Ms. Lynn Scarlett, Deputy Secretary for the Department of the 
Interior. Lynn, thank you. Sally Collins, Associate Chief for 
the Forest Service. Sally, we appreciate you being with us. Jim 
Wells, Director of Natural Resources and Environment for the 
Government Accountability Office. And he's accompanied by Ron 
Belak, who may assist and respond to questions.
    So, with that, first of all, Lynn, we will turn to you. 
Welcome to the committee.

STATEMENT OF LYNN SCARLETT, DEPUTY SECRETARY, DEPARTMENT OF THE 
                            INTERIOR

    Ms. Scarlett. Thank you very much, Mr. Chairman and Senator 
Bingaman and members of the committee, for this opportunity to 
talk about our renewable energy work on public lands.
    In the 2006 State of the Union Address, President Bush 
reaffirmed his intention to secure America's energy future, and 
the Congress, in passing the Energy Policy Act, also signaled 
the importance of providing access to reliable domestic energy 
supplies. And we thank you for that.
    While there is no single answer to our energy needs, our 
energy portfolio, we believe, must include renewable and other 
alternative energy. The Department of the Interior, as manager 
of one in every 5 acres of the United States, plays a 
significant role in increasing domestic renewable energy 
production. Lands managed by the Bureau of Land Management 
supply almost half of the Nation's geothermal generation and 
over 5 percent of domestically installed wind capacity. The 
potential for more renewable energy production is high, 
especially in seven Western States.
    The Bureau of Land Management manages approximately 100 
wind energy right-of-way authorizations, and, since 2001, the 
BLM has issued more than 90 wind energy right-of-way 
authorizations, compared, for example, to less than five issued 
in the preceding 5 years. Approximately 25 of these 
authorizations are active wind farms with production capacity 
of 500 megawatts of electricity. That, by the way, is enough to 
meet the need of about 420,000 homes, based on average 
consumption.
    In response to increased demand for wind energy, the BLM 
completed a programmatic wind energy environmental impact 
statement in 2005 amending 52 land-use plans in nine Western 
States. This should provide the foundation for authorization of 
more than 3,200 megawatts of wind energy, enough to meet the 
needs of some 2 and a half million homes.
    In addition to wind power activities, the BLM has received 
two right-of-way applications for large concentrated solar-
power commercial generating facilities. The BLM also manages 
354 geothermal leases, 55 of which are producing and provide 
geothermal energy to 35 powerplants. And I'm pleased to 
announce today that the Minerals Management Service and the BLM 
geothermal proposed regs did go to the Federal Register, I 
believe, today or last night.
    Since 2001, the BLM has processed more than 200 geothermal 
lease applications, compared to 20 lease applications received 
in the preceding 5 years. Over the past 5 years, the BLM has 
reduced the number of pending geothermal lease applications on 
public lands. Since 2001, it has issued 199 leases, compared to 
25 leases from 1996 to 2001.
    The USGS is updating a nationwide geothermal resource 
assessment, which will include estimates of electric power 
production potential from identified geothermal systems.
    As you all well know, biomass from public lands also offers 
additional energy opportunities. Utilization of biomass 
byproducts from timber harvest and fuels treatments both reduce 
wildfire risks and expand economic opportunities for local 
communities to develop energy generation.
    In 2004, the BLM offered nearly 30,000 tons of biomass, 
mostly through stewardship contracts, which was the first full 
year that BLM had this authority. In 2005, 71,000 tons of wood 
byproducts were offered through contracts by the BLM. Our goal 
for 2006 is to offer biomass in 10 percent of BLM's mechanical 
fuels treatment projects, which we expect to increase to 50 
percent in 2008.
    The BLM has also established six demonstration sites with 
the potential generation capability of 66 megawatts.
    I want to note one particular MOU with the Confederated 
Tribes of Warm Springs. Through that, the BLM and the Forest 
Service in central Oregon agreed to offer, annually, 80,000 dry 
tons on 8,000 acres of woody biomass material. The competitive 
offerings will be available beginning in 2008, and, based on 
that MOU, the tribe is now seeking a power purchase agreement 
and bank financing to develop a 15\1/2\ megawatt cogen plant.
    The DOI is also facilitating the development of alternative 
sources of energy from unconventional fossil fuel resources 
such as gas hydrates, which, while currently uneconomic, 
present enormous potential for domestic energy production in 
the years to come.
    Energy production is just one aspect of energy--of the 
energy equation. And I want to close by mentioning a little bit 
on consumption.
    The Department of the Interior advances the role of 
renewable energy resources not only by providing access to its 
production, but by using technology, where practicable, at 
numerous facilities. Interior agencies rank second only to the 
Department of Defense as the Nation's leading users of 
photovoltaics. The BLM generates a total of 185 megawatt hours 
of electricity from photovoltaic systems each year from over 
600 installations.
    The National Park Service and Fish and Wildlife Service are 
also utilizing alternative energies at many facilities. For 
example, at Zion National Park Visitor Center, designed with a 
variety of alternative energy sources, the project is resulting 
in cost savings of more than $10,000 a year, as well as 
significant energy savings from traditional sources.
    Mr. Chairman, renewable and other alternative domestic 
resources are important components of the Nation's energy 
portfolio. I thank you for the opportunity for us to highlight 
our development of renewables and other alternative energy 
resources on public lands, and would be happy to answer any 
questions.
    Thank you.
    [The prepared statement of Ms. Scarlett follows:]

        Prepared Statement of Lynn Scarlett, Deputy Secretary, 
                       Department of the Interior

    Mr. Chairman, thank you for the opportunity to appear here today to 
discuss with you the Department of the Interior's role in managing 
renewable energy resources on the public lands.

                               BACKGROUND

    Rising gasoline prices and home heating and cooling bills are 
reminding Americans of how dependent we are on secure, reliable 
supplies of energy. Energy is vital to expanding our economy and 
enhancing Americans' quality of life. The Energy Policy Act of 2005 
(EPAct) encourages the development of renewable energy resources as 
part of an overall strategy to develop a diverse portfolio of domestic 
energy supplies for our future. In fact, public and private wind and 
other renewable energy generating sectors of our economy are the 
fastest growing energy sources in the United States.
    However, an imbalance exists between our energy consumption and 
domestic energy production. We are looking at ways to narrow the gap 
between the amount of energy we use and the amount we produce. Earlier 
this year, in the State of the Union Address, President Bush declared 
his continuing intention to secure America's energy future, which 
includes promoting dependable, affordable, and environmentally-
responsible domestic energy production while reducing U.S. dependency 
on foreign oil. In passing the EPAct, Congress also signaled that it 
shares the President's goal of providing access to reliable domestic 
energy supplies that are crucial to the economic health and security of 
every American household and business. The EPAct creates incentives and 
streamlined procedures for Federal resource agencies to cooperate in 
meeting this challenge. The Department of the Interior (DOI) is doing 
its part in implementing these incentives. There is no single solution, 
but renewable and other alternative energy sources are integral 
components of our energy future.
    While the quantity of domestic energy produced from renewable 
resources on Federal lands is small in comparison to conventional 
resources, the growing cost of conventional energy resources and the 
need to diversify our energy portfolio has spurred an increased 
interest and growth in renewable energy development: The Energy 
Information Administration's (EIA's) recently released 2006 Annual 
Energy Outlook estimates that our consumption of renewable fuels will 
grow approximately 60 percent from 6 quadrillion BTUs in 2004 to 9.6 
quadrillion BTUs in 2025 as a result of advancements in renewable 
energy technologies, higher fossil fuel prices, State requirements to 
produce renewable energy, and incentives provided by the EPAct. The EIA 
estimates that in 2030 renewable energy will account for over ten 
percent of our domestic energy production and about seven percent of 
our consumption.
    DOI, as the manager of over one fifth of the nation's land, has a 
significant role to play in this projected increase in domestic 
renewable energy production. Lands managed by the Bureau of Land 
Management (BLM) currently supply almost half of the nation's 
geothermal generation and over 5 percent of domestically-installed wind 
capacity. The potential for more renewable energy production is high 
according to the 2003 assessment by the BLM and Department of Energy's 
National Renewable Energy Laboratory of the potential for renewable 
energy production from public lands. The assessment indicated that 20 
BLM planning units in seven western states have high potential for 
power production from three or more renewable energy sources.
    New authorities and provisions in the EPAct have given DOI bureaus, 
such as the Minerals Management Service (MMS), the BLM, and the U.S. 
Geological Survey (USGS), the ability to explore the future development 
of promising new energy sources such as onshore and offshore wind, 
solar, and biomass energy; the EPAct also has provided bureaus, such as 
the U.S. Fish and Wildlife Service (USFWS), additional resources to 
help ensure these technologies are developed in an environmentally 
responsible manner.
    I will discuss each of these energy sources, as well as alternative 
sources of fossil energy, and how they are integrated into DOT's energy 
programs. I also will discuss how DOI agencies are playing a leadership 
role in utilizing renewable energy resources at existing and new DOI 
facilities.

                PRODUCTION OF RENEWABLE ENERGY RESOURCES

Wind
    The BLM manages approximately 100 wind energy right-of-way (ROW) 
authorizations. Since 2001, the BLM has issued more than 90 wind energy 
ROW authorizations, compared to less than 5 issued from 1996-2000. Most 
of these authorizations are for testing and monitoring. Approximately 
25 of the ROW authorizations are producing windfarms, with the capacity 
to produce 500 Megawatts (MW) of electricity--enough to meet annual 
electricity consumption of 420,000 homes based on EIA's average 
consumption statistics that a 1 MW plant running continuously at full 
power for a year could produce the amount of electricity consumed 
annually by 804 U.S. households.
    In response to increased demand for wind energy, the BLM and the 
USFWS completed a programmatic wind energy EIS and a programmatic 
biological opinion in 2005 allowing 52 land-use plans in 9 western 
states to be amended. Completion of this EIS and the biological opinion 
was a significant accomplishment that should provide the foundation for 
the authorization of more than 3,200 MW of wind energy in an 
environmentally responsible manner. The BLM is reviewing several 
proposals that would more than double the capacity of wind generation 
on public lands. It is anticipated that applications or authorizations 
for 300-500 MWs--of the 3,200 MW wind capacity identified in the EIS--
will be processed in the next two years.
    With the new authority under the EPAct, the MMS is working 
diligently to develop a regulatory program to authorize offshore 
alternative energy proposals, such as wind, solar, wave, and ocean 
current technologies. The Renewable Energy and Alternate Use 
Programmatic EIS, developed by the MMS, is currently open for public 
scoping. The EIS will form the foundation for the new alternative 
energy program and for future applications. The MMS expects to complete 
the programmatic EIS and rulemaking process by November 2007.
Solar
    The BLM has received two ROW applications for large concentrated 
solar power commercial generating facilities encompassing 12,800 acres 
with an estimated output of 1,750 MW. The BLM is prepared to respond to 
additional industry interest for concentrated solar power use of the 
public lands based on a BLM Solar Energy Development Policy issued in 
2004.
Geothermal
    The BLM currently manages 354 geothermal leases, 55 of which are 
producing and provide geothermal energy to 34 power plants. Since 2001, 
the BLM has processed more than 200 geothermal lease applications, 
compared to 20 lease applications received from 1997-2001. Since the 
enactment of the EPAct, Nevada BLM has issued 25 geothermal leases. 
Another 97 applications filed prior to enactment are pending approval. 
In addition, the BLM manages a small number of direct-use leases, which 
provide an alternative source of energy for greenhouses, fish farms, 
and other commercial facilities. Demand for both electrical power and 
direct-use from Federal geothermal resources is expected to increase.
    Over the past 5 years, the BLM has diligently worked to expedite 
the processing to pending geothermal lease applications on public 
lands. Since 2001, 199 leases have been issued, compared to 25 leases 
from 1996-2001. In 2004, the BLM completed a strategic plan to guide 
the agency in allocating resources for high priority geothermal 
activities.
    The EPAct made comprehensive changes to the Geothermal Steam Act--
the authorizing statute for geothermal development on public lands--by 
requiring land nominated and made available for leasing to be leased on 
a competitive basis; restructuring royalties; and revising lease terms, 
conditions, and rentals. As a result, the BLM and the MMS are rewriting 
their geothermal rules to conform to the statutory changes. The BLM 
authorizes geothermal development on Federal lands, and the MMS 
collects revenues owed to the Federal government and ensures these 
payments comply with applicable statutes and regulations.
    To improve coordination in the geothermal leasing and permitting 
process, address pending leases, and develop a joint data system for 
geothermal activity, the BLM and Forest Service (FS) signed an 
Interagency Memorandum of Understanding (MOU) in April 2006.
    This year, the USGS began a three-year effort to update a 
nationwide geothermal resource assessment completed in the 1970's. The 
assessment will include estimates of electric power production 
potential from identified geothermal systems; estimates of the 
magnitude and general location of undiscovered geothermal systems; and 
evaluations of the impact of new geothermal technologies, such as 
Enhanced Geothermal Systems. The USGS is collaborating with other 
Federal, State, and local government agencies and the geothermal 
industry on a number of specific geothermal research projects, 
including new geothermal technologies, consulting with States 
developing and implementing Renewable Portfolio Standards (RPS), and 
providing technical advice to local agencies, Indian tribes and others 
seeking to develop geothermal projects.
Biomass
    Utilization of biomass by-products from timber harvests and other 
activities on the public lands is an innovative market solution for 
reducing recurrent wildfire danger, disposing of wood waste, and 
expanding economic opportunities for local communities to develop 
energy generation industries. The BLM offered nearly 30,000 tons of 
biomass mostly through stewardship contracts in 2004, the first full 
year the BLM had this authority. In 2005, 71,000 tons of wood by-
products were offered through contracts by the BLM. The target for 2006 
is to offer 60,000 tons of biomass through contracts or agreements.
    When treating areas for hazardous fuels reduction, the goal for 
2006 is to offer biomass in 10 percent of the BLM's mechanical 
treatment projects, increasing to 50 percent by 2008. The BLM has also 
established six demonstration sites, which have a potential generation 
capability of 66 MW.
    We have been working to sponsor conferences, participate in 
workgroups, and form partnerships to identify and remove barriers to 
biomass utilization. For example, BLM entered into a Memorandum of 
Understanding (MOU) with the Confederated Tribes of Warm Springs and FS 
in Central Oregon under which 80,000 dry tons (8,000 acres) of woody 
biomass material would be offered each year. The competitive offerings 
will be available beginning in FY 2008. Based on this MOU, the Tribe is 
seeking a power purchase agreement and bank financing to develop a 15.5 
MW cogeneration plant.
    A Declaration of Cooperation was signed in mid-January, 2006 in 
support of a Lakeview, Oregon Biomass Energy Facility. The BLM Lakeview 
District was one of 22 signatories, including businesses, governments, 
and non-profit organizations in support of this project. Some hurdles 
still need to be cleared before there are any ground-breaking 
activities to build the proposed power plant, which is planned to be 
10-15 megawatts in size. The Oregon governor's office is touting this 
agreement as a prototype for other potential agreements throughout the 
state to achieve multiple objectives, including sustaining rural 
communities, dealing with high fire prone forests, and encouraging 
utilization of biomass in lieu of burning. One noteworthy item about 
this agreement is that it garnered support from a broad cross-section 
of stakeholders from industry and conservation groups.
    To aid in the utilization of biomass, in 2003, the Departments of 
the Interior, Agriculture, and Energy signed a Memorandum of 
Understanding agreeing to work together to promote the use of wood 
biomass. An interagency working group has been established under this 
Memorandum of Understanding and will report to the Biomass Research and 
Development Board.
    Early in 2004, the Secretary of the Interior charged DOI bureaus 
with development of a coordinated biomass implementation strategy. 
Under this direction, and using the authorities provided in the Healthy 
Forests Initiative, the National Fire Plan, stewardship contracting, 
and the Healthy Forest Restoration Act, the BLM implemented its 
strategy for increasing biomass utilization from BLM-managed lands.
    DOI also adopted a standard contract provision that allows for the 
removal of biomass as part of all forest and rangeland thinning 
projects or any other contracts that cut vegetation. This contract 
option is for use by all DOI bureaus. In addition, Section 210 of the 
EPAct authorizes Federal grants for biomass use. The BLM is working 
with the FS to implement a joint biomass action plan and foster new 
markets in biomass utilization. To help increase the market for 
materials made of small wood and wood biomass, the agency has added a 
factor to their procurement solicitations to encourage the purchase of 
bio-based materials.

                  ALTERNATIVE SOURCES OF FOSSIL ENERGY

    DOI is also facilitating the development of alternative sources of 
energy from unconventional fossil fuel resources, such as gas hydrates, 
which, while currently uneconomic to commercially develop, present 
enormous potential for domestic energy production in the years to come.
Gas Hydrates
    Gas hydrates are naturally occurring solids in which water 
molecules trap gas molecules (usually methane) in a cage-like 
structure. Gas hydrates are widespread in permafrost regions and areas 
offshore and have the potential to contribute significantly to the 
world's gas supply. The most recent assessment of gas hydrate potential 
for the United States was conducted by the USGS in 1995. The USGS 
estimated that the United States had more than 200,000 Trillion Cubic 
Feet (TCF) of in-place gas hydrate resources, compared to current 
estimates of approximately 1,200 TCF of natural gas from conventional 
sources. More than 98 percent of this potential resource is believed to 
exist offshore. Currently, the nation consumes approximately 24 TCF on 
an annual basis.
    Although there is no current commercial production of gas from 
known gas hydrates deposits, recent studies have demonstrated that 
production of these resources is technologically feasible.
    Research into gas hydrates has been conducted for approximately 25 
years, and the level of knowledge about the occurrence and potential 
recoverability of gas hydrates has evolved. Promising results have been 
shown in Alaska. With this new knowledge, the MMS, in co-operation with 
the USGS and leading academic researchers, is currently in the process 
of reassessing the extent of potential quantities of in-place gas 
hydrates on the Outer Continental Shelf and MMS will be the first to 
assess the technically recoverable resource.
    The MMS has focused its hydrate activities on assessing and 
evaluating hydrate resources and assuring that industry hydrate 
exploration and development activities can occur in a safe and an 
environmentally sound manner. In addition to partnering with USGS in 
developing a methodology for assessing offshore gas hydrates and 
performing a new resource assessment, the MMS is also developing a 
detailed tract-specific methodology that would be used as the basis to 
determine fair market value assuming production of this resource 
eventually becomes economic. The methodology will provide significantly 
more specificity on the location of the resource.
    The USGS, the BLM, and the State of Alaska are currently in the 
process of reassessing the potential quantities of technically 
recoverable gas hydrates on the North Slope of Alaska--the first ever 
technically recoverable resource estimate of its kind. This estimate 
will support the BLM and the Alaska Department of Natural Resources 
resource management responsibilities.
    Working with other Federal agencies, DOI has established goals to 
(1) improve our understanding of the various aspects of gas hydrate 
occurrence in the natural environment, (2) improve our detection 
abilities via various geophysical techniques, including remote sensing, 
and (3) improve our understanding of potential production techniques 
and the behavior of hydrates during production, including reservoir 
performance and fluid behavior.
    DOI is evaluating the need for rulemaking to encourage natural gas 
production from gas hydrates as directed by Section 353 of EPAct.

      UTILIZATION OF RENEWABLE ENERGY RESOURCES AT DOI FACILITIES

    In addition to DOI's significant role in domestic renewable energy 
production, bureaus within DOI are taking on a leadership role by 
working to advance the use of renewable energy resources at numerous 
facilities in the field. There is significant potential for the 
installation and use of renewable energy resources, such as solar, 
geothermal, and wind power at existing and new DOI facilities.
    The BLM generates a total of 185 Megawatt-hours of electricity from 
photovoltaic systems each year from over 600 installations. Varied uses 
of photovoltaics include water pumping, outdoor lighting, communication 
sites, weather and water monitoring, remote field stations, and visitor 
centers. Since 1995, the BLM has installed over 130 photovoltaic 
systems to replace fossil-fuel powered generators. The seasonal nature 
of the remote facilities and long summer sun hours have made solar 
energy a cost effective approach to supplying power to these 
facilities. Some examples of solar photovoltaic projects undertaken at 
the BLM facilities include:

   Grid-connected systems at the Cannonville and Big Water 
        Visitor Centers (Utah); and the Vale Fire Dispatch Center 
        (Oregon);
   Outdoor lighting systems at various recreation sites along 
        the Colorado River near Yuma and on Lake Havasu (Arizona);
   Upgrades to the Nixon system (Arizona) to meet the needs of 
        the new 3,000 sq. ft. fire station;
   Water pumping and water treatment at the Clay Creek 
        Recreation Site (Oregon);
   Water pumping on a remote stock and wildlife site water 
        system (Idaho);
   Off-grid system (3 kW) at the Washburn Ranch, Carrizo Plain 
        National Monument (California); and
   Grid-connected system (7.5 kW) at Escalante Science Center, 
        Grand Staircase-Escalante National Monument (Utah).

    The National Park Service (NPS) also is utilizing innovations in 
solar power at facilities throughout the National Park System. The Zion 
National Park Visitor Center, designed collaboratively by the NPS and 
the Department of Energy's National Renewable Energy Laboratory, uses 
66 percent less energy than code and is virtually immune to the 
frequent power outages in the region. The project represents a 
synthesis of passive heating, cooling and daylighting, energy 
efficiency, and photovoltaic technology. Shading, natural ventilation, 
passive evaporative cool-towers, clerestories, trompe walls, direct 
solar gain, thermal mass, high efficiency lights, and 7 kilowatts of 
photovoltaics all work together to nearly eliminate loads. The project 
resulted in cost savings of more than $10,000 and 309 million BTU in 
site energy and 1 billion BTU in source energy.
    At Mojave National Preserve, the NPS has constructed a new Wildland 
Fire Center that is highly functional, energy efficient, and cost 
effective. The Center features an 11 kilowatt hybrid system with 85 
thin flexible photovoltaic panels placed on the roof, eliminating the 
expense of a solar panel array frame. In interior spaces without 
windows, solar light tubes practically eliminate the need for 
electrical lighting during the day. A solar-powered radiant floor 
heating system prevents the water lines in the fire engine bays from 
freezing. The project has achieved an energy savings of 624 million BTU 
and a cost savings of more than $16,000 in one year. At the White River 
Entrance of Mount Rainier National Park, the NPS has constructed a 20-
kilowatt solar hybrid system, which brings reliable electrical power to 
a remote area without a connection to an electric utility. The new 
system is saving the White River installation more than $9,000 in fuel 
costs and approximately 776 million BTU annually.
    The Bureau of Indian Affairs improved energy conservation at 
Sherman Indian High School by installing new lighting, heating, 
ventilation, and a renewable energy photovoltaic system. These and 
other improvements helped achieve a savings of more than 8 billion BTU 
and more than $179,000.
    At Missisquoi National Wildlife Refuge, the FWS has worked 
collaboratively with community partners, Efficiency Vermont, the State 
of Vermont, the Town of Swanton, and a design team led by Centerbrook 
Associates on a new headquarters and visitor contact station that 
exemplifies the principles of sustainable design. This facility, 
dedicated on October 15, 2005, minimizes energy use, makes efficient 
use of resources, and reflects sensitivity to the site. Achievements of 
the project include selection of recycled-content materials, passive 
solar energy design, energy efficiency, water conservation and runoff 
treatment, and sustainable architecture. Its renewable energy systems 
capture geothermal, solar, and wind energy with a geothermal heating, 
ventilation, and air conditioning (HVAC) system; a 15 kW photovoltaic 
solar array; a Bergey 10 kW wind turbine; and an energy-efficient 
lighting and controls system.
    At the Parker River National Wildlife Refuge, the USFWS 
incorporated the use of recycled building materials and low-VOC 
building materials, including engineered wood, plastic lumber, linoleum 
flooring, fiberboard, sheetrock, exterior decking, tile, deck piers, 
and carpet with high recycled content in the construction of the 
visitor center and administrative headquarters. Water conservation 
technologies, including directing roof runoff to groundwater recharge, 
installing low-flush toilets, and implementing other best water 
management practices, save thousands of gallons of water per year. 
Passive solar techniques such as southeast building orientation and 
daylighting, along with super insulation of the building envelope and 
high-efficiency lighting with self-adjusting dimmers significantly 
reduce energy use over a traditional office building.

                               CONCLUSION

    In conclusion, Mr. Chairman, energy is vital to expanding our 
economy and enhancing Americans' quality of life, and producing energy 
from renewable and other alternative domestic resources is a critical 
component of the Nation's energy portfolio. Lands managed by DOI have a 
major role to play in the diversification of the Nation's energy 
sources while ensuring protection of habitat and mitigating impacts to 
wildlife, cultural and natural resources. DOI also will continue to 
lead by example, utilizing renewable energy resources at existing and 
new DOI facilities.
    DOI has been working with other agencies and has taken steps in a 
variety of scientific endeavors to understand renewable and other 
alternative energy resources and to help bring them to a place where 
they may contribute to the energy mix of the country. Even the 
development of renewable energy resources requires surface acreage, and 
DOI manages millions of acres of land, many of which have energy 
potential. The BLM and MMS have been working on a variety of fronts to 
meet industry demand for renewable and other alternative sources of 
energy. The USGS has been leading scientific investigations to improve 
our understanding of these energy resources. We stand ready to respond 
to the ever-increasing need for energy development from the resources 
we manage on behalf of the Nation.
    Thank you for the opportunity to highlight a few of the steps the 
Department of the Interior has taken to encourage the development of 
renewable and other alternative energy resources on the public lands.
    Renewable energy will be extremely important in delivering larger 
supplies of clean, domestic power for America's growing economy. This 
concludes my testimony. I would be happy to answer any questions you 
have.

    Senator Craig. Lynn, thank you very much.
    Now we turn to Sally Collins.
    Sally.

 STATEMENT OF SALLY COLLINS, ASSOCIATE CHIEF, FOREST SERVICE, 
                   DEPARTMENT OF AGRICULTURE

    Ms. Collins. Mr. Chairman and members of the committee, I 
thank you, also, for the opportunity to discuss renewable 
energy production on the national forest and national 
grasslands.
    The U.S. Forest Service is fully committed to moving the 
country toward energy independence, and we view increasing 
opportunities for renewable energy as a key part of this.
    I'll submit my full testimony in writing, so let me just do 
a quick summary here for you today.
    We have accomplished a lot through the Energy Policy Act of 
2005, a law that we believe increases energy supplies while 
protecting the environment, fosters greater competition in the 
marketplace, and reduces risks to entrepreneurs seeking and 
entering renewable energy enterprises.
    Under the law, so far we have completed three MOUs with BLM 
related to expediting oil and gas and geothermal leasing, as 
well as field operations. We have established pilot offices 
throughout the West to ensure better coordination of those 
field operations. Backlogs of permits and leases have been 
significantly reduced. And close to 100 percent of permit 
applications for electric transmission lines, oil and gas 
pipelines, and renewable energy generation facilities have been 
processed within the timeframes established by that law.
    More specifically, renewable energy has huge potential on 
national forests. Of the 354 geothermal leases, 116 are on 
national forest land, five of which are producing--we have two 
geothermal powerplants that contribute a 12- and a 45-megawatt 
plant--together, combined enough--produce enough energy to 
service close to 60,000 households.
    The nature of geothermal development makes reducing risk to 
the developer critically important, as the GAO report alludes 
to. One way the Policy Act addresses this is to promote 
interagency coordination in leasing and in permit operations. 
And, in response to that, the Forest Service is developing a 5-
year schedule to expedite the processing of geothermal lease 
applications. We're also amending our forest plans to address 
geothermal development.
    Now, for woody biomass development, the Forest Service and 
other Federal agencies expect to treat more than 13 million 
acres over the next 3 years, yielding massive quantities of 
biomass as a byproduct, as well as, of course, reducing the 
risk to communities.
    The lion's share of the biomass from Federal lands comes 
from our national forests. So far this year, about 50 percent 
of the almost half a million acres that have been mechanically 
treated by the Forest Service have yielded woody biomass for 
utilization in some manner.
    The energy potential is huge, especially as markets for 
wood increase. And, as you all know, it takes energy to make 
energy. Even with today's energy and today's technology, 
biofuels from wood materials are significantly less energy 
intensive to manufacture than our other sources of biofuels, 
including corn ethanol, and all are more energy efficient to 
produce than gasoline.
    The energy ratio for ethanol for wood products can be even 
higher as science and technology advance, and we are doing our 
research on this at our research lab in Madison, Wisconsin. In 
addition to this, we're working with local communities to 
promote local investments in biomass utilization. Currently, 
approximately 38 million megawatts of electricity are produced 
from woody biomass nationwide.
    And, finally, just a few words about solar and wind energy.
    In 2005, together with the Department of Energy, the Forest 
Service identified 99 units of National Forest System with high 
wind or solar potential. To date, we haven't received any 
applications for solar development on the national forests, but 
we have received two applications for wind energy.
    Right now, we're developing some guidelines for wind energy 
production, and these guidelines will help facilitate and 
expedite the processing of these permits, which we expect these 
guidelines to be completed in this fall sometime.
    And we anticipate that as interest in solar on the national 
forests increases, we will also have a similar policy for 
solar.
    In conclusion, Mr. Chairman, the Forest Service is firmly 
committed to the development of renewable energies on National 
Forest System lands. These lands are one of the largest 
producers of hydropower and woody biomass, and will play an 
increasing role as a source of geothermal wind and solar energy 
in the future.
    I appreciate the opportunity to be here today, and look 
forward to answering any questions you might have.
    [The prepared statement of Ms. Collins follows:]

 Prepared Statement of Sally Collins, Associate Chief, Forest Service, 
                       Department of Agriculture

    Mr. Chairman and members of the Committee, thank you for this 
opportunity to discuss renewable energy production on National Forest 
System lands.
    I understand this hearing is one of a series the committee is 
holding regarding implementation of the Energy Policy Act of 2005, 
Public Law 109-58. Renewable energy development plays a significant 
role in the agency's implementation of the Energy Policy Act of 2005 
(EPAct 2005). As you know, that law significantly benefits consumers by 
increasing energy supplies while protecting the environment and 
fostering greater competition in the marketplace. The Act also improves 
the Nation's energy security and reduces our dependence on foreign 
sources of oil by increasing the use and diversity of renewable energy 
sources and by reducing energy consumption through greater conservation 
and energy efficiency.
    First, a quick synopsis of what we've done under the EPAct 2005 to 
date. To meet the provisions of titles II and III of the Act, we have 
completed three Memorandums of Understanding (MOUs). One, under section 
365, improves energy permit coordination on Federal lands and which 
assigns agency personnel to pilot project offices. The second, with the 
Bureau of Land Management (BLM) for timely processing of pending 
geothermal lease requests under section 225 was completed in April 
2006. The third with the BLM under 363 improves oil and gas leasing and 
permitting procedures between the BLM and Forest Service. We also 
worked cooperatively with BLM to revise the Oil and Gas Onshore Order 
No. 1 regulation on the approval of oil and gas onshore lease 
operations.
    In addition, we have processed 254 special use authorizations (97 
percent) within established timeframes for electric transmission lines, 
oil or gas pipelines, and renewable energy generation facilities. We, 
along with other Federal agencies developed and published an 
interagency rule making for expedited trial-type hearings for 
applicants or other parties contesting conditions for hydropower 
facilities. We have begun implementing section 368, which calls for 
designating energy corridors on Federal lands. This effort included 
public scoping meetings in 11 Western states. The public comment period 
started with the publication of the preliminary draft corridor map 
(June 9, 2006) and ran until July 10, 2006.
    I will now discuss each renewable energy source separately.

                           GEOTHERMAL ENERGY

    Nearly 50 percent of the nation's geothermal energy production 
comes from Federal lands. There are currently 354 Federal geothermal 
leases, 116 on NFS lands. At the present time, there are 5 producing 
leases on NFS lands contributing to a 12 mega-watt power plant and a 45 
mega-watt power plant. Generally, one megawatt provides enough 
electricity for about 1,000 homes.
    A joint report prepared by the Department of Energy's (DOE) 
National Renewable Energy Laboratory and the Department of the Interior 
(DOI) describes the potential for geothermal development on public 
lands in the 7 states that have geothermal resources. The report is 
entitled Opportunities for Near-Term Geothermal Development on Public 
Lands in the United States. While no specific geothermal resource 
assessment analysis has been completed to date addressing NFS lands, 
the report provides a synopsis of geothermal activity and site specific 
facts related to this activity for NFS lands by State.
    The BLM and the Forest Service coordinate geothermal resource 
leasing activities on NFS lands. The Forest Service provides the 
consent to lease and the BLM issues the leases. The Forest Service 
serves as lead agency for geothermal leasing availability analyses and 
decisions and conducts analysis on geothermal activities on NFS lands. 
Also, we develop lease stipulations for NFS lands that are only as 
restrictive as necessary to protect the resources for which they are 
applied. The Forest Service and the BLM coordinate the signing and 
release of decision documents in leasing of NFS lands. Despite the 
environmental benefits of geothermal energy, there have been barriers 
to development of these resources on NFS lands. The study conducted 
jointly by the DOE and DOI concluded there is a need to streamline 
environmental reviews. The EPAct 2005 addresses this and other issues. 
The Act calls for streamlining the permitting process, changes the 
royalty structure to provide payments to local governments, and directs 
the U.S. Geological Survey to update the assessment of geothermal 
resources made during 1978 and submit this updated assessment to 
Congress. It also provides a production tax credit. These changes have 
spurred increased interest in developing geothermal resources.
    The Forest Service concurrence is pending on 65 lease applications 
in Oregon, Washington, California, Arizona, Nevada, and Idaho. Issues 
to be addressed include requirements associated with threatened and 
endangered species and the need to amend land management plans that do 
not presently address geothermal development. Under section 225 of the 
EPAct 2005, the Forest Service has signed an MOU with BLM that provides 
administrative procedures for processing geothermal lease applications, 
establishes a program to reduce the backlog of lease applications by 90 
percent within five years, and provides for a joint data retrieval 
system for tracking lease and permit applications.

                             WOODY BIOMASS

    Biomass has surpassed hydropower as the largest domestic source of 
renewable energy. A recent joint U.S. Forest Service--Department of 
Energy report, Biomass as Feedstock for a Bioenergy and Bioproducts 
Industry: The Technical Feasibility of a Billion-Ton Annual Supply, 
commonly known as the ``Billion Ton Report,'' projects that there are 
over 1.3 billion dry tons per year of biomass potential--enough to 
produce biofuels sufficient to meet more than one-third of the nation's 
current demand for transportation fuels by 2030. About one-quarter of 
that total, roughly 400 million dry tons of biomass could be produced 
in a sustainable manner from all forest and rangelands--including 
private, state, tribal and federal lands.
    Woody biomass is woody materials removed from National Forest 
System, other Federal, State and private lands as a byproduct of forest 
management activities. Woody biomass includes tree stems, limbs, tops, 
needles, leaves and other woody parts. Currently most of this material 
is underutilized, commercial value is low, markets are small to non-
existent and the infrastructure needed to process this material is 
insufficient or nonexistent in many parts of the country.
    The Administration's Healthy Forests Initiative has significant 
potential to increase the availability of woody biomass from Federal 
lands. As the committee is aware, the Forest Service and the Department 
of the Interior last year treated hazardous fuels on more than 2.9 
million acres of land, and reduced hazardous fuels on an additional 1.4 
million acres through other land management actions. Roughly one-
quarter of the acres treated resulted in biomass utilization for forest 
products, bio-based or bio-energy purposes, but the potential exists 
for substantial expansion of biomass use. Federal agencies plan to 
treat 2.9 million more acres in 2006, and accomplish hazardous fuels 
reduction on an additional 1.6 million acres through landscape 
restoration activities, with an additional 4.6 million acres planned 
for 2007, which includes 3 million acres of hazardous fuels treatments 
and 1.6 million acres through landscape restoration activities.
    To put this material to productive use requires an integrated 
strategy involving federal, state, tribal and private forest owners 
along with communities and other private interests. The public benefits 
of diverting this material from other disposal options such as open 
burning or expensive landfilling, and the positive environmental 
consequences of a clean and renewable energy source are just beginning 
to be articulated and valued in the market through renewable energy 
credits, carbon credits and pollution credits.
    Local areas and regions of the country have unique opportunities 
and challenges related to biomass utilization. Hurricane damage in the 
South, fuels treatments needs around communities, and insect outbreaks 
all provide cross-ownership woody biomass utilization challenges.
    The Forest Service is also increasing our Research and Development 
efforts at the Forest Products Laboratory and at our Research Stations 
to provide renewable energy and alternatives to fossil fuels from woody 
biomass. This effort includes improved in-woods operations, 
transportation and handling, processing and new bio-based products.
    The restoration of our nation's forest to be more resilient to 
natural disturbance, such as catastrophic wildfires is a primary 
objective for a significant portion of our timber sale program. These 
restoration efforts are dramatically affected by biomass utilization 
and the global timber market.
    Therefore, biomass utilization is critical to our ability to meet 
our restoration needs. The FY 2007 President's Budget addresses this 
need by dedicating $610 million to implementing the Healthy Forest 
Initiative. This includes $5 million to foster markets in biomass 
utilization. Additionally, the President's Healthy Forests Initiative, 
the Healthy Forests Restoration Act, and stewardship contracting, allow 
the Forest Service to work more effectively and efficiently with the 
local community in treating hazardous fuels, and to promote investment 
in the local timber infrastructure.
    In summary, the Forest Service's biomass energy activities are 
aimed at providing a predictable and sustainable supply, improving 
utilization through technical assistance and science, and developing 
partnerships across woody biomass interests.

                         WIND AND SOLAR ENERGY

    In 2005, the Forest Service and the Department of Energy's National 
Renewable Energy Laboratory established a partnership to conduct an 
assessment of renewable energy resources on National Forest System 
lands in the continental United States, including administrative and 
physical limitations on access to them. One goal of the resulting 
report was to identify those National Forest and Grassland units that 
have the highest potential for private-sector development of wind, 
concentrating solar power and photovoltaic energy resources.
    Using geographic information system (GIS) data, the interagency 
team developed screening criteria for each of the solar and wind 
resources to produce maps of the 25 NFS sites with the highest 
potential for development of each energy source. Sites had to be 
relatively flat and not near urban areas and were excluded if they were 
not accessible to appropriate transmission capacity or a major road. 
Inventoried Roadless Areas and other Specially Designated Areas were 
also excluded. The assessment found that 99 NFS Units have high 
potential for power production from solar or wind sources and 20 have 
high potential for power production from two or more wind or solar 
sources.
    Energy facilities qualify as one of the potential uses of National 
Forest System lands. (Mining and Minerals Policy Act and Forest Service 
Manual 2802). The Forest Service processes proposals for solar and wind 
energy facilities using existing Special Uses regulations and policies. 
Proposals to use National Forest System Lands are submitted to the 
District Ranger or Forest Supervisor having jurisdiction over the 
affected lands. The authorized officer then initiates pre-application 
actions that involve initial and second-level screening which are 
followed by a formal application in the event that a proposal meets the 
screening criteria.
    The processing of recent wind energy proposals on the Green 
Mountain National Forest in Vermont and on the Huron-Manistee National 
Forest in Michigan has revealed that policy needs to be developed 
related to wind energy projects due to the unique factors, such as the 
impact on migratory birds, associated with this energy resource.
    In response, Joel Holtrop, Deputy Chief for the National Forest 
System, announced the creation of an ad hoc wind Energy Guidance Team 
on February 24, 2006. The team is developing policy to addressing the 
factors associated with wind energy facilities on National Forest 
System lands.
    The primary goal of the team is to provide local Forest Service 
officials with the information and tools necessary to efficiently 
process proposals for wind energy facilities. A specific wind energy 
policy will ensure that local officials can make well-informed 
decisions and will ensure that adequate and consistent analyses and 
procedures are implemented to assess and evaluate proposals.
    The team will determine whether any special considerations should 
be made when screening wind energy proposals, the type and term of 
authorizations, and the methodology for calculating the fees associated 
with the authorization. The team is also considering guidance for 
potential visual, scenery, recreation, or wildlife impacts and measures 
to mitigate those impacts.
    The recent BLM Programmatic Environmental Impact Statement on Wind 
Energy Development is being used as a resource to allow for interagency 
consistency in policy. The ad hoc team has directly consulted with BLM 
employees concerning certain text and procedures of the BLM 
Programmatic Environmental Impact Statement (PEIS). The Forest Service 
intends to adopt many of the best management practices provided in the 
PEIS. In those instances where the Forest Service's legal authority, 
management practices and procedures do not allow us to completely align 
with the BLM, we are developing direction that is better suited to our 
agency's particular needs.
    Our guidance also differs from the BLM due to continuing advances 
in wind energy technology, as well as new information on its affects on 
wildlife and civilian and military radar. Our direction will address 
these emerging issues to ensure it is based on the available best 
science. The Forest Service expects to publish the wind energy policy 
and handbook direction in the Federal Register this fall. The policy 
will call for the evaluation of wind energy proposals to be done at the 
Forest level using public comment processes due to the differing 
landscapes, habitats, wildlife populations, and public concerns unique 
to each site.
    To date, the Forest Service has received no applications to 
construct a concentrating solar power or photovoltaic project.
    In conclusion, Mr. Chairman, the Forest Service is firmly committed 
to the development of renewable energy sources on National Forest 
System lands. These lands are already one of the nation's larger 
sources of hydropower and geothermal energy. The agency will play a 
leading role in increasing the utilization of woody biomass as a 
renewable energy source. We are confident we can accomplish all of this 
within the statutory and regulatory framework under which the Forest 
Service manages 193 million acres of forests and grasslands.
    I would be glad to answer any questions you may have.

    Senator Craig. Sally, thank you very much.
    Now let's turn to Jim Wells, Director of Natural Resources 
and the Environment for the Government Accountability Office.
    Jim, Ron, thank you for being with us.

    STATEMENT OF JIM WELLS, DIRECTOR, NATURAL RESOURCES AND 
         ENVIRONMENT, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Wells. Thank you, Mr. Chairman and members of the 
committee.
    We, today, as Senator Bingaman referred to, are releasing 
to the public our most recent work on the challenges facing 
geothermal development. We're pleased today to talk about the 
successes of EPAct of 2005 as it relates to geothermal energy.
    In today's world, energy in any form has, and is, becoming 
more valuable. As prices of oil, natural gas, and electricity 
rise, interest in renewable energy, like geothermal, rises. 
Most will agree, in the room today, that we, as a Nation, have 
a need to develop renewable sources. The passage of EPAct 2005 
last year served notice that the Federal Government is, in 
fact, a major participant and is uniquely involved by owning 
huge amounts of Federal land with the potential for future 
geothermal development.
    The GAO report gives you a geothermal status, if you will, 
of what we have to date, what we know about the potential for 
the future. It also addresses the challenges to expansion, 
describes the Federal, State, and local governments' 
activities, and finally, tries to explain how the royalty 
payments are collected for the use of these Federal resources, 
which has always been a complicated process.
    What we are currently getting from geothermal sources is 
not huge, by electricity production standards, but it is 
locally important. If you live in Hawaii, California, Nevada, 
Utah, or Idaho, you will know how important geothermal is.
    Mr. Chairman, you may have noticed we used a picture of the 
Boise district heating system in our report. Another 2,300 
businesses, jobs, and consumers, with over 1 million existing 
geothermal heat pumps, know how important the source of energy 
is.
    The statistics show that this source of energy is producing 
2,500 megawatts of electricity, enough to run about 2.5 million 
homes. Fifty percent of that energy is coming from the Federal 
lands. However, in a perspective, this is still only .3 percent 
of our Nation's total electricity production.
    Our report title, perhaps, tells the story best. The 
potential of geothermal will depend on the ability to overcome 
some pretty significant challenges. Harassing--excuse me--
harnessing--I don't want to harass geothermal----
    [Laughter.]
    Mr. Wells [continuing]. I want to harness geothermal 
energy--it is not easy, and it's not easy to say that word, 
either. The GAO report describes capital-intensive business--
risky business environment that they have to deal with, 
exploration and drilling technology hurdles that have to be 
overcome, transmission inadequacies, lengthy administrative and 
regulatory lease and permit reviews, lawsuits, and a very 
complex royalty payment system. The list of challenges is 
longer than what I've described here.
    Some, if not all, of these challenges are being addressed 
either by existing programs or planned actions as a result of 
the passage of EPAct 2005. The State, the local governments, 
they are giving incentives with tax credits, grants, and they 
are mandating renewable portfolio standards to encourage 
production of geothermal energy. And it appears to be working.
    The Federal Government, in EPAct 2005, also grants 
developers a Federal tax credit to recoup investments quicker. 
It instructs DOI, Department of the Interior, to simplify the 
royalty payments with the lower fee structures. It lowers 
exploration risk by getting the U.S. Geological Survey to 
update a 1978 study of the assessment of the locations of these 
resources. And it authorizes FERC new authorities to issue 
permits for transmission rights-of-ways in the national 
interest.
    I want to leave you with an impression that a lot has been 
done to provide incentives to this industry.
    Lastly, EPAct 2005 significantly changed how royalties are 
to be paid and disbursed. Half will go to the States, 25 
percent to the counties in which these projects are located, 
and another--the remaining 25 percent to the Federal 
Government.
    The Department of the Interior was charged with designing a 
simpler method for charging for the resource use while seeking 
to lower the cost and design rules to maintain the same level 
of royalty collections as before the act over the next 10 
years. Our analysis is going to suggest that this is going to 
be a challenge for the Department of the Interior.
    Mr. Chairman, in summary, today's geothermal usage is 
relatively small. Geothermal is clearly a unique energy 
offering of an environmental friendly alternative to fossil 
fuels; yet, where and how far we can stretch and expand this 
industry is still unknown. EPAct 2005 and at least half of the 
States have stepped up to the plate with incentives to grow 
this industry. Many of these efforts are showing promise, but 
it's too early for GAO to give you an assessment to declare 
success.
    There's a children's book that talks about a little train 
engine that wanted to climb a hill. ``I think I can, I think I 
can,'' is like the geothermal industry today. Industry is 
optimistic for the future. Encouragement has been provided. Now 
that the Federal agencies have the task, they've got to step to 
the plate to use this expanded authority that the Congress has 
given them, and the industry and the marketplace also must take 
advantage of these offers. They need to reduce their operating 
cost and gain market share.
    The bottom line is: Going to the 21st century, we're going 
to need a diverse supply of energy, and we will need an ever-
increasing amount from all energy sources, including 
renewables.
    Mr. Chairman, I'll stop here and would be glad to answer 
any questions.
    [The prepared statement of Mr. Wells follows:]

   Prepared Statement of Jim Wells, Director, Natural Resources and 
             Environment, Government Accountability Office

                            RENEWABLE ENERGY
    Increased Geothermal Development Will Depend on Overcoming Many 
                               Challenges

                         WHY GAO DID THIS STUDY

    The Energy Policy Act of 2005 (Act) contains provisions that 
address challenges to developing geothermal resources, including the 
high risk and uncertainty of developing geothermal power plants, lack 
of sufficient transmission capacity, and delays in federal leasing. 
Among the provisions are means to simplify federal royalties on 
geothermal resources while overall collecting the same level of royalty 
revenues. This testimony summarizes the results of a recent GAO report, 
GAO-06-629. In this testimony, GAO describes: (1) the current extent of 
and potential for geothermal development, (2) challenges faced by 
developers of geothermal resources, (3) federal, state, and local 
government actions to address these challenges, and (4) how provisions 
of the Act are likely to affect federal geothermal royalty disbursement 
and collections.

                          WHAT GAO RECOMMENDS

    GAO concluded that it will be difficult for the Department of the 
Interior (DOI) to demonstrate that it intends to collect the same level 
of geothermal royalties as called for in the Energy Policy Act because 
the Minerals Management Service (MMS) does not systematically collect 
sales revenue data from electricity sales. Therefore, GAO recommends 
that the Secretary of the Interior instruct the appropriate managers 
within MMS to systematically collect these data, and DOI agreed.

                             WHAT GAO FOUND

    Geothermal resources currently produce about 0.3 percent of our 
nation's total electricity and heating needs and supply heat and hot 
water to about 2,300 direct-use businesses, such as heating systems, 
fish farms, greenhouses, food-drying plants, spas, and resorts. Recent 
assessments conclude that future electricity production from geothermal 
resources could increase by 25 to 367 percent by 2017. The potential 
for additional direct-use businesses is largely unknown because the 
lower temperature geothermal resources that they exploit are abundant 
and commercial applications are diverse. One study identified at least 
400 undeveloped wells and hot springs that have the potential for 
development. In addition, the sales of geothermal heat pumps are 
increasing.
    The challenges to developing geothermal electricity plants include 
a capital-intensive and risky business environment, technological 
shortcomings, insufficient transmission capacity, lengthy federal 
review processes for approving permits and applications, and a complex 
federal royalty system. Direct-use businesses face numerous challenges, 
including challenges that are unique to their industry, remote 
locations, water rights issues, and high federal royalties. The Act 
addresses many of these challenges through tax credits for geothermal 
production, new authorities for the Federal Energy Regulatory 
Commission, and measures to streamline federal leasing and simplify 
federal royalties, which totaled $12.3 million in 2005. In addition, 
the Department of Energy and the state of California provide grants for 
addressing technology challenges. Furthermore, some state governments 
offer financial incentives, including investment tax credits, property 
tax exclusions, sales tax exemptions, and mandates that certain 
percentages of electricity within the state be generated from renewable 
resources.
    Under the Act, federal royalty disbursement will significantly 
change because half of the federal government's share will now go to 
the counties where leases are located. Although the Act directs the 
Secretary of the Interior to seek to maintain the same level of royalty 
collections, GAO's analysis suggests this will be difficult because 
changing electricity prices could significantly affect royalty 
revenues. Finally, MMS does not collect sales data that are necessary 
to monitor these royalty collections.

    Mr. Chairman and Members of the Committee:
    We are pleased to participate in the Committee's hearing to discuss 
the development of geothermal energy on federal lands and the role of 
geothermal resources in the nation's portfolio of alternative energy 
sources. We previously testified that fossil fuels, such as coal, oil, 
and natural gas, provide about 86 percent of our nation's total energy 
consumption, with the rest coming from other sources, including nuclear 
energy and renewable resources, such as hydroelectric energy; wind, 
solar energy, and geothermal resources.\1\ Our nations' long-standing 
reliance on imported crude oil and natural gas and disruptions in their 
supply highlight the need to develop renewable energy sources. Among 
these sources is geothermal energy. Geothermal energy is a unique 
renewable resource in that it can provide power that is independent of 
weather and climate, thereby enabling a consistent and uninterrupted 
supply of heat and electricity. Geothermal energy also creates fewer 
environmental impacts than the production of natural gas and other 
conventional fossil fuels. Because many areas that have the potential 
to produce additional geothermal energy are located on federal lands, 
the federal government plays a major role in the future development of 
geothermal energy.
---------------------------------------------------------------------------
    \1\ See Meeting Energy Demand in the 21st Century: Many Challenges 
and Key Questions, GAO-05-414T (Washington, D.C.: March 16, 2005).
---------------------------------------------------------------------------
    Harnessing geothermal energy, however, is not easy. Developers of 
geothermal energy face many challenges, including the high risk and 
uncertainty of developing geothermal power plants, lack of sufficient 
capacity to transmit electricity from these plants to consumers, 
inadequate technology, and delays in leasing federal lands, which 
supply about 50 percent of the geothermal resources used to generate 
electricity. To address these and other challenges, the Congress 
included detailed provisions in the Energy Policy Act of 2005.
    My testimony today is based on a report we recently completed 
entitled ``Renewable Energy: Increased Geothermal Development Will 
Depend on Overcoming Many Challenges.'' In this report, we addressed: 
(1) the current extent of and potential for geothermal development; (2) 
challenges faced by developers of geothermal resources; (3) federal, 
state, and local government actions to address these challenges; and 
(4) how provisions of the Energy Policy Act are likely to affect 
federal geothermal royalty disbursements and collections. In addressing 
these issues, we reviewed key studies on the extent and potential of 
geothermal development, interviewed a variety of government and 
industry officials, reviewed substantial supporting documentation and 
the Energy Policy Act, analyzed geothermal royalty data, and toured 
geothermal electricity plants and other facilities in California, 
Idaho, Nevada, and Oregon.
    In summary, we found the following:

   Although locally important, geothermal resources produce a 
        very small portion of our nation's total electricity and 
        heating needs. In 2004, geothermal resources generated about 
        0.3 percent of the nation's total electricity and supplied heat 
        and hot water directly to about 2,300 district heating systems, 
        fish farms, greenhouses, food drying plants, spas, and resorts. 
        The most recent estimates of future electricity generation from 
        geothermal resources suggest that the current production of 
        2,500 megawatts of electricity--enough to supply 2.5 million 
        homes--could increase to as much as 12,000 megawatts in 11 
        years. Although the future potential of other geothermal 
        applications is less known, about 400 undeveloped geothermal 
        wells and hot springs could supply heat and hot water directly 
        to a variety of businesses and other organizations.
   The developers of geothermal resources face significant 
        financial, technical, and logistical challenges. Geothermal 
        electric power plant developers face a capital intensive and 
        risky business environment in which obtaining financing and 
        securing a contract with a utility are difficult, where 
        recouping the initial investment takes many years, and where 
        transmission expenses could be costly due to remote locations 
        or capacity constraints on the electric grid. These developers 
        must also use exploration and drilling technologies that are 
        inadequate for the unique attributes of geothermal reservoirs. 
        Developers of electric power plants on federal lands face 
        additional administrative and regulatory challenges and a 
        complicated royalty payment system. Businesses and individuals 
        trying to tap geothermal resources for direct use face unique 
        marketing, financing, and technical challenges and, in some 
        cases, must contend with remote locations, restrictive state 
        water rights, and high royalties.
   To address the many challenges of developing geothermal 
        resources, federal, state, and local governments have 
        implemented a number of incentives and initiatives, many of 
        which show promise. However, it is too early to assess their 
        overall effectiveness. To address the capital intensive and 
        risky nature of developing geothermal power plants, the Energy 
        Policy Act grants developers a federal tax credit. Some states 
        also encourage the production of electricity from renewable 
        energy by granting various tax credits or by passing laws or 
        adopting policies requiring that public utilities provide a 
        minimum percentage of their electricity from renewable energy. 
        To address technological challenges, the federal government and 
        the state of California awarded research and development grants 
        through the Department of Energy's Geothermal Technologies 
        Program and the California Energy Commission, respectively. The 
        Energy Policy Act gives the Federal Energy Regulatory 
        Commission new authorities to address transmission limitations 
        and contains provisions designed to improve the efficiency of 
        federal geothermal leasing and to simplify or reduce federal 
        geothermal royalties.
   How federal royalties are shared will change significantly 
        since passage of the Act, and the total amount of royalties 
        collected could change significantly if electricity prices also 
        change. While the Act continues to provide that 50 percent of 
        federal geothermal royalties will be disbursed to the states in 
        which the federal leases are located, an additional 25 percent 
        will now be disbursed to the counties in which the leases are 
        located, leaving only 25 percent to the federal government. The 
        Act also directs for most leases that the Secretary of the 
        Interior seek to maintain the same level of royalty revenues as 
        before the Act, but our analysis suggests that this will be 
        difficult because of two factors. First, because lessees in 
        certain situations will have the option of choosing a different 
        formula for calculating royalties, changing electricity prices 
        could significantly affect the percentage of future royalty 
        revenues that they pay. Second, the Minerals Management Service 
        (MMS) does not routinely collect from royalty payors the gross 
        sales revenue figures for the electricity they sell so MMS 
        cannot determine if or how these future royalty revenues differ 
        from what lessees would have paid before the Act. We have made 
        recommendations to the Secretary of the Interior to instruct 
        the appropriate managers within MMS to collect from royalty 
        payors the gross sales revenue figures from electricity sales. 
        MMS has agreed to do so.

                               BACKGROUND

    Geothermal energy is literally the heat of the earth. This heat is 
abnormally high where hot and molten rocks exist at shallow depths 
below the earth's surface. Water, brines, and steam circulating within 
these hot rocks are collectively referred to as geothermal resources. 
Geothermal resources often rise naturally to the surface along 
fractures to form hot springs, geysers, and fumaroles. For centuries, 
people have used naturally occurring hot springs as places to bathe, 
swim, and relax. More recently, some individuals have constructed 
buildings over these springs, transforming them into elaborate spas and 
resorts, thereby establishing the first direct use of geothermal 
resources for business purposes. Businesses have also established other 
direct uses of geothermal resources by drilling wells into the earth to 
tap the hot water for heating buildings, drying food, raising fish, and 
growing plants. Where the earth's temperature is not high enough to 
supply businesses with geothermal resources for direct use, people have 
made use of the ground's heat by installing geothermal heat pumps. 
Geothermal heat pumps consist of a heat exchanger and a loop of pipe 
extending into the ground to draw on the relatively constant 
temperature there for heat in the winter and air conditioning in the 
summer.
    Geothermal resources can also generate electricity, and this is 
their most economically valuable use today. Only the highest 
temperature geothermal resources, generally above 200 degrees 
Fahrenheit, are suitable for electricity generation. When companies are 
satisfied that sufficient quantifies of geothermal resources are 
present below the surface at a specific location, they will drill wells 
to bring the geothermal fluids and steam to the surface. Upon reaching 
the surface, steam separates from the fluids as their pressure drops, 
and the steam is used to spin the blades of a turbine that generates 
electricity. The electricity is then sold to utilities in a manner 
similar to sales of electricity generated by hydroelectric, coal-fired, 
and gas-fired power plants.
    In the United States, geothermal resources are concentrated in 
Alaska, Hawaii, and the western half of the country, primarily on 
public lands managed by the Bureau of Land Management (BLM). The 
Congress set forth procedures in the Geothermal Steam Act of 1970 for 
leasing these public lands, developing the geothermal resources, and 
collecting federal royalties. Today, BLM leases these lands and sets 
the royalty rate, and the Minerals Management Service (MMS)--another 
agency within the Department of the Interior (DOI)--collects the 
federal geothermal royalties and disburses to the state governments its 
share of these royalties as required by law. In 2005, MMS collected 
$12.3 million in geothermal royalties, almost all of which was derived 
from the production of electricity.

  CURRENT GEOTHERMAL DEVELOPMENT IS LIMITED, AND ESTIMATED POTENTIAL 
                   FOR ADDITIONAL DEVELOPMENT VARIES

    Geothermal resources currently account for about 0.3 percent of the 
annual electricity produced in the United States, or 2,534 megawatts--
enough electricity to supply 2.5 million homes. Even though the 
percentage of electricity generated from geothermal resources is small 
nationwide, it is locally important. For example, geothermal resources 
provide about 25 percent of Hawaii's electricity, 5 percent of 
California's electricity, and 9 percent of northern Nevada's 
electricity. As of January 2006, 54 geothermal power plants were 
producing electricity, and companies were constructing 6 additional 
geothermal power plants in California, Nevada, and Idaho that 
collectively will produce another 390 megawatts of electricity. Over 
half of the nation's electricity generated from geothermal resources 
comes from geothermal resources located on federal lands in The Geysers 
Geothermal Field of northern California; in and near the Sierra Nevada 
Mountains of eastern California; near the Salton Sea in the southern 
California desert; in southwestern Utah; and scattered throughout 
Nevada.
    Industry and government estimates of the potential for electricity 
generation from geothermal resources vary widely, due to differences in 
the date by which forecasters believe the electricity will be 
generated, the methodology used to make the forecast, assumptions about 
electricity prices, and the emphasis placed on different factors that 
can affect electricity generation. Estimates published since 1999 by 
the Department of Energy, the California Energy Commission, the 
Geothermal Energy Association, the Western Governor's Association, and 
the Geo-Heat Center at the Oregon Institute of Technology indicate that 
the potential for electrical generation from known geothermal resources 
over the next 9 to 11 years is from about 3,100 to almost 12,000 
megawatts. A more comprehensive and detailed study of electricity 
generation from all geothermal resources in the United States was 
published in 1978 by the U.S. Geological Survey (USGS). This assessment 
estimated that known geothermal resources could generate 23,000 
megawatts if all of them were developed. The USGS estimate is greater 
because it did not consider how much electricity could be economically 
produced, given competing commercial sources of electricity. In 
addition, the USGS estimated that undiscovered resources could generate 
an additional 72,000 to 127,000 megawatts. In short, geothermal 
resources that could generate electricity are potentially significant 
but largely untapped.
    In 2005, over 2,300 businesses and heating districts in 21 states 
used geothermal resources directly for heat and hot water. Nearly all 
of these are on private lands. About 85 percent of these users are 
employing geothermal resources to heat homes, businesses, and 
government buildings. While most users heat one or several buildings, 
some users have formally organized heating districts that pipe hot 
water from geothermal wells to a central facility that then distributes 
it to heat many buildings. The next most plentiful direct use 
application is for use by resorts and spas, accounting for over 10 
percent of sites. About 244 geothermally heated resorts and spas offer 
relaxation and therapeutic treatments to customers in 19 states. Two 
percent of geothermal direct use applications consist of heated 
greenhouses in which flowers, bedding plants, and trees are grown. 
Another two percent of geothermal direct use applications are for 
aquaculture operations that heat water for raising aquarium fishes for 
pet shops; catfish, tilapia, freshwater shrimp and crayfish for human 
consumption; and alligators for leather products and food. Other direct 
use geothermal applications include dehydrating vegetables, like onions 
and garlic, and melting snow on city streets and sidewalks.
    The potential for additional direct use of geothermal resources in 
the United States is uncertain due to the geographically widespread 
nature of low-temperature geothermal resources and the many different 
types of applications. USGS preformed the first national study of low-
temperature geothermal sites in 1982, but this study was not specific 
enough to identify individual sites for development. In 2005, the Geo-
Heat Center at the Oregon Institute of Technology identified 404 wells 
and springs that might be commercially developed for direct use 
applications--sites that had the appropriate temperatures and are 
within 5 miles of communities.
    Geothermal heat pumps have become a major growth segment of the 
geothermal industry. They make use of the earth's warmer temperature in 
the winter to heat buildings and use the earth's cooler temperature in 
the summer for air conditioning. The Geothermal Heat Pump Consortium 
estimated that 1 million units were in operation in all 50 states as of 
January 2006. Because geothermal heat pumps are effective where ground 
temperatures are between 40 and 70 degrees F, they can be installed in 
almost any location in the United States and, therefore, constitute the 
most widespread geothermal application and represent the greatest 
potential for future development.

              GEOTHERMAL DEVELOPMENT FACES MANY CHALLENGES

    The development of geothermal resources for electricity production 
faces major challenges, including high risk and financial uncertainty, 
insufficient transmission capacity, and inadequate technology. 
Geothermal groups reported that most attempts to develop geothermal 
resources for electricity generation are unsuccessful, that costs to 
develop geothermal power plants can surpass $100 million, and that it 
can take 3 to 5 years for plants to first produce and sell electricity. 
Although some geothermal resources are easy to find because they 
produce tell-tale signs such as hot springs, most resources are buried 
deep within the earth--at depths sometimes exceeding 10,000 feet--and 
finding them often requires an in-depth knowledge of the area's 
geology, geophysical surveys, remote sensing techniques, and at least 
one test well. The risks and high initial costs associated with 
exploring for and developing geothermal resources limit financing. 
Moreover, few lenders will finance a geothermal project until a 
contract has been signed by a utility or energy marketer to purchase 
the anticipated electricity. Geothermal industry officials describe the 
process of securing a contract to sell electricity as complicated and 
costly. In addition, lack of available transmission creates a 
significant impediment to developing geothermal resources for 
electricity production. In the West where most geothermal resources are 
located, many geothermal resources are far from existing transmission 
lines, making the construction of additional lines economically 
prohibitive, according to federal, state, and industry officials. 
Finally, inadequate technology adds to the high costs and risky nature 
of geothermal development. For example, geothermal resources are hot 
and corrosive and often located in very hard and fractured rocks that 
wear out and corrode drilling equipment and production casing.
    Developing geothermal resources for direct use also faces a variety 
of business challenges, including obtaining capital, overcoming 
specific challenges unique to their industry, securing a competitive 
advantage, distant locations, and obtaining water rights. While the 
amount of capital to start a direct-use business that relies on 
geothermal resources is small compared to the amount of capital 
necessary to build a geothermal power plant, this capital can be 
substantial relative to the financial assets of the small business 
owner or individual, and commercial banks are often reluctant to loan 
them money. Challenges that are unique to certain industries include 
avoiding diseases in fish farms; combating corrosive waters used in 
space heating; and controlling temperature, humidity, and light 
according to the specifications of the various plant species grown in 
greenhouses. Even when overcoming these unique challenges, successful 
operators of direct use businesses may need to secure a competitive 
advantage, and some developers have done so by entering specialty 
niches, such as selling alligator meat to restaurants and constructing 
an ``ice museum'' in Alaska where guests can spend the night with 
interior furnishings sculptured from ice. Furthermore, developing 
direct uses of geothermal resources is also constrained because 
geothermal waters cannot be economically transported over long 
distances without a significant loss of heat. Even when these resources 
need not be moved, obtaining the necessary state water rights to 
geothermal resources can be problematic. In areas of high groundwater 
use, the western states generally regulate geothermal water according 
to some form of the doctrine of prior appropriations, under which 
specific amounts of water may have already been appropriated to prior 
users, and additional water may not be available.
    Developing geothermal power plants on federal lands faces 
additional challenges. Power plant developers state that the process 
for approving leases and issuing permits to drill wells and construct 
power plants has become excessively bureaucratic. BLM and Forest 
Service officials often have to amend or rewrite resource or forest 
management plans, which can add up to 3 years to the approval process. 
Delays in finalizing the resource and forest management plans and in 
conducting other environmental reviews have resulted in backlogs of 
lease applications in California and Nevada, particularly when the 
public has raised more environmental issues. Geothermal applications, 
permits, and environmental reviews are also delayed by a lack of staff 
and budgetary resources at the BLM state and field offices that conduct 
the necessary work and when BLM must coordinate with the Forest 
Service, which manages land in some project areas. In addition, 
developers of geothermal resources for both power plants and direct 
uses faced a challenging federal royalty system prior to the Energy 
Policy Act. While developers of geothermal power plants generally did 
not consider the federal royalty system to be a major obstacle in 
constructing a geothermal power plant, some described paying royalties 
as burdensome and reported expending considerable time and expense on 
royalty audits. On the other hand, some developers of geothermal 
resources for direct use stated that the federal royalty system was a 
major obstacle and no longer economically feasible.

    EFFORTS BY FEDERAL, STATE, AND LOCAL GOVERNMENTS TO ADDRESS THE 
       CHALLENGES OF DEVELOPING GEOTHERMAL RESOURCES SHOW PROMISE

    The Energy Policy Act of 2005 includes a variety of provisions 
designed to help address the challenges of developing geothermal 
resources, including the high risk and financial uncertainty of 
developing renewable energy projects and the lack of sufficient 
transmission capacity. Provisions within the Act address high risk and 
financial uncertainty by providing tax credits and other incentives. 
For example, starting on January 1, 2005, the Act extends for 10 years 
a tax credit on the production of electricity from geothermal resources 
for already existing plants and for any new plants producing by 
December 31, 2007. The Act also provides a financial incentive for tax-
exempt entities, such as municipalities and rural electric 
cooperatives, by allowing the issuance of clean renewable energy bonds 
for the construction of certain renewable energy projects, including 
geothermal electricity plants. Investors can purchase the bonds, which 
pay back the original principal and also provide a federal tax credit 
instead of an interest payment. Another provision in the Act may 
decrease the high risk of geothermal exploration by directing the 
Secretary of the Interior to update USGS's 1978 Assessment of 
Geothermal Resources, which is in need of revision because significant 
advancements in technology have occurred since its publication. The Act 
addresses transmission challenges by providing the Federal Energy 
Regulatory Commission (FERC) with new authorities in permitting 
transmission facilities and in developing incentive-based rates for 
electricity transmission in interstate commerce. FERC can now approve 
new transmission lines in certain instances when a state fails to issue 
a permit within 1 year of a company's filing of an application, and 
companies that acquire FERC permits for transmission facilities can 
acquire rights of way through eminent domain proceedings. In November 
2005, FERC initiated the rulemaking process for establishing these 
rates.
    State governments are also addressing the financial uncertainty of 
developing renewable energy projects by creating additional markets for 
their electricity through Renewable Portfolio Standards (RPS). An RPS 
is a state policy directed at electricity retailers, including 
utilities, that either mandates or encourages them to provide a 
specific amount of electricity from renewable energy sources, which may 
include geothermal resources. To date, 22 states plus the District of 
Columbia have RPSs, and three other states have set RPS targets, 
although not all states have significant geothermal resources. 
Additional state programs also provide tax credits and other financial 
incentives for renewable energy development, including electricity 
generation from geothermal resources. These incentives include property 
tax incentives, sales tax incentives, and business tax credits.
    To address technological challenges, the state of California and 
the Department of Energy provide financial assistance and grants to the 
geothermal industry. California's Geothermal Resources Development 
Account competitively awards grants to promote research, development, 
demonstration, and commercialization of geothermal resources. 
California's Public Interest Energy Research Program also funds awards 
for renewable resource projects, including geothermal projects. On the 
federal side, the Department of Energy's Geothermal Technologies 
Program competitively awards cost-sharing grants to industry for 
research and development. In the past, program funds have been used to 
pioneer new drill bits, demonstrate the large scale use of low-
temperature geothermal resources to generate electricity, produce new 
seismic interpretation methods, commercialize geothermal heat pumps, 
develop slimhole (reduced diameter) drilling for exploration, and 
produce a strategy for reinjection at The Geysers Geothermal Field. The 
program's budget was $23 million in fiscal year 2006. However, the 
President's budget contains no funding for fiscal year 2007, and the 
House's proposal for fiscal year 2007 is to appropriate a substantially 
reduced amount of $5 million. In contrast to these funding decisions, 
the Senate Energy and Water Appropriations Subcommittee just recently 
approved a budget of $22.5 million for geothermal research and 
development. While the future impacts of reduced or eliminated funding 
for geothermal technology is uncertain, industry representatives 
believe that this funding is necessary to address the near-term need to 
expand domestic energy production and the long-term need to find the 
breakthroughs in technology that could revolutionize geothermal power 
production.
    The Energy Policy Act also contains provisions aimed at addressing 
the challenges of developing geothermal resources on federal lands. 
Specific provisions are aimed at streamlining or simplifying the 
federal leasing system, combining prospective federal lands into a 
single lease, and improving coordination between DOI and the Department 
of Agriculture. The Act also requires the Secretary of the Interior and 
the Secretary of Agriculture to enter into a memorandum of 
understanding that establishes an administrative procedure for 
processing geothermal lease applications and that establishes a 5-year 
program for leasing of Forest Service lands and reducing its backlog of 
lease applications, as well as establishing a joint data retrieval 
system for tracking lease and permit applications. Finally, the Act 
also contains provisions that simplify and/or reduce federal geothermal 
royalties on resources that generate electricity and on resources put 
to direct use. MMS is in the early stages of implementing these 
provisions, and hence it is too early to assess their overall 
effectiveness.

GEOTHERMAL ROYALTY DISBURSEMENTS WILL CHANGE SIGNIFICANTLY, AND CHANGES 
      IN ELECTRICITY PRICES COULD ALTER TOTAL ROYALTY COLLECTIONS

    A royalty provision of the Energy Policy Act redistributes the 
federal royalties collected from geothermal resources--cutting in half 
the overall geothermal royalties previously retained by the federal 
government. Established by the Geothermal Steam Act of 1970, as 
amended, the prior distribution provided that 50 percent of geothermal 
royalties be retained by the federal government and the other 50 
percent be disbursed to the states in which the federal leases are 
located.\2\ While the Energy Policy Act continues to provide that 50 
percent of federal geothermal royalties be disbursed to the states in 
which the federal leases are located, an additional 25 percent will now 
be disbursed to the counties in which the leases are located, leaving 
only 25 percent to the federal government. The Act also changes how the 
federal government's share of geothermal royalties can be used. Prior 
to passage of the Act, 40 percent of the federal government's share was 
deposited into the reclamation fund created by the Reclamation Act of 
1902, and 10 percent was deposited into the general fund of the 
Department of the Treasury. For the first 5 fiscal years after passage 
of the Act, the federal government's share is, now to be deposited into 
a separate account within the Department of the Treasury that the 
Secretary of the Interior can use without further appropriation and 
fiscal year limitation to implement both the Geothermal Steam Act and 
the Energy Policy Act.
---------------------------------------------------------------------------
    \2\ 30 U.S.C. Sec. 191(a). The State of Alaska is an exception to 
this provision, receiving 90 percent.
---------------------------------------------------------------------------
    While, for most leases, the Energy Policy Act directs that the 
Secretary of the Interior seek to maintain the same level of royalty 
revenues as before the Act, our analysis suggests that this will be 
difficult because changing electricity prices could significantly 
affect the percentage of future royalty revenues collected. Electricity 
prices are not possible to predict with certainty, and as discussed 
below, changing prices could significantly impact royalty revenues 
because electricity sales account for about 99 percent of total 
geothermal royalty revenues. The Act contains provisions for each of 
three specific types of leases that generate electricity: (1) leases 
that currently produce electricity, (2) leases that were issued prior 
to passage of the Act and will first produce electricity within 6 years 
following the Act's passage, and (3) leases that have not yet been 
issued.
    For leases that currently produce electricity, future geothermal 
royalty revenues will depend on electricity prices. The Act specifies 
that the Secretary of the Interior is to seek to collect the same level 
of royalties from these leases over the next 10 years as it had before 
the Act's passage but under a simpler process. Prior to passage of the 
Act, lessees of most geothermal electricity projects paid federal 
royalties according to a provision within MMS's geothermal valuation 
regulations referred to as the ``netback process.'' To arrive at 
royalties due under this process, lessees are to first subtract from 
the electricity's gross sales revenue \3\ their expenses for generation 
and transmission and then multiply that figure by the royalty rate 
specified in the geothermal lease, which is from 10 to 15 percent.\4\ 
The Act simplifies the process by allowing lessees, within a certain 
time period, the option to request a modification to their royalty 
terms if they were producing electricity prior to passage of the Act. 
This modification allows for royalties to be computed as a smaller 
percentage of the gross rather than the net sales revenues from the 
electricity so long as this percentage is expected to yield total 
royalty payments equal to what would have been received before passage 
of the Act. Royalty revenues from a geothermal lease currently 
producing electricity will remain the same if the lessee elects not to 
convert to the new provision of the Act. On the other hand, if the 
lessee converts to the new provision, royalty revenues should remain 
about the same only if DOI negotiates with the lessee a future royalty 
percentage based on past royalty history and if electricity prices 
remain relatively constant. If royalties are based on historic 
percentages of gross sales revenues and electricity prices increase, 
however, royalty revenues will actually decrease relative to what the 
federal government would have collected prior to passage of the Act. 
The federal government will receive less revenue under this situation 
because expenses for generation and transmission do not increase when 
electricity prices increase, and the higher royalty rate specified in 
the lease is not applied to the increase in sales revenues.
---------------------------------------------------------------------------
    \3\ The valuation regulations 30 C.F.R. Sec. 206.352(c)(1)(ii) 
actually call for using gross proceeds, not sales revenue, in this 
calculation. The Energy Policy Act also refers to the term gross 
proceeds. Gross proceeds are all financial compensation accruing to the 
lessee from the sales of electricity. Since sales revenues are 
generally the largest component of gross proceeds, we use the two terms 
synonymously in this report for simplicity.
    \4\ Deductions are estimates that are to be recalculated at the 
beginning of each year. Prior year's deductions are to be adjusted 
based on actual costs during that year.
---------------------------------------------------------------------------
    For the second type of lease--leases that were issued before the 
Act and that will first produce electricity within 6 years after the 
Act's passage--royalty revenues are likely to drop somewhat because 
lessees are likely to take advantage of an incentive within the Act. 
The Act allows for a 50 percent decrease in royalties for the first 4 
years of production so long as the lessee continues to use the netback 
process.\5\ Because of the substantial reduction in royalties, it is 
likely that lessees owning leases issued before passage of the Act will 
elect to pay only 50 percent of the royalties due on new production for 
the 4-year period allowed by the Act. This incentive also applies to 
sales revenues from the expansion of a geothermal electricity plant, so 
long as the expansion exceeds 10 percent of the plant's original 
production capacity. Owners of geothermal electricity plants currently 
paying royalties under the netback process may elect to take the 
production incentive for new plant expansions if they perceive that the 
royalty reduction is worth the additional effort and expense in 
calculating payments under the netback process and worth the 
possibility of being audited.
---------------------------------------------------------------------------
    \5\ Pub. L. No. 109-58 Sec. 224 (2005).
---------------------------------------------------------------------------
    It is difficult to predict exactly how royalty revenue from the 
third type of lease--leases that have not yet been issued--will change, 
but it appears that revenue impacts are likely to be minor, based on 
our review of historic royalty data. The Act specifies that the 
Secretary of the Interior should seek to collect the same level of 
royalty revenues over a 10-year period as before passage of the Act. 
The Act also simplifies the calculation of royalty payments by 
providing that, for future leases, royalties on electricity produced 
from federal geothermal resources should be not less than 1 percent and 
not greater than 2.5 percent of the sales revenue from the electricity 
generated in the first 10 years of production. After 10 years, 
royalties should be not less than 2 percent and not greater than 5 
percent of the sales revenue from the electricity. Our analysis of data 
for seven geothermal projects showed that lessees were paying a wide 
range of percentages after 10 years of production--from 0.2 to 6.3 
percent. Three of the seven projects paid under the minimum 2 percent 
royalty rate prescribed in the Act, suggesting that some projects in 
the future could pay more under the Act's new provisions than they 
would otherwise have paid. On the other hand, one project paid greater 
than the maximum 5 percent prescribed in the Act, suggesting that it is 
possible for a plant to pay less in the future than it would otherwise 
have paid. However, neither the amount that the one plant would have 
overpaid nor the amounts that the three plants would have underpaid are 
significant.
    Even though provisions of the Energy Policy Act may decrease 
royalties on direct use applications, the impact of these provisions is 
likely to be small because total royalty collections from direct use 
applications are minimal. In fiscal years 2000 through 2004, MMS 
reported collecting annually about $79,000 from two direct use 
projects, or less than 1 percent of total geothermal royalties. While a 
provision of the Act may encourage the use of federal geothermal 
resources for direct use by lowering the federal royalty rate, we 
believe based on challenges facing developers that it is unlikely that 
this royalty incentive alone will stimulate substantial new revenues to 
compensate for the loss in revenue due to the lower royalty rate. We 
believe that in order to substantially increase the development of 
federal direct use applications, developers must overcome the 
relatively high capital costs for investors, unique business 
challenges, and water rights issues.
    Finally, MMS does not routinely collect data from the sales of 
electricity that are necessary to demonstrate that MMS is seeking to 
maintain the same level of royalty collections from geothermal 
resources, as directed by the Energy Policy Act. For most geothermal 
leases, MMS will need to calculate the percentage of gross sales 
revenues that lessees will pay in future royalties from electricity 
sales and compare this to what lessees would have paid prior to the 
Act. However, MMS does not routinely collect these data. Accordingly, 
we are recommending that the Secretary of the Interior instruct the 
appropriate managers within MMS to collect from royalty payors the 
gross sales revenues from the electricity they sell. MMS has agreed to 
do so.

                              CONCLUSIONS

    The Energy Policy Act of 2005 addresses a wide variety of 
challenges facing developers of geothermal resources. The Act 
incorporates many of the lessons learned by state governments and 
federal agencies in an attempt to provide financial incentives for 
further development and make federal processes more efficient. However, 
the Act was only recently adopted, and insufficient time has passed to 
assess its effectiveness. Several of the Act's major provisions will be 
left to the federal agencies within DOI for implementation, and the 
drafting and public comment period for regulations that implement these 
provisions will not occur overnight. Agencies will also need to spend 
considerable time and effort in working out the details for 
implementation and securing the necessary budgets. Hence, the fate of a 
significant portion of our nation's geothermal resources depends on the 
actions of these federal agencies.
    Mr. Chairman, this concludes my prepared statement. I would be 
pleased to respond to any questions that you or other Members of the 
Committee may have at this time.

                      CONTACT AND ACKNOWLEDGEMENTS

    For further information about this testimony, please contact me, 
Jim Wells, at 202-512-3841 or [email protected]. Contributors to this 
testimony include Ron Belak, John Delicath, Dan Haas, Randy Jones, 
Frank Rusco, Anne Stevens, and Barbara Timmerman.

    Senator Craig. Jim, thank you very much.
    Let me turn to our panel, then, for questions. And I'll 
start the round.
    Lynn, in your testimony, you discussed new rulemaking to 
address geothermal changes made by the energy bill. How long 
before BLM issues a proposed rulemaking?
    Ms. Scarlett. We went out with the proposed rule today, for 
both the Minerals Management Service and Bureau of Land 
Management, on that proposed rulemaking.
    Senator Craig. Excellent.
    Ms. Scarlett. Yes.
    Senator Craig. When might you expect to see final rules?
    Ms. Scarlett. Well, we would have to go through the normal 
comment period, and so forth, but I would hope towards the end 
of the year.
    Senator Craig. OK.
    I understand that the Fish and Wildlife Service issued 
guidelines on how wind turbines can avoid wildlife impacts. 
Apparently, these guidelines were developed, I am told, without 
public involvement, and have been widely criticized by both 
industry and the environmental community. Why has the Fish and 
Wildlife Service not involved affected stakeholders in their 
process? And does the Department plan on developing new, 
revised guidelines for wind power?
    Ms. Scarlett. Yes, Senator, the interim guidelines that 
were issued were issued several years ago, when we were wanting 
to get something out as voluntary guidance only--they were 
voluntary--but to get something out so that folks could have, 
kind of, a benchmark as they worked on wind projects as it 
related to protection of birds and so forth. We did get 
criticism on those guidelines, although I want to underscore 
they were voluntary. We committed to a collaborative process.
    We are working to develop that process. Initially, we hoped 
to move forward right away, but we find that we face some 
Federal advisory committee constraints. And so, we have to 
figure out whether we have to go a FACA route or some other 
collaborative process. And that's what we have under discussion 
right now.
    Senator Craig. How long before you expect this process to 
commence?
    Ms. Scarlett. We would hope as soon as we could work out 
the legal details on the mechanism. Obviously, if it's a FACA, 
it takes longer. We're hoping that we can find some other 
mechanism so that we can engage in some kind of dialogue and 
get the underway quickly. Dale Hall, the head of the Fish and 
Wildlife Service, is actively involved in making that happen.
    Senator Craig. Well, we hope it will be sooner rather than 
later, but I also hope that we can, in that process, make it as 
public and transparent as possible. All stakeholders ought to 
be involved in this.
    Sally, you mentioned the Forest Service's 65 pending 
geothermal lease applications that the agency must concur on. 
When will you have those leases issued?
    Ms. Collins. Our largest barrier in getting our backlog of 
geothermal lease applications completed is forest planning 
processes. We have forest plans that are not up to date 
relative to geothermal development. So, that's why we put 
together the 5-year schedule, to look at what it--what it's 
going to take to get those forest plans online. And it really 
varies, depending on the forest plan and the forest we're 
talking about, the schedule that those are on.
    Senator Craig. You're suggesting you won't do anything 
until a plan comes up for renewal and----
    Ms. Collins. We can amend a forest plan in the interim. And 
that is possible. And one of the things that they are looking 
at, on a case-by-case, forest-by-forest basis, is how to 
complete that NEPA analysis--again, in conjunction with BLM 
looking at their priorities.
    One of the things that we've found--and BLM has found, in 
going back to many of these old lease applications--is that 
they are--they've gone back to the applicants and said, ``Do 
you still want to keep these leases?'' And a number of them 
have relinquished the lease applications. And so, a lot of it 
is just updating these, because some of them are very old. And 
there was not an interest in continuing on with that 
development.
    Senator Craig. Well, I'm glad that process is diligent and 
well underway, because, you know, those leases that might have 
occurred in the 1970's, or even in the 1960's or in the 1980's, 
technologies are changing, and, therefore, some geologies would 
yield where others may not. And I hope you're looking at it on 
that kind of a sensitive basis instead of just the normal plan 
rotation. If that's the case, some of these may have valuable 
geologic resources, in the sense of geothermal, but they may be 
5 years out.
    Ms. Collins. You know, you're absolutely right, we need to 
bringing in the new information. One of the reasons why we're 
very excited about the USGS data and this mapping project is 
that we'll have a better feel for where the resources are and 
where we need to prioritize that work to get those projects 
moving forward.
    Senator Craig. You mentioned the formation of an ad hoc 
wind energy guidance team. Why is the agency developing its own 
guidelines for wind power, when the BLM just completed an 
exhaustive process on the very subject? Or should I say, Are 
you collaborating and working together? And, if you aren't, why 
aren't you?
    Ms. Collins. We actually have used a lot of the best 
management practices that came out of that process that BLM 
just completed as part of these guidelines that we're 
developing that this team is looking at. So, yes, we are 
collaborating quite closely, we're using that information as we 
develop our guidelines. But, remember, we only have two 
applications. BLM has 22 existing facilities. We have a lot to 
learn from them; and yet, we do have our own procedures that we 
need to go through in order to get those permits completed. We 
have the authorities now to do it. We just need better 
guidelines to expedite the process in the future.
    Senator Craig. It's also my understanding that the Forest 
Service is not involving affected stakeholders in their 
process. If that's true, why is it?
    Ms. Collins. I would disagree with that, because I think 
that as we go through--as this group is going through the 
process of developing these procedures, they're working very 
closely and informally with a number of entities, including the 
industry. Actually, they're on their way to Florida, in the 
next couple of weeks, to visit one of the wind energy 
facilities there. They've been trying to understand the 
perspective of the developer as we develop these guidelines. 
And so, I would say we are. And by fall we expect to have a 
policy out so that we'll have something for people to look at.
    But at this point in time, we feel like the informal 
process of working with the industry is working quite well.
    Senator Craig. Thank you.
    Senator Bingaman.
    Senator Bingaman. Well, thank you all very much.
    Let me ask about one issue that we've heard about, some in 
this committee, and also in the Finance Committee. We put in 
place these provisions that intend to stimulate these renewable 
energy projects on Federal land. We also put in place 
production tax credits for renewable energy. The production tax 
credits are going to expire at the end of 2007. And much of the 
other preparation for doing projects on Federal land is sort of 
still in the works. Do we have a real danger here, if we let 
those production tax credits expire at the end of 2007, that we 
will have had such a narrow window of opportunity that we're 
not going to really have a lot of renewable energy projects 
brought into service on Federal land. Is that a real concern? 
Does anybody have that concern? Secretary Scarlett, did you 
have any----
    Ms. Scarlett. I think, in the later testimony by those in 
industry, they may have some additional thoughts, but let me 
offer a couple of thoughts.
    We have seen an explosion in investment in renewable energy 
on public lands, whether it be geothermal, or wind, in 
particular, as well as, now, some biomass. Those are driven by 
multiple factors. Certainly, the acts of Congress and those 
incentives are a part of that, but I would also say that, with 
the continued high prices of fossil fuels, these particular 
energy sources are also more competitive than they might have 
been in the past; and, therefore, I would imagine that some of 
that investment will continue. But the specific effect of those 
tax benefits, I think, I'd look forward to hearing the hearing 
the industry views on that.
    Senator Bingaman. Ms. Collins, did you have a view?
    Ms. Collins. Well, the only thing I can say is, the GAO 
report, I think, addressed that quite well, and projecting that 
we would look at--a couple-of-year extension would help that 
situation, but, because I don't really deal with the royalty 
side of the issue, or the tax credit side of the issue, you 
know, I think I would defer to GAO on that.
    Mr. Wells. Senator, clearly that was raised by the industry 
as a concern or a challenge that needed to be addressed, and 
perhaps changed. We have seen statistics and evidence that many 
of these leases could be 2 to 3 years in process before they're 
actually approved. So, you are correct in assuming that for 
some activity the tax credit will expire in 2007 before a final 
decision can be made; therefore, that industry recipient would 
not benefit from that incentive.
    Senator Bingaman. Yes, my understanding is that the way we 
wrote the tax credits, you've got to have your facility in 
service by the end of 2007 in order to get the advantage of the 
tax credit. Is that your understanding?
    Mr. Wells. That is correct.
    Senator Bingaman. OK. Secretary Scarlett, let me ask 
about--one of the GAO findings, as I understanding it, is that 
40 percent of Minerals Management Service geothermal royalty 
data reviewed by the GAO was erroneous or missing. Did you have 
any comments on that and whether that is a problem that is 
getting fixed?
    Ms. Scarlett. Yes, Senator. We thank the GAO for its 
report, and we did concur with them that we had some challenges 
with respect to that data. However, the new rules--one of the 
issues that they pointed to was the lack of information on 
gross electricity sales--the new rules that we are proposing 
through MMS on royalties actually peg the fees to, in fact, the 
gross electricity sales. So, we will now be gathering those 
data on a routine basis, and that will, I think, significantly 
help and address some of the issues that they raised.
    In addition, though, as a result of that report, we are 
enhancing our auditing and our efforts at data collection.
    Senator Bingaman. Let me ask Mr. Wells. Again, you refer, I 
believe, to the renewable portfolio standards that have been 
adopted in various States as one of the factors stimulating 
some of this development. Did you have any additional comments 
on any of that as to how big a factor that was?
    Mr. Wells. Clearly, we put it in the report, Senator, 
because the evidence shows us that the proliferation of these 
energy--renewable portfolio standards, at least in 22 States 
and the District of Columbia, has, in fact, caused utilities to 
start looking for additional sources of energy that they had 
not been getting. And some of those inquires are going to 
geothermal projects. So, the evidence is suggesting that these 
renewable mandates are, in fact, causing increased interest in 
supply issues.
    I will say, from a Federal perspective, EPAct 2005 did have 
provisions, that are in the process of being implemented, to 
address new, increased requirements for the Federal sector, 
including Federal buildings. To increase the amount of 
renewable energy that they use in Federal buildings to 3 
percent initially and to go as high as 7\1/2\ percent, the 
energy consumed in Federal buildings is mandated to be 
renewable-type energy. So, all evidence suggests that that is a 
positive influence on increasing usage of renewables.
    Senator Bingaman. One other issue, Mr. Wells, that you 
refer to here is the importance of the technical challenges 
involved with geothermal development and the role the Federal 
Government can play there. Did you get into the question of 
funding levels? I notice the Department of Energy, the way I 
read their budget proposal to us this year, was for zero 
funding for geothermal technology research and development. Did 
you look into that? Am I accurate in my reading of that?
    Mr. Wells. We are aware, and it is an accurate statement, 
that the administration did zero out that program, and we've 
been monitoring the results of the Congress, and--and just 
within the last week, have indicated their willingness to put 
back at least 99 percent of that funding because of its 
importance to the industry.
    Senator Bingaman. OK.
    Mr. Wells. We do not know what the administration's 
motivation was for zeroing out the program.
    Senator Bingaman. Okay. I'll stop with that, Mr. Chairman.
    Senator Craig. Thank you very much, Jeff.
    Now let me turn to Senator Thomas.
    Senator Thomas. Thank you, Mr. Chairman.
    Ms. Scarlett, where does the process for geothermal leases 
differ from those needed for gas and oil development?
    Ms. Scarlett. Well, we're in a period of transition. Let me 
say that first. In the past, with geothermal uses, there--or 
leases--there were designated geothermal areas, and we had 
noncompetitive leasing in many instances. There was also what 
we called direct leases--that is, not for--geothermal for 
commercial sale, but, rather, for direct use.
    The new rules that we are promulgating and that we sent to 
the Federal Register today changed that leasing process, per 
the direction of the Energy Policy Act, and essentially migrate 
the process to a competitive process, although there are 
provisions for noncompetitive. If no one bids on specific 
tracts, there is a provision for noncompetitive leasing. But 
that would be the primary difference between the traditional 
oil and gas leasing and the geothermal, as it has been 
practiced in the past.
    Senator Thomas. But there are, I presume, some criteria 
with respect to the use of the land and the impact on the land.
    Ms. Scarlett. Absolutely. In terms of the energy/land 
interface, whether it be wind, whether it be geothermal or 
otherwise, we, of course, abide by, and take very seriously, 
our responsibilities under the Endangered Species Act, under 
the National Environmental Policy Act, to look at environmental 
impacts and alternatives for reducing those impacts. So, in 
that regard, that would be the same.
    Senator Thomas. I see.
    I guess this is tough to answer, but what do you see as the 
potential here? We're now producing, totally, about 1 percent 
of our energy out of wind. Do you see this as becoming a 
significant--obviously, we all want to work at whatever is 
available, but in terms of really dealing with the total, in 
the end, what do you see happening?
    Ms. Scarlett. Well, I'm going to defer to the experts on 
that, but my understanding is that right now the utilization 
of--or, excuse me, the production of the composite of 
renewables is the fastest-growing energy sector, something like 
a 60-percent growth just in recent years----
    Senator Thomas. But it's still less than 6 percent----
    Ms. Scarlett. Exactly. I think the projections that I have 
read are, by about 2025 or 2030, it could represent 10 percent 
of production and about 7 percent of consumption, actually.
    Senator Thomas. That's not hydro.
    Ms. Scarlett. So, it's still very small.
    Senator Thomas. That doesn't include hydro, then.
    Ms. Scarlett. That does not include hydro.
    Senator Thomas. OK.
    Ms. Collins, the Forest Service has a little different 
criteria for the development on your lands. Is that right?
    Ms. Collins. Well----
    Senator Thomas. Some of them, at least.
    Ms. Collins. We have some different processes and 
procedures we go through, but, on geothermal development, we 
work together on the recommendation to lease, and we work 
together on the recommendation for how to develop that 
geothermal project on the ground.
    And let me just add a little bit to Lynn's answer on your 
previous question. The biggest difference that we've seen 
between oil and gas, for example, that you have a lot of in 
Wyoming, and geothermal development is that you need a lot more 
transmission facilities, because you've got to have the 
infrastructure close to the heat source, because geothermal is 
geothermal, it's not as easy to pipe, for example, as oil or 
gas. So, you do see a different kind of infrastructure around 
geothermal than you do around oil and gas.
    Senator Thomas. That's true. And bio thing, what potential 
do you see there, in terms of----
    Ms. Collins. For biofuels?
    Senator Thomas. Yes.
    Ms. Collins. I actually think biofuels has huge potential. 
And I think biofuels--I can't say what percentage potential it 
has, but, when you look at--I think somebody has projected, in 
the billion-ton report, that 30 percent of the gasoline we use 
to run cars could be run on an ethanol from biomass--a portion 
of which would be biofuels from woody----
    Senator Thomas. The extraction of the timber comes off the 
forests, but the conversion to gas is not normally done in the 
forest. Isn't that right?
    Ms. Collins. Right, that would be true.
    Senator Thomas. OK.
    Ms. Collins. That would be true.
    Senator Thomas. Now--of course, there's still impact from 
those. And you have highways involved, and all those kinds of 
things, so you have to----
    Ms. Collins. Well, you'd have to--you'd have to, of course, 
process the biofuel someplace, and then transport them like you 
would with gasoline.
    Senator Thomas. OK. Mr. Wells, you mentioned charges based 
on--like on wind. What are the charges based on?
    Mr. Wells. The charges for geothermal, for instance, is--
the program we looked at--is based on gross revenues. In the 
past, before EPAct, it was based on gross revenues minus 
expenses, and then a certain percentage, anywhere between 10 
and 15 percent of that amount, was paid in royalties. And that 
was the cost of using the Federal resource. Under EPAct, there 
was the proposed rulemaking that's underway, that will be 
completed, hopefully, by the end of the year, and will provide 
a new royalty fee structure, which will deal with simplifying a 
process where you just take the gross receipts from the sale of 
electricity from the geothermal resource. And a smaller 
percentage will be applied to that amount--in the range of 1 to 
5 to 6 percent of that will be charged as a fee for the using 
of the Federal resource. This will eliminate some of the 
netbacking and the expense calculations that were always 
controversially involving a lot of audits. So, its schedule is 
based on a certain percentage based on gross sales.
    Senator Thomas. I see. So, it's not on the lease of the 
land, but it's on revenue.
    Mr. Wells. It's on revenue, in terms of the fee, once it's 
produced--once the drilling is done and the production occurs.
    Senator Thomas. What about wind?
    Mr. Wells. Prior to that, it's a----
    Senator Thomas. What about wind energy? There's not 
drilling there.
    Mr. Wells. Anybody want to talk to the fee structure for 
wind?
    Ms. Scarlett. My understanding is that the fee structure 
for wind is a royalty based on percentage of the gross 
electricity sales.
    Senator Thomas. They said, somewhere in here, the 10-year 
projection is 10,000 megawatts. Does that sound reasonable to 
any of you?
    Ms. Scarlett. In--are you talking--any particular----
    Senator Thomas. Renewables, nonhydric-hydrogen--or water 
minerals.
    Ms. Scarlett. Well, I'd have to tally that up. I know we 
have, for wind alone, a projection of--potential right-of-way 
authorizations for 3200 megawatts. We have two solar projects 
right-of-way applications that would be about 1700. So, I guess 
we could tally that up, and we might come to that 10,000, or 
close to it.
    Mr. Wells. We can give you the calculation for geothermal, 
in terms of 2500 megawatts today, and the estimates are 
anywhere from 25 percent to 400-percent potential increase in 
10 or 11 years. We're cautiously optimistic that the industry 
can step to the plate and expand and gain market share. 
However, the verdict is still out, in terms of whether they can 
achieve those types of numbers. I can give you a comparison. We 
mention, in our report, existing geothermal production provides 
2.5 million homes with the capacity to run. And wind, we 
understand, today, was around the neighborhood of 400,000 
homes. So, there's a little comparison of what you're actually 
getting from wind with geothermal today.
    Senator Thomas. One of the real problems, particularly with 
wind, is the transmission idea. You've got relatively small--
over time, we're going to have to start getting a little more 
efficiency out of those. There's not a lot of production out of 
a wind machine, and you have to get some transmission out of 
there. And so----
    Mr. Wells. It's also an intermittent source. Sometimes the 
wind blows, and sometimes it doesn't. Geothermal is running 24/
7.
    Senator Thomas. Come to Wyoming; it blows most of the time.
    [Laughter.]
    Senator Thomas. Thank you.
    Senator Craig. Craig, thank you.
    About Wyoming and wind, I'll leave that one alone. We have 
our share, but it's not as strong.
    Senator Thomas. No, it's the State, not the Senator.
    Senator Craig. Oh, I see.
    [Laughter.]
    Senator Craig. All right. There is no wind on the slopes of 
the Rockies. That's not true.
    Let me turn to Senator Salazar for any opening comment and 
questions he would like to make at this time.
    Senator Salazar. Thank you. Thank you very much, Senator 
Craig.
    Let me ask Ms. Collins a question concerning biomass and 
what's happening with respect to the bark beetle problem and 
the huge infestations that we see throughout the West.
    I know this is very much the case also in Senator Craig's 
State, in Idaho, and, I think, an issue affecting Oregon, also 
affecting Wyoming. But in my State, when I look at Colorado and 
I look at the Western Slope, I would say that 75 percent of all 
our mountain areas, which is most of the western half of the 
State, is owned by the Federal Government, owned by the Forest 
Service. And on those lands, about 1\1/2\ million acres, as I 
understand it, are acres which have been infested by the bark 
beetle. So, you see great swaths of Forest Service lands that 
essentially are brown and have become a tinderbox and create a 
huge fire hazard for Colorado.
    My question to you is, What opportunity do we have with 
respect to using those fuels for biomass energy kinds of 
projects? And what is it that the Forest Service is doing to 
try to encourage those kinds of projects from taking place?
    Ms. Collins. Well, you're absolutely right that you can 
almost blink and you've got 1,000 more acres dead in the 
central Rockies, Colorado high country. And we are doing a lot. 
Part of the problem right now is infrastructure. We don't have 
the traditional mills in Colorado--just a couple of them that 
actually can process materials. So, biomass really is the hope 
we have for the future, in terms of thinning those stands and 
protecting those communities.
    That is one of our objectives, and that's one of the 
reasons why we've spent a lot of time working with grants to 
communities to look at that woody biomass projects. And we've 
done that throughout the West over the last 5 years. We've also 
done a lot of research on woody biomass, and given some grants 
out through our Forest Products Lab to try to reduce the cost 
of these kind of forest-health treatments and convert those 
into woody biomass energy.
    But it's just a drop in the bucket. There is so much more 
that can be done. And we get groups, from Colorado, in 
particular, coming in here to meet with us, and they're just 
very concerned about the safety of their communities and 
wanting to do something to save these lands. And I think, 
collectively, there's a lot of energy to do that; we just need 
to get our resources together to do that.
    Senator Craig. Ken, could I interrupt to ask a technical 
question? How long is a bug-killed tree of value to the biomass 
community? Do you know that, Sally?
    Ms. Collins. I do not know, and I--it's probably dependent 
on the species, and it's probably--you know, dependent on a lot 
of things like that the size of the tree. But we know that 
lodgepole--a lot of those lodgepole pine that are up there in 
the central area north of, you know, Dillon and that area, 
those are mostly lodgepole, and they're probably not good for 
10 years after they die.
    Senator Salazar. Sally, let me following up on--I think 
both Senator Craig and--many of us are going to have an ongoing 
concern about this issue. And what really is troubling to me is 
that we don't seem to have a strategic plan on how we deal with 
this huge problem that we see across the West. Someone tells me 
that somewhere between 75 and 90 percent of all those great 
forests in Colorado are going to be infected by the bark beetle 
within the next 5 to 10 years, and that one way of trying to 
address a part of the problem is to use that timber as part of 
our biomass renewable energy efforts in Colorado. And yet, I 
don't see how it is that we can get that done. And so, I guess 
my question to you is, Do we recognize the problem?
    Ms. Collins. Yes.
    Senator Salazar. We know that the communities out there are 
very concerned about it. So, you, as one of our leaders of our 
U.S. Forest Service, what would you say is our strategic plan 
for addressing the biomass opportunity that we have in these 
bark-beetle-infested acreages?
    Ms. Collins. Well, I think we need to look to partnerships 
like the one that Lynn talked about in Oregon, where the tribes 
have come together with industry and with BLM and the Forest 
Service to put together a small--and the communities--to put 
together a 15-megawatt biomass powerplant. Communities can come 
together. And I think what we've done in Oregon and other 
places is show, with a sort of proof of concept, that this is 
economical, that it pays, over time, to do this. And so, what 
we've got to do--and the--probably the most important thing the 
Federal Government can do is assure a levelized supply of 
product to an investor. And one of the things that we've been 
finding is that we haven't necessarily been coordinating as 
well as we can across agency boundaries and ownership 
boundaries, working with private landowners within a geographic 
area, say 100-mile radius of a potential facility. If we can 
provide a levelized supply over 10 years, an investor is going 
to want to come in and spend some money on a biomass plant. But 
they're not going to want to, unless they can be assured of a 
supply.
    We've got about five or six projects around the country 
that are looking at levelized supply so that we can make sure, 
in drawing these sort of--like we used to do in the timber 
program, with quality circles for looking at infrastructure in 
mills--we're doing the same with biomass as a way to draw 
investment into an area. So, I--probably, that's the most 
important thing we can do.
    Senator Salazar. You know, it would be useful to me, and 
perhaps other members of the committee that are interested in 
this biomass opportunity, to have examples of where those 
partnerships have, in fact, been put together, as communities 
contact us about what they can do, we can say, ``Well, in 
Oregon, they were able to put together this kind of program.'' 
So, I----
    Ms. Collins. That would be good.
    Senator Salazar. In fact, I would ask you, Ms. Collins, if 
you could provide that information to us so that we can share 
it with some of our communities.
    Senator Allard and I, by the way, have most of those 
communities from Colorado coming in to see us, I think, in 2 
days, and it's going to be important for us to be able to show 
them what's happening in other parts of the country.
    Just one final question. Last year, when this committee, 
when this Congress, passed the Energy Policy Act, we created a 
program for grants to improve the commercial value of forest 
biomass. And I know that one of the big problems the local 
communities face is finding money to be able to move forward 
with these biomass projects. The President zeroed out any money 
at all, even though there was a $60 million authorization for 
that. There are a number of us on this committee, including 
Senator Bingaman, Senator Craig, and Senator Gordon and others, 
who have written to our appropriators saying we would like to 
put some more money into this program to address the issue. And 
I hope--and we're hopeful that there will be some money set 
aside for that grant program.
    But let me tell you that, from my perspective, we need to 
have those kinds of resources if we're going to make some 
honest, realistic headway with respect to this biomass 
opportunity.
    Ms. Collins. Appreciate that comment. Thank you.
    Senator Salazar. Thank you, Mr. Chairman.
    Senator Craig. Senator Salazar, thank you very much.
    Now let me turn to my colleague from Oregon, Gordon Smith.
    Senator Smith. Thank you, Mr. Chairman. Thank you for this 
hearing.
    I understand, Mr. Wells, that the Bureau of Land Management 
has yet to promulgate rules for new geothermal leasing 
processes established under the act. It's a year gone by now, 
and I wonder if you have any updates you want to give us on 
that.
    Mr. Wells. We understand----
    Ms. Scarlett. We issued them today.
    Senator Smith. You did?
    Ms. Scarlett. Yes.
    Senator Craig. See what the onslaught of a hearing brings?
    [Laughter.]
    Senator Smith. That's great.
    Senator Craig. I won't let Lynn off quite that easily.
    Ms. Scarlett. Or, I should clarify, we sent them to the 
Federal Register today.
    Senator Craig. All right.
    Mr. Wells. It also agreed with our recommendation in our 
report, so it's been a good day for both of us today.
    Senator Smith. Oh, that's great. It moots my question. But 
I--obviously, I hope it is going to move forward now, because 
there are geothermal resources in the State of Oregon, and I 
think there is potential development there that will be of 
great advantage to the country and to my State.
    Lynn Scarlett, I understand that the U.S. Geologic Service 
is updating the assessment of geothermal resources. Is this 
going to include resources that are on lands with protected 
designations?
    Ms. Scarlett. Senator, I will have to look into what the 
scope of the lands are. They're doing it in phases, and I know 
it's a 3-year process. But whether they're excluding certain 
lands or not, I'd have to get that detail for you.
    Senator Smith. Yes, I'd like to know that, and what are the 
percentage of resources on such restricted lands? I'd like to 
know, and I think it's important.
    Sally Collins, I'm interested in making more biomass 
available. And I know, obviously, the Forest Service has 
treatments for burning and for mechanical thinning. What is the 
Forest Service's mix between mechanical and controlled burn? 
And what does that impact have, potentially, on creating 
biomass?
    Ms. Collins. Well, whenever we can capture value off any 
acre of land, as opposed to using burning, prescribed burning, 
we will capture that value. And that's why I say 50 percent of 
the acres that we've treated mechanically, so far this year--
and there have been about a half a million acres--we've 
captured value off of those lands. So, you know, I would say 
that when we can, that's exactly what we do, because it offsets 
the costs of having to--and wanting to--do fuels treatment.
    Senator Smith. And obviously there's a value, 
environmentally, to burn as well, in a controlled fashion, 
anyway.
    Ms. Collins. Right.
    Senator Smith. But I'm just curious as to what the 
percentage is. And is there a policy that emphasizes producing 
biomass?
    Ms. Collins. I'll have to get you the precise percentage. I 
can actually get you that fairly quickly, but in terms of a 
policy, I would say, in general, what we do try to do--if there 
is value on that land, it's always better to thin it--almost 
always better to thin it and prescribe-burn later, because so 
many of these stands are so dense.
    Senator Smith. But they're not exclusive activities.
    Ms. Collins. Yeah.
    Ms. Scarlett. Senator, if I might just add for the 
Department of the Interior, we have a definite policy of trying 
to increase the amount of mechanical treatment relative to 
prescribed burn, part of that is reflected in the significant 
increases towards wildland/urban interface treatments, the 
majority of which are mechanical. And then, within that policy, 
we project, for 2008, a requirement of 50 percent of all 
mechanical treatment projects having biomass components. So, 
it's a very deliberate effort.
    Senator Smith. And you've got a lot of takers in the 
marketplace wanting to receive the material, I'm sure.
    Ms. Scarlett. We have some of the get-the-material-to-
marketplace challenges that have been discussed here, but 
increasingly we have a--we have a biomass--a woody biomass 
utilization group that is working on both products and energy 
utilization to try and stimulate that demand.
    Senator Smith. Very good.
    I want to commend the Forest Service for establishing a 
wind energy guidance team. I think that that's important. But I 
understand, from one of our witnesses, Chris Taylor, that no 
representatives from stakeholders--not the wind industry, the 
power sector, consumers, and environmentalists--are not being 
consulted. Is that the case? And if that's the case, is there 
some problem with including their input in----
    Ms. Collins. Because we're in this informal process of 
building this policy that we intend to have in the Federal 
Register by the fall, we are talking to a whole lot of people, 
not through a formal structured process, but through a much 
more informal process. That team has been to a number of wind 
energy facilities and looked at them to try to understand what 
an industry goes through to put a facility together. So, I 
would say they're doing their best to try to get that 
perspective in the process. And there'll be opportunities for 
people to get involved later on, as well.
    Senator Smith. So, if my constituent, Chris Taylor, from 
Oregon, who's here--and I'm grateful for his presence--if he's 
not been consulted, he can be, and will be, I guess.
    Ms. Collins. I'm sure that he could give a call to the 
team, and they'd be happy to talk to him.
    Senator Smith. Well, as long as there's not some----
    Ms. Collins. Or they could call him.
    Senator Smith [continuing]. Inherent conflict of interest--
I mean, it does seem to me that, to develop these guidelines 
best, including not just industry folks, but all of the 
stakeholders, including the environmentalists, is of value.
    Ms. Collins. Let me just add one thing about that, because 
the BLM did go through a pretty extensive process of developing 
an EIS, a programmatic EIS, and, in that process, developed 
best management practices, which we are really incorporating in 
our guidelines. So, a lot of that input that they received is 
being reflected in these guidelines we're developing.
    Senator Smith. Very good.
    Thank you, Mr. Chairman.
    Senator Craig. Gordon, thank you very much.
    Now let me turn to Senator Lisa Murkowski.
    Lisa.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. I appreciate 
you holding this hearing this afternoon. I think it is 
important that we be really looking to those areas, 
particularly on our public lands, where we can make a 
difference when it comes to renewable energy sources.
    This hearing is particularly important to my State of 
Alaska. We have--we are so typically viewed as the production 
State for oil and gas and coal and the like, but the reality 
is, is our renewable potential is enormous, with the wind and 
with the ocean energy, and certainly with the geothermal.
    We've got a gentleman who will be with us on the second 
panel, Mr. Bernie Karl, from an area outside of Fairbanks, 
Alaska, who owns the Chena Hot Springs Resort. He's going to be 
speaking to the promise of the lower-temperature geothermal, 
which we look at as, quite honestly, very, very exciting, and 
are pleased that we're pioneering this in the State. They're 
installing a geothermal powerplant that will convert the 
geothermal water as low as 165 degrees Fahrenheit into 
electricity. And what this means to us in Alaska is absolutely 
enormous. They are hopeful that they're going to see power 
generated at about 5 to 7 cents per kilowatt hour, and, in many 
of our villages out there, we're looking at 40 to 50 cents per 
kilowatt hour in villages that right now are being run off 
diesel. So, if we can make this happen, again, the potential is 
enormous. And when I asked, they said, ``Well, in Alaska, where 
we are a land that is sitting on top of volcano after volcano 
after volcano.'' What's our potential here? And we've got areas 
where I understand we've got high-heated water flows under 
about 70 to 80 percent of the State, sometimes at depths of 
less than 1,000 meters. So, the potential there, whether it's 
up at Chena Hot Springs in the interior, or out near Katmai 
National Park. The Chugach Electric Association is looking at 
the potential for the south-central area. We've got a volcano, 
an active volcano, Mount Spur, 15 miles from our major 
transmission areas. We've got Makushin Volcano near Unalaska. 
So, our opportunity out there is enormous.
    And I was more than just a little bit concerned to read 
that the administration was proposing to zero out the funding 
for the DOE's Office of Geothermal Energy, but I'm pleased, as 
I think all of you are, that we're seeing a restoration of that 
money.
    So, for us, the geothermal is just so promising. So, I'm 
pleased that we're able to focus a little bit more attention on 
it this afternoon.
    Secretary Scarlett, I wanted to ask you a question not 
related to geothermal. You didn't mention anything in your 
written statement--and I apologize, I wasn't here for your oral 
testimony--but in your written statement, you didn't refer to 
any opportunities for hydropower. And small hydro, as you know, 
in the State of Alaska, offers enormous opportunities for us. 
And for us it's going to require Interior to lease certain 
sites and to actually utilize some of that power that's 
produced. And I know that you're familiar with the area just 
near Glacier Bay National Park, where we've got power for the 
park that's currently being generated by diesel. So, you've got 
a beautiful park, and we're keeping it running off of diesel, 
but we've got an opportunity, with the Falls Creek small hydro 
project, to power that area through the use of the small hydro, 
but we're going to need--we're going to need the park to 
utilize that. Can you speak a little bit as to what the 
National Park Service can do, what the Department can do, to 
move towards utilization of more small hydro? I notice, in your 
written testimony, you speak to those specific projects on DOE 
lands--DOI lands--where you are utilizing renewables, and it's 
good to look to those examples, but can you speak a little bit 
about the small hydro, as well?
    Ms. Scarlett. Yes, thank you, Senator.
    Let me speak generally, and then specifically to the small 
hydro. In general, the Department of the Interior, with all of 
our land management agencies, has a policy to drive towards the 
increased utilization of renewables, whether they be solar, 
wind, geothermal, passive solar, biomass, and so forth. And we 
have more and more facilities; and, indeed, for photovoltaic 
utilization, I believe we're second only to Department of 
Defense in our usage.
    With respect to the small hydro, I do not have available 
for me any specifics on whether we have any such projects. What 
I will do is look to see if we have utilized small hydro on our 
lands, and, in particular, look at whether there are any issues 
or challenges as it relates to doing so in Alaska. I simply 
have not looked at that specific energy opportunity.
    Senator Murkowski. I would appreciate it if you would.
    I notice, in your testimony, the reference to the ``sense 
of the Congress'' regarding the renewable generation, and you 
speak to the goal of nonhydro renewable energy generation 
capacity. And I know we want to certainly expand the focus in 
other areas, but is there a purposeful exclusion of the hydro?
    Ms. Scarlett. No, that statement is not intended to be a 
purposeful exclusion, it simply was our understanding of the 
focus of the particular hearing, rather than anything 
particularly intended by that.
    Senator Murkowski. Well, if you can look into the specifics 
for me, particularly as it relates to Glacier Bay National Bay, 
I'd appreciate it.
    Ms. Scarlett. We'll do that.
    Senator Murkowski. Thank you.
    Thank you, Mr. Chairman.
    Senator Craig. I'm ready to conclude this panel. Are there 
any further questions by the members?
    [No response.]
    Senator Craig. If not, let me thank you all for being here. 
Jim, and the GAO, let me thank you for your work. I'm pleased 
that you can come in under the general sense of a job well done 
and work in progress. That's usually not what we get from the 
GAO, and we appreciate it, in this instance. It tends to make 
us believe that EPAct got most of it right, but there's more to 
be done.
    Mr. Wells. Absolutely. Thank you, Mr. Chairman, for the 
compliment.
    Senator Craig. Thank you all very much--Lynn, Sally.
    [Pause.]
    Senator Craig. Well, let me thank all of the panelists for 
being here. We have a large panel, so we'll ask you, as we will 
attempt, to move speedily through so we can get all of your 
testimony and get questions back toward you.
    Let me first recognize Dr. Walter Snyder, director, 
Intermountain West Geothermal Consortium, of Boise. We're glad 
you're here. Appreciate it, Walt. We have Paul Thomsen, public 
policy administrator, ORMAT Technologies, testifying on behalf 
of the Geothermal Energy Association, from Reno, Nevada; Chris 
Taylor, director of project development, northwest region, 
Horizon Wind Energy, testifying on behalf of the American Wind 
Energy Association, from Gordon's home State of Oregon, from 
Portland; Bob Liden--Bob is vice president and general manager 
of Stirling Energy Systems, testifying on behalf of the Solar 
Energy Industry Association, from Phoenix, Arizona; Bernie 
Karl, proprietor of the Chena Hot Springs Resort, from 
Fairbanks, Alaska, Lisa's constituent; and V. John White, 
executive director, Center for Energy Efficiency and Renewable 
Technologies, Sacramento, California.
    With that, we'll turn to you, Walt, for your testimony. 
Please proceed.

  STATEMENT OF WALTER S. SNYDER, DIRECTOR, INTERMOUNTAIN WEST 
                GEOTHERMAL CONSORTIUM, BOISE, ID

    Dr. Snyder. Thank you, Mr. Chairman and members of the 
committee.
    I am Walter Snyder. I'm a professor at Boise State 
University, as well as being director of the Intermountain West 
Geothermal Consortium. This consortium was established by the 
Energy Policy Act explicitly to focus on various aspects of 
research on geothermal resources. Presently, it's comprised of 
members from Utah, Idaho, of course, Nevada, and Oregon, and we 
have partners of other organizations and universities, as well. 
So, I'm really honored to be able to talk a little bit today 
about research and it's important to bringing more geothermal 
resources online.
    From the previous testimony and what you're going to hear 
from the people that follow me, I really do not have to beat on 
the issue of the importance of geothermal resources to the 
Nation's energy portfolio. I think we know that. There have 
been many, many reports written on it. In fact, a couple of the 
most important ones have come from the Western Governors 
Association.
    And, Mr. Chairman, if I could, I'd like to, for the sake of 
completeness, enter into the record copies of those two recent 
reports from the Western Governors Association dealing with 
geothermal energy. One was January 2006, from the Geothermal 
Task Force, that they submitted. And another just came out last 
month, in June 2006, on Clean Energy, a Strong----
    Senator Craig. Without objection, they will become a part 
of the file of the record. I need to say that so that we don't 
enter their total transcript into the record, but they're a 
part of it on file. Thank you.
    Dr. Snyder. Great. Thank you.
    I think the testimony you heard before, and, again, what 
you're going to hear after me, really underscores my first 
point about research. I think that the next generation of 
geothermal research has to be done in very, very close 
collaboration with all the stakeholders. And that's because we 
have both near-term and long-term needs, and, really, to be 
able to define those and address those as scientists, we need 
to have very, very close working relationships. And that's 
certainly what the consortium is dedicated to, and I think all 
such research for geothermal should follow the same track.
    Those stakeholders, by the way, that we have to work with 
is more than just industries, it's our Federal agencies, but 
it's also our State agencies, it's also the municipalities out 
there, and it's also small businesses, as well.
    But that does not answer the question, Is research really 
necessary? And I think the short answer to that, of course, is 
yes. And the reason it's important is, to be able to fully 
utilize, economically, the geothermal resources, we have to 
better understand the full context of these complex systems, 
the full geological, geophysical, hydrologic, and geochemical 
context.
    Right now, our knowledge is simply insufficient not only to 
give a proper assessment of the geothermal potential of the 
West, but certainly it's insufficient to help industries and 
others do a better targeted effort of bringing these resources 
online. We need to provide the information that makes all this 
more viable.
    You've heard a lot about the power generation. And, of 
course, that's extremely important. But we also want to make 
sure we emphasize direct use. Direct use is very important, and 
it's a woefully underutilized part of the geothermal energy 
portfolio. If you think about it, using lower-temperature or 
moderate-temperature geothermal resources helps reduce power 
consumption. And that's a savings that can be very, very 
important. It's also been very important for a lot of small 
businesses that otherwise wouldn't exist, small businesses from 
greenhouses to food dehydration or aquaculture or--alligators--
that forms, I think, a potentially important part of our local 
States' economies. And we need to think about that.
    Boise, of course, is a prime example of a slightly larger-
scale use--direct use of moderate temperature resources, 
because the city has been heating many homes and buildings for 
quite a long time. We know a lot about the system. We've got it 
balanced, so we can utilize it in a sustainable way. But we 
don't yet completely understand the system so that we can 
export that knowledge to other places, other municipalities 
that could use it. Two big places that come into mind would be, 
of course, Reno and Salt Lake City. Other large metropolitan 
areas are pretty much unassessed with respect to the potential 
of direct use near them. And there are certainly smaller 
municipalities, like Klamath Falls and whatnot, that could 
really tap in if we have a better understanding of the 
geological situations behind it.
    So, we can't forget direct use either. We have to be able 
to fully characterize those systems, as well as those that 
generate higher-temperature power-generating resources.
    Another compelling reason, I think, why we have to pursue 
research through academic institutions, of course, I would 
argue, is that the geothermal development companies do not have 
the staffing and the resources to do the research themselves. 
They're not oil companies. All right? But the resources they're 
targeting are equally complex as an oil reservoir, and they 
have some, of course, particular quirks about them that even 
make them more difficult. And so, somebody has to provide that 
research. And this consortium and others out there are trying 
to put ourselves in a position to provide that help.
    Before I conclude, I want to add one more thing about not 
necessarily why research is important, but how we should do 
research. And I think one of the--it's very, very important 
that our research results get to the stakeholders as quickly as 
possible, and an understandable way as possible. That's not 
always the case with academic research. We are very aware of 
that, and we want to turn that around. This is a complex issue. 
Some of it's being debated on the Hill today--or, not today, 
but recently. But we've got to get--we've got to maximize the 
return on the investment of the Federal research dollar. So, 
not only are publications necessary, but we've got to get all 
our information into a digital information system so people can 
get at it, the stakeholders can get at it, in an understandable 
way, so the nonspecialists can understand it. That's very 
important.
    Second, we've got to make sure that the physical samples 
that we get from cores and physical rock samples are equally 
available. The Energy Science Institute at University of Utah 
presently has such a repository. We plan to fully utilize that 
and make sure that all those samples are available to everybody 
who wants to see them and utilize them as they move forward. 
And the last component of that is that we, as researchers, 
cannot isolate ourselves from the stakeholders, and we need to 
interface with them on a regular and a continuous basis. And, 
again, not just including the agencies, State and Federal, the 
municipalities, the larger development companies, but the small 
business. We have to be aware of that, and move forward on 
that. And that makes a package for research, I think, that's 
fairly--well, in my mind, fairly compelling, and it's certainly 
the way we have to go.
    So, I think the parting shot is that to understand these 
complex resources, we really need an ongoing sustained research 
program to help bring these resources online.
    And I'll leave it there, and I want to thank you for the 
opportunity. I'd be happy to answer any questions later.
    [The prepared statement of Dr. Snyder follows:]

 Prepared Statement of Walter S. Snyder, Director, Intermountain West 
                    Geothermal Consortium, Boise, ID

    Mr. Chairman and distinguished members of the Energy and Natural 
Resources Committee, I am Professor Walter S. Snyder from Boise State 
University and Director of the Intermountain West Geothermal Consortium 
(IWGC). The IWGC is comprised of members from academic institutions in 
Idaho, Nevada, Utah and Oregon and from DOE's Idaho National 
Laboratory; our members conduct geothermal research throughout the 
West. I am honored to have this opportunity to testify today about the 
importance of geothermal energy production and use on Federal lands in 
the Western States on behalf of all members of the IWGC.
    As has been articulated by the President and Congress, the United 
States faces a pressing need for the diversification of the national 
energy portfolio to promote national energy security, lower energy 
costs, increase reliability, and decrease foreign dependence. 
Geothermal resources are a key component of this portfolio both for the 
generation of electricity and the direct use of geothermal heat. This 
diversification requires the full utilization of high and low 
temperature geothermal resources, including increased geothermal power 
generation, expansion of existing geothermal sites, and the development 
of resources in urban environments close to end users. This is 
particularly opportune for the West where geothermal resources are 
sufficient to allow for their economic utilization by our rapidly 
growing urban centers.
    To be able to fully and economically utilize geothermal resources, 
we must better understand the geological, geophysical, geochemical, and 
hydrologic nature of these complex systems. Our existing geologic 
knowledge is insufficient for an accurate assessment of the West's 
geothermal resource potential. To find new resources, increase the 
productivity of known resources, and bring these resources online and 
sustain them, we must improve our ability to fully delineate and 
characterize both deep and shallow geothermal resources through 
improved scientific methodology and understanding. That is, we must 
continue to conduct the basic research that is required to develop this 
crucial natural and renewable resource.
    Through a strategic research program, the Intermountain West 
Geothermal Consortium (IWGC), authorized by EPACT 2005, is poised to 
aid federal agencies, industry, state governments, and municipalities 
to address a wide variety of issues related to geothermal resources. 
The Consortium is unique in the geothermal community by being the only 
true multi-institution geothermal research entity. We have moved 
quickly since EPACT became law and this reflects the collaborative 
spirit that is our underpinning. The Consortium will bring to the 
geothermal research community and industry the first coherent, 
integrated research program and plan for geothermal energy development. 
My comments, from the perspective of the IWGC, reflect needs and 
concerns of all geothermal researchers, and research centers from other 
universities and national laboratories, such as the Geothermal Energy 
Program at New Mexico State University, Sandia National Laboratories, 
the Great Basin Center for Geothermal Energy, the National Renewal 
Energy Laboratory, and others.

                         THE CONSORTIUM'S GOAL

    Our central position is that expanded use of geothermal within the 
Nation's energy portfolio requires a better understanding of the 
complex geologic context of these resources. This complexity is due to 
their natural heterogeneity, the complexly interrelated processes that 
have produced these geothermal systems, the impact of production on the 
natural conditions of the reservoirs, and the need to integrate studies 
at scales ranging from regional down to the specific details of an 
individual well. This understanding requires improved geology, 
geophysics, hydrodynamic modeling, and geochemistry. This knowledge can 
be used by industry to explore for and find new prospective geothermal 
regions, maximize the production at sustainable levels from existing 
sites, and develop procedures to assess the extent and sustainability 
of direct use geothermal resources. A sustained research program, one 
that is collaborative in nature and strategic in design, will greatly 
help expand the geothermal component in the Nation's and West's energy 
portfolio.

               GEOTHERMAL IN THE WEST'S ENERGY PORTFOLIO

    Perhaps one of the most powerful statements on the importance of 
geothermal resources is provided by the Western Governors' Association 
Geothermal Task Force report of January, 2006 and the recent ancillary 
report by the WGA's Clean and Diversified Energy Advisory Committee 
(June, 2006). Several of the highlights of these reports that are 
relevant to my testimony are:

   The Western States share a capacity of almost 13,000 
        megawatts of geothermal energy that can be developed on 
        specific sites within a reasonable time frame. This is a 
        commercially achievable capacity for new generation and does 
        not include the much larger potential of unknown, undiscovered 
        resources.
   Geothermal power can be a major contributor to the power 
        infrastructure and economic well-being of the Western States. 
        New geothermal power capacity could add nearly 10,000 jobs, and 
        also generate about 36,000 person-years of construction and 
        manufacturing business.
   Geothermal power is a reliable, continuously available (24 
        hours per day--7 days per week) baseload energy source that 
        typically operates 90 to 98 percent of the time.
   Insulated from conventional fossil fuel market volatility, 
        geothermal power supports energy price stability and boosts 
        energy security because it is a domestic resource.
   Geothermal power can help fulfill Renewable Portfolio 
        Standards (RPS) that strive to diversify the states' and 
        nation's energy supply.
   Geothermal energy is a clean electricity source, discharging 
        far less emissions, including greenhouse gases, than equivalent 
        fossil-fueled generation.

    These are powerful, compelling conclusions and have been supported 
and expanded by others, including the Geothermal Energy Association, 
the Geothermal Research Council, and the Sustainable Energy Network. 
The 13,000 megawatts of capacity noted above is the equivalent of about 
15 nuclear power plants or 30 coal-fired plants. The Geothermal Energy 
Association suggests that the potential may actually be two or more 
times greater, and we agree with that assessment. The 13,000 megawatt 
estimate is based on current knowledge of the geology, geophysics, 
hydrology, geochemistry, and reservoir and production engineering. With 
a more rigorous and complete assessment of the details of this geology, 
there is no reason that geothermal power output capacity cannot be 
doubled or even tripled above the 13 gigawatt base estimate. But to 
reach this output requires continued, indeed expanded, and more 
targeted research.
    Direct use is another important, but often overlooked, part of 
geothermal energy portfolio. Expanded direct use can significantly 
reduce our power consumption, but it is a woefully underutilized 
resource. Direct use includes heating of buildings, greenhouses, 
aquaculture, and food dehydration. Its utilization has allowed local 
business enterprises to flourish that would not have otherwise been 
possible. Direct use for these and other purposes should and could 
become much more widespread. Boise, Idaho is a prime example within the 
U.S. of a city that utilizes direct geothermal heat to reduce power 
consumption. For over 100 years, this moderate temperature geothermal 
system has provided heat to homes and businesses and since 1983 has 
been utilized by the City of Boise to heat over 50 downtown buildings. 
It is estimated that the use of the Boise geothermal system saves the 
equivalent of about 40,000 megawatt hours per year. What we can learn 
from a much needed detailed study of the Boise system (that does not 
currently exist) could be transferred to other metropolitan areas where 
there are similar systems; for example Reno, Nevada and Salt Lake City, 
Utah. The potential in these and other Western metropolitan areas is 
effectively unassessed at this time.

                          THE ROLE OF RESEARCH

    The West is rich in geothermal resources, this is common knowledge. 
This is amply documented by the regional maps depicting high heat flow, 
the reports of the Western Governors' Association, Geothermal Energy 
Association, Geothermal Research Council, and other organizations. 
However, the challenge to changing prospects into reality lies in the 
details--the geologic, geophysical, geochemical and modeling research 
that must be conducted to fully understand and produce these complex 
geothermal systems. Compounding this challenge is the fact that many 
geothermal systems do not have obvious surface expressions, such as hot 
springs; they are hidden and require a new approach to find them. This 
information can be made available to federal agencies as they manage 
geothermal resources on our federal lands, to state agencies as they 
pursue their mandates, to counties and municipalities as they attempt 
to assess potential use of geothermal, and to industry as they seek new 
geothermal resources and ways to better use existing ones. A major 
hindrance to understanding geothermal systems is that none of the 
geothermal development companies have in-house research capabilities 
and thus they, and the nation must rely on university and national 
laboratories to conduct the needed research. For power generation, 
whereas operating costs are comparatively low once a producing field is 
established, perhaps the major impediment to expanding geothermal's 
contribution to the energy portfolio is the relatively high up-front 
cost of bringing power on-line. One of the best remedies to this 
impediment is improving resource information through efficient 
exploration and maintaining successful wellbore logs. The geothermal 
industry agrees with this, and it is the academic and national 
laboratory research community that must address ways to increase the 
rate of successful drilling by providing industry with necessary basic 
geoscience facts and models.
    For direct use, the main issues are the extent and size of the 
resource and the sustainable rate at which it can be used. States, 
counties, municipalities, and small direct-use companies simply do not 
have the resources to conduct the level of studies necessary to fully 
delineate and characterize potential direct use resources. Again, the 
academic and national laboratory research groups need to step in.
    As with most resource industries, ours finds that there is a 
shortage of trained professionals available to meet personnel needs in 
both government and industry. This shortage will only become worse 
without concerted efforts to educate the next generation of science and 
engineering professionals. Only those universities involved in research 
will be able to adequately train the students who must become the next 
generation of state, federal and private industry professionals working 
on geothermal and related activities.

              THE INTERMOUNTAIN WEST GEOTHERMAL CONSORTIUM

    The Intermountain West Geothermal Consortium (IWGC) is comprised of 
six institutions from four states and will be conducting targeted 
studies of low-, moderate-, and high-temperature geothermal systems in 
Idaho, Oregon, Utah, Nevada, California, and elsewhere. As recently 
stressed in letters to Congress by the Geothermal Energy Association, 
the knowledge gained by IWGC-type activities is necessary for the 
continued expansion of geothermal development throughout the West, and 
indeed, nationally.
    The Energy Policy Act of 2005 authorized the creation of the 
Intermountain West Geothermal Consortium. The IWGC is initially 
comprised of the Idaho National Laboratory, the Idaho Water Resources 
Research Institute at the University of Idaho, the Geo-Heat Center at 
Oregon Institute of Technology, the Desert Research Institute (Nevada), 
the Energy and Geoscience Institute at the University of Utah, and 
Boise State University.
    We have moved quickly to implement the IWGC once EPACT became law. 
The IWGC works closely with industry and state and federal agencies to 
assist in bringing geothermal resources online for direct use and power 
generation. The consortium proposes to conduct targeted studies of low-
temperature systems of importance to municipalities and small 
companies. It will conduct critical studies of high- and moderate-
temperature resources to better aid industry in bringing these 
resources online for power generation. By working with the Geothermal 
Research Council, the Geothermal Energy Association, state geothermal 
working groups, state geological surveys, the USGS, Forest Service, 
Bureau of Land Management, and by partnering with other geothermal 
groups and institutions, we will be able to broaden the scope and 
impact of our work. Although IWGC focuses regionally, the knowledge and 
technology developed will be used to enhance utilization of geothermal 
energy as a resource throughout the West and the United States.
    IWGC is and will address numerous research questions including the 
following: To better assist exploration and development efforts, can we 
better couple geophysical signals with reservoir simulation, including 
forward and backlooking (inverse) modeling? ``What geophysical 
techniques can be used to identify and characterize hidden geothermal 
systems such as the Raft River geothermal system in Idaho? What 
geoscience information on geothermal systems is required to allow 
geothermal systems to be engineered to enhance and maintain 
permeability and long-term reservoir productivity? How can we assess 
and reduce the predictive uncertainty in geothermal reservoir 
performance? How can energy conversion be improved and operation and 
maintenance costs reduced? Are there new non-power generation uses of 
geothermal fluids? And, can we develop better methodologies to monitor 
the reservoir for exploration, production and long term maintenance 
using new methodologies and a more complete understanding of the 
system? The list of questions go on but this serves as an example of 
the geothermal resource research needs.

                    RESEARCH AND KNOWLEDGE TRANSFER

    There is an growing awareness of the need to maximize the return on 
the federal research dollar investment by making research results more 
readily available. Traditionally, part of that return is reinvested in 
the science research process itself--typically through publications. 
However, for a subject such as geothermal, publications alone are an 
insufficient outcome. What is needed is better method of knowledge 
transfer to geothermal stakeholders--the relevant federal and state 
agencies, state, county, and municipality governments, and industry. 
There are several ways to accomplish this that taken together 
constitute a new paradigm for research: 1) publication of results, 2) 
open access to all relevant data through a digital information system, 
3) open access to physical geologic samples and logs, and 4) directly 
working and communicating with stakeholders.
    It is important to note that items 1 and 2 are significantly 
different. What hinders public policy decision making, agency 
management decisions and activities, knowledgeable use by state and 
local governmental bodies and industry, and the science itself is not 
access to published papers, but the lack of complete access to relevant 
data and metadata. Item 3 highlights the fact that far too often in the 
geological sciences physical samples, that still have great value are 
not properly stored or made available to all interested parties--
samples that were paid for by federal research dollars. IWGC will make 
those data available. Finally, item 4 requires that research 
organizations persistently engage in stakeholder communication.
    The IWGC is adopting this new paradigm for research operations. 
Publications will continue to be written, for that is the golden frank 
of the researcher. But we are also developing a digital information 
system that will host all data generated by IWGC researchers and make 
these data openly available in understandable format after a reasonable 
moratorium period. The Energy and Geoscience Institute at the 
University of Utah, currently houses the largest collection of 
geothermal cores and samples, and the IWGC is committed to continue to 
support that effort. The IWGC will work with stakeholders not only 
through our website, but by hosting and participating in conferences, 
seminars, and workshops and engaging in other outreach efforts. We will 
work directly with stakeholders on specific issues of importance to 
them. We will also partner with organizations already engaged in 
community outreach, including the Geothermal Energy Association, 
Geothermal Research Council, GeothermalBiz, the Geothermal Education 
Office, the Sustainable Energy Network, the Environmental and Energy 
Studies Institute, GeoPowering the West, and others. Separately, these 
four approaches are not revolutionary, but taken together they 
represent a new approach to research and knowledge transfer to better 
serve the geothermal stakeholders.

                                FUNDING

    The Senate Appropriations Committee has approved $22.5 million in 
FY07 to the Department of Energy budget for geothermal research and 
development. The House approved $5 million. The members of the 
Intermountain West Geothermal Consortium want to express their support 
for the Senate's mark. Although EPACT authorizes geothermal research 
and the IWGC, without funding it will be impossible to implement the 
Act's provisions. More fundamentally, without ongoing and sustained 
research and therefore research funding, the continued expansion of 
geothermal energy within our nation's energy portfolio will be severely 
curtailed.
    All members of the IWGC want to thank the Senate Energy and Natural 
Resources Committee for holding this hearing addressing geothermal and 
renewable energy resources in the Western U.S. The decisions made by 
this Committee can have a very real impact on the nation's energy 
supply and we appreciate and ask for your continued support.
    Thank you.

    Senator Craig. Well, Doctor, thank you very much. It was 
stated to the earlier panel, and for the committee, that it had 
been zeroed out in the executive budget. We've put back dollars 
to sustain a research program of about $22 million, for all of 
the reasons you've just articulated, because we think that it's 
a resource that's technology is changing, and our knowledge is 
limited of it. So, we'll move forward with that and hope the 
consortium will be a valuable partner in that.
    Now let me turn to Paul Thomsen, public policy 
administrator, ORMAT Technologies, Reno.
    Paul.

  STATEMENT OF PAUL A. THOMSEN, PUBLIC POLICY ADMINISTRATOR, 
    ORMAT TECHNOLOGIES, ON BEHALF OF THE GEOTHERMAL ENERGY 
                     ASSOCIATION, RENO, NV

    Mr. Thomsen. Mr. Chairman, members of the committee, it's 
my honor to testify today, not only on behalf of my company, 
ORMAT Technologies, but also on behalf of the Geothermal Energy 
Association, whose testimony has been reviewed and approved by 
the entire board and will be submitted, along with my 
testimony, for the record.
    By way of introduction, ORMAT Technologies is a New York 
Stock Exchange registered company. ORMAT Technologies develops, 
owns, and operates, geothermal and recovered-energy facilities 
throughout the world. ORMAT has supplied 800 megawatts of 
geothermal powerplants in 21 countries throughout the world. 
Here in the United States, ORMAT owns and operates 250 
megawatts of geothermal powerplants in the States of 
California, Hawaii, Nevada, and we are pleased to be providing 
US Geothermal Company with the technology needed to bring 
online Idaho's first geothermal powerplant.
    To date, ORMAT has arranged over $1 billion in geothermal 
projects and corporate financing, which is particularly 
significant since geothermal projects require the upfront 
financing of a continuous lifetime supply of fuel. So, when GAO 
says, ``We think we can,'' ORMAT would disagree and say, ``We 
are.''
    On to the impacts of the EPAct. From the industry 
perspective, we agree with the GAO report and feel that it is 
too early to accurately assess the impact of the EPAct. Why is 
that? Because only one operating 20-megawatt facility, which 
happens to be ORMAT's, has qualified to date for the production 
tax credit. The new regulations, as we heard earlier, to 
implement the Rishel amendment to the Steam Act, have yet to be 
drafted, or have just been turned in to the Federal Registry. 
And, finally, the DOE geothermal research program funding for 
fiscal year 2007, as you well know, has been zeroed out by the 
administration, causing some uncertainty and delay.
    With that being said, the industry truly believes that 
despite the fact that geothermal power provides approximately 
50 percent of the kilowatts of renewable energy produced in the 
United States, the impact of the production tax credit and the 
EPAct will enhance the ability of geothermal projects to 
compete with fossil fuel technologies. The production tax 
credit can effectively lower the price of geothermal energy by 
1.9 cents a kilowatt hour, making more resources of geothermal 
energy cost competitive, enabling the full development of the 
5600-megawatt capacity that is considered available in the 
Western United States over the next decade.
    The John Rishel amendment to the Geothermal Steam Act will 
simplify processes, allowing the BLM and other Federal and 
State agencies to work in the spirit of the legislation, 
enabling expanded geothermal production.
    And the significant increase in funding authorized by the 
EPAct for the Department of Energy's renewable energy research 
programs, including geothermal energy, will facilitate 
collaboration between researchers and industry to harness the 
underutilized geothermal resources of the West.
    So, how do we make this committee's and the geothermal 
industry's will a reality? ORMAT believes that the production 
tax credit should be extended more effectively to geothermal 
facilities. This may be accomplished by qualifying geothermal 
facilities' further production tax credit before the 
operational placed-in-service date, as earlier discussed. We 
feel that if the facility has a power purchase agreement, and 
if the facility has begun construction, this could be--this 
could allow for this. This is not without precedent. For some 
other tax provisions with similar time-certain requirements, 
the law allows investments to quality, based upon having 
binding contracts in place.
    ORMAT also believes that the BLM and other State agencies 
need to move quickly on the pending lease applications and 
complete regulations that will implement this new law. BLM 
needs to hold new lease sales in every Western State. Let's 
implement the new law. Urge Congress to actively oversee the 
process to ensure that all agencies keep the spirit of the 
legislation, which is obviously to boost the production of 
geothermal energy. Then, and only, after thorough of the 
results should industry ask Congress to take action on any 
changes that may be needed.
    Finally, ORMAT believes that the full geothermal potential 
of the Western United States can be brought online in the near 
term with the assistance of the Department of Energy. In the 
next decade, ORMAT feels that the Department of Energy research 
budget can benefit by focusing its funding in the following 
areas: We need to improve the accuracy of exploration 
technology to reduce risk; we need to improve drilling 
technology to reduce risk and cost; we need to improve 
identification and characterizations of geothermal resource 
areas; we need to share in the cost of exploration in drilling 
in these new areas; and continue the investigations into future 
technologies, such as enhanced geothermal systems. These three 
considerations are crucial to the future of geothermal energy.
    On behalf of ORMAT and the Geothermal Energy Association, I 
want to applaud this committee for its interest in the secure, 
domestic baseload energy supply that is geothermal energy. We 
humbly realize that the decisions made by this committee impact 
our Nation's energy security.
    This concludes my prepared comments, and I'm happy to 
respond to any questions that the committee might have.
    Thank you.
    [The prepared statement of Mr. Thomsen follows:]

  Prepared Statement of Paul A. Thomsen, Public Policy Administrator, 
  ORMAT Technologies, on Behalf of the Geothermal Energy Association, 
                                Reno, NV

    Mr. Chairman, members of the committee, it is my honor to testify 
today on behalf of not only ORMAT Nevada, but also on behalf of the 
Geothermal Energy Association which has an attached statement that has 
been reviewed and approved by the Board of Directors and will be 
submitted into the record.
    By way of introduction ORMAT Nevada is a subsidiary of ORMAT 
Technologies, which is a New York Stock Exchange registered company 
(symbol ``ORA''). ORMAT is a technology based company which develops, 
owns, and operates geothermal and recovered energy facilities as well 
as manufacturers and supplies geothermal and renewable energy power 
plants to third parties. ORMAT has supplied 800 MWs of geothermal power 
plants in 21 countries throughout the world. We own and operate 
geothermal power plants producing over 250 MW in the United States and 
more specifically in California, Hawaii, and Nevada, and is pleased to 
provide US Geothermal Company with technology to bring Idaho's first 
geothermal power plant online. To date ORMAT has arranged over $1.5 
billion in geothermal projects and corporate financing.

                        THE IMPACT OF THE EPACT

    From the industry prospective we feel it is too early to assess the 
impact of the EPACT on the geothermal Industry because: (i) only one 
operating 20 MW project, which happens to be the ORMAT Richard Burdette 
Project has qualified to date for the PTC; (ii) the new regulations to 
implement the Rishell Amendment to the steam act are still currently 
being drafted, and (iii) the DOE Geothermal Research Program funding 
for fiscal year 2007 has been zeroed out by the administrations current 
2007 budget.

                   THE POTENTIAL IMPACT OF THE EPACT

    That being said the Industry truly believes that despite the fact 
that geothermal power currently provides approximately 50% of the KWhs 
of renewable energy produced in the United States, the PTC will enhance 
the ability of geothermal projects to compete with other fossil fuel 
technologies. The PTC can effectively lower the price of geothermal 
energy by 1.9c/KWh making geothermal energy cost competitive with 
fossil fuels, enabling the development of the potential 5,600 MW 
capacity available in the Western United States over the next decade.
    The John Rishell Amendment to the Geothermal Steam Act will 
simplify processes allowing the BLM and other federal and state 
agencies to work in the spirit of the legislation encouraging expanded 
geothermal production.
    The significant increase in the funding authorized for DOE's 
renewable research programs, including geothermal energy will 
facilitate collaboration between researchers and industry to harness 
the underutilized geothermal resource in the West.

                    AS CONSIDERATIONS FOR THE FUTURE

    ORMAT believes that the Production Tax Credit should be extended 
more effectively for geothermal facilities. This may be accomplished by 
qualifying geothermal facilities for the PTC before the operational 
placed in service date if: (i) the facility has a power purchase 
contract in place and (ii) has begun construction. This is not without 
precedent. For some other tax provisions with similar time-certain 
requirements, the law allows investments to qualify based upon having 
binding contracts in place that meet specified requirements.
    ORMAT believes that the BLM and other state agencies need to move 
quickly on the pending lease applications and complete regulations that 
will implement the new law. BLM needs to hold new lease sales in every 
western state. Let's implement the new law and urge Congress to 
actively oversee the process to ensure that all agencies keep the 
spirit of the legislation--to boost production of geothermal energy. 
Then and only after a thorough review of the results, should industry 
ask Congress to take action on any changes that may be needed.
    ORMAT feels that the full geothermal potential of the Western 
United States can be brought online in the near term with the 
assistance of DOE. In the next decade ORMAT feels that the DOE research 
program can best benefit by focusing its funding in the following 
areas: (i) improve accuracy of exploration technology to reduce risk; 
(ii) improve drilling technology to reduce risk and cost; (iii) improve 
identification, and characterizations of geothermal resource areas; 
(iv) share in the cost of exploration and drilling in new areas; (v) 
continue investigations into future technologies such as Enhanced 
Geothermal Systems (EGS).
    On behalf of ORMAT, and the Geothermal Energy Association, I want 
to applaud this committee for its interest in the secure domestic 
baseload energy supply that is geothermal energy. We humbly realize 
that the decisions made by this committee impact our nations energy 
security.
                                 ______
                                 
             Statement of the Geothermal Energy Association

    Mr. Chairman, Members of the Committee, the Geothermal Energy 
Association (GEA) appreciates the Committee's interest in the 
development and use of geothermal and other renewable energy resources 
on the public lands. Mr. Paul Thomsen of ORMAT Technologies will be 
testifying today as a witness for both his company and the Association. 
The GEA Board of Directors has reviewed this statement to be submitted 
for the record of the hearings along with his testimony.
    The Energy Policy Act of 2005 has had a major, positive impact on 
geothermal energy. In March of this year, GEA conducted a survey of 
industry activity. The survey showed a substantial surge in developing 
geothermal power projects in the U.S. Some 45 projects are under 
development. These projects could nearly double U.S. geothermal power 
output to a total capacity of roughly 5,000 MW. The U.S. had 2,828 MW 
of geothermal power capacity on-line in 2005.
    The survey identified new power projects in Alaska, Arizona, 
California, Hawaii, Idaho, New Mexico, Nevada, Oregon and Utah. These 
projects, when developed, would provide between 1778 MW and 2055 MW of 
new electric power for the grid. This would be enough electricity to 
meet the needs of cities the size of Albuquerque, Las Vegas, Sacramento 
and Seattle combined.
    Results of the survey provide dramatic evidence that new federal 
and state initiatives to promote geothermal energy are paying off. The 
most significant catalyst behind this new industry activity has been 
passage of the Energy Policy Act by Congress (EPAct) in 2005. EPAct 
made new geothermal plants eligible for the full federal production tax 
credit, previously available only to wind and closed-loop biomass 
projects. It also authorized and directed increased funding for 
research by the Department of Energy (DOE), and gave the Bureau of Land 
Management (BLM) new legal guidance and secure funding to address its 
backlog of geothermal leases and permits.
    If we can build and sustain the momentum that EPAct has given the 
industry, geothermal energy can become a major U.S. energy source. The 
untapped potential of this resource is enormous. Today, geothermal 
energy provides nearly 3,000 MW of reliable electric power in the U.S. 
but according to the U.S. Geological Survey (USGS) this represents only 
a small fraction of U.S. resource potential. Representatives from the 
USGS testified before the Subcommittee on Energy and Mineral Resources 
of the House Resources Committee, U.S. House of Representatives, on May 
3, 2001 that their 1978 report still represents the best available 
resource estimate. According to that report, there is an identified 
geothermal potential of 22,000 MW and an undiscovered, unidentified 
potential for geothermal production of an additional 72,000 to 127,000 
MW from hydrothermal resources alone.
    We want to thank Members of this Committee for helping us turn back 
some of the early challenges to this new momentum. The FY 2007 Budget 
could have undermined several of EPAct's initiatives, which would have 
been major setbacks to progress. We were pleased to see Chairman 
Domenici state his support for directed funding for BLM's geothermal 
program in his letter to the Budget Committee. These funds are 
critically needed to ensure that the backlog of leases and permits is 
addressed. Also, we were very pleased that the Senate Energy and Water 
Appropriations Subcommittee and the full Senate Appropriations 
Committee restored FY 2007 funding for DOE's geothermal research 
program.

                  BUILDING UPON THE ENERGY POLICY ACT

    The Energy Policy Act has helped launch a new era for the 
geothermal industry. But, as this Committee knows, it's only the 
beginning. Consistent federal and state policies over a longer period 
of time will be needed to develop a new industry. The roller-coaster of 
federal and state energy policies has undermined development of many 
clean technologies. As the Preface to the report of the Western 
Governors' Association's (WGA) Clean and Diversified Energy Advisory 
Committee (CDEAC) states, ``A strong, overarching theme . . . is the 
need for stable, long-term policies at both the federal and state 
levels. . . .''
    The Chairman and Members of the Senate Energy Committee know well 
that energy is too often an issue of the moment, or the latest crisis. 
But to address U.S. energy needs the nation needs sustained longer-term 
energy policies. GEA has supported the work of this Committee to 
develop such policies, including the landmark Energy Policy Act of 
2005. We hope that the Committee will consider new energy legislation 
this session to build upon this success, and we make the following 
suggestions and observations to assist your efforts to expand the 
future contribution from our nation's largely untapped geothermal 
resources.

             TAX INCENTIVES AND STATE RENEWABLE INITIATIVES

    Because of the high initial cost and risk of developing new 
geothermal power projects, geothermal, one of the largest renewable 
energy resources in the western U.S., has not been developed to its 
full potential. The CEC recently estimated that the initial capital 
cost of a typical geothermal facility was roughly $2700 per kilowatt, 
which is 4-6 times greater than the capital cost of a comparable-output 
combined cycle natural gas power plant as shown in the following table. 
(The CEC estimate does not reflect recent increases in steel and 
drilling costs discussed later in this statement, and does not include 
``site specific'' costs such as permitting and transmission.)

    Table 1.--CAPITAL COSTS OF NATURAL GAS AND GEOTHERMAL FACILITIES
                             [CEC estimates]
------------------------------------------------------------------------
                                                             In-service
              Capital costs                Installed costs      cost
------------------------------------------------------------------------
Combined cycle natural gas..............      542      592       616
Geothermal flash........................     2128     2410      2558
Geothermal binary.......................     3210     3618      3839
------------------------------------------------------------------------
Source: Comparative Cost of California Central Station Electricity
  Generation Options, Magdy Badr and Richard Benjamin, California Energy
  Commission, 2003.

    Because a geothermal facility has very low fuel costs and no fuel 
market volatility, in the long run, over 30-50 years, the ``levelized'' 
cost of a facility might be quite reasonable. But without the Section 
45 Production Tax Credit (PTC), the initial risks, long lead times, and 
high capital cost will compel many investors to choose other 
alternatives that have shorter lead times, less risk, and lower front-
end costs.
    The Energy Policy Act amended the Section 45 PTC to include new 
geothermal facilities on the same basis as new wind facilities. The PTC 
gives the developer the incentive needed to choose an investment in 
geothermal energy. However, given the longer construction lead-time for 
geothermal plants, 2-3 years, the short period the law allows for new 
plants to be placed in service undercuts its effectiveness. The short 
timeframe also means that some of the largest new geothermal facilities 
may not go forward because they face unacceptable risks trying to meet 
the rigid deadline.
    Ideally, the placed in service deadline for the Section 45 PTC 
should be extended an additional 3 to 5 years and geothermal facilities 
should be given greater flexibility in meeting the placed in service 
requirement. If geothermal facilities that secure binding contracts and 
are under construction by the placed in service deadline could be 
certain to qualify for the credit, substantial additional geothermal 
generation would be developed in the next few years. Otherwise, many 
developers may balk at taking an all-or-nothing gamble on future 
extensions of the credit.
    We also urge Congress to consider extending to geothermal energy 
the favorable tax treatment provided for oil and gas exploration in 
EPAct. The cost and risk of exploration for new geothermal resources is 
as high or higher than those in the oil and gas industry, and the 
ability to attract capital to finance geothermal exploration is far 
more difficult. We understand that the DOE has also completed a study 
examining the potential for a targeted loan guarantee program to 
address exploration risk, and would urge the Committee to examine this 
report when it is released.
    Further, we should point out that state initiatives to use more 
renewable resources, particularly Renewable Portfolio Standards (RPS), 
are critical complements to these federal incentives. These state 
efforts ensure that renewable power developers will be able to sell 
their power after undertaking the considerable expense and risk to 
build a power plant. Power purchase contracts that meet developer, 
consumer and utility needs for clean, reliable and affordable power are 
vital. Today, the combination of state initiatives and federal 
incentives makes this possible. We also know that this Committee has 
considered and supported adopting a national RPS, which GEA has also 
supported. However, we caution the Committee that the states are still 
learning how to make these standards work effectively, and that the 
lessons they learn should be examined as the Committee considers any 
future federal initiative. It has been our position that any federal 
effort should build upon these state initiatives and be careful not to 
undermine them, and we appreciate the effort the Energy Committee has 
taken to address this issue in the past.

                       BLM LEASING AND PERMITTING

    The Energy Policy Act included an extensive re-write of the 
Geothermal Steam Act of 1970. In its provisions, DOI is directed to 
place a priority on clearing up its large pending lease backlog. For 
new leasing, regular lease sales must be held at least every two years 
in states with geothermal resources, and all leases will be subject to 
competitive bidding. BLM and Forest Service (FS) are directed to adopt 
a 5-year leasing plan for National Forests with geothermal potential. 
The royalty provisions of the law are completely rewritten. For new 
leases royalties will be determined on a ``gross proceeds'' basis. 
Royalties for existing leases are reduced for expanded production in 
the next four years (following enactment). County governments will 
receive 25% of the royalty income, and the federal share of the 
royalties is dedicated to BLM's geothermal program for the next five 
years to provide the resources needed to address the lease and permit 
backlog and implement amendments to the law.
    GEA supports many of the changes made by the Energy Policy Act to 
the Geothermal Steam Act. We are, however, concerned about the long 
lead-time involved in putting the new program in place, and are aware 
that in the intervening time there have been concerns and fears 
expressed about how the new leasing system might work. GEA believes 
that the new leasing law should be put into place as quickly as 
possible, and once it is operating Congress should plan an oversight 
hearing to determine whether there are changes needed in the law or the 
implementing regulations.
    Earlier this year, U.S. Senators Harry Reid and John Ensign were 
joined by Senators Bingaman, Murkowski, Wyden, Craig, Crapo, Cantwell, 
Akaka, Feinstein, Murray, Allard, Inouye, and Salazar in a letter to 
the Interior Secretary nominee Dick Kempthorne, Acting Interior 
Secretary Lynn Scarlett, and Bureau of Land Management Director 
Kathleen Clark urging them to move forward expeditiously on geothermal 
energy leasing and permitting.
    On June 16th BLM Director Kathleen Clarke replied saying, in part:

          We understand and share your concern about the need to 
        provide access to Federal lands for the development of 
        geothermal power. Currently there are 354 geothermal leases on 
        BLM and U.S. Forest Service (FS) lands. Of these, approximately 
        50 are producing geothermal resources, which contribute over 45 
        percent of the Nation's geothermal power. Over the past five 
        years, the BLM has issued over 200 geothermal leases, compared 
        to less than 10 issued in the previous five years. Increased 
        demand for alternative energy has resulted in a significant 
        increase in the number of new applications filed, leaving the 
        BLM with 130 pending applications and the FS with 64 pending 
        applications. As mandated by the Section 225 of the Energy 
        Policy Act of 2005 (EPAct), the BLM and the FS have finalized a 
        Memorandum of Understanding to work together to eliminate the 
        inventory of pending lease applications over the next five 
        years.
          Many of these lease applications cannot be issued because the 
        applicable BLM or FS land use plan did not analyze the 
        potential impacts of geothermal energy production. To resolve 
        this problem, the BLM has prioritized areas that have the 
        greatest geothermal potential and number of pending 
        applications and directed resources to revise the land use 
        plans to allow the issuance of geothermal leases. In addition, 
        the BLM and FS will prepare a programmatic environmental impact 
        statement to amend or revise those land use plans that have the 
        greatest potential for geothermal energy production.
          The BLM and Minerals Management Service (MMS) are also 
        drafting proposed regulations to address significant changes to 
        the Federal geothermal program as mandated by the EPAct. The 
        EPAct does not authorize the BLM to issue new competitive 
        leases in the absence of regulations. The BLM and MMS have 
        established an aggressive timetable that meets the legal 
        requirements for rulemaking, with plans to publish proposed 
        regulations by early July and final regulations by December 
        2006. Although the EPAct did not place a deadline on the 
        agencies, expeditious completion of these regulations is a 
        priority.

    The BLM Director's response to the fourteen Senators indicates 
several causes of delay in developing geothermal resources on federal 
lands. First, it appears that EPAct should have given the agencies 
deadlines, since that would ensure faster implementation. Second, there 
is more demand for geothermal leases than the agencies can process with 
existing resources, which creates a backlog. And, third, a fundamental 
cause for delays is the need to meet land use planning and National 
Environmental Policy Act (NEPA) requirements and the associated need 
for the agencies to have the resources to do so.
    Land use plan amendments and associated NEPA documents are posing 
serious and continuing obstacle and delays, particularly in California 
where these federal requirements are routinely interpreted broadly and 
add to already cumbersome state processes. But, the problem is not just 
the planning and analysis, it is the double-bind that is created when 
agencies do not have the millions of dollars needed to conduct these 
studies and, as a result, no action gets taken.
    Although California has extensive untapped geothermal resources, 
California's BLM offices have not issued a geothermal lease in some 20 
years. People applying for geothermal leases in California have been 
more likely to die while waiting in line than receive a lease. The 
impact this has had on whether companies want to even consider applying 
for a federal lease, or making nominations under the new law, is, is 
simply incalculable.
    Further, the economic impact of delays can simply wipe away any 
incentives that Congress or the states might provide. In a recent 
report, GEA examined what the cost of a 20 year delay could mean for a 
project. If a rate of return of 17% is applied to a specific 
exploration cost of 150$/kW during 20 years, the resulting cost of 
exploration would be 3466$/kW. This cost corresponds to the total 
capital costs for the most expensive projects currently under 
development. Figure 1 shows the evolution of exploration cost when long 
delays take place.*
---------------------------------------------------------------------------
    * Figure 1 has been retained in committee files.
---------------------------------------------------------------------------
    Reaching NEPA decisions in a timely manner is critical to the 
future development of geothermal energy. Adding mandatory timelines for 
the completion of NEPA documents would be one of the most beneficial 
actions that Congress could take to address the inordinate delays 
created by agency implementation of NEPA. While it is unfortunate that 
Congress may have to take this step, there does not appear to be any 
more reasonable approach than establishing statutory requirements for 
NEPA compliance.

                      DOE RESEARCH AND DEVELOPMENT

    EPAct included a significant increase in the funding authorized for 
DOE's renewable research programs, including geothermal energy. It also 
included specific direction and goals for their geothermal research 
efforts and created an ``Intermountain West Geothermal Consortium'' to 
facilitate collaboration between researchers and industry to harness 
the underutilized geothermal resource in the West.
    There are substantial needs for improvements in geothermal 
technology, information, and efficiencies for which federal research is 
vital. The range of near-term needs is broad. Knowledge of the 
geothermal resource base is limited and largely outdated. The 
technology available today to identify and characterize the resource is 
too unreliable to effectively mitigate the high risk of development. 
Drilling is expensive and faces a range of difficulties in harsh 
geothermal environments. While power cycles are improving, there is 
always room for additional efficiencies. Where the resource does 
support commercial production, ``we need to be able to apply the 
techniques under development to engineer it to achieve power 
generation.
    A recent workshop was conducted by the National Renewable Energy 
Laboratory (NREL) to examine the simple question: What is the total 
``potential'' accessible geothermal resource in the U.S.? That workshop 
went beyond the identified and undiscovered hydrothermal resources 
mentioned earlier to examine the potential from direct uses, co-
production from oil and gas fields, geopressured resources, distributed 
generation, engineered geothermal systems, and geothermal heat pumps. 
The workshop concluded that the energy potential from the full range of 
geothermal resources was in the millions of megawatts!
    The Department of Energy should be working with industry, the 
university, and the laboratory research community to develop the tools 
needed to access this massive resource base. But, we believe DOE needs 
some encouragement to re-examine the potential of geothermal energy and 
its role in meeting U.S. energy needs. We strongly urge this Committee 
to hold a separate hearing on research priorities for geothermal energy 
and invite witnesses from DOE, leading laboratories, industry, and 
university research centers to provide testimony to help structure an 
effective federal effort.

             THE WESTERN GOVERNORS' CLEAN ENERGY INITIATIVE

    As Congress considers its next steps after EPAct, we call to the 
Committee's attention the recent recommendations from the Western 
Governors' Association (WGA) Clean and Diversified Energy Advisory 
Committee (CDEAC), and specifically the CDEAC Geothermal Task Force 
Report and recommendations. The CDEAC effort is unquestionably the most 
systematic, thorough, and contemporary examination available of the 
potential for geothermal energy and other clean energy technologies to 
contribute to the energy needs of the West. The CDEAC effort concluded 
that clean technologies can meet or exceed the West's need for new 
energy sources, but that sustained federal and state support is needed 
to achieve this goal.
    The CDEAC Geothermal Task Force made the following specific 
recommendations, which we recommend to the Committee:
    E. Geothermal Priority Recommendations
          Market Development--The marketplace needs to support the 
        continued development of geothermal resources.

          1. Federal and state tax credits are important to reduce the 
        risk and high capital cost of new projects. The federal 
        production tax credit (and clean renewable bonding authority) 
        should be made permanent, or at least extended ten years.
          2. State laws and regulations should promote a continuing 
        series of opportunities for power purchase agreements between 
        developers and utilities. Whether generated through Renewable 
        Portfolio Standards, Integrated Resource Planning, or other 
        mechanisms, power purchase contracts are fundamental drivers of 
        the market.
          3. Federal and state laws and regulations should provide 
        incentives for utilities and others to enter into long-term 
        contracts for renewable power. Accounting and regulatory 
        standards should treat renewable power contracts as benefits 
        instead of liabilities, and power purchase contracts should 
        have the backing of the government to ensure their credit 
        worthiness.

          Timely Permitting and Environmental Reviews--Geothermal 
        projects should be prioritized to ensure that permitting, 
        leasing, and environmental reviews are completed in a timely 
        and efficient manner.

          1. Federal, state, and local agencies should coordinate 
        resources and requirements. Agencies should be designated to 
        take the lead on specific issues to avoid duplication, and once 
        issues are resolved, they should not be revisited without 
        cause.
          2. A critical path for new projects should be defined as part 
        of this cooperative effort, and timeframes for key agency 
        decisions along the pathway should be established

          Transmission Access and Adequacy--The Western Governors 
        should lead the process to ensure that adequate transmission is 
        available for the identified resources.

          1. There should be consistent Western state policies on 
        inter-connection to the grid that facilitate new geothermal 
        (and other renewable) power development.
          2. A fee to support the cost of new transmission could be set 
        that would spread the cost across all states, parties and 
        technologies on a capacity basis.
          3. Both inter- and intra-state transmission is needed to 
        support the identified resources and should be fast-tracked for 
        permitting and environmental reviews.

          Federal Program Support--Continuing support from key federal 
        programs is needed to achieve the 2015 goals. Federal programs 
        should be coordinated with state agencies.

          1. As the National Research Council concluded (Renewable 
        Power Pathways, 2002), given the enormous potential of the 
        resource base, geothermal research by the U. S. Department of 
        Energy should be increased, particularly into technologies that 
        can reduce risk, reduce costs, or expand the accessible 
        resource base.
          2. Better resource information is needed. The new USGS 
        resource assessment and DOE's cost-shared drilling and 
        exploration technology efforts should be priorities.
          3. The U.S. Department of Energy's GeoPowering the West 
        initiative should continue to support state and local 
        governments, Indian Tribes, and others seeking to utilize the 
        West's untapped geothermal resources.

        (From the Executive Summary of the Geothermal Task Force 
        Report, available at: http://www.westgov.org/wga/initiatives/
        cdeac/geothermal.htm)

                  GEOTHERMAL ENERGY'S FUTURE POTENTIAL

    While only a small fraction of the geothermal resource base is 
utilized today, it already provides significant energy for our nation. 
The United States, as the world's largest producer of geothermal 
electricity, generates an average of 16 billion kilowatt hours of 
energy per year--more than wind and solar combined. With continued 
federal and state support, much more geothermal generation is possible. 
The U.S. Geological Survey (USES), in its Circular 790, estimated a 
hydrothermal resource base of between 95,000 and 150,000 MW, combining 
both the identified and estimated undiscovered resources. As the recent 
NREL workshop concluded, the full range of geothermal resources has 
even greater potential to serve our nation's energy needs.
    Within the next ten years, it is estimated that with continued 
federal and state support geothermal resources could be providing 
between 8 and 15 Gigawatts of electric power to help meet national 
energy needs. With advances in technology, even more of the largely 
untapped domestic resource base could be developed. Geothermal's role 
among clean energy technologies is important to recognize. It is one of 
the few technologies that can supply, clean, reliable, low emission 
fuel that is also a baseload resource providing power 24-hours a day, 
365 days a year. This power could also support our national hydrogen 
initiative and nation ethanol goals, both of which will require 
significant amounts of energy to produce alternative domestic 
transportation fuels.
    In addition to significant electric power generation, direct uses 
of geothermal resources by businesses, farms, and communities have 
substantial potential for energy, economic, and environmental benefits. 
While geothermal resources have been used in communities and homes for 
decades--for example Boise, Idaho has been using geothermal resources 
for space heating for over 100 years--the extensive potential for 
direct use has been largely ignored and underutilized. Direct use 
resources span the entire country--from New York to Hawaii--and their 
increased use would displace fossil fuels.
    The benefits of expanding new geothermal production will be 
substantial. Geothermal power can be a major contributor to the power 
infrastructure and economic well-being of the United States. Geothermal 
power is a reliable, 24/7 baseload energy source that typically 
operates 90 to 98 percent of the time. Insulated from market price 
volatility, geothermal power supports energy price stability and boosts 
energy security because it is a domestic resource. Geothermal power can 
help diversify the nation's energy supply and is a clean, renewable 
energy source.
    We appreciate the interest of the Senate Energy Committee in 
geothermal energy and are prepared to work with the Committee and its 
staff to achieve the enormous potential of this renewable resource.
    Thank you.

    Senator Craig. Paul, thank you very much.
    Now let us turn to Chris Taylor, director of project 
development, northwest region, Horizon Wind Energy, testifying 
on behalf of the American Wind Energy Association, in Portland.
    Gordon, any additional comment in introduction?
    Senator Smith. No, just--good to have you here, Chris. 
Thank you for traveling here and for your company's work in 
eastern Oregon. Got lots of windmills around me now, and I 
guess you're looking at some in Union County, as well.
    Mr. Taylor. Thank you very much.
    Senator Craig. Chris, please proceed.

  STATEMENT OF CHRIS TAYLOR, DIRECTOR OF DEVELOPMENT, HORIZON 
    WIND ENERGY, LLC, ON BEHALF OF THE AMERICAN WIND ENERGY 
                          ASSOCIATION

    Mr. Taylor. Thank you very much, and thank you for the 
introduction, Senator Smith. I'm here to testify on behalf of 
the American Wind Energy Association.
    Very brief background: Horizon Wind Energy is the third 
largest wind developer in the United States. We're building 
about 700 megawatts of projects this year all across the 
country, and we have another 600 megawatts slated for 
construction next year, including about 100 megawatts in 
Senator Smith's district, in eastern Oregon, that will be 
serving Idaho Power under contract, in Senator Craig's----
    Senator Craig. Did you hear that, Gordon? You've got the 
wind, but we get the power.
    [Laughter.]
    Senator Smith. At least our wind is being put to some use.
    Senator Craig. All right.
    Mr. Taylor. And so, we're very happy to have this activity 
going on, and happy to have this opportunity.
    I'd like to start, very briefly, by thanking the committee 
for your past support of renewable energy. I think you've 
heard, from a lot of the people today, some of the critical 
provisions of EPAct 2005; and, particularly, the 2-year 
extension of the PTC has been vital to the continued growth of 
all of our industries. And this year and next, it is expected 
to lead to new record levels of construction of new wind farms. 
And we thank you very much for that extension and hope that a 
longer extension will be adopted in the near future so that 
developers, manufacturers, and others in our industry can make 
the kind of long-term commitments that are necessary, so far as 
procurement and construction, to allow us to continue to 
increase sufficiency and reduce costs of our technology.
    I'd like to talk very briefly about the three main Federal 
land agencies--or Federal resource agencies whose decisions and 
policies most directly impact our agency. That's the BLM, the 
Forest Service, and the Fish and Wildlife Service. And I think 
it--several people have mentioned, today, President Bush's 
stated goal, the 20--reaching 20 percent of our energy supply 
from renewable sources, and I think it's--it's certainly my 
opinion, and I believe most people would agree, that the only 
way we're going to reach that goal is by tapping the 
significant resources on Federal lands. The part of the country 
where I live, most of the land is owned by the Federal 
Government. We just aren't going to get there without tapping 
those resources.
    We've heard a fair bit about the BLM today. I'll try to 
keep my remarks very brief.
    The wind industry is generally very pleased with the 
outcome of the programmatic EIS that the BLM released. We 
believe that they're workable, that they're realistic, that 
they provide adequate environmental protection while still 
allowing for cost-effective and economically viable development 
on Federal lands, as evidenced by the fact that there are 
operating projects on BLM lands. My company has applications 
pending with BLM. We've had, by and large, very successful 
experience. Like any large bureaucracy, you occasionally 
encounter individual staff in the field that don't want to 
follow the rules, but we've always been able to find supportive 
management within BLM, and we really, overall, commend the 
agency for taking the directive from Secretary Norton and 
President Bush and really implementing it as rapidly as they 
could. And we believe that they, overall, do an excellent job 
of facilitating that type of development.
    Another Interior agency, the Fish and Wildlife Service--
there were some questions from Senators on the panel today 
about those guidelines. Again, you heard from Lynn Scarlett, 
and we've also heard from the Director of the Fish and Wildlife 
Service, that they're committed to revising those guidelines. 
Our emphasis here is just that that needs to be done quickly. 
Three years may seem like a rapid timeframe to them, but, to 
us, that's more than one whole production tax credit cycle, and 
that's a long time for us, and a lot of missed opportunities. 
So, we encourage them to get going on that sooner rather than 
later.
    One other comment I'd like to make about both the Fish and 
Wildlife Service guidelines and the Forest Service guidelines 
that are under review, which is that this industry has matured 
and evolved tremendously in the past several years. Now that 
the leading developers of wind power projects--most of the 
megawatts that are going in the ground are being built by 
publicly-traded, big companies. My company is owned by Goldman 
Sachs. You've got Florida Power & Light, energy companies like 
GE. This is a serious business. And all of these companies take 
these wildlife issues seriously. You don't put a $200 million 
investment in the ground without a lot of environmental due 
diligence. And I think that perhaps some of the agency folks 
need to appreciate just how seriously we take these issues. 
Irrespective of the regulations that are in place, we develop 
projects everywhere from California to Texas, where the 
regulatory schemes couldn't be more different, but we still--
there's a baseline level of wildlife study that we do, because 
that's the appropriate thing to do, whether the Government 
tells us to, or not.
    I want to really thank Senator Smith for the advocacy with 
the Forest Service. And I--just to clarify, we have made 
repeated requests. I wouldn't go to the trouble of bothering 
the good Senator on this issue if we hadn't tried on our own. 
We have been repeatedly rebuffed in our attempts to get 
involved. I suspect that our phone calls will get answered now, 
and I'm tremendously appreciative of that.
    Our concern--they may be developing a great set of 
guidelines, and I have no knowledge of what those guidelines 
that they're developing look like. They may be fantastic. I 
might find myself here, 2 years from now, saying that we love 
them. But we just get nervous when things are being developed 
in a vacuum without the involvement of the people that do this 
every day. And, you know, we have--my company spends probably a 
million dollars every year on wildlife studies. We have a lot 
of expertise. We employ the best consultants--we believe, the 
best consultants in the business. And we'd like to bring that 
knowledge and that expertise to bear, to help in developing a 
public policy that works for everyone. And we know that that 
means involving other stakeholders, as well.
    So, I'm one of those two applications that they have, by 
the way, so we're very interested in the potential on Forest 
Service lands, and we look forward to participating in that. 
And we thank the committee for your continued support of 
renewable energy.
    [The prepared statement of Mr. Taylor follows:]

 Prepared Statement of Chris Taylor, Director of Development, Horizon 
  Wind Energy, LLC, on behalf of the American Wind Energy Association

                              INTRODUCTION

    Mr. Chairman (and members of the committee), my name is Chris 
Taylor. I am Director of Development for Horizon Wind Energy (Horizon). 
Horizon is one of the nation's largest wind energy development firms. 
We develop, build and operate wind power projects across the U.S. from 
upstate New York to Southern California. We currently have over 700 MW 
of wind projects under construction in Washington, New York, Illinois 
and Texas and expect to construct another 600 MW in 2007. These 
projects represent an investment of nearly $2 billion in 2006 and 2007 
alone. Horizon Wind Energy is a wholly owned subsidiary of Goldman 
Sachs, a leading international financial services firm. I direct 
Horizon's development efforts in the Northwest region and have projects 
under development and/or construction in Washington, Oregon and 
Montana.
    I also serve on a variety of committees for the American Wind 
Energy Association, a trade association representing every aspect of 
the wind industry, and I have been an active participant in the 
development of state, regional and national siting policies related to 
wind power. For example, I represented the wind industry in 
negotiations with the Washington Department of Fish and Wildlife which 
resulted in the issuance of the state's wind power siting guidelines in 
2003; I was appointed by Governor Kulongoski in 2005 to the Oregon 
Renewable Energy Working Group; and I am a member of the National Wind 
Coordinating Committee's Wildlife Core Group, which is a diverse group 
of experts from industry, environmental NGO's, state and federal 
agencies and independent biologists.
    Horizon Wind Energy and the American Wind Energy Association (AWEA) 
greatly appreciate this opportunity to provide testimony before the 
Senate Energy Committee today.
    I'd like to start by thanking the committee for its past support of 
renewable energy and wind energy in particular. The Energy Policy Act 
of 2005 contained a critical 2 year extension of the Production Tax 
Credit (PTC) which has fueled the continued rapid growth of the wind 
industry and is expected to lead to record levels of new wind plant 
construction in 2006 and 2007. We thank you for this extension and hope 
that a longer term extension will be adopted in the near future so that 
manufacturers, developers and others in our industry can make the type 
of firm, long term commitments for procurement and construction that 
will drive further cost reductions.
    With respect to the subject of today's hearing, I would like to 
provide a very brief overview of our perspective of the current 
regulatory climate for development of wind power on federal lands. The 
three federal resource agencies that have the greatest effect on our 
industry are the Bureau of Land Management (BLM), the Fish and Wildlife 
Service (USFWS), and the Forest Service (USFS), and I will try to touch 
briefly on each agency today.

                                  BLM

    The wind industry is generally very pleased with the outcome of the 
BLM's recent (2005) Programmatic Environmental Impact Statement (PEIS) 
process for wind energy development. The process the BLM followed was 
very open and involved participation from a wide variety of 
stakeholders (including representatives of both the wind industry and 
environmental organizations) and resulted in practical, common sense 
rules. As a result, the BLM produced a set of successful guidelines 
featuring ``Best Management Practices'' for wind power development on 
federal lands. These guidelines have been widely accepted by both the 
wind power industry and the environmental community. These BLM 
guidelines allow for commercially successful development of wind power 
facilities on federal lands while protecting habitat, wildlife and 
other resources.
    The BLM has a fairly long history of leasing land for wind power 
generation in California and Wyoming and there are many operating wind 
projects on BLM land in these two states. My firm and many of our 
competitors are now actively seeking Rights of Way (ROWs) from BLM for 
wind testing and monitoring as well as for actual wind project 
development. As with any large bureaucracy, we occasionally encounter 
individual BLM staff at the local field office level who are resistant 
to our requests, but overall, we believe the BLM does an excellent job 
of facilitating wind power development on lands under its jurisdiction.

                                 USFWS

    In July 2003, the USFWS issued a document it called ``Interim 
Guidance on Avoiding and Minimizing Wildlife Impacts from Wind 
Turbines''. While these guidelines are in theory voluntary, the reality 
is that wind energy developers are increasingly being asked to follow 
these guidelines by USFWS field personnel offering comments on proposed 
projects being reviewed under NEPA or its state equivalents and by 
state and local agencies. We have very serious concerns with this 
guidance document, which we have shared with the USFWS on many 
occasions. These guidelines were developed with little to no 
stakeholder involvement, despite requests from members of our industry 
and others to participate before the document was issued. As a result, 
the guidelines have been widely criticized by both wind energy 
developers and the environmental community. In addition, more than a 
full year of effort was required to even begin correcting the factual 
and practical problems with the first set of guidelines.
    It is my understanding that senior managers within the USFWS have 
acknowledged the need to revise and correct these guidelines and that a 
collaborative process to do so will be initiated in the near future. My 
company and AWEA hope to be actively involved in that effort. We thank 
the leadership of USFWS and the Department of the Interior for their 
willingness to correct the current guidance document. I do want to 
emphasize, however, the urgency of getting the current, flawed USFWS 
guidelines revised and corrected. Over the past 3 years, the current 
document has caused countless delays in the permitting and review of 
proposed wind energy projects with no appreciable benefit in terms of 
wildlife protection. We can not afford to spend another three years 
correcting this document.
    The reality is that the vast majority of the wind power projects 
that are being built today are built by large, responsible, well-
capitalized firms that understand the importance of proper siting and 
are sensitive to the needs of birds and other wildlife. Firms like FPL 
Energy, PPM Energy, and Horizon (the three largest developers in the 
U.S. today) take these siting issues very seriously and have experts on 
staff and consultants under contract specifically to address them. We 
spend millions of dollars a year on wildlife related studies and 
mitigation efforts, most of it totally voluntary. This is both the 
responsible thing to do and a logical business decision, since our 
future growth depends on being able to permit and construct lots of new 
wind projects. Even for those projects developed by smaller firms, it 
is increasingly difficult to obtain financing to construct a new wind 
project without having conducted appropriate studies to evaluate 
potential impacts to birds and other wildlife.

                                  USFS

    It is my understanding that the United States Forest Service is 
currently in the process of drafting national guidelines for wind 
energy development on Forest Service lands. The wind industry first 
learned of this informally at a meeting with wildlife groups and 
agencies in Washington DC in March 2006. We immediately asked the 
Forest Service personnel involved in the guidelines process to allow us 
to participate in the development of this document which will likely 
have a substantial impact on our industry. My company and several 
others have applications pending with the USFS for ROW's for wind 
testing and monitoring in states from Vermont to California. Given how 
much of the western U.S. is administered by the Forest Service, it is 
vital that whatever guidelines are developed regarding wind development 
on National Forest lands be realistic and informed by the latest 
science.
    To date, no wind developers or other parties have been involved--
despite their repeated requests--to lend their expertise in helping to 
draft the proposed Forest Service guidelines. Given that the USFS has 
virtually no experience or expertise in the issues surrounding wind 
power and wildlife, it seems unwise to reject input from those parties 
with the greatest experience and expertise in these issues.
    We urge the Forest Service to open up this process to allow input 
by wind energy developers and other groups who have knowledge and 
experience vital to forming sound, practical policies that encourage 
wind energy development while also protecting Forest Service lands. 
Given the considerable expenditure of time and federal funds that go 
into such efforts, we also urge the Forest Service to follow the BLM 
approach in developing guidelines for wind power development on Forest 
Service lands.
    To that end, we strongly encourage the Forest Service to 
immediately open up the wind power guidelines development process and 
to allow for meaningful participation and input from all interested 
groups.

    Senator Thomas. Mr. Chairman?
    Senator Craig. Please.
    Senator Thomas. For the record, while Idaho gets the power, 
we're pleased that Oregon will keep the tax revenues from the 
sale of that power.
    [Laughter.]
    Senator Craig. You would have to erect a reasonably good 
scenario here.
    [Laughter.]
    Senator Craig. I was asked the inquisitive question the 
other day by another Senator who happens to be downwind of 
Idaho, ``As we use the wind, is used wind as productive as pre-
used wind?''
    [Laughter.]
    Senator Craig. I'll leave--no, you don't need to answer 
that.
    Mr. Taylor. I think it is. It's renewable.
    Senator Craig. Yes, it is renewable, isn't it? All right. 
So, it is reusable, then, by definition.
    Now let me introduce Bob Liden, executive vice president 
and general manager, Stirling Energy Systems, testifying on 
behalf of the Solar Energy Industry Association from Phoenix.
    Bob, welcome to the committee.

  STATEMENT OF ROBERT B. LIDEN, EXECUTIVE VICE PRESIDENT AND 
  GENERAL MANAGER, STIRLING ENERGY SYSTEMS, ON BEHALF OF THE 
              SOLAR ENERGY INDUSTRIES ASSOCIATION

    Mr. Liden. Good afternoon, Mr. Chairman and members of the 
committee. I appreciate the opportunity to offer testimony on 
this vitally important issue.
    Stirling Energy Systems, Inc., or SES, is a concentrating 
solar energy development company headquartered in Phoenix, 
Arizona. We also have engineering offices at Sandia National 
Laboratories, in Albuquerque, New Mexico, and a small satellite 
office in Tustin, California.
    I would also like to express my personal thanks for your 
continued support for solar energy, and, in particular, for 
concentrating solar power. The incentives provided in the 
Energy Policy Act of 2005, including an increase in the 
investment tax credit and the loan guarantee program, would not 
have been possible without your able leadership. Frankly, 
without the committee's support, we would not have been in a 
position to bring into commercial deployment the technology 
that is the fruit of over 20 years of research and development 
by private industry, the U.S. Department of Energy, and the 
national laboratories, particularly Sandia National Laboratory.
    Our company has signed contracts with two large utilities 
in southern California, and are in negotiations for two other 
projects to develop the world's largest solar powerplants. What 
is particularly relevant here is that these projects will be 
sited primarily on Federal land. And this should be not very 
surprising to anybody on this committee. I did put a map up 
there, on--which is almost impossible to see because of the 
glare, I'm afraid--but the map there shows, kind of, a light 
green. All that light green area is federally owned land. And 
you'll notice that in the Southwestern United States, which is 
where the sweet spot is for concentrating solar power, almost 
all of the land outside of the cities themselves is owned by 
the Federal Government or, in some cases, by State governments.
    Regarding the two large solar contracts in California, both 
are 20-year power purchase agreements, one with Southern 
California Edison, the other with San Diego Gas & Electric. The 
SCE contract is for 500 megawatts peak output, with an 
expansion option for an additional 350 megawatts. The plant 
will be sited in the Mojave Desert, east of Barstow, 
California. The SDG&E contract is for an initial 300 megawatt 
plant with options to expand by another 600 megawatts. This 
project will be sited in the Imperial Valley, near El Centro, 
California. The two contracts, when fully built out, including 
the expansion options, will result in 1,750 megawatts of peak 
power generation capacity. The solar technology being employed 
for these projects is a concentrating dish engine system that 
was initially developed in the mid 1980's by McDonnell Douglas, 
later purchased and further tested by SCE, and, in 1996, 
purchased by SES. We have spent the past 10 years testing and 
modifying the dish system design for high volume manufacturing 
and deployment. You can see a picture of two of those dishes 
that are located at Sandia National Laboratories in the picture 
that's at the top on that poster.
    It's important to note that this technology does not use 
water for cooling, so it's well suited for the hot arid desert 
locations where we find it's most appropriate to site this type 
of technology.
    For these two contracts, we will be deploying as many as 
70,000 dishes, each about 35 feet in diameter, that will be 
installed on a total of 11 to 13 square miles of desert land. 
The specific land requirement is partly dependent on local 
siting issues, such as washes, rock outcroppings. In essence, 
though, we will be planning 70,000 technological trees in two 
large solar forests. As mentioned above, almost all of the land 
at the selected sites is owned by the Federal Government and 
administered by BLM.
    We are currently in the process of performing environmental 
impact studies and preparing permit filings required by the 
Federal Government and by the State of California. I am pleased 
to report that the two regional BLM offices that are working 
with us have both provided excellent support and help. This is 
a continuing experience for us, and we are, in a very real 
sense, plowing new ground. These will be the first--large solar 
dish powerplants ever constructed, and it's been nearly 15 
years since any large-scale solar plants of any kind have been 
built in the United States.
    I offer the following observations, however, based on the 
experience to date:
    Renewable energy projects, particularly solar and wind, 
require large amounts of land. However, to put this in 
perspective, a solar dish farm covering about 11 square miles 
of land in the solar-rich Southwest United States can generate 
as much energy each year as the Hoover Dam, which requires 247 
square miles of Lake Mead.
    The Mojave Desert is the prime site for large-scale solar 
project development in California. There are persistent efforts 
by environmentalists and conservationists, however, to get 
legislation enacted to preserve all of the Mojave Desert and 
not allow any development.
    Third, endangered species, such as the desert tortoises 
that seem prevalent throughout the Southwest deserts, require 
mitigation efforts, including securing up to six times the 
amount of land actually required for the project. This is 
expensive, and, in many cases, is a real deal-stopper. At 
times, the BLM requires the developer to purchase non-BLM land 
for this mitigation and deed it over to the BLM for use in 
providing a protective habitat for the displaced tortoises. 
This is also problematic, since BLM no longer has enough 
staffing to handle the real estate acquisitions, and the 
private landowners approached by a developer like us generally 
seizes the opportunity to hike, significantly, the price of 
their land.
    In fact, just as an aside, what we have observed, while 
we've gotten good support from the regional offices of BLM, 
we've noted that these offices, particularly, at least, in 
Barstow and El Centro, are understaffed and stretched too thin, 
even providing emergency medical services to people injured on 
government lands is a challenge, given the few people and the 
vast amount of land they're required to oversee.
    Now, how Congress could help encourage the development of 
renewable resources on Federal lands, besides perhaps helping 
staffing of the BLM, one would be to encourage landholding 
agencies, such as the Department of the Interior, Department of 
Defense, and so forth, to establish set-aside lands in their 
resource plans that are specifically for the development of 
solar, wind, et cetera. Now, NREL--that's the National 
Renewable Energy Laboratories--has well-developed maps showing 
the primaries for development of solar and wind, at least, and 
some other maps that are perhaps not quite as well developed 
for the other renewable resources, that could assist the 
agencies in this effort.
    To further encourage the development of renewable energy 
projects on these lands, environmental impact studies should be 
undertaken by the Federal Government resulting in the 
identification of, for example, solar or wind enterprise zones 
where solar or wind developers can more rapidly and efficiently 
bring their projects online. Doing an environmental impact 
study oftentimes requires anywhere from 1\1/2\ years to 3 
years.
    Second recommendation is to encourage FERC, WAPA, and other 
Federal power transmission authorities to develop a master plan 
for upgrading and expanding the transmission network to 
facilitate getting the power from Federal lands to the major 
load centers and population centers. These upgrades are sorely 
needed, but they're generally very expensive. Requiring 
developers to finance these upgrades, even if the developers 
are ultimately repaid their expenses, is onerous, and it 
discourages all but the most deep-pocketed developers from 
proceeding with their projects, in many cases.
    Finally, establish some ground rules for setting lease 
rates on Federal lands that encourage the use of these lands 
for renewable project development, and recognize the need for 
low-cost land to keep the overall cost of renewable energy as 
low as possible.
    Again, I thank you for this opportunity, and I look forward 
to any questions that the committee might have.
    [The prepared statement of Mr. Liden follows:]

 Prepared Statement of Robert B. Linden, Executive Vice President and 
General Manager, Stirling Energy Systems, on Behalf of the Solar Energy 
                         Industries Association

    Good afternoon. My name is Robert Liden, and I am the executive 
vice president and general manager of Stirling Energy Systems, Inc. 
(SES), a solar energy development company headquartered in Phoenix, 
Arizona. We also have engineering offices at Sandia National 
Laboratories in Albuquerque, New Mexico, and a small satellite office 
in Tustin, California.
    I want to thank you Mr. Chairman and Senator Bingaman for having 
this important hearing and allowing SES the opportunity of testifying 
before this committee. Without this committee's continued support for 
solar energy and, in particular, for concentrating solar power, we 
would not have been in a position to proceed with these large 
contracts, bringing into commercial deployment technology that is the 
fruit of over 20 years of research and development by private industry, 
the U.S. Department of Energy, and the national laboratories 
(particularly Sandia National Laboratory).
    I also would like to applaud you for passing the very comprehensive 
Energy Act of 2005, which, among other things, provides increased tax 
credits, a loan guarantee program, and other key incentives for the 
development of clean, renewable energy.
    Our company has signed contracts with two large utilities in 
southern California and are in negotiations in New Mexico for a third 
project to develop the world's largest solar power plants. What is 
particularly relevant here is that both of the projects in California 
will be sited primarily on BLM land.
    Regarding the two large solar contracts in California both are 20-
year power purchase agreements, one with Southern California Edison 
(SCE), and the other with San Diego Gas & Electric (SDG&E). The SCE 
contract is for 500 MW (peak output), with an expansion option for an 
additional 350 MW. The plant will be sited in the Mojave Desert east of 
Barstow, CA. the SDG&E contract is for an initial 300-MW plant, with 
options to expand by another 600 MW. This project will be sited in the 
Imperial Valley near El Centro, CA. The two contracts, when fully built 
out (including the expansion options) will result in 1,750 MW of peak 
power generation capacity.
    The solar technology being employed for these projects is a 
concentrating dish-engine system that was initially developed in the 
mid 1980's by McDonnell Douglas, later purchased and further tested by 
SCE, and in 1996, purchased by SES. It is important to note that our 
dish technology does not require water for cooling. We have spent the 
past 10 years testing and modifying the dish system design for high-
volume manufacturing and deployment.
    For these two contracts, we will be deploying as many as 70,000 
dishes, which will be installed on a total of 11-13 square miles of 
desert land and our technology. (The specific land requirement is 
partly dependent on local siting issues, such as washes, rock 
outcroppings, etc.) In essence, we will be planting 70,000 
technological trees in two large solar forests. As mentioned above, 
almost all the land at the selected sites is owned by the Federal 
Government and administered by the Bureau of Land Management (BLM).
    We are currently in the process of performing environmental impact 
studies and preparing permit filings required by the Federal Government 
and by the State of California. I am pleased to report that the two 
regional BLM offices that are working with us have both provided 
excellent support and help.
    This is a continuing experience for us, and we are, in a very real 
sense, plowing new ground. These will be the first large solar dish 
power plants ever constructed, and it has been nearly 15 years since 
any large-scale solar plants of any kind have been built in the U.S. I 
offer the following observations however, based on our experience to 
date:

    1. Renewable energy projects, particularly solar and wind, require 
large amounts of land. (However, to put this in perspective, a solar 
dish farm covering about 11 square miles of land in the solar-rich 
southwest can generate as much energy each year as the Hoover Dam, 
which requires 247 square miles of Lake Mead.)
    2. The Mojave Desert is the prime site for large-scale solar 
project development in California. There are persistent efforts by 
environmentalists and conservationists, however, to get legislation to 
preserve all of the Mojave Desert and not allow any development.
    3. Endangered species (such as desert tortoises) require mitigation 
efforts, including securing up to 6 times the amount of land actually 
required for the solar project. This is expensive and, in many cases, 
is a real ``deal-stopper''. At times, the BLM requires the developer to 
purchase non-BLM land for this mitigation and deed it over to the BLM 
for use in providing a protective habitat for the displaced tortoises. 
This is also problematic, since BLM no longer has enough staffing to 
handle the real estate acquisitions, and the private land-owners, 
approached by a developer, generally seize the opportunity to hike 
significantly the price of their land. (In fact, what we have seen is 
that the BLM regional offices--at least the ones in Barstow and El 
Centro--are understaffed and stretched too thin. Even providing 
emergency medical services to people injured on the government lands is 
a challenge, given the few people and the vast amount of land to 
oversee.)

    How Congress can help encourage the development of renewable 
resources on federal lands:

    1. Encourage the land-holding agencies (Department of Interior, 
Department of Defense, etc.) to establish ``set aside'' lands in their 
resource plans specifically for the development of solar, wind, etc. 
(NREL has well-developed maps showing the prime areas for development 
of all the renewable resources to assist the agencies in this effort.) 
To further encourage the development of renewable energy projects on 
these lands, environmental impact studies should be undertaken by the 
federal land owners, resulting in the identification of, for example, 
solar or wind enterprise zones, where solar or wind developers can more 
rapidly and efficiently bring their projects ``on line''.
    2. Encourage FERC, WAPA, and other federal power transmission 
authorities to develop a master plan for upgrading and expanding the 
transmission network to facilitate getting the power from federal lands 
to the major load centers and population centers. These upgrades are 
sorely needed, but they are generally very expensive. Requiring 
developers to finance these upgrades (even if the developers are 
ultimately repaid their expenses) is onerous, and it discourages all 
but the most deep-pocketed developers from proceeding with their 
projects.
    3. Establish ground rules for setting lease rates on federal lands 
that encourage the use of these lands for renewable project development 
and recognize the need for low-cost land to keep the overall cost of 
renewable energy as low as possible.

    Finally, a brief reminder of why renewable energy development is 
important:

    1. The economic impact of new renewable energy projects is 
immense--hundreds to thousands of jobs to develop and operate these 
power plants, bringing new tax dollars into primarily rural 
communities, where unemployment is high and a boost to the local 
economies are sorely needed.
    2. Renewable power plants reduce the nation's dependence on fossil 
fuels and imports, enhancing our national security, improving our 
balance of payments; and stimulating our economy.
    3. Renewable power plants improve our environment, reducing 
greenhouse gases, and cleaning our air. (For example, our two solar 
projects in California, if built out to their full potential of 1,750 
MW, will displace 1.8 million tons of coal consumption and reduce 
CO2 emissions by 400 tons per year compared to a coal-fired 
plant of the same size.)

    Again, I thank you for this opportunity and I look forward to any 
questions the committee may have.

    Senator Craig. Bob, thank you very much.
    Now let us turn to Bernie Karl, proprietor, Chena Hot 
Springs Resort, Fairbanks, Alaska.
    Senator, do you have any additional introductory comments?
    Senator Murkowski. Well, I would just like to personally 
welcome Mr. Karl. Bernie is not only a constituent, but a 
friend who has been running a terrific business up in the 
interior. And I would certainly encourage anyone who has the 
opportunity to travel to Chena Hot Springs to see what is 
happening out there. In addition to not only a lovely place to 
have a weekend and soak in the great waters there, the entire 
facility is being run off of the geothermal power. What Mr. 
Karl is doing, in terms of the lower-temperature geothermal 
technology, is, as I mentioned in my opening statement, really 
very exciting for the State. So, I'm just very pleased to have 
him here and thank him for traveling all the distance to speak 
to the committee today.
    Mr. Karl. Thank you, Senator.
    Senator Craig. Please proceed, Bernie.

STATEMENT OF BERNIE KARL, PROPRIETOR, CHENA HOT SPRINGS RESORT, 
                         FAIRBANKS, AK

    Mr. Karl. Thank you very much for the opportunity to speak.
    Chena Hot Springs is 60 miles northeast of Fairbanks, 
Alaska. We will be bringing online, this month, the first 
geothermal powerplant in the State of Alaska, the first 
geothermal powerplant in the history of the United States to be 
making electricity off 165-degree water.
    I don't really know if people know how significant that is. 
We have enough geothermal energy in the world to take care of 
the whole energy. We're 5 percent of the world's population, 
we're consuming 25 to 35 percent of the world's energy. What's 
wrong with that equation? We have to start somewhere. We need 
to start here today. So, what do we do? We cut the geothermal 
budget so there's no money--no money to work with geothermal. 
Yet it is the absolute best bang for the buck. If you want to 
do something great for this country, take the geothermal budget 
and make it $150 million a year. That's what you need to do to 
help this country if you want to become self-sufficient. The 
President of the United States said that we are ``addicted to 
oil.'' He's absolutely right. We have the worst addiction of 
any addiction known to man. We think drugs are bad? Drugs are 
nothing. Look at what we spend for oil. If you don't believe 
me, go fill your car up sometime--$50. And you know why it's 
$50? Because it should be $100. It should be $100, because we 
do not put what it costs to replace that energy. If the actual 
cost was there to replace the energy, it would be $100. And I 
guarantee you we would have alternative energy, then.
    Right now, you are sitting on top of alternative energy. If 
you will finance half of the well, I will finance half. We will 
drill a well right in front of the Department of Energy, 20,000 
feet, and I will provide you enough energy to heat the 
buildings, all of the capital buildings. I can promise you 
that. But I think I can also give you enough energy to turn the 
lights on. I will pay for half of it. So, I challenge you--I 
challenge you to come up with that money.
    We should be the world's leaders in alternative energy. At 
Chena Hot Springs, we're a little, bitty company. Little bitty. 
I have $1.7 million of my family's money and the bank's money, 
not counting some Department of Energy money, and a lot of 
money from United Technologies. I believe that the technology 
that's coming out of this powerplant will make the most 
significant contribution to power generation in the 21st 
century. There is nothing that's going to compete. Why? 
Because--a quick example. United Technologies, because they are 
a company that is committed, committed to this project, you 
will see 500,000 of these units working in the United States in 
the next 10 years. You say, How can you make a statement like 
that? In Texas alone, there's 225,000 producing oil and gas 
wells. They produce 5 percent oil and gas, 95 percent water, 4 
million barrels a day at 265 degrees. There's 125,000 wells 
that are nonproducing. That's 350,000 wells. Every well should 
be producing electricity. Every well should be producing 
refrigeration. At Chena Hot Springs, we keep the largest ice 
structure in the world cold, frozen, all summer by using 
absorption chilling. We use 95 gallons a minute of hot water, 
75 gallons of cold water. We make 15 tons of refrigeration, 
minus-29 below in the evaporator. It's the largest ice 
structure in the world to be up all summer. Forbes magazine 
voted it the Dumbest Business Idea of the Year in 2004. Forbes 
can kiss my--it's----
    [Laughter.]
    Mr. Karl. He might think it's dumb----
    Senator Craig. Careful, now.
    [Laughter.]
    Senator Craig. Kiss your ``cachena''?
    [Laughter.]
    Mr. Karl. I'm sorry, sir. But I did not say it.
    [Laughter.]
    Mr. Karl. My wife will kick my--if I----
    [Laughter.]
    Mr. Karl. Anyway--right now at Chena Hot Springs, this 
year, we will become as totally close to a self-sustained 
society in the United States. We have 65 employees that live 
onsite. We have 445 acres. We built and maintain our own 
runway, our own landfill, our own water system, our own 
electric system. By putting this powerplant in, we're going to 
displace $400,000 a year worth of fuel. I already displaced 
over $300,000 worth of fuel by heating 44 buildings. We just 
built our third greenhouse. Everything that you eat there will 
be growing there on a 365-day basis. We have 165 separate 
experiments going on in horticulture with the University of 
Alaska. We have our first hydrogen plant there. Our first 
hydrogen vehicle will be there in August. By the first quarter 
of next year, everything I own will be running on hydrogen. 
Everything. And the only way you get to a hydrogen economy is 
through geothermal. You have to use alternative resources. To 
burn fossil fuels is insane. Absolutely insane. We're burning 
our children's future. We need those fossil fuels to get us to 
alternative energy, and then we need to use them for the carbon 
that they have so that we can build everything with carbon 
fiber. But if we burn it all now, we're spending the bank 
account. There's going to be nothing left.
    So, if you can do anything at all, you need to increase 
geothermal's budget to at least $150 million. I'm thankful that 
you put in the measly $23,000. Don't take it wrong; I'm very 
appreciative.
    Senator Craig. Million. There's a difference between 
thousand and million.
    Mr. Karl. I mean, excuse me, million. I'm sorry.
    [Laughter.]
    Mr. Karl. Thank you for correcting me.
    I see my time is up. And I don't want to take any more of 
your time. But you don't know how much I appreciate your time 
and how important this is. There's nothing more important in 
our society today than alternative energy, and we have to start 
here. And for anyone to think that geothermal is an industry 
that is so--you know, they say that the industry is already a 
mature industry. Well, if that was true, why did I have to work 
so hard to find somebody that wanted to build a turbine on 165-
degree water? And if that is true, why isn't everyone on 
alternative energy?
    Thank you, sir.
    [The prepared statement of Mr. Karl follows:]

   Prepared Statement of Bernie Karl, Proprietor, Chena Hot Springs 
                         Resort, Fairbanks, AK

    My name is Bernie Karl. I am the proprietor of Chena Hot Springs 
outside of Fairbanks, Alaska. Chena Hot Springs will be the site of the 
only new geothermal power plant installation in the United States this 
year. It will also be the site of the lowest temperature resource (165 
F) ever used for commercial power generation in the world. Attachments 
to my written statement contain additional details on this exciting and 
unique project.*
---------------------------------------------------------------------------
    * The attachment has been retained in committee files.
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    The power generation project at Chena would not be possible without 
support from the United States Department of Energy's Geothermal 
Technologies Program, which is currently threatened with elimination. I 
am testifying in support of reinstating and expanding the Department of 
Energy's geothermal budget as well as extending the production tax 
credit for geothermal resources.
    Our country faces a number of critical energy concerns including 
the need for a diverse portfolio of clean, renewable domestic sources 
of supply. Additional investment in public private geothermal R&D 
partnerships can open up extensive new opportunities for domestic 
production of renewable energy. New technologies that hold tremendous 
promise for tapping moderate temperature geothermal resources, 
including those associated with oil and gas production are emerging. 
Without validation in real world operating conditions and a stable, 
sustained commitment to financial incentives, the necessary investment 
will not be made and these technologies will never penetrate the market 
resulting in lost opportunities for renewable domestic energy 
production and the associated economic and environmental benefits.
    For example, until just a few years ago, it was believed that power 
generation from geothermal resources lower than 230 F was 
uneconomical. However, that picture is changing as the cost of energy 
rises, and the technology improves. Moderate temperature geothermal 
resources are by far the most prevalent in the United States and around 
the world. Estimates indicate there are between 20,000 and 40,000 MW of 
geothermal electrical energy potential in the U.S. alone in the 190 to 
300 degrees Fahrenheit range.
    In fact, you could hit those temperatures right here underneath 
Washington DC if a hole 20,000 feet deep \1\ were drilled. Heat from 
the earth, whether used for power generation or heating buildings and 
homes is the most reliable form of renewable energy available to us. It 
doesn't depend on clear skies, windy days, or rainfall, making 
geothermal a good base load alternative energy. While using the heat 
from the earth for heating and cooling is economical throughout the 
U.S., our best geothermal resources for power generation are in the 
western states.
---------------------------------------------------------------------------
    \1\ According to the U.S. Heat Flow Map created by Southern 
Methodist University. www.smu.corn/geothermal
---------------------------------------------------------------------------
    4% of power generation in the West today is generated from 
geothermal resources. However, this existing generation is almost all 
from high temperature, easily accessible resources. The next step in 
geothermal power generation will require new technologies, including 
enhanced geothermal (EGS), exploration for blind systems, and 
development of improved technologies for moderate temperature power 
generation. All of these areas are being explored by the Department of 
Energy's Geothermal Technologies Program and are jeopardized by the 
Administration's proposed elimination of funding.
    I can testify from firsthand experience that the Department of 
Energy's program, with Dr. Roy Mink, and until recently David Garman, 
at the helm represents the best our government can offer. They are 
hands-on managers, who understand the possibilities and are tirelessly 
working to steer our country in the right direction while keeping a 
close eye on the bottom line. Without their support, the geothermal 
projects at Chena Hot Springs, which have attracted $3 million in 
private investment alone, would never have come to fruition.
    In the future, the geothermal industry is also going to need to 
think outside of the box. There are currently 225,000 producing oil and 
gas wells \2\ in Texas which produce 95% water along with 5% oil and 
gas. This water is a waste by product of the oil industry. However, at 
temperatures averaging 265 F, this water could be used in a power 
generation cycle before being re-injected into the ground.
---------------------------------------------------------------------------
    \2\ There are an additional 125,000 existing wells currently not in 
use that could also be tapped for power generation.
---------------------------------------------------------------------------
    If every producing oil and gas well in Texas alone used this 
technology, the same power generation technology being tested right now 
at Chena Hot Springs in Alaska, we could generate 5000MW of power from 
this renewable geothermal resource. This is the equivalent of 5 new 
nuclear power plants. In addition, this technology could extend the 
life of currently unprofitable oil and gas wells thus providing 
additional jobs and energy security benefits. With the modular power 
plant designed and developed by United Technologies in partnership with 
Department of Energy, this type of power generation could be brought 
online within a very short time period after the technology is 
demonstrated and validated in real world operating conditions.
    Geothermal energy is also a potentially vital piece of a future 
`hydrogen economy' in which Congress is investing research dollars. 
Hydrogen production over the long run makes sense only from using 
renewable energy sources. Therefore, development of those resources 
should go hand in hand with hydrogen research.
    President Bush has stated repeatedly that we are addicted to oil 
and as a country we need to wean ourselves from this addiction. 
Geothermal energy is part of that solution. Geothermal development has 
had success with readily accessible higher temperature sources. The 
opportunities for geothermal technology development have not been 
exhausted; there is still huge potential for additional future 
generation of heat and power by applying new technologies to abundant 
lower temperature resources.
    The Department of Energy has historically been the driving force 
behind new development and exploration in geothermal--the `thinking 
outside the box' that industry is often reluctant and financially 
unable to undertake alone. I believe that reinstatement, and even 
expansion of the geothermal technologies program budget is critical for 
the future of power generation in the Western United States.
    In addition, I recommend the Renewable Electricity Production 
Credit that is due to sunset in 2008 be extended until 12/31/14 as 
provided in S. 2829. The continued R&D investment via cost shared 
public private partnerships sponsored by DOE coupled with a longer term 
production credit will provide the market with more certainty and 
enable sound investment choices. There are never simple solutions, only 
intelligent choices. Thank you for the opportunity to speak on this 
important and timely topic.

    Senator Craig. Bernie, thank you very much for that very 
interesting testimony. You've almost convinced me to come. I 
was in Soldotna last weekend. Do you have fish?
    Mr. Karl. Yes, sir.
    Senator Craig. I'll be there.
    [Laughter.]
    Senator Craig. All right.
    Mr. Karl. And I'll tell you what. We have the fish there, 
and I--I'm for sure that Senator Stevens is going to be there. 
I believe Senator Murkowski will be there. But let me tell you, 
we have your fish. I mean, they're right there. We've got your 
fly rod ready. You're going to have one heck of a good time. 
It's on August 20. We anticipate there'll be 1,000 people 
there.
    Senator Craig. I'm not allowing commercializing at this 
hearing.
    [Laughter.]
    Senator Craig. That's a commercial advertisement. You'll 
have to pay the committee.
    [Laughter.]
    Senator Craig. All right.
    Mr. Karl. I apologize, sir.
    Senator Craig. All right.
    Now let us turn to John White, executive director, Center 
for Energy Efficiency and Renewable Technologies, in 
Sacramento.
    John.

  STATEMENT OF V. JOHN WHITE, EXECUTIVE DIRECTOR, CENTER FOR 
  ENERGY EFFICIENCY AND RENEWABLE TECHNOLOGIES, SACRAMENTO, CA

    Mr. White. Thank you, Senator. I appreciate the committee's 
invitation to be here today.
    The Center for Energy Efficiency and Renewable Technologies 
is a collaborative made up of environmental organizations and 
companies that are involved with the renewable energy business. 
Our affiliates include members and companies involved in solar, 
wind, geothermal, and the major energy and environmental 
organizations.
    I'll be brief, because I know the committee's time is 
valuable, and we have submitted remarks for the record.
    A couple of observations. We have done some work on 
stakeholder planning efforts regarding renewable resource 
development and transmission. And I think a couple of things 
have come from that work that we have done to try to actually 
facilitate the development of these resources.
    The first is, when the lands are sensitive, then there 
needs to be appropriate amount of time and effort and energy 
expended with those lands. And if we try to streamline the 
siting on sensitive lands, we're going to end up having delays 
down the road, because we'll have litigation. So, we really 
think involvement and engagement with the parties early is very 
important.
    Second, with regard to the State and Federal agency 
coordination, we need to see some improvements there. I would 
share the observation about the budget and staffing issues in 
the Federal agencies, but also, as the BLM is developing its 
new guidelines for geothermal, we'd hope that we could have a 
higher level of coordination between the State environmental 
process, which, in California, is fairly well developed, and 
the Federal processes.
    We have been working in the Tehachapi wind resource area, 
near Kern County, with a variety of the parties, including the 
utilities, the Federal agencies, the environmental community, 
developing a plan for developing a coordinated approach to 
transmission and renewable resources. And I think that's a 
critical thing to recognize, that for renewables to be 
successful, they're going to need to have transmission. And the 
planning of that transmission needs to be coordinated with the 
procurement and the development of the resource. It's a little 
bit like a chicken-and-egg problem.
    The FERC, Federal Energy Regulatory Commission, needs to be 
made especially cognizant of its role in providing access to 
the grid for the--for the existing grid, and to recognize the 
public benefits of renewable resources when considering new 
transmission. All of these State renewable portfolio standards 
that are helping to guide and direct the utility procurement 
ultimately will be influenced by FERC action on transmission 
plans, and there needs to be a recognition specifically that 
there are public benefits associated with renewables to be 
accomplished with the transmission plans.
    The Western Governors Association, as Dr. Snyder mentioned, 
has done a significant amount of work recently. I commend to 
you their task force recommendations on efficiency, geothermal, 
and concentrating solar, all of which represent a contribution 
from a lot of stakeholders. But one of the key findings of that 
report is the need to recognize the known renewable resource 
areas in renewable--in regional transmission planning. There's 
a lot of talk about regional transmission planning and lines 
being built from the resource areas to the load centers. Those 
planning efforts need to involve the renewable resources 
equally in that process.
    Last, I would echo the concerns about the production tax 
credit. I think one of the reasons we have had a sort of start-
and-stop process with regard to siting and difficulty of 
Federal agency response is that we have had short lead times on 
the production tax credit. And what we need to figure out a way 
to do--I think the geothermals suggestion about the in-service 
date being changed to when there's a contract makes a lot of 
sense--but we need to provide more certainty, over the long 
run, for these production tax credits, particularly for 
geothermal and solar, as well as for wind, in such a way that 
we can know that these resources are going to be developed, and 
we can then take upon us some of these suggestions regarding 
developing set-aside areas, areas that we know are going to be 
developed, instead of waiting for individual projects to come 
in one at a time.
    So, I would commend to you the work that the Western 
Governors has done, and the need to link procurement with 
transmission planning and to provide as much certainty as 
you're able with regard to the production tax credits.
    Thank you very much.
    [The prepared statement of Mr. White follows:]

  Prepared Statement of V. John White, Executive Director, Center for 
      Energy Efficiency and Renewable Technologies, Sacramento, CA

    The Center for Energy Efficiency and Renewable Technologies (CEERT) 
greatly appreciates the opportunity to offer testimony to the Senate 
Energy Committee on the implementation of the Energy Policy Act of 2005 
(EPAct) as it pertains to the growth of geothermal and other renewable 
resources in the Western U.S. While we believe that the legislation 
provides an excellent opportunity to enhance the growth of these 
sustainable resources, the Committee is right to realize that the 
implementation of such policies must be done correctly to achieve the 
maximum benefit.
    CEERT is a non-profit public benefit organization composed of 
national environmental groups including Natural Resources Defense 
Council, Environmental Defense and Union of Concerned Scientists as 
well as technology and energy producers working to increase the use of 
renewable energy and energy efficiency. Our organization has become an 
important forum and a vehicle for these various groups to come together 
and generate positive action on common issues like global warming, air 
pollution and environmental and economic sustainability.
    Over CEERT's 15 years of existence we have seen renewables grow 
from a boutique industry to an increasingly significant energy 
resource. Internationally, the renewable industry has one of the 
world's fastest growing markets with new capital flowing in all the 
time. Our home state of California is in many ways the birthplace of 
this industry, yet as in the rest of the U.S., the growth of renewables 
has lagged behind many other leading economies. While there are a 
number of reasons for this, the EPAct affords an excellent opportunity 
to improve the process for the development of renewable energy in the 
West and around the U.S.

                           RESOURCE PLANNING

    CEERT has had extensive recent experience in facilitating 
stakeholder groups for the development of transmission around renewable 
energy resource areas. Through these processes we have learned a number 
of valuable lessons which can be readily applied to the implementation 
of the energy bill. First and perhaps most evident is that areas that 
are sensitive must always be treated as such. Whether the concerns are 
environmental sensitivity, proximity to population centers or any one 
of the other myriad issues that must be addressed when developing 
energy infrastructure, concerned stakeholders can greatly affect the 
development of any project if they see sufficient need. Any 
streamlining of project impact review processes must not come at the 
expense of a thorough investigation of all potential effects from a 
project. It has been our experience that any steps skipped or missed 
early in the process will only lead to delays later on. From the 
perspective of many of our affiliates, those developing geothermal as 
well as other renewables, these delays at later stages can be far more 
costly as those involved will have more to lose. This is very clearly 
illustrated in a report recently released by the Geothermal Energy 
Association (GEA) which shows a curve of project cost growing ever 
steeper with each year of delay.\1\
---------------------------------------------------------------------------
    \1\ See Appendix 1 for graphic illustration. From: Factors 
Affecting Costs of Geothermal Power Development, by Cedric Nathanael 
Hance, Geothermal Energy Association, August, 2005. Available for 
download at http://www.geo-energy.org/publications/reports/
Factors%20Affecting%20Cost%20of%20Geothermal%20Power%20Development%20-
%20August%202005.pdf
---------------------------------------------------------------------------
    Despite the clear economic value to an efficient permitting and 
development process, the Bureau of Land Management (BLM) has seen a 
massive backlog of geothermal energy lease applications accumulate. In 
fact California's BLM office has not issued a geothermal permit for 20 
years despite the fact that there are substantial known developable 
geothermal resources in the state.

                          AGENCY COORDINATION

    One major reason for these delays is the insufficient staffing for 
federal agencies such as the U.S. Forest Service (USFS) and BLM for 
review of National Environmental Protection Act (NEPA) documents. A 
great deal of money and hard work is put into the development of these 
documents by the project developer and a similarly thorough review 
process by the requisite agency should be expected in compliance with 
federal laws. A renewed commitment from the Department of the Interior 
and its sub-agencies should be made to eliminate these inefficiencies 
and thoroughly evaluate all NEPA documents. Ideally the BLM and other 
federal agencies should have staffing to take part in the actual 
studies of these projects as well as assessing their impacts. In our 
experience this path for permitting, in which the agencies are engaged 
early in the study process, has resulted in better projects and a more 
thorough assessment of the impacts.
    Related to this inefficiency by the federal agencies are the often 
overlapping and seemingly cumbersome procedures of various state 
permitting processes. In California the California Environmental 
Quality Act (CEQA) demands an extremely rigorous environmental 
investigation. A higher level of coordination between the various state 
and federal agencies responsible for evaluating these project proposals 
could be very helpful in speeding the process along. As the BLM enters 
into a rulemaking for regulations to address the changes in the Federal 
Geothermal Program as mandated by the EPAct, careful considerations 
should be made to ensure that any new rules can work together with 
existing state permitting processes without slowing down the approval 
process.
    Under CEERT's leadership, the Tehachapi Collaborative Working Group 
worked to find innovative ways to address these inefficiencies through 
an open stakeholder process. The study group was organized with the 
mission of developing a transmission plan to access the considerable 
known resources in the Tehachapi Wind Resource Area. The stakeholders 
included utilities such as Southern California Edison and Pacific Gas & 
Electric, wind developers such as PPM Energy, and EnXco Inc., state and 
federal land use agencies including USFS, private land owners and other 
important stakeholders. Though this can appear unwieldy, the early 
involvement of these numerous stakeholders ensures that potential 
problems are addressed early and more costly delays are avoided later 
in the development process. After a year of work by TCSG, all 
stakeholders are nearing agreement on a comprehensive, multiphase 
transmission project that will provide access to over 4000MW of wind 
energy in the Tehachapi region. Given the scale and complexity of the 
project this is an important step forward for all of those involved in 
its development.
    This process also highlights an important aspect of most large 
scale renewable development including geothermal, wind and utility 
scale solar. All of these resources are tied directly to the location 
where the energy is generated. The wind blows where the wind blows, the 
sun shines where the sun shines and there is no way to change those 
characteristics. The mobile nature of gas, oil and coal through trains 
pipelines and tankers give those types of power plants and added 
flexibility in their siting and development process and offer those 
resources easier access to the existing electricity grid. As the West's 
transmission system has begun to approach the outer limits of its 
capacity, renewables have begun to run into a chicken and the egg 
problem. Without transmission, developers cannot secure financing to 
build their projects; and without committed projects, regulators cannot 
approve the transmission to connect them. By following the study group 
process used in Tehachapi there is now a plan in place to develop the 
transmission in concert with the procurement of the electricity on a 
phased, as needed basis. Additional help could also be provided if the 
FERC process allowed for the public benefits of clean renewable energy 
to also be considered in the evaluation of new transmission projects.
    CEERT is also currently following a similar route in developing 
transmission plans to access geothermal in Southern California's 
Imperial Valley as well as a project in the early stages to develop a 
plan for accessing solar energy from the Mohave Desert. To sufficiently 
develop the West's renewable energy including the still substantial 
untapped geothermal, it is important that the planning of transmission 
run parallel to the development and procurement of renewable resources. 
These resources are of increasing competitiveness in an open market and 
offer substantial societal benefits from their increased use. Their 
growth should not be hindered by public policies that put these 
resources at a disadvantage while making it easier for utilities and 
developers to permit and construct fossil fueled plants.
    Though the technology has not been at the forefront of renewable 
energy growth, CEERT would like to draw the committee's attention to 
the continuing development of the Concentrating Solar Power industry. 
This technology, which was initially developed in California, has 
matured considerably with modern installations in Europe producing 
reliable utility-scale power on demand with exceptionally low 
environmental impact. CEERT sees this as the next generation of 
renewable development in the Western U.S. which has considerable solar 
resources in the desert Southwest. The recent report of the Western 
Governors' Association (WGA) Solar Task Force estimated that if 4,000 
MW of new CSP capacity were to be built the cost of electricity would 
be competitive with conventional sources.\2\ Though the technology 
currently represents only a small piece of the renewable pie, it is 
important that it is not forgotten in the resource assessments and 
transmission planning that will be conducted. This largely untapped 
resource has huge potential to serve the ever growing electricity needs 
of the desert Southwest with out having to transmit the energy through 
massive interstate transmission projects.
---------------------------------------------------------------------------
    \2\ Clean Energy, a Strong Economy and a Healthy Environment, a 
Report of the Clean and Diversified Energy Advisory Committee to the 
WGA, June 2006, This document can be found online at: http://
www.westgov.org/wga/meetings/am2006/CDEAC06.pdf
---------------------------------------------------------------------------
                     WESTERN GOVERNORS' ASSOCIATION

    Looking at these problems in the bigger picture of the entire 
American West, the Western Governor's Association (WGA) offers an 
excellent venue to address these issues of coordination. The 
organization's approach to problems that affect the entire Western 
Region are clearly reflective of the nature of the electricity grid. 
The development of geothermal in Idaho will ideally be deliverable in 
California helping to meet renewable needs there and the WGA will 
undoubtedly be critical in making that happen.
    The WGA recently adopted the recommendations from the Clean and 
Diversified Energy Advisory Committee (CDEAC) for a current, systematic 
and thorough examination of the development potential for clean 
resources in the West. Building on the model used in the California 
working groups, the federal government's policies should support 
stakeholder processes being setup by the WGA to develop transmission 
plans for expansion across the west, ensuring that access to new 
renewable resources is an important piece of the planning process. In 
considering the location of known renewable resources in the 
transmission planning, development of these resources can occur more 
rapidly. Large transmission projects designed to access renewable 
resources will make development of those resources more realistic. It 
will provide access to better project financing by decreasing the risk 
of the investment and lessening the possibility of delays in the 
future.
    In the interim, close attention should also be paid to the WGA's 
recommendations regarding the use of the existing transmission in the 
West. The committee should encourage FERC to implement policies that 
offer better access for renewables to the existing grid including: 
short term transmission services and products, and urging utilities to 
assess available transmission capacity and opportunities to make better 
use of the existing transmission systems.
    CEERT has worked with the WGA to offer input on the various 
recommendations made by the CDEAC and feel that the situation of 
California, already a net importer of electricity, is very closely tied 
to the energy systems of the other Western states. Many of the other 
recommendations made by the CDEAC echo our concerns and experiences in 
California. This includes timely permitting and environmental reviews 
for renewable projects particularly geothermal whose value can suffer 
greatly due to delays in this process. Additionally the recommendations 
call for increased coordination among the various states, local and 
federal agencies in the permitting process. These are all positions 
that should be supported by the Committee.

                         PRODUCTION TAX CREDITS

    Another disadvantage faced by developers of geothermal and other 
renewable resources is the short time horizon in which they can receive 
a Production Tax Credit (PTC) for their project. The nature of 
renewable energy is such that the primary cost of the resource is paid 
in upfront financing for the development and construction of a project. 
Once in operation a renewable energy project demands only the operation 
and maintenance costs--there is no fuel cost. This is vastly different 
from a fossil fuel plant, which is cheaper to construct and thus able 
to turn a profit in a shorter amount of time, making an investment a 
lower risk and therefore more appealing to investors. It makes little 
difference that the renewable technology, over its lifecycle, will 
offer stable electricity rates compared to the gamble over thirty years 
on a natural gas plant. Moreover, once the initial capital investment 
has been repaid, these renewable projects can offer wholesale 
electricity rates below most fossil fuel generation facilities.
    To help resolve this situation, production tax credits offered by 
the federal government have made initial investments in renewable 
energy much more financially appealing for a broader range of 
institutional investors. However, with longer lead times for 
construction of geothermal and other renewable energy facilities, an 
extension of the PTC would provide a more stable, long-term capital 
flow to allow projects to be constructed more efficiently. In the end 
better projects will be built because developers will have the 
flexibility to address any problems and build the most effective plant 
for its purpose.
    This extension of the PTC will also allow renewable energy 
developers to create more effective business plans and make more 
effective business decisions based on long-term market strategy. As the 
PTC is currently designed, it must be reauthorized every few years 
leaving these companies in limbo each time the credits reauthorization 
is in question. Leaving the PTC in place for a longer period of time 
will allow these companies to develop strategically into more effective 
players in the larger energy market.

                               CONCLUSION

    CEERT believes that within the next 10 years the renewable energy 
industry is poised for an unprecedented boom in the U.S. Indeed, this 
current situation is already due to many innovative and forward looking 
public policies that have pointed our nation to a sustainable future. 
However, to ensure that these policies are effective they must be 
carefully and prudently implemented. CEERT greatly appreciates the 
interest of the Senate Energy Committee on these important issues for 
geothermal and other renewable energy resources. We are prepared to 
offer any help to the committee in achieving the enormous potential of 
these vast resources.
    Thank you.

    Senator Craig. John, thank you very much. You've broached a 
question that I was going to ask you as it related to the 
planning and development--for the future of transmission lines. 
We've heard not just, from you, but from others, that we've got 
to make both FERC and States much more aware of the need for 
connectivity. Obviously, renewables are sometimes only where 
they are. Obviously, with geothermal. It's also true of siting 
for solar. And, therefore, the connectivity is critically 
important, getting the systems into the grid.
    One of the reasons DOE did not put money in the budget this 
time for geothermal--and it's been spoken to here today--was 
that it was a mature technology. Yet we've heard Bernie talk 
about 140-plus-degree temperatures. We saw the industry, in the 
early 1970's, I believe, in the Raft River area of Idaho, walk 
away from 300-degree temperatures. Now they're back. It 
obviously demonstrates to me there's a great deal of potential 
in the technological side of the generating capability of those 
kinds of temperatures. Could you speak to that?
    Dr. Snyder. Oh, yes, certainly. I think the notion that it 
was mature--the best word I can think of is ``naive.'' As you 
mentioned, as our technology advances, then it opens up a whole 
new suite of potential sites to develop.
    One thing I forgot to mention, by the way, in terms of 
that, is, I think a lot of the future potential is going to be, 
as it was in Raft River, hidden resources, ones that do not 
have the obvious surface expression of hot springs, et cetera. 
And, in that case, you need to understand the geological 
situation even better so that you can save industry from 
drilling wells that are not going to be productive. It's going 
to be tough. There is not now, nor will there ever be, a magic 
black box that you can take out there and find the perfect 
place to drill. You're going to have to gather information, and 
you're going to have to think about it. These are complex 
heterogenous resources that, each one, you have to study, one 
after the other, in order to bring them online.
    Senator Craig. Okay.
    Anyone else wish to speak to that general question about 
mature technology versus future opportunity?
    Mr. Karl. Yes, I would like to just----
    Senator Craig. Bernie.
    Mr. Karl. Mr. Chairman, on that mature technology, you 
know, just recently, just in the last year, has United 
Technologies come up with the proper gas to even use this 
hundred and--well, we've been experimenting from 140 to 165 
degrees. We have 1,500 hours on the unit up at the research 
center. And, I might add, it's in Alaska now. And the thing of 
it is, is that this is just brand new. You know, so, I mean, to 
say that it's mature is absolute--a falsity. And, once again, 
you can't expect--you can't expect industry or private sector 
to take all the risk. I mean, in this case, United Technologies 
has accepted a tremendous amount of risk. We've accepted a 
tremendous amount of risk. And so has DOE. And DOE actually was 
good enough to put all this together. If it hadn't have been 
for DOE, this consortium wouldn't be put together. And that's 
what DOE is really good at, is putting together what I would 
call partnerships. And these partnerships are going to be the 
future of alternative energy. It's not the Government doing it 
all. It's not industry doing it all. It's, kind of--it's, kind 
of, a consortium of the end-user, Government, and industry, 
working together. And that's what's happened here. And to say 
that it's mature is just not so.
    Senator Craig. Thank you.
    Yes, John.
    Mr. White. Senator, I would just say that not only is this 
not a mature technology, this is probably cutting-edge, what 
Mr. Karl is talking about. And if you look at the significance 
of being able to access substantial amount of low-temperature 
geothermal energy, it's not just in Alaska, it's throughout the 
West. And----
    Senator Craig. Very, very true.
    Mr. White [continuing]. And I think that the amount of 
energy that could be extracted, were this technology able to 
work on a large scale, would be very, very significant.
    Senator Craig. Chris, it sounds like you are generally 
satisfied with BLM's approach to permitting, but have serious 
concerns with existing Fish and Wildlife Service guidelines and 
guidelines being developed by the U.S. Forest Service. Can you 
elaborate? And, in your opinion, could BLM policies be 
successfully applied to Forest Service lands?
    Mr. Taylor. Thank you, Senator. Yes, we certainly believe 
that the BLM guidelines looked at many of the issues, if not 
most of the issues, that would be relevant for Forest Service. 
Any type of guidelines that attempt to cover a whole swatch of 
the United States or all the lands under BLM's jurisdiction is 
going to be local circumstances, and there's going to be 
sensitive areas, as John described, that are going to require 
adaptation of any general guidelines. So, I think that by the 
very nature, any kind of universal guidelines are going to have 
to be tailored somewhat at--to the local circumstances. And I 
think, you know, with that in mind, most of what the BLM has 
recommended would make sense for the Forest Service. I'm not a 
forester by training, so I wouldn't profess to know if there 
are some very specific issues related to that. But I think, by 
and large, I have worked with timber companies, and am working 
today with a timber company in the Northwest to develop wind 
energy on private timberland. And typically what we find is 
that the--we're interested in the ridgetops, where the wind is 
howling. And that doesn't make for good tree growing. So, 
typically, they are compatible, in the sense that, one, 
commercial forest land has roads, and we're not proposing to go 
into roadless areas; and, two, that those areas that are of 
greatest interest for wind development don't have great timber 
potential, because the wind creates relatively low-value 
timber.
    So, yes, I think the BLM guidelines could be adapted. And 
we hope they will be.
    Senator Craig. Thank you.
    Bob, while you were speaking, I was looking at numbers, and 
I was already beginning to calculate the equivalency of land 
coverage of the Hoover Dam in its 1750 megawatts and your 11 to 
13 square miles project in the Mojave would produce. I'm glad 
you came up with those numbers. I think often times we don't 
look at equal-to or commensurate impacts and what they mean.
    Having 20 years' purchase agreements with two large power 
companies certainly provides the financial certainty necessary 
to take on a large-scale project like the one you're proposing. 
How long, do you believe, will it take to complete the 
permitting and environmental studies necessary to get your 
project started?
    Mr. Liden. Good question, sir. The actual permitting 
process, we believe, will take us into 2008. So, when we'll 
actually start the construction of the plants will be in early 
to mid-2008. The buildout of the first 300 megawatts of the San 
Diego project is estimated to take 18 months to 2 years. And 
then we'll continue on with the add-ons, the additional 600 
megawatts, on the tail of that. And on the SCE project, we have 
a contract to build the 500 megawatts within 4 years. We are, 
internally, expecting to do it in something around 3 years. And 
then, the expansion of another 350 megawatts, about another 2 
years beyond that. So, these are projects that will continue 
through 2014 before they're completed and built out to their 
entirety.
    That being said, it's important to know that, at least with 
our technology--and this is also true of Chris's wind 
technology--you don't have to put the entire powerplant, the 
entire 1750 megawatts, online before you turn the switch on and 
start generating renewable energy. We'll start turning on, 
about a megawatt at a time, power onto the grid, and build 
these things out over that period of time. So, we'll have a 
very significant amount of renewable energy generation really 
in place in the 2009-2010 timeframe.
    I was once in Barstow and held a hearing on the greater 
desert issue and the management of that desert. And it was an 
interesting time. I had, in the last days of Roy Rogers, him 
strumming his guitar with Trigger there, singing ``Don't Fence 
Me In,'' and somebody packing a desert tortoise around in a 
cage, speaking of the life of the desert tortoise. Now I'm 
looking at a artist's conception of your potential facility, 
and I see around it a chainlink fence.
    Mr. Liden. Right.
    Senator Craig. Does the concentration of this many solar 
disks in a given area increase the general heat of the area?
    Mr. Liden. No, it actually doesn't. If anything, it reduces 
the heat. What we're doing is, we're concentrating heat energy 
that otherwise would be hitting the surface of the Earth----
    Senator Craig. So, you're actually creating shade patterns 
here.
    Mr. Liden. So, we're actually creating some shade patterns.
    Senator Craig. I see. So, my recommendation to you is, if 
you would lift the chainlink fence 6 inches above the ground so 
the desert tortoise could move under it, you would not be 
creating an obstructive environment for the desert tortoise, 
nor would you be taking away from him 11 to 13 square miles of 
habitat.
    Mr. Liden. Well, we fully intend to do that. The purpose of 
the perimeter fencing is for insurance purposes.
    Senator Craig. Sure.
    Mr. Liden. But we don't intend to put it with the blockage 
so that these little critters that are crawling around on the 
ground, the lizards and the desert tortoises and so on, won't 
be able to get through. We will have, during the construction 
phase, probably a need to put a more restrictive type of a 
fence around the specific area where we've got construction 
vehicles and cranes and things like this. But once the area has 
been built out, then we will actually open up and put the 
conventional, sort of, 6-foot chainlink fence around, and 
that--that will also have to be solar-lit. We'll have, probably 
photovoltaic panels and so on to provide lighting so that 
somebody riding through on the desert in the middle of the 
nighttime on one of their off-highway vehicles doesn't run into 
the fence.
    Senator Craig. Good idea.
    Well, gentlemen, my time is up, and I've kept you long 
enough. Let me thank you all for your testimony. I think you 
have brought phenomenally valuable information to the committee 
today, and to the agencies involved. Agencies have been here 
listening to your testimony. And I appreciate that very much.
    I think the reality is, as was well stated, what you do, 
you do in an environmentally sensitive way, and that, of 
course, is in direct connection with all of the stakeholders 
and the Federal agencies involved, where there's Federal land. 
I think, also, Bernie, where you're self-contained, the rest of 
the industries represented here need to be connected. And all 
of this fits, and fits amazingly well. What many people don't 
realize is that a large portion of downtown Boise, Idaho, is 
heated geothermally, and has been for a long time. And that 
grows with a resource that is a very quiet and clean resource. 
And that's the very kind of thing you're talking to, Bernie. It 
isn't just the generating of electricity, it's the kind of 
space heat and other uses that is extremely valuable in lower 
temperatures than might otherwise be envisioned by the industry 
itself, and that can localize it in many instances.
    So, we want to thank you all for being here.
    I hesitate to give you the last word, Bernie.
    Mr. Karl. Just one quick thing, if I could, sir.
    Senator Craig. Certainly. Go right ahead.
    Mr. Karl. I built a powerhouse big enough to hold 20 
megawatts. So, the concrete's poured, the building's built. 
This is the first two turbines. Next year, we hope to have a 
megawatt--1-megawatt turbine, that hasn't been designed yet. 
With United Technologies' help and with your help--if you put a 
bigger budget in with your help, we'll put 20 1-megawatt 
turbines, Golden Valley, our local utility, has agreed to run 
the high line. And the high line--they're doing the study on it 
now. There's actually a letter that I didn't get in here in 
time to be part of the record. But if----
    Senator Craig. If you want to send it to us, though, we'll 
be happy to include it.
    Mr. Karl. I will do that, sir.
    And so, we will be connected. Golden Valley is a very 
forward-thinking utility. They want to be--have 50 percent of 
their grid on alternative energy in 50 years, and they're going 
to do it in 20 megawatts. That'll be from Chena Hot Springs. 
And all the reports showed, from back--you know, you talk about 
technology--they said that Chena Hot Springs would never be 
able to produce any electricity. Boy, were they wrong. We've 
drilled 21 holes there. We have her drilled like Swiss cheese. 
And I bought two of my own drill rigs, and I can tell you that 
the most important thing you can do is drill a hole.
    Senator Craig. Okay. Don't get the volcanists upset.
    With that, gentlemen, thank you very much for your 
testimony.
    The committee will stand in adjournment.
    [Whereupon, at 4:35 p.m., the hearing was recessed, to be 
reconvened on July 17, 2006.]

            HYDROGEN AND FUEL CELL RESEARCH AND DEVELOPMENT

                              ----------                              

                         MONDAY, JULY 17, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:33 p.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Lamar 
Alexander presiding.

 OPENING STATEMENT OF HON. LAMAR ALEXANDER, U.S. SENATOR FROM 
                           TENNESSEE

    Senator Alexander. The Energy Subcommittee hearing will 
come to order.
    Senator Domenici is on his way. Senator Bingaman's expected 
to be here. There may be other Senators, but I think we'll try 
to start on time.
    The purpose of this hearing is to take a look at the 
implementation of the Energy Policy Act provisions on hydrogen 
and fuel cell research and development. In fact, this is 
another in a series of Monday afternoon hearings that we've 
been having this year, during 2006, to make sure that we know 
what's happening with the provisions of the Energy Policy Act 
that were enacted last year.
    This should be an especially interesting hearing, because 
it's talking about a possible substitute for the internal 
combustion engine by the use of hydrogen fuel cells. And, as 
the price of oil heads toward $80 a barrel and the crisis in 
the Middle East--people talk about the possibility of $4-a-
gallon gasoline--as we see the price of gasoline four times as 
high as it was in 1997, anything that has promise for reducing 
our dependence on oil from overseas is welcome.
    The United States uses about 25 percent of all the energy 
in the world. The transportation sector uses the largest amount 
of our oil. And so, focusing on the transportation sector is 
what we're primarily going to do today.
    In his 2003 State of the Union speech, President Bush 
announced the creation of a new Hydrogen Fuel Initiative which 
built on the FreedomCAR Initiative announced in 2002. Together, 
these two initiatives will develop the technology for a 
hydrogen-based transportation economy.
    Now, a hydrogen-based transportation economy holds out the 
possibility that automobiles and other vehicles might be able 
to operate with a different kind of engine, one that uses 
hydrogen and only emits water at the end. So, that's a very 
tantalizing prospect for those who are interested in using less 
foreign oil, or less oil of any kind, and who are concerned 
about clean air, as all of us are. This is a real prospect. At 
least that's what I hear from the American automobile industry. 
And we have representatives of that industry, both of the 
automobile manufacturers and suppliers, here today. It's also a 
real prospect, from what I hear, from people around the world.
    General Motors will be testifying today about its progress 
with hydrogen fuel cells. We welcome that. A couple of years 
ago, in Yokohama, I went to a hydrogen filling station, where 
there were hydrogen fuel cell prototype SUVs for nine different 
automobile companies. And each of them were hard at work on 
this. General Motors is not the only company interested. Ford 
and DaimlerChrysler are, as well. Nissan is spending $700 
million a year on hydrogen fuel cell research. And Toyota has 
said that it expects to have a commercially available car 
perhaps as soon as 10 years from now.
    Title VIII of the Energy Policy Act of 2005 authorizes an 
ambitious program of research, development, and demonstration 
of hydrogen and fuel cell technologies. It provided over $3.2 
billion in authorizations for hydrogen and fuel cell programs.
    The National Academy of Sciences has stressed the need for 
more emphasis on basic exploratory research that could yield 
breakthroughs in hydrogen production and storage. And the 
Department of Energy, from whom we'll be hearing in a moment, 
has responded by expanding the hydrogen program in the Office 
of Science, and has requested $50 million for fiscal year 2007 
to fund basic research efforts, an increase of $17 million over 
fiscal year 2006. We still need major technological advances to 
ensure hydrogen can be affordable, safe, cleanly produced, and 
readily distributed. And we believe it's important to include 
all participants--the energy companies, the automotive 
industry, the suppliers, the Department of Energy, everyone who 
makes automobiles in the United States and others--as we 
address these changes.
    Today's hearings will be focused on what the next steps 
should be, what the Government can do to create an environment 
for the possibility of a hydrogen economy to succeed, to talk 
about obstacles that may stand in the way of a hydrogen 
economy, and to talk about how we might bring down the price of 
hydrogen. Those are some of the questions.
    We have an excellent panel, and we'll look forward to 
hearing from them. They include the Under Secretary of Energy, 
David Garman. Dr. Byron McCormick, executive director of fuel 
cell activities for General Motors is here. Tim Leuliette, the 
president and chief executive officer of Metaldyne, 
Incorporated, in Plymouth, Michigan, is here, a supplier of the 
automotive industry. Dr. Don Paul, vice president and chief 
technology officer for Chevron Corporation, and Jim Balcom, 
president and chief executive officer for PolyFuel.
    So, it is a distinguished group. And the first panel 
includes one person, the Honorable David Garman, the Under 
Secretary of Energy.
    Mr. Garman, I'll ask you to perhaps summarize your 
testimony in 7 minutes or so. Take the time you need. We'd like 
to hear from you, whatever your thoughts are.
    It's good to be joined by Senator Thomas, and I'll ask him 
if he has an opening statement that he'd like to make.

         STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR 
                          FROM WYOMING

    Senator Thomas. Thank you, Mr. Chairman. Very briefly.
    Good morning, Mr. Garman--or--morning--it's not morning. It 
seems like I left Wyoming not too long ago. But, in any event, 
I'm glad we're having this hearing today. And, Mr. Chairman, 
thank you for doing it. We obviously depend heavily on foreign 
countries for our energy. And so, hydrogen presents an 
opportunity to reverse that trend somewhat.
    We need to pursue, I think, our options in the short term. 
This whole energy thing is tied to two things, of course. One 
is, 15-20 years from now there will be lots of different 
opportunities out there, but the fact is we have needs this 
year, next year, and 5 years from now. And what we're talking 
about here are things that we pretty much know how to do, maybe 
not as sophisticated as we will sometime in the future, but the 
fact is that we do know how to do this and to produce hydrogen 
domestically and cleanly. I'm interested in the opportunities 
to do it through coal gasification. And we're prepared to do 
that, as a matter of fact. And some of the incentives are in 
the bill--are in the policy. They haven't been implemented yet 
through the bureaucracy, but there's people prepared to move 
forward on this. And, of course, coal being our largest fossil 
fuel, why, this is an opportunity for us, I think, to do some 
things.
    In any event, the administration's doing some good work on 
this. I hope we can continue to pursue it and get some 
incentives out there for the private sector to get moving on 
the thing.
    Thank you, Mr. Chairman.
    Senator Alexander. Thank you, Senator Thomas.
    Mr. Garman.

     STATEMENT OF DAVID GARMAN, UNDER SECRETARY OF ENERGY, 
                      DEPARTMENT OF ENERGY

    Mr. Garman. Thank you, Mr. Chairman. I must begin by 
thanking this committee for its leadership, and the Congress, 
as a whole, for passage of title VIII of the Energy Policy Act 
of 2005, the so-called hydrogen title, containing requirements 
that we research, develop, validate, and demonstrate hydrogen 
technologies. And thank you for this opportunity to update the 
committee on the progress we have made, the challenges we face, 
and how we intend to overcome those challenges to enable a 
hydrogen economy.
    Since the President launched the Hydrogen Fuel Initiative 
in 2003, we've made substantial progress toward our technical 
goals. For example, our research has reduced the high-volume 
cost of automotive fuel cells from $275 per kilowatt in 2002 to 
$110 per kilowatt in 2005. We've doubled the lifetime of the 
automotive fuel stack. We have reduced the cost of producing 
hydrogen from small distributed natural-gas reformers of a size 
that could be installed at the corner gas station from $5 per 
gallon gasoline equivalent to approximately $3 per gallon of 
gasoline equivalent today. We even appear to be making superb 
progress on perhaps our most difficult technical challenge, how 
to affordably and practically store enough hydrogen aboard the 
vehicle to power the vehicle for 300 miles without refueling.
    Our research program has identified, or developed, some 
innovative new metal hydrides, chemical hydrides, and carbon-
based materials that can store 6 or even 9 percent weight of 
hydrogen, advancing toward our 2010 and 2015 system targets, 
respectively. This is significant progress, up from a maximum 
of 5.5 weight percent a year ago.
    In sum, we are on track to meet our 2010 and 2015 technical 
goals. However, we're not there yet. It is, indeed, an 
achievement to bring down the high-cost volume of fuel cells to 
$110 per kilowatt, but we know we must eventually bring the 
cost down to below $40 a kilowatt to compete with the internal 
combustion engine. And while we have doubled automotive fuel-
cell stack durability from about 1,000 hours to about 2,000 
hours, we need to achieve 5,000 hours of durability to achieve 
parity with today's conventionally powered automobiles.
    And while we have brought down the price of hydrogen 
derived from natural gas to more competitive levels, we know we 
must do the same for hydrogen from nuclear, renewables, and 
carbon-sequestered coal if we can ever expect to take full 
advantage of hydrogen's environmental and energy security 
benefits, namely, its ability to be produced from a variety of 
domestically available primary energy resources, and then to 
produce power for vehicles, stationary power, and other devices 
with no carbon emissions or criteria pollutants.
    And, finally, while it is exciting to successfully identify 
new materials that appear to be excellent hydrogen storage 
media, we must still tailor those materials to store and 
release hydrogen under practical temperature and pressure 
conditions, and engineer them into an affordable package that 
can provide consumers with a 300-mile driving range.
    We have, indeed, made excellent progress, and most of the 
credit goes to our partners in the private sector, our national 
labs, our universities, as well as Congress, for the support 
that we have received through your appropriations. But that 
progress must continue if we're to deliver against the 
President's vision that these vehicles be available in the 
showroom at a price consumers can afford, by 2020.
    The provisions of the Energy Policy Act will help us 
tremendously in this regard. Apart from codifying our hydrogen 
and fuel cell research programs, the Energy Policy Act contains 
important provisions, many of which we have implemented, for 
coordinating across the Federal Government and for obtaining 
independent advice on our hydrogen efforts from outside the 
Department. I'm pleased to report that the Interagency Hydrogen 
and Fuel Cell Technical Task Force created under the act meets 
monthly, and, as you may already know, Secretary Bodman 
announced and selected members of the Hydrogen Technical 
Advisory Committee just a few weeks ago, on June 20.
    The Department has already received critical independent 
advice in two reviews of the National Academies. In a report of 
the latest review, released last summer, they recognized our 
hydrogen effort as being well planned, and the review committee 
chair confirmed the program is making significant headway, and 
that it could have an enormous beneficial impact on energy 
security and the U.S. economy. Our next review by the National 
Academies is planned for early calendar year 2007. We're also 
diligently working on a number of studies and reports required 
by the Energy Policy Act, and a few more will be finding their 
way to you very shortly.
    Mindful that my full testimony will be included in the 
hearing record, I'll stop here, and am happy to respond to your 
questions. But, again, let me thank this committee for its 
leadership and support in this important work.
    [The prepared statement of Mr. Garman follows:]

    Prepared Statement of David Garman, Under Secretary of Energy, 
                          Department of Energy

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to testify on the President's Hydrogen Fuel Initiative. My 
focus today will be on the provisions of the Energy Policy Act of 2005 
(EPACT 2005) which are related to hydrogen and fuel cell technologies, 
the Department of Energy's activities to support both EPACT 2005 and 
the President's Initiative, the progress we have made, the challenges 
we face, and how we intend to overcome those challenges to enable a 
hydrogen economy.
    Hydrogen is an important part of our Nation's strategy for long-
term energy and environmental security because it can be made from a 
variety of domestic resources and, as a transportation fuel, it can 
result in zero criteria pollutant or carbon emissions from vehicle 
tailpipes.
    Launched in 2003, the President's Hydrogen Fuel Initiative commits 
$1.2 billion over five years to accelerate the research, development, 
and demonstration of hydrogen and fuel cell technologies.\1\ These 
technologies may ultimately shift our primary transportation fuel from 
petroleum, which is increasingly imported, to hydrogen, which can be 
produced using a wide variety of domestic feedstocks. The development 
and widespread use of hydrogen can contribute to an abundant, reliable, 
and affordable supply of clean energy to maintain our Nation's 
prosperity through the 21st century and beyond.
---------------------------------------------------------------------------
    \1\ Office of the President. ``Hydrogen Fuel: A Clean and Secure 
Energy Future.'' 30 Jan. 2003. Available on the Web at http://
www.whitehouse.gov/news/releases/2003/01/20030130-20.html.
---------------------------------------------------------------------------
    More than three years after he announced the Initiative, the 
President's commitment to hydrogen continues to be strong; the $289 
million request before Congress reflects a tripling of the budget 
compared to pre-Initiative levels, and it directly supports the 
President's Advanced Energy Initiative goal to help break our Nation's 
dependence on foreign energy sources and our addiction to oil.\2\
---------------------------------------------------------------------------
    \2\ Bush, George W. ``2006 State of the Union Address.'' Capitol, 
Washington. 28 Jan. 2003. Available on the Web at http://
www.whitehouse.gov/stateotheunion/2006/.
---------------------------------------------------------------------------
    The Department of Energy Hydrogen Program supports the President's 
vision. Our research focuses on pathways to produce and deliver 
hydrogen from diverse and domestic, fossil, nuclear, and renewable 
resources while also developing fuel cell technologies that can 
significantly decrease vehicle greenhouse gas emissions compared to 
today's vehicles. At the highest level, our program goals and targets 
are set to ensure that hydrogen fuel cell technologies will be 
competitive with the projected performance and cost of vehicles and 
fuels in the United States. For example, our hydrogen cost target of 
$2.00-$3.00 per gallon gasoline equivalent, untaxed, ties directly to 
Energy Information Administration gasoline price projections. This 
would enable the cost of hydrogen at the pump to be equivalent on a 
cost-per-mile basis to the estimated cost of operating vehicles on 
gasoline. Similarly, the cost of an automotive fuel cell system must be 
competitive with the cost of an internal combustion engine drivetrain--
$30/kW.
    We commend this Committee and the Congress for its strong support 
of the Hydrogen Program, as demonstrated in Title VIII of the Energy 
Policy Act of 2005. Title VIII includes requirements that very clearly 
align with our plans to research, develop, validate, and demonstrate 
hydrogen technologies. It also includes important provisions, which we 
have implemented, for coordinating across the Federal Government and 
for obtaining independent advice on our hydrogen efforts from outside 
the Department. I am pleased to report that the Interagency Hydrogen 
and Fuel Cell Technical Task Force meets monthly, and, as you may 
already know, Secretary Bodman announced the selected members of the 
Hydrogen Technical Advisory Committee just a few weeks ago, on June 20.
    The Department has already received critical independent advice in 
two reviews of the National Academies. In a report of the latest review 
released last summer, they recognized our effort as being well-
planned,\3\ and the review committee chair stated that the program ``is 
making significant headway'' and ``it could have an enormous beneficial 
impact on energy security and the U.S. economy.'' Our next review by 
the National Academies is planned for early (calendar year) 2007.
---------------------------------------------------------------------------
    \3\ National Academies of Science. `` `Clean' Vehicle Research 
Initiative on Track, But Many Challenges Ahead.'' 2 Aug. 2005. 
Available on the Web at http://www8.nationalacademies.org/onpinews/
newsitem.aspx?RecordID=11406.
---------------------------------------------------------------------------
    EPACT 2005 requires a number of studies and reports to determine 
the impact of hydrogen and fuel cell technology deployment. A report 
mandated under section 1812 of EPACT 2005, the Solar and Wind 
Technologies for Hydrogen Production Report to Congress, published in 
December 2005, provides information on solar and wind hydrogen projects 
and recommendations for promoting the availability of solar and wind 
technologies for production of hydrogen. Section 804 of EPACT 2005 
mandates submission of a coordinated five-year plan for the programs 
authorized under Title VIII. This report is currently under review and 
will be submitted to Congress shortly.
    Over the next year, the Department will focus on completing other 
hydrogen-related reports required under EPACT 2005. In section 1819, 
the Department is required to submit a report evaluating the 
methodologies used to establish goals and milestones for the Hydrogen 
Program. By February 2007, the Department will report on a study, 
required in section 1820 of EPACT 2005, of the likely effects of a 
transition to a hydrogen economy on overall employment in the U.S. The 
Department issued a competitive solicitation and recently made an award 
for the completion of this study. The Department will utilize the 
expertise of the National Academies to complete a study required by 
section 1825 to provide. a budget roadmap for the development of fuel 
cell technologies and a transition from petroleum to hydrogen in a 
significant percentage of the vehicle fleet.
    We have made notable progress in the three years since the start of 
the President's Hydrogen Fuel Initiative. Our research has reduced the 
high-volume cost of automotive fuel cells from $275 per kilowatt in 
2002 to $110 per kilowatt in 2005.\4\ DOE-funded research has also 
doubled the lifetime of the automotive fuel cell stack. We're not at 
the end-point yet, however. Further research is required to meet our 
ultimate cost target of $30 per kilowatt and our durability target of 
5,000 hours, which is equivalent to the vehicle lifetime that drivers 
expect today. In FY 2007, the Department will initiate new projects in 
several areas, including improved fuel cell membranes, cold-weather 
start-up and operation, advanced cathode catalysts and supports, 
innovative concepts, and the effects of impurities on fuel cells. 
Through our investment in these competitively-awarded projects, we 
expect to make even greater progress in improving fuel cell performance 
and durability and lowering cost, moving closer toward achieving those 
ultimate technical targets.
---------------------------------------------------------------------------
    \4\ Cost Analysis of PEM Fuel Cell Systems for Transportation, 
September 30, 2005, Carlson, E.J., et. al., Tiax, LLC.
---------------------------------------------------------------------------
    Developing storage technology to carry hydrogen on-board, while 
still meeting vehicle performance and cost requirements, is one of the 
most technically-challenging barriers we face. To address the critical 
need for improved on-board hydrogen storage, the Department has 
developed a diverse portfolio through three Centers of Excellence and 
independent projects in both applied and basic science. Together, these 
efforts tap into vast technical expertise at about 40 universities, 15 
companies, and 10 Federal laboratories.
    These projects are beginning to produce promising results, with 
innovative materials being developed in different areas such as metal 
hydrides, chemical hydrides, and carbon-based materials. Some of these 
materials can store 6- to even 9-percent by weight of hydrogen, our 
2010 and 2015 targets, respectively. This is significant progress, up 
from a maximum of 5.5 weight percent a year ago. The next step is to 
tailor these materials to store and release hydrogen under practical 
temperature and pressure conditions.
    Further research on materials and systems engineering is required 
to meet our hydrogen storage system target to provide consumers with a 
300-mile driving range. To help ensure we can meet this aggressive 
goal, the Department's basic research is carefully coordinated with our 
applied research in materials development for hydrogen storage.
    We are also analyzing transition scenarios on how the Nation might 
initiate early hydrogen production and delivery infrastructure 
development as vehicle market penetration ramps up, and we plan to 
submit a transition analysis report to the National Academies in March 
of 2007. We are pursuing ``distributed'' options for reforming 
renewable fuels, such as ethanol, as well as natural gas, to produce 
hydrogen on-site at the fueling station. This distributed scenario can 
also be used for on-site electrolyzers that use electricity to split 
water into hydrogen and oxygen. These methods provide an alternative to 
large infrastructure investments in a hydrogen delivery system before 
there are large numbers of hydrogen vehicles on the road.
    In terms of hydrogen production, we have already been successful in 
reducing the cost of producing hydrogen from natural gas--from $5.00/
gallon gasoline equivalent (gge) to approximately $3.00/gge today. This 
status for cost is currently being verified by an independent panel 
that will release its results later this summer.
    We fully recognize that producing hydrogen from natural gas is not 
a strategy for the long term. All four Department offices that comprise 
the Hydrogen Program--Energy Efficiency and Renewable Energy, Nuclear 
Energy, Fossil Energy, and Science--are working together to pursue 
revolutionary approaches to hydrogen production. For example, heat from 
nuclear reactors or solar energy can be used to split water into 
hydrogen and oxygen, with no carbon or criteria emissions. In our 
nuclear-based hydrogen program, we plan to complete the assembly and 
preliminary testing of a laboratory system using nuclear heat to drive 
thermochemical cycles that split water to produce hydrogen. In another 
approach using nuclear energy, we will demonstrate hydrogen production 
from a high temperature electrolysis system that is more efficient than 
the electrolyzers used today.
    By 2010, the Department anticipates completing integrated 
laboratory-scale experiments of thermochemical cycles and high-
temperature electrolysis technologies for producing hydrogen with 
nuclear energy to confirm technical feasibility of the closed loop 
processes. Results of these experiments will inform the selection of 
the high-temperature hydrogen production technology required by EPACT 
2005 by the end of FY 2011. For the process or processes selected for 
further development, design activities will be initiated by 2011 for 
pilot-scale experiments at higher power levels to evaluate scalability 
of the processes for eventual commercial use.
    Also, in a separate activity in support of EPACT 2005, the 
Department has received industry proposals to conduct a feasibility 
study of how to produce hydrogen using small-scale equipment at 
existing nuclear reactors. If the Department selects any of the 
proposals, it will partner with industry for up to three years to 
examine the economics of producing hydrogen at an existing reactor, the 
environmental effects, and the regulatory requirements.
    Other high-risk, high pay-off production approaches also involve 
harnessing the huge potential resource of solar energy. Through a 
collaboration of our basic and applied research programs, we are 
developing ``photobiological'' hydrogen production technology that uses 
micro-organisms to produce hydrogen and ``photoelectro-chemical'' 
hydrogen production technology, in which solid state devices convert 
photon energy into hydrogen. These approaches may be up to 25 years 
away from maturity but offer great promise for fully sustainable 
hydrogen fuel production without environmental impact.
    In our coal-based hydrogen program, we plan to scale up membrane 
reactors for separating carbon dioxide and hydrogen gas streams for 
zero emission fuel cell vehicles and pollution-free power production. 
This research is closely coordinated with our FutureGen effort to 
create the world's first coal-based near-zero atmospheric emissions 
power plant to produce electricity and hydrogen, incorporating clean 
coal and carbon sequestration technologies.
    We are also demonstrating hydrogen technology in vehicles that are 
on the road today. Through ``50-50'' cost-shared partnerships with the 
automotive and energy industries, four teams are installing hydrogen 
refueling stations and putting fuel cell vehicles on the road to test 
the technology as integrated systems in real-world conditions. Through 
this ``National Hydrogen Learning Demonstration,'' we are collecting 
data on vehicle performance, durability, and fuel economy and feeding 
it back into our research program to ensure that we remain focused on 
the most relevant problems. Consistent with the President's Management 
Agenda, the results we plan to report later this year will provide a 
transparent ``risk assessment'' that allows Congress and taxpayers to 
evaluate progress toward meeting our established performance-based 
goals.
    As mentioned, hydrogen is critical to our Nation's strategy for 
long-term energy and environmental security. Developing hydrogen 
technologies that can be manufactured domestically should improve our 
economic competitiveness as well. Our manufacturing research and 
development effort is new in FY 2007 and will address the need for 
high-volume manufacturing processes for components such as those used 
in fuel cells that are currently hand-built. These processes are 
important to lowering the costs of fuel cells and developing a domestic 
supplier base. Establishing an early supply base for fuel cell 
applications such as portable; stationary, remote, and emergency back-
up power also lays critical groundwork for the much larger supply 
chains needed for automotive applications. In January, Secretary Bodman 
released for public comment a draft roadmap on manufacturing research 
for the hydrogen economy. This roadmap is being finalized and will be 
the foundation for executing this important research.
    Finally, since the Hydrogen Fuel Initiative was unveiled in 2003, 
investments have been made not only at the Federal level but also at 
the state and local levels. From Aiken, South Carolina, to Golden, 
Colorado, to Sacramento, California, hydrogen research facilities and 
infrastructure investments have demonstrated a long-term commitment to 
hydrogen and the beginnings of the hydrogen economy. These diverse 
investments increase our probability of success in solving technology 
barriers and in enabling industry to not only make fuel cell vehicles 
that consumers will want to buy, but also invest in hydrogen refueling 
infrastructure that is profitable and addresses the root cause of 
foreign oil dependence and greenhouse gas emissions.
    This concludes my testimony, and I would be pleased to respond to 
any questions you may have.

    Senator Alexander. Thank you, Mr. Garman. We appreciate 
your coming. Your full statement will be included in the 
record.
    We've now been joined by the chairman of our full 
committee, Senator Domenici, and the ranking member, Senator 
Bingaman. And Senator Thomas and I each had a chance to make an 
opening statement. Would you like to go first Senator Domenici, 
and then Senator Bingaman?

       STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR 
                        FROM NEW MEXICO

    The Chairman. Senator Alexander, Senator Bingaman, first of 
all, I am very pleased that you're holding this hearing. It is 
a terribly exciting and apropos hearing about an initiative 
that is just earthshaking when you consider what could happen 
if this does work. My opening remarks are basically that kind 
of statement, excepting I am clearly aware of the fact that 
title VIII of the Energy Policy Act laid out a balanced R&D 
program to develop fuel cells for vehicle stationary and 
portable applications. The President's request for a hydrogen 
initiative was $289 million this year, and we hit that mark in 
the Energy and Water Appropriations Subcommittee, as you 
indicated. That was my subcommittee, and I'm pleased to tell 
the committee that, and I think you know that. I think it's a 
very worthwhile expenditure, especially when you consider the 
marriage that is occurring outside of the Department with those 
who are putting up their own money, initiative, drive, 
experience, et cetera.
    But even with this level, over a quarter of a billion 
dollars, we know we cannot support every possible fuel cell 
technology for every possible application, and we have to have 
priorities, and that means we get people and institutions who 
feel let down and who feel like they have a lot to complain 
about. And they might. They may be right, and those who made 
our decisions may be less right. But, nonetheless, everything 
is being done, we think, in good faith and pursuant to good, 
sensible rules.
    So, with level investment, over a quarter of a billion 
annually, we know we cannot support everyone, as I indicated, 
but we're trying to do it in a way to give it the best chance 
of success.
    I'm hopeful that today's witnesses are going to advise the 
committee on whether we are achieving the right balance among 
the technologies, and I know there is an ongoing argument about 
research on technologies that are fixed and technologies that 
are mobile as it applies to the particular fuel cell. We can't 
resolve that. Both are needed. But we can talk about it and see 
if there's anything we have to do to make adjustments.
    Thank you for conducting the hearing, Senator Alexander. In 
the usual sense, the committee is heavily indebted to you, and 
I'm pleased to come and join for a few minutes just to make 
sure that everybody knows that, on a nonbusy day, we are busy.
    Senator Alexander. Thanks, Mr. Chairman. And I had said a 
little earlier that this was another in a series of hearings 
that have been held on Monday afternoon for oversight on the 
Energy Policy Act of last year to make sure that it's beginning 
to work.
    Senator Bingaman.
    Senator Bingaman. Mr. Chairman, I appreciate you having the 
hearing. I did not have an opening statement. I'll just wait to 
ask some questions.
    Thank you.
    Senator Alexander. In that event, I'll ask a few questions. 
We'll take 5 minutes each.
    Mr. Garman, in your testimony, you described--at least in 
your written testimony--the importance of high-risk, high-
payoff research on hydrogen production technologies such as 
photobiological production. I wonder what fraction of the 
hydrogen program's budget supports high-risk--what you would 
call high-risk research.
    Mr. Garman. That's a difficult question to answer, in the 
sense that Federal R&D, by its very nature, is the sort of 
research that one would not expect the private sector to do by 
itself. There's not going to be a financial return on 
investment in the near term. So, in one sense, depending on one 
definition, everything we do is high-risk research. However, 
there are clearly some elements, particularly when we're 
talking about hydrogen production, that we see as more near 
term. We think that photobiological--or photolytic-type methods 
of making hydrogen are probably a ways away. And so, we're 
mindful of that. And, therefore, we balance that with shorter-
term efforts that focus on natural gas, on coal, on nuclear, 
and some of the things that can make contributions sooner, 
rather than later. So, we think we have a balance between the 
very long term and things that we expect, and need, to come 
into play in the 2015-and-beyond timeframe.
    Senator Alexander. To follow that up, this committee 
stimulated a report from the National Academies of Sciences 
that Norm Augustine chaired in which 70 Senators have 
cosponsored here, and one of the recommendations of the 
Augustine Report was that 8 percent of research funding be set 
aside for high-risk research, including, if I remember right, 
in the funds of the laboratory directors. Do you agree with 
that? And, if you don't, why not?
    Mr. Garman. I would say that our percentage is probably 
higher than that, when you're talking about the hydrogen 
program, that this is a high-risk, high-reward proposition. And 
in an answer for the record that I would like to provide to 
you, I'd like to enumerate, in some greater detail, the 
elements of this program that we do regard as high risk.
    [The information follows:]

    Several technical challenges must be overcome before hydrogen and 
fuel cell technologies can meet consumer requirements and be widely 
commercialized. High-risk research and development (R&D) is required to 
address the complex and demanding technical and cost requirements 
needed for commercial viability. This type of R&D is considered too 
risky an investment for industry to handle alone. Therefore, one could 
maintain that the Department of Energy's entire Hydrogen Program is a 
high-risk research area. However, within the Program, there are some 
elements that are more challenging than others. These involve materials 
R&D to overcome several challenges. High-risk areas are being addressed 
through basic and applied research and technology development projects 
that comprise over 85 percent of the Program's funding. Specific 
examples of high-risk research include:

(1) Novel hydrogen storage materials to enable at least 300-mile 
        vehicle range
    Current ``learning demonstration'' vehicles have ranges of 120 to 
225 miles and use high pressure or liquid storage tanks which may be 
acceptable for some vehicle platforms. However, hydrogen storage 
technologies are needed that do not compromise passenger or cargo space 
and are applicable to many light-duty vehicle models for widespread 
market penetration. High-risk/high-payoff applied R&D is being 
conducted to discover completely novel materials that can store large 
amounts of hydrogen at low pressure while meeting all weight, volume, 
cost, safety, and other requirements. Basic research is aimed at 
greater understanding of hydrogen interactions in materials to enable 
the design of storage materials with higher capacities and more 
practical operating characteristics.

(2) Membranes and catalysts for fuel cells to enable lower cost and 
        increased durability
    The membrane-electrode assembly (MEA) is the most costly component 
of the fuel cell and plays a critical role in the durability and 
performance of fuel cell systems under a range of conditions. Novel, 
low-cost membranes and catalysts are needed, particularly non-precious 
metal catalysts to address cost and availability of such materials. R&D 
is also required to develop a greater understanding of degradation 
behavior to enable improved MEA design.

(3) Membranes and catalysts for producing low-cost hydrogen from a 
        variety of domestic resources
    Reforming and water-gas-shift catalysts with higher activities as 
well as improved separation membranes are needed to lower the cost of 
producing hydrogen. Improved catalysts are also needed to increase the 
efficiency and reduce the cost of photoelectrochemical hydrogen 
production. Materials research is critical to developing solar and 
nuclear thermochemical hydrogen production. Another area of high-risk/
high-payoff research is in understanding pathways by which hydrogen is 
made and processed in living organisms to enable breakthroughs in 
photobiological and biological reactor technologies. Nanoscience is 
also applicable to virtually all the high-risk areas in the Program.

    Senator Alexander. We would welcome that.
    One other question. One of the witnesses in the second 
panel, Mr. Tim Leuliette, is an automotive supplier 
representing that large group of people. I know, in our State 
of Tennessee, we're very grateful for the General Motors Saturn 
plant for the big Nissan plan and the engine plant. Together, 
they may employ 11,000 or 12,000 people. But the suppliers--
there are 800 or 900 suppliers of various kinds--they employ 
150,000 people. So, they're important, as well.
    Mr. Leuliette says in his testimony that the auto supplier 
companies are not direct participants in the FreedomCAR 
Program. I know you haven't heard his testimony, but I 
wondered, if that's true, why they're not.
    Mr. Garman. Well, let me say, at the outset, that if I'm 
looking at the total fiscal year 2006 funding of $234.5 
million, and look to where that funding went, the automotive 
manufacturers, Ford, Daimler/Chrysler, and GM, got roughly 5 
percent of the funding, and the industry suppliers, the tier 1, 
2 and 3 suppliers, got 24 percent of the funding. So, they 
clearly are a participant in the R&D activities. I did read his 
testimony, and I do understand his point. What he is saying is, 
they are not direct participants in the FreedomCAR partnership, 
which is comprised, on the automotive side, by members of 
USCAR. And part of that's just a practical consideration. There 
are, as you point out, thousands of tier 1, 2 and 3 automotive 
suppliers. And how to gather them in a room in such a manner 
to, you know, have a useful exchange of views is a difficult 
proposition. But our doors are open to them to comment on pre-
solicitation announcements, on go/no-go decisions, and on every 
other realm that they choose to participate in. And that's our 
goal. We want to hear from as many folks as we can.
    Senator Alexander. Well, I would encourage that.
    My time is up.
    Senator Thomas.
    Senator Thomas. Thank you.
    In order to benefit from a transition to the hydrogen 
economy, we have to produce gas cleanly and domestically. What 
do you know about the HydroMax technology for coal gasification 
to produce hydrogen, electricity, and other products? Is the 
Department of Energy actively researching and developing those 
things?
    Mr. Garman. The Department of Energy is actively 
researching and developing different methods of coal 
gasification. I'm not familiar with--and I may be familiar with 
the specific technology you've mentioned, but perhaps not by 
that name.
    Senator Thomas. I see.
    Mr. Garman. But we clearly view coal gasification as a very 
important--if memory serves, we have a total hydrocarbon 
endowment in this country of something exceeding 9,000-billion 
barrels of oil equivalent, a lot of which is in the form of 
coal. And if we want to use that in a manner that can replace 
gasoline without adding to the carbon dioxide burden in the 
atmosphere or criteria pollutants in our cities and towns, 
hydrogen and gasification of that coal to make hydrogen is a 
very important technology, and we are--we're looking at that 
very, very closely, and spending money on it, on a daily basis. 
And I can give you a breakout of what we have spent on these 
different technologies, if you care.
    [The information follows:]

    The total fiscal year 2006 funding (in adjusted budget authority) 
on coal gasification related research to produce hydrogen, electricity 
and other products is $95,341,000, and is broken out as follows:

                FutureGen: $17,820,000
                Advanced Integrated Gasification Combined Cycle: 
                $55,886,000
                Fuels (Hydrogen from Coal): $21,635,000

    Senator Thomas. Well, there's different ways of doing 
things, as you know. I visited the plant down in Florida where 
they're doing this sort of thing, and they could make some 
small steps and produce hydrogen out of that, as well. 
Wyoming's applied for--along with several other States--to host 
the Department's FutureGen. How much coordination exists 
between FutureGen program and the hydrofuel?
    Mr. Garman. A great deal of coordination. The very 
technologies that one would see in a FutureGen plant--the 
gasifier, the gas cleanup train--are the same technologies that 
one would use to produce hydrogen for automotive technologies. 
So, there is a great deal of coordination going on. Part of the 
value of this program--and it was, frankly, something new for 
us at the Department, in that it broke down the stovepipes of 
having the Office of Fossil Energy, the Office of Energy 
Efficiency, the Office of Science working together on a common 
hydrogen posture plan. We have published a version of the 
posture plan in the past, and we owe the Congress a newer 
version of that posture plan now, and hope to get it to you 
soon.
    Senator Thomas. That's good. You know, sometimes you get a 
little concerned as we move toward some of these things. 
There's sort of the chicken-and-the-egg thing, and we tend to 
be focused on the laboratory type of business. And 
understanding that R&D needs to be done, we need to focus on 
the infrastructure and the vehicles and the motives to cause 
the private sector to be able to produce and do some of the 
things we already know how to do. And there seems to be some 
delay in implementing some of the incentives that we have out 
there that we put in the energy bill. Do you hear that?
    Mr. Garman. I don't know that I would, at some peril here, 
fully agree with that. I think that we have laid out a very 
detailed program plan of technical obstacles that need to be 
overcome, a plan that was developed in concert with both the 
automotive companies and the fuel suppliers, who would have to 
develop both the vehicles and the refueling infrastructure to 
understand what sorts of technologies we have to deal with. Don 
Paul's testimony, on the next panel, makes a brilliant point 
about the differences between petroleum and hydrogen, and how 
the infrastructure situation is a bit more complicated. So, we 
have some technical obstacles to overcome, and we think that 
we're going to need some time. I will also tell you that we 
have been asked in the past, ``How could we speed this up?'' 
And we've been asked by folks from the White House to the 
Congress and elsewhere. And the answer is, we need time, and we 
need that as much--you know, more money doesn't necessarily 
help. There is a learning process that needs to happen.
    Senator Thomas. I understand that. But, of course, as you 
know better than I, we're increasingly needing to move. As the 
price of oil goes up, as the controversy goes on in the Middle 
East, and so on, why, we have some incentives to move along, 
and we can't let our laboratory people just go on doing these 
tests forever.
    Mr. Garman. I absolutely agree with you, Senator. And it 
was our intention from the outset that we would not let this 
become just another government R&D program, and that we had 
measurable results and a timeframe.
    And let me add--I know our time is short, but our efforts 
on biofuels, advanced hybrid engines, plug-in hybrids, these 
are things that we're doing to advance technology in the near 
term, knowing that the hydrogen is going to take some time. And 
we think that this is a balanced program and a balanced 
approach.
    Senator Thomas. Thank you.
    Senator Alexander. Senator Bingaman.
    Senator Bingaman. Thank you very much, Mr. Chairman.
    Secretary Garman, let me thank you for your work. I wanted 
to focus on stationary power production from fuel cells. I 
visited a small company out in California a few months ago that 
is in the business of--they've developed a relatively small 
fuel cell production unit to produce power which they believe 
is commercially viable. But what they need are someone to buy 
it. I mean, they need some people to place orders for this. And 
they were asking me, ``Where is the Government, as the first 
adopter? Why can't the Government agree to assist us in getting 
from the prototype, which we now have several of, to the 
manufacturing lines so that we can turn out a few hundred of 
these and not just go further in debt to do so?'' What is 
available--I know we have a provision in the bill that was 
passed last year. I think it's section 783, Federal procurement 
of stationary, portable, and micro fuel cells. What is the 
status of our efforts, or our programs, to actually procure 
some of these that are ready to be sold if there would just be 
someone to buy them?
    Mr. Garman. Well, let me first make the point that there 
are manufacturers producing stationary fuel cells that are 
being sold today. Verizon is a big purchaser of stationary fuel 
cells for backup power and continuous high-quality power. So, 
there are buyers, and there are sellers in the market today. 
And those who are willing to pay more for fuel cells can do so 
to get value to these purchasers that they can't get from grid-
supplied electricity.
    Section 783 is something that we are looking at and 
evaluating, and, in fact, are conducting studies with our 
interagency task force to evaluate the most promising near-term 
applications. And we're considering how we might integrate such 
Federal procurements into our existing efforts. This is 
something where we want to help Federal purchasers of fuel 
cells purchase fuel cells, if they're ready to do so. And, of 
course, section 783 allows us the opportunity to foot the bill 
for that Federal agency for the difference in the price of the 
fuel cell and what they might otherwise be able to procure. We 
have not, to date, sought funding to procure large numbers of 
fuel cells, nor have we been appropriated funds to do so yet. 
But it's something that we're open to. I have to put in this 
note of realistic caution. Given the limits to our 
discretionary spending, we believe it's important for us, at 
this juncture, to focus on meeting our technical targets that 
are likely to help us achieve our ultimate objectives. But 
we're mindful of the provision, and we're looking for 
opportunities where the Federal Government might purchase more 
than they're purchasing today.
    Senator Bingaman. In a similar vein, let me ask about an 
issue that's not directly the subject of this hearing. About 5 
or 6 weeks ago, I drove one of the plug-in hybrid cars that 
they had here beside the Russell Building that get over 100 
miles per gallon. And the plea of the people who brought those 
cars here was, ``If we could just get an automobile 
manufacturer to agree to make some of these, then, you know, 
this could be a tremendous thing for the country.'' I spoke to 
Bill Ford, the head of Ford Company, when he was here at some 
reception, and I asked him, ``Why don't you agree to turn out 
1,000 of these or something, and maybe we could get the Federal 
Government to buy them, just to see if these things will 
work?'' That's not an exorbitant investment of taxpayer 
dollars, if the benefit were actually achieved. He did not 
commit himself one way or another, but basically, I think, 
indicated something to the effect that he didn't think there 
was a market for them.
    Why can't the Federal Government be the market for things 
like that? I mean, we're going to continue to talk about plug-
in hybrid vehicles for the next 10 years, and still not have 
any on the road, unless the Federal Government steps up and 
says, ``We'll buy 1,000 of them, or we'll buy 10,000 of them, 
or something, if you bring them in at a certain cost.''
    Mr. Garman. Well, that's actually the pathway that we're 
on. A plug-in hybrid vehicle needs a very different kind of 
battery than a traditional hybrid vehicle. It needs to be a 
high-power battery. We're looking at lithium ion chemistries, 
primarily, to meet that need. And some auto companies are 
working with plug-in hybrid vehicles. DaimlerChrysler and 
Toyota both are working on these, and others that I might not 
know about. My knowledge is not complete. But we have brought 
down the cost of lithium ion battery packs for advanced hybrid 
applications from about $3,000 to about $1,000, and we need to 
get it down closer to the $500 level. We've made tremendous 
progress, and we still have some cost issues. We're looking at 
durability, and we're looking at calendar life, and we're 
looking at heat produced by lithium ion batteries.
    Now, meanwhile--and the next panel can go into more detail, 
because they're the experts--but they're also looking very 
closely at consumer acceptance and cost, and they're learning a 
great deal in the hybrid vehicle market today. I think plug-in 
hybrids offers a tremendous opportunity; the President does, as 
well. He's mentioned them. He has been to plug-in hybrid 
vehicle battery plants in Milwaukee. And it's something that 
we're paying more attention to. And when they get close 
enough--again, this is another opportunity for Federal 
procurements that makes sense, and we will work that with GSA 
and through the interagency committees to advance that. 
Because, you're absolutely right, you need a certain base to 
give us the operating experience that we need and to give the 
auto companies the experience they need to understand whether 
they have a viable consumer product. Because, ultimately, if 
these technologies, whether we're talking about plug-in hybrids 
or fuel cells, they have to be adopted on a mass basis. The 
Government procurements are important to get us down the road, 
but, ultimately, they need to be a significant portion of the 
18 million vehicles that are sold in North America each year.
    Senator Alexander. Senator Domenici.
    The Chairman. Well, I want to say, for the record, that I 
think the generic issue raised by Senator Bingaman of creating 
a market for these kind of research--quasi-research 
investments--is important enough for us to do something about, 
because I think if we just leave things like they are, Senator 
Bingaman, it'll just be a good subject matter for discussion, 
because: Who's going to put up the money? I mean, I go through 
appropriations, and if the administration doesn't ask for it, 
I'm tempted to do it anyway. But, you know, this isn't cheap, 
and this isn't without risk, by definition.
    So, I think it should be a question of policy. When do you 
decide that you are going to do this and trigger, in some way, 
the evolution of a fund? I would be very willing, in a broader 
sense than just this--but I think you are already, in your 
mind's eye, way beyond just this, because over the areas that 
we're looking at with this high price of oil, all these 
breakthroughs are ready, and they're waiting for somebody to 
buy the prototype, right? And the prototype is generally very, 
very expensive. There's no question. So, they're not going to 
just get out there and buy them; somebody's got to be willing 
to do it. And we have to figure out whether we've got a role. 
That's, kind of, what I'm saying in response to your 
observation.
    Mr. Garman, the multiyear roadmap for hydrogen fuel cells 
specifies a 300-mile range for fuel cell vehicles. Now, data 
from the Bureau of National Transportation Statistics indicates 
that the average American driver travels only 40 miles per day. 
Can you explain where the figure 300 miles originated as the 
key definition of success and why the Department has adopted 
it? It's difficult--more difficult when you make it 300 than if 
you make it 40. It's obvious, if--you know, if you can get 300, 
it's terrific. Should we be taking a one-size-fits-all approach 
for fuel-cell fuel range?
    Mr. Garman. No. And let me answer your question this way. 
We developed that 300-mile metric in partnership with the 
FreedomCAR partners, because it was the view of the automotive 
companies, knowing what they know about their customers, that 
their customers don't like to go to the fueling station on a 
daily or twice-weekly basis, and they want to minimize those 
trips to the station. And when they're traveling a long 
distance, they don't want to have to stop every 70 or 80 miles 
or so to refuel.
    We have 62 fuel cell vehicles on the road today in our 
Technology Validation Program. And those vehicles are averaging 
somewhere between 120 and 225 miles between refueling, which is 
pretty good. But they're using high-pressure hydrogen storage 
onboard the vehicle to achieve that kind of range, and that's a 
generally unreasonable intrusion in trunk and passenger space 
in the vehicle, and probably unacceptable to the consumers, 
ultimately, which is why we have been working on solid-state 
methods of storing hydrogen that will give that kind of range.
    There are folks that can, today, deliver 300-mile range on 
a hydrogen vehicle, but it takes big tanks in the chassis and 
trunk and possibly passenger compartment to do that, and we 
think that's just not realistic for a consumer vehicle that my 
kid will want to buy and drive when he's old enough to drive.
    The Chairman. Thank you very much.
    Senator Alexander. Thank you very much, Mr. Garman, for 
your testimony, and for being here.
    Now, I'll invite the second panel to come forward, and 
we'll look forward to their testimony.
    The Chairman. Mr. Chairman, might I say to David, when you 
came here and took this job, you were excited about it, wanted 
to do it very much. Are you still excited about it, and do you 
still see all that potential out there in front of you?
    Mr. Garman. Yes, sir, I do. And with the leadership of 
Secretary Bodman at the Department, and Deputy Secretary Sell, 
it remains an exciting and energizing place to work, and I'm 
excited to come to work every day. Thank you for asking.
    The Chairman. Thank you.
    Thank you very much, Mr. Chairman.
    Senator Alexander. We welcome our four witnesses on this 
panel. I've introduced them earlier, but I'll introduce them 
again now: Dr. Byron McCormick, from General Motors; Tim 
Leuliette, Metaldyne, Incorporated; Dr. Paul, vice president 
and chief technology office from Chevron; Jim Balcom, president 
of PolyFuel.
    What I'd like to do is to ask each of you to take about 5 
minutes, if you would, and summarize your testimony. That would 
give the Senators a little more chance to ask you questions and 
have a back-and-forth exchange.
    Dr. McCormick, we'd like to start with you and just go 
right down the line, if we may. Thank you very much for coming.

  STATEMENT OF J. BYRON McCORMICK, Ph.D., EXECUTIVE DIRECTOR, 
 FUEL CELL ACTIVITIES, GENERAL MOTORS CORPORATION, DETROIT, MI

    Dr. McCormick. Thank you, Mr. Chairman and committee 
members. Thank you for the opportunity to testify.
    I'm Byron McCormick, executive director of GM's fuel cell 
activities. I lead GM's global fuel cell development effort of 
hydrogen fuel cell vehicles.
    This is a critical time in the history of the automotive 
industry. Automotive technology is clearly and irreversibly 
changing. Technologies like our new six-speed and variable-
valve-timing active fuel management will incrementally improve 
the fuel economy of internal combustion engines.
    Hybrid technology such as our hybrid transit bus, hybrid 
pickup, and new Saturn VUE Green Line are saving energy by 
shutting off the engine and recapturing the energy that's lost 
during breaking. Two million of our on-the-road flex-fuel 
vehicles are E85 capable, providing immediate opportunity to 
replace petroleum with renewable fuels.
    Taken together, these technologies will have a definite 
impact on our consumption of petroleum, but we believe that it 
is hydrogen and fuel cell technology that provides the greatest 
opportunity.
    We are developing fuel cell propulsion systems that 
unambiguously can compete head to head with internal combustion 
engine systems, in terms of performance, durability, and cost 
once deployed at high volume. And I've got to say, high volume 
is not the thousand kind of thing. You've got to get into the 
hundreds of thousands before you really hit those kind of 
economic breakpoints. We are making great progress and 
increasingly feeling confident we're going to make our goal. 
For example, in the last 7 years we have improved the power 
density of our fuel cell stack by a factor of 14. We have 
significantly improved, and will continue to improve, fuel cell 
durability, reliability, and cold-start capability, and 
honestly believe those will be done in the next few years. We 
are developing safe hydrogen storage systems that approach the 
range levels for customer acceptance, and we are making really 
significant progress on cost reduction as the technology 
improves, but, more importantly, also with systems 
simplification.
    Today, we are demonstrating our vehicles around the world. 
Here in Washington, D.C., over 4,300 people have driven our 
fuel-cell-powered vehicles. The U.S. Postal Service has 
delivered over a half-million pieces of mail in northern 
Virginia. And we have similar demonstrations in ride-and-drives 
underway in California, Japan, Germany, China, and Korea. We 
have collaborated with the U.S. Army in demonstrating the 
world's first fuel-cell-powered full-size military truck. We've 
created the Sequel, the first fuel cell vehicle capable of 300 
miles between fill-ups, which will be demonstrated later this 
year. And we will field 32 of our next-generation fuel cell 
vehicles as part of the Department of Energy's learning 
demonstration.
    While we have made dramatic progress towards what I'll call 
first-generation systems, the real volume and benefits will be 
realized in later generations of designs and improved 
technologies.
    As a result, we recommend four specific areas for continued 
U.S. policy development:
    First, we would like to see a continued and expanded 
national R&D initiative--and I want to emphasize, on 
breakthrough fuel cell materials, hydrogen storage, and 
hydrogen generation, leveraging the creative capabilities of 
our government labs, university, industrial research 
facilities, to help us move quickly to later-generation 
technologies.
    Second, we would like to see the Federal Government 
articulate a clear, consistent, sustained vision that requires 
agencies beyond the DOE and DOD to make hydrogen fuel cell 
technology development and application priority areas of 
engagement.
    Third, even after we succeed in developing competitive fuel 
cells, the transition to hydrogen will take time. It takes 
about 20 years to sell enough vehicles to change over the 
entire U.S. fleet. And since low volume equals high cost in the 
automotive business, early vehicles, even at moderate volumes, 
will still be very expensive. So, we face the proverbial 
``valley of death'' for new technologies as we attempt to grow 
this market. This is where we see the need for creative 
policies incentive and governments as customers to support the 
development and market creation of a high-volume-capable supply 
base.
    Fourth, although GM is not in the energy business, we have 
a keen interest in the pathways to creating and distributing 
hydrogen and the technology and the economics involved. 
Hydrogen can be made from all of the same sources that can be 
used to generate electricity, which gives us the power as a 
society to choose how we want to produce the energy we need. 
Fundamentally, we do not see an ultimate barrier to making 
clean hydrogen at prices that can compete with today's price of 
gasoline. To date, the development of hydrogen fuel cell 
technology has primarily been an industry-led initiative, but 
we also face challenges ahead. Clearly, the Government has an 
important role to play in helping incentivize, reduce 
investment risk, and achieve the transition to a hydrogen 
economy. Low-interest financing, appropriate vehicle purchase 
incentives, tax credits for investment in job-producing 
industries such as hydrogen fuel cell automotive supply base, 
hydrogen generation industry, and hydrogen refueling industry, 
timed regionally, focused to match the rollout of fuel cell 
vehicles, will be critical.
    These policies will be necessary to support the industry's 
massive investments in transportation systems, supply base, and 
fuel infrastructure. We, at GM, are making a very large 
commitment in dollars and manpower to create a market-ready 
fuel cell vehicle as soon as possible. Building clean renewable 
energy pathways will enable America to reduce its dependence on 
imported oil, increase our energy security, promote creation of 
new industries, stimulate job creation and sustained economic 
growth, and ensure our country's ability to compete on a global 
basis.
    Thank you.
    [The prepared statement of Dr. McCormick follows:]

 Prepared Statement of J. Byron McCormick, Ph.D., Executive Director, 
           Fuel Cells Activities, General Motors Corporation

    Mr. Chairman and Committee Members, thank you for the opportunity 
to testify today on behalf of General Motors. I am Byron McCormick, 
Executive Director of GM's Fuel Cell Activities. I lead GM's global 
effort to develop hydrogen-powered fuel cell vehicles.
    This is an important time in the history of the automotive industry 
and of General Motors. The world we live and do business in is 
changing. Automotive technology is clearly changing. Technologies like 
our new 6-speed transmissions, variable valve timing, and cylinder de-
activation--what we call active fuel management--continue to 
incrementally increase the fuel efficiency of the internal combustion 
engine. Hybrid technologies--such as our transit bus hybrid system, our 
hybrid pickup truck, and our new Saturn VUE Green Line hybrid--are 
saving energy by shutting off the engine while the vehicle is stopped 
and capturing energy previously wasted during braking. Our two million 
already fielded FlexFuel vehicles capable of burning E85 ethanol, and 
diesels running on biodiesel, provide an immediate opportunity to 
replace petroleum with renewable fuels. And we continue to track new 
developments in battery technology and believe these could be relevant 
in a variety of applications.
    Taken together, these technologies will have a definite impact on 
our consumption of petroleum. But, we believe it is hydrogen fuel cell 
technology that can make the greatest progress.
    At General Motors, we believe this technology will simultaneously 
increase energy independence and security, remove the automobile as a 
source of emissions, and allow automakers to create better vehicles 
that customers will want to buy in high volumes.
    GM's fuel cell program is focused on four areas:

   Developing a fuel cell propulsion system that can compete 
        head-to-head with future internal combustion engine systems.
   Demonstrating our progress publicly to let key stakeholders 
        experience firsthand the promise of this technology.
   Collaborating with energy companies and governments to 
        ensure that safe, convenient, and affordable hydrogen will be 
        available to our customers in a timely fashion.
   Working with governments worldwide to ensure that 
        appropriate market conditions and incentives are in place to 
        enable a successful market introduction and subsequent 
        sustainable market expansion.

    At General Motors, we are targeting to design and validate an 
automotive fuel cell system that has the performance, durability, and 
cost, assuming scale volumes, to compete effectively with internal 
combustion engine-based systems. We are making great progress in 
developing the necessary technologies, and are increasingly confident 
that we will reach our goal by 2010. Achieving marketplace volume, 
however, will depend on a number of factors beyond GM's or any vehicle 
manufacturer's control, as I will discuss later.
    Technically, we have made significant progress:

   In the last seven years, we have improved the power density 
        of our fuel cell stack by a factor of fourteen. This means that 
        for the same amount of power, our fuel cell is 1/14th as large 
        today as it was seven years ago. This allows it to fit nicely 
        within our vehicles while providing excellent driving 
        performance.
   We have significantly improved, and will continue to 
        improve, fuel cell durability, reliability, and cold start 
        capability--all keys to meeting our customers' expectations.
   We are developing safe hydrogen storage systems that 
        approach the range levels required for customer acceptance, and 
        are exploring very promising concepts for the next generation 
        of storage technology.
   We are making significant progress on cost reduction through 
        technology improvement and system simplification.

    Today, we are demonstrating our vehicles around the world:

   Here in Washington, D.C., over 4,300 people have 
        participated in a ride or drive over the past four years. And 
        the U.S. Postal Service has delivered over a half million 
        pieces of mail in northern Virginia. We also have similar 
        demonstrations under way in California, Japan, Germany, China, 
        and Korea.
   We have collaborated with the U.S. Army in demonstrating the 
        world's first fuel cell-powered full-size military truck, which 
        is being evaluated and maintained by military personnel at both 
        Ft. Belvoir and Camp Pendleton.
   We will field 32 of our next-generation fuel cell vehicles 
        as part of the Department of Energy's Learning Demonstration.
   And we created the AUTOnomy, Hy-wire, and Sequel concepts, 
        which show how new vehicle architectures based on fuel cells 
        and hydrogen can reinvent the automobile. Sequel is the first 
        fuel cell vehicle capable of driving 300 miles between fill 
        ups. Later this year, we will be holding test drives to 
        demonstrate the capabilities of this truly impressive vehicle.

    The development of technically and commercially viable hydrogen 
fuel cell vehicles is a team effort, and we are working with key 
partners on virtually every aspect of fuel cell and infrastructure 
technology. In addition to the military, some major partners include 
Shell Hydrogen, Sandia National Lab, Dow Chemical, Hydrogenics, QUANTUM 
Technologies, and the Department of Energy through the FreedomCar and 
Fuel Partnership.
    GM applauds the Department of Energy and the federal government for 
its hydrogen infrastructure initiatives. However, in our view, more 
needs to be done if we are to be ready for fuel cell introduction and 
the sustainable market growth that we envision over the coming decades.
    Four specific areas for U.S. policy development should be 
considered:
    First: While we have made dramatic progress toward a first-
generation automotive-competitive system, as with any new technology, 
the real volume and benefits will be realized in second-generation 
designs and beyond. As such, we would like to see an expanded national 
R&D initiative on breakthrough fuel cell materials, hydrogen storage, 
and hydrogen generation--leveraging the creative capabilities of our 
government labs, universities, and industrial research facilities--to 
help us move quickly to later-generation technologies and designs.
    Second: We would also like to see the federal government articulate 
a clear, concise, broadly sanctioned vision that requires agencies 
beyond DOE and DOD to make hydrogen and fuel cell technology 
development and application priority areas of engagement.
    Clear, consistent, ongoing communication to the American people of 
this vision and the underlying rationale for hydrogen and fuels cells 
is also vitally important to building public acceptance of fuel cell 
vehicles.
    Third: Even after we succeed in developing ``auto-competitive'' 
fuel cells, the transition to hydrogen will take time. It takes about 
20 years to sell enough vehicles to change over the entire vehicle 
fleet. And, since low volume equals high cost in the automotive 
business, early vehicles even at moderate volumes will still be 
expensive, even if our technology can compete at high volume. So we 
face the proverbial ``valley of death'' for new technologies as we 
attempt to growth the market. This is where we see the need for 
creative policies, incentives, and governments as customers to support 
the development of the market and creation of a high-volume-capable 
supply base.
    Fourth: Although GM is not in the energy business, as we work to 
commercialize fuel cell vehicles, we have a keen interest in the 
pathways to creating and distributing hydrogen, and the technologies 
and economics involved.
    We think about hydrogen like we think of electricity. When we 
switch on a light, we are usually not thinking about how the 
electricity is being generated. In most cases, how that is done depends 
on where we are. We may be drawing on a hydroelectric plant, natural 
gas-fueled generating station, a nuclear or coal-fired power plant, 
wind turbines, or even solar cells.
    Hydrogen can be made from all the same sources that can be used to 
generate electricity, which gives us the ``power'' as a society to 
choose how we want to produce the energy we need. Each region will 
evaluate the resources it has available--and, as technology progresses, 
the economics improve, and societal expectations for environmental and 
energy sustainability heighten, different options will become 
preferable in different locations. We do not see an ultimate barrier to 
making clean hydrogen at prices that can compete with today's price of 
gasoline. But, coordinating a successful, sustained market transition 
will require proper government policies.
    So, what is the best way to proceed? To date, this has been 
primarily an industry initiative, but we're facing a larger challenge 
than technology development, larger than something a single automotive 
company or industry can accomplish--the federal government has an 
important role to play in helping to incentivize and reduce investment 
risk and achieve a sustainable transition.
    The federal government has historically played this role in 
transportation initiatives that have addressed larger societal needs--
for example, in the creation of the transcontinental railroad and the 
federal interstate highway system. Low-interest financing; appropriate 
vehicle purchase incentives; tax credits for investment in a jobs-
producing U.S.-based automotive supply base, hydrogen-generation 
industry, and hydrogen refueling infrastructure, timed and regionally 
focused to match the rollout of fuel cell vehicles; or other meaningful 
policies are necessary to support industry's massive investments in the 
fundamental underpinnings of our automotive transportation systems, 
supply base, and fuel infrastructure.
    At GM, we are making a very large commitment in dollars and 
manpower to create a market-ready fuel cell vehicle as soon as 
possible. Our fuel cell program expects to develop clean, affordable, 
full-performance fuel cell vehicles that will excite and delight our 
customers. We believe that with the support of a well-conceived set of 
policies to incentivize and sustain market and industry development, 
our customers will buy these vehicles in large numbers and that society 
will reap the economic, energy, and environmental benefits.
    Similarly, we believe that building clean, renewable energy 
pathways will enable America to reduce its dependence on imported oil, 
increase our energy security, promote the creation of new industries, 
stimulate jobs creation and sustainable economic growth, and ensure our 
country's ability to compete on a global basis.
    General Motors is ready and eager to work collaboratively with 
government, energy companies, and suppliers to help drive the Hydrogen 
Economy to reality.

    Senator Alexander. Thank you.
    Mr. Leuliette.

  STATEMENT OF TIMOTHY D. LEULIETTE, CHAIRMAN, PRESIDENT AND 
  CHIEF EXECUTIVE OFFICER, METALDYNE CORPORATION, PLYMOUTH, MI

    Mr. Leuliette. Mr. Chairman and members of the committee, 
thank you for this opportunity to testify before you today on 
the need for this Nation to move quickly to a hydrogen economy.
    I am Tim Leuliette, chairman, president, and chief 
executive officer of Metaldyne Corporation. Metaldyne is a 
leading global supplier of metal-based components, assemblies, 
and modules for the transportation industry in the power-train 
and chassis area.
    Let me make it very simple. Ninety-eight percent of all the 
vehicles produced in this country rely upon us in the engine or 
the transmission or the chassis, if not all three, for our 
components, to build their vehicles. We have annual revenues of 
$2 billion. We have more than 6500 employees in 38 facilities 
in 14 countries.
    I've had the privilege of working in the auto industry for 
more than 30 years, most of which I spent in the supplier 
community. I have served as president of Penske Corporation, 
ITT Automotive, and Siemens Automotive. I also held executive 
positions at Bendix and various engineering and planning 
positions at Ford and American Motors. In addition, I am a 
partner in a private equity fund, which I used to help build 
Metaldyne in the first place.
    In these roles, I have been witness to, and part of, many 
restructuring strategies, new business models, and makeovers in 
the automotive industry. These were minor compared to the 
transformation our industry is going through today as it 
grapples with globalization and soaring energy costs.
    Remember the term ``creative destruction,'' from economist 
Joseph Schumpeter? The transformation in creative destruction--
this is transformation, in all its glory, in creative 
destruction. Creative destruction is, according to Schumpeter, 
the process of replacing good things with better things. The 
hydrogen economy is the ``better thing.''
    I'm here today to share my views on how we can use this 
transformation to move more quickly to a hydrogen economy. By 
doing so, we will boost our Nation's economy, improve the 
environment, maintain, if not enhance, our national security, 
and bring jobs to the automotive industry and its supporting 
infrastructure.
    I want to address three issues: first, the need for a 
national energy policy; second, the role private equity can 
play in bringing this energy policy to life; and, third, what 
happens if we don't move quickly to alleviate our dependence on 
foreign oil.
    First, we must create a national energy policy that 
mandates collaboration with every part of the U.S. auto 
industry to develop alternative energy such as hydrogen. This 
energy policy must include suppliers and all automakers, both 
domestic- and foreign-based, with a strong U.S. presence. 
Involving automotive suppliers in the hydrogen movement is near 
and dear to my heart, and it needs to become near and dear to 
the hearts of all stakeholders. U.S. automotive suppliers are a 
$384-billion industry. Overall, the U.S. automotive supplier 
industry employs more than 1.2 million people. There are 2.9 
jobs created in the auto industry supply base for every OEM 
job, meaning that 75 percent of the people employed in the auto 
industry work for suppliers today.
    Suppliers play a key role in automotive R&D and innovation. 
According to a recent National Science Foundation report, the 
auto industry spent $16.9 billion on R&D in the United States 
in 2003. Of that, supplier R&D accounted for 40 percent. So, 
let me, again, go through the numbers: 75 percent of the 
employment is in the supplier community, 40 percent of the R&D 
is done by suppliers, and, by the way, 50 percent of the 
capital invested in the auto industry is done by suppliers 
today, and 60 percent of the patents are held by the suppliers 
today in the auto industry. This is no small group. Under 
Secretary Garman said we're hard to a hands-on, hard to talk 
to, we're a large number of people, but we are very focused, 
and becoming more focused on hydrogen. We are a vast well of 
knowledge that has yet to be tapped. This is not an oversight, 
it's just a mistake at times as we extend the timeline to 
achieve the hydrogen economy.
    Attracting private equity is also key to quickly moving the 
hydrogen economy forward. It is a huge undertaking that cannot 
be funded by industry alone, the Federal Government alone, or 
any other group alone. However, there are billions of dollars 
of capital from private equity that could be channeled into 
creating the hydrogen economy. Think. This is hydrogen--private 
equity capital is demanding capital, it is high-expectation 
capital, but it's the same type of capital that was used to 
fund the dot-com economy that the industry used once the 
Government supported the establishment of the basic protocols 
and framework and goals of the Internet.
    In 2004, there was approximately $100 billion of 
underemployed, private-equity funds in the United States, and 
39 billion euros in Europe, according to Alex Partners, a 
private equity form with substantial investments in the auto 
industry.
    The hydrogen title directed the Secretary of Energy to 
draft a coordinated plan for the programs that are directly 
related to fuel cells or hydrogen. This plan could attract 
substantial interest from private equity as it lays out a solid 
platform, a strong roadmap and timeline, and provides the 
underlying stability needed from the Federal Government. We 
need an energy policy.
    Third, if we don't move quickly, we stand to lose not just 
our jobs and clout in the auto industry, but also our standing 
as a superpower. Today, there is much talk about oil reaching 
$100 a barrel. This would have a devastating impact on this 
economy. A recent study by the Office of Study of the 
Automotive Transportation, the University of Michigan 
Transportation Research Institute, and the National Resources 
Defense Council, called ``In The Tank,'' * says that at $80 to 
$100 a barrel, the equivalent of $2.86 to $3.37 at the pump, 
Detroit's big-three automakers would see their sales fall 9 to 
14 percent. In addition, 16 facilities, mostly in the Midwest, 
would close, and at least 300,000 jobs would be on the line, 37 
percent which are in Michigan, Indiana, and Ohio.
---------------------------------------------------------------------------
    * The study has been retained in committee files.
---------------------------------------------------------------------------
    Washington has committed $1.2 billion to its Hydrogen Fuel 
Initiative, with the goal of producing commercially viable fuel 
cell vehicles by 2020 and a major dent in oil usage by 2040. 
It's a start, but it's not good enough. I firmly believe that 
increasing our collaborative efforts to include suppliers, all 
automakers, and private equity in the process, we can move this 
timetable ahead substantially.
    I thank you.
    [The prepared statement of Mr. Leuliette follows:]

  Prepared Statement of Timothy D. Leuliette, Chairman, President and 
      Chief Executive Officer, Metaldyne Corporation, Plymouth, MI

    Mr. Chairman and members of the committee, thank you for this 
opportunity to testify before you today on the need for our nation to 
move quickly to a hydrogen economy. I am Tim Leuliette, chairman, 
president and chief executive officer of Metaldyne Corporation. 
Metaldyne is a leading global designer and supplier of metal-based 
components, assemblies and modules for transportation related 
powertrain and chassis applications including engine, transmission/
transfer case, wheel-end and suspension, axle and driveline, and noise 
and vibration control products to the motor vehicle industry. It has 
annual revenues of $2 billion and over 6,500 employees at 45 facilities 
in 38 countries around the world.
    To put it in a different perspective we are the 69th largest 
automotive supplier in the world, according to Automotive News.
    I have had the privilege of working in the auto industry for more 
than 30 years, most of which I spent in the supplier community. I have 
served as president and chief operating officer of Penske Corporation, 
a closely-held diversified transportation services company managing 
businesses with annual revenues exceeding $10 billion and more than 
33,000 employees at over 200 facilities worldwide. I also was president 
and chief executive officer of ITT Automotive Inc., and president and 
chief executive officer of Siemens Automotive L.P. In that position I 
became a member of the Siemens Automotive Managing Board and a 
corporate vice president of Siemens AG. I was the first non-German to 
hold this level of authority in the 143-year history of the electrical 
and electronics company.
    I also held executive positions at Bendix and various engineering 
and planning positions at Ford Motor Company and American Motors 
Corporation.
    In addition, I have experience in private equity as a former 
partner in Heartland Industrial Partners, a private equity firm 
established to acquire and expand industrial companies in sectors ripe 
for consolidation and growth. Heartland builds value by investing in 
well-positioned industrial companies, whose talent, technology, assets 
and market position afford them the opportunity to be a platform for 
industry consolidation and value-creation.
    I also have had the privilege of serving on several boards 
including Collins & Aikman, TriMas Corporation, Vattikuti Urology 
Institute of Henry Ford Health Systems, and Karmanos Cancer Institute. 
I am the past chairman of the board of The Detroit Branch of The 
Federal Reserve Bank of Chicago and have strong affiliations with 
Detroit Renaissance and Junior Achievement.
    In these roles I have been witness to, and part of, many 
restructuring strategies, new business models and makeovers in the 
automotive industry. These were minor compared to what our industry is 
working through today. Globalization has thrown the auto industry into 
a transformation on a scale greater than we have ever witnessed. This 
globalization in no way resembles what we saw in the 1980s and 1990s 
when the mature automakers and their suppliers began to build more 
plants in emerging countries . . . and in the southern U.S. This 
globalization is the 21st century kind that will redraw boundaries 
geographically, politically, economically and socially. It will change 
our business, our technologies and our relationships.
    In the end new regions . . . and companies . . . will be super-
empowered to become superpowers of industry. Our challenge as a nation 
and as an industry is to play a key role in creating and influencing 
that structure.
    To accomplish that, we must quickly create a National Energy Policy 
that mandates collaboration with every part of the U.S. auto industry 
to develop new technologies such as hydrogen. That means including 
suppliers and all automakers, both domestic and foreign-based with a 
strong U.S. presence, in the national debate on hydrogen. As a nation 
and an industry we cannot afford to allow politics and competitive 
concerns freeze out companies, people or regions to stand in the way.
    The National Energy Policy must transcend elections, political 
parties and corporate boundaries to meet the needs of the consumer, the 
environment and national security. I commend this Committee on the 
collaborative business model it set as it worked in a bipartisan manner 
to promote energy policy.
    As GM's head of research Larry Burns has said ``the biggest risk of 
all is to sit on the sidelines and not try to create this future.'' 
There's plenty of precedent, he noted, for a society-wide effort. The 
Panama Canal, the Manhattan Project and the moon missions of the 1960s 
all involved public funds and private partners. And all produced 
dramatic results.
    The same can be accomplished with the Hydrogen Title. We must begin 
building a national consensus for its necessity then fund aggressive 
research programs aimed at moving the relevant technologies toward 
commercial viability, and keep them in the U.S.

     ROLE OF AUTOMOTIVE SUPPLIERS AND THE NEED TO INCLUDE THEM IN 
                          THE NATIONAL DEBATE

    The stated purpose of the Hydrogen Title is to:

   enable and promote comprehensive development, demonstration, 
        and commercialization of hydrogen and fuel cell technology in 
        partnership with industry
   build a mature hydrogen economy that creates fuel diversity 
        in the massive transportation sector of the United States
   sharply decrease the dependency of the United States on 
        imported oil, eliminate most emissions from the transportation 
        sector, and greatly enhance the nation's energy security.

    Accomplishing these goals requires a comprehensive ``partnership 
with industry.'' Unfortunately, no such partnership exists between the 
federal government and the automotive industry because current programs 
fail to include two-thirds of the auto industry . . . the supplier 
community.
    According to the most recent statistics released by Motor & 
Equipment Manufacturers Association (MEMA) in June 2006:

   U.S. automotive suppliers (parts manufacturers) are a $384 
        billion industry ($199.2 billion of the market consists of 
        Original Equipment and $184.7 billion consists of the 
        Aftermarket), which are the components used to repair and 
        service vehicles once they are already out on the road.
   Overall, the U.S. automotive supplier industry employs more 
        than 1.2 million people at over 11,500 domestic plant locations 
        across the country.
   There are 2.9 jobs in the auto supply chain for every 1 
        assembly (automaker) job and supplier products account for more 
        than two-thirds of the content on each new vehicle.

    This is a large, nationally and globally influential group that 
must play a leading role in this initiative: Yet, despite their weight 
in terms of employment, facilities and capital investment, suppliers 
have no formal or direct ability to participate in the federal 
government's hydrogen program (FreedomCAR). They can only bid for 
grants and projects under the EERE Vehicle Technologies Program, which 
focuses more on hybrid components and short term gains in fuel 
efficiency. They also don't have a seat at the table in the 
Congressional and national debate on hydrogen policy.
    This is not only an oversight; it is a huge mistake that will 
extend the timeline to achieving the Hydrogen Economy by decades. There 
is a misconception that suppliers simply build systems, components and 
parts to automaker specifications. In readily suppliers play a key role 
in automotive R&D and innovation. According to a recent NSF report, the 
auto industry spent $16.9 billion on R&D in the U.S. in 2003. Of that, 
supplier R&D accounted for $6.9 billion, or 40%.
    Let's take a look behind the numbers and into the DNA of the 
supplier network. The R&D done by the automakers is often applied R&D. 
The pure R&D is done by suppliers, and it has been for years. 
Automakers didn't develop airbags, suspension systems, anti-lock brakes 
or windshield wipers that sense the rain and automatically turn on, 
just to name a few innovations created by suppliers and ``applied'' by 
the automakers.
    Suppliers are used to being nimble, fast and flexible, to serving 
numerous customers and to delivering new products to the marketplace 
quickly. They have honed these skills through collaboration within the 
supplier community and innovative partnerships.
    Many suppliers already have such programs in place for alternative 
energy. For example:

   Freudenberg-NOK General Partnership (FNGP) between 
        Freudenberg & Co. of Germany and NOK Corporation of Japan has 
        been involved in the research and development of advanced fuel 
        cell sealing technology for more than 10 years. Headquartered 
        in Plymouth, Michigan, FNGP handles the entire group's 
        manufacturing R&D work, with a portion of the operation focused 
        on automotive and stationary fuel cell development. Originally 
        considered less critical than other parts of the fuel cell 
        tack, sealing technologies have received renewed attention over 
        the past few years.
   ECD Ovonics and its partners successfully completed a 
        demonstration project to modify a commercial gasoline/electric 
        hybrid vehicle to run on hydrogen utilizing a new low-pressure, 
        metal hydride hydrogen storage system developed and 
        manufactured by Texaco Ovonic Hydrogen Systems, LLC, a joint 
        venture between a unit of ChevronTexaco Corp and ECD Ovonics.
   Delphi Corp., a partner in the U.S. Department of Energy's 
        advanced fuel cell development program, has exceeded the power 
        density level required to meet the government's $400 per 
        kilowatt cost goal for fuel cells. Meeting the cost target is 
        essential if fuel cells are to expand beyond their current 
        niche markets into widespread commercial use. At $400 per 
        kilowatt--nearly one-tenth the cost of power-generating fuel 
        cells currently sold on the market--fuel cells would compete 
        with traditional gas turbine and diesel electricity generators 
        and become viable power suppliers for the transportation 
        sector.
   Siemens is partnering with the University of South Carolina 
        to build and test a prototype diesel engine that runs on 
        hydrogen instead of petroleum.

    As you can see the supplier community is ready, willing and more 
than able to play a leading role in the march to the hydrogen economy. 
It simply needs an avenue to march down and an invitation to the 
parade. The Hydrogen Technical and Fuel Cell Advisory Committee the 
Secretary of Energy is establishing to advise the government on 
hydrogen programs is just that avenue.
    The committee is to consist of representatives from domestic 
industry, academia, professional societies, government agencies, 
federal laboratories, previous advisory panels, and financial, 
environmental, and other appropriate organizations. I urge this 
Committee to ensure that DOE makes this group an active participant in 
its efforts and the creation of future policies and national 
strategies.
    I also strongly encourage this Committee to extend membership in 
the Hydrogen Technical and Fuel Cell Advisory Committee to the 
automotive supplier industry, to other groups such as SAE and to the 
entire ``domestic'' auto industry. We need to include foreign-owned 
manufacturers with a significant presence in the U.S. (e.g. Toyota, 
Honda, Nissan, Bosch, Denso, etc.)
    As I've outlined this hydrogen strategy, you're probably asking 
yourself, why is this guy who heads a nuts and bolts company pushing 
hydrogen? The answer is simple. The industry and the hydrogen movement 
need the engineers at Metaldyne and other suppliers to address the 
tactical issues of hydrogen vehicles. Suppliers are often the inventors 
of technology and hydrogen is no different. There is money to be made 
here and I intend to be sure Metaldyne is at the forefront. As 
suppliers of powertrain and chassis components and systems we must not 
only be prepared for new and developing technologies, we must take a 
leadership role in ensuring the most positive long-term solutions are 
adopted. That solution is hydrogen.

        INVESTMENT IN HYDROGEN TECHNOLOGY IS A JOBS AND GLOBAL 
                         COMPETITIVENESS ISSUE

    The countries and industries that develop the technologies that 
move to the hydrogen economy first will see significant job growth. 
However, none of this will happen overnight. Many of those jobs will be 
in the traditional automotive supplier community as well as in new 
entrepreneurial companies that will continue to grow up as a result of 
new technology. There will be new R&D and manufacturing jobs. There 
will be new jobs created to develop and build new alternative energy 
distribution networks.
    To attract and maintain these jobs we must create a collaborative 
environment in the U.S. that will foster the growth of the hydrogen 
economy. Otherwise there is every reason to believe the jobs will go to 
other countries with strong R&D networks and aggressive collaborative 
government/industry programs.
    We have the resources in this nation to makes the hydrogen economy 
a reality. For example, Michigan currently is home to GM, Ford, 
DaimlerChrysler, Toyota, Nissan, Hyundai R&D centers as well as dozens 
of supplier R&D centers. South Carolina formed the South Carolina 
Hydrogen and Fuel Cell Alliance, a state-wide initiative designed to 
promote the development and use of quality, cost effective and 
accessible hydrogen fuel cells, and related technologies. Indiana has 
supported the development of several efforts such as the ForeverGreen 
Enterprises Inc. construction of a high-technology hydrogen production 
facility in DeKalb County. The company will manufacture Green Hydrogen 
from materials that would otherwise be regarded as waste, therefore 
reducing manufacturing costs and the negative impact this waste would 
otherwise have on the environment. Our national labs have hydrogen 
programs going.
    During a visit to the California Fuel Cell Partnership last year 
President Bush said ``the idea of a hydrogen-powered automobile is not 
a foolish dream. It is a reality that is going to come to be . . . 
Hydrogen has vast potential to dramatically cut our dependence on 
foreign oil . . . Investing in new technologies, like hydrogen, will 
enable our economy to be strong.''
    I couldn't agree more that the world is hooked on oil. It's a life-
threatening addiction that is driving countries, companies and 
individuals to try and kick the habit. This dependence not only 
threatens to further weaken profits and cost jobs among the U.S. 
automakers, it is a national security risk to the United States and is 
wreaking havoc on the global environment.
    The U.S. is currently struggling with how it will maintain its 
superpower status and our status as the largest consumer of energy and 
oil is making it more and more difficult. The only way we are going to 
gain a competitive advantage is if we solve the energy issue before 
other countries do and that demands a National Energy Policy and a 
larger commitment to hydrogen.
    Washington has committed $1.2 billion to its Hydrogen Fuel 
Initiative, with the goal of producing commercially viable fuel cell 
vehicles by 2020 and a major dent in domestic oil usage by 2040. As you 
know, that is simply too little. I commend this Committee for its 
strong stand to authorize substantial monies to the hydrogen initiative 
and encourage the current Administration to move that recommendation 
forward. The United States can't be a superpower if it's out of power. 
The current plan outlines a timetable 10 times longer than the 
Manhattan Project and four times longer than putting a man on the moon.
    In short, there is no unified sense of urgency on a national level 
to develop a robust, realistic, well-funded energy policy that allows 
us to thumb our noses at gas stations in the near future.
    Such a play is essential as the globalization march continues. As 
China, India and other developing countries embrace free markets and 
foreign investment, they're producing hundreds of millions of newly 
minted middle-class car buyers. In the U.S. we are producing a new 
person every 12 seconds, and each one of them will need a car. Between 
now and 2020, the number of vehicles worldwide likely will rise from 
750 million to more than a billion.
    We can't keep up with the oil consumption needed to run those 
vehicles. The International Energy Agency says that in its base line 
year of 2002 the world consumed 78 million barrels of oil daily and had 
a production capacity of 80 million barrels a day. By 2015 the agency 
estimates that the world will be consuming 103 million barrels a day, 
and 119 million barrels a day by 2025.
    The catch is the world cannot meet the demand.
    Boone Pickens says worldwide production of oil is 84 million 
barrels a day and is never going any higher . . . that is unless we 
find the capital investment money needed to search under new sands and 
seas for untapped reserves.
    So if we add the expected 300 million vehicles to the mix, and the 
result could be a ``super spike,'' with the price of a barrel of crude, 
at least for a time, exceeding $100. That $100 a barrel price tag would 
have a devastating impact on the Midwest, and ultimately, the nation.
    A recent study by the Office for the Study of Automotive 
Transportation, the University of Michigan Transportation Research 
Institute and the National Resources Defense Council called ``In the 
Tank'' says that at $80 to $100 a barrel . . . the equivalent of $2.86 
to $3.37 at the pump . . . Detroit's Big Three automakers would see 
their sales fall 9-14 percent, a decline of 1.9 to 3 million vehicles. 
That would mean an industry-wide drop of $11.2 to $17.6 billion in pre-
tax profits.
    In addition, 16 factories, mostly in the Midwest, could close and 
at least 297,000 jobs would be on the line, 37 percent of which are in 
Michigan, Ohio and Indiana.
    It should be noted that the week of July 4 the U.S. consumers paid 
an average of 3.9 cents more than the week before, or $2.97 a gallon, 
the second-highest level ever, the government said Monday. The national 
pump price for regular unleaded gasoline is up 65 cents from a year ago 
and not far from the record $3.07 reached last September after 
Hurricane Katrina disrupted petroleum supplies, according to the 
federal Energy Information Administration's weekly survey of 800 
service stations.
    Depending on fuel prices and consumer incentives, sales of hybrids 
and advanced diesels are likely to go from about 100,000 units this 
year to as many as 1.8 million by about 2010. Initially, most of these 
vehicles will be imported. Since advanced diesel engines under about 5 
liters will displace many gasoline engines, and since full hybrids 
don't use conventional transmissions, Michigan and Ohio--and to a 
lesser extent Indiana--stand to be major losers unless production of 
these vehicles, or at least their powertrains, are produced in this 
area.
    Specifically, if 1.8 million ``HADs'' . . . that is hybrids and 
advanced diesel vehicles . . . are sold by the end of the decade, these 
three states stand to lose more than 66,000 jobs, nearly one-third of 
the U.S. total of 207,000 potentially lost jobs, according to Fuel-
Saving Technologies and Facility Conversion: Costs, Benefits, and 
Incentives.
    These statistics drive home the need for a collaborative strategy 
that attracts not only hybrid technology but ensures future alternative 
energy powertrains and vehicles are developed and manufactured in this 
country. If the U.S. truly wants to be player in 2020 there must be a 
strong, doable national plan for hydrogen. Hydrogen is the most 
abundant, environmentally friendly fuel source in the universe and it 
is the way of the future.
    We need to follow a four-step plan to reduce our dependency on oil. 
The first two we can do in the automotive industry. The second two 
require political action.

   First, establish a well-funded and powerful industry 
        consortium made up of all the major stakeholders . . . 
        automakers, suppliers and labor.
   Second, establish a hydrogen-powered vehicle design team to 
        set industry practice and design rules.
   Third, set a national target that 80 percent of the vehicles 
        sold in the United States and 100 percent of the imported 
        vehicles are hydrogen-powered by 2025.
   Fourth, provide federal customer incentives, research 
        dollars and funding for infrastructure issues by imposing a gas 
        tax and/or by alternative means that include investment by 
        public and private equity.

     CAPTURING THE INTEREST OF THE AMERICAN PEOPLE--EDUCATING THE 
                           PUBLIC ON HYDROGEN

    One of the hydrogen economy's greatest challenges is moving the 
public away from its fascination with hybrid and ethanol vehicles. That 
will require a collaborative effort among all stakeholders--government, 
automakers, suppliers, unions--to educate people on the benefits of 
hydrogen and the need to quickly move to that technology.
    The timing is right. A CNN poll conducted in early May found that 
60% of adults thought seriously about purchasing a fuel-efficient 
vehicle because of the skyrocketing price of gasoline.
    The message is simple. Hybrids and ethanol, while good and 
necessary intermediary steps to hydrogen, are not long-term solutions 
to our dependency on oil. There are many studies out today that are 
either pro or con when it comes to these forms of alternative energy. 
The most important thing is that they are being discussed in many 
forums and are generating conversation and public awareness. That can 
only help create more conversation about the need to move more quickly 
to the hydrogen solution.
    Hybrid vehicles might actually use more fuel than a normal car. 
They run on full gasoline at highway speeds because the ECU detects 
highway long journeys might drain the battery too fast. In addition, 
the gasoline in hybrids relatively small and therefore has to work 
harder and use more fuel compared to a conventional powered vehicle 
with a larger more potent engine.
    There are other disadvantages. The metals in the nickel-metal 
hybrid battery currently used in hybrid vehicles are 25 times more 
expensive than lead. Nickel has been identified as a carcinogen. Hybrid 
vehicles have not been on the road long enough to allow the batteries 
to prove their projected cycle life. No significant recycling 
capability exists.
    Ethanol also is not a long-term cure. According to scientists in 
New York and California, it takes more energy to make ethanol than you 
get back in fuel savings. More precisely, says David Pimentel of 
Cornell University, it takes the equivalent of 1.29 gallons of gasoline 
to produce enough ethanol to replace one gallon of gasoline at the 
pump. Instead of making the nation more energy self-sufficient, ethanol 
production actually increases our need for oil and gas imports, he 
says. Pimentel and Tad W. Patzek, professor of civil and environmental 
engineering at Berkley, conducted a detailed analysis of the energy 
input-yield ratios of producing ethanol from corn, switch grass and 
wood biomass as well as for producing biodiesel from soybean and 
sunflower plants.
    ``The United State desperately needs a liquid fuel replacement for 
oil in the near future,'' says Pimentel, ``but producing ethanol or 
biodiesel from plant biomass is going down the wrong road, because you 
use more energy to produce these fuels than you get out from the 
combustion of these products.''
    In a recent paper in the journal Natural Resources Research, he 
calculates it takes the energy equivalent of 271 gallons of gasoline to 
grow a hectare (about 2.47 acres) of corn. Part of that energy is for 
tractor fuel, but the biggest use is for manufacturing nitrogen 
fertilizers, which are mandatory for high-yield corn-growing. These 
fertilizers are made by heating natural gas under controlled 
circumstances so that it reacts with nitrogen in the air. Not only does 
it take heat to do this, but it uses up natural gas that could have 
been burned as fuel. Pimentel estimates that in corn-growing, nitrogen 
fertilizers alone use the equivalent of 80 gallons of gasoline per 
hectare.
    Another study done at the Universite Laval in Quebec, Quebec, in 
2004 says E85 costs substantially more to operate annually. For 
example, the annual cost to use E85 in a Chrysler Sebring convertible 
was $1323 in 2004 U.S. dollars, compared with $900 for gasoline.
    While this study and others are heavily questioned by pro-ethanol 
groups the positive side is that they are generating conversation and 
public awareness. That can only help create more conversation about 
need to move more quickly to the hydrogen solution.
a national strategy on hydrogen--how private equity can help fund this 

                NEEDED TRANSITION TO A NEW ENERGY SOURCE

    The Hydrogen Title directed the Secretary of Energy to draft a 
coordinated plan for the programs that are directly related to fuel 
cells or hydrogen. The plan was required to describe the national 
agenda for the next five years for the programs and the milestones that 
will be used to evaluate the programs for the next five years. This 
strategy could attract substantial interest from private equity if the 
Secretary's plan lays out a solid platform, a strong roadmap and 
timeline and provides the underlying stability needed from the federal 
government.
    Attracting private equity is key to quickly moving the hydrogen 
economy forward. The federal government does not have the funds. 
Private equity does. In 2004 there was approximately $100 billion of 
undeployed private equity funds in U.S. and \39 billion in Europe, 
according to Jay Alix, president of Alix Partners, a private equity 
firm with substantial investments in the auto industry.
    ``Enormous new markets are developing through the commercialization 
of energy technologies,'' said M. Grier Eliasek, managing director of 
Prospect Street Ventures, a leading private equity and merchant banking 
firm focused on investing in energy companies. ``We believe these 
markets offer excellent opportunities for private equity investment, 
and we are actively pursuing a number of such opportunities at this 
time. In an economy in which many sectors are struggling for growth, 
energy technology represents a robust, rapidly growing market.''
    Several firms have shown interest in several forms of alternative 
energy as concerns about peak oil supply, skyrocketing oil and natural 
gas prices and national security issues heat up. In fact, the energy 
component is the fastest growing clean technology and makes up more 
than 70% of investments in the clean technology industry, Tucker 
Twitmyer, managing partner with Philadelphia-based EnerTech, a venture 
capital firm focused on energy technologies, said in a recent Knowledge 
@ Wharton article.
    The article also points out that the window of opportunity for 
investment in clean technology has never been more robust. According to 
the 2006 Cleantech Venture Capital Report on North American venture 
capital investing, up to 3% of all venture capital was used for clean 
technology during the dot.com bubble from 1999-2001. That rose to 5-6% 
from 2002-2005 and the study suggests that it will jump to 10% of all 
VC investment by 2009. That amounts to between $6.2 billion to $8.8 
billion invested as venture capital firms go to the markets to raise 
capital in an estimated 1,000 rounds between 2006 and 2009, the article 
said.
    Following are some example of venture capital investments in clean 
energy:

   Kleiner Perkins Caufield & Byer has backed a handful of 
        clean tech companies, including Miasole, a San-Jose based solar 
        technology firm. Former Secretary of State Colin Powell is one 
        of KPCB's general partners.
   EnerTech, which invests in power and energy consumption, 
        manages $290 million, 80% of which is in clean energy.
   New Energy Capital (NEC) in New Hampshire is financing 
        renewable and efficient energy projects from wind power to 
        geothermal to biofuels.
   Goldman Sachs owns wind farm projects through its 
        acquisition of Horizon Wind Energy.
   Yellowstone Energy Ventures has made minority investments in 
        public and private companies involved in alternative energy and 
        renewable energy technologies. It has invested in several fuel 
        cell companies including Protonex Technology Corporation, which 
        is developing fuel cells with emphasis on military 
        applications, and Cellex, which is a leader in fuel cell power 
        solutions for industrial vehicles.
   Virent Energy Systems, a University of Wisconsin spin-off, 
        just received $7.5 million in venture capital from Cargill 
        Ventures. Virent is trying to develop a cost-effective way to 
        generate hydrogen fuel from water and sugar in a one step 
        process as part of a car's engine or an electrical generator.

                  CHALLENGES FACING THE AUTO INDUSTRY

    The U.S. auto industry is going through a transformation unlike 
anything we have witnessed before. This transformation has been in the 
offing for more than 25 years, ever since the first oil crisis in the 
early 1970s. Since then the traditional domestic auto industry has been 
teetering on the edge of the cliff only to be drawn back by the 
deceitful business cycle of improved sales, better profits and the 
promise of diversification success we've come to expect over and over 
again. This time the consumer is driving the transformation and many 
companies are not prepared because they didn't learn from the past and 
adjust their strategies accordingly.
    That said we need to remember in all this that the auto business is 
strong, vibrant and growing. We have had record or near record annual 
sales in the U.S. since the turn of the century. The difference is the 
competition is stronger . . . and there's more of it. The U.S. auto 
market now looks more like the European market with 8-10 major 
companies vying for business instead of three companies--General 
Motors, Ford and Chrysler--dominating the market.
    This transformation is good and necessary . . . for the industry 
and the U.S. It is a form of creative destruction that is driving home 
a sense of urgency to develop the right product, be flexible, embrace 
change and learn from the past. As economist Joseph Schumpeter said 
creative destruction is the process of replacing good things with 
better things. This creative destruction has shaken the auto industry 
to the core and instills a sense of urgency to change . . . to find and 
embrace new, more innovative business models and technologies that 
require working together.
    Industry, government and public and private investors need to have 
that same sense of urgency about the pace at which this nation moves 
toward a hydrogen economy. There is no time to waste. The product 
development decisions being made today are for vehicles that will be 
built 10 years from now. Companies are not only deciding what vehicles 
they will build . . . you can bet many will be alternatively fueled . . 
. but where they will build them and where their systems and components 
will be sourced. The only way to ensure those vehicles are built in the 
U.S. is to develop a robust, innovative and comprehensive national 
energy policy that requires collaboration among all domestic industry 
(automakers and suppliers), academia, professional societies, 
government agencies, federal laboratories, previous advisory panels, 
and financial, environmental, and other appropriate organizations.

                               CONCLUSION

    The auto industry, which has long been the bedrock of the U.S. 
economy, is at a crossroads and must adopt a new business model that 
will weave its collective expertise into a single fabric. This new 
model requires collaboration at all levels--manufacturing, technology, 
and research and development. This new business model will be based on 
realistic relationships that will meld cultures, philosophies and 
technologies and prepare us for a new future that will be nothing like 
we've seen before.
    Developing alternative energy sources that will decrease the U.S. 
dependence on petroleum imports is key to developing that new business 
model. To accomplish that we must collaborate and share information--
without jeopardizing competitive advantages for companies. The 
technological challenges facing the industry and the nation today are 
more than any single company can achieve without extraordinarily large 
financial expenditures within a reasonable timeframe. The problem 
requires a national effort that pools the resources of the federal 
government, all sectors of the automotive industry and public and 
private investors to move the U.S. to a hydrogen economy faster and 
more efficiently.
    There is simply no future in the status quo and there can be no 
status quo in our future.

    Senator Alexander. Thank you very much.
    First let me recognize that Senator Dorgan has arrived, 
who's been a strong proponent of the hydrogen economy for some 
time.
    We've all made brief statements. Would you like to make 
one, Senator Dorgan?

        STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR 
                       FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, only that I regret I have 
been downstairs at another hearing, and I'm scheduled--we have 
a schedule on the floor to speak on stem cell research, and I'm 
scheduled to be there for my presentation in a short while. But 
thank you for holding this hearing. I know my other two 
colleagues here, as well, are spending a great deal of time on 
this issue. I think that the issue of hydrogen fuel cells is 
just critically important, and I've been happy to work with a 
bipartisan group of legislators on these issues in recent 
years.
    Senator Alexander. Thank you, Senator Dorgan.
    Dr. Paul.

   STATEMENT OF DR. DONALD L. PAUL, VICE PRESIDENT AND CHIEF 
     TECHNOLOGY OFFICER, CHEVRON CORPORATION, SAN RAMON, CA

    Dr. Paul. Thank you, Mr. Chairman and members of the Senate 
Energy Committee. Chevron is pleased to have the opportunity to 
testify before the Senate Energy and Natural Resources 
Committee on the future of hydrogen as a transportation fuel, 
as well as DOE's hydrogen program and the impact of the Energy 
Policy Act in advancing hydrogen as a fuel.
    As Chevron's chief technology officer, I oversee all facets 
of our company's new energy technology development and 
commercialization, including hydrogen generation and hydrogen 
infrastructure, can share our experience as well as our views 
regarding the critical next steps.
    Chevron, first and foremost, is committed to diversifying 
the Nation's fuel supply. As you know, Chevron is the second-
largest U.S. energy company. We've been involved in the 
fuelmaking business for 125 years.
    Although there's no silver bullet, from our perspective, we 
are actively pursuing new energy fuel sources, including 
biofuels, gas-to-liquids, and hydrogen, to name a few.
    Today, as we've heard from my distinguished colleagues, 
we're facing a new energy equation, in terms of the world's 
demand for energy. I believe that we are going to need every 
form of energy, we must develop new types of energy, and we 
must increase energy efficiency and conservation. We, at 
Chevron, are committed to providing American citizens with 
reliable and affordable supplies of energy.
    In terms of hydrogen as a fuel, we believe that the fuel 
cell technology and related infrastructure technology will 
continue to evolve. As we heard before, in current use today 
are stationary fuel cells, which deliver high-quality, high-
reliability power. Chevron, in fact, uses them for such 
critical applications ourself, and have done so for several 
years.
    In addition to stationary power, we believe that hydrogen 
can provide, in the nearer term, viable transportation fuel, 
such as for transit systems, which I will describe some more 
later, while widespread use for passenger vehicles will be 
dependent upon resolving key technological, operational, and 
economic challenges. We're very encouraged to date, as we have 
heard, but there remain significant challenges to a 
distribution of a new fuel system at scale.
    Although hydrogen has many positive attributes, there are 
still important challenges. These happen to come from the 
nature of infrastructure, and I'll discuss those a little bit 
more as time goes on.
    We have been involved with the Department of Energy's 
controlled hydrogen fleet infrastructure demonstration and 
validation program for the last few years. We're the only major 
energy company leading such a project, and, as such, as you 
will hear in a few minutes, we have been able to focus on the 
challenges specifically associated with distributing--
manufacturing and distributing, store and dispensing fuel.
    We believe that demonstration programs have been critical 
to advancing hydrogen as a practical fuel. Oftentimes, the 
infrastructure part of the energy equation is ignored. Our 
current infrastructure took us almost a century to build. The 
challenge of building an entirely new one is unique, and we 
haven't faced that as a Nation for some time. It's absolutely 
critical that both the devices that use hydrogen as a fuel for 
the vehicles and the hydrogen infrastructure be developed 
simultaneously. This is part of the key challenge.
    What I would like to do is to talk about a couple of the 
key issues associated with infrastructure.
    Infrastructure amounts to advancing the technology, 
integrating all the technologies and systems together, 
operationalizing the technology and practice to deliver a safe, 
reliable, and continuously operating infrastructure, and 
ultimately understanding how it will be used by customers. All 
of our programs through DOE demonstrate some of these elements.
    I'd like to refer you to the picture there. This is the 
first hydrogen energy station that Chevron had put up with its 
partners, Hyundai and UTC. It's located in southern California. 
The key elements of this demonstration were to understand, 
Could you practically distribute, manufacture, store, and 
operate, on a continuous basis, a hydrogen infrastructure? This 
is a small demonstrate site at Hyundai's research center.
    The next project, which opened, this last February, is a--
oh, I'm sorry. Let me back up.
    What you see here is actually a distributed hydrogen 
production plant. As many of you know, we make hydrogen at 
scale in refineries today. They're the biggest single user. The 
challenge in translating that system to a consumer fuel 
distributed out where it can be used in society is 
miniaturizing--in our view, miniaturizing those facilities. 
What you see here is actually a new technology hydrogen 
generation facility. It's located at Chino. What we have done 
is actually miniaturized the technology, but included in it 
full safety, control, and operational characteristics, which 
are the other key elements of including a new--building a new 
fuel infrastructure.
    Our second project actually took all of this to the next 
scale. What you see here is a station located in Oakland. This 
is Alameda, a Contra Costa County transit-system station. This 
is a system that supports both buses--there are three fuel cell 
buses--and a small fleet of cars. Hydrogen is made onsite; 
stored, distributed onsite. I think what is significant about 
this demonstration is, every element that would be involved in 
a commercial-scale demonstration is included here: maintenance, 
continuous operation. These buses operate every single day. And 
one of the benefits that we've learned from this demonstration 
is that tens--literally tens of thousands of individuals are 
going to be part of the hydrogen economy because they ride 
these buses.
    I think we underestimated the value of that. Even the 
largest single fleet demonstration is a dozen.
    The Chairman. You said tens of thousands?
    Dr. Paul. Tens of thousands of riders.
    The Chairman. Are going to be what?
    Dr. Paul. Riding these buses and being part of--in their 
view, part of the new energy--the new hydrogen economy.
    The Chairman. Using that?
    Dr. Paul. These buses operate a regular bus schedule in 
Oakland/Alameda County in Los Angeles. These are not--there's 
three buses. They operate full operational schedules every day. 
Thousands of passengers over the course of a year will ride 
these buses, take them to work, take them shopping, take them 
home. These are not--this is not--this is a miniature transit 
system, but it is complete. We make the fuel, we store the 
fuel, you distribute the fuel, people ride these buses, the 
buses come home, they get fueled, they get serviced. This is a 
fully integrated miniaturized system, the only one of its kind 
actually operating in the world today.
    But what we learned was, it matters to the community that 
they can actually get on this bus, and it works fine. In fact, 
not only does it work fine, it's the quietest bus they've ever 
been on. And that was the other thing we discovered, that----
    The Chairman. It was what?
    Dr. Paul. The quietest bus. And the reason that 
demonstrations are important is, you don't learn these things 
until you demonstrate the technology in the real world. And the 
other thing we learned is, these buses are quiet. They make 
no--basically, no mechanical noise that ordinary buses make. 
That actually turns out to be a benefit in a dense urban area.
    So, I think this is a very important demonstration. This is 
number two.
    Our third demonstration, which is under development, will 
be in Michigan, Selfridge Air National Guard Base. This is a 
result of a combination of the DOE program and a joint venture 
that Chevron has with TARDEC, which is the Tank and Automotive 
RD&E Center. So, that's our next site. It will be coming up 
this next year.
    I'd like to wrap up by just going to the final one and talk 
for a moment about R&D. This is a picture of Chevron's large 
R&D center, devoted to hydrogen. That's in Houston. The 
question is, What are we working on? As you read, from the 
testimony, we have chosen to use natural gas as the fuel for 
our current demonstrations, basically miniaturizing what we do 
in industrial applications. Clearly, the great benefit of 
hydrogen is, it can be made from many, many things. That's 
really its true strength and diversification. We're working on 
research that would diversify this to other opportunities, 
particularly other liquid fuels, that include biofuels, for 
example.
    The second challenge--and I--my friend and colleague, Dr. 
McCormick, mentioned that the challenge we have in both the 
automotive business and the energy business, like Chevron--is 
the sheer scale of these endeavors. One of the challenges today 
is that most hydrogen production at site run what are called 
100 kilograms. Let me convert. Kilograms----
    Senator Alexander. Dr. Paul, we'd like to go on to Dr. 
Balcom, then come back to all four of you for questions.
    Dr. Paul. OK. I would just finish.
    Increasing the scale by at least a factor of ten is a 
critical requirement.
    I will close with two--focus on just two specific 
recommendations. One is, continue to support the 
demonstrations, because they do things in practice that you 
can't do in the lab. Second, it's very important to continue to 
fund basic research, particularly with respect to the number-
one priority of storage.
    Thank you very much, and I look forward to your questions.
    [The prepared statement of Dr. Paul follows:]

  Prepared Statement of Dr. Donald L. Paul, Vice President and Chief 
         Technology Officer, Chevron Corporation, San Ramon, CA

    Mr. Chairman and Members of the Senate Energy Committee, Chevron is 
pleased to have the opportunity to testify before the Senate Energy and 
Natural Resources Committee on the future of hydrogen as a 
transportation fuel as well as DOE's hydrogen program and the impact of 
the Energy Policy Act (EPACT) in advancing hydrogen as a fuel.
    As Chevron's Chief Technology Officer, I oversee all facets of our 
company's new energy technology development and commercialization, 
including hydrogen generation and hydrogen infrastructure, and can 
share our experience as well as our views regarding the critical steps 
required in the development of this technology.
    By way of background, Chevron is an integrated, global energy 
company that produces oil, natural gas, transportation fuels and other 
energy products. We operate in 180 countries and employ more than 
53,000 people world-wide. Chevron is the second-largest U.S.-based 
energy company and the fifth largest in the world, based on market 
capitalization. We are also involved in a wide-range of advanced clean 
energy and fuel technologies.
    Chevron is committed to diversifying our nation's fuel supply. 
Although there is no ``silver bullet'', we are actively pursuing new 
energy and fuel sources including biofuels, gas to liquids and hydrogen 
to name just a few. As Chevron's Chairman and CEO David J. O'Reilly, 
has discussed on numerous occasions, including at a speech over two 
years ago at the U.S. Chamber of Commerce here in Washington, D.C., we 
are facing a new energy equation as the world's demand for energy 
grows. I believe that we are going to need every form of energy, we 
must develop new types of energy, and we must increase energy 
efficiency and conservation. We at Chevron are committed to providing 
U.S. citizens reliable and affordable supplies of energy.
    Before discussing Chevron's extensive and innovative work in the 
hydrogen infrastructure area over the past 5 years, I would like to 
briefly mention that just over a month ago Chevron announced the 
formation of a new biofuels business unit to specifically pursue 
opportunities for supply of biofuels, and development of cellulosic 
ethanol. We have biofuel projects underway, including investing in 
development of a large scale biodiesel plant in Galveston, Texas and an 
E-85 demonstration project in California.
    In terms of hydrogen fuel, we believe that fuel-cell technology and 
related infrastructure technology will continue to evolve. In current 
use are stationary fuel cells which generate high reliability and 
quality power and are commercially available today. Chevron has 
installed two stationary fuel cells at our facilities in San Ramon, 
California, and Houston, Texas. These fuel cells convert hydrogen from 
natural gas into electricity, clean water and usable heat, and provide 
secure, digital-grade power to select data systems and laboratories. We 
undertook these projects to gain experience with designing and 
installing stationary fuel-cell systems, and to help us translate this 
experience into other types of fuel cell projects. Our subsidiary, 
Chevron Energy Solutions, has installed fuel cells in many facilities, 
including at U.S. Postal facilities.
    In addition to stationary power, we believe that hydrogen may 
provide a viable transportation fuel under certain conditions in the 
nearer term, such as for transit systems, while future widespread use 
for passenger vehicles will be dependent on resolving technological and 
economic challenges. We believe that central vehicle fleets and transit 
systems are the most practical means of using hydrogen in the near 
future in addressing both infrastructure as well as vehicle challenges. 
Fleets, such as buses, use a centralized fueling point and hydrogen 
storage can be overcome by vehicle size. Although hydrogen has many 
positive attributes as a transportation fuel, as I will discuss, there 
are still some major challenges that must be overcome before hydrogen 
will be an integral component of the fuel mix. We are still very much 
in the learning and demonstration mode.

             CHEVRON'S RESEARCH AND DEVELOPMENT INITIATIVES

    Chevron has been a leader in researching and demonstrating the 
potential for using hydrogen as a transportation fuel, including using 
proprietary reforming technology developed at our labs to generate 
hydrogen on-site. We are the only major energy company leading projects 
under DOE's ``Controlled Hydrogen Fleet and Infrastructure 
Demonstration and Validation Program'' with our auto partner, Hyundai 
and fuel cell partner, UTC. This demonstration program is a unique 
five-year cost-share program in which autos and energy company partners 
develop demonstration sites, test vehicles and infrastructure, and 
share information in coordination with the DOE. Currently participating 
are all three major U.S. auto companies and Hyundai, three major energy 
companies and a number of fuel cell companies and other related 
businesses, many of whom are smaller, new technology suppliers.
    We believe that this demonstration program is the centerpiece of 
DOE's hydrogen program, and is critical to advancing hydrogen as a 
practical transportation fuel. Often times, we see the infrastructure 
part of the energy equation being ignored or forgotten entirely. Our 
current infrastructure for fuels took over 100 years to fully develop--
and given the complexities, it is absolutely critical that both the 
fuel cell vehicles and the hydrogen infrastructure be developed 
simultaneously. In Title VIII of EPACT, there is also a demonstration 
program included, and we believe that it needs to be complementary to 
the one now well underway for the past three years, rather than 
competitive and creating potential duplication. The Hydrogen Fleet and 
Infrastructure Demonstration program must be completed, results 
evaluated, and shared among all parties to better define a roadmap for 
the future.
    Under the DOE's Hydrogen Fleet and Infrastructure Demonstration 
program, we currently have two demonstration projects in full operation 
in California and are planning two additional sites, including a cold 
weather site in Michigan in coordination with the Department of 
Defense. The first demonstration site opened in Chino, California, in 
February, 2005, at the Hyundai Research Center. We provided our on site 
reforming technology and hydrogen pumps for the station, and are 
testing three passenger vehicles. The second demonstration site is at 
the AC Transit Bus headquarters in Oakland, California, and again we 
installed reforming technology and pumps for three fuel cell buses that 
travel in daily operation throughout the city. The site will be 
expanded in the future to incorporate the next generation of reforming 
technology and provide increased hydrogen production. The benefit of 
this demonstration project is that it allows citizens to actually 
experience riding the buses and directly benefit from the technology. 
Our infrastructure portions of these projects are unique--as I 
mentioned, we produce the hydrogen on-site, on-demand. We believe that 
decentralized production is a very important infrastructure pathway for 
a number of reasons--not only do you save transporting the hydrogen 
which is very difficult (unlike gasoline), but also it allows you to 
control how much is manufactured and stored for consumption when it is 
needed. In addition, having the hydrogen production on-site provides 
the potential for hydrogen to be supplied to power a stationary fuel 
cell.
    We have learned many lessons from the demonstrations that we can 
share, and believe these could not have been learned had the DOE 
program only operated in laboratory and research settings. For example, 
our station systems are designed to run safely in an unattended 
remotely monitored production mode, (such as a fueling station would in 
the future), and therefore, the scope and sophistication of the 
technology we installed for the demonstrations is aligned with the path 
towards commercial reality. Another example is leak detection systems--
these are particularly important for hydrogen production and storage 
systems and our demonstration facilities employ state-of-the-art, 
industrial-grade systems. We are now beginning to understand both the 
detailed and broad engineering factors which must be incorporated to 
meet commercialization standards. This knowledge is being used for 
future system improvements, and to gain the cost efficiencies essential 
for eventual commercial implementation. Because this is a new fuel 
infrastructure, the supplier community is new, often comprised of 
smaller companies, and needs to be developed to industrial-scale 
standards and size. The demonstration program has been an essential 
mechanism in developing this community. At this point, we have also 
learned that site location is very important, and permitting can be 
challenging due to various levels of understanding by local officials. 
We understand the value of public consultation and education as part of 
developing a demonstration site and the need for this as the technology 
develops. Also we are familiar with how to build confidence with 
important stakeholders, such as our site host, fire marshal and vehicle 
operators, in using the technology.

                    CHALLENGES TO COMMERCIALIZATION

Production and distribution of hydrogen
    Hydrogen must be available when and where it is will be needed. 
Hydrogen is a fuel--not a natural resource. It must be manufactured 
from other sources, so how the supply system is developed is critical. 
The two primary sources of hydrogen are water and hydrocarbons. For the 
past 50 years, Chevron and the industry have been engaged in the large-
scale conversion of hydrocarbons to hydrogen through refinery and 
gasification processes. As you may be aware, oil refineries are the 
largest current producers and users of hydrogen. Additional industrial 
uses are for chemicals, metals, and electronics manufacturing. 
Approximately 9 million tons of hydrogen is produced for industrial 
applications in the United States (world-wide production is about 40 
million tons). The core technical and business challenge is to 
transform and adapt the hydrogen production and distribution system to 
support a much broader energy supply system for transportation and 
distributed power. The fundamental properties of hydrogen create both 
opportunities (it can be made from a variety of sources) and challenges 
(distribution and storage).
    In Chevron's hydrogen program, we are adapting long-standing core 
competencies and proprietary technologies in fuels, catalysis, and 
process engineering to explore the development of a new distributed 
fuel-processing and delivery infrastructure. The fundamental technology 
model relies on distributed, on-demand production of hydrogen, thereby 
materially reducing the costs and logistical barriers associated with 
large-scale transportation of hydrogen and significant onsite storage. 
Distribution and storage are the two primary cost components for 
hydrogen (as compared to production). It is important to note that this 
is essentially the opposite of gasoline, where production costs 
dominate distribution and storage. For the current generation of 
hydrogen infrastructure demonstrations, Chevron has concentrated on 
miniaturizing and distributing natural gas reforming and processing 
technology. This creates maximum use of the existing and extensive 
natural gas grid, resulting in dramatically reduced costs for the early 
stages of developing the infrastructure. Successful current R&D 
programs would allow for the extension of the small-scale reformer 
technology to utilize other light hydrocarbon feedstock as well.
Storage of hydrogen
    Storing hydrogen in the car, at the refueling station and 
throughout the delivery infrastructure is a significant critical path 
challenge. The nature of the storage problems vary by application and 
each deserve the attention of R&D and demonstration by industry, 
national labs and the DOE. While much attention is given to storing 
hydrogen on board the vehicles, and rightly so, similar attention is 
needed in the other critical locations in the hydrogen infrastructure. 
In particular, cost effective dynamic storage in moderate volume is 
essential at the production and fueling sites. Today, all hydrogen 
storage is essentially in high-pressure vessels, typically at 5,000 
pounds per square inch. Even at these pressures, the energy stored is 
far lower than with typical liquid hydrocarbon fuels. Where space is 
not a pressing limitation, such as with our production sites or on 
large vehicles, such as busses, the current technology is functional, 
but expensive. For the evolution to light duty vehicles, most believe 
that cost effective solid-state storage will be required. This is an 
important focus area for R&D programs. The bottom line is that the 
development of the infrastructure for hydrogen as a fuel will require 
advancements across a full system including production, distribution, 
and storage.

New codes and standards need to be developed that permit the 
        development of the infrastructure
    Existing building codes and hydrogen system design standards were 
not developed with consumer applications in mind. Today's codes provide 
large distance ``setbacks'' from other facilities that limit the 
locations where hydrogen can be manufactured, stored and dispensed. 
This was appropriate for hydrogen applications and applications of the 
20th century, but they make retrofits of existing sites with limited 
area for expansion impractical for future hydrogen facilities.
    Codes and standards will need to be updated to reflect the 
developments in safer hydrogen technologies arising from the new 
storage and control system technologies. In some cases, building codes 
will need to be strengthened to ensure safe maintenance facilities. 
Through research and demonstration of hydrogen generation and storage 
technology we will be able to gain the necessary safety knowledge which 
will lead to data driven codes and standards that do not currently 
exist.

                      PATHWAY TO COMMERCIALIZATION

    We at Chevron anticipate that, realistically, the hydrogen supply 
of the future will have to be produced by a blend of energy sources--
both hydrocarbons and renewable sources. This is the only scenario we 
can foresee that will enable hydrogen markets to emerge at scale, to 
adapt to diverse market structures, and allow hydrogen businesses to 
become profitable over the long term.
    An avenue that leverages using the existing current infrastructure 
to produce hydrogen will be a critical step. We believe that using a 
distributed generation model will provide the most cost effective way 
to support the development of a fuel cell market. The technology to 
make this happen is small reformers and small electrolyzers. Providing 
consumers with this practical solution may help remove fuel 
availability as a near-term impediment to commercial adoption of fuel-
cell vehicle systems.
    Greenhouse gas emissions are being reduced using current reforming 
technology to produce hydrogen, and, in the future, those emissions may 
be further reduced by adding renewable energy sources, such as solar or 
wind, to produce hydrogen through electrolysis.
    In sum, to develop a commercial-scale infrastructure, the cost of 
using hydrogen to consumers needs to be competitive in the market with 
other energy fuels. Large scale deployment requires that energy 
suppliers be convinced that hydrogen can compete with other fuels in 
the market. While there is reason for encouragement in special markets, 
broad commercial applicability has not been demonstrated.
    Participation by auto companies, energy companies, and communities 
in the development of demonstration fleets of fuel-cell cars and buses 
will be important to get the infrastructure started and to prove the 
value and functionality. Specialty applications and niche markets that 
use much of the same technology but in different products are going to 
be important and will be a signpost along the pathway. One opportunity 
in this area may be for use of the hydrogen and fuel cell technology by 
the military. In addition, applications, such as airport ground 
equipment vehicles and fleets of industrial vehicles with centralized 
and stationary refueling, need to be successful before consumers are 
likely to be a significant user of this technology.

                     PUBLIC POLICY RECOMMENDATIONS

    To pursue commercialization of hydrogen infrastructure and fuel 
cell technology, we believe that there are several critical areas for 
policy action. We recommend the following:

          1. Continue to Support DOES Hydrogen Fleet and Infrastructure 
        Demonstration and Validation Program: It is absolutely critical 
        that DOE work on the infrastructure issues simultaneously with 
        fuel cell vehicle development and storage technology which is 
        being done with these demonstration projects. Energy companies 
        have a key role to play in the development of the fuel cell 
        market and Chevron is committed to helping the U.S. market move 
        towards safe and cost competitive solutions. This should be a 
        high priority in terms of DOE and other government R&D support.
          2. Fund Key Basic Research: We believe that fundamental 
        research must continue to be supported by Congress for this 
        technology to move towards commercialization. Basic research 
        performed by DOE national laboratories, the private sector, and 
        academia will create the essential science and technology base 
        needed for long-term, sustained advancement of hydrogen. We 
        believe that the number one priority for this should be 
        hydrogen storage. Without resolving the significant technology 
        challenges, it will be very difficult to move forward on the 
        large-scale implementation of hydrogen as a fuel.
          3. Engage Private Industry In Commercialization: We believe 
        that this will help make the technology commercial, and also 
        focus government priorities on areas where there is the most 
        need. Chevron has already significantly invested in R&D in the 
        areas of hydrogen generation and storage. However, public-
        private sector partnerships are needed to provide the resources 
        necessary to create conditions to allow commercialization of 
        technologies that may not see economic returns for decades.
          4. Public Education: When new technologies are on the 
        horizon, there is a lot of fanfare and media attention 
        surrounding the development of the technology. Unfortunately, 
        this leads to unrealistic public expectations. As the hydrogen 
        market evolves over the next few decades, technology 
        breakthroughs will change the way hydrogen is made and supplied 
        to the consumer. It is important that the public understand the 
        market drivers, environmental benefits and cost benefits and 
        challenges associated with each stage of the transition. The 
        physical reality in the community provided by demonstration 
        projects can uniquely educate the public.
          5. Monitor Market Signals: Often we see that factors can 
        change the need for a particular technology--either increasing 
        or decreasing demand. Some of these factors may include 
        competing technologies, availability of resources, and public 
        opinion. We believe that this is addressed by EPACT in the 
        roadmaps and studies required by the law. Periodic reviews will 
        be necessary to assess progress, to steer or change policy as 
        needed, and to implement appropriate mid-course corrections.

    EPACT, for the first time, provides an authorized path forward for 
the hydrogen program which is very positive. It is appropriate that 
Congress oversee the DOE program and that public-private partnerships 
continue. We find that a partnership-based approach gives the most 
flexibility, delivers the best value for the dollars invested, and 
speeds the pace of technological innovation.
    Thank you for the opportunity to testify and I would be happy to 
answer any questions.

    Senator Alexander. Thank you, Dr. Paul.
    Mr. Balcom.

  STATEMENT OF JAMES D. BALCOM, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, POLYFUEL, INC., MOUNTAIN VIEW, CA

    Mr. Balcom. Good afternoon, Mr. Chairman. My name is Jim 
Balcom, and I'm the president and CEO of PolyFuel, a world 
leader in engineered membranes for fuel cells.
    Mr. Chairman, the Energy Policy Act of 2005 contains a 
variety of R&D initiatives designed to accelerate the 
commercialization of fuel cell technology, and I want to thank 
the committee for its leadership in drafting this legislation, 
and I would urge the committee to continue to advocate the full 
funding for the implementation of the act.
    As the committee evaluates the administration's progress in 
implementing the act, I'd like to share two observations.
    First, while the automotive application will allow society 
to realize the environmental benefits of fuel cells, the 
success of fuel cells in this critical market will be preceded 
by, and catalyzed by, their success in the portable power 
market.
    And second, companies and governments that want to have a 
leadership role in automotive fuel cell technology must play an 
active role in the introduction of fuel cells into the portable 
market. And the reasons for this are several. First of all, the 
portable fuel cell application ranks higher in six critical 
areas, in terms of market readiness. The cost targets are much 
easier to hit. Second, the durability or lifetime targets are 
much easier to hit. Third, the fuel infrastructure, which we've 
just learned about, is much easier to put in place than in the 
automotive application.
    Fourth, the regulatory changes are much easier to put in 
place and are already well on their way to being established.
    And, fifth, the market kinetics--that is, the speed at 
which new technology is adopted--in the portable power 
marketplace is much more rapid than in the automotive 
application.
    And, last, consumer demand for the longer run times that 
this portable fuel cell technology enables is very strong.
    And these last two are the most critical. From history, we 
know that technological progress happens most rapidly in real 
markets with real demand pressures. And the examples of this 
are all around us, from rates of improvements in digital camera 
technology to hard-disk-drive technology and portable computing 
technology.
    Unlike the automotive fuel cell market, where the best-case 
scenario has fuel cell technology meeting the DOE's commercial 
targets in mid-next-decade, we believe that strong consumer 
demand and these rapid market kinetics will result in the 
implementation of fuel cell technology within the next 2 to 3 
years in the portable arena. After that, the subsequent mass 
commercialization of portable fuel cells will catalyze the 
automotive market, and that's because of the experience-curve 
effect. This occurs as new designs, materials, and processes 
are developed to meet market demand and solve real customer 
problems, and we predict that these innovations in portable 
fuel cells will have direct spinoff benefits for automotive 
fuel cells, which share many similar designs, materials, and 
processes as portable fuel cells.
    And we feel that we're already seeing this at PolyFuel, 
both internally and externally. Internally, we have spent a 
significant amount of money developing membranes for portable 
fuel cells, and that knowledge has led us to achieve critical 
advances in membrane technology for automotive fuel cells, as 
well. And externally, a number of leading fuel cell industry 
players have recently recognized the opportunity for market 
leadership--this is overall market leadership--and are moving 
convincingly into the portable fuel cell market space.
    The 21st century will be dominated by energy concerns, and 
fuel cell technology will play a key role in U.S. efforts to 
achieve energy independence, improve the environment, and grow 
the economy. However, without a strong presence in portable 
fuel cells, the United States risks missing the boat in the 
broader fuel cell market applications. The U.S. auto industry 
has already experienced this to some extent with hybrid vehicle 
technology, where one U.S. auto executive complained recently 
that it could manufacture and sell more hybrid vehicles, but it 
could not obtain enough hybrid components from the foreign auto 
manufacturer that developed the technology.
    The United States has the opportunity to solidify a strong 
leadership role in fuel cell technology, but it must act now to 
strengthen government and industry partnerships and refine the 
key enabling technologies to realize this opportunity.
    I recommend that the Government reinstate funding for the 
competitively awarded, cost-shared portable fuel cell programs 
that were deferred, based on budget constraints, by the 
Department of Energy in early 2006. And, second, I also 
recommend that the Government look for ways to increase its 
support for research, development, demonstration, and 
commercialization of portable fuel cell technology. In this 
way, I strongly believe that the United States will best 
position itself to benefit from the synergies that will soon be 
available as portable fuel cell technology acts to catalyze the 
automotive fuel cell application. And in an era of rapid 
decline in domestic manufacturing jobs, the importance of 
securing a leadership position in this next-generation 
technology cannot be overstated.
    I appreciate the opportunity to appear before the 
committee. I look forward to your questions.
    Thank you.
    [The prepared statement of Mr. Balcom follows:]

   Prepared Statement James D. Balcom, President and Chief Executive 
               Officer, PolyFuel, Inc., Mountain View, CA

                            I. INTRODUCTION

    Good afternoon, Mr. Chairman. My name is Jim Balcom, and I am the 
President and Chief Executive Officer of PolyFuel, a world leader in 
engineered membranes for fuel cells.
    PolyFuel is headquartered in Mountain View, California, and our 
leading-edge hydrocarbon membranes enable a new generation of portable 
and automotive fuel cells that for the first time can satisfy the 
desire for long-running and cost-effective portable power, and can 
deliver on the long-awaited promise of clean, efficient automotive 
power based upon renewable energy sources. PolyFuel's unmatched 
capability to rapidly translate the system-level requirements of fuel 
cell designers and manufacturers into engineered polymer nano-
architectures has led to its introduction of best-in-class hydrocarbon 
membranes for both portable direct methanol fuel cells and for 
automotive hydrogen fuel cells. Such capability--based on PolyFuel's 
more than 150 combined years of fuel cell experience, world-class 
polymer nano-architects, and a fundamental patent position covering 
more than 23 different inventions--also makes PolyFuel an essential 
development partner and supplier to any company seeking to advance the 
state of the art in fuel cells. Polymer electrolyte fuel cells built 
with PolyFuel membranes can be smaller, lighter, longer-running, more 
efficient, less expensive and more robust than those made with 
conventional fluorocarbon membrane materials.
    PolyFuel was spun out of SRI International (formerly Stanford 
Research Institute), in 1999, after 14 years of applied membrane 
research. The company is publicly listed on the AIM stock exchange in 
London.

         II. PORTABLE POWER--CATALYZING THE FUEL CELL INDUSTRY

    Mr. Chairman, as the Committee on Energy and Natural Resources 
conducts oversight and evaluates the Administration's progress in 
implementing the Energy Policy Act of 2005, I would like to share with 
the Committee two extremely important observations:

          1. While the automotive and stationary markets will allow 
        society to realize the environmental benefits of fuel cells, 
        the success of fuel cells in these markets will be preceded and 
        catalyzed by their success in the portable power market.
          2. Companies and governments that want to have a leadership 
        role in automotive and stationary fuel cells must play an 
        active role in the introduction of fuel cells into the portable 
        market.

    Simply put, widespread adoption of fuel cells, and their long-term 
commercial viability, depends heavily on their rate of adoption in the 
power-hungry portable market. The U.S. government's focus on automotive 
and stationary markets is based on our need to increase energy 
independence, reduce emissions from power generation and transportation 
sources, economically revitalize the automotive sector domestically, 
and improve the reliability of our electric grid. Unfortunately, this 
strategy neglects the fact that portable fuel cells will achieve 
widespread adoption before automotive or stationary fuel cells are 
commercialized, and the positive impact that commercialization of fuel 
cells in the portable sector will have on the introduction of 
automotive and stationary fuel cells. This disconnect is not limited to 
government policy; companies who elect to focus their energies on the 
more technologically challenging but less immediate market segments, 
such as automotive or stationary, will ``miss the boat'', even in their 
own targeted markets. Unlike the automotive or stationary fuel cell 
markets, the commercialization of fuel cells into the portable market, 
supported by the development of high performance hydrocarbon membranes, 
is viable today.
    Key distinctions between these three sectors are highlighted in the 
table below:

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Market Drivers.......................................   Niche Opportnity         Oil Supply             Urgency
                                                                             Global Warming    ``Run-Time GAP''
Market Kinetics......................................               Slow            Glacial               Rapid
Cost vs. Targets
  Low volumes........................................             5-10 X           50-100 X            In Range
  Commercial volumes.................................              1.5 X              3.5 X            In Range
Durability vs. Targets...............................              2/5th              2/5th            In Range
Regulatory Environment...............................         Achievable                   Complex             Coalesing
Fuel Infrastructure Requirements.....................             Simple           Profound              Simple
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Energy, Ballard, Honda, PolyFuel, and others.

Market Dynamics
    The global effort to commercialize fuel cells in automotive and 
stationary applications is primarily driven by a desire to reduce the 
environmental impact of combustion engines and power plants fueled by 
hydrocarbon based fuels such as gasoline, diesel, natural gas, and 
coal. Additional drivers include a desire to reduce consumption of 
petroleum in the face of concerns about the stability and longevity of 
oil supplies, and a need to revitalize both the domestic auto industry 
and the aging power grid.
    Unfortunately, and ironically, the dynamics of the automotive fuel 
cell markets resemble the pace of the environmental changes caused by 
global warming. The best case scenario in the automotive market has 
fuel cell technology meeting commercial targets outlined by the DOE in 
2015, followed by commercial introduction around 2020. It is likely 
that significant environmental benefits from fuel cell vehicles will 
not be realized until the second half of the century. Similar dynamics 
exist in the stationary market.
    The portable market, on the other hand, is characterized by rapid 
cycles of new product introduction and technological progression as 
illustrated by Moore's Law and the emergence of more and more advanced 
devices such as cellular phones, laptop computers, personal digital 
assistants, and media players. In addition to more computing power, 
these latest devices are taking advantage of growing wireless 
connectivity to deliver to users more and more capability such as 
mobile TV, wireless music downloading, and GPS among others. 
Unfortunately, these advanced capabilities require more power and 
energy than current and future battery technology can deliver. This 
deficit manifests itself in decreased runtimes for the ``power user'' 
class of consumers. Content providers, wireless carriers, portable 
device makers, and battery manufacturers are all feeling the pain and 
are urgently seeking a solution to this problem.
    PolyFuel refers to the gap between the capabilities of available 
battery technology and the demands of power hungry portable devices as 
the ``runtime gap''. Recently published studies indicate that portable 
device power demand is increasing three times faster than the rate of 
battery improvement. The Boston Consulting Group predicts that by 2010, 
the demand for energy is forecast to be four times that which is 
available using conventional technologies. Without a better power 
supply such as a portable fuel cell, users of contemporary personal 
electronic devices will experience runtimes measured in tens of minutes 
versus the hours that they will demand.
Technology Readiness
    In addition to more challenging market dynamics, automotive and 
stationary applications have product requirements and environmental 
operating conditions that are much more demanding than those in the 
portable market. Two of these that are particularly challenging for 
fuel cells are cost and durability. As shown in the table above, the 
costs for today's automotive and stationary fuel cell technology, 
either at today's low volumes or when projected to commercial scale 
volumes, are well in excess of what is required for mass 
commercialization. A similar disparity exists for durability, where to 
date the industry has only been able to achieve lifetimes that are 40% 
of what is required for automotive and stationary applications.
    Portable fuel cell durability is well within the required operating 
lifetime of 2,500-5,000 hours. PolyFuel has demonstrated lifetimes of 
6,000 hours with the fuel cell membrane, the most critical and 
sensitive component in a portable fuel cell.
    Commercial cost targets for portable power supplies, which range 
from $5,000 to $10,000/kW, are achievable today with Direct Methanol 
Fuel Cell (DMFC) technology. DMFC, the fuel cell technology of choice 
at most of the leading consumer electronics companies and all of the 
leading rechargeable battery companies, is widely considered to be 
ideal for the portable fuel cell application due to methanol's safety, 
energy density, low cost, ease of use, and ease of transport.
Regulatory & Infrastructure Requirements
    Two other critical areas where the portable market compares 
favorably against the automotive and stationary markets are regulation 
and infrastructure. Before any significant adoption of fuel cells can 
take place in the automotive market, codes and standards in diverse 
areas such as hydrogen storage, hydrogen sensing, refueling, car parks, 
garages, fire, insurance, and building construction need to be adopted. 
Even more challenging will be the development of a multi-billion dollar 
``hydrogen infrastructure'' which includes widespread compressed 
hydrogen gas distribution, filling stations and storage depots. While 
the infrastructure issues for the stationary application are relatively 
simple, regulatory issues are complicated by the fact that many of the 
relevant codes and standards for stationary devices are different from 
city to city and state to state.
    In contrast, the regulatory and fuel infrastructure issues in the 
portable market are relatively simple, particularly after the recent 
decisions by the United Nations and the International Civil Aviation 
Organization that have set the stage for the carriage and use of 
methanol fuel cartridges onboard commercial aircraft. Such fuel 
cartridges, resembling disposable cigarette lighters, will, in the not-
too-distant future, be available in every convenience store and 
market--which explains why companies such as BiC, Tokai, and Duracell 
are very active in the development of methanol fuel cartridges for fuel 
cells.
Portable as a Gateway to Automotive & Stationary
    More than any other factor, the key variable that drives rapid 
technological and commercial progress is market demand. Significant 
market demand driven by the ``runtime gap'' is going to drive portable 
fuel cells to mass commercialization years before automotive fuel cells 
become economically viable, or stationary power fuel cells become 
widely deployed. Portable device manufacturers engaged in fuel cell 
systems development include Samsung, BYD, NEC, Sharp, LO, Sanyo, 
Fujitsu, Hitachi, Toshiba, and Sony; and all of these companies are 
well positioned to roll-out fuel cell solutions that address the 
``runtime gap'' for multiple products before the end of the decade.
    The mass adoption of portable fuel cell technology will have a 
catalyzing impact on the commercialization timelines for fuel cells in 
the automotive and stationary markets. The three markets share many 
characteristics, including materials, suppliers, and manufacturing 
processes. Portable fuel cell technology shares many components with 
fuel cells for automotive & stationary applications. Wide and early 
adoption of portable technologies will provide experience to industry 
and consumers, develop a supply base, and drive economies of scale 
which will benefit commercialization of automotive and stationary fuel 
cells.
    It is well understood that government support for research and 
development is critical to sustain the leadership position that the 
United States has achieved in the global race towards a fuel cell-based 
economy. Less well understood is the importance that government 
investment into the portable sector will have on both speeding 
commercialization of fuel cells in the automotive and stationary 
markets and on the potential for the United States to recover its 
leadership position in the $5 billion portable power industry that long 
ago moved overseas. In an era of a rapid decline in domestic 
manufacturing jobs, the importance of this potential cannot be 
understated.
    Most of the U.S.-based companies in the portable power arena are 
working with foreign partners that will have prototypes available 
within the next 12 to 24 months. Without sufficient attention by the 
U.S. Government, it is possible that by the time the initial 
applications which integrate portable fuel cells take root here in the 
U.S., their design and manufacture will be firmly entrenched offshore. 
This scenario is not unlike that of Lithium ion batteries, whose 
technologies were predominantly developed in the U.S. but 
commercialized first in Japan, and are now produced exclusively by 
foreign companies in Asia.
    It should be noted that in addition to the growing consumer demand 
for extended-run portable power in commercial products, U.S. military 
forces are also actively seeking alternatives to conventional battery 
technology to extend the run-time of critical sensor, soldier power, 
communications, and auxiliary power systems. As the Defense Department 
continues its efforts to transform the U.S. military into a more 
strategically responsive ``network centric'' force, I believe it is 
critical that the Departments of Energy and Defense work more closely 
to jointly leverage technology development and demonstration 
activities, and to ensure that the U.S. maintains both the 
technological capability and surety of supply necessary to promote our 
overlapping commercial and military interests.
    The Energy Policy Act of 2005 contains a variety of initiatives 
designed to accelerate the commercialization of fuel cell technology. 
Most importantly, the legislation supports new funding for research and 
development; it also calls for increased technology validation and 
establishment of a modest market transition program. This comprehensive 
approach will complement existing programs, improve technology, and 
stimulate a reliable supply base. Importantly, I believe this strategy 
will help deliver the key technologies that must be developed to meet 
the deployment timelines set forth by the President and Congress. I 
would urge the Committee to continue advocating full funding for the 
implementation of the Energy Policy Act of 2005.

                            III. CONCLUSION

    Mr. Chairman, as I have outlined in my testimony, the success of 
fuel cells in the automotive and stationary markets will be preceded 
and catalyzed by their success in the portable power market. Companies 
and governments that want to have a leadership role in automotive and 
stationary fuel cells must play an active role in the introduction of 
fuel cells into the portable market. Wherever possible, the U.S. 
Government should increase financial support for research, development, 
demonstration, and commercialization of portable direct methanol fuel 
cell technology within the Department of Energy's broader Hydrogen, 
Fuel Cells, and Infrastructure program. Additionally, funding should be 
reinstated for competitively-awarded, cost-shared portable fuel cell 
programs that were deferred by the Department of Energy in early 2006 
based on budget constraints.
    I appreciate this opportunity to appear before the Committee, and I 
look forward to your questions.
    Thank you Mr. Chairman.

    Senator Alexander. Thank you, Mr. Balcom.
    I'm going to ask Senator Domenici if he's like to ask the 
first questions in this round.
    The Chairman. Well, I appreciate it. And I won't do justice 
to the panel. I'm thankful for you setting this up. This is the 
kind of panel that we would need a full 3 hours with five or 
six more Senators, because this is a truly exciting series of 
observations, and you have been cut short. And I'm not going to 
sit here and tell you that I'm going to help out much, because 
I'm supposed to be somewhere at 4 o'clock, and--just like 
everybody else. That's a true statement, and I'll have to do 
that.
    But let me jump around.
    Mr. Balcom, you noted, in passing, that there were many 
provisions in the Energy Act which we are very proud of--I hope 
you are--many provisions that do justice to the area we're 
speaking of: fuel cells. But then you quite properly said, as I 
understand the problem, we should push hard to fully fund the 
programs. Do I read you that that means that the programs are 
nicely worded and nice, cherished American goals, but, unless 
you put some money in them, they're not going anywhere, and 
that they're not funded very fully in--so far? Is that a fair 
assessment?
    Mr. Balcom. That's as we've experienced it. As a matter of 
fact, there were several competitively awarded cost-shared 
programs focused in the portable space. And I think this was a 
recognition by the Department of Energy that one needed to 
balance the early market opportunities with the mid- and the 
longer-term opportunities. And these competitively awarded 
programs, indeed, did do that. My understanding----
    The Chairman. Well, I don't know what to do about it. I'm 
so frustrated. We went ahead and funded about $350 million over 
and above the executive branch this year in the Appropriations 
Subcommittee for energy activities found in the Energy Act. 
Now, I can't go back and think how many of them were in the 
area we're speaking of, but that's a pretty nice plateful when 
there was no money to back it up. We just had to take it out of 
something else, so we tried. But that's a tough, tough problem.
    You noted in your testimony that the portable market is 
moving toward direct methanol fuel cells. Do you think that 
ultimately these same fuel cells could be used in vehicle 
applications?
    Mr. Balcom. Not exactly that same technology, Mr. Chairman, 
but a similar technology. The direct methanol fuel cell bears 
many similarities with the solid polymer PEM fuel cell 
technology, which is being used for automotive fuel cells.
    The Chairman. Dr. Paul, in your testimony and--here before 
us, you talked about Chevron's--and you used some descriptive 
words regarding its research facility. What did you call it? 
Full center?
    Dr. Paul. Yes, it's a full research facility devoted to 
hydrogen.
    The Chairman. Full center devoted to hydrogen. And how much 
do you--for purposes of letting the public know that you are 
investing in matters like this, how much is invested in that by 
you?
    Dr. Paul. Well, we have been spending at the rate of about 
$50 million a year.
    The Chairman. About $50 million a year.
    Dr. Paul. Yes.
    The Chairman. So, when they say you aren't interested in 
options for vehicles that aren't going to be run by gasoline, 
this is at least $50 million worth of interest, right?
    Dr. Paul. Yes, Senator. In fact, I would argue that we're 
basically in the broad energy business, and diversifying the 
range of molecules that we have to provide energy and fuel, I 
think, is the key to the future.
    The Chairman. Well, that's what my guess would be.
    Dr. McCormick, General Motors has made impressive 
progress--and you have stated that today--in fuel cell 
technology, much of that in recent years, although it's not 
yesterday. What are the greatest--or what are the remaining 
technical challenges, as you see them? Tell them to us.
    Dr. McCormick. Well, first of all, I think that the early 
generation technology can be done with derivatives of things we 
know today. So, first of all, I think the notion of a 
breakthrough for early generation is probably not critical. I 
think over a longer period of time the need for advanced 
hydrogen storage is absolutely critical, because we want to 
make it cheaper and more condensed on the vehicle. So, I'd say 
hydrogen storage is the leading thing that we want to focus on.
    Most importantly--and it may be implied in your question--
my mind today goes much more to commercialization and the 
challenges of getting it out of the laboratory and into the 
market, because of that ``valley of death'' problem, where we 
have very, very low volume, and trying to figure out how we 
actually bootstrap this technology up, like the Minuteman 
Program did for silicon chips, like ARPANET did for Internet, 
like the Transcontinental Railroad was done. I think we are 
going to have to have a very good partnership between 
government and industry, in terms of actually, as you said 
earlier, making the market. That's where my real thoughts are 
these days.
    The Chairman. Well, Doctor, it seems to me that--as I 
reviewed for today, it came back to me that the big monkey on 
this future is, What do we do, ultimately, with the carbon 
dioxide? Because we can play around with it on a small scale, 
but, when we get to the big-time, and we hit the big leagues, 
we've got be talking about getting rid of it permanently. And 
that means we've got to make those technical breakthroughs that 
are much different than the one's we're making now. They've got 
to be the ultimate disposition of carbon dioxide.
    Dr. McCormick. Correct.
    The Chairman. Right?
    Dr. McCormick. Right.
    The Chairman. And that's not there yet. So, I mean, I would 
hope you would say when next--when you're asked what the big 
issues are--that's a big one, right?
    Dr. McCormick. I speak about it from a car company, and I 
think Don Paul can talk about it from the energy side, but 
certainly we've got to mobilize all the sources of energy. No 
doubt about it.
    The Chairman. If you listen here, it's the same for 
automobiles, because if it's going to make a big dent in the 
transportation energy, which is the transportation crude oil 
usage, which is what we're talking about--to be a big player 
there, that's going to have to be a macroimpact, which is still 
going to get back to--you've got to get rid of the 
CO2, not just on an interim little bit--play a 
little game, but really getting rid of CO2.
    Dr. McCormick. Right.
    The Chairman. Now, Mr. Leuliette, I was very impressed with 
your great knowledge, and also sympathetic toward your position 
about where you and your suppliers are in this marketplace, and 
how you get so easily overlooked, not found, forgotten, which--
depending upon which way you look at it. But tell me--part of 
that's because it's hard when there are so many small--so many 
thousands of components that are called what you are. But let 
me ask you, in your testimony you described several 
shortcomings of the hybrid vehicles and a reliance on ethanol. 
Am I correct?
    Mr. Leuliette. As a long-term solution, that's correct, Mr. 
Chairman.
    The Chairman. Aren't there also business opportunities for 
the supplier community related to hybrid vehicles and biofuel-
based vehicles?
    Mr. Leuliette. Yes, there are. And we're very active in 
that today. As a matter of fact, our company, Metaldyne, 
supplies key components for every vehicle using E85, and 
diesels, and everything else.
    The Chairman. OK.
    Mr. Leuliette. The issue here, I believe, is more, I think, 
the hearings here, for the longer term--the hydrogen issue--is 
a longer-term solution.
    The Chairman.Well, I'm glad I asked because actually there 
is no disagreement. It is vital. It's just not--long term, it's 
not going to fit right? So, the automobile supply industry must 
be involved in developing a range of alternative technology 
vehicles, correct?
    Mr. Leuliette. Correct. As Dr. McCormick mentioned, 
critical mass, volume, is key to success. There are two issues 
here with respect to putting hydrogen in place. One is the 
technology to create it, and the other is the process 
technology to produce it at low cost. It's the supplier 
community that is key to producing in high volumes at low cost 
and high quality. That's the role we've played today, and it's 
a role we'll play in the future.
    The Chairman. Thank you very much.
    Thank you, again, Mr. Chairman.
    Senator Alexander. Thank you, Senator Domenici.
    Senator Thomas.
    Senator Thomas. Well, thank you, gentlemen. I guess my 
questions are a little more broader.
    Mr. Balcom, you talked about portable fuel cells. How does 
that differ from what you're talking about with Chevron?
    Mr. Balcom. The principal difference is the fuel that's 
used. In a portable fuel cell, the fuel will be a methanol, a 
liquid methanol fuel, typically. Most of the industry has 
selected methanol as the fuel because it's easier to package, 
it's less expensive, it has a higher energy----
    Senator Thomas. So, you're not talking about hydrogen.
    Mr. Balcom. Yes, hydrogen would be used for the automotive 
application. That's where the difference lies. The similarities 
are similar membrane materials, similar plate materials, 
similar electrode materials, similar catalyst materials. More 
of the materials are similar than they are different between 
the two technologies.
    Senator Thomas. What's the source of the supply for both of 
them?
    Mr. Balcom. The methanol--as a fuel, are you referring to? 
That comes from natural gas, principally. It's produced in the 
millions of tons per day--or per year, pardon me.
    Senator Thomas. OK.
    I guess, Dr. Paul, when you were talking about your 
production, that the source is natural gas. Is that correct?
    Dr. Paul. Yes. The current fuel source is natural gas--
basically what we use in industrial applications today, but 
miniaturized to take advantage of the infrastructure----
    Senator Thomas. In terms of the long-term supply of energy, 
is natural gas a long-term supply?
    Dr. Paul. I think natural gas is a long-term supply some 
places. I think the key to hydrogen, the key leverage we have 
by going to hydrogen, is going to be made by so many places--so 
many things. Some places, it's coal; some places, it's natural 
gas; some places it will be ethanol; some places, it will be 
conversion of electricity. I think--some places, nuclear--I 
think that's the great strength. But natural gas will be, I 
think a part of the production.
    Senator Thomas. So, there could be a number of other 
sources for what you're doing. I see. And that's great.
    Dr. Paul. Absolutely.
    Senator Thomas. Mr. Leuliette, you talked about the need 
for an energy policy. Don't we have an energy policy?
    Mr. Leuliette. I think we have an energy bill, but I don't 
know if we have an energy policy. With respect--and I mean in 
the terms of energy policy, a goal, an established, real goal 
that's funded to achieve a certain outcome.
    When we look at--and we've used many--and many people have 
used this goal, or this comparison of putting a man on the 
moon--if you want to attract private equity, the Government 
would need to say, ``This is the target date, the real date, of 
achieving a 40-percent, 50-percent, 60-percent conversion of a 
vehicle fleet over to hydrogen,'' something for which there's a 
hard target for which people can start investing in. As I said, 
in the beginning, private equity did not flow to the dot-com 
and to the Internet world until it was established, until it 
was defined, until protocols were established, until the 
interface was defined. But it didn't take government money to 
grow Yahoo! or Google or anyone else. Once the infrastructure 
was in place and the economics were visible, capital came in to 
invest. And I believe that some role here in the hydrogen 
economy, that will occur, as well.
    Senator Thomas. There may be other things, but I guess I 
question a little bit how you think the role--the basic role 
is--of the Federal Government--the private industry is where 
the real opportunities exist.
    Mr. Leuliette. The--you're asking the private--the 
Government played a role in the Internet in supporting the 
infrastructure and the protocol.
    Senator Thomas. And they're playing a role in energy 
policy, as well.
    Mr. Leuliette. Yes.
    Senator Thomas. Incentives, reduction in loans, all kinds 
of financial incentives are there.
    Mr. Leuliette. But the conversion to a hydrogen economy, 
Senator, is bigger than Chevron, bigger than General Motors, 
bigger than Toyota----
    Senator Thomas. Well, a hydrogen economy isn't the only 
alternative in the world, either, you know. There are other 
kinds of things that are going on.
    Mr. Leuliette. Yes. And to the----
    Senator Thomas. It's a part of it. We've got nuclear, we've 
got solar, we've got wind, we've got all kinds of things that 
we're working on. It's not just hydrogen.
    Mr. Leuliette. Agreed, Senator. But if we are here focusing 
on mobile transportation----
    Senator Thomas. No, I understand. And I'm all for that. I 
just----
    Dr. McCormick, you're an automobile industry person with 
lots of automobile industry things going on around the world. 
Are they doing things like this? Are other countries doing some 
things of this kind?
    Dr. McCormick. Yes, absolutely. A couple of comments. All 
major auto companies have substantial programs in fuel cells 
and hydrogen. For my part, I have approximately 1,000 people 
working on it. For my part, a couple of years ago we 
acknowledged we had passed through, very rapidly, a billion 
dollars expended. And so, that's the kind of scale that work is 
going on around the world.
    I must say that one of the things we do--and we're doing 
demonstrations around the world and stay actively engaged with 
governments around the world--because, to the discussion we've 
been talking about here, in terms of commercialization, some 
government somewhere in the world will find the right equation 
with the right amount of capitalism, the right rules and 
regulations, the right return, and all of us that are in the 
automotive industry will have to be there. And so, 
consequently, it is a worldwide activity. You have to look at 
the pronouncements of the Japanese prime minister and what 
MITI's doing, discussions that on-go continuously in China. 
Korea is actively engaged, and the European Union's actively 
engaged. So, it is very big.
    Senator Thomas. So, it is something others are involved, as 
well, and we have to share in learning that, and so on.
    Dr. McCormick. No doubt.
    Senator Thomas. One very quick question. How do you store 
enough hydrogen in a single tank? Isn't the single-tank issue a 
problem?
    Dr. McCormick. It is. What we really had to acknowledge was 
that hydrogen geometry looks different. We need a 
cylindrically--a cylindrical tube, and we had to acknowledge 
that we had to change the vehicle architecture a little bit and 
put the tube down the center of the vehicle, basically, rather 
than trying to stick it in the trunk. So, fundamentally, we 
started designing the vehicle around the hydrogen storage, 
rather than trying to make it look like gasoline.
    Senator Thomas. Oh, really? So, we need a longer car, huh?
    Dr. McCormick. No. No, actually not. The Sequel, which will 
be out later this year, is a full-sized vehicle that you would 
recognize. We could put it out in the parking lot and you'd 
recognize it.
    Senator Thomas. That's great.
    Dr. McCormick. Nothing unique about it----
    Senator Thomas. Well, we appreciate all of what all of you 
are doing. This is a real challenge for us, and an opportunity. 
So, thank you.
    Dr. McCormick. Thank you.
    Senator Alexander. Thank you, Senator Thomas.
    Just a couple of other questions.
    Mr. Leuliette, you have suggested that the supplier 
community is very important to the research and development and 
the transformation of the hydrogen economy, but it's not 
properly integrated into the Government's efforts. Do you--for 
example, were any suppliers included in the new advisory--
technical advisory committee that was just announced by the 
Energy Department?
    Mr. Leuliette. As I understand, there is no one involved in 
that. I need to check that, but there is no one involved. But, 
again, that wasn't because they were precluded. I don't think a 
supplier raised his hand and tried to be involved in that 
process.
    Senator Alexander. You don't think one did raise his----
    Mr. Leuliette. No.
    Senator Alexander. It's the Hydrogen and Fuel Cell 
Technical Advisory Committee. Do you think it would be helpful 
if suppliers were represented on that committee?
    Mr. Leuliette. I think it is. I'm not here today just to 
represent Metaldyne, but a collection of the CEOs of many of 
the suppliers, and we've discussed this, is that we need to 
provide a better way for you to talk to us. The supply 
community is a large group. It is thousands. But there's really 
only about 50 or 60 of us that are the large, multibillion-
dollar, multinational companies that supply some of the key 
components. And so, the group could be a little bit more 
focused. And we need to provide a better avenue for you and 
Government to talk to us, and we are working on that.
    Senator Alexander. Well, I would like to encourage that. 
Mr. Garman is a reasonable person, but I didn't think his 
explanation of why you weren't involved was really a very 
strong one, that there were so many of you that they'd just not 
pick any of you. That didn't make much sense to me. You're here 
today, out of four representatives. And I would think that 
maybe your association, or, as you just suggested, some of the 
larger suppliers or some of representative group of suppliers, 
might suggest to the Department of Energy, in a more formal 
way, or to us, on this committee, how we can make certain that 
as we consider this subject and other subjects, that we don't 
overlook the fact that suppliers are a very important part of 
our economy, our jobs, our capacity for R&D. I doubt if any of 
the automotive manufacturers would disagree with that at all. 
And so, it may just be a matter of the Department of Energy or 
us, in developing our formula and our legislation, haven't been 
as attentive to that as we should be. So, I would look forward 
to your suggestions, and my guess would be, Mr. Garman would 
look forward to any suggestion that you might make, about how 
to make it easier for him to select among suppliers so that 
they are included. And I'll be glad to mention that to him 
myself, specifically.
    I have one other general question, really for any of you, 
and it's a sort of a blunt question, but it's an appropriate 
one, I think, for this discussion. Is the hybrid-car phenomenon 
of the last couple of years simply a passing fancy or a fad 
that is occupying our attention while we wait for some 
transformative technology, such as hydrogen fuel cells? Or, to 
put it another way, why would we expect major automobile 
companies to invest a lot of money in a technology on which 
they cannot make money, which is--as I understand it, the 
hybrid car costs so much more for consumers to buy that the 
margin of profit for each unit is relatively small. Some people 
have suggested that what the automobile companies are doing--
and I'm not just talking about General Motors here; I'm talking 
about Nissan or others, as well--they may just be making a 
certain number of them to satisfy the public attention that's 
been focused on them, while, in fact, they're investing the 
real dollars in fuel cell economies and other more transforming 
technologies. How do we put that into perspective? Or is that 
an unfair characterization?
    Let me just start with you, Dr. McCormick, since you're in 
this area, where you work.
    Dr. McCormick. A couple of comments. First of all, given 
the magnitude of the challenges that we see, both 
environmentally and in terms of dependence on petroleum, hybrid 
vehicles won't get us there, a 10-, 20-, 30-percent kind of 
improvement--I think, many times Secretary Garman has testified 
about the Department of Energy projections, and if you put 
those kind of efficiencies on top of what we're seeing, in 
terms of growth population and things, you can't get there from 
here. So, clearly, under any circumstances, it's a stopgap.
    So, what we have done is really taken a portfolio approach. 
In the near term, it's hybrids, it's advanced engine technology 
of more conventional sorts, it's the E85, recognizing--and I 
think Dr. Paul said it really correctly--as we look at the 
world and all the emerging economies, and the pressures that 
are going to be there, both environmentally and energywise, 
we're going to need every amount of energy we can get, and 
we've got to use it most efficiently. And that inevitably leads 
you back to the fuel cell solution. So, what we want to do is 
get away from incrementalism and get as quickly as we can to 
something like hydrogen, where we can look for a sustained 
period of using that technology. So, we've got a very strong 
investment in all these things. But, at the end of the day, we 
think the hydrogen fuel cells is where we've really got to go.
    Senator Alexander. Mr. Leuliette.
    Mr. Leuliette. Let me echo that from our perspective as a 
supplier. We see the economics of hybrid and E85, et cetera, 
being such that they are intermediate solutions. Our biggest 
concern in the supplier community is that the industry, the 
Government, or other groups look at these, what we call, 
``feel-good solutions'' as solutions, and stop the focus in the 
energy in the longer-term scenario, such as hydrogen. That's 
the biggest risk we face. Because if we spend a lot of money on 
E85 infrastructure, if we promise that hybrids will be the 
solution, we will all be sitting around this table 3 or 4 years 
from now, facing an even greater challenge, and had not spent 
the money properly to solve the root cause and deal with the 
root cause of the problem.
    Senator Alexander. Thank you.
    Dr. Paul.
    Dr. Paul. I guess what I would add, Mr. Chairman, is that--
go back to where I started and what Byron just mentioned. We're 
going to need all of it. I think we've got to have a 
comprehensive program. We have it. I know General Motors has 
it. And I would strongly encourage, and do encourage, the 
efforts being made by DOE and the Federal Government to support 
across the band of opportunities. Hydrogen, in the long run, 
but certainly coal, bio, oil shales, all of these things are 
going to--I think you want in your research portfolio, because 
you're going to need many options as time goes on.
    Senator Alexander. Mr. Balcom, we'll let you have the last 
word.
    Mr. Balcom. I'd like to just reinforce that the work that 
the U.S. DOE has done in balancing the portfolio between the 
short-term, the medium-term, and the long-term applications, I 
think, is an appropriate one. Just as one wouldn't put all of 
its practice into the long pass or the Hail Mary pass in a 
football game, you practice your ground plays as well as your 
short passes and your long passes, I'd recommend that they 
continue to do the same thing here.
    Senator Alexander. Well, you might, if you--if there were 
only a minute to go, put more of your options----
    [Laughter.]
    Senator Alexander. But we don't--hopefully, have more than 
a minute to go.
    This has been very helpful. This has been a very helpful 
hearing.
    Our purpose today has been to put the spotlight on what our 
committee and the Senate regards as a transforming technology 
that could very well help us dramatically reduce our dependence 
on oil in this country. The advantages of that are reduced cost 
to consumers, cleaner air for our families, and a 
transformation of our foreign policy, as we can see, in terms 
of what's going on in the Middle East today.
    What we want to do on this committee is not create the 
hydrogen fuel cell automobile; what we would like to do is to 
create an environment in which you can do that, and--by 
encouraging it, by staying out of the way, where that's the 
more appropriate thing is to do.
    We've heard some very helpful suggestions today about where 
to put the focus, such as on hydrogen storage. We've heard 
suggestions about how to include a broader number of ideas. Dr. 
McCormick reminded us, this is a worldwide enterprise. There 
are many people with ideas. They ought to be included in 
whatever the Department of Energy is doing. Mr. Leuliette has 
reminded us that suppliers are a major part of our R&D effort 
and our effort to go ahead. Dr. Paul has talked about the 
demonstration projects that Chevron already has in place. This 
is no pipedream we're talking about. Mr. Balcom has reminded 
us, this is a transforming technology. So, this is very 
helpful.
    This is, by far, from the last time we'll be discussing 
this. As Senator Domenici said before we left, this is so 
important that we need to find one or two of us in the Senate 
who can spend the time simply on the idea of the hydrogen fuel 
cell economy and make sure that we keep our eye on what the 
Department of Energy is doing and what we ourselves are doing 
to make sure that we help create this environment in which you 
can succeed.
    Thank you very much for your time.
    The hearing is adjourned.
    [Whereupon, at 4:15 p.m., the hearing was adjourned.]

    [The following statement was received for the record:]
         Statement of UTC Power, A United Technologies Company
    UTC Power, a United Technologies Corporation (UTC) company, is 
pleased to submit the following statement for the record relating to 
the July 17, 2006 hearing on ``Implementation of the Energy Policy Act 
Provisions on Hydrogen and Fuel Cells.'' With more than 40 years of 
experience, UTC Power is the world leader and the only company in the 
world that develops and produces fuel cells for applications in each 
major market: on-site power, transportation and space flight 
applications. We are also the world leader in the development of 
innovative combined cooling, heating and power applications in the 
distributed energy market.

                                SUMMARY

    Fuel cells provide an opportunity to address a variety of U.S. 
energy needs including:

   Reducing dependence on foreign oil;
   Delivering assured, high quality reliable power;
   Decreasing toxic air and greenhouse gas emissions; and
   Improving energy efficiency.

    UTC Power does not see any ``show stopper'' technical barriers to 
the advancement of fuel cells, but continued U.S. commitment to 
research, development, demonstration and market transition initiatives 
are essential to reduce cost, improve durability and enhance 
performance. Hydrogen storage and infrastructure requirements represent 
challenging obstacles for transportation applications, but near term 
opportunities exist with fleet vehicle applications such as transit 
buses that minimize these concerns. Stationary fuel cells for assured 
power represent another opportunity for near term commercialization at 
higher cost targets than those required for personal vehicles.
    Fuel cells are available today for the transit bus and stationary 
markets. Near term successes in these applications are required to 
create public awareness and acceptance, establish a viable supplier 
base and stimulate continued investment. Last year's Energy Policy Act 
provides the basic framework for a comprehensive strategic focus, but a 
sustained national commitment to robust funding will be critical to our 
success. Hurricane Katrina reconstruction efforts represent an 
opportunity to deploy fuel cells in schools to serve as emergency 
shelters, hospitals and other critical infrastructure facilities to 
demonstrate their ability to provide sustainable energy for assured 
power requirements.
    As we enter the summer hurricane and electric grid blackout season, 
concerns regarding reliable assured power increase. UTC Power believes 
there is an opportunity to enhance the value of fuel cell vehicles by 
enabling them to deliver power to the grid or other critical 
infrastructure such as emergency shelters. We are currently working 
with the Department of Defense to validate this concept with our heavy 
duty vehicle PureMotionTM 120 fuel cell power plant system.

                   COMPANY EXPERIENCE AND LEADERSHIP

    UTC Power has led the development and introduction of fuel cell 
technology for more than four decades. We hold the unique distinction 
of having:

   produced all the fuel cells that provide electrical power 
        and drinking water for both the Apollo and Space Shuttle 
        missions;
   sold more than 255 stationary 200 kW units that have 
        produced more than 1.2 billion kilowatt-hours of electricity 
        and have accumulated more than 7 million hours of operating 
        time by customers in 19 countries;
   provided stationary fuel cells that have a stack life of 
        40,000 hours (an 80,000 hour life cell stack is in the final 
        stages of development);
   developed fuel cells for a number of automotive customers 
        including Hyundai, Nissan and BMW and working with almost all 
        of the major automobile manufacturers on fuel cell powered 
        vehicles; and
   provided 120 kW fuel cell power systems that are currently 
        powering four zero emission transit buses in revenue service in 
        California.

    UTC Power has participated in public-private partnerships with the 
Departments of Defense, Energy and Transportation in the development of 
its technology solutions for the stationary and transportation markets. 
Our proprietary low pressure drop, internally humidified natural water 
management proton exchange membrane (PEM) fuel cell technology has led 
to significant advances in efficiency, power density and cold weather 
performance.
    Our longstanding involvement in these varied markets and 
applications provides a unique vantage point to discuss how fuel cell 
technology can help address U.S. energy needs, the status of technology 
today and the barriers we face.

                     NEED FOR SHORT TERM SUCCESSES

    Our dependence on imported oil is well documented and personal 
automobiles consume the lion's share. Deployment of fuel cell vehicles 
powered by renewable sources of hydrogen can break our dependence on 
imported oil and at the same time take transportation out of the 
environmental debate. The auto market also represents the highest 
volume market, which is another reason this sector has received so much 
attention. But fuel cell vehicles for private use in meaningful 
quantities are a decade away since they represent the most demanding 
application in terms of cost, packaging and infrastructure. Existing 
electrical infrastructure and state and federal regulations create 
hurdles for any form of base load distributed generation to overcome.
    Nothing breeds success like success. We therefore need to increase 
our immediate focus on near term applications that are available today 
such as stationary and fleet vehicles, including transit buses, to 
stimulate early volume and build the industry's supplier base. Since 
fuel cells represent a disruptive technology, the supplier base is 
reluctant to make the necessary investment. Early successes in the 
transit bus and stationary applications will help to overcome these 
fears.
    In addition, stationary and fuel cell fleet vehicles have less 
demanding requirements and can compete at costs higher than those 
required by autos. Concentrating on these applications would enhance 
our ability to establish a profitable industry today and create 
stepping stones to the most demanding longer term auto application. Few 
companies can survive the next ten years waiting for the high volumes 
offered by the car market. Instead, they must find applications where 
profits can be realized today that will support the development of a 
strong industrial base in preparation for the future auto market. 
Success in these early applications can build the necessary public 
awareness and public confidence.

                    TRANSIT BUSES AND FLEET VEHICLES

    Fuel cell transit buses offer the best strategic, near term 
potential to address the energy concerns cited above. In 2002, transit 
buses consumed the equivalent of more than 43,000 barrels of crude oil 
per day. The fleet of zero emission hybrid fuel cell buses currently 
powered by our fuel cells in revenue service in California is 
demonstrating greater than twice the fuel economy of a conventional 
diesel bus. Transit buses and fleet vehicles present an opportunity to 
begin to reduce oil imports in the near term while also improving air 
quality and reducing greenhouse gas emissions.
    Buses and heavy duty commercial vehicles travel a relatively low 
percentage of the nation's vehicle miles, but they produce significant 
levels of toxic air emissions in densely populated urban areas. The 
transit buses equipped with UTC Power's PureMotionTM 120 
fuel cell power system significantly reduce overall emissions due to 
the zero-emissions technology inherent in hydrogen fuel cells.
    As we enter the summer hurricane and electric grid blackout season, 
concerns regarding reliable assured power increase. In light of this 
vulnerability, we believe there is an opportunity to enhance the value 
of fuel cell vehicles by enabling them to deliver power to the grid 
rather than from the grid as some people have proposed with the plug in 
hybrid approach. The ``exportable power'' approach could improve 
reliability and provide assured power during times of emergency to 
shelters, hospitals and critical infrastructure.
    UTC Power is currently working with the Department of Defense to 
validate the ability of our PureMotionTM 120 fuel cell power 
system for heavy duty vehicles to export power to the grid or to 
provide power to emergency shelters. This approach would enable a 
transit authority, military base or school system to use their fuel 
cell buses to transport people in zero emission, efficient, hydrogen 
powered, quiet buses under normal conditions and provide emergency 
power during natural disasters or terrorist incidents.
    Bus durability requirements assume a life of more than 30,000 hours 
for a system that must operate up to 16 hours per day, but with 
frequent starts and stops. We offer a warranty of 4,000 hours for the 
four buses that are operating today in AC Transit and SunLine Transit 
revenue service in California and have a technology plan to increase 
the life of these power plants to 25,000 hours by 2010 and up to 40,000 
hours by 2015.
    Cost targets for buses are more forgiving than for autos and their 
infrastructure requirements are limited since they rely on centralized 
fueling and maintenance. The four buses produced last year cost over $3 
million per bus, but we have been able to reduce this cost to under 
$2.5 million and with volume of 100 units per year we can see a path to 
$1 million per bus. We are actively engaged in pursuing a number of 
worldwide opportunities to aggregate bus orders and achieve volume 
sales that will result in potential near term commercialization of the 
technology in this strategically important application.

                         STATIONARY FUEL CELLS

    We also view stationary fuel cells as another near term opportunity 
to address air quality, climate change, reliability and energy 
efficiency concerns. The stationary fuel cell mission involves 24/7 
steady state operation and a life of at least ten years or 80,000 
hours.
    Early adopters have been attracted by the ability of these systems 
to operate as base load grid-connect or grid independent assets. We've 
deployed units at schools, hospitals, law enforcement, research, 
telecommunications and military facilities to address assured power and 
other customer concerns. In addition, one of our units is operating at 
a Connecticut high school that enables the school to be designated as 
an emergency shelter. This concept could be replicated in areas subject 
to natural disasters to provide additional community benefits.
    We also believe there's a significant opportunity in the Katrina 
reconstruction effort to rebuild with sustainable energy objectives. 
For example, we could reduce the environmental footprint of power 
generation and increase reliability by installing onsite, assured power 
fuel cells to help meet future emergency needs at schools serving as 
mass care shelters, hospitals and health care facilities, prisons, and 
other critical infrastructure facilities.
    Since fuel cells can be deployed at the point of use, in addition 
to not relying on the vulnerable transmission and distribution assets 
of the grid, customers can benefit from the ability to capture waste 
heat and put it to constructive use for space heating, domestic hot 
water heating and industrial processes. Our units operating in the 
combined heat and power mode can operate at 85-90% efficiency thus 
generating energy savings that can reduce the cost of electricity by 
four to five cents per kilowatt hour.
    Our PureCellTM stationary fuel cell power plant uses 
phosphoric acid technology and has demonstrated best in class 
durability with 27 of our units surpassing 40,000 hours without 
significant maintenance or replacement of the original cell stack. Our 
current high time unit has 60,000 hours and we are testing a new 
generation of technology that we plan to introduce to the market in the 
next several years that we are confident will achieve 80,000 hours.
    The cost of these units is currently around $4,500 per kilowatt, 
but at volumes of 500 units per year and with the aggressive cost 
reduction efforts we have underway, we expect our next generation 
technology to be competitive at less than $2,000 per kW.

                              AUTOMOBILES

    Cars are only driven an average of two hours a day which means 
their life requirement is low compared to other applications, However, 
autos experience many starts and stops and changes in speed that create 
unique needs for a robust and durable system through many different 
duty cycles. The Department of Energy's (DOE) short term durability 
goal for cars is 2,000 hours by the end of the learning demonstration 
program in 2008 with 5,000 hours as the ultimate objective.
    We are participating along with Hyundai in DOE's Hydrogen Fleet and 
Infrastructure Learning Demonstration program as part of the Chevron 
led team. Ten cars using our power plant are currently operational with 
a total of 32 vehicles planned.
    As part of this initiative, we have cars on the road today that 
have passed the 500 hour mark and are still accumulating hours. In the 
laboratory we have run stationary loads for 13,000 hours, auto stress-
test cycles of 5,000 hours and one million acceleration cycles, which 
gives us confidence that we can meet the goal of 5,000 hours in 
production vehicles.
    Fuel cell cars must be capable of both starting and operating in 
cold conditions if they are to gain broad market acceptance. The 
consensus performance criteria are the ability to survive at -40 
degrees Celsius and start at -30 degrees Celsius. Great progress is 
also being made in this arena. For example, one of our cars has run 25 
cycles from frozen conditions as low as -10 degrees Celsius and we have 
demonstrated 43 cycles at -35 degrees Celsius in the laboratory.

                                BARRIERS

    In short, technology development barriers for transportation fuel 
cells are being addressed at a rapid pace. At a small scale, we can 
meet the identified requirements and we don't envision any formidable 
show stoppers. This doesn't mean, however, that we don't need to 
continue our public-private partnership research, development or 
demonstration efforts. We strongly endorse the continuation of these 
activities and increased financial commitment to accelerate the 
progress we have made in the last few years.
    The basic concepts of fuel cell technology have been proven. Our 
task now is to enhance key performance characteristics (such as 
durability); reduce costs; validate the technology in real world 
operating conditions; identify hidden failure modes through extended 
operation; and then identify and incorporate cost effective solutions. 
In the case of transportation applications, infrastructure and hydrogen 
storage still represent key challenges.
    Three strategies are necessary for cost reduction:

   Internal programs to reduce cost through material 
        substitution, longer life parts, and fewer parts. Examples 
        include less expensive membranes; better seals; reduced use of 
        platinum; enhanced performance materials for bipolar plates; 
        and reduced system complexity.
   Improved manufacturing processes to eliminate labor 
        intensive processes and identify high volume manufacturing 
        solutions; and
   Incentives to help increase volume thereby spreading costs 
        over a larger product base.

                          RECOMMENDED ACTIONS

    UTC Power has called for a comprehensive national strategy to 
achieve fuel cell commercialization. Last year's enactment of the 
Energy Policy Act (EPAct) establishes such a framework, but more work 
needs to be done.
    Budget requests and appropriation figures for this year fall far 
short of levels authorized by Congress. We recognize there are tight 
budget constraints, but given the benefits of fuel cell technology and 
the price we pay today for imported oil, health costs associated with 
poor air quality and lost productivity due to lack of reliable power, 
substantial increases in fuel cell technology investment represent a 
fiscally sound strategy.
    While we are pleased that EPAct provides a fuel cell investment tax 
credit, the term is only for two years. We support legislative efforts 
to extend the tax credit timetable for the maximum length possible.
    In addition, we believe more attention needs to be paid to ensuring 
the successful commercialization of near term fuel cell applications 
such as transit buses, fleet vehicles and stationary units. There are 
opportunities today for government purchases of fuel cell technology as 
part of Katrina reconstruction and pilot programs for schools powered 
by fuel cells to double as emergency shelters as well as the concept of 
fuel cell vehicles exporting power to the grid or critical 
infrastructure that merit consideration.

                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

        Responses of the Hon. Dirk Kempthorne to Questions From 
                            Senator Domenici

    Question 1. I'm pleased that you are aggressively moving forward on 
implementing the provisions of the Energy Bill. I continue to hear 
reports that things are not moving fast enough.
    How long before BLM has this program fully operational?
    Answer. Implementation of the Pilot Office project pursuant to 
Section 365 is well underway, and is in the last stages of 
implementation.
    By October 4, 2005, an Interagency Memorandum of Understanding 
(MOU) to implement the oil and gas Pilot Offices was signed by the 
Administrator, Environmental Protection Agency; Secretary, Department 
of Agriculture; Assistant Secretary of the Army for Civil Works, U.S. 
Army Corps of Engineers; and the Secretary of the Department of the 
Interior. This MOU was signed nearly a month ahead of the 90-day 
timeframe required by the Act. This Interagency MOU establishes the 
roles, responsibilities, and delegations of authority among the Federal 
agencies for streamlining the Application for Permit to Drill (APD) 
processing and inspection and enforcement (I&E) in the seven BLM Pilot 
Offices identified by the Act.
    In October 2005, the BLM initiated the recruitment process for 105 
approved positions to support the APD approval process and I&E. The BLM 
Vernal, Utah pilot office has since noticed a substantial increase in 
their APD workload and identified a need for 11 additional positions to 
meet their workload demand. This increases the total number of approved 
BLM positions for the Pilot Offices to 116 positions. Currently, 102 
BLM Pilot Office positions have been filled. In addition, BLM has hired 
nine contract positions (Botanist, Natural Resources and Wildlife 
Specialist, Geologist, and Soil Scientist) to support operations in the 
Pilot Offices. The Farmington, Carlsbad, Vernal, Buffalo and Rawlins 
offices have completed the hiring of all initial BLM positions. The 
Glenwood Springs office has only two vacancies remaining, the Miles 
City office has only three vacancies remaining. The BLM has transferred 
funds to support 6 Forest Service positions, 10 U.S. Fish and Wildlife 
Service (FWS) positions, 3.5 Corps of Engineers positions, and 1 Bureau 
of Indian Affairs (BIA) position for these agencies to support the 
Pilot Offices under the MOU.
    The BLM Director has personally visited each Pilot Office, the BLM 
staff, and other Federal agencies and staff to emphasize the 
significance of this project to both the BLM and the Nation.
    The BLM has been aggressive in implementing this section; we 
appreciate the support you have given us and we look forward to seeing 
real results from this effort.
    Question 2. How have you directed the field offices to use the NEPA 
categorical exclusions found in Section 390?
    Answer. The BLM policy guidance (Instruction Memorandum (IM) 2005-
247) was issued on September 30, 2005, to BLM Field Offices for 
implementation of the NEPA categorical exclusion provisions of Section 
390 of the Energy Policy Act (EPAct). The IM also provides guidance for 
improved NEPA compliance for oil and gas activities. The BLM is using 
this authority wherever applicable. Since the issuance of IM 2005-247, 
we have processed 895 APDs in the pilot offices using some form of this 
authority.
    Question 3. As you mentioned, the Energy Bill does not change the 
requirements for endangered species, historic preservation, clean water 
and clean air.
    What is BLM doing to actually develop new and innovative ways to do 
business?
    Answer. In addition to the Pilot Office project, the following are 
two examples of how the BLM is developing new and innovative ways to do 
business:
    1. The BLM has conducted a joint study of oil and gas practices 
with the Forest Service (FS). Section 362 of the EPAct requires that 
the Secretary of the Interior (BLM) and the Secretary of Agriculture 
(FS) improve the process for timely action on oil and gas leases and 
APDs, and improve the inspection and enforcement of oil and gas 
activities. The agencies are also required to develop and implement 
best management practices to improve the administration of the onshore 
oil and gas program. The BLM has updated the Gold Book of ``Surface 
Operating Standards and Guidelines for Oil and Gas Exploration and 
Development'' and posted the update on September 28, 2005, on the BLM 
Best Management Practices webpage at www.blm.gov/bmp. In June 2006, 
copies of the Gold Book were printed to provide copies to the operators 
as a reference guide.
    The BLM issued IM No. 2005-069 on February 1, 2005, establishing 
offsite compensatory mitigation guidelines for oil and gas 
authorizations, thereby providing additional opportunities to address 
impacts of proposed projects.
    The BLM issued IM No. 2006-071 on January 19, 2006, establishing 
oil and gas process improvement teams in BLM Field Offices.
    2. The BLM is developing innovative ways to create a ``one-stop-
shopping'' approach to the APD process. By co-locating staff from 
cooperative Federal and state agencies, the BLM is making headway on 
this innovation. For example, in Montana, the BLM, together with the 
Montana Department of Environmental Quality (DEQ), signed a Memorandum 
of Agreement (MOA) on June 1, 2006, to fill one hydrologist and one air 
quality specialist position in the Miles City Pilot Office and one 
permitting position in Montana's DEQ Helena Office in support of Pilot 
Office operations. The BLM in Montana and Montana Department of Fish, 
Wildlife and Parks are drafting a MOA to support a wildlife position in 
the Miles City Pilot Office. The BLM in Wyoming is working with the 
Wyoming DEQ to establish a position in the Buffalo Pilot Office. Under 
a new statewide cultural resources protocol agreement, they are working 
to staff a position with the State Historic Preservation Office (SHPO). 
The BLM in New Mexico is working with the New Mexico Oil and Gas 
Commission to fund two positions, which will work directly with BLM 
inspectors to increase state and Federal program coordination. These 
innovative approaches aim to complete cooperative task in a more timely 
manner.
    3. Another innovative approach is a pilot project to survey and 
protect cultural resources. The New Mexico BLM's pilot project will 
entail completing cultural clearances (a Class III archaeological 
inventory) for APDs in one large block of approximately 6,000 acres in 
Pierce Canyon outside Carlsbad. This pilot project is in response to 
recommendations of the national task force assembled to review the 
National Historic Preservation Act Section 106 compliance process in 
connection with reviewing APDs. The purpose is to test the long-term 
cost effectiveness and overall efficiency of doing Section 106 
compliance for APDs on large blocks of land, rather than piecemeal on a 
permit-specific basis. This innovative approach should help protect 
cultural resources and aid in the management of energy programs by 
providing reliable data on the most efficient and cost effective way to 
do Section 106 compliance. The BLM is planning a meeting in November of 
2006 to discuss lessons learned and best business practices developed 
in the pilot offices. The BLM plans to use this information to improve 
business practices bureau-wide, where practicable.
    Question 4. Is there a better way to protect wildlife values than a 
blanket of winter stipulations and wildlife restrictions?
    Answer. We typically have used blanket stipulations; but we are 
also testing new methods, such as voluntary off site mitigation, year-
round drilling with other forms of mitigation, such as minimizing 
surface disturbance through directional drilling, consolidation of 
production facilities, and reducing truck traffic. For example, in the 
winter for 2005-2006, the BLM authorized the Questar Company, a BLM 
lessee to do winter well completions (drilling) in the Pinedale 
Anticline. The BLM is also working on a supplemental Environmental 
Impact Statement in the Pinedale anticline that would include 
directional drilling and consolidation of drilling infrastructure for 
Questar, Shell Oil and Ultra, other BLM lessees. This proposal would 
allow development of the Pinedale anticline while reducing habitat 
fragmentation, impacts to wildlife, and air pollution. In addition, the 
proposal would allow year-round activity over approximately six percent 
of the anticline. This would enable a year-round workforce to address 
some of the local community concerns over the seasonal boom and bust 
cycle of oil and gas activity in Sublette County. It will provide a 
more stable economic engine and better environmental planning.
    Question 5. Last year the Fish and Wildlife Service decided Sage 
Grouse are not endangered, but I understand BLM continues place 
conditions to protect Sage Grouse.
    Can you explain why this is?
    Answer. In 2005, the U.S. Fish and Wildlife Service (FWS) issued a 
finding that the listing of the Greater sage-grouse as threatened or 
endangered was not warranted. The FWS cited numerous reasons for their 
finding, but cautioned that there was reason for concern because of the 
long-term declines in the population across the range and because 
current distribution of the species was significantly less than 
historic distribution. The FWS Director emphasized the need for the 
Federal and State managers and local working groups to continue their 
efforts to conserve sage-grouse and sagebrush habitats over the long-
term. Part of the reason for this finding was the BLM's commitment to 
implement a range-wide conservation strategy.
    In keeping with the FWS Director's suggestion that sage-grouse and 
sagebrush habitat protection efforts continue, the BLM continues to 
work closely with the state wildlife agencies, local working groups, 
the FWS, and private land owners on a wide variety of conservation 
projects for sage-grouse and other sagebrush-dependent species. Prior 
to the issuance of a lease, the BLM routinely places stipulations on 
the lease to protect habitat while allowing other multiple-use 
activities to occur. We do this in accordance with State Game and Fish 
conservation strategies. The BLM has learned through years of 
experience that addressing species and habitat conservation prior to 
allowing development is the best approach for avoiding the need to list 
species under the Endangered Species Act.
    Question 6. What can you tell me about the listing efforts for the 
Lesser Prairie Chicken in my State of New Mexico?
    Answer. The BLM has a major effort underway in southeast New Mexico 
that we believe will result in healthier populations over time and may 
preclude the need to list the species under the Endangered Species Act.
    Our strategy is to manage traditional public land uses (oil and 
gas, and ranching) in a manner that allows continued operations on 
public lands, but preserves key habitat for the Lesser Prairie Chicken. 
This is being done through a planning process that has involved 
industry, ranchers, the State of New Mexico, southeast New Mexico 
counties, and conservation groups.
    Beginning in 2005, BLM partnered with the Natural Resources 
Conservation Service (NRCS), the New Mexico Association of Conservation 
Districts (NMACD), oil and gas companies, and ranchers to begin a major 
reclamation effort of land damaged by past practices with emphasis on 
Lesser Prairie Chicken and Sand Dune Lizard habitat. Our goal is to 
expand habitat conservation efforts and populations across a broad area 
of southeast New Mexico. We are improving habitat by removing remnant 
facilities from abandoned oil and gas fields, such as power lines and 
old tanks. We have also reclaimed old unused roads, pads, and caliche 
pits. We are cooperating with ranchers in the area to improve grazing 
management with additional fencing and water development.
 Responses of the Hon. Dirk Kempthorne to Questions From Senator Thomas
    Question 1. A large part of the problem with considering 
applications for permit to drill is that the staffs in your field 
offices are buried with NEPA work in an effort to get projects to a 
point that people can even apply to drill. Many of the staff that have 
been hired as a result of these Pilot Offices will be good at getting 
Environmental Impact Statements done. Do you think they can transition 
as easily to the processing of APD's?
    Answer. Most resource specialist in the BLM Field Offices already 
work on both NEPA documents and APD processing. Since NEPA compliance 
is an integral part of each APD or group of APDs being processed, we do 
not expect any problems with the staff transitioning to the processing 
of APDs.
    Question 2. Many of the BLM field offices in Wyoming are currently 
revising their Resource Management Plans. Can you give us an update as 
to when you expect these revisions to be completed and how long its 
been since they were last changed?
    Answer. Currently, the BLM in Wyoming is preparing four Resource 
Management Plan (RMP) revisions, and one planned to start in January 
2007. The status of the five efforts is as follows:
    Pinedale RMP Revision. The initial Pinedale RMP was completed in 
1988. The Record of Decision for the RMP revision is currently 
scheduled to be completed in the spring of 2008.
    Rawlins (formerly Great Divide) RMP Revision. The initial Rawlins 
RMP was completed in November 1990. The Record of Decision for the RMP 
revision is currently scheduled to be completed in March of 2007.
    Kemmerer RMP Revision. The initial Kemmerer RMP was completed in 
1986. The Record of Decision for the RMP revision is currently 
scheduled to be completed in spring of 2008.
    Casper (Platte River) RMP Revision. The initial Casper RMP was 
completed in 1985. The Record of Decision for the RMP revision is 
currently scheduled to be completed in October of 2007.
    Lander RMP Revision. The initial Lander RMP was completed in June 
1987. The Notice of Intent to revise the RMP is scheduled for release 
in the first quarter of 2007.
    In addition, there are three projects involving plan amendments. 
They are:
    Jack Morrow Hills Coordinated Activity Plan. The Record of Decision 
was signed on July 17, 2006, and a Notice of Availability was published 
in the Federal Register on July 20, 2006.
    Buffalo Oil and Gas Leasing EA. The Notice of Intent was issued on 
December 16, 2004. There is potential that the current plan may be 
amended.
    Hiawatha Regional Energy Development Project. This project is 
located in both the BLM Rock Springs, Wyoming office and the Little 
Snake, Colorado Field Offices. The Little Snake RMP is currently being 
revised. Because the level of drilling may exceed the analysis scope of 
the Green River RMP, an amendment may be required.
    Question 3. I hear an awful lot about the high turnover rate of 
staff in many of the state BLM offices. What are some of the ways in 
which BLM has looked at reducing the number of folks who leave from 
year to year? Is it a function of an aging workforce or is it simply 
that there are better jobs to be had in the private sector?
    Answer. Staff turnover has been substantial in some of our offices. 
Turnover is due to a variety of factors, including retirements, 
competition with industry for skilled staff, and the fast pace and 
heavy workload in our oil and gas offices. Additional staff resources 
in our pilot offices are helping to meet workload commitments and, in 
some cases, BLM is investigating ways to provide incentives, such as 
retention bonuses.
    Question 4. What percentage of domestic oil & gas production comes 
from BLM lands?
    Answer. The percentages of domestic oil and gas produced from BLM 
lands are 18% of domestic gas and 5% of domestic oil.
    Question 5. Section 365 of the Energy Policy Act, which established 
the Pilot Offices we're discussing today, also required a Memorandum of 
Understanding be signed by several agencies. You discussed the 
memorandum in your testimony. This Section also allowed for Governors 
from affected states to be included as signatories to this Memorandum. 
Did Governors sign this memorandum, and if not, why?
    Answer. The Governors have not signed the MOU. Each state has 
unique needs and we are working closely with the states on individual 
agreements for pilot office involvement. The first state agreement was 
recently signed with the Montana Department of Environmental Quality 
(DEQ). This agreement places three state DEQ positions in support of 
the Miles City Pilot Office operations. Similar agreements are being 
developed with a variety of state agencies in the five pilot office 
states.
    Question 6. I'm certain we'll hear from Mr. Reed about the 
fisheries issues associated with BLM lands. What types of expertise 
exists at BLM to address wildlife issues associated with oil & gas 
development?
    Answer. All of the BLM Field Offices, including the Pilot Offices, 
have wildlife biologists on staff. Several of our Field Offices also 
have fisheries biologists. In addition, we work closely with State game 
and fish agencies and the FWS.

        Responses of the Hon. Dirk Kempthorne to Questions From 
                            Senator Bingaman

    Question 1a. Multiple Use--I am pleased that BLM has been making 
efforts to improve permit processing, but I want to be sure that the 
program is balanced with BLM's other responsibilities.
    Is BLM taking resources away from other programs (grazing, mining, 
recreation) in order to handle the oil and gas activities? If so, 
please provide specifics as to the programs and the magnitude of the 
diversion of resources.
    Answer. The EPAct was passed after the enactment of the Interior 
Appropriations for Fiscal Year 2006. Immediately after passage of the 
EPAct, BLM analyzed the requirements in the law and identified 
milestones that must be achieved in FY 2006. In order to meet those 
timeframes additional funding was required in FY 2006. The BLM 
submitted and received Congressional approval on two requests to 
reprogram funds from non-energy programs to implement the Act. Under 
the first reprogramming, the BLM requested and received Congressional 
approval to reprogram $1,366,000 on March 29, 2006, from Fiscal Year 
2005 unobligated balances in non-energy programs. The second request 
for reprogramming was for $4,889,000 from Fiscal Year 2006 funding, and 
was approved by Congress on May 4, 2006. Both of these reprogrammings 
were one-time changes that will not be carried forward into future 
years. The amounts are shown by program in the table below:

 AMOUNTS APPROVED FOR REPROGRAMMING INTO OIL AND GAS MANAGEMENT PROGRAM
------------------------------------------------------------------------
                                             Fiscal year    Fiscal year
                Subactivity                      2005           2006
------------------------------------------------------------------------
Soil, Water and Air Management............     $29,000       $437,000
Range Management..........................    $103,000       $410,000
Forestry Management.......................     $21,000             $0
Riparian Management.......................     $65,000       $150,000
Cultural Resources Management.............     $62,000       $227,000
Wild Horses & Burros Management...........     $19,000             $0
Wildlife Management.......................     $90,000             $0
Fisheries Management......................    $125,000             $0
Threatened & Endangered Species...........    $103,000             $0
Wilderness Management.....................    $126,000        $62,000
Recreation Resource Management............     $41,000       $194,000
Other Mineral Resources Management........     $56,000        $91,000
Alaska Conveyance.........................     $90,000        $22,000
Cadastral Survey..........................     $36,000       $137,000
Lands and Reality Management..............          $0        $72,000
Resource Management Planning..............    $117,000       $283,000
Resource Protection & Law Enforcement.....          $0       $411,000
Hazardous Materials Management............     $33,000       $138,000
Deferred Maintenance......................          $0     $1,991,000
Information Systems Operation.............     $98,000        $47,000
Administrative Support....................    $143,000       $172,000
Land & Resource Information Systems.......      $9,000        $45,000
                                           -----------------------------
    Total.................................  $1,366,000     $4,889,000
------------------------------------------------------------------------

    In the President's FY 2007 budget, BLM is requesting additional 
funding in the Oil and Gas Management Program for energy. These funds, 
if approved, will assist the non-Pilot offices to meet the demand for 
energy permitting and continue to meet inspection and monitoring 
commitments.
    Question 1b. What steps is BLM taking in implementing the pilot 
program to ensure that other BLM programs are not adversely affected by 
the emphasis on oil and gas activities?
    Answer. The BLM continues to manage the Federal resources under its 
multiple-use mandate. As indicated in the response to the previous 
questions, the reprogramming request approved by Congress were a one-
time funding shift made necessary by the EPAct deadlines the BLM has to 
meet during FY 2006. In the FY 2007 budget request, the Administration 
has asked for an additional $9.2 million for non-pilot offices' 
processing of APDs, inspection and enforcement and monitoring.
    Question 2a. Inspection and Enforcement--I have long advocated the 
importance of BLM having a robust inspection and enforcement program.
    What steps is BLM taking to ensure that its inspection and 
enforcement program is adequate?
    Answer. The Inspection and Enforcement (I&E) program is identified 
as a high priority in the Department of the Interior's Strategic Plan, 
and the BLM has committed considerable resources in recent years to 
ensure that we have an effective I&E program. The BLM recognizes the 
importance of inspections in environmentally-responsible energy 
development. In fact, this critical need was the rationale for a 
significant portion of the energy reprogramming requested and approved 
this fiscal year (See answer 1 a). As note above, the BLM's FY2007 
budget request includes an additional $2.9 million to perform an 
additional 1,930 inspections and $2.0 million to conduct monitoring 
related to oil and gas development.
    Over the past four years, the BLM recognized the need to strengthen 
its I&E program as the number of approved APDs and drilling increased. 
The BLM has successfully documented through its budget justifications 
the need for additional inspectors and to obtain additional funding. 
The BLM is committed to ensuring that the highest priority inspections 
are completed.
    Question 2b. How many additional inspectors do you expect to hire 
in New Mexico with the funding from the pilot program?
    Answer. Since enactment of the Energy Policy Act, the BLM has hired 
a total of 12 oil and gas inspectors--including 4 Production 
Accountability Technicians and 8 Petroleum Engineering Technicians--in 
the pilot offices in New Mexico. No additional hires are currently 
anticipated, although this could change depending on new development in 
New Mexico.
    Question 3. Split Estates--We continue to hear concerns expressed 
by some ranchers in situations where there is oil and gas development 
on split estate lands. What is the status of the report on split 
estates? What steps is BLM taking to address these issues?
    Answer. Since the passage of EPAct, the BLM conducted an extensive 
public outreach effort to identify issues and solicit recommendations 
from the public regarding the management of Federal split estate. BLM 
is currently finalizing the Split-Estate Report to Congress. The Report 
is expected to contain a number of recommendations for administrative 
action necessary to facilitate reasonable access for Federal oil and 
gas activities while addressing surface owner concerns and minimizing 
impacts to private surface.
    Question 4. NEPA--How has BLM implemented section 390 of EPAct 
pertaining to categorical exclusions? What is intended for instances 
where extraordinary circumstances exist that would make use of a 
categorical exclusion inappropriate? Has this new policy been put out 
for public comment? If not, why not?
    Answer. The BLM issued policy guidance (IM 2005-247) on September 
30, 2005, to BLM Field Offices for implementation of the NEPA 
categorical exclusion provisions of Section 390 of the EPAct. The IM 
also provides guidance for improved NEPA compliance for oil and gas 
activities.
    Section 390 of the Act establishes a rebuttable presumption that 
the listed categorical exclusions apply to the listed activities. There 
is no requirement in the statue to document the absence of exceptional 
circumstances in order to apply these statutory categorical exclusions. 
The statue made the exclusions immediately effective, and there is no 
provision for rulemaking or other means of seeking public comment 
before implementation.
    Question 5. Abandoned and Orphaned Wells--According to information 
provided by the Department, New Mexico has 4224 abandoned wells on 
public lands, the largest number of any state. What is the status of 
implementation of the program for remediation of abandoned and orphaned 
wells? Can you please provide information relating to the timing of 
implementation for the record?
    Answer. BLM defines wells as ``Abandoned'', ``Plugged and 
Abandoned'', ``Orphan'', and ``Idle'' (and further classifies ``Idle'' 
wells as either ``Temporarily Abandoned'' or in ``Shut-in'' status). 
These terms are defined and discussed below. BLM would be happy to 
provide a briefing to further clarify these terms as well.
    By Bureau definition, the term ``Abandoned'' well means a well 
where the well bore was properly plugged to the surface, but surface 
reclamation has note been completed and/or approved. When the surface 
reclamation is complete, and inspected for proper reclamation, the well 
is then classified as ``Plugged and Abandoned.'' In general, both 
``Abandoned'' and ``Plugged and Abandoned'' wells pose no future 
liability to the public.
    The Bureau definition of an ``Orphan'' well is ``A well that is not 
associated with a responsible or liable party nor has sufficient bond 
coverage for plugging and surface restoration costs.'' There are 
currently 14 known Orphan wells on BLM-managed land in New Mexico. (The 
Energy Policy Act includes Orphan well provisions that are discussed 
below.)
    An ``Idle'' well is a well which has been inactive for at least 12 
consecutive months. There are 1197 Idle wells on BLM-managed land in 
New Mexico--a significant reduction from 1999, when there were 4,219 
Idle wells in New Mexico. Idle wells are classified as either 
Temporarily Abandoned (TA) or in Shut-in (SI) status. Temporarily 
Abandoned status is defined by the BLM as a well that is not physically 
and mechanically capable of producing oil or gas in paying quantities, 
but which may have future value or beneficial use. Shut-in status is 
defined by the BLM as a well that is physically or mechanically capable 
of producing, but is not producing for other reasons. As of June 28, 
2006, New Mexico's current inventory of idle wells is 735 wells in 
Temporarily Abandoned (TA) status and 462 in a Shut-In (SI) status.
    The reduction in the number of idle wells is he result of higher 
oil and gas prices and the implementation of an idle well review 
program, which resulted in the return of wells to production or service 
use or the permanent abandonment of wells having no future use.
    Section 349 of the EPAct directed the BLM to establish a means of 
ranking for priority, those orphan wells located on lands administered 
by the BLM. This ranking format of remediation, reclamation, and 
closure has been designed and field tested in select BLM field offices. 
In addition, an Instruction Memorandum is being drafted to implement 
Subsection (f), a reimbursement, via Federal royalty credits, for 
remediation, reclamation, and closure of orphaned wells. A draft report 
to Congress (required within one year of enactment of the Act), to 
comply with Section 349, is currently under review.
    Question 6. Coalbed Methane Report--What is the status of the 
report on section 1811, relating to coalbed methane production and 
water resources?
    a. Please provide a timeframe for entering into an arrangement with 
the National Academy of Sciences to conduct the study as required by 
the Energy Policy Act.
    Answer. On September 27, 2005, the BLM provided the National 
Academy of Sciences copies of several studies and reports that were 
previously prepared on the effects of coal bed natural gas production 
on surface and ground water resources. In addition, the BLM attended a 
meeting with the Committee on Earth Resources of the National Academy 
of Sciences on November 16, 2005, and discussed the requirements of 
Section 1811 of the Act. The BLM provided a letter to the National 
Academy of Sciences on April 24, 2006, requesting a review of the 
previous studies and reports to determine if significant deficiencies 
exist or if other information may be critically needed to address the 
requirements of the EPAct. No response has been received from the 
Academy; however, the BLM is prepared to discuss any additional study 
which the Academy can demonstrate is needed. The BLM will keep the 
Committee informed about any response from the Academy.
    Question 7. Land Under Lease but Not Producing--Why are there so 
many acres under lease but not producing?
    Answer. Exploration and production companies have inventories of 
leased acreage where there is currently no oil or gas production. It is 
normal for companies to have leased acreage inventories. This is 
necessary for an efficient exploration and production program. The 
initiation of drilling activities is a business decision that 
ultimately rests with the lessee. In making this decision, lessees must 
factor in the availability of exploration and development resources, 
such as drilling rigs, pipelines, and a qualified workforce. In 
addition, leased parcels can remain undeveloped due to litigation or 
requirements to complete further NEPA analysis and documentation.
    Question 8. Resources--Are you finding that you must divert 
resources from other BLM programs and activities in order to process 
oil and gas leases? If so, what other activities have been cut?
    Answer. Please see answer to Senator Bingaman question 1a.
    Question 9. Inspections--Statistics in the BLM budget justification 
for FY 2007 indicate that environmental inspections decreased from 2004 
to 2006. Why?
    Answer. The Federal Oil and Gas Royalty Management Act of 1982 
established an annual inspection cycle for high priority inspections. 
BLM implemented a policy that high priority wells are inspected 
annually, while all other wells are inspected on a three-year cycle. It 
appears in the FY 2007 BLM budget justification that many of the 
environmental inspections decreased because they fall into the three-
year inspection cycle. For FY 2006, the BLM plans to complete all high-
priority inspections. High priority inspections are those performed for 
wells with prior year production of over 12,000 barrels per month of 
oil or over 120,000 thousand cubic feet per month of gas, or for a 
record of noncompliance, i.e., 2 major or 6 minor violations in the 
prior year. The BLM is focusing on the high priority inspections to 
ensure that I&E resources are allocated where they are most needed.
    Question 9a. Can you provide us statistics on the percentage of oil 
and gas operations on federal lands subject to environmental 
inspections over the past 8 years?
    Answer. The BLM's Automated Fluid Minerals Support System (AFMSS) 
is the system with which the BLM tracks these statistics. Ongoing 
litigation in Cobell v. Norton has resulted in the continuing shut-down 
of AFMSS, so those statistics cannot be provided at this time.
    Question 10. Processing Costs--Approximately what is the average 
cost for processing an application for permit to drill?
    Answer. The average cost for processing an APD over the last three 
years has been $3,729.
    Question 11. Cost Recovery Proposal--I see that the President's 
budget request for FY2007 proposes that the mandatory funding for the 
pilot project offices be terminated and replaced with APD processing 
fees paid by the industry at the end of FY2007. The Administration has 
transmitted proposed legislation to the Congress to accomplish this. 
What is the thinking behind this proposal?
    Answer. The Administration's proposal is to replace the mandatory 
Pilot Office funding provided by the EPAct with cost recovery from APD 
processing fees effective at the end of fiscal year 2007. The 
Administration will be requesting authority to conduct a rulemaking to 
phase-in full cost recovery for APDs, beginning with a fee amount that 
will generate an estimated $21 million, replacing the amount authorized 
by the EPAct. Increased reliance on cost recoveries is consistent with 
the finding of previous Inspector General reports and the 2005 Program 
Assessment Rating Tool (PART) review of this program, that found the 
program does not adequately charge identifiable users for costs 
incurred on their behalf.
    Question 12. Pilot Project on Permit Processing--How well is the 
new pilot project on permit processing working from the perspective of 
the Fish and Wildlife Service?
    Answer. The U.S. Fish and Wildlife Service (Service) is actively 
working with the Bureau of Land Management (BLM) at all levels in 
implementing EPAct section 365. A memorandum of understanding between 
the BLM and the Service identifies six specific responsibilities that 
will, once fully implemented, allow the Service to streamline its 
efforts under the permit review process. The two agencies are 
customizing the duties of each position at each office to result in 
improved permitting and protection for natural resources. Adaptive, 
Programmatic measures will reduce our permit review time while 
enhancing stewardship of endangered species and other federal trust 
resources. By integrating Service personnel with BLM staff early in the 
land use planning process, we anticipate greater regulatory 
flexibility, fewer last-minute delays, and an overall reduction in 
related environmental effects.
    At this time, the Service has filled positions in 5 of the 7 
identified Pilot Offices and has assigned temporary staff to the 
remaining 2 offices until we complete the hiring process for those 
offices. These staff are supported by 3 full-time existing Service 
employees who will oversee the initial stages of implementation. 
Critical to our long-term success is identifying and applying new and 
improved procedures for addressing the high volume of applications for 
permits to drill (APD) workload anticipated by the BLM. Also key to 
success is increasing staff in the pilot offices, and elsewhere, as 
workload increases and additional pilot program funding becomes 
available.
    Although the new pilot project on permit processing is still coming 
online, the Service has seen improvements and considers, the program a 
success to date.
    Question 13. Resources--Are you finding that you must divert 
resources from other Fish and Wildlife Service programs and activities 
in order to process oil and gas leases? If so, what other program and 
activities have been cut? What is the extent of the cuts?
    Answer. At present, the Service is receiving sufficient resources 
from BLM to effectively evaluate pilot office needs and to provide 
initial levels of support to those offices. In addition, the Service is 
using base funds to support additional staff outside of the pilot 
program's scope to provide technical assistance and other services on 
oil and gas development activities throughout the nation. The Service 
has filled positions in five of the seven Pilot Offices and has 
assigned temporary staff to the remaining two offices that will remain 
in place until the Service can complete the hiring process for those 
positions. These staff members are supported by three full-time 
existing Service employees who will oversee the initial stages of 
implementation of the pilot program. Critical to the Service's long-
term success is the identification and application of new and improved 
procedures to address the high volume of APD workload anticipated by 
the BLM, and increasing staff in the pilot offices (and elsewhere) as 
workload increases and additional pilot program funding become 
available.
    Question 14. Good Science--Several of the witnesses have discussed 
the importance of science. I believe that it is essential that 
decisions in the field be based on the best available science.
    As the head of the Fish and Wildlife Service, what steps are you 
taking to ensure that the biologists and other scientists at the 
Service can do their jobs and apply their best scientific judgments to 
leasing and permitting decisions?
    Answer. The Service places the highest priority on using sound 
science in our decision-making. We expect each of our employees to 
attend a minimum of 40 hours of training each year to help them stay 
current in their area of expertise. Within the Endangered Species 
program, which would include staff at the pilot offices, we have 
policies that describe information standards (59 FR 3427; July 1, 
1994), encourage our biologists to coordinate closely with their 
colleagues in State agencies (59 FR 34274, July 1, 1994), obtain peer 
review (59 FR 34270, July 1, 1994), and a recent policy on use of 
genetic information to help ensure that our decisions are based on the 
best scientific data available. In cooperation with the National Marine 
Fisheries Service, we have also developed regulations and a 
consultation handbook to clarify the procedures that Service biologists 
must follow when conducting consultations. We also provide each of our 
Regional Offices with capability funding on an annual basis to provide 
for a consultation expertise to support their field offices.

Responses of the Hon. Dirk Kempthorne to Questions From Senator Salazar

    Question 1. Sec. 1811 of the EPAct authorized a National Academy of 
Sciences study of the impacts of coalbed methane development on water. 
When will the BLM provide the Academy with the funds it needs to 
complete the study mandated by Sec. 1811?
    Answer. On September 27, 2005, the BLM provided the National 
Academy of Sciences copies of several studies and reports that had 
previously been prepared on the effects of coal bed natural gas 
production on surface and ground water resources. In addition, the BLM 
attended a meeting with the Committee on Earth Resources on the 
National Academy of Sciences on November 16, 2005, and discussed the 
requirements of Section 1811 of the Act. The BLM provided a letter to 
the National Academy of Sciences on April 24, 2006, requesting a review 
of the previous studies and reports to determine if significant 
deficiencies exist or if other information may be critically needed to 
address the requirements of EPAct. No response has been received from 
the Academy; however, the BLM is prepared to discuss any additional 
studies which the Academy can demonstrate are needed. The BLM will keep 
the Committee informed about any response form the Academy.
    Question 2. How well is the new APD streamlining pilot project 
working? Do you have any specific information about the pilot office in 
Glenwood Springs, Colorado?
    Answer. The BLM has made considerable progress in implementing the 
Pilot Office Streamlining Project provisions of Section 365 of the Act. 
An Interagency MOU for the Pilot Offices was signed on October 24, 
2005, by the Administrator, Environmental Protection Agency; Secretary, 
Department of Agriculture; Assistant Secretary of the Army for Civil 
Works, U.S. Army Corps of Engineers; and the Secretary of the 
Department of the Interior. The MOU established roles, responsibilities 
and delegations of authority for streamlining the processing of oil and 
gas permits in the seven Pilot Offices. We are close to full staffing 
of the Pilot Offices and will continue to track the progress in 
expediting the permit application process.
    The BLM in Colorado has filled 10 BLM positions in the Glenwood 
Springs Pilot Office, hired a contract Botanist, and funded a FWS 
position to support oil and gas permit processing. In addition, a 
collateral duty Corps of Engineers position has been assigned to 
support the Glenwood Springs Pilot Office. The number of APDs processed 
in the Glenwood Springs/Grand Junction office has increased by almost 
10% over the same period of time in FY 2006 as compared to FY 2005. The 
number of APDs approved has increased by almost 15% over the same 
period of time in FY 2006 as compared to FY 2005. The Glenwood Springs/
Grand Junction office has approved over 250 APDs this fiscal year.
    Question 3. When does the BLM expect to report back to Congress on 
the split-estate issue as directed by the EPAct, Sec. 1835? Can you 
tell me, from the BLM's perspective, how the split estate listening 
session in Grand Junction went?
    Answer. The BLM is currently finalizing the Split-Estate Report to 
Congress. The Report is expected to contain a number of recommendations 
for administrative action necessary to facilitate reasonable access for 
Federal oil and gas activities while addressing surface owner concerns 
and minimizing impacts to private surface. The March 22 listening 
sessions were well received; 65 people attended one of the afternoon or 
evening sessions, and 19 individuals addressed the panels. Issues 
identified by the public and the energy industry varied widely. Some 
people identified serious concerns; however, conflicts between mineral 
development rights and private surface rights seemed to affect a small 
minority of the public. No overriding issues were identified that would 
substantially affect all or most surface owners who may be subject to 
development of the mineral estate where the Federal government manages 
the minerals.
    Question 4. What is the BLM doing to support non pilot project 
offices such as the White River Field Office in Meeker, CO that has 
experienced a 300% growth in APD requests?
    Answer. To help the non-pilot offices keep pace with the pilot 
offices the BLM asked the Congress to approve two reprogrammings of 
funding to address the needs of the non-pilot offices. These requests 
were approved by Congress and additional funding has been provided to 
the non-pilot offices. In the FY 2007 budget request the Administration 
has asked for an additional $9.2 million for non-pilot offices' 
processing of APDs, inspection and enforcement and monitoring.
    Question 5. It was recently announced that the White River Field 
Office in Meeker, CO was proposing to amend its resource management 
plan (RMP) because the existing plan anticipated 1,000 new wells over 
the life of the plan but it now appears that 10,000 to 15,000 new wells 
are likely over the course of the plan. In other booming gas areas, 
such as Grand Junction, is there a need to do the same?
    Answer. The number of oil and gas wells anticipated in the original 
white River Field Office Resource Management Plan will likely be 
exceeded at the current rate of development. As a result, the BLM's 
White River Field Office proposed an RMP Amendment to analyze 
reasonable foreseeable development and the impacts of various 
development scenarios.
    In other areas, RMP revisions have been scheduled well in advance. 
For instance, the Little Snake RMP is currently in the revisions 
process and the Glenwood Springs and Kremmling RMPs are currently in 
the initial stages of the revision process. The Grand Junction RMP is 
currently scheduled for revision in 2010.
    The level of development in Grand Junction is not the same as it is 
in Meeker and in Glenwood Springs. The current level of development in 
Grand Junction has not exceeded the level expected in the existing RMP, 
nor is it expected to do so.
    Question 6. What is the BLM doing to bolster its inspection and 
enforcement component in light of the June, 2005 GAO report?
    Answer. The Inspection and Enforcement (I&E) program is an integral 
and key component of the Bureau's management of onshore oil and gas 
operations. In addition, the I&E program is identified as a high 
priority in the Department of the Interior's Strategic Plan. The Bureau 
has committed considerable resources in recent years to ensure that we 
have an effective I&E program.
    Over the past four years, the BLM recognized the need to strengthen 
its I&E program as the number of APDs approved and drilled increased. 
The BLM has successfully documented through its budget justifications 
the need for additional inspectors and additional funding. Additional 
funding was provided for the pilot project offices in the EPAct, which 
has helped the BLM increase the inspection force. In the pilot offices, 
the BLM has hired 47 new Natural Resource Specialists and Inspectors. 
Additional funding has been requested in the FY 2007 budget to further 
increase the BLM's I&E capability. This funding will be used by the 
non-pilot offices to increase the number of inspections including 
environmental and monitoring inspections.
                                 ______
                                 
                    Advanced Resources International, Inc.,
                                      Arlington, VA, June 30, 2006.
Senator Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Senator Domenici: Thank you for the opportunity to testify 
before the Senate Committee on Energy and Natural Resources on June 
27th, 2006 regarding the Energy Policy Act provisions. Below I present 
answers to questions raised as a result of the hearing.
    If there are any other questions, or if I can amplify our analysis 
of timing limitation impacts, please let me know.
            Sincerely,
                                            Jeffrey Eppink,
                                             Senior Vice President.

    Question 1. Please describe the method used for the analysis.
    Answer. Briefly, for this analysis we used two primary analytical 
tools that have been developed for the Departments of Energy and 
Interior by Advanced Resources. These tools are the Model of 
Unconventional Resources and the Energy Policy and Conservation Act 
Inventory model. We made assumptions, based upon historic data and 
professional judgment, for parameters such as the number of wells that 
could be drilled, federal land access, rig availability and jobs. The 
method used is fully described in Attachment 1.
    Question 2. Can you elaborate on the effect that the increased 
permit backlog could have on your results?
    Answer. As described in my testimony, the backlog of permits has 
increased by nearly 50 percent since last fall. I attribute this 
increase to the natural gas price spike over the winter. Barring 
further supply disruptions such as that resulting from last year's 
hurricane season, I would expect permit demand to moderate. To answer 
this question specifically, we would need to re-run the analysis based 
upon assumptions about the APD spike and future demand, which we could 
do over the course of a couple of weeks if requested by the Interior 
Secretary's Office.
    However, to answer the question based upon my knowledge at this 
point, I would expect the results that we presented to increase by 15 
to 30 percent as a consequence of the increased backlog. I would not 
expect the results to increase by 50 percent commensurate with the 
permit demand increase because I believe the demand increase will not 
to be a sustainable in the long run.
    Question 3. What do you think are the toughest challenges to 
accomplishing the results you have outlined?
    Answer. BLM staffing. I believe that the most significant challenge 
is hiring and retaining BLM staff that are knowledgeable about drill 
permit processing and, further, inspections and enforcement activities. 
BLM is competing with industry, which is also short-handed, for the 
same labor pool. Individuals could be trained to perform these jobs, 
but that will take additional time. I do note that Director Clarke, in 
her testimony at the hearing, indicated that BLM has had success in 
filling a significant number of positions, which is a good turn of 
events.
    Land Access. The next most significant challenge is the issue of 
land access. Drilling in the Western U.S. is often contentious and I 
would expect this situation to only deepen. I do believe that the 
federal government can streamline the leasing and APD process, 
especially with regard to stipulations and permit conditions of 
approval. It is more a question as to whether this can be accomplished 
in a manner that is both timely and promotes sound stewardship of the 
nation's public lands. It is a difficult challenge.
    I do want to comment on a related issue raised by Senator Craig, 
where he questioned the need for timing limitation stipulations, 
devised in the 1980s, and whether this access issue needed to be 
addressed specifically. We examined this precise issue for the 
Department of Energy, where we determined which of the timing 
limitations have the greatest impacts and, assuming modest 
environmentally acceptable changes were made to the stipulations, what 
the benefits would be. As it turns out, big game ranges, sage grouse 
and raptor stipulations are the most significant. If a modest 10 to 20 
percent change in the geographies, timing and exception rates were to 
be made for these stipulations, the benefits could be substantial--
estimated undiscovered natural gas resources on the order of 8 to 15 
trillion cubic feet (equivalent) could be significantly more accessible 
for exploration and subsequent development. Such a result could 
accommodate anticipated growth in Rocky Mountain region production. The 
critical issue is the performance of the requisite science to justify 
such changes. It is a tall order to accomplish this in the near term.
    Rig Availability and Pipeline Constraints. Based upon discussions I 
have had with industry players, the perception is that these issues 
will be (and are) solved in the marketplace. While short-term 
dislocations can occur, the market quickly reacts and makes the proper 
adjustments. Rig availability is a case in point--given the higher 
prices last winter, the rig market was very tight. However, since then, 
I have heard that a few companies have actually laid down (terminated 
contracts for) rigs in the wake of the natural gas price spike of this 
past winter.

                             [Attachment 1]

description of the method used for analysis of energy policy act pilot 
project offices, impacts of incremental application for permit to drill 
                            (apd) processing
    Implications from Historical Drilling Trends. BLM indicates that 
about 84 percent of all APDs that are submitted become approved. 
Further, data from BLM's Automated Fluid Minerals Support System 
(AFMSS) \1\ for the last five years indicate that 82 percent of the 
productive wells completed on Federal lands \2\ are natural gas wells. 
Table 1 shows a summary of the AFMSS data.
---------------------------------------------------------------------------
    \1\ The AFMSS data were available to the project from the EPCA 
Phase II Inventory. AFMSS had been queried in March 2005 for the EPCA 
Inventory.
    \2\ Includes split estate minerals. Excludes Indian minerals.

                      Table 1.--AFMSS DATA ANALYSIS
------------------------------------------------------------------------
                                                             Portion of
                   Status                     2000 to 2004   APDs issued
------------------------------------------------------------------------
Expired....................................         21           0.2%
Dry Hole...................................        863           7.0%
Prod Gas...................................      9,390          75.9%
Prod Oil...................................      2,093          16.9%
                                            ----------------------------
    APDs issued............................     12,367         100.0%
------------------------------------------------------------------------

    Although modest drilling for oil has occurred, such drilling does 
not appear to be growing significantly; except for the Vernal BLM Field 
Offices, incremental oil drilling has remained flat over the last five 
years.
    Incremental drilled wells are most likely to be located in the 
Rocky Mountain region; BLM data show that 93 percent of current pending 
APDs are in Rocky Mountain states. Advanced Resources estimates that 
over 85 percent of the oil and gas resources in the Rocky Mountains are 
unconventional natural gas. Although complete resource-specific 
drilling statistics for all types of natural gas resources are not 
available, it is anticipated that additional Federal wells are highly 
likely to be unconventional natural gas wells.
    Modeling Approach. The conclusion to be drawn from the discussion 
above is that incremental wells that could be drilled on Federal lands 
are likely to be natural gas wells in unconventional resources in the 
Rocky Mountain region. As such, it is appropriate in this analysis to 
model incremental impacts on a natural gas-equivalent basis by 
examining unconventional resources.
    Model. Modeling necessitated the use of an engineering/geologic and 
econometric-hybrid approach of the type available with the 
Unconventional Gas Recovery Supply Sub-module (UGRSSM), a component of 
the Energy Information Administration's (EIA's) Oil and Gas Supply 
Model. EIA's UGRSSM was developed by Advanced Resources, which calls 
its version of the model ``MUGS'' (Module for Unconventional Gas 
Supply). MUGS uses modified resource data from U.S. Geological Survey's 
(USGS) 1995 assessments, and cost data from various sources, including 
American Petroleum Institute's Joint Association Survey on Drilling 
Costs.
    In addition, MUGS incorporates results from the Energy Policy and 
Conservation Act (EPCA) Phase I Inventory \3\ to integrate Federal land 
access factors. The EPCA Inventory currently provides estimates of 
undiscovered technically recoverable resources and proved reserves of 
oil and gas as well as an inventory of the extent and nature of 
limitations to their development (generically called ``Federal lands 
access''). EPCA access data are available for the Rocky Mountain region 
and are incorporated in MUGS.
---------------------------------------------------------------------------
    \3\ See http://www.doi.gov/epca/ for the EPCA Phase I report.
---------------------------------------------------------------------------
    MUGS provides sound analytical modeling features appropriate for 
this analysis because the model:

   Accounts for 87 percent of natural gas resources in the 
        lower-48 states relative to USGS (1995) assessments,
   Incorporates resource limitations relative to drilling,
   Employs specific, typical well performance curves by 
        resource play,
   Performs project economics for drill/no drill decisions,
   Covers the Rocky Mountain region, and
   Underpins the Department of Energy (DOE) National Energy 
        Modeling System (NEMS) model for natural gas.

    Access. Assessing Federal lands access is a complex issue. Actually 
the term ``access'' is somewhat of a misnomer. In fact, a minority 
(albeit significant) of resource-bearing Federal lands are 
``inaccessible'' in that they cannot be leased the more significant 
issue revolves around the restrictions associated with leasable lands, 
where the majority of the undiscovered resource exists. These 
restrictions are primarily a function of timing limitations associated 
with various wildlife species, foremost among which are big game, 
raptors and sage grouse.
    To estimate potential production, the access issue must be 
addressed. In this analysis, acting as a guide for setting EPCA access 
parameters for the MUGS model, a recent analysis performed for the DOE 
\4\ by Advanced Resources was used. The DOE work entailed the use of 
datasets and modeling capabilities developed to support the EPCA 
Inventory. The DOE analysis quantified the degree to which wildlife 
resources such as big game, raptor and sage grouse habitat afford 
opportunity for increasing efficiency and access to resources. Figure 1 
illustrates for the Rocky Mountain region, the relative impacts from a 
10 percent scenario for increasing access. Figure 1 * shows various 
species modeled independently and in an integrated run. The resource 
changes result from the contribution of previously unleasable lands 
becoming leasable, but primarily from leasable restricted lands 
becoming less restrictive. Without this increased access, the estimates 
reported below could be as much as 20 percent less.
---------------------------------------------------------------------------
    \4\ Memo to DOE: ``Analyses to Support Oil and Natural Gas 
Environmental Program R&D Planning Based Upon the EPCA Datasets and 
Model'' by Advanced Resources, June 2005. The DOE analysis was 
performed to support efforts for evaluating and planning R&D activities 
related to Federal lands access.
    * Figures 1, 2a, and 2b have been retained in committee files.
---------------------------------------------------------------------------
    Modeling Scenario and Parameters. Parameters and considerations 
incorporated into the modeling process were established during multiple 
planning meetings with BLM personnel.
    The parameters identified as major tangible levers for modeling 
are:

   Number of wells that can be drilled, and
   Federal land access parameters from the EPCA Inventory.

    The modeling is conducted by setting up the base case, which 
reflects the status quo. The scenario case is then constructed to 
reflect changes. The difference between the base case and the scenario 
reflects the impacts due to changes.
    The scenario is modeled under the assumption that the effects from 
APD processing are ``quicker to market'' than land access changes 
because incremental APD processing results in drilling that can 
immediately increase production. Alternatively, land access changes 
produce results by increasing resource availability and can ultimately 
result in greater aggregate production. The scenario constructed for 
the analysis capture the historic trends observed on issued APDs as 
cited above, namely, 84 percent of wells that start the APD process are 
approved and that 93 percent of drilled wells are productive.
    Base Case. A base case was set up using a combination of price 
tracks from EIA's Short Term Energy Outlook (STEO) and the Annual 
Energy Outlook (AEO),\5\ projected over 25 years. BLM spent about $27 
million in FY2005 to process about 7700 APDs, and its workload is 
increasing. Figure 2a shows BLM's recent historical APD demand, 
processing capacity and backlog. Advanced Resources has projected these 
into the future based upon assumptions of modest growth in APD demand 
of 5 percent per year and increases in BLM APD processing capacity of 
3.5 percent per year.\6\
---------------------------------------------------------------------------
    \5\ See EIA's STEO (http://www.eia.doe.gov/steo) and 2005 AEO 
(www.eia.doe.gov).
    \6\ For years 2007-10. Estimates for 2006 were provided by BLM.
---------------------------------------------------------------------------
    Scenario. The scenario incorporates base case conditions, but 
represents the incremental impact of additional spending by BLM for the 
pilot program of an average of $19MM per year over five years. The 
majority of funding is devoted to APD processing, which is estimated to 
cost $4000 per well based upon historical BLM data. The distribution of 
future drilling is guided by current ``pending well'' APD counts in the 
pilot BLM FOs.
    Land access increases by approximately 10 percent (based upon prior 
analysis of the issue for DOE as described above). The costs for land 
access planning and implementation were assumed to be $2.5MM per year. 
The land access is introduced into the model by resource play by basin 
as determined by the EPCA Phase I Inventory. The land access changes 
are incorporated based upon the DOE study, where access was increased 
by an average of 10 percent during the five years of the scenario for 
Rocky Mountain basins.
    Figure 2b shows the APD processing as a result of the scenario. The 
static backlog is worked off while the number of APDs submitted also 
increases following the second year of the pilot project.
    All MUGS modeling runs were conducted on a natural gas BCF-
equivalent (BCFe) basis. Other modeling considerations based on 
historic trends included the following:

   For every 1000 APDs processed, 780 productive wells will 
        result (see above),
   Average lag time between APD approval and spud of 3.3 months 
        based on AFMSS data,
   Implementation year: FY2006,
   First production effects year for APD processing: CY2007, 
        and
   First production effects year for land access: CY2008.

    Rigs and Jobs. Although not accounted for explicitly in the model, 
rig and crew availability were also examined briefly. Short term 
projections of rig availability were made based on available data \7\ 
for recent-year trends, and current and expected 2005 rig counts for 
Rocky Mountain states. Drilling crew requirements were determined based 
on information obtained from field operator and from national 
statistics.\8\ Table 2 shows projections based these sources.\9\
---------------------------------------------------------------------------
    \7\ See World Oil Magazine Feb. 2005--http://www.worldoil.com/and 
Baker Hughes Rig Count datahttp://www.bakerhughes.com/investor/rig/rig_ 
na.htm.
    \8\ See U.S. Department of Labor statistics--http://
www.umsl.edulservices/govdocs/ooh20022003/cgs005.htm
    \9\ The Rocky Mountain region rig fleet grew by more than 25 
percent in 2004, a rate that would be unsustainable in the future, when 
additional rigs will need to be built or imported.

                            Table 2.--DRILLING RIG AVAILABILITY AND CREW REQUIREMENT
----------------------------------------------------------------------------------------------------------------
                              Year                                 2005    2006    2007    2008    2009    2010
----------------------------------------------------------------------------------------------------------------
Rig availability................................................     285     331     364     385     398     407
Crew Requirement................................................   6,273   7,290   7,999   8,466   8,762   8,946
----------------------------------------------------------------------------------------------------------------

    The projected 2005 national rig utilization is 88 percent, a rate 
that could increase to over 90 percent at which point additional rigs 
would likely be built or regionally exogenous rigs would be brought 
into the Rocky Mountain Region. It should be noted, however, that for 
coalbed methane rigs, which are not separated in the statistics, 
increasing the rig fleet would be less difficult due to the shallow 
nature of coalbed methane wells.
    Work force parameters included an estimated 22 workers per active 
drilling rig and the historic average of 37 wells drilled per rig in 
the Rocky Mountains to compute direct jobs. Indirect jobs were 
estimated using Bureau of Economic Analysis (BLS) Employer Costs for 
Employee Compensation (ECEC), which is about $60,000 per job per 
year.\10\ To compute the amount of indirect jobs, Advanced Resources 
examined the 2004 income statements for three public companies and 
determined that the ratio of ECEC expenditures to wellhead revenue is 
about 25 percent.\11\ Advanced Resources has not computed the 
multiplier effect of these increased jobs.
---------------------------------------------------------------------------
    \10\ Based on rates from BLS at http:/A,vww.bls.gov/news.release/
ecec.t10.htm
    \11\ This ratio was computed based upon examination of the income 
statements for Burlington Resources, EOG Resources and St. Mary Land 
and Exploration, which were chosen based upon their Rocky Mountain 
focus as dominantly domestic, publicly traded producers. ECEC expenses 
were computed net of royalties, taxes, interest, DD&A and other non-
job-related expenses.
---------------------------------------------------------------------------
                                 ______
                                 
        Responses of Tom Reed to Questions From Senator Domenici

    Question 1. The pilot project office provision comes with funding 
of $20 million and we are reporting an Interior Appropriations bill 
today that will add $28 million in additional funding for Fiscal Year 
2007. Industry has been putting millions into funding wildlife studies 
and cultural surveys.
    Do you think this represents a good start on addressing the needs 
you have raised?
    Answer. The $20 million and $28 million that you mention is 
allocated to the oil and gas program and for expediting processing of 
APDs pursuant to the pilot projects. To address the needs we have 
raised, these funds should have been allocated to the BLM's fish and 
wildlife habitat account and riparian management account. We strongly 
urge you to ensure that there is adequate staff and resources in place 
to properly manage fish and wildlife habitats and to mitigate for 
impacts from expanded energy development. Unfortunately, neither the 
fish and wildlife habitat account, nor the riparian management account, 
received significant increases in the FY 07 budget request or the 
Senate appropriations bill.
    In recent years and in response to the demand for energy permits 
and subsequent workload, the BLM has re-directed resources from other 
programs (either through funding shifts or re-directing work of 
resource specialists to work on energy permits), including fish and 
wildlife programs. This has left long-established fish and wildlife 
resource programs without support and has caused abandonment of those 
programs that were formerly actively managed. In fact the BLM's own 
proposed guidance for implementing the 2005 Energy Policy Act directs 
states and offices to divert funding and staff from non-energy offices 
and programs to implement the Act.
    The BLM plans on processing over 10,000 permits in FY2007, a 
significant increase from previous years compounding the impact to 
resource staffs. We believe that in order to deal appropriately with 
the expanded development of energy resources, wildlife and fisheries 
resources need more attention, not less. We oppose shifting funding or 
staff, as proposed by BLM, intended to manage fish and wildlife 
resources to expedite energy permitting, and suggest that any funding 
increases for energy development and permitting should be accompanied 
by comparable increases dedicated to managing fish and wildlife 
resources. Additionally we believe that fish and wildlife managers need 
to actively manage the resources and habitat not just work on energy 
permitting.
    With respect to your question about industry contributions, some 
companies have provided funds for wildlife studies and we are very 
appreciative of their contributions.
    Finally, we hope that the Committee will continue to conduct 
oversight functions to ensure that BLM takes the appropriate corrective 
actions if fish and wildlife studies determine that new or modified 
mitigation measures are necessary. Too often studies are implemented 
without the benefit of follow-through, either through lack of 
foresight, funding, or personnel. For any of these funds to be spent on 
studies that will prove beneficial, consideration for monitoring with 
resolute actions has to be part of the plan.
    Question 2. We can all agree that it's too early to determine 
whether this program can be successful.
    What are the top 2 or 3 items you think are essential to making 
this successful?

   Engage local sportsmen stakeholders and land mangers in the 
        pilot office permitting process. The pilot office is a top-down 
        permitting process and it alienates local biologists, land 
        mangers, and citizens who want to be involved in oil and gas 
        decisions affecting the places they know best. No doubt, this 
        will not expedite APD processing in the near term. However, 
        engaging and heading the advice and expertise of local 
        biologists, land managers, and stakeholders in decisions 
        affecting oil and gas activities, the pilot offices will have a 
        broader base of support and result in long-term working 
        relationships that will expedite decisions regarding 
        responsible oil and gas activities down the road.
   Think cumulatively. With the tremendous increase in 
        development (including oil, gas, housing, infrastructure) it 
        becomes more and more apparent that when the bigger ``40,000 
        mile view'' is not considered, the consequences can be severe. 
        For example, protection of the Colorado River Cutthroat trout 
        (CRCT) population is a multi-state initiative that requires 
        cooperation among multiple state and federal agencies for its 
        success. If not coordinated, with considerations and protection 
        measurements from impacts of oil and gas development, the CRCT 
        (already a sensitive species) can easily warrant a threatened 
        and endangered status.
   Put money in effort in studying the impacts to coldwater 
        fisheries NOW. There is a profound lack of research on the 
        impacts of development to coldwater fisheries and an attitude 
        of ``develop now . . . monitor and mitigate later'' is short 
        sighted and irresponsible way to conduct business on our public 
        lands.

         Responses of Tom Reed to Questions From Senator Thomas

    Question 1. As an example, EnCana has donated $24.5 million to 
create the Jonah Interagency Mitigation and Reclamation Office. This 
effort represents an innovative approach to minimizing the footprint of 
development by pursuing off-site mitigation. Do you see other 
opportunities for industry to pursue environmental improvements in 
these sorts of unconventional ways?
    Answer. While offsite mitigation can be a good tool to help reduce 
landscape-wide impacts from oil and gas development, the net result 
should not be a loss in fish or wildlife habitat. If there are 100,000 
acres of wildlife habitat, and 50,000 acres is turned into and 
industrialized zone for oil and gas while the other 50,000 acres is 
``improved'' for fish and wildlife, the public and our fish and 
wildlife is still out 50,000 acres. In short, off site mitigation can 
be a useful tool, but it is not the cure-all to define responsible oil 
and gas development.
    Industry can continue their innovative approaches by using their 
business management approach for long-term corporate planning and apply 
similar principles to the long-term comprehensive planning for the 
environment and the impacts their companies will contribute to the 
environment. This obviously means working on the ground with key state, 
federal and natural resource interests to devise such strategies. 
Industry leaders need to seriously consider hiring permanent and 
professionally qualified staff who will be part of the problem solving 
scenario. Similarly, state and federal agencies need to think about 
long-term impacts defined with specific desired results and incorporate 
those parameters into their long-term planning efforts.
    While preliminary steps toward this type of action have been 
initiated (potentially through the JIO) this type of opportunity needs 
to be incorporated into a committed plan from all participants. Based 
on the industry and BLM extraction scenario (up to 50 years in some 
places), this type of thinking and planning has to now become part of 
everyday business.
    When the bottom line of a state wildlife agency will be affected 
due to a decrease in hunter numbers due to a decrease in herd size due 
to loss of habitat, that agency needs to be able to plan . for their 
budget inadequacies. In Wyoming, up to 90% of the Wyoming Game and Fish 
Department's budget comes from hunter and angler license fees. The 
issue is broader than simply minimizing the footprint of development 
through off-site mitigation.
    The BLM needs to proactively engage in more innovative thinking. 
For many years now, industry and environmental/conservation groups have 
been working together to try and develop off site mitigation strategies 
but were thwarted by the BLM's reluctance to accept such a concept.
    Moreover, innovative thinking has to include the future prospect of 
extraction decline, when the resource plays itself out. Planning for 
the decline during this wealthy period we are experiencing should also 
become part of the long-range vision.
    Water quality and quantity is a big issue in the west. In the 
current drought situation, not enough emphasis is placed on water 
conservation in the energy industry. Innovative approaches that use 
water conservation techniques to maintain streams and rivers, 
municipalities drinking standards and agricultural practices need more 
emphasis. Coal bed methane, or coalbed natural gas, produced waters are 
just now receiving levels of recognition within the industry and 
agricultural. More emphasis and consideration on wildlife and fisheries 
impacts are needed.
    Finally, reducing the impacts whenever possible is another 
innovative approach to pursue. For example, using directional drilling 
even if it may reduce profits in certain scenarios, remote monitoring, 
busing in workers, reducing well densities, reducing the number of 
roads needed for a field and limiting the use on those roads, 
minimizing generator noise, and not flaring wells at night are all ways 
to pursue environmental improvements.
    Question 2a. If I could be a stickler on some of the numbers we're 
hearing for a moment, I have a couple questions:
    When you say that 25 percent of Wyoming will be impacted by oil & 
gas development, how exactly do you come up with that number?
    Answer. This number was provided by John Emmerich, Deputy Director 
of the Wyoming Game and Fish Department in Cheyenne. This includes all 
associated impacts from energy development on private and public 
surface lands, including roads, power lines, compressor stations, and 
indirect surface development from human traffic.
    Question 2b. You said in your testimony that 3 million acres of 
land had been leased for every fisheries biologist at the BLM. Wouldn't 
the miles of streams and rivers per biologist be a more accurate 
measurement of their workload? Do you have those numbers?
    Answer. Stream miles do not accurately reflect the true workload 
that fisheries biologists face regarding impacts affecting watersheds. 
This is because poor land management practices quite literally flow 
downhill. Streams and rivers are directly affected by what happens on 
surface lands. Infrastructure of energy production includes road 
building and can include roads adjacent to streams/rivers, over 
streams/rivers, and within vicinities of streams or rivers and their 
drainages. Such construction is almost always permanent and has the 
characteristic of eroding soils and silt into streams and rivers, 
through various means (culverts, sudden event weather-related 
drainages, heavy traffic, winds, etc.).
    Even if a development is occurring a mile from the actual stream, 
ground water contamination, aquifer draw-down, increased erosion, and a 
host of other considerations need to be taken into account when 
reviewing the impacts of oil and gas on a watershed. Rather than using 
miles, perhaps acreage of watershed would better serve as a descriptive 
measurement for a biologist's workload. However, it is safe to say that 
all three million acres of land described fall within a watershed, so 
the effect would be the same.
    Question 3. I appreciate your emphasis on working with everyone 
involved, early on in the process, to make sure development is done 
right. Can you elaborate on the sorts of cooperative efforts that Trout 
Unlimited is engaged in?
    Answer. In Wyoming, TU is working with various energy companies 
seeking to develop oil and gas on public lands:

   Currently underway is a collaborative partnership with the 
        project company, Dudley and Associates, on the BLM Seminoe Road 
        CBM project in south central Wyoming. This project involves 
        coal bed methane production with discharges occurring into a 
        popular reservoir and river system. TU and Dudley, along with 
        state and federal permitting agencies, are working on 
        establishing parameters that provide minimal impact to 
        fisheries while maintaining development goals for the company. 
        Significant research on coldwater fisheries and cbm discharge 
        is being conducted with cooperation from the company, the BLM, 
        Wyoming Game & Fish, EPA, Dept. of Environmental Quality, and 
        the Governor's office.
   Shell Oil established an Advisory Panel this past winter and 
        invited TU, among other conservation groups, to sit on the 
        panel and assist in developing guidelines for wildlife and 
        energy impacts in the Pinedale Anticline area.
   Encana Oil and TU have had numerous conversations about 
        working collaboratively on projects which will enhance 
        fisheries and protect waters from current and future 
        development in the Upper Green River Valley.
   Questar and TU have had several opportunities to discuss 
        ways to mitigate impacts to wildlife and fisheries through 
        adaptive project development.
   TU participated as a contributor to the Western Governors' 
        Association (April 2006) ``Coal Bed Methane Best Management 
        Practices'' handbook.
   In Utah, we hosted a workshop to address oil and gas 
        planning issues on the Uinta National Forest that brought 
        together the BLM, Forest Service, Utah Division of Wildlife 
        Resources, Utah Division of Oil Gas and Mining, Utah Division 
        of Water Quality, Sage Grouse Working Group, Strawberry 
        Anglers, Audubon Society, Utah Environmental Council, Questar, 
        Wild Utah Project, Blue Ribbon Fisheries Advisory Council, and 
        local concerned sportsmen to bring all to the table and address 
        concerns early on in the process.
                                 ______
                                 
     Responses of Duane Zavadil to Questions From Senator Domenici

                    LEASING, PLANNING AND PERMITTING

    Question 1. You indicated some of the proposals in recent revisions 
to BLM's Resource Management Plans have the capacity to actually limit 
energy production in Western States.
    Will you elaborate by describing for the committee some examples?
    Answer. Given the fact that the majority of lands in the Rocky 
Mountain Region are managed by federal land management agencies, new 
development of important natural gas resources can only occur if 
federal land management agencies recognize the importance of allowing 
reasonable access to reserves. Updates to Resource Management Plans 
(RMP) often do not realistically plan for needed development of the 
energy resources in the area and do not include Reasonably Foreseeable 
Development scenarios for oil and gas activities and the necessary land 
use allocations to meet our country's energy demands. For example, the 
Draft Environmental Impact Statement (EIS) for the Price RMP identifies 
restrictions to development without any apparent consideration or 
description of expected future uses. The number of allowable wells per 
year is a highly significant conclusion of the Draft RMP/EIS and 
represents a regulatory ceiling of 1,540 wells. However, at the time 
the draft was issued, 1,402 wells were already in place, allowing for 
the drilling of just 138 additional wells. The number is completely 
inadequate to develop the energy resources contained in the Price area.
    Although there are many resources, BLM's mandate is to manage for 
multiple use as defined by the Federal Land Policy and Management Act, 
43 USC Sec. 1702 (c) (``Section 103(c)''). That section defines 
multiple use as the ``management of the public lands and their various 
resource values so that they are utilized in the combination that will 
best meet the present and future needs of the American people.'' Id. 
Again the Price Draft RMP/EIS takes the most restrictive means of 
allowing mineral development. BLM's Fluid Minerals planning manual H-
1624-1 requires the use of the ``least restrictive stipulations that 
effectively accomplishes the resource objectives.'' There are adequate 
laws in place to ensure resources are protected including the National 
Historic Preservation Act, the Clean Water Act, the Clean Air Act, the 
Safe Drinking Water Act, and the National Environmental Policy Act. The 
Price RMP protects resources to the exclusion of all other multiple 
uses while also requiring energy companies to prove they will not 
damage resources. This is contrary to BLM's fundamental mandate of 
managing lands for multiple uses. Conditions placed on development are 
extremely restrictive without due cause and would cause severe and 
unacceptable adverse impacts on the ability of oil and gas operators to 
develop the resources in the Uinta Basin, a major producing area.
    While the above two examples relate to the Price Time Sensitive 
RMP, the same issues of inadequate Reasonably Foreseeable Development 
and unnecessary stipulations on development are observed in other RMPs 
designated as ``Time Sensitive Plans'' (TSP). Twenty-one TSPs were 
identified as high priority because they address energy resource 
development, respond to nationally significant lawsuits, or have 
legislatively mandated time frames. With 2006 upon us, six TSPs 
critical to oil and gas development are not yet final, limiting BLM's 
ability to effectively manage the public's energy resources. Without 
these TSPs finalized, the expanded energy resource development they 
were meant to address cannot proceed.
    The Rawlins, Wyoming RMP is also a TSP, which is scheduled to be 
released this autumn. Many wildlife stipulations are based upon 
inaccurate scientific data or assumptions. These wildlife stipulations 
commonly restrict year-round drilling to just the spring and fall, 
leading to further delays in developing energy resources.
    The Roan Plateau TSP contains numerous legal inadequacies that fail 
to comport with the Federal Land Policy and Management Act (FLPMA) 
which expressly declares Congressional policy that BLM manage public 
lands ``in a manner which recognizes the Nation's need for domestic 
sources of minerals, [and other commodities] from the public lands.'' 
In addition, the RMP/DEIS does not comply with the Congressional 
statute that transferred administration of the Roan to BLM for the 
stated purpose of oil and gas exploration and development. Section 3404 
of Title 34 of the National Defense Authorization Act for 1998 directed 
the Secretary of the Interior to lease the former Naval Oil Shale 
Reserves (NOSR) on the Roan Plateau for oil and gas exploration and 
development. The purpose of the Roan Plateau RMP was to fulfill the 
Congressional mandate for oil and gas development, yet the process has 
led to alternatives which would be in direct opposition to the law.
    Question 2. How has BLM responded to these concerns?
    Answer. IPAMS submitted very detailed comments to the BLM for the 
above-mentioned RMPs and others involving oil and gas development. It 
is difficult to know how, if at all, IPAMS' concerns are being 
addressed in these documents until the next version of the document is 
released. It is IPAMS' hope that our recommendations are being 
incorporated into the final versions of these plans. However, we 
suspect for some that is not the case. In addition, the Price RMP is 
being further delayed by a supplement to the Draft EIS that is adding 
four new Areas of Critical Environmental Concern (ACEC) that were not 
included in the original Draft RMP/EIS. These ACECs would further 
restrict leasing and development of energy resources in the Price area.
    Question 3. The Energy Bill provided 5 Categorical Exclusions from 
NEPA to reduce the burdensome permitting process, yet it sounds as if 
they may be taking as long as an APD in some cases.
    What would you attribute this delay to?
    Answer. Permitting remains the most immediate and perhaps 
manageable element controlling the amount of natural gas to reach 
consumers. Commodity prices tell us that more wells need to be drilled. 
Both industry and BLM have responded and drilling is up. The backlog of 
permits in BLM field offices, however, continues to grow. The number of 
permits approved by BLM has increased 20% over the last three years. At 
the same time, the number of permits received by the BLM has increased 
27%. Field offices have fallen further behind. For companies juggling 
tight drill rig availability with seasonal stipulations that allow 
drilling only during a narrow time frame, permitting delays are very 
problematic. Approval times are unpredictable and often reaching six 
months or more.
    Categorical exclusions could be used to help ease this backlog. 
Since it takes time to implement new statutes and regulations, we 
anticipate the usage of categorical exclusions will increase over the 
next few years. Even when an Application for Permit to Drill (APD) 
meets all the criteria for a categorical exclusions, many field offices 
are still requiring site inspections which take time, and other review 
processes, such as ESA and historic preservation, lead to continued 
long processing times.
    There are some notable success stories and I should have 
highlighted these in my testimony before the Committee on June 27, 
2006. The BLM's Farmington Field Office has issued 249 categorical 
exclusions at last count, and their processing times have decreased 
significantly. For comparison, the entire state of Wyoming has issued 
339 categorical exclusions and Utah 62. The recent completion of the 
Farmington Resource Management Plan (RMP) is the key to this extensive 
use of categorical exclusions. The experience in Farmington underscores 
the importance of land use planning as giving the agencies tools that 
can be used in conjunction with the EPAct to ensure natural gas 
supplies are headed to consumers. As other RMPs are updated, such as 
the Price, Vernal, Roan Plateau, and Rawlins Time-Sensitive RMPs, we 
hope to see more BLM field offices as successful as Farmington. IPAMS 
is planning to work with the BLM and Forest Service over the next few 
months to increase the usage of this advantageous provision of the 
EPAct.
    Question 4. You touched on the three challenges facing producers on 
public lands--leasing, planning and permitting.
    Given what we've heard today, what changes would you propose beyond 
those measures implemented in the Energy Bill?
    Answer. A comprehensive look at the current process to identify 
where bottlenecks occur will help this Committee determine potential 
legislative action and oversight opportunities. Without examining the 
permitting process and making changes to improve its efficiency, BLM 
will likely continue to fall behind in permit approvals even as the 
agency's role will grow more important in meeting the nation's energy 
needs.
    Recently, IPAMS conducted an informal survey of our members 
regarding their experience with Section 390 of the Energy Policy Act. 
Nearly one-third of the respondents had suggested the use of the 
categorical exclusions to the BLM and 28% were accepted. This finding 
may indicate the need for close oversight by this Committee to ensure 
the agency is carrying out the Congressional intent of Section 390.
    Another area that needs attention is the processing of Expressions 
of Interest (EOI) to lease lands competitively. Much attention has been 
placed on the processing of APDs, but in some instances this has 
resulted in a de-emphasis on lease processing. Expressions of Interest 
are critical to exploration of new reserves and fields. The discovery 
of new resources in the Rockies being developed today is the direct 
result of past exploration on public leases. The continued backlog of 
leasing severely limits future energy development. Therefore, measures 
must be taken to increase BLM field office personnel and resources 
devoted to processing EOI as well as APDs. EOIs must become a higher 
priority for BLM personnel.

            RIG AVAILABILITY, PIPELINE CAPACITY AND MANPOWER

    Question 1. We often hear that the backlog of permits is 
increasing, yet we also hear that there are not enough drilling rigs 
available to actually drill anyway.
    Please comment on the issue of availability of drilling rigs in the 
Rockies.
    Answer. The market for drilling rigs is responding to demand for 
natural gas. Between 2000 and today, the number of rigs in the Rocky 
Mountains has increased 200% as noted on the attachment to IPAMS 
written testimony which is part of the official record and incorporated 
herein by reference.
    Federal land management agencies have the ability to positively 
impact rig availability by implementing efficiencies in the permitting 
process. An unpredictable permitting process leaves drilling 
contractors unable to sufficiently respond to market conditions by 
moving more rigs in to the region, and producers are threatened with 
increased costs by losing drilling rigs or paying for drill rigs they 
cannot keep busy. Multiply these pressures by the number of rigs that 
are working and the need to have multiple permits available to execute 
a coordinated, flexible drilling program and the need for a more timely 
permitting process becomes painfully apparent.
    Timing limitations are an excellent example of a regulatory burden 
that inhibits a larger response of drilling rigs to the Intermountain 
West. The drilling window in many areas is limited by timing 
limitations imposed under resource management plans for various reasons 
(wildlife habitat, nesting, breeding, etc.). The timing limitations 
prevent rig companies from sending more rigs to the Intermountain West 
because they are unable to keep their drilling rigs active the entire 
year and must move them to other geographic areas. Moving rigs is 
expensive for operators, but disruptive to those working on the rigs 
because they must either move or seek other employment.
    We are optimistic that the Federal Permit Streamlining Pilot 
Project will help relieve some of the problems with permit processing, 
and hence rig availability. The current work being conducted by the 
Booz Allen consulting company to analyze permit processing in the pilot 
offices and recommend workflow and process improvements will help 
achieve this goal. IPAMS has contacted the project manager to become 
involved and provide an industry perspective to the study.
    Question 2. Are there enough rigs and crews to meet demand by the 
producers?
    Answer. The free market will respond to the demand for drilling 
rigs and crews if the regulatory process permits. However, the 
regulatory process discourages a larger response by the drilling 
sector. Timing stipulations serve as a deterrent for some drilling 
companies to bring more rigs to the Intermountain West since these rigs 
will only be busy half the year.
    New and refurbished rigs are on order, but take time to deliver. 
Whether building or refurbishing, it requires long-term commitments by 
the operator. As a result, permitting becomes critical for keeping 
committed rigs working to bring natural gas to consumers.
    A more predictable regulatory process would enable companies to 
commit to long-term development, and drilling companies would respond 
by increasing the supply of rigs. Year-round drilling enables a stable 
workforce of crews with the right training and experience. A stable 
workforce has obvious benefits to the communities where they live and 
work, and alleviates the problems associated with boom and bust cycles 
and seasonal work.
    Question 3. Is there pipeline capacity to meet demands for the 
Rockies' gas?
    Answer. The free market responds to the demand for pipeline 
capacity in the Intermountain West. As production has increased, 
pipeline constraints have yielded substantial projects that are 
increasing pipeline capacity. The Rockies Express pipeline, with a 
daily capacity of 1.8 billion cubic feet, is currently under 
development to connect the Rockies with key markets in the mid-West and 
East Coast.
    Question 4. Would you please comment on labor markets and the 
availability of qualified personnel to work in the field?
    Answer. Like many other industries, the market for experienced, 
skilled labor is becoming tight with the aging workforce across the 
nation. We are seeing many highly skilled professionals moving into the 
area from declining fields in Texas and Louisiana. The current 
opportunities in the Rockies are providing excellent opportunities to 
groom junior professionals. Petroleum Engineering programs are seeing a 
resurgence in attendance as the market has become lucrative. As 
mentioned in question 2, a stable regulatory environment will help to 
smooth the boom and bust cycles experienced in the past and lead to a 
stable workforce in every aspect of the industry.

      Responses of Duane Zavadil to Questions From Senator Salazar

    Question 1. Thank you for your testimony, I appreciate hearing the 
views of an industry that is so important to our country, and Colorado.
    As natural gas exploration and development expands into lands 
neighboring local communities and into areas that are highly valued, 
what opportunities exist for industry to collaborate with local 
communities to reduce conflict? I am motivated to ask this question by 
the positive experience between Antero Resources and Garfield County 
residents.
    Answer. IPAMS encourages community involvement in providing input 
on development. However, where federal resources are involved, 
operators and the federal government have an obligation to maximize the 
recovery of resource so as to prevent waste. While operators are able 
in many instances to make operational concessions, it is a two-way 
street where the local community needs to understand the needs of the 
nation and that mineral resource development is a principle or major 
use of BLM lands under FLPMA (along with livestock grazing, fish and 
wildlife development, rights of way, recreation and timber production). 
See 43 U.S.C. Sec. 1702 (1). The balance is sometimes difficult to 
strike especially in the Intermountain west where the population 
continues to increase on the western Slope.
    Question 2. What is industry's position on due diligence 
requirements for lease that are held?
    Answer. The term ``due diligence'' encompasses a broad number of 
issues. Most issues of due diligence occur on the lease in terms of the 
duty to the royalty owner. Based on Question number 1 above, presumably 
the question deals with what the industry's position is on external due 
diligence prior to developing a lease. IPAMS believes the answer to 
Question 1 above adequately addresses this issue.
                                 ______
                                 
    Responses of Dave Freudenthal to Questions From Senator Domenici

    Question 1. What has been the States involvement in Bureau of Land 
Management's (BLM) planning efforts?
    Answer. The state has been involved in numerous BLM oil and gas 
development projects. State agencies often participate in scoping 
through the final environmental impact statement/record of decision. 
The real work is accomplished when the state is at the 
interdisciplinary team level as cooperating agencies as defined by the 
National Environmental Policy Act (NEPA). State cooperating agencies 
usually involve personnel from the Game and Fish Department, Department 
of Agriculture, Office of State Lands and Investments, Department of 
Environmental Quality, State Trails Program, State Historic 
Preservation Office, Oil and Gas Conservation Commission and the 
Geological Survey. Because of the number of individual energy projects 
the BLM is working on, the agencies tend to focus on the major planning 
efforts. A current list of projects is attached. The state has also 
been involved in the Governor's consistency review of the Jack Morrow 
Hills Plan.
    Question 2. Has the State been satisfied with its opportunities to 
involvement in BLM's planning and monitoring?
    Answer. The interaction between the state and BLM field offices 
concerning planning and monitoring has been evolving. We are clearly 
further along in the area of planning. However, there is currently 
discussion on how to create a synergism between federal, state and 
local entities to conduct appropriate monitoring. Overall, the 
relationship has been better than ever, however, there is still work to 
do on communication in certain areas, but overall we see progress being 
made. Coordination and communication must exist between state and local 
cooperators and the BLM at the field and at the state office level.
    Question 3. We can all agree that it's too early to determine 
whether this program can be successful.
    What are the top 2 or 3 items you think are essential to making 
this successful?
    Answer. First of all, the BLM and state need people with strong 
problem-solving skills to be able to work through issues. Adequate 
funding and support from the top are also an absolute must for 
monitoring and inspection to be successful. Without inspection and 
monitoring receiving the same level of attention and funding as 
currently provided to permitting efforts the chance of legal action--
over everything that has been, accelerated or streamlined--could be 
jeopardized.

     Responses of Dave Freudenthal to Questions From Senator Thomas

    Question 1. Can you expand upon the comments in your testimony 
related to the role that the states can and should play in the 
implementation of these Pilot Offices?
    Answer. The state can clearly play a role in the pilot offices, but 
also in other offices such as the Jonah Interagency Field office. The 
state can assist in gathering specific resource information and data to 
assist in the permitting, however, the state agencies see their true 
expertise as being in the implementation and monitoring of oil and gas 
development.
    Question 2. You spoke about the Pinedale office in your testimony 
and said that 92% of the land that office oversees has been leased and 
that only 8% of the remaining land is available for wildlife and 
recreation. I do not believe that is true--just because something has 
been leased does not mean that it has been drilled or otherwise 
disturbed. Wouldn't a more accurate measure be the percentage on which 
drilling has been approved? Do you have those numbers?
    Answer. I would like to expand on and clarify the 92%/8% issue. I 
agree that undeveloped leased land is certainly available for other 
activities and wildlife to use the leased areas. As long as development 
may occur, there is never the assurance, however, that the habitat will 
remain undisturbed. The main point of my statement, `As an example, the 
Pinedale Field Office had 92% of its area leased, and a high likelihood 
that would fully developed, 8% of the remaining land does not seem to 
protect other resources values such as sage grouse, mule deer or 
antelope or recreation opportunities that provide solitude,' was to 
emphasize that, once leased, the BLM has the responsibility to allow 
the lease to be developed and, if developed, will then impact habitat 
because of surface and human disturbance.
    The BLM is not eager to invest habitat or mitigation monies in a 
leased section of BLM land due to the possibility of additional surface 
and human disturbance. One might argue that the lease stipulations are 
in place to offset impacts to wildlife and other resources. To this 
point, there are currently studies suggesting that existing 
stipulations may not adequately protect mule deer herds or antelope 
migration or sage grouse nesting areas from impacts in later-developed 
areas. Many biologists are requesting that the BLM at the very minimum 
defer leasing in those areas with crucial habitat and low potential for 
development while other areas are fully developed to provide areas of 
undisturbed habitat. Pinedale is reviewing this option for its RMP.
    In order to truly mitigate disturbance, in order for it to be 
effective, the mitigation must persist undisturbed during the life of 
the project.
    Question 3. You make a case for the Pinedale, Wyoming field office 
being added to the Pilot Office program in your testimony. Is it fair 
to say that you would characterize Section 365 of the Energy Policy Act 
as a success even in these early stages of its implementation?
    Answer. It is fair to characterize the early stages of the Energy 
Policy Act as a vast improvement over the pre-existing situation. There 
still remain many items that need to be implemented for success to be 
fully declared.

    Responses of Dave Freudenthal to Questions From Senator Bingaman

    Question 1. Inspection and Enforcement--Your testimony makes some 
excellent points regarding the importance of inspection and 
enforcement. What additional steps do you think the Federal Government 
should take in this area?
    Answer. There should be a minimum number of drill/production lease 
sites that are inspected randomly each year by a diverse team including 
representatives of engineering, biology, conservation, transportation, 
grazing and others, based on consistent parameters. The inspection team 
should also include all agencies that have regulatory and/or inspection 
authority. The results should be released to the public.
    Question 2. Monitoring--You also discuss the importance of 
monitoring the impacts of oil and gas production. Please provide us 
with your thoughts on what BLM should be doing in this regard.
    Answer. During production, a minimum number of sites and/or leases 
should be inspected randomly each year. This again should include a 
team with a variety of expertise. The team should include 
representation from agencies with regulatory authority or interest in 
the issues. These inspections should be publicly announced and the 
results released to the public.
    Question 3. Water Resources--What are your views with respect to 
the potential impact of coalbed methane production on water resources? 
Are there steps the Federal Government should be taking that are not 
being taken?
    Answer. Additional monitoring regarding underground aquifers is 
needed. The federal government could help in this regard. As for 
surface water, the EPA is involved with the disagreement over water 
quality issues between Montana and Wyoming. The Wyoming Legislature has 
created a coal bed methane taskforce that is looking at this issue as 
well. Federal funding may be needed to help create a viable solution to 
water management for the Powder River Basin.

    Responses of Dave Freudenthal to Questions From Senator Salazar
    Question 1. I appreciate your testimony regarding the need to 
improve inspection and enforcement activity by the BLM. Does Wyoming 
have any additional suggestions for how to accomplish better inspection 
and enforcement in the field?
    Answer. There should be a minimum number of drilling and/or 
production sites that are inspected randomly each year by a diverse 
team including representatives of engineering, biology, conservation, 
transportation, grazing conditions of approval and others, based on 
consistent parameters. The inspection team should include all agencies 
that have regulatory and/or inspection authority in order to facilitate 
information sharing. The results should be released to the public.
    Question 2. I also appreciated your recommendation to avoid 
``hasty'' action to remove winter stipulations when our wildlife is 
most susceptible to pressure from industrial activity. How often are 
these stipulations able to be worked through with communication and 
cooperation with the state?
    Answer. Attached is a letter sent to Senators Domenici and Bingaman 
in December 2005 that outlines our concerns. Essentially, Wyoming has 
been successful in meeting companies' operational needs when they are 
willing to help reduce the impacts to wildlife.
    Attachments: BLM Hotsheet and 2005 Winter stipulation letter have 
been retained in committee files.
                         TUESDAY, JULY 11, 2006
                                 ______
                                 
     Responses of Chris Standlee to Questions From Senator Domenici

    Question 1. Your company is truly global in its pursuit of biofuel 
technologies. You are pursuing projects in Europe and here in the US. 
Do you see opportunities for technological cooperation internationally?
    Answer. We believe that there are great opportunities for 
international cooperation on new ethanol technologies. Air quality and 
energy independence are not just U.S. issues, and our goals are 
complimentary to, rather than competitive to, the goals of other 
nations in the area of renewable fuels. Abengoa promotes the sharing of 
information and improvements between companies both within and outside 
our borders, and that cooperation is critical to the most efficient 
development of these new technologies. Our current cost share project 
with the DOE promoted partnerships with international companies to 
develop better enzymes to more efficiently break down starch and sugars 
and improve the yield of feedstock to ethanol. We believe this has 
helped to encourage the development of the best technologies available. 
Several other countries in Europe, Asia and South America are also 
promoting the development of new ethanol technologies. In addition to 
our cost share project with DOE, we have similar cost share agreements 
with the European Union that make Abengoa one of the EU's leading 
partners. While these projects are clearly separately funded and 
address separate technologies, the pursuit of multiple potential 
technologies is the most logical way to determine which are the best. 
We are confidant that the lessons we learn from the operation of our 
new biomass facility in Salamanca, Spain (which is designed to 
demonstrate enzymatic hydrolysis technology), will help us more 
efficiently complete our pilot plant in York, Nebraska (to demonstrate 
biomass fractionation and fermentation technology). The simultaneous 
evaluation of both technologies will allow us to make a better and more 
informed decision as to the design of a full commercial scale biomass 
production facility which we are currently proposing to DOE in response 
to their most recent solicitation.
    Question 2. How competitive are American biofuel companies 
internationally?
    Answer. American biofuel companies are among the most price 
competitive internationally. However, this does not mean that American 
ethanol is the least expensive to produce. Brazil has a more mature 
ethanol industry that has been based on over thirty years of government 
support, plants that are fully depreciated, substantially less 
expensive feedstock supplies, fewer environmental regulations, no 
natural gas expenses, and low manpower costs. On a pure cost per gallon 
basis, Brazil is the current international leader, but it will not be 
able to replace the world's oil supply by itself. Additionally, there 
is little benefit to be gained in exchanging a dependence on imported 
oil for a dependence on imported ethanol.
    The U.S. ethanol industry is capitalizing quickly with the passage 
of the Renewable Fuels Standard. It is by far the most diverse, 
developed and efficient renewable industry in the world. In fact, we 
expect the U.S. industry to quickly surpass the Brazilian ethanol 
industry as the U.S. industry expands both traditional starch 
fermentation production, and funds the anticipated cellulosic 
demonstration plants. Our industry is certainly the most 
technologically advanced of any ethanol industry in the world. 
Continued governmental support of the U.S. industry, and especially the 
development of new technologies such as biomass, will make the U.S. 
industry even more competitive internationally in the long term.
    Probably just as important to the survivability of this growing 
industry, is a discussion on how to maintain a market driven system 
without putting the significant R&D investment by both the federal 
government and private industry at risk when oil prices fluctuate. We 
hope this discussion would include how the lessons learned from the 
early development of the starch based ethanol industry could help 
provide stability for the development of the cellulosic industry. For 
example, the Brazilian government made a commitment to be free of 
imported oil and backed that pledge up with a consistent policy on 
which the industry could move forward. We ask that the U.S. provide the 
same type of commitment to the renewable industry that would allow the 
U.S. to become much less reliant on imported energy.
    One significant first step in making that commitment would be to 
fund the renewable programs created in the Energy Bill. We encourage 
the Committee to have a frank discussion on providing a consistent 
message regarding a commitment to the future of the renewable industry. 
We encourage the Committee to consider policies that would allow the 
market to send price signals to the industry, while also providing 
consistent incentives to ensure ongoing private investment in the 
future of the industry and the goal of reducing substantial dependence 
on imported oil.
    Question 3. Can you help me to understand what exactly is meant by 
the term ``biorefinery''? I have heard this term used to talk about 
existing ethanol plants, new ethanol facilities and future production 
sites for cellulosic biomass ethanol. What is the correct use of this 
term and does it refer to a facility that will produce a slate of fuels 
(i.e. gasoline, jet fuel, naptha, diesel, asphalt and chemicals) as an 
oil refinery does today, or is there only one product supplied--ethanol 
or biodiesel?
    Answer. In our view, the term ``biorefinery'' means any facility 
that produces fuel or other products (including human or animal food 
products, plastics, lignin or even other energy sources, such as 
electricity) from renewable resources. It is not limited to ethanol or 
biodiesel, although those are the most common Biofuels today. The term 
would not be limited to fuels, as other valuable products are already 
capable of being produced.. However, products derived from petroleum or 
other non-renewable resources would not be included.
                                 ______
                                 
      Responses of Paul Thomsen to Questions From Senator Domenici

    Question 1. Of the numerous directives aimed at the geothermal 
industry within EPAct, which are considered the most important by the 
geothermal industry, and why?
    Answer. EPAct included many different provisions related to 
geothermal energy, including tax credits, a revision of the Geothermal 
Steam Act governing leasing and royalties, research directives for the 
Department of Energy, and others. In addition, geothermal energy and 
projects could be part of the federal loan guarantee program and are 
affected by many provisions relating to energy markets, reliability, 
and so forth.
    Most within the industry would identify the inclusion of geothermal 
energy in the Section 45 Production Tax Credit as the most important of 
these items for two main reasons. First, the tax credit puts geothermal 
on an even footing with wind energy, which is often a competitor with 
geothermal projects in states with renewable portfolio standards. 
Without parity, geothermal projects had a difficult time winning 
solicitations. Second, the PTC helps reduce the high upfront costs 
associated with geothermal projects, which is important because states 
and consumers are seeking renewable energy but don't want to pay a 
premium for it. Together, state renewable standards and other state 
initiatives, along with the PTC, will spur the development of many new 
geothermal power plants.
    Beyond the tax provisions, the leasing, royalty provisions, and 
research directive have many important benefits that would be difficult 
to prioritize. A company must obtain a lease before development can 
occur on federal land, so leasing is important; the counties in which 
geothermal development occurs should receive royalty payments, so 
royalty provisions are important; and finally, there is a continuing 
need for advances in technology, particularly to help industry find and 
develop the subsurface resource better, so research is important.
    Question 2. On what type of land does the majority of geothermal 
development take place? (federal land, private land, etc) In the 
future, do you expect this to change?
    Answer. We understand that roughly half of the geothermal power 
produced today involves some federal land or leases. It is expected 
that in the future this percentage will increase because so much of the 
potential resources in the West are on federal land. If working on 
federal lands becomes more difficult, which has been the case over the 
past decade or more, this may change. Additional bureaucratic burdens, 
delays, restrictions and other impediments on federal land will give 
development on private or state land a higher premium--even though the 
better resources may be on the public lands. This is already occurring 
in California, where obtaining leases and permits from the federal 
agencies have ground to a near complete halt.
    A trend towards growing reliance on the federal lands is indicated 
by the recent GEA survey of geothermal projects. Of the 44 geothermal 
projects in nine western states that GEA identifies as currently under 
development, we estimate that more than 60% involve federal leases. The 
GEA 2006 ``Update on Geothermal Power Production and Development'' is 
available on the organizations web site at: http://www.geo-energy.org/
publications/reports.asp.
    Question 3. Why should geothermal, a regional resource, be 
supported by a federal agency such as the DOE? Why not focus on the 
regional support provided by WGA and individual western states?
    Answer. Geothermal energy--the heat from the earth--is not a 
regional resource, but is available everywhere in the United States. 
Geothermal heat pumps capture the heat from the ground at shallow 
depths in all 50 states. Direct uses of geothermal energy, which use 
low and moderate temperature resources, are used to support commercial 
enterprises in some 26 states.
    Today, only high temperature geothermal power production is 
geographically limited. High temperature power production currently 
exists in four states--California, Hawaii, Nevada and Utah--but that is 
expected to expand to six in just the next year (Idaho and Alaska), and 
could expand even further with continued federal and state support. 
Western Governors' Association identified eleven states that are 
capable of producing geothermal electricity in the near term from known 
hydrothermal resources, given continued federal and state support. This 
expansion to a dozen states could be more than doubled in the coming 
decade if the ability to find and characterize geothermal resources 
improves; if efforts to produce power from oil and gas fields, small 
off grid systems, and other applications not typically considered are 
successful; and, if there is a multi-year commitment to fund the DOE 
geothermal research program needed to support these and other 
objectives. Relying on state and regional support alone would limit 
potential expansion. Not only do state and regional programs lack the 
resources of the federal program, but there would be little incentive 
to develop important improvements in technology applicable in other 
states or across the entire nation.
    Energy is unquestionably a national issue, as well as a state and 
regional one, and new energy development needs support and 
encouragement from both federal and state governments. Geothermal 
energy can make a significant contribution to our national energy 
needs. As the Geothermal Energy Association stated in its testimony to 
the Senate Energy and Water Appropriations Committee this past April, 
``GEA projects that with continued federal and state support geothermal 
power could expand beyond providing 5% of California's electric power 
to providing 6% of the entire nation's electric power by 2025. We 
estimate that over 30,000 MW of geothermal power could be developed in 
the next 20 years, representing an investment in new domestic energy 
supplies of over $70 billion. This level of production and new 
investment in geothermal energy would mean 130,000 new full time jobs 
and 500,000 person-years of construction and manufacturing employment. 
Yet, at this level of geothermal production, we would only be utilizing 
a small fraction of the ultimate geothermal potential.''

        Response of Paul Thomsen to Question From Senator Wyden

    Question 1. As renewable energy proponents, do you think that the 
federal government should play a different or larger role in assessing 
the value and availability of solar, wind and geothermal energy 
resources on federal lands? We authorized several provisions under last 
year's Energy Bill that put DOE and USGS in the driver's seat here, and 
yet now we are hearing that if you're measuring wind availability on 
BLM land, there's one set of rules and if you're planning a geothermal 
project on Forest Service land there's another set of rules. What 
should the federal government be doing to provide better assessments of 
renewable energy resources?
    Answer. The directive and authorization of EPAct for a new national 
geothermal resource assessment, combined with the directive for DOE to 
conduct research into improved technologies for detecting geothermal 
resources and reducing drilling and development costs, seek to address 
this important question. The high cost and risk of identifying and 
characterizing geothermal resources is a principal barrier to our 
expanded use of these resources. According to the last USGS resource 
assessment, more than 80% of the conventional geothermal resources were 
considered ``hidden'' because we lacked the technology to find them 
without expensive and risky blind-drilling. That situation remains 
fundamentally unchanged today.
    What can or should be done? First, the federal government should 
carry the mandate of EPAct and not shortchange resource assessment for 
renewable resources, particularly geothermal energy, both in agency 
budgets and congressional appropriations. Further, DOE and DOI should 
build upon the directives in EPAct by developing collaborative plans 
with state governments and industry to target exploration and 
subsurface research in order to identify the most promising new sites, 
and support cost-shared efforts or loan guarantees for early 
development activities as well as DOE's efforts to develop and apply 
advanced resource engineering techniques. Finally, the tax incentives 
included in EPAct for oil and gas exploration should be expanded to 
include geothermal energy.
    Further, the question raises the issue of inter-agency 
coordination, which has created problems in the past for geothermal 
development. Large areas of the West involve the jurisdiction of 
multiple federal agencies, and coordination between these agencies and 
state and federal agencies is critical. EPAct addressed this, in part, 
for geothermal by requiring a new Memorandum of Understanding between 
the BLM and U.S. Forest Service regarding geothermal leasing and 
development. That MOU is a first step and now must be put into action 
as BLM resumes a federal leasing program. Congress can help see that 
the good intentions of the MOU translate into agency actions through 
effective oversight. Also, Congress should consider directing the 
federal agencies to enter into similar agreements with state agencies 
that have overlapping jurisdiction.
                                 ______
                                 
   Responses of Dr. Walter Snyder to Questions From Senator Domenici

    Question 1. The Consortium is presently comprised of six 
institutions in the Intermountain west.
    Is participation limited to the current members and if not what do 
you see the membership in the Consortium becoming in the future?
    Answer. As you know, the Intermountain West Geothermal Consortium 
(IWGC) was authorized by EPACT (section 1820) as a collaboration among 
academic institutions and federal research laboratories. We are 
certainly open to new members. Our focus is on developing a better 
fundamental understanding of the geology, geophysics, hydrology, and 
geochemistry of geothermal systems and to transfer this knowledge to 
industry, federal and state agencies, municipalities, and industry. Our 
immediate goal is to fully launch the IWGC, that is, to implement 
section 1830 of EPACT. However, because of the importance of geothermal 
to the West's energy portfolio, we are open to new members interested 
in geoscience research. Collaboration is the key issue here. 
Collaboration occurs through new membership, but also between the IWGC 
and other institutions and programs. The IWGC should not, cannot, and 
will not do all the needed geothermal research, in particular that 
which focuses on the engineering aspects which are best done my other, 
ongoing efforts, such as at Sandia Laboratories, New Mexico State 
University, National Renewable Energy Laboratory, and elsewhere. Others 
may prefer to remain independent, such as Nevada's Great Basin Center 
for Geothermal Energy. But we clearly understand the need for 
collaboration of all groups doing geothermal research, regardless of 
focus. We want to emphasize that the membership of the IWGC will always 
reflect the need for doing practical research that agencies and 
industry can use, and that our membership must reflect that commitment.
    Question 2. In your testimony you mentioned the Consortium 
represents a new way of doing research.
    Can you clarify what that approach is and how it will benefit 
development of renewable geothermal resources in the west and the 
Nation?
    Answer. Much is said about ``technology transfer,'' that is, about 
transferring basic research results to the stakeholders for their use. 
This is easy to say, but more difficult to do effectively, and even 
more difficult to document. Because many of the IWGC members have for 
years worked closely with agencies and industry, we recognized this 
problem and have devised a four-point approach that taken together 
constitutes a new paradigm for research: 1) publication of results, 2) 
open access to all relevant data through a digital information system, 
3) open access to physical geologic samples and logs, and 4) directly 
working and communicating with stakeholders. Separately, these four 
approaches are not revolutionary, but taken together they represent a 
new approach to research and knowledge transfer that can better serve 
the geothermal stakeholders.
    Item 1 is standard and a basic requirement for research, however, 
it is important to note that items 1 and 2 are significantly different. 
It is not access to published papers that hinders public policy 
decision making, agency management decisions and activities, and use of 
research results by state and local governmental bodies and industry, 
but the lack of complete access to relevant data and metadata. Item 2 
is, therefore, a significant new step for knowledge transfer that does 
not exist for geothermal energy research--and for much of the rest of 
federally-funded research. The IWGC is constructing an open-access, 
digital information system to capture data as it is generated.
    Item 3 highlights the fact that far too often physical samples that 
have great, long-term value, are not properly stored or made available 
to all interested parties--samples that were paid for by federal 
research dollars. IWGC will make those samples and associated data 
openly available.
    Item 4 is a bridge to stakeholders that researchers, on their own, 
typically have difficulty crossing. The IWGC is committed to working 
with stakeholders not only through our website, but by hosting and 
participating in conferences, seminars, and workshops and engaging in 
other outreach efforts. We will work directly with stakeholders and 
community organizations on specific issues of importance to them.
    Question 3. What research is needed to promote direct use?
    Answer. Direct use research is a wonderful example of the need for 
technology transfer. The first part of the answer lies in continuing to 
improve, through engineering research, technologies to utilize low and 
moderate temperature resources in a cost-effective way and delivering 
those solutions to the parties who can use them.
    The second part of the answer lies with the type science research 
that the IWGC conducts. It is important to note that engineering 
solutions must be based on sound science. The answer to the first 
question applies here: we need a better fundamental understanding of 
the geology, geophysics, hydrology, and geochemistry of low-temperature 
geothermal systems. A general suite of questions illustrates the 
scientific challenges for direct use systems; these include the 
following.

   Where are the available direct use resources?
   What is the size of the resources?
   Can we develop better geophysical methodologies to 
        inexpensively and reliably image the subsurface expression of 
        these geothermal systems?
   At what rate of production can each system be used but 
        sustained?
   With use, will the geological conditions of the system 
        change over time as the chemistry and thermal characteristics 
        change, and how might this affect production and 
        sustainability?

    The Boise geothermal system is a prime example within the U.S. of a 
city that utilizes direct geothermal heat to reduce power consumption. 
If we can answer the questions above, and others, then we will have the 
opportunity to apply this knowledge to other locations, such as Salt 
Lake City, Reno, Klamath Falls, and other metropolitan areas that have 
not yet assessed the potential for direct geothermal use.
    Finally, the IWGC can serve as a contact point for the small 
businesses and entrepreneurs seeking to utilize geothermal energy for 
aquiculture, heating, food dehydration, etc. In some cases, we can work 
directly with these people, in other cases we would connect them with 
other existing and more appropriate organizations that can provided 
them more effective help.

     Responses of Dr. Walter Snyder to Questions From Senator Wyden

    Question 1. As renewable energy proponents, do you think that the 
federal government should play a different or larger role in assessing 
the value and availability of solar, wind and geothermal energy 
resources on federal lands? We authorized several provisions under last 
year's Energy Bill that put DOE and USGS in the driver's seat here, and 
yet now we are hearing that if you're measuring wind availability on 
BLM land, there's one set of rules and if you're planning a geothermal 
project on Forest Service land there's another set of rules. What 
should the federal government be doing to provide better assessments of 
renewable energy resources?
    Answer. The BLM and Forest Service should quickly implement plans 
and licensing rules and procedures that are uniform, reflect reasonable 
and attainable requirements, a streamlined process, and that are 
incentives to the development and use of renewable resources.
    The federal government, through the BLM, Forest Service, USGS and 
DOE should also do more to help assess the value and availability of 
renewable energy resources on federal lands.
    Insufficient manpower is a major limit on the speed and 
effectiveness of our federal agencies re streamlining the permitting 
and licensing processes. Some of these duties can only be done by the 
agencies, e.g., the permitting and licensing processes. Others, in 
particular the background work necessary for proper planning and 
assessment, can be leveraged by increased collaboration with academic 
institutions, federal research laboratories, and industry. Such 
collaboration is fostered by EPACT through DOE funding of research at 
academic institutions and federal laboratories, for example, in section 
1820 where the establishment and funding of the Intermountain West 
Geothermal Consortium (IWGC) are authorized.
    For geothermal, the first step to assessing its value and 
availability is to recognize that our scientific understanding of this 
energy resource is immature. To emphasize what is in the written 
testimony, to be able to fully and economically assess, find, and 
utilize geothermal resources, we must better understand the geological, 
geophysical, geochemical, and hydrologic nature of these complex 
systems. Our existing geologic knowledge is insufficient for an 
accurate assessment of the West's geothermal resource potential, much 
less to fully utilize our known resources. Some of the resources are 
hidden, that is they have no obvious surface expression. Others require 
engineering technology improvements that are predicated on first 
understanding the geological details. In short, without additional 
joint federal-academic research we can't realize our nation's potential 
for renewable energy.
    The Energy Policy Act calls on the USGS to update the 1978 
Assessment of Geothermal Resources, and then update this assessment as 
the availability of data and developments in technology warrant. Thus, 
the collaboration between academic institutions and DOE must extend to 
the USGS. It is recommended that periodically a concise assessment be 
provided to Congress on the progress and effectiveness of the 
collaboration among the federal agencies, academic researchers, and 
federal research laboratories.
                                 ______
                                 
      Responses of Bernie Karl to Questions From Senator Domenici

    Question 1. The Technology you are planning to use at your Hot 
Springs specialized and designed to fit just your unique situation?
    Answer. The unique thing about this particular geothermal power 
plant is that it was not designed specifically for our site. In fact, 
many similar components came directly off the Carrier Refrigeration 
chiller production line. This means the infrastructure for mass 
production of these unit is already largely in place. While the idea of 
reversing a refrigeration cycle to generate power is not new in 
principle, United Technologies (UTC) is the first large scale 
manufacturer to build a commercial product based on this concept. While 
some small sacrifices to system efficiency are inevitable, these are 
more than compensated for by the resulting reduction in the upfront 
cost of these types of power plants, and similarly reduced maintenance 
costs because most components can be serviced by a certified 
refrigeration mechanic.
    Question 2. How economically feasible is it for the oil and gas 
industry to use this technology to produce electricity from the large 
volumes of produced water they often deal with?
    Answer. The estimated payback period for the generation facilities 
is 3 to 4 years, with an expected plant lifetime of 20 years. Once the 
power plant is in place, the generated power is essentially `free' as 
no drilling or engineering would be required to obtain the power other 
than the upfront costs of the turbines.\1\ The biggest initial hurdle 
to this idea is not economic, but in obtaining the buy-in of an oil 
company to install the first unit and demonstrate the feasibility of 
the concept. This is the role the Department of Energy Geothermal 
Technologies Program can and should play in developing this concept.
---------------------------------------------------------------------------
    \1\ Paraphrased from the September 5, 2005 issue of Oil and Gas 
Journal, `Geothermal electric power supply possible from Gulf Coast, 
Midcontinent oil field waters'.
---------------------------------------------------------------------------
    Question 3. Are there other possible applications of this 
technology?
    Answer. Yes, absolutely! While Chena Hot Springs happens to have 
geothermal water as a heat source, it is important to remember this 
technology will work off any type of low-grade or waste heat source. 
Landfill flares and stack heat rejected from reciprocating engines have 
already been used to generate power in this way; biomass fuel is a 
frontrunner in Alaska for remote power generation using the same 
technology.

         Response of Bernie Karl to Question From Senator Wyden

    Question 1. As renewable energy proponents, do you think that the 
federal government should play a different or larger role in assessing 
the value and availability of solar, wind and geothermal energy 
resources on federal lands? We authorized several provisions under last 
years Energy Bill that put DOE and USGS in the driver's seat here, and 
yet now we are hearing that if you're measuring wind availability on 
BLM land, there's one set of rules and if you're planning a geothermal 
project on Forest Service land there's another set of rules. What 
should the federal government be doing to provide better assessments of 
renewable energy resources?
    Answer. I do not have personal experience with the circumstance you 
present in this question, so I cannot speak to this directly. However, 
I would encourage the federal government to adopt measures to simplify 
permitting and encourage renewable energy development on federal lands.
                                 ______
                                 
       Responses of Jim Wells to Questions From Senator Bingaman

    Question 1. According to GAO's report, 22 states and the District 
of Columbia have encouraged the production of electricity from 
renewable resources through renewable portfolio standards. Can you 
please describe more specifically the role of the state RPS's in 
advancing the use of renewable electricity generation? Would a federal 
RPS have the same effect of encouraging renewable electricity 
production?
    Answer. A state RPS is a policy that requires the retail sellers of 
electricity within that state, such as utilities and other marketers, 
to meet a portion of their energy needs with eligible forms of 
renewable energy. Eligible forms of renewable energy include geothermal 
energy, wind, and solar energy. Industry and government officials told 
us that the RPS standards have resulted in additional renewable energy 
development in both California and Nevada, and some officials noted 
that without an RPS, it is questionable whether utilities would readily 
purchase additional geothermal energy. GAO has not done work nationally 
to determine whether a federal RPS would also encourage development of 
renewable energy. Each state's energy situation is unique, and so are 
the RPS policies for those states that have them. Although some 
officials told us that there would be interest in a national standard, 
they noted there is no consensus on how the standard would be defined, 
what fuels would be included, or how it would be implemented. They also 
expressed concerns that a national standard not override states with 
aggressive standards such as California and Nevada. In addition, there 
are significant challenges in the West to the development of renewable 
energy, including the availability of adequate and affordable 
transmission that could make enforcing an RPS a challenge.
    Question 2. Do you believe that the percentage of gross proceeds 
royalty as prescribed by EPAct 2005 will achieve the same revenues as 
the percent of the value of production royalty under the Geothermal 
Steam Act prior to amendment? Do you have advice on how this can best 
be accomplished?
    Answer. It is not possible to ensure that the amount of royalties 
collected under provisions of the Energy Policy Act will be exactly the 
same as what would have been collected prior to the Act. However, we 
stated in our report that Interior could collect from currently 
producing leases the same general level of geothermal royalties as 
before the Act if the percentage of gross sales revenue collected in 
the future is based on past royalty histories and if electricity prices 
remain relatively stable. Interior already has a track record in 
examining past royalty histories and negotiating future royalties based 
on these data. However, it is not possible with reasonable assurance 
for Interior to predict future electricity prices, and if electricity 
prices rise, geothermal royalties will actually fall. Although 
challenging, one could implement contingencies for changing electricity 
prices, such as prescribing adjustment clauses that would track prices 
as they rose or fell within the 10-year period during which the Act 
directs the Secretary to seek to collect the same level of geothermal 
royalties.
    Question 3. Do you think that the law as drafted will help ensure 
that where there is competitive interest in a lease the lease will be 
issued competitively resulting in a fair return to the public? Do the 
EPAct 2005 provisions improve upon the previous law in this regard?
    Answer. We believe that the competitive leasing process prescribed 
by the Act will enhance the exposure of future leases to greater market 
forces which in theory should result in a more fair return to the 
federal government. We consider this to be an improvement. Before the 
Act, BLM determined whether leases had a reasonable potential for 
geothermal development and only offered those leases with a reasonable 
potential through a competitive auction. Geothermal companies will now 
have the option to independently determine whether any lands available 
for leasing have geothermal potential and can pursue these lands 
through the competitive auction process.
    Question 4. Your report indicates that some developers noted 
difficulty in consolidating various geothermal leases into economically 
viable projects, and goes on to state that speculators lease geothermal 
resources not for development but to resell the leases at a significant 
profit. How widespread do you think this problem is? How can it be 
addressed? Do you think the federal government can or should share in 
the benefits of any secondary market for geothermal leases?
    Answer. We defined speculators as companies or individuals who 
acquire leases to promote and resell, rather than to develop the leases 
themselves. Speculation is not necessarily bad. Sometimes speculators 
can actually lead to the future development of leases by promoting a 
new geological idea that results in the drilling of a test well. We did 
not uncover evidence that speculation in geothermal leases was 
widespread, but BLM officials did call our attention to some situations 
in which speculators were requesting excessive compensation for their 
leases that made geothermal projects uneconomic and therefore unlikely 
to be developed. Unfortunately, we again do not know the extent of this 
practice in either oil or gas leases as well as geothermal. We believe 
that the provision within the Energy Policy Act that directs 
competitive geothermal leasing and the provision that allows BLM to 
consolidate smaller leases into a larger block may reduce speculation 
and make it more likely that leases will be acquired by the developers 
of geothermal power plants.
                                 ______
                                 
       Responses of Bob Linden to Questions From Senator Domenici

    Question 1. The technology you are using is a ``concentrating dish-
engine system.''
    Can you describe how these work? How much energy one dish will 
produce? How much actual surface disturbance is needed for each dish?
    Answer.
Stirling Energy Systems Overview
    Stirling Energy Systems, Inc. (``SES'' or ``the Company''), a 
developer of solar power generation equipment for utility-scale power 
plants, has developed an innovative and highly efficient solar energy 
technology that is ready for commercialization. The Company's unique 
technology, the SunCatcherTM, combines a mirrored 
concentrator dish with a high-efficiency Stirling engine specially 
designed to convert sunlight to electricity.
Technology Overview
    The SES SunCatcher is a 25-kilowatt (``kW'') solar power system 
designed to automatically track the sun and collect and focus solar 
energy onto a power conversion unit (``PCU'') that in turn converts the 
intense heat to grid-quality electricity. The concentrator consists of 
a 38-foot-diameter dish structure that supports 82 curved glass mirror 
facets, each three-feet by four-feet in area. These mirrors concentrate 
solar energy onto the heater head of a high-efficiency, 4-cylinder 
reciprocating Stirling cycle engine, generating up to 25 kW of grid-
quality electricity per system. Exhibit 2 illustrates the basic 
operation of the system.
Technology Advantages
    Unlike conventional power generation, the SunCatcher produces no 
pollution or greenhouse gas emissions such as carbon dioxide 
(``CO2''). The energy source is free, renewable, abundant, 
and inexhaustible. Most importantly, through advances made over the 
last decade, the technology is poised for commercialization. Key 
advantages over competing renewable technologies include:
Efficiency
    Solar technologies in the past have been challenged by the 
economics associated with low efficiencies. On an annualized basis, the 
SunCatcher converts approximately 26-28% of the available solar 
insolation to grid-quality electricity, nearly twice that of the 
nearest solar alternative. The SunCatcher also holds the world's record 
at 29.4% conversion efficiency.
Best Fit--Least Cost
    Leading California utilities have reported using a ``best fit-least 
cost'' evaluation methodology as the basis for selecting SES for a 
majority of the renewable capacity contracted to date. SunCatcher 
energy production is predictably maximized at mid-day, coincident with 
peak demand for electricity, for which utilities are willing to pay a 
premium. Due to its efficiency advantage, the manufacture and 
construction of a SunCatcher requires roughly one-half the raw 
materials of competing solar technologies for equivalent annual power 
generation, creating a significant cost advantage.
Predictable Costs, Easier Siting
    SunCatcher operating costs are predictable. While up-front 
investment costs are higher than conventional generation, the 
SunCatcher is cost efficient to operate over its useful life because it 
relies on the sun, a free source of energy. As a result, SunCatcher 
plants are not subject to the volatility of fossil fuel prices. In 
addition, SunCatchers are easier to site since they do not produce 
emissions (in contrast to oil, gas, and coal), obstruct views (e.g., 
wind), and are not considered hazardous (e.g., nuclear). As a result of 
these benefits, solar energy enjoys broad public support.
    As an illustration of the SunCatcher's land-use efficiency, an SES 
solar dish farm covering approximately 13 square miles of desert land 
is capable of producing 3.5 million megawatt-hours (``MWh'') of power 
per year--the same amount of power produced by the Hoover Dam in an 
average year, but with a footprint that is less than 5% of the 250 
square miles required by Lake Mead.
Additional Advantages and Customer Benefits
    Additional advantages and customer benefits of the SunCatcher 
technology include:

   low water use, requiring water only for monthly dish mirror 
        cleaning, a significant constraint for other concentrating 
        solar technologies in the U.S. Southwest;
   units can be serviced and repaired individually without 
        impact to the rest of the project, resulting in high overall 
        plant availability;
   power production can be brought on-line incrementally as 
        individual units are connected to the electric grid; and
   sites can grow as power needs increase from tens to hundreds 
        of megawatts.
Technology
    The SES SunCatcher is a 25 kW solar system designed to 
automatically track the sun, collect and focus the solar energy onto a 
power conversion unit that in turn converts the intense heat to grid-
quality electricity. Exhibit 3 below illustrates the sun tracking cycle 
during daily operation.
    The SunCatcher produces electricity efficiently, without fuel costs 
or environmentally harmful emissions. The modular nature of the system 
allows individual 25 kW units to be assembled and ready for operation 
in less than one day after the dish pedestal has been installed. This 
modularity allows the SunCatcher to produce power during the 
construction phase of a power plant, as soon as the first units are 
operational and connected to the transmission grid. More importantly, 
modularity permits maintenance to be performed on individual systems 
without shutting down the entire power plant, contributing to high 
overall plant availability.
    The modular SunCatcher system can be scaled for smaller power 
plants (tens of megawatts) or for larger, utility-scale plants 
(hundreds of megawatts). For a detailed comparison of the SES 
SunCatcher to other power-generating technologies, see the SES 
SunCatcher Competitive Advantages section.
Power Conversion Unit
    The PCU consists of a solar receiver, Stirling engine, 480-volt 
inductiongenerator, radiator cooling system, and support frame. The 
heart of the PCU, the Stirling engine, is the most thermodynamically 
efficient cycle for converting heat into mechanical power.
    The Stirling engine is designed to be a low maintenance, highly 
efficient engine with a long useful life. There are many versions of 
the Stirlingengine, each customized for different applications. The 
Stirling engine used in the SunCatcher system is called a ``4-95'' 
which refers to the engine's four cylinders each with a 95 cubic 
centimeter displacement. Its inclusion in the SunCatcher system is the 
critical element which makes the SunCatcher technology so efficient and 
revolutionary.
    In general, all engines require heat. Stirling engines use an 
external heating source where heating occurs outside the engine instead 
of within it, as in a conventional internal-combustion automotive 
engine. This external heating feature makes the Stirling engine very 
flexible and highly efficient while also allowing it to achieve ultra-
low emission and noise levels.
    In comparison to internal combustion engines, Stirling engines have 
a longer life and require less maintenance. Internal combustion engines 
must inject hydrocarbon fuels directly into the interior engine 
components, depositing corrosive combustion by-products, greatly 
reducing overall engine life. By contrast, the Stirling engine's 
internal components are never exposed to corrosive hydrocarbon fuels, 
which keeps the engine clean and significantly extends its useful life.
Dish Concentrator
    The concentrator dish consists of a 38-foot diameter steel dish 
structure that supports 82 curved glass mirror facets, each three-foot 
by four-foot in area. It also includes a boom that connects the mirror 
support structure to the PCU. The boom is supported by a tubular 
pedestal, equipped with an integral azimuth drive, which is then 
anchored to a concrete pad. The boom-pedestal connection is pivoted to 
allow vertical motion via an elevation drive. The. dish controller is 
located inside the pedestal and is accessible through a weatherproof 
hatch. The dish structure is designed for low-cost factory automated 
fabrication and rapid on-site assembly.
Installation and Operation
    Each SunCatcher system requires about a 20-inch augered hole about 
16 feet deep for the foundation and mounting of the pedestal. About 8 
dishes can be installed on each acre of land, with adequate spacing to 
minimize the shadowing from neighboring dishes.
    When installed in a solar-rich desert (such as the Mohave Desert in 
California), each SunCatcher will produce about as much electrical 
energy each year as will be used by 8 to 10 households.
    Question 2. I like your idea of ``solar or wind enterprise zones.''
    Would you explain this idea further? Might we expand on that idea 
for whatever energy is being developed with ``National Energy Areas''?
    Answer. The concept of a solar enterprise zone is not original--It 
was actually tried out in Nevada about 10-15 years ago. The state set 
up a study group that identified some 5 different areas in Nevada that 
had excellent solar resources, available public lands (mostly BLM), and 
were acceptable to the nearby populations (i.e., there was no serious 
NIMBY (``Not In My Backyard'') issues.
    The largest of these, the El Dorado Valley south of Las Vegas, has 
been selected as a site for a 64 MW solar trough plant that is 
currently under construction.
    The general concept is to establish a program whereby all Federal 
lands would be evaluated for potential use for renewable energy 
production. Each land-holding Agency would designate some portion of 
the lands determined to have renewable energy potential in their land-
use plans as ``set-aside'' areas for renewable energy development.
    This concept could certainly be expanded to cover virtually all 50 
states and result in the development of National (Renewable) Energy 
Areas. (For some states, the idea resource would be solar, for others 
wind, still others geothermal or biomass.) To be most effective as a 
tool for developing renewable energy production, the selected ``set-
aside'' lands would be further evaluated, with at least preliminary 
environmental impact studies ( so-called programmatic EISs) performed, 
transmission interconnect analyses performed and incorporated into a 
broader transmission grid upgrade study.
    A couple of important cautionary observations: these energy 
enterprise zones or set-aside areas should remain Federally-owned land 
and not be deeded over or sold to third parties. In the El Dorado 
Valley (NV) example, shortly after the area was identified as an ideal 
area for solar energy production, the land was deeded over from the BLM 
to the city of Boulder City. The city initially set unreasonably high 
lease rates for the land, which discouraged and delayed the development 
of any solar projects. More recently (in the past few months), the 
citizens of the city voted to sell off the land for residential 
development, which the city believes will make each of its citizens 
very wealthy. Sadly, though, the largest, most ideal solar area of the 
state will no longer be available for solar energy production.
    It is also important to establish low-lease-rate guidelines for 
these renewable energy enterprise zones. Renewable energy, in general, 
can be characterized as having large front-end capital costs, which are 
offset over the lifetime of the plants by low or no fuel costs. They 
usually also require large amounts of land (particularly wind, solar, 
and biomass). Putting a high price-tag on land, either in the form of 
lease rates or property taxes, will likely make the projects 
uneconomical or non-financable.

         Response of Bob Linden to Question From Senator Wyden

    Question 1. As renewable energy proponents, do you think that the 
federal government should play a different or larger role in assessing 
the value and availability of solar, wind and geothermal energy 
resources on federal lands? We authorized several provisions under last 
year's Energy Bill that put DOE and USGS in the driver's seat here, and 
yet now we are hearing that if you're measuring wind availability on 
BLM land, there's one set of rules and if you're planning a geothermal 
project on Forest Service land there's another set of rules. What 
should the federal government be doing to provide better assessments of 
renewable energy resources?
    Answer. I'm not familiar with what the degree of support the 
federal government is providing the geothermal industry. DOE has 
developed maps that show the general availability of solar, wind, 
biomass, and geothermal resources. In the case of solar, NREL has 
published hourly solar availability data for some 239 locations in the 
U.S. and its territories. These data were collected over a 30-year 
period from 1961 through 1990. More recent satellite data is now being 
collected to augment this large database.
    About two years ago, NREL announced that it had developed a 
relatively high-resolution map of wind resources based on satellite 
data that covers much if not all of the U.S. (Because of the very site-
specific characteristics of wind, it is still necessary for a developer 
to operate one or more wind survey towers (generally 50 meter towers) 
at a planned site for a minimum of one year in order to ensure that the 
particular planned wind turbine site will provide sufficient wind to 
support the economics of the project.)
    The BLM has undertaken a program to revise their land use plans for 
all their controlled lands. Plans have been completed by some field 
offices, and others are still under development.
    With regard to your observation that there seem to be different 
standards or rules for wind or geothermal projects. I believe the 
genesis of this difference lies in the fact that wind is treated as a 
resource affecting above ground-surface use rights, whereas geothermal 
affects below-ground resources use rights and is treated in the same 
general way as minerals management issues by the Department of the 
Interior.
    Finally, with respect to your question of what else should the 
federal government be doing in the area of resource assessments, I 
think it is important for NREL and USGS to expand and update the 
extensive data available for solar and wind resource assessment by 
utilizing the latest state-of-the-art satellite survey capabilities.
                                 ______
                                 
     Responses of V. John White to Questions From Senator Domenici

    Question 1. As an organization that represents both industry and 
the environmental community, you are probably best equipped to see both 
sides of the fence.
    What will be most significant challenges to developing renewable 
energy on public lands?
    Answer. All energy infrastructure projects face numerous barriers, 
and for renewable technologies, some of the challenges are unique. The 
close connection between renewables and electric transmission can make 
the very earliest stages of project development very difficult. 
Renewables are faced with trying to line up transmission access, 
project siting and site control and a power purchase agreement all 
concurrently.
    In known renewable resource areas, state and federal agencies 
should closely to coordinate siting of both renewable technology 
projects and needed expansion of electric transmission. The active 
participation of federal land management agencies in these coordination 
efforts can help renewable technology projects overcome these hurdles.
    As discussed in my earlier filed testimony, without access to 
transmission, renewable developers cannot secure financing to build 
their projects; and without committed projects, regulators cannot 
approve the transmission to connect them. These are complicated issues 
that can only be addressed by a very high level of coordination between 
federal, state and local governments with a stake in the process, and 
the private entities such as developers and utilities that will make 
the projects a reality. By beginning early and working together, we can 
achieve the goal of sustained, orderly development of our nation's 
renewable resources.
    The framework which the California Energy Commission and CEERT have 
initiated in California can serve as an excellent template for these 
kinds of coordination efforts. The Tehachapi Wind Resources area has an 
estimated 4500 megawatts of wind energy potential, and remains untapped 
because of a lack of transmission capacity. It is essential that these 
resources be developed in a timely and orderly fashion, if we are to 
achieve Governor Schwarzenegger's goal of 33% renewable energy by 2020.
    Tehachapi's enormous potential will only reached, however, if we 
can find a way to achieve unprecedented cooperation between all the 
parties, especially the Federal Energy Regulatory Commission and 
federal land managers such as the Forest Service.
    In the Tehachapi Collaborative Study Group (TCSG) process, CEERT 
facilitated planning among renewable energy developers, public 
agencies, public and investor owned utilities, land holders and public 
interest advocates. Each one of these entities will represent a 
critical piece in the course of Tehachapi's full development, FERC and 
the U.S. Forest Service have critical roles to play, and both have 
taken actions which, in the past, impeded California's efforts.
    The goals of sustained, orderly development of renewable resources 
and coordinated long term planning have been especially difficult for 
renewable technologies to achieve. Because the fuel for a renewable 
project is essentially free, the vast majority of the cost of renewable 
energy comes from the up front financing required. Also, because the 
technologies and equipment are significantly more expensive than their 
fossil fuel counterparts, they are more difficult to finance and have a 
higher level of risk. However, once the initial capital has been paid 
back most renewable projects can sell power at or below the cost of 
most conventional fossil fueled generation. Similarly many of the 
benefits from renewable energy will not be reaped immediately. The 
benefits of the critical role renewable energy plays in the fight 
against climate change will not be realized for possibly generations. 
However, if renewables are to indeed play such a role the action must 
begin now.
    Question 2. What is needed to address the planning and development 
of the additional transmission lines necessary for renewable resources?
    Answer. With knowledge of the location of the West's prime 
renewable resources, major transmission projects must take into account 
these resources in their planning, and recognize the need for 
renewables to gain access to the grid. Electricity infrastructure has 
an extremely long life time, and renewables will benefit greatly from 
farsighted and coordinated transmission planning which focuses on the 
sustained, orderly development of the West's best renewable resource 
regions.
    We believe that the most significant untapped renewable resource 
areas throughout the Western U.S. should be evaluated and prioritized. 
Among the considerations should be: quality and size of the resource; 
market for renewable power; the existing transmission grid near the 
resource; and the alternative generation options that will impact the 
economics of the development. Much of this work has already been done 
for some regions, while others will need additional investigation.
    Once the regions have been identified, transmission planning groups 
should be formed in the mold of the TCSG. The Western Governor's 
Association has the existing capacity to jumpstart these groups and 
could serve as the coordinating body.
    An example of the need for this kind of early coordination and 
cooperation between public agencies and energy stakeholders is the 
opportunity in the Mohave Desert regarding for concentrated solar power 
(CSP) projects.
    The Bureau of Land Management (BLM) has conducted its current 
planning process for land in the Mohave with very little consultation 
with renewable energy advocates. As a result, though the Mohave has 
some of the best solar resources in the world, almost none of the BLM 
land in that area has been designated for solar development. This plan, 
if not modified, could significantly reduce the viability of 
concentrating solar power, which we believe is the next major renewable 
technology on the horizon. The recent heat storm in California provided 
a powerful reminder of the importance of development and 
commercialization of utility-scale solar technologies.
    CEERT is working with the California Energy Commission to establish 
a study group for Mohave, which will seek to develop a consensus among 
stakeholders, including BLM, regarding transmission, land use, and 
procurement policies needed to rapidly develop large scale solar 
projects. We envision the process being similar to the Tehachapi 
process, but including siting and land use issues unique to this region 
and CSP technologies. We would hope the Committee could encourage the 
BLM's full and active involvement in this process, and that the result 
will be the kind of intense, coordination and cooperation that we 
believe is essential between California and the federal government.
    A recently released study contracted by National Renewable Energy 
Labs and preformed by Black and Veatch consultants analyzed scenarios 
for the deployment of 2100 MW and 4000 MW of concentrated solar power 
in California. The study found substantial economic viability and 
benefits from these scenarios, yet without cooperation from the federal 
government, the projects will not come to fruition.

       Responses of V. John White to Questions From Senator Wyden

    Question 1. As renewable energy proponents, do you think that the 
federal government should play a different or larger role in assessing 
the value and availability of solar, wind and geothermal energy 
resources on federal lands?
    Answer. As mentioned in Question 2 of our responses to Senator 
Domenici, the government could play an important role in helping to 
identify key renewable resource areas around the Western US. It will 
also be important for federal agencies to engage meaningfully in the 
collaborative process of planning the transmission. This is a fine line 
to walk as we are not recommending that the federal government seek to 
gain more authority in the process but rather increase their engagement 
collaboratively with the various other stakeholders. Many people will 
play a role in the expansion of renewables and transmission 
infrastructure around the West. An inclusive collaborative process will 
ensure that this is done in the most effective fashion. Additionally 
agency work in conducting environmental impact studies has generally 
led to the construction of better energy projects. This level of 
involvement has fallen off and should be restored.
    As mentioned in our initial written comments, the lack of funding 
and the requisite staffing to adequately perform environmental studies 
and reviews has been an ongoing problem for many federal agencies 
including the BLM and Forest Service. Increasing the government's role 
in assessing renewable resources, would depend on increased funding for 
the Federal land managers.
    Question 2. We authorized several provisions under last year's 
Energy Bill that put DOE and USGS in the driver's seat here, and yet 
now we are hearing that if you're measuring wind availability on BLM 
land, there's one set of rules and if you're planning a geothermal 
project on Forest Service land there's another set of rules. What 
should the federal government be doing to provide better assessments of 
renewable energy resources?
    Answer. Consistency and harmony are always difficult issues to 
resolve when it comes to multi-agency efforts. These agencies, DOE, 
USGS, BLM, and USFS, may have different goals and statutory 
obligations. This highlights yet again the need for early collaboration 
and cooperation. However there is a very tangible value in being able 
to agree on the assessment of renewable resource areas throughout the 
west. As mentioned earlier, a cooperative state and federal government 
effort, coordinated through the Western Governor's Association, to 
identify and prioritize key renewable energy resource regions would be 
a crucial first step in creating collaborative planning for 
transmission and siting of projects. It is imperative in the West that 
the federal government play a role in this process from the very 
beginning because the Federal Government owns so much of the land where 
renewable resources occur.
    In order to achieve this, it will likely be necessary for agencies 
to come together and try and resolve the differences in consistency 
between their different assessment strategies and priorities. Your 
question highlights an important first step in the process. Public 
input in developing an assessment strategy will be crucial to ensure 
that all factors impacting development are considered early on, 
including impacts on wilderness and environmentally sensitive land. 
This will help all stakeholders avoid delays later on in the process 
when more time and money has been invested by all those involved.
                         MONDAY, JULY 17, 2006
                                 ______
                                 
                                 General Motors Corporation
                                       Warren, MI, August 14, 2006.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Senator Domenici: Please accept my apologies for my delayed 
response to the committee questions. On the evening of my testimony in 
Washington, my mother fell into a coma and subsequently passed away 
last week.
    I hope my responses are still timely enough to be of use to the 
committee.
            Sincerely yours,
                                           Byron McCormick,
                          Executive Director, Fuel Cell Activities.

   Responses of J. Byron McCormick to Questions From Senator Domenici

    Question 1. I'd like to poll the panel on the key questions we have 
to answer about building a hydrogen infrastructure. Do you believe we 
should rely on on-site production, or centralized production with 
pipeline distribution?
    Answer. My belief is that we will use both centralized and 
distributed production depending on the energy source and location. 
GM's vision includes centralized production from coal, biomass, natural 
gas, and nuclear and geothermal energy as well as distributed 
production from natural gas, wind and solar power, and electrolysis 
from any outlet for electricity. We also envision some degree of home 
refueling for customer convenience and to augment the infrastructure 
during the early phases on deployment.
    Question 2. What further work is needed on codes and standards for 
fuel cells for vehicle applications?
    Answer. This is a particularly relevant question. With respect to 
vehicular codes and standards, the Society of Automotive Engineers 
(SAE), NHTSA, and the International Society for Standardization (ISO) 
are doing an excellent job. There are remaining open items, but these 
are being addressed in an orderly technical way. The more troubling and 
perhaps more difficult issue is siting of fueling stations. Codes are 
local and interpretations vary greatly. GM and the energy companies are 
finding it very difficult to open stations in a timely fashion. Some 
sort of national standards would be very useful in order to expedite a 
rapid rollout once, or if, the U.S. decides to move to a hydrogen-based 
transportation system.
    Additionally, techniques and government-approved uniform codes and 
processes for ensuring the quality of the hydrogen delivered would be 
very helpful. This is not so important initially, when large energy 
companies are the likely source, but becomes critical as we diversity 
our sources of hydrogen and entrepreneurs, small businesses, and other 
enterprises enter the ``fuels'' business, creating jobs and 
diversifying our energy portfolio.
    In regard to the above two issues, the U.S. is competitively 
handicapped versus other countries like Japan, where such matters are 
centralized and then ``rolled out'' for implementation.
    Question 3. Are you satisfied with the progress to date on these 
codes and standards?
    Answer. In general, we are satisfied with the progress on codes and 
standards, with the exception of those for fueling stations. This is 
one area where the modeling capabilities and scientific insights of DOE 
labs such as Sandia could be useful. The big issue of concern to 
neighborhoods near the stations is ``setback,'' or distance from stored 
hydrogen, in the event of a major accident. To support the creation of 
codes that will be broadly accepted, we need the participation of 
knowledgeable technical organizations that are viewed as neutral and 
objective. Corporations are not viewed in this manner.
    Question 4. Are there any areas where you feel additional focus 
would be warranted?
    Answer. Senator, I believe the path you were beginning to explore 
relative to transitioning the market is becoming the most critical. 
While we have not yet accomplished all of our technical and cost 
objectives, the questions associated with focusing and mobilizing the 
necessary financial resources to underwrite such a massive 
transformation is becoming progressively more important. Basically, we 
are creating a new industry, or industries if you include the massive 
automotive supply base and new hydrogen-production industry. The 
question is, how as a country do we get this done? How do we work our 
way through the phase during which both the vehicles and hydrogen are 
too expensive because we are not at high-volume deployment? This is a 
business question for GM. It is a tax and incentives question for 
governments around the world.
    Our ability to simultaneously develop answers to this question from 
both a business and government perspective may well determine whether 
this technology can make it out of the lab and into the hands of 
consumers in a timely and efficient fashion, and whether the U.S. is 
placed in a competitively advantaged or disadvantaged position.

   Responses of J. Byron McCormick to Questions From Senator Bingaman

    Question 1. The Department's hydrogen program hopes to achieve 
milestones out in the 2015 timeframe that will determine whether it is 
feasible to produce commercial hydrogen vehicles. At that point, how 
many years past these initial milestones will it take to introduce 
significant quantities of hydrogen vehicles into the U.S. market? What 
kind of government policies are needed in this transition period?
    Answer. The speed at which fuel cell vehicles penetrate the market 
depends heavily on a number of critical factors, largely beyond the 
control of any auto manufacturer. Among these is convincing the public 
that fuel cell and hydrogen storage technologies are safe and that 
refueling will be available. Another is convincing industry (auto, 
energy, suppliers) that this initiative--which is different from all 
other previous alternative fuel/vehicle programs--is a key U.S. 
priority and that the transition will be accompanied by long-term, 
sustained government incentives, since the transition to a significant/
meaningful volume of vehicles in the marketplace will indeed take some 
time. (The normal insertion of any automotive technology into the 
entire light-duty vehicle fleet takes more than 20 years!) Due to the 
technologies involved and the new supply base required, we estimate 
that it will take from 500,000 to one million vehicle sales per year to 
reach efficient scale. This represents a very significant 
capitalization risk to automotive OEMs and a very long-term outlook. As 
a result, the longer it is expected to take to reach these volumes, the 
more difficult it becomes to justify the initial investment required. 
Government incentives will be crucial to closing this gap.
    More specifically, relative to actions the government can take to 
enable the transition.

   Provide unprecedented support of alternative fuel program 
        with a clearly articulated, bold national vision:
    --``Moonshot'' advertising and public service campaigns.
    --Education program to increase public confidence on safety and 
            benefits.
   Sustained, long-term, compelling incentives (total package):
    --Substantial early vehicle purchase incentives (could be on the 
            order of $500 million per year) for government fleets, 
            commercial fleets, and retail customers (critical for mass-
            market acceptance).
    --Consumer non-financial incentives (e.g., HOV lanes, parking 
            privileges).
    --OEM incentives (lessen the burden/share the high risk of early 
            capitalization).
    --Supply base financial incentives (support early supply base 
            capitalization with loan guarantees, tax-free facilities, 
            etc.).
    --Incentives to hydrogen infrastructure providers.
    --Incentives to hydrogen station owners/operators (credits, loan 
            guarantees, tax incentives).
    --Incentives initially applied broadly to all hydrogen feedstocks 
            (later, applied to encourage renewable sources).
    --Hydrogen fuel incentives to ensure compelling price relative to 
            gasoline--e.g., no hydrogen fuel tax until some percentage 
            market penetration is achieved (recommend 10 percent), plus 
            additional incentives (since price of fuel is a significant 
            motivator of sales).

    Additionally, the federal government should financially support the 
long-term, strategic development of a high-tech U.S. fuel cell industry 
capable of producing the world-class components required in Proton 
Exchange Membrane (PEM) fuel cells and hydrogen storage systems.
    Question 2. What do you see as the two or three long R&D poles in 
the tent and based upon your experience will they be ready in the 2015 
timeframe for initial decisions to be made on the commercial viability 
of a hydrogen vehicle?
    Answer. I want to make a distinction between where I think 
government should play in R&D versus R&D in general. In general, the 
basic technologies and materials sets for early fuel cell vehicles are 
established. GM and others like us currently are working on design 
refinement, manufacturing process development, and durability and 
reliability improvements. Government-funded research at the National 
Laboratories and universities should focus on high-risk, high-payoff 
items. Specifically, hydrogen storage should lead the list. The more 
hydrogen we can put on board cost-effectively at lower weight and 
volume, the better the vehicle and the greater the likelihood of 
consumer acceptance. Following this, there is a whole list of 
``substitution'' materials that would reduce cost and provide the 
opportunity for more cost-effective solutions, including: cheaper, non-
noble metal, high-activity fuel cell catalysts; cheaper membranes; 
cheaper hydrogen-tolerant materials to replace stainless steel; and 
less costly high-strength composite fibers. DOE, NSF, and other 
research funds should be directed toward such high-risk, high-payoff 
endeavors.
    In the nearer term, siting of fueling stations with uniform codes 
and the ability to expand the fueling infrastructure rapidly is a 
significant ``long pole.'' Government research on the most effective 
ways to safely store hydrogen at local fueling stations, based on 
science, is a critical element, along with the requisite translation of 
that science to workable codes that can be implemented across the U.S. 
in a uniform way. Government facilities like the Sandia Combustion 
Research facility would be well positioned to deliver this important 
element in a timely manner.
    Question 3. Since hydrogen is only a carrier of energy and not an 
energy source per se like gasoline, how do you expect to produce the 
volumes of hydrogen needed outside the realm of reforming natural gas, 
which is already in high demand for industry and residential purposes?
    Answer. Senator, this is a very important question. Our reason for 
developing hydrogen fuel cell technologies is based on the potential 
for diverse energy sources to create hydrogen. With over six billion 
people in the world, mankind is clearly going to need to be able to use 
all possible sources of energy efficiently and cleanly. There is 
currently a large hydrogen-from-natural gas industry already in place, 
growing, and geographically well-aligned with U.S. population centers. 
This industry services the petroleum industry, as ``clean,'' low-sulfur 
gasoline requires processing with additional hydrogen to ``replace'' 
contaminants in the petroleum. Also, we are using progressively 
``heavier'' crude oils; these oils have more carbon and less hydrogen 
and so require the addition of hydrogen for use in modern automobiles.
    As a result, it is natural that the initial vehicle introductions 
will build off this large, in-place infrastructure. However, we see 
coal, nuclear and geothermal energy, wind and solar power, and biomass 
all playing a role as the hydrogen industry develops. Which sources 
will lead and when will very much depend on local circumstances, i.e., 
the trade-off between local generation and transportation from more 
distant sources. The good news about hydrogen is that local conditions 
can and will favor different solutions, which in turn creates energy 
diversity and the creation of local jobs.
                                 ______
                                 
                              Department of Energy,
               Congressional and Intergovernmental Affairs,
                                   Washington, DC, August 31, 2006.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: On July 17, 2006, David Garman, Under Secretary, 
testified regarding the implementation of the Energy Policy Act 
provisions on hydrogen and fuel cell research and development.
    Enclosed are the answers to eight questions that were submitted by 
Senators Smith, Bingaman, and Wyden for the hearing record.
    If we can be of further assistance, please have your staff contact 
our Congressional Hearing Coordinator, Lillian Owen, at (202) 586-2031.
            Sincerely,
                                             Jill L. Sigal,
                                               Assistant Secretary.
[Enclosures.]

        Response of David Garman to Question From Senator Smith

    Question 1. It has been over 3 years since President Bush announced 
our nation's Hydrogen Fuel Initiative, and I know the Department of 
Energy has been working diligently on this initiative ever since. 
Indeed, your testimony today reports on considerable progress on many 
technology fronts.
    While using hydrogen as a fuel for transportation has many 
attractions, including source diversity and essentially zero tailpipe 
emissions, it also faces major hurdles, including shipping, on board 
storage, and infrastructure development. Some believe that there are a 
number of alternatives that also have very attractive features with 
perhaps fewer technical or economic challenges. These include electric 
vehicles, plug hybrids, and a variety of fuels such as ethanol, 
methanol, and even methane. Isn't it possible that in the near term one 
of these pathways will be more technologically and economically 
successful than hydrogen powered vehicles? And, if so, should we be 
putting just as much effort and funding into these alternatives?
    Answer. Hybrid vehicles and ethanol vehicles can have more of an 
impact in the near term on reducing oil consumption than hydrogen fuel 
cell vehicles. The Advanced Energy Initiative, announced by the 
President in his 2006 State of the Union address, proposes a 22 percent 
increase in research that will accelerate breakthroughs in energy 
technologies such as ethanol and plug-in hybrids. The Department's FY 
2007 budget request for the Biomass Program is $149.7 million--$59 
million higher than current funding. The budget request for the Vehicle 
Technologies Program, which includes hybrid technologies, is $166 
million. However, these technologies alone cannot fully substitute for 
light-duty vehicle petroleum use in the long term. The National Academy 
of Sciences concluded that hydrogen has the most potential for 
dramatically reducing oil consumption and carbon emissions. The 
technical challenges involved in developing viable hydrogen and fuel 
cell technologies require significant R&D to achieve these long-term 
benefits. The Department's FY 2007 budget request includes a balanced 
portfolio of near- and long-term approaches that will all play an 
important role in overcoming our Nation's dependence on foreign oil.

      Responses of David Garman to Questions From Senator Bingaman

    Question 1. Section 783 of the Energy Policy Act directs the 
purchase of stationary fuel cell systems and potable fuel cell systems 
by the federal government to meet the federal energy management 
savings--what is the status of this program with respect to stationary 
fuel cell systems such as those produced by Ion American and portable 
fuel cells such as those produced by Poly-Fuel?
    Answer. The Department recognizes that stationary and portable fuel 
cell technologies offer early market opportunities and that the Federal 
Government is a potential early adopter. The Department is evaluating 
EPACT 2005 section 783 requirements to determine how it could be 
integrated with existing efforts. The Secretary will call upon the 
Interagency Hydrogen and Fuel Cell Technical Task Force and the 
Hydrogen Technical Advisory Committee for recommendations regarding the 
status of stationary and portable fuel cell technology to determine how 
to proceed. The Department also is conducting studies to determine: a) 
the most promising near-term end-use applications for stationary and 
portable fuel cells, b) the user requirements necessary for adoption of 
the most promising applications, c) an economic comparison of most 
promising technologies, and d) strategies for DOE to promote deployment 
of fuel cells in the most promising market segments--when ready 
technologically and economically.
Background:
    The focus of the Department's current research efforts in these 
areas is on reducing cost and improving performance so that these 
technologies can compete in the marketplace. The Department's 2007 
budget request includes $63.35 million for research and development of 
solid oxide fuel cells such as the Ion America technology and $7.42 
million for development of polymer-based fuel cells for stationary and 
portable power, such as the Polyfuel technology. To compete with 
existing technologies, stationary systems need to achieve 40% 
efficiency and 40,000 hour durability; current status is 32% efficiency 
and about 20,000 hours durability. Portable power systems must cost 
less than $3/W and have a lifetime of 5,000 hours; current status is 
$40/W and about 500 hours.
    Question 2. Section 782 (c) of the Energy Policy Acts sets a number 
of actions that the Department must take with respect to developing 
fleet purchase requirements for fuel cell vehicles by 2010, what is the 
status of the Department in developing such a program?
    Answer. The Department agrees that section 782 of EPACT provides 
opportunities to accelerate Federal adoption of fuel cell vehicles for 
fleets. However, fuel cell vehicles are not currently available for 
federal fleet purchasing or leasing. Because the technology is in the 
research and development phase, fuel cell vehicles are too costly and 
do not meet the current performance requirements of Federal fleets. 
Some fuel cell vehicles are being used by Federal, State and local 
agencies as part of our Hydrogen Program learning demonstration 
project. The agencies are not leasing or purchasing these vehicles but 
are operating them so that the automobile manufacturers and the 
Department can obtain data on the performance of the vehicles, and 
address any problem areas.
    The Department will continue to assess the status of the 
technology, with input from the Interagency Task Force and the Hydrogen 
Technical Advisory Committee, and will recommend that Federal agencies 
purchase or lease fuel cell vehicles when the technology is available 
and competitive--on the basis of performance--with conventional 
vehicles.
    Question 3. The National Academies identified hydrogen storage as 
the key technical challenge facing the successful outcome of a hydrogen 
car system and that traditional gaseous fuel tanks will not work--how 
close is the Department to overcoming this issue and do you think it 
will be met by 2015 when you are hoping to achieve a 300 mile driving 
range?
    Answer. Through the Department's Centers of Excellence and 
independent projects, which include 40 universities, 15 companies and 
10 federal laboratories, the Program has made significant progress. We 
have identified materials with over 50% improvement in hydrogen storage 
capacity. Achieving the 2010 target of 6 weight percent, or percent 
hydrogen by weight, will enable some vehicles to achieve a 300-mile 
range; however, the long-term target of 9 weight percent is required to 
achieve this range in all light-duty vehicle platforms. Given the 
Department's plans, including theory-guided experiments and high-
throughput experimental techniques, and the support of Congress, the 
Program believes that it may be possible to achieve target projections 
in laboratory prototype systems by 2015. Scaling up of laboratory 
prototypes to commercial systems by industry and developing high volume 
manufacturing capabilities to reduce cost would be expected to follow, 
if industry carries through with their present intentions.
    Question 4. The Department's goal is to produce distributed 
hydrogen fueling stations with consumer cost of $2 per gallon of 
gasoline equivalent. It is my understanding that for reformed natural 
gas you have decreased the price from $5 to $3 but using reformed 
natural gas is unrealistic given its demand by industry and home 
heating. How close is the Department to meeting this goal using other 
methods such renewables (bio-production) or electrolysis of water?
    Answer. The price of natural gas should not be considered 
exclusively as a factor when assessing the competitiveness of hydrogen 
cost; the price of gasoline should also be considered. If, for example, 
natural gas was available at a price of $12.50 per million Btu, 
analysis indicates that the resulting hydrogen cost would be $4.50 per 
gallon gasoline equivalent (gge). When used in a fuel cell vehicle, 
hydrogen at $4.50/gge may be competitive on a cents-per-mile basis with 
gasoline at $1.90 per gallon (untaxed) because of the increased 
efficiency of the fuel cell. EIA analysis indicates that natural gas 
demand is projected to increase by less than 3% between 2020 and 2025, 
when fuel cell vehicles are expected to be introduced into the market. 
Although natural gas provides an available feedstock pathway for 
distributed hydrogen generation, it is clearly a near-term ``bridge'' 
strategy because long-term supply concerns and price volatility are an 
issue. The Department is also making progress in renewable production 
of hydrogen and in electrolysis:

   Using ethanol as a feedstock, the current projected cost of 
        producing hydrogen is about $4.40 per gallon gasoline 
        equivalent (gge), an improvement from $6.70 per gge status in 
        2003. This price may be projected to fall further, with the 
        anticipated decline in ethanol pricing.
   The economics of electrolyzing water into hydrogen and 
        oxygen is heavily dependent on the cost of the electricity. The 
        current cost of water electrolysis in a distributed system is 
        estimated at $4.80/gge based on an electricity cost of $0.039/
        kWh, the lowest industrial electricity price that 25% of the 
        population paid from 2000-2005. To reduce cost further, capital 
        equipment costs for electrolyzers must be reduced from the 
        current cost of $665/kW to $125/kW.
   We are also pursuing longer-term renewable hydrogen 
        production pathways such as water-splitting using solar-driven 
        high-temperature thermochemical, photoelectrochemical, and 
        photobiological technologies, and other renewable resources, 
        such as geothermal and wind as they become feasible.

       Responses of David Garman to Questions From Senator Wyden

    Question 1. The New York Times last Sunday, reported on the advent 
of fuel cell power packs for recharging cellphones, Blackberrys, and 
Personal Digital Assistants. Apparently the Europeans and Asians are 
ahead of the U.S. in marketing these devices that are due to become 
available next year. Why does the Administration focus almost 
exclusively on the use of hydrogen fuel cells for transportation when 
there are other technologies that could help us save energy, create 
jobs, clean up the environment and compete in today's global hydrogen 
markets?
    Answer. The Administration is primarily focused on hydrogen fuel 
cells for automotive applications because transportation accounts for 
2/3 of the 20 million barrels of oil our nation uses each day; fuel 
cells in transportation applications could significantly reduce our 
dependence on foreign sources of oil. Fuel cells for portable power 
applications, such as cell phone chargers, etc., can improve energy 
efficiency of consumer electronics and decrease electricity use, but 
these do not provide the significant energy savings that are possible 
in the transportation sector. The Department, however, recognizes that 
stationary and portable fuel cell technologies offer early market 
opportunities that will facilitate the development of fuel cells for 
later use in the automotive sector. The Administration's 2007 budget 
request includes $7.4 million for development of polymer-based fuel 
cells for stationary and portable power, and approximately $2 million 
for research on manufacturing of fuel cells. This will help the U.S. 
maintain a leading position in all fuel cell technologies, including 
portable power.
    Question 2. Toyota has been showing off their new hydrogen fuel 
cell demo car. Built at nearly $1 million each, Toyota has been 
involved in a Cooperative Research and Development Act Agreement with 
the Department of Energy to test their experimental engine designs 
under extreme driving conditions. Toyota claims that we are still 5-6 
years away from seeing hydrogen fuel cell powered cars and trucks for 
sale. Is this true? What is the national timetable now for reducing the 
costs of fuel cells and getting hydrogen fuel celled vehicles on the 
road? If Chevron can power up a fleet of buses in the Bay Area today 
why can't we start driving hydrogen-fueled cars and trucks tomorrow?
    Answer. There are a number of technical challenges that need to be 
overcome before hydrogen fuel cell vehicles become viable. These 
include improvements in hydrogen storage capacity to enable 300-mile 
range, further reductions in fuel cell cost, and improvements in fuel 
cell durability. Under the President's Hydrogen Fuel Initiative, the 
Department's Hydrogen Program is implementing an R&D plan to overcome 
these challenges during the next 10 years.
    Fuel cell buses, like the ones run by AC Transit in the Bay Area 
and the CUTE buses in Europe, are available today because the cost and 
performance requirements of buses are very different from those of 
light-duty vehicles and trucks. For example, a fuel cell bus can carry 
large tanks of hydrogen on its roof and travels fewer miles between 
refuelings, so storage is not a major barrier for this application. 
Also, because public transit vehicles have specified routes and parking 
locations, hydrogen fuel cell buses can have dedicated fueling 
facilities on fleet property and do not require the flexibility in 
fueling locations that the public demands for its vehicles.
    Question 3. Mr. Leuliette testified at the hearing, that the United 
States lacks a fresh, new, comprehensive, national energy policy that 
sets specific targets and goals for reducing American's dependence on 
imported oil and gas while we transition to a hydrogen fuels and 
renewable energy economy. Don't you think these types of targets or 
goals would be useful? Does the Energy Department have any official or 
unofficial targets or goals for reducing oil dependence using hydrogen 
or renewable energy? If not, why not? What are the latest estimates of 
how much of our domestic and imported oil could be displaced by 
hydrogen cell fuels? By when?
    Answer. The Advanced Energy Initiative (AEI) will accelerate 
investment in clean energy technologies in order to transform the way 
we power our homes, businesses, and the entire transportation sector. 
To achieve these goals, the President has requested $2.1 billion in FY 
2007--a 22 percent budget increase--to develop new technologies and 
alternative sources of energy to help diversify and strengthen our 
Nation's energy mix. The AEI focuses on researching and developing 
technologies that we believe hold great promise for reducing America's 
dependence on foreign oil and for increasing our use of solar, wind, 
biofuels, hydrogen, nuclear, and clean coal technologies. In addition, 
we have the ambitious metric of making cellulosic ethanol cost 
competitive by 2012. Through the development of advanced technologies 
for cellulosic ethanol, plug-in hybrids, and hydrogen fuel cells, we 
can help achieve the President's goal of replacing more than 75 percent 
of the oil imported from the Middle Ease by 2025.
    DOE's benefits modeling suggests that, assuming a light-duty fuel 
cell vehicle penetration of 37% by 2050, oil savings would be 5.3 
million barrels of oil per day. In an aggressive penetration scenario, 
which assumes that the vehicle penetration is 80% in 2040, the 
petroleum savings would be 11 million barrels of oil per day (our 
current import level).
                                 ______
                                 
      Response of Tim Leuliette to Question From Senator Domenici

    Question 1. Do you believe we should rely on on-site production or 
centralized production with pipeline distribution?
    Answer. This is not an area where Metaldyne has a great deal of 
technical information or expertise.
    However, I believe it is too early to tell which distribution 
system should be used. Long term we need to look to the technology 
experts to lay out our options. When we decided to put a man on the 
moon we didn't specify a lunar module attached to a three-man capsule. 
In the end technology dictates the solution.

      Responses of David Garman to Questions From Senator Bingaman

    Question 1. Do you know how well integrated the Japanese parts 
suppliers are with the Japanese hydrogen car program?
    Answer. While it is not public information, the Japanese parts 
suppliers are exceptionally well integrated in the Japanese car 
program. Traditionally they work very closely with the automakers at 
the earliest development stages of any vehicle project and the hydrogen 
car program is no different.
    There is a Japan Hydrogen & Fuel Cell Demonstration Project, 
subsidized by the Ministry of Economy, Trade and Industry (MITI), that 
shows promise.
    Question 2. Your testimony states that the DOE should include in 
its Hydrogen Technical and Fuel Cell Advisory Committee foreign-owned 
manufacturers with a significant presence in the U.S. can you explain 
this statement in a little more detail?
    Answer. The auto industry is a global business. Where a company is 
headquartered is not indicative of the economic impact it has on that 
country or region. For example, Honda sells more vehicles in the U.S. 
than it does in Japan.
    In Metaldyne's case we are headquartered in Plymouth, Michigan, but 
we see substantial growth and human resources and technical talent 
coming from other countries and regions. Integrating those skills and 
abilities into our corporate structure has allowed Metaldyne to more 
quickly develop innovative products and processes that have made us a 
leading global supplier. The same strategy holds true for developing a 
hydrogen economy.
    As a nation and an industry, we cannot, and should not, ignore the 
talent base and technological expertise foreign-based automakers can 
offer to the U.S. hydrogen program. These automakers and suppliers 
employ thousands of people across our country, who everyday share their 
expertise with their global colleagues.
    In addition, I would note that an exception was made and rules were 
constructed in order to allow DaimlerChrysler to be part of the current 
program given that their headquarters is in Germany. These same rules 
could be applied to the other foreign owned automakers.
    The bottom line is, we need the best and the brightest to help move 
us as quickly as possible to the hydrogen economy.
                                 ______
                                 

        Response of Jim Balcom to Question From Senator Domenici

    Question 1. I'd like to poll the panel on the key question we have 
to answer about building a hydrogen infrastructure. Do you believe we 
should rely on on-site production, or centralized production with 
pipeline distribution?
    Answer. In my humble opinion, I expect that the solution will be a 
combination of the two approaches of on-site production and centralized 
production, however, I understand that transporting hydrogen by 
pipeline is challenging and cost-prohibitive, other than for 
industrial-scale production and consumption situations.
    Instead, I expect that the onsite supply of hydrogen for 
transportation purposes will be either through the reformation of 
natural gas, or through the electrolysis of water using electricity. 
Hydrogen produced at central locations (via larger scale natural gas 
reformation or water electrolysis) will be distributed in cryogenic 
liquid form in tankers or in high pressure gas form in tube trailers. 
Hydrogen is relatively easy to produce and distribute in each of these 
processes.
    Some persons have proposed that the U.S. can use its abundant 
supply of coal to reduce its dependence on foreign oil; the conversion 
of coal to hydrogen along with CO2 sequestration would 
provide an environmentally acceptable method of centralized hydrogen 
generation. This would require that the hydrogen be transported. An 
efficiency study would need to be conducted comparing the cost of 
transporting hydrogen versus producing the electricity first, and 
transporting the electrical power to an electrolyzer for the production 
of hydrogen closer to the point of use.
    Nuclear power, and renewable sources of electricity such as wind, 
wave or solar can be used to produce electricity for the electrolysis 
of water into hydrogen. It may be more economical over the coming 
decades however to deliver the energy generated from these sources to 
the grid to offset any oil currently consumed to generate electricity. 
In this way, available oil supplies can be allocated to the 
transportation sector, where fuel mobility is most important and most 
challenging.

       Responses of Jim Balcom to Questions From Senator Bingaman

    Question 1. I sense the same dynamics with your industry much like 
that with the chip industry when we formed SEMATECH in the 1980's--that 
the U.S. has developed the cutting edge critical technologies but that 
foreign competitors, particularly those in Asia, are about to win by 
bringing them first into market and setting the standards for use. Do 
we need to develop a similar industry--government partnership for 
critical R&D like SEMATECH or are there some other mechanisms that the 
government can employ such as federal purchasing to ensure we do not 
loose this market?
    Answer. My understanding is that SEMATECH was established to 
counter a national threat to semiconductor technology in the U.S. The 
stakes are indeed high today in the case of energy, with the need to 
reduce U.S. dependence on foreign oil, and to reduce the threat of 
global climate change.
    However, in this case the DOE already has a solid plan in place 
whereby industry-government partnerships would work together to conduct 
the long term R&D that will be required to change the massive 
transportation sector from one that relies on fossil fuels to one based 
on hydrogen. It includes several competitively bid, cost-shared 
projects with industry across a broad range of technologies.
    The DOE has recognized and acknowledged that the portable fuel cell 
market will precede and has the potential to catalyze the automotive 
fuel cell market. Since so many of the designs, materials and processes 
are the same or similar between the portable and automotive fuel cell 
applications.
    Unfortunately, due to a lack of funding, the DOE has suspended the 
portable fuel cell programs, along with several other programs for 
FY06. Until recently, the National Institute of Standards and 
Technology (NIST) also had competitively awarded, cost shared programs 
with industry focused on portable fuel cell technology through the 
Advanced Technology Program (ATP). Funding for this program has also 
recently been suspended and the projects cancelled.
    PolyFuel doesn't feel that a specific SEMATECH initiative is 
required, but rather that funding for the existing government programs 
be maintained and the industry-government projects be executed.
    Question 2. The Department is projecting initial milestones for 
developing commercially viable fuel cell vehicles by 2015, where will 
your market be by that time frame and who do you expect to be the major 
players?
    Answer. Most of PolyFuel's customers are major consumer electronics 
manufacturers. They project that the market for portable fuel cells 
could reach 10% of the portable consumer electronic device customer 
base. One of the largest laptop manufacturers projects that the 
adoption rate could reach 30% of their customer base. Overall market 
projections vary, but one of the larger market forecasting firms, 
Allied Business Intelligence (ABI) has projected that the market for 
portable fuel cells could reach 50 million units by 2011. This would 
represent a 2% to 3% adoption in that timeframe. Several of the leading 
consumer electronic manufacturers have indicated that they intend to 
launch portable fuel cell powered devices in the 2007 or 2008 
timeframe. One has indicated that they expect to have 1 million units 
in the field in late 2008 or early 2009.
    Several U.S. based companies have leading technology in the 
portable fuel cell space. These include companies such as DuPont, 
PolyFuel and MTI Inc. However, many more Asian, European and Canadian 
firms are further ahead in terms of technology and market development. 
The risk is that foreign fuel cell manufacturers will achieve a 
substantial lead in the larger, but later, automotive fuel cell market 
by virtue of having been more active in the earlier portable fuel cell 
market.

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