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48–944—PDF 2007

S. HRG. 110–816

AIRFIELDS AND ALTERNATIVE FUELS:

EXPLORING RURAL AMERICA’S

TRANSPORTATION INFRASTRUCTURE

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

(DUBUQUE, IA)

AUGUST 27, 2007

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENT

Page

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 1

WITNESSES

Billings, Kevin W., Deputy Assistant Secretary, Environment, Safety, and

Occupational Health, U.S. Air Force, Washington, DC .................................... 4

Bauer, Carl O., Director, National Energy Technology Laboratory, U.S. Department of Energy, Pittsburgh, PA ................................................................... 6

Dorr, Hon. Thomas C., Under Secretary for Rural Development, U.S. Department of Agriculture, Washington, DC ................................................................ 7

Heine, Bruce W., director, government and media affairs, Magellan Midstream Partners, Tulsa, OK ................................................................................ 9

Accinelli, Steven R., chairperson, Dubuque Regional Airport Commission; and

director, aviation programs, University of Dubuque, Dubuque, IA ................. 12

Holmes, Dr. Bruce J., director, aeronautics research, DayJet Corporation,

Boca Raton, FL ..................................................................................................... 14

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Accinelli, Steven R.:

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 27

Baucus, Hon. Max:

Prepared statement .......................................................................................... 30

Bauer, Carl O.:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 32

Billings, Kevin W.:

Testimony .......................................................................................................... 4

Prepared statement with attachments ........................................................... 43

Dorr, Hon. Thomas C.:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 52

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 61

Diesch, John, written statement, ‘‘Coal: A Clean Future,’’ Subcommittee

on Energy, Natural Resources, and Infrastructure, Committee on Finance, April 26, 2007 .................................................................................... 64

Heine, Bruce W.:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 69

Holmes, Dr. Bruce J.:

Testimony .......................................................................................................... 14

Prepared statement with attachments ........................................................... 74

(III)

(1)

AIRFIELDS AND ALTERNATIVE FUELS:

EXPLORING RURAL AMERICA’S

TRANSPORTATION INFRASTRUCTURE

MONDAY, AUGUST 27, 2007

U.S. SENATE,

COMMITTEE ON FINANCE,

Dubuque, IA.

The hearing was convened, pursuant to notice, at 10 a.m., in the

General Aviation/Dubuque Jet Center, Dubuque Regional Airport,

11000 Airport Road, Dubuque, IA, Hon. Chuck Grassley (ranking

member of the committee) presiding.

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. I’m very happy to be in Dubuque today, and

I extend my gratitude to the city of Dubuque and the Dubuque Regional Airport for giving us their hospitality this very day.

I’m always excited to highlight the great things that are happening in Iowa when it comes to energy. I would like to thank

Rentech Energy Midwest Corporation for the tour of their facility

in East Dubuque that was given to members of the Finance Committee staff and others yesterday. Rentech is in the process of converting their 830-ton per day fertilizer plant from a natural gas facility to a coal and biomass gasification facility which will allow

them to produce alternative fuels, nitrogen fertilizers, and electricity. It’s very important for many reasons. As our country becomes more dependent upon biofuels, we will become more dependent upon fertilizer that farmers use to grow their crops that

produce the alternative fuel. Additionally, the fuel produced at this

facility will be able to be used in any current engine that runs on

conventional diesel fuel, as our witnesses will explain soon, and it

could be used for any plane that flies on jet fuel.

Today’s hearing is going to be building upon previous work of

this committee in Washington, DC. Appearing earlier as a witness

was Rentech Energy Midwest Corporation president John Diesch,

who spoke in greater detail at that time about Rentech’s alternative fuel goals during a Finance Committee subcommittee hearing in April this year, and I would put his testimony from that

hearing in the record for this committee hearing.

[The statement appears in the appendix on p. 64.]

Senator GRASSLEY. In addition to focusing on the infrastructure

required to produce alternative fuels, this hearing’s other purpose

is to draw attention to the unique issues faced by rural airports as

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they work to provide service to people and businesses in this region

and in their respective regions. Access to air transportation is a

very important variable in the calculation of any State’s economic

growth, and particularly that would be true of Dubuque. Rural

areas in particular tend to be underserved in this regard, and

sometimes it makes me wonder if the people back in Washington

realize that most of America is rural, and that is why I wanted to

transplant a piece of official Washington to real America by holding

a hearing in this hangar. And, I might add, the airport grounds

surrounded by cornfields are for Iowans an obvious reminder of the

alternative energy of the future.

We may be talking about rural issues, but also I want you to

know that renewable fuels and reliable transportation are ultimately important for all Americans regardless of where we live.

The Finance Committee is at a very important crossroads in decision-making, because within the next 2 months our committee will

be responsible for the re-authorization of the Airport and Airway

Trust Fund, the tax provisions of the farm bill, and alternative fuel

provisions in the energy bill. The committee will have the chance

to influence the future of aviation policy through this re-authorization, and much of that future will be discussed by our distinguished

panelists today.

America needs energy security, and rural America is willing to

take on that responsibility, as evidenced by all of the ethanol

plants and biodiesel plants around the Midwest. It will be our

crops that are grown in these fields and our businesses that invest

in this technology of the next generation and have already made

tremendous investments. The importance of these issues is

matched by the quality of the panel that we have today. And I

know that my chairman, Senator Max Baucus, as I should indicate,

chairman of the Finance Committee, has great interest in these

issues as well. He is unable to join us today, as many times I’ve

been unable to join him as he’s had hearings around the country

to highlight important issues, but he does have a very strong written statement for the record that will be available. And we have

Leighton Quon, whom I’ve had a chance to greet this morning and

seen quite regularly on Capitol Hill. He is from the Finance Committee staff and is an associate of Senator Baucus. So, if you want

to hear points of view from other members of the Finance Committee who can’t be here, maybe Leighton will be able to help you

with that.

[The prepared statement of Senator Baucus appears in the appendix.]

Senator GRASSLEY. First we are going to hear from Kevin Billings, Deputy Assistant Secretary of the Air Force for Environment,

Safety, and Occupational Health. Mr. Billings will discuss the Air

Force’s commitment to alternative fuels and its current plans to

fully certify all of its fleet—both ground and air—for alternative

fuels to include synthetic jet fuel. Where others have talked, the

Air Force has taken incredible action in working to develop a fleet

that will be able to fly on alternative jet fuel and drive on renewable fuels. The leadership of the Air Force is helping to drive an

entire movement toward the use of alternative jet fuel throughout

aviation.

3

Next we hear from Mr. Carl Bauer, Director of the U.S. Energy

Department’s National Energy Technology Laboratory. Mr. Bauer

will discuss the important work being done by his laboratory on

coal and biomass gasification. If we’re going to reduce reliance

upon foreign sources of energy, we will need to utilize our domestic

sources of fuel. One source of fuel that we have in great abundance

is coal. Despite a reputation for being dirty and a source of pollution, the work being done by Mr. Bauer and others to combine biomass like Iowa switchgrass with coal in gasification technologies

will help turn coal into a clean energy source for the future.

Then we will hear from an Iowan, Under Secretary for Rural Development, Thomas Dorr. He is a farmer from Marcus, IA, no

longer involved in his farming operation because of his Federal responsibilities, but this is a person, let me assure you, who knows

the issues that impact rural areas, the problems and how to solve

them. Mr. Dorr will discuss infrastructure issues in producing and

transporting alternative fuels, the infrastructure required of the industries that develop and produce alternative fuels, and USDA’s

rural development commitment to community facilities to complement that growth, and that includes airports and the industrial

parks.

Mr. Bruce Heine of Magellan Midstream Partners will discuss

issues involved in transporting alternative fuels. Magellan specializes in transportation, storage, and distribution of refined petroleum products, and distributes most of the fuel in this area. It will

not matter how much alternative fuel we produce if we’re not able

to deliver it to consumers on the coasts, and Magellan continues to

be a trail-blazer in the incorporation of renewable fuels into our national fuel delivery system.

And then we have Mr. Steven Accinelli, chairperson of the Dubuque Regional Airport Commission, as well as director of the aviation programs at the University of Dubuque. Mr. Accinelli will talk

about the issues facing aviation in rural America and the continuing challenges to develop and enhance service in rural or underserved areas by building access to both commercial flight and

general aviation. He has the unique responsibility for academic

bachelor degrees and flight training of over 200 students at the

university.

Our final witness is Dr. Bruce Holmes, director of aeronautics research for DayJet Corporation. Formerly NASA’s chief strategist,

Dr. Holmes is helping DayJet enact an innovative business plan

that will hopefully bring jet service transportation options to almost anyone’s front door. And in addition, Dr. Holmes is helping

his company lead the way to sweeping changes planned for air traffic control with the implementation of NextGen technologies and

their interest in helping the Nation’s airspace to become cleaner

with fuel-efficient fleets.

So I thank all of you, and I particularly thank you for the opportunity to introduce you as I have with maybe lengthy introductions

that you know about but these Iowans don’t know about. So I

thank you for helping us with this very important issue. Rural

America has the ability to reduce our dependence upon foreign

sources of fuel, but we have to provide the necessary infrastructure

while ensuring that businesses have transportation options in rural

4

areas. Anyone who is truly concerned about the environment or our

reliance on foreign sources of fuel has to pay attention to these

issues, as I know our witnesses have. And we’re going to take you

in the way that you were introduced, so just proceed. Make sure

the microphone is close to you. Because of the rain overhead we

have a lot of competition, and if I hit a fly don’t let it bother you.

Don’t take it personally.

STATEMENT OF KEVIN W. BILLINGS, DEPUTY ASSISTANT

SECRETARY, ENVIRONMENT, SAFETY, AND OCCUPATIONAL

HEALTH, U.S. AIR FORCE, WASHINGTON, DC

Mr. BILLINGS. Thank you, Senator. The Air Force is engaged

every single day in global operations, fighting the global war on

terror, defending our homeland, providing strategic deterrence, and

giving our Nation unparalleled global vigilance, reach, and power.

The Air Force global operations require a tremendous amount of

energy. We consumed almost 2.6 billion gallons of aviation fuel last

year at a cost of almost $5.8 billion. The Air Force total energy bill

exceeds $7 billion when you include the energy to operate our bases

and fuel for our ground vehicles.

The United States currently imports nearly 60 percent of its petroleum products, and that number is expected to rise to 68 percent

by 2030.

The growing economies of China, India, and the rest of Asia will

continue to put pressure on world-wide petroleum demand. This

global energy environment has significant implications for the Air

Force and is a primary driver behind the Air Force energy strategy—to reduce demand, increase supply, and change the culture

within the Air Force, so that energy is a consideration in everything we do.

The Air Force has an aggressive facility energy conservation program that achieved an impressive 30-percent reduction in energy

use over the past years. The Air Force is also the Federal Government’s largest purchaser of ‘‘green power.’’

Nearly 8 percent of our diesel fuel is B20. Today, 59 of our Air

Force bases are dispensing B20, and bases are dispensing E–85,

with a 16th E–85 station coming on line this week at F.E. Warren

Air Force Base in Wyoming.

Senator, I know you are most interested in the Air Force’s plan

to test, certify, and fly using a synthetic aviation fuel.

Air Force lore has it that one day Secretary Wynne was walking

among rows of fighter jets and bombers when he heard a voice.

That voice from the field of airplanes said, ‘‘If you certify them,

they will come.’’ Much like the legendary Ray Kinsella, Secretary

Wynne believes that by doing something out of the ordinary, the

Air Force can make good things happen.

The Air Force synthetic fuels initiative is a key part to our energy strategy. The Air Force is committed to certifying our entire

fleet of aircraft to fly on a synthetic aviation fuel blend by early

2011. Our additional goal is to cost-effectively acquire one-half of

our contiguous United States aviation fuel via a synthetic fuel

blend utilizing domestic feedstocks and produced in the United

States by 2016.

5

This year on August 8, Secretary Wynne and the team responsible for testing and certification of the fuel and aircraft signed a

certification certificate fully authorizing the use of a synthetic fuelblend in the Air Force fleet of B–52s, which appears in the picture

to our left. This was the first step toward achieving the Air Force’s

goal. More flight-testing and airworthiness certification of the fuel

are required to meet the Air Force goal of certifying our entire

fleet.

Next, the Air Force will begin testing the C–17 and the B–1 engine this fall. The C–17 was chosen because its high-bypass engines are derivatives of the engines that are currently used on the

Boeing 757. In this respect, testing will coincide with the work

being done by engine manufacturers with the commercial airline

industry.

The B–1 engine tests will be conducted this November, and the

work will focus on augmenters and afterburners that will be critical in determining how synthetic fuel will operate in supersonic

aircraft.

We know we cannot accomplish our vision without the full support and cooperation of industry and, specifically with respect to

aviation operations, without the support of the Federal Aviation

Administration. We have partnered with the industry’s Commercial

Aviation Alternative Fuels Initiative called CAAFI throughout our

planning and testing of our program.

We will continue to work with CAAFI, the engine manufacturers,

the Air Transport Association, the Airports Council International,

the Aerospace Industries Association, and the FAA. Our collective

goal is to ensure that we build a road map for the early and successful adoption of synthetic fuels for the commercial aviation

transportation sector.

The Air Force recognizes that there is an environmental challenge with carbon management and greenhouse gasses associated

with the production of synthetic fuels. The Air Force believes this

challenge can and should be overcome with the new technology currently being designed and developed by the government today. In

this light, the Air Force is committed to source its supply of domestically produced synthetic fuel from producers that substantially

capture and reuse or reform the carbon that comes out of the process.

Senator, 1 day after the Air Force had certified its fleet, Secretary Wynne was once again walking through the rows of fighter

jets and bombers when he met a developer of synthetic fuel. That

developer asked Secretary Wynne, ‘‘Is this heaven?’’ And Secretary

Wynne responded, ‘‘No, it’s Iowa.’’ Senator Grassley, the Air Force

appreciates the opportunity, and I look forward to answering your

questions.

Senator GRASSLEY. You’re either a baseball fan or else you have

done some history in this part of the State.

[The prepared statement of Mr. Billings appears in the appendix.]

Senator GRASSLEY. Mr. Bauer?

6

STATEMENT OF CARL O. BAUER, DIRECTOR, NATIONAL ENERGY TECHNOLOGY LABORATORY, U.S. DEPARTMENT OF

ENERGY, PITTSBURGH, PA

Mr. BAUER. Thank you, Senator Grassley. I appreciate this opportunity to provide testimony to your committee on the Department of Energy’s advanced clean coal technologies.

The economic prosperity of the United States over the past century has benefitted by the abundance of fossil fuels found in North

America. In fact, in Iowa 77 percent of your electricity comes from

coal. Fossil fuels are important to our energy security and global

economic competitiveness. However, concerns over climate change

and air pollution challenge our ability to take full advantage of

these resources.

One potential technology that could support our energy objectives

is coal biomass to liquids—or CBTL—a process that uses coal and

biomass gasification, combined with technology, to produce a wide

variety of liquid transportation fuel products, while incorporating

technology to mitigate CO2 emissions via carbon capture and storage.

If CBTL were to become a viable economic technology option, it

would depend on technologies that DOE has focused on for many

years. These include coal and biomass gasification, syngas-toliquids, carbon capture and storage, and enhanced oil recovery.

Research published by Professor Robert Williams of Princeton, as

well as recent analysis by NETL and the Air Force, which should

be published this year, shows that the greenhouse gas emissions

from coal biomass to liquid systems can be well below those associated with the use of conventional petroleum fuels.

NETL’s preliminary analysis shows that a CBTL system using

about 12 percent corn stover on an energy basis would limit lifecycle greenhouse gas emissions to a level approximately 22 percent

below that of conventional petroleum refining—approximating the

greenhouse gas emissions that EPA has estimated from corn-based

ethanol, and yet they aren’t in competition, because the FischerTropsch is a diesel-oriented product and ethanol is either an additive or a replacement to gasoline. And the fact is, at 21 million barrels a day of oil used in this country, we need both sources. Our

study has found that the CBTL plant cost could be competitive

when crude oil prices are at or above $60 per barrel. We’re kind

of there right now.

By adding an adequate proportion of biomass to the process, it

is estimated that a life-cycle greenhouse gas emission rate of zero

or even negative can be achieved. This potential alternative would

represent a process that emits no net CO2 into the atmosphere—

and even considers the fuel emissions coming from the tailpipes of

vehicles that use the product fuel.

CBTL facilities would provide an early stimulus to the agriculture industry to develop the infrastructure and biomass resources needed to provide cellulosic biomass for the production of

liquid transportation fuels. This would also support future opportunities for cellulosic ethanol production.

CBTL facilities potentially offer a significantly less expensive

route to large-scale CO2 management via carbon capture and sequestration. Analysis indicates that the cost of implementing carVerDate 11-MAY-2000 10:29 May 26, 2009 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 48944.000 SFIN1 PsN: SFIN1
7

bon management at a CBTL facility is approximately 70 percent

less than corresponding implementation at an Integrated Gasification Combined Cycle (IGCC) electricity power generation facility.

The product fuel related to CBTL facilities, using the FischerTropsch process, typically consists of a majority of distillate, diesel

and jet fuels, and naphtha product. Fischer-Tropsch diesel and

naphtha do not directly compete, as I mentioned. The Air Force has

decided not to consider ethanol for military fuel applications and is

looking toward CTL and CBTL as well as biodiesel liquids as potential solutions for environmentally friendly domestic production

of jet fuel.

In conclusion, a CBTL industry within the U.S. can represent a

significant near-term domestic source of liquid transportation fuels

production, providing a crucial foundation for enhanced energy security.

Mr. Chairman, that concludes my remarks. I’d be happy to answer questions.

[The prepared statement of Mr. Bauer appears in the appendix.]

Senator GRASSLEY. Secretary Dorr?

STATEMENT OF HON. THOMAS C. DORR, UNDER SECRETARY

FOR RURAL DEVELOPMENT, U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, DC

Mr. DORR. Thank you, Senator Grassley. Pardon my voice; I have

suddenly acquired a cold. I would say that back in our shop we had

fly strips that got the flies. We didn’t have to beat them. It’s nice

to be back on the plains and watch a thunderstorm roll in. I

haven’t seen that for a long time. So it’s great to be out here, and

thank you for inviting me.

It is a distinct pleasure to appear before you today to discuss

some of the logistical issues relating to the build-out of renewable

energy. I commend the Senate Finance Committee for its interest

in this topic, and I would especially like to thank the Dubuque Regional Airport for facilitating this discussion, and as an Iowan I

would like to thank you for the growing support for the renewable

energy industry and all of the things you have done through the

Senate Finance Committee. It’s been extraordinary.

Renewable energy is an extraordinary opportunity both for the

Nation as a whole and especially for rural America, because renewable energy is largely rural energy and rural in origin. People in

Iowa and other corn belt States are aware of what’s happening, but

the broader picture is, frankly, in my view one of the biggest

under-reported stories of this decade. Since 2000, installed wind capacity in the United States has quadrupled. We led the world in

new capacity in 2005 and 2006, and it appears we’re on track to

do that again in 2007. Ethanol production has tripled. Capacity

will double again in the next 2 years. Biodiesel production has

risen from 2 million gallons in 2000 to a projected 379 million gallons this year, rising to an anticipated 680 to 700 million gallons

in 2010, 2011. Cellulosic ethanol is moving from the labs into production, and is a major priority for the president in the 2010 initiative as well as in the 2007 farm bill proposals. And even solar

power, which is still relatively expensive, is increasingly competitive for off-grid applications, and the market is growing rapidly.

8

And finally, an interesting anecdote that pertains particularly to

agriculture, 2006 was the first year in which we imported more

crude oil in dollar value than the entire gross domestic agricultural

production. We imported $313 billion of crude oil or crude oil

equivalents, and our gross domestic agricultural gas production

was $2 billion. No matter how you view it, this is dramatic

progress, and it also represents a huge rural opportunity, but it’s

important to remember that we have just begun.

Renewable energy is building out from a very low base. As these

growth curves are sustained, logistical considerations will become

increasingly important. We’re building out not one, but several new

industries in rural America, and we will have to build the infrastructure to support them. For distributed power generation, we’re

going to have to expand the grid and develop transmission corridors to move large-scale wind power to urban markets. For

biofuels, we will need to develop a new gathering, storage, and distribution system that moves geographically disbursed fuels from

the heartland to the coasts, essentially a reversal of the existing

largely import-oriented petrochemical stream.

The change will likely be qualitative as well as quantitative. The

President’s target of a 35 billion gallon alternative fuel standard

envisions roughly a 7-fold increase over current production levels.

Ethanol and biodiesel today are moved by rail and truck and barge.

These industries will have to develop increased capacity to handle

the build-out of biofuels. In addition, as the industry grows and its

technical obstacles are overcome, pipelines will undoubtedly assume a larger role. These developments will impose challenges all

around by Federal, State and local authorities as well as private

companies. And I hasten to add, these challenges are business opportunities as well.

USDA Rural Development is an investment bank for rural Amer- ica. We have a portfolio of more than $98 billion invested in housing infrastructure, community facilities, business, and energy development projects. Renewable energy is a high priority in a growing part of our portfolio. We are in discussion with the rural electrics about the need to modernize the grid. From fiscal year 2001

to 2006 we have invested more than $480 million in more than

1,100 renewable energy and energy-efficiency projects ranging from

biofuels and biomass to wind and solar to geothermal and methane

gas recovery. With regard to logistics, while rural development does

not finance highways, our community facilities programs are prepared to assist public authorities with key transportation investments such as rail spurs and airport improvements.

In closing, we recognize that renewable energy has become a

major driver of the rural economy. Indeed, it may be the greatest

new opportunity for investment, jobs, and wealth creation in rural

America in our lifetimes. We at Rural Development are committed,

as I know you are as well, to supporting rural communities, businesses, and entrepreneurs in seizing this opportunity, and we look

forward to working with you in that effort. Thank you, and I’ll look

forward to taking questions later.

Senator GRASSLEY. Thank you very much.

[The prepared statement of Mr. Dorr appears in the appendix.]

Senator GRASSLEY. Proceed, Mr. Heine.

9

STATEMENT OF BRUCE W. HEINE, DIRECTOR, GOVERNMENT

AND MEDIA AFFAIRS, MAGELLEN MIDSTREAM PARTNERS,

TULSA, OK

Mr. HEINE. Thank you, Senator Grassley, members of your staff

and Finance Committee, others in Dubuque. Thanks for inviting

Magellan to come speak with you today. We own 81 petroleum distribution terminals throughout 22 States and the Nation’s longest

refined products pipeline system. It spreads throughout the great

State of Iowa, including a distribution terminal here in Dubuque,

one in Des Moines, another in Fort Dodge, Iowa City, Sioux City,

Milford, Mason City, and Waterloo. As the refined products and as

the demand for biofuels continue to grow, that does mean more opportunities for our Nation’s pipeline system to expand to accommodate that growth. Our company looks at opportunities, not only domestically, but on the shores of the United States as well. As more

products continue to flow into the shores, pipeline capacity is necessary to expand the distribution capability to those in States that

don’t have refineries. And, as mentioned by my colleagues on this

panel and by the Senator, at some point pipelines may become a

productive and efficient way to move our Nation’s biofuels from the

point of origin where they’re produced to the markets where they’re

consumed.

My remarks today focus on two areas. One would be moving ethanol and transporting ethanol and biodiesel in a pipeline system,

and, second, reviewing our experience in handling Ultra-low Sulfur

Diesel fuel, and a few comments as it relates to synthetic jet fuels

as they evolve in coming to the market and our view in potentially

putting those types of new fuels into our pipeline system for distribution.

Today we do not ship ethanol in our pipeline system. Our system

handles a variety of grades of gasoline, of diesel fuel, and jet fuel.

There are a few technical issues that have to be overcome, as Secretary Dorr mentioned without specificity. However, from our perspective there are a few technical issues that have to be overcome

before we see the commercial transportation of ethanol or an ethanol-blended fuel in a pipeline system. The most significant challenge that we have before us today is the phenomenon known as

stress corrosion cracking. And stress corrosion cracking is simply

having a product inside of a pipeline which is under pressure that

can create a crack in the system. And it can occur in either a tank

or it can occur in the pipeline system itself.

For years Magellan didn’t have any experience with this phenomenon, and we have been handling ethanol in our distribution

system at our terminals since 1980, and Iowa was the first State

where we invested in distribution infrastructure. This problem,

however, of stress corrosion cracking must be resolved, and the reason that it must be resolved is that the pipelines and pipeline companies like ours put a tremendous priority on keeping products

from leaking into the environment to protect communities where

these pipelines run. So we know that there’s an issue. There’s a

technical issue that we don’t completely understand that’s causing

a higher level of cracking with ethanol than other refined products

that we move through the system.

10

The Association of Oil Pipelines, which is our Nation’s trade association representing the Nation’s pipeline companies, is studying

the potential of putting ethanol blends in pipeline systems in the

short-term. We think that there may be some commercial opportunities to transport 90 percent gasoline and 10 percent ethanol in

our pipeline system.

Now, there are a number of commercial benefits to successfully

implementing that program. For our terminals in Iowa and elsewhere in the country where we have ethanol blending, it’s expensive to install the systems at the terminals. We have additional

tanks, we have lines and blending systems at those terminals

which often results in millions of dollars of expenses. By being able

to transport an ethanol blend into the terminal from a refinery or

other pipeline origin we would potentially eliminate the need for

added infrastructure at the terminal, and that is even more important when you look at large companies that could be fed by rail.

So, if you’re able to successfully bring the blend in by pipe, you

would eliminate the need for rail off-loading infrastructure.

So there are a number of benefits to being able to successfully

overcome this barrier, this technical barrier known as stress corrosion cracking. And as I mentioned, our trade association is studying the cause and the potential solution for dealing with stress corrosion cracking, but as a company we believe that it’s conceivable

that there would be limited opportunities to transport 10-percent

ethanol blends and that that may be technically feasible because

of the low concentration of ethanol in the product. Stress corrosion

cracking has to be resolved as well to look at dedicated ethanol

pipelines. And, as we see more and more ethanol produced here in

the State of Iowa and elsewhere in the Midwest, the possibility and

the economics make more and more sense as that production base

continues to grow. Let me give you an example. We have pipeline

systems today that carry 100,000 barrels a day of product and

many carry much more than that, but to base-load a 100,000 barrel

a day pipeline you would need dozens of average-size ethanol

plants to fill that pipe to go either to the east or the west coast.

So there are indeed aggregation opportunities that Secretary

Dorr mentioned, but there are also challenges that go along with

that, and the biggest challenge again that we have before us today

as the pipeline industry is the challenge of resolving the technical

issues. If we can’t resolve the technical issues, we can’t get to second base to look at how we would aggregate product from dozens

of ethanol plants to base-load a pipeline system to make economic

sense to transport it 1,000 miles to the east coast. A project of that

magnitude is probably a billion dollars, if not more. So there are

opportunities before us, and we’re a company that’s motivated to

find answers to these questions.

Let me turn to Ultra-low Sulfur Diesel as it relates to synthetic

diesel fuel and synthetic jet fuel in the future. And our belief is

that we change fuels based on what our shippers want us to carry

into the system. So shippers in Magellan’s pipeline system are refiners and gasoline marketers and others that take positions of

ownership in fuels that we transport. Magellan itself doesn’t own

the gasoline or diesel in our system, so it’s owned by others. So,

if a shipper came to us and said, ‘‘We want you to transport a jet

11

fuel, a new alternative grade of jet fuel,’’ we look at a number of

different factors. We look to see if there are compatibility issues.

We look at the volumes, we look at the origin and where we would

pick it up and then the destination of where we would deliver it

to market for the end use. In the case of synthetic jet fuel, we

would look at, do we have an opportunity to blend the fuel into

Ultra-low Sulfur Diesel or jet fuel at the origin or do we need to

segregate it by itself from the origin to a destination. So there are

a number of commercial issues that need to be reviewed and resolved prior to the transportation of alternative or synthetic jet fuel

in the pipeline system. However, technically a new source of diesel

and jet doesn’t cause the same type of issues that I explained earlier with ethanol. So from a compatibility issue we believe that the

transition would be much easier to make.

Now, we have a new grade of diesel fuel that we’re transporting

in our pipeline system today. It’s called Ultra-low Sulfur Diesel.

And, if you have a diesel vehicle, you’re purchasing it today at the

pump. For a pipeline company, it created quite a bit of a challenge

to be able to keep that product and keep its integrity intact. And

part of the reason is we have other fuels in the pipeline system

that have very high levels of sulfur, and jet fuel is one of those

products. Jet in our system today can contain as high as 2,000

parts per million. Yet we’re trying to segregate and keep the Ultralow Sulfur Diesel at 15 parts per million or less at the terminal.

We have been very successful, but success comes with challenges

in how we manage our system and it would come with challenges

if we have a new product that’s introduced into the system as well,

such as synthetic diesel fuel or synthetic jet.

Generally for a pipeline company, the fewer the products, the

better. The more fungibility we have and the larger volumes of individual products the better, the better we are able to secure the

supply at certain areas and the lower our costs are for transporting

these products because we wouldn’t need additional storage as we

may need for a new product.

So there are a number of different issues pipeline companies will

look at in regard to the evolution of new fuels, and the evolution

of the newest fuel for us right now is the prospect of putting an

ethanol blend in the pipe, and that’s why we’re so focused on getting answers from our trade association and studies that we’re

doing there collectively as an industry, and we’re hopeful that the

Senate energy bill which contains a provision to provide funding for

the Department of Energy to study the technical, economic, and

regulatory issues associated with the construction of the dedicated

ethanol pipeline system will pass. We hope that that becomes law,

Senator, because we think that’s a good idea to have that additional helping hand to study those various aspects.

So in summary, thanks again for the opportunity to be here

today, and I look forward to any questions you may have.

Senator GRASSLEY. Thank you.

[The prepared statement of Mr. Heine appears in the appendix.]

Senator GRASSLEY. Mr. Accinelli?

12

STATEMENT OF STEVEN R. ACCINELLI, CHAIRPERSON, DUBUQUE REGIONAL AIRPORT COMMISSION; AND DIRECTOR,

AVIATION PROGRAMS, UNIVERSITY OF DUBUQUE, DUBUQUE, IA

Mr. ACCINELLI. Good morning. I’m pleased to be here representing the greater Dubuque community. Certainly I’m a transition speaker from the other panelists here. But air service, both

commercial and general aviation in my opinion, is the single most

essential component in our new global economy. This is true for

Dubuque, IA as well as for Chicago or New York.

Let me introduce you to Dubuque. Our economy has defied the

odds over the past 10 years. Progressive attitudes, capital investment, public-private cooperation, and careful planning have been

the ingredients for success. Moody’s/Economy.com noted that Dubuque’s employment growth remains robust at triple the State and

national paces. This respected firm added that Dubuque has historically defied expectations as development has staved off recessionary conditions. Forbes magazine places Dubuque in the top 15

on its U.S. list of best places for business.

We transition now to aviation commercial infrastructure. Aviation infrastructure is critical for growing communities. Airports traditionally have been good economic engines when properly managed and supported. Major corporations that seek to establish a

presence in a community need a robust transportation infrastructure. An airport with commercial service and facilities for business,

charter, medical, and government air services is simply a necessity

for a community to succeed today in the global marketplace.

In 2000 the Dubuque Regional Airport had 59,000 enplanements

served by three air carriers. Today only American Eagle serves the

airport with four daily flights to Chicago. In 2003 through the combination of a Small Community Air Service Grant of $610,000 and

an organized, unified, well-funded marketing campaign led by the

local chamber of commerce, ‘‘Fly DBQ’’ was launched to increase

frequency and passenger load, a ‘‘use it or lose it’’ proposition. That

campaign was successful. It preserved the fourth flight from American Eagle, and that fourth flight today continues to operate.

Getting additional air service has been to date nearly impossible

to attain. Airlines continue to operate on very small margins and

require strong incentives to take the risk of moving into a new

community or re-establishing itself in former communities. They

continue to look for every operational advantage and revenue guarantees. In order for Dubuque to gain more frequency or gain access

to additional hubs, air carriers are forced to sacrifice service to

other communities. There are a multitude of factors which determine ‘‘who gets what.’’ If it was purely actuarial crunching, little

or no services would be provided to our key rural regions of our

country.

One air carrier with four departures per day simply is not

enough to entice easy access to and from other locales. Further, the

ridership on our four flights is averaging in excess of 74 percent

full. Limited capabilities make it difficult and costly to attain remaining seats, and it precludes additional tourism travel. If Dubuque is to grow, we need more access.

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General Aviation. Rural and underserved communities require

strong commitments from its general aviation activities to continue

business growth and global reach. Medical flights today are even

more important to underserved communities. Here in Dubuque we

have seen an increase in business aircraft, charter flights, and

owner-operated aircraft to sustain viable growth. Transient aircraft

as well as jet fuel purchases indicate an active market, while fuel

sales continue to decline from our air carrier, American Eagle. Dubuque is limited by its ability to grow. Its support of business aviation with its lack of hangar, ramp, and available office space is a

major concern. Enticing a quality charter operator or any other

aviation business to move to Dubuque is difficult. We must not forget that general aviation has become key to sustained growth of a

community, yet funding for adequate infrastructure lags commercial air service funds. Rural and underserved communities may

need funding in a different and non-traditional manner.

University Flight Programs. Currently, university flight programs provide our Nation with the majority of qualified pilots

being hired by the regional airlines today. Demands for qualified

pilots are the highest I have seen since 2000. The level of hiring

of pilots by U.S. airlines and international operators is forecast to

remain robust, and the majority of hires will come from university

flight programs until at least 2017, according to a recent article by

Aviation Weekly and Space Technology.

The University of Dubuque is a not-for-profit private institution

of higher education conducting flight training from its base here at

the Dubuque Regional Airport. The University of Dubuque’s aviation programs have over 210 students, with 23 multi- and singleengine aircraft and a staff of 35. We’re the only bachelors degree

institution in Iowa offering professional aeronautics and aviation

management in the State. The University of Dubuque has a nationally recognized program based on its high standards, as recognized

by the Aviation Accreditation Board International, its high job

placement rate, and its arrangements with key employers like

American Eagle for which the University has a preferred hire program.

I remain very concerned about the cost our students must incur

to become professional pilots and the access to the aviation infrastructure necessary to train the world’s safest pilot workforce. Reasonable fuel prices and access to energy alternatives for aviation

fuels are critical needs. The U.S. is the leader in aviation training.

We need to protect this capability and maintain our leadership and

opportunities for our pilot workforce.

Allow me one more transition, to contract Air Traffic Control

towers, which remain essential to ensure safety and support for

growing and emerging high-performance communities. Today the

Dubuque Regional Airport is fast approaching the second busiest

airport, based on flight operations, in the State of Iowa. The fielding of Next Generation and other key ATC technologies will only

enhance the safety in Dubuque and other locations.

An example is an incident with a University of Dubuque student

who became disoriented with low clouds, was helped by technology

in an American Eagle aircraft on the ground because the tower did

not have that same level of technology. Had the aircraft not been

14

assisted by the technology on the American Eagle aircraft, the outcome could have been quite different.

As communities change and grow, it appears that only contract

towers provide the flexibility to assist communities to provide safe

air traffic management on relatively short notice to abate air traffic

issues.

In conclusion, the city of Dubuque and the Airport Commission

have been proactive in attempting to secure the best value for its

citizens and in surrounding communities. Support to rural and underserved communities’ aviation infrastructure is critical for market access, employment, growth, safety, and quality of life issues.

Funding is necessary to preserving Iowa’s communities. And I’d

like to thank Senator Grassley for giving Dubuque an opportunity

to share its story.

Senator GRASSLEY. Thank you.

[The prepared statement of Mr. Accinelli appears in the appendix.]

Senator GRASSLEY. Dr. Holmes?

STATEMENT OF DR. BRUCE J. HOLMES, DIRECTOR, AERONAUTICS RESEARCH, DAYJET CORPORATION, BOCA RATON,

FL

Dr. HOLMES. Thank you. I’m going to put a picture of our new

baby up here for everybody to see. Thank you so much, Senator,

for inviting us to be part of what we consider to be an essential

approach to viewing the challenges from the system perspectives of

transportation, sustainable energy, and economic development. We

think that this is somewhat of a unique gathering of thought leaders on those subject areas, and it’s vital for us to look at some of

the solutions that we face in that system perspective. I appreciate

the opportunity to testify today on the work that DayJet is doing

with the Federal Aviation Administration, the Joint Planning and

Development Office, the National Aeronautics and Space Administration, the Transportation Security Agency, and Eclipse Aviation

in developing the world’s first ‘‘per seat, on demand’’ regional air

transportation service between underserved communities also

using under-utilized small community and regional airports as well

as using under-utilized air space.

As you know, such communities as Dubuque stand to be the biggest beneficiaries of the revolutionary concepts that are coming in

the 21st century in air travel, such as ours. We would like to share

with you today our business model, our plans to accelerate the implementation of NextGen aviation and air space technologies, and

our commitment to work with our suppliers to reduce our footprint

in all of its dimensions—energy, carbon, noise, cost of expanding

the Nation’s air space capacity—and ultimately affect the beneficiaries in terms of our customers’ time and the community economic development opportunities that result from this transportation revolution.

First, a few words about our business model. Our corporate mission is quite simple. We want to make safe, affordable, secure, direct on-demand jet transportation possible between secondary markets in this decade. In addition to restoring productivity and quality of life for business professionals in the communities we will

15

serve, our air transportation service will expand local economic development opportunities wherever we fly.

Let me make a point here that relates to some of the challenges

we face in establishing and growing this market opportunity, this

innovation really in this new space. We are not a scheduled airline.

We’re also not general aviation. So one of the challenges we face

in working with our partners in the Federal Aviation Administration, for example, is achieving an understanding of what we are.

We are an operator of aircraft providing a commercial service that

reaches into markets that are not reachable with schedules, and so

it’s a rather different piece and it does present an educational opportunity with the folks in the Federal sector. And they’re receiving

the message quite well, and we want that to continue.

DayJet will connect smaller communities, metropolitan exurbs,

and rural areas with a point-to-point service. With missions in the

range of 100 to 600 statute miles, our short flights will avoid entering Class B air space. We don’t need and don’t want to use the

OEP 35 airports, for example, the big airports that handle about

90 percent of the scheduled air-carried passengers in America. Instead we will fly in under-utilized air space at flight levels typically

between 18,000 and 26,000 feet—out of the jet routes. DayJet plans

to fly our initial fleet of more than 700 Eclipse 500 jets, such as

the one you see in this illustration, using a two-person crew, meaning we will train and fly pilots, we’ll train our flight crews in a program that is very similar to that of traditional airlines. And as an

FAA FAR 135 certificated on-demand operator, we choose to train

our pilots and maintenance personnel at the level that goes beyond

the minimum requirements in the regulations. We do the same

when it comes to security.

Our value proposition for travelers is in gaining personal command of time. You’re no longer only limited to the schedule that

is published by the scheduled carriers, if in fact there is even a

service to the place that you might want to leave from or arrive at.

It means our customers have greater freedom of choice in where

they live, work, learn, and play. Our value proposition for communities is in expanding economic opportunities beyond the confines

of the hub-and-spoke airline system or the on and off ramps of the

interstate highways. This means that rural communities can participate more fully in the Nation’s expanding economy and in

strengthening their economic position through regional collaboration without being victims of geographic isolation.

Finally, our value proposition for the Nation’s air space system

is in expanding air space capacity while mitigating our environmental footprint through technologies as envisioned in the Joint

Planning and Development Office’s Concept of Operations for the

NextGen capabilities. A more complete description of the DayJet

‘‘per seat, on-demand’’ model is attached in our written testimony.

Let me say a few words about the NextGen. Our investments in

NextGen technologies are a driving factor we believe in accelerating the modernization of the Nation’s National Air Space System. FAA estimates in less than 20 years air traffic will more than

double, passengers will more than triple. However, simply tripling

the old infrastructure from the 20th century is neither a scalable

or affordable solution. The existing architecture is built around soVerDate 11-MAY-2000 10:29 May 26, 2009 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 48944.000 SFIN1 PsN: SFIN1
16

lutions that came from the middle of the last century, including radars and VHF analog voice communications, for example. Therefore, we need to transform and modernize this system rather than

expand the status quo. I think by and large all of the key players

are on board with this concept. Working in partnership with the

FAA and leveraging technological research and development by

NASA, we have identified some key areas in which we believe best

practices in operations, advanced practices in flight operations in

the air space, combined with new technology can be implemented

affordably. The instrumentation we plan in our aircraft and our

training we believe will maximize safety and operational availability of our fleets while minimizing the workload that we would

impose on the air traffic control system of the 21st century. Our investments are in on-board technology. So we have taken what used

to be on the ground and we put it in the aircraft, and now what

was on the ground in the 20th century is now in space in satellite

navigation communication capabilities and works in a fashion that

utilizes those assets. And the price of those assets, I need to point

out, is declining at the rate of what we call in the technology community Moore’s Law, the falling price coupled with the soaring

abundance of computing power.

So we have learned a lot of new acronyms. I have FT for FischerTropsch, CTL, GTL, CBTL, so I need to add a few to our lexicon.

It is a little bit like a new foreign language for all of us. DayJet

will use new Required Navigation Performance or RNP capabilities

for our routes between our communities and a wide area augmentation system for improving the lateral precision vertical guidance, or LPV, approaches that we fly into the airports that used

to have to require a very expensive Instrument Landing System in

order to have near all-weather capability. That will be a thing of

the past.

We believe that it’s possible for us in our network of airports in

the southeast six States where we launch here imminently, to have

300 airports with say 100 aircraft in operation at first by this time

next year, operating to any runway anywhere in those 300 airports

as though it did have an ILS, but it won’t, as though it did have

radar, but it’s not needed, as though they did have control towers,

but they’re not required. You begin to get a sense of the advancements that are possible in both performance and safety and cost in

this 21st-century system.

We will equip our fleet with Automatic Dependent Surveillance

Broadcast, also known as ADS-B transponders. They’re little radios

that digitally communicate back and forth, allowing much improved capabilities for surveillance both on the ground and air-toair. This is truly a revolution. We believe that it’s necessary as

what’s called ‘‘ADS-B-in’’ technology becomes available, meaning

the aircraft can now have a signal coming into the aircraft of other

aircraft position information. We expect to reap the benefits of reduced spacing in the air space for aircraft to safely operate around

airports that again may not have radar and be able to stay apart

in near all-weather conditions.

These technologies also greatly improve situational awareness

both on the ground and in the air for knowledge of traffic. The innovations result in lower costs for all parties while enhancing safeVerDate 11-MAY-2000 10:29 May 26, 2009 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 48944.000 SFIN1 PsN: SFIN1
17

ty through greater precision, thus the Required Navigation Performance acronym, utilizing more air space by more aircraft to

more airports. These advancements will benefit travelers, industry,

government, and the communities served by rural airports.

Attached to our testimony is a white paper that outlines the concept for a partnership in the industry led by industry for accelerating the early adoption of NextGen capabilities. We’re in the

process of sharing that paper with our partners in the Federal

Aviation Administration and shortly with the Joint Planning and

Development Office.

Finally, let me close with a few thoughts about alternative fuels.

We believe that the NextGen system is a key enabler of the greening of air transportation. As one of the major buyers of aircraft engines, DayJet is working with our suppliers to continue to reduce

the energy, carbon, and noise footprint from our operations. As our

new industry begins to grow, we look forward to working with our

peers and exploring and ultimately implementing changes that affect our entire industry footprint.

As we describe in our NextGen Demonstration plans attached to

the testimony, we believe that these new ways of adding capacity

to the Nation’s air space can be green in nature; that is, we think

we can demonstrate and document the improvements that are possible in the footprint. We’re developing strategies for use of our aircraft in testing alternative fuels. Within a very short number of

years many of our aircraft will be retiring from our fleet, but they

will have many hours remaining of useful life and they can be used

for alternative fuel testing, and we’re exploring those options.

We believe that our opportunity in front of us is to have a footprint in energy, in carbon, in noise, in the cost of expanding the

Nation’s air space capacity, and the economic opportunity it represents to the Nation as a win-win-win deal for travelers, for industry, and for the Nation’s community. I’m glad to answer any questions.

[The prepared statement of Dr. Holmes appears in the appendix.]

Senator GRASSLEY. I thank all of you for your testimony, and

particularly some of you who had to come out of your way to be

here. I appreciate it very much. I’m going to ask questions of one

individual at a time, but if any of you, without my calling on you,

have something to add to that person’s answer to my question,

jump in before I ask the next question, and I’ll be glad to have that

as part of the testimony.

I’m going to start with Secretary Billings. The Air Force has stated in various press announcements that it’s focused on liquid—or

coal to liquids. Is this the only feedstock for this fuel that the Air

Force is researching and testing?

Mr. BILLINGS. Senator, thank you. No, it’s not, but coal is the

largest and most abundant energy source we have in the United

States, and, as I mentioned earlier, the precarious nature of foreign

fuels drives us to want to have domestic feedstocks and abundant

domestic sources, but we are looking at and testing a variety of

feedstocks being used in the Fischer-Tropsch process. We’re working with the folks at the National Energy Technology Lab to do

that. We’re also building a Fischer-Tropsch test facility at the Air

Force research laboratory at Wright-Patterson Air Force Base to

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look at how CO2 emissions can be affected by switchgrass, corn stover, rape seed, and algae as well. Also we received for testing an

issue of synthetic jet fuel that’s been derived from animal fat. So

the Air Force is looking at all sorts of feedstocks.

What we want to do with our testing certification is to develop

a performance standard for the synthetic fuels so that the synthetic

fuel that we use can come from any feedstock as long as it meets

the performance requirements and we can move forward with that,

but our goal is domestically produced and domestically grown and

derived energy to reduce our demand on foreign fuels.

Senator GRASSLEY. You said in your testimony how you’re working with commercial airlines. Has the commercial airline fleet

made the same commitment to acquisition of synthetic fuels as the

Air Force has done, which I understand is 50 percent of blended

jet fuel by 2016 or 400 million gallons of synthetic fuel?

Mr. BILLINGS. Senator, the commercial aviation industry has

been very supportive of what we have been doing, and they have

also committed to certify their fleet by 2008 working on a 50-50

blend, and their goal is to certify 100-percent synthetic fuel by

2010. However, the primary driver within the commercial aviation

industry is going to continue to be price and competitiveness, and

so that is going to be the real key as to whether or not the commercial industry will begin to buy this. The Air Force has made a commitment to drive that market, and we have the ability to do that,

and we feel it’s the responsibility as the leaders to move forward

in that. So hopefully, the certification of the Air Force engines

along with the the certification of the commercial engines and the

commitment of the Air Force will make sure that there are enough

people out there to produce synthetic fuels so that the commercial

industry will also follow suit.

Senator GRASSLEY. You mentioned the increased acquisition of

low-speed vehicles and E–85 vehicles by the Air Force. You seem

to say that the construction of E–85 fueling stations has not kept

pace. Is there anything that Congress can do to ensure the proper

balance of E–85 or B20 vehicles and stations on Air Force bases?

Mr. BILLINGS. Well, Senator, we’re looking to do as much as we

can in this area. We’re working in the State of California with the

Governor’s office to expand our land use to leases where we allow

commercial entities to take pieces of land the Air Force needs but

are under-utilized, and one of the things we’re beginning to look at

at our bases is to find space at the corner of bases near or at the

gate that we could lease to a private entity who could, between the

E–85 vehicles that are available within the Air Force within the

gate that we use as well as the commercial market, be able to have

a flow of enough vehicles so that it would be commercially viable

for them to put an E–85 station there.

The other thing we’re looking to do is to make sure that the

places where we do have E–85, that 100 percent of our vehicles are

there. So one of the things we’re looking to do is, because we have

a requirement to purchase 75 percent of our fleet as E–85 vehicles,

to put 100 percent of our fleet in places where there is E–85 and

move the vehicles that aren’t going to be using flex fuel to places

where it isn’t available. Right now I’m not sure that there is anything that Congress needs to do. We’re working inside the Air

19

Force to move that forward, and again it’s a matter of figuring out

how to make it commercially viable to work with the public/private

partnerships and with the communities to see if we can find space

on our bases that is close to the edge so that we can move forward

and go that way.

Senator GRASSLEY. Mr. Bauer, am I to understand from your testimony that, by gasifying the appropriate combination of coal and

biomass, capturing the resultant CO2 and sequestering it, that the

liquid fuel is actually better than carbon-neutral?

Mr. BAUER. That’s correct, Senator. Our studies, the study at

Princeton by Professor Williams and actually the experience in the

Netherlands, all demonstrate that we can do the gasification of the

coal and biomass together. Our calculations are, if we took all the

CO2, captured it, and put it in sequestration in the ground, that

we would not only avoid the release of any CO2 from coal, but we

would also remove from the inventory of the atmosphere the plant

CO2 associated with the biomass and, therefore, the whole process

would be CO2-negative even to the point that, if enough is used,

somewhere around 20 to 30 percent of switchgrass could very probably offset the use of the fuel by combustion engines so that you

would not only be CO2 system-neutral for the generation of the

fuel, but actually for its use as well.

Senator GRASSLEY. Let me tell you something I’m concerned

about, and that’s the requirement for the 75-percent capture and

sequestration of CO2 from IGCC and gasification produced syngas

and related chemical products greatly handicapping the timely implementation of this industry. Recognizing the importance of fertilizer to corn production, if this is true, would it severely handicap

the domestic production of fertilizer and have a significant negative

impact on both the agriculture and biofuels industries?

Mr. BAUER. I’m familiar with that portion of the bill, and the

problem is, while we can use technology today to actually capture

CO2, although it would be quite expensive at that quantity, the

ability to put it in sequestration in the ground is really not there

yet. We have quite a bit more technical work. We have large-scale

demonstrations, and evaluation will be done over the next 5 to 10

years, and then with the regulatory framework, which also does not

exist, industry could make reasonable business decisions to make

the investment and see that they could regain their investment.

So it would be very hard for me to foresee within the next 10 to

15 years the sufficient business certainty to make those kind of

decisioned investments to be there for any substantial portion of

the industry to take advantage of that tax credit at the 75-percent

capture and sequestration. That’s not including enhanced recovery

use of CO2, which is not considered sequestration. Obviously that

could be done, and that would be a very ready first fruit, hanging

fruit to be captured by the industry and make it more economically

viable.

Senator GRASSLEY. Let me suggest to you and anybody in the audience that this is something that’s going to take a tremendous

education of Congress and overcoming strong interest groups in

Washington that don’t want anything done with coal whatsoever.

They just want to forget that it exists as a source. And this 75-

percent figure that seems to be out there, I know people on our

20

committee who feel strongly about it, but there are a lot of others

who see a high figure of 75 percent, and for some people that’s not

high enough, as there is an effort to just stop coal, all of this coal

to liquid technology that’s moving forward.

Also for you, Mr. Bauer, could you further explain, and this is

a chart we’re talking about, isn’t it? Could you further explain the

graph comparing the fuel for gasification technology that’s been released by the National Energy Technology Lab? It’s a chart that describes gasification or gasifying switchgrass.

Mr. BAUER. What this chart does—and we have been working

with EPA and with the Air Force, and the new report will have

more details and more lines—basically, if you look at the right side

of this chart, the dark color, the color would be black, but that’s

if you just used coal to liquids without any captured CO2. Obviously you have substantially more CO2 released than the normal

refinery process. The zero is what a typical refinery as a baseline

releases. So when we zero it at a typical—and by the way, I might

also suggest that that zero line is about domestic refining of domestically produced oil. A large quantity of our oil is imported, so you

really have to raise that zero a lot higher when you figure the cost

of transferring the fuel and the CO2 released by the ships moving

it all. But for our refineries on domestic crude, what we use is zero.

If you look at the left side of the page, time is short I know, that

is coal biomass combined with capture and sequestration with a

switchgrass content of 38 percent, which could be a little higher,

but it gives you the idea that it would be 100-percent less than the

present refinery releases, which would therefore more than offset

the use of the fuel in the private sector vehicle and with industry

and the Air Force. So an in-between or different amount of

switchgrass combined with the coal—you can kind of pick how

much switchgrass you have and the economics and the difficulties

of dealing with the part of how to decide which one to use—but

those are all very viable possibilities, technically speaking, and

they show that you can do this with CO2 capture and sequestration

and offset the CO2, not just for the production of fuel, but also for

its use as well.

Senator GRASSLEY. Well, thank you. Secretary Dorr, you know,

a lot of times—my staff just informs me, Mr. Bauer, that you have

to leave us pretty soon because you’re on a 12:30 American Eagle

flight. I want to tell you, thank you very much for coming, so, if

you have to leave, I understand.

Mr. BAUER. Thank you very much, Senator. I appreciate being

here. I think I’ll get out of the way and just go over to the side,

so I can just run over to the other side here. Thank you.

Senator GRASSLEY. Thank you. Secretary Dorr, I’ve heard you

many times, and so I want to ask you something just to expand on

something you frequently said, that renewable energy may be the

greatest wealth creation opportunity for rural America in our lifetime. In regard to this, are you talking about all renewable energy

or just certain kinds of renewable energy?

Mr. DORR. No, I think, to a large extent, all of these renewable

energy initiatives have been made possible as a result of what I

call or frequently term ‘‘distributed computing.’’ Essentially, because of broadband connectivity and the development through

21

Moore’s Law and a number of other initiatives, it’s now possible on

a distributed basis to put up a relatively small refinery, 100 million

gallons or less as opposed to a large fossil fuel refinery on the Gulf

Coast, or to operate and integrate a small wind farm or manage

a geothermal facility. Any of these, which are all largely rural in

origin, are now competitive to a large extent in ways they have

never been before, also driven by the fact that we have $50 to $75

a barrel oil.

The question is, do we have the investment, do we have the business or the security models, and do we have the regulatory regimens that will allow these rural communities the opportunity to

make sure that not just the farmers or the tenants, but the barbers, the school superintendents, the local banker, the bus drivers,

all have a chance to invest in these in a way that allows you to

capture a great deal of that growth? And I want to make it clear

that I’m not suggesting restricting the flow of equity, but I’ve referred to this story many times, and it was 2 years ago at the Renewable Energy Finance Forum in New York city. A gentleman got

up and said, ‘‘This is our second annual. Last year there were 370

people here. This year there are 570, and you represent $125 billion of equity that’s interested in investing in renewable energy.’’

Later a venture capitalist got up and indicated that he had for the

first time raised $85 million, Tier 2 risk at Wall Street for the investment into an ethanol facility. Later I went up to him and asked

him if it was the facility I thought it was, and he said, ‘‘Yes.’’ And

I said, ‘‘What’s the likelihood that that money came from the Middle East or the Persian Gulf?’’ and he said, ‘‘All of it did.’’

So my point is that, as the technology has matured and we are

now able to do these things, I think it’s equally important that we

look at the investment, the security, and the regulatory regimens

that will need to be addressed to make it possible for the local citizens to have an opportunity to invest in these opportunities so that

in the final analysis you keep the wealth aggregation in local communities as opposed to shipping it out to somewhere else.

Senator GRASSLEY. Could you explain further your reference to the $313 billion of imported foreign crude oil versus $242 billion of

gross domestic agricultural production? Could renewable fuel made

from agriculture, from our products, reduce our billions of dollars

of imported crude?

Mr. DORR. Certainly, and it’s a pretty basic number. Last year

in ’06, for the first time, the value of imported energy, crude oil,

exceeded the cash value of our entire gross domestic agricultural

production, $313 billion of imported crude oil, $245 billion approximately of cash value agricultural production, everything from specialty crops, to flowers to meat, poultry, dairy products.

To put it into perspective, if we could displace just 1 billion barrels of imported crude oil, today’s value would be something in the

neighborhood of $65 billion. That is greater than the rolling 10-

year average of net farm income, which is approximately $58 billion, and again I’d point out that all of this is largely rural in origin

and could be developed—distributed and controlled and managed to

be distributed—through computer systems, a lot of process technology and capital and market access. So it’s just a way of framing

this so that we can get—quite frankly, one of the big impediments

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to rolling this out is our traditional rural lenders. Traditional rural

lenders have historically depended on the Federal Government to

be the lender.

In the final analysis, and I say this at some risk I suspect, but

for 75 years in rural America the Federal Government has financed

everything with good reason, whether it was rural electrics or telephone or digging the ponds or laying the tile or building the terraces or, for that matter, financing agri-business. We have become

very dependent upon that, and as a result most rural lenders today

singularly focus on balance sheet lending, and so it’s very difficult

for them to convert over when you look at structured debt opportunities or structured finance or asset-backed financing opportunities.

And we need to take a look at how to do that better so we can capture that wealth.

Senator GRASSLEY. Thank you. And, Mr. Heine, does Magellan

see an opportunity to transport biodiesel blend via pipeline anytime in the near future?

Mr. HEINE. Well, thanks for the question, Senator. In fact, we’re

going to be testing a B5 blend or 5 percent biodiesel and 95 percent

diesel fuel later this year from Houston to Dallas in our pipeline

system. We have a number of technical issues that we want to

study and a number of commercial issues that yet need to be resolved as it relates to the large-scale potential transportation of

biodiesel blends via pipeline. There are a number of factors that,

unlike ethanol, on the technical side, biodiesel has some regulatory

issues that need to be resolved and some other commercial issues.

And let me give you two quick examples. One of the commercial

issues is the State of Minnesota has individually mandated the use

of biodiesel of B2 blend. Their legislature this year may choose to

up that to B5. A B2 blend in Minnesota complicates factors for us

from a commercial perspective. The reason is, we bring gasoline

and diesel fuel into Minnesota from a variety of different sources

all the way from Houston. So it can be Texas refineries or Oklahoma refineries or Kansas refineries, but we also have local refineries in the Twin Cities. So if we had product, say in Des Moines,

and we have a pipeline that runs directly from Des Moines to Minneapolis-St. Paul, if the product going into Des Moines contained

2 percent biodiesel and then we transported that into Minnesota,

several of our terminals in Minnesota also serve South Dakota and

North Dakota and then back here into Iowa as well, so we would

have a product already in the tanks that contained biodiesel and

our customers wouldn’t have the option to take in non-biodiesel

blends from those terminals into bordering States.

Now, if there were a regional approach, that would change that

complexity, but for the time being that’s one of the reasons that—

there’s a commercial reason to have biodiesel blending at terminals

where the customers can choose the level of biodiesel that they desire. The regulatory issue that I mentioned earlier is one with

ASTM, and that’s the American Society for Testing and Materials,

and many States adopt ASTM standards for diesel fuel. Similarly,

in the future there will be an ASTM adoption for synthetic jet fuel

which has not occurred yet, and that will be very significant, because States adopt those standards by law, and the current diesel

fuel standard according to ASTM doesn’t have a tolerance or proviVerDate 11-MAY-2000 10:29 May 26, 2009 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 48944.000 SFIN1 PsN: SFIN1
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sion for biodiesel, for a percentage of biodiesel. So that is in the

works, but it’s not here yet. And so the products that we transport

in our pipeline meet that ASTM specification in many midwestern

States. So once ASTM resolves that problem, then that will help

free up the regulatory issue, but from the technical standpoint we

don’t see the same challenges with biodiesel as we do with ethanol

in the stress corrosion cracking I mentioned earlier.

Senator GRASSLEY. What type of infrastructure is required to

blend biodiesel?

Mr. HEINE. Senator, we bring biodiesel into a terminal via truck

or rail car carrier, and at the terminal we have segregated storage,

and by that I mean a separate tank for biodiesel. It will be insulated. The lines from the tank to the rack where we physically load

the trucks will also be insulated, and we keep that product at some

60 degrees even in the coldest of winter months. We need to do

that to make sure that the biodiesel blends proportionately with

diesel fuel.

The blending systems that we have at the terminal are called

ratio blending systems. What I mean by that is we’re going to load,

for example, 1,000 gallons in a transport truck with a biodiesel

blend. Let’s say it’s a B2 blend. And so 980 gallons of diesel fuel

would go into the truck. At the same time 20 gallons of biodiesel

would go into the truck. So it’s being blended proportionately at the

same time to end up with a B2 blend. That is referred to as atthe-rack blending, Senator.

And the comparison would be below-the-rack blending. Belowthe-rack blending would be an example of where the truck loads

the diesel fuel at a petroleum terminal and then goes across the

street to a biodiesel bulk plant to load the additional 20 gallons of

biodiesel. In the future we’ll continue to invest in biodiesel blending

systems, as I explained, that would provide at-the-rack services.

Our customers, which are many refineries and others that are very

quality conscious as it relates to the percentage of biodiesel blending to make sure of its accuracy, like the types of systems that are

provided at petroleum terminals and specifically the ratio blending

system that I referenced. It provides a number of benefits to ensure

the quality of the blend and the accuracy of the blend as well. So

we’re continuing to invest in that type of system in the future and,

in fact, we just recently finished installing a ratio system at our

terminal in Mason City.

Senator GRASSLEY. Now, Mr. Accinelli, it’s my understanding

that Dubuque University being a 501(c)3 non-profit means that the

flight school is able to purchase tax-exempt fuel. Why is this exemption important to retain?

Mr. ACCINELLI. Well, for any not-for-profit educational institution, fuel at the aviation training level has become probably the

number 2 cost in a program, personnel being the number 1, and

students today graduate with a tremendous amount of debt. In our

program it costs about $42,000 to get them through their flight

training, laboratory fees, professional ratings, and other necessities

to be hired in the industry, in addition to the books, tuition, and

those kind of things. So it’s really an issue of cost and it’s an issue

of debt load for our students who are entering an environment

24

where the pay initially in the first 3 to 5 years is really entry-level,

$20,000, $25,000 pay.

Senator GRASSLEY. And also for you, what challenges and benefits will next-generation air traffic control bring to low-activity towers like the one here at Dubuque?

Mr. ACCINELLI. That is actually one of my areas of interest, and

I’m glad you asked me, Senator. The issue here is, we have a growing traffic density for the tower here at Dubuque. Many underserved communities that have towers are contract. The technology

has not been exported to them, yet we have tremendous separation

issues, abilities to communicate with aircraft, and it adds a level

of safety and expedites traffic flow and makes us more efficient, all

of those advantages that come from being able to put this new

technology that is not ground-based, per se, into our facilities.

Senator GRASSLEY. Okay. And, Dr. Holmes, will your business

model be expandable into other rural regions such as the Midwest

or western mountain regions?

Dr. HOLMES. Well, the answer is yes, so let me give you an example. Say there was a Senator in a midwestern State, for example,

who visited every county in his State annually, needed to make a

trip say from a city like Dubuque to a place like Spencer to another

place like Knoxville. When you do the math, that’s about 600 plus

miles of driving. It would require 3 days, 2 nights for the travel

alone, never mind the meetings that would take place. So what can

be possible is to do all of that in 1 day, at a cost that, when you

compare it to driving, is competitive, not even perhaps counting the

value of the time of the individuals traveling. So what we understand about the way in which the DayJet business model works is,

it is scalable to other regions. We don’t know when we’ll be in

Iowa. Our ability to expand our business model is dependent on a

couple of things, one of which is the rate at which Eclipse Aviation

produces the aircraft we have ordered. So we’ll start in the southeast six States this year, expanding as the deliveries of aircraft

come into place. I’d like to say just a little bit about what it is that

makes this innovation possible. One is, of course, the aircraft. The

aircraft represents a revolution in the cost of speed. It gives us the

ability to fly at speeds in excess of 400 mph for a third of the cost

of being able to do that in the past.

A second element is the creation of the real-time logistics software systems that the company invested in over the past 5 years

that allow us to manage fleets on demand rather than as scheduled

operations. This has never been done before in transportation. So

it’s a rather unique and absolutely essential part of the equation.

So you have to have the aircraft and have to have the logistics capabilities that we have.

There’s a third part that will either accelerate or inhibit the expansion of our business model to other places, and it’s the air

space. We must have the ability to fly in to every one of our airports without missed approaches, without procedure turns, without

holding patterns, and without being vectored around to the other

side of the airport because the ILS only serves that direction and

the back course isn’t good enough. We can’t have that, because,

when you do the math on the network performance for our fleets,

it really starts to hurt the ability of consumers to pay the price we

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would have to charge for doing all of those things. And so NextGen

brings us the third leg in the stool. We have the airplane, we have

the software, now we need the air space capabilities. So our ability

to grow into the market will be paced by the latter two, the production of the aircraft—the rate of production of the aircraft—and the

air space ability to accommodate NextGen.

Senator GRASSLEY. I think you answered the question I was

going to ask about NextGen. It was a follow-up question. There’s

obviously then for your planning, there’s advantages to accelerating

Next Generation development?

Dr. HOLMES. Well, we think there’s an advantage to accelerating

it, not just for airplanes. In the end, we believe that we can serve

as a proving ground for NextGen operating capabilities that will

matter to the rest of the users of the air space. One of the difficulties we’re facing in working the acceleration challenge with the

FAA, JDPO, NASA, and other agencies is that almost the entirety

of their focus is on the OEP 35. It’s a little bit like looking for your

lost keys under the streetlight, because that’s where the lighting is.

Well, yes, we have to solve those problems, no question about it,

but, if we forsake the rest of the 3,500 airports or more—actually

5,000 public use airports—in America, in the interest of only solving the problem of the OEP 35, we won’t get where we need to go.

In fact, there’s a study that came out of the FAA administrator’s

office, which is the 2007 capacity report, it just came out last

month. What it says is that, even after we have done everything

we know we need to do in NextGen, in the year 2025, if that’s all

we do at the OEP 35 airports that handle 90 percent of the passengers, we’ll still have 14 of those airports that will be as bad or

worse than today. We’ll not have solved the problem. So we must

have focus outside of the OEP 35, and we believe that, in demonstrating the capacity to expand the air space outside of the OEP

35 air space, that we enable such an opportunity for airplanes.

Senator GRASSLEY. Are you going to be able to compete—maybe

I ought to ask you, how are you going to be able to compete with

other transportation choices?

Dr. HOLMES. Well, actually one of the bits of homework that’s occurred over the past 5 years is the development of what we call an

agent-based model for understanding how people make decisions to

travel. And so the agent, we’re talking agent-based modeling as a

term that comes out of the world of complexity science. A lot of that

developed in the U.S. over the past decade or more and with some

true break-throughs in capability, including the capability to assess

the complexity of transportation decision-making by the traveler.

So we have built models, if you will, of how people make decisions,

in mode choice, in cost against how much their incomes are and

where they live and what choices they have access to. It’s a very

complex model. We have modeled over 2 million trips just in the

past year or so alone using this software. What we understand is

what’s on the mind of the crowd, what’s on the mind of the individual when it comes to travel, how are they going to choose. So

what we know is that we will take—most of our travelers will come

off of highways, and the reason is quite simple. We’re regional travelers out to about 600 miles, trips that people by and large are

making mostly by car today. And so we believe, based on the modVerDate 11-MAY-2000 10:29 May 26, 2009 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 48944.000 SFIN1 PsN: SFIN1
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eling we have done—and comparing our models to reality will show

us the model is really pretty impressive—that people will decide to

come off of the highways and travel in a way that we can offer.

We have also seen, oddly enough, that some of the, maybe it’s not

so odd in the end, some of the people whom we pull into traveling

in DayJets will choose to fly home on the airlines. So there’s actually a very tiny slice of additional travel that comes to the airlines

as a consequence of what we bring to the market.

Senator GRASSLEY. Well, that’s all the questions that I have, but

I want to remind everybody as those who are already in Federal

Government know, as sometimes happens at a hearing like this, I’d

like to remind you that there are 20 other members of the committee and you may get questions in writing, and we would like to

have those questions responded to. What do we generally say, in

10 days? If you could respond within 10 days after you get questions, if you do. You may not in this instance, but then I can’t

speak for any of the other members of the committee, and we always encourage people to submit questions for answer in writing.

So I want to close by once again thanking all of the witnesses,

who have come a long ways. I can’t thank you enough, because this

testimony is very important to the needs that have to be addressed.

The Finance Committee is going to consider this information as we

move forward specifically on the airport and airway trust fund reauthorization. But also don’t forget that I’ve already mentioned

that we have other tax issues, such as the farm bill, and there are

other provisions in the farm bill unrelated to the tax provisions

that have things to do with alternative energy, and then, of course,

we still have the energy tax bill to complete and to move through

Congress and out of Congress.

So once again I thank Dubuque for its hospitality, because this

Dubuque hearing represents hundreds of airports all over rural

America with the same or similar issues, and it’s my feeling we

can’t continue to serve rural America the way we ought to if we fail

to grow flight opportunities in rural America. In fact, you would be

surprised at the number of economic development people who contact me on a regular basis for airports a lot smaller than Dubuque

who simply say, ‘‘If we’re going to get the industry we need to

have,’’ or I should say not just industry, ‘‘the industry and business

that we need, we’re going to have to improve our airport, relocate

our airport, or extend the runway of our airport.’’ This is something

that comes up quite regularly, and I know about it, because it

sometimes tends to be controversial when it involves the condemnation of agricultural land, somebody’s farm that has been in

the family a century, and they consider that the constitutional

right to protect your property, with eminent domain not enough for

them, and they don’t want this around. But that’s some of the

issues you come up with. And so I want you to know we’re aware

of it from both sides of the calendar, but we move ahead because

airports are very, very important for rural economic development.

I’m going to also continue to study carefully any trust fund proposals that do not adequately represent rural service.

Thank you very much, and the hearing is adjourned.

[Whereupon, at 11:40 a.m., the hearing was concluded.]

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